-----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, NtENNGMK/7dFcJ2C816Jl3qOa0CGpo57Zx2gnusyUOKi78339MmwGyuX2n5Lvibt 5savaABtoaKDTz80GQicNQ== 0000890566-98-000427.txt : 19980330 0000890566-98-000427.hdr.sgml : 19980330 ACCESSION NUMBER: 0000890566-98-000427 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980327 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: SEC FILE NUMBER: 001-10852 FILM NUMBER: 98575574 BUSINESS ADDRESS: STREET 1: 650 POYDRAS ST STE 1700 CITY: NEW ORLEANS STATE: LA ZIP: 70130 BUSINESS PHONE: 5045295461 10-K405 1 ============================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM . . . . . . . . . . . . TO . . . . . . . . COMMISSION FILE NO. 2-63322 INTERNATIONAL SHIPHOLDING CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 36-2989662 (STATE OR OTHER JURISDICTION OF (I.R.S. IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 650 POYDRAS STREET, NEW ORLEANS, LOUISIANA 70130 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (504) 529-5461 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- ------------------- Common Stock, $1 Par Value New York Stock Exchange 9% Senior Notes Due 2003 New York Stock Exchange 7 3/4% Senior Notes Due 2007 None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] State the aggregate market value of the voting stock held by non-affiliates of the registrant. DATE AMOUNT ---- ------ February 27, 1998 $79,741,648 Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. Common stock, $1 par value. . . . . . . . 6,682,887 shares outstanding as of February 27, 1998 DOCUMENTS INCORPORATED BY REFERENCE Portions of the Annual Report to Shareholders for the fiscal year ended December 31, 1997, have been incorporated by reference into Parts I and II of this Form 10-K. Portions of the registrant's definitive proxy statement dated March 10, 1998, have been incorporated by reference into Part III of this Form 10-K. PART I ITEM 1. BUSINESS GENERAL The Company, through its subsidiaries, operates a diversified fleet of U.S. and foreign flag vessels that provide international and domestic maritime transportation services to commercial and governmental customers primarily under medium- to long-term charters or contracts. Substantially all of these charters or contracts are either renewals or extensions of previous agreements. At December 31, 1997, the Company's fleet consisted of 31 ocean-going vessels, 18 towboats, 128 river barges, 26 special purpose barges, 1,789 LASH (Lighter Aboard SHip) barges and related shoreside handling facilities. Early in 1998, the Company acquired one LASH vessel and 82 LASH barges. The Company is the only significant operator of the LASH transportation system, which it pioneered in 1969. The Company's fleet includes 12 large LASH vessels, four LASH feeder vessels and 1,789 LASH barges. The LASH transportation system uses specially designed barges of uniform size which are loaded with cargo at various locations, towed to a centralized fleeting area, loaded aboard a large ocean-going LASH vessel by a 500-ton capacity shipboard crane and transported overseas, where another set of previously loaded LASH barges awaits pick-up. In its transoceanic liner services, the Company uses the LASH system primarily to gather cargo on rivers, in island chains and in harbors that are too shallow for traditional vessels. The 400-ton capacity LASH barges are ideally suited to transport large unit size items such as forest products, natural rubber and steel that cannot be transported efficiently to and from such areas in container ships. The LASH vessel's shipboard crane permits rapid loading and unloading of LASH barges either dockside or at anchor. This rapid loading and unloading capability provides quick vessel turnaround and minimizes port time, cargo handling and reliance upon shoreside support facilities. In addition to LASH vessels, the Company's fleet consists of (i) two foreign flag and two U.S. flag pure car carriers that are specially designed to transport fully assembled automobiles; (ii) two U.S. flag ice-strengthened multi-purpose vessels, one of which supports scientific and defense operations in the polar regions and the other of which is used by the Military Sealift Command ("MSC") to carry the components of a 500-bed U.S. Navy field hospital in the Indian Ocean; (iii) one foreign flag cape-size bulk carrier; (iv) one U.S. flag molten sulphur carrier, which is used to carry molten sulphur from Louisiana and Texas to a processing plant on the Florida Gulf Coast; (v) two float-on/float-off special purpose vessels ("SPV") and one 5,000-ton container vessel, which, together with ancillary vessels, are used to transport supplies for the Indonesian operations of a major mining company; (vi) one U.S. flag conveyer-equipped self-unloading coal carrier which carries coal in the coastwise and near-sea trade; (vii) three roll-on/roll-off ("RO/RO") vessels that permit rapid deployment of rolling stock, munitions and other military cargoes requiring special handling; and (viii) 14 inland waterway towboats and 111 super-jumbo river barges that transport coal from Indiana to Florida for an electric utility and unload via shoreside facilities owned and operated by the Company. The Company's fleet is deployed by its principal operating subsidiaries, Central Gulf Lines, Inc. ("Central Gulf"), LCI Shipholdings, Inc. ("LCI"), Forest Lines Inc. ("Forest Lines") and Waterman Steamship Corporation ("Waterman"). The Company provides five types of services: o DOMESTIC TRANSPORTATION SERVICES - the Company provides domestic transportation services, primarily through its long-term coal and sulphur transportation contracts and its ownership of an intermodal transfer and warehouse facility in Memphis, Tennessee, and a coal transfer terminal in Gulf County, Florida; o LINER SERVICES - the Company operates a foreign flag LASH liner service between U.S. Gulf and East Coast ports and ports in Northern Europe, and a U.S. flag LASH liner service between U.S. Gulf and East Coast ports and ports in south Asia, the Middle East and Northern Africa; 2 o MILITARY SEALIFT COMMAND CHARTERS - the Company time charters vessels to the MSC for use in the MSC's military prepositioning program and its scientific and defense operations in the Arctic and Antarctic; o PURE CAR CARRIERS - the Company transports fully assembled Toyota and Honda automobiles from Japan to the United States and fully assembled Hyundai automobiles from South Korea primarily to the United States and Europe; and o SPECIAL PURPOSE VESSELS - the Company provides ocean transportation services under a long-term contract with a major mining company for its Indonesian operations. BUSINESS STRATEGY The Company's strategy is to (i) identify customers with high credit quality and marine transportation needs requiring specialized vessels or operating techniques, (ii) seek medium- to long-term charters or contracts with those customers and, if necessary, modify, acquire or construct vessels to meet the requirements of those charters or contracts and (iii) provide its customers with reliable, high quality service at a reasonable cost. The Company believes that its strategy has produced stable operating cash flows and valuable long-term relationships with its customers. The Company plans to continue this strategy by expanding its relationships with existing customers, seeking new customers and selectively pursuing acquisitions. HISTORY The Company was originally founded as Central Gulf Steamship Corporation in 1947 by the late Niels F. Johnsen and his sons, Niels W. Johnsen, the Company's current Chairman, and Erik F. Johnsen, its current President. Central Gulf was privately held until 1971 when it merged with Trans Union Corporation. In 1978, ISC was formed to act as a holding company for Central Gulf, LCI and certain other affiliated companies in connection with the 1979 spin-off by Trans Union of the Company's common stock to Trans Union's stockholders. In 1986, the Company acquired the assets of Forest Lines, and in 1989, the Company acquired the ownership of Waterman. Since its spin-off from Trans Union, the Company has continued to act solely as a holding company, and its only significant assets consist of the capital stock of its subsidiaries. COMPETITIVE STRENGTHS LARGEST LASH TRANSPORTATION SYSTEM PROVIDER. The Company is the only significant commercial operator of the LASH transportation system, which it pioneered in 1969. The Company owns all 12 of the LASH vessels that are currently used worldwide for commercial services. A key advantage of the LASH transportation system is that it minimizes port and cargo handling time. While a LASH vessel is transporting one set of LASH barges overseas, another set of LASH barges is being loaded with cargo and gathered at the destination staging area. Other advantages of the Company's LASH transportation system include the ability to access areas that lack traditional port facilities and to carry larger than container sized cargo. The Company believes that the cost of replicating its LASH transportation system is a significant barrier to entry for a potential competitor. Management believes that a new competitor would have to acquire not only a LASH vessel (estimated to cost $80 million to build), but also three sets of approximately 90 barges each (estimated to cost $100,000 per barge to build) to achieve similar operating efficiencies. STABLE CASH FLOW. The Company's historical cash flows have been relatively stable because of the length and structure of the Company's contracts with creditworthy customers, as well as the Company's diversified customer and cargo bases. The Company's medium- to long-term charters provide for a daily charter rate that is payable whether or not the charterer utilizes the vessel. These charters generally require the charterer to pay certain voyage operating costs, including fuel, port and stevedoring expenses, and often 3 include cost escalation features covering certain of the Company's expenses. In addition, the Company's medium- to long-term contracts of affreightment guarantee a minimum amount of cargo for transportation. Furthermore, the Company's diversified cargo and customer bases have contributed to the stability of the Company's operating cash flow. The Company also believes that the high credit quality of its customers and the length of its contracts help reduce the effects of cyclical market conditions. LONG-STANDING CUSTOMER RELATIONSHIPS. The Company currently has medium- to long-term time charters with, or contracts to carry cargo for, high credit quality commercial customers that include International Paper Company, Freeport-McMoRan Sulphur, Inc., P.T. Freeport Indonesia Company, The Goodyear Tire and Rubber Company, Toyota Motor Corporation, Honda Motor Co. Ltd., Hyundai Motor Company, Seminole Electric Cooperative and New England Power Co. Most of these companies have been customers of the Company for over ten years. Substantially all of the Company's current cargo contracts and charter agreements are renewals or extensions of previous agreements. In recent years the Company has been successful in winning extensions or renewals of substantially all of the contracts rebid by its commercial customers. Additionally, for over 30 years the Company has been operating vessels for the MSC under charters or contracts that typically contain extension options for one or more periods. Historically, the MSC has exercised substantially all of its renewal options. The Company believes that its long-standing customer relationships are in part due to the Company's excellent reputation for providing quality specialized maritime service in terms of on-time performance, low cargo loss, minimal damage claims and reasonable rates. EXPERIENCED MANAGEMENT TEAM. The Company's management team has substantial experience in the shipping industry. The Company's Chairman and President have each served the Company in various management capacities since its founding in 1947. In addition, the Company's two Executive Vice Presidents and the Chief Financial Officer have over 72 years of collective experience with ISC. The Company believes that the experience of its management team is important to maintaining long-term relationships with its customers. TYPES OF SERVICE The Company through its principal operating subsidiaries, provides five types of service: Domestic Transportation Services, Liner Services, Military Sealift Command Charters, Pure Car Carriers and Special Purpose Vessels. The Company provides specialized maritime transportation services to its customers primarily under medium- to long-term contracts. DOMESTIC TRANSPORTATION SERVICES COAL. In 1981, the Company entered into a 22-year contract expiring in 2004 with Seminole Electric Cooperative, Inc., a Florida based rural electric generation and transmission cooperative for the transportation of coal from Mt. Vernon, Indiana, to Gulf County, Florida. Under this contract, which was awarded pursuant to competitive bidding, the Company is guaranteed annually a minimum of 2.7 million tons of coal to be transported by inland waterways through its operation of 14 chartered towboats, 108 chartered super-jumbo river barges and three such barges that it owns. Under this contract, the Company typically has transported approximately 3.0 million tons of coal per year. To protect both parties against cost variations, the contract contains escalation and de-escalation clauses designed to adjust the contract price for fluctuations in fuel costs, wages and other operating expenses. The Company is also responsible for unloading the barges at the discharge point in Gulf County, Florida, and transferring the coal into railcars. To facilitate this process, the Company owns and operates an automated terminal facility which can be operated by relatively few employees and is capable of loading and unloading three times the amount of coal currently transported through the facility under the contract. In late 1995, the Company purchased an existing U.S. flag conveyor-equipped, self-unloading coal carrier which it concurrently chartered to a New England Power Company under a 15-year contract of affreightment to carry coal in the coastwise and near-sea trade. The ship will also be used, from time to time during this charter period, to carry coal and other bulk commodities for the account of other major 4 charterers. MOLTEN SULPHUR. In 1994, the Company entered into a 15-year transportation contract with Freeport McMoRan Sulphur, Inc., a major sulphur producer for which it had built a 24,000 DWT molten sulphur carrier that carries molten sulphur from Louisiana and Texas to a fertilizer plant on the Florida Gulf Coast. Under the terms of this contract, the Company is guaranteed the transportation of a minimum of 1.8 million tons of sulphur per year. The contract also gives the charterer three five-year renewal options. The vessel was delivered and began service during late 1994. LITCO FACILITY. During 1991, the Company entered into an agreement with Cooper/T. Smith Stevedoring pursuant to which the Company acquired a 50% interest in a newly constructed, all weather rapid cargo transfer facility at the river port of Memphis, Tennessee, for handling LASH barges transported by subsidiaries of the Company in its LASH liner services. LITCO (LASH Intermodal Terminal COmpany) began operations in May of 1992 and provides 287,500 square feet of enclosed warehouse and loading/discharging stations for LASH barge, rail, truck and heavy-lift operations. In June of 1993, the Company purchased the remaining 50% interest from Cooper/T. Smith Stevedoring, who has continued to manage the facility under a management agreement with the Company. LINER SERVICES FOREIGN FLAG. Under the name "Forest Lines," the Company operates three foreign flag LASH vessels and a self-propelled, semi-submersible feeder vessel on a scheduled transatlantic liner service. One of these vessels was purchased and refurbished in 1996 and entered this service in early 1997. The oldest of these three vessels will be retired from this service in 1998 and sold thereafter. Each Forest Lines LASH vessel normally makes 10 round trip sailings per year between U.S. Gulf and East Coast ports and ports in northern Europe. Until early 1997, approximately one-half of the aggregate eastbound cargo space was historically reserved for International Paper Company ("International Paper") under a long-term contract of affreightment. While the third ship was in this service in 1997, the total eastbound cargo space reserved for International Paper was approximately 33%. With the return to a two LASH vessel service, the space occupied by International Paper should return to the historical average of 50%. The remaining space was provided on a voyage affreightment basis to commercial shippers. In recent years, approximately 10% was used by other forest products exporters, and the remaining 40% was used by various commercial shippers to carry a variety of general cargo. The Company has had ocean transportation contracts with International Paper since 1969 when the Company had two LASH ships built to accommodate International Paper's trade. The Company's contract of affreightment with International Paper is for the carriage of wood pulp, liner board and other forest products, the characteristics of which are well suited for transportation by LASH vessels. The LASH system minimizes damage to such cargo by reducing the number of times that the cargo is handled and permits the Company to load and unload these products at the shipper's and the receiver's facilities, which are generally located on river systems that container ships and break bulk vessels do not serve. The Company's current contract with International Paper is for a ten-year term ending in 2002. Over the years, the Company has established a base of commercial shippers to which it provides space on the westbound Forest Lines service. The principal westbound cargoes are steel and other metal products, high-grade paper and wood products, and other general cargo. Over the last five years, the westbound utilization rate for these vessels averaged approximately 85% per year. U.S. FLAG. Waterman operates a U.S. flag liner service between U.S. Gulf and East Coast ports and ports in South Asia (Trade Routes 17 and 18). In connection with this service, Waterman operates four U.S. flag LASH vessels, as well as three FLASH vessels, which are used as feeder vessels in Southeast Asia. Until early 1997, Waterman received operating differential subsidy ("ODS") payments from the U.S. government with respect to each of the four LASH vessels used in this service. The subsidy payments were in amounts approximating the excess of certain vessel expenses, primarily wages, over comparable costs of the Company's principal foreign flag competitors on the same trade routes. The Maritime Security Act of 1996 established a new subsidy program for certain U.S. flag vessels. This program eliminated the trade route restrictions imposed by the ODS program and provides flexibility to operate freely in the 5 competitive market. Under this new program, each participating vessel is eligible to receive an annual subsidy payment of $2.1 million, subject to annual appropriations. Seven of the Company's vessels have qualified for participation, including the four LASH vessels deployed in Waterman's U.S. flag liner service. On the eastbound portion of Waterman's U.S. flag liner service, a significant part of each vessel's cargo traditionally has been shipped to lesser developed countries under the Public Law-480 program, pursuant to which the United States government sells or donates surplus food products for export to developing countries. Seventy-five percent of this cargo is reserved for carriage by U.S. flag vessels, if they are available at reasonable rates. Awards under the Public Law-480 program are made on a voyage-to-voyage basis through periodic competitive bidding. The remaining eastbound cargo consists of general cargo, including some military equipment. Over the last five years, these vessels generally have been fully utilized on their eastbound voyages. On the westbound portion of this service, Waterman provides a significant portion of its cargo space to Goodyear for the transportation of natural rubber under a contract of affreightment expiring in December of 1998. Space is also provided on a voyage-to-voyage basis to other importers of natural rubber, including Uniroyal Goodrich Tire Co., Bridgestone/Firestone, Inc. and certain other importers of natural rubber. The Company has had a continuing relationship with