1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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, 1998
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, 1998, 27,551,728 shares of common stock, $.001 par value were
outstanding.
Indicate by check X 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 / /
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INTERPOOL, INC. AND SUBSIDIARIES
INDEX
Page No.
PART I - FINANCIAL INFORMATION:
Introduction to Financial Statements ......................... 3
Consolidated Balance Sheets
March 31, 1998 and December 31, 1997 ......................... 4
Consolidated Statements of Income
For the Three Months ended March 31, 1998 and 1997 ........... 5
Consolidated Statements of Cash Flows
For the Three Months ended March 31, 1998 and 1997 ........... 6
Consolidated Statements of Stockholders' Equity
For the Three Months ended March 31, 1998 .................... 7
Notes to Consolidated Financial Statements ................... 8 - 9
Management's Discussion and Analysis of
Financial Condition and Results of Operations ................ 10 - 12
PART II - OTHER INFORMATION:
Item 6: Exhibits and Reports on Form 8-K .................. 13
Signatures.................................................... 14
Exhibits ..................................................... 15
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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.
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INTERPOOL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
(Unaudited)
March 31, December 31,
1998 1997
----------- -----------
ASSETS
CASH AND SHORT-TERM INVESTMENTS ............................................. $ 11,608 $ 30,402
MARKETABLE SECURITIES ....................................................... 13,453 12,574
ACCOUNTS AND NOTES RECEIVABLE, less allowance of
$3,710 and $3,633 ......................................................... 28,465 27,448
NET INVESTMENT IN DIRECT FINANCING LEASES ................................... 377,493 363,366
OTHER RECEIVABLES ........................................................... 40,615 35,744
LEASING EQUIPMENT, at cost .................................................. 763,871 745,351
Less--accumulated depreciation and amortization ............................. (145,582) (136,989)
----------- -----------
LEASING EQUIPMENT, net ...................................................... 618,289 608,362
OTHER ASSETS ................................................................ 41,021 36,560
----------- -----------
TOTAL ASSETS ............................................................ $ 1,130,944 $ 1,114,456
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
ACCOUNTS PAYABLE AND ACCRUED EXPENSES ....................................... $ 19,711 $ 26,139
INCOME TAXES:
Current ................................................................. 1,000 836
Deferred ................................................................ 16,749 15,269
----------- -----------
17,749 16,105
DEFERRED INCOME ............................................................. 1,799 2,030
DEBT AND CAPITAL LEASE OBLIGATIONS:
Due within one year ..................................................... 85,417 74,830
Due after one year ...................................................... 672,603 669,397
----------- -----------
758,020 744,227
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 ................................. 520 509
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, 27,551,728 outstanding ...................................... 28 28
Additional paid-in capital .............................................. 124,046 124,046
Retained earnings ....................................................... 132,734 125,657
Accumulated other comprehensive income .................................. 1,337 715
----------- -----------
Total stockholders' equity ............................................ 258,145 250,446
----------- -----------
Total liabilities and stockholders' equity ......................... $ 1,130,944 $ 1,114,456
=========== ===========
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets
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INTERPOOL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
(Unaudited)
Three Months Ended
March 31,
1998 1997
-------- --------
REVENUES ................................................................. $ 42,832 $ 38,176
COSTS AND EXPENSES:
Lease operating and administrative expenses .............................. 10,919 8,343
Depreciation and amortization of leasing equipment ....................... 9,727 8,531
Gain on sale of leasing equipment ........................................ (218) (329)
Interest expense, net .................................................... 13,194 11,062
Non-recurring charge ..................................................... -- --
-------- --------
33,622 27,607
Income before provision for income taxes & extraordinary loss ............ 9,210 10,569
Provision for income taxes ............................................... 1,100 1,475
-------- --------
Income before extraordinary loss ......................................... 8,110 9,094
Extraordinary item - loss on early retirement of debt, net of
tax benefit of $225 .................................................... -- 328
-------- --------
NET INCOME ............................................................... $ 8,110 $ 8,766
======== ========
Income per share before extraordinary loss and premium paid
on redemption of preferred stock:
Basic ................................................................. $ 0.29 $ 0.31
Diluted ............................................................... $ 0.28 $ 0.29
Extraordinary loss on retirement of debt:
Basic ................................................................. NA ($ 0.01)
Diluted ............................................................... NA ($ 0.01)
Premium paid on redemption of preferred stock:
Basic ................................................................. NA ($ 0.26)
Diluted ............................................................... NA ($ 0.21)
NET INCOME PER SHARE:
Basic ................................................................. $ 0.29 $ 0.05
Diluted ............................................................... $ 0.28 $ 0.05
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING (in Thousands):
Basic ................................................................. 27,552 26,326
Diluted ............................................................... 28,510 31,773
The accompanying notes to consolidated financial statements
are an integral part of these statements.
