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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 SEPTEMBER 30, 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 November 12, 1998, 27,566,452 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
<TABLE>
<CAPTION>
Page No.
<S> <C>
PART I - FINANCIAL INFORMATION:
Introduction to Financial Statements ....................................... 3
Consolidated Balance Sheets
September 30, 1998 and December 31, 1997 ................................... 4
Consolidated Statements of Income
For the Three Months and Nine Months ended September 30, 1998 and 1997 ..... 5
Consolidated Statements of Cash Flows
For the Nine Months ended September 30, 1998 and 1997 ...................... 6
Consolidated Statements of Stockholders' Equity
For the Nine Months ended September 30, 1998 ............................... 7
Notes to Consolidated Financial Statements ................................. 8 - 10
Management's Discussion and Analysis of
Financial Condition and Results of Operations .............................. 11 - 15
PART II - OTHER INFORMATION:
Item 6: Exhibits and Reports on Form 8-K ................................ 16
Signatures.................................................................. 17
Exhibits ................................................................... 18
</TABLE>
2
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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.
3
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INTERPOOL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
<S> <C> <C>
ASSETS
CASH AND SHORT-TERM INVESTMENTS .............................................. $ 20,699 $ 30,402
MARKETABLE SECURITIES ........................................................ 5,350 12,574
ACCOUNTS AND NOTES RECEIVABLE, less allowance of
$4,309 and $3,633, respectively .......................................... 31,610 27,448
NET INVESTMENT IN DIRECT FINANCING LEASES .................................... 354,323 363,366
OTHER RECEIVABLES ............................................................ 73,206 35,744
LEASING EQUIPMENT, at cost ................................................... 849,510 745,351
Less -- accumulated depreciation and amortization ............................ (163,757) (136,989)
----------- -----------
LEASING EQUIPMENT, net ....................................................... 685,753 608,362
OTHER ASSETS ................................................................. 60,286 36,560
----------- -----------
TOTAL ASSETS ............................................................. $ 1,231,227 $ 1,114,456
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
ACCOUNTS PAYABLE AND ACCRUED EXPENSES ........................................ $ 22,949 $ 26,139
INCOME TAXES:
Current .................................................................. 1,000 836
Deferred ................................................................. 18,766 15,269
----------- -----------
19,766 16,105
DEFERRED INCOME .............................................................. 1,671 2,030
DEBT AND CAPITAL LEASE OBLIGATIONS:
Due within one year ...................................................... 96,074 74,830
Due after one year ....................................................... 740,817 669,397
----------- -----------
836,891 744,227
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 .................................. 570 509
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,
27,566,452 outstanding at September 30, 1998 and 27,551,728
at December 31, 1997 ..................................................... 28 28
Additional paid-in capital ................................................... 124,046 124,046
Retained earnings ............................................................ 150,096 125,657
Accumulated other comprehensive income ....................................... 210 715
----------- -----------
TOTAL STOCKHOLDERS' EQUITY ............................................. 274,380 250,446
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .......................... $ 1,231,227 $ 1,114,456
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
4
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INTERPOOL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES $ 46,115 $ 40,962 $ 133,453 $ 118,922
COSTS AND EXPENSES:
Lease operating and administrative expenses 10,778 10,292 32,148 27,987
Depreciation and amortization of leasing equipment 10,865 8,933 30,941 26,155
Other income, net (214) (17) (545) (773)
Interest expense, net 12,581 13,280 38,620 36,008
--------- --------- --------- ---------
34,010 32,488 101,164 89,377
--------- --------- --------- ---------
Income before provision for income taxes & extraordinary
loss 12,105 8,474 32,289 29,545
Provision for income taxes 2,050 550 4,750 3,700
--------- --------- --------- ---------
Income before extraordinary loss 10,055 7,924 27,539 25,845
Extraordinary loss on retirement of debt, net of applicable
taxes of $2,150 and $2,375 -- 4,550 -- 4,878
--------- --------- --------- ---------
NET INCOME $ 10,055 $ 3,374 $ 27,539 $ 20,967
========= ========= ========= =========
Income per share before extraordinary loss and premium paid
