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, 2003
--------------
__ 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, 2003)
- ------------------------------ ------------------ ----------------
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,
2003 2002
---------- ----------
Revenues $ 64,806 $ 60,452
Operating Expenses:
Voyage Expenses 49,618 49,693
Vessel and Barge Depreciation 4,654 4,830
Impairment Loss - 54
---------- ----------
Gross Voyage Profit 10,534 5,875
---------- ----------
Administrative and General Expenses 4,011 4,446
(Gain) Loss on Sale of Other Assets (4) 20
---------- ----------
Operating Income 6,527 1,409
---------- ----------
Interest and Other:
Interest Expense 3,481 4,620
Investment Income (228) (312)
Other Income (22) (1,282)
(Gain) Loss on Early Extinguishment of Debt (1,260) 48
---------- ----------
1,971 3,074
---------- ----------
Income (Loss) Before Provision (Benefit)
for Income Taxes and Equity in Net Income
of Unconsolidated Entities 4,556 (1,665)
---------- ----------
Provision (Benefit) for Income Taxes:
Deferred 1,587 (576)
State 42 -
---------- ----------
1,629 (576)
---------- ----------
Equity in Net Income of Unconsolidated
Entities (Net of Applicable Taxes) 67 169
---------- ----------
Net Income (Loss) $ 2,994 $ (920)
========== ==========
Basic and Diluted Earnings Per Share:
Net Income (Loss) $ 0.49 $ (0.15)
========== ==========
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 2003 2002
---------- ----------
Current Assets:
Cash and Cash Equivalents $ 6,314 $ 3,529
Restricted Cash 8,473 8,096
Marketable Securities 2,105 2,211
Accounts Receivable, Net of Allowance
for Doubtful Accounts of $345 and $332
in 2003 and 2002, Respectively:
Traffic 15,025 16,341
Agents' 3,966 4,343
Claims and Other 16,079 9,408
Federal Income Taxes Receivable 5,755 5,755
Deferred Income Tax 576 576
Net Investment in Direct Financing Lease 1,985 1,944
Other Current Assets 4,329 6,212
Material and Supplies Inventory, at
Lower of Cost or Market 3,482 3,492
Current Assets Held for Disposal 2,718 2,762
---------- ----------
Total Current Assets 70,807 64,669
---------- ----------
Marketable Equity Securities 200 200
---------- ----------
Investment in Unconsolidated Entities 8,413 8,251
---------- ----------
Net Investment in Direct Financing Lease 50,761 51,264
---------- ----------
Vessels, Property, and Other Equipment, at Cost:
Vessels and Barges 336,934 336,755
Other Equipment 5,506 5,507
Terminal Facilities 329 336
Furniture and Equipment 9,077 9,042
---------- ----------
351,846 351,640
Less - Accumulated Depreciation (115,357) (110,535)
---------- ----------
236,489 241,105
---------- ----------
Other Assets:
Deferred Charges, Net of Accumulated
Amortization of $13,889 and $13,572
in 2003 and 2002, Respectively 13,466 14,628
Acquired Contract Costs, Net of
Accumulated Amortization of $20,340
and $19,976 in 2003 and 2002, Respectively 10,186 10,550
Due from Related Parties 2,584 2,609
Other 13,167 13,476
---------- ----------
39,403 41,263
---------- ----------
$ 406,073 $ 406,752
========== ==========
<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,
LIABILITIES AND STOCKHOLDERS' INVESTMENT 2003 2002
---------- ----------
Current Liabilities:
Current Maturities of Long-Term Debt $ 20,958 $ 21,362
Accounts Payable and Accrued Liabilities 34,578 34,252
---------- ----------
Total Current Liabilities 55,536 55,614
---------- ----------
Billings in Excess of Income
Earned and Expenses Incurred 3,336 1,207
---------- ----------
Long-Term Debt, Less Current Maturities 185,769 192,297
---------- ----------
Other Long-Term Liabilities:
Deferred Income Taxes 16,115 14,358
Claims and Other 26,658 28,049
---------- ----------
42,773 42,407
---------- ----------
Commitments and Contingent Liabilities
