8-K

UNITED STATES

 SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

____________October 13, 2010_______________

Date of Report (Date of Earliest Event Reported)

Commission file number  –  001-10852

INTERNATIONAL SHIPHOLDING CORPORATION

(Exact name of registrant as specified in its charter)

  Delaware                                                                  36-2989662                                

(State or other jurisdiction of                                                          (I.R.S. Employer Identification Number)

incorporation or organization)

11 North Water Street, Suite 18290             Mobile, Alabama                                        36602

(Address of principal executive offices)                                    ;                                  (Zip Code)

       (251) 243-9100                                                                           

(Registrant’s telephone number, including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 [ ]  Written communications pursuant to Rule 425 under the Securities Act

 [ ]  Soliciting material pursuant to Rule 14a-12 under the Exchange Act

 [ ]  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act

 [ ]  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act

Item 8.01.    Other Events.

The information included in this Current Report on Form 8-K affects only disclosures related to segment results, and does not in any way restate or revise the financial position, results of operations, cash flows or stockholders’ equity in any previously reported Consolidated Balance Sheets, Consolidated Statements of Income, Consolidated Statements of Changes in Stockholders’ Investment or Consolidated Statements of Cash Flows of International Shipholding Corporation (the “Company”) contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009 (the “2009 Form 10-K”) filed on March 15, 2010.  Neither this Form 8-K nor the Exhibits hereto reflect any events occurring after March 15, 2010 or modify or update the disclosures in the 2009 Form 10-K that may be affected by subsequent events.  Accordingly, this Form 8-K should be read in conjunction with the 2009 Form 10-K and the Company’s filings made with the Securities and Exchange Commission subsequent to the filings of the 2009 Form 10-K, including any amendments to those filings.

Prior to the second quarter of 2010, the Company had four operating segments: Time Charter Contracts, Contracts of Affreightment (“COA”), Rail-Ferry Service and Other, identified primarily by the characteristics of the contracts and terms under which the associated vessels are operated. Beginning with its second quarter 2010 Form 10-Q report, the Company split Time Charter Contracts into two different reporting segments, Time Charter Contracts – U.S. Flag and Time Charter Contracts – International Flag.  Although the Company believed the previous segment reporting was appropriate, this change further aligned its operating segment disclosures with the information reviewed by the chief operating decision maker.

The rules of the Securities and Exchange Commission require that when a registrant prepares, on or after the date a registrant reports an accounting change such as the change noted above, a new registration, proxy or information statement (or amends a previously filed registration, proxy, or information statement) that includes or incorporates by reference financial statements, the registrant must recast the prior period financial statements included or incorporated by reference in the registration, proxy or information statement to reflect these types of changes.  Accordingly, we are filing this Form 8-K to recast our consolidated financial statements for each of the three years in the period ended December 31, 2009, to reflect the changes in segment reporting as described above.   The updates do not represent a restatement of previously issued financial statements.  The following recast information of Items contained in the Company’s 2009 Form 10-K is presented in Exhibits 99.1, 99.2 and 99.3 to this Form 8-K, respectively, all of which are incorporated herein by reference:

·   Item 1. Business

·   Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

·   Item 8. Financial Statements and Supplemental Data

Item 9.01.    Financial Statements and Exhibits.

(c)   Exhibits

Exhibit Number                 Document

23.1                                     Consent of Ernst & Young LLP

99.1   Item 1 of Form 10-K for the fiscal year ended December 31, 2009: Business

99.2   Item 7 of Form 10-K for the fiscal year ended December 31, 2009: Management’s Discussion and Analysis of Financial Condition and Results of Operations

99.3   Item 8 of Form 10-K for the fiscal year ended December 31, 2009: Financial Statements and Supplemental Data

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

INTERNATIONAL SHIPHOLDING CORPORATION

/s/ Manuel G. Estrada

_____________________________________________

Manuel G. Estrada

Vice President and Chief Financial Officer

Date ____October 13, 2010

EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-158916) pertaining to the International Shipholding Corporation 2009 Stock Incentive Plan of our report dated March 15, 2010 (except for Note K, as to which the date is October 12, 2010) with respect to the consolidated financial statements of International Shipholding Corporation for the year ended December 31, 2009, included in this Current Report (Form 8-K) of International Shipholding Corporation.

/s/ Ernst & Young LLP

New Orleans, Louisiana

October 12, 2010

EX-99.1

Exhibit 99.1

ITEM 1.  BUSINESS

General

 In this report, the terms “we,” “us,” “our,” and “the Company” refer to International Shipholding Corporation and its subsidiaries.  Through our subsidiaries, we operate a diversified fleet of U.S. and International flag vessels that provide international and domestic maritime transportation services to commercial and governmental customers primarily under medium to long-term time charters or contracts of affreightment  As of March 05, we own or operate 27 ocean-going vessels and related shoreside handling facilities and have 14 Newbuildings presently on order for future delivery.

 Our current operating fleet of 41 ocean-going vessels consists of  (i) six U.S. flag Pure Car/Truck Carriers (“PCTCs”) specifically designed to transport fully assembled automobiles, trucks and larger vehicles; (ii) three International flag PCTCs with the capability of transporting heavyweight and large dimension trucks and buses, as well as automobiles and one Pure Car/Truck Carrier Newbuilding; (iii) three Multi-Purpose vessels, one container vessel and one Tanker vessel, which are used to transport supplies for the Indonesian operations of a mining company; (iv) one U.S. flag Molten Sulphur vessel, which is used to carry molten sulphur from Texas to a processing plant on the Florida Gulf Coast; (v) two Special Purpose vessels modified as Roll-On/Roll-Off vessels (“RO/ROs”) to transport loaded rail cars between the U.S. Gulf and Mexico; (vi) one U.S. flag conveyor belt-equipped self-unloading Coal Carrier, which carries coal in the coastwise trade; (vii) three RO/RO vessels that permit rapid deployment of rolling stock, munitions, and other military cargoes requiring special handling; (viii) two U.S. flag and one International flag container ship which began operating on time charters in 2008; (ix) three Double Hull Handy-Size Bulk Carrier Newbuildings, (x) one Panamax-size Bulk Carrier, two Capesize Bulk Carriers and two Handymax Bulk Carriers Newbuildings in which we own a 50% interest of each and (xi) eight Mini Bulker Newbuildings in which we own a 25% interest of each. As described further in Item 2 below, we own 14 of these 41 vessels.

 Our fleet is deployed by our principal operating subsidiaries, Central Gulf Lines, Inc. (“Central Gulf”), LCI Shipholdings, Inc. (“LCI”), Waterman Steamship Corporation (“Waterman”), CG Railway, Inc. (“CG Railway”), Enterprise Ship Company, Inc. (“ESC”), and East Gulf Shipholding, Inc. (“EGS”).  Other of our subsidiaries provide ship charter brokerage, agency and other specialized services.

 Additional information on our vessels appears on the Fleet Statistics Schedule located in the front of our combined Annual Report and 10-K report furnished to our stockholders.

Operating Segments

 We have five operating segments, Time Charter Contracts-U.S. Flag, Time Charter Contracts-International Flag, Contracts of Affreightment (“COA”), Rail-Ferry Service, and Other, as described below.  Most of our revenues and gross voyage profits are contributed by our Time Charter Contracts-U.S. Flag and Time Charter Contracts-International Flag segments.

 For additional information about our operating segments and markets see Note K - Significant Operations, in the Notes to the Consolidated Financial Statements contained in this Form 10-K on page F-26.  In addition to our five operating segments, we have investments in several unconsolidated entities of which we own 50% or less and have the ability to exercise significant influence over operating and financial activities.  A sixth operating segment, Liner Services, was discontinued in 2007.  During the first quarter of 2008, we sold the one remaining L ASH vessel and the remaining LASH barges and these results are reflected as discontinued operations. (See Note P – Discontinued Operations on page F-34).

 Time Charter Contracts-U.S. Flag & Time Charter Contracts-International Flag.   Time Charters are contracts by which the charterer obtains the right for a specified time period to direct the movements and utilization of the vessel in exchange for payment of a specified daily rate, but we retain operating control over the vessel.  Typically, we fully equip the vessel and are responsible for normal operating expenses, repairs, crew wages, and insurance, while the charterer is responsible for voyage expenses, such as fuel, port, and stevedoring expenses.  Beginning with the second quarter of 2010, we split our Time Charter Contracts operations into two different operating seg ments representative of our time charter contracts, Time Charter Contracts-U.S. Flag and Time Charter Contracts-International Flag.  Our Time Charter Contracts-U.S. Flag segment includes operating three RO/RO vessels for the United States Navy’s Military Sealift Command (“MSC”) for varying terms.  The current agreements are set to expire by the end of July 2010.  These contracts represented 8.4% of our total revenue in 2009.  We are presently participating in the rebid process to continue this business and we anticipate materially reduced revenues even if it is successfully retained.  Other vessels operating in the Time Charter Contracts-U.S. Flag segment include 6 PCTC’s, a conveyor belt-equipped, self-unloading Coal Carrier under contract with an electric utility and two container ships which began operating on time charters in 2008.

 Vessels operating in the Time Charter Contracts-International Flag segment include three PCTCs; two Multi-Purpose vessels, one Tanker, two Container vessels providing transportation services to a mining company at its mine in Papua, Indonesia and one International Flag container ship which began operating on time charter in 2008. We currently have newbuilding contracts for three Double Hull Handy-Size Bulk Carriers for delivery in early 2011.

 Contracts of Affreightment.  COAs are contracts by which we undertake to provide space on our vessels 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, we are responsible for all operating and voyage expenses.  Our COA segment includes one contract for the transportation of molten sulphur.  Under a December 2008 contract amendment, the initial term of the contract was extended through December 31, 2011. Under the terms of this contract, we ar e guaranteed the transportation of a minimum of 1.8 million tons of molten sulphur per year.  The amended contract also gives the charterer six two-year and one one-year renewal options.

 Rail-Ferry Service.  This service uses our two Roll-on/Roll-off Special Purpose double-deck vessels, which carry loaded rail cars between the U.S. Gulf Coast and Mexico.  We began operations out of our new terminal in Mobile, Alabama and the upgraded terminal in Mexico during the third quarter of 2007.  The upgrades to the Mexican terminal were made to accommodate the second decks, which were added to our vessels in the second and third quarters of 2007 to double the capacity of the vessels.  (See Item 1a., Risk Factors, for a description of material risks relating to this service on page 10).

 Other.  This segment consists of (i) operations that include more specialized services than the above mentioned three segments, and (ii) ship charter brokerage and agency services.

 Unconsolidated Entities.  We have a 50% interest in a company that (i) owns one Panamax-size Bulk Carrier, two Cape-Size Bulk Carriers and (ii) has two Handymax Bulk Carrier Newbuildings on order for delivery in 2012.  We also have a 49% interest in a company that operates the rail terminal in Coatzacoalcos, Mexico that is used by our Rail-Ferry Service, anda 50% interest in a company that owns and operates a transloading and rail and truck service warehouse storage facility in New Orleans, Louisiana. In December 2009, we acquired a 25% investment in Oslo Bulk Shipping (“Oslo”) for $6,250,000, which, in 2008, contracted to build eight new Mini bulkers. The 8,000 dead weight ton vessels are being constructed and are scheduled for deliveries commencing in the third quarter of 2010. This investment is accounted for under the equity method and our share of earnings or losses will be reported in our consolidated statements of income net of taxes.

Business Strategy

 Our 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 time charters or contracts of affreightment with those customers and, if necessary, modify, acquire or construct vessels to meet the customers’ requirements, and (iii) provide our customers with reliable, high quality service at a reasonable cost.  We plan to continue this strategy by expanding our relationships with existing customers, seeking new customers, and selectively pursuing acquisitions.

 Because our strategy is to seek medium- to long-term contracts and because we have diversified customer and cargo bases, we believe we are generally insulated from the cyclical nature of the shipping industry to a greater degree than those companies who operate in the spot markets.  Of the five operating segments, our Rail-Ferry Service segment is impacted by, among other things, fuel oil cost, seasonal demands for certain cargoes and the unpredictability of the Atlantic hurricane season.

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, retired ex-CEO and Director, and Erik F. Johnsen, a past CEO and current Director of the Company.  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 our common stock to Trans Union’s stockholders.  In 1986, we acquired the assets of Forest Lines, and in 1989 we acquired Waterman.  Since our spin-off from Trans Union, we have continued to act solely as a holding company, and our only significant assets are the capital stock of our subsidiaries.

Competitive Strengths

 Diversification. Our strategy for many years has been to seek and obtain Contracts that provide predictable cash flows and contribute to a diversification of operations.  These diverse operations vary from chartering vessels to the United States government, to chartering vessels for the transportation of automobiles and military vehicles, transportation of paper, steel, wood and wood pulp products, carriage of supplies for a mining company, transporting molten sulphur, transporting coal for use in generating electricity, and transporting standard size railroad cars.

 Predictable Operating Cash Flows. Our operations have consistently generated cash flows sufficient to cover our debt service requirements and operating expenses, including the recurring drydocking requirements of our fleet.  As of December 31, 2009 49% of our revenues were generated from fixed contracts. The length and structure of our contracts, the creditworthiness of our customers, and our diversified customer and cargo bases all contribute to our ability to consistently meet such requirements in an industry that tends to be cyclical in nature.  Our medium to long-term time charters provide for a daily charter rate that is payable whether or not the charterer utilizes the vessel. & #160;These time 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 our expenses.  In addition, our COA operations guarantee a minimum amount of cargo for transportation.  Our cash flow from operations was approximately $62.7 million, $42.2 million and $20.2 million for the years ended December 31, 2009, 2008 and 2007, respectively, after deducting cash used for drydocking payments of $16.0, $4.2 million and $9.8 million for each of those years, respectively.  Scheduled repayment of debt was $14.2 million, $13.0 million and $10.3 million for the years ended December 31, 2009, 2008, and 2007, respectively.

 Longstanding Customer Relationships.  We currently have medium to long-term time charters with the MSC (representing 8.4% of our fiscal year 2009 revenues) and a variety of creditworthy commercial customers, as well as contracts of affreightment to carry cargo for a variety of creditworthy commercial customers.  Most of these companies have been customers of ours for over ten years.  Substantially all of our current cargo contracts and time charter agreements are renewals or extensions of previous agreements.  In recent years, we have been successful in winning extensions or renewals of substantially all of the contracts rebid by our commercial customers, and we have be en operating vessels for the MSC for more than 30 years.  We believe that our longstanding customer relationships are in part due to our excellent reputation for providing quality specialized maritime service in terms of on-time performance, minimal cargo damage claims and reasonable timecharter and freight rates.

 Experienced Management Team.   Our management team has substantial experience in the shipping industry.  Our Chairman, President, and Chief Financial Officer have over 103 years of collective experience with the Company.  We believe that the experience of our management team is important to maintaining long-term relationships with our customers.

Types of Service

 Through our principal operating subsidiaries, we provide specialized maritime transportation services to our customers primarily under medium to long-term contracts.  Our five operating segments, Time Charter Contracts –U.S. Flag, Time Charter Contracts–International Flag, Contracts of Affreightment, Rail-Ferry Service, and Other are described below.  For further information on the amount of revenues and gross voyage profits contributed by each segment, please see Item 7 on page 20 of this report.

I.  Time Charter Contracts–U.S. Flag

        Military Sealift Command Charters

 We have had contracts with the MSC (or its predecessor) almost continuously for over 30 years.  In 1983, Waterman was awarded a contract to operate three U.S. flag RO/RO vessels under time charters to the MSC for use by the United States Navy in its maritime prepositioning ship (“MPS”) program.  These vessels currently represent three of the sixteen MPS vessels which are part of the MSC’s worldwide fleet and provide support to the U.S. Marine Corps.  These ships are designed primarily to carry rolling stock and containers.  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. 
60;The MSC time charters commenced in late 1984 and early 1985 for initial five-year periods and were renewable at the MSC’s option for additional five-year periods up to a maximum of twenty-five years.  In 1993, the Company reached an agreement with the MSC to fix the period of these charters for the full 25 years. In July 2009, we received notification from the MSC that we were being excluded from further consideration for extending the current operating agreements on the three U.S. flag roll on-roll off vessels.  In October 2009, subsequent to filing an agency protest for reinstatement, we were notified of our reinstatement for consideration by MSC.  The current agreements are set to expire by the end of July 2010.  These contracts represented 8.4% of our total revenue in 2009.  We are presently participating in the rebid process to continue this business and we anticipate materially reduced revenues even if it is successfully retained.

     Pure Car/Truck Carriers

 Our fleet currently includes six U.S. flag PCTCs, of which five are owned by us and one is leased.  In 1986, we entered into multi-year charters to carry Toyota and Honda automobiles from Japan to the United States.  To service these charters, we had constructed two car carriers that were specially designed to carry 4,000 and 4,660 fully assembled automobiles, respectively.  Both vessels were built in Japan and were registered under the U.S. flag.  In 2000 and 2001, we replaced these two vessels with larger PCTCs, which are operating under the initial term of their contracts through 2010 and 2011 with a Japanese shipping company.  Both of these contracts may be extended beyond the initial term at the option of th e shipping company, with the contract ending in 2010 having been extended through April 2014.

 In 1998, we acquired a 1994-built PCTC, which we reflagged to U.S. flag.  After being delivered to us in April of 1998, this vessel entered a long-term charter which has been extended through 2014, with the aforementioned Japanese shipping company.  In 1999, we acquired a newly built PCTC, which we reflagged to U.S. flag, which immediately after being delivered to us in September 1999 entered into a long-term charter through 2011 also with the same Japanese shipping company.  This contract may be extended beyond the initial term at the option of the Japanese shipping company.

 In 2005, we acquired a 1998-built PCTC, which we reflagged to U.S. flag.  Immediately after being delivered to us in September of 2005, we chartered this vessel through 2015 to the same Japanese shipping company.

 In 2007, we acquired a 2007-built PCTC, which we reflagged to U.S. flag.  Immediately after being delivered to us in September of 2007, we chartered this vessel through August of 2010 to a Far East based shipping company, which held an option to purchase the vessel at the end of the contract.  On February 5, 2010, the charterer notified us of their intention to not exercise their option to purchase the vessel.  Subsequently, the charterer did not exercise their purchase option, and we also negotiated a mutually acceptable early redelivery of the vessel effective February 14, 2010.  We are currently reviewing several alternatives for the employment of this vessel.

       Coal Carrier

In 1995, we purchased an existing U.S. flag conveyor belt-equipped, self-unloading Coal Carrier that was timechartered to a New England electric utility under a 15-year time charter to carry coal in the coastwise trade.  In December 2009, the timecharter was extended to May 10, 2015.

Container Vessels

 We have two U.S. flag vessels that are bareboat chartered in and time chartered out through the first quarter of 2015.

II. Time Charter Contracts – International Flag

Pure Car/Truck Carriers

 Our current fleet includes three international flag PCTCs, of which two is owned by us and one is leased.  In 1988, we had two new car carriers constructed by a shipyard affiliated with Hyundai Motor Company, each with a carrying capacity of 4,800 fully assembled automobiles, to transport Hyundai automobiles from South Korea primarily to the United States under two long-term time charters.  In 1998 and 1999, we sold these car carriers and replaced them with two newly built PCTCs, each with the capacity to carry heavy and large size rolling stock in addition to automobiles and trucks.  We immediately entered into long-term time charters of these vessels through 2018 and 2019 to a Korean shipping company.  One of these PCTC s was subsequently sold to an unaffiliated party and leased back under an operating lease through 2016, and we have an option to purchase the vessel thereafter.

 In late March 2010, we made our final installment payment on, and receive delivery of, a 6400 Car Equivalent Units (“CEU”) newbuilding PCTC. Upon signing of the 2007 purchase agreement, we paid an initial 20% installment of approximately $13.7 million. During the year ended December 31, 2009, we paid two installments of 10% upon keel-laying and launching of the vessel. These amounts were $8.0 million and $8.6 million respectively, after foreign exchange adjustments. All installment amounts were recorded as Vessel, Property & Other Equipment on the balance sheet and will not begin depreciating until the vessel is placed in service in April 2010. The vessel will be employed under a three year fixed time charter agreement with an additional year at the Charterers option.

 Under each of our international flag PCTC contracts, the charterers are responsible for voyage operating costs such as fuel, port, and stevedoring expenses, while we are responsible for other operating expenses including crew wages, repairs, and insurance.  During the terms of these charters, we are entitled to our full fee irrespective of the number of voyages completed or the number of cars carried per voyage.

Southeast Asia Transportation Contract

The contract to transport supplies for a mining company in Indonesia is serviced by three Multi-Purpose vessels, a small Tanker, and one Container vessel.  The contract was renewed in 2009 through December 31, 2014.

Container Vessel

We currently own one International flag container vessel which is chartered out through 2013, with options to renew for two additional years.  The charterer requested a charter rate reduction and we are currently evaluating our options.

III.  Contracts of Affreightment

In 1994, we entered into a 15-year transportation contract with an affiliate of Freeport-McMoRan Sulphur LLC for which we had built a 28,000 dead-weight ton Molten Sulphur Carrier that carries molten sulphur from Louisiana and Texas to a fertilizer plant on the Florida Gulf Coast.  Under a December 2008 contract amendment, the initial term of the contract was extended through December 31, 2011. Under the terms of this contract, we are guaranteed the transportation of a minimum of 1.8 million tons of molten sulphur per year.  The amended contract also gives the charterer six two-year and one one-year renewal options.

IV.  Rail-Ferry Service

This service uses two of our special purpose vessels, which carry loaded rail cars between the U.S. Gulf and Mexico.  The service provides departures every four days from Mexico and the U.S. Gulf Coast, respectively, for a three-day transit between ports.  We began operations out of our new terminal in Mobile, Alabama and the upgraded terminal in Mexico during the third quarter of 2007.  The upgrades to the Mexican terminal were made to accommodate the second decks added to our vessels in the second and third quarters of 2007 to double the capacity.  (See Item 1a., Risk Factors, for a description of material risks relating to this service on page 10).

V.  Other

Several of our subsidiaries provide ship charter brokerage, agency, and other specialized services to our operating 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 our operations by allowing us to avoid reliance on third parties to provide these essential shipping services.

Marketing

We maintain marketing staffs in New York, Mobile, Singapore, and Shanghai and a network of marketing agents in major cities around the world who market our time charter and contracts of affreightment services.  We market our Rail-Ferry Service under the name “CG Railway.”  We market our remaining transportation services under the names Central Gulf Lines, Waterman Steamship and East Gulf Shipholding.  We advertise our services in trade publications in the United States and abroad.

Insurance

   We maintain protection and indemnity (“P&I”) insurance to cover liabilities arising out of our ownership and operation of vessels with the Standard Steamship Owners’ Protection & Indemnity Association (Bermuda) Ltd., which is a mutual shipowners’ insurance organization commonly referred to as a P&I club.  The club is a participant in and subject to the rules of its respective international group of P&I associations.  The premium terms and conditions of the P&I coverage provided to us are governed by the rules of the club.

