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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
Commission file number 1-11862
INTERPOOL, INC.
(Exact name of registrant as specified in the charter)
Delaware 13-3467669
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
211 College Road East, Princeton, New Jersey 08540
(Address of principal executive office) (Zip Code)
(609) 452-8900
(Registrant's telephone number including area code)
As of May 12, 2000, 27,421,452 shares of common stock, $.001 par value were
outstanding.
Indicate by check 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 for the
past 90 days Yes _X_ No ___
INTERPOOL, INC. AND SUBSIDIARIES
INDEX
Page No.
Part I - Financial Information:
Introduction to Financial Statements 3
Condensed Consolidated Balance Sheets
March 31, 2000 and December 31, 1999 4
Condensed Consolidated Statements of Income
For the Three Months ended March 31, 2000 and 1999 5
Condensed Consolidated Statements of Cash Flows
For the Three Months ended March 31, 2000 and 1999 6
Condensed Consolidated Statements of Changes in Stockholders' Equity
For the Year Ended December 31, 1999 and the Three Months ended March 31, 2000 7
Notes to Condensed Consolidated Financial Statements 8 - 11
Management's Discussion and Analysis of
Financial Condition and Results of Operations 12 - 14
Part II - Other Information:
Item 6: Exhibits and Reports on Form 8-K 15
Signatures 16
Exhibits 17
2
PART I - FINANCIAL INFORMATION
INTERPOOL, INC. AND SUBSIDIARIES
FINANCIAL STATEMENTS
The condensed financial statements of Interpool, Inc. and Subsidiaries (the
"Company") included herein have been prepared by the registrant, without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations, although
the Registrant believes that the disclosures are adequate to make the
information presented not misleading. It is suggested that these condensed
financial statements be read in conjunction with the financial statements and
the notes thereto included in the Company's latest Annual Report on Form 10-K.
These condensed financial statements reflect, in the opinion of management, all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the results for the interim periods. The results of operations
for such interim periods are not necessarily indicative of the results for the
full year.
3
INTERPOOL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share amounts)
March 31, December 31,
ASSETS 2000 1999
----------- -----------
(Unaudited)
CASH AND SHORT-TERM INVESTMENTS $ 96,087 $ 207,388
MARKETABLE SECURITIES, at fair value 122 238
ACCOUNTS AND NOTES RECEIVABLE, less allowance of $11,318 and
$10,275 respectively 33,341 31,837
NET INVESTMENT IN DIRECT FINANCING LEASES 175,575 164,394
OTHER RECEIVABLES, net, including amounts from related parties of
$13,433 and $13,433, respectively 54,812 52,437
LEASING EQUIPMENT, net of accumulated depreciation and amortization of
$241,613 and $230,460, respectively 925,273 876,067
OTHER INVESTMENT SECURITIES, at fair value 31,747 33,359
OTHER ASSETS 81,935 77,539
----------- -----------
TOTAL ASSETS $ 1,398,892 $ 1,443,259
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
ACCOUNTS PAYABLE AND ACCRUED EXPENSES $ 46,018 $ 47,907
INCOME TAXES 21,590 18,995
DEFERRED INCOME 536 618
DEBT AND CAPITAL LEASE OBLIGATIONS, including $2,255 and $2,296
due to a related party, respectively:
Due within one year 116,456 115,286
Due after one year 827,115 882,942
----------- -----------
943,571 998,228
----------- -----------
COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES IN SUBSIDIARY
GRANTOR TRUSTS (holding solely junior Subordinated Deferrable interest
debentures of the Company) (75,000 shares
9-7/8% Capital Securities outstanding, liquidation preference $75,000) 75,000 75,000
MINORITY INTEREST IN EQUITY OF SUBSIDIARIES 1,313 1,144
STOCKHOLDERS' EQUITY:
Preferred stock, par value $.001 per share; 1,000,000 authorized, none issued -- --
Common stock, par value $.001 per share; 100,000,000 shares authorized,
27,579,952 issued at March 31, 2000 and December 31, 1999 28 28
Additional paid-in capital 124,184 124,184
Treasury stock, at cost, 158,500 shares in 2000 and 1999 (1,170) (1,170)
Retained earnings 187,127 177,612
Accumulated other comprehensive income 695 713
----------- -----------
Total stockholders' equity 310,864 301,367
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,398,892 $ 1,443,259
=========== ===========
The accompanying notes to consolidated financial statements are an integral part of these balance sheets.
