================================================================================
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, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NO. 2-63322
INTERNATIONAL SHIPHOLDING CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 36-2989662
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
650 POYDRAS STREET, NEW ORLEANS, LOUISIANA 70130
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (504) 529-5461
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
Common Stock, $1 Par Value New York Stock Exchange
9% Senior Notes Due 2003 New York Stock Exchange
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
---- ------
February 28, 2000 $36,050,200
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...... 6,082,887 shares outstanding as of
February 28, 2000
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement dated March 14,
2000, 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, 1999, the Company's fleet consisted of 35 ocean-going vessels, 4
towboats, 16 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 12 large LASH
vessels, two 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) two U.S.
flag pure car carriers specially designed to transport fully assembled
automobiles and two U.S. flag and two foreign flag car/truck carriers 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; and (vii)
three roll-on/roll-off ("RO/RO") vessels that permit rapid deployment of rolling
stock, munitions, and other military cargoes requiring special handling. 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 contained in this Form 10-K on page F-18.
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,
2
<PAGE>
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 two Pure Car Carriers and four 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 a pool
with several similar size vessels owned by two major European shipowners is
included in this segment.
CONTRACTS OF AFFREIGHTMENT, ("COA"). 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 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.
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, International Shipholding Corporation 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
3
<PAGE>
acquire not only a LASH vessel (estimated to cost approximately $70 - $80
million to build), but also three sets of approximately 90 barges each
(estimated to cost approximately $90,000 - $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, 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 78 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
4
<PAGE>
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 one FLASH vessel that
is used as feeder vessel 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 three
of 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 2000. 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 jute, piece goods,
and other general cargo. Over the last five years, these vessels generally have
been fully utilized on their westbound voyages.
5
<PAGE>
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 to
perform feeder services for Waterman in the Indian Ocean area and after the
first quarter of 2000 will be placed in lay-up in Singapore awaiting possible
sale. 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 eight
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 with the Company, 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."
o LASH VESSELS. The Company currently time charters to the MSC three U.S. flag
LASH vessels which are used in the military's prepositioning force in the
Indian Ocean. Two of these contracts expire in 2000, and the third 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.
o 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.
o 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.
6
<PAGE>
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
o 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. In
1999, the Company acquired a newly built U.S. flag car/truck carrier, which
immediately after being delivered to the Company in September of 1999 entered
a long-term charter to the same major Japanese shipping company.
o FOREIGN FLAG. In 1988, 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, to transport Hyundai automobiles from South
Korea primarily to the United States and Europe under two long-term charters
that expired in 2000. In 1998 and 1999, respectively, the Company sold both
of these car carriers.
Also in 1998 and 1999, respectively, the Company purchased two
newbuilding car/truck carriers with the capacity to carry heavy and large
size rolling stock in addition to automobiles and trucks. These vessels
immediately entered into a long-term charter to a major Far Eastern company.
Under each of the Company's car/truck 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. 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 Dead Weight Tons ("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
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
7
<PAGE>
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. The Company owns an all weather rapid cargo transfer
facility at the river port of Memphis, Tennessee, which handles 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.
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 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
8
<PAGE>
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.
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. This program eliminates the trade route restrictions imposed by the
previous federal 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, 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; two of Central Gulf's car carriers commenced
immediate operation
9
<PAGE>
in the MSP on December 20, 1996; and Central Gulf's new car carrier began
receiving MSP payments in April of 1998. In 1999, Waterman substituted a new
pure car/truck carrier for one of its LASH vessels in the MSP. 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 molten sulphur transportation
contract 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 implemented a comprehensive program to
obtain timely IMO certification for all of its vessels and 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.
10
<PAGE>
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 Farrell
Lines, Inc., APL, and Maersk-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/truck 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.
11
<PAGE>
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, 1995 and 1996, the Company received aggregate
subsidy payments under this program of $22.7 million and $25.6 million,
respectively. Although the Company's ODS agreement has lapsed, three of the four
of the Company's LASH vessels that previously received such subsidies, and four
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 the government's 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 eight 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.
COMMODITY PRICE. The Company is exposed to commodity price risk related to
purchases it must make during the course of business for its fuel consumption.
The Company has been successful in hedging a portion of the fuel purchases
during the year. However for the portions that are not hedged, the Company
12
<PAGE>
can give no assurance that it will be able to offset its higher fuel cost due to
competitive conditions in the business.
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 35.46% of the common stock of the
Company as of December 31, 1999. 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.
EMPLOYEES
As of December 31, 1999, the Company employed approximately 660 shipboard
personnel and 301 shoreside personnel. The Company considers relations with its
employees to be excellent.
All of the Company's U.S. shipboard personnel and certain shoreside
personnel are covered by collective bargaining agreements. Central Gulf,
Waterman, and other U.S. shipping companies are subject to collective bargaining
agreements for shipboard personnel in which the shipping companies servicing
U.S. Gulf and East Coast ports also must make contributions to pension plans for
dockside workers. The Company has experienced no strikes or other significant
labor problems during the last ten years.
ITEM 2. PROPERTIES
VESSELS AND BARGES. Of the 35 ocean-going vessels in the Company's fleet
at December 31, 1999, 28 are owned by the Company, four are 30% owned by the
Company, and three are operated under operating contracts. Of the 1,864 LASH
barges in the Company's fleet, 1,763 are operated in conjunction with the
Company's LASH and FLASH vessels. Of these, the Company owns approximately 1,444
barges and leases 319 barges under capital leases with 12-year terms expiring in
late 2003 and early 2004. The remaining 101 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 also owns 16 standard river barges,
which are chartered to unaffiliated companies on a short-term basis along with
four 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 101 LASH barges not required for current vessel
operations. Since 1988, the Company has completed life extension work on most of
its 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
contained in this Form 10-K on page F-11).
13
<PAGE>
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 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 1999, the aggregate annual rental payments under
these operating leases totaled approximately $2.6 million.
The Company owns a facility in Jefferson Parish, Louisiana that is used
primarily for the maintenance and repair of barges. The Company also owns a bulk
coal transfer terminal in Gulf County, Florida.
ITEM 3. LEGAL PROCEEDINGS
Early in the third quarter of 1999, the Company settled its outstanding
contract litigation with Seminole Electric Cooperative, Inc. ("Seminole"). In
the settlement, Seminole paid $22.975 Million to Central Gulf, a wholly owned
subsidiary of the Company, and all disputes between Central Gulf and Seminole
were terminated. This settlement, less related expenses, is reported in the
Company's Consolidated Statements of Income for the year 1999.
The settlement fully resolves all litigation among Central Gulf, Seminole
and their respective subsidiaries and affiliates. The litigation, which involved
three separate lawsuits in state and federal courts in Florida, arose out of
Seminole's unilateral termination of its contract with Central Gulf for the
transportation of coal by Central Gulf from Mt. Vernon, Indiana to Gulf County,
Florida. The contract, entered into in 1981, would have expired in 2004
according to its terms. Seminole notified the Company and Central Gulf on
December 15, 1998, that it was terminating performance under the agreement,
commencing alternative rail transportation and commencing the litigation.
Seminole's stated purpose in instituting the litigation was to confirm
Seminole's ability to terminate performance under the agreement and establish
the damages owed by Seminole to Central Gulf as a result of the termination.
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 - Commitments and
Contigencies of the Notes to the Company's Consolidated Financial Statements
contained in this Form 10-K on page F-16).
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
14
<PAGE>
Manuel G. Estrada Vice President and Controller
Harold S. Grehan, Jr. Director
Raymond V. O'Brien, Jr. Director
Edwin Lupberger Director
Edward K. Trowbridge Director
NIELS W. JOHNSEN, 77, 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, 74, 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, 54, 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, 42, 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, 59, 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, 44, 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, 45, 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., 72, 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 since that
time.
RAYMOND V. O'BRIEN, Jr., 72, 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.
15
<PAGE>
EDWIN LUPBERGER, 63, 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, Louisiana.
EDWARD K. TROWBRIDGE, 71, 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
COMMON STOCK PRICES AND DIVIDENDS
FOR EACH QUARTERLY PERIOD OF 1998 AND 1999
(Source: New York Stock Exchange)
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
Dividends
1999 High Low Paid
- ------------------ ----------------- ----------------- -----------------
1st Quarter 16 5/16 12 1/2 .0625/Share
2nd Quarter 14 3/8 11 14/16 .0625/Share
3rd Quarter 15 3/16 11 3/16 .0625/Share
4th Quarter 13 1/2 9 15/16 .0625/Share
Approximate Number of Common Stockholders of Record at February 28, 2000: 675
16
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
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,
-----------------------------------------------------------------------------
1999 (1) 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues ........................................ $ 373,209 $ 384,148 $ 391,056 $ 378,927 $ 341,789
Gross Voyage Profits ............................ $ 66,681 $ 57,791 $ 55,403 $ 66,948 $ 64,536
Operating Income ................................ $ 53,972 $ 39,147 $ 29,949 $ 40,692 $ 37,921
Income Before Extraordinary Item ................ $ 14,623 $ 7,305 $ 2,155 $ 8,636 $ 20,980
Extraordinary Item .............................. - $ (1,029) - $ (813) -
Net Income ...................................... $ 14,623 $ 6,276 $ 2,155 $ 7,823 $ 20,980
Basic and Diluted Earnings Per Common and
Common Equivalent Share
Before Extraordinary Item ................. $ 2.28 $ 1.09 $ 0.32 $ 1.29 $ 3.14
Extraordinary Item ........................ - $ (0.15) - $ (0.12) -
Net Income ................................ $ 2.28 $ 0.94 $ 0.32 $ 1.17 $ 3.14
BALANCE SHEET DATA:
Working Capital ................................. $ 35,571 $ 44,914 $ 39,961 $ 26,928 $ 13,407
Total Assets .................................... $ 735,003 $ 689,804 $ 618,204 $ 661,596 $ 647,580
Long -Term Debt (including Capital
Lease Obligations and Current
Liabilities to be Refinanced) ................ $ 400,442 $ 361,425 $ 309,340 $ 324,756 $ 308,525
Common Stockholders' Investment ................. $ 182,484 $ 177,108 $ 172,805 $ 172,407 $ 166,261
OTHER DATA:
EBITDA (2) ...................................... $ 102,397 $ 101,284 $ 91,657 $ 94,929 $ 81,877
Cash Dividends Per Common Share ................. $ 0.25 $ 0.25 $ 0.25 $ 0.25 $ 0.1825
Weighted Average of Common and
Common Equivalent Shares .................... 6,424,193 6,682,216 6,682,887 6,682,887 6,682,887
</TABLE>
(1) Results for year 1999 includes the proceeds from a settlement with Seminole
Electric Cooperative, Inc. ("Seminole") resulting from their early
termination of the Company's coal transportation contract. The reported
settlement of approximately $20.6 Million was net of related expenses of
approximately $1.8 Million.
(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.
ITEM 7. 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
17
<PAGE>
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 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 in 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; (xii) unanticipated outcomes of current or
possible future legal proceedings; (xiii) and other economic, competitive,
governmental, and technological factors which may affect the Company's
operations.
The Company cautions readers that it assumes no obligation to update or
publicly release any revisions to forward-looking statements made in this report
or elsewhere by, or on behalf of, the Company.
RESULTS OF OPERATIONS
The Company's vessels are operated under a variety of charters and
contracts. The nature of these arrangements is such that, without a material
variation in gross voyage profits (total revenues less voyage expenses and
vessel and barge depreciation), the revenues and expenses attributable to a
vessel deployed under one type of charter or contract can differ substantially
from those attributable to the same vessel if deployed under a different type of
charter or contract. Accordingly, depending on the mix of charters or contracts
in place during a particular accounting period, the Company's revenues and
expenses can fluctuate substantially from one period to another even though the
number of vessels deployed, the number of voyages completed, the amount of cargo
carried and the gross voyage profit derived from the vessel remain relatively
constant. As a result, fluctuations in voyage revenues and expenses are not
necessarily indicative of trends in profitability, and management believes that
gross voyage profit is a more appropriate measure of operating performance than
revenues. Accordingly, the discussion below addresses variations in gross voyage
profits rather than variations in revenues.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
GROSS VOYAGE PROFIT. Gross voyage profit increased to $66.7 Million in
1999 as compared to $57.8 Million in 1998. The improvement stemmed primarily
from the profits received by the Company as a result of a settlement with
Seminole Electric Cooperative, Inc. ("Seminole") from their early termination of
the Company's coal transportation contract. In December of 1998, Seminole
unilaterally terminated the contract prematurely, originally scheduled to expire
in 2004. The Company received a settlement of approximately $23.0 Million
including proceeds from the sale of three super jumbo River Barges for
approximately $648,000. The reported settlement of approximately $20.6 Million
was net of related expenses of approximately $1.8 Million, and is included in
the Company's CONTRACTS OF AFFREIGHTMENT segment. Adjusted to eliminate the
results of the 1998 operations under this contract and the 1999 contract
18
<PAGE>
termination and settlement, the Company's gross voyage profit for 1999 would
have resulted in a decrease of approximately 12.5%. The decrease was primarily
as a result of lower results from the Company's LINER SERVICES and CONTRACTS OF
AFFREIGHTMENT segment, after the elimination of the results of the Seminole
contract.
The Company's LINER SERVICES segment 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 decreased 50.4% from $34.2 Million in 1998 to $17
Million in 1999. Contributing to the decrease was the out of service time on one
of the Company's LASH vessels, the "GREEN ISLAND", resulting from a casualty
that occurred late in the first quarter of 1999 and extended into September of
1999. In addition, higher fuel prices and reduced cargo volume on the Company's
transatlantic service contributed to the decreased profits in 1999.
The Company's CONTRACTS OF AFFREIGHTMENT segment's gross profit before
depreciation, after eliminating the Seminole results for 1998 and 1999,
decreased 8.2% to $12.4 Million in 1999 from $13.5 Million in 1998 primarily as
a result of less revenue tons carried in 1999. 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 2006 with seven
three-year renewal options and a buy-out provision beginning in December of
2001; and a contract for a Molten Sulphur Carrier that extends through 2009 with
renewal options through 2024.
The decreased results for the LINER SERVICES and CONTRACTS OF
AFFREIGHTMENT segments were partially offset by higher gross voyage profit from
the TIME CHARTER CONTRACTS segment. The Company's TIME CHARTER CONTRACTS segment
includes sixteen vessels operating primarily under medium to long-term
contracts, eight of which are with the Military Sealift Command ("MSC")
including contracts for the operation of three LASH, three RO/RO, and two Ice
Strengthened Multi-Purpose vessels. The three 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 two of the LASH vessels are currently in their second option
periods expiring in late 2000. The contract for the third 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 eight vessels in this segment include two Pure Car Carriers
("PCC") with contracts extending into 2003; four Pure Car/Truck Carriers
("PCTC") with contracts for one extending into 2014, another extending into
2018, and two extending into 2019; the "ENERGY ENTERPRISE," a coal carrier, with
a contract extending into 2010; and the Company's Cape-Size Bulk Carrier now
operating in a pool with several similar size vessels owned by two major
European shipowners.
