International Shipholding (ISH+) 10-K/A 2006 FY Annual report (amended)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K/A

(Amendment No. 1)

(Mark One)

  X   Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year endedDecember 31, 2006

Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number:2-63322

INTERNATIONAL SHIPHOLDING CORPORATION

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)	36-2989662 (I.R.S. Employer Identification No.)
11 North Water Street, Mobile, Alabama (Address of principal executive offices)	36602 (Zip Code)

(251)-243-9100
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Stock, $1 Par Value	New York Stock Exchange
6.0% Convertible Exchangeable Preferred Stock	New York Stock Exchange
73/4% Senior Notes Due 2007	New York Stock Exchange

     Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yeso Noþ

     Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.

Yes   Noþ

     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.

Yesþ Noo

     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.o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filero Accelerated filero Non-accelerated filerþ

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yeso Noþ

     Aggregate market value of voting and non-voting common equity held by non-affiliates of the registrant as of June 30, 2006, based upon the closing price of the common stock as reported by the New York Stock Exchange on such date, was approximately $58,528,708 .

     Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

Class	Outstanding at February 23, 2007
Common Stock, $1 par value,	6,119,187 shares

EXPLANATORY NOTE

This Amendment No. 1 on Form 10-K/A amends certain items in the report on Form 10-K of International Shipholding Corporation for the fiscal year ended December 31, 2006, as filed with the Securities and Exchange Commission on March 9, 2007, and presents only the item of the report that is being amended. This form 10-K/A does not reflect events occurring after the filing of the original report or modify or update disclosures affected by subsequent events.

Item 15, “Exhibits, Financial Statement Schedules” is being amended to provide amended financial statements that reflect the computation of diluted earnings per share using the “if converted method” to show the dilutive effect of our outstanding convertible exchangeable preferred stock, should such preferred stock be converted for (i) the year ended December 31, 2006, (ii) the quarter ended December 31, 2006, and (iii) the quarters ended March 31 and June 30, 2005. Specifically:

• The report of the Registrant’s independent registered accounting firm appearing on page F-2 has been modified, through the addition of a final sentence, and has been re-dated.

• The Registrant’s Net Income Available to Common Stockholders- Diluted for 2006 appearing on page F-3 has been restated from $2.39 per share to $2.10 per share, and the Weighted Average Shares of Common Stock Outstanding- Diluted, also appearing on page F-3, has been restated from 6,122,578 to 8,122,578.

• The paragraph entitled “Earnings Per Share” in Note A on page F-10 has been deleted.

• Note R appearing on page F-31 has been revised to restate Diluted Earnings per Common Share from (i) $3.56 to $2.75 for the quarter ended December 31, 2006; (ii) $0.58 to $0.51 for the quarter ended March 31, 2005 and (iii) $0.55 to $0.49 for the quarter ended June 30, 2005.

• A new Note S has been added.

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

The following financial statements, schedules and exhibits are filed as part of this report:

(1)Financial Statements.

The following financial statements and related notes are included on pages F-1 through F-32 of this Form 10-K/A.

Report of Independent Registered Public Accounting Firm
Consolidated Statements of Income for the years ended December 31, 2006, 2005, and 2004
Consolidated Balance Sheets at December 31, 2006 and 2005
Consolidated Statements of Changes in Stockholders’ Investment for the years ended December 31, 2006, 2005, and 2004
Consolidated Statements of Cash Flows for the years ended December 31, 2006, 2005, and 2004
Notes to Consolidated Financial Statements

(2)Financial Statement Schedules.

Financial Statement Schedules not included herein have been omitted because they are either not required, not applicable, or the information is otherwise included herein.

INDEX OF FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm	F-2
Consolidated Statements of Income for the years ended December 31, 2006, 2005, and 2004	F-3
Consolidated Balance Sheets at December 31, 2006 and 2005	F-4
Consolidated Statements of Changes in Stockholders’ Investment for the years ended December 31, 2006, 2005 and 2004	F-6
Consolidated Statements of Cash Flows for the years ended December 31, 2006, 2005, and 2004	F-7
Notes to Consolidated Financial Statements	F-8
Certification of CEO Pursuant to Section 302
Certification of CFO Pursuant to Section 302
Certification of CEO Pursuant to Section 906
Certification of CFO Pursuant to Section 906

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
International Shipholding Corporation

We have audited the accompanying consolidated balance sheets of International Shipholding Corporation as of December 31, 2006 and 2005, 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, 2006. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We are not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of International Shipholding Corporation at December 31, 2006 and 2005, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2006, in conformity with U.S. generally accepted accounting principles.

As discussed in Note A to the consolidated financial statements, as of December 31, 2006, the Company changed its method of accounting for pension and postretirement benefits. As discussed in Note S to the consolidated financial statements, the diluted earnings per share for the year ended December 31, 2006, has been restated.

/s/ Ernst & Young LLP  

New Orleans, Louisiana
February 23, 2007,
Except for Note S, as to which the date
is May 14, 2007.

F-2

INTERNATIONAL SHIPHOLDING CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(All Amounts in Thousands Except Share Data)

	Year Ended December 31,
	2006			2005			2004
Revenues	$	274,881		$	262,156		$	259,164
Operating Expenses:
Voyage Expenses		230,510			213,997			212,860
Vessel and Barge Depreciation		23,735			22,379			18,258
Impairment Loss		8,866			—			—
Gross Voyage Profit		11,770			25,780			28,046
Administrative and General Expenses		18,765			16,052			15,536
(Gain) Loss on Sale of Assets		(5,125	)		(584	)		7
Operating (Loss) Income		(1,870	)		10,312			12,503
Interest and Other:
Interest Expense		11,147			9,626			10,585
(Gain) Loss on Sale of Investments		(23,058	)		(287	)		623
Investment Income		(1,397	)		(1,111	)		(691	)
Loss on Early Extinguishment of Debt		248			68			361
		(13,060	)		8,296			10,878
Income from Continuing Operations Before (Benefit) Provision for Income Taxes and Equity in Net Income of Unconsolidated Entities		11,190			2,016			1,625
(Benefit) Provision for Income Taxes:
Current		—			129			—
Deferred		(1,137	)		(2,609	)		(6,946	)
State		4			23			23
		(1,133	)		(2,457	)		(6,923	)
Equity in Net Income of Unconsolidated Entities (Net of Applicable Taxes)		4,725			3,793			4,646
Income from Continuing Operations		17,048			8,266			13,194
Loss from Discontinued Over-the-Road Transportation Operations (Net of Applicable Taxes)		—			(1,270	)		(409	)
Net Income	$	17,048		$	6,996		$	12,785
Preferred Stock Dividends		2,400			2,367			—
Net Income Available to Common Stockholders	$	14,648		$	4,629		$	12,785
Basic and Diluted Earnings Per Common Share:
Net Income Available to Common Stockholders — Basic
Continuing Operations	$	2.40		$	0.97		$	2.17
Discontinued Operations		—			(0.21	)		(0.07	)
	$	2.40		$	0.76		$	2.10
Net Income Available to Common Stockholders — Diluted (Restated)
Continuing Operations	$	2.10		$	0.96		$	2.17
Discontinued Operations		—			(0.21	)		(0.07	)
	$	2.10		$	0.75		$	2.10
Weighted Average Shares of Common Stock Outstanding:
Basic		6,116,036			6,083,005			6,082,887
Diluted (Restated)		8,122,578			6,114,510			6,092,302

The accompanying notes are an integral part of these statements.

F-3

INTERNATIONAL SHIPHOLDING CORPORATION
CONSOLIDATED BALANCE SHEETS
(All Amounts in Thousands Except Share Data)

	December 31,			December 31,
ASSETS	2006			2005
Current Assets:
Cash and Cash Equivalents	$	44,273		$	16,178
Marketable Securities		6,545			6,614
Accounts Receivable, Net of Allowance for Doubtful Accounts of $216 and $184 in 2006 and 2005:
Traffic		13,348			22,649
Agents’		3,948			4,929
Claims and Other		8,889			10,990
Federal Income Taxes Receivable		322			324
Deferred Income Tax		67			149
Net Investment in Direct Financing Leases		4,400			3,923
Other Current Assets		2,798			4,432
Material and Supplies Inventory, at Lower of Cost or Market		3,508			3,575
Current Assets Held for Disposal		681			55
Total Current Assets		88,779			73,818
Investment in Unconsolidated Entities		12,409			14,926
Net Investment in Direct Financing Leases		70,497			74,642
Vessels, Property, and Other Equipment, at Cost:
Vessels and Barges		376,802			366,026
Leasehold Improvements		20,054			29,319
Other Equipment		2,077			2,077
Furniture and Equipment		3,037			3,762
		401,970			401,184
Less — Accumulated Depreciation		(175,033	)		(151,640	)
		226,937			249,544
Other Assets:
Deferred Charges, Net of Accumulated Amortization of $11,114 and $10,968 in 2006 and 2005, Respectively		14,577			13,839
Acquired Contract Costs, Net of Accumulated Amortization of $25,796 and $24,341 in 2006 and 2005, Respectively		4,729			6,185
Restricted Cash		—			6,541
Due from Related Parties		4,015			1,600
Other		6,099			8,412
		29,420			36,577
	$	428,042		$	449,507

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,
	2006			2005
LIABILITIES AND STOCKHOLDERS’ INVESTMENT
Current Liabilities:
Current Maturities of Long-Term Debt	$	50,250		$	10,275
Accounts Payable and Accrued Liabilities		34,418			47,423
Total Current Liabilities		84,668			57,698
Billings in Excess of Income Earned and Expenses Incurred		700			4,062
Long-Term Debt, Less Current Maturities		98,984			161,720
Other Long-Term Liabilities:
Deferred Income Taxes		11,837			13,169
Lease Incentive Obligation		17,890			14,450
Other		22,673			20,140
		52,400			47,759
Commitments and Contingent Liabilities
Convertible Exchangeable Preferred Stock		37,554			37,554
Stockholders’ Investment:
Common Stock, $1.00 Par Value, 10,000,000 Shares Authorized, 6,792,630 and 6,759,730 Shares Issued at December 31, 2006 and 2005, Respectively		6,793			6,760
Additional Paid-In Capital		54,927			54,495
Retained Earnings		101,992			87,344
Less - 673,443 Shares of Common Stock in Treasury, at Cost, at December 31, 2006 and 2005		(8,704	)		(8,704	)
Accumulated Other Comprehensive (Loss) Income		(1,272	)		819
		153,736			140,714
	$	428,042		$	449,507