4
INTERPOOL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share amounts)
(unaudited)
Three Months Ended
March 31,
2000 1999
------- -------
REVENUES $61,152 $56,571
------- -------
COST AND EXPENSES:
Lease operating and administrative expenses 19,848 14,272
Provision for doubtful accounts 862 4,617
Depreciation and amortization of leasing equipment 15,452 12,679
Other (income)/expense, net 363 396
Interest expense, net 13,634 14,851
------- -------
50,159 46,815
------- -------
Income before provision for income taxes, cumulative effect of change in
accounting principle and extraordinary gain 10,993 9,756
PROVISION FOR INCOME TAXES 1,950 500
------- -------
Income before cumulative effect of change in accounting principle and
extraordinary gain 9,043 9,256
Cumulative effect of change in accounting principle, net of applicable taxes of $440 660 --
Extraordinary gain on debt retirement, net of applicable taxes of $560 840 --
------- -------
NET INCOME $10,543 $ 9,256
======= =======
INCOME PER SHARE BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE AND
EXTRAORDINARY GAIN:
Basic $ 0.33 $ 0.34
======= =======
Diluted $ 0.33 $ 0.32
======= =======
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE:
Basic $ 0.02 NA
======= =======
Diluted $ 0.02 NA
======= =======
EXTRAORDINARY GAIN PER SHARE:
Basic $ 0.03 NA
======= =======
Diluted $ 0.03 NA
======= =======
NET INCOME PER SHARE:
Basic $ 0.38 $ 0.34
======= =======
Diluted $ 0.38 $ 0.32
======= =======
WEIGHTED AVERAGE SHARES OUTSTANDING (in thousands):
Basic 27,421 27,566
======= =======
Diluted 27,421 28,853
======= =======
The accompanying notes to consolidated financial statements are an integral part of these statements.
5
INTERPOOL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Three Months Ended
March 31,
2000 1999
--------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $10,543 $9,256
Adjustments to reconcile net income to net cash provided by operating activities --
Depreciation and amortization 16,052 13,068
Loss (gain) on sale of leasing equipment 423 (100)
Collections on net investment in direct financing leases 25,341 39,373
Income recognized on direct financing leases (5,904) (8,064)
Provision for uncollectible accounts 862 4,617
Gain on retirement of debt (840) ---
Cumulative effect of change in accounting principle (660) ---
Gain on securitized lease receivables --- (7,942)
Changes in assets and liabilities -
Accounts and notes receivable (2,259) (12,660)
Other receivables (2,375) 4,512
Other assets and non-cash transactions (3,268) (3,397)
Accounts payable and accrued expenses (3,989) (5,885)
Income taxes payable 828 574
Deferred income (81) 607
Minority interest in equity of subsidiaries 169 35
--------- --------
Net cash provided by operating activities 34,842 33,994
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of leasing equipment (75,619) (26,486)
Proceeds from dispositions of leasing equipment 3,641 3,504
Investment in direct financing leases (23,945) (11,732)
Changes in marketable securities and other investing activities 99 3,538
Change in accrued equipment purchases 4,527 (16,856)
--------- --------
Net cash used for investing activities (91,297) (48,032)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 14,419 20,548
Payment of long-term debt and capital lease obligations (36,620) (29,034)
Borrowings of revolving credit lines 48,253 27,141
Repayment of revolving credit lines (79,870) (116,420)
Proceeds from securitized lease receivables --- 189,212
Dividends paid (1,028) (1,034)
--------- --------
Net cash (used for) provided by financing activities (54,846) 90,413
-------- ------
Net increase (decrease) in cash and short-term investments (111,301) 76,375
CASH AND SHORT-TERM INVESTMENTS, beginning of period 207,388 107,226
--------- --------
CASH AND SHORT-TERM INVESTMENTS, end of period $96,087 $183,601
========= ========
The accompanying notes to condensed consolidated financial statements are an integral part of these statements.
6
INTERPOOL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND THE THREE MONTHS ENDED MARCH 31, 2000
(dollars and shares in thousands)
(Unaudited)
Preferred Stock Common Stock Accum.
--------------- ------------ Additional Other
Par Par Paid-in Treasury Retained Comp. Comp.
Shares Value Shares Value Capital Stock Earnings Income Income
------ ----- ------ ----- -------- ------- ------- ------ -------
BALANCE, December 31, 1998 -- $ -- 27,566 $ 28 $124,046 $ -- $159,138 $ 3
Net income -- -- -- -- -- -- 22,611 -- $22,611
Other comprehensive income -- -- -- -- -- -- -- 710 710
-------
Comprehensive income -- -- -- -- -- -- -- -- $23,321
=======
Shares issued on exercise of
stock option -- -- 14 -- 138 -- --
Purchase of 158,500 shares of
treasury stock -- -- -- -- -- (1,170) -- --
Cash dividends declared:
Common stock, $0.15 per
share -- -- -- -- -- -- (4,137) --
----- ----- ------ ------ -------- ------- ------- ----- -------
BALANCE, December 31, 1999 -- $ -- 27,580 $ 28 $124,184 $(1,170) $177,612 $ 713
===== ====== ==== ======== ======= ======= ===== =======
Net income -- -- -- -- -- -- 10,543 -- $10,543
Other comprehensive loss -- -- -- -- -- -- -- (18) (18)
-------
Comprehensive income -- -- -- -- -- -- -- -- $10,525
=======
Shares issued on exercise of
Stock option -- -- -- -- -- -- -- -- --
Cash dividends declared:
Common stock, $0.15 per
share -- -- -- -- -- -- (1,028) -- --
----- ----- ------ ---- --------- ------- --------- ----- -------
BALANCE, March 31, 2000 -- $ -- 27,580 $ 28 $ 124,184 $(1,170) $187,127 $ 695
===== ===== ====== ==== ========= ======= ========= ===== =======
The accompanying notes to consolidated financial statements are an integral part of these statements.
