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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
// TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of Each Exchange
Title of Each Class on which Registered
------------------- -------------------
COMMON STOCK, PAR VALUE $.001 NEW YORK STOCK EXCHANGE
5 1/4% Convertible Exchangeable
Subordinated Notes Due 2018 NEW YORK STOCK EXCHANGE
5 3/4% Cumulative Convertible
Preferred Stock NEW YORK STOCK EXCHANGE
-----------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
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. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. / /
The aggregate market value of the voting stock held by non-affiliates
of the registrant was approximately $145,842,464 as of March 27, 1997.
At March 27, 1997, (after giving effect to a 3-for-2 stock split
effected on that date) there were 27,551,728 shares of the registrant's
Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement for the Annual Meeting of
Shareholders to be held on May 21, 1997 are incorporated by reference into Part
III of the Form 10-K.
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INTERPOOL, INC.
FORM 10-K
TABLE OF CONTENTS
Item Page
PART I
1. Business....................................................................... 3
2. Properties..................................................................... 10
3. Legal Proceedings.............................................................. 10
4. Submission of Matters to a Vote of Security Holders............................ 10
PART II
5. Market for the Registrant's Common Equity and Related Shareholder Matters...... 10
6. Selected Financial Data........................................................ 11
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations....................................................... 12
8. Financial Statements and Supplementary Data.................................... 20
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................................... 38
PART III
10. Directors and Executive Officers of the Registrant............................. 38
11. Executive Compensation......................................................... 38
12. Security Ownership of Certain Beneficial Owners and Management................. 38
13. Certain Relationships and Related Transactions................................. 39
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K................ 39
Signatures..................................................................... 43
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PART I
ITEM 1. BUSINESS
Interpool, Inc. (the "Company" or "Interpool") is one of the world's
leading lessors of intermodal dry freight standard containers and is the second
largest lessor of intermodal container chassis in the United States. At December
31, 1996, the Company's container fleet totalled approximately 301,000 twenty
foot equivalent units ("TEUs"), the industry standard measure of dimension for
containers used in international trade, and its chassis fleet totalled
approximately 57,000 chassis. The Company leases its containers and chassis to
over 200 customers, including nearly all of the world's 20 largest international
container shipping lines.
The efficiencies and cost savings inherent in intermodal transportation
of containerized cargo have facilitated the dramatic growth of international
trade. Intermodal transportation permits movement of cargo in a standard steel
container by means of a combination of ship, rail and truck without unpacking
and repacking of the contents during transit. The world's dry freight standard
container fleet has grown from fewer than .4 million TEUs in 1970 to
approximately 8.7 million TEUs by mid-1996. During the twelve month period
ending in mid-1996 approximately 1.3 million TEUs were produced, of which .4
million have been estimated as replacements of older containers. Concurrently
with this growth of the world's container fleet, the domestic chassis fleet has
grown to accommodate the increased container traffic. Leasing companies have
played a significant role in the growth of intermodal transportation, supplying
approximately half of the world's container and chassis requirements.
The Company focuses on leasing dry freight standard containers and
container chassis on a long-term basis in order to achieve high utilization of
its equipment and stable and predictable earnings. From 1991 through 1994, the
combined utilization rate of the Company's container and chassis fleets averaged
at least 90%. At the end of 1995 and 1996 the combined utilization rate of the
Company's container and chassis fleets was approximately 97%. Substantially all
of the Company's newly acquired equipment is leased on a long-term basis, and
approximately 91% of its total equipment fleet is currently leased on this
basis. The remainder of the Company's equipment is leased under short-term
agreements to satisfy customers' peak or seasonal requirements, generally at
higher rates than under long-term leases. The Company concentrates on standard
dry cargo containers and chassis because such equipment may be more readily
remarketed upon expiration of a lease than specialized equipment. In financing
its equipment acquisitions, Interpool generally seeks to meet debt service
requirements from the leasing revenue generated by its equipment.
The Company conducts its container and chassis leasing business through
its two subsidiaries, Interpool Limited and Trac Lease, respectively. Certain
other United States equipment leasing activities are conducted through Interpool
itself.
The Company and its predecessors have been involved in the leasing of
containers and chassis since 1968. The Company leases containers throughout the
world, with particular emphasis on the Pacific Rim. The Company leases chassis
to customers for use in the United States. The Company maintains contact with
its customers through a worldwide network of offices, agents and sales
representatives. The Company believes one of the key factors in its ability to
compete effectively has been the long-standing relationships management has
established with most of the world's large shipping lines. In addition,
Interpool relies on its strong credit rating and low financing costs to maintain
its competitive position.
From time to time the Company considers possible acquisitions of
complementary business and asset portfolios.
COMPANY HISTORY
The Company is a Delaware corporation formed in February 1988. The
Company is the successor to a line of container and chassis leasing businesses
that traces its beginning to the 1960's.
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Interpool Limited, a container and chassis leasing business, was formed
in 1968 by Warren L. Serenbetz, a director of the Company and executive
consultant until January 1995, Martin Tuchman, currently Chairman of the Board,
Chief Executive Officer and director of the Company, and two other individuals.
In 1978, Interpool Limited was sold to Thyssen-Bornemisza, N.V. ("Thyssen"). As
part of Thyssen, Interpool Limited continued to be managed by Messrs. Serenbetz
and Tuchman. In 1986, Messrs. Serenbetz and Tuchman, along with Mr. Raoul J.
Witteveen and two other senior executives formed and became the stockholders of
Trac Lease, Inc. ("Trac Lease"). In 1988, the Company was formed by Messrs.
Serenbetz, Tuchman and Witteveen and acquired Interpool Limited from Thyssen
(the "Interpool Limited Acquisition"). In 1993, Trac Lease was combined with the
Company such that the Company then owned 87.5% of Trac Lease (the "Trac Lease
Acquisition"). In the first quarter of 1996 pursuant to an Agreement of Merger
between Trac Lease and Trac Lease Merger Corp., a newly formed subsidiary (the
"Trac Merger"), the Company acquired the minority interests in Trac Lease and
Trac Lease became a wholly owned subsidiary.
INTERMODAL TRANSPORTATION
The fundamental component of intermodal transportation is the container.
Containers provide a secure and cost-effective method of transporting finished
goods and component parts because they are generally freely interchangeable
between different modes of transport, making it possible to move cargo from a
point of origin to a final destination without the repeated unpacking and
repacking of the goods required by traditional shipping methods. The same
container may be carried successively on a ship, rail car and truck and across
international borders with minimal customs formalities. Containerization is more
efficient, more economical and safer in the transportation of cargo than "break
bulk transport" in which the goods are unpacked and repacked at various
intermediate points enroute to their final destination. By eliminating manual
repacking operations when differing modes of transportation are used,
containerization reduces freight and labor costs. In addition, automated
handling of containers permits faster loading and unloading and more efficient
utilization of transportation equipment, thereby reducing transit time. The
protection provided by sealed containers also reduces damage to goods and loss
and theft of goods during shipment. Containers may also be picked up, dropped
off, stored and repaired at independent common user depots located throughout
the world.
The adoption of uniform standards for containers in 1968 by the
International Standards Organization (the "ISO") precipitated a rapid growth of
the container industry, as shipping companies recognized the advantages of
containerization over traditional break bulk transportation of cargo. This
growth resulted in substantial investments in containers, container ships, port
facilities, chassis, specialized rail cars and handling equipment.
Most containers are constructed of steel in accordance with
recommendations of the ISO. The basic container type is the general purpose dry
freight standard container (accounting for approximately 87% of the world's
container fleet), which measures 20 or 40 feet long, 8 feet wide and 8 1/2 or 9
1/2 feet high. In general, 20-foot containers are used to carry heavy, dense
cargo loads (such as industrial parts and certain food products) and in areas
where transport facilities are less developed, while 40-foot containers are used
for lighter weight finished goods (such as apparel, electronic appliances and
other consumer goods) in areas with better developed transport facilities.
Standards adopted by the International Convention for Safe Containers and the
Institute of International Container Lessors govern the operation and
maintenance of containers.
The demand for containers is influenced primarily by the volume of
international and domestic trade. In recent years, however, the rate of growth
in the container industry has exceeded that of world trade as a whole due to
several factors, including the existence of geographical trade imbalances, the
expansion of shipping lines, and changes in manufacturing practices, such as
growing reliance on "just-in-time" delivery methods and increased exports by
certain technologically advanced countries of component parts for assembly in
other countries and the subsequent re-importation of finished products.
When a container vessel arrives in port, each container is loaded onto a
chassis or rail car. A chassis is a rectangular, wheeled steel frame, generally
20 or 40 feet in length, built specifically for the purpose of transporting a
container. Once mounted, the container and chassis are the functional equivalent
of a trailer. When mounted on a chassis, the container may be trucked either to
its final destination or to a railroad terminal for loading onto a rail car.
Similarly, a container shipped by rail may be transferred to a chassis to travel
over the road to its final
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destination. As the use of containers has become a predominant factor in the
intermodal movement of cargo, the chassis has become a prerequisite for the
domestic segment of the journey. A chassis seldom travels permanently with a
single container, but instead serves as a transport vehicle for containers that
are loaded or unloaded at ports or railroad terminals. Because of differing
international road regulations and the lack of international standards for
chassis, chassis used in the United States are seldom used in other countries.
The Company's management believes that over the recent years, domestic
railroads and trucking lines have begun actively marketing intermodal use of
services for the domestic transportation of freight. In 1992, container loadings
represented, for the first time, a majority of total domestic rail loadings of
intermodal transportation equipment. Management further believes that this trend
should serve to accelerate the growth of intermodal transportation, and hence
result in increased container and chassis demand.
As a result of the advantages of intermodal containerization and the
increased globalization of the world economy, the use of containers for domestic
intermodal transportation has also grown over the last few years. Greater use of
containers on cargo ships led railroad and trucking companies to develop the
capacity to transport containers domestically by chassis and rail car. In
addition, shipping companies began soliciting domestic freight in order to
mitigate the cost of moving empty containers back to the port areas for use
again in international trade. The introduction in the mid-1980's of the double
stack railroad car, specially designed to carry containers stacked one on top of
another, accelerated the growth of domestic intermodal transportation by
reducing shipping costs still further. Due to these trends, an increasing
portion of domestic cargo is now being shipped by container instead of by a
conventional highway trailer. The Company has acquired over 7,000 units of
equipment, including domestic trailers, domestic chassis and domestic
containers in order to increase its participation in the growing domestic
intermodal market.
THE LEASING MARKET AND THE COMPANY'S STRATEGY
BENEFITS OF LEASING
Leasing companies own approximately half of the world's container fleet
and half of the domestic chassis fleet, with the balance owned predominantly by
shipping lines. Leasing companies have maintained this market position because
container shipping lines receive both financial and operational benefits by
leasing a portion of their equipment. The principal benefits to shipping lines
of leasing are:
- to provide shipping lines with an alternative source of
financing in a traditionally capital-intensive industry;
- to enable shipping lines to expand their routes and market
shares at a relatively inexpensive cost without making a
permanent commitment to support their new structure;
- to enable shipping lines to benefit from leasing companies'
anticipatory buying and volume purchases, thereby offering
them attractive pricing and prompt delivery schedules;
- to enable shipping lines to accommodate seasonal and/or
directional trade route demand, thereby limiting their capital
investment and storage costs; and
- to enable shipping lines at all times to maintain the optimal
mix of equipment types in their fleets.
Because of these benefits, container shipping lines generally obtain a
significant portion of their container fleets from leasing companies, either on
short-term or long-term leases. Short-term leases provide a considerable degree
of operational flexibility in allowing a customer to pick up and drop off
containers at various locations worldwide at any time. However, customers pay
for this flexibility in the form of substantially higher lease rates for
short-term leases and drop-off charges for the privilege of returning equipment
to certain locations. Most short-term leases are "master leases," under which a
customer reserves the right to lease a certain number of containers as needed
under a general agreement between the lessor and the lessee. Long-term leases
provide the lessee with
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advantageous pricing structures, but usually contain an early termination
provision allowing the lessee to return equipment prior to expiration of the
lease only upon payment of an early termination fee. Since 1991, the Company has
experienced minimal early returns under its long-term leases, primarily because
of the penalties involved and because customers must immediately return all
containers covered by the particular long-term lease being terminated, generally
totalling several hundred units, and bear substantial costs related to their
repositioning and repair. Frequently, a lessee will retain long-term leased
equipment well beyond the initial lease term. In these cases, long-term leases
will be renewed at the then prevailing market rate, either for additional one
year periods or as part of a short-term agreement. In some cases, the customer
has the right to purchase the equipment at the end of a long-term lease. The
Company's long-term leases generally have five to eight year terms.
The Company often enters into long-term "direct finance" leases. Under a
direct finance lease, the customer owns the container at the expiration of the
lease term. Although customers pay a higher per diem rate under a direct finance
lease than under a long-term operating lease, a direct finance lease enables the
Company to provide customers with access to financing on terms generally
comparable to those available from financial institutions which provide this
type of financing. The percentage of the Company's revenues provided by direct
finance leases has increased from 11% in 1991 to 20% in 1996.
Shipping lines generally spread their business over a number of leasing
companies in order to avoid dependence on a single supplier.
Unlike the business of container leasing, which is global in scale, the
Company's chassis leasing business is almost exclusively a domestic business.
Many of the customers for the Company's chassis, however, are United States
subsidiaries or branches of international shipping lines.
COMPANY STRATEGY
The Company emphasizes long-term leases in order to minimize the impact
of economic cycles on the Company's revenues and so as to achieve high
utilization and stable and predictable earnings. The lower rate of turnover
provided by long-term leases enables the Company to concentrate on the expansion
of its asset base through the purchase and lease of new equipment, rather than
on the repeated re-marketing of its existing fleet.
The result of this strategy has been to establish the Company as one of
the world's leading lessors of dry freight standard containers. The Company
intends to continue its emphasis on acquiring and leasing dry freight standard
containers, rather than investing significantly in special purpose equipment
such as refrigerated or tank containers. Management believes that the Company
currently has one of the youngest container fleets of the world's ten largest
container lessors.
Trac Lease, with a fleet of approximately 57,000 chassis, is currently
the second largest chassis lessor in the United States, with the largest lessor
having a fleet approximating 100,000 chassis. The Company's chassis leasing
strategy includes an emphasis on long-term leasing of new or re-manufactured
chassis which allows the Company to offer equipment packages to its customers at
the most attractive cost to the Company.
