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 March 31, 2002
---------------
__ 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 (March 31, 2002)
-------------------
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 March 31,
2002 2001
---------- ----------
Revenues $58,719 $77,118
Subsidy Revenue 3,015 3,281
---------- ----------
61,734 80,399
---------- ----------
Operating Expenses:
Voyage Expenses 49,693 63,453
Vessel and Barge Depreciation 4,830 9,307
Impairment Loss 54 2,355
---------- ----------
Gross Voyage Profit 7,157 5,284
---------- ----------
Administrative and General Expenses 4,446 5,996
Loss on Sale of Vessels and Other Assets 20 66
---------- ----------
Operating Income (Loss) 2,691 (778)
---------- ----------
Interest:
Interest Expense 4,620 7,834
Investment Income (312) (328)
---------- ----------
4,308 7,506
---------- ----------
Loss Before (Benefit) Provision for Income
Taxes, Equity in Net Income of Unconsolidated
Entities and Extraordinary Item (1,617) (8,284)
---------- ----------
(Benefit) Provision for Income Taxes:
Current - 95
Deferred (559) (2,936)
State - 56
---------- ----------
(559) (2,785)
---------- ----------
Equity in Net Income of Unconsolidated
Entities (Net of Applicable Taxes) 169 146
---------- ----------
Loss Before Extraordinary Item (889) (5,353)
---------- ----------
Extraordinary Loss on Early Extinguishment
of Debt (Net of Income Tax Benefit of $17) (31) -
---------- ----------
Net Loss $(920) $(5,353)
========== ==========
Basic and Diluted Earnings Per Share:
Loss Before Extraordinary Item $(0.15) $(0.88)
Extraordinary Loss - -
---------- ----------
Net Loss $(0.15) $(0.88)
========== ==========
Weighted Average Shares of
Common Stock Outstanding 6,082,887 6,082,887
<FN>
The accompanying notes are an integral part of these statements.
3
INTERNATIONAL SHIPHOLDING CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(All Amounts in Thousands)
(Unaudited)
March 31, December 31,
ASSETS 2002 2001
----------- -----------
Current Assets:
Cash and Cash Equivalents $ 28,671 $ 26,339
Marketable Securities 3,011 3,059
Accounts Receivable, Net of Allowance
for Doubtful Accounts of $622 and $603
in 2002 and 2001, Respectively:
Traffic 22,392 24,979
Agents' 3,503 2,873
Claims and Other 12,105 15,289
Federal Income Taxes Receivable 1,890 100
Net Investment in Direct Financing Lease 1,815 1,774
Other Current Assets 4,693 4,691
Material and Supplies Inventory, at Lower
of Cost or Market 2,943 2,932
Current Assets Held for Disposal 10,380 5,022
----------- -----------
Total Current Assets 91,403 87,058
----------- -----------
Assets Held for Disposal - 9,916
----------- -----------
Marketable Equity Securities 88 88
----------- -----------
Investment in Unconsolidated Entities 9,002 7,857
----------- -----------
Net Investment in Direct Financing Lease 52,746 53,209
----------- -----------
Vessels, Property, and Other Equipment, at Cost:
Vessels and Barges 333,003 333,037
Other Marine Equipment 4,709 4,709
Terminal Facilities 13,484 13,460
Land 1,038 1,038
Furniture and Equipment 12,124 12,099
----------- ----------
364,358 364,343
Less - Accumulated Depreciation (111,044) (106,010)
----------- ----------
253,314 258,333
----------- ----------
Other Assets:
Deferred Charges, Net of Accumulated
Amortization of $16,327 and $16,580
in 2002 and 2001, Respectively 14,107 14,240
Acquired Contract Costs, Net of Accumulated
Amortization of $18,884 and $18,520 in 2002
and 2001, Respectively 11,642 12,006
Due from Related Parties 596 611
Other 15,802 17,085
----------- ----------
42,147 43,942
----------- ----------
$ 448,700 $ 460,403
=========== ==========
<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)
March 31, December 31,
2002 2001
----------- -----------
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
Current Maturities of Long-Term Debt $ 15,443 $ 15,346
Current Maturities of Capital Lease
Obligations 1,765 -
Accounts Payable and Accrued Liabilities 43,095 40,970
Current Maturities of Capital Lease
Obligations on Assets Held for Disposal 9,923 5,241
----------- ----------
Total Current Liabilities 70,226 61,557
----------- ----------
