Back to GetFilings.com



1
INTERNATIONAL SHIPHOLDING CORPORATION AND SUBSIDIARIES

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2004
-------------

__ 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
incorporation or organization) Number)

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 by check mark whether the registrant is an accelerated filer (as
defined in Rule 12B-2 of the Exchange Act). YES_________ NO____x____

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 (June 30, 2004)
- --------------------------- ------------------- -----------------


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 Six Months Ended
June 30, June 30,
2004 2003 2004 2003
--------- --------- --------- ---------

Revenues $ 64,843 $ 67,505 $130,686 $132,311

Operating Expenses:
Voyage Expenses 51,924 52,013 103,139 101,631
Vessel and Barge Depreciation 4,696 5,138 9,323 9,792
--------- --------- --------- ---------
Gross Voyage Profit 8,223 10,354 18,224 20,888
--------- --------- --------- ---------
Administrative and
General Expenses 4,289 4,000 8,395 8,011
(Gain) Loss on Sale of Other - (39) 7 (43)
Assets --------- --------- --------- ---------

Operating Income 3,934 6,393 9,822 12,920
--------- --------- --------- ---------
Interest and Other:
Interest Expense 2,626 3,171 5,348 6,652
Loss on Sale of Investment - - 623 -
Investment Income (161) (302) (329) (530)
Other Income - (81) - (103)
Loss (Gain) on Early
Extinguishment of Debt 15 - 46 (1,260)
--------- --------- --------- ---------
2,480 2,788 5,688 4,759
--------- --------- --------- ---------
Income Before Provision for
Income Taxes and Equity in Net
Income of Unconsolidated Entities 1,454 3,605 4,134 8,161
--------- --------- --------- ---------
Provision for Income Taxes:
Current 105 164 210 164
Deferred 460 1,085 1,347 2,672
State 10 26 13 68
--------- --------- --------- ---------
575 1,275 1,570 2,904
--------- --------- --------- ---------
Equity in Net Income of
Unconsolidated Entities
(Net of Applicable Taxes) 949 160 2,161 227
--------- --------- --------- ---------
Net Income $ 1,828 $ 2,490 $ 4,725 $ 5,484
========= ========= ========= =========
Basic and Diluted Earnings
Per Share:
Net Income $ 0.30 $ 0.41 $ 0.78 $ 0.90
========= ========= ========= =========

Weighted Average Shares of
Common Stock Outstanding:
Basic 6,082,887 6,082,887 6,082,887 6,082,887
Diluted 6,097,164 6,082,887 6,094,813 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)


June 30, December 31,
ASSETS 2004 2003
------------ ------------

Current Assets:
Cash and Cash Equivalents $ 9,564 $ 8,881
Restricted Cash 6,541 7,406
Marketable Securities 4,140 2,650
Accounts Receivable, Net of Allowance
for Doubtful Accounts of $298 and $327
in 2004 and 2003, Respectively:
Traffic 18,516 23,070
Agents' 4,035 4,119
Claims and Other 9,960 9,438
Federal Income Taxes Receivable 271 -
Deferred Income Tax 144 144
Net Investment in Direct Financing Lease 2,232 2,128
Other Current Assets 3,634 6,295
Material and Supplies Inventory, at
Lower of Cost or Market 3,235 3,177
Current Assets Held for Disposal 89 89
------------ ------------
Total Current Assets 62,361 67,397
------------ ------------

Investment in Unconsolidated Entities 9,814 8,413
------------ ------------
Net Investment in Direct Financing Lease 47,981 49,136
------------ ------------
Vessels, Property, and Other
Equipment, at Cost:
Vessels and Barges 324,459 324,413
Other Equipment 7,082 5,233
Terminal Facilities 140 345
Furniture and Equipment 3,812 4,304
------------ ------------
335,493 334,295
Less - Accumulated Depreciation (120,185) (111,154)
------------ ------------
215,308 223,141
------------ ------------
Other Assets:
Deferred Charges, Net of Accumulated
Amortization of $14,510 and $14,614
in 2004 and 2003, Respectively 13,514 12,319
Acquired Contract Costs, Net of Accumulated
Amortization of $22,157 and $21,430
in 2004 and 2003, Respectively 8,367 9,095
Due from Related Parties 2,535 2,535
Other 9,566 10,415
------------ ------------
33,982 34,364
------------ ------------

$ 369,446 $ 382,451
============ ============


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)


June 30, December 31,
LIABILITIES AND STOCKHOLDERS' INVESTMENT 2004 2003
------------ ------------

Current Liabilities:
Current Maturities of Long-Term Debt $ 12,366 $ 14,866
Accounts Payable and Accrued Liabilities 28,530 35,510
Federal Income Tax Payable - 183
------------ ------------
Total Current Liabilities 40,896 50,559
------------ ------------
Billings in Excess of Income Earned
and Expenses Incurred 2,804 5,271
------------ ------------
Long-Term Debt, Less Current Maturities 156,122 164,144
------------ ------------
Other Long-Term Liabilities:
Deferred Income Taxes 22,216 19,565
Other 20,675 21,545
------------ ------------
42,891 41,110
------------ ------------
Commitments and Contingent Liabilities

Stockholders' Investment:
Common Stock 6,756 6,756
Additional Paid-In Capital 54,450 54,450
Retained Earnings 74,655 69,930
Less - Treasury Stock (8,704) (8,704)
Accumulated Other Comprehensive Loss (424) (1,065)
------------ ------------
126,733 121,367
------------ ------------

$ 369,446 $ 382,451
============ ============


The accompanying notes are an integral part of these statements.


