Capgemini Annual Report 2017

FY2017 Annual Report · Capgemini
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CAI International, Inc. 
2017 Annual Report

CAI International (NYSE: CAI) is a global transportation company offering 

intermodal  container  sales  and  leasing,  rail  leasing  and  global  logistics 

services. Established in 1989 and headquartered in San Francisco, CAI 

has grown into a leading expert in intermodal transportation, international 

shipping, and container sales and leasing. With offices around the world and 

a broad network of agents, depots, and carriers, CAI serves hundreds of the 

world’s leading shipping lines, shippers, and logistics users.

I N T R O D U C T I O N

In 2017 CAI took the long view. 
We adopted a long-term strategy 
that included increasing our fleet 
utilization, diversifying our offerings, 
and investing where we believed 
the returns would be greatest. 

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C A I   A T   A   G L A N C E

The only container lessor  
with in-house US domestic and 
global logistic capabilities

Founded in

Compound annual growth rate of

1989

15%

in book value per share 
since going public in 2007

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39 offices in

countries14

NYSE under symbol

CAI

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C O N T A I N E R S

CAI’s international container 
fleet moves almost every category 
of cargo imaginable.

CAI first established its reputation in global shipping 
through container leasing. Our leased containers 
transport virtually every category of cargo conceivable, 
from finished goods to raw materials, to refrigerated 
agricultural products and pharmaceuticals. Our leased-
container fleet spans the globe, supported by 30 offices 
and agents in key shipping locations worldwide. 

CAI’s San Francisco-based operations serve customers throughout the North 
American, European, and Asia-Pacific continents. We maintain relationships with 
the world’s leading shippers and logistics experts across more than 200 depots 
in 45 countries.

Our global container fleet is positioned to maximize financial returns. 
Throughout 2017 we focused on expanding the effective use of our assets.  
We moved idle equipment out of depots and onto long-term leases, repositioning 
as necessary. Older containers were sold. We think and move strategically to 
best serve our customers and stockholders.

In today’s volatile political and global trade climate, our customers demand 
reliability, accountability, and a technology-forward approach to securely move 
cargo. CAI delivers on all counts. Our customized services and global reach are 
supported by an experienced staff skilled in the latest technological advancements.

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1.2M+

TEU fleet size

300+

container customers

200+

depot facilities in 45 countries

50+

different equipment types

~$1.8B

book value assets

carriers

logistics customers

global marine shipping lines

650+
6K+
22+
7+
55K+
7

revenue moves per year

Class I railroads

logistics offices

L O G I S T I C S

CAI Logistics pairs the right  
people and technology for a truly 
global perspective.

Transportation logistics is an essential element of our 
business today. We consider it a logical extension of 
CAI’s worldwide reach and mastery of the complexities 
of global shipping. 

Our strategy has been to add logistical transportation services that enhance the 
growth and stability of our overall corporate revenue and earnings by means of: 

a.   the addition of both standalone and cross-selling logistics services, and 
b.   synergistic operational opportunities with our container and rail operations.

Our entry into the field began with CAI Logistics, a domestic intermodal 
marketing company that specializes in primarily providing intermodal rail trans-
portation and third-party logistics services. CAI Logistics serves North American 
customers that do not have direct relationships with Class I railroads.

We then added Challenger Overseas and Hybrid Logistics, both acquired 
in 2016. Challenger is a US-based non-vessel-operating common carrier that 
arranges both the international and domestic transportation of intermodal 
container freight for its customers. Hybrid Logistics is a non-asset-owning 
logistics provider that arranges truck transportation services for manufacturers, 
distributors, and retailers throughout North America and, to a lesser extent, 
Canada and Mexico. All three enterprises are staffed by experts whose 
collective experience spans a multitude of industries.

Because of lackluster demand, we faced a competitive logistics market in 2017, 
particularly in the first half of the year. While some asset-based carriers respond-
ed through aggressive cost cutting for their services, we kept our focus on the 
longer term, seizing the opportunity to align our truck brokerage and domestic 
rail intermodal enterprises.

We remain dedicated to growing our logistics businesses. We have the people, 
the products, the technology, and the global perspective necessary to place CAI 
among the leading ranks of logistical services worldwide.

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R A I L

CAI Rail transports essential 
industrial commodities safely
and efficiently.

The 140,000-mile US freight rail network moves more 
commodities than any other freight system in the world, 
provides 221,000 jobs nationwide; delivering a host of 
public benefits, including reductions in road congestion, 
greenhouse gases, and logistics costs.* 

CAI entered the rail market in 2012. Today we serve customers in key industries 
essential to the national and global economies, including food, energy, chemi-
cals, forest products, industrial products, and construction. Our CAI Rail team 
of seasoned industry experts matches customers with rail equipment designed 
to move their specific commodities, be they grains, chemicals, forest products, 
or industrial materials.

CAI faced an oversupply of railcars on the US market in 2017. We successfully 
navigated this difficult environment by concentrating on specific markets, invest-
ing in a variety of car types, and tirelessly seeking opportunities to further 
diversify our offering.

The rail industry most assuredly will continue to expand, with intermittent 
contractions, and evolving technologies. Rail transportation will remain a vital 
part of the in the US freight transportation infrastructure. Commensurately, 
CAI Rail will grow and invest for the long haul.

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*Source: Federal Railroad Administration

 
 
 
 
 
in gross assets

first railcars acquired

2012
~$440M
7K+
60+
10
40

industries served

railcars in fleet

rail customers

car types

Fellow Stockholders:

I would like to begin our discussion of 2017 with the respectful acknowledgment 
of the passing of our founder and chairman. Hiromitsu Ogawa founded the 
company in 1989 and remained a consistent and strong supporter of the 
growth of CAI International. He was a pioneer in the industry and a mentor 
to many within our company. As we move forward, we will continue to be 
guided by his values of respect, risk-taking, and optimism that have made CAI 
a success over the past 29 years.

The Year’s Highlights  Our focus on managing for the long 
term provided us opportunity in 2017. In 2016 we proactively 
decided not to invest in what we believed was an overly 
competitive marketplace for container investment. Instead 
we chose to concentrate on increasing the utilization of our 
existing fleet to reduce debt and repurchase shares. This 
decision proved to be the right one, and it positioned us for 
the significant investment we made in 2017. By the end of 
the year, we had financed more than $470 million in container-
related investment, which represented 31 percent of our 
net book value of equipment at the beginning of the year.  
We made that investment with much better per diem rates 
and for a longer duration than had been available in 2016.

As a result of this focus, we increased our 2017 net income 
to $72.1 million from $6 million in 2016, a 12-fold increase. 
During the year we also recognized a onetime tax-related 
benefit of $16.9 million due to corporate tax law changes  
enacted in the United States.

Our focus on diversification provides us the flexibility to place 
capital where the returns are greatest. In 2017 it was clear  
that the container segment was the best place to invest.  
As such we increased our stake in containers and deferred rail 
investment. We also registered to issue up to 2 million shares 
to support future investment. We decided to do so with an  
at-the-market offering to better integrate capital raising with 
our ability to invest the funds. We issued in 2017 approxi-
mately 900k shares that generated $29 million. Our focus 
has always been on aligning CAI’s interests with those of our 
shareholders, and each investment and capital-raising effort 
reflects this primary consideration.

Container  During 2017 we focused on aggressively 
positioning our fleet to increase financial returns. Our priority 
remained boosting the utilization of our existing assets. 

This involved removing equipment from depots and placing 
it on attractive long-term leases. We repositioned equip-
ment as needed and sold off older assets. By increasing utili-
zation and acting on what we perceived to be more limited 
competition for investment, we substantially increased our 
stake in new equipment. As stated previously, we invested 
$470 million in equipment, a figure that exceeded our initial 
plans. Our objective was not only to place equipment on 
long-term leases but to maximize the opportunity by nego-
tiating the longest leases we could. We successfully placed 
all new CAI container equipment on leases averaging more 
than eight years versus the traditional five. We expect these 
longer leases to give us a strong cash flow foundation for 
future profits and revenue.

Rail  The US railcar market remained very challenging in 
2017. We continue to work with an oversupply of railcars. 
This reflected continued entry of new railcars into the market-
place, along with reduced demand created by the increased 
velocity by Class 1 railroads are presently experiencing. We 
sought to minimize the effects of this weak environment by 
deferring some railcar deliveries from 2017 to 2018. We also 
placed equipment on short-term leases in response to low 
lease rates, rather than have equipment sit idle. Due to the 
number of cars that remain in storage, we see this challenging 
environment continuing into 2018.

Despite these difficult market conditions, we have 
achieved success in leasing railcars and believe that we 
are gaining greater market awareness and new customers. 
Our order book enables us to invest in various car types, 
which in turn allows us to focus on different markets and 
thereby diversify opportunities.

Logistics  Our logistics business also faced a very competi-
tive market environment in 2017 due to moderate domestic 

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demand in the first half of the year. As a result, asset-based 
carriers priced their services quite competitively, which put 
pressure on our ability to compete profitably. On the truck 
brokerage side of our business, the enactment of electronic 
logging strained available truck capacity and resulted in 
materially higher trucking costs. We believe that over time 
these costs will have to be passed through to customers. 

Beyond the market environment, we found our 2017 
logistics performance disappointing, so we realigned  
our logistics subsidiaries and made some management 
changes. In the process we united the truck brokerage 
business with our domestic rail intermodal operations. 
We have already seen positive results from this realignment 
and believe that we are now properly positioned for long-
term growth in both businesses.