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			(Loss) Income			Total
Balance at December 31, 2003	$	6,756	$	54,450	$	69,930		$	(8,704	)	$	(1,065	)	$	121,367
Comprehensive Income:
Net Income for Year Ended December 31, 2004		—		—		12,785			—			—			12,785
Other Comprehensive Income:
Recognition of Unrealized Holding Loss on Marketable Securities, Net of Deferred Taxes of $216		—		—		—			—			402			402
Unrealized Holding Gain on Marketable Securities, Net of Deferred Taxes of $118		—		—		—			—			220			220
Net Change in Fair Value of Derivatives, Net of Deferred Taxes of $366		—		—		—			—			680			680
Total Comprehensive Income															14,087
Balance at December 31, 2004	$	6,756	$	54,450	$	82,715		$	(8,704	)	$	237		$	135,454
Comprehensive Income:
Net Income for Year Ended December 31, 2005		—		—		6,996			—			—			6,996
Other Comprehensive (Loss) Income:
Recognition of Unrealized Holding Gain on Marketable Securities, Net of Deferred Taxes of ($88)		—		—		—			—			(163	)		(163	)
Unrealized Holding Gain on Marketable Securities, Net of Deferred Taxes of $224		—		—		—			—			416			416
Net Change in Fair Value of Derivatives, Net of Deferred Taxes of ($91)		—		—		—			—			329			329
Total Comprehensive Income															7,578
Preferred Stock Dividends		—		—		(2,367	)		—			—			(2,367	)
Options Exercised		4		45		—			—			—			49
Balance at December 31, 2005	$	6,760	$	54,495	$	87,344		$	(8,704	)	$	819		$	140,714
Comprehensive Income:
Net Income for Year Ended December 31, 2006		—		—		17,048			—			—			17,048
Other Comprehensive (Loss) Income:
Recognition of Unrealized Holding Gain on Marketable Securities, Net of Deferred Taxes of ($111)		—		—		—			—			(206	)		(206	)
Unrealized Holding Gain on Marketable Securities, Net of Deferred Taxes of $117		—		—		—			—			219			219
Net Change in Fair Value of Derivatives, Net of Deferred Taxes of $176		—		—		—			—			656			656
Adjustment to Initially Apply SFAS No. 158, Net of Deferred Taxes of ($8)												(2,760	)		(2,760	)
Total Comprehensive Income															14,957
Preferred Stock Dividends		—		—		(2,400	)		—			—			(2,400	)
Options Exercised		33		432		—			—			—			465
Balance at December 31, 2006	$	6,793	$	54,927	$	101,992		$	(8,704	)	$	(1,272	)	$	153,736

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,
	2006			2005			2004
Cash Flows from Operating Activities:
Net Income	$	17,048		$	6,996		$	12,785
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Depreciation		24,417			23,116			19,420
Amortization of Deferred Charges and Other Assets		7,954			8,071			7,844
Benefit for Deferred Federal Income Taxes		(1,137	)		(3,245	)		(7,166	)
Impairment Loss		8,866			—			—
Equity in Net Income of Unconsolidated Entities		(4,725	)		(3,793	)		(4,646	)
Distributions from Unconsolidated Entities		1,450			3,280			4,542
Proceeds from Lease Incentive Obligations		2,779			—			—
(Gain) Loss on Sale of Assets		(5,125	)		(584	)		7
Loss on Sale of Assets from Discontinued Operations		—			769			—
Loss on Early Extinguishment of Debt		248			68			361
(Gain) Loss on Sale of Investments		(23,058	)		(287	)		623
Deferred Drydocking Charges		(8,432	)		(5,043	)		(7,450	)
Changes in:
Accounts Receivable		12,349			(8,185	)		7,031
Inventories and Other Current Assets		1,416			722			1,308
Other Assets		2,767			884			1,277
Accounts Payable and Accrued Liabilities		(12,079	)		1,802			(3,089	)
Federal Income Taxes Payable		(544	)		(331	)		(1,066	)
Billings in Excess of Income Earned and Expenses Incurred		(3,362	)		(661	)		(548	)
Other Long-Term Liabilities		2,149			199			(2,244	)
Net Cash Provided by Operating Activities		22,981			23,778			28,989
Cash Flows from Investing Activities:
Net Investment in Direct Financing Leases		3,668			(29,452	)		2,151
Capital Improvements to Vessels, Leasehold Improvements, and Other Assets		(21,799	)		(35,000	)		(25,565	)
Proceeds from Sale of Assets		12,026			3,756			—
Purchase of and Proceeds from Short-Term Investments		552			200			(3,155	)
Investment in Unconsolidated Entities		(1,336	)		(1,647	)		—
Return of Capital of Unconsolidated Entity		2,480			—			—
Proceeds from Sale of Unconsolidated Entity		27,490			—			—
Net Decrease in Restricted Cash Account		6,541			—			865
Net (Increase) Decrease in Related Party Note Receivables		(2,090	)		935			—
Other Investing Activities		—			—			115
Net Cash Provided (Used) by Investing Activities		27,532			(61,208	)		(25,589	)
Cash Flows from Financing Activities:
Proceeds from Issuance of Preferred Stock		—			37,725			—
Proceeds from Issuance of Common Stock		465			49			—
Proceeds from Issuance of Debt		10,000			48,000			29,000
Repayment of Debt		(32,761	)		(54,095	)		(29,920	)
Additions to Deferred Financing Charges		(175	)		(421	)		(766	)
Preferred Stock Dividends Paid		(2,400	)		(2,367	)		—
Reimbursements for Leasehold Improvements		2,613			14,310			—
Other Financing Activities		(160	)		(106	)		(82	)
Net Cash (Used) Provided by Financing Activities		(22,418	)		43,095			(1,768	)
Net Increase in Cash and Cash Equivalents		28,095			5,665			1,632
Cash and Cash Equivalents at Beginning of Year		16,178			10,513			8,881
Cash and Cash Equivalents at End of Year	$	44,273		$	16,178		$	10,513

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

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

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

Nature of Operations

     Through our subsidiaries, we operate a diversified fleet of U.S. and international flag vessels that provide domestic and international maritime transportation services to commercial customers and agencies of the United States government primarily under medium- to long-term charters or contracts. At December 31, 2006, our fleet consisted of 28 ocean-going vessels, 720 LASH (Lighter Aboard SHip) barges, and related shoreside handling facilities. Our strategy is to (i) identify customers with high credit quality and marine transportation needs requiring specialized vessels or operating techniques, (ii) seek medium- to long-term charters or contracts with those customers and, if necessary, modify, acquire, or construct vessels to meet the requirements of those charters or contracts, (iii) secure financing for the vessels predicated primarily on those charter or contract arrangements, and (iv) provide our customers with reliable, high quality service at a reasonable cost.

Use of Estimates

     The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Voyage Revenue and Expense Recognition

     Revenues and expenses relating to ourLinerandRail-Ferry Servicesegments’ voyages are recorded over the duration of the voyage. Revenues and expenses relating to our other segments’ voyages, which require no estimates or assumptions, are recorded when earned or incurred during the reporting period. On ourLiner Services, the voyage revenues are known at the beginning of the vessel’s voyage and are reported through the date of the financial statements based on the relative transit time, which is the time between the vessel’s loading port to the vessel’s discharge port. Voyage expenditures are estimated at the beginning of the vessel’s voyage based on historical cost standards and current estimates received from our vendors and port agents. Provisions for loss voyages are recorded when contracts for the voyages are fixed and when losses become apparent for voyages in progress.

Maritime Security Program

     The Maritime Security Act, which established the Maritime Security Program (“MSP”), was signed into law in October of 1996 and has been extended to 2015. As of December 31, 2006, our U.S. flag LASH vessel, five of our Pure Car/Truck Carriers (“PCTCs”), and two of our Container vessels were qualified and received contracts for MSA participation. Annual payments for each vessel in the MSP program are $2,575,000 in year 2006, $2,600,000 in years 2007 and 2008, $2,900,000 in years 2009 to 2011, and $3,100,000 in years 2012 to 2015, which are subject to annual appropriations and not guaranteed. We recognize MSP revenue on a monthly basis over the duration of the qualifying contracts.

Cash and Cash Equivalents

     We consider highly liquid debt instruments with a maturity of three months or less to be cash equivalents. The carrying amount approximates fair value for these instruments.

F-8

INTERNATIONAL SHIPHOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Inventories

     Inventories are stated at the lower of cost or market. The first-in, first-out method is used for inventories aboard our vessels, including fuel. As of December 31, 2006, inventory included approximately $2,456,000 for ordinary maintenance materials and parts and $1,052,000 for operating supplies. As of December 31, 2005, inventory included approximately $2,628,000 for ordinary maintenance materials and parts and $947,000 for operating supplies.

Allowance for Doubtful Accounts

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

Property

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

	Years
2 LASH Vessels	30
4 Pure Car/Truck Carriers	20
1 Coal Carrier	15
7 Other Vessels *	25
Leasehold Improvements	10
Other Equipment	3-12
Furniture and Equipment	3-10

* Includes two Special Purpose vessels, a Molten Sulphur Carrier, a Dockship, and three Container vessels.

     At December 31, 2006, our fleet of 28 vessels also included (i) three Roll-On/Roll-Off (“RO/RO”) vessels, which we operate, (ii) a Breakbulk/Multi-Purpose vessel, a Tanker and a Container vessel, which we charter in for one of our services, (iii) four PCTCs which we charter in for our Time Charter contracts, (iv) two Cape-Size Bulk Carriers and two Panamax-Size Bulk Carriers in which we own a 50% interest.

     Costs of all major property additions and betterments are capitalized. Ordinary maintenance and repair costs are expensed as incurred. Interest and finance costs relating to vessels, barges, and other equipment under construction are capitalized to properly reflect the cost of assets acquired. Capitalized interest totaled $243,000 for the year ended December 31, 2005. Capitalized interest was calculated based on our weighted average interest rate on our outstanding debt. No interest was capitalized in 2006 and 2004.

     At December 31, 2006, our fleet also included 720 LASH barges, which are reported at their estimated salvage value. From time to time, we dispose of barges in the ordinary course of business.

     We monitor all of our fixed assets for impairment and perform an impairment analysis in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” when triggering events or circumstances indicate a fixed asset may be impaired.

Drydocking Costs

     We defer certain costs related to the drydocking of our vessels. Deferred drydocking costs are capitalized as incurred and amortized on a straight-line basis over the period between drydockings (generally two to five years) (See Note K).

Deferred Financing Charges and Acquired Contract Costs

     We amortize our deferred financing charges and acquired contract costs over the terms of the related financing agreements and contracts (See Note K).

Self-Retention Insurance

     We maintain provisions for estimated losses under our self-retention insurance program based on estimates of the eventual claims settlement costs. Our policy is to establish self-insurance provisions for each policy year based on estimates from independent actuaries and management, and to generally maintain the provisions at those levels for the estimated run-off period, approximately two years from the inception of that period. We believe most claims will be reported, or estimates for existing claims will be revised, within this two-year period. Subsequent to this two-year period, self-insurance provisions are adjusted to reflect our current estimate of loss exposure for the policy year. However, if

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

during this two-year period our estimate of loss exposure exceeds the actuarial estimate, then additional loss provisions are recorded to increase the self-insurance provisions to our estimate of the eventual claims’ settlement cost. The measurement of our exposure for self-insurance liability requires management to make estimates and assumptions that affect the amount of loss provisions recorded during the reporting period. Actual results could differ materially from those estimates(See Note E).

Asbestos Claims

     We maintain provisions for estimated losses for asbestos claims based on estimates of eventual claims settlement costs. Our policy is to establish provisions based on a range of estimated exposure. We estimate this potential range of exposure using input from legal counsel and internal estimates based on the individual deductible levels for each policy year. We are also indemnified for certain of these claims by the previous owner of one of our wholly-owned subsidiaries. The measurement of our exposure for asbestos liability requires management to make estimates and assumptions that affect the amount of loss provisions recorded during the period. Actual results could differ from those estimates.

Income Taxes

     Income taxes are accounted for in accordance with SFAS No. 109, “Accounting for Income Taxes.” Provisions for income taxes include deferred income taxes that are provided on items of income and expense, which affect taxable income in one period and financial statement income in another.

     Certain foreign operations are not subject to income taxation under pertinent provisions of the laws of the country of incorporation or operation. However, pursuant to existing U.S. Tax Laws, earnings from certain of our foreign operations are subject to U.S. income taxes when those earnings are repatriated to the U.S.

