|
SECURITIES
AND
EXCHANGE COMMISSION FORM 10-Q QUARTERLY
REPORT
PURSUANT TO SECTION 13 OR 15(d) FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000 Commission file number 1-11862 INTERPOOL, INC. |
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 As of August 8, 2000, 27,421,452 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 [_] |
INTERPOOL, INC. AND SUBSIDIARIESINDEX |
Page No. | |||
---|---|---|---|
Part I Financial Information: |
Introduction to Financial Statements | 3 | ||
Condensed Consolidated Balance Sheets | |||
June 30, 2000 and December 31, 1999 | 4 |
Condensed Consolidated Statements of Income | |||
For the Three Months and Six Months ended June 30, 2000 and 1999 | 5 |
Condensed Consolidated Statements of Cash Flows | |||
For the Six Months ended June 30, 2000 and 1999 | 6 |
Condensed Consolidated Statements of Changes in Stockholders Equity | |||
For the Year Ended December 31, 1999 and the Six Months ended June 30, 2000 | 7 |
Notes to Condensed Consolidated Financial Statements | |||
8-11 |
Managements Discussion and Analysis of | |||
Financial Condition and Results of Operations | 12-15 |
Part II - Other Information: |
Item 6: Exhibits and Reports on Form 8-K | 16 |
Signatures | 17 |
Exhibits | 18 |
INTERPOOL,
INC. AND SUBSIDIARIES
|
ASSETS | June 30, 2000 |
December 31, 1999 | |||
---|---|---|---|---|---|
(Unaudited) | |||||
CASH AND SHORT-TERM INVESTMENTS | $82,017 | $207,388 | |||
MARKETABLE SECURITIES, at fair value | 125 | 238 | |||
ACCOUNTS AND NOTES RECEIVABLE, less allowance of $12,192 and | |||||
$10,275, respectively | 35,163 | 31,837 | |||
INVESTMENT IN DIRECT FINANCING LEASES, net of unearned lease income of | 179,895 | 164,394 | |||
$38,400 and $36,944, respectively | |||||
OTHER RECEIVABLES, net, including amounts from related parties of | |||||
$13,433 and $13,433, respectively | 54,355 | 52,437 | |||
LEASING EQUIPMENT, net of accumulated depreciation and amortization of | |||||
$257,278 and $230,460, respectively | 981,635 | 876,067 | |||
OTHER INVESTMENT SECURITIES, at fair value | 37,323 | 33,359 | |||
OTHER ASSETS | 83,250 | 77,539 | |||
TOTAL ASSETS | $1,453,763 | $1,443,259 | |||
LIABILITIES AND STOCKHOLDERS EQUITY | |||||
ACCOUNTS PAYABLE AND ACCRUED EXPENSES | $49,667 | $47,907 | |||
INCOME TAXES | 22,934 | 18,995 | |||
DEFERRED INCOME | 601 | 618 | |||
DEBT AND CAPITAL LEASE OBLIGATIONS, including -0- and $2,296 | |||||
due to a related party, respectively | |||||
Due within one year | 100,590 | 115,286 | |||
Due after one year | 882,539 | 882,942 | |||
983,129 | 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 | 1,620 | 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 June 30, 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 | 196,475 | 177,612 | |||
Accumulated other comprehensive income | 1,295 | 713 | |||
Total stockholders equity | 320,812 | 301,367 | |||
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY | $1,453,763 | $1,443,259 | |||
The accompanying notes to consolidated financial statements are an integral part of these balance sheets. |
INTERPOOL, INC. AND
SUBSIDIARIES |
Three Months Ended June 30, |
Six Months Ended June 30, | ||||||||
---|---|---|---|---|---|---|---|---|---|
2000 |
1999 |
2000 |
1999 | ||||||
REVENUES | $66,093 | $44,154 | $127,245 | $100,725 | |||||
COST AND EXPENSES: | |||||||||
Lease operating and administrative expenses | 20,649 | 10,976 | 40,497 | 25,248 | |||||
Provision for doubtful accounts | 858 | 658 | 1,720 | 5,275 | |||||
Depreciation and amortization of leasing equipment | 16,262 | 12,872 | 31,714 | 25,551 | |||||
Other (income)/expense, net | 348 | 438 | 711 | 834 | |||||
Interest expense, net | 15,649 | 12,634 | 29,283 | 27,485 | |||||
53,766 | 37,578 | 103,925 | 84,393 | ||||||
Income before provision for income taxes, cumulative | 12,327 | 6,576 | 23,320 | 16,332 | |||||
effect of change in accounting principle and | |||||||||
extraordinary gain | |||||||||