on redemption of preferred stock:
Basic $ 0.36 $ 0.29 $ 1.00 $ 0.91
Diluted $ 0.35 $ 0.28 $ 0.96 $ 0.87
Extraordinary loss on retirement of debt:
Basic NA $ (0.17) NA $ (0.18)
Diluted NA $ (0.16) NA $ (0.16)
Premium paid on redemption of preferred stock:
Basic NA NA NA $ (0.24)
Diluted NA NA NA $ (0.23)
NET INCOME PER SHARE:
Basic $ 0.36 $ 0.12 $ 1.00 $ 0.49
Diluted $ 0.35 $ 0.12 $ 0.96 $ 0.48
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING (in Thousands):
Basic 27,566 27,552 27,560 27,552
Diluted 28,584 28,626 28,574 29,614
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
5
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INTERPOOL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income .................................................... $ 27,539 $ 20,967
Adjustments to reconcile net income to net cash provided by
Operating activities:
Extraordinary loss ........................................ -- 4,878
Depreciation and amortization ............................. 32,257 27,492
Loss (gain) on sale of leasing equipment .................. 69 (773)
Collections on direct financing leases .................... 92,347 66,658
Income recognized on direct financing leases .............. (26,115) (25,321)
Provision for uncollectible accounts ...................... 1,569 808
Changes in assets and liabilities:
Accounts and notes receivable ............................. (5,422) 2,131
Other receivables ......................................... 1,886 628
Other assets and non-cash transactions .................... 42 (4,117)
Accounts payable and accrued expenses ..................... (3,190) 5,440
Income taxes payable ...................................... 4,325 810
Deferred income ........................................... (359) (149)
Minority interest in equity of subsidiaries ............... 61 42
--------- ---------
Net cash provided by operating activities ............. 125,009 99,494
--------- ---------
Cash flows from investing activities:
Acquisition of leasing equipment .............................. (108,291) (70,566)
Proceeds from dispositions of leasing equipment ............... 2,574 4,948
Investment in direct financing leases ......................... (58,934) (96,038)
Investment in loan receivables ................................ (5,698) (21,514)
Investment in and advances to unconsolidated subsidiary ....... (46,452) --
Changes in marketable securities and other investing
activities .................................................. (6,748) (9,098)
--------- ---------
Net cash used for investing activities ................ (223,549) (192,268)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of debt ................................ 127,010 282,079
Payments of debt and capital lease obligations ................ (56,777) (217,518)
Net borrowings (repayments) of revolving credit lines ......... 21,704 (72)
Extraordinary loss on retirement of debt - cash effect ........ -- (3,964)
Proceeds from issuance of capital securities .................. -- 73,300
Redemption of preferred stock ................................. -- (52,871)
Cash dividends paid ........................................... (3,100) (3,925)
--------- ---------
Net cash provided by financing activities ............. 88,837 77,029
--------- ---------
Net decrease in cash and short-term investments ................. (9,703) (15,745)
Cash and short-term investments, beginning of period ............ 30,402 45,333
--------- ---------
Cash and short-term investments, end of period .................. $ 20,699 $ 29,588
========= =========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
6
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INTERPOOL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(Dollars and shares in thousands)
(Unaudited)
<TABLE>
<CAPTION>
ACCUMULATED
SHARES OF SHARES OF ADDITIONAL OTHER
PREFERRED PAR COMMON PAR PAID-IN RETAINED COMPREHENSIVE
STOCK VALUE STOCK VALUE CAPITAL EARNINGS INCOME
----- ----- ----- ----- ------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 ............ 0 $ 0 27,552 $ 28 $124,046 $125,657 $ 715
Net income ........................ 27,539
Accumulated Other
Comprehensive Income .......... (505)
Shares issued on exercise of
stock option ................. 37 363
Shares surrendered in satisfaction
of stock option purchase
price ........................ (23) (363)
Cash Dividends declared:
Common stock ................. (3,100)
-------- -------- -------- -------- -------- -------- --------
Balance, September 30, 1998 ........... -- -- 27,566 $ 28 $124,046 $150,096 $ 210
======== ======== ======== ======== ======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
7
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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:
<TABLE>
<CAPTION>
(IN THOUSANDS)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Average common shares outstanding ................. 27,566 27,552 27,560 27,552
Common shares issuable (1) ........................ 1,018 1,074 1,014 2,062
Average common shares outstanding assuming
dilution ........................................ 28,584 28,626 28,574 29,614
</TABLE>
(1) Issuable under stock option plans in 1998 and both stock option plans and
conversion of convertible securities in 1997.
