INTERPOOL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
(Unaudited)

Note 1 - Nature of Operations and Accounting Policies

A. Basis of Presentation

        The Condensed Consolidated Financial Statements of Interpool, Inc. and Subsidiaries (the "Company") as of June 30, 2004 and December 31, 2003 and for the three and six months ended June 30, 2004 and 2003 (the "Condensed Consolidated Financial Statements") included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. The Company has made certain reclassifications to prior balances to conform to the current year presentation. It is suggested that these Condensed Consolidated Financial Statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s December 31, 2003 Annual Report on Form 10-K as amended by Form 10-K/A filed June 6, 2005 (the "2003 Form 10-K"). These Condensed Consolidated Financial Statements reflect, in the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the results for the interim periods. The results of operations for such interim periods are not necessarily indicative of the results for the full year.

        During the preparation of the December 31, 2004 consolidated financial statements, a material weakness in our documentation of certain interest rate swap transactions was noted. As discussed in further detail in our Annual Report on Form 10-K for the year ended December 31, 2004 (the "2004 Form 10-K"), it was determined that the previously reported quarterly results for March 31, 2004, June 30, 2004 and September 30, 2004 required restatement. For further information regarding this restatement, see Note 2 to the Condensed Consolidated Financial Statements. All financial information for the three and six months ended June 30, 2004 included in this Quarterly Report on Form 10-Q gives effect to the restatement.

        As discussed in the Company’s 2003 Form 10-K, the Company has restated its financial statements for the first three quarters of 2003. The Company concluded that this restatement was necessary while preparing for its 2003 annual audit in July 2004. For further information regarding this restatement, see Note 2 to the Condensed Consolidated Financial Statements. All financial information for the three and six months ended June 30, 2003 included in this Quarterly Report on Form 10-Q gives effect to the restatement.

        The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the reported amounts of revenues and expenses during the reporting period and disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates.

B. 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. Within this single industry segment, the Company has two reportable segments: container leasing and domestic intermodal equipment leasing. The container-leasing segment specializes primarily in the leasing of intermodal dry freight standard containers, while the domestic intermodal equipment segment specializes primarily in the leasing of intermodal container chassis. 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, as well as major U.S. railroads and independent truckers. Equipment is purchased directly or acquired through conditional sales contracts and lease agreements, many of which qualify as capital leases.

        The Company’s container leasing operations are conducted through its subsidiary, Interpool Limited, a Barbados corporation. Profits of Interpool Limited from container leasing operations are exempt from federal taxation in the United States. These profits are subject to Barbados tax at rates that are substantially lower than the applicable rates in the United States. For further information regarding the United States and Barbados income tax treaty, see Note 7 (Subsequent Events – July 2004 Protocol to the United States and Barbados Tax Treaty) to the Condensed Consolidated Financial Statements.

        The Company previously had operations in a third reportable segment that specialized in leasing microcomputers and related equipment. The computer-leasing segment consisted of two majority owned subsidiaries, Microtech Leasing Corporation ("Microtech") and Personal Computer Rental Corporation ("PCR"). During the third quarter of 2001, the Company adopted a plan to exit this segment that included i) acquiring the remaining ownership interest in Microtech and terminating its operations, and ii) selling the Company’s ownership interest in PCR. The Company liquidated the assets of Microtech as of March 31, 2004. PCR ceased active operations and began to liquidate in 2003. At March 31, 2004, all of the assets of PCR were liquidated.

C. Basis of Consolidation

        The Company’s Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in the United States. The Consolidated Financial Statements include the accounts of the Company and subsidiaries which are more than 50% owned or otherwise controlled by the Company. All significant intercompany transactions have been eliminated in consolidation. Minority interest in equity of subsidiaries represents the minority stockholders’ proportionate share of the equity in the income/(losses) of the subsidiaries.

        In connection with certain investments in which the Company does not own a majority interest or otherwise control, or have the ability to exercise significant influence over the investee, these investments are accounted for using the equity method of accounting. The Company’s investment in its equity method investees is included in other assets on the accompanying Condensed Consolidated Balance Sheets.

D. Net Income Per Share

        Basic net income per share is computed by dividing net income by the weighted average number of shares outstanding during the period (which is net of treasury shares). Diluted income per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. The dilutive effect of stock options and the un-vested portion of restricted stock grants is computed using the treasury stock method, which assumes the repurchase of common shares at the average market price for the period. Stock options that do not have a dilutive effect (because the exercise price is above the market price) are not included in the diluted income per share. For the three and six months ended June 30, 2004 and 2003, all stock options to acquire common shares are dilutive. Unvested restricted stock grants were dilutive for the three and six months ended June 30, 2004 but did not have a dilutive effect to earnings per share ("EPS") for the same periods in 2003. The convertible redeemable subordinated debentures issued by the Company in December 2002, January 2003 and February 2003 were dilutive for the three and six months ended June 30, 2004 and 2003.

        A reconciliation of the numerator and denominator of basic EPS with that of diluted EPS is presented below:

                                                          Three Months Ended             Six Months Ended
                                                               June 30,                      June 30,

                                                          2004           2003           2004           2003
                                                         ------         ------         ------         ------
                                                       (Restated)     (Restated)     (Restated)     (Restated)
                                                        --------       --------       --------       --------

Numerator
      Net Income - Basic EPS                              $21,205       $12,336        $31,412       $24,105
      Interest expense on convertible debentures,
      net of tax of $344, 344, 688 and 644,
      respectively                                            516           516          1,032           967
                                                         --------      --------       --------       -------
      Net Income - Diluted EPS                            $21,721       $12,852        $32,444       $25,072
                                                         ========      ========       ========       =======

Denominator
      Weighted average common shares
      outstanding-Basic                                    27,379        27,354         27,378        27,354
      Dilutive stock options                                1,704         1,608          1,552         1,487
      Dilutive convertible debentures                       1,487         1,487          1,487         1,432
      Dilutive restricted stock grants                          5           ---              4           ---
                                                         --------      --------       --------       -------
      Weighted average common shares
      outstanding-Diluted                                  30,575        30,449         30,421        30,273
                                                         ========      ========       ========       =======

Earnings per common share
      Basic                                                 $0.77         $0.45          $1.15         $0.88
                                                         ========      ========       ========       =======
      Diluted                                               $0.71         $0.42          $1.07         $0.83
                                                         ========      ========       ========       =======

E. Comprehensive Income

        Comprehensive income consists of net income or loss for the current period and gains or losses that have been previously excluded from the income statement and were only reported as a component of equity.

        The tax effect of other comprehensive income/(loss) is as follows:

                                                                               Before Tax         Tax          Net of
Six Months Ended June 30, 2004 (Restated)                                        Amount          Effect      Tax Amount
                                                                               ---------        --------     ----------
Unrealized holding gains/(losses) arising during the period:
Cumulative foreign currency translation adjustment                                    $5             $(2)          $3
Swap agreements                                                                   14,437          (5,977)       8,460
                                                                               ---------        --------     ----------
                                                                                 $14,442         $(5,979)      $8,463
                                                                               =========        =========    ==========

                                                                               Before Tax         Tax          Net of
Six Months Ended June 30, 2003                                                   Amount          Effect      Tax Amount
                                                                               ---------        --------     ----------
Unrealized holding gains arising during the period:
Marketable securities (1)                                                           $37           $(13)            $24
Other investment securities                                                           8             (3)              5
Swap agreements                                                                  (4,653)         1,463          (3,190)
                                                                               ---------        --------     ----------
                                                                                $(4,608)        $1,447         $(3,161)
                                                                               =========        =========    ==========
(1)  Amounts are net of losses on sales of marketable securities of $26
     (before income tax effect of $1) recognized in the income statement.