Strategic Perspective  Despite the ongoing consolidation 
among shipping lines in 2017, we believe that the envi-
ronment for containers favors expanded investment and 
growth. Consequently, we will continue to diversify and 
increase our service offerings, taking the long view as we 
position CAI for future growth and affirm our position as 
a value-added company.

Part of our ongoing strategy will include maximizing the 
use of CAI’s capital by investing in our more productive 
assets while divesting the company of idle stock.

Outlook  As we look ahead to 2018, our outlook remains 
solidly optimistic. We continue to see positive signs of  

continued and increased growth both domestically and 
internationally and believe that global economic growth will 
be more robust in 2018 than it was in 2017. The container-
leasing market entered 2018 with high utilization and limited 
idle assets. We think strong demand and high initial utilization 
will result in a healthy investment year. We also believe that 
some of our leasing competitors remain capital constrained 
due to high prior investment at low returns. We expect this 
to result in attractive lease terms on new investment.

From our perspective the rail market will likely remain 
challenging in 2018. We believe that we are mitigating the 
effects of the current weak market, however, by delaying 
delivery of new equipment orders and increasing utilization 
by placing our existing equipment on shorter-term leases. 
Longer term we remain optimistic about our role in rail and 
see ourselves gaining increased customer acceptance.

On the logistics side, we expect the realignment of our 
domestic segments to spur a year of growth. We believe 
that international freight rates will increase, which should 
provide a better opportunity to enhance revenue and 
profits within that segment.

We are proud of our management team, given how it has 
charted our strategic and operational course over the past 
few years.

As always, we remain grateful to you, our shareholders, for 
your continued confidence and support.

Sincerely,

David G. Remington 
Chairman of the Board and Audit Committee

Victor M. Garcia 
President and Chief Executive Officer

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Financial Highlights

(dollars in millions)

2014

2015

2016

2017

Total Revenue

$227.6

$249.7

$294.4

Operating Income

Net Income

EBITDA

103.6

59.9

181.9

67.4

26.6

181.4

53.3

6.0

159.3

$348.4

111.0

72.1

223.5

Total Revenue*

Net Income*

EBITDA*

3
4
8
.
4

2
9
4
.
4

5
9
.
9

2
4
9
.
7

2
2
7.
6

7
2
.
1

2
2
3
.
5

1
8
1
.
9

1
8
1
.
4

1
5
9
.
3

2
6
6

.

6
0

.

2014

2015

2016

2017

2014

2015

2016

2017

2014

2015

2016

2017

*Dollars in millions

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Form 10-K

CAI International, Inc. 
2017 Annual Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

(cid:2)

□

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2017
or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from

to

Commission ﬁle number: 001-33388

CAI International, Inc.

(Exact name of registrant as speciﬁed in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)

Steuart Tower
1 Market Plaza, Suite 900 San Francisco, California
(Address of principal executive office)

94-3109229
(I.R.S. Employer
Identiﬁcation Number)

94105
(Zip Code)

(415) 788-0100
(Registrant’s telephone number including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Name of exchange on which registered

Common Stock, par value $0.0001 per share

New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as deﬁned in Rule 405 of the Securities Act. Yes (cid:4) No (cid:2)
Indicate by check mark if the registrant is not required to ﬁle reports pursuant to Section 13 or Section 15(d) of the Act. Yes (cid:4) No (cid:2)
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 requirement for the past 90 days. Yes (cid:2) No (cid:4)

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such ﬁles). Yes (cid:2) No (cid:4)

Indicate by check mark if disclosure of delinquent ﬁlers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) 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. (cid:2)

Indicate by check mark whether the registrant is a large accelerated ﬁler, an accelerated ﬁler, a non-accelerated ﬁler, a smaller reporting

company, or emerging growth company. See the deﬁnitions of ‘‘large accelerated ﬁler,’’ ‘‘accelerated ﬁler,’’ ‘‘smaller reporting company,’’
and ‘‘emerging growth company’’ in Rule 12b-2 of the Exchange Act

Large accelerated ﬁler □
Non-accelerated ﬁler □
(Do not check if smaller reporting company)
If emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for

Accelerated ﬁler (cid:2)
Smaller reporting company □
Emerging growth company □

complying with any new or revised ﬁnancial accounting standards provided pursuant to Section 13(a) of the Exchange Act. □
Indicate by check mark whether the registrant is a shell company (as deﬁned in the Rule 12b-2 of the Act). Yes (cid:4) No (cid:2)
As of June 30, 2017, the last business day of the registrant’s most recently completed second ﬁscal quarter, the aggregate market value
of common stock held by non-affiliates of the registrant (based upon the closing sale price of such shares on the New York Stock Exchange
on June 30, 2017) was approximately $274.9 million. Shares of registrant’s common stock held by each executive officer, director and
beneﬁcial holders of 10% or more of our common stock have been excluded in that such persons may be deemed to be affiliates of the
registrant. This determination of affiliate status is not necessarily a conclusive determination for other purposes.
As of January 31, 2018, there were 20,490,622 shares of the registrant’s common stock outstanding.

Portions of the registrant’s deﬁnitive proxy statement relating to the registrant’s 2018 Annual Meeting of Stockholders, which will be ﬁled no later

than 120 days after the close of the registrant’s ﬁscal year ended December 31, 2017, are incorporated by reference into Part III hereof.

DOCUMENTS INCORPORATED BY REFERENCE

TABLE OF CONTENTS

Annual Report on Form 10-K for the year ended December 31, 2017

PART I

Item 1.

Business

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 1A.

Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 2.

Item 3.

Item 4.

PART II

Item 5.

Item 6.

Item 7.

Properties

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Management’s Discussion and Analysis of Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . .

Item 8.

Item 9.

Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 9A.

Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART III

Item 10.

Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . .

Item 11.

Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 12.

Security Ownership of Certain Beneﬁcial Owners and Management and Related
Stockholder Matters

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 13.

Certain Relationships and Related Transactions, and Director Independence . . . . . . . . .

Item 14.

Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART IV

Item 15.

Exhibits, Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 16.

Form 10-K Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1

12

35

35

36

36

37

38

42

59

59

59

59

62

62

62

62

62

62

63

63

SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

103

i

SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

This Annual Report on Form 10-K contains certain forward-looking statements, including, without

limitation, statements concerning the conditions in our industry, our operations, our economic performance and
ﬁnancial condition, including, in particular, statements relating to our business, operations, and growth strategy
and service development efforts. The Private Securities Litigation Reform Act of 1995 provides a ‘‘safe
harbor’’ for certain forward-looking statements so long as such information is identiﬁed as forward-looking
and is accompanied by meaningful cautionary statements identifying important factors that could cause actual
results to differ materially from those projected in the information. When used in this Annual Report on
Form 10-K, the words ‘‘may,’’ ‘‘might,’’ ‘‘should,’’ ‘‘estimate,’’ ‘‘project,’’ ‘‘plan,’’ ‘‘anticipate,’’ ‘‘expect,’’
‘‘intend,’’ ‘‘outlook,’’ ‘‘believe’’ and other similar expressions are intended to identify forward-looking
statements and information. You are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of their dates. These forward-looking statements are based on estimates and
assumptions by our management that, although we believe to be reasonable, are inherently uncertain and
subject to a number of risks and uncertainties. These risks and uncertainties include, without limitation, those
identiﬁed under the caption Item 1A. ‘‘Risk Factors’’ in this Annual Report on Form 10-K and our other
reports ﬁled with the Securities and Exchange Commission (SEC). We undertake no obligation to publicly
update or revise any forward-looking statement as a result of new information, future events or otherwise,
except as otherwise required by law. Reference is also made to such risks and uncertainties detailed from time
to time in our ﬁlings with the SEC.

Unless the context requires otherwise, references to ‘‘CAI,’’ the ‘‘Company,’’ ‘‘we,’’ ‘‘us’’ or ‘‘our’’ in

this Annual Report on Form 10-K refer to CAI International, Inc. and its subsidiaries.

ii

PART I

ITEM 1: BUSINESS

Our Company

We are one of the world’s leading transportation ﬁnance and logistics companies. We purchase

equipment, primarily intermodal shipping containers and railcars, which we lease to our customers. We also
manage equipment for third-party investors. In operating our ﬂeet, we lease, re-lease and dispose of equipment
and contract for the repair, repositioning and storage of equipment. We also provide domestic and international
logistics services, through our subsidiaries, CAI Logistics Inc. (CAI Logistics), Challenger Overseas LLC and
Hybrid Logistics, Inc.

The following table shows the composition of our ﬂeet as of December 31, 2017 and our average

utilization for the year ended December 31, 2017:

As of
December 31,
2017

Percent of
Total
Container Fleet

Owned container ﬂeet in TEUs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Managed container ﬂeet in TEUs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total container ﬂeet in TEUs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Owned container ﬂeet in CEUs
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Managed container ﬂeet in CEUs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total container ﬂeet in CEUs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Owned railcar ﬂeet in units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,146,268
80,736
1,227,004
1,209,209
73,530
1,282,739
7,172

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average container ﬂeet utilization in CEUs
Average owned container ﬂeet utilization in CEUs
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average railcar ﬂeet utilization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

93%
7%
100%
94%
6%
100%

Year Ended
December 31,
2017

97.4%
97.6%
90.0%

The intermodal marine container industry-standard measurement unit is the 20-foot equivalent unit
(TEU), which compares the size of a container to a standard 20-foot container. For example, a 20-foot
container is equivalent to one TEU and a 40-foot container is equivalent to two TEUs. Containers can also be
measured in cost equivalent units (CEUs), whereby the cost of each type of container is expressed as a ratio
relative to the cost of a standard 20-foot dry van container. For example, the CEU ratio for a standard 40-foot
dry van container is 1.6, and a 40-foot high cube container is 1.7.

