INTERNATIONAL SHIPHOLDING CORP, 10-K405, 1999-03-31

INTERNATIONAL SHIPHOLDING CORP
10-K405, 1999-03-31
DEEP SEA FOREIGN TRANSPORTATION OF FREIGHT

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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, 1998

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM _________________ TO ________________

COMMISSION FILE NO. 2-63322

INTERNATIONAL SHIPHOLDING CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 36-2989662
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)

650 POYDRAS STREET, NEW ORLEANS, LOUISIANA 70130
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (504) 529-5461
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -------------------
Common Stock, $1 Par Value New York Stock Exchange
9% Senior Notes Due 2003 New York Stock Exchange
7 3/4% Senior Notes Due 2007 New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

State the aggregate market value of the voting stock held by non-
affiliates of the registrant.

DATE AMOUNT
---- ------
March 5, 1999 $67,606,093

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. . . 6,498,637 shares outstanding as of March 5, 1999

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Annual Report to Shareholders for the fiscal year ended
December 31, 1998, 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 16, 1999, have been incorporated by reference into Part III of this Form
10-K.
<PAGE>
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, 1998, the Company's fleet consisted of 33 ocean-going vessels, 19
towboats, 127 river barges, 28 special purpose barges, 1,864 LASH (Lighter
Aboard SHip) barges, and related shoreside handling facilities.

The Company is the only significant operator of the LASH transportation
system, which it pioneered in 1969. The Company's fleet includes 13 large LASH
vessels, four LASH feeder vessels and 1,864 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) one
foreign flag and two U.S. flag pure car carriers specially designed to transport
fully assembled automobiles and one U.S. flag and one foreign flag car/truck
carrier with the capability of transporting heavy weight and large dimension
trucks and buses, as well as 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
utility. 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 also operates several other subsidiaries that provide
ship charter brokerage, agency, barge fleeting, and other specialized services
primarily to the Company's operating segments. The Company has three operating
segments, LINER SERVICES, TIME CHARTER CONTRACTS, AND CONTRACTS OF AFFREIGHTMENT
("COA"), as described below. For additional information about the company's
operating segments see Note I-Significant Operations of the Notes to the
Consolidated Financial Statements incorporated by reference to the Company's
1998 Annual Report to Shareholders.

LINER SERVICES. A liner service operates a vessel or vessels on an
established trade route with regularly scheduled sailing dates. The Company
receives revenues for the carriage of cargo within the established trading area
and pays the operating and voyage expenses incurred. The Company's liner
services include a U.S. flag liner service between U.S. Gulf and East Coast
ports and ports in South Asia and a foreign flag transatlantic liner service
operating between U.S. Gulf and East Coast ports and ports in northern Europe.

TIME CHARTER CONTRACTS. Time Charters are contracts by which the charterer
obtains the right for a specified period to direct the movements and utilization
of the vessel in exchange for payment of a specified daily rate, but the Company
retains operating control over the vessel. Typically, the Company fully equips
the vessel and is responsible for normal operating expenses, repairs, wages, and
insurance, while the charterer is responsible for voyage expenses, such as fuel,
port, and stevedoring expenses. The Company's time charter contracts include
those by which the MSC charters LASH, Roll-On/Roll-Off, and Ice-Strengthened
Multi-Purpose Vessels for contracts of varying terms. Also included in this
segment are contracts with car manufacturers for three Pure Car Carriers and two
Pure Car/Truck Carriers and with an electric utility for a conveyor-equipped,
self-unloading coal carrier. Additionally, the Company's Cape-Size Bulk Carrier
currently operating in the spot market is included in this segment.

CONTRACTS OF AFFREIGHTMENT. COA'S are contracts by which the Company
undertakes to provide space on its vessel(s) for the carriage of specified goods
or a specified quantity of goods on a single voyage or series of voyages over a
given period of time between named ports or within certain geographical areas in
return for the payment of an agreed amount per unit of cargo carried. Generally,
the Company is responsible for all operating and voyage expenses. The Company's
COA segment includes a coal transportation contract with a Florida-based
electric utility, a sulphur transportation contract with a major sulphur
producer, and a contract to provide transportation services to a major mining
company at its mine in West Irian Jaya, Indonesia. For information about the
recent termination of performance by the utility and related litigation, see
Item 3, Legal Proceedings, elsewhere in this Form 10-K and Note F-Commitments
and Contingencies of the Notes to the Consolidated Financial Statements
incorporated by reference to the Company's 1998 Annual Report to Shareholders.

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
("Trans Union"). 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 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 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 LLC, P.T. Freeport Indonesia Company, The Goodyear Tire
and Rubber Company, Toyota Motor Corporation, Honda Motor Co. Ltd., Hyundai
Motor Company, Seminole Electric Cooperative utility, and USGen New England,
Inc. 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 75 years of collective experience with the Company.
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
specialized maritime transportation services to its customers primarily under
medium- to long-term contracts. The Company's three operating segments, LINER
SERVICES, TIME CHARTER CONTRACTS, and CONTRACTS OF AFFREIGHTMENT, are described
below:

LINER SERVICES

FOREIGN FLAG. The Company operates two foreign flag LASH vessels and a
self-propelled, semi-submersible feeder vessel on a scheduled transatlantic
liner service under the name "Forest Lines." This service has historically
operated as a two LASH vessel service. After purchasing and refurbishing a newer
LASH vessel in 1996 and adding it to this service in early 1997, the Company
operated three LASH vessels in this service until the older of the two original
vessels was retired from the service in May of 1998. 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. Approximately one-half of the
aggregate eastbound cargo space has historically been reserved for International
Paper Company ("International Paper") under a long-term contract. During the
period that a third LASH vessel was operated in this service, 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 returned to the historical average of 50%. The remaining
space was provided on a voyage affreightment basis to commercial shippers. In
recent years, other forest products exporters used approximately 10%, 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 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. In connection with this
service, Waterman operates four U.S. flag LASH vessels, as well as three
FLASH vessels that 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 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 April of 1999. The Company expects
to negotiate an extension of this contract. Space is also provided on a
voyage-to-voyage basis to 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. One of these vessels is being used
temporarily to perform auxiliary service for Waterman in the Indian Ocean area
and is ultimately intended as a replacement for the older vessel remaining in
the Company's Trans-Atlantic liner service. The other of these vessels is in
reserve pending a decision on its deployment.

TIME CHARTER CONTRACTS

MILITARY SEALIFT COMMAND CHARTERS

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. One of these charters expires in 1999 at which time the vessel will be
sold or used elsewhere as market conditions permit. Two of these contracts
expire in 2000, and the fourth LASH vessel completed its initial term and began
its first option period in 1998 with the second option period extending into
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 other of these vessels began
operations under a new charter with the MSC in July of 1997 to carry the
components of a 500-bed U.S. Navy field hospital in the Indian Ocean. Both of
these vessels are in the initial seventeen-month term of their contracts with
options extending into 2001.

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.

CAR/TRUCK 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.

In 1998, the Company acquired a 1994-built U.S. flag car/truck carrier.
Immediately after being delivered to the company in April of 1998, this vessel
entered a long-term charter to a major Japanese shipping company.

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 with a
carrying capacity of 4,800 fully assembled automobiles. In 1998, the Company
sold one of these car carriers. The charter for the remaining car carrier is
scheduled to expire in 2000.

Also in 1998, the Company purchased a newbuilding car/truck carrier with
the capacity to carry heavy and large size rolling stock in addition to
automobiles and trucks. This vessel immediately entered into a long-term charter
to a major Far Eastern company.

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 charter also includes
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.

COAL CARRIER

In late 1995, the Company purchased an existing U.S. flag conveyor-
equipped, self-unloading coal carrier that it concurrently chartered to a New
England Power Company under a 15-year contract to carry coal in the coastwise
and near-sea trade. The ship will also be used, from time to time during this
charter period, to carry coal and other bulk commodities for the account of
other major charterers.

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.

CONTRACTS OF AFFREIGHTMENT

COAL TRANSPORTATION CONTRACT

In 1981, the Company entered into a 22-year contract expiring in 2004 with
Seminole Electric Cooperative, Inc. ("Seminole"), a Florida based rural electric
generation and transmission cooperative, for the transportation of coal from Mt.
Vernon, Indiana, to Gulf County, Florida. This contract provides for Central
Gulf to transport for Seminole a minimum of 2.7 million tons of coal annually
through the fourth quarter of 2004 by barge. The agreement requires Seminole to
pay for the water transportation segment of the contract on a rate or
"cost-plus" basis and the transfer from barge to rail on a rate basis.

On December 15, 1998, the Company was notified that Seminole had filed
suit against Central Gulf, seeking a declaratory judgment that Seminole was
entitled to terminate its performance under the long-term coal transportation
agreement, subject to Seminole's obligation to pay "fair and lawful damages" to
Central Gulf. Seminole has also asked the court to determine the amount of
damages payable to Central Gulf as a result of termination of its performance.
The suit was filed in the United States District Court for the Middle District
of Florida (Case Number 98-2561-CIV-T-25B).

Seminole alleges that the cost of the contract exceeds the total cost of
currently available all-rail transportation. After failing to negotiate a
buy-out of the agreement with Central Gulf, Seminole notified Central Gulf on
December 15, 1998, that it was terminating performance under the agreement,
commencing alternative rail transportation, and commencing litigation to confirm
its ability to terminate performance and to establish the damages owed to
Central Gulf as a result of such termination. Seminole's complaint states that
it is "prepared to pay damages to Central Gulf properly calculated to return to
Central Gulf the value of the profits that Central Gulf otherwise would earn
over the remaining term" of the agreement.

Central Gulf has disputed Seminole's right to terminate performance and
has served a demand for arbitration pursuant to the terms of the agreement in
which Central Gulf seeks specific performance of the agreement for its remaining
six-year term, and in the alternative, damages. Because of Seminole's admitted
obligation to reimburse Central Gulf for its lost profits, the Company does not
believe that this dispute will have a material adverse effect on its financial
condition or results of operations, even if Seminole is successful in
terminating its performance under the agreement.

MOLTEN SULPHUR

In 1994, the Company entered into a 15-year transportation contract with
Freeport-McMoRan Sulphur LLC, 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.

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 28 cargo barges constructed for use with those vessels. The Company's
contract is through 2006 with seven three-year renewal options. This contract
also contains buy-out provisions beginning in December of 2001.

ANCILLARY SERVICES

LITCO FACILITY. During 1991, the Company entered into an agreement with
Cooper/T. Smith Stevedoring pursuant to which the Company acquired a 50%
interest in a newly constructed, all weather rapid cargo transfer facility at
the river port of Memphis, Tennessee, for handling LASH barges transported by
subsidiaries of the Company in its LASH liner services. LITCO (LASH Intermodal
Terminal Company) began operations in May of 1992 and provides 287,500 square
feet of enclosed warehouse and loading/discharging stations for LASH barge,
rail, truck, and heavy-lift operations. In June of 1993, the Company purchased
the remaining 50% interest from Cooper/T. Smith Stevedoring, which has continued
to manage the facility under a management agreement with the Company.

OTHER SERVICES. The Company has several other 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 U. S., 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.

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 U. S. 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. On October 16,
1998, the Ocean Shipping Reform Act of 1998 (the "Act") was enacted, and it
amended the Shipping Act of 1984 to promote the growth and development of United
States exports through certain reforms in the regulation of ocean
transportation. This legislation, in part, repeals the requirement that a common
carrier or conference file tariffs with the Federal Maritime Commission,
replacing it with a requirement that tariffs be open to public inspection in an
electronically available, automated tariff system. Furthermore, the legislation
requires that only the essential terms of service contracts be published and
made available to the public. To implement the provisions of the Act, the
Federal Maritime Commission is promulgating rules and regulations that will
become effective in 1999.

The Merchant Marine Act of 1936, as amended (the "Merchant Marine Act"),
authorized 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 was 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") was 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 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. In
1998, Central Gulf enrolled a recently built car carrier into the MSP in
substitution of its LASH vessel previously enrolled in that program. Waterman's
vessels began receiving payments under the MSP in early 1997 upon the lapse of
Waterman's ODS payments; two of Central Gulf's car carriers commenced immediate
operation in the MSP on December 20, 1996; and Central Gulf's new car carrier
began receiving MSP payments in April of 1998. 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 has implemented a comprehensive program
to obtain timely IMO certification for all of its vessels and has obtained IMO
certification for three of its vessels in 1998. For those vessels for which
certification is not required until July 1, 2002, the Company has received
certification for five vessels and plans to obtain certification for the
remainder of its fleet subject to the certification requirements by the end of
2000, 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, Farrell Lines, Inc., and Sea-Land
Service, 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. 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 that 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 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 received ODS
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 Congress
does not make sufficient appropriations 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.