In order to redeploy chassis that are coming off long-term leases, the
Company operates "chassis pools" for most of the major port authorities and
terminal operators on the Eastern seaboard and the Gulf coast. A chassis pool is
an inventory of chassis available for short-term leasing to customers of the
port or terminal. The principal ports in the United States where the Company
supplies chassis pools are Boston, New York, Baltimore, Norfolk, Charleston,
Savannah, Jacksonville, New Orleans and Houston.
Like most leasing companies, the Company depends on high utilization of
its equipment in order to run its operations profitably. Because the Company has
most of its container and chassis fleets under long-term leases, the Company
believes that it has generally experienced better utilization in periods of weak
demand than other leasing companies having a smaller proportion of their fleets
under long-term leases. From 1991 through 1994, the annual utilization of the
Company's container fleet and Trac Lease's chassis fleet has averaged at least
90%. At the end of 1995 and 1996, the combined utilization rate of the Company's
container and chassis fleets was approximately 97%.
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OPERATIONS
LEASE TERMS
Lease rentals are typically calculated on a per diem basis, regardless
of the term of the lease. The Company's leases generally provide for monthly or
quarterly billing and require payment by the lessee within 30 to 60 days after
presentation of an invoice. Generally, the lessee is responsible for payment of
all taxes and other charges arising out of use of the equipment and must carry
specified amounts of insurance to cover physical damage to and loss of
equipment, as well as bodily injury and property damage to third parties. In
addition, the Company's leases usually require lessees to repair any damage to
the containers and chassis, although in certain circumstances the Company
relieves lessees of the responsibility of paying repair costs in return for
higher lease payments. Lessees are also required to indemnify the Company
against losses to the Company arising from accidents or similar occurrences
involving the leased equipment. The Company's leases generally provide for
pick-up, drop-off and other charges and set forth a list of locations where
lessees may pick up or return equipment.
EQUIPMENT TRACKING AND BILLING
The Company uses a computer system with proprietary software for
equipment tracking and billing to provide a central operating data base showing
the Company's container and chassis leasing activities. The system processes
information received electronically from the Company's regional offices. The
system records the movement and status of each container and chassis and links
that information with the complex data comprising the specific lease terms in
order to generate billings to lessees. More than 10,000 movement transactions
per month are routinely processed through the system, which is capable of
tracking revenue on the basis of individual containers and chassis. The system
also generates a wide range of management reports containing information on all
aspects of the Company's leasing activities.
SOURCES OF SUPPLY
Because of the rising demand for containers and the availability of
relatively inexpensive labor in the Pacific Rim, approximately 50% of world
container production now occurs in China. Containers are also produced in other
countries, such as Korea, Malaysia, Indonesia, Taiwan, and, to a lesser extent,
Thailand, India and in Europe, South America and South Africa. Most chassis used
in the United States are manufactured domestically due to the high cost of
transportation to the United States of chassis manufactured abroad.
Manufacturers of chassis frequently produce over-the-road trailers as well and
can convert some production capability to chassis as needed.
Upon completion of manufacture, new containers and chassis are inspected
to insure that they conform to applicable standards of the ISO and other
international self-regulatory bodies.
MAINTENANCE, REPAIRS AND REFURBISHMENT
Maintenance for new containers and chassis has generally been minor in
nature. However, as containers and chassis age, the need for maintenance
increases, and they may eventually require extensive maintenance.
The Company's customers are generally responsible for maintenance and
repairs of equipment other than normal wear and tear. When normal wear and tear
to equipment is extensive, the equipment may have to be refurbished or
remanufactured. Refurbishing and remanufacturing involve substantial cost,
although chassis can be remanufactured for substantially less than the cost of
purchasing a new chassis. Because facilities for this purpose are not available
at all depots or branches, equipment requiring refurbishment or remanufacture
may have to be repositioned, at additional expense, to the nearest suitable
facility. Alternatively, the Company may elect to sell equipment requiring
refurbishment.
DEPOTS
The Company operates out of approximately 60 depots throughout the
world. Depots are facilities owned by third parties at which containers and
other items of transportation equipment are stored, maintained and repaired.
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The Company retains independent agents at these depots to handle and inspect
equipment delivered to or returned by lessees, store equipment that is not
leased and handle maintenance and repairs of containers and chassis. Some agents
are paid a fixed monthly retainer to defray recurring operating expenses and
some are guaranteed a minimum level of commission income. In addition, the
Company generally reimburses its agents for incidental expenses.
REPOSITIONING AND RELATED EXPENSES
If lessees in large numbers return equipment to a location which has a
larger supply than demand, the Company may incur expenses in repositioning the
equipment to a better location. Such repositioning expenses generally range
between $50 and $500 per item of equipment, depending on geographic location,
distance and other factors, and may not be fully covered by the drop-off charge
collected from the lessee. In connection with necessary repositioning, the
Company may also incur storage costs, which generally range between $.20 and
$2.50 per TEU per day. In addition, the Company bears certain operating expenses
associated with its containers and chassis, such as the costs of maintenance and
repairs not performed by lessees, agent fees, depot expenses for handling,
inspection and storage and any insurance coverage in excess of that maintained
by lessee. The Company's insurance coverage provides protection against various
risks but generally excludes war-related and other political risks.
DISPOSITION OF CONTAINERS AND CHASSIS AND RESIDUAL VALUES
From time to time, the Company sells equipment that was previously
leased. The decision whether to sell depends on the equipment's condition,
remaining useful life and suitability for continued leasing or for other uses,
as well as prevailing local market resale prices and an assessment of the
economic benefits of repairing and continuing to lease the equipment compared to
the benefits of selling. Containers are usually sold to shipping or
transportation companies for continued use in the intermodal transportation
industry or to secondary market buyers, such as wholesalers, depot operators,
mini storage operators, construction companies and others, for use as storage
sheds and similar structures. Because old chassis are more easily remanufactured
than old containers, chassis are less likely to be sold than containers.
At the time of sale, the residual value of a container or chassis will
depend, among other factors, upon mechanical or economic obsolescence, as well
as its physical condition. While there have been no major technological advances
in the short history of containerization that have made active equipment
obsolete, several changes in standards have decreased the demand for older
equipment, such as the increase in the standard height of containers from 8 feet
to 8 1/2 feet in the early 1970's.
MARKETING AND CUSTOMERS
The Company leases its containers and chassis to over 200 shipping and
transportation companies throughout the world, including nearly all of the
world's 20 largest international container shipping lines. With a network of
offices and agents covering all major ports in the United States, Europe and the
Far East, the Company has been able to supply containers in nearly all locations
requested by its customers. In 1996, the Company's top 25 customers represented
approximately 66% of its consolidated revenues, with no single customer
accounting for more than 6%.
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 to which the Company also leases containers.
The Company maintains close relationships with a large customer base on
which detailed credit records are kept. The Company's credit policy sets maximum
exposure limits for various customers. Credit criteria may include, but are not
limited to, customer trade route, country, social and political climate,
assessments of net worth, asset ownership, bank and trade credit references,
credit bureau reports, and operational history. Since 1990, the Company's losses
from defaults by customers have averaged less than 1% of consolidated revenues.
The Company seeks to reduce credit risk by maintaining insurance
coverage against defaults and equipment losses. Although there can be no
assurance that such coverage will be available in the future, the Company
currently
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maintains contingent physical damage, recovery/repatriation and loss of revenue
insurance which provides coverage in the event of a customer's default. The
policy covers the cost of recovering the Company's containers from the customer,
including repositioning costs, the cost of repairing the containers and the
value of containers which cannot be located or are uneconomical to recover. It
also covers a portion of the lease revenues the Company may lose as a result of
the customer's default (i.e., six months of lease payments following default).
The Company has the option to renew the current policy through August 1999,
subject to premium adjustment.
COMPETITION
There are many companies leasing intermodal transportation equipment
with which the Company competes. Some of the Company's competitors have greater
financial resources than the Company or are subsidiaries or divisions of much
larger companies. Management believes that the Company is currently one of the
world's largest dry cargo container leasing companies and the second largest
container chassis leasing company in the United States.
In addition, the containerized shipping industry which the Company
services, competes with providers of alternative methods of transporting goods,
such as by air, truck and rail. The Company believes that in most instances such
alternative methods are not as cost-effective as shipping of containerized
cargo.
Because rental rates for containers and chassis are not subject to
regulation by any government authority but are determined principally by the
demand for and supply of equipment in each geographical area, price is one of
the principal methods by which the Company competes. In times of low demand and
excess supply, leasing companies tend to grant price concessions, such as free
days or pick-up credits, in order to keep their equipment on lease and to avoid
storage charges. The Company attempts to design lease packages tailored to the
requirements of individual customers and considers its long-term relationships
with customers to be important to its ability to compete effectively. The
Company also competes on the basis of its ability to deliver equipment in a
timely manner in accordance with customer requirements.
OTHER BUSINESS OPERATIONS
In addition to its container and chassis leasing operations through
Interpool Limited and Trac Lease, the Company also receives revenues from other
activities. The Company leases approximately 500 freight rail cars to railroad
companies through its Chicago based Railpool division. Microtech Leasing
Corporation, a 75.5% owned subsidiary of the Company, leases microcomputers and
related equipment. The Company also leases intermodal trailers which are
designed to be carried on rail flatcars and pulled by tractor over the highway.
The Company received, in the aggregate, approximately 11% of its consolidated
revenues for the year ended December 31, 1996 from these other business
operations. These operations have been consistently profitable since the
Company's formation.
In December 1996, Interpool acquired all of the limited partnership
interests and substantially all of the senior securities of the Interpool Income
Fund I, L.P., a Delaware limited partnership (the "Income Fund") for
approximately $21.5 million. Interpool co-sponsored the offering of the
securities of the Income Fund during 1992 and 1993 and managed the containers
and chassis owned by the Income Fund. The Income Fund originally acquired
approximately 5,700 TEU containers and approximately 1,500 chassis. As a
result of this acquisition, Interpool received title to the equipment and will
receive all of the revenue from the containers and chassis owned by the Income
Fund, and will no longer be subject to the Income Fund's obligations to make
payments of approximately 11% on its outstanding securities.
EMPLOYEES
As of December 31, 1996 the Company had approximately 110 employees,
approximately 87 of whom are based in the United States. None of the Company's
employees is covered by a collective bargaining agreement. The Company believes
its relations with its employees are good.
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ITEM 2. PROPERTIES
The Company does not own any real estate. All the Company's commercial
office space, aggregating approximately 27,000 square feet, is leased. The
Company's executive offices are located at 211 College Road East, Princeton, New
Jersey. The Company also leases office facilities in New York City, Chicago,
Portland, Barbados, Aberdeen, Antwerp, Basel, Hong Kong and Singapore.
ITEM 3. LEGAL PROCEEDINGS
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders through
solicitation of proxies during the fourth quarter of fiscal 1996.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
The Common Stock of the Company is traded on the New York Stock Exchange
under the symbol "IPX". The following table sets forth for the periods indicated
commencing on January 1, 1994, the high and low last reported sale prices for
the Common Stock on the New York Stock Exchange. All share and per share data
have been adjusted to reflect the 3-for-2 stock split effected on March 27, 1997
and have been rounded to the nearest eighth.
HIGH LOW
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Calendar Year 1994
First Quarter ........... $13 5/8 $10 5/8
Second Quarter .......... 12 1/4 7 5/8
Third Quarter ........... 9 3/4 7 7/8
Fourth Quarter .......... 10 1/8 8 1/2
Calendar Year 1995
First Quarter ........... $13 5/8 $10 5/8
Second Quarter .......... 10 1/8 8 7/8
Third Quarter ........... 12 1/8 9 1/8
Fourth Quarter .......... 12 3/8 10 7/8
Calendar Year 1996
First Quarter ........... $12 1/8 $ 9 1/2
Second Quarter .......... 13 1/4 11 1/2
Third Quarter ........... 14 3/4 11 3/8
Fourth Quarter .......... 16 1/8 13 1/8
- 10 -
11
As of March 27, 1997 there were approximately 946 record holders of
Common Stock. On March 27, 1997 the last reported sale price of the Common Stock
on the New York Stock Exchange was $15.58 per share.
The Company paid an annual dividend in the amount of 12 cents in
January 1996 as declared in 1995.
The Company paid a quarterly dividend in the amount of 3.33 cents per
share on its Common Stock in April, July and October, 1996 and January 1997
and has announced a 12.5% increase in the annual dividend rate to $.15 cents
per share representing an increase to 3.75 cents per quarter.
EQUITY FINANCING
On January 27, 1997, Interpool Capital Trust, a Delaware statutory
business trust (the "Trust"), sold an aggregate of $75 million in aggregate
liquidation amount of 9 7/8% Capital Securities (the "Capital Securities") for a
total sales price of $75 million in cash. Interpool owns all the common
securities of the Trust. The proceeds received by the Trust from the sale of the
Capital Securities were used by the Trust to acquire $75 million of 9 7/8%
Junior Subordinated Debentures due February 15, 2027 of Interpool--in compliance
with Rule 144A and to a limited number of other institutional "Accredited
Investors" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities
Act of 1933).
The Capital Securities were sold to a combination of "Qualified
Institutional Buyers" (as defined in Rule 144A under the Securities Act of 1933)
in compliance with Rule 144A and to a limited number of other institutional
"Accredited Investors" (as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act of 1933. Merrill Lynch & Co., Oppenheimer & Co., Inc. and Smith
Barney Inc. acted as placement agents in connection with the sale of the Capital
Securities.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected historical and pro forma
consolidated financial data for the Company, for the periods and at the dates
indicated. The historical financial data for each of the five years in the
period ended December 31, 1996, and at December 31, 1996, 1995, 1994, 1993, and
1992, are derived from and qualified by reference to the historical consolidated
financial statements that have been audited and reported upon by Arthur Andersen
LLP, independent public accountants. This information should be read in
conjunction with the historical consolidated financial statements of the Company
and the notes thereto.
