-----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, WmxtfY5c686ahgWWAqAqv1TpE6WHG1s3ZbitrqIZ/D61UGff27J65h80gPzXplIE 7m3v1bhZ3HorkWoCKOwfSA== 0000890566-00-000286.txt : 20000315 0000890566-00-000286.hdr.sgml : 20000315 ACCESSION NUMBER: 0000890566-00-000286 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000314 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: 569221 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, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO __________ COMMISSION FILE NO. 2-63322 INTERNATIONAL SHIPHOLDING CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 36-2989662 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 650 POYDRAS STREET, NEW ORLEANS, LOUISIANA 70130 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (504) 529-5461 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED Common Stock, $1 Par Value New York Stock Exchange 9% Senior Notes Due 2003 New York Stock Exchange 7 3/4% Senior Notes Due 2007 New York Stock Exchange Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] State the aggregate market value of the voting stock held by non-affiliates of the registrant. DATE AMOUNT ---- ------ February 28, 2000 $36,050,200 Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. Common stock, $1 par value...... 6,082,887 shares outstanding as of February 28, 2000 DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's definitive proxy statement dated March 14, 2000, have been incorporated by reference into Part III of this Form 10-K. ================================================================================ PART I ITEM 1. BUSINESS GENERAL The Company, through its subsidiaries, operates a diversified fleet of U.S. and foreign flag vessels that provide international and domestic maritime transportation services to commercial and governmental customers primarily under medium- to long-term charters or contracts. Substantially all of these charters or contracts are either renewals or extensions of previous agreements. At December 31, 1999, the Company's fleet consisted of 35 ocean-going vessels, 4 towboats, 16 river barges, 28 special purpose barges, 1,864 LASH (Lighter Aboard SHip) barges, and related shoreside handling facilities. The Company is the only significant operator of the LASH transportation system, which it pioneered in 1969. The Company's fleet includes 12 large LASH vessels, two LASH feeder vessels and 1,864 LASH barges. The LASH transportation system uses specially designed barges of uniform size which are loaded with cargo at various locations, towed to a centralized fleeting area, loaded aboard a large ocean-going LASH vessel by a 500-ton capacity shipboard crane, and transported overseas, where another set of previously loaded LASH barges awaits pick-up. In its transoceanic liner services, the Company uses the LASH system primarily to gather cargo on rivers, in island chains, and in harbors that are too shallow for traditional vessels. The 400-ton capacity LASH barges are ideally suited to transport large unit size items such as forest products, natural rubber, and steel that cannot be transported efficiently to and from such areas in container ships. The LASH vessel's shipboard crane permits rapid loading and unloading of LASH barges either dockside or at anchor. This rapid loading and unloading capability provides quick vessel turnaround and minimizes port time, cargo handling and reliance upon shoreside support facilities. In addition to LASH vessels, the Company's fleet consists of (i) two U.S. flag pure car carriers specially designed to transport fully assembled automobiles and two U.S. flag and two foreign flag car/truck carriers with the capability of transporting heavy weight and large dimension trucks and buses, as well as automobiles; (ii) two U.S. flag ice-strengthened multi-purpose vessels, one of which supports scientific and defense operations in the polar regions and the other of which is used by the Military Sealift Command ("MSC") to carry the components of a 500-bed U.S. Navy field hospital in the Indian Ocean; (iii) one foreign flag cape-size bulk carrier; (iv) one U.S. flag molten sulphur carrier, which is used to carry molten sulphur from Louisiana and Texas to a processing plant on the Florida Gulf Coast; (v) two float-on/float-off special purpose vessels ("SPV") and one 5,000-ton container vessel, which, together with ancillary vessels, are used to transport supplies for the Indonesian operations of a major mining company; (vi) one U.S. flag conveyer-equipped self-unloading coal carrier, which carries coal in the coastwise and near-sea trade; and (vii) three roll-on/roll-off ("RO/RO") vessels that permit rapid deployment of rolling stock, munitions, and other military cargoes requiring special handling. The Company's fleet is deployed by its principal operating subsidiaries, Central Gulf Lines, Inc. ("Central Gulf"), LCI Shipholdings, Inc. ("LCI"), Forest Lines Inc. ("Forest Lines"), and Waterman Steamship Corporation ("Waterman"). The Company also operates several other subsidiaries that provide ship charter brokerage, agency, barge fleeting, and other specialized services primarily to the Company's operating segments. The Company has three operating segments, LINER SERVICES, TIME CHARTER CONTRACTS, AND CONTRACTS OF AFFREIGHTMENT ("COA"), as described below. For additional information about the Company's operating segments see Note I-Significant Operations of the Notes to the Consolidated Financial Statements contained in this Form 10-K on page F-18. LINER SERVICES. A liner service operates a vessel or vessels on an established trade route with regularly scheduled sailing dates. The Company receives revenues for the carriage of cargo within the established trading area and pays the operating and voyage expenses incurred. The Company's liner services include a U.S. flag liner service between U.S. Gulf and East Coast ports and ports in South Asia and a foreign flag transatlantic liner service operating between U.S. Gulf and East Coast ports and ports in northern Europe. TIME CHARTER CONTRACTS. Time Charters are contracts by which the charterer obtains the right for a specified period to direct the movements and utilization of the vessel in exchange for payment of a specified daily rate, 2 but the Company retains operating control over the vessel. Typically, the Company fully equips the vessel and is responsible for normal operating expenses, repairs, wages, and insurance, while the charterer is responsible for voyage expenses, such as fuel, port, and stevedoring expenses. The Company's time charter contracts include those by which the MSC charters LASH, Roll-On/Roll-Off, and Ice Strengthened Multi-Purpose Vessels for contracts of varying terms. Also included in this segment are contracts with car manufacturers for two Pure Car Carriers and four Pure Car/Truck Carriers and with an electric utility for a conveyor-equipped, self-unloading coal carrier. Additionally, the Company's Cape-Size Bulk Carrier currently operating in a pool with several similar size vessels owned by two major European shipowners is included in this segment. CONTRACTS OF AFFREIGHTMENT, ("COA"). COA's are contracts by which the Company undertakes to provide space on its vessel(s) for the carriage of specified goods or a specified quantity of goods on a single voyage or series of voyages over a given period of time between named ports or within certain geographical areas in return for the payment of an agreed amount per unit of cargo carried. Generally, the Company is responsible for all operating and voyage expenses. The Company's COA segment includes a sulphur transportation contract with a major sulphur producer, and a contract to provide transportation services to a major mining company at its mine in West Irian Jaya, Indonesia. BUSINESS STRATEGY The Company's strategy is to (i) identify customers with high credit quality and marine transportation needs requiring specialized vessels or operating techniques, (ii) seek medium- to long-term charters or contracts with those customers and, if necessary, modify, acquire or construct vessels to meet the requirements of those charters or contracts and (iii) provide its customers with reliable, high quality service at a reasonable cost. The Company believes that its strategy has produced stable operating cash flows and valuable long-term relationships with its customers. The Company plans to continue this strategy by expanding its relationships with existing customers, seeking new customers, and selectively pursuing acquisitions. HISTORY The Company was originally founded as Central Gulf Steamship Corporation in 1947 by the late Niels F. Johnsen and his sons, Niels W. Johnsen, the Company's current Chairman, and Erik F. Johnsen, its current President. Central Gulf was privately held until 1971 when it merged with Trans Union Corporation ("Trans Union"). In 1978, International Shipholding Corporation was formed to act as a holding company for Central Gulf, LCI, and certain other affiliated companies in connection with the 1979 spin-off by Trans Union of the Company's common stock to Trans Union's stockholders. In 1986, the Company acquired the assets of Forest Lines, and in 1989, the Company acquired the ownership of Waterman. Since its spin-off from Trans Union, the Company has continued to act solely as a holding company, and its only significant assets consist of the capital stock of its subsidiaries. COMPETITIVE STRENGTHS LARGEST LASH TRANSPORTATION SYSTEM PROVIDER. The Company is the only significant commercial operator of the LASH transportation system, which it pioneered in 1969. The Company owns all of the LASH vessels that are currently used worldwide for commercial services. A key advantage of the LASH transportation system is that it minimizes port and cargo handling time. While a LASH vessel is transporting one set of LASH barges overseas, another set of LASH barges is being loaded with cargo and gathered at the destination staging area. Other advantages of the Company's LASH transportation system include the ability to access areas that lack traditional port facilities and to carry larger than container sized cargo. The Company believes that the cost of replicating its LASH transportation system is a significant barrier to entry for a potential competitor. Management believes that a new competitor would have to 3 acquire not only a LASH vessel (estimated to cost approximately $70 - $80 million to build), but also three sets of approximately 90 barges each (estimated to cost approximately $90,000 - $100,000 per barge to build) to achieve similar operating efficiencies. STABLE CASH FLOW. The Company's historical cash flows have been relatively stable because of the length and structure of the Company's contracts with creditworthy customers, as well as the Company's diversified customer and cargo bases. The Company's medium- to long-term charters provide for a daily charter rate that is payable whether or not the charterer utilizes the vessel. These charters generally require the charterer to pay certain voyage operating costs, including fuel, port, and stevedoring expenses, and often include cost escalation features covering certain of the Company's expenses. In addition, the Company's medium- to long-term contracts of affreightment guarantee a minimum amount of cargo for transportation. Furthermore, the Company's diversified cargo and customer bases have contributed to the stability of the Company's operating cash flow. The Company also believes that the high credit quality of its customers and the length of its contracts help reduce the effects of cyclical market conditions. LONG-STANDING CUSTOMER RELATIONSHIPS. The Company currently has medium- to long-term time charters with, or contracts to carry cargo for, high credit quality commercial customers that include International Paper Company, Freeport-McMoRan Sulphur LLC, P.T. Freeport Indonesia Company, The Goodyear Tire and Rubber Company, Toyota Motor Corporation, Honda Motor Co. Ltd., Hyundai Motor Company, and USGen New England, Inc. Most of these companies have been customers of the Company for over ten years. Substantially all of the Company's current cargo contracts and charter agreements are renewals or extensions of previous agreements. In recent years the Company has been successful in winning extensions or renewals of substantially all of the contracts rebid by its commercial customers. Additionally, for over 30 years the Company has been operating vessels for the MSC under charters or contracts that typically contain extension options for one or more periods. Historically, the MSC has exercised substantially all of its renewal options. The Company believes that its long-standing customer relationships are in part due to the Company's excellent reputation for providing quality specialized maritime service in terms of on-time performance, low cargo loss, minimal damage claims, and reasonable rates. EXPERIENCED MANAGEMENT TEAM. The Company's management team has substantial experience in the shipping industry. The Company's Chairman and President have each served the Company in various management capacities since its founding in 1947. In addition, the Company's two Executive Vice Presidents and the Chief Financial Officer have over 78 years of collective experience with the Company. The Company believes that the experience of its management team is important to maintaining long-term relationships with its customers. TYPES OF SERVICE The Company, through its principal operating subsidiaries, provides specialized maritime transportation services to its customers primarily under medium- to long-term contracts. The Company's three operating segments, LINER SERVICES, TIME CHARTER CONTRACTS, and CONTRACTS OF AFFREIGHTMENT, are described below: LINER SERVICES FOREIGN FLAG. The Company operates two foreign flag LASH vessels and a self-propelled, semi-submersible feeder vessel on a scheduled transatlantic liner service under the name "Forest Lines." This service has historically operated as a two LASH vessel service. After purchasing and refurbishing a newer LASH vessel in 1996 and adding it to this service in early 1997, the Company operated three LASH vessels in this service until the older of the two original vessels was retired from the service in May of 1998. Each Forest Lines LASH vessel normally makes 10 round trip sailings per year between U.S. Gulf and East Coast ports and ports in northern Europe. Approximately one-half of the aggregate eastbound cargo space has historically been reserved for International Paper Company ("International Paper") under a long-term contract. During the period that a third LASH vessel was operated in this service, the total eastbound cargo 4 space reserved for International Paper was approximately 33%. With the return to a two LASH vessel service, the space occupied by International Paper returned to the historical average of 50%. The remaining space was provided on a voyage affreightment basis to commercial shippers. In recent years, other forest products exporters used approximately 10%, and the remaining 40% was used by various commercial shippers to carry a variety of general cargo. The Company has had ocean transportation contracts with International Paper since 1969 when the Company had two LASH ships built to accommodate International Paper's trade. The Company's contract with International Paper is for the carriage of wood pulp, liner board, and other forest products, the characteristics of which are well suited for transportation by LASH vessels. The LASH system minimizes damage to such cargo by reducing the number of times that the cargo is handled and permits the Company to load and unload these products at the shipper's and the receiver's facilities, which are generally located on river systems that container ships and break bulk vessels do not serve. The Company's current contract with International Paper is for a ten-year term ending in 2002. Over the years, the Company has established a base of commercial shippers to which it provides space on the westbound Forest Lines service. The principal westbound cargoes are steel and other metal products, high-grade paper and wood products, and other general cargo. Over the last five years, the westbound utilization rate for these vessels averaged approximately 85% per year. U.S. FLAG. Waterman operates a U.S. flag liner service between U.S. Gulf and East Coast ports and ports in South Asia. In connection with this service, Waterman operates four U.S. flag LASH vessels, as well as one FLASH vessel that is used as feeder vessel in Southeast Asia. Until early 1997, Waterman received operating differential subsidy ("ODS") payments from the U.S. government with respect to each of the four LASH vessels used in this service. The subsidy payments were in amounts approximating the excess of certain vessel expenses, primarily wages, over comparable costs of the Company's principal foreign flag competitors on the same trade routes. The Maritime Security Act of 1996 established a new subsidy program for certain U.S. flag vessels. This program eliminated the trade route restrictions imposed by the ODS program and provides flexibility to operate freely in the competitive market. Under this new program, each participating vessel is eligible to receive an annual subsidy payment of $2.1 million, subject to annual appropriations. Seven of the Company's vessels have qualified for participation, including three of the four LASH vessels deployed in Waterman's U.S. flag liner service. On the eastbound portion of Waterman's U.S. flag liner service, a significant part of each vessel's cargo traditionally has been shipped to lesser developed countries under the Public Law-480 program, pursuant to which the United States government sells or donates surplus food products for export to developing countries. Seventy-five percent of this cargo is reserved for carriage by U.S. flag vessels, if they are available at reasonable rates. Awards under the Public Law-480 program are made on a voyage-to-voyage basis through periodic competitive bidding. The remaining eastbound cargo consists of general cargo, including some military equipment. Over the last five years, these vessels generally have been fully utilized on their eastbound voyages. On the westbound portion of this service, Waterman provides a significant portion of its cargo space to Goodyear for the transportation of natural rubber under a contract of affreightment expiring in April of 2000. The Company expects to negotiate an extension of this contract. Space is also provided on a voyage-to-voyage basis to other importers of natural rubber. The Company has had a continuing relationship with such companies since the early 1970s. The Company's LASH barges are ideally suited for large shipments of natural rubber because compression damage is minimal as compared to the damage that can occur when shipments are made in traditional break bulk vessels. Waterman is the largest U.S. flag carrier of natural rubber from Southeast Asia to the United States. The remaining westbound cargo generally consists of jute, piece goods, and other general cargo. Over the last five years, these vessels generally have been fully utilized on their westbound voyages. 5 The Company acquired a 1987-built LASH vessel in June of 1997 and a 1989-built LASH vessel in early 1998. One of these vessels is being used to perform feeder services for Waterman in the Indian Ocean area and after the first quarter of 2000 will be placed in lay-up in Singapore awaiting possible sale. The other of these vessels is in reserve pending a decision on its deployment. TIME CHARTER CONTRACTS MILITARY SEALIFT COMMAND CHARTERS The Company has had contracts with the MSC (or its predecessor) almost continuously for over 30 years. Currently, the Company's subsidiaries have eight vessels under contract to the MSC. These vessels are employed in the MSC's prepositioning programs, which strategically place military equipment and supplies throughout the world, or are chartered to the MSC mainly to service military and scientific operations in the Arctic and Antarctic. The Company believes that the demand for military prepositioning vessels will continue for the near term, notwithstanding planned reductions in overall military spending, because prepositioning military cargo is a key component of the military's established plans to respond quickly to international incidents without incurring the significant costs of operating foreign bases, some of which have been closed in recent years. However, there is no assurance that this policy will continue. MSC charters and contracts are awarded through competitive bidding for fixed terms with options allowing the MSC to extend the charters or contracts for additional periods. During the initial contract period, the MSC typically pays higher charter rates to cover significant expenses incurred in preparing the vessels for deployment, and therefore generally has an economic incentive to extend or renew a charter or contract if the vessel is still needed rather than paying a new shipowner to reconfigure a different vessel. Except in two cases, the MSC has always exercised its extension options with the Company, and the Company generally has been successful in winning renewals when the charters and contracts are rebid. Again, there is no assurance that this practice will continue. All charters and contracts require the MSC to pay certain voyage operating costs such as fuel, port, and stevedoring expenses, and certain charters and contracts include cost escalation features covering certain of the expenses paid by the Company. For a discussion of the MSC's rights to cancel charters or contracts during option periods, see "Regulation." o LASH VESSELS. The Company currently time charters to the MSC three U.S. flag LASH vessels which are used in the military's prepositioning force in the Indian Ocean. Two of these contracts expire in 2000, and the third LASH vessel completed its initial term and began its first option period in 1998 with the second option period extending into 2001. After these charters expire, it is anticipated that the MSC will invite rebidding for these contracts and the Company will have to meet the competition at the time to be successful in obtaining renewal charters. o ICE STRENGTHENED MULTI-PURPOSE VESSELS. The Company owns and operates the only two U.S. flag ice strengthened multi-purpose vessels. These vessels are capable of transporting containerized and break bulk cargo. One of these vessels is used by the MSC to resupply Pacific Rim military bases and to supply scientific projects in the Arctic and Antarctic. The other of these vessels began operations under a new charter with the MSC in July of 1997 to carry the components of a 500-bed U.S. Navy field hospital in the Indian Ocean. Both of these vessels are in the initial seventeen-month term of their contracts with options extending into 2001. o ROLL-ON/ROLL-OFF VESSELS. In 1983, Waterman was awarded a contract to operate three U.S. flag roll-on/roll-off vessels under time charters to the MSC for use by the United States Navy in its maritime prepositioning ship ("MPS") program. These vessels represent three of the four MPS vessels currently in the MSC's Atlantic fleet, which provides support for the U.S. Marine Corps. These ships are designed primarily to carry rolling stock and containers, and each can carry support equipment for 17,000 military personnel. Waterman sold the three vessels to unaffiliated corporations shortly after being awarded the contract but retained the right to operate the vessels under operating agreements. The MSC time charters commenced in late 1984 and early 1985 for initial five-year periods and were renewable at the MSC's option for additional five-year periods up to a maximum of twenty-five years. 6 In 1993, the Company reached an agreement with the MSC to make certain reductions in future charter hire payments in consideration of fixing the period of these charters for the full 25 years. The charters and related operating agreements will terminate in 2009 and 2010. CAR/TRUCK CARRIERS o U.S. FLAG. In 1986, the Company entered into multi-year charters to carry Toyota and Honda automobiles from Japan to the United States. To service these charters, the Company had constructed two pure car carriers which are specially designed to carry 4,000 and 4,660 fully assembled automobiles, respectively. Both vessels were built in Japan, but are registered under the U.S. flag. To be competitive with foreign flag vessels operated by foreign crews, the Company worked in close cooperation with the unions representing the Company's U.S. citizen shipboard personnel. Service under these charters commenced in the fourth quarter of 1987 and continues under recently negotiated medium-term extensions. In 1998, the Company acquired a 1994-built U.S. flag car/truck carrier. Immediately after being delivered to the Company in April of 1998, this vessel entered a long-term charter to a major Japanese shipping company. In 1999, the Company acquired a newly built U.S. flag car/truck carrier, which immediately after being delivered to the Company in September of 1999 entered a long-term charter to the same major Japanese shipping company. o FOREIGN FLAG. In 1988, the Company had two new pure car carriers constructed by a shipyard affiliated with Hyundai, each with a carrying capacity of 4,800 fully assembled automobiles, to transport Hyundai automobiles from South Korea primarily to the United States and Europe under two long-term charters that expired in 2000. In 1998 and 1999, respectively, the Company sold both of these car carriers. Also in 1998 and 1999, respectively, the Company purchased two newbuilding car/truck carriers with the capacity to carry heavy and large size rolling stock in addition to automobiles and trucks. These vessels immediately entered into a long-term charter to a major Far Eastern company. Under each of the Company's car/truck carrier charters, the charterers are responsible for voyage operating costs such as fuel, port, and stevedoring expenses, while the Company is responsible for other operating expenses including crew wages, repairs, and insurance. During the terms of these charters, the Company is entitled to its full fee irrespective of the number of voyages completed or the number of cars carried per voyage. COAL CARRIER In late 1995, the Company purchased an existing U.S. flag conveyor-equipped, self-unloading coal carrier that it concurrently chartered to a New England Power Company under a 15-year contract to carry coal in the coastwise and near-sea trade. The ship will also be used, from time to time during this charter period, to carry coal and other bulk commodities for the account of other major charterers. BULK CARRIER In 1990, the Company acquired a 148,000 Dead Weight Tons ("DWT") cape-size drybulk carrier. The vessel has been fully employed in the commercial market under various time charters in specific trading areas where bulk cargoes using this size vessel move on a regular basis. CONTRACTS OF AFFREIGHTMENT MOLTEN SULPHUR In 1994, the Company entered into a 15-year transportation contract with Freeport-McMoRan Sulphur LLC, a major sulphur producer for which it had built a 24,000 DWT molten sulphur carrier that 7 carries molten sulphur from Louisiana and Texas to a fertilizer plant on the Florida Gulf Coast. Under the terms of this contract, the Company is guaranteed the transportation of a minimum of 1.8 million tons of sulphur per year. The contract also gives the charterer three five-year renewal options. The vessel was delivered and began service during late 1994. SPECIAL PURPOSE VESSELS (SPV'S) During 1994, the Company entered into a long-term contract to provide ocean transportation services to P.T. Freeport Indonesia Company, a major mining company producing copper and gold concentrates at its mine in West Irian Jaya, Indonesia. The Company acquired two SPV's and one container/break bulk vessel and had 28 cargo barges constructed for use with those vessels. The Company's contract is through 2006 with seven three-year renewal options. This contract also contains buy-out provisions beginning in December of 2001. ANCILLARY SERVICES LITCO FACILITY. The Company owns an all weather rapid cargo transfer facility at the river port of Memphis, Tennessee, which handles LASH barges transported by subsidiaries of the Company in its LASH liner services. LITCO (LASH Intermodal Terminal COmpany) began operations in May of 1992 and provides 287,500 square feet of enclosed warehouse and loading/discharging stations for LASH barge, rail, truck, and heavy-lift