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 28.86% of the common stock of the
Company as of December 31, 1998. 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 Year 2000 (Y2K) issue refers to the potential
failure of information technology (IT) systems, telecommunications, and other
electronic devices before, on or after January 1, 2000. This problem is
primarily due to the use of a 2-digit year indicator within software code
including applications, operating systems, hardware, or microchips.
Non-compliant systems will likely interpret the "00" in "2000" incorrectly as
"1900."

STATE OF READINESS

The Company has appointed a Y2K Project Manager who, along with department
heads responsible for compliance in their respective areas are addressing the
Y2K issue. The Company's Y2K Plan is an overall corporate plan supported by
lower schedules developed by each functional area. The phases in the Y2K Plan
include INVENTORY, ASSESSMENT, REMEDIATION, TESTING, and CONTINGENCY PLANNING.

During the INVENTORY PHASE, all computer-based systems, components (such
as systems developed in-house, purchased software, computers, and associated
hardware), service providers, and hardware that contain microchips that support
the functionality of the Company are being identified. Additionally, items that,
in and of themselves, may not be impacted by the date change, but that interface
with systems or equipment that are impacted by the date change are being
identified.

The ASSESSMENT PHASE involves determining which systems are date-sensitive
and prioritizing how critical each of these systems is to continuation of the
Company's business activities.

Once the assessment phase is complete, the REMEDIATION PHASE begins.
During this phase, the strategies for addressing systems that are not Y2K
compliant will be developed. Possible strategies include repairing, replacing,
or retiring the system.

The TESTING PHASE will verify that the repaired or replaced system will
operate properly when the date changes, and that existing business functions
will continue to operate as expected. Testing efforts will not be confined
solely to IT systems. Non-IT systems such as building infrastructure and
components with embedded microchips will also be evaluated.

The inventory and assessment phases are complete for IT systems, and those
identified as most critical were 75% remediated and tested by December 31, 1998.
The remaining IT systems will be addressed through September of 1999. Vessel
systems inspection and original equipment manufacturer ("OEM") testing is
ongoing through April of 1999. Contingency plans for vessels are in place.

The Company has contacted its key suppliers and customers to ensure they
are addressing the Y2K issue. Y2K questionnaires have been issued to these
suppliers and customers and the Company is reviewing their responses to
determine what action, if any, is necessary.

COSTS TO ADDRESS Y2K ISSUES

Expenditures related to evaluating and remediating any Y2K problems
through December 31, 1998, have not had a material effect on the Company's
financial position or results of operations. It is anticipated that the
resources required to address Y2K issues during 1999 will be provided primarily
by existing levels of personnel. While management does not expect Y2K compliance
costs to have a material adverse effect on the Company, estimates of total
expenditures for Y2K issues, including all phases of the Y2K Plan described
above, as well as the cost of replacing or modifying any non-compliant IT
systems have been submitted for review. Vessel Y2K budgets include OEM systems
testing and replacement for previously identified non-compliant items.

RISKS OF Y2K ISSUES

A definitive assessment of the risk to the Company if systems that are not
Y2K compliant were not identified, or identified but not successfully
remediated, has been and continues to be undertaken. No Y2K issues have been
identified that are unique to the Company or that otherwise would not be found
in its industry.

CONTINGENCY PLANS

Once the potential problems that could result from the Y2K issue have been
identified, the steps required in the event of the failure of any system will be
determined. Vessel and information systems contingency plans are complete. The
overall company plan is scheduled to be completed by March 31, 1999. Cost
estimates to implement the contingency plans will be refined and analyzed
against other options.

EMPLOYEES

As of December 31, 1998, the Company employed approximately 680 shipboard
personnel and 325 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 originally scheduled to expire in September of 1998 and Central Gulf's
collective bargaining agreements originally scheduled to expire in December of
1997 are currently under negotiation. In the interim, these agreements have been
extended 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.

ITEM 2. PROPERTIES

VESSELS AND BARGES. Of the 33 ocean-going vessels in the Company's fleet
at December 31, 1998, 30 are owned by the Company and three are operated under
operating contracts. Of the 1,864 LASH barges in the Company's fleet, 1,809 are
operated in conjunction with the Company's LASH and FLASH vessels. Of these, the
Company owns approximately 1,490 barges and leases 319 barges under capital
leases with 12-year terms expiring in late 2003 and early 2004. The remaining 55
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 contract. For information about the recent termination of
performance by the utility and related litigation, see Item 3, Legal
Proceedings, elsewhere in this Form 10-K and Note F-Commitments and
Contingencies of the Notes to the Consolidated Financial Statements incorporated
by reference to the Company's 1998 Annual Report to Shareholders. The Company
also owns 16 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 55 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 has implemented the quality and safety
management program mandated by the IMO and plans to obtain timely certification
of all vessels by the end of 2000. 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 1998 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 1998, 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. For information about the recent termination of
performance by the utility and related litigation, see Item 3, Legal
Proceedings, elsewhere in this Form 10-K and Note F-Commitments and
Contingencies of the Notes to the Consolidated Financial Statements incorporated
by reference to the Company's 1998 Annual Report to Shareholders.

ITEM 3. LEGAL PROCEEDINGS

On December 15, 1998, the Company was notified that Seminole had filed
suit against the Company's wholly owned subsidiary, Central Gulf, seeking a
declaratory judgment that Seminole is entitled to terminate its performance
under a long-term coal transportation agreement with Central Gulf, subject to
Seminole's obligation to pay "fair and lawful damages" to Central Gulf. Seminole
has also asked the court to determine the amount of damages payable to Central
Gulf as a result of termination of its performance. The suit was filed in the
United States District Court for the Middle District of Florida (Case Number
98-2561-CIV-T-25B).

After failing to negotiate a buy-out of the agreement with Central Gulf,
Seminole notified Central Gulf on December 15, 1998, that it was terminating
performance under the agreement, commencing alternative rail transportation, and
commencing litigation to confirm its ability to terminate performance and to
establish the damages owed to Central Gulf as a result of such termination.
Seminole's complaint states that it is "prepared to pay damages to Central Gulf
properly calculated to return to Central Gulf the value of the profits that
Central Gulf otherwise would earn over the remaining term" of the agreement.

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 1998 Annual Report to Shareholders).

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None

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, 76, 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'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, 73, 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 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, 53, 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, 41, 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, 58, is Vice President and Chief Financial Officer of the
Company. He joined Central Gulf in 1968 where he held various positions with the
Company prior to being named Controller in 1977, and Vice President and Chief
Financial Officer in 1989.

DAVID B. DRAKE, 43, 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, 44, 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., 71, 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 continued to serve as a Director during 1998.

LAURANCE EUSTIS, 85, 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 Pan American Life Insurance Company.

RAYMOND V. O'BRIEN, Jr., 71, 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, 62, has served as a Director of the Company since April
of 1988. He is the President of Nesher Investments, LLC. Mr. Lupberger served as
the Chairman of the Board and Chief Executive Officer of Entergy Corporation
from 1985 to 1998. He also is an advisory director of Bank One, a bank holding
company.

EDWARD K. TROWBRIDGE, 70, 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 1998 Annual Report
to Shareholders in the section entitled "Common Stock Prices and Dividends for
Each Quarterly Period of 1997 and 1998" and is incorporated herein by reference
to page 22 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 1998 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 1998 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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information called for by Item 7a is included in the 1998 Annual
Report to Shareholders in the section entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations: Market-Sensitive
Instruments and Risk Management" and is incorporated herein by reference to page
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, 1998, and December 31,
1997, 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, 1998, and the notes thereto, are included in the 1998
Annual Report to the Shareholders and are incorporated herein by reference to
pages 6 through 22 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 23 of Exhibit 13 filed with this Form 10-K.

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, 8, and 9
of the Company's definitive proxy statement dated March 16, 1999, 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 16, 1999, 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, 10,
and 11 of the Company's definitive proxy statement dated March 16, 1999, 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 1998 Annual Report to Shareholders and are incorporated herein
by reference to pages 6 through 22 of Exhibit 13 filed with this Form10-K.

Consolidated Statements of Income for the years ended December 31, 1998,
1997, and 1996

Consolidated Balance Sheets at December 31, 1998 and 1997

Consolidated Statements of Changes in Stockholders' Investment for the
years ended December 31, 1998, 1997, and 1996

Consolidated Statements of Cash Flows for the years ended December 31,
1998, 1997, and 1996

Notes to Consolidated Financial Statements

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) 1998 Annual Report to Shareholders

(21) Subsidiaries of International Shipholding Corporation

(27) Financial Data Schedule

(b) A report on Form 8-K was filed December 30, 1998, to report that on December
15, 1998, the Company was notified that Seminole Electric Cooperative, Inc.
("Seminole") had filed suit against the Company's wholly owned subsidiary,
Central Gulf Lines, Inc. ("Central Gulf"), seeking a declaratory judgment that
Seminole was entitled to terminate its performance under a long-term coal
transportation agreement with Central Gulf, subject to Seminole's obligation to
pay "fair and lawful damages" to Central Gulf. Seminole has also asked the court
to determine the amount of damages payable to Central Gulf as a result of
termination of its performance. The suit was filed in the United States District
Court for the Middle District of Florida (Case Number 98-2561-CIV-T-25B).

(c) The Index of Exhibits and required Exhibits are included following the
signatures beginning at page 24 of this Report.

(d) The Index of Supplemental Financial Statement Schedules and the required
Financial Statement Schedule are included following the Index of Exhibits
beginning on page 25 of this report.

<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 29, 1999 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 29, 1999 By /s/NIELS W. JOHNSEN
Niels W. Johnsen
Chairman of the Board, Director and
Chief Executive Officer

March 29, 1999 By /s/ERIK F. JOHNSEN
Erik F. Johnsen
President and Director

March 29, 1999 By /s/NIELS M. JOHNSEN
Niels M. Johnsen
Executive Vice President and Director

March 29, 1999 By /s/ERIK L. JOHNSEN
Erik L. Johnsen
Executive Vice President and Director

March 29, 1999 By /s/HAROLD S. GREHAN, JR.
Harold S. Grehan, Jr.
Director

March 29, 1999 By /s/LAURANCE EUSTIS
Laurance Eustis
Director

March 29, 1999 By /s/RAYMOND V. O'BRIEN, JR.
Raymond V. O'Brien, Jr.
Director

March 29, 1999 By /s/EDWIN LUPBERGER
Edwin Lupberger
Director

March 29, 1999 By /s/EDWARD K. TROWBRIDGE
Edward K. Trowbridge
Director

March 29, 1999 By /s/GARY L. FERGUSON
Gary L. Ferguson
Vice President and Chief Financial Officer

March 29, 1999 By /s/MANNY G. ESTRADA
Manny G. Estrada
Chief Accounting Officer

<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) 1998 Annual Report to Shareholders

(21) Subsidiaries of International Shipholding Corporation

(27) Financial Data Schedule

<PAGE>

INDEX OF SUPPLEMENTAL FINANCIAL STATEMENT SCHEDULES

Report of Independent Public Accountants on Supplemental Schedule 25

Schedule I - Condensed Financial Information of the Registrant 26-29

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, 1998 and 1997 and for each of the
three years in the period ended December 31, 1998 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
18, 1999. 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 18, 1999

<PAGE>
INTERNATIONAL SHIPHOLDING CORPORATION (PARENT COMPANY)
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF INCOME

(ALL AMOUNTS IN THOUSANDS)
Year Ended December 31,
1998 1997 1996
-------- -------- --------
Management Fee Revenue from Subsidiaries ... $ 11,555 $ 11,563 $ 6,135
Administrative and General Expenses ........ 11,626 10,867 5,957
-------- -------- --------
Gross Profit ................. (71) 696 178
-------- -------- --------
Interest:
Interest Expense .................. 20,884 10,498 11,518
Investment Income ................. (3,919) (1,217) (2,372)
-------- -------- --------
16,965 9,281 9,146
-------- -------- --------
Equity in Net Income of Consolidated
Subsidiaries (Net of Applicable
Taxes) .................................... 17,814 7,717 13,951
-------- -------- --------
Income (Loss) Before Provision (Benefit)
for Income Taxes and Extraordinary
Item ..................................... 778 (868) 4,983
-------- -------- --------
Provision (Benefit) for Income Taxes:
Current ........................... (205) 1,587 (1,505)
Deferred .......................... (5,758) (4,581) (1,784)
State ............................. 2 (29) 449
-------- -------- --------
(5,961) (3,023) (2,840)
-------- -------- --------
Income Before Extraordinary Item ........... $ 6,739 $ 2,155 $ 7,823
-------- -------- --------
Extraordinary Loss on Early
Extinguishment of Debt
(Net of Income Tax Benefit of $1) ........ (2) -- --
-------- -------- --------
Net Income ................................. $ 6,737 $ 2,155 $ 7,823
======== ======== ========