 We maintain hull and machinery insurance policies on each of our vessels in amounts related to the value of each vessel.  This insurance coverage, which includes increased value and time charter hire, is maintained with a syndicate of hull underwriters from the U.S., British, Dutch, Japanese and French insurance markets.  We maintain war risk insurance on each of our vessels in an amount equal to each vessel’s total insured hull value.  War risk insurance is placed through U.S., British, Norwegian and French insurance markets and covers physical damage to the vessels and P&I risks for which coverage would be excluded by reason of war exclusions under either the hull policies or the rules of the P&I club.  Our war risk insurance also covers liability to third parties caused by war or terrorism, including piracy, but does not cover damages to our land-based assets caused by war or terrorism. (See Item 1a., Rick Factors, for a description of material risks relating to terrorism on page 12).

 The P&I insurance also covers our vessels against liabilities arising from the discharge of oil or hazardous substances in U.S., international, and foreign waters, subject to various exclusions.

 We also maintain loss of hire insurance with U.S., British, Dutch and French insurance markets to cover our 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 and war risk 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 our loss record and market conditions.  In order to reduce premiums, we maintain certain deductible and co-insurance provisions that we believe are prudent and generally consistent with those maintained by other shipping companies.  Certain exclusions under our insurance policies could limit our ability to receive payment for our losses. (See Note D – Self-Retention Insurance on page F-18).

Tax Matters

 Under United States tax laws in effect prior to 2005, U.S. companies such as ours and their domestic subsidiaries generally were taxed on all income, which in our case includes income from shipping operations, whether derived in the United States or abroad.  With respect to any foreign subsidiary in which we hold more than a 50 percent interest (referred to in the tax laws as a controlled foreign corporation, or “CFC”), we were treated as having received a current taxable distribution of our pro rata share of income derived from foreign shipping operations when earned.

 The American Jobs Creation Act of 2004  (“Jobs Creation Act”), which became effective for us on January 1, 2005, changed the United States tax treatment of the foreign operations of our U.S. flag vessels and the operations of our international flag vessels.  As permitted under the Jobs Creation Act, we have elected to have our U.S. flag operations (other than those of two ineligible vessels used exclusively in United States coastwise commerce) taxed under a  “tonnage tax” regime rather than under the usual U.S. corporate income tax regime.

 Because we made the tonnage tax election referred to above, our gross income for United States income tax purposes with respect to our eligible U.S. flag vessels for 2005 and subsequent years does not include (1) income from qualifying shipping activities in U.S. foreign trade (such as transportation between the U.S. and foreign ports or between foreign ports), (2) income from cash, bank deposits and other temporary investments that are reasonably necessary to meet the working capital requirements of our qualifying shipping activities, and (3) income from cash or other intangible assets accumulated pursuant to a plan to purchase qualifying shipping assets.  Our taxable income with respect to the operations of our eligible U.S. flag vessels is based on a & #8220;daily notional taxable income,” which is taxed at the highest corporate income tax rate.  The daily notional taxable income from the operation of a qualifying vessel is 40 cents per 100 tons of the net tonnage of the vessel up to 25,000 net tons, and 20 cents per 100 tons of the net tonnage of the vessel in excess of 25,000 net tons.  The taxable income of each qualifying vessel is the product of its daily notional taxable income and the number of days during the taxable year that the vessel operates in United States foreign trade.  Also as a result of the Jobs Creation Act, the taxable income from the shipping operations of CFCs is not subject to United States income tax until that income is repatriated.  We have a plan to re-invest indefinitely some of our foreign earnings, and accordingly have not provided deferred taxes against those earnings.

 On July 13, 2006, the Financial Accounting Standards Board (FASB) issued Accounting Standards Codification (“ASC”) Topic 740-10-05 (Previously Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Tax—an Interpretation of FASB Statement No. 109).  This topic addresses how companies must recognize, measure, and disclose uncertain tax positions for financial reporting purposes.   We adopted Topic 740-10-05 as of January 1, 2007 and the adoption had no effect on our consolidated financial position or results of operations.

Regulation

 Our 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, the Act to Prevent Pollution from Ships, 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 our vessels.  On October 16, 1998, the Ocean Shipping Reform Act of 1998 was enacted, which amended the Shipping Act to promote the growth and development of United States exports through certain reforms in the regulation of ocean transportation.  This legislation, in part, repealed 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 required 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 the fiscal year ending September 30, 2005.  This program eliminated 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 four MSP operating agreements with the United States Maritime Administration (“MarAd”), and Central Gulf entered into three MSP operating agreements with MarAd.  We also participate in the Voluntary Intermodal Sealift Agreement (“VISA”) program adminis tered by MarAd.  Under this VISA program, and as a condition of participating in the MSP, we have committed to providing vessel and commercial intermodal capacity for the movement of military and other cargoes in times of war or national emergency.  By law, the MSP is subject to annual appropriations from Congress.  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 participants, such as Waterman and Central Gulf, to re-flag their vessels under foreign registry expeditiously.  In 2003, Congress authorized an extension of the MSP through 2015, increased the number of ships eligible to participate in the program from 47 to 60, and increased MSP payments to companies in the program, all made effective on October 1, 2005.  Authorized annual payments per fiscal year for each vessel for the current MSP program were $2.6 million for years 2007 and 2008, and $2.9 million f or year 2009, and are $2.9 million for years 2010 to 2011, and $3.1 million for years 2012 to 2015, subject to annual appropriation by the Congress, which is not assured.  On October 15, 2004, Waterman and Central Gulf each filed applications to extend their MSP operating agreements for another 10 years through September 30, 2015, all seven of which were effectively grandfathered in the MSP reauthorization.  Simultaneously, we offered additional ships for participation in the MSP.  On January 12, 2005, MarAd awarded Central Gulf four MSP operating agreements and Waterman four MSP operating agreements, effective October 1, 2005, for a net increase of one MSP operating agreement.

 Under the Merchant Marine Act, U.S. flag vessels are subject to requisition or charter to the United States Navy’s Military Sealift Command (“MSC”) 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 laws governing our operations, as well as our U.S. Coastwise transportation contracts, require us to be  75% owned by U.S. citizens.  We monitor our stock ownership to verify our continuing compliance with these requirements.  Our certificate of incorporation allows our board of directors to restrict the acquisition of our capital stock by non-U.S. citizens.  Under our certificate of incorporation, our board of directors may, in the event of a transfer of our capital stock that would result in non-U.S. citizens owning more than 23% (the “permitted amount”) of our total voting power, declare such transfer to be void and ineffective.  In addition, our board of directors may, in its sole discreti on, deny voting rights and withhold dividends with respect to any shares of our capital stock owned by non-U.S. citizens in excess of the permitted amount.  Furthermore, our board of directors is entitled under our certificate of incorporation to redeem shares owned by non-U.S. citizens in excess of the permitted amount in order to reduce the ownership of our capital stock by non-U.S. citizens to the permitted amount.

 We are required by various governmental and quasi-governmental agencies to obtain permits, licenses, and certificates with respect to our 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 our status as a vessel owner or charterer.  We believe that we have, or can readily obtain, all permits, licenses, and certificates necessary to permit our vessels to operate.

 The International Maritime Organization (“IMO”) amended the International Convention for the Safety of Life at Sea (“SOLAS”), to which the United States is a party, to require nations that are parties to SOLAS to implement the International Safety Management (“ISM”) Code.  The ISM Code requires that responsible companies, including owners or operators of vessels engaged on foreign voyages, develop and implement a safety management system to address safety and environmental protection in the management and operation of vessels.  Companies and vessels to which the ISM Code applies are required to receive certification and documentation of compliance.  Vessels operating without such certification and documentation in the U.S. and ports of other nations that are parties to SOLAS may be denied entry into ports, detained in ports or fined.  We implemented a comprehensive safety management system and obtained timely IMO certification and documentation for our companies and all of our vessels.  In addition, our ship management subsidiary, LMS Shipmanagement, Inc., is certified under the ISO 9001-2008 Quality Standard.

 In 2003, SOLAS was again amended to require parties to the convention to implement the International Ship and Port Facility Security (“ISPS”) Code.  The ISPS Code requires owners and operators of vessels engaged on foreign voyages to conduct vulnerability assessments and to develop and implement company and vessel security plans, as well as other measures, to protect vessels, ports and waterways from terrorist and criminal acts.  In the U.S., these provisions were implemented through the Maritime Transportation Security Act of 2002 (“MTSA”).  These provisions became effective on July 1, 2004.  As with the ISM Code, companies and vessels to which the ISPS Code applies must be certificated and documen ted.  Vessels operating without such certification and documentation in the U.S. and ports of other nations that are parties to SOLAS may be denied entry into ports, detained in ports or fined.  Vessels subject to fines in the U.S. are liable in rem, which means vessels may be subject to arrest by the U.S. government.  For U.S. flag vessels, company and vessel security plans must be reviewed and approved by the U.S. Coast Guard.  We have conducted the required security assessments and submitted plans for review and approval as required, and we believe that we are in compliance in all material respects with all ISPS Code and MTSA security requirements.

 The Coast Guard and Maritime Transportation Act of 2004 amended the Oil Pollution Act of 1990 (“OPA”) to require owners or operators of all non-tank vessels of 400 gross tons or greater to develop and submit plans for responding, to the maximum extent practicable, to worst case discharges and substantial threats of discharges of oil from these vessels.  This statute extends to all types of vessels of 400 gross tons or greater. The vessel response planning requirements of the OPA had previously only applied to tank vessels.  We have submitted response plans timely for our vessels, and have received Coast Guard approval for all of our vessels.

 Also, under the OPA, vessel owners, operators and bareboat charterers are jointly, severally and strictly liable for all response costs and other damages arising from oil spills from their vessels in waters subject to U.S. jurisdiction, with certain limited exceptions.  Other damages include, but are not limited to, natural resource damages, real and personal property damages, and other economic damages such as net loss of taxes, royalties, rents, profits or earning capacity, and loss of subsistence use of natural resources.  For non-tank vessels, the OPA limits the liability of responsible parties to the greater of $1,000 per gross ton or $854,400.  The limits of liability do not apply if it is shown that the discharge was proximat ely caused by the gross negligence or willful misconduct of, or a violation of a federal safety, construction or operating regulation by, the responsible party, an agent of the responsible party or a person acting pursuant to a contractual relationship with the responsible party.  Further, the limits do not apply if the responsible party fails or refuses to report the incident, or to cooperate and assist in oil spill removal activities.  Additionally, the OPA specifically permits individual states to impose their own liability regimes with regard to oil discharges occurring within state waters, and some states have implemented such regimes.

 The Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) also applies to owners and operators of vessels, and contains a similar liability regime for cleanup and removal of hazardous substances and natural resource damages.  Liability under CERCLA is limited to the greater of $300 per gross ton or $5 million per vessel.

 Under the OPA, vessels are required to establish and maintain with the U.S. Coast Guard evidence of financial responsibility sufficient to meet the highest limit of their potential liability under the act.  Under Coast Guard regulations, evidence of financial responsibility may be demonstrated by insurance, surety bond, self-insurance or guaranty.  An owner or operator of more than one vessel must demonstrate financial responsibility for the entire fleet in an amount equal to the financial responsibility of the vessel having greatest maximum liability under the OPA and CERCLA.  We insure each of our vessels with pollution liability insurance in the amounts required by law.  A catastrophic spill could exceed the insurance c overage available, in which event our financial condition and results of operations could be adversely affected.

 Many countries have ratified and follow the liability plan adopted by the IMO as set out in the International Convention on Civil Liability for Oil Pollution Damage of 1969 (the “1969 Convention”) and the Convention for the Establishment of an International Fund for Oil Pollution of 1971.  Under these conventions, the registered owner of a vessel is strictly liable for pollution damage caused in the territorial seas of a state party by the discharge of persistent oil, subject to certain defenses.  Liability is limited to approximately $183 per gross registered ton (a unit of measurement of the total enclosed spaces in a vessel) or approximately $19.3 million, whichever is less.  If a country is a party to the 1992 Protoc ol to the International Convention on Civil Liability for Oil Pollution Damage (the “1992 Protocol”), the maximum liability limit is $82.7 million.  The limit of liability is tied to a unit of account that varies according to a basket of currencies.  The right to limit liability is forfeited under the 1969 Convention when the discharge is caused by the owner's actual fault, and under the 1992 Protocol, when the spill is caused by the owner's intentional or reckless misconduct.  Vessels operating in waters of states that are parties to these conventions must provide evidence of insurance covering the liability of the owner.  In jurisdictions that are not parties to these conventions, various legislative schemes or common law govern.  We believe that our pollution insurance policy covers the liability under the IMO regimes.

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.  Our strategy is to reduce the effects of cyclical market conditions by operating specialized vessels in niche market segments and deploying a substantial number of our vessels under medium to long-t erm time contracts with creditworthy customers and on trade routes where we have established market share.  We also seek to compete effectively in the traditional areas of price, reliability, and timeliness of service.

 Our Time Charter Contracts-U.S. Flag, Time Charter Contracts-International Flag and Contracts of Affreightment segments primarily are governed by medium and long-term contracts with long standing customers.  While our time-chartered PCTCs operate worldwide in markets where international flag vessels with foreign crews predominate, we believe that our U.S. flag PCTCs can compete effectively in obtaining renewals of existing contracts if we are able to continue to participate in the MSP and receive cooperation from our seamen’s unions in controlling costs.

 Our Rail-Ferry Service faces competition principally from companies who transport cargo over land rather than water, including railroads and trucking companies that cross land borders.

Employees

As of December 31, 2009, we employed approximately 381 shipboard personnel and 123 shoreside personnel.  We consider relations with our employees to be excellent.

All of Central Gulf, Waterman, and our other U.S. shipping companies’ shipboard personnel are covered by collective bargaining agreements.  Some of these agreements relate to particular vessels and have terms corresponding with the terms of their respective vessel’s charter.  We have experienced no strikes or other significant labor problems during the last ten years.

Available Information

Our internet address is www.intship.com.  We make available free of charge through our website our annual report on Form 10-K, proxy statement for its annual meeting of stockholders, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.  The information found on our website is not part of this or any other report.

Unless otherwise indicated, information contained in this annual report and other documents filed by us under the federal securities laws concerning our views and expectations regarding the marine transportation industry are based on estimates made by us using data from industry sources, and on assumptions made by us based on our management’s knowledge and experience in the markets in which we operate and the marine transportation industry generally.  We believe these estimates and assumptions are accurate on the date made.  However, this information may prove to be inaccurate because it cannot always be verified with certainty.  You should be aware that we have not independently verified data from industry or other third-party sources and cannot guarantee its accuracy or completeness.  Ou r estimates and assumptions involve risks and uncertainties and are subject to change based on various factors, including those discussed immediately below in Item 1A of this annual report.

EX-99.2

Exhibit 99.2

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

NOTICE REGARDING FORWARD-LOOKING STATEMENTS

This report on Form 10K and other documents filed or furnished by us under the federal securities law include, and future oral or written statements or press releases by us and our management may include, 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 our actual results to be materially different from the anticipated future results expressed or implied by such forward-looking statements.

Such statements include, without limitation, statements regarding (i) estimated fair values of capital assets, the recoverability of the cost of those assets, the estimated future cash flows attributable to those assets, and the appropriate discounts to be applied in determining the net present values of those estimated cash flows; (ii) estimated scrap values of assets; (iii) estimated proceeds from sales of assets and the anticipated cost of constructing , financing, or purchasing new or existing vessels ; (iv) estimated fair values of financial instruments, such as interest rate, commodity and currency swap agreements; (v) estimated losses (including independent actuarial estimates) under self-insurance arrangements, as well as estimated gains or losses on certain contracts, trade routes, lines of business or asset dispositions; (vi ) estimated losses attributable to asbestos claims; (vii) estimated obligations, and the timing thereof, to the U.S. Customs Service relating to foreign repair work; (viii) the adequacy of our capital resources and the availability of additional capital resources on commercially acceptable terms; (ix) our ability to remain in compliance with our debt covenants; (x) anticipated trends in government sponsored cargoes; (xi) our ability to effectively service our debt; (xii) financing opportunities and sources (including the impact of financings on our financial position, financial performance or credit ratings); (xiii) anticipated future operating and financial performance, financial position and liquidity, growth opportunities and growth rates, acquisition and divestiture opportunities, business prospects, regulatory and competitive outlook, investment and expenditure plans, investment results, pricing plans, strategic alternatives, business strategies, and other similar statements of expectations or objective s, and (xiv) assumptions underlying any of the foregoing.  Forward-looking statements may include the words “may,” “will,” “estimate,” “intend,” “continue,” “believe,” “expect,” “plan” or “anticipate” and other similar words.

Our forward-looking statements are based upon our judgment and assumptions as of the date such statements are made concerning future developments and events, many of which are outside of our control.  These forward looking statements, and the assumptions upon which such statements are based, are inherently speculative and are subject to uncertainties that could cause our actual results to differ materially from such statements.  Important factors that could cause our actual results to differ materially from our expectations may include, without limitation, our 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 potent ial needs of current or future customers;  (iii) obtain new contracts or renew existing contracts which would employ certain of our vessels or other assets upon the expiration of contracts currently in place, on favorable economic terms; (iv) manage the amount and rate of growth of our general and administrative expenses and costs associated with operating certain of our vessels; (v) and manage our growth in terms of implementing internal controls and information systems and hiring or retaining key personnel, among other things, and (vi)  effectively handle our substantial leverage by servicing and meeting the covenant requirements in each of our debt instruments, thereby avoiding any defaults under those instruments and avoiding cross defaults under others.

Other factors include (i) changes in cargo, charterhire, fuel, and vessel utilization rates; (ii) the rate at which competitors add or scrap vessels in the markets as well as demolition scrap prices and the availability of scrap facilities in which we operate; (iii) changes in interest rates which could increase or decrease the amount of interest we incur on borrowings with variable rates of interest, the availability and cost of capital to us, and the exposure to foreign currency exchange rates,; (iv) the impact on our financial statements of nonrecurring accounting charges that may result from our ongoing evaluation of business strategies, asset valuations, and organizational structures; (v) changes in accounting policies and practices ado pted voluntarily or as required by accounting principles generally accepted in the United States; (vi) changes in laws and regulations such as those related to government assistance programs and tax rates; (vii) the frequency and severity of claims against us, and unanticipated outcomes of current or possible future legal proceedings; (viii) unexpected out-of-service days on our vessels, whether due to unplanned maintenance, piracy or other causes; (ix) the ability of customers to fulfill obligations with us; (x) the performance of unconsolidated subsidiaries; and (xi) other economic, competitive, governmental, and technological factors which may affect our operations.

For additional information, see the description of our business included above, as well as Item 7 of this report.  Due to these uncertainties, there can be no assurance that our anticipated results will occur, that our judgments or assumptions will prove correct, or that unforeseen developments will not occur.  Accordingly, you are cautioned not to place undue reliance upon any of our forward-looking statements, which speak only as of the date made.  Additional risks that we currently deem immaterial or that are not presently known to us could also cause our actual results to differ materially from those expected in our forward-looking statements.  We undertake no obligation to update or revise for any reason any forward-looking statements made by us or on our behalf, whether as a result of new information, future events or developments, changed circumstances or otherwise.

CRITICAL ACCOUNTING POLICIES

Set forth below is a discussion of the accounting policies and related estimates that we believe are the most critical to understanding our consolidated financial statements, financial condition, and results of operations and which require complex management judgments or estimates and entail material uncertainties.  Information regarding our other accounting policies is included in the Notes to Consolidated Financial Statements appearing elsewhere herein.

Voyage Revenue and Expense Recognition

Revenues and expenses relating to our Rail-Ferry Service segment voyages are recorded over the duration of the voyage.  Our voyage expenses are estimated at the beginning of the voyages based on historical actual costs or from industry sources familiar with those types of charges.  As the voyage progresses, these estimated costs are revised with actual charges and timely adjustments are made.  The expenses are ratably expensed over the voyage based on the number of days in progress at the end of the period.  We believe there is no material difference between recording estimated expenses ratably over the voyage versus recording expenses as incurred.  Revenues and expenses relating to our other segments' voyages, which require no estimates or assumptions, are recorded when earned or incurred during the reporting period.

Depreciation

Provisions for depreciation are computed on the straight-line method based on estimated useful lives of our depreciable assets.  Various methods are used to estimate the useful lives and salvage values of our depreciable assets. Due to the capital intensive nature of our business and our large base of depreciable assets, changes in such estimates could have a material effect on our results of operations.

Drydocking Costs

We defer certain costs related to the drydocking of our vessels.  Deferred drydocking costs are capitalized as incurred and amortized on a straight-line basis over the period between drydockings (generally two to five years).  Because drydocking charges can be material in any one period, we believe that the acceptable deferred method provides a better matching for the amortization of those costs over future revenue periods benefiting from the drydocking of our vessel.  We capitalize only those costs that are incurred to meet regulatory requirements or upgrades, or that add economic life to the vessel.  Normal repairs, whether incurred as part of the drydocking or not, are expensed as incurred.

Income Taxes

Income taxes are accounted for in accordance with ASC Topic 740-10 (Previously SFAS No. 109, “Accounting for Income Taxes”). Provisions for income taxes include deferred income taxes that 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 of our foreign operations are subject to U.S. income taxes when those earnings are repatriated to the U.S.  We intend to permanently re-invest $3,051,108 and $24,135,275 of our 2009 and 2008 foreign earnings, respectively, and accordingly, have not provided deferred taxes in the amount of $1,067,888 and $8,447,346 against those earnings.  The Jobs Creation Act, which first applied to us on January 1, 2005, changed the United States tax treatment of the foreign operations of our U.S. flag vessels and our international flag shipping operations.  We made an election under the Jobs Creation Act to have our qualifying U.S. flag operations taxed under a “tonnage tax” rather than under the usual U.S. corporate income tax regime.

On July 13, 2006, the Financial Accounting Standards Board (“FASB”) issued ASC Topic 740-10-05 (Previously Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Tax—an Interpretation of FASB Statement No. 109), to create a single model to address accounting for uncertainty in tax positions.  ASC 740-10-05 clarifies the accounting for income taxes by prescribing the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements.  ASC 740-10-05 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition.

As of December 31, 2009, our deferred tax liability was $2.1 million, a decrease of $2.8 million from the same period in 2008.  The deferred tax liability has been effectively reduced as a result of our tax policy that could potentially result in the establishment of valuation allowances as early as the first quarter of 2010.  The net effect of this position would result in a higher effective tax rate during 2010.  The reserves would allow the company to recover these benefits at a later time.

Self-Retention Insurance

As explained further in Note D to the Notes to our Consolidated Financial Statements contained elsewhere in this report, we maintain provisions for estimated losses under our self-retention insurance based on estimates of the eventual claims settlement costs.  Our policy is to establish self-insurance provisions for Hull and Machinery and Loss of Hire for each policy year based on our estimates of eventual claims’ settlement cost.  Our estimates are determined based on various factors, such as (1) severity of the injury (for personal injuries) and estimated potential liability based on past judgments and settlements, (2) advice from legal counsel based on its assessment of the facts of the case and its experience in other cases, (3) probability of pre-trial settlement which would mitigate legal costs, (4) his torical experience on claims for each specific type of cargo (for cargo damage claims), and (5) whether our seamen are employed in permanent positions or temporary revolving positions.  It is reasonably possible that changes in our estimated exposure may occur from time to time.  The measurement of our exposure for self-insurance liability requires management to make estimates and assumptions that affect the amount of loss provisions recorded during the reporting period.  Actual results could differ materially from those estimates.