The TIME CHARTER CONTRACTS segment's gross voyage profit before
depreciation increased 14.4% from $44.6 Million in 1998 to $51 Million in 1999.
This segment benefited from the commencement of operations of the Company's
newly acquired PCTC, "GREEN POINT," in the second quarter of 1998. In addition,
the Company sold two of its PCC's, one in December of 1998 and the other in May
of 1999, as part of the Company's plan to replace these older and smaller
vessels with two newer and larger PCTC's, the "ASIAN KING" and "ASIAN EMPEROR,"
which commenced operations upon delivery to the Company in December of 1998 and
May of 1999, respectively. Additionally, in September of 1999, the Company added
another newly built PCTC, the "GREEN DALE," which upon delivery was chartered to
a major Japanese ship operator for a multi-year term.
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 increased 16.6% from $4.3 Million in 1998 to $5 Million in 1999
primarily resulting from recovery of previously paid foreign taxes.
19
<PAGE>
Vessel and barge depreciation increased 4.8% from $37.5 Million in 1998 to
$39.3 Million in 1999 due to the commencement of operations of the "GREEN
POINT," the "GREEN DALE" and the "HICKORY," a LASH vessel purchased early in
1998, placed into service in May of 1999, and now operating in the LINER
SERVICES segment as a feeder vessel. In addition, depreciation on one the
Company's LASH vessels operating in the LINER SERVICES segment increased due to
capital improvements made in 1999.
OTHER INCOME AND EXPENSES. Administrative and general expenses decreased
8% from $26.4 Million in 1998 to $24.3 Million in 1999.
Earnings in 1999 included a gain of $2.4 Million recognized on the sale of
a parcel of land no longer required in the Company's operations and a gain of
$9.2 Million recognized on the sale of a PCC in May of 1999 and a towboat in
December of 1999, offset slightly by the loss recognized on the sale of two of
the Company's FLASH units in October of 1999. 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 above, the sale of the two PCC's were part of the
Company's plan to replace these vessels with two newer and larger PCTC's that
delivered in December of 1998 and May of 1999, respectively.
Interest expense increased 11.7% to $32.1 Million in 1999 as compared to
$28.7 Million in 1998. The increase resulted primarily from the financing
associated with the acquisition of the "ASIAN KING" at the end of 1998, the
acquisition of the "ASIAN EMPEROR" in May of 1999 and the acquisition of the
"GREEN DALE" in September of 1999.
Investment income decreased from $1.6 Million in 1998 to $1.3 Million in
1999 due to less favorable interest rates.
INCOME TAXES. The Company provided $8.2 Million and $4.4 Million for
Federal income taxes at the statutory rate of 35% for 1999 and 1998,
respectively.
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. 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 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 that
delivered to the Company in December of 1998.
The TIME CHARTER CONTRACTS segment was also negatively impacted in 1998 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.
20
<PAGE>
The improved results before the impairment loss for the LINER SERVICES and
TIME CHARTER CONTRACT segments were slightly offset by lower gross voyage profit
from the CONTRACTS OF AFFREIGHTMENT segment. 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. 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.
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.
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.
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.
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 decreased from $44.9 Million at December 31,
1998, to $35.6 Million at December 31, 1999, after provision for current
maturities of long-term debt and capital lease obligations of $26.4 Million.
Cash and cash equivalents decreased during 1999 by $13.3 Million to a total of
$18.7 Million, as cash used for investing of $96.8 Million exceeded operating
and financing cash flows of $47.6 Million and $35.9 Million, respectively.
The major source of cash flows from operating activities of $47.6 Million
was net income adjusted for the gain on the sale of the vessels and other
property and noncash provisions such as depreciation and amortization. Other
sources of cash flows were the proceeds from the coal transportation contract
settlement offset by the net revenue from the settlement.
Net cash used for investing activities of $96.8 Million included the
purchase of two PCTC's and capital improvements on two LASH vessels operating in
the LINER SERVICES segment all of which totaled approximately $108.3 Million,
and $14.5 Million for the cost of drydocking certain vessels. These uses of cash
were partially offset by the proceeds of $25.8 Million received from the sale of
the PCC, the two FLASH units, a towboat, the land and other assets.
The net cash provided by financing activities of $35.9 Million included
proceeds from the financing of the "ASIAN EMPEROR" for $47 Million, financing of
the "GREEN DALE" for $32.4 Million and draws
21
<PAGE>
against the Company's line of credit totaling $49 Million, offset by reductions
of debt and capital lease obligations of $83.1 Million stemming from regularly
scheduled principal payments and repayments of amounts drawn under lines of
credit, and $7.2 Million 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 1999. 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 1999 amounted to
approximately $1.6 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, 1999, the Company had available a $48 Million revolving
credit facility. Draws against this facility totaled $22 Million at December 31,
1999, of which $3 Million was repaid in January of 2000.
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. In October
of 1999, the Company had completed the program. In October of 1999, the
Company's Board of Directors approved another stock repurchase program to buy up
to 1,000,000 shares of its common stock, based on the Board's belief that the
current market value of the Company's common stock does not adequately reflect
the Company's inherent value. The repurchases are expected to 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, 1999, 595,700 shares had been
repurchased under these two programs, of which 577,125 had been repurchased
during 1999, for a total cost of $7,521,000 at an average market price of $12.68
per share. Subsequent to year-end as of February 14, 2000, the Company
repurchased an additional 4,300 shares for a total cost of approximately $51,000
at an average market price of $11.77 per share.
COAL TRANSPORTATION CONTRACT
Early in the third quarter of 1999, the Company settled its outstanding
contract litigation with Seminole. In the settlement, Seminole paid
approximately $23.0 Million to the Company's wholly owned subsidiary, Central
Gulf Lines, Inc. ("Central Gulf"), and all disputes between Central Gulf and
Seminole were terminated. This settlement, less related expenses, is reported in
the Company's Consolidated Statements of Income for the year 1999.
The settlement fully resolves all litigation among Central Gulf, Seminole
and their respective subsidiaries and affiliates. The litigation, which involved
three separate lawsuits in state and federal courts in Florida, arose out of
Seminole's unilateral termination of its contract with Central Gulf for the
transportation of coal by Central Gulf from Mt. Vernon, Indiana to Gulf County,
Florida. The contract, entered into in 1981, would have expired in 2004
according to its terms. Seminole notified the Company and Central Gulf on
December 15, 1998, that it was terminating performance under the agreement,
commencing alternative rail transportation and commencing the litigation.
Seminole's stated purpose in instituting the litigation was to confirm
Seminole's ability to terminate performance under the agreement and establish
the damages owed by Seminole to Central Gulf as a result of the termination. The
settlement effectively disposed of these issues.
22
<PAGE>
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."
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-Employee Benefit Plans of the Notes to the Consolidated Financial Statements
contained in this Form 10-K on page F-12).
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. In June
of 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments
and Hedging Activities - Deferral of the Effective Date of FASB Statement No.
133." SFAS No. 137 is an amendment of SFAS No. 133 and defers the effective date
of SFAS No. 133 to June 15, 2000. 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. 137
will have on its financial statements once adopted. While the Company has not
yet quantified the impact on its financial statements, the Company does not
believe adoption will have a material impact on net income, although adoption is
likely to increase volatility of comprehensive income and accumulated other
comprehensive income. (See Note A-Summary of Significant Accounting Policies of
the Notes to the Consolidated Financial Statements contained in this Form 10-K
on page F-8).
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
In the ordinary course of its business, the Company is exposed to foreign
currency, interest rate, and commodity price risk. The Company utilizes
derivative financial instruments including interest rate swap agreements,
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, 1999, 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 $408.8 Million compared to a carrying value of $414.7 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, 1999, would be approximately $10.6 Million or 3% of the carrying
value.
In December of 1998, the Company entered into an interest rate swap
agreement with a commercial bank to reduce the possible impact of higher
interest rates in the long-term market by utilizing the fixed rate available
with the swap. During September of 1999, the Company entered into another
interest rate swap agreement with a commercial bank to reduce the possible
impact of higher interest rates in the long-term market by utilizing the fixed
rate available with the swap. For both agreements, the fixed rate payor is the
Company, and the floating rate payor is the commercial bank. While these
arrangements are structured to reduce the Company's exposure to increases in
interest rates, it also limits the benefit the Company might otherwise receive
from any decreases in interest rates.
23
<PAGE>
The fair value of these agreements at December 31, 1999, estimated based
on the amount that the banks would receive or pay to terminate the swap
agreements at the reporting date, taking into account current market conditions
and interest rates, was an asset of $3.7 Million. A hypothetical 10% decrease in
interest rates as of December 31, 1999, would have resulted in a $1.7 Million
decrease in the fair value of the asset.
FOREIGN EXCHANGE RATE RISK. The Company has entered into foreign exchange
contracts to hedge certain firm purchase and sale commitments with varying
maturities throughout 2000. The exchange rates at which these hedges were
entered into did not materially differ from the exchange rates in effect at
December 31, 1999. The potential fair value of these contracts that would have
resulted from a hypothetical 10% adverse change in the exchange rates applicable
to these contracts at December 31, 1999, was a liability of approximately
$272,000.
COMMODITY PRICE RISK. Subsequent to the end of 1999, the Company entered
into two commodity swap agreements to manage the Company's exposure to price
risk related to the purchase of a portion of the estimated 2000 fuel
requirements for its LINER SERVICES segment. The agreement locked in the price
the Company would pay per ton of fuel for 2000 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information called for by Item 8 begins on page F-1 of 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 14, 2000, 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 14, 2000, 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 14, 2000, filed
pursuant to Section 14(a) of the Securities Exchange Act of 1934, and is
incorporated herein by reference.
24
<PAGE>
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 on pages
F-1 through F-24 of this Form 10-K.
Report of Independent Public Accountants
Consolidated Statements of Income for the years ended December 31, 1999,
1998, and 1997
Consolidated Balance Sheets at December 31, 1999 and 1998
Consolidated Statements of Changes in Stockholders' Investment for the
years ended December 31, 1999, 1998, and 1997
Consolidated Statements of Cash Flows for the years ended December 31,
1999, 1998, and 1997
Notes to Consolidated Financial Statements
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).
25
<PAGE>
(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.)
(10.1) First Amended and Restated Credit Agreement dated as of March 31,
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.
(10.2) Second Amended and Restated Credit Agreement dated as of May 4,
1999, by and among the Company, as Borrower, Certain Lenders, as
signatories thereto, Citicorp Securities, Inc., as Arranger, and
Citibank, N.A., as Administrative Agent.
(10.3) Amendment No. 1 dated as of September 3, 1999, by and among the
Company, as Borrower, Certain Lenders, as signatories thereto,
Citicorp Securities, Inc., as Arranger, and Citibank, N.A., as
Administrative Agent.
(21) Subsidiaries of International Shipholding Corporation
(27) Financial Data Schedule
(b) A report on Form 8-K was filed August 6, 1999, to report the settlement of
the Company's outstanding contract litigation with Seminole Electric
Cooperative, Inc.
26
<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 1, 2000 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 1, 2000 By /s/ NIELS W. JOHNSEN
Niels W. Johnsen
Chairman of the Board, Director and
Chief Executive Officer
March 1, 2000 By /s/ ERIK F. JOHNSEN
Erik F. Johnsen
President and Director
March 1, 2000 By /s/ NIELS M. JOHNSEN
Niels M. Johnsen
Executive Vice President and Director
March 1, 2000 By /s/ ERIK L. JOHNSEN
Erik L. Johnsen
Executive Vice President and Director
March 1, 2000 By /s/ HAROLD S. GREHAN, JR.
Harold S. Grehan, Jr.
Director
March 1, 2000 By /s/ RAYMOND V. O'BRIEN, JR.
Raymond V. O'Brien, Jr.
Director
27
<PAGE>
March 1, 2000 By /s/ EDWIN LUPBERGER
Edwin Lupberger
Director
March 1, 2000 By /s/ EDWARD K. TROWBRIDGE
Edward K. Trowbridge
Director
March 1, 2000 By /s/ GARY L. FERGUSON
Gary L. Ferguson
Vice President and Chief Financial Officer
March 1, 2000 By /s/ MANNY G. ESTRADA
Manny G. Estrada
Vice President and Controller
28
<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.)
(10.1) First Amended and Restated Credit Agreement dated as of March 31, 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.
(10.2) Second Amended and Restated Credit Agreement dated as of May 4, 1999,
by and among the Company, as Borrower, Certain Lenders, as signatories
thereto, Citicorp Securities, Inc., as Arranger, and Citibank, N.A., as
Administrative Agent.
(10.3) Amendment No. 1 dated as of September 3, 1999, by and among the
Company, as Borrower, Certain Lenders, as signatories thereto, Citicorp
Securities, Inc., as Arranger, and Citibank, N.A., as Administrative
Agent.
(21) Subsidiaries of International Shipholding Corporation
(27) Financial Data Schedule
29
<PAGE>
INDEX OF FINANCIAL STATEMENTS
Report of Independent Public Accountants................................. F-2
Consolidated Statements of Income for the years ended
December 31, 1999, 1998, and 1997..................................... F-3
Consolidated Balance Sheets at December 31, 1999 and 1998................ F-4
Consolidated Statements of Changes in Stockholders' Investment
for the years ended December 31, 1999, 1998, and 1997................. F-6
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998, and 1997..................................... F-7
Notes to Consolidated Financial Statements............................... F-8
F-1
<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, 1999 and 1998, 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, 1999. 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, 1999 and 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999 in conformity with generally
accepted accounting principles.