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."
<PAGE>
INTERNATIONAL SHIPHOLDING CORPORATION (PARENT COMPANY)
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
(All Amounts in Thousands)

ASSETS
DECEMBER 31, December 31,
1998 1997
--------- ---------
Current Assets:
Cash and Cash Equivalents .............. $ 4,150 $ 404
Marketable Securities .................. -- 2,181
Accounts Receivable .................... 228 138
Federal Income Taxes Receivable ........ 1,299 43
Other Current Assets ................... 448 427
--------- ---------
Total Current Assets ............................ 6,125 3,193
--------- ---------
Deferred Federal Income Taxes ................... 11,800 1,113
--------- ---------
Investment in Consolidated Subsidiaries ......... 342,267 272,186
--------- ---------
Advances to Subsidiaries ........................ 49,974 --
--------- ---------
Furniture and Equipment ......................... 4,375 3,761
Less - Accumulated Depreciation ................ (1,017) (90)
--------- ---------
3,358 3,671
--------- ---------

Deferred Charges, Net of Accumulated
Amortization of $4,070 and $1,752
in 1998 and 1997, Respectively ................ 4,236 1,922
--------- ---------
$ 417,760 $ 282,085
========= =========

LIABILITIES AND STOCKHOLDERS' INVESTMENT
DECEMBER 31, December 31,
1998 1997
--------- ---------
Current Liabilities:
Accrued Interest Payable ............... $ 6,046 $ 4,225
Accounts Payable and Accrued Liabilities 620 150
Current Deferred Income Tax Liability .. 27 1,986
--------- ---------
Total Current Liabilities ....................... 6,693 6,361
--------- ---------
Due to Subsidiaries ............................. -- 7,879
--------- ---------
Long-Term Debt .................................. 231,390 93,891
--------- ---------
Other Provisions ................................ 2,108 1,149
--------- ---------
Commitments and Contingent Liabilities

Stockholders' Investment:
Common Stock ........................... 6,756 6,756
Additional Paid-In Capital ............. 54,450 54,450
Retained Earnings ...................... 117,860 112,794
Less - Treasury Stock .................. (1,422) (1,133)
Accumulated Other Comprehensive Loss ... (75) (62)
--------- ---------
177,569 172,805
--------- ---------
$ 417,760 $ 282,085
========= =========

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."
<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,
1998 1997 1996
--------- ------- --------

Cash Flows from Operating Activities:
Net Income ............................. $ 6,737 $ 2,155 $ 7,823
Adjustments to Reconcile Net Income to
Net Cash Used by Operating Activities:
Depreciation ...................... 962 39 14
Amortization of Deferred Charges .. 689 449 596
Benefit for Deferred Income Taxes . (5,963) (4,581) (1,784)
Net Income of Consolidated
Subsidiaries .................... (17,814) (7,717) (13,951)
Extraordinary Loss ................ 2 -- --
Changes in:
Accounts Receivable ............... (90) (40) 149
Other Current Assets .............. (21) (69) 1,593
Other Assets ...................... -- 6 (13)
Accounts Payable and Accrued
Liabilities ..................... 2,074 38 (411)
Federal Income Taxes Payable ...... (3,450) 2,523 (6,765)
Other Provisions .................. 959 174 45
--------- ------- --------
Net Cash Used by Operating Activities ...... (15,915) (7,023) (12,704)
--------- ------- --------
Cash Flows from Investing Activities:
Purchase of Furniture and Equipment .... (409) (299) (69)
Additions to Deferred Charges .......... -- (24) --
Proceeds from Short-Term Investments ... 2,088 500 1,799
Other Investing Activities ............. -- -- 3,015
--------- ------- --------
Net Cash Provided by Investing Activities .. 1,679 177 4,745
--------- ------- --------
Cash Flows from Financing Activities:
Proceeds from Issuance of Debt ......... 169,435 -- --
Reduction of Debt ...................... (31,936) -- --
Change in Due to Subsidiaries .......... (114,592) 8,764 9,713
Additions to Deferred Financing Charges (2,965) (84) (7)
Repurchase of Treasury Stock ........... (289) -- --
Common Stock Dividends Paid ............ (1,671) (1,671) (1,671)
--------- ------- --------
Net Cash Provided by Financing Activities .. 17,982 7,009 8,035
--------- ------- --------
Net Increase in Cash and Cash Equivalents .. 3,746 163 76
Cash and Cash Equivalents at Beginning of
Year ..................................... 404 241 165
--------- ------- --------
Cash and Cash Equivalents at End of Year ... $ 4,150 $ 404 $ 241
========= ======= ========

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"
<PAGE>
NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT

DECEMBER 31, 1998

Note 1. Basis of Preparation

Pursuant to the rule 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 XX.

Note 2. Cash Dividends of Subsidiaries

There were no cash dividends received from subsidiaries for the years
ended December 31, 1998, 1997, and 1996.

Note 3. Long-Term Debt

Long-term debt consists of the following:

(ALL AMOUNTS IN THOUSANDS)
INTEREST DECEMBER 31, DECEMBER 31,
RATE DUE 1998 1997
---- --- ---- ----

Unsecured Senior
Notes 7.75-9.00% 2003-2007 $ 202,390 $ 93,891

Lines of Credit 6.41% 2001 29,000 --
------------- -------------
$ 231,390 $ 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 $70,098,000 at December 31, 1998.

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,
1998 1997 1996 1995 1994
----------- ---------- ----------- ---------- ----------
INCOME STATEMENT DATA:
<S> <C> <C> <C> <C> <C>
Revenues ................................ $ 384,148 $ 391,056 $ 378,927 $ 341,789 $ 342,333
Gross Voyage Profits .................... $ 57,791 $ 55,403 $ 66,948 $ 64,536 $ 65,315
Operating Income ........................ $ 39,147 $ 29,949 $ 40,692 $ 37,921 $ 37,861
Income Before Extraordinary
Item .................................... $ 7,305 $ 2,155 $ 8,636 $ 20,980 $ 13,051
Extraordinary Item ...................... $ (1,029) -- $ (813) -- --
Net Income .............................. $ 6,276 $ 2,155 $ 7,823 $ 20,980 $ 13,051
Basic and Diluted Earnings
Per Common and
Common Equivalent
Share(1):
Before Extraordinary
Item ............................ $ 1.09 $ 0.32 $ 1.29 $ 3.14 $ 1.95
Extraordinary Item ................ $ (0.15) -- $ (0.12) -- --
Net Income ........................ $ 0.94 $ 0.32 $ 1.17 $ 3.14 $ 1.95

BALANCE SHEET DATA:
Working Capital ......................... $ 44,914 $ 39,961 $ 26,928 $ 13,407 $ 16,819
Total Assets ............................ $ 689,804 $ 618,204 $ 661,596 $ 647,580 $ 547,091
Long -Term Debt (including
Capital Lease Obligations
and Current Liabilities
to be Refinanced) ..................... $ 361,425 $ 309,340 $ 324,756 $ 308,525 $ 251,944
Common Stockholders'
Investment ............................ $ 177,108 $ 172,805 $ 172,407 $ 166,261 $ 146,316

OTHER DATA:
EBITDA (2) .............................. $ 101,284 $ 91,657 $ 94,929 $ 81,877 $ 79,482
Cash Dividends Per Common
Share (1) ............................. $ 0.25 $ 0.25 $ 0.25 $ 0.1825 $ 0.16
Weighted Average of Common
and Common Equivalent
Shares(1) ............................. 6,682,216 6,682,887 6,682,887 6,682,887 6,682,887
</TABLE>
(1) All share and per share data for the year ended December 31, 1994, have been
restated for the November 17, 1995, twenty-five percent stock dividend.

(2) EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization), as
presented above, represents income before interest expense and provision
(benefit) for income taxes, plus depreciation, amortization of deferred charges
and acquired contract costs, extraordinary items, and gains (losses) on sales of
property and investments. EBITDA is not presented as an alternative to net
income or cash flow as an indicator of the Company's operating performance or
liquidity, but rather to provide additional information related to debt service
capacity.
<PAGE>
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 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 effect
the Company's operations.

The Company cautions readers that it assumes no obligation to update or
publicly release any revisions to forward-looking statements made in this report
or elsewhere by, or on behalf of, the Company.

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, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997

GROSS VOYAGE PROFIT. Gross voyage profit increased to $57.8 Million in
1998 as compared to $55.4 Million in 1997. The increase was achieved primarily
by the Company's LINER SERVICES segment which operates LASH vessels on two
established routes. One of these routes is between the U.S. Gulf and Atlantic
coasts and the Middle East, East Africa, the Indian Sub-Continent, and Southeast
Asia, and the other is a transatlantic service. Gross voyage profit before
depreciation for this segment increased 51.5% from $22.6 Million in 1997 to
$34.2 Million in 1998 due to lower operating costs and increased market share.
Contributing to the lower operating costs for this segment were lower fuel
prices and the planned return from a three-vessel to a two-vessel transatlantic
service.

The Company's TIME CHARTER CONTRACTS segment includes sixteen vessels
operating primarily under medium to long-term contracts, nine of which are with
the MSC including contracts for the operation of four LASH, three RO/RO, and two
Ice-Strengthened Multi-Purpose vessels. The four LASH vessels and two
Ice-Strengthened Multi-Purpose vessels are each operated under contracts with
initial terms of seventeen-months with two seventeen-month option periods.
Contracts for three of the LASH vessels are currently in their second option
periods with one expiring in 1999 and two in 2000. The contract for the fourth
LASH vessel completed its initial term and began its first option period in 1998
with the second option period extending into 2001. The two Ice-Strengthened
Multi-Purpose vessels are both in the initial seventeen-month term of their
contracts with options extending into 2001 and 2002. The three RO/RO's are
employed in the MSC's military prepositioning program under contracts that are
fixed through 2009 and 2010.

The remaining seven vessels in this segment include three Pure Car
Carriers ("PCC") with contracts extending into 2003 and 2006; two Pure Car/Truck
Carriers ("PCTC") with contracts extending into 2014 and 2018; the "ENERGY
ENTERPRISE" with a contract extending into 2010; and the Company's Cape-Size
Bulk Carrier operating in the spot market.

This segment was impacted by a $7 Million impairment loss recognized late
in 1998 on the Company's Cape-Size Bulk Carrier. Depressed freight rates in the
market for this type of vessel, along with management's expectation that these
conditions will not improve in the near-term, triggered a review of the
recoverability of the carrying amount of this vessel. The impairment loss was
measured as the amount by which the carrying amount of the vessel exceeded its
fair value. The fair value of the vessel was estimated by determining
the present value of its expected future cash flows using a discount rate
commensurate with the risk involved.

Before taking into account the aforementioned impairment loss, the TIME
CHARTER CONTRACTS segment added to the increase in gross voyage profit for the
year. This segment benefited from the commencement of operations of the
Company's newly acquired PCTC, "GREEN POINT," in the second quarter of 1998. In
December of 1998, the Company sold one of its PCC's as part of the Company's
plan to replace this older and smaller PCC with a newer and larger PCTC, the
"ASIAN KING," that delivered to the Company and commenced operations in December
of 1998.

The increase in gross voyage profit before the impairment loss for the
TIME CHARTER CONTRACTS segment was partially offset by scheduled reductions in
charterhire rates on three of the Company's LASH vessels chartered to the MSC
and lower charterhire rates on the Company's Cape-Size Bulk Carrier.

The improved results for the LINER SERVICES segment and for the TIME
CHARTER CONTRACTS segment, before its impairment loss, were slightly offset by
lower gross voyage profit from the CONTRACTS OF AFFREIGHTMENT segment. This
segment includes a contract for two Float-On/Float-Off Special Purpose Vessels
("SPV's"), along with one container breakbulk vessel, "JAVA SEA," that extends
through 2000 with seven three-year renewal options; a contract for a Molten
Sulphur Carrier that extends through 2009 with renewal options through 2024; and
a coal transporation contract with a Florida-based electric utility (See Note
F). The lower gross profit for this segment resulted from reduced cargo volume
from the domestic services.