Stockholders' Investment:
Common Stock 6,756 6,756
Additional Paid-In Capital 54,450 54,450
Retained Earnings 67,433 64,439
Less - Treasury Stock (8,704) (8,704)
Accumulated Other Comprehensive Loss (1,276) (1,714)
---------- ----------
118,659 115,227
---------- ----------
$ 406,073 $ 406,752
========== ==========
<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, 2001 $6,756 $54,450 $64,575 $(8,704) $(2,172) $114,905
Comprehensive Income:
Net Loss for Year Ended
December 31, 2002 - - (136) - - (136)
Other Comprehensive Income (Loss):
Unrealized Holding Loss on
Marketable Securities,
Net of Deferred Taxes
of ($194) - - - - (362) (362)
Recognition of Unrealized
Holding Loss on Marketable
Securities, Net of
Deferred Taxes of $248 - - - - 461 461
Unrealized Holding Gain on
Derivatives, Net of Deferred
Taxes of $193 - - - - 359 359
-------
Total Comprehensive Income 322
------- ------- -------- -------- ----------- -------
Balance at
December 31, 2002 $6,756 $54,450 $64,439 $(8,704) $(1,714) $115,227
------- ------- -------- -------- ----------- -------
Comprehensive Income:
Net Income for the Period
Ended March 31, 2003 - - 2,994 - - 2,994
Other Comprehensive Income (Loss):
Unrealized Holding Loss on
Marketable Securities,
Net of Deferred Taxes
of ($6) - - - - (11) (11)
Unrealized Holding Gain on
Derivatives, Net of Deferred
Taxes of $242 - - - - 449 449
-------
Total Comprehensive Income 3,432
------- ------- -------- -------- ----------- -------
Balance at
March 31, 2003 $6,756 $54,450 $67,433 $(8,704) $(1,276) $118,659
------- ------- -------- -------- ----------- -------
<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,
2003 2002
------------ ------------
Cash Flows from Operating Activities:
Net Income (Loss) $ 2,994 $ (920)
Adjustments to Reconcile Net Income (Loss)
to Net Cash Provided by Operating Activities:
Depreciation 4,887 5,092
Amortization of Deferred Charges
and Other Assets 1,861 1,924
Provision (Benefit) for Deferred Income Taxes 1,587 (576)
Equity in Net Income of Unconsolidated Entities (67) (169)
Gain on Sale of Other Assets (4) 20
Impairment Loss - 54
(Gain) Loss on Early Extinguishment of Debt (1,260) 48
Changes in:
Accounts Receivable (2,407) 5,133
Inventories and Other Current Assets 1,722 472
Other Assets 392 1,269
Accounts Payable and Accrued Liabilities 2,735 1,491
Federal Income Taxes Payable (92) (406)
Billings in Excess of Income Earned
and Expenses Incurred (313) (1,293)
Other Long-Term Liabilities (1,706) 2,184
------------ ------------
Net Cash Provided by Operating Activities 10,329 14,323
------------ ------------
Cash Flows from Investing Activities:
Net Investment in Direct Financing Lease 462 422
Additions to Vessels and Other Property (1,912) (64)
Additions to Deferred Charges (179) (531)
Proceeds from Sale of Vessels and Other Property 50 5,573
Purchase of and Proceeds from Short Term Investments 61 (24)
Investment in Unconsolidated Entities - (941)
Net Increase in Restricted Cash Account (377) (161)
Other Investing Activities (17) 71
------------ ------------
Net Cash (Used) Provided by Investing Activities (1,912) 4,345
------------ ------------
Cash Flows from Financing Activities:
Proceeds from Issuance of Debt 10,000 7,500
Repayment of Debt and Capital Lease Obligations (16,951) (23,991)
Additions to Deferred Financing Charges (61) (6)
Other Financing Activities 1,380 -
------------ ------------
Net Cash Used by Financing Activities (5,632) (16,497)
------------ ------------
Net Increase in Cash and Cash Equivalents 2,785 2,171
Cash and Cash Equivalents at Beginning of Period 3,529 25,150
------------ ------------
Cash and Cash Equivalents at End of Period $ 6,314 $ 27,321
============ ============
<FN>
The accompanying notes are an integral part of these statements.