Asbestos Claims

We maintain provisions for estimated losses for asbestos claims based on estimates of eventual claims settlement costs.  Our policy is to establish provisions based on a range of estimated exposure.  We estimate this potential range of exposure using input from legal counsel and internal estimates based on the individual deductible levels for each policy year. We believe that insurance and the indemnification of a previous owner of one of our wholly-owned subsidiaries will partially mitigate our exposure.  The measurement of our exposure for asbestos liability requires management to make estimates and assumptions that affect the amount of the loss provisions recorded during the period.  Our estimates and assumptions are formed from variables such as the maximum deductible levels in a claim year, the amount of the indemnification recovery and the claimant's employment history with the company.  Actual results could differ materially from those estimates.

Derivative Instruments and Hedging Activities

Under ASC Topic 815-10 (Previously SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities, as amended”), in order to consider a derivative instrument as a hedge, (i) we must designate the instrument as a hedge of future transactions, and (ii) the instrument must reduce our exposure to the applicable risk.  If the above criteria are not met, we must record the fair market value of the instrument at the end of each period and recognize the related gain or loss through earnings.  If the instrument qualifies as a hedge, net settlements under the agreement are recognized as an adjustment to earnings, while changes in the fair market value of the hedge are recorded through Stockholders’ Investment in Other Comprehensive Income (Loss).  We currently employ, or have employed in the recent past, interest rate swap agreements, foreign currency contracts, and commodity swap contracts (See Note N – Fair Value of Financial Instruments and Derivatives on Page F-31).

Pension and Postretirement Benefits

Our pension and postretirement benefit costs are calculated using various actuarial assumptions and methodologies as prescribed by ASC Topic 715-10-15 (Previously SFAS No. 87, “Employers’ Accounting for Pensions”) and ASC Topic 715-10-15 (Previously SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other than Pensions”).These assumptions include discount rates, health care cost trend rates, inflation, rate of compensation increases, expected return on plan assets, mortality rates, and other factors.  We believe that the assumptions utilized in recording the obligations under our plans are reasonable based on input from our outside actuary and information as to historic al experience and performance.  Differences in actual experience or changes in assumptions may affect our pension and postretirement obligations and future expense.

In September of 2006, the Financial Accounting Standards Board (“FASB”) issued ASC Topic 715-30-35 (Previously SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106 and 132(R)”). This statement requires balance sheet recognition of the overfunded or underfunded status of pension and postretirement benefit plans.  Under SFAS No. 158, actuarial gains and losses, prior service costs or credits, and any remaining transition assets or obligations that have not been recognized under previous accounting standards must be recognized in Other Comprehensive Income, net of tax effects, until they are amortized as a component of net periodic benefit cost.  In addition, the measurement date, th e date at which plan assets and the benefit obligation are measured, is required to be the company’s fiscal year end.

EXECUTIVE SUMMARY

Overview of 2009

Overall Strategy

The company operates a diversified fleet of U.S. and International flag vessels that provide international and domestic maritime transportation services to customers primarily under medium to long-term contracts. Our business strategy consists of identifying growth opportunities as market needs change, utilizing our extensive experience to meet those needs, and continuing to maintain a diverse portfolio of medium to long-term contracts, under which we can serve our long-standing customer base by providing quality transportation services.

Financial Discipline & Strong Balance Sheet

We continued to improve our financial position in 2009.

§   Operating cash flow increased from $42.2 million in 2008 to $62.7 million in 2009.

§   Working capital (Current Assets less Current Liabilities) of $42.0 million.

§   Cash dividend payments of $2.00 per share for the fiscal year.

§   Long term debt to equity ratio of 40.9% for 2009 as compared to 61.8% for 2008.

2009 Consolidated Financial Performance

We continued to improve on prior year performance with overall net income results for 2009 at $42.2 million, which included $5.1 million in impairment losses and losses on the sale of vessels, as compared to $39.1 million for 2008, which included a $15.9 million gain on sale of a vessel.  This was supported by improvements in our Time Charter and Contract of Affreightment segments, offset partially by a decline in our Rail-Ferry segment.  The increased carriage of supplemental cargoes on our U.S. flag PCTC’s was the primary factor behind the improved results.

§   Consolidated gross voyage profit grew from $41.7 million for the full year 2008 to $61.1 million for the full year 2009.

§   Administrative expenses increased by $1.2 million year on year partially as a result of recognizing a $750,000 accrued contingent liability associated with incentives received from various Alabama agencies to relocate our corporate headquarters.

§   Loss on sale of vessel of $2.2 million.

§   Sustained performance of unconsolidated entities.

Segment Performance

Time Charter Contracts – U.S. Flag

 §Improvement in gross profit from $23.5 million in 2008 to $54.5 million in 2009.

§   Increases in our supplemental cargo volume in addition to fixed time-charter rates.

Time Charter Contracts – International Flag

§Decrease in annual gross profit of $6.8 million compared to 2008

Contract of Affreightment (“COA”)

§   Increase in gross profit of $600,000 year on year.

Rail-Ferry

§    Overall decrease in gross profit of $3.7 million primarily due to a drop in northbound volumes and lower margins.

§  Major northbound customer stopped shipments in late 2009.

  §  Continued strong southbound volumes.

Other

§   Net income from unconsolidated entities decreased from $20.9 million, which included an after-tax gain on the sale of a Panamax Bulk Carrier of $15.9 million in 2008, to $7.0 million in 2009.

YEAR ENDED DECEMBER 31, 2009

COMPARED TO YEAR ENDED DECEMBER 31, 2008

			Time Charter
(All Amounts in Thousands)	Time Charter Contracts –U.S. Flag		Contracts-International Flag			COA		Rail-Ferry Service			Other		Total
2009
Revenues from External Customers	$	278,746	$	51,346		$	17,928	$	27,688		$	4,243	$	379,951
Voyage Expenses		210,877		41,537			15,678		24,046			3,540		295,678
Vessel Depreciation		13,368		1,407			-		5,468			11		20,254
Impairment Loss		-		(2,899	)		-		-			-		(2,899	)
Gross Voyage Profit (Loss)		54,501		5,503			2,250		(1,826	)		692		61,120
2008
Revenues from External Customers	$	166,640	$	52,165		$	19,195	$	39,410		$	4,491	$	281,901
Voyage Expenses		129,779		38,700			17,553		32,136			2,071		220,240
Vessel Depreciation		13,386		1,205			-		5,365			12		19,968
Gross Voyage Profit		23,475		12,260			1,642		1,909			2,408		41,693

The changes of revenue and expenses associated with each of our segments are discussed within the gross voyage analysis below.

Time Charter Contracts-U.S. Flag:The increase in this segment’s gross voyage profit from $23.5 million in 2008 to $54.5 million in 2009 is primarily due to an increase in the carriage of supplemental cargoes on our U.S. flag Pure Car Truck Carriers.  Revenues for the segment increased from $166.6 million in 2008 to $278.7 million in 2009 as a direct result of the increase in supplemental cargoes.

Time Charter Contracts-International Flag:The decrease in this segment’s gross voyage profit from $12.3 million in 2008 to $5.5 million in 2009 is due to an impairment loss of $2.9 million recognized in the second quarter 2009 on one of our International flag container vessels and the scheduled reduction in time-charter rates on our two International Flag container vessels.

Contract of Affreightment: The increase in this segment’s gross voyage profit from $1.6 million in 2008 to $2.3 million in 2009 was primarily due to lower fuel costs in 2009, which was partially offset by a decrease in revenues due to contractually scheduled freight rate adjustment.

Rail-Ferry Service:  Gross voyage results for this segment decreased from a profit of $1.9 million in 2008 to a loss of $1.8 million in 2009, while revenues decreased from $39.4 million in 2008 to $27.7 million in 2009. The current weak conditions continue to have a negative impact especially with the northbound service. In December 2009, we  were notified by one if its major northbound customers of their intention to discontinue using the service effective immediately sighting a sourcing decision as their reason for the change. This loss represents approximately  23% of total revenue for this segment. The Company continues to work on its marketing strategy and its plan to increase northbound volumes. (See Risk Factors, starting on Page 10)

Other: Gross voyage profit for this segment decreased from $2.4 million in 2008 to $692,000 in 2009. This decrease was primarily due to foreign currency exchange losses related to our unconsolidated interest in an entity in Mexico, an exchange loss on the Yen denominated facility revaluation adjustment and a favorable  earnings adjustment for one of our 50% owned investees, which increased gross profit and were recorded in 2008.

Other Income and Expenses

    Administrative and general expenses (A&G) increased 6% from $21.4 million in 2008 to $22.6 million in 2009.  A substantial portion of this increase was due to the expansion of our executive stock compensation program initiated in April 2008 and accrual of a contingent liability associated with incentives received from various Alabama agencies.

 The following table shows the significant A&G components for the twelve months ending December 31, 2009 and 2008 respectively:

(All amounts in thousands)	Year Ended December 31,
A&G Account	2009		2008		Variance
Wages and Benefits	$	10,142	$	9,574	$	568
Executive Stock Compensation		1,834		874		960
Professional Services		2,627		2,875		(248	)
Office Building Expense		1,292		1,159		133
Other		6,270		5,971		299
Consulting Fees*		476		961		(485	)
TOTAL:	$	22,641	$	21,414	$	1,227

 * Fees associated with unaffiliated company’s offer to purchase the Company.

Interest expense decreased 11.3% from $6.9 million in 2008 to $6.1 million in 2009. The decrease was primarily due to lower interest rates and lower principal balances.

Results from our investments decreased from $525,000 of income in 2008 to a loss of $72,000 in 2009. Included in these amounts are recognized impairment losses of $369,000 in the fourth quarter of 2008 and $757,000 in the first three quarters of 2009 on the Company’s investment in marketable securities. These charges reflect investments in certain equity securities whose market values had been materially impacted by current economic conditions. During the fourth quarter of 2009, we sold our stock portfolio and recognized a gain of approximately $980,000 on the sale, which is reported as a separate line item under Interest and Other on the Income Statement.

Income Taxes

For 2009, we recorded a benefit for income taxes of $3.5 million on $31.7 million of income from continuing operations before income from unconsolidated entities, reflecting tax losses on operations taxed at the U.S. corporate statutory rate.  For 2008, our benefit was $877,000 on $12.4 million of income from continuing operations before income from unconsolidated entities.  Our tax benefit increased from the comparable prior year primarily as a result of lower results of the Company’s U.S. flag Coal Carrier and Rail Ferry segments, which are subject to the higher corporate statutory rate.

As a result of the recent losses on operations taxed at the U.S. corporate statutory rate, we are unable to rely on projections of future taxable income in assessing the realizability of the deferred tax assets associated with such operations.  Accordingly, the realizability of such deferred tax assets has been assessed based on the future reversals of existing deferred tax liabilities, which were sufficient to support the realization of the deferred tax assets as of December 31, 2009. However, if we continue to generate losses from these operations, we may need to establish a valuation allowance against the portion of the deferred tax assets not realizable through future reversals of existing deferred tax liabilities. The establishment of a valuation allowance would have a negative impact on our effective tax rate and futur e changes to be valuation allowance would impact the effective tax rate.

Equity in Net Income of Unconsolidated Entities

Equity in net income of unconsolidated entities, net of taxes, decreased from $20.9 million in 2008 to $7.0 million in 2009.

The results were driven by our 50% investment in Dry Bulk Cape Holding Ltd (“Dry Bulk”), which owns 100% of subsidiary companies currently owning one Panamax-size Bulk Carrier, two Capesize Bulk Carriers and having two Handymax Bulk Carrier Newbuildings on order for delivery in 2012.  Dry Bulk contributed $6.8 million in 2009 as compared to $21.2 million in 2008.  The 2008 results included a gain on the sale of one of Dry Bulk’s subsidiaries’ vessels, a Panamax Bulk Carrier, of approximately $15.9 million in June 2008.

YEAR ENDED DECEMBER 31, 2008

COMPARED TO YEAR ENDED DECEMBER 31, 2007

			Time Charter
(All Amounts in Thousands)	Time Charter Contracts-U.S. Flag		Contracts-International Flag		COA		Rail-Ferry Service			Other		Total
2008
Revenues from External Customers	$	166,640	$	52,165	$	19,195	$	39,410		$	4,491	$	281,901
Voyage Expenses		129,779		38,700		17,553		32,136			2,071		220,240
Vessel Depreciation		13,386		1,205		-		5,365			12		19,968
Gross Voyage Profit (Loss)		23,475		12,260		1,642		1,909			2,408		41,693
2007
Revenues from External Customers	$	136,537	$	41,799	$	16,652	$	21,235		$	1,890	$	218,113
Voyage Expenses		106,216		31,612		10,940		18,406			841		168,015
Vessel Depreciation		14,997		313		1,612		4,395			5		21,322
Gross Voyage Profit		15,324		9,874		4,100		(1,566	)		1,044		28,776

The changes of revenue and expenses associated with each of our segments are discussed within the gross voyage analysis below.

Time Charter Contracts-U.S. Flag:The increase in this segment’s gross voyage profit from $15.3 million in 2007 to $23.5 million in 2008 was due to an increase in the carriage of supplemental cargoes on our U.S. flag Pure Car Truck Carriers. Revenues for the segment increased from $136.5 million in 2007 to $166.6 million in 2008 as a direct result of the increase in supplemental cargoes.

Time Charter Contracts- International Flag:This segment’s gross voyage profit increased from $9.9 million in 2007 to $12.3 million in 2008 while revenues for the segment increased from $41.8 million in 2007 to $52.2 million in 2008.  This improvement in revenues and gross voyage profit is primarily the result of operating one additional International flag Pure Car Truck Carrier for the full year 2008 as compared to approximately half of 2007.

Contract of Affreightment: The decrease in this segment’s gross voyage profit from $4.1 million in 2007 to $1.6 million in 2008 was primarily due to an increase in costs associated with operating the segment’s vessel under an operating lease in 2008.  The vessel, which was fully depreciated for tax purposes, was sold in 2007.  The benefits derived under an operating lease are reflected in a lower net effective tax rate.  The increase in revenue from $16.7 million in 2007 to $19.2 million in 2008 was due to increased voyages and freight rate escalation for increasing fuel costs in 2008.

Rail-Ferry Service:  Gross voyage results for this segment improved from a loss of $1.6 million in 2007 to a profit of $1.9 million in 2008.  This increase was due to additional sailings in 2008 as well as increased cargo volumes which were carried as a result of the addition of second decks on each rail-ferry vessel.  Operation of the vessels with the second decks began in the third quarter of 2007.  Revenues for this segment increased from $21.2 million in 2007 to $39.4 million in 2008 due to the additional sailings and increased cargo volumes utilizing second deck capacity.

Other: Gross voyage profit for this segment increased from $1.0 million in 2007 to $2.4 million in 2008. This increase was primarily due to 2007 adjusted earnings recorded in 2008 for Dry Bulk.

Other Income and Expenses

   Administrative and general expenses (A&G) increased 18% from $18.2 million in 2007 to $21.4 million in 2008.  A substantial portion of this increase was due to fees related to charges associated with advisory and legal costs resulting from an unaffiliated shipping company’s unsolicited conditional offer to purchase the Company’s outstanding shares, employee relocation expenses associated with the move of the Company’s headquarters to Mobile, Alabama, and stock compensation expense for stock grants awarded to Executive Officers.

 The following table shows the significant A&G components for the twelve months ending December 31, 2008 and 2007 respectively:

(All amounts in thousands)	Year Ended December 31,
A&G Account	2008		2007		Variance
Wages and Benefits	$	9,574	$	10,312	$	(738	)
Executive Stock Compensation		874		-		874
Professional Services		2,875		1,472		1,403
Office Building Expense		1,159		1,114		45
Consulting Fees/ Relocation		961		810		151
Other		5,971		4,450		1,521
TOTAL:	$	21,414	$	18,158	$	3,255

Interest expense decreased 29.6% from $9.8 million in 2007 to $6.9 million in 2008.  The decrease was primarily due to the retirement of all the remaining outstanding obligations of our 7¾% Senior Unsecured Notes (“Notes”) in October of 2007.  We recognized an impairment loss of $369,000 on the Company’s investment in marketable securities in the fourth quarter of 2008.  The charge reflects investments in certain equity securities whose market values were materially impacted by current economic conditions.

     Investment income decreased from $2.6 million in 2007 to $894,000 in 2008. The decrease was primarily due to a lower rate of return on our short-term investments.

Income Taxes

For 2008, we recorded a benefit for income taxes of $877,000 on $12.4 million of income from continuing operations before income from unconsolidated entities, reflecting tax losses on operations taxed at the U.S. corporate statutory rate.  For 2007, our benefit was $1.4 million on our $3.8 million of income from continuing operations before income from unconsolidated entities.  Our tax benefit decreased from the comparable prior year primarily as a result of improved earnings from our Rail Ferry segment which are taxed at the 35% statutory rate.

Equity in Net Income of Unconsolidated Entities

     Equity in net income of unconsolidated entities, net of taxes, increased from $6.6 million in 2007 to $20.9 million in 2008.

The improved results came from our 50% investment in Dry Bulk Cape Holding Ltd (“Dry Bulk”), which owns 100% of subsidiary companies currently owning two Capesize Bulk Carriers and one Panamax Bulk Carrier, which contributed $21.2 million in 2008 compared to $6.7 million in 2007.  This increase was primarily due to a gain on the sale of one of Dry Bulk’s subsidiaries’ vessels, a Panamax Bulk Carrier, of approximately $15.9 million in June 2008.

During the second quarter of 2007, Dry Bulk’s subsidiary companies entered into ship purchase agreements with Mitsui & Co. of Japan for two newbuildings Handymax Bulk Carriers to be delivered in the first half of 2012.  Total investment in the newbuildings is anticipated to be approximately $74.0 million, of which the Company’s share would be 50% or approximately $37.0 million.  We expect to make our interim construction payments with cash generated from Dry Bulk’s subsidiary companies’ operations.  A decision on any long-term financing is expected to be determined at delivery.  Our 50% share of the initial contract payment of $750,000 was made in May of 2007.  For more information, see below “Liquidity and Capital Resources – Bulk Carriers.̶ 1;

Discontinued Operations

     In the third quarter of 2007, we elected to discontinue our International LASH service by the end of 2007.  During the first two months of 2008, we sold the one remaining LASH vessel and the majority of LASH barges, with the remaining LASH barges under contract to be sold by the end of the first quarter of 2008.  The after-tax gain of $9.9 million recorded in 2007 reflects a gain of $7.3 million on the sale of two LASH Vessels and $2.6 million on the sale of LASH barges. The after-tax gain of $4.6 million recorded in 2008 reflects the gain from the sale of one LASH Vessel and remaining LASH barges.  During 2008 there were no revenues associated with the discontinued LASH services, as compared to $42.0 million for 2007.  Profit from operations before taxes were $220,000 in 2008, compared to a $4.2 million loss in 2007.

   Our U.S. flag LASH service and International LASH service were reported in “Continuing Operations” as a part of our Liner segment in periods prior to June 30, 2007.  The financial results for all periods presented have been restated to remove the effects of both of those operations from “Continuing Operations”.

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 our Consolidated Financial Statements.

 Our working capital (which we define as the difference between our total current assets and total current liabilities) decreased from $50.5 million at December 31, 2008, to $42.0 million at December 31, 2009.  Cash and cash equivalents decreased during 2009 by $4.4 million to a total of $47.5 million.  This decrease was due to cash provided by operating activities of $62.7 million and cash provided by financing activities of $12.7 million being offset by cash used by investing activities of $79.8 million.  Of the $98.8 million in current liabilities at December 31, 2009, $68.8 million related to current maturities of long-term debt.  Approximately $48.0 million of this debt is offset in current assets as the current portio n of a direct finance lease on a PCTC we purchased in 2007.

 During 2009, operating activities generated positive cash flow after adjusting net income of $42.2 million for non-cash provisions such as depreciation and amortization.  Net cash provided by operating activities of $62.7 million for 2009 was generated after adjusting for non-cash items such as a $2.9 million impairment loss on one of our International flag container vessels, amortization of deferred charges, a non-cash deduction of $7.0 million from the equity in net income of unconsolidated entities, and deferred drydocking payments of $16.0 million.  During 2009, we received cash dividends of $3.0 million from the normal operations of our unconsolidated entities.

 Cash used by investing activities of $79.8 million for 2009 included capital outlays of $80.3 million and the purchase of short-term corporate bonds of $10.6 million, partially offset by proceeds from the sale of assets of $5.0 million and principal payments received under direct financing leases of $7.8 million.  Included in the $80.3 million of capital payments is $40.7 million for the purchase of the two vessels used in an Indonesian mining service, subsequently sold to a third party under an installment sale described further below.  Additionally, we made equity payments of $17 million paid toward the construction of three new Handy size double-hull Drybulk Carriers, and $16.6 million in installment payments toward the construction of a P ure Car/ Truck Carrier to be delivered in March 2010.

 Cash provided by financing activities of $12.7 million for 2009 included regularly scheduled debt payments of $14.2 million and cash dividends paid of $14.5 million, partially offset by proceeds from new debt of $41.6 million, including a $25.0 million loan relating to the purchase of the two vessels previously mentioned to be used in an Indonesian mining service.

 We entered into a financing agreement with Regions Bank on August 27, 2009 for a five year facility to finance up to $40.0 million for the purchase of additional vessels. As of December 31, 2009, the Company has drawn $25.0 million under this facility towards the purchase of the vessels to fulfill the additional requirements under the Indonesian mining contract. The vessels purchased with the loan proceeds were subsequently sold to a third party in the third quarter of 2009, generating a deferred gain of approximately $10.6 million. In addition to a $1.1 million payment received from the buyer, a ten year note receivable was agreed to for the remaining balance. We hold a first mortgage covering the vessels until the note is fully satisfied. Due to our financing of the transaction, the gain realized on the sale was deferred. This deferral will be recognized over ten years, the length of the agreement with the buyer. With this financing, our unsecured revolving line of credit was reduced from $35 million to $30 million, expiring in April of 2011. As of December 31, 2009, $6.4 million of this revolving credit facility was pledged as collateral for letters of credit, and the remaining $23.6 million was available.   

 In 2007, we acquired a 2007-built PCTC, which we reflagged to U.S. flag. The vessel was financed with a three year Yen denominated note with a balloon payment of 4.25 billion Yen due on September 10, 2010. Immediately after being delivered to us in September of 2007, we chartered this vessel through August of 2010 to a Far East based shipping company, which held an option to purchase the vessel at the end of the contract.  The charter was based on Yen capital hire payments which correspond with our Yen debt payments.  On February 5, 2010, the charterer notified us of their intention not to exercise their option to purchase the vessel and subsequently negotiated a mutually acceptable redelivery of the vessel effective February 14, 2010. On Mar ch 8, 2010 we entered into a U.S. denominated bridge loan which converted our total outstanding debt of 4.32 billion Yen to approximately $48 million USD. We intend to replace the bridge loan with long-term financing by September of 2010.