In addition to the aforementioned reportable segments, the Company also
reports an OTHER category that includes results of several of the Company's
subsidiaries that provide ship charter brokerage, agency, barge fleeting and
other specialized services. Also included in the OTHER category are corporate
related items, results of insignificant operations, and income and expense items
not allocated to reportable segments by management in its evaluation of segment
profit and loss. The results reported in the OTHER category for 1998 compare
favorably to 1997 because the Company decided to discontinue development of a
new LASH service between the U.S. Gulf and Brazil. This decision resulted in a
charge to operating expense in 1997 of approximately $1.2 Million for
termination costs and the prepositioning of equipment.

Vessel and barge depreciation increased 8.4% from $34.6 Million in 1997 to
$37.5 Million in 1998 due to the commencement of operations of the "GREEN POINT"
and the "HICKORY," a LASH vessel purchased early in 1998 now operating in the
Liner Services segment as a feeder vessel. Depreciation on the Company's U.S.
Flag Coal Carrier, "ENERGY ENTERPRISE," and one of the LASH vessels operating in
the LINER SERVICES segment increased due to capital improvements made in 1997.

OTHER INCOME AND EXPENSES. Administrative and general expenses increased
slightly from $25.5 Million in 1997 to $26.4 Million in 1998.

Earnings for 1998 included a gain of $7.8 Million recognized on the sale
of one of the Company's PCC's in December of 1998. As discussed earlier in this
report, the sale of this vessel was part of the Company's plan to replace it
with a newer and larger PCTC that delivered in December of 1998.

Interest expense was $28.7 Million in 1998 as compared to $27.7 Million in
1997. The increase was primarily the result of financing associated with the
acquisition of the "GREEN POINT" early in the second quarter as discussed
previously. On January 22, 1998, the Company issued $110 Million of 7 3/4%
Senior Notes due 2007 (the "Notes"), the proceeds of which were used to repay
shorter-term amortizing bank debt. The aforementioned early repayment of debt
and regularly scheduled principal payments substantially offset interest expense
on these Notes.

INCOME TAXES. The Company provided $4.4 Million and $1.3 Million for
Federal income taxes at the statutory rate of 35% for 1998 and 1997,
respectively.

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 primarily due to lower
profitability from the LINER SERVICES segment resulting from operating a
three-vessel transatlantic liner service in lieu of a two-vessel service and the
reduction of subsidy payments. In the first quarter of 1997, the LINER SERVICES
segment added a newly-acquired and refurbished LASH vessel, the "ATLANTIC
FOREST," to its transatlantic service with the objective of phasing out one of
the older vessels in that service. To take advantage of the opportunity to
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 segment for 1997 as compared to 1996.

The Company's Operating Differential Subsidy ("ODS") agreements for its
four LASH vessels employed in its LINER SERVICES segment operating 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 four vessels and the Company's two U.S. Flag PCC's
operating in the TIME CHARTER CONTRACTS segment began participation in the
Maritime Security Program ("MSP"). The MSP 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. In 1998, another PCC in
the TIME CHARTER CONTRACTS segment, the "GREEN POINT," also qualified for and
began receiving MSP payments.

The TIME CHARTER CONTRACTS segment also contributed to the decrease in
gross voyage profit during this period due to scheduled charterhire rate
reductions effective January 1, 1997, for the Company's three Roll-On/Roll-Off
vessels employed in MSC's 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. Increased gross voyage profit from two of
the Company's LASH vessels operating under contracts with the MSC that were
renewed at increased charterhire rates in mid-1996 partially offset the lower
gross voyage profit for this segment.

Additionally, gross voyage profit from the CONTRACTS OF AFFREIGHTMENT
segment was lower in 1997 as compared to 1996 due to a decrease in the amount of
tonnage carried under a long-term contract to provide transportation services to
a major mining company in Indonesia.

Results for the OTHER segment were lower for 1997 than 1996 due to
expensing certain previously deferred costs related to the Company's decision to
forego development of a new service.

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 "ENERGY ENTERPRISE"; "JAVA SEA"; and "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."

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.

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.

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 $40 Million at December 31,
1997, to $44.9 Million at December 31, 1998, after provision for current
maturities of long-term debt and capital lease obligations of $20.1 Million.
Cash and cash equivalents were $32 Million at December 31, 1998 and 1997.

The major source of cash flows from operating activities of $66 Million
was net income adjusted for the gain on the sale of the vessel and noncash
provisions such as depreciation, amortization, the impairment loss.

Net cash used for investing activities of $116.9 Million included the
purchase of two PCTC's, the "HICKORY," 82 LASH barges and two special purpose
barges, and capital improvements on two LASH vessels operating in the LINER
SERVICES segment all of which totaled approximately $114.1 Million. Other uses
of cash included $14.0 Million for the cost of drydocking certain vessels, $3.4
Million used to purchase a 37.5% interest in three companies that operate cement
carrying vessels under medium to long-term contracts, and $1.1 Million for the
purchase of short-term investments. These uses of cash were partially offset by
the proceeds of $15.5 Million received from the aforementioned sale of the PCC
in late 1998.

Net cash provided by financing activities of $50.9 Million included the
net proceeds from the Company's sale of the Notes in January of 1998 of
approximately $109.4 Million. The remaining proceeds of $108 Million were used
for the purchase of the two PCTC's and general corporate purposes. The proceeds
from the Notes were used primarily to repay certain indebtedness of the
Company's subsidiaries and for related transaction costs. These sources of cash
from financing activities were offset by reductions of debt and capital lease
obligations of $161.2 Million for repayment of debt, including the Company's
repurchase of $1 Million principal amount of its 9% Senior Notes and the use of
the proceeds from the 7 3/4% Notes as discussed above, scheduled principal
payments, and repayments of amounts drawn under the line of credit.
Additionally, $3.0 Million was used for transaction costs of issuing the Notes,
$1.7 Million was used to meet common stock dividend requirements, and $432,000
was used to pay a make-whole premium on one of the loans prepaid with the
proceeds of the Notes, and $289,000 was used for the purchase of Treasury Stock.

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 1998. 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 1998 amounted to
approximately $1.7 Million.

Management believes that normal operations will provide sufficient working
capital and cash flows to meet debt service and dividend requirements during the
foreseeable future.

To meet short-term requirements when fluctuations occur in working
capital, at December 31, 1998, the Company had available a $50 Million revolving
credit facility. Draws against this facility totaled $29 Million at December 31,
1998, of which $8 Million was repaid in January of 1999.

The Company has not been notified that it is a potentially responsible
party in connection with any environmental matters.

STOCK REPURCHASE PROGRAM

In October of 1998, the Company's Board of Directors approved a stock
repurchase program to buy up to 500,000 shares of its common stock. The
repurchases will be made in the open market or in privately negotiated
transactions at the discretion of the Company's management, depending upon
financial and market conditions or as otherwise provided by the Securities and
Exchange Commission and New York Stock Exchange rules and regulations. As of
December 31, 1998, 18,575 shares had been repurchased under this program for a
total cost of $289,000. Subsequent to year-end, as of February 18, 1999, the
Company repurchased an additional 80,525 shares for a total cost of
approximately $1.3 Million.

COAL TRANSPORTATION CONTRACT

On December 15, 1998, the Company was notified that Seminole Electric
Cooperative, Inc. ("Seminole") had filed suit against the Company's wholly owned
subsidiary, Central Gulf Lines, Inc. ("CGL"), seeking declaratory judgment that
Seminole was entitled to terminate its performance under a long-term coal
transportation agreement with CGL, subject to Seminole's obligation to pay "fair
and lawful damages" to CGL. Seminole's complaint states that it is "prepared to
pay damages to CGL to return to CGL the value of the profits that CGL otherwise
would earn over the remaining term" of the agreement and asks the court to
determine the amount of damages payable to CGL as a result of termination of its
performance. CGL has disputed Seminole's right to terminate performance and has
served demand for arbitration pursuant to the terms of the agreement in which
CGL seeks specific performance of the agreement for its remaining six-year term,
and in the alternative, damages. Because of Seminole's admitted obligation to
reimburse CGL for its lost profits, the Company does not believe that this
dispute will have a material adverse effect on its financial condition or
results of operations, even if Seminole is successful in terminating its
performance under the agreement (SEE NOTE F FOR ADDITIONAL INFORMATION ON THIS
CONTRACT).

YEAR 2000 COMPLIANCE

The Year 2000 ("Y2K") issue refers to the potential failure of information
technology ("IT") systems, telecommunications, and other electronic devices
before, on, or after January 1, 2000. This problem is primarily due to the use
of a 2-digit year indicator within software code including applications,
operating systems, hardware, or microchips. Non-compliant systems will likely
interpret the "00" in "2000" incorrectly as "1900."

STATE OF READINESS. The Company has appointed a Y2K Project Manager who,
along with department heads responsible for compliance in their respective
areas, is addressing the Y2K issue. The Company's Y2K Plan is an overall
corporate plan supported by lower-tier plans and schedules developed by each
functional area. The phases in the Y2K Plan include INVENTORY, ASSESSMENT,
REMEDIATION, TESTING, and CONTINGENCY PLANNING.

The ASSESSMENT PHASE involves determining which systems are date-sensitive
and prioritizing how critical each of these systems is to continuation of the
Company's business activities.

The Company has contacted its key suppliers and customers to ensure they
are addressing the Y2K issue. Y2K questionnaires have been issued to these
suppliers and customers and their responses are being reviewed to determine what
action by the Company, if any, is necessary.

COSTS TO ADDRESS Y2K ISSUES. Expenditures related to evaluating and
remediating any Y2K problems through December 31, 1998, have not had a material
effect on the Company's financial position or results of operations. It is
anticipated that the resources required to address Y2K issues during 1999 will
be provided primarily by existing levels of personnel. While management does not
expect Y2K compliance costs to have a material adverse effect on the Company,
estimates of total expenditures for Y2K issues, including all phases of the Y2K
Plan described above, as well as the cost of replacing or modifying any
non-compliant IT systems have been submitted to the Company's management for
review. Vessel Y2K budgets include OEM systems testing and replacement for
previously identified non-compliant items.

RISKS OF Y2K ISSUES. A definitive assessment of the risk to the Company if
systems that are not Y2K compliant were not identified, or identified but not
successfully remediated, has been and continues to be undertaken. No Y2K issues
have been identified that are unique to the Company or that otherwise would not
be found in its industry.

CONTINGENCY PLANS. Once the potential problems that could result from the
Y2K issue have been identified, the steps required in the event any system fails
will be determined. Vessel and Information Systems Contingency Plans are
complete. An overall Company Plan, which includes these two critical plans plus
an Operations plan is scheduled to be completed by March 31, 1999. Cost
estimates to implement the contingency plans will be refined and analyzed
against other options.

MARKET-SENSITIVE INSTRUMENTS AND RISK MANAGEMENT

In the ordinary course of its business, the Company is exposed to foreign
currency, interest rate, and commodity price risk. The Company utilizes
derivative financial instruments including forward exchange contracts and
commodity swap agreements to manage certain of these exposures. The Company
hedges only firm commitments or anticipated transactions and does not use
derivatives for speculation. The Company neither holds nor issues financial
instruments for trading purposes.

INTEREST RATE RISK. The fair value of the Company's cash and short-term
investment portfolio at December 31, 1998, approximated carrying value due to
its short-term duration. The potential decrease in fair value resulting from a
hypothetical 10% increase in interest rates at year-end for the Company's
investment portfolio was not material.

The fair value of long-term debt, including current maturities, was
estimated to be $380.9 Million compared to a carrying value of $366.6 Million.
The potential increase in fair value resulting from a hypothetical 10% adverse
change in the borrowing rates applicable to the Company's long-term debt at
December 31, 1998, was approximately $10.1 Million or 3% of the carrying value.

FOREIGN EXCHANGE RATE RISK. The Company has entered into foreign exchange
contracts to hedge certain firm purchase and sale commitments with varying
maturities throughout 1999. The exchange rates at which these contracts were
entered into did not materially differ from the exchange rates in effect at
December 31, 1998. The potential fair value that would have resulted from a
hypothetical 10% adverse change in the exchange rates applicable to these
contracts at December 31, 1998, was a liability of approximately $100,000.

COMMODITY PRICE RISK. At December 31, 1998, the Company had entered into a
commodity swap agreement to manage the Company's exposure to price risk related
to the purchase a portion of the estimated 1999 fuel requirements for its LINER
SERVICES segment. The agreement locked in the price the Company would pay per
ton of fuel for 1999 at a specific price for a specified quantity. While this
arrangement is structured to reduce the Company's exposure to increases in fuel
prices, it also limits the benefit the Company might otherwise receive from any
price decreases associated with this commodity.