/s/ Arthur Andersen LLP
New Orleans, Louisiana
January 14, 2000
F-2
<PAGE>
INTERNATIONAL SHIPHOLDING CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(ALL AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Revenues ..................................... $ 338,666 $ 370,056 $ 375,515
Subsidy Revenue .............................. 13,991 14,092 15,541
Net Revenue from Contract Settlement ......... 20,552 -- --
--------- --------- ---------
373,209 384,148 391,056
--------- --------- ---------
Operating Expenses:
Voyage Expenses ..................... 267,263 281,901 301,084
Vessel and Barge Depreciation ....... 39,265 37,456 34,569
Impairment Loss ..................... -- 7,000 --
--------- --------- ---------
Gross Voyage Profit ............ 66,681 57,791 55,403
--------- --------- ---------
Administrative and General Expenses .......... 24,282 26,406 25,454
Gain on Sale of Land ......................... 2,408 -- --
Gain on Sale of Vessels ...................... 9,165 7,762 --
--------- --------- ---------
Operating Income .................... 53,972 39,147 29,949
--------- --------- ---------
Interest:
Interest Expense .................... 32,102 28,738 27,654
Investment Income ................... (1,339) (1,569) (1,458)
--------- --------- ---------
30,763 27,169 26,196
--------- --------- ---------
Income Before Provision (Benefit) for
Income Taxes, Equity in Net Loss of
Unconsolidated Entities and
Extraordinary Item ......................... 23,209 11,978 3,753
--------- --------- ---------
Provision (Benefit) for Income Taxes:
Current ............................. 4,086 2,987 3,119
Deferred ............................ 4,131 1,385 (1,773)
State ............................... 284 301 252
--------- --------- ---------
8,501 4,673 1,598
--------- --------- ---------
Equity in Net Loss of Unconsolidated
Entities (Net of Applicable Taxes) ....... (85) -- --
--------- --------- ---------
Income Before Extraordinary Item ............. $ 14,623 $ 7,305 $ 2,155
--------- --------- ---------
Extraordinary Loss on Early Extinguishment of
Debt (Net of Income Tax Benefit of $554) .. -- (1,029) --
--------- --------- ---------
Net Income ................................... $ 14,623 $ 6,276 $ 2,155
========= ========= =========
Basic and Diluted Earnings Per Share:
Income Before Extraordinary Loss ...... $ 2.28 $ 1.09 $ 0.32
Extraordinary Loss .................... -- (0.15) --
--------- --------- ---------
Net Income ............................ $ 2.28 $ 0.94 $ 0.32
========= ========= =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
F-3
<PAGE>
INTERNATIONAL SHIPHOLDING CORPORATION
CONSOLIDATED BALANCE SHEETS
(ALL AMOUNTS IN THOUSANDS)
DECEMBER 31, DECEMBER 31,
ASSETS 1999 1998
----------- -----------
Current Assets:
Cash and Cash Equivalents ..................... $ 18,661 $ 32,008
Marketable Securities ......................... 11,337 12,136
Accounts Receivable, Net of Allowance for
Doubtful Accounts of $294 and $334 in
1999 and 1998, Respectively:
Traffic ................................... 47,855 40,543
Agents' ................................... 6,660 8,082
Claims and Other .......................... 7,174 5,243
Federal Income Taxes Receivable ............... 583 1,325
Deferred Income Taxes ......................... 60 --
Net Investment in Direct Financing Leases ..... 3,137 2,532
Other Current Assets .......................... 4,134 4,215
Material and Supplies Inventory, at
Lower of Cost or Market ..................... 12,726 13,130
--------- ---------
Total Current Assets ............................. 112,327 119,214
--------- ---------
Marketable Equity Securities ..................... 234 205
--------- ---------
Investment in Unconsolidated Entities ............ 2,805 3,368
--------- ---------
Net Investment in Direct Financing Leases ........ 112,032 66,494
--------- ---------
Vessels, Property, and Other Equipment, at Cost:
Vessels and Barges ............................ 775,001 745,390
Other Marine Equipment ........................ 7,897 7,776
Terminal Facilities ........................... 18,470 18,494
Land .......................................... 1,230 2,317
Furniture and Equipment ....................... 17,222 16,799
--------- ---------
819,820 790,776
Less - Accumulated Depreciation ................. (379,588) (356,217)
--------- ---------
440,232 434,559
--------- ---------
Other Assets:
Deferred Charges, Net of Accumulated
Amortization of $49,880 and $60,494
in 1999 and 1998, Respectively ............. 39,692 38,849
Acquired Contract Costs, Net of
Accumulated Amortization of $15,609 and
$14,154 in 1999 and 1998, Respectively...... 14,916 16,371
Due from Related Parties ..................... 580 296
Other ........................................ 12,185 10,448
--------- ---------
67,373 65,964
--------- ---------
$ 735,003 $ 689,804
========= =========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
F-4
<PAGE>
INTERNATIONAL SHIPHOLDING CORPORATION
CONSOLIDATED BALANCE SHEETS
(ALL AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
--------- ---------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
Current Maturities of Long-Term Debt .............................. $ 23,137 $ 17,212
Current Maturities of Capital Lease Obligations ................... 3,231 2,915
Accounts Payable and Accrued Liabilities .......................... 50,388 54,146
Current Deferred Income Tax Liability ............................. -- 27
--------- ---------
Total Current Liabilities ............................................. 76,756 74,300
--------- ---------
Billings in Excess of Income Earned and Expenses Incurred ............. 5,083 7,099
--------- ---------
Long-Term Capital Lease Obligations, Less Current Maturities .......... 8,853 12,085
--------- ---------
Long-Term Debt, Less Current Maturities ............................... 391,589 349,340
--------- ---------
Other Long-Term Liabilities:
Deferred Income Taxes ............................................. 45,124 40,906
Claims and Other .................................................. 25,114 28,966
--------- ---------
70,238 69,872
--------- ---------
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, 1999 and 1998 ...................................... 6,756 6,756
Additional Paid-In Capital ........................................ 54,450 54,450
Retained Earnings ................................................. 130,440 117,399
Less - 669,143 and 92,018 Shares of Common Stock in
Treasury, at Cost, at December 31, 1999 and 1998,
Respectively .................................................... (8,654) (1,422)
Accumulated Other Comprehensive Loss .............................. (508) (75)
--------- ---------
182,484 177,108
--------- ---------
$ 735,003 $ 689,804
========= =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
F-5
<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, 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 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
======== ========== ========== ======== ============= =========
COMPREHENSIVE INCOME:
NET INCOME FOR YEAR ENDED
DECEMBER 31, 1999 ............................. -- -- 14,623 -- -- 14,623
OTHER COMPREHENSIVE INCOME:
UNREALIZED HOLDING LOSS ON
MARKETABLE SECURITIES,
NET OF DEFERRED TAXES OF ($233) ............ -- -- -- -- (433) (433)
---------
TOTAL COMPREHENSIVE INCOME ......................... 14,190
TREASURY STOCK ..................................... -- -- -- (7,232) -- (7,232)
CASH DIVIDENDS ..................................... -- -- (1,582) -- -- (1,582)
-------- ---------- ---------- -------- ------------- ---------
BALANCE AT DECEMBER 31, 1999 ....................... $ 6,756 $ 54,450 $ 130,440 $ (8,654) $ (508) $ 182,484
======== ========== ========== ======== ============= =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
F-6
<PAGE>
INTERNATIONAL SHIPHOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(ALL AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income ......................................................... $ 14,623 $ 6,276 $ 2,155
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation .................................................. 42,056 40,056 37,259
Amortization of Deferred Charges and Other Assets ............. 18,052 22,846 24,429
Provision (Benefit) for Deferred Income Taxes ................. 4,131 1,385 (1,773)
Equity in Net Loss of Unconsolidated Entities ................. 85 -- --
(Gain) Loss on Sale of Vessels and Other Property ............. (11,598) (7,765) 20
Net Revenue from Contract Settlement .......................... (20,552) -- --
Proceeds from Contract Settlement ............................. 22,327 -- --
Impairment Loss ............................................... -- 7,000 --
Extraordinary Loss ............................................ -- 1,029 --
Changes in:
Accounts Receivable ........................................... (7,026) (7,789) 7,671
Inventories and Other Current Assets .......................... 556 678 740
Other Assets .................................................. 110 492 (1,098)
Accounts Payable and Accrued Liabilities ...................... (10,884) (6,300) (11,233)
Federal Income Taxes Payable .................................. 2,225 (1,009) 2,523
Unearned Income ............................................... (2,016) 5,718 (2,732)
Other Long-Term Liabilities ................................... (4,509) 1,367 3,839
--------- --------- ---------
Net Cash Provided by Operating Activities .............................. 47,580 63,984 61,800
--------- --------- ---------
Cash Flows from Investing Activities:
Net Investment in Direct Financing Lease ........................... (55,082) (56,323) 2,365
Purchase of Vessels and Other Property ............................. (53,180) (55,727) (19,553)
Additions to Deferred Charges ...................................... (14,497) (13,955) (18,302)
Proceeds from Sale of Vessels and Other Property ................... 25,771 15,484 334
Purchase of and Proceeds from Short-Term Investments ............... 38 (1,072) (8,028)
Investment in and Partial Sale of Unconsolidated Entities .......... 97 (3,368) --
Purchase of Marketable Equity Securities ........................... (20) -- (778)
Other Investing Activities ......................................... 74 73 135
--------- --------- ---------
Net Cash Used by Investing Activities .................................. (96,799) (114,888) (43,827)
--------- --------- ---------
Cash Flows from Financing Activities:
Proceeds from Issuance of Debt ..................................... 128,400 217,435 90,066
Reduction of Debt and Capital Lease Obligations .................... (83,142) (161,156) (117,250)
Additions to Deferred Financing Charges ............................ (572) (2,977) (136)
Purchase of Treasury Stock ......................................... (7,232) (289) --
Common Stock Dividends Paid ........................................ (1,582) (1,671) (1,671)
Other Financing Activities ......................................... -- (432) --
--------- --------- ---------
Net Cash Provided (Used) by Financing Activities ....................... 35,872 50,910 (28,991)
--------- --------- ---------
Net (Decrease) Increase in Cash and Cash Equivalents ................... (13,347) 6 (11,018)
Cash and Cash Equivalents at Beginning of Year ......................... 32,008 32,002 43,020
--------- --------- ---------
Cash and Cash Equivalents at End of Year ............................... $ 18,661 $ 32,008 $ 32,002
========= ========= =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
F-7
<PAGE>
INTERNATIONAL SHIPHOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
International Shipholding Corporation (a Delaware corporation) and its
consolidated subsidiaries (the Company). All significant intercompany accounts
and transactions have been eliminated.
The Company uses the cost method to account for investments in entities in
which it holds less than a 20% voting interest and in which the Company cannot
exercise significant influence over operating and financial activities. The
Company uses the equity method to account for investments in entities in which
it holds a 20% to 50% voting interest.
Certain reclassifications have been made to the prior period financial
information in order to conform to current year presentation.
NATURE OF OPERATIONS
The Company, through its subsidiaries, operates a diversified fleet of
U.S. and international flag vessels that provide domestic and international
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, 1999, the Company's fleet consisted of 35 ocean-going
vessels, 4 towboats, 16 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 1999 or 1998. Capitalized interest totaled $40,000
for the year ended December 31, 1997. 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, at Cost (SEE
NOTE G).
For financial reporting purposes, vessels are depreciated over their
estimated useful lives using the straight-line method. Estimated useful lives of
Vessels, Terminal Facilities, and Other Marine Equipment are as follows:
F-8
<PAGE>
YEARS
-----
10 LASH Vessels 30
1 LASH Vessel 15
2 Pure Car Carriers 20
4 Pure Car/Truck Carrier 20
1 Coal Carrier 15
9 Other Vessels * 25
* Includes one FLASH unit, two ice strengthened multi-purpose vessels, two
float-on/float-off special purpose vessels, a dockship, a cape-size bulk
carrier, a molten suphur carrier, and a container vessel. At December 31, 1999,
the Company's fleet of 35 vessels also included three roll-on/roll-off vessels
which it operates, a LASH vessel which has not yet been placed in service, and
four cement carriers which the Company owns a 30% interest in.
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 value of this vessel. The impairment loss was measured as the amount by
which the carrying value 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 believed to be 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.
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. An exchange loss of $119,000 was recognized for the year ended
December 31, 1999, and exchange gains of $347,000 and $175,000 were recognized
for the years ended December 31, 1998 and 1997, respectively.
DIVIDEND POLICY
The Board of Directors declared and paid dividends of 6.25 cents per
share for each quarter in 1999 and 1998. Subsequent to year end, a dividend of
6.25 cents per common share was declared to be paid in the first quarter of
2000.
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 6,424,193, 6,682,216, and 6,682,887 for the years ended
December 31, 1999, 1998, and 1997, respectively. Basic and diluted weighted
average common shares outstanding were the same for each of these years. The
effect of 475,000 stock options granted during 1998, which were terminated and
reissued in 1999, was anti-dilutive (SEE NOTE C).
F-9
<PAGE>
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 three of
the four aforementioned LASH vessels which operated under ODS, two of the
Company's Pure Car Carriers ("PCC"), and two Pure Car/Truck Carrier ("PCTC")
that the Company had purchased and placed into service in 1998 and 1999. 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 through September 30, 2005.
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. 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. 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 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 amount is met. The
aggregate annual Stop Loss, excluding primary deductibles, is $6,000,000 for
each of the policy years ending June 26, 2000, 1999, and 1998. 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
$7,943,000 and $6,627,000 at December 31, 1999 and 1998, respectively, and the
noncurrent portions of these liabilities were $5,588,000 and $10,251,000 at
December 31, 1999 and 1998, respectively.
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. In October
of 1999, the Company had completed the program. In October of 1999, the
Company's Board of Directors approved another stock repurchase program to buy up
to 1,000,000 shares of its common stock, based on the Board's belief that the
current market value of the Company's common stock does not adequately reflect
the Company's inherent value. The repurchases are expected to 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, 1999, 595,700 shares had been
repurchased under these two programs, of which 577,125 had been repurchased
during 1999, for a total cost of $7,521,000 at an average market price of $12.68
per share. Subsequent to year-end as of February 14, 2000, the Company
repurchased an additional 4,300 shares for a total cost of approximately $51,000
at an average market price of $11.77 per share.
NEW ACCOUNTING PRONOUNCEMENTS
During 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits." 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).
During 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which establishes accounting and reporting
standards for derivative instruments, including certain
F-10
<PAGE>
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 was to be effective for all fiscal quarters of
fiscal years beginning after June 15, 1999. In June of 1999, the FASB issued
SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133." SFAS No. 137 is an
amendment of SFAS No. 133 and defers the effective date of SFAS No. 133 to June
15, 2000. 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. 137 will have on its
financial statements once adopted. While the Company has not yet quantified the
impact on its financial statements, the Company does not believe adoption will
have a material impact on net income, although adoption is likely to increase
volatility of comprehensive income and accumulated other comprehensive income.
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 adopted the SOP which had no
material impact on its financial statements.
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
<TABLE>
<CAPTION>
(ALL AMOUNTS IN THOUSANDS)
INTEREST RATE TOTAL PRINCIPAL DUE
--------------------------- ----------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
DESCRIPTION 1999 1998 DUE 1999 1998
- ----------------------------- ------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Unsecured Senior Notes -
Fixed Rate ............. 7.75-9.00% 7.75-9.00% 2003-2007 $ 199,919 $ 202,390
Fixed Rate Notes Payable .... 6.70-8.50% 6.70-8.50% 2000-2008 33,693 39,438
Variable Rate Notes Payable . 6.79-7.28% 6.03-6.63% 2001-2009 136,043 66,857
U.S. Government Guaranteed
Ship Financing Notes and
Bonds - Fixed Rate ..... 8.30% 8.30% 2009 23,071 28,867
Lines of Credit ............. 7.50% 6.41% 2001 22,000 29,000
------------ ------------
$ 414,726 $ 366,552
Less Current Maturities (23,137) (17,212)
------------ ------------
$ 391,589 $ 349,340
============ ============
</TABLE>
On January 22, 1998, the Company issued a new series of $110,000,000
aggregate principal amount 7 3/4% Senior Notes due 2007 (the "Notes"). The net
proceeds from these Notes were used to repay certain indebtedness of the
Company's subsidiaries during the first quarter of 1998. Upon retirement of this
indebtedness, the Company incurred an Extraordinary Loss on Early Extinguishment
of Debt of approximately $1,029,000, net of taxes.