(In thousands, except per share amounts)
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------
1996 1995 1994 1993 1992 1992
---- ---- ---- ---- ---- ----
(1) (2) Pro Forma (3)
INCOME STATEMENT DATA:
Revenues ......................................... $147,148 $127,925 $92,272 $79,526 $74,538 $41,117
Earnings before interest and taxes ............... 81,481 70,752 46,170 35,116 31,569 20,406
Income before extraordinary gain (4) ............. $ 34,196 $ 29,545 $24,102 $20,004 $13,946 $10,115
======== ======== ======= ======= ======= =======
Income per share before extraordinary gain (4)(5):
Primary .......................................... $ 1.21 $ 1.08 $ 0.93 $ 0.86 $ 0.77 $ 0.57
======== ======== ======= ======= ======= =======
Fully diluted .................................... $ 1.15 $ 1.01 $ 0.87 N/A N/A N/A
======== ======== =======
Weighted average shares outstanding (5):
Primary .......................................... 26,726 26,193 25,953 23,180 18,191 17,777
Fully diluted .................................... 31,820 30,834 30,326 N/A N/A N/A
Cash dividends declared per common share (5) .... $ 0.13 $ 0.12 -- -- -- --
- 11 -
12
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
1996 1995 1994 1993 1992 1992
---- ---- ---- ---- ---- ----
(1) (2) Pro Forma (3)
BALANCE SHEET DATA:
Cash, short-term investments and
marketable securities................. $ 70,055 $ 70,661 $107,398 $124,574 $ 29,906 $ 33,585
Total assets............................ 939,418 851,600 664,792 435,984 277,554 203,509
Debt and capital lease obligations...... 602,704 571,102 482,323 278,397 202,737 149,846
Stockholders' equity.................... 280,546 246,690 156,147 133,454 46,850 34,555
(1) The 1996 income statement data includes non-recurring expense items
totaling $3,892. The Company recorded a $1,500 charge for the initial
public offering expenses of Interpool Limited which was withdrawn in the
fourth quarter; this charge has a $.05 net income per share effect on both
primary and fully diluted basis. Also, a $2,392 charge was recorded for
the accumulated dividends of the Company's subsidiary, Trac Lease, Inc.
which resulted from the acquisition of the outstanding preferred stock of
Trac Lease through the issuance of Interpool, Inc. preferred stock. Such
charge had no impact on net income per share because unpaid dividends were
included in the computation of net income per share in prior periods.
(2) The 1995 income statement data exclude the extraordinary gain of $2,422
net of taxes resulting from the exchange of $67,436 of 5 1/4% Convertible
Exchangeable Subordinated Notes due 2018 for new 5 3/4% Cumulative
Convertible Preferred Stock.
(3) The pro forma financial data give effect to (a) the recapitalization of
Trac Lease, effected in July 1992, and (b) the acquisition of Trac Lease
and the minority interest in Interpool Limited, as if these transactions
had been consummated as of January 1, 1992.
(4) In connection with the initial public offering in May 1993, the Company
ceased to be a Subchapter "S" corporation for federal income tax purposes
and thereafter became subject to federal income taxes. The Company's
financial statements for the years ended December 31, 1992 and 1993
include a pro forma provision for taxes as if the Company had been subject
to federal income taxes for such periods.
(5) Restated to give effect of the three-for-two stock split effective March
27, 1997.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of the Company's historical financial condition
and results of operations should be read in conjunction with the historical
consolidated financial statements and the notes thereto and the other financial
information appearing elsewhere in this report.
Certain of the matters discussed herein may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 and as such may involve known and unknown risks, uncertainties and other
factors that may cause the actual results, performance or achievements of
Interpool to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements.
GENERAL
The Company generates revenues through leasing transportation equipment,
primarily dry cargo 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.
Revenue derived from an operating lease generally consists of the total
lease payment from the customer. In 1996, 1995 and 1994, revenues derived from
operating leases were $117.1 million (80% of revenues), $107.5 million (84% of
revenues) and $82.4 million (89% of revenues), respectively.
- 12 -
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Revenue derived from a direct finance lease consists only of income
recognized over the term of the lease using the effective interest method. The
principal component of the direct finance payment is reflected as a reduction to
the net investment in the direct finance lease. In 1996, 1995 and 1994, total
payments from direct finance leases were $81.1 million, $48.9 million and $25.6
million, respectively. The revenue component of total lease payments totalled
$30.1 million (20% of revenues), $20.4 million (16% of revenues) and $9.9
million (11% of revenues) in 1996, 1995 and 1994, respectively.
The Company's mix of operating and direct finance leases is a function
of customer preference and demand and the Company's success in meeting those
customer requirements. During the initial two years of either an operating lease
or a direct finance lease the contribution to the Company's earnings before
interest and taxes is very similar. In subsequent periods, however, the
operating lease will generally be more profitable than a direct finance lease,
primarily due to the return of principal inherent in a direct finance lease.
However, after the long-term portion (and any renewal) of an operating lease
expires, the operating lease will have redeployment costs and related risks
which are avoided under a direct finance lease.
The Company conducts business with shipping line customers throughout
the world and is thus subject to the risks of operating in disparate political
and economic conditions. Offsetting this risk is the worldwide nature of the
shipping business and the ability of the Company's shipping line customers to
shift their operations from areas of unfavorable political and/or economic
conditions to more promising areas. Substantially all of the Company's revenues
are billed and paid in U.S. dollars. In addition, the Company's container
purchases are paid for in U.S. dollars. The Company believes these factors
substantially mitigate foreign currency rate risks.
The Company's container leasing operations are conducted through
Interpool Limited, a Barbados corporation. The Company's effective tax rate
benefits substantially from the application of an income tax convention,
pursuant to which the profits of Interpool Limited from container leasing
operations are exempt from federal taxation in the United States. Such profits
are subject to Barbados tax at rates which are significantly lower than the
applicable rates in the United States. See "--United States Federal Income Tax."
The Company's chassis leasing operations are conducted primarily through Trac
Lease. Certain other United States equipment leasing activities are conducted
through Interpool itself.
In March, 1997, the Financial Accounting Standards Board issued
Statement No. 128 "Earnings per Share" which is effective for fiscal 1997. This
statement establishes accounting standards for computing and presenting earnings
per share (EPS). It replaces the presentation of primary EPS with a presentation
of basic EPS. It also requires dual presentation of basic EPS and diluted EPS
for companies with complex capital structures. For 1996, on a pro forma basis
basic net income per share would have been $1.24 and diluted net income per
share would have been $1.16 under the new standard.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
REVENUES. The Company's consolidated revenues increased to $147.1
million for the year ended December 31, 1996 from $127.9 million in the year
ended December 31, 1995, an increase of $19.2 million or 15%. Of this increase,
$16.4 million was attributable to increased container revenue resulting from an
increased container fleet size which by year-end had grown by approximately
60,000 TEUs from the previous year. Chassis revenue also increased by $2.4
million with the fleet increasing to 57,000 units from the previous level of
54,000.
Revenue from other business operations increased by $.4 million in 1996
primarily due to increased intermodal trailer leasing revenue of $.9 million and
increased micro computer leasing revenue of $.2 million. Partially offsetting
the increase in other business operations revenue was a reduction in rail car
leasing revenue of $.4 million and decreased service fee income of $.3 million.
LEASE OPERATING AND ADMINISTRATIVE EXPENSES. The Company's lease
operating and administrative expenses increased to $30.7 million for the year
ended December 31, 1996 from $30.6 million in the year ended December 31, 1995,
an increase of $.1 million. The increase was the result of increased
administrative expenses of
- 13 -
14
$.6 million due primarily to inflation, offset by lower lease operating expenses
of $.5 million resulting primarily from lower repair costs in the chassis
operations.
DEPRECIATION AND AMORTIZATION. The Company's depreciation and
amortization expenses increased to $32.0 million in the year ended December 31,
1996 from $28.0 million in the year ended December 31, 1995, an increase of $4.0
million. The increase is due to expanded operating lease fleet size.
GAIN ON SALE OF LEASING EQUIPMENT. The Company's gain on sale of leasing
equipment decreased to $.9 million in the year ended December 31, 1996 from $1.5
million in the year ended December 31, 1995.
INTEREST EXPENSE, NET. The Company's net interest expense increased to
$39.5 million in the year ended December 31, 1996 from $35.1 million in the year
ended December 31, 1995, an increase of $4.4 million. The issuance of additional
debt and lease financing necessary for capital expenditures resulted in
additional interest expense.
PROVISION FOR INCOME TAXES. The Company's provision for income taxes
increased to $7.8 million in the year ended December 31, 1996 from $6.1 million
in the year ended December 31, 1995, an increase of $1.7 million.
This increase was primarily due to higher pretax income in 1996.
NON-RECURRING CHARGES. In 1996 the Company recorded a non-recurring
charge of $2.4 million for accumulated dividends of its subsidiary, Trac Lease,
Inc. which resulted from the acquisition of the outstanding preferred stock of
Trac Lease, Inc. through the issuance of Interpool, Inc. preferred stock. Also,
the Company incurred a charge of $1.5 million for the expenses of an initial
public offering of its subsidiary, Interpool Limited, which was withdrawn in
the fourth quarter of 1996.
NET INCOME. As a result of the factors described above, the Company's
net income increased to $34.2 million in the year ended December 31, 1996 from
$32.0 million in the year ended December 31, 1995.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
REVENUES. The Company's consolidated revenues increased to $127.9
million for the year ended December 31, 1995 from $92.3 million in the year
ended December 31, 1994, an increase of $35.6 million or 39%. Of this increase,
$23.9 million was attributable to increased container revenue resulting from an
increased container fleet size which by year-end had grown by approximately
80,000 TEUs from the previous year. Chassis revenue also increased by $7.6
million with fleet increasing to 54,000 units from the previous level of 48,000.
Revenue from other business operations increased by $4.1 million in 1995
primarily due to increased intermodal trailer leasing revenue of $5.2 million
and increased micro computer leasing revenue of $.9 million. Partially
offsetting the increase in other business operations revenue was the sale of the
Containerbase division effective November 1994 and decreased service fee income
of $.3 million.
LEASE OPERATING AND ADMINISTRATIVE EXPENSES. The Company's lease
operating and administrative expenses increased to $30.6 million for the year
ended December 31, 1995 from $29.7 million in the year ended December 31, 1994,
an increase of $.9 million. The increase was primarily attributable to higher
lease operating expenses of $.8 million mostly resulting from increased
maintenance and repair costs partially offset by lower storage costs due to high
equipment utilization and lower lease commissions resulting from the
capitalization of lease commissions. In addition, administrative expenses
increased by $.1 million resulting primarily from inflation.
DEPRECIATION AND AMORTIZATION. The Company's depreciation and
amortization expenses increased to $28.0 million in the year ended December 31,
1995 from $18.0 million in the year ended December 31, 1994, an increase of
$10.0 million. The increase is due to expanded operating lease fleet size and
was partially offset by a change in the Company's estimate in the salvage value
of chassis which reduced 1995 depreciation by $1.0 million.
- 14 -
15
GAIN ON SALE OF LEASING EQUIPMENT. The Company's gain on sale of leasing
equipment decreased to $1.5 million in the year ended December 31, 1995 from
$1.6 million in the year ended December 31, 1994.
INTEREST EXPENSE, NET. The Company's net interest expense increased to
$35.1 million in the year ended December 31, 1995 from $17.6 million in the year
ended December 31, 1994, an increase of $17.5 million. The issuance of
additional debt and lease financing necessary for capital expenditures resulted
in additional interest expense.
PROVISION FOR INCOME TAXES. The Company's provision for income taxes
increased to $6.1 million in the year ended December 31, 1995 from $4.5 million
in the year ended December 31, 1994, an increase of $1.6 million.
This increase was primarily due to higher pretax income in 1995.
INCOME BEFORE EXTRAORDINARY GAIN. As a result of the factors described
above, the Company's income before extraordinary gain increased to $29.5 million
in the year ended December 31, 1995 from $24.1 million in the year ended
December 31, 1994, an increase of $5.4 million or 23%.
EXTRAORDINARY GAIN. An extraordinary gain of $2.4 million, net of taxes,
resulted from the exchange of $67.4 million of Interpool's 5 1/4% Convertible
Exchangeable Subordinated Notes due 2018 for new 5 3/4% Cumulative Convertible
Preferred Stock with a liquidation preference of $67.4 million.
NET INCOME. As a result of the factors described above, the Company's
net income increased to $32.0 million in the year ended December 31, 1995 from
$24.1 million in the year ended December 31, 1994, an increase of $7.9 million
or 33%.
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 and borrowings, generally from banks, the issuance of
capital lease obligations and the sale of the Company's debt securities. In
addition, the Company generates cash from the sale of equipment being retired
from the Company's fleet. In general, Interpool seeks to meet debt service
requirements from the leasing revenue generated by its equipment. Since 1990,
the Company has been steadily increasing its fleet of containers and adding to
its portfolio of finance leases. The Company generated cash flow from operations
of $123.6 million, $72.8 million and $46.8 million in 1996, 1995 and 1994,
respectively. In 1996 and 1995 net cash provided by financing activities was
$21.7 million and $155.4 million, the result of the proceeds from the issuance
of debt in excess of debt repayment and dividends paid. In 1994 net cash
provided by financing activities was $203.9 million, primarily due to the
issuance of debt in excess of debt repayment. The Company has purchased
equipment costing $166.6 million in 1996, $273.6 million in 1995 and $277.7
million in 1994.
The Company has a $150.0 million revolving credit facility from a group
of commercial banks; on December 31, 1996, $5.0 million was outstanding. The
term of this facility extends until May 31, 1998 (unless the lenders elect 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, the Company has operational
lines of credit with banks of $55.0 million. As of December 31, 1996, $15.0
million was outstanding under these lines. At December 31, 1996, the Company had
total debt outstanding of $602.7 million. Subsequent to December 31, 1996,
Interpool has continued to incur and repay debt obligations in connection with
financing its equipment leasing activities.
As of December 31, 1996, commitments for capital expenditures for
containers and chassis totaled approximately $48.0 million. The Company expects
to fund such capital expenditures from the Company's operations and borrowings
under its available credit facilities and new lease financings, as well as from
additional funds raised through the issuance of debt securities in private
and/or public markets.
- 15 -
16
The Company believes that cash generated by continuing operations,
together with existing short-term credit facilities, the issuance of debt
securities in the appropriate markets and the portion of the proceeds remaining
from recent debt security sales will be sufficient to finance the Company's
working capital needs for its existing business, planned capital expenditures
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 Interpool explores new sources of capital both at the parent and
subsidiary levels.
The following table sets forth certain historical cash flow information
for the three years ended December 31, 1996.
(dollars in thousands)
Year Ended December 31,
-----------------------
1996 1995 1994
---- ---- ----
Net cash provided by operating activities ............ $123.6 $ 72.8 $ 46.8
Proceeds from disposition of leasing equipment ....... 5.7 6.7 11.6
Acquisition of leasing equipment ..................... (67.5) (167.9) (203.4)
Investment in direct financing leases ................ (99.1) (105.7) (74.3)
Net proceeds of issuance of long-term debt and capital
lease obligations in excess of payment of long-term
debt and capital lease obligations ................. 31.6 156.2 203.9
From time to time, the Company may enter into discussions with third
parties regarding potential acquisitions or business combinations. If additional
capital were to be required for any such acquisition, there can be no assurance
that such additional capital would be available on terms acceptable to the
Company.
