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, 1998
---------------
__ 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 6,682,887 shares (March 31, 1998)
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2
PART I - FINANCIAL INFORMATION
ITEM 1-FINANCIAL STATEMENTS
INTERNATIONAL SHIPHOLDING CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(All Amounts in Thousands Except Per Share Data)
(Unaudited)
Three Months Ended March 31,
1998 1997
------------- -------------
Revenues $ 90,377 $ 83,519
Subsidy Revenue 3,121 6,475
------------- -------------
93,498 89,994
------------- -------------
Operating Expenses:
Voyage Expenses 70,659 66,898
Vessel and Barge Depreciation 8,776 8,522
------------- -------------
Gross Voyage Profit 14,063 14,574
------------- -------------
Administrative and General Expenses 6,280 6,878
------------- -------------
Operating Income 7,783 7,696
------------- -------------
Interest:
Interest Expense 6,987 7,001
Investment Income (504) (372)
------------- -------------
6,483 6,629
------------- -------------
Income Before Provision (Benefit) for
Income Taxes and Extraordinary Item 1,300 1,067
------------- -------------
Provision (Benefit) for Income Taxes:
Current 1,431 493
Deferred (966) (104)
State 67 85
------------- -------------
532 474
------------- -------------
Income Before Extraordinary Item $ 768 $ 593
------------- -------------
Extraordinary Loss on Early
Extinguishment of Debt (Net of
Income Tax Benefit of $554) (1,029) -
------------- -------------
Net (Loss) Income $ (261) $ 593
============= =============
Basic and Diluted Earnings Per Share:
Income Before Extraordinary Loss $ 0.11 $ 0.09
Extraordinary Loss (0.15) -
------------- -------------
Net (Loss) Income $ (0.04) $ 0.09
============= =============
<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,
1998 1997
ASSETS --------------- ---------------
Current Assets:
Cash and Cash Equivalents $ 27,858 $ 32,002
Marketable Securities 11,143 10,758
Accounts Receivable, Net of Allowance
for Doubtful Accounts of $96 and $208
in 1998 and 1997, Respectively:
Traffic 34,983 35,442
Agents' 5,576 7,128
Claims and Other 5,468 3,031
Federal Income Taxes Receivable - 43
Deferred Income Taxes 730 -
Net Investment in Direct Financing Leases 1,885 1,913
Other Current Assets 3,553 4,187
Material and Supplies Inventory, at Cost 13,477 13,296
--------------- ---------------
Total Current Assets 104,673 107,800
--------------- ---------------
Marketable Equity Securities 486 582
--------------- ---------------
Net Investment in Direct Financing Leases 20,093 20,552
--------------- ---------------
Vessels, Property, and Other Equipment, at Cost:
Vessels and Barges 701,354 689,856
Other Marine Equipment 7,633 7,590
Terminal Facilities 18,408 18,377
Land 2,317 2,317
Furniture and Equipment 16,923 16,853
--------------- ---------------
746,635 734,993
Less - Accumulated Depreciation (320,904) (311,557)
--------------- ---------------
425,731 423,436
--------------- ---------------
Other Assets:
Deferred Charges, Net of Accumulated
Amortization of $59,939 and $53,913
in 1998 and 1997, Respectively 38,302 38,960
Acquired Contract Costs, Net of
Accumulated Amortization of $13,063 and
$12,699 in 1998 and 1997, Respectively 17,463 17,826
Due from Related Parties 351 369
Other 7,345 8,679
--------------- ---------------
63,461 65,834
--------------- ---------------
$ 614,444 $ 618,204
=============== ===============
<FN>
The accompanying notes are an integral part of these statements.