 As a result of the redelivery of the vessel in February 2010, we will reclassify approximately $48.0 million of net investment in direct financing leases from current assets to vessels in the first quarter of 2010.  This reclassification will result in a decrease in our working capital of $48.0 million; however, the debt associated with this vessel will continue to be classified as a current liability since the debt matures in September 2010.  If we are unable to refinance the debt of $48.0 million by the end of the second quarter of 2010 through replacement of the bridge loan with long-term financing, our working capital position will be negatively impacted, which could result in a working capital deficit and potential violation of the worki ng capital covenant included in most of our credit agreements.  Alternatively, the debt could be partially or completely refinanced on a long-term basis by draws on our revolving credit agreement provided we extend the term of that agreement beyond its current maturity date of April 2011.  We fully expect to extend the revolving credit agreement beyond its maturity date.

 We routinely evaluate the possibility of acquiring additional vessels or businesses.  At any given time, we may be engaged in discussions or negotiations regarding additional acquisitions.  We generally do not announce our acquisitions or dispositions until we have entered into a preliminary or definitive agreement.  We may require additional financing in connection with any such acquisitions, the consummation of which could have a material impact on our financial condition or operations.

Stock Repurchase Program

On January 25, 2008, the Company’s Board of Directors approved a share repurchase program for up to a total of 1,000,000 shares of the Company’s common stock. We expect that any share repurchases under this plan will generally be made from time to time for cash in open market transactions at prevailing market prices. The timing and amount of any purchases under the program will be determined by management based upon market conditions and other factors.  Through December 31, 2008, we had repurchased 491,572 shares of our common stock for $11.5 million.  No shares were repurchased in 2009. Unless and until the Board otherwise provides, this new authorization will remain open indefinitely or until we reach the 1,000,000 share limit.   

Debt and Lease Obligations

As of December 31, 2009, we held five vessels under operating contracts, five vessels under bareboat charter or lease agreements and five vessels under time charter agreements.  The types of vessels held under these agreements include four Pure Car/Truck Carriers, three Breakbulk/Multi Purpose vessels, three Roll-On/Roll-Off vessels, three Container vessels and a Tanker vessel, all of which operate in our Time Charter segment, and a Molten Sulphur Carrier operating in our Contracts of Affreightment segment.  We also conduct certain of our operations from leased office facilities. 

We entered into a new lease agreement on our Singapore office which became effective October 1, 2009.  The length of the lease is five years with an option to renew for a further period of three years.  The agreement calls for total annual payments of approximately $253,000 for all five years.  The rent expense, along with the associated leasehold improvements are being amortized using the straight-line method over the lease-term.

Debt Covenants

In the unanticipated event that our cash flow and capital resources are not sufficient to fund our debt service obligations, we could be forced to reduce or delay capital expenditures, sell assets, obtain additional equity capital, enter into financings of our unencumbered vessels or restructure debt. We believe we have sufficient liquidity despite the current disruption of the capital and credit markets and can continue to fund working capital and capital investment liquidity needs through cash flow from operations.  To the extent we are required to seek additional capital, our efforts could be hampered by the recent turmoil in the credit markets. See “Risk Factors” in Item 1A of this annual report.    We presently have variable to fixed interest rate swaps on 85% of our long-term debt.

Contractual Obligations and Other Commitments

 The following is a summary of the scheduled maturities by period of our debt and lease obligations that were outstanding as of December 31, 2009:

Debt and lease obligations (000’s)	Total		2010		2011		2012		2013		2014		Thereafter
Long-term debt (including current maturities)	$	166,424	$	68,789	$	13,572	$	25,963	$	27,571	$	17,150	$	13,379
Interest payments		20,014		5,873		4,324		3,741		3,383		1,487		1,206
Operating leases		101,778		15,805		15,778		15,746		13,737		11,264		29,448
Vessel Commitments		35,017		32,212		2,805		-		-		-		-
Total by period	$	323,233	$	122,679	$	36,479	$	45,450	$	44,691	$	29,901	$	44,033

Approximately $47 million of the $68 million long-term debt obligation in 2010, is related to a balloon payment on financing of our PCTC vessel purchased in 2007.  We intend to replace all or part of this balloon payment with long-term financing in 2010.

The above contractual obligations table does not include our approximate $16 million obligation to the Alabama State Port Authority related to the terminal upgrades in Mobile, AL, to be paid by us over the ten-year terminal lease.  This long-term obligation, reported in other long-term liabilities, will be met by the usage fees paid by our Rail Ferry vessels in the Mobile port.  The chart further excludes contingent equity contributions that may be payable to Dry Bulk under the circumstances described under “Liquidity and Capital Resources – Bulk Carriers.”  For additional information on our operating leases, see Note I.

Current Economic and Market Issues

The economic crisis that affected globally commercial activity, including ourselves, in a number of areas during the previous year continues at the current time.  While previously we found banking institutions severely tightening their lending standards or even eliminating access to credit for new projects, we have found change in the posture of those institutions indicating a willingness to review new credit proposals.  While the financial marketplace is not ready to fully extend credit under a number of circumstances, we have found potential financing avenues.   

We have maintained for a number of years banking relationships with financially solid institutions.  Based on information currently available to us, we believe these institutions remain stable.  While the exact effects of the crisis to our customers is not fully known, we have not suffered from the nonpayment of freights or charterhires being earned in the ordinary course of business.  We continue to review the status of our customers and are ready to take appropriate actions to reduce potential exposures should the occasion arise.    While we have been fortunate in our ability to avoid potential hardships from the nonpayment of freights, we cannot provide you with assurance that this will continue.  For more information, see Item 1A, Risk Factors.

During the year ended 2009, the financial markets recovered a large portion of the dramatic fall seen during the 2008 year.  By maintaining our asset allocation within our stated Policy guidelines with targets of 60% equities and 40% fixed instruments, the Pension Plan also participated in the recovery.  While as of December 31, 2009 we continue to show an underfunded status in other comprehensive income, we have exceeded our required funding obligations under the current Pension Protection Act.We expect to contribute $600,000 for fiscal year 2010.  For more information, see Note E, Employee Benefit Plans.

Restructuring of Liner Services and Disposition of Certain LASH Assets

 The Board of Directors approved in the fourth quarter of 2006 to dispose of certain LASH Liner Service assets.  The decision was based on the belief that we could generate substantial cash flow and profit on the disposition of the assets, while improving our future operating results.  Accordingly, we sold our LASH Feeder vessel and 114 barges in the first quarter of 2007.  In the second quarter of 2007 we sold our one remaining U.S. flag LASH vessel and 111 LASH barges.  In the third quarter of 2007, the company elected to discontinue its International LASH service by the end of 2007.  During the first quarter of 2008, we sold the one remaining LASH vessel and the remainder of our LASH barges. The pre-tax gain of $9.9 million recorded in 2007 reflects a gain of $7.3 million on the sale of the LASH Feeder Vessel and Liner Vessel, and $2.6 million on the sale of LASH barges. The gain of $4.6 million recorded in 2008 reflects the gain from the sale of one LASH Vessel and remaining LASH barges. During 2008, we generated no revenues from our LASH services, compared to $42.0 million for 2007.  Profit from operations before taxes were $220,000 in 2008, compared to a $4.2 million loss in 2007.

 Our U.S. flag LASH service and International LASH service were reported in “Continuing Operations” as a part of our Liner segment in periods prior to June 30, 2007.  Financial information for all periods presented has been restated to remove the effects of those operations from “Continuing Operations”.

Rail-Ferry Service Expansion

This service provides a unique combination of rail and water ferry service between the U.S. Gulf Coast and Mexico.  The relatively low operating profit margin generated by this service makes higher cargo volumes necessary to achieve meaningful levels of cash flow and profitability.  The capacity of the vessels operating in our Rail-Ferry Service defines the maximum revenues and, in turn, the cash flow and gross profits that can be generated by the service.  Accordingly we made investments in 2007 that essentially doubled the capacity of the service including the construction of second decks on each of the ships as well as construction of new terminals in Mobile, Alabama and an upgraded terminal in Coatzacoalcos, Mexico. These capital investments hav e permitted us to expand our cargo volume and reduce our cost per unit of cargo carried.

We completed construction of the second decks in mid-2007 at a total cost of approximately $25 million, which we paid in full through December 31, 2007.  The utilization of the second deck capacity is directly related to the terminal upgrades in Mobile, AL and Coatzacoalcos, Mexico.  Both terminal upgrades were substantially completed in July 2007 and became operational at that time.  The total cost of the Mobile terminal was approximately $26 million, of which $10 million was funded by a grant from the State of Alabama.  The remaining $16 million was financed by the Alabama State Docks and will be repaid over the ten-year terminal lease.  Our share of the cost of the improvements to the terminal in Mexico was approximately $6.4 million.  We have a 49% interest in the company that owns the terminal in Mexico, and 30% of the advances to that company for our share of the cost of the terminal are accounted for as capital contributions with the remaining 70% accounted for as a loan to that company.

As of December 31, 2009, the cost of our total investment in a joint venture that owns a trans-loading and storage facility (RTI), which was used to support the Rail-Ferry service in New Orleans, included an equity investment in unconsolidated entities of $1.4 million and an outstanding loan of approximately $2.2 million due from our 50% partner in the venture.  As a result of our terminal operations moving from New Orleans to Mobile, an impairment test to determine our loss exposure on this facility was required.  As of December 31, 2009, no impairment was recorded as we expect to recover our total investment.

Our terminal lease with the Port of New Orleans was terminated during the second quarter of 2007, when we transitioned to the Mobile terminal.  As of June 30, 2007, we wrote off both the cost of the New Orleans terminal of $17.0 million, funded by the State and City, which was recorded as a leasehold improvement, and the reimbursements to us from the State and the City of $17.0 million that were recorded as deferred credits, resulting in no effect on net income.

Our investment in the New Orleans terminal was funded with the proceeds from a New Market Tax Credit (NMTC) financing agreement.  Under the NMTC financing, the lender has the ability to utilize certain tax credits associated with profitable operations at that location.  With the relocation of the operations to Mobile, Alabama, the lender amended the original application to the Federal agency that oversees the NMTC issuance to include the Mobile terminal as eligible property for the usage of the tax credits.

Bulk Carriers

In November 2009, we contracted with a Korean shipyard to construct three double hull Handy-Size Bulk Carrier Newbuildings with scheduled deliveries in early 2011.  We made equity payments of $17.0 million in the fourth quarter 2009 on these vessels.

We have a 50% interest in Dry Bulk, which owns 100% of subsidiary companies which own one Panamax-size Bulk Carrier and two Cape-Size Bulk Carriers.  This investment is accounted for under the equity method and our share of earnings or losses are reported in our consolidated statements of income net of taxes.  Dry Bulk’s subsidiary companies have entered into  ship purchase agreements with a Japanese company for two Handymax Bulk Carrier newbuildings, scheduled to be delivered in 2012.  Total investment in the newbuildings is anticipated to be approximately $74.0 million, of which our share would be 50% or approximately $37.0 million.  During the period of construction up to delivery, where 50% of the projected overall costs will be expended, Dry Bulk plans to finance the interim construction costs with equity contributions of up to 15% with the 85% balance of the cost being financed with a bank financed construction loan.  Due to the financial market conditions, it is possible that additional equity contributions may be required.  While it is anticipated that any required equity contributions will be covered by Dry Bulk’s subsidiary companies’ earnings, if they are not, our anticipated share of these interim equity contributions could be approximately $2.7 million, of which we have already funded $354,000.  Upon completion and delivery, Dry Bulk plans to establish permanent long-term financing.

In December 2009, we acquired a 25% investment in Oslo Bulk Shipping (“Oslo”) for $6,250,000, which, in 2008, contracted to build eight new Mini bulkers. These 8,000 dwt vessels are being constructed and are scheduled for deliveries commencing in the third quarter of 2010. This investment is accounted for under the equity method and our share of earnings or losses will be reported in our consolidated statements of income net of taxes.

Dividend Payments

The payment of stock dividends is at the discretion of our board of directors.  On October 29, 2008, our Board of Directors authorized the reinstitution of a quarterly cash dividend program beginning in the fourth quarter of 2008.

On January 28, 2010 our Board approved a 2010 first quarter payment of a $.50 cash dividend for each share of common stock held on the record date of February 17, 2010, which was paid on March 1, 2010.  During its January 2010 Board of Directors meeting, the board established a quarterly dividend target of $.375 per share, per quarter for the 2010 fiscal year.  Further information on all dividend payments since the reinstitution of the program can be found in Note A-Summary of Significant Policies found on page F-11

Environmental Issues

Our environmental risks primarily relate to oil pollution from the operation of our vessels.  We have pollution liability insurance coverage with a limit of $1 billion per occurrence, with deductible amounts not exceeding $500,000 for each incident.

On June 23, 2009, a complaint was filed in U.S. District Court of Oregon by ten plaintiffs against approximately forty defendants, including Waterman Steamship Corporation, which is one of our wholly owned subsidiaries. See Item 3 of this annual report for further information.

In January 2008 we were notified that the United States Coast Guard was conducting an investigation on the SS MAJOR STEPHEN W. PLESS regarding an alleged discharge of untreated bilge water by one or more members of the crew.  The USCG has inspected the ship and interviewed various crew members.  The United States Attorney’s Office has concluded its investigation and confirmed that we are not considered a target of any criminal investigation.

New Accounting Pronouncements

Derivatives and Hedging (Included in Accounting Standards Codification (“ASC”) 815 “Derivatives and Hedging”, previously SFAS No. 161 “Disclosures about Derivative Instruments and Hedging Activities”)

 In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging activities” – an amendment of FASB Statement No. 133.  SFAS No. 161 changes the disclosure requirements for derivative instruments and hedging activities.  SFAS No. 161 is effective for fiscal years beginning after November 15, 2008.  We adopted SFAS No. 161 on January 1, 2009 and the adoption had no effect on our consolidated financial position and results of operation.

FASB Accounting Standards Codification (Accounting Standards Update (“ASU”) 2009-01)

 In June 2009, FASB approved the FASB Accounting Standards Codification (“the Codification”) as the single source of authoritative nongovernmental GAAP. All existing accounting standard documents, such as FASB, American Institute of Certified Public Accountants, Emerging Issues Task Force and other related literature, excluding guidance from the Securities and Exchange Commission (“SEC”), have been superseded by the Codification. All other non-grandfathered, non-SEC accounting literature not included in the Codification has become nonauthoritative. The Codification did not change GAAP, but instead introduced a new structure that combines all authoritative standards into a comprehensive, topically organized set of accounting standards.   The Codification is effective for interim or annual periods ending after September 15, 2009, and impacts our  financial statements as all future references to authoritative accounting literature will be referenced in accordance with the Codification. There have been no changes to the content of our financial statements or disclosures as a result of implementing the Codification during the quarter ended September 30, 2009.

 As a result of our implementation of the Codification during the quarter ended September 30, 2009, previous references to new accounting standards and literature are no longer applicable. In the current year financial statements, we will provide both the ASC topic and the previous accounting standard to assist in understanding the impacts of recently adopted accounting literature, particularly for guidance adopted since the beginning of the current fiscal year but prior to the Codification.

 Subsequent Events (Included in Accounting Standards Codification (“ASC”) 855 “Subsequent Events”, previously SFAS No. 165 “Subsequent Events”)

 ASC 855 established general standards of accounting for and disclosure of events that occur after the balance sheet date, but before the financial statements are issued or available to be issued (“subsequent events”). An entity is required to disclose the date through which subsequent events have been evaluated and the basis for that date. For public entities, this is the date the financial statements are issued. ASC 855 does not apply to subsequent events or transactions that are within the scope of other GAAP and did not result in significant changes in the subsequent events reported by the Company.  ASC 855 became effective for interim or annual periods ending after June 15, 2009.

Fair Value of Financial Instruments (Included in Accounting Standards Codification (“ASC”) 825 “Interim Disclosures about Fair Value of Financial Instruments”)

 FSP 107-1 (ASC 825), “Interim Disclosures about Fair Value of Financial Instruments” (FSP 107-1), increases the frequency of fair value disclosures required by SFAS No. 107 (ASC 820), “Disclosures About Fair Value of Financial Instruments”(SFAS No. 107). This standard requires that companies provide qualitative and quantitative information about fair value estimates for all financial instruments not measured on the balance sheet at fair value in each interim report. Previously, this was only an annual requirement. We adopted this standard as of June 30, 2009.

Fair Value Measurements and Disclosures (Included in Accounting Standards Codification (“ASC”) 820 “Fair Value Measurements and Disclosures”)

 This update permits entities to measure the fair value of certain investments, including those with fair values that are not readily determinable, on the basis of the net asset value per share of the investment (or its equivalent) if such net asset value is calculated in a manner consistent with the measurement principles in “Financial Services-Investment Companies” as of the reporting entity’s measurement date (measurement of all or substantially all of the underlying investments of the investee in accordance with the “Fair Value Measurements and Disclosures” guidance). The update also requires enhanced disclosures about t he nature and risks of investments within its scope that are measured at fair value on a recurring or nonrecurring basis. This update will be effective for the company beginning October 1, 2009. ,We adopted this update on December 31, 2009 with no effect on our consolidated financial position and results of operations.

LIQUIDITY - 2008

 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 our Consolidated Financial Statements.

 Our working capital (which we define as the difference between our total current assets and total current liabilities) increased from $23.2 million at December 31, 2007, to $50.5 million at December 31, 2008.  Cash and cash equivalents increased during 2008 by $37.1 million to a total of $51.8 million.  This increase was due to cash provided by operating activities of $42.2 million, and cash provided by investing activities of $41.4 million, offset by cash used by financing activities of $45.9 million.  Of the $39.8 million in current liabilities at December 31, 2008, $13.3 million related to current maturities of long-term debt.

 Operating activities generated positive cash flow after adjusting net income of $39.1 million for non-cash provisions such as depreciation, amortization and gains on sales of assets and investments.  Cash provided by operating activities of $42.2 million for 2008 also included, among other things, the add back of the non-cash loss of $1.4 million on the early redemption of Preferred Stock, the deduction of the non-cash $4.6 million pre-tax gain on the sale of LASH assets, and the deduction of the non-cash recognition of $20.9 million in earnings from our equity in net income of unconsolidated entities, which included a gain on the sale of a Panamax Bulk Carrier.  We received cash dividends of $6.0 million from the normal operations of our unc onsolidated entities, with the proceeds from the aforementioned sale presented in investing activities.

 Cash provided by investing activities of $41.4 million for 2008 included proceeds from the sale of our discontinued LASH liner service assets of $10.8 million, proceeds from Dry Bulk’s subsidiary company’s sale of the Panamax Bulk Carrier of $25.5 million, net proceeds from the sale and purchase of short term investments of $1.6 million and principal payments received under direct financing leases of $7.5 million, partially offset by capital improvements of $4.0 million, including improvements to our information technology systems and additional tank work on our Rail-Ferry vessels.

 Cash used for financing activities of $45.9 million for 2008 included regularly scheduled debt payments of $13.0 million, payment of $17.3 million on the early redemption of our Preferred Stock, $11.5 million of repurchases of our common stock, and $3.7 million on cash dividends paid on our common stock.

 In March of 2008, we signed an agreement with Regions Bank to provide us with an unsecured revolving line of credit for $35 million.  This facility replaced the prior secured revolving line of credit for the like amount.  As of December 31, 2008, $6.4 million of the $35 million revolving credit facility, which expires in April of 2010, was pledged as collateral for letters of credit, and the remaining $28.6 million was available. Currently we are evaluating our options to increase our line of credit and expect tighter bank restrictions due to the overall condition of the credit markets.

 We frequently evaluate the possibility of acquiring additional vessels or businesses.  At any given time, we may be engaged in discussions or negotiations regarding additional acquisitions.  We generally do not announce our acquisitions or dispositions until we have entered into a preliminary or definitive agreement.  We may require additional financing in connection with any such acquisitions, the consummation of which could have a material impact on our financial condition or operations.

LIQUIDITY - 2007

 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 our Consolidated Financial Statements.

 Our working capital (which we define as the difference between our total current assets and total current liabilities) increased from $3.0 million at December 31, 2006, to $23.2 million at December 31, 2007.  Cash and cash equivalents decreased during 2007 by $30.2 million to a total of $14.1 million.  This decrease was primarily due to the retirement of all the remaining outstanding obligations of our 7¾% Senior Unsecured Notes (“Notes”) in October of 2007 of $41.9 million, cash used by other financing activities of $6.3 million, and cash used for investing activities of $2.2 million, partially offset by cash provided by operating activities of $20.2 million.  Of the $40.2 million in current liabilities at December 31, 2007, $12.7 million related to current maturities of long-term debt.

 Operating activities generated positive cash flow after adjusting net income of $17.4 million for non-cash provisions such as depreciation, amortization and gains on sales of assets and investments.  Cash provided by operating activities of $20.2 million for 2007 also included a decrease in accounts receivable of $1.3 million primarily due to the timing of collections of receivables from the MSC and U.S. Department of Transportation, offset by a decrease in accounts payable and accrued liabilities of $4.9 million.  Also included was $9.8 million of cash used to cover payments for vessel drydocking costs in 2007, offset by cash distributions of $4.4 million received from our investments in unconsolidated entities.

 Cash used by investing activities of $2.2 million for 2007 included proceeds from the sales of assets of $48.8 million, including $32.0 million on the sale of the Molten Sulphur Carrier (discussed below) and $16.8 million on the sale of LASH assets and our investment in our unconsolidated entity in Mexico (TTG).  These were offset by the use of $56.1 million of cash for the purchase of capital assets, including $26.8 million for a U.S. flag PCTC, which was previously under lease; $13.7 million for the first payment on the 6400 CEU Newbuilding PCTC (discussed below); and $10.4 million for second deck modifications on the Rail-Ferry vessels.

 Cash used for financing activities of $48.2 million for 2007 included regularly scheduled debt payments of $8.3 million, and $41.9 million for the retirement of our 7¾% Senior Notes, as well as $2.4 million for preferred stock dividend payments.  These uses of cash were partially offset by proceeds of $5.7 million from the issuance of common stock pursuant to the exercise of stock options by our Chairman and President.

 In 2007, we invested $43.5 million for the purchase of a Panamanian flagged PCTC.  The vessel was purchased with 100% financing and subsequently chartered to a third party under a financing lease arrangement.  This noncash transaction is not reflected in our Consolidated Statements of Cash Flows.

