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 31,1999
---------------
__ 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 6,498,637 shares (March 31, 1999)
------------------
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,
1999 1998
------------- ------------
Revenues $ 84,789 $ 90,377
Subsidy Revenue 3,640 3,121
------------- ------------
88,429 93,498
------------- ------------
Operating Expenses:
Voyage Expenses 66,209 70,659
Vessel and Barge Depreciation 9,642 8,776
------------- ------------
Gross Voyage Profit 12,578 14,063
------------- ------------
Administrative and General Expenses 6,014 6,280
Gain on Sale of Land 2,408 -
------------- ------------
Operating Income 8,972 7,783
------------- -----------
Interest:
Interest Expense 7,569 6,987
Investment Income (375) (504)
------------- ------------
7,194 6,483
------------- ------------
Income Before Provision (Benefit) for
Income Taxes and Extraordinary Item 1,778 1,300
------------- ------------
Provision (Benefit) for Income Taxes:
Current 450 1,431
Deferred 181 (966)
State 124 67
------------- ------------
755 532
------------- ------------
Income Before Extraordinary Item $ 1,023 $ 768
------------- ------------
Extraordinary Loss on Early Extinguishment
of Debt (Net of Income Tax
Benefit of $554) - (1,029)
------------- ------------
Net Income (Loss) $ 1,023 $ (261)
============= ============
Basic and Diluted Earnings Per Share:
Income Before Extraordinary Loss $ 0.16 $ 0.11
Extraordinary Loss - (0.15)
------------- ------------
Net Income (Loss) $ 0.16 $ (0.04)
============= ============
<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 1999 1998
------------- -------------
Current Assets:
Cash and Cash Equivalents $ 21,161 $ 32,008
Marketable Securities 12,802 12,136
Accounts Receivable, Net of Allowance
for Doubtful Accounts of $487 and
$334 in 1999 and 1998, Respectively:
Traffic 38,797 40,543
Agents' 8,021 8,082
Claims and Other 5,388 5,243
Federal Income Taxes Receivable 873 1,325
Net Investment in Direct Financing Leases 2,437 2,532
Other Current Assets 7,352 4,215
Material and Supplies Inventory, at Cost 12,928 13,130
------------- -------------
Total Current Assets 109,759 119,214
------------- -------------
Marketable Equity Securities 294 205
------------- -------------
Investment in Unconsolidated Entities 3,312 3,368
------------- -------------
Net Investment in Direct Financing Leases 66,081 66,494
------------- -------------
Vessels, Property, and Other Equipment,
at Cost:
Vessels and Barges 746,128 745,390
Other Marine Equipment 7,798 7,776
Terminal Facilities 18,517 18,494
Land 1,230 2,317
Furniture and Equipment 16,942 16,799
------------- -------------
790,615 790,776
Less - Accumulated Depreciation (366,488) (356,217)
------------- -------------
424,127 434,559
------------- -------------
Other Assets:
Deferred Charges, Net of Accumulated
Amortization of $65,512 and $59,310
in 1999 and 1998, Respectively 37,615 38,849
Acquired Contract Costs, Net of Accumulated
Amortization of $14,518 and $14,154
in 1999 and 1998, Respectively 16,007 16,371
Due from Related Parties 333 296
Other 11,946 10,448
------------- -------------
65,901 65,964
------------- -------------
$ 669,474 $ 689,804
============= =============
<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,
1999 1998
-------------- --------------
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
Current Maturities of Long-Term Debt $ 19,272 $ 17,212
Current Maturities of Capital
Lease Obligations 3,241 2,915
Accounts Payable and Accrued Liabilities 52,241 54,146
Current Deferred Income Tax Liability 27 27
-------------- -------------
Total Current Liabilities 74,781 74,300
-------------- -------------
Billings in Excess of Income Earned and
Expenses Incurred 6,461 7,099
-------------- -------------
Long-Term Capital Lease Obligations,
Less Current Maturities 9,092 12,085
-------------- -------------
Long-Term Debt, Less Current Maturities 334,621 349,340
-------------- -------------
Deferred Credits:
Deferred Income Taxes 39,461 40,906
Claims and Other 30,155 28,966
-------------- -------------
69,616 69,872
-------------- -------------
Commitments and Contingent Liabilities
Stockholders' Investment:
Common Stock 6,756 6,756
Additional Paid-In Capital 54,450 54,450
Retained Earnings 118,016 117,399
Less - Treasury Stock (4,041) (1,422)
Accumulated Other Comprehensive Loss (278) (75)
-------------- -------------
174,903 177,108
-------------- -------------
$ 669,474 $ 689,804
============== =============
<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, 1997 $ 6,756 $ 54,450 $112,794 ($1,133) ($62) $172,805