such companies since the early 1970s. The Company's LASH barges are ideally suited for large shipments of natural rubber because compression damage is minimal as compared to the damage that can occur when shipments are made in traditional break bulk vessels. Waterman is the largest U.S. flag carrier of natural rubber from Southeast Asia to the United States. The remaining westbound cargo generally consists of coffee, jute, guar, piece goods and other general cargo. Over the last five years, these vessels generally have been fully utilized on their westbound voyages. The Company acquired a 1987-built LASH vessel in June of 1997 and a 1989-built LASH vessel in early 1998. These vessels will be used temporarily to perform auxiliary service for Waterman in the Indian ocean area. They are intended as replacements for older vessels in the Company's LASH fleet and are candidates for conversion to meet the Company's highest operating standards. MILITARY SEALIFT COMMAND CHARTERS GENERAL. The Company has had contracts with the MSC (or its predecessor) almost continuously for over 30 years. Currently, the Company's subsidiaries have nine vessels under contract to the MSC. These vessels are employed in the MSC's prepositioning programs, which strategically place military equipment and supplies throughout the world, or are chartered to the MSC mainly to service military and scientific operations in the Arctic and Antarctic. The Company believes that the demand for military prepositioning vessels will continue for the near term, notwithstanding planned reductions in overall military spending, because prepositioning military cargo is a key component of the military's established plans to respond quickly to international incidents without incurring the significant costs of operating foreign bases, some of which have been closed in recent years. However, there is no assurance that this policy will continue. MSC charters and contracts are awarded through competitive bidding for fixed terms with options allowing the MSC to extend the charters or contracts for additional periods. During the initial contract period, the MSC typically pays higher charter rates to cover significant expenses incurred in preparing the vessels for deployment, and therefore generally has an economic incentive to extend or renew a charter or contract if the vessel is still needed rather than paying a new shipowner to reconfigure a different vessel. Except in two cases, the MSC has always exercised its extension options, and the Company generally has been successful in winning renewals when the charters and contracts are rebid. Again, there is no assurance that this practice will continue. All charters and contracts require the MSC to pay certain voyage operating costs such as fuel, port and stevedoring expenses, and certain charters and contracts include cost escalation features covering certain of the expenses paid by the Company. For a discussion of the MSC's rights to cancel charters or contracts during option periods, see "Regulation." LASH VESSELS. The Company currently time charters to the MSC four U.S. flag LASH vessels which are used in the military's prepositioning force in the Indian Ocean. Three of these charters expire in 6 May of 1999, September of 2000 and November of 2000, and the fourth expires in October of 1998, with renewal options exercisable by the MSC through August of 2001. After these charters expire, it is anticipated that the MSC will invite rebidding for these contracts and the Company will have to meet the competition at the time to be successful in obtaining renewal charters. ICE-STRENGTHENED MULTI-PURPOSE VESSELS. The Company owns and operates the only two U.S. flag ice-strengthened multi-purpose vessels. These vessels are capable of transporting containerized and break bulk cargo. One of these vessels is used by the MSC to resupply Pacific rim military bases and to supply scientific projects in the Arctic and Antarctic. The contract for the charter of this vessel expired early in 1998, and it is currently operating under a short-term extension while the MSC considers bids for this contract. The Company intends to participate in this bidding process. The other of these vessels began operations under a new charter with the MSC in July of 1997 under which it will be used to carry the components of a 500-bed U.S. Navy field hospital in the Indian Ocean through December of 1998 with renewal options through October of 2000. ROLL-ON/ROLL-OFF VESSELS. In 1983, Waterman was awarded a contract to operate three U.S. flag roll-on/roll-off vessels under time charters to the MSC for use by the United States Navy in its maritime prepositioning ship ("MPS") program. These vessels represent three of the four MPS vessels currently in the MSC's Atlantic fleet, which provides support for the U.S. Marine Corps. These ships are designed primarily to carry rolling stock and containers, and each can carry support equipment for 17,000 military personnel. Waterman sold the three vessels to unaffiliated corporations shortly after being awarded the contract but retained the right to operate the vessels under operating agreements. The MSC time charters commenced in late 1984 and early 1985 for initial five-year periods and were renewable at the MSC's option for additional five-year periods up to a maximum of twenty-five years. In 1993, the Company reached an agreement with the MSC to make certain reductions in future charter hire payments in consideration of fixing the period of these charters for the full 25 years. The charters and related operating agreements will terminate in 2009 and 2010. PURE CAR CARRIERS U.S. FLAG. In 1986, the Company entered into multi-year charters to carry Toyota and Honda automobiles from Japan to the United States. To service these charters, the Company had constructed two pure car carriers which are specially designed to carry 4,000 and 4,660 fully assembled automobiles, respectively. Both vessels were built in Japan, but are registered under the U.S. flag. To be competitive with foreign flag vessels operated by foreign crews, the Company worked in close cooperation with the unions representing the Company's U.S. citizen shipboard personnel. Service under these charters commenced in the fourth quarter of 1987 and continues under recently negotiated medium-term extensions. FOREIGN FLAG. Since 1988, the Company has transported Hyundai automobiles from South Korea primarily to the United States and Europe under two long-term charters that expire in 2000. To service these charters, the Company had two new pure car carriers constructed by a shipyard affiliated with Hyundai. Each of the vessels has a carrying capacity of 4,800 fully assembled automobiles. Under each of the Company's car carrier charters, the charterers are responsible for voyage operating costs such as fuel, port and stevedoring expenses, while the Company is responsible for other operating expenses including crew wages, repairs and insurance. The Hyundai charters also include escalation features covering certain of the expenses paid by the Company. During the terms of these charters, the Company is entitled to its full fee irrespective of the number of voyages completed or the number of cars carried per voyage. 7 SPECIAL PURPOSE VESSELS (SPV'S) During 1994, the Company entered into a long-term contract to provide ocean transportation services to P.T. Freeport Indonesia Company, a major mining company producing copper and gold concentrates at its mine in West Irian Jaya, Indonesia. The Company acquired two SPV's and one container/break bulk vessel and had 26 cargo barges constructed for use with those vessels. The Company added two additional cargo barges to this service in early 1998. The Company's contract is through 2006 with seven three-year renewal options. BULK CARRIER In 1990, the Company acquired a 148,000 DWT-cape-size drybulk carrier. The vessel has been fully employed in the commercial market under various time charters in specific trading areas where bulk cargoes using this size vessel move on a regular basis. ANCILLARY SERVICES The Company has several subsidiaries providing ship charter brokerage, agency, barge fleeting and other specialized services to the Company's subsidiaries and, in the case of ship charter brokerage and agency services, to unaffiliated companies. The income produced by these services substantially covers the related overhead expenses. These services facilitate the Company's operations by allowing it to avoid reliance on third parties to provide these essential shipping services. MARKETING The Company maintains marketing staffs in Washington, D.C., New York, New Orleans, Houston, Chicago and Singapore and maintains a network of marketing agents in major cities around the world who market the Company's liner, charter and contract services. The Company markets its Trans-Atlantic LASH liner service under the trade name "Forest Lines," and its LASH liner service between the U.S. Gulf and Atlantic coast ports and South Asia ports under the Waterman house flag. The Company advertises its services in trade publications in the United States and abroad. INSURANCE The Company maintains protection and indemnity ("P&I") insurance to cover liabilities arising out of the ownership or operation of vessels with Assuranceforeningen GARD and the Standard Steamship Owners' Protection & Indemnity Association (Bermuda) Ltd., which are mutual shipowners' insurance organizations commonly referred to as P&I clubs. Both clubs are participants in and subject to the rules of their respective international group of P&I associations. The premium terms and conditions of the P&I coverage provided to the Company are governed by the rules of each club. The Company maintains hull and machinery insurance policies on each of its vessels in amounts related to the value of each vessel. This insurance coverage, which includes increased value, freight and time charter hire, is maintained with a syndicate of hull underwriters from the United States, British, French and Scandinavian insurance markets. The Company maintains war risk insurance on each of the Company's vessels in an amount equal to each vessel's total insured hull value. War risk insurance is placed through U.S., British, French and Scandinavian insurance markets and covers physical damage to the vessels and P&I risks for which coverage would be excluded by reason of war exclusions under either the hull policies or the rules of the applicable P&I club. The P&I insurance also covers the Company's vessels against liabilities arising from the discharge of oil or hazardous substances in U.S., international and foreign waters. 8 The Company also maintains loss of hire insurance with U.S., British, French and Scandinavian markets to cover its loss of revenue in the event that a vessel is unable to operate for a certain period of time due to loss or damage arising from the perils covered by the hull and machinery policy. Insurance coverage for shoreside property, shipboard consumables and inventory, spare parts, workers' compensation, office contents, and general liability risks is maintained with underwriters in the United States and British markets. Insurance premiums for the coverage described above vary from year to year depending upon the Company's loss record and market conditions. In order to reduce premiums, the Company maintains certain deductible and co-insurance provisions that it believes are prudent and generally consistent with those maintained by other shipping companies and in recent years has increased the self-retention portion under its insurance program while capping its self-retention exposure under stop-loss insurance coverage. REGULATION The Company's operations between the United States and foreign countries are subject to the Shipping Act of 1984 (the "Shipping Act"), which is administered by the Federal Maritime Commission, and certain provisions of the Federal Water Pollution Control Act, the Oil Pollution Act of 1990 and the Comprehensive Environmental Response Compensation and Liability Act, all of which are administered by the U.S. Coast Guard and other federal agencies, and certain other international, federal, state and local laws and regulations, including international conventions and laws and regulations of the flag nations of its vessels. Pursuant to the requirements of the Shipping Act, the Company has on file with the Federal Maritime Commission tariffs reflecting the outbound and inbound rates currently charged by the Company to transport cargo between the United States and foreign countries as a common carrier in connection with its liner services. These tariffs are filed by the Company either individually or in connection with its participation as a member of rate or conference agreements, which are agreements that (upon becoming effective following filing with the Federal Maritime Commission) permit the members to agree concertedly upon rates and practices relating to the carriage of goods in U.S. and foreign ocean commerce. Tariffs filed by a company unilaterally or collectively under rate or conference agreements are subject to Federal Maritime Commission approval. Once a rate or conference agreement is filed, rates may be changed in response to market conditions on 30 days' notice, with respect to a rate increase, and one day's notice, with respect to a rate decrease. Legislation is pending in the U.S. Senate that would amend the Shipping Act in certain material respects, including reducing the publication requirements for certain service contract terms, eliminating requirements that all similarly situated shippers receive the same service contract terms, and prohibiting ocean common carriers from requiring their members to disclose their negotiations on service contracts. It is unclear at this time when or if this legislation will be enacted into law. The Majority Leader of the U.S. Senate recently announced that he intends to bring this legislation to the floor of the Senate in early 1998. The Merchant Marine Act of 1936, as amended (the "Merchant Marine Act"), authorizes the federal government to pay an operating differential subsidy to U.S. flag vessels employed in the foreign trade of the United States. The operating differential subsidy program is designed to allow U.S. ships to compete on an equal footing with their lower-cost foreign competitors. Under the program, the U.S. Maritime Administration ("MarAd") is authorized to pay qualified U.S. flag operators (i) the differential between U.S. and foreign crew wage costs and (ii) the differential between U.S. and foreign costs of protection and indemnity insurance, hull and machinery insurance, and maintenance and repairs not compensated by insurance. Waterman's operating differential subsidy payments terminated in early 1997. The federal government has entered into no new ODS contracts since 1981 and recent administrations have indicated that existing ODS agreements will be allowed to lapse. However, on October 8, 1996, Congress adopted the Maritime Security Act of 1996 which created the Maritime Security Program ("MSP") and authorized the payment of $2.1 million per year per ship for 47 U.S. flag ships through fiscal year 2005. Congress has appropriated a total of $135.5 million to date for the MSP. This program eliminates the trade route restrictions imposed by the ODS program and provides flexibility to operate freely in the competitive market. On December 20, 1996, Waterman entered into MSP contracts 9 with MarAd for each of its four LASH vessels that operated under ODS contracts until early 1997, and Central Gulf entered into MSP contracts with MarAd for each of its two car carriers and one of its LASH vessels currently on charter to the MSC. Waterman's vessels began receiving payments under the MSP in early 1997 upon the lapse of Waterman's ODS payments. Central Gulf's two car carriers commenced immediate operation in the MSP on December 20, 1996, and its LASH vessel is eligible to begin receiving MSP payments upon the termination of its MSC charter, or the Company may substitute another vessel and receive payments earlier. By law, the MSP is subject to annual appropriations. In the event that sufficient appropriations are not made for the MSP by Congress in any fiscal year, the Maritime Security Act of 1996 permits MSP contractors, such as Waterman and Central Gulf, to re-flag their vessels under foreign registry expeditiously. Seven of the Company's U.S. flag LASH vessels were constructed with the aid of construction differential subsidies and Title XI loan guarantees administered by MarAd, the receipt of which obligates the Company to comply with various dividend and other financial restrictions. Vessels constructed with the aid of construction differential subsidies may not be operated in domestic coastwise trade or domestic trade with Hawaii, Puerto Rico or Alaska without the permission of MarAd and without repayment of the construction differential subsidy under a formula established by law. Recipients of Title XI loan guarantees must pay an annual fee of up to 1% of the loan amount. Under the Merchant Marine Act, U.S. flag vessels are subject to requisition or charter by the United States whenever the President declares that the national security requires such action. The owners of any such vessels must receive just compensation as provided in the Merchant Marine Act, but there is no assurance that lost profits, if any, will be fully recovered. In addition, during any extension period under each MSC charter or contract, the MSC has the right to terminate the charter or contract on 30 days' notice. Certain of the Company's operations, including its carriage of U.S. foreign aid cargoes, as well as the Company's coal and molten sulphur transportation contracts and its Title XI financing arrangements, require the Company to be as much as 75% owned by U.S. citizens. The Company monitors its stock ownership to verify its continuing compliance with these requirements and has never had more than 1% of its common stock held of record by non-U.S. citizens. In April of 1996, the Company's shareholders amended the Company's charter and stock transfer procedures to limit the acquisition of its common stock by non-U.S. citizens. Under the amendment, any transfer of the Company's common stock that would result in non-U.S. citizens owning more than 23% (the "permitted amount") of the total voting power of the Company would be void and ineffective against the Company. With respect to any shares owned by non-U.S. citizens in excess of the permitted amount, the voting rights will be denied and the dividends will be withheld. Furthermore, the Company is authorized to redeem shares of common stock owned by non-U.S. citizens in excess of the permitted amount to reduce ownership by non-U.S. citizens to the permitted amount. The Company is required by various governmental and quasi-governmental agencies to obtain permits, licenses and certificates with respect to its vessels. The kinds of permits, licenses and certificates required depend upon such factors as the country of registry, the commodity transported, the waters in which the vessel operates, the nationality of the vessel's crew, the age of the vessel and the status of the Company as owner or charterer. The Company believes that it has, or can readily obtain, all permits, licenses and certificates necessary to permit its vessels to operate. The International Maritime Organization (IMO) has mandated that vessels documented under the laws of its member countries, including the United States, develop and implement quality and safety programs by July 1, 1998 or July 1, 2002, depending on the type of vessels. Vessels operating without the required compliance certificates could either be fined or denied entry into or detained in the ports of those countries that are members of the IMO. The Company's ship management subsidiary, LMS Shipmanagement, Inc., received certification in January of 1998 that its Quality Management System was approved as meeting the ISO 9002 Quality Standard. The Company is in the process of implementing a comprehensive program to obtain timely IMO certification for all of its vessels and plans to obtain IMO certification for three of its vessels, which require certification prior to July 1, 1998, by January, February and March of 1998, respectively. The Company plans to obtain certification for the remainder of its fleet 10 subject to the certification requirements by the end of 1999, although no assurances to this effect can be given. COMPETITION The shipping industry is intensely competitive and is influenced by events