ITEM 1. BUSINESS
GENERAL
The Company, through its subsidiaries, operates a diversified fleet of U. S., and international flag vessels that provide international and domestic maritime transportation services to commercial customers and agencies of the United States government primarily under medium- to long- term charters or contracts. The Company's fleet consists of 28 ocean-going vessels, 14 towboats, 129 river barges, 1,650 LASH barges and related shoreside handling facilities. The Company's strategy is to (i) identify customers with marine transportation needs requiring specialized vessels or operating techniques, (ii) seek medium- to long-term charters or contracts with those customers and, if necessary, modify, acquire or construct vessels to meet the requirements of those charters or contracts, and (iii) secure financing for the vessels predicated primarily on those charter or contract arrangements. The Company believes that this strategy has produced valuable long-term relationships with its customers and stable operating cash flows.
The Company is the only significant operator of the LASH (lighter aboard ship) system, which it pioneered in 1969. The Company's fleet includes ten large LASH vessels, four LASH feeder vessels and 1,650 LASH barges. In its liner services, the Company uses the LASH system primarily to gather cargo on rivers, in island chains and in harbors that are too shallow for traditional vessels and to transport to and from those areas large items, such as forest products, natural rubber and steel, that cannot be transported efficiently in containerized vessels. In addition, the LASH system enables barges to be rapidly loaded onto and unloaded from the large LASH vessels without shoreside support facilities while minimizing the number of times that the cargo is handled. Because the Company's LASH barges are used primarily to transport large items, the Company's LASH fleet often has a competitive advantage over containerized vessels. Additionally, because containerized and breakbulk vessels cannot operate in certain of the areas where the Company's LASH system operates, the Company often has a competitive advantage over such vessels.
The Company's diversified ocean-going fleet also includes (i) two international flag and two U.S. flag pure car carriers that are specially designed to transport automobiles; (ii) the only two U.S. flag ice- strengthened multi-purpose vessels, which supply Pacific rim military bases and scientific operations in the Arctic and Antarctic; (iii) three roll-on/roll-off vessels that permit rapid deployment of rolling stock, munitions and other military cargoes requiring special handling; (iv) two PROBO vessels that can carry various refined petroleum products and dry bulk cargoes on back-to-back voyages because of their ability to rapidly self-clean their cargo holds between voyages
with minimal shoreside support; (v) one international flag cape-size bulk carrier; (vi) one U.S. flag semi-submersible barge; and (vii) one molten sulphur carrier, which is used to carry molten sulphur from Louisiana and/or Texas to a processing plant on the Florida Gulf Coast. The Company also operates 14 inland waterway towboats and 111 super-jumbo river barges that transport coal from Indiana to Florida for an electric utility via shoreside unloading facilities owned and operated by the Company.
Through its principal operating subsidiaries, Central Gulf Lines, Inc. ("Central Gulf"), LCI Shipholdings, Inc. ("LCI"), Forest Lines Inc. ("Forest Lines") and Waterman Steamship Corporation ("Waterman"), the Company engages primarily in four types of services: (i) international flag LASH liner service between U. S. Gulf and East Coast ports and ports in northern Europe, and a subsidized U. S. flag LASH liner service between U. S. Gulf and East Coast ports and ports in South Asia, the Middle East and northern Africa; (ii) time charters to and other contracts with the Military Sealift Command ("MSC") for use in its military prepositioning program and to service scientific operations in the Arctic and Antarctic; (iii) time charters to transport Toyota and Honda automobiles from Japan to the United States and Hyundai automobiles from Korea primarily to the United States and Europe; and (iv) domestic transportation and services, primarily involving its coal and sulphur contracts and its ownership of an inter-modal transfer and warehouse facility in Memphis, Tennessee. The Company also has investments in several overseas entities that own and operate specialized cargo carriers.
The Company currently has time charters or contracts to carry cargoes for commercial customers that include International Paper Company, Freeport-McMoRan, Inc., The Goodyear Tire and Rubber Company, Toyota Motor Corporation, Honda Motor Co., Ltd. and Hyundai Motor Company. The Company has one of the number of vessels on charter to the MSC operating nine vessels for the MSC under charters or contracts that typically contain options permitting MSC to extend the charter or contract on similar terms and conditions for one or more extension periods. With two exceptions, the MSC has always exercised its renewal options on the Company's charters or contracts, and the Company generally has been successful in winning charter or contract renewals when they are rebid.
The Company's business historically has generated stable cash flows because most of its medium- to long-term charters provide for a daily charter rate that is owed whether or not the charterer utilizes the vessel (unless the vessel is unavailable for the charterer's use) and most of its medium- to long-term contracts guarantee a minimum amount of cargo for transportation. The Company is partially insulated from increases in certain operating expenses because time charters generally require the charterer to pay certain voyage costs, including fuel, port and stevedoring expenses, and often include cost escalation features covering certain of the expenses paid by the Company.
HISTORY
Central Gulf was founded in 1947 by the late Niels F. Johnsen and his sons, Niels W. Johnsen, the Company's current Chairman, and Erik F. Johnsen, its current President. Central Gulf was privately held until 1971 when it was acquired by Trans Union Corporation. In 1978, the Company was formed to act as a holding company for Central Gulf, LCI and 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 stock of Waterman. Since its spin-off from Trans Union, the Company has continued to act solely as a holding company, and its only significant assets consist of the capital stock of its subsidiaries.