7
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2003
(Unaudited)
Note 1. Basis of Preparation
We have prepared the accompanying unaudited interim financial statements
pursuant to the rules and regulations of the Securities and Exchange
Commission, and we have omitted certain information and footnote disclosures
required by generally accepted accounting principles for complete financial
statements. We suggest that you read these interim statements in conjunction
with the financial statements and notes thereto included in our Form 10-K for
the year ended December 31, 2002. We have made certain reclassifications to
prior period financial information in order to conform to current year
presentations.
The foregoing 2003 interim results are not necessarily indicative of the
results of operations for the full year 2003. Interim statements are subject
to possible adjustments in connection with the annual audit of our accounts
for the full year 2003. Management believes that all adjustments necessary
for a fair presentation of the information shown have been made.
Our policy is to consolidate all subsidiaries in which we hold a greater
than 50% voting interest and to use the equity method to account for
investments in entities in which we hold a 20% to 50% voting interest. We
use the cost method to account for investments in entities in which we hold
less than 20% voting interest and in which we cannot exercise significant
influence over operating and financial activities.
We have eliminated all significant intercompany accounts and transactions.
Note 2. Operating Segments
Our four operating segments, LINER SERVICES, TIME CHARTER CONTRACTS,
CONTRACTS OF AFFREIGHTMENT, and RAIL-FERRY SERVICE, are identified primarily
by the characteristics of the contracts and terms under which our vessels and
barges are operated. We report in the OTHER category results of several of
our subsidiaries that provide ship charter brokerage, agency, and other
specialized services primarily to our operating segments. We manage each
reportable segment separately, as each requires different resources depending
on the nature of the contract or terms under which each vessel within the
segment operates.
We do not allocate administrative and general expenses, investment income,
other income, equity in net income of unconsolidated entities, or income taxes
to our segments. Intersegment revenues are based on market prices and include
revenues earned by subsidiaries 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, 2003 and 2002:
(All Amounts in Thousands)
Liner Charter Contracts of Rail-Ferry
Services Contracts Affreightment Service Other Elim. Total
- -------------------------------------------------------------------------------
2003
Revenues from external
customers $20,141 $32,732 $ 4,004 $ 3,171 $ 4,758 $ - $64,806
Intersegment
revenues - - - - 3,497 (3,497) -
Vessel and barge
Depreciation 819 2,431 604 729 71 - 4,654
Gross voyage
profit (loss) (9) 9,718 1,249 (733) 309 - 10,534
Interest expense 284 2,064 497 608 28 - 3,481
Gain on sale of vessels
and other assets - - - - 4 - 4
Segment (loss) profit
before interest income,
other income, administrative
and general expenses,
equity in net income of
unconsolidated entities,
and taxes (293) 7,654 752 (1,341) 285 - 7,057
- -------------------------------------------------------------------------------
2002
Revenues from external
customers $23,513 $30,334 $ 3,628 $ 2,019 $ 958 $ - $60,452
Intersegment
revenues - - - - 5,179 (5,179) -
Vessel and barge
depreciation 896 2,431 604 729 170 - 4,830
Impairment loss - (54) - - - - (54)
Gross voyage
profit (loss) (1,507) 7,429 1,544 (1,127) (464) - 5,875
Interest expense 578 2,721 570 718 33 - 4,620
(Loss) on sale of
vessels and other
assets - (20) - - - - (20)
Segment (loss) profit
before interest income,
other income, administrative
and general expenses,
equity in net income of
unconsolidated entities,
and taxes (2,085) 4,688 974 (1,845) (497) - 1,235
- -------------------------------------------------------------------------------
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,
2003 2002
------------- -------------
Total profit for reportable segments $ 7,057 $ 1,235
Unallocated amounts:
Investment income 228 312
Other Income 22 1,282
Gain (loss) on early
extinguishment of debt 1,260 (48)
Administrative and general expenses (4,011) (4,446)
------------- -------------
Income (loss) before provision (benefit)
for income taxes and equity in net
income of unconsolidated entities $ 4,556 $ (1,665)
============= =============
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 three months of 2003 and
2002, as the effect would have been antidilutive.