        The components of accumulated other comprehensive loss, net of taxes, are as follows:

                                                                      June 30, 2004              December 31, 2003
                                                                      -------------              -----------------
                                                                       (Restated)
                                                                       ----------

Cumulative foreign currency translation adjustment                      $     6                     $      3

Swap agreements                                                          (5,871)                     (14,331)
                                                                        --------                     --------
                                                                        $(5,865)                    $(14,328)
                                                                        ========                    ==========

F. Stock-Based Compensation

        Stock option plans are accounted for in accordance with SFAS No. 148, Accounting for Stock-Based Compensation ("SFAS 148"). This Statement amends SFAS No. 123, Accounting for Stock-Based Compensation ("SFAS 123"), which allows for the retention of principles within Accounting Principles Board Opinion 25, Accounting for Stock Issued to Employees ("APB 25"). 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 market price of the Company’s Stock at Grant Date. 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. For 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.

        The following table illustrates the effect on net income and earnings per share had the fair value method of accounting been applied to the Company’s stock compensation plans.

                                                       Three Months Ended             Six Months Ended
                                                            June 30,                      June 30,

                                                       2004           2003           2004           2003
                                                      ------         ------         ------         ------
                                                    (Restated)     (Restated)     (Restated)     (Restated)
                                                     --------       --------       --------       --------

Net income, as reported                              $21,205         $12,336       $31,412         $24,105
Add:  Stock based employee compensation expense
included in net income, net of related tax
effects                                                   13              46            27              92
Deduct: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects               (21)            (72)          (43)           (146)
                                                     ---------       --------      ---------       --------
Pro forma net income                                 $21,197         $12,310       $31,396         $24,051
                                                     =========       ========      =========       ========
Earnings per share:
Basic-as reported                                      $0.77           $0.45         $1.15           $0.88
                                                     =========       ========      =========       ========
Basic-pro forma                                        $0.77           $0.45         $1.15           $0.88
                                                     =========       ========      =========       ========
Diluted-as reported                                    $0.71           $0.42         $1.07           $0.83
                                                     =========       ========      =========       ========
Diluted-pro forma                                      $0.71           $0.42         $1.07           $0.83
                                                     =========       ========      =========       ========

        This pro forma impact takes into account all options granted under the plan. No options were granted by the Company in 2004 or 2003.

        On January 2, 2004, under the Company’s Deferred Bonus Plan, the Company granted to eligible employees 27,259 shares of restricted stock that had a fair value of $13.60 per share at the grant date. The number of shares of restricted stock awarded was calculated by dividing the dollar value of the stock portion of the bonus by the average stock price for the last 10 trading days ending on December 31 of the grant year. Additional restricted stock was awarded based on the vesting period selected by the employee. If the five-year vesting period was selected, the shares awarded were increased by 10%. If the ten-year vesting period was selected, the shares awarded were increased by 30%. These grants cliff vest in equal installments upon continued service over either the five or ten year period elected by the employee. At the date of grant, $371 of deferred compensation was credited to paid-in capital with an offset to unamortized deferred compensation–stock grant in the equity section of the Condensed Consolidated Balance Sheet. Compensation cost is recognized ratably over the vesting periods during which the related employee service is rendered. During the first quarter of 2004, our Chief Executive Officer elected to voluntarily relinquish his entire 2002 bonus. This resulted in the forfeiture of 60,407 unvested shares of restricted stock valued at $1,017. This forfeiture resulted in the reversal of $916 of previously recorded unamortized deferred compensation expense, as well as the reversal of previously recorded compensation expense of $101. Excluding the reversal of previously recorded compensation expense related to this forfeiture, compensation expense for the three and six months ended June 30, 2004 was $21 and $43, respectively. Compensation expense for the three and six months ended June 30, 2003 was $60 and $121, respectively. The unamortized deferred compensation remaining in stockholders equity was $597 at June 30, 2004. In September 2004, the Board of Directors terminated the Deferred Bonus Plan. All stock previously issued under this Plan will continue to be subject to the terms of the Plan. However, future bonuses will not be subject to the terms of the Deferred Bonus Plan.

G. Credit Risk

        At June 30, 2004, approximately 48% (47% at December 31, 2003) of accounts receivable and 71% (71% at December 31, 2003) of the net investment in direct financing leases were from customers outside of the United States.

        During the six months ended June 30, 2004, the Company’s top 25 customers represented approximately 75% of its consolidated billings, with no single customer accounting for more than 7.7%. For the same period in the prior year, the Company’s top 25 customers represented approximately 73% of its consolidated billings with no single customer accounting for more than 8.0%.

H. Adoption of New Accounting Standards

        In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity ("SFAS 150"). This statement requires that certain financial instruments that, under previous guidance, issuers could account for as equity, be classified as liabilities in statements of financial position. This pronouncement requires the Company to display its outstanding Preferred Capital Securities issued in 1997 (previously described as "Company-Obligated Mandatorily Redeemable Preferred Securities in Subsidiary Grantor Trusts") within the debt section on the face of the Condensed Consolidated Balance Sheets and show the related expense with interest expense on a pre-tax basis. There was no modification of the terms of the Capital Securities and no impact on net income upon adoption. This pronouncement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. On November 7, 2003, the provisions of SFAS 150, relating to certain mandatorily redeemable non-controlling interest, were deferred indefinitely. The adoption of these delayed provisions is not expected to materially affect the Company’s consolidated financial statements.

        In December 2003, the FASB issued FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities ("FIN 46R") which addresses how a business should evaluate whether it has a controlling financial interest in an entity through means other than voting rights and accordingly should consolidate the entity. FIN 46R replaces FASB Interpretation No. 46 which was issued in January 2003. The Company adopted FIN 46R as of December 31, 2003. There was no impact on the Company’s financial condition or results of operations.

I. Reclassifications

        Subsequent to the initial filing of our Form 10-Q for the period ended June 30, 2004, certain reclassifications have been made to the 2004 and 2003 amounts. More specifically, the Company determined it was necessary to reclassify certain types of revenue which had been previously reported as a reduction to lease operating expenses. This revenue consists primarily of fees charged to lessees for handling, repositioning and repairs which had previously reduced the related costs for those services. This revenue will be reported separately as other revenue on the face of the Company’s Condensed Consolidated Statements of Income. These reclassifications have no impact on net income.

J. Adjustments to Opening Retained Earnings

        During the fourth quarter of 2004, the Company sold certain assets (with a book value of approximately $1,865) of CTC Container Trading (U.K.) Limited ("CTC"), a wholly-owned subsidiary which leased specialized cargo carrying units and other equipment for use by companies operating in the North Sea. While quantifying the approximate impact related to this sale, the Company noted that there was an elimination entry of approximately $803, net of tax, in the Interpool Limited consolidation related to CTC. This entry reduced retained earnings with a comparable reduction to leasing equipment. The entry originated when Interpool Limited sold container equipment to CTC at a profit prior to 1994. The elimination entry was recorded to eliminate the inter-company profits generated from the sale of the equipment. The inter-company profit included in the elimination entry should have been amortized over the period the equipment was being depreciated by CTC using the higher book values. No such amortization ever took place. The depreciation would have ended prior to any period being reported on by the Company in the June 30, 2004 Form 10-Q. The effect of this error was to understate earnings during the period that the equipment was being depreciated. The Company determined the impact of this error should be reported as an adjustment to opening retained earnings.