largely outside the control of shipping companies. Varying economic factors can cause wide swings in freight rates and sudden shifts in traffic patterns. Vessel redeployments and new vessel construction can lead to an overcapacity of vessels offering the same service or operating in the same market. Changes in the political or regulatory environment can also create competition that is not necessarily based on normal considerations of profit and loss. The Company's strategy is to reduce competitive pressures and the effects of cyclical market conditions by operating specialized vessels in niche market segments and deploying a substantial number of its vessels under medium- to long-term charters or contracts with creditworthy customers and on trade routes where it has established market shares. The Company also seeks to compete effectively in the traditional areas of price, reliability and timeliness of service. Competition principally comes from numerous break bulk vessels and, occasionally, container ships. Much of the Company's revenue is generated by contracts with the MSC and contracts to transport Public Law-480 U.S. government-sponsored cargo, a cargo preference program requiring that 75% of all foreign aid "Food for Peace" cargo must be transported on U.S. flag vessels, if they are available at reasonable rates. The Company competes with all U.S. flag companies, including Overseas Shipholding Group, Inc., OMI Corporation, Marine Transport Lines, Inc., Farrell Lines, Inc., Lykes Lines, Inc., Sea-Land Service, Inc. and American President Lines, Inc. for the MSC work and the Public Law-480 cargo. Additionally, the Company's principal foreign competitors include Hoegh Lines, Star Shipping, Wilhelmsen Lines and the Shipping Corporation of India. The Company's LASH liner services face competition from foreign flag liner operators and, to a lesser degree, from U.S. flag liner operators, including those who will continue to receive operating differential subsidies through December 31, 1998. In addition, during periods in which the Company participates in conference agreements or rate agreements, competition includes other participants with whom the Company may agree to charge the same rates and non-participants charging lower rates. Because the Company's LASH barges are used primarily to transport large unit size items, such as forest products, natural rubber and steel, that cannot be transported as efficiently in container ships, the Company's LASH fleet often has a competitive advantage over these vessels for this type of cargo. In addition, the Company believes that the ability of its LASH system to operate in shallow harbors and river systems and its specialized knowledge of these harbors and river systems give it a competitive advantage over operators of container ships and break bulk vessels, which are too large to operate in these areas. The Company's pure car carriers operate worldwide in markets where foreign flag vessels with foreign crews predominate. The Company believes that its U.S. flag pure car carriers can continue to compete effectively if it continues to receive the cooperation of its seamen's unions in controlling costs. RISK FACTORS SUBSTANTIAL LEVERAGE. The Company is highly leveraged and devotes a substantial portion of its operating income to debt service. To date, the Company has been able to generate sufficient cash from operations to meet annual interest and principal payments on its indebtedness. The Company's ability to satisfy its debt obligations will depend upon its future operating performance, which will be affected by prevailing economic conditions and financial, business and other factors, certain of which are beyond its control. If the Company's cash flow and capital resources are insufficient to fund its debt service obligations, the Company may be forced to reduce or delay capital expenditures, sell assets, obtain additional equity capital or restructure its debt. There can be no assurance that the Company will be able to generate sufficient cash flow to cover required interest and principal payments. Subject to compliance with various financial and other covenants imposed by debt instruments governing the indebtedness of the 11 Company and its subsidiaries, the Company and its subsidiaries may incur additional indebtedness from time to time. The degree to which the Company is leveraged could have important consequences. Among other things, high leverage may: (i) impair the Company's ability to obtain additional financing for working capital, capital expenditures, vessel and other acquisitions, and general corporate purposes; (ii) require the Company to dedicate a substantial portion of its cash flow from operations to the payment of principal and interest; (iii) place the Company at a competitive disadvantage to less highly-leveraged competitors; and (iv) make the Company more vulnerable to economic downturns and limit its ability to withstand competitive pressures. REGULATION. The Company's business is materially affected by government regulation in the form of international conventions, national, state and local laws and regulations, and laws and regulations of the flag nations of the Company's vessels, including laws relating to the discharge of materials into the environment. Because such conventions, laws and regulations are often revised, the Company is unable to predict the ultimate costs of compliance. In addition, the Company is required by various governmental and quasi-governmental agencies to obtain and maintain certain permits, licenses and certificates with respect to its operations. In certain instances, the failure to obtain or maintain such permits, licenses or certificates could have a material adverse effect on the Company's business. In the event of war or national emergency, the Company's U.S. flag vessels are subject to requisition by the United States without any guarantee of compensation for lost profits, although the United States government has traditionally paid fair compensation in such circumstances. REDUCTION OF SUBSIDY PAYMENTS. Until early 1997, the Company ODS received payments with respect to four of its LASH vessels under a federal program designed to allow U.S. ships to compete with lower-cost foreign competitors. For the years ended December 31, 1994, 1995 and 1996, the Company received aggregate subsidy payments under this program of $21.7 million, $22.7 million and $25.6 million, respectively. Although the Company's ODS agreement has lapsed, all four of the Company's LASH vessels that previously received such subsidies, and three of its other vessels, have qualified to participate in a new subsidy program created under the Maritime Security Act of 1996. Under this new program, each participating vessel is eligible to receive annual subsidy payments of $2.1 million through fiscal year 2005. Also, this program eliminated the trade route restrictions imposed by the ODS program and provides flexibility to operate freely in the competitive market. Payments under this program are subject to annual appropriation by Congress and are not guaranteed. If sufficient appropriations are not made by Congress in any fiscal year with respect to this program, the Company would be permitted to reflag its vessels under foreign registry. DEPENDENCE ON GOVERNMENT CHARTERS AND CONTRACTS. The Company is materially dependent on various charters or contracts with agencies of the United States government. Companies engaged in government contracting are subject to certain unique business risks. Among these risks are dependence on congressional appropriations and administrative allotment of funds, and changing policies and regulations. Because the government contracts held by the Company are usually awarded for relatively short periods of time and are subject to renewal options in favor of the government, the stability and continuity of that portion of the Company's business depends on the periodic exercise by the government of contract renewal options. Further, the government contracting laws provide that the United States government is to do business only with responsible contractors. In this regard, federal agencies have the authority under certain circumstances to suspend or debar a contractor from further government contracting for a certain period of time in order to protect the government's interest. The Company has never been suspended or debarred from government contracting, nor has it ever been the subject of any proceeding for such a purpose. The Company currently has nine vessels under time charter or contract to the MSC. During any extension period under each MSC charter or contract, the MSC has the right to terminate the charter or contract upon 30 days' notice. Historically, the MSC has exercised substantially all of its renewal options on the Company's charters or contracts, and the Company generally has been successful in winning charter or contract renewals when they are rebid. 12 COMPETITION. The shipping industry is intensely competitive and can be influenced by economic and political events that are outside the control of shipping companies. There can be no assurance that the Company will be able to renew expiring charters on economically attractive terms, maintain attractive freight rates or otherwise successfully compete against its competitors. CONTROL BY PRINCIPAL STOCKHOLDERS. Niels W. Johnsen, the Chairman of the Board and Chief Executive Officer of the Company, Erik F. Johnsen, the President and Chief Operating Officer of the Company (and the brother of Niels W. Johnsen) and their spouses, children and grandchildren (collectively, the "Johnsen Family"), beneficially owned an aggregate of 29.0% of the common stock of the Company as of December 31, 1997. By virtue of such ownership, the Johnsen Family may continue to have the power to determine many of the policies of the Company and its subsidiaries, the election of the Company's directors and officers and the outcome of various corporate actions requiring shareholder approval. YEAR 2000 COMPLIANCE. The Company uses a significant number of computer systems, including applications used in sales, shipping, communications, finance and various administrative functions. To the extent that the Company's software applications contain source code that is unable to appropriately interpret calendar year 2000 and subsequent years, some level of modification or replacement of such applications will be necessary. The Company has reviewed all of its systems in order to verify that they are "year 2000 compliant" and has concluded that they are, with limited exceptions that will require only minor modification. Accordingly, management does not expect year 2000 compliance costs to have a material adverse impact on the Company. No assurance can be given, however, that all of the Company's systems will be year 2000 compliant or that compliance costs or the impact of the Company's failure to achieve full year 2000 compliance will not have a material adverse effect on the Company. Additionally, the Company could be adversely affected by the failure of one or more of its customers, lenders, suppliers or other organizations with which it conducts business to become fully year 2000 compliant. EMPLOYEES As of December 31, 1997, the Company employed approximately 620 shipboard personnel and 340 shoreside personnel. The Company considers relations with its employees to be excellent. All of the Company's U.S. shipboard personnel and certain shoreside personnel are covered by collective bargaining agreements. Central Gulf, Waterman and other U.S. shipping companies are subject to collective bargaining agreements for shipboard personnel in which the shipping companies servicing U.S. Gulf and East Coast ports also must make contributions to pension plans for dockside workers. Waterman's collective bargaining agreements covering its liner service are scheduled to expire in September of 1998, while Central Gulf's collective bargaining agreements, which were originally scheduled to expire in December of 1997, are currently under negotiation. In the interim, these agreements have been extended through April 30, 1998, until negotiations are complete. However, pursuant to memoranda of understanding relating to each of Central Gulf's U.S. flag vessels and Waterman's four U.S. flag vessels time chartered to or operated for the MSC, the terms and conditions of the respective collective bargaining agreements will continue for the duration of the charters under which the vessels are being operated. The Company has experienced no strikes or other significant labor problems during the last ten years. 13 ITEM 2. PROPERTIES VESSELS AND BARGES. Of the 31 ocean-going vessels in the Company's fleet at December 31, 1997, 28 are owned by the Company and three are operated under operating contracts. Of the 1,789 LASH barges in the Company's fleet, 1,744 are operated in conjunction with the Company's LASH and FLASH vessels. Of these, the Company owns approximately 1,425 barges and leases 319 barges under capital leases with 12-year terms expiring in late 2003 and early 2004. The remaining 45 LASH barges owned by the Company are not required for current vessel operations. All of the Company's barges are registered under the U.S. flag. The Company bareboat charters in 108 super-jumbo river barges (and owns three such barges) and 14 towboats specially built to meet the requirements of one of the Company's coal transportation contracts. The Company also owns 17 standard river barges, which are chartered to unaffiliated companies on a short-term basis and one towboat, which is currently operated in the spot market along with three towboats that the Company charters from unaffiliated parties. All of the vessels owned, operated or leased by the Company are in good condition except for the 45 LASH barges not required for current vessel operations. Since 1988, the Company has completed life extension work on eight LASH vessels and completed the refurbishment of the LASH barges operated with those vessels. Under governmental regulations, insurance policies and certain of the Company's financing agreements and charters, the Company is required to maintain its vessels in accordance with standards of seaworthiness, safety and health prescribed by governmental regulations or promulgated by certain vessel classification societies. The Company is also in the process of implementing the quality and safety management program mandated by the IMO and plans to obtain timely certification of all vessels by the end of 1999. Vessels in the fleet are maintained in accordance with governmental regulations and the highest classification standards of the American Bureau of Shipping or, for certain vessels registered overseas, of Norwegian Veritas or Lloyd's Register classification societies. Certain of the vessels and barges owned by the Company's subsidiaries are mortgaged to various lenders to secure such subsidiaries' long-term debt. See Note B - Long-Term Debt of the Notes to the Consolidated Financial Statements incorporated by reference to the Company's 1997 Annual Report to Shareholders. OTHER PROPERTIES. The Company leases its corporate headquarters in New Orleans, its administrative and sales office in New York and office space in Houston, Chicago, Washington, D.C. and Singapore. The Company also leases space in St. Charles and Orleans Parishes, Louisiana, for the fleeting of barges. Additionally, the Company leases a totally enclosed multi-modal cargo transfer terminal in Memphis, Tennessee, under a lease that expires in June of 2003, with one five-year renewal option. In 1997, the aggregate annual rental payments under these operating leases totaled approximately $2.7 million. The Company owns two separate facilities in St. Charles Parish, Louisiana, and one facility in Jefferson Parish, Louisiana, that are used primarily for the storage and fleeting of barges. The Company also owns a bulk coal transfer terminal in Gulf County, Florida, that is used in its coal transportation contract referred to above. ITEM 3. LEGAL PROCEEDINGS In the normal course of its operations, the Company becomes involved in various litigation matters including, among other things, claims by third parties for alleged property damages, personal injuries and other matters. While the outcome of such claims cannot be predicted with certainty, the Company believes that its insurance coverage and reserves with respect to such claims are adequate and that such claims will not have a material adverse effect on the Company's business or financial condition. See Note F of the Notes to the Company's Consolidated Financial Statements incorporated by reference to the Company's 1997 Annual Report to Shareholders. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None 14 ITEM 4A. EXECUTIVE OFFICERS AND DIRECTORS OF THE REGISTRANT Set forth below is information concerning the directors and executive officers of the Company. Directors are elected by the shareholders for one year terms. Executive officers serve at the pleasure of the Board of Directors. NAME CURRENT POSITION ---- ---------------- Niels W. Johnsen Chairman and Chief Executive Officer Erik F. Johnsen President, Chief Operating Officer and Director Niels M. Johnsen Executive Vice President and Director Erik L. Johnsen Executive Vice President and Director Gary L. Ferguson Vice President and Chief Financial Officer David B. Drake Vice President and Treasurer Manuel G. Estrada Vice President and Controller Harold S. Grehan, Jr. Director Laurance Eustis Director Raymond V. O'Brien, Jr. Director Edwin Lupberger Director Edward K. Trowbridge Director NIELS W. JOHNSEN, 75, has been the Chairman and Chief Executive Officer of the Company since its commencement of operations in 1979 and served as Chairman and Chief Executive Officer of each of the Company's principal subsidiaries until April of 1997. He previously served as Chairman of Trans Union Corporation's ocean shipping group of companies from December of 1971 through May of 1979. He was one of the founders of Central Gulf in 1947 and held various positions with Central Gulf until Trans Union acquired Central Gulf in 1971. He is also a former director of Reserve Fund, Inc., a money market fund and a former Trustee of Atlantic Mutual Companies, an insurance company. He is the brother of Erik F. Johnsen. ERIK F. JOHNSEN, 72, has been the President, Chief Operating Officer and Director of the Company since its commencement of operations in 1979. Until April of 1997, Mr. Johnsen also served as the President and Chief Operating Officer of each of the Company's principal subsidiaries, except Waterman, for which he served as Chairman of the Executive Committee. Along with his brother, Niels W. Johnsen, he was one of the founders of Central Gulf in 1947 and served as its President from 1966 until April of 1997. Mr. Johnsen is also a director of First Commerce Corporation, a bank holding company. Mr. Johnsen has served as the Chairman of the Board of Assuranceforeningen GARD, a P&I insurance club since 1994 and has been a member since 1982. He is the brother of Niels W. Johnsen. NIELS M. JOHNSEN, 52, is Executive Vice President of the Company. Mr. Johnsen has served as a Director of the Company since April of 1988. He joined Central Gulf on a full time basis in 1970 and held various positions with the Company before being named Executive Vice President in April of 1997. He has also served as chairman of each of the Company's principal subsidiaries, except Waterman, since April of 1997. He is also President of Waterman and N. W. Johnsen & Co., Inc., subsidiaries of the Company engaged in LASH liner service and ship and cargo charter brokerage, respectively. He is the son of Niels W. Johnsen. ERIK L. JOHNSEN, 40, is Executive Vice President of the Company. He joined Central Gulf in 1979 and held various positions with the Company before being named Executive Vice President in April of 1997. He has served as a Director of the Company since 1994. He has also served as the President of each of the Company's principal subsidiaries, except Waterman, since April of 1997, and as Executive Vice President of Waterman since September of 1989. He is responsible for all operations of the Company's vessel fleet and leads the Company's Ship Management Group. He is the son of Erik F. Johnsen. GARY L. FERGUSON, 57, is Vice President and Chief Financial Officer of the Company. He joined Central Gulf in 1968 where he held various positions with the Company prior to being named Controller in 1977, and Vice President and Chief Financial Officer in 1989. 