1
INTERNATIONAL SHIPHOLDING CORPORATION AND SUBSIDIARIES
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
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__ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 2-63322
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INTERNATIONAL SHIPHOLDING CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 36-2989662
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(State or other jurisdiction of (I.R.S.Employer Identification Number)
incorporation or organization)
650 Poydras Street New Orleans, Louisiana 70130
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(Address of principal executive offices) (Zip Code)
(504) 529-5461
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(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 (June 30, 1998)
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2
PART I - FINANCIAL INFORMATION
ITEM I-FINANCIAL STATEMENTS
INTERNATIONAL SHIPHOLDING CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(All Amounts in Thousands Except Per Share Data)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
---------- ---------- ---------- ---------
Revenues $ 91,402 $ 99,774 $ 181,779 $ 183,293
Subsidy Revenue 3,586 2,746 6,707 9,221
---------- ---------- ---------- ----------
94,988 102,520 188,486 192,514
---------- ---------- ---------- ----------
Operating Expenses:
Voyage Expenses 69,088 79,394 139,747 146,292
Vessel and Barge Depreciation 9,345 8,627 18,121 17,149
---------- ---------- ---------- ----------
Gross Voyage Profit 16,555 14,499 30,618 29,073
---------- ---------- ---------- ----------
Administrative and General
Expenses 6,734 6,651 13,014 13,529
---------- ---------- ---------- ----------
Operating Income 9,821 7,848 17,604 15,544
---------- ---------- ---------- ----------
Interest:
Interest Expense 7,344 6,941 14,331 13,942
Investment Income (392) (363) (896) (735)
---------- ---------- ---------- ----------
6,952 6,578 13,435 13,207
---------- ---------- ---------- ----------
Income Before Provision
(Benefit) for Income Taxes
and Extraordinary Item 2,869 1,270 4,169 2,337
---------- ---------- ---------- ----------
Provision (Benefit) for
Income Taxes:
Current (14) 379 1,417 872
Deferred 1,021 57 55 (47)
State 85 157 152 242
----------- --------- ---------- ----------
1,092 593 1,624 1,067
----------- --------- ---------- ----------
Income Before
Extraordinary Item $ 1,777 $ 677 $ 2,545 $ 1,270
----------- --------- ---------- ----------
Extraordinary Loss on Early
Extinguishment of Debt
(Net of Income Tax
Benefit of $554) - - (1,029) -
---------- ---------- ---------- ----------
Net Income $ 1,777 $ 677 $ 1,516 $ 1,270
=========== ========== ========== ==========
Basic and Diluted Earnings
Per Share:
Income Before Extraordinary
Loss $ 0.27 $ 0.10 $ 0.38 $ 0.19
Extraordinary Loss - - (0.15) -
----------- ---------- ---------- ----------
Net Income $ 0.27 $ 0.10 $ 0.23 $ 0.19
=========== ========== ========== ==========
Weighted Average Shares of
Common Stock Outstanding 6,682,887 6,682,887 6,682,887 6,682,887
<FN>
The accompanying notes are an integral part of these statements.