9
Note 4. Accounts Receivable - Claims and Other
As of March 31, 2003, we had approximately $6 Million of receivables due
from the U.S. government as a result of increases in military cargo revenues,
which were paid in early April.
Note 5. New Accounting Pronouncements
In April of 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections" which is effective for fiscal years beginning after May 15, 2002.
This statement, among other matters, revises current guidance with respect to
gains and losses on early extinguishment of debt. Under SFAS No. 145, gains
and losses on early extinguishment of debt are no longer treated as
extraordinary items unless they meet the criteria for extraordinary treatment
in Accounting Principles Board ("APB") Opinion No. 30. We adopted SFAS No. 145
effective January 1, 2003, and reclassified gains and losses on early
extinguishment of debt reported in prior period income statements, as those
amounts no longer qualify for extraordinary treatment under SFAS No. 145. We
reported gains (losses) related to the early extinguishment of debt of
$1,260,000 and ($48,000) for the periods ended March 31, 2003, and 2002,
respectively.
In July of 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities," which supersedes Emerging Issues
Task Force ("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)." SFAS No. 146 requires that a liability
for a cost associated with an exit or disposal activity be recognized when the
liability is incurred. Under EITF Issue No. 94-3, a liability for an exit cost
was recognized at the date of an entity's commitment to an exit or disposal
plan. The provisions of SFAS No. 146 are effective for exit and disposal
activities that are initiated after December 31, 2002. We adopted SFAS No.
146 effective January 1, 2003, which had no material effect on our financial
position.
In December of 2002, the FASB issued SFAS No. 148, "Accounting for Stock-
Based Compensation-Transition and Disclosure," which amends SFAS No. 123,
"Accounting for Stock-Based Compensation." SFAS No. 148 provides alternative
methods of transition for a voluntary change to the fair value based method
of accounting for stock-based employee compensation. Additionally, SFAS No.
148 amends the disclosure requirements of SFAS No. 123 to require more
prominent and more frequent disclosures in financial statements of the effects
of stock-based compensation. The transition guidance and annual disclosure
provisions of SFAS No. 148 are effective for fiscal years ending after December
15, 2002. The interim disclosure provisions are effective for financial reports
containing financial statements for interim periods beginning after December
15, 2002. We continue to apply Accounting Principles Board ("APB") No. 25,
"Accounting for Stock Issued to Employees," in accounting for our stock-based
compensation. Therefore, the alternative methods of transition referred to
above do not apply. We have adopted the disclosure requirements of SFAS No.
148. If compensation expense had been determined using the fair value method
in SFAS No. 123, our net income (loss) and earnings (loss) per share for the
three months ended March 31, 2003 and 2002 would have agreed to the actual
amounts reported due to all outstanding stock options being fully vested and
no options being granted during these periods.
10
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Forward-Looking Statements
- ---------------------------
Certain statements made by us or on our behalf in this report or
elsewhere 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 beliefs and assumptions about future events that are inherently
unpredictable and are therefore subject to significant risks and uncertainties.
In this report, the terms "we," "us," "our," and "the Company" refer to
International Shipholding Corporation and its subsidiaries.
Such statements include, without limitation, statements regarding (1)
estimated fair values of capital assets, the recoverability of the cost of
those assets, the estimated future cash flows attributable to those assets,
and the appropriate discounts to be applied in determining the net present
values of those estimated cash flows; (2) estimated scrap values of assets
held for disposal; (3) estimated fair values of financial instruments, such as
interest rate and commodity swap agreements; (4) estimated losses (including
independent actuarial estimates) under self-insurance arrangements, as well as
estimated losses on certain contracts, trade routes, lines of business and
asset dispositions; (5) estimated obligations, and the timing thereof, to U.S.
Customs relating to foreign repair work; (6) the adequacy and availability of
capital resources on commercially acceptable terms; (7) our ability to remain
in compliance with our debt covenants; (8) anticipated trends in government
sponsored cargoes; (9) our ability to maintain our government subsidies; and
(10) the anticipated improvement in the results of our Mexican service.
We caution readers that certain important factors have affected, and are
likely in the future to affect, our ability to achieve our expectations in
those areas and in others, including our actual consolidated results of
operations. Such factors may, and in some cases are likely to, cause future
results to differ materially from those expressed in or implied by any forward-
looking statements made in this report or elsewhere by us or on our behalf.