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INTERPOOL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Three Months Ended
March 31,
1998 1997
--------- --------
Cash flows from operating activities:
Net income .................................................... $ 8,110 $ 8,766
Adjustments to reconcile net income to net cash provided by
Operating activities:
Depreciation and amortization ................................. 10,148 8,984
Gain on sale of leasing equipment ............................. (218) (329)
Collections on direct financing leases ........................ 27,710 22,503
Income recognized on direct financing leases .................. (8,986) (8,308)
Provision for uncollectible accounts .......................... 470 379
Changes in assets and liabilities:
Accounts and notes receivable ................................. (1,437) (3,830)
Other receivables ............................................. 826 (1,163)
Other assets and non-cash transactions ........................ (2,629) (266)
Accounts payable and accrued expenses ......................... (6,428) 1,041
Income taxes payable .......................................... 1,309 189
Deferred income ............................................... (231 (170)
Minority interest in equity of subsidiaries ................... 11 13
--------- --------
Net cash provided by operating activities ..................... 28,655 27,809
--------- --------
Cash flows from investing activities:
Acquisition of leasing equipment .............................. (16,521) (1,711)
Proceeds from dispositions of leasing equipment ............... 1,453 1,782
Investment in direct financing leases ......................... (36,990) (26,228)
Investment in loan receivables ................................ (5,698) --
Changes in marketable securities and other investing activities 77 (7,956)
--------- --------
Net cash used for investing activities ........................ (57,679) (34,113)
--------- --------
Cash flows from financing activities:
Proceeds from issuance of debt ................................ 112,773 40,013
Payments of debt and capital lease obligations ................ (101,510) (44,915)
Proceeds from issuance of capital securities .................. -- 73,300
Redemption of preferred stock ................................. -- (52,871)
Cash dividends paid ........................................... (1,033) (1,859)
--------- --------
Net cash provided by financing activities ..................... 10,230 13,668
--------- --------
Net (decrease) increase in cash and short-term investments .... (18,794) 7,364
Cash and short-term investments, beginning of period .......... 30,402 45,333
--------- --------
Cash and short-term investments, end of period ................ $ 11,608 $ 52,697
========= ========
The accompanying notes to consolidated financial statements
are an integral part of these statements.
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INTERPOOL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(Dollars and shares in thousands)
(Unaudited)
Accumulated
Shares of Shares of Additional Other
Preferred Par Common Par Paid-In Retained Comprehensive
Stock Value Stock Value Capital Earnings Income
----- ----- ----- ----- ------- -------- ------
Balance, December 31, 1997 ... 0 $0 27,552 $28 $124,046 $125,657 $ 715
Net income ............... 8,110
Accumulated Other
Comprehensive Income . 622
Cash Dividends declared:
Preferred stock ...... 0
Common stock ......... (1,033)
------ -- ------ --- -------- -------- ------
Balance, March 31, 1998 ...... -- -- 27,552 $28 $124,046 $132,734 $1,337
====== == ====== === ======== ======== ======
The accompanying notes to consolidated financial statements
are an integral part of these statements.
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INTERPOOL, INC. AND SUBSIDIARIES
NOTES TO 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 segment, the leasing of intermodal dry freight standard containers,
chassis and other transportation related equipment. 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
and shares issuable upon the conversion of the 5 3/4% Cumulative Convertible
Preferred Stock and the 5 1/4% Convertible Exchangeable Subordinated Notes have
been added to the weighted shares outstanding and interest expense net of tax
effect on the notes has been added to net income in the diluted earnings per
share computation. Per share amounts and common shares outstanding have been
restated to give effect to the three-for-two stock split effected March 27,
1997.
A reconciliation of weighted average common shares outstanding to weighted
average common shares outstanding assuming dilution follows:
(in thousands)
1998 1997
---- ----
Average common shares outstanding ................. 27,552 26,326
Common shares issuable (1) ........................ 958 5,447
Average common shares outstanding assuming dilution 28,510 31,773
(1) Issuable under stock option plans in 1998 and both stock option plans and
conversion of convertible securities in 1997.