Utilization of containers is computed by dividing the average total units on lease during the period in

CEUs, by the average total CEUs in our container ﬂeet during the period. Utilization of railcars is computed
by dividing the average number of railcars on lease during the period by the average total number of railcars
in our ﬂeet during the period. In both cases, the total ﬂeet excludes new units not yet leased and off-hire units
designated for sale. If new units not yet leased are included in the total ﬂeet, total container ﬂeet utilization
would be 96.4%, owned container ﬂeet utilization would be 96.5%, and railcar ﬂeet utilization would be
78.3%, for the year ended December 31, 2017.

Our revenue consists of container lease revenue and rail lease revenue from our owned container and
railcar ﬂeets, management fee revenue for managing containers for third-party investors and logistics revenue
for the provision of logistics services. Substantially all of our revenue is denominated in U.S. dollars. For the
year ended December 31, 2017, we recorded revenue of $348.4 million and net income attributable to CAI
common stockholders of $72.1 million. A comparison of our 2017 ﬁnancial results with those of the
prior years can be found in Item 6. ‘‘Selected Financial Data’’ of this Annual Report on Form 10-K.

1

We earn container lease revenue from intermodal containers which are deployed by our customers in a

wide variety of global trade routes. Virtually all of our containers are used internationally and no container is
domiciled in one particular place for a prolonged period of time. As such, substantially all of our container
assets are considered to be international with no single country of use. Our railcars are used by lessees on
railroads in North America. Our logistics business provides both domestic and international logistics services.

History

We were founded in 1989, as a traditional container leasing company that leased containers owned by us

to container shipping lines. We were originally incorporated under the name Container Applications
International, Inc. in the State of Nevada in August 1989. In February 2007, we were reincorporated under our
present name in the State of Delaware.

In December 2011, we formed CAI Rail Inc. (CAI Rail), as a wholly-owned subsidiary of the Company.

CAI Rail purchases and leases our ﬂeet of railcars in North America.

In July 2015, we purchased CAI Logistics (previously ClearPointt Logistics LLC), an intermodal logistics

company focused on the domestic intermodal market, for approximately $4.1 million. CAI Logistics is
headquartered in Everett, Washington.

In February 2016, we purchased Challenger Overseas, LLC (Challenger), a Non-Vessel Operating

Common Carrier (NVOCC), for approximately $10.8 million. Challenger is headquartered in Eatontown,
New Jersey.

In June 2016, we purchased Hybrid Logistics, Inc. and its affiliate General Transportation Services, Inc.
(collectively, Hybrid), asset light truck brokers, for approximately $12.0 million. Hybrid is headquartered in
Portland, Oregon.

Corporate Information

Our corporate headquarters and principal executive offices are located at Steuart Tower, 1 Market Plaza,

Suite 900, San Francisco, California 94105. Our telephone number is (415) 788-0100 and our website address
is http://www.capps.com. We operate our business in 23 offices in 14 countries including the United States,
and have agents in Asia, Europe, South Africa, and South America. Our wholly-owned international
subsidiaries are located in the United Kingdom, Japan, Malaysia, Sweden, Germany, Singapore, Luxembourg,
Australia, Chile, South Korea, Barbados and Bermuda.

Segment Information

We organize our business by the nature of services we provide and separate our business into three

reportable segments: container leasing, rail leasing and logistics.

The container leasing segment derives its revenue from the ownership and leasing of containers and fees

earned for managing container portfolios on behalf of third party investors. The rail leasing segment derives
its revenue from the ownership and leasing of railcars. The logistics segment derives its revenue from the
provision of logistics services. There are no signiﬁcant inter-segment revenues.

The operating results of each segment and details of our revenues for the years ended December 31,

2017, 2016 and 2015, and information regarding the geographic areas in which we do business are
summarized in Note 17 to our consolidated ﬁnancial statements in this Annual Report on Form 10-K.

Industry Overview

Container Leasing

We operate in the worldwide intermodal freight container leasing industry. Intermodal freight containers,

or containers, are large, standardized steel boxes used to transport cargo by a number of means, including
ship, truck and rail. Container shipping lines use containers as the primary means for packaging and
transporting freight internationally, principally from export-oriented economies in Asia to other Asian
countries, North America and Western Europe.

2

Containers are built in accordance with standard dimensions and weight speciﬁcations established by the

International Standards Organization (ISO). Standard dry van containers are eight feet wide, either 20 or 40
feet long and are either 8 feet 6 inches or 9 feet 6 inches tall.

The three principal categories of containers are as follows:

•

•

•

Dry van containers. A dry van container is constructed of steel sides, roof and end panel with a
set of doors on the other end, a wooden ﬂoor and a steel undercarriage. Dry van containers are the
least expensive and most commonly used type of container. Dry van containers comprise
approximately 90% of the worldwide container ﬂeet, as measured in TEUs. They are used to carry
general cargo, such as manufactured component parts, consumer staples, electronics and apparel.

Refrigerated containers. A refrigerated container has an integrated refrigeration unit on one end
which plugs into a generator set or other outside power source and is used to transport perishable
goods.

Specialized equipment. Specialized equipment includes open-top, ﬂat-rack, palletwide and
swapbody containers, roll trailers, and generator sets. An open-top container is similar in
construction to a dry van container except that the roof is replaced with a tarpaulin supported by
removable roof bows. A ﬂat-rack container is a heavily reinforced steel platform with a wood deck
and steel end panels. Open-top and ﬂat-rack containers are generally used to move heavy or
oversized cargo, such as marble slabs, building products or machinery. Palletwide containers are a
type of dry-van container externally similar to ISO standard containers, but internally about two
inches wider so as to accommodate two European-sized pallets side-by-side. Swapbody containers
are a type of dry van container designed to be easily transferred between rail, truck, and barge and
are equipped with legs under their frames. Roll trailers are a type of ﬂat-bed trailer equipped with
rubber wheels underneath for terminal haulage and stowage on board roll-on/roll-off vessels.

Containers provide a secure and cost-effective method of transportation because they can be used in

multiple modes of transportation, making it possible to move cargo from a point of origin to a ﬁnal
destination without repeated unpacking and repacking. As a result, containers reduce transit time and freight
and labor costs as they permit faster loading and unloading of shipping vessels and more efficient utilization
of transportation containers than traditional bulk shipping methods. The protection provided by containers also
reduces damage, loss and theft of cargo during shipment. While the life of containers varies based upon the
damage and normal wear and tear suffered by a container, we estimate that the average useful life of a dry
van container used in our ﬂeet is 13.0 years.

Container shipping lines own and lease containers for their use. Based on container ﬂeet information
reported by Harrison Consulting, transportation companies (including container shipping lines and freight
forwarders) own approximately 50% of the total worldwide container ﬂeet and container leasing companies
own approximately 50% of the total worldwide container ﬂeet based on TEUs. Given the uncertainty and
variability of export volumes and the fact that container shipping lines have difficulty in accurately forecasting
their container requirements at different ports, the availability of containers for lease signiﬁcantly reduces a
container shipping line’s need to purchase and maintain excess container inventory. In addition, container
leases allow the container shipping lines to adjust their container ﬂeets both seasonally and over time and help
to balance trade ﬂows. The ﬂexibility offered by container leasing helps container shipping lines improve their
overall ﬂeet management and provides the container shipping lines with an alternative source of ﬁnancing.

3

Fleet Overview. The table below summarizes the composition of our container ﬂeet as of December 31,

2017 by type of equipment:

Dry Van
Containers

Percent of
Total Fleet

Refrigerated
Containers

Percent of
Total Fleet

Specialized
Equipment

Percent of
Total Fleet

Total

Percent of
Total Fleet

Owned container

ﬂeet in TEUs . . 1,035,460

84% 52,849

4% 57,959

5% 1,146,268

Managed container
ﬂeet in TEUs . .

Total container

78,746

6%

576

0%

1,414

1% 80,736

93%

7%

ﬂeet in TEUs . . 1,114,206

90% 53,425

4% 59,373

6% 1,227,004

100%

Owned container

ﬂeet in CEUs . .
Managed container
ﬂeet in CEUs . .

Total container

919,084

72% 191,366

14% 98,759

8% 1,209,209

70,056

5%

2,016

1%

1,458

0% 73,530

94%

6%

ﬂeet in CEUs . .

989,140

77% 193,382

15% 100,217

8% 1,282,739

100%

Marketing and Operations Overview. Our marketing and operations personnel are responsible for
developing and maintaining relationships with our lessees, facilitating lease contracts and maintaining the
day-to-day coordination of operational issues. This coordination allows us to negotiate lease contracts that
satisfy both our ﬁnancial return requirements and our lessees’ operating needs. It also facilitates our awareness
of lessees’ potential equipment shortages and their awareness of our available equipment inventories. We have
marketing and operations employees in twelve countries, supported by independent agents in a further seven
countries.