Such factors include, without limitation, (1) political events in the United
States and abroad, including terrorism, and the U.S. military's response to
those events; (2) election results, regulatory activities and the appropriation
of funds by the U.S. Congress; (3) charter hire rates and vessel utilization
rates; (4) unanticipated trends in operating expenses such as fuel and labor
costs; (5) trends in interest rates, and the availability and cost of capital
to us; (6) the frequency and severity of claims against us, and unanticipated
court results and changes in laws and regulations; (7) our success in renewing
existing contracts and securing new ones, in each case on favorable economic
terms; (8) unplanned maintenance and out-of-service days; (9) the ability of
customers to fulfill obligations with us; and (10) the performance of our
unconsolidated subsidiaries.
A more complete description of certain of these important factors is
contained in our Form 10-K filed with the Securities and Exchange Commission
for the year ended December 31, 2002.
11
General
- -------
Our 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, our 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 our 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.
RESULTS OF OPERATIONS
-----------------------
THREE MONTHS ENDED MARCH 31, 2003
COMPARED TO THE THREE MONTHS ENDED MARCH 31, 2002
Gross Voyage Profit
- -------------------
Gross voyage profit increased 79.3% from $5.9 Million in the first quarter
of 2002 as compared to $10.5 Million in the first quarter of 2003. The changes
associated with each of our segments are discussed below.
LINER SERVICES: Gross voyage loss for this segment improved from a loss
of $1.5 Million in the first quarter of 2002 to a loss of $9,000 in the first
quarter of 2003. The improvement was a result of the new U.S. Flag LASH Liner
service, which commenced operations in November of 2002, and higher cargo
volume on the Foreign Flag LASH Liner service in the current period. Included
in the gross voyage loss for this segment was vessel and barge depreciation,
which overall was comparable for the two periods reported. Included in vessel
and barge depreciation in the first quarter of 2002 was depreciation on our
Foreign Flag LASH vessel, which was sold and leased back in the fourth quarter
of 2002. The lease qualified for treatment as an operating lease and the lease
payments are included in voyage expenses in 2003. Offsetting this decrease in
depreciation, in first quarter of 2003, is depreciation on capitalized costs
associated with the upgrade work performed on one of our Foreign Flag LASH
vessels in the fourth quarter of 2002.
TIME CHARTER CONTRACTS: The increase in this segment's gross voyage
profit from $7.4 Million in the first quarter of 2002 to $9.7 Million in the
first quarter of 2003 was attributable primarily to the fact that our Coal
Carrier operating in the coast-wise trade was utilized for the full quarter
under its basic time charter contract as compared to the same quarter of the
previous year when it was out of service fourteen days for repairs and during
which it operated fifty-two days in the spot market at lower rates as compared
to its base charter. The vessel's base charter covers about 67% of its
operating days during the year 2003 with the balance of its time spent in the
spot commercial market.
12
CONTRACTS OF AFFREIGHTMENT: The decrease in this segment's gross voyage
profit from $1.5 Million in the first quarter of 2002 to $1.2 Million in the
first quarter of 2003 resulted primarily from a payment received in 2002 for
loss of hire from an insurance claim relating to pre-existing damages
identified during a scheduled drydocking.
RAIL-FERRY SERVICE: Gross voyage loss for this segment improved from a
loss of $1.1 Million in the first quarter of 2002 to a loss of $733,000 in the
first quarter of 2003. The improvement was a result of higher cargo volume.
OTHER: Gross voyage profit for this segment improved from a loss of
$464,000 in the first quarter of 2002 to a profit of $309,000 in the first
quarter of 2003. Included in the first quarter of 2003 are the results of the
bareboat charter agreements for two vessels currently under Maritime Security
Program contracts, which were not on charter during the same period of 2002.
Other Income and Expense
- -------------------------
Administrative and general expenses decreased 9.8% from $4.4 Million in
the first quarter of 2002 to $4 Million in the first quarter of 2003. The
decrease in the current period is primarily a result of the first quarter of
2002 including severance payments related to non-recurring staff reductions.
