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 September 30, 2002
--------------------
__ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________to _________
Commission file number 2-63322
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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
incorporation or organization) Number)
650 Poydras Street New Orleans, Louisiana 70130
- ------------------------------------------------------------------------
(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 6,082,887 shares (September 30, 2002)
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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 Share Data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
---------- ---------- ---------- ----------
C>
Revenues $ 47,800 $ 74,147 $ 159,421 $ 223,951
Subsidy Revenue 2,100 4,089 7,595 11,013
---------- ---------- ---------- ----------
49,900 78,236 167,016 234,964
---------- ---------- ---------- ----------
Operating Expenses:
Voyage Expenses 39,536 66,687 131,987 192,627
Vessel and Barge Depreciation 4,782 4,307 14,441 22,735
Impairment Loss 3 400 (94) 81,683
---------- ---------- ---------- ----------
Gross Voyage Profit (Loss) 5,579 6,842 20,682 (62,081)
---------- ---------- ---------- ----------
Administrative and General
Expenses 3,694 6,217 11,939 18,361
Gain on Sale of Vessels
and Other Assets (44) (4,644) (537) (3,513)
---------- ---------- ---------- ----------
Operating Income (Loss) 1,929 5,269 9,280 (76,929)
---------- ---------- ---------- ----------
Interest and Other:
Interest Expense 4,137 5,810 13,239 20,914
Investment Income (126) (220) (578) (794)
Other Income (200) - (1,482) -
---------- ---------- ---------- ----------
(3,811) 5,590 11,179 20,120
---------- ---------- ---------- ----------
Loss Before (Benefit) Provision
for Income Taxes,
Equity in Net Income of
Unconsolidated Entities
and Extraordinary Item (1,882) (321) (1,899) 97,049)
---------- ---------- ---------- ----------
(Benefit)Provision for
Income Taxes:
Current - 8 - 193
Deferred (652) (96) (653) (34,022)
State 1 - 39 128
---------- ---------- ---------- ----------
(651) (88) (614) (33,701)
---------- ---------- ---------- ----------
Equity in Net Income of
Unconsolidated Entities
(Net of Applicable Taxes) 142 68 423 431
---------- ---------- ---------- ----------
Loss Before
Extraordinary Item (1,089) (165) (862) (62,917)
---------- ---------- ---------- ----------
Extraordinary Loss on Early
Extinguishment of Debt
(Net of Income Tax Benefit
of $19 and $36, Respectively) (36) - (67) -
---------- ---------- ---------- ----------
Net Loss $ (1,125) $ (165) $ (929) $(62,917)
========== ========== ========== ==========
Basic and Diluted Earnings
Per Share:
Loss Before
Extraordinary Item $ (0.18) $ (0.03) $ (0.14) $ (10.34)
Extraordinary Loss (0.00) - (0.01) -
---------- ---------- ---------- ----------
Net Loss $ (0.18) $ (0.03) $ (0.15) $ (10.34)
========== ========== ========== ==========
Weighted Average Shares of
Common Stock Outstanding 6,082,887 6,082,887 6,082,887 6,082,887
The accompanying notes are an integral part of these statements.
3
INTERNATIONAL SHIPHOLDING CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(All Amounts in Thousands)
(Unaudited)
September 30, December 31,
ASSETS 2002 2001
----------- -----------
Current Assets:
Cash and Cash Equivalents $ 14,871 $ 26,339
Marketable Securities 2,365 3,059
Accounts Receivable, Net of Allowance
for Doubtful Accounts of $419 and $603
in 2002 and 2001, Respectively:
Traffic 14,078 24,979
Agents' 1,795 2,873
Claims and Other 8,252 15,289
Federal Income Taxes Receivable 5,090 100
Net Investment in Direct Financing Lease 1,900 1,774
Other Current Assets 7,378 4,691
Material and Supplies Inventory, at Lower
of Cost or Market 2,847 2,932
Current Assets Held for Disposal 3,124 5,022
----------- -----------
Total Current Assets 61,700 87,058
----------- -----------
Assets Held for Disposal - 9,916
----------- -----------
Marketable Equity Securities 88 88
----------- -----------
Investment in Unconsolidated Entities 7,036 7,857
----------- -----------
Net Investment in Direct Financing Lease 51,771 53,209
----------- -----------
Vessels, Property, and Other Equipment, at Cost:
Vessels and Barges 336,841 333,037
Other Marine Equipment 4,609 4,709
Terminal Facilities 308 13,460
Land - 1,038
Furniture and Equipment 9,797 12,099
----------- ----------
351,555 364,343
Less - Accumulated Depreciation (105,719) (106,010)
----------- ----------
245,836 258,333
----------- ----------
Other Assets:
Deferred Charges, Net of Accumulated
Amortization of $17,269 and $16,580
in 2002 and 2001, Respectively 19,791 14,240
Acquired Contract Costs, Net of Accumulated
Amortization of $19,611 and $18,520
in 2002 and 2001, Respectively 10,914 12,006
Due from Related Parties 2,532 611
Other 8,075 17,085
----------- ----------
41,312 43,942
----------- ----------
$ 407,743 $ 460,403
=========== ==========
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)
September 30, December 31,
2002 2001
----------- -----------
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
Accounts Payable and Accrued Liabilities $ 34,214 $ 40,970
Current Maturities of Long-Term Debt 23,768 15,346
Current Maturities of Capital Lease
Obligations on Assets Held for Disposal - 5,241
----------- ----------
Total Current Liabilities 57,982 61,557
----------- ----------
Current Liabilities to be Refinanced 4,100 -
----------- ----------
Billings in Excess of Income Earned and
Expenses Incurred 663 1,765
----------- ----------
Long-Term Debt, Less Current Maturities 191,469 230,481
----------- ----------
Long-Term Capital Lease Obligations on
Assets Held for Disposal, Less
Current Maturities - 9,795
----------- ----------
Other Long-Term Liabilities:
Deferred Income Taxes 12,424 8,390
Claims and Other 27,178 33,510
----------- ----------
39,602 41,900
----------- ----------
Commitments and Contingent Liabilities
Stockholders' Investment:
Common Stock 6,756 6,756
Additional Paid-In Capital 54,450 54,450
Retained Earnings 63,646 64,575
Less - Treasury Stock (8,704) (8,704)
Accumulated Other Comprehensive Loss (2,221) (2,172)
----------- ----------
113,927 114,905
----------- ----------
$ 407,743 $ 460,403
=========== ==========
The accompanying notes are an integral part of these statements.
5
INTERNATIONAL SHIPHOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' INVESTMENT
(All Amounts in Thousands)
(Unaudited)
Accumulated
Additional Other
Common Paid-In Retained Treasury Comprehensive
Stock Capital Earnings Stock Income(Loss) Total
-----------------------------------------------------------
Balance at
December 31, 2000 $ 6,756 $ 54,450 $129,755 ($8,704) ($725) $181,532
Comprehensive Loss:
Net Loss for the Year
Ended December 31,
2001 - - (64,419) - - (64,419)
Other Comprehensive Income
(Loss):
Unrealized Holding Loss
on Marketable Securities,
Net of Deferred Taxes
of ($76) - - - - (144) (144)
Cumulative Effect of Adoption
of SFAS No.133, Net of
Deferred Taxes of $135,
on January 1, 2001 - - - - 250 250
Unrealized Holding Loss
on Derivatives, Net
of Deferred Taxes of
($836) - - - - (1,553) (1,553)
--------
Total Comprehensive Loss (65,866)
Cash Dividends - - (761) - - (761)
-------------------------------------------------------------
Balance at
December 31, 2001 $ 6,756 $54,450 $64,575 ($8,704) ($2,172) $114,905
===========================================================
Comprehensive Loss:
Net Loss for the Period
Ended Sept. 30, 2002 - - (929) - - (929)
Other Comprehensive Income
(Loss):
Unrealized Holding Loss on
Marketable Securities,
Net of Deferred Taxes
of ($237) - - - - (440) (440)
Unrealized Holding Gain
on Derivatives, Net
of Deferred Taxes of
$211 - - - - 391 391
-------
Total Comprehensive Loss (978)
----------------------------------------------------------
Balance at
Sept. 30, 2002 $6,756 $54,450 $63,646 ($8,704) ($2,221) $113,927
=========================================================
The accompanying notes are an integral part of these statements.