4
INTERNATIONAL SHIPHOLDING CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(All Amounts in Thousands)
(Unaudited)
March 31, December 31,
LIABILITIES AND STOCKHOLDER'S INVESTMENT 1998 1997
--------------- ---------------
Current Liabilities:
Current Maturities of Long-Term Debt $ 15,302 $ 35,865
Current Maturities of Capital Lease
Obligations 2,915 2,579
Accounts Payable and Accrued Liabilities 53,235 51,735
Federal Income Tax Payable 680 -
Current Deferred Income Tax Liability - 171
Current Liabilities to be Refinanced - (22,511)
--------------- ---------------
Total Current Liabilities 72,132 67,839
--------------- ---------------
Current Liabilities to be Refinanced - 22,511
--------------- ---------------
Billings in Excess of Income Earned and
Expenses Incurred 3,802 5,903
--------------- ---------------
Long-Term Capital Lease Obligations, Less
Current Maturities 12,333 14,994
--------------- ---------------
Long-Term Debt, Less Current Maturities 292,283 271,835
--------------- ---------------
Reserves and Deferred Credits:
Deferred Income Taxes 38,566 39,494
Claims and Other 23,201 22,823
--------------- ---------------
61,767 62,317
--------------- ---------------
Commitments and Contingent Liabilities
Stockholders' Investment:
Common Stock 6,756 6,756
Additional Paid-In Capital 54,450 54,450
Retained Earnings 112,116 112,794
Less - Treasury Stock (1,133) (1,133)
Accumulated Other Comprehensive Loss (62) (62)
--------------- ---------------
172,127 172,805
--------------- ---------------
$ 614,444 $ 618,204
=============== ===============
<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, 1996 $ 6,756 $ 54,450 $112,310 ($ 1,133) $ 24 $172,407
Comprehensive Income:
Net Income for Year Ended
December 31, 1997 - - 2,155 - - 2,155
Other Comprehensive Income:
Unrealized Holding Loss
on Marketable Securities,
Net of Deferred Taxes of
($46) - - - - (86) (86)
---------
Total Comprehensive Income 2,069
Cash Dividends - - (1,671) - - (1,671)
--------- --------- --------- --------- --------- ---------
Balance at
December 31, 1997 $ 6,756 $ 54,450 $112,794 ($1,133) ($62) $172,805
========= ========= ========= ========= ========= =========
Comprehensive Income:
Net Income for the
Period Ended
March 31, 1998 - - (261) - - (261)
--------
Total Comprehensive Income (261)
Cash Dividends - - (417) - - (417)
--------- --------- --------- --------- --------- --------
Balance at
March 31, 1998 $ 6,756 $ 54,450 $112,116 ($1,133) ($62) $172,127
========= ========= ========= ========= ========= ========
<FN>
The accompanying notes are an integral part of these statements.
6
INTERNATIONAL SHIPHOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All Amounts in Thousands)
(Unaudited)
For Three Months Ended March 31,
1998 1997
-------------- -------------
Cash Flows from Operating Activities:
Net (Loss) Income $ (261) 593
Adjustments to Reconcile Net (Loss)
Income to Net Cash Provided
by Operating Activities:
Depreciation 9,442 9,226
Amortization of Deferred
Charges and Other Assets 6,404 5,628
Benefit for Deferred Income
Taxes (966) (104)
Loss on Sale of Vessels and
Other Property 3 -
Extraordinary Loss 1,029 -
Changes in:
Accounts Receivable (426) 10,504
Net Investment in Direct
Financing Leases 487 861
Inventories and Other Current
Assets 468 (2,369)
Other Assets 1,326 374
Accounts Payable and Accrued
Liabilities (825) (10,081)
Federal Income Taxes Payable 415 301
Unearned Income (2,101) (2,311)
Reserve for Claims and Other
Deferred Credits (1,093) 595
-------------- --------------
Net Cash Provided by Operating Activities 13,902 13,217
-------------- --------------
Cash Flows from Investing Activities:
Purchase of Vessels and Other
Property (9,901) (4,073)
Additions to Deferred Charges (1,773) (2,479)
Proceeds from Sale of Vessels and
Other Property 77 -
Purchase of Short-Term Investments (304) -
Other Investing Activities 18 573
-------------- --------------
Net Cash Used by Investing Activities (11,883) (5,979)
-------------- --------------
Cash Flows from Financing Activities:
Proceeds from Issuance of Debt 117,435 38,657
Reduction of Debt and Capital Lease
Obligations (119,875) (50,224)
Additions to Deferred Financing
Charges (2,874) (23)
Other Financing Activities (432) -
Common Stock Dividends Paid (417) (418)
-------------- --------------
Net Cash Used by Financing Activities (6,163) (12,008)
-------------- --------------
Net Decrease in Cash and Cash Equivalents (4,144) (4,770)
Cash and Cash Equivalents at Beginning
of Period 32,002 43,020
-------------- --------------
Cash and Cash Equivalents at End of Period $ 27,858 $ 38,250
============== ==============
<FN>
The accompanying notes are an integral part of these statements.
7
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1998
(Unaudited)
Note 1. Basis of Preparation
The accompanying unaudited interim financial statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures required by
generally accepted accounting principles for complete financial statements
have been omitted. It is suggested that these interim statements be
read in conjunction with the financial statements and notes thereto
included in the Form 10-K of International Shipholding Corporation for
the year ended December 31, 1997. Certain reclassifications have been made
to prior period financial information in order to conform to current year
presentations.
Interim statements are subject to possible adjustments in connection
with the annual audit of the Company's accounts for the full year
1998. In the opinion of management, all adjustments (consisting of
only normal recurring adjustments) necessary for a fair presentation of
the information shown have been included.