Billings in Excess of Income Earned and
Expenses Incurred 578 1,765
----------- ----------
Long-Term Capital Lease Obligations on
Assets Held for Disposal - 9,795
----------- ----------
Long-Term Capital Lease Obligations, Less
Current Maturities 726 -
----------- ----------
Long-Term Debt, Less Current Maturities 216,515 230,481
----------- ----------
Other Long-Term Liabilities:
Deferred Income Taxes 9,711 8,390
Claims and Other 36,207 33,510
----------- ----------
45,918 41,900
----------- ----------
Commitments and Contingent Liabilities
Stockholders' Investment:
Common Stock 6,756 6,756
Additional Paid-In Capital 54,450 54,450
Retained Earnings 63,655 64,575
Less - Treasury Stock (8,704) (8,704)
Accumulated Other Comprehensive Loss (1,420) (2,172)
----------- ----------
114,737 114,905
----------- ----------
$ 448,700 $ 460,403
=========== ==========
<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, 2000 $ 6,756 $ 54,450 $129,755 ($8,704) ($725) $181,532
Comprehensive Loss:
Net Loss for the Year
Ended December 31,
2001 - - (64,419) - - (64,419)
Other Comprehensive Loss:
Unrealized Holding Loss
on Marketable Securities,
Net of Deferred Taxes
of ($76) - - - - (144) (144)
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
($836) - - - - (1,553) (1,553)
-------
Total Comprehensive Loss (65,866)
Cash Dividends - - (761) - - (761)
-------------------------------------------------------------
Balance at
December 31, 2001 $ 6,756 $54,450 $64,575 ($8,704)($2,172) $114,905
===========================================================
Comprehensive Loss:
Net Loss for the
Period Ended
March 31, 2002 - - (920) - - (920)
Other Comprehensive Loss:
Unrealized Holding Loss on
Marketable Securities,
Net of Deferred Taxes
of ($31) - - - - (57) (57)
Unrealized Holding Gain
on Derivatives, Net
of Deferred Taxes of
$435 - - - - 809 809
-------
Total Comprehensive Loss (168)
----------------------------------------------------------
Balance at
March 31, 2002 $6,756 $54,450 $63,655 ($8,704)($1,420) $114,737
=========================================================
<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)
Three Months
Ended March 31,
2002 2001
--------- ---------
Cash Flows from Operating Activities:
Net Loss $ (920) $ (5,353)
Adjustments to Reconcile Net Loss to Net
Cash Provided by Operating Activities:
Depreciation 5,092 9,872
Amortization of Deferred Charges
and Other Assets 1,924 4,198
Benefit for Deferred Income Taxes (559) (2,936)
Equity in Net Income of Unconsolidated Entities (169) (133)
Loss (Gain) on Sale of Vessels and Other Assets 20 (35)
Impairment Loss 54 2,355
Extraordinary Loss 31 -
Changes in:
Accounts Receivable 5,133 12,157
Inventories and Other Current Assets 472 3,594
Other Assets 1,269 (1,219)
Accounts Payable and Accrued Liabilities 1,491 1,794
Federal Income Taxes Payable (406) 589
Billings in Excess of Income Earned and
Expenses Incurred (1,293) (4,541)
Other Long-Term Liabilities 2,184 (2,987)
--------- ---------
Net Cash Provided by Operating Activities 14,323 17,355
--------- ---------
Cash Flows from Investing Activities:
Net Investment in Direct Financing Lease 422 812
Purchase of Vessels and Other Property (64) (118)
Additions to Deferred Charges (531) (3,550)
Proceeds from Sale of Vessels and Other Property 5,573 3,473
Purchase of and Proceeds from
Short Term Investments (24) 78
Investment in Unconsolidated Entities (941) (2,100)
Other Investing Activities 71 (119)
--------- ---------
Net Cash Provided (Used) by Investing Activities 4,506 (1,524)
--------- ---------
Cash Flows from Financing Activities:
Proceeds from Issuance of Debt 7,500 9,800
Reduction of Debt and Capital Lease Obligations(23,991) (23,808)
Additions to Deferred Financing Charges (6) (65)
Dividends Paid on Common Stock - (380)
--------- ---------
Net Cash Used by Financing Activities (16,497) (14,453)
--------- ---------
Net Increase in Cash and Cash Equivalents 2,332 1,378
Cash and Cash Equivalents at Beginning of Period 26,339 16,906
--------- ---------
Cash and Cash Equivalents at End of Period $28,671 $18,284
========= =========
<FN>
The accompanying notes are an integral part of these statements.