PROVISION FOR INCOME TAXES | 1,950 | 850 | 3,900 | 1,350 | |||||
Income before cumulative effect of change in accounting | 10,377 | 5,726 | 19,420 | 14,982 | |||||
principle and extraordinary gain | |||||||||
Cumulative effect of change in accounting principle, net of | | | 660 | | |||||
applicable taxes of $440 | |||||||||
Extraordinary gain on debt retirement, net of applicable | | | 840 | | |||||
taxes of $560 | |||||||||
NET INCOME | $10,377 | $5,726 | $20,920 | $14,982 | |||||
INCOME PER SHARE BEFORE CUMULATIVE EFFECT | |||||||||
OF CHANGE IN ACCOUNTING PRINCIPLE AND | |||||||||
EXTRAORDINARY GAIN: | |||||||||
Basic | $0.38 | $0.21 | $0.71 | $0.54 | |||||
Diluted | $0.38 | $0.20 | $0.71 | $0.52 | |||||
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING | |||||||||
PRINCIPLE: | |||||||||
Basic | NA | NA | $0.02 | NA | |||||
Diluted | NA | NA | $0.02 | NA | |||||
EXTRAORDINARY GAIN: | |||||||||
Basic | NA | NA | $0.03 | NA | |||||
Diluted | NA | NA | $0.03 | NA | |||||
Net income per share: | |||||||||
Basic | $0.38 | $0.21 | $0.76 | $0.54 | |||||
Diluted | $0.38 | $0.20 | $0.76 | $0.52 | |||||
WEIGHTED AVERAGE SHARES OUTSTANDING (in thousands): | |||||||||
Basic | 27,421 | 27,575 | 27,421 | 27,571 | |||||
Diluted | 27,421 | 28,621 | 27,421 | 28,737 | |||||
The accompanying notes to consolidated financial statements are an integral part of these balance sheets. |
INTERPOOL, INC. AND
SUBSIDIARIES |
Six Months Ended June 30, | |||||
---|---|---|---|---|---|
2000 |
1999 | ||||
CASH FLOWS FROM OPERATING ACTIVITIES: | |||||
Net income | $20,920 | $14,982 | |||
Adjustments to reconcile net income to net cash provided by operating activities -- | |||||
Depreciation and amortization | 33,080 | 26,436 | |||
Loss on sale of leasing equipment | 978 | 515 | |||
Loss on sale of marketable securities | | 43 | |||
Collections on net investment in direct financing leases | 39,211 | 46,149 | |||
Income recognized on direct financing leases | (10,682 | ) | (11,146 | ) | |
Provision for uncollectible accounts | 1,720 | 5,275 | |||
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 | (4,648 | ) | (5,270 | ) | |
Other receivables | (1,918 | ) | 2,401 | ||
Other assets and non-cash transactions | (10,567 | ) | 9,461 | ||
Accounts payable and accrued expenses | 3,685 | (3,013 | ) | ||
Income taxes payable | 2,140 | 389 | |||
Deferred income | (16 | ) | (632 | ) | |
Minority interest in equity of subsidiaries | 476 | 57 | |||
Net cash provided by operating activities | 72,879 | 77,705 | |||
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||
Acquisition of leasing equipment | (153,767 | ) | (75,048 | ) | |
Proceeds from dispositions of leasing equipment | 5,636 | 9,241 | |||
Investment in direct financing leases | (34,392 | ) | (26,362 | ) | |
Investment in and advances to unconsolidated subsidiary | | (6,625 | ) | ||
Changes in marketable securities and other investing activities | 88 | 3,910 | |||
Change in accrued equipment purchases | 502 | (16,856 | ) | ||
Net cash used for investing activities | (181,933 | ) | (111,740 | ) | |
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||
Proceeds from issuance of long-term debt | 23,032 | 24,548 | |||
Payment of long-term debt and capital lease obligations | (71,008 | ) | (46,450 | ) | |
Borrowings of revolving credit lines | 174,855 | 58,056 | |||
Repayment of revolving credit lines | (141,139 | ) | (156,237 | ) | |
Proceeds from issuance of common stock | | 138 | |||
Proceeds from securitized lease receivables | | 189,087 | |||
Dividends paid | (2,057 | ) | (2,068 | ) | |
Net cash (used for) provided by financing activities | (16,317 | ) | 67,074 | ||
Net increase (decrease) in cash and short-term investments | (125,371 | ) | 33,039 | ||
CASH AND SHORT-TERM INVESTMENTS, beginning of period | 207,388 | 107,226 | |||
CASH AND SHORT-TERM INVESTMENTS, end of period | $82,017 | $140,265 | |||
The accompanying notes to consolidated financial statements are an integral part of these balance sheets. |