     The American Jobs Creation Act of 2004 (“Jobs Creation Act”), which became effective for our company on January 1, 2005, changed the United States tax treatment of the foreign operations of our U.S. flag vessels and our foreign flag shipping operations. In late 2004, we recognized the effects of the Jobs Creation Act on our deferred federal income tax liability as of December 31, 2004, and began recognizing the effects of the Jobs Creation Act in 2005 on income earned beginning January 1, 2005. We made an election under the Jobs Creation Act to have our qualifying U.S. flag operations taxed under a new “tonnage tax” regime rather than under the usual U.S. corporate income tax regime. Throughout 2006 and 2005, the U.S. tax on these operations has been based on the tonnage of the vessels, rather than their contribution to our income or profits(See Note G).

Foreign Currency Transactions

     Certain of our revenues and expenses are converted into or denominated in foreign currencies, primarily Singapore Dollar, Indonesian Rupiah, Euro, British Pound, Mexican Peso, Indian Rupee, Australian Dollar, and Japanese Yen. All exchange adjustments are charged or credited to income in the year incurred. An exchange gain of $162,000 was recognized for the year ended December 31, 2006. Exchange losses of $74,000 and $20,000 were recognized for the years ended December 31, 2005 and 2004, respectively.

Dividend Policy

     On January 6, 2005, we announced the completion of our public offering of 6% convertible exchangeable preferred stock, and we have paid quarterly cash dividends commencing in March of 2005 at a rate of 6% per annum. The payment of preferred stock dividends is at the discretion of our board of directors. Through our preferred stock offering, we are restricted from paying common stock dividends and acquiring any of our common stock prior to December 31, 2007.

Derivative Instruments and Hedging Activities

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

Stock-Based Compensation

     Prior to January 1, 2006, we accounted for stock-based compensation using Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees.” Accordingly, no compensation expense is recognized for

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

employee stock options issued under the Stock Incentive Plan if the exercise price of the options equals the market price of our stock on the date of grant (See Note F).

     In December of 2004, the Financial Accounting Standards Board (“FASB”) issued Statement No. 123 (revised 2004), “Share-Based Payment,” which is a revision of FASB Statement No. 123, “Accounting for Stock-Based Compensation.” Statement No. 123(R) supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and amends FASB Statement No. 95, “Statement of Cash Flows.” Statement No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosures are no longer an alternative. Statement No. 123(R) was effective for calendar year public companies at the beginning of 2006. Effective January 1, 2006, we have adopted Statement No. 123(R), which had no impact on our financial position and results of operation.

     Statement No. 123(R) permits public companies to adopt its requirements using either a modified prospective method or a modified retrospective method. Under the modified prospective method, companies are required to record compensation cost for new and modified awards over the related vesting period of such awards prospectively and record compensation cost prospectively for the unvested portion, at the date of adoption, of previously issued and outstanding awards over the remaining vesting period of such awards. No change to prior periods presented is permitted under the modified prospective method. Under the modified retrospective method, companies record compensation costs for prior periods retroactively through restatement of such periods using the pro forma amounts previously disclosed in the footnotes. Also, in the period of adoption and after, companies record compensation cost based on the modified prospective method. We have adopted this statement using the modified prospective method.

     As permitted by Statement No. 123, we previously accounted for share-based payments to employees using APB Opinion No. 25 and as such no compensation expense has been recognized for employee options granted under the Stock Incentive Plan. Accordingly, the adoption of Statement No. 123(R)’s fair value method will have an impact on our results of operations in future periods if we were to grant additional awards. The future impact of adoption of Statement No. 123(R) cannot be predicted at this time because it will depend on levels of share-based payments granted in the future. However, had we adopted Statement No. 123(R) in prior periods, there would have been no impact as described in the disclosure of pro forma net income and earnings per share inNote F — Employee Benefit Plans.

Pension and Postretirement Benefits

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

     In September of 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106 and 132(R).” This statement requires balance sheet recognition of the overfunded or underfunded status of pension and postretirement benefit plans. Under SFAS No. 158, actuarial gains and losses, prior service costs or credits, and any remaining transition assets or obligations that have not been recognized under previous accounting standards must be recognized in Other Comprehensive Income, net of tax effects, until they are amortized as a component of net periodic benefit cost. In addition, the measurement date, the date at which plan assets and the benefit obligation are measured, is required to be the company’s fiscal year end. SFAS No. 158 does not change the determination of net periodic benefit cost included in net income or the measurement issues associated with benefit plan accounting. SFAS No. 158 is effective for fiscal years ending after December 15, 2006. We have adopted SFAS No. 158 and the effect of this statement as of December 31, 2006 on our financial position was an increase to recorded liabilities of $2,768,000, an increase to deferred tax assets of $8,000, and a decrease in Other Accumulated Comprehensive Income of $2,760,000.

Other New Accounting Pronouncements

     In November 2004, FASB issued SFAS No. 151, “Inventory Costs.” SFAS No. 151 clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material. SFAS No. 151 requires that those amounts, if abnormal, be recognized as expenses in the period incurred. In addition, SFAS No. 151 requires the allocation of fixed production overheads to the cost of conversion based upon the normal capacity of the production facilities. SFAS No. 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. Effective January 1, 2006, we have adopted SFAS No. 151, which had no impact on our financial position and results of operation.

     In July of 2006, FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”). FIN 48 is an interpretation of FASB Statement No. 109, “Accounting for Income Taxes,” and it seeks to reduce the diversity in practice associated with certain aspects of measurement and recognition in accounting for income taxes. In

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

addition, FIN 48 requires expanded disclosure with respect to the uncertainty in income taxes and is effective as of the beginning of our 2007 fiscal year. We are currently evaluating the impact, if any, that FIN 48 will have on our financial position and results of operation.

     In September of 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” which is effective for fiscal years beginning after November 15, 2007 and for interim periods within those years. This statement defines fair value, establishes a framework for measuring fair value and expands the related disclosure requirements. We are currently evaluating the impact, if any, that SFAS No. 157 will have on our financial position and results of operation.

NOTE B — PROPERTY

Rail-Ferry Service Assets

     OurRail-Ferry Serviceprovides a unique combination of rail and water ferry service between the U.S. Gulf and Mexico. The low operating profit margin generated by this service makes higher cargo volumes necessary to achieve meaningful levels of cash flow and profitability. The capacity of the vessels operating in this service defines the maximum revenues and, in turn, the cash flow and gross profits that can be generated by our service. Therefore, in 2005, we began making capital investments to essentially double the capacity of the service including the construction of second decks to be added to each of the ships. Also in 2005, the State of Louisiana and City of New Orleans provided incentives to us to move our U.S. terminal operations from Mobile, Alabama to New Orleans. We then began making improvements to the U.S. terminal in New Orleans necessary to utilize the second decks, which were previously scheduled to be completed and installed by October of 2005. We also invested in a transloading and storage facility in New Orleans near the terminal and are making improvements to the terminal in Mexico. Operations commenced from the New Orleans terminal on the Mississippi River Gulf Outlet (“MR-GO”) in June of 2005 with the double ramp necessary to utilize the second decks expected to be completed in October of that year. The effects of Hurricane Katrina in 2005 necessitated the decision to move the operations to Mobile, Alabama where a new terminal is under construction. These events have delayed the completion of the expansion project until the first half of 2007, when we expect the ships to be operating with the second deck capacity.

     We estimate the total cost of the second decks to be approximately $20,000,000, and we have incurred approximately $13,609,000 through December 31, 2006. The estimated cost of the Mobile terminal is approximately $24,000,000, of which $10,000,000 will be funded by a grant from the State of Alabama. The remaining $14,000,000 will be financed by the Alabama State Docks at below-market rates and repaid over the ten-year terminal lease. We estimate that our share of the cost of the improvements to the Mexican terminal will be approximately $6,300,000, and we have funded $3,167,000 through December 31, 2006. Of the $3,167,000 we have funded, $950,000 was an investment in the company that owns the terminal, in which we have a 49% ownership, and $2,217,000 was a loan to that related party. Our investment in the transloading and storage facility company was approximately $1,805,000, and we had also loaned $2,100,000 to that company as of December 31, 2006.

     During 2006, in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” issued by the FASB, we recorded an impairment loss of $8,866,000 to write-down our net investment in our Rail-Ferry terminal currently located in New Orleans, Louisiana on the MR-GO. That waterway was effectively closed for long-term deep draft shipping when Congress indefinitely suspended dredging. This resulted in the need for us to relocate the U.S. operations of theRail-Ferry Serviceduring 2007 to Mobile, Alabama. Although theRail-Ferry Service currently continues to operate using the MR-GO with single deck capacity on its two vessels, all construction on the New Orleans terminal has been terminated. The cost of the New Orleans terminal has been written-down to the $17,000,000 funded by the State and the City, which is reported in leasehold improvements. The reimbursements to us from the State and the City are recorded as deferred credits, net of accumulated amortization, under lease incentive obligation for the long-term portion and accounts payable and accrued liabilities for the current portion. The $17,000,000 of leasehold improvements and $17,000,000 of deferred credits are being amortized over the 10-year lease term, which began in the third quarter of 2005, resulting in no net effect on net income after the write-down of the leasehold improvements in the second quarter. If the lease of the New Orleans terminal were terminated, there would be no effect on net income because the unamortized leasehold improvements and deferred credits offset each other.

LASH Liner Service Assets

     We made a decision in the fourth quarter of 2006 to dispose of certain of our LASHLiner Serviceassets, and we believe we can do so on a basis that will generate cash and a profit on the disposition of the assets, while improving our future operating results.

     TheLiner Servicesegment includes the TransAtlantic LASH service and the U.S. flag LASH service. The TransAtlantic service was affected by a decline in the availability of eastbound cargo throughout this year. Most recently,

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

eastbound shipments have been further affected by the European Union’s embargo on certain shipments of rice, which usually account for a significant portion of our eastbound cargo. These circumstances have led to our decision to restructure this service.

     Throughout most of 2006, the TransAtlantic service operated with two LASH vessels, a feeder LASH vessel, and a fleet of barges. Late in the third quarter of 2006, we purchased one of the LASH vessels, which we had been leasing, and subsequently sold that vessel in the fourth quarter of 2006, which reduced the capacity of the service to a level that we believe the market can currently sustain. We also have entered into an agreement to sell the feeder vessel used in this service along with fifteen LASH barges in the first half of 2007. Therefore, the book value of these assets is included in assets held for disposal. We currently expect to operate our TransAtlantic service with its remaining assets through the third quarter of 2008 as long as firm profitable commitments are in place with shippers.

     The results of the U.S. flag LASH service have also been adversely affected by increased operating costs attributable to vessel maintenance and increased fuel cost. We are considering various options for this service, including continued operations or a possible sale of the LASH vessel and related barges utilized in the service. We currently plan to operate the service as long as we generate adequate cash flow.

     Throughout 2006, we were evaluating whether to continue to operate our intermodal terminal facility in Memphis, Tennessee, because the volume of cargo from our LASH liner services processed by that facility decreased as the cargo volume carried in those services declined. In December of 2006, we terminated our lease of that facility at a cost of approximately $1,900,000, which was accrued in 2006 and paid in early 2007.

Gains and Losses on Sales of Assets

     During 2006, we recognized a net gain on the sale of assets of $5,125,000 from the aforementioned sale of one of our LASH vessels that had been operating in the TransAtlantic service and 130 LASH barges no longer needed for operations. During 2005, we recognized a net gain on the sale of assets of $584,000 from the sale of 67 LASH barges no longer needed for operations. In 2005, we also sold the assets associated with our over-the-road car transportation truck company, resulting in a loss on the sale of these assets of $769,000, which is reported in discontinued operations (See Note Q). During 2004, we had no sales of significant assets.