5


INTERNATIONAL SHIPHOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All Amounts in Thousands)
(Unaudited)

Six Months Ended June 30,
2004 2003
------------ ------------

Cash Flows from Operating Activities:
Net Income $ 4,725 $ 5,484
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation 9,572 10,195
Amortization of Deferred Charges
and Other Assets 3,724 3,730
Deferred Provision for Federal
Income Taxes 1,347 2,672
Equity in Net Income of Unconsolidated
Entities (2,161) (227)
Loss (Gain) on Sale of Other Assets 7 (43)
Loss (Gain) on Early Extinguishment of Debt 46 (1,260)
Loss on Sale of Investment 623 -
Changes in:
Accounts Receivable 5,607 (8,295)
Inventories and Other Current Assets 4,135 3,095
Deferred Drydocking Charges (2,225) (287)
Other Assets 612 1,593
Accounts Payable and Accrued Liabilities (10,618) 1,291
Federal Income Taxes Payable (646) 1,760
Billings in Excess of Income Earned
and Expenses Incurred (2,467) (1,226)
Other Long-Term Liabilities (1,697) (3,344)
------------ ------------
Net Cash Provided by Operating Activities 10,584 15,138
------------ ------------
Cash Flows from Investing Activities:
Net Investment in Direct Financing Lease 1,051 941
Additions to Vessels and Other Assets (1,698) (2,837)
Proceeds from Sale of Vessels and Other
Assets - 478
Purchase of and Proceeds from Short
Term Investments (1,637) 54
Proceeds from Sale of Marketable
Equity Securities - 200
Investment in Unconsolidated Entities 2,008 128
Partial Sale of Unconsolidated Entities - 15
Net Decrease (Increase) in Restricted
Cash Account 865 (124)
Other Investing Activities 113 (18)
------------ ------------
Net Cash Provided (Used) by Investing
Activities 702 (1,163)
------------ ------------
Cash Flows from Financing Activities:
Proceeds from Issuance of Debt 1,000 17,000
Repayment of Debt (11,522) (33,700)
Additions to Deferred Financing Charges (65) (66)
Other Financing Activities (16) 1,380
------------ ------------
Net Cash Used by Financing Activities (10,603) (15,386)
------------ ------------
Net Increase (Decrease) in Cash and
Cash Equivalents 683 (1,411)
Cash and Cash Equivalents at Beginning of Period 8,881 4,419
------------ ------------
Cash and Cash Equivalents at End of Period $ 9,564 $ 3,008
============ ============


The accompanying notes are an integral part of these statements.


6

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2004
(Unaudited)

Note 1. Basis of Preparation
We have prepared the accompanying unaudited interim financial statements
pursuant to the rules and regulations of the Securities and Exchange
Commission, and we have omitted certain information and footnote disclosures
required by generally accepted accounting principles for complete financial
statements. The condensed consolidated balance sheet as of December 31, 2003
has been derived from the audited financial statements at that date. We
suggest that you read these interim statements in conjunction with the
financial statements and notes thereto included in our Form 10-K for the year
ended December 31, 2003. We have made certain reclassifications to prior
period financial information in order to conform to current year
presentations.
The foregoing 2004 interim results are not necessarily indicative of the
results of operations for the full year 2004. Interim statements are subject
to possible adjustments in connection with the annual audit of our accounts
for the full year 2004. Management believes that all adjustments necessary,
consisting only of normal recurring adjustments, for a fair presentation of
the information shown have been made.
Our policy is to consolidate all subsidiaries in which we hold a greater
than 50% voting interest and to use the equity method to account for
investments in entities in which we hold a 20% to 50% voting interest. We use
the cost method to account for investments in entities in which we hold less
than 20% voting interest and in which we cannot exercise significant influence
over operating and financial activities.
We have eliminated all significant intercompany accounts and
transactions.

Note 2. Employee Benefit Plans
The following table provides the components of net periodic benefit
cost for the pension plan:



(All Amounts in Thousands)

Three Months Ended Six Months Ended
June 30, June 30,
COMPONENTS OF NET PERIODIC BENEFIT COST: 2004 2003 2004 2003
------------- --------------

Service cost $ 137 $ 117 $ 274 $ 234
Interest cost 308 298 616 596
Expected return on plan assets (346) (300) (692) (600)
Amortization of prior service cost 2 2 4 4
Amortization of net actuarial loss 23 47 46 94
-------------- --------------
Net periodic benefit cost $ 124 $ 164 $ 248 $ 328
============== ==============


7

The following table provides the components of net periodic benefit cost
for the postretirement benefits plan:



(All Amounts in Thousands)

Three Months Ended Six Months Ended
June 30, June 30,
COMPONENTS OF NET PERIODIC BENEFIT COST: 2004 2003 2004 2003
-------------- --------------

Service cost $ 19 $ 16 $ 38 $ 32
Interest cost 147 149 294 298
Amortization of net actuarial loss 25 17 50 34
-------------- --------------
Net periodic benefit cost $ 191 $ 182 $ 382 $ 364
============== ==============