The fair value of this agreement at December 31, 1998, estimated based on
the difference between year-end price per ton of fuel and the contract delivery
price per ton of fuel times the quantity applicable to the agreement, was a
liability of $593,000. A hypothetical 10% decrease in fuel prices as of December
31, 1998, would have resulted in a $390,000 increase in the fair value of the
liability.

NEW ACCOUNTING PRONOUNCEMENTS

During 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits," and SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." Also in 1998,
the Accounting Standards Executive Committee of the American Institute of
Certified Public Accountants issued Statement of Position ("SOP") 98-5,
"Reporting on the Costs of Start-Up Activities." During 1997, the FASB issue
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information."

The Company has adopted SFAS No. 131 and SFAS No. 132 for the year ended
December 31, 1998. SFAS No. 133 is effective for fiscal quarter of fiscal years
beginning after June 15, 1999. The Company has not chosen early adoption and, as
it is not possible to predict the Company's derivative position at the time this
standard will be applied, it is unknown what effect, if any, SFAS No.
133 will have on its financial statements once adopted.

SOP 98-5 provides guidance on the financial reporting of start-up costs
and organization costs. It requires costs of start-up activities and
organization costs to be expensed as incurred. SOP 98-5 is effective for
financial statements for fiscal years beginning after December 15, 1998. The
Company has not chosen early adoption and expects no material impact on its
financial statements when the SOP is adopted. (SEE NOTE A FOR FURTHER DETAILS ON
NEW ACCOUNTING PRONOUNCEMENTS).
<PAGE>
INTERNATIONAL SHIPHOLDING CORPORATION
CONSOLIDATED STATEMENTS OF INCOME

(All Amounts in Thousands Except Per Share Data)

Year Ended December 31,
1998 1997 1996
--------- --------- ---------
Revenues ................................ $ 370,056 $ 75,515 $ 53,346
Subsidy Revenue ......................... 14,092 15,541 25,581
--------- --------- ---------
384,148 391,056 378,927
--------- --------- ---------
Operating Expenses:
Voyage Expenses ................ 281,901 301,084 279,395
Vessel and Barge
Depreciation ................... 37,456 34,569 32,584
Impairment Loss ................ 7,000 -- --
--------- --------- ---------
Gross Voyage Profit ....... 57,791 55,403 66,948
--------- --------- ---------
Administrative and General Expenses ..... 26,406 25,454 26,256

Gain on Sale of Vessel .................. 7,762 -- --
--------- --------- ---------
Operating Income ............... 39,147 29,949 40,692
--------- --------- ---------
Interest:
Interest Expense ............... 28,738 27,654 28,528
Investment Income .............. (1,569) (1,458) (1,935)
--------- --------- ---------
27,169 26,196 26,593
--------- --------- ---------
Income Before Provision for Income
Taxes And Extraordinary Item .......... 11,978 3,753 14,099
--------- --------- ---------
Provision (Benefit) for Income
Taxes:
Current ........................ 2,987 3,119 3,246
Deferred ....................... 1,385 (1,773) 1,533
State .......................... 301 252 684
--------- --------- ---------
4,673 1,598 5,463
--------- --------- ---------
Income Before Extraordinary Item ........ $ 7,305 $ 2,155 $ 8,636
--------- --------- ---------
Extraordinary Loss on Early
Extinguishment of Debt (Net of
Income Tax Benefit of $554 and
$437, Respectively) ................... (1,029) -- (813)
--------- --------- ---------
Net Income .............................. $ 6,276 2,155 7,823
========= ========= =========

Basic and Diluted Earnings Per
Share:
Income Before
Extraordinary Loss ........... $ 1.09 $ 0.32 $ 1.29

Extraordinary Loss ............. (0.15) -- (0.12)
========= ========= =========
Net Income ..................... $ 0.94 $ 0.32 $ 1.17
========= ========= =========

The accompanying notes are an integral part of these statements.

<PAGE>

INTERNATIONAL SHIPHOLDING CORPORATION
CONSOLIDATED BALANCE SHEETS

(All Amounts in Thousands)
DECEMBER 31, December 31,
ASSETS 1998 1997
--------- ---------

Current Assets:
Cash and Cash Equivalents ............... $ 32,008 $ 32,002
Marketable Securities ................... 12,136 10,758
Accounts Receivable, Net of
Allowance for Doubtful
Accounts of $334 and
$208 in 1998 and 1997,
Respectively:
Traffic .................. 40,543 35,442
Agents' .................. 8,082 7,128
Claims and Other ......... 5,243 3,031
Federal Income Taxes Receivable ......... 1,325 43
Net Investment in Direct Financing
Leases ................................ 2,532 1,913
Other Current Assets .................... 4,215 4,187
Material and Supplies Inventory, at
Cost .................................. 13,130 13,296
--------- ---------
Total Current Assets ............................. 119,214 107,800
--------- ---------
Marketable Equity Securities ..................... 205 582
--------- ---------
Investment in Unconsolidated Entities ............ 3,368 --
--------- ---------
Net Investment in Direct Financing Leases ........ 66,494 20,552
--------- ---------
Vessels, Property, and Other Equipment, at
Cost:
Vessels and Barges ...................... 745,390 689,856
Other Marine Equipment .................. 7,776 7,590
Terminal Facilities ..................... 18,494 18,377
Land .................................... 2,317 2,317
Furniture and Equipment ................. 16,799 16,853
--------- ---------
790,776 734,993
Less - Accumulated Depreciation ................. (356,217) (311,557)
--------- ---------
434,559 423,436
--------- ---------
Other Assets:
Deferred Charges, Net of Accumulated
Amortization of $75,255 and
$53,913 in 1998 and 1997,
Respectively .......................... 38,849 38,960
Acquired Contract Costs, Net of
Accumulated Amortization
of $14,154 and $12,699 in 1998
and 1997, Respectively ................ 16,371 17,826
Due from Related Parties ................ 296 369
Other ................................... 10,448 8,679
--------- ---------
65,964 65,834
--------- ---------
$ 689,804 $ 618,204
========= =========

The accompanying notes are an integral part of these statements.

<PAGE>
INTERNATIONAL SHIPHOLDING CORPORATION
CONSOLIDATED BALANCE SHEETS

(All Amounts in Thousands Except Share Data)

DECEMBER 31, December 31,
1998 1997
--------- ---------
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
Current Maturities of Long-Term Debt ...... $ 17,212 $ 35,865
Current Maturities of Capital Lease
Obligations ........................................ 2,915 2,579
Accounts Payable and Accrued
Liabilities ............................. 54,146 51,735
Current Deferred Income Tax Liability ..... 27 171
Current Liabilities to be Refinanced ...... -- (22,511)
--------- ---------
Total Current Liabilities .......................... 74,300 67,839
--------- ---------
Current Liabilities to be Refinanced ............... -- 22,511
--------- ---------
Billings in Excess of Income Earned and
Expenses Incurred ................................ 7,099 5,903
--------- ---------
Long-Term Capital Lease Obligations, Less
Current Maturities ............................... 12,085 14,994
--------- ---------
Long-Term Debt, Less Current Maturities ............ 349,340 271,835
--------- ---------
Deferred Credits:
Deferred Income Taxes ..................... 40,906 39,494
Claims and Other .......................... 28,966 22,823
--------- ---------
69,872 62,317
--------- ---------
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, 1998 and 1997 .............. 6,756 6,756
Additional Paid-In Capital ................ 54,450 54,450
Retained Earnings ......................... 117,399 112,794
Less --- 92,018 and 73,443 Shares of
Common Stock in Treasury, at Cost, at
December 31, 1998 and 1997,
Respectively .............................. (1,422) (1,133)

Accumulated Other Comprehensive Loss ...... (75) (62)
--------- ---------
177,108 172,805
--------- ---------
$ 689,804 $ 618,204
========= =========

The accompanying notes are an integral part of these statements.
<PAGE>
INTERNATIONAL SHIPHOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' INVESTMENT
(All Amounts in Thousands)
<TABLE>
<CAPTION>

Accumulated
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, 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
======= ======== ========= ======= ==== =========
COMPREHENSIVE INCOME:

NET INCOME FOR THE YEAR
ENDED DECEMBER 31, 1998 .......... -- -- 6,276 -- -- 6,276

OTHER COMPREHENSIVE
INCOME:
UNREALIZED HOLDING
LOSS ON MARKETABLE
SECURITIES, NET
OF DEFERRED
TAXES OF ($7) ................... -- -- -- -- (13) (13)
---------
TOTAL COMPREHENSIVE INCOME ............. 6,263
TREASURY STOCK ......................... (289) (289)
CASH DIVIDENDS ......................... -- -- (1,671) -- -- (1,671)
------- -------- --------- ------- ---- ---------
BALANCE AT DECEMBER 31, 1998 ........... $ 6,756 $ 54,450 $ 117,399 ($1,422) ($75) $ 177,108
======= ======== ========= ======= ==== =========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
INTERNATIONAL SHIPHOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS

(All Amounts in Thousands)

Year Ended December 31,
1998 1997 1996
--------- --------- ---------
Cash Flows from Operating Activities:
Net Income .......................... $ 6,276 $ 2,155 $ 7,823
Adjustments to Reconcile Net
Income to Net Cash
Provided by Operating
Activities:
Depreciation ................... 40,056 37,259 34,939
Amortization of Deferred
Charges and Other Assets ..... 22,846 24,429 19,309
Provision (Benefit) for
Deferred Income Taxes ........ 1,385 (1,773) 1,533
(Gain) Loss on Sale of
Vessels and Other Property ... (7,765) 20 (11)
Impairment Loss ................ 7,000 -- --
Extraordinary Loss ............. 1,029 -- 813
Changes in:
Accounts Receivable ............ (7,789) 7,671 (8,515)
Net Investment in Direct
Financing Leases ............. 2,031 2,365 1,756
Inventories and Other
Current Assets ............... 678 740 (3,539)
Other Assets ................... 492 (1,098) (1,177)
Accounts Payable and Accrued
Liabilities .................. (6,300) (11,233) 910
Federal Income Taxes Payable ... (1,009) 2,523 (6,765)
Unearned Income ................ 5,718 (2,732) 3,996
Deferred Credits ............... 1,367 3,839 (2,118)
--------- --------- ---------
Net Cash Provided by Operating
Activities ............................ 66,015 64,165 48,954
--------- --------- ---------
Cash Flows from Investing Activities:
Investment in Direct Financing
Lease ............................. (58,354) -- --
Purchase of Vessels and Other
Property .......................... (55,727) (19,553) (65,104)
Additions to Deferred Charges ....... (13,955) (18,302) (28,171)
Proceeds from Sale of Vessels and
Other Property .................... 15,484 334 2,512
Purchase of and Proceeds from
Short-Term Investments ............ (1,072) (8,028) 1,799
Investment in Unconsolidated
Entity ............................ (3,368) -- --
Proceeds from Note Receivable ....... -- -- 8,100
Purchase of Marketable Equity
Securities ........................ -- (778) --
Other Investing Activities .......... 73 135 4,295
--------- --------- ---------
Net Cash Used by Investing Activities ... (116,919) (46,192) (76,569)
--------- --------- ---------
Cash Flows from Financing Activities:
Proceeds from Issuance of Debt ...... 217,435 90,066 147,482
Reduction of Debt and Capital
Lease Obligations ................. (161,156) (117,250) (126,704)
Additions to Deferred Financing
Charges ........................... (2,977) (136) (2,753)
Purchase of Treasury Stock .......... (289) -- --
Common Stock Dividends Paid ......... (1,671) (1,671) (1,671)
Other Financing Activities .......... (432) -- --
--------- --------- ---------
Net Cash Provided (Used) by Financing
Activities ............................ 50,910 (28,991) 16,354
--------- --------- ---------
Net Increase (Decrease) in Cash and
Cash Equivalents ...................... 6 (11,018) (11,261)
Cash and Cash Equivalents at
Beginning of Year ..................... 32,002 43,020 54,281
--------- --------- ---------
Cash and Cash Equivalents at End of
Year .................................. $ 32,008 $ 32,002 $ 43,020
========= ========= =========

The accompanying notes are an integral part of these statements.
<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, 1998, the Company's fleet consisted of 33 ocean-going
vessels, 19 towboats, 127 river barges, 28 special purpose barges, 1,864 LASH
barges, and related shoreside handling facilities. The Company's strategy is to
(i) identify customers with marine transportation needs requiring specialized
vessels or operating techniques, (ii) seek medium- to long-term charters or
contracts with those customers and, if necessary, modify, acquire, or construct
vessels to meet the requirements of those charters or contracts, and (iii)
secure financing for the vessels predicated primarily on those charter or
contract arrangements.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

VOYAGE ACCOUNTING

Revenues and expenses relating to voyages are recorded on the
percentage-of-completion method, except that provisions for loss voyages are
recorded when contracts for the voyages are fixed 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. No
interest was capitalized in 1998. Capitalized interest totaled $40,000 and
$425,000 for the years ended December 31, 1997 and 1996, respectively.
Capitalized interest was calculated based on the interest rates applicable to
the financing of the asset under construction.

