1
INTERNATIONAL SHIPHOLDING CORPORATION AND SUBSIDIARIES
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
---------------
__ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________to _________
Commission file number 2-63322
-------------------------------------------
INTERNATIONAL SHIPHOLDING CORPORATION
- ------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 36-2989662
------------------------ --------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
650 Poydras Street New Orleans, Louisiana 70130
- ------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(504) 529-5461
- ------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d)of the Securities Exchange Act
of 1934 during the preceding 12 months(or for such shorter period that the
registrant was required to file such reports), and (2) has been subject
to such filing for the past 90 days. YES X NO
-------- --------
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock $1 Par Value 6,082,887 shares (June 30, 2001)
-----------
2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
INTERNATIONAL SHIPHOLDING CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(All Amounts in Thousands Except Share Data)
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
2001 2000 2001 2000
---------- ---------- ---------- ----------
C>
Revenues $ 72,686 $ 85,265 $ 149,804 $ 170,614
Subsidy Revenue 3,643 3,672 6,924 7,347
---------- ---------- ---------- ----------
76,329 88,937 156,728 177,961
---------- ---------- ---------- ----------
Operating Expenses:
Voyage Expenses 62,486 65,797 125,940 135,704
Vessel and Barge Depreciation 9,122 9,841 18,428 19,783
Impairment Loss on Assets
Held for Disposal 78,928 - 78,928 -
Impairment Loss - - 2,355 -
---------- ---------- ---------- ----------
Gross Voyage Profit (74,207) 13,299 (68,923) 22,474
---------- ---------- ---------- ----------
Administrative and General
Expenses 6,149 5,862 12,144 11,568
(Loss) Gain on Sale of Vessel (1,065) 5,063 (2,335) 5,063
Gain on Sale of Other Assets - - 1,204 -
---------- ---------- ---------- ----------
Operating (Loss) Income (81,421) 12,500 (82,198) 15,969
---------- ---------- ---------- ----------
Interest:
Interest Expense 7,270 8,346 15,104 16,870
Investment Income (246) (459) (574) (718)
---------- ---------- ---------- ----------
7,024 7,887 14,530 16,152
---------- ---------- ---------- ----------
(Loss) Income Before Benefit
(Provision) for Income Taxes
and Equity in Net Income of
Unconsolidated Entities (88,445) 4,613 (96,728) (183)
---------- ---------- ---------- ----------
Benefit (Provision) for
Income Taxes:
Current (89) (430) (185) (1,079)
Deferred 30,990 (1,244) 33,926 1,031
State (72) (56) (128) (140)
---------- ---------- ---------- ----------
30,829 (1,730) 33,613 (188)
---------- ---------- ---------- ----------
Equity in Net Income of
Unconsolidated Entities
(Net of Applicable Taxes) 217 59 363 14
---------- ---------- ---------- ----------
Net (Loss) Income $ (57,399) $ 2,942 $ 62,752) $ (357)
========== ========== ========== ==========
Basic and Diluted Earnings
Per Share:
Net (Loss) Income $ (9.44) $ 0.48 $ (10.32) $ (0.06)
========== ========== ========== ==========
Weighted Average Shares of
Common Stock Outstanding 6,082,887 6,082,887 6,082,887 6,083,021
<FN>
The accompanying notes are an integral part of these statements.
3
INTERNATIONAL SHIPHOLDING CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(All Amounts in Thousands)
(Unaudited)
June 30, December 31,
ASSETS 2001 2000
----------- -----------
Current Assets:
Cash and Cash Equivalents $ 14,688 $ 16,906
Marketable Securities 3,093 6,018
Accounts Receivable, Net of Allowance
for Doubtful Accounts of $224 and $282
in 2001 and 2000, Respectively:
Traffic 28,536 49,278
Agents' 5,670 5,226
Claims and Other 12,087 9,513
Federal Income Taxes Receivable - 812
Net Investment in Direct Financing Leases 3,799 3,621
Other Current Assets 3,770 8,074
Material and Supplies Inventory, at Lower
of Cost or Market 3,941 11,016
Current Assets Held for Disposal 4,000 -
----------- -----------
Total Current Assets 79,584 110,464
----------- -----------
Assets Held for Disposal 45,574 -
----------- -----------
Marketable Equity Securities 203 186
----------- -----------
Investment in Unconsolidated Entities 7,545 3,538
----------- -----------
Net Investment in Direct Financing Leases 106,223 108,106
----------- -----------
Vessels, Property, and Other Equipment, at Cost:
Vessels and Barges 468,536 744,999
Other Marine Equipment 8,314 8,291
Terminal Facilities 17,730 18,377
Land 1,230 1,230
Furniture and Equipment 13,324 15,974
----------- ----------
509,134 788,871
Less - Accumulated Depreciation (227,365) (374,006)
----------- ----------
281,769 414,865
----------- ----------
Other Assets:
Deferred Charges, Net of Accumulated
Amortization of $20,607 and $30,867
in 2001 and 2000, Respectively 12,504 32,296
Acquired Contract Costs, Net of Accumulated
Amortization of $17,671 and $17,065 in 2001
and 2000, Respectively 12,733 13,461
Due from Related Parties 695 633
Other 12,887 11,627
----------- ----------
38,818 58,017
----------- ----------
$ 559,717 $ 695,176
=========== ==========
<FN>
The accompanying notes are an integral part of these statements.