LINER SERVICES/CONTRACTS OF AFFREIGHTMENT
International Flag. Under the name "Forest Lines" the Company operates two international flag LASH vessels and a self- propelled, semi-submersible feeder vessel on a scheduled liner service. Forest Lines normally makes 11 round trip sailings per LASH vessel per year between U. S. Gulf and East coast ports and ports in northern Europe. Approximately one-half of the aggregate eastbound cargo space is reserved for International Paper Company under a long- term contract of affreightment. The remaining space is provided on a voyage affreightment basis to commercial shippers. Historically, approximately 20% has been used by other paper manufacturers. The remaining 30% has been used by various commercial shippers to carry general cargo. Since 1969, when the LASH liner service commenced operation, the vessels generally have been fully utilized on their eastbound voyages.
The Company has had ocean transportation contracts with International Paper since 1969 when the Company had two LASH ships built to accommodate International Paper's trade. The Company's contract of affreightment with International Paper is for the carriage of wood pulp, liner board and other forest products, the characteristics of which are well suited for transportation by LASH vessels because the LASH system minimizes damage to such cargo by reducing the number of times that the cargo is handled. In addition, the LASH system permits the Company to load and unload these products at the shipper's and the receiver's facilities, which are generally located on river systems that container and breakbulk vessels do not serve. The Company's current contract with International Paper is for a ten-year term ending in 2002.
Over the years the Company has established a base of commercial shippers to which it provides space on the westbound Forest Lines service. The principal cargoes carried westbound are high-grade paper products, aluminum slabs, steel products and other general cargo. Over the last five years, the westbound utilization rate for these vessels averaged approximately 88% per year.
U. S. Flag. Waterman is a party to an operating differential subsidy agreement with the U. S. Maritime Administration, an agency of the Department of Transportation ("MarAd"), that permits the Company to operate U. S. flag vessels on designated international trade routes and receive subsidy payments from the United States government approximating the excess of certain vessel expenses, primarily wages, over comparable costs of the Company's principal foreign flag competitors on the same trade routes. Under the subsidy agreement the Company operates a scheduled liner service that makes approximately 16 round voyages per year (four per vessel) between U. S. Gulf and Atlantic ports and ports in the Red Sea, Persian Gulf and Indian Ocean (Trade Route No. 18) and ports in Indonesia, Malaysia and Singapore (Trade Rouge No. 17). The subsidy agreement also permits the Company to make per year up to 18 calls at Egyptian ports on the Mediterranean and up to 12 calls to south and east Africa ports. The Company also operates FLASH vessels as feeder vessels in this service in southeast Asia. In 1994, the Company received approximately $21.7 million under its subsidy agreement. The Company's subsidy agreement with MarAd expires on December 31, 1996, and there can be no assurance that it will be renewed. See "Item 1. Business - Regulation" for a discussion of the subsidy program.
On the eastbound portion of this service, a significant part of each vessel's cargo traditionally has been shipped to lesser developed countries under the Public Law-480 program, pursuant to which the United States government sells or donates surplus food products for export to developing countries. 75% of this cargo is reserved for carriage by U.S. flag vessels, if they are available at reasonable rates. Awards under the Public Law-480 program are made on a voyage-to-voyage basis through periodic competitive bidding. The remaining eastbound cargo consists of general cargo, including some military equipment. Over the last five years, these vessels generally have been fully utilized on their eastbound voyages.
On the westbound portion of this service, the Company provides a significant portion of its cargo space to Goodyear for the transportation of natural rubber under a contract of affreightment expiring in February 1996. Space is also provided on a voyage-to-voyage basis to other importers of natural rubber, including Uniroyal Goodrich Tire Co., Bridgestone/Firestone, Inc. and certain members of the Rubber Trade Association. The Company has had a continuing relationship with such companies and the Association since the early 1970s. The Company's LASH barges are ideally suited for large shipments of natural rubber because damage to rubber due to compression is minimal as compared to the damage that can occur when shipments are made in traditional breakbulk vessels. As a result, Waterman is the largest U.S. flag carrier of natural rubber from southeast Asia to the United States. The remaining westbound cargo generally consists of coffee, jute, guar, piece goods and other general cargo. Over the last five years, these vessels generally have been fully utilized on their westbound voyages.
MILITARY SEALIFT COMMAND
General. The Company has had contracts with the MSC (or its predecessor) almost continuously for several decades. At the present time, the Company's subsidiaries have nine vessels under contract to the MSC. These vessels are employed in the MSC's prepositioning programs, which strategically place military cargo throughout the world, or are chartered to the MSC to service long-term scientific operations. The Company believes that the demand for military prepositioning vessels will increase during the next decade, notwithstanding planned reductions in overall military spending, because these vessels are vital to the military's ability to respond quickly to international incidents throughout the world without incurring the significant costs of operating foreign bases, some of which also may not be available because of changing political situations.