On September 16, 1998 the Company canceled all of the 4,393,501 options
to purchase shares of the Company's common stock outstanding under its 1993
Stock Option Plan for Executive Officers and Directors, as well as the Company's
Nonqualified Stock Option Plan for Non-employee, Non-consultant Directors and
issued 4,393,501 new options in their place. The newly issued options were
granted with an exercise price equal to the closing market price of the
Company's stock as of September 16, 1998 (the "date of grant"). This results in
a new measurement date whereby
8
<PAGE> 9
the newly issued options vest six months from date of grant and expire ten years
from date of grant. All other terms and conditions of the newly issued options
are similar to the canceled options.
9
<PAGE> 10
On a pro forma basis, assuming the cancellation and re-issuance of the
options as described above did not take place, there would be no effect on
diluted net income per share for the three and nine months ended September 30,
1998.
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:
<TABLE>
<CAPTION>
(IN THOUSANDS)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income ........................................ $ 10,055 $ 3,374 $ 27,539 $ 20,967
Net unrealized gain (loss) on marketable
securities ...................................... (298) 313 (505) 665
-------- -------- -------- --------
Comprehensive income .............................. $ 9,757 $ 3,687 $ 27,034 $ 21,632
======== ======== ======== ========
</TABLE>
NOTE 2 -- CASH FLOW INFORMATION:
For the nine months ended September 30, 1998 and 1997, cash paid for
interest was approximately $53,083 and $36,160, respectively. Cash paid for
income taxes was approximately $1,933 and $2,729, respectively.
NOTE 3 -- OTHER CONTINGENCIES AND COMMITMENTS:
At September 30, 1998, the Company had outstanding purchase commitments
for equipment of approximately $90,000.
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 "6-5/8% Private Notes"). The net proceeds were used
to repay $83,000 in borrowings under the revolving credit agreement and for
other general corporate purposes. On September 18, 1998, the Company consummated
an exchange offer whereby the entire $100,000 principal amount of 6-5/8% Private
Notes were exchanged for the same principal amount of Interpool 6-5/8% Notes due
2003 (the "6-5/8% Exchange Notes"), which have been registered under the
Securities Act. The 6-5/8% Private Notes were originally issued and sold in a
transaction exempt from registration under the Securities Act.
The 6-5/8% Exchange Notes issued in the exchange offer have substantially
the same terms and conditions as the unregistered 6-5/8% Private Notes, except
that the 6-5/8% Exchange Notes are not subject to the restrictions on resale or
transfer, which applied to the unregistered 6-5/8% Private Notes.
10
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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. The Company also advanced CAI
subordinated debt. The Company's investment in and advances to CAI totaled
$46,452.
On June 19, 1998, the Company announced its participation in a proposed
recapitalization and merger (the "Merger") of XTRA Corporation ("XTRA"), with a
company newly formed by Apollo Management IV, L.P. ("Apollo") and the Company.
In connection with the merger and recapitalization, it was contemplated that the
Company (through its affiliate Atlas Capital Partners LLC ("Atlas")) would
invest $73.1 million in new equity of XTRA, representing a 22.5% interest in
XTRA. Following the merger and recapitalization, the Company (through Atlas) and
Apollo would own approximately 90% of XTRA and XTRA's existing shareholders
would own the remaining 10%. On October 23, 1998, the Company announced that it
believes, in light of current circumstances, that the prospects are not
favorable for obtaining the financing necessary to consummate the Merger.
11
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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
nine months ended September 30, 1998 and 1997 revenues from direct financing
leases were $26.1 million (20% of revenues) and $25.3 million (21% of revenues),
respectively.
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1997
REVENUES
The Company's revenues increased to $46.1 million for the three months
ended September 30, 1998, from $41.0 million in the three months ended September
30, 1997, an increase of $5.1 million or 13%. The increase was due to increased
leasing revenues generated by an expanded container and chassis fleet size.
Revenues for the three months ended September 30, 1998 were $23.0 million for
the Interpool Limited international container division and $23.1 million for the
domestic intermodal division. This compared to $21.6 million for the Interpool
Limited international container division and $19.4 million for the domestic
intermodal division for the three months ended September 30, 1997.
LEASE OPERATING AND ADMINISTRATIVE EXPENSES
The Company's lease operating and administrative expenses increased to
$10.8 million for the three months ended September 30, 1998 from $10.3 million
in the three months ended September 30, 1997, an increase of $.5 million. The
increase was due to higher administrative costs of $.5 million resulting from
both increased operations as well as inflation.