Note 2 - Restatement of Previously Issued Financial Statements

A. Restatement of 2004 Financial Statements

        During the preparation of the December 31, 2004 consolidated financial statements, a material weakness in the Company’s documentation of certain interest rate swap transactions was noted as discussed in further detail in the 2004 Form 10-K. It was determined that the previously reported quarterly results for March 31, 2004, June 30, 2004 and September 30, 2004 required restatement.

        In April 2003, the Company had re-designated certain swap agreements to a number of its debt instruments. The documentation of the hedging relationships of certain interest rate swap transactions did not meet the criteria of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities ("SFAS 133") to achieve hedge accounting treatment. Thus, because the hedge documentation requirement of SFAS 133 was not met, beginning in April 2003 when the hedge documentation was changed, hedge accounting is precluded on the five then existing interest rate swaps. In addition, two additional swap agreements were entered into by the Company after April 2003. The documentation of these swap agreements was the same.

        Because the Company no longer qualifies for hedge accounting on these swap agreements, the amounts previously recorded in accumulated other comprehensive loss through March 31, 2003 (amounting to $3,037) have been amortized over the remaining life of the associated debt (using the effective interest method) and the change in the value of the derivatives from March 31, 2003 has been recorded as a fair value adjustment for derivative instruments in our Consolidated Financial Statements. These debt instruments were fully repaid by the Company in December 2004 at which time the remaining amount in accumulated other comprehensive loss was recorded as a fair value adjustment for derivative instruments in the Consolidated Statement of Income. In addition, the swap agreements have been treated as speculative hedges for the period from January 1, 2004 until December 31, 2004. As a result, the quarterly changes to the market value of these swap agreements has been recorded as a fair value adjustment for derivative instruments in the June 30, 2004 Condensed Consolidated Financial Statements.

        The Company has determined that the effect of this previously undetected error in documentation of the Company’s hedging relationships for the period from April 1, 2003 to December 31, 2003 is immaterial. The Company has restated its Consolidated Financial Statements to reflect these changes for the three and six months ended June 30, 2004.

        The change in the provision for income taxes due to the adjustment described above decreased the provision for income taxes by $441 and $190 for the three and six months ended June 30, 2004.

        The following tables set forth the effect of the restatement adjustment on income before taxes, net income and the basic and diluted earnings per share for the three and six months ended June 30, 2004.

                                                        Three Months Ended June 30, 2004 (unaudited)
                                        ------------------------------------------------------------------------------

                                                                                 Net Income Per      Net Income Per
                                         Income before taxes      Net Income      Share (Basic)      Share (Diluted)
                                        --------------------- ----------------- ------------------ -------------------

Previously reported                           $24,018              $19,624            $0.72              $0.66

Hedge accounting adjustment                     2,022                1,581             0.05               0.05

                                        --------------------- ----------------- ------------------ -------------------
As restated                                   $26,040              $21,205            $0.77              $0.71
                                        ===================== ================= ================== ===================


                                                          Six Months Ended June 30, 2004 (unaudited)
                                        ------------------------------------------------------------------------------

                                                                                 Net Income Per      Net Income Per
                                         Income before taxes      Net Income      Share (Basic)      Share (Diluted)
                                        --------------------- ----------------- ------------------ -------------------

Previously reported                           $37,683              $30,748            $1.12              $1.04

Hedge accounting adjustment                       854                  664             0.03               0.03

                                        --------------------- ----------------- ------------------ -------------------
As restated                                   $38,537              $31,412            $1.15              $1.07
                                        ===================== ================= ================== ===================

B. Restatement of 2003 Financial Statements

        During its 2003 year-end closing procedures, the Company identified a number of deficiencies in the internal controls over accounting and reporting for certain transactions. As a result, the Company restated the Condensed Consolidated Financial Statements for the unaudited interim periods for the first three quarters in 2003. The Company determined that the effect of these deficiencies in internal controls on years ended prior to January 1, 2003 was not material. The restated financial statements for the three and six months ended June 30, 2003 are included in these Condensed Consolidated Financial Statements.

        The following tables set forth the effects of the restatement adjustments on income before taxes, net income and the basic and diluted earnings per share for the three and six months ended June 30, 2003. The restatement adjustments are discussed in the "Description of Restatement Items" section following the tables below.

                                                        Three Months Ended June 30, 2004 (unaudited)
                                        ------------------------------------------------------------------------------

                                                                                 Net Income Per      Net Income Per
                                         Income before taxes      Net Income      Share (Basic)      Share (Diluted)
                                        --------------------- ----------------- ------------------ -------------------
Previously Reported                              $12,508           $11,172          $0.41             $0.38

Rebill equipment repairs                           1,560               936           0.03              0.03
Chassis impairment                                   (40)              (24)          ---                ---
Lease accounting                                     231               223           0.01              0.01
Other                                                 48                29           ---                ---
                                        ----------------------- -------------- --------------- -----------------
Net restatements                                   1,799             1,164           0.04              0.04
                                        ----------------------- -------------- --------------- -----------------

                                        ----------------------- -------------- --------------- -----------------
As restated                                      $14,307           $12,336          $0.45             $0.42
                                        ======================= ============== =============== =================

                                                          Six Months Ended June 30, 2004 (unaudited)
                                        ------------------------------------------------------------------------------

                                                                                 Net Income Per      Net Income Per
                                         Income before taxes      Net Income      Share (Basic)      Share (Diluted)
                                        --------------------- ----------------- ------------------ -------------------


Previously Reported                             $25,219           $22,048          $0.81             $0.76

Rebill equipment repairs                          2,686             1,612           0.06              0.06
Chassis impairment                               (1,012)             (607)         (0.02)            (0.02)
Lease accounting                                  1,029               993           0.03               0.03
Other                                                99                59           ---                ---
                                       ----------------------- -------------- --------------- -----------------
Net restatements                                  2,802             2,057           0.07              0.07
                                       ----------------------- -------------- --------------- -----------------
As restated                                     $28,021           $24,105          $0.88             $0.83
                                       ======================= ============== =============== =================

Description of Restatement Items

Rebill Equipment Repairs

        In certain instances, the accounting for damaged equipment at the end of an operating lease was not performed properly. The amounts due from customers for these damages are not recorded in revenue when invoiced; rather, they are used to establish a liability to cover the repair of the equipment. In many cases, these liabilities were not being reversed when payment was made for the repaired equipment. In addition, in some cases, the liability was not being reversed when the equipment was sold or remanufactured.

Chassis Impairment

        The Company has a program of remanufacturing chassis when they near the end of their useful life or if the equipment is impaired in its present condition. In certain cases, the impairment of these chassis was not recognized on a timely basis.

Lease Accounting

        As noted in the Company’s Form 10-K for the year ended December 31, 2003, the lease accounting system used to account for direct financing leases was inadequate in providing the necessary data for the amortization of the leases and the recognition of revenue. As a result, the Company continues to perform manual calculations for all financing leases until the new finance lease system is implemented. A number of these manual calculations were not initially performed correctly during the nine months ended September 30, 2003, and were subsequently corrected during the fourth quarter of 2003. The Company has purchased and is in the process of implementing its new finance lease system to handle the accounting for these leases.

Other

        The Company made other adjustments to previously recorded estimates. These adjustments were individually not material and increased pretax income by $48 and $99 for the three and six months ended June 30, 2003.

Income Tax Expense

        The change in the provision for income taxes due to the correction of the errors described above increased the provision for income taxes by $635 and $745 for the three and six months ended June 30, 2003.