MSC charters and contracts are awarded through competitive bidding, for fixed terms with options allowing the MSC to extend the charters or contracts for additional periods. With two exceptions, the MSC has always exercised its extension options, and the Company generally has been successful in winning renewals when the charters and contracts are rebid. All charters and contracts require the MSC to pay certain voyage costs, including fuel, port and stevedoring expenses, and certain charters and contracts include cost escalation features covering certain of the expenses paid by the Company.
LASH Vessels. The Company charters four U. S. flag LASH vessels to the MSC under time charters that expire in April 1996, May 1996, July 1996 and October 1996, respectively, and provide the MSC with options to renew each contract for one or two additional 17-month periods. These vessels are in the MSC's prepositioning force stationed in the Indian Ocean area.
Ice-Strengthened Multi-purpose Vessels. The Company owns and operates the only two U.S. flag ice-strengthened multi-purpose vessels. These vessels are capable of transporting containerized and breakbulk cargo and are used by the MSC to resupply Pacific rim military bases and to supply scientific projects in the Arctic and Antarctic. One of the vessels is being operated under a charter with the MSC that will expire in November 1996 and may be extended for an additional 17-month period at the option of the MSC. The other vessel is being operated under a charter with the MSC that will expire in November 1995 and may be extended for an additional 17-month period at the option of the MSC.
Roll-On/Roll-Off Vessels. In 1983 Waterman was awarded a contract to operate three U. S. flag roll-on/roll-off vessels under time charters to the MSC for use by the United States Navy in its maritime prepositioning ship ("MPS") program. These vessels represent three of the four MPS vessels currently in the MSC's Atlantic fleet, which provides support for the U. S. Marine Corps. These ships are designed primarily to carry rolling stock and containers, and can each carry support equipment for 17,000
military personnel. Waterman sold the three vessels to unaffiliated corporations shortly after being awarded the contract, but retained the right to operate the vessels under operating agreements. The MSC time charters commenced in late 1984 and early 1985 for initial five-year periods and were renewable at the MSC's option for additional five-year periods up to a maximum of twenty- five years. In 1993, the Company reached agreement with MSC to make certain reductions in future charter hire payments in consideration of fixing the period of these charters for the full twenty-five years. The charters will now terminate in the years 2009 and 2010. The operating agreements are for corresponding periods and are renewed as the charters are renewed.
Semi-submersible Barge. In late 1989, the Company acquired, for approximately $4.4 million, and commenced operation of a U. S. flag semi-submersible barge, the Caps Express. The Caps Express was initially deployed under a charter to the MSC and was used extensively in Operation Desert Shield/Desert Storm. The charter expired in April 1991 and the MSC did not exercise its renewal option under the charter. Since that time, the Caps Express has been operated in the commercial market.
PURE CAR CARRIERS
U. S. Flag. In 1986, the Company entered into multi-year charters to carry Toyota and Honda automobiles from Japan to the United States. To service these charters, the Company had constructed two U. S. flag pure car carriers which are specially designed to carry 4,000 and 4,660 automobiles, respectively. Both vessels were built in Japan, but are registered under the U.S. flag, making them two of only four U.S. flag pure car carriers in the Japanese trade. In order to be competitive with foreign flag vessels operated by foreign crews, the Company worked in close cooperation with the unions representing the Company's U.S. citizen shipboard personnel. Service under these charters commenced in the fourth quarter of 1987. These charters were renewed for additional multi-year terms.
International Flag. Since 1988, the Company has transported Hyundai automobiles from Korea primarily to the United States and Europe under two long-term charters. To service these charters, the Company had two new pure car carriers constructed by a shipyard affiliated with Hyundai. Each of the vessels has a carrying capacity of 4,800 automobiles.
Under each of the car carrier charters, the charterers are responsible for voyage costs including fuel, port and stevedoring expenses while the Company is responsible for normal operating expenses including crew wages, repairs and insurance. The Hyundai charters also include escalation features covering certain of the expenses paid by the Company. During the terms of these charters, the Company is entitled to its full fee irrespective of the number of voyages completed or the number of cars carried per voyage.
BULK CARRIER
In 1990 the Company acquired a 148,000 dwt cape size dry bulk carrier. The vessel has been fully employed under various charters in specific trading areas where bulk cargoes move on a regular basis.
FLOAT-ON/FLOAT-OFF VESSELS
During 1994 the Company entered into a long-term contract to provide ocean transportation services to a major mining company producing copper concentrates at its mine in West Irian Jaya, Indonesia. The Company has acquired two semi-submersible barge carrying vessels and is having constructed 26 cargo barges to be used with the aforementioned vessels. The Company will also acquire a small container vessel in order to fulfill the requirements of the contract, which is expected to commence in late 1995. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources."
DOMESTIC TRANSPORTATION SERVICES
Coal. In 1981, the Company entered into a 22-year contract expiring in 2004 with a Florida based rural electric generation and transmission cooperative for the transportation of coal from Mt. Vernon, Indiana to Gulf County, Florida. Under this contract, which was awarded pursuant to competitive bidding, the Company is annually guaranteed transportation of a minimum of 2.7 million tons of coal through its operation of 14 chartered towboats, 108 chartered super- jumbo river barges and three such barges that it owns. Under this contract, the Company typically has transported three million tons of coal per year. To protect both parties against cost variations, the contract contains escalation and de-escalation clauses designed to adjust the contract price for fluctuations in fuel costs, wages and other operating expenses. The Company is also responsible for unloading the barges at the discharge point in Gulf County, Florida and transferring the coal into railcars. To facilitate this process, the Company owns and operates an automated terminal facility. The terminal can be operated by relatively few employees and is capable of loading and unloading three times the amount of coal currently transported through the facility under the contract.
