19
<PAGE 2>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
__TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From _________ to _________
Commission File No. 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
incorporation or organization) Identification No.)
650 Poydras Street, New Orleans, Louisiana 70130
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(504) 529-5461
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
---------------------------- ------------------------
Common Stock, $1 Par Value New York Stock Exchange
9% Senior Notes Due 2003 New York Stock Exchange
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
requirements for the past 90 days. YES X NO ____
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
State the aggregate market value of the voting stock held by
non-affiliates of the registrant.
Date Amount
------- -----------
February 28, 1997 $81,830,893
Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of the latest
practicable date.
Common stock, $1 par value
6,682,887 shares outstanding as February 28, 1997
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the fiscal
year ended December 31, 1996, have been incorporated by reference
into Parts I and II of this Form 10-K. Portions of the
registrant's definitive proxy statement dated March 11, 1997 have
been incorporated by reference into Part III of this Form 10-K.
<PAGE>
<TABLE>
<CAPTION>
INTERNATIONAL SHIPHOLDING CORPORATION
FORM 10-K
TABLE OF CONTENTS
<S> <C>
PAGE
PART I. 2
ITEM 1. BUSINESS 2
General 2
History 4
Liner Services/Contracts of Affreighment 5
Military Sealift Command 6
Pure Car Carriers 8
Bulk Carrier 8
Float-On/Float-Off Special Purpose Vessels 9
Domestic Water Transportation Services 9
Ancillary Services 10
Marketing 10
Insurance 10
Regulation 11
Competition 14
Employees 15
ITEM 2. PROPERTIES 15
ITEM 3. LEGAL PROCEEDINGS 16
ITEM 4. SUBMISSION OF MATTERS TO
A VOTE OF SECURITY HOLDERS 16
ITEM 4A. EXECUTIVE OFFERS AND DIRECTORS
OF THE REGISTRANT 17
PART II. 19
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK
AND RELATED SECURITY HOLDER MATTERS 19
ITEM 6. SELECTED FINANCIAL DATA 19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 19
ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA 19
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE 20
PART III. 20
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF
THE REGISTRANT 20
ITEM 11. EXECUTIVE COMPENSATION 20
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT 20
ITEM 13. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS 20
PART IV. 21
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K 21
SIGNATURES 23
<PAGE 2>
PART I
ITEM 1. BUSINESS
GENERAL
The Company, through its subsidiaries, operates a
diversified fleet of U. S. and international flag vessels that
provide international and domestic maritime transportation
services to commercial customers and agencies of the United
States government primarily under medium- to long-term charters
or contracts. The Company's fleet consists of 30 ocean-going
vessels, 15 towboats, 129 river barges, 26 special purpose
barges, approximately 1,850 LASH barges and related shoreside
handling facilities. The Company's strategy is to
(i) identify customers with marine transportation needs
requiring specialized vessels or operating techniques;
(ii) seek medium- to long-term charters or contracts with
those customers and, if necessary, modify, acquire or
construct vessels to meet the requirements of those charters
or contracts and;
(iii) secure financing for the vessels predicated
primarily on those charter or contract arrangements.
The Company believes that this strategy has produced
valuable long-term relationships with its customers and stable
operating cash flows.
The Company is the only significant operator of the LASH
(Lighter Aboard SHip) system, which it pioneered in 1969. The
Company's LASH fleet includes 11 large LASH vessels, 4 LASH
feeder vessels and approximately 1,850 LASH barges. In its liner
services, the Company uses the LASH system primarily to gather
cargo on rivers, in island chains and in harbors that are too
shallow for traditional vessels and to transport to and from
those areas large unit size items, such as forest products,
natural rubber and steel, that cannot be transported efficiently
in containerships. In addition, the LASH system enables barges
to be rapidly loaded onto and unloaded from the large LASH
vessels without shoreside support facilities while minimizing the
number of times that the cargo is handled. Because the Company's
LASH barges are used primarily to transport large unit size
items, the Company's LASH fleet often has a competitive advantage
over containerships. Additionally, because containerships and
breakbulk vessels cannot operate in certain of the areas where
the Company's LASH system operates, the Company often has a
competitive advantage over such vessels.
<PAGE 3>
The Company also owns and operates the following:
(i) two international flag and two U.S. flag pure car
carriers specially designed to transport fully assembled
automobiles;
(ii) two U.S. flag ice-strengthened multi-purpose vessels;
(iii) one international flag cape-size bulk carrier;
(iv) one U.S. flag molten sulphur carrier, which is used
to carry molten sulphur from Louisiana and/or Texas to a
processing plant on the Florida Gulf Coast;
(v) two international flag float-on/float-off special
purpose vessels ("SPV"), which, together with 26 special
purpose barges and one breakbulk/container vessel, are used
to provide ocean transportation of supplies for the
Indonesian operations of a major copper and gold mining
company and;
(vi) one U.S. flag conveyor-equipped self-unloading coal
carrier which carries coal in the coastwise and near-sea
trade.
Three roll-on/roll-off vessels that permit rapid deployment
of rolling stock, munitions and other military cargoes requiring
special handling are also operated by the Company under long-term
operating agreements.
The Company also operates 14 inland waterway towboats and
111 super-jumbo river barges that transport coal from Indiana to
Florida for an electric utility via shoreside unloading
facilities owned and operated by the Company. Three of the super-
jumbo river barges are owned by the Company.
Through its principal operating subsidiaries, Central Gulf
Lines, Inc. ("Central Gulf"), LCI Shipholdings, Inc. ("LCI"),
Forest Lines Inc. ("Forest Lines") and Waterman Steamship
Corporation ("Waterman"), the Company engages primarily in five
types of services:
(i) international flag LASH liner service between U. S.
Gulf and East Coast ports and ports in northern Europe, and
a U. S. flag LASH liner service between U. S. Gulf and East
Coast ports and ports in South Asia, the Middle East and
Northern Africa;
(ii) time charters to and other contracts with the
Military Sealift Command ("MSC") for use in its military
prepositioning program and to service scientific operations
in the Arctic and Antarctic;
<PAGE 4>
(iii) time charters to transport Toyota and Honda
automobiles from Japan to the United States and Hyundai
automobiles from Korea primarily to the United States and
Europe;
(iv) ocean transportation of supplies under long-term
contract with a major copper and gold mining company for its
operations in Indonesia and;
(v) domestic transportation services, primarily
involving its long-term coal and sulphur contracts and its
ownership of an inter-modal transfer and warehouse facility
in Memphis, Tennessee.
The Company currently has time charters or contracts to
carry cargoes for commercial customers that include International
Paper Company, Freeport-McMoRan Resource Partners, P. T. Freeport
Indonesia Company, The Goodyear Tire and Rubber Company, Toyota
Motor Corporation, Honda Motor Co., Ltd., Hyundai Motor Company,
Seminole Electric Cooperative, Inc. and New England Power Co.
The Company operates eight vessels for the MSC under charters or
contracts that typically contain options permitting the MSC to
extend the charter or contract on similar terms and conditions
for one or more extension periods. In most cases, the MSC has
exercised its renewal options on the Company's charters or
contracts, and the Company generally has been successful in
winning charter or contract renewals when they are rebid.
The Company's business historically has generated stable
cash flows because most of its medium- to long-term charters
provide for a daily charter rate that is owed whether or not the
charterer utilizes the vessel (unless the vessel is unavailable
for the charterer's use) and most of its medium- to long-term
contracts guarantee a minimum amount of cargo for transportation.
The Company is partially insulated from increases in certain
operating expenses because time charters generally require the
charterer to pay certain voyage operating costs such as fuel,
port and stevedoring expenses, and often include cost escalation
features covering certain of the expenses paid by the Company.
HISTORY
Central Gulf was founded in 1947 by the late Niels F.
Johnsen and his sons, Niels W. Johnsen, the Company's current
Chairman, and Erik F. Johnsen, its current President. Central
Gulf was privately held until 1971 when it merged with Trans
Union Corporation. In 1978, the Company was formed to act as a
holding company for Central Gulf, LCI and certain other
affiliated companies in connection with the 1979 spin-off by
Trans Union of the Company's common stock to Trans Union's
stockholders. In 1986, the Company acquired the assets of Forest
Lines, and, in 1989, the Company acquired the ownership of
Waterman. Since its spin-off from Trans Union, the Company has
continued to act solely as a holding company, and its only
significant assets consist of the capital stock of its
subsidiaries.
<PAGE 5>
LINER SERVICES/CONTRACTS OF AFFREIGHTMENT
INTERNATIONAL FLAG. Under the name "Forest Lines," the
Company operates three international flag LASH vessels and a self-
propelled, semi-submersible feeder vessel on a scheduled liner
service. One of these LASH vessels was purchased and refurbished
in 1996 and entered this service in early 1997. See "Item 7.
Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources." Forest
Lines normally makes 10 round trip sailings per LASH vessel per
year between U. S. Gulf and East coast ports and ports in
northern Europe. Historically, approximately one-half of the
aggregate eastbound cargo space has been reserved for
International Paper Company under a long-term contract of
affreightment. The remaining space is provided on a voyage
affreightment basis to commercial shippers. Approximately 10%
has been used by other forest products exporters. The remaining
approximately 40% has been used by various commercial shippers of
a variety of general cargo. With the addition of the third ship
to this service in early 1997, the total cargo space occupied by
International Paper will now be approximately 33% because the
amount of cargo shipped by International Paper will remain
relatively constant.
The Company has had ocean transportation contracts with
International Paper since 1969 when the Company had two LASH
ships built to accommodate International Paper's trade. The
Company's contract of affreightment with International Paper is
for the carriage of wood pulp, liner board and other forest
products, the characteristics of which are well suited for
transportation by LASH vessels. The LASH system minimizes damage
to such cargo by reducing the number of times that the cargo is
handled. In addition, the LASH system permits the Company to
load and unload these products at the shipper's and the
receiver's facilities, which are generally located on river
systems that containerships and breakbulk vessels do not serve.
The Company's current contract with International Paper is for a
ten-year term ending in 2002.
Over the years, the Company has established a base of
commercial shippers to which it provides space on the westbound
Forest Lines service. The principal cargoes carried westbound
are steel and other metal products, high-grade paper and wood
products, and other general cargo. Over the last five years, the
westbound utilization rate for these vessels averaged
approximately 85% per year.
U. S. FLAG. Waterman's operating differential subsidy
("ODS") agreement with the U. S. Maritime Administration
("MarAd"), an agency of the Department of Transportation, under
which the Company operates four U. S. flag vessels in a liner
service that has historically made approximately 16 round trip
voyages per year (four per vessel) between ports on the U.S.
Gulf/U.S. Atlantic Coast and South Asia (Trade Routes 18 and 17),
expires upon completion in early 1997 of voyages in progress as
of December 31, 1996. Under this ODS agreement, the Company has
received subsidy
<PAGE 6>
payments from the United States government approximating the
excess of certain vessel expenses, primarily wages, over
comparable costs of the Company's principal foreign flag
competitors on the same trade routes. In 1996, the Company
received approximately $25.6 Million under this ODS agreement.
The Company also operates three FLASH vessels as feeder vessels
in this service in Southeast Asia.
The Maritime Security Act of 1996, which created the
Maritime Security Program ("MSP") and provides for a new subsidy
program for certain U.S. flag vessels, was signed into law in
October of 1996. MSP eliminates the trade route restrictions
imposed by the ODS program and will allow flexibility to operate
freely in the competitive market. MSP provides for an annual
subsidy payment of $2.1 Million per year per vessel subject to
annual appropriations. Seven of the Company's vessels have
qualified for MSP participation. See "Item 1. Business -
Regulation" for a discussion of MSP.
On the eastbound portion of this service, a significant part
of each vessel's cargo traditionally has been shipped to lesser
developed countries under the Public Law-480 program, pursuant to
which the United States government sells or donates surplus food
products for export to developing countries. Seventy-five
percent of this cargo is reserved for carriage by U.S. flag
vessels, if they are available at reasonable rates. Awards under
the Public Law-480 program are made on a voyage-to-voyage basis
through periodic competitive bidding. The remaining eastbound
cargo consists of general cargo, including some military
equipment. Over the last five years, these vessels generally
have been fully utilized on their eastbound voyages.
On the westbound portion of this service, the Company
provides a significant portion of its cargo space to Goodyear for
the transportation of natural rubber under a contract of
affreightment expiring in June of 1997. Space is also provided
on a voyage-to-voyage basis to other importers of natural rubber,
including Uniroyal Goodrich Tire Co., Bridgestone/Firestone, Inc.
and certain members of the Rubber Trade Association. The Company
has had a continuing relationship with such companies and the
Association since the early 1970s. The Company's LASH barges are
ideally suited for large shipments of natural rubber because
damage to rubber due to compression is minimal as compared to the
damage that can occur when shipments are made in traditional
breakbulk vessels. Waterman is the largest U.S. flag carrier of
natural rubber from Southeast Asia to the United States. The
remaining westbound cargo generally consists of coffee, jute,
guar, piece goods and other general cargo. Over the last five
years, these vessels generally have been fully utilized on their
westbound voyages.
MILITARY SEALIFT COMMAND
GENERAL. The Company has had contracts with the MSC (or its
predecessor) almost continuously for several decades. At the
present time, the Company's subsidiaries have eight vessels under
contract to the MSC. These vessels are employed in the MSC's
prepositioning programs, which strategically place military cargo
<PAGE 7>
throughout the world, or are chartered to the MSC mainly to
service military and scientific operations in the Arctic and
Antarctic. The Company believes that the demand for military
prepositioning vessels will at least remain steady during the
near term, notwithstanding planned reductions in overall military
spending for overseas bases, because this method of positioning
military equipment and supplies is vital to the military's
ability to respond quickly to international incidents throughout
the world without incurring the significant costs of operating
foreign bases, some of which also may not be available because of
changing political situations.
MSC charters and contracts are awarded through competitive
bidding, for fixed terms with options allowing the MSC to extend
the charters or contracts for additional periods. In most cases,
the MSC has exercised its extension options, and the Company
generally has been successful in winning renewals when the
charters and contracts are rebid. All charters and contracts
require the MSC to pay certain voyage operating costs such as
fuel, port and stevedoring expenses, and certain charters and
contracts include cost escalation features covering certain of
the expenses paid by the Company.
LASH VESSELS. The Company currently charters four U. S.
flag LASH vessels to the MSC under time charters used in the
military's Afloat Prepositioning Force in the Indian Ocean.
Three of these charters began in 1996 and are each for 17 months
with two 17-month option periods. These charters extend through
May of 1999, September of 2000 and November of 2000,
respectively. The fourth LASH vessel chartered to the MSC will
begin a new charter upon the expiration of its current charter in
May of 1997. The new charter, which is for 17-months, will
extend through 2001, including two 17-month option periods.
After these charters expire, it is anticipated that the MSC will
invite rebidding for these contracts.
ICE-STRENGTHENED MULTI-PURPOSE VESSELS. The Company owns
and operates the only two U.S. flag ice-strengthened multi-
purpose vessels. These vessels are capable of transporting
containerized and breakbulk cargo. One of the vessels is being
operated under a charter with the MSC that will expire in January
of 1998. The vessel is being used by the MSC to resupply Pacific
rim military bases and to supply scientific projects in the
Arctic and Antarctic. The other vessel was operated under a
charter with MSC until that charter expired in late 1995. The
MSC did not exercise its option to renew the charter for an
additional 17-month period at that time. However, a new charter
with the MSC, which will commence in the third quarter of 1997,
has since been awarded to this vessel. Until the commencement of
the new charter, this vessel is being operated in the open market
on a cargo offered basis.
ROLL-ON/ROLL-OFF VESSELS. In 1983, Waterman was awarded a
contract to operate three U. S. flag roll-on/roll-off vessels
under time charters to the MSC for use by the United States Navy
in its maritime prepositioning ship ("MPS") program. These
vessels represent three of the four MPS vessels currently in the
MSC's Atlantic fleet, which provides support for the U. S. Marine
Corps. These ships are designed primarily to
<PAGE 8>
carry rolling stock and containers and can each carry support
equipment for 17,000 military personnel. Waterman sold the three
vessels to unaffiliated corporations shortly after being awarded
the contract, but retained the right to operate the vessels under
operating agreements. The MSC time charters commenced in late
1984 and early 1985 for initial five-year periods and were
renewable at the MSC's option for additional five-year periods up
to a maximum of twenty-five years. In 1993, the Company reached
an agreement with MSC to make certain reductions in future
charter hire payments in consideration of fixing the period of
these charters for the full twenty-five years. The charters and
related operating agreements will now terminate in the years 2009
and 2010.
PURE CAR CARRIERS
U. S. FLAG. In 1986, the Company entered into multi-year
charters to carry Toyota and Honda automobiles from Japan to the
United States. To service these charters, the Company had
constructed two pure car carriers specially designed to carry
4,000 and 4,660 automobiles, respectively. Both vessels were
built in Japan, but are registered under the U.S. flag, making
them two of only four U.S. flag pure car carriers in the Japanese
trade. To be competitive with foreign flag vessels operated by
foreign crews, the Company worked in close cooperation with the
unions representing the Company's U.S. citizen shipboard
personnel. Service under these charters commenced in the fourth
quarter of 1987. These charters are scheduled for renewal by the
fourth quarter of 1997. These vessels began receiving MSP
payments in December of 1996. See "Item 1. Business -
Regulation" for a discussion of MSP.
INTERNATIONAL FLAG. Since 1988, the Company has transported
Hyundai automobiles from Korea primarily to the United States and
Europe under two long-term charters. To service these charters,
the Company had two new pure car carriers constructed by a
shipyard affiliated with Hyundai. Each of the vessels has a
carrying capacity of 4,800 automobiles.