15 DAVID B. DRAKE, 42, is Vice President and Treasurer of the Company. He joined Central Gulf in 1979 and held various positions prior to being named Vice President and Treasurer in 1996. MANUEL G. ESTRADA, 43, is Vice President and Controller of the Company. He joined Central Gulf in 1978 and held various positions prior to being named Vice President and Controller in 1996. HAROLD S. GREHAN, Jr., 70, is a Director of the Company. He joined Central Gulf in 1958 and became Vice President in 1959, Senior Vice President in 1973 and Executive Vice President and Director in 1979. Mr. Grehan retired from the Company at the end of 1997, and continues to serve as a Director. LAURANCE EUSTIS, 84, has served as a Director of the Company since 1979. He is the Chairman of the Board of Eustis Insurance, Inc., mortgage banking and general insurance, located in New Orleans, Louisiana. Mr. Eustis is also a director of First Commerce Corporation, a bank holding company, and Pan American Life Insurance Company. RAYMOND V. O'BRIEN, Jr., 70, has served as a Director of the Company since 1979. He is also a director of Emigrant Savings Bank. He served as Chairman of the Board and Chief Executive Officer of the Emigrant Savings Bank from January of 1978 through December of 1992. EDWIN LUPBERGER, 61, has served as a Director of the Company since April of 1988. Mr. Lupberger is the Chairman of the Board, Chief Executive Officer, and Director of Entergy Corporation and its principal operating subsidiaries, Entergy Arkansas, Inc., Entergy Gulf States, Inc., Entergy Louisiana, Inc., Entergy Mississippi, Inc. and Entergy New Orleans, Inc. He also is a director of First Commerce Corporation, a bank holding company. EDWARD K. TROWBRIDGE, 69, has served as a Director of the Company since April of 1994. He served as Chairman of the Board and Chief Executive Officer of the Atlantic Mutual Companies from July of 1988 through November of 1993. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS The information called for by Item 5 is included in the 1997 Annual Report to Shareholders in the section entitled "Common Stock Prices and Dividends for Each Quarterly Period of 1996 and 1997" and is incorporated herein by reference to page 19 of Exhibit 13 filed with this Form 10-K. ITEM 6. SELECTED FINANCIAL DATA The information called for by Item 6 is included in the 1997 Annual Report to Shareholders in the section entitled "Summary of Selected Consolidated Financial Data" and is incorporated herein by reference to page 1 of Exhibit 13 filed with this Form 10-K. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information called for by Item 7 is included in the 1997 Annual Report to Shareholders in the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and is incorporated herein by reference to pages 2 through 5 of Exhibit 13 filed with this Form 10-K. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated balance sheets as of December 31, 1997, and December 31, 1996, and the related consolidated statements of income, changes in stockholders' investment and cash flows for each of the three years in the period ended December 31, 1997, and the notes thereto, are included in the 1997 Annual Report to the Shareholders and are incorporated herein by reference to pages 6 through 19 of Exhibit 13 filed with this Form 10-K. Such statements have been audited by Arthur Andersen LLP, independent public accountants, as set forth in their report included in such Annual Report and incorporated herein by reference to page 19 of Exhibit 13 filed with this Form 10-K. 16 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information called for by Item 10 is incorporated herein by reference to Item 4a, Executive Officers and Directors of the Registrant. ITEM 11. EXECUTIVE COMPENSATION The information called for by Item 11 is included on pages 6, 7 and 8 of the Company's definitive proxy statement dated March 10, 1998, filed pursuant to Section 14(a) of the Securities Exchange Act of 1934, and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information called for by Item 12 is included on pages 2, 3, 4 and 5 of the Company's definitive proxy statement dated March 10, 1998, filed pursuant to Section 14(a) of the Securities Exchange Act of 1934, and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information called for by Item 13 is included on pages 2, 3, 4, 5 and 8 of the Company's definitive proxy statement dated March 10, 1998, filed pursuant to Section 14(a) of the Securities Exchange Act of 1934, and is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K The following financial statements, schedules and exhibits are filed as part of this report: (a) 1. FINANCIAL STATEMENTS The following financial statements and related notes are included in the Company's 1997 Annual Report to Shareholders and are incorporated herein by reference to pages 6 through 19 of Exhibit 13 filed with this Form10-K. Consolidated Statements of Income for the years ended December 31, 1997, 1996 and 1995 Consolidated Balance Sheets at December 31, 1997 and 1996 Consolidated Statements of Changes in Stockholders' Investment for the years ended December 31, 1997, 1996 and 1995 Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995 Notes to Consolidated Financial Statements 17 Report of Independent Public Accountants 2. FINANCIAL STATEMENT SCHEDULES Report of Independent Public Accountants on Supplemental Schedules Schedule I - Condensed Financial Information of the Registrant 3. EXHIBITS (3) Restated Certificate of Incorporation, as amended, and By-Laws of the Registrant (filed with the Securities and Exchange Commission as Exhibit 3 to the Registrant's Form 10-Q for the quarterly period ended June 30, 1996, and incorporated herein by reference) (4) Specimen of Common Stock Certificate (filed as an exhibit to the Company's Form 8-A filed with the Securities and Exchange Commission on April 25, 1980, and incorporated herein by reference) (4.1) Form of Indenture between the Company and the Bank of New York, as Trustee, with respect to 9% Senior Notes due July 1, 2003 (filed as Exhibit 4(c) to Amendment No. 1 to the Company's Registration Statement on Form S-2 (Registration No. 33-62168) and incorporated herein by reference). (4.2) Form of 9% Senior Note due July 1, 2003 (included in Exhibit (4.1) hereto and incorporated herein by reference). (4.3) Form of Indenture between the Company and the Bank of New York, Inc., as Trustee, with respect to 7 3/4% Senior Notes due October 15, 2007 (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K dated January 22, 1998, and incorporated herein by reference). (4.4) Form of 7 3/4% Senior Note due October 15, 2007 (included in Exhibit (4.3) hereto and incorporated herein by reference). (10) $25,000,000 Credit Agreement dated as of January 22, 1998, by and among the Company, as Borrower, Certain Lenders, as signatories thereto, Citicorp Securities, Inc., as Arranger, and Citibank, N.A., as Administrative Agent (filed as exhibit 10.1 to the Company's Registration Statement on Form S-4 (Registration No. 333-46317) and incorporated herein by reference.) (13) 1997 Annual Report to Shareholders (21) Subsidiaries of International Shipholding Corporation (27) Financial Data Schedule (b) No reports on Form 8-K were filed for the three months ended December 31, 1997. (c) The Index of Exhibits and required Exhibits are included following the Financial Statement Schedules beginning at page 21 of this Report. (d) The Index of Supplemental Financial Statement Schedules and the required Financial Statement Schedule are included following the signatures beginning at page 22 of this report. 18 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. INTERNATIONAL SHIPHOLDING CORPORATION (Registrant) March 26, 1998 By /s/ GARY L. FERGUSON Gary L. Ferguson Vice President and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. INTERNATIONAL SHIPHOLDING CORPORATION (REGISTRANT) March 26, 1998 By /s/ NIELS W. JOHNSEN Niels W. Johnsen Chairman of the Board, Director and Chief Executive Officer March 26, 1998 By /s/ ERIK F. JOHNSEN Erik F. Johnsen President and Director March 26, 1998 By /s/ NIELS M. JOHNSEN Niels M. Johnsen Executive Vice President and Director March 26, 1998 By /s/ ERIK L. JOHNSEN Erik L. Johnsen Executive Vice President and Director March 26, 1998 By /s/ HAROLD S. GREHAN, JR. Harold S. Grehan, Jr. Director March 26, 1998 By /s/ LAURANCE EUSTIS Laurance Eustis Director March 26, 1998 By /s/ RAYMOND V. O'BRIEN, JR. Raymond V. O'Brien, Jr. Director 19 March 26, 1998 By /s/EDWIN LUPBERGER Edwin Lupberger Director March 26, 1998 By /s/EDWARD K. TROWBRIDGE Edward K. Trowbridge Director March 26, 1998 By /s/GARY L. FERGUSON Gary L. Ferguson Vice President and Chief Financial Officer March 26, 1998 By /s/MANNY G. ESTRADA Manny G. Estrada Chief Accounting Officer 20 EXHIBIT INDEX EXHIBIT NUMBER - ------ (3) Restated Certificate of Incorporation, as amended, and By-Laws of the Registrant (filed with the Securities and Exchange Commission as Exhibit 3 to the Registrant's Form 10-Q for the quarterly period ended June 30, 1996, and incorporated herein by reference) (4) Specimen of Common Stock certificate (filed as an exhibit to the Company's Form 8-A filed with the Securities and Exchange Commission on April 25, 1980, and incorporated herein by reference) (4.1) Form of Indenture between the Company and the Bank of New York, as Trustee, with respect to 9% Senior Notes due July 1, 2003 (filed as Exhibit 4(c) to Amendment No. 1 to the Company's Registration Statement on Form S-2 (Registration No. 33-62168) and incorporated herein by reference). (4.2) Form of 9% Senior Note due July 1, 2003 (included in Exhibit (4.1) hereto and incorporated herein by reference). (4.3) Form of Indenture between the Company and the Bank of New York, Inc., as Trustee, with respect to 7 3/4% Senior Notes due October 15, 2007 (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K dated January 22, 1998, and incorporated herein by reference). (4.4) Form of 7 3/4% Senior Note due October 15, 2007 (included in Exhibit (4.3) hereto and incorporated herein by reference). (10) $25,000,000 Credit Agreement dated as of January 22, 1998, by and among the Company, as Borrower, Certain Lenders, as signatories thereto, Citicorp Securities, Inc., as Arranger, and Citibank, N.A., as Administrative Agent (filed as exhibit 10.1 to the Company's Registration Statement on Form S-4 (Registration No. 333-46317) and incorporated herein by reference.) (13) 1997 Annual Report to Shareholders (21) Subsidiaries of International Shipholding Corporation (27) Financial Data Schedule 21 INDEX OF SUPPLEMENTAL FINANCIAL STATEMENT SCHEDULES Report of Independent Public Accountants on Supplemental Schedule 22 Schedule I - Condensed Financial Information of the Registrant 23-26 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SUPPLEMENTAL SCHEDULE We have audited, in accordance with generally accepted auditing standards, the financial statements as of December 31, 1997 and 1996 and for each of the three years in the period ended December 31, 1997 included in International Shipholding Corporation's annual report to stockholders incorporated by reference in this Form 10-K, and have issued our report thereon dated January 16, 1998, except with respect to the issuance of the Senior Notes discussed in Note B, as to which the date is January 22, 1998. Our audits were made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in the index above is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. New Orleans, Louisiana, January 16, 1998 22 INTERNATIONAL SHIPHOLDING CORPORATION (PARENT COMPANY) SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT BALANCE SHEETS (All Amounts in Thousands) ASSETS DECEMBER 31, December 31, 1997 1996 -------------- ----------- Current Assets: Cash and Cash Equivalents ............... $ 404 $ 241 Marketable Securities ................... 2,181 2,727 Accounts Receivable ..................... 138 98 Federal Income Taxes Receivable ......... 43 1,366 Other Current Assets .................... 427 356 --------- --------- Total Current Assets ............................. 3,193 4,788 --------- --------- Deferred Federal Income Taxes .................... 1,113 920 --------- --------- Investment in Consolidated Subsidiaries .......... 272,186 264,565 --------- --------- Furniture and Equipment .......................... 3,761 122 Less - Accumulated Depreciation ................. (90) (98) --------- --------- 3,671 24 --------- --------- Deferred Charges, Net of Accumulated Amortization of $1,752 and $1,454 in 1997 and 1996, Respectively ............................... 1,922 2,207 --------- --------- $ 282,085 $ 272,504 ========= ========= LIABILITIES AND STOCKHOLDERS' INVESTMENT DECEMBER 31, December 31, 1997 1996 ----------- ------------ Current Liabilities: Accrued Interest Payable ................ $ 4,225 $ 4,225 Accounts Payable and Accrued Liabilities ............................. 150 112 Current Deferred Income Tax Liability ............................... 1,986 696 --------- --------- Total Current Liabilities ........................ 6,361 5,033 --------- --------- Due to Subsidiaries .............................. 7,879 198 --------- --------- Long-Term Debt ................................... 93,891 93,891 --------- --------- Reserves ......................................... 1,149 975 --------- --------- Commitments and Contingent Liabilities Stockholders' Investment: Common Stock ............................ 6,756 6,756 Additional Paid-In Capital .............. 54,450 54,450 Retained Earnings ....................... 112,794 112,310 Less - Treasury Stock ................... (1,133) (1,133) Accumulated Other Comprehensive (Loss) Income .................................... (62) 24 --------- --------- 172,805 172,407 --------- --------- $ 282,085 $ 272,504 ========= ========= The "Notes to Consolidated Financial Statements of International Shipholding Corporation and Subsidiaries" are an integral part of these statements. See Accompanying "Notes to Condensed Financial information of Registrant." 23 INTERNATIONAL SHIPHOLDING CORPORATION (PARENT COMPANY) SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT STATEMENTS OF INCOME (ALL AMOUNTS IN THOUSANDS) Year Ended December 31, 1997 1996 1995 -------- ------- ------- Management Fee Revenue from Subsidiaries .... $ 11,563 6,135 5,673 Administrative and General Expenses .......... 10,867 5,957 5,704 -------- ------- ------- Gross Profit ................... 696 178 (31) -------- ------- ------- Interest: Interest Expense .................... 10,498 11,518 10,244 Investment Income ................... (1,217) (2,372) (1,129) -------- ------- ------- 9,281 9,146 9,115 -------- ------- ------- Gain on Sale of Investments .................. -- -- 16,442 -------- ------- ------- Equity in Net Income of Consolidated Subsidiaries (Net of Applicable Taxes) ........... 7,717 13,951 16,245 -------- ------- ------- Income (Loss) Before Provision (Benefit) for Income Taxes ............................... (868) 4,983 23,541 -------- ------- ------- Provision (Benefit) for Income Taxes: Current ............................. 1,587 (1,505) 9,663 Deferred ............................ (4,581) (1,784) (7,113) State ............................... (29) 449 11 -------- ------- ------- (3,023) (2,840) 2,561 -------- ------- ------- Net Income ................................... $ 2,155 7,823 20,980 ======== ======= ======= The "Notes to Consolidated Financial Statements of International Shipholding Corporation and Subsidiaries" are an integral part of these statements. See accompanying "Notes to Condensed Financial Information of Registrant." 24 INTERNATIONAL SHIPHOLDING CORPORATION (PARENT COMPANY) SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT STATEMENTS OF CASH FLOWS (ALL AMOUNTS IN THOUSANDS) Year Ended December 31, 1997 1996 1995 ------- ----- ------ Cash Flows from Operating Activities: Net Income ............................. $ 2,155 7,823 20,980 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation ...................... 45 14 36 Amortization of Deferred Charges ......................... 449 596 382 Benefit for Deferred Income Taxes ........................... (4,581) (1,784) (7,113) Net Income of Consolidated Subsidiaries .................... (7,717) (13,951) (16,245) Gain on Sale of Investment ........ -- -- (16,442) Changes in: Accounts Receivable ............... (40) 149 2,111 Other Current Assets .............. (69) 1,593 (1,670) Other Assets ...................... -- (13) 1,901 Accounts Payable and Accrued Liabilities ..................... 38 (411) 389 Federal Income Taxes Payable ...... 2,523 (6,765) 6,084 Reserves .......................... 174 45 57 ------- ------- ------- Net Cash Used by Operating Activities ...... (7,023) (12,704) (9,530) ------- ------- ------- Cash Flows from Investing Activities: Purchase of Furniture and Equipment .... (299) (69) (12) Additions to Deferred Charges .......... (24) -- (958) Proceeds from Short-Term Investments ... 500 1,799 -- Other Investing Activities ............. -- 3,015 (1,216) ------- ------- ------- Net Cash Provided (Used) by Investing Activities ............................... 177 4,745 (2,186) ------- ------- ------- Cash Flows from Financing Activities: Reduction of Debt ...................... -- -- (909) Change in Due to Subsidiaries .......... 8,764 9,713 13,959 Additions to Deferred Financing Charges .............................. (84) (7) -- Common Stock Dividends Paid ............ (1,671) (1,671) (1,228) ------- ------- ------- Net Cash Provided by Financing Activities ............................... 7,009 8,035 11,822 ------- ------- ------- Net Increase in Cash and Cash Equivalents .............................. 163 76 106 Cash and Cash Equivalents at Beginning of Year .................................. 241 165 59 ------- ------- ------- Cash and Cash Equivalents at End of Year ... $ 404 $ 241 $ 165 ======= ======= ======= The "Notes to Consolidated Financial Statements of International Shipholding Corporation and Subsidiaries" are an integral part of these statements. See accompanying "Notes to Condensed Financial Information of Registrant" 25 NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT DECEMBER 31, 1997 Note 1. Basis of Preparation Pursuant to the rules and regulations of the Securities and Exchange Commission, the Condensed Financial Statements of the Registrant do not include all of the information and notes normally included with financial statements prepared in accordance with generally accepted accounting principles. It is, therefore, suggested that these Condensed Financial Statements be read in conjunction with the Consolidated Financial Statements and Notes thereto included in the Registrant's Annual Report as referenced in Form 10-K, Part II, Item 8, page 16. Note 2. Cash Dividends of Subsidiaries There were no dividends received from subsidiaries for the years ended December 31, 1997, 1996, and 1995. Note 3. Long-Term Debt Long-term debt consists of the following: (All Amounts in Thousands) INTEREST DECEMBER 31, DECEMBER 31, RATE DUE 1997 1996 ------ ---- ------ ------ Unsecured Senior Notes 9.00% 2009 $ 93,891 $ 93,891 In addition to these Unsecured Senior Notes, International Shipholding Corporation (Parent Company) guarantees certain long-term debt of its subsidiaries, which amounted to $30,463,000 at December 31, 1997. On January 22, 1998, International Shipholding Corporation (Parent Company) issued a new series of $110,000,000 aggregate principal amount 7 3/4% Senior Notes due 2007 ("the Notes"). The net proceeds from these Notes were used to repay certain indebtedness of the Company's subsidiaries during the first quarter of 1998. 26 EX-13 2 EXHIBIT 13 INTERNATIONAL SHIPHOLDING CORPORATION SUMMARY OF SELECTED CONSOLIDATED FINANCIAL DATA The following summary of selected consolidated financial data is not covered by the auditors' report appearing elsewhere herein. However, in the opinion of management, the summary of selected consolidated financial data includes all adjustments necessary for a fair representation of each of the years presented. This summary should be read in conjunction with the consolidated financial statements and the notes thereto appearing elsewhere in this annual report. (All Amounts in Thousands Except Share and Per Share Data)