4
INTERNATIONAL SHIPHOLDING CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(All Amounts in Thousands Except Share Data)
(Unaudited)
June 30, December 31,
2001 2000
----------- -----------
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
Current Maturities of Long-Term Debt $ 18,345 $ 22,181
Current Maturities of Capital Lease
Obligations 4,003 7,824
Accounts Payable and Accrued Liabilities 41,333 52,276
Federal Income Tax Payable 50 -
Current Maturities of Capital Lease
Obligations on Assets Held for Disposal 4,936 -
----------- ----------
Total Current Liabilities 68,667 82,281
----------- ----------
Long-Term Capital Lease Obligations on
Assets Held for Disposal 12,417 -
----------- ----------
Billings in Excess of Income Earned and
Expenses Incurred 4,447 5,462
----------- ----------
Long-Term Capital Lease Obligations, Less
Current Maturities 38,818 51,827
----------- ----------
Long-Term Debt, Less Current Maturities 288,090 308,037
----------- ----------
Other Long-Term Liabilities:
Deferred Income Taxes 8,884 43,300
Claims and Other 20,701 22,737
----------- ----------
29,585 66,037
----------- ----------
Commitments and Contingent Liabilities
Stockholders' Investment:
Common Stock 6,756 6,756
Additional Paid-In Capital 54,450 54,450
Retained Earnings 66,242 129,755
Less - Treasury Stock (8,704) (8,704)
Accumulated Other Comprehensive Loss (1,051) (725)
----------- ----------
117,693 181,532
----------- ----------
$ 559,717 $ 695,175
=========== ==========
<FN>
The accompanying notes are an integral part of these statements.
5
INTERNATIONAL SHIPHOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' INVESTMENT
(All Amounts in Thousands)
(Unaudited)
Accumulated
Additional Other
Common Paid-In Retained Treasury Comprehensive
Stock Capital Earnings Stock Income(Loss) Total
-----------------------------------------------------------
Balance at
December 31, 1999 $ 6,756 $ 54,450 $130,440 ($8,654) ($508) $182,484
Comprehensive Income:
Net Income for Year
Ended December 31,
2000 - - 836 - - 836
Other Comprehensive Income:
Unrealized Holding Loss
on Marketable Securities,
Net of Deferred Taxes
of ($117) - - - - (217) (217)
--------
Total Comprehensive Income 619
Treasury Stock - - - (50) - (50)
Cash Dividends - - (1,521) - - (1,521)
-------------------------------------------------------------
Balance at
December 31, 2000 $ 6,756 $54,450 $129,755 ($8,704) ($725) $181,532
===========================================================
Comprehensive Income:
Net Loss for the Period
Ended June 30, 2001 - - (62,752) - - (62,752)
Other Comprehensive Income:
Unrealized Holding Loss on
Marketable Securities,
Net of Deferred Taxes
of ($8) - - - - (15) (15)
Cumulative Effect of Adoption
of SFAS No.133, Net of
Deferred Taxes of ($135),
on January 1, 2001 - - - - (250) (250)
Unrealized Holding Loss
on Derivatives, Net
of Deferred Taxes of
($33) - - - - (61) (61)
-------
Total Comprehensive Income (63,078)
Cash Dividends - - (761) - - (761)
----------------------------------------------------------
Balance at
June 30, 2001 $6,756 $54,450 $66,242 ($8,704) ($1,051) $117,693
=========================================================
<FN>
The accompanying notes are an integral part of these statements.