Preferred Stock |
Common Stock | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Shares |
Par Value |
Shares |
Par Value |
Additional Paid-in Capital |
Treasury Stock |
Retained Earnings |
Accum. Other Comp. Income |
Comp. 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 | | | | | | | 20,920 | | $20,920 | ||||||||||
Other comprehensive income | | | | | | | | 582 | 582 | ||||||||||
Comprehensive income | | | | | | | | | $21,502 | ||||||||||
Cash dividends declared: | |||||||||||||||||||
Common stock, $0.15 per | |||||||||||||||||||
share | | | | | | | (2,057 | ) | | ||||||||||
BALANCE, June 30, 2000 | | $ | 27,580 | $28 | $124,184 | $(1,170 | ) | $196,475 | $1,295 | ||||||||||
The accompanying notes to consolidated financial statements are an integral part of these balance sheets. |
(in thousands) | |||||||||
Three Months Ended June 30, |
Six Months Ended June 30, | ||||||||
---|---|---|---|---|---|---|---|---|---|
2000 |
1999 |
2000 |
1999 | ||||||
Average common shares outstanding | 27,421 | 27,575 | 27,421 | 27,571 | |||||
Common shares issuable (1) | | 1,046 | | 1,166 | |||||
Average common shares outstanding assuming dilution | 27,421 | 28,621 | 27,421 | 28,737 |
(1) | Issuable under stock option plans. |
(Dollars in thousands, except per share amounts) D. Comprehensive income:The tax effect of comprehensive income is as follows: |
Before-Tax Amount |
Tax Effect |
Net of Tax Amount | |||||
---|---|---|---|---|---|---|---|
Six Months ended June 30, 2000 | |||||||
Unrealized holding gains (losses) arising during the period: | |||||||
Marketable securities | $ (38 | ) | $ 13 | $ (25 | ) | ||
Other investment securities | 638 | (31 | ) | 607 | |||
Net unrealized gain on marketable and other investment securities | $600 | $(18 | ) | $582 | |||
Six Months ended June 30, 1999 | |||||||
Unrealized holding losses arising during the period: | |||||||
Marketable securities | $(34 | ) | $ 12 | $(22 | ) | ||
Less: Reclassification adjustments for losses realized in net income | (43 | ) | 15 | (28 | ) | ||
Unrealized gain on marketable securities | $ 9 | $ (3 | ) | $ 6 | |||
Note 2 Cash flow information:For the six months ended June 30, 2000 and 1999 cash paid for interest was approximately $36,542 and $32,659, respectively. Cash paid for income taxes was approximately $850 and $1,863, 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 Companys reportable segments are strategic business units that offer different products and services. Segment Information: |
Six Months ended 2000: |
Container Leasing |
Domestic Intermodal Equipment |
Other |
Totals | |||||
---|---|---|---|---|---|---|---|---|---|
Revenues from external customers | $ 49,222 | $ 55,565 | $ 22,458 | $ 127,245 | |||||
Lease operating and administrative expenses | 6,782 | 19,955 | 15,480 | 42,217 | |||||
Depreciation and amortization | 14,491 | 13,486 | 3,737 | 31,714 | |||||
Other income/(expense), net | (656 | ) | 111 | (166 | ) | (711 | ) | ||
Interest income | 2,869 | 4,907 | | 7,776 | |||||
Interest expense | 14,737 | 21,007 | 1,315 | 37,059 | |||||
Income before taxes and extraordinary item | 15,425 | 6,135 | 1,760 | 23,320 | |||||
Net investment in DFLs | 122,842 | 34,098 | 22,955 | 179,895 | |||||
Leasing equipment, net | 458,723 | 512,921 | 9,991 | 981,635 | |||||
Equipment purchases | 97,651 | 71,667 | 18,841 | 188,159 | |||||
Total segment assets | $671,005 | $740,104 | $42,654 | $1,453,763 |
(Dollars in thousands, except per share amounts) |
Six Months ended 1999: |
Container Leasing |
Domestic Intermodal Equipment |
Other |
Totals | |||||
---|---|---|---|---|---|---|---|---|---|
Revenues from external customers | $ 51,177 | $ 44,840 | $ 4,708 | $ 100,725 | |||||
Lease operating and administrative expenses | 9,612 | 19,524 | 1,387 | 30,523 | |||||
Depreciation and amortization | 12,724 | 10,762 | 2,065 | 25,551 | |||||
Other income/(expense), net | (984 | ) | 180 | (30 | ) | (834 | ) | ||