Interest expense decreased 24.7% from $4.6 Million in the first quarter
of 2002 to $3.5 Million in the first quarter of 2003. Decreases due to
regularly scheduled payments on outstanding debt and lower interest rates
accounted for $365,000 of the total difference. Reduced cost from the early
repayment of our 9% Senior Notes and 7.75% Senior Notes, which was partially
offset by the cost of new financings used to repurchase the Notes, accounted
for approximately $714,000 of the decrease.
Investment income of $228,000 earned during the first quarter of 2003 was
slightly lower than the $312,000 in the first quarter of 2002 primarily as a
result of lower invested balances in the current period.
Other income decreased from $1.3 Million in the first quarter of 2002 to
$22,000 in the first quarter of 2003 primarily as a result of interest
collected in 2002 on foreign tax refunds received in prior years.
Gain on early extinguishment of debt of $1,260,000 in the first quarter
of 2003 resulted from the retirement at a discount of approximately $7.9
Million of our 7.75% Senior Notes due in 2007. The loss of $48,000 reported
in the first quarter of 2002 resulted primarily from the retirement at a slight
premium of approximately $11.4 Million of our 9% Senior Notes due in 2003. The
remaining amount of the 9% Senior Notes were retired by the end of December
2002.
Income Taxes
- -------------
We had a tax provision of $1.6 Million for the first quarter of 2003 and
a tax benefit of $576,000 for the first quarter of 2002 at the statutory rate
of 35% for both periods.
13
Equity in Net Income of Unconsolidated Entities
- ------------------------------------------------
Equity in net income of unconsolidated entities, net of taxes, of $67,000
and $169,000 for the first quarter of 2003 and 2002, respectively, was
primarily related to our 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 our Consolidated Financial Statements.
Our working capital increased from $9.1 Million at December 31, 2002, to
$15.3 Million at March 31, 2003. Of the $55.5 Million in current liabilities,
$21 Million related to the current maturities of long-term debt at March 31,
2003. Cash and cash equivalents increased during the first quarter of 2003 by
$2.8 Million from $3.5 Million at December 31, 2002, to $6.3 Million at March
31, 2003. The increase was due to cash provided by operating activities of
$10.3 Million, partially offset by cash used for investing activities of $1.9
Million and financing activities of $5.6 Million.
Operating activities generated a positive cash flow after adjusting the
net income of $3 Million for non-cash provisions such as depreciation and
amortization. Cash used for investing activities of $1.9 Million was primarily
to cover payments for vessel upgrades.
Cash used for financing activities of $5.6 Million included $6.5 Million
used to repurchase $7.9 Million of our 7.75% Senior Notes at a discount, $3.1
Million used for regularly scheduled payments of debt, and $6 Million used to
repay draws on our line of credit. These uses were partially offset by
proceeds of $10 Million from draws on our line of credit.
As of March 31, 2003, $5 Million was drawn on our $10 Million revolving
credit facility, which expires in April of 2005. During the first quarter of
2003, we entered into an agreement for a $5 Million overline credit facility,
which expires in December of 2003. This overline credit facility was fully
available as of March 31, 2003.
Debt and Lease Obligations - We have several vessels under operating
leases, including three Pure Car/Truck Carriers, one LASH vessel, one Ice
Strengthened Breakbulk/Multi Purpose vessel, a Container vessel and a Tanker
vessel. Our obligations associated with these leases are disclosed in the
table below.
The following is a summary of our debt and lease obligations as of March
31, 2003:
Apr. 1-
Debt and Lease Dec. 31,
Obligations (000's) 2003 2004 2005 2006 2007 Thereafter
- -------------------------------------------------------------------------------
Long-term debt $ 18,285 $ 19,043 $ 24,809 $ 18,496 $ 87,777 $ 38,500
Operating leases 17,496 23,329 17,941 17,856 17,856 124,150
------------------------------------------------------
Total by period $ 35,781 $ 42,372 $ 42,750 $ 36,352 $105,633 $162,650
======================================================
14
Debt Covenant Compliance Status - We have met all of the financial
covenants under our various debt agreements, after they were amended for the
full year 2002. We have met, as of March 31, 2003, the more restrictive
financial covenants that became effective in 2003, and believe we will continue
to meet them in 2003, although we cannot give assurances at this time.