Note 3 - Debt and Capital Lease Obligations

        The following table summarizes the Company’s debt and capital lease obligations as of June 30, 2004 and December 31, 2003:

                                                                            June 30, 2004        December 31, 2003
                                                                            -------------        ------------------
Capital lease obligations payable in varying amounts through 2018            $279,082              $325,258
Chassis Securitization Facility, interest at 5.47% and 5.59% at June
  30, 2004 and December 31, 2003, respectively
      Warehouse facility                                                       25,490                25,490
      Debt obligation                                                          69,718                86,413
      Capital lease obligation                                                401,654               404,674
Revolving credit facility, interest rate at 3.38% and 3.09% at June
  30, 2004 and December 31, 2003, respectively                                174,638               193,495
Revolving credit facility CAI, interest rate at 3.36% and 3.37% at
  June 30, 2004 and December 31, 2003, respectively                            84,000                87,000
Container securitization facility, interest at 6.36% and 6.5% at June
  30, 2004 and December 31, 2003, respectively                                 49,441                76,564
7.35% Notes due 2007 (unsecured)                                              147,000               147,000
7.20% Notes due 2007 (unsecured)                                               62,825                62,825
9.25% Convertible redeemable subordinated debentures, mandatory
  redemption 2022 (unsecured)                                                  37,182                37,182
9.875% Preferred capital securities due 2027 (unsecured)                       75,000                75,000
Notes and loans payable with various rates ranging from 3.11% to 9.77%
  and maturities from 2004 to 2010                                            264,270               194,786
                                                                            -------------        -----------
Total Debt and Capital Lease Obligations                                    1,670,300             1,715,687
                                                                            -------------        -----------
   Less Current Maturities                                                    225,636               219,192
Total Non-Current Debt and Capital Lease Obligations                       $1,444,664            $1,496,495
                                                                           ==============        ===========

        Debt Modifications: In January and February 2004, in connection with obtaining necessary amendments under the revolving credit facility due to the late filing of the Company’s periodic reports with the SEC and the restatement of its past financial statements, the Company agreed, among other things, to reduce advance rates under this revolving facility, to add several events of default, to increase the interest rate margin, and to maintain specified levels of unrestricted cash and cash equivalents until delinquent SEC filings are made. Subsequent to January 9, 2004 (the date the Company filed its 2002 Form 10-K), the Company was obligated to maintain unrestricted cash and cash equivalents of at least $60,000 at all times and at least $67,500 as of the last business day of the month until completion and filing of all delayed financial statements for 2003 and 2004. This minimum cash requirement was also adopted in the waivers of the container securitization and one other loan agreement. In conjunction with the waiver received during February 2004, the Company replaced its annual amortization payment with monthly amortization payments under its revolving credit facility beginning in March 2004. The related minimum cash requirement was subsequently reduced dollar-for-dollar with the amortization payments. At June 30, 2004 the minimum cash requirement was $50,000. The revolving credit facility was repaid in full on November 1, 2004 and replaced by a facility with another lender. See Note 7 – Subsequent Events – Financing Activities. The requirement to maintain certain levels of unrestricted cash was eliminated for all facilities when the revolving credit facility and one other facility were repaid in full during November, 2004.

        As a result of adopting SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity, the Company is required in 2004 to classify its outstanding Preferred Capital Securities issued in 1997 within the debt section on the face of the Condensed Consolidated Balance Sheet. Previously, these instruments were classified separately with the caption "Company-Obligated Mandatorily Redeemable Preferred Securities in Subsidiary Grantor Trusts." There was no modification of the terms of the Preferred Capital Securities and no impact on net income upon adoption. In connection with this change, the Company has negotiated amendments to its debt agreements that allow these securities to be treated as they have been in the past for purposes of calculating compliance with loan covenants. At the date of this report, the Company has received all necessary amendments to be in full compliance with its loan covenants.

        In connection with waivers previously received from its lenders, the Company has agreed to complete its 2004 periodic Form 10-Q filings with the SEC on or before December 31, 2004. The Company has also received permanent waivers from certain of its financial institutions with respect to key-man and certain other provisions.

        New Financings: During the six months ended June 30, 2004, the Company entered into new financing arrangements totaling $120,218 of which $95,218 was utilized. The new debt utilized during the six months ended June 30, 2004 consisted of notes and loans with installments payable in varying amounts through 2008 and various interest rates ranging from 3.78% to 7.53%. One commitment for $25,000 was not utilized at June 30, 2004. This commitment will be open until March 31, 2005, after which any unfunded amount will expire. Amounts funded under this facility will be amortized over sixty months to a final balloon payment of 20%. The interest rate is LIBOR plus 250 basis points.

        Covenants: Under the Company’s revolving credit facility (paid in full November 1, 2004) and most of its other debt instruments in effect at June 30, 2004, the Company was required to maintain covenants (as defined) for tangible net worth (a maximum of $250,000), a fixed charge coverage ratio of 1.5 to 1 and a funded debt to net worth ratio (as defined in the agreement, which is stockholders’ equity plus preferred capital securities, less goodwill) of 4.0 to 1. A financing facility entered into in March 2004, and subsequently amended and expanded on November 1, 2004, includes a requirement that the Company maintain a tangible net worth of at least $300,000 (as defined in the agreement). This facility also has a fixed charge coverage ratio of 1.5 to 1 and a funded debt to tangible net worth ratio of 4.0 to 1. At June 30, 2004 the Company was in compliance with these covenants as amended.

        Deferral of Dividend Payment to Board Members: In connection with the Company’s delayed SEC filings and the receipt of waivers from its lenders necessitated by the delayed filings beginning in January 2004, the members of the Company’s Board of Directors and certain of its affiliates who own shares of the Company’s common stock have agreed to defer their receipt of any dividend payments, including those the Company may declare in the future, until the Company is in compliance with all SEC filing requirements. As of June 30, 2004 recorded dividend payments in the amount of $2,616 have been deferred and are included in accounts payable and accrued expenses on the Condensed Consolidated Balance Sheet. As of November 1, 2004 the amount of this deferral is $3,488.

Note 4 - Segment and Geographic Data

        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. Within this single industry segment, the majority of the Company’s operations come from two reportable segments: container leasing and domestic intermodal equipment leasing. The container-leasing segment specializes primarily in the leasing of dry freight standard containers, while the domestic intermodal equipment segment specializes primarily in the leasing of intermodal container chassis.

        The Company previously had operations in a third reportable segment that specialized in leasing microcomputers and related equipment. The computer leasing segment consisted of two subsidiaries, Microtech and PCR. During the third quarter of 2001, the Company adopted a plan to exit this segment. The Company liquidated the assets of Microtech as of March 31, 2004. PCR ceased active operations and began to liquidate in the first quarter of 2003. At March 31, 2004, all of the assets of PCR were liquidated.

        The accounting policies of the segments are the same as those described in Note 1. The Company evaluates performance based on profit or loss before income taxes. The Company’s reportable segments are strategic business units that offer different products and services.