Leases Overview. To meet the needs of our lessees and achieve a favorable utilization rate, we lease

containers under three main types of leases:

•

•

Long-Term Leases. Our long-term leases have terms of one year or more and specify the number
of containers to be leased, the pick-up and drop-off locations, the applicable per diem rate and the
contract term. We typically enter into long-term leases for a ﬁxed term ranging from three to
eight years, with ﬁve-year term leases being most common. Our long-term leases generally require
our lessees to maintain all units on lease for the duration of the lease, which provides us with
scheduled lease payments. A small percentage of our long-term leases contain an early termination
option and afford the lessee interchangeability of containers, and the ability to redeliver containers if
the lessee’s ﬂeet requirements change. Generally, leases with an early termination provision impose
various economic penalties on the customer if the customer elects to exercise the early termination
provision.

Short-Term Leases. Short-term leases include both master interchange leases and customized
short-term leases. Master interchange leases provide a master framework pursuant to which lessees
can lease containers on an as-needed basis, and thus command a higher per diem rate than long-term
leases. The terms of master interchange leases are typically negotiated on an annual basis. Under our
master interchange leases, lessees know in advance their per diem rates and drop-off locations,
subject to monthly port limits. We also enter into other short-term leases that typically have a term
of less than one year and are generally used for one-way leasing, typically for small quantities of
containers. The terms of short-term leases are customized for the speciﬁc requirements of the lessee.
Short-term leases are sometimes used to reposition containers to high-demand locations and
accordingly may contain terms that provide incentives to lessees.

4

•

Finance Leases. Finance leases provide our lessees with an alternative method to ﬁnance their
container acquisitions. Finance leases are long-term in nature and require relatively little customer
service attention. They ordinarily require ﬁxed payments over a deﬁned period and generally provide
lessees with a right to purchase the leased containers for a nominal amount at the end of the lease
term. Per diem rates under ﬁnance leases include an element of repayment of capital and, therefore,
typically are higher than per diem rates charged under long-term leases. Finance leases require the
container lessee to keep the container on lease for the entire term of the lease.

The following table provides a summary of our container ﬂeet by lease type as of December 31, 2017:

Long-term leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finance leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total

As of December 31, 2017
CEUs
TEUs

71%
14%
15%
100%

72%
13%
15%
100%

Our lease agreements contain general terms and conditions detailing standard rights and obligations,
including requirements that lessees pay a per diem rate, depot charges, taxes and other charges when due,
maintain equipment in good condition, return equipment in good condition in accordance with return
conditions set forth in the lease agreement, use equipment in compliance with all applicable laws, and pay us
for the value of the equipment as determined by the lease agreement if the equipment is lost or destroyed. A
default clause in our lease agreements gives us certain legal remedies in the event that an equipment lessee is
in breach of lease terms.

Our lease agreements contain an exclusion of warranties clause and require lessees to defend and

indemnify us in most instances from third-party claims arising out of the lessee’s use, operation, possession or
lease of the equipment. Lessees are required to maintain physical damage and comprehensive general liability
insurance, or be adequately self-insured, and to indemnify us against loss with respect to the equipment. We
also maintain our own contingent physical damage and third-party liability insurance that covers our
equipment during both on-lease and off-lease periods. All of our insurance coverage is subject to annual
deductible provisions and per occurrence and aggregate limits.

Management Services Overview. We manage containers for third-party investors under management
agreements that cover portfolios of containers. We lease, re-lease and dispose of the containers and contract
for their repair, repositioning and storage. Our management agreements have multiple year terms and provide
that we receive a management fee based upon the actual net operating income for each container, which is
equal to the actual rental revenue for a container less the actual operating expenses directly attributable to that
container. Management fees are collected monthly or quarterly, depending upon the agreement, and generally
are not paid if net operating revenue is zero or less for a particular period. If operating expenses exceed
revenue, third-party investors are required to pay the excess or we may deduct the excess, including our
management fee, from future net operating revenue. Under these agreements, we also receive a commission
for selling or otherwise disposing of containers for the third-party investor. Our management agreements
generally require us to indemnify the third-party investor for liabilities or losses arising out of a breach of our
obligations. In return, the third-party investor typically indemniﬁes us in our capacity as the manager of the
container against a breach by the third-party investor, sales taxes on commencement of the arrangement,
withholding taxes on payments to the third-party investor under the management agreement and any other
taxes, other than our income taxes, incurred with respect to the containers that are not otherwise included as
operating expenses deductible from revenue.

5

Re-leasing, Logistics Management and Depot Management. We believe that managing the period after

lease termination, in particular after our containers’ ﬁrst lease, is one of the most important aspects of our
business. Successful management of this period requires disciplined re-leasing capabilities, logistics
management and depot management.

•

•

•

Re-leasing. Since our leases generally allow our lessees to return their containers, we typically
lease a container several times during its useful life. New containers can usually be leased with a
limited marketing and customer service infrastructure because initial leases for new containers
typically cover large volumes of units and are fairly standardized transactions. Used containers, on
the other hand, are typically leased in smaller transactions that are structured to accommodate
pick-ups and returns in a variety of locations. Our utilization rates depend on our re-leasing abilities.
Factors that affect our ability to re-lease used containers include the size of our lessee base, ability
to anticipate lessee needs, our presence in relevant geographic locations and the level of service we
provide our lessees. We believe that our global presence and long-standing relationships with more
than 300 container lessees as of December 31, 2017 provide us an advantage over our smaller
competitors in re-leasing our containers.

Logistics Management. The shipping industry is characterized by large regional trade imbalances,
with loaded containers generally ﬂowing from export-oriented economies in Asia to other Asian
countries, North America and Western Europe. Because of these trade imbalances, container shipping
lines have an incentive to return leased containers in relatively low export areas to reduce the cost of
shipping empty containers. We have managed this structural imbalance of inventories with the
following approach:

•

•

•

•

•

Limiting or prohibiting container returns to low-demand areas.
repositioning costs, our leases typically include a list of the speciﬁc locations to which
containers may be returned, limitations on the number of containers that may be returned to
low-demand locations, high drop-off charges for returning containers to low-demand locations
or a combination of these provisions;

In order to minimize our

Taking advantage of the secondary resale market.
proﬁle, we have aggressively sold older containers when they are returned to low demand
areas;

In order to maintain a younger ﬂeet age

Developing country-speciﬁc leasing markets to utilize older containers in the portable storage
market.
In North America and Western Europe, we lease on a limited basis older containers
for use as portable storage;

Seeking one-way lease opportunities to move containers from lower demand locations to higher
demand locations. One-way leases may include incentives, such as free days, credits and
damage waivers. The cost of offering these incentives is considerably less than the cost we
would incur if we paid to reposition the containers; and

Paying to reposition our containers to higher demand locations. At locations where our
inventories remain high, despite the efforts described above, we will selectively choose to ship
excess containers to locations with higher demand.

Depot Management. As of December 31, 2017, we managed our equipment ﬂeet through 219
independent equipment depot facilities located in 45 countries. Depot facilities are generally
responsible for repairing containers when they are returned by lessees and for storing the containers
while they are off-hire. Our operations group is responsible for managing our depot contracts and
periodically visiting depot facilities to conduct inventory and repair audits. We also supplement our
internal operations group with the use of independent inspection agents. As of December 31, 2017, a
majority of our off-lease inventory was located at depots that are able to report notices of container
activity and damage detail via electronic data interchange, or EDI.

6

Most of the depot agency agreements follow a standard form and generally provide that the depot
will be liable for loss or damage of containers and, in the event of loss or damage, will pay us the
previously agreed loss value of the applicable containers. The agreements require the depots to
maintain insurance against container loss or damage and we carry insurance to cover the risk that a
depot’s insurance proves insufficient.

Our container repair standards and processes are generally managed in accordance with standards
and procedures speciﬁed by the Institute of International Container Lessors, or the IICL. The IICL
establishes and documents the acceptable interchange condition for containers and the repair
procedures required to return damaged containers in acceptable interchange condition. When
containers are returned by lessees, the depot arranges an inspection of the containers to assess the
repairs required to return the containers to acceptable IICL condition. As part of the inspection
process, damages are categorized either as lessee damage or normal wear and tear. Items typically
designated as lessee damage include dents in the container, while items such as rust are typically
designated as normal wear and tear. In general, lessees are responsible for the lessee damage portion
of repair costs and we are responsible for normal wear and tear.

Customer Concentration. Revenue from our ten largest container lessees represented 65.8% of
container leasing revenue for the year ended December 31, 2017, with revenue from our two largest lessees,
CMA CGM and MSC Mediterranean Shipping Co, accounting for 15.9% and 14.7%, respectively, of container
leasing revenue, or $37.5 million and $34.7 million, respectively. The $37.5 million and $34.7 million of
revenue represented 10.8% and 10.0%, respectively, of our total revenue for the period.

Proprietary Real-time Information Technology System. Our proprietary real-time information

technology system tracks all of our containers individually by container number, provides design speciﬁcations
for the containers, tracks on-lease and off-lease transactions, matches each on-lease unit to a lease contract and
each off-lease unit to a depot contract, maintains the major terms for each lease contract, tracks accumulated
depreciation, calculates the monthly bill for each container lessee and tracks and bills for container repairs.
Most of our depot activity is reported electronically, which enables us to prepare container lessee bills and
calculate ﬁnancial reporting information more efficiently.

In addition, our system allows our lessees to conduct business with us through the Internet. This allows
our lessees to review our container inventories, monitor their on-lease information, view design speciﬁcations
and receive information on maintenance and repair. Many of our lessees receive billing and on- and off- lease
information from us electronically.