Under each of the car carrier charters, the charterers are
responsible for voyage operating costs such as fuel, port and
stevedoring expenses, while the Company is responsible for other
operating expenses including crew wages, repairs and insurance.
The Hyundai charters also include escalation features covering
certain of the expenses paid by the Company. During the terms of
these charters, the Company is entitled to its full fee
irrespective of the number of voyages completed or the number of
cars carried per voyage.
BULK CARRIER
In 1990, the Company acquired a 148,000 dwt cape size dry
bulk carrier. The vessel has since been fully employed under
various charters in specific trading areas where bulk cargoes
move on a regular basis.
<PAGE 9>
FLOAT-ON/FLOAT-OFF SPECIAL PURPOSE VESSELS
During 1994, the Company entered into a long-term contract
to provide ocean transportation services to a major mining
company producing copper concentrates at its mine in West Irian
Jaya, Indonesia. The Company acquired two SPV's and one
container/breakbulk vessel and had 26 cargo barges constructed by
shipyards in the Orient to be used with the aforementioned
vessels. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and
Capital Resources."
DOMESTIC WATER TRANSPORTATION SERVICES
COAL. In 1981, the Company entered into a 22-year contract
expiring in 2004 with a Florida based rural electric generation
and transmission cooperative for the transportation of coal from
Mt. Vernon, Indiana, to Gulf County, Florida. Under this
contract, which was awarded pursuant to competitive bidding, the
Company is annually guaranteed a minimum of 2.7 Million tons of
coal to be transported by inland waterways through its operation
of 14 chartered towboats, 108 chartered super-jumbo river barges
and three such barges that it owns. Under this contract, the
Company typically has transported 3.0 Million tons of coal per
year. To protect both parties against cost variations, the
contract contains escalation and de-escalation clauses designed
to adjust the contract price for fluctuations in fuel costs,
wages and other operating expenses. The Company is also
responsible for unloading the barges at the discharge point in
Gulf County, Florida, and transferring the coal into railcars.
To facilitate this process, the Company owns and operates an
automated terminal facility. The terminal can be operated by
relatively few employees and is capable of loading and unloading
three times the amount of coal currently transported through the
facility under the contract.
In late 1995, the Company purchased an existing U.S. flag
conveyor-equipped, self-unloading coal carrier which it
concurrently chartered to a New England based electric utility
under a 15-year contract to carry coal in the coastwise and near-
sea trade. The ship will also be used, from time to time during
this charter period, to carry coal and other bulk commodities for
account of other major charterers.
MOLTEN SULPHUR. In 1994, the Company entered into a 15-year
transportation contract with an affiliate of a major sulphur
producer for which it had built a 24,000 deadweight ton molten
sulphur carrier that carries molten sulphur from Louisiana and/or
Texas to a fertilizer plant on the Florida Gulf Coast. Under the
terms of this contract, the Company is guaranteed the
transportation of a minimum of 1.8 Million tons of sulphur per
year. The contract also gives the charterer three five-year
renewal options. The vessel delivered and began service during
late 1994.
<PAGE 10>
LITCO FACILITY. During 1991, the Company entered into an
agreement with Cooper/T. Smith Stevedoring pursuant to which the
Company acquired a 50% interest in a newly constructed, all
weather rapid cargo transfer facility at the river port of
Memphis, Tennessee, for handling LASH barges transported by
subsidiaries of the Company in its LASH liner services. LITCO
(LASH Intermodal Terminal COmpany) began operations in May of
1992 and provides 287,500 square feet of enclosed warehouse and
loading/discharging stations for LASH barge, rail, truck and
heavy-lift operations. In June of 1993, the Company purchased
the remaining 50% interest from Cooper/T. Smith Stevedoring,
which will continue to manage the facility under a management
agreement with the Company.
ANCILLARY SERVICES
The Company has several subsidiaries providing ship charter
brokerage, agency, barge fleeting and other specialized services
to the Company's subsidiaries and, in the case of ship charter
brokerage and agency services, to unaffiliated companies. The
income produced by these services substantially covers the
related overhead expenses. These services facilitate the
Company's operations by allowing it to avoid reliance on third
parties to provide these essential shipping services.
MARKETING
The Company maintains marketing staffs in Washington, D. C.,
New York, New Orleans, Houston, Chicago, Baltimore, Oakland,
Rotterdam and Singapore and maintains a network of marketing
agents in major cities around the world who market the Company's
liner, charter and contract services. The Company markets its
Trans-Atlantic LASH liner service under the trade name "Forest
Lines," and its LASH liner service between the U. S. Gulf and
Atlantic coast ports and South Asia ports under the Waterman
house flag. The Company advertises its services in trade
publications in the United States and abroad.
INSURANCE
The Company maintains protection and indemnity ("P&I")
insurance to cover liabilities arising out of the ownership or
operation of vessels with Assuranceforeningen GARD and the
Standard Steamship Owners' Protection & Indemnity Association
(Bermuda) Ltd., which are mutual shipowners' insurance
organizations commonly referred to as P&I clubs. Both clubs are
participants in and subject to the rules of their respective
international group of P&I associations. The premium terms and
conditions of the P&I coverage provided to the Company are
governed by the rules of each club.
<PAGE 11>
The Company maintains hull and machinery insurance policies
on each of its vessels in amounts related to the value of each
vessel. This insurance coverage, which includes increased value,
freight and time charter hire, is maintained with a syndicate of
hull underwriters from the United States, British, French and
Scandinavian insurance markets. The Company maintains war risk
insurance on each of the Company's vessels in an amount equal to
each vessel's total insured hull value. War risk insurance is
placed through U.S., British, French and Scandinavian insurance
markets and covers physical damage to the vessels and P&I risks
for which coverage would be excluded by reason of war exclusions
under either the hull policies or the rules of the applicable P&I
club.
The Company also maintains loss of hire insurance with U.S.,
British, French and Scandinavian markets to cover its loss of
revenue in the event that a vessel is unable to operate for a
certain period of time due to loss or damage arising from the
perils covered by the hull and machinery policy.
Insurance coverage for shoreside property, shipboard
consumables and inventory, spare parts, workers' compensation,
office contents, and general liability risks are maintained with
underwriters in the United States and British markets. The
Company also carries insurance to meet certain liabilities that
could arise from the discharge of oil or hazardous substances in
U.S., international and foreign waters.
Insurance premiums for the coverage described above vary
from year to year depending upon the Company's loss record and
market conditions. In order to reduce premiums, the Company
maintains certain deductible and co-insurance provisions that it
believes are prudent and generally consistent with those
maintained by other shipping companies and in recent years has
increased the self-retention portion under its insurance program
while capping its self-retention exposure under stop-loss
insurance coverage.
REGULATION
The Company's operations between the United States and
foreign countries are subject to the Shipping Act of 1916 (the
"Shipping Act"), which is administered by the Federal Maritime
Commission, and certain provisions of the Federal Water Pollution
Control Act, the Oil Pollution Act of 1990 and the Comprehensive
Environmental Response Compensation and Liability Act, all of
which are administered by the U. S. Coast Guard, and certain
other international, federal, state and local laws and
regulations, including international conventions and laws and
regulations of the flag nations of its vessels. Pursuant to the
requirements of the Shipping Act, the Company has on file with
the Federal Maritime Commission tariffs reflecting the outbound
and inbound rates currently charged by the Company to transport
cargo between the United States and foreign countries as a common
carrier. These tariffs are filed by the Company either
individually or in connection with its participation as a member
of rate
<PAGE 12>
or conference agreements, which are agreements that (upon
becoming effective following filing with the Federal Maritime
Commission) permit the members to agree concertedly upon rates
and practices relating to the carriage of goods in U. S. and
foreign ocean commerce. Tariffs filed by a company unilaterally
or collectively under rate or conference agreements are subject
to Federal Maritime Commission approval. Once a rate or
conference agreement is filed, rates may be changed in response
to market conditions on 30 days' notice, with respect to a rate
increase, and one day's notice, with respect to a rate decrease.
The Merchant Marine Act of 1936, as amended (the "Merchant
Marine Act"), authorizes the Federal government to pay an
operating differential subsidy to U. S. flag vessels employed in
the foreign trade of the United States. Under the operating
differential subsidy program, MarAd is authorized to pay
qualified U.S. flag operators (i) the differential between U. S.
and foreign crew wage costs and (ii) the differential between
U.S. and foreign costs of protection and indemnity insurance,
hull and machinery insurance, and maintenance and repairs not
compensated by insurance, so that U.S. ships can compete on an
equal footing with their lower-cost foreign competitors. To
qualify for the subsidy, vessels must be built in the United
States, documented under the U.S. flag and be at least 75% owned
by U.S. citizens. Under subsidy contracts, which are typically
20 years in length, operators provide service on "essential trade
routes" as determined by MarAd. The typical subsidized operator
is required to employ its vessels between a stated minimum and
maximum number of sailings each year. Waterman's operating
differential subsidy contract expires upon completion, in early
1997, of voyages in progress at December 31, 1996. Currently,
four other liner operators and nine bulk carrier operators hold
operating differential subsidy contracts for a total of 21 liner
and 21 bulk ships. Total U.S. governmental subsidy
appropriations for the fiscal year ended September 30, 1996, were
$163 Million, and $148.4 Million has been appropriated for the
fiscal year ending September 30, 1997. Approximately 85% of the
aggregate subsidy is paid to offset crew wage differentials.
Since 1981, the Federal government has entered into no new
operating differential subsidy contracts. In 1991, the Bush
administration announced that current contracts would be honored,
but no new subsidy contracts would be entered into as the old
contracts expire. The Clinton administration has continued this
policy. However, on October 8, 1996, President Clinton signed
into law the Maritime Security Act of 1996 which created the
Maritime Security Program ("MSP") and authorized the payment of
$2.1 Million per year per ship for 47 U.S. flag ships through
fiscal year 2005. Congress has appropriated a total of $100
Million to date for the MSP. On December 20, 1996, Waterman
entered into MSP contracts with MarAd for each of its four LASH
vessels currently operating under operating differential subsidy
contracts, and Central Gulf entered into MSP contracts with MarAd
for each of its two car carriers and one of its LASH vessels
currently on charter to the MSC. Waterman's vessels are
transitioning into the MSP in 1997 as voyages in progress on
December 31, 1996, are terminated. Central Gulf's two car
carriers commenced immediate operation in the MSP on
<PAGE 13>
December 20, 1996. Central Gulf's LASH vessel that was accepted
into the MSP remains on charter to the MSC and would only begin
receiving MSP payments upon the termination of its MSC charter.
By law, the MSP is subject to annual appropriations. In the
event that sufficient appropriations are not made for the MSP by
Congress in any fiscal year, the Maritime Security Act permits
MSP contractors, such as Waterman and Central Gulf, expeditiously
to re-flag their vessels under foreign registry.
Seven of the Company's U.S. flag LASH vessels were
constructed with the aid of construction differential subsidies
and Title XI loan guarantees administered by MarAd, the receipt
of which obligates the Company to comply with various dividend
and other financial restrictions. Vessels constructed with the
aid of construction differential subsidies may not be operated in
domestic coastwise trade or domestic trade with Hawaii, Puerto
Rico or Alaska without the permission of MarAd and without
repayment of the construction differential subsidy under a
formula established by law. Recipients of Title XI loan
guarantees must pay an annual fee of up to 1% of the loan amount.
Under the Merchant Marine Act, U.S. flag vessels are subject
to requisition or charter by the United States whenever the
President declares that the national security requires such
action. The owners of any such vessels must receive just
compensation as provided in the Merchant Marine Act, but there is
no assurance that lost profits, if any, will be fully recovered.
In addition, during any extension period under each MSC charter
or contract, the MSC has the right to terminate the charter or
contract on 30 days' notice. However, the MSC has never
exercised such termination right with respect to the Company.
Certain of the Company's operations, including its carriage
of U.S. foreign aid cargoes, as well as the Company's coal and
molten sulphur transportation contracts and its Title XI
financing arrangements, require the Company to be as much as 75%
owned by U.S. citizens. The Company monitors its stock ownership
to verify its continuing compliance with these requirements and
has never had more than 1% of its common stock held of record by
non-U.S. citizens. At the Company's annual meeting of
shareholders in April of 1996, the shareholders voted for an
amendment to the Company's charter and stock transfer procedures
to limit the acquisition of its common stock by non-U.S.
citizens.
The Company is required by various governmental and quasi-
governmental agencies to obtain permits, licenses and
certificates with respect to its vessels. The kinds of permits,
licenses and certificates required depend upon such factors as
the country of registry, the commodity transported, the waters in
which the vessel operates, the nationality of the vessel's crew,
the age of the vessel and the status of the Company as owner or
charterer. The Company believes that it has, or can readily
obtain, all permits, licenses and certificates necessary to
permit its vessels to operate.
<PAGE 14>
COMPETITION
The shipping industry is intensely competitive and is
influenced by events largely outside the control of shipping
companies. Varying economic factors can cause wide swings in
freight rates and sudden shifts in traffic patterns. Vessel
redeployments and new vessel construction can lead to an
overcapacity of vessels offering the same service or operating in
the same market. Changes in the political or regulatory
environment can also create competition that is not necessarily
based on normal considerations of profit and loss. The Company's
strategy is to reduce competitive pressures and the effects of
cyclical market conditions by operating specialized vessels in
identifiable market segments and deploying a substantial number
of its vessels under medium- to long-term charters or contracts
and on trade routes where it has established market shares. The
Company also seeks to compete effectively in the traditional
areas of price, reliability and timeliness of service.
Competition principally comes from numerous breakbulk
vessels and, occasionally, containerships.
Much of the Company's revenue is generated by contracts with
the MSC and contracts to transport Public Law-480 U.S. government-
sponsored cargo, a cargo preference program requiring that 75% of
all foreign aid "Food for Peace" cargo must be transported on
U.S. flag vessels, if they are available at reasonable rates.
The Company competes with all U.S. flag companies, including
Overseas Shipholding Group, Inc., OMI Corporation, Marine
Transport Lines, Inc., Farrell Lines, Inc., Lykes Brothers
Steamship Company, Sea-Land Service, Inc. and American President
Lines, Inc. for the MSC work and the Public Law-480 cargo.
Additionally, the Company's principal foreign competitors include
Hoegh Lines, Star Shipping, Wilhelmsen Lines and the Shipping
Corporation of India.
The Company's LASH liner services face competition from
foreign flag liner operators and, to a lesser degree, from U. S.
flag liner operators, including those receiving operating
differential subsidies. In addition, during periods in which the
Company participates in conference agreements or rate agreements,
competition includes other participants with whom the Company may
agree to charge the same rates and non-participants charging
lower rates.
Because the Company's LASH barges are used primarily to
transport large unit size items, such as forest products, natural
rubber and steel, that cannot be transported as efficiently in
containerships, the Company's LASH fleet often has a competitive
advantage over these vessels for this type of cargo. In
addition, the Company believes that the ability of its LASH
system to operate in shallow harbors and river systems and its
specialized knowledge of these harbors and river systems give it
a competitive advantage over operators of containerships and
breakbulk vessels, which are too large to operate in these areas.
<PAGE 15>
The Company's pure car carriers operate worldwide in markets
where foreign flag vessels with foreign crews predominate. The
Company believes that its U.S. flag pure car carriers can
continue to compete effectively if it continues to receive the
cooperation of its seamen's unions in controlling costs.
EMPLOYEES
The Company employs approximately 452 shipboard personnel
and 395 shoreside personnel. The Company considers relations
with its employees to be excellent.
All of the Company's U.S. shipboard personnel and certain
shoreside personnel are covered by collective bargaining
agreements. Central Gulf, Waterman and other U.S. shipping
companies are subject to collective bargaining agreements for
shipboard personnel in which the shipping companies servicing
U.S. Gulf and East coast ports also must make contributions to
pension plans for dockside workers. The Employee Retirement
Income Security Act of 1974, as amended, provides for liabilities
for withdrawal from a multi-employer pension plan if an employer
reduces its operations below a minimum level. It is possible
that the failure or withdrawal of any shipping company employer
may cause other employers (such as the Company) to increase their
plan contributions or result in additional potential liability.
The Company has experienced no strikes or other significant labor
problems during the last ten years.
ITEM 2. PROPERTIES
VESSELS AND BARGES. Of the 30 ocean-going vessels in the
Company's fleet, 27 are owned by the Company and three are
operated under operating contracts. Of approximately 1,850 LASH
barges in the Company's fleet, approximately 1,763 are operated
in conjunction with the Company's LASH and FLASH vessels. Of
these, the Company owns approximately 1,443 barges and leases 320
barges under capital leases with 12-year terms expiring in late
2003 and early 2004. The remaining 87 LASH barges owned by the
Company are not required for current vessel operations. All of
the Company's barges are registered under the U.S. flag. The
Company time charters-in 108 super-jumbo river barges (and owns
three such barges) and 14 towboats specially built to meet the
requirements of the Company's coal transportation contract. The
Company also owns 18 standard river barges chartered to
unaffiliated companies on a short-term basis and one towboat
currently operated on the spot market.