The foregoing 1998 interim results are not necessarily indicative of
the results of operations for the full year 1998.
The Company's policy is to consolidate all subsidiaries in which it
holds greater than 50% voting interest. All significant intercompany
accounts and transactions have been eliminated.
Note 2. New Accounting Standards
In April of 1998, the Accounting Standards Executive Committee of
the American Institute of Certified Public Accountants issued Statement
of Position (SOP) 98-5, "Reporting on the Costs of Start-Up Activities."
This SOP provides guidance on the financial reporting of start-up costs
and organization costs. It requires costs of start-up activities and
organization costs to be expensed as incurred. The SOP is effective
for financial statements for fiscal years beginning after December 15, 1998.
The Company has not chosen early adoption and expects no material impact
on its financial statements when the SOP is adopted.
8
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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, 1997.
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.
9
FIRST QUARTER ENDED MARCH 31, 1998
COMPARED TO FIRST QUARTER ENDED MARCH 31, 1997
Gross Voyage Profit
- -------------------
Gross voyage profit decreased slightly from $14.6 Million in the
first quarter of 1997 to $14.1 Million in the first quarter of 1998.
Decreases in gross voyage profit resulting from reduced cargo volume
on the Company's domestic and Indonesian services were substantially
offset by improved results on the Company's Waterman LASH liner service
due to lower fuel prices and fewer days out of service for scheduled
drydockings.
Vessel and barge depreciation for the first quarter of 1998 increased
3.0% to $8.8 Million as compared to $8.5 Million in the same period of
1997 primarily due to the commencement of operations in the first quarter
of 1997 of a LASH vessel purchased and refurbished in 1996 and 82 LASH
barges.
Other Income and Expenses
- -------------------------
Administrative and general expenses decreased from $6.9 Million or 7.6%
of revenues in the first quarter of 1997 to $6.3 Million or 6.7% of revenues
in the same period in 1998 due to a continuing cost reduction program,
including a small reduction in work force implemented at the end of the
first quarter of 1997.
Interest expense was approximately $7.0 Million for each of the first
quarters of 1998 and 1997. On January 22, 1998, the Company issued $110
Million of 7 3/4% Senior Notes due 2007 (the "Notes"), the proceeds of which
were used to repay shorter-term amortizing bank debt. Interest expense
on these Notes for the first quarter of 1998 was offset by reductions in
interest expense resulting from the aforementioned early repayment
of debt and regularly scheduled payments.
Investment income increased from $372,000 for the first quarter of 1997
to $504,000 for the first quarter of 1998 due to a higher average balance
of invested funds and more favorable interest rates.
Income Taxes
- ------------
The Company provided $465,000 for Federal income taxes in the first
quarter of 1998 and $389,000 in the first quarter of 1997 at the statutory
rate of 35% for both periods.
10
Extraordinary Loss on the Early Extinguishment of Debt
- ------------------------------------------------------
The Company incurred an extraordinary loss of $1 Million during
the first quarter of 1998 related to the early extinguishment of debt.
This loss resulted primarily from the write-off of previously deferred
financing costs related to the loans repaid early with the proceeds of the
aforementioned Notes and a make-whole premium on one of those loans.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital decreased from $40 Million at
December 31, 1997, to $32.5 Million at March 31, 1998, after provision for
current maturities of long-term debt and capital lease obligations of $18.2
Million. Cash and cash equivalents decreased during the first three months
of 1998 by $4.1 Million to a total of $27.9 Million. This decrease, which
resulted from cash used for investing and financing activities of $11.9
Million and $6.2 Million, respectively, was partially offset by operating
cash flows of $13.9 Million.
The major source of cash from operations was net income adjusted for
non-cash provisions such as depreciation, amortization, and the write-off
of unamortized deferred financing costs related to loans repaid with the
proceeds of the Notes.
Investing activities during the period included the purchase of a
new LASH vessel, the Hickory, 82 LASH barges, and two special purpose
barges for which the Company used cash of $7.5 Million, $764,000, and
$745,000, respectively. Additionally, cash of $1.8 Million was used for
deferred drydocking charges.
The Company received the net proceeds from the sale of the Notes in
January of 1998 of approximately $109.4 Million, which were used
primarily to repay certain indebtedness of the Company's subsidiaries and
for related transaction costs. The net cash used for financing
activities of $6.2 Million included reductions of debt and capital lease
obligations of $120 Million for early repayment of debt as discussed
above, reguarly scheduled principal payments, and repayments of amounts
drawn under lines of credit which were substantially offset by the
proceeds from the aforementioned Notes and $8 Million drawn under the
Company's lines of credit. Additionally, $2.9 Million was used for
transaction costs of issuing the Notes, $417,000 was used to meet
common stock dividend requirements, and $432,000 was used to pay a
make-whole premium on one of the loans repaid early with the proceeds of
the Notes.