We contributed $143,000 to our pension plan in the first quarter of 2004.
We do not expect to make any further contributions to our pension plan in 2004
and we do not expect to make any contributions to our post retirement benefits
plan in 2004.
In December of 2003, the Medicare Prescription Drug,Improvements, and
Modernization Act of 2003 ("Act") was signed into law. In addition to
including numerous other provisions that have potential effects on an
employer's retiree health plan, the Medicare law included a special subsidy
for employers that sponsor retiree health plans with prescription drug
benefits that are at least as favorable as the new Medicare Part D benefit.
In May of 2004, the Financial Accounting Standards Board ("FASB") issued FASB
Staff Position ("FSP") 106-2, "Accounting and Disclosure Requirements Related
to the Medicare Prescription Drug, Improvements, and Modernization Act of
2003," that provides guidance on the accounting for the effects of the Act
for employers that sponsor postretirement health care plans that provide drug
benefits. We are required to adopt the provisions of this FSP effective July
1, 2004 and are still evaluating the impact of adoption on our financial
position and results of operations.

Note 3. Operating Segments
Our four operating segments, Liner Services, Time Charter Contracts,
Contracts of Affreightment, and Rail-Ferry Service, are identified primarily
by the characteristics of the contracts and terms under which our vessels and
barges are operated. We report in the Other category results of several of
our subsidiaries that provide ship charter brokerage, agency, and other
specialized services primarily to our operating segments. We manage
each reportable segment separately, as each requires different resources
depending on the nature of the contract or terms under which each vessel
within the segment operates.
We do not allocate administrative and general expenses, investment
income, other income, losses or gains on early extinguishment of debt, equity
in net income of unconsolidated entities, or income taxes to our segments.
Intersegment revenues are based on market prices and include revenues earned
by subsidiaries that provide specialized services to the operating segments.

8

The following table presents information about segment profit and loss
for the three months ended June 30, 2004 and 2003:



(All Amounts in Thousands)
Time
Liner Charter Contracts of Rail-Ferry
Services Contracts Affreightment Service Other Elim. Total
- -------------------------------------------------------------------------------

2004
Revenues from external
customers $22,375 $28,422 $4,035 $3,928 $ 6,083 - $ 64,843
Intersegment
revenues - - - - 3,116 (3,116) -
Vessel and barge
depreciation 855 2,283 605 729 224 - 4,696
Gross voyage
profit (loss) 300 6,997 1,423 (854) 357 - 8,223
Interest expense 205 1,496 379 491 55 - 2,626
Gain on sale of
other assets - - - - - - -
Segment profit (loss)
before administrative
and general expenses,
investment income, loss
on sale of investment,
loss on early
extinquishment of debt,
other income, equity
in net income of
unconsolidated entities,
and taxes 95 5,501 1,044 (1,345) 302 - 5,597
- -------------------------------------------------------------------------------
2003
Revenues from external
customers $19,809 $33,882 $4,013 $4,209 $5,592 - $67,505
Intersegment
revenues - - - - 3,386 (3,386) -
Vessel and barge
depreciation 823 2,887 604 729 95 - 5,138
Gross voyage
(loss) profit (536) 9,520 1,232 (416) 554 - 10,354
Interest expense 209 2,093 364 469 36 - 3,171
Gain on sale of
other assets - - - - 39 - 39
Segment (loss) profit
before administrative
and general expenses,
investment income, loss
on sale of investment,
loss on early
extinguishment of debt,
other income, equity
in net income of
unconsolidated entities,
and taxes (745) 7,427 868 (885) 557 - 7,222
- -------------------------------------------------------------------------------



The following table presents information about segment profit and loss
for the six months ended June 30, 2004 and 2003:



(All Amounts in Thousands)
Time
Liner Charter Contracts of Rail-Ferry
Services Contracts Affreightment Service Other Elim. Total
- -------------------------------------------------------------------------------

2004
Revenues from external
customers $45,607 $57,501 $8,030 $7,984 $11,564 - $130,686
Intersegment
revenues - - - - 6,229 (6,229) -
Vessel and barge
depreciation 1,711 4,566 1,209 1,458 379 - 9,323
Gross voyage
profit (loss) 762 14,712 2,724 (1,718) 1,744 - 18,224
Interest expense 426 3,046 770 996 110 - 5,348
Loss on sale of
other assets - - - - (7) - (7)
Segment profit (loss)
before administrative
and general expenses,
investment income, loss
on sale of investment,
loss on early
extinguishment of debt,
other income, equity
in net income of
unconsolidated entities,
and taxes 336 11,666 1,954 (2,714) 1,627 - 12,869
- -------------------------------------------------------------------------------
2003
Revenues from external
customers $39,950 $66,614 $8,017 $7,380 $10,350 - $132,311
Intersegment
revenues - - - - 6,883 (6,883) -
Vessel and barge
depreciation 1,642 5,318 1,208 1,458 166 - 9,792
Gross voyage
(loss) profit (545) 19,237 2,481 (1,149) 864 - 20,888
Interest expense 507 4,110 861 1,108 66 - 6,652
Gain on sale of
other assets - - - - 43 - 43
Segment (loss) profit
before administrative
and general expenses,
investment income, loss
on sale of investment,
loss on early
extinguishment of debt,
other income, equity
in net income of
unconsolidated entities,
and taxes (1,052) 15,127 1,620 (2,257) 841 - 14,279
- -------------------------------------------------------------------------------