All of the vessels owned, operated or leased by the Company
are in good condition except for the aforementioned 87 LASH
barges not required for current vessel operations. Since 1988,
the Company has completed life extension work on eight LASH
vessels and completed the refurbishment of the LASH barges
operated with
<PAGE 16>
those vessels. Under governmental regulations, insurance
policies and certain of the Company's financing agreements and
charters, the Company is required to maintain its vessels in
accordance with standards of seaworthiness, safety and health
prescribed by governmental regulations or promulgated by certain
vessel classification societies. The Company is also in the
process of implementing the Quality and Safety Management program
mandated by the International Maritime Organization. Vessels in
the fleet are maintained in accordance with governmental
regulations and the highest classification standards of the
American Bureau of Shipping or, for certain vessels registered
overseas, of Norwegian Veritas or Lloyds Register classification
societies.
Certain of the vessels and barges owned by the Company's
subsidiaries are mortgaged to various lenders to secure such
subsidiaries' long-term debt. See Note B of the Notes to the
Company's Consolidated Financial Statements included elsewhere
herein.
OTHER PROPERTIES. The Company leases its corporate
headquarters in New Orleans, its administrative and sales office
in New York and office space in Houston, Chicago, Oakland,
Washington, D. C. and Singapore. The Company also leases space
in St. Charles and Orleans Parishes, Louisiana, for the fleeting
of barges. Additionally, the Company leases a terminal in
Memphis, Tennessee, that is a totally enclosed multi-modal cargo
transfer facility. In 1996, the aggregate annual rental payments
under these operating leases were approximately $2.5 Million.
The Company owns two separate facilities in St. Charles
Parish, Louisiana, and one facility in Jefferson Parish,
Louisiana, that are used primarily for the storage and fleeting
of barges. The Company also owns a terminal in Gulf County,
Florida, that is used in its coal transportation contract.
ITEM 3. LEGAL PROCEEDINGS
In the normal course of its operations, the Company becomes
involved in various litigation matters including, among other
things, claims by third parties for alleged property damages,
personal injuries and other matters. While the Company believes
it has meritorious defenses against these claims, management has
used significant estimates in determining the Company's potential
exposure. See Note F of the Notes to the Company's Consolidated
Financial Statements included elsewhere herein.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
<PAGE 17>
ITEM 4a. EXECUTIVE OFFICERS AND DIRECTORS OF THE REGISTRANT
Set forth below is information concerning the directors and
executive officers of the Company. Directors are elected by the
shareholders for one year terms. Executive officers serve at the
pleasure of the Board of Directors.
</TABLE>
<TABLE>
<CAPTION>
Name Current Position
-------- -----------------------
<S> <C>
Niels W. Johnsen Chairman and Chief Executive Officer
Erik F. Johnsen President, Chief Operating Officer and Director
Harold S. Grehan, Jr. Vice President and Director
Niels M. Johnsen Vice President and Director
Erik L. Johnsen Vice President and Director
Gary L. Ferguson Vice President and Chief Financial Officer
David B. Drake Vice President and Treasurer
Manuel G. Estrada Vice President and Controller
Laurance Eustis Director
Raymond V. O'Brien, Jr. Director
Edwin Lupberger Director
Edward K. Trowbridge Director
</TABLE>
Niels W. Johnsen, 74, has been the Chairman and Chief
Executive Officer of the Company since its commencement of
operations in 1979 and is also Chairman and Chief Executive
Officer of each of the Company's principal subsidiaries. He
previously served as Chairman of Trans Union Corporation's ocean
shipping group of companies from December of 1971 through May of
1979. He was one of the founders of Central Gulf in 1947 and
held various positions with Central Gulf until Trans Union
acquired Central Gulf in 1971. He is also a director of Reserve
Fund, Inc., a money market fund.
Erik F. Johnsen, 71, has been the President, Chief Operating
Officer and Director of the Company since its commencement of
operations in 1979 and is also the President and Chief Operating
Officer of each of the Company's principal subsidiaries except
Waterman for which he serves as Chairman of the Executive
Committee. Along with his brother, Niels W. Johnsen, he was one
of the founders of Central Gulf in 1947 and has served as its
President since 1966. Mr. Johnsen is also a director of First
Commerce Corporation, a bank holding company.
Harold S. Grehan, Jr., 69, is Vice President of the Company.
He joined Central Gulf in 1958 and became Vice President in 1959,
Senior Vice President in 1973 and Executive Vice President and
Director in 1979. He participated in the development of the
Company's LASH program and has direct responsibility for
conventional and LASH vessel traffic movements.
<PAGE 18>
Niels M. Johnsen, 51, is Vice President of the Company. Mr.
Johnsen has served as a Director of the Company since April of
1988. He joined Central Gulf on a full time basis in 1970 and
held various positions with the Company before being named Vice
President in 1986. He is also President of Waterman Steamship
Corporation and N. W. Johnsen & Co., Inc., subsidiaries of the
Company engaged in LASH liner service and ship and cargo charter
brokerage, respectively. He is the son of Niels W. Johnsen.
Erik L. Johnsen, 39, is Vice President of the Company. He
joined Central Gulf in 1979 and held various positions with the
Company before being named Vice President in 1987. He has served
as a Director of the Company since 1994. He is responsible for
all operations of the Company's vessel fleet and leads the
Company's Ship Management Group. He is also President of Sulphur
Carriers, Inc., a wholly-owned subsidiary of the Company. He is
the son of Erik F. Johnsen.
Gary L. Ferguson, 56, is Vice President and Chief Financial
Officer of the Company. He joined Central Gulf in 1968 where he
held various positions with the Company prior to being named
Controller in 1977, and Vice President and Chief Financial
Officer in 1989.
David B. Drake, 41, is Vice President and Treasurer of the
Company. He joined Central Gulf in 1979 and held various
positions prior to being named Vice President and Treasurer in
1996.
Manuel G. Estrada, 42, is Vice President and Controller of
the Company. He joined Central Gulf in 1978 and held various
positions prior to being named Vice President and Controller in
1996.
Laurance Eustis, 83, has served as a Director of the Company
since 1979. He is the Chairman of the Board of Eustis Insurance,
Inc., mortgage banking and general insurance, located in New
Orleans, Louisiana. Mr. Eustis is also a director of First
Commerce Corporation, a bank holding company, and Pan American
Life Insurance Company.
Raymond V. O'Brien, Jr., 69, has served as a Director of the
Company since 1979. He is also a director of Emigrant Savings
Bank. He served as Chairman of the Board and Chief Executive
Officer of the Emigrant Savings Bank from January of 1978 through
December of 1992.
Edwin Lupberger, 60, has served as a Director of the Company
since April of 1988. Mr. Lupberger is the Chairman of the Board,
Chief Executive Officer and Director of Entergy Corporation and
its wholly-owned subsidiaries. He also is a director of First
Commerce Corporation, a bank holding company.
<PAGE 19>
Edward K. Trowbridge, 68, has served as a Director of the
Company since April of 1994. He served as Chairman of the Board
and Chief Executive Officer of the Atlantic Mutual Companies from
July of 1988 through November of 1993.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND
RELATED SECURITY HOLDER MATTERS
The information called for by Item 5 is included in the 1996
Annual Report to Shareholders in the section entitled "Common
Stock Prices and Dividends for Each Quarterly Period of 1995 and
1996" and is incorporated herein by reference to page 23 of
Exhibit 13 filed with this Form 10-K.
ITEM 6. SELECTED FINANCIAL DATA
The information called for by Item 6 is included in the 1996
Annual Report to Shareholders in the section entitled "Summary of
Selected Consolidated Financial Data" and is incorporated herein
by reference to page 1 of Exhibit 13 filed with this Form 10-K.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The information called for by Item 7 is included in the 1996
Annual Report to Shareholders in the section entitled
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" and is incorporated herein by reference to
pages 7 through 9 of Exhibit 13 filed with this Form 10-K.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated balance sheets as of December 31, 1996, and
December 31, 1995, and the related consolidated statements of
income, changes in stockholders' investment and cash flows for
each of the three years in the period ended December 31, 1996,
are included in the 1996 Annual Report to the Shareholders and
are incorporated herein by reference to pages 10 through 14 of
Exhibit 13 filed with this Form 10-K. Such statements have been
audited by Arthur Andersen LLP, independent public accountants,
as set forth in their report included in such Annual Report and
incorporated herein by reference to page 24 of Exhibit 13 filed
with this Form 10-K.
<PAGE 20>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information called for by Item 10 is incorporated herein
by reference to Item 4a, Executive Officers and Directors of the
Registrant.
ITEM 11. EXECUTIVE COMPENSATION
The information called for by Item 11 is included on pages
6, 7 and 8 of the Company's definitive proxy statement dated
March 11, 1997, filed pursuant to Section 14(a) of the Securities
Exchange Act of 1934, and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information called for by Item 12 is included on pages
2, 3, 4 and 5 of the Company's definitive proxy statement dated
March 11, 1997, filed pursuant to Section 14(a) of the Securities
Exchange Act of 1934, and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by Item 13 is included on pages
2, 3, 4, 5 and 8 of the Company's definitive proxy statement
dated March 11, 1997, filed pursuant to Section 14(a) of the
Securities Exchange Act of 1934, and is incorporated herein by
reference.
<PAGE 21>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
The following financial statements, schedules and exhibits
are filed as part of this report:
(a) 1. Financial Statements
---------------------
The following financial statements and related notes
are included in the Company's 1996 Annual Report to
Shareholders and are incorporated herein by reference
to pages 10 through 24 of Exhibit 13 filed with this
Form10-K.
Consolidated Balance Sheets at December 31, 1996 and
1995
Consolidated Statements of Income for the years
ended December 31, 1996, 1995 and 1994
Consolidated Statements of Changes in Stockholders'
Investment for the years ended December 31, 1996,
1995 and 1994
Consolidated Statements of Cash Flows for the years
ended December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
2. Financial Statement Schedules
-----------------------------
None.
3. 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)
(4) Specimen of Common Stock Certificate (filed as an
exhibit to the Company's Form 8-A filed with the
Securities and Exchange Commission on April 25,
1980, and incorporated herein by reference)
<PAGE 22>
(4.1) Form of Indenture between the Company and the
Bank of New York, as Trustee, with respect to
9% Senior Notes due July 1, 2003 (filed as
Exhibit 4(c) to Amendment No. 1 to the Company's
Registration Statement on Form S-2 (Registration
No. 33-62168) and incorporated herein by reference).
(4.2) Form of 9% Senior Note due July 1, 2003
(included in Exhibit (4.1) hereto and incorporated
herein by reference).
(13) 1996 Annual Report to Shareholders
(21) Subsidiaries of International Shipholding Corporation
(27) Financial Data Schedule
(b) No reports on Form 8-K were filed for the three months ended
December 31, 1996.
(c) The Index of Exhibits and required Exhibits are included
following the signatures beginning at page 25 of this Report.
<PAGE 23>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities 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
(Registrant)
/S/ Gary L. Ferguson
March 26, 1997 By ______________________________
Gary L. Ferguson
Vice President and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the dates indicated.
INTERNATIONAL SHIPHOLDING CORPORATION
(Registrant)
/S/ Niels W. Johnsen
March 26, 1997 By ____________________________
Niels W. Johnsen
Chairman of the Board, Director and
Chief Executive Officer
/S/ Erik F. Johnsen
March 26, 1997 By _____________________________
Erik F. Johnsen
President and Director
/S/ Harold S. Grehan, Jr.
March 26, 1997 By _____________________________
Harold S. Grehan, Jr.
Vice President and Director
<PAGE 24>
/S/ Niels M. Johnsen
March 26, 1997 By ___________________________
Niels M. Johnsen
Vice President and Director
/S/ Erik L. Johnsen
March 26, 1997 By ____________________________
Erik L. Johnsen
Vice President and Director
/S/ Laurance Eustis
March 26, 1997 By __________________________
Laurance Eustis
Director
/S/ Raymond V. O'Brien, Jr.
March 26, 1997 By ___________________________
Raymond V. O'Brien, Jr.
Director
/S/ Edwin Lupberger
March 26, 1997 By __________________________
Edwin Lupberger
Director
/S/ Edward K. Trowbridge
March 26, 1997 By ____________________________
Edward K. Trowbridge
Director
/S/ Gary L. Ferguson
March 26, 1997 By ____________________________
Gary L. Ferguson
Vice President and Chief Financial Officer
/S/ Manny G. Estrada
March 26, 1997 By _____________________________
Manny G. Estrada
Chief Accounting Officer
<PAGE 25>
<TABLE>
INTERNATIONAL SHIPHOLDING CORPORATION
EXHIBIT INDEX
<CAPTION>
Page
Exhibit Number
- --------- -----------
<S> <C>
(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) --
(4) Specimen of Common Stock certificate (filed as an exhibit
to the Company's Form 8-A filed with the Securities and
Exchange Commission on April 25, 1980, and incorporated
herein by reference) --
(4.1) Form of Indenture between the Company and the Bank of New
York, as Trustee,with respect to 9% Senior Notes due July 1,
2003 (filed as Exhibit 4(c) to Amendment No. 1 to the
Company's Registration Statement on Form S-2 (Registration
No. 33-62168) and incorporated herein by reference) --
(4.2) Form of 9% Senior Note due July 1, 2003 (included in
Exhibit (4.1) hereto and incorporated herein by reference) --
(13) 1996 Annual Report to Shareholders --
(21) Subsidiaries of International Shipholding Corporation --
(27) Financial Data Schedule --
</TABLE>
<PAGE 1>
INTERNATIONAL SHIPHOLDING CORPORATION
<TABLE>
CONSISTENT OPERATING RESULTS
($ In Millions)
<CAPTION>
OPERATING
YEAR EBITDA* INCOME
- -------- ------------ --------------
<S> <C> <C>
1992 75.2 30.9
1993 81.2 36.5
1994 79.5 37.9
1995 81.9 37.9
1996 94.9 40.7
</TABLE>
SUMMARY OF SELECTED CONSOLIDATED FINANCIAL DATA
The following summary of selected
consolidated financial data is not covered by
the auditors' report appearing elsewhere herein.
However, in the opinion of management, the summary
of selected consolidated financial data includes
all adjustments necessary for a fair representation
of each of the years presented.
This summary should be read in conjunction
with the consolidated financial statements and the
notes thereto appearing elsewhere in this annual
report.
<TABLE>
<CAPTION>
(All Amounts in Thousands Except Share and Per Share Data)
Year Ended December 31,
1996 1995 1994 1993 1992
________ ________ ________ ________ ________
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues $378,927 $341,789 $342,333 $341,651 $324,608
Gross Voyage Profits $ 66,948 $ 64,536 $ 65,315 $ 64,318 $ 57,581
Operating Income $ 40,692 $ 37,921 $ 37,861 $ 36,486 $ 30,935
Income Before
Extraordinary Item
and Cumulative
Effect of
Accounting Change $ 8,636 $ 20,980 $ 13,051 $ 7,645 $ 6,499
Extraordinary Item $ (813) - - $ (1,716) -
Cumulative Effect
of Accounting
Change - - - - $ (3,218)
Net Income $ 7,823 $ 20,980 $ 13,051 $ 5,929 $ 3,281
Earnings Per Common
and Common
Equivalent Shares(1):
Before
Extraordinary
Item and
Cumulative
Effect of
Accounting
Change $ 1.29 $ 3.14 $ 1.95 $ 1.01 $ 0.77
Extraordinary
Item $ (0.12) - - $ (0.26 ) -
Cumulative Effect
of Accounting
Change - - - - $ (0.50)
Net Income $ 1.17 $ 3.14 $ 1.95 $ 0.75 $ 0.27
*EBITDA(2) $ 94,929 $ 81,877 $ 79,482 $ 81,166 $ 75,209
BALANCE SHEET DATA:
Working Capital $ 26,928 $ 13,407 $ 16,819 $ 17,649 $ 7,920
Total Assets $661,596 $647,580 $547,091 $531,372 $519,963
Long -Term Debt
(including Capital
Lease Obligations) $317,076 $289,495 $251,944 $240,132 $231,148
Redeemable
Preferred Stock - - - - $ 13,548
Common Stockholders'
Investment $172,407 $166,261 $146,316 $134,497 $124,004
OTHER DATA:
Cash Dividends
Per Common Share(1) $ 0.25 $ 0.1825 $ 0.16 $ 0.16 $ 0.16
Weighted Average of
Common and Common
Equivalent Shares(1)6,682,887 6,682,887 6,682,887 6,525,259 6,423,583
</TABLE>
[FN]
<FN1>
(1) All per share and share data have been restated for the November 17,
1995, twenty-five percent stock dividend.
<FN2>
(2) EBITDA (Earnings Before Interest, Taxes, Depreciation, and
Amortization), as presented above, represents income before
provision for income taxes, extraordinary items, and cumulative
effect of the change in accounting principle plus depreciation,
amortization of deferred charges and acquired contract costs,
interest expense, and gains (losses) on sales of property
and investments. EBITDA should not be considered as an alternative
to net income as an indicator of the Company's operating performance
or as an alternative to cash flows which is a better measure of
liquidity.
<PAGE 2>
TO THE SHAREHOLDERS
Net profit for the fourth quarter ended December
31, 1996, was $1.650 Million (24 cents per share)
before an extraordinary after-tax charge of $813,000
(12 cents per share) for payment of a makewhole
premium to refinance higher interest rate Notes.
The makewhole premium will be offset by lower interest
cost on the amount refinanced over the next four to
five years. Comparatively, net profit in the fourth
quarter of 1995 was $14.845 Million ($2.23 per
share) which included an after tax gain of $11.3
Million ($1.69 per share) on the sale of
our 8% interest in Havtor A/S as reported last year.
For the twelve months ended December 31, 1996, net
profit was $7.823 Million ($1.17 per share) after
the aforementioned charge for the makewhole premium
compared with a net profit for the twelve months
ended December 31, 1995, of $20.980 Million ($3.14
per share after restatement for the 25% stock dividend)
including the aforementioned gain of $11.3 Million.