The aggregate principal payments required as of December 31, 1999, for
each of the next five years are $23,137,000 in 2000, $48,045,000 in 2001,
$17,717,000 in 2002, $110,395,000 in 2003, and $15,957,000 in 2004. In addition
to regularly scheduled principal payments, the $48,045,000 required in 2001
includes repayment of the $22,000,000 drawn on the Company's line of credit as
of December 31, 1999. During early 2000, $3,000,000 was repaid on those lines of
credit before their scheduled maturity in 2001.
Certain of the vessels and barges owned by the Company are mortgaged under
certain debt agreements. The Company has eight vessels and 558 LASH barges
pledged with a net book value totaling $315,357,000. 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,
F-11
<PAGE>
impose defined minimum working capital and net worth requirements, 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, 1999.
The most restrictive of the Company's credit agreements prohibit 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, 1999, 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 prohibit payments of dividends,
loans, or advances to the Company from Sulphur Carriers, Inc. unless certain
financial ratios are maintained. As long as those ratios are maintained, there
is no restriction on loans or advances to the Company from that subsidiary, but
dividends are restricted to 40% of undistributed earnings. Certain other loan
agreements restrict the ability of the Company's subsidiaries to dispose of
assets to such a degree that the remaining assets' book values are less than the
value of the collateralized assets.
The amounts of potentially restricted net assets were as follows:
(ALL AMOUNTS IN THOUSANDS)
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
Enterprise Ship Company .......................... $ 61,645 $ 67,072
Sulphur Carriers, Inc. ........................... 29,528 27,492
------------ ------------
Total Restricted Net Assets ................ $ 91,173 $ 94,564
============ ============
At December 31, 1999, the Company had available one line of credit
totaling $48,000,000 used to meet short-term requirements when fluctuations
occur in working capital. As of December 31, 1999, the Company had drawn
$22,000,000 on this line of credit of which $3,000,000 was repaid in early 2000.
At December 31, 1998, the Company had a line of credit available for $50,000,000
of which $29,000,000 was drawn with this amount being fully repaid during 1999.
Early in the first quarter of 1999, the Company amended the aforementioned
$50,000,000 revolving credit facility to the current facility of $48,000,000.
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 $505,000 and $681,000 at December 31,
1999 and 1998, respectively, and were included in Cash and Cash Equivalents.
NOTE C - EMPLOYEE BENEFIT PLANS
PENSION AND POSTRETIREMENT BENEFITS
The Company's defined benefit 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:
F-12
<PAGE>
<TABLE>
<CAPTION>
PENSION PLAN POSTRETIREMENT BENEFITS
----------------------------- -----------------------------
(ALL AMOUNTS IN THOUSANDS) DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year ...... $ 15,717 $ 13,358 $ 9,261 $ 8,036
Service cost ................................. 756 704 90 131
Interest cost ................................ 1,024 969 549 585
Actuarial (gain) loss ........................ (2,173) 1,414 (1,736) 906
Benefits paid ................................ (753) (620) (448) (397)
Expenses paid ................................ (98) (108) -- --
------------ ------------ ------------ ------------
Benefit obligation at end of year ............ 14,473 15,717 7,716 9,261
------------ ------------ ------------ ------------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year 16,028 15,042 -- --
Actual return on plan assets ................. 1,521 1,130 -- --
Employer contribution ........................ 409 584 448 397
Benefits paid ................................ (753) (620) (448) (397)
Expenses paid ................................ (98) (108) -- --
------------ ------------ ------------ ------------
Fair value of plan assets at end of year ..... 17,107 16,028 -- --
------------ ------------ ------------ ------------
Funded status ................................ 2,634 311 (7,716) (9,261)
Unrecognized net actuarial (gain) loss ....... (2,868) (278) 529 2,307
Unrecognized prior service cost .............. 57 76 -- --
------------ ------------ ------------ ------------
Prepaid (accrued) benefit cost ............... $ (177) $ 109 $ (7,187) $ (6,954)
============ ============ ============ ============
WEIGHTED-AVERAGE ASSUMPTIONS
Discount rate ................................ 7.75% 6.75% 7.75% 6.75%
Expected return on plan assets ............... 7.50% 8.00% N/A N/A
Rate of compensation increase ................ 5.50% 5.50% N/A N/A
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, FOR THE YEAR ENDED DECEMBER 31,
COMPONENTS OF NET PERIODIC BENEFIT COST 1999 1998 1999 1998
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Service cost .................................. $ 756 $ 704 $ 90 $ 131
Interest cost ................................. 1,024 969 549 585
Actual return on plan assets .................. (1,520) (1,127) -- --
Amortization of prior service cost ............ 19 27 -- --
Amortization of unrecognized net actuarial loss 417 10 42 57
---------------- ---------------- ---------------- ----------------
Net periodic benefit cost ..................... $ 696 $ 583 $ 681 $ 773
================ ================ ================ ================
</TABLE>
For measurement purposes, the health and dental care cost trend rate was
assumed to be 9.0% for 1999, decreasing steadily by .50% per year over the next
eight 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:
<TABLE>
<CAPTION>
(ALL AMOUNTS IN THOUSANDS) 1% INCREASE 1% DECREASE
----------- -----------
<S> <C> <C>
Change in total service and interest cost components
for the year ended December 31, 1999 ................................ $ 61 $ (50)
Change in postretirement benefit obligation as of December 31, 1999 ..... 747 (633)
</TABLE>
Crew members on the Company's U.S. flag vessels belong to union-sponsored
pension plans. The Company contributed approximately $2,169,000, $2,339,000, and
$2,496,000 to these plans for the years ended December 31, 1999, 1998, and 1997,
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.
F-13
<PAGE>
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 options, 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. In July of 1999, these options were terminated and
reissued at an exercise price of $14.125 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, 1999. The stock
options are due to expire on April 14, 2008.
The Company applies Accounting Principles Board Opinion No. 25 ("APB 25")
in accounting for the Plan. Accordingly, no compensation cost has been
recognized for options granted under the 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, 1999, would have been reduced to the pro forma
amounts indicated below:
AS REPORTED PROFORMA
-------------- --------------
Net income ................... $ 14,623,000 $ 12,699,000
Earnings per share ........... $ 2.28 $ 1.98
The fair value of each of the 475,000 options granted during 1999
estimated on the date of grant was $6.23 using the Black-Scholes option-pricing
model assuming expected volatility of 18.42% and a risk-free rate of 5.99%. The
remaining contractual life of each option as of December 31, 1999, was 8.289
years.
LIFE INSURANCE
The Company has agreements with the Chairman and President of the Company
whereby their estates will be paid approximately $822,000 and $626,000,
respectively upon death. The Company reserved amounts to fund a portion of these
death benefits which amounted to $800,000 and holds an insurance policy which
covers the remainder.
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 ($3,528,000 in 1999, $2,245,000 in 1998, and $2,369,000 in 1997)
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
abroad 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.
F-14
<PAGE>
Components of the net deferred tax liability/(asset) are as follows:
DECEMBER 31, DECEMBER 31,
(ALL AMOUNTS IN THOUSANDS) 1999 1998
------------ ------------
Liabilities:
Fixed Assets .............................. $ 50,776 $ 48,074
Deferred Charges .......................... 12,400 9,326
Unterminated Voyage Revenue/
Expense .............................. 1,979 2,541
Intangible Assets ......................... 5,221 5,730
Deferred Insurance Premiums ............... 698 1,106
Deferred Intercompany Transactions ........ 2,530 2,530
Other Liabilities ......................... 1,017 1,271
------------ ------------
Total Liabilities .............................. 74,621 70,578
------------ ------------
Assets:
Insurance and Claims Reserve .............. (3,794) (4,788)
Deferred Intercompany Transactions ........ (2,530) (2,530)
Post-Retirement Benefits .................. (2,583) (2,453)
Alternative Minimum Tax Credit Carryforward (10,376) (9,354)
Net Operating Loss Carryforward/
Unutilized Deficit ................... (5,181) (6,247)
Valuation Allowance ....................... 879 879
Other Assets .............................. (5,972) (5,152)
------------ ------------
Total Assets ................................... (29,557) (29,645)
------------ ------------
Total Deferred Tax Liability, Net .............. $ 45,064 $ 40,933
============ ============
The following is a reconciliation of the U.S. statutory tax rate to the
Company's effective tax rate:
Year Ended December 31,
1999 1998 1997
-------- -------- --------
Statutory Rate ....................... 35.0% 35.0% 35.0%
State Income Taxes ................... 1.2% 2.9% 6.7%
Other ................................ 0.5% 1.7% 0.8%
-------- -------- --------
36.7% 39.6% 42.5%
======== ======== ========
The Company has available at December 31, 1999, unused operating loss
carryforwards of $3,857,000 and unused foreign deficits of $10,862,000. The
operating loss carryforwards will expire in 2002. The unused foreign deficits
are available only to offset foreign earnings and do not expire.
Foreign income taxes of $532,000, $546,000, and $596,000 are included in
the Company's consolidated statements of income in the Provision for Income
Taxes for the years ended December 31, 1999, 1998, and 1997, respectively. The
Company pays foreign income taxes in Indonesia and Thailand.
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 $296,000 and $369,000 at December
31, 1999 and 1998, 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, 1999 and 1998. 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, $25,000, and $29,000
for the years ended December 31, 1999, 1998, and 1997, 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
F-15
<PAGE>
Company's inception. The Company made payments to the firm totaling
approximately $1,533,000, $1,102,000, and $958,000 for the years ended December
31, 1999, 1998, and 1997, respectively. Amounts of $125,000 were due to the
legal firm at December 31, 1999, which was included in Accounts Payable and
Accrued Liabilities or Deferred Credits, and no amounts were due at December 31,
1998.
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 from which revenues of
approximately $203,000 were earned during that year. The Company acquired a
37.5% interest in Belden during 1998, of which 7.5% interest was sold in 1999.
The Company also acquired a 37.5% interest in Carson Shipping, Inc. ("Carson")
during 1998, of which 7.5% interest was sold in 1999 (SEE NOTE J). The Company
has long-term receivables, included in Due from Related Parties, from Belden and
Carson totaling approximately $21,000 and $337,000, respectively, as of December
31, 1999.
NOTE F - COMMITMENTS AND CONTINGENCIES
COMMITMENTS
As of December 31, 1999, 19 vessels that the Company owns or operates were
under various contracts extending beyond 1999 and expiring at various dates
through 2024. Certain of these agreements also contain options to extend the
contracts beyond their minimum terms.
Subsequent to year-end, the Company entered into two contracts to hedge a
portion of its estimated 2000 fuel purchases related to its LINER SERVICES
segment (SEE NOTE L). The contracts are effective for one year beginning January
4, 2000, and January 6, 2000, respectively, and are based on a notional amount
(tons) of fuel. The contracts require that a payment be made for the difference
between the contract rate, $110 and $116.77 per ton, respectively, and the
market rate for the fuel with settlements made monthly.
In December of 1998, the Company entered into an interest rate swap
agreement with a commercial bank to reduce the possible impact of higher
interest rates in the long-term market by utilizing the fixed rate available
with the swap. The contract requires that a payment be made, semiannually, for
the difference between the fixed rate, 5.275%, and the floating rate, and will
expire in December of 2008. During September of 1999, the Company entered into
another interest rate swap agreement with a commercial bank to reduce the
possible impact of higher interest rates in the long-term market by utilizing
the fixed rate available with the swap. The contract requires that a payment be
made, semiannually, for the difference between the fixed rate, 7.7%, and the
floating rate, and is scheduled to expire in September of 2004 (SEE NOTE L FOR
FURTHER DETAILS ON THESE SWAP AGREEMENTS).
The Company also maintains lines of credit totaling $1,700,000 to cover
standby letters of credit for membership in various shipping conferences.
CONTINGENCIES
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
Other Long-Term Liabilities: Claims and Other, to cover its potential exposure
and anticipated recoveries from insurance companies, included in Other Assets.
It is reasonably possible that a change in the Company's estimate of its
exposure could occur. Although it is difficult to predict the costs of
ultimately resolving such issues, the Company does not expect such costs will
have a material effect on the Company's financial position or results of
operations.
NOTE G - LEASES
In 1998, the Company entered into a direct financing lease of a foreign
flag pure car/truck carrier expiring in 2018. In 1999, the Company entered into
another direct financing lease of a foreign flag pure car/truck carrier expiring
in 2019. The schedule of future minimum rentals to be received under these two
direct financing leases in effect at December 31, 1999, is as follows:
F-16
<PAGE>
RECEIVABLES UNDER
(ALL AMOUNTS IN THOUSANDS) FINANCING LEASES
-----------------
Year Ended December 31,
2000 ......................................... $ 17,239
2001 ......................................... 17,192
2002 ......................................... 17,192
2003 ......................................... 17,142
2004 ......................................... 16,593
Thereafter ................................... 212,044
-----------------
Total Minimum Lease Payments Receivable ................... 297,402
Estimated Residual Values of Leased Properties ............ 4,103
Less Unearned Income ...................................... (186,336)
-----------------
Total Net Investment in Direct Financing Leases ........... 115,169
Current Portion ....................................... (3,137)
-----------------
Long-Term Net Investment in Direct
Financing Leases at December 31, 1999 ................. $ 112,032
=================
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) 1999 1998
------------ ------------
LASH Barges .................................... $ 24,936 $ 24,936
Less Accumulated Depreciation .................. (16,582) (14,493)
------------ ------------
Total ....................................... $ 8,354 $ 10,443
============ ============
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, 1999:
PAYMENTS UNDER
(ALL AMOUNTS IN THOUSANDS) CAPITAL LEASES
--------------
Year Ended December 31,
2000 ............................................ $ 4,514
2001 ............................................ 5,414
2002 ............................................ 3,080
2003 ............................................ 2,125
--------------
15,133
Less Interest ................................................ (3,049)
--------------
Present Value of Future Minimum Payments
(BASED ON A WEIGHTED AVERAGE OF 10.39%) ................... $ 12,084
==============
The Company conducts certain of its operations from leased office
facilities and uses certain transportation and other equipment under operating
leases expiring at various dates through 2008. Rent expense related to operating
leases totaled approximately $7,078,000, $6,264,000, and $6,143,000, for the
years ended December 31, 1999, 1998, and 1997, 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, 1999:
F-17
<PAGE>
PAYMENTS UNDER
(ALL AMOUNTS IN THOUSANDS) OPERATING LEASES
----------------
Year Ended December 31,
2000 ........................................... $ 2,899
2001 ........................................... 2,740
2002 ........................................... 2,413
2003 ........................................... 1,585
2004 ........................................... 417
Thereafter ..................................... 1,548
----------------
Total Future Minimum Payments ............................... $ 11,602
================
NOTE H - DEFERRED CHARGES AND ACQUIRED CONTRACT COSTS
The Company defers certain costs related to the drydocking of vessels and
financing costs. 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) 1999 1998
------------- -------------
Drydocking Costs ............................... $ 32,222 $ 29,897
Financing Charges and Other .................... 7,470 8,952
------------- -------------
$ 39,692 $ 38,849
============= =============
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 contract agreements. The Company amortized the
acquired contract cost using the straight-line method over the contract's useful
life of 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 $68,014,000,
$75,872,000, and $72,444,000 for the years ended December 31, 1999, 1998, and
1997, respectively. Additionally, the Company operates three U.S. flag LASH
vessels on subsidized liner service. Revenues, including subsidy revenue, from
this operation were $127,799,000, $126,524,000, and $125,323,000 for the years
ended December 31, 1999, 1998, and 1997, respectively.