DEPRECIATION AND AMORTIZATION OF LEASING EQUIPMENT
The Company's depreciation and amortization expenses increased to $10.9
million in the three months ended September 30, 1998 from $8.9 million in the
three months ended September 30, 1997, an increase of $2.0 million. The increase
was due to an increased fleet size.
OTHER INCOME, NET
The Company's income from unconsolidated subsidiaries net of goodwill
amortization was $.4 million in the three months ended September 30, 1998. The
Company's gain (loss) on sale of leasing equipment decreased to ($.2) million in
the three months ended September 30, 1998.
INTEREST EXPENSE, NET
The Company's net interest expense decreased to $12.6 million in the
three months ended September 30, 1998 from $13.3 million in the three months
ended September 30, 1997, a decrease of $.7 million. The decrease in net
interest expense was due to increased investment income of $1.5 million as well
as lower borrowing costs experienced during the three months ended September 30,
1998, which was partially offset by increased interest expense of $.8 million
due to financings necessary to fund capital expenditures.
PROVISION FOR INCOME TAXES
The Company's provision for income taxes increased to $2.1 million from
$.6 million primarily due to a higher effective tax rate resulting from greater
income contribution from the domestic intermodal division.
12
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NET INCOME
As a result of the factors described above, the Company's net income
was $10.0 million in the three months ended September 30, 1998 versus income
before extraordinary loss of $7.9 million in the three months ended September
30, 1997. For the three months ended September 30, 1998 the Interpool Limited
international container division contributed $8.3 million to net income while
the domestic intermodal division contributed $1.7 million. This compares to the
three months ended September 30, 1997 where the Interpool Limited international
container division contributed $7.1 million to income before extraordinary loss
while the domestic intermodal division contributed $.8 million. An extraordinary
loss of $4.5 million, net of tax benefit, was recorded in the three months ended
September 30, 1997. This loss resulted from the retirement of debt replaced with
the proceeds of other financings.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1997
REVENUES
The Company's revenues increased to $133.4 million for the nine months
ended September 30, 1998 from $118.9 million in the nine months ended September
30, 1997, an increase of $14.5 million or 12%. The increase was due to increased
leasing revenues generated by an expanded container and chassis fleet size.
Revenues for the nine months ended September 30, 1998 were $67.3 million for the
Interpool Limited international container division and $66.1 million for the
domestic intermodal division. This compared to $64.1 million for the Interpool
Limited international container division and $54.8 million for the domestic
intermodal division for the nine months ended September 30, 1997.
LEASE OPERATING AND ADMINISTRATIVE EXPENSES
The Company's lease operating and administrative expenses increased to
$32.1 million for the nine months ended September 30, 1998 from $28.0 million in
the nine months ended September 30, 1997, an increase of $4.1 million. The
increase was due to higher operating expenses of $2.4 million resulting from
expanded operations generating increased maintenance and repair, commission and
operating expenses. Also, an increase of $1.7 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 $30.9
million in the nine months ended September 30, 1998 from $26.2 million in the
nine months ended September 30, 1997, an increase of $4.7 million. The increase
was due to an increased fleet size.
OTHER INCOME, NET
The Company's income from unconsolidated subsidiaries net of goodwill
amortization was $.6 million in the nine months ended September 30, 1998. The
Company's gain (loss) on sale of leasing equipment decreased to ($.1) million in
the nine months ended September 30, 1998 from $.8 million in the nine months
ended September 30, 1997.
INTEREST EXPENSE, NET
The Company's net interest expense increased to $38.6 million in the
nine months ended September 30, 1998 from $36.0 million in the nine months ended
September 30, 1997, an increase of $2.6 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.
13
<PAGE> 14
PROVISION FOR INCOME TAXES
The Company's provision for income taxes increased to $4.8 million from
$3.7 million primarily due to a higher effective tax rate resulting from greater
income contribution from the domestic intermodal division.