If our cash flow and capital resources are not sufficient to fund our
debt service obligations, we may be forced to reduce or delay capital
expenditures, sell assets, obtain additional equity capital, enter into
additional financings of our unencumbered vessels or restructure debt.
Sale of Coal Transfer Terminal Facility - During the first quarter of
2003, we reached an agreement in principle to sell our previously idle coal
transfer terminal facility and land for approximately book value. The
agreement was finalized in May of 2003.
Mexican Service Results - We expect the results of the Mexican Service
to continue to improve and to contribute to our cash flows. If outside market
conditions impact those projections, we believe we could find alternative
placement for the two vessels supporting the service.
Coal Carrier Contract - Our Coal Carrier's base charter covers about 67%
of its operating days during the year 2003 with the balance of its time spent
in the spot commercial market. In 2004 and thereafter, the base charter covers
less operating days, approximately 58%. Although in the past we have been able
to find commercial employment for this vessel, we cannot give any assurances
that we will be able to continue finding employment for the remainder of the
operating days during these periods.
Dividend Payments - In view of the impairment loss recognized on Assets
Held for Disposal during 2001, and to comply with certain financial covenants
under our debt agreements, the suspension of quarterly dividend payments on our
common shares of stock remains in effect.
Environmental Issues - We have not been notified that we are a potentially
responsible party in connection with any environmental matters.
NEW ACCOUNTING PRONOUNCEMENTS
-------------------------------
In April of 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections" which is effective for fiscal years beginning after May
15, 2002. This statement, among other matters, revises current guidance with
respect to gains and losses on early extinguishment of debt. Under SFAS No.
145, gains and losses on early extinguishment of debt are no longer treated as
extraordinary items unless they meet the criteria for extraordinary treatment
in Accounting Principles Board ("APB") Opinion No. 30. We adopted SFAS No. 145
effective January 1, 2003, and reclassified gains and losses on early
extinguishment of debt reported in prior period income statements, as those
amounts no longer qualify for extraordinary treatment under SFAS No. 145. We
reported gains (losses) related to the early extinguishment of debt of
$1,260,000 and ($48,000) for the periods ended March 31, 2003, and 2002,
respectively.
15
In July of 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities," which supersedes Emerging
Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." SFAS No. 146 requires
that a liability for a cost associated with an exit or disposal activity be
recognized when the liability is incurred. Under EITF Issue No. 94-3, a
liability for an exit cost was recognized at the date of an entity's commitment
to an exit or disposal plan. The provisions of SFAS No. 146 are effective for
exit and disposal activities that are initiated after December 31, 2002. We
adopted SFAS No. 146 effective January 1, 2003, which had no material effect
on our financial position.
In December of 2002, the FASB issued SFAS No. 148, "Accounting for Stock-
Based Compensation-Transition and Disclosure," which amends SFAS No. 123,
"Accounting for Stock-Based Compensation." SFAS No. 148 provides alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. Additionally, SFAS No. 148
amends the disclosure requirements of SFAS No. 123 to require more prominent
and more frequent disclosures in financial statements of the effects of stock-
based compensation. The transition guidance and annual disclosure provisions of
SFAS No. 148 are effective for fiscal years ending after December 15, 2002. The
interim disclosure provisions are effective for financial reports containing
financial statements for interim periods beginning after December 15, 2002.
We continue to apply Accounting Principles Board ("APB") No. 25, "Accounting
for Stock Issued to Employees," in accounting for our stock-based
compensation. Therefore, the alternative methods of transition referred to
above do not apply. We have adopted the disclosure requirements of SFAS No.
148. If compensation expense had been determined using the fair value method
in SFAS No. 123, our net income (loss) and earnings (loss) per share for the
three months ended March 31, 2003 and 2002 would have agreed to the actual
amounts reported due to all outstanding stock options being fully vested and
no options being granted during these periods.
ITEM 3.
QUANTITATIVE AND QUALITATIVE INFORMATION ABOUT MARKET RISK
In the ordinary course of our business, we are exposed to foreign
currency, interest rate, and commodity price risk. We utilize derivative
financial instruments including forward exchange contracts, interest rate swap
agreements, and commodity swap agreements to manage certain of these exposures.
