<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-Q
(Mark one)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
MARCH 31, 1996 OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________ TO
___________
COMMISSION FILE NUMBER 33-74198
TRANS OCEAN CONTAINER CORPORATION
(Exact name of registrant as specified in the charter)
DELAWARE 94-3155379
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
851 TRAEGER AVENUE, SAN BRUNO, CALIFORNIA 94066
(Address of principal executive offices) (Zip Code)
(415) 871-6600
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. _X_ Yes ___ No
As of May 14, 1996, 100 shares of common stock, $.001 par value, were
outstanding.
<PAGE>
TRANS OCEAN CONTAINER CORPORATION
INDEX
PAGE NO.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Introduction to Financial Statements........................ 3
Consolidated Balance Sheets
March 31, 1996 and December 31, 1995................... 4
Consolidated Statements of Operations
For the Three Month Periods Ended
March 31, 1996 and 1995................................ 5
Consolidated Statements of Cash Flows
For the Three Month Periods Ended
March 31, 1996 and 1995................................ 6
Consolidated Statement of Changes in Common Stockholder's
Equity For the Three Month Period Ended
March 31, 1996......................................... 7
Notes to Unaudited Interim Consolidated
Financial Statements........................................ 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.......... 11
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................ 13
SIGNATURES............................................................ 14
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRANS OCEAN CONTAINER CORPORATION AND SUBSIDIARIES
UNAUDITED INTERIM FINANCIAL STATEMENTS
INTRODUCTION TO FINANCIAL STATEMENTS
The following unaudited financial statements of Trans Ocean Container
Corporation and Subsidiaries (collectively, the "Company") have been
prepared in accordance with generally accepted accounting principles for
interim financial information. Accordingly, said financial statements do not
include all of the information and footnotes required by generally accepted
accounting principles for annual financial statements. In the opinion of
management of the Company, all adjustments necessary for a fair statement of
the results for the interim periods presented have been included. All such
adjustments are of a normal recurring nature. The following financial
statements should be read in conjunction with the financial statements and
the notes thereto included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1995. Operating results for the first three
months of 1996 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1996.
-3-
<PAGE>
TRANS OCEAN CONTAINER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND DECEMBER 31, 1995
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Cash and cash equivalents.............................................. $ 16,355,000 $ 23,055,000
Receivables, net of allowance for doubtful accounts of $1,424,000
and $1,405,000 as of March 31, 1996 and December 31, 1995,
respectively......................................................... 40,889,000 38,946,000
Property and equipment, net of accumulated depreciation and
amortization......................................................... 315,071,000 319,875,000
Intangible assets, net of accumulated amortization of $12,017,000 and
$11,766,000 as of March 31, 1996 and December 31, 1995,
respectively......................................................... 7,126,000 7,377,000
Other assets........................................................... 10,511,000 11,262,000
------------ ------------
Total assets....................................................... $389,952,000 $400,515,000
------------ ------------
------------ ------------
LIABILITIES, REDEEMABLE SENIOR PREFERRED STOCK
AND COMMON STOCKHOLDER'S EQUITY
Accounts payable and accrued liabilities............................... $41,188,000 $47,861,000
Managed equipment program liabilities.................................. 19,746,000 20,175,000
Due to parent and affiliates........................................... 1,386,000 1,288,000
Senior debt obligations, including current maturities of $19,777,000
and $18,373,000 as of March 31, 1996 and December 31, 1995,
respectively......................................................... 189,432,000 193,670,000
Senior subordinated notes.............................................. 75,000,000 75,000,000
Deferred revenue....................................................... 4,230,000 4,810,000
Deferred income taxes.................................................. 22,128,000 21,639,000
------------ ------------
Total liabilities.................................................. 353,110,000 364,443,000
------------ ------------
Redeemable senior preferred stock...................................... 3,596,000 3,590,000
------------ ------------
Common stockholder's equity:
Common stock......................................................... 1,000 1,000
Contributed capital.................................................. 2,501,000 2,501,000
Retained earnings.................................................... 30,744,000 29,980,000
------------ ------------
Total common stockholder's equity.................................. 33,246,000 32,482,000
------------ ------------
Total liabilities, redeemable senior preferred stock and
common stockholder's equity...................................... $389,952,000 $400,515,000
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these statements.