operations. OTHER SERVICES. The Company has several other subsidiaries providing ship charter brokerage, agency, barge fleeting, and other specialized services to the Company's subsidiaries and, in the case of ship charter brokerage and agency services, to unaffiliated companies. The income produced by these services substantially covers the related overhead expenses. These services facilitate the Company's operations by allowing it to avoid reliance on third parties to provide these essential shipping services. MARKETING The Company maintains marketing staffs in New York, New Orleans, Houston, Chicago, and Singapore and maintains a network of marketing agents in major cities around the world who market the Company's liner, charter, and contract services. The Company markets its Trans-Atlantic LASH liner service under the trade name "Forest Lines," and its LASH liner service between the U.S. Gulf and Atlantic coast ports and South Asia ports under the Waterman house flag. The Company advertises its services in trade publications in the United States and abroad. INSURANCE The Company maintains protection and indemnity ("P&I") insurance to cover liabilities arising out of the ownership or operation of vessels with Assuranceforeningen GARD and the Standard Steamship Owners' Protection & Indemnity Association (Bermuda) Ltd., which are mutual shipowners' insurance organizations commonly referred to as P&I clubs. Both clubs are participants in and subject to the rules of their respective international group of P&I associations. The premium terms and conditions of the P&I coverage provided to the Company are governed by the rules of each club. The Company maintains hull and machinery insurance policies on each of its vessels in amounts related to the value of each vessel. This insurance coverage, which includes increased value, freight, and time charter hire, is maintained with a syndicate of hull underwriters from the U.S., British, French, and Scandinavian insurance markets. The Company maintains war risk insurance on each of the Company's vessels in an amount equal to each vessel's total insured hull value. War risk insurance is placed through U.S., British, French, and Scandinavian insurance markets and covers physical damage to the vessels and 8 P&I risks for which coverage would be excluded by reason of war exclusions under either the hull policies or the rules of the applicable P&I club. The P&I insurance also covers the Company's vessels against liabilities arising from the discharge of oil or hazardous substances in U.S., international, and foreign waters. The Company also maintains loss of hire insurance with U.S., British, French, and Scandinavian markets to cover its loss of revenue in the event that a vessel is unable to operate for a certain period of time due to loss or damage arising from the perils covered by the hull and machinery policy. Insurance coverage for shoreside property, shipboard consumables and inventory, spare parts, workers' compensation, office contents, and general liability risks is maintained with underwriters in U.S. and British markets. Insurance premiums for the coverage described above vary from year to year depending upon the Company's loss record and market conditions. In order to reduce premiums, the Company maintains certain deductible and co-insurance provisions that it believes are prudent and generally consistent with those maintained by other shipping companies and in recent years has increased the self-retention portion under its insurance program while capping its self-retention exposure under stop-loss insurance coverage. REGULATION The Company's operations between the United States and foreign countries are subject to the Shipping Act of 1984 (the "Shipping Act"), which is administered by the Federal Maritime Commission, and certain provisions of the Federal Water Pollution Control Act, the Oil Pollution Act of 1990, and the Comprehensive Environmental Response Compensation and Liability Act, all of which are administered by the U.S. Coast Guard and other federal agencies, and certain other international, federal, state, and local laws and regulations, including international conventions and laws and regulations of the flag nations of its vessels. Pursuant to the requirements of the Shipping Act, the Company has on file with the Federal Maritime Commission tariffs reflecting the outbound and inbound rates currently charged by the Company to transport cargo between the United States and foreign countries as a common carrier in connection with its liner services. These tariffs are filed by the Company either individually or in connection with its participation as a member of rate or conference agreements, which are agreements that (upon becoming effective following filing with the Federal Maritime Commission) permit the members to agree concertedly upon rates and practices relating to the carriage of goods in U.S. and foreign ocean commerce. Tariffs filed by a company unilaterally or collectively under rate or conference agreements are subject to Federal Maritime Commission approval. Once a rate or conference agreement is filed, rates may be changed in response to market conditions on 30 days' notice, with respect to a rate increase, and one day's notice, with respect to a rate decrease. On October 16, 1998, the Ocean Shipping Reform Act of 1998 (the "Act") was enacted, and it amended the Shipping Act of 1984 to promote the growth and development of United States exports through certain reforms in the regulation of ocean transportation. This legislation, in part, repeals the requirement that a common carrier or conference file tariffs with the Federal Maritime Commission, replacing it with a requirement that tariffs be open to public inspection in an electronically available, automated tariff system. Furthermore, the legislation requires that only the essential terms of service contracts be published and made available to the public. On October 8, 1996, Congress adopted the Maritime Security Act of 1996 which created the Maritime Security Program ("MSP") and authorized the payment of $2.1 million per year per ship for 47 U.S. flag ships through fiscal year 2005. This program eliminates the trade route restrictions imposed by the previous federal program and provides flexibility to operate freely in the competitive market. On December 20, 1996, Waterman entered into MSP contracts with MarAd for each of its four LASH vessels, and Central Gulf entered into MSP contracts with MarAd for each of its two car carriers and one of its LASH vessels currently on charter to the MSC. In 1998, Central Gulf enrolled a recently built car carrier into the MSP in substitution of its LASH vessel previously enrolled in that program. Waterman's vessels began receiving payments under the MSP in early 1997; two of Central Gulf's car carriers commenced immediate operation 9 in the MSP on December 20, 1996; and Central Gulf's new car carrier began receiving MSP payments in April of 1998. In 1999, Waterman substituted a new pure car/truck carrier for one of its LASH vessels in the MSP. By law, the MSP is subject to annual appropriations. In the event that sufficient appropriations are not made for the MSP by Congress in any fiscal year, the Maritime Security Act of 1996 permits MSP contractors, such as Waterman and Central Gulf, to re-flag their vessels under foreign registry expeditiously. Seven of the Company's U.S. flag LASH vessels were constructed with the aid of construction differential subsidies and Title XI loan guarantees administered by MarAd, the receipt of which obligates the Company to comply with various dividend and other financial restrictions. Vessels constructed with the aid of construction differential subsidies may not be operated in domestic coastwise trade or domestic trade with Hawaii, Puerto Rico, or Alaska without the permission of MarAd and without repayment of the construction differential subsidy under a formula established by law. Recipients of Title XI loan guarantees must pay an annual fee of up to 1% of the loan amount. Under the Merchant Marine Act, U.S. flag vessels are subject to requisition or charter by the United States whenever the President declares that the national security requires such action. The owners of any such vessels must receive just compensation as provided in the Merchant Marine Act, but there is no assurance that lost profits, if any, will be fully recovered. In addition, during any extension period under each MSC charter or contract, the MSC has the right to terminate the charter or contract on 30 days' notice. Certain of the Company's operations, including its carriage of U.S. foreign aid cargoes, as well as the Company's molten sulphur transportation contract and its Title XI financing arrangements, require the Company to be as much as 75% owned by U.S. citizens. The Company monitors its stock ownership to verify its continuing compliance with these requirements and has never had more than 1% of its common stock held of record by non-U.S. citizens. In April of 1996, the Company's shareholders amended the Company's charter and stock transfer procedures to limit the acquisition of its common stock by non-U.S. citizens. Under the amendment, any transfer of the Company's common stock that would result in non-U.S. citizens owning more than 23% (the "permitted amount") of the total voting power of the Company would be void and ineffective against the Company. With respect to any shares owned by non-U.S. citizens in excess of the permitted amount, the voting rights will be denied and the dividends will be withheld. Furthermore, the Company is authorized to redeem shares of common stock owned by non-U.S. citizens in excess of the permitted amount to reduce ownership by non-U.S. citizens to the permitted amount. The Company is required by various governmental and quasi-governmental agencies to obtain permits, licenses, and certificates with respect to its vessels. The kinds of permits, licenses, and certificates required depend upon such factors as the country of registry, the commodity transported, the waters in which the vessel operates, the nationality of the vessel's crew, the age of the vessel, and the status of the Company as owner or charterer. The Company believes that it has, or can readily obtain, all permits, licenses, and certificates necessary to permit its vessels to operate. The International Maritime Organization (IMO) has mandated that vessels documented under the laws of its member countries, including the United States, develop and implement quality and safety programs by July 1, 1998, or July 1, 2002, depending on the type of vessels. Vessels operating without the required compliance certificates could either be fined or denied entry into or detained in the ports of those countries that are members of the IMO. The Company's ship management subsidiary, LMS Shipmanagement, Inc., received certification in January of 1998 that its Quality Management System was approved as meeting the ISO 9002 Quality Standard. The Company implemented a comprehensive program to obtain timely IMO certification for all of its vessels and obtained IMO certification for three of its vessels in 1998. For those vessels for which certification is not required until July 1, 2002, the Company has received certification for five vessels and plans to obtain certification for the remainder of its fleet subject to the certification requirements by the end of 2000, although no assurances to this effect can be given. 10 COMPETITION The shipping industry is intensely competitive and is influenced by events largely outside the control of shipping companies. Varying economic factors can cause wide swings in freight rates and sudden shifts in traffic patterns. Vessel redeployments and new vessel construction can lead to an overcapacity of vessels offering the same service or operating in the same market. Changes in the political or regulatory environment can also create competition that is not necessarily based on normal considerations of profit and loss. The Company's strategy is to reduce competitive pressures and the effects of cyclical market conditions by operating specialized vessels in niche market segments and deploying a substantial number of its vessels under medium- to long-term charters or contracts with creditworthy customers and on trade routes where it has established market shares. The Company also seeks to compete effectively in the traditional areas of price, reliability, and timeliness of service. Competition principally comes from numerous break bulk vessels and, occasionally, container ships. Much of the Company's revenue is generated by contracts with the MSC and contracts to transport Public Law-480 U.S. government-sponsored cargo, a cargo preference program requiring that 75% of all foreign aid "Food for Peace" cargo must be transported on U.S. flag vessels, if they are available at reasonable rates. The Company competes with all U.S. flag companies, including Farrell Lines, Inc., APL, and Maersk-Sea Land Service, Inc. for the MSC work and the Public Law-480 cargo. Additionally, the Company's principal foreign competitors include Hoegh Lines, Star Shipping, Wilhelmsen Lines, and the Shipping Corporation of India. The Company's LASH liner services face competition from foreign flag liner operators and, to a lesser degree, from U.S. flag liner operators. In addition, during periods in which the Company participates in conference agreements or rate agreements, competition includes other participants with whom the Company may agree to charge the same rates and non-participants charging lower rates. Because the Company's LASH barges are used primarily to transport large unit size items, such as forest products, natural rubber, and steel, that cannot be transported as efficiently in container ships, the Company's LASH fleet often has a competitive advantage over these vessels for this type of cargo. In addition, the Company believes that the ability of its LASH system to operate in shallow harbors and river systems and its specialized knowledge of these harbors and river systems give it a competitive advantage over operators of container ships and break bulk vessels that are too large to operate in these areas. The Company's pure car/truck carriers operate worldwide in markets where foreign flag vessels with foreign crews predominate. The Company believes that its U.S. flag pure car carriers can continue to compete effectively if it continues to receive the cooperation of its seamen's unions in controlling costs. RISK FACTORS SUBSTANTIAL LEVERAGE. The Company is highly leveraged and devotes a substantial portion of its operating income to debt service. To date, the Company has been able to generate sufficient cash from operations to meet annual interest and principal payments on its indebtedness. The Company's ability to satisfy its debt obligations will depend upon its future operating performance, which will be affected by prevailing economic conditions and financial, business and other factors, certain of which are beyond its control. If the Company's cash flow and capital resources are insufficient to fund its debt service obligations, the Company may be forced to reduce or delay capital expenditures, sell assets, obtain additional equity capital, or restructure its debt. There can be no assurance that the Company will be able to generate sufficient cash flow to cover required interest and principal payments. Subject to compliance with various financial and other covenants imposed by debt instruments governing the indebtedness of the Company and its subsidiaries, the Company and its subsidiaries may incur additional indebtedness from time to time. 11 The degree to which the Company is leveraged could have important consequences. Among other things, high leverage may: (i) impair the Company's ability to obtain additional financing for working capital, capital expenditures, vessel and other acquisitions, and general corporate purposes; (ii) require the Company to dedicate a substantial portion of its cash flow from operations to the payment of principal and interest; (iii) place the Company at a competitive disadvantage to less highly-leveraged competitors; and (iv) make the Company more vulnerable to economic downturns and limit its ability to withstand competitive pressures. REGULATION. The Company's business is materially affected by government regulation in the form of international conventions, national, state, and local laws and regulations, and laws and regulations of the flag nations of the Company's vessels, including laws relating to the discharge of materials into the environment. Because such conventions, laws, and regulations are often revised, the Company is unable to predict the ultimate costs of compliance. In addition, the Company is required by various governmental and quasi-governmental agencies to obtain and maintain certain permits, licenses, and certificates with respect to its operations. In certain instances, the failure to obtain or maintain such permits, licenses or certificates could have a material adverse effect on the Company's business. In the event of war or national emergency, the Company's U.S. flag vessels are subject to requisition by the United States without any guarantee of compensation for lost profits, although the United States government has traditionally paid fair compensation in such circumstances. REDUCTION OF SUBSIDY PAYMENTS. Until early 1997, the Company received ODS payments with respect to four of its LASH vessels under a federal program designed to allow U.S. ships to compete with lower-cost foreign competitors. For the years ended December 31, 1995 and 1996, the Company received aggregate subsidy payments under this program of $22.7 million and $25.6 million, respectively. Although the Company's ODS agreement has lapsed, three of the four of the Company's LASH vessels that previously received such subsidies, and four of its other vessels, have qualified to participate in a new subsidy program created under the Maritime Security Act of 1996. Under this new program, each participating vessel is eligible to receive annual subsidy payments of $2.1 million through the government's fiscal year 2005. Also, this program eliminated the trade route restrictions imposed by the ODS program and provides flexibility to operate freely in the competitive market. Payments under this program are subject to annual appropriation by Congress and are not guaranteed. If Congress does not make sufficient appropriations in any fiscal year with respect to this program, the Company would be permitted to reflag its vessels under foreign registry. DEPENDENCE ON GOVERNMENT CHARTERS AND CONTRACTS. The Company is materially dependent on various charters or contracts with agencies of the United States government. Companies engaged in government contracting are subject to certain unique business risks. Among these risks are dependence on congressional appropriations and administrative allotment of funds, and changing policies and regulations. Because the government contracts held by the Company are usually awarded for relatively short periods of time and are subject to renewal options in favor of the government, the stability and continuity of that portion of the Company's business depends on the periodic exercise by the government of contract renewal options. Further, the government contracting laws provide that the United States government is to do business only with responsible contractors. In this regard, federal agencies have the authority under certain circumstances to suspend or debar a contractor from further government contracting for a certain period of time in order to protect the government's interest. The Company has never been suspended or debarred from government contracting, nor has it ever been the subject of any proceeding for such a purpose. The Company currently has eight vessels under time charter or contract to the MSC. During any extension period under each MSC charter or contract, the MSC has the right to terminate the charter or contract upon 30 days' notice. Historically, the MSC has exercised substantially all of its renewal options on the Company's charters or contracts, and the Company generally has been successful in winning charter or contract renewals when they are rebid. COMMODITY PRICE. The Company is exposed to commodity price risk related to purchases it must make during the course of business for its fuel consumption. The Company has been successful in hedging a portion of the fuel purchases during the year. However for the portions that are not hedged, the Company 12 can give no assurance that it will be able to offset its higher fuel cost due to competitive conditions in the business. COMPETITION. The shipping industry is intensely competitive and can be influenced by economic and political events that are outside the control of shipping companies. There can be no assurance that the Company will be able to renew expiring charters on economically attractive terms, maintain attractive freight rates, or otherwise successfully compete against its competitors. CONTROL BY PRINCIPAL STOCKHOLDERS. Niels W. Johnsen, the Chairman of the Board and Chief Executive Officer of the Company, Erik F. Johnsen, the President and Chief Operating Officer of the Company (and the brother of Niels W. Johnsen) and their spouses, children and grandchildren (collectively, the "Johnsen Family"), beneficially owned an aggregate of 35.46% of the common stock of the Company as of December 31, 1999. By virtue of such ownership, the Johnsen Family may continue to have the power to determine many of the policies of the Company and its subsidiaries, the election of the Company's directors and officers, and the outcome of various corporate actions requiring shareholder approval. EMPLOYEES As of December 31, 1999, the Company employed approximately 660 shipboard personnel and 301 shoreside personnel. The Company considers relations with its employees to be excellent. All of the Company's U.S. shipboard personnel and certain shoreside personnel are covered by collective bargaining agreements. Central Gulf, Waterman, and other U.S. shipping companies are subject to collective bargaining agreements for shipboard personnel in which the shipping companies servicing U.S. Gulf and East Coast ports also must make contributions to pension plans for dockside workers. The Company has experienced no strikes or other significant labor problems during the last ten years. ITEM 2. PROPERTIES VESSELS AND BARGES. Of the 35 ocean-going vessels in the Company's fleet at December 31, 1999, 28 are owned by the Company, four are 30% owned by the Company, and three are operated under operating contracts. Of the 1,864 LASH barges in the Company's fleet, 1,763 are operated in conjunction with the Company's LASH and FLASH vessels. Of these, the Company owns approximately 1,444 barges and leases 319 barges under capital leases with 12-year terms expiring in late 2003 and early 2004. The remaining 101 LASH barges owned by the Company are not required for current vessel operations. All of the Company's barges are registered under the U.S. flag. The Company also owns 16 standard river barges, which are chartered to unaffiliated companies on a short-term basis along with four towboats that the Company charters from unaffiliated parties. All of the vessels owned, operated, or leased by the Company are in good condition except for the 101 LASH barges not required for current vessel operations. Since 1988, the Company has completed life extension work on most of its LASH vessels and completed the refurbishment of the LASH barges operated with those vessels. Under governmental regulations, insurance policies, and certain of the Company's financing agreements and charters, the Company is required to maintain its vessels in accordance with standards of seaworthiness, safety, and health prescribed by governmental regulations or promulgated by certain vessel classification societies. The Company has implemented the quality and safety management program mandated by the IMO and plans to obtain timely certification of all vessels by the end of 2000. Vessels in the fleet are maintained in accordance with governmental regulations and the highest classification standards of the American Bureau of Shipping or, for certain vessels registered overseas, of Norwegian Veritas or Lloyd's Register classification societies. Certain of the vessels and barges owned by the Company's subsidiaries are mortgaged to various lenders to secure such subsidiaries' long-term debt (See Note B - Long-Term Debt of the Notes to the Consolidated Financial Statements contained in this Form 10-K on page F-11). 13 OTHER PROPERTIES. The Company leases its corporate headquarters in New Orleans, its administrative and sales office in New York, and office space in Houston, Chicago, Washington, D.C., and Singapore. The Company also leases space in Orleans Parishes, Louisiana, for the fleeting of barges. Additionally, the Company leases a totally enclosed multi-modal cargo transfer terminal in Memphis, Tennessee, under a lease that expires in June of 2003, with one five-year renewal option. In 1999, the aggregate annual rental payments under these operating leases totaled approximately $2.6 million. The Company owns a facility in Jefferson Parish, Louisiana that is used primarily for the maintenance and repair of barges. The Company also owns a bulk coal transfer terminal in Gulf County, Florida. ITEM 3. LEGAL PROCEEDINGS Early in the third quarter of 1999, the Company settled its outstanding contract litigation with Seminole Electric Cooperative, Inc. ("Seminole"). In the settlement, Seminole paid $22.975 Million to Central Gulf, a wholly owned subsidiary of the Company, and all disputes between Central Gulf and Seminole were terminated. This settlement, less related expenses, is reported in the Company's Consolidated Statements of Income for the year 1999. The settlement fully resolves all litigation among Central Gulf, Seminole and their respective subsidiaries and affiliates. The litigation, which involved three separate lawsuits in state and federal courts in Florida, arose out of Seminole's unilateral termination of its contract with Central Gulf for the transportation of coal by Central Gulf from Mt. Vernon, Indiana to Gulf County, Florida. The contract, entered into in 1981, would have expired in 2004 according to its terms. Seminole notified the Company and Central Gulf on December 15, 1998, that it was terminating performance under the agreement, commencing alternative rail transportation and commencing the litigation. Seminole's stated purpose in instituting the litigation was to confirm Seminole's ability to terminate performance under the agreement and establish the damages owed by Seminole to Central Gulf as a result of the termination. In the normal course of its operations, the Company becomes involved in various litigation matters including, among other things, claims by third parties for alleged property damages, personal injuries and other matters. While the outcome of such claims cannot be predicted with certainty, the Company believes that its insurance coverage and reserves with respect to such claims are adequate and that such claims will not have a material adverse effect on the Company's business or financial condition (See Note F - Commitments and Contigencies of the Notes to the Company's Consolidated Financial Statements contained in this Form 10-K on page F-16). ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 4A. EXECUTIVE OFFICERS AND DIRECTORS OF THE REGISTRANT Set forth below is information concerning the directors and executive officers of the Company. Directors are elected by the shareholders for one-year terms. Executive officers serve at the pleasure of the Board of Directors. NAME CURRENT POSITION ---- ----------------- Niels W. Johnsen Chairman and Chief Executive Officer Erik F. Johnsen President, Chief Operating Officer and Director Niels M. Johnsen Executive Vice President and Director Erik L. Johnsen Executive Vice President and Director Gary L. Ferguson Vice President and Chief Financial Officer David B. Drake Vice President and Treasurer 14 Manuel G. Estrada Vice President and Controller Harold S. Grehan, Jr. Director Raymond V. O'Brien, Jr. Director Edwin Lupberger Director Edward K. Trowbridge Director NIELS W. JOHNSEN, 77, has been the Chairman and Chief Executive Officer of the Company since its commencement of operations in 1979 and served as Chairman and Chief Executive Officer of each of the Company's principal subsidiaries until April of 1997. He previously served as Chairman of Trans Union's ocean shipping group of companies from December of 1971 through May of 1979. He was one of the founders of Central Gulf in 1947 and held various positions with Central Gulf until Trans Union acquired Central Gulf in 1971. He is also a former director of Reserve Fund, Inc., a money market fund and a former Trustee of Atlantic Mutual Companies, an insurance company. He is the brother of Erik F. Johnsen. ERIK F. JOHNSEN, 74, has been the President, Chief Operating Officer, and Director of the Company since its commencement of operations in 1979. Until April of 1997, Mr. Johnsen also served as the President and Chief Operating Officer of each of the Company's principal subsidiaries, except Waterman, for which he served as Chairman of the Executive Committee. Along with his brother, Niels W. Johnsen, he was one of the founders of Central Gulf in 1947 and served as its President from 1966 until April of 1997. Mr. Johnsen has served as the Chairman of the Board of Assuranceforeningen GARD, a P&I insurance club, since 1994 and has been a member since 1982. He is the brother of Niels W. Johnsen. NIELS M. JOHNSEN, 54, is Executive Vice President of the Company. Mr. Johnsen has served as a Director of the Company since April of 1988. He joined Central Gulf on a full time basis in 1970 and held various positions with the Company before being named Executive Vice President in April of 1997. He has also served as chairman of each of the Company's principal subsidiaries, except Waterman, since April of 1997. He is also President of Waterman and N. W. Johnsen & Co., Inc., subsidiaries of the Company engaged in LASH liner service and ship and cargo charter brokerage, respectively. He is the son of Niels W. Johnsen. ERIK L. JOHNSEN, 42, is Executive Vice President of the Company. He joined Central Gulf in 1979 and held various positions with the Company before being named Executive Vice President in April of 1997. He has served as a Director of the Company since 1994. He has also served as the President of each of the Company's principal subsidiaries, except Waterman, since April of 1997, and as Executive Vice President of Waterman since September of 1989. He is responsible for all operations of the Company's vessel fleet and leads the Company's Ship Management Group. He is the son of Erik F. Johnsen. GARY L. FERGUSON, 59, is Vice President and Chief Financial Officer of the Company. He joined Central Gulf in 1968 where he held various positions with the Company prior to being named Controller in 1977, and Vice President and Chief Financial Officer in 1989. DAVID B. DRAKE, 44, is Vice President and Treasurer of the Company. He joined Central Gulf in 1979 and held various positions prior to being named Vice President and Treasurer in 1996. MANUEL G. ESTRADA, 45, is Vice President and Controller of the Company. He joined Central Gulf in 1978 and held various positions prior to being named Vice President and Controller in 1996. HAROLD S. GREHAN, Jr., 72, is a Director of the Company. He joined Central Gulf in 1958 and became Vice President in 1959, Senior Vice President in 1973 and Executive Vice President and Director in 1979. Mr. Grehan retired from the Company at the end of 1997, and continued to serve as a Director since that time. RAYMOND V. O'BRIEN, Jr., 72, has served as a Director of the Company since 1979. He is also a director of Emigrant Savings Bank. He served as Chairman of the Board and Chief Executive Officer of the Emigrant Savings Bank from January of 1978 through December of 1992. 15 EDWIN LUPBERGER, 63, has served as a Director of the Company since April of 1988. He is the President of Nesher Investments, LLC. Mr. Lupberger served as the Chairman of the Board and Chief Executive Officer of Entergy Corporation from 1985 to 1998. He also is an advisory director of Bank One, Louisiana. EDWARD K. TROWBRIDGE, 71, has served as a Director of the Company since April of 1994. He served as Chairman of the Board and Chief Executive Officer of the Atlantic Mutual Companies from July of 1988 through November of 1993. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS COMMON STOCK PRICES AND DIVIDENDS FOR EACH QUARTERLY PERIOD OF 1998 AND 1999 (Source: New York Stock Exchange) Dividends 1998 High Low Paid - ------------------ ----------------- ----------------- ----------------- 1st Quarter 17 1/4 16 1/16 .0625/Share 2nd Quarter 17 5/16 16 1/16 .0625/Share 3rd Quarter 16 1/2 14 1/2 .0625/Share 4th Quarter 16 5/8 14 11/16 .0625/Share Dividends 1999 High Low Paid - ------------------ ----------------- ----------------- ----------------- 1st Quarter 16 5/16 12 1/2 .0625/Share 2nd Quarter 14 3/8 11 14/16 .0625/Share 3rd Quarter 15 3/16 11 3/16 .0625/Share 4th Quarter 13 1/2 9 15/16 .0625/Share Approximate Number of Common Stockholders of Record at February 28, 2000: 675 16 ITEM 6. SELECTED FINANCIAL DATA SUMMARY OF SELECTED CONSOLIDATED FINANCIAL DATA The following summary of selected consolidated financial data is not covered by the auditors' report appearing elsewhere herein. However, in the opinion of management, the summary of selected consolidated financial data includes all adjustments necessary for a fair representation of each of the years presented. This summary should be read in conjunction with the consolidated financial statements and the notes thereto appearing elsewhere in this annual report. (All Amounts in Thousands Except Share and Per Share Data)
YEAR ENDED DECEMBER 31, ----------------------------------------------------------------------------- 1999 (1) 1998 1997 1996 1995 ----------- ----------- ----------- ----------- ----------- INCOME STATEMENT DATA: Revenues ........................................ $ 373,209 $ 384,148 $ 391,056 $ 378,927 $ 341,789 Gross Voyage Profits ............................ $ 66,681 $ 57,791 $ 55,403 $ 66,948 $ 64,536 Operating Income ................................ $ 53,972 $ 39,147 $ 29,949 $ 40,692 $ 37,921 Income Before Extraordinary Item ................ $ 14,623 $ 7,305 $ 2,155 $ 8,636 $ 20,980 Extraordinary Item .............................. - $ (1,029) - $ (813) - Net Income ...................................... $ 14,623 $ 6,276 $ 2,155 $ 7,823 $ 20,980 Basic and Diluted Earnings Per Common and Common Equivalent Share Before Extraordinary Item ................. $ 2.28 $ 1.09 $ 0.32 $ 1.29 $ 3.14 Extraordinary Item ........................ - $ (0.15) - $ (0.12) - Net Income ................................ $ 2.28 $ 0.94 $ 0.32 $ 1.17 $ 3.14 BALANCE SHEET DATA: Working Capital ................................. $ 35,571 $ 44,914 $ 39,961 $ 26,928 $ 13,407 Total Assets .................................... $ 735,003 $ 689,804 $ 618,204 $ 661,596 $ 647,580 Long -Term Debt (including Capital Lease Obligations and Current Liabilities to be Refinanced) ................ $ 400,442 $ 361,425 $ 309,340 $ 324,756 $ 308,525 Common Stockholders' Investment ................. $ 182,484 $ 177,108 $ 172,805 $ 172,407 $ 166,261 OTHER DATA: EBITDA (2) ...................................... $ 102,397 $ 101,284 $ 91,657 $ 94,929 $ 81,877 Cash Dividends Per Common Share ................. $ 0.25 $ 0.25 $ 0.25 $ 0.25 $ 0.1825 Weighted Average of Common and Common Equivalent Shares .................... 6,424,193 6,682,216 6,682,887 6,682,887 6,682,887
(1) Results for year 1999 includes the proceeds from a settlement with Seminole Electric Cooperative, Inc. ("Seminole") resulting from their early termination of the Company's coal transportation contract. The reported settlement of approximately $20.6 Million was net of related expenses of approximately $1.8 Million. (2) EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization), as presented above, represents income before interest expense and provision (benefit) for income taxes, plus depreciation, amortization of deferred charges and acquired contract costs, extraordinary items, and (gains) losses on sales of property and investments. EBITDA is not presented as an alternative to net income or cash flow as an indicator of the Company's operating performance or liquidity, but rather to provide additional information related to debt service capacity. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NOTICE REGARDING FORWARD-LOOKING STATEMENTS Certain statements made in this report or elsewhere by, or on behalf of, the Company that are not based on historical facts are intended to be forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, and as such may involve known and unknown risks, uncertainties, and other factors that may cause the Company's actual results to be materially 17 different from the anticipated future results expressed or implied by such forward-looking statements. Such forward-looking statements may include, without limitation, statements with respect to the Company's anticipated future performance, financial position and liquidity, growth opportunities, business and competitive outlook, demand for services, business strategies, and other similar statements of expectations or objectives that are highlighted by words such as "expects," "anticipates," "intends," "plans," "believes," "projects," "seeks," "should," and "may," and variations thereof and similar expressions. Important factors that could cause the actual results of the Company to differ materially from the Company's expectations may include, without limitation, the Company's ability to (i) identify customers with marine transportation needs requiring specialized vessels or operating techniques; (ii) secure financing on satisfactory terms to acquire, modify, or construct vessels if such financing is necessary to service the potential needs of current or future customers; (iii) obtain new contracts or renew existing contracts which would employ certain of its vessels or other assets upon the expiration of contracts currently in place; (iv) manage the amount and rate of growth of its general and administrative expenses and costs associated with crewing certain of its vessels; (v) and manage its growth in terms of implementing internal controls and information systems and hiring or retaining key personnel, among other things. Other factors include (vi) changes in cargo rates and fuel prices which could increase or decrease the Company's gross voyage profit from its liner services; (vii) the rate at which competitors add or scrap vessels in the markets in which the Company operates; (viii) changes in interest rates which could increase or decrease the amount of interest the Company incurs on borrowings with variable rates of interest; (ix) the impact on the Company's financial statements of nonrecurring accounting charges that may result from the Company's ongoing evaluation of business strategies, asset valuations, and organizational structures; (x) changes in accounting policies and practices adopted voluntarily or as required by generally accepted accounting principles; (xi) changes in laws and regulations such as those related to government assistance programs and tax rates; (xii) unanticipated outcomes of current or possible future legal proceedings; (xiii) and other economic, competitive, governmental, and technological factors which may affect the Company's operations. The Company cautions readers that it assumes no obligation to update or publicly release any revisions to forward-looking statements made in this report or elsewhere by, or on behalf of, the Company. RESULTS OF OPERATIONS The Company's vessels are operated under a variety of charters and contracts. The nature of these arrangements is such that, without a material variation in gross voyage profits (total revenues less voyage expenses and vessel and barge depreciation), the revenues and expenses attributable to a vessel deployed under one type of charter or contract can differ substantially from those attributable to the same vessel if deployed under a different type of charter or contract. Accordingly, depending on the mix of charters or contracts in place during a particular accounting period, the Company's revenues and expenses can fluctuate substantially from one period to another even though the number of vessels deployed, the number of voyages completed, the amount of cargo carried and the gross voyage profit derived from the vessel remain relatively constant. As a result, fluctuations in voyage revenues and expenses are not necessarily indicative of trends in profitability, and management believes that gross voyage profit is a more appropriate measure of operating performance than revenues. Accordingly, the discussion below addresses variations in gross voyage profits rather than variations in revenues. YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998 GROSS VOYAGE PROFIT. Gross voyage profit increased to $66.7 Million in 1999 as compared to $57.8 Million in 1998. The improvement stemmed primarily from the profits received by the Company as a result of a settlement with Seminole Electric Cooperative, Inc. ("Seminole") from their early termination of the Company's coal transportation contract. In December of 1998, Seminole unilaterally terminated the contract prematurely, originally scheduled to expire in 2004. The Company received a settlement of approximately $23.0 Million including proceeds from the sale of three super jumbo River Barges for approximately $648,000. The reported settlement of approximately $20.6 Million was net of related expenses of approximately $1.8 Million, and is included in the Company's CONTRACTS OF AFFREIGHTMENT segment. Adjusted to eliminate the results of the 1998 operations under this contract and the 1999 contract 18 termination and settlement, the Company's gross voyage profit for 1999 would have resulted in a decrease of approximately 12.5%. The decrease was primarily as a result of lower results from the Company's LINER SERVICES and CONTRACTS OF AFFREIGHTMENT segment, after the elimination of the results of the Seminole contract. The Company's LINER SERVICES segment operates LASH vessels on two established routes. One of these routes is between the U.S. Gulf and Atlantic coasts and the Middle East, East Africa, the Indian Sub-Continent, and Southeast Asia, and the other is a transatlantic service. Gross voyage profit before depreciation for this segment decreased 50.4% from $34.2 Million in 1998 to $17 Million in 1999. Contributing to the decrease was the out of service time on one of the Company's LASH vessels, the "GREEN ISLAND", resulting from a casualty that occurred late in the first quarter of 1999 and extended into September of 1999. In addition, higher fuel prices and reduced cargo volume on the Company's transatlantic service contributed to the decreased profits in 1999. The Company's CONTRACTS OF AFFREIGHTMENT segment's gross profit before depreciation, after eliminating the Seminole results for 1998 and 1999, decreased 8.2% to $12.4 Million in 1999 from $13.5 Million in 1998 primarily as a result of less revenue tons carried in 1999. This segment includes a contract for two Float-On/Float-Off Special Purpose Vessels ("SPV's"), along with one container breakbulk vessel, "JAVA SEA," that extends through 2006 with seven three-year renewal options and a buy-out provision beginning in December of 2001; and a contract for a Molten Sulphur Carrier that extends through 2009 with renewal options through 2024. The decreased results for the LINER SERVICES and CONTRACTS OF AFFREIGHTMENT segments were partially offset by higher gross voyage profit from the TIME CHARTER CONTRACTS segment. The Company's TIME CHARTER CONTRACTS segment includes sixteen vessels operating primarily under medium to long-term contracts, eight of which are with the Military Sealift Command ("MSC") including contracts for the operation of three LASH, three RO/RO, and two Ice Strengthened Multi-Purpose vessels. The three LASH vessels and two Ice Strengthened Multi-Purpose vessels are each operated under contracts with initial terms of seventeen-months with two seventeen-month option periods. Contracts for two of the LASH vessels are currently in their second option periods expiring in late 2000. The contract for the third LASH vessel completed its initial term and began its first option period in 1998 with the second option period extending into 2001. The two Ice Strengthened Multi-Purpose vessels are both in the initial seventeen-month term of their contracts with options extending into 2001 and 2002. The three RO/RO's are employed in the MSC's military prepositioning program under contracts that are fixed through 2009 and 2010. The remaining eight vessels in this segment include two Pure Car Carriers ("PCC") with contracts extending into 2003; four Pure Car/Truck Carriers ("PCTC") with contracts for one extending into 2014, another extending into 2018, and two extending into 2019; the "ENERGY ENTERPRISE," a coal carrier, with a contract extending into 2010; and the Company's Cape-Size Bulk Carrier now operating in a pool with several similar size vessels owned by two major European shipowners. The TIME CHARTER CONTRACTS segment's gross voyage profit before depreciation increased 14.4% from $44.6 Million in 1998 to $51 Million in 1999. This segment benefited from the commencement of operations of the Company's newly acquired PCTC, "GREEN POINT," in the second quarter of 1998. In addition, the Company sold two of its PCC's, one in December of 1998 and the other in May of 1999, as part of the Company's plan to replace these older and smaller vessels with two newer and larger PCTC's, the "ASIAN KING" and "ASIAN EMPEROR," which commenced operations upon delivery to the Company in December of 1998 and May of 1999, respectively. Additionally, in September of 1999, the Company added another newly built PCTC, the "GREEN DALE," which upon delivery was chartered to a major Japanese ship operator for a multi-year term. The Company also reports an OTHER category that includes results of several of the Company's subsidiaries that provide ship charter brokerage, agency, barge fleeting and other specialized services. Also included in the OTHER category are corporate related items, results of insignificant operations, and income and expense items not allocated to reportable segments by management in its evaluation of segment profit and loss. The results reported in the OTHER category increased 16.6% from $4.3 Million in 1998 to $5 Million in 1999 primarily resulting from recovery of previously paid foreign taxes. 19 Vessel and barge depreciation increased 4.8% from $37.5 Million in 1998 to $39.3 Million in 1999 due to the commencement of operations of the "GREEN POINT," the "GREEN DALE" and the "HICKORY," a LASH vessel purchased early in 1998, placed into service in May of 1999, and now operating in the LINER SERVICES segment as a feeder vessel. In addition, depreciation on one the Company's LASH vessels operating in the LINER SERVICES segment increased due to capital improvements made in 1999. OTHER INCOME AND EXPENSES. Administrative and general expenses decreased 8% from $26.4 Million in 1998 to $24.3 Million in 1999. Earnings in 1999 included a gain of $2.4 Million recognized on the sale of a parcel of land no longer required in the Company's operations and a gain of $9.2 Million recognized on the sale of a PCC in May of 1999 and a towboat in December of 1999, offset slightly by the loss recognized on the sale of two of the Company's FLASH units in October of 1999. Earnings for 1998 included a gain of $7.8 Million recognized on the sale of one of the Company's PCC's in December of 1998. As discussed above, the sale of the two PCC's were part of the Company's plan to replace these vessels with two newer and larger PCTC's that delivered in December of 1998 and May of 1999, respectively. Interest expense increased 11.7% to $32.1 Million in 1999 as compared to $28.7 Million in 1998. The increase resulted primarily from the financing associated with the acquisition of the "ASIAN KING" at the end of 1998, the acquisition of the "ASIAN EMPEROR" in May of 1999 and the acquisition of the "GREEN DALE" in September of 1999. Investment income decreased from $1.6 Million in 1998 to $1.3 Million in 1999 due to less favorable interest rates. INCOME TAXES. The Company provided $8.2 Million and $4.4 Million for Federal income taxes at the statutory rate of 35% for 1999 and 1998, respectively. YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997 GROSS VOYAGE PROFIT. Gross voyage profit increased to $57.8 Million in 1998 as compared to $55.4 Million in 1997. The increase was achieved primarily by the Company's LINER SERVICES segment. Gross voyage profit before depreciation for this segment increased 51.5% from $22.6 Million in 1997 to $34.2 Million in 1998 due to lower operating costs and increased market share. Contributing to the lower operating costs for this segment were lower fuel prices and the planned return from a three-vessel to a two-vessel transatlantic service. The Company's TIME CHARTER CONTRACTS segment was impacted by a $7 Million impairment loss recognized late in 1998 on the Company's Cape-Size Bulk Carrier. Depressed freight rates in the market for this type of vessel, along with management's expectation that these conditions will not improve in the near-term, triggered a review of the recoverability of the carrying amount of this vessel. The impairment loss was measured as the amount by which the carrying amount of the vessel exceeded its fair value. The fair value of the vessel was estimated by determining the present value of its expected future cash flows using a discount rate commensurate with the risk involved. Before taking into account the aforementioned impairment loss, the TIME CHARTER CONTRACTS segment added to the increase in gross voyage profit for the year. This segment benefited from the commencement of operations of the Company's newly acquired PCTC, "GREEN POINT," in the second quarter of 1998. In December of 1998, the Company sold one of its PCC's as part of the Company's plan to replace this older and smaller PCC with a newer and larger PCTC that delivered to the Company in December of 1998. The TIME CHARTER CONTRACTS segment was also negatively impacted in 1998 by scheduled reductions in charterhire rates on three of the Company's LASH vessels chartered to the MSC and lower charterhire rates on the Company's Cape-Size Bulk Carrier. 20 The improved results before the impairment loss for the LINER SERVICES and TIME CHARTER CONTRACT segments were slightly offset by lower gross voyage profit from the CONTRACTS OF AFFREIGHTMENT segment. The lower gross profit for this segment resulted from reduced cargo volume from the domestic services. In addition to the aforementioned reportable segments, the Company also reports an OTHER category. The results reported in the OTHER category for 1998 compare favorably to 1997 because the Company decided to discontinue development of a new LASH service between the U.S. Gulf and Brazil. This decision resulted in a charge to operating expense in 1997 of approximately $1.2 Million for termination costs and the prepositioning of equipment. Vessel and barge depreciation increased 8.4% from $34.6 Million in 1997 to $37.5 Million in 1998 due to the commencement of operations of the "GREEN POINT" and the "HICKORY," a LASH vessel purchased early in 1998 now operating in the Liner Services segment as a feeder vessel. Depreciation on the Company's U.S. Flag Coal Carrier, "ENERGY ENTERPRISE," and one of the LASH vessels operating in the LINER SERVICES segment increased due to capital improvements made in 1997. OTHER INCOME AND EXPENSES. Administrative and general expenses increased slightly from $25.5 Million in 1997 to $26.4 Million in 1998. Interest expense was $28.7 Million in 1998 as compared to $27.7 Million in 1997. The increase was primarily the result of financing associated with the acquisition of the "GREEN POINT" early in the second quarter as discussed previously. On January 22, 1998, the Company issued $110 Million of 7 3/4% Senior Notes due 2007 (the "Notes"), the proceeds of which were used to repay shorter-term amortizing bank debt. The aforementioned early repayment of debt and regularly scheduled principal payments substantially offset interest expense on these Notes. Earnings for 1998 included a gain of $7.8 Million recognized on the sale of one of the Company's PCC's in December of 1998. INCOME TAXES. The Company provided $4.4 Million and $1.3 Million for Federal income taxes at the statutory rate of 35% for 1998 and 1997, respectively. LIQUIDITY AND CAPITAL RESOURCES The following discussion should be read in conjunction with the more detailed Consolidated Balance Sheets and Consolidated Statements of Cash Flows included elsewhere herein as part of the Company's Consolidated Financial Statements. The Company's working capital decreased from $44.9 Million at December 31, 1998, to $35.6 Million at December 31, 1999, after provision for current maturities of long-term debt and capital lease obligations of $26.4 Million. Cash and cash equivalents decreased during 1999 by $13.3 Million to a total of $18.7 Million, as cash used for investing of $96.8 Million exceeded operating and financing cash flows of $47.6 Million and $35.9 Million, respectively. The major source of cash flows from operating activities of $47.6 Million was net income adjusted for the gain on the sale of the vessels and other property and noncash provisions such as depreciation and amortization. Other sources of cash flows were the proceeds from the coal transportation contract settlement offset by the net revenue from the settlement. Net cash used for investing activities of $96.8 Million included the purchase of two PCTC's and capital improvements on two LASH vessels operating in the LINER SERVICES segment all of which totaled approximately $108.3 Million, and $14.5 Million for the cost of drydocking certain vessels. These uses of cash were partially offset by the proceeds of $25.8 Million received from the sale of the PCC, the two FLASH units, a towboat, the land and other assets. The net cash provided by financing activities of $35.9 Million included proceeds from the financing of the "ASIAN EMPEROR" for $47 Million, financing of the "GREEN DALE" for $32.4 Million and draws 21 against the Company's line of credit totaling $49 Million, offset by reductions of debt and capital lease obligations of $83.1 Million stemming from regularly scheduled principal payments and repayments of amounts drawn under lines of credit, and $7.2 Million for the purchase of treasury stock. In the third quarter of 1988, the Board of Directors declared a quarterly dividend of $.05 per share ($.04 per share after giving effect to the November 17, 1995, twenty-five percent stock split) and continued quarterly dividends in the same amount for each quarterly period through the third quarter of 1995. The Board increased the dividend to $.0625 per share in the fourth quarter of 1995 and has continued quarterly dividends in the same amount for each quarterly period through the fourth quarter of 1999. The Board has expressed its intent to continue to declare similar quarterly dividends in the future, subject to the ability of the Company's operating subsidiaries to continue to achieve satisfactory earnings. Dividends on common stock during 1999 amounted to approximately $1.6 Million. Management believes that normal operations will provide sufficient working capital and cash flows to meet debt service and dividend requirements during the foreseeable future. To meet short-term requirements when fluctuations occur in working capital, at December 31, 1999, the Company had available a $48 Million revolving credit facility. Draws against this facility totaled $22 Million at December 31, 1999, of which $3 Million was repaid in January of 2000. The Company has not been notified that it is a potentially responsible party in connection with any environmental matters. STOCK REPURCHASE PROGRAM In October of 1998, the Company's Board of Directors approved a stock repurchase program to buy up to 500,000 shares of its common stock. In October of 1999, the Company had completed the program. In October of 1999, the Company's Board of Directors approved another stock repurchase program to buy up to 1,000,000 shares of its common stock, based on the Board's belief that the current market value of the Company's common stock does not adequately reflect the Company's inherent value. The repurchases are expected to be made in the open market or in privately negotiated transactions at the discretion of the Company's management, depending upon financial and market conditions or as otherwise provided by the Securities and Exchange Commission and New York Stock Exchange rules and regulations. As of December 31, 1999, 595,700 shares had been repurchased under these two programs, of which 577,125 had been repurchased during 1999, for a total cost of $7,521,000 at an average market price of $12.68 per share. Subsequent to year-end as of February 14, 2000, the Company repurchased an additional 4,300 shares for a total cost of approximately $51,000 at an average market price of $11.77 per share. COAL TRANSPORTATION CONTRACT Early in the third quarter of 1999, the Company settled its outstanding contract litigation with Seminole. In the settlement, Seminole paid approximately $23.0 Million to the Company's wholly owned subsidiary, Central Gulf Lines, Inc. ("Central Gulf"), and all disputes between Central Gulf and Seminole were terminated. This settlement, less related expenses, is reported in the Company's Consolidated Statements of Income for the year 1999. The settlement fully resolves all litigation among Central Gulf, Seminole and their respective subsidiaries and affiliates. The litigation, which involved three separate lawsuits in state and federal courts in Florida, arose out of Seminole's unilateral termination of its contract with Central Gulf for the transportation of coal by Central Gulf from Mt. Vernon, Indiana to Gulf County, Florida. The contract, entered into in 1981, would have expired in 2004 according to its terms. Seminole notified the Company and Central Gulf on December 15, 1998, that it was terminating performance under the agreement, commencing alternative rail transportation and commencing the litigation. Seminole's stated purpose in instituting the litigation was to confirm Seminole's ability to terminate performance under the agreement and establish the damages owed by Seminole to Central Gulf as a result of the termination. The settlement effectively disposed of these issues. 