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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, 1997
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. IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
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
7 3/4% Senior Notes Due 2007 None
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. [X] Yes [ ] 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 27, 1998 $79,741,648
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 of
February 27, 1998
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the fiscal year ended
December 31, 1997, 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 10, 1998, have been incorporated by reference into Part III of this Form
10-K.
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PART I
ITEM 1. BUSINESS
GENERAL
The Company, through its subsidiaries, operates a diversified fleet of
U.S. and foreign flag vessels that provide international and domestic maritime
transportation services to commercial and governmental customers primarily under
medium- to long-term charters or contracts. Substantially all of these charters
or contracts are either renewals or extensions of previous agreements. At
December 31, 1997, the Company's fleet consisted of 31 ocean-going vessels, 18
towboats, 128 river barges, 26 special purpose barges, 1,789 LASH (Lighter
Aboard SHip) barges and related shoreside handling facilities. Early in 1998,
the Company acquired one LASH vessel and 82 LASH barges.
The Company is the only significant operator of the LASH transportation
system, which it pioneered in 1969. The Company's fleet includes 12 large LASH
vessels, four LASH feeder vessels and 1,789 LASH barges. The LASH transportation
system uses specially designed barges of uniform size which are loaded with
cargo at various locations, towed to a centralized fleeting area, loaded aboard
a large ocean-going LASH vessel by a 500-ton capacity shipboard crane and
transported overseas, where another set of previously loaded LASH barges awaits
pick-up. In its transoceanic 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. The 400-ton capacity LASH barges are
ideally suited to transport large unit size items such as forest products,
natural rubber and steel that cannot be transported efficiently to and from such
areas in container ships. The LASH vessel's shipboard crane permits rapid
loading and unloading of LASH barges either dockside or at anchor. This rapid
loading and unloading capability provides quick vessel turnaround and minimizes
port time, cargo handling and reliance upon shoreside support facilities.
In addition to LASH vessels, the Company's fleet consists of (i) two
foreign flag and two U.S. flag pure car carriers that are specially designed to
transport fully assembled automobiles; (ii) two U.S. flag ice-strengthened
multi-purpose vessels, one of which supports scientific and defense operations
in the polar regions and the other of which is used by the Military Sealift
Command ("MSC") to carry the components of a 500-bed U.S. Navy field hospital in
the Indian Ocean; (iii) one foreign flag cape-size bulk carrier; (iv) one U.S.
flag molten sulphur carrier, which is used to carry molten sulphur from
Louisiana and Texas to a processing plant on the Florida Gulf Coast; (v) two
float-on/float-off special purpose vessels ("SPV") and one 5,000-ton container
vessel, which, together with ancillary vessels, are used to transport supplies
for the Indonesian operations of a major mining company; (vi) one U.S. flag
conveyer-equipped self-unloading coal carrier which carries coal in the
coastwise and near-sea trade; (vii) three roll-on/roll-off ("RO/RO") vessels
that permit rapid deployment of rolling stock, munitions and other military
cargoes requiring special handling; and (viii) 14 inland waterway towboats and
111 super-jumbo river barges that transport coal from Indiana to Florida for an
electric utility and unload via shoreside facilities owned and operated by the
Company.
The Company's fleet is deployed by 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 provides five types of services:
o DOMESTIC TRANSPORTATION SERVICES - the Company provides domestic
transportation services, primarily through its long-term coal and
sulphur transportation contracts and its ownership of an intermodal
transfer and warehouse facility in Memphis, Tennessee, and a coal
transfer terminal in Gulf County, Florida;
o LINER SERVICES - the Company operates a foreign 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;
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o MILITARY SEALIFT COMMAND CHARTERS - the Company time charters vessels
to the MSC for use in the MSC's military prepositioning program and its
scientific and defense operations in the Arctic and Antarctic;
o PURE CAR CARRIERS - the Company transports fully assembled Toyota and
Honda automobiles from Japan to the United States and fully assembled
Hyundai automobiles from South Korea primarily to the United States and
Europe; and
o SPECIAL PURPOSE VESSELS - the Company provides ocean transportation
services under a long-term contract with a major mining company for its
Indonesian operations.
BUSINESS STRATEGY
The Company's strategy is to (i) identify customers with high credit
quality and 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) provide its customers
with reliable, high quality service at a reasonable cost. The Company believes
that its strategy has produced stable operating cash flows and valuable
long-term relationships with its customers. The Company plans to continue this
strategy by expanding its relationships with existing customers, seeking new
customers and selectively pursuing acquisitions.
HISTORY
The Company was originally founded as Central Gulf Steamship Corporation
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, ISC 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.
COMPETITIVE STRENGTHS
LARGEST LASH TRANSPORTATION SYSTEM PROVIDER. The Company is the only
significant commercial operator of the LASH transportation system, which it
pioneered in 1969. The Company owns all 12 of the LASH vessels that are
currently used worldwide for commercial services. A key advantage of the LASH
transportation system is that it minimizes port and cargo handling time. While a
LASH vessel is transporting one set of LASH barges overseas, another set of LASH
barges is being loaded with cargo and gathered at the destination staging area.
Other advantages of the Company's LASH transportation system include the ability
to access areas that lack traditional port facilities and to carry larger than
container sized cargo.
The Company believes that the cost of replicating its LASH transportation
system is a significant barrier to entry for a potential competitor. Management
believes that a new competitor would have to acquire not only a LASH vessel
(estimated to cost $80 million to build), but also three sets of approximately
90 barges each (estimated to cost $100,000 per barge to build) to achieve
similar operating efficiencies.
STABLE CASH FLOW. The Company's historical cash flows have been relatively
stable because of the length and structure of the Company's contracts with
creditworthy customers, as well as the Company's diversified customer and cargo
bases. The Company's medium- to long-term charters provide for a daily charter
rate that is payable whether or not the charterer utilizes the vessel. These
charters generally require the charterer to pay certain voyage operating costs,
including fuel, port and stevedoring expenses, and often
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include cost escalation features covering certain of the Company's expenses. In
addition, the Company's medium- to long-term contracts of affreightment
guarantee a minimum amount of cargo for transportation. Furthermore, the
Company's diversified cargo and customer bases have contributed to the stability
of the Company's operating cash flow. The Company also believes that the high
credit quality of its customers and the length of its contracts help reduce the
effects of cyclical market conditions.
LONG-STANDING CUSTOMER RELATIONSHIPS. The Company currently has medium- to
long-term time charters with, or contracts to carry cargo for, high credit
quality commercial customers that include International Paper Company,
Freeport-McMoRan Sulphur, Inc., P.T. Freeport Indonesia Company, The Goodyear
Tire and Rubber Company, Toyota Motor Corporation, Honda Motor Co. Ltd., Hyundai
Motor Company, Seminole Electric Cooperative and New England Power Co. Most of
these companies have been customers of the Company for over ten years.
Substantially all of the Company's current cargo contracts and charter
agreements are renewals or extensions of previous agreements. In recent years
the Company has been successful in winning extensions or renewals of
substantially all of the contracts rebid by its commercial customers.
Additionally, for over 30 years the Company has been operating vessels for the
MSC under charters or contracts that typically contain extension options for one
or more periods. Historically, the MSC has exercised substantially all of its
renewal options. The Company believes that its long-standing customer
relationships are in part due to the Company's excellent reputation for
providing quality specialized maritime service in terms of on-time performance,
low cargo loss, minimal damage claims and reasonable rates.
EXPERIENCED MANAGEMENT TEAM. The Company's management team has substantial
experience in the shipping industry. The Company's Chairman and President have
each served the Company in various management capacities since its founding in
1947. In addition, the Company's two Executive Vice Presidents and the Chief
Financial Officer have over 72 years of collective experience with ISC. The
Company believes that the experience of its management team is important to
maintaining long-term relationships with its customers.
TYPES OF SERVICE
The Company through its principal operating subsidiaries, provides five
types of service: Domestic Transportation Services, Liner Services, Military
Sealift Command Charters, Pure Car Carriers and Special Purpose Vessels. The
Company provides specialized maritime transportation services to its customers
primarily under medium- to long-term contracts.
DOMESTIC TRANSPORTATION SERVICES
COAL. In 1981, the Company entered into a 22-year contract expiring in
2004 with Seminole Electric Cooperative, Inc., 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 guaranteed annually 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 approximately 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 which 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 Power Company under a 15-year contract of affreightment 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 the account of other major
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charterers.
MOLTEN SULPHUR. In 1994, the Company entered into a 15-year transportation
contract with Freeport McMoRan Sulphur, Inc., a major sulphur producer for which
it had built a 24,000 DWT molten sulphur carrier that carries molten sulphur
from Louisiana and 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 was delivered and began
service during late 1994.
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, who has continued
to manage the facility under a management agreement with the Company.
LINER SERVICES
FOREIGN FLAG. Under the name "Forest Lines," the Company operates three
foreign flag LASH vessels and a self-propelled, semi-submersible feeder vessel
on a scheduled transatlantic liner service. One of these vessels was purchased
and refurbished in 1996 and entered this service in early 1997. The oldest of
these three vessels will be retired from this service in 1998 and sold
thereafter. Each Forest Lines LASH vessel normally makes 10 round trip sailings
per year between U.S. Gulf and East Coast ports and ports in northern Europe.
Until early 1997, approximately one-half of the aggregate eastbound cargo space
was historically reserved for International Paper Company ("International
Paper") under a long-term contract of affreightment. While the third ship was in
this service in 1997, the total eastbound cargo space reserved for International
Paper was approximately 33%. With the return to a two LASH vessel service, the
space occupied by International Paper should return to the historical average of
50%. The remaining space was provided on a voyage affreightment basis to
commercial shippers. In recent years, approximately 10% was used by other forest
products exporters, and the remaining 40% was used by various commercial
shippers to carry a variety of general cargo.
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 and 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 container ships and break bulk 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
westbound cargoes 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 operates a U.S. flag liner service between U.S.
Gulf and East Coast ports and ports in South Asia (Trade Routes 17 and 18).
In connection with this service, Waterman operates four U.S. flag LASH
vessels, as well as three FLASH vessels, which are used as feeder vessels in
Southeast Asia.
Until early 1997, Waterman received operating differential subsidy ("ODS")
payments from the U.S. government with respect to each of the four LASH vessels
used in this service. The subsidy payments were in amounts 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. The
Maritime Security Act of 1996 established a new subsidy program for certain U.S.
flag vessels. This program eliminated the trade route restrictions imposed by
the ODS program and provides flexibility to operate freely in the
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competitive market. Under this new program, each participating vessel is
eligible to receive an annual subsidy payment of $2.1 million, subject to annual
appropriations. Seven of the Company's vessels have qualified for participation,
including the four LASH vessels deployed in Waterman's U.S. flag liner service.
On the eastbound portion of Waterman's U.S. flag liner 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, Waterman provides a significant
portion of its cargo space to Goodyear for the transportation of natural rubber
under a contract of affreightment expiring in December of 1998. 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
other importers of natural rubber. The Company has had a continuing relationship
with such companies since the early 1970s. The Company's LASH barges are ideally
suited for large shipments of natural rubber because compression damage is
minimal as compared to the damage that can occur when shipments are made in
traditional break bulk 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.
The Company acquired a 1987-built LASH vessel in June of 1997 and a
1989-built LASH vessel in early 1998. These vessels will be used temporarily to
perform auxiliary service for Waterman in the Indian ocean area. They are
intended as replacements for older vessels in the Company's LASH fleet and are
candidates for conversion to meet the Company's highest operating standards.
MILITARY SEALIFT COMMAND CHARTERS
GENERAL. The Company has had contracts with the MSC (or its predecessor)
almost continuously for over 30 years. Currently, the Company's subsidiaries
have nine vessels under contract to the MSC. These vessels are employed in the
MSC's prepositioning programs, which strategically place military equipment and
supplies 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 continue for
the near term, notwithstanding planned reductions in overall military spending,
because prepositioning military cargo is a key component of the military's
established plans to respond quickly to international incidents without
incurring the significant costs of operating foreign bases, some of which have
been closed in recent years. However, there is no assurance that this policy
will continue.