Assets under capital leases are recorded on the consolidated balance
sheets 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.

In accordance with Statement of Financial Accounting Standards ("SFAS")
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of" issued by the Financial Accounting Standards Board
("FASB"), during 1998, the Company recognized an impairment loss of $7,000,000
on its Cape-Size Bulk Carrier. Depressed freight rates in the market for this
type of vessel, along with management's expectation that these conditions will
not improve in the near-term, triggered a review of the recoverability of the
carrying amount of this vessel. The impairment loss was measured as the amount
by which the carrying amount of the vessel exceeded its fair value. The fair
value of the vessel was estimated by determining the present value of its
expected future cash flows using a discount rate commensurate with the risk
involved.

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
1 LASH Vessel 15
2 Pure Car Carriers 20
1 Pure Car Carrier 12
1 Pure Car/Truck Carrier 20
1 Pure Car/Truck Carrier 16
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, 1998, the Company's fleet of 33 vessels also included three
roll-on/roll-off vessels which it operates and a LASH vessel which has not
yet been placed in service.

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 $347,000 and $175,000 were recognized for the years
ended December 31, 1998 and 1997, respectively. An exchange loss of $17,000 was
recognized for the year ended December 31, 1996.

DIVIDEND POLICY

The Board of Directors declared and paid dividends of 6.25 cents per
share for each quarter in 1998 and 1997. Subsequent to year end, a dividend of
6.25 cents per common share was declared to be paid in the first quarter of
1999.

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 6,682,216 for the year ended December 31, 1998 and
6,682,887 for the years ended December 31, 1997 and 1996. Basic and diluted
weighted average common shares outstanding were the same for each of these
years. The effect of stock options granted during 1998 was anti-dilutive.

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 qualify for MSA participation including the four
aforementioned LASH vessels which operated under ODS, two of the Company's Pure
Car Carriers ("PCC"), and a Pure Car/Truck Carrier ("PCTC") the Company
purchased and placed into service in 1998. The two PCC's began receiving MSA
payments in late 1996, the four LASH vessels that were operated under ODS began
receiving MSA payments upon the expiration of ODS in the first quarter of 1997,
and the PCTC began receiving MSA payments immediately upon its commencement of
operations in April of 1998. 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, excluding primary deductibles, is $6,000,000 for
each of the policy years ending June 26, 1999, 1998, and 1997. 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
$6,627,000 and $6,278,000 at December 31, 1998 and 1997, respectively, and the
noncurrent portions of these liabilities were $10,251,000 and $13,675,000 at
December 31, 1998 and 1997, respectively.

STOCK REPURCHASE PROGRAM

In October of 1998, the Company's Board of Directors approved a stock
repurchase program of up to 500,000 shares of its common stock. The repurchases
will be made in the open market or in privately negotiated transactions at the
discretion of the Company's management, depending upon financial and market
conditions or as otherwise provided by the Securities and Exchange Commission
and New York Stock Exchange rules and regulations. As of December 31, 1998,
18,575 shares had been repurchased under this program for a total cost of
$289,000. Subsequent to year-end as of February 18, 1999, the Company
repurchased an additional 80,525 shares for a total cost of $1,287,000.

NEW ACCOUNTING PRONOUNCEMENTS

During 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits," and SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities."

SFAS No. 132 revises employers' disclosures about pension and other
postretirement benefit plans. It does not change the measurement or recognition
of those plans. SFAS No. 132 was effective for fiscal years beginning after
December 15, 1997, and the required disclosures are included herein
(SEE NOTE C).

SFAS No. 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. SFAS No. 133 is effective
for all fiscal quarters of fiscal years beginning after June 15, 1999. The
Company has not chosen early adoption and, as it is not possible to predict the
Company's derivative position at the time this standard will be applied, it is
unknown what effect, if any, SFAS No. 133 will have on its financial statements
once adopted.

In April of 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of Position
("SOP") 98-5, "Reporting on the Costs of Start-Up Activities." This SOP provides
guidance on the financial reporting of start-up costs and organization costs. It
requires costs of start-up activities and organization costs to be expensed as
incurred. The SOP is effective for financial statements for fiscal years
beginning after December 15, 1998. The Company has not chosen early adoption and
expects no material impact on its financial statements when the SOP is adopted.

During 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which is effective for fiscal years
beginning after December 15, 1997. The Company has adopted SFAS No. 131 and the
required disclosures are included herein (SEE NOTE I).

NOTE B - LONG-TERM DEBT
(ALL AMOUNTS IN
THOUSANDS)

DECEMBER December DECEMBER December
31, 31, 31, 31,
DESCRIPTION 1998 1997 DUE 1998 1997
- ----------- ---- ---- --- ---- ----

Unsecured Senior Notes-
Fixed Rate 7.75-9.00% 9.00% 2003-2007 202,390 93,891
Fixed Rate Notes
Payable 6.70-8.50% 6.70-9.97% 2000-2008 39,438 51,926
Variable Rate Notes
Payable 6.03-6.63% 6.64-7.37% 2001-2008 66,857 99,541
U.S. Government
Guaranteed Ship
Financing
Notes and Bonds -
Fixed Rate 8.30% 6.58-8.30% 2009 28,867 40,342
Lines of Credit 6.41% 6.88-7.47% 2001 29,000 22,000
--------- ---------
366,552 307,700
Less Current
Maturities (Net of
Amounts to be
Refinanced) (17,212) (13,354)
--------- ---------
$ 349,340 $ 294,346
========= =========

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 $1,029,000, net of taxes.

The aggregate principal payments required as of December 31, 1998, for
each of the next five years are $17,212,000 in 1999, $45,607,000 in 2000,
$19,515,000 in 2001, $11,187,000 in 2002, and $103,865,000 in 2003. In addition
to regularly scheduled principal payments, the $45,607,000 required in 2000
includes repayment of the $29,000,000 drawn on the Company's line of credit as
of December 31, 1998. During early 1999, $8,000,000 was repaid on those lines of
credit before their scheduled maturity in 2000.

Certain of the vessels and barges owned by the Company are mortgaged under
certain debt agreements. The Company has six vessels and 558 LASH barges pledged
with a net book value totaling $223,029,000. Additional collateral includes a
security interest in certain operating contracts and receivables. The remaining
indebtedness of the Company is unsecured. 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, 1998.

The most restrictive of the Company's 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 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 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.

The amounts of potentially restricted net assets were as follows:

(ALL AMOUNTS IN THOUSANDS)

DECEMBER 31, December 31,
1998 1997
---- ----
Enterprise Ship Company $ 67,072 $ 72,511
Sulphur Carriers, Inc. 27,492 23,314
============= ===========
Total Restricted Net
Assets $ 94,564 $ 95,825
============= ===========

At December 31, 1998, the Company had available one line of credit
totaling $50,000,000 used to meet short-term requirements when fluctuations
occur in working capital. As of December 31, 1998, the Company had drawn
$29,000,000 on this line of credit of which $8,000,000 was repaid in early 1999.
At December 31, 1997, the Company had available three lines of credit totaling
$35,000,000 of which $22,000,000 was drawn with this amount being fully repaid
in early 1998. Early in the first quarter of 1998, the Company entered into the
aforementioned $50,000,000 revolving credit facility that replaced the three
aforementioned lines of credit.

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 $681,000 and $701,000 at December 31,
1998 and 1997, respectively, and were included in Cash and Cash Equivalents.

NOTE C - EMPLOYEE BENEFIT PLANS

PENSION 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 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' funded status and costs recognized by
the Company:
<TABLE>
<CAPTION>
(ALL AMOUNTS IN THOUSANDS) December 31, December 31, December 31, December 31,
1998 1997 1998 1997
-------- -------- ------- -------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year ...................... $ 13,358 $ 12,060 $ 8,036 $ 8,198
Service cost ................................................. 704 750 131 116
Interest cost ................................................ 969 872 585 549
Actuarial loss (gain) ........................................ 1,414 310 906 (407)
Benefits paid ................................................ (620) (552) (397) (421)
Expenses paid ................................................ (108) (82) -- --
-------- -------- ------- -------
Benefit obligation at end of year ............................ 15,717 13,358 9,261 8,036
-------- -------- ------- -------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year ............... 15,042 13,397 -- --
Actual return on plan assets ................................. 1,130 1,779 -- --
Employer contribution ........................................ 584 500 397 421
Benefits paid ................................................ (620) (552) (397) (421)
Expenses paid ................................................ (108) (82) -- --
-------- -------- ------- -------
Fair value of plan assets at end of year ..................... 16,028 15,042 -- --
-------- -------- ------- -------
Funded status ................................................ 311 1,684 (9,261) (8,036)
Unrecognized net actuarial (gain) loss ....................... (278) (1,679) 2,307 1,457
Unrecognized prior service cost .............................. 76 103 -- --
-------- -------- ------- -------
Prepaid (accrued) benefit cost ............................... $ 109 $ 108 $(6,954) $(6,579)
======== ======== ======= =======

WEIGHTED-AVERAGE ASSUMPTIONS
Discount rate ................................................ 6.75% 7.25% 6.75% 7.25%
Expected return on plan assets ............................... 8.00% 8.00% N/A N/A
Rate of compensation increase ................................ 5.50% 5.50% N/A N/A

(ALL AMOUNTS IN THOUSANDS) Pension Plan Postretirement Benefits
For the year ended December 31, For the year ended December 31,
COMPONENTS OF NET PERIODIC BENEFIT COST ...................... 1998 1997 1998 1997
------- ------- ---- ----
Service cost ................................................. $ 704 $ 750 $131 $115
Interest cost ................................................ 969 872 585 550
Actual return on plan assets ................................. (1,127) (1,779) -- --
Amortization of prior service cost ........................... 27 27 -- --
Unrecognized net actuarial loss .............................. 10 797 57 46
------- ------- ---- ----
Net periodic benefit cost .................................... $ 583 $ 667 $773 $711
======= ======= ==== ====
</TABLE>
For measurement purposes, the health and dental care cost trend rate was
assumed to be 8.75% for 1998, decreasing steadily by .75% per year over the next
five years to a long-term rate of 5%. A one percent change in the assumed health
care cost trend rates would have the following effects:

1% Increase 1% Decrease
----------- -----------
Change in total service and interest cost $ 89 $ (72)
components for the year ended December 31, 1998 1,109 (915)
Change in postretirement benefit obligation as of
December 31, 1998

Crew members on the Company's U.S. flag vessels belong to union-sponsored
pension plans. The Company contributed approximately $2,339,000, $2,496,000, and
$2,685,000 to these plans for the years ended December 31, 1998, 1997, and 1996,
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 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 reported obligation and annual expense.

STOCK INCENTIVE PLAN

In April of 1998, the Company established a stock-based compensation plan,
the Stock Incentive Plan (the "Plan"). The purpose of the Plan is to increase
shareholder value and to advance the interest of the Company by furnishing a
variety of economic incentives designed to attract, retain, and motivate key
employees and officers and to strengthen the mutuality of interests between such
employees, officers, and the Company's shareholders. Incentives consist of
opportunities to purchase or receive shares of common stock in the form of
incentive stock options, non-qualified stock option, restricted stock, or other
stock-based awards. Under the Plan, the Company may grant incentives to its
eligible Plan participants for up to 650,000 shares of common stock. The
exercise price of each option equals the market price of the Company's stock on
the date of grant. In April of 1998, options to purchase 475,000 shares of
common stock were granted to certain qualified participants at an exercise price
of $17.1875 per share. No options were exercised or forfeited during the year.
All options vested immediately upon the grant date. Therefore, all 475,000
options were exercisable at December 31, 1998. The maximum term of the options
is ten years.