Our Suppliers. We purchase most of our containers in China from manufacturers that have met our
qualiﬁcation requirements. We are currently not dependent on any single manufacturer. We have long-standing
relationships with all of our major container suppliers. Our technical services personnel review the designs for
our containers and periodically audit the production facilities of our suppliers. In addition, we contract with
independent third-party inspectors to monitor production at factories while our containers are being produced.
This provides an additional layer of quality control and helps ensure that our containers are produced in
accordance with our speciﬁcations.

Our Competition. We compete primarily with other container leasing companies, including both larger

and smaller lessors. We also compete with bank leasing companies offering long-term operating leases and
ﬁnance leases, and container shipping lines, which sometimes lease their excess container inventory. Other
participants in the shipping industry, such as container manufacturers, may also decide to enter the container
leasing business. It is common for container shipping lines to utilize several leasing companies to meet their
container needs and to minimize reliance on any one individual leasing company.

Our competitors compete with us in many ways, including pricing, lease ﬂexibility, supply reliability,

customer service and the quality and condition of containers. Some of our competitors have greater ﬁnancial
resources than we do, or are affiliates of larger companies. We emphasize the quality of our ﬂeet, supply
reliability and high level of customer service to our container lessees. We focus on ensuring adequate
container availability in high-demand locations, dedicate large portions of our organization to building
relationships with lessees, maintain close day-to-day coordination with lessees and have developed a
proprietary information technology system that allows our lessees to access real-time information about their
containers.

7

Seasonality. We have historically experienced increased seasonal demand for containers in the second

and third quarters of the year. However, equipment rental revenue may ﬂuctuate signiﬁcantly in future periods
based upon the level of demand by container shipping lines for leased containers, our ability to maintain a
high utilization rate of containers in our total ﬂeet, and changes in per diem rates for leases.

Rail Leasing

Fleet Overview. We own a ﬂeet of railcars of various types including: 50ft and 60ft box cars for paper

and forest products; covered hoppers for grain, cement, sand, plastic pellets and many other industrial
products; general purpose tank cars that are used to transport food-grade and other liquid and gaseous
commodities; gondolas for coal and steel; and general service ﬂat cars. We owned 7,172 railcars as of
December 31, 2017.

In 2015 we entered into a multi-year railcar order (the ‘‘Agreement’’) with a railcar manufacturer. Under
the Agreement, we committed to purchase 2,000 railcars of various types for use on the North American rail
system, for a total investment expected to be in excess of $200 million. In 2017, we entered into an
amendment to the Agreement, by which we modiﬁed the type of railcars yet to be delivered as of the effective
date of the amendment, reduced the overall baseline pricing and revised the amount and delivery dates for the
various car types. As of December 31, 2017, 1,267 railcars had been delivered under the Agreement; the
remaining 733 cars are to be delivered in 2018 at a cost of $78.5 million.

Overview of Our Leases. We offer multiple lease options to our railcar customers, including full service

leases, net operating leases and per diem leases. Our full service leases provide our customers with
comprehensive management services including maintenance and the payment of taxes. Net operating leases
allow customers to manage and pay the cost of operating and maintaining railcars themselves. Our per diem
lease product enables customers to pay through a settlement process on an hourly and mileage basis.

Customer Concentration. Our railcar customers are typically industrial companies who ship their
products or raw materials by rail. Our customers are generally large, creditworthy, industrial companies.
Additionally, we work with a number of North American Class I Railroads and regional carriers. Revenue
from our ten largest customers represented 47.8% of rail leasing revenue for the year ended December 31,
2017, with no single customer generating more than 10% of our rail leasing revenue.

Our Competition. We function in a highly competitive marketplace that includes large and small
operating lessors, ﬁnancial institutions with passive leasing enterprises, captive leasing companies owned by
manufacturers and at times with shippers holding large and diverse ﬂeets of railcars. We compete on the basis
of customer relationships, lease rate, maintenance expertise, service capability and availability of railcars.

Logistics

Overview of Our Services. We offer comprehensive logistics services including intermodal, truck
brokerage, port drayage, warehousing, international ocean freight and freight forwarding, as well as the
arrangement and coordination of international air freight services and customs brokerage. Through our
network of transportation carriers and equipment providers, we arrange for the movement of our customers’
freight. We contract with railroads to provide transportation for the line-haul portion of the shipment and with
local trucking companies, known as ‘‘drayage companies,’’ for pickup and delivery. We may also offer use of
our own CAI equipment for domestic beneﬁcial cargo owner (BCO) movements. As part of our intermodal
and truck brokerage services, we negotiate and bundle rates for our customers, track shipments in transit, and
facilitate the handling of claims for freight loss or damage on behalf of our customers. We also provide
international export and import services for full container loads, less than container loads, perishable cargo,
project cargo, and airfreight across the globe.

We have a network of logistics professionals dedicated to developing, implementing and operating
customized logistics solutions. We offer a wide range of transportation management services and technology
solutions including shipment optimization, load consolidation, mode selection, carrier management, load
planning and execution and web-based shipment visibility.

8

Customer Concentration. We provide services to customers in a wide variety of industries, including
consumer products, retail and durable goods. Revenue from our ten largest customers represented 39.7% of
logistics revenue for the year ended December 31, 2017, with no single customer generating more than 10%
of our logistics revenue.

Our Competition. The transportation services industry is highly competitive. We compete against other
logistics companies, third party brokers, asset-backed trucking companies and shipping lines that market their
own intermodal and international shipping services. Several large trucking companies have entered into
agreements with railroads to market intermodal services nationwide. Competition is based primarily on freight
rates, quality of services, reliability, transit time and scope of operations. We believe we have a strong
competitive advantage being able to offer customers a variety of services under one organization. Few, if any,
of our competitors can offer customers leasing of containers, sale of used containers, rail service, nationwide
truck brokerage and international export/import services. This distinct advantage, along with the cross selling
between all of our divisions, is expected to provide CAI with signiﬁcant opportunities to increase market
share.

Relationship with Railroads. A key element of our business strategy is to strengthen our close working
relationship with the major railroads in the United States and Canada. Due to our size and relative importance,
some railroads have dedicated support personnel to focus on our day-to-day service requirements. We have
relationships with all seven of the Class 1 freight railroads, and our senior executives meet with each of the
railroads on a regular basis to discuss major strategic issues concerning intermodal transportation.

Transportation rates are market driven. We sometimes negotiate with the railroads or other major service

providers on a route or customer speciﬁc basis. Consistent with industry practice, some of the rates we
negotiate are special commodity quotations (SCQs), which provide discounts from published price lists based
on competitive market factors and are designed by the railroads or major service providers to attract new
business or to retain existing business. SCQ rates are generally issued for the account of a single Intermodal
Marketing Company (IMC). SCQ rates apply to speciﬁc customers in speciﬁed shipping lanes for a speciﬁc
period of time, usually up to 12 months. Other transactional or spot market business is negotiated on a daily
basis, dependent on capacity and dynamic pricing, consistent with existing market conditions.

Relationship with Drayage Companies. We have a ‘‘Quality Drayage Program,’’ under which

participants commit to provide high quality drayage service along with clean and safe equipment, maintain a
deﬁned on-time performance level and follow speciﬁed procedures designed to minimize freight loss and
damage. We negotiate drayage rates for transportation between speciﬁc origin and destination points.

Relationship with Trucking Companies. Our truck brokerage operation has relationships with more
than 14,000 trucking companies that we use to transport freight. Our truck brokerage operation handles the
administrative and regulatory aspects of the trucking company relationship including an eight-step vetting
process. Our relationships with these trucking companies are important since these relationships determine
pricing, load coverage and overall service.

Relationship with Shipping Lines. Our international division has relationships with every major
shipping line providing a worldwide network of shipping options based on price and service for export and
import cargoes. These relationships enable us to provide a basket of options that best suit the needs of our
customers at any given moment. Supported by a world-wide agency network, we are able to provide the best
price and service option anywhere in the world. Additional value and customized solutions can be
accomplished by offering use of our own CAI equipment for domestic and international BCO movements.

Risk Management and Insurance. We require all drayage companies participating in our Quality
Drayage Program to carry general liability insurance, truckman’s auto liability insurance and cargo insurance.
Railroads, which are self-insured, provide limited cargo protection per shipment. To cover freight loss or
damage our carriers are carefully vetted to ensure all cargo insurance requirements are in place and monitored.
We also carry contingent cargo insurance to protect from any lapse in a carrier’s primary insurance.

9

Credit Control

We provide services for container shipping lines, freight forwarders, railroads and other companies that

meet our credit criteria. Our credit policy sets different maximum exposure limits depending on our
relationship and previous experience with each customer. Credit criteria may include, but are not limited to,
trade route, country, business climate, social and political climate, assessments of net worth, asset ownership,
bank and trade credit references, credit bureau reports (including those from Dynamar), operational history
and ﬁnancial strength. We monitor our customers’ performance on an ongoing basis. Our credit control
processes are aided by the long payment experience we have with most of our customers, our broad network
of relationships that provide current information about our customers’ market reputations and our focus on
collections.

Environmental Matters

We are subject to federal, state, local and foreign laws and regulations relating to the protection of the

environment, including those governing the discharge of pollutants to air and water, the management and
disposal of hazardous substances and wastes and the cleanup of contaminated sites. We could incur substantial
costs, including cleanup costs, ﬁnes and third-party claims for property or natural resource damage and
personal injury, as a result of violations of environmental laws and regulations in connection with our or our
lessees’ current or historical operations. Under some environmental laws in the United States and certain other
countries, the owner or operator of equipment may be liable for environmental damage, cleanup or other costs
in the event of a spill or discharge of material from the equipment without regard to the fault of the owner or
operator. While we typically maintain liability insurance coverage and typically require our lessees to provide
us with indemnity against certain losses, the insurance coverage is subject to large deductibles, limits on
maximum coverage and signiﬁcant exclusions and may not be sufficient or available to protect against any or
all liabilities and such indemnities may not cover or be sufficient to protect us against losses arising from
environmental damage.