        Segment Information

                                                                           Domestic       Computer
                                                           Container      Intermodal      Leasing
      Six Months Ended June 30, 2004 (Restated):            Leasing       Equipment      Equipment        Totals
      -----------------------------------------            ---------      ----------    -----------       ---------
Equipment leasing revenue                                     $88,780        $101,869           $---       $190,649
Other revenue                                                   4,656           3,448            ---          8,104
Lease operating, administrative and other expenses             23,685          42,594            ---         66,279
Depreciation and amortization                                  29,206          16,345            ---         45,551
 Impairment of leasing equipment                                1,266           2,147            ---          3,413
 Gain on settled insurance litigation                          (3,781)         (2,486)           ---         (6,267)
 Other (income)/expense, net and minority interest             (2,547)            689            ---         (1,858)
Income for investments under equity method                        ---            (384)           ---           (384)
Interest income                                                  (714)           (472)            (3)        (1,189)
Interest expense                                               17,773          36,898            ---         54,671
Income before taxes                                            28,548           9,986              3         38,537
Net investment in DFL's                                       294,840          88,020            ---        382,860
Leasing equipment, net                                        729,446         885,005            ---      1,614,451
Equipment purchases                                            71,464          18,860            ---         90,324
Total segment assets                                       $1,187,781      $1,114,520            $35     $2,302,336

-------------------------------------------------------------------------------------------------------------------
                                                                           Domestic       Computer
                                                           Container      Intermodal      Leasing
      Six Months Ended June 30, 2003 (Restated):            Leasing       Equipment      Equipment        Totals
      -----------------------------------------            ---------      ----------    -----------       ---------

Equipment leasing revenue                                     $83,883         $97,222           $312       $181,417
Other revenue                                                   6,085          11,797            ---         17,882
Lease operating, administrative and other expenses             26,004          46,985           (171)        72,818
Depreciation and amortization                                  28,722          15,758            ---         44,480
Impairment of leasing equipment                                   996           4,367            ---          5,363
Other (income)/expense, net and minority interest              (1,670)            527            (38)        (1,181)
Loss for investments under equity method                          ---             610            ---            610
Interest income                                                (1,535)           (715)           ---         (2,250)
Interest expense                                               15,265          36,172              1         51,438
Income before taxes                                            22,186           5,315            520         28,021
Net investment in DFL's                                       317,252          95,962            123        413,337
Leasing equipment, net                                        713,324         893,120            ---      1,606,444
Equipment purchases                                           111,235          44,410            ---        155,645
Total segment assets                                       $1,245,489      $1,170,711         $1,913     $2,418,113

        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 international information presented below represents our international container leasing operation conducted through Interpool Limited, a Barbados corporation, while the United States information presented below represents our domestic intermodal equipment leasing segment, as well as those revenues and assets relative to our 50% owned consolidated subsidiary, Container Applications International, Inc. ("CAI") which is headquartered in the United States of America. Such presentation is consistent with industry practice.

Geographic Information

                                                                Six Months Ended June 30,
                                                                -------------------------
                                                                 2004               2003
                                                                 ----              -----
                                                              (Restated)         (Restated)
                                                              ----------         ---------
     EQUIPMENT LEASING REVENUE:
     United States                                            $121,936           $115,495
     International                                              68,713             65,922
                                                              ----------         ---------
                                                              $190,649           $181,417
                                                              ==========         =========
     ASSETS:
     United States                                            $1,318,852         $1,349,452
     International                                               983,484          1,068,661
                                                              ----------         ---------
                                                              $2,302,336         $2,418,113
                                                              ==========         =========

Note 5 - Derivative Instruments

        The Company’s assets are primarily fixed rate in nature while its debt instruments are primarily floating rate. The Company employs derivative financial instruments (interest rate swap agreements) to effectively convert certain floating rate debt instruments into fixed rate instruments and thereby manage its exposure to fluctuations in interest rates.

        As of June 30, 2004 and December 31, 2003, included in accounts payable and accrued expenses in the accompanying Condensed Consolidated Balance Sheets is a liability of $19,713 and $34,026, respectively, representing the market value of the Company’s interest rate swap contracts.

        The unrealized pre-tax income on cash flow hedges for the six months ended June 30, 2004 of $14,437 and the related income tax provision of $5,977 have been recorded by the Company as a component of accumulated other comprehensive loss on the Condensed Consolidated Balance Sheets.

        The unrealized pre-tax income on cash flow hedges for the year ended December 31, 2003 of $15,270 and the related income tax provision of $4,700 have been recorded by the Company as a component of accumulated other comprehensive loss on the Condensed Consolidated Balance Sheets.

        Amounts recorded in accumulated other comprehensive income/(loss) would be reclassified into earnings upon termination of these interest rate swap agreements and related debt instruments prior to their contractual maturity. The Company may at its discretion terminate or redesignate any such interest rate swap agreements prior to maturity. At that time any gains or losses on termination would continue to amortize into interest expense or interest income to correspond to the recognition of interest expense or interest income on the hedged debt. If such debt instrument was also terminated, the gain or loss associated with the terminated derivative included in accumulated other comprehensive loss at the time of termination of the debt would be recognized in the Condensed Consolidated Income Statement at that time.

        For the three months ended June 30, 2004, the Company reported $2,871 of pre-tax income in the Condensed Consolidated Statements of Income due to changes in the fair value of interest rate swap agreements which do not qualify as cash flow hedges under SFAS 133. This compares to $231 of pre-tax income for the three months ended June 30, 2003.

        For the six months ended June 30, 2004, the Company reported $1,889 of pre-tax income in the Condensed Consolidated Statements of Income due to changes in the fair value of interest rate swap agreements which do not qualify as cash flow hedges under SFAS 133. This compares to $381 of pre-tax income for the six months ended June 30, 2003.

        As of June 30, 2004, the Company held 13 interest rate swap agreements with various financial institutions. The aggregate notional balance of the swaps was $494,208 as of June 30, 2004.

Note 6 - Contingencies and Commitments

        At June 30, 2004 commitments for capital expenditures totaled approximately $107,689 with approximately $44,680 committed for 2004. Approximately $21,003 per year is committed for years 2005, 2006 and 2007, respectively.

        The Company is engaged in various legal proceedings from time to time incidental to the conduct of its business. Such proceedings may relate to claims arising out of chassis accidents that occur from time to time which involve death and injury to persons and damage to property. Accordingly, the Company requires all of its lessees to indemnify the Company against any losses arising out of such accidents while the chassis are on-hire to the lessees. In addition lessees are generally required to maintain a minimum of $2,000 in general liability insurance coverage, which is standard in the industry. In addition, the Company maintains a back-up general liability policy of $200,000, in the event that the above lessee coverage is insufficient. While the Company believes that such coverage should be adequate to cover current claims, there can be no guarantee that future claims will never exceed such amounts. Nevertheless, the Company believes that no current or potential claims of which it is aware will have a material adverse effect on its financial condition or results of operations and that the Company is adequately insured against such claims.

        In February and March 2004, several lawsuits were filed in the United States District Court for the District of New Jersey, by purchasers of the Company’s common stock naming the Company and certain of its present and former executive officers and directors as defendants. The complaints alleged violations of the federal securities laws relating to the Company’s reported Consolidated Financial Statements for the years ended December 31, 2000 and 2001 and the nine months ended September 30, 2002, which the Company announced in March 2003 would require restatement. Each of the complaints purported to be a class action brought on behalf of persons who purchased the Company’s securities during a specified period. On September 7, 2004, the lawsuits, which seek unspecified amounts of compensatory damages and costs and expenses, including legal fees, were consolidated into a single action with lead plaintiffs and lead counsel having been appointed. The Company intends to vigorously defend this lawsuit but is unable at this time to ascertain the impact this litigation may have on our financial position or results of operations.

        At June 30, 2004, the following guarantees were issued and outstanding:

Indemnifications

        In the ordinary course of business, the Company executes contracts involving indemnifications standard in the industry and indemnifications specific to a transaction such as an assignment and assumption agreement. These indemnifications might include claims related to any of the following: tax matters and governmental regulations, and contractual relationships. Performance under these indemnities would generally be triggered by a breach of terms of the contract or by a third party claim. The Company regularly evaluates the probability of having to incur costs associated with these indemnifications and have accrued for any expected losses that are probable. The types of indemnifications for which payment are possible are as follows:

       Taxes

        In the ordinary course of business, the Company provides various tax-related indemnifications as part of transactions. The indemnified party typically is protected from certain events that result in a tax treatment different from that originally anticipated. The Company’s liability typically is fixed when a final determination of the indemnified party’s tax liability is made. In some cases, a payment under a tax indemnification may be offset in whole or in part by refunds from the applicable governmental taxing authority. The Company is party to numerous tax indemnifications and many of these indemnities do not limit potential payment; therefore, it is unable to estimate a maximum amount of potential future payments that could result from claims made under these indemnities.