Our operating income for the year ended December
31, 1996, was $40.692 Million compared to $37.921
Million for the year ended December 31, 1995.
However, our operating results for 1996 were
reduced because of a damage claim against our
insurance subsidiary as a result of a propeller shaft
casualty sustained by one of the vessels in the
Waterman service. In addition to the self-insured
portion of the cost of repairs, the ship was out of
service for approximately two months. Operating
income was also reduced because other ships were out
of service for more days in 1996 than the previous
year. We lost a total of 271 ship days in 1996 to
scheduled drydockings of nine vessels plus the two
months of time lost on the Waterman vessel repairing
the damaged propeller shaft. Net profit in 1996 was
also impacted by higher depreciation charges and
higher net interest costs because new assets were
added and financed during the year. Over the two
years 1995 and 1996, we invested a total of $184.8
Million in these additions to our fleet by adding
new debt of $115.1 Million and using $69.7 Million
from internal corporate sources. As is the case with
most of our previous investments, these new assets
are primarily employed on firm contracts with customers
of prime credit enabling us to amortize most of the cost
of the investment over the life of the contracts as
well as produce satisfactory profits. Overall, as we
amortize our current book of business, we expect our
net interest cost to decline at the annual rate of
about $4.0 Million to $5.0 Million per year.
Our challenge is to continue our efforts to reduce
administrative and general expenses and add new
projects that meet our investment criteria.
Forest Lines Trans-Atlantic LASH service results
were down from last year because both vessels were out
of service for a total of fifty-eight days for
scheduled drydocking. As previously reported, we
acquired the eleventh LASH vessel, built in 1984, for
our fleet, renamed "ATLANTIC FOREST," to be added
as the third vessel to this service. Her outfitting
and refurbishment in a Far East shipyard took somewhat
longer than expected which delayed entry into the
Trans-Atlantic service until the end of January, 1997.
Waterman LASH service between U. S. Gulf and
Atlantic ports and South Asia had improved results
in 1996 over a poor year in 1995. This service
begins the new year with a revised government
assistance program. The past Operating Differential
Subsidy ("ODS") contract is expiring for the four
Waterman vessels upon completion of their current
voyages, at which time the new program enacted as HR
1350, the "Maritime Security Act of 1996", will become
effective. The new annual U. S. Government payments of
$2.1 Million per year per vessel will only partially
replace the expiring ODS payments; but, we are
negotiating crew reductions, crew wage reductions, and
other operating cost savings in order to make Waterman
competitive in this service.
Our four LASH vessels on charter to the Military
<PAGE 3>
Sealift Command ("MSC"), having had their charters
renewed during the course of last year, will be
fully employed in the Military Prepositioning
Service ("MPS") for the forthcoming year and into
the following year. In addition, the three RO/RO
vessels in similar service have operated satisfactorily
and continue on charter to MSC.
The "GREEN WAVE," one of our Ice-Strengthened
vessels, continues on charter to MSC in service to the
polar regions. We have now also refixed our other Ice
Strengthened vessel, "GREEN RIDGE," on a new charter to
MSC. She will enter this 17 month charter with two
17 month option periods beginning in the third
quarter of 1997 as an addition to the MPS fleet.
Our four specialized Car Carriers continue to
operate successfully on long-term contracts to major
Japanese and Korean car manufacturers. Of these,
the two U. S. Flag vessels are scheduled for
charter renewal by the fourth quarter of 1997.
Our Cape-Size Bulk Carrier, "AMAZON," is
operating on short-term charters. The market for
this size vessel has improved somewhat since the
middle of last year. Rates are still not at
profitable levels; but, she is at least producing
positive cash flow from operations. The shortterm
outlook is for freight rates in the trades in which
she operates to be more stable or slightly improving;
but, we still do not expect this market to recover
to profitable levels until more of the older Cape-
Size vessels are scrapped. In 1996, 23 Cape-Size
vessels are reported to have been deleted from the
registries while 50 newbuildings were added. This net
increase is estimated to have resulted in fleet
growth of 7%. Also, the scrapping of Combination
Oil/Ore Carriers continued with 28 Cape-Size Combos
being sent to the demolition yards or converted for
alternate use. Since most of these Combos were
employed in the carriage of dry bulk cargo, their
deletion from the fleet offset the about 7% net
increase in the fleet by addition of the
aforementioned newbuildings. Further newbuildings are
being delivered during the first half of 1997, but
indications are the trend of offsetting scrappings
should continue.
The M. V. "SULPHUR ENTERPRISE" continues to
operate satisfactorily having carried a total of about
2.4 Million tons of molten sulphur during the year.
The S.S. "ENERGY ENTERPRISE," carrying coal in the
coastwise trade along the Atlantic Coast, completed
her First Charter Year. She entered her Second
Charter Year in December of 1996. She still has
some deferred shipyard work to be accomplished
which will be done in May of 1997. After completing
this shipyard work, the vessel will return to service
to complete her Second Charter Year.
During 1996, our River Barge system transported a
total of 3.1 Million tons of coal from the Ohio River
to our coal transfer facility at Gulf County,
Florida, for ultimate delivery to a major electric
utility in Florida.
As previously reported, we took delivery on
September 6, 1996, of a small Container/Breakbulk
vessel, renamed "JAVA SEA," to replace a similar
vessel we had on time charter. This vessel, together
with the Float-On/Float-Off "BALI SEA" and "BANDA SEA"
and associated barges, comprise the fleet serving our
long-term contract with a major mining company in
Indonesia carrying mining supplies to its facility
on West Irian Jaya.
At a regular meeting on January 15, 1997, the
Board of Directors declared a quarterly dividend of
6.25 cents per share on the Company's Common Stock
payable on March 21, 1997, to Shareholders of
record as of March 7, 1997. The Annual Meeting of
Shareholders will take place in New Orleans on
April 16, 1997.
We extend our thanks to the officers and crews
aboard our vessels, our shoreside staff, and our
agents in the United States and abroad for their
continued services to the Company. We wish our
shareholders a healthy and prosperous New Year.
[S] Niels W. Johnsen [S] Erik F. Johnsen
Niels W. Johnsen Erik F. Johnsen
Chairman President
January 22, 1997
<PAGE 4>
INTERNATIONAL SHIPHOLDING CORPORATION
REVIEW OF OPERATIONS
International Shipholding Corporation, through its
subsidiaries and associates, is engaged in various
types of waterborne freight transportation---LASH (for
Lighter Aboard SHip) carriage, Pure Car Carrier
services, roll on/roll-off, breakbulk and bulk
carrier services, domestic coastwise services,
inland vessel and barge transportation---with
emphasis on medium to long-term contracts and charters.
The Company has offices in New York, New Orleans,
Washington, D.C., and Houston and maintains a
network of marketing agents in major cities
worldwide.
Principal subsidiaries of the Company include Central
Gulf Lines, Inc., Waterman Steamship Corporation,
Forest Lines Inc., and LCI Shipholdings, Inc. who
together operate a fleet of 30 modern vessels.
LASH-The Company placed the world's first two LASH
vessels in operation in 1969 and 1970, and has
continued as a leading owner and operator of
this type of ocean transportation. The
Company's LASH system operations consist of 11 large
ocean carriers, three ocean towed feeder LASH
vessels, one self-propelled feeder LASH vessel, and a
fleet of 1,850 LASH barges.
The large LASH vessels each carry between 83
and 89 LASH barges and utilize additional spaces
aboard ship for cargo not loaded into barges. The
barges, all of a standard size with cargo capacity of
375 tons, are towed in ports and on inland waterways
to various shipping points where they are loaded
with cargo and returned to the ocean going vessel.
They are hoisted aboard by a special shipboard
gantry-type crane and transported overseas where the
process is reversed.
The LASH ships do not require special
docks or terminals and are generally worked at
anchor in river, roadsteads and light traffic port
areas. LASH cargo rarely requires transshipment,
moving from origin to destination under one bill of
lading.
Waterman Steamship Corporation operates four of
the large U.S. Flag LASH vessels on subsidized liner
service between the U.S. Gulf and Atlantic coasts
and the Middle East, East Africa, the Indian Sub-
Continent, and Southeast Asia. A variety of general,
bulk, and project cargo is transported outbound, while
large amounts of rubber, coffee, and general cargo are
carried inbound.
Waterman also operates a fifth large U.S. Flag
LASH vessel under charter to the U.S. Navy's
Military Sealift Command ("MSC").
During 1996, two of the Company's large
international flag LASH vessels were being operated
in the Trans-Atlantic service by a Company
subsidiary, Forest Lines Inc. Outbound the vessels
carry a variety of cargoes and have medium to long-
term contracts with several major shippers; inbound
they carry various general cargoes, primarily steel,
from European ports to the United States. A
third large international flag LASH vessel,
delivered in August of 1996 and renamed "ATLANTIC
FOREST", has undergone extensive refurbishment and
is scheduled to commence operating in the Trans-
Atlantic service during the first quarter of 1997.
Central Gulf Lines, Inc. operates the other three
large U.S. Flag LASH vessels under time charters to
the MSC.
<PAGE 5>
FLASH-The three 8-LASH barge capacity, ocean towed,
float-on/float-off feeder LASH (FLASH) units are
being operated between various Southeast Asian ports
as an integral part of the Waterman service.
DOCKSHIP-The 15-LASH barge capacity float-
on/float off DOCKSHIP is being operated in conjunction
with Forest Lines' Trans-Atlantic LASH service to
facilitate movement of LASH barges between European
ports.
PURE CAR CARRIERS-Central Gulf Lines, Inc.
continued the operation during 1996 of its
two U.S. Flag Pure Car Carriers, M/V "GREEN
LAKE" and M/V "GREEN BAY", under contracts
with Toyota Motor Corporation and Honda Motor
Co., Ltd. to transport automobiles between Japan
and North America.
The Company, through its LCI Shipholdings,
Inc. subsidiary, also continued the operation of its
two 4,800-car capacity Pure Car Carriers, M/V "CYPRESS
PASS" and M/V "CYPRESS TRAIL", transporting
automobiles from the Far East to the United States
and Europe for the account of Hyundai.
ROLL-ON/ROLL-OFF SERVICES-The Company, through its
Waterman Steamship Corporation subsidiary, is
operating three modern U.S. Flag Roll-On/Roll-Off
vessels, S.S. "SGT. MATEJ KOCAK", S.S. "PFC. E.A.
OBREGON", and S.S. "MAJ. S.W. PLESS", under long-term
charters to the MSC.
ICE STRENGTHENED MULTI-PURPOSE VESSELS-During
1996, the Company's U.S. Flag Ice Strengthened Multi-
Purpose vessel, M/V "GREEN WAVE", continued to be
operated under a medium term charter to the MSC,
while its other Ice Strengthened Multi-Purpose vessel,
M/V "GREEN RIDGE", was employed in the carriage
of general cargo.
CAPE-SIZE BULK CARRIER-The Company's 148,000 DWT.
Cape Size Bulk Carrier, M/V "AMAZON", was operated
under charter during the fourth quarter of 1996, and
was assigned to a new charter contract in early 1997.
SULPHUR CARRIER-The M/V "SULPHUR ENTERPRISE"
continued to carry molten sulphur from Louisiana to
U.S. Gulf ports under its long-term contract with
a large mineral resource company.
FLOAT-ON/FLOAT-OFF SPECIAL PURPOSE VESSELS
(SPV)-The Company's two Float-On/Float-Off Special
Purpose Vessels, M/V "BALI SEA" and M/V "BANDA SEA",
together with the newly acquired (September, 1996)
Container/Breakbulk vessel, M/V "JAVA SEA", and 26
special purpose barges were operated in 1996 under
the Company's existing long-term contract carrying
supplies for a major mining company in Indonesia.
<PAGE 6>
<TABLE>
FLEET STATISTICS
<CAPTION>
Total Dead- Total Dead-
Weight Carrying Weight Carrying
Number Capacity (ea.) Capacity
________________________________________________________________
<S> <C> <C> <C>
LASH 3 47,500 L.T. 142,500 L.T.
LASH 6 46,150 276,900
LASH 1 39,493 39,493
LASH 1 48,093 48,093
PURE CAR CARRIERS 2 10,500 21,000
PURE CAR CARRIERS 2 12,700 25,400
FLASH 3 3,600 10,800
DOCKSHIP 1 6,800 6,800
RO/RO 3* 25,476 76,428
ICE STRENGTHENED
MULTI-PURPOSE 2 12,820 25,640
CAPE-SIZE
BULK CARRIER 1 148,000 148,000
MOLTEN SULPHUR
CARRIER 1 29,000 29,000
FLOAT-ON/FLOAT-OFF
SPECIAL PURPOSE
VESSELS (SPV) 2 21,880 43,760
COAL CARRIER 1 38,164 38,164
CONTAINER/BREAKBULK 1 3,168 3,168
JUMBO RIVER BARGES 111* 3,100 344,100
RIVER BARGES 18 1,500 27,000
_________________________________________________________
FLEET CAPACITY - 1996 1,306,246
VESSELS 30*
LASH BARGES 1,850*
RIVER BARGES 129*
SPECIAL
PURPOSE
BARGES 26
TOWBOATS 15*
_________________________________________________________
*Includes leased equipment.
</TABLE>
COAL CARRIER-The Company's self-unloading, conveyor
belt equipped U.S. Flag Coal Carrier, S.S. "ENERGY
ENTERPRISE", commenced service in February, 1996
under a long-term charter to a New England electric
utility company, carrying coal in the coastwise and
nearsea trade.
DOMESTIC TRANSPORTATION-Central Gulf Lines, Inc.
has a long term contract with a Florida based
electric utility for the transportation of coal
from Mt. Vernon, Indiana, to the Company's coal
transfer facility at Port St. Joe, Florida, where the
coal is trans-loaded into railcars and moved to the
utility's plant site at Palatka, Florida. The Company
is responsible for the waterborne movement of the coal
from the loading point on the Ohio River to the
discharge point at the terminal and for unloading
the barges there and transferring the coal into
railcars.
The Company operates 111 hopper barges, 15
towboats and certain terminal transfer equipment in
carrying out the requirements of the contract.
LITCO TERMINAL COMPLEX-The Company's LITCO (LASH
Intermodal Terminal COmpany) Terminal at Memphis is in
its fifth year of operation and has continued to
experience satisfactory utilization. The terminal is
the only totally enclosed multi-modal cargo transfer
facility in the United States, providing
287,000 sq. ft. of enclosed warehouse and
loading/discharging stations for LASH barge, rail,
truck, and heavy-lift operations.
LITCO is strategically located to move cargo on
just-in-time scheduling between major inland markets and
world ports and is contributing positively to the
performance of both Forest Lines and Waterman
services by improved turn-around time of the Company's
LASH barge fleet.
<PAGE 7>
INTERNATIONAL SHIPHOLDING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Certain statements made in this report or elsewhere
by, or on behalf of, the Company that are not
based on historical facts are intended to be
forward-looking statements within the meaning of the
safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Forward-looking
statements are based on assumptions about future
events and are therefore subject to risks and
uncertainties. The Company cautions readers that
the following important factors, among others, have
affected and may affect in the future the Company's
actual consolidated results of operations and may cause
future results to differ materially from those
expressed in or implied by any forward-looking
statements made in this report or elsewhere by, or on
behalf of, the Company:
The Company's ability to (i) identify customers
with marine transportation needs requiring specialized
vessels or operating techniques; (ii) secure financing
on satisfactory terms to acquire, modify, or
construct vessels if such financing is necessary to
service the potential needs of current or future
customers; (iii) obtain new contracts or renew
existing contracts which would employ certain of its
vessels or other assets upon the expiration of
contracts currently in place; (iv) manage the amount
and rate of growth of its general and administrative
expenses and costs associated with crewing certain of
its vessels; (v) and to manage its growth in terms of
implementing internal controls and information systems
and hiring or retaining key personnel, among
other things. Other factors include (vi) changes in
cargo rates and fuel prices which could increase or
decrease the Company's gross voyage profit from its
liner services; (vii) the rate at which competitors add
or scrap vessels from the markets in which the
Company operates; (viii) changes in interest rates
which could increase or decrease the amount of
interest the Company incurs on borrowings with
variable rates of interest; (ix) the impact on the
Company's financial statements of nonrecurring
accounting charges that may result from the
Company's ongoing evaluation of business strategies,
asset valuations, and organizational structures; (x)
changes in accounting policies and practices adopted
voluntarily or as required by generally accepted
accounting principles; (xi) changes in laws and
regulations such as those related to government
assistance programs and tax rates, among other things;
(xii) unanticipated outcomes of current or possible
future legal proceedings; (xiii) and other economic,
competitive, governmental, and technological factors
which may effect the Company's operations.
The Company cautions readers that it
assumes no obligation to update or publicly release
any revisions to forward-looking statements made in
this report or elsewhere by, or on behalf of, the
Company.
The Company's vessels are operated under a
variety of charters and contracts. The nature of these
arrangements is such that, without a material
variation in gross voyage profits (total revenues
less voyage expenses and vessel and barge
depreciation), the revenues and expenses attributable
to a vessel deployed under one type of charter or
contract can differ substantially from those
attributable to the same vessel if deployed under a
different type of charter or contract. Accordingly,
depending on the mix of charters or contracts in
place during a particular accounting period, the
Company's revenues and expenses can
fluctuate substantially from one period to another even
though the number of vessels deployed, the number of voyages
completed, the amount of cargo carried and the gross
voyage profit derived from the vessel 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 operating performance than
revenues. Accordingly, the discussion below addresses
variations in gross voyage profits rather than
variations in revenues.