EX-99.3

Exhibit 99.3

INDEX OF FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm	F-2
Consolidated Statements of Income for the years ended December 31, 2009, 2008, and 2007	F-3
Consolidated Balance Sheets at December 31, 2009 and 2008	F-4
Consolidated Statements of Changes in Stockholders' Investment for the years ended December 31, 2009, 2008, and 2007	F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2009, 2008, and 2007	F-6
Notes to Consolidated Financial Statements	F-7

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

International Shipholding Corporation

We have audited the accompanying consolidated balance sheets of International Shipholding Corporation as of December 31, 2009 and 2008, 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, 2009. 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 the standards of the Public Company Accounting Oversight Board (United States).  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 consolidated financial position of International Shipholding Corporation at December 31, 2009 and 2008, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2009, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), International Shipholding Corporation's internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 15, 2010 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

New Orleans, Louisiana

March 15, 2010,

except for Note K, as to which the date is

October 12, 2010

F-2

INTERNATIONAL SHIPHOLDING CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(All Amounts in Thousands Except Share Data)
	Year Ended December 31,
	2009			2008			2007
Revenues	$	379,951		$	281,901		$	218,113
Operating Expenses:
Voyage Expenses		295,678			220,240			168,015
Vessel and Barge Depreciation		20,254			19,968			21,322
Impairment Loss		2,899			-			-
Gross Voyage Profit		61,120			41,693			28,776
Administrative and General Expenses		22,641			21,414			18,158
Loss (Gain) on Sale of Other Assets		2,209			-			(12	)
Operating Income		36,270			20,279			10,630
Interest and Other:
Interest Expense		6,110			6,886			9,762
(Gain) Loss on Sale of Investment		(980	)		148			(352	)
Loss on Redemption of Preferred Stock		-			1,371			-
Other Income from Vessel Financing		(655	)		-			-
Investment (Income) Loss		72			(525	)		(2,592	)
		4,547			7,880			6,818
Income from Continuing Operations Before (Benefit) Provision for
Income Taxes and Equity in Net Income of Unconsolidated Entities		31,723			12,399			3,812
(Benefit) Provision for Income Taxes:
Current		306			33			206
Deferred		(3,845	)		(910	)		(1,570	)
		(3,539	)		(877	)		(1,364	)
Equity in Net Income of Unconsolidated
Entities (Net of Applicable Taxes)		6,959			20,946			6,616
Income from Continuing Operations		42,221			34,222			11,792
Income (Loss) from Discontinued Operations:
Income (Loss) before Provision (Benefit) for Income Taxes		-			220			(4,238	)
Gain on Sale of Liner Assets		-			4,607			9,880
(Provision) Benefit for Income Taxes		-			-			(18	)
Net Income from Discontinued Operations		-			4,827			5,624
Net Income	$	42,221		$	39,049		$	17,416
Preferred Stock Dividends		-			88			2,400
Net Income Available to Common Stockholders	$	42,221		$	38,961		$	15,016
Basic and Diluted Earnings Per Common Share:
Net Income Available to Common Stockholders - Basic
Continuing Operations	$	5.84		$	4.67		$	1.48
Discontinued Operations		0.00			0.66			0.88
	$	5.84		$	5.33		$	2.36
Net Income Available to Common Stockholders - Diluted
Continuing Operations	$	5.80		$	4.56		$	1.41
Discontinued Operations		0.00			0.64			0.67
	$	5.80		$	5.20		$	2.08
Weighted Average Shares of Common Stock Outstanding:
Basic		7,224,748			7,314,216			6,360,208
Diluted		7,282,119			7,501,555			8,369,473

The accompanying notes are an integral part of these statements.

F-3

INTERNATIONAL SHIPHOLDING CORPORATION
CONSOLIDATED BALANCE SHEETS
(All Amounts in Thousands Except Share Data)
	December 31,			December 31,
ASSETS	2009			2008
Current Assets:
Cash and Cash Equivalents	$	47,468		$	51,835
Marketable Securities		10,333			2,707
Accounts Receivable, Net of Allowance for Doubtful Accounts
of $299 and $132 in 2009 and 2008, respectively:
Traffic		5,221			14,581
Agents'		3,353			2,712
Other		12,637			5,567
Net Investment in Direct Financing Leases		52,649			7,874
Other Current Assets		1,640			2,187
Notes Receivable		5,348			-
Material and Supplies Inventory		3,100			2,842
Total Current Assets		141,749			90,305
Investment in Unconsolidated Entities		15,971			5,803
Net Investment in Direct Financing Leases		55,046			108,973
Vessels, Property, and Other Equipment, at Cost:
Vessels		314,534			322,884
Leasehold Improvements		26,128			26,128
Construction in Progress		49,496			15,845
Furniture and Equipment		6,966			5,023
		397,124			369,880
Less -  Accumulated Depreciation		(185,292	)		(166,931	)
		211,832			202,949
Other Assets:
Deferred Charges, Net of Accumulated Amortization		15,914			12,639
of $20,826 and $17,018 in 2009 and 2008, respectively
Acquired Contract Costs, Net of Accumulated Amortization		364			1,819
of $30,162 and $28,706 in 2009 and 2008, respectively
Due from Related Parties		5,043			6,195
Notes Receivable		44,390			-
Other		6,341			5,428
		72,052			26,081
	$	496,650		$	434,111

The accompanying notes are an integral part of these statements.

INTERNATIONAL SHIPHOLDING CORPORATION
CONSOLIDATED BALANCE SHEETS
(All Amounts in Thousands Except Share Data)
	December 31,			December 31,
	2009			2008
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
Current Maturities of Long-Term Debt	$	68,789		$	13,285
Accounts Payable and Accrued Liabilities		31,039			26,514
Total Current Liabilities		99,828			39,799
Long-Term Debt, Less Current Maturities		97,635			126,841
Other Long-Term Liabilities:
Deferred Income Taxes		2,070			4,893
Lease Incentive Obligation		6,262			7,314
Other		51,924			50,072
		60,256			62,279
Stockholders' Investment:
Common Stock, $1.00 Par Value, 10,000,000 Shares Authorized,		8,484			8,390
7,228,570 And 7,183,570 Shares Issued at December 31, 2009 and
December 31, 2008, Respectively
Additional Paid-In Capital		83,189			81,443
Retained Earnings		180,121			152,379
Treasury Stock, 1,165,015 Shares, at Cost at December 31, 2009 and 2008, Respectively		(20,172	)		(20,172	)
Accumulated Other Comprehensive Loss		(12,691	)		(16,848	)
		238,931			205,192
	$	496,650		$	434,111

The accompanying notes are an integral part of these statements.

INTERNATIONAL SHIPHOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' INVESTMENT
(All Amounts in Thousands)
										Accumulated
						Additional				Other
				Common		Paid-In	Retained	Treasury		Comprehensive
				Stock		Capital	Earnings	Stock		(Loss) Income	Total
Balance at December 31, 2006				$    6,793		$  54,927	$101,992	$(8,704)		$         (1,272)	$153,736
Comprehensive Income:
	Net Income			-		-	17,416	-		-	17,416
	Other Comprehensive Income (Loss):
		Recognition of Unrealized Holding Loss on Marketable
			Securities, Net of Deferred Taxes of ($48)	-		-	-	-		(89)	(89)
		Unrealized Holding Gain on Marketable Securities,
			Net of Deferred Taxes of  ($86)	-		-	-	-		(160)	(160)
		Net Change in Fair Value of Derivatives, Net of
			Deferred Taxes of  ($325)	-		-	-	-		(2,177)	(2,177)
		Change in Funding Status of Benefit Plans, Net of
			Deferred Taxes of $12							1,726	1,726
Total Comprehensive Income											16,716
Preferred Stock Dividends				-		-	(2,400)	-		-	(2,400)
Options Exercised				400		5,250	-	-		-	5,650
Balance at December 31, 2007				7,193		60,177	117,008	(8,704)		(1,972)	173,702
Comprehensive Income:
	Net Income			-		-	39,050	-		-	39,050
	Other Comprehensive Income (Loss):
		Unrealized Holding Gain on Marketable
			Securities, Net of Deferred Taxes of ($465)	-		-	-	-		(848)	(848)
		Net Change in Fair Value of Derivatives, Net of
			Deferred Taxes of  ($1,275)	-		-	-	-		(9,809)	(9,809)
		Change in Funding Status of Benefit Plans, Net of Deferred Taxes of $970								(4,219)	(4,219)
Total Comprehensive Income											24,174
Compensation Expense- restricted stock				41		716	-	-		-	757
Repurchase of Common Stock				-		-	-	(11,468)		-	(11,468)
Preferred Stock Dividends				-		-	(88)	-		-	(88)
Common Stock Dividends ($0.50 per share)				-		-	(3,591)	-		-	(3,591)
Preferred Stock Conversion				1,156		20,550	-	-		-	21,706
Balance at December 31, 2008					8,390	81,443	152,379		(20,172)	(16,848)	205,192
Comprehensive Income:
	Net Income				-	-	42,221		-	-	42,221
	Other Comprehensive Income Gain(Loss):
		Unrealized Foreign Currency Translation Loss			-	-	-		-	65	65
		Unrealized Holding Gain(Loss) on Marketable Securities,
			Net of Deferred Taxes of $131		-	-	-		-	222	222
		Net Change in Fair Value of Derivatives, Net of
			Deferred Taxes of $200		-	-	-		-	4,156	4,156
		Change in Funding Status of Benefit Plans, Net of  Deferred Taxes of $11			-	-	-		-	(286)	(286)
Total Comprehensive Income											46,378
Compensation Expense- Restricted Stock					94	1,746	-		-	-	1,840
Common Stock Dividends ($2.00 per share)					-	-	(14,479)		-	-	(14,479)
Balance at December 31, 2009					$  8,484	$  83,189	$ 180,121		$(20,172)	$  (12,691)	$238,931

The accompanying notes are an integral part of these statements.

INTERNATIONAL SHIPHOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All Amounts in Thousands)
	Year Ended December 31,
	2009			2008			2007
Cash Flows from Operating Activities:
Net Income	$	42,221		$	39,050			17,416
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Depreciation		21,020			20,351			23,969
Amortization of Deferred Charges and Other Assets		9,878			8,566			9,779
Deferred Benefit for Income Taxes		(3,845	)		(910	)		(1,468	)
Impairment Loss		2,899			-			-
Loss on Early Redemption of Preferred Stock		-			1,371			-
Non-Cash Stock Based Compensation		1,834			757			-
Equity in Net Income of Unconsolidated Entities		(6,959	)		(20,946	)		(6,616	)
Distributions from Unconsolidated Entities		3,000			6,000			4,400
Loss/(Gain) on Sale of Assets		2,209			(4,607	)		(11,280	)
(Gain) Loss on Sale of Investments		(980	)		148			(352	)
Deferred Drydocking Charges		(15,960	)		(4,171	)		(9,810	)
Changes in:
Accounts Receivable		1,649			(3,202	)		1,322
Inventories and Other Current Assets		704			(72	)		(856	)
Other Assets		(913	)		(386	)		(187	)
Accounts Payable and Accrued Liabilities		6,059			1,041			(4,868	)
Other Long-Term Liabilities		(135	)		(805	)		(1,218	)
Net Cash Provided by Operating Activities		62,681			42,185			20,231
Cash Flows from Investing Activities:
Principal payments received under Direct Financing Leases		7,763			7,497			5,129
Capital Improvements to Vessels, Leasehold Improvements, and Other Assets		(80,303	)		(4,024	)		(56,072	)
Proceeds from Sale of Assets		5,020			10,818			48,750
Purchase of Marketable Securities		(10,617	)		(4,743	)		(7,649	)
Proceeds from Sale of Marketable Securities		3,529			6,361			8,721
Investment in Unconsolidated Entities		(6,250	)		-			(1,004	)
Distributions from Unconsolidated Entities		-			25,500			-
Decrease (Increase) in Note Receivables		1,082			25			(55	)
Net Cash (Used in)/Provided by Investing Activities		(79,776	)		41,434			(2,180	)
Cash Flows from Financing Activities:
Proceeds from Issuance of Debt		41,617			-			-
Repayment of Debt		(14,175	)		(12,950	)		(50,253	)
Additions to Deferred Financing Charges		(235	)		(484	)		(590	)
Preferred Stock Dividends Paid		-			(88	)		(2,400	)
Common Stock Dividends Paid		(14,479	)		(3,591	)		-
Common Stock Repurchase		-			(11,468	)		-
Proceeds from Issuance of Common Stock		-			-			5,650
Redemption of Preferred Stock		-			(17,306	)		-
Other Financing Activities		-			-			(628	)
Net Cash Provided by/(Used in) by Financing Activities		12,728			(45,887	)		(48,221	)
Net Increase in Cash and Cash Equivalents		(4,367	)		37,732			(30,170	)
Cash and Cash Equivalents at Beginning of Period		51,835			14,103			44,273
Cash and Cash Equivalents at End of Period	$	47,468		$	51,835		$	14,103
Noncash investing and financing activities:	$	50,800			-			-
Note received as consideration in sale of vessels

The accompanying notes are an integral part of these statements.

F-6

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 majority-owned subsidiaries.  In this report, the terms “we,” “us,” “our,” and “the Company” refer to International Shipholding Corporation and its subsidiaries.  All significant intercompany accounts and transactions have been eliminated.

Our policy is to consolidate all subsidiaries in which we hold a greater than 50% voting interest or otherwise control its operating and financial activities.  We use the equity method to account for investments in entities in which we hold a 20% to 50% voting interest and have the ability to exercise significant influence over their operating and financial activities, and the cost method to account for investments in entities in which we hold less than 20% voting interest and in which we cannot exercise significant influence over operating and financial activities.

Certain reclassifications have been made to the prior period financial information in order to conform to current year presentation.

Nature of Operations

Through our subsidiaries, we operate 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, 2009, our fleet consisted of 42 ocean-going vessels and related shoreside handling facilities.  Our 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, (iii) secure financing fo r the vessels predicated primarily on those charter or contract arrangements, and (iv) provide our customers with reliable, high quality service at a reasonable cost.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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. Estimates are primarily used in accounting for the impairment and depreciation of fixed assets, self retention insurance, asbestos claims, pension and postretirement benefits, derivative instruments and hedging activities and income taxes.

Voyage Revenue and Expense Recognition

Revenues and expenses relating to our Rail-Ferry Service segment’s voyages are recorded over the duration of the voyage. Our voyage expenses are estimated at the beginning of the voyages based on historical actual costs or from industry sources familiar with those types of charges. As the voyage progresses, these estimated costs are revised with actual charges and timely adjustments are made. The expenses are ratably expensed over the voyage based on the number of days in progress at the end of the period. We believe there is no material difference between recording estimated expenses ratably over the voyage versus recording expenses as incurred. Revenues and expenses relating to our other segments’ voyages, which requi re no estimates or assumptions, are recorded when earned or incurred during the reporting period.

Maritime Security Program

 The Maritime Security Act, which established the Maritime Security Program (“MSP”), was signed into law in October of 1996 and has been extended to 2015.  As of December 31, 2009, six of our Pure Car/Truck Carriers (“PCTCs”), and two of our Container vessels were qualified and received contracts for MSP participation.  Annual payments for each vessel in the MSP program were $2,600,000 in 2008 and $2,900,000 in 2009, and will be $2,900,000 in years 2010 to 2011, and $3,100,000 in years 2012 to 2015, which are subject to annual appropriations and not guaranteed.  We recognize MSP revenue on a monthly basis over the duration of the qualifying contracts.

Cash and Cash Equivalents

We consider highly liquid debt instruments, mutual funds, and money market funds with an original maturity of three months or less to be cash equivalents.  The carrying amount approximates fair value for these instruments.

Inventories

Inventories aboard our vessels, including fuel, are carried at the first-in, first-out method of accounting.  As of December 31, 2009 and 2008, inventory included approximately $3,100,000 and $2,842,000 for spare parts, respectively.

Allowance for Doubtful Accounts

We provide an allowance for doubtful accounts for accounts receivable balances estimated to be non-collectible.  These provisions are maintained based on identified specific accounts, past experiences, and current trends, and require management’s estimates with respect to the amounts that are non-collectible.

Property

For financial reporting purposes, vessels are depreciated over their estimated useful lives using the straight-line method to the estimated salvage value.  Estimated useful lives of Vessels, Leasehold Improvements, and Furniture and Equipment are as follows:

	Years
7 Pure Car/Truck Carriers	20
1 Coal Carrier	15
3 Other Vessels *	25
Leasehold Improvements	10-20
Other Equipment	3-12
Furniture and Equipment	3-10

* Includes two Special Purpose vessels and one Container vessel.

At December 31, 2009, our fleet of 42 vessels also included (i) three Roll-On/Roll-Off (“RO/RO”) vessels, which we operate, (ii) a Molten Sulphur Carrier, three Multi-Purpose vessels, a Tanker, three Container vessels, which we charter in  one of our services, (iii) four PCTCs which we charter in for our Time Charter contracts, (iv) three Handy-size Double Hull Dry Bulk Carriers  (v) two Cape-Size Bulk Carriers, one Panamax-Size Bulk Carrier and two Handymax-size Bulk Carriers Newbuildings  in which we own a 50% interest and (vi) eight Mini Bulker Newbuildings in which we own 25% interest.

    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 and other equipment under construction are capitalized to properly reflect the cost of assets acquired.  Capitalized interest totaled $943,000, $698,000, and $197,000 for the years ended December 31, 2009, 2008, and 2007, respectively.  Capitalized interest was calculated based on our weighted-average interest rate on our outstanding debt.

       We monitor our fixed assets for impairment and perform an impairment analysis in accordance with Accounting Standards Codification (“ASC”) Topic 360-10-05 (Previously SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”), when triggering events or circumstances indicate a fixed asset may be impaired.  Events may include a decrease in the market price of the long-lived asset (asset group) or a significant change in the way the asset is being used. Once it is determined that an event may cause an impairment, an analysis is done which shows the net book value of the asset  as compared to the estimated undiscounted future cash flows the asset will generate over the remaining useful life of the asset. It is possible that our asset impairment review would include a determination of the asset’s fair value based on a third-party evaluation or appraisal. An impairment loss is measured as the amount by which the carrying amount of a long-lived asset (asset group) exceeds its fair value. In 2008, we did not record any losses with respect to recoverability of our long-lived assets.

We recorded a $2.9 million impairment loss in the second quarter 2009 on one of our Foreign Flag Container vessels. Further explanation on this impairment loss can be found in Note W on page F-38. During the fourth quarter 2009, we sold a container vessel previously used in our Time Charter Contracts segment and recognized a loss of $2.2 million.

Drydocking Costs

We defer certain costs related to the drydocking of our vessels.  Deferred drydocking costs are capitalized as incurred and amortized on a straight-line basis over the period between drydockings (generally two to five years). Because drydocking charges can be material in any one period, we believe that the capitalization and amortization of these costs over the drydocking period provides a better matching with the future revenue generated by our vessel. We capitalize only those costs that are incurred to meet regulatory requirements. Normal repairs, whether incurred as part of the drydocking or not, are expensed as incurred (See Note J – Deferred Charges and Acquired Contract Costs on Page F-26).

Deferred Financing Charges and Acquired Contract Costs

We amortize our deferred financing charges and acquired contract costs over the terms of the related financing agreements and contracts using the effective interest method (See Note J – Deferred Charges and Acquired Contract Costs on Page F-26).

Self-Retention Insurance

We maintain provisions for estimated losses under our self-retention insurance program based on estimates of the eventual claims settlement costs.  Our policy is to establish self-insurance provisions for each policy year based on our estimate of the eventual claims’ settlement cost.  The measurement of our exposure for self-insurance liability requires management to make estimates and assumptions that affect the amount of loss provisions recorded during the reporting period.  Actual results could differ materially from those estimates (See Note D – Self-Retention Insurance on Page F-18).

Asbestos Claims

We maintain provisions for estimated losses for asbestos claims based on estimates of eventual claims settlement costs.  Our policy is to establish provisions based on a range of estimated exposure.  We estimate this potential range of exposure using input from legal counsel and internal estimates based on the individual deductible levels for each policy year. We believe that insurance and the indemnification of a previous owner of one of our wholly-owned subsidiaries will partially mitigate our exposure.  The measurement of our exposure for asbestos liability requires management to make estimates and assumptions that affect the amount of the loss provisions recorded during the period.  Our estimates and assumptions are formed from variables such as the maximum deductible levels in a claim year, the amount of the indemnification recovery and the claimant's employment history with the company.  Actual results could differ materially from those estimates.

Income Taxes

Income taxes are accounted for in accordance with ASC Topic 740-10 (Previously  SFAS No. 109, “Accounting for Income Taxes”).  Provisions for income taxes include deferred income taxes that are provided on items of income and expense, which affect taxable income in one period and financial statement 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 of our foreign operations are subject to U.S. income taxes when those earnings are repatriated to the U.S.

The Jobs Creation Act, which first applied to us on January 1, 2005, changed the United States tax treatment of the foreign operations of our U.S. flag vessels and our international flag shipping operations.  We made an election under the Jobs Creation Act to have our qualifying U.S. flag operations taxed under the “tonnage tax” regime rather than under the usual U.S. corporate income tax regime (See Note F – Income Taxes on Page F-21).

Foreign Currency Transactions

Certain of our revenues and expenses are converted into or denominated in foreign currencies, primarily the Singapore Dollar, Indonesian Rupiah, Euro, British Pound, Mexican Peso, Indian Rupee, Australian Dollar, and Japanese Yen.  All exchange adjustments are charged or credited to income in the year incurred. We recognized an exchange loss of $208,000 for the year ended December 31, 2009 and an exchange gain of $35,000 and $11,000 for the years ended December 31, 2008 and 2007, respectively.

Dividend Policy

The payment of dividends is at the discretion of our Board of Directors.  On October 29, 2008, our Board of Directors authorized the reinstitution of a quarterly cash dividend program beginning in the fourth quarter of 2008.

Earnings Per Share

Basic earnings per share was computed based on the weighted average number of common shares issued and outstanding during the relevant periods.  Diluted earnings per share also reflects dilutive potential common shares, including shares issuable under stock options and restricted stock grants using the treasury stock method.

Derivative Instruments and Hedging Activities

Under ASC Topic 815-10 (Previously SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities, as amended”), in order to consider a derivative instrument as a hedge, (i) we must designate the instrument as a hedge of future transactions, and (ii) the instrument must reduce our exposure to the applicable risk.  If the above criteria are not met, we must record the fair market value of the instrument at the end of each period and recognize the related gain or loss through earnings.  If the instrument qualifies as a hedge, net settlements under the agreement are recognized as an adjustment to earnings, while changes in the fair market value of the hedge are recorded through Stockholders’ Investment in Other Comprehensive Income (Loss).  We currently employ, or have employed in the recent past, interest rate swap agreements, foreign currency contracts, and commodity swap contracts (See Note N – Fair Value of Financial Instruments and Derivatives on Page F-31).

Stock-Based Compensation

On April 30, 2008, our Compensation Committee granted 175,000 shares of restricted stock to certain executive officers. The shares vest ratably over the respective vesting period, which is approximately four years for 160,000 shares and approximately three years for 15,000 shares. 

On April 29, 2009, our Compensation Committee granted another 47,500 shares of restricted stock to certain executive officers. These shares will vest on May 6, 2010, contingent upon the executive officer remaining employed by us on such date. (See Note T – Stock-Based Compensation on Page F-37).

ASC Topic 505-50 (Previously SFAS No. 123(R)) permits public companies to adopt its requirements using either a modified prospective method or a modified retrospective method.  Under the modified prospective method, companies are required to record compensation cost for new and modified awards over the related vesting period of such awards prospectively and record compensation cost prospectively for the unvested portion, at the date of adoption, of previously issued and outstanding awards over the remaining vesting period of such awards.  No change to prior periods presented is permitted under the modified prospective method.  Under the modified retrospective method, companies record compensation costs for prior periods retroactively through restatement of such periods using the pro forma amounts previous ly disclosed in the footnotes.  Also, in the period of adoption and after, companies record compensation cost based on the modified prospective method.  We have adopted this statement using the modified prospective method. The compensation cost related to the Company’s restricted stock is determined based on the average stock price on the date of grant. We recognize compensation cost on a straight-line basis over the requisite service period.