9
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 June 30, Six Months Ended June 30,
2004 2003 2004 2003
--------------------------- -------------------------

Total profit for
reportable segments $5,597 $7,222 $12,869 $14,279
Unallocated amounts:
Loss on sale of
investment - - (623) -
Investment income 161 302 329 530
Other income - 81 - 103
(Loss) gain on early
extinguishment of debt (15) - (46) 1,260
Administrative and
general expenses (4,289) (4,000) (8,395) (8,011)
-------------------------- ------------------------
Income before provision
for income taxes and
equity in net income of
unconsolidated entities $1,454 $3,605 $4,134 $8,161
========================= ========================



Note 4. Unconsolidated Entities
In the fourth quarter of 2003, we acquired a 50% investment in Dry Bulk
Cape Holding Inc. ("Dry Bulk"), which owns two cape-size bulk carrier vessels
built in calendar years 2002 and 2003. We account for our investment in Dry
Bulk under the equity method, and as such our share of the earnings or losses
of Dry Bulk is reported in our consolidated statements of income net of taxes.
For the six months ended June 30, 2004, our portion of earnings, net of taxes,
was $1.7 Million. For the three months ended June 30, 2004, our portion of
earnings net of taxes was $621,000. In April of 2004, we received a cash
distribution of $1.6 Million from Dry Bulk representing first quarter earnings
and in July of 2004, we received a cash distribution of $1 Million from Dry
Bulk representing second quarter earnings, which were both recorded as
reductions of our investment in Dry Bulk.
The unaudited combined condensed results of operations of Dry Bulk are
summarized below:



(All Amounts
in Thousands) Three Months Ended Six Months Ended
June 30, 2004 June 30, 2004
-------------------- --------------------


Opeating Revenue $ 4,246 $ 9,928
Operating Income $ 2,781 $ 6,881
Net Income $ 1,912 $ 5,236




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 included in the
computation of diluted earnings per share in the first six months of 2004, but
were excluded from the computation of diluted earnings per share in the first
six months of 2003, as the effect would have been antidilutive.

10

Note 6. Comprehensive Income (Loss)
The following table summarizes components of comprehensive income (loss)
for the three months period ended June 30, 2004 and 2003:



Three Months Ended June 30,
(Amounts in Thousands) 2004 2003
----------------------------

Net Income $ 1,828 $ 2,490
Other Comprehensive Income (Loss):
Unrealized Holding (Loss) Gain on
Marketable Securities, Net of
Deferred Taxes of ($64) and $103,
Respectively (118) 192
Net Change in Fair Value of
Derivatives, Net of Deferred
Taxes of ($11) and $95,
Respectively (21) 176
--------------------------
Total Comprehensive Income $ 1,689 $ 2,858
--------------------------


The following table summarizes components of comprehensive income (loss)
for the six months period ended June 30, 2004 and 2003:



Six Months Ended June 30,
(Amounts in Thousands) 2004 2003
--------------------------

Net Income $ 4,725 $ 5,484
Other Comprehensive Income (Loss):
Recognition of Unrealized Holding
Loss on Marketable Securities,
Net of Deferred Taxes of $216
Unrealized Holding (Loss) Gain on 402 -
Marketable Securities, Net of
Deferred Taxes of ($50) and $97,
Respectively (92) 181
Net Change in Fair Value of
Derivatives, Net of Deferred
Taxes of $178 and $337,
Respectively 331 625
--------------------------
Total Comprehensive Income $ 5,366 $ 6,290
--------------------------



Note 7. Coal Carrier Contract
As previously reported, our wholly owned subsidiary, Enterprise Ship
Company, Inc. ("Enterprise"), time charters the U.S. Flag coal carrier, ENERGY
ENTERPRISE, to US Generating New England, Inc. ("USGenNE"), an indirect
subsidiary of PG&E Corporation. On July 8, 2003, USGenNE filed a petition for
bankruptcy protection under Chapter 11 of the United States Bankruptcy Code
and has subsequently received from the court an extension of time to submit
its bankruptcy plan until November 1, 2004, and an extension of time until
December 31, 2004, to solicit acceptance to its plan. USGenNE is current in
all of its obligations to Enterprise under the time charter except for
approximately $850,000 of pre-petition invoices covering charter hire and
related expenses. The $850,000 is an unsecured claim in the bankruptcy
proceeding. Under the federal bankruptcy laws, USGenNE has the right to
either accept or reject the charter. If USGenNE accepts the charter, it is
then required to meet its financial obligations under the charter including
the $850,000 pre-petition invoices. If USGenNE rejects the charter, then
Enterprise would have a priority administrative claim with respect to all
amounts due it under the charter related to the post-petition period. At
this time, we cannot predict whether the charter will be accepted or
rejected; therefore, we have not provided an allowance for the pre-petition
invoices in our financial statements as of June 30, 2004. In the event the
charter is ultimately rejected, management believes the vessel can be utilized
in alternative

11

employment without incurring a material impairment to the vessel's carrying
value, although we can give no assurance at this time. Although USGenNE has
continued to use the vessel in 2004 through the date of this report, we can
give no assurance whether USGenNE will continue to use the vessel through
the end of the year.