___________________________________
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED
DECEMBER 31, 1995
GROSS VOYAGE PROFIT. Gross voyage profit
increased 3.7% to $66.9 Million in 1996 as compared
to $64.5 Million in 1995. Gross voyage profit was
favorably impacted by the commencement, in February
of 1996, of operations of the ENERGY ENTERPRISE, a
U.S. Flag Coal Carrier under contract to a major
U.S. utility company, and the full commencement of
operations, in early 1996, of two Special Purpose
Vessels ("SPV's") under contract to provide
transportation services to a major mining company in
Indonesia. Improved freight rates for the Company's
LASH vessels employed in liner service between ports
on the U. S. Gulf/U. S. Atlantic Coast and South Asia
(Trade Routes 18 and 17) and increased charterhire
rates for two of the Company's LASH vessels under
contract with the Military Sealift Command ("MSC")
also positively impacted gross voyage profit.
These increases in gross voyage profit were
partially offset by increased fuel prices, which
impacted the Company's liner services, lower charterhire
rates on the Company's Cape-Size Bulk Carrier, and the
redelivery of one of the Company's vessels at the
end of its MSC contract in late 1995. This vessel
is currently being operated in the spot market until
it commences a new contract with the MSC in the third
quarter of 1997.
Additionally, the Company's fleet experienced more
out of service days in 1996 than in 1995 primarily
due to regularly scheduled drydockings, shipyard work
required to prepare the two LASH vessels for their
contract with the MSC, and a propeller shaft
casualty sustained by one of the vessels operating in
the Waterman service which required an unscheduled
drydock of approxi-
<PAGE 8>
mately two months duration. This vessel has been
fully repaired and returned to service about mid-July.
Results of our insurance subsidiary were also
negatively impacted by this accident.
The Company currently charters eight vessels to the
MSC including three Roll-On/Roll-Off ("RO/RO") vessels
employed in the Military Prepositioning Service,
four LASH vessels, and one Ice-Strengthened Multi-Purpose
vessel. The contracts for the RO/RO's are fixed through the
years 2009 and 2010. A scheduled charterhire rate reduction,
which will not have a material impact on the Company's
gross voyage profit, became effective January 1, 1997,
for the RO/RO's. During 1996, the Ice-Strengthened
Multi-Purpose vessel began the second of two
seventeen month option periods which will terminate at
the end of 1997. In third quarter of 1997, the
Company's other Ice-Strengthened Multi-Purpose vessel
will commence operating under a seventeen month
contract with MSC which includes two seventeen month
option periods. This vessel is currently being
operated in the open market on a cargo offered basis.
In mid-1996, the MSC contracts of two of the Company's
LASH vessels were each renewed for seventeen months
with two seventeen month option periods extending
through 2000. A third LASH vessel will
enter a new contract upon the expiration of its
current MSC contract in May of 1997. The Company's
other LASH vessel chartered to MSC is operating under
a contract which expires in 1999.
Vessel and barge depreciation increased to
$32.6 Million during 1996 as compared to $24.7
Million in 1995 primarily due to the addition of the
ENERGY ENTERPRISE and the two SPV's and related
barges.
OTHER INCOME AND EXPENSES. Administrative and
general expenses decreased slightly to $26.3 Million
during 1996 as compared to $26.6 Million in 1995
stemming from a continuing cost reduction program.
Interest expense increased 11.6% to $28.5 Million
in 1996 as compared to $25.6 Million in 1995 primarily
due to interest incurred on the financing of the
ENERGY ENTERPRISE and the two SPV's and related
barges. These increases were partially offset by
reductions resulting from regularly scheduled
payments on other outstanding debt.
Investment income decreased from $2.7 Million in
1995 to $1.9 Million in 1996 reflecting reductions
in interest rates and the average balance of invested
funds.
During 1995, the Company sold its 7.7% interest in
a Norwegian shipowning company for approximately $48.0
Million resulting in a before tax gain of approximately
$17.0 Million. A full description of this sale is
included in the discussion of results of operations for
the year ended December 31, 1995, compared to the year
ended December 31, 1994, presented later in this report.
INCOME TAXES. The Company provided $4.8 Million
and $11.4 Million for Federal income taxes at the
statutory rate of 35% for 1996 and 1995, respectively.
Income of unconsolidated entities is shown net of applicable
taxes.
EXTRAORDINARY LOSS ON THE EARLY EXTINGUISHMENT OF
DEBT. During 1996, the Company recognized an
extraordinary loss of $0.8 Million, net of taxes,
resulting from a makewhole premium required when
the Company refinanced Notes in the fourth quarter
to reduce interest costs.
_________________________________________________________
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED
DECEMBER 31, 1994
GROSS VOYAGE PROFIT. Gross voyage profit
decreased 1.2% to $64.5 Million in 1995 as compared
to $65.3 Million in 1994. Gross voyage profit was
negatively impacted by lower freight rates and
higher operating costs for the Company's LASH
vessels employed in liner service on Trade Routes 18
and 17. A scheduled rate reduction on one of the
Company's vessels chartered to the MSC also
contributed to the decrease in gross voyage profit.
These reductions were partially offset by the addition
of a Molten Sulphur Carrier in early fourth quarter of
1994.
Vessel and barge depreciation increased by 6.3%
to $24.7 Million during 1995 as compared to $23.3
Million in 1994 primarily due to the addition of
the Molten Sulphur Carrier in early fourth quarter of
1994. This increase was partially offset by the life
extension of two LASH vessels which were purchased
in 1994 upon the termination of the capital lease of
these vessels.
OTHER INCOME AND EXPENSES. Administrative and
general expenses decreased 3.1% to $26.6 Million during
1995 as compared to $27.5 Million in 1994 stemming
from a continuing cost reduction program.
Interest expense increased 18.1% to $25.6
Million in 1995, as compared to $21.7 Million in 1994,
primarily due to interest incurred on the financing
of the Molten Sulphur Carrier, interest rate
conversion agreements, and financing received in
early 1995 for general corporate purposes. These
increases were partially offset by regularly scheduled
debt payments of $28.5 million.
Investment income decreased slightly from $2.8
Million in 1994 to $2.7 Million in 1995 reflecting a
reduction in the average balance of invested funds.
Additionally, investment income in 1994 reflected the
recognition of interest on a promissory note related
to the sale of an investment in an unconsolidated
entity. This promissory note was acquired by the
Company in the first half of 1995.
The Company's equity in net income of unconsolidated
entities was $0.3 million in 1995 as compared to
equity in losses of $0.1 Million in 1994. The
Company's interest in these entities was liquidated
in 1995.
As of December 31, 1994, the Company
held an approximate 12.6% interest, including both
direct and indirect interests, in Havtor AS, a publicly
traded company listed on the Oslo Stock Exchange. The
Company also held a 14.2% interest in A/S Havtor
Management, a privately held Norwegian ship
management company affiliated with Havtor AS. As of
December 31, 1994, the Company held a 50% interest in
a foreign entity, Bulkowners 1984, which was formed
to own and operate two combination dry
cargo/petroleum products, PROBO vessels. The Company
also held a 10% interest in a limited partnership
with certain Norwegian interests to construct and
own a Liquified Petroleum Gas carrier which delivered
in 1993.
During the first half of 1995, A/S Havtor
Management and the gas carrier activities of
Kvaerner, an unrelated Norwegian company merged
into Havtor AS. In addition, Havtor AS agreed
to acquire other vessels and vessel interests,
including the 50% interest held by the Company in
two PROBO vessels and the 10% interest held in a
Liquified Petroleum Gas carrier. Subsequent to the
merger, the Company's interest, including both direct
and indirect interests, in Havtor AS approximated 7.7%.
<PAGE 9>
During November 1995, the Company sold this 7.7% interest
in Havtor AS for approximately $48.0 Million. The
sale resulted in a before tax gain of approximately
$17.0 Million.
INCOME TAXES. The Company provided $11.4 million
and $6.6 million for Federal income taxes at the
statutory rate of 35% for 1995 and 1994,
respectively. Income of unconsolidated entities
is shown net of applicable taxes.
OPERATING DIFFERENTIAL SUBSIDY AGREEMENTS.
For the years ended December 31, 1996, 1995 and
1994, the Company received aggregate Operating
Differential Subsidy ("ODS") payments of $25.6 Million,
$22.7 Million, and $21.7 Million, respectively. The
Company's ODS agreement for the four LASH vessels currently
employed in its Waterman liner service on Trade Routes
18 and 17 expires during early 1997. The "Maritime
Security Act" ("MSA"), which provides for a new
subsidy program for up to 47 U. S. Flag vessels, was
signed into law on October 8, 1996. The
Company's four LASH vessels, which have been
receiving subsidy payments under the ODS
agreement, two of the Company's Pure Car Carriers
("PCC"), and one of the Company's LASH vessels currently
on contract with MSC have qualified to participate in
this program. The two PCC's began receiving MSA payments
in late 1996, and the four LASH vessels operating under
ODS will begin receiving MSA payments upon the
expiration of ODS in early 1997. The LASH vessel under
contract to MSC will be eligible to receive payments upon the
expiration of that contract in 2000. MSA will eliminate
the trade route restrictions imposed by the ODS program
and will allow flexibility to operate freely in
the competitive market. MSA provides for annual
subsidy payments of $2.1 Million per year per vessel
for a total of ten years. Payments under MSA are
subject to appropriation each year and are not
guaranteed. Under the previous ODS agreement, subsidy
payments were approximately $5.8 Million per year per
vessel. To overcome the decrease in the amount of subsidy
payments to be provided under MSA, as compared to ODS,
the Company will be required to pursue various options
such as reduction of crew costs and other expenses.
___________________________________
LIQUIDITY AND CAPITAL RESOURCES
The following discussion should be read in
conjunction with the more detailed Consolidated
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 increased from
$13.4 Million at December 31, 1995, to $26.9 Million
at December 31, 1996, after provision for current
maturities of long-term debt and capital lease
obligations of $35.5 Million. Cash and cash
equivalents decreased during 1996 by $11.3 Million to
a total of $43.0 Million.
Positive cash flows were achieved from
operating activities during 1996 in the amount of
$49.0 Million. The major source of cash from operations
was net income adjusted for noncash provisions such as
depreciation and amortization.
Net cash used for investing activities during
1996 amounted to $76.6 Million. Major capital
improvements included $27.8 Million for the
conversion of two SPV's, $15.9 Million for the
purchase and refurbishment of a LASH vessel, the
ATLANTIC FOREST, and 82 LASH barges, $9.9 Million
for upgrade work on the ENERGY ENTERPRISE to meet
classification requirements, $5.6 Million for the
purchase of a container vessel, the JAVA SEA, to be
operated in conjunction with the two SPV's,
and $1.3 Million for information systems projects.
Other uses of cash included the addition of $28.2
Million in deferred vessel drydocking charges.
Proceeds from investing activities included $8.1
Million received from the payment of a long-term
note receivable, the release of $3.7 Million
previously held in escrow as collateral for loans,
$2.5 Million from the sale of the Company's
Semi-Submersible Barge, the CAPS EXPRESS, and
$1.8 Million from the maturity of short-term
investments.
Net cash provided by financing activities during
1996 amounted to $16.4 Million. Proceeds from the
issuance of debt obligations of $147.5 Million included
$93.7 Million received from draws on lines of credit,
of which $30.0 Million was outstanding at December 31,
1996, $23.0 Million received from the refinancing of
Notes to reduce interest costs, $16.8 Million
associated with the conversion of the two SPV's,
$8.5 Million associated with the purchase of the
ATLANTIC FOREST and related barges, and $5.5 Million
associated with the purchase of the JAVA SEA.
These proceeds were partially offset by repayment of
$63.7 Million drawn under lines of credit, regularly
scheduled principal payments of $31.5 Million, payment
of $22.0 Million for the repurchase of Notes, and
the prepayment of a $9.5 Million long-term debt.
The Company also added $2.8 Million in deferred
financing charges and used $1.7 Million to meet
common stock dividend requirements.
In the third quarter of 1988, the Board of
Directors first declared a quarterly dividend of 5
cents per share (4 cents per share after giving
effect to the November 17, 1995, twenty-five
percent stock dividend) and continued quarterly
dividends in the same amount for each quarterly
period through the third quarter of 1995. The
Board then increased the dividend to 6.25 cents
per share in the fourth quarter of 1995 and has
continued quarterly dividends in the same amount
for each quarterly period through the fourth
quarter of 1996. The Board has expressed its
intent to continue to declare similar quarterly
dividends in the future, subject to the ability of
the Company's operating subsidiaries to continue to
achieve satisfactory earnings and restrictions
contained in certain of the Company's credit
agreements. Dividends on common stock during 1996
amounted to approximately $1.7 Million.
Management believes that normal operations will
provide sufficient working capital and cash flows
to meet debt service and dividend requirements
during the foreseeable future.
To meet short-term requirements when fluctuations
occur in working capital, the Company has available
three lines of credit totaling $35.0 Million. As of
December 31, 1996, outstanding draws on these lines
of credit totaled $30.0 Million of which $20.0 Million
was repaid in early 1997.
The Company has not been notified that it is
a potentially responsible party in connection
with any environmental matters.
<PAGE 10>
<TABLE>
INTERNATIONAL SHIPHOLDING CORPORATION
CONSOLIDATED BALANCE SHEETS
<CAPTION>
ASSETS
(All Amounts in Thousands)
December 31,December 31,
1996 1995
___________ ___________
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents $ 43,020 $54,281
Marketable Securities 2,727 4,630
Accounts Receivable,
Net of Allowance for
Doubtful Accounts of
$256 and $409
in 1996 and 1995,
Respectively:
Traffic 42,404 30,659
Agents' 10,343 10,352
Claims and Other 3,048 5,823
Federal Income
Taxes Receivable 1,366 -
Net Investment in Direct
Financing Leases 2,033 2,104
Other Current Assets 6,216 3,521
Material and Supplies
Inventory, at Cost 12,043 10,545
____________ _________
Total Current Assets 123,200 121,915
____________ _________
Net Investment in Direct
Financing Leases 22,797 24,482
____________ _________
Vessels, Property, and Other
Equipment, at Cost:
Vessels and Barges 676,267 634,905
Other Marine Equipment 7,500 7,570
Terminal Facilities 18,535 18,126
Land 2,317 2,317
Furniture and Equipment 17,401 15,892
____________ _________
722,020 678,810
Less - Accumulated Depreciation (276,222) (243,929)
____________ _________
445,798 434,881
____________ _________
Other Assets:
Deferred Charges
in Process of
Amortization 43,318 26,952
Acquired Contract Costs,
Net of Accumulated
Amortization of $18,706
and $16,496 in 1996
and 1995, Respectively 19,523 21,733
Due from Related Parties 443 535
Other 6,517 17,082
____________ _________
69,801 66,302
____________ _________
$ 661,596 $647,580
============ ==========
</TABLE>
[FN]
The accompanying notes are an integral part of these statements.
<PAGE 11>
<TABLE>
INTERNATIONAL SHIPHOLDING CORPORATION
LIABILITIES AND STOCKHOLDERS' INVESTMENT
(All Amounts in Thousands Except Share Data)
<CAPTION>
December 31, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Current Liabilities:
Current Maturities of
Long-Term Debt $ 33,470 $ 40,785
Current Maturities of
Capital Lease Obligations 1,981 1,469
Accounts Payable and Accrued
Liabilities 67,690 77,481
Federal Income Tax Payable - 6,520
Current Deferred Income
Tax Liability 811 1,283
Current Liabilities
to be Refinanced (7,680) (19,030)
------------ ------------
Total Current Liabilities 96,272 108,508
------------ ------------
Current Liabilities to be Refinanced 7,680 19,030
------------ ------------
Billings in Excess of Income Earned
and Expenses Incurred 8,635 4,639
------------ ------------
Long-Term Capital Lease Obligations,
Less Current Maturities 17,642 19,623
------------ ------------
Long-Term Debt,
Less Current Maturities 299,434 269,872
------------ ------------
Reserves and Deferred Credits:
Deferred Income Taxes 40,673 38,668
Claims and Other 18,853 20,979
------------ ------------
59,526 59,647
------------ ------------
Commitments and Contingent Liabilities
Stockholders' Investment:
Common Stock, $1.00
Par Value, 10,000,000
Shares Authorized,
6,756,330 Shares Issued
at December 31, 1996
and 1995 6,756 6,756
Additional Paid-in Capital 54,450 54,450
Retained Earnings 112,310 106,158
Less - 73,443 Shares of
Common Stock in
Treasury, at Cost,
at December 31, 1996
and 1995 (1,133) (1,133)
Unrealized Holding Gain
on Marketable Securities 24 30
----------- ----------
172,407 166,261
----------- ----------
$661,596 $647,580
=========== ==========
</TABLE>
[FN]
The accompanying notes are an integral part of these statements.