We hedge only firm commitments or anticipated transactions and do not use
derivatives for speculation. We neither hold nor issue financial instruments
for trading purposes.
INTEREST RATE RISK. The fair value of long-term debt at March 31, 2003,
including current maturities, was estimated to be $209.1 Million compared to a
carrying value of $206.7 Million. The potential increase in fair value
resulting from a hypothetical 10% decrease in the average interest rates
applicable to our long-term debt at March 31, 2002, would be approximately $2.7
Million or 1.3% of the carrying value.
The fair value of the interest rate swap agreement discussed in our Form
10-K was a liability of $1.6 Million at March 31, 2003, estimated based on the
amount that the banks would receive or pay to terminate the swap
16
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, 2003, would have resulted in a $31,000 increase in the fair value of the
liability.
COMMODITY PRICE RISK. In addition to the commodity swap agreements
discussed in our Form 10-K, we entered into three additional agreements in 2003
at various contract prices ranging from $124 to $158.75 per metric ton of fuel.
The fair value of the commodity swap agreements was an asset of $825,000 at
March 31, 2003, 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, 2003, would have resulted in a $825,000 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 our Form 10-K filed
with the Securities and Exchange Commission for the year ended December 31,
2002.
ITEM 4.
CONTROLS AND PROCEDURES
(a) Within the 90-day period prior to filing this report, we conducted
an evaluation of the effectiveness of our "disclosure controls and procedures,"
as that phrase is defined in Rules 13a-14(c) and 15d-14(c) under the Securities
Exchange Act of 1934. The evaluation was carried out under the supervision and
with the participation of our management, including our Chief Executive Officer
("CEO") and Chief Financial Officer ("CFO").
Based on that evaluation, the CEO and CFO have concluded that our
disclosure controls and procedures are effective in timely alerting them to
material information required to be disclosed in our periodic filings with
the Securities and Exchange Commission ("SEC"), and in ensuring that the
information required to be disclosed in those filings is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules
and forms.
(b) Subsequent to the date of the evaluation, there were no
significant changes in our internal controls or in other factors that could
significantly affect the internal controls, including any corrective actions
with regard to significant deficiencies and material weaknesses.
17
PART II - OTHER INFORMATION
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Our Annual Meeting of Shareholders was held April 23, 2003. 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 5,921,965 10,466
Erik F. Johnsen 5,921,965 10,466
Niels M. Johnsen 5,922,222 10,209
Erik L. Johnsen 5,922,222 10,209
Harold S. Grehan, Jr. 5,921,977 10,454
Raymond V. O'Brien, Jr. 5,921,977 10,454
Edwin Lupberger 5,922,234 10,197
Edward K. Trowbridge 5,921,977 10,454
(2) Ratification of Ernst & Young LLP, certified public accountants, as
our independent auditors for the fiscal year ending December 31, 2003:
Shares Voted For 5,930,165
Shares Voted Against 97
Abstentions 2,168
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)
99.1 Certification of Chief
Executive Officer Pursuant
to 18 U.S.C. Section 1350
as Adopted Pursuant to
Section 906 of the
Sarbanes-Oxley Act of 2002
99.2 Certification of Chief
Financial Officer Pursuant
to 18 U.S.C. Section 1350
as Adopted Pursuant to
Section 906 of the
Sarbanes-Oxley Act of 2002
(b) On April 24, 2003, we filed a current report on Form 8-K to furnish
the public announcement of our first quarter 2003 earnings.
18
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, 2003
___________________________
19
CERTIFICATION
I, Erik F. Johnsen, certify that:
1. I have reviewed this quarterly report on Form 10-Q of International
Shipholding Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls;
and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 14, 2003
/s/ Erik F. Johnsen
______________________________
Erik F. Johnsen
Chairman of the Board of Directors and Chief Executive Officer
International Shipholding Corporation
20
CERTIFICATION
I, Gary L. Ferguson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of International
Shipholding Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls;
and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 14, 2003
/s/ Gary L. Ferguson
______________________________
Gary L. Ferguson
Vice President and Chief Financial Officer
International Shipholding Corporation