Year Ended December 31, 1997 1996 1995 1994 1993 ---------- ----------- --------- --------- ---------- INCOME STATEMENT DATA: Revenues ..................................... $ 391,056 $ 378,927 $ 341,789 $ 342,333 $ 341,651 Gross Voyage Profits ......................... $ 55,403 $ 66,948 $ 64,536 $ 65,315 $ 64,318 Operating Income ............................. $ 29,949 $ 40,692 $ 37,921 $ 37,861 $ 36,486 Income Before Extraordinary Item ....................................... $ 2,155 $ 8,636 $ 20,980 $ 13,051 $ 7,645 Extraordinary Item ........................... -- $ (813) -- -- (1,716) Net Income ................................... $ 2,155 $ 7,823 $ 20,980 $ 13,051 $ 5,929 Basic and Diluted Earnings Per Common and Common Equivalent Share(1)(2): Before Extraordinary Item ................ $ 0.32 $ 1.29 $ 3.14 $ 1.95 $ 1.03 Extraordinary Item ....................... -- $ (0.12) -- -- (0.27) Net Income ............................... $ 0.32 $ 1.17 $ 3.14 $ 1.95 $ 0.76 BALANCE SHEET DATA: Working Capital .............................. $ 39,961 $ 26,928 $ 13,407 $ 16,819 $ 17,649 Total Assets ................................. $ 618,204 $ 661,596 $ 647,580 $ 547,091 $ 531,372 Long -Term Debt (including Capital Lease Obligations and Current Liabilities to be Refinanced) ................................ $ 309,340 $ 324,756 $ 308,525 $ 251,944 $ 240,472 Common Stockholders' Investment ................................. $ 172,805 $ 172,407 $ 166,261 $ 146,316 $ 134,497 OTHER DATA: EBITDA(3) .................................... $ 91,657 $ 94,929 $ 81,877 $ 79,482 $ 81,166 Cash Dividends Per Common Share (1) .................................. $ 0.25 $ 0.25 $ 0.1825 $ 0.16 $ 0.16 Weighted Average of Common and Common Equivalent Shares(1)(2) ............. 6,682,887 6,682,887 6,682,887 6,682,887 6,359,711
(1) All share and per share data for the years ended December 31, 1994, and 1993 have been restated for the November 17, 1995, twenty-five percent stock dividend. (2) Basic earnings per share and basic weighted average common and common equivalent shares were the same as diluted earnings per share and diluted weighted average common equivalent shares, respectively, for the years ended December 31, 1997, 1996, 1995, and 1994. Diluted weighted average common and common equivalent shares were 6,525,259 for the year ended December 31, 1993. Diluted earnings per share for the year ended December 31, 1993, was $1.01 for income before extraordinary item, $(0.26) for the extraordinary item, and $0.75 for net income. (3) EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization), as presented above, represents income before provision for income taxes and extraordinary items plus depreciation, amortization of deferred charges and acquired contract costs, interest expense, and gains (losses) on sales of property and investments. EBITDA should not be considered as an alternative to net income as an indicator of the Company's operating performance or as an alternative to cash flows which is a better measure of liquidity. 1 INTERNATIONAL SHIPHOLDING CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NOTICE REGARDING FORWARD-LOOKING STATEMENTS Certain statements made in this report or elsewhere by, or on behalf of, the Company that are not based on historical facts are intended to be forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, and as such may involve known and unknown risks, uncertainties, and other factors that may cause the Company's actual results to be materially different from the anticipated future results expressed in or implied by such forward-looking statements. Such forward-looking statements may include, without limitation, statements with respect to the Company's anticipated future performance, financial position and liquidity, growth opportunities, business and competitive outlook, demand for services, business strategies, and other similar statements of expectations or objectives that are highlighted by words such as "expects," "anticipates," "intends," "plans," "believes," "projects," "seeks," "should," and "may," and variations thereof and similar expressions. Important factors that could cause the actual results of the Company to differ materially from the Company's expectations may include, without limitation, the Company's ability to (i) identify customers with marine transportation needs requiring specialized vessels or operating techniques; (ii) secure financing on satisfactory terms to acquire, modify, or construct vessels if such financing is necessary to service the potential needs of current or future customers; (iii) obtain new contracts or renew existing contracts which would employ certain of its vessels or other assets upon the expiration of contracts currently in place; (iv) manage the amount and rate of growth of its general and administrative expenses and costs associated with crewing certain of its vessels; (v) and to manage its growth in terms of implementing internal controls and information systems and hiring or retaining key personnel, among other things. Other factors include (vi) changes in cargo rates and fuel prices which could increase or decrease the Company's gross voyage profit from its liner services; (vii) the rate at which competitors add or scrap vessels from the markets in which the Company operates; (viii) changes in interest rates which could increase or decrease the amount of interest the Company incurs on borrowings with variable rates of interest; (ix) the impact on the Company's financial statements of nonrecurring accounting charges that may result from the Company's ongoing evaluation of business strategies, asset valuations, and organizational structures; (x) changes in accounting policies and practices adopted voluntarily or as required by generally accepted accounting principles; (xi) changes in laws and regulations such as those related to government assistance programs and tax rates, among other things; (xii) unanticipated outcomes of current or possible future legal proceedings; (xiii) and other economic, competitive, governmental, and technological factors which may affect the Company's operations. The Company cautions readers that it assumes no obligation to update or publicly release any revisions to forward-looking statements made in this report or elsewhere by, or on behalf of, the Company. RESULTS OF OPERATIONS The Company's vessels are operated under a variety of charters and contracts. The nature of these arrangements is such that, without a material variation in gross voyage profits (total revenues less voyage expenses and vessel and barge depreciation), the revenues and expenses attributable to a vessel deployed under one type of charter or contract can differ substantially from those attributable to the same vessel if deployed under a different type of charter or contract. Accordingly, depending on the mix of charters or contracts in place during a particular accounting period, the Company's revenues and expenses can fluctuate substantially from one period to another even though the number of vessels deployed, the number of voyages completed, the amount of cargo carried and the gross voyage profit derived from the vessel remain relatively constant. As a result, fluctuations in voyage revenues and expenses are not necessarily indicative of trends in profitability, and management believes that gross voyage profit is a more appropriate measure of operating performance than revenues. Accordingly, the discussion below addresses variations in gross voyage profits rather than variations in revenues. YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996 GROSS VOYAGE PROFIT. Gross voyage profit decreased 17.2% to $55.4 Million in 1997 as compared to $66.9 Million in 1996. The primary reasons for this decline were lower profitability from operating a three-vessel transatlantic liner service in lieu of a two-vessel service, the reduction of subsidy payments, and expensing of certain previously deferred costs related to the Company's decision to forego development of a new service as discussed later in this section. In the first quarter of 1997, the Company added a newly-acquired and refurbished LASH vessel, the "ATLANTIC FOREST," to its transatlantic liner service with the objective of phasing out one of the older vessels in that service. To take advantage of the opportunity to 2 acquire a LASH vessel, which might not have been available at a later date, the Company purchased the "ATLANTIC FOREST" and placed it in service earlier than the optimal time. Although there was an overlap of service with the two other vessels, putting her in service in 1997 enabled the Company to shake down the new vessel before retiring the old vessel. However, the Company was unable to economically fill the additional cargo space of the three vessels primarily due to a strengthened U.S. dollar, which contributed to a decline in U.S. exports and softened demand for shipping services. This situation contributed to a lower gross voyage profit from this service for 1997 as compared to 1996. The "ACADIA FOREST" is now scheduled to be retired from the service in the first quarter of 1998, thereby returning the service to a two-vessel operation. The Company believes that this service should return to profitability levels historically experienced with a two-vessel operation. The Company's Operating Differential Subsidy ("ODS") agreements for its four LASH vessels employed in its liner service between ports on the U.S. Gulf/U.S. Atlantic Coast and South Asia expired for each of the vessels during the first and second quarters of 1997. Upon the expiration of the ODS agreements, these vessels and the Company's two U.S. Flag Pure Car Carriers began participation in the Maritime Security Program ("MSP") which provides for subsidy payments of approximately $2.1 Million per vessel per year as compared to approximately $5.8 Million per vessel per year under the ODS agreements. As a result, subsidy payments were approximately $10 Million less for 1997 as compared to 1996. This loss of revenue was substantially offset by the Company's cost reduction programs that reduced shipboard and shoreside expenses. Going forward, the Company believes that it will be able to further offset the loss of subsidy payments with additional cost reduction programs and increased revenue that may be derived from the operating flexibility permitted under the new subsidy program. The Company's gross voyage profit was also negatively affected when the Company decided to forego development of a new LASH service between the U.S. Gulf and Brazil. During the second quarter of 1997, previously deferred costs of approximately $1.3 Million were charged to operating expense for termination costs and the repositioning of equipment related to this service. Scheduled charterhire rate reductions effective January 1, 1997, for the Company's three Roll-On/Roll-Off ("RO/RO") vessels employed in the Military Sealift Command's ("MSC") military prepositioning program, and the renewal in mid-1997 of the MSC contract for the time charter of one of the Company's LASH vessels at lower charterhire rates further contributed to the decrease in gross voyage profit during this period. Additionally, gross voyage profit from the Company's long-term contract to provide transportation services to a major mining company in Indonesia was lower in 1997 as compared to 1996 due to a decrease in the amount of tonnage carried partially offset by higher freight rates. Decreases in the Company's gross voyage profit for 1997 as compared to 1996 were partially offset by increased gross voyage profit from two of the Company's LASH vessels operating under contracts with the MSC which were renewed at increased charterhire rates in mid-1996. Vessel and barge depreciation increased 6.1% to $34.6 Million during 1997 as compared to $32.6 Million in 1996 due to the commencement of operations of the Company's U.S. Flag Coal Carrier, "ENERGY ENTERPRISE"; a container/breakbulk vessel, "JAVA SEA"; and the "ATLANTIC FOREST" in February of 1996, September of 1996, and January of 1997, respectively. These increases were partially offset by a decrease resulting from the sale, in mid-1996, of the Company's semi-submersible barge, the "CAPS EXPRESS." Eighteen of the Company's vessels are currently operated under medium to long-term contracts. Nine of these vessels are chartered to the MSC including three RO/RO vessels, four LASH vessels, and two Ice-Strengthened Multi-Purpose vessels. The RO/RO's are employed in the MSC's military prepositioning program under contracts that are fixed through 2009 and 2010. The MSC contracts for the charter of two of the Company's LASH vessels were renewed in mid-1996 for seventeen months each with two seventeen month option periods extending through 2000. A third LASH vessel began operating in mid-1997 under a renewed seventeen month contract with two seventeen month option periods expiring in 2001. The fourth LASH vessel chartered to the MSC is operating under a contract which ends in 1999. One of the two Ice-Strengthened Multi-Purpose vessels is being used by the MSC to resupply Pacific rim military bases and to supply scientific projects in the Arctic and Antarctic. The contract for the charter of this vessel expired in January of 1998, and the vessel is currently operating under a short-term extension while the contract renewal is being negotiated. The Company's other Ice-Strengthened Multi-Purpose vessel is chartered to the MSC under a seventeen-month contract with two seventeen-month option periods expiring in 2000 and is stationed in the Indian Ocean loaded with components for a U.S. Navy field hospital. The Company's two Float-On/Float-Off Special Purpose Vessels ("SPV's"), along with one container/breakbulk vessel, are operated under a long-term contract that extends through 2000 with seven three year renewal options. Additionally, the Company's four Pure Car Carriers are time chartered to major automobile manufacturers through April of 1998, March and June of 2000, and November of 2003. In its domestic services, the Company's Molten Sulphur Carrier is operated under a contract of affreightment that extends through 2009 with renewal options through 2024, and its U.S. Flag Coal Carrier is time chartered through 2010. OTHER INCOME AND EXPENSES. In a continuing effort to decrease overhead expenses, the Company effected a small reduction in office personnel during the first quarter of 1997. Along with the Company's ongoing cost reduction programs, the savings from the reduction in office personnel, partially offset by resulting severance payments, was the primary reason for the decrease in administrative and general expenses from $26.3 Million in 1996 to $25.5 Million in 1997. 3 Interest expense decreased slightly from $28.5 Million in 1996 to $27.7 Million in 1997 primarily resulting from regularly scheduled payments on outstanding debt, the expiration in 1996 of an interest rate swap agreement on which the Company had incurred interest, and the early repayment of $9.5 Million of long-term debt at the end of the first quarter of 1996. These decreases were partially offset by increases resulting from interest incurred on the financing of the "ATLANTIC FOREST," higher outstanding balances drawn on lines of credit, additional draws on the long-term financing of the SPV's, and the financing of the "JAVA SEA." The average balance of invested funds was lower in 1997 as compared to 1996 resulting in a decrease in investment income from $1.9 Million in 1996 to $1.5 Million in 1997. INCOME TAXES. The Company provided $1.3 Million and $4.8 Million for Federal income taxes at the statutory rate of 35% for 1997 and 1996, respectively. YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995 GROSS VOYAGE PROFIT. Gross voyage profit increased 3.7% to $66.9 Million in 1996 as compared to $64.5 Million in 1995. Gross voyage profit was favorably impacted by the commencement, in February of 1996, of operations of the "ENERGY ENTERPRISE," a U.S. Flag Coal Carrier under contract to a major U.S. utility, and the full commencement of operations, in early 1996, of two SPV's under contract to provide transportation services to a major mining company in Indonesia. Improved freight rates for the Company's LASH vessels employed in liner service between ports on the U. S. Gulf/U. S. Atlantic Coast and South Asia (Trade Routes 18 and 17) and increased charterhire rates for two of the Company's LASH vessels under contract with the MSC also positively impacted gross voyage profit. These increases in gross voyage profit were partially offset by increased fuel prices, which impacted the Company's liner services, lower charterhire rates on the Company's Cape-Size Bulk Carrier, and the redelivery of one of the Company's vessels at the end of its MSC contract in late 1995. This vessel was operated in the spot market until it began operating under a new contract with the MSC in the third quarter of 1997. Additionally, the Company's fleet experienced more out of service days in 1996 than in 1995 primarily due to regularly scheduled drydockings, shipyard work required to prepare two LASH vessels for their contract with the MSC, and a propeller shaft accident sustained by one of the vessels operating in the Waterman service which required an unscheduled drydock of approximately two months duration. This vessel has been fully repaired and returned to service about mid-July. Results of the Company's insurance subsidiary were also negatively impacted by this accident. Vessel and barge depreciation increased to $32.6 Million during 1996 as compared to $24.7 Million in 1995 primarily due to the addition of "ENERGY ENTERPRISE" and the two SPV's and related barges. OTHER INCOME AND EXPENSES. Administrative and general expenses decreased slightly to $26.3 Million during 1996 as compared to $26.6 Million in 1995 stemming from a continuing cost reduction program. Interest expense increased 11.6% to $28.5 Million in 1996 as compared to $25.6 Million in 1995 primarily due to interest incurred on the financing of the "ENERGY ENTERPRISE" and the two SPV's and related barges. These increases were partially offset by reductions resulting from regularly scheduled payments on other outstanding debt. Investment income decreased from $2.7 Million in 1995 to $1.9 Million in 1996 reflecting reductions in interest rates and the average balance of invested funds. INCOME TAXES. The Company provided $4.8 Million and $11.4 Million for Federal income taxes at the statutory rate of 35% for 1996 and 1995, respectively. Income of unconsolidated entities is shown net of applicable taxes. EXTRORDINARY LOSS ON THE EARLY EXTINGUISHMENT OF DEBT. During 1996, the Company recognized an extraordinary loss of $0.8 Million, net of taxes, resulting from a makewhole premium required when the Company refinanced Notes in the fourth quarter to reduce interest costs. LIQUIDITY AND CAPITAL RESOURCES The following discussion should be read in conjunction with the more detailed Consolidated Balance Sheets and Consolidated Statements of Cash Flows included elsewhere herein as part of the Company's Consolidated Financial Statements. The Company's working capital increased from $26.9 Million at December 31, 1996, to $40 Million at December 31, 1997, after provision for current maturities of long-term debt and capital lease obligations of $15.9 Million, net of current maturities to be refinanced of $22.5 Million. Cash and cash equivalents decreased during 1997 by $11 Million to a total of $32 Million, because cash used for investing and financing activities of $46.2 Million and $29.0 Million, respectively, substantially exceeded operating cash flows of $64.2 Million. Cash used for investing activities decreased in 1997, because proceeds from the issuance of debt were $90.1 Million as compared to $147.5 Million in 1996. The major sources of cash flows from operating activities of $64.2 Million were collections on accounts receivable and net income, adjusted for noncash provisions such as depreciation, amortization, and adjustments to self-retention insurance reserves. These sources of cash were partially offset by decreases in accrued liabilities resulting primarily from payment of amounts accrued at December 31, 1996, for vessel refurbishment costs related to the "ATLANTIC FOREST" and for interest on long-term debt. Net cash used for investing activities of $46.2 Million included $4.1 Million for the purchase of a LASH vessel built in 1987, the "WILLOW," and capital improvements on the following: the "ENERGY ENTERPRISE"; the "ATLANTIC FOREST" and associated LASH barges; and one of the LASH vessels operating in the Waterman liner service which amounted to $6.1 Million, $5.4 Million, and $1.8 Million, respectively. Other uses of cash included the addition of $18.3 Million for drydocking charges, which were charged to deferred charges on the Company's balance sheet, and $8.0 Million invested in short-term marketable securities. 