7
INTERPOOL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
Note 1 --Nature of operations and accounting policies:
A. Nature of operations:
The Company and its subsidiaries conduct business principally in a single
industry, the leasing of intermodal dry freight standard containers, chassis and
other transportation related equipment. Within this single industry, the Company
has two reportable segments: container leasing and domestic intermodal
equipment. The container leasing segment specializes in the leasing of
intermodal dry freight standard containers, while the domestic intermodal
equipment segment specializes in the leasing of intermodal container chassis and
other equipment, namely freight rail cars and intermodal trailers. The Company
leases its containers principally to international container shipping lines
located throughout the world. The customers for the Company's chassis are a
large number of domestic companies, many of which are domestic subsidiaries or
branches of international shipping lines. Equipment is purchased directly or
acquired through conditional sales contracts and lease agreements, many of which
qualify as capital leases.
The Company's accounting records are maintained in United States dollars
and the consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States.
B. Basis of consolidation:
The consolidated financial statements include the accounts of the Company
and subsidiaries more than 50% owned. All significant intercompany transactions
have been eliminated.
C. Net income per share:
Basic net income per share is computed by deducting preferred dividends
from net income to arrive at income attributable to common stockholders. This
amount is then divided by the weighted average number of shares outstanding
during the period. Diluted income per share reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock. The dilutive effect of stock options
have been added to the weighted shares outstanding in the diluted earnings per
share computation for the three months ended March 31, 1999. For the three
months ended March 31, 2000, the effect of stock options is antidilutive, thus
the common shares issuable has not been added to the weighted shares
outstanding.
A reconciliation of weighted average common shares outstanding to weighted
average common shares outstanding assuming dilution follows:
(in thousands)
Three Months Ended
March 31,
2000 1999
------ ------
Average common shares outstanding 27,421 27,566
Common shares issuable (1) -- 1,287
Average common shares outstanding assuming dilution 27,421 28,853
(1) Issuable under stock option plans
8
(Dollars in thousands, except per share amounts)
D. Comprehensive income:
The tax effect of comprehensive income is as follows:
Before-Tax Tax Net of Tax
Amount Effect Amount
---------- ------ ----------
Three Months Ended March 31, 2000
Unrealized gains on securities -
Unrealized holding gains arising during period $ 714 $ (19) $ 695
Less: Reclassification adjustments realized in net income -- -- --
----- ----- -----
Unrealized gain on marketable securities $ 714 $ (19) $ 695
===== ===== =====
Three Months Ended March 31, 1999
Unrealized losses on securities -
Unrealized holding losses arising during period $(103) $ 36 $ (67)
Less: Reclassification adjustments for gains realized in net income 86 (30) 56
----- ----- -----
Unrealized loss on marketable securities $(189) $ 66 $(123)
===== ===== =====
Note 2 -- Cash flow information:
For the three months ended March 31, 2000 and 1999 cash paid for
interest was approximately $24,937 and $25,154, respectively. Cash paid for
income taxes was approximately $300 and $1,048, respectively.
Note 3 -- Segment and geographic data:
The Company has two reportable segments: container leasing and domestic
intermodal equipment. The container leasing segment specializes in the leasing
of intermodal dry freight standard containers, while the domestic intermodal
equipment segment specializes in the leasing of intermodal container chassis and
other equipment, namely freight rail cars and intermodal trailers. Segments
below the quantitative threshold are included in other and specialize in the
leasing of microcomputers and other related equipment.
The accounting policies of the segments are the same as those described
in Note 1. The Company evaluates performance based on profit or loss from
operations before income taxes and extraordinary items. The Company's reportable
segments are strategic business units that offer different products and
services.