<PAGE 12>
<TABLE>
INTERNATIONAL SHIPHOLDING CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(All Amounts in Thousands Except Per Share Data)
<CAPTION>
Year Ended December 31,
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Revenues $353,346 $319,084 $320,585
Operating Differential Subsidy 25,581 22,705 21,748
-------- -------- --------
378,927 341,789 342,333
-------- -------- --------
Operating Expenses:
Voyage Expenses 279,395 252,506 253,729
Vessel and Barge Depreciation 32,584 24,747 23,289
-------- -------- --------
Gross Voyage Profit 66,948 64,536 65,315
-------- -------- --------
Administrative and General Expenses 26,256 26,615 27,454
-------- -------- --------
Operating Income 40,692 37,921 37,861
-------- -------- --------
Interest:
Interest Expense 28,528 25,561 21,650
Investment Income (1,935) (2,676) (2,826)
-------- -------- --------
26,593 22,885 18,824
-------- -------- --------
Gain on Sale of Investments - 17,409 -
-------- -------- --------
Unconsolidated Entities
(Net of Applicable Taxes):
Equity in Net Income (Loss) of
Unconsolidated Entities - 331 (124)
Provision for Doubtful Accounts - - 900
-------- -------- --------
- 331 776
-------- -------- --------
Income Before Provision
for Income Taxes
and Extraordinary Item 14,099 32,776 19,813
-------- -------- --------
Provision for Income Taxes:
Current 3,246 11,296 4,961
Deferred 1,533 94 1,621
State 684 406 180
-------- -------- --------
5,463 11,796 6,762
-------- -------- ---------
Income Before Extraordinary Item $ 8,636 $ 20,980 $ 13,051
Extraordinary Loss on Early
Extinguishment of Debt (Net
of Income Tax Benefit of $437) (813) - -
-------- -------- --------
Net Income $ 7,823 $ 20,980 $ 13,051
======== ======== ========
Earnings Per Share:
Income Before
Extraordinary Loss $ 1.29 $ 3.14 $ 1.95
Extraordinary Loss (0.12) - -
-------- -------- --------
Net Income $ 1.17 $ 3.14 $ 1.95
======== ======== ========
</TABLE>
[FN]
The accompanying notes are an integral part of these statements.
<PAGE 13>
<TABLE>
INTERNATIONAL SHIPHOLDING CORPORATION
CONSOLIDATED STATEMENTS
OF CHANGES IN
STOCKHOLDERS' INVESTMENT
<CAPTION>
(All Amounts in Thousands)
Net
Additional Unrealized
Common Paid-In Retained Treasury Holding
Stock Capital Earnings Stock Gain/(Loss) Total
------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1993 $5,405 $54,450 $75,775 $(1,133) $ - $134,497
Net Income for
Year Ended
December 31,
1994 - - 13,051 - - 13,051
Cash Dividends - - (1,069) - - (1,069)
Unrealized
Holding Loss on
Marketable
Securities,
Net of Deferred
Taxes - - - - (163) (163)
------------------------------------------------------------
Balance at
December 31,
1994 $5,405 $54,450 $87,757 $(1,133) $ (163) $146,316
============================================================
Net Income for
Year Ended
December 31,
1995 - - 20,980 - - 20,980
Cash Dividends - - (1,228) - - (1,228)
25% Stock
Dividend 1,351 - (1,351) - - -
Unrealized
Holding Gain
on Marketable
Securities,
Net of
Deferred Taxes - - - - 193 193
----------------------------------------------------------
Balance at
December 31,
1995 $6,756 $54,450 $106,158 $(1,133) $ 30 $166,261
==========================================================
Net Income for
Year Ended
December 31,
1996 - - 7,823 - - 7,823
Cash Dividends - - (1,671) - - (1,671)
Unrealized
Holding Loss on
Marketable
Securities,
Net of
Deferred Taxes - - - - (6) (6)
----------------------------------------------------------
Balance at
December 31,
1996 $6,756 $54,450 $112,310 $(1,133) $ 24 $172,407
==========================================================
</TABLE>
[FN]
The accompanying notes are an integral part of these statements.
<PAGE 14>
<TABLE>
INTERNATIONAL SHIPHOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
(All Amounts in Thousands) Year Ended December 31,
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 7,823 $ 20,980 $ 13,051
Adjustments to Reconcile Net
Income to Net Cash Provided by
Operating Activities:
Depreciation 34,939 26,653 24,516
Amortization of Deferred
Charges and Other Assets 19,309 17,310 17,105
Provision for Deferred
Income Taxes 1,533 94 1,568
Equity in Unconsolidated
Entities - (331) (776)
(Gain) Loss on Sale of
Vessels and Other Property (11) (7) 83
Gain on Sale of Investment
in Havtor AS - (17,409) -
Extraordinary Loss 813 - -
Changes in:
Accounts Receivable (8,515) 543 (466)
Net Investment in Direct
Financing Leases 1,756 2,188 2,258
Inventories and Other
Current Assets (3,539) (1,334) 1,718
Other Assets (1,177) 2,599 1,138
Accounts Payable and
Accrued Liabilities 910 (694) (634)
Federal Income Taxes Payable (6,765) 6,084 -
Unearned Income 3,996 168 45
Reserve for Claims and
Other Deferred Credits (2,118) (2,866) (772)
-------- -------- --------
Net Cash Provided by
Operating Activities 48,954 53,978 58,834
-------- -------- --------
Cash Flows from Investing Activities:
Purchase of Vessels and
Other Property (65,104)(127,942) (56,977)
Additions to Deferred Charges (28,171) (11,682) (6,188)
Proceeds from Sale of
Vessels and Other Property 2,512 7 710
Proceeds from Short-Term Investments 1,799 2,763 12,182
Investment in and Advances to
Unconsolidated Entities - - 1,447
Proceeds from Sale of Havtor AS - 48,621 -
Proceeds from Note Receivable 8,100 - -
Other Investing Activities 4,295 9,067 (7,983)
-------- -------- --------
Net Cash Used by Investing Activities (76,569) (79,166) (56,809)
-------- -------- --------
Cash Flows from Financing Activities:
Proceeds from Issuance of Debt 147,482 105,651 90,538
Reduction of Debt and Capital
Lease Obligation (126,704) (53,930) (83,121)
Additions to Deferred
Financing Charges (2,753) (635) (388)
Common Stock Dividends Paid (1,671) (1,228) (1,069)
-------- -------- --------
Net Cash Provided by
Financing Activities 16,354 49,858 5,960
-------- -------- --------
Net (Decrease) Increase in
Cash and Cash Equivalents (11,261) 24,670 7,985
Cash and Cash Equivalents
at Beginning of Year 54,281 29,611 21,626
-------- -------- --------
Cash and Cash Equivalents
at End of Year $ 43,020 $ 54,281 $ 29,611
======== ======== ========
</TABLE>
[FN]
The accompanying notes are an integral part of these statements.
<PAGE 15>
INTERNATIONAL SHIPHOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
- ---------------------
The accompanying consolidated financial
statements include the accounts of
International Shipholding Corporation (a Delaware
corporation) and its consolidated subsidiaries (the
Company). All significant intercompany accounts and
transactions have been eliminated.
The Company uses the cost method to account
for investments in entities in which it holds less
than a 20% voting interest and in which the Company
cannot exercise significant influence over
operating and financial activities. The Company
uses the equity method to account for investments in
entities in which it holds a 20% to 50% voting
interest.
Certain reclassifications have been made to the
prior period financial information in order to
conform to current year presentation.
Nature of Operations
- --------------------
The Company, through its subsidiaries,
operates a diversified fleet of U.S. and
international flag vessels that provide
international and domestic maritime transportation
services to commercial customers and agencies of
the United States government primarily under
medium- to long-term charters or contracts.
The Company's fleet consists of 30 ocean-going
vessels, 15 towboats, 129 river barges, 26 special
purpose barges, approximately 1,850 LASH barges, and
related shoreside handling facilities. The
Company's strategy is to (i) identify customers with
marine transportation needs requiring specialized
vessels or operating techniques, (ii) seek
medium to long-term charters or contracts with
those customers and, if necessary, modify,
acquire, or construct vessels to meet the
requirements of those charters or contracts,
and (iii) secure financing for the vessels
predicated primarily on those charter or contract
arrangements.
Use of Estimates
- ----------------
The preparation of financial statements in
conformity with generally accepted accounting
principles requires management to make estimates
and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent
assets and liabilities at the date of the
financial statements and the reported amounts of
revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Voyage Accounting
- -----------------
Revenues and expenses relating to voyages are
recorded on the percentage-of-completion method,
except that provisions for loss voyages are recorded when
contracts for the voyages are fixed or when losses
become apparent for voyages in progress. Use of
the percentage-of-completion method requires
management to make estimates and assumptions that
affect the reported amount of revenues and expenses
during the reporting period. Actual results could
differ from those estimates.
Vessels and Other Property
- --------------------------
Costs of all major property additions and
betterments are capitalized. Ordinary maintenance
and repair costs are expensed as incurred. Interest
and finance costs relating to vessels, barges, and
other equipment under construction are capitalized
to properly reflect the cost of assets acquired.
Capitalized interest totaled $425,000, $2,721,000,
and $1,763,000 for the years ended December 31, 1996,
1995, and 1994, respectively. Capitalized interest
was calculated based on the interest rates applicable
to the debt related to the assets under construction.
Assets under capital lease are recorded
on the consolidated balance sheet under the
caption Vessels, Property, and Other Equipment (See
Note G).
For financial reporting purposes, vessels
are depreciated over their estimated useful lives
using the straight-line method. As a result of
major capital improvements during 1996, the lives of
two of the Company's LASH vessels were extended by two
additional years, from 28 to 30 years and from
30 to 32 years, respectively. The effect of this
change on the Company's results of operations for the
year ended December 31, 1996, was not material.
The Company groups all LASH barges into pools
with estimated useful lives corresponding to the remaining
useful lives of the vessels with which they are
utilized. Major barge refurbishments are capitalized
and included in the aforementioned group of barge pools.
From time to time, the Company disposes of
barges in the ordinary course of business. In
these cases, proceeds from the disposition are
credited to the remaining net book value of the
respective pool and future depreciation charges are
adjusted accordingly.
Estimated useful lives of Vessels, Terminal
Facilities, and Other Marine Equipment are as
follows:
<TABLE>
<CAPTION>
Years
-----
<S> <C>
1 LASH Vessel 32
10 LASH Vessels 30
2 Pure Car Carriers 20
2 Pure Car Carriers 12
1 Coal Carrier 15
11 Other Vessels * 25
Coal Terminal 22
LITCO Terminal 11
Marine Equipment 4
</TABLE>
[FN]
*Includes three FLASH units, two ice-strengthened
multi-purpose vessels, two float-on/float-off
special purpose vessels, a dockship, a cape-size
bulk carrier, a molten sulphur carrier, and a
container vessel. The Company's fleet of 30
vessels also includes three roll-on/roll-off
vessels which it operates.
Income Taxes
- ------------
Deferred income taxes are provided on items of
income and expense which affect taxable income in one
period and financial income in another.
Certain foreign operations are not subject to
income tax-
<PAGE 16>
ation under pertinent provisions of the laws of the
country of incorporation or operation. However,
pursuant to existing U.S. Tax Laws, earnings
from certain foreign operations are subject to U.S.
income taxes (See Note D).
Foreign Currency Translation
- ----------------------------
All exchange adjustments are charged or
credited to income in the year incurred. Exchange
losses of $17,000, $159,000, and $119,000 were
recognized for the years ended December 31, 1996,
1995, and 1994, respectively.
Dividend Policy
- ----------------
The Board of Directors declared and paid
dividends of 6.25 cents per share for each quarter in
1996. On November 17, 1995, the Company distributed a
25% stock split effected in the form of a stock
dividend to shareholders of record at the close of
business on November 3, 1995. Fractional shares
were purchased by the Company at the reported last
sale price per share on the record date, adjusted
to reflect the dividend. All per share and weighted
average amounts have been restated to reflect the
25% dividend. The Board of Directors declared and
paid dividends of 5 cents per share (4 cents per
share after giving effect to the aforementioned
25% stock dividend) for the first, second, and third
quarters in 1995 and for each quarter in 1994. A
dividend of 6.25 cents was declared and paid for the
fourth quarter in 1995.
Subsequent to year end, a dividend of
6.25 cents per common share was declared to be paid
in the first quarter of 1997. The payment of
dividends is subject to restrictions set forth in
certain of the Company's debt instruments. The
Company paid dividends on its common stock of
$1,671,000, $1,228,000, and $1,069,000, in 1996,
1995, and 1994, respectively. Such amounts did
not exceed restrictions set forth in these
agreements or its other debt instruments.
Net Income Per Common Share
- ---------------------------
Earnings per common share are based on the
weighted average number of shares outstanding during
the period. The weighted average number of common
shares outstanding was 6,682,887 for the years ended
December 31, 1996, 1995, and 1994. Primary and
fully diluted weighted average common shares
outstanding were the same for each of these years.
All per share and weighted-average share amounts have
been restated for the November 17, 1995, twenty-
five percent stock dividend.
Operating Differential Subsidy Agreements
- -----------------------------------------
The Company's operating differential subsidy ("ODS")
agreement with the U.S. Maritime Administration
("MarAd"), an agency of the Department of Transportation
under Title VI of the Merchant Marine Act of 1936,
as amended, under which the Company operates a fleet
of four U.S. flag vessels in a liner service between
ports on the U.S. Gulf/U.S. Atlantic Coast and South
Asia (Trade Routes 18 and 17), expires upon completion,
during the first quarter of 1997, of voyages in
progress at December 31, 1996. Under this agreement,
MarAd pays the excess of certain vessel expenses over
comparable vessel expenses of principal foreign
competitors in each respective trade route.
The Maritime Security Act ("MSA"), which
provides for a new subsidy program for certain U.S.
flag vessels, was signed into law in October of
1996. Seven of the Company's vessels qualified for
MSA participation including the four aforementioned
LASH vessels which have been operating under ODS,
two of the Company's Pure Car Carriers ("PCC"), and
a LASH vessel currently on contract with the
Military Sealift Command ("MSC"). The two PCC's
began receiving MSA payments in late 1996, and the
four LASH vessels operating under ODS will begin
receiving MSA payments upon the expiration of ODS
in early 1997. The LASH vessel operating under MSC
contract will be eligible to receive MSA payments
upon the expiration of that contract in 2000. MSA
will eliminate the trade route restrictions imposed
by the ODS program and will allow flexibility to
operate freely in the competitive market.
MSA provides for annual subsidy payments of
$2,100,000 per year per vessel for a total of ten
years. These payments are subject to appropriation
each year and are not guaranteed. Under the
previous ODS agreement, subsidy payments were
approximately $5,800,000 per year per vessel. To
overcome the decrease in the amount of subsidy payments
to be provided under MSA as compared to ODS, the Company
will be required to pursue various options such as
reduction of crew costs and other expenses.
Traffic accounts receivable include $1,832,000
and $4,949,000 due from MarAd under these ODS
agreements at December 31, 1996 and 1995,
respectively.
Self-Retention Insurance
- ------------------------
Effective December 1, 1993, the Company became
self-insured for most Personal Injury and Cargo
claims under $1,000,000, for Hull claims under
$2,500,000, and for claims for Loss of Hire under
60 days. Primary deductibles are $25,000 for Hull,
Personal Injury, and Cargo, $1,000 for LASH barges,
and 10 days for Loss of Hire. The Company
maintains insurance for individual claims over the
above levels and maintains Stop Loss insurance to
cover aggregate claims between those levels and the
primary deductible levels. Under the Stop Loss
insurance, the Company is responsible for all claims
under the above levels until the total amount of
claims between primary deductibles and the amounts
associated with those levels reach $6,000,000 in the
aggregate per year for the insurance policy year June
27, 1996, through June 26, 1997, and $7,000,000 for
the policy year June 27, 1995, through June 26,
1996. After the Company has retained the aggregate
amounts, all additional claims are recoverable from
underwriters. Additionally, the Company maintains
catastrophic insurance to cover total claims resulting
from any individual incident which exceed $2,500,000.
Provisions for losses are recorded based
on the Company's estimate of the eventual settlement
costs. The current portions of these liabilities were
$5,530,000 and $4,698,000 at December 31, 1996 and
1995, respectively, and the noncurrent portions of
these liabilities were $8,654,000 and $5,459,000 at
December 31, 1996 and 1995, respectively.
<PAGE 17>
NOTE B - LONG-TERM DEBT
<TABLE>
<CAPTION>
(All Amounts in Thousands)
December 31, December 31, December 31, December 31,
Description 1996 1995 Due 1996 1995
- ----------- ------------- ----------- ----- ------------ ------------
<S> <C> <C> <C> <C> <C>
Unsecured
Senior
Notes -
Fixed Rate 9.00% 9.00% 2003 $ 93,891 $ 93,891
Fixed Rate
Notes 2000-
Payable 6.70-9.97% 8.25-10.50% 2008 61,773 52,926
Variable Rate
Notes 1997-
Payable 6.39-7.43% 6.63-7.81% 2006 101,855 113,479
U.S. Government
Guaranteed
Ship Financing
Notes and
Bonds - 2000-
Fixed Rate 6.58-8.30% 6.58-8.30% 2009 45,385 50,361
Lines of Credit 6.63-8.25% N/A 1998 30,000 -
----------- ----------
$332,904 $310,657
Less Current Maturities (33,470) (40,785)
----------- ----------
$299,434 $269,872
=========== ==========
</TABLE>
The aggregate principal payments required as of
December 31, 1996, for each of the next five years
are $33,470,000 in 1997, $63,065,000 in 1998, $29,409,000
in 1999, $24,613,000 in 2000, and $19,669,000 in 2001. In
addition to regularly scheduled principal payments,
the $63,065,000 required in 1998 includes repayment of
the $30,000,000 drawn on the Company's lines of credit as
of December 31, 1996. During early 1997, $20,000,000
was repaid on those lines of credit before their
scheduled maturity in 1998.
Certain of the vessels and barges owned by the
Company are mortgaged under certain debt agreements.
Additional collateral includes a security interest in
certain operating contracts and receivables. Most of
these agreements, among other things, impose minimum
working capital and net worth requirements, as
defined, impose restrictions on the payment of
dividends (see Note A), and prohibit the Company
from incurring, without prior written consent,
additional debt or lease obligations, except as defined.