Note 8. New Accounting Pronouncements
In January of 2003, the FASB issued Financial Accounting Series
Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest
Entities." FIN 46 requires a variable interest entity to be consolidated by
the primary beneficiary of the entity, where the company is subject to a
majority of the risk of loss from the variable interest entity's activities
or entitled to receive a majority of the entity's residual returns, or both.
In general, a variable interest entity is a corporation, partnership, trust,
or any other legal structure used for business purposes that either (a) does
not have equity investors with voting rights or (b) has equity investors that
do not provide sufficient financial resources for the entity to support its
activities. FIN 46 also requires disclosures about variable interest entities
that the company is not required to consolidate but in which it has a
significant variable interest. We have investments in certain unconsolidated
entities in which we have less than 100% ownership. We have evaluated
these investments and determined that we do not have any investments in
variable interest entities. Therefore, the adoption of FIN No. 46 as of
January 1, 2004 did not have an impact on the financial statements.

ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

Forward-Looking Statements
- ---------------------------
Certain statements made by us or on our behalf in this report or
elsewhere that are not based on historical facts are intended to be "forward-
looking statements" within the meaning of the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Forward-looking statements
are based on beliefs and assumptions about future events that are inherently
unpredictable and are therefore subject to significant risks and
uncertainties. In this report, the terms "we," "us," "our," and "the Company"
refer to International Shipholding Corporation and its subsidiaries.
Such statements include, without limitation, statements regarding (1)
estimated fair values of capital assets, the recoverability of the cost of
those assets,the estimated future cash flows attributable to those assets, and
the appropriate discounts to be applied in determining the net present values
of those estimated cash flows; (2) estimated scrap values of assets held for
disposal; (3) estimated fair values of financial instruments, such as interest
rate and commodity swap agreements; (4) estimated losses (including
independent actuarial estimates) under self-insurance arrangements, as well as
estimated losses on certain contracts, trade routes, lines of business and
asset dispositions; (5) estimated losses attributable to asbestos claims; (6)
estimated obligations, and the timing thereof, to U.S. Customs relating to
foreign repair work; (7) the adequacy and availability of capital resources
on commercially acceptable terms; (8) our ability to remain in compliance with
our debt covenants; (9) anticipated trends in

12

government sponsored cargoes; (10) our ability to maintain our government
subsidies; and (11) the anticipated improvement in the results of our Mexican
Rail-Ferry Service.
We caution readers that certain important factors have affected, and are
likely in the future to affect, our ability to achieve our expectations in
those areas and in others, including our actual consolidated results of
operations. Such factors may, and in some cases are likely to, cause future
results to differ materially from those expressed in or implied by any
forward-looking statements made in this report or elsewhere by us or on our
behalf. Such factors include, without limitation, (1) political events in
the United States and abroad, including terrorism, and the U.S. military's
response to those events; (2) election results, regulatory activities and the
appropriation of funds by the U.S. Congress; (3) charter hire rates and
vessel utilization rates; (4) unanticipated trends in operating expenses such
as fuel and labor costs; (5) trends in interest rates, and the availability
and cost of capital to us; (6) the frequency and severity of claims against
us, and unanticipated court results and changes in laws and regulations; (7)
our success in renewing existing contracts and securing new ones, in each case
on favorable economic terms; (8) unplanned maintenance and out-of-service
days; (9) the ability of customers to fulfill their obligations to us; (10)
the performance of our unconsolidated subsidiaries, (11) the uncertain future
of our Coal Carrier contract with USGenNE, and (12) our ability to effectively
handle our substantial leverage by servicing, and meeting the covenant
requirements in, each of our debt instruments, thereby avoiding any defaults
under those instruments and avoiding cross defaults under others.
A more complete description of certain of these important factors is
contained in our Form 10-K filed with the Securities and Exchange Commission
for the year ended December 31, 2003.

General
- --------
Our vessels are operated under a variety of charters, liner services,
and contracts. The nature of these arrangements is such that, without a
material variation in gross voyage profits (total revenues less voyage
expenses and vessel and barge depreciation), the revenues and expenses
attributable to a vessel deployed under one type of charter or contract can
differ substantially from those attributable to the same vessel if deployed
under a different type of charter or contract. Accordingly, depending on the
mix of charters or contracts in place during a particular accounting period,
our revenues and expenses can fluctuate substantially from one period to
another even though the number of vessels deployed, the number of voyages
completed, the amount of cargo carried and the gross voyage profit derived
from the vessels remain relatively constant. As a result, fluctuations in
voyage revenues and expenses are not necessarily indicative of trends in
profitability, and our management believes that gross voyage profit is a
more appropriate measure of performance than revenues. Accordingly, the
discussion below addresses variations in gross voyage profits rather than
variations in revenues.

Executive Summary
- ------------------
Our net income for the second quarter of 2004 was $1.8 Million as
compared to $2.5 Million for the second quarter of 2003. For the first six
months of 2004, net income was $4.7 Million as compared to $5.5 Million for
the 2003 period. The 2003 results included a gain of approximately $1.3
Million from the retirement of some of our 7.75% Unsecured Notes scheduled
to mature in 2007.