Interest income | 2,042 | 3,420 | | 5,462 | |||||
Interest expense | 12,668 | 19,510 | 769 | 32,947 | |||||
Income before taxes and extraordinary item | 17,231 | (1,356 | ) | 457 | 16,332 | ||||
Net investment in DFLs | 51,098 | 28,196 | 21,871 | 101,165 | |||||
Leasing equipment, net | 384,260 | 398,962 | 5,185 | 788,407 | |||||
Equipment purchases | 48,973 | 43,337 | 9,100 | 101,410 | |||||
Total segment assets | $569,926 | $637,869 | $27,377 | $1,235,172 |
The Companys 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 Companys 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 | $ 78,046 | $ 57,544 | |||
International | 49,199 | 43,181 | |||
$ 127,245 | $ 100,725 | ||||
ASSETS: | |||||
United States | $ 782,758 | $ 665,246 | |||
International | 671,005 | 569,926 | |||
$1,453,763 | $1,235,172 | ||||
Note 4 Other contingencies and commitments:At June 30, 2000, the Company had outstanding purchase commitments for equipment of approximately $91,414. Under certain of the Companys 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 lessors 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. |
(Dollars in thousands, except per share amounts) Note 5 Lease securitization program:On March 30, 1999, the Company entered into a $250.0 million 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 30, 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 June 30, 2000, the Company estimated the fair market value of Retained Interest was $37,323 using a discounted cash flow model assuming expected credit losses of 1.5% and a discount rate of 12.6%. During the six months ended June 30, 2000 and 1999, the Company recorded interest income on the Retained Interest totaling $1,984 and $1,075, respectively, 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 Companys 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 six months ended June 30, 2000 and 1999, the Company received servicing fees totaling $335 and $148, respectively, which are included in revenues in the accompanying consolidated statements of income. Note 6 Pending acquisition of North American Intermodal Division of Transamerica Finance Corporation:On July 28, 2000, the Company announced the signing of a definitive agreement with Transamerica Leasing Inc., a subsidiary of Transamerica Finance Corporation and AEGON N.V., to acquire the North American intermodal division of Transamerica Leasing. Under the terms of the agreement, the Company will purchase substantially all of the domestic containers, chassis, and trailers of the North American intermodal division and related assets and will assume certain of the liabilities of the business. The Company will pay approximately $675.0 million in cash, with such acquisition being financed through a combination of cash and proceeds from a committed secured financing facility. The transaction is subject to receipt of the financing and Hart Scott Rodino approval and is expected to close before the end of the current fiscal year. The transaction will be recorded using the purchase method of accounting. |
Provision for Income TaxesThe Companys provision for income taxes increased to $2.0 million from $.9 million primarily due to a higher taxable income, as well as a higher effective tax rate resulting from greater income contribution from the domestic intermodal division. Net IncomeAs a result of the factors described above, the Companys net income increased to $10.4 million in the three months ended June 30, 2000 from $5.7 million in the three months ended June 30, 1999. Six months ended June 30, 2000 compared to Six months ended June 30, 1999RevenuesThe Companys revenues increased to $127.2 million for the six months ended June 30, 2000, from $100.7 million in the six months ended June 30, 1999, an increase of $26.5 million or 26%. The increase was primarily due to a $17.9 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 $.5 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. Lease