The Company has consistently met the minimum working
capital and net worth requirements during the period
covered by the agreements and is in compliance with these
requirements as of December 31, 1996.
Under the most restrictive of its credit
agreements, the Company cannot declare or pay
dividends unless (1) the total of (a) all dividends
paid, distributions on, or other payments made with
respect to the Company's capital stock during the
period beginning October 1, 1989, and ending on the
date of dividend declaration or other payment and
(b) all investments other than Qualified
Investments (as defined) of the Company and
certain designated subsidiaries will not exceed the
sum of $3,000,000 plus 50% (or, in case of a loss,
minus 100%) of the Company's consolidated net income
during the period described above plus the net cash
proceeds received from the issuance of common stock
by the Company during the above period, and (2) no
default or event of default has occurred.
Certain loan agreements also restrict the
ability of the Company's subsidiaries to make
dividend payments, loans, or advances, the most
restrictive of which contain covenants that
restrict payments of dividends, loans or advances
to the Company from Central Gulf Lines, Inc.,
Waterman Steamship Corporation, and Sulphur Carriers,
Inc. unless certain financial ratios are maintained.
As long as those ratios are maintained, there is no
restriction on loans or advances to the Company
from those subsidiaries; however, dividends generally
are restricted to 40% of the most recent four
quarters' net income of Central Gulf Lines, Inc. and
Waterman Steamship Corporation. Dividends of
Sulphur Carriers, Inc. are restricted to 40% of
undistributed earnings.
The amounts of potentially restricted net assets
were as follows:
<TABLE>
<CAPTION>
(All Amounts In Thousands)
December 31, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Cypress Auto Carriers, Inc. $ 10,285 $ 9,264
Sulphur Carriers, Inc. 22,058 21,588
Waterman Steamship Corporation 63,817 65,136
Central Gulf Lines, Inc. 85,172 79,581
------------ ------------
Total Restricted Net Assets $181,332 $175,569
============ ============
</TABLE>
The Company has available three lines of
credit totaling $35,000,000 used to meet short-term
requirements when fluctuations occur in working
capital. Two of these lines were fully drawn as
of December 31, 1996, for an amount totaling
$30,000,000 of which $20,000,000 was repaid in early
1997. None of these lines were drawn as of
December 31, 1995. The Company voluntarily
maintains a $375,000 compensating balance for one
of the lines of credit. This balance is included
in Cash and Cash Equivalents.
Under certain of the above described loan
agreements, deposits are made into bank retention
accounts to meet the requirements of the applicable
agreements. These escrowed amounts totaled $668,000
and $4,867,000 at December 31, 1996 and 1995,
respectively, and were included in Other Assets.
NOTE C - PENSION PLAN AND POSTRETIREMENT BENEFITS
The Company's retirement plan covers all
full time employees of domestic subsidiaries who are
not otherwise covered under union-sponsored plans.
The benefits are based on years of service and
the employee's highest sixty consecutive months of
compensation. The Company's funding policy is
based on minimum contributions required under
ERISA as determined through an actuarial computation.
Plan assets consist primarily of investments in
certain bank common trust funds of trust quality
assets and money market holdings.
The following table sets forth the plan's funded
status and pension costs recognized by the Company:
<PAGE 18>
<TABLE>
<CAPTION>
Actuarial Present Value of Benefit Obligations:
December 31, December 31,
(All Amounts in Thousands) 1996 1995
------------ ------------
<S> <C> <C>
Vested Benefit Obligation $ (9,837) $ (9,680)
============ ============
Accumulated Benefit Obligation $(10,041) $ (9,795)
=========== ============
Projected Benefit Obligation $(12,060) $(10,886)
Plan Assets at Fair Value 13,397 12,306
----------- ------------
Plan Assets in Excess of
Projected Benefit Obligation 1,337 1,420
Unrecognized Net Gain (1,489) (1,310)
Prior Service Cost Not Yet
Recognized in Net
Periodic Pension Cost 130 157
Unrecognized Net Obligation Being
Recognized Over 15 Years 297 371
----------- ------------
Accrued Pension Asset $ 275 $ 638
=========== ============
</TABLE>
<TABLE>
<CAPTION>
Net Periodic Pension Cost: For the Year Ended December 31,
1996 1995 1994
--------- --------- --------
<S> <C> <C> <C>
Service Cost $ 621 $ 451 $ 469
Interest Cost on
Projected Benefit Obligation 782 752 701
Actual Return on Plan Assets (1,307) (2,130) 150
Net Amortization and Deferral 440 1,355 (922)
--------- --------- --------
Net Periodic Pension Cost $ 536 $ 428 $ 398
========= ========= ========
</TABLE>
<TABLE>
<CAPTION>
Actuarial assumptions used to develop the components of
pension expense were as follows:
For the Year Ended December 31,
1996 1995 1994
-------- -------- ---------
<S> <C> <C> <C>
Discount Rate 7.25% 7.25% 8.0%
Rate of Increase in
Future Compensation Levels 5.5% 5.0% 6.0%
Expected Long-term Rate of
Return on Assets 8.0% 8.5% 8.5%
</TABLE>
Crew members on the Company's U.S. flag vessels belong
to union-sponsored pension plans. The Company contributed
approximately $2,685,000, $2,322,000, and $2,470,000
to these plans for the years ended December 31, 1996,
1995, and 1994, respectively. These contributions are in
accordance with provisions of negotiated labor contracts
and generally are based on the amount of straight pay
received by the union members. Information from the plans'
administrators is not available to permit the Company
to determine whether there may be unfunded vested
benefits.
The Company's postretirement benefit plans
currently provide medical, dental, and life
insurance benefits to eligible retired employees
and their eligible dependents. The following table
sets forth the plans' combined funded status
reconciled with the amount included in the Company's
consolidated balance sheet classification Reserves
and Deferred Credits:
<TABLE>
<CAPTION>
Accumulated Postretirement Benefit Obligation:
(All Amounts in Thousands) December 31, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Retirees $ (5,148) $ (4,638)
Fully eligible active
plan participants (1,732) (1,655)
Other active plan participants (1,318) (1,265)
------------ ------------
$ (8,198) $ (7,558)
Plan Assets at Fair Value - -
------------ ------------
Accumulated Postretirement
Benefits Obligation
in Excess of Plan Assets $ (8,198) $ (7,558)
Unrecognized Experience Loss 1,910 1,685
------------ ------------
Accrued Postretirement
Benefit Cost in the
Balance Sheet $ (6,288) $ (5,873)
============ ============
</TABLE>
<TABLE>
<CAPTION>
Net postretirement benefit cost includes the following
components:
For the Year Ended December 31,
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Service Cost $ 134 $ 110 $ 107
Interest Cost on Accumulated
Postretirement Benefit Obligation 556 520 464
Net Amortization 85 37 71
-------- -------- --------
Net Postretirement Benefit Cost $ 775 $ 667 $ 642
======== ======== ========
</TABLE>
The accumulated postretirement benefit obligation was
computed using an assumed discount rate of 7.25% in 1996 and
1995 and 8% in 1994. The health and dental care cost
trend rate was assumed to be 10.25% for 1996,
gradually declining to 5% in the year 2003.
If the health and dental care cost trend rate
were increased one percent for all future years, the
accumulated postretirement benefit obligation as of
December 31, 1996, would have increased
approximately $958,000 or 12%. The effect of this
change in the net postretirement benefit cost for
1996 would have been an increase of approximately
$83,000 or 11%.
The Company continues to evaluate ways in which
it can better manage these benefits and control the
costs. Any changes in the plan or revisions to
assumptions that affect the amount of expected
future benefits may have a significant effect
on the amount of the reported obligation and annual expense.
NOTE D - INCOME TAXES
The Federal income tax returns of the Company are
filed on a consolidated basis and include the results
of operations of its wholly-owned U.S. subsidiaries.
Pursuant to the Tax Reform Act of 1986, the
earnings of foreign subsidiaries ($618,990 in 1996,
$12,001,257 in 1995, and $4,147,420 in 1994) are
also included.
Prior to 1987, deferred income taxes were not
provided on undistributed foreign earnings of
$6,689,245, all of which are expected to remain invested
indefinitely. In accordance with the Tax Reform Act
of 1986, commencing in 1987 earnings generated from
profitable controlled foreign subsidiaries are
subject to Federal income taxes.
<TABLE>
<CAPTION>
Components of the net deferred tax liability/(asset)
are as follows:
December 31, December 31,
(All Amounts in Thousands) 1996 1995
------------ ------------
<S> <C> <C>
Gross Liabilities:
Fixed Assets $33,671 $31,939
Deferred Charges 3,521 6,174
Unterminated Voyage Revenue/
Expense 1,267 2,045
Intangible Assets 7,342 7,498
Other Liabilities 22,380 14,492
Gross Assets:
Insurance and Claims Reserve (3,501) (4,239)
Net Operating Loss
Carryforward/
Unutilized Deficit (903) (1,838)
Valuation Allowance 879 879
Other Assets (23,172) (16,999)
----------- -----------
Total Deferred Tax Liability, Net $41,484 $39,951
=========== ===========
</TABLE>
<PAGE 19>
<TABLE>
<CAPTION>
The following is a reconciliation of the U.S.
statutory tax rate to the Company's effective tax
rate:
Year Ended December 31,
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Statutory Rate 35.0% 35.0% 35.0%
State Income Taxes 4.9% 1.2% .9%
(Income) of
Unconsolidated Entities - - (1.6%)
Other (1.2%) (.3%) (.2%)
------ ------ ------
38.7% 35.9% 34.1%
====== ====== ======
</TABLE>
The Company has available at December 31, 1996,
unused operating loss carryforwards of $0.4
million and unused foreign deficits of $2.2
million. The operating loss carryforwards will
expire in 2001.
NOTE E - TRANSACTIONS WITH RELATED PARTIES
During 1990, the Company sold one if its
subsidiaries to a former employee at a sales price of
$500,000. At the end of 1993, the Company sold
another subsidiary to the same party for a sales
price of $692,000. The total receivable outstanding
from this related party totaled $517,000 and
$591,000 at December 31, 1996 and 1995, respectively,
and is due over a period of ten years from the date of
the 1993 sale. The long-term portion of this
receivable is included in Due from Related Parties,
and the current portion is included in Accounts
Receivable-Claims and Other. Collections on the total
receivable were $74,000 and $55,000 for the years
ended December 31, 1996 and 1995, respectively.
Interest income on this receivable is earned at the
rate of 6% for the first five years and a variable rate
of LIBOR plus 2% thereafter and amounted to $34,000,
$38,000, and $46,000 for the years ended December 31,
1996, 1995, and 1994, respectively.
Since the Company's inception, the legal firm of
Jones, Walker, Waechter, Poitevent, Carrere and
Denegre has been utilized for various legal services.
During 1992, a son of the President of the Company
became a partner of the firm. The Company made
payments to the firm totaling approximately $1,299,000,
$1,301,000, and $1,525,000 for the years ending
December 31, 1996, 1995, and 1994, respectively.
Amounts due to the legal firm were $41,000 and
$94,000 at December 31, 1996 and 1995, respectively,
and were included in Accounts Payable and Accrued
Liabilities.
NOTE F - COMMITMENTS AND CONTINGENCIES
During 1996, the Company purchased a LASH
vessel to provide ocean transportation services. The
cost of the vessel along with necessary refurbishment
is expected to approximate $20,576,000 of which
$13,304,000 was paid as of December 31, 1996. The
remaining $7,272,000 is expected to be paid within
one year and is included in Accounts Payable and
Accrued Liabilities at December 31, 1996. A major
portion of these costs will be funded through draws
of approximately $5,061,000 remaining on a long-term
loan with a commercial bank.
In late 1996, the Company committed to the
refinancing in early 1997 of a $3,375,000 medium-term,
commercial bank loan at more favorable terms. The
current maturities of this loan to be refinanced as
long-term debt through the new loan amount to
$2,619,000.
To properly reflect the Company's current
liabilities at December 31, 1996, the amounts to
be refinanced of $5,061,000 and $2,619,000
discussed above were reclassified as long-term
liabilities and included in the consolidated balance
sheet as Current Liabilities to be Refinanced.
As of December 31, 1996, 23 vessels that the
Company owns or operates were under various contracts
extending beyond 1996 and expiring at various dates
through 2024. In addition, the Company also operates
111 jumbo river barges, 15 towboats, and certain
terminal transfer equipment under a contract which
expires in 2004. Certain of these agreements also
contain options to extend the contracts beyond their
minimum terms.
The Company also maintains lines of credit
totaling $1,600,000 to cover standby letters of
credit for membership in various shipping
conferences.
In the normal course of its operations, the
Company becomes involved in various litigation
matters including, among other things, claims by
third parties for alleged property damages,
personal injuries, and other matters. While the
Company believes it has meritorious defenses against
these claims, management has used significant
estimates in determining the Company's potential
exposure. Where appropriate, the Company has booked
reserves, included in Reserves and Deferred Credits:
Claims and Other, to cover its potential exposure
and anticipated recoveries from insurance companies,
included in Other Assets. It is reasonably
possible that a change in the Company's estimate of
its exposure could occur. Although it is difficult
to predict the costs of ultimately resolving such
issues, the Company does not expect such costs will
have a material effect on the Company's financial
position or results of operations.
NOTE G - LEASES
In 1988 the Company entered into direct
financing leases of two foreign flag pure car carriers
expiring in the year 2000. The schedule of future
minimum rentals to be received under these direct
financing leases in effect at December 31, 1996, is
as follows:
<TABLE>
<CAPTION>
Receivables Under
(All Amounts in Thousands) Financing Leases
--------------------
<S> <C>
Year Ended December 31,
1997 $ 4,972
1998 4,621
1999 4,265
2000 1,313
--------
Total Minimum Lease Payments Receivable 15,171
Estimated Residual Values of
Leased Properties 18,000
Less Unearned Income (8,341)
--------
Total Net Investment in
Direct Financing Leases 24,830
Current Portion (2,033)
--------
Long-Term Net Investment in Direct
Financing Leases
at December 31, 1996 $ 22,797
=========
</TABLE>
<PAGE 20>
The Company entered into sale-leaseback
agreements in 1991 and 1992 for a group of the
Company's LASH barges. These leases meet the
required criteria for a capital lease and are
accounted for as such. The terms of the leases are
12 years. The capital leases are included in Vessels,
Property, and Other Equipment as follows:
<TABLE>
<CAPTION>
December 31, December31,
(All Amounts in Thousands) 1996 1995
-------------- -------------
<S> <C> <C>
LASH barges $ 24,950 $ 24,950
Less Accumulated Depreciation (10,315) (8,224)
-------------- -------------
Total $ 14,635 $ 16,726
============== =============
</TABLE>
The following is a schedule, by year, of future
minimum lease payments under capital leases,
together with the present value of the minimum
payments as of December 31, 1996:
<TABLE>
<CAPTION>
Payments Under
(All Amounts in Thousands) Capital Leases
--------------
<S> <C>
Year Ended December 31,
1997 $ 4,061
1998 4,450
1999 4,521
2000 4,528
2001 5,433
Thereafter 5,205
------------
28,198
Less Amount Representing Interest (8,575)
------------
Present Value of Future
Minimum Payments
(Based on a Weighted
Average of 10.39%) $ 19,623
============
</TABLE>
The Company conducts certain of its operations
from leased office facilities and uses certain data
processing, transportation, and other equipment
under operating leases expiring at various dates to
2003. Rent expense related to operating leases
totaled approximately $2,375,000, $2,453,000, and
$2,503,000 for the years ended December 31, 1996,
1995, and 1994, respectively. The following is a
schedule, by year, of future minimum payments
required under operating leases that have initial
or remaining non-cancelable terms in excess of
one year as of December 31, 1996:
<TABLE>
<CAPTION>
Payments Under
(All Amounts in Thousands) Operating Leases
----------------------
<S> <C>
Year Ended December 31,
1997 $ 3,015
1998 2,040
1999 535
2000 508
2001 492
Thereafter 849
---------------------
Total Future Minimum Payments $ 7,439
=====================
</TABLE>
NOTE H - DEFERRED CHARGES AND ACQUIRED CONTRACT COSTS
The Company defers certain costs related
to the acquisition of vessel operating contracts,
the cost of placing vessels in service, and the
drydocking of vessels. The costs of vessel
prepositioning are amortized over the applicable
contract periods. Deferred drydocking costs are
amortized over the period between drydockings
(generally two to five years). Financing charges
are amortized over the life of the applicable debt
involved. These deferred costs are all amortized
based on a straight-line basis and are comprised of
the following:
<TABLE>
<CAPTION>
December 31, December 31,
(All Amounts in Thousands) 1996 1995
------------ ------------
<S> <C> <C>
Drydocking $ 26,102 $ 13,567
Prepositioning 8,199 4,826
Financing Charges and Other 9,017 8,559
------------ ------------
$ 43,318 $ 26,952
============ ============
</TABLE>
The acquired contract cost represents the portion
of the purchase price paid for Waterman Steamship
Corporation applicable primarily to that company's
maritime prepositioning ship contracts and operating
differential subsidy agreements. The Company amortizes
acquired contract costs using the straight-line method
over the contracts' useful lives ranging from seven to
twenty-one years from the acquisition date.
NOTE I - SIGNIFICANT OPERATIONS
The Company has several medium to long-term
contracts related to the operations of various vessels
(See Note F), from which revenues represent a
significant amount of the Company's total revenue.