The Company contracted in October 1994, to purchase a U.S. flag Coal Carrier. The vessel will be placed under long-term charter to a major electric utility company based in Massachusetts to carry part of its fuel supply. The ship will also be used to carry coal and other bulk commodities for account of other major charterers. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources."
Molten Sulphur. The Company recently entered into a 15-year transportation contract with an affiliate of a major sulphur producer for which it had built a 24,000 deadweight ton molten sulphur carrier that carries molten sulphur from Louisiana
and/or Texas to a fertilizer plant on the Florida Gulf Coast. Under the terms of this contract, the Company will be guaranteed the transportation of a minimum of 1.8 million tons of sulphur per year. The contract also gives Freeport three five-year renewal options. The vessel delivered and began service during late 1994. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources."
LITCO Facility. During 1991, the Company entered into an agreement with Cooper/T. Smith Stevedoring pursuant to which the Company acquired a 50% interest in a newly constructed, all weather rapid cargo transfer facility in the river port of Memphis, Tennessee for handling LASH barges transported by subsidiaries of the Company in its LASH liner services. The terminal began operation in May 1992 and provides 287,500 square feet of enclosed warehouse and loading/discharging stations for LASH barge, rail, truck and heavy-lift operations. In June 1993, the Company purchased the other 50% interest for $1.9 million from Cooper/T. Smith Stevedoring, which will continue to manage the facility under a management agreement with the Company.
INVESTMENTS IN SPECIALIZED VESSELS
Liquid Petroleum Gas. In 1985, the Company purchased a one-third interest in A/S Havtor, a Norwegian company that owned interests in and chartered-out on a long-term basis vessels specializing in the transportation of liquid petroleum gas and various chemical products. In 1985, the Company also purchased a 14.2% interest in A/S Havtor Management, a Norwegian ship management company affiliated with A/S Havtor. During the first quarter of 1993, the Company sold an 18.5% interest in A/S Havtor thereby reducing its interest to approximately 14.8%. During 1994 A/S Havtor, certain associated companies and a portion of A/S Havtor Management were merged into a publicly listed company, Havtor AS. The Company's interest in Havtor AS is approximately 12.6%, including both direct and indirect holdings. Havtor AS operates mainly a fleet of about 25 liquified petroleum gas carriers, 7 dry bulk carriers and is also joint owner with the Company in the two PROBO vessels. Subsequent to year end, Havtor AS signed a letter of intent whereby A/S Havtor Management and the gas carrier activities of Kvaerner a.s would be merged into Havtor AS. This merger would result in Havtor AS having ownership interest varying between 10% and 100% in 46 gas carriers, 6 drycargo carriers, 2 PROBO vessels and 1 product carrier in addition to other minor participations.
During 1990, the Company increased its participation in the liquid petroleum gas market by acquiring a 10% interest in a 56,000 cubic meter liquid petroleum gas carrier that was delivered and began operation during 1993.
Combination Dry Cargo/Petroleum Products. LCI holds a 50% equity interest in two foreign entities, one of which owns two combination dry cargo/petroleum products (PROBO) vessels, and the other of which operates the vessels under long-term charters to a European marketing and profit-sharing pool consisting of these two vessels and four identical sister ships. Under these charters, the pool operates and markets the vessels in exchange for monthly payments that are periodically adjusted under a profit- sharing formula. PROBO vessels are able to carry various refined petroleum products and drybulk cargoes on back-to-back voyages because of their ability to rapidly self- clean their cargo holds between voyages with minimal shoreside support.
ANCILLARY SERVICES
The Company has several subsidiaries providing ship charter brokerage, agency, barge fleeting and other specialized services to the Company's subsidiaries and, in the case of ship charter brokerage and agency services, to unaffiliated companies. The income produced by these services substantially covers the related overhead expenses. These services facilitate the Company's operations by allowing it to avoid reliance on third parties to provide these essential shipping services. The Company also has a 50% equity interest in a firm offering ship management services in Singapore.
MARKETING
The Company maintains marketing staffs in Washington, D. C., New York, New Orleans, Houston, Chicago, Baltimore, San Francisco, Rotterdam and Singapore and maintains a network of marketing agents in major cities around the world who market the Company's liner, charter and contract services. The Company markets its Trans-Atlantic LASH liner service under the trade name "Forest Lines", and its LASH liner service between the U. S. Gulf and Atlantic coast ports and South Asia ports under the Waterman house flag. The Company advertises its service in trade publications in the United States and abroad.
INSURANCE
The Company maintains protection and indemnity ("P&I") insurance to cover liabilities arising out of the ownership or operation of vessels with Assuranceforeningen GARD and the Standard Steamship Owners' Protection & Indemnity Association (Bermuda) Ltd., which are mutual shipowners' insurance organizations commonly referred to as P&I clubs. Both clubs are participants in and subject to the rules of their respective international group of P&I associations. The premium terms and conditions of the P&I coverage provided to the Company are governed by the rules of each club.