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. During the initial contract period, the MSC typically
pays higher charter rates to cover significant expenses incurred in preparing
the vessels for deployment, and therefore generally has an economic incentive to
extend or renew a charter or contract if the vessel is still needed rather than
paying a new shipowner to reconfigure a different vessel. Except in two cases,
the MSC has always exercised its extension options, and the Company generally
has been successful in winning renewals when the charters and contracts are
rebid. Again, there is no assurance that this practice will continue. 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. For a discussion of the MSC's rights to cancel charters or contracts
during option periods, see "Regulation."
LASH VESSELS. The Company currently time charters to the MSC four U.S.
flag LASH vessels which are used in the military's prepositioning force in the
Indian Ocean. Three of these charters expire in
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May of 1999, September of 2000 and November of 2000, and the fourth expires in
October of 1998, with renewal options exercisable by the MSC through August of
2001. After these charters expire, it is anticipated that the MSC will invite
rebidding for these contracts and the Company will have to meet the competition
at the time to be successful in obtaining renewal charters.
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 break bulk cargo. One of these vessels
is used by the MSC to resupply Pacific rim military bases and to supply
scientific projects in the Arctic and Antarctic. The contract for the charter of
this vessel expired early in 1998, and it is currently operating under a
short-term extension while the MSC considers bids for this contract. The Company
intends to participate in this bidding process. The other of these vessels began
operations under a new charter with the MSC in July of 1997 under which it will
be used to carry the components of a 500-bed U.S. Navy field hospital in the
Indian Ocean through December of 1998 with renewal options through October of
2000.
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 carry rolling stock and containers, and each can
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 the MSC to make certain reductions in future charter hire payments in
consideration of fixing the period of these charters for the full 25 years. The
charters and related operating agreements will terminate in 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 which are specially
designed to carry 4,000 and 4,660 fully assembled automobiles, respectively.
Both vessels were built in Japan, but are registered under the U.S. flag. 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 and continues under recently negotiated medium-term
extensions.
FOREIGN FLAG. Since 1988, the Company has transported Hyundai automobiles
from South Korea primarily to the United States and Europe under two long-term
charters that expire in 2000. 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 fully assembled automobiles.
Under each of the Company's 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.
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SPECIAL PURPOSE VESSELS (SPV'S)
During 1994, the Company entered into a long-term contract to provide
ocean transportation services to P.T. Freeport Indonesia Company, a major mining
company producing copper and gold concentrates at its mine in West Irian Jaya,
Indonesia. The Company acquired two SPV's and one container/break bulk vessel
and had 26 cargo barges constructed for use with those vessels. The Company
added two additional cargo barges to this service in early 1998. The Company's
contract is through 2006 with seven three-year renewal options.
BULK CARRIER
In 1990, the Company acquired a 148,000 DWT-cape-size drybulk carrier. The
vessel has been fully employed in the commercial market under various time
charters in specific trading areas where bulk cargoes using this size vessel
move on a regular basis.
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 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.
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 P&I insurance also covers the Company's vessels against liabilities
arising from the discharge of oil or hazardous substances in U.S., international
and foreign waters.
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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 is maintained with underwriters in the United States and British
markets.
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 1984 (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 other federal agencies, 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 in connection with
its liner services. These tariffs are filed by the Company either individually
or in connection with its participation as a member of rate 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. Legislation is
pending in the U.S. Senate that would amend the Shipping Act in certain material
respects, including reducing the publication requirements for certain service
contract terms, eliminating requirements that all similarly situated shippers
receive the same service contract terms, and prohibiting ocean common carriers
from requiring their members to disclose their negotiations on service
contracts. It is unclear at this time when or if this legislation will be
enacted into law. The Majority Leader of the U.S. Senate recently announced that
he intends to bring this legislation to the floor of the Senate in early 1998.
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. The
operating differential subsidy program is designed to allow U.S. ships to
compete on an equal footing with their lower-cost foreign competitors. Under the
program, the U.S. Maritime Administration ("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. Waterman's operating
differential subsidy payments terminated in early 1997.
The federal government has entered into no new ODS contracts since 1981
and recent administrations have indicated that existing ODS agreements will be
allowed to lapse. However, on October 8, 1996, Congress adopted 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 $135.5 million to
date for the MSP. This program eliminates the trade route restrictions imposed
by the ODS program and provides flexibility to operate freely in the competitive
market. On December 20, 1996, Waterman entered into MSP contracts
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with MarAd for each of its four LASH vessels that operated under ODS contracts
until early 1997, 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 began receiving payments under the MSP in early 1997
upon the lapse of Waterman's ODS payments. Central Gulf's two car carriers
commenced immediate operation in the MSP on December 20, 1996, and its LASH
vessel is eligible to begin receiving MSP payments upon the termination of its
MSC charter, or the Company may substitute another vessel and receive payments
earlier. 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 of 1996 permits MSP contractors, such as
Waterman and Central Gulf, to re-flag their vessels under foreign registry
expeditiously.
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.
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. In April of 1996, the Company's shareholders amended the Company's
charter and stock transfer procedures to limit the acquisition of its common
stock by non-U.S. citizens. Under the amendment, any transfer of the Company's
common stock that would result in non-U.S. citizens owning more than 23% (the
"permitted amount") of the total voting power of the Company would be void and
ineffective against the Company. With respect to any shares owned by non-U.S.
citizens in excess of the permitted amount, the voting rights will be denied and
the dividends will be withheld. Furthermore, the Company is authorized to redeem
shares of common stock owned by non-U.S. citizens in excess of the permitted
amount to reduce ownership by non-U.S. citizens to the permitted amount.
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.
The International Maritime Organization (IMO) has mandated that vessels
documented under the laws of its member countries, including the United States,
develop and implement quality and safety programs by July 1, 1998 or July 1,
2002, depending on the type of vessels. Vessels operating without the required
compliance certificates could either be fined or denied entry into or detained
in the ports of those countries that are members of the IMO. The Company's ship
management subsidiary, LMS Shipmanagement, Inc., received certification in
January of 1998 that its Quality Management System was approved as meeting the
ISO 9002 Quality Standard. The Company is in the process of implementing a
comprehensive program to obtain timely IMO certification for all of its vessels
and plans to obtain IMO certification for three of its vessels, which require
certification prior to July 1, 1998, by January, February and March of 1998,
respectively. The Company plans to obtain certification for the remainder of its
fleet
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subject to the certification requirements by the end of 1999, although no
assurances to this effect can be given.
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 niche market segments and
deploying a substantial number of its vessels under medium- to long-term
charters or contracts with creditworthy customers 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 break bulk vessels and,
occasionally, container ships.
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 Lines, Inc., 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 who will continue to receive operating differential subsidies through
December 31, 1998. 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 container ships, 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 container
ships and break bulk vessels, which are too large to operate in these areas.
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.
RISK FACTORS
SUBSTANTIAL LEVERAGE. The Company is highly leveraged and devotes a
substantial portion of its operating income to debt service. To date, the
Company has been able to generate sufficient cash from operations to meet annual
interest and principal payments on its indebtedness. The Company's ability to
satisfy its debt obligations will depend upon its future operating performance,
which will be affected by prevailing economic conditions and financial, business
and other factors, certain of which are beyond its control. If the Company's
cash flow and capital resources are insufficient to fund its debt service
obligations, the Company may be forced to reduce or delay capital expenditures,
sell assets, obtain additional equity capital or restructure its debt. There can
be no assurance that the Company will be able to generate sufficient cash flow
to cover required interest and principal payments. Subject to compliance with
various financial and other covenants imposed by debt instruments governing the
indebtedness of the
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Company and its subsidiaries, the Company and its subsidiaries may incur
additional indebtedness from time to time.
The degree to which the Company is leveraged could have important
consequences. Among other things, high leverage may: (i) impair the Company's
ability to obtain additional financing for working capital, capital
expenditures, vessel and other acquisitions, and general corporate purposes;
(ii) require the Company to dedicate a substantial portion of its cash flow from
operations to the payment of principal and interest; (iii) place the Company at
a competitive disadvantage to less highly-leveraged competitors; and (iv) make
the Company more vulnerable to economic downturns and limit its ability to
withstand competitive pressures.
REGULATION. The Company's business is materially affected by government
regulation in the form of international conventions, national, state and local
laws and regulations, and laws and regulations of the flag nations of the
Company's vessels, including laws relating to the discharge of materials into
the environment. Because such conventions, laws and regulations are often
revised, the Company is unable to predict the ultimate costs of compliance. In
addition, the Company is required by various governmental and quasi-governmental
agencies to obtain and maintain certain permits, licenses and certificates with
respect to its operations. In certain instances, the failure to obtain or
maintain such permits, licenses or certificates could have a material adverse
effect on the Company's business. In the event of war or national emergency, the
Company's U.S. flag vessels are subject to requisition by the United States
without any guarantee of compensation for lost profits, although the United
States government has traditionally paid fair compensation in such
circumstances.
REDUCTION OF SUBSIDY PAYMENTS. Until early 1997, the Company ODS received
payments with respect to four of its LASH vessels under a federal program
designed to allow U.S. ships to compete with lower-cost foreign competitors. For
the years ended December 31, 1994, 1995 and 1996, the Company received aggregate
subsidy payments under this program of $21.7 million, $22.7 million and $25.6
million, respectively. Although the Company's ODS agreement has lapsed, all four
of the Company's LASH vessels that previously received such subsidies, and three
of its other vessels, have qualified to participate in a new subsidy program
created under the Maritime Security Act of 1996. Under this new program, each
participating vessel is eligible to receive annual subsidy payments of $2.1
million through fiscal year 2005. Also, this program eliminated the trade route
restrictions imposed by the ODS program and provides flexibility to operate
freely in the competitive market. Payments under this program are subject to
annual appropriation by Congress and are not guaranteed. If sufficient
appropriations are not made by Congress in any fiscal year with respect to this
program, the Company would be permitted to reflag its vessels under foreign
registry.
DEPENDENCE ON GOVERNMENT CHARTERS AND CONTRACTS. The Company is materially
dependent on various charters or contracts with agencies of the United States
government. Companies engaged in government contracting are subject to certain
unique business risks. Among these risks are dependence on congressional
appropriations and administrative allotment of funds, and changing policies and
regulations. Because the government contracts held by the Company are usually
awarded for relatively short periods of time and are subject to renewal options
in favor of the government, the stability and continuity of that portion of the
Company's business depends on the periodic exercise by the government of
contract renewal options. Further, the government contracting laws provide that
the United States government is to do business only with responsible
contractors. In this regard, federal agencies have the authority under certain
circumstances to suspend or debar a contractor from further government
contracting for a certain period of time in order to protect the government's
interest. The Company has never been suspended or debarred from government
contracting, nor has it ever been the subject of any proceeding for such a
purpose.
The Company currently has nine vessels under time charter or contract to
the MSC. During any extension period under each MSC charter or contract, the MSC
has the right to terminate the charter or contract upon 30 days' notice.
Historically, the MSC has exercised substantially all of 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.
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COMPETITION. The shipping industry is intensely competitive and can be
influenced by economic and political events that are outside the control of
shipping companies. There can be no assurance that the Company will be able to
renew expiring charters on economically attractive terms, maintain attractive
freight rates or otherwise successfully compete against its competitors.
CONTROL BY PRINCIPAL STOCKHOLDERS. Niels W. Johnsen, the Chairman of the
Board and Chief Executive Officer of the Company, Erik F. Johnsen, the President
and Chief Operating Officer of the Company (and the brother of Niels W. Johnsen)
and their spouses, children and grandchildren (collectively, the "Johnsen
Family"), beneficially owned an aggregate of 29.0% of the common stock of the
Company as of December 31, 1997. By virtue of such ownership, the Johnsen Family
may continue to have the power to determine many of the policies of the Company
and its subsidiaries, the election of the Company's directors and officers and
the outcome of various corporate actions requiring shareholder approval.
