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 September 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 Number)
incorporation or organization)
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 (September 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 Sept. 30, Nine Months Ended Sept. 30,
2001 2000 2001 2000
---------- ---------- ---------- ----------
C>
Revenues $ 74,147 $ 82,640 $ 223,951 $ 253,254
Subsidy Revenue 4,089 3,682 11,013 11,029
---------- ---------- ---------- ----------
78,236 86,322 234,964 264,283
---------- ---------- ---------- ----------
Operating Expenses:
Voyage Expenses 66,687 63,388 192,627 199,092
Vessel and Barge Depreciation 4,307 9,635 22,735 29,418
Impairment Loss on Assets
Held for Disposal 400 - 79,328 -
Impairment Loss - - 2,355 -
---------- ---------- ---------- ----------
Gross Voyage Profit (Loss) 6,842 13,299 (62,081) 35,773
---------- ---------- ---------- ----------
Administrative and General
Expenses 6,217 5,123 18,361 16,691
Gain on Sale of Vessels/
Other Assets 4,644 - 3,513 5,063
---------- ---------- ---------- ----------
Operating Income (Loss) 5,269 8,176 (76,929) 24,145
---------- ---------- ---------- ----------
Interest:
Interest Expense 5,810 8,754 20,914 25,624
Investment Income (220) (999) (794) (1,717)
---------- ---------- ---------- ----------
5,590 7,755 20,120 23,907
---------- ---------- ---------- ----------
(Loss) Income Before Provision
(Benefit) for Income Taxes and
Equity in Net Income (Loss) of
Unconsolidated Entities (321) 421 (97,049) 238
---------- ---------- ---------- ----------
(Provision) Benefit for
Income Taxes:
Current 8 501 193 1,580
Deferred (96) (263) (34,022) (1,294)
State - - 128 140
---------- ---------- ---------- ----------
(88) 238 (33,701) 426
---------- ---------- ---------- ----------
Equity in Net Income (Loss) of
Unconsolidated Entities
(Net of Applicable Taxes) 68 (7) 431 7
---------- ---------- ---------- ----------
Extraordinary Gain on Early
Extinguishment of Bonds (Net of
Income Tax Provision of $150) - 242 - 242
---------- ---------- ---------- ----------
Net (Loss) Income $ (165) $ 418 $(62,917) $ 61
========== ========== ========== ==========
Basic and Diluted Earnings
Per Share:
Net (Loss) Income $ (0.03) $ 0.07 $ (10.34) $ 0.01
========== ========== ========== ==========
Weighted Average Shares of
Common Stock Outstanding 6,082,887 6,082,887 6,082,887 6,082,976
<FN>
The accompanying notes are an integral part of these statements.
3
INTERNATIONAL SHIPHOLDING CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(All Amounts in Thousands)
(Unaudited)
September 30, December 31,
ASSETS 2001 2000
----------- -----------
Current Assets:
Cash and Cash Equivalents $ 26,791 $ 16,906
Marketable Securities 3,098 6,018
Accounts Receivable, Net of Allowance
for Doubtful Accounts of $105 and $282
in 2001 and 2000, Respectively:
Traffic 26,555 49,278
Agents' 5,363 5,226
Claims and Other 11,744 9,513
Federal Income Taxes Receivable - 812
Net Investment in Direct Financing Leases 1,734 3,621
Other Current Assets 4,092 8,074
Material and Supplies Inventory, at Lower
of Cost or Market 2,991 11,016
----------- -----------
Total Current Assets 82,368 110,464
----------- -----------
Assets Held for Disposal 45,432 -
----------- -----------
Marketable Equity Securities 216 186
----------- -----------
Investment in Unconsolidated Entities 7,439 3,538
----------- -----------
Net Investment in Direct Financing Leases 53,671 108,106
----------- -----------
Vessels, Property, and Other Equipment, at Cost:
Vessels and Barges 441,766 744,999
Other Marine Equipment 8,314 8,291
Terminal Facilities 17,730 18,377
Land 1,230 1,230
Furniture and Equipment 13,473 15,974
----------- ----------
482,513 788,871
Less - Accumulated Depreciation (212,448) (374,006)
----------- ----------
270,065 414,865
----------- ----------
Other Assets:
Deferred Charges, Net of Accumulated
Amortization of $22,138 and $30,867
in 2001 and 2000, Respectively 7,484 32,296
Acquired Contract Costs, Net of Accumulated
Amortization of $18,156 and $17,065 in 2001
and 2000, Respectively 12,369 13,461
Due from Related Parties 663 633
Other 17,848 11,627
----------- ----------
38,364 58,017
----------- ----------
$ 497,555 $ 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)