On January 27, 1997, Interpool Capital Trust, a Delaware business trust
and special purpose entity (the "Trust"), issued in a private placement 75,000
shares of 9 7/8% Company-Obligated Mandatory Redeemable Capital Securities with
an aggregate liquidation preference of $75 million (the "Capital Securities")
for proceeds of $75 million. Costs associated with the transaction amounted to
approximately $1.7 million and were borne by the Company. Interpool owns all the
common securities of the Trust. The proceeds received by the Trust from the sale
of the Capital Securities were used by the Trust to acquire $75 million of
9 7/8% Junior Subordinated Debentures due February 15, 2027 of the Company (the
"Debentures"). The Debentures are the sole assets of the Trust. The Capital
Securities represent preferred beneficial interests in the Trust's assets.
Distributions on the Capital Securities are cumulative and payable at the annual
rate of 9 7/8% of the liquidation amount, quarterly in arrears, commencing
February 15, 1997. The Company has the option to defer payment of distributions
for an extension period of up to five years if it is in compliance with the
terms of the Capital Securities. Interest at 9 7/8% will accrue on such deferred
distributions throughout the extension period. The Capital Securities will be
subject to mandatory redemption upon repayment of the Debentures to the Trust.
The redemption price decreases from 104.975% of the liquidation preference in
2007 to 100% in 2017 and thereafter. Under certain limited circumstances, the
Company may, at its option, prepay the Debentures and redeem the Capital
Securities prior to 2007 at a prepayment price specified in the governing
instruments.
The Company used $52.9 million of net proceeds from the sale of the
Debentures to the Trust to redeem 509,964 shares of the Company's 5 3/4%
Cumulative Convertible Preferred Stock (the "Preferred Stock") on March 10, 1997
at a redemption price of 103.675% of the liquidation value.
On March 10, 1997 a total of 248,730 shares, or $24.9 million in
aggregate liquidation value, of the Company's 5 3/4% Cumulative Convertible
Preferred Stock (representing 32.78% of the outstanding shares of Preferred
Stock) were converted into a total of 1,064,297 shares of Common Stock.
As a result of the redemption of shares of Preferred Stock, the Company
expects to record a one-time charge, currently estimated to be approximately 24
cents per share on a primary basis and 21 cents per share on a fully diluted
basis, for the first quarter of 1997.
- 16 -
17
On March 12, 1997 the Company's Board of Directors announced a
three-for-two stock split, to be effective on March 27, 1997. The record date
for holders entitled to receive the benefits of the stock split was March 21,
1997. No fractional shares are being issued in connection with the stock
split. Instead, under the terms of the stock split, the Company will round any
fractional shares to which any stockholders is entitled as a result of the stock
split up to the nearest whole share.
UNITED STATES FEDERAL INCOME TAX
Commencing with its year ended December 31, 1993, the Company has been
subject to federal and state income taxes as a Subchapter "C" corporation under
the Internal Revenue Code of 1986. The Company, Trac Lease, Inc. and other
United States subsidiaries file a consolidated United States federal income tax
return. This consolidated group is liable for federal income taxes on its
worldwide income.
PERSONAL HOLDING COMPANY ISSUES. If the Company or any of its subsidiaries
were classified as a personal holding company, such corporation's undistributed
personal holding company income would be subject to a federal income tax of
39.6% in addition to its regular federal income tax liability. The federal
income tax laws have two requirements for classifying a company as a personal
holding company. The Company and its subsidiaries currently satisfy the first
requirement, the ownership of more than 50% of the value of the Company's stock
by five or fewer individuals. Whether or not the Company or any of its
subsidiaries satisfies the second requirement, that at least 60% of such
corporation's adjusted ordinary gross income constitutes personal holding
company income, will depend upon such corporation's income mix.
Based upon current projections, management does not believe the Company's
income mix will satisfy the second requirement; accordingly, the Company should
not be classified as a personal holding company. Although the income mix of one
or more of the Company's subsidiaries might satisfy the second requirement,
causing any such corporation to be classified as a personal holding company
(unless it were also a foreign personal holding company, in which case it would
be subject to the foreign personal holding company rules described below),
management does not believe that any subsidiary will be liable for personal
holding company tax. If any of the Company's subsidiaries were deemed to be a
personal holding company, management anticipates that such corporation would
distribute a sufficient amount of its earnings to eliminate any undistributed
personal holding company income. There can be no assurance, however, that the
Company will not at some point in the future be liable for the personal holding
company tax.
Commencing in 1994, a publicly held corporation may not, subject to
limited exceptions, deduct for federal income tax purposes certain compensation
paid to an executive in excess of $1 million in any taxable year (the "$1
million cap"). Compensation attributable to the exercise of options granted
after February 17, 1993 could be counted in determining whether the $1 million
cap has been exceeded in any taxable year. Whether the $1 million cap with
respect to an executive will be exceeded, and whether the Company's deductions
for compensation paid in excess of the $1 million cap will be denied, will
depend upon the resolution of various factual and legal issues that cannot be
resolved at this time. However, the Company intends to endeavor to comply with
the rules governing the $1 million cap so that it will not be subject to
limitation under such rules.
TRAC LEASE. Trac Lease has approximately $15.6 million of net operating
loss carryforwards for federal income tax purposes, which may be used only to
offset the income of Trac Lease and, if not utilized, will expire between 2005
and 2006. The use of substantially all these loss carryforwards is subject to a
number of limitations under federal tax laws.
INTERPOOL LIMITED. Under certain circumstances, the Company may be liable
for United States federal income taxes on earnings of Interpool Limited and any
other foreign subsidiaries of the Company, whether or not such earnings are
distributed to the Company. This would occur if Interpool Limited realized
"Subpart F income" as defined in the Code, if it were deemed to be a foreign
personal holding company or a passive foreign investment company, if it were to
have an increase in earnings invested in United States property or if it were
considered to have "excess passive assets."
- 17 -
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Subpart F income includes foreign personal holding company income, such as
dividends, interest and rents. Although a substantial portion of Interpool
Limited's income consists of rents from container leasing activities, the
Company believes that such rents are not Subpart F income because they are
derived from the active conduct of a trade or business and received from
unrelated persons. However, Interpool Limited has received some dividend and
interest income in 1995 and 1996, which will be taxed as Subpart F income.
If Interpool Limited were treated as a foreign personal holding company
for any year, the Company would be taxed on the amount the Company would have
received if Interpool Limited had distributed all its income to the Company as a
dividend. One of the conditions for treating a foreign subsidiary as a foreign
personal holding company is that a minimum of 60% of the foreign subsidiary's
gross income must be foreign personal holding company income. Foreign personal
holding company income does not include rental income that constitutes at least
50% of the subsidiary's gross income. Because the Company expects that rental
income will constitute at least 50% of Interpool Limited's gross income, the
Company does not anticipate that Interpool Limited will be deemed a foreign
personal holding company.
A foreign corporation such as Interpool Limited is a passive foreign
investment company if 75% or more of its gross income is foreign personal
holding company income or the average percentage of assets by value held by such
corporation during the taxable year which produce foreign personal holding
company income is at least 50%. The Company does not believe that Interpool
Limited is a passive foreign investment company. If Interpool Limited were to
become a passive foreign investment company, the Company would make the election
to treat Interpool Limited as a qualified electing fund with the result that the
Company would be taxed each year on Interpool Limited's entire earnings.
A parent company is also subject to taxation when a foreign subsidiary
increases the amount of its earnings invested in United States property during
any calendar year. The Company does not expect that Interpool Limited will
invest any earnings in United States property.
The Revenue Reconciliation Act of 1993 added a new type of shareholder
income inclusion where a foreign subsidiary has its post-December 31, 1993
earnings invested in "excess passive assets." Because the Company believes that
more than 75% of the adjusted basis of Interpool Limited's assets will
constitute assets used in the active conduct of a trade or business generating
income from unrelated persons, rather than passive assets, the Company does not
expect that the provisions dealing with excess passive assets will apply. The
Small Business Job Protection Act of 1996 repealed the income inclusion for
years after 1996.
UNITED STATES/BARBADOS INCOME TAX CONVENTION. Interpool Limited's
business is managed and controlled in Barbados; it also has a permanent
establishment in the United States. Under the Tax Convention, any profits of
Interpool Limited from leasing of containers used in international trade
generally are taxable only in Barbados and not in the United States. For its
taxable years commencing prior to January 1, 1994, Interpool Limited is entitled
to the benefits of the Tax Convention for each year that more than 50% of the
shares of Interpool Limited are owned, directly or indirectly, by United States
citizens or residents (the "stock ownership test") and its income is not used in
substantial part, directly or indirectly, to meet liabilities to persons who are
not residents or citizens of the United States (the "base erosion test"). The
Company believes that Interpool Limited passes both of these tests and should
continue to be eligible for the benefits of the Tax Convention, but there can be
no assurance as to such continued eligibility. If Interpool Limited ceased to be
eligible for the benefits of the Tax Convention, a substantial portion of its
income would become subject to the 35% United States federal income tax and the
30% branch profits tax.
A protocol to the Tax Convention has been ratified by the United States
and Barbados which amends the eligibility provision of the Tax Convention,
making the stock ownership test easier to satisfy and the base erosion test more
difficult to satisfy. The Protocol became effective on January 1, 1994 and
applies to taxable years of Interpool Limited commencing on or after that date.
The Company believes that Interpool Limited will continue to satisfy the base
erosion test and remain eligible for the benefits of the Tax Convention after
1993.
Neither the Tax Convention nor the protocol affords Interpool Limited any
relief from the personal holding company tax or the accumulated earnings tax. To
the extent that Interpool Limited has United States source income that is
personal holding company income or is not needed in its business, Interpool
Limited could be taxed on such
- 18 -
19
income unless such income is distributed to the Company as a dividend. The
Company expects that Interpool Limited would distribute any such income to the
Company.
STATE AND LOCAL TAXES
INCOME TAXES. The Company and Trac Lease are liable for state and local
income taxes on their income, and Interpool Limited is liable for state and
local income taxes on its earnings attributable to operations in the United
States.
SALES TAX. To date, Interpool Limited and Trac Lease generally have not
paid sales taxes on their leasing revenues to the states in which they conduct
business because management has believed such revenues to be exempt from state
sales taxes on several grounds, including a long-standing interpretation of the
Commerce Clause of the United States Constitution that would prohibit the
imposition of a tax on cargo containers and chassis used primarily for
transportation of goods in interstate commerce or international trade. Recently,
Itel Containers International Corp. ("Itel"), a container leasing company,
challenged an attempt by the State of Tennessee to collect sales tax on Itel's
proceeds from the leasing of containers delivered in Tennessee. In a ruling by
the United States Supreme Court in February 1993, Itel's position was rejected
and the Court upheld the right of Tennessee to impose sales tax on leasing
revenues from containers delivered in Tennessee. The Company cannot predict the
extent to which states other than Tennessee will now attempt to collect sales
tax on the Company's equipment leasing revenues based on this Supreme Court
decision. Under the terms of the Company's equipment leases, the Company would
be entitled to pass any such sales tax on to its lessees.
INFLATION
Management believes that inflation has not had a material adverse effect
on the Company's results of operations. In the past, the effects of inflation on
administrative and operating expenses have been largely offset through economies
of scale achieved through expansion of the business.
- 19 -
20
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page No.
INTERPOOL, INC.
Report of Independent Public Accountants ............................... 21
Consolidated Balance Sheets--At December 31, 1996 and 1995 ............. 22
Consolidated Statements of Income
For the Years Ended December 31, 1996, 1995 and 1994 .............. 23
Consolidated Statements of Stockholders' Equity
For the Years Ended December 31, 1996, 1995 and 1994 .............. 24
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1996, 1995 and 1994 .............. 25
Notes to Consolidated Financial Statements ............................. 26
- 20 -
21
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Interpool, Inc.:
We have audited the accompanying consolidated balance sheets of Interpool, Inc.