        Contractual Relationships

        The Company entered into a number of operating leases as lessee during 2000 and 2002 in which it guaranteed a portion of the residual value of the leased equipment to the lessor. These leases have terms that expire between 7 and 10 years. If at the end of the lease term the fair market value of the equipment is below the guaranteed residual value in the agreement, the Company is liable for a percentage of the deficiency. The total of these guarantees is $12,405 of which $8,011 could be due in 4 to 5 years, with the remaining $4,394 potentially due in greater than 5 years. As of June 30, 2004 and December 31, 2003, included in accounts payable and accrued expenses in the accompanying Condensed Consolidated Balance Sheets are liabilities of $166 and $144, respectively, representing the accrual for the estimated exposure under these guarantees.

        During the second quarter of 2003, the Company arranged a leasing transaction between one of its major customers and a financial institution for up to 3,000 containers. As part of this transaction, the Company agreed to provide certain guarantees related to the fair value of the equipment if the lessee terminated the lease or if the lessee was unable to meet its obligations under the terms of the lease. In addition, if the lessee agreed to extend the lease, the Company agreed to purchase the equipment from the financial institution at a stated value and lease it to the lessee for this additional period at a stated lease rate. The Company further agreed to provide the lessee with a purchase option at the end of the extended lease period that would be less than the fair market value of the equipment at the date the lessee could exercise its option (the "Bargain Purchase Option").

        In return for the arrangement of the transaction on behalf of the financial institution and the guarantees discussed above, the Company was paid an arrangement fee and a portion of the initial rent for each container included in the lease. During the year ended December 31, 2003, 2,076 containers were delivered to the lessee and the Company received payments amounting to $1,240. The remaining 924 containers were purchased by the Company and leased to the customer under the terms of a direct financing lease.

        The estimated fair value of these containers at the end of the lease term guaranteed by the Company amounts to approximately $4,360. The Company has estimated that its potential liability related to these guarantees is less than the estimated potential liability related to the Bargain Purchase Option granted to the lessee. As such, the Company has accrued for the estimated value of its liability for this Bargain Purchase Option amounting to $1,017 that could be due in greater than 5 years. All fees collected from the lessor have been deferred by the Company and included in accounts payable and accrued liabilities on the accompanying Consolidated Balance Sheets. The fees received from the lessor, net of the estimated liability for the Bargain Purchase Option, are being recognized by the Company over the term of the residual guarantee.

        Standby Letters of Credit

        As of June 30, 2004, CAI, a consolidated subsidiary, had two outstanding letters of credit totaling $6,000, which guarantee its obligations under certain operating lease agreements. These letters of credit expire in May, 2005.

        Guarantee of Unconsolidated Affiliate Debt

        Since 2000, the Company has guaranteed PCR debts due to third parties totaling $5,000. At December 31, 2002, with PCR in liquidation, a determination was made that it was probable that the Company would incur costs related to this guarantee. As a result, the Company recorded a liability for $4,429 representing its guarantee of PCR debts, net of amounts collected related to PCR’s liquidation. This amount is included in accounts payable and accrued expenses in the June 30, 2004 and December 31, 2003 Consolidated Balance Sheets. The $5,000 guarantee was subsequently paid off through a secured financing arrangement completed by the Company in July 2004. For information regarding the satisfaction of this guarantee in July 2004, see Note 7 (Subsequent Events – Financing Activities) to the Condensed Consolidated Financial Statements.

Settled Insurance Litigation

        In connection with an insurance claim related to the default of a South Korean customer and a subsequent lawsuit filed by the insurance carriers against the Company, on June 17, 2004 the Company signed an agreement settling the lawsuit and our claims under the policy. Under the terms of the settlement agreement, the insurance carriers agreed to pay the Company a total of $26,400 of which $17,390 was received in June 2004 and $9,010 was received in July 2004. In addition, the Company received the right to retain any of the equipment it had recovered since the date of the claim. As of June 30, 2004, the remaining outstanding receivable from the insurance carriers was $9,010 and is included in other receivables, net on the Condensed Consolidated Balance Sheets. In addition, the Company has recognized a pre-tax gain of $6,267 related to the $26,400 settlement of the claim during the three months ended June 30, 2004.

Note 7 - Subsequent Events

July 2004 Protocol to the United States and Barbados Tax Treaty

        Interpool Limited currently claims treaty benefits under the United States and Barbados income tax treaty (the "Treaty"). The Treaty contains a limitation on benefits provision which denies treaty benefits under certain circumstances. However, Interpool Limited currently does not fall within the Treaty’s limitation on benefits provision.

        On July 14, 2004, the United States and Barbados signed a protocol to the Treaty (the "Protocol") that contains a more restrictive limitation on benefits provision than the current Treaty does. If it becomes effective, the Protocol would result in Interpool Limited losing its ability to rely on the Treaty to eliminate current U.S. income tax on its container rental and container sales income until such time as it is able to satisfy the new eligibility requirements as discussed below. On October 10, 2004, the United States Senate ratified the Protocol. To bring the Protocol into effect requires now that the government of Barbados prepare an instrument of ratification, publish it in the Barbados Official Gazette, exchange the instrument with the United States, and have it signed by the President of the United States ("Enactment"). With Enactment, the Protocol will generally be effective for taxable years commencing on or after the first of January in the year following the Enactment. The Company expects Enactment will occur before December 31, 2004 and, thus, the Protocol will likely become effective January 1, 2005.

        Under the Protocol, Interpool Limited would only be eligible for Treaty benefits with respect to its container rental and sales income if, among other things, Interpool, Inc. is listed on a "recognized stock exchange" (generally, the NASDAQ system or an SEC registered exchange such as the New York Stock Exchange), and Interpool, Inc.’s stock is "primarily" and "regularly" traded on such exchange.

        As described elsewhere in this report, the Company’s common stock is currently not listed on a "recognized stock exchange" within the meaning of the Protocol. Management anticipates that Interpool, Inc. will examine all of its options with regard to listing on a "recognized stock exchange" and, while there is no assurance that such listing will occur, management will attempt to arrange such a listing not later than the second quarter of 2005. Even in the event, however, that Interpool, Inc. is listed on a "recognized stock exchange" at any time after the Protocol comes into effect, it is not clear whether Interpool, Inc. would satisfy the "primarily" and "regularly" traded requirement as defined within the Protocol, although based upon the Company’s historic trading levels, management is hopeful that such requirement would be satisfied.

        Pursuant to Statement of Financial Accounting Standards 109 Accounting for Income Taxes, upon Enactment, which is likely to occur before December 31, 2004, the Company’s existing net deferred tax liability as of the Enactment date will need to be immediately recorded at a tax rate higher than the approximate 3% tax rate currently used. Accordingly, it is likely that the Company will be required to record an increase in its net deferred tax liability during the fourth quarter of 2004. While there is no current cash impact associated with the increase in net deferred taxes, the effect of recognizing this increased net deferred tax liability will result in a deferred tax expense accrual which will reduce net income. Upon Enactment this deferred tax expense accrual will have a material impact on the Company’s net income during the period the adjustment takes place.

