-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HIKfp32SSLbNfGv3zhWejqtXo4bcYNyePAsgZLlZA0hWqPo49MQoDOiWWG4uCh5m +9aSsEHnWLjk/whojRsUwg== 0000278041-97-000007.txt : 19970328 0000278041-97-000007.hdr.sgml : 19970328 ACCESSION NUMBER: 0000278041-97-000007 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970327 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERNATIONAL SHIPHOLDING CORP CENTRAL INDEX KEY: 0000278041 STANDARD INDUSTRIAL CLASSIFICATION: DEEP SEA FOREIGN TRANSPORTATION OF FREIGHT [4412] IRS NUMBER: 362989662 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-10852 FILM NUMBER: 97564188 BUSINESS ADDRESS: STREET 1: 650 POYDRAS ST STE 1700 CITY: NEW ORLEANS STATE: LA ZIP: 70130 BUSINESS PHONE: 5045295461 10-K405 1 1996 FORM 10-K 19 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-K (Mark One) X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1996 OR __TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period From _________ to _________ Commission File No. 2-63322 INTERNATIONAL SHIPHOLDING CORPORATION (Exact name of registrant as specified in its charter) Delaware 36-2989662 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 650 Poydras Street, New Orleans, Louisiana 70130 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (504) 529-5461 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered ---------------------------- ------------------------ Common Stock, $1 Par Value New York Stock Exchange 9% Senior Notes Due 2003 New York Stock Exchange Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ____ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X State the aggregate market value of the voting stock held by non-affiliates of the registrant. Date Amount ------- ----------- February 28, 1997 $81,830,893 Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. Common stock, $1 par value 6,682,887 shares outstanding as February 28, 1997 DOCUMENTS INCORPORATED BY REFERENCE Portions of the Annual Report to Shareholders for the fiscal year ended December 31, 1996, have been incorporated by reference into Parts I and II of this Form 10-K. Portions of the registrant's definitive proxy statement dated March 11, 1997 have been incorporated by reference into Part III of this Form 10-K.
INTERNATIONAL SHIPHOLDING CORPORATION FORM 10-K TABLE OF CONTENTS PAGE PART I. 2 ITEM 1. BUSINESS 2 General 2 History 4 Liner Services/Contracts of Affreighment 5 Military Sealift Command 6 Pure Car Carriers 8 Bulk Carrier 8 Float-On/Float-Off Special Purpose Vessels 9 Domestic Water Transportation Services 9 Ancillary Services 10 Marketing 10 Insurance 10 Regulation 11 Competition 14 Employees 15 ITEM 2. PROPERTIES 15 ITEM 3. LEGAL PROCEEDINGS 16 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 16 ITEM 4A. EXECUTIVE OFFERS AND DIRECTORS OF THE REGISTRANT 17 PART II. 19 ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS 19 ITEM 6. SELECTED FINANCIAL DATA 19 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 19 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 19 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 20 PART III. 20 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 20 ITEM 11. EXECUTIVE COMPENSATION 20 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 20 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 20 PART IV. 21 ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K 21 SIGNATURES 23 PART I ITEM 1. BUSINESS GENERAL The Company, through its subsidiaries, operates a diversified fleet of U. S. and international flag vessels that provide international and domestic maritime transportation services to commercial customers and agencies of the United States government primarily under medium- to long-term charters or contracts. The Company's fleet consists of 30 ocean-going vessels, 15 towboats, 129 river barges, 26 special purpose barges, approximately 1,850 LASH barges and related shoreside handling facilities. The Company's strategy is to (i) identify customers with marine transportation needs requiring specialized vessels or operating techniques; (ii) seek medium- to long-term charters or contracts with those customers and, if necessary, modify, acquire or construct vessels to meet the requirements of those charters or contracts and; (iii) secure financing for the vessels predicated primarily on those charter or contract arrangements. The Company believes that this strategy has produced valuable long-term relationships with its customers and stable operating cash flows. The Company is the only significant operator of the LASH (Lighter Aboard SHip) system, which it pioneered in 1969. The Company's LASH fleet includes 11 large LASH vessels, 4 LASH feeder vessels and approximately 1,850 LASH barges. In its liner services, the Company uses the LASH system primarily to gather cargo on rivers, in island chains and in harbors that are too shallow for traditional vessels and to transport to and from those areas large unit size items, such as forest products, natural rubber and steel, that cannot be transported efficiently in containerships. In addition, the LASH system enables barges to be rapidly loaded onto and unloaded from the large LASH vessels without shoreside support facilities while minimizing the number of times that the cargo is handled. Because the Company's LASH barges are used primarily to transport large unit size items, the Company's LASH fleet often has a competitive advantage over containerships. Additionally, because containerships and breakbulk vessels cannot operate in certain of the areas where the Company's LASH system operates, the Company often has a competitive advantage over such vessels. The Company also owns and operates the following: (i) two international flag and two U.S. flag pure car carriers specially designed to transport fully assembled automobiles; (ii) two U.S. flag ice-strengthened multi-purpose vessels; (iii) one international flag cape-size bulk carrier; (iv) one U.S. flag molten sulphur carrier, which is used to carry molten sulphur from Louisiana and/or Texas to a processing plant on the Florida Gulf Coast; (v) two international flag float-on/float-off special purpose vessels ("SPV"), which, together with 26 special purpose barges and one breakbulk/container vessel, are used to provide ocean transportation of supplies for the Indonesian operations of a major copper and gold mining company and; (vi) one U.S. flag conveyor-equipped self-unloading coal carrier which carries coal in the coastwise and near-sea trade. Three roll-on/roll-off vessels that permit rapid deployment of rolling stock, munitions and other military cargoes requiring special handling are also operated by the Company under long-term operating agreements. The Company also operates 14 inland waterway towboats and 111 super-jumbo river barges that transport coal from Indiana to Florida for an electric utility via shoreside unloading facilities owned and operated by the Company. Three of the super- jumbo river barges are owned by the Company. Through its principal operating subsidiaries, Central Gulf Lines, Inc. ("Central Gulf"), LCI Shipholdings, Inc. ("LCI"), Forest Lines Inc. ("Forest Lines") and Waterman Steamship Corporation ("Waterman"), the Company engages primarily in five types of services: (i) international flag LASH liner service between U. S. Gulf and East Coast ports and ports in northern Europe, and a U. S. flag LASH liner service between U. S. Gulf and East Coast ports and ports in South Asia, the Middle East and Northern Africa; (ii) time charters to and other contracts with the Military Sealift Command ("MSC") for use in its military prepositioning program and to service scientific operations in the Arctic and Antarctic; (iii) time charters to transport Toyota and Honda automobiles from Japan to the United States and Hyundai automobiles from Korea primarily to the United States and Europe; (iv) ocean transportation of supplies under long-term contract with a major copper and gold mining company for its operations in Indonesia and; (v) domestic transportation services, primarily involving its long-term coal and sulphur contracts and its ownership of an inter-modal transfer and warehouse facility in Memphis, Tennessee. The Company currently has time charters or contracts to carry cargoes for commercial customers that include International Paper Company, Freeport-McMoRan Resource Partners, P. T. Freeport Indonesia Company, The Goodyear Tire and Rubber Company, Toyota Motor Corporation, Honda Motor Co., Ltd., Hyundai Motor Company, Seminole Electric Cooperative, Inc. and New England Power Co. The Company operates eight vessels for the MSC under charters or contracts that typically contain options permitting the MSC to extend the charter or contract on similar terms and conditions for one or more extension periods. In most cases, the MSC has exercised its renewal options on the Company's charters or contracts, and the Company generally has been successful in winning charter or contract renewals when they are rebid. The Company's business historically has generated stable cash flows because most of its medium- to long-term charters provide for a daily charter rate that is owed whether or not the charterer utilizes the vessel (unless the vessel is unavailable for the charterer's use) and most of its medium- to long-term contracts guarantee a minimum amount of cargo for transportation. The Company is partially insulated from increases in certain operating expenses because time charters generally require the charterer to pay certain voyage operating costs such as fuel, port and stevedoring expenses, and often include cost escalation features covering certain of the expenses paid by the Company. HISTORY Central Gulf was founded in 1947 by the late Niels F. Johnsen and his sons, Niels W. Johnsen, the Company's current Chairman, and Erik F. Johnsen, its current President. Central Gulf was privately held until 1971 when it merged with Trans Union Corporation. In 1978, the Company was formed to act as a holding company for Central Gulf, LCI and certain other affiliated companies in connection with the 1979 spin-off by Trans Union of the Company's common stock to Trans Union's stockholders. In 1986, the Company acquired the assets of Forest Lines, and, in 1989, the Company acquired the ownership of Waterman. Since its spin-off from Trans Union, the Company has continued to act solely as a holding company, and its only significant assets consist of the capital stock of its subsidiaries. LINER SERVICES/CONTRACTS OF AFFREIGHTMENT INTERNATIONAL FLAG. Under the name "Forest Lines," the Company operates three international flag LASH vessels and a self- propelled, semi-submersible feeder vessel on a scheduled liner service. One of these LASH vessels was purchased and refurbished in 1996 and entered this service in early 1997. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources." Forest Lines normally makes 10 round trip sailings per LASH vessel per year between U. S. Gulf and East coast ports and ports in northern Europe. Historically, approximately one-half of the aggregate eastbound cargo space has been reserved for International Paper Company under a long-term contract of affreightment. The remaining space is provided on a voyage affreightment basis to commercial shippers. Approximately 10% has been used by other forest products exporters. The remaining approximately 40% has been used by various commercial shippers of a variety of general cargo. With the addition of the third ship to this service in early 1997, the total cargo space occupied by International Paper will now be approximately 33% because the amount of cargo shipped by International Paper will remain relatively constant. The Company has had ocean transportation contracts with International Paper since 1969 when the Company had two LASH ships built to accommodate International Paper's trade. The Company's contract of affreightment with International Paper is for the carriage of wood pulp, liner board and other forest products, the characteristics of which are well suited for transportation by LASH vessels. The LASH system minimizes damage to such cargo by reducing the number of times that the cargo is handled. In addition, the LASH system permits the Company to load and unload these products at the shipper's and the receiver's facilities, which are generally located on river systems that containerships and breakbulk vessels do not serve. The Company's current contract with International Paper is for a ten-year term ending in 2002. Over the years, the Company has established a base of commercial shippers to which it provides space on the westbound Forest Lines service. The principal cargoes carried westbound are steel and other metal products, high-grade paper and wood products, and other general cargo. Over the last five years, the westbound utilization rate for these vessels averaged approximately 85% per year. U. S. FLAG. Waterman's operating differential subsidy ("ODS") agreement with the U. S. Maritime Administration ("MarAd"), an agency of the Department of Transportation, under which the Company operates four U. S. flag vessels in a liner service that has historically made approximately 16 round trip voyages per year (four per vessel) between ports on the U.S. Gulf/U.S. Atlantic Coast and South Asia (Trade Routes 18 and 17), expires upon completion in early 1997 of voyages in progress as of December 31, 1996. Under this ODS agreement, the Company has received subsidy payments from the United States government approximating the excess of certain vessel expenses, primarily wages, over comparable costs of the Company's principal foreign flag competitors on the same trade routes. In 1996, the Company received approximately $25.6 Million under this ODS agreement. The Company also operates three FLASH vessels as feeder vessels in this service in Southeast Asia. The Maritime Security Act of 1996, which created the Maritime Security Program ("MSP") and provides for a new subsidy program for certain U.S. flag vessels, was signed into law in October of 1996. MSP eliminates the trade route restrictions imposed by the ODS program and will allow flexibility to operate freely in the competitive market. MSP provides for an annual subsidy payment of $2.1 Million per year per vessel subject to annual appropriations. Seven of the Company's vessels have qualified for MSP participation. See "Item 1. Business - Regulation" for a discussion of MSP. On the eastbound portion of this service, a significant part of each vessel's cargo traditionally has been shipped to lesser developed countries under the Public Law-480 program, pursuant to which the United States government sells or donates surplus food products for export to developing countries. Seventy-five percent of this cargo is reserved for carriage by U.S. flag vessels, if they are available at reasonable rates. Awards under the Public Law-480 program are made on a voyage-to-voyage basis through periodic competitive bidding. The remaining eastbound cargo consists of general cargo, including some military equipment. Over the last five years, these vessels generally have been fully utilized on their eastbound voyages. On the westbound portion of this service, the Company provides a significant portion of its cargo space to Goodyear for the transportation of natural rubber under a contract of affreightment expiring in June of 1997. Space is also provided on a voyage-to-voyage basis to other importers of natural rubber, including Uniroyal Goodrich Tire Co., Bridgestone/Firestone, Inc. and certain members of the Rubber Trade Association. The Company has had a continuing relationship with such companies and the Association since the early 1970s. The Company's LASH barges are ideally suited for large shipments of natural rubber because damage to rubber due to compression is minimal as compared to the damage that can occur when shipments are made in traditional breakbulk vessels. Waterman is the largest U.S. flag carrier of natural rubber from Southeast Asia to the United States. The remaining westbound cargo generally consists of coffee, jute, guar, piece goods and other general cargo. Over the last five years, these vessels generally have been fully utilized on their westbound voyages. MILITARY SEALIFT COMMAND GENERAL. The Company has had contracts with the MSC (or its predecessor) almost continuously for several decades. At the present time, the Company's subsidiaries have eight vessels under contract to the MSC. These vessels are employed in the MSC's prepositioning programs, which strategically place military cargo throughout the world, or are chartered to the MSC mainly to service military and scientific operations in the Arctic and Antarctic. The Company believes that the demand for military prepositioning vessels will at least remain steady during the near term, notwithstanding planned reductions in overall military spending for overseas bases, because this method of positioning military equipment and supplies is vital to the military's ability to respond quickly to international incidents throughout the world without incurring the significant costs of operating foreign bases, some of which also may not be available because of changing political situations. MSC charters and contracts are awarded through competitive bidding, for fixed terms with options allowing the MSC to extend the charters or contracts for additional periods. In most cases, the MSC has exercised its extension options, and the Company generally has been successful in winning renewals when the charters and contracts are rebid. All charters and contracts require the MSC to pay certain voyage operating costs such as fuel, port and stevedoring expenses, and certain charters and contracts include cost escalation features covering certain of the expenses paid by the Company. LASH VESSELS. The Company currently charters four U. S. flag LASH vessels to the MSC under time charters used in the military's Afloat Prepositioning Force in the Indian Ocean. Three of these charters began in 1996 and are each for 17 months with two 17-month option periods. These charters extend through May of 1999, September of 2000 and November of 2000, respectively. The fourth LASH vessel chartered to the MSC will begin a new charter upon the expiration of its current charter in May of 1997. The new charter, which is for 17-months, will extend through 2001, including two 17-month option periods. After these charters expire, it is anticipated that the MSC will invite rebidding for these contracts. ICE-STRENGTHENED MULTI-PURPOSE VESSELS. The Company owns and operates the only two U.S. flag ice-strengthened multi- purpose vessels. These vessels are capable of transporting containerized and breakbulk cargo. One of the vessels is being operated under a charter with the MSC that will expire in January of 1998. The vessel is being used by the MSC to resupply Pacific rim military bases and to supply scientific projects in the Arctic and Antarctic. The other vessel was operated under a charter with MSC until that charter expired in late 1995. The MSC did not exercise its option to renew the charter for an additional 17-month period at that time. However, a new charter with the MSC, which will commence in the third quarter of 1997, has since been awarded to this vessel. Until the commencement of the new charter, this vessel is being operated in the open market on a cargo offered basis. ROLL-ON/ROLL-OFF VESSELS. In 1983, Waterman was awarded a contract to operate three U. S. flag roll-on/roll-off vessels under time charters to the MSC for use by the United States Navy in its maritime prepositioning ship ("MPS") program. These vessels represent three of the four MPS vessels currently in the MSC's Atlantic fleet, which provides support for the U. S. Marine Corps. These ships are designed primarily to carry rolling stock and containers and can each carry support equipment for 17,000 military personnel. Waterman sold the three vessels to unaffiliated corporations shortly after being awarded the contract, but retained the right to operate the vessels under operating agreements. The MSC time charters commenced in late 1984 and early 1985 for initial five-year periods and were renewable at the MSC's option for additional five-year periods up to a maximum of twenty-five years. In 1993, the Company reached an agreement with MSC to make certain reductions in future charter hire payments in consideration of fixing the period of these charters for the full twenty-five years. The charters and related operating agreements will now terminate in the years 2009 and 2010. PURE CAR CARRIERS U. S. FLAG. In 1986, the Company entered into multi-year charters to carry Toyota and Honda automobiles from Japan to the United States. To service these charters, the Company had constructed two pure car carriers specially designed to carry 4,000 and 4,660 automobiles, respectively. Both vessels were built in Japan, but are registered under the U.S. flag, making them two of only four U.S. flag pure car carriers in the Japanese trade. To be competitive with foreign flag vessels operated by foreign crews, the Company worked in close cooperation with the unions representing the Company's U.S. citizen shipboard personnel. Service under these charters commenced in the fourth quarter of 1987. These charters are scheduled for renewal by the fourth quarter of 1997. These vessels began receiving MSP payments in December of 1996. See "Item 1. Business - Regulation" for a discussion of MSP. INTERNATIONAL FLAG. Since 1988, the Company has transported Hyundai automobiles from Korea primarily to the United States and Europe under two long-term charters. To service these charters, the Company had two new pure car carriers constructed by a shipyard affiliated with Hyundai. Each of the vessels has a carrying capacity of 4,800 automobiles. Under each of the car carrier charters, the charterers are responsible for voyage operating costs such as fuel, port and stevedoring expenses, while the Company is responsible for other operating expenses including crew wages, repairs and insurance. The Hyundai charters also include escalation features covering certain of the expenses paid by the Company. During the terms of these charters, the Company is entitled to its full fee irrespective of the number of voyages completed or the number of cars carried per voyage. BULK CARRIER In 1990, the Company acquired a 148,000 dwt cape size dry bulk carrier. The vessel has since been fully employed under various charters in specific trading areas where bulk cargoes move on a regular basis. FLOAT-ON/FLOAT-OFF SPECIAL PURPOSE VESSELS During 1994, the Company entered into a long-term contract to provide ocean transportation services to a major mining company producing copper concentrates at its mine in West Irian Jaya, Indonesia. The Company acquired two SPV's and one container/breakbulk vessel and had 26 cargo barges constructed by shipyards in the Orient to be used with the aforementioned vessels. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources." DOMESTIC WATER TRANSPORTATION SERVICES COAL. In 1981, the Company entered into a 22-year contract expiring in 2004 with a Florida based rural electric generation and transmission cooperative for the transportation of coal from Mt. Vernon, Indiana, to Gulf County, Florida. Under this contract, which was awarded pursuant to competitive bidding, the Company is annually guaranteed a minimum of 2.7 Million tons of coal to be transported by inland waterways through its operation of 14 chartered towboats, 108 chartered super-jumbo river barges and three such barges that it owns. Under this contract, the Company typically has transported 3.0 Million tons of coal per year. To protect both parties against cost variations, the contract contains escalation and de-escalation clauses designed to adjust the contract price for fluctuations in fuel costs, wages and other operating expenses. The Company is also responsible for unloading the barges at the discharge point in Gulf County, Florida, and transferring the coal into railcars. To facilitate this process, the Company owns and operates an automated terminal facility. The terminal can be operated by relatively few employees and is capable of loading and unloading three times the amount of coal currently transported through the facility under the contract. In late 1995, the Company purchased an existing U.S. flag conveyor-equipped, self-unloading coal carrier which it concurrently chartered to a New England based electric utility under a 15-year contract to carry coal in the coastwise and near- sea trade. The ship will also be used, from time to time during this charter period, to carry coal and other bulk commodities for account of other major charterers. MOLTEN SULPHUR. In 1994, the Company entered into a 15-year transportation contract with an affiliate of a major sulphur producer for which it had built a 24,000 deadweight ton molten sulphur carrier that carries molten sulphur from Louisiana and/or Texas to a fertilizer plant on the Florida Gulf Coast. Under the terms of this contract, the Company is guaranteed the transportation of a minimum of 1.8 Million tons of sulphur per year. The contract also gives the charterer three five-year renewal options. The vessel delivered and began service during late 1994. LITCO FACILITY. During 1991, the Company entered into an agreement with Cooper/T. Smith Stevedoring pursuant to which the Company acquired a 50% interest in a newly constructed, all weather rapid cargo transfer facility at the river port of Memphis, Tennessee, for handling LASH barges transported by subsidiaries of the Company in its LASH liner services. LITCO (LASH Intermodal Terminal COmpany) began operations in May of 1992 and provides 287,500 square feet of enclosed warehouse and loading/discharging stations for LASH barge, rail, truck and heavy-lift operations. In June of 1993, the Company purchased the remaining 50% interest from Cooper/T. Smith Stevedoring, which will continue to manage the facility under a management agreement with the Company. ANCILLARY SERVICES The Company has several subsidiaries providing ship charter brokerage, agency, barge fleeting and other specialized services to the Company's subsidiaries and, in the case of ship charter brokerage and agency services, to unaffiliated companies. The income produced by these services substantially covers the related overhead expenses. These services facilitate the Company's operations by allowing it to avoid reliance on third parties to provide these essential shipping services. MARKETING The Company maintains marketing staffs in Washington, D. C., New York, New Orleans, Houston, Chicago, Baltimore, Oakland, Rotterdam and Singapore and maintains a network of marketing agents in major cities around the world who market the Company's liner, charter and contract services. The Company markets its Trans-Atlantic LASH liner service under the trade name "Forest Lines," and its LASH liner service between the U. S. Gulf and Atlantic coast ports and South Asia ports under the Waterman house flag. The Company advertises its services in trade publications in the United States and abroad. INSURANCE The Company maintains protection and indemnity ("P&I") insurance to cover liabilities arising out of the ownership or operation of vessels with Assuranceforeningen GARD and the Standard Steamship Owners' Protection & Indemnity Association (Bermuda) Ltd., which are mutual shipowners' insurance organizations commonly referred to as P&I clubs. Both clubs are participants in and subject to the rules of their respective international group of P&I associations. The premium terms and conditions of the P&I coverage provided to the Company are governed by the rules of each club. The Company maintains hull and machinery insurance policies on each of its vessels in amounts related to the value of each vessel. This insurance coverage, which includes increased value, freight and time charter hire, is maintained with a syndicate of hull underwriters from the United States, British, French and Scandinavian insurance markets. The Company maintains war risk insurance on each of the Company's vessels in an amount equal to each vessel's total insured hull value. War risk insurance is placed through U.S., British, French and Scandinavian insurance markets and covers physical damage to the vessels and P&I risks for which coverage would be excluded by reason of war exclusions under either the hull policies or the rules of the applicable P&I club. The Company also maintains loss of hire insurance with U.S., British, French and Scandinavian markets to cover its loss of revenue in the event that a vessel is unable to operate for a certain period of time due to loss or damage arising from the perils covered by the hull and machinery policy. Insurance coverage for shoreside property, shipboard consumables and inventory, spare parts, workers' compensation, office contents, and general liability risks are maintained with underwriters in the United States and British markets. The Company also carries insurance to meet certain liabilities that could arise from the discharge of oil or hazardous substances in U.S., international and foreign waters. Insurance premiums for the coverage described above vary from year to year depending upon the Company's loss record and market conditions. In order to reduce premiums, the Company maintains certain deductible and co-insurance provisions that it believes are prudent and generally consistent with those maintained by other shipping companies and in recent years has increased the self-retention portion under its insurance program while capping its self-retention exposure under stop-loss insurance coverage. REGULATION The Company's operations between the United States and foreign countries are subject to the Shipping Act of 1916 (the "Shipping Act"), which is administered by the Federal Maritime Commission, and certain provisions of the Federal Water Pollution Control Act, the Oil Pollution Act of 1990 and the Comprehensive Environmental Response Compensation and Liability Act, all of which are administered by the U. S. Coast Guard, and certain other international, federal, state and local laws and regulations, including international conventions and laws and regulations of the flag nations of its vessels. Pursuant to the requirements of the Shipping Act, the Company has on file with the Federal Maritime Commission tariffs reflecting the outbound and inbound rates currently charged by the Company to transport cargo between the United States and foreign countries as a common carrier. These tariffs are filed by the Company either individually or in connection with its participation as a member of rate or conference agreements, which are agreements that (upon becoming effective following filing with the Federal Maritime Commission) permit the members to agree concertedly upon rates and practices relating to the carriage of goods in U. S. and foreign ocean commerce. Tariffs filed by a company unilaterally or collectively under rate or conference agreements are subject to Federal Maritime Commission approval. Once a rate or conference agreement is filed, rates may be changed in response to market conditions on 30 days' notice, with respect to a rate increase, and one day's notice, with respect to a rate decrease. The Merchant Marine Act of 1936, as amended (the "Merchant Marine Act"), authorizes the Federal government to pay an operating differential subsidy to U. S. flag vessels employed in the foreign trade of the United States. Under the operating differential subsidy program, MarAd is authorized to pay qualified U.S. flag operators (i) the differential between U. S. and foreign crew wage costs and (ii) the differential between U.S. and foreign costs of protection and indemnity insurance, hull and machinery insurance, and maintenance and repairs not compensated by insurance, so that U.S. ships can compete on an equal footing with their lower-cost foreign competitors. To qualify for the subsidy, vessels must be built in the United States, documented under the U.S. flag and be at least 75% owned by U.S. citizens. Under subsidy contracts, which are typically 20 years in length, operators provide service on "essential trade routes" as determined by MarAd. The typical subsidized operator is required to employ its vessels between a stated minimum and maximum number of sailings each year. Waterman's operating differential subsidy contract expires upon completion, in early 1997, of voyages in progress at December 31, 1996. Currently, four other liner operators and nine bulk carrier operators hold operating differential subsidy contracts for a total of 21 liner and 21 bulk ships. Total U.S. governmental subsidy appropriations for the fiscal year ended September 30, 1996, were $163 Million, and $148.4 Million has been appropriated for the fiscal year ending September 30, 1997. Approximately 85% of the aggregate subsidy is paid to offset crew wage differentials. Since 1981, the Federal government has entered into no new operating differential subsidy contracts. In 1991, the Bush administration announced that current contracts would be honored, but no new subsidy contracts would be entered into as the old contracts expire. The Clinton administration has continued this policy. However, on October 8, 1996, President Clinton signed into law the Maritime Security Act of 1996 which created the Maritime Security Program ("MSP") and authorized the payment of $2.1 Million per year per ship for 47 U.S. flag ships through fiscal year 2005. Congress has appropriated a total of $100 Million to date for the MSP. On December 20, 1996, Waterman entered into MSP contracts with MarAd for each of its four LASH vessels currently operating under operating differential subsidy contracts, and Central Gulf entered into MSP contracts with MarAd for each of its two car carriers and one of its LASH vessels currently on charter to the MSC. Waterman's vessels are transitioning into the MSP in 1997 as voyages in progress on December 31, 1996, are terminated. Central Gulf's two car carriers commenced immediate operation in the MSP on December 20, 1996. Central Gulf's LASH vessel that was accepted into the MSP remains on charter to the MSC and would only begin receiving MSP payments upon the termination of its MSC charter. By law, the MSP is subject to annual appropriations. In the event that sufficient appropriations are not made for the MSP by Congress in any fiscal year, the Maritime Security Act permits MSP contractors, such as Waterman and Central Gulf, expeditiously to re-flag their vessels under foreign registry. Seven of the Company's U.S. flag LASH vessels were constructed with the aid of construction differential subsidies and Title XI loan guarantees administered by MarAd, the receipt of which obligates the Company to comply with various dividend and other financial restrictions. Vessels constructed with the aid of construction differential subsidies may not be operated in domestic coastwise trade or domestic trade with Hawaii, Puerto Rico or Alaska without the permission of MarAd and without repayment of the construction differential subsidy under a formula established by law. Recipients of Title XI loan guarantees must pay an annual fee of up to 1% of the loan amount. Under the Merchant Marine Act, U.S. flag vessels are subject to requisition or charter by the United States whenever the President declares that the national security requires such action. The owners of any such vessels must receive just compensation as provided in the Merchant Marine Act, but there is no assurance that lost profits, if any, will be fully recovered. In addition, during any extension period under each MSC charter or contract, the MSC has the right to terminate the charter or contract on 30 days' notice. However, the MSC has never exercised such termination right with respect to the Company. Certain of the Company's operations, including its carriage of U.S. foreign aid cargoes, as well as the Company's coal and molten sulphur transportation contracts and its Title XI financing arrangements, require the Company to be as much as 75% owned by U.S. citizens. The Company monitors its stock ownership to verify its continuing compliance with these requirements and has never had more than 1% of its common stock held of record by non-U.S. citizens. At the Company's annual meeting of shareholders in April of 1996, the shareholders voted for an amendment to the Company's charter and stock transfer procedures to limit the acquisition of its common stock by non-U.S. citizens. The Company is required by various governmental and quasi- governmental agencies to obtain permits, licenses and certificates with respect to its vessels. The kinds of permits, licenses and certificates required depend upon such factors as the country of registry, the commodity transported, the waters in which the vessel operates, the nationality of the vessel's crew, the age of the vessel and the status of the Company as owner or charterer. The Company believes that it has, or can readily obtain, all permits, licenses and certificates necessary to permit its vessels to operate. COMPETITION The shipping industry is intensely competitive and is influenced by events largely outside the control of shipping companies. Varying economic factors can cause wide swings in freight rates and sudden shifts in traffic patterns. Vessel redeployments and new vessel construction can lead to an overcapacity of vessels offering the same service or operating in the same market. Changes in the political or regulatory environment can also create competition that is not necessarily based on normal considerations of profit and loss. The Company's strategy is to reduce competitive pressures and the effects of cyclical market conditions by operating specialized vessels in identifiable market segments and deploying a substantial number of its vessels under medium- to long-term charters or contracts and on trade routes where it has established market shares. The Company also seeks to compete effectively in the traditional areas of price, reliability and timeliness of service. Competition principally comes from numerous breakbulk vessels and, occasionally, containerships. Much of the Company's revenue is generated by contracts with the MSC and contracts to transport Public Law-480 U.S. government- sponsored cargo, a cargo preference program requiring that 75% of all foreign aid "Food for Peace" cargo must be transported on U.S. flag vessels, if they are available at reasonable rates. The Company competes with all U.S. flag companies, including Overseas Shipholding Group, Inc., OMI Corporation, Marine Transport Lines, Inc., Farrell Lines, Inc., Lykes Brothers Steamship Company, Sea-Land Service, Inc. and American President Lines, Inc. for the MSC work and the Public Law-480 cargo. Additionally, the Company's principal foreign competitors include Hoegh Lines, Star Shipping, Wilhelmsen Lines and the Shipping Corporation of India. The Company's LASH liner services face competition from foreign flag liner operators and, to a lesser degree, from U. S. flag liner operators, including those receiving operating differential subsidies. In addition, during periods in which the Company participates in conference agreements or rate agreements, competition includes other participants with whom the Company may agree to charge the same rates and non-participants charging lower rates. Because the Company's LASH barges are used primarily to transport large unit size items, such as forest products, natural rubber and steel, that cannot be transported as efficiently in containerships, the Company's LASH fleet often has a competitive advantage over these vessels for this type of cargo. In addition, the Company believes that the ability of its LASH system to operate in shallow harbors and river systems and its specialized knowledge of these harbors and river systems give it a competitive advantage over operators of containerships and breakbulk vessels, which are too large to operate in these areas. The Company's pure car carriers operate worldwide in markets where foreign flag vessels with foreign crews predominate. The Company believes that its U.S. flag pure car carriers can continue to compete effectively if it continues to receive the cooperation of its seamen's unions in controlling costs. EMPLOYEES The Company employs approximately 452 shipboard personnel and 395 shoreside personnel. The Company considers relations with its employees to be excellent. All of the Company's U.S. shipboard personnel and certain shoreside personnel are covered by collective bargaining agreements. Central Gulf, Waterman and other U.S. shipping companies are subject to collective bargaining agreements for shipboard personnel in which the shipping companies servicing U.S. Gulf and East coast ports also must make contributions to pension plans for dockside workers. The Employee Retirement Income Security Act of 1974, as amended, provides for liabilities for withdrawal from a multi-employer pension plan if an employer reduces its operations below a minimum level. It is possible that the failure or withdrawal of any shipping company employer may cause other employers (such as the Company) to increase their plan contributions or result in additional potential liability. The Company has experienced no strikes or other significant labor problems during the last ten years. ITEM 2. PROPERTIES VESSELS AND BARGES. Of the 30 ocean-going vessels in the Company's fleet, 27 are owned by the Company and three are operated under operating contracts. Of approximately 1,850 LASH barges in the Company's fleet, approximately 1,763 are operated in conjunction with the Company's LASH and FLASH vessels. Of these, the Company owns approximately 1,443 barges and leases 320 barges under capital leases with 12-year terms expiring in late 2003 and early 2004. The remaining 87 LASH barges owned by the Company are not required for current vessel operations. All of the Company's barges are registered under the U.S. flag. The Company time charters-in 108 super-jumbo river barges (and owns three such barges) and 14 towboats specially built to meet the requirements of the Company's coal transportation contract. The Company also owns 18 standard river barges chartered to unaffiliated companies on a short-term basis and one towboat currently operated on the spot market. All of the vessels owned, operated or leased by the Company are in good condition except for the aforementioned 87 LASH barges not required for current vessel operations. Since 1988, the Company has completed life extension work on eight LASH vessels and completed the refurbishment of the LASH barges operated with those vessels. Under governmental regulations, insurance policies and certain of the Company's financing agreements and charters, the Company is required to maintain its vessels in accordance with standards of seaworthiness, safety and health prescribed by governmental regulations or promulgated by certain vessel classification societies. The Company is also in the process of implementing the Quality and Safety Management program mandated by the International Maritime Organization. Vessels in the fleet are maintained in accordance with governmental regulations and the highest classification standards of the American Bureau of Shipping or, for certain vessels registered overseas, of Norwegian Veritas or Lloyds Register classification societies. Certain of the vessels and barges owned by the Company's subsidiaries are mortgaged to various lenders to secure such subsidiaries' long-term debt. See Note B of the Notes to the Company's Consolidated Financial Statements included elsewhere herein. OTHER PROPERTIES. The Company leases its corporate headquarters in New Orleans, its administrative and sales office in New York and office space in Houston, Chicago, Oakland, Washington, D. C. and Singapore. The Company also leases space in St. Charles and Orleans Parishes, Louisiana, for the fleeting of barges. Additionally, the Company leases a terminal in Memphis, Tennessee, that is a totally enclosed multi-modal cargo transfer facility. In 1996, the aggregate annual rental payments under these operating leases were approximately $2.5 Million. The Company owns two separate facilities in St. Charles Parish, Louisiana, and one facility in Jefferson Parish, Louisiana, that are used primarily for the storage and fleeting of barges. The Company also owns a terminal in Gulf County, Florida, that is used in its coal transportation contract. ITEM 3. LEGAL PROCEEDINGS In the normal course of its operations, the Company becomes involved in various litigation matters including, among other things, claims by third parties for alleged property damages, personal injuries and other matters. While the Company believes it has meritorious defenses against these claims, management has used significant estimates in determining the Company's potential exposure. See Note F of the Notes to the Company's Consolidated Financial Statements included elsewhere herein. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 4a. EXECUTIVE OFFICERS AND DIRECTORS OF THE REGISTRANT Set forth below is information concerning the directors and executive officers of the Company. Directors are elected by the shareholders for one year terms. Executive officers serve at the pleasure of the Board of Directors.