Pension and Postretirement Benefits

Our pension and postretirement benefit costs are calculated using various actuarial assumptions and methodologies as prescribed by ASC Topic 715-10-15 (Previously SFAS No. 87, “Employers’ Accounting for Pensions”) and ASC Topic 715-10-15 (Previously SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other than Pensions”).  These assumptions include discount rates, health care cost trend rates, inflation, rate of compensation increases, expected return on plan assets, mortality rates, and other factors.  We believe that the assumptions utilized in recording the obligations under our plans are reasonable based on input from our outside actuary and information as to historical experience and performance.  Differ ences in actual experience or changes in assumptions may affect our pension and postretirement obligations and future expense.

We account for our pension and postretirement benefit plans in accordance with ASC Topic 715-30-35 (Previously SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106 and 132(R)”).  This statement requires balance sheet recognition of the overfunded or underfunded status of pension and postretirement benefit plans.  Under ASC Topic 715-30-35, actuarial gains and losses, prior service costs or credits, and any remaining transition assets or obligations that have not been recognized under previous accounting standards must be recognized in Other Comprehensive Income (Loss), net of tax effects, until they are amortized as a component of net periodic benefit cost.  In addition, the measure ment date, the date at which plan assets and the benefit obligation are measured, is required to be the company’s fiscal year end.  This standard does not change the determination of net periodic benefit cost included in net income or the measurement issues associated with benefit plan accounting.  For the period ended December 31, 2009, the effect of the adjustment to our underfunded status was an increase in the liability of $275,000, and an Other Comprehensive Loss of $286,000, net of taxes of $11,000.

New Accounting Pronouncements

Derivatives and Hedging (Included in Accounting Standards Codification (“ASC”) 815 “Derivatives and Hedging”, previously SFAS No. 161 “Disclosures about Derivative Instruments and Hedging Activities”)

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging activities” – an amendment of FASB Statement No. 133.  SFAS No. 161 changes the disclosure requirements for derivative instruments and hedging activities.  SFAS No. 161 is effective for fiscal years beginning after November 15, 2008.  We adopted SFAS No. 161 on January 1, 2009 and the adoption had no effect on our consolidated financial position and results of operation.

FASB Accounting Standards Codification (Accounting Standards Update (“ASU”) 2009-01)

In June 2009, FASB approved the FASB Accounting Standards Codification (“the Codification”) as the single source of authoritative nongovernmental GAAP. All existing accounting standard documents, such as FASB, American Institute of Certified Public Accountants, Emerging Issues Task Force and other related literature, excluding guidance from the Securities and Exchange Commission (“SEC”), have been superseded by the Codification. All other non-grandfathered, non-SEC accounting literature not included in the Codification has become nonauthoritative. The Codification did not change GAAP, but instead introduced a new structure that combines all authoritative standards into a comprehensive, topically organized set of accounting standards.  The Codification is effective for interim or annual periods en ding after September 15, 2009, and impacts our  financial statements as all future references to authoritative accounting literature will be referenced in accordance with the Codification. There have been no changes to the content of our financial statements or disclosures as a result of implementing the Codification during the quarter ended September 30, 2009.

As a result of our implementation of the Codification during the quarter ended September 30, 2009, previous references to new accounting standards and literature are no longer applicable. In the current year financial statements, we will provide both the ASC topic and the previous accounting standard to assist in understanding the impacts of recently adopted accounting literature, particularly for guidance adopted since the beginning of the current fiscal year but prior to the Codification.

 Subsequent Events (Included in Accounting Standards Codification (“ASC”) 855 “Subsequent Events”, previously SFAS No. 165 “Subsequent Events”)

           ASC 855 established general standards of accounting for and disclosure of events that occur after the balance sheet date, but before the financial statements are issued or available to be issued (“subsequent events”). An entity is required to disclose the date through which subsequent events have been evaluated and the basis for that date. For public entities, this is the date the financial statements are issued. ASC 855 does not apply to subsequent events or transactions that are within the scope of other GAAP and did not result in significant changes in the subsequent events reported by the Company.  ASC 855 became effective for interim or annual periods ending after June 15, 2009.

Fair Value of Financial Instruments (Included in Accounting Standards Codification (“ASC”) 825 “Interim Disclosures about Fair Value of Financial Instruments”)

FSP 107-1 (ASC 825), “Interim Disclosures about Fair Value of Financial Instruments” (FSP 107-1), increases the frequency of fair value disclosures required by SFAS No. 107 (ASC 820), “Disclosures About Fair Value of Financial Instruments”(SFAS No. 107). This standard requires that companies provide qualitative and quantitative information about fair value estimates for all financial instruments not measured on the balance sheet at fair value in each interim report. Previously, this was only an annual requirement. We adopted this standard as of June 30, 2009.

Fair Value Measurements and Disclosures (Included in Accounting Standards Codification (“ASC”) 820 “Fair Value Measurements and Disclosures”)

This update permits entities to measure the fair value of certain investments, including those with fair values that are not readily determinable, on the basis of the net asset value per share of the investment (or its equivalent) if such net asset value is calculated in a manner consistent with the measurement principles in “Financial Services-Investment Companies” as of the reporting entity’s measurement date (measurement of all or substantially all of the underlying investments of the investee in accordance with the “Fair Value Measurements and Disclosures” guidance). The update also requires enhanced disclosures about the nature and risks of investments within its scope that are measured a t fair value on a recurring or nonrecurring basis. This update will be effective for the company beginning October 1, 2009. Management is currently evaluating the effect that adoption of this update will have, if any, on the Company’s consolidated financial position and results of operations.

NOTE B – PROPERTY, PLANT & EQUIPMENT

Property, plant and equipment consisted of the following (in thousands):

	December 31,
(All Amounts in Thousands)	2009			2008
Pure Car/Truck Carriers	$	97,031		$	97,024
Special Purpose Vessels		109,934			107,671
Coal Carrier		92,771			92,646
Container Ships		14,798			19,911
Breakbulk Ship		-			5,632
Non-vessel related property, plant and equipment		33,094			31,151
Less:  Accumulated depreciation		(185,292	)		(166,931	)
		162,336			187,104
Construction-in-progress (vessel and non-vessel)		49,496			15,845
	$	211,832		$	202,949

NOTE C – LONG-TERM DEBT

Long-term debt consisted of the following:

( in thousands)		Interest Rate			Total Principal Due
		December 31,	December 31,	Maturity	December 31,	December 31,
Description		2009	2008	Date	2009	2008
Secured:
Notes Payable – Variable Rate	*	1.2506%	4.4763%	2015	$          20,667	$          23,334
Notes Payable – Variable Rate	*	0.0000%	0.9300%	2012	13,440	13,580
Notes Payable – Variable Rate	**	1.5325%	5.0119%	2013	44,325	51,793
Notes Payable – Variable Rate	*	1.1306%	1.7475%	2010	47,125	51,419
Notes Payable – Variable Rate		4.7500%		2014	24,000	-
Notes Payable – Variable Rate	***	1.1778%		2020	8,434	-
Bridge Loan – Variable Rate	***	3.1697%		2010	8,433	-
Line of Credit		N/A	N/A	2011	-	-
					166,424	140,126
		Less Current Maturities			(68,789)		(13,285)
					$         97,635	$       126,841

*  We have interest rate swap agreements in place to fix the interest rates on our variable rate notes payable expiring in 2015, 2012 and 2010 at 4.41%, 5.17% and 1.15%, respectively.  After applicable margin adjustments, the effective interest rates on these notes payable are fixed at 5.41%, 4.67% and 2.00%, respectively. The swap agreements are for the same terms as the associated notes payable.

** We have three interest rate swap agreements currently in place to fix the interest rate on portions of this variable note payable through 2010 at 4.68%, 3.96% and 3.46% respectively.  After applicable margin adjustments, the effective interest rates on the swapped portion of these notes payable are 5.68%, 4.96% and 4.46%, respectively.  Two of these swap agreements end in 2010 and we have entered into additional swap agreements to effectively fix the interest rate on the remaining period of the loan at 2.69% and 2.45%.

*** We have interest rate swap agreements in place to fix the interest rates on our variable rate notes payable expiring in 2020 and 2010 at 2.065%.  After applicable margin adjustments, the effective interest rates on these notes payable are fixed at 2.965%.  The swap agreements are for the same terms as the associated notes payable.

Our variable rate notes payable and our line of credit are secured by assets with an aggregate net book value of $190,762,000 as of December 31, 2009, and by a security interest in certain operating contracts and receivables.

The aggregate principal payments required as of December 31, 2009, for each of the next five years are $68,789,000 in 2010, $13,572,000 in 2011, $25,963,000 in 2012, $27,571,000 in 2013, $17,150,000 in 2014 and $13,379,000 thereafter.

In August 2009, we reduced our $35 million credit facility to $30 million.  As of December 31, 2009, we had $6.4 million of our $30 million revolving credit facility, which expires in April of 2011, pledged as collateral for a letter of credit.  The remaining $23.6 million of that credit facility was available as of December 31, 2009.  Associated with this credit facility is a commitment fee of .125% per year on the undrawn portion of this facility.

We entered into a financing agreement with Regions Bank on August 27, 2009 for a five year facility to finance up to $40.0 million for the purchase of additional vessels. As of December 31, 2009, the Company has drawn $25.0 million under this facility towards the purchase of the vessels to fulfill the additional requirements under the Indonesian mining contract. The vessels purchased with the loan proceeds were subsequently sold to a third party in the third quarter of 2009, generating a deferred gain of approximately $10.6 million. In addition to a $1.1 million payment received from the buyer, a ten year note receivable was agreed to for the remaining balance. We hold a first mortgage covering the vessels until the note is fully satisfied. Due to our financing of the transaction, the gain realized on the sale was deferred. This defer ral will be recognized over ten years, the length of the agreement with the buyer.

Most of our debt agreements, among other things, impose defined minimum working capital and net worth requirements, impose leverage requirements, and prohibit us from incurring, without prior written consent, additional debt or lease obligations, except as defined.  As of December 31, 2009, we met all of the financial covenants under our various debt agreements, the most restrictive of which include the working capital, leverage ratio, minimum net worth and interest coverage ratios.

Certain of our loan agreements restrict the ability of our subsidiaries to dispose of collateralized assets or any other asset which is substantial in relation to our assets taken as a whole without the approval from the lender.  We have consistently remained in compliance with this provision of the loan agreements.

NOTE D – SELF-RETENTION INSURANCE

We are self-insured for Hull and Machinery claims in excess of $150,000/Hull and $250,000/Machinery for each incident.  Loss of Hire claims are self-insured in excess of 14 days/Hull, and 21 days/Machinery up to an aggregate stop loss amount of $1,000,000/Hull and an additional $1,000,000/Machinery per policy year.  Once the aggregate stop loss amount is exceeded, we have coverage up to limits provided. The estimate of our self-insurance exposure for the policy year beginning June 27, 2009 is approximately $1,820,000.

Protection and Indemnity claims, including cargo and personal injury claims, are not included in our self-retention insurance program.  We have third party insurance coverage for these claims with deductible levels ranging from $100,000 to $500,000 per incident depending on vessel type.  Our estimates of exposure for claims under these deductible levels is approximately $1,600,000 for the policy year beginning February 20, 2009.

The current and non-current liabilities for self-insurance exposure and for claims under the deductible levels were $641,000 and $1,751,000, respectively, as of December 31, 2009.  The current and non-current liabilities were $641,000 and $2,779,000, respectively, as of ended December 31, 2008.

NOTE E – EMPLOYEE BENEFIT PLANS

Pension and Postretirement Benefits

We maintain a defined benefit pension plan (the “Retirement Plan”) for employees hired prior to September 1, 2006, and all such employees of our domestic subsidiaries who are not covered by union sponsored plans may participate after one year of service. Employees hired on or after September 1, 2006 with at least one year of service as of June 30, 2008, were eligible to participate in the new Cash Balance Plan as of July 1, 2008.  Computation of benefits payable under the defined pension plan is based on years of service, up to thirty years, and the employee's highest sixty consecutive months of compensation, which is defined as the participant’s base salary plus overtime (excluding incentive pay), bonuses or other extra compensation, in whatever form.  Our funding policy is ba sed on minimum contributions required under ERISA as determined through an actuarial computation.  Plan assets consist primarily of investments in equity and fixed income mutual funds and money market holdings.  The target asset allocation range is 40% in fixed income investments and 60% in equity investments.  The asset allocation on December 31, 2009 was 38.01%, or $8,543,000, in fixed income investments and 61.99%, or $13,931,000, in equity investments.  The asset allocation on December 31, 2008 was 48.10%, or $8,659,000, in fixed income investments and 51.90%, or $9,343,000, in equity investments.  The plan’s prohibited investments include selling short, commodities and futures, letter stock, unregistered securities, options, margin transactions, derivatives, leveraged securities, and International Shipholding Corporation securities.  The plan’s diversification strategy includes limiting equity securities in any single industry to 25 % of the equity portfolio market value, limiting the equity holdings in any single corporation to 10% of the market value of the equity portfolio, and diversifying the fixed income portfolio so that no one issuer comprises more than 10% of the aggregate fixed income portfolio, except for issues of the U.S. Treasury or other Federal Agencies.  The plan’s assumed future returns are based primarily on the asset allocation and on the historic returns for the plan’s asset classes determined from both actual plan returns and, over longer time periods, market returns for those asset classes. The plan assets are included within Level 1 of the fair value hierarchy (See Note V – Fair Value Measurements).  As of December 31, 2009, the plan has assets of $22,473,000 and a projected pension obligation of $25,432,000. The liability for pension and postretirement benefits is included within Other Liabilities in the Consolidated Balance Sheet.

 Our 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’ changes in the benefit obligations and fair value of assets and a statement of the funded status:

(All Amounts in Thousands)	Pension Plan		Postretirement Benefits
	Year Ended December 31,		Year Ended December 31,
	2009	2008	2009	2008
Change in Benefit Obligation
Benefit Obligation at Beginning of Year	$          22,601	$         23,063	$          6,764	$          7,267
Service Cost	468	597	16	18
Interest Cost	1,481	1,415	416	428
Plan Amendments	-	(34)	-	-
Actuarial (Gain) Loss	2,134	(1,244)	659	(392)
Benefits Paid and Expected Expenses	(1,252)	(1,196)	(1,051)	(614)
Medicare Part D Reimbursements	-	-	59	57
Benefit Obligation at End of Year	$          25,432	$         22,601	$            6,863	$            6,764
Change in Plan Assets
Fair Value of Plan Assets at Beginning of Year	$          18,100	$         23,299	$                   -	$                   -
Actual Return on Plan Assets	3,624	(5,211)	-	-
Employer Contribution	2,000	1,200	992	557
Benefits Paid and Actual Expenses	(1,251)	(1,188)	(1,051)	(614)
Medicare Part D reimbursements	-	-	59	57
Fair Value of Plan Assets at End of Year	$           22,473	$          18,100	$                   -	$                   -
Funded Status	$         (2,959)	$        (4,501)	$         (6,863)	$         (6,764)
Key Assumptions
Discount Rate	6.00%	6.75%	6.00%	6.75%
Rate of Compensation Increase	4.50%	4.50%	N/A	N/A

The accumulated benefit obligation for the pension plan was $23,081,000 and $20,472,000 at December 31, 2009 and 2008, respectively.

The following table shows amounts recognized in accumulated other comprehensive income(loss):

(All Amounts in Thousands)	Pension Plan		Postretirement Benefits
	Year Ended December 31,		Year Ended December 31,
	2009	2008	2009	2008
Prior Service Cost	$                 29	$               32	$               67	$             79
Net Loss	(6,494)	(6,968)	(186)	488
Amounts in Accumulated Other Comprehensive Income (Loss)	$         (6,465)	$       (6,936)	$          (119)	$           567

 The following table provides the components of net periodic benefit cost for the plans:

(All Amounts in Thousands)	Pension Plan			Postretirement Benefits
	Year Ended December 31,			Year Ended December 31,
	2009	2008	2007	2009	2008	2007
Components of Net Periodic Benefit Cost
Service Cost	$        468	$        597	$        616	$           16	$         18	$         25
Interest Cost	1,481	1,415	1,347	416	428	439
Expected Return on Plan Assets	(1,426)	(1,792)	(1,719)	-	-	-
Amortization of Prior Service Cost	(3)	(2)	-	(11)	(12)	(14)
Amortization of Net Actuarial Loss	409	-	12	(16)	-	-
Net Periodic Benefit Cost	$        929	$        218	$        256	$         405	$       434	$       450
Special Termination Benefits	-	-	20	-	-	-
Curtailment Gain	-	-	-	-	-	(38)
Net Periodic Benefit Cost After Special   Termination Benefits and Curtailment Gain	$         929	$         218	$         276	$         405	$        434	$        412
The assumptions used in the measurement of net pension cost are shown in the following table:
Key Assumptions
Discount Rate	6.75%	6.25%	5.75%	6.00%	6.75%	6.25%
Expected Return on Plan Assets	7.75%	7.75%	7.75%	N/A	N/A	N/A
Rate of Compensation Increase	4.50%	5.00%	5.00%	N/A	N/A	N/A

For measurement purposes, the health care cost trend was assumed to be 7.3% and the dental care cost trend rate was assumed to be 4.2% in 2009. The health care cost trend will increase by 1.0% in 2010, decrease by 2.3% in 2011-2012 and will decrease steadily by .10% each year. The health cost and dental care cost trends above are the same for employees over 65.  A one percent change in the assumed health care cost trend rates would have the following effects:

(All Amounts in Thousands)	1% Increase	1% Decrease
Change in total service and interest cost components
for the year ended December 31, 2009	$                31	$             (27)
Change in postretirement benefit obligation as of December 31, 2009	662	(563)

The following table provides the expected future benefit payments as of December 31, 2009:

(All Amounts in Thousands)
Fiscal Year Beginning	Pension Plan	Postretirement Benefits
2010	$               1,315	$                   520
2011	1,422	525
2012	1,451	513
2013	1,521	515
2014	1,573	508
2015-2019	8,940	2,412

We continue to evaluate ways in which we can better manage these benefits and control the costs.  Any changes in the plan or revisions to assumptions that affect the amount of expected future benefits may have a significant effect on the amount of the reported obligation and annual expense.

Crew members on our U.S. flag vessels belong to union-sponsored pension plans.  We contributed approximately $3,184,000, $2,588,000, and $2,499,000 to these plans for the years ended December 31, 2009, 2008, and 2007, 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 us to determine whether there may be unfunded vested benefits.

In December of 2003, the Medicare Prescription Drug, Improvements, and Modernization Act of 2003 (“Act”) was signed into law.  In addition to including numerous other provisions that have potential effects on an employer’s retiree health plan, the Act includes a special subsidy beginning in 2006 for employers that sponsor retiree health plans with prescription drug benefits that are at least as favorable as the new Medicare Part D benefit.  We have determined that our plan is actuarially equivalent and as such we qualify for this special subsidy.  The law resulted in a decrease in our annual net periodic benefit cost.

401(k) Savings Plan

We provide a 401(k) tax-deferred savings plan to all full-time employees. We match 50% of the employee’s first $2,000 contributed to the plan annually.  We contributed $105,000, $109,000 and $110,000 to the plan for the years ended December 31, 2009, 2008 and 2007, respectively.

Stock Incentive Plan

In April 2009, the stockholders of International Shipholding Corporation (the “Company”) approved the International Shipholding Corporation 2009 Stock Incentive Plan (the “Plan”).

The compensation committee of the board of directors of the Company will generally administer the Plan, and has the authority to grant awards under the Plan, including setting the terms of the awards. Incentives under the Plan may be granted in any one or a combination of the following forms: incentive stock options under Section 422 of the Internal Revenue Code, nonqualified stock options, restricted stock, restricted stock units, stock appreciation rights, and other stock-based awards.

A total of 200,000 shares of the Company’s common stock are authorized to be issued under the Plan with 105,000 shares available to be issued, The Company has no other equity compensation plan with shares available for issuance. Officers, directors, and key employees of the Company and the Company’s consultants and advisors will be eligible to receive incentives under the Plan when designated by the compensation committee as Plan participants.

On January 28, 2010, our Compensation Committee granted 47,500 shares of restricted stock to certain executive officers under this plan.  These shares will vest February 1, 2011, contingent upon the Company achieving certain performance measures for fiscal year 2010 and the executive officer remaining employed by us on such date.

On April 29, 2009, our Compensation Committee granted 47,500 shares of restricted stock to certain executive officers under this plan. These shares will vest on May 6, 2010, contingent upon the executive officer remaining employed by us on such date.

On April 30, 2008, our Compensation Committee granted the remaining 175,000 shares of restricted stock from the 1998 stock incentive plan to certain executive officers. The shares vest ratably over the respective vesting periods, which range from three to four years. The fair value of the Company’s restricted stock, which is determined using the average stock price as of the date of the grant, is applied to the total shares that are expected to fully vest and is amortized to compensation expense on a straight-line basis over the vesting period (See Note T – Stock-Based Compensation on Page F-37).

Life Insurance

We have agreements with the two former Chairmen of the Company whereby their estates or designated beneficiaries will be paid approximately $822,000 and $626,000, respectively, upon death.  We reserved amounts to fund a portion of these death benefits, which amount to $822,000, and hold an insurance policy to cover the remaining liability.  The cash surrender value of the insurance policy was approximately $15,000 and $64,000 as of December 31, 2009 and 2008, respectively.

NOTE F - INCOME TAXES

Under previous United States tax law, U.S. companies like us and their domestic subsidiaries generally have been taxed on all income, including in our case income from shipping operations, whether derived in the United States or abroad.  With respect to any foreign subsidiary in which we hold more than a 50 percent interest (referred to in the tax laws as a controlled foreign corporation, or “CFC”), we were treated as having received a current taxable distribution of our pro rata share of income derived from foreign shipping operations.

The American Jobs Creation Act, which became effective for us on January 1, 2005, changed the United States tax treatment of our U.S. flag vessels and our foreign flag shipping operations operating in CFCs.

In December of 2004, we made an election under the Jobs Creation Act to have our U.S. flag operations (other than those of two ineligible vessels used exclusively in United States coastwise commerce) taxed under a “tonnage tax” regime rather than under the usual U.S. corporate income tax regime.  As a result of that election, our gross income and taxable income for United States income tax purposes with respect to our eligible U.S. flag vessels will not include (1) income from qualifying shipping activities in U.S. foreign trade (i.e., transportation between the U.S. and foreign ports or between foreign ports), (2) income from cash, bank deposits and other temporary investments that are reasonably necessary to meet the working capital requirements of our qualifying shipping activities, and (3) income from cash or other intangible assets accumulated pursuant to a plan to purchase qualifying shipping assets.

Under the tonnage tax regime, our taxable income with respect to the operations of our eligible U.S. flag vessels will instead be based on a “daily notional taxable income,” which is taxed at the highest corporate income tax rate.

Our Federal income tax returns are filed on a consolidated basis and include the results of operations of our wholly-owned U.S. subsidiaries.  Pursuant to the Tax Reform Act of 1986, the recognition of earnings of foreign subsidiaries, which were $2,015,000 in 2009, $1,243,000 in 2008, and $1,817,000 in 2007, have been included in our federal tax provision calculations.  No foreign tax credits are expected to be utilized on the federal return as of December 31, 2009.