Stock options outstanding at March 31, 1998 to purchase 1.5 million shares
of common stock were not included in the computation of net income per share
assuming dilution because the options' exercise prices were greater than the
average market price of the common shares.
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D. COMPREHENSIVE INCOME:
Effective January 1, 1998, the Company adopted the provisions of Financial
Accounting Standards Board Statement No. 130, "Reporting Comprehensive Income,"
which establishes standards for reporting and displaying comprehensive income
and its components. Upon adoption of this Statement, the accumulated net
unrealized gain on the Company's available-for-sale investments of $715 at
December 31, 1997 was reclassified from Net unrealized gain on marketable
securities to Accumulated other comprehensive income. Adoption of this statement
has no effect on the Company's financial position or operating results.
The following is a reconciliation of net income to comprehensive income for
the periods ended March 31,:
1998 1997
---- ----
Net Income .......................................... $8,110 $ 8,776
Net unrealized gain (loss) on marketable securities . 622 (45)
------ -------
Comprehensive Income ................................ $8,732 $ 8,731
====== =======
NOTE 2 -- CASH FLOW INFORMATION:
For the three months ended March 31, 1998 and 1997, cash paid for interest
was approximately $21,122 and $11,313, respectively. Cash paid for income taxes
was approximately $451 and $1,066, respectively.
NOTE 3 -- OTHER CONTINGENCIES AND COMMITMENTS:
At March 31, 1998, the Company had outstanding purchase commitments for
equipment of approximately $50,000.
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.
NOTE 4 -- SIGNIFICANT EVENTS:
On February 24, 1998, the Company issued $100,000 principal amount of
6-5/8% Notes due 2003. The net proceeds were used to repay $83,000 in borrowings
under the revolving credit agreement and for other general corporate purposes.
Subsequent to the end of the first quarter, on April 30, 1998, the
Company acquired a 50% interest in Container Applications International, Inc.
(CAI), a container leasing company whose business is primarily in the short term
master lease market. CAI would not be deemed a "significant subsidiary" of the
Company for purposes of the Securities and Exchange Commission accounting
requirements.
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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 the three months ended
March 31, 1998 and 1997 revenues from direct financing leases were $9.0 million
(21% of revenues) and $8.3 million (22% of revenues), respectively.
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
REVENUES
The Company's revenues increased to $42.8 million for the three months
ended March 31, 1998 from $38.2 million in the three months ended March 31,
1997, an increase of $4.6 million or 12%. The increase was due to increased
leasing revenues generated by an expanded container and chassis fleet size.
Revenues for the three months ended March 31, 1998 were $21.8 million for the
Interpool Limited international container division and $21.0 million for the
domestic intermodal division. This compared to $20.8 million for the Interpool
Limited international container division and $17.4 million for the domestic
intermodal division for the three months ended March 31, 1997.
LEASE OPERATING AND ADMINISTRATIVE EXPENSES
The Company's lease operating and administrative expenses increased to
$10.9 million for the three months ended March 31, 1998 from $8.3 million in the
three months ended March 31, 1997, an increase of $2.6 million. The increase was
due to higher operating costs of $2.0 million resulting from expanded operations
generating increased maintenance and repair, positioning, commission and
insurance expenses. Also an increase of $.6 million in administrative costs
resulting from both increased operations and inflation contributed to the
increase. The increased expenses were primarily incurred on the domestic
intermodal division operations.
DEPRECIATION AND AMORTIZATION OF LEASING EQUIPMENT
The Company's depreciation and amortization expenses increased to $9.7
million in the three months ended March 31, 1998 from $8.5 million in the three
months ended March 31, 1997, an increase of $1.2 million. The increase was due
to an increased fleet size.
GAIN ON SALE OF LEASING EQUIPMENT
The Company's gain on sale of leasing equipment decreased to $.2 million in
the three months ended March 31, 1998 from $.3 million in the three months ended
March 31, 1997.
INTEREST EXPENSE, NET
The Company's net interest expense increased to $13.2 million in the three
months ended March 31, 1998 from $11.1 million in the three months ended March
31, 1997, an increase of $2.1 million. The issuance of capital securities in
late January 1997 increased interest expense by $.6 million in the 1998 period
versus the 1997 period. The remaining increase in interest expense was due to
increased financings necessary to fund capital expenditures.