22 NEW ACCOUNTING PRONOUNCEMENTS During 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits," and SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 132 revises employers' disclosures about pension and other postretirement benefit plans. It does not change the measurement or recognition of those plans. SFAS No. 132 was effective for fiscal years beginning after December 15, 1997, and the required disclosures are included herein (See Note C-Employee Benefit Plans of the Notes to the Consolidated Financial Statements contained in this Form 10-K on page F-12). SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. In June of 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133." SFAS No. 137 is an amendment of SFAS No. 133 and defers the effective date of SFAS No. 133 to June 15, 2000. The Company has not chosen early adoption and, as it is not possible to predict the Company's derivative position at the time this standard will be applied, it is unknown what effect, if any, SFAS No. 137 will have on its financial statements once adopted. While the Company has not yet quantified the impact on its financial statements, the Company does not believe adoption will have a material impact on net income, although adoption is likely to increase volatility of comprehensive income and accumulated other comprehensive income. (See Note A-Summary of Significant Accounting Policies of the Notes to the Consolidated Financial Statements contained in this Form 10-K on page F-8). ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK In the ordinary course of its business, the Company is exposed to foreign currency, interest rate, and commodity price risk. The Company utilizes derivative financial instruments including interest rate swap agreements, forward exchange contracts and commodity swap agreements to manage certain of these exposures. The Company hedges only firm commitments or anticipated transactions and does not use derivatives for speculation. The Company neither holds nor issues financial instruments for trading purposes. INTEREST RATE RISK. The fair value of the Company's cash and short-term investment portfolio at December 31, 1999, approximated carrying value due to its short-term duration. The potential decrease in fair value resulting from a hypothetical 10% increase in interest rates at year-end for the Company's investment portfolio was not material. The fair value of long-term debt, including current maturities, was estimated to be $408.8 Million compared to a carrying value of $414.7 Million. The potential increase in fair value resulting from a hypothetical 10% adverse change in the borrowing rates applicable to the Company's long-term debt at December 31, 1999, would be approximately $10.6 Million or 3% of the carrying value. In December of 1998, the Company entered into an interest rate swap agreement with a commercial bank to reduce the possible impact of higher interest rates in the long-term market by utilizing the fixed rate available with the swap. During September of 1999, the Company entered into another interest rate swap agreement with a commercial bank to reduce the possible impact of higher interest rates in the long-term market by utilizing the fixed rate available with the swap. For both agreements, the fixed rate payor is the Company, and the floating rate payor is the commercial bank. While these arrangements are structured to reduce the Company's exposure to increases in interest rates, it also limits the benefit the Company might otherwise receive from any decreases in interest rates. 23 The fair value of these agreements at December 31, 1999, estimated based on the amount that the banks would receive or pay to terminate the swap agreements at the reporting date, taking into account current market conditions and interest rates, was an asset of $3.7 Million. A hypothetical 10% decrease in interest rates as of December 31, 1999, would have resulted in a $1.7 Million decrease in the fair value of the asset. FOREIGN EXCHANGE RATE RISK. The Company has entered into foreign exchange contracts to hedge certain firm purchase and sale commitments with varying maturities throughout 2000. The exchange rates at which these hedges were entered into did not materially differ from the exchange rates in effect at December 31, 1999. The potential fair value of these contracts that would have resulted from a hypothetical 10% adverse change in the exchange rates applicable to these contracts at December 31, 1999, was a liability of approximately $272,000. COMMODITY PRICE RISK. Subsequent to the end of 1999, the Company entered into two commodity swap agreements to manage the Company's exposure to price risk related to the purchase of a portion of the estimated 2000 fuel requirements for its LINER SERVICES segment. The agreement locked in the price the Company would pay per ton of fuel for 2000 at a specific price for a specified quantity. While this arrangement is structured to reduce the Company's exposure to increases in fuel prices, it also limits the benefit the Company might otherwise receive from any price decreases associated with this commodity. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information called for by Item 8 begins on page F-1 of this Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information called for by Item 10 is incorporated herein by reference to Item 4a, Executive Officers and Directors of the Registrant. ITEM 11. EXECUTIVE COMPENSATION The information called for by Item 11 is included on pages 6, 7, 8, and 9 of the Company's definitive proxy statement dated March 14, 2000, filed pursuant to Section 14(a) of the Securities Exchange Act of 1934, and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information called for by Item 12 is included on pages 2, 3, 4, and 5 of the Company's definitive proxy statement dated March 14, 2000, filed pursuant to Section 14(a) of the Securities Exchange Act of 1934, and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information called for by Item 13 is included on pages 2, 3, 4, 5, 10, and 11 of the Company's definitive proxy statement dated March 14, 2000, filed pursuant to Section 14(a) of the Securities Exchange Act of 1934, and is incorporated herein by reference. 24 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K The following financial statements, schedules and exhibits are filed as part of this report: (a)1. FINANCIAL STATEMENTS The following financial statements and related notes are included on pages F-1 through F-24 of this Form 10-K. Report of Independent Public Accountants Consolidated Statements of Income for the years ended December 31, 1999, 1998, and 1997 Consolidated Balance Sheets at December 31, 1999 and 1998 Consolidated Statements of Changes in Stockholders' Investment for the years ended December 31, 1999, 1998, and 1997 Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998, and 1997 Notes to Consolidated Financial Statements 2. FINANCIAL STATEMENT SCHEDULES Report of Independent Public Accountants on Supplemental Schedules Schedule I - Condensed Financial Information of the Registrant 3. EXHIBITS (3) Restated Certificate of Incorporation, as amended, and By-Laws of the Registrant (filed with the Securities and Exchange Commission as Exhibit 3 to the Registrant's Form 10-Q for the quarterly period ended June 30, 1996, and incorporated herein by reference) (4) Specimen of Common Stock Certificate (filed as an exhibit to the Company's Form 8-A filed with the Securities and Exchange Commission on April 25, 1980, and incorporated herein by reference) (4.1) Form of Indenture between the Company and the Bank of New York, as Trustee, with respect to 9% Senior Notes due July 1, 2003 (filed as Exhibit 4(c) to Amendment No. 1 to the Company's Registration Statement on Form S-2 (Registration No. 33-62168) and incorporated herein by reference). (4.2) Form of 9% Senior Note due July 1, 2003 (included in Exhibit (4.1) hereto and incorporated herein by reference). (4.3) Form of Indenture between the Company and the Bank of New York, Inc., as Trustee, with respect to 7 3/4% Senior Notes due October 15, 2007 (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K dated January 22, 1998, and incorporated herein by reference). 25 (4.4) Form of 7 3/4% Senior Note due October 15, 2007 (included in Exhibit (4.3) hereto and incorporated herein by reference). (10) $25,000,000 Credit Agreement dated as of January 22, 1998, by and among the Company, as Borrower, Certain Lenders, as signatories thereto, Citicorp Securities, Inc., as Arranger, and Citibank, N.A., as Administrative Agent (filed as exhibit 10.1 to the Company's Registration Statement on Form S-4 (Registration No. 333-46317) and incorporated herein by reference.) (10.1) First Amended and Restated Credit Agreement dated as of March 31, 1998, by and among the Company, as Borrower, Certain Lenders, as signatories thereto, Citicorp Securities, Inc., as Arranger, and Citibank, N.A., as Administrative Agent. (10.2) Second Amended and Restated Credit Agreement dated as of May 4, 1999, by and among the Company, as Borrower, Certain Lenders, as signatories thereto, Citicorp Securities, Inc., as Arranger, and Citibank, N.A., as Administrative Agent. (10.3) Amendment No. 1 dated as of September 3, 1999, by and among the Company, as Borrower, Certain Lenders, as signatories thereto, Citicorp Securities, Inc., as Arranger, and Citibank, N.A., as Administrative Agent. (21) Subsidiaries of International Shipholding Corporation (27) Financial Data Schedule (b) A report on Form 8-K was filed August 6, 1999, to report the settlement of the Company's outstanding contract litigation with Seminole Electric Cooperative, Inc. 26 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. INTERNATIONAL SHIPHOLDING CORPORATION (REGISTRANT) March 1, 2000 By /s/ GARY L. FERGUSON Gary L. Ferguson Vice President and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. INTERNATIONAL SHIPHOLDING CORPORATION (REGISTRANT) March 1, 2000 By /s/ NIELS W. JOHNSEN Niels W. Johnsen Chairman of the Board, Director and Chief Executive Officer March 1, 2000 By /s/ ERIK F. JOHNSEN Erik F. Johnsen President and Director March 1, 2000 By /s/ NIELS M. JOHNSEN Niels M. Johnsen Executive Vice President and Director March 1, 2000 By /s/ ERIK L. JOHNSEN Erik L. Johnsen Executive Vice President and Director March 1, 2000 By /s/ HAROLD S. GREHAN, JR. Harold S. Grehan, Jr. Director March 1, 2000 By /s/ RAYMOND V. O'BRIEN, JR. Raymond V. O'Brien, Jr. Director 27 March 1, 2000 By /s/ EDWIN LUPBERGER Edwin Lupberger Director March 1, 2000 By /s/ EDWARD K. TROWBRIDGE Edward K. Trowbridge Director March 1, 2000 By /s/ GARY L. FERGUSON Gary L. Ferguson Vice President and Chief Financial Officer March 1, 2000 By /s/ MANNY G. ESTRADA Manny G. Estrada Vice President and Controller 28 EXHIBIT INDEX EXHIBIT NUMBER - ------- (3) Restated Certificate of Incorporation, as amended, and By-Laws of the Registrant (filed with the Securities and Exchange Commission as Exhibit 3 to the Registrant's Form 10-Q for the quarterly period ended June 30, 1996, and incorporated herein by reference). (4) Specimen of Common Stock Certificate (filed as an exhibit to the Company's Form 8-A filed with the Securities and Exchange Commission on April 25, 1980, and incorporated herein by reference). (4.1) Form of Indenture between the Company and the Bank of New York, as Trustee, with respect to 9% Senior Notes due July 1, 2003 (filed as Exhibit 4(c) to Amendment No. 1 to the Company's Registration Statement on Form S-2 (Registration No. 33-62168) and incorporated herein by reference). (4.2) Form of 9% Senior Note due July 1, 2003 (included in Exhibit (4.1) hereto and incorporated herein by reference). (4.3) Form of Indenture between the Company and the Bank of New York, Inc., as Trustee, with respect to 7 3/4% Senior Notes due October 15, 2007 (filed as Exhibit 4.1 to the Company's Current Report on Form 8-K dated January 22, 1998, and incorporated herein by reference). (4.4) Form of 7 3/4% Senior Note due October 15, 2007 (included in Exhibit (4.3) hereto and incorporated herein by reference). (10) $25,000,000 Credit Agreement dated as of January 22, 1998, by and among the Company, as Borrower, Certain Lenders, as signatories thereto, Citicorp Securities, Inc., as Arranger, and Citibank, N.A., as Administrative Agent (filed as exhibit 10.1 to the Company's Registration Statement on Form S-4 (Registration No. 333-46317) and incorporated herein by reference.) (10.1) First Amended and Restated Credit Agreement dated as of March 31, 1998, by and among the Company, as Borrower, Certain Lenders, as signatories thereto, Citicorp Securities, Inc., as Arranger, and Citibank, N.A., as Administrative Agent. (10.2) Second Amended and Restated Credit Agreement dated as of May 4, 1999, by and among the Company, as Borrower, Certain Lenders, as signatories thereto, Citicorp Securities, Inc., as Arranger, and Citibank, N.A., as Administrative Agent. (10.3) Amendment No. 1 dated as of September 3, 1999, by and among the Company, as Borrower, Certain Lenders, as signatories thereto, Citicorp Securities, Inc., as Arranger, and Citibank, N.A., as Administrative Agent. (21) Subsidiaries of International Shipholding Corporation (27) Financial Data Schedule 29 INDEX OF FINANCIAL STATEMENTS Report of Independent Public Accountants................................. F-2 Consolidated Statements of Income for the years ended December 31, 1999, 1998, and 1997..................................... F-3 Consolidated Balance Sheets at December 31, 1999 and 1998................ F-4 Consolidated Statements of Changes in Stockholders' Investment for the years ended December 31, 1999, 1998, and 1997................. F-6 Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998, and 1997..................................... F-7 Notes to Consolidated Financial Statements............................... F-8 F-1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To The Stockholders of International Shipholding Corporation: We have audited the accompanying consolidated balance sheets of International Shipholding Corporation (a Delaware corporation) and subsidiaries (the Company) as of December 31, 1999 and 1998, and the related consolidated statements of income, changes in stockholders' investment and cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of International Shipholding Corporation and subsidiaries as of December 31, 1999 and 1998, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1999 in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP New Orleans, Louisiana January 14, 2000 F-2 INTERNATIONAL SHIPHOLDING CORPORATION CONSOLIDATED STATEMENTS OF INCOME (ALL AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
YEAR ENDED DECEMBER 31, 1999 1998 1997 --------- --------- --------- Revenues ..................................... $ 338,666 $ 370,056 $ 375,515 Subsidy Revenue .............................. 13,991 14,092 15,541 Net Revenue from Contract Settlement ......... 20,552 -- -- --------- --------- --------- 373,209 384,148 391,056 --------- --------- --------- Operating Expenses: Voyage Expenses ..................... 267,263 281,901 301,084 Vessel and Barge Depreciation ....... 39,265 37,456 34,569 Impairment Loss ..................... -- 7,000 -- --------- --------- --------- Gross Voyage Profit ............ 66,681 57,791 55,403 --------- --------- --------- Administrative and General Expenses .......... 24,282 26,406 25,454 Gain on Sale of Land ......................... 2,408 -- -- Gain on Sale of Vessels ...................... 9,165 7,762 -- --------- --------- --------- Operating Income .................... 53,972 39,147 29,949 --------- --------- --------- Interest: Interest Expense .................... 32,102 28,738 27,654 Investment Income ................... (1,339) (1,569) (1,458) --------- --------- --------- 30,763 27,169 26,196 --------- --------- --------- Income Before Provision (Benefit) for Income Taxes, Equity in Net Loss of Unconsolidated Entities and Extraordinary Item ......................... 23,209 11,978 3,753 --------- --------- --------- Provision (Benefit) for Income Taxes: Current ............................. 4,086 2,987 3,119 Deferred ............................ 4,131 1,385 (1,773) State ............................... 284 301 252 --------- --------- --------- 8,501 4,673 1,598 --------- --------- --------- Equity in Net Loss of Unconsolidated Entities (Net of Applicable Taxes) ....... (85) -- -- --------- --------- --------- Income Before Extraordinary Item ............. $ 14,623 $ 7,305 $ 2,155 --------- --------- --------- Extraordinary Loss on Early Extinguishment of Debt (Net of Income Tax Benefit of $554) .. -- (1,029) -- --------- --------- --------- Net Income ................................... $ 14,623 $ 6,276 $ 2,155 ========= ========= ========= Basic and Diluted Earnings Per Share: Income Before Extraordinary Loss ...... $ 2.28 $ 1.09 $ 0.32 Extraordinary Loss .................... -- (0.15) -- --------- --------- --------- Net Income ............................ $ 2.28 $ 0.94 $ 0.32 ========= ========= =========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS. F-3 INTERNATIONAL SHIPHOLDING CORPORATION CONSOLIDATED BALANCE SHEETS (ALL AMOUNTS IN THOUSANDS) DECEMBER 31, DECEMBER 31, ASSETS 1999 1998 ----------- ----------- Current Assets: Cash and Cash Equivalents ..................... $ 18,661 $ 32,008 Marketable Securities ......................... 11,337 12,136 Accounts Receivable, Net of Allowance for Doubtful Accounts of $294 and $334 in 1999 and 1998, Respectively: Traffic ................................... 47,855 40,543 Agents' ................................... 6,660 8,082 Claims and Other .......................... 7,174 5,243 Federal Income Taxes Receivable ............... 583 1,325 Deferred Income Taxes ......................... 60 -- Net Investment in Direct Financing Leases ..... 3,137 2,532 Other Current Assets .......................... 4,134 4,215 Material and Supplies Inventory, at Lower of Cost or Market ..................... 12,726 13,130 --------- --------- Total Current Assets ............................. 112,327 119,214 --------- --------- Marketable Equity Securities ..................... 234 205 --------- --------- Investment in Unconsolidated Entities ............ 2,805 3,368 --------- --------- Net Investment in Direct Financing Leases ........ 112,032 66,494 --------- --------- Vessels, Property, and Other Equipment, at Cost: Vessels and Barges ............................ 775,001 745,390 Other Marine Equipment ........................ 7,897 7,776 Terminal Facilities ........................... 18,470 18,494 Land .......................................... 1,230 2,317 Furniture and Equipment ....................... 17,222 16,799 --------- --------- 819,820 790,776 Less - Accumulated Depreciation ................. (379,588) (356,217) --------- --------- 440,232 434,559 --------- --------- Other Assets: Deferred Charges, Net of Accumulated Amortization of $49,880 and $60,494 in 1999 and 1998, Respectively ............. 39,692 38,849 Acquired Contract Costs, Net of Accumulated Amortization of $15,609 and $14,154 in 1999 and 1998, Respectively...... 14,916 16,371 Due from Related Parties ..................... 580 296 Other ........................................ 12,185 10,448 --------- --------- 67,373 65,964 --------- --------- $ 735,003 $ 689,804 ========= ========= THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS. F-4 INTERNATIONAL SHIPHOLDING CORPORATION CONSOLIDATED BALANCE SHEETS (ALL AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
DECEMBER 31, DECEMBER 31, 1999 1998 --------- --------- LIABILITIES AND STOCKHOLDERS' INVESTMENT Current Liabilities: Current Maturities of Long-Term Debt .............................. $ 23,137 $ 17,212 Current Maturities of Capital Lease Obligations ................... 3,231 2,915 Accounts Payable and Accrued Liabilities .......................... 50,388 54,146 Current Deferred Income Tax Liability ............................. -- 27 --------- --------- Total Current Liabilities ............................................. 76,756 74,300 --------- --------- Billings in Excess of Income Earned and Expenses Incurred ............. 5,083 7,099 --------- --------- Long-Term Capital Lease Obligations, Less Current Maturities .......... 8,853 12,085 --------- --------- Long-Term Debt, Less Current Maturities ............................... 391,589 349,340 --------- --------- Other Long-Term Liabilities: Deferred Income Taxes ............................................. 45,124 40,906 Claims and Other .................................................. 25,114 28,966 --------- --------- 70,238 69,872 --------- --------- Commitments and Contingent Liabilities Stockholders' Investment: Common Stock, $1.00 Par Value, 10,000,000 Shares Authorized, 6,756,330 Shares Issued at December 31, 1999 and 1998 ...................................... 6,756 6,756 Additional Paid-In Capital ........................................ 54,450 54,450 Retained Earnings ................................................. 130,440 117,399 Less - 669,143 and 92,018 Shares of Common Stock in Treasury, at Cost, at December 31, 1999 and 1998, Respectively .................................................... (8,654) (1,422) Accumulated Other Comprehensive Loss .............................. (508) (75) --------- --------- 182,484 177,108 --------- --------- $ 735,003 $ 689,804 ========= =========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS. F-5 INTERNATIONAL SHIPHOLDING CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' INVESTMENT (ALL AMOUNTS IN THOUSANDS)
ACCUMULATED ADDITIONAL OTHER COMMON PAID-IN RETAINED TREASURY COMPREHENSIVE STOCK CAPITAL EARNINGS STOCK INCOME (LOSS) TOTAL -------- ---------- ---------- -------- ------------- --------- Balance at December 31, 1996 ....................... $ 6,756 $ 54,450 $ 112,310 $ (1,133) $ 24 $ 172,407 Comprehensive Income: Net Income for Year Ended December 31, 1997 ............................ -- -- 2,155 -- -- 2,155 Other Comprehensive Income: Unrealized Holding Loss on Marketable Securities, Net of Deferred Taxes of ($46) ............. -- -- -- -- (86) (86) --------- Total Comprehensive Income ......................... 2,069 Cash Dividends ..................................... -- -- (1,671) -- -- (1,671) -------- ---------- ---------- -------- ------------- --------- Balance at December 31, 1997 ....................... $ 6,756 $ 54,450 $ 112,794 $ (1,133) $ (62) $ 172,805 ======== ========== ========== ======== ============= ========= Comprehensive Income: Net Income for Year Ended December 31, 1998 ............................ -- -- 6,276 -- -- 6,276 Other Comprehensive Income: Unrealized Holding Loss on Marketable Securities, Net of Deferred Taxes of ($7) .............. -- -- -- -- (13) (13) --------- Total Comprehensive Income ......................... 6,263 Treasury Stock ..................................... -- -- -- (289) -- (289) Cash Dividends ..................................... -- -- (1,671) -- -- (1,671) -------- ---------- ---------- -------- ------------- --------- Balance at December 31, 1998 ....................... $ 6,756 $ 54,450 $ 117,399 $ (1,422) $ (75) $ 177,108 ======== ========== ========== ======== ============= ========= COMPREHENSIVE INCOME: NET INCOME FOR YEAR ENDED DECEMBER 31, 1999 ............................. -- -- 14,623 -- -- 14,623 OTHER COMPREHENSIVE INCOME: UNREALIZED HOLDING LOSS ON MARKETABLE SECURITIES, NET OF DEFERRED TAXES OF ($233) ............ -- -- -- -- (433) (433) --------- TOTAL COMPREHENSIVE INCOME ......................... 14,190 TREASURY STOCK ..................................... -- -- -- (7,232) -- (7,232) CASH DIVIDENDS ..................................... -- -- (1,582) -- -- (1,582) -------- ---------- ---------- -------- ------------- --------- BALANCE AT DECEMBER 31, 1999 ....................... $ 6,756 $ 54,450 $ 130,440 $ (8,654) $ (508) $ 182,484 ======== ========== ========== ======== ============= =========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS. F-6 INTERNATIONAL SHIPHOLDING CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (ALL AMOUNTS IN THOUSANDS)