YEAR 2000 COMPLIANCE. The Company uses a significant number of computer
systems, including applications used in sales, shipping, communications, finance
and various administrative functions. To the extent that the Company's software
applications contain source code that is unable to appropriately interpret
calendar year 2000 and subsequent years, some level of modification or
replacement of such applications will be necessary. The Company has reviewed all
of its systems in order to verify that they are "year 2000 compliant" and has
concluded that they are, with limited exceptions that will require only minor
modification. Accordingly, management does not expect year 2000 compliance costs
to have a material adverse impact on the Company. No assurance can be given,
however, that all of the Company's systems will be year 2000 compliant or that
compliance costs or the impact of the Company's failure to achieve full year
2000 compliance will not have a material adverse effect on the Company.
Additionally, the Company could be adversely affected by the failure of one or
more of its customers, lenders, suppliers or other organizations with which it
conducts business to become fully year 2000 compliant.
EMPLOYEES
As of December 31, 1997, the Company employed approximately 620 shipboard
personnel and 340 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. Waterman's collective bargaining agreements covering its liner
service are scheduled to expire in September of 1998, while Central Gulf's
collective bargaining agreements, which were originally scheduled to expire in
December of 1997, are currently under negotiation. In the interim, these
agreements have been extended through April 30, 1998, until negotiations are
complete. However, pursuant to memoranda of understanding relating to each of
Central Gulf's U.S. flag vessels and Waterman's four U.S. flag vessels time
chartered to or operated for the MSC, the terms and conditions of the respective
collective bargaining agreements will continue for the duration of the charters
under which the vessels are being operated. The Company has experienced no
strikes or other significant labor problems during the last ten years.
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ITEM 2. PROPERTIES
VESSELS AND BARGES. Of the 31 ocean-going vessels in the Company's fleet
at December 31, 1997, 28 are owned by the Company and three are operated under
operating contracts. Of the 1,789 LASH barges in the Company's fleet, 1,744 are
operated in conjunction with the Company's LASH and FLASH vessels. Of these, the
Company owns approximately 1,425 barges and leases 319 barges under capital
leases with 12-year terms expiring in late 2003 and early 2004. The remaining 45
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
bareboat charters in 108 super-jumbo river barges (and owns three such barges)
and 14 towboats specially built to meet the requirements of one of the Company's
coal transportation contracts. The Company also owns 17 standard river barges,
which are chartered to unaffiliated companies on a short-term basis and one
towboat, which is currently operated in the spot market along with three
towboats that the Company charters from unaffiliated parties.
All of the vessels owned, operated or leased by the Company are in good
condition except for the 45 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
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 IMO and plans to obtain
timely certification of all vessels by the end of 1999. 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 Lloyd's 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 - Long-Term Debt of the Notes to the Consolidated Financial Statements
incorporated by reference to the Company's 1997 Annual Report to Shareholders.
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, 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 totally enclosed multi-modal cargo transfer
terminal in Memphis, Tennessee, under a lease that expires in June of 2003, with
one five-year renewal option. In 1997, the aggregate annual rental payments
under these operating leases totaled approximately $2.7 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 bulk coal transfer
terminal in Gulf County, Florida, that is used in its coal transportation
contract referred to above.
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 outcome of such claims cannot be predicted with certainty, the Company
believes that its insurance coverage and reserves with respect to such claims
are adequate and that such claims will not have a material adverse effect on the
Company's business or financial condition. See Note F of the Notes to the
Company's Consolidated Financial Statements incorporated by reference to the
Company's 1997 Annual Report to Shareholders.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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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.
NAME CURRENT POSITION
---- ----------------
Niels W. Johnsen Chairman and Chief Executive Officer
Erik F. Johnsen President, Chief Operating Officer and Director
Niels M. Johnsen Executive Vice President and Director
Erik L. Johnsen Executive 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
Harold S. Grehan, Jr. Director
Laurance Eustis Director
Raymond V. O'Brien, Jr. Director
Edwin Lupberger Director
Edward K. Trowbridge Director
NIELS W. JOHNSEN, 75, has been the Chairman and Chief Executive Officer of
the Company since its commencement of operations in 1979 and served as Chairman
and Chief Executive Officer of each of the Company's principal subsidiaries
until April of 1997. 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 former director of Reserve Fund, Inc., a money market fund and a
former Trustee of Atlantic Mutual Companies, an insurance company. He is the
brother of Erik F. Johnsen.
ERIK F. JOHNSEN, 72, has been the President, Chief Operating Officer and
Director of the Company since its commencement of operations in 1979. Until
April of 1997, Mr. Johnsen also served as the President and Chief Operating
Officer of each of the Company's principal subsidiaries, except Waterman, for
which he served 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 served
as its President from 1966 until April of 1997. Mr. Johnsen is also a director
of First Commerce Corporation, a bank holding company. Mr. Johnsen has served as
the Chairman of the Board of Assuranceforeningen GARD, a P&I insurance club
since 1994 and has been a member since 1982. He is the brother of Niels W.
Johnsen.
NIELS M. JOHNSEN, 52, is Executive 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 Executive Vice President in April of 1997. He has
also served as chairman of each of the Company's principal subsidiaries, except
Waterman, since April of 1997. He is also President of Waterman 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, 40, is Executive Vice President of the Company. He joined
Central Gulf in 1979 and held various positions with the Company before being
named Executive Vice President in April of 1997. He has served as a Director of
the Company since 1994. He has also served as the President of each of the
Company's principal subsidiaries, except Waterman, since April of 1997, and as
Executive Vice President of Waterman since September of 1989. He is responsible
for all operations of the Company's vessel fleet and leads the Company's Ship
Management Group. He is the son of Erik F. Johnsen.
GARY L. FERGUSON, 57, 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.
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DAVID B. DRAKE, 42, 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, 43, 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.
HAROLD S. GREHAN, Jr., 70, is a Director 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. Mr. Grehan retired from the
Company at the end of 1997, and continues to serve as a Director.
LAURANCE EUSTIS, 84, 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., 70, 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, 61, 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 principal operating subsidiaries,
Entergy Arkansas, Inc., Entergy Gulf States, Inc., Entergy Louisiana, Inc.,
Entergy Mississippi, Inc. and Entergy New Orleans, Inc. He also is a director of
First Commerce Corporation, a bank holding company.
EDWARD K. TROWBRIDGE, 69, 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 1997 Annual Report
to Shareholders in the section entitled "Common Stock Prices and Dividends for
Each Quarterly Period of 1996 and 1997" and is incorporated herein by reference
to page 19 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 1997 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 1997 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 2 through 5 of Exhibit 13 filed with this Form 10-K.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated balance sheets as of December 31, 1997, and December 31,
1996, 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, 1997, and the notes thereto, are included in the 1997
Annual Report to the Shareholders and are incorporated herein by reference to
pages 6 through 19 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 19 of Exhibit 13 filed with this Form 10-K.
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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 10, 1998, 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 10, 1998, 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 10, 1998, filed
pursuant to Section 14(a) of the Securities Exchange Act of 1934, and is
incorporated herein by reference.
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 1997 Annual Report to Shareholders and are incorporated herein
by reference to pages 6 through 19 of Exhibit 13 filed with this Form10-K.
Consolidated Statements of Income for the years ended December 31, 1997,
1996 and 1995
Consolidated Balance Sheets at December 31, 1997 and 1996
Consolidated Statements of Changes in Stockholders' Investment for the
years ended December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1996 and 1995
Notes to Consolidated Financial Statements
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Report of Independent Public Accountants
2. FINANCIAL STATEMENT SCHEDULES
Report of Independent Public Accountants on Supplemental Schedules
Schedule I - Condensed Financial Information of the Registrant
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)
(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).
(4.3) Form of Indenture between the Company and the Bank of New York,
Inc., as Trustee, with respect to 7 3/4% Senior Notes due October
15, 2007 (filed as Exhibit 4.1 to the Company's Current Report on
Form 8-K dated January 22, 1998, and incorporated herein by
reference).
(4.4) Form of 7 3/4% Senior Note due October 15, 2007 (included in Exhibit
(4.3) hereto and incorporated herein by reference).
(10) $25,000,000 Credit Agreement dated as of January 22, 1998, by and
among the Company, as Borrower, Certain Lenders, as signatories
thereto, Citicorp Securities, Inc., as Arranger, and Citibank, N.A.,
as Administrative Agent (filed as exhibit 10.1 to the Company's
Registration Statement on Form S-4 (Registration No. 333-46317) and
incorporated herein by reference.)
(13) 1997 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,
1997.
(c) The Index of Exhibits and required Exhibits are included following the
Financial Statement Schedules beginning at page 21 of this Report.
(d) The Index of Supplemental Financial Statement Schedules and the required
Financial Statement Schedule are included following the signatures beginning at
page 22 of this report.
18
<PAGE>
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)
March 26, 1998 By /s/ GARY L. FERGUSON
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)
March 26, 1998 By /s/ NIELS W. JOHNSEN
Niels W. Johnsen
Chairman of the Board, Director and
Chief Executive Officer
March 26, 1998 By /s/ ERIK F. JOHNSEN
Erik F. Johnsen
President and Director
March 26, 1998 By /s/ NIELS M. JOHNSEN
Niels M. Johnsen
Executive Vice President and Director
March 26, 1998 By /s/ ERIK L. JOHNSEN
Erik L. Johnsen
Executive Vice President and Director
March 26, 1998 By /s/ HAROLD S. GREHAN, JR.
Harold S. Grehan, Jr.
Director
March 26, 1998 By /s/ LAURANCE EUSTIS
Laurance Eustis
Director
March 26, 1998 By /s/ RAYMOND V. O'BRIEN, JR.
Raymond V. O'Brien, Jr.
Director
19
<PAGE>
March 26, 1998 By /s/EDWIN LUPBERGER
Edwin Lupberger
Director
March 26, 1998 By /s/EDWARD K. TROWBRIDGE
Edward K. Trowbridge
Director
March 26, 1998 By /s/GARY L. FERGUSON
Gary L. Ferguson
Vice President and Chief Financial Officer
March 26, 1998 By /s/MANNY G. ESTRADA
Manny G. Estrada
Chief Accounting Officer
20
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER
- ------
(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).
(4.3) Form of Indenture between the Company and the Bank of New York, Inc., as
Trustee, with respect to 7 3/4% Senior Notes due October 15, 2007 (filed
as Exhibit 4.1 to the Company's Current Report on Form 8-K dated January
22, 1998, and incorporated herein by reference).
(4.4) Form of 7 3/4% Senior Note due October 15, 2007 (included in Exhibit (4.3)
hereto and incorporated herein by reference).
(10) $25,000,000 Credit Agreement dated as of January 22, 1998, by and among
the Company, as Borrower, Certain Lenders, as signatories thereto,
Citicorp Securities, Inc., as Arranger, and Citibank, N.A., as
Administrative Agent (filed as exhibit 10.1 to the Company's Registration
Statement on Form S-4 (Registration No. 333-46317) and incorporated herein
by reference.)