3
INTERNATIONAL SHIPHOLDING CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(All Amounts in Thousands)
(Unaudited)
June 30, December 31,
1998 1997
------------- -------------
ASSETS
Current Assets:
Cash and Cash Equivalents $ 26,096 $ 32,002
Marketable Securities 11,161 10,758
Accounts Receivable, Net of
Allowance for Doubtful
Accounts of $105 and $208
in 1998 and 1997, Respectively:
Traffic 36,994 35,442
Agents' 4,432 7,128
Claims and Other 4,262 3,031
Federal Income Taxes Receivable 719 43
Net Investment in Direct
Financing Leases 1,857 1,913
Other Current Assets 2,440 4,187
Material and Supplies Inventory, at Cost 14,214 13,296
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Total Current Assets 102,175 107,800
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Marketable Equity Securities 372 582
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Investment in Unconsolidated Entity 650 -
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Net Investment in Direct Financing Leases 19,641 20,552
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Vessels, Property, and Other Equipment,
at Cost:
Vessels and Barges 744,056 689,856
Other Marine Equipment 7,733 7,590
Terminal Facilities 18,472 18,377
Land 2,317 2,317
Furniture and Equipment 16,655 16,853
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789,233 734,993
Less - Accumulated Depreciation (330,530) (311,557)
------------- -------------
458,703 423,436
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Other Assets:
Deferred Charges, Net of
Accumulated Amortization
of $65,445 and $53,913 in
1998 and 1997, Respectively 35,727 38,960
Acquired Contract Costs, Net of
Accumulated Amortization
of $13,427 and $12,699 in
1998 and 1997, Respectively 17,099 17,826
Due from Related Parties 332 369
Other 7,337 8,679
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60,495 65,834
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$ 642,036 $ 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)
June 30, December 31,
LIABILITIES AND STOCKHOLDERS' INVESTMENT 1998 1997
------------- -------------
Current Liabilities:
Current Maturities of Long-Term Debt $ 13,972 $ 35,865
Current Maturities of Capital
Lease Obligations 2,915 2,579
Accounts Payable and Accrued Liabilities 53,956 51,735
Current Deferred Income Tax Liability 587 171
Current Liabilities to be Refinanced - (22,511)
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Total Current Liabilities 71,430 67,839
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Current Liabilities to be Refinanced - 22,511
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Billings in Excess of Income Earned and
Expenses Incurred 8,342 5,903
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Long-Term Capital Lease Obligations, Less
Current Maturities 12,333 14,994
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Long-Term Debt, Less Current Maturities 314,901 271,835
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Reserves and Deferred Credits:
Deferred Income Taxes 37,552 39,494
Claims and Other 24,046 22,823
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61,598 62,317
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Commitments and Contingent Liabilities
Stockholders' Investment:
Common Stock 6,756 6,756
Additional Paid-In Capital 54,450 54,450
Retained Earnings 113,475 112,794
Less - Treasury Stock (1,133) (1,133)
Accumulated Other Comprehensive Loss (116) (62)
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173,432 172,805
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$ 642,036 $ 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
June 30, 1998 - - 1,516 - - 1,516
Other Comprehensive
Income:
Unrealized Holding
Loss on Marketable
Securities, Net of
Deferred Taxes of
($29) - - - - (54) (54)
--------
Total Comprehensive
Income 1,462
Cash Dividends - - (835) - - (835)
-------- -------- -------- -------- -------- --------
Balance at June
30, 1998 $ 6,756 $ 54,450 $113,475 ($1,133) ($116) $173,432
======== ======== ======== ======== ======== ========
<FN>
The accompanying notes are an integral part of these statements.
6
INTERNATIONAL SHIPHOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All Amounts in Thousands)
(Unaudited)
For Six Months Ended June 30,
1998 1997
------------ ------------
Cash Flows from Operating Activities:
Net Income $ 1,516 $ 1,270
Adjustments to Reconcile Net Income
to Net Cash Provided by Operating
Activities:
Depreciation 19,403 18,541
Amortization of Deferred
Charges and Other Assets 12,290 11,660
Provision (Benefit) for
Deferred Income Taxes 55 (47)
Loss on Sale of Assets 3 -
Extraordinary Loss 1,029 -
Changes in:
Accounts Receivable 101 10,101
Net Investment in Direct
Financing Leases 967 1,366
Inventories and Other
Current Assets 847 (1,683)
Other Assets 1,094 (778)
Accounts Payable and Accrued
Liabilities (1,264) 142
Federal Income Taxes Payable (1,760) 504
Unearned Income 2,439 (3,068)
Reserve for Claims and Other
Deferred Credits (367) 2,750
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Net Cash Provided by Operating Activities 36,353 40,758
------------ ------------
Cash Flows from Investing Activities:
Purchase of Vessels and Other
Property (51,819) (12,627)
Additions to Deferred Charges (4,324) (9,081)
Proceeds from Sale of Assets 111 5
Purchase of Short-Term Investments (306) -
Investment in Unconsolidated Entity (650) -
Other Investing Activities 37 612
------------ ------------
Net Cash Used by Investing Activities (56,951) (21,091)
------------ ------------
Cash Flows from Financing Activities:
Proceeds from Issuance of Debt 156,435 59,632
Reduction of Debt and Capital Lease
Obligations (137,587) (78,148)
Additions to Deferred Financing
Charges (2,889) (26)
Other Financing Activities (432) -
Common Stock Dividends Paid (835) (835)
------------ ------------
Net Cash Provided (Used) by Financing
Activities 14,692 (19,377)
------------ ------------
Net (Decrease) Increase in Cash and
Cash Equivalents (5,906) 290
Cash and Cash Equivalents at Beginning
of Period 32,002 43,020
------------ ------------
Cash and Cash Equivalents at End of
Period $ 26,096 $ 43,310
============ ============
<FN>
The accompanying notes are an integral part of these statements.