Comprehensive Income:
Net Income for Year Ended
December 31,1998 - - 6,276 - - 6,276
Other Comprehensive Income:
Unrealized Holding Loss on
Marketable Securities,
Net of Deferred Taxes
of ($7) - - - - (13) (13)
---------
Total Comprehensive Income 6,263
Treasury Stock - - - (289) - (289)
Cash Dividends - - (1,671) - - (1,671)
--------- --------- --------- --------- --------- --------
Balance at
December 31, 1998 $ 6,756 $ 54,450 $117,399 ($1,422) ($75) $177,108
========= ========= ========= ========= ========= ========
Comprehensive Income:
Net Income for the
Period Ended
March 31, 1999 - - 1,023 - - 1,023
Other Comprehensive Income:
Unrealized Holding Loss on
Marketable Securities,
Net of Deferred Taxes
of ($109) - - - - (203) (203)
--------
Total Comprehensive Income 820
Treasury Stock - - - (2,619) - (2,619)
Cash Dividends - - (406) - - (406)
--------- --------- --------- --------- --------- --------
Balance at
March 31, 1999 $6,756 $54,450 $118,016 ($4,041) ($278) $174,903
========= ========= ========= ========= ========= ========
<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,
1999 1998
------------ ------------
Cash Flows from Operating Activities:
Net Income (Loss) $ 1,023 $ (261)
Adjustments to Reconcile Net Income
(Loss) to Net Cash Provided by
Operating Activities:
Depreciation 10,491 9,442
Amortization of Deferred
Charges and Other Assets 4,438 6,404
Provision (Benefit) for
Deferred Income Taxes 181 (966)
(Gain) Loss on Sale of
Vessels and Other Property (2,405) 3
Extraordinary Loss - 1,029
Changes in:
Accounts Receivable 578 (426)
Net Investment in Direct Financing Leases 1,920 487
Inventories and Other Current Assets 544 468
Other Assets (112) 1,326
Accounts Payable and Accrued Liabilities (2,727) (825)
Federal Income Taxes Payable 137 415
Unearned Income (2,193) (2,101)
Deferred Credits 733 (1,093)
------------ ------------
Net Cash Provided by Operating Activities 12,608 13,902
------------ ------------
Cash Flows from Investing Activities:
Purchase of Vessels and Other Property (1,183) (9,901)
Additions to Deferred Charges (2,863) (1,773)
Proceeds from Sale of Vessels
and Other Property 3 77
Purchase of and Proceeds from
Short-Term Investments (1,078) (304)
Other Investing Activities 19 18
------------ ------------
Net Cash Used by Investing Activities (5,102) (11,883)
------------ ------------
Cash Flows from Financing Activities:
Proceeds from Issuance of Debt 3,000 117,435
Reduction of Debt and Capital
Lease Obligations (18,326) (119,875)
Additions to Deferred Financing Charges (2) (2,874)
Other Financing Activities - (432)
Purchase of Treasury Stock (2,619) -
Common Stock Dividends Paid (406) (417)
------------ ------------
Net Cash Used by Financing Activities (18,353) (6,163)
------------ ------------
Net Decrease in Cash and Cash Equivalents (10,847) (4,144)
Cash and Cash Equivalents at
Beginning of Period 32,008 32,002
------------ ------------
Cash and Cash Equivalents at End of Period $ 21,161 $ 27,858
============ ============
<FN>
The accompanying notes are an integral part of these statements.
7
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1999
(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, 1998. 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 1999.
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 1999 interim results are not necessarily indicative of the
results of operations for the full year 1999.
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. Operating Segments
The Company's three operating segments, LINER SERVICES, TIME CHARTER
CONTRACTS, and CONTRACTS OF AFFREIGHTMENT, are identified primarily based on
the characteristics of the contracts and terms under which its fleet of
vessels and barges are operated. The Company also reports an OTHER
category that includes results of several of the Company's subsidiaries that
provide ship charter brokerage, agency, barge fleeting and other specialized
services primarily to the Company's operating segments described below. Each
of the reportable segments is managed separately as each requires
different resources depending on the nature of the contract or terms under
which each vessel within the segment operates.
8
The following table presents information about segment profit for the
three months ended March 31, 1999 and 1998. The Company does not allocate
interest income, administrative and general expenses, or income taxes to its
segments. Intersegment revenues are based on market prices and include
revenues earned by subsidiaries of the Company that provided specialized
services to the operating segments.