The Company maintains hull and machinery insurance policies on each of its vessels in amounts related to the value of each vessel. This insurance coverage,
which includes increased value, freight and time charter hire, is maintained with a syndicate of hull underwriters from the United States, British, French and Scandinavian insurance markets. The Company maintains war risk insurance on each of the Company's vessels in an amount equal to each vessel's total insured hull value. War risk insurance is placed through Underwriters at Lloyds and Norwegian war risk insurance markets and covers physical damage to the vessels and P&I risks for which coverage would be excluded by reason of war exclusions under either the hull policies or the rules of the applicable P&I club.
The Company also maintains loss of hire insurance with underwriters from the Norwegian market to cover its loss of revenue in the event that a vessel is unable to operate for a certain period of time due to loss or damage arising from the perils covered by the hull and machinery policy.
Insurance coverage for shoreside property, shipboard consumables and inventory, spare parts, workers' compensation, office contents, and general liability risks are maintained with underwriters in the United States and British markets. The Company also carries insurance to meet certain liabilities that could arise from the discharge of oil or hazardous substances in U.S., international and foreign waters.
Insurance premiums for the coverage described above vary from year to year depending upon the Company's loss record and market conditions. In order to reduce premiums, the Company maintains certain deductible and co-insurance provisions that it believes are prudent and generally consistent with those maintained by other shipping companies and in recent years has increased the self-insurance portion under its insurance program.
REGULATION
The Company's operations between the United States and foreign countries are subject to the Shipping Act of 1916 (the "Shipping Act"), which is administered by the Federal Maritime Commission, and certain provisions of the Federal Water Pollution Control Act, the Oil Pollution Act of 1990 and the Comprehensive Environmental Response Compensation and Liability Act, all of which are administered by the U. S. Coast Guard, and certain other international, federal, state and local laws and regulations, including international conventions and laws and regulations of the flag nations of its vessels. Pursuant to the requirements of the Shipping Act, the Company has on file with the Federal Maritime Commission tariffs reflecting the outbound and inbound prices currently charged by the Company to transport cargo between the United States and foreign countries as a common carrier. These tariffs are filed by the Company either individually or in connection with its participation as a member of rate or conference agreements, which are agreements that (upon becoming effective following filing with the Federal Maritime Commission ) permit the members to agree concertedly upon rates and practices relating to the carriage of goods in U. S. and
foreign ocean commerce. Tariffs filed by a company unilaterally or collectively under rate or conference agreements are subject to Federal Maritime Commission approval. Once a rate or conference agreement is filed, rates may be changed in response to market conditions on 30 days' notice, with respect to a rate increase, and one day's notice, with respect to a rate decrease.
The Merchant Marine Act of 1936 (the "Merchant Marine Act") authorizes the Federal government to pay an operating differential subsidy to U. S. flag vessels employed in the foreign trade of the United States. Under the subsidy program, MarAd is authorized to pay qualified U.S. flag operators (i) the differential between U. S. and foreign crew wage costs and (ii) the differential between U.S. and foreign costs of protection and indemnity insurance, hull and machinery insurance, and maintenance and repairs not compensated by insurance, so that U.S. ships can compete on an equal footing with their lower-cost foreign competitors. To qualify for the subsidy, vessels must be built in the United States, documented under the U.S. flag and be at least 75% owned by U.S. citizens. Under subsidy contracts, which are typically 20 years in length, operators provide service on "essential trade routes" as determined by MarAd. Each subsidized operator is required to employ its vessels between a stated minimum and maximum number of sailings each year. Currently, four liner operators, including Waterman, and 13 bulk carrier operators hold subsidy contracts for a total of 54 liner and 29 bulk ships. Total U.S. governmental subsidy appropriations for the fiscal year ending September 30, 1994 were $240.9, and $214.4 has been appropriated for the fiscal year ending September 30, 1995. Approximately 85% of the aggregate subsidy is paid to offset crew wage differentials.
Since 1981, the Federal government has entered into no new subsidy contracts. In 1991, the Bush administration announced that current contracts would be honored, but no new ODS contracts would be entered into as the old contracts expire. The Clinton administration has continued this policy. Waterman's subsidy contract expires on December 31, 1996, and all other subsidy agreements with U.S. flag liner operators expire on December 31, 1997. This year, the Clinton administration proposed legislation that would implement a new subsidy program. If enacted, this program would authorize funding for 50 U. S. flag ships for up to ten years. Both Waterman and Central Gulf would intend to apply for participation in this new program. There can be no assurance that the bill will be adopted by Congress, that if adopted it will be signed by the President, or that if enacted into law, it will provide funding to all or some of the Waterman and Central Gulf vessels. Therefore, it is possible that the existing program will be terminated, that no replacement program will be enacted, or that a replacement program will provide substantially less funding than the current program. Alternative steps are under consideration so as to continue its competitive position.