(a Delaware corporation) and subsidiaries as of December 31, 1996 and 1995, and
the related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Interpool, Inc. and
subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Roseland, New Jersey
February 18, 1997,
except for the matters
described in Note 13,
as to which the
date is March 27, 1997
- 21 -
22
INTERPOOL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(dollars in thousands, except per share amounts)
ASSETS 1996 1995
--------- ---------
CASH AND SHORT-TERM INVESTMENTS .............................................. $ 45,333 $ 40,208
MARKETABLE SECURITIES ........................................................ 24,722 30,453
ACCOUNTS AND NOTES RECEIVABLE, less allowance
of $2,506 and $2,099, respectively ......................................... 28,818 25,785
NET INVESTMENT IN DIRECT FINANCING LEASES .................................... 264,955 202,576
OTHER RECEIVABLES, net including amounts from related parties of
$13,433 and $6,398, respectively ........................................... 14,721 8,831
LEASING EQUIPMENT, at cost ................................................... 650,734 609,869
Less - Accumulated depreciation and amortization ........................... (109,363) (86,249)
--------- ---------
LEASING EQUIPMENT, net ....................................................... 541,371 523,620
--------- ---------
OTHER ASSETS ................................................................. 19,498 20,127
--------- ---------
TOTAL ASSETS .............................................................. $ 939,418 $ 851,600
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
ACCOUNTS PAYABLE AND ACCRUED EXPENSES, including $21,532 due
to a related party in 1996 ................................................. $ 38,338 $ 18,653
INCOME TAXES:
Current .................................................................... 978 581
Deferred ................................................................... 14,353 9,517
--------- ---------
15,331 10,098
--------- ---------
DEFERRED INCOME .............................................................. 1,970 1,142
DEBT AND CAPITAL LEASE OBLIGATIONS, including $5,007 and
$6,140 due to a related party, respectively:
Due within one year ...................................................... 80,831 71,104
Due after one year ....................................................... 521,873 499,998
--------- ---------
602,704 571,102
--------- ---------
MINORITY INTEREST IN EQUITY OF SUBSIDIARIES .................................. 529 3,915
STOCKHOLDERS' EQUITY:
5 1/4% Cumulative Convertible Preferred stock, par value $.001 per share;
1,640 shares authorized at December 31, 1996 and 324,000 shares authorized
at December 31, 1995, none issued
5 3/4% Cumulative Convertible Preferred Stock, par value $.001 per share;
760,054 shares authorized, 758,694 outstanding, liquidation
preference $75,869 at December 31, 1996 and
676,000 shares authorized, 674,360 outstanding, liquidation
preference $67,436 at December 31, 1995 .................................. 1 1
Common stock, par value $.001 per share;
100,000,000 shares authorized, 25,953,345 outstanding .................... 26 26
Additional paid-in capital ................................................. 170,172 163,251
Retained earnings .......................................................... 109,837 83,342
Net unrealized gain on marketable securities ............................... 510 70
--------- ---------
280,546 246,690
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ................................ $ 939,418 $ 851,600
========= =========
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
- 22 -
23
INTERPOOL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(dollars in thousands, except per share amounts)
1996 1995 1994
--------- --------- --------
REVENUES ........................................... $ 147,148 $ 127,925 $ 92,272
COST AND EXPENSES:
Lease operating expenses ......................... 18,361 18,857 17,979
Administrative expenses .......................... 12,370 11,773 11,673
Depreciation and amortization of leasing equipment 31,976 28,027 18,057
Gain on sale of leasing equipment ................ (932) (1,484) (1,607)
Interest expense ................................. 42,784 39,050 21,585
Interest income .................................. (3,299) (3,968) (4,017)
Non-recurring charges ............................ 3,892 -- --
--------- --------- --------
105,152 92,255 63,670
--------- --------- --------
Income before provision for income taxes
and extraordinary gain ..................... 41,996 35,670 28,602
PROVISION FOR INCOME TAXES ......................... 7,800 6,125 4,500
--------- --------- --------
Income before extraordinary gain ............. 34,196 29,545 24,102
Extraordinary gain on debt retirement,
net of applicable taxes of $1,683 ............ -- 2,422 --
--------- --------- --------
Net income ............................... $ 34,196 $ 31,967 $ 24,102
========= ========= ========
INCOME PER SHARE BEFORE EXTRAORDINARY GAIN
Primary ...................................... $ 1.21 $ 1.08 $ 0.93
========= ========= ========
Fully diluted ................................ $ 1.15 $ 1.01 $ 0.87
========= ========= ========
Income per share on extraordinary gain:
Primary ...................................... NA $ 0.09 NA
=========
Fully diluted ................................ NA $ 0.08 NA
=========
NET INCOME PER SHARE:
Primary ........................................ $ 1.21 $ 1.18 $ 0.93
========= ========= ========
Fully Diluted .................................. $ 1.15 $ 1.08 $ 0.87
========= ========= ========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING (in thousands)
Primary ....................................... 26,726 26,193 25,953
========= ========= ========
Fully Diluted ................................. 31,820 30,834 30,326
========= ========= ========
The accompanying notes to consolidated financial statements
are an integral part of these statements.
- 23 -
24
INTERPOOL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(dollars and shares in thousands)
Preferred Stock Common Stock Net Unrealized
------------------ ------------------- Additional Gain (Loss) on
Par Par Paid-in Retained Marketable
Shares Value Shares Value Capital Earnings Securities
------ ----- ------ ----- ------- -------- ----------
BALANCE, January 1, 1994 .......... -- -- 25,953 $26 $102,222 $ 31,206 --
Net income ..................... -- -- -- -- -- 24,102 --
Net unrealized loss on
marketable securities ........ -- -- -- -- -- -- (1,409)
------ --- -------- --------- -------
BALANCE, December 31, 1994 ........ -- -- 25,953 $26 $102,222 $ 55,308 (1,409)
Net income ..................... -- -- -- -- -- 31,967 --
Change in net unrealized gain on
marketable securities ....... -- -- -- -- -- -- 1,479
Exchange of debt for preferred
stock ....................... 674 1 -- -- 61,029 -- --
Cash dividends declared:
Preferred stock ............. -- -- -- -- -- (819) --
Common stock ................ -- -- -- -- -- (3,114) --
--- --- ------ --- -------- --------- -------
BALANCE, December 31, 1995 ........ 674 $1 25,953 $26 $163,251 $ 83,342 $ 70
Net income ..................... -- -- -- -- -- 34,196 --
Change in net unrealized gain on
marketable securities ....... -- -- -- -- -- -- 440
Trac Lease minority interest
acquisition ................. 84 -- -- -- 6,892 -- --
Exchange of debt for preferred
stock ....................... 1 -- -- -- 29 -- --
Cash dividends declared:
Preferred stock ............. -- -- -- -- -- (4,241) --
Common stock ................ -- -- -- -- -- (3,460) --
--- --- ------ --- -------- --------- -------
BALANCE, DECEMBER 31, 1996 ........ 759 $1 25,953 $26 $170,172 $ 109,837 $ 510
=== === ====== === ======== ========= =======
The accompanying notes to consolidated financial statements
are an integral part of these statements.
- 24 -
25
INTERPOOL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(dollars in thousands)
1996 1995 1994
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................................ $ 34,196 $ 31,967 $ 24,102
Adjustments to reconcile net income to net cash
provided by operating activities--
Cumulative dividend on preferred stock of subsidiary (extraordinary
gain) ........................................................... 2,392 (2,422) --
Depreciation and amortization ..................................... 33,371 28,958 18,353
Gain on sale of leasing equipment ................................. (932) (1,484) (1,607)
Collections on net investment in direct
financing leases ................................................ 81,051 48,880 25,562
Income recognized on direct financing leases ...................... (30,143) (20,366) (9,901)
Provision for uncollectible accounts .............................. 1,031 819 854
Changes in assets and liabilities--
Accounts and notes receivable ................................... (4,064) (6,141) (5,978)
Other receivables ............................................... 1,144 353 (1,771)
Other assets .................................................... (976) (9,656) (5,416)
Accounts payable and accrued expenses ........................... 533 (942) (1,896)
Income taxes payable ............................................ 5,144 3,367 3,846
Deferred income ................................................. 828 (705) 418
Minority interest in equity of subsidiary ....................... 40 154 276
--------- --------- ---------
Net cash provided by operating activities ......................... 123,615 72,782 46,842
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of leasing equipment ...................................... (67,538) (167,885) (203,390)
Proceeds from dispositions of leasing equipment ....................... 5,674 6,742 11,646
Investment in direct financing leases ................................. (99,064) (105,758) (74,336)
Proceeds from (purchase of) marketable securities and other
investing activities ................................................ 20,758 9,819 (20,758)
--------- --------- ---------
Net cash used for investing activities .............................. (140,170) (257,082) (286,838)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt .............................. 122,123 199,365 245,678
Payment of long-term debt and capital lease
obligations ......................................................... (90,493) (43,150) (41,752)
Dividends paid ........................................................ (9,950) (819) --
--------- --------- ---------
Net cash provided by financing activities ..................... 21,680 155,396 203,926
--------- --------- ---------
Net increase (decrease) in cash and
short-term investments ...................................... 5,125 (28,904) (36,070)
CASH AND SHORT-TERM INVESTMENTS, beginning of year ...................... 40,208 69,112 105,182
--------- --------- ---------
CASH AND SHORT-TERM INVESTMENTS, end of year ............................ $ 45,333 $ 40,208 $ 69,112
========= ========= =========
Supplemental schedule of non-cash financing activities:
Exchange of 5 1/4% Convertible Exchangeable Subordinated Notes for
5 3/4% Cumulative Convertible Preferred Stock ..................... -- $ 67,436 --
Acquisition of subsidiary common and preferred stock in exchange
for Company's 5 3/4% Cumulative Convertible Preferred Stock ....... $ 6,892 -- --
The accompanying notes to consolidated financial statements
are an integral part of these statements.
- 25 -
26
INTERPOOL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
(1) NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES:
The nature of operations and the significant accounting policies used by
Interpool, Inc. and subsidiaries (the "Company" or "Interpool") in the
preparation of the accompanying consolidated financial statements are summarized
below. 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.
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.
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. Minority interest in equity of subsidiaries represents the
minority stockholders' proportionate share of the equity in the income of the
subsidiaries.
In connection with acquisitions in 1988 and 1993, the excess of fair value of
assets acquired over the acquisition cost was allocated proportionately to
certain assets to reduce the value assigned to those assets. For accounting
purposes this allocation has only been recorded in the consolidation of the
Company and its subsidiaries.
TRANSLATION OF FOREIGN CURRENCIES--
The Company considers the U.S. dollar its functional currency and therefore,
translates foreign currency statements using an average exchange rate for
revenue and expense accounts and the rate of exchange in effect at the balance
sheet date for assets and liabilities. Substantially all transactions are U.S.
dollar denominated.
REVENUES--
Equipment leasing revenues include revenue from operating leases and income on
direct financing leases, which is recognized over the term of the lease using
the effective interest method.
LEASING EQUIPMENT--
As of December 31, 1996, in excess of 97% of leased equipment are on lease to
customers. The net value of equipment available for hire is not material.
Depreciation and amortization of leasing equipment (both equipment currently
on-lease to customers and available for hire) are provided under the
straight-line method based on the following estimated useful lives:
Dry freight standard containers..... 12 1/2 to 15 years
Chassis ............................ 20 years
Other .............................. 3 to 25 years
- 26 -
27
(dollars in thousands, except per share amounts)
Effective January 1, 1995, the Company changed the salvage value on chassis from
nine hundred dollars to one thousand two hundred dollars per unit. The effect of
this change for the year ended December 31, 1995 was to decrease depreciation
expense by $1,004.
Gains or losses resulting from the disposition of leasing equipment are recorded
in the year of disposition.
The residual value of leasing equipment is estimated based on the projections
for the economic value and market value of intermodal equipment as well as the
Company's experience in leasing and selling similarly aged equipment. Such
projected values are reviewed and updated when market and/or economic conditions
change. The Company continually reviews leasing equipment and other long lived
assets to evaluate whether changes have occurred that would suggest these assets
may be impaired based on the estimated cash flows of the assets over the
remaining amortization period. If this review indicates that the remaining
estimated useful life requires revision or that the asset is not recoverable,
the carrying amount of the asset is reduced to its fair value.
During 1996 the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 121 - "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." SFAS No. 121 did not have any impact on
the Company's financial statements.
MARKETABLE SECURITIES--
Management has determined that all securities are to be held for an indefinite
period of time and classified as securities available-for-sale carried at market
value. Unrealized holding gains and losses for available-for-sale securities are
credited (charged) to a component of stockholders' equity net of related income
taxes. Management determines the appropriate classifications of securities at
the time of purchase and reassesses the appropriateness of the classification at
each reporting date.
Premium and discount on securities are included in interest income over the
period from acquisition to maturity using the level-yield method. The specific
identification method is used to record gains and losses on security
transactions.
Sales of available-for-sale securities for the twelve months ended December 31,
1996 and 1995 resulted in proceeds of $2,852 and $2,605, gross gains of $583 and
$408, and gross losses of $135 and $101. There were no transfers of
available-for-sale securities to another category. No net unrealized holding
gains or losses have been included in income for the periods ended December 31,
1996 and 1995.
For the twelve months ended December 31, 1996 and 1995 the change in gross
unrealized gain on available-for-sale securities was $474 and $1,986 with a
corresponding tax reduction of $(34) and $(507) resulting in a cumulative net
unrealized holding gain of $510 and $70.
The amortized cost and estimated fair value of securities as of December 31,
1996 are as follows:
Gross
Unrealized
Amortized Holding Holding Estimated
Cost Gains Losses Fair Value
---- ----- ------ ----------
Available-for-sale
U.S. Treasury ....... $14,945 $ 14 $ (2) $14,957
Other Debt Securities 2,385 -- (64) 2,321
Equity Securities ... 6,577 867 -- 7,444
------- ----- -------- -------
$23,907 $ 881 $ (66) $24,722
======= ===== ======== =======
The amortized cost and estimated fair value of U.S. Treasury and other debt
securities, by contractual maturity, are shown below:
- 27 -
28
(dollars in thousands, except in per share amounts)
Amortized Estimated
Cost Fair Value
---- ----------
Due in one year ........................ $15,622 $15,588
Due after one year through five years... 1,561 1,530
Due after five years ................... 147 160
FAIR VALUE OF FINANCIAL INSTRUMENTS--
The carrying amount of cash and short-term investments, trade receivables
and payables, accrued interest receivable and payable and the current portion of
long-term debt approximate fair value. There are no quoted market prices for the
Company's direct finance lease receivables, long-term debt, and interest rate
swap contracts, and a reasonable estimate could not be made without incurring
excessive costs.
CONCENTRATION OF CREDIT RISK--
The Company extends credit to its customers after extensive credit evaluation.
At December 31, 1996 approximately 36% of accounts receivable and notes
receivable and 84% of the net investment in direct financing leases were from
customers outside of the United States, with no significant concentration in any
one country. At December 31, 1995, approximately 31% of accounts receivable and
notes receivable and 82% of the net investment in direct financing leases were
from customers outside of the United States, with no significant concentration
in any one country.
In 1996, 1995 and 1994 the Company's top 25 customers represented approximately
66%, 67% and 66%, respectively, of its consolidated revenues, with no single
customer accounting for more than 6%.
NET INCOME PER SHARE--
Primary net income per share is computed by deducting preferred dividends (and
in 1996, adding $2,392 of non-recurring charge for cumulative dividends
described in Note 8) 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 adjusted for the dilutive effect of stock
options. 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 fully 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 described in Note 13.
USE OF ESTIMATES--
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
(2) INCOME TAXES:
Significant components of deferred tax assets and liabilities as of December 31,
1996 and 1995 were as follows:
- 28 -
29
(dollars in thousands, except per share amounts)
1996 1995
------- -------
Deferred tax assets--
Loss carryforwards ...................... $10,783 $10,530
Finance leases receivable ............... 2,615 1,237
Other, primarily operating reserves ..... 2,895 2,819
------- -------
Total deferred tax assets ....... 16,293 14,586
Deferred tax liabilities--
Operating property, net ................. 28,404 22,659
Other ................................... 2,242 1,444
------- -------
Total deferred tax liabilities... 30,646 24,103
------- -------
Net deferred tax liability ...... $14,353 $ 9,517
======= =======
One of the Company's subsidiaries has tax net operating loss carryforwards
(NOLs) for Federal income tax purposes totalling approximately $15.6 million
which may be used only to offset that subsidiary's income. These NOLs, if not
utilized, will expire between 2005 and 2006.