7
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2002
(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, 2001. Certain reclassifications have been made to prior period
financial information in order to conform to current year presentations.
The foregoing 2002 interim results are not necessarily indicative of
the results of operations for the full year 2002. Interim statements are
subject to possible adjustments in connection with the annual audit of the
Company's accounts for the full year 2002. 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 Company's policy is to consolidate all subsidiaries in which it
holds greater than 50% voting interest and to use the equity method to
account for investments in entities in which it holds a 20% to 50% voting
interest. 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.
All significant intercompany accounts and transactions have been
eliminated.
Note 2. Impairment Loss on Assets Held for Disposal
In June of 2001, the Company adopted a plan to separate the LASH
service (the LINER SERVICES segment), its Cape-Size Bulk Carrier (included
in the TIME CHARTER CONTRACTS segment) and certain Special Purpose barges
(included in the OTHER segment), from the balance of its operations and
dispose of the assets. In December of 2001, as the result of extended cargo
commitments from a major shipper, the Company reclassified its Foreign Flag
LASH service (operating under the name "Forest Lines") assets, including two
LASH vessels, one Dockship and 599 LASH barges, to assets held for use. For
accounting purposes, the U.S. Flag LASH liner service assets, the Cape-Size
Bulk Carrier and the Special Purpose barges were reclassified in the Company's
balance sheet as "Current Assets Held for Disposal" and "Assets Held for
Disposal." The Foreign Flag LASH service assets are included in "Vessels,
Property, and Other Equipment."
The Company recognized an impairment loss of $81 Million in 2001 on
the aforementioned assets in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the
8
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of."
The impairment loss on the U.S. Flag LASH liner service, Cape-Size Bulk
Carrier, and 28 Special Purpose barges was $60.5 Million and the impairment
loss on the Foreign Flag LASH service was $18.1 Million. Additionally, an
impairment loss of $2.4 Million was recognized on a LASH vessel that was sold
for scrap while held for disposal after completing its commitment under
charter with the U.S. Military Command ("MSC") and reaching the end of its
economic useful life. The impairment losses on these assets were measured as
the amount by which the carrying value of the assets exceeded their estimated
fair value. The fair value of the Foreign Flag LASH service assets was
estimated by determining the present value of their expected future cash
flows using a discount rate believed to be commensurate with the Company's
borrowing rate. The fair values of the remaining assets were based on scrap
values using an estimated scrap value per lightweight ton.
At the time this plan was adopted, the assets related to the U.S. Flag
LASH liner service included four U.S. Flag LASH vessels, one Foreign Flag
LASH vessel, one FLASH unit, 1,200 LASH barges, and ancillary assets. This
service previously transported cargo between the U.S. Gulf and Atlantic
coasts and the Middle East, East Africa, the Indian sub-continent and
Southeast Asia operating under the name "Waterman." The past several years
have reflected a downward trend in this service as a result of higher
operating costs, disruptions in service due to unplanned maintenance, and
changes in market conditions. During the first quarter of 2002, two of the
U.S. Flag LASH vessels and related LASH barges were sold for scrap resulting
in an additional impairment loss of $54,000. Subsequent to the end of the
first quarter of 2002, another of the U.S. Flag LASH vessels, related LASH
barges, and the FLASH unit were sold resulting in a gain of approximately
$241,000. The remaining assets related to this service are classified on
the Company's Balance Sheet as of March 31, 2002, as "Current Assets Held for
Disposal," and capital lease obligations of $9.9 Million associated with
these assets are classified as "Current Maturities of Capital Lease
Obligations on Assets Held for Disposal."
During the third quarter of 2001, the Company sold the Cape-Size Bulk
Carrier resulting in an additional impairment loss of approximately $400,000
in excess of the original write-down amount.
The Special Purpose barges are no longer in use due to a restructuring
of a contract with a major mining company in the fourth quarter of 2000.
These barges were used in conjunction with the Company's two Special Purpose
vessels, the Bali Sea and Banda Sea, to service this contract. The
restructuring allowed the Company to deploy the Bali Sea and Banda Sea in
its railcar ferry service operating between Alabama and Coatzacoalcos, Mexico
(the "Mexican Service"), which does not require the Special Purpose barges.
The book value of these barges, $574,000 after adjusting for the impairment
loss, approximates current scrap prices, and is included in "Current Assets
Held for Disposal" as of March 31, 2002. The Company has no debt
specifically attributable to these assets.