Seven of the Company's U.S. flag LASH vessels were constructed with the aid of construction differential subsidies and Title XI loan guarantees administered by MarAd, the receipt of which obligates the Company to comply with various dividend and other financial restrictions. Vessels constructed with the aid of construction differential
subsidies may not be operated in domestic coastwise trade or domestic trade with Hawaii, Puerto Rico or Alaska without the permission of MarAd and without repayment of the construction differential subsidy under a formula established by law. Recipients of Title XI loan guarantees must pay an annual fee of up to 1% of the loan amount.
Under the Merchant Marine Act, U.S. flag vessels are subject to requisition or charter by the United States whenever the President declares that the national security requires such action. The owners of any such vessels must receive just compensation as provided in the Merchant Marine Act, but there is no assurance that lost profits, if any, will be fully recovered. In addition, during any extension period under each MSC charter or contract, the MSC has the right to terminate the charter or contract on 30 days' notice. However, the MSC has never exercised such termination right with respect to the Company.
Certain of the Company's operations, including its subsidized U.S. flag LASH liner service and its carriage of U.S. foreign aid cargoes, as well as the Company's coal and molten sulphur transportation contracts and its Title XI financing arrangements, require the Company to be as much as 75% owned by U.S. citizens. The Company monitors its stock ownership to verify its continuing compliance with these requirements and has never had more than 1% of its common stock held of record by non-U.S. citizens. However, the Company's charter and stock transfer procedures do not prohibit the acquisition of its common stock by non-U.S. citizens. However, the Company believes that it is able to maintain compliance with these requirements.
The Company is required by various governmental and quasi-governmental agencies to obtain permits, licenses and certificates with respect to its vessels. The kinds of permits, licenses and certificates required depend upon such factors as the country of registry, the commodity transported, the waters in which the vessel operates, the nationality of the vessel's crew, the age of the vessel and the status of the Company as owner or charterer. The Company believes that it has or can readily obtain all permits, licenses and certificates necessary to permit its vessels to operate.
COMPETITION
The shipping industry is intensely competitive and is influenced by events largely outside the control of shipping companies. Varying economic factors can cause wide swings in freight rates and sudden shifts in traffic patterns. Vessel redeployments and new vessel construction can lead to an overcapacity of vessels offering the same service or operating in the same market. Changes in the political or regulatory environment can also create competition that is not necessarily based on normal considerations of profit and loss. The Company's strategy is to reduce competitive pressures and the effects of cyclical market conditions by operating specialized vessels in identifiable market segments and deploying a substantial number of its vessels under medium- to long-term charters or contracts and on trade routes where it has
established market shares. The Company also seeks to compete effectively in the traditional areas of price, reliability and timeliness of service.
Competition principally comes from numerous breakbulk vessels and, occasionally, containerized vessels.
Much of the Company's revenue is generated by contracts with the MSC and contracts to transport Public Law-480 U.S. government-sponsored cargo, a cargo preference program requiring that 75% of all foreign aid "Food for Peace" cargo must be transported on U.S. flag vessels, if they are available at reasonable rates. The Company competes with all U.S. flag companies, including Overseas Shipholding Group, Inc., OMI Corporation, Marine Transport Lines, Inc., Farrell Lines, Inc., Lykes Brothers Steamship Company, Sea-Land Service, Inc. and American President Lines, Inc. for the MSC work and the Public Law-480 cargo. Additionally, the Company's principal foreign competitors include Hoegh Lines, Star Shipping, Wilhelmsen Lines, and the Shipping Corporation of India.
The Company's international flag LASH liner service faces competition from foreign flag liner operators and, to a lesser degree, from U. S. flag liner operators, including those receiving operating differential subsidies. In addition, during periods in which the Company participates in conference agreements or rate agreements, competition includes not only the other participants obligated to charge the same rates, but also non-participants charging lower rates.
Because the Company's LASH barges are used primarily to transport large items, such as forest products, natural rubber and steel, that cannot be transported as efficiently in containerized vessels, 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 containerized and breakbulk vessels, which are too large to operate in these areas.
The Company's pure car carriers operate worldwide in markets where foreign flag vessels with foreign crews predominate. The Company believes that its U.S. flag pure car carriers can continue to compete effectively if it continues to receive the cooperation of its unions in controlling costs.
EMPLOYEES
The Company employs approximately 409 shipboard personnel and 335 shoreside personnel. The Company considers relations with its employees to be excellent.
All of the Company's U.S. shipboard personnel and certain shoreside personnel are covered by collective bargaining agreements. Central Gulf, Waterman and other U.S. shipping companies are subject to collective bargaining agreements for shipboard personnel in which the shipping companies servicing U.S. Gulf and East coast ports also must make contributions to pension plans for dockside workers. The Employee Retirement Income Security Act of 1974, as amended, provides for liabilities for withdrawal from a multi- employer pension plan if an employer reduces its operations below a minimum level. It is possible that the failure or withdrawal of any shipping company employer may cause other employers (such as the Company) to increase their plan contributions or result in additional potential liability. The Company has experienced no strikes or other significant labor problems during the last ten years.
ITEM 2.