6
INTERNATIONAL SHIPHOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All Amounts in Thousands)
(Unaudited)
For Six Months Ended June 30,
2001 2000
---------- ----------
Cash Flows from Operating Activities:
Net Loss $ (62,752) $ (357)
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation 19,543 21,284
Amortization of Deferred Charges
and Other Assets 8,318 9,634
(Benefit) Provision for Deferred Income Taxes (33,927) (1,031)
Equity in Net (Gain) of Unconsolidated Entities (350) (14)
(Gain) Loss on Sale of Vessels and Other Property 1,131 (5,074)
Impairment Loss 2,355 -
Impairment Loss on Assets Held for Disposal 78,928 -
Changes in:
Accounts Receivable 21,374 2,807
Inventories and Other Current Assets 4,589 (267)
Other Assets (391) 3,434
Accounts Payable and Accrued Liabilities (14,764) 5,044
Federal Income Taxes Payable 359 (439)
Billings in Excess of Income Earned and
Expenses Incurred (1,427) 3,911
Other Long-Term Liabilities (3,399) (235)
---------- ----------
Net Cash Provided by Operating Activities 19,587 38,697
---------- ----------
Cash Flows from Investing Activities:
Net Investment in Direct Financing Leases 1,705 1,902
Purchase of Vessels and Other Property (298) (33,214)
Additions to Deferred Charges (5,910) (3,253)
Proceeds from Sale of Vessels and Other Property 7,420 17,690
Proceeds from Sales of Short-Term Investments 2,876 4,002
Investment in Unconsolidated Entities (3,469) (791)
Other Investing Activities (34) (233)
---------- ----------
Net Cash (Used) Provided by Investing Activities 2,290 (13,897)
---------- ----------
Cash Flows from Financing Activities:
Proceeds from Issuance of Debt and Capital
Lease Obligations 24,800 74,400
Reduction of Debt and Capital Lease Obligations (48,060) (69,017)
Additions to Deferred Financing Charges (74) (279)
Purchase of Treasury Stock - (50)
Common Stock Dividends Paid (761) (761)
Other Financing Activities - -
---------- ----------
Net Cash (Used) Provided by Financing Activities (24,095) 4,293
---------- ----------
Net (Decrease) Increase in Cash and Cash
Equivalents (2,218) 29,093
Cash and Cash Equivalents at Beginning of Year 16,906 18,661
---------- ----------
Cash and Cash Equivalents at End of Year $ 14,688 $47,754
========== ==========
<FN>
The accompanying notes are an integral part of these statements.
7
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2001
(Unaudited)
Note 1. Basis of Preparation
The accompanying unaudited interim financial statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures required by
generally accepted accounting principles for complete financial statements
have been omitted. It is suggested that these interim statements be read in
conjunction with the financial statements and notes thereto included in the
Form 10-K of International Shipholding Corporation for the year ended
December 31, 2000. Certain reclassifications have been made to prior period
financial information in order to conform to current year presentations.
Interim statements are subject to possible adjustments in connection
with the annual audit of the Company's accounts for the full year 2001. In
the opinion of management, all adjustments (consisting of only normal
recurring adjustments) necessary for a fair presentation of the information
shown have been included.
The foregoing 2001 interim results are not necessarily indicative of the
results of operations for the full year 2001.
The Company's policy is to consolidate all subsidiaries in which it
holds greater than 50% voting interest. All significant intercompany
accounts and transactions have been eliminated.
The Company uses the cost method to account for investments in entities
in which it holds less than 20% voting interest and in which the Company
cannot exercise significant influence over operating and financial
activities. The Company uses the equity method to account for investments in
entities in which it holds a 20% to 50% voting interest.
Note 2. Operating Segments
The Company's three operating segments, LINER SERVICES, TIME CHARTER
CONTRACTS, and CONTRACTS OF AFFREIGHTMENT, are identified primarily based on
the characteristics of the contracts and terms under which its fleet of
vessels and barges are operated. During the second quarter, 2001, a
reclassification of the Mexican Services was made from the LINER SERVICES
segment to the OTHER Segment since that service is a more specialized service
than the
8
categorization of the operations included in the LINER SERVICES segment
leaving the Company's U.S. and international Flag LASH services under the
names of "Waterman" and "Forest Lines" as the only remaining operations in
the LINER SERVICES segment. The Company also reports in the OTHER category
results of several of the Company's subsidiaries that provide ship charter
brokerage, agency, barge fleeting and other specialized services primarily to
the Company's operating segments described below. Each of the reportable
segments is managed separately as each requires different resources depending
on the nature of the contract or terms under which each vessel within the
segment operates.
The Company does not allocate interest income, administrative and
general expenses, equity in unconsolidated entities, or income taxes to its
segments. Intersegment revenues are based on market prices and include
revenues earned by subsidiaries of the Company that provide specialized
services to the operating segments. The following table presents information
about segment profit and loss for the six months ended June 30, 2001 and
2000.