4 Net cash used for financing activities amounted to $29 Million. Proceeds from the issuance of debt obligations of $90.1 Million included $72.5 Million drawn under the Company's lines of credit, of which $22 Million was outstanding at December 31, 1997, $6.5 Million from the refinancing of balloon notes due on certain of the Company's debt in early 1997, $6.1 Million associated with the refurbishment of the "ATLANTIC FOREST" and associated LASH barges, and $5 Million borrowed in early third quarter for general corporate purposes. Cash used for financing activities included $80.5 Million to repay amounts that were drawn under lines of credit in late 1996 and during 1997, $36.7 Million for regularly scheduled payments on other outstanding debt and capital lease obligations, and $1.7 Million for common stock dividend payments. In the third quarter of 1988, the Board of Directors declared a quarterly dividend of $.05 per share ($.04 per share after giving effect to the November 17, 1995, twenty-five percent stock split) and continued quarterly dividends in the same amount for each quarterly period through the third quarter of 1995. The Board increased the dividend to $.0625 per share in the fourth quarter of 1995 and has continued quarterly dividends in the same amount for each quarterly period through the fourth quarter of 1997. The Board has expressed its intent to continue to declare similar quarterly dividends in the future, subject to the ability of the Company's operating subsidiaries to continue to achieve satisfactory earnings. Dividends on common stock during 1997 amounted to approximately $1.7 Million. Management believes that normal operations will provide sufficient working capital and cash flows to meet debt service and dividend requirements during the foreseeable future. To meet short-term requirements when fluctuations occurred in working capital, at December 31, 1997, the Company had available three revolving credit facilities totaling $35 Million. Draws against these facilities totaled $22 Million at December 31, 1997, all of which was repaid in January of 1998. The Company entered into a new revolving credit facility early in the first quarter of 1998 for $25 Million that replaced the three aforementioned facilities. The Company has not been notified that it is a potentially responsible party in connection with any environmental matters. $110 MILLION 7 3/4% SENIOR NOTES DUE 2007. On January 22, 1998, the Company issued a new series of $110 Million aggregate principal amount 7 3/4% Senior Notes due 2007 (the "Notes"). The Company used the net proceeds from these Notes to repay certain amortizing indebtedness of its subsidiaries during the first quarter of 1998. The Company expects to report an extraordinary charge to earnings on the early extinguishment of debt for the first quarter of 1998 of approximately $1.1 Million, net of taxes, for the write-off of unamortized costs on the retired indebtedness and a make-whole premium on one of the loans to be repaid. PURCHASE OF VESSELS AND BARGES. As discussed previously, in June of 1997, the Company acquired a 1987-built 41,000 ton LASH vessel renamed the "WILLOW." In January of 1998, the Company acquired her sistership the "HICKORY," a 1989-built 41,000 ton vessel. These vessels are intended as replacements for older LASH vessels in the Company's fleet and will be used temporarily to perform auxiliary service for the Company's Waterman liner service. These vessels are candidates for conversion to meet the highest operating standards before being deployed in the Company's LASH fleet. Also in January of 1998, the Company acquired 82 LASH barges that will replace other LASH barges in its fleet as they complete their useful lives. Furthermore, the Company acquired two Special Purpose Barges in January of 1998. These two barges have been placed into service in the Company's Indonesian operations which provide transportation services to a major mining company. These purchases were primarily financed through draws on the Company's revolving credit facility. YEAR 2000 COMPLIANCE. The Company uses a significant number of computer systems, including applications used in sales, shipping, communications, finance, and various administrative functions. To the extent that the Company's software applications contain source code that is unable to appropriately interpret calendar year 2000 and subsequent years, some level of modification or replacement of such applications will be necessary. The Company has reviewed all of its systems in order to verify that they are "year 2000 compliant" and has concluded that they are, with limited exceptions that will require only minor modification. Accordingly, management does not expect year 2000 compliance costs to have a material adverse effect on the Company. No assurance can be given, however, that all of the Company's systems will be year 2000 compliant or that compliance costs or the impact of the Company's failure to achieve full year 2000 compliance will not have a material adverse effect on the Company. Additionally, the Company could be adversely affected by the failure of one or more of its customers, lenders, suppliers, or other organizations with which it conducts business to become fully year 2000 compliant. NEW ACCOUNTING PRONOUNCEMENTS. During 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share," SFAS No. 130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 128, which is effective for reporting periods ending after December 15, 1997, has been adopted by the Company, and the impact on the Company's earnings per share was not material. SFAS No. 130 and SFAS No. 131 are effective for fiscal years beginning after December 15, 1997. The Company has chosen early adoption of SFAS No. 130, and all required disclosures are presented in the Company's consolidated financial statements included herein. The company plans to adopt SFAS No. 131 in 1998 and to include the required disclosures in its March 31, 1998, interim financial statements. 5 INTERNATIONAL SHIPHOLDING CORPORATION CONSOLIDATED STATEMENTS OF INCOME (ALL AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA) Year Ended December 31, 1997 1996 1995 ----------- ---------- ----------- Revenues $ 375,515 $ 353,346 $ 319,084 Subsidy Revenue 15,541 25,581 22,705 ----------- ---------- ----------- 391,056 378,927 341,789 ----------- ---------- ----------- Operating Expenses: Voyage Expenses 301,084 279,395 252,506 Vessel and Barge Depreciation 34,569 32,584 24,747 ----------- ---------- ----------- Gross Voyage Profit 55,403 66,948 64,536 ----------- ---------- ----------- Administrative and General Expenses 25,454 26,256 26,615 ----------- ---------- ----------- Operating Income 29,949 40,692 37,921 ----------- ---------- ----------- Interest: Interest Expense 27,654 28,528 25,561 Investment Income (1,458) (1,935) (2,676) ----------- ---------- ----------- 26,196 26,593 22,885 ----------- ---------- ----------- Gain on Sale of Investments - - 17,409 ----------- ---------- ----------- Equity in Net Income of Unconsolidated Entities (Net of Applicable Taxes) - - 331 ----------- ---------- ----------- Income Before Provision (Benefit) for Income Taxes and Extraordinary Item 3,753 14,099 32,776 ----------- ---------- ----------- Provision (Benefit) for Income Taxes: Current 3,119 3,246 11,296 Deferred (1,773) 1,533 94 State 252 684 406 ----------- ---------- ----------- 1,598 5,463 11,796 ----------- ---------- ----------- Income Before Extraordinary Item $ 2,155 $ 8,636 $ 20,980 ----------- ---------- ----------- Extraordinary Loss on Early Extinguishment of Debt (Net of Income Tax Benefit of $437) - (813) - ----------- ---------- ----------- Net Income $ 2,155 $ 7,823 $ 20,980 =========== ========== =========== Basic and Diluted Earnings Per Share: Income Before Extraordinary Loss $ 0.32 $ 1.29 $ 3.14 Extraordinary Loss - (0.12) - =========== ========== =========== Net Income $ 0.32 $ 1.17 $ 3.14 =========== ========== =========== The accompanying notes are an integral part of these statements. 6 INTERNATIONAL SHIPHOLDING CORPORATION CONSOLIDATED BALANCE SHEETS ASSETS (ALL AMOUNTS IN THOUSANDS) DECEMBER 31, December 31, 1997 1996 --------------- ------------- Current Assets: Cash and Cash Equivalents $ 32,002 $ 43,020 Marketable Securities 10,758 2,727 Accounts Receivable, Net of Allowance for Doubtful Accounts of $208 and $256 in 1997 and 1996, Respectively: Traffic 35,442 42,404 Agents' 7,128 10,343 Claims and Other 3,031 3,048 Federal Income Taxes Receivable 43 1,366 Net Investment in Direct Financing Leases 1,913 2,033 Other Current Assets 4,187 6,216 Material and Supplies Inventory, at Cost 13,296 12,043 ------------ ----------- Total Current Assets 107,800 123,200 ------------ ----------- Marketable Equity Securities 582 - ------------ ----------- Net Investment in Direct Financing Leases 20,552 22,797 ------------ ----------- Vessels, Property, and Other Equipment, at Cost: Vessels and Barges 689,856 676,267 Other Marine Equipment 7,590 7,500 Terminal Facilities 18,377 18,535 Land 2,317 2,317 Furniture and Equipment 16,853 17,401 ------------ ----------- 734,993 722,020 Less - Accumulated Depreciation (311,557) (276,222) ------------ ----------- 423,436 445,798 ------------ ----------- Other Assets: Deferred Charges, Net of Accumulated Amortization of $53,913 and $41,446 in 1997 and 1996, Respectively 38,960 43,318 Acquired Contract Costs, Net of Accumulated Amortization of $12,699 and $18,706 in 1997 and 1996, Respectively 17,826 19,523 Due from Related Parties 369 443 Other 8,679 6,517 ------------ ----------- 65,834 69,801 ------------ ----------- $ 618,204 $ 661,596 ============== ============= The accompanying notes are an integral part of these statements. 7 INTERNATIONAL SHIPHOLDING CORPORATION CONSOLIDATED BALANCE SHEETS LIABILITIES AND STOCKHOLDERS' INVESTMENT (ALL AMOUNTS IN THOUSANDS EXCEPT SHARE DATA) DECEMBER 31, December 31, 1997 1996 --------------- ------------- Current Liabilities: Current Maturities of Long-Term Debt $ 35,865 $ 33,470 Current Maturities of Capital Lease Obligations 2,579 1,981 Accounts Payable and Accrued Liabilities 51,735 67,690 Current Deferred Income Tax Liability 171 811 Current Liabilities to be Refinanced (22,511) (7,680) ------------ ----------- Total Current Liabilities 67,839 96,272 ------------ ----------- Current Liabilities to be Refinanced 22,511 7,680 ------------ ----------- Billings in Excess of Income Earned and Expenses Incurred 5,903 8,635 ------------ ----------- Long-Term Capital Lease Obligations, Less Current Maturities 14,994 17,642 ------------ ----------- Long-Term Debt, Less Current Maturities 271,835 299,434 ------------ ----------- Reserves and Deferred Credits: Deferred Income Taxes 39,494 40,673 Claims and Other 22,823 18,853 ------------ ----------- 62,317 59,526 ------------ ----------- Commitments and Contingent Liabilities Stockholders' Investment: Common Stock, $1.00 Par Value, 10,000,000 Shares Authorized, 6,756,330 Shares Issued at December 31, 1997 and 1996 6,756 6,756 Additional Paid-In Capital 54,450 54,450 Retained Earnings 112,794 112,310 Less - 73,443 Shares of Common Stock in Treasury, at Cost, at December 31, 1997 and 1996 (1,133) (1,133) Accumulated Other Comprehensive (Loss) Income (62) 24 ------------ ----------- 172,805 172,407 ------------ ----------- $ 618,204 $ 661,596 ============== ============= The accompanying notes are an integral part of these statements. 8 INTERNATIONAL SHIPHOLDING CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' INVESTMENT
Accumulated (ALL AMOUNTS IN THOUSANDS) Additional Other Common Paid-In Retained Treasury Comprehensive Stock Capital Earnings Stock Income (Loss) Total ------- ------- --------- -------- -------------- --------- Balance at December 31, 1994 $ 5,405 $54,450 $ 87,757 ($1,133) ($163) $ 146,316 Comprehensive Income: Net Income for Year Ended December 31, 1995 -- -- 20,980 -- -- 20,980 Other Comprehensive Income: Unrealized Holding Gain on Marketable Securities, Net of Deferred Taxes of $104 -- -- -- -- 193 193 Total Comprehensive Income 21,173 Cash Dividends -- -- (1,228) -- -- (1,228) 25% Stock Dividend 1,351 -- (1,351) -- -- -- ------- ------- --------- ------- ----- --------- Balance at December 31, 1995 $ 6,756 $54,450 $ 106,158 ($1,133) $ 30 $ 166,261 ======= ======= ========= ======= ===== ========= Comprehensive Income: Net Income for Year Ended December 31, 1996 -- -- 7,823 -- -- 7,823 Other Comprehensive Income: Unrealized Holding Loss on Marketable Securities, Net of Deferred Taxes of ($3) -- -- -- -- (6) (6) --------- Total Comprehensive Income 7,817 Cash Dividends -- -- (1,671) -- -- (1,671) ------- ------- --------- ------- ----- --------- Balance at December 31, 1996 $ 6,756 $54,450 $ 112,310 ($1,133) $ 24 $ 172,407 ======= ======= ========= ======= ===== ========= COMPREHENSIVE INCOME: NET INCOME FOR YEAR ENDED DECEMBER 31, 1997 -- -- 2,155 -- -- 2,155 OTHER COMPREHENSIVE INCOME: UNREALIZED HOLDING LOSS ON MARKETABLE SECURITIES, NET OF DEFERRED TAXES OF ($46) -- -- -- -- (86) (86) --------- TOTAL COMPREHENSIVE INCOME 2,069 CASH DIVIDENDS -- -- (1,671) -- -- (1,671) ------- --------- ------- ----- --------- BALANCE AT DECEMBER 31, 1997 $ 6,756 $54,450 $ 112,794 ($1,133) ($ 62) $ 172,805 ======= ======= ========= ======= ===== =========
The accompanying notes are an integral part of these statements. 9 INTERNATIONAL SHIPHOLDING CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (ALL AMOUNTS IN THOUSANDS)
Year Ended December 31, 1997 1996 1995 --------- --------- --------- Cash Flows from Operating Activities: Net Income $ 2,155 $ 7,823 $ 20,980 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation 37,259 34,939 26,653 Amortization of Deferred Charges and Other Assets 24,429 19,309 17,310 (Benefit) Provision for Deferred Income Taxes (1,773) 1,533 94 Equity in Unconsolidated Entities -- -- (331) Loss (Gain) on Sale of Vessels and Other Property 20 (11) (7) Gain on Sale of Investment in Havtor AS -- -- (17,409) Extraordinary Loss -- 813 -- Changes in: Accounts Receivable 7,671 (8,515) 543 Net Investment in Direct Financing Leases 2,365 1,756 2,188 Inventories and Other Current Assets 740 (3,539) (1,334) Other Assets (1,098) (1,177) 2,599 Accounts Payable and Accrued Liabilities (11,233) 910 (694) Federal Income Taxes Payable 2,523 (6,765) 6,084 Unearned Income (2,732) 3,996 168 Reserve for Claims and Other Deferred Credits 3,839 (2,118) (2,866) --------- --------- --------- Net Cash Provided by Operating Activities 64,165 48,954 53,978 --------- --------- --------- Cash Flows from Investing Activities: Purchase of Vessels and Other Property (19,553) (65,104) (127,942) Additions to Deferred Charges (18,302) (28,171) (11,682) Proceeds from Sale of Vessels and Other Property 334 2,512 7 Purchase of and Proceeds from Short-Term Investments (8,028) 1,799 2,763 Proceeds from Sale of Havtor AS -- -- 48,621 Proceeds from Note Receivable -- 8,100 -- Purchase of Marketable Equity Securities (778) -- -- Other Investing Activities 135 4,295 9,067 --------- --------- --------- Net Cash Used by Investing Activities (46,192) (76,569) (79,166) --------- --------- --------- Cash Flows from Financing Activities: Proceeds from Issuance of Debt 90,066 147,482 105,651 Reduction of Debt and Capital Lease Obligations (117,250) (126,704) (53,930) Additions to Deferred Financing Charges (136) (2,753) (635) Common Stock Dividends Paid (1,671) (1,671) (1,228) --------- --------- --------- Net Cash (Used) Provided by Financing Activities (28,991) 16,354 49,858 --------- --------- --------- Net (Decrease) Increase in Cash and Cash Equivalents (11,018) (11,261) 24,670 Cash and Cash Equivalents at Beginning of Year 43,020 54,281 29,611 --------- --------- --------- Cash and Cash Equivalents at End of Year $ 32,002 $ 43,020 $ 54,281 ========= ========= =========
The accompanying notes are an integral part of these statements. 10 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The accompanying consolidated financial statements include the accounts of International Shipholding Corporation (a Delaware corporation) and its consolidated subsidiaries (the Company). All significant intercompany accounts and transactions have been eliminated. The Company uses the cost method to account for investments in entities in which it holds less than a 20% voting interest and in which the Company cannot exercise significant influence over operating and financial activities. The Company uses the equity method to account for investments in entities in which it holds a 20% to 50% voting interest. Certain reclassifications have been made to the prior period financial information in order to conform to current year presentation. NATURE OF OPERATIONS The Company, through its subsidiaries, operates a diversified fleet of U.S. and international flag vessels that provide international and domestic maritime transportation services to commercial customers and agencies of the United States government primarily under medium- to long-term charters or contracts. At December 31, 1997, the Company's fleet consisted of 31 ocean-going vessels, 18 towboats, 128 river barges, 26 special purpose barges, 1,789 LASH barges, and related shoreside handling facilities. Early in 1998, the Company added a LASH vessel, 82 LASH barges, and two special purpose barges to its fleet. The Company's strategy is to (i) identify customers with marine transportation needs requiring specialized vessels or operating techniques, (ii) seek medium- to long-term charters or contracts with those customers and, if necessary, modify, acquire, or construct vessels to meet the requirements of those charters or contracts, and (iii) secure financing for the vessels predicated primarily on those charter or contract arrangements. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. VOYAGE ACCOUNTING Revenues and expenses relating to voyages are recorded on the percentage-of-completion method, except that provisions for loss voyages are recorded when contracts for the voyages are fixed and when losses become apparent for voyages in progress. Use of the percentage-of-completion method requires management to make estimates and assumptions that affect the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. VESSELS AND OTHER PROPERTY Costs of all major property additions and betterments are capitalized. Ordinary maintenance and repair costs are expensed as incurred. Interest and finance costs relating to vessels, barges, and other equipment under construction are capitalized to properly reflect the cost of assets acquired. Capitalized interest totaled $40,000, $425,000, and $2,721,000 for the years ended December 31, 1997, 1996, and 1995, respectively. Capitalized interest was calculated based on the interest rates applicable to the debt related to the asset under construction. Assets under capital lease are recorded on the consolidated balance sheet under the caption Vessels, Property, and Other Equipment (SEE NOTE G). For financial reporting purposes, vessels are depreciated over their estimated useful lives using the straight-line method. As a result of major capital improvements during 1996, the lives of two of the Company's LASH vessels were extended by two additional years, from 28 to 30 years and from 30 to 32 years, respectively. The effect of this change on the Company's results of operations for the year ended December 31, 1996, was not material. The Company groups all LASH barges into pools with estimated useful lives corresponding to the remaining useful lives of the vessels with which they are utilized. Major barge refurbishments are capitalized and included in the aforementioned group of barge pools. From time to time, the Company disposes of barges in the ordinary course of business. In these cases, proceeds from the disposition are credited to the remaining net book value of the respective pool and future depreciation charges are adjusted accordingly. Estimated useful lives of Vessels, Terminal Facilities, and Other Marine Equipment are as follows: YEARS ----- 1 LASH Vessel 32 10 LASH Vessels 30 2 Pure Car Carriers 20 2 Pure Car Carriers 12 1 Coal Carrier 15 11 Other Vessels * 25 Coal Terminal 22 LITCO Terminal 11 Marine Equipment 4 * Includes three FLASH units, two ice-strengthened multi-purpose vessels, two float-on/float-off special purpose vessels, a dockship, a cape-size bulk carrier, a molten sulphur carrier, and a container vessel. At December 31, 1997, the Company's fleet of 31 vessels also included three roll-on/roll-off vessels which it operates and a LASH vessel purchased in 1997 which has not yet been placed in service. Early in 1998, the Company added a LASH vessel, 82 LASH barges, and two special purpose barges to its fleet. 