CONCENTRATIONS
A significant portion of the Company's traffic receivables is 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, 1999 or 1998.
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.
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
services along the U.S. Gulf and East Coast. Revenues attributable to the major
geographic
F-18
<PAGE>
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.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
(ALL AMOUNTS IN THOUSANDS) 1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
United States ........................................................ $130,764 $140,750 $143,627
Asian countries ...................................................... 54,397 45,809 43,462
Liner services operating between:
U.S. Gulf / East Coast ports and ports in South Asia .......... 127,799 126,524 125,323
U.S. Gulf / East Coast ports and ports in Northern Europe ..... 55,464 68,044 74,164
Other countries ...................................................... 4,785 3,021 4,480
-------- -------- --------
Total Revenues ................................................ $373,209 $384,148 $391,056
======== ======== ========
</TABLE>
OPERATING SEGMENTS
The Company's three operating segments are identified primarily based on
the characteristics of the contracts or terms under which the 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 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 two Pure Car Carriers and four
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 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 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. Also included in this segment is a coal transportation contract
with a Florida-based electric utility which was terminated by the utility
company in December of 1998. The Company received a settlement for $22,975,000
in July of 1999.
The following table presents information about segment profit and loss and
segment assets. The Company does not allocate interest income, administrative
and general expenses, equity in unconsolidated entities, or income taxes to its
segments. Intersegment revenues are based on market prices and include revenues
earned by subsidiaries of the Company that provide specialized services to the
operating segments.
F-19
<PAGE>
<TABLE>
<CAPTION>
TIME
LINER CHARTER CONTRACTS OF
(ALL AMOUNTS IN THOUSANDS) SERVICES CONTRACTS AFFREIGHTMENT OTHER TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999
REVENUES FROM EXTERNAL CUSTOMERS .................................. $ 183,477 $ 130,477 $ 30,592 $ 8,111 $ 352,657
NET REVENUE FROM CONTRACT SETTLEMENT .............................. -- -- 20,552 -- 20,552
INTERSEGMENT REVENUES ............................................. -- -- -- 36,673 36,673
GROSS VOYAGE PROFIT BEFORE DEPRECIATION ........................... 16,983 51,004 32,946 5,013 105,946
DEPRECIATION AND AMORTIZATION ..................................... 20,159 27,847 8,297 1,014 57,317
INTEREST EXPENSE .................................................. 5,991 17,400 8,059 652 32,102
(LOSS) GAIN ON SALE OF VESSELS AND LAND ........................... (365) 7,753 -- 4,185 11,573
SEGMENT (LOSS) PROFIT BEFORE INTEREST INCOME,
ADMINISTRATIVE AND GENERAL EXPENSES, EQUITY IN
UNCONSOLIDATED ENTITIES AND TAXES ............................. (3,857) 23,843 18,295 7,871 46,152
SEGMENT ASSETS .................................................... 120,998 340,060 133,404 12,410 606,872
EXPENDITURES FOR SEGMENT ASSETS ................................... 19,976 45,503 857 1,913 68,249
- ------------------------------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-20
<PAGE>
Following is a reconciliation of the totals reported for the operating
segments to the applicable line items in the consolidated financial statements:
(ALL AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
For the year ended December 31,
PROFIT OR LOSS: 1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Total profit for reportable segments ................. $ 46,152 $ 36,815 $ 27,749
Unallocated amounts:
Interest income ............................... 1,339 1,569 1,458
Administrative and general expenses ........... 24,282 26,406 25,454
Equity in unconsolidated entities ............. (85) -- --
------------- ------------- -------------
Income before income taxes and extraordinary items ... $ 23,124 $ 11,978 $ 3,753
============= ============= =============
<CAPTION>
December 31, December 31, December 31,
ASSETS: 1999 1998 1997
------------- ------------- -------------
Total assets for reportable segments ................. $ 606,872 $ 556,273 $ 500,774
Unallocated amounts .................................. 128,131 133,531 117,430
------------- ------------- -------------
$ 735,003 $ 689,804 $ 618,204
============= ============= =============
</TABLE>
Unallocated assets include Current Assets of $112,327,000, $119,214,000,
and $107,800,000, as of December 31, 1999, 1998, and 1997, respectively. The
Company manages its Current Assets on a corporate rather than segment basis.
NOTE J - UNCONSOLIDATED ENTITIES
During 1998, the Company acquired a 37.5% interest in Belden and three
cement carrier companies, Shining Star Malta Ltd. ("Shining"), Echelon Shipping
Inc. ("Echelon"), and Carson for approximately $3.4 Million. Shining, Echelon,
and Carson each own and operate one cement carrying vessel under medium- to
long-term contracts and are managed by Belden. During 1999, the Company sold
7.5% of its 37.5% interest in each of the aforementioned companies for
approximately $806,000. In late 1999, the Company acquired a 30% interest in
another cement carrier company, Goodtime Shipping Inc., for approximately
$633,000 whose cement carrier is also managed by Belden. LMS, a wholly-owned
subsidiary of the Company, has been providing ship management services for
Belden beginning in 1999. The Company's portion of their combined losses at
December 31, 1999 was $131,000, which is reported in the Company's consolidated
statements of income net of taxes. The Company's portion of the combined
earnings from the date of the investment until December 31, 1998, was not
material. No distributions were made during 1999 and 1998.
NOTE K - SUPPLEMENTAL CASH FLOW INFORMATION
YEAR ENDED DECEMBER 31,
(ALL AMOUNTS IN THOUSANDS) 1999 1998 1997
-------- -------- --------
Non-Cash Investing and Financing Activities:
Current Liabilities to be Refinanced ... -- -- $ 22,511
Cash Payments:
Interest Paid .......................... $ 30,344 $ 27,380 $ 26,818
Taxes Paid ............................. 3,075 4,319 3,321
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. During 1999, the Company sold an additional
foreign flag pure car carrier 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.
F-21
<PAGE>
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,
1999 1998
---------------------- ----------------------
CARRYING FAIR CARRYING FAIR
(ALL AMOUNTS IN THOUSANDS) AMOUNT VALUE AMOUNT VALUE
--------- --------- --------- ---------
Interest Rate Swap Agreements -- $ 3,711 -- $ 142
Foreign Currency Contracts . -- $ (22) -- --
Commodity Swap Contract .... -- -- -- $ (593)
Long-Term Debt ............. $(414,726) $(408,803) $(366,552) $(380,927)
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.
INTEREST RATE SWAP AGREEMENTS
The Company has only limited involvement with derivative financial
instruments. They are used to manage well-defined interest rate risks and are
not used for trading purposes. In December of 1998, the Company entered into an
interest rate swap agreement with a commercial bank to reduce the possible
impact of higher interest rates in the long-term market by utilizing the fixed
rate available with the swap. The fixed rate payor is the Company, and the
floating rate payor is Citibank, N.A. The fixed rate and the floating rates at
December 31, 1999 were 5.275% and 6.9863%, respectively. The contract amount
totaled $43,710,000 at December 31, 1999 and will expire in December of 2008.
The Company made payments under this agreement totaling $30,000 during 1999.
During September of 1999, the Company entered into another interest rate
swap agreement with a commercial bank to reduce the possible impact of higher
interest rates in the long-term market by utilizing the fixed rate available
with the swap. The fixed rate payor is the Company, and the floating rate payor
is Midland Bank. The fixed rate and the floating rates at December 31, 1999 were
7.7% and 6.94%, respectively. The contract amount totaled $33,200,000 at
December 31, 1999 and will expire in September of 2004. The Company is expected
to make a payment under this agreement totaling $128,000 in March of 2000.
The Company considers these futures contracts to be hedging activities. In
order to consider these futures contracts as hedges, (i) the Company must
designate the futures contract as a hedge of future transactions, and (ii) the
contract must reduce the Company's exposure in the risk of changes in interest
rates. If the above criteria are not met, the Company will record the market
value of the contract at the end of each month and recognize a related gain or
loss. Net receipts or payments under these agreements are recognized as an
adjustment to interest expense, while changes in the fair market value of these
hedges are not recognized in income. The Company will recognize the fair market
value of the hedges in income at the time of maturity, sale or termination,
though the Company does not anticipate the sale or termination of these hedges.
The fair value of interest rate swaps is the estimated amount that the bank
would receive or pay to terminate the swap agreements at the reporting date,
taking into account current market conditions and interest rates.
FOREIGN CURRENCY CONTRACTS
The Company enters into forward exchange contracts to hedge certain firm
purchase and sale commitments denominated in foreign currencies. The 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
F-22
<PAGE>
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. Forward exchange
contracts are designated as a hedge at inception where there is a direct
relationship to the price risk associated with the Company's future sales and
purchases. Changes in the fair market value of these hedges are recognized as
gains or losses in revenues in the period of change. The Company includes the
gains or losses on the maturity, sale, or termination in revenues in the period
the hedged transaction is recorded, though the Company does not anticipate the
sale or termination of these hedges.
There were no forward purchase contracts as of December 31, 1999. The
Company had entered into various forward purchase contracts for Singapore
Dollars totaling $1,188,022 U.S. Dollar equivalents to hedge against future
payments due for drydocking cost as of December 31, 1998. 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, 1999 and 1998, the Company was also a party to
forward sales contracts in various currencies totaling $2,746,000 and $2,195,000
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 SWAP 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 was effective for one year
beginning January 1, 1999 and expired December 31, 1999, and was for 60,000 tons
of fuel which was approximately 30% of the Company's fuel purchases during 1999.
The contract required 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.
During 1999, the Company received payments under this agreement totaling
$1,357,000.
Subsequent to year-end, the Company entered into two commodity swap
agreements with commercial banks for a portion of its estimated 2000 fuel
purchases to manage the risk associated with changes in fuel prices. The first
contract is effective for one year beginning January 4, 2000, and is for 45,000
tons of fuel. The contract requires that a payment be made for the difference
between the contract rate of $110 per ton and the market rate for the fuel on
each settlement date. The second contract is effective for one year beginning
January 6, 2000, and is for 40,000 tons of fuel. It requires that a payment be
made for the difference between the contract rate of $116.77 per ton and the
market rate for the fuel on each settlement date. The combination of the two
hedges represents approximately 39% of the Company's expected 2000 fuel
purchases.
The Company considers these futures contracts to be hedging activities. In
order to consider these futures contracts as hedges, (i) the Company must
designate the futures contract as a hedge of future transactions, and (ii) the
contract must reduce the Company's exposure in the risk of changes in prices. If
the above criteria are not met, the Company will record the market value of the
contract at the end of each month and recognize a related gain or loss. Proceeds
received or paid for each monthly settlement are included in revenue, while
changes in the fair market value of these hedges are not recognized in income.
The Company will recognize the fair market value of the hedges in income at the
time of maturity, sale or termination, though the Company does not anticipate
the sale or termination of these hedges.
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, 1999 and 1998. 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, 1999 and 1998, based upon current rates offered on similar
instruments.
F-23
<PAGE>
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) 1999 1998
------------ ------------
Accrued Voyage Expenses .......................... $ 26,875 $ 28,144
Trade Accounts Payable ........................... 4,906 8,329
Accrued Interest ................................. 9,026 8,432
Self-Insurance Liability ......................... 7,943 6,627
Accrued Salaries and Benefits .................... 1,638 2,218
Accrued Vessel Costs ............................. -- 396
------------ ------------
$ 50,388 $ 54,146
============ ============
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>
1999 REVENUE ...................................................... $ 88,429 $ 85,835 $101,735 $ 97,210
EXPENSE ...................................................... 75,851 69,590 76,706 84,381
GROSS VOYAGE PROFIT .......................................... 12,578 16,245 25,029 12,829
NET INCOME (LOSS) ............................................ 1,023 6,823 7,237 (460)
BASIC AND DILUTED EARNINGS (LOSS) PER COMMON SHARE:
NET INCOME (LOSS) ......................................... 0.16 1.04 1.11 (0.07)
- ------------------------------------------------------------------------------------------------------------------------------------
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
Basic and Diluted Earnings (Loss) per Common Share:
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
Basic and Diluted Earnings per Common Share:
Net Income ................................................ 0.09 0.10 0.06 0.07
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-24
<PAGE>
INDEX OF SUPPLEMENTAL FINANCIAL STATEMENT SCHEDULES
Report of Independent Public Accountants on Supplemental Schedule....S-2
Schedule I - Condensed Financial Information of the Registrant.......S-3
S-1
<PAGE>
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, 1999 and 1998 and for each of the
three years in the period ended December 31, 1999 included in International
Shipholding Corporation's annual report to stockholders included in this Form
10-K, and have issued our report thereon dated January 14, 2000. 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.
/s/ Arthur Andersen LLP
New Orleans, Louisiana,
January 14, 2000
S-2
<PAGE>
INTERNATIONAL SHIPHOLDING CORPORATION (PARENT COMPANY)
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF INCOME
(ALL AMOUNTS IN THOUSANDS)
Year Ended December 31,
1999 1998 1997
-------- -------- --------
Management Fee Revenue from Subsidiaries ... $ 11,657 $ 11,555 $ 11,563
Administrative and General Expenses ........ 11,392 11,626 10,867
-------- -------- --------
Gross Profit ................. 265 (71) 696
-------- -------- --------
Interest:
Interest Expense .................. 20,448 20,884 10,498
Investment Income ................. (3,910) (3,919) (1,217)
-------- -------- --------
16,538 16,965 9,281
-------- -------- --------
Equity in Net Income of Consolidated
Subsidiaries (Net of Applicable
Taxes) ............................ 25,201 17,352 7,717
-------- -------- --------
Income (Loss) Before Provision (Benefit) for
Income Taxes and Extraordinary Item ...... 8,928 316 (868)
-------- -------- --------
Provision (Benefit) for Income Taxes:
Current ........................... 155 (205) 1,587
Deferred .......................... (5,850) (5,759) (4,581)
State ............................. -- 2 (29)
-------- -------- --------
(5,695) (5,962) (3,023)
-------- -------- --------
Income Before Extraordinary Item ........... $ 14,623 $ 6,278 $ 2,155
-------- -------- --------
Extraordinary Loss on Early
Extinguishment of Debt (Net of
Income Tax Benefit of $1) ................ -- (2) --
-------- -------- --------
Net Income ................................. $ 14,623 $ 6,276 $ 2,155
======== ======== ========
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."