Name Current Position -------- ----------------------- Niels W. Johnsen Chairman and Chief Executive Officer Erik F. Johnsen President, Chief Operating Officer and Director Harold S. Grehan, Jr. Vice President and Director Niels M. Johnsen Vice President and Director Erik L. Johnsen Vice President and Director Gary L. Ferguson Vice President and Chief Financial Officer David B. Drake Vice President and Treasurer Manuel G. Estrada Vice President and Controller Laurance Eustis Director Raymond V. O'Brien, Jr. Director Edwin Lupberger Director Edward K. Trowbridge Director
Niels W. Johnsen, 74, has been the Chairman and Chief Executive Officer of the Company since its commencement of operations in 1979 and is also Chairman and Chief Executive Officer of each of the Company's principal subsidiaries. He previously served as Chairman of Trans Union Corporation's ocean shipping group of companies from December of 1971 through May of 1979. He was one of the founders of Central Gulf in 1947 and held various positions with Central Gulf until Trans Union acquired Central Gulf in 1971. He is also a director of Reserve Fund, Inc., a money market fund. Erik F. Johnsen, 71, has been the President, Chief Operating Officer and Director of the Company since its commencement of operations in 1979 and is also the President and Chief Operating Officer of each of the Company's principal subsidiaries except Waterman for which he serves as Chairman of the Executive Committee. Along with his brother, Niels W. Johnsen, he was one of the founders of Central Gulf in 1947 and has served as its President since 1966. Mr. Johnsen is also a director of First Commerce Corporation, a bank holding company. Harold S. Grehan, Jr., 69, is Vice President of the Company. He joined Central Gulf in 1958 and became Vice President in 1959, Senior Vice President in 1973 and Executive Vice President and Director in 1979. He participated in the development of the Company's LASH program and has direct responsibility for conventional and LASH vessel traffic movements. Niels M. Johnsen, 51, is Vice President of the Company. Mr. Johnsen has served as a Director of the Company since April of 1988. He joined Central Gulf on a full time basis in 1970 and held various positions with the Company before being named Vice President in 1986. He is also President of Waterman Steamship Corporation and N. W. Johnsen & Co., Inc., subsidiaries of the Company engaged in LASH liner service and ship and cargo charter brokerage, respectively. He is the son of Niels W. Johnsen. Erik L. Johnsen, 39, is Vice President of the Company. He joined Central Gulf in 1979 and held various positions with the Company before being named Vice President in 1987. He has served as a Director of the Company since 1994. He is responsible for all operations of the Company's vessel fleet and leads the Company's Ship Management Group. He is also President of Sulphur Carriers, Inc., a wholly-owned subsidiary of the Company. He is the son of Erik F. Johnsen. Gary L. Ferguson, 56, is Vice President and Chief Financial Officer of the Company. He joined Central Gulf in 1968 where he held various positions with the Company prior to being named Controller in 1977, and Vice President and Chief Financial Officer in 1989. David B. Drake, 41, is Vice President and Treasurer of the Company. He joined Central Gulf in 1979 and held various positions prior to being named Vice President and Treasurer in 1996. Manuel G. Estrada, 42, is Vice President and Controller of the Company. He joined Central Gulf in 1978 and held various positions prior to being named Vice President and Controller in 1996. Laurance Eustis, 83, has served as a Director of the Company since 1979. He is the Chairman of the Board of Eustis Insurance, Inc., mortgage banking and general insurance, located in New Orleans, Louisiana. Mr. Eustis is also a director of First Commerce Corporation, a bank holding company, and Pan American Life Insurance Company. Raymond V. O'Brien, Jr., 69, has served as a Director of the Company since 1979. He is also a director of Emigrant Savings Bank. He served as Chairman of the Board and Chief Executive Officer of the Emigrant Savings Bank from January of 1978 through December of 1992. Edwin Lupberger, 60, has served as a Director of the Company since April of 1988. Mr. Lupberger is the Chairman of the Board, Chief Executive Officer and Director of Entergy Corporation and its wholly-owned subsidiaries. He also is a director of First Commerce Corporation, a bank holding company. Edward K. Trowbridge, 68, has served as a Director of the Company since April of 1994. He served as Chairman of the Board and Chief Executive Officer of the Atlantic Mutual Companies from July of 1988 through November of 1993. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS The information called for by Item 5 is included in the 1996 Annual Report to Shareholders in the section entitled "Common Stock Prices and Dividends for Each Quarterly Period of 1995 and 1996" and is incorporated herein by reference to page 23 of Exhibit 13 filed with this Form 10-K. ITEM 6. SELECTED FINANCIAL DATA The information called for by Item 6 is included in the 1996 Annual Report to Shareholders in the section entitled "Summary of Selected Consolidated Financial Data" and is incorporated herein by reference to page 1 of Exhibit 13 filed with this Form 10-K. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information called for by Item 7 is included in the 1996 Annual Report to Shareholders in the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and is incorporated herein by reference to pages 7 through 9 of Exhibit 13 filed with this Form 10-K. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated balance sheets as of December 31, 1996, and December 31, 1995, and the related consolidated statements of income, changes in stockholders' investment and cash flows for each of the three years in the period ended December 31, 1996, are included in the 1996 Annual Report to the Shareholders and are incorporated herein by reference to pages 10 through 14 of Exhibit 13 filed with this Form 10-K. Such statements have been audited by Arthur Andersen LLP, independent public accountants, as set forth in their report included in such Annual Report and incorporated herein by reference to page 24 of Exhibit 13 filed with this Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information called for by Item 10 is incorporated herein by reference to Item 4a, Executive Officers and Directors of the Registrant. ITEM 11. EXECUTIVE COMPENSATION The information called for by Item 11 is included on pages 6, 7 and 8 of the Company's definitive proxy statement dated March 11, 1997, filed pursuant to Section 14(a) of the Securities Exchange Act of 1934, and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information called for by Item 12 is included on pages 2, 3, 4 and 5 of the Company's definitive proxy statement dated March 11, 1997, filed pursuant to Section 14(a) of the Securities Exchange Act of 1934, and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information called for by Item 13 is included on pages 2, 3, 4, 5 and 8 of the Company's definitive proxy statement dated March 11, 1997, filed pursuant to Section 14(a) of the Securities Exchange Act of 1934, and is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K The following financial statements, schedules and exhibits are filed as part of this report: (a) 1. Financial Statements --------------------- The following financial statements and related notes are included in the Company's 1996 Annual Report to Shareholders and are incorporated herein by reference to pages 10 through 24 of Exhibit 13 filed with this Form10-K. Consolidated Balance Sheets at December 31, 1996 and 1995 Consolidated Statements of Income for the years ended December 31, 1996, 1995 and 1994 Consolidated Statements of Changes in Stockholders' Investment for the years ended December 31, 1996, 1995 and 1994 Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994 Notes to Consolidated Financial Statements Report of Independent Public Accountants 2. Financial Statement Schedules ----------------------------- None. 3. Exhibits -------- (3) Restated Certificate of Incorporation, as amended, and By-Laws of the Registrant (filed with the Securities and Exchange Commission as Exhibit 3 to the Registrant's Form 10-Q for the quarterly period ended June 30, 1996, and incorporated herein by reference) (4) Specimen of Common Stock Certificate (filed as an exhibit to the Company's Form 8-A filed with the Securities and Exchange Commission on April 25, 1980, and incorporated herein by reference) (4.1) Form of Indenture between the Company and the Bank of New York, as Trustee, with respect to 9% Senior Notes due July 1, 2003 (filed as Exhibit 4(c) to Amendment No. 1 to the Company's Registration Statement on Form S-2 (Registration No. 33-62168) and incorporated herein by reference). (4.2) Form of 9% Senior Note due July 1, 2003 (included in Exhibit (4.1) hereto and incorporated herein by reference). (13) 1996 Annual Report to Shareholders (21) Subsidiaries of International Shipholding Corporation (27) Financial Data Schedule (b) No reports on Form 8-K were filed for the three months ended December 31, 1996. (c) The Index of Exhibits and required Exhibits are included following the signatures beginning at page 25 of this Report. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. INTERNATIONAL SHIPHOLDING CORPORATION (Registrant) /S/ Gary L. Ferguson March 26, 1997 By ______________________________ Gary L. Ferguson Vice President and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. INTERNATIONAL SHIPHOLDING CORPORATION (Registrant) /S/ Niels W. Johnsen March 26, 1997 By ____________________________ Niels W. Johnsen Chairman of the Board, Director and Chief Executive Officer /S/ Erik F. Johnsen March 26, 1997 By _____________________________ Erik F. Johnsen President and Director /S/ Harold S. Grehan, Jr. March 26, 1997 By _____________________________ Harold S. Grehan, Jr. Vice President and Director /S/ Niels M. Johnsen March 26, 1997 By ___________________________ Niels M. Johnsen Vice President and Director /S/ Erik L. Johnsen March 26, 1997 By ____________________________ Erik L. Johnsen Vice President and Director /S/ Laurance Eustis March 26, 1997 By __________________________ Laurance Eustis Director /S/ Raymond V. O'Brien, Jr. March 26, 1997 By ___________________________ Raymond V. O'Brien, Jr. Director /S/ Edwin Lupberger March 26, 1997 By __________________________ Edwin Lupberger Director /S/ Edward K. Trowbridge March 26, 1997 By ____________________________ Edward K. Trowbridge Director /S/ Gary L. Ferguson March 26, 1997 By ____________________________ Gary L. Ferguson Vice President and Chief Financial Officer /S/ Manny G. Estrada March 26, 1997 By _____________________________ Manny G. Estrada Chief Accounting Officer INTERNATIONAL SHIPHOLDING CORPORATION EXHIBIT INDEX
Page Exhibit Number - --------- ----------- (3) Restated Certificate of Incorporation, as amended, and By-Laws of the Registrant (filed with the Securities and Exchange Commission as Exhibit 3 to the Registrant's Form 10-Q for the quarterly period ended June 30, 1996, and incorporated herein by reference) -- (4) Specimen of Common Stock certificate (filed as an exhibit to the Company's Form 8-A filed with the Securities and Exchange Commission on April 25, 1980, and incorporated herein by reference) -- (4.1) Form of Indenture between the Company and the Bank of New York, as Trustee,with respect to 9% Senior Notes due July 1, 2003 (filed as Exhibit 4(c) to Amendment No. 1 to the Company's Registration Statement on Form S-2 (Registration No. 33-62168) and incorporated herein by reference) -- (4.2) Form of 9% Senior Note due July 1, 2003 (included in Exhibit (4.1) hereto and incorporated herein by reference) -- (13) 1996 Annual Report to Shareholders -- (21) Subsidiaries of International Shipholding Corporation -- (27) Financial Data Schedule --
EX-13 2 1996 ANNUAL REPORT TO SHAREHOLDERS INTERNATIONAL SHIPHOLDING CORPORATION CONSISTENT OPERATING RESULTS ($ In Millions)
OPERATING YEAR EBITDA* INCOME - -------- ------------ -------------- 1992 75.2 30.9 1993 81.2 36.5 1994 79.5 37.9 1995 81.9 37.9 1996 94.9 40.7
SUMMARY OF SELECTED CONSOLIDATED FINANCIAL DATA The following summary of selected consolidated financial data is not covered by the auditors' report appearing elsewhere herein. However, in the opinion of management, the summary of selected consolidated financial data includes all adjustments necessary for a fair representation of each of the years presented. This summary should be read in conjunction with the consolidated financial statements and the notes thereto appearing elsewhere in this annual report.