ITEM 2. PROPERTIES
Vessels. Of the 28 ocean-going vessels in the Company's fleet, 23 are owned by the Company, three are operated under operating contracts and two are owned and operated by a Norwegian partnership in which the Company has a 50% interest. Of the approximately 1,650 LASH barges operated in conjunction with the Company's LASH and FLASH vessels, the Company owns approximately 1,330 barges and leases 320 barges under leases with 12- year terms expiring in late 2003 and early 2004. The Company also owns approximately 50 additional LASH barges, which are not required for current vessel operations. All of the Company's barges are registered under the U.S. flag. The Company time charters-in 108 super-jumbo river barges (and owns three such barges) and 14 towboats specially built to meet the requirements of the Company's coal transportation contract. The Company also owns 18 standard river barges which are chartered to unaffiliated companies on a short-term basis. Until May 1993, these barges were bareboat chartered-in from affiliates of the Company. Upon the expiration of these bareboat charters, the Company purchased the barges from these affiliates for $1.6 million in the aggregate.
Except for the approximately 50 LASH barges that are not required for the Company's operations, all of the vessels owned, operated or leased by the Company are in good condition. Since 1988, the Company has completed life extension work on six LASH vessels, completed the refurbishment of approximately 1,300 related barges and acquired 167 LASH barges. Management believes that the useful lives of these vessels have been extended by this work through at least 2003. 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. Vessels in the fleet are maintained in accordance with governmental regulations and the highest classification standards of the American Bureau of Shipping or, for certain vessels registered overseas, of Norwegian Veritas or Lloyds Register classification societies.
Certain of the vessels and barges owned by the Company's subsidiaries are mortgaged to various lenders to secure such subsidiaries' long-term debt. See Note B of the Notes to the Company's Consolidated Financial Statements included elsewhere herein.
Other Properties. The Company leases its corporate headquarters in New Orleans, its administrative and sales office in New York and office space in Houston, Chicago and Washington, D. C. The Company also leases space in St. Charles and Orleans Parishes, Louisiana for the fleeting of barges. Additionally, the Company leases a terminal in Memphis, Tennessee that is a totally enclosed multi-modal cargo transfer facility. In 1994, the aggregate annual rental payments under these operating leases were approximately $2.3 million.
The Company owns two separate facilities in St. Charles Parish, Louisiana and one facility in Jefferson Parish, Louisiana that are used primarily for the storage and fleeting of barges. The Company also owns a terminal in Gulf County, Florida that is used in its coal transportation contract.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS
The Company is a defendant in various lawsuits that have arisen in the ordinary course of its business in which claimants seek damages of various amounts for personal injuries, property damage and other matters. All material claims asserted under lawsuits of this nature are believed to be covered by insurance.
ITEM 4.

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.
Niels W. Johnsen, 72, has been the Chairman and Chief Executive Officer of the Company since its commencement of operations in 1979 and is also Chairman and Chief Executive Officer of each of the Company's principal subsidiaries. He previously served as Chairman of Trans Union Corporation's ocean shipping group of companies from December 1971 through May 1979. He was one of the founders of Central Gulf in 1947 and held various positions with Central Gulf until Trans Union acquired Central Gulf in 1971. He is also a director and trustee of Atlantic Mutual Companies, an insurance company and a director of Reserve Fund, Inc., a money market fund.
Erik F. Johnsen, 69, has been the President, Chief Operating Officer and Director of the Company since its commencement of operations in 1979 and is also the President and Chief Operating Officer of each of the Company's principal subsidiaries except Waterman where he is Chairman of the Executive Committee. Along with his brother, Niels W. Johnsen, he was one of the founders of Central Gulf in 1947 and has served as its President since 1966. Mr. Johnsen is also a director of First Commerce Corporation, a bank holding company.
Harold S. Grehan, Jr., 67, is Vice President of the Company. He joined Central Gulf in 1958 and became Vice President in 1959, Senior Vice President in 1973 and Executive Vice President and Director in 1979. He participated in the development of the Company's LASH program and has direct responsibility for conventional and LASH vessel traffic movements.
Niels M. Johnsen, 49, is Vice President of the Company. Mr. Johnsen has served as a director of the Company since April 1988. He joined Central Gulf on a full time basis in 1970 and held various positions with the Company before being named Vice President in 1986. He is also President of N. W. Johnsen & Co., Inc., a subsidiary of the Company engaged in ship and cargo charter brokerage. He is the son of Niels W. Johnsen.
Erik L. Johnsen, 37, is Vice President of the Company. He joined Central Gulf in 1979 and held various positions with the Company before being named Vice President in 1987. He is responsible for all operations of the Company's vessel fleet and leads the Company's Ship Management Group. He is also President of Sulphur Carriers, Inc., a wholly- owned subsidiary of the Company. He is the son of Erik F. Johnsen.
Stanley E. Morrison, 67, is Treasurer of the Company, a position he assumed when he joined Central Gulf in 1959.
Gary L. Ferguson, 54, 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.
Laurance Eustis, 81, has served as a director of the Company since 1979. He is the Chairman of the Board of Eustis Insurance, Inc., mortgage banking and general insurance, located in New Orleans, Louisiana. Mr. Eustis is also a director of First Commerce Corporation, a bank holding company, and Pan American Life Insurance Company.
Raymond V. O'Brien, Jr., 67, 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 1978 through December 1992.