7
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 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 June of 1998, the Financial Accounting Standards Board issued
Statement of Financial Acounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts, and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure
those instruments at fair value. SFAS No. 133 is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999. The Company has
not chosen early adoption and, as it is not possible to predict the Company's
derivative position at the time this standard will become effective, it is
unknown what effect, if any, SFAS No. 133 will have on its financial
statements once 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
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998
COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
Gross Voyage Profit
- -------------------
Gross voyage profit increased from $29.1 Million in the first six months
of 1997 to $30.6 Million in the first six months of 1998 primarily due to
improved market share and lower operating costs for the Company's liner
services. Early in the second quarter of 1998, the Company purchased a
1994-built Pure Car/Truck Carrier. After being reflagged to U.S. registry and
renamed Green Point, the vessel commenced a long-term contract. The Green
Point also contributed to the increase in gross voyage profit during 1998 as
compared to 1997. These favorable variances were partially offset by reduced
cargo volume on the Company's domestic and Indonesian services, and scheduled
reductions in charterhire rates on three of the Company's LASH vessels
chartered to the Military Sealift Command ("MSC"). Gross voyage profit also
compares favorably for the first six months of this year as compared to last
year because the second quarter of 1997 was negatively impacted by the
Company's decision to discontinue development of a new LASH service between
the U.S. Gulf and Brazil which resulted in a charge to operating expense
of approximately $1.2 Million for termination costs and the repositioning of
equipment.
Vessel and barge depreciation for the first six months of 1998 increased
5.7% to $18.1 Million as compared to $17.1 Million in the same period of 1997
primarily due to the purchase and commencement of operations early in the
second quarter of 1998 of the Green Point. Also, depreciation for the
Company's U.S. Flag Coal Carrier and one of the LASH vessels in its Waterman
Liner Service increased due to capital improvements made during the second
quarter of 1997.
Other Income and Expenses
- -------------------------
Administrative and general expenses decreased slightly from $13.5
Million in the first six months of 1997 to $13.0 Million in the same period
in 1998.
10
Interest expense was $14.3 Million for the first six months of 1998 as
compared to $13.9 Million for the same period in 1997. The increase was
primarily the result of financing associated with the acquisition of the
Green Point early in the second quarter of 1998 with proceeds from draws on
the Company's line of credit. 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 was substantially offset by the aforementioned early repayment of
debt and regularly scheduled principal payments.
Investment income increased from $735,000 for the first six months of
1997 to $896,000 for the first six months of 1998 due to slightly higher
interest rates.
Income Taxes
- ------------
The Company provided $1.5 Million for Federal income taxes in the first
six months of 1998 and $825,000 in the first six months of 1997 at the
statutory rate of 35% for both periods.
Extraordinary Loss on the Early Extinguishment of Debt
- ------------------------------------------------------
The Company incurred an after tax extraordinary loss of approximately
$1 Million during the first six months 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.
SECOND QUARTER ENDED JUNE 30, 1998
COMPARED TO SECOND QUARTER ENDED JUNE 30, 1997
Gross Voyage Profit
- -------------------
Gross voyage profit increased from $14.5 Million in the second quarter
of 1997 to $16.6 Million in the second quarter of 1998 primarily due to
improved market share and lower operating costs for the Company's liner
services. Additionally, the Company added the Green Point to its fleet early
in the second quarter of 1998 which contributed to the increase in gross
voyage profit. These favorable variances were partially offset by reduced
cargo volume on the Company's domestic and Indonesian services, and scheduled
reductions in charterhire rates on three of the Company's LASH vessels
chartered to the MSC. Gross voyage profit also compares
11
favorably for the second quarter of this year as compared to last year
because the second quarter of 1997 was negatively impacted by the Company's
decision to discontinue development of a new LASH service between the U.S.