Time
Liner Charter Contracts of
(All Amounts in Thousands) Services Contracts Affreightment Other Total
- -----------------------------------------------------------------------------
2001
Revenues from external
customers $ 77,034 $ 67,696 $ 7,510 $ 4,488 $156,728
Intersegment revenues - - - 13,743 13,743
Gross voyage profit
before depreciation &
Impairment Loss on Assets
Held-for-Disposal (860) 30,210 3,905 (2,467) 30,788
Depreciation 6,824 8,524 1,491 1,589 18,428
Interest expense 1,776 9,812 1,468 2,048 15,104
Segment (loss) profit before
Impairment Loss on Assets
Held-for-Disposal, interest
income, Administrative and
general expenses, equity in
Unconsolidated entities
and taxes (9,460) 11,874 946 (6,104) 2,744
Impairment Loss on Assets
Held-for-Disposal (62,385) (4,785) - (11,758) (78,928)
Impairment Loss - (2,355) - - (2,355)
(Loss) Gain on Sale of Vessels
and Other Assets - (1,410) - 279 (1,131)
Segment (loss) profit before
interest income, Administrative
and general expenses, equity
in Unconsolidated entities
and taxes (71,845) 3,324 946 (17,583) (85,158)
- -----------------------------------------------------------------------------
2000
Revenues from external
customers $ 92,214 $ 67,620 $ 15,853 $ 2,274 $177,961
Intersegment revenues - - - 15,373 15,373
Gross voyage profit before
depreciation 5,706 28,446 6,560 1,545 42,257
Depreciation 7,680 8,655 3,296 152 19,783
Interest expense 2,785 10,355 3,505 225 16,870
Gain on Sale of Vessels - 5,063 - - 5,063
Segment (loss) profit before
interest income, Administrative
and general expenses, equity
in Unconsolidated entities
and taxes (4,759) 14,499 (241) 1,168 10,667
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
9
The following table presents information about segment profit and loss
For the second quarter ended June 30, 2001 and 2000.
Time
Liner Charter Contracts of
(All Amounts in Thousands) Services Contracts Affreightment Other Total
- -----------------------------------------------------------------------------
2001
Revenues from external
customers $ 36,386 $ 33,327 $ 3,744 $ 2,872 $ 76,329
Intersegment revenues - - - 6,565 6,565
Gross voyage profit
before depreciation &
Impairment Loss on Assets
Held-for-Disposal (2,922) 15,383 1,955 (574) 13,842
Depreciation 3,421 4,140 745 815 9,121
Interest expense 594 4,786 763 1,127 7,270
Segment (loss) profit before
Impairment Loss on Assets
Held-for-Disposal, interest
income, Administrative and
general expenses, equity in
Unconsolidated entities
and taxes (6,937) 6,457 447 (2,516) (2,549)
Impairment Loss on Assets
Held-for-Disposal (62,385) (4,785) - (11,758) (78,928)
Loss on sale of vessels - (1,065) - - (1,065)
Segment (loss) profit before
interest income, Administrative
and general expenses, equity
in Unconsolidated entities
and taxes (69,322) 607 447 (14,274) (82,542)
- -----------------------------------------------------------------------------
2000
Revenues from external
customers $ 47,296 $ 33,307 $ 8,184 $ 150 $ 88,937
Intersegment revenues - - - 6,379 6,379
Gross voyage profit before
depreciation 4,848 13,659 3,528 1,105 23,140
Depreciation 3,867 4,256 1,649 69 9,841
Interest expense 1,367 5,191 1,721 67 8,346
Gain on sale of vessels - 5,063 - - 5,063
Segment (loss) profit before
interest income, Administrative
and general expenses, equity
in Unconsolidated entities
and taxes (386) 9,275 158 969 10,016
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Following is a reconciliation of the totals reported for the operating
segments to the applicable line items in the consolidated financial
statements:
(All Amounts in Thousands)
Three Months Ended June 30, Six Months Ended June 30,
2001 2000 2001 2000
--------- --------- --------- ---------
Total (loss) profit for
reportable segments $ (82,542) $ 10,016 $ (85,158) $ 10,667
Unallocated amounts:
Interest income 246 459 574 718
Administrative and
general expenses 6,149 5,862 12,144 11,568
--------- --------- --------- ---------
(Loss) income before
income taxes and equity in
Unconsolidated entities $ (88,445) $ 4,613 $ (96,728) $ (183)
========= ========= ========= =========
10
Note 3. Earnings Per Share
Basic and diluted earnings per share were computed based on the weighted
average number of common shares issued and outstanding during the relevant
periods. Stock options covering 475,000 shares were excluded from the
computation of diluted earnings per share in the first six months of 2001 and
2000, as the effect would have been antidilutive.
Note 4. New Accounting Pronouncements
During 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts, and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure
those instruments at fair value. SFAS No. 133 is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999. In June of 1999, the
FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133." SFAS
No. 137 is an amendment of SFAS No. 133 and defers the effective date of SFAS
No. 133 to fiscal years beginning after June 15, 2000. The Company adopted
SFAS No. 133 on January 1, 2001, which resulted in a cumulative effect of an
accounting change to earnings of $16,000 and an increase in other
comprehensive income included in Stockholders' Investment of $385,000. The
Company employs interest rate swap agreements, foreign currency contracts,
and commodity swap contracts.
In July 2001, the Financial Accounting Standards Board issued SFAS No.