13

The combination of our 50% investment in two Capesize bulk carriers and
our 30% investment in companies owning and operating cement carrying vessels
continue to be major contributors to our results. In the second quarter of
2004, these investments earned approximately $900,000. We continue to see
cargo volumes on our commercial liner services improve from the 2003 levels
while our U.S. Flag PCTCs experienced lower supplemental cargo volumes
during the quarter.
Although we had the aforementioned improvements, we experienced a
significant increase in both our planned and unplanned vessel out-of-service
days. Our U.S. Flag Coal Carrier was out-of-service twenty-six days
during the quarter for an accelerated drydock due to required repair work.
Also in the quarter, one of our U.S. Flag PCTCs had a casualty, which
resulted in twenty-six unplanned out-of-service days while a second U.S.
Flag PCTC underwent her scheduled drydock of fifteen days. In addition,
our Mexican Rail-Ferry service's results were negatively impacted by higher
costs related to unanticipated maintenance problems.


RESULTS OF OPERATIONS
-----------------------
SIX MONTHS ENDED JUNE 30, 2004
COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2003

Gross Voyage Profit
- ---------------------
Gross voyage profit decreased 12.8% from $20.9 Million in the first
six months of 2003 to $18.2 Million in the first six months of 2004. The
changes associated with each of our segments are discussed below.
Liner Services: Gross voyage profit for this segment improved from a
loss of $545,000 in the first six months of 2003 to a profit of $762,000 in
the first six months of 2004. The improvement was primarily a result of
higher cargo volumes in the first six months of 2004 compared to 2003 for both
our U.S. Flag LASH Liner service and Foreign Flag LASH Liner service.
Time Charter Contracts: The decrease in this segment's gross voyage
profit from $19.2 Million in the first six months of 2003 to $14.7 Million in
the first six months of 2004 was attributable primarily to our U.S. Flag
PCTCs carrying less supplemental cargoes, which are in addition to the time
charter agreements, during 2004 as compared to 2003. The results of our U.S.
Flag PCTCs were further impacted by a casualty on one vessel resulting in
twenty-six unplanned out-of-service days in the second quarter of 2004 while a
second U.S. Flag PCTC underwent her scheduled drydock of fifteen days. The
results of our U.S. Flag Coal Carrier was impacted by an accelerated drydock
due to required repair work resulting in twenty-six out-of-service days during
the second quarter of 2004. Additionally, our Multi-Purpose vessel, completed
its charter with the Military Sealift Command in early 2003 and was sold
shortly thereafter.
Contracts of Affreightment: The increase in this segment's gross voyage
profit from $2.5 Million in the first six months of 2003 to $2.7 Million in
the first six months of 2004 was primarily due to lower operating costs in
2004.
Rail-Ferry Service: Gross voyage loss for this segment increased from
a loss of $1.1 Million in the first six months of 2003 to a loss of $1.7
Million in the first six months of 2004. Although cargo volume increased,
this

14

service experienced higher operating costs, including cost of approximately
$430,000 related to unanticipated maintenance problems during the first six
months of 2004, as well as higher fuel costs.
Other: Gross voyage profit for this segment increased from $864,000
in the first six months of 2003 to $1.7 Million in the first six months of
2004. The increase resulted primarily from our 50% owned car transportation
truck company, which experienced an increase in car volume.

Other Income and Expense
- -------------------------
Interest expense decreased 19.6% from $6.7 Million in the first six
months of 2003 to $5.3 Million in the first six months of 2004. Decreases
due to regularly scheduled payments on outstanding debt and lower interest
rates accounted for $916,000 of the difference. Reduced cost from the early
repayment of our 7.75% Senior Notes, as well as early debt retirements,
accounted for approximately $484,000 of the decrease.
Loss on early extinguishment of debt of $46,000 reported in the first
six months of 2004 was due to the early retirement of debt associated with
our Molten Sulphur Carrier, as well as the retirement at a slight premium of
$410,000 of our 7.75% Senior Notes due in 2007. The gain of $1,260,000 in
the first six months of 2003 resulted from the retirement at a discount of
approximately $7.9 Million of our 7.75% Senior Notes.

Income Taxes
- -------------
We had a tax provision of $1.6 Million in the first six months of 2004
and $2.9 Million for the first six months of 2003 at the statutory rate of
35% for both periods.

Equity in Net Income of Unconsolidated Entities
- ------------------------------------------------
Equity in net income of unconsolidated entities, net of taxes, increased
from $227,000 in the first six months of 2003 to $2.2 Million in the first six
months of 2004. The improvement was primarily related to our 50% investment
in a company owning two newly built cape-size bulk carrier vessels and our
minority interest in companies owning and operating cement carrying vessels.
Our 50% investment in the cape-size bulk carrier company, which was acquired
in November of 2003, contributed $1.7 Million net of taxes in 2004. Our 30%
investment in the cement carrier company contributed $417,000 net of taxes in
the first six months of 2004 compared to $227,000 net of taxes in the first
six months of 2003.


THREE MONTHS ENDED JUNE 30, 2004
COMPARED TO THE THREE MONTHS ENDED JUNE 30, 2003

Gross Voyage Profit
- --------------------
Gross voyage profit decreased 20.6% from $10.4 Million in the second
quarter of 2003 to $8.2 Million in the second quarter of 2004. The changes
associated with each of our segments are discussed below.
Liner Services: Gross voyage profit for this segment improved from a
loss of $536,000 in the second quarter of 2003 to a profit of $300,000 in
the second quarter of 2004. The improvement was primarily a result of
higher cargo volumes in the second quarter of 2004 compared to 2003 for our
Foreign Flag LASH Liner service.