(All Amounts in Thousands) Time
Liner Charter Contracts of
Services Contracts Affreightment Other Total
---------- --------- ----------- --------- --------
1999
Revenues from external
customers $ 45,450 $ 31,370 $ 9,387 $ 2,222 $ 88,429
Intersegment revenues - - - 9,131 9,131
Gross voyage profit
before depreciation 5,146 11,692 4,483 899 22,220
Depreciation 3,552 4,255 1,648 187 9,642
Interest expense 1,469 3,680 2,139 281 7,569
Gain on sale of land - - - 2,408 2,408
Segment profit before interest
income, administrative and
general expenses and taxes 125 3,757 696 2,839 7,417
- --------------------------------------------------------------------------------
1998
Revenues from external
customers $ 49,367 $ 29,278 $ 13,352 $ 1,501 $ 93,498
Intersegment revenues - - - 9,121 9,121
Gross voyage profit
before depreciation 6,726 9,853 5,009 1,251 22,839
Depreciation 3,052 3,911 1,645 168 8,776
Interest expense 1,544 2,786 2,361 296 6,987
Segment profit before interest
income, administrative and
general expenses and taxes 2,130 3,156 1,003 787 7,076
- --------------------------------------------------------------------------------
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,
1999 1998
------------- -------------
Total profit for reportable segments $ 7,417 $ 7,076
Unallocated amounts:
Interest income 375 504
Administrative and general expenses 6,014 6,280
------------- -------------
Income before income taxes
and extraordinary items $ 1,778 $ 1,300
============= =============
Note 3. Subsequent Events
During the second quarter of this year, the Company entered into a
contract to sell one of its Pure Car Carriers ("PCC"), the Cypress Trail, as
part of the Company's plan to replace this older and smaller PCC with a newer
and larger Pure Car/Truck Carrier ("PCTC"). The Company also contracted in
the second quarter to purchase a newer PCTC, the Asian Emperor, a newbuilding
high specification car/truck carrier with the capability of carrying large
dimension and heavy-lift vehicles, as well as automobiles. The vessel is
scheduled to deliver new from the
9
shipyard at the end of May of 1999 and will immediately enter a long-term time
charter to a Far Eastern charterer. Long-term financing has been arranged with
a bank syndicate.
Also during the second quarter of 1999, the Company sold 7.5% of its
37.5% interest in four companies, three of which operate cement carrying
vessels, and one which manages these vessels.
10
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, 1998.
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.
11
FIRST QUARTER ENDED MARCH 31, 1999
COMPARED TO FIRST QUARTER ENDED MARCH 31, 1998
Gross Voyage Profit
- -------------------
Gross voyage profit decreased from $14.1 Million in the first quarter
of 1998 to $12.6 Million in the first quarter of 1999. The decrease
occurred primarily in the Company's LINER SERVICES segment, where gross
voyage profit before depreciation decreased 23.5% from $6.7 Million in the
first quarter of 1998 to $5.1 Million for the first quarter of 1999
primarily due to reduced cargo volume in 1999.
The decrease in gross voyage profit for the LINER SERVICES segment
was partially offset by improved results for the TIME CHARTER CONTRACTS
segment. The gross voyage profit before depreciation for the TIME CHARTER
CONTRACTS segment increased 18.7% from $9.9 Million in the first quarter of
1998 to $11.7 Million for the same period in 1999 due to the acquisition and
commencement of operations of the Company's U.S. Flag PCTC, the Green Point,
in the second quarter of 1998. In addition, the Company sold one of its
PCC's as part of the Company's plan to replace this older and smaller
vessel with a newer and larger PCTC, the Asian King, that delivered to the
Company and commenced operations in December of 1998.
Vessel and barge depreciation for the first quarter of 1999 increased
9.9% to $9.6 Million as compared to $8.8 Million in the same period of
1998 primarily due to the commencement of operations of the Green Point.
Additionally in the third quarter of 1998, the Company began depreciating the
Hickory, a LASH vessel purchased early in 1998 now operating in the
LINER SERVICES segment as a feeder vessel.
Other Income and Expenses
- -------------------------
Administrative and general expenses decreased from $6.3 Million in the
first quarter of 1998 to $6.0 Million in the same period in 1999 due to
a continuing cost reduction program.
Earnings in 1999 included a gain of $2.4 Million recognized on
the sale of a parcel of land no longer required in the Company's
operations.