September 30, December 31,
2001 2000
----------- -----------
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
Current Maturities of Long-Term Debt $ 15,250 $ 22,181
Current Maturities of Capital Lease
Obligations 1,042 7,824
Accounts Payable and Accrued Liabilities 40,231 52,276
Federal Income Tax Payable 50 -
Current Maturities of Capital Lease
Obligations on Assets Held for Disposal 5,188 -
----------- ----------
Total Current Liabilities 61,761 82,281
----------- ----------
Long-Term Capital Lease Obligations on
Assets Held for Disposal 10,482 -
----------- ----------
Billings in Excess of Income Earned and
Expenses Incurred 3,347 5,462
----------- ----------
Long-Term Capital Lease Obligations, Less
Current Maturities 36,003 51,827
----------- ----------
Long-Term Debt, Less Current Maturities 238,748 308,037
----------- ----------
Other Long-Term Liabilities:
Deferred Income Taxes 8,163 43,300
Claims and Other 22,562 22,737
----------- ----------
30,725 66,037
----------- ----------
Commitments and Contingent Liabilities
Stockholders' Investment:
Common Stock 6,756 6,756
Additional Paid-In Capital 54,450 54,450
Retained Earnings 66,076 129,755
Less - Treasury Stock (8,704) (8,704)
Accumulated Other Comprehensive Loss (2,089) (725)
----------- ----------
116,489 181,532
----------- ----------
$ 497,555 $ 695,176
=========== ==========
<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
September 30, 2001 - - (62,917) - - (62,917)
Other Comprehensive Income:
Unrealized Holding Loss on
Marketable Securities,
Net of Deferred Taxes
of ($17) - - - - (32) (32)
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
($583) - - - - (1,082) (1,082)
-------
Total Comprehensive Income (64,281)
Cash Dividends - - (762) - - (762)
----------------------------------------------------------
Balance at
September 30, 2001 $6,756 $54,450 $66,076 ($8,704) ($2,089) $116,489
=========================================================
<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 Nine Months
Ended September 30,
2001 2000
---------- ----------
Cash Flows from Operating Activities:
Net (Loss) Income $ (62,917) $ 61
Adjustments to Reconcile Net (Loss) Income to
Net Cash Provided by Operating Activities:
Depreciation 24,222 31,687
Amortization of Deferred Charges
and Other Assets 9,852 14,588
Benefit for Deferred Income Taxes (34,022) (1,294)
Equity in Net Gain of Unconsolidated Entities (418) (7)
Gain on Sale of Vessels and Other Property (3,513) (5,345)
Impairment Loss 2,355 -
Extraordinary Gain - (242)
Impairment Loss on Assets Held for Disposal 79,328 -
Changes in:
Accounts Receivable 20,284 6,240
Inventories and Other Current Assets 4,246 (1,135)
Other Assets (6,247) 3,773
Accounts Payable and Accrued Liabilities (13,675) (6,933)
Federal Income Taxes Payable 256 (303)
Billings in Excess of Income Earned and
Expenses Incurred (2,527) 1,082
Other Long-Term Liabilities (3,560) (835)
---------- ----------
Net Cash Provided by Operating Activities 13,664 41,337
---------- ----------
Cash Flows from Investing Activities:
Net Investment in Direct Financing Leases 2,118 2,666
Purchase of Vessels and Other Property (39,843) (33,865)
Additions to Deferred Charges (7,474) (4,709)
Proceeds from Sale of Vessels and Other Property 125,863 20,988
Proceeds from Sales of Short-Term Investments 2,830 3,990
Investment in Unconsolidated Entities (3,258) (1,391)
Other Investing Activities (19) (233)
---------- ----------
Net Cash Provided (Used) by Investing Activities 80,217 (12,554)
---------- ----------
Cash Flows from Financing Activities:
Proceeds from Issuance of Debt and Capital
Lease Obligations 52,300 117,400
Reduction of Debt and Capital Lease Obligations (135,456) (146,254)
Additions to Deferred Financing Charges (78) (324)
Purchase of Treasury Stock - (50)
Common Stock Dividends Paid (762) (1,141)
Other Financing Activities - 897
---------- ----------
Net Cash Used by Financing Activities (83,996) (29,472)
---------- ----------
Net Increase (Decrease) in Cash and Cash
Equivalents 9,885 (689)
Cash and Cash Equivalents at Beginning of Year 16,906 18,661
---------- ----------
Cash and Cash Equivalents at End of Year $ 26,791 $ 17,972
========== ==========
<FN>
The accompanying notes are an integral part of these statements.