Segment Information:
- --------------------
Domestic
Container Intermodal
Three Months ended 2000: Leasing Equipment Other Totals
----------------------- ----------- ----------- ----------- -----------
Revenues from external customers $ 23,682 $ 26,847 $ 10,623 $ 61,152
Lease operating and administrative expenses 3,536 9,876 7,298 20,710
Depreciation and amortization 7,078 6,514 1,860 15,452
Other income/(expense), net (331) 66 (98) (363)
Interest income 1,617 2,806 -- 4,423
Interest expense 7,488 9,967 602 18,057
Income before taxes and extraordinary item 6,866 3,362 765 10,993
Net investment in DFL's 118,697 36,018 20,860 175,575
Leasing equipment, net 430,079 485,125 10,069 925,273
Equipment purchases 49,650 38,780 11,134 99,564
Total segment assets $ 639,079 $ 719,282 $ 40,531 $ 1,398,892
9
(Dollars in thousands, except per share amounts)
Domestic
Container Intermodal
Three Months ended 1999: Leasing Equipment Other Totals
---------------------- ----------- ----------- ----------- -----------
Revenues from external customers $ 32,024 $ 22,243 $ 2,304 $ 56,571
Lease operating and administrative expenses 6,754 11,546 589 18,889
Depreciation and amortization 6,299 5,313 1,067 12,679
Other income/(expense), net (206) (207) 17 (396)
Interest income 887 1,521 -- 2,408
Interest expense 7,473 9,404 382 17,259
Income before taxes and extraordinary item 12,179 (2,706) 283 9,756
Net investment in DFL's 55,292 29,297 20,283 104,872
Leasing equipment, net 367,477 383,934 6,112 757,523
Equipment purchases 12,535 21,320 4,363 38,218
Total segment assets $ 655,036 $ 568,062 $ 27,254 $ 1,250,352
The Company's shipping line customers utilize international containers in world
trade over many varied and changing trade routes. In addition, most large
shipping lines have many offices in various countries involved in container
operations. The Company's revenue from international containers is earned while
the containers are used in service carrying cargo around the world, while
certain other equipment is utilized in the United States. Accordingly, the
information about the business of the Company by geographic area is derived from
either international sources or from United States sources. Such presentation is
consistent with industry practice.
Geographic Information:
- -----------------------
2000 1999
---------- ----------
REVENUES:
United States $ 37,493 $ 32,513
International 23,659 24,058
---------- ----------
$ 61,152 $ 56,571
========== ==========
ASSETS:
United States $ 759,813 $ 595,316
International 639,079 655,036
---------- ----------
$1,398,892 $1,250,352
========== ==========
Note 4 -- Other contingencies and commitments:
At March 31, 2000, the Company had outstanding purchase commitments for
equipment of approximately $94,267.
Under certain of the Company's leasing agreements, the Company, as lessee,
may be obligated to indemnify the lessor for loss, recapture or disallowance of
certain tax benefits arising from the lessor's ownership of the equipment.
The Company is engaged in various legal proceedings from time to time
incidental to the conduct of its business. In the opinion of management, the
Company is adequately insured against the claims relating to such proceedings,
and any ultimate liability arising out of such proceedings will not have a
material adverse effect on the financial condition or results of operations of
the Company.
10
(Dollars in thousands, except per share amounts)
Note 5 -- Lease securitization program:
On March 30, 1999, the Company entered into an asset backed note program
(the "ABN Program"). The ABN Program involved the sale by the Company of direct
finance leases (collateralized by intermodal containers) with a historical net
book value of $228,832 (the "Assets"). The Assets were sold to a special purpose
entity whose sole business activity is issuing asset backed notes ("ABNs"),
supported by the future cash flows of the Assets. Proceeds received by the
Company upon selling the Assets were $189,087 of cash and the lowest priority
ABN issued in the ABN Program (the "Retained Interest") with an allocated
historical book value of $47,687.
The transaction was accounted for as a sale by the Company for financial
reporting purposes. Accordingly, the Company recorded a pre-tax gain from the
sale of $7,942 ($5,742 net of expenses) during the quarter ended March 31, 1999,
which is included in revenues in the accompanying consolidated statements of
income. The gain represents the difference between (i) the historical basis in
the net assets sold and (ii) the cash received plus the allocated historical
book value of the Retained Interest. The allocated historical book value of the
Retained Interest is determined using the relative amounts of the fair market
value of the interests sold to third parties, and the estimated fair market
value of Retained Interest.
The Company classified the Retained Interest as an available for sale
security which is included in "Other Investment Securities" in the accompanying
consolidated balance sheets. Accordingly, the Retained Interest is accounted for
at fair value, with any changes in fair value over its allocated historical book
value recorded as a component of other comprehensive income, net of tax, in the
statement of changes in shareholders' equity. As of March 31, 2000, the Company
estimated the fair market value of Retained Interest was $31,747 using a
discounted cash flow model assuming expected credit losses of 1.5% and a
discount rate of 12.1%. During the three months ended March 31, 2000, the
Company recorded interest income on the Retained Interest totaling $1,013 which
is included in revenues in the accompanying consolidated statements of income.
Interpool Limited, a subsidiary of the Company (the "Servicer"), acts as
servicer for the Assets. Pursuant to the terms of the servicing agreement, the
Servicer is paid a fee of 0.40% of the assets under management. The Company's
management has determined that the servicing fee paid approximates the fair
value for services provided, as such, no servicing asset or liability has been
recorded. For the three months ended March 31, 2000, the Company received
servicing fees totaling $176 which are included in revenues in the accompanying
consolidated statements of income.
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Company generates revenues through leasing transportation equipment,
primarily intermodal dry freight standard containers and container chassis. Most
of the Company's revenues are derived from payments under operating leases and
income earned under finance leases, under which the lessee has the right to
purchase the equipment at the end of the lease term. In May 1999, the Company's
Microtech subsidiary acquired a 51% interest in Personal Computer Rentals Inc.