NET INCOME
As a result of the factors described above, the Company's net income
was $27.5 million in the nine months ended September 30, 1998 versus income
before extraordinary loss of $25.8 million in the nine months ended September
30, 1997. For the nine months ended September 30, 1998 the Interpool Limited
international container division contributed $24.1 million to net income while
the domestic intermodal division contributed $3.4 million. This compares to the
nine months ended September 30, 1997 where the Interpool Limited international
container division contributed $22.2 million to income before extraordinary loss
while the domestic intermodal division contributed $3.6 million. An
extraordinary loss of $4.9 million, net of tax benefit, was recorded in the nine
months ended September 30, 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 $125.0 million and
$99.5 million in the first nine months of 1998 and 1997, respectively, and net
cash provided by financing activities was $88.8 million and $77.0 million for
the first nine months of 1998 and 1997, respectively. The Company has purchased
the following amounts of equipment: $170.2 million for the nine months ended
September 30, 1998 and $166.6 million for the nine months ended September 30,
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 September 30, 1998, $71.0 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 September 30, 1998, the
Company had available lines of credit of $98.0 million under various facilities,
under which $75.0 million was outstanding. Interest rates under these facilities
ranged from 5.8% to 6.8%. At September 30, 1998, the Company had total debt
outstanding of $836.9 million. Subsequent to September 30, 1998 the Company has
continued to incur and repay debt obligations in connection with financing its
equipment leasing activities.
As of September 30, 1998, commitments for capital expenditures totaled
approximately $90.0 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 and/or equity securities in the appropriate markets
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 in the future. In addition, from time to time, the Company explores
new sources of capital both at the parent and subsidiary levels.
14
<PAGE> 15
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 Securities and
Exchange Commission accounting requirements.
On June 19, 1998, the Company announced its participation in a proposed
recapitalization and merger (the "Merger") of XTRA Corporation ("XTRA"), with a
company newly formed by Apollo Management IV, L.P. ("Apollo") and the Company.
In connection with the merger and recapitalization, it was contemplated that the
Company (through its affiliate Atlas Capital Partners LLC ("Atlas")) would
invest $73.1 million in new equity of XTRA, representing a 22.5% interest in
XTRA. Following the merger and recapitalization, the Company (through Atlas) and
Apollo would own approximately 90% of XTRA and XTRA's existing shareholders
would own the remaining 10%. On October 23, 1998, the Company announced that it
believes, in light of current circumstances, that the prospects are not
favorable for obtaining the financing necessary to consummate the Merger.
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,
1999. 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.
YEAR 2000
The Company has undertaken a program to address the issues associated
with the onset of the calendar year 2000 ("Y2K"). During 1998, a committee
comprised of members of senior management and other key associates was formed to
determine the full scope and related costs of these Y2K issues to insure that
the Company's systems continue to meet its internal needs and those of its
customers.
The assessment phase of the Y2K project was completed on August 31,
1998. All internal systems, hardware, software and embedded system issues were
evaluated for Y2K compliance. Software source code was analyzed where available
to determine program cognizance of Y2K. The analysis resulted in the need to
upgrade three of the Company's four software systems: the fleet control system,
the accounting system for accounts payable and general ledger and the overseas
input program. Testing was carried out against software developed in-house,
which was deemed Y2K compliant to determine if compliance could be demonstrated.
This testing resulted in compliance of the Company's PoolStat chassis management
software program. Testing was also carried out on systems with embedded
calendars, including the Company's data servers, desktop computers and notebook
computers. This testing resulted in compliance of all data servers, and the need
to replace a specified number of personal computers of a specific age and model.
In addition to in-house computer and embedded system issues, the Company is
developing a questionnaire for key suppliers, service providers, financial
institutions and customers. The questionnaires will be sent out by November 30,
1998. The answers to the questionnaire will help determine the extent to which
contingency plans must be made for the Company to continue with uninterrupted
business. This contingency plan is being developed to deal with possible
interruptions in the flow of goods, services, and/or funds which could occur as
a result of Y2K problems outside of the Company's direct control. The
contingency plan will be completed in the first quarter of 1999, taking into
consideration the results of the questionnaire. Updates to the questionnaire
will be requested during June 1999 from companies who have disclosed a high
degree of risk, and who could significantly impact the Company's business. At
this time, the Company, if necessary, would begin implementation of its
contingency plan.
15
<PAGE> 16
The second phase of the Y2K project involves replacing or upgrading
those systems, which are not Y2K compliant. The Company's fleet control system
is the primary software system being upgraded using in-house resources. The
provider of the underlying database for the fleet control system has made its
product Y2K compliant. As a result, only minor changes are necessary to the
Company's fleet control system to achieve Y2K compliance. The Company expects to
achieve compliance by February 29, 1999. The accounting system for accounts
payable and general ledger is being replaced with a Y2K certified program to be
installed and operational by March 31, 1999. A third less critical software
program, the overseas input program is being updated and is expected to be Y2K
compliant by January 31, 1999.