Operating and Administrative ExpensesThe Companys lease operating and administrative expenses increased to $42.2 million for the six months ended June 30, 2000 from $30.5 million in the six months ended June 30, 1999, an increase of $11.7 million. The increase was primarily due to $13.7 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, licensing, 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 EquipmentThe Companys depreciation and amortization expenses increased to $31.7 million in the six months ended June 30, 2000 from $25.6 million in the six months ended June 30, 1999, an increase of $6.1 million. The increase was due to an increased fleet size, as well as $2.4 million of depreciation and amortization as a result of the acquisition of PCR. Other (Income)/Expense, NetThe decrease in other (income)/expense, net was due to an increase in the Companys income from unconsolidated subsidiaries of $.6 million. Additionally, the Companys net loss on sale of leasing equipment increased $.5 million in the six months ended June 30, 2000. Interest Expense, NetThe Companys net interest expense increased to $29.3 million in the six months ended June 30, 2000 from $27.5 million in the six months ended June 30, 1999, an increase of $1.8 million. The increase in net interest expense was due to increased interest expense of $4.1 million, partially offset by increased investment income of $2.3 million. The increase in interest expense was primarily due to increased borrowings to fund capital expenditures resulting in incremental interest expense of $3.9 million, as well as increased borrowing costs resulting in incremental interest expense of $.2 million. Provision for Income TaxesThe Companys provision for income taxes increased to $3.9 million from $.1.4 million primarily due to a higher taxable income, as well as 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 GainAs a result of the factors described above, the Companys net income before cumulative effect of charge in accounting principle and extraordinary gain was $19.4 million in the six months ended June 30, 2000 versus net income of $15.0 million in the six months ended June 30, 1999. Cumulative Effect of Change in Accounting PrincipleThe 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 Companys accounting for its maintenance and repairs expense from an accrual to cash basis, in accordance with a recent Securities and Exchange Commission requirement. Extraordinary GainThe Company recorded an extraordinary gain on the retirement of debt of $.8 million in the three months ended March 31, 2000. Net IncomeAs a result of the factors described above, the Companys net income increased to $20.9 million in the six months ended June 30, 2000 from $15.0 million in the six months ended June 30, 1999. Liquidity and Capital ResourcesThe 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 Companys debt securities. In addition, the Company generates cash from the sale of equipment being retired from the Companys 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 $72.9 million and $77.7 million in the first six months of 2000 and 1999, respectively, and net cash (used for) provided by financing activities was $(16.3) million and $67.1 million for the first six months of 2000 and 1999, respectively. The Company has purchased the following amounts of equipment: $188.2 million for the six months ended June 30, 2000 and $101.4 million for the six months ended June 30, 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 June 30, 2000, is approximately $37.3 million of retained interests in the securitized lease receivables. At June 30, 2000, $129.3 million of the securitization facility was utilized. The Company has a $215.0 million revolving credit facility with a group of commercial banks; on June 30, 2000, $200.0 million was outstanding. In July 2000, this facility was renewed and amended with the term extended