YEAR ENDED DECEMBER 31, 1999 1998 1997 --------- --------- --------- Cash Flows from Operating Activities: Net Income ......................................................... $ 14,623 $ 6,276 $ 2,155 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation .................................................. 42,056 40,056 37,259 Amortization of Deferred Charges and Other Assets ............. 18,052 22,846 24,429 Provision (Benefit) for Deferred Income Taxes ................. 4,131 1,385 (1,773) Equity in Net Loss of Unconsolidated Entities ................. 85 -- -- (Gain) Loss on Sale of Vessels and Other Property ............. (11,598) (7,765) 20 Net Revenue from Contract Settlement .......................... (20,552) -- -- Proceeds from Contract Settlement ............................. 22,327 -- -- Impairment Loss ............................................... -- 7,000 -- Extraordinary Loss ............................................ -- 1,029 -- Changes in: Accounts Receivable ........................................... (7,026) (7,789) 7,671 Inventories and Other Current Assets .......................... 556 678 740 Other Assets .................................................. 110 492 (1,098) Accounts Payable and Accrued Liabilities ...................... (10,884) (6,300) (11,233) Federal Income Taxes Payable .................................. 2,225 (1,009) 2,523 Unearned Income ............................................... (2,016) 5,718 (2,732) Other Long-Term Liabilities ................................... (4,509) 1,367 3,839 --------- --------- --------- Net Cash Provided by Operating Activities .............................. 47,580 63,984 61,800 --------- --------- --------- Cash Flows from Investing Activities: Net Investment in Direct Financing Lease ........................... (55,082) (56,323) 2,365 Purchase of Vessels and Other Property ............................. (53,180) (55,727) (19,553) Additions to Deferred Charges ...................................... (14,497) (13,955) (18,302) Proceeds from Sale of Vessels and Other Property ................... 25,771 15,484 334 Purchase of and Proceeds from Short-Term Investments ............... 38 (1,072) (8,028) Investment in and Partial Sale of Unconsolidated Entities .......... 97 (3,368) -- Purchase of Marketable Equity Securities ........................... (20) -- (778) Other Investing Activities ......................................... 74 73 135 --------- --------- --------- Net Cash Used by Investing Activities .................................. (96,799) (114,888) (43,827) --------- --------- --------- Cash Flows from Financing Activities: Proceeds from Issuance of Debt ..................................... 128,400 217,435 90,066 Reduction of Debt and Capital Lease Obligations .................... (83,142) (161,156) (117,250) Additions to Deferred Financing Charges ............................ (572) (2,977) (136) Purchase of Treasury Stock ......................................... (7,232) (289) -- Common Stock Dividends Paid ........................................ (1,582) (1,671) (1,671) Other Financing Activities ......................................... -- (432) -- --------- --------- --------- Net Cash Provided (Used) by Financing Activities ....................... 35,872 50,910 (28,991) --------- --------- --------- Net (Decrease) Increase in Cash and Cash Equivalents ................... (13,347) 6 (11,018) Cash and Cash Equivalents at Beginning of Year ......................... 32,008 32,002 43,020 --------- --------- --------- Cash and Cash Equivalents at End of Year ............................... $ 18,661 $ 32,008 $ 32,002 ========= ========= =========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS. F-7 INTERNATIONAL SHIPHOLDING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The accompanying consolidated financial statements include the accounts of International Shipholding Corporation (a Delaware corporation) and its consolidated subsidiaries (the Company). All significant intercompany accounts and transactions have been eliminated. The Company uses the cost method to account for investments in entities in which it holds less than a 20% voting interest and in which the Company cannot exercise significant influence over operating and financial activities. The Company uses the equity method to account for investments in entities in which it holds a 20% to 50% voting interest. Certain reclassifications have been made to the prior period financial information in order to conform to current year presentation. NATURE OF OPERATIONS The Company, through its subsidiaries, operates a diversified fleet of U.S. and international flag vessels that provide domestic and international maritime transportation services to commercial customers and agencies of the United States government primarily under medium- to long-term charters or contracts. At December 31, 1999, the Company's fleet consisted of 35 ocean-going vessels, 4 towboats, 16 river barges, 28 special purpose barges, 1,864 LASH barges, and related shoreside handling facilities. The Company's strategy is to (i) identify customers with marine transportation needs requiring specialized vessels or operating techniques, (ii) seek medium- to long-term charters or contracts with those customers and, if necessary, modify, acquire, or construct vessels to meet the requirements of those charters or contracts, and (iii) secure financing for the vessels predicated primarily on those charter or contract arrangements. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. VOYAGE ACCOUNTING Revenues and expenses relating to voyages are recorded on the percentage-of-completion method, except that provisions for loss voyages are recorded when contracts for the voyages are fixed and when losses become apparent for voyages in progress. Use of the percentage-of-completion method requires management to make estimates and assumptions that affect the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. VESSELS AND OTHER PROPERTY Costs of all major property additions and betterments are capitalized. Ordinary maintenance and repair costs are expensed as incurred. Interest and finance costs relating to vessels, barges, and other equipment under construction are capitalized to properly reflect the cost of assets acquired. No interest was capitalized in 1999 or 1998. Capitalized interest totaled $40,000 for the year ended December 31, 1997. Capitalized interest was calculated based on the interest rates applicable to the financing of the asset under construction. Assets under capital leases are recorded on the consolidated balance sheets under the caption Vessels, Property, and Other Equipment, at Cost (SEE NOTE G). For financial reporting purposes, vessels are depreciated over their estimated useful lives using the straight-line method. Estimated useful lives of Vessels, Terminal Facilities, and Other Marine Equipment are as follows: F-8 YEARS ----- 10 LASH Vessels 30 1 LASH Vessel 15 2 Pure Car Carriers 20 4 Pure Car/Truck Carrier 20 1 Coal Carrier 15 9 Other Vessels * 25 * Includes one FLASH unit, two ice strengthened multi-purpose vessels, two float-on/float-off special purpose vessels, a dockship, a cape-size bulk carrier, a molten suphur carrier, and a container vessel. At December 31, 1999, the Company's fleet of 35 vessels also included three roll-on/roll-off vessels which it operates, a LASH vessel which has not yet been placed in service, and four cement carriers which the Company owns a 30% interest in. In accordance with Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" issued by the Financial Accounting Standards Board ("FASB"), during 1998, the Company recognized an impairment loss of $7,000,000 on its Cape-Size Bulk Carrier. Depressed freight rates in the market for this type of vessel, along with management's expectation that these conditions will not improve in the near-term, triggered a review of the recoverability of the carrying value of this vessel. The impairment loss was measured as the amount by which the carrying value of the vessel exceeded its fair value. The fair value of the vessel was estimated by determining the present value of its expected future cash flows using a discount rate believed to be commensurate with the risk involved. The Company groups all LASH barges into pools with estimated useful lives corresponding to the remaining useful lives of the vessels with which they are utilized. Major barge refurbishments are capitalized and included in the aforementioned group of barge pools. From time to time, the Company disposes of barges in the ordinary course of business. In these cases, proceeds from the disposition are credited to the remaining net book value of the respective pool and future depreciation charges are adjusted accordingly. INCOME TAXES Deferred income taxes are provided on items of income and expense which affect taxable income in one period and financial income in another. Certain foreign operations are not subject to income taxation under pertinent provisions of the laws of the country of incorporation or operation. However, pursuant to existing U.S. Tax Laws, earnings from certain foreign operations are subject to U.S. income taxes (SEE NOTE D). FOREIGN CURRENCY TRANSLATION All exchange adjustments are charged or credited to income in the year incurred. An exchange loss of $119,000 was recognized for the year ended December 31, 1999, and exchange gains of $347,000 and $175,000 were recognized for the years ended December 31, 1998 and 1997, respectively. DIVIDEND POLICY The Board of Directors declared and paid dividends of 6.25 cents per share for each quarter in 1999 and 1998. Subsequent to year end, a dividend of 6.25 cents per common share was declared to be paid in the first quarter of 2000. NET INCOME PER COMMON SHARE Earnings per common share are based on the weighted average number of shares outstanding during the period. The weighted average number of common shares outstanding was 6,424,193, 6,682,216, and 6,682,887 for the years ended December 31, 1999, 1998, and 1997, respectively. Basic and diluted weighted average common shares outstanding were the same for each of these years. The effect of 475,000 stock options granted during 1998, which were terminated and reissued in 1999, was anti-dilutive (SEE NOTE C). F-9 SUBSIDY AGREEMENTS The Company's operating differential subsidy ("ODS") agreement with the U.S. Maritime Administration ("MarAd"), an agency of the Department of Transportation under Title VI of the Merchant Marine Act of 1936, as amended, under which the Company operated a fleet of four U.S. flag vessels in a liner service between ports on the U.S. Gulf/U.S. Atlantic Coast and South Asia (Trade Routes 18 and 17), expired upon completion, during the first quarter of 1997, of voyages in progress at December 31, 1996. Under this agreement, MarAd paid the excess of certain vessel expenses over comparable vessel expenses of principal foreign competitors in each respective trade route. The Maritime Security Act ("MSA"), which provides for a new subsidy program for certain U.S. flag vessels, was signed into law in October of 1996. Seven of the Company's vessels qualify for MSA participation including three of the four aforementioned LASH vessels which operated under ODS, two of the Company's Pure Car Carriers ("PCC"), and two Pure Car/Truck Carrier ("PCTC") that the Company had purchased and placed into service in 1998 and 1999. MSA eliminated the trade route restrictions imposed by the ODS program and allows flexibility to operate freely in the competitive market. MSA provides for annual subsidy payments of $2,100,000 per year per vessel through September 30, 2005. These payments are subject to appropriation each year and are not guaranteed. Under the previous ODS agreement, subsidy payments were approximately $5,800,000 per year per vessel. In an effort to partially offset the decrease in the amount of subsidy payments to be provided under MSA, as compared to ODS, the Company has implemented initiatives to reduce shipboard costs and shoreside expenses. SELF-RETENTION INSURANCE The Company is self-insured for most Personal Injury and Cargo claims under $1,000,000, for Hull claims under $2,500,000, and for claims for Loss of Hire under 60 days. The Company maintains insurance for individual claims over the above levels and maintains Stop Loss insurance to cover aggregate claims between those levels and the primary deductible levels. Primary deductibles are $25,000 for Hull, Personal Injury, and Cargo, $1,000 for LASH barges, and 10 days for Loss of Hire. The Company is responsible for all claims under the primary deductibles. Under the Stop Loss insurance, claim costs between the primary deductible and $1,000,000 and $2,500,000, as applicable, are the responsibility of the Company until the aggregate Stop Loss amount is met. The aggregate annual Stop Loss, excluding primary deductibles, is $6,000,000 for each of the policy years ending June 26, 2000, 1999, and 1998. After the Company has retained the aggregate amounts, all additional claims are recoverable from underwriters. Provisions for losses are recorded based on the Company's estimate of the eventual settlement costs. The current portions of these liabilities were $7,943,000 and $6,627,000 at December 31, 1999 and 1998, respectively, and the noncurrent portions of these liabilities were $5,588,000 and $10,251,000 at December 31, 1999 and 1998, respectively. STOCK REPURCHASE PROGRAM In October of 1998, the Company's Board of Directors approved a stock repurchase program to buy up to 500,000 shares of its common stock. In October of 1999, the Company had completed the program. In October of 1999, the Company's Board of Directors approved another stock repurchase program to buy up to 1,000,000 shares of its common stock, based on the Board's belief that the current market value of the Company's common stock does not adequately reflect the Company's inherent value. The repurchases are expected to be made in the open market or in privately negotiated transactions at the discretion of the Company's management, depending upon financial and market conditions or as otherwise provided by the Securities and Exchange Commission and New York Stock Exchange rules and regulations. As of December 31, 1999, 595,700 shares had been repurchased under these two programs, of which 577,125 had been repurchased during 1999, for a total cost of $7,521,000 at an average market price of $12.68 per share. Subsequent to year-end as of February 14, 2000, the Company repurchased an additional 4,300 shares for a total cost of approximately $51,000 at an average market price of $11.77 per share. NEW ACCOUNTING PRONOUNCEMENTS During 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits." SFAS No. 132 revises employers' disclosures about pension and other postretirement benefit plans. It does not change the measurement or recognition of those plans. SFAS No. 132 was effective for fiscal years beginning after December 15, 1997, and the required disclosures are included herein (SEE NOTE C). During 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" which establishes accounting and reporting standards for derivative instruments, including certain F-10 derivative instruments embedded in other contracts, and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. SFAS No. 133 was to be effective for all fiscal quarters of fiscal years beginning after June 15, 1999. In June of 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133." SFAS No. 137 is an amendment of SFAS No. 133 and defers the effective date of SFAS No. 133 to June 15, 2000. The Company has not chosen early adoption and, as it is not possible to predict the Company's derivative position at the time this standard will be applied, it is unknown what effect, if any, SFAS No. 137 will have on its financial statements once adopted. While the Company has not yet quantified the impact on its financial statements, the Company does not believe adoption will have a material impact on net income, although adoption is likely to increase volatility of comprehensive income and accumulated other comprehensive income. In April of 1998, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up Activities." This SOP provides guidance on the financial reporting of start-up costs and organization costs. It requires costs of start-up activities and organization costs to be expensed as incurred. The SOP is effective for financial statements for fiscal years beginning after December 15, 1998. The Company has adopted the SOP which had no material impact on its financial statements. During 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," which is effective for fiscal years beginning after December 15, 1997. The Company has adopted SFAS No. 131 and the required disclosures are included herein (SEE NOTE I). NOTE B - LONG-TERM DEBT
(ALL AMOUNTS IN THOUSANDS) INTEREST RATE TOTAL PRINCIPAL DUE --------------------------- ---------------------------- DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DESCRIPTION 1999 1998 DUE 1999 1998 - ----------------------------- ------------ ------------ ----------- ------------ ------------ Unsecured Senior Notes - Fixed Rate ............. 7.75-9.00% 7.75-9.00% 2003-2007 $ 199,919 $ 202,390 Fixed Rate Notes Payable .... 6.70-8.50% 6.70-8.50% 2000-2008 33,693 39,438 Variable Rate Notes Payable . 6.79-7.28% 6.03-6.63% 2001-2009 136,043 66,857 U.S. Government Guaranteed Ship Financing Notes and Bonds - Fixed Rate ..... 8.30% 8.30% 2009 23,071 28,867 Lines of Credit ............. 7.50% 6.41% 2001 22,000 29,000 ------------ ------------ $ 414,726 $ 366,552 Less Current Maturities (23,137) (17,212) ------------ ------------ $ 391,589 $ 349,340 ============ ============
On January 22, 1998, the Company issued a new series of $110,000,000 aggregate principal amount 7 3/4% Senior Notes due 2007 (the "Notes"). The net proceeds from these Notes were used to repay certain indebtedness of the Company's subsidiaries during the first quarter of 1998. Upon retirement of this indebtedness, the Company incurred an Extraordinary Loss on Early Extinguishment of Debt of approximately $1,029,000, net of taxes. The aggregate principal payments required as of December 31, 1999, for each of the next five years are $23,137,000 in 2000, $48,045,000 in 2001, $17,717,000 in 2002, $110,395,000 in 2003, and $15,957,000 in 2004. In addition to regularly scheduled principal payments, the $48,045,000 required in 2001 includes repayment of the $22,000,000 drawn on the Company's line of credit as of December 31, 1999. During early 2000, $3,000,000 was repaid on those lines of credit before their scheduled maturity in 2001. Certain of the vessels and barges owned by the Company are mortgaged under certain debt agreements. The Company has eight vessels and 558 LASH barges pledged with a net book value totaling $315,357,000. Additional collateral includes a security interest in certain operating contracts and receivables. The remaining indebtedness of the Company is unsecured. Most of these agreements, among other things, F-11 impose defined minimum working capital and net worth requirements, impose restrictions on the payment of dividends, and prohibit the Company from incurring, without prior written consent, additional debt or lease obligations, except as defined. The Company has consistently met the minimum working capital and net worth requirements during the period covered by the agreements and is in compliance with these requirements as of December 31, 1999. The most restrictive of the Company's credit agreements prohibit the declaration or payment of dividends unless (1) the total of (a) all dividends paid, distributions on, or other payments made with respect to the Company's capital stock during the period beginning January 1, 1999, and ending on the date of dividend declaration or other payment and (b) all investments other than Qualified Investments (as defined) of the Company and certain designated subsidiaries will not exceed the sum of $10,000,000 plus 50% (or, in case of a loss, minus 100%) of the Company's consolidated net income during the period described above plus the net cash proceeds received from the issuance of common stock by the Company during the above period, and (2) no default or event of default has occurred. Certain of the Company's loan agreements also restrict the ability of the Company's subsidiaries to make dividend payments, loans, or advances, the most restrictive of which contain covenants that prohibit payments of dividends, loans, or advances to the Company from Sulphur Carriers, Inc. unless certain financial ratios are maintained. As long as those ratios are maintained, there is no restriction on loans or advances to the Company from that subsidiary, but dividends are restricted to 40% of undistributed earnings. Certain other loan agreements restrict the ability of the Company's subsidiaries to dispose of assets to such a degree that the remaining assets' book values are less than the value of the collateralized assets. The amounts of potentially restricted net assets were as follows: (ALL AMOUNTS IN THOUSANDS) DECEMBER 31, DECEMBER 31, 1999 1998 ------------ ------------ Enterprise Ship Company .......................... $ 61,645 $ 67,072 Sulphur Carriers, Inc. ........................... 29,528 27,492 ------------ ------------ Total Restricted Net Assets ................ $ 91,173 $ 94,564 ============ ============ At December 31, 1999, the Company had available one line of credit totaling $48,000,000 used to meet short-term requirements when fluctuations occur in working capital. As of December 31, 1999, the Company had drawn $22,000,000 on this line of credit of which $3,000,000 was repaid in early 2000. At December 31, 1998, the Company had a line of credit available for $50,000,000 of which $29,000,000 was drawn with this amount being fully repaid during 1999. Early in the first quarter of 1999, the Company amended the aforementioned $50,000,000 revolving credit facility to the current facility of $48,000,000. Under certain of the above described loan agreements, deposits are made into bank retention accounts to meet the requirements of the applicable agreements. These escrowed amounts totaled $505,000 and $681,000 at December 31, 1999 and 1998, respectively, and were included in Cash and Cash Equivalents. NOTE C - EMPLOYEE BENEFIT PLANS PENSION AND POSTRETIREMENT BENEFITS The Company's defined benefit retirement plan covers all full-time employees of domestic subsidiaries who are not otherwise covered under union-sponsored plans. The benefits are based on years of service and the employee's highest sixty consecutive months of compensation. The Company's funding policy is based on minimum contributions required under ERISA as determined through an actuarial computation. Plan assets consist primarily of investments in certain bank common trust funds of trust quality assets and money market holdings. The Company's postretirement benefit plans currently provide medical, dental, and life insurance benefits to eligible retired employees and their eligible dependents. The following table sets forth the plans' funded status and costs recognized by the Company: F-12
PENSION PLAN POSTRETIREMENT BENEFITS ----------------------------- ----------------------------- (ALL AMOUNTS IN THOUSANDS) DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1999 1998 1999 1998 ------------ ------------ ------------ ------------ CHANGE IN BENEFIT OBLIGATION Benefit obligation at beginning of year ...... $ 15,717 $ 13,358 $ 9,261 $ 8,036 Service cost ................................. 756 704 90 131 Interest cost ................................ 1,024 969 549 585 Actuarial (gain) loss ........................ (2,173) 1,414 (1,736) 906 Benefits paid ................................ (753) (620) (448) (397) Expenses paid ................................ (98) (108) -- -- ------------ ------------ ------------ ------------ Benefit obligation at end of year ............ 14,473 15,717 7,716 9,261 ------------ ------------ ------------ ------------ CHANGE IN PLAN ASSETS Fair value of plan assets at beginning of year 16,028 15,042 -- -- Actual return on plan assets ................. 1,521 1,130 -- -- Employer contribution ........................ 409 584 448 397 Benefits paid ................................ (753) (620) (448) (397) Expenses paid ................................ (98) (108) -- -- ------------ ------------ ------------ ------------ Fair value of plan assets at end of year ..... 17,107 16,028 -- -- ------------ ------------ ------------ ------------ Funded status ................................ 2,634 311 (7,716) (9,261) Unrecognized net actuarial (gain) loss ....... (2,868) (278) 529 2,307 Unrecognized prior service cost .............. 57 76 -- -- ------------ ------------ ------------ ------------ Prepaid (accrued) benefit cost ............... $ (177) $ 109 $ (7,187) $ (6,954) ============ ============ ============ ============ WEIGHTED-AVERAGE ASSUMPTIONS Discount rate ................................ 7.75% 6.75% 7.75% 6.75% Expected return on plan assets ............... 7.50% 8.00% N/A N/A Rate of compensation increase ................ 5.50% 5.50% N/A N/A FOR THE YEAR ENDED DECEMBER 31, FOR THE YEAR ENDED DECEMBER 31, COMPONENTS OF NET PERIODIC BENEFIT COST 1999 1998 1999 1998 ---------------- ---------------- ---------------- ---------------- Service cost .................................. $ 756 $ 704 $ 90 $ 131 Interest cost ................................. 1,024 969 549 585 Actual return on plan assets .................. (1,520) (1,127) -- -- Amortization of prior service cost ............ 19 27 -- -- Amortization of unrecognized net actuarial loss 417 10 42 57 ---------------- ---------------- ---------------- ---------------- Net periodic benefit cost ..................... $ 696 $ 583 $ 681 $ 773 ================ ================ ================ ================
For measurement purposes, the health and dental care cost trend rate was assumed to be 9.0% for 1999, decreasing steadily by .50% per year over the next eight years to a long-term rate of 5%. A one percent change in the assumed health care cost trend rates would have the following effects:
(ALL AMOUNTS IN THOUSANDS) 1% INCREASE 1% DECREASE ----------- ----------- Change in total service and interest cost components for the year ended December 31, 1999 ................................ $ 61 $ (50) Change in postretirement benefit obligation as of December 31, 1999 ..... 747 (633)
Crew members on the Company's U.S. flag vessels belong to union-sponsored pension plans. The Company contributed approximately $2,169,000, $2,339,000, and $2,496,000 to these plans for the years ended December 31, 1999, 1998, and 1997, respectively. These contributions are in accordance with provisions of negotiated labor contracts and generally are based on the amount of straight pay received by the union members. Information from the plans' administrators is not available to permit the Company to determine whether there may be unfunded vested benefits. F-13 The Company continues to evaluate ways in which it can better manage these benefits and control the costs. Any changes in the plan or revisions to assumptions that affect the amount of expected future benefits may have a significant effect on the amount of reported obligation and annual expense. STOCK INCENTIVE PLAN In April of 1998, the Company established a stock-based compensation plan, the Stock Incentive Plan (the "Plan"). The purpose of the Plan is to increase shareholder value and to advance the interest of the Company by furnishing a variety of economic incentives designed to attract, retain, and motivate key employees and officers and to strengthen the mutuality of interests between such employees, officers, and the Company's shareholders. Incentives consist of opportunities to purchase or receive shares of common stock in the form of incentive stock options, non-qualified stock options, restricted stock, or other stock-based awards. Under the Plan, the Company may grant incentives to its eligible Plan participants for up to 650,000 shares of common stock. The exercise price of each option equals the market price of the Company's stock on the date of grant. In April of 1998, options to purchase 475,000 shares of common stock were granted to certain qualified participants at an exercise price of $17.1875 per share. In July of 1999, these options were terminated and reissued at an exercise price of $14.125 per share. No options were exercised or forfeited during the year. All options vested immediately upon the grant date. Therefore, all 475,000 options were exercisable at December 31, 1999. The stock options are due to expire on April 14, 2008. The Company applies Accounting Principles Board Opinion No. 25 ("APB 25") in accounting for the Plan. Accordingly, no compensation cost has been recognized for options granted under the Plan. If the Company had determined compensation cost for the Plan based on the fair value at the grant dates for awards under the Plan consistent with the method of SFAS No. 123 "Accounting for Stock-Based Compensation," the Company's net income and earnings per share for the year ended December 31, 1999, would have been reduced to the pro forma amounts indicated below: AS REPORTED PROFORMA -------------- -------------- Net income ................... $ 14,623,000 $ 12,699,000 Earnings per share ........... $ 2.28 $ 1.98 The fair value of each of the 475,000 options granted during 1999 estimated on the date of grant was $6.23 using the Black-Scholes option-pricing model assuming expected volatility of 18.42% and a risk-free rate of 5.99%. The remaining contractual life of each option as of December 31, 1999, was 8.289 years. LIFE INSURANCE The Company has agreements with the Chairman and President of the Company whereby their estates will be paid approximately $822,000 and $626,000, respectively upon death. The Company reserved amounts to fund a portion of these death benefits which amounted to $800,000 and holds an insurance policy which covers the remainder. NOTE D - INCOME TAXES The Federal income tax returns of the Company are filed on a consolidated basis and include the results of operations of its wholly-owned U.S. subsidiaries. Pursuant to the Tax Reform Act of 1986, the earnings of foreign subsidiaries ($3,528,000 in 1999, $2,245,000 in 1998, and $2,369,000 in 1997) are also included. Prior to 1987, deferred income taxes were not provided on undistributed foreign earnings of $6,689,000, all of which are expected to remain invested abroad indefinitely. In accordance with the Tax Reform Act of 1986, commencing in 1987 earnings generated from profitable controlled foreign subsidiaries are subject to Federal income taxes. F-14 Components of the net deferred tax liability/(asset) are as follows: DECEMBER 31, DECEMBER 31, (ALL AMOUNTS IN THOUSANDS) 1999 1998 ------------ ------------ Liabilities: Fixed Assets .............................. $ 50,776 $ 48,074 Deferred Charges .......................... 12,400 9,326 Unterminated Voyage Revenue/ Expense .............................. 1,979 2,541 Intangible Assets ......................... 5,221 5,730 Deferred Insurance Premiums ............... 698 1,106 Deferred Intercompany Transactions ........ 2,530 2,530 Other Liabilities ......................... 