6
INTERNATIONAL SHIPHOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All Amounts in Thousands)
(Unaudited)
Nine Months Ended Sept. 30,
2002 2001
---------- ----------
Cash Flows from Operating Activities:
Net Loss $ (929) $(62,917)
Adjustments to Reconcile Net Loss to
Net Cash Provided by Operating Activities:
Depreciation 15,190 24,222
Amortization of Deferred Charges
and Other Assets 5,742 9,852
Benefit for Deferred Income Taxes (653) (34,022)
Equity in Net Income of Unconsolidated Entities (423) (418)
Gain on Sale of Vessels and Other Assets (537) (3,513)
Impairment Loss (94) 81,683
Extraordinary Loss 67 -
Changes in:
Accounts Receivable 19,012 20,284
Inventories and Other Current Assets (1,556) 4,246
Other Assets 8,974 (6,247)
Accounts Payable and Accrued Liabilities (12,685) (13,675)
Federal Income Taxes Payable (495) 256
Billings in Excess of Income Earned and
Expenses Incurred (1,102) (2,527)
Other Long-Term Liabilities (7,659) (3,560)
---------- ----------
Net Cash Provided by Operating Activities 22,852 13,664
---------- ----------
Cash Flows from Investing Activities:
Net Investment in Direct Financing Leases 1,312 2,118
Purchase of Furniture and Other Equipment (1,051) (39,843)
Additions to Deferred Charges (3,570) (7,474)
Proceeds from Sale of Vessels and Other Property 12,874 125,863
Purchase of and Proceeds from
Short Term Investments 54 2,830
Investment in Unconsolidated Entities (1,153) (3,258)
Partial Sale of Unconsolidated Entities 110 -
Other Investing Activities 54 (19)
---------- ----------
Net Cash Provided by Investing Activities 8,630 80,217
---------- ----------
Cash Flows from Financing Activities:
Proceeds from Issuance of Debt 23,500 52,300
Repayment of Debt and Capital Lease Obligations (66,298) (135,456)
Additions to Deferred Financing Charges (67) (78)
Common Stock Dividends Paid - (762)
Other Financing Activities (85) -
---------- ----------
Net Cash Used by Financing Activities (42,950) (83,996)
---------- ----------
Net (Decrease) Increase in Cash and Cash Equivalents (11,468) 9,885
Cash and Cash Equivalents at Beginning of Period 26,339 16,906
---------- ----------
Cash and Cash Equivalents at End of Period $ 14,871 $ 26,791
========== ==========
The accompanying notes are an integral part of these statements.
7
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
(Unaudited)
Note 1. Basis of Preparation
The accompanying unaudited interim financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures required by
generally accepted accounting principles for complete financial statements have
been omitted. It is suggested that these interim statements 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, 2001. Certain reclassifications have been made to prior period financial
information in order to conform to current year presentations.
The foregoing 2002 interim results are not necessarily indicative of the
results of operations for the full year 2002. Interim statements are subject
to possible adjustments in connection with the annual audit of the Company's
accounts for the full year 2002. In the opinion of management, all adjustments
necessary for a fair presentation of the information shown have been included.
The Company's policy is to consolidate all subsidiaries in which it holds
greater than 50% voting interest and to use the equity method to account for
investments in entities in which it holds a 20% to 50% voting interest. The
Company uses the cost method to account for investments in entities in which
it holds less than 20% voting interest and in which the Company cannot exercise
significant influence over operating and financial activities.
All significant intercompany accounts and transactions have been
eliminated.
Note 2. Impairment Loss on Assets Held for Disposal
In June of 2001, the Company adopted a plan to separate the LASH service
(the LINER SERVICES segment), its Cape-Size Bulk Carrier (included in the TIME
CHARTER CONTRACTS segment) and certain Special Purpose barges (included in the
OTHER segment), from the balance of its operations and dispose of the assets.
In December of 2001, as a result of extended cargo commitments from a major
shipper, the Company reclassified its Foreign Flag LASH service (operating
under the name "Forest Lines") assets, including two LASH vessels, one Dockship
and 599 LASH barges, to assets held for use. For accounting purposes, the U.S.
Flag LASH liner service assets, the Cape-Size Bulk Carrier, and the Special
Purpose barges were reclassified in the Company's balance sheet as "Current
Assets Held for Disposal" and "Assets Held for Disposal." The Foreign Flag
LASH service assets are included in "Vessels, Property, and Other Equipment."
The Company recognized an impairment loss of $81 Million in 2001 on the
aforementioned assets in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of." The impairment losses on
these assets were measured as the amount by which the carrying value of the
assets exceeded their estimated fair value.
At the time this plan was adopted, the assets related to the U.S. Flag
LASH liner service included four U.S. Flag LASH vessels, one idle Foreign Flag
LASH vessel, one FLASH unit, 1,200 LASH barges, and ancillary assets. This
service previously transported cargo between the U.S. Gulf and Atlantic coasts
and the Middle East, East Africa, the Indian sub-continent and Southeast Asia
operating under the name "Waterman." The past several years
8
have reflected a downward trend in this service as a result of higher operating
costs, disruptions in service due to unplanned maintenance, lower subsidy
revenues, and changes in market conditions. During the first quarter of 2002,
two of the U.S. Flag LASH vessels and related LASH barges were sold for scrap
resulting in an additional impairment loss of $54,000. During the second
quarter of 2002, the two remaining U.S. Flag LASH vessels, certain LASH barges,
and the FLASH unit were sold. The proceeds of these sales were used to repay
capital lease obligations of approximately $9.6 Million associated with these
assets before the scheduled maturity. The result of the sale of these assets
and costs associated with repayment of these capital lease obligations was a
net gain of $151,000 in the second quarter of 2002. During the third quarter
of 2002, certain LASH barges were sold for scrap resulting in a gain of $3,000.
During the third quarter of 2002, the Company decided to upgrade one of
its foreign flag LASH vessels, which had been idle and scheduled for disposal,
together with a certain number of LASH barges, due to changes in the levels of
available cargo. The foreign flag LASH vessel will enter the Company's Foreign
Flag LASH Liner service, replacing one of the vessels currently operating in
that service that will be reflagged to U.S. flag. The replaced vessel will be
transferred for use in the renewed U.S. Flag LASH Liner service to commence
during the fourth quarter of 2002. The Company has paid $1.6 Million related
to the upgrade and reflagging of the aforementioned foreign flag LASH vessel
as of September 30, 2002. Early in the fourth quarter, the Company entered
into an agreement in principle, subject to due diligence and documentation,
to sell and lease back this vessel. If finalized, the agreement will be for
$10 Million, of which $5 Million will be received in cash and $5 Million in the
form of a five-year promissory note. The lease will be for five years with
approximately $1.9 Million annual lease payments.
The Company sold the Cape-Size Bulk Carrier resulting in an additional
impairment loss of approximately $400,000 in excess of the original write-down
amount during the third quarter of 2001.
During the third quarter of 2002, the Company placed a terminal facility
and land, no longer needed for current operations, up for sale. Upon an
appraisal of the property, it was determined that the fair value was above the
net book value. Therefore, no impairment loss was recognized for the
reclassification of the property to assets held for disposal.
"Current Assets Held for Disposal" of $3.1 Million as of September 30,
2002, includes the terminal facility and land, which are reported at net book
value, and the remaining LASH barges not associated with the Foreign Flag
LASH service and the aforementioned Special Purpose barges, which are reported
at amounts approximating scrap values.
In anticipation of the disposal of the U.S. Flag LASH service assets, a
reduction of approximately 31% of the Company's shore base staff was effected
early in the third quarter of 2001 and in January of 2002.
Note 3. Current Financing
Early in the fourth quarter of 2002, the Company reached an agreement to
obtain additional financing of $10 Million secured by a first mortgage on two
of the Company's foreign flag LASH vessels, one of which will be converted to
U.S. flag, and a certain number of LASH barges. The agreement is expected to
be finalized by the end of the fourth quarter and the proceeds of which have
been designated for repurchase of the Company's 9% Senior Notes during the
fourth quarter. In order to meet a portion of the Company's debt obligation
during the fourth quarter of 2002, the Company intends to partially draw on
its available line of credit. As a result, in the third quarter of 2002, the
Company
9
reclassified $4.1 Million of these current debt obligations to long term in
the Company's balance sheet as "Current Liabilities to be Refinanced."