In anticipation of the disposal of the U.S. Flag LASH service assets,
a reduction of approximately 31% of the Company's shore base staff was
effected early in the third quarter of 2001 and in January of 2002.
9
Note 3. 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. The Company reports in the OTHER category
results of the Company's Mexican Service and 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. The Mexican Service was previously reported in the LINER
SERVICES segment, but was reclassified to OTHER in the second quarter of
2001, because it is more specialized than the other operations in the LINER
SERVICES segment. The information provided in the following table for the
first quarter of 2001 has been restated to reflect this reclassification.
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 three months ended March 31, 2002 and
2001:
Time
Liner Charter Contracts of
(All Amounts in Thousands) Services Contracts Affreightment Other Total
- -----------------------------------------------------------------------------
2002
Revenues from external
customers $ 23,513 $ 30,334 $ 3,628 $ 4,259 $ 61,734
Intersegment revenues - - - 5,179 5,179
Gross voyage (loss) profit
before depreciation and
impairment loss (611) 9,914 2,148 590 12,041
Depreciation 896 3,160 604 170 4,830
Impairment loss - (54) - - (54)
Interest expense 578 2,721 605 716 4,620
Loss on sale of vessels
and other assets - (20) - - (20)
Segment (loss) profit before
interest income,
administrative and general
expenses, equity in net
income of unconsolidated
entities, and taxes (2,085) 3,959 939 (296) 2,517
- -----------------------------------------------------------------------------
2001
Revenues from external
customers $ 40,648 $ 34,369 $ 3,766 $ 1,616 $ 80,399
Intersegment revenues - - - 7,178 7,178
Gross voyage profit (loss)
before depreciation and
impairment loss 2,062 14,707 1,950 (1,773) 16,946
Depreciation 3,403 4,384 605 915 9,307
Impairment loss - (2,355) - - (2,355)
Interest expense 1,182 4,965 766 921 7,834
(Loss) gain on sale of
vessels and other assets - (345) - 279 (66)
Segment (loss) profit before
interest income,
administrative and general
expenses, equity in net
income of unconsolidated
entities, and taxes (2,523) 2,658 579 (3,330) (2,616)
- -----------------------------------------------------------------------------
10
As discussed in Note 2 - "Impairment Loss on Assets Held for Disposal,"
the Company adopted a plan in 2001 to separate its U.S. Flag LASH service,
its Cape-Size Bulk Carrier, and certain Special Purpose barges from the
balance of its operations and dispose of the assets. Revenues and gross
voyage profit (loss) before depreciation and impairment loss for the U.S.
Flag LASH service included in the LINER SERVICES segment, were $10.8 Million
and ($1.5) Million, respectively, for the first quarter of 2002 and $26
Million and $192,000 for the first quarter of 2001, respectively. The
Company's Foreign Flag LASH liner service accounted for the remaining amounts
reported in the LINER SERVICES segment. Revenues and gross voyage profit
before depreciation and impairment loss for the Cape Size Bulk Carrier included
in the TIME CHARTER CONTRACTS segment, were $1.2 Million and $313,000
respectively, for the first quarter of 2001. This vessel was sold in the
third quarter of 2001. The Special Purpose barges were not in use during
either of the periods presented in the table above.
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 March 31,
2002 2001
--------- ---------
Total profit (loss) for reportable segments $ 2,517 $ (2,616)
Unallocated amounts:
Interest income 312 328
Administrative and general expenses (4,446) (5,996)
--------- ---------
Loss before (benefit) provision for income
taxes, equity in net income of unconsolidated
entities, and extraordinary item $ (1,617) $ (8,284)
========= =========
Note 4. 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 three months of
2002 and 2001, as the effect would have been antidilutive.
Note 5. New Accounting Pronouncements
During 1998, the Financial Accounting Standards Board ("FASB") issued
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 was to be
effective for all fiscal quarters of fiscal years beginning after June 15,
1999. However, 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,
11
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. The fair values of the
Company's interest rate swap agreements and commodity swap contracts were a
liability of $1.2 Million and an asset of $487,000, respectively, at
March 31, 2002.
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 that
goodwill not be amortized in any circumstance and also requires goodwill to
be 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 Company adopted SFAS No. 142
on January 1, 2002, which had no material impact on the Company's financial
statements. The adoption of SFAS No. 143 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.
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." This statement revises current guidance
with respect to the process for measuring impairment of long-lived assets.