NOTE C — CONVERTIBLE EXCHANGEABLE PREFERRED STOCK

     In January of 2005, we issued 800,000 shares of 6% convertible exchangeable preferred stock, $1.00 par value, at a price of $50.00 per share. The proceeds of the preferred stock offering, after deducting all associated costs, were $37,987,000. Cash dividends are cumulative and payable quarterly in arrears at an annual rate of 6% per share, when and as declared by our Board of Directors.

     Each share of the preferred stock has a liquidation preference of $50 per share and may be converted into shares of our common stock based on the initial conversion price of $20.00 per share, subject to adjustment upon the occurrence of certain events. We may elect to redeem the preferred stock, in whole or in part, for cash at any time on or after December 31, 2006, provided that prior to December 31, 2007, we may elect to redeem the preferred stock only if the closing price of our common stock has exceeded 150% of the conversion price of the preferred stock for at least 20 trading days during any 30-day trading period ending within five trading days prior to notice of redemption. To date, this price has not been met. We may also elect to redeem the preferred stock for cash upon a change in control of our company. In addition, upon a change in control of our company and to the extent we have not exercised our change in control redemption option, preferred stockholders may require us to redeem for cash any or all of the shares of the preferred stock at the liquidation preference of the preferred stock, plus any accrued and unpaid cash dividends to, but not including, the date of redemption. Preferred stockholders have no other rights to require us to redeem the preferred stock.

     At our option, we may exchange the preferred stock in whole, but not in part, on any dividend payment date beginning on March 31, 2006 and prior to December 31, 2014, for our 6.0% convertible subordinated notes due 2014. If we elect to exchange the preferred stock for the notes, the exchange rate will be $50 principal amount of the notes for each share of preferred stock. The notes, if issued, will mature on December 31, 2014 and will have terms substantially similar to those of the preferred stock.

     The preferred stock has no maturity date and no voting rights prior to conversion to common stock. The notes, if issued, will have no voting rights prior to conversion to common stock.

     As of December 31, 2006, none of the 800,000 shares of preferred stock had been converted.

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INTERNATIONAL SHIPHOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE D — LONG-TERM DEBT

(All Amounts in Thousands)	Interest Rate			Total Principal Due
	December 31,	December 31,	Maturity	December 31,			December 31,
Description	2006	2005	Date	2006			2005
Unsecured:
Senior Notes — Fixed Rate	7.75%	7.75%	2007	$	39,979		$	52,465
Secured:
Notes Payable — Variable Rate*	6.3656%	5.53%	2015		28,666			31,333
Notes Payable — Variable Rate*	4.8200%	3.869%	2012		13,860			14,000
Notes Payable — Variable Rate	6.6219%	5.45-5.65%	2013		66,729			74,197
Line of Credit	N/A	N/A	2009		—			—
				$	149,234		$	171,995
	Less Current Maturities				(50,250	)		(10,275	)
				$	98,984		$	161,720

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

     Our variable rate notes payable and our revolving credit facility are secured by assets with an aggregate net book value of $190,489,000 as of December 31, 2006, and by a security interest in certain operating contracts and receivables.

     The aggregate principal payments required as of December 31, 2006, for each of the next five years are $50,250,000 in 2007, primarily due to the maturity of our 7³/4% Senior Notes, $10,275,000 in 2008, $10,275,000 in 2009, $10,275,000 in 2010, and $10,590,000 in 2011.

     During 2006, we retired $12,525,000 of the 7³/4% Notes all of which were at a premium. In 2005, we retired $18,500,000 of the 7³/4% Notes of which $17,000,000 was at a discount and the remaining $1,500,000 was at a premium. We also retired certain other outstanding debt prior to maturity. Additionally, in 2004, we retired $410,000 of the 7³/4% Notes at a discount and retired certain other outstanding debt prior to maturity. Upon retirement of this indebtedness, we recorded a net Loss on Early Extinguishment of Debt for the years ended December 31, 2006, 2005 and 2004, of approximately $248,000, $68,000 and $361,000 respectively.

     As of December 31, 2006, we had $6,581,000 of our $50,000,000 revolving credit facility, which expires in December of 2009, pledged as collateral for letters of credit. The remaining $43,419,000 of that credit facility was available as of December 31, 2006. Associated with this credit facility is a commitment fee of .5% per year on the undrawn portion of this facility.

     Most of our debt agreements, among other things, impose defined minimum working capital and net worth requirements, impose leverage requirements, impose restrictions on the payment of dividends, and prohibit us from incurring, without prior written consent, additional debt or lease obligations, except as defined. As of December 31, 2006, we met all of the financial covenants under our various debt agreements, the most restrictive of which include the working capital, leverage ratio, minimum net worth and interest coverage ratios, and believe we will continue to meet these requirements throughout 2007, although we can give no assurance to that effect.

     The most restrictive of our 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 our 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 our Qualified Investments (as defined) and certain designated subsidiaries do not exceed the sum of $10,000,000 plus 50% (or, in case of a loss, minus 100%) of our consolidated net income during the period described above plus the net cash proceeds received from our issuance of common stock during the above period, and (2) no default or event of default has occurred.

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

NOTE E — SELF-RETENTION INSURANCE

     We are self-insured for Hull and Machinery claims in excess of $150,000 for each accident and Loss of Hire claims in excess of 14 days, up to an aggregate stop loss amount of $2,000,000 per policy year. Once aggregate claims exceed $2,000,000, we have third party coverage for additional claims with deductible levels of $150,000 per incident for

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Hull and Machinery and 14 days for Loss of Hire. Due to claims incurred subsequent to renewal, the initial estimate of our self-insurance exposure for the policy year beginning June 27, 2006 was revised to the maximum amount of $2,000,000.

     Protection and Indemnity claims, including cargo and personal injury claims, are not included in our self-retention insurance program. We have third party insurance coverage for these claims with deductible levels ranging from $100,000 to $500,000 per incident depending on vessel type. Our estimate of exposure for claims under these deductible levels is approximately $2,700,000 for the policy year beginning February 20, 2006.

     The current and non-current liabilities for self-insurance exposure and for claims under the deductible levels were $2,868,000 and $3,346,000, respectively, for the year ended December 31, 2006. The current and non-current liabilities were $1,985,000 and $2,057,000, respectively, for the year ended December 31, 2005.

NOTE F — EMPLOYEE BENEFIT PLANS

Pension and Postretirement Benefits

     Our 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. Our funding policy is based on minimum contributions required under ERISA as determined through an actuarial computation. Plan assets consist primarily of investments in equity and fixed income mutual funds and money market holdings. The target asset allocation range is 40% in fixed income investments and 60% in equity investments. The asset allocation on December 31, 2006 was 37.6% in fixed income investments and 62.4% in equity investments. The asset allocation on December 31, 2005 was 39.5% in fixed income investments and 60.5% in equity investments. The plan’s prohibited investments include selling short, commodities and futures, letter stock, unregistered securities, options, margin transactions, derivatives, leveraged securities, and International Shipholding Corporation securities. The plan’s diversification strategy includes limiting equity securities in any single industry to 25% of the equity portfolio market value, limiting the equity holdings in any single corporation to 10% of the market value of the equity portfolio, and diversifying the fixed income portfolio so that no one issuer comprises more than 10% of the aggregate fixed income portfolio, except for issues of the U.S. Treasury or other Federal Agencies. The plan’s assumed future returns are based primarily on the asset allocation and on the historic returns for the plan’s asset classes determined from both actual plan returns and, over longer time periods, market returns for those asset classes. As of December 31, 2006, the plan has assets of $22,432,000 and a projected pension obligation of $23,684,000.

     Our postretirement benefit plans currently provide medical, dental, and life insurance benefits to eligible retired employees and their eligible dependents. The measurement date for both plans is December 31. The following table sets forth the plans’ changes in the benefit obligations and fair value of assets and a statement of the funded status:

(All Amounts in Thousands)	Pension Plan						Postretirement Benefits
	Year Ended December 31,						Year Ended December 31,
	2006			2005			2006			2005
Change in Benefit Obligation
Benefit Obligation at Beginning of Year	$	23,323		$	22,461		$	9,164		$	9,638
Service Cost		676			668			63			90
Interest Cost		1,312			1,248			453			536
Actuarial (Gain) Loss		12			(31	)		(919	)		(551	)
Benefits Paid and Expected Expenses		(1,045	)		(1,023	)		(586	)		(549	)
Curtailments		(604	)		—			(127	)		—
Special Termination Benefits		10			—			—			—
Benefit Obligation at End of Year	$	23,684		$	23,323		$	8,048		$	9,164

(All Amounts in Thousands)	Pension Plan						Postretirement Benefits
	Year Ended December 31,						Year Ended December 31,
	2006			2005			2006			2005
Change in Plan Assets
Fair Value of Plan Assets at Beginning of Year	$	20,330		$	19,119		$	—		$	—
Actual Return on Plan Assets		2,393			1,130			—			—
Employer Contribution		750			1,100			586			549
Benefits Paid and Actual Expenses		(1,041	)		(1,019	)		(586	)		(549	)
Fair Value of Plan Assets at End of Year		22,432			20,330			—			—
Funded Status	$	(1,252	)	$	(2,993	)	$	(8,048	)	$	(9,164	)
Key Assumptions
Discount Rate		5.75	%		5.75	%		5.75	%		5.75	%
Rate of Compensation Increase		5.00	%		5.00	%		N/A			N/A

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     The accumulated benefit obligation for the pension plan was $20,548,000 and $19,963,000 at December 31, 2006 and 2005, respectively.

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

(All Amounts in Thousands)	Pension Plan					Postretirement Benefits
	Year Ended December 31,					Year Ended December 31,
	2006			2005		2006			2005
Prior Service Cost	$	—		$	—	$	143		$	—
Net Loss		(2,381	)		—		(530	)		—
Change in Other Comprehensive Income	$	(2,381	)	$	—	$	(387	)	$	—

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

(All Amounts in Thousands)	Pension Plan									Postretirement Benefits
	Year Ended December 31,									Year Ended December 31,
	2006			2005			2004			2006			2005			2004
Components of Net Periodic Benefit Cost
Service Cost	$	676		$	668		$	548		$	63		$	90		$	77
Interest Cost		1,311			1,248			1,229			453			536			550
Expected Return on Plan Assets		(1,534	)		(1,440	)		(1,395	)		—			—			—
Amortization of Prior Service Cost		—			—			8			(22	)		(22	)		(21	)
Amortization of Net Actuarial Loss		162			212			86			—			131			73
Net Periodic Benefit Cost	$	615		$	688		$	476		$	494		$	735		$	679
Special Termination Benefits		10			—			—			—			—			—
Curtailment Gain		—			—			—			(45	)		—			—
Net Periodic Benefit Cost After Special Termination Benefits and Curtailment Gain	$	625		$	688		$	476		$	449		$	735		$	679
Key Assumptions
Discount Rate		5.75	%		5.50	%		6.25	%		5.75	%		5.50	%		6.25	%
Expected Return on Plan Assets		7.75	%		7.75	%		8.00	%		N/A			N/A			N/A
Rate of Compensation Increase		5.00	%		5.00	%		5.50	%		N/A			N/A			N/A

     The estimated net loss for the pension plan that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next year is $1,000. The estimated net loss and prior service cost for the postretirement benefits that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next year are $0 and ($22,000), respectively.