15

Time Charter Contracts: The decrease in this segment's gross voyage
profit from $9.5 Million in the second quarter of 2003 to $7 Million in the
second quarter of 2004 was primarily a result of our U.S. Flag PCTCs
carrying less supplemental cargoes, which are in addition to the time charter
agreements, during 2004 as compared to 2003. The results of our U.S. Flag
PCTCs were further impacted by a casualty on one vessel resulting in twenty-
six unplanned out-of-service days in the second quarter of 2004 and another
vessel undergoing a scheduled drydocking during the quarter. The results of
our U.S. Flag Coal Carrier was impacted by an accelerated drydock due to
required repair work resulting in twenty-six out-of-service days during the
second quarter of 2004.
Contracts of Affreightment: Gross voyage profit for this segment
increased slightly from $1.2 Million in the second quarter of 2003 to $1.4
Million in the second quarter of 2004, primarily due to lower operating costs
in 2004.
Rail-Ferry Service: Gross voyage loss for this segment increased from a
loss of $416,000 in the second quarter of 2003 to a loss of $854,000 in the
second quarter of 2004. The increase in this service's gross voyage loss was
primarily related to less cargo volume on southbound voyages and higher
operating costs, including costs of approximately $100,000 related to
unanticipated maintenance problems during the second quarter of 2004.
Other: Gross voyage profit for this segment decreased slightly from
$554,000 in the second quarter of 2003 to $357,000 in the second quarter of
2004. The decrease resulted primarily from an unexpected casualty on
one of our vessels that our insurance subsidiary, which operates solely to
cover self-retained insurance risks, had to cover for the current policy year,
partially offset by our 50% owned car transportation truck company
experiencing an increase in car volume.

Other Income and Expense
- -------------------------
Interest expense decreased 17.2% from $3.2 Million in the second
quarter of 2003 to $2.6 Million in the second quarter of 2004. Decreases due
to regularly scheduled payments on outstanding debt and lower interest rates
accounted for $380,000 of the difference. Reduced cost from the early
repayment of our 7.75% Senior Notes, as well as early debt retirements,
accounted for approximately $165,000 of the decrease.

Income Taxes
- -------------
We had a tax provision of $575,000 and $1.3 Million for the second
quarter of 2004 and 2003, respectively, at the statutory rate of 35% for
both periods.

Equity in Net Income of Unconsolidated Entities
- ------------------------------------------------
Equity in net income of unconsolidated entities, net of taxes,
increased from $160,000 in the second quarter of 2003 to $949,000 in the
second quarter of 2004. The improvement was primarily related to our 50%
investment in a company owning two newly built cape-size bulk carrier vessels
and our minority interest in companies owning and operating cement carrying
vessels. Our 50% investment in the cape-size bulk carrier company, which was
acquired in November of 2003, contributed $621,000 net of taxes in 2004. Our
30% investment in the cement carrier company contributed $305,000 net of taxes
in the second quarter of 2004 compared to $160,000 net of taxes in the second
quarter of 2003.

16

LIQUIDITY AND CAPITAL RESOURCES
---------------------------------
The following discussion should be read with the more detailed
Consolidated Condensed Balance Sheets and Consolidated Statements of Cash
Flows included elsewhere herein as part of our Consolidated Financial
Statements.
Our working capital increased from $16.8 Million at December 31, 2003,
to $21.5 Million at June 30, 2004. Of the $40.9 Million in current
liabilities, $12.4 Million related to current maturities of long-term debt at
June 30, 2004. Cash and cash equivalents increased during the first six
months of 2004 by $683,000 from $8.9 Million at December 31, 2003, to $9.6
Million at June 30, 2004. The increase was due to cash provided by operating
activities of $10.6 Million and investing activities of $702,000, partially
offset by cash used for financing activities of $10.6 Million.
Operating activities generated a positive cash flow after adjusting net
income of $4.7 Million for non-cash provisions such as depreciation and
amortization. Cash provided by investing activities of $702,000 was primarily
related to cash distributions received from our investments in unconsolidated
entities, partially offset by purchases of non-vessel related assets used by
our car transportation truck company and purchases of short-term investments.
Cash used for financing activities of $10.6 Million included $6.6 Million
used for regularly scheduled payments of debt, $1 Million used to repay draws
on our line of credit made during the same period, $2.5 Million used for early
repayment of one of our debt obligations, and $1.5 Million used for an
additional payment on our Title XI loan, which was partially offset by draws
on our line of credit of $1 Million.
As of June 30, 2004, $14.7 Million was available on our $15 Million
revolving credit facility, which expires in April of 2006.
Debt and Lease Obligations - We have several vessels under operating
leases, including three PCTCs, one LASH vessel, one Ice Strengthened
Breakbulk/Multi Purpose vessel, a Container vessel and a Tanker vessel. We
also conduct certain of our operations from leased office facilities and use
certain transportation and other equipment under operating leases. Our
obligations associated with these leases are summarized in the table below.
The following is a summary of the scheduled maturities by period of our
outstanding debt and lease obligations as of June 30, 2004:



Jul. 1-
Debt and lease Dec. 31,
obligations (000's) 2004 2005 2006 2007 2008 Thereafter
- ------------------------------------------------------------------------------

Long-term debt
(including current
maturities) $ 6,183 $12,366 $10,804 $80,001 $ 7,468 $51,793
Operating leases 12,238 19,060 19,073 18,948 16,893 91,558
----------------------------------------------------
Total by period $18,421 $31,426 $29,877 $98,949 $24,361 $143,351
====================================================



Debt Covenant Compliance Status - We have met all of the financial
covenants under our various debt agreements, the most restrictive of which
include the working capital, leverage ratio, minimum net worth, and
interest coverage ratio as of June 30, 2004, and believe we will continue to
meet them throughout 2004, although we can give no assurance to that effect.