Regulation

We are subject to regulations promulgated in various countries, including the United States, seeking to
protect the integrity of international commerce and prevent the use of equipment for international terrorism or
other illicit activities. For example, the Container Security Initiative, the Customs-Trade Partnership Against
Terrorism and Operation Safe Commerce are among the programs administered by the U.S. Department of
Homeland Security that are designed to enhance security for cargo moving throughout the international
transportation system by identifying existing vulnerabilities in the supply chain and developing improved
methods for ensuring the security of containerized cargo entering and leaving the United States. Moreover, the
International Convention for Safe Containers, 1972, as amended, adopted by the International Maritime
Organization, applies to new and existing containers and seeks to maintain a high-level of safety of human
life in the transport and handling of containers by providing uniform international safety regulations. As these
regulations develop and change, we may incur increased compliance costs due to the acquisition of new,
compliant equipment and/or the adaptation of existing equipment to meet new requirements imposed by such
regulations.

Our rail operations are subject to various laws, rules, and regulations administered by authorities in
jurisdictions where we do business; the United States, Canada and Mexico. In the United States, for example,
our railcar ﬂeet is subject to safety, operations, maintenance, and mechanical standards, rules, and regulations
enforced by various federal and state agencies and industry organizations, including the U.S. Department of
Transportation, the Federal Railroad Administration, and the Association of American Railroads. State agencies
regulate some health and safety matters related to rail operations not otherwise preempted by federal law. As
these regulations develop and change, we may incur increased compliance costs due to additional maintenance
or substantial modiﬁcation or refurbishment of our railcars to meet new requirements imposed by such
regulations. In addition, violations of these rules and regulations can result in substantial ﬁnes and penalties,
including potential limitations on operations or forfeitures of assets.

10

Our domestic logistics business is licensed by the Department of Transportation as brokers in arranging
for the transportation of general commodities by motor carriers and railroads. To the extent that we perform
truck brokerage and intermodal services, we do so under these licenses. The Department of Transportation
prescribes qualiﬁcations for acting in this capacity, including a surety bond that we have posted. To date,
compliance with these regulations has not had a material adverse effect on our results of operations or
ﬁnancial condition. However, the transportation industry is subject to legislative or regulatory changes that can
affect the economics of the industry by requiring changes in operating practices or inﬂuencing the demand for,
and cost of providing, transportation services. Our international freight forwarding business is regulated by the
Federal Maritime Commission (FMC). We have our own tariff on ﬁle with the FMC and are required to have
a bond for both our freight forwarding and NVOCC businesses.

Employees

As of December 31, 2017, we had 215 employees worldwide. We are not a party to any collective

bargaining agreements. We believe that relations with our employees are good.

Available Information

Our Internet website address is http://www.capps.com. Our Annual Reports on Form 10-K, Quarterly
Reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports ﬁled or furnished
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (Exchange Act) are
available free of charge through our website as soon as reasonably practicable after they are electronically
ﬁled with, or furnished to, the SEC. Also, copies of our ﬁlings with the SEC will be made available, free of
charge, upon written request to the Company. The information found on, or otherwise accessible through, our
website is not incorporated by reference into, nor does it form a part of, this Annual Report on Form 10-K, or
any other document that we ﬁle with the SEC.

11

ITEM 1A: RISK FACTORS

In addition to the other information contained in this Annual Report on Form 10-K, we have identiﬁed

the following risks and uncertainties that may have a material adverse effect on our business, ﬁnancial
condition, results of operations and cash ﬂows. Investors should carefully consider the risks described below
before making an investment decision. The risks described below are not the only ones we face. Additional
risks not presently known to us or that we currently believe are immaterial may also impair our business
operations. Our business could be harmed by any of these risks. The trading price of our common stock could
decline due to any of these risks and investors may lose all or part of their investment. This section should be
read in conjunction with our audited consolidated ﬁnancial statements and related notes thereto, and
‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations’’ contained in this
Annual Report on Form 10-K.

Risks Related to Container Leasing

The demand for leased containers is particularly tied to international trade. If international trade were
to decrease, it could reduce demand for container leasing, which would materially adversely affect our
business, ﬁnancial condition and results of operations.

A substantial portion of our containers are used in trade involving goods being shipped from exporting
countries (e.g., China and other Asian countries) to importing countries (e.g., the United States or European
nations). The willingness and ability of international consumers to purchase foreign goods is dependent upon
political support for an absence of government-imposed barriers to international trade in goods and services.
For example, international consumer demand for foreign goods is related to price. Therefore, if the price
differential between foreign goods and domestically-produced goods were to decrease due to increased tariffs
on the import of foreign goods, strengthening in the applicable foreign currencies relative to domestic
currencies, rising foreign wages, increasing input or energy costs or other factors, then demand for foreign
goods could decrease. This in turn could result in reduced demand for container leasing. A similar reduction in
demand for container leasing could result from an increased use of quotas or other technical barriers to restrict
trade. The current regime of relatively free trade may not continue, which would materially adversely affect
our business, ﬁnancial condition and results of operations.

The current U.S. Government has withdrawn from certain international trade agreements (i.e. the Trans

Paciﬁc Partnership) and has announced its intention to renegotiate some existing trade agreements (i.e.
NAFTA). Any changes in international trade agreements may lead to the implementation of tariffs, border
taxes or other measures that could impact the level of trade between the U.S. and other countries, including
countries in Asia and Mexico. Any such changes to trade agreements or the implementation of tariffs could
have a material impact on the purchase of foreign goods, and negatively impact our customers and the volume
of container and rail shipments, which would materially adversely affect our business, ﬁnancial condition and
results of operations.

Market conditions could weaken due to a combination of factors, including signiﬁcant declines in steel
prices, new container prices, used container prices and slower trade growth which could lead to lower
demand for containers.

Market conditions could weaken leading to reduced investment, a lack of growth and a signiﬁcant

reduction in our proﬁtability. For example, in recent years there was an overall decline in worldwide
commodity prices and, in particular, steel prices, which declined approximately 40% from October 2014
through December 2015. World containerization trade growth decelerated signiﬁcantly during 2015 and trade
growth remained weak in 2016. The decline in steel prices, along with slower trade growth resulted in a
reduced demand for containers and contributed to a signiﬁcant decline in the price of new containers. New
container prices declined during 2015 and reached a low point of approximately $1,250 in the ﬁrst quarter of
2016. Sale prices for used containers decreased signiﬁcantly in 2015 and into 2016, resulting in losses on the
sale of equipment. If steel prices decline and the market conditions we saw in 2015 and 2016 return, our
proﬁtability will decline, which could limit the availability of our liquidity and capital resources and therefore
constrain our ability to repay debt, invest in additional containers or repurchase our common shares.

12

Container leasing demand can be negatively affected by numerous market factors as well as external
political and economic events that are beyond our control. Decreasing leasing demand could have a
material adverse effect on our business, ﬁnancial condition, results of operations and cash ﬂows.

Demand for containers depends largely on the rate of world trade and economic growth. Demand for

leased containers is also driven by our customers’ ‘‘lease vs. buy’’ decisions. Cyclical recessions can
negatively affect lessors’ operating results because during economic downturns or periods of reduced trade,
shipping lines tend to lease fewer containers, or lease containers only at reduced rates, and tend to rely more
on their own ﬂeets to satisfy a greater percentage of their requirements. As a result, during periods of weak
global economic activity, container lessors like ourselves typically experience decreased leasing demand,
decreased equipment utilization, lower average rental rates, decreased leasing revenue, decreased used
container resale prices and signiﬁcantly decreased proﬁtability. These effects can be severe.

For example, our proﬁtability decreased signiﬁcantly from the third quarter of 2008 to the third quarter of

2009 due to the effects of the global ﬁnancial crisis, and proﬁtability would have decreased further if trade
activity did not start to recover at the end of 2009. Starting in 2015 and continuing through 2016, our
operating performance and proﬁtability were also negatively impacted due to slower global trade growth
resulting in reduced demand for leased containers, decreases in lease rental revenue, decreased used container
sales prices, and higher operating costs. If these conditions return, our proﬁtability will be negatively affected,
which could constrain our ability to invest in additional containers or repurchase our common shares.

Other general factors affecting demand for leased containers, container utilization and per diem rental

rates include:

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available supply and prices of new and used containers;

changes in the operating efficiency of our customers;

economic conditions and competitive pressures in the shipping industry;

shifting trends and patterns of cargo traffic, including a reduction in exports from Asian nations or
increased trade imbalances;

the availability and terms of container ﬁnancing;

ﬂuctuations in interest rates and foreign currency values;

overcapacity or undercapacity of the container manufacturers;

the lead times required to purchase containers;

the number of containers purchased by competitors and container lessees;

container ship ﬂeet overcapacity or undercapacity;

increased repositioning by container shipping lines of their own empty containers to higher-demand
locations in lieu of leasing containers from us;

consolidation or withdrawal of individual container lessees in the container shipping industry;

import/export tariffs and restrictions;

customs procedures, foreign exchange controls and other governmental regulations;

natural disasters that are severe enough to affect local and global economies;

political and economic factors, including any changes in international trade agreements; and

future regulations which could restrict our current business practices and increase our cost of doing
business.