(13) 1997 Annual Report to Shareholders
(21) Subsidiaries of International Shipholding Corporation
(27) Financial Data Schedule
21
<PAGE>
INDEX OF SUPPLEMENTAL FINANCIAL STATEMENT SCHEDULES
Report of Independent Public Accountants on Supplemental Schedule 22
Schedule I - Condensed Financial Information of the Registrant 23-26
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON SUPPLEMENTAL SCHEDULE
We have audited, in accordance with generally accepted auditing standards,
the financial statements as of December 31, 1997 and 1996 and for each of the
three years in the period ended December 31, 1997 included in International
Shipholding Corporation's annual report to stockholders incorporated by
reference in this Form 10-K, and have issued our report thereon dated January
16, 1998, except with respect to the issuance of the Senior Notes discussed in
Note B, as to which the date is January 22, 1998. Our audits were made for the
purpose of forming an opinion on those statements taken as a whole. The schedule
listed in the index above is the responsibility of the Company's management and
is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audits of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
New Orleans, Louisiana,
January 16, 1998
22
<PAGE>
INTERNATIONAL SHIPHOLDING CORPORATION (PARENT COMPANY)
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
(All Amounts in Thousands)
ASSETS
DECEMBER 31, December 31,
1997 1996
-------------- -----------
Current Assets:
Cash and Cash Equivalents ............... $ 404 $ 241
Marketable Securities ................... 2,181 2,727
Accounts Receivable ..................... 138 98
Federal Income Taxes Receivable ......... 43 1,366
Other Current Assets .................... 427 356
--------- ---------
Total Current Assets ............................. 3,193 4,788
--------- ---------
Deferred Federal Income Taxes .................... 1,113 920
--------- ---------
Investment in Consolidated Subsidiaries .......... 272,186 264,565
--------- ---------
Furniture and Equipment .......................... 3,761 122
Less - Accumulated Depreciation ................. (90) (98)
--------- ---------
3,671 24
--------- ---------
Deferred Charges, Net of Accumulated
Amortization of $1,752 and $1,454 in 1997 and
1996, Respectively ............................... 1,922 2,207
--------- ---------
$ 282,085 $ 272,504
========= =========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
DECEMBER 31, December 31,
1997 1996
----------- ------------
Current Liabilities:
Accrued Interest Payable ................ $ 4,225 $ 4,225
Accounts Payable and Accrued
Liabilities ............................. 150 112
Current Deferred Income Tax
Liability ............................... 1,986 696
--------- ---------
Total Current Liabilities ........................ 6,361 5,033
--------- ---------
Due to Subsidiaries .............................. 7,879 198
--------- ---------
Long-Term Debt ................................... 93,891 93,891
--------- ---------
Reserves ......................................... 1,149 975
--------- ---------
Commitments and Contingent Liabilities
Stockholders' Investment:
Common Stock ............................ 6,756 6,756
Additional Paid-In Capital .............. 54,450 54,450
Retained Earnings ....................... 112,794 112,310
Less - Treasury Stock ................... (1,133) (1,133)
Accumulated Other Comprehensive
(Loss) Income .................................... (62) 24
--------- ---------
172,805 172,407
--------- ---------
$ 282,085 $ 272,504
========= =========
The "Notes to Consolidated Financial Statements of International Shipholding
Corporation and Subsidiaries" are an integral part of these statements. See
Accompanying "Notes to Condensed Financial information of Registrant."
23
<PAGE>
INTERNATIONAL SHIPHOLDING CORPORATION (PARENT COMPANY)
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF INCOME
(ALL AMOUNTS IN THOUSANDS)
Year Ended December 31,
1997 1996 1995
-------- ------- -------
Management Fee Revenue from Subsidiaries .... $ 11,563 6,135 5,673
Administrative and General Expenses .......... 10,867 5,957 5,704
-------- ------- -------
Gross Profit ................... 696 178 (31)
-------- ------- -------
Interest:
Interest Expense .................... 10,498 11,518 10,244
Investment Income ................... (1,217) (2,372) (1,129)
-------- ------- -------
9,281 9,146 9,115
-------- ------- -------
Gain on Sale of Investments .................. -- -- 16,442
-------- ------- -------
Equity in Net Income of Consolidated
Subsidiaries
(Net of Applicable Taxes) ........... 7,717 13,951 16,245
-------- ------- -------
Income (Loss) Before Provision
(Benefit) for
Income Taxes ............................... (868) 4,983 23,541
-------- ------- -------
Provision (Benefit) for Income Taxes:
Current ............................. 1,587 (1,505) 9,663
Deferred ............................ (4,581) (1,784) (7,113)
State ............................... (29) 449 11
-------- ------- -------
(3,023) (2,840) 2,561
-------- ------- -------
Net Income ................................... $ 2,155 7,823 20,980
======== ======= =======
The "Notes to Consolidated Financial Statements of International Shipholding
Corporation and Subsidiaries" are an integral part of these statements.
See accompanying "Notes to Condensed Financial Information of Registrant."
24
<PAGE>
INTERNATIONAL SHIPHOLDING CORPORATION (PARENT COMPANY)
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS
(ALL AMOUNTS IN THOUSANDS)
Year Ended December 31,
1997 1996 1995
------- ----- ------
Cash Flows from Operating Activities:
Net Income ............................. $ 2,155 7,823 20,980
Adjustments to Reconcile Net Income
to Net Cash Provided by
Operating Activities:
Depreciation ...................... 45 14 36
Amortization of Deferred
Charges ......................... 449 596 382
Benefit for Deferred Income
Taxes ........................... (4,581) (1,784) (7,113)
Net Income of Consolidated
Subsidiaries .................... (7,717) (13,951) (16,245)
Gain on Sale of Investment ........ -- -- (16,442)
Changes in:
Accounts Receivable ............... (40) 149 2,111
Other Current Assets .............. (69) 1,593 (1,670)
Other Assets ...................... -- (13) 1,901
Accounts Payable and Accrued
Liabilities ..................... 38 (411) 389
Federal Income Taxes Payable ...... 2,523 (6,765) 6,084
Reserves .......................... 174 45 57
------- ------- -------
Net Cash Used by Operating Activities ...... (7,023) (12,704) (9,530)
------- ------- -------
Cash Flows from Investing Activities:
Purchase of Furniture and Equipment .... (299) (69) (12)
Additions to Deferred Charges .......... (24) -- (958)
Proceeds from Short-Term Investments ... 500 1,799 --
Other Investing Activities ............. -- 3,015 (1,216)
------- ------- -------
Net Cash Provided (Used) by Investing
Activities ............................... 177 4,745 (2,186)
------- ------- -------
Cash Flows from Financing Activities:
Reduction of Debt ...................... -- -- (909)
Change in Due to Subsidiaries .......... 8,764 9,713 13,959
Additions to Deferred Financing
Charges .............................. (84) (7) --
Common Stock Dividends Paid ............ (1,671) (1,671) (1,228)
------- ------- -------
Net Cash Provided by Financing
Activities ............................... 7,009 8,035 11,822
------- ------- -------
Net Increase in Cash and Cash
Equivalents .............................. 163 76 106
Cash and Cash Equivalents at Beginning
of Year .................................. 241 165 59
------- ------- -------
Cash and Cash Equivalents at End of Year ... $ 404 $ 241 $ 165
======= ======= =======
The "Notes to Consolidated Financial Statements of International Shipholding
Corporation and Subsidiaries" are an integral part of these statements.
See accompanying "Notes to Condensed Financial Information of Registrant"
25
<PAGE>
NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT
DECEMBER 31, 1997
Note 1. Basis of Preparation
Pursuant to the rules and regulations of the Securities and Exchange
Commission, the Condensed Financial Statements of the Registrant do not include
all of the information and notes normally included with financial statements
prepared in accordance with generally accepted accounting principles. It is,
therefore, suggested that these Condensed Financial Statements be read in
conjunction with the Consolidated Financial Statements and Notes thereto
included in the Registrant's Annual Report as referenced in Form 10-K, Part II,
Item 8, page 16.
Note 2. Cash Dividends of Subsidiaries
There were no dividends received from subsidiaries for the years ended
December 31, 1997, 1996, and 1995.
Note 3. Long-Term Debt
Long-term debt consists of the following:
(All Amounts in Thousands)
INTEREST DECEMBER 31, DECEMBER 31,
RATE DUE 1997 1996
------ ---- ------ ------
Unsecured Senior Notes 9.00% 2009 $ 93,891 $ 93,891
In addition to these Unsecured Senior Notes, International Shipholding
Corporation (Parent Company) guarantees certain long-term debt of its
subsidiaries, which amounted to $30,463,000 at December 31, 1997.
On January 22, 1998, International Shipholding Corporation (Parent
Company) issued a new series of $110,000,000 aggregate principal amount 7 3/4%
Senior Notes due 2007 ("the Notes"). The net proceeds from these Notes were used
to repay certain indebtedness of the Company's subsidiaries during the first
quarter of 1998.
26
EXHIBIT 13
INTERNATIONAL SHIPHOLDING CORPORATION
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.
(All Amounts in Thousands Except Share and Per Share Data)
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995 1994 1993
---------- ----------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues ..................................... $ 391,056 $ 378,927 $ 341,789 $ 342,333 $ 341,651
Gross Voyage Profits ......................... $ 55,403 $ 66,948 $ 64,536 $ 65,315 $ 64,318
Operating Income ............................. $ 29,949 $ 40,692 $ 37,921 $ 37,861 $ 36,486
Income Before Extraordinary
Item ....................................... $ 2,155 $ 8,636 $ 20,980 $ 13,051 $ 7,645
Extraordinary Item ........................... -- $ (813) -- -- (1,716)
Net Income ................................... $ 2,155 $ 7,823 $ 20,980 $ 13,051 $ 5,929
Basic and Diluted Earnings
Per Common and Common
Equivalent Share(1)(2):
Before Extraordinary Item ................ $ 0.32 $ 1.29 $ 3.14 $ 1.95 $ 1.03
Extraordinary Item ....................... -- $ (0.12) -- -- (0.27)
Net Income ............................... $ 0.32 $ 1.17 $ 3.14 $ 1.95 $ 0.76
BALANCE SHEET DATA:
Working Capital .............................. $ 39,961 $ 26,928 $ 13,407 $ 16,819 $ 17,649
Total Assets ................................. $ 618,204 $ 661,596 $ 647,580 $ 547,091 $ 531,372
Long -Term Debt (including
Capital Lease Obligations and
Current Liabilities to be
Refinanced) ................................ $ 309,340 $ 324,756 $ 308,525 $ 251,944 $ 240,472
Common Stockholders'
Investment ................................. $ 172,805 $ 172,407 $ 166,261 $ 146,316 $ 134,497
OTHER DATA:
EBITDA(3) .................................... $ 91,657 $ 94,929 $ 81,877 $ 79,482 $ 81,166
Cash Dividends Per Common
Share (1) .................................. $ 0.25 $ 0.25 $ 0.1825 $ 0.16 $ 0.16
Weighted Average of Common and
Common Equivalent Shares(1)(2) ............. 6,682,887 6,682,887 6,682,887 6,682,887 6,359,711
</TABLE>
(1) All share and per share data for the years ended December 31, 1994, and 1993
have been restated for the November 17, 1995, twenty-five percent stock
dividend.
(2) Basic earnings per share and basic weighted average common and common
equivalent shares were the same as diluted earnings per share and diluted
weighted average common equivalent shares, respectively, for the years ended
December 31, 1997, 1996, 1995, and 1994. Diluted weighted average common and
common equivalent shares were 6,525,259 for the year ended December 31, 1993.
Diluted earnings per share for the year ended December 31, 1993, was $1.01 for
income before extraordinary item, $(0.26) for the extraordinary item, and $0.75
for net income.
(3) EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization), as
presented above, represents income before provision for income taxes and
extraordinary items 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.
1
<PAGE>
INTERNATIONAL SHIPHOLDING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements made in this report or elsewhere by, or on behalf of,
the Company that are not based on historical facts are intended to be
forward-looking statements within the meaning of the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995, and as such may involve
known and unknown risks, uncertainties, and other factors that may cause the
Company's actual results to be materially different from the anticipated future
results expressed in or implied by such forward-looking statements. Such
forward-looking statements may include, without limitation, statements with
respect to the Company's anticipated future performance, financial position and
liquidity, growth opportunities, business and competitive outlook, demand for
services, business strategies, and other similar statements of expectations or
objectives that are highlighted by words such as "expects," "anticipates,"
"intends," "plans," "believes," "projects," "seeks," "should," and "may," and
variations thereof and similar expressions.
Important factors that could cause the actual results of the Company to
differ materially from the Company's expectations may include, without
limitation, 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 affect
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.
RESULTS OF OPERATIONS
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.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
GROSS VOYAGE PROFIT. Gross voyage profit decreased 17.2% to $55.4 Million
in 1997 as compared to $66.9 Million in 1996. The primary reasons for this
decline were lower profitability from operating a three-vessel transatlantic
liner service in lieu of a two-vessel service, the reduction of subsidy
payments, and expensing of certain previously deferred costs related to the
Company's decision to forego development of a new service as discussed later in
this section.