Revenues from the contracts with the United States
Military Sealift Command ("MSC") were $69,605,000,
$75,086,000, and $75,137,000 for the years ended
December 31, 1996, 1995, and 1994, respectively.
Additionally, the Company operates four U.S. flag
LASH vessels on subsidized liner service on Trade Routes
18 and 17. Revenues, including ODS, from this
operation were $132,824,000, $129,067,000, and
$137,021,000 for the years ended December 31, 1996,
1995 and 1994, respectively.
The Company has operated two international flag
LASH vessels on a scheduled liner service between
U.S. Gulf and East Coast ports and ports in Northern
Europe. During early 1997, an additional international
flag LASH vessel was added to this service. Revenues
from these operations were $61,259,000, $67,500,000,
and $68,287,000 for the years ended December 31, 1996,
1995, and 1994, respectively.
A significant portion of the Company's traffic
receivables are due from contracts with MSC and
transportation of government sponsored cargo. There
are no other concentrations of receivables from
customers or geographic regions that exceed 10%
of stockholders' investment at December 31, 1996 or 1995.
The Company has operations in several
principal markets, including international service
between the U.S. Gulf and East coast ports and ports
in the Middle East, Far East, and northern Europe
and domestic transportation and services along the
Mississippi River and U.S. Gulf Coast.
<PAGE 21>
NOTE J - UNCONSOLIDATED ENTITIES
As of December 31, 1994, the Company
held an approximate 9% interest in Havtor AS, a
publicly traded company listed on the Oslo Stock
Exchange. In addition, shares which represented a
3.6% interest in Havtor AS were held by the
Company as collateral for a promissory note. The
Company also held a 14.2% interest in A/S Havtor
Management, a privately held Norwegian ship
management company affiliated with Havtor AS. As of
December 31, 1994, the Company held a 50% interest
in a foreign entity, Bulkowner's 1984, which was
formed to own and operate two combination dry
cargo/petroleum products, PROBO vessels. The Company
also held a 10% interest in a limited
partnership with certain Norwegian interests to
construct and own a Liquified Petroleum Gas carrier
which delivered in 1993.
During the first half of 1995, A/S Havtor
Management and the gas carrier activities of
Kvaerner, an unrelated Norwegian company, merged
into Havtor AS. In addition, Havtor AS agreed
to acquire other vessels and vessel interests,
including the 50% interest held by the Company in two
PROBO vessels and the 10% interest held in a Liquified
Petroleum Gas carrier. Subsequent to the merger,
the Company's interest in Havtor AS approximated 6.4%.
During the second quarter of 1995, the
Company purchased the Norwegian interest, A/S
Havfond, which held the promissory note which was
collateralized by shares of Havtor AS. The acquisition
was accounted for as a purchase and results for
A/S Havfond have been included in the accompanying
consolidated financial statements since the date of
acquisition. After the acquisition, the Company's
interest in Havtor AS approximated 7.7%. During
November 1995, the Company sold this 7.7% interest in
Havtor AS for approximately $48,000,000. The sale
resulted in a before tax gain of approximately $17,000,000.
During the first quarter of 1993, the Company
sold an 18.5% direct interest in A/S Havtor for
approximately $7,557,000, of which $2,777,000 was
received in cash and $4,780,000 was received in
the form of a promissory note. The transaction
reduced the Company's direct interest in A/S Havtor
to 14.8% and resulted in an after tax gain of
approximately $900,000. A provision for doubtful
accounts was recorded in 1993 to reflect the deferral of
the gain until receipt of the proceeds from the
promissory note originally scheduled to mature in mid-
1996. In substitution for the A/S Havtor stock
held as collateral under this promissory note,
shares in the publicly traded Havtor AS were
pledged during 1994 due to the aforementioned merger.
These shares which represented a 3.6% interest in
Havtor AS, had a market value of approximately
$8,600,000 as of December 31,1994. The carrying
amount of the related note receivable and the
accrued interest as of the same date was approximately
$5,500,000. Due to the liquidity and market value
of these shares, deferral of the gain was no longer
necessary. Therefore, during 1994 the related
allowance was reversed resulting in income after tax
of $900,000.
At December 31, 1994, the Company held a 50%
interest in Bulkowner's 1984 which was accounted for
under the equity method. Following is a summary of the
unaudited financial data of Bulkowner's 1984:
<TABLE>
<CAPTION>
Twelve Months Ended
October 31,
(All Amounts in Thousands) 1994
<S> <C>
Gross Revenues $9,052
======
Gross Profit $4,132
======
Net Income $1,840
======
</TABLE>
During 1996, the Company acquired the remaining
50% interest in Marco Shipping Company, (PTE.) Ltd.
("Marco"), a foreign entity which acts in an agent
capacity on behalf of the Company. The
acquisition was accounted for as a purchase, and
the results of Marco, which were not material, have
been included in the accompanying consolidated
financial statements since the date of acquisition.
The cost of the acquisition has been allocated on the
basis of the estimated fair market value of the
assets acquired and the liabilities assumed. This
allocation resulted in goodwill of approximately
$25,000 which is being amortized over 10 years.
Income of foreign unconsolidated entities is
recorded net of applicable taxes of approximately
$201,000 and $32,000 in 1995 and 1994, respectively.
There was no income of foreign unconsolidated entities
in 1996.
NOTE K - SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Year Ended December 31,
(All Amounts in Thousands) 1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Non-Cash Investing and
Financing Activities:
Accounts Payable to be Refinanced $ 7,680 $19,030 $ -
Cash Payments:
Interest Paid 27,853 26,633 23,537
Taxes Paid 13,043 5,478 2,982
</TABLE>
The Company sold an interest in A/S Havtor in 1993
for $7,557,000 of which $2,777,000 was received in
cash and $4,780,000 in the form of a promissory
note which was included in Other Assets: Due from Related
Parties at December 31, 1994. During 1995 the Company
purchased AS Havfond, the Norwegian interest which
held this promissory note.
For purposes of the accompanying
consolidated statements of cash flows, the Company
considers highly liquid debt instruments purchased
with a maturity of three months or less to be cash
equivalents.
NOTE L - FAIR VALUE OF FINANCIAL INSTRUMENTS AND DERIVATIVES
The following methods and assumptions were
used to estimate the fair value of each class
of financial instruments for which it is practicable
to estimate that value:
Cash and Cash Equivalents and Marketable Securities
- ---------------------------------------------------
The carrying amount approximates fair value for
each of
<PAGE 22>
these instruments. The Company has categorized
all marketable securities as available for sale.
Interest Rate Conversion Agreements
- -----------------------------------
The Company has only limited involvement
with derivative financial instruments. They are used
to manage well-defined interest rate risks and are not
used for trading purposes. During 1993, the Company
entered into interest rate conversion agreements
with two commercial banks to reduce the possible impact
of higher rates in the long-term market by utilizing
potentially lower rates in the short-term market. The
floating rate payor is the Company, and the commercial
banks are the fixed rate payors. The floating and
fixed rates at December 31, 1995, were 5.875% and 4.72%,
respectively. The contract amounts totaled
$100,000,000 at December 31, 1995, and expired in
August of 1996. The Company made payments under
these agreements totaling $889,000 and $1,265,000
during 1996 and 1995, respectively. Net receipts or
payments under the agreements are recognized as an
adjustment to interest expense. The fair value of
interest rate swaps is the estimated amount that the
bank would receive or pay to terminate the swap
agreements at the reporting date, taking into
account current market conditions and interest rates.
Foreign Currency Contracts
- --------------------------
The Company enters into forward exchange
contracts to hedge certain firm purchase and sale
commitments denominated in foreign currencies. The
term of the currency derivatives is rarely more than
one year. The purpose of the Company's foreign
currency hedging activities is to protect the
Company from the risk that the eventual dollar cash
inflows or outflows resulting from revenue
collections from foreign customers and purchases
from foreign suppliers will be adversely affected
by changes in exchange rates. As of December 31,
1996, the Company had entered into various forward
purchase contracts for Singapore Dollars totaling
$1,914,000 U.S. Dollar equivalents to hedge against
future payments due for drydocking cost of a LASH
vessel and for various other currencies totaling
$245,000 U.S. Dollar equivalents for other future
payments. These forward purchase contracts approximated
fair market value at December 31, 1996. As of
December 31, 1995, the Company had entered into
various forward purchase contracts for
Singapore Dollars totaling $23,316,000 U.S.
Dollar equivalents to hedge against future
payments due to Singapore shipyards for conversion
work on two float-on/float-off vessels. Gains or losses
on forward exchange contracts which hedge exposures on
firm foreign currency commitments are deferred and
recognized as adjustments to the bases of those
assets. As of December 31, 1996 and 1995,
the Company was also a party to forward sales
contracts in various currencies totaling
$1,927,000 and $515,000 U.S. Dollar equivalents,
respectively, which approximated fair market value.
Gains and losses on these contracts are recognized
in net income of the period in which the exchange rate changes.
Long-Term Debt
- --------------
The fair value of the Company's debt is estimated
based on quoted market prices for the publicly listed
Senior Notes and the current rates offered to the
Company on other outstanding obligations.
Amounts Due from Related Parties
- --------------------------------
The carrying amount of these notes
receivable approximated fair market value as of
December 31, 1996 and 1995. Fair market value
takes into consideration the current rates
at which similar notes would be made and the
market value of collateral underlying the notes.
Restricted Investments
- ----------------------
The carrying amount of these investments, which
were included in Other Assets, approximated fair
market value as of December 31, 1996 and 1995,
based upon current rates offered on similar
instruments.
The estimated fair values of the Company's
financial instruments and derivatives are as
follows (asset/(liability)):
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
------------------ --------------------
Carrying Fair Carrying Fair
(All Amounts in Thousands) Amount Value Amount Value
------------------ --------------------
<S> <C> <C> <C> <C>
Interest Rate
Conversion Agreements - - - $ (552)
Forward Purchase Contracts - - - 54
Long-Term Debt $(332,904) $(332,049) $(310,657) ( 315,929)
</TABLE>
Disclosure of the fair value of all balance
sheet classifications, including but not limited
to certain vessels, property, plant and equipment,
direct financing leases, or intangible assets which
may have a fair value in excess of historical cost,
is not required. Therefore, this disclosure does not
purport to represent the fair value of the Company.
NOTE M - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Detailed below are the components of the consolidated
balance sheet classification Accounts Payable and
Accrued Liabilities for the periods indicated.
<TABLE>
<CAPTION>
December 31, December 31,
(All Amounts in Thousands) 1996 1995
------------ ------------
<S> <C> <C>
Trade Accounts Payable $ 14,945 $ 11,278
Accrued Salaries and Benefits 2,683 3,509
Accrued Voyage Expenses 34,200 27,571
Accrued Interest 8,590 10,666
Accrued Vessel Costs 7,272 24,457
------------ ------------
$ 67,690 $ 77,481
============ ============
</TABLE>
<PAGE 23>
NOTE N-QUARTERLY FINANCIAL INFORMATION - (Unaudited)
<TABLE>
<CAPTION>
Quarter Ended
-----------------------------------------
March 31 June 30 Sept. 30 Dec. 31
---------- --------- ---------- ---------
(All amounts in thousands except per share data)
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996 Revenue $ 95,235 $ 97,775 $ 90,418 $ 95,499
Expense 78,088 80,316 73,655 79,920
Gross Voyage Profit 17,147 17,459 16,763 15,579
Income Before
Extraordinary Item 2,248 2,685 2,053 1,650
Extraordinary Item - - - (813)
Net Income 2,248 2,685 2,053 837
Earnings per
Common and Common
Equivalent Share:
Primary:
Income Before
Extraordinary
Item 0.34 0.40 0.31 0.24
Extraordinary
Item - - - (0.12)
Net Income 0.34 0.40 0.31 0.12
- -----------------------------------------------------------------------
1995 Revenue $ 83,302 $ 84,844 $ 84,108 $ 89,535
Expense 68,332 69,780 68,533 70,608
Gross Voyage Profit 14,970 15,064 15,575 18,927
Net Income 2,086 2,020 2,029 14,845
Earnings per
Common and Common
Equivalent Share:
Primary:
Net Income 0.31* 0.30* 0.30* 2.23
- --------------------------------------------------------------------
1994 Revenue $ 83,361 $ 89,148 $ 81,568 $ 88,256
Expense 68,295 74,658 64,792 69,273
Gross Voyage Profit 15,066 14,490 16,776 18,983
Net Income 2,447 3,391 3,498 3,715
Earnings per
Common and Common
Equivalent Share:
Primary:
Net Income 0.37* 0.51* 0.52* 0.55*
- --------------------------------------------------------------------
</TABLE>
[FN]
* Restated for November 17, 1995, stock dividend of
twenty-five percent for each one share of common stock
outstanding.
<TABLE>
COMMON STOCK PRICES AND DIVIDENDS
FOR EACH QUARTERLY PERIOD OF 1995 AND 1996
(Source: New York Stock Exchange)
<CAPTION>
Cash
Dividends
1995 High Low Paid
__________ ________ ________ _________
<S> <C> <C> <C>
1st Quarter 16 1/2* 15 3/8* .04/Share*
2nd Quarter 17 1/4* 16* .04/Share*
3rd Quarter 20 1/8* 16 5/8* .04/Share*
4th Quarter 21 3/4* 18 7/8* .0625/Share
</TABLE>
<TABLE>
Cash
Dividends
1996 High Low Paid
___________ ________ ________ ___________
<S> <C> <C> <C>
1st Quarter 20 3/4 18 7/8 .0625/Share
2nd Quarter 19 3/8 16 3/8 .0625/Share
3rd Quarter 19 5/8 17 1/2 .0625/Share
4th Quarter 19 16 7/8 .0625/Share
</TABLE>
[FN]
<FN1>
Approximate Number of Common Stockholders of Record at
March 1, 1997- 900
<FN2>
*Restated for November 17, 1995, stock dividend of
twenty five percent for each one share of common stock
outstanding.
<PAGE 24>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Stockholders of International Shipholding Corporation:
We have audited the accompanying consolidated
balance sheets of International Shipholding
Corporation (a Delaware corporation) and subsidiaries
(the Company) as of December 31, 1996 and 1995, and
the related consolidated statements of income,
changes in stockholders' investment and cash flows
for each of the three years in the period ended
December 31, 1996. These financial statements are
the responsibility of the Company's management. Our
responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with
generally accepted auditing standards. Those
standards require that we plan and perform the audit
to obtain reasonable assurance about whether the
financial statements are free of material
misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and
disclosures in the financial statements. An audit
also includes assessing the accounting principles
used and significant estimates made by management,
as well as evaluating the overall financial
statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements
referred to above present fairly, in all
material respects, the financial position of
International Shipholding Corporation and subsidiaries
as of December 31, 1996 and 1995, and the consolidated
results of their operations and their cash flows
for each of the three years in the period ended
December 31, 1996 in conformity with generally
accepted accounting principles.
New Orleans, Louisiana
January 10, 1997
/S/ ARTHUR ANDERSEN LLP
<TABLE>
INTERNATIONAL SHIPHOLDING CORPORATION
SUBSIDIARIES OF THE REGISTRANT
AS OF DECEMBER 31, 1996
<CAPTION>
Jurisdiction Under
Which Organized
------------------
<S> <C>
International Shipholding Corporation (Registrant) Delaware
International Shipholding Corporation (1) New York
River Towing, Inc. Delaware
Waterman Steamship Corporation New York
Sulphur Carriers, Inc. Delaware
Central Gulf Lines, Inc. Delaware
Florida Barge Lines Corporation Delaware
Material Transfer, Inc. Delaware
Enterprise Ship Company, Inc. Delaware
Bay Insurance Company Bermuda
LCI Shipholdings, Inc. Liberia
Gulf South Inc. Liberia
Gulf South Shipping Pte. Ltd. Singapore
Cypress Auto Carriers, Inc. Liberia
New Combo, Inc. Liberia
Forest Lines Inc. Liberia
Marco Shipping Co. Pte. Ltd. Singapore
Marcoship Agencies Malaysia
N. W. Johnsen & Co., Inc. New York
Shipvest Companhia de
Gestao Maritima, Lda.(2) Madeira
St. Rose Fleeting Company, Inc. Louisiana
Lash Marine Services, Inc. Louisiana
Lash Intermodal Terminal Company Delaware
Resource Carriers, Inc. Delaware
</TABLE>
[FN]
<FN1>
(1) New York name-holding corporation
<FN2>
(2) 60% owned by the Registrant
<FN3>
All of the subsidiaries listed above are wholly-owned
subsidiaries and are included in the consolidated financial
statements incorporated by reference herein unless otherwise
indicated.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 43020
<SECURITIES> 2727
<RECEIVABLES> 56204
<ALLOWANCES> 256
<INVENTORY> 12043
<CURRENT-ASSETS> 123200
<PP&E> 722020
<DEPRECIATION> 276222
<TOTAL-ASSETS> 661596
<CURRENT-LIABILITIES> 96272
<BONDS> 324756
0
0
<COMMON> 6756
<OTHER-SE> 165651
<TOTAL-LIABILITY-AND-EQUITY> 661596
<SALES> 0
<TOTAL-REVENUES> 378927
<CGS> 0
<TOTAL-COSTS> 338235
<OTHER-EXPENSES> 28528
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28528
<INCOME-PRETAX> 14099
<INCOME-TAX> 5463
<INCOME-CONTINUING> 8636
<DISCONTINUED> 0
<EXTRAORDINARY> (813)
<CHANGES> 0
<NET-INCOME> 7823
<EPS-PRIMARY> 1.17
<EPS-DILUTED> 1.17
</TABLE>