S-3
<PAGE>
INTERNATIONAL SHIPHOLDING CORPORATION (PARENT COMPANY)
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
(All Amounts in Thousands)
<TABLE>
<CAPTION>
ASSETS DECEMBER 31, DECEMBER 31,
1999 1998
------------- -------------
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents ................... $ 3,013 $ 4,150
Accounts Receivable ......................... 118 228
Federal Income Taxes Receivable ............. 603 1,299
Other Current Assets ........................ 625 448
------------- -------------
Total Current Assets ................................. 4,359 6,125
------------- -------------
Deferred Federal Income Taxes ........................ 20,624 11,800
------------- -------------
Investment in Consolidated Subsidiaries .............. 354,622 341,805
------------- -------------
Advances to Subsidiaries ............................. 27,267 49,974
------------- -------------
Furniture and Equipment .............................. 5,012 4,375
Less - Accumulated Depreciation ..................... (2,108) (1,017)
------------- -------------
2,904 3,358
------------- -------------
Deferred Financing Charges, Net of Accumulated
Amortization of $4,070 and $1,752 in 1998 and
1997, Respectively ................................. 3,518 4,236
------------- -------------
$ 413,294 $ 417,298
============= =============
<CAPTION>
LIABILITIES AND STOCKHOLDERS' INVESTMENT DECEMBER 31, DECEMBER 31,
1999 1998
------------- -------------
Current Liabilities:
Accrued Interest Payable .................... $ 5,987 $ 6,046
Accounts Payable and Accrued Liabilities .... 686 620
Current Deferred Income Tax Liability ....... -- 27
------------- -------------
Total Current Liabilities ............................ 6,673 6,693
------------- -------------
Long-Term Debt ....................................... 221,919 231,390
------------- -------------
Other Provisions ..................................... 2,234 2,108
------------- -------------
Commitments and Contingent Liabilities
Stockholders' Investment:
Common Stock ................................ 6,756 6,756
Additional Paid-In Capital .................. 54,450 54,450
Retained Earnings ........................... 130,424 117,398
Less - Treasury Stock ....................... (8,654) (1,422)
Accumulated Other Comprehensive Loss ........ (508) (75)
------------- -------------
182,468 177,107
------------- -------------
$ 413,294 $ 417,298
============= =============
</TABLE>
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."
S-4
<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,
1999 1998 1997
-------- --------- -------
Cash Flows from Operating Activities:
Net Income ............................. $ 14,623 $ 6,276 $ 2,155
Adjustments to Reconcile Net Income to
Net Cash Used by Operating Activities:
Depreciation ...................... 1,130 962 39
Amortization of Deferred Charges .. 736 689 449
Benefit for Deferred Income Taxes . (5,695) (5,963) (4,581)
Net Income of Consolidated
Subsidiaries ................... (25,201) (17,352) (7,717)
Extraordinary Loss ................ -- 2 --
Changes in:
Accounts Receivable ............... 110 (90) (40)
Other Current Assets .............. (177) (21) (69)
Other Assets ...................... -- -- 6
Accounts Payable and Accrued
Liabilities...................... 7 2,074 38
Federal Income Taxes Payable ...... (1,289) (3,450) 2,523
Other Provisions .................. (13) 959 174
-------- --------- -------
Net Cash Used by Operating Activities ...... (15,769) (15,914) (7,023)
-------- --------- -------
Cash Flows from Investing Activities:
Purchase of Furniture and Equipment .... (581) (409) (299)
Additions to Deferred Charges .......... 34 -- (24)
Proceeds from Short-Term Investments ... -- 2,088 500
-------- --------- -------
Net Cash Provided by Investing Activities .. (547) 1,679 177
-------- --------- -------
Cash Flows from Financing Activities:
Proceeds from Issuance of Debt ......... 49,000 169,435 --
Reduction of Debt ...................... (58,471) (31,936) --
Change in Due to Subsidiaries .......... 33,516 (114,593) 8,764
Additions to Deferred Financing Charges (52) (2,965) (84)
Repurchase of Treasury Stock ........... (7,232) (289) --
Common Stock Dividends Paid ............ (1,582) (1,671) (1,671)
-------- --------- -------
Net Cash Provided by Financing Activities .. 15,179 17,981 7,009
-------- --------- -------
Net Increase in Cash and Cash Equivalents .. (1,137) 3,746 163
Cash and Cash Equivalents at Beginning of
Year ..................................... 4,150 404 241
-------- --------- -------
Cash and Cash Equivalents at End of Year ... $ 3,013 $ 4,150 $ 404
======== ========= =======
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"
S-5
<PAGE>
NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT
DECEMBER 31, 1999
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 this Form 10-K, Part II, Item 8, page 23.
Note 2. Cash Dividends of Subsidiaries
There were no cash dividends received from subsidiaries for the years
ended December 31, 1999, 1998, and 1997. The Company did receive dividends in
the form of forgiveness of amounts due from subsidiaries totaling $10,000,000
and $37,000,000 in 1999 and 1998, respectively.
Note 3. Long-Term Debt
Long-term debt consists of the following:
(ALL AMOUNTS IN THOUSANDS)
INTEREST DECEMBER 31, DECEMBER 31,
RATE DUE 1999 1998
---------- --------- ------------ ------------
Unsecured Senior Notes 7.75-9.00% 2003-2007 $ 199,919 $ 202,390
Lines of Credit 7.50% 2001 22,000 29,000
------------ ------------
$ 221,919 $ 231,390
============ ============
In addition to these Unsecured Senior Notes, International Shipholding
Corporation (Parent Company) guarantees certain long-term debt of its
subsidiaries, which amounted to $137,333,000 at December 31, 1999.
Note 4. Income Taxes
Pursuant to a Tax Sharing Agreement, the Federal income tax returns of the
Company are filed on a consolidated basis and income is included in the
consolidated Federal income tax return of the Company. The provision (benefit)
for Federal income taxes and related assets from the subsidiaries are determined
based on the subsidiary's effective book tax rate exclusive of certain foreign
earnings not subject to tax. Amounts determined to be due or to be received are
included in Due to/from Subsidiaries.
S-6
EXHIBIT 10.1
************************************************************
INTERNATIONAL SHIPHOLDING CORPORATION
as Borrower
-----------------------------
$50,000,000
FIRST AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of January 22, 1998
Amended and Restated as of March 31, 1998
------------------------------
CERTAIN LENDERS
CITICORP SECURITIES, INC.
as Arranger
CITIBANK, N.A.
as Administrative Agent
************************************************************
<PAGE>
FIRST AMENDED AND RESTATED CREDIT AGREEMENT
FIRST AMENDED AND RESTATED CREDIT AGREEMENT dated as of January 22,
1998, amended and restated as of March 31, 1998, between INTERNATIONAL
SHIPHOLDING CORPORATION, a Delaware corporation (the "BORROWER"); Citibank, N.A.
(the "EXISTING LENDER"); each of the banks or financial institutions named in
Schedule 2 hereto (each, a "NEW LENDER" and, collectively, the "NEW LENDERS"
and, together with the Existing Lender, the "LENDERS"); and CITIBANK, N.A., as
administrative agent for the Lenders (in such capacity, together with its
successors in such capacity, the "ADMINISTRATIVE AGENT").
W I T N E S S E T H:
WHEREAS, the Borrower, the Existing Lender and the Administrative
Agent are parties to that certain Credit Agreement dated as of January 22, 1998
(the "EXISTING CREDIT AGREEMENT"); and
WHEREAS, the parties hereto desire to amend and restate the Existing
Credit Agreement to, among other things, increase the aggregate amount of the
Commitments and reflect the addition of the New Lenders as Lenders and
accordingly to re-allocate the Advance outstanding under the Existing Credit
Agreement immediately prior to the Restatement Date (the "EXISTING ADVANCE"), as
hereinafter defined, PRO RATA among all of the Lenders on the basis of their
respective Commitments as in effect immediately upon the occurrence of the
Restatement Date.
NOW, THEREFORE, the parties hereto agree to amend the Existing
Credit Agreement as set forth herein and to restate the Existing Credit
Agreement to read in its entirety as set forth in the Existing Credit Agreement,
which is incorporated herein by reference, with the amendments specified in
Section 2 below.
Section 1. DEFINITIONS. Capitalized terms used but not otherwise
defined herein have the meanings given them in the Existing Credit Agreement.
Section 2. AMENDMENTS. Effective on the Restatement Date, the
Existing Credit Agreement is hereby amended as follows and is hereby restated in
its entirety as so amended:
(a) Effective on the Restatement Date, (1) the Existing Advance
shall (subject to the making of the payments and satisfaction of the other
conditions set forth in Section 4 hereof) be reduced to zero, the Existing
Lender shall have an Advance in the amount set forth opposite the name of
the Existing Lender in Schedule 1 hereto, and the Commitment of the
Existing Lender shall be the amount set forth opposite the name of the
Existing Lender in said Schedule 1; and (2) each New Lender shall be
deemed to be a Lender for all purposes of the Existing Credit Agreement as
amended hereby,
<PAGE>
-2-
having an Advance in the amount set forth opposite its name in Schedule 2
hereto and the Address for Notices and Applicable Lending Office set forth
opposite its name in said Schedule 2, and the Commitment of each New
Lender shall be the amount set forth opposite the name of such New Lender
in said Schedule 2. Anything in the Existing Credit Agreement to the
contrary notwithstanding, commitment fee shall, from and after the
Restatement Date, be for the account of the respective Lenders in
accordance with their respective Commitments (but all commitment fee
accrued to but not including the Restatement Date shall be for the sole
account of the Existing Lender).
(b) The last sentence of the definition of "Commitment" in Section
1.01 of the Existing Credit Agreement shall be amended and restated to
read in its entirety as follows:
"The original aggregate amount of the Commitments is $50,000,000."
(c) The definition of "Commitment Termination Date" in Section 1.01
of the Existing Credit Agreement shall be amended and restated to read in
its entirety as follows:
""COMMITMENT TERMINATION DATE" means the earlier of (i) March
31, 2001 (or, if such date is not a Business Day, the immediately
preceding Business Day) and (ii) the date of termination or
cancellation of the Commitments pursuant to the terms of this
Agreement."
(d) The reference to "$25,000,000" in the last line of Section
2.01(a) of the Existing Credit Agreement shall be replaced by
"$50,000,000".
(e) Schedule 4.01(b) of the Existing Credit Agreement is hereby
deleted and replaced with Schedule 4.01(b), attached as Annex A hereto.
(f) Schedule 4.01(m) of the Existing Credit Agreement is hereby
deleted and replaced with Schedule 4.01(m), attached as Annex B hereto.
(g) All references in the Existing Credit Agreement to the Existing
Credit Agreement shall be deemed to refer to the Existing Credit Agreement
as amended and restated hereby.
Section 3. REPRESENTATIONS AND WARRANTIES. The Borrower hereby
represents and warrants to the Lenders and the Administrative Agent as of the
Restatement Date that the representations and warranties set forth in Section
4.01 of the Existing Credit Agreement are true as if made on and as of the
Restatement Date and as if each reference in such representations and warranties
to the Existing Credit Agreement referred to the Existing Credit Agreement as
amended and restated by this Agreement.
<PAGE>
-3-
Section 4. CONDITIONS PRECEDENT. The amendment and restatement of
the Existing Credit Agreement contemplated hereby shall become effective on the
date (the "RESTATEMENT DATE") on which the Administrative Agent shall notify the
Borrower that the following conditions have been satisfied:
(a) EXECUTION BY ALL PARTIES. This Agreement shall have been
executed and delivered by each of the parties hereto.
(b) NOTES. The Existing Lender shall have delivered to the
Administrative Agent the Note executed by the Borrower and delivered to
the Existing Lender pursuant to the Existing Credit Agreement, the
Borrower shall have delivered to the Administrative Agent a new Note
payable to each Lender in the amount of the Commitment of such Lender as
set forth in Schedule 2 (in the case of the New Lenders) or Schedule 1 (in
the case of the Existing Lender) hereto after giving effect to the
occurrence of the Restatement Date, and the Administrative Agent shall
have returned to the Borrower, upon receipt of said new Notes, the
existing Note marked "Cancelled".
(c) ADVANCES. Each New Lender shall have remitted to the
Administrative Agent on the Restatement Date an amount equal to the amount
of its Advance as specified in Schedule 2, and the Existing Lender shall
have remitted to the Administrative Agent on the Restatement Date an
amount equal to the amount of its Advance as specified in Schedule 1, by
wire transfer of Dollars in immediately available funds (for prompt
distribution to the Existing Lender in such aggregate amount as is
required to reduce the Existing Advance to zero).
(d) OPINION OF COUNSEL TO THE BORROWER. The Administrative Agent
shall have received a favorable opinion in form and substance satisfactory
to it from Jones, Walker, Waechter, Poitevent, Carrere & Denegre, L.L.P.,
counsel to the Borrower, with respect to such matters relating to this
First Amendment and Restatement and the Notes as the Administrative Agent
may request.
(e) CORPORATE DOCUMENTS. The Administrative Agent shall have
received an officer's certificate of the Borrower certifying that the
charter, by-laws and board of directors resolutions with respect to the
Existing Credit Agreement delivered to the Administrative Agent on January
22, 1998 have not been amended, rescinded or revoked, and remain in full
force and effect.
(f) INTEREST AND FEES. The Borrower shall have paid to the
Administrative Agent for account of the Existing Lender all unpaid
interest and fees outstanding under the Existing Credit Agreement accrued
through the Restatement Date.
<PAGE>
-4-
(g) OTHER DOCUMENTS. The Administrative Agent shall have received
such other documents as the Administrative Agent, any Lender or special
New York counsel to the Administrative Agent may reasonably request.
Section 5. MISCELLANEOUS.
(a) The parties agree that the provisions of Section 8.06 of the
Existing Credit Agreement are inapplicable to the transactions
contemplated by this Agreement, but shall apply to any and all assignments
or participations of the Advances occurring after the Restatement Date.
(b) Except as herein provided, the Existing Credit Agreement shall
remain unchanged and in full force and effect.
(c) This Agreement may be executed in any number of counterparts,
all of which taken together shall constitute one and the same amendatory
instrument and any of the parties hereto may execute this Agreement by
signing any such counterpart and sending the same by telecopier, mail,
messenger or courier to the Administrative Agent or counsel to the
Administrative Agent.
(d) This Agreement shall be governed by, and construed in accordance
with, the law of the State of New York.
(e) This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns.
<PAGE>
-5-
IN WITNESS WHEREOF, the parties hereto have caused this First
Amended and Restated Credit Agreement to be duly executed as of the day and year
first above written.
INTERNATIONAL SHIPHOLDING CORPORATION
By /s/ NIELS W. JOHNSEN
Name: Niels W. Johnsen
Title: Chairman of the Board
<PAGE>
-6-
LENDERS
CITIBANK, N.A.
By /s/ JOHN F. HEUSS
Name: John F. Heuss
Title: Vice President
BANK ONE, LOUISIANA N.A.