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. The reclassification of certain of the Company's assets to Assets
Held for Disposal during 2001 was made prior to the Company's adoption of
SFAS No. 144. Therefore, these assets will continue to be accounted for
under SFAS No. 121. The Company's adoption of SFAS No. 144 will only impact
the accounting for future transactions relating to the impairment or disposal
of long-lived assets.
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, 2001.
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
-----------------------
THREE MONTHS ENDED MARCH 31, 2002
COMPARED TO THE THREE MONTHS ENDED MARCH 31, 2001
Gross Voyage Profit
- --------------------
Gross voyage profit before depreciation and impairment loss decreased
28.9% from $16.9 Million in the first quarter of 2001 as compared to $12
Million in the first quarter of 2002. The changes associated with each of
the Company's segments are discussed below.
Liner Services: Gross voyage profit before depreciation and impairment
loss for this segment decreased from $2.1 Million in the first quarter of 2001
to a loss of $611,000 in the first quarter of 2002. The Company's U.S. Flag
LASH Liner service was affected by a decrease in the volume of inbound cargo
carried per ship and the Foreign Flag LASH Liner service was affected by a
decrease in the volume of outbound cargo.
Time Charter Contracts: The decrease in this segment's gross voyage
profit before depreciation and impairment loss from $14.7 Million in the
first quarter of 2001 to $9.9 Million in the first quarter of 2002 was
primarily attributable to the sale and leaseback of two of the Company's Pure
Car Truck Carriers ("PCTCs") during the second half of 2001; renegotiated
lease terms on another PCTC that resulted in different treatment for
accounting purposes; and offhire time for repair work on the Company's Coal
Carrier. The contracts under which the three PCTCs operate were not affected
by the lease transactions. However, because the leases now qualify for
treatment as operating leases, during the first quarter of 2002, the lease
payments were included in voyage expenses. This increase in voyage expenses
did not materially affect the net profit for this segment, because the
depreciation and interest charges incurred on these vessels during the first
quarter of 2001 were eliminated by the lease transactions. This decrease in
gross voyage profit was partially offset by an increase in revenue earned by
the Company's PCTCs during the first quarter of 2002 resulting from carrying
more supplemental cargoes than in the first quarter of 2001.
Contracts of Affreightment: Gross voyage profit before depreciation and
impairment loss of $2.1 Million for this segment in the first quarter of 2002
was comparable to the $2 Million reported in first quarter of 2001.
Other: Improved results for the Company's railcar ferry service
operating between Alabama and Coatzacoalcos, Mexico (the "Mexican Service")
contributed approximately $712,000 to this segment's $2.4 Million increase in
gross voyage profit before depreciation and impairment loss from a loss of
$1.8 Million in the first quarter of 2001 to a profit of $590,000 in the
first quarter of 2002. Additionally, during the first quarter of 2002, the
Company received approximately $1.3 Million of interest earned on overpayments
of foreign taxes from previous years.
14
Impairment Loss on Assets Held-for-Disposal
- --------------------------------------------
In June of 2001, the Company adopted a plan to separate the LASH
service (the LINER SERVICES segment), its Cape-Size Bulk Carrier (included in
the TIME CHARTER CONTRACTS segment) and certain Special Purpose barges
(included in the OTHER segment), from the balance of its operations and
dispose of the assets. In December of 2001, as the result of extended cargo
commitments from a major shipper, the Company reclassified its Foreign Flag
LASH service (operating under the name "Forest Lines") assets, including two
LASH vessels, one Dockship and 599 LASH barges, to assets held for use. For
accounting purposes, the U.S. Flag LASH liner service assets, the Cape-Size
Bulk Carrier and the Special Purpose barges were reclassified in the
Company's balance sheet as "Current Assets Held for Disposal" and "Assets
Held-for-Disposal." The Foreign Flag LASH service assets are included in
"Vessels, Property, and Other Equipment."
The Company recognized an impairment loss of $81 Million in 2001 on
the aforementioned assets in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of." The
impairment loss on the U.S. Flag LASH liner service, Cape-Size Bulk Carrier,
and 28 Special Purpose barges was $60.5 Million and the impairment loss on
the Foreign Flag LASH service was $18.1 Million. Additionally, an impairment
loss of $2.4 Million was recognized on a LASH vessel that was sold for scrap
while held for disposal after completing its commitment under charter with
the MSC and reaching the end of its economic useful life. The impairment
losses on these assets were measured as the amount by which the carrying value
of the assets exceeded their estimated fair value. The fair value of the
Foreign Flag LASH service assets was estimated by determining the present
value of their expected future cash flows using a discount rate believed to
be commensurate with the Company's borrowing rate. The fair values of the
remaining assets were based on scrap values using an estimated scrap value
per lightweight ton.