(All Amounts in Thousands Except Share and Per Share Data) Year Ended December 31, 1996 1995 1994 1993 1992 ________ ________ ________ ________ ________ INCOME STATEMENT DATA: Revenues $378,927 $341,789 $342,333 $341,651 $324,608 Gross Voyage Profits $ 66,948 $ 64,536 $ 65,315 $ 64,318 $ 57,581 Operating Income $ 40,692 $ 37,921 $ 37,861 $ 36,486 $ 30,935 Income Before Extraordinary Item and Cumulative Effect of Accounting Change $ 8,636 $ 20,980 $ 13,051 $ 7,645 $ 6,499 Extraordinary Item $ (813) - - $ (1,716) - Cumulative Effect of Accounting Change - - - - $ (3,218) Net Income $ 7,823 $ 20,980 $ 13,051 $ 5,929 $ 3,281 Earnings Per Common and Common Equivalent Shares(1): Before Extraordinary Item and Cumulative Effect of Accounting Change $ 1.29 $ 3.14 $ 1.95 $ 1.01 $ 0.77 Extraordinary Item $ (0.12) - - $ (0.26 ) - Cumulative Effect of Accounting Change - - - - $ (0.50) Net Income $ 1.17 $ 3.14 $ 1.95 $ 0.75 $ 0.27 *EBITDA(2) $ 94,929 $ 81,877 $ 79,482 $ 81,166 $ 75,209 BALANCE SHEET DATA: Working Capital $ 26,928 $ 13,407 $ 16,819 $ 17,649 $ 7,920 Total Assets $661,596 $647,580 $547,091 $531,372 $519,963 Long -Term Debt (including Capital Lease Obligations) $317,076 $289,495 $251,944 $240,132 $231,148 Redeemable Preferred Stock - - - - $ 13,548 Common Stockholders' Investment $172,407 $166,261 $146,316 $134,497 $124,004 OTHER DATA: Cash Dividends Per Common Share(1) $ 0.25 $ 0.1825 $ 0.16 $ 0.16 $ 0.16 Weighted Average of Common and Common Equivalent Shares(1)6,682,887 6,682,887 6,682,887 6,525,259 6,423,583
[FN] (1) All per share and share data have been restated for the November 17, 1995, twenty-five percent stock dividend. (2) EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization), as presented above, represents income before provision for income taxes, extraordinary items, and cumulative effect of the change in accounting principle plus depreciation, amortization of deferred charges and acquired contract costs, interest expense, and gains (losses) on sales of property and investments. EBITDA should not be considered as an alternative to net income as an indicator of the Company's operating performance or as an alternative to cash flows which is a better measure of liquidity. TO THE SHAREHOLDERS Net profit for the fourth quarter ended December 31, 1996, was $1.650 Million (24 cents per share) before an extraordinary after-tax charge of $813,000 (12 cents per share) for payment of a makewhole premium to refinance higher interest rate Notes. The makewhole premium will be offset by lower interest cost on the amount refinanced over the next four to five years. Comparatively, net profit in the fourth quarter of 1995 was $14.845 Million ($2.23 per share) which included an after tax gain of $11.3 Million ($1.69 per share) on the sale of our 8% interest in Havtor A/S as reported last year. For the twelve months ended December 31, 1996, net profit was $7.823 Million ($1.17 per share) after the aforementioned charge for the makewhole premium compared with a net profit for the twelve months ended December 31, 1995, of $20.980 Million ($3.14 per share after restatement for the 25% stock dividend) including the aforementioned gain of $11.3 Million. Our operating income for the year ended December 31, 1996, was $40.692 Million compared to $37.921 Million for the year ended December 31, 1995. However, our operating results for 1996 were reduced because of a damage claim against our insurance subsidiary as a result of a propeller shaft casualty sustained by one of the vessels in the Waterman service. In addition to the self-insured portion of the cost of repairs, the ship was out of service for approximately two months. Operating income was also reduced because other ships were out of service for more days in 1996 than the previous year. We lost a total of 271 ship days in 1996 to scheduled drydockings of nine vessels plus the two months of time lost on the Waterman vessel repairing the damaged propeller shaft. Net profit in 1996 was also impacted by higher depreciation charges and higher net interest costs because new assets were added and financed during the year. Over the two years 1995 and 1996, we invested a total of $184.8 Million in these additions to our fleet by adding new debt of $115.1 Million and using $69.7 Million from internal corporate sources. As is the case with most of our previous investments, these new assets are primarily employed on firm contracts with customers of prime credit enabling us to amortize most of the cost of the investment over the life of the contracts as well as produce satisfactory profits. Overall, as we amortize our current book of business, we expect our net interest cost to decline at the annual rate of about $4.0 Million to $5.0 Million per year. Our challenge is to continue our efforts to reduce administrative and general expenses and add new projects that meet our investment criteria. Forest Lines Trans-Atlantic LASH service results were down from last year because both vessels were out of service for a total of fifty-eight days for scheduled drydocking. As previously reported, we acquired the eleventh LASH vessel, built in 1984, for our fleet, renamed "ATLANTIC FOREST," to be added as the third vessel to this service. Her outfitting and refurbishment in a Far East shipyard took somewhat longer than expected which delayed entry into the Trans-Atlantic service until the end of January, 1997. Waterman LASH service between U. S. Gulf and Atlantic ports and South Asia had improved results in 1996 over a poor year in 1995. This service begins the new year with a revised government assistance program. The past Operating Differential Subsidy ("ODS") contract is expiring for the four Waterman vessels upon completion of their current voyages, at which time the new program enacted as HR 1350, the "Maritime Security Act of 1996", will become effective. The new annual U. S. Government payments of $2.1 Million per year per vessel will only partially replace the expiring ODS payments; but, we are negotiating crew reductions, crew wage reductions, and other operating cost savings in order to make Waterman competitive in this service. Our four LASH vessels on charter to the Military Sealift Command ("MSC"), having had their charters renewed during the course of last year, will be fully employed in the Military Prepositioning Service ("MPS") for the forthcoming year and into the following year. In addition, the three RO/RO vessels in similar service have operated satisfactorily and continue on charter to MSC. The "GREEN WAVE," one of our Ice-Strengthened vessels, continues on charter to MSC in service to the polar regions. We have now also refixed our other Ice Strengthened vessel, "GREEN RIDGE," on a new charter to MSC. She will enter this 17 month charter with two 17 month option periods beginning in the third quarter of 1997 as an addition to the MPS fleet. Our four specialized Car Carriers continue to operate successfully on long-term contracts to major Japanese and Korean car manufacturers. Of these, the two U. S. Flag vessels are scheduled for charter renewal by the fourth quarter of 1997. Our Cape-Size Bulk Carrier, "AMAZON," is operating on short-term charters. The market for this size vessel has improved somewhat since the middle of last year. Rates are still not at profitable levels; but, she is at least producing positive cash flow from operations. The shortterm outlook is for freight rates in the trades in which she operates to be more stable or slightly improving; but, we still do not expect this market to recover to profitable levels until more of the older Cape- Size vessels are scrapped. In 1996, 23 Cape-Size vessels are reported to have been deleted from the registries while 50 newbuildings were added. This net increase is estimated to have resulted in fleet growth of 7%. Also, the scrapping of Combination Oil/Ore Carriers continued with 28 Cape-Size Combos being sent to the demolition yards or converted for alternate use. Since most of these Combos were employed in the carriage of dry bulk cargo, their deletion from the fleet offset the about 7% net increase in the fleet by addition of the aforementioned newbuildings. Further newbuildings are being delivered during the first half of 1997, but indications are the trend of offsetting scrappings should continue. The M. V. "SULPHUR ENTERPRISE" continues to operate satisfactorily having carried a total of about 2.4 Million tons of molten sulphur during the year. The S.S. "ENERGY ENTERPRISE," carrying coal in the coastwise trade along the Atlantic Coast, completed her First Charter Year. She entered her Second Charter Year in December of 1996. She still has some deferred shipyard work to be accomplished which will be done in May of 1997. After completing this shipyard work, the vessel will return to service to complete her Second Charter Year. During 1996, our River Barge system transported a total of 3.1 Million tons of coal from the Ohio River to our coal transfer facility at Gulf County, Florida, for ultimate delivery to a major electric utility in Florida. As previously reported, we took delivery on September 6, 1996, of a small Container/Breakbulk vessel, renamed "JAVA SEA," to replace a similar vessel we had on time charter. This vessel, together with the Float-On/Float-Off "BALI SEA" and "BANDA SEA" and associated barges, comprise the fleet serving our long-term contract with a major mining company in Indonesia carrying mining supplies to its facility on West Irian Jaya. At a regular meeting on January 15, 1997, the Board of Directors declared a quarterly dividend of 6.25 cents per share on the Company's Common Stock payable on March 21, 1997, to Shareholders of record as of March 7, 1997. The Annual Meeting of Shareholders will take place in New Orleans on April 16, 1997. We extend our thanks to the officers and crews aboard our vessels, our shoreside staff, and our agents in the United States and abroad for their continued services to the Company. We wish our shareholders a healthy and prosperous New Year. [S] Niels W. Johnsen [S] Erik F. Johnsen Niels W. Johnsen Erik F. Johnsen Chairman President January 22, 1997 INTERNATIONAL SHIPHOLDING CORPORATION REVIEW OF OPERATIONS International Shipholding Corporation, through its subsidiaries and associates, is engaged in various types of waterborne freight transportation---LASH (for Lighter Aboard SHip) carriage, Pure Car Carrier services, roll on/roll-off, breakbulk and bulk carrier services, domestic coastwise services, inland vessel and barge transportation---with emphasis on medium to long-term contracts and charters. The Company has offices in New York, New Orleans, Washington, D.C., and Houston and maintains a network of marketing agents in major cities worldwide. Principal subsidiaries of the Company include Central Gulf Lines, Inc., Waterman Steamship Corporation, Forest Lines Inc., and LCI Shipholdings, Inc. who together operate a fleet of 30 modern vessels. LASH-The Company placed the world's first two LASH vessels in operation in 1969 and 1970, and has continued as a leading owner and operator of this type of ocean transportation. The Company's LASH system operations consist of 11 large ocean carriers, three ocean towed feeder LASH vessels, one self-propelled feeder LASH vessel, and a fleet of 1,850 LASH barges. The large LASH vessels each carry between 83 and 89 LASH barges and utilize additional spaces aboard ship for cargo not loaded into barges. The barges, all of a standard size with cargo capacity of 375 tons, are towed in ports and on inland waterways to various shipping points where they are loaded with cargo and returned to the ocean going vessel. They are hoisted aboard by a special shipboard gantry-type crane and transported overseas where the process is reversed. The LASH ships do not require special docks or terminals and are generally worked at anchor in river, roadsteads and light traffic port areas. LASH cargo rarely requires transshipment, moving from origin to destination under one bill of lading. Waterman Steamship Corporation operates four of the large U.S. Flag LASH vessels on subsidized liner service between the U.S. Gulf and Atlantic coasts and the Middle East, East Africa, the Indian Sub- Continent, and Southeast Asia. A variety of general, bulk, and project cargo is transported outbound, while large amounts of rubber, coffee, and general cargo are carried inbound. Waterman also operates a fifth large U.S. Flag LASH vessel under charter to the U.S. Navy's Military Sealift Command ("MSC"). During 1996, two of the Company's large international flag LASH vessels were being operated in the Trans-Atlantic service by a Company subsidiary, Forest Lines Inc. Outbound the vessels carry a variety of cargoes and have medium to long- term contracts with several major shippers; inbound they carry various general cargoes, primarily steel, from European ports to the United States. A third large international flag LASH vessel, delivered in August of 1996 and renamed "ATLANTIC FOREST", has undergone extensive refurbishment and is scheduled to commence operating in the Trans- Atlantic service during the first quarter of 1997. Central Gulf Lines, Inc. operates the other three large U.S. Flag LASH vessels under time charters to the MSC. FLASH-The three 8-LASH barge capacity, ocean towed, float-on/float-off feeder LASH (FLASH) units are being operated between various Southeast Asian ports as an integral part of the Waterman service. DOCKSHIP-The 15-LASH barge capacity float- on/float off DOCKSHIP is being operated in conjunction with Forest Lines' Trans-Atlantic LASH service to facilitate movement of LASH barges between European ports. PURE CAR CARRIERS-Central Gulf Lines, Inc. continued the operation during 1996 of its two U.S. Flag Pure Car Carriers, M/V "GREEN LAKE" and M/V "GREEN BAY", under contracts with Toyota Motor Corporation and Honda Motor Co., Ltd. to transport automobiles between Japan and North America. The Company, through its LCI Shipholdings, Inc. subsidiary, also continued the operation of its two 4,800-car capacity Pure Car Carriers, M/V "CYPRESS PASS" and M/V "CYPRESS TRAIL", transporting automobiles from the Far East to the United States and Europe for the account of Hyundai. ROLL-ON/ROLL-OFF SERVICES-The Company, through its Waterman Steamship Corporation subsidiary, is operating three modern U.S. Flag Roll-On/Roll-Off vessels, S.S. "SGT. MATEJ KOCAK", S.S. "PFC. E.A. OBREGON", and S.S. "MAJ. S.W. PLESS", under long-term charters to the MSC. ICE STRENGTHENED MULTI-PURPOSE VESSELS-During 1996, the Company's U.S. Flag Ice Strengthened Multi- Purpose vessel, M/V "GREEN WAVE", continued to be operated under a medium term charter to the MSC, while its other Ice Strengthened Multi-Purpose vessel, M/V "GREEN RIDGE", was employed in the carriage of general cargo. CAPE-SIZE BULK CARRIER-The Company's 148,000 DWT. Cape Size Bulk Carrier, M/V "AMAZON", was operated under charter during the fourth quarter of 1996, and was assigned to a new charter contract in early 1997. SULPHUR CARRIER-The M/V "SULPHUR ENTERPRISE" continued to carry molten sulphur from Louisiana to U.S. Gulf ports under its long-term contract with a large mineral resource company. FLOAT-ON/FLOAT-OFF SPECIAL PURPOSE VESSELS (SPV)-The Company's two Float-On/Float-Off Special Purpose Vessels, M/V "BALI SEA" and M/V "BANDA SEA", together with the newly acquired (September, 1996) Container/Breakbulk vessel, M/V "JAVA SEA", and 26 special purpose barges were operated in 1996 under the Company's existing long-term contract carrying supplies for a major mining company in Indonesia. FLEET STATISTICS
Total Dead- Total Dead- Weight Carrying Weight Carrying Number Capacity (ea.) Capacity ________________________________________________________________ LASH 3 47,500 L.T. 142,500 L.T. LASH 6 46,150 276,900 LASH 1 39,493 39,493 LASH 1 48,093 48,093 PURE CAR CARRIERS 2 10,500 21,000 PURE CAR CARRIERS 2 12,700 25,400 FLASH 3 3,600 10,800 DOCKSHIP 1 6,800 6,800 RO/RO 3* 25,476 76,428 ICE STRENGTHENED MULTI-PURPOSE 2 12,820 25,640 CAPE-SIZE BULK CARRIER 1 148,000 148,000 MOLTEN SULPHUR CARRIER 1 29,000 29,000 FLOAT-ON/FLOAT-OFF SPECIAL PURPOSE VESSELS (SPV) 2 21,880 43,760 COAL CARRIER 1 38,164 38,164 CONTAINER/BREAKBULK 1 3,168 3,168 JUMBO RIVER BARGES 111* 3,100 344,100 RIVER BARGES 18 1,500 27,000 _________________________________________________________ FLEET CAPACITY - 1996 1,306,246 VESSELS 30* LASH BARGES 1,850* RIVER BARGES 129* SPECIAL PURPOSE BARGES 26 TOWBOATS 15* _________________________________________________________ *Includes leased equipment.