Edwin Lupberger, 58, has served as a director of the Company since April 1988. Mr. Lupberger is the Chairman of the Board, Chief Executive Officer and Director of Entergy Corporation and its wholly-owned subsidiaries. He also is a director of First Commerce Corporation, a bank holding company.
Edward K. Trowbridge, 66, has served as a director of the Company since April 1994. He served as Chairman of the Board and Chief Executive Officer of the Atlantic Mutual Companies from July 1988 through November 1993.
PART II
ITEM 5.

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS.
The information called for by Item 5 is included in the 1994 Annual Report to Shareholders in the section entitled "Common Stock Prices and Dividends for Each Quarterly Period of 1993 and 1994" and is incorporated herein by reference to page 23 of Exhibit 13 filed with this 10-K.
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA
The information called for by Item 6 is included in the 1994 Annual Report to Shareholders in the section entitled "Summary of Selected Consolidated Financial Data" and is incorporated herein by reference to page 1 of Exhibit 13 filed with this 10-K.
ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information called for by Item 7 is included in the 1994 Annual Report to Shareholders in the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and is incorporated herein by reference to pages 7 through 9 of Exhibit 13 filed with this 10-K.
ITEM 8.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated balance sheets as of December 31, 1994, and December 31, 1993, 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, 1994 are included in the 1994 Annual Report to the Shareholders and are incorporated herein by reference to pages 10 through 14 of Exhibit 13 filed with this 10-K. Such statements have been audited by Arthur Andersen & Co., independent public accountants, as set forth in their report included in such Annual Report and incorporated herein by reference to page 24 of Exhibit 13 filed with this 10- K.
ITEM 9.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None
PART III
ITEM 10.

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.

ITEM 11. EXECUTIVE COMPENSATION
The information called for by Item 11 is included on pages 6, 7 and 8 of the Company's definitive proxy statement dated March 13, 1995, filed pursuant to Section 14(a) of the Securities Exchange Act of 1934, and is incorporated herein by reference.
ITEM 12.

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 13, 1995, filed pursuant to Section 14(a) of the Securities Exchange Act of 1934, and is incorporated herein by reference.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by Item 13 is included on pages 2, 3, 4, 5 and 8 of the Company's definitive proxy statement dated March 13, 1995, filed pursuant to Section 14(a) of the Securities Exchange Act of 1934, and is incorporated herein by reference.
PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
The following financial statements, schedules and exhibits are filed as part of this report: (a) 1. Financial Statements The following financial statements and related notes are included in the Company's 1994 Annual Report to Shareholders and are incorporated herein by reference to pages 10 through 24 of Exhibit 13 filed with this 10-K.
Consolidated Balance Sheets at December 31, 1994 and 1993
Consolidated Statements of Income for the years ended December 31, 1994, 1993, and
Consolidated Statements of Changes in Stockholders' Investment for the years ended December 31, 1994, 1993 and 1992
Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1993 and 1992
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
2. Financial Statement Schedules None.
3. Exhibits
(3) Restated Certificate of Incorporation, as amended, and By-Laws of the Registrant (filed with the Securities and Exchange Commission as Exhibit 3 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1987 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 Notes due July 1, 2003 (included in Exhibit (4.1) hereto and incorporated herein by reference).
(11) Statement regarding Computation of Earnings per Share (13) 1994 Annual Report to Shareholders
(21) Subsidiaries of International Shipholding Corporation
(b) No reports on Form 8-K were filed during the last quarter of the period covered by this Report.
(c) The Index of Exhibits and required Exhibits are included following the signatures beginning at page 26 of this Report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
INTERNATIONAL SHIPHOLDING CORPORATION (Registrant)
/S/ Gary L. Ferguson March 24, 1995 By ______________________________ Gary L. Ferguson Vice President and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
INTERNATIONAL SHIPHOLDING CORPORATION (Registrant)
/S/ Niels W. Johnsen March 24, 1995 By ____________________________ Niels W. Johnsen Chairman of the Board, Director and Chief Executive Officer
/S/ Erik F. Johnsen March 24, 1995 By _____________________________ Erik F. Johnsen President and Director
/S/ Harold S. Grehan, Jr. March 24, 1995 By _____________________________ Harold S. Grehan, Jr. Vice President and Director
/S/ Laurance Eustis March 24, 1995 By __________________________ Laurance Eustis Director
/S/ Edwin Lupberger March 24, 1995 By __________________________ Edwin Lupberger Director
/S/ Raymond V. O'Brien, Jr. March 24, 1995 By ___________________________ Raymond V. O'Brien, Jr. Director
/S/ Niels M. Johnsen March 24, 1995 By ___________________________ Niels M. Johnsen Vice President and Director
/S/ Edward K. Trowbridge March 24, 1995 By ____________________________ Edward K. Trowbridge Director
/S/ Erik L. Johnsen March 24, 1995 By ____________________________ Erik L. Johnsen Vice President and Director
/S/ Gary L. Ferguson March 24, 1995 By ____________________________ Gary L. Ferguson Vice President and Chief Financial Officer
/S/ Deanie E. Jones March 24, 1995 By _____________________________ Deanie E. Jones Chief Accounting Officer
INTERNATIONAL SHIPHOLDING CORPORATION
EXHIBIT INDEX