Note 4. Operating Segments
The Company's three operating segments, LINER SERVICES, TIME CHARTER
CONTRACTS, and CONTRACTS OF AFFREIGHTMENT, are identified primarily based on
the characteristics of the contracts and terms under which its fleet of vessels
and barges are operated. The Company reports in the OTHER category results of
the Company's Mexican Service and several of the Company's subsidiaries that
provide ship charter brokerage, agency, barge fleeting, and other specialized
services primarily to the Company's operating segments described below. Each
of the reportable segments is managed separately as each requires different
resources depending on the nature of the contract or terms under which each
vessel within the segment operates.
The Company does not allocate administrative and general expenses,
investment income, other income, equity in net income of unconsolidated
entities, or income taxes to its segments. Intersegment revenues are based
on market prices and include revenues earned by subsidiaries of the Company
that provide specialized services to the operating segments. The following
table presents information about segment profit and loss for the nine months
ended September 30, 2002 and 2001:
Time
(All Amounts in Liner Charter Contracts of
Thousands) Services Contracts Affreightment Other Elim. Total
- -------------------------------------------------------------------------------
2002
Revenues from external
customers $ 50,062 $ 94,458 $11,805 $10,691 $ - $167,016
Intersegment revenues - - - 10,480 (10,480) -
Gross voyage profit (loss)
before depreciation and
impairment loss (2,255) 32,669 6,621 (2,006) - 35,029
Depreciation 2,687 7,293 1,812 2,649 - 14,441
Impairment loss 94 - - - - 94
Gain on sale of other assets - - - 537 - 537
Interest expense 1,338 8,058 1,629 2,214 - 13,239
Segment (loss) profit before
administrative and general
expenses, investment income,
other income, equity in net
income of unconsolidated
entities, and taxes (6,186) 17,318 3,180 (6,332) - 7,980
- -------------------------------------------------------------------------------
2001
Revenues from external
customers $116,611 $ 98,769 $ 11,722 $ 7,862 $ - $234,964
Intersegment revenues - - - 21,023 (21,023) -
Gross voyage (loss) profit
before depreciation and
impairment loss (3,049) 41,979 6,342 (2,935) - 42,337
Depreciation 6,824 11,323 1,812 2,776 - 22,735
Impairment loss (62,385) (7,540) - (11,758) - (81,683)
Gain on sale of vessels
and other assets - 3,075 - 438 - 3,513
Interest expense 2,972 13,229 2,063 2,650 - 20,914
Segment (loss) profit before
administrative and general
expenses, investment income,
equity in net income of
unconsolidated entities,
and taxes (75,230) 12,962 2,467 (19,681) - (79,482)
- -------------------------------------------------------------------------------
10
The following table presents information about segment profit and loss
for the three months ended September 30, 2002 and 2001:
Time
(All Amounts in Liner Charter Contracts of
Thousands) Services Contracts Affreightment Other Elim. Total
- -------------------------------------------------------------------------------
2002
Revenues from external
customers $ 8,867 $ 31,776 $ 4,042 $ 5,215 $ - $ 49,900
Intersegment revenues - - - 1,880 (1,880) -
Gross voyage profit (loss)
before depreciation and
impairment loss (3,573) 11,338 2,147 452 - 10,364
Depreciation 895 2,431 604 852 - 4,782
Impairment loss (3) - - - - (3)
Gain on sale of other assets - - - 44 - 44
Interest expense 316 2,589 523 709 - 4,137
Segment (loss) profit before
administrative and general
expenses, investment income,
other income, equity in net
income of unconsolidated
entities, and taxes (4,787) 6,318 1,020 (1,065) - 1,486
- -------------------------------------------------------------------------------
2001
Revenues from external
customers $ 39,577 $ 31,073 $ 4,212 $ 3,374 $ - $ 78,236
Intersegment revenues - - - 7,280 (7,280) -
Gross voyage (loss) profit
before depreciation and
impairment loss (2,189) 11,769 2,437 (468) - 11,549
Depreciation - 2,799 604 904 - 4,307
Impairment loss - 400 - - - 400
Gain on sale of vessels
and other assets - 4,485 - 159 - 4,644
Interest expense 1,196 3,417 595 602 - 5,810
Segment (loss) profit before
administrative and general
expenses, investment income,
equity in net income of
unconsolidated entities,
and taxes (3,385) 9,638 1,238 (1,815) - 5,676
- -------------------------------------------------------------------------------
As discussed in Note 2 - "Impairment Loss on Assets Held for Disposal,"
the Company adopted a plan in 2001 to separate its U.S. Flag LASH service, its
Cape-Size Bulk Carrier, and certain Special Purpose barges from the balance of
its operations and dispose of the assets. REVENUES and GROSS VOYAGE PROFIT
(LOSS) BEFORE DEPRECIATION AND IMPAIRMENT LOSS related to the U.S. Flag LASH
service and the Cape-Size Bulk Carrier, included in the LINER SERVICES and TIME
CHARTER CONTRACTS segments above, respectively, for the three and nine months
ended September 30, 2002 and 2001 are reported in the table below. All of the
U.S. Flag LASH service assets were sold or were idle as of June 30, 2002.
However, in the third quarter of 2002, the Company recognized expenses of $2.1
Million relating to the winding down and discontinuation of the U.S. Flag LASH
Liner Service. The Cape-Size Bulk Carrier was sold in the third quarter of
2001. However, finalized results related to 2001, when this ship operated in
a pool of similar ships, were reported to the Company during the second quarter
of 2002, resulting in an adjustment of $511,000 included in revenues and gross
voyage loss in the nine months ended September 30, 2002. The Special Purpose
barges were not in use during either of the periods presented in the table.
Three Months Ended Sept. 30, Nine Months Ended Sept. 30,
Time Charter Time Charter
Liner Services: Contracts: Liner Services: Contracts:
U.S. Flag Cape-Size U.S. Flag Cape-Size
(All Amounts LASH Liner Bulk LASH Liner Bulk
in Thousands) Service Carrier Service Carrier
- -------------------------------------------------------------------------------
2002
Revenues from external
customers $ - $ - $ 16,766 $ (511)
Gross voyage (loss)
profit before
depreciation and
impairment loss (2,180) - (2,925) (511)
- -------------------------------------------------------------------------------
2001
Revenues from external
customers $25,150 $1,180 $ 74,063 $3,462
Gross voyage (loss)
profit before
depreciation and
impairment loss (3,278) (95) (8,343) 517
- -------------------------------------------------------------------------------
11
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 Sept. 30, Nine Months Ended Sept. 30,
2002 2001 2002 2001
--------- --------- --------- ---------
Total profit (loss) for
reportable segments $ 1,486 $ 5,676 $ 7,980 $(79,482)
Unallocated amounts:
Administrative and
general expenses (3,694) (6,217) (11,939) (18,361)
Investment income 126 220 578 794
Other income 200 - 1,482 -
--------- --------- --------- ---------
Loss before benefit for
income taxes, equity in net
income of unconsolidated
entities, and
extraordinary item $ (1,882) $ (321) $ (1,899) $(97,049)
========= ========= ========= =========
Note 5. 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 three and nine months ended
September 30, 2002 and 2001, as the effect would have been antidilutive.
Note 6. New Accounting Pronouncements
During 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities."
The Company adopted SFAS No. 133 on January 1, 2001, which resulted in a
cumulative effect of an accounting change to earnings of $16,000 and an
increase in other comprehensive income included in Stockholders' Investment of
$385,000. The Company employs interest rate swap agreements, foreign currency
contracts, and commodity swap contracts. The fair values of the Company's
interest rate swap agreements and commodity swap contracts at September 30,
2002, were a liability of $1.9 Million and an asset of $500,000, respectively.