to July 31, 2005. The credit limit remains at $215.0 million through July 31, 2003; thereafter the credit limit declines to $193.5 million through July 31, 2004 and $172.0 million through July 31, 2005. In addition, as of June 30, 2000, the Company had available lines of credit of $57.3 million under various facilities, under which $17.4 million was outstanding. Interest rates under these facilities ranged from 7.6% to 7.8%. At June 30, 2000, the Company had total debt outstanding of $983.1 million. Subsequent to June 30, 2000 the Company has continued to incur and repay debt obligations in connection with financing its equipment leasing activities. As of June 30, 2000, commitments for capital expenditures totaled approximately $91.4 million. The Company expects to fund such capital expenditures through some combination of cash flow from the Companys 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 Companys 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. 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. On July 21, 2000 the Company established a chassis securitization facility of $280.0 million. This facility provides the Company an additional source of funding and will be accounted for as on-balance sheet secured debt financing. On July 28, 2000, the Company announced the signing of a definitive agreement with Transamerica Leasing Inc., a subsidiary of Transamerica Finance Corporation and AEGON N.V., to acquire the North American intermodal division of Transamerica Leasing. Under the terms of the agreement, the Company will purchase substantially all of the domestic containers, chassis, and trailers of the North American intermodal division and related assets and will assume certain of the liabilities of the business. The Company will pay approximately $675.0 million in cash, with such acquisition being financed through a combination of cash and proceeds from a committed secured financing facility. The transaction is subject to receipt of the financing and Hart Scott Rodino approval and is expected to close before the end of the current fiscal year. The transaction will be recorded using the purchase method of accounting. 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 derivatives fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivatives 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 companys 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. |
(a) | Exhibits: |
Exhibit 99: | (1) | Press Release dated May 8, 2000 (incorporated by reference to the Companys Form 10-Q for the quarter ended March 31, 2000) |
(2) | Press Release dated June 23, 2000 |
(3) | Press Release dated July 28, 2000 |
(4) | Press Release dated August 1, 2000 |
(b) | Reports on Form 8-K: |
On August 1, 2000, the Company filed a report on Form 8-K reporting the execution by the Company of an Asset Purchase Agreement with Transamerica Leasing, Inc. on July 27, 2000. Pursuant to the Asset Purchase Agreement, the Company will purchase substantially all of the domestic containers, chassis, and trailers of the North American intermodal division of Transamerica Leasing, Inc. and related assets and will assume certain of the liabilities of the business for an aggregate purchase price of approximately $675 million. The press release issued by the Company dated July 28, 2000 is included with this Form 10-Q filing. |
Dated: August 8, 2000 | \s\ Martin Tuchman Martin Tuchman Chief Executive Officer |
Dated: August 8, 2000 |
\s\ William Geoghan William Geoghan Senior Vice President |
INDEX TO EXHIBITSFiled with Interpool,
Inc.
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99: | (1) | Press Release dated May 8, 2000 (incorporated by reference to the Companys Form 10-Q for the quarter ended March 31, 2000) |
(2) | Press Release dated June 23, 2000 |
(3) | Press Release dated July 28, 2000 |
(4) | Press Release dated August 1, 2000 |
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