13

All of these factors are inherently unpredictable and beyond our control. These factors will vary over
time, often quickly and unpredictably, and any change in one or more of these factors may have a material
adverse effect on our business, ﬁnancial condition, results of operations and cash ﬂows. Many of these factors
also inﬂuence decisions by our customers to lease or buy containers. Should one or more of these factors
inﬂuence our customers to buy a larger percentage of the containers they operate, our utilization rate would
decrease, resulting in decreased revenue and increased storage and repositioning costs.

Lease rates may decrease due to a decrease in new container prices, weak leasing demand, increased
competition or other factors, resulting in reduced revenues, lower margins, and reduced proﬁtability
and cash ﬂows.

Market lease rates are typically a function of, among other things, new equipment prices (which are
heavily inﬂuenced by steel prices), interest rates, the type and length of the lease, the equipment supply and
demand balance at a particular time and location, and other factors more fully described below. A decrease in
lease rates can have a materially adverse effect on our leasing revenues, proﬁtability and cash ﬂow. For
example, the low container prices experienced in 2016, together with low interest rates, resulted in market
lease rates reaching historically low levels.

A decrease in market lease rates negatively impacts the lease rates on both new container investments
and existing containers in our ﬂeet. Most of our existing containers are on operating leases, which means that
the lease term is shorter than the expected life of the container, so the lease rate we receive for the container
is subject to change at the expiration of the current lease. Lower new container prices, widespread availability
of attractively priced ﬁnancing, and aggressive competition for new leasing transactions could put pressure on
market lease rates. As a result, during periods of low market lease rates, the average lease rate received for
our containers is negatively impacted by both the addition of new containers at low lease rates as well as, and
more signiﬁcantly, by the turnover of existing containers from leases with higher lease rates to leases with
lower lease rates. We have a large number of historically high rate leases that expire between 2018 and 2020
and those that have expired or been renegotiated have been re-priced at today’s lower lease rates.

A reduction in the price of new containers could harm our business, results of operations and ﬁnancial
condition.

New container prices have been increasing since their lows in the ﬁrst quarter of 2016. If new container
prices decreased, however, the per diem lease rates for new leases of older, off-lease containers would also be
expected to decrease and the prices obtained for containers sold at the end of their useful life would also be
expected to decrease. Between the beginning of 2014 and the ﬁrst quarter of 2016, due primarily to decreases
in steel prices and other macro-economic factors outside of our control, new container pricing and the sale
prices of containers sold at the end of their useful life declined. Although new and used container prices
recovered during 2016 and 2017, if the price of new containers declines such that market per diem lease rates
or resale values for containers are reduced, our revenue and income could decline. A continuation of these
factors could harm our business, ﬁnancial condition, results of operations and cash ﬂows, even if a sustained
reduction in price would allow us to purchase new containers at a lower cost.

We face risks associated with re-leasing containers after their initial long-term lease.

Containers used in our ﬂeet have an average useful life that is generally between 12 and 15 years. When
we purchase newly manufactured containers, we typically lease them out under long-term leases with terms of
3 to 8 years at a lease rate that is correlated to the price paid for the container. As containers leased under
term leases are not leased out for their full economic life, we face risks associated with re-leasing containers
after their initial long-term lease at a rate that continues to provide a reasonable economic return based on the
initial purchase price of the container. If prevailing container lease rates decline signiﬁcantly between the time
a container is initially leased out and when its initial long-term lease expires, or if overall demand for
containers declines, we may be unable to earn a sufficient lease rate from the re-leasing of containers when
their initial term leases expire. This could adversely affect our business, ﬁnancial condition, results of
operations and cash ﬂows.

14

Our customers may decide to lease fewer containers. Should shipping lines decide to buy a
larger percentage of the containers they operate, our utilization rate and level of investment would
decrease, resulting in decreased leasing revenues, increased storage costs, increased repositioning costs
and lower growth.

We, like other suppliers of leased containers, are dependent upon decisions by shipping lines to lease
rather than buy their container equipment. Should shipping lines decide to buy a larger percentage of the
containers they operate, our utilization rate would decrease, resulting in decreased leasing revenues, increased
storage costs and increased positioning costs. A decrease in the portion of leased containers operated by
shipping lines would also reduce our investment opportunities and signiﬁcantly constrain our growth. Most of
the factors affecting the decisions of our customers are outside of our control.

Used container sale prices may decrease, leading to losses on the sale of used rental equipment.

Although our revenues primarily depend upon equipment leasing, our proﬁtability is also affected by the

gains or losses we realize on the sale of used containers because, in the ordinary course of our business, we
sell certain containers when they are returned to us. The volatility of the selling prices and gains or losses
from the disposal of such equipment may be signiﬁcant. Used container selling prices, which can vary
substantially, depend upon, among other factors, the cost of new containers, the global supply and demand
balance for containers, the location of the containers, the supply and demand balance for used containers at a
particular location, the repair condition of the container, refurbishment needs, materials and labor costs and
equipment obsolescence. Most of these factors are outside of our control.

Containers are typically sold if it is in our best interest to do so, after taking into consideration earnings
prospects, book value, remaining useful life, condition and repair costs, storage costs, suitability for leasing or
other uses, and the prevailing local sales price for containers. Gains or losses on the disposition of used
containers will ﬂuctuate and may be signiﬁcant if we sell large quantities of used containers.

Used container selling prices and the gains or losses that we have recognized from selling used

containers have varied widely over recent years. Selling prices for used container and our disposal gains were
exceptionally high from 2010 to 2012 due to a generally tight global supply and demand balance for
containers. Since the beginning of 2013, due primarily to decreases in steel prices and other macro-economic
factors outside of our control, new container pricing and the sale prices of containers sold at the end of their
useful life declined. During 2015 and 2016, disposal prices were close to, and in many cases below, our
residual values which resulted in losses being incurred on the sales of used equipment. As a result of
consistent losses being recorded on the sale of 40-foot high cube dry van containers, we reduced the residual
value for these containers from $1,650 to $1,400 per container, effective July 1, 2016, which resulted in an
increase in depreciation expense of $4.4 million and $5.4 million for 2017 and 2016, respectively. During
2017, sales prices for used containers have recovered, resulting in gains being recognized on the sale of used
equipment. If used container prices were to decrease once again, we may incur losses on the sale of used
containers, our residual values may need to be reduced further, resulting in increased depreciation expense,
and we may incur impairment charges on such equipment. A decline in these factors could have a material
adverse effect on our business, ﬁnancial condition, results of operations and cash ﬂows.

We may incur signiﬁcant costs to reposition containers.

When lessees return containers to locations where supply exceeds demand, we may make a decision to

reposition containers to higher demand areas rather than sell the container and realize a loss on sale.
Repositioning expenses vary depending on geographic location, distance, freight rates and other factors, and
may not be fully covered by drop-off charges collected from the last lessee of the containers or pick-up
charges paid by the new lessee. We seek to limit the number of units that can be returned and impose
surcharges on containers returned to areas where demand for such containers is not expected to be strong.
However, market conditions may not enable us to continue such practices. In addition, we may not accurately
anticipate which port locations will be characterized by high or low demand in the future, and our current
contracts will not protect us from repositioning costs if ports that we expect to be high-demand ports turn out
to be low-demand ports at the time leases expire.

15

Lessee defaults may adversely affect our business, results of operations and ﬁnancial condition by
decreasing revenue and increasing storage, repositioning, collection and recovery expenses.

Our container equipment is leased to numerous lessees. Lessees are required to pay rent and indemnify
us for damage to or loss of equipment. Lessees may default in paying rent and performing other obligations
under their leases. A delay or diminution in amounts received under the leases (including leases on our
managed equipment), or a default in the performance of maintenance or other lessee obligations under the
leases could adversely affect our business, ﬁnancial condition, results of operations and cash ﬂows and our
ability to make payments on our debt.

Our cash ﬂows from container equipment, principally container rental revenue, management fee revenue,

gain on disposition of used equipment and commissions earned on the sale of equipment on behalf of
equipment investors, are affected signiﬁcantly by the ability to collect payments under leases and the ability to
replace cash ﬂows from terminating leases by re-leasing or selling equipment on favorable terms. All of these
factors are subject to external economic conditions and the performance by lessees and service providers that
are not within our control.

In addition, when lessees default, we may fail to recover all of our equipment, and the equipment we do
recover may be returned in damaged condition or to locations where we will not be able to efficiently re-lease
or sell the equipment. As a result, we may have to repair and reposition the equipment to other places where
we can re-lease or sell it, and we may lose revenue and incur additional operating expenses in repossessing,
repositioning and storing the equipment.

We believe that the risk of lessee defaults remains high. Excess vessel capacity over the last several years

has led to low ocean freight rates, which has resulted in large ﬁnancial losses for certain carriers. For
example, Hanjin Shipping Co. Ltd (Hanjin), previously the world’s 7th largest container shipping line, declared
bankruptcy on August 31, 2016, and a second major shipping line entered into restructuring negotiations with
its creditors, which was successfully completed in 2016. We expect excess vessel capacity, and future ﬁnancial
commitments for new capacity, to persist and freight rates to remain under pressure, which could adversely
affect the credit worthiness of our customers. The Hanjin bankruptcy resulted in us recording bad debt
expense of $2.5 million and an impairment charge of $2.0 million in 2016. Additional large lessee defaults
could have a material adverse effect on our business, ﬁnancial condition, results of operations and cash ﬂow.