     For measurement purposes, the health and dental care cost trend rate was assumed to be 9% for 2006, decreasing steadily by .50 per year over the next eight years to a long-term rate of 5%. The health and dental care cost trend rate for employees over 65 was assumed to be 11% decreasing steadily by .50% per year over the next twelve 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, 2006	$	55	$	(46	)
Change in postretirement benefit obligation as of December 31, 2006		881		(743	)

F-16

INTERNATIONAL SHIPHOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     The following table provides the expected future benefit payments as of December 31, 2006:

(All Amounts in Thousands)

Fiscal Year	Pension		Postretirement
Beginning	Plan		Benefits
2007	$	1,091	$	475
2008		1,159		499
2009		1,204		520
2010		1,264		548
2011		1,343		574
2012-2016		7,648		2,991

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

     Crew members on our U.S. flag vessels belong to union-sponsored pension plans. We contributed approximately $2,353,000, $1,988,000, and $1,499,000 to these plans for the years ended December 31, 2006, 2005, and 2004, respectively. These contributions are in accordance with provisions of negotiated labor contracts and generally are based on the amount of straight pay received by the union members. Information from the plans’ administrators is not available to permit us to determine whether there may be unfunded vested benefits.

     In December of 2003, the Medicare Prescription Drug, Improvements, and Modernization Act of 2003 (“Act”) was signed into law. In addition to including numerous other provisions that have potential effects on an employer’s retiree health plan, the Act includes a special subsidy beginning in 2006 for employers that sponsor retiree health plans with prescription drug benefits that are at least as favorable as the new Medicare Part D benefit. In May of 2004, the FASB issued FASB Staff Position (“FSP”) 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvements, and Modernization Act of 2003,” that provides guidance on the accounting for the effects of the Act for employers that sponsor postretirement health care plans that provide drug benefits. We have determined that our plan is actuarially equivalent and as such we qualify for this special subsidy. The effect of our future savings from this law reduced the December 31, 2005 estimate of our accumulated postretirement benefit obligation by approximately $2,300,000, which was recorded in the net actuarial gain for 2005. The new law also resulted in a decrease in our annual net periodic benefit cost for periods beginning January 1, 2005. For 2005, the decrease in our annual net periodic benefit cost was approximately $250,000.

401(k) Savings Plan

     We provide a 401(k) tax-deferred savings plan to all full-time employees who have completed at least 1,000 hours of service. We match 50% of the employee’s first $2,000 contributed to the plan annually. We contributed $108,000, $107,000 and $102,000 to the plan for the years ended December 31, 2006, 2005 and 2004, respectively.

Stock Incentive Plan

     In April of 1998, we 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 our 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, we may grant incentives to our eligible Plan participants for up to 650,000 shares of common stock. The exercise price of each option equals the market price of our stock on the date of grant. In July of 1999, options to purchase 475,000 shares of common stock were granted to certain qualified participants at an exercise price of $14.125 per share. The stock options are due to expire on April 14, 2008. All options vested immediately upon the grant date and were immediately exercisable. No options were granted during 2006, 2005, or 2004. A total of 32,900, 3,400 and 0 options were exercised in 2006, 2005, and 2004, respectively, and 38,700 options were forfeited in 2006. No options were forfeited during 2005 and 2004.

     Prior to January 1, 2006, we accounted for stock-based compensation in accordance with APB Opinion No. 25. Accordingly, no compensation expense has been recognized for employee options granted under the Plan. If we had determined compensation cost for the Plan based on the fair value at the grant dates for awards under the Plan consistent

F-17

INTERNATIONAL SHIPHOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

with the fair value method included in SFAS No. 123 “Accounting for Stock-Based Compensation,” our net income and earnings per share for the years ended December 31, 2006, 2005, and 2004 would have agreed to the actual amounts reported since no stock options were granted for these years and all options outstanding vested in 1999.

Life Insurance

     We have agreements with the former Chairman and current Chairman of the Company whereby their estates will be paid approximately $822,000 and $626,000, respectively, upon death. We reserved amounts to fund a portion of these death benefits, which amount to $822,000, and hold an insurance policy to cover the remaining liability. The cash surrender value of the insurance policy was approximately $93,000 and $118,000 as of December 31, 2006 and 2005, respectively.

NOTE G — INCOME TAXES

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

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

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

     We have recorded a reduction in our deferred tax provision of $350,000 in 2005 and $12,058,000 in 2004 relating to the write-off of deferred tax assets and liabilities that will no longer reverse as a result of the election of the tonnage tax regime.

     Under the tonnage tax regime, our taxable income with respect to the operations of our eligible U.S. flag vessels will instead be based on a “daily notional taxable income,” which is taxed at the highest corporate income tax rate. In 2006, we had taxable income of $377,000 on vessels qualifying under the tonnage tax regime as compared to taxable income of $15,501,000 that would have been subject to the U.S. corporate income tax regime prior to the election.

     Under the Jobs Creation Act, the taxable income from shipping operations of our CFCs will generally no longer be subject to current United States income tax but will be deferred. In December of 2004, we established a valuation allowance of $4,330,000 on the net deferred tax asset associated with the foreign deficit carry-forwards that were no longer supportable as a result of the Jobs Creation Act, the impact of which is included in our deferred tax provision. We were able to release $3,177,000 and $736,000 of the valuation allowance during 2006 and 2005, respectively. This reduction of the valuation allowance is attributed to our CFCs generation of earnings not subject to U.S. taxation. Since those earnings are not subject to U.S. taxation, the earnings can be used to offset foreign deficits. Approximately $417,000 remains in the valuation allowance at December 31, 2006.

     Our Federal income tax returns are filed on a consolidated basis and include the results of operations of our wholly-owned U.S. subsidiaries. Pursuant to the Tax Reform Act of 1986, the recognition of earnings of foreign subsidiaries, which were $13,933,000 in 2006, $159,000 in 2005, and $4,155,000 in 2004, have been included in our federal tax provision calculations. Foreign tax credits of $1,356,000 are expected to be utilized on the federal return as of December 31, 2006. Our 2005 Federal income tax return has not been filed as of December 31, 2006 as we qualify and have been granted additional time to file under Internal Revenue Service extensions granted to taxpayers impacted by Hurricane Katrina. The deadline to file our 2005 Federal income tax return is April 15, 2007.

     The Katrina Emergency Tax Relief Act of 2005 and the Gulf Opportunity Zone Act of 2005 have provided certain special tax incentives for companies like us located in the Hurricane Katrina core disaster area. The Acts created a new tax credit, the Employee Retention Credit, to encourage employers to keep employees on their payroll. The credit is equal to 40% of the first $6,000 in wages paid to each eligible employee after August 28, 2005, and before January 1, 2006, by employers in the core disaster area, for the period the business is rendered inoperable as a result of damage caused by Hurricane Katrina. In 2005, we recorded a deferred tax benefit of $293,000 for the Employee Retention Credit.

F-18

INTERNATIONAL SHIPHOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     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, shipping income, as defined under the U.S. Subpart F income tax provisions, generated from profitable controlled foreign subsidiaries is subject to Federal income taxes.

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

	December 31,			December 31,
(All Amounts in Thousands)	2006			2005
Liabilities:
Fixed Assets	$	24,044		$	28,738
Deferred Charges		2,338			2,401
Unterminated Voyage Revenue/Expense		72			39
Other Liabilities		5,926			3,542
Total Liabilities		32,380			34,720
Assets:
Insurance and Claims Reserve		471			301
Post-Retirement Benefits		(395	)		(386	)
Alternative Minimum Tax Credit		(4,577	)		(4,577	)
Net Operating Loss Carryforward/Unutilized Deficit		(12,242	)		(15,355	)
Valuation Allowance		417			3,594
Worker Retention Credit		(293	)		(293	)
Other Assets		(3,991	)		(4,984	)
Total Assets		(20,610			(21,700	)
Total Deferred Tax Liability, Net	$	11,770		$	13,020

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

	Year Ended December 31,
	2006			2005			2004
Statutory Rate		35.00	%		35.00	%		35.00	%
State Income Taxes		0.03	%		1.14	%		2.35	%
Effect of Tonnage Tax Rate		(20.99	%)		(152.40	%)		—
Jobs Creation Act Adjustment		—			(17.37	%)		(776.11	%)
Change in Valuation Allowance		(23.03	%)		21.67	%		—
Employee Retention Credit		—			(14.54	%)		—
Other, Primarily Non-deductible Expenditures		0.02	%		4.57	%		21.50	%
		(8.97	%)		(121.93	%)		(717.26	%)

     Foreign income taxes of $544,000, $461,000 and $410,000 are included in our consolidated statements of income in the Benefit for Income Taxes for the years ended December 31, 2006, 2005, and 2004, respectively. We pay foreign income taxes in Indonesia.

     For U.S. federal income tax purposes, in 2006, we utilized the remaining balance of our net operating loss carryforwards (“NOLs”) of approximately $8,892,000. We also have approximately $4,577,000 of alternative minimum tax credit carryforwards, which are not subject to expiration and are available to offset future regular income taxes subject to certain limitations. Additionally, for state income tax purposes, we have NOLs of approximately $6,491,000 available to reduce future state taxable income. A valuation allowance has been recorded to fully offset the value of the state net operating losses due to the uncertainty of the utilization of those losses. These NOLs expire in varying amounts beginning in year 2010 through 2020.

     We had total income from continuing operations before (benefit) provision for income taxes and equity in net income of unconsolidated entities of $11,190,000, $2,016,000 and $1,625,000 for 2006, 2005 and 2004, respectively. Income (loss) from continuing U.S. operations was ($6,291,000), $3,778,000 and $1,411,000, and income (loss) from continuing foreign operations was $17,481,000, ($1,762,000) and $214,000 for 2006, 2005 and 2004, respectively.

F-19

INTERNATIONAL SHIPHOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE H — TRANSACTIONS WITH RELATED PARTIES

     We own a 50% interest in RTI Logistics L.L.C. (“RTI”)(See Note M). At December 31, 2006, we had two long-term receivables of $1,985,000 and $150,000, respectively, due from RTI. The long-term portion of both of these receivables is included in Due from Related Parties. Interest income on the first receivable is earned at the rate of 5% per year for seven years. A total of $15,000 was repaid in 2006 on this receivable. Interest income on the $150,000 receivable is earned at the rate of 6% per year, and the receivable along with interest income is payable on demand.

     We own a 49% interest in Terminales Transgolfo (“TTG”)(See Note M). At December 31, 2006, we had a long-term receivable of $2,217,000 due from TTG. The long-term portion of this receivable is included in Due from Related Parties. Interest income on this receivable is earned at the rate of 7.5% per year for seven years.

     A son of our Chairman of the Board serves as our Secretary and is a partner in the law firm of Jones, Walker, Waechter, Poitevent, Carrere and Denegre, which has represented us since our inception. A son of one of our Directors serves as our Assistant Secretary and is a partner in the same law firm and serves on their Board of Directors. Fees paid to the firm for legal services rendered to us were approximately $886,000, $1,633,000, and $1,001,000 for the years ended December 31, 2006, 2005 and 2004, respectively. Amounts of $3,000 and $60,000 were due to the legal firm at December 31, 2006 and 2005, respectively, which were included in Accounts Payable and Accrued Liabilities.

NOTE I — COMMITMENTS AND CONTINGENCIES

Commitments

     As of December 31, 2006, 19 vessels that we own or operate were under various contracts extending beyond 2006 and expiring at various dates through 2019. Certain of these agreements also contain options to extend the contracts beyond their minimum terms.