The Company is taking the Y2K situation very seriously and has a
well-formulated plan for internal system remediation. Overall, the Company's
internal Y2K project requires a relatively minor diversion of internal
resources, and funds have been made available for replacement of necessary
hardware and software components. The Company believes it has committed
sufficient resources to this project to insure its success. To date, the Y2K
project is on schedule and the Company does not believe the costs for Y2K
compliance to be material to its financial position, results of operation or
cash flows.
16
<PAGE> 17
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 September 18, 1998, the Company successfully consummated an
exchange offer for all of the 6-5/8% Notes due 2003 (the "6-5/8%
Private Notes"). Pursuant to the exchange offer, the entire $100
million principal amount of the 6-5/8% Private Notes, which were
originally issued and sold on February 24, 1998 in a transaction
exempt from registration under the Securities Act of 1933, as
amended, were tendered prior to the expiration of the offer and
exchanged for the same liquidation amount of the Company's new 6-5/8%
Notes due 2003 (the "6-5/8% Exchange Notes"). The 6-5/8% Exchange
Notes issued in the exchange offer have substantially the same terms
and conditions as the unregistered 6-5/8% Private Notes, except that
the 6-5/8% Exchange Notes are not subject to the restrictions on
resale or transfer, which applied to the unregistered 6-5/8% Private
Notes
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 99: (1) Press Release dated July 28, 1998
(incorporated by reference to the Company's
Quarterly Report on Form 10-Q for the period
ended June 30, 1998).
(2) Press Release dated September 18, 1998.
(3) Press Release dated September 22, 1998.
(4) Press Release dated October 23, 1998.
(5) Press Release dated October 27, 1998.
(b) Reports on Form 8-K:
None
17
<PAGE> 18
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: November 12, 1998 \s\Martin Tuchman
----------------- -----------------------
Martin Tuchman
Chief Executive Officer
Dated: November 12, 1998 \s\William Geoghan
-----------------------
William Geoghan
Senior Vice President
18
<PAGE> 19
INDEX TO EXHIBITS
FILED WITH INTERPOOL, INC.
REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1998
EXHIBIT NO.
99: (1) Press Release dated July 28, 1998 (incorporated by
reference to the Company's Quarterly Report on Form 10-Q
for the period ended June 30, 1998).
(2) Press Release dated September 18, 1998.
(3) Press Release dated September 22, 1998.
(4) Press Release dated October 23, 1998.
(5) Press Release dated October 27, 1998.
19
<PAGE> 1
CONTACT: RAOUL J. WITTEVEEN
(212) 916-3261
FOR IMMEDIATE RELEASE
INTERPOOL, INC. CONSUMMATES EXCHANGE OFFER
FOR 100% OF 6-5/8% NOTES DUE 2003
PRINCETON, NJ, September 18, 1998 - Interpool, Inc. (NYSE: IPX) announced today
the successful consummation of an exchange offer for all of the Company's
outstanding 6-5/8% Notes due 2003.
Pursuant to the exchange offer, the entire $100,000,000 principal amount of
6-5/8% Notes due 2003 (the "6-5/8% Private Notes") were tendered prior to the
expiration of the exchange offer and exchanged for the same principal amount of
Interpool 6-5/8% Notes due 2003 (the "6-5/8% Exchange Notes"), which have been
registered under the Securities Act. The 6-5/8% Private Notes were originally
issued and sold on February 24,1998, in a transaction exempt from registration
under the Securities Act.
The 6-5/8% Exchange Notes issued in the exchange offer have substantially the
same terms and conditions as the unregistered 6-5/8% Private Notes, except that
the 6-5/8% Exchange Notes are not subject to the restrictions on resale or
transfer, which applied to the unregistered 6-5/8% Private Notes.
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. The Company leases its
containers and chassis to over 200 customers, including nearly all of the
world's 20 largest international container shipping lines.