Gulf and Brazil as discussed earlier in this report.
Vessel and barge depreciation for the second quarter of 1998 increased
8.3% to $9.3 Million as compared to $8.6 Million in the same period of 1997
primarily due to the commencement of operations in the second quarter of 1998
of the Green Point. Also, depreciation on the Company's U.S. Flag Coal
Carrier and one of the LASH vessels in its Waterman Liner Service increased
due to capital improvements made during the second quarter of 1997.
Other Income and Expenses
- -------------------------
Administrative and general expenses for the second quarters of 1998 and
1997 were comparable at $6.7 Million each.
Interest expense increased approximately 5.8% to $7.3 Million in the
second quarter of 1998 from $6.9 Million in the second quarter of 1997
primarily resulting from the financing of the Green Point with proceeds from
draws on the Company's line of credit during the second quarter of 1998.
Investment income increased slightly from $363,000 for the second
quarter of 1997 to $392,000 for the second quarter of 1998 due to slightly
higher interest rates.
Income Taxes
- ------------
The Company provided $1 Million for Federal income taxes in the second
quarter of 1998 and $436,000 in the second quarter of 1997 at the statutory
rate of 35% for both periods.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital decreased from $40 Million at December 31,
1997, to $30.7 Million at June 30, 1998, after provision for current
maturities of long-term debt and capital lease obligations of $16.9 Million.
Cash and cash equivalents decreased during the first six months of 1998 by
$5.9 Million to a total of $26.1 Million. This decrease, which resulted
primarily from cash used for investing activities of $57 Million, was
partially offset by operating cash flows of $36.4 Million and financing cash
flows of $14.7 Million.
12
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 the
Green Point, the Hickory (a recently built LASH vessel), 82 LASH barges, and
two special purpose barges for a total cost of about $50.5 Million.
Additionally, cash of $4.3 Million was used for the cost of drydocking of
certain vessels.
The net cash provided by financing activities of $14.7 Million included
the net proceeds from the Company's sale of the Notes in January of 1998 of
approximately $109.4 Million and draws against the Company's line of credit
totaling approximately $47 Million. The proceeds from the Notes were used
primarily to repay certain indebtedness of the Company's subsidiaries and for
related transaction costs. A portion of the draws on the line of credit was
used to finance part of the purchase of the Green Point. These sources of
cash from financing activities were offset by reductions of debt and capital
lease obligations of $120 Million for early repayment of debt as discussed
above, scheduled principal payments, and repayments of amounts drawn under
lines of credit. Additionally, $2.9 Million was used for transaction costs of
issuing the Notes, $835,000 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.
In the first quarter of 1998, the Company purchased a 1989-built LASH
vessel renamed Hickory. The purchase price was 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, after which that vessel will likely
replace one of the older vessels in the Company's TransAtlantic LASH liner
service.
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 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
13
of credit early in the second quarter for part of the financing cost of the
Green Point. At June 30, 1998, $29 Million was outstanding on this credit
facility.
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 July 15, 1998, the Board of Directors declared
a quarterly dividend of 6.25 cents per Common Share payable on September 18,
1998, to shareholders of record on September 4, 1998.
14
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The matters voted upon and results of the voting at the Company's annual
meeting of shareholders held April 15, 1998, were reported in response to
Item 4 of the Company's Form 10-Q filed with the Securities and Exchange
Commission for the quarterly period ended March 31, 1998, and are
incorporated herein by reference.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBIT INDEX
Exhibit Number Description
-------------- -----------
Part I Exhibits: 27 Financial Data Schedule
Part II Exhibits: 3 Restated Certificate of
Incorporation, as amended,
and By-Laws of the Registrant
(filed with the Securities
and Exchange Commission as
Exhibit 3 to the Registrant's
Form 10-Q for the quarterly
period ended June 30, 1996,
and incorporated herein by
reference)
(b) No reports on Form 8-K were filed for the three month period ended
June 30, 1998.
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 August 12, 1998
--------------------