In the first quarter of 1997, the Company added a newly-acquired and
refurbished LASH vessel, the "ATLANTIC FOREST," to its transatlantic liner
service with the objective of phasing out one of the older vessels in that
service. To take advantage of the opportunity to
2
<PAGE>
acquire a LASH vessel, which might not have been available at a later date, the
Company purchased the "ATLANTIC FOREST" and placed it in service earlier than
the optimal time. Although there was an overlap of service with the two other
vessels, putting her in service in 1997 enabled the Company to shake down the
new vessel before retiring the old vessel. However, the Company was unable to
economically fill the additional cargo space of the three vessels primarily due
to a strengthened U.S. dollar, which contributed to a decline in U.S. exports
and softened demand for shipping services. This situation contributed to a lower
gross voyage profit from this service for 1997 as compared to 1996. The "ACADIA
FOREST" is now scheduled to be retired from the service in the first quarter of
1998, thereby returning the service to a two-vessel operation. The Company
believes that this service should return to profitability levels historically
experienced with a two-vessel operation.
The Company's Operating Differential Subsidy ("ODS") agreements for its
four LASH vessels employed in its liner service between ports on the U.S.
Gulf/U.S. Atlantic Coast and South Asia expired for each of the vessels during
the first and second quarters of 1997. Upon the expiration of the ODS
agreements, these vessels and the Company's two U.S. Flag Pure Car Carriers
began participation in the Maritime Security Program ("MSP") which provides for
subsidy payments of approximately $2.1 Million per vessel per year as compared
to approximately $5.8 Million per vessel per year under the ODS agreements. As a
result, subsidy payments were approximately $10 Million less for 1997 as
compared to 1996. This loss of revenue was substantially offset by the Company's
cost reduction programs that reduced shipboard and shoreside expenses. Going
forward, the Company believes that it will be able to further offset the loss of
subsidy payments with additional cost reduction programs and increased revenue
that may be derived from the operating flexibility permitted under the new
subsidy program.
The Company's gross voyage profit was also negatively affected when the
Company decided to forego development of a new LASH service between the U.S.
Gulf and Brazil. During the second quarter of 1997, previously deferred costs of
approximately $1.3 Million were charged to operating expense for termination
costs and the repositioning of equipment related to this service.
Scheduled charterhire rate reductions effective January 1, 1997, for the
Company's three Roll-On/Roll-Off ("RO/RO") vessels employed in the Military
Sealift Command's ("MSC") military prepositioning program, and the renewal in
mid-1997 of the MSC contract for the time charter of one of the Company's LASH
vessels at lower charterhire rates further contributed to the decrease in gross
voyage profit during this period.
Additionally, gross voyage profit from the Company's long-term contract to
provide transportation services to a major mining company in Indonesia was lower
in 1997 as compared to 1996 due to a decrease in the amount of tonnage carried
partially offset by higher freight rates.
Decreases in the Company's gross voyage profit for 1997 as compared to
1996 were partially offset by increased gross voyage profit from two of the
Company's LASH vessels operating under contracts with the MSC which were renewed
at increased charterhire rates in mid-1996.
Vessel and barge depreciation increased 6.1% to $34.6 Million during 1997
as compared to $32.6 Million in 1996 due to the commencement of operations of
the Company's U.S. Flag Coal Carrier, "ENERGY ENTERPRISE"; a container/breakbulk
vessel, "JAVA SEA"; and the "ATLANTIC FOREST" in February of 1996, September of
1996, and January of 1997, respectively. These increases were partially offset
by a decrease resulting from the sale, in mid-1996, of the Company's
semi-submersible barge, the "CAPS EXPRESS."
Eighteen of the Company's vessels are currently operated under medium to
long-term contracts. Nine of these vessels are chartered to the MSC including
three RO/RO vessels, four LASH vessels, and two Ice-Strengthened Multi-Purpose
vessels. The RO/RO's are employed in the MSC's military prepositioning program
under contracts that are fixed through 2009 and 2010. The MSC contracts for the
charter of two of the Company's LASH vessels were renewed in mid-1996 for
seventeen months each with two seventeen month option periods extending through
2000. A third LASH vessel began operating in mid-1997 under a renewed seventeen
month contract with two seventeen month option periods expiring in 2001. The
fourth LASH vessel chartered to the MSC is operating under a contract which ends
in 1999. One of the two Ice-Strengthened Multi-Purpose vessels is being used by
the MSC to resupply Pacific rim military bases and to supply scientific projects
in the Arctic and Antarctic. The contract for the charter of this vessel expired
in January of 1998, and the vessel is currently operating under a short-term
extension while the contract renewal is being negotiated. The Company's other
Ice-Strengthened Multi-Purpose vessel is chartered to the MSC under a
seventeen-month contract with two seventeen-month option periods expiring in
2000 and is stationed in the Indian Ocean loaded with components for a U.S.
Navy field hospital.
The Company's two Float-On/Float-Off Special Purpose Vessels ("SPV's"),
along with one container/breakbulk vessel, are operated under a long-term
contract that extends through 2000 with seven three year renewal options.
Additionally, the Company's four Pure Car Carriers are time chartered to
major automobile manufacturers through April of 1998, March and June of 2000,
and November of 2003.
In its domestic services, the Company's Molten Sulphur Carrier is operated
under a contract of affreightment that extends through 2009 with renewal options
through 2024, and its U.S. Flag Coal Carrier is time chartered through 2010.
OTHER INCOME AND EXPENSES. In a continuing effort to decrease overhead
expenses, the Company effected a small reduction in office personnel during the
first quarter of 1997. Along with the Company's ongoing cost reduction programs,
the savings from the reduction in office personnel, partially offset by
resulting severance payments, was the primary reason for the decrease in
administrative and general expenses from $26.3 Million in 1996 to $25.5 Million
in 1997.
3
<PAGE>
Interest expense decreased slightly from $28.5 Million in 1996 to $27.7
Million in 1997 primarily resulting from regularly scheduled payments on
outstanding debt, the expiration in 1996 of an interest rate swap agreement on
which the Company had incurred interest, and the early repayment of $9.5 Million
of long-term debt at the end of the first quarter of 1996. These decreases were
partially offset by increases resulting from interest incurred on the financing
of the "ATLANTIC FOREST," higher outstanding balances drawn on lines of credit,
additional draws on the long-term financing of the SPV's, and the financing of
the "JAVA SEA."
The average balance of invested funds was lower in 1997 as compared to
1996 resulting in a decrease in investment income from $1.9 Million in 1996 to
$1.5 Million in 1997.
INCOME TAXES. The Company provided $1.3 Million and $4.8 Million for
Federal income taxes at the statutory rate of 35% for 1997 and 1996,
respectively.
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,
and the full commencement of operations, in early 1996, of two 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 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 was
operated in the spot market until it began operating under 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 two LASH vessels for their contract with the MSC, and a
propeller shaft accident sustained by one of the vessels operating in the
Waterman service which required an unscheduled drydock of approximately two
months duration. This vessel has been fully repaired and returned to service
about mid-July. Results of the Company's insurance subsidiary were also
negatively impacted by this accident.
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 "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.
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.
EXTRORDINARY 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.
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 $26.9 Million at December 31,
1996, to $40 Million at December 31, 1997, after provision for current
maturities of long-term debt and capital lease obligations of $15.9 Million, net
of current maturities to be refinanced of $22.5 Million. Cash and cash
equivalents decreased during 1997 by $11 Million to a total of $32 Million,
because cash used for investing and financing activities of $46.2 Million and
$29.0 Million, respectively, substantially exceeded operating cash flows of
$64.2 Million. Cash used for investing activities decreased in 1997, because
proceeds from the issuance of debt were $90.1 Million as compared to $147.5
Million in 1996.
The major sources of cash flows from operating activities of $64.2 Million
were collections on accounts receivable and net income, adjusted for noncash
provisions such as depreciation, amortization, and adjustments to self-retention
insurance reserves. These sources of cash were partially offset by decreases in
accrued liabilities resulting primarily from payment of amounts accrued at
December 31, 1996, for vessel refurbishment costs related to the "ATLANTIC
FOREST" and for interest on long-term debt.
Net cash used for investing activities of $46.2 Million included $4.1
Million for the purchase of a LASH vessel built in 1987, the "WILLOW," and
capital improvements on the following: the "ENERGY ENTERPRISE"; the "ATLANTIC
FOREST" and associated LASH barges; and one of the LASH vessels operating in the
Waterman liner service which amounted to $6.1 Million, $5.4 Million, and $1.8
Million, respectively. Other uses of cash included the addition of $18.3 Million
for drydocking charges, which were charged to deferred charges on the Company's
balance sheet, and $8.0 Million invested in short-term marketable securities.
4
<PAGE>
Net cash used for financing activities amounted to $29 Million. Proceeds
from the issuance of debt obligations of $90.1 Million included $72.5 Million
drawn under the Company's lines of credit, of which $22 Million was outstanding
at December 31, 1997, $6.5 Million from the refinancing of balloon notes due on
certain of the Company's debt in early 1997, $6.1 Million associated with the
refurbishment of the "ATLANTIC FOREST" and associated LASH barges, and $5
Million borrowed in early third quarter for general corporate purposes. Cash
used for financing activities included $80.5 Million to repay amounts that were
drawn under lines of credit in late 1996 and during 1997, $36.7 Million for
regularly scheduled payments on other outstanding debt and capital lease
obligations, and $1.7 Million for common stock dividend payments.
In the third quarter of 1988, the Board of Directors declared a quarterly
dividend of $.05 per share ($.04 per share after giving effect to the November
17, 1995, twenty-five percent stock split) and continued quarterly dividends in
the same amount for each quarterly period through the third quarter of 1995. The
Board increased the dividend to $.0625 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 1997. 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. Dividends on common stock during 1997 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 occurred in working
capital, at December 31, 1997, the Company had available three revolving credit
facilities totaling $35 Million. Draws against these facilities totaled $22
Million at December 31, 1997, all of which was repaid in January of 1998. The
Company entered into a new revolving credit facility early in the first quarter
of 1998 for $25 Million that replaced the three aforementioned facilities.
The Company has not been notified that it is a potentially responsible
party in connection with any environmental matters.
$110 MILLION 7 3/4% SENIOR NOTES DUE 2007. On January 22, 1998, the
Company issued a new series of $110 Million aggregate principal amount 7 3/4%
Senior Notes due 2007 (the "Notes"). The Company used the net proceeds from
these Notes to repay certain amortizing indebtedness of its subsidiaries during
the first quarter of 1998. The Company expects to report an extraordinary charge
to earnings on the early extinguishment of debt for the first quarter of 1998 of
approximately $1.1 Million, net of taxes, for the write-off of unamortized costs
on the retired indebtedness and a make-whole premium on one of the loans to be
repaid.
PURCHASE OF VESSELS AND BARGES. As discussed previously, in June of 1997,
the Company acquired a 1987-built 41,000 ton LASH vessel renamed the "WILLOW."
In January of 1998, the Company acquired her sistership the "HICKORY," a
1989-built 41,000 ton vessel. These vessels are intended as replacements for
older LASH vessels in the Company's fleet and will be used temporarily to
perform auxiliary service for the Company's Waterman liner service. These
vessels are candidates for conversion to meet the highest operating standards
before being deployed in the Company's LASH fleet.
Also in January of 1998, the Company acquired 82 LASH barges that will
replace other LASH barges in its fleet as they complete their useful lives.
Furthermore, the Company acquired two Special Purpose Barges in January of
1998. These two barges have been placed into service in the Company's Indonesian
operations which provide transportation services to a major mining company.
These purchases were primarily financed through draws on the Company's
revolving credit facility.