(PCR), a nationwide lessor of computers and related equipment. The results for
PCR have been included in the consolidated financial statements of the Company
commencing with the quarter ended September 30, 1999. For the three months ended
March 31, 2000 and 1999 revenues from direct financing leases were $5.9 million
(10% of leasing revenues) and $8.1 million (17% of leasing revenues),
respectively.
Three Months Ended March 31, 2000 compared to Three Months Ended March 31, 1999
Revenues
The Company's revenues increased to $61.2 million for the three months
ended March 31, 2000, from $56.6 million in the three months ended March 31,
1999, an increase of $4.6 million or 8%. The increase was primarily due to a
$8.1 million increase in leasing revenues as a result of the acquisition of PCR,
as well as increased operating lease revenues generated by an expanded container
and chassis fleet, partially offset by a decrease in finance lease revenues of
$2.2 million as a result of the March 31, 1999 securitization of approximately
$235.5 million of lease receivables, as well as a gain of $7.9 million
recognized during the three months ended March 31, 1999, in connection with the
above mentioned securitization. Utilization rates of the container and chassis
operating lease fleet at March 31, 2000 were 99% and 96%, respectively, and at
March 31, 1999 were 96% and 92%, respectively.
Lease Operating and Administrative Expenses
The Company's lease operating and administrative expenses increased to
$20.7 million for the three months ended March 31, 2000 from $18.9 million in
the three months ended March 31, 1999, an increase of $1.8 million. The increase
was primarily due to $6.5 million of lease operating and administrative expenses
as a result of the acquisition of PCR, as well as higher operating and
administrative costs resulting from expanded operations generating increased
commission, storage, consulting and salary expense, partially offset by
additional bad debt reserves for specific losses incurred during the three
months ended March 31, 1999, as well as incremental administrative costs
incurred in connection with the securitization facility established on March 30,
1999.
Depreciation and Amortization of Leasing Equipment
The Company's depreciation and amortization expenses increased to $15.5
million in the three months ended March 31, 2000 from $12.7 million in the three
months ended March 31, 1999, an increase of $2.8 million. The increase was due
to an increased fleet size, as well as $1.1 million of depreciation and
amortization as a result of the acquisition of PCR.
Other (Income)/Expense, Net
The decrease in other (income)/expense, net was due to an increase in the
Company's income from unconsolidated subsidiaries of $.6 million. Additionally,
the Company's net loss on sale of leasing equipment increased $.5 million in the
three months ended March 31, 2000.
Interest Expense, Net
The Company's net interest expense decreased to $13.6 million in the three
months ended March 31, 2000 from $14.9 million in the three months ended March
31, 1999, a decrease of $1.3 million. The decrease in net interest expense was
due to increased investment income of $2.0 million, partially offset by
increased interest expenses of $.7 million. The increase in interest expense was
primarily due to increased borrowings to fund capital expenditures resulting in
incremental interest expense of $.7 million.
12
Provision for Income Taxes
The Company's provision for income taxes increased to $2.0 million from $.5
million primarily due to a higher effective tax rate resulting from greater
income contribution from the domestic intermodal division.
Income Before Cumulative Effect of Change in Accounting Principle and
Extraordinary Gain
As a result of the factors described above, the Company's net income before
cumulative effect of charge in accounting principle and extraordinary gain was
$9.0 million in the three months ended March 31, 2000 versus net income of $9.3
million in the three months ended March 31, 1999.
Cumulative Effect of Change in Accounting Principle
The Company recorded the cumulative effect of a change in accounting
principle of $.7 million in the three months ended March 31, 2000. This
represents a change in the Company's accounting for its maintenance and repairs
expense from an accrual to cash basis, in accordance with a recent Securities
and Exchange Commission requirement.
Extraordinary Gain
The Company recorded an extraordinary gain on the retirement of debt of $.8
million in the three months ended March 31, 2000.
Net Income
As a result of the factors described above, the Company's net income
increased to $10.5 million in the three months ended March 31, 2000 from $9.3
million in the three months ended March 31, 1999.
Liquidity and Capital Resources
The Company uses funds from various sources to finance the acquisition of
equipment for lease to customers. The primary funding sources are cash provided
by operations, borrowings, generally from banks, securitization of lease
receivables, the issuance of capital lease obligations and the sale of the
Company's debt securities. In addition, the Company generates cash from the sale
of equipment being retired from the Company's fleet. In general, the Company
seeks to meet debt service requirements from the leasing revenue generated by
its equipment.
The Company generated cash flow from operations of $34.8 million and $34.0
million in the first three months of 2000 and 1999, respectively, and net cash
(used for) provided by financing activities was $(54.8) million and $90.4
million for the first three months of 2000 and 1999, respectively. The Company
has purchased the following amounts of equipment: $99.6 million for the three
months ended March 31, 2000 and $38.2 million for the three months ended March
31, 1999.
On March 30, 1999, the Company established a securitization facility of
$250.0 million. This program provides the Company with a lower cost of capital
for its finance lease business and access to an additional source of funding.
Included in other investment securities at March 31, 2000, is approximately
$31.7 million of retained interests in the securitized lease receivables. At
March 31, 2000, $148.2 million of the securitization facility was utilized.