In July 2001, the FASB issued SFAS No. 141 "Business Combinations," SFAS
No. 142 "Goodwill and Other Intangible Assets," and SFAS No. 143 "Accounting
for Asset Retirement Obligations." SFAS No. 141 prohibits the use of the
pooling-of-interests method of accounting for all business combinations
initiated after June 30, 2001. SFAS No. 142 requires that goodwill not be
amortized in any circumstance and also requires goodwill to be tested for
impairment annually or when events or circumstances occur between annual tests
indicating that goodwill for a reporting unit might be impaired. The standard
establishes a new method for testing goodwill for impairment based on a fair
value concept and is effective for fiscal years beginning after December 15,
2001. SFAS No. 143 requires the Company to record the fair value of
liabilities related to future asset retirement obligations in the period the
obligation is incurred and is effective for fiscal years beginning after June
15, 2002. The Company adopted SFAS No. 142 on January 1, 2002, which had no
material impact on the Company's financial statements. The adoption of SFAS
No. 143 is not expected to have a material impact on the Company's financial
statements as the Company does not have any assets that require retirement
obligations.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," which supersedes FASB Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets
12
and for Long-Lived Assets to be Disposed of." This statement revises current
guidance with respect to the process for measuring impairment of long-lived
assets. The provisions of this statement are required to be applied for
fiscal years beginning after December 15, 2001, and interim periods within
those fiscal years. The reclassification of certain of the Company's assets
to Assets Held for Disposal during 2001 was made prior to the Company's
adoption of SFAS No. 144. Therefore, these assets continued to be accounted
for under SFAS No. 121 until final disposal. The Company's adoption of SFAS
No. 144 will only impact the accounting for future transactions relating to
the impairment or disposal of long-lived assets.
In April 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." This statement 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 will no longer be treated as
extraordinary items unless they meet the criteria for extraordinary treatment
in APB Opinion No. 30. The Company will be required to adopt SFAS No. 145
effective January 1, 2003. Upon adoption of SFAS No. 145, the Company will be
required to reclassify gains and losses on early extinguishment of debt
reported in prior period income statements as those amounts will no longer
qualify for extraordinary treatment under SFAS No. 145. The Company reported
extraordinary gains related to early extinguishment of debt of $15,000 and
$688,000, net of taxes, for the years ended December 31, 2001 and 2000,
respectively, and extraordinary losses of ($67,000), net of taxes, for the
nine months ended September 30, 2002. However, the adoption of SFAS No. 145
is not expected to have a material effect on the Company's financial position.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities," which supercedes 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. SFAS No. 146 also establishes that fair value is the objective for
initial measurement of the liability. The provisions of SFAS No. 146 are
effective for exit or disposal activities that are initiated after December 31,
2002. The Company does not anticipate that adoption of SFAS No. 146 will have
a material effect on its financial position.
13
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Forward-Looking Statements
- --------------------------
Certain statements made in this report or elsewhere by, or on behalf of,
the Company that are not based on historical facts are intended to be forward-
looking statements within the meaning of the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Forward-looking statements
are based on beliefs and assumptions about future events that are inherently
unpredictable and are therefore subject to significant risks and uncertainties.
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) anticipated reductions in administrative and operating
expenses; (4) estimated fair values of financial instruments, such as interest
rate and commodity swap agreements; (5) estimated losses (including independent
actuarial estimates) under self-insurance arrangements, as well as estimated
losses on certain contracts, trade routes, lines of business or asset
dispositions; (6) estimated obligations, and the timing thereof, to U.S.
Customs relating to foreign repair work; (7) estimates of trailing voyage
expenses incurred in foreign locations; (8) the adequacy and availability of
capital resources on commercially acceptable terms; (9) the Company's ability
to remain in compliance with its debt covenants; (10) anticipated trends in
government sponsored cargoes; (11) the Company's ability to procure additional
vessels to maintain its government subsidies; and (12) the anticipated
improvement in the profitability of the Company's Mexican service.
The Company cautions readers that certain important factors have affected,
and are likely in the future to affect, the Company's ability to achieve its
expectations in those areas and in others, including the Company's 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 or on behalf of the Company. 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 the Company; (6) the frequency and severity
of claims against the Company, and unanticipated court results and changes in
laws and regulations; (7) the Company's 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 the Company; and (10) the performance of unconsolidated
subsidiaries.
A more complete description of certain of these important factors is
contained in the Company's Form 10-K filed with the Securities and Exchange
Commission for the year ended December 31, 2001.
General
- --------
The Company's vessels are operated under a variety of charters, liner
services, and contracts. The nature of these arrangements is such that,
without a material variation in gross voyage profits (total revenues less
voyage
14
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.
RESULTS OF OPERATIONS
-----------------------
NINE MONTHS ENDED SEPTEMBER 30, 2002
COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2001
Gross Voyage Profit
- --------------------
Gross voyage profit before depreciation and impairment loss decreased
17.3% from $42.3 Million to $35 Million in the nine-month periods ended
September 30, 2001 and 2002, respectively. The changes associated with each
of the Company's segments are discussed below.
LINER SERVICES: The improvement in gross voyage profit before
depreciation and impairment loss for this segment from a loss of $3 Million in
the first nine months of 2001 to a loss of $2.3 Million in same period of 2002
was primarily due to the discontinuation of the U.S. Flag LASH Liner service.
The elimination of that service contributed $5.4 Million to the improvement,
including $1.2 Million associated with the reduction of loss provisions and
other accruals during the period which are discussed in more detail in the
paragraphs below. Significantly offsetting the improvement associated with
the elimination of the U.S. Flag LASH Liner service was a decrease in gross
voyage profit from the Company's Foreign Flag LASH Liner service of $4.6
Million resulting from lower rates for eastbound cargo and higher than normal
towage expenses for LASH barges as a result of high water on the Mississippi
River and higher interstate towage expenses. Additionally, in the third
quarter of 2002, this service experienced a drop in cargo volume as a result
of lower westbound cargo volumes due to sanctions recently imposed by the
President on steel imports.
The Company maintains provisions for its estimated losses under its self-
retention insurance program, as discussed in the Liquidity and Capital
Resources section, based on estimates of the eventual claims settlement costs.
During the first nine months of 2002, the Company reduced the estimated
provision by approximately $2.2 Million. This resulted in an increase in
gross voyage profit before depreciation and impairment loss of $500,000 in the
first quarter, $1.2 Million in the second quarter and $500,000 in the third
quarter, of which $343,000, $824,000 and $343,000, respectively, was related to
the Liner Services segment.
The Company's policy is to establish self-insurance provisions for each
policy year based on independent actuarial estimates, and to maintain the
provisions at those levels for the estimated run-off period, approximately two
years from the inception of that period. The Company believes most claims will
be reported, or estimates for existing claims will be revised, within this two-
year period. The reduction in the provisions during 2002 resulted
15
from a review of the Company's current estimate of its loss exposure for the
policy year that reached the end of this two-year period as well as from a
reduction in the estimated total remaining loss exposure related to the U.S.
Flag LASH Liner service. The Company determined that the provisions for this
policy year, which were based on actuarial estimates, exceeded the Company's
loss exposure estimate, mainly as related to personal injury claims. The
Company routinely reviews its self-retention loss provisions and makes
adjustments as it believes they are warranted.
The Company's accruals for amounts due to U.S. Customs are related to
repair work performed on U.S. flag ships at foreign shipyards. U.S. Customs
advised the Company during the second quarter of 2002 that several claims
related to the U.S. Flag LASH Liner service would be settled and require
payment within the year. As a result, the portion of accruals associated with
the Company's settlement estimate was reclassified from long-term to current
liabilities as of September 30, 2002. Amounts previously accrued in excess of
the revised estimates were adjusted during the second quarter resulting in an
increase in gross voyage profit of the Liner Services segment of approximately
$500,000. As a result of recent settlements, during the third quarter of 2002,
the Company further reduced the accruals relating to custom payments by
$975,000.
As a result of the discontinuation of the U.S. Flag LASH Liner service,
the Company expensed cost associated with the winding down of the service of
$1.8 Million during the first nine months of 2002.
TIME CHARTER CONTRACTS: This segment's gross voyage profit before
depreciation and impairment loss decreased from $42 Million to $32.7 Million
in the nine-month periods ending September 30, 2001 and 2002, respectively.
The decrease resulted from the sale and leaseback of two of the Company's Pure
Car Truck Carriers ("PCTCs") during the second half of 2001, renegotiated lease
terms on another PCTC that resulted in different accounting treatment, and
offhire time for repair work on the Company's Coal Carrier. The contracts under
which the three PCTCs operate were not affected by the aforementioned lease
transactions. However, because the leases now qualify for treatment as
operating leases, the lease payments of $10.5 Million were included in voyage
expenses during the first nine months of 2002. The resulting increase in
voyage expenses was comparable to the depreciation and interest charges
incurred on these vessels during the first nine months of 2001, which were
eliminated by the lease transactions.