We maintain insurance to reimburse the Company and third-party investors for customer defaults. The

insurance agreements are subject to deductibles of $3.0 million or $3.5 million per occurrence, depending on
the customer’s credit rating, and have signiﬁcant exclusions. In 2016, we ﬁled a signiﬁcant insurance claim as
a result of the Hanjin bankruptcy. As a result of this claim, and other factors, our level of insurance cover in
2018 is limited to $11.5 million or $12.0 million per occurrence and $18.0 million or $19.0 million in
aggregate, depending on the customer’s credit rating, and may not be sufficient to prevent us from suffering
material losses. Additional insurance claims made by the Company may result in such insurance not being
available to us in the future on commercially reasonable terms, or at all.

We may incur additional asset impairment charges and depreciation expense.

We incurred a charge of $24.5 million in 2015 to impair the carrying value of certain off-lease

equipment. Additional asset impairment charges may result from the occurrence of unexpected adverse events
or management decisions that impact our estimates of expected cash ﬂows generated from our long-lived
assets. We review our long-lived assets for impairment when events or changes in circumstances indicate the
carrying value of an asset may not be recoverable. We may be required to recognize additional asset
impairment charges in the future as a result of prolonged reductions in demand for speciﬁc container types, an
extended weak economic environment, persistent challenging market conditions, events related to particular
customers or asset type, or as a result of asset or portfolio sale decisions by management. If an asset, or group
of assets, is considered to be impaired, it may also indicate that the residual value of the associated equipment
type needs to be reduced. We reduced the residual value for 40-foot high cube dry van containers from $1,650
to $1,400 per container, effective July 1, 2016, which resulted in an increase in depreciation expense of
$4.4 million and $5.4 million for 2017 and 2016, respectively. If residual values of our rental equipment are
lowered further, then our depreciation expense will increase, which would have an adverse impact on our
business, ﬁnancial condition and results of operations.

16

We derive a substantial portion of our revenue from a limited number of container lessees. The loss of,
or reduction in business by, any of these container lessees, or a default from any large container lessee,
could result in a signiﬁcant loss of revenue and cash ﬂow.

We have derived, and believe that we will continue to derive, a signiﬁcant portion of our revenue and

cash ﬂow from a limited number of container lessees. Revenue from our ten largest container lessees
represented 65.8% of total revenue for this segment for the year ended December 31, 2017, with revenue from
our two largest container lessees accounting for 15.9% and 14.7%, respectively, of container lease revenue, or
$37.5 million and $34.7 million, respectively. As our business grows, and as consolidation continues among
our shipping line customers, we expect the proportion of revenue generated by our larger customers to
continue to increase. Recent consolidation among our major shipping line customers includes Cosco and
China Shipping Container Lines in 2016, and between Maersk and Hamburg Süd in 2017. The loss of such a
customer would have a material adverse impact on our business, ﬁnancial condition, results of operations and
cash ﬂows. In addition, a default by any of our largest lessees would result in a major reduction in our leasing
revenue, large repossession expenses, potentially large lost equipment charges and a material adverse impact
on our performance and ﬁnancial condition. Although we maintain insurance against customer defaults, our
insurance is limited and may not be sufficient to cover such a default.

Sustained Asian economic, social or political instability could reduce demand for leasing.

Many of our customers are substantially dependent upon shipments of goods exported from Asia. From

time to time, there have been economic disruptions, ﬁnancial turmoil, natural disasters and political instability
in this region. If these events were to occur in the future, they could adversely affect our equipment lessees
and the general demand for shipping and lead to reduced demand for leased equipment or otherwise adversely
affect us. Currently China is transitioning from an export based economy to a domestic demand economy. Any
consequent reductions in demand for leased equipment could adversely impact our business, ﬁnancial
condition, results of operations and cash ﬂows.

Consolidation and concentration in the container shipping industry could decrease the demand for
leased containers.

We primarily lease containers to container shipping lines. The container shipping lines have historically

relied on a large number of leased containers to satisfy their needs. Consolidation of major container shipping
lines, such as between Cosco and China Shipping Container Lines in 2016, and between Maersk and Hamburg
Süd in 2017, or the creation of additional operating alliances between shipping lines, could create efficiencies
for the shipping lines and decrease demand for leased containers, because they may be able to fulﬁll a larger
portion of their needs through their owned container ﬂeets. It would also create increased concentration of
credit risk if the number of our container lessees decreases due to consolidation. Additionally, large container
shipping lines with signiﬁcant resources could choose to manufacture their own containers, which would
decrease their demand for leased containers and could have an adverse impact on our business, ﬁnancial
condition, results of operations and cash ﬂows. Finally, decreased demand from shipping companies for leased
containers could also occur due to consolidation caused by the ﬁnancial failure of container shipping
companies, such as the bankruptcy of Hanjin during 2016.

Changes in market price, availability or transportation costs of containers could adversely affect our
ability to maintain our supply of containers.

We currently purchase almost all of our containers from manufacturers based in China. If it became more

expensive for us to procure containers in China or to transport these units at a low cost from China to the
locations where they are needed by our container lessees because of changes in exchange rates between the
U.S. Dollar and Chinese Yuan, further consolidation among container suppliers, increased tariffs imposed by
the United States or other governments or for any other reason, we may have to seek alternative sources of
supply. While we are not currently dependent on any single current manufacturer of our containers, we may
not be able to make alternative arrangements quickly enough to meet our container needs, and the alternative
arrangements may increase our costs.

17

It may become more expensive for us to store our off-hire containers.

We are dependent on third-party depot operators to repair and store our equipment in port areas
throughout the world. In many of these locations the land occupied by these depots is increasingly being
considered as prime real estate. Accordingly, local communities are considering increasing restrictions on
depot operations which may increase their costs of operation and in some cases force depots to relocate to
sites further from port areas. Additionally, depots in prime locations may become ﬁlled to capacity based on
market conditions and may refuse additional containers due to space constraints. This could require us to enter
into higher-cost storage agreements with third-party depot operators in order to accommodate our customers’
turn-in requirements and could result in increased costs and expenses for us. If these changes affect a large
number of our depots it could signiﬁcantly increase the cost of maintaining and storing our off-hire containers.

We face extensive competition in the equipment leasing industry.

We may be unable to compete favorably in the highly competitive equipment leasing business. We
compete with a number of major leasing companies, many smaller lessors, manufacturers of equipment,
companies and ﬁnancial institutions offering ﬁnance leases, promoters of equipment ownership and leasing as
a tax-efficient investment, container shipping lines (which sometimes lease their excess container stocks), and
suppliers of alternative types of containers for freight transport. Some of these competitors have greater
ﬁnancial resources and access to capital than we do. Additionally, some of these competitors may have large,
underutilized inventories of equipment, which could lead to signiﬁcant downward pressure on per diem rates,
margins and prices of equipment.

Our business requires large amounts of working capital to fund our operations. We are aware that some

of our competitors have had ownership changes and there has been consolidation in the industry in
recent years. As a consequence, these competitors may have greater resources available to aggressively seek to
expand their market share. This could include offering lease rates with which we may not be able to
effectively compete. We may not be able to compete successfully against these competitors.

Competition among equipment leasing companies depends upon many factors, including, among others,

per diem rates; lease terms, including lease duration, drop-off restrictions and repair provisions; customer
service; and the location, availability, quality and individual characteristics of equipment units. The highly
competitive nature of our industry may reduce lease rates and margins and undermine our ability to maintain
our current level of container utilization or achieve our growth plans.

The international nature of our business exposes us to numerous risks.

Our ability to enforce lessees’ obligations will be subject to applicable law in the jurisdiction in which

enforcement is sought. As containers are predominantly located on international waterways, it is not possible
to predict, with any degree of certainty, the jurisdictions in which enforcement proceedings may be
commenced. For example, repossession from defaulting lessees may be difficult and more expensive in
jurisdictions in which laws do not confer the same security interests and rights to creditors and lessors as
those in the United States and in jurisdictions where recovery of containers from defaulting lessees is more
cumbersome. As a result, the relative success and expedience of enforcement proceedings with respect to
containers in various jurisdictions cannot be predicted.

We are also subject to risks inherent in conducting business across national boundaries, any one of which

could adversely impact our business. These risks include:

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regional or local economic downturns;

changes in governmental policy or regulation;

restrictions on the transfer of funds into or out of the countries in which we operate;

value-added tax and other sales-type taxes which could result in additional costs to us if they are not
properly collected or paid;

domestic and foreign customs and tariffs;

international incidents;

war, hostilities, terrorist attacks, piracy, or the threat of any of these events;

18

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government instability;

nationalization of foreign assets;

government protectionism;

compliance with export controls, including those of the U.S. Department of Commerce;

compliance with import procedures and controls, including those of the U.S. Department of
Homeland Security;

consequences from changes in tax laws, including tax laws pertaining to container investors;

potential liabilities relating to foreign withholding taxes;

labor or other disruptions at key ports;

difficulty in staffing and managing widespread operations;

restrictive local employment laws; and

restrictions on our ability to own or operate subsidiaries, make investments or acquire new
businesses in these jurisdictions.

One or more of these factors could impair our current or future international operations and, as a result,

harm our overall business, ﬁnancial condition, results of operations and cash ﬂows.

We may incur costs associated with new security regulations, which may adversely affect our business,
ﬁnancial condition and results of operations.

We may be subject to regulations promulgated in various countries, including the United States, seeking
to protect the integrity of international commerce and prevent the use of equipment for international terrorism
or other illicit activities. For example, the