The Company has a $215.0 million revolving credit facility with a group of
commercial banks; on March 31, 2000, $140.0 million was outstanding. The term of
this facility extends until May 31, 2000 (unless the lender elects to renew the
facility) at which time a maximum of 10% of the amount then outstanding becomes
due, with the remainder becoming payable in equal monthly installments over a
five year period. The Company is currently in discussions with its lenders
regarding a renewal of the revolving credit facility. In addition, as of March
31, 2000, the Company had available lines of credit of $54.5 million under
various facilities, under which $14.8 million was outstanding. Interest rates
under these facilities ranged from 6.6% to 7.9%. At March 31, 2000, the Company
had total debt outstanding of $943.6 million. Subsequent to March 31, 2000 the
Company has continued to incur and repay debt obligations in connection with
financing its equipment leasing activities.
As of March 31, 2000, commitments for capital expenditures totaled
approximately $94.3 million. The Company expects to fund such capital
expenditures through some combination of cash flow from the Company's
operations, borrowings under its available credit facilities and additional
funds raised through the sale of its debt securities in the private and/or
public markets.
The Company believes that cash generated by continuing operations, together
with existing short-term credit facilities, the issuance of debt securities in
the appropriate markets and the portion of the proceeds remaining from recent
debt security sales will be sufficient to finance the Company's working capital
needs for its existing business, planned capital expenditures, investments and
expected debt repayments over the next twelve months. The Company anticipates
that long-term financing will continue to be available for the purchase of
equipment to expand its business
13
in the future. In addition, from time to time, the Company explores new sources
of capital both at the parent and subsidiary levels.
In September 1999, the Company made a proposal to negotiate acquiring The
Cronos Group (Cronos), a container lessor, through an affiliate Container
Applications International, Inc. pursuant to which each shareholder of Cronos
would receive $5.00 per share in cash. The Cronos Group Board of Directors
rejected the proposal to negotiate and subsequently instituted a Shareholder
Rights Plan. Under the plan, the Rights will be exercisable only if triggered by
a person's or group's acquisition of 20% or more of Cronos Common Stock. If
triggered, each Right, other than Rights held by the acquiring person or group,
would entitle its holder to purchase a specified number of the Company's common
shares for 50% of their market value at that time. In December 1999, the Company
entered into a confidentiality and standstill agreement with Cronos and has
agreed to withdraw its nominees for election to the Cronos Board of Directors.
As previously announced, the Company has authorized the repurchase up to
1,000,000 shares of its common stock. The shares can be purchased from time to
time through open market purchases or privately negotiated transactions. A total
of 158,500 shares were purchased by the Company during the fourth quarter of
1999, for an aggregate purchase price of $1.17 million.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities. The Statement establishes accounting and reporting
standards requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded in the balance
sheet as either an asset or liability measured at its fair value. The Statement
requires that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special accounting
for qualifying hedges allows a derivative's gain and losses to offset related
results on the hedge item in the income statement, and requires that a company
must formally document, designate, and assess the effectiveness of transactions
that receive hedge accounting.
Statement 133 is effective for fiscal years beginning after June 15, 2000.
A company may also implement the Statement as of the beginning of any fiscal
quarter after issuance (that is, fiscal quarters beginning June 16, 1998 and
thereafter). Statement 133 cannot be applied retroactively. Statement 133 must
be applied to (a) derivative instruments and (b) certain derivative instruments
embedded in hybrid contracts that were issued, acquired, or substantively
modified after December 31, 1997 (and, at the company's election before January
1, 1998). The Company has not yet quantified the impacts of adopting Statement
133 on its financial statements and has not determined the timing or method of
our adoption of Statement 133. However, the Statement could increase volatility
in earnings and other comprehensive income.
14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 99: (1) Press Release dated March 1, 2000
(incorporated by reference to the
Company's Form 10-K for the year ended
December 31, 1999)
(2) Press Release dated March 27, 2000
(3) Press Release dated May 8, 2000
(b) Reports on Form 8-K:
None
15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTERPOOL, INC.
Dated: May 12, 2000 \s\Martin Tuchman
----------------------------------
Martin Tuchman
Chief Executive Officer
Dated: May 12, 2000 \s\William Geoghan
----------------------------------
William Geoghan
Senior Vice President
16
INDEX TO EXHIBITS
Filed with Interpool, Inc.
Report on Form 10-Q for the Quarter Ended March 31, 2000
Exhibit No.
99: (1) Press Release dated March 1, 2000 (incorporated by
reference to the Company's Form 10-K for the year ended
December 31, 1999)
(2) Press Release dated March 27, 2000
(3) Press Release dated May 8, 2000
17
FOR: INTERPOOL, INC.