     Approximately $6,581,000 of our $50,000,000 line of credit is maintained to cover standby letters of credit required on certain of our contracts.

     In 2006, we entered into a memorandum of agreement to sell our feeder LASH vessel along with fifteen LASH barges near the end of the first quarter or beginning of the second quarter of 2007 and as of December 31, 2006, the book value of those assets is included in assets held for disposal.

     We have made certain commitments in connection with the expansion of theRail-Ferry Service discussed in Note B, including costs remaining to be paid associated with the addition of second decks to the two ships operating in that service, the construction of a terminal in Mobile, and improvements to a terminal in Mexico. The estimated total cost of the Mobile terminal is approximately $24,000,000, of which $10,000,000 will be funded by the State of Alabama. The remaining $14,000,000 will be financed by the Alabama State Docks at below-market rates and repaid by us over the ten-year terminal lease. The estimated total cost of the second decks is approximately $20,000,000, of which we have incurred approximately $13,609,000 through December 31, 2006 with the remaining $6,391,000 to be paid in the first half of 2007. We estimate that our share of the cost of the improvements to the Mexican terminal will be approximately $6,300,000, of which we have incurred approximately $3,167,000 through December 31, 2006 with the remaining $3,133,000 to be paid in the first half of 2007.

Contingencies

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

     We have been named as a defendant in numerous lawsuits claiming damages related to occupational diseases, primarily related to asbestos and hearing loss. We believe that most of these claims are without merit, and that insurance and the indemnification of a previous owner of one of our subsidiaries mitigate our exposure. Our current overall exposure

F-20

INTERNATIONAL SHIPHOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

to the numerous lawsuits in question, after considering insurance coverage for these claims, has been estimated by our lawyers and internal staff to be approximately $280,000. We believe those estimates are reasonable and have established reserves accordingly. Our reserves for these lawsuits as of December 31, 2006 and 2005 were approximately $350,000 and $660,000, respectively. There is a reasonable possibility that there will be additional claims associated with occupational diseases asserted against us. However, we do not believe that it is reasonably possible that our exposure from those claims will be material because (1) the lawsuits filed since 1989 claiming damages related to occupational diseases in which we have been named as a defendant have primarily involved seamen that served on-board our vessels and the number of such persons still eligible to file a lawsuit against us is diminishing and (2) such potential additional claims, if pursued, would be covered under an indemnification agreement with a previous owner of one of our subsidiaries and/or under one or more of our existing insurance policies with deductibles ranging from $2,500 to $25,000 per claim.

NOTE J — LEASES

Direct Financing Leases

     In 2005, we entered into a direct financing lease of a U.S. flag PCTC expiring in 2015 and, in 1999, we entered into a direct financing lease of a foreign flag PCTC expiring in 2019. The schedule of future minimum rentals to be received under these direct financing leases in effect at December 31, 2006, is as follows:

	Receivables
	Under
(All Amounts in Thousands)	Financing Leases
Year Ended December 31,
2007	$	14,077
2008		14,099
2009		13,498
2010		13,112
2011		13,097
Thereafter		73,171
Total Minimum Lease Payments Receivable		141,054
Estimated Residual Value of Leased Property		8,052
Less Unearned Income		(74,209	)
Total Net Investment in Direct Financing Leases		74,897
Current Portion		(4,400	)
Long-Term Net Investment in Direct Financing Leases at December 31, 2006	$	70,497

F-21

INTERNATIONAL SHIPHOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     The schedule of future minimum rentals to be received under the direct financing leases in effect at December 31, 2005, was as follows:

	Receivables
	Under
(All Amounts in Thousands)	Financing Leases
Year Ended December 31,
2006	$	14,077
2007		14,077
2008		14,099
2009		13,498
2010		13,112
Thereafter		86,268
Total Minimum Lease Payments Receivable		155,131
Estimated Residual Value of Leased Property		8,052
Less Unearned Income		(84,618	)
Total Net Investment in Direct Financing Leases		78,565
Current Portion		(3,923	)
Long-Term Net Investment in Direct Financing Leases at December 31, 2005	$	74,642

Operating Leases

     During 2001, we entered into two sale-leasebacks, covering one of our U.S. flag PCTCs and one of our foreign flag PCTCs for terms of 12 years and 15 years, respectively. These leases are classified as operating leases, and the gains on these sale-leasebacks were deferred and are being recognized over the term lives of the leases. We renegotiated a capital lease agreement for one of our U.S. flag PCTCs in December of 2001 and subsequently reclassified the lease as an operating lease with a term of 10 years. This reclassification also resulted in a gain that was deferred and is being recognized over the remaining term life of the lease. The vessels under these leases are operated under fixed charter agreements covering the terms of the respective leases.

     During 2002, we entered into a sale-leaseback of a LASH vessel resulting in an operating lease with a term of 5 years. During 2006, we purchased this LASH vessel thereby terminating the lease agreement. We have subsequently sold this vessel (See Note B).

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

     At the inception of one of our operating lease agreements, we made a deposit into a bank reserve account to meet the requirements of the lease agreement. The owner of the vessel had the ability to draw on this amount to cover operating lease payments if such payments became overdue. The escrow amount totaled $6,541,000 at December 31, 2005 and was included in Restricted Cash. During 2006, we established a letter of credit to satisfy the requirements of the owner, and the deposit was released from escrow.

     We also conduct certain of our operations from leased office facilities under operating leases expiring at various dates through 2026. During 2006, we decided to relocate our corporate headquarters and entered into a twenty-year lease. That lease will commence when construction of the new office building is completed, which we expect to occur during the second quarter of 2007. Therefore, we have not yet terminated our current office lease for our corporate headquarters, which expires in December of 2008. The table on the following page includes the rental payments for the new lease beginning in April of 2007 and also includes $540,000 in each of 2007 and 2008 associated with the current lease. We will negotiate with the lessor of the current lease to terminate that lease during 2007.

     In addition to those operating leases with terms expiring after December 31, 2007, we also operated certain vessels under short-term operating leases during 2006.

     Rent expense related to all of our operating leases totaled approximately $30,704,000, $27,063,000 and $28,623,000 for the years ended December 31, 2006, 2005 and 2004, respectively.

F-22

INTERNATIONAL SHIPHOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     The following is a schedule, by year, of future minimum payments required under operating leases that have initial non-cancelable terms in excess of one year as of December 31, 2006:

	Payments Under Operating Leases
	U.S. Flag		Foreign Flag		Other
(All Amounts in Thousands)	PCTCs		PCTC		Leases		Total
Year Ended December 31,
2007	$	9,596	$	6,340	$	1,263	$	17,199
2008		9,596		6,340		1,281		17,217
2009		9,596		6,340		474		16,410
2010		8,316		6,340		499		15,155
2011		4,474		6,340		499		11,313
Thereafter		7,830		28,530		9,988		46,348
Total Future Minimum Payments	$	49,408	$	60,230	$	14,004	$	123,642

NOTE K — DEFERRED CHARGES AND ACQUIRED CONTRACT COSTS

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

	December 31,		December 31,
(All Amounts in Thousands)	2006		2005
Drydocking Costs	$	12,915	$	11,711
Financing Charges and Other		1,662		2,128
Acquired Contract Costs		4,729		6,185
	$	19,306	$	20,024

     The Acquired Contract Costs represent the portion of the purchase price paid for Waterman Steamship Corporation applicable primarily to that company’s three U.S. flag RO/RO vessels under maritime prepositioning ship contract agreements, which expire in 2009 and 2010. The amortization expense for each of the years ended December 31, 2006 and 2005 was $1,455,000. The estimated annual amortization expense is $1,455,000 for 2007, 2008, and 2009, and $364,000 for 2010.

NOTE L — SIGNIFICANT OPERATIONS

Major Customers

     We have several medium- to long-term contracts related to the operations of various vessels (See Note I), from which revenues represent a significant amount of our total revenue. Revenues from the contracts with the MSC were $31,796,000, $29,157,000 and $27,017,000 for the years ended December 31, 2006, 2005 and 2004, respectively.

     We operate a U.S. flag LASH vessel in a liner service which participates in the MSP program (See Note A — “Maritime Security Program"). Revenues, including MSP revenue, were $27,546,000, $26,816,000 and $30,008,000 for the years ended December 31, 2006, 2005 and 2004, respectively.

     We have five U.S. flag PCTCs, also under the MSP, which carry automobiles from Japan to the United States for a Japanese charterer. We acquired one of these U.S. flag PCTCs in September of 2005. Revenues, including MSP revenue, were $44,908,000, $39,756,000 and $36,831,000 for the years ended December 31, 2006, 2005 and 2004, respectively.

     We provide space on our westbound foreign flag LASH liner service to several commercial shippers. The westbound cargoes included steel and other metal products, high-grade paper and wood products, and other general cargo. Revenues were $38,678,000, $40,196,000 and $38,823,000 for the years ended December 31, 2006, 2005 and 2004, respectively.

Concentrations

     A significant portion of our traffic receivables is due from contracts with the MSC and transportation of government sponsored cargo. There are no concentrations of receivables from customers or geographic regions that exceed 10% of stockholders’ investment at December 31, 2006 or 2005.

     With only minor exceptions related to personnel aboard certain foreign flag vessels, all of our shipboard personnel are covered by collective bargaining agreements under multiple unions.

F-23

INTERNATIONAL SHIPHOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Geographic Information

     We have 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 areas of the world are presented in the following table. Revenues for theTime Charter Contracts, Contract of Affreightment, Rail-Ferry Service, andOtherare assigned to regions based on the location of the customer. Revenues for theLiner Servicesare presented based on the location of the ports serviced by this segment. Because we operate internationally, most of our assets are not restricted to specific locations. Accordingly, an allocation of identifiable assets to specific geographic areas is not applicable.

	Year Ended December 31,
(All Amounts in Thousands)	2006		2005		2004
United States	$	96,786	$	94,300	$	86,568
Asian Countries		69,197		62,191		59,309
Rail-Ferry Service Operating Between U.S. Gulf and Mexico		18,428		11,051		15,880
Liner Services Operating Between:
U.S. Gulf / East Coast Ports and Ports in Middle East		27,546		26,816		30,008
U.S. Gulf / East Coast Ports and Ports in Northern Europe		61,871		66,549		65,705
Other Countries		1,053		1,249		1,694
Total Revenues	$	274,881	$	262,156	$	259,164

Operating Segments

     Our operating segments are identified primarily based on the characteristics of the contracts or terms under which the fleet of vessels and barges are operated. Each of the reportable segments is managed separately as each requires different resources depending on the nature of the contract or terms under which each vessel within the segment operates. Our operating segments are identified and described below.

     Liner Services: In our liner services segment we now operate three vessels, including two LASH vessels and one “dockship” that positions barges for pick-up and discharge, on established trade routes with regularly scheduled sailing dates. We receive revenues for the carriage of cargo within the established trading areas and pay the operating and voyage expenses incurred. OurLiner Servicesinclude a U.S. flag service between U.S. Gulf and East Coast ports and ports in the Red Sea and in South Asia, and a foreign flag transatlantic service operating between U.S. Gulf and East Coast ports and ports in northern Europe.