The decrease was partially offset by an increase of approximately $2
Million in revenue earned by the Company's PCTCs due to carrying more
supplemental cargoes during the first nine months of 2002 than in the same
period of 2001 and by $500,000 related to the reduction of loss provisions
for insurance discussed earlier.
The Company's Ice-Strengthened Multi-Purpose vessel, which is included
in this segment, is operating under charter to the MSC re-supplying scientific
projects in the Arctic and Antarctic. Gross voyage profit associated with this
contract was not material. The contract with the MSC is scheduled to expire in
early December of 2002. Although the Company had offered the vessel to the
MSC for an additional period, the contract has been awarded to another vessel.
The Company has protested this award. However, if this protest is
unsuccessful, the Company will explore alternatives in the commercial business.
CONTRACTS OF AFFREIGHTMENT: Gross voyage profit before depreciation of
$6.6 Million for this segment in the first nine months of 2002 increased
slightly from $6.3 Million in the same period of 2001 primarily due to payment
received for loss of hire from an insurance claim on the Company's Molten
Sulphur Carrier related to pre-existing damages identified during a scheduled
drydocking.
16
The transportation contract under which the Company's Molten Sulphur
Carrier operates was assigned by Freeport-McMoRan Sulphur LLC to Gulf Sulphur
Services Ltd., LLP during the second quarter of 2002. The terms of the
contract were not affected by the assignment.
OTHER: This segment's gross voyage loss before depreciation of $2 Million
in the first nine months of 2002 improved slightly from a loss of $2.9 Million
in the same period of 2001. Results for the Company's railcar ferry service
operating in the Company's Mexican Service improved by approximately $2.5
Million. However, the discontinuation of the U.S. Flag LASH Liner Service
decreased the results of certain of the Company's specialized subsidiaries.
Those lower results, which are reported in this Other category, significantly
offset the Mexican Service's improvement. Also contributing to the improvement
was an adjustment for accruals exceeding actuarial estimates for post-
retirement benefits made in the third quarter of 2002.
Impairment Loss on Assets Held for Disposal
- -------------------------------------------
In June of 2001, the Company adopted a plan to separate the LASH service
(the LINER SERVICES segment), its Cape-Size Bulk Carrier (included in the TIME
CHARTER CONTRACTS segment) and certain Special Purpose barges (included in the
OTHER segment), from the balance of its operations and dispose of the assets.
In December of 2001, as a result of extended cargo commitments from a major
shipper, the Company reclassified its Foreign Flag LASH service (operating
under the name "Forest Lines") assets, including two LASH vessels, one Dockship
and 599 LASH barges, to assets held for use. For accounting purposes, the U.S.
Flag LASH liner service assets, the Cape-Size Bulk Carrier, and the Special
Purpose barges were reclassified in the Company's balance sheet as "Current
Assets Held for Disposal" and "Assets Held for Disposal." The Foreign Flag
LASH service assets are included in "Vessels, Property, and Other Equipment."
The Company recognized an impairment loss of $81 Million in 2001 on the
aforementioned assets in accordance with SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of."
The impairment losses on these assets were measured as the amount by which the
carrying value of the assets exceeded their estimated fair value.
At the time this plan was adopted, the assets related to the U.S. Flag
LASH liner service included four U.S. Flag LASH vessels, one Foreign Flag LASH
vessel, one FLASH unit, 1,200 LASH barges, and ancillary assets. This service
previously transported cargo between the U.S. Gulf and Atlantic coasts and the
Middle East, East Africa, the Indian sub-continent and Southeast Asia operating
under the name "Waterman." The past several years have reflected a downward
trend in this service as a result of higher operating costs, disruptions in
service due to unplanned maintenance, lower subsidy revenues, and changes in
market conditions. During the first quarter of 2002, two of the U.S. Flag
LASH vessels and related LASH barges were sold for scrap resulting in an
additional impairment loss of $54,000. During the second quarter of 2002,
the two remaining U.S. Flag LASH vessels, certain LASH barges, and the FLASH
unit were sold. The proceeds of these sales were used to repay capital lease
obligations of approximately $9.6 Million associated with these assets before
the scheduled maturity. The result of the sale of these assets and costs
associated with repayment of these capital lease obligations was a net gain
of $151,000 in the second quarter of 2002. During the third quarter of 2002,
certain LASH barges were sold for scrap resulting in a gain of $3,000.
17
During the third quarter of 2002, the Company decided to upgrade its
foreign flag LASH vessel for use in current operations, as discussed in the
Liquidity and Capital Resources section, which had been idle and scheduled for
disposal. The foreign flag LASH vessel together with a certain number of LASH
barges have been reclassified to assets held for use.
The Company sold the Cape-Size Bulk Carrier resulting in an additional
impairment loss of approximately $400,000 in excess of the original write-down
amount during the third quarter of 2001.
During the third quarter of 2002, the Company placed a terminal facility
and land, no longer needed for current operations, up for sale. Upon an
appraisal of the property, it was determined that the fair value was above the
net book value. Therefore, no impairment loss was recognized for the
reclassification of the property to assets held for disposal.
"Current Assets Held for Disposal" of $3.1 Million as of September 30,
2002, includes the terminal facility and land, which are reported at net book
value, and the remaining LASH barges not associated with the Foreign Flag
LASH service and the aforementioned Special Purpose barges, which are reported
at amounts approximating scrap values.
In anticipation of the disposal of the U.S. Flag LASH Liner service
assets, a reduction of approximately 31% of the Company's shore base staff was
effected early in the third quarter of 2001 and in January, 2002. This action
is expected to reduce the Company's administrative and general expenses by
approximately $3.6 Million on an annualized basis as compared to 2001 rates.
Vessel and Barge Depreciation
- ------------------------------
Vessel and barge depreciation decreased 36.5% from $22.7 Million in the
first nine months of 2001 to $14.4 Million in the same period of 2002. The
reclassification of the U.S. Flag LASH Liner service, Cape-Size Bulk Carrier,
and certain Special Purpose barges to Assets Held for Disposal, and subsequent
sale of most of these assets, as described earlier in the "Impairment Loss on
Assets Held for Disposal" section accounted for most of this decrease. The
lease transactions related to the PCTCs discussed earlier in the "Gross Voyage
Profit - Time Charter Contracts" section and the sale for scrap during 2001 of
two of the Company's LASH vessels previously chartered to the MSC also
contributed to this decrease.
Other Income and Expense
- -------------------------
ADMINISTRATIVE AND GENERAL EXPENSES decreased 35% from $18.4 Million in
the first nine months of 2001 to $11.9 Million in the same period of 2002.
Savings resulting from the staff reductions discussed earlier in the
"Impairment Loss on Assets Held for Disposal" section accounted for most of
this decrease, and were slightly offset by related severance payments.
Additionally, the Company retained an unrelated third party during 2001 to
provide ship management services that were previously provided by a wholly-
owned subsidiary of the Company. The costs for these services of approximately
$900,000 were included in voyage expenses during the first nine months of 2002
while the expenses of the subsidiary were included in administrative and
general expenses in the first nine months of 2001.
The GAIN ON SALE OF VESSELS AND OTHER ASSETS of $537,000 during the first
nine months of 2002 primarily related to the sale of certain contract rights
that were no longer beneficial to the Company. The gain of $3.5 Million
18
in the first nine months of 2001 was related to the sale of the Company's Pure
Car Carrier, which was replaced by a newer PCTC, and the sale of additional
contract rights no longer required by the Company after being partially offset
by a loss on the sale of three of the Company's U.S. Flag LASH vessels
previously operated under contracts with the MSC.
INTEREST EXPENSE decreased 36.7% from $20.9 Million in the first nine
months of 2001 to $13.2 Million in the same period of 2002. The early
repayment of the debt associated with the two PCTCs sold and leased back during
2001 under operating leases, and the reclassification of another PCTC lease
from a capital lease to an operating lease due to a change in lease terms
together accounted for approximately $4.9 Million of the decrease. Regularly
scheduled payments on outstanding debt and lower interest rates contributed $2
Million to the decrease. Additionally, interest expense decreased because the
Company's line of credit had a lower balance drawn during the first nine months
of 2002 as compared to the same period of 2001, and the Company repurchased
$29.7 Million of its 9% Senior Notes during the first nine months of 2002.