11 INCOME TAXES Deferred income taxes are provided on items of income and expense which affect taxable income in one period and financial income in another. Certain foreign operations are not subject to income taxation under pertinent provisions of the laws of the country of incorporation or operation. However, pursuant to existing U.S. Tax Laws, earnings from certain foreign operations are subject to U.S. income taxes (SEE NOTE D). FOREIGN CURRENCY TRANSLATION All exchange adjustments are charged or credited to income in the year incurred. Exchange gains of $175,000 were recognized for the year ended December 31, 1997, and exchange losses of $17,000 and $159,000 were recognized for the years ended December 31, 1996 and 1995, respectively. DIVIDEND POLICY The Board of Directors declared and paid dividends of 6.25 cents per share for each quarter in 1997 and 1996. Subsequent to year end, a dividend of 6.25 cents per common share was declared to be paid in the first quarter of 1998. NET INCOME PER COMMON SHARE Earnings per common share are based on the weighted average number of shares outstanding during the period. The weighted average number of common shares outstanding was 6,682,887 for the years ended December 31, 1997, 1996, and 1995. Basic and diluted weighted average common shares outstanding were the same for each of these years. During 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share," which is effective for reporting periods ending after December 15, 1997. The Company adopted SFAS No. 128, and the impact on the Company's earnings per share was not material. SUBSIDY AGREEMENTS The Company's operating differential subsidy ("ODS") agreement with the U.S. Maritime Administration ("MarAd"), an agency of the Department of Transportation under Title VI of the Merchant Marine Act of 1936, as amended, under which the Company operated a fleet of four U.S. flag vessels in a liner service between ports on the U.S. Gulf/U.S. Atlantic Coast and South Asia (Trade Routes 18 and 17), expired upon completion, during the first quarter of 1997, of voyages in progress at December 31, 1996. Under this agreement, MarAd paid the excess of certain vessel expenses over comparable vessel expenses of principal foreign competitors in each respective trade route. The Maritime Security Act ("MSA"), which provides for a new subsidy program for certain U.S. flag vessels, was signed into law in October of 1996. Seven of the Company's vessels qualified for MSA participation including the four aforementioned LASH vessels which operated under ODS, two of the Company's Pure Car Carriers ("PCC"), and a LASH vessel currently on contract with the Military Sealift Command ("MSC"). The two PCC's began receiving MSA payments in late 1996, and the four LASH vessels operating under ODS began receiving MSA payments upon the expiration of ODS in early 1997. The LASH vessel operating under MSC contract will be eligible to begin receiving MSA payments upon the expiration of that contract. MSA eliminated the trade route restrictions imposed by the ODS program and allows flexibility to operate freely in the competitive market. MSA provides for annual subsidy payments of $2,100,000 per year per vessel for a total of ten years. These payments are subject to appropriation each year and are not guaranteed. Under the previous ODS agreement, subsidy payments were approximately $5,800,000 per year per vessel. In an effort to partially offset the decrease in the amount of subsidy payments to be provided under MSA, as compared to ODS, the Company has implemented initiatives to reduce shipboard costs and shoreside expenses. SELF-RETENTION INSURANCE The Company is self-insured for most Personal Injury and Cargo claims under $1,000,000, for Hull claims under $2,500,000, and for claims for Loss of Hire under 60 days. Primary deductibles are $25,000 for Hull, Personal Injury, and Cargo, $1,000 for LASH barges, and 10 days for Loss of Hire. The Company maintains insurance for individual claims over the above levels and maintains Stop Loss insurance to cover aggregate claims between those levels and the primary deductible levels. The Company is responsible for all claims under the primary deductibles. Under the Stop Loss insurance, claim costs between the primary deductible and $1,000,000 and $2,500,000, as applicable, are the responsibility of the Company until the aggregate Stop Loss is met. The aggregate annual Stop Loss is $6,000,000 for the policy years June 27, 1997, through June 26, 1998, and June 27, 1996, through June 26, 1997, and is $7,000,000 for the policy period June 27, 1995, through June 26, 1996. After the Company has retained the aggregate amounts, all additional claims are recoverable from underwriters. Provisions for losses are recorded based on the Company's estimate of the eventual settlement costs. The current portions of these liabilities were $6,278,000 and $5,530,000 at December 31, 1997 and 1996, respectively, and the noncurrent portions of these liabilities were $13,675,000 and $8,654,000 at December 31, 1997 and 1996, respectively. NEW ACCOUNTING PRONOUNCEMENTS During 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." Both of these statements are effective for fiscal years beginning after December 15, 1997. The Company has chosen early adoption of SFAS No. 130, and all required disclosures are presented in the Company's consolidated financial statements included herein. The Company plans to adopt SFAS No. 131 in 1998 and to include the required disclosures in its March 31, 1998, interim financial statements. 12 NOTE B - LONG-TERM DEBT
(ALL AMOUNTS IN THOUSANDS) DECEMBER 31, December 31, DECEMBER 31, December 31, DESCRIPTION 1997 1996 DUE 1997 1996 - ----------- --------- --------- --------- ------- -------- Unsecured Senior Notes - Fixed Rate 9.00% 9.00% 2003 $ 93,891 $ 93,891 Fixed Rate Notes Payable 6.70-9.97% 6.70-9.97% 2000-2008 51,926 61,773 Variable Rate Notes Payable 6.64-7.37% 6.39-7.43% 1997-2006 99,541 101,855 U.S. Government Guaranteed Ship Financing Notes and Bonds - Fixed Rate 6.58-8.30% 6.58-8.30% 2000-2009 40,342 45,385 Lines of Credit 6.88-7.47% 6.63-8.25% 1998 22,000 30,000 -------- -------- $307,700 $332,904 Less Current Maturities (Net of Amounts to be Refinanced) (13,354) (30,851) -------- -------- $294,346 $302,053 ======== ========
On January 22, 1998, the Company issued a new series of $110,000,000 aggregate principal amount 7 3/4% Senior Notes due 2007 (the "Notes"). The net proceeds from these Notes were used to repay certain indebtedness of the Company's subsidiaries during the first quarter of 1998. Upon retirement of this indebtedness, the Company incurred an Extraordinary Loss on Early Extinguishment of Debt of approximately $1,062,000, net of taxes. Current maturities of the long-term debt retired, which were reclassified as long-term liabilities and included in the consolidated balance sheet as Current Liabilities to be Refinanced, totaled $22,511,000 as of December 31, 1997. Current Liabilities to be Refinanced of $7,680,000 as of December 31, 1996, included $5,061,000 and $2,619,000 reclassified from Accounts Payable and Accrued Liabilities, and Current Maturities of Long-Term Debt, respectively. Current Maturities of Long-Term Debt as of December 31, 1996, in the table above are presented net of the $2,619,000 which was to be refinanced. After giving effect to the aforementioned retirement of debt, the aggregate principal payments required as of December 31, 1997, for each of the next five years are $13,354,000 in 1998, $10,713,000 in 1999, $10,400,000 in 2000, $13,309,000 in 2001, and $7,439,000 in 2002. Certain of the vessels and barges owned by the Company are mortgaged under certain debt agreements. After giving effect to the aforementioned retirement of debt, the Company has remaining three vessels and 558 LASH barges pledged with a net book value totalling $166,009,000. The remaining indebtedness consists of secured subsidiary indebtedness and the unsecured indebtedness of the Company. Additional collateral includes a security interest in certain operating contracts and receivables. Most of these agreements, among other things, impose minimum working capital and net worth requirements, as defined, impose restrictions on the payment of dividends, and prohibit the Company from incurring, without prior written consent, additional debt or lease obligations, except as defined. The Company has consistently met the minimum working capital and net worth requirements during the period covered by the agreements and is in compliance with these requirements as of December 31, 1997. The most restrictive of the Company's remaining credit agreements restrict the declaration or payment of dividends unless (1) the total of (a) all dividends paid, distributions on, or other payments made with respect to the Company's capital stock during the period beginning January 1, 1998, and ending on the date of dividend declaration or other payment and (b) all investments other than Qualified Investments (as defined) of the Company and certain designated subsidiaries will not exceed the sum of $10,000,000 plus 50% (or, in case of a loss, minus 100%) of the Company's consolidated net income during the period described above plus the net cash proceeds received from the issuance of common stock by the Company during the above period, and (2) no default or event of default has occurred. Certain of the Company's remaining loan agreements also restrict the ability of the Company's subsidiaries to make dividend payments, loans, or advances, the most restrictive of which contain covenants that restrict payments of dividends, loans, or advances to the Company from Sulphur Carriers, Inc. unless certain financial ratios are maintained. As long as those ratios are maintained, there is no restriction on loans or advances to the Company from that subsidiary, but dividends are restricted to 40% of undistributed earnings. Certain other loan agreements restrict the ability of the Company's subsidiaries to dispose of assets to such a degree that the remaining assets' book values are less than the value of the collateralized assets. After giving effect to the aforementioned retirement of debt, the amounts of potentially restricted net assets were as follows: (ALL AMOUNTS IN THOUSANDS) DECEMBER 31, December 31, 1997 1996 -------- -------- Enterprise Ship Company $ 72,511 $ -- Sulphur Carriers, Inc. 23,314 22,058 Central Gulf Lines, Inc. 21,316 99,807 LCI Shipholdings, Inc. 18,217 -- Waterman Steamship Corporation -- 63,817 Cypress Auto Carriers, Inc. -- 10,285 ======== ======== Total Restricted Net Assets $135,358 $195,967 ======== ======== At December 31, 1997, the Company had available three lines of credit totaling $35,000,000 used to meet short-term requirements when fluctuations occur in working capital. One of these lines was fully drawn as of December 31, 1997, for an amount totaling $22,000,000 which was repaid in early 1998. Two of these lines were 13 fully drawn as of December 31, 1996, for an amount totaling $30,000,000. Early in the first quarter of 1998, the Company entered into a $25,000,000 revolving credit facility that replaced the three aforementioned lines of credit. The Company voluntarily maintains a $375,000 compensating balance for one of the lines of credit. This balance is included in Cash and Cash Equivalents. Under certain of the above described loan agreements, deposits are made into bank retention accounts to meet the requirements of the applicable agreements. These escrowed amounts totaled $701,000 and $668,000 at December 31, 1997 and 1996, respectively, and were included in Other Assets. NOTE C - PENSION PLAN AND POSTRETIREMENT BENEFITS The Company's retirement plan covers all full-time employees of domestic subsidiaries who are not otherwise covered under union-sponsored plans. The benefits are based on years of service and the employee's highest sixty consecutive months of compensation. The Company's funding policy is based on minimum contributions required under ERISA as determined through an actuarial computation. Plan assets consist primarily of investments in certain bank common trust funds of trust quality assets and money market holdings. The following table sets forth the plan's funded status and pension costs recognized by the Company: Actuarial Present Value of Benefit Obligations: DECEMBER 31, December 31, (ALL AMOUNTS IN THOUSANDS) 1997 1996 -------- -------- Vested Benefit Obligation .................. $(10,637) $ (9,837) ======== ======== Accumulated Benefit Obligation ............. $(10,860) $(10,041) ======== ======== Projected Benefit Obligation ............... $(13,358) $(12,060) Plan Assets at Fair Value .................. 15,042 13,397 -------- -------- Plan Assets in Excess of Projected Benefit Obligation .......... 1,684 1,337 Unrecognized Net Gain ...................... (1,902) (1,489) Prior Service Cost Not Yet Recognized in Net Periodic Pension Cost ........................... 103 130 Unrecognized Net Obligation Being Recognized Over 15 Years ............... 223 297 -------- -------- Accrued Pension Asset ...................... $ 108 $ 275 ======== ======== Net Periodic Pension Cost: For the Year Ended December 31, 1997 1996 1995 ------- ------- ------- Service Cost ...................... $ 750 $ 621 $ 451 Interest Cost on Projected Benefit Obligation .............. 872 782 752 Actual Return on Plan Assets ...... (1,779) (1,307) (2,130) Net Amortization and Deferral ..... 824 440 1,355 ------- ------- ------- Net Periodic Pension Cost ......... $ 667 $ 536 $ 428 ======= ======= ======= Actuarial assumptions used to develop the components of pension expense were as follows: For the Year Ended December 31, 1997 1996 1995 ------- ------- ------- Discount Rate .................. 7.25% 7.25% 7.25% Rate of Increase in Future Compensation Levels .......... 5.5% 5.5% 5.0% Expected Long-term Rate of Return on Assets ............. 8.0% 8.0% 8.5% Crew members on the Company's U.S. flag vessels belong to union-sponsored pension plans. The Company contributed approximately $2,496,000, $2,685,000, and $2,322,000 to these plans for the years ended December 31, 1997, 1996, and 1995, respectively. These contributions are in accordance with provisions of negotiated labor contracts and generally are based on the amount of straight pay received by the union members. Information from the plans' administrators is not available to permit the Company to determine whether there may be unfunded vested benefits. The Company's postretirement benefit plans currently provide medical, dental, and life insurance benefits to eligible retired employees and their eligible dependents. The following table sets forth the plans' combined funded status reconciled with the amount included in the Company's consolidated balance sheet classification Reserves and Deferred Credits: Accumulated Postretirement Benefit Obligation: (ALL AMOUNTS IN THOUSANDS) DECEMBER 31, December 31, 1997 1996 ------- ------- Retirees ....................................... $(5,006) $(5,148) Fully eligible active plan participants ........ (1,760) (1,732) Other active plan participants ................. (1,270) (1,318) ------- ------- $(8,036) $(8,198) Plan Assets at Fair Value ...................... -- -- ------- ------- Accumulated Postretirement Benefit Obligation in Excess of Plan Assets ........ $(8,036) $(8,198) Unrecognized Experience Loss ................... 1,457 1,910 ------- ------- Accrued Postretirement Benefit Cost in the Balance Sheet ....................... $(6,579) $(6,288) ======= ======= Net postretirement benefit cost includes the following components: For the Year Ended December 31, 1997 1996 1995 ---- ---- ---- Service Cost ............................... $116 $134 $110 Interest Cost on Accumulated Postretirement Benefit Obligation ..... 549 556 520 Net Amortization ........................... 46 85 37 ---- ---- ---- Net Postretirement Benefit Cost ............ $711 $775 $667 ==== ==== ==== The accumulated postretirement benefit obligation was computed using an assumed discount rate of 7.25% in 1997, 1996, and 1995. The health and dental care cost trend rate was assumed to be 9.5% for 1997, decreasing steadily by .75% per year over the next six years to a long-term rate of 5%. If the health and dental care cost trend rate were increased one percent for all future years, the accumulated postretirement benefit obligation as of December 31, 1997, 14 would have increased approximately $914,000 or 11%. The effect of this change in the net postretirement benefit cost for 1997 would have been an increase of approximately $77,000 or 11%. The Company continues to evaluate ways in which it can better manage these benefits and control the costs. Any changes in the plan or revisions to assumptions that affect the amount of expected future benefits may have a significant effect on the amount of the reported obligation and annual expense. NOTE D - INCOME TAXES The Federal income tax returns of the Company are filed on a consolidated basis and include the results of operations of its wholly-owned U.S. subsidiaries. Pursuant to the Tax Reform Act of 1986, the earnings of foreign subsidiaries ($2,369,000 in 1997, $619,000 in 1996, and $12,001,000 in 1995) are also included. Prior to 1987, deferred income taxes were not provided on undistributed foreign earnings of $6,689,000, all of which are expected to remain invested indefinitely. In accordance with the Tax Reform Act of 1986, commencing in 1987, earnings generated from profitable controlled foreign subsidiaries are subject to Federal income taxes. Components of the net deferred tax liability/(asset) are as follows: DECEMBER 31, December 31, (ALL AMOUNTS IN THOUSANDS) 1997 1996 -------- -------- Gross Liabilities: Fixed Assets .......................... $ 37,129 $ 33,671 Deferred Charges ...................... 9,885 3,521 Unterminated Voyage Revenue/ Expense .......................... 1,192 1,267 Intangible Assets ..................... 7,887 7,342 Deferred Insurance Premiums ........... 1,551 1,928 Insurance and Claims Reserve .......... 1,021 -- Other Liabilities ..................... 6,114 18,402 Gross Assets: Insurance and Claims Reserve .......... -- (3,501) FASB SFAS No. 106- Postretirement Benefits Other Than Pensions ............. (2,324) (1,595) Alternative Minimum Tax Credit ........ (9,094) (7,385) Net Operating Loss Carryforward/ Unutilized Deficit ............... (4,915) (903) Valuation Allowance ................... 879 879 Other Assets .......................... (9,660) (12,142) ======== ======== Total Deferred Tax Liability, Net .......... $ 39,665 $ 41,484 ======== ======== The following is a reconciliation of the U.S. statutory tax rate to the Company's effective tax rate: Year Ended December 31, 1997 1996 1995 -------- -------- -------- Statutory Rate 35.0% 35.0% 35.0% State Income Taxes 6.7% 4.9% 1.2% Other .8% (1.2%) (.3%) ======== ======== ======== 42.5% 38.7% 35.9% ======== ======== ======== The Company has available at December 31, 1997, unused operating loss carryforwards of $400,000 and unused foreign deficits of $13,600,000. The operating loss carryforwards will expire in 2001. Foreign income taxes of $596,000, $680,000, and $279,000 are included in the Company's consolidated statements of income in the Provision for Income Taxes: Current for the years ended December 31, 1997, 1996, and 1995. NOTE E - TRANSACTIONS WITH RELATED PARTIES During 1990, the Company sold one if its subsidiaries to a former employee at a sales price of $500,000. At the end of 1993, the Company sold another subsidiary to the same party for a sales price of $692,000. The total receivable outstanding from this related party totaled $443,000 and $517,000 at December 31, 1997 and 1996, respectively, and is due over a period of ten years from the date of the 1993 sale. The long-term portion of this receivable is included in Due from Related Parties, and the current portion is included in Accounts Receivable - Claims and Other. Collections on the total receivable were $74,000 for each of the years ended December 31, 1997 and 1996. Interest income on this receivable is earned at the rate of 6% for the first five years and a variable rate of LIBOR plus 2% thereafter and amounted to $29,000, $34,000, and $38,000 for the years ended December 31, 1997, 1996, and 1995, respectively. During 1992, a son of the President of the Company became a partner of the legal firm of Jones, Walker, Waechter, Poitevent, Carrere and Denegre which has been utilized for various legal services since the Company's inception. The Company made payments to the firm totaling approximately $958,000, $1,299,000, and $1,301,000 for the years ending December 31, 1997, 1996, and 1995, respectively. Amounts due to the legal firm were $105,000 and $41,000 at December 31, 1997 and 1996, respectively, and were included in Accounts Payable and Accrued Liabilities or Reserve for Claims. NOTE F - COMMITMENTS AND CONTINGENCIES During 1997, the Company entered into an agreement to have two special purpose barges built. The barges were completed and delivered in January of 1998. Also during 1997, the Company entered negotiations to purchase a 1987 built LASH vessel and 82 LASH barges. Early in 1998, the Company purchased the vessel and barges. As of December 31, 1997, 18 vessels that the Company owns or operates were under various contracts extending beyond 1997 and expiring at various dates through 2024. In addition, the Company also operates 111 jumbo river barges, 14 towboats, and certain terminal transfer equipment under a contract which expires in 2004. Certain of these agreements also contain options to extend the contracts beyond their minimum terms. 