By /s/ ALAN R. MEADOR
Name: Alan R. Meador
Title: Senior Vice President
CREDIT LYONNAIS NEW YORK BRANCH
By /s/ PHILIPPE SOUSTRA
Name: Philippe Soustra
Title: Senior Vice President
FIRST NATIONAL BANK OF MARYLAND
By /s/ JAMES B. BELL III
Name: James B. Bell III
Title: Assistant Vice President
ADMINISTRATIVE AGENT
CITIBANK, N.A., as
Administrative Agent
By /s/ JOHN F. HEUSS
Name: John F. Heuss
Title: Vice President
<PAGE>
SCHEDULE 1
Existing Lender;
REVISED ADVANCE AMOUNT
<TABLE>
<CAPTION>
=====================================================================================================================
Outstanding Principal Amount
of Advance Immediately
Applicable Lending After Occurence of
Name of Existing Lender Office Address for Notices Restatement Date Commitment
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Citibank, N.A. DOMESTIC LENDING OFFICE:
--------------------------
399 Park Avenue 2 Penns Way $750,000 $12,500,000
New York, NY 10043 Suite 200
New Castle, DE 19720
EURODOLLAR LENDING OFFICE:
--------------------------
399 Park Avenue Attn: Savas Divan
New York, NY 10043 Tel: 302-894-6030
Fax: 302-894-6120
=====================================================================================================================
</TABLE>
<PAGE>
SCHEDULE 2
New Lenders;
INITIAL ADVANCE AMOUNTS
<TABLE>
<CAPTION>
=====================================================================================================================
Outstanding
Principal Amount of
Advance Immediately
Applicable Lending After Occurrence of
Name of New Lender Office Address for Notices Restatement Date Commitment
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Bank One, Louisiana DOMESTIC LENDING OFFICE:
N.A. -----------------------
201 St. Charles Avenue 201 St. Charles Avenue $750,000 $12,500,000
Suite 1410 Suite 1410
New Orleans, LA 70170 New Orleans, LA 70170
EURODOLLAR LENDING OFFICE:
-------------------------
201 St. Charles Avenue Attn: Gloria J. Lemoine
Suite 1410 Tel: 504-558-1275
New Orleans, LA 70170 Fax: 504-558-1279
- ---------------------------------------------------------------------------------------------------------------------
<PAGE>
- ---------------------------------------------------------------------------------------------------------------------
Credit Lyonnais New DOMESTIC LENDING OFFICE: 1301 Avenue of the Americas $750,000 $12,500,000
York Branch ----------------------- New York, NY 10019
1301 Avenue of the Americas
New York, NY 10019
EURODOLLAR LENDING OFFICE: Attn: Christine Washell
------------------------- Tel: 212-261-3763
1301 Avenue of the Americas Fax: 212-261-7368
New York, NY 10019
- ---------------------------------------------------------------------------------------------------------------------
First National Bank DOMESTIC LENDING OFFICE: $750,000 $12,500,000
of Maryland -----------------------
25 South Charles Street 25 South Charles Street
15th Floor 15th Floor
Baltimore, MD 21201 Baltimore, MD 21201
EURODOLLAR LENDING OFFICE:
------------------------- Attn: Maureen Smith/
25 South Charles Street Daisy Berchini
15th Floor Tel: 410-244-4796/4522
Baltimore, MD 21201 Fax: 410-244-4142
=====================================================================================================================
</TABLE>
<PAGE>
ANNEX A
SCHEDULE 4.01(B) -- SUBSIDIARIES
See attached.
<PAGE>
INTERNATIONAL SHIPHOLDING CORPORATION
SUBSIDIARIES OF THE REGISTRANT
AS OF MARCH 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 Inc. Liberia
Gulf South Shipping Pte. Ltd. Singapore
Forest Lines Inc. Liberia
Marco Shipping Co. Pte. Ltd. Singapore
Marcoship Agencies Malaysia
N. W. Johnsen & Co., Inc. New York
Shipvest Companhia de Gestao Maritima, Lda.(2) Madeira
St. Rose Fleeting Company, Inc. Louisiana
Lash Marine Services, Inc. Louisiana
Lash Intermodal Terminal Company Delaware
Resource Carriers, Inc. Delaware
(1) New York name-holding corporation
(2) 60% owned by the Registrant
All of the subsidiaries listed above are wholly-owned subsidiaries and are
included in the consolidated financial statements incorporated by reference
herein unless otherwise indicated.
/s/ Gary L. Ferguson
Chief Financial Officer
<PAGE>
ANNEX B
SCHEDULE 4.01(M) -- EXISTING DEBT
PART I
See attached.
PART II
See attached.
<PAGE>
INTERNATIONAL SHIPHOLDING CORPORATION
OUTSTANDING DEBT AT 3/31/98
<TABLE>
<CAPTION>
TOTAL OUTSTANDING
LINE DEBT
AT 3/31/98 AT 3/31/98 COLLATERAL
<S> <C> <C> <C> <C>
CGL First National Bank of Maryland - $12M 7,000,000 Green Wave, Green Ridge, assignment of freights, MSC charter
CGL First National Bank of Maryland - $5M 4,250,000 Green Wave, Green Ridge, assignment of freights, MSC charter
CGL NationsBank - ATFO Barges 1,396,430 82 Lash Barges
CGL Philadelphia - 76 Barges 1,888,801 76 Lash Barges, security interest in receivables, charter hire
CGL Philadelphia - 82 Barges 2,710,832 82 Lash Barges, security interest in receivables, charter hire
CGL Sale/Leaseback Agreement 15,248,658 326 Lash Barges
ESC $50M Energy Enterprise 38,824,709 Energy Enterprise, assignment of time charter, freights, hire
ISC 9% Senior Notes Due 2003 93,891,000 Unsecured
ISC 7.75% Senior Notes Due 2007 110,000,000 Unsecured
LCI NationsBank - Atlantic Forest 10,514,285 Atlantic Forest
SCI Title XI - Sulphur Enterprise 34,663,000 Sulphur Enterprise
ISC Citibank Line of Credit 25,000,000 3,000,000
------------
323,387,715
============
</TABLE>
LEGEND:
CGL Central Gulf Lines, Inc.
ESC Enterprise Ship Company
ISC International Shipholding Corporation
LCI LCI Shipholdings, Inc.
SCI Sulphur Carriers, Inc.
<PAGE>
INTERNATIONAL SHIPHOLDING CORPORATION
Repayment with New Issue Proceeds
March 31, 1998
LOAN PREPAYMENT DATE PRINCIPAL
Lines of Credit Currently Drawn
FNBC 01/23/98 5,000,000.00
Bank One 01/22/98 6,000,000.00
Bank One - Sam Houston 01/26/98 5,200,000.00
Citibank - Green Bay/Green Lake 01/26/98 20,500,000.00
Bank One - River Barges 01/26/98 111,600.00
Chase Manhattan Bank - Amazon 01/27/98 4,050,000.00
First National Bank of Commerce
Lee/Jackson 01/27/98 2,500,000.00
Midland - Bali/Banda Sea 01/30/98 5,348,000.00
01/30/98 12,196,000.00
01/30/98 19,256,000.00
Midland - Java Sea 01/30/98 4,812,500.00
Principal Mutual
Cypress Pass 02/05/98 3,287,360.00
Cypress Trail 02/05/98 3,666,680.00
Title XI - Green Island 03/09/98 2,178,000.00
Title XI - Barge Refurbishment 03/09/98 2,402,000.00
--------------
96,508,140.00
==============
EXHIBIT 10.2
************************************************************
INTERNATIONAL SHIPHOLDING CORPORATION
as Borrower
-----------------------------
$48,000,000
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of May 4, 1999
(Originally dated as of January 22, 1998 and
amended and restated as of March 31, 1998)
------------------------------
CERTAIN LENDERS
SALOMON SMITH BARNEY INC.
as Arranger
CITIBANK, N.A.
as Administrative Agent
************************************************************
<PAGE>
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
SECOND AMENDED AND RESTATED CREDIT AGREEMENT dated as of May 4, 1999
among INTERNATIONAL SHIPHOLDING CORPORATION, a Delaware corporation (the
"BORROWER"); Citibank, N.A., Bank One, Louisiana N.A. and FMB Bank (each, an
"EXISTING LENDER"); the bank listed on Schedule 2 hereto (the "NEW LENDER" and,
together with the Existing Lenders, the "LENDERS"); and CITIBANK, N.A., as
administrative agent for the Lenders (in such capacity, together with its
successors in such capacity, the "ADMINISTRATIVE AGENT").
WHEREAS, the Borrower, the Existing Lenders, the Declining Lender(s)
(as defined below) and the Administrative Agent are parties to that certain
Credit Agreement dated as of January 22, 1998, amended and restated as of March
31, 1998 (the "EXISTING CREDIT AGREEMENT"); and
WHEREAS, the parties hereto desire to amend and restate the Existing
Credit Agreement to, among other things, decrease the aggregate amount of the
Commitments and reflect the addition of the New Lender as a Lender and
accordingly to re-allocate the Advances outstanding under the Existing Credit
Agreement immediately prior to the Second Restatement Date (the "EXISTING
ADVANCES"), as hereinafter defined, PRO RATA among all of the Lenders on the
basis of their respective Commitments as in effect immediately upon the
occurrence of the Second Restatement Date.
NOW, THEREFORE, the parties hereto agree to amend the Existing
Credit Agreement as set forth herein and to restate the Existing Credit
Agreement to read in its entirety as set forth in the Existing Credit Agreement,
which is incorporated herein by reference, with the amendments specified in
Section 2 below (as so amended and restated, the "CREDIT AGREEMENT").
Section 1. DEFINITIONS. Capitalized terms used but not otherwise
defined herein have the meanings given them in the Credit Agreement. Except as
used in the definitions set forth in Section 2(c) below, references to "hereby,"
"herein," "hereof" and "herewith" refer to this document but not the Credit
Agreement.
Section 2. AMENDMENTS. Subject to the satisfaction of the conditions
precedent specified in Section 4 below, effective as of the Second Restatement
Date (as hereinafter defined), the Existing Credit Agreement shall be amended as
follows:
(a) GENERAL. All references in the Existing Credit Agreement to
"this Agreement" (including indirect references) shall be deemed to refer
to the Credit Agreement.
(b) COMMITMENTS; ADVANCES. (1) The Existing Advances shall (upon and
subject to the making of the payments provided for, and satisfaction of
the other
<PAGE>
-2-
conditions set forth in, Section 4 hereof) be deemed to have been repaid
in full, each Existing Lender shall simultaneously, for all purposes of
the Credit Agreement, be deemed to have made an Advance on the Second
Restatement Date in the amount set forth opposite its name in Schedule 1
hereto, and the Commitment of each Existing Lender shall be the amount set
forth opposite its name in said Schedule 1; (2) each Declining Lender (as
defined below) shall cease to be, and shall cease to have any of the
rights and obligations of, a "Lender" under the Credit Agreement; and (3)
the New Lender shall be deemed to be a Lender for all purposes of the
Credit Agreement, having an Advance in the amount set forth opposite its
name in Schedule 2 hereto and the Address for Notices and Applicable
Lending Office set forth opposite its name in said Schedule 2, and the
Commitment of the New Lender shall be the amount set forth opposite its
name in said Schedule 2. Anything in the Existing Credit Agreement to the
contrary notwithstanding, commitment fee shall, from and after the Second
Restatement Date, be for the account of the respective Lenders in
accordance with their respective Commitments (but all commitment fee
accrued to but not including the Second Restatement Date shall be for the
sole account of the Existing Lenders).
(c) DEFINITIONS. The following definitions in Section 1.01 of the
Existing Credit Agreement are added (to the extent not already included in
said Section 1.01) or amended (to the extent already included in said
Section 1.01) to read in their entirety as follows:
"APPLICABLE MARGIN" means, for any day, the respective rate
per annum set forth in the table below opposite the Utilization
Level prevailing on the Calculation Date immediately preceding such
day under the caption "Applicable Margin":
--------------------------------------------------------------------
Utilization Level Applicable Margin
--------------------------------------------------------------------
Utilization Level 1 1.00%
--------------------------------------------------------------------
Utilization Level 2 1.25%
--------------------------------------------------------------------
The Administrative Agent shall determine the Utilization Level and
corresponding Applicable Margin on each Calculation Date. Each such
determination of the Applicable Margin, and each change in the
Applicable Margin resulting from a change in the Utilization Level,
shall become effective with respect to all outstanding Eurodollar
Rate Advances from and including such Calculation Date until but
excluding the immediately succeeding Calculation Date.
"CALCULATION DATE" means the first day of each Interest
Period.
"COMMITMENT" means, as to any Lender, the amount set forth
opposite its name on Schedules 1 or 2 (as the case may be) to the
Second Amended and Restated Credit Agreement or, if applicable, as
to any Lender that has entered into an Assignment and Acceptance,
the amount set forth for such Lender in the Register, in each case
as the same may be reduced pursuant to Section 2.04 or
<PAGE>
-3-
increased or reduced pursuant to assignments effected in accordance
with Section 8.06. The aggregate amount of the Commitments as of May
4, 1999 is $48,000,000.
"COMMITMENT TERMINATION DATE" means the earlier of (i) March
31, 2002 (or, if such date is not a Business Day, the immediately
preceding Business Day) and (ii) the date of termination or
cancellation of the Commitments pursuant to the terms of this
Agreement.
"SECOND AMENDED AND RESTATED CREDIT AGREEMENT" means the
Second Amended and Restated Credit Agreement dated as of May 4, 1999
among the parties hereto.
"UTILIZATION LEVELS" means, on any Calculation Date, (a)
Utilization Level 1 if the aggregate amount of Commitments utilized
is less than or equal to $25,000,000 and (b) Utilization Level 2 if
the aggregate amount of Commitments utilized is greater than
$25,000,000.
(d) The reference to "$50,000,000" in the last line of Section
2.01(a) of the Existing Credit Agreement shall be replaced by
"$48,000,000".
(e) The reference to "$60,000,000" in clause (v) of Section 5.02(b)
of the Existing Credit Agreement shall be replaced by "$50,000,000".
(f) Schedule 4.01(m) of the Existing Credit Agreement is hereby
deleted and replaced in its entirety with Schedule 4.01(m), attached as
Annex A hereto.
Section 3. REPRESENTATIONS AND WARRANTIES. The Borrower hereby
represents and warrants to the Lenders and the Administrative Agent as of the
Second Restatement Date (as hereinafter defined) that (i) the representations
and warranties set forth in Section 4.01 of the Existing Credit Agreement are
true as if made on and as of the Second Restatement Date and as if each
reference in such representations and warranties to the Existing Credit
Agreement referred to the Credit Agreement and (ii) no event has occurred and is
continuing that constitutes a Default (and the parties agree that if any of said
representations and warranties shall prove to have been incorrect in any
material respect when made, the occurrence and continuance of such event shall
constitute an Event of Default under Section 6.01(b) of the Credit Agreement).