        If the Company’s common stock is subsequently listed on a "recognized stock exchange" and it otherwise qualifies for benefits under the Treaty, the net deferred tax liability would be reduced at that time to reflect the lower tax rate of approximately 3%. This deferred tax benefit would result in additional net income at that time in an amount comparable to the previous reduction in net income adjusted for any change in the net deferred tax balance during the interim period. However, it is uncertain when, or if the Company will meet the requirements of the Treaty. Following Enactment, the Company will accrue taxes at the higher rate until such time as it may again become eligible for Treaty benefits. The effect of such accrual on the future net income of the Company will be largely dependent upon the duration of the period between Enactment and any future listing of its common stock.

        If, at any time, management determines that the Company is not likely to qualify for the Barbados treaty within a reasonable period of time, they will promptly investigate alternatives (such as other jurisdictions) that could entitle Interpool Limited to treaty benefits under another tax treaty with the U.S., but there can not be any assurance that such an alternative will be feasible. Any such alternative would likely result in Interpool Limited being subject to a higher non-U.S. tax than the approximate 3% tax rate in Barbados.

Financing Activities

        The Company funds a significant portion of the purchase price for new containers and chassis through borrowings under its revolving credit agreement and other lines of credit or through secured financings with financial institutions. The Company successfully completed a secured financing of $15,000 during July of 2004 with installments payable through 2005 and an interest rate of LIBOR plus 2.5%. A portion of the proceeds was used to satisfy a note payable from PCR to an unrelated financial institution, which was guaranteed by the Company for PCR. The remaining proceeds were used to pay amounts due to equipment manufacturers and for general corporate purposes.

        During August 2004, the Company entered into a lease arrangement with a Japanese lessor involving $21,093 of equipment previously financed with a financial institution during December 2003 and May 2004. The lease "advance rate" against this equipment was 107% ($22,510 total advance), increasing the cash proceeds received by the Company by $5,807 from the level of the previous financings. The lease expires in December 2008, and the Company has a fixed purchase option at that time for $14,631 that it expects to exercise. The aggregate fixed interest rate is 7.44%.

        Additionally, on September 14, 2004, the Company entered into a Securities Purchase Agreement pursuant to which it sold $150,000 total principal amount of a new series of 6% notes due 2014 (the "Notes") in a private transaction with four investors. In connection with the sale of the Notes, the Company also issued to the investors two series of Warrants exercisable for a total of 8,333,333 shares of the Company’s common stock at an exercise price of $18.00 per share (the "Warrants"). The Warrants were valued at $22,500, with the offset recorded as a discount on the Notes. This discount will be amortized as interest expense using the effective interest method over the ten-year life of the Notes. The Warrant value will be reviewed during each accounting period, and adjusted if required. The first series of Warrants is exercisable at any time for a total of 5,475,768 shares. The second series will become exercisable at any time for a total of 2,857,565 shares, following stockholder approval of such exercise at the next meeting of the Company’s stockholders. The Company also entered into agreements with the investors to file registration statements with the Securities and Exchange Commission, for the benefit of the investors, with respect to the Notes and the Warrants. The Warrants provide that the exercise price will be paid solely in cash, except that after the Company has filed a registration statement with the Securities and Exchange Commission relating to the Warrants and underlying common stock, in the event such registration statement has not become effective or is otherwise not available to the Warrant holders, if the exercise of the Warrants for cash would not be permitted under the federal securities laws, the exercise price may be paid by tendering a principal amount of 6% Notes equal to the exercise price of the Warrants then being exercised. The sale of the Notes and Warrants pursuant to the Securities Purchase Agreement was made in reliance on the exemption from the registration requirements of the Securities Act of 1933 (the "Act"), pursuant to Section 4(2) of the Act. The value assigned to the Warrants will result in an offset recorded as a discount on the Notes which will be amortized as interest expense using the effective interest method over the ten-year life of the Notes. The Warrant value will be reviewed during each accounting period, and adjusted if required.

        Of the $150,000 in proceeds from the sale of the Notes and Warrants, the Company repurchased, at face value, a portion of its outstanding 7.35% notes due 2007 ($31,605) and 7.20% notes due 2007 ($17,490) which were held by the investors. The remaining proceeds will be used for general corporate purposes, including, but not limited to, the purchase of equipment, retirement of debt, potential acquisitions and/or working capital.

        The Notes mature on September 1, 2014, with interest payable semi-annually at a rate of 6% per annum. The Company has the right to redeem the Notes at any time after September 1, 2009 with a declining premium. The maturity of the Notes can be accelerated upon the occurrence of an "Event of Default" as such term is defined in the indenture governing the Notes (the "Indenture"). The Indenture also contains various restrictive covenants, including limitations on the payment of dividends and other restricted payments, limitations on incurrence of indebtedness, and limitations on asset sales, the violation of which by the Company would result in an Event of Default.

        The Warrants expire on September 1, 2014, although the Company has the right under certain conditions to require that they be exercised at any time after its common stock trades at $30.00 per share or more for five consecutive trading days.

        The Company intends to hold an Annual Meeting of the Stockholders in the fourth quarter of 2004 and at that meeting will seek stockholder approval for the exercise of the second series of Warrants. In connection with the sale of the Notes and Warrants, certain of the Company’s significant stockholders, whose combined interest in the Company represents more than 50% of the issued and outstanding shares of the Company’s Common Stock, entered into a voting agreement pursuant to which they have agreed to vote to approve the exercise of the second series of Warrants by the investors. In addition, Martin Tuchman, the Company’s Chairman and Chief Executive Officer, Warren Serenbetz, a member of the Company’s Board of Directors, and an entity controlled by members of Mr. Serenbetz’s family agreed to certain restrictions on their ability to transfer shares of the Company’s common stock in private transactions.

        Copies of the Securities Purchase Agreement, the Indenture, the Warrant Agreement, the Notes Registration Rights Agreement and the Investor Rights Agreement were filed as exhibits to the Company’s report on Form 8-K issued September 15, 2004.

        On November 1, 2004, the Company consummated a secured equipment financing with one of its existing lenders. The financing is secured by shipping containers and related leases owned by a special purpose subsidiary of the Company and leased to various third parties. The financing allows for advances from time to time up to the amount of available collateral under the facility, subject to a maximum principal amount that may be outstanding under the facility of $252,000. Of the $243,000 drawn down on November 1, 2004, the Company used $224,406 to refinance outstanding indebtedness, which includes the entire $154,757 of outstanding borrowings under its revolving credit facility, which has now been terminated, as well as an existing $69,649 loan from this lender. The remaining balance of $18,594 was used for transaction fees and working capital purposes. The interest rate under this new facility is LIBOR plus 200 basis points, with reductions to LIBOR plus 175 basis points and LIBOR plus 150 basis points possible as the Company’s credit rating or debt to equity ratio improve. This agreement requires that the Company enter into interest rate swap contracts in order to effectively convert at least seventy percent of the debt associated with operating lease equipment and ninety percent of the debt associated with direct financing leases from floating rate debt to fixed rate debt within 90 days of closing. The facility has a two-year term, after which the outstanding balance will be paid out in full over 66 months if it is not refinanced.

        This agreement requires that the Company maintain a tangible net worth of at least $300,000 (as defined in the Agreement). The facility also requires the Company to maintain a fixed charge coverage ratio of 1.5 to 1 and a funded debt to tangible net worth ratio of 4.0 to 1.0 and contains other customary restrictive covenants.