The Company applies Accounting Principles Board Opinion No. 25 ("APB 25")
in accounting for this plan. Accordingly, no compensation cost has been
recognized for options granted under this plan. If the Company had determined
compensation cost for the Plan based on the fair value at the grant dates for
awards under the Plan consistent with the method of SFAS No. 123 "Accounting for
Stock-Based Compensation," the Company's net income and earnings per share for
the year ended December 31, 1998, would have been reduced to the pro forma
amounts indicated below:

AS REPORTED PROFORMA
----------- --------
Net income $6,276,000 $3,896,000
Earnings per share $0.94 $0.58

The fair value of each of the 475,000 options granted during 1998
estimated on the date of grant was $7.71 using the Black-Scholes option-pricing
model assuming expected volatility of 12.22% and a risk-free rate of 5.89%. The
remaining contractual life of each option as of December 31, 1998, was 9.292
years.

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 ($2,245,000 in 1998, $2,369,000 in 1997, and $619,000 in 1996) 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) 1998 1997
-------- --------
Gross Liabilities:
Fixed Assets .............................. $ 48,074 $ 37,129
Deferred Charges .......................... 9,326 9,885
Unterminated Voyage Revenue/
Expense .............................. 2,541 1,192
Intangible Assets ......................... 5,730 7,887
Deferred Insurance Premiums ............... 1,106 1,551

Deferred Intercompany ..................... 2,530
Transactions ............................ 2,530 2,664
Insurance and Claims Reserve .............. -- 1,021
Other Liabilities ......................... 1,271 6,114
Gross Assets:
Insurance and Claims Reserve .............. (4,788) --
Deferred Intercompany
Transactions ............................ (2,530) (2,762)
FASB SFAS No. 106--
Postretirement Benefits
Other Than Pensions .................. (2,453) (2,324)
Alternative Minimum Tax Credit
Carryforward ............................ (9,354) (9,094)
Net Operating Loss Carryforward/
Unutilized Deficit ...................... (6,247) (4,915)
Valuation Allowance ....................... 879 879

Other Assets .............................. (5,152) (9,562)
======== ========
Total Deferred Tax Liability, Net .............. $ 40,933 $ 39,665
======== ========

The following is a reconciliation of the U.S. statutory tax rate to the
Company's effective tax rate:

Year Ended December 31,
1998 1997 1996
------ ------ ------
Statutory Rate ................... 35.0% 35.0% 35.0%
State Income Taxes ............... 2.9% 6.7% 4.9%

Other ............................ 1.7% 0.8% (1.2%)
====== ====== ======
39.6% 42.5% 38.7%
====== ====== ======

The Company has available at December 31, 1998, unused operating loss
carryforwards of $6,725,000 and unused foreign deficits of $11,123,000. The
operating loss carryforwards will expire in 2002.

Foreign income taxes of $546,000, $596,000, and $680,000 are included in
the Company's consolidated statements of income in the Provision for Income
Taxes for the years ended December 31, 1998, 1997, and 1996, respectively.

NOTE E - TRANSACTIONS WITH RELATED PARTIES

During 1990, the Company sold one of 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 $369,000 and $443,000 at December
31, 1998 and 1997, 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, 1998 and 1997. 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 $25,000, $29,000, and $34,000
for the years ended December 31, 1998, 1997, and 1996, 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 $1,102,000, $958,000,
and $1,299,000 for the years ended December 31, 1998, 1997, and 1996,
respectively. No amounts were due to the legal firm at December 31, 1998, and
$105,000 was due at December 31, 1997, which was included in Accounts Payable
and Accrued Liabilities or Deferred Credits.

During 1998, a wholly-owned subsidiary of the Company, LMS Shipmanagement,
Inc. ("LMS"), entered into agreements with Belden Shipping Pte Ltd ("Belden") to
provide ship management services beginning in 1999. The Company acquired a 37.5%
interest in Belden during 1998 (SEE NOTE J).

NOTE F - COMMITMENTS AND CONTINGENCIES

COMMITMENTS
As of December 31, 1998, 19 vessels that the Company owns or operates were
under various contracts extending beyond 1998 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 that is
scheduled to expire in 2004 (See further discussion below regarding this
contract). Certain of these agreements also contain options to extend the
contracts beyond their minimum terms.

During 1998, the Company entered into a contract to hedge a portion of its
estimated 1999 fuel purchases related to its LINER SERVICES segment (SEE NOTE
I). The contract is effective for one year beginning January 1, 1999, and is
based on a notional amount (tons) of fuel. The contract requires that a payment
be made for the difference between the contact rate, $75 per ton, and the market
rate for the fuel. Settlement will be made monthly.

Subsequent to year-end, the Company committed to the sale of certain real
property located in the State of Louisiana for $3,500,000 in the first quarter
of 1999. The Company expects to recognize a gain of approximately $2,000,000 on
this sale.

The Company also maintains lines of credit totaling $2,360,000 to cover
standby letters of credit for membership in various shipping conferences.

CONTINGENCIES

The suit is in connection with an agreement entered into in 1981, which
provides for CGL to transport for Seminole a minimum of 2.7 million tons of coal
annually through the fourth quarter of 2004 by barge from Mt. Vernon, Indiana,
to Port St. Joe, Florida. The agreement requires Seminole to pay for the water
transportation segment of the contract on a rate or "cost-plus" basis and the
transfer from barge to rail on a rate basis, and Seminole alleges that the cost
of the contract exceeds the total cost of currently available all-rail
transportation. After failing to negotiate a buy-out of the agreement with CGL,
Seminole notified CGL on December 15, 1998, that it was terminating performance
under the agreement, commencing alternative rail transportation, and commencing
litigation to confirm its ability to terminate performance and to establish the
damages owed to CGL as a result of such termination. Seminole's complaint states
that it is "prepared to pay damages to CGL properly calculated to return to CGL
the value of the profits that CGL otherwise would earn over the remaining term"
of the agreement.

CGL has disputed Seminole's right to terminate performance and has served
a demand for arbitration pursuant to the terms of the agreement in which CGL
seeks specific performance of the agreement for its remaining six-year term, and
in the alternative, damages. Because of Seminole's admitted obligation to
reimburse CGL for its lost profits, the Company does not believe that this
dispute will have a material adverse effect on its financial condition or
results of operations, even if Seminole is successful in terminating its
performance under the agreement.

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 provisions, included in
Deferred Credits: Claims and Other, to cover its potential exposure and
anticipated recoveries from insurance companies, included in Other Assets. It is
reasonably possible that a change in the Company's estimate of its exposure
could occur. Although it is difficult to predict the costs of ultimately
resolving such issues, the Company does not expect such costs will have a
material effect on the Company's financial position or results of operations.

NOTE G - LEASES

In 1988, the Company entered into direct financing leases of two foreign
flag pure car carriers scheduled to expire in 2000. The Company sold one of
these vessels at the end of 1998. In 1998, the Company entered into a direct
financing lease of a foreign flag pure car/truck carrier expiring in the year
2018. The schedule of future minimum rentals to be received under these two
remaining direct financing leases in effect at December 31, 1998, is as follows:

Receivables Under
(ALL AMOUNTS IN THOUSANDS) Financing Leases
----------------
Year Ended December 31,

1999 ........................................... $ 10,916
2000 ........................................... 9,717
2001 ........................................... 8,760
2002 ........................................... 8,760
2003 ........................................... 8,710
Thereafter ..................................... 111,560
---------
Total Minimum Lease Payments Receivable ...................... 158,423
Estimated Residual Values of Leased Properties ............... 11,052
Less Unearned Income ......................................... (100,449)
---------
Total Net Investment in Direct
Financing Leases ............................................. 69,026
Current Portion .......................................... (2,532)
---------
Long-Term Net Investment in Direct
Financing Leases at December 31, 1998 .................... $ 66,494
=========

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) 1998 1997
-------- --------
LASH barges ................................ $ 24,936 $ 24,936
Less Accumulated Depreciation .............. (14,493) (12,406)
======== ========
Total .......................... $ 10,443 $ 12,530
======== ========

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, 1998:

Payments Under
(ALL AMOUNTS IN THOUSANDS) Capital Leases
------------------
Year Ended December 31,

1999 ......................................... $ 4,507
2000 ......................................... 4,514
2001 ......................................... 5,414
2002 ......................................... 3,080
2003 ......................................... 2,125
--------
19,640
Less Amount Representing Interest .......................... (4,641)
--------
Present Value of Future Minimum
Payments (BASED ON A WEIGHTED
AVERAGE OF 10.39%) ........................................ $ 14,999
========

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 through 2008. Rent expense
related to operating leases totaled approximately $5,028,000, $5,037,000, and
$2,444,000 for the years ended December 31, 1998, 1997, and 1996, 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, 1998:

Payments Under
(ALL AMOUNTS IN THOUSANDS) Operating Leases
-----------------
Year Ended December 31,

1999 .......................................... $2,887
2000 .......................................... 1,610
2001 .......................................... 1,471
2002 .......................................... 1,112
2003 .......................................... 950
------
Total Future Minimum Payments ............................... $8,030
======
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, the drydocking of
vessels, and financing costs. The costs of vessel prepositioning are amortized
over the applicable contract periods (generally 17 to 51 months). 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) 1998 1997
------- -------
Drydocking and
Prepositioning ............................... $29,897 $30,737
Financing Charges and Other .................. 8,952 8,223
======= =======
$38,849 $38,960
======= =======

The acquired contract cost represents the portion of the purchase price
paid for Waterman Steamship Corporation applicable primarily to that company's
maritime prepositioning ship contracts and operating differential subsidy
agreements. The acquired contract costs relating to the operating differential
subsidy agreements were fully amortized in the first quarter of 1997. The
Company amortized 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

MAJOR CUSTOMERS

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 $75,872,000,
$72,444,000, and $69,605,000 for the years ended December 31, 1998, 1997, and
1996, respectively. Additionally, the Company operates four U.S. flag LASH
vessels on subsidized liner service. Revenues, including subsidy revenue, from
this operation were $126,524,000, $125,323,000, and $131,859,000 for the years
ended December 31, 1998, 1997, and 1996, respectively.

CONCENTRATIONS

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, 1998 or 1997.

With only minor exceptions related to personnel aboard certain foreign
flag vessels, most of the Company's shipboard personnel are covered by
collective bargaining agreements. The Company is renegotiating certain of these
agreements, covering 20% of the Company's shipboard personnel, that expired
during 1998. The Company is currently operating under an extension of these
agreements and while the Company expects to finalize the negotiations soon, no
assurance can be given that the agreements will include terms and conditions
consistent with those contained in the current agreements.

GEOGRAPHIC INFORMATION

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. Revenues attributable
to the major geographic areas of the world are presented in the following table.
Revenues for the TIME CHARTER CONTRACTS and CONTRACTS OF AFFREIGHTMENT are
assigned to region based on the location of the customer. Revenues for the LINER
SERVICES are presented based on the location of the ports serviced by this
segment. Because the Company operates internationally, most of its assets are
not restricted to specific locations. Accordingly, an allocation of identifiable
assets to specific geographic areas is not possible.

Year ended December 31,
(ALL AMOUNTS IN THOUSANDS) 1998 1997 1996
-------- -------- --------
United States .............................. $140,750 $143,627 $142,198
Asian countries ............................ 45,809 43,462 38,863
Liner services operating between:
U.S. Gulf / East Coast ports and
ports in South Asia ............... 126,524 125,323 131,859
U.S. Gulf / East Coast ports and
ports in Northern Europe .......... 68,044 74,164 61,259

Other countries ............................ 3,021 4,480 4,748
-------- -------- --------
$384,148 $391,056 $378,927
======== ======== ========

OPERATING SEGMENTS

The Company's three operating segments are identified primarily based on
the characteristics of the contracts or terms under which its fleet of vessels
and barges are operated. The Company also reports an OTHER category that
includes results of several of the Company's subsidiaries that provide ship
charter brokerage, agency, barge fleeting and other specialized services
primarily to the Company's operating segments described below. Also included in
the OTHER category are corporate related items, results of insignificant
operations, and income and expense items not allocated to reportable segments.
Each of the reportable segments is managed separately as each requires different
resources depending on the nature of the contract or terms under which each
vessel within the segment operates. The Company's operating segments are
identified and described below.

LINER SERVICES: A liner service operates a vessel or vessels on an
established trade route with regularly scheduled sailing dates. The Company
receives revenues for the carriage of cargo within the established trading area
and pays the operating and voyage expenses incurred. The Company's LINER
SERVICES include a U.S. flag liner service between U.S. Gulf and East Coast
ports and ports in South Asia and a foreign flag transatlantic liner service
operating between U.S. Gulf and East Coast ports and ports in northern Europe.