# # #
20
<PAGE> 1
CONTACT: RAOUL J. WITTEVEEN
(212) 916-3261
FOR IMMEDIATE RELEASE
INTERPOOL, INC. TO PAY CASH DIVIDEND ON COMMON STOCK
PRINCETON, NJ, September 22, 1998 - Interpool, Inc. (NYSE: IPX) announced today
that it will pay a cash dividend of 3.75 cents per share for the third quarter
of 1998. The dividend will be payable on October 15, 1998 to shareholders of
record on October 1, 1998. The aggregate amount of the dividend is expected to
be approximately $1,034,000.00. The amount of the quarterly dividend is based on
a 1998 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.
# # #
21
<PAGE> 1
Interpool, Inc. Contact: RAOUL J. WITTEVEEN, PRESIDENT
(212) 916-3264
Atlas Capital Partners LLC Contact: MITCHELL I. GORDON, PRESIDENT
(212) 916-3284
NEWS FOR IMMEDIATE RELEASE
INTERPOOL, INC. PROVIDES UPDATE ON PROSPECTS FOR
FINANCING PROPOSED MERGER WITH XTRA CORP.
NEW YORK, NY, October 23, 1998 -- Interpool, Inc. (NYSE: IPX), which on June 19,
1998 announced its participation in a proposed recapitalization and merger (the
"Merger") of XTRA Corporation ("XTRA") with Wheels MergerCo LLC ("MergerCo"), a
company newly formed by Apollo Management IV, L.P. ("Apollo") and Interpool
(through its affiliate Atlas Capital Partners), today provided an update on the
prospects for financing the proposed Merger.
In a press release issued today, XTRA reported that MergerCo indicated that, in
view of current market conditions, it does not believe it would be able to
obtain the financing necessary to consummate the Merger. Interpool agrees that,
in light of current circumstances, the prospects are not favorable for obtaining
the financing necessary to consummate the Merger.
Interpool is one of the world's largest lessors of cargo containers used in
international trade and is the second largest lessor of intermodal container
chassis in the United States. Founded in 1968, Interpool leases its containers
and chassis to over 200 customers on a worldwide basis. Earlier this year,
Interpool acquired a 50% interest in Container Applications International, Inc.
("CAI"). CAI is one of the world's leading managers of container assets.
# # #
22
<PAGE> 1
Contact: RAOUL J. WITTEVEEN
(212) 916-3261
NEWS FOR IMMEDIATE RELEASE
INTERPOOL, INC. REPORTS RECORD 3RD QUARTER INCOME PER SHARE
OF $0.35 AS COMPARED WITH $0.28 FOR PRIOR YEAR
PRINCETON, NJ, OCTOBER 27, 1998 -- Interpool, Inc. (NYSE: IPX) reported today
that its 1998 third quarter net income per share (on a diluted basis) was a
record 35 cents, as compared with income per share before extraordinary loss and
premium paid on redemption of preferred stock of 28 cents, for the same period
in 1997. Revenues during the third quarter of 1998 were $46,115,000, up 13% from
$40,962,000 in the third quarter of 1997.
For the first nine months of 1998, Interpool's net income per share was 96 cents
(on a diluted basis), as compared with income per share before extraordinary
loss and premium paid on redemption of preferred stock of 87 cents, for the same
period in 1997. Revenues during the first nine months of 1998 were $133,453,000,
up 12% from $118,922,000 in the first nine months of 1997.
Martin Tuchman, Chairman and Chief Executive Officer, commented that the third
quarter results reflected the Company's continuing focus on effectively managing
and growing its container and chassis leasing business, the mainstay of
shareholder value.
At the end of the third quarter, the Company's container fleet has grown to
approximately 470,000 container TEUs (twenty-foot-equivalent units) with
utilization at 99%, while the chassis fleet has grown to approximately 75,000
units, with utilization at 96%.
23
<PAGE> 2
INTERPOOL 3Q98 10/27/98 PAGE 2
Interpool conducts its international container leasing business through its
subsidiary Interpool Limited, while the domestic intermodal equipment leasing
business is conducted by Interpool, Inc. and its other subsidiaries. During the
third quarter of 1998, the Interpool Limited international container division's
contribution to consolidated income increased to $8,346,000 from $7,093,000 for
the third quarter of 1997. The domestic intermodal division's contribution to
consolidated income was $1,709,000 during the third quarter of 1998, versus
$831,000 for the prior year. Revenues for the third quarter of 1998 from the
Interpool Limited international container division increased to $22,985,000,
while revenues from the domestic intermodal division rose to $23,130,000.