11
In the first quarter of 1998, the Company purchased a 1989-built LASH
vessel renamed Hickory. The total purchase price was $9 Million, of which
$7.5 Million was paid as of March 31, 1998, and financed through draws on
the Company's line of credit. As reported in the third quarter of 1997,
the Company also purchased a 1987-built LASH vessel renamed Willow. Both of
these vessels are now in reserve pending a decision on their
conversion/deployment. On an interim basis, the Hickory is being employed
as a feeder vessel for LASH barge movements in Southeast Asia. The
Company is making plans to refurbish at least one of these vessels at a
cost of approximately $12 Million, after which that vessel will likely
replace one of the older vessels in the Company's TransAtlantic LASH
liner service.
Early in the second quarter of 1998, the Company purchased and
took delivery of a 1994-built Pure Car/Truck Carrier. The purchase price
was financed with draws on the Company's revolving credit facility. The
vessel, renamed the Green Point, will commence a long-term charter to a
major Japanese shipping company after being reflagged to U. S. Registry.
At December 31, 1997, the Company had available three lines of credit
totaling $35.0 Million to meet short-term requirements when fluctuations
occur in working capital. Early in the first quarter of 1998, the Company
entered into a $25 Million revolving credit facility that replaced these
lines of credit. At March 31, 1998, $3 Million was outstanding on
this credit facility. At the end of the first quarter of 1998, the
Company increased this revolving credit facility to $50 Million. Additional
draws were made against this increased line of credit early in the second
quarter for the financing of the Green Point.
Management believes that normal operations will provide sufficient
working capital and cash flows to meet debt service and dividend
requirements during the foreseeable future.
The Company has not been notified that it is a potentially
responsible party in connection with any environmental matters.
At a regular meeting held April 15, 1998, the Board of Directors
declared a quarterly dividend of 6.25 cents per Common Share payable on
June 19, 1998, to shareholders of record on June 5, 1998. At the Company's
Annual Meeting of Shareholders held on the same day as the Board Meeting,
the International Shipholding Corporation Stock Incentive Plan (the
"Plan") was approved. The Plan is included in its entirety in Exhibit
A to the Company's Definitive Proxy Statement dated March 10, 1998, filed
pursuant to Section 14(a) of the Securities Exchange Act of 1934,
and incorporated herein by reference.
12
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders was held April 15, 1998. The
matters voted upon and the results of the voting were as follows:
(1) Election of Board of Directors:
Shares Voted
Nominee For Withheld Authority
------- ------------ ------------------
Niels W. Johnsen 5,469,694 23,623
Erik F. Johnsen 5,470,449 22,868
Niels M. Johnsen 5,470,746 22,571
Erik L. Johnsen 5,470,146 23,171
Harold S. Grehan, Jr. 5,470,952 22,365
Laurance Eustis 5,470,164 23,153
Raymond V. O'Brien, Jr. 5,470,889 22,428
Edwin Lupberger 5,471,129 22,188
Edward K. Trowbridge 5,471,029 22,288
(2) Approval of the International Shipholding Corporation Stock Incentive
Plan as set forth in pages 10 through 13 and Appendix A of the
Company's Definitive Proxy Statement dated March 10, 1998, filed
pursuant to Section 14(a) of the Securities Exchange Act of 1934,
and incorporated herein by reference:
Shares Voted For 4,796,206
Shares Voted Against 73,225
Abstentions 32,952
Broker Non-Votes 590,934
(3) Ratification of Arthur Andersen LLP, certified public accountants, as
independent auditors for the Corporation for the fiscal year ending
December 31, 1998:
Shares Voted For 5,460,089
Shares Voted Against 1,998
Abstentions 31,230
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBIT INDEX
Exhibit Number Description
-------------- -----------
Part I Exhibits: 27 Financial Data Schedule
Part II Exhibits: 3 Restated Certificate of Incorporation,
as amended, and By-Laws of the
Registrant (filed with the Securities
and Exchange Commission as Exhibit 3
to the Registrant's Form 10-Q for the
quarterly period ended June 30, 1996,
and incorporated herein by reference)
10 First Amended and Restated Credit
Agreement dated as of March 31, 1998,
by and among the Company as Borrower,
the certain lenders which are
signatory thereto, Citicorp
Securities, Inc. as Arranger, and
Citibank, N.A., as Administrative
Agent
(b) A report on Form 8-K was filed January 22, 1998, to report the private
placement of $110 Million of the Company's 7 3/4% Senior Notes due 2007.
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, 1998
___________________________