15 The Company also maintains lines of credit totaling $1,975,000 to cover standby letters of credit for membership in various shipping conferences. In the normal course of its operations, the Company becomes involved in various litigation matters including, among other things, claims by third parties for alleged property damages, personal injuries, and other matters. While the Company believes it has meritorious defenses against these claims, management has used significant estimates in determining the Company's potential exposure. Where appropriate, the Company has booked reserves, included in Reserves and Deferred Credits: Claims and Other, to cover its potential exposure and anticipated recoveries from insurance companies, included in Other Assets. It is reasonably possible that a change in the Company's estimate of its exposure could occur. Although it is difficult to predict the costs of ultimately resolving such issues, the Company does not expect such costs will have a material effect on the Company's financial position or results of operations. NOTE G - LEASES In 1998, the Company entered into direct financing leases of two foreign flag pure car carriers expiring in the year 2000. The schedule of future minimum rentals to be received under these direct financing leases in effect at December 31, 1997, is as follows: Receivables Under (ALL AMOUNTS IN THOUSANDS) Financing Leases ---------------- Year Ended December 31, 1998 $ 4,621 1999 4,265 2000 1,313 --------- Total Minimum Lease Payments Receivable 10,199 Estimated Residual Values of Leased Properties 18,000 Less Unearned Income (5,734) --------- Total Net Investment in Direct Financing Leases 22,465 Current Portion (1,913) --------- Long-Term Net Investment in Direct Financing Leases at December 31, 1997 $ 20,552 ========= The Company entered into sale-leaseback agreements in 1991 and 1992 for a group of the Company's LASH barges. These leases meet the required criteria for a capital lease and are accounted for as such. The terms of the leases are 12 years. The capital leases are included in Vessels, Property, and Other Equipment as follows: DECEMBER 31, December 31, (ALL AMOUNTS IN THOUSANDS) 1997 1996 ------------ ------------- LASH barges $ 24,936 $ 24,950 Less Accumulated Depreciation (12,406) (10,315) ------------ ------------- Total $ 12,530 $14,635 ============ ============= The following is a schedule, by year, of future minimum lease payments under capital leases, together with the present value of the minimum payments as of December 31, 1997: Payments Under (ALL AMOUNTS IN THOUSANDS) Capital Leases ------------------ Year Ended December 31, 1998 $ 4,437 1999 4,507 2000 4,514 2001 5,414 2002 3,080 Thereafter 2,125 ------------- 24,077 Less Amount Representing Interest (6,504) ------------- Present Value of Future Minimum Payments (BASED ON A WEIGHTED AVERAGE OF 10.39%) $ 17,573 ============= The Company conducts certain of its operations from leased office facilities and uses certain data processing, transportation, and other equipment under operating leases expiring at various dates to 2003. Rent expense related to operating leases totaled approximately $3,015,000, $2,375,000, and $2,453,000 for the years ended December 31, 1997, 1996, and 1995, respectively. The following is a schedule, by year, of future minimum payments required under operating leases that have initial or remaining non-cancelable terms in excess of one year as of December 31, 1997: Payments Under (ALL AMOUNTS IN THOUSANDS) Operating Leases ----------------- Year Ended December 31, 1998 $ 1,850 1999 457 2000 410 2001 404 2002 403 Thereafter 329 ----------- Total Future Minimum Payments $ 3,853 =========== NOTE H - DEFERRED CHARGES AND ACQUIRED CONTRACT COSTS The Company defers certain costs related to the acquisition of vessel operating contracts, the cost of placing vessels in service, and the drydocking of vessels. The costs of vessel prepositioning are amortized over the applicable contract periods. Deferred drydocking costs are amortized over the period between drydockings (generally two to five years). Financing charges are amortized over the life of the applicable debt involved. These deferred costs are all amortized based on a straight-line basis and are comprised of the following: DECEMBER 31, December 31, (ALL AMOUNTS IN THOUSANDS) 1997 1996 ---------- ---------- Drydocking $ 22,578 $ 26,102 Prepositioning 8,159 8,199 Financing Charges and Other 8,223 9,017 ---------- ---------- $ 38,960 $ 43,318 ========== ========== The acquired contract cost represents the portion of the purchase price paid for Waterman Steamship Corporation applicable primarily to that company's maritime prepositioning ship contracts and operating differential subsidy 16 agreements. The acquired contract costs relating to the operating differential subsidy agreements were fully amortized in the first quarter of 1997. The Company amortizes acquired contract costs using the straight-line method over the contracts' useful lives ranging from seven to twenty-one years from the acquisition date. NOTE I - SIGNIFICANT OPERATIONS The Company has several medium to long-term contracts related to the operations of various vessels (SEE NOTE F), from which revenues represent a significant amount of the Company's total revenue. Revenues from the contracts with the United States Military Sealift Command ("MSC") were $72,444,000, $69,605,000, and $75,086,000 for the years ended December 31, 1997, 1996, and 1995, respectively. Additionally, the Company operates four U.S. flag LASH vessels on subsidized liner service. Revenues, including subsidy revenue, from this operation were $125,564,000, $132,824,000, and $129,067,000 for the years ended December 31, 1997, 1996, and 1995, respectively. During 1996 and 1995, the Company operated two international flag LASH vessels on a scheduled liner service between U.S. Gulf and East Coast ports and ports in Northern Europe. During early 1997, an additional international flag LASH vessel was added to this service. Revenues from these operations were $75,940,000, $61,259,000, and $67,500,000 for the years ended December 31, 1997, 1996, and 1995, respectively. A significant portion of the Company's traffic receivables are due from contracts with MSC and transportation of government sponsored cargo. There are no other concentrations of receivables from customers or geographic regions that exceed 10% of stockholders' investment at December 31, 1997 or 1996. All of the Company's shipboard personnel are covered by collective bargaining agreements. Certain of these agreements, covering 20% of the Company's shipboard personnel, are scheduled to expire during 1998. While the Company expects to renegotiate these agreements upon their expiration in 1998, no assurance can be given that the agreements, if renewed, will include terms and conditions consistent with those contained in the agreements currently in place. The Company has operations in several principal markets, including international service between the U.S. Gulf and East Coast ports and ports in the Middle East, Far East, and northern Europe, and domestic transportation and services along the Mississippi River and U.S. Gulf Coast. NOTE J - UNCONSOLIDATED ENTITIES As of December 31, 1994, the Company held an approximate 9% interest in Havtor AS, a publicly traded company listed on the Oslo Stock Exchange. In addition, shares which represented a 3.6% interest in Havtor AS were held by the Company as collateral for a promissory note. The Company also held a 14.2% interest in A/S Havtor Management, a privately held Norwegian ship management company affiliated with Havtor AS. As of December 31, 1994, the Company held a 50% interest in a foreign entity, Bulkowner's 1984, which was formed to own and operate two combination dry cargo/petroleum products, PROBO vessels. The Company also held a 10% interest in a limited partnership with certain Norwegian interests to construct and own a Liquified Petroleum Gas carrier which delivered in 1993. During the first half of 1995, A/S Havtor Management and the gas carrier activities of Kvaerner, an unrelated Norwegian company, merged into Havtor AS. In addition, Havtor AS agreed to acquire other vessels and vessel interests, including the 50% interest held by the Company in two PROBO vessels and the 10% interest held in a Liquified Petroleum Gas carrier. Subsequent to the merger, the Company's interest in Havtor AS approximated 6.4%. During the second quarter of 1995, the Company purchased the Norwegian entity, A/S Havfond, which held the aforementioned promissory note which was collateralized by shares of Havtor AS. The acquisition was accounted for as a purchase and results for A/S Havfond were included in the accompanying consolidated financial statements from the date of acquisition through the dissolution of A/S Havfond on December 31, 1996. After the acquisition, the Company's interest in Havtor AS approximated 7.7%. During November of 1995, the Company sold this 7.7% interest in Havtor AS for approximately $48,000,000. The sale resulted in a before tax gain of approximately $17,000,000. During 1996, the Company acquired the remaining 50% interest in Marco Shipping Company, (PTE.) Ltd. ("Marco"), a foreign entity which acts in an agent capacity on behalf of the Company. The acquisition was accounted for as a purchase, and the results of Marco, which were not material, have been included in the accompanying consolidated financial statements since the date of acquisition. The cost of the acquisition was allocated on the basis of the estimated fair market value of the assets acquired and the liabilities assumed. The allocation resulted in goodwill of approximately $25,000 which is being amortized over 10 years. Income of foreign unconsolidated entities is recorded net of applicable taxes of approximately $201,000 in 1995. There was no income of foreign unconsolidated entities in 1996 and 1997. NOTE K - SUPPLEMENTAL CASH FLOW INFORMATION Year Ended December 31, (ALL AMOUNTS IN THOUSANDS) 1997 1996 1995 ------- ------- ------- Non-Cash Investing and Financing Activities: Current Liabilities to be Refinanced ................... $22,511 $ 7,680 $19,030 Cash Payments: Interest Paid .................. $26,818 $27,853 $26,633 Taxes Paid ..................... 3,321 13,723 5,757 The Company sold an interest in A/S Havtor in 1993 for $7,557,000 of which $2,777,000 was received in cash and $4,780,000 in the form of a promissory note. During 1995, the Company purchased AS Havfond, the Norwegian entity which held this promissory note. For purposes of the accompanying consolidated statements of cash flows, the Company considers highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. 17 NOTE L - FAIR VALUE OF FINANCIAL INSTRUMENTS AND DERIVATIVES The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: CASH AND CASH EQUIVALENTS AND MARKETABLE SECURITIES The carrying amount approximates fair value for each of these instruments. The Company categorized all marketable securities as available-for-sale. FOREIGN CURRENCY CONTRACTS The Company enters into forward exchange contracts to hedge certain firm purchase and sale commitments denominated in foreign currencies. The term of the currency derivatives is rarely more than one year. The purpose of the Company's foreign currency hedging activities is to protect the Company from the risk that the eventual dollar cash inflows or outflows resulting from revenue collections from foreign customers and purchases from foreign suppliers will be adversely affected by changes in exchange rates. As of December 31, 1997, the Company had entered into various forward purchase contracts for Singapore Dollars totaling $859,000 U.S. Dollar equivalents to hedge against future payments due for drydocking cost of a Float-On/Float-Off Special Purpose Vessel. As of December 31, 1996, the Company had entered into various forward purchase contracts for Singapore Dollars totaling $1,914,000 U.S. Dollar equivalents to hedge against future payments due for drydocking cost of a LASH vessel and for various other currencies totaling $245,000 U.S. Dollar equivalents for other future payments. Gains or losses on forward exchange contracts which hedge exposures on firm foreign currency commitments are deferred and recognized as adjustments to the bases of those assets. As of December 31, 1997 and 1996, the Company was also a party to forward sales contracts in various currencies totaling $2,304,000 and $1,927,000 U.S. Dollar equivalents, respectively. Gains and losses on these contracts are recognized in net income of the period in which the exchange rate changes. LONG-TERM DEBT The fair value of the Company's debt is estimated based on quoted market prices for the publicly listed Senior Notes and the current rates offered to the Company on other outstanding obligations. AMOUNTS DUE FROM RELATED PARTIES The carrying amount of these notes receivable approximated fair market value as of December 31, 1997 and 1996. Fair market value takes into consideration the current rates at which similar notes would be made. RESTRICTED INVESTMENTS The carrying amount of these investments, which were included in Other Assets, approximated fair market value as of December 31, 1997 and 1996, based upon current rates offered on similar instruments. The estimated fair values of the Company's financial instruments and derivatives are as follows (asset/(liability)): DECEMBER 31, December 31, 1997 1996 ----------------- ----------------- CARRYING FAIR Carrying Fair (ALL AMOUNTS IN THOUSANDS) AMOUNT VALUE Amount Value -------- ----- -------- ----- Foreign Currency Contracts - ($80) - - Long-Term Debt ($307,700) ($315,258) ($332,904) ($332,049) Disclosure of the fair value of all balance sheet classifications, including but not limited to certain vessels, property, equipment, direct financing leases, or intangible assets which may have a fair value in excess of historical cost, is not required. Therefore, this disclosure does not purport to represent the fair value of the Company. NOTE M - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Detailed below are the components of the consolidated balance sheet classification Accounts Payable and Accrued Liabilities for the periods indicated. DECEMBER 31, December 31, (ALL AMOUNTS IN THOUSANDS) 1997 1996 ---------- --------- Accrued Voyage Expenses $ 27,257 $ 28,670 Trade Accounts Payable 8,408 14,945 Accrued Interest 8,181 8,590 Self-Insurance Liability 6,278 5,530 Accrued Salaries and Benefits 1,400 2,683 Accrued Vessel Costs 211 7,272 ---------- --------- $ 51,735 $ 67,690 ========== ========= 18 NOTE N-QUARTERLY FINANCIAL INFORMATION - (UNAUDITED)
Quarter Ended ----------------------------------------------------- March 31 June 30 Sept. 30 Dec. 31 ----------- ---------- ---------- ---------- (ALL AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA) - ----------------------------------------------------------------------------------------------- 1997 REVENUE $ 89,994 $ 102,520 $ 100,309 $ 98,233 EXPENSE 75,420 88,021 87,195 85,017 GROSS VOYAGE PROFIT 14,574 14,499 13,114 13,216 NET INCOME 593 677 405 480 EARNINGS PER COMMON SHARE: BASIC AND DILUTED: NET INCOME 0.09 0.10 0.06 0.07 - ----------------------------------------------------------------------------------------------- 1996 Revenue $ 95,235 $ 97,775 $ 90,418 $ 95,499 Expense 78,088 80,316 73,655 79,920 Gross Voyage Profit 17,147 17,459 16,763 15,579 Income Before Extraordinary Item 2,248 2,685 2,053 1,650 Extraordinary Item - - - (813) Net Income 2,248 2,685 2,053 837 Earnings per Common Share: Basic and Diluted: Income Before Extraordinary Item 0.34 0.40 0.31 0.24 Extraordinary Item - - - (0.12) Net Income 0.34 0.40 0.31 0.12 - ----------------------------------------------------------------------------------------------- 1995 Revenue $ 83,302 $ 84,844 $ 84,108 $ 89,535 Expense 68,332 69,780 68,533 70,608 Gross Voyage Profit 14,970 15,064 15,575 18,927 Net Income 2,086 2,020 2,029 14,845 Earnings per Common Share: Basic and Diluted: Net Income 0.31* 0.30* 0.30* 2.23 - -----------------------------------------------------------------------------------------------
* Restated for November 17, 1995, stock dividend of twenty-five percent for each one share of common stock outstanding. COMMON STOCK PRICES AND DIVIDENDS FOR EACH QUARTERLY PERIOD OF 1996 AND 1997 (Source: New York Stock Exchange) Cash Dividends 1996 High Low Paid - ------------------ ---------------- ---------------- ----------------- 1st Quarter 20 3/4 18 7/8 .0625/Share 2nd Quarter 19 3/8 16 3/8 .0625/Share 3rd Quarter 19 5/8 17 1/2 .0625/Share 4th Quarter 19 16 7/8 .0625/Share Cash Dividends 1997 High Low Paid - ------------------ ---------------- ---------------- ----------------- 1st Quarter 19 16 7/8 .0625/Share 2nd Quarter 17 1/2 16 3/4 .0625/Share 3rd Quarter 18 1/4 16 .0625/Share 4th Quarter 18 5/16 16 5/8 .0625/Share Approximate Number of Common Stockholders of Record at March 1, 1998: 813 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To The Stockholders of International Shipholding Corporation: We have audited the accompanying consolidated balance sheets of International Shipholding Corporation (a Delaware corporation) and subsidiaries (the Company) as of December 31, 1997 and 1996, and the related consolidated statements of income, changes in stockholder's investment and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of International Shipholding Corporation and subsidiaries as of December 31, 1997 and 1996, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1997 in conformity with generally accepted accounting principles. /s/ Arthur Anderson LLP New Orleans, Louisiana January 16, 1998 (except with respect to the issuance of the Senior Notes discussed in Note B, as to which the date is January 22, 1998) EX-21 3 EXHIBIT 21 INTERNATIONAL SHIPHOLDING CORPORATION SUBSIDIARIES OF THE REGISTRANT AS OF DECEMBER 31, 1997 Jurisdiction Under Which Organized --------------- International Shipholding Corporation (Registrant) Delaware International Shipholding Corporation (1) New York River Towing, Inc. Delaware Waterman Steamship Corporation New York Sulphur Carriers, Inc. Delaware Central Gulf Lines, Inc. Delaware Florida Barge Lines Corporation Delaware Material Transfer, Inc. Delaware Enterprise Ship Company, Inc. Delaware Bay Insurance Company Bermuda LCI Shipholdings, Inc. Liberia Gulf South Inc. Liberia Gulf South Shipping Pte. Ltd. Singapore Cypress Auto Carriers, Inc. Liberia New Combo, Inc. Liberia Forest Lines Inc. Liberia Marco Shipping Co. Pte. Ltd. Singapore Marcoship Agencies Malaysia N. W. Johnsen & Co., Inc. New York Shipvest Companhia de Gestao Maritima, Lda.(2) Madeira St. Rose Fleeting Company, Inc. Louisiana LMS Shipmanagement, Inc. Louisiana Lash Intermodal Terminal Company Delaware Resource Carriers, Inc. Delaware (1) New York name-holding corporation (2) 60% owned by the Registrant All of the subsidiaries listed above are wholly-owned subsidiaries and are included in the consolidated financial statements incorporated by reference herein unless otherwise indicated. EX-27 4
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL STATEMENTS FOR THE PERIOD ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1997 DEC-31-1997 32,002 10,758 45,601 208 13,296 107,800 734,993 311,557 618,204 67,839 309,340 0 0 6,756 166,049 618,204 0 391,056 0 361,107 27,654 0 27,654 3,753 1,598 2,155 0 0 0 2,155 0.32 0.32
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