Interest expense was $7.6 Million for the first quarter of 1999 as
compared to $7.0 Million for the same period in 1998. The increase
resulted primarily from the financing associated with the acquisition of the
Green Point early in the second quarter of 1998 and the acquisition of
the Asian King at the end of 1998. 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
12
offset by the aforementioned early repayment of debt and regularly
scheduled principal payments.
Investment income decreased from $504,000 for the first quarter of 1998 to
$375,000 for the first quarter of 1999 due to a lower average balance of
invested funds and less favorable interest rates.
The Company incurred an extraordinary loss of approximately $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.
Income Taxes
- ------------
The Company provided $631,000 for Federal income taxes in the first
quarter of 1999 and $465,000 in the first quarter of 1998 at the
statutory rate of 35% for both periods.
13
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital decreased from $44.9 Million at
December 31, 1998, to $35.0 Million at March 31, 1999, after provision for
current maturities of long-term debt and capital lease obligations of $22.5
Million. Cash and cash equivalents decreased during the first three months
of 1999 by $10.8 Million to a total of $21.2 Million. This decrease, which
resulted from cash used for investing and financing activities of
$5.1 Million and $18.4 Million, respectively, was partially offset by
operating cash flows of $12.6 Million.
The major source of cash from operations was net income adjusted for
the gain on sale of land and non-cash provisions such as depreciation
and amortization. Investing activities during the period included $2.9
Million in deferred vessel drydocking charges and investments in short-term
marketable securities of $1.0 Million.
The net cash used for financing activities of $18.4 Million included
reductions of debt and capital lease obligations of $18.3 Million
stemming from regularly scheduled principal payments and repayments of
amounts drawn under lines of credit and $2.6 Million for the purchase of
treasury stock. New draws under lines of credit totaled $3.0 Million
during the quarter, which were repaid in the beginning of the second quarter.
At December 31, 1997, the Company had available three lines of credit
totaling $35 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. At March 31, 1999, $20 Million
was outstanding on this credit facility, of which $3 Million was repaid on
April 1, 1999.
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 21, 1999, the Board of Directors
declared a quarterly dividend of 6.25 cents per Common Share payable on
June 18, 1999, to shareholders of record on June 4, 1999.
14
STOCK REPURCHASE PROGRAM
In October of 1998, the Company's Board of Directors approved a stock
repurchase program to buy up to 500,000 shares of its common stock. The
repurchases are made in the open market or in privately negotiated transactions
at the discretion of the Company's management, depending upon financial
and market conditions. As of March 31, 1999, 184,250 shares had been
repurchased under this program for a total cost of $2.9 Million.
COAL TRANSPORTATION CONTRACT
As discussed in the Company's Form 10-K filed with the Securities and
Exchange Commission for the year ended December 31, 1998, Seminole
Electric Cooperative, Inc. ("Seminole") filed suit against the Company's
wholly owned subsidiary, Central Gulf Lines, Inc. ("CGL"), on December 15,
1998, seeking a declaratory judgment that Seminole was entitled to terminate
its performance under a long-term coal transportation agreement with CGL,
subject to Seminole's obligation to pay "fair and lawful damages" to CGL.
The contract commenced operation in the early 1980's and has approximately
six more years to run. CGL has disputed Seminole's right to terminate
performance and has served a demand for arbitration pursuant to the
terms of the agreement in which CGL seeks specific performance of the
agreement for its remaining six-year term, and in the alternative,
damages. Because of Seminole's admitted obligation to reimburse CGL for
its damages, including lost profits, the Company does not believe that this
dispute will have a material adverse effect on its financial condition or
results of operations, even if Seminole is successful in terminating its
performance under the agreement.
NEW ACCOUNTING PRONOUNCEMENTS
During 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 is effective for 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 be applied, it is unknown
what effect, if any, SFAS No. 133 will have on its financial statements
once adopted.
15
YEAR 2000 COMPLIANCE
The Year 2000 ("Y2K") issue refers to the potential failure of
information technology ("IT") systems, telecommunications, and other electronic
devices before, on or after January 1, 2000. This problem is primarily due
to the use of a 2-digit year indicator within software code including
applications, operating systems, hardware, or microchips. Non-compliant
systems will likely interpret the "00" in "2000" incorrectly as "1900."
State of Readiness
- ------------------
The Company has appointed a Y2K Project Manager who, along with
department heads responsible for compliance in their respective areas, is
addressing the Y2K issue. The Company's Y2K Plan is an overall corporate
plan supported by lower-tier plans and schedules developed by each functional
area. The phases in the Y2K Plan include inventory, assessment,
remediation, testing, and contingency planning.