141 "Business Combinations," SFAS No. 142 "Goodwill and Other Intangible
Assets" and SFAS No. 143 "Accounting for Asset Retirement Obligations." SFAS
No. 141 prohibits the use of the pooling-of-interests method of accounting
for all business combinations initiated after June 30, 2001. SFAS No. 142
requires goodwill not be amortized in any circumstance and also requires that
goodwill is tested for impairment annually or when events or circumstances
occur between annual tests indicating that goodwill for a reporting unit
might be impaired. The standard establishes a new method for testing
goodwill for impairment based on a fair value concept and is effective for
fiscal years beginning after December 15, 2001. SFAS No. 143 requires the
Company to record the fair value of liabilities related to future asset
retirement obligations in the period the obligation is incurred and is
effective for fiscal years beginning after June 15, 2002.
11
The adoption of any of the above is not expected to have a material impact on
the Company's financial statements, because the Company does not have any
assets that require retirement obligations.
12
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Forward-Looking Statements
- ---------------------------
Certain statements made in this report or elsewhere by, or on behalf of,
the Company that are not based on historical facts are intended to be
forward-looking statements within the meaning of the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995. Forward-looking
statements are based on assumptions about future events and are therefore
subject to risks and uncertainties. The Company cautions readers that
certain important factors have affected and may affect in the future the
Company's actual consolidated results of operations and may cause future
results to differ materially from those expressed in or implied by any
forward-looking statements made in this report or elsewhere by, or on behalf
of, the Company. A description of certain of these important factors is
contained in the Company's Form 10-K filed with the Securities and Exchange
Commission for the year ended December 31, 2000.
General
- --------
The Company's vessels are operated under a variety of charters, liner
services, and contracts. The nature of these arrangements is such that,
without a material variation in gross voyage profits (total revenues less
voyage expenses and vessel and barge depreciation), the revenues and expenses
attributable to a vessel deployed under one type of charter or contract can
differ substantially from those attributable to the same vessel if deployed
under a different type of charter or contract. Accordingly, depending on the
mix of charters or contracts in place during a particular accounting period,
the Company's revenues and expenses can fluctuate substantially from one
period to another even though the number of vessels deployed, the number of
voyages completed, the amount of cargo carried and the gross voyage profit
derived from the vessels remain relatively constant. As a result,
fluctuations in voyage revenues and expenses are not necessarily indicative
of trends in profitability, and management believes that gross voyage profit
is a more appropriate measure of performance than revenues. Accordingly, the
discussion below addresses variations in gross voyage profits rather than
variations in revenues.
13
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2001
COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2000
Gross Voyage Profit
- --------------------
Gross voyage profit before depreciation and Impairment Loss on Assets
Held-for-Disposal decreased 27.1% from $42.3 Million in the six months of
2000 to $30.8 Million in the first six months of 2001. The decrease
resulted from the deterioration in the Company's LINER SERVICES segment which
decreased $6.6 Million. The drop is primarily from its Waterman service
which had 228 out of service days from unplanned maintenance on two of its
vessels and scheduling realignments as a result of those unplanned
maintenance periods.
The OTHER segment's results decreased $4.0 Million primarily as a result
of the start-up losses from the Company's Mexican service.
The CONTRACTS OF AFFREIGHTMENT segment drop in its' gross voyage profit
of $2.7 Million reflects the change in one of the Company's contract, during
the fourth quarter of 2000, which resulted in the results of that contract
being accounted for in the TIME CHARTER CONTRACTS segment. The TIME CHARTER
CONTRACTS segment, excluding the results from the above reclassification, was
negatively impacted by the completion of the contracts on three of the
Company's LASH vessels previously on charter to the U.S. Military Sealift
Command ("MSC").
Vessel and barge depreciation for the first six months of 2001 decreased
6.8% to $18.4 Million as compared to $19.8 Million in the same period of 2000
primarily due to the sale of one of the Company's Ice Strengthened Multi-
Purpose vessels and the scrapping of three of the Company's LASH vessels,
partially offset by the purchase of a Pure Car/Truck Carrier.
Impairment Loss on Assets Held-for-Disposal
- --------------------------------------------
At June 30, 2001, the Company adopted a plan to separate the LASH
(Lighter Aboard Ship) service, (the LINER SERVICES segment), its Cape-size
Bulk Carrier (the TIME CHARTER CONTRACTS segment)and certain special purpose
barges (the OTHER segment), from the balance of its operations and dispose of
these assets. Net losses of approximately $79 Million before taxes were
recognized in accordance with FASB 121, "Accounting for the Impairment of
Long-lived Assets," reflecting a non-cash charge to write-down these assets
to estimated market value. For accounting purposes, these assets have been
reclassified in the Company's balance sheet as "Current Assets Held-for-
Disposal" and "Assets Held-for-Disposal."