     Time Charter Contracts: Time charters are contracts by which our charterer obtains the right for a specified period to direct the movements and utilization of the vessel in exchange for payment of a specified daily rate, but we retain operating control over the vessel. Typically, we fully equip the vessel and are responsible for normal operating expenses, repairs, crew wages, and insurance, while the charterer is responsible for voyage expenses, such as fuel, port and stevedoring expenses. OurTime Charter Contractsinclude contracts with Far Eastern shipping companies for eight PCTCs, with an electric utility for a conveyor-equipped, self-unloading Coal Carrier, and with a mining company providing ocean transportation services at its mine in Papua, Indonesia. Also included in this segment are contracts under which the MSC charters three RO/ROs that are under an operating contract, and contracts with another shipping company for two container vessels.

     Contract of Affreightment (“COA”): For this type of contract, we undertake to provide space on our vessel for the carriage of specified goods or a specified quantity of goods on a single voyage or series of voyages over a given period of time between named ports or within certain geographical areas in return for the payment of an agreed amount per unit of cargo carried. Generally, we are responsible for all operating and voyage expenses. OurCOAsegment includes one contract, which is for the transportation of molten sulphur.

     Rail-Ferry Service: This service uses our two Special Purpose vessels, which carry loaded rail cars between the U.S. Gulf and Mexico. Each vessel currently has a capacity for 60 standard size rail cars. With departures every four days from Coatzacoalcos, Mexico and the U.S. Gulf, it offers with each vessel a three-day transit between these ports and provides a total of 90 trips per year in each direction when both ships are operating.

     Other: This segment consists of operations that include more specialized services than the former four segments and subsidiaries that provide ship charter brokerage and agency services. Also included in theOthercategory are corporate related items, results of insignificant operations, and income and expense items not allocated to reportable segments.

F-24

INTERNATIONAL SHIPHOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

	Liner			Time Charter				Rail-Ferry
(All Amounts in Thousands)	Services			Contracts		COA		Service			Other			Elim.			Total
2006
Revenues from External Customers	$	89,417		$	148,581	$	16,081	$	18,427		$	2,375			—		$	274,881
Intersegment Revenues		—			—		—		—			13,582		$	(13,582	)		—
Depreciation and Amortization		5,994			18,267		2,744		4,598			86			—			31,689
Impairment Loss		—			—		—		(8,866	)		—			—			(8,866	)
Gross Voyage (Loss) Profit		(8,681	)		29,915		4,142		(14,002	)		396			—			11,770
Interest Expense		609			7,149		1,323		2,036			30			—			11,147
Gain on Sale of Assets		4,914			—		—		—			211			—			5,125
Segment (Loss) Profit		(4,376	)		22,766		2,819		(16,038	)		577			—			5,748
Segment Assets		15,718			184,659		32,468		83,082			813			—			316,740
Expenditures for Segment Assets		6,400			6,990		—		16,429			412			—			30,231
2005
Revenues from External Customers	$	93,365		$	138,177	$	16,693	$	11,051		$	2,870			—		$	262,156
Intersegment Revenues		—			—		—		—			12,614		$	(12,614	)		—
Depreciation and Amortization		4,834			17,822		2,747		5,008			39			—			30,450
Gross Voyage (Loss) Profit		(1,492	)		27,774		4,692		(6,684	)		1,490			—			25,780
Interest Expense		631			6,162		1,148		1,651			34			—			9,626
Gain on Sale of Other Assets		584			—		—		—			—			—			584
Segment (Loss) Profit		(1,539	)		21,612		3,544		(8,335	)		1,456			—			16,738
Segment Assets		22,680			194,575		35,202		90,578			1,175			—			344,210
Expenditures for Segment Assets		3,590			1,038		—		35,035			380			—			40,043
2004
Revenues from External Customers	$	95,713		$	113,954	$	16,562	$	15,881		$	17,054			—		$	259,164
Intersegment Revenues		—			—		—		—			12,264		$	(12,264	)		—
Depreciation and Amortization		5,279			13,879		2,709		4,090			145			—			26,102
Gross Voyage (Loss) Profit		(1,563	)		26,914		5,411		(4,304	)		1,588			—			28,046
Interest Expense		749			6,515		1,430		1,853			38			—			10,585
Loss on Sale of Other Assets		—			—		—		—			(7	)		—			(7	)
Segment (Loss) Profit		(2,312	)		20,399		3,981		(6,157	)		1,543			—			17,454
Segment Assets		23,126			182,447		37,971		49,839			1,300			—			294,683
Expenditures for Segment Assets		988			29,946		6		232			202			—			31,374

     In 2005, we sold the assets associated with our over-the-road car transportation truck company. The decision to sell these assets was primarily the result of a decrease during 2005 in the volume of business available to us due to the loss of market share by one of our customers and an industry-wide shortage of drivers that caused underutilization of the assets. The over-the-road car transportation truck company was reported in the “Other” segment in previous periods. Those periods have been restated to remove the effects of those operations from the “Other” segment to reflect the reclassification from continuing to discontinued operations.

F-25

INTERNATIONAL SHIPHOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     Following is a reconciliation of the totals reported for the operating segments to the applicable line items in the consolidated financial statements:

(All Amounts in Thousands)	Year Ended December 31,
Profit or Loss:	2006			2005			2004
Total Profit for Reportable Segments	$	5,748		$	16,738		$	17,454
Unallocated Amounts:
Administrative and General Expenses		(18,765	)		(16,052	)		(15,536	)
Gain (Loss) on Sale of Investments		23,058			287			(623	)
Investment Income		1,397			1,111			691
Loss on Early Extinguishment of Debt		(248	)		(68	)		(361	)
Income from Continuing Operations Before (Benefit) Provision for Income Taxes and Equity in Net Income of Unconsolidated Entities	$	11,190		$	2,016		$	1,625

	December 31,		December 31,
Assets:	2006		2005
Total Assets for Reportable Segments	$	316,740	$	344,210
Unallocated Amounts:
Current Assets		88,779		73,818
Investment in Unconsolidated Entities		12,409		14,926
Restricted Cash		—		6,541
Due from Related Parties		4,015		1,600
Other Assets		6,099		8,412
Total Assets	$	428,042	$	449,507

NOTE M — UNCONSOLIDATED ENTITIES

Cement Carrier Company

     Prior to December of 2004, we had a 30% interest in Belden Cement Holding, Inc. (“BCH”), a Cement Carrier company which owns and operates Cement Carriers. During December of 2004, one of the shareholders of BCH exercised its option to purchase additional shares of common stock, which upon exercise brought our ownership down to 26.1%. In 2005, we acquired a 26.1% interest in Belden Shipholding Pte Ltd. (“BSH”), another Cement Carrier Company, for $78,000. In January of 2006, BSH acquired BCH, which resulted in a cash distribution to us of $3,130,000. In November of 2006, we sold our entire 26.1% interest in BSH for $27,490,000, which was received in cash. This sale resulted in a gain of approximately $22,598,000. We received the aforementioned cash distribution of $3,130,000 in 2006 and $783,000 in 2005. No distribution was made during 2004.

     This investment was accounted for under the equity method, and our share of earnings or losses was reported in our consolidated statements of income net of taxes. Our portion of the combined earnings of this investment, net of taxes, was $631,000, $1,850,000 and $827,000 for the years ended December 31, 2006, 2005 and 2004 respectively. The aggregate amount of consolidated retained earnings that represented undistributed earnings of this investment was approximately $3,000,000 and $1,900,000 for the years ended December 31, 2005 and 2004, respectively.

F-26

INTERNATIONAL SHIPHOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     The unaudited condensed financial position and results of operations of BCH and BSH are summarized below:

	December 31,
(Amounts in Thousands)	2005
Current Assets	$	14,988
Noncurrent Assets	$	115,566
Current Liabilities	$	13,465
Noncurrent Liabilities	$	90,701

	Nine Months
	Ended Sept. 30,		Year Ended December 31,
(Amounts in Thousands)	2006		2005		2004
Operating Revenues	$	25,942	$	29,551	$	27,405
Operating Income	$	7,390	$	10,833	$	18,512
Net Income	$	3,277	$	9,481	$	5,006

Bulk Carriers

     In 2003, we acquired a 50% investment in Dry Bulk Cape Holding Inc. (“Dry Bulk”) for $3,479,000, which currently owns two Cape-Size Bulk Carriers and two Panamax-Size Bulk Carriers. The two Panamax-Size Bulk Carriers were acquired by Dry Bulk during 2005. This investment is accounted for under the equity method and our share of earnings or losses is reported in our consolidated statements of income net of taxes. For the years ended December 31, 2006, 2005 and 2004, our portions of earnings net of taxes were $4,131,000, $1,953,000 and $3,783,000, respectively. We received dividends of $800,000, $2,500,000 and $4,100,000 in 2006, 2005 and 2004, respectively.

     In January of 2005, we were granted an option to purchase an additional 1% of Dry Bulk. The other unaffiliated 50% owner of Dry Bulk was granted a similar option.

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

	December 31,		December 31,
(Amounts in Thousands)	2006		2005
Current Assets	$	5,351	$	2,584
Noncurrent Assets	$	111,300	$	115,903
Current Liabilities	$	8,143	$	9,269
Noncurrent Liabilities	$	90,047	$	97,000

	Year Ended December 31,
(Amounts in Thousands)	2006		2005		2004
Operating Revenues	$	25,174	$	15,277	$	18,790
Operating Income	$	13,846	$	9,118	$	13,594
Net Income	$	7,089	$	6,448	$	11,578

Terminal Management Company

     In 2000, we acquired a 50% interest in Terminales Transgolfo (“TTG”) for $228,000, which operates a terminal in Coatzacoalcos, Mexico, utilized by ourRail-Ferry Service. During 2005, the other unaffiliated 50% owner of TTG acquired 1% of our 50% interest in TTG. As of December 31, 2006, we have a 49% interest in TTG. In 2006, TTG began making improvements to the terminal in Mexico to accommodate the second decks that will be added to the two vessels operating in ourRail-Ferry Serviceduring the first half of 2007. We are funding 49% of the cost of the terminal improvements, of which 30% is a capital contribution and is reported as an investment in unconsolidated entities. The remaining 70% is a loan to TTG (see Note H). As of December 31, 2006, we had made capital contributions of $950,000 associated with funding improvements to the terminal. The investment is accounted for under the equity method, and our share of earnings or losses is reported in our consolidated statements of income net of taxes. No distributions were made during 2006, 2005 and 2004. As of December 31, 2006, TTG owed us $2,217,000 (see Note H).

F-27

INTERNATIONAL SHIPHOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Transloading and Storage Facility Company

     In 2005, we acquired a 50% interest in RTI Logistics L.L.C. (“RTI”), which owns a transloading and storage facility that is used in ourRail-Ferry Servicefor $1,587,000. We purchased our shares from a former owner at a premium, which resulted in a difference of approximately $973,000 between our investment in RTI and the underlying equity in net assets of the subsidiary. An additional investment of approximately $386,000 was made in 2006. The investment is accounted for under the equity method, and our share of earnings or losses is reported in our consolidated statements of income net of taxes. The Company’s interest in the earnings from the date of this investment through December 31, 2006, was immaterial. No distributions were made during 2006 and 2005. We have also loaned funds to RTI, and as of December 31, 2006 and 2005, RTI owed us $2,135,000 and $2,000,000, respectively (see Note H).

NOTE N — SUPPLEMENTAL CASH FLOW INFORMATION

	Year Ended December 31,
(All Amounts in Thousands)	2006		2005		2004
Cash Payments:
Interest Paid	$	10,949	$	9,603	$	10,370
Taxes Paid	$	557	$	470	$	1,072

     During 2002, we entered into a sale-leaseback for one of our LASH vessels for $10,000,000 of which $5,000,000 was received in cash and $5,000,000 in the form of a five-year promissory note. A portion of the note, approximately $2,000,000, was being repaid in twenty quarterly installments in addition to approximately $3,000,000 due at the end of the lease. Interest on the note was at 4.845% for the first two years and was 4.72% for each of the three years thereafter. During 2006, we purchased the LASH vessel and the note was paid in full.