FOR IMMEDIATE RELEASE
CONTACT: Raoul J. Witteveen
President, Chief Operating Officer
and Chief Financial Officer
(212) 916-3261
Morgen-Walke Associates
Gordon McCoun, Jennifer Angell
Media contact: Heather Fox
(212) 850-5600
INTERPOOL, INC. TO PAY CASH DIVIDEND ON COMMON STOCK
----------------------------------------------------
PRINCETON, N.J., March 27, 2000 - Interpool, Inc. (NYSE: IPX) announced today
that it will pay a cash dividend of 3.75 cents per share for the first quarter
of 2000. The dividend will be payable on April 17, 2000 to shareholders of
record on April 3, 2000. The aggregate amount of the dividend is expected to be
approximately $1,028,000.00. The amount of the quarterly dividend is based on a
2000 annualized dividend rate of 15 cents per share.
Interpool, originally founded in 1968, is one of the world's leading lessors of
cargo containers used in international trade and is the second largest lessor of
intermodal container chassis in the United States. Interpool leases its
containers and chassis to over 200 customers, including nearly all of the
world's 20 largest international container shipping lines.
###
Note: This press release and other press releases and information can be viewed
at the Company's website at www.interpool.com.
18
FOR: INTERPOOL, INC.
FOR IMMEDIATE RELEASE
CONTACT: Raoul J. Witteveen
President, Chief Operating Officer
and Chief Financial Officer
(212) 916-3261
Morgen-Walke Associates:
Gordon McCoun, Jennifer Angell
Media contacts: Heather Fox
(212) 850-5600
INTERPOOL, INC. REPORTS 1ST QUARTER 2000 RESULTS
------------------------------------------------
- Income of $9.0 Million, or $0.33 Per Diluted Share,
Before Non-recurring and Extraordinary Gains -
PRINCETON, NJ, May 8, 2000 -- Interpool, Inc. (NYSE:IPX) reported today that net
income before non-recurring and extraordinary gains for the first quarter ended
March 31, 2000 was $9,043,000 or $0.33 per diluted share, compared with net
income of $9,256,000, or $0.32 per diluted share, for the same period in 1999.
Revenues during the first quarter of 2000 were $61,152,000, compared to
$56,571,000 in the first quarter of 1999. Operating income was $24,627,000 in
the quarter versus $24,607,000 for the same period last year.
First quarter 2000 earnings included an after-tax gain of $840,000, or $0.03 per
diluted share, related to the retirement of $11,200,000 in senior unsecured
notes. Also, first quarter 2000 earnings included an after-tax gain of $660,000
resulting from a one-time cumulative effect of change in accounting principle as
recently required by the Securities and Exchange Commission. Including these
items, net income for the first quarter 2000 was $10,543,000, or $0.38 per
diluted share.
Revenues and pre-tax profits from Interpool's containers and chassis operating
leases showed strong growth year-over-year due to increases in the size of the
fleets, strong fleet utilization, and attractive spreads between lease rates and
cost of capital. Operating lease revenues grew 21% from last year, while pre-tax
profits increased by 66%. The Company's container operating lease fleet at the
end of the first quarter was approximately 315,000 TEUs (twenty-foot-equivalent
units), up from 244,000 TEUs at the end of the 1999 first
- MORE -
19
Interpool 1Q00 May 8, 2000 Page 2
quarter and from 292,000 TEUs at the end of the fourth quarter. The chassis
operating lease fleet at March 31st was 88,000, up from 72,000 last year and
from 84,000 at the end of the previous quarter. Utilization of the container
fleet for the first quarter was 99%, up from 98% at the end of the fourth
quarter. Chassis utilization continued to increase, and reached 96% in the first
quarter, compared to 95% in the fourth quarter of 1999 and 92% in mid-1999.
Container pricing has stabilized since the 1999 second quarter and continues to
trend upwards, while chassis prices remain firm at current levels.
Results in the finance lease business continued to increase on a sequential
basis reflecting an increase in the portfolio and the widening of lease spreads.
Revenues increased to $3,928,000 from $2,957,000 in the fourth quarter, while
pre-tax profits grew to $1,398,000 from the $324,000 reported in the previous
quarter. On a year-over-year basis, both revenues and pre-tax profits declined
due to the Company's securitization of a substantial portion of its finance
lease portfolio during the first quarter of 1999.
Martin Tuchman, Chairman and Chief Executive Officer, commented: "We are
extremely pleased with the strong performance of our container and chassis
leasing business and the resumption of growth on our finance leases. The
Company's container business continues to experience strong demand in Europe and
the Far East. We continue to receive attractive leasing rates on our container
and chassis equipment. Orders for new equipment in the chassis business remain
at high levels, which indicates to us that the current upturn is sustainable. We
are seeing these strong trends continue into the second quarter, although we
expect this growth to moderate in the second half of the year due to the impact
of industry cyclicalities and seasonal factors."
Mr. Tuchman concluded: "We have entered the new year in a very strong financial
position with ample resources available for investment to enable us to
participate in this improving market. We concluded the first quarter with about
$96,000,000 in cash on our balance sheet and over $75,000,000 available on our
credit lines. With our strong cash position, we reduced our debt by
approximately $50,000,000 since the end of 1999 in addition to investing capital
into our operating lease and other businesses. We expect the strength of our
financial position, combined with the positive trends we are seeing in our
operations, to translate into sustainable earnings growth for 2000 and beyond."