During the inventory phase, all computer-based systems, components
(such as systems developed in-house, purchased software, computers, and
associated hardware), service providers, and hardware that contain
microchips that support the functionality of the Company are being
identified. Additionally, items that, in and of themselves, may not be
impacted by the date change, but that interface with systems or equipment that
are impacted by the date change are being identified.
The assessment phase involves determining which systems are date-sensitive
and prioritizing how critical each of these systems is to continuation of
the Company's business activities.
Once the assessment phase is complete, the remediation phase begins.
During this phase, the strategies for addressing systems that are not
Y2K compliant will be developed. Possible strategies include repairing,
replacing, or retiring the system.
The testing phase will verify that the repaired or replaced system
will operate properly when the date changes, and that existing business
functions will continue to operate as expected. Testing efforts will not
be confined solely to IT systems. Non-IT systems such as building
infrastructure and components with embedded microchips will also be evaluated.
The inventory and assessment phases are complete for IT systems, and those
identified as most critical were 90% remediated and tested by March 31,
1999. The remaining IT systems will be addressed by September of 1999.
Vessel systems inspection and original equipment manufacturer ("OEM")
testing are ongoing through April of 1999. Contingency plans for
16
vessels are in place. These contingency plans comprise both general
contingencies which apply to all vessels and vessel specific contingencies,
where necessary. The contingency plans for the vessels are based on the
Company's existing emergency procedures. Periodic training is held on the
Company's vessels to ensure that crew members are familiar with the
contingency plans.
The Company has contacted its key suppliers and customers to
ensure they are addressing the Y2K issue. Y2K questionnaires have been
issued to these suppliers and customers and their responses are being
reviewed to determine what action by the Company, if any, is necessary.
Costs to Address Y2K Issues
- ---------------------------
Expenditures related to evaluating and remediating any Y2K problems
through March 31, 1999, have not had a material effect on the
Company's financial position or results of operations. It is anticipated
that the resources required to address Y2K issues during 1999 will be
provided primarily by existing levels of personnel. While management does
not expect Y2K compliance costs to have a material adverse effect on the
Company, estimates of total expenditures for Y2K issues, including all
phases of the Y2K Plan described above, as well as the cost of replacing or
modifying any non-compliant systems have been submitted to the Company's
management for review. Vessel Y2K budgets include OEM systems testing and
replacement for previously identified non-compliant items.
Risks of Y2K Issues
- -------------------
A definitive assessment of the risk to the Company if systems that are
not Y2K compliant were not identified, or identified but not successfully
remediated, has been and continues to be undertaken. No Y2K issues
have been identified that are unique to the Company or that
otherwise would not be found in its industry.
Contingency Plans
- -----------------
Once the potential problems that could result from the Y2K issue have
been identified, the steps required in the event any system fails will
be determined. Vessel and Information Systems Contingency Plans are
complete. Cost estimates to implement the contingency plans will be refined
and analyzed against other options.
MARKET-SENSITIVE INSTRUMENTS AND RISK MANGEMENT
In the ordinary course of its business, the Company is exposed to
foreign currency, interest rate, and commodity price risk. The Company
utilizes derivative financial instruments
17
including forward exchange contracts and commodity swap agreements
to manage certain of these exposures. The Company hedges only firm
commitments or anticipated transactions and does not use derivatives for
speculation. The Company neither holds nor issues financial instruments for
trading purposes.
There were no material changes in market risk exposure for the interest
rate and foreign currency risks described in the Company's Form 10-K filed
with the Securities and Exchange Commission for the year ended December 31,
1998.
The fair value of the commodity swap agreement at March 31, 1999, as
discussed in the Form 10-K, estimated based on the difference between
first quarter price per ton of fuel and the contract delivery price per ton
of fuel times the quantity applicable to the agreement, was an asset of
$109,000. A hypothetical 10% decrease in fuel prices as of March 31, 1999,
would have resulted in a liability of $239,000.
18
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders was held April 21, 1999. 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 5,408,122 39,775
Erik F. Johnsen 5,408,122 39,775
Niels M. Johnsen 5,408,612 39,285
Erik L. Johnsen 5,408,612 39,285
Harold S. Grehan,Jr. 5,408,379 39,518
Raymond V. O'Brien, Jr. 5,408,566 39,331
Edwin Lupberger 5,408,566 39,331
Edward K. Trowbridge 5,408,566 39,331
(2) Ratification of Arthur Andersen LLP, certified public accountants,
as independent auditors for the Corporation for the fiscal
year ending December 31, 1999:
Shares Voted For 5,423,843
Shares Voted Against 1,825
Abstentions 22,229
19
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
March 31, 1999.
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 13, 1999
___________________________