At the time this plan was adopted, the assets related to the U.S. Flag
LASH liner service included four U.S. Flag LASH vessels, one Foreign Flag
LASH vessel, one FLASH unit, 1,200 LASH barges, and ancillary assets. This
service previously transported cargo between the U.S. Gulf and Atlantic
coasts and the Middle East, East Africa, the Indian sub-continent and
Southeast Asia operating under the name "Waterman." The past several years
have reflected a downward trend in this service as a result of higher
operating costs, disruptions in service due to unplanned maintenance, and
changes in market conditions. During the first quarter of 2002, two of the
U.S. Flag LASH vessels and related LASH barges were sold for scrap resulting
in an additional impairment loss of $54,000. Subsequent to the end of the
first quarter of 2002, another of the U.S. Flag LASH vessels, related LASH
barges, and the FLASH unit were sold resulting in a gain of approximately
$241,000. The remaining assets related to this service are classified on the
Company's Balance Sheet as of March 31, 2002, as "Current Assets Held for
Disposal," and capital lease obligations of $9.9 Million associated with
these assets are classified as "Current Maturities of Capital Lease
Obligations on Assets Held for Disposal."
15
During the third quarter of 2001, the Company sold its Cape-Size Bulk
Carrier resulting in an additional impairment loss of approximately $400,000
in excess of the original write-down amount.
The Special Purpose barges are no longer in use due to a restructuring
of a contract with a major mining company in the fourth quarter of 2000.
These barges were used in conjunction with the Company's two Special Purpose
vessels, the Bali Sea and Banda Sea, to service this contract. The
restructuring allowed the Company to deploy the Bali Sea and Banda Sea in its
Mexican Service, which does not require the Special Purpose barges. The book
value of these barges, $574,000 after adjusting for the impairment loss,
approximates current scrap prices, and is included in "Current Assets Held
for Disposal" as of March 31, 2002. The Company has no debt specifically
attributable to these assets.
In anticipation of the disposal of the U.S. Flag LASH service assets, a
reduction of approximately 31% of the Company's shore base staff was effected
early in the third quarter of 2001 and in January of 2002. This action is
expected to reduce the Company's administrative and general expenses by
approximately $3.6 Million on an annualized basis. Additional reductions
are possible as the asset disposition program proceeds.
Vessel and Barge Depreciation
- ------------------------------
Vessel and barge depreciation decreased 48.1% from $9.3 Million in the
first quarter of 2001 to $4.8 Million in the first quarter of 2002. The
reclassification of the U.S. Flag LASH Liner service, Cape-Size Bulk Carrier,
and certain Special Purpose barges to Assets Held for Disposal as described
earlier in the "Impairment Loss on Assets Held for Disposal" section accounted
for most of this decrease. The lease transactions related to the PCTCs
discussed earlier in the "Gross Voyage Profit - Time Charter Contracts"
section and the scrapping during 2001 of two of the Company's LASH vessels
previously chartered to the MSC also contributed to this decrease. These
decreases were slightly offset by an increase in depreciation on the Foreign
Flag LASH service assets during the first quarter of 2002 as compared to the
first quarter of 2001. These assets were written-down to their estimated fair
value in December of 2001 based on the present value of their expected future
cash flows using a discount rate believed to be commensurate with the
Company's borrowing rate, and the useful lives of those assets were adjusted
downward to correspond to the terms of the associated contract, resulting in
the increase in depreciation.
Other Income and Expense
- -------------------------
Administrative and general expenses decreased 25.9% from $6 Million in
the first quarter of 2001 to $4.4 Million in the first quarter of 2002. The
Company has retained a third party to provide ship management services
previously provided by a wholly-owned subsidiary of the Company. The costs
for these services were included in voyage expenses during the first quarter
of 2002 while the expenses of the subsidiary were included in administrative
and general expenses in the first quarter of 2001. Savings resulting from
the staff reductions discussed earlier in the "Impairment Loss on Assets
Held for Disposal" section were offset by related severance payments.
16
The Loss on Sale of Vessels and Other Assets of $20,000 during the
first quarter of 2002 related to sales of miscellaneous assets no longer used
in the Company's operations. The $66,000 reported in the first quarter of
2001 consisted of a loss of $345,000 associated with the TIME CHARTER
CONTRACTS segment offset by a gain of $279,000 on sales of assets no longer
required for operations in the OTHER segment. The TIME CHARTER CONTRACTS
segment net loss of $345,000 resulted from the sale of one LASH vessel for
approximately $1.3 Million less than its book value offset by the sales of
assets no longer required for operations that resulted in gains totaling
approximately $1 Million.