7
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 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 are 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 Service 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 nine months ended September, 2001 and
2000.
Time
Liner Charter Contracts of
(All Amounts in Thousands) Services Contracts Affreightment Other Total
- -----------------------------------------------------------------------------
2001
Revenues from external
customers $116,611 $ 98,769 $11,722 $ 7,862 $234,964
Intersegment revenues - - - 21,023 21,023
Gross voyage profit
before depreciation &
Impairment Loss on Assets
Held-for-Disposal (3,049) 41,979 6,162 (2,755) 42,337
Depreciation 6,824 11,323 2,237 2,351 22,735
Interest expense 2,972 13,229 2,063 2,650 20,914
Segment (loss) profit before
Impairment Loss on Assets
Held-for-Disposal, interest
income, Administrative and
general expenses, equity in
Unconsolidated entities
and taxes (12,845) 17,427 1,862 (7,756) (1,312)
Impairment Loss on Assets
Held-for-Disposal (62,385) (5,185) - (11,758) (79,328)
Impairment Loss - (2,355) - - (2,355)
Gain on Sale of Vessels
and Other Assets - 3,075 - 438 3,513
Segment (loss) profit before
interest income, Administrative
and general expenses, equity
in Unconsolidated entities
and taxes (75,230) 12,962 1,862 (19,076) (79,482)
- -----------------------------------------------------------------------------
2000
Revenues from external
customers $135,282 $102,265 $ 23,814 $ 2,922 $264,283
Intersegment revenues - - - 22,891 22,891
Gross voyage profit before
depreciation 8,669 44,421 9,753 2,348 65,191
Depreciation 11,486 12,780 4,944 208 29,418
Interest expense 4,305 15,580 5,414 325 25,624
Gain on Sale of Vessel
and land - 5,063 - - 5,063
Segment (loss) profit before
interest income, Administrative
and general expenses, equity
in Unconsolidated entities
and taxes (7,122) 21,124 (605) 1,815 15,212
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
9
The following table presents information about segment profit and loss
for the third quarter ended September 30, 2001 and 2000.
Time
Liner Charter Contracts of
(All Amounts in Thousands) Services Contracts Affreightment Other Total
- -----------------------------------------------------------------------------
2001
Revenues from external
customers $ 39,577 $ 31,073 $ 4,212 $ 3,374 $ 78,236
Intersegment revenues - - - 7,280 7,280
Gross voyage profit
before depreciation &
Impairment Loss on Assets
Held-for-Disposal (2,189) 11,769 2,385 (416) 11,549
Depreciation - 2,799 746 762 4,307
Interest expense 1,196 3,417 595 602 5,810
Segment (loss) profit before
Impairment Loss on Assets
Held-for-Disposal, interest
income, Administrative and
general expenses, equity in
Unconsolidated entities
and taxes (3,385) 5,553 1,044 (1,780) 1,432
Impairment Loss on Assets
Held-for-Disposal - 400 - - 400
Gain on sale of vessels
and other assets - 4,485 - 159 4,644
Segment (loss) profit before
interest income, Administrative
and general expenses, equity
in Unconsolidated entities
and taxes (3,385) 9,638 1,044 (1,621) 5,676
- -----------------------------------------------------------------------------
2000
Revenues from external
customers $ 43,068 $ 34,645 $ 7,961 $ 648 $ 86,322
Intersegment revenues - - - 7,518 7,518
Gross voyage profit before Vessel
and barge depreciation 2,963 15,975 3,193 803 22,934
Vessel and barge depreciation 3,794 4,122 1,648 71 9,635
Interest expense 1,520 5,225 1,909 100 8,754
Segment (loss) profit before
interest income, Administrative
and general expenses, equity
in Unconsolidated entities
and taxes (2,351) 6,628 (364) 632 4,545
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
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 Sept. 30, Nine Months Ended Sept. 30,
2001 2000 2001 2000
--------- --------- --------- ---------
Total profit (loss) for
reportable segments $ 5,676 $ 4,545 $ (79,482) $ 15,212
Unallocated amounts:
Interest income 220 999 794 1,717
Administrative and
general expenses 6,217 5,123 18,361 16,691
--------- --------- --------- ---------
(Loss) income before
equity in Unconsolidated
entities, taxes,
and extraordinary item $ (321) $ 421 $ (97,049) $ 238
========= ========= ========= =========
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 nine 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 FASB 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
11
expected to have a material impact on the Company's financial statements,
because the Company does not have any goodwill recorded or any assets that
require retirement obligations.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," which supersedes FASB Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of." The provisions of this statement are required to
be applied for fiscal years beginning after December 15, 2001 and interim
periods within those fiscal years. This statement revises current guidance
with respect to the process for measuring impairment of long-lived assets.