These decreases were partially offset by interest incurred during the first
nine months of 2002 on the financing of a new PCTC purchased in the second half
of 2001.
INVESTMENT INCOME of $578,000 earned during the first nine months of 2002
decreased from $794,000 in the same period of 2001 due to lower interest rates,
partially offset by an increase in the balance of funds invested.
OTHER INCOME of $1.5 Million resulted from interest earned by the Company
on overpayments of foreign taxes made in prior years that were previously
refunded.
Income Taxes
- -------------
The Company's tax benefit was $614,000 for the first nine months of 2002
and $33.7 Million in the same period of 2001. The statutory rate was 35% for
both periods. The benefit for the nine months ended September 30, 2001,
resulted primarily from the impairment loss on assets held for disposal
discussed earlier in this report.
Equity in Net Income of Unconsolidated Entities
- ------------------------------------------------
Equity in net income of unconsolidated entities, net of taxes, of
$423,000 and $431,000 for the nine months ended September 30, 2002 and 2001,
respectively, was primarily related to the Company's minority interest in
companies owning and operating cement-carrying vessels.
THREE MONTHS ENDED SEPTEMBER 30, 2002
COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2001
Gross Voyage Profit
- --------------------
Gross voyage profit before depreciation and impairment loss decreased
10.3% from $11.5 Million to $10.4 Million in the three-month period ended
September 30, 2001 and 2002, respectively. The changes associated with each
of the Company's segments are discussed below.
LINER SERVICES: The decrease in gross voyage profit before depreciation
and impairment loss for this segment from a loss of $2.2 Million in the third
quarter of 2001 to a loss of $3.6 Million in the same period of 2002 was
primarily due to lower gross voyage profit from the Company's Foreign Flag
LASH Liner service of $2.5 Million resulting from lower rates for eastbound
cargo and higher than normal towage expenses for LASH barges as
19
a result of high water on the Mississippi River and higher interstate towage
expenses. Additionally, in the third quarter of 2002, this service
experienced a drop in cargo volume as a result of lower westbound cargo
volumes due to sanctions recently imposed by the President on steel imports.
Partially offsetting the decease in gross voyage profit before depreciation
and impairment loss was an increase of $1.1 Million from the elimination of
the U.S. Flag LASH Liner service, which included the results of winding down
the service and the associated expenses offset by the reduction of loss
provisions for insurance and other accruals during the period as explained in
the discussion of results of operations for the nine months ended September 30,
2002.
TIME CHARTER CONTRACTS: This segment's gross voyage loss before
depreciation and impairment loss decreased from $11.8 Million in the third
quarter of 2001 to $11.3 Million in the same period of 2002. The sale and
leaseback of two of the Company's PCTCs during the second half of 2001 and
renegotiated lease terms on another PCTC that resulted in different accounting
treatment accounted for most of this decrease. As explained earlier, the
contracts associated with the PCTCs were not affected by the aforementioned
lease transactions. Payments related to these leases included in voyage
expenses during the third quarter of 2002 were comparable to the depreciation
and interest charges incurred on these vessels during the third quarter of
2001, which were eliminated by the lease transactions.
CONTRACTS OF AFFREIGHTMENT: Gross voyage profit before depreciation of
$2.1 Million for this segment in the third quarter of 2002 decreased slightly
from $2.4 Million in the same period of 2001 primarily due to a loss of one
voyage due to a storm in the Gulf of Mexico during the third quarter of 2002.
OTHER: This segment's gross voyage profit before depreciation during the
third quarter of 2002 was $452,000 as compared to a loss of $468,000 in the
same period of 2001. An improvement in results for the Company's railcar
ferry service operating in the Company's Mexican Service was slightly offset
by reduced profit from certain of the Company's subsidiaries that provided
specialized services to the discontinued U.S. Flag LASH Liner service. Also
contributing to the improvement was an adjustment for accruals exceeding
actuarial estimates for post-retirement benefits made in the third quarter
of 2002.
Impairment Loss on Assets Held for Disposal
- --------------------------------------------
During the third quarter of 2002, certain LASH barges, associated with
the U.S. Flag LASH Liner service, were sold resulting in a gain of $3,000.
The discussion of results of operations for the nine months ended September
30, 2002, includes a detailed description of the discontinuation of the U.S.
Flag LASH Liner service and recognition of impairment losses associated with
those assets.
Vessel and Barge Depreciation
- ------------------------------
Vessel and barge depreciation increased 11% from $4.3 Million in the
third quarter of 2001 to $4.8 Million in the same period of 2002. The
reclassification of the Foreign Flag LASH service and certain LASH barges
to assets held for use in December of 2001, as described earlier in the
"Impairment Loss on Assets Held for Disposal" section accounted for most of
this increase. The increase was partially offset by the lease renegotiation
which resulted in different accounting treatment related to a PCTC as
discussed earlier in the "Gross Voyage Profit - Time Charter Contracts."
20
Other Income and Expense
- ------------------------
ADMINISTRATIVE AND GENERAL EXPENSES decreased 40.6% from $6.2 Million in
the third quarter of 2001 to $3.7 Million in the same period of 2002. Savings
resulting from the staff reductions discussed earlier in the "Impairment Loss
on Assets Held for Disposal" section accounted for most of this decrease.
The GAIN ON SALE OF VESSELS AND OTHER ASSETS of $44,000 during the third
quarter of 2002 primarily related to the sale of certain river barges no
longer needed for current operations. The gain of $4.6 Million in the third
quarter of 2001 was related to the sale of one of the Company's Pure Car
Carriers, which was replaced by a newer PCTC.
INTEREST EXPENSE decreased 28.8% from $5.8 Million in the third quarter
of 2001 to $4.1 Million in the same period of 2002. The reclassification,
during the fourth quarter of 2001, of another PCTC lease from a capital lease
to an operating lease due to a change in lease terms accounted for most of
this decrease. Additionally, the repurchase of $18.3 Million of the Company's
9% Senior Notes during the third quarter of 2002, a decrease in the outstanding
balance on the line of credit, lower interest rates, and regularly scheduled
payments on outstanding debt also contributed to the reduction in interest
expense. These decreases were partially offset by interest incurred during the
third quarter of 2002 on the financing of a new PCTC purchased in the second
half of 2001.
INVESTMENT INCOME of $126,000 earned during the third quarter of 2002
decreased from $220,000 in the same period of 2001 due to lower interest rates,
partially offset by an increase in the balance of funds invested.
OTHER INCOME of $200,000 resulted from interest earned by the Company on
overpayments of foreign taxes made in prior years that were previously
refunded.
Income Taxes
- -------------
The Company's tax benefit was $651,000 for the third quarter of 2002 and
$88,000 in the same period of 2001. The statutory rate was 35% for both
periods.
Equity in Net Income of Unconsolidated Entities
- ------------------------------------------------
Equity in net income of unconsolidated entities, net of taxes, of $142,000
and $68,000 for the quarterly periods ended September 30, 2002 and 2001,
respectively, was primarily related to the Company's minority interest in
companies owning and operating cement-carrying vessels.
LIQUIDITY AND CAPITAL RESOURCES
---------------------------------
The following discussion should be read with the more detailed
Consolidated Condensed Balance Sheets and Consolidated Statements of Cash Flows
included elsewhere herein as part of the Company's Consolidated Financial
Statements.
The Company's working capital decreased from $25.5 Million at December 31,
2001, to $3.7 Million at September 30, 2002, after provision for current
maturities of long-term debt and capital lease obligations of $27.9 Million,
of which $9 Million represents the Company's 9% Senior Notes (the "Notes")
due July of 2003. Cash and cash equivalents decreased during the first nine
months of 2002 by $11.5 Million to a total of $14.9 Million. This
21
decrease, which resulted from cash used for financing activities of $43
Million, was partially offset by cash provided by operating activities of
$22.9 Million and by investing activities of $8.6 Million.
Operating activities generated a positive cash flow after adjusting net
income for non-cash provisions such as depreciation and amortization. Cash
flows from investing activities of $8.6 Million were generated primarily from
the sale of Assets Held for Disposal and were slightly offset by payments for
vessel drydocking expenses.