Rating Agency Downgrades

        On January 27, 2004, Moody’s downgraded the Company’s debt securities citing continued uncertainty associated with the delayed release of the Company’s financial information for 2003. The Company was advised that Moody’s also reduced the "shadow rating" of the Company’s chassis securitization. The Company was advised by the provider of the insurance "wrap" portion of the chassis securitization that, as a result of the downgrade of the shadow rating, it is liable to indemnify such provider for certain of the provider’s increased capital charge costs. The Company disputed whether any such indemnification obligation exists under the terms of its agreement with the "wrap" provider. During October 2004, the Company reached an agreement with such provider, pursuant to which the Company will pay approximately $220 per month in additional premium, declining as the loan is paid down. Such additional premium will be further adjusted downward after eighteen months if the shadow rating improves, potentially going away entirely. In addition, as part of this agreement, the Company has received permanent waivers from the wrap provider for issues that were previously waived on a periodic basis. The other participants in the chassis securitization have also permanently waived any early amortization event or default associated with the downgrade of the "shadow rating". Such downgrades may also have a negative effect on the Company’s ability to access the capital markets in the future, as well as on the Company’s interest cost. During July 2004, Fitch Ratings affirmed the Company’s ratings, removed the Company from rating watch negative status, and changed their rating outlook for the Company to positive. Fitch Ratings reaffirmed their positive outlook in a press release that followed the Company's $150,000 issuance of notes during September 2004. (See Ongoing Debt Waivers section below for further discussion.)

Ongoing Debt Waivers

        The Company may be required to obtain additional waivers in the future from certain of its financial institutions. In the event that (i) any such required waiver could not be obtained before the applicable deadline; or (ii) any of the Company’s existing waivers ceased to be effective in accordance with their terms based upon future developments, the Company might be in violation of the terms of its indebtedness, and the lenders could exercise their right to declare the Company in default, accelerate the indebtedness owed to such lenders, and take other action against the Company. Moreover, the taking of such action, or the possibility that such action could be taken, could cause one or more of the Company’s other financial institutions to take action against the Company, such as declaring the Company in default, accelerating the indebtedness owed to such lender, and/or attempting to exercise rights as a secured creditor with respect to any collateral.

Employment Agreements

        As described in the Company’s 2003 Form 10-K, in July 2004, the Company entered into Employment Agreements with certain executive officers with various expiration dates up to 28 months. Under the terms of the Employment Agreements, each Executive is paid a base salary, a target bonus, participates in fringe benefit programs and may receive additional bonuses at the sole discretion of the Compensation Committee. The minimum obligation related to these agreements is approximately $2,606. In addition, the Employment Agreements obligate the Company to pay severance payments in the event of termination or change of control and include non-compete clauses.

        In connection with these employment agreements, because the Company’s stock option plan had expired, the Company instead agreed to grant common stock appreciation rights that provide for the grantees to receive cash payments measured by any appreciation in the market price of the common stock over a specified base price. The Company granted such stock appreciation rights with respect to a total of 275,000 share units at a base price of $14.05. The $14.05 base price reflected the price on the over-the-counter market on February 20, 2004, the business day before the date on which the terms of the stock appreciation rights were fixed. The grant of stock appreciation rights was subsequently ratified by the Board of Directors on March 30, 2004, by which time the closing price of the Company’s common stock had increased to $15.00. At July 1, 2004, the date the employment agreements became effective, the most recent closing stock price of the Company’s common stock was $16.55. Under the terms of the employment agreements, a total of 260,000 of these stock appreciation rights will vest in 2005 (or earlier upon a change in control) with the remaining 15,000 rights vesting in three equal installments on December 31, 2006, 2007 and 2008. Upon vesting, these stock appreciation rights may be exercisable at any time prior to the expiration of the earlier of 10 days following the termination of the employee or June 30, 2014. The Company has reserved the right to substitute common stock options under the same terms and conditions of the stock appreciation rights upon approval by the Company’s stockholders of a Stock Option Plan for key employees and directors of the Company.

Termination of Deferred Bonus Plan

        In September 2004, the Board of Directors terminated the Deferred Bonus Plan. All stock previously issued under this Plan will continue to be subject to the terms of the Plan. However, future bonuses will not be subject to the terms of the Deferred Bonus Plan.

Sale of Specialized Assets

        Effective September 30, 2004, the Company agreed to sell the assets of CTC Container Trading (U.K.) Limited, a wholly-owned subsidiary which leased specialized containers and other equipment for use by companies operating in the North Sea. Under the terms of the agreement, the Company sold 1,474 cargo carrying units for approximately $2,965 (1,666 British Pounds) which will result in a pre-tax profit of approximately $950 before expenses.

                                       Three Months
                                           Ended        Three Months Ended  Three Months Ended      Year Ended
                                         March 31,           June 30,         September 30,        December 31,
(Dollars in millions):                     2004                2004                2004                2003
----------------------                 ------------     ------------------  ------------------     -------------
Audit fees for the reaudits
   and restatements                       $0.5                $---           $---                     $3.6
Cost of investigations                     0.1                 ---            ---                      5.9
Legal and consulting fees                  1.6                 0.5            0.3                      3.2
Separation agreements                      ---                 ---            ---                      5.9
Bank waiver fees                           2.1                 0.3            0.1                      1.6
                                           ---                 ---            ---                      ---
Amounts before tax                        $4.3                $0.8           $0.4                    $20.2
                                          ====                ====           ====                    =====
Amounts net of tax                        $3.0                $0.5           $0.3                    $12.9
                                          ====                ====           ====                    =====

                                       Three Months
                                           Ended        Three Months Ended  Three Months Ended      Year Ended
                                         March 31,           June 30,         September 30,        December 31,
(Dollars in millions):                     2004                2004                2004                2003
----------------------                 ------------     ------------------  ------------------     -------------
Audit fees for the reaudits
   and restatements                       $0.5                $---           $---                     $3.6
Cost of investigations                     0.1                 ---            ---                      5.9
Legal and consulting fees                  1.6                 0.5            0.3                      3.2
Separation agreements                      ---                 ---            ---                      5.9
Bank waiver fees                           2.1                 0.3            0.1                      1.6
                                           ---                 ---            ---                      ---
Amounts before tax                        $4.3                $0.8           $0.4                    $20.2
                                          ====                ====           ====                    =====
Amounts net of tax                        $3.0                $0.5           $0.3                    $12.9
                                          ====                ====           ====                    =====

                                                                                    (Dollars in Millions)
                                                                            June 30, 2004        December 31, 2003
                                                                            -------------        -----------------
Capital lease obligations payable in varying amounts through 2018                $279.1                $325.2
Chassis Securitization Facility, interest at 5.47% and 5.59% at June
  30, 2004 and December 31, 2003, respectively
      Warehouse facility                                                           25.5                  25.5
      Debt obligation                                                              69.7                  86.4
      Capital lease obligation                                                    401.7                 404.7
Revolving credit facility, interest rate at 3.38% and 3.09% at June
  30, 2004 and December 31, 2003, respectively                                    174.6                 193.5
Revolving credit facility CAI, interest rate at 3.36% and 3.37% at
  June 30, 2004 and December 31, 2003, respectively                                84.0                  87.0
Container securitization facility, interest at 6.36% and 6.5% at June
  30, 2004 and December 31, 2003, respectively                                     49.4                  76.6
7.35% Notes due 2007 (unsecured)                                                  147.0                 147.0
7.20% Notes due 2007 (unsecured)                                                   62.8                  62.8
9.25% Convertible redeemable subordinated debentures, mandatory
  redemption 2022 (unsecured)                                                      37.2                  37.2
9.875% Preferred capital securities due 2027 (unsecured)                           75.0                  75.0
Notes and loans payable with various rates ranging from 3.11% to 9.77%
  and maturities from 2004 to 2010                                                264.3                 194.8
                                                                               --------               -------
Total Debt and Capital Lease Obligations                                        1,670.3               1,715.7
                                                                               --------               -------
   Less Current Maturities                                                        225.6                 219.2
Total Non-Current Debt and Capital Lease Obligations                           $1,444.7              $1,496.5
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