     During 2003, we sold our coal transfer terminal facility and related land for $2,500,000 of which $500,000 was received in cash and $2,000,000 in the form of a five-year promissory note. The note is being repaid in ten semi-annual installments of $200,000, in addition to interest at 6%.

NOTE O — FAIR VALUE OF FINANCIAL INSTRUMENTS AND DERIVATIVES

     The estimated fair values of our financial instruments and derivatives are as follows (asset/(liability)):

	December 31,						December 31,
	2006						2005
	Carrying			Fair			Carrying			Fair
(All Amounts in Thousands)	Amount			Value			Amount			Value
Interest Rate Swap Agreements	$	959		$	959		$	217		$	217
Foreign Currency Contracts	$	194		$	194		$	33		$	33
Long-Term Debt		($149,234	)		($149,508	)		($171,995	)		($172,972	)

     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 our fair value.

     The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:

Interest Rate Swap Agreements

     We enter into interest rate swap agreements to manage well-defined interest rate risks. During September of 2005, we entered into two interest rate swap agreements with two commercial banks to reduce the possible impact of higher interest rates in the long-term market by utilizing the fixed rate available with the swap. We are the fixed rate payor, and DnB NOR Bank is the floating rate payor for the first contract, and we are the fixed rate payor, and Deutsche Schiffsbank is the floating rate payor for the second contract. The combined amount for both contracts totaled $28,667,000 and $31,333,000 at December 31, 2006 and 2005, respectively, and will expire in September of 2015. The fixed rate was 4.41% at December 31, 2006 and 2005, and the floating rates were 5.37063% and 4.51938% at December 31, 2006 and 2005, respectively. We have designated these interest rate swap agreements as effective hedges. Settlements of these agreements are made quarterly and resulted in a decrease to interest expense of $204,000 in 2006 and an increase to interest expense of $37,000 in 2005.

F-28

INTERNATIONAL SHIPHOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     During November of 2005, we 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 amount totaled $13,860,000 and $14,000,000 at December 31, 2006 and 2005, respectively, and will expire in November of 2012. We are the fixed rate payor, and Capital One, N.A. (formerly Hibernia National Bank) is the floating rate payor. The fixed rate was 5.17% for 2006 and 2005, and the floating rate was 5.32% and 4.38875% at December 31, 2006 and 2005, respectively. We have designated this interest rate swap agreement as an effective hedge. Settlements of this agreement are made monthly and resulted in a decrease to interest expense of $18,000 and $11,000 in 2006 and 2005, respectively.

Foreign Currency Contracts

     We enter into forward exchange contracts to hedge certain firm purchase and sale commitments denominated in foreign currencies. The purpose of our foreign currency hedging activities is to protect us from the risk that the eventual dollar cash inflows or outflows resulting from revenue collections from foreign customers and purchases from foreign suppliers will be adversely affected by changes in exchange rates. The term of the currency contracts is rarely more than one year. Due to the immaterial nature of these contracts, we have not designated the foreign currency contracts as hedges. Therefore, the changes in the fair market value of these hedges are recorded through earnings.

     During 2005, we entered into a forward purchase contract for Mexican Pesos for $630,000 U.S. Dollar equivalents beginning in January of 2006 that expired in September of 2006. During 2006, we entered into three forward purchase contracts. One contract was for Mexican Pesos for $420,000 U.S. Dollar equivalents beginning in January of 2007 that expires in July of 2007. The other two contracts were for Indonesian Rupiah, one for $2,925,000 U.S. Dollar equivalents beginning in October of 2006 that expires in December of 2007, and the second contract was for $1,800,000 U.S. Dollar equivalents beginning in June of 2006 that expires in May of 2007. There were no forward sales contracts as of December 31, 2006 or 2005.

Long-Term Debt

     The fair value of our debt is estimated based on the quoted market price for the publicly listed Senior Notes and the current rates offered to us on other outstanding obligations.

Amounts Due from Related Parties

     The carrying amount of these notes receivable approximated fair market value as of December 31, 2006 and 2005. Fair market value takes into consideration the current rates at which similar notes would be made.

Restricted Cash

     The carrying amount of these investments approximated fair market value as of December 31, 2006 and 2005, based upon current rates offered on similar instruments.

Marketable Securities

     We have categorized all marketable securities as available-for-sale. The following table shows the carrying amount, fair value and net gains or losses recorded to accumulated other comprehensive income for each security type at December 31, 2006 and 2005.

(All Amounts in Thousands)

	December 31, 2006
					Net Gain (Loss)
Security Type	Carrying Value		Fair Value		Net of Taxes
Equity Securities	$	3,644	$	4,446	$	521
Corporate Debt Securities		2,127		2,099		(20	)
	$	5,771	$	6,545	$	501

	December 31, 2005
					Net Gain (Loss)
Security Type	Carrying Value		Fair Value		Net of Taxes
Equity Securities	$	3,487	$	4,288	$	521
Debt Securities Issued by U.S. Treasury		250		249		—
Corporate Debt Securities		2,127		2,077		(33	)
	$	5,864	$	6,614	$	488

F-29

INTERNATIONAL SHIPHOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE P — ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

     Following are the components of the consolidated balance sheet classification Accounts Payable and Accrued Liabilities:

	December 31,		December 31,
(All Amounts in Thousands)	2006		2005
Accrued Voyage Expenses	$	26,411	$	26,783
Self-Insurance Liability		2,868		1,985
Lease Incentive Obligation		1,839		1,700
Accrued Salaries and Benefits		1,706		97
Accrued Interest Expense		623		942
Accrued Customs Liability		578		166
Accrued Insurance Premiums		362		431
Trade Accounts Payable		31		3,585
Other Short-Term Liabilities		—		37
Accrued Leasehold Improvement Costs		—		7,527
Accrued Payroll Taxes		—		4,170
	$	34,418	$	47,423

NOTE Q — DISCONTINUED OPERATIONS

     In 2005, we sold the assets associated with our over-the-road car transportation truck company. The decision to sell these assets was primarily the result of a decrease during 2005 in the volume of business available to us due to the loss of market share by one of our customers and an industry-wide shortage of drivers that caused underutilization of the assets. The sale of these assets was completed in July of 2005 and all proceeds were received and all associated costs were incurred before the end of that year. The carrying value of those assets before the sale was approximately $3,600,000; costs associated with the sale were $269,000; and net proceeds were $3,100,000 resulting in a net loss before taxes of $769,000.

     The components of loss from discontinued over-the-road transportation operations as reported on the income statements for the periods presented are described below:

	Year Ended December 31,
(All Amounts in Thousands)	2005			2004
Discontinued Operations:
Loss from Operations	$	(1,133	)	$	(629	)
Loss on Disposal of Assets		(769	)		—
Tax Benefit		632			220
	$	(1,270	)	$	(409	)

     Revenues associated with these operations for the years ended December 31, 2005 and 2004 were $2,534,000 and $4,326,000, respectively. The over-the-road car carrying truck company was reported in the “Other” segment in previous years.

F-30

INTERNATIONAL SHIPHOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE R — QUARTERLY FINANCIAL INFORMATION — (Unaudited)

(All Amounts in Thousands Except Share Data)

		Quarter Ended
		March 31			June 30			Sept. 30			Dec. 31
2006	Revenues	$	68,330		$	70,080		$	77,633		$	58,838	(1)
	Expenses		61,592			65,925			73,375			53,353
	Impairment Loss		—			8,866			—			-
	Gross Voyage Profit (Loss)		6,738			(4,711	)		4,258			5,485
	Income (Loss) from Continuing Operations		2,086			(6,464	)		(936	)		22,362	(2)
	Net Income (Loss) Available to Common Stockholders		1,486			(7,064	)		(1,536	)		21,762
	Basic and Diluted Earnings (Loss) per Common Share:
	Net Income (Loss) Available to Common Stockholders - Basic		0.24			(1.15	)		(0.25	)		3.56
	Net Income (Loss) Available to Common Stockholders — Diluted		0.24			(1.15	)		(0.25	)		2.75	(3)
2005	Revenues	$	68,823		$	67,731		$	63,561		$	62,041
	Expenses		59,684			59,200			59,358			58,134
	Gross Voyage Profit		9,139			8,531			4,203			3,907
	Income (Loss) from Continuing Operations		4,423			4,169			(202	)		(124	)
	Loss from Discontinued Operations		(330	)		(196	)		(643	)		(101	)
	Net Income (Loss) Available to Common Stockholders		3,526			3,373			(1,445	)		(825	)
	Basic and Diluted Earnings (Loss) per Common Share:
	Net Income (Loss) Available to Common Stockholders — Basic		0.58			0.55			(0.24	)		(0.14	)
	Net Income (Loss) Available to Common Stockholders — Diluted		0.51	(3)		0.49	(3)		(0.24	)		(0.13	)

(1) The decrease in revenue in the fourth quarter of 2006 was primarily related to a decrease in cargo volume on our LASH liner service due in part to the sale of one of the vessels in that service.

(2) Income from continuing operations in the fourth quarter of 2006 included a gain of $22,598,000, before taxes, on the sale of our entire 26.1% investment in Belden Shipholding Pte Ltd, a company that owns and operates cement carrier vessels. The sale was pursuant to an unsolicited offer.

(3) Restated to correct the calculation of the effects of the convertible shares from convertible exchangeable preferred stock (see Note S).

F-31

INTERNATIONAL SHIPHOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE S — EARNINGS PER SHARE

     Basic earnings per share were computed based on the weighted average number of common shares issued and outstanding during the relevant periods. Diluted earnings per share also considers dilutive potential common shares, including stock options using the treasury stock method and convertible preferred stock (issued in January 2005) using the if-converted method. The calculation of basic and diluted earnings per share is as follows (in thousands except share amounts):

	Year Ended December 31,
	2006		2005		2004
Numerator
Net Income available to Common Stockholders	$	14,648	$	4,629	$	12,785
Plus Preferred Stock Dividends		2,400		—		—
	$	17,048	$	4,629	$	12,785
Denominator
For Basic Earnings Per Common Share		6,116,036		6,083,005		6,082,887
Plus:
Effect of dilutive stock options		6,542		31,505		9,415
Effect of dilutive convertible shares		2,000,000		—		—
For Diluted Earnings Per Common Share		8,122,578		6,114,510		6,092,302
Basic Earnings per CommonShare	$	2.40	$	0.76	$	2.10
Diluted Earnings per Common Share	$	2.10	$	0.75	$	2.10

     The diluted earnings per share for the year ended December 31, 2006 has been restated from the previously reported amount of $2.39 based on a correction of the calculation of the effects of the convertible shares from our convertible exchangeable preferred stock.

F-32

SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report on Form 10-K/A (Amendment No. 1) to be signed by the undersigned, thereunto duly authorized.

	INTERNATIONAL SHIPHOLDING CORPORATION (Registrant)
May 15, 2007	By /s/ Manuel G. Estrada
	Manuel G. Estrada
	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)
May 15, 2007	By /s/ Manuel G. Estrada
	Manuel G. Estrada
	Vice President and Chief Financial Officer

S-1

EXHIBIT INDEX

Exhibit
Number	Description
(31.1)	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(31.2)	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(32.1)	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(32.2)	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002