Cash used for financing activities of $43 Million included $66.3 Million
for repayment of debt and capital lease obligations, which was offset by draws
on the Company's line of credit of $11.5 Million and financing of $12 Million
secured by a second mortgage on the Company's Molten Sulphur Carrier. The
$66.3 Million for repayment of debt and capital lease obligations consisted of
$29.7 Million to repurchase a portion of the Company's 9% Senior Notes as
discussed below; $10.6 Million to repay the capital lease obligations
associated with two of the U.S. Flag LASH vessels sold in 2002; $14.5 Million
for regularly scheduled payments on debt and capital lease obligations; and
$11.5 Million to repay draws on the Company's line of credit made during the
same period.
9% SENIOR NOTES - As of September 30, 2002, the balance outstanding on
the Notes was $9 Million. These Notes, which mature July 1, 2003, became
current liabilities of the Company on July 1, 2002. Early in the fourth
quarter of 2002, the Company reached an agreement to obtain additional
financing of $10 Million secured by a first mortgage on two of the Company's
foreign flag LASH vessels, one of which will be converted to U.S. flag and a
certain number of LASH barges. The agreement is expected to be finalized by
the end of the fourth quarter and the proceeds of which have been designated
for repurchase of the remaining $9 Million of the Notes during the fourth
quarter. The Company remains in compliance with its working capital covenants
included in its loan agreements after giving effect to classification of the
Notes as current liabilities at September 30, 2002.
DEBT AND LEASE OBLIGATIONS - As discussed earlier, the Company sold and
leased back two PCTCs during 2001 and renegotiated the terms of the lease
agreement for another of its PCTCs. The PCTCs are operated under fixed
charter agreements covering the terms of the respective leases. For
accounting purposes, the leases qualify for treatment as operating leases.
The Company's obligations associated with these and other operating leases
are disclosed in the table below.
The following is a summary of the Company's debt and lease obligations as
of September 30, 2002:
October 1-
Debt and lease December 31
obligations (000's) 2002 2003 2004 2005 2006 Thereafter
- -------------------------------------------------------------------------------
Long-term debt $6,174 $28,270 $16,998 $17,764 $16,451 $133,680
Operating leases 4,573 17,476 16,223 16,293 16,313 124,150
---------------------------------------------------------
Total by period $10,747 $45,746 $33,221 $34,057 $32,764 $257,830
=========================================================
At September 30, 2002, the Company's revolving credit facility, which
expires in April of 2004, of $10 Million was fully available. Early in the
fourth quarter of 2002, the Company drew $7 Million from its available line
of credit to meet current operational requirements. The Company expects to
repay these draws on its line of credit with cash flows from operations.
In order to meet a portion of its debt obligation of $6.2 Million during
the fourth quarter of 2002, the Company intends to draw on its available line
of credit. As a result, in the third quarter of 2002, the Company reclassified
$4.1 Million of these current debt obligations to long term in the Company's
balance sheet as "Current
22
Liabilities to be Refinanced." Management believes that normal operations
will provide sufficient working capital and cash flows to meet its remaining
debt obligations during the foreseeable future as most of the Company's
operations are tied to existing medium to long-term contracts. The Company
expects to repay the draws on its line of credit with cash flows from
operations, although, there can be no assurance this will occur.
DEBT COVENANT COMPLIANCE STATUS - The Company continues to meet all of
its financial covenants under its various debt agreements, the most restrictive
of which include the working capital ratio, leverage ratio, minimum net worth,
and interest coverage ratio, among others, after these were amended for the
year 2002. The Company believes it will be able to meet its requirements for
the balance of 2002 and the more restrictive financial covenants that become
effective in 2003, although it can give no assurance to that effect.
If the Company's cash flow and capital resources are not sufficient to
fund its debt service obligations or if the Company is unable to meet covenant
requirements, the Company may be forced to reduce or delay capital
expenditures, sell assets, obtain additional equity capital, enter into
additional financings of its unencumbered vessels or restructure debt.
REACTIVATION OF U.S. FLAG LASH LINER SERVICE - During the second quarter
of 2002, the Company announced that it was reviewing the possibility of
reactivating its U.S. Flag LASH Liner service between the U.S. Gulf and South
Asia due to several changes in circumstances that have occurred since the
Company's decision in the second quarter of 2001 to discontinue this service.
The Company believes that the events of September 11, 2001, have and will
continue to maintain the level of government-sponsored foreign aid cargo
available for shipment by U.S. flag vessels destined to the Red Sea, Pakistan
and India. As a result, the Company has upgraded one of its foreign flag LASH
vessels, which had been idle and scheduled for disposal, together with a
certain number of LASH barges. The foreign flag LASH vessel will enter the
Company's Foreign Flag LASH Liner service, replacing one of the vessels
currently operating in that service that will be reflagged to U.S. flag. The
replaced vessel will be transferred for use in the renewed U.S. Flag LASH
Liner service to commence during the fourth quarter of 2002.
The Company anticipates the cost of upgrade and reflagging to be
approximately $8.4 Million, with $1.6 Million paid as of September 30, 2002.
Early in the fourth quarter, the Company entered into an agreement in
principle, subject to due diligence and documentation, to sell and lease back
the aforementioned upgraded foreign flag LASH vessel. The agreement, which is
expected to be finalized by the end of the fourth quarter, will be for $10
Million, of which $5 Million will be received in cash and $5 Million in the
form of a five-year promissory note. The lease will be for five years
with approximately $1.9 Million annual lease payments. The proceeds will be
used to partially pay for these upgrade and reflagging costs.
EARLY BUYOUT OF CAPITAL LEASE OBLIGATIONS - As of June 30, 2002, the
Company reported a capital lease obligation of approximately $2.5 Million
related to a group of LASH barges, of which $1.8 Million was due within one
year with the remainder due in the second half of 2003. Early in the third
quarter of 2002, the Company paid $2.8 Million to the lessor, which
approximated the remaining lease payments and accrued interest, in fulfillment
of an agreement to terminate the lease earlier than scheduled. Additionally,
the Company signed a promissory note for $1.3 Million due in July of 2003 for
the purchase from the lessor of the LASH barges associated with this obligation
and another group of LASH barges previously leased from the same party. These
LASH barges will be used in the renewed U.S. Flag LASH Liner service. This
promissory note is secured by LASH barges currently operating in the Company's
Foreign Flag LASH Liner service.
23
ICE STRENGTHENED MULTI-PURPOSE VESSEL - The Company currently operates
one of its Ice Strengthened Multi-Purpose vessels on charter to the MSC. This
vessel is U.S. flag and is used to re-supply scientific projects in the Arctic
and Antarctic. The contract with the MSC is scheduled to expire in early
December of 2002. Although the Company offered to the MSC its vessel for an
additional period, the contract has been awarded to another vessel. The
Company has protested this award. However, if this protest is unsuccessful,
the Company will explore alternatives in the commercial business.
SUBSIDY REVENUE CONTRACTS - Three of the Company's LASH vessels that
previously operated in its U.S. Flag LASH Liner service participated in the
Maritime Security Program ("MSP"), which provides for subsidy payments of
$2.1 Million per vessel annually. As discussed previously in the "Assets Held
for Disposal" section, these three vessels were sold during the first half of
2002, and accordingly subsidy payments under MSP were suspended. The Company
must operate a qualified vessel under each of these contracts for a specified
number of days during each fiscal year to maintain the MSP contract. The
Company reached agreements in the third quarter of 2002 to bareboat charter
two vessels that allows the Company to maintain two of the three contracts.
The vessels are being operated under a time charter arrangement. The effect
on the Company's gross voyage profit related to these transactions will not be
material. The Company anticipates that the vessel it is planning on reflagging
for use in a renewed U.S. Flag LASH Liner service will qualify under the MSP
program, thereby filling the requirements for maintaining the remaining MSP
contract.
MSP subsidy payments are subject to annual appropriation by Congress.
The current MSP program expires in September 2005. The Company, along with
other MSP carriers, has been in discussion with maritime labor, the Maritime
Administration, and Congress regarding an extension of this program. However,
the Company can provide no assurances in this regard. The MSP subsidy payments
are discussed in more detail in the Company's Form 10-K for the year ended
December 31, 2001.
SELF-RETENTION INSURANCE PROGRAM - Due to the effect of the events of
September 11, 2001, on the reinsurance market, along with the discontinuation
of the U.S. Flag LASH Liner service, the Company revised its self-retention
insurance program for policy years beginning in the third quarter of 2002.