Section 4. CONDITIONS PRECEDENT. The amendment and restatement of
the Existing Credit Agreement contemplated hereby shall become effective, as of
May 4, 1999 (the "SECOND RESTATEMENT DATE"), upon the satisfaction of the
following conditions:
(a) EXECUTION BY ALL PARTIES. This Agreement shall have been
executed and delivered by each of the parties hereto. If there exists any
Person that is a "Lender" under and as defined in the Existing Credit
Agreement but not a Lender hereunder (each, a
<PAGE>
-4-
"DECLINING Lender"), such Person shall have confirmed, in a manner
satisfactory to the Administrative Agent, that its commitments under the
Credit Agreement have terminated and that it is no longer party to the
Credit Agreement.
(b) NOTES. Each Existing Lender and each Declining Lender shall have
delivered to the Administrative Agent the Note executed by the Borrower
and delivered to such Existing Lender and Declining Lender pursuant to the
Existing Credit Agreement, the Borrower shall have delivered to the
Administrative Agent a new Note payable to each Lender in the amount of
the Commitment of such Lender as set forth in Schedule 2 (in the case of
the New Lender) or Schedule 1 (in the case of the Existing Lenders) hereto
after giving effect to the occurrence of the Second Restatement Date, and
the Administrative Agent shall have returned to the Borrower, upon receipt
of said new Notes, the existing Notes marked "Cancelled".
(c) ADVANCES. The New Lender shall have remitted to the
Administrative Agent on the Second Restatement Date an amount equal to the
amount of its Advance as specified in Schedule 2, by wire transfer of
Dollars in immediately available funds at the Administrative Agent's
Account, for prompt distribution by the Administrative Agent to each
Declining Lender in such aggregate amount as is required to reduce the
outstanding Existing Advance of such Declining Lender, on the Second
Restatement Date, to zero.
(d) OPINION OF COUNSEL TO THE BORROWER. The Administrative Agent
shall have received a favorable opinion in form and substance satisfactory
to it from Jones, Walker, Waechter, Poitevent, Carrere & Denegre, L.L.P.,
counsel to the Borrower, with respect to such matters relating to this
Agreement and the Credit Agreement as the Administrative Agent may
request.
(e) CORPORATE DOCUMENTS. The Administrative Agent shall have
received certified copies of the charter and by-laws of the Borrower (or,
in the alternative, an officer's certificate of the Borrower that such
constitutive documents have not been amended, rescinded or revoked, and
remain in full force and effect, since delivery thereof to the
Administrative Agent on January 22, 1998) and of all corporate
authorizations for the Borrower (including without limitation, board of
director resolutions and evidence of the incumbency, including specimen
signatures, of officers) with respect to the making and performance by the
Borrower of this Agreement and the Credit Agreement.
(f) INTEREST AND FEES. The Borrower shall have paid to the
Administrative Agent for account of each Existing Lender and of each
Declining Lender all unpaid interest, fees and all other amounts
(including without limitation any amounts due and payable under Section
8.04(c) of the Existing Credit Agreement) outstanding under the Existing
Credit Agreement accrued through the Second Restatement Date. In addition,
the Borrower shall have paid to the Administrative Agent for account of
each Lender an amendment fee in the amount of $5,000 per Lender.
<PAGE>
-5-
(g) OTHER DOCUMENTS. The Administrative Agent shall have received
such other documents as the Administrative Agent, any Lender or special
New York counsel to the Administrative Agent may reasonably request.
Section 5. MISCELLANEOUS.
(a) The parties agree that the provisions of Section 8.06 of the
Existing Credit Agreement are inapplicable to the transactions
contemplated by this Agreement, but shall apply to any and all assignments
or participations of the Advances occurring after the Second Restatement
Date.
(b) Except as herein provided, the Existing Credit Agreement shall
remain unchanged and in full force and effect.
(c) This Agreement may be executed in any number of counterparts,
all of which taken together shall constitute one and the same amendatory
instrument and any of the parties hereto may execute this Agreement by
signing any such counterpart and sending the same by facsimile, mail,
messenger or courier to the Administrative Agent or counsel to the
Administrative Agent.
(d) This Agreement shall be governed by, and construed in accordance
with, the law of the State of New York.
(e) This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns.
<PAGE>
-6-
IN WITNESS WHEREOF, the parties hereto have caused this Second
Amended and Restated Credit Agreement to be duly executed as of the day and year
first above written.
BORROWER
INTERNATIONAL SHIPHOLDING CORPORATION
By /s/ NIELS W. JOHNSEN
Name: Niels W. Johnsen
Title: Chairman of the Board
ADMINISTRATIVE AGENT
CITIBANK, N.A., as
Administrative Agent
By /s/ SANJIV NAYAR
Name: Sanjiv Nayar
Title: Vice President
<PAGE>
-7-
LENDERS
CITIBANK, N.A.
By /s/ SANJIV NAYAR
Name: Sanjiv Nayar
Title: Vice President
BANK ONE, LOUISIANA N.A.
By /s/ KATHELEEN M. TURNER
Name: Katheleen M. Turner
Title: Authorized Officer
FMB BANK
By /s/ JAMES B. BELLE III
Name: James B. Belle III
Title: Assistant Vice President
HIBERNIA NATIONAL BANK
By /s/ BRUCE ROSS
Name: Bruce Ross
Title: Senior Vice President
<PAGE>
<TABLE>
<CAPTION>
=====================================================================================================================
Outstanding Principal Amount
of Advance Immediately
Applicable Lending After Occurence of
Name of Existing Lender Office Address for Notices Restatement Date Commitment
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Citibank, N.A. DOMESTIC LENDING OFFICE:
-----------------------
399 Park Avenue 2 Penns Way $4,250,000 $12,000,000
New York, NY 10043 Suite 200
New Castle, DE 19720
EURODOLLAR LENDING OFFICE:
------------------------- Heather Morgan
399 Park Avenue Tel: 302-894-6006
New York, NY 10043 Fax: 302-894-6120
- ---------------------------------------------------------------------------------------------------------------------
Bank One, Louisiana DOMESTIC LENDING OFFICE:
N.A. -----------------------
201 St. Charles Avenue 201 St. Charles Avenue $4,250,000 $12,000,000
Suite 1410 Suite 1410
New Orleans, LA 70170 New Orleans, LA 70170
EURODOLLAR LENDING OFFICE:
------------------------- Attn: Gloria J. Lemoine
201 St. Charles Avenue Tel: 504-558-1275
Suite 1410 Fax: 504-558-1279
New Orleans, LA 70170
- ---------------------------------------------------------------------------------------------------------------------
FMB Bank DOMESTIC LENDING OFFICE:
-----------------------
25 South Charles Street 25 South Charles Street $4,250,000 $12,000,000
15th Floor 15th Floor
Baltimore, MD 21201 Baltimore, MD 21201
EURODOLLAR LENDING OFFICE:
------------------------- Attn: Maureen Smith/
25 South Charles Street Daisy Berchini
15th Floor Tel: 410-244-4796/4522
Baltimore, MD 21201 Fax: 410-244-4142
=====================================================================================================================
<PAGE>
SCHEDULE 2
New Lenders;
INITIAL ADVANCE AMOUNTS
<CAPTION>
=====================================================================================================================
Outstanding
Principal Amount of
Advance Immediately
Applicable Lending After Occurrence of
Name of New Lender Office Address for Notices Restatement Date Commitment
- ---------------------------------------------------------------------------------------------------------------------
Hibernia National DOMESTIC LENDING OFFICE:
Bank -----------------------
313 Carondelet Street 313 Carondelet Street $4,250,000 $12,000,000
10th Floor 10th Floor
New Orleans, LA 70130 New Orleans, LA 70130
EURODOLLAR LENDING OFFICE:
-------------------------
313 Carondelet Street Attn: Sandra Margavio
10th Floor Tel: 504-533-5354
New Orleans, LA 70130 Fax: 504-533-5434
=====================================================================================================================
</TABLE>
<PAGE>
ANNEX A
SCHEDULE 4.01(M) - EXISTING DEBT
PART I
See attached.
PART II
See attached.
<PAGE>
INTERNATIONAL SHIPHOLDING CORPORATION
OUTSTANDING DEBT AT 4/30/99 *
<TABLE>
<CAPTION>
TOTAL OUTSTANDING
LINE DEBT
AT 4/30/99 AT 4/30/99 COLLATERAL
<S> <C> <C> <C> <C>
CGL First Nat Bk of Maryland - $12M 5,000,000 Green Wave, Green Ridge, assignment of freights, MSC charter
CGL First Nat Bk of Maryland - $5M 2,750,000 Green Wave, Green Ridge, assignment of freights, MSC charter
CGL NationsBank - ATFO Barges 1,153,574 82 Lash Barges
CGL Philadelphia - 76 Barges 1,052,781 76 Lash Barges, security interest in receivables, charter hire
CGL Philadelphia - 82 Barges 1,555,992 82 Lash Barges, security interest in receivables, charter hire
CGL Sale/Leaseback Agreement 12,332,700 326 Lash Barges
ESC $50M Energy Enterprise 34,958,226 Energy Enterprise, assignment of time charter, freight, hire
ISC 9% Senior Notes Due 2003 92,891,000 Unsecured
ISC 7.75% Senior Notes Due 2007 110,000,000 Unsecured
LCI NationsBank - Atlantic Forest 8,685,713 Atlantic Forest
LCI Citibank - Asian King 47,000,000 Asian King, assignment of time charter, freights, hire
SCI Title XI - Sulphur Enterprise 25,969,000 Sulphur Enterprise
------------
343,348,986
============
</TABLE>
LEGEND:
CGL Central Gulf Lines, Inc.
ESC Enterprise Ship Company
ISC International Shipholding Corporation
LCI LCI Shipholdings, Inc.
SCI Sulphur Carriers, Inc.
* Excludes Corporate Line of Credit Drawings
EXHIBIT 10.3
AMENDMENT NO. 1
AMENDMENT NO. 1 dated as of September 3, 1999 between INTERNATIONAL
SHIPHOLDING CORPORATION, a Delaware corporation (the "Borrower") and CITIBANK,
N.A., as Administrative Agent (in such capacity, the "ADMINISTRATIVE AGENT").
The Borrower, the Lenders and the Administrative Agent are parties
to that certain Credit Agreement dated as of January 22, 1998, amended and
restated as of March 31, 1998 and as of May 4, 1999 (the "CREDIT AGREEMENT").
The parties wish to amend the Credit Agreement as hereinafter provided, and the
Required Lenders (as defined in the Credit Agreement) have consented to such
amendment. Accordingly, the Administrative Agent, acting with the written
consent of the Required Lenders, and the Borrower hereby agree as follows:
SECTION 1. DEFINITIONS. Except as otherwise defined in this
Amendment, terms defined in the Credit Agreement have the same respective
meanings when used herein.
SECTION 2. AMENDMENT. Effective as of the date hereof, but subject
to Section 3 hereof, the Administrative Agent, acting with the written consent
of the Required Lenders, and the Borrower agree that paragraph (b) of Section
5.02 of the Credit Agreement ("DEBT") is hereby deleted and replaced with the
words "(b) Intentionally omitted."
SECTION 3. AMENDMENT FEE. The effectiveness of this Amendment shall
be subject to the condition precedent that the Borrower shall have paid, to each
Lender which has executed and delivered to the Administrative Agent a consent to
this Amendment on or before the date hereof, an amendment fee in the amount of
$5,000.
SECTION 4. REPRESENTATIONS. The Borrower hereby represents and
warrants to the Administrative Agent for the benefit of the Lenders, as of the
date hereof, that (i) the execution, delivery and performance by the Borrower of
this Amendment have been duly authorized by all necessary corporate action on
its part and do not contravene any applicable law or regulation or any
contractual provision applicable to it or require any consent or approval of any
governmental authority and (ii) this Amendment constitutes the legal, valid and
binding obligation of the Borrower, enforceable in accordance with its terms.
From and after the date hereof, all references in the Credit Agreement and in
any other Loan Document to "this Agreement", "the Credit Agreement" and words of
like import shall be deemed to refer to the Credit Agreement as amended hereby.
<PAGE>
2
SECTION 5. MISCELLANEOUS. Except as specifically amended hereby, the
Credit Agreement and each other Loan Document are in all respects ratified and
confirmed. This Amendment may be executed in any number of counterparts, all of
which taken together shall constitute one and the same instrument, and any of
the parties hereto may execute this Amendment by signing any such counterpart.
This Amendment shall be governed by, and construed in accordance with, the law
of the State of New York.
<PAGE>
3
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed and delivered as of the day and year first above written.
INTERNATIONAL SHIPHOLDING
CORPORATION
By /s/ NIELS W. JOHNSEN
Name: Niels W. Johnsen
Title: Chairman of the Board
CITIBANK, N.A., as Administrative Agent
By /s/ SANJIV NAYAR
Name: Sanjiv Nayar
Title: Vice President
EXHIBIT 21
INTERNATIONAL SHIPHOLDING CORPORATION
SUBSIDIARIES OF THE REGISTRANT
AS OF DECEMBER 31, 1999
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
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 SDN. BHD. Malaysia
Belden Shipping Pte Ltd (2) Singapore
Echelon Shipping Inc. (2) Panama
Carson Shipping Inc. (2) Panama
Shining Star Malta Ltd (2) Malta
Goodtime Shipping Inc. (2) Panama
N. W. Johnsen & Co., Inc. New York
LMS Shipmanagement, Inc. Louisiana
LMS Manila, Inc. (3) Philippine
LMS Manning, Inc. (4) Philippine
Lash Intermodal Terminal Company Delaware
Resource Carriers, Inc. Delaware
(1) New York name-holding corporation
(2) 30% owned by LCI Shipholdings, Inc.
(3) 40% owned by LMS Shipmanagement, Inc.
(4) 25% owned by LMS Shipmanagement, Inc.; 75% owned by LMS Manila, 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.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE PERIOD ENDED DECEMBER 31, 1999 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-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 18,661
<SECURITIES> 11,337
<RECEIVABLES> 61,689<F2>
<ALLOWANCES> 294
<INVENTORY> 12,726
<CURRENT-ASSETS> 112,327
<PP&E> 819,820
<DEPRECIATION> 379,588
<TOTAL-ASSETS> 735,003
<CURRENT-LIABILITIES> 76,756
<BONDS> 400,442
0
0
<COMMON> 6,756
<OTHER-SE> 175,728
<TOTAL-LIABILITY-AND-EQUITY> 735,003
<SALES> 0
<TOTAL-REVENUES> 373,209
<CGS> 0
<TOTAL-COSTS> 330,810
<OTHER-EXPENSES> 32,102
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 32,102
<INCOME-PRETAX> 23,209
<INCOME-TAX> 8,501
<INCOME-CONTINUING> 14,623
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,623
<EPS-BASIC> 2.28
<EPS-DILUTED> 2.28
<FN>
<F1>Amounts inapplicable or not disclosed as a separate line on the Balance
Sheet or Statement of Income are reported as 0 herein.
<F2>Notes and accounts receivable - trade are reported net of allowances for
doubtful accounts in the Balance Sheet.
</FN>
</TABLE>