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PROVISION FOR INCOME TAXES
The Company's provision for income taxes decreased to $1.1 million from
$1.5 million due to a lower effective tax rate resulting from lower taxable
income in the domestic intermodal division including higher deductible interest
expense on new borrowings in 1997.
INCOME BEFORE EXTRAORDINARY LOSS
As a result of the factors described above, the Company's income before
extraordinary loss decreased to $8.1 million in the three months ended March 31,
1998 from $9.1 million in the three months ended March 31, 1997. For the three
months ended March 31, 1998 the Interpool Limited international container
division contributed $7.6 million to income before extraordinary loss while the
domestic intermodal division contributed $.5 million. This compares to the three
months ended March 31, 1997 where the Interpool Limited international container
division contributed $7.5 million to income before extraordinary loss while the
domestic intermodal division contributed $1.6 million.
EXTRAORDINARY LOSS
An extraordinary loss of $.3 million, net of tax benefit, was recorded in
the three months ended March 31, 1997. This loss resulted from the retirement of
debt replaced with the proceeds of other financings.
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, the issuance of capital lease
obligations and the sale of 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 $28.7 million and $27.8
million in the first three months of 1998 and 1997, respectively, and net cash
provided by financing activities was $10.2 million and $13.7 million for the
first three months of 1998 and 1997, respectively. The Company has purchased the
following amounts of equipment: $53.5 million for the three months ended March
31, 1998 and $27.9 million for the three months ended March 31, 1997.
In February 1998, the Company issued $100 million principal amount of
6-5/8% Notes due 2003. The net proceeds were used to repay $83 million in
borrowings under the revolving credit agreement and for other general corporate
purposes.
The Company has a $200.0 million revolving credit facility with a group of
commercial banks; on March 31, 1998, $26.0 million was outstanding. The term of
this facility extends until May 31, 1999 (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. In addition, as of March 31, 1998, the Company had available
lines of credit of $98.0 million under various facilities, under which $33.5
million was outstanding. Interest rates under these facilities ranged from 6.2%
to 7.5%. At March 31, 1998, the Company had total debt outstanding of $758.0
million. Subsequent to March 31, 1998 the Company has continued to incur and
repay debt obligations in connection with financing its equipment leasing
activities.
As of March 31, 1998, commitments for capital expenditures totaled
approximately $50.0 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 amounts available to be borrowed under existing credit facilities and the
issuance of debt securities in the appropriate markets will be sufficient to
finance the Company's working capital needs for its existing business, planned
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capital expenditures 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 in the future. In
addition, from time to time, the Company explores new sources of capital both
at the parent and subsidiary levels.
Subsequent to the end of the first quarter, on April 30, 1998, the Company
acquired a 50% interest in Container Applications International, Inc. (CAI), a
container leasing company whose business is primarily in the short term master
lease market. CAI would not be deemed a "significant subsidiary" of the Company
for purposes of the Securities and Exchange Commission accounting requirements.
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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
On January 27, 1998, the Company filed a shelf registration statement
with the Securities and Exchange Commission under which the Company may
offer from time to time up to $400 million aggregate principal amount of
LTS debt and/or equity securities. As of the date of this filing, this
registration statement has not yet become effective.
Subsequent to the end of the first quarter, on April 30, 1998, the
Company acquired a 50% interest in Container Applications International,
Inc. (CAI), a container leasing company whose business is primarily in
the short term master lease market. CAI would not be deemed a
"significant subsidiary" of the Company for purposes of the Securities
and Exchange Commission accounting requirements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 99: (1) Press Release dated March 26, 1998
(2) Press Release dated May 4, 1998
(3) Press Release dated May 5, 1998
(b) Reports on Form 8-K:
On February 24, 1998, the Company filed a Current Report on Form 8-K
reporting the sale of $100 million aggregate principal amount of 6 5/8%
Notes due 2003. The net proceeds were used to repay $83 million in
borrowings under the revolving credit agreement and for other general
corporate purposes. The notes were sold in a private transaction
pursuant to Rule 144A under the Securities Act of 1993, as amended.
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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, 1998 \s\Martin Tuchman
-------------------------------
Martin Tuchman
Chief Executive Officer
Dated: May 12, 1998 \s\William Geoghan
-------------------------------
William Geoghan
Controller
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INDEX TO EXHIBIT
FILED WITH INTERPOOL, INC.
REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1998
EXHIBIT NO.
99 (1) Press Release dated March 26, 1998
(2) Press Release dated May 4, 1998
(3) Press Release dated May 5, 1998
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