During the nine months ended September 30, 1998, the Interpool Limited
international container division's contribution to consolidated income rose to
$24,149,000 from $22,190,000 in 1997, while the domestic intermodal division's
contribution decreased to $3,390,000 from $3,655,000. Revenues for the first
nine months of 1998 from Interpool Limited international container division
increased to $67,353,000, while revenues from the domestic intermodal division
rose to $66,100,000.
On June 19, 1998 Interpool announced its participation in a proposed
recapitalization and merger (the "Merger") of XTRA, with a company newly formed
by Apollo Management IV, L.P. ("Apollo") and Interpool (through its affiliate
Atlas Capital Partners). As previously reported the Company believes that, in
light of current circumstances, the prospects are not favorable for obtaining
the financing necessary to consummate the Merger.
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.
***TABLE FOLLOWS***
24
<PAGE> 3
INTERPOOL, INC.
CONSOLIDATED STATEMENT OF INCOME
(In thousands, except amounts per share)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES $ 46,115 $ 40,962 $ 133,453 $ 118,922
LEASE OPERATING AND ADMINISTRATIVE EXPENSES 10,778 10,292 32,148 27,987
DEPRECIATION AND AMORTIZATION OF LEASING EQUIPMENT 10,865 8,933 30,941 26,155
OTHER INCOME (214) (17) (545) (773)
--------- --------- --------- ---------
EARNINGS BEFORE INTEREST AND TAXES 24,686 21,754 70,909 65,553
INTEREST EXPENSE, NET 12,581 13,280 38,620 36,008
--------- --------- --------- ---------
INCOME BEFORE TAXES AND EXTRAORDINARY LOSS 12,105 8,474 32,289 29,545
PROVISION FOR INCOME TAXES 2,050 550 4,750 3,700
--------- --------- --------- ---------
INCOME BEFORE EXTRAORDINARY LOSS 10,055 7,924 27,539 25,845
EXTRAORDINARY LOSS ON RETIREMENT OF DEBT, NET OF
APPLICABLE TAXES OF $2,150 AND $2,375 -- 4,550 -- 4,878
--------- --------- --------- ---------
NET INCOME $ 10,055 $ 3,374 $ 27,539 $ 20,967
========= ========= ========= =========
INCOME PER SHARE BEFORE EXTRAORDINARY LOSS AND
PREMIUM PAID ON REDEMPTION OF PREFERRED STOCK:
BASIC $ 0.36 $ 0.29 $ 1.00 $ 0.91
DILUTED $ 0.35 $ 0.28 $ 0.96 $ 0.87
EXTRAORDINARY LOSS ON RETIREMENT OF DEBT:
BASIC NA $ (0.17) NA $ (0.18)
DILUTED NA $ (0.16) NA $ (0.16)
PREMIUM PAID ON REDEMPTION OF PREFERRED STOCK (1):
BASIC NA NA NA $ (0.24)
DILUTED NA NA NA $ (0.23)
NET INCOME PER SHARE:
BASIC $ 0.36 $ 0.12 $ 1.00 $ 0.49
DILUTED $ 0.35 $ 0.12 $ 0.96 $ 0.48
WEIGHTED AVERAGE SHARES OUTSTANDING:
BASIC 27,566 27,552 27,560 27,552
DILUTED 28,584 28,626 28,574 29,614
</TABLE>
(1) Represents a non-recurring charge of $6,716 to retained earnings for the
excess of the redemption price of 5 -3/4% Cumulative Convertible
Preferred Stock over the carrying amount expressed as amount per share.
25
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 20,699
<SECURITIES> 5,350
<RECEIVABLES> 35,919
<ALLOWANCES> 4,309
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 849,510
<DEPRECIATION> 163,757
<TOTAL-ASSETS> 1,231,227
<CURRENT-LIABILITIES> 121,694
<BONDS> 740,817
0
0
<COMMON> 28
<OTHER-SE> 274,352
<TOTAL-LIABILITY-AND-EQUITY> 1,231,227
<SALES> 133,453
<TOTAL-REVENUES> 133,453
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 62,544
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 38,620
<INCOME-PRETAX> 32,289
<INCOME-TAX> 4,750
<INCOME-CONTINUING> 27,539
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,539
<EPS-PRIMARY> 1.00
<EPS-DILUTED> .96
</TABLE>