COAL CARRIER-The Company's self-unloading, conveyor belt equipped U.S. Flag Coal Carrier, S.S. "ENERGY ENTERPRISE", commenced service in February, 1996 under a long-term charter to a New England electric utility company, carrying coal in the coastwise and nearsea trade. DOMESTIC TRANSPORTATION-Central Gulf Lines, Inc. has a long term contract with a Florida based electric utility for the transportation of coal from Mt. Vernon, Indiana, to the Company's coal transfer facility at Port St. Joe, Florida, where the coal is trans-loaded into railcars and moved to the utility's plant site at Palatka, Florida. The Company is responsible for the waterborne movement of the coal from the loading point on the Ohio River to the discharge point at the terminal and for unloading the barges there and transferring the coal into railcars. The Company operates 111 hopper barges, 15 towboats and certain terminal transfer equipment in carrying out the requirements of the contract. LITCO TERMINAL COMPLEX-The Company's LITCO (LASH Intermodal Terminal COmpany) Terminal at Memphis is in its fifth year of operation and has continued to experience satisfactory utilization. The terminal is the only totally enclosed multi-modal cargo transfer facility in the United States, providing 287,000 sq. ft. of enclosed warehouse and loading/discharging stations for LASH barge, rail, truck, and heavy-lift operations. LITCO is strategically located to move cargo on just-in-time scheduling between major inland markets and world ports and is contributing positively to the performance of both Forest Lines and Waterman services by improved turn-around time of the Company's LASH barge fleet. INTERNATIONAL SHIPHOLDING CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Certain statements made in this report or elsewhere by, or on behalf of, the Company that are not based on historical facts are intended to be forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on assumptions about future events and are therefore subject to risks and uncertainties. The Company cautions readers that the following important factors, among others, have affected and may affect in the future the Company's actual consolidated results of operations and may cause future results to differ materially from those expressed in or implied by any forward-looking statements made in this report or elsewhere by, or on behalf of, the Company: The Company's ability to (i) identify customers with marine transportation needs requiring specialized vessels or operating techniques; (ii) secure financing on satisfactory terms to acquire, modify, or construct vessels if such financing is necessary to service the potential needs of current or future customers; (iii) obtain new contracts or renew existing contracts which would employ certain of its vessels or other assets upon the expiration of contracts currently in place; (iv) manage the amount and rate of growth of its general and administrative expenses and costs associated with crewing certain of its vessels; (v) and to manage its growth in terms of implementing internal controls and information systems and hiring or retaining key personnel, among other things. Other factors include (vi) changes in cargo rates and fuel prices which could increase or decrease the Company's gross voyage profit from its liner services; (vii) the rate at which competitors add or scrap vessels from the markets in which the Company operates; (viii) changes in interest rates which could increase or decrease the amount of interest the Company incurs on borrowings with variable rates of interest; (ix) the impact on the Company's financial statements of nonrecurring accounting charges that may result from the Company's ongoing evaluation of business strategies, asset valuations, and organizational structures; (x) changes in accounting policies and practices adopted voluntarily or as required by generally accepted accounting principles; (xi) changes in laws and regulations such as those related to government assistance programs and tax rates, among other things; (xii) unanticipated outcomes of current or possible future legal proceedings; (xiii) and other economic, competitive, governmental, and technological factors which may effect the Company's operations. The Company cautions readers that it assumes no obligation to update or publicly release any revisions to forward-looking statements made in this report or elsewhere by, or on behalf of, the Company. The Company's vessels are operated under a variety of charters and contracts. The nature of these arrangements is such that, without a material variation in gross voyage profits (total revenues less voyage expenses and vessel and barge depreciation), the revenues and expenses attributable to a vessel deployed under one type of charter or contract can differ substantially from those attributable to the same vessel if deployed under a different type of charter or contract. Accordingly, depending on the mix of charters or contracts in place during a particular accounting period, the Company's revenues and expenses can fluctuate substantially from one period to another even though the number of vessels deployed, the number of voyages completed, the amount of cargo carried and the gross voyage profit derived from the vessel remain relatively constant. As a result, fluctuations in voyage revenues and expenses are not necessarily indicative of trends in profitability, and management believes that gross voyage profit is a more appropriate measure of operating performance than revenues. Accordingly, the discussion below addresses variations in gross voyage profits rather than variations in revenues. ___________________________________ RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995 GROSS VOYAGE PROFIT. Gross voyage profit increased 3.7% to $66.9 Million in 1996 as compared to $64.5 Million in 1995. Gross voyage profit was favorably impacted by the commencement, in February of 1996, of operations of the ENERGY ENTERPRISE, a U.S. Flag Coal Carrier under contract to a major U.S. utility company, and the full commencement of operations, in early 1996, of two Special Purpose Vessels ("SPV's") under contract to provide transportation services to a major mining company in Indonesia. Improved freight rates for the Company's LASH vessels employed in liner service between ports on the U. S. Gulf/U. S. Atlantic Coast and South Asia (Trade Routes 18 and 17) and increased charterhire rates for two of the Company's LASH vessels under contract with the Military Sealift Command ("MSC") also positively impacted gross voyage profit. These increases in gross voyage profit were partially offset by increased fuel prices, which impacted the Company's liner services, lower charterhire rates on the Company's Cape-Size Bulk Carrier, and the redelivery of one of the Company's vessels at the end of its MSC contract in late 1995. This vessel is currently being operated in the spot market until it commences a new contract with the MSC in the third quarter of 1997. Additionally, the Company's fleet experienced more out of service days in 1996 than in 1995 primarily due to regularly scheduled drydockings, shipyard work required to prepare the two LASH vessels for their contract with the MSC, and a propeller shaft casualty sustained by one of the vessels operating in the Waterman service which required an unscheduled drydock of approxi- mately two months duration. This vessel has been fully repaired and returned to service about mid-July. Results of our insurance subsidiary were also negatively impacted by this accident. The Company currently charters eight vessels to the MSC including three Roll-On/Roll-Off ("RO/RO") vessels employed in the Military Prepositioning Service, four LASH vessels, and one Ice-Strengthened Multi-Purpose vessel. The contracts for the RO/RO's are fixed through the years 2009 and 2010. A scheduled charterhire rate reduction, which will not have a material impact on the Company's gross voyage profit, became effective January 1, 1997, for the RO/RO's. During 1996, the Ice-Strengthened Multi-Purpose vessel began the second of two seventeen month option periods which will terminate at the end of 1997. In third quarter of 1997, the Company's other Ice-Strengthened Multi-Purpose vessel will commence operating under a seventeen month contract with MSC which includes two seventeen month option periods. This vessel is currently being operated in the open market on a cargo offered basis. In mid-1996, the MSC contracts of two of the Company's LASH vessels were each renewed for seventeen months with two seventeen month option periods extending through 2000. A third LASH vessel will enter a new contract upon the expiration of its current MSC contract in May of 1997. The Company's other LASH vessel chartered to MSC is operating under a contract which expires in 1999. Vessel and barge depreciation increased to $32.6 Million during 1996 as compared to $24.7 Million in 1995 primarily due to the addition of the ENERGY ENTERPRISE and the two SPV's and related barges. OTHER INCOME AND EXPENSES. Administrative and general expenses decreased slightly to $26.3 Million during 1996 as compared to $26.6 Million in 1995 stemming from a continuing cost reduction program. Interest expense increased 11.6% to $28.5 Million in 1996 as compared to $25.6 Million in 1995 primarily due to interest incurred on the financing of the ENERGY ENTERPRISE and the two SPV's and related barges. These increases were partially offset by reductions resulting from regularly scheduled payments on other outstanding debt. Investment income decreased from $2.7 Million in 1995 to $1.9 Million in 1996 reflecting reductions in interest rates and the average balance of invested funds. During 1995, the Company sold its 7.7% interest in a Norwegian shipowning company for approximately $48.0 Million resulting in a before tax gain of approximately $17.0 Million. A full description of this sale is included in the discussion of results of operations for the year ended December 31, 1995, compared to the year ended December 31, 1994, presented later in this report. INCOME TAXES. The Company provided $4.8 Million and $11.4 Million for Federal income taxes at the statutory rate of 35% for 1996 and 1995, respectively. Income of unconsolidated entities is shown net of applicable taxes. EXTRAORDINARY LOSS ON THE EARLY EXTINGUISHMENT OF DEBT. During 1996, the Company recognized an extraordinary loss of $0.8 Million, net of taxes, resulting from a makewhole premium required when the Company refinanced Notes in the fourth quarter to reduce interest costs. _________________________________________________________ YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994 GROSS VOYAGE PROFIT. Gross voyage profit decreased 1.2% to $64.5 Million in 1995 as compared to $65.3 Million in 1994. Gross voyage profit was negatively impacted by lower freight rates and higher operating costs for the Company's LASH vessels employed in liner service on Trade Routes 18 and 17. A scheduled rate reduction on one of the Company's vessels chartered to the MSC also contributed to the decrease in gross voyage profit. These reductions were partially offset by the addition of a Molten Sulphur Carrier in early fourth quarter of 1994. Vessel and barge depreciation increased by 6.3% to $24.7 Million during 1995 as compared to $23.3 Million in 1994 primarily due to the addition of the Molten Sulphur Carrier in early fourth quarter of 1994. This increase was partially offset by the life extension of two LASH vessels which were purchased in 1994 upon the termination of the capital lease of these vessels. OTHER INCOME AND EXPENSES. Administrative and general expenses decreased 3.1% to $26.6 Million during 1995 as compared to $27.5 Million in 1994 stemming from a continuing cost reduction program. Interest expense increased 18.1% to $25.6 Million in 1995, as compared to $21.7 Million in 1994, primarily due to interest incurred on the financing of the Molten Sulphur Carrier, interest rate conversion agreements, and financing received in early 1995 for general corporate purposes. These increases were partially offset by regularly scheduled debt payments of $28.5 million. Investment income decreased slightly from $2.8 Million in 1994 to $2.7 Million in 1995 reflecting a reduction in the average balance of invested funds. Additionally, investment income in 1994 reflected the recognition of interest on a promissory note related to the sale of an investment in an unconsolidated entity. This promissory note was acquired by the Company in the first half of 1995. The Company's equity in net income of unconsolidated entities was $0.3 million in 1995 as compared to equity in losses of $0.1 Million in 1994. The Company's interest in these entities was liquidated in 1995. As of December 31, 1994, the Company held an approximate 12.6% interest, including both direct and indirect interests, in Havtor AS, a publicly traded company listed on the Oslo Stock Exchange. The Company also held a 14.2% interest in A/S Havtor Management, a privately held Norwegian ship management company affiliated with Havtor AS. As of December 31, 1994, the Company held a 50% interest in a foreign entity, Bulkowners 1984, which was formed to own and operate two combination dry cargo/petroleum products, PROBO vessels. The Company also held a 10% interest in a limited partnership with certain Norwegian interests to construct and own a Liquified Petroleum Gas carrier which delivered in 1993. During the first half of 1995, A/S Havtor Management and the gas carrier activities of Kvaerner, an unrelated Norwegian company merged into Havtor AS. In addition, Havtor AS agreed to acquire other vessels and vessel interests, including the 50% interest held by the Company in two PROBO vessels and the 10% interest held in a Liquified Petroleum Gas carrier. Subsequent to the merger, the Company's interest, including both direct and indirect interests, in Havtor AS approximated 7.7%. During November 1995, the Company sold this 7.7% interest in Havtor AS for approximately $48.0 Million. The sale resulted in a before tax gain of approximately $17.0 Million. INCOME TAXES. The Company provided $11.4 million and $6.6 million for Federal income taxes at the statutory rate of 35% for 1995 and 1994, respectively. Income of unconsolidated entities is shown net of applicable taxes. OPERATING DIFFERENTIAL SUBSIDY AGREEMENTS. For the years ended December 31, 1996, 1995 and 1994, the Company received aggregate Operating Differential Subsidy ("ODS") payments of $25.6 Million, $22.7 Million, and $21.7 Million, respectively. The Company's ODS agreement for the four LASH vessels currently employed in its Waterman liner service on Trade Routes 18 and 17 expires during early 1997. The "Maritime Security Act" ("MSA"), which provides for a new subsidy program for up to 47 U. S. Flag vessels, was signed into law on October 8, 1996. The Company's four LASH vessels, which have been receiving subsidy payments under the ODS agreement, two of the Company's Pure Car Carriers ("PCC"), and one of the Company's LASH vessels currently on contract with MSC have qualified to participate in this program. The two PCC's began receiving MSA payments in late 1996, and the four LASH vessels operating under ODS will begin receiving MSA payments upon the expiration of ODS in early 1997. The LASH vessel under contract to MSC will be eligible to receive payments upon the expiration of that contract in 2000. MSA will eliminate the trade route restrictions imposed by the ODS program and will allow flexibility to operate freely in the competitive market. MSA provides for annual subsidy payments of $2.1 Million per year per vessel for a total of ten years. Payments under MSA are subject to appropriation each year and are not guaranteed. Under the previous ODS agreement, subsidy payments were approximately $5.8 Million per year per vessel. To overcome the decrease in the amount of subsidy payments to be provided under MSA, as compared to ODS, the Company will be required to pursue various options such as reduction of crew costs and other expenses. ___________________________________ LIQUIDITY AND CAPITAL RESOURCES The following discussion should be read in conjunction with the more detailed Consolidated Balance Sheets and Consolidated Statements of Cash Flows included elsewhere herein as part of the Company's Consolidated Financial Statements. The Company's working capital increased from $13.4 Million at December 31, 1995, to $26.9 Million at December 31, 1996, after provision for current maturities of long-term debt and capital lease obligations of $35.5 Million. Cash and cash equivalents decreased during 1996 by $11.3 Million to a total of $43.0 Million. Positive cash flows were achieved from operating activities during 1996 in the amount of $49.0 Million. The major source of cash from operations was net income adjusted for noncash provisions such as depreciation and amortization. Net cash used for investing activities during 1996 amounted to $76.6 Million. Major capital improvements included $27.8 Million for the conversion of two SPV's, $15.9 Million for the purchase and refurbishment of a LASH vessel, the ATLANTIC FOREST, and 82 LASH barges, $9.9 Million for upgrade work on the ENERGY ENTERPRISE to meet classification requirements, $5.6 Million for the purchase of a container vessel, the JAVA SEA, to be operated in conjunction with the two SPV's, and $1.3 Million for information systems projects. Other uses of cash included the addition of $28.2 Million in deferred vessel drydocking charges. Proceeds from investing activities included $8.1 Million received from the payment of a long-term note receivable, the release of $3.7 Million previously held in escrow as collateral for loans, $2.5 Million from the sale of the Company's Semi-Submersible Barge, the CAPS EXPRESS, and $1.8 Million from the maturity of short-term investments. Net cash provided by financing activities during 1996 amounted to $16.4 Million. Proceeds from the issuance of debt obligations of $147.5 Million included $93.7 Million received from draws on lines of credit, of which $30.0 Million was outstanding at December 31, 1996, $23.0 Million received from the refinancing of Notes to reduce interest costs, $16.8 Million associated with the conversion of the two SPV's, $8.5 Million associated with the purchase of the ATLANTIC FOREST and related barges, and $5.5 Million associated with the purchase of the JAVA SEA. These proceeds were partially offset by repayment of $63.7 Million drawn under lines of credit, regularly scheduled principal payments of $31.5 Million, payment of $22.0 Million for the repurchase of Notes, and the prepayment of a $9.5 Million long-term debt. The Company also added $2.8 Million in deferred financing charges and used $1.7 Million to meet common stock dividend requirements. In the third quarter of 1988, the Board of Directors first declared a quarterly dividend of 5 cents per share (4 cents per share after giving effect to the November 17, 1995, twenty-five percent stock dividend) and continued quarterly dividends in the same amount for each quarterly period through the third quarter of 1995. The Board then increased the dividend to 6.25 cents per share in the fourth quarter of 1995 and has continued quarterly dividends in the same amount for each quarterly period through the fourth quarter of 1996. The Board has expressed its intent to continue to declare similar quarterly dividends in the future, subject to the ability of the Company's operating subsidiaries to continue to achieve satisfactory earnings and restrictions contained in certain of the Company's credit agreements. Dividends on common stock during 1996 amounted to approximately $1.7 Million. Management believes that normal operations will provide sufficient working capital and cash flows to meet debt service and dividend requirements during the foreseeable future. To meet short-term requirements when fluctuations occur in working capital, the Company has available three lines of credit totaling $35.0 Million. As of December 31, 1996, outstanding draws on these lines of credit totaled $30.0 Million of which $20.0 Million was repaid in early 1997. The Company has not been notified that it is a potentially responsible party in connection with any environmental matters. INTERNATIONAL SHIPHOLDING CORPORATION CONSOLIDATED BALANCE SHEETS