Interest expense decreased 41% from $7.8 Million in the first quarter
of 2001 to $4.6 Million in the first quarter of 2002. Decreases due to
regularly scheduled payments on outstanding debt and lower interest rates
accounted for $1.2 Million of the total difference. The early repayment of
the debt associated with the two PCTCs sold and leased back during 2001 under
operating leases, and the reclassification of another PCTC lease from a
capital lease to an operating lease due to a change in lease terms together
accounted for approximately $2 Million of the decrease. Additionally,
interest incurred on the financing of a new PCTC purchased in the second half
of 2001 was offset by a decrease in interest expense associated with the
Company's line of credit, which had a lower balance drawn during the first
quarter of 2002 as compared to the first quarter of 2001.
Investment income of $312,000 earned during the first quarter of 2002
was comparable to $328,000 in the first quarter of 2001.
Income Taxes
- -------------
The Company's tax benefit was $559,000 for the first quarter of 2002
and $2.8 Million for the first quarter of 2001 at the statutory rate of 35%
for both periods.
Equity in Net Income of Unconsolidated Entities
- ------------------------------------------------
Equity in net income of unconsolidated entities, net of taxes, of
$169,000 and $146,000 for the first quarter of 2002 and 2001, respectively,
was primarily related to the Company's minority interest in companies owning
and operating cement carrying vessels.
LIQUIDITY AND CAPITAL RESOURCES
The following discussion should be read with the more detailed
Consolidated Condensed Balance Sheets and Consolidated Statements of Cash
Flows included elsewhere herein as part of the Company's Consolidated Condensed
Financial Statements.
The Company's working capital decreased from $25.5 Million at December
31, 2001, to $21.2 Million at March 31, 2002, after provision for current
maturities of long-term debt and capital lease obligations of $27.1 Million.
Cash and cash equivalents increased during the first quarter of 2002 by $2.3
17
Million from $26.3 Million at December 31, 2001, to $28.7 Million at March
31, 2002. The increase was provided by operating activities of $14.3 Million
and investing activities of $4.5 Million, partially offset by cash used for
financing activities of $16.5 Million.
Operating activities generated a positive cash flow after adjusting
the net loss of $920,000 for non-cash provisions such as depreciation and
amortization. Cash flows from investing activities of $4.5 Million were
generated primarily from the sale of two LASH vessels and associated LASH
barges previously classified as Assets Held for Disposal and were offset by
investments in minority interests in companies that own and operate special
purpose cement carrying vessels.
Cash used for financing activities of $16.5 Million included $11.4
Million used to repurchase a portion of the Company's 9% Senior Notes, $5.1
Million used for regularly scheduled reductions of debt and capital lease
obligations, and $7.5 Million used to repay draws on the Company's line of
credit. These uses were partially offset by proceeds of $7.5 Million from
the draws on the line of credit.
As of March 31, 2002, the balance outstanding on the Company's 9%
Senior Notes was $27.2 Million. The Company has adopted a plan to provide
for the orderly retirement of the balance of these Notes within the required
time frame, including repayment of other debt in accordance with scheduled
maturities. It is anticipated that the future projected earnings, available
line of credit, and the remaining proceeds from the sale of Assets Held for
Disposal should provide the cash flow required to meet these debt obligations,
however, there can be no assurance that this will occur. At March 31, 2002,
the Company's revolving credit facility of $10 Million was fully available.
As discussed earlier, the Company sold and leased back two PCTCs during
2001 and renegotiated the terms of the lease agreement for another of its
PCTCs. The PCTCs are operated under fixed charter agreements covering the
terms of the respective leases. For accounting purposes, the leases qualify
for treatment as operating leases. The Company's obligations associated with
these leases are disclosed in the table below.
The following is a summary of the Company's contractual obligations as
of March 31, 2002:
April 1, -
Contractual December 31,
obligations (000's) 2002 2003 2004 2005 2006 Thereafter
- ----------------------------------------------------------------------------
Long-term debt $12,865 $42,777 $14,044 $14,309 $14,496 $133,467
Capital lease
Obligations 2,647 4,733 3,107 1,927 - -
Operating Leases 13,717 17,476 16,223 16,293 16,313 124,150
---------------------------------------------------------
Total by period $29,229 $64,986 $33,374 $32,529 $30,809 $257,617
=========================================================
Capital lease obligations associated with the Assets Held for Disposal
are classified as current liabilities on the Company's Balance Sheet at March
31, 2002, because the Company intends to use the proceeds from the sale of
those assets to repay these obligations.