The Company has not yet determined what effect, if any, this statement will
have on its financial statements.
Note 5. 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 impairment losses for Assets Held-for-Disposal 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. The write-down
of the impaired assets held-for-disposal was based on the Company's estimate
of the fair value of the assets which included the assumption that some of the
assets would be sold for scrap value while others would be sold or operated
for net cash flows greater than scrap. In the event these assets are sold or
scrapped for less, the Company could see a further deterioration in its
impairment loss. If totally scrapped, under prevailing scrap prices, the
additional loss adjustment would be approximately $19.4 Million before tax or
$12.6 Million net of tax benefit.
For accounting purposes, these assets were reclassified in the Company's
balance sheet as "Current Assets Held-for-Disposal" and "Assets Held-for-
Disposal." During the third quarter 2001, the asset included in "Current
Assets Held-for-Disposal" was sold.
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 have 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.
12
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 number of non-
operating days that negatively impacted the results of this segment. During the
first nine months of 2001, these operations accounted for approximately 51% of
the Company's total revenues while contributing a negative $10.0 Million
against gross voyage profits (after depreciation) 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 is completed.
As of September 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 $15.7 Million.
As of September 30, 2001, the Company had sold the Cape Size Bulk Carrier
previously reflected in the Company's Balance Sheet under "Current Assets Held-
for Disposal." This asset was sold for a loss of approximately $400,000 in
excess of the original write-down amount.
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 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 disposal of these assets. The pending outcome of this review as
well as market conditions will determine when and how 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.
13
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 address variations in gross voyage profits rather than variations in
revenues.
14
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2001
COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2000
Gross Voyage Profit
- --------------------
Gross voyage profit before depreciation and Impairment Loss on Assets
Held-for-Disposal decreased 35.1% from $65.2 Million in the first nine months
of 2000 to $42.3 Million in the first nine months of 2001. The Company's
LINER SERVICES segment decreased $11.7 Million. The Waterman service has 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.
In addition, the service experienced a drop in its inbound tonnage volume as a
result of market conditions and has reduced the vessels operating within the
service by laying-up one of its LASH vessels in Southeast Asia.
The OTHER segment's results decreased $5.1 Million primarily as a result
of the start-up losses from the Company's Mexican Service.
The CONTRACTS OF AFFREIGHTMENT segment had a drop in its gross voyage
profit of $3.6 Million reflecting the change in one of the Company's contracts,
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 decreased $5.5 Million resulting from the completion of
charters to the U.S. Military Sealift Command ("MSC") for four of the Company's
vessels. Three of these vessels were at the end of their economic lives and
were scrapped in March, May and July, 2001 and the other vessel was sold and
now operates in the Freeport Indonesian Service.
Vessel and barge depreciation for the first nine months of 2001 decreased
22.7% to $22.7 Million as compared to $29.4 Million in the same period of 2000
primarily due to the sale of one of the Company's Ice Strengthened Multi-
Purpose vessels, the scrapping of four of the Company's LASH vessels, and the
write-down of the assets included in the LINER SERVICES segment, the TIME
CHARTER CONTRACTS segment and the OTHER segment (reference Impairment Loss on
Assets Held-for-Disposal) partially offset by the purchase of a Pure Car/Truck
Carrier. The Assets Held-for-Disposal are not being further depreciated. The
depreciation expense related to these assets for the first nine months of 2000
was $12.9 Million.