YEAR 2000 COMPLIANCE. The Company uses a significant number of computer
systems, including applications used in sales, shipping, communications,
finance, and various administrative functions. To the extent that the Company's
software applications contain source code that is unable to appropriately
interpret calendar year 2000 and subsequent years, some level of modification or
replacement of such applications will be necessary. The Company has reviewed all
of its systems in order to verify that they are "year 2000 compliant" and has
concluded that they are, with limited exceptions that will require only minor
modification. Accordingly, management does not expect year 2000 compliance costs
to have a material adverse effect on the Company. No assurance can be given,
however, that all of the Company's systems will be year 2000 compliant or that
compliance costs or the impact of the Company's failure to achieve full year
2000 compliance will not have a material adverse effect on the Company.
Additionally, the Company could be adversely affected by the failure of one or
more of its customers, lenders, suppliers, or other organizations with which it
conducts business to become fully year 2000 compliant.
NEW ACCOUNTING PRONOUNCEMENTS. During 1997, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS)
No. 128, "Earnings Per Share," SFAS No. 130, "Reporting Comprehensive Income,"
and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information." SFAS No. 128, which is effective for reporting periods ending
after December 15, 1997, has been adopted by the Company, and the impact on the
Company's earnings per share was not material. SFAS No. 130 and SFAS No. 131 are
effective for fiscal years beginning after December 15, 1997. The Company has
chosen early adoption of SFAS No. 130, and all required disclosures are
presented in the Company's consolidated financial statements included herein.
The company plans to adopt SFAS No. 131 in 1998 and to include the required
disclosures in its March 31, 1998, interim financial statements.
5
<PAGE>
INTERNATIONAL SHIPHOLDING CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(ALL AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
Year Ended December 31,
1997 1996 1995
----------- ---------- -----------
Revenues $ 375,515 $ 353,346 $ 319,084
Subsidy Revenue 15,541 25,581 22,705
----------- ---------- -----------
391,056 378,927 341,789
----------- ---------- -----------
Operating Expenses:
Voyage Expenses 301,084 279,395 252,506
Vessel and Barge Depreciation 34,569 32,584 24,747
----------- ---------- -----------
Gross Voyage Profit 55,403 66,948 64,536
----------- ---------- -----------
Administrative and General Expenses 25,454 26,256 26,615
----------- ---------- -----------
Operating Income 29,949 40,692 37,921
----------- ---------- -----------
Interest:
Interest Expense 27,654 28,528 25,561
Investment Income (1,458) (1,935) (2,676)
----------- ---------- -----------
26,196 26,593 22,885
----------- ---------- -----------
Gain on Sale of Investments - - 17,409
----------- ---------- -----------
Equity in Net Income of Unconsolidated
Entities (Net of Applicable Taxes) - - 331
----------- ---------- -----------
Income Before Provision (Benefit) for
Income Taxes and Extraordinary Item 3,753 14,099 32,776
----------- ---------- -----------
Provision (Benefit) for Income Taxes:
Current 3,119 3,246 11,296
Deferred (1,773) 1,533 94
State 252 684 406
----------- ---------- -----------
1,598 5,463 11,796
----------- ---------- -----------
Income Before Extraordinary Item $ 2,155 $ 8,636 $ 20,980
----------- ---------- -----------
Extraordinary Loss on Early
Extinguishment of Debt (Net of
Income Tax Benefit of $437) - (813) -
----------- ---------- -----------
Net Income $ 2,155 $ 7,823 $ 20,980
=========== ========== ===========
Basic and Diluted Earnings Per Share:
Income Before Extraordinary
Loss $ 0.32 $ 1.29 $ 3.14
Extraordinary Loss - (0.12) -
=========== ========== ===========
Net Income $ 0.32 $ 1.17 $ 3.14
=========== ========== ===========
The accompanying notes are an integral part of these statements.
6
<PAGE>
INTERNATIONAL SHIPHOLDING CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
(ALL AMOUNTS IN THOUSANDS) DECEMBER 31, December 31,
1997 1996
--------------- -------------
Current Assets:
Cash and Cash Equivalents $ 32,002 $ 43,020
Marketable Securities 10,758 2,727
Accounts Receivable, Net of Allowance
for Doubtful Accounts of $208
and $256 in 1997 and 1996,
Respectively:
Traffic 35,442 42,404
Agents' 7,128 10,343
Claims and Other 3,031 3,048
Federal Income Taxes Receivable 43 1,366
Net Investment in Direct Financing
Leases 1,913 2,033
Other Current Assets 4,187 6,216
Material and Supplies Inventory, at Cost 13,296 12,043
------------ -----------
Total Current Assets 107,800 123,200
------------ -----------
Marketable Equity Securities 582 -
------------ -----------
Net Investment in Direct Financing Leases 20,552 22,797
------------ -----------
Vessels, Property, and Other Equipment, at Cost:
Vessels and Barges 689,856 676,267
Other Marine Equipment 7,590 7,500
Terminal Facilities 18,377 18,535
Land 2,317 2,317
Furniture and Equipment 16,853 17,401
------------ -----------
734,993 722,020
Less - Accumulated Depreciation (311,557) (276,222)
------------ -----------
423,436 445,798
------------ -----------
Other Assets:
Deferred Charges, Net of Accumulated
Amortization of $53,913 and $41,446
in 1997 and 1996, Respectively 38,960 43,318
Acquired Contract Costs, Net of
Accumulated Amortization of $12,699
and $18,706 in 1997 and 1996,
Respectively 17,826 19,523
Due from Related Parties 369 443
Other 8,679 6,517
------------ -----------
65,834 69,801
------------ -----------
$ 618,204 $ 661,596
============== =============
The accompanying notes are an integral part of these statements.
7
<PAGE>
INTERNATIONAL SHIPHOLDING CORPORATION
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' INVESTMENT
(ALL AMOUNTS IN THOUSANDS EXCEPT SHARE DATA) DECEMBER 31, December 31,
1997 1996
--------------- -------------
Current Liabilities:
Current Maturities of Long-Term Debt $ 35,865 $ 33,470
Current Maturities of Capital Lease
Obligations 2,579 1,981
Accounts Payable and Accrued Liabilities 51,735 67,690
Current Deferred Income Tax Liability 171 811
Current Liabilities to be Refinanced (22,511) (7,680)
------------ -----------
Total Current Liabilities 67,839 96,272
------------ -----------
Current Liabilities to be Refinanced 22,511 7,680
------------ -----------
Billings in Excess of Income Earned and Expenses
Incurred 5,903 8,635
------------ -----------
Long-Term Capital Lease Obligations, Less
Current Maturities 14,994 17,642
------------ -----------
Long-Term Debt, Less Current Maturities 271,835 299,434
------------ -----------
Reserves and Deferred Credits:
Deferred Income Taxes 39,494 40,673
Claims and Other 22,823 18,853
------------ -----------
62,317 59,526
------------ -----------
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, 1997 and 1996 6,756 6,756
Additional Paid-In Capital 54,450 54,450
Retained Earnings 112,794 112,310
Less - 73,443 Shares of Common Stock in
Treasury, at Cost, at December 31,
1997 and 1996 (1,133) (1,133)
Accumulated Other Comprehensive (Loss)
Income (62) 24
------------ -----------
172,805 172,407
------------ -----------
$ 618,204 $ 661,596
============== =============
The accompanying notes are an integral part of these statements.
8
<PAGE>
INTERNATIONAL SHIPHOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' INVESTMENT
<TABLE>
<CAPTION>
Accumulated
(ALL AMOUNTS IN THOUSANDS) Additional Other
Common Paid-In Retained Treasury Comprehensive
Stock Capital Earnings Stock Income (Loss) Total
------- ------- --------- -------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 $ 5,405 $54,450 $ 87,757 ($1,133) ($163) $ 146,316
Comprehensive Income:
Net Income for Year
Ended December 31, 1995 -- -- 20,980 -- -- 20,980
Other Comprehensive Income:
Unrealized Holding Gain on
Marketable Securities,
Net of Deferred Taxes of $104 -- -- -- -- 193 193
Total Comprehensive Income 21,173
Cash Dividends -- -- (1,228) -- -- (1,228)
25% Stock Dividend 1,351 -- (1,351) -- -- --
------- ------- --------- ------- ----- ---------
Balance at December 31, 1995 $ 6,756 $54,450 $ 106,158 ($1,133) $ 30 $ 166,261
======= ======= ========= ======= ===== =========
Comprehensive Income:
Net Income for Year Ended
December 31, 1996 -- -- 7,823 -- -- 7,823
Other Comprehensive Income:
Unrealized Holding Loss on
Marketable Securities,
Net of Deferred Taxes of ($3) -- -- -- -- (6) (6)
---------
Total Comprehensive Income 7,817
Cash Dividends -- -- (1,671) -- -- (1,671)
------- ------- --------- ------- ----- ---------
Balance at December 31, 1996 $ 6,756 $54,450 $ 112,310 ($1,133) $ 24 $ 172,407
======= ======= ========= ======= ===== =========
COMPREHENSIVE INCOME:
NET INCOME FOR YEAR ENDED
DECEMBER 31, 1997 -- -- 2,155 -- -- 2,155
OTHER COMPREHENSIVE INCOME:
UNREALIZED HOLDING LOSS ON
MARKETABLE SECURITIES,
NET OF DEFERRED TAXES OF ($46) -- -- -- -- (86) (86)
---------
TOTAL COMPREHENSIVE INCOME 2,069
CASH DIVIDENDS -- -- (1,671) -- -- (1,671)
------- --------- ------- ----- ---------
BALANCE AT DECEMBER 31, 1997 $ 6,756 $54,450 $ 112,794 ($1,133) ($ 62) $ 172,805
======= ======= ========= ======= ===== =========
</TABLE>
The accompanying notes are an integral part of these statements.
9
<PAGE>
INTERNATIONAL SHIPHOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(ALL AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 2,155 $ 7,823 $ 20,980
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation 37,259 34,939 26,653
Amortization of Deferred Charges and Other Assets 24,429 19,309 17,310
(Benefit) Provision for Deferred Income Taxes (1,773) 1,533 94
Equity in Unconsolidated Entities -- -- (331)
Loss (Gain) on Sale of Vessels and Other Property 20 (11) (7)
Gain on Sale of Investment in Havtor AS -- -- (17,409)
Extraordinary Loss -- 813 --
Changes in:
Accounts Receivable 7,671 (8,515) 543
Net Investment in Direct Financing Leases 2,365 1,756 2,188
Inventories and Other Current Assets 740 (3,539) (1,334)
Other Assets (1,098) (1,177) 2,599
Accounts Payable and Accrued Liabilities (11,233) 910 (694)
Federal Income Taxes Payable 2,523 (6,765) 6,084
Unearned Income (2,732) 3,996 168
Reserve for Claims and Other Deferred Credits 3,839 (2,118) (2,866)
--------- --------- ---------
Net Cash Provided by Operating Activities 64,165 48,954 53,978
--------- --------- ---------
Cash Flows from Investing Activities:
Purchase of Vessels and Other Property (19,553) (65,104) (127,942)
Additions to Deferred Charges (18,302) (28,171) (11,682)
Proceeds from Sale of Vessels and Other Property 334 2,512 7
Purchase of and Proceeds from Short-Term Investments (8,028) 1,799 2,763
Proceeds from Sale of Havtor AS -- -- 48,621
Proceeds from Note Receivable -- 8,100 --
Purchase of Marketable Equity Securities (778) -- --
Other Investing Activities 135 4,295 9,067
--------- --------- ---------
Net Cash Used by Investing Activities (46,192) (76,569) (79,166)
--------- --------- ---------
Cash Flows from Financing Activities:
Proceeds from Issuance of Debt 90,066 147,482 105,651
Reduction of Debt and Capital Lease Obligations (117,250) (126,704) (53,930)
Additions to Deferred Financing Charges (136) (2,753) (635)
Common Stock Dividends Paid (1,671) (1,671) (1,228)
--------- --------- ---------
Net Cash (Used) Provided by Financing Activities (28,991) 16,354 49,858
--------- --------- ---------
Net (Decrease) Increase in Cash and Cash Equivalents (11,018) (11,261) 24,670
Cash and Cash Equivalents at Beginning of Year 43,020 54,281 29,611
--------- --------- ---------
Cash and Cash Equivalents at End of Year $ 32,002 $ 43,020 $ 54,281
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
10
<PAGE>
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. At December 31, 1997, the Company's fleet consisted of 31 ocean-going
vessels, 18 towboats, 128 river barges, 26 special purpose barges, 1,789 LASH
barges, and related shoreside handling facilities. Early in 1998, the Company
added a LASH vessel, 82 LASH barges, and two special purpose barges to its
fleet. 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 and 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 $40,000, $425,000, and $2,721,000 for the years
ended December 31, 1997, 1996, and 1995, respectively. Capitalized interest was
calculated based on the interest rates applicable to the debt related to the
asset 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:
YEARS
-----
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
* 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. At December 31, 1997,
the Company's fleet of 31 vessels also included three roll-on/roll-off vessels
which it operates and a LASH vessel purchased in 1997 which has not yet been
placed in service. Early in 1998, the Company added a LASH vessel, 82 LASH
barges, and two special purpose barges to its fleet.