The Company continues to meet all of its financial covenants under its
various debt agreements, after these were amended for the full year 2002.
The Company believes it will be able to meet the more
18
restrictive financial covenants that become effective in 2003, although it
cannot give assurances at this time.
The Company's Mexican Service is projected to be profitable for the
remainder of 2002 and contribute to the Company's positive cash flows.
However, if outside market conditions impact those projections, the Company
believes it could find alternative placement for the two vessels supporting
the service.
If the Company's cash flow and capital resources are not sufficient to
fund its debt service obligations, the Company may be forced to reduce or
delay capital expenditures, sell assets, obtain additional equity capital,
enter into additional financings of its unencumbered vessels or restructure
debt.
In view of the impairment loss recognized on Assets Held for Disposal
during 2001, and to ensure compliance with financial covenants under the
Company's debt agreements, at a regular meeting held June 25, 2001, the Board
of Directors elected to suspend quarterly dividend payments on its Common
shares of stock.
The Company has not been notified that it is a potentially responsible
party in connection with any environmental matters.
NEW ACCOUNTING PRONOUNCEMENTS
During 1998, the Financial Accounting Standards Board ("FASB") issued
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 was to be
effective for all fiscal quarters of fiscal years beginning after June 15,
1999. However, 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
Stockholder's Investment of $385,000. The Company employs interest rate swap
agreements, foreign currency contracts and commodity swap contracts. The
fair values of the Company's interest rate swap agreements and commodity swap
contracts were a liability of $1.2 Million and an asset of $487,000,
respectively, at March 31, 2002.
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 that
goodwill not be amortized
19
in any circumstance and also requires goodwill to be 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 Company adopted SFAS No. 142 on January 1, 2002,
which had no material impact on the Company's financial statements. The
adoption of SFAS No. 143 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.
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." This statement revises current guidance
with respect to the process for measuring impairment of long-lived assets.
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. The reclassification of certain of the Company's assets to Assets
Held for Disposal during 2001 was made prior to the Company's adoption of
SFAS No. 144. Therefore, these assets will continue to be accounted for
under SFAS No. 121. The Company's adoption of SFAS No. 144 will only impact
the accounting for future transactions relating to the impairment or disposal
of long-lived assets.
20
ITEM 3.
QUANTITATIVE AND QUALITATIVE INFORMATION ABOUT MARKET RISK
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.
INTEREST RATE RISK. The fair value of long-term debt at March 31, 2002,
including current maturities, was estimated to be $232.2 Million compared to
a carrying value of $232 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 March 31, 2002, would be
approximately $5.2 Million or 2.2% of the carrying value.
The fair value of the interest rate swap agreement discussed in the Form
10-K was a liability of $1.2 Million at March 31, 2002, 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. A hypothetical 10% decrease in interest rates as of March 31, 2002,
would have resulted in a $173,000 increase in the fair value of the liability.
COMMODITY PRICE RISK. The fair value of the commodity swap agreements
discussed in the Form 10-K was an asset of $487,000 at March 31, 2002,
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. A hypothetical 10% decrease in the fuel price per ton of fuel as
of March 31, 2002, would have resulted in a $318,000 decrease in the fair
value of the asset.
FOREIGN EXCHANGE RATE RISK. 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, 2001.
21
PART II - OTHER INFORMATION
Item 4.
Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders was held April 17, 2002. The matters
voted upon and the results of the voting were as follows:
(1) Election of Board of Directors:
Nominee Shares Voted For Withheld Authority
------- ---------------- ------------------
Niels W. Johnsen 5,189,279 580,521
Erik F. Johnsen 5,189,306 580,494
Niels M. Johnsen 5,189,294 580,506
Erik L. Johnsen 5,189,294 580,506
Harold S. Grehan, Jr. 5,760,864 8,936
Raymond V. O'Brien, Jr. 5,760,584 9,216
Edwin Lupberger 5,760,584 9,216
Edward K. Trowbridge 5,760,584 9,216
Item 6.
Exhibits and Reports on Form 8-K
(a) EXHIBIT INDEX
Exhibit Number Description
-------------- -----------
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) No reports on Form 8-K were filed for the three month period ended March
31, 2002.
22
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 May 14, 2002
-------------------------------