1,017 1,271 ------------ ------------ Total Liabilities .............................. 74,621 70,578 ------------ ------------ Assets: Insurance and Claims Reserve .............. (3,794) (4,788) Deferred Intercompany Transactions ........ (2,530) (2,530) Post-Retirement Benefits .................. (2,583) (2,453) Alternative Minimum Tax Credit Carryforward (10,376) (9,354) Net Operating Loss Carryforward/ Unutilized Deficit ................... (5,181) (6,247) Valuation Allowance ....................... 879 879 Other Assets .............................. (5,972) (5,152) ------------ ------------ Total Assets ................................... (29,557) (29,645) ------------ ------------ Total Deferred Tax Liability, Net .............. $ 45,064 $ 40,933 ============ ============ The following is a reconciliation of the U.S. statutory tax rate to the Company's effective tax rate: Year Ended December 31, 1999 1998 1997 -------- -------- -------- Statutory Rate ....................... 35.0% 35.0% 35.0% State Income Taxes ................... 1.2% 2.9% 6.7% Other ................................ 0.5% 1.7% 0.8% -------- -------- -------- 36.7% 39.6% 42.5% ======== ======== ======== The Company has available at December 31, 1999, unused operating loss carryforwards of $3,857,000 and unused foreign deficits of $10,862,000. The operating loss carryforwards will expire in 2002. The unused foreign deficits are available only to offset foreign earnings and do not expire. Foreign income taxes of $532,000, $546,000, and $596,000 are included in the Company's consolidated statements of income in the Provision for Income Taxes for the years ended December 31, 1999, 1998, and 1997, respectively. The Company pays foreign income taxes in Indonesia and Thailand. NOTE E - TRANSACTIONS WITH RELATED PARTIES During 1990, the Company sold one of its subsidiaries to a former employee at a sales price of $500,000. At the end of 1993, the Company sold another subsidiary to the same party for a sales price of $692,000. The total receivable outstanding from this related party totaled $296,000 and $369,000 at December 31, 1999 and 1998, respectively, and is due over a period of ten years from the date of the 1993 sale. The long-term portion of this receivable is included in Due from Related Parties, and the current portion is included in Accounts Receivable - Claims and Other. Collections on the total receivable were $74,000 for each of the years ended December 31, 1999 and 1998. Interest income on this receivable is earned at the rate of 6% for the first five years and a variable rate of LIBOR plus 2% thereafter and amounted to $25,000, $25,000, and $29,000 for the years ended December 31, 1999, 1998, and 1997, respectively. During 1992, a son of the President of the Company became a partner of the legal firm of Jones, Walker, Waechter, Poitevent, Carrere and Denegre which has been utilized for various legal services since the F-15 Company's inception. The Company made payments to the firm totaling approximately $1,533,000, $1,102,000, and $958,000 for the years ended December 31, 1999, 1998, and 1997, respectively. Amounts of $125,000 were due to the legal firm at December 31, 1999, which was included in Accounts Payable and Accrued Liabilities or Deferred Credits, and no amounts were due at December 31, 1998. During 1998, a wholly-owned subsidiary of the Company, LMS Shipmanagement, Inc. ("LMS"), entered into agreements with Belden Shipping Pte Ltd ("Belden") to provide ship management services, beginning in 1999 from which revenues of approximately $203,000 were earned during that year. The Company acquired a 37.5% interest in Belden during 1998, of which 7.5% interest was sold in 1999. The Company also acquired a 37.5% interest in Carson Shipping, Inc. ("Carson") during 1998, of which 7.5% interest was sold in 1999 (SEE NOTE J). The Company has long-term receivables, included in Due from Related Parties, from Belden and Carson totaling approximately $21,000 and $337,000, respectively, as of December 31, 1999. NOTE F - COMMITMENTS AND CONTINGENCIES COMMITMENTS As of December 31, 1999, 19 vessels that the Company owns or operates were under various contracts extending beyond 1999 and expiring at various dates through 2024. Certain of these agreements also contain options to extend the contracts beyond their minimum terms. Subsequent to year-end, the Company entered into two contracts to hedge a portion of its estimated 2000 fuel purchases related to its LINER SERVICES segment (SEE NOTE L). The contracts are effective for one year beginning January 4, 2000, and January 6, 2000, respectively, and are based on a notional amount (tons) of fuel. The contracts require that a payment be made for the difference between the contract rate, $110 and $116.77 per ton, respectively, and the market rate for the fuel with settlements made monthly. In December of 1998, the Company entered into an interest rate swap agreement with a commercial bank to reduce the possible impact of higher interest rates in the long-term market by utilizing the fixed rate available with the swap. The contract requires that a payment be made, semiannually, for the difference between the fixed rate, 5.275%, and the floating rate, and will expire in December of 2008. During September of 1999, the Company entered into another interest rate swap agreement with a commercial bank to reduce the possible impact of higher interest rates in the long-term market by utilizing the fixed rate available with the swap. The contract requires that a payment be made, semiannually, for the difference between the fixed rate, 7.7%, and the floating rate, and is scheduled to expire in September of 2004 (SEE NOTE L FOR FURTHER DETAILS ON THESE SWAP AGREEMENTS). The Company also maintains lines of credit totaling $1,700,000 to cover standby letters of credit for membership in various shipping conferences. CONTINGENCIES In the normal course of its operations, the Company becomes involved in various litigation matters including, among other things, claims by third parties for alleged property damages, personal injuries, and other matters. While the Company believes it has meritorious defenses against these claims, management has used significant estimates in determining the Company's potential exposure. Where appropriate, the Company has booked provisions, included in Other Long-Term Liabilities: Claims and Other, to cover its potential exposure and anticipated recoveries from insurance companies, included in Other Assets. It is reasonably possible that a change in the Company's estimate of its exposure could occur. Although it is difficult to predict the costs of ultimately resolving such issues, the Company does not expect such costs will have a material effect on the Company's financial position or results of operations. NOTE G - LEASES In 1998, the Company entered into a direct financing lease of a foreign flag pure car/truck carrier expiring in 2018. In 1999, the Company entered into another direct financing lease of a foreign flag pure car/truck carrier expiring in 2019. The schedule of future minimum rentals to be received under these two direct financing leases in effect at December 31, 1999, is as follows: F-16 RECEIVABLES UNDER (ALL AMOUNTS IN THOUSANDS) FINANCING LEASES ----------------- Year Ended December 31, 2000 ......................................... $ 17,239 2001 ......................................... 17,192 2002 ......................................... 17,192 2003 ......................................... 17,142 2004 ......................................... 16,593 Thereafter ................................... 212,044 ----------------- Total Minimum Lease Payments Receivable ................... 297,402 Estimated Residual Values of Leased Properties ............ 4,103 Less Unearned Income ...................................... (186,336) ----------------- Total Net Investment in Direct Financing Leases ........... 115,169 Current Portion ....................................... (3,137) ----------------- Long-Term Net Investment in Direct Financing Leases at December 31, 1999 ................. $ 112,032 ================= The Company entered into sale-leaseback agreements in 1991 and 1992 for a group of the Company's LASH barges. These leases meet the required criteria for a capital lease and are accounted for as such. The terms of the leases are 12 years. The capital leases are included in Vessels, Property, and Other Equipment as follows: DECEMBER 31, DECEMBER 31, (ALL AMOUNTS IN THOUSANDS) 1999 1998 ------------ ------------ LASH Barges .................................... $ 24,936 $ 24,936 Less Accumulated Depreciation .................. (16,582) (14,493) ------------ ------------ Total ....................................... $ 8,354 $ 10,443 ============ ============ The following is a schedule, by year, of future minimum lease payments under capital leases, together with the present value of the minimum payments as of December 31, 1999: PAYMENTS UNDER (ALL AMOUNTS IN THOUSANDS) CAPITAL LEASES -------------- Year Ended December 31, 2000 ............................................ $ 4,514 2001 ............................................ 5,414 2002 ............................................ 3,080 2003 ............................................ 2,125 -------------- 15,133 Less Interest ................................................ (3,049) -------------- Present Value of Future Minimum Payments (BASED ON A WEIGHTED AVERAGE OF 10.39%) ................... $ 12,084 ============== The Company conducts certain of its operations from leased office facilities and uses certain transportation and other equipment under operating leases expiring at various dates through 2008. Rent expense related to operating leases totaled approximately $7,078,000, $6,264,000, and $6,143,000, for the years ended December 31, 1999, 1998, and 1997, respectively. The following is a schedule, by year, of future minimum payments required under operating leases that have initial or remaining non-cancelable terms in excess of one year as of December 31, 1999: F-17 PAYMENTS UNDER (ALL AMOUNTS IN THOUSANDS) OPERATING LEASES ---------------- Year Ended December 31, 2000 ........................................... $ 2,899 2001 ........................................... 2,740 2002 ........................................... 2,413 2003 ........................................... 1,585 2004 ........................................... 417 Thereafter ..................................... 1,548 ---------------- Total Future Minimum Payments ............................... $ 11,602 ================ NOTE H - DEFERRED CHARGES AND ACQUIRED CONTRACT COSTS The Company defers certain costs related to the drydocking of vessels and financing costs. Deferred drydocking costs are amortized over the period between drydockings (generally two to five years). Financing charges are amortized over the life of the applicable debt involved. These deferred costs are all amortized based on a straight-line basis and are comprised of the following: DECEMBER 31, DECEMBER 31, (ALL AMOUNTS IN THOUSANDS) 1999 1998 ------------- ------------- Drydocking Costs ............................... $ 32,222 $ 29,897 Financing Charges and Other .................... 7,470 8,952 ------------- ------------- $ 39,692 $ 38,849 ============= ============= The Acquired Contract Cost represents the portion of the purchase price paid for Waterman Steamship Corporation applicable primarily to that company's maritime prepositioning ship contract agreements. The Company amortized the acquired contract cost using the straight-line method over the contract's useful life of twenty-one years from the acquisition date. NOTE I - SIGNIFICANT OPERATIONS MAJOR CUSTOMERS The Company has several medium- to long-term contracts related to the operations of various vessels (SEE NOTE F), from which revenues represent a significant amount of the Company's total revenue. Revenues from the contracts with the United States Military Sealift Command ("MSC") were $68,014,000, $75,872,000, and $72,444,000 for the years ended December 31, 1999, 1998, and 1997, respectively. Additionally, the Company operates three U.S. flag LASH vessels on subsidized liner service. Revenues, including subsidy revenue, from this operation were $127,799,000, $126,524,000, and $125,323,000 for the years ended December 31, 1999, 1998, and 1997, respectively. CONCENTRATIONS A significant portion of the Company's traffic receivables is due from contracts with MSC and transportation of government sponsored cargo. There are no other concentrations of receivables from customers or geographic regions that exceed 10% of stockholders' investment at December 31, 1999 or 1998. With only minor exceptions related to personnel aboard certain foreign flag vessels, most of the Company's shipboard personnel are covered by collective bargaining agreements. GEOGRAPHIC INFORMATION The Company has operations in several principal markets, including international service between the U.S. Gulf and East Coast ports and ports in the Middle East, Far East, and northern Europe, and domestic transportation services along the U.S. Gulf and East Coast. Revenues attributable to the major geographic F-18 areas of the world are presented in the following table. Revenues for the TIME CHARTER CONTRACTS and CONTRACTS OF AFFREIGHTMENT are assigned to region based on the location of the customer. Revenues for the LINER SERVICES are presented based on the location of the ports serviced by this segment. Because the Company operates internationally, most of its assets are not restricted to specific locations. Accordingly, an allocation of identifiable assets to specific geographic areas is not possible.
FOR THE YEAR ENDED DECEMBER 31, (ALL AMOUNTS IN THOUSANDS) 1999 1998 1997 -------- -------- -------- United States ........................................................ $130,764 $140,750 $143,627 Asian countries ...................................................... 54,397 45,809 43,462 Liner services operating between: U.S. Gulf / East Coast ports and ports in South Asia .......... 127,799 126,524 125,323 U.S. Gulf / East Coast ports and ports in Northern Europe ..... 55,464 68,044 74,164 Other countries ...................................................... 4,785 3,021 4,480 -------- -------- -------- Total Revenues ................................................ $373,209 $384,148 $391,056 ======== ======== ========
OPERATING SEGMENTS The Company's three operating segments are identified primarily based on the characteristics of the contracts or terms under which the fleet of vessels and barges are operated. The Company also reports an OTHER category that includes results of several of the Company's subsidiaries that provide ship charter brokerage, agency, barge fleeting, and other specialized services primarily to the Company's operating segments described below. Also included in the OTHER category are corporate related items, results of insignificant operations, and income and expense items not allocated to reportable segments. Each of the reportable segments is managed separately as each requires different resources depending on the nature of the contract or terms under which each vessel within the segment operates. The Company's operating segments are identified and described below. LINER SERVICES: A liner service operates a vessel or vessels on an established trade route with regularly scheduled sailing dates. The Company receives revenues for the carriage of cargo within the established trading area and pays the operating and voyage expenses incurred. The Company's LINER SERVICES include a U.S. flag liner service between U.S. Gulf and East Coast ports and ports in South Asia and a foreign flag transatlantic liner service operating between U.S. Gulf and East Coast ports and ports in northern Europe. TIME CHARTER CONTRACTS: These are contracts by which the charterer obtains the right for a specified period to direct the movements and utilization of the vessel in exchange for payment of a specified daily rate, but the Company retains operations control over the vessel. Typically, the Company fully equips the vessel and is responsible for normal operating expenses, repairs, wages and insurance, while the charterer is responsible for voyage expenses, such as fuel, port and stevedoring expenses. The Company's TIME CHARTER CONTRACTS include those by which the MSC charters LASH, Roll-On/Roll-Off, and Ice Strengthened Multi-Purpose Vessels for contracts of varying terms. Also included in this segment are contracts with car manufacturers for two Pure Car Carriers and four Pure Car/Truck Carriers and with an electric utility for a conveyor-equipped, self-unloading coal carrier. Additionally, the Company's Cape-Size Bulk Carrier currently operating in the spot market is included in this segment. CONTRACTS OF AFFREIGHTMENT ("COA"): These are contracts by which the Company undertakes to provide space on its vessel(s) for the carriage of specified goods or a specified quantity of goods on a single voyage or series of voyages over a given period of time between named ports or within certain geographical areas in return for the payment of an agreed amount per unit of cargo carried. Generally, the Company is responsible for all operating and voyage expenses. The Company's COA segment includes a sulphur transportation contract with a major sulphur producer and a contract to provide ocean transportation services to a major mining company at its mine in West Irian Jaya, Indonesia. Also included in this segment is a coal transportation contract with a Florida-based electric utility which was terminated by the utility company in December of 1998. The Company received a settlement for $22,975,000 in July of 1999. The following table presents information about segment profit and loss and segment assets. The Company does not allocate interest income, administrative and general expenses, equity in unconsolidated entities, or income taxes to its segments. Intersegment revenues are based on market prices and include revenues earned by subsidiaries of the Company that provide specialized services to the operating segments. F-19
TIME LINER CHARTER CONTRACTS OF (ALL AMOUNTS IN THOUSANDS) SERVICES CONTRACTS AFFREIGHTMENT OTHER TOTAL - ------------------------------------------------------------------------------------------------------------------------------------ 1999 REVENUES FROM EXTERNAL CUSTOMERS .................................. $ 183,477 $ 130,477 $ 30,592 $ 8,111 $ 352,657 NET REVENUE FROM CONTRACT SETTLEMENT .............................. -- -- 20,552 -- 20,552 INTERSEGMENT REVENUES ............................................. -- -- -- 36,673 36,673 GROSS VOYAGE PROFIT BEFORE DEPRECIATION ........................... 16,983 51,004 32,946 5,013 105,946 DEPRECIATION AND AMORTIZATION ..................................... 20,159 27,847 8,297 1,014 57,317 INTEREST EXPENSE .................................................. 5,991 17,400 8,059 652 32,102 (LOSS) GAIN ON SALE OF VESSELS AND LAND ........................... (365) 7,753 -- 4,185 11,573 SEGMENT (LOSS) PROFIT BEFORE INTEREST INCOME, ADMINISTRATIVE AND GENERAL EXPENSES, EQUITY IN UNCONSOLIDATED ENTITIES AND TAXES ............................. (3,857) 23,843 18,295 7,871 46,152 SEGMENT ASSETS .................................................... 120,998 340,060 133,404 12,410 606,872 EXPENDITURES FOR SEGMENT ASSETS ................................... 19,976 45,503 857 1,913 68,249 - ------------------------------------------------------------------------------------------------------------------------------------ 1998 Revenues from external customers .................................. $ 194,568 $ 125,558 $ 56,154 $ 7,868 $ 384,148 Intersegment revenues ............................................. -- -- -- 36,676 36,676 Gross voyage profit before depreciation ........................... 34,215 44,597 19,134 4,301 102,247 Depreciation and amortization ..................................... 18,760 32,427 7,789 1,326 60,302 Interest expense .................................................. 6,246 12,452 8,897 1,143 28,738 Impairment loss ................................................... -- (7,000) -- -- (7,000) Gain on sale of vessel ............................................ -- 7,762 -- -- 7,762 Segment profit before interest income, administrative and general expenses and taxes ................ 15,037 15,695 3,648 2,435 36,815 Segment assets .................................................... 118,257 275,882 141,058 21,076 556,273 Expenditures for segment assets ................................... 19,410 104,183 4,415 3,005 131,013 - ------------------------------------------------------------------------------------------------------------------------------------ 1997 Revenues from external customers .................................. $ 199,487 $ 121,540 $ 60,406 $ 9,623 $ 391,056 Intersegment revenues ............................................. -- -- -- 35,565 35,565 Gross voyage profit before depreciation ........................... 22,583 42,624 21,903 2,862 89,972 Depreciation and amortization ..................................... 18,114 32,383 7,288 1,213 58,998 Interest expense .................................................. 6,301 10,942 9,287 1,124 27,654 Segment profit before interest income, administrative and general expenses and taxes ................ 4,408 16,345 6,088 908 27,749 Segment assets .................................................... 112,519 222,462 144,390 21,403 500,774 Expenditures for segment assets ................................... 14,444 16,547 1,274 5,726 37,991 - ------------------------------------------------------------------------------------------------------------------------------------
F-20 Following is a reconciliation of the totals reported for the operating segments to the applicable line items in the consolidated financial statements: (ALL AMOUNTS IN THOUSANDS)
For the year ended December 31, PROFIT OR LOSS: 1999 1998 1997 ------------- ------------- ------------- Total profit for reportable segments ................. $ 46,152 $ 36,815 $ 27,749 Unallocated amounts: Interest income ............................... 1,339 1,569 1,458 Administrative and general expenses ........... 24,282 26,406 25,454 Equity in unconsolidated entities ............. (85) -- -- ------------- ------------- ------------- Income before income taxes and extraordinary items ... $ 23,124 $ 11,978 $ 3,753 ============= ============= ============= December 31, December 31, December 31, ASSETS: 1999 1998 1997 ------------- ------------- ------------- Total assets for reportable segments ................. $ 606,872 $ 556,273 $ 500,774 Unallocated amounts .................................. 128,131 133,531 117,430 ------------- ------------- ------------- $ 735,003 $ 689,804 $ 618,204 ============= ============= =============
Unallocated assets include Current Assets of $112,327,000, $119,214,000, and $107,800,000, as of December 31, 1999, 1998, and 1997, respectively. The Company manages its Current Assets on a corporate rather than segment basis. NOTE J - UNCONSOLIDATED ENTITIES During 1998, the Company acquired a 37.5% interest in Belden and three cement carrier companies, Shining Star Malta Ltd. ("Shining"), Echelon Shipping Inc. ("Echelon"), and Carson for approximately $3.4 Million. Shining, Echelon, and Carson each own and operate one cement carrying vessel under medium- to long-term contracts and are managed by Belden. During 1999, the Company sold 7.5% of its 37.5% interest in each of the aforementioned companies for approximately $806,000. In late 1999, the Company acquired a 30% interest in another cement carrier company, Goodtime Shipping Inc., for approximately $633,000 whose cement carrier is also managed by Belden. LMS, a wholly-owned subsidiary of the Company, has been providing ship management services for Belden beginning in 1999. The Company's portion of their combined losses at December 31, 1999 was $131,000, which is reported in the Company's consolidated statements of income net of taxes. The Company's portion of the combined earnings from the date of the investment until December 31, 1998, was not material. No distributions were made during 1999 and 1998. NOTE K - SUPPLEMENTAL CASH FLOW INFORMATION YEAR ENDED DECEMBER 31, (ALL AMOUNTS IN THOUSANDS) 1999 1998 1997 -------- -------- -------- Non-Cash Investing and Financing Activities: Current Liabilities to be Refinanced ... -- -- $ 22,511 Cash Payments: Interest Paid .......................... $ 30,344 $ 27,380 $ 26,818 Taxes Paid ............................. 