Components of the net deferred tax liability/(asset) are as follows:

(All Amounts in Thousands)
	December 31,			December 31,
Liabilities:	2009			2008
Fixed Assets	$	12,016		$	19,063
Deferred Charges		2,492			3,316
Other Liabilities		286			1,862
Total Liabilities		14,794			24,241
Assets:
Derivatives		(1,331	)		(2,970	)
Post-Retirement Benefits		(719	)		(77	)
Alternative Minimum Tax Credit		(4,577	)		(4,577	)
Net Operating Loss Carryforward		(4,171	)		(8,541	)
Other Assets		(1,926	)		-3183
Total Assets		(12,724	)		(19,348	)
Total Deferred Tax Liability, Net	$	2,070		$	4,893

The following is a reconciliation of the U.S. statutory tax rate to our effective tax rate –expense (benefit):

	Year Ended December 31,
	2009			2008			2007
Statutory Rate		35.00	%		35.00	%		35.00	%
State Income Taxes		(0.05	) %		0.36	%		2.26	%
Effect of Tonnage Tax Rate		(46.30	) %		(42.76	) %		(50.00	) %
Foreign Earning-Indefinitely Reinvested		(1.18	) %		(6.84	) %		(26.39	) %
Foreign Earning		-	%		4.23	%		12.90	%
Change in Valuation Allowance		-	%		-	%		(10.92	) %
Foreign Income Taxes		0.55	%		-	%		-	%
E&P Limitations		0.65	%		-	%		-	%
Permanent Differences and Other, Primarily		-	%		-	%		-	%
Non-deductible Expenditures		0.18	%		2.94	%		1.36	%
		(11.16	) %		(7.07	) %		(35.79	) %

Foreign income taxes of $497,000, $525,000, and $492,000 are included in our consolidated statements of income in the Provision for Income Taxes for the years ended December 31, 2009, 2008, and 2007, respectively.  We pay foreign income taxes in Indonesia.

For U.S. federal income tax purposes, in 2009, we generated $3,191,000 in net operating loss carryforwards (“NOLs”), which will be added to the previous carryforward of $8,763,000.  The balance at December 31, 2009 of approximately $11,916,000, if not used, will expire in 2026 through 2029.  We also have approximately $4,577,000 of alternative minimum tax credit carryforwards, which are not subject to expiration and are available to offset future regular income taxes subject to certain limitations.

We had total income (loss) from continuing operations before (benefit) provision for income taxes and equity in net income of unconsolidated entities of $31,723,000, $12,399,000, and $3,812,000, for 2009, 2008, and 2007, respectively. Income (loss) from continuing U.S. operations was $33,727,000, $11,282,000, and $308,000.  Income (loss) from continuing foreign operations was ($2,004,000), $1,117,000, and $3,504,000 for 2009, 2008, and 2007, respectively.

We file income tax returns in the U.S. federal and various state and foreign jurisdictions.  The number of years that are open under the statute of limitations and subject to audit varies depending on the tax jurisdiction.  Our U.S. income tax returns for 2004 and subsequent years remain open to examination. It is our policy to recognize interest and penalties associated with underpayment of income taxes as interest expense and general and administrative expenses, respectively. If recognized, substantially all of our unrecognized tax benefits would impact our effective rate.

The following is a reconciliation of the total amounts of unrecognized tax benefits as of December 31, 2009 and 2008:

Total unrecognized tax benefits as of:  January 1,	2009			2008
Increases (decreases) in unrecognized tax benefits as a result of:	$	1,855		$	1,400
Tax positions taken during a prior year		(270	)		-
Tax position during the current year		-			455
Settlements with tax authorities		-			-
Lapse of applicable statute of limitations		(185	)		-
Total unrecognized tax benefits as of:  December 31,	$	1,400		$	1,855

NOTE G – TRANSACTIONS WITH RELATED PARTIES

We own a 50% interest in RTI Logistics L.L.C. (“RTI”) (See Note L-Unconsolidated Entities on Page F-29).  At December 31, 2009, we had two long-term receivables of $1,920,000 and $310,000, respectively, due from RTI.  The long-term portion of both of these receivables is included in Due from Related Parties.  Interest income on the $1,920,000 receivable is earned at the rate of 5% per year for seven years.  A total of $20,000 was repaid in 2009 on this receivable.  Interest income on the $310,000 receivable is earned at the rate of 6% per year, and the receivable along with interest income is payable on demand.

We own a 49% interest in Terminales Transgolfo  (“TTG”) (See Note L- Unconsolidated Entities on Page F-29).  At December 31, 2009, we had a long-term receivable of $3,295,000 due from TTG.  The long-term portion of this receivable is included in Due from Related Parties.  Interest income on this receivable is earned at the rate of 7.65% per year for seven years.

       A son of one of our Directors serves as our Secretary and is a partner in, and member of the Board of Directors of, the law firm of Jones, Walker, Waechter, Poitevent, Carrere and Denegre, which has represented us since our inception.  Another son of one of our former Directors serves as our Assistant Secretary and is a partner in the same law firm.  Fees paid to the firm for legal services rendered to us were approximately $1,106,000, $1,099,000, and $735,000 for the years ended December 31, 2009, 2008 and 2007, respectively.  There were no amounts due to the legal firm at December 31, 2009 and 2008, respectively, and $20,000 due at December 31, 2007, which was included in Accounts Payable and Accrued Liabilities.

NOTE H - COMMITMENTS AND CONTINGENCIES

Commitments

As of December 31, 2009, 20 vessels that we own or operate were committed under various contracts extending beyond 2009 and expiring at various dates through 2019.  Certain of these agreements also contain options to extend the contracts beyond their minimum terms.

Approximately $6,361,000 of our $30,000,000 line of credit is maintained to cover a standby letter of credit required by one of our lease agreements.

In 2007, our wholly-owned subsidiary, East Gulf Shipholding, Inc. (“EGS”), entered into a SHIPSALES contract to purchase one 6400 CEU newbuilding PCTC. Upon signing of the agreement, East Gulf Shipholding paid an initial 20% installment of approximately $13.7 million. During the year ended December 31, 2009, two installments of 10% each were paid upon keel-laying of the Vessel and launching of the Vessel. These amounts were $8.0 million and $8.6 million, respectively. The final payment of 60% is due upon delivery of the vessel, scheduled for March, 2010. All installment amounts were recorded as Vessel, Property & Other Equipment on the balance sheet and will not begin depreciating until the vessel is placed in service in April 2010.

In November 2009, we entered into an agreement to purchase three 36,000 Deadweight Ton Handysize double hull dry bulk carrier newbuildings. The three new vessels will be constructed at Hyundai Mipo Dockyard Co., Ltd. and are expected to be delivered in April 2011.

The total delivered cost for the three newbuildings is expected to be approximately $90 million. Upon signing the agreement for the three vessels, we paid a 20% initial installment of $17 million using available cash. Future installments will be paid over the construction period.  The Company plans to fund the remaining installments through a combination of borrowings under its revolving credit facility, available cash and long-term financing.

Contingencies

In the normal course of our operations, we become involved in various litigation matters including, among other things, claims by third parties for alleged property damages, personal injuries, and other matters.  While we believe that we have meritorious defenses against these claims, our management has used estimates in determining our potential exposure.  Our estimates are determined based on various factors, such as (1) severity of the injury (for personal injuries) and estimated potential liability based on past judgments and settlements, (2) advice from legal counsel based on its assessment of the facts of the case and its experience in other cases, (3) probability of pre-trial settlement which would mitigate legal costs, (4) historical experience on claims for each specific type of cargo (for cargo damage claims), and (5) whether our seamen are employed in permanent positions or temporary revolving positions.  It is reasonably possible that changes in our estimated exposure may occur from time to time.  As is true of all estimates based on historical experience, these estimates are subject to some volatility.  However, because our total exposure is limited by our aggregate stop loss levels (see Note D on Page F-18 for further discussion of our self-retention insurance program), we believe that our exposure is within our estimated levels.  Where appropriate, we have recorded provisions, included in Other Long-Term Liabilities: Other, to cover our potential exposure and recorded anticipated recoveries from insurance companies, included in Other Assets.  Although it is difficult to predict the costs of ultimately resolving such issues, we have determined that o ur current insurance coverage is sufficient to limit any additional exposure to an amount that would not be material to our financial position.  Therefore, we do not expect such changes in these estimates to have a material effect on our financial position or results of operations, although we cannot provide assurances to this effect.

We have been named as a defendant in numerous lawsuits claiming damages related to occupational diseases, primarily related to asbestos and hearing loss.  We believe that most of these claims are without merit, and that insurance and the indemnification of a previous owner of one of our subsidiaries will partially mitigate our exposure.  Our current overall exposure to the numerous lawsuits in question, after considering insurance coverage for these claims, has been estimated by our lawyers and internal staff to be approximately $279,000.  We believe those estimates are reasonable and have established reserves accordingly.  Our reserves for these lawsuits as of December 31, 2009 and 2008 were approximately $279,000 and $276,000, respectively.  There is a reasonable possibility that the re will be additional claims associated with occupational diseases asserted against us. However, we do not believe that it is reasonably possible that our exposure from those claims will be material because (1) the lawsuits filed since 1989 claiming damages related to occupational diseases in which we have been named as a defendant have primarily involved seamen that served on-board our vessels and the number of such persons still eligible to file a lawsuit against us is diminishing and (2) we believe such potential additional claims, if pursued, would be covered under an indemnification agreement with a previous owner of one of our subsidiaries and/or under one or more of our existing insurance policies with deductibles ranging from $2,500 to $25,000 per claim.

NOTE I - LEASES

Direct Financing Leases

In 2007, we entered into a direct financing lease of a U.S. flag PCTC expiring in 2010; in 2005, we entered into a direct financing lease of a U.S. flag PCTC expiring in 2015; and, in 1999, we entered into a direct financing lease of a international flag PCTC expiring in 2019.  The schedule of future minimum rentals to be received by us under these direct financing leases in effect at December 31, 2009, is as follows:

(All Amounts in Thousands)	Receivables Under Financing Leases
Year Ended December 31,
2010	$	14,851
2011		13,097
2012		13,117
2013		13,096
2014		12,707
Thereafter Total Minimum Lease Payments Receivable		34,252
		101,120
Estimated Residual Value of Leased Property		53,944
Less Unearned Income		(47,369	)
Total Net Investment in Direct Financing Leases		107,695
Current Portion		(52,649	)
Long-Term Net Investment in Direct Financing Leases at December 31, 2009	$	55,046

The current portion of direct financing leases includes $47.6 million related to the maturity of the three year lease with an original expiration date in September 2010.  On February 5, 2010, the charterer notified us of their intention to not exercise their option to purchase the vessel.  Subsequently, the charterer did not exercise their purchase option, and we also negotiated a mutually acceptable early redelivery of the vessel effective February 14, 2010.  We are currently reviewing several alternatives for the employment of the vessel.

Operating Leases

As of December 31, 2009, the Company is obligated under certain operating leases for vessels and for office space. The Company is currently committed to leases for three vessels with terms expiring on July 2013, July 2016, and August 2017. The vessels under these leases are operated under fixed charter agreements covering the terms of the respective leases.

Our operating lease agreements have fair value renewal options and fair value purchase options.  Most of the agreements impose defined minimum working capital and net worth requirements, and prohibit us from incurring, without prior written consent, additional debt or lease obligations, except as defined.

The Mobile corporate office lease, which commenced on April 1, 2007, has a twenty year term with periodic graduating payments that are accounted for on a straight line basis. We incurred $730,000 in leasehold improvements and were provided with incentives in the amount of $1.4 million, both of which are being amortized over the life of the lease with the incentives amortized as a credit to rent expense. In October 2008, the Company renewed its lease agreement on its New York office space under a ten year term with the first nine months as free rent and includes periodic graduating payments. The rent expense is amortized on a straight-line basis. In addition, we incurred $503,000 in leasehold improvements which will be amortized over the life of the lease. The Company also leases a Shanghai office, with the current term expiring in 201 1, and a Singapore office, with the current term expiring in September 2014 with an option to renew for three years. As of December 31, 2009, we have incurred approximately $200,000 in leasehold improvements on the Singapore office which will be amortized over the life of the lease.

In addition to those operating leases with terms expiring after December 31, 2009, we also operated certain vessels under short-term timecharters during 2009.

Rent expense related to all of our operating leases totaled approximately $35,745,000, $33,837,000 and $31,886,000 for the years ended December 31, 2009, 2008 and 2007, respectively.  The following is a schedule, by year, of future minimum payments required under operating leases that have initial non-cancelable terms in excess of one year as of December 31, 2009:

	Payments Under Operating Leases
(All Amounts in Thousands)	U.S. Flag Vessels		International Flag Vessel		Other Leases		Total
Year Ended December 31,
2010	$	8,203	$	6,340	$	1,262	$	15,805
2011		8,203		6,340		1,235		15,778
2012		8,203		6,340		1,203		15,746
2013		6,170		6,340		1,227		13,737
2014		3,729		6,340		1,195		11,264
Thereafter		9,632		9,510		10,306		29,448
Total Future Minimum Payments	$	44,140	$	41,210	$	16,428	$	101,778

NOTE J - DEFERRED CHARGES AND ACQUIRED CONTRACT COSTS

Deferred charges and acquired contract costs are comprised of the following:

	December 31,		December 31,
(All Amounts in Thousands)	2009		2008
Drydocking Costs	$	14,342	$	10,855
Financing Charges and Other		1,572		1,784
Acquired Contract Costs		364		1,819
	$	16,278	$	14,458

The Acquired Contract Costs represent the portion of the purchase price paid for our wholly-owned subsidiary, Waterman Steamship Corporation, applicable to that company’s three U.S. flag RO/RO vessels under maritime prepositioning ship contract agreements, which expire at the end of the second quarter of 2010.  The amortization expense for each of the years ended December 31, 2009, 2008 and 2007 was $1,455,000, respectively.  The amortization expense will be $364,000 for 2010, and the Acquired Contract Costs will be fully amortized.

NOTE K - SIGNIFICANT OPERATIONS

Major Customers

We have several medium to long-term contracts related to the operations of various vessels (See Note H – Commitments and Contingencies on Page F-24), from which revenues represent a significant amount of our total revenue.  Revenues from the contracts with the MSC were $32,012,000, $29,988,000 and $32,387,000 for the years ended December 31, 2009, 2008 and 2007, respectively.  In July 2009, we received notification from the Military Sealift Command (“MSC”) that we were being excluded from further consideration for extending the current operating agreements on the three U.S. flag roll on-roll off vessels.  In October 2009, subsequent to filing an agency protest for reinstatement, we were notified of our reinstatement for consideration by MSC. The current agreements are set to expire by the end of July 2010.

      We have six U.S. flag PCTCs, also under the MSP, five of which carry automobiles from Japan to the United States for a Japanese charterer, and one which carries for Far East charterers.  Revenues, including MSP revenue, were $51,590,000, $50,208,000 and $43,945,000 for the years ended December 31, 2009, 2008, and 2007, respectively, and are included in the Time Charter Contracts-U.S. segment.

      We had four international flag PCTCs under various contracts that transport automobiles from South Korea to the United States and Europe.  Revenues under these contracts were $25,883,000, $26,065,000 and $23,645,000 for the years ended December 31, 2009, 2008 and 2007, respectively, and are included in the Time Charter Contracts-International Flag segment.

      We operate six U.S. flag PCTCs that carry supplemental cargo for the military. Revenues under these contracts were $171,493,000, $58,414,000, and $29,399,000 for the years ended December 31, 2009, 2008 and 2007, respectively, and are included in the Time Charter Contracts-U.S. segment.

      We have two Special Purpose vessels, which carry loaded rail cars between the U.S. Gulf Coast and Mexico.  Revenues from this service were $27,405,000, $39,410,000 and $21,235,000 for the years ended December 31, 2009, 2008 and 2007, respectively.  Revenues from these two Special Purpose vessels are included in our Rail-Ferry segment. This segment has been adversely impacted by the economic recession, including the fact that one of its major northbound customers stopped shipments in December 2009.

Concentrations

A significant portion of our traffic receivables is due from contracts with the MSC and transportation of government sponsored cargo.  There are no concentrations of receivables from customers or geographic regions that exceeded 10% of stockholders’ investment at December 31, 2009, 2008 or 2007.

With only minor exceptions related to personnel aboard certain international flag vessels, all of our shipboard personnel are covered by collective bargaining agreements under multiple unions.  The percentage of the Company’s total work force that is covered by these agreements is approximately 75.5%.  One of these contracts representing 5% of our workforce expires on December 31, 2010.

Geographic Information

We have operations in several principal markets, including international service between U.S. Gulf and East Coast ports and ports in Mexico and the Far East, and domestic transportation services along the U.S. Gulf and East Coast.  Revenues attributable to the major geographic areas of the world are presented in the following table.  Revenues for our operating segments identified below are assigned to regions based on the location of the customer.  Because we operate internationally, most of our assets are not restricted to specific locations.  Accordingly, an allocation of identifiable assets to specific geographic areas is not applicable.

	Year Ended December 31,
(All Amounts in Thousands)	2009		2008		2007
United States	$	265,416	$	154,068	$	122,641
Asian Countries		86,000		87,329		74,091
Rail-Ferry Service Operating Between U.S. Gulf Coast and Mexico		27,405		39,410		21,235
Other Countries		1,130		1,094		146
Total Revenues	$	379,951	$	281,901	$	218,113

Operating Segments

Our operating segments are identified primarily based on the characteristics of the contracts or terms under which the fleet of vessels are operated.  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. Beginning with the second quarter of 2010, we split our Time Charter Contracts operations into two different operating segments, U.S. Flag and International Flag.  Our operating segments are identified and described below.

Time Charter Contracts – U.S. Flag: Time charters are contracts by which our 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 we retain operating control over the vessel.  Typically, we fully equip the vessel and are responsible for normal operating expenses, repairs, crew wages, and insurance, while the charterer is responsible for voyage expenses, such as fuel, port and stevedoring expenses.  Our Time Charter Contracts – U.S. Flag segment includes contracts with Far Eastern shipping companies for six PCTCs and with an electric utility for a conveyor-equipped, self-unloading Coal C arrier.  Also included in this segment are contracts under which the MSC charters three RO/ROs that are under an operating contract, and contracts with another shipping company for two container vessels.

Time Charter Contracts – International Flag: We operate this segment in the same manner as our Time Charter Contracts-U.S. Flag segment, except with International flagged vessels.  Our Time Charter Contracts – International Flag segment includes three PCTCs; two Multi-Purpose vessels, one Tanker, and two Container vessels providing transportation services to a mining company at its mine in Papua, Indonesia and one International Flag container ship which began operating on time charter in 2008. We currently have newbuilding contracts for three Double Hull Handy-Size Bulk Carriers for delivery in early 2011.

Contract of Affreightment (“COA”):For this type of contract, we undertake to provide space on our vessel 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, we are responsible for all operating and voyage expenses.  Our COA segment includes one contract, which is for the transportation of molten sulphur.

Rail-Ferry Service: This service uses our two Special Purpose vessels, which carry loaded rail cars between the U.S. Gulf and Mexico.  Each vessel currently has a capacity for 113 standard size rail cars.  With departures every four days from Coatzacoalcos, Mexico and the U.S. Gulf, it offers with each vessel a three-day transit between these ports and provides a total of 90 trips per year in each direction when both ships are operating.

Other:This segmentconsists of operations that include more specialized services than the above-mentioned three segments and ship charter brokerage and agency 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.

The following table presents information about segment profit and loss and segment assets.  We do not allocate administrative and general expenses, gains or losses on sales of investments, investment income, gains or losses on early extinguishment of debt, equity in net income of unconsolidated entities, income taxes, or losses from discontinued operations to our segments.  Intersegment revenues are based on market prices and include revenues earned by our subsidiaries that provide specialized services to the operating segments.  Expenditures for segment assets represent cash outlays during the periods presented, including purchases of assets, improvements to assets, and drydock payments.

			Time Charter
(All Amounts in Thousands)	Time Charter Contracts – US Flag		Contracts - International Flag			COA		Rail-Ferry Service			Other			Total
2009
Revenues from External Customers	$	278,746	$	51,346		$	17,928	$	27,688		$	4,243		$	379,951
Intersegment Revenues (Eliminated)		-		-			-		-			(12,975	)		(12,975	)
Intersegment Expenses (Eliminated)		-		-			-		-			12,975			12,975
Voyage Expenses		210,877		41,537			15,678		24,046			3,540			295,678
Depreciation		13,368		1,407			-		5,468			11			20,254
Impairment Loss		-		(2,899	)		-		-			-			(2,899	)
Gross Voyage (Loss) Profit		54,501		5,503			2,250		(1,826	)		692			61,120
Interest Expense		3,240		893			-		1,426			551			6,110
(Loss) on Sale of Other Assets		-		-			-		-			(2,209	)		(2,209	)
Segment Profit (Loss)		51,261		4,610			2,250		(3,252	)		(2,068	)		52,801
Segment Assets		103,485		87,585			2,546		63,600			25,940			283,156
Expenditures for Segment Assets		11,726		38,003			2		4,685			1,544			55,960
2008
Revenues from External Customers	$	166,640	$	52,165		$	19,195	$	39,410		$	4,491		$	281,901
Intersegment Revenues (Eliminated)		-		-			-		-			19,626			19,626
Intersegment Expenses (Eliminated)		-		-			-		-			(19,626	)		(19,626	)
Voyage Expenses		129,779		38,700			17,553		32,136			2,072			220,240
Depreciation		13,386		1,205			-		5,365			12			19,968
Gross Voyage Profit (Loss)		23,475		12,260			1,642		1,909			2,407			41,693
Interest Expense		3,691		1,112			-		1,502			581			6,886
Segment Profit (Loss)		19,784		11,148			1,642		407			1,826			34,807
Segment Assets		164,860		62,961			3,934		67,470			27,155			326,380
Expenditures for Segment Assets		2,903		1,535			169		1,694			1,894			8,195
2007
Revenues from External Customers	$	136,537	$	41,799		$	16,652	$	21,235		$	1,890		$	218,113
Intersegment Revenues (Eliminated)		-		-			-		-			14,245			14,245
Intersegment Expenses (Eliminated)		-		-			-		-			(14,245	)		(14,245	)
Voyage Expenses		106,216		31,612			10,940		18,406			841			168,015
Depreciation		14,997		313			1,612		4,395			5			21,322
Gross Voyage Profit (Loss)		15,324		9,874			4,100		(1,566	)		1,044			28,776
Interest Expense		5,478		1,644			625		2,172			(157	)		9,762
Gain on Sale of Other Asset		-		-			-		-			12			12
Segment Profit (Loss)		9,846		8,230			3,475		(3,738	)		1,213			19,026
Segment Assets		186,145		56,057			4,946		102,988			1,326			351,462
Expenditures for Segment Assets		32,470		150			3,932		12,630			16,700			65,882

In 2007, we elected to discontinue our U.S. flag LASH service and our International LASH service.  Those services were reported in the Liner Services segment in previous periods.  Financial information for all periods presented have been restated to remove the effects of those operations from the Liner Services segment to reflect the reclassification from continuing to discontinued operations.