Interpool, originally founded in 1968, is one of the world's leading lessors of
cargo containers used in international trade and is the second largest lessor of
intermodal container chassis in the United States. Interpool leases its
containers and chassis to over 200 customers, including nearly all of the
world's 20 largest international container shipping lines.
This Press Release contains certain forward-looking statements regarding future
circumstances. These forward-looking statements are subject to risks and
uncertainties that could cause actual results to differ materially from those
contemplated in such forward-looking statements, including in particular the
risks and uncertainties described in the company's SEC filings. The company
undertakes no obligation to publicly release any revisions to these
forward-looking statements to reflect events or circumstances after the date
hereof.
Note: This press release and other press releases and information can be viewed
at the Company's website at www.interpool.com.
- TABLES FOLLOW -
20
INTERPOOL, INC.
CONSOLIDATED STATEMENT OF INCOME
(In thousands, except amounts per share)
(Unaudited)
Three Months
Ended
March 31,
2000 1999
------- -------
REVENUES $61,152 $56,571
LEASE OPERATING AND ADMINISTRATIVE EXPENSES 20,710 18,889
DEPRECIATION AND AMORTIZATION OF LEASING EQUIPMENT 15,452 12,679
OTHER (INCOME)/EXPENSE, NET 363 396
------- -------
EARNINGS BEFORE INTEREST AND TAXES 24,627 24,607
INTEREST EXPENSE, NET 13,634 14,851
------- -------
INCOME BEFORE TAXES, CHANGE IN ACCOUNTING PRINCIPLE
AND EXTRAORDINARY GAIN 10,993 9,756
PROVISION FOR INCOME TAXES 1,950 500
------- -------
INCOME BEFORE CHANGE IN ACCOUNTING PRINCIPLE
AND EXTRAORDINARY GAIN $ 9,043 $ 9,256
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE,
NET OF APPLICABLE TAXES OF $440 (1) 660 --
EXTRAORDINARY GAIN ON RETIREMENT OF DEBT,
NET OF APPLICABLE TAXES OF $560 (2) 840 --
------- -------
NET INCOME $10,543 $ 9,256
======= =======
INCOME PER SHARE BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE AND
EXTRAORDINARY GAIN:
BASIC $ 0.33 $ 0.34
DILUTED $ 0.33 $ 0.32
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (1):
BASIC $ 0.02 N/A
DILUTED $ 0.02 N/A
EXTRAORDINARY GAIN ON RETIREMENT OF DEBT (2):
BASIC $ 0.03 N/A
DILUTED $ 0.03 N/A
NET INCOME PER SHARE:
BASIC $ 0.38 $ 0.34
DILUTED $ 0.38 $ 0.32
WEIGHTED AVERAGE SHARES OUTSTANDING:
BASIC 27,421 27,566
DILUTED 27,421 28,853
<FN>
(1) Represents a change in the Company's accounting for its maintenance and
repairs expense from an accrual to cash basis, in accordance with the
recent Securities and Exchange Commission requirement.
(2) Represents gain on retirement of $8.2 million face value of Interpool, Inc.
6-5/8% Notes due March 1, 2003 and $3.0 million face value of Interpool,
Inc. 7.35% Notes due August 1, 2007.
</FN>
- TABLES CONTINUE -
21
INTERPOOL, INC.
CONSOLIDATED BALANCE SHEET
(In thousands)
(Unaudited)
March 31, December 31,
2000 1999
---------- ----------
ASSETS
Cash and short-term investments and marketable securities $ 96,203 $ 207,626
Accounts and notes receivable, net 33,341 31,837
Net investment in direct financing leases 180,928 164,394
Other receivables, net 54,812 52,437
Revenue producing equipment, net 925,273 876,067
Other investment securities 31,747 33,359
Other assets 81,935 77,539
---------- ----------
TOTAL ASSETS $1,404,239 $1,443,259
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses $ 46,020 $ 47,907
Income taxes 21,590 18,995
Deferred income 536 618
Debt and capital lease obligations 948,924 998,228
Capital securities 75,000 75,000
Minority interest 1,313 1,144
Stockholders' equity 310,856 301,367
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,404,239 $1,443,259
========== ==========
22
INTERPOOL, INC.
BUSINESS OPERATIONS BREAKDOWN
(In thousands)
(Unaudited)
PRETAX
REVENUES PROFIT/(LOSS)
-------- -------------
Three Months Ended Three Months Ended
March 31, March 31,
2000 1999 2000 1999
-------- -------- -------- --------
OPERATING LEASE BUSINESS $ 45,863 $ 37,774 $ 12,058 $ 7,251
FINANCE LEASE BUSINESS 3,928 16,294 1,398 7,158
OTHER OPERATIONS 11,101 2,503 (106) (1,495)
CORPORATE/INVESTMENT DIVISION 4,091 2,174 (2,357) (3,158)
###
23