11
<PAGE>
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 taxation 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 gains of $175,000 were recognized for the year ended December
31, 1997, and exchange losses of $17,000 and $159,000 were recognized for the
years ended December 31, 1996 and 1995, respectively.
DIVIDEND POLICY
The Board of Directors declared and paid dividends of 6.25 cents per
share for each quarter in 1997 and 1996. Subsequent to year end, a dividend of
6.25 cents per common share was declared to be paid in the first quarter of
1998.
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, 1997, 1996,
and 1995. Basic and diluted weighted average common shares outstanding were the
same for each of these years.
During 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per
Share," which is effective for reporting periods ending after December 15, 1997.
The Company adopted SFAS No. 128, and the impact on the Company's earnings per
share was not material.
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 operated 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), expired upon completion, during the first quarter of 1997, of
voyages in progress at December 31, 1996. Under this agreement, MarAd paid 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 operated 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 began receiving MSA
payments upon the expiration of ODS in early 1997. The LASH vessel operating
under MSC contract will be eligible to begin receiving MSA payments upon the
expiration of that contract. MSA eliminated the trade route restrictions imposed
by the ODS program and allows 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. In an effort to
partially offset the decrease in the amount of subsidy payments to be provided
under MSA, as compared to ODS, the Company has implemented initiatives to reduce
shipboard costs and shoreside expenses.
SELF-RETENTION INSURANCE
The Company is 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. The Company is responsible for all claims under the
primary deductibles. Under the Stop Loss insurance, claim costs between the
primary deductible and $1,000,000 and $2,500,000, as applicable, are the
responsibility of the Company until the aggregate Stop Loss is met. The
aggregate annual Stop Loss is $6,000,000 for the policy years June 27, 1997,
through June 26, 1998, and June 27, 1996, through June 26, 1997, and is
$7,000,000 for the policy period June 27, 1995, through June 26, 1996. After the
Company has retained the aggregate amounts, all additional claims are
recoverable from underwriters.
Provisions for losses are recorded based on the Company's estimate of the
eventual settlement costs. The current portions of these liabilities were
$6,278,000 and $5,530,000 at December 31, 1997 and 1996, respectively, and the
noncurrent portions of these liabilities were $13,675,000 and $8,654,000 at
December 31, 1997 and 1996, respectively.
NEW ACCOUNTING PRONOUNCEMENTS
During 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," and SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information." Both of these statements are effective for fiscal years
beginning after December 15, 1997. The Company has chosen early adoption of SFAS
No. 130, and all required disclosures are presented in the Company's
consolidated financial statements included herein. The Company plans to adopt
SFAS No. 131 in 1998 and to include the required disclosures in its March 31,
1998, interim financial statements.
12
<PAGE>
NOTE B - LONG-TERM DEBT
<TABLE>
<CAPTION>
(ALL AMOUNTS IN THOUSANDS)
DECEMBER 31, December 31, DECEMBER 31, December 31,
DESCRIPTION 1997 1996 DUE 1997 1996
- ----------- --------- --------- --------- ------- --------
<S> <C> <C> <C> <C> <C>
Unsecured Senior Notes -
Fixed Rate 9.00% 9.00% 2003 $ 93,891 $ 93,891
Fixed Rate Notes Payable 6.70-9.97% 6.70-9.97% 2000-2008 51,926 61,773
Variable Rate Notes Payable 6.64-7.37% 6.39-7.43% 1997-2006 99,541 101,855
U.S. Government Guaranteed
Ship Financing Notes and
Bonds - Fixed Rate 6.58-8.30% 6.58-8.30% 2000-2009 40,342 45,385
Lines of Credit 6.88-7.47% 6.63-8.25% 1998 22,000 30,000
-------- --------
$307,700 $332,904
Less Current Maturities (Net of
Amounts to be Refinanced) (13,354) (30,851)
-------- --------
$294,346 $302,053
======== ========
</TABLE>
On January 22, 1998, the Company issued a new series of $110,000,000
aggregate principal amount 7 3/4% Senior Notes due 2007 (the "Notes"). The net
proceeds from these Notes were used to repay certain indebtedness of the
Company's subsidiaries during the first quarter of 1998. Upon retirement of this
indebtedness, the Company incurred an Extraordinary Loss on Early Extinguishment
of Debt of approximately $1,062,000, net of taxes. Current maturities of the
long-term debt retired, which were reclassified as long-term liabilities and
included in the consolidated balance sheet as Current Liabilities to be
Refinanced, totaled $22,511,000 as of December 31, 1997. Current Liabilities to
be Refinanced of $7,680,000 as of December 31, 1996, included $5,061,000 and
$2,619,000 reclassified from Accounts Payable and Accrued Liabilities, and
Current Maturities of Long-Term Debt, respectively. Current Maturities of
Long-Term Debt as of December 31, 1996, in the table above are presented net of
the $2,619,000 which was to be refinanced.
After giving effect to the aforementioned retirement of debt, the
aggregate principal payments required as of December 31, 1997, for each of the
next five years are $13,354,000 in 1998, $10,713,000 in 1999, $10,400,000 in
2000, $13,309,000 in 2001, and $7,439,000 in 2002.
Certain of the vessels and barges owned by the Company are mortgaged under
certain debt agreements. After giving effect to the aforementioned retirement of
debt, the Company has remaining three vessels and 558 LASH barges pledged with a
net book value totalling $166,009,000. The remaining indebtedness consists of
secured subsidiary indebtedness and the unsecured indebtedness of the Company.
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, 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, 1997.
The most restrictive of the Company's remaining credit agreements restrict
the declaration or payment of 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 January 1, 1998, 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 $10,000,000 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 of the Company's remaining 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 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
that subsidiary, but dividends are restricted to 40% of undistributed earnings.
Certain other loan agreements restrict the ability of the Company's subsidiaries
to dispose of assets to such a degree that the remaining assets' book values are
less than the value of the collateralized assets.
After giving effect to the aforementioned retirement of debt, the amounts
of potentially restricted net assets were as follows:
(ALL AMOUNTS IN THOUSANDS)
DECEMBER 31, December 31,
1997 1996
-------- --------
Enterprise Ship Company $ 72,511 $ --
Sulphur Carriers, Inc. 23,314 22,058
Central Gulf Lines, Inc. 21,316 99,807
LCI Shipholdings, Inc. 18,217 --
Waterman Steamship Corporation -- 63,817
Cypress Auto Carriers, Inc. -- 10,285
======== ========
Total Restricted Net Assets $135,358 $195,967
======== ========
At December 31, 1997, the Company had available three lines of credit
totaling $35,000,000 used to meet short-term requirements when fluctuations
occur in working capital. One of these lines was fully drawn as of December 31,
1997, for an amount totaling $22,000,000 which was repaid in early 1998. Two of
these lines were
13
<PAGE>
fully drawn as of December 31, 1996, for an amount totaling $30,000,000. Early
in the first quarter of 1998, the Company entered into a $25,000,000 revolving
credit facility that replaced the three aforementioned lines of credit.
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 $701,000 and $668,000 at December 31,
1997 and 1996, 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:
Actuarial Present Value of Benefit Obligations:
DECEMBER 31, December 31,
(ALL AMOUNTS IN THOUSANDS) 1997 1996
-------- --------
Vested Benefit Obligation .................. $(10,637) $ (9,837)
======== ========
Accumulated Benefit Obligation ............. $(10,860) $(10,041)
======== ========
Projected Benefit Obligation ............... $(13,358) $(12,060)
Plan Assets at Fair Value .................. 15,042 13,397
-------- --------
Plan Assets in Excess of
Projected Benefit Obligation .......... 1,684 1,337
Unrecognized Net Gain ...................... (1,902) (1,489)
Prior Service Cost Not Yet
Recognized in Net Periodic
Pension Cost ........................... 103 130
Unrecognized Net Obligation Being
Recognized Over 15 Years ............... 223 297
-------- --------
Accrued Pension Asset ...................... $ 108 $ 275
======== ========
Net Periodic Pension Cost:
For the Year Ended December 31,
1997 1996 1995
------- ------- -------
Service Cost ...................... $ 750 $ 621 $ 451
Interest Cost on Projected
Benefit Obligation .............. 872 782 752
Actual Return on Plan Assets ...... (1,779) (1,307) (2,130)
Net Amortization and Deferral ..... 824 440 1,355
------- ------- -------
Net Periodic Pension Cost ......... $ 667 $ 536 $ 428
======= ======= =======
Actuarial assumptions used to develop the components of pension expense
were as follows:
For the Year Ended December 31,
1997 1996 1995
------- ------- -------
Discount Rate .................. 7.25% 7.25% 7.25%
Rate of Increase in Future
Compensation Levels .......... 5.5% 5.5% 5.0%
Expected Long-term Rate of
Return on Assets ............. 8.0% 8.0% 8.5%
Crew members on the Company's U.S. flag vessels belong to union-sponsored
pension plans. The Company contributed approximately $2,496,000, $2,685,000, and
$2,322,000 to these plans for the years ended December 31, 1997, 1996, and 1995,
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:
Accumulated Postretirement Benefit Obligation:
(ALL AMOUNTS IN THOUSANDS) DECEMBER 31, December 31,
1997 1996
------- -------
Retirees ....................................... $(5,006) $(5,148)
Fully eligible active plan participants ........ (1,760) (1,732)
Other active plan participants ................. (1,270) (1,318)
------- -------
$(8,036) $(8,198)
Plan Assets at Fair Value ...................... -- --
------- -------
Accumulated Postretirement Benefit
Obligation in Excess of Plan Assets ........ $(8,036) $(8,198)
Unrecognized Experience Loss ................... 1,457 1,910
------- -------
Accrued Postretirement Benefit Cost
in the Balance Sheet ....................... $(6,579) $(6,288)
======= =======
Net postretirement benefit cost includes the following components:
For the Year Ended December 31,
1997 1996 1995
---- ---- ----
Service Cost ............................... $116 $134 $110
Interest Cost on Accumulated
Postretirement Benefit Obligation ..... 549 556 520
Net Amortization ........................... 46 85 37
---- ---- ----
Net Postretirement Benefit Cost ............ $711 $775 $667
==== ==== ====
The accumulated postretirement benefit obligation was computed using an
assumed discount rate of 7.25% in 1997, 1996, and 1995. The health and dental
care cost trend rate was assumed to be 9.5% for 1997, decreasing steadily by
.75% per year over the next six years to a long-term rate of 5%.
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, 1997,
14
<PAGE>
would have increased approximately $914,000 or 11%. The effect of this change in
the net postretirement benefit cost for 1997 would have been an increase of
approximately $77,000 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 ($2,369,000 in 1997, $619,000 in 1996, and $12,001,000 in 1995) are
also included.
Prior to 1987, deferred income taxes were not provided on undistributed
foreign earnings of $6,689,000, 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.