14
The "Assets Held-for Disposal" in the LINER SERVICES segment include
those used in the operation of a U.S. flag LASH service between the U.S. Gulf
and Atlantic coasts and the Middle East, East Africa, the Indian sub-
continent and Southeast Asia operated under the name "Waterman" and an
international flag Trans-Atlantic LASH service operated under the name
"Forest Lines" and associated ancillary assets.
The past several years has reflected a downward trend in the LINER
SERVICES segment as a result of higher operating cost, disruptions in service
due to unplanned maintenance and change in market conditions.
A major contributing factor to the downward trend has been the high cost
of fuel along with the need for extensive capital improvements to the
Company's LASH vessels. Extensive steel work has been required to maintain a
number of the older LASH vessels, thereby resulting in a significant amount
of non-operating days that negatively impacted the results of this segment.
During the first six months of 2001, these operations accounted for
approximately 50% of the Company's total revenues while contributing a
negative $9.4 Million against gross voyage profits and accounting for
approximately 50% of the Company's administrative and general expenses.
Although these operations have accounted for 50% of the administrative and
general expenses, there is no certainty that all of the savings will be
achieved by the time the final disposition of these assets are completed.
As of June 30, 2001, the carrying value of this segment was written down
to approximately $45.0 Million, which is reflected as part of the Company's
Balance Sheet total for "Assets Held-for Disposal." The Company's debt
specifically attributable to these assets is approximately $17.4 Million.
The LASH services will continue to operate as separate units under the
current management while strategic transitional alternatives of the services
are considered and dispositions of the assets are evaluated.
The "Assets Held-for Disposal" in the TIME CHARTER CONTRACTS segment is
the Cape-Size Bulk Carrier currently operating on a voyage charter. This
Cape-Size vessel ("Amazon") has reached twenty years of age and the cost of
completing another Special Survey is too costly considering the employment
potential for the vessel. Therefore, the decision was made to write-down
this asset to $4.0 Million, an amount close to its scrap value. This is
being reflected in the Company's Balance Sheet under "Current Assets Held-for
Disposal." The Company has no debt specifically attributable to this asset.
15
The "Assets Held-for-Disposal" in the OTHER segment include certain
special purpose barges. Those assets are no longer in use due to a
restructuring of the contract with a major mining company in the fourth
quarter of 2000 which allowed the Company to deploy its two special purpose
vessels, the Bali Sea and Banda Sea, on a service between Mobile, Alabama and
Coatzacoalcos, Mexico ("Mexican Service"). The special purpose barges have
been written down to $.5 Million reflecting a value close to current scrap
value. The Company has no debt specifically attributable to this asset.
This amount is reflected in the Company's Balance Sheet as part of the
Company's Balance Sheet total for "Assets Held-for Disposal."
The Company has retained an investment banker to assist in its efforts
regarding the impairment and disposal of these assets. The pending outcome
of this review as well as market conditions will determine when these assets
will be disposed of. In the meantime, a staff reduction of approximately 20%
of the Company's shore base staff was effected early in the third quarter in
anticipation of the pending transition. This action reduces the Company's
administration and general expenses by approximately $2.3 Million on an
annualized basis. Additional reductions are probable as the asset
disposition program proceeds.
Other Income and Expenses
- --------------------------
Administrative and general expenses increased from $11.6 Million in the
first six months of 2000 to $12.1 Million in the same period in 2001
primarily reflecting increases associated with the start-up of the Mexican
Service.
Earnings for the TIME CHARTER CONTRACTS segment in 2001 included a loss
of $2.3 Million on the sale of two LASH vessels which was partially offset by
a gain of $1.2 Million from the sale of certain other assets no longer
required in the Company's operations.
Interest expense was $15.1 Million for the first six months of 2001 as
compared to $16.9 Million for the same period in 2000. This decrease is
primarily due to the repurchase of 9% and 7.75% Senior Notes in the second
half of 2000 partially offset by the financing associated with the
acquisition of the Pure Car/Truck Carrier ("PCTC"), "Green Cove", in June of
2000.
Investment income decreased from $718,000 for the first six months of
2000 to $574,000 for the first six months of 2001 due to a lower average
balance of invested funds.
16
Income Taxes
- ------------
In the first six months of 2001, the Company had an income tax benefit
of $33.6 Million compared to an income tax provision of $188,000 in the same
period in 2000, at the statutory rate of 35% for both periods.
17
SECOND QUARTER ENDED June 30, 2001
COMPARED TO SECOND QUARTER ENDED JUNE 30, 2000
Gross Voyage Profit
- -------------------
Gross voyage profit before depreciation and Impairment Loss on Assets
Held-for-Disposal decreased $9.3 Million from $23.1 Million in the second
quarter of 2000 to $13.8 Million in the second quarter of 2001. Gross voyage
profit before depreciation and Impairment Loss on Assets Held-for-Disposal
for the LINER SERVICES segment decreased $7.7 Million, from a profit of $4.8
Million in the second quarter ending 2000 to a loss of $2.9 Million in the
second quarter of 2001. This decrease is primarily due to 123 out of service
days resulting from unplanned maintenance required on two LASH vessels as
previously reported.