A significant subsidiary of the Company is a Barbados corporation. Under the
terms of a protocol between the United States and Barbados, the subsidiary's
leasing income is fully taxable by Barbados, but exempt from U.S. Federal
taxation. For the years 1991 through 1996, the Barbados tax rate was a maximum
of 2 1/2% of income earned in Barbados. No significant differences exist between
the subsidiary's book and taxable income for Barbados tax purposes. No deferred
U.S. Federal income taxes have been provided on the unremitted earnings of the
subsidiary since it is the Company's intention to indefinitely reinvest such
earnings. At December 31, 1996 unremitted earnings of this subsidiary were
approximately $94,000. The deferred U.S. Federal Income taxes related to the
unremitted earnings of this subsidiary would be approximately $31,000, assuming
these earnings are taxable at the U.S. statutory rate, net of foreign tax
credits.
A reconciliation of the U. S. statutory tax rate to the actual tax rate follows:
1996 1995 1994
------ ------ ------
U. S. statutory rate ....................................... 35.0% 35.0% 35.0%
Difference due to operation of subsidiary
in Barbados .............................................. (24.3) (22.3) (22.3)
Federal taxes on foreign income ............................ 3.1 2.9 5.0
State taxes ................................................ 2.4 3.1 1.7
Other foreign taxes ........................................ -- -- 0.5
Reversal of tax reserves ................................... -- (1.6) (4.4)
Cumulative dividends on Trac Lease, Inc. preferred stock.... 2.0 -- --
Other ...................................................... 0.4 0.1 0.2
------ ------ ------
Actual tax rate ....................................... 18.6% 17.2% 15.7%
====== ====== ======
The 1995 and 1994 tax provision reflects the reversal of certain tax reserves
that are no longer deemed necessary.
The provision for income taxes reflected in the accompanying consolidated
statements of income is as follows:
1996 1995 1994
------ ------ ------
U. S .............. $7,210 $5,607 $4,023
- 29 -
30
(dollars in thousands, except per share amounts)
Other ............. 590 518 477
------ ------ ------
$7,800 $6,125 $4,500
====== ====== ======
Current............ $2,950 $2,874 $ 981
Deferred........... 4,850 3,251 3,519
------ ------ ------
$7,800 $6,125 $4,500
====== ====== ======
For further information regarding the Company's tax structure reference is made
to Item 7 of this Form 10-K.
(3) LEASING ACTIVITIES:
AS LESSEE--
The net book value of assets acquired through capital leases was $159,259 at
December 31, 1996. The aggregate capital lease obligations, secured by
equipment, with installments payable in varying amounts through 2007, were
$180,836 at December 31, 1996.
As of December 31, 1996, the annual maturities of capital leases and related
interest were as follows:
Payment Interest Principal
------- -------- ---------
1997 ............. $ 32,708 $ 12,190 $ 20,518
1998 ............. 33,341 10,575 22,766
1999 ............. 26,565 8,981 17,584
2000 ............. 27,249 7,648 19,601
2001 ............. 24,832 6,257 18,575
Thereafter........ 97,497 15,705 81,792
-------- -------- --------
$242,192 $ 61,356 $180,836
======== ======== ========
The Company leases office space and certain leasing equipment under operating
leases expiring at various dates through 2001. Rental expense under operating
leases aggregated $3,838, $3,753, and $3,766 for the periods ended December 31,
1996, 1995 and 1994, respectively.
As of December 31, 1996, the aggregate minimum rental commitment under operating
leases having initial or remaining noncancellable lease terms in excess of one
year was as follows:
1997 ............................... $2,449
1998 ............................... 1,607
1999 ............................... 1,476
2000 ............................... 891
2001 ............................... 77
------
$6,500
======
AS LESSOR--
The Company has entered into various leases of equipment that qualify as direct
financing leases. At the inception of a direct finance lease, the Company
records a net investment based on the gross investment (representing the total
future minimum lease payments plus unguaranteed residual value), net of unearned
lease income. The unguaranteed residual value is generally equal to the purchase
option of the lessee, which in the case of the Company's lease contracts is
insignificant. Unearned income represents the excess of gross investment over
equipment cost. Receivables under these direct financing leases, net of unearned
income, are collectible through 2006 as follows:
- 30 -
31
(dollars in thousands, except per share amounts)
December 31, 1996
------------------------------------------
Unearned
Total Lease Lease Net Lease
Receivables Income Receivables
----------- ------ -----------
1997.............. $ 88,166 $ 27,370 $ 60,796
1998.............. 78,850 20,799 58,051
1999.............. 66,418 14,195 52,223
2000.............. 49,387 8,713 40,674
2001.............. 30,774 4,656 26,118
Thereafter......... 30,854 3,761 27,093
-------- -------- --------
$344,449 $ 79,494 $264,955
======== ======== ========
As of December 31, 1996, the Company also had noncancellable operating leases,
under which it will receive future minimum rental payments as follows:
1997 .............................. $37,842
1998 .............................. 19,432
1999 .............................. 10,906
2000 .............................. 4,186
2001 .............................. 1,434
-------
$73,800
=======
Effective January 1, 1995 the Company began capitalizing lease commissions and
amortizing this cost over the average life of the related lease contract. At
December 31, 1996 and 1995, $2,199 and $1,432 of these commissions were included
in other assets.
(4) DEBT:
Debt consists of notes and loans secured by leasing equipment, with installments
payable in varying amounts through 2003, with effective interest rates of
approximately 5.8% to 9.0% and a weighted average rate of 7.18% in 1996. The
principal amount of debt payable under fixed rate contracts is $311,684.
Remaining debt is payable under floating rate arrangements. Approximately
$80,000 of floating rate debt has been converted to fixed rate debt through the
use of interest rate swaps as described below. The agreements contain certain
covenants which, among other things, provide for the maintenance of specified
levels of tangible net worth (as defined) and a maximum debt to net worth ratio.
At December 31, 1996, under covenants in the Company's loan agreement
approximately $67,500 of retained earnings were available for dividends. The
Company was in compliance with its debt covenants at December 31, 1996.
As of December 31, 1996, the annual maturities of notes and loans, net of
interest thereon were as follows:
1997 ............................... $ 60,313
1998 ............................... 70,020
1999 ............................... 74,782
2000 ............................... 72,710
2001 ............................... 81,863
Thereafter ......................... 62,180
--------
$421,868
========
The Company has a $150,000 credit facility from a group of commercial banks; on
December 31, 1996, $5,000 was outstanding. The term of this facility extends
until May 31, 1998 (unless the lenders elect 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, the Company has operational lines of credit with banks of
$55,000. As of December 31, 1996, $14,974 was outstanding under these lines and
is reflected above as due in 1997.
- 31 -
32
(dollar in thousands, except per share amounts)
In 1996 the Company entered into a five year interest rate swap contract with a
notional amount of $80,000 to convert variable rate debt into fixed rate debt.
The maturity of this contract coincides with the maturity of the underlying debt
instruments hedged. In 1995 the Company entered into and closed out an interest
rate swap contract with a notional amount of $82,021 which was designated as a
hedge to protect against increases in interest rates for debt instruments which
were secured in 1995. The close out value of the swap is being amortized as a
yield adjustment over the remaining period to maturity of the debt instruments
hedged.
Interest rate swap contracts are intended to be an integral part of borrowing
transactions and, therefore are not recognized at fair value. Interest
differentials paid or received under these contracts are recognized as yield
adjustments to the effective yield of the underlying debt instruments hedged.
Interest rate swap contracts would only be recognized at fair value if the
hedged relationship is terminated. Gains or losses accumulated prior to
termination of the relationship would be amortized as a yield adjustment over
the shorter of the remaining life of the contract, or the remaining period to
maturity of the underlying debt instrument hedged. If the contract remained
outstanding after termination of the hedged relationship, subsequent changes in
market value of the contract would be recognized in earnings. The Company does
not use leveraged swaps and does not use leverage in any of its investment
activities that would put principal capital at risk.
(5) EXCHANGE OF DEBT
During 1995 the Company consummated the exchange of $67,436 principal amount of
5 1/4% Convertible Exchangeable Subordinated Notes for 5 3/4% Cumulative
Convertible Preferred Stock with a $67,436 liquidation preference. The preferred
stock was convertible into shares of the Company's common stock at a conversion
price of $23.37 per share (or effectively 4.279 shares of common stock for one
share of preferred stock) and was redeemable, in whole or in part, at the option
of the Company at any time after December 15, 1996 at a redemption price of
103.675% of liquidation preference in 1996 declining to 100% in 2003 and
thereafter. See Note 13 for redemption and conversion of the preferred stock in
1997.
As a result of the exchange, the Company recognized an extraordinary gain of
$2,422, net of applicable taxes of $1,683, representing the difference between
the face value of the 5 1/4% Notes, less related deferred financing costs and
expenses related to the exchange and the fair market value of the 5 3/4%
preferred stock.
(6) OTHER CONTINGENCIES AND COMMITMENTS:
At December 31, 1996, the Company has outstanding purchase commitments for
equipment of approximately $48,000.
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 has entered into employment agreements with certain key officers and
employees which provide for minimum salary, bonus arrangements and benefits for
periods up to seven years.
The Company has a number of claims pending against it, has filed claims against
others and has been named as a defendant in a number of lawsuits incidental to
its business. The Company believes that such proceedings will not have a
material effect on its consolidated financial statements.
(7) CASH FLOW INFORMATION:
For purposes of the consolidated statements of cash flows, the Company includes
all highly liquid short-term investments with an original maturity of three
months or less in cash and short-term investments.
For the periods ended December 31, 1996, 1995 and 1994, cash paid for interest
was approximately $41,998, $39,646 and $21,864, respectively. Cash paid for
income taxes was approximately $2,177, $2,514 and $1,296,
- 32 -
33
(dollars in thousands, except per share amounts)
respectively. The Company has entered into employment agreements with certain
key officers and employees which provide for minimum salaries, bonus
arrangements and benefits for periods up to ten years.
(8) RELATED PARTY TRANSACTIONS:
The Company leases approximately 16,000 square feet of commercial space for its
executive offices in Princeton, New Jersey from 211 College Road Associates, a
New Jersey general partnership. Martin Tuchman, the Company's Chief Executive
Officer, holds a direct or indirect equity interest of 28.85% and Radcliff
Group, Inc., a related party, holds a direct or indirect equity interest of
28.15% in 211 College Road Associates. The annual base rental for this property
is approximately $309 under a net lease expiring in 2001, subject to renewal. In
the opinion of the Company's management, rent being paid under this lease does
not exceed rent that the Company would have paid in an arms'-length transaction
with an unrelated third party.
The Company had a consultation agreement with Radcliff Group, Inc. pursuant to
which Radcliff designated Warren L. Serenbetz, a stockholder and director, as an
executive consultant. Under the terms of the agreement compensation continues
through December 31, 2002. Compensation under this agreement was $492, $492 and
$551 in 1996, 1995 and 1994, respectively.
On August 10, 1992, The Ivy Group, a related party, borrowed $7,100 from the
Company, evidenced by a promissory note due in July 1997. In connection with
this promissory note, The Ivy Group executed a Chattel Mortgage, Security
Agreement and Assignment under which the Company, as secured party, was granted
a security interest in 4,364 chassis owned by The Ivy Group and was granted an
assignment of all rights to receive rental payments and proceeds related to the
lease and sublease of such chassis. On November 12, 1993, the Company pledged
the 4,364 chassis owned by The Ivy Group as security for an additional Company
borrowing of $4,800 bearing interest at LIBOR plus 1.25%. In consideration of
The Ivy Group's consent to the foregoing, the interest rate on the outstanding
balance of its promissory note to the Company was reduced to match the Company's
borrowing rate.
On February 28, 1996, the Board of Directors approved a loan to The Ivy Group of
an additional $7,035 from the Company by increasing its outstanding balance
under the Ivy Loan from $6,398 to $13,433, reflecting the current estimated loan
value of the Ivy Collateral. Under the terms of the amended Ivy Loan, the entire
new balance bears interest at LIBOR plus 1.75% repayable over a five year term
on an interest only basis, subject to maintenance of fixed loan-to-collateral
value ratios. The Company was also granted the right to continue to utilize the
Ivy Collateral to secure additional Company financings.
The Ivy Group, in which Mr. Tuchman, Radcliff Group, Inc. and Mr. Witteveen hold
interests, has invested in chassis which it has leased to Trac Lease. In 1986,
The Ivy Group became a New Jersey general partnership and Mr. Witteveen and two
senior executive officers of Trac Lease became partners. Radcliff Group, Inc.
and Mr. Tuchman share equally in the net income of The Ivy Group derived from
the lease of 1,184 chassis to Trac Lease (Contributed Chassis). In addition,
each of Radcliff Group and Mr. Tuchman receives 28.5% of the net income of The
Ivy Group, other than that derived from the Contributed Chassis. Mr. Witteveen
receives 14.3% of the net income of The Ivy Group, other than that derived from
the Contributed Chassis. In 1994, 1995 and 1996, 32%, 32% and 17.5%,
respectively of the aggregate net income of The Ivy Group was derived from the
Contributed Chassis and 68%, 68% and 82.5%, respectively was derived from other
activities. The terms of all agreements between Trac Lease and The Ivy Group,
including rental rates, are fixed and, in the opinion of the Company's
management, are comparable to terms that Trac Lease would have obtained in
arms'-length transactions with unrelated third parties. Trac Lease has been
advised by the principals of The Ivy Group that the personal tax consequences to
such principals would make it inadvisable to terminate the transactions entered
into except with respect to any extensions of the lease agreements. The Ivy
Group has entered into an agreement with the Company pursuant to which it has
agreed not to engage in any business activities that are competitive with the
business activities of the Company or its subsidiaries (including Trac Lease).
On August 15, 1992, Eurochassis L.P., a New Jersey limited partnership in which
Raoul J. Witteveen is one of the limited partners and the general partner,
entered into a master equipment lease agreement, as lessor, with Trac
- 33 -
34
(dollars in thousands, except per share amounts)
Lease, as lessee, pursuant to which Eurochassis L.P. leases 100 chassis to Trac
Lease for an annual lease payment of $91. The annual lease term renews
automatically unless canceled by either party prior to the first day of the
renewal period. The terms of such master equipment lease agreement, in the
opinion of Trac Lease's management, are comparable to terms that Trac Lease
would have obtained in an arms'-length transaction with an unrelated third
party.