-4-
<PAGE>
TRANS OCEAN CONTAINER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1996 1995
----------- -----------
<S> <C> <C>
Lease revenue........................................ $43,792,000 $39,047,000
----------- -----------
Costs and expenses:
Managed equipment program distributions............ 13,179,000 13,451,000
Direct operating................................... 10,926,000 8,862,000
Depreciation and amortization...................... 5,898,000 4,549,000
Marketing and administrative....................... 6,310,000 6,080,000
Interest........................................... 6,050,000 4,548,000
----------- -----------
Total costs and expenses......................... 42,363,000 37,490,000
----------- -----------
Income before provision for income taxes........ 1,429,000 1,557,000
Provision for income taxes........................... 561,000 601,000
----------- -----------
Net income....................................... $ 868,000 $ 956,000
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
-5-
<PAGE>
TRANS OCEAN CONTAINER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1996 1995
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net income.................................................................. $ 868,000 $ 956,000
Adjustments to reconcile net income to net cash
provided by operating activities-
Depreciation and amortization............................................. 5,898,000 4,549,000
Gain on sale of property and equipment.................................... (456,000) (327,000)
Provision for doubtful accounts........................................... 130,000 150,000
Amortization of deferred revenue.......................................... (321,000) (450,000)
Provision for deferred income taxes....................................... 500,000 546,000
Other changes in assets and liabilities-
Receivables............................................................. (2,073,000) (3,348,000)
Accounts payable and accrued liabilities................................ (6,684,000) (4,652,000)
Managed equipment program liabilities................................... (429,000) 755,000
Due to parent and affiliates............................................ 98,000 (644,000)
Other, net.............................................................. 751,000 268,000
------------ -----------
Net cash used in operating activities................................. (1,718,000) (2,197,000)
------------ -----------
Cash flows from investing activities:
Purchase of property and equipment.......................................... (27,642,000) (52,443,000)
Proceeds from sale of property and equipment................................ 26,996,000 16,539,000
------------ -----------
Net cash used in investing activities................................. (646,000) (35,904,000)
------------ -----------
Cash flows from financing activities:
Revolving credit repayments................................................. (54,500,000) (21,000,000)
Revolving credit borrowings................................................. 35,000,000 54,000,000
Senior debt repayments...................................................... (4,738,000) (3,573,000)
Senior debt borrowings...................................................... 20,000,000 4,094,000
Dividend on preferred stock................................................. (98,000) (98,000)
------------ -----------
Net cash (used in)/provided by financing activities.................. (4,336,000) 33,423,000
------------ -----------
Net decrease in cash and cash equivalents............................. (6,700,000) (4,678,000)
Cash and cash equivalents, beginning of period................................ 23,055,000 18,451,000
------------ -----------
Cash and cash equivalents, end of period...................................... $16,355,000 $13,773,000
------------ -----------
------------ -----------
</TABLE>
The accompanying notes are an integral part of these statements.
-6-
<PAGE>
TRANS OCEAN CONTAINER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCKHOLDER'S EQUITY
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON CAPITAL RETAINED
STOCK SURPLUS EARNINGS
------ ---------- -----------
<S> <C> <C> <C>
Balance, December 31, 1995....................... $1,000 $2,501,000 $29,980,000
Net income...................................... 868,000
Dividend on preferred stock..................... (98,000)
Preferred stock accretion....................... (6,000)
------ ---------- -----------
Balance, March 31, 1996.......................... $1,000 $2,501,000 $30,744,000
------ ---------- -----------
------ ---------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
-7-
<PAGE>
TRANS OCEAN CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Note 1. - GENERAL:
The foregoing unaudited consolidated financial statements of the Company
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to
Article 10 of Regulation S-X as promulgated by the Securities and Exchange
Commission. Accordingly, these financial statements do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements and should therefore be read in
conjunction with the financial statements and the notes thereto included in
the Company's Annual Report on Form 10-K for the year ended December 31,
1995. In the opinion of management, all adjustments necessary for a fair
statement of the results for the interim periods presented have been
included. Operating results for the first three months of 1996 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 1996.
Beginning 1996, the Company has adopted SFAS No.121, "Accounting for
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." The statement requires that long-lived assets be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. An impairment loss is
recognized when expected undiscounted future cash flows to be generated by
the asset are less than the carrying value of the asset. Measurement of
impairment is based upon the fair value of the asset. The Company believes
that the adoption of this statement will not have a material impact upon its
consolidated financial statements.
Cash payments for interest were $8,890,000 and $7,018,000 for the three
months ended March 31, 1996 and 1995, respectively. Cash payments for income
taxes were $72,000 and $55,000 for the three months ended March 31, 1996
and 1995, respectively.
NOTE 2. - MERGER OF AFFILIATES:
On March 31, 1995, the Company's parent, Trans Ocean Ltd. ("TOL") ,
transferred its ownership in two wholly-owned subsidiaries, Trans Ocean
Chassis Corporation ("TOC") and Trans Ocean Refrigerated Container
Corporation I ("TOR"), to the Company. The transfer was effected by the
merger of TOC with and into TOR, followed by the merger of TOR with and into
the Company.