ASSETS (All Amounts in Thousands) December 31,December 31, 1996 1995 ___________ ___________ Current Assets: Cash and Cash Equivalents $ 43,020 $54,281 Marketable Securities 2,727 4,630 Accounts Receivable, Net of Allowance for Doubtful Accounts of $256 and $409 in 1996 and 1995, Respectively: Traffic 42,404 30,659 Agents' 10,343 10,352 Claims and Other 3,048 5,823 Federal Income Taxes Receivable 1,366 - Net Investment in Direct Financing Leases 2,033 2,104 Other Current Assets 6,216 3,521 Material and Supplies Inventory, at Cost 12,043 10,545 ____________ _________ Total Current Assets 123,200 121,915 ____________ _________ Net Investment in Direct Financing Leases 22,797 24,482 ____________ _________ Vessels, Property, and Other Equipment, at Cost: Vessels and Barges 676,267 634,905 Other Marine Equipment 7,500 7,570 Terminal Facilities 18,535 18,126 Land 2,317 2,317 Furniture and Equipment 17,401 15,892 ____________ _________ 722,020 678,810 Less - Accumulated Depreciation (276,222) (243,929) ____________ _________ 445,798 434,881 ____________ _________ Other Assets: Deferred Charges in Process of Amortization 43,318 26,952 Acquired Contract Costs, Net of Accumulated Amortization of $18,706 and $16,496 in 1996 and 1995, Respectively 19,523 21,733 Due from Related Parties 443 535 Other 6,517 17,082 ____________ _________ 69,801 66,302 ____________ _________ $ 661,596 $647,580 ============ ==========
[FN] The accompanying notes are an integral part of these statements. INTERNATIONAL SHIPHOLDING CORPORATION LIABILITIES AND STOCKHOLDERS' INVESTMENT (All Amounts in Thousands Except Share Data)
December 31, December 31, 1996 1995 ------------ ------------ Current Liabilities: Current Maturities of Long-Term Debt $ 33,470 $ 40,785 Current Maturities of Capital Lease Obligations 1,981 1,469 Accounts Payable and Accrued Liabilities 67,690 77,481 Federal Income Tax Payable - 6,520 Current Deferred Income Tax Liability 811 1,283 Current Liabilities to be Refinanced (7,680) (19,030) ------------ ------------ Total Current Liabilities 96,272 108,508 ------------ ------------ Current Liabilities to be Refinanced 7,680 19,030 ------------ ------------ Billings in Excess of Income Earned and Expenses Incurred 8,635 4,639 ------------ ------------ Long-Term Capital Lease Obligations, Less Current Maturities 17,642 19,623 ------------ ------------ Long-Term Debt, Less Current Maturities 299,434 269,872 ------------ ------------ Reserves and Deferred Credits: Deferred Income Taxes 40,673 38,668 Claims and Other 18,853 20,979 ------------ ------------ 59,526 59,647 ------------ ------------ Commitments and Contingent Liabilities Stockholders' Investment: Common Stock, $1.00 Par Value, 10,000,000 Shares Authorized, 6,756,330 Shares Issued at December 31, 1996 and 1995 6,756 6,756 Additional Paid-in Capital 54,450 54,450 Retained Earnings 112,310 106,158 Less - 73,443 Shares of Common Stock in Treasury, at Cost, at December 31, 1996 and 1995 (1,133) (1,133) Unrealized Holding Gain on Marketable Securities 24 30 ----------- ---------- 172,407 166,261 ----------- ---------- $661,596 $647,580 =========== ==========
[FN] The accompanying notes are an integral part of these statements. INTERNATIONAL SHIPHOLDING CORPORATION CONSOLIDATED STATEMENTS OF INCOME (All Amounts in Thousands Except Per Share Data)
Year Ended December 31, 1996 1995 1994 -------- -------- -------- Revenues $353,346 $319,084 $320,585 Operating Differential Subsidy 25,581 22,705 21,748 -------- -------- -------- 378,927 341,789 342,333 -------- -------- -------- Operating Expenses: Voyage Expenses 279,395 252,506 253,729 Vessel and Barge Depreciation 32,584 24,747 23,289 -------- -------- -------- Gross Voyage Profit 66,948 64,536 65,315 -------- -------- -------- Administrative and General Expenses 26,256 26,615 27,454 -------- -------- -------- Operating Income 40,692 37,921 37,861 -------- -------- -------- Interest: Interest Expense 28,528 25,561 21,650 Investment Income (1,935) (2,676) (2,826) -------- -------- -------- 26,593 22,885 18,824 -------- -------- -------- Gain on Sale of Investments - 17,409 - -------- -------- -------- Unconsolidated Entities (Net of Applicable Taxes): Equity in Net Income (Loss) of Unconsolidated Entities - 331 (124) Provision for Doubtful Accounts - - 900 -------- -------- -------- - 331 776 -------- -------- -------- Income Before Provision for Income Taxes and Extraordinary Item 14,099 32,776 19,813 -------- -------- -------- Provision for Income Taxes: Current 3,246 11,296 4,961 Deferred 1,533 94 1,621 State 684 406 180 -------- -------- -------- 5,463 11,796 6,762 -------- -------- --------- Income Before Extraordinary Item $ 8,636 $ 20,980 $ 13,051 Extraordinary Loss on Early Extinguishment of Debt (Net of Income Tax Benefit of $437) (813) - - -------- -------- -------- Net Income $ 7,823 $ 20,980 $ 13,051 ======== ======== ======== Earnings Per Share: Income Before Extraordinary Loss $ 1.29 $ 3.14 $ 1.95 Extraordinary Loss (0.12) - - -------- -------- -------- Net Income $ 1.17 $ 3.14 $ 1.95 ======== ======== ========
[FN] The accompanying notes are an integral part of these statements. INTERNATIONAL SHIPHOLDING CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' INVESTMENT
(All Amounts in Thousands) Net Additional Unrealized Common Paid-In Retained Treasury Holding Stock Capital Earnings Stock Gain/(Loss) Total ------------------------------------------------------------ Balance at December 31, 1993 $5,405 $54,450 $75,775 $(1,133) $ - $134,497 Net Income for Year Ended December 31, 1994 - - 13,051 - - 13,051 Cash Dividends - - (1,069) - - (1,069) Unrealized Holding Loss on Marketable Securities, Net of Deferred Taxes - - - - (163) (163) ------------------------------------------------------------ Balance at December 31, 1994 $5,405 $54,450 $87,757 $(1,133) $ (163) $146,316 ============================================================ Net Income for Year Ended December 31, 1995 - - 20,980 - - 20,980 Cash Dividends - - (1,228) - - (1,228) 25% Stock Dividend 1,351 - (1,351) - - - Unrealized Holding Gain on Marketable Securities, Net of Deferred Taxes - - - - 193 193 ---------------------------------------------------------- Balance at December 31, 1995 $6,756 $54,450 $106,158 $(1,133) $ 30 $166,261 ========================================================== Net Income for Year Ended December 31, 1996 - - 7,823 - - 7,823 Cash Dividends - - (1,671) - - (1,671) Unrealized Holding Loss on Marketable Securities, Net of Deferred Taxes - - - - (6) (6) ---------------------------------------------------------- Balance at December 31, 1996 $6,756 $54,450 $112,310 $(1,133) $ 24 $172,407 ==========================================================
[FN] 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, 1996 1995 1994 -------- -------- -------- Cash Flows from Operating Activities: Net Income $ 7,823 $ 20,980 $ 13,051 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation 34,939 26,653 24,516 Amortization of Deferred Charges and Other Assets 19,309 17,310 17,105 Provision for Deferred Income Taxes 1,533 94 1,568 Equity in Unconsolidated Entities - (331) (776) (Gain) Loss on Sale of Vessels and Other Property (11) (7) 83 Gain on Sale of Investment in Havtor AS - (17,409) - Extraordinary Loss 813 - - Changes in: Accounts Receivable (8,515) 543 (466) Net Investment in Direct Financing Leases 1,756 2,188 2,258 Inventories and Other Current Assets (3,539) (1,334) 1,718 Other Assets (1,177) 2,599 1,138 Accounts Payable and Accrued Liabilities 910 (694) (634) Federal Income Taxes Payable (6,765) 6,084 - Unearned Income 3,996 168 45 Reserve for Claims and Other Deferred Credits (2,118) (2,866) (772) -------- -------- -------- Net Cash Provided by Operating Activities 48,954 53,978 58,834 -------- -------- -------- Cash Flows from Investing Activities: Purchase of Vessels and Other Property (65,104)(127,942) (56,977) Additions to Deferred Charges (28,171) (11,682) (6,188) Proceeds from Sale of Vessels and Other Property 2,512 7 710 Proceeds from Short-Term Investments 1,799 2,763 12,182 Investment in and Advances to Unconsolidated Entities - - 1,447 Proceeds from Sale of Havtor AS - 48,621 - Proceeds from Note Receivable 8,100 - - Other Investing Activities 4,295 9,067 (7,983) -------- -------- -------- Net Cash Used by Investing Activities (76,569) (79,166) (56,809) -------- -------- -------- Cash Flows from Financing Activities: Proceeds from Issuance of Debt 147,482 105,651 90,538 Reduction of Debt and Capital Lease Obligation (126,704) (53,930) (83,121) Additions to Deferred Financing Charges (2,753) (635) (388) Common Stock Dividends Paid (1,671) (1,228) (1,069) -------- -------- -------- Net Cash Provided by Financing Activities 16,354 49,858 5,960 -------- -------- -------- Net (Decrease) Increase in Cash and Cash Equivalents (11,261) 24,670 7,985 Cash and Cash Equivalents at Beginning of Year 54,281 29,611 21,626 -------- -------- -------- Cash and Cash Equivalents at End of Year $ 43,020 $ 54,281 $ 29,611 ======== ======== ========
[FN] The accompanying notes are an integral part of these statements. INTERNATIONAL SHIPHOLDING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation - --------------------- The accompanying consolidated financial statements include the accounts of International Shipholding Corporation (a Delaware corporation) and its consolidated subsidiaries (the Company). All significant intercompany accounts and transactions have been eliminated. The Company uses the cost method to account for investments in entities in which it holds less than a 20% voting interest and in which the Company cannot exercise significant influence over operating and financial activities. The Company uses the equity method to account for investments in entities in which it holds a 20% to 50% voting interest. Certain reclassifications have been made to the prior period financial information in order to conform to current year presentation. Nature of Operations - -------------------- The Company, through its subsidiaries, operates a diversified fleet of U.S. and international flag vessels that provide international and domestic maritime transportation services to commercial customers and agencies of the United States government primarily under medium- to long-term charters or contracts. The Company's fleet consists of 30 ocean-going vessels, 15 towboats, 129 river barges, 26 special purpose barges, approximately 1,850 LASH barges, and related shoreside handling facilities. The Company's strategy is to (i) identify customers with marine transportation needs requiring specialized vessels or operating techniques, (ii) seek medium to long-term charters or contracts with those customers and, if necessary, modify, acquire, or construct vessels to meet the requirements of those charters or contracts, and (iii) secure financing for the vessels predicated primarily on those charter or contract arrangements. Use of Estimates - ---------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Voyage Accounting - ----------------- Revenues and expenses relating to voyages are recorded on the percentage-of-completion method, except that provisions for loss voyages are recorded when contracts for the voyages are fixed or when losses become apparent for voyages in progress. Use of the percentage-of-completion method requires management to make estimates and assumptions that affect the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. Vessels and Other Property - -------------------------- Costs of all major property additions and betterments are capitalized. Ordinary maintenance and repair costs are expensed as incurred. Interest and finance costs relating to vessels, barges, and other equipment under construction are capitalized to properly reflect the cost of assets acquired. Capitalized interest totaled $425,000, $2,721,000, and $1,763,000 for the years ended December 31, 1996, 1995, and 1994, respectively. Capitalized interest was calculated based on the interest rates applicable to the debt related to the assets under construction. Assets under capital lease are recorded on the consolidated balance sheet under the caption Vessels, Property, and Other Equipment (See Note G). For financial reporting purposes, vessels are depreciated over their estimated useful lives using the straight-line method. As a result of major capital improvements during 1996, the lives of two of the Company's LASH vessels were extended by two additional years, from 28 to 30 years and from 30 to 32 years, respectively. The effect of this change on the Company's results of operations for the year ended December 31, 1996, was not material. The Company groups all LASH barges into pools with estimated useful lives corresponding to the remaining useful lives of the vessels with which they are utilized. Major barge refurbishments are capitalized and included in the aforementioned group of barge pools. From time to time, the Company disposes of barges in the ordinary course of business. In these cases, proceeds from the disposition are credited to the remaining net book value of the respective pool and future depreciation charges are adjusted accordingly. Estimated useful lives of Vessels, Terminal Facilities, and Other Marine Equipment are as follows:
Years ----- 1 LASH Vessel 32 10 LASH Vessels 30 2 Pure Car Carriers 20 2 Pure Car Carriers 12 1 Coal Carrier 15 11 Other Vessels * 25 Coal Terminal 22 LITCO Terminal 11 Marine Equipment 4
[FN] *Includes three FLASH units, two ice-strengthened multi-purpose vessels, two float-on/float-off special purpose vessels, a dockship, a cape-size bulk carrier, a molten sulphur carrier, and a container vessel. The Company's fleet of 30 vessels also includes three roll-on/roll-off vessels which it operates. Income Taxes - ------------ Deferred income taxes are provided on items of income and expense which affect taxable income in one period and financial income in another. Certain foreign operations are not subject to income tax- ation under pertinent provisions of the laws of the country of incorporation or operation. However, pursuant to existing U.S. Tax Laws, earnings from certain foreign operations are subject to U.S. income taxes (See Note D). Foreign Currency Translation - ---------------------------- All exchange adjustments are charged or credited to income in the year incurred. Exchange losses of $17,000, $159,000, and $119,000 were recognized for the years ended December 31, 1996, 1995, and 1994, respectively. Dividend Policy - ---------------- The Board of Directors declared and paid dividends of 6.25 cents per share for each quarter in 1996. On November 17, 1995, the Company distributed a 25% stock split effected in the form of a stock dividend to shareholders of record at the close of business on November 3, 1995. Fractional shares were purchased by the Company at the reported last sale price per share on the record date, adjusted to reflect the dividend. All per share and weighted average amounts have been restated to reflect the 25% dividend. The Board of Directors declared and paid dividends of 5 cents per share (4 cents per share after giving effect to the aforementioned 25% stock dividend) for the first, second, and third quarters in 1995 and for each quarter in 1994. A dividend of 6.25 cents was declared and paid for the fourth quarter in 1995. Subsequent to year end, a dividend of 6.25 cents per common share was declared to be paid in the first quarter of 1997. The payment of dividends is subject to restrictions set forth in certain of the Company's debt instruments. The Company paid dividends on its common stock of $1,671,000, $1,228,000, and $1,069,000, in 1996, 1995, and 1994, respectively. Such amounts did not exceed restrictions set forth in these agreements or its other debt instruments. Net Income Per Common Share - --------------------------- Earnings per common share are based on the weighted average number of shares outstanding during the period. The weighted average number of common shares outstanding was 6,682,887 for the years ended December 31, 1996, 1995, and 1994. Primary and fully diluted weighted average common shares outstanding were the same for each of these years. All per share and weighted-average share amounts have been restated for the November 17, 1995, twenty- five percent stock dividend. Operating Differential Subsidy Agreements - ----------------------------------------- The Company's operating differential subsidy ("ODS") agreement with the U.S. Maritime Administration ("MarAd"), an agency of the Department of Transportation under Title VI of the Merchant Marine Act of 1936, as amended, under which the Company operates a fleet of four U.S. flag vessels in a liner service between ports on the U.S. Gulf/U.S. Atlantic Coast and South Asia (Trade Routes 18 and 17), expires upon completion, during the first quarter of 1997, of voyages in progress at December 31, 1996. Under this agreement, MarAd pays the excess of certain vessel expenses over comparable vessel expenses of principal foreign competitors in each respective trade route. The Maritime Security Act ("MSA"), which provides for a new subsidy program for certain U.S. flag vessels, was signed into law in October of 1996. Seven of the Company's vessels qualified for MSA participation including the four aforementioned LASH vessels which have been operating under ODS, two of the Company's Pure Car Carriers ("PCC"), and a LASH vessel currently on contract with the Military Sealift Command ("MSC"). The two PCC's began receiving MSA payments in late 1996, and the four LASH vessels operating under ODS will begin receiving MSA payments upon the expiration of ODS in early 1997. The LASH vessel operating under MSC contract will be eligible to receive MSA payments upon the expiration of that contract in 2000. MSA will eliminate the trade route restrictions imposed by the ODS program and will allow flexibility to operate freely in the competitive market. MSA provides for annual subsidy payments of $2,100,000 per year per vessel for a total of ten years. These payments are subject to appropriation each year and are not guaranteed. Under the previous ODS agreement, subsidy payments were approximately $5,800,000 per year per vessel. To overcome the decrease in the amount of subsidy payments to be provided under MSA as compared to ODS, the Company will be required to pursue various options such as reduction of crew costs and other expenses. Traffic accounts receivable include $1,832,000 and $4,949,000 due from MarAd under these ODS agreements at December 31, 1996 and 1995, respectively. Self-Retention Insurance - ------------------------ Effective December 1, 1993, the Company became self-insured for most Personal Injury and Cargo claims under $1,000,000, for Hull claims under $2,500,000, and for claims for Loss of Hire under 60 days. Primary deductibles are $25,000 for Hull, Personal Injury, and Cargo, $1,000 for LASH barges, and 10 days for Loss of Hire. The Company maintains insurance for individual claims over the above levels and maintains Stop Loss insurance to cover aggregate claims between those levels and the primary deductible levels. Under the Stop Loss insurance, the Company is responsible for all claims under the above levels until the total amount of claims between primary deductibles and the amounts associated with those levels reach $6,000,000 in the aggregate per year for the insurance policy year June 27, 1996, through June 26, 1997, and $7,000,000 for the policy year June 27, 1995, through June 26, 1996. After the Company has retained the aggregate amounts, all additional claims are recoverable from underwriters. Additionally, the Company maintains catastrophic insurance to cover total claims resulting from any individual incident which exceed $2,500,000. Provisions for losses are recorded based on the Company's estimate of the eventual settlement costs. The current portions of these liabilities were $5,530,000 and $4,698,000 at December 31, 1996 and 1995, respectively, and the noncurrent portions of these liabilities were $8,654,000 and $5,459,000 at December 31, 1996 and 1995, respectively. NOTE B - LONG-TERM DEBT