Components of the net deferred tax liability/(asset) are as follows:
DECEMBER 31, December 31,
(ALL AMOUNTS IN THOUSANDS) 1997 1996
-------- --------
Gross Liabilities:
Fixed Assets .......................... $ 37,129 $ 33,671
Deferred Charges ...................... 9,885 3,521
Unterminated Voyage Revenue/
Expense .......................... 1,192 1,267
Intangible Assets ..................... 7,887 7,342
Deferred Insurance Premiums ........... 1,551 1,928
Insurance and Claims Reserve .......... 1,021 --
Other Liabilities ..................... 6,114 18,402
Gross Assets:
Insurance and Claims Reserve .......... -- (3,501)
FASB SFAS No. 106-
Postretirement Benefits
Other Than Pensions ............. (2,324) (1,595)
Alternative Minimum Tax Credit ........ (9,094) (7,385)
Net Operating Loss
Carryforward/
Unutilized Deficit ............... (4,915) (903)
Valuation Allowance ................... 879 879
Other Assets .......................... (9,660) (12,142)
======== ========
Total Deferred Tax Liability, Net .......... $ 39,665 $ 41,484
======== ========
The following is a reconciliation of the U.S. statutory tax rate to the
Company's effective tax rate:
Year Ended December 31,
1997 1996 1995
-------- -------- --------
Statutory Rate 35.0% 35.0% 35.0%
State Income Taxes 6.7% 4.9% 1.2%
Other .8% (1.2%) (.3%)
======== ======== ========
42.5% 38.7% 35.9%
======== ======== ========
The Company has available at December 31, 1997, unused operating loss
carryforwards of $400,000 and unused foreign deficits of $13,600,000. The
operating loss carryforwards will expire in 2001.
Foreign income taxes of $596,000, $680,000, and $279,000 are included in
the Company's consolidated statements of income in the Provision for Income
Taxes: Current for the years ended December 31, 1997, 1996, and 1995.
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 $443,000 and $517,000 at December
31, 1997 and 1996, 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
for each of the years ended December 31, 1997 and 1996. 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 $29,000, $34,000, and $38,000
for the years ended December 31, 1997, 1996, and 1995, respectively.
During 1992, a son of the President of the Company became a partner of the
legal firm of Jones, Walker, Waechter, Poitevent, Carrere and Denegre which has
been utilized for various legal services since the Company's inception. The
Company made payments to the firm totaling approximately $958,000, $1,299,000,
and $1,301,000 for the years ending December 31, 1997, 1996, and 1995,
respectively. Amounts due to the legal firm were $105,000 and $41,000 at
December 31, 1997 and 1996, respectively, and were included in Accounts Payable
and Accrued Liabilities or Reserve for Claims.
NOTE F - COMMITMENTS AND CONTINGENCIES
During 1997, the Company entered into an agreement to have two special
purpose barges built. The barges were completed and delivered in January of
1998.
Also during 1997, the Company entered negotiations to purchase a 1987
built LASH vessel and 82 LASH barges. Early in 1998, the Company purchased the
vessel and barges.
As of December 31, 1997, 18 vessels that the Company owns or operates were
under various contracts extending beyond 1997 and expiring at various dates
through 2024. In addition, the Company also operates 111 jumbo river barges, 14
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.
15
<PAGE>
The Company also maintains lines of credit totaling $1,975,000 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 1998, 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, 1997, is as follows:
Receivables Under
(ALL AMOUNTS IN THOUSANDS) Financing Leases
----------------
Year Ended December 31,
1998 $ 4,621
1999 4,265
2000 1,313
---------
Total Minimum Lease Payments Receivable 10,199
Estimated Residual Values of Leased Properties 18,000
Less Unearned Income (5,734)
---------
Total Net Investment in Direct
Financing Leases 22,465
Current Portion (1,913)
---------
Long-Term Net Investment in Direct
Financing Leases at December 31, 1997 $ 20,552
=========
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:
DECEMBER 31, December 31,
(ALL AMOUNTS IN THOUSANDS) 1997 1996
------------ -------------
LASH barges $ 24,936 $ 24,950
Less Accumulated Depreciation (12,406) (10,315)
------------ -------------
Total $ 12,530 $14,635
============ =============
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, 1997:
Payments Under
(ALL AMOUNTS IN THOUSANDS) Capital Leases
------------------
Year Ended December 31,
1998 $ 4,437
1999 4,507
2000 4,514
2001 5,414
2002 3,080
Thereafter 2,125
-------------
24,077
Less Amount Representing Interest (6,504)
-------------
Present Value of Future Minimum Payments
(BASED ON A WEIGHTED AVERAGE OF 10.39%) $ 17,573
=============
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 $3,015,000, $2,375,000, and $2,453,000
for the years ended December 31, 1997, 1996, and 1995, 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, 1997:
Payments Under
(ALL AMOUNTS IN THOUSANDS) Operating Leases
-----------------
Year Ended December 31,
1998 $ 1,850
1999 457
2000 410
2001 404
2002 403
Thereafter 329
-----------
Total Future Minimum Payments $ 3,853
===========
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:
DECEMBER 31, December 31,
(ALL AMOUNTS IN THOUSANDS) 1997 1996
---------- ----------
Drydocking $ 22,578 $ 26,102
Prepositioning 8,159 8,199
Financing Charges and Other 8,223 9,017
---------- ----------
$ 38,960 $ 43,318
========== ==========
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
16
<PAGE>
agreements. The acquired contract costs relating to the operating differential
subsidy agreements were fully amortized in the first quarter of 1997. 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 $72,444,000,
$69,605,000, and $75,086,000 for the years ended December 31, 1997, 1996, and
1995, respectively. Additionally, the Company operates four U.S. flag LASH
vessels on subsidized liner service. Revenues, including subsidy revenue, from
this operation were $125,564,000, $132,824,000, and $129,067,000 for the years
ended December 31, 1997, 1996, and 1995, respectively.
During 1996 and 1995, the Company 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
$75,940,000, $61,259,000, and $67,500,000 for the years ended December 31, 1997,
1996, and 1995, 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, 1997 or 1996.
All of the Company's shipboard personnel are covered by collective
bargaining agreements. Certain of these agreements, covering 20% of the
Company's shipboard personnel, are scheduled to expire during 1998. While the
Company expects to renegotiate these agreements upon their expiration in 1998,
no assurance can be given that the agreements, if renewed, will include terms
and conditions consistent with those contained in the agreements currently in
place.
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.
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
entity, A/S Havfond, which held the aforementioned promissory note which was
collateralized by shares of Havtor AS. The acquisition was accounted for as a
purchase and results for A/S Havfond were included in the accompanying
consolidated financial statements from the date of acquisition through the
dissolution of A/S Havfond on December 31, 1996. After the acquisition, the
Company's interest in Havtor AS approximated 7.7%. During November of 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 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 was allocated on the basis of the
estimated fair market value of the assets acquired and the liabilities assumed.
The 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 in 1995. There was no income of foreign
unconsolidated entities in 1996 and 1997.
NOTE K - SUPPLEMENTAL CASH FLOW INFORMATION
Year Ended December 31,
(ALL AMOUNTS IN THOUSANDS) 1997 1996 1995
------- ------- -------
Non-Cash Investing and Financing
Activities:
Current Liabilities to be
Refinanced ................... $22,511 $ 7,680 $19,030
Cash Payments:
Interest Paid .................. $26,818 $27,853 $26,633
Taxes Paid ..................... 3,321 13,723 5,757
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.
During 1995, the Company purchased AS Havfond, the Norwegian entity 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.
17
<PAGE>
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 these instruments.
The Company categorized all marketable securities as available-for-sale.
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, 1997, the Company had
entered into various forward purchase contracts for Singapore Dollars totaling
$859,000 U.S. Dollar equivalents to hedge against future payments due for
drydocking cost of a Float-On/Float-Off Special Purpose Vessel. 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.
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, 1997 and 1996, the Company was also a
party to forward sales contracts in various currencies totaling $2,304,000 and
$1,927,000 U.S. Dollar equivalents, respectively. 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, 1997 and 1996. Fair market value takes into
consideration the current rates at which similar notes would be made.
RESTRICTED INVESTMENTS
The carrying amount of these investments, which were included in Other
Assets, approximated fair market value as of December 31, 1997 and 1996, 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)):
DECEMBER 31, December 31,
1997 1996
----------------- -----------------
CARRYING FAIR Carrying Fair
(ALL AMOUNTS IN THOUSANDS) AMOUNT VALUE Amount Value
-------- ----- -------- -----
Foreign Currency Contracts - ($80) - -
Long-Term Debt ($307,700) ($315,258) ($332,904) ($332,049)
Disclosure of the fair value of all balance sheet classifications,
including but not limited to certain vessels, property, 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.
DECEMBER 31, December 31,
(ALL AMOUNTS IN THOUSANDS) 1997 1996
---------- ---------
Accrued Voyage Expenses $ 27,257 $ 28,670
Trade Accounts Payable 8,408 14,945
Accrued Interest 8,181 8,590
Self-Insurance Liability 6,278 5,530
Accrued Salaries and
Benefits 1,400 2,683
Accrued Vessel Costs 211 7,272
---------- ---------
$ 51,735 $ 67,690
========== =========
18
<PAGE>
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>
1997 REVENUE $ 89,994 $ 102,520 $ 100,309 $ 98,233
EXPENSE 75,420 88,021 87,195 85,017
GROSS VOYAGE PROFIT 14,574 14,499 13,114 13,216
NET INCOME 593 677 405 480
EARNINGS PER COMMON SHARE:
BASIC AND DILUTED:
NET INCOME 0.09 0.10 0.06 0.07
- -----------------------------------------------------------------------------------------------
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 Share:
Basic and Diluted:
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 Share:
Basic and Diluted:
Net Income 0.31* 0.30* 0.30* 2.23
- -----------------------------------------------------------------------------------------------
</TABLE>
* Restated for November 17, 1995, stock dividend of twenty-five percent for each
one share of common stock outstanding.
COMMON STOCK PRICES AND DIVIDENDS FOR EACH QUARTERLY PERIOD OF 1996 AND 1997
(Source: New York Stock Exchange)
Cash
Dividends
1996 High Low Paid
- ------------------ ---------------- ---------------- -----------------
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
Cash
Dividends
1997 High Low Paid
- ------------------ ---------------- ---------------- -----------------
1st Quarter 19 16 7/8 .0625/Share
2nd Quarter 17 1/2 16 3/4 .0625/Share
3rd Quarter 18 1/4 16 .0625/Share
4th Quarter 18 5/16 16 5/8 .0625/Share
Approximate Number of Common Stockholders of Record at March 1, 1998: 813
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, 1997 and 1996, and the related consolidated
statements of income, changes in stockholder's investment and cash flows for
each of the three years in the period ended December 31, 1997. 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, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles.
/s/ Arthur Anderson LLP
New Orleans, Louisiana
January 16, 1998
(except with respect to the issuance of the Senior Notes discussed in Note B, as
to which the date is January 22, 1998)
EXHIBIT 21
INTERNATIONAL SHIPHOLDING CORPORATION
SUBSIDIARIES OF THE REGISTRANT
AS OF DECEMBER 31, 1997
Jurisdiction Under
Which Organized
---------------
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
LMS Shipmanagement, Inc. Louisiana
Lash Intermodal Terminal Company Delaware
Resource Carriers, Inc. Delaware
(1) New York name-holding corporation
(2) 60% owned by the Registrant
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
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE PERIOD ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 32,002
<SECURITIES> 10,758
<RECEIVABLES> 45,601
<ALLOWANCES> 208
<INVENTORY> 13,296
<CURRENT-ASSETS> 107,800
<PP&E> 734,993
<DEPRECIATION> 311,557
<TOTAL-ASSETS> 618,204
<CURRENT-LIABILITIES> 67,839
<BONDS> 309,340
0
0
<COMMON> 6,756
<OTHER-SE> 166,049
<TOTAL-LIABILITY-AND-EQUITY> 618,204
<SALES> 0
<TOTAL-REVENUES> 391,056
<CGS> 0
<TOTAL-COSTS> 361,107
<OTHER-EXPENSES> 27,654
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,654
<INCOME-PRETAX> 3,753
<INCOME-TAX> 1,598
<INCOME-CONTINUING> 2,155
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,155
<EPS-PRIMARY> 0.32
<EPS-DILUTED> 0.32
</TABLE>