On December 30, 1986, Princeton Intermodal Equipment Trust I, a New Jersey trust
(Princeton Intermodal), as lessor, and Trac Lease, as lessee, entered into a
lease agreement pursuant to which Trac Lease leases 618 chassis from Princeton
Intermodal at a fixed rate of $2.00 per day for an 11-year term. Martin Tuchman
and Warren L. Serenbetz, directly and indirectly, are among the beneficiaries of
Princeton Intermodal, of which an unaffiliated party is the trustee. The Ivy
Group, Mr. Tuchman and Warren L. Serenbetz hold 3.2%, 32.1% and 12.9% interests,
respectively, in Princeton Intermodal. The terms of the lease agreement between
Princeton Intermodal and Trac Lease, in the opinion of Trac Lease's management,
are comparable to terms that Trac Lease would have obtained in an arms'-length
transaction with an unrelated third party. The Ivy Group entered into a
guarantee of all rental payments due from Trac Lease to Princeton Intermodal
under such lease agreement, which guarantee continues for the length of the
lease term.
Since leasing the Contributed Chassis to Trac Lease in 1986, The Ivy Group, as
lessor, has entered into a series of other lease agreements with Trac Lease.
Currently, pursuant to such lease agreements, Trac Lease leases from The Ivy
Group an aggregate 7,411 chassis for aggregate annual lease payments of
approximately $3,900. Such leases either renew automatically unless canceled by
either party prior to the first day of the renewal period or expire on various
dates in 1997 or 2000. In August 1990, The Ivy Group pledged approximately 1,400
of the aforementioned chassis to a financial institution in order to secure a
loan in the amount of $6,500, of which $4,366 was outstanding as of December 31,
1996. Approximately $2,500 of the loan was used by The Ivy Group to purchase 50%
of the preferred stock of Trac Lease, with the remainder used to purchase
equipment. In the event of a default by The Ivy Group under such loan, Trac
Lease has agreed to purchase such chassis from the lender at a price equal to
the principal balance of the loan then outstanding. The Trac Lease preferred
stock held by The Ivy Group had cumulative dividends which have not been
declared in the amount of $2,315 at December 31, 1995.
On March 15, 1996, pursuant to the terms of an Agreement of Merger between Trac
Lease and Trac Lease Merger Corp., a newly formed subsidiary (the "Trac
Merger"), the Company issued an aggregate of 24,390 shares of its 5 3/4%
Cumulative Convertible Preferred Stock ("Interpool Preferred Stock") with a
value of $2,000 to Thomas P. Birnie and Graham Owen, both officers of Trac, and
Messrs. Birnie and Owen surrendered an aggregate of 25,000 shares of common
stock representing 12 1/2% of the outstanding common stock of Trac. Following
the Trac Merger, Interpool, Inc. holds 100% of the outstanding shares of common
stock of Trac.
Pursuant to the terms of the Trac Merger, the Company also issued 59,664 shares
of its Interpool Preferred Stock with a value of $4,892 to The Ivy Group and The
Ivy Group surrendered 2,500 shares of Trac Preferred Stock having a stated value
of $2,500 plus accrued, cumulative dividends of $2,392. Following the Trac
Merger, no shares of Trac Lease Preferred Stock were outstanding. The Trac
Merger was accounted for under the purchase method of accounting. The cumulative
dividends on the Trac Preferred Stock were charged to expense in the first
quarter of 1996 as a non-recurring charge. Such charge had no impact on net
income per share in the first quarter because unpaid dividends on the Trac
Preferred Stock were included in the computation of net income per share in
prior periods.
In December 1996, Interpool acquired all of the limited partnership
interest and substantially all of the senior securities of the Interpool Income
Fund I, L.P., (the "Income Fund") a Delaware limited partnership for $21,532.
This amount is included in accounts payable and accrued expense at December 31,
1996. Interpool co-sponsored the offering of the securities of the Income fund
during 1992 and 1993 and managed the containers and chassis owned by the Income
Fund. Fees for managing the equipment on behalf of the Income Fund were not
material. The Income Fund originally acquired approximately 5,700 TEU
containers and approximately 1,500 chassis. As a result of this acquisition,
Interpool received title to the equipment and will receive all of the revenue
from the containers and chassis owned by the Income Fund, and will no longer be
subject to the Income Funds's obligations to make payments of approximately
11% on its outstanding securities.
The effect of the above related party transactions included in the accompanying
statement of income are as follows:
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35
(dollars in thousands, except per share amounts)
1996 1995 1994
---- ---- ----
Revenue .................. $ 851 $ 450 $ 494
====== ====== ======
Lease operating expense... $2,573 $2,573 $2,573
====== ====== ======
Administrative expense.... $ 838 $ 785 $ 817
====== ====== ======
Interest expense ......... $ 691 $ 801 $ 900
====== ====== ======
Non-recurring charge ..... $2,392 $ -- $ --
====== ====== ======
(9) RETIREMENT PLANS:
Certain subsidiaries have defined contribution plans covering substantially all
full-time employees. No contributions were made by the Company or its
subsidiaries to these plans during the years ended December 31, 1996, 1995, and
1994.
(10) SEGMENT AND GEOGRAPHIC DATA:
The Company is engaged in one line of business, the leasing of intermodal dry
freight standard containers and intermodal container chassis. The Company's
shipping line customers utilize international containers in world trade over
many varied and changing trade routes. In addition, most large shipping lines
have many offices in various countries involved in container operations. The
Company's revenue from international containers is earned while the containers
are used in service carrying cargo around the world, while certain other
equipment is utilized in the United States. Accordingly, the information about
the business of the Company by geographic area is derived from either
international sources or from United States sources. Such presentation is
consistent with industry practice. Information about the business of the Company
by geographic area is presented in the table below:
1996 1995 1994
-------- -------- --------
Revenues--
United States (a) .. $ 70,981 $ 67,345 $ 51,681
International ...... 76,167 60,580 40,591
-------- -------- --------
$147,148 127,925 92,272
Income before taxes--
United States ...... $ 10,481 11,495 9,050
International ...... 31,515 24,175 19,552
-------- -------- --------
41,996 35,670 28,602
Capital expenditures--
United States ...... 59,061 93,355 113,671
International ...... 107,531 180,288 164,055
-------- -------- --------
166,592 273,643 277,726
Depreciation--
United States ...... 14,689 14,207 9,792
International ...... 17,287 13,820 8,265
-------- -------- --------
31,976 28,027 18,057
Assets--
United States ...... 427,365 371,191 325,221
International ...... 512,053 480,409 339,571
-------- -------- --------
$939,418 $851,600 $664,792
======== ======== ========
(a) Includes revenues from related parties of $851, $450 and $494 in 1996,
1995 and 1994, respectively.
(11) CAPITAL STOCK:
- 35 -
36
(dollars in thousands, except per share amounts)
The Company's 1993 Stock Option Plan for Executive Officers and Directors (the
"Stock Option Plan") was adopted by the Company's Board of Directors and
approved by the stockholders in March 1993.
A total of 6 million shares of common stock have been reserved for issuance
under the Stock Option Plan. Options may be granted under the Stock Option Plan
to executive officers and directors of the Company or a subsidiary (including
any executive consultant of the Company and its subsidiaries), whether or not
they are employees. During 1994, 2,445,000 options were granted under the Stock
Option Plan at an exercise price of $9.33 a share (the fair value of the
Company's common stock on the dates of the grants). No options were granted in
1995. During 1996, options to purchase 465,000 shares were granted under the
Stock Option Plan at an exercise price of $11.08 a share (the fair value of
the Company's common stock on the dates of the grants). These options vest six
months from date of grant and expire ten years from date of grant. To date,
none of the options have been exercised.
The Company's Nonqualified Stock Option Plan for Nonemployee, Nonconsultant
Directors (the "Directors' Plan") was adopted by the Board of Directors and
approved by the stockholders in March 1993. Under the Directors' Plan a non
qualified stock option to purchase 15,000 shares of common stock is
automatically granted to each nonemployee, nonconsultant director of the
Company, in a single grant at the time the director first joins the Board of
Directors. The Directors' Plan authorizes grants of options up to an aggregate
of 150,000 shares of common stock. The exercise price per share is the fair
market value of the Company's common stock on the date on which the option is
granted (the "Grant Date"). The options granted pursuant to the Directors' Plan
may be exercised at the rate of 1/3 of the shares on the first anniversary of
the director's Grant Date and 1/3 of the shares on the second anniversary of the
director's Grant Date and 1/3 of the shares on the third anniversary of the
director's Grant Date, subject to certain holding periods required under rules
of the Securities and Exchange Commission. Options granted pursuant to the
Directors' Plan expire ten years from their Grant Date. Pursuant to the
Director's Plan, in March 1993 options to purchase 15,000 shares of common stock
at the public offering price of $9.33 a share were granted to each of three
Directors of the Company.
The Directors' Plan is administered by the Stock Option Committee of the Board
of Directors. Pursuant to the Directors' Plan, in June 1994 an option to
purchase 15,000 shares of common stock at $7.67 a share was granted to Peter
D. Halstead upon his appointment to the Board. In April 1996, an option to
purchase 15,000 shares of common stock at $12.17 a share was granted to Joseph
J. Whalen upon his appointment to the Board. To date, none of the options have
been exercised.
In connection with the issuance of the 5 3/4% Cumulative Convertible Preferred
Stock and the 5 1/4% Convertible Exchangeable Subordinated Notes, (Note 5)
approximately 2.9 million shares of Common stock were reserved for issuance at
December 31, 1996. See Note 13 for redemption and conversion of Preferred Stock.
Common stock dividends declared and unpaid at December 31, 1996 amounted to
$865, and are included in accounts payable and accrued expenses.
Effective January 1, 1996, the Company adopted the provisions of Statement No.
123, Accounting for Stock-Based Compensation. As permitted by the Statement, the
Company has chosen to continue to account for stock-based compensation using the
intrinsic value method. To date, all options were granted with exercise price
equal to the fair market price of the Company's Stock at Grant Date,
accordingly, no compensation expense has been recognized. Options issued with an
exercise price below the fair value of the Company's common stock on the date of
grant will be accounted for as compensatory options. The difference between the
exercise price and the fair value of the Company's common stock will be charged
to expense over the shorter of the vesting or service period. Options issued at
fair value are non-compensatory. Had the fair value method of accounting been
applied to the Company's stock option plans, which requires recognition of
compensation cost ratably over the vesting period of the underlying equity
instruments, net income would have been reduced by $1,473 or $.06 per share
primary and $.05 per share fully diluted. This pro forma impact only takes into
account options granted since January 1, 1995. The average fair value of options
granted during 1996 was $5.28. The fair value was estimated using the
Black-Scholes option pricing model based on the market price at grant date of
- 36 -
37
(dollars in thousands, except per share amounts)
$11.08 and the following weighted average assumptions: risk-free interest rate
of 6.22%, expected life of 10 years, volatility of 31% and dividend yield of
1.2%.
In 1996 there was a non-recurring charge of $1,500 for the initial public
offering expense of Interpool Limited, which was withdrawn in the fourth
quarter.
(12) 1996 QUARTERLY FINANCIAL DATA (UNAUDITED):
1st 2nd 3rd 4th
--- --- --- ---
Revenues ................................. $ 35,179 $ 36,431 $ 37,482 $ 38,056
Net income ............................... $ 8,448(1) $ 9,471 $ 9,886 $ 10,283(2)
Primary net income per share ............. $ 0.28 $ 0.32 $ 0.33 $ 0.34(2)
Fully diluted net income per share ....... $ 0.27 $ 0.30 $ 0.31 $ 0.32(2)
1995 QUARTERLY FINANCIAL DATA (UNAUDITED):
Revenues ................................. $ 27,695 $ 31,484 $ 33,582 $ 35,164
Net income ............................... $ 6,421 $ 6,975 $ 7,584 $ 8,565
Primary net income per share ............. $ 0.25 $ 0.27 $ 0.29 $ 0.29
Fully diluted net income per share ....... $ 0.23 $ 0.25 $ 0.26 $ 0.28
(1) Excludes a $2,392 non-cash and non-recurring charge for accumulated
dividends of its subsidiary, Trac Lease, Inc., which resulted from the
acquisition of the outstanding preferred stock of Trac Lease, Inc. through
the issuance of Interpool, Inc. preferred stock. Such charge has no impact
on net income per share because unpaid dividends were included in the
computation of net income per share in prior years.
(2) Excludes a $1,500 charge, $.05 per share primary and $.05 per share fully
diluted for the initial public offering expenses of Interpool Limited which
offering was withdrawn in the fourth quarter of 1996.
(13) SUBSEQUENT EVENTS:
On January 27, 1997, Interpool Capital Trust, a Delaware business trust and
special purpose entity (the "Trust"), issued in a private placement 75,000
shares of 9 7/8% Company-Obligated Mandatory Redeemable Capital Securities with
an aggregate liquidation preference of $75,000 (the "Capital Securities") for
proceeds of $75,000. Costs associated with the transaction amounted to
approximately $1,700 and were borne by the Company. Interpool owns all the
common securities of the Trust. The proceeds received by the Trust from the sale
of the Capital Securities were used by the Trust to acquire $75,000 of 9 7/8%
Junior Subordinated Debentures due February 15, 2027 of the Company (the
"Debentures"). The Debentures are the sole assets of the Trust. The Capital
Securities represent preferred beneficial interests in the Trust's assets.
Distributions on the Capital Securities are cumulative and payable at the annual
rate of 9 7/8% of the liquidation amount, quarterly in arrears, commencing
February 15, 1997. The Company has the option to defer payment of distributions
for an extension period of up to five years if it is in compliance with the
terms of the Capital Securities. Interest at 9 7/8% will accrue on such deferred
distributions throughout the extension period. The Capital Securities will be
subject to mandatory redemption upon repayment of the Debentures to the Trust.
The redemption price decreases from 104.975% of the liquidation preference in
2007 to 100% in 2017 and thereafter. Under certain limited circumstances, the
Company may, at its option, prepay the Debentures and redeem the Capital
Securities prior to 2007 at a prepayment price specified in the governing
instruments.
The Company used $52,871 of net proceeds from the sale of the Debentures to the
Trust to redeem 509,964 shares of the Company's 5 3/4% Cumulative Convertible
Preferred Stock (the "Preferred Stock") on March 10, 1997 at a redemption price
of 103.675% per share of the liquidation value.
- 37 -
38
(dollars in thousands, except per share amounts)
On March 10, 1997 a total of 248,730 shares, or $24,873 in aggregate liquidation
value, of the Company's 5 3/4% Cumulative Convertible Preferred Stock
(representing 32.78% of the outstanding shares of Preferred Stock) were
converted into a total of 1,064,297 shares of Common Stock.