The Company's current estimates indicate additional cost of approximately $2
Million annually to maintain a comparable level of risk exposure under this new
program. Under the revised insurance program, the Company is self-insured for
Hull and Machinery and Loss of Hire claims in the aggregate up to $2 Million.
If the claim amounts exceed $2 Million those claims are recoverable from
underwriters. Furthermore, the Company reduced its Protection and Indemnity
deductible to $25,000 each accident for all vessels. The Company's self-
retention insurance program in effect during the first half of 2002 is
explained in more detail in the Company's Form 10-K for the year ended
December 31, 2001.
MEXICAN SERVICE PROFITABILITY - The Company's Mexican Service, which has
contributed to the Company's positive cash flows from operations, is projected
to generate a profit in the fourth quarter of 2002. However, if market
conditions impact those projections, the Company believes it could find
alternative placement for the two vessels supporting the service.
DIVIDEND PAYMENTS - In view of the impairment loss recognized on Assets
Held for Disposal during 2001, and to comply with certain financial covenants
under the Company's debt agreements, the suspension of quarterly dividend
payments on its Common shares of stock remains in effect.
24
ENVIRONMENTAL ISSUES - The Company has not been notified that it is a
potentially responsible party in connection with any environmental matters.
NEW ACCOUNTING PRONOUNCEMENTS
-------------------------------
During 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The Company adopted SFAS No. 133 on
January 1, 2001, which resulted in a cumulative effect of an accounting change
to earnings of $16,000 and an increase in other comprehensive income included
in Stockholders' Investment of $385,000. The Company employs interest rate
swap agreements, foreign currency contracts, and commodity swap contracts.
The fair values of the Company's interest rate swap agreements and commodity
swap contracts at September 30, 2002, were a liability of $1.9 Million and an
asset of $500,000, respectively.
In July 2001, the FASB issued SFAS No. 141 "Business Combinations," SFAS
No. 142 "Goodwill and Other Intangible Assets," and SFAS No. 143 "Accounting
for Asset Retirement Obligations." SFAS No. 141 prohibits the use of the
pooling-of-interests method of accounting for all business combinations
initiated after June 30, 2001. SFAS No. 142 requires that goodwill not be
amortized in any circumstance and also requires goodwill to be tested for
impairment annually or when events or circumstances occur between annual tests
indicating that goodwill for a reporting unit might be impaired. The standard
establishes a new method for testing goodwill for impairment based on a fair
value concept and is effective for fiscal years beginning after December 15,
2001. SFAS No. 143 requires the Company to record the fair value of
liabilities related to future asset retirement obligations in the period the
obligation is incurred and is effective for fiscal years beginning after June
15, 2002. The Company adopted SFAS No. 142 on January 1, 2002, which had no
material impact on the Company's financial statements. The adoption of SFAS
No. 143 is not expected to have a material impact on the Company's financial
statements as the Company does not have any assets that require retirement
obligations.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," which supersedes FASB Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of." This statement revises current guidance with
respect to the process for measuring impairment of long-lived assets. The
provisions of this statement are required to be applied for fiscal years
beginning after December 15, 2001, and interim periods within those fiscal
years. The reclassification of certain of the Company's assets to Assets Held
for Disposal during 2001 was made prior to the Company's adoption of SFAS No.
144. Therefore, these assets continued to be accounted for under SFAS No. 121
until final disposal. The Company's adoption of SFAS No. 144 will only impact
the accounting for future transactions relating to the impairment or disposal
of long-lived assets.
In April 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." This statement 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 will no longer be treated as
extraordinary items unless they meet the criteria for extraordinary treatment
in APB Opinion No. 30. The Company will be required to adopt SFAS No. 145
effective January 1, 2003. Upon adoption of SFAS No. 145, the Company will be
required to reclassify gains and losses on
25
early extinguishment of debt reported in prior period income statements as
those amounts will no longer qualify for extraordinary treatment under SFAS
No. 145. The Company reported extraordinary gains related to early
extinguishment of debt of $15,000 and $688,000, net of taxes, for the years
ended December 31, 2001 and 2000, respectively, and extraordinary losses of
($67,000), net of taxes, for the nine months ended September 30, 2002.
However, the adoption of SFAS No. 145 is not expected to have a material effect
on the Company's financial position.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities," which supercedes 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. SFAS No. 146 also
establishes that fair value is the objective for initial measurement of the
liability. The provisions of SFAS No. 146 are effective for exit or disposal
activities that are initiated after December 31, 2002. The Company does not
anticipate that adoption of SFAS No. 146 will have a material effect on its
financial position.
ITEM 3.
QUANTITATIVE AND QUALITATIVE INFORMATION ABOUT MARKET RISK
In the ordinary course of its business, the Company is exposed to foreign
currency, interest rate, and commodity price risk. The Company utilizes
derivative financial instruments including forward exchange contracts, interest
rate swap agreements, and commodity swap agreements to manage certain of these
exposures. The Company hedges only firm commitments or anticipated
transactions and does not use derivatives for speculation. The Company neither
holds nor issues financial instruments for trading purposes.
INTEREST RATE RISK. The fair value of long-term debt at September 30,
2002, including current maturities, was estimated to be $229.7 Million compared
to a carrying value of $219.3 Million. The potential increase in fair value
resulting from a hypothetical 10% decrease in the average interest rates
applicable to the Company's long-term debt at September 30, 2002, would be
approximately $2.4 Million or 1.1% of the carrying value.
The fair value of the interest rate swap agreement discussed in the Form
10-K was a liability of $1.9 Million at September 30, 2002, estimated based on
the amount that the banks would receive or pay to terminate the swap agreements
at the reporting date taking into account current market conditions and
interest rates. A hypothetical 10% decrease in interest rates as of September
30, 2002, would have resulted in a $68,000 increase in the fair value of the
liability.
COMMODITY PRICE RISK. The fair value of the commodity swap agreements
discussed in the Form 10-K was an asset of $500,000 at September 30, 2002,
estimated based on the difference between price per ton of fuel and the
contract delivery price per ton of fuel times the quantity applicable to the
agreements. A hypothetical 10% decrease in the fuel price per ton of fuel as
of September 30, 2002, would have resulted in a $140,000 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 sale commitments described in the
Company's Form 10-K filed with the Securities and Exchange
26
Commission for the year ended December 31, 2001. Additionally, market risk
associated with foreign currency purchase commitments entered into by the
Company during 2002 was not material.
ITEM 4.
CONTROLS AND PROCEDURES
(a) Within the 90-day period prior to filing this report, the Company
conducted an evaluation of the effectiveness of its "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 the Company's management, including
its Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO").
Based on that evaluation, the CEO and CFO have concluded that the
Company's disclosure controls and procedures are effective in timely alerting
them to material information required to be disclosed in the Company's periodic
filings with the Securities and Exchange Commission ("SEC"), and in insuring
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 the Company's 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.
27
PART II - OTHER INFORMATION
ITEM 6.
EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBIT INDEX
Exhibit Number Description
----------------- ---------------
Part II Exhibits: 3 Restated Certificate of
Incorporation, as amended, and
By-Laws of the Registrant
(filed with the Securities and
Exchange Commission as Exhibit 3
to the Registrant's Form 10-Q for
the quarterly period ended June
30, 1996, and incorporated herein
by reference)
(b) The Company filed a Form 8-K on August 14, 2002, to report the
certifications of the Chief Executive Officer and the Chief Financial Officer
of contents of Form 10-Q for the period ending June 30, 2002.
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 _________11/14/02____________
28
CERTIFICATION
I, Niels W. Johnsen, Chairman of the Board of Directors and Chief Executive
Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of International
Shipholding Corporation for the period ended September 30, 2002;
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 officer 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 officer 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 officer 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: November 14, 2002
___/s/ Niels W. Johnsen_________
Niels W. Johnsen
Chairman of the Board of Directors and Chief Executive Officer
International Shipholding Corporation
29
CERTIFICATION
I, Gary L. Ferguson, Vice President and Chief Financial Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of International
Shipholding Corporation for the period ended September 30, 2002;
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 officer 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 officer 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 officer 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: November 14, 2002
____/s/ Gary L. Ferguson________________
Gary L. Ferguson
Vice President and Chief Financial Officer
International Shipholding Corporation