The mergers have been accounted for in a manner similar to that of a
pooling-of-interests with the net assets of TOC and TOR being recorded in
the stockholder's equity accounts of the Company as of March 31, 1995. Prior
period financial statements have not been restated as the results of
operations of TOC and TOR were not material in relation to the consolidated
financial statements of the Company.
The net assets of the transaction as of March 31, 1995, were $393,000.
-8-
<PAGE>
TRANS OCEAN CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
Accounts payable and accrued liabilities as of March 31, 1996, consist of
the following:
Equipment purchases payable......................... $19,387,000
Trade payables...................................... 2,020,000
Customer damage accrual............................. 4,220,000
Accrued operating expenses.......................... 8,474,000
Accrued interest.................................... 4,106,000
Other............................................... 2,981,000
-----------
Total............................................... $41,188,000
-----------
-----------
NOTE 4. - SENIOR DEBT OBLIGATIONS:
As of March 31, 1996, the Company has $166,432,000 of equipment debt
outstanding with a weighted average interest rate of 7.30%.
As of March 31, 1996, the borrowing capacity under the Company's
revolving credit agreement was $100,000,000, with $23,000,000 outstanding.
NOTE 5. - PROPERTY AND EQUIPMENT:
Property and equipment at March 31, 1996, consists of the following:
Leasehold improvements.................................. $ 1,562,000
Rental equipment........................................ 357,651,000
Furniture, fixtures and equipment....................... 11,233,000
------------
Total.............................................. 370,446,000
Less: Accumulated depreciation and amortization......... 55,375,000
------------
Net property and equipment......................... $315,071,000
------------
------------
NOTE 6. - COMMITMENTS AND CONTINGENCIES:
EQUIPMENT PURCHASES
As of March 31, 1996, the Company had commitments of $27,256,000 to
purchase additional rental equipment, of which approximately $8,310,000 were
denominated in foreign currency. The Company has entered into foreign
exchange contracts to hedge these commitments.
-9-
<PAGE>
TRANS OCEAN CONTAINER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FINANCIAL INSTRUMENTS
The Company from time to time utilizes various types of interest rate
contracts to manage its interest rate risk and to reduce the impact of
changes in interest rates on its variable rate indebtedness. Interest rate
cap agreements are used to protect the Company in the event of significant
increases in interest rates. As of March 31, 1996, the Company had interest
rate cap agreements which protect the Company from increases in LIBOR above
9.00% through August 1996 with respect to $85,000,000 of variable rate
indebtedness. The Company also enters into interest rate swap agreements
which effectively convert the interest rate on $85,000,000 of variable rate
debt into fixed rate debt. These agreements provide for the Company to
exchange variable rate interest payments based on LIBOR for a fixed rate of
5.77% on $30,000,000 through July 1996, 5.705% on $30,000,000 through August
1996 and 4.963% on $25,000,000 through February 1998. Net interest
settlements under the interest rate swap agreements were recorded as an
adjustment to interest expense.
OTHER MATTERS
The Company is party to various legal proceedings, claims and other
liabilities which arise in the ordinary course of business. In the opinion
of management, the amount of ultimate liability resulting from these actions
will not have a material impact upon the Company's financial condition,
results of operations, liquidity or equity.
NOTE 7. - GEOGRAPHICAL AREA AND CUSTOMER INFORMATION:
The Company operates on a worldwide basis through its headquarters in the
United States and sales offices in other locations. The Company's customer
base is diversified geographically, with most customers based outside of the
United States. Virtually all of the Company's customers are billed and pay
in United States dollars. For the three months ended March 31, 1996, no
customer accounted for more than 10% of lease revenue.
-10-
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Except for the historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from
those discussed here. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in this
section, as well as those discussed in the Company's Form 10-K for the year
ended December 31, 1995.
THREE MONTHS ENDED MARCH 31, 1996 COMPARED WITH
THREE MONTHS ENDED MARCH 31, 1995
RESULTS OF OPERATIONS
LEASE REVENUE. Lease revenue increased $4.7 million or 12.2% in the
first quarter of 1996 as compared with the first quarter of 1995. The
increase resulted primarily from increased fleet size, which was partially
offset by a decline in overall fleet utilization and per diem rates.
DIRECT OPERATING EXPENSES. Direct operating expenses in the first
quarter of 1996 increased $2.1 million or 23.3% as compared with the first
quarter of 1995. The increase was primarily attributable to an increase in
lease expense, as a result of additional equipment operating leases,
together with increases in repair and maintenance, positioning and storage
expenses.
MANAGED EQUIPMENT PROGRAM DISTRIBUTIONS. Managed equipment program
distributions decreased $0.3 million or 2.0% in the first quarter of 1996 as
compared with the first quarter of 1995. The decrease was attributable to a
decrease in net operating revenue per container, partially offset by a small
increase in the number of managed containers.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expense increased $1.3 million or 29.7% in the first quarter of 1996 as
compared with the first quarter of 1995. The increase was primarily
attributable to an increase in depreciation expense resulting from a larger
number of owned containers.