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)	Year Ended December 31,
Profit or Loss:	2009			2008			2007
Total Profit for Reportable Segments	$	52,801		$	34,807		$	19,026
Unallocated Amounts:
Administrative and General Expenses		(22,641	)		(21,414	)		(18,158	)
Gain (Loss) on Sale of Investment		980			(148	)		352
Investment (Loss) Income		(72	)		525			2,592
Other Income from Vessel Financing		655			-			-
(Loss) on Redemption of Preferred Stock		-			(1,371	)		-
Income from Continuing Operations Before (Benefit)
Provision for Income Taxes and Equity in Net
Income of Unconsolidated Entities	$	31,723		$	12,399		$	3,812

	December 31,		December 31,
Assets:	2009		2008
Total Assets for Reportable Segments	$	283,156	$	326,380
Unallocated Amounts:
Current Assets		141,749		90,305
Investment in Unconsolidated Entities		15,971		5,803
Due from Related Parties		5,043		6,195
Other Assets		6,341		5,428
Note Receivable		44,390		-
Total Assets	$	496,650	$	434,111

NOTE L - UNCONSOLIDATED ENTITIES

Bulk Carriers

In 2003, we acquired a 50% investment in Dry Bulk Cape Holding Inc. (“Dry Bulk”) for $3,479,000, which owns 100% of subsidiary companies currently owning one Panamax-size Bulk Carriers, two Capesize Bulk Carriers and two Handymax Bulk Carrier Newbuildings on order for delivery in 2012.  This investment is accounted for under the equity method and our share of earnings or losses is reported in our consolidated statements of income net of taxes.  For the years ended December 31, 2009, 2008 and 2007, our portions of earnings net of taxes were $6,845,000, $21,239,000 and $6,659,000, respectively.  We received dividends of $3,000,000, $31,500,000 and $4,400,000 in 2009, 2008 and 2007, respectively. The 2008 amount included a cash distribution for our share of the proceeds from Dry Bulk’s subs idiary company’s sale of a Panamax Bulk Carrier in the amount of $25.5 million in July 2008.

On August 12, 2009, Dry Bulk signed a Memorandum of Agreement to sell its one remaining Panamax Bulk carrier.  The sale will consummate upon the delivery of the vessel, which is expected to be near the end of the first quarter 2010.

The unaudited condensed financial position and results of operations of Dry Bulk are summarized below:

	December 31,		December 31,
(Amounts in Thousands)	2009		2008
Current Assets	$	8,385	$	5,700
Noncurrent Assets		91,692		95,049
Current Liabilities		1,706		1,709
Noncurrent Liabilities		87,278		95,712

	Year Ended December 31,
(Amounts in Thousands)	2009		2008		2007
Operating Revenues	$	27,417	$	25,682	$	30,778
Operating Income		17,089		14,249		18,959
Net Income		13,760		42,129		12,699

In December 2009, we acquired a 25% investment in Oslo Bulk Shipping (“Oslo”) for $6,250,000, which, in 2008, contracted to build eight new Mini bulkers. The 8,000 dwt vessels are being constructed and are scheduled for deliveries commencing in the third quarter of 2010. This investment is accounted for under the equity method and our share of earnings or losses, which is not material for 2009,  will be reported in our consolidated statements of income net of taxes.

Terminal Management Company

In 2000, we acquired a 50% interest in Terminales Transgolfo (“TTG”) for $228,000, which operates a terminal in Coatzacoalcos, Mexico, utilized by our Rail-Ferry Service.  During 2005, the other unaffiliated 50% owner of TTG acquired 1% of our 50% interest in TTG.   As of December 31, 2009, we have a 49% interest in TTG.  In 2006, TTG began making improvements to the terminal in Mexico to accommodate the second decks that were added to the two vessels operating in our Rail-Ferry Service during the first half of 2007.  We funded  49% of the cost of the terminal improvements, of which 30% is a capital contribution and is reported as an investment in unconsoli dated entities.  The remaining 70% is a loan to TTG (see Note G-Transactions with Related Parties on Page F-24).  No capital contributions were made during the year ended December 31, 2009. During the years ended December 31, 2008 and 2007, we made capital contributions of $120,000 and $1,004,000, respectively, associated with funding improvements to the terminal.  The investment is accounted for under the equity method, and our share of earnings or losses is reported in our consolidated statements of income net of taxes.  No distributions were made by TTG during 2009, 2008 and 2007.  As of December 31, 2009, 2008 and 2007, TTG owed us $3,295,000, $4,459,000 and $4,181,000, respectively. (See Note G- Transactions with Related Parties on Page F-24).

Transloading and Storage Facility Company

In 2005, we acquired a 50% interest in RTI Logistics L.L.C. (“RTI”), which owns a transloading and storage facility that was used in our Rail-Ferry Service, for $1,587,000.  We purchased our shares from a former owner at a premium, which resulted in a difference of approximately $973,000 between our investment in RTI and the underlying equity in net assets of the subsidiary.  Additional investments of approximately $386,000 were made in 2006. The investment is accounted for under the equity method, and our share of earnings or losses is reported in our consolidated statements of income net of taxes.  The Company’s interest in the earnings from the date of this investment through December 31, 2009, was immaterial.  No dist ributions were made by RTI during 2009, 2008 and 2007.  We have also loaned funds to RTI, and as of December 31, 2009, 2008 and 2007, RTI owed us $2,230,000, $2,250,000 and $2,275,000, respectively (See Note G- Transactions with Related Parties on Page F-23).

NOTE M - SUPPLEMENTAL CASH FLOW INFORMATION

	Year Ended December 31,
(All Amounts in Thousands)	2009		2008		2007
Cash Payments:
Interest Paid	$	5,570	$	7,589	$	9,874
Taxes Paid		530		597		528

NOTE N -FAIR VALUE OF FINANCIAL INSTRUMENTS, DERIVATIVES AND MARKETABLE SECURITIES

The Company uses derivative instruments to manage certain foreign currency exposures and interest rate exposures. The Company does not use derivative instruments for speculative trading purposes.  All derivative instruments must be recorded on the balance sheet at fair value.  For derivatives designated as cash flow hedges, the effective portion of changes in the fair value of the derivative is recorded to other comprehensive income, and is reclassified to earnings when the derivative instrument is settled.  Any ineffective portion of changes in the fair value of the derivative is reported in earnings.  None of the Company’s derivative contracts contain credit-risk related contingent features that would require us to settle the contract upon the occurrence of such contingency.  H owever, all of our contracts contain clauses specifying events of default under specified circumstances, including failure to pay or deliver, breach of agreement, default under the specific agreement to which the hedge relates, bankruptcy, misrepresentation and mergers, without exception.  The remedy for default is settlement in entirety or payment of the fair market value of the contracts, which is $7.0 million in the aggregate for all of our contracts less a posted collateral of $1.45 million for the year ended December 31, 2009.  The unrealized loss related to the Company’s derivative instruments included in accumulated other comprehensive income (loss) was $6.8 million and $11.0 million as of December 31, 2009 and 2008, respectively.

We used the following methods and assumptions in estimating our fair value disclosures of financial instruments:

Cash and Cash Equivalents: The carrying amounts reported in the balance sheet for cash and short-term instruments approximate those asset’s fair values.

Marketable Securities: Fair values for marketable securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments.

Current Maturities of Long-Term Debt:  The fair value of our debt is estimated based on the current rates offered to us on outstanding obligations.

Long-Term Debt: The fair value of our debt is estimated based on the current rates offered to us on outstanding obligations.

The notional and fair value amounts of our derivative instruments as of December 31, 2009 were as follows:

(Amounts in thousands)		Asset Derivatives 2009		Liability Derivatives 2009
	Current Notional	Balance Sheet	Fair	Balance Sheet	Fair Value
As of December 31, 2009	Amount	Location	Value	Location
Interest Rate Swaps*	$  76,715	-	-	Accrued Liabilities	$1,063
Interest Rate Swaps*	$142,126	-	-	Other Liabilities	$6,662
Foreign Exchange Contracts**	$2,700	Other Current Assets	$682	-	-
Total Derivatives designated as hedging instruments	$221,541	-	$682	-	$7,725
* In addition to the interest rates of all of our long-term debt (including current maturities) being swapped to a fixed rate under contract, we have also fixed the interest rate on our long-term Yen financing on our PCTC Newbuilding scheduled for delivery in early 2010.  The notional amount under this contract is approximately $69.8 million.
** Represents approximately 50% of our foreign operational currency exposure through December 2010.

The effect of derivative instruments designated as cash flow hedges on our consolidated statement of income for the year ended December 31, 2009 is as follows:

(Amounts in thousands) Year Ended December 31, 2009	Gain(Loss) Recognized in Other Comprehensive Income	Location of Gain(Loss) Reclassified from AOCI to Income	Amount of Gain(Loss) Reclassified from AOCI to Income
Interest Rate Swaps	$2,875	Interest Expense	($3,343)
Foreign Exchange Contracts	$1,281	Voyage Expenses	$52
Total	$4,156	-	($3,291)

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 Company’s fair value.

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:

Interest Rate Swap Agreements

We enter into interest rate swap agreements to manage well-defined interest rate risks. The Company records the fair value of the interest rate swaps as an asset or liability on its balance sheet. The Company’s interest rate swaps are accounted for as effective cash flow hedges.  Accordingly, the effective portion of the change in fair value of the swap is recorded in Other Comprehensive Income (Loss). As of December 31, 2009, the Company has the following swap contracts outstanding:

Effective Date	Termination Date	Current Notional Amount	Swap Rate	Type
9/18/07	9/10/10	¥4,386,363,638	1.15%	Fixed
9/28/07	9/30/10	$14,775,000	4.68%	Fixed
12/31/07	9/30/10	$14,775,000	3.96%	Fixed
11/30/05	11/30/12	$13,440,000	5.17%	Fixed
3/31/08	9/30/13	$14,775,000	3.46%	Fixed
9/30/10	9/30/13	$12,908,000	2.69%	Fixed
9/30/10	9/30/13	$12,908,000	2.45%	Fixed
9/26/05	9/28/15	$10,333,333	4.41%	Fixed
9/26/05	9/28/15	$10,333,333	4.41%	Fixed
3/15/09	9/15/20	¥ 6,280,000,000	2.065%	Fixed

Foreign Currency Contracts

We enter into forward exchange contracts to hedge certain firm purchase and sale commitments denominated in foreign currencies.  The purpose of our foreign currency hedging activities is to protect us from the risk that the eventual dollar cash inflows or outflows resulting from revenue collections from foreign customers and purchases from foreign suppliers will be adversely affected by changes in exchange rates.  The term of the currency contracts is rarely more than one year.  Our foreign currency contracts are accounted for as effective cash flow hedges. Accordingly, the effective portion of the change in fair value is recorded in Other Comprehensive Income (Loss).

During 2009, we entered into three forward purchase contracts. Two contracts were for Mexican Pesos, the first of these was for $450,000 U.S. Dollar equivalents beginning in January 2010 that expires in March 2010, the second contract was for $450,000 U.S. Dollar equivalents beginning in April 2010 that expires in September 2010. The other contract was for Indonesian Rupiah for $1,800,000 U.S. Dollar equivalents beginning in January 2010 that expires in December 2010. There were no forward sales contracts as of December 31, 2009 or 2008. The following table summarizes these contracts:

(Amounts in Thousands)
Transaction Date	Type of Currency	Transaction Amount in Dollars	Effective Date	Expiration Date
January 2009	Peso	450	January 2010	March 2010
February 2009	Rupiah	1,800	January 2010	December 2010
September 2009	Peso	450	April 2010	September 2010

Long-Term Debt

The fair value of our debt approximated the carrying amount as of December 31, 2009 and 2008, and  is estimated based on the current rates offered to us on outstanding obligations.

Amounts Due from Related Parties

The carrying amount of these notes receivable approximated fair market value as of December 31, 2009 and 2008.  Fair market value takes into consideration the current rates at which similar notes would be made.

Marketable Securities

We have categorized all marketable securities as available-for-sale securities. Management performs a quarterly evaluation of marketable securities for any other-than-temporary impairment.  We determined that our unrealized losses in the stocks of several financial institutions were other-than-temporarily impaired due to the duration and severity of the losses.  Therefore, we recognized impairment losses of $369,000 during 2008.  For the year ended December 31, 2009, we recognized impairment charges of $757,000 related to certain equity investments which were determined to have other-than-temporary impairments.  These impairment charges represented the difference between each investment’s cost and fair value on the respective balance sheet dates. The fair value was determined using market prices that represented Level 1 inputs in the fair value hierarchy described in Note V.  Our entire portfolio of stocks was sold in the fourth quarter of 2009, generating a gain of approximately $980,000.

The following tables include cost and valuation information on our investment securities:

(All Amounts in Thousands)	December 31, 2009
Security Type	Cost Basis		Net Carrying Amount		Estimated Fair Value
Corporate Bonds*	$	10,449	$	10,333	$	10,333
	$	10,449	$	10,333	$	10,333
* Various maturity dates from February 2010 – August 2013.
	December 31, 2008
Security Type	Cost Basis		Fair Value		Unrealized Gain (Loss) Net of Taxes
Equity Securities	$	3,570	$	2,707	$	(597	)
	$	3,570	$	2,707	$	(597	)

NOTE O - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Following are the components of the consolidated balance sheet classification Accounts Payable and Accrued Liabilities:
		December 31,		December 31,
(All Amounts in Thousands)		2009		2008
Accrued Voyage Expenses	$	16,750	$	11,294
Trade Accounts Payable		7,151		6,985
Lease Incentive Obligation		3,955		2,955
Short Term Derivatives Liability		1,063		1,290
Self-Insurance Liability		1,754		1,754
Accrued Salaries and Benefits		161		1,904
Accrued Insurance Premiums		-		(48)
Accrued Customs Liability		-		296
Accrued Interest Expense		205		84
	$	31,039	$	26,514

NOTE P – DISCONTINUED OPERATIONS

The Company decided in the fourth quarter of 2006 to dispose of certain LASH Liner Service assets.  The decision was based on the belief that we could generate substantial cash flow and profit on the disposition of the assets, while improving our future operating results.  Accordingly, we sold our LASH Feeder vessel and 114 barges in the first quarter of 2007.  In the second quarter of 2007, the company sold the one remaining U.S. flag LASH vessel and 111 LASH barges.  In the third quarter of 2007, the company elected to discontinue its International LASH service by the end of 2007.  The one remaining LASH vessel and the remaining barges were sold in the first quarter of 2008.

Our U.S. flag LASH service and International LASH service were reported in “Continuing Operations” as a part of our Liner segment in periods prior to June 30, 2007.  Our financial statements have been restated to remove the effects of those operations from “Continuing Operations”.

There were no revenues associated with these operations for the year ended December 31, 2009. Revenues associated with these operations for the years ended December 31, 2008 and 2007 were $220,000 and $42,005,000, respectively.

NOTE Q - QUARTERLY FINANCIAL INFORMATION - (Unaudited)
	(All Amounts in Thousands Except Share Data)		Quarter Ended
			March 31		June 30		Sept. 30		Dec. 31
2009	Revenues	$	98,078	$	99,815	$	92,261	$	89,795
	Expenses		83,250		82,087		76,769		73,826
	Impairment Loss		-		2,899		-		-
	Gross Voyage Profit		14,828		14,829		15,492		15,969
	Income from Continuing Operations		9,475		10,659		11,309		10,777
	Net Income Available to Common Stockholders		9,475		10,659		11,309		10,777
	Basic and Diluted Earnings  per Common Share:
	Net Income Available to Common Stockholders-Basic
	Continuing Operations		1.31		1.47		1.56		1.49
	Net Income Available to Common Stockholders-Diluted
	Continuing Operations		1.31		1.46		1.55		1.47
2008	Revenues	$	63,705	$	61,149	$	84,349	$	72,698
	Expenses		57,189		53,961		67,849		61,209
	Gross Voyage Profit (Loss)		6,516		7,188		16,500		11,489
	Income from Continuing Operations		217		18,025		11,191		4,789
	Net Income (Loss) from Discontinued Liner Service		4,597		(9)		119		120
	Net Income Available to Common Stockholders		4,726		18,016		11,310		4,909
	Basic and Diluted Earnings per Common Share:
	Net Income Available to Common Stockholders-Basic
	Continuing Operations		0.02		2.38		1.55		0.67
	Discontinued Operations		0.63		0.00		0.02		0.02
	Net Income Available to Common Stockholders-Diluted
	Continuing Operations		0.02		2.37		1.54		0.66
	Discontinued Operations		0.58		0.00		0.02		0.02

NOTE R – EARNINGS PER SHARE

The calculation of basic and diluted earnings per share is as follows (in thousands except share amounts):

			Year Ended  December 31,
			2009	2008	2007
Numerator
Net Income Available to Common  Stockholders – Basic
Continuing *			$42,221	$34,134	$9,392
Discontinued			-	4,827	5,624
			$42,221	$38,961	$15,016
	Net Income - Diluted
		Continuing	$42,221	$34,222	$11,792
		Discontinued	-	4,827	5,624
			$42,221	$39,049	$17,416
Denominator
	Weighted Avg Shares of Common Stock Outstanding:
		Basic	7,224,748	7,314,216	6,360,208
		Plus:
		Effect of dilutive restrictive stock	57,371	22,339	-
		Effect of dilutive stock options	-	-	9,265
		Effect of dilutive convertible shares from preferred stock	-	165,000	2,000,000
		Diluted	7,282,119	7,501,555	8,369,473
Basic and Diluted Earnings Per Common Share
	Net Income Available to Common
	Stockholders - Basic
		Continuing Operations	$5.84	$4.67	$1.48
		Discontinued Operations	-	0.66	0.88
			$5.84	$5.33	$2.36
	Net Income Available to Common
	Stockholders - Diluted
		Continuing Operations	$5.80	$4.56	$1.41
		Discontinued Operations	-	0.64	0.67
			$5.80	$5.20	$2.08
		* Income from Continuing Operations less Preferred Stock Dividends

NOTE S- ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Accumulated other comprehensive income is comprised of the following, net of tax:
		December 31,
		2009	2008
	Unrealized translation loss	$              (309)	$               (221)
	Unrealized loss on marketable securities	-	(374)
	Fair value of derivatives	(6,842)	(10,999)
	Funding status of benefit plans	(5,540)	(5,254)
		$         (12,691)	$          (16,848)

NOTE T – STOCK BASED COMPENSATION

A summary of the activity for restricted stock awards during the years ended December 31, 2009 and 2008 is as follows:

	2009		2008
	Shares	Weighted Average Fair Value Per Share	Shares	Weighted Average Fair Value Per Share
Non-vested	175,000	$19.01	-	-
Shares Granted	47,500	$ 20.87	175,000	19.01
Shares Vested –	(45,000)	$19.01	-	-
Shares Forfeited	-	-	-	-
Non-vested – December 31, 2009	177,500	$19.51	175,000	19.01

The following table summarizes the amortization of unrecognized compensation cost, which we will include in administrative and general expenses, relating to all of the Company’s restricted stock grants as of December 31, 2009:

Grant Date	2010	2011	2012	Total
April 30, 2008	$     952,000	$     414,000	$      34,000	$   1,400,000
April 29, 2009	$     330,000	$                 -	$                -	$      330,000

For the year ended December 31, 2009, the Company’s income before taxes and net income included $1,834,000 and $1,192,100, respectively, of stock-based compensation expense charges, while basic and diluted earnings per share were each charged $0.17 and $0.16 per share, respectively. For the year ended December 31, 2008, the Company’s income before taxes and net income included $757,000 and $492,000, respectively, of stock-based compensation expense charges, while basic and diluted earnings per share were each charged $0.07 per share.  There was no stock compensation expense during 2007.

NOTE U – STOCK REPURCHASE PROGRAM

On January 25, 2008, the Company’s Board of Directors approved a share repurchase program for up to a total of 1,000,000 shares of the Company’s common stock. We expect that any share repurchases under this program will be made from time to time for cash in open market transactions at prevailing market prices. The timing and amount of any purchases under the program will be determined by management based upon market conditions and other factors. Purchases may be made pursuant to a program we have adopted under Rule 10b5-1 of the Securities Exchange Act.  The company did not repurchase any shares in 2009. Through the year ended December 31, 2008, we repurchased 491,572 shares of our common stock for $11.5 million.  Unless and until the Board otherwise provides, this program will remain open, or unti l we reach the 1,000,000 share limit.

NOTE V - FAIR VALUE MEASUREMENTS

Effective January 1, 2008, we adopted the provisions of Accounting Standards Codification (“ASC”) Topic 820 (previously SFAS No. 157).  ASC Topic 820 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements.

     ASC Topic 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. The price in the principal (or most advantageous) market used to measure the fair value of the asset or liability is not adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, and (iii) able and willing to complete a transaction.

ASC Topic 820 requires the use of valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings, to a single present value on a discounted basis. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement cost). Valuation techniques should be consistently applied. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions marke t participants would use in pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity's own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. In that regard, ASC Topic 820 establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

w      Level 1 Inputs - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

w      Level 2 Inputs - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (including interest rates, volatilities, prepayment speeds, credit risks) or inputs that are derived principally from or corroborated by market data by correlation or other means.

 w  Level 3 Inputs - Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity's own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.

 The following table summarizes our financial assets and financial liabilities measured at fair value on a recurring basis as of December 31, 2009, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

(Amounts in thousands)	Level 1 Inputs		Level 2 Inputs			Level 3 Inputs		Total Fair Value
Marketable securities	$	10,333	$	-		$	-	$	10,333
Derivative assets		-		682			-		682
Derivative liabilities		-		(7,725	)		-		(7,725	)

NOTE W - IMPAIRMENT LOSS

    During the second quarter of 2009 we recorded an impairment loss of $2.9 million on one of our International flag container vessels included in our Time Charter Contracts segment.  This charge was the result of the termination of our Time Charter agreement on the vessel upon the mutual agreement with our customer.  We agreed to the early termination in exchange for an increase in charter hire on the other International flag container vessel remaining under charter.

    The amount of the impairment charge was determined by writing down the remaining net book value of the vessel and the remaining unamortized deferred drydocking charges to the estimated fair market value of the vessel.  The estimated fair value of the vessel was determined using available market data, which represented Level 2 inputs in the fair value hierarchy described in Note V.  In the third quarter 2009, we sold the vessel and recorded an additional loss of $129,000.

NOTE X - CONVERTIBLE EXCHANGEABLE PREFERRED STOCK

In January of 2005, we issued 800,000 shares of 6% convertible exchangeable preferred stock, $1.00 par value, at a price of $50.00 per share.  The proceeds of the preferred stock offering, after deducting all associated costs, were $37,987,000. Each share of the preferred stock had a liquidation preference of $50 per share and was convertible into shares of our common stock based on the initial conversion price of $20.00 per share. On February 1, 2008 we completed the redemption of our 800,000 outstanding shares of 6% Convertible Exchangeable Preferred Stock.  In lieu of cash redemption, holders of 462,382 shares of the Preferred Stock elected to convert their shares into approximately 1,155,955 shares of our common stock. The remaining 337,618 outstanding shares of P referred Stock were retired for cash (including accrued and unpaid dividends to, but excluding, the redemption date), pursuant to the terms of the Preferred Stock. As a result, we no longer have any shares of the 6% Convertible Exchangeable Preferred Stock outstanding. The total cash payment for the redemption of the Preferred Stock including the accrued and unpaid dividends was $17,306,000. We had a charge to earnings of approximately $1.371,000 in the first quarter of 2008 from the redemption of the Preferred Stock.

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