17

If our cash flow and capital resources are not sufficient to fund our
debt service obligations, we may be forced to reduce or delay capital
expenditures, sell assets, obtain additional equity capital, enter into
additional financings of our unencumbered vessels or restructure debt.
Mexican Rail-Ferry Service Results - We expect the results of the
Mexican Rail-Ferry Service to improve and contribute to our cash flows. If
market conditions adversely impact those projections, we believe we 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 our debt agreements, the suspension of quarterly dividend payments on
our common shares of stock remains in effect.
Environmental Issues - We have not been notified that we are a
potentially responsible party in connection with any environmental matters.


NEW ACCOUNTING PRONOUNCEMENTS
--------------------------------

In January of 2003, the FASB issued Financial Accounting Series
Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest
Entities." FIN 46 requires a variable interest entity to be consolidated by
the primary beneficiary of the entity, where the company is subject to a
majority of the risk of loss from the variable interest entity's activities
or entitled to receive a majority of the entity's residual returns, or both.
In general, a variable interest entity is a corporation, partnership, trust,
or any other legal structure used for business purposes that either (a) does
not have equity investors with voting rights or (b) has equity investors that
do not provide sufficient financial resources for the entity to support its
activities. FIN 46 also requires disclosures about variable interest
entities that the company is not required to consolidate but in which it has
a significant variable interest. We have investments in certain
unconsolidated entities in which we have less than 100% ownership. We have
evaluated these investments and determined that we do not have any
investments in variable interest entities. Therefore, the adoption of FIN
No. 46 as of January 1, 2004 did not have an impact on the financial
statements.


ITEM 3.
QUANTITATIVE AND QUALITATIVE INFORMATION ABOUT MARKET RISK

In the ordinary course of our business, we are exposed to foreign
currency, interest rate, and commodity price risks. We utilize derivative
financial instruments including forward exchange contracts, interest rate
swap agreements, and commodity swap agreements to manage certain of these
exposures. We hedge only firm commitments or anticipated transactions and do
not use derivatives for speculation. We neither hold nor issue financial
instruments for trading purposes.
Interest Rate Risk. The fair value of long-term debt at June 30, 2004,
including current maturities, was estimated to be $172.1 Million compared to
a carrying value of $168.5 Million. The potential increase in fair value

18

resulting from a hypothetical 10% decrease in the average interest rates
applicable to our long-term debt at June 30, 2004, would be approximately $1.5
Million or 0.9% of the carrying value.
The fair value of the interest rate swap agreement discussed in our 2003
Form 10-K was a liability of $516,000 at June 30, 2004, 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 June 30, 2004,
would not result in a material change in the fair value of the liability
primarily because this agreement expires in September of 2004.
Commodity Price Risk. As of June 30, 2004, we have no commodity swap
agreements to manage our exposure to price risk related to the purchase of the
estimated 2004 fuel requirements for our Liner Services or Rail-Ferry Service
segment.
Foreign Exchange Rate Risk. There were no material changes in market
risk exposure for the foreign currency risk described in our Form 10-K filed
with the Securities and Exchange Commission for the year ended December 31,
2003.

ITEM 4.
CONTROLS AND PROCEDURES

(a) Within the 90-day period prior to filing this report, we conducted
an evaluation of the effectiveness of our "disclosure controls and
procedures," as that phrase is defined in Rules 13a-14(c) and 15d-14(c) under
the Securities Exchange Act of 1934. The evaluation was carried out under the
supervision and with the participation of our management, including our Chief
Executive Officer ("CEO") and Chief Financial Officer ("CFO").
Based on that evaluation, the CEO and CFO have concluded that our
disclosure controls and procedures are effective in timely alerting them to
material information required to be disclosed in our periodic filings with
the Securities and Exchange Commission ("SEC"), and in ensuring that the
information required to be disclosed in those filings is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules
and forms.
(b) Subsequent to the date of the evaluation, there were no
significant changes in our internal controls or in other factors that could
significantly affect the internal controls, including any corrective actions
with regard to significant deficiencies and material weaknesses.

19

PART II - OTHER INFORMATION
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The matters voted upon and results of the voting at the Company's
Annual Meeting of Shareholders held on April 28, 2004, were reported in
response to Item 4 of the Company's Form 10-Q filed with the Securities and
Exchange Commission for the quarterly period ended March 31, 2004, and are
incorporated herein by reference.


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)

31.1 Certification of Chief Executive
Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002

31.2 Certification of Chief Financial
Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002

32.1 Certification of Chief Executive
Officer Pursuant to 18 U.S.C.
Section 1350 as Adopted Pursuant
to Section 906 of the Sarbanes-
Oxley Act of 2002

32.2 Certification of Chief
Financial Officer Pursuant to
18 U.S.C. Section 1350 as
Adopted Pursuant to Section
906 of the Sarbanes-Oxley
Act of 2002

(b) On July 29, 2004, we filed a current report on Form 8-K to furnish
the public announcement of our second quarter 2004 earnings.

20

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


August 12, 2004
Date ___________________________