MARKETING AND ADMINISTRATIVE EXPENSES. Marketing and administrative
expenses increased $0.2 million or 3.8% in the first quarter of 1996 as
compared with the first quarter of 1995. The increase was primarily the
result of an increase in personnel associated costs, which was partially
offset by a decrease in costs associated with professional services.
INTEREST EXPENSE. Interest expense increased $1.5 million or 33.0% in the
first quarter of 1996 as compared with the first quarter of 1995. The
increase was the result of interest costs associated with the incurrence of
additional debt to finance equipment purchases, which was partially offset
by a decrease in the LIBOR and prime rates underlying most of the Company's
debt obligations.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows used in operating activities were $1.7 million and $2.2
million in the first three months of 1996 and 1995, respectively. During
both 1996 and 1995, the principal source of cash flow from operating
activities was net income, after adjustment for non-cash components of
revenue and expense, principally depreciation and amortization expense, the
provisions for doubtful accounts, and the provision for deferred income
taxes, offset by gains on the sale of property and equipment and the
amortization of deferred revenues. In 1996, a decrease in accounts payable
and accrued liabilities, an increase in receivables and a decrease in
managed container equipment
-11-
<PAGE>
program liabilities, offset the sources of operating cash flows . In 1995, a
decrease in accounts payable and accrued liabilities and an increase in
receivables, offset an increase in managed container equipment program
liabilities and operating cash flows generated by net income adjusted for
the non-cash components of revenue and expense.
Cash flows used in investing activities were $0.6 million and $35.9
million in the first three months of 1996 and 1995, respectively. These
cash flows include the proceeds from the sale of containers to managed
equipment owners and lessors, which constitute part of the Company's
financing activities, as well as proceeds from the disposal of used
containers. The principal use of cash flows from investing activities in
these periods was for the purchase of new container equipment. Additional
equipment purchases are made directly by third parties and affiliates under
the Company's managed equipment programs. Because these purchases are made
by third parties, they are not included as a portion of the Company's cash
flows from investing activities. Such third-party equipment purchases
totaled $0.1 million and $1.4 million for the three months ended March 31,
1996 and 1995, respectively. No such direct equipment purchases were made
by affiliates in the three months ended March 31, 1996 while $0.3 million in
purchases were made by affiliates in the first three months of 1995.
Cash flows used in financing activities were $4.3 million during the
three months ended March 31, 1996 while cash flows provided by financing
activities were $33.4 million in the first three months of 1995. The
primary source of cash flows from financing activities during these periods
was borrowing of long term indebtedness for the purchase of container
equipment and refinancing of existing indebtedness. The reduction in cash
flows from financing activities, from the first three months of 1995 to the
first three months of 1996, corresponds to a similar reduction in the level
of new container equipment purchases.
The Company believes that its balances of cash and cash equivalents, the
$77.0 million of availability under its revolving credit agreement, together
with cash expected to be generated from its operations, managed equipment
programs, and other borrowing commitments and capacity, will be sufficient
to meet its operating cash requirements, planned capital expenditures and
expected debt repayments over the next twelve months. The Company expects
that debt financing together with managed equipment programs will continue
to be available for the purchase of container equipment to provide for the
growth of its business in the future.
-12-
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
27.0 Financial Data Schedule
b) Reports on Form 8-K
There were no reports on Form 8-K filed for the
quarter ended March 31, 1996
-13-
<PAGE>
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.
TRANS OCEAN CONTAINER CORPORATION
Date: May 14, 1996 /s/ Marvin D. Dennis
----------------------------------------
Marvin D. Dennis
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer,
Duly Authorized Officer)
-14-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF TRANS OCEAN CONTAINER CORPORATION FOR THE
PERIOD ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 16,355,000
<SECURITIES> 0
<RECEIVABLES> 42,313,000
<ALLOWANCES> 1,424,000
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 370,446,000
<DEPRECIATION> 55,375,000
<TOTAL-ASSETS> 389,952,000
<CURRENT-LIABILITIES> 0
<BONDS> 75,000,000
3,596,000
0
<COMMON> 1,000
<OTHER-SE> 33,245,000
<TOTAL-LIABILITY-AND-EQUITY> 389,952,000
<SALES> 0
<TOTAL-REVENUES> 43,792,000
<CGS> 0
<TOTAL-COSTS> 36,183,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 130,000
<INTEREST-EXPENSE> 6,050,000
<INCOME-PRETAX> 1,429,000
<INCOME-TAX> 561,000
<INCOME-CONTINUING> 868,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 868,000
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