3,075 4,319 3,321 During 1998, the Company sold one of its foreign flag pure car carriers for $18,200,000 of which $15,200,000 was received in cash and $3,000,000 in the form of a four-year promissory note. During 1999, the Company sold an additional foreign flag pure car carrier for $18,200,000 of which $15,200,000 was received in cash and $3,000,000 in the form of a four-year promissory note. F-21 For purposes of the accompanying consolidated statements of cash flows, the Company considers highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. NOTE L - FAIR VALUE OF FINANCIAL INSTRUMENTS AND DERIVATIVES The estimated fair values of the Company's financial instruments and derivatives are as follows (asset/(liability)): DECEMBER 31, DECEMBER 31, 1999 1998 ---------------------- ---------------------- CARRYING FAIR CARRYING FAIR (ALL AMOUNTS IN THOUSANDS) AMOUNT VALUE AMOUNT VALUE --------- --------- --------- --------- Interest Rate Swap Agreements -- $ 3,711 -- $ 142 Foreign Currency Contracts . -- $ (22) -- -- Commodity Swap Contract .... -- -- -- $ (593) Long-Term Debt ............. $(414,726) $(408,803) $(366,552) $(380,927) Disclosure of the fair value of all balance sheet classifications, including but not limited to certain vessels, property, equipment, direct financing leases, or intangible assets which may have a fair value in excess of historical cost, is not required. Therefore, this disclosure does not purport to represent the fair value of the Company. The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: CASH AND CASH EQUIVALENTS AND MARKETABLE SECURITIES The carrying amount approximates fair value for each of these instruments. The Company has categorized all marketable securities as available-for-sale. INTEREST RATE SWAP AGREEMENTS The Company has only limited involvement with derivative financial instruments. They are used to manage well-defined interest rate risks and are not used for trading purposes. In December of 1998, the Company entered into an interest rate swap agreement with a commercial bank to reduce the possible impact of higher interest rates in the long-term market by utilizing the fixed rate available with the swap. The fixed rate payor is the Company, and the floating rate payor is Citibank, N.A. The fixed rate and the floating rates at December 31, 1999 were 5.275% and 6.9863%, respectively. The contract amount totaled $43,710,000 at December 31, 1999 and will expire in December of 2008. The Company made payments under this agreement totaling $30,000 during 1999. During September of 1999, the Company entered into another interest rate swap agreement with a commercial bank to reduce the possible impact of higher interest rates in the long-term market by utilizing the fixed rate available with the swap. The fixed rate payor is the Company, and the floating rate payor is Midland Bank. The fixed rate and the floating rates at December 31, 1999 were 7.7% and 6.94%, respectively. The contract amount totaled $33,200,000 at December 31, 1999 and will expire in September of 2004. The Company is expected to make a payment under this agreement totaling $128,000 in March of 2000. The Company considers these futures contracts to be hedging activities. In order to consider these futures contracts as hedges, (i) the Company must designate the futures contract as a hedge of future transactions, and (ii) the contract must reduce the Company's exposure in the risk of changes in interest rates. If the above criteria are not met, the Company will record the market value of the contract at the end of each month and recognize a related gain or loss. Net receipts or payments under these agreements are recognized as an adjustment to interest expense, while changes in the fair market value of these hedges are not recognized in income. The Company will recognize the fair market value of the hedges in income at the time of maturity, sale or termination, though the Company does not anticipate the sale or termination of these hedges. The fair value of interest rate swaps is the estimated amount that the bank would receive or pay to terminate the swap agreements at the reporting date, taking into account current market conditions and interest rates. FOREIGN CURRENCY CONTRACTS The Company enters into forward exchange contracts to hedge certain firm purchase and sale commitments denominated in foreign currencies. The purpose of the Company's foreign currency hedging activities is to protect the Company from the risk that the eventual dollar cash inflows or outflows resulting F-22 from revenue collections from foreign customers and purchases from foreign suppliers will be adversely affected by changes in exchange rates. The term of the currency derivatives is rarely more than one year. Forward exchange contracts are designated as a hedge at inception where there is a direct relationship to the price risk associated with the Company's future sales and purchases. Changes in the fair market value of these hedges are recognized as gains or losses in revenues in the period of change. The Company includes the gains or losses on the maturity, sale, or termination in revenues in the period the hedged transaction is recorded, though the Company does not anticipate the sale or termination of these hedges. There were no forward purchase contracts as of December 31, 1999. The Company had entered into various forward purchase contracts for Singapore Dollars totaling $1,188,022 U.S. Dollar equivalents to hedge against future payments due for drydocking cost as of December 31, 1998. Gains or losses on forward exchange contracts which hedge exposures on firm foreign currency commitments are deferred and recognized as adjustments to the bases of those assets. As of December 31, 1999 and 1998, the Company was also a party to forward sales contracts in various currencies totaling $2,746,000 and $2,195,000 U.S. Dollar equivalents, respectively. Gains and losses on these contracts are recognized in net income of the period in which the exchange rate changes. COMMODITY SWAP CONTRACT During 1998, the Company entered into a commodity swap with a commercial bank for a portion of its estimated 1999 fuel purchases to manage the risk associated with changes in fuel prices. The contract was effective for one year beginning January 1, 1999 and expired December 31, 1999, and was for 60,000 tons of fuel which was approximately 30% of the Company's fuel purchases during 1999. The contract required that a payment be made for the difference between the contact rate of $75 per ton and the market rate for the fuel on each settlement date. The fair value of this commodity swap is the estimated amount that the bank would have received to terminate the contract as of December 31, 1998. During 1999, the Company received payments under this agreement totaling $1,357,000. Subsequent to year-end, the Company entered into two commodity swap agreements with commercial banks for a portion of its estimated 2000 fuel purchases to manage the risk associated with changes in fuel prices. The first contract is effective for one year beginning January 4, 2000, and is for 45,000 tons of fuel. The contract requires that a payment be made for the difference between the contract rate of $110 per ton and the market rate for the fuel on each settlement date. The second contract is effective for one year beginning January 6, 2000, and is for 40,000 tons of fuel. It requires that a payment be made for the difference between the contract rate of $116.77 per ton and the market rate for the fuel on each settlement date. The combination of the two hedges represents approximately 39% of the Company's expected 2000 fuel purchases. The Company considers these futures contracts to be hedging activities. In order to consider these futures contracts as hedges, (i) the Company must designate the futures contract as a hedge of future transactions, and (ii) the contract must reduce the Company's exposure in the risk of changes in prices. If the above criteria are not met, the Company will record the market value of the contract at the end of each month and recognize a related gain or loss. Proceeds received or paid for each monthly settlement are included in revenue, while changes in the fair market value of these hedges are not recognized in income. The Company will recognize the fair market value of the hedges in income at the time of maturity, sale or termination, though the Company does not anticipate the sale or termination of these hedges. LONG-TERM DEBT The fair value of the Company's debt is estimated based on quoted market prices for the publicly listed Senior Notes and the current rates offered to the Company on other outstanding obligations. AMOUNTS DUE FROM RELATED PARTIES The carrying amount of these notes receivable approximated fair market value as of December 31, 1999 and 1998. Fair market value takes into consideration the current rates at which similar notes would be made. RESTRICTED INVESTMENTS The carrying amount of these investments, which were included in Cash and Cash Equivalents and Marketable Securities, approximated fair market value as of December 31, 1999 and 1998, based upon current rates offered on similar instruments. F-23 NOTE M - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Following are the components of the consolidated balance sheet classification Accounts Payable and Accrued Liabilities for the periods indicated. DECEMBER 31, DECEMBER 31, (ALL AMOUNTS IN THOUSANDS) 1999 1998 ------------ ------------ Accrued Voyage Expenses .......................... $ 26,875 $ 28,144 Trade Accounts Payable ........................... 4,906 8,329 Accrued Interest ................................. 9,026 8,432 Self-Insurance Liability ......................... 7,943 6,627 Accrued Salaries and Benefits .................... 1,638 2,218 Accrued Vessel Costs ............................. -- 396 ------------ ------------ $ 50,388 $ 54,146 ============ ============ NOTE N-QUARTERLY FINANCIAL INFORMATION - (UNAUDITED)
QUARTER ENDED ------------------------------------------------------ MARCH 31 JUNE 30 SEPT. 30 DEC. 31 -------- -------- -------- -------- (ALL AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA) - ------------------------------------------------------------------------------------------------------------------------------------ 1999 REVENUE ...................................................... $ 88,429 $ 85,835 $101,735 $ 97,210 EXPENSE ...................................................... 75,851 69,590 76,706 84,381 GROSS VOYAGE PROFIT .......................................... 12,578 16,245 25,029 12,829 NET INCOME (LOSS) ............................................ 1,023 6,823 7,237 (460) BASIC AND DILUTED EARNINGS (LOSS) PER COMMON SHARE: NET INCOME (LOSS) ......................................... 0.16 1.04 1.11 (0.07) - ------------------------------------------------------------------------------------------------------------------------------------ 1998 Revenue ...................................................... $ 93,498 $ 94,988 $ 98,605 $ 97,057 Expense ...................................................... 79,435 78,433 81,835 86,654 Gross Voyage Profit .......................................... 14,063 16,555 16,770 10,403 Income Before Extraordinary Item ............................. 768 1,777 1,976 2,784 Extraordinary Item ........................................... (1,029) -- -- -- Net (Loss) Income ............................................ (261) 1,777 1,976 2,784 Basic and Diluted Earnings (Loss) per Common Share: Income Before Extraordinary Item .......................... 0.11 0.27 0.29 0.42 Extraordinary Item ........................................ (0.15) -- -- -- Net (Loss) Income ......................................... (0.04) 0.27 0.29 0.42 - ------------------------------------------------------------------------------------------------------------------------------------ 1997 Revenue ...................................................... $ 89,994 $102,520 $100,309 $ 98,233 Expense ...................................................... 75,420 88,021 87,195 85,017 Gross Voyage Profit .......................................... 14,574 14,499 13,114 13,216 Net Income ................................................... 593 677 405 480 Basic and Diluted Earnings per Common Share: Net Income ................................................ 0.09 0.10 0.06 0.07 - ------------------------------------------------------------------------------------------------------------------------------------
F-24 INDEX OF SUPPLEMENTAL FINANCIAL STATEMENT SCHEDULES Report of Independent Public Accountants on Supplemental Schedule....S-2 Schedule I - Condensed Financial Information of the Registrant.......S-3 S-1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SUPPLEMENTAL SCHEDULE We have audited, in accordance with generally accepted auditing standards, the financial statements as of December 31, 1999 and 1998 and for each of the three years in the period ended December 31, 1999 included in International Shipholding Corporation's annual report to stockholders included in this Form 10-K, and have issued our report thereon dated January 14, 2000. Our audits were made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in the index above is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/ Arthur Andersen LLP New Orleans, Louisiana, January 14, 2000 S-2 INTERNATIONAL SHIPHOLDING CORPORATION (PARENT COMPANY) SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT STATEMENTS OF INCOME (ALL AMOUNTS IN THOUSANDS) Year Ended December 31, 1999 1998 1997 -------- -------- -------- Management Fee Revenue from Subsidiaries ... $ 11,657 $ 11,555 $ 11,563 Administrative and General Expenses ........ 11,392 11,626 10,867 -------- -------- -------- Gross Profit ................. 265 (71) 696 -------- -------- -------- Interest: Interest Expense .................. 20,448 20,884 10,498 Investment Income ................. (3,910) (3,919) (1,217) -------- -------- -------- 16,538 16,965 9,281 -------- -------- -------- Equity in Net Income of Consolidated Subsidiaries (Net of Applicable Taxes) ............................ 25,201 17,352 7,717 -------- -------- -------- Income (Loss) Before Provision (Benefit) for Income Taxes and Extraordinary Item ...... 8,928 316 (868) -------- -------- -------- Provision (Benefit) for Income Taxes: Current ........................... 155 (205) 1,587 Deferred .......................... (5,850) (5,759) (4,581) State ............................. -- 2 (29) -------- -------- -------- (5,695) (5,962) (3,023) -------- -------- -------- Income Before Extraordinary Item ........... $ 14,623 $ 6,278 $ 2,155 -------- -------- -------- Extraordinary Loss on Early Extinguishment of Debt (Net of Income Tax Benefit of $1) ................ -- (2) -- -------- -------- -------- Net Income ................................. $ 14,623 $ 6,276 $ 2,155 ======== ======== ======== The "Notes to Consolidated Financial Statements of International Shipholding Corporation and Subsidiaries" are an integral part of these statements. See accompanying "Notes to Condensed Financial Information of Registrant." S-3 INTERNATIONAL SHIPHOLDING CORPORATION (PARENT COMPANY) SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT BALANCE SHEETS (All Amounts in Thousands)
ASSETS DECEMBER 31, DECEMBER 31, 1999 1998 ------------- ------------- Current Assets: Cash and Cash Equivalents ................... $ 3,013 $ 4,150 Accounts Receivable ......................... 118 228 Federal Income Taxes Receivable ............. 603 1,299 Other Current Assets ........................ 625 448 ------------- ------------- Total Current Assets ................................. 4,359 6,125 ------------- ------------- Deferred Federal Income Taxes ........................ 20,624 11,800 ------------- ------------- Investment in Consolidated Subsidiaries .............. 354,622 341,805 ------------- ------------- Advances to Subsidiaries ............................. 27,267 49,974 ------------- ------------- Furniture and Equipment .............................. 5,012 4,375 Less - Accumulated Depreciation ..................... (2,108) (1,017) ------------- ------------- 2,904 3,358 ------------- ------------- Deferred Financing Charges, Net of Accumulated Amortization of $4,070 and $1,752 in 1998 and 1997, Respectively ................................. 3,518 4,236 ------------- ------------- $ 413,294 $ 417,298 ============= ============= LIABILITIES AND STOCKHOLDERS' INVESTMENT DECEMBER 31, DECEMBER 31, 1999 1998 ------------- ------------- Current Liabilities: Accrued Interest Payable .................... $ 5,987 $ 6,046 Accounts Payable and Accrued Liabilities .... 686 620 Current Deferred Income Tax Liability ....... -- 27 ------------- ------------- Total Current Liabilities ............................ 6,673 6,693 ------------- ------------- Long-Term Debt ....................................... 221,919 231,390 ------------- ------------- Other Provisions ..................................... 2,234 2,108 ------------- ------------- Commitments and Contingent Liabilities Stockholders' Investment: Common Stock ................................ 6,756 6,756 Additional Paid-In Capital .................. 54,450 54,450 Retained Earnings ........................... 130,424 117,398 Less - Treasury Stock ....................... (8,654) (1,422) Accumulated Other Comprehensive Loss ........ (508) (75) ------------- ------------- 182,468 177,107 ------------- ------------- $ 413,294 $ 417,298 ============= =============
The "Notes to Consolidated Financial Statements of International Shipholding Corporation and Subsidiaries" are an integral part of these statements. See Accompanying "Notes to Condensed Financial Information of Registrant." S-4 INTERNATIONAL SHIPHOLDING CORPORATION (PARENT COMPANY) SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT STATEMENTS OF CASH FLOWS (All Amounts in Thousands) YEAR ENDED DECEMBER 31, 1999 1998 1997 -------- --------- ------- Cash Flows from Operating Activities: Net Income ............................. $ 14,623 $ 6,276 $ 2,155 Adjustments to Reconcile Net Income to Net Cash Used by Operating Activities: Depreciation ...................... 1,130 962 39 Amortization of Deferred Charges .. 736 689 449 Benefit for Deferred Income Taxes . (5,695) (5,963) (4,581) Net Income of Consolidated Subsidiaries ................... (25,201) (17,352) (7,717) Extraordinary Loss ................ -- 2 -- Changes in: Accounts Receivable ............... 110 (90) (40) Other Current Assets .............. (177) (21) (69) Other Assets ...................... -- -- 6 Accounts Payable and Accrued Liabilities...................... 7 2,074 38 Federal Income Taxes Payable ...... (1,289) (3,450) 2,523 Other Provisions .................. (13) 959 174 -------- --------- ------- Net Cash Used by Operating Activities ...... (15,769) (15,914) (7,023) -------- --------- ------- Cash Flows from Investing Activities: Purchase of Furniture and Equipment .... (581) (409) (299) Additions to Deferred Charges .......... 34 -- (24) Proceeds from Short-Term Investments ... -- 2,088 500 -------- --------- ------- Net Cash Provided by Investing Activities .. (547) 1,679 177 -------- --------- ------- Cash Flows from Financing Activities: Proceeds from Issuance of Debt ......... 49,000 169,435 -- Reduction of Debt ...................... (58,471) (31,936) -- Change in Due to Subsidiaries .......... 33,516 (114,593) 8,764 Additions to Deferred Financing Charges (52) (2,965) (84) Repurchase of Treasury Stock ........... (7,232) (289) -- Common Stock Dividends Paid ............ (1,582) (1,671) (1,671) -------- --------- ------- Net Cash Provided by Financing Activities .. 15,179 17,981 7,009 -------- --------- ------- Net Increase in Cash and Cash Equivalents .. (1,137) 3,746 163 Cash and Cash Equivalents at Beginning of Year ..................................... 4,150 404 241 -------- --------- ------- Cash and Cash Equivalents at End of Year ... $ 3,013 $ 4,150 $ 404 ======== ========= ======= The "Notes to Consolidated Financial Statements of International Shipholding Corporation and Subsidiaries" are an integral part of these statements. See accompanying "Notes to Condensed Financial Information of Registrant" S-5 NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT DECEMBER 31, 1999 Note 1. Basis of Preparation Pursuant to the rule and regulations of the Securities and Exchange Commission, the Condensed Financial Statements of the Registrant do not include all of the information and notes normally included with financial statements prepared in accordance with generally accepted accounting principles. It is, therefore, suggested that these Condensed Financial Statements be read in conjunction with the Consolidated Financial Statements and Notes thereto included in this Form 10-K, Part II, Item 8, page 23. Note 2. Cash Dividends of Subsidiaries There were no cash dividends received from subsidiaries for the years ended December 31, 1999, 1998, and 1997. The Company did receive dividends in the form of forgiveness of amounts due from subsidiaries totaling $10,000,000 and $37,000,000 in 1999 and 1998, respectively. Note 3. Long-Term Debt Long-term debt consists of the following: (ALL AMOUNTS IN THOUSANDS) INTEREST DECEMBER 31, DECEMBER 31, RATE DUE 1999 1998 ---------- --------- ------------ ------------ Unsecured Senior Notes 7.75-9.00% 2003-2007 $ 199,919 $ 202,390 Lines of Credit 7.50% 2001 22,000 29,000 ------------ ------------ $ 221,919 $ 231,390 ============ ============ In addition to these Unsecured Senior Notes, International Shipholding Corporation (Parent Company) guarantees certain long-term debt of its subsidiaries, which amounted to $137,333,000 at December 31, 1999. Note 4. Income Taxes Pursuant to a Tax Sharing Agreement, the Federal income tax returns of the Company are filed on a consolidated basis and income is included in the consolidated Federal income tax return of the Company. The provision (benefit) for Federal income taxes and related assets from the subsidiaries are determined based on the subsidiary's effective book tax rate exclusive of certain foreign earnings not subject to tax. Amounts determined to be due or to be received are included in Due to/from Subsidiaries. S-6 EX-10.1 2 EXHIBIT 10.1 ************************************************************ INTERNATIONAL SHIPHOLDING CORPORATION as Borrower ----------------------------- $50,000,000 FIRST AMENDED AND RESTATED CREDIT AGREEMENT Dated as of January 22, 1998 Amended and Restated as of March 31, 1998 ------------------------------ CERTAIN LENDERS CITICORP SECURITIES, INC. as Arranger CITIBANK, N.A. as Administrative Agent ************************************************************ FIRST AMENDED AND RESTATED CREDIT AGREEMENT FIRST AMENDED AND RESTATED CREDIT AGREEMENT dated as of January 22, 1998, amended and restated as of March 31, 1998, between INTERNATIONAL SHIPHOLDING CORPORATION, a Delaware corporation (the "BORROWER"); Citibank, N.A. (the "EXISTING LENDER"); each of the banks or financial institutions named in Schedule 2 hereto (each, a "NEW LENDER" and, collectively, the "NEW LENDERS" and, together with the Existing Lender, the "LENDERS"); and CITIBANK, N.A., as administrative agent for the Lenders (in such capacity, together with its successors in such capacity, the "ADMINISTRATIVE AGENT"). W I T N E S S E T H: WHEREAS, the Borrower, the Existing Lender and the Administrative Agent are parties to that certain Credit Agreement dated as of January 22, 1998 (the "EXISTING CREDIT AGREEMENT"); and WHEREAS, the parties hereto desire to amend and restate the Existing Credit Agreement to, among other things, increase the aggregate amount of the Commitments and reflect the addition of the New Lenders as Lenders and accordingly to re-allocate the Advance outstanding under the Existing Credit Agreement immediately prior to the Restatement Date (the "EXISTING ADVANCE"), as hereinafter defined, PRO RATA among all of the Lenders on the basis of their respective Commitments as in effect immediately upon the occurrence of the Restatement Date. NOW, THEREFORE, the parties hereto agree to amend the Existing Credit Agreement as set forth herein and to restate the Existing Credit Agreement to read in its entirety as set forth in the Existing Credit Agreement, which is incorporated herein by reference, with the amendments specified in Section 2 below. Section 1. DEFINITIONS. Capitalized terms used but not otherwise defined herein have the meanings given them in the Existing Credit Agreement. Section 2. AMENDMENTS. Effective on the Restatement Date, the Existing Credit Agreement is hereby amended as follows and is hereby restated in its entirety as so amended: (a) Effective on the Restatement Date, (1) the Existing Advance shall (subject to the making of the payments and satisfaction of the other conditions set forth in Section 4 hereof) be reduced to zero, the Existing Lender shall have an Advance in the amount set forth opposite the name of the Existing Lender in Schedule 1 hereto, and the Commitment of the Existing Lender shall be the amount set forth opposite the name of the Existing Lender in said Schedule 1; and (2) each New Lender shall be deemed to be a Lender for all purposes of the Existing Credit Agreement as amended hereby, -2- having an Advance in the amount set forth opposite its name in Schedule 2 hereto and the Address for Notices and Applicable Lending Office set forth opposite its name in said Schedule 2, and the Commitment of each New Lender shall be the amount set forth opposite the name of such New Lender in said Schedule 2. Anything in the Existing Credit Agreement to the contrary notwithstanding, commitment fee shall, from and after the Restatement Date, be for the account of the respective Lenders in accordance with their respective Commitments (but all commitment fee accrued to but not including the Restatement Date shall be for the sole account of the Existing Lender). (b) The last sentence of the definition of "Commitment" in Section 1.01 of the Existing Credit Agreement shall be amended and restated to read in its entirety as follows: "The original aggregate amount of the Commitments is $50,000,000." (c) The definition of "Commitment Termination Date" in Section 1.01 of the Existing Credit Agreement shall be amended and restated to read in its entirety as follows: ""COMMITMENT TERMINATION DATE" means the earlier of (i) March 31, 2001 (or, if such date is not a Business Day, the immediately preceding Business Day) and (ii) the date of termination or cancellation of the Commitments pursuant to the terms of this Agreement." (d) The reference to "$25,000,000" in the last line of Section 2.01(a) of the Existing Credit Agreement shall be replaced by "$50,000,000". (e) Schedule 4.01(b) of the Existing Credit Agreement is hereby deleted and replaced with Schedule 4.01(b), attached as Annex A hereto. (f) Schedule 4.01(m) of the Existing Credit Agreement is hereby deleted and replaced with Schedule 4.01(m), attached as Annex B hereto. (g) All references in the Existing Credit Agreement to the Existing Credit Agreement shall be deemed to refer to the Existing Credit Agreement as amended and restated hereby. Section 3. REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents and warrants to the Lenders and the Administrative Agent as of the Restatement Date that the representations and warranties set forth in Section 4.01 of the Existing Credit Agreement are true as if made on and as of the Restatement Date and as if each reference in such representations and warranties to the Existing Credit Agreement referred to the Existing Credit Agreement as amended and restated by this Agreement. -3- Section 4. CONDITIONS PRECEDENT. The amendment and restatement of the Existing Credit Agreement contemplated hereby shall become effective on the date (the "RESTATEMENT DATE") on which the Administrative Agent shall notify the Borrower that the following conditions have been satisfied: (a) EXECUTION BY ALL PARTIES. This Agreement shall have been executed and delivered by each of the parties hereto. (b) NOTES. The Existing Lender shall have delivered to the Administrative Agent the Note executed by the Borrower and delivered to the Existing Lender pursuant to the Existing Credit Agreement, the Borrower shall have delivered to the Administrative Agent a new Note payable to each Lender in the amount of the Commitment of such Lender as set forth in Schedule 2 (in the case of the New Lenders) or Schedule 1 (in the case of the Existing Lender) hereto after giving effect to the occurrence of the Restatement Date, and the Administrative Agent shall have returned to the Borrower, upon receipt of said new Notes, the existing Note marked "Cancelled". (c) ADVANCES. Each New Lender shall have remitted to the Administrative Agent on the Restatement Date an amount equal to the amount of its Advance as specified in Schedule 2, and the Existing Lender shall have remitted to the Administrative Agent on the Restatement Date an amount equal to the amount of its Advance as specified in Schedule 1, by wire transfer of Dollars in immediately available funds (for prompt distribution to the Existing Lender in such aggregate amount as is required to reduce the Existing Advance to zero). (d) OPINION OF COUNSEL TO THE BORROWER. The Administrative Agent shall have received a favorable opinion in form and substance satisfactory to it from Jones, Walker, Waechter, Poitevent, Carrere & Denegre, L.L.P., counsel to the Borrower, with respect to such matters relating to this First Amendment and Restatement and the Notes as the Administrative Agent may request. (e) CORPORATE DOCUMENTS. The Administrative Agent shall have received an officer's certificate of the Borrower certifying that the charter, by-laws and board of directors resolutions with respect to the Existing Credit Agreement delivered to the Administrative Agent on January 22, 1998 have not been amended, rescinded or revoked, and remain in full force and effect. (f) INTEREST AND FEES. The Borrower shall have paid to the Administrative Agent for account of the Existing Lender all unpaid interest and fees outstanding under the Existing Credit Agreement accrued through the Restatement Date. -4- (g) OTHER DOCUMENTS. The Administrative Agent shall have received such other documents as the Administrative Agent, any Lender or special New York counsel to the Administrative Agent may reasonably request. Section 5. MISCELLANEOUS. (a) The parties agree that the provisions of Section 8.06 of the Existing Credit Agreement are inapplicable to the transactions contemplated by this Agreement, but shall apply to any and all assignments or participations of the Advances occurring after the Restatement Date. (b) Except as herein provided, the Existing Credit Agreement shall remain unchanged and in full force and effect. (c) This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same amendatory instrument and any of the parties hereto may execute this Agreement by signing any such counterpart and sending the same by telecopier, mail, messenger or courier to the Administrative Agent or counsel to the Administrative Agent. (d) This Agreement shall be governed by, and construed in accordance with, the law of the State of New York. (e) This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. -5- IN WITNESS WHEREOF, the parties hereto have caused this First Amended and Restated Credit Agreement to be duly executed as of the day and year first above written. INTERNATIONAL SHIPHOLDING CORPORATION By /s/ NIELS W. JOHNSEN Name: Niels W. Johnsen Title: Chairman of the Board -6- LENDERS CITIBANK, N.A. By /s/ JOHN F. HEUSS Name: John F. Heuss Title: Vice President BANK ONE, LOUISIANA N.A. By /s/ ALAN R. MEADOR Name: Alan R. Meador Title: Senior Vice President CREDIT LYONNAIS NEW YORK BRANCH By /s/ PHILIPPE SOUSTRA Name: Philippe Soustra Title: Senior Vice President FIRST NATIONAL BANK OF MARYLAND By /s/ JAMES B. BELL III Name: James B. Bell III Title: Assistant Vice President ADMINISTRATIVE AGENT CITIBANK, N.A., as Administrative Agent By /s/ JOHN F. HEUSS Name: John F. Heuss Title: Vice President SCHEDULE 1 Existing Lender; REVISED ADVANCE AMOUNT
===================================================================================================================== Outstanding Principal Amount of Advance Immediately Applicable Lending After Occurence of Name of Existing Lender Office Address for Notices Restatement Date Commitment - --------------------------------------------------------------------------------------------------------------------- Citibank, N.A. DOMESTIC LENDING OFFICE: -------------------------- 399 Park Avenue 2 Penns Way $750,000 $12,500,000 New York, NY 10043 Suite 200 New Castle, DE 19720 EURODOLLAR LENDING OFFICE: -------------------------- 399 Park Avenue Attn: Savas Divan New York, NY 10043 Tel: 302-894-6030 Fax: 302-894-6120 =====================================================================================================================