Gross voyage profit before depreciation and Impairment Loss on Assets
Held-for-Disposal for the TIME CHARTER CONTRACTS segment increased from $13.7
Million in the second quarter, 2000 to $15.3 Million for the same period in
2001. This increase was primarily due to the addition of the Company's
contract with a major mining company to this segment. The impact of the
termination of three vessels under contract to the MSC was offset by better
results of the Company's U.S. Flag PCTC.
The CONTRACTS OF AFFREIGHTMENT segment's gross profit before
depreciation and Impairment Loss on Assets Held-for-Disposal decreased from
$3.5 Million for the second quarter 2000 to $1.9 Million for the same period
2001 due to the aforementioned reclassification resulting from the change in
the nature of a contract as noted in the TIME CHARTER CONTRACTS segment.
The OTHER segment's gross profit before depreciation and Impairment Loss
on Assets Held-for-Disposal decreased from $1.1 Million for the second
quarter ending 2000 to a loss of $574,000 for the same period in 2001. This
decrease was primarily due to start-up results of the Company's Mexican
service which reported a loss for the quarter.
Impairment Loss on Assets Held-for-Disposal
- -------------------------------------------
As explained in the six month comparison outlined above, at June 30,
2001, the Company adopted a plan to separate the LASH (Lighter Aboard Ship)
service, (the LINER SERVICES segment), its Cape-size Bulk Carrier (the TIME
CHARTER CONTRACTS segment) and certain special purpose barges (the OTHER
segment), from the balance of its operations. Net losses of approximately
$79 Million were recognized in accordance with FASB 121, "Accounting for the
Impairment of Long-lived Assets," reflecting a non-cash charge to write-
18
down the aforementioned assets to estimated market value. For accounting
purposes, these assets have been reclassified in the Company's balance sheet
as "Current Assets Held-for-Disposal" and "Assets Held-for-Disposal."
Other Income and Expenses
- -------------------------
Administrative and general expenses increased from $5.9 Million in the
second quarter of 2000 to $6.1 Million in the same period in 2001 due to
increased travel costs and special services associated with the start-up of
the Mexican service.
The results of the TIME CHARTER CONTRACTS segment in the second quarter
2001, included a loss of $1.1 Million from the sale of two of the Company's
LASH vessels.
Interest expense was $8.3 Million for the second quarter of 2000 as
compared to $7.3 Million for the same period in 2001. This decrease is
primarily due to the repurchase of 9% and 7.75% Senior Notes in the second
half 2000 partially offset by the financing associated with the acquisition
of the Pure Car/Truck Carrier ("PCTC"), "Green Cove," in June 2000.
Investment income decreased from $459,000 for the second quarter of 2000
to $246,000 for the second quarter of 2001 due to a lower average balance of
invested funds.
Income Taxes
- ------------
In the second quarter 2001, the Company had an income tax benefit of
$30.8 Million compared to an income tax provision of $1.7 Million in the same
period in 2000, at the statutory rate of 35% for both periods.
19
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital decreased from $28.2 Million at December
31, 2000, to $10.9 Million at June 30, 2001, after provision for current
maturities of long-term debt and capital lease obligations of $27.2 Million.
Cash and cash equivalents decreased during the first six months of 2001 by
$2.2 Million to a total of $14.7 Million. This decrease, which resulted from
cash used for financing activities of $24.1 Million, was partially offset by
cash provided by operating activities of $19.6 Million and cash provided by
investing activities of $2.3 Million.
Operating activities generated a positive cash flow after adjusting the
net loss for non-cash provisions such as depreciation, amortization and
impairment loss. Investing activities during the period included $5.9
Million in deferred vessel drydocking charges and $3.5 Million for the
purchase of a 30% interest in companies which own and operate special purpose
cement carrying vessels. These additions were partially offset by $7.4
Million received from the sale of a vessel and property and proceeds from the
sale of short-term investments of $2.9 Million.
The net cash used for financing activities of $24.1 Million included
reductions of debt and capital lease obligations of $48.1 Million.
Approximately $17.1 Million stemmed from regularly scheduled principal
payments and $31.0 Million for the repayment of amounts drawn under a line of
credit. These reductions were offset by proceeds received from financing
secured by one of the Company's PCTC's, for $1.8 Million, and draws against
the Company's line of credit totaling $23.0 Million.
At June 30, 2001, the Company's revolving credit facility of $10.0
Million was fully drawn. This facility expires April 23, 2003.
Despite the reported loss during the first six months of 2001, the
Company continues to meet all of its financial covenants under its various
debt agreements.