As a result of the redemption of shares of Preferred Stock, the Company expects
to record a one-time charge, currently estimated to be approximately 24 cents
per share on a primary basis and 21 cents per share on a fully diluted basis,
for the first quarter of 1997.
On March 12, 1997 the Company's Board of Directors announced a three-for-two
stock split, to be effective on March 27, 1997. The record date for holders
entitled to receive the benefits of the stock split will be March 21, 1997. No
fractional shares are being issued in connection with the stock split. Instead,
under the terms of the stock split, the Company will round any fractional shares
to which any stockholders is entitled as a result of the stock split up to the
nearest whole share.
On March 27, 1997, options for the purchase of 1,498,500 shares of common stock
were granted under the Stock Option Plan at an exercise price of $15.58 per
share (the fair value of the Company's common stock on the date of the grant).
These options vest six months from the date of the grant and expire in ten
years from the date of the grant.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this Item 10 with respect to the directors of
registrant is hereby incorporated by reference to registrant's definitive proxy
statement to be filed pursuant to Regulation 14A promulgated by the Securities
and Exchange Commission under the Securities Exchange Act of 1934, which proxy
statement is anticipated to be filed on or about April 17, 1997.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this Item 11 is hereby incorporated by reference to
registrant's definitive proxy statement to be filed pursuant to Regulation 14A
promulgated by the Securities and Exchange Commission under the Securities
Exchange Act of 1934, which proxy statement is anticipated to be filed on or
about April 17, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this Item 12 is hereby incorporated by reference to
registrant's definitive proxy statement to be filed pursuant to Regulation 14A
promulgated by the Securities and Exchange Commission under the Securities
Exchange Act of 1934, which proxy statement is anticipated to be filed on or
about April 17, 1997.
- 38 -
39
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this Item 13 is hereby incorporated by reference to
registrant's definitive proxy statement to be filed pursuant to Regulation 14A
promulgated by the Securities and Exchange Commission under the Securities
Exchange Act of 1934, which proxy statement is anticipated to be filed on or
about April 17, 1997.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8K
(a)(1) FINANCIAL STATEMENTS
INTERPOOL, INC.
Report of Independent Public Accountants
Consolidated Balance Sheets--At December 31, 1996 and 1995
Consolidated Statements of Income for the Years Ended December 31, 1996, 1995
and 1994.
Consolidated Statements of Stockholders' Equity for the Years Ended December 31,
1996, 1995 and 1994.
Consolidated Statements of Cash Flows for the Years Ended December 31, 1996,
1995 and 1994.
Notes to Consolidated Financial Statements
(a)(2) FINANCIAL STATEMENT SCHEDULES
Schedule II -- Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable
regulations of the Commission are not required under the related instructions or
are inapplicable, and therefore have been omitted.
(a)(3) EXHIBITS
3.1* -- Form of Restated Certificate of Incorporation of the Company
3.2* -- Form of Restated Bylaws of the Company
4.1* -- Form of Certificate representing the Common Stock
10.1* -- Purchase Agreement dated as of January 30, 1993 by and between Sequa
Capital Corp. and the Company, as amended as of March 5, 1993.
10.2* -- Restructuring Agreement dated as of August 5, 1992 among the
Company, Trac Lease, Radcliff Group, Interpool Limited, Sequa
Capital Corp., Martin Tuchman, Raoul J. Witteveen, Warren L.
Serenbetz, Warren L. Serenbetz, Jr., Paul H. Serenbetz, Stuart W.
Serenbetz and Clay R. Serenbetz.
10.3* -- Amended and Restated Term Credit Agreement dated as of February 19,
1993 between the Company and Swiss Bank Corporation.
10.4* -- Promissory Note of the Company dated February 11, 1993 to United
Jersey Bank/Central N.A.
10.5* -- Employment Agreement dated as of January 1, 1992 by and between
Raoul J. Witteveen and the Company.
10.6* -- Employment Agreement dated as of January 1, 1992 by and between
Radcliff Group and the Company.
- 39 -
40
10.7* -- Consultation Services Agreement dated as of January 1, 1992 by and
between Radcliff Group and the Company.
10.9* -- Form of Stock Option Plan for Executive Officers and Directors.
10.10* -- Form of Stockholders' Agreement dated as of May 4, 1993, among the
Company and Messrs. Martin Tuchman, Raoul J. Witteveen, Warren L.
Serenbetz, Warren L. Serenbetz, Jr., Clay R. Serenbetz, Paul H.
Serenbetz, Stuart W. Serenbetz and Arthur L. Burns and the Serenbetz
Trust.
10.12** -- Form of Non-Compete Agreement dated as of May 4, 1993, by and
between The Ivy Group and the Company.
10.13* -- Lease Agreements by and between 211 College Road Associates and
Interpool Limited and 211 College Road Associates and Microtech
Leasing.
10.14* -- Lease Agreement dated December 30, 1986 between Princeton Intermodal
Equipment Trust I and Trac Lease.
10.15* -- Lease Agreements between The Ivy Group and Trac Lease.
10.16* -- Amendment No. 1, dated August 10, 1992, to Secured Promissory Note
and Chattel Mortgage, Security Agreement and Assignment by and
between The Ivy Group and the Company.
10.17* -- Chassis Lease Agreement dated as of August 15, 1992 by and between
Eurochassis L.P. and Trac Lease.
10.18* -- Form of Transfer and Subscription Agreement among Radcliff Group,
Martin Tuchman, Raoul J. Witteveen, Warren L. Serenbetz, Warren L.
Serenbetz, Jr., Clay R. Serenbetz, Paul H. Serenbetz, Stuart W.
Serenbetz, the Serenbetz Trust and the Company.
10.19* -- Form of Exchange and Subscription Agreement by and between the
Company and Arthur L. Burns.
10.20* -- Demand promissory notes of the Company payable to Martin Tuchman,
Warren L. Serenbetz and Princeton International Properties.
10.23* -- Indemnity Agreement between the Company and other directors.
10.26* -- Agreement between the Company and Arthur L. Burns regarding certain
litigation.
10.27 -- Indenture between the Company and IBJ Schroeder Bank & Trust
Company, as Trustee, dated January 27, 1997.
10.28. -- First Supplemental Indenture between Interpool, Inc. and IBJ
Schroeder Bank & Trust Company dated January 27, 1997.
10.29 -- Series A Capital Securities Guarantee Agreement dated January 27,
1997.
10.30***-- Agreement of Merger dated March 15,1996 among Trac Lease, Inc.,
Trac Lease Merger Corp. and the Company.
10.31***-- Letter Agreement between The Ivy Group and the Company.
12.1** -- Statement regarding computation of ratios of earnings to fixed
charges.
21.1* -- Subsidiaries of the Company.
23.1** -- Consent of Arthur Andersen LLP with respect to consolidated
financial statements of the Company.
27. -- Financial Data Schedule.
99. -- Press Releases dated November 22, 1996; November 26, 1996; December
24, 1996; December 31, 1996; January 23, 1997; January 31, 1997;
February 18, 1997; March 11, 1997; and March 12, 1997.
- - ---------------
* Filed with the Registrant's Registration Statement on Form S-1 declared
effective by the Commission on May 4, 1993 (Reg. No. 33-59498) and
incorporated herein by reference as indicated.
** Filed with the Registrant's Registration Statement on Form S-1 declared
effective by the Commission on December 7, 1993 (Reg. No. 33-71538) and
incorporated herein by reference as indicated.
***Formerly filed with the Registrant's Annual Report on Form 10-K for the
period ended 12/31/95 and incorporated herein by reference as indicated.
(b) REPORTS ON FORM 8-K
None
- 40 -
41
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To Interpool, Inc.:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of Interpool, Inc. and subsidiaries included
in this Form 10-K and have issued our report thereon dated February 18, 1997
except for the matters described in Note 13, as to which the date is March 27,
1997. Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying Schedule II is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. The schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
Arthur Andersen LLP
Roseland, New Jersey
February 18, 1997
- 41 -
42
INTERPOOL, INC. AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
ALLOWANCE FOR DOUBTFUL ACCOUNTS
(in thousands)
Balance at Charged to Write-offs, Balance
Beginning Costs and Net of at End
of Year Expenses Recoveries of Year
------- -------- ---------- -------
Year Ended December 31, 1996................................. $2,099 $1,126 $719 $2,506
====== ====== ==== ======
Year Ended December 31, 1995................................. $1,883 $819 $603 $2,099
====== ====== ==== ======
Year Ended December 31, 1994................................. $2,005 $854 $976 $1,883
====== ====== ==== ======
- 42 -
43
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
INTERPOOL, INC.
(Registrant)
March 27, 1997 By /s/ Martin Tuchman
-----------------------------------------------
Martin Tuchman
Chairman of the Board, Chief Executive Officer,
and Director (Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
March 27, 1997 By /s/ Martin Tuchman
-----------------------------------------------
Martin Tuchman
Chairman of the Board, Chief Executive Officer,
and Director (Principal Executive Officer)
March 27, 1997 By /s/ Raoul J. Witteveen
-----------------------------------------------
Raoul J. Witteveen
President, Chief Financial Officer and
Director
March 27, 1997 By /s/ Warren L. Serenbetz
-----------------------------------------------
Warren L. Serenbetz
Director
March 27, 1997 By /s/ John M. Bucher
-----------------------------------------------
John M. Bucher
Director
March 27, 1997 By /s/ Arthur L. Burns
-----------------------------------------------
Arthur L. Burns
Director
March 27, 1997 By /s/ Peter D. Halstead
-----------------------------------------------
Peter D. Halstead
Director
March 27, 1997 By /s/ Joseph J. Whalen
-----------------------------------------------
Joseph J. Whalen
Director
March 27, 1997 By /s/ William Geoghan
-----------------------------------------------
William Geoghan
Controller (Principal Accounting Officer)
- 43 -
44
EXHIBIT INDEX
3.1* -- Form of Restated Certificate of Incorporation of the Company
3.2* -- Form of Restated Bylaws of the Company
4.1* -- Form of Certificate representing the Common Stock
10.1* -- Purchase Agreement dated as of January 30, 1993 by and between Sequa
Capital Corp. and the Company, as amended as of March 5, 1993.
10.2* -- Restructuring Agreement dated as of August 5, 1992 among the
Company, Trac Lease, Radcliff Group, Interpool Limited, Sequa
Capital Corp., Martin Tuchman, Raoul J. Witteveen, Warren L.
Serenbetz, Warren L. Serenbetz, Jr., Paul H. Serenbetz, Stuart W.
Serenbetz and Clay R. Serenbetz.
10.3* -- Amended and Restated Term Credit Agreement dated as of February 19,
1993 between the Company and Swiss Bank Corporation.
10.4* -- Promissory Note of the Company dated February 11, 1993 to United
Jersey Bank/Central N.A.
10.5* -- Employment Agreement dated as of January 1, 1992 by and between
Raoul J. Witteveen and the Company.
10.6* -- Employment Agreement dated as of January 1, 1992 by and between
Radcliff Group and the Company.
45
10.7* -- Consultation Services Agreement dated as of January 1, 1992 by and
between Radcliff Group and the Company.
10.9* -- Form of Stock Option Plan for Executive Officers and Directors.
10.10* -- Form of Stockholders' Agreement dated as of May 4, 1993, among the
Company and Messrs. Martin Tuchman, Raoul J. Witteveen, Warren L.
Serenbetz, Warren L. Serenbetz, Jr., Clay R. Serenbetz, Paul H.
Serenbetz, Stuart W. Serenbetz and Arthur L. Burns and the Serenbetz
Trust.
10.12** -- Form of Non-Compete Agreement dated as of May 4, 1993, by and
between The Ivy Group and the Company.
10.13* -- Lease Agreements by and between 211 College Road Associates and
Interpool Limited and 211 College Road Associates and Microtech
Leasing.
10.14* -- Lease Agreement dated December 30, 1986 between Princeton Intermodal
Equipment Trust I and Trac Lease.
10.15* -- Lease Agreements between The Ivy Group and Trac Lease.
10.16* -- Amendment No. 1, dated August 10, 1992, to Secured Promissory Note
and Chattel Mortgage, Security Agreement and Assignment by and
between The Ivy Group and the Company.
10.17* -- Chassis Lease Agreement dated as of August 15, 1992 by and between
Eurochassis L.P. and Trac Lease.
10.18* -- Form of Transfer and Subscription Agreement among Radcliff Group,
Martin Tuchman, Raoul J. Witteveen, Warren L. Serenbetz, Warren L.
Serenbetz, Jr., Clay R. Serenbetz, Paul H. Serenbetz, Stuart W.
Serenbetz, the Serenbetz Trust and the Company.
10.19* -- Form of Exchange and Subscription Agreement by and between the
Company and Arthur L. Burns.
10.20* -- Demand promissory notes of the Company payable to Martin Tuchman,
Warren L. Serenbetz and Princeton International Properties.
10.23* -- Indemnity Agreement between the Company and other directors.
10.26* -- Agreement between the Company and Arthur L. Burns regarding certain
litigation.
10.27 -- Indenture between the Company and IBJ Schroeder Bank & Trust
Company, as Trustee, dated January 27, 1997.
10.28. -- First Supplemental Indenture between Interpool, Inc. and IBJ
Schroeder Bank & Trust Company dated January 27, 1997.
10.29 -- Series A Capital Securities Guarantee Agreement dated January 27,
1997.
10.30***-- Agreement of Merger dated March 15,1996 among Trac Lease, Inc.,
Trac Lease Merger Corp. and the Company.
10.31***-- Letter Agreement between The Ivy Group and the Company.
12.1** -- Statement regarding computation of ratios of earnings to fixed
charges.
21.1* -- Subsidiaries of the Company.
23.1** -- Consent of Arthur Andersen LLP with respect to consolidated
financial statements of the Company.
27. -- Financial Data Schedule.
99. -- Press Releases dated November 22, 1996; November 26, 1996; December
24, 1996; December 31, 1996; January 23, 1997; January 31, 1997;
February 18, 1997; March 11, 1997; and March 12, 1997.
- - ---------------
* Filed with the Registrant's Registration Statement on Form S-1 declared
effective by the Commission on May 4, 1993 (Reg. No. 33-59498) and
incorporated herein by reference as indicated.
** Filed with the Registrant's Registration Statement on Form S-1 declared
effective by the Commission on December 7, 1993 (Reg. No. 33-71538) and
incorporated herein by reference as indicated.
***Formerly filed with the Registrant's Annual Report on Form 10-K for the
period ended 12/31/95 and incorporated herein by reference as indicated.
(b) REPORTS ON FORM 8-K
None