15
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 impairment losses for Assets Held-for-Disposal 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. The write-down
of the impaired assets held-for-disposal was based on the Company's estimate
of the fair value of the assets which included the assumption that some of the
assets would be sold for scrap value while others would be sold or operated
for net cash flows greater than scrap. In the event these assets are sold or
scrapped for less, the Company could see a further deterioration in its
impairment loss. If totally scrapped, under prevailing scrap prices, the
additional loss adjustment would be approximately $19.4 Million before tax or
$12.6 Million net of tax benefit.
For accounting purposes, these assets were reclassified in the Company's
balance sheet as "Current Assets Held-for-Disposal" and "Assets Held-for-
Disposal." During the third quarter 2001, the asset included in "Current
Assets Held-for-Disposal" was sold.
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 nine months of 2001, these operations accounted for approximately
51% of the Company's total revenues while contributing a negative $10.0 Million
against gross voyage profits (after depreciation) 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 is completed.
16
As of September 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 $15.7 Million.
As of September 30, 2001, the Company had sold the Cape Size Bulk Carrier
previously reflected in the Company's Balance Sheet under "Current Assets
Held-for Disposal." This asset was sold for a loss of approximately $400,000
in excess of original write-down amount.
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 disposal of these assets. The pending outcome of this review as
well as market conditions will determine when and how 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 $16.7 Million in the
first nine months of 2000 to $18.4 Million in the same period in 2001 primarily
reflecting increases associated with the start-up of the Mexican Service and
severance payments as a result of a reduction of approximately 20% of the
Company's shore base staff.
Earnings for the TIME CHARTER CONTRACTS segment in 2001 included a gain
of $4.5 Million from the sale of one Pure Car Carrier and a gain of $ .9
Million from the sale of certain other assets no longer required in the
Company's operations, partially offset by a loss of $2.3 Million on the sale
of two Lash vessels.
Interest expense was $20.9 Million for the first nine months of 2001 as
compared to $25.6 Million for the same period in 2000. This decrease is
primarily due to the repurchase of
17
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 and the refinancing of two Pure Car
Carriers.
Investment income decreased from $1,717,000 for the first nine months of
2000 to $794,000 for the nine months of 2001 due to a lower average balance of
invested funds.
Income Taxes
- -------------
In the first nine months of 2001, the Company had an income tax benefit
of $33.7 Million compared to an income tax provision of $426,000 in the same
period in 2000, at the statutory rate of 35% for both periods.
18
THIRD QUARTER ENDED SEPTEMBER 30, 2001
COMPARED TO THIRD QUARTER ENDED SEPTEMBER 30, 2001
Gross Voyage Profit
- --------------------
Gross voyage profit before depreciation and Impairment Loss on Assets
Held-for- Disposal decreased $11.4 Million from $22.9 Million in the third
quarter of 2000 to $11.5 Million in the third quarter of 2001. Gross voyage
profit before depreciation and Impairment Loss on Assets Held-for-Disposal for
the LINER SERVICES segment decreased $5.2 Million, from a profit of $3.0
Million in the third quarter ending 2000 to a loss of $2.2 Million in the
third quarter of 2001. This decrease is primarily due to the Waterman service
experiencing a decrease in its inbound cargo volume due to depressed market
conditions. As a result of lower volume, one of the vessels operating in this
service was laid-up during this Quarter.
Gross voyage profit before depreciation and Impairment Loss on Assets
Held-for-Disposal for the TIME CHARTER CONTRACTS segment decreased from $16.0
Million in the third quarter, 2000 to $11.8 Million for the same period
in 2001. This decrease was primarily due to the completion of charter on four
of the Vessels under contract with the MSC. The impact of these contract
terminations was partially offset by the reclassification of the Company's
contract with a major mining company to this segment.
The CONTRACTS OF AFFREIGHTMENT segment's gross profit before depreciation
and Impairment Loss on Assets Held-for-Disposal decreased from $3.2 Million for
the third quarter 2000 to $2.4 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 $803,000 for the third quarter
ending 2000 to ($416,000) for the same period in 2001. This decrease was
primarily due to results from the Company's recently initiated Mexican service,
which reported a loss for the quarter.