Management believes that normal operations will provide sufficient
working capital and cash flows to meet debt service during the foreseeable
future. However, in view of the write-down charge taken for Assets Held-for-
Disposal and to be certain that the Company is in compliance with financial
covenants under its loan agreements, at a regular meeting held June 25, 2001,
the Board of Directors elected to suspend quarterly dividend payments on
Common Shares of stock.
20
NEW ACCOUNTING PRONOUNCEMENTS
During 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts, and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure
those instruments at fair value. SFAS No. 133 is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999. In June of 1999, the
FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133." SFAS
No. 137 is an amendment of SFAS No. 133 and defers the effective date of SFAS
No. 133 to fiscal years beginning after June 15, 2000. The Company adopted
SFAS No. 133 on January 1, 2001, which resulted in a cumulative effect of an
accounting change to earnings of $16,000 and an increase in other
comprehensive income included in Stockholders' Investment of $385,000. The
Company employs interest rate swap agreements, foreign currency contracts,
and commodity swap contracts.
In July 2001, the Financial Accounting Standards Board issued SFAS No.
141 "Business Combinations," SFAS No. 142 "Goodwill and Other Intangible
Assets" and SFAS No. 143 "Accounting for Asset Retirement Obligations." SFAS
No. 141 prohibits the use of the pooling-of-interests method of accounting
for all business combinations initiated after June 30,2001. SFAS No. 142
requires goodwill not be amortized in any circumstance and also requires that
goodwill is tested for impairment annually or when events or circumstances
occur between annual tests indicating that goodwill for a reporting unit
might be impaired. The standard establishes a new method for testing
goodwill for impairment based on a fair value concept and is effective for
fiscal years beginning after December 15, 2001. SFAS No. 143 requires the
Company to record the fair value of liabilities related to future asset
retirement obligations in the period the obligation is incurred and is
effective for fiscal years beginning after June 15, 2002. The adoption of
any of the above is not expected to have a material impact on the Company's
financial statements, because the Company does not have any assets that
require retirement obligations.
21
MARKET-SENSITIVE INSTRUMENTS AND RISK MANAGEMENT
In the ordinary course of its business, the Company is exposed to
foreign currency, interest rate, and commodity price risk. The Company
utilizes derivative financial instruments including forward exchange
contracts, interest rate swap agreements and commodity swap agreements to
manage certain of these exposures. The Company hedges only firm commitments
or anticipated transactions and does not use derivatives for speculation.
The Company neither holds nor issues financial instruments for trading
purposes.
There were no material changes in market risk exposure for the foreign
currency risk described in the Company's Form 10-K filed with the Securities
and Exchange Commission for the year ended December 31, 2000.
The fair value of long-term debt at June 30, 2001, including current
maturities, was estimated to be $317.9 Million compared to a carrying value
of $312.0 Million. The potential increase in fair value resulting from a
hypothetical 10% increase in the average interest rates applicable to the
Company's long-term debt at June 30, 2001, would be approximately $5.9
Million or 1.9% of the carrying value.
The fair value of the interest rate swap agreements at June 30, 2001, as
discussed in the Form 10-K, estimated based on the amount that the banks
would receive or pay to terminate the swap agreements at the reporting date
taking into account current market conditions and interest rates, was a
liability of $233,000. A hypothetical 10% decrease in interest rates as of
June 30, 2001, would have resulted in a $1.4 Million increase in the fair
value of the liability.
The fair value of the commodity swap agreements at June 30, 2001, as
discussed in the Form 10-K, estimated based on the difference between price
per ton of fuel and the contract delivery price per ton of fuel times the
quantity applicable to the agreements, was a liability of $195,000. A
hypothetical 10% decrease in the fuel price per ton of fuel as of June 30,
2001, would have resulted in a $498,000 increase in the fair value of the
liability.
22
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The matters voted upon and results of the voting at the Company's annual
meeting of Shareholders of April 18, 2001, were reported in response to Item
4 of the Company's Form 10-Q filed with the Securities and Exchange
Commission for the quarterly period ended March 31, 2001 and are incorporated
herein by reference.
Item 6. Exhibits and Reports on Form 8-K
(a) EXHIBIT INDEX
Exhibit Number Description
-------------- -----------
Part I Exhibits: 27 Financial Data Schedule
Part II Exhibits: 3 Restated Certificate of
Incorporation, as amended,
and By-Laws of the Registrant
(filed with the Securities
and Exchange Commission as Exhibit
3 to the Registrant's Form 10-Q
for the quarterly period ended
June 30, 1996, and incorporated
herein by reference)
(b) Form 8-K was filed on July 26, 2001 disclosing the Disposition of
Assets.
23
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTERNATIONAL SHIPHOLDING CORPORATION
____________/s/ Gary L. Ferguson_________________
Gary L. Ferguson
Vice President and Chief Financial Officer
Date ___________________________