SCHEDULE 2 New Lenders; INITIAL ADVANCE AMOUNTS
===================================================================================================================== Outstanding Principal Amount of Advance Immediately Applicable Lending After Occurrence of Name of New Lender Office Address for Notices Restatement Date Commitment - --------------------------------------------------------------------------------------------------------------------- Bank One, Louisiana DOMESTIC LENDING OFFICE: N.A. ----------------------- 201 St. Charles Avenue 201 St. Charles Avenue $750,000 $12,500,000 Suite 1410 Suite 1410 New Orleans, LA 70170 New Orleans, LA 70170 EURODOLLAR LENDING OFFICE: ------------------------- 201 St. Charles Avenue Attn: Gloria J. Lemoine Suite 1410 Tel: 504-558-1275 New Orleans, LA 70170 Fax: 504-558-1279 - --------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------- Credit Lyonnais New DOMESTIC LENDING OFFICE: 1301 Avenue of the Americas $750,000 $12,500,000 York Branch ----------------------- New York, NY 10019 1301 Avenue of the Americas New York, NY 10019 EURODOLLAR LENDING OFFICE: Attn: Christine Washell ------------------------- Tel: 212-261-3763 1301 Avenue of the Americas Fax: 212-261-7368 New York, NY 10019 - --------------------------------------------------------------------------------------------------------------------- First National Bank DOMESTIC LENDING OFFICE: $750,000 $12,500,000 of Maryland ----------------------- 25 South Charles Street 25 South Charles Street 15th Floor 15th Floor Baltimore, MD 21201 Baltimore, MD 21201 EURODOLLAR LENDING OFFICE: ------------------------- Attn: Maureen Smith/ 25 South Charles Street Daisy Berchini 15th Floor Tel: 410-244-4796/4522 Baltimore, MD 21201 Fax: 410-244-4142 =====================================================================================================================
ANNEX A SCHEDULE 4.01(B) -- SUBSIDIARIES See attached. INTERNATIONAL SHIPHOLDING CORPORATION SUBSIDIARIES OF THE REGISTRANT AS OF MARCH 31, 1998 Jurisdiction Under Which Organized ------------------ International Shipholding Corporation (Registrant) Delaware International Shipholding Corporation (1) New York River Towing, Inc. Delaware Waterman Steamship Corporation New York Sulphur Carriers, Inc. Delaware Central Gulf Lines, Inc. Delaware Florida Barge Lines Corporation Delaware Material Transfer, Inc. Delaware Enterprise Ship Company, Inc. Delaware Bay Insurance Company Bermuda LCI Shipholdings, Inc. Liberia Gulf South Inc. Liberia Gulf South Shipping Pte. Ltd. Singapore Forest Lines Inc. Liberia Marco Shipping Co. Pte. Ltd. Singapore Marcoship Agencies Malaysia N. W. Johnsen & Co., Inc. New York Shipvest Companhia de Gestao Maritima, Lda.(2) Madeira St. Rose Fleeting Company, Inc. Louisiana Lash Marine Services, Inc. Louisiana Lash Intermodal Terminal Company Delaware Resource Carriers, Inc. Delaware (1) New York name-holding corporation (2) 60% owned by the Registrant All of the subsidiaries listed above are wholly-owned subsidiaries and are included in the consolidated financial statements incorporated by reference herein unless otherwise indicated. /s/ Gary L. Ferguson Chief Financial Officer ANNEX B SCHEDULE 4.01(M) -- EXISTING DEBT PART I See attached. PART II See attached. INTERNATIONAL SHIPHOLDING CORPORATION OUTSTANDING DEBT AT 3/31/98
TOTAL OUTSTANDING LINE DEBT AT 3/31/98 AT 3/31/98 COLLATERAL CGL First National Bank of Maryland - $12M 7,000,000 Green Wave, Green Ridge, assignment of freights, MSC charter CGL First National Bank of Maryland - $5M 4,250,000 Green Wave, Green Ridge, assignment of freights, MSC charter CGL NationsBank - ATFO Barges 1,396,430 82 Lash Barges CGL Philadelphia - 76 Barges 1,888,801 76 Lash Barges, security interest in receivables, charter hire CGL Philadelphia - 82 Barges 2,710,832 82 Lash Barges, security interest in receivables, charter hire CGL Sale/Leaseback Agreement 15,248,658 326 Lash Barges ESC $50M Energy Enterprise 38,824,709 Energy Enterprise, assignment of time charter, freights, hire ISC 9% Senior Notes Due 2003 93,891,000 Unsecured ISC 7.75% Senior Notes Due 2007 110,000,000 Unsecured LCI NationsBank - Atlantic Forest 10,514,285 Atlantic Forest SCI Title XI - Sulphur Enterprise 34,663,000 Sulphur Enterprise ISC Citibank Line of Credit 25,000,000 3,000,000 ------------ 323,387,715 ============
LEGEND: CGL Central Gulf Lines, Inc. ESC Enterprise Ship Company ISC International Shipholding Corporation LCI LCI Shipholdings, Inc. SCI Sulphur Carriers, Inc. INTERNATIONAL SHIPHOLDING CORPORATION Repayment with New Issue Proceeds March 31, 1998 LOAN PREPAYMENT DATE PRINCIPAL Lines of Credit Currently Drawn FNBC 01/23/98 5,000,000.00 Bank One 01/22/98 6,000,000.00 Bank One - Sam Houston 01/26/98 5,200,000.00 Citibank - Green Bay/Green Lake 01/26/98 20,500,000.00 Bank One - River Barges 01/26/98 111,600.00 Chase Manhattan Bank - Amazon 01/27/98 4,050,000.00 First National Bank of Commerce Lee/Jackson 01/27/98 2,500,000.00 Midland - Bali/Banda Sea 01/30/98 5,348,000.00 01/30/98 12,196,000.00 01/30/98 19,256,000.00 Midland - Java Sea 01/30/98 4,812,500.00 Principal Mutual Cypress Pass 02/05/98 3,287,360.00 Cypress Trail 02/05/98 3,666,680.00 Title XI - Green Island 03/09/98 2,178,000.00 Title XI - Barge Refurbishment 03/09/98 2,402,000.00 -------------- 96,508,140.00 ============== EX-10.2 3 EXHIBIT 10.2 ************************************************************ INTERNATIONAL SHIPHOLDING CORPORATION as Borrower ----------------------------- $48,000,000 SECOND AMENDED AND RESTATED CREDIT AGREEMENT Dated as of May 4, 1999 (Originally dated as of January 22, 1998 and amended and restated as of March 31, 1998) ------------------------------ CERTAIN LENDERS SALOMON SMITH BARNEY INC. as Arranger CITIBANK, N.A. as Administrative Agent ************************************************************ SECOND AMENDED AND RESTATED CREDIT AGREEMENT SECOND AMENDED AND RESTATED CREDIT AGREEMENT dated as of May 4, 1999 among INTERNATIONAL SHIPHOLDING CORPORATION, a Delaware corporation (the "BORROWER"); Citibank, N.A., Bank One, Louisiana N.A. and FMB Bank (each, an "EXISTING LENDER"); the bank listed on Schedule 2 hereto (the "NEW LENDER" and, together with the Existing Lenders, the "LENDERS"); and CITIBANK, N.A., as administrative agent for the Lenders (in such capacity, together with its successors in such capacity, the "ADMINISTRATIVE AGENT"). WHEREAS, the Borrower, the Existing Lenders, the Declining Lender(s) (as defined below) and the Administrative Agent are parties to that certain Credit Agreement dated as of January 22, 1998, amended and restated as of March 31, 1998 (the "EXISTING CREDIT AGREEMENT"); and WHEREAS, the parties hereto desire to amend and restate the Existing Credit Agreement to, among other things, decrease the aggregate amount of the Commitments and reflect the addition of the New Lender as a Lender and accordingly to re-allocate the Advances outstanding under the Existing Credit Agreement immediately prior to the Second Restatement Date (the "EXISTING ADVANCES"), as hereinafter defined, PRO RATA among all of the Lenders on the basis of their respective Commitments as in effect immediately upon the occurrence of the Second Restatement Date. NOW, THEREFORE, the parties hereto agree to amend the Existing Credit Agreement as set forth herein and to restate the Existing Credit Agreement to read in its entirety as set forth in the Existing Credit Agreement, which is incorporated herein by reference, with the amendments specified in Section 2 below (as so amended and restated, the "CREDIT AGREEMENT"). Section 1. DEFINITIONS. Capitalized terms used but not otherwise defined herein have the meanings given them in the Credit Agreement. Except as used in the definitions set forth in Section 2(c) below, references to "hereby," "herein," "hereof" and "herewith" refer to this document but not the Credit Agreement. Section 2. AMENDMENTS. Subject to the satisfaction of the conditions precedent specified in Section 4 below, effective as of the Second Restatement Date (as hereinafter defined), the Existing Credit Agreement shall be amended as follows: (a) GENERAL. All references in the Existing Credit Agreement to "this Agreement" (including indirect references) shall be deemed to refer to the Credit Agreement. (b) COMMITMENTS; ADVANCES. (1) The Existing Advances shall (upon and subject to the making of the payments provided for, and satisfaction of the other -2- conditions set forth in, Section 4 hereof) be deemed to have been repaid in full, each Existing Lender shall simultaneously, for all purposes of the Credit Agreement, be deemed to have made an Advance on the Second Restatement Date in the amount set forth opposite its name in Schedule 1 hereto, and the Commitment of each Existing Lender shall be the amount set forth opposite its name in said Schedule 1; (2) each Declining Lender (as defined below) shall cease to be, and shall cease to have any of the rights and obligations of, a "Lender" under the Credit Agreement; and (3) the New Lender shall be deemed to be a Lender for all purposes of the Credit Agreement, having an Advance in the amount set forth opposite its name in Schedule 2 hereto and the Address for Notices and Applicable Lending Office set forth opposite its name in said Schedule 2, and the Commitment of the New Lender shall be the amount set forth opposite its name in said Schedule 2. Anything in the Existing Credit Agreement to the contrary notwithstanding, commitment fee shall, from and after the Second Restatement Date, be for the account of the respective Lenders in accordance with their respective Commitments (but all commitment fee accrued to but not including the Second Restatement Date shall be for the sole account of the Existing Lenders). (c) DEFINITIONS. The following definitions in Section 1.01 of the Existing Credit Agreement are added (to the extent not already included in said Section 1.01) or amended (to the extent already included in said Section 1.01) to read in their entirety as follows: "APPLICABLE MARGIN" means, for any day, the respective rate per annum set forth in the table below opposite the Utilization Level prevailing on the Calculation Date immediately preceding such day under the caption "Applicable Margin": -------------------------------------------------------------------- Utilization Level Applicable Margin -------------------------------------------------------------------- Utilization Level 1 1.00% -------------------------------------------------------------------- Utilization Level 2 1.25% -------------------------------------------------------------------- The Administrative Agent shall determine the Utilization Level and corresponding Applicable Margin on each Calculation Date. Each such determination of the Applicable Margin, and each change in the Applicable Margin resulting from a change in the Utilization Level, shall become effective with respect to all outstanding Eurodollar Rate Advances from and including such Calculation Date until but excluding the immediately succeeding Calculation Date. "CALCULATION DATE" means the first day of each Interest Period. "COMMITMENT" means, as to any Lender, the amount set forth opposite its name on Schedules 1 or 2 (as the case may be) to the Second Amended and Restated Credit Agreement or, if applicable, as to any Lender that has entered into an Assignment and Acceptance, the amount set forth for such Lender in the Register, in each case as the same may be reduced pursuant to Section 2.04 or -3- increased or reduced pursuant to assignments effected in accordance with Section 8.06. The aggregate amount of the Commitments as of May 4, 1999 is $48,000,000. "COMMITMENT TERMINATION DATE" means the earlier of (i) March 31, 2002 (or, if such date is not a Business Day, the immediately preceding Business Day) and (ii) the date of termination or cancellation of the Commitments pursuant to the terms of this Agreement. "SECOND AMENDED AND RESTATED CREDIT AGREEMENT" means the Second Amended and Restated Credit Agreement dated as of May 4, 1999 among the parties hereto. "UTILIZATION LEVELS" means, on any Calculation Date, (a) Utilization Level 1 if the aggregate amount of Commitments utilized is less than or equal to $25,000,000 and (b) Utilization Level 2 if the aggregate amount of Commitments utilized is greater than $25,000,000. (d) The reference to "$50,000,000" in the last line of Section 2.01(a) of the Existing Credit Agreement shall be replaced by "$48,000,000". (e) The reference to "$60,000,000" in clause (v) of Section 5.02(b) of the Existing Credit Agreement shall be replaced by "$50,000,000". (f) Schedule 4.01(m) of the Existing Credit Agreement is hereby deleted and replaced in its entirety with Schedule 4.01(m), attached as Annex A hereto. Section 3. REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents and warrants to the Lenders and the Administrative Agent as of the Second Restatement Date (as hereinafter defined) that (i) the representations and warranties set forth in Section 4.01 of the Existing Credit Agreement are true as if made on and as of the Second Restatement Date and as if each reference in such representations and warranties to the Existing Credit Agreement referred to the Credit Agreement and (ii) no event has occurred and is continuing that constitutes a Default (and the parties agree that if any of said representations and warranties shall prove to have been incorrect in any material respect when made, the occurrence and continuance of such event shall constitute an Event of Default under Section 6.01(b) of the Credit Agreement). Section 4. CONDITIONS PRECEDENT. The amendment and restatement of the Existing Credit Agreement contemplated hereby shall become effective, as of May 4, 1999 (the "SECOND RESTATEMENT DATE"), upon the satisfaction of the following conditions: (a) EXECUTION BY ALL PARTIES. This Agreement shall have been executed and delivered by each of the parties hereto. If there exists any Person that is a "Lender" under and as defined in the Existing Credit Agreement but not a Lender hereunder (each, a -4- "DECLINING Lender"), such Person shall have confirmed, in a manner satisfactory to the Administrative Agent, that its commitments under the Credit Agreement have terminated and that it is no longer party to the Credit Agreement. (b) NOTES. Each Existing Lender and each Declining Lender shall have delivered to the Administrative Agent the Note executed by the Borrower and delivered to such Existing Lender and Declining Lender pursuant to the Existing Credit Agreement, the Borrower shall have delivered to the Administrative Agent a new Note payable to each Lender in the amount of the Commitment of such Lender as set forth in Schedule 2 (in the case of the New Lender) or Schedule 1 (in the case of the Existing Lenders) hereto after giving effect to the occurrence of the Second Restatement Date, and the Administrative Agent shall have returned to the Borrower, upon receipt of said new Notes, the existing Notes marked "Cancelled". (c) ADVANCES. The New Lender shall have remitted to the Administrative Agent on the Second Restatement Date an amount equal to the amount of its Advance as specified in Schedule 2, by wire transfer of Dollars in immediately available funds at the Administrative Agent's Account, for prompt distribution by the Administrative Agent to each Declining Lender in such aggregate amount as is required to reduce the outstanding Existing Advance of such Declining Lender, on the Second Restatement Date, to zero. (d) OPINION OF COUNSEL TO THE BORROWER. The Administrative Agent shall have received a favorable opinion in form and substance satisfactory to it from Jones, Walker, Waechter, Poitevent, Carrere & Denegre, L.L.P., counsel to the Borrower, with respect to such matters relating to this Agreement and the Credit Agreement as the Administrative Agent may request. (e) CORPORATE DOCUMENTS. The Administrative Agent shall have received certified copies of the charter and by-laws of the Borrower (or, in the alternative, an officer's certificate of the Borrower that such constitutive documents have not been amended, rescinded or revoked, and remain in full force and effect, since delivery thereof to the Administrative Agent on January 22, 1998) and of all corporate authorizations for the Borrower (including without limitation, board of director resolutions and evidence of the incumbency, including specimen signatures, of officers) with respect to the making and performance by the Borrower of this Agreement and the Credit Agreement. (f) INTEREST AND FEES. The Borrower shall have paid to the Administrative Agent for account of each Existing Lender and of each Declining Lender all unpaid interest, fees and all other amounts (including without limitation any amounts due and payable under Section 8.04(c) of the Existing Credit Agreement) outstanding under the Existing Credit Agreement accrued through the Second Restatement Date. In addition, the Borrower shall have paid to the Administrative Agent for account of each Lender an amendment fee in the amount of $5,000 per Lender. -5- (g) OTHER DOCUMENTS. The Administrative Agent shall have received such other documents as the Administrative Agent, any Lender or special New York counsel to the Administrative Agent may reasonably request. Section 5. MISCELLANEOUS. (a) The parties agree that the provisions of Section 8.06 of the Existing Credit Agreement are inapplicable to the transactions contemplated by this Agreement, but shall apply to any and all assignments or participations of the Advances occurring after the Second Restatement Date. (b) Except as herein provided, the Existing Credit Agreement shall remain unchanged and in full force and effect. (c) This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same amendatory instrument and any of the parties hereto may execute this Agreement by signing any such counterpart and sending the same by facsimile, mail, messenger or courier to the Administrative Agent or counsel to the Administrative Agent. (d) This Agreement shall be governed by, and construed in accordance with, the law of the State of New York. (e) This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. -6- IN WITNESS WHEREOF, the parties hereto have caused this Second Amended and Restated Credit Agreement to be duly executed as of the day and year first above written. BORROWER INTERNATIONAL SHIPHOLDING CORPORATION By /s/ NIELS W. JOHNSEN Name: Niels W. Johnsen Title: Chairman of the Board ADMINISTRATIVE AGENT CITIBANK, N.A., as Administrative Agent By /s/ SANJIV NAYAR Name: Sanjiv Nayar Title: Vice President -7- LENDERS CITIBANK, N.A. By /s/ SANJIV NAYAR Name: Sanjiv Nayar Title: Vice President BANK ONE, LOUISIANA N.A. By /s/ KATHELEEN M. TURNER Name: Katheleen M. Turner Title: Authorized Officer FMB BANK By /s/ JAMES B. BELLE III Name: James B. Belle III Title: Assistant Vice President HIBERNIA NATIONAL BANK By /s/ BRUCE ROSS Name: Bruce Ross Title: Senior Vice President
===================================================================================================================== Outstanding Principal Amount of Advance Immediately Applicable Lending After Occurence of Name of Existing Lender Office Address for Notices Restatement Date Commitment - --------------------------------------------------------------------------------------------------------------------- Citibank, N.A. DOMESTIC LENDING OFFICE: ----------------------- 399 Park Avenue 2 Penns Way $4,250,000 $12,000,000 New York, NY 10043 Suite 200 New Castle, DE 19720 EURODOLLAR LENDING OFFICE: ------------------------- Heather Morgan 399 Park Avenue Tel: 302-894-6006 New York, NY 10043 Fax: 302-894-6120 - --------------------------------------------------------------------------------------------------------------------- Bank One, Louisiana DOMESTIC LENDING OFFICE: N.A. ----------------------- 201 St. Charles Avenue 201 St. Charles Avenue $4,250,000 $12,000,000 Suite 1410 Suite 1410 New Orleans, LA 70170 New Orleans, LA 70170 EURODOLLAR LENDING OFFICE: ------------------------- Attn: Gloria J. Lemoine 201 St. Charles Avenue Tel: 504-558-1275 Suite 1410 Fax: 504-558-1279 New Orleans, LA 70170 - --------------------------------------------------------------------------------------------------------------------- FMB Bank DOMESTIC LENDING OFFICE: ----------------------- 25 South Charles Street 25 South Charles Street $4,250,000 $12,000,000 15th Floor 15th Floor Baltimore, MD 21201 Baltimore, MD 21201 EURODOLLAR LENDING OFFICE: ------------------------- Attn: Maureen Smith/ 25 South Charles Street Daisy Berchini 15th Floor Tel: 410-244-4796/4522 Baltimore, MD 21201 Fax: 410-244-4142 ===================================================================================================================== SCHEDULE 2 New Lenders; INITIAL ADVANCE AMOUNTS ===================================================================================================================== Outstanding Principal Amount of Advance Immediately Applicable Lending After Occurrence of Name of New Lender Office Address for Notices Restatement Date Commitment - --------------------------------------------------------------------------------------------------------------------- Hibernia National DOMESTIC LENDING OFFICE: Bank ----------------------- 313 Carondelet Street 313 Carondelet Street $4,250,000 $12,000,000 10th Floor 10th Floor New Orleans, LA 70130 New Orleans, LA 70130 EURODOLLAR LENDING OFFICE: ------------------------- 313 Carondelet Street Attn: Sandra Margavio 10th Floor Tel: 504-533-5354 New Orleans, LA 70130 Fax: 504-533-5434 =====================================================================================================================
ANNEX A SCHEDULE 4.01(M) - EXISTING DEBT PART I See attached. PART II See attached. INTERNATIONAL SHIPHOLDING CORPORATION OUTSTANDING DEBT AT 4/30/99 *
TOTAL OUTSTANDING LINE DEBT AT 4/30/99 AT 4/30/99 COLLATERAL CGL First Nat Bk of Maryland - $12M 5,000,000 Green Wave, Green Ridge, assignment of freights, MSC charter CGL First Nat Bk of Maryland - $5M 2,750,000 Green Wave, Green Ridge, assignment of freights, MSC charter CGL NationsBank - ATFO Barges 1,153,574 82 Lash Barges CGL Philadelphia - 76 Barges 1,052,781 76 Lash Barges, security interest in receivables, charter hire CGL Philadelphia - 82 Barges 1,555,992 82 Lash Barges, security interest in receivables, charter hire CGL Sale/Leaseback Agreement 12,332,700 326 Lash Barges ESC $50M Energy Enterprise 34,958,226 Energy Enterprise, assignment of time charter, freight, hire ISC 9% Senior Notes Due 2003 92,891,000 Unsecured ISC 7.75% Senior Notes Due 2007 110,000,000 Unsecured LCI NationsBank - Atlantic Forest 8,685,713 Atlantic Forest LCI Citibank - Asian King 47,000,000 Asian King, assignment of time charter, freights, hire SCI Title XI - Sulphur Enterprise 25,969,000 Sulphur Enterprise ------------ 343,348,986 ============
LEGEND: CGL Central Gulf Lines, Inc. ESC Enterprise Ship Company ISC International Shipholding Corporation LCI LCI Shipholdings, Inc. SCI Sulphur Carriers, Inc. * Excludes Corporate Line of Credit Drawings EX-10.3 4 EXHIBIT 10.3 AMENDMENT NO. 1 AMENDMENT NO. 1 dated as of September 3, 1999 between INTERNATIONAL SHIPHOLDING CORPORATION, a Delaware corporation (the "Borrower") and CITIBANK, N.A., as Administrative Agent (in such capacity, the "ADMINISTRATIVE AGENT"). The Borrower, the Lenders and the Administrative Agent are parties to that certain Credit Agreement dated as of January 22, 1998, amended and restated as of March 31, 1998 and as of May 4, 1999 (the "CREDIT AGREEMENT"). The parties wish to amend the Credit Agreement as hereinafter provided, and the Required Lenders (as defined in the Credit Agreement) have consented to such amendment. Accordingly, the Administrative Agent, acting with the written consent of the Required Lenders, and the Borrower hereby agree as follows: SECTION 1. DEFINITIONS. Except as otherwise defined in this Amendment, terms defined in the Credit Agreement have the same respective meanings when used herein. SECTION 2. AMENDMENT. Effective as of the date hereof, but subject to Section 3 hereof, the Administrative Agent, acting with the written consent of the Required Lenders, and the Borrower agree that paragraph (b) of Section 5.02 of the Credit Agreement ("DEBT") is hereby deleted and replaced with the words "(b) Intentionally omitted." SECTION 3. AMENDMENT FEE. The effectiveness of this Amendment shall be subject to the condition precedent that the Borrower shall have paid, to each Lender which has executed and delivered to the Administrative Agent a consent to this Amendment on or before the date hereof, an amendment fee in the amount of $5,000. SECTION 4. REPRESENTATIONS. The Borrower hereby represents and warrants to the Administrative Agent for the benefit of the Lenders, as of the date hereof, that (i) the execution, delivery and performance by the Borrower of this Amendment have been duly authorized by all necessary corporate action on its part and do not contravene any applicable law or regulation or any contractual provision applicable to it or require any consent or approval of any governmental authority and (ii) this Amendment constitutes the legal, valid and binding obligation of the Borrower, enforceable in accordance with its terms. From and after the date hereof, all references in the Credit Agreement and in any other Loan Document to "this Agreement", "the Credit Agreement" and words of like import shall be deemed to refer to the Credit Agreement as amended hereby. 2 SECTION 5. MISCELLANEOUS. Except as specifically amended hereby, the Credit Agreement and each other Loan Document are in all respects ratified and confirmed. This Amendment may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument, and any of the parties hereto may execute this Amendment by signing any such counterpart. This Amendment shall be governed by, and construed in accordance with, the law of the State of New York. 3 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered as of the day and year first above written. INTERNATIONAL SHIPHOLDING CORPORATION By /s/ NIELS W. JOHNSEN Name: Niels W. Johnsen Title: Chairman of the Board CITIBANK, N.A., as Administrative Agent By /s/ SANJIV NAYAR Name: Sanjiv Nayar Title: Vice President EX-21 5 EXHIBIT 21 INTERNATIONAL SHIPHOLDING CORPORATION SUBSIDIARIES OF THE REGISTRANT AS OF DECEMBER 31, 1999 Jurisdiction Under Which Organized ------------------------ International Shipholding Corporation (Registrant) Delaware International Shipholding Corporation (1) New York River Towing, Inc. Delaware Waterman Steamship Corporation New York Sulphur Carriers, Inc. Delaware Central Gulf Lines, Inc. Delaware Material Transfer, Inc. Delaware Enterprise Ship Company, Inc. Delaware Bay Insurance Company Bermuda LCI Shipholdings, Inc. Liberia Gulf South Shipping Pte. Ltd. Singapore Forest Lines Inc. Liberia Marco Shipping Co. Pte. Ltd. Singapore Marcoship Agencies SDN. BHD. Malaysia Belden Shipping Pte Ltd (2) Singapore Echelon Shipping Inc. (2) Panama Carson Shipping Inc. (2) Panama Shining Star Malta Ltd (2) Malta Goodtime Shipping Inc. (2) Panama N. W. Johnsen & Co., Inc. New York LMS Shipmanagement, Inc. Louisiana LMS Manila, Inc. (3) Philippine LMS Manning, Inc. (4) Philippine Lash Intermodal Terminal Company Delaware Resource Carriers, Inc. Delaware (1) New York name-holding corporation (2) 30% owned by LCI Shipholdings, Inc. (3) 40% owned by LMS Shipmanagement, Inc. (4) 25% owned by LMS Shipmanagement, Inc.; 75% owned by LMS Manila, Inc. All of the subsidiaries listed above are wholly-owned subsidiaries and are included in the consolidated financial statements incorporated by reference herein unless otherwise indicated. EX-27 6
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL STATEMENTS FOR THE PERIOD ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1999 DEC-31-1999 18,661 11,337 61,689 294 12,726 112,327 819,820 379,588 735,003 76,756 400,442 0 0 6,756 175,728 735,003 0 373,209 0 330,810 32,102 0 32,102 23,209 8,501 14,623 0 0 0 14,623 2.28 2.28 Amounts inapplicable or not disclosed as a separate line on the Balance Sheet or Statement of Income are reported as 0 herein. Notes and accounts receivable - trade are reported net of allowances for doubtful accounts in the Balance Sheet.
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