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
19
its assets in order to write-down the aforementioned assets to estimated market
value. For accounting purposes, these assets have been reclassified in the
Company's balance sheet as "Assets Held-for-Disposal." During the third
quarter 2001, the asset previously classified under "Current Assets Held-for-
Disposal" was sold. (See Note 5)
Other Income and Expenses
- --------------------------
Administrative and general expenses increased from $5.1 Million in the
third quarter of 2000 to $6.2 Million in the same period in 2001 primarily as
a result of severance payments associated with the reduction of 20% of the
Company's shore base staff.
The results of the TIME CHARTER CONTRACTS segment in the third quarter
2001, included a gain of $4.5 Million from the sale of one of the Company's
Pure Car Carrier.
Interest expense was $8.8 Million for the third quarter of 2000 as
compared to $5.8 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 of 2000 partially offset by the financing associated with the acquisition
of the Pure Car/Truck Carrier ("PCTC"), "Green Cove," in June 2000 and the
refinancing of a Foreign Pure Car Carrier.
Investment income decreased from $999,000 for the third quarter of 2000
to $220,000 for the third quarter of 2001 due to a lower average balance of
invested funds.
Income Taxes
- -------------
In the third quarter 2001, the Company had an income tax benefit of
$88,000 compared to an income tax provision of $238,000 in the same period in
2000, at the statutory rate of 35% for both periods.
20
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital decreased from $28.2 Million at December
31, 2000, to $20.1 Million at September 30, 2001, after provision for current
maturities of long-term debt and capital lease obligations of $21.5 Million.
Cash and cash equivalents increased during the first nine months of 2001 by
$9.9 Million to a total of $26.8 Million. This increase was provided by cash
provided by operating activities of $13.7 Million, cash provided by investing
activities of $80.2 Million, partially offset by cash used for financing
activities of $84.0 Million.
Operating activities generated a positive cash flow after adjusting the
net loss for non-cash provisions such as depreciation, amortization and
impairment loss. Cash flow was provided through the sale of six vessels
generating $125.6 Million and property and proceeds from the sale of short-term
investments of $2.8 Million. These were partially offset by $7.5 Million in
deferred vessel drydocking charges and $39.3 Million for the purchase of a
Pure Car/Truck Carrier.
The net cash used for financing activities of $84.0 Million included
reductions of debt and capital lease obligations of $135.5 Million.
Approximately $24.9 Million stemmed from regularly scheduled principal
payments, $69.6 Million was the payoff of two loans that were replaced with
long term leases and $41.0 Million was 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, $27.5
Million for the financing of a Pure Car/Truck Carrier and draws against the
Company's line of credit totaling $23.0 Million.
At September 30, 2001, the Company's revolving credit facility of $10.0
Million was fully available. This facility expires April 23, 2003.
Despite the reported loss during the first nine months of 2001, the
Company continues to meet all of its financial covenants under its various
debt agreements, after these were amended, effective June, 2001. However as a
result of reduced margins on certain covenants, management is taking steps to
ensure continuing compliance.
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.
21
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 FASB 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 goodwill recorded
or any assets that require retirement obligations.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," which supersedes FASB Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of." The provisions of this statement are required to
be applied for fiscal years beginning after December
22
15, 2001 and interim periods within those fiscal years. This statement revises
current guidance with respect to the process for measuring impairment of long-
lived assets. The Company has not yet determined what effect, if any, this
statement will have on its financial statements.
23
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 September 30, 2001, including current
maturities, was estimated to be $262.1 Million compared to a carrying value of
$254.0 Million. The potential increase in fair value resulting from a
hypothetical 10% decrease in the average interest rates applicable to the
Company's long-term debt at September 30, 2001, would be approximately $4.5
Million or 1.8% of the carrying value.
The fair value of the interest rate swap agreements at September 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 $1.9 Million. A hypothetical 10% decrease in interest rates as
of September 30, 2001, would have resulted in a $2.2 Million increase in the
fair value of the liability.
The fair value of the commodity swap agreements at September 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 $84,000. A
hypothetical 10% decrease in the fuel price per ton of fuel as of September 30,
2001 would have resulted in a $321,000 increase in the fair value of the
liability.
24
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.
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.
25
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 November 14, 2001
___________________________