TIME CHARTER CONTRACTS: These are contracts by which the charterer obtains
the right for a specified period to direct the movements and utilization of the
vessel in exchange for payment of a specified daily rate, but the Company
retains operations control over the vessel. Typically, the Company fully equips
the vessel and is responsible for normal operating expenses, repairs, wages and
insurance, while the charterer is responsible for voyage expenses, such as fuel,
port and stevedoring expenses. The Company's time charter contracts include
those by which the Military Sealift Command charters LASH, Roll-On/Roll-Off, and
Ice-Strengthened Multi-Purpose Vessels for contracts of varying terms. Also
included in this segment are contracts with car manufacturers for three Pure Car
Carriers and two Pure Car/Truck Carriers and with an electric utility for a
conveyor-equipped, self-unloading coal carrier. Additionally, the Company's
Cape-Size Bulk Carrier currently operating in the spot market is included in
this segment.

CONTRACTS OF AFFREIGHTMENT ("COA"): These are contracts by which the
Company undertakes to provide space on its vessel(s) for the carriage of
specified goods or a specified quantity of goods on a single voyage or series of
voyages over a given period of time between named ports or within certain
geographical area in return for the payment of an agreed amount per unit of
cargo carried. Generally, the Company is responsible for all operating and
voyage expenses. The Company's COA segment includes a coal transportation
contract with a Florida-based electric utility (SEE NOTE F), a sulphur
transportation contract with a major sulphur producer, and a contract to provide
ocean transportation services to a major mining company at its mine in West
Irian Jaya, Indonesia.
<PAGE>
The following table presents information about segment profit and segment
assets. The Company does not allocate interest income, administrative and
general expenses, or income taxes to its segments. Intersegment revenues are
based on market prices and include revenues earned by subsidiaries of the
Company that provide specialized services to the operating segments.
<TABLE>
<CAPTION>
Time
Liner Charter Contracts of
(ALL AMOUNTS IN THOUSANDS) Services Contracts Affreightment Other Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998
REVENUES FROM EXTERNAL CUSTOMERS .................... $194,568 $125,558 $ 56,154 $ 7,868 $384,148
INTERSEGMENT REVENUES ............................... -- -- -- 36,676 36,676
GROSS VOYAGE PROFIT BEFORE DEPRECIATION ............. 34,215 44,597 19,134 4,301 102,247
DEPRECIATION AND AMORTIZATION ....................... 18,760 32,427 7,789 1,326 60,302
INTEREST EXPENSE .................................... 6,246 12,452 8,897 1,143 28,738
IMPAIRMENT LOSS ..................................... -- 7,000 -- -- 7,000
GAIN ON SALE OF VESSEL .............................. -- 7,762 -- -- 7,762
SEGMENT PROFIT BEFORE INTEREST INCOME
ADMINISTRATIVE AND GENERAL
EXPENSES AND TAXES ............................. 15,037 15,695 3,648 2,435 36,815
SEGMENT ASSETS ...................................... 118,257 275,882 141,058 21,076 556,273
EXPENDITURES FOR SEGMENT ASSETS ..................... 19,410 104,183 4,415 3,005 131,013
- ------------------------------------------------------------------------------------------------------------------------------------
1997
Revenues from external customers .................... $199,487 $121,540 $ 60,406 $ 9,623 $391,056
Intersegment revenues ............................... -- -- -- 35,565 35,565
Gross voyage profit before depreciation ............. 22,583 42,624 21,903 2,862 89,972
Depreciation and amortization ....................... 18,114 32,383 7,288 1,213 58,998
Interest expense .................................... 6,301 10,942 9,287 1,124 27,654
Segment profit before interest income
administrative and general
expenses and taxes ............................. 4,408 16,345 6,088 908 27,749
Segment assets ...................................... 112,519 222,462 144,390 21,403 500,774
Expenditures for segment assets ..................... 14,444 16,547 1,274 5,726 37,991
- ------------------------------------------------------------------------------------------------------------------------------------
1996
Revenues from external customers .................... $193,118 $117,098 $ 61,108 $ 7,603 $378,927
Intersegment revenues ............................... -- -- -- 31,585 31,585
Gross voyage profit before depreciation ............. 29,163 41,873 22,473 6,023 99,532
Depreciation and amortization ....................... 16,699 26,846 6,660 1,688 51,893
Interest expense .................................... 7,100 11,152 9,334 942 28,528
Segment profit before interest income
administrative and general
expenses and taxes ............................. 10,965 16,273 6,826 4,356 38,420
Segment assets ...................................... 128,163 235,354 149,038 18,881 531,436
Expenditures for segment assets ..................... 24,919 33,027 34,929 3,153 96,028
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Following is a reconciliation of the totals reported for the operating
segments to the applicable line items in the consolidated financial statements:
<TABLE>
<CAPTION>
(ALL AMOUNTS IN THOUSANDS)
For the year ended December 31,
PROFIT: 1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Total profit loss for reportable segments ........................... $ 36,815 $ 27,749 $ 38,420
Unallocated amounts:
Interest income .............................................. 1,569 1,458 1,935
Administrative and general expenses .......................... 26,406 25,454 26,256
-------- -------- --------
Income before income taxes and extraordinary items .................. $ 11,978 $ 3,753 $ 14,099
======== ======== ========

December 31 , December 31, December 31,
ASSETS: 1998 1997 1996
-------- -------- --------
Total assets for reportable segments ................................ $556,273 $500,774 $531,435
Unallocated amounts ................................................. 133,531 117,430 130,161
-------- -------- --------
$689,804 $618,204 $661,596
======== ======== ========
</TABLE>
Unallocated assets include Current Assets of $119,214,000, $107,800,000,
and $123,200,000, as of December 31, 1998, 1997, and 1996, respectively. The
Company manages its Current Assets on a corporate rather than segment basis.

NOTE J - UNCONSOLIDATED ENTITIES

During 1998, the Company acquired 37.5% interest in Belden for
approximately $3.4 Million. Belden owns three companies that own and operate one
cement carrying vessel each under medium to long-term contracts. The Company's
portion of Belden's earnings from the date of the investment until December 31,
1998, was not material. LMS, a wholly-owned subsidiary of the Company, will be
providing ship management services for Belden beginning in 1999.

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.

NOTE K - SUPPLEMENTAL CASH FLOW INFORMATION

Year Ended December 31,
(ALL AMOUNTS IN THOUSANDS) 1998 1997 1996
------- ------- -------
Non-Cash Investing and Financing
Activities:
Current Liabilities to be
Refinanced .................. -- $22,511 $ 7,680

Cash Payments:
Interest Paid ................. $27,380 $26,818 $27,853
Taxes Paid .................... 4,319 3,321 13,723

During 1998, the Company sold one of its foreign flag pure car carriers
for $18,200,000 of which $15,200,000 was received in cash and $3,000,000 in the
form of a four year promissory note.

For purposes of the accompanying consolidated statements of cash flows,
the Company considers highly liquid debt instruments purchased with a maturity
of three months or less to be cash equivalents.

NOTE L - FAIR VALUE OF FINANCIAL INSTRUMENTS AND DERIVATIVES

The estimated fair values of the Company's financial instruments and
derivatives are as follows (asset/(liability)):

DECEMBER 31, December 31,
1998 1997
CARRYING FAIR CARRYING FAIR
(ALL AMOUNTS IN THOUSANDS) AMOUNT VALUE AMOUNT VALUE
--------- --------- --------- ---------
Foreign Currency Contracts . -- -- -- $ (80)
Commodity Swap Contract .... -- $ (593) -- --
Long-Term Debt ............. $(366,552) $(380,927) $(307,700) $(315,258)

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.

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 has 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 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. The term of the
currency derivatives is rarely more than one year. The Company had entered into
various forward purchase contracts for Singapore Dollars totaling $1,188,022 and
$859,000 U.S. Dollar equivalents to hedge against future payments due for
drydocking cost as of December 31, 1998 and 1997, respectively. 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, 1998 and 1997, the Company was also a party to
forward sales contracts in various currencies totaling $2,195,000 and $2,304,000
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.

COMMODITY CONTRACT

During 1998, the Company entered into a commodity swap with a commercial
bank for a portion of its estimated 1999 fuel purchases to manage the risk
associated with changes in fuel prices. The contract is effective for one year
beginning January 1, 1999, and is for 60,000 tons of fuel. The contract requires
that a payment be made for the difference between the contact rate of $75 per
ton and the market rate for the fuel on each settlement date. The fair value of
this commodity swap is the estimated amount that the bank would have received to
terminate the contract as of December 31, 1998.

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, 1998 and 1997. 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 Cash and
Cash Equivalents and Marketable Securities, approximated fair market value as of
December 31, 1998 and 1997, based upon current rates offered on similar
instruments.

NOTE M - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Following 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) 1998 1997
------- -------
Accrued Voyage Expenses ........................ $28,144 $27,257
Trade Accounts Payable ......................... 8,329 8,408
Accrued Interest ............................... 8,432 8,181
Self-Insurance Liability ....................... 6,627 6,278
Accrued Salaries and Benefits .................. 2,218 1,400
Accrued Vessel Costs ........................... 396 211
------- -------
$54,146 $51,735
======= =======

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>
1998 REVENUE .............................. $ 93,498 $ 94,988 $ 98,605 $ 97,057
EXPENSE .............................. 79,435 78,433 81,835 86,654
GROSS VOYAGE PROFIT .................. 14,063 16,555 16,770 10,403
INCOME BEFORE EXTRAORDINARY ITEM ..... 768 1,777 1,976 2,784
EXTRAORDINARY ITEM ................... (1,029) -- -- --
NET (LOSS) INCOME .................... (261) 1,777 1,976 2,784
EARNINGS (LOSS) PER COMMON
SHARE:
BASIC AND DILUTED:
INCOME BEFORE
EXTRAORDINARY ITEM ....... 0.11 0.27 0.29 0.42
EXTRAORDINARY ITEM ......... (0.15) -- -- --
NET (LOSS) INCOME .......... (0.04) 0.27 0.29 0.42
- ------------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
COMMON STOCK PRICES AND DIVIDENDS FOR EACH QUARTERLY PERIOD OF 1997 AND 1998

(Source: New York Stock Exchange)

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

Cash
Dividends
1998 High Low Paid
- -------------- ------------ --------------- ------------

1st Quarter 17 1/4 16 1/16 .0625/Share
2nd Quarter 17 5/16 16 1/16 .0625/Share
3rd Quarter 16 1/2 14 1/2 .0625/Share
4th Quarter 16 5/8 14 11/16 .0625/Share

Approximate Number of Common Stockholders of Record at February 26, 1999: 737
<PAGE>
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, 1998 and 1997, 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, 1998. 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, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles.

/s/ Arthur Anderson LLP
New Orleans, Louisiana
January 18, 1999

INTERNATIONAL SHIPHOLDING CORPORATION
SUBSIDIARIES OF THE REGISTRANT
AS OF DECEMBER 31, 1998

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 Shipping Pte. Ltd. Singapore
Forest Lines Inc. Liberia
Marco Shipping Co. Pte. Ltd. Singapore
Marcoship Agencies Malaysia

Belden Shipping Pte Ltd (3) Singapore

Echelon Shipping Inc. (4) Panama

Carson Shipping Inc. (4) Panama

Shining Star Malta Ltd (4) Malta

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) 25% owned by LCI Shipholdings, Inc.
(3) 37.5% owned by LCI Shipholdings, Inc.
(4) 60% owned by N.W. Johnsen & Co., Inc.

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.

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE PERIOD ENDED DECEMBER 31, 1998 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-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 32,008
<SECURITIES> 12,136
<RECEIVABLES> 53,868
<ALLOWANCES> 334
<INVENTORY> 13,130
<CURRENT-ASSETS> 119,214
<PP&E> 790,776
<DEPRECIATION> 356,217
<TOTAL-ASSETS> 689,804
<CURRENT-LIABILITIES> 74,300
<BONDS> 361,425
0
0
<COMMON> 6,756
<OTHER-SE> 170,352
<TOTAL-LIABILITY-AND-EQUITY> 689,804
<SALES> 0
<TOTAL-REVENUES> 384,148
<CGS> 0
<TOTAL-COSTS> 352,763
<OTHER-EXPENSES> 28,738
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28,738
<INCOME-PRETAX> 11,978
<INCOME-TAX> 4,673
<INCOME-CONTINUING> 7,305
<DISCONTINUED> 0
<EXTRAORDINARY> (1,029)
<CHANGES> 0
<NET-INCOME> 6,276
<EPS-PRIMARY> 0.94
<EPS-DILUTED> 0.94

</TABLE>