(All Amounts in Thousands) December 31, December 31, December 31, December 31, Description 1996 1995 Due 1996 1995 - ----------- ------------- ----------- ----- ------------ ------------ Unsecured Senior Notes - Fixed Rate 9.00% 9.00% 2003 $ 93,891 $ 93,891 Fixed Rate Notes 2000- Payable 6.70-9.97% 8.25-10.50% 2008 61,773 52,926 Variable Rate Notes 1997- Payable 6.39-7.43% 6.63-7.81% 2006 101,855 113,479 U.S. Government Guaranteed Ship Financing Notes and Bonds - 2000- Fixed Rate 6.58-8.30% 6.58-8.30% 2009 45,385 50,361 Lines of Credit 6.63-8.25% N/A 1998 30,000 - ----------- ---------- $332,904 $310,657 Less Current Maturities (33,470) (40,785) ----------- ---------- $299,434 $269,872 =========== ==========
The aggregate principal payments required as of December 31, 1996, for each of the next five years are $33,470,000 in 1997, $63,065,000 in 1998, $29,409,000 in 1999, $24,613,000 in 2000, and $19,669,000 in 2001. In addition to regularly scheduled principal payments, the $63,065,000 required in 1998 includes repayment of the $30,000,000 drawn on the Company's lines of credit as of December 31, 1996. During early 1997, $20,000,000 was repaid on those lines of credit before their scheduled maturity in 1998. Certain of the vessels and barges owned by the Company are mortgaged under certain debt agreements. Additional collateral includes a security interest in certain operating contracts and receivables. Most of these agreements, among other things, impose minimum working capital and net worth requirements, as defined, impose restrictions on the payment of dividends (see Note A), and prohibit the Company from incurring, without prior written consent, additional debt or lease obligations, except as defined. The Company has consistently met the minimum working capital and net worth requirements during the period covered by the agreements and is in compliance with these requirements as of December 31, 1996. Under the most restrictive of its credit agreements, the Company cannot declare or pay dividends unless (1) the total of (a) all dividends paid, distributions on, or other payments made with respect to the Company's capital stock during the period beginning October 1, 1989, and ending on the date of dividend declaration or other payment and (b) all investments other than Qualified Investments (as defined) of the Company and certain designated subsidiaries will not exceed the sum of $3,000,000 plus 50% (or, in case of a loss, minus 100%) of the Company's consolidated net income during the period described above plus the net cash proceeds received from the issuance of common stock by the Company during the above period, and (2) no default or event of default has occurred. Certain loan agreements also restrict the ability of the Company's subsidiaries to make dividend payments, loans, or advances, the most restrictive of which contain covenants that restrict payments of dividends, loans or advances to the Company from Central Gulf Lines, Inc., Waterman Steamship Corporation, and Sulphur Carriers, Inc. unless certain financial ratios are maintained. As long as those ratios are maintained, there is no restriction on loans or advances to the Company from those subsidiaries; however, dividends generally are restricted to 40% of the most recent four quarters' net income of Central Gulf Lines, Inc. and Waterman Steamship Corporation. Dividends of Sulphur Carriers, Inc. are restricted to 40% of undistributed earnings. The amounts of potentially restricted net assets were as follows:
(All Amounts In Thousands) December 31, December 31, 1996 1995 ------------ ------------ Cypress Auto Carriers, Inc. $ 10,285 $ 9,264 Sulphur Carriers, Inc. 22,058 21,588 Waterman Steamship Corporation 63,817 65,136 Central Gulf Lines, Inc. 85,172 79,581 ------------ ------------ Total Restricted Net Assets $181,332 $175,569 ============ ============
The Company has available three lines of credit totaling $35,000,000 used to meet short-term requirements when fluctuations occur in working capital. Two of these lines were fully drawn as of December 31, 1996, for an amount totaling $30,000,000 of which $20,000,000 was repaid in early 1997. None of these lines were drawn as of December 31, 1995. The Company voluntarily maintains a $375,000 compensating balance for one of the lines of credit. This balance is included in Cash and Cash Equivalents. Under certain of the above described loan agreements, deposits are made into bank retention accounts to meet the requirements of the applicable agreements. These escrowed amounts totaled $668,000 and $4,867,000 at December 31, 1996 and 1995, respectively, and were included in Other Assets. NOTE C - PENSION PLAN AND POSTRETIREMENT BENEFITS The Company's retirement plan covers all full time employees of domestic subsidiaries who are not otherwise covered under union-sponsored plans. The benefits are based on years of service and the employee's highest sixty consecutive months of compensation. The Company's funding policy is based on minimum contributions required under ERISA as determined through an actuarial computation. Plan assets consist primarily of investments in certain bank common trust funds of trust quality assets and money market holdings. The following table sets forth the plan's funded status and pension costs recognized by the Company:
Actuarial Present Value of Benefit Obligations: December 31, December 31, (All Amounts in Thousands) 1996 1995 ------------ ------------ Vested Benefit Obligation $ (9,837) $ (9,680) ============ ============ Accumulated Benefit Obligation $(10,041) $ (9,795) =========== ============ Projected Benefit Obligation $(12,060) $(10,886) Plan Assets at Fair Value 13,397 12,306 ----------- ------------ Plan Assets in Excess of Projected Benefit Obligation 1,337 1,420 Unrecognized Net Gain (1,489) (1,310) Prior Service Cost Not Yet Recognized in Net Periodic Pension Cost 130 157 Unrecognized Net Obligation Being Recognized Over 15 Years 297 371 ----------- ------------ Accrued Pension Asset $ 275 $ 638 =========== ============
Net Periodic Pension Cost: For the Year Ended December 31, 1996 1995 1994 --------- --------- -------- Service Cost $ 621 $ 451 $ 469 Interest Cost on Projected Benefit Obligation 782 752 701 Actual Return on Plan Assets (1,307) (2,130) 150 Net Amortization and Deferral 440 1,355 (922) --------- --------- -------- Net Periodic Pension Cost $ 536 $ 428 $ 398 ========= ========= ========
Actuarial assumptions used to develop the components of pension expense were as follows: For the Year Ended December 31, 1996 1995 1994 -------- -------- --------- Discount Rate 7.25% 7.25% 8.0% Rate of Increase in Future Compensation Levels 5.5% 5.0% 6.0% Expected Long-term Rate of Return on Assets 8.0% 8.5% 8.5%
Crew members on the Company's U.S. flag vessels belong to union-sponsored pension plans. The Company contributed approximately $2,685,000, $2,322,000, and $2,470,000 to these plans for the years ended December 31, 1996, 1995, and 1994, respectively. These contributions are in accordance with provisions of negotiated labor contracts and generally are based on the amount of straight pay received by the union members. Information from the plans' administrators is not available to permit the Company to determine whether there may be unfunded vested benefits. The Company's postretirement benefit plans currently provide medical, dental, and life insurance benefits to eligible retired employees and their eligible dependents. The following table sets forth the plans' combined funded status reconciled with the amount included in the Company's consolidated balance sheet classification Reserves and Deferred Credits:
Accumulated Postretirement Benefit Obligation: (All Amounts in Thousands) December 31, December 31, 1996 1995 ------------ ------------ Retirees $ (5,148) $ (4,638) Fully eligible active plan participants (1,732) (1,655) Other active plan participants (1,318) (1,265) ------------ ------------ $ (8,198) $ (7,558) Plan Assets at Fair Value - - ------------ ------------ Accumulated Postretirement Benefits Obligation in Excess of Plan Assets $ (8,198) $ (7,558) Unrecognized Experience Loss 1,910 1,685 ------------ ------------ Accrued Postretirement Benefit Cost in the Balance Sheet $ (6,288) $ (5,873) ============ ============
Net postretirement benefit cost includes the following components: For the Year Ended December 31, 1996 1995 1994 -------- -------- -------- Service Cost $ 134 $ 110 $ 107 Interest Cost on Accumulated Postretirement Benefit Obligation 556 520 464 Net Amortization 85 37 71 -------- -------- -------- Net Postretirement Benefit Cost $ 775 $ 667 $ 642 ======== ======== ========
The accumulated postretirement benefit obligation was computed using an assumed discount rate of 7.25% in 1996 and 1995 and 8% in 1994. The health and dental care cost trend rate was assumed to be 10.25% for 1996, gradually declining to 5% in the year 2003. If the health and dental care cost trend rate were increased one percent for all future years, the accumulated postretirement benefit obligation as of December 31, 1996, would have increased approximately $958,000 or 12%. The effect of this change in the net postretirement benefit cost for 1996 would have been an increase of approximately $83,000 or 11%. The Company continues to evaluate ways in which it can better manage these benefits and control the costs. Any changes in the plan or revisions to assumptions that affect the amount of expected future benefits may have a significant effect on the amount of the reported obligation and annual expense. NOTE D - INCOME TAXES The Federal income tax returns of the Company are filed on a consolidated basis and include the results of operations of its wholly-owned U.S. subsidiaries. Pursuant to the Tax Reform Act of 1986, the earnings of foreign subsidiaries ($618,990 in 1996, $12,001,257 in 1995, and $4,147,420 in 1994) are also included. Prior to 1987, deferred income taxes were not provided on undistributed foreign earnings of $6,689,245, all of which are expected to remain invested indefinitely. In accordance with the Tax Reform Act of 1986, commencing in 1987 earnings generated from profitable controlled foreign subsidiaries are subject to Federal income taxes.
Components of the net deferred tax liability/(asset) are as follows: December 31, December 31, (All Amounts in Thousands) 1996 1995 ------------ ------------ Gross Liabilities: Fixed Assets $33,671 $31,939 Deferred Charges 3,521 6,174 Unterminated Voyage Revenue/ Expense 1,267 2,045 Intangible Assets 7,342 7,498 Other Liabilities 22,380 14,492 Gross Assets: Insurance and Claims Reserve (3,501) (4,239) Net Operating Loss Carryforward/ Unutilized Deficit (903) (1,838) Valuation Allowance 879 879 Other Assets (23,172) (16,999) ----------- ----------- Total Deferred Tax Liability, Net $41,484 $39,951 =========== ===========
The following is a reconciliation of the U.S. statutory tax rate to the Company's effective tax rate: Year Ended December 31, 1996 1995 1994 ------ ------ ------ Statutory Rate 35.0% 35.0% 35.0% State Income Taxes 4.9% 1.2% .9% (Income) of Unconsolidated Entities - - (1.6%) Other (1.2%) (.3%) (.2%) ------ ------ ------ 38.7% 35.9% 34.1% ====== ====== ======
The Company has available at December 31, 1996, unused operating loss carryforwards of $0.4 million and unused foreign deficits of $2.2 million. The operating loss carryforwards will expire in 2001. NOTE E - TRANSACTIONS WITH RELATED PARTIES During 1990, the Company sold one if its subsidiaries to a former employee at a sales price of $500,000. At the end of 1993, the Company sold another subsidiary to the same party for a sales price of $692,000. The total receivable outstanding from this related party totaled $517,000 and $591,000 at December 31, 1996 and 1995, respectively, and is due over a period of ten years from the date of the 1993 sale. The long-term portion of this receivable is included in Due from Related Parties, and the current portion is included in Accounts Receivable-Claims and Other. Collections on the total receivable were $74,000 and $55,000 for the years ended December 31, 1996 and 1995, respectively. Interest income on this receivable is earned at the rate of 6% for the first five years and a variable rate of LIBOR plus 2% thereafter and amounted to $34,000, $38,000, and $46,000 for the years ended December 31, 1996, 1995, and 1994, respectively. Since the Company's inception, the legal firm of Jones, Walker, Waechter, Poitevent, Carrere and Denegre has been utilized for various legal services. During 1992, a son of the President of the Company became a partner of the firm. The Company made payments to the firm totaling approximately $1,299,000, $1,301,000, and $1,525,000 for the years ending December 31, 1996, 1995, and 1994, respectively. Amounts due to the legal firm were $41,000 and $94,000 at December 31, 1996 and 1995, respectively, and were included in Accounts Payable and Accrued Liabilities. NOTE F - COMMITMENTS AND CONTINGENCIES During 1996, the Company purchased a LASH vessel to provide ocean transportation services. The cost of the vessel along with necessary refurbishment is expected to approximate $20,576,000 of which $13,304,000 was paid as of December 31, 1996. The remaining $7,272,000 is expected to be paid within one year and is included in Accounts Payable and Accrued Liabilities at December 31, 1996. A major portion of these costs will be funded through draws of approximately $5,061,000 remaining on a long-term loan with a commercial bank. In late 1996, the Company committed to the refinancing in early 1997 of a $3,375,000 medium-term, commercial bank loan at more favorable terms. The current maturities of this loan to be refinanced as long-term debt through the new loan amount to $2,619,000. To properly reflect the Company's current liabilities at December 31, 1996, the amounts to be refinanced of $5,061,000 and $2,619,000 discussed above were reclassified as long-term liabilities and included in the consolidated balance sheet as Current Liabilities to be Refinanced. As of December 31, 1996, 23 vessels that the Company owns or operates were under various contracts extending beyond 1996 and expiring at various dates through 2024. In addition, the Company also operates 111 jumbo river barges, 15 towboats, and certain terminal transfer equipment under a contract which expires in 2004. Certain of these agreements also contain options to extend the contracts beyond their minimum terms. The Company also maintains lines of credit totaling $1,600,000 to cover standby letters of credit for membership in various shipping conferences. In the normal course of its operations, the Company becomes involved in various litigation matters including, among other things, claims by third parties for alleged property damages, personal injuries, and other matters. While the Company believes it has meritorious defenses against these claims, management has used significant estimates in determining the Company's potential exposure. Where appropriate, the Company has booked reserves, included in Reserves and Deferred Credits: Claims and Other, to cover its potential exposure and anticipated recoveries from insurance companies, included in Other Assets. It is reasonably possible that a change in the Company's estimate of its exposure could occur. Although it is difficult to predict the costs of ultimately resolving such issues, the Company does not expect such costs will have a material effect on the Company's financial position or results of operations. NOTE G - LEASES In 1988 the Company entered into direct financing leases of two foreign flag pure car carriers expiring in the year 2000. The schedule of future minimum rentals to be received under these direct financing leases in effect at December 31, 1996, is as follows:
Receivables Under (All Amounts in Thousands) Financing Leases -------------------- Year Ended December 31, 1997 $ 4,972 1998 4,621 1999 4,265 2000 1,313 -------- Total Minimum Lease Payments Receivable 15,171 Estimated Residual Values of Leased Properties 18,000 Less Unearned Income (8,341) -------- Total Net Investment in Direct Financing Leases 24,830 Current Portion (2,033) -------- Long-Term Net Investment in Direct Financing Leases at December 31, 1996 $ 22,797 =========
The Company entered into sale-leaseback agreements in 1991 and 1992 for a group of the Company's LASH barges. These leases meet the required criteria for a capital lease and are accounted for as such. The terms of the leases are 12 years. The capital leases are included in Vessels, Property, and Other Equipment as follows:
December 31, December31, (All Amounts in Thousands) 1996 1995 -------------- ------------- LASH barges $ 24,950 $ 24,950 Less Accumulated Depreciation (10,315) (8,224) -------------- ------------- Total $ 14,635 $ 16,726 ============== =============
The following is a schedule, by year, of future minimum lease payments under capital leases, together with the present value of the minimum payments as of December 31, 1996:
Payments Under (All Amounts in Thousands) Capital Leases -------------- Year Ended December 31, 1997 $ 4,061 1998 4,450 1999 4,521 2000 4,528 2001 5,433 Thereafter 5,205 ------------ 28,198 Less Amount Representing Interest (8,575) ------------ Present Value of Future Minimum Payments (Based on a Weighted Average of 10.39%) $ 19,623 ============
The Company conducts certain of its operations from leased office facilities and uses certain data processing, transportation, and other equipment under operating leases expiring at various dates to 2003. Rent expense related to operating leases totaled approximately $2,375,000, $2,453,000, and $2,503,000 for the years ended December 31, 1996, 1995, and 1994, respectively. The following is a schedule, by year, of future minimum payments required under operating leases that have initial or remaining non-cancelable terms in excess of one year as of December 31, 1996:
Payments Under (All Amounts in Thousands) Operating Leases ---------------------- Year Ended December 31, 1997 $ 3,015 1998 2,040 1999 535 2000 508 2001 492 Thereafter 849 --------------------- Total Future Minimum Payments $ 7,439 =====================
NOTE H - DEFERRED CHARGES AND ACQUIRED CONTRACT COSTS The Company defers certain costs related to the acquisition of vessel operating contracts, the cost of placing vessels in service, and the drydocking of vessels. The costs of vessel prepositioning are amortized over the applicable contract periods. Deferred drydocking costs are amortized over the period between drydockings (generally two to five years). Financing charges are amortized over the life of the applicable debt involved. These deferred costs are all amortized based on a straight-line basis and are comprised of the following:
December 31, December 31, (All Amounts in Thousands) 1996 1995 ------------ ------------ Drydocking $ 26,102 $ 13,567 Prepositioning 8,199 4,826 Financing Charges and Other 9,017 8,559 ------------ ------------ $ 43,318 $ 26,952 ============ ============
The acquired contract cost represents the portion of the purchase price paid for Waterman Steamship Corporation applicable primarily to that company's maritime prepositioning ship contracts and operating differential subsidy agreements. The Company amortizes acquired contract costs using the straight-line method over the contracts' useful lives ranging from seven to twenty-one years from the acquisition date. NOTE I - SIGNIFICANT OPERATIONS The Company has several medium to long-term contracts related to the operations of various vessels (See Note F), from which revenues represent a significant amount of the Company's total revenue. Revenues from the contracts with the United States Military Sealift Command ("MSC") were $69,605,000, $75,086,000, and $75,137,000 for the years ended December 31, 1996, 1995, and 1994, respectively. Additionally, the Company operates four U.S. flag LASH vessels on subsidized liner service on Trade Routes 18 and 17. Revenues, including ODS, from this operation were $132,824,000, $129,067,000, and $137,021,000 for the years ended December 31, 1996, 1995 and 1994, respectively. The Company has operated two international flag LASH vessels on a scheduled liner service between U.S. Gulf and East Coast ports and ports in Northern Europe. During early 1997, an additional international flag LASH vessel was added to this service. Revenues from these operations were $61,259,000, $67,500,000, and $68,287,000 for the years ended December 31, 1996, 1995, and 1994, respectively. A significant portion of the Company's traffic receivables are due from contracts with MSC and transportation of government sponsored cargo. There are no other concentrations of receivables from customers or geographic regions that exceed 10% of stockholders' investment at December 31, 1996 or 1995. The Company has operations in several principal markets, including international service between the U.S. Gulf and East coast ports and ports in the Middle East, Far East, and northern Europe and domestic transportation and services along the Mississippi River and U.S. Gulf Coast. NOTE J - UNCONSOLIDATED ENTITIES As of December 31, 1994, the Company held an approximate 9% interest in Havtor AS, a publicly traded company listed on the Oslo Stock Exchange. In addition, shares which represented a 3.6% interest in Havtor AS were held by the Company as collateral for a promissory note. The Company also held a 14.2% interest in A/S Havtor Management, a privately held Norwegian ship management company affiliated with Havtor AS. As of December 31, 1994, the Company held a 50% interest in a foreign entity, Bulkowner's 1984, which was formed to own and operate two combination dry cargo/petroleum products, PROBO vessels. The Company also held a 10% interest in a limited partnership with certain Norwegian interests to construct and own a Liquified Petroleum Gas carrier which delivered in 1993. During the first half of 1995, A/S Havtor Management and the gas carrier activities of Kvaerner, an unrelated Norwegian company, merged into Havtor AS. In addition, Havtor AS agreed to acquire other vessels and vessel interests, including the 50% interest held by the Company in two PROBO vessels and the 10% interest held in a Liquified Petroleum Gas carrier. Subsequent to the merger, the Company's interest in Havtor AS approximated 6.4%. During the second quarter of 1995, the Company purchased the Norwegian interest, A/S Havfond, which held the promissory note which was collateralized by shares of Havtor AS. The acquisition was accounted for as a purchase and results for A/S Havfond have been included in the accompanying consolidated financial statements since the date of acquisition. After the acquisition, the Company's interest in Havtor AS approximated 7.7%. During November 1995, the Company sold this 7.7% interest in Havtor AS for approximately $48,000,000. The sale resulted in a before tax gain of approximately $17,000,000. During the first quarter of 1993, the Company sold an 18.5% direct interest in A/S Havtor for approximately $7,557,000, of which $2,777,000 was received in cash and $4,780,000 was received in the form of a promissory note. The transaction reduced the Company's direct interest in A/S Havtor to 14.8% and resulted in an after tax gain of approximately $900,000. A provision for doubtful accounts was recorded in 1993 to reflect the deferral of the gain until receipt of the proceeds from the promissory note originally scheduled to mature in mid- 1996. In substitution for the A/S Havtor stock held as collateral under this promissory note, shares in the publicly traded Havtor AS were pledged during 1994 due to the aforementioned merger. These shares which represented a 3.6% interest in Havtor AS, had a market value of approximately $8,600,000 as of December 31,1994. The carrying amount of the related note receivable and the accrued interest as of the same date was approximately $5,500,000. Due to the liquidity and market value of these shares, deferral of the gain was no longer necessary. Therefore, during 1994 the related allowance was reversed resulting in income after tax of $900,000. At December 31, 1994, the Company held a 50% interest in Bulkowner's 1984 which was accounted for under the equity method. Following is a summary of the unaudited financial data of Bulkowner's 1984:
Twelve Months Ended October 31, (All Amounts in Thousands) 1994 Gross Revenues $9,052 ====== Gross Profit $4,132 ====== Net Income $1,840 ======
During 1996, the Company acquired the remaining 50% interest in Marco Shipping Company, (PTE.) Ltd. ("Marco"), a foreign entity which acts in an agent capacity on behalf of the Company. The acquisition was accounted for as a purchase, and the results of Marco, which were not material, have been included in the accompanying consolidated financial statements since the date of acquisition. The cost of the acquisition has been allocated on the basis of the estimated fair market value of the assets acquired and the liabilities assumed. This allocation resulted in goodwill of approximately $25,000 which is being amortized over 10 years. Income of foreign unconsolidated entities is recorded net of applicable taxes of approximately $201,000 and $32,000 in 1995 and 1994, respectively. There was no income of foreign unconsolidated entities in 1996. NOTE K - SUPPLEMENTAL CASH FLOW INFORMATION
Year Ended December 31, (All Amounts in Thousands) 1996 1995 1994 -------- -------- -------- Non-Cash Investing and Financing Activities: Accounts Payable to be Refinanced $ 7,680 $19,030 $ - Cash Payments: Interest Paid 27,853 26,633 23,537 Taxes Paid 13,043 5,478 2,982
The Company sold an interest in A/S Havtor in 1993 for $7,557,000 of which $2,777,000 was received in cash and $4,780,000 in the form of a promissory note which was included in Other Assets: Due from Related Parties at December 31, 1994. During 1995 the Company purchased AS Havfond, the Norwegian interest which held this promissory note. For purposes of the accompanying consolidated statements of cash flows, the Company considers highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. NOTE L - FAIR VALUE OF FINANCIAL INSTRUMENTS AND DERIVATIVES The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: Cash and Cash Equivalents and Marketable Securities - --------------------------------------------------- The carrying amount approximates fair value for each of these instruments. The Company has categorized all marketable securities as available for sale. Interest Rate Conversion Agreements - ----------------------------------- The Company has only limited involvement with derivative financial instruments. They are used to manage well-defined interest rate risks and are not used for trading purposes. During 1993, the Company entered into interest rate conversion agreements with two commercial banks to reduce the possible impact of higher rates in the long-term market by utilizing potentially lower rates in the short-term market. The floating rate payor is the Company, and the commercial banks are the fixed rate payors. The floating and fixed rates at December 31, 1995, were 5.875% and 4.72%, respectively. The contract amounts totaled $100,000,000 at December 31, 1995, and expired in August of 1996. The Company made payments under these agreements totaling $889,000 and $1,265,000 during 1996 and 1995, respectively. Net receipts or payments under the agreements are recognized as an adjustment to interest expense. The fair value of interest rate swaps is the estimated amount that the bank would receive or pay to terminate the swap agreements at the reporting date, taking into account current market conditions and interest rates. Foreign Currency Contracts - -------------------------- The Company enters into forward exchange contracts to hedge certain firm purchase and sale commitments denominated in foreign currencies. The term of the currency derivatives is rarely more than one year. The purpose of the Company's foreign currency hedging activities is to protect the Company from the risk that the eventual dollar cash inflows or outflows resulting from revenue collections from foreign customers and purchases from foreign suppliers will be adversely affected by changes in exchange rates. As of December 31, 1996, the Company had entered into various forward purchase contracts for Singapore Dollars totaling $1,914,000 U.S. Dollar equivalents to hedge against future payments due for drydocking cost of a LASH vessel and for various other currencies totaling $245,000 U.S. Dollar equivalents for other future payments. These forward purchase contracts approximated fair market value at December 31, 1996. As of December 31, 1995, the Company had entered into various forward purchase contracts for Singapore Dollars totaling $23,316,000 U.S. Dollar equivalents to hedge against future payments due to Singapore shipyards for conversion work on two float-on/float-off vessels. Gains or losses on forward exchange contracts which hedge exposures on firm foreign currency commitments are deferred and recognized as adjustments to the bases of those assets. As of December 31, 1996 and 1995, the Company was also a party to forward sales contracts in various currencies totaling $1,927,000 and $515,000 U.S. Dollar equivalents, respectively, which approximated fair market value. Gains and losses on these contracts are recognized in net income of the period in which the exchange rate changes. Long-Term Debt - -------------- The fair value of the Company's debt is estimated based on quoted market prices for the publicly listed Senior Notes and the current rates offered to the Company on other outstanding obligations. Amounts Due from Related Parties - -------------------------------- The carrying amount of these notes receivable approximated fair market value as of December 31, 1996 and 1995. Fair market value takes into consideration the current rates at which similar notes would be made and the market value of collateral underlying the notes. Restricted Investments - ---------------------- The carrying amount of these investments, which were included in Other Assets, approximated fair market value as of December 31, 1996 and 1995, based upon current rates offered on similar instruments. The estimated fair values of the Company's financial instruments and derivatives are as follows (asset/(liability)):
December 31, December 31, 1996 1995 ------------------ -------------------- Carrying Fair Carrying Fair (All Amounts in Thousands) Amount Value Amount Value ------------------ -------------------- Interest Rate Conversion Agreements - - - $ (552) Forward Purchase Contracts - - - 54 Long-Term Debt $(332,904) $(332,049) $(310,657) ( 315,929)
Disclosure of the fair value of all balance sheet classifications, including but not limited to certain vessels, property, plant and equipment, direct financing leases, or intangible assets which may have a fair value in excess of historical cost, is not required. Therefore, this disclosure does not purport to represent the fair value of the Company. NOTE M - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Detailed below are the components of the consolidated balance sheet classification Accounts Payable and Accrued Liabilities for the periods indicated.
December 31, December 31, (All Amounts in Thousands) 1996 1995 ------------ ------------ Trade Accounts Payable $ 14,945 $ 11,278 Accrued Salaries and Benefits 2,683 3,509 Accrued Voyage Expenses 34,200 27,571 Accrued Interest 8,590 10,666 Accrued Vessel Costs 7,272 24,457 ------------ ------------ $ 67,690 $ 77,481 ============ ============
NOTE N-QUARTERLY FINANCIAL INFORMATION - (Unaudited)
Quarter Ended ----------------------------------------- March 31 June 30 Sept. 30 Dec. 31 ---------- --------- ---------- --------- (All amounts in thousands except per share data) - ------------------------------------------------------------------------ 1996 Revenue $ 95,235 $ 97,775 $ 90,418 $ 95,499 Expense 78,088 80,316 73,655 79,920 Gross Voyage Profit 17,147 17,459 16,763 15,579 Income Before Extraordinary Item 2,248 2,685 2,053 1,650 Extraordinary Item - - - (813) Net Income 2,248 2,685 2,053 837 Earnings per Common and Common Equivalent Share: Primary: Income Before Extraordinary Item 0.34 0.40 0.31 0.24 Extraordinary Item - - - (0.12) Net Income 0.34 0.40 0.31 0.12 - ----------------------------------------------------------------------- 1995 Revenue $ 83,302 $ 84,844 $ 84,108 $ 89,535 Expense 68,332 69,780 68,533 70,608 Gross Voyage Profit 14,970 15,064 15,575 18,927 Net Income 2,086 2,020 2,029 14,845 Earnings per Common and Common Equivalent Share: Primary: Net Income 0.31* 0.30* 0.30* 2.23 - -------------------------------------------------------------------- 1994 Revenue $ 83,361 $ 89,148 $ 81,568 $ 88,256 Expense 68,295 74,658 64,792 69,273 Gross Voyage Profit 15,066 14,490 16,776 18,983 Net Income 2,447 3,391 3,498 3,715 Earnings per Common and Common Equivalent Share: Primary: Net Income 0.37* 0.51* 0.52* 0.55* - --------------------------------------------------------------------
[FN] * Restated for November 17, 1995, stock dividend of twenty-five percent for each one share of common stock outstanding. COMMON STOCK PRICES AND DIVIDENDS FOR EACH QUARTERLY PERIOD OF 1995 AND 1996 (Source: New York Stock Exchange)
Cash Dividends 1995 High Low Paid __________ ________ ________ _________ 1st Quarter 16 1/2* 15 3/8* .04/Share* 2nd Quarter 17 1/4* 16* .04/Share* 3rd Quarter 20 1/8* 16 5/8* .04/Share* 4th Quarter 21 3/4* 18 7/8* .0625/Share
Cash Dividends 1996 High Low Paid ___________ ________ ________ ___________ 1st Quarter 20 3/4 18 7/8 .0625/Share 2nd Quarter 19 3/8 16 3/8 .0625/Share 3rd Quarter 19 5/8 17 1/2 .0625/Share 4th Quarter 19 16 7/8 .0625/Share
[FN] Approximate Number of Common Stockholders of Record at March 1, 1997- 900 *Restated for November 17, 1995, stock dividend of twenty five percent for each one share of common stock outstanding. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To The Stockholders of International Shipholding Corporation: We have audited the accompanying consolidated balance sheets of International Shipholding Corporation (a Delaware corporation) and subsidiaries (the Company) as of December 31, 1996 and 1995, and the related consolidated statements of income, changes in stockholders' investment and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of International Shipholding Corporation and subsidiaries as of December 31, 1996 and 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. New Orleans, Louisiana January 10, 1997 /S/ ARTHUR ANDERSEN LLP EX-21 3 SUBSIDIARIES OF THE REGISTRANT INTERNATIONAL SHIPHOLDING CORPORATION SUBSIDIARIES OF THE REGISTRANT AS OF DECEMBER 31, 1996
Jurisdiction Under Which Organized ------------------ International Shipholding Corporation (Registrant) Delaware International Shipholding Corporation (1) New York River Towing, Inc. Delaware Waterman Steamship Corporation New York Sulphur Carriers, Inc. Delaware Central Gulf Lines, Inc. Delaware Florida Barge Lines Corporation Delaware Material Transfer, Inc. Delaware Enterprise Ship Company, Inc. Delaware Bay Insurance Company Bermuda LCI Shipholdings, Inc. Liberia Gulf South Inc. Liberia Gulf South Shipping Pte. Ltd. Singapore Cypress Auto Carriers, Inc. Liberia New Combo, Inc. Liberia Forest Lines Inc. Liberia Marco Shipping Co. Pte. Ltd. Singapore Marcoship Agencies Malaysia N. W. Johnsen & Co., Inc. New York Shipvest Companhia de Gestao Maritima, Lda.(2) Madeira St. Rose Fleeting Company, Inc. Louisiana Lash Marine Services, Inc. Louisiana Lash Intermodal Terminal Company Delaware Resource Carriers, Inc. Delaware
[FN] (1) New York name-holding corporation (2) 60% owned by the Registrant All of the subsidiaries listed above are wholly-owned subsidiaries and are included in the consolidated financial statements incorporated by reference herein unless otherwise indicated. EX-27 4 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS DEC-31-1996 DEC-31-1996 43020 2727 56204 256 12043 123200 722020 276222 661596 96272 324756 0 0 6756 165651 661596 0 378927 0 338235 28528 0 28528 14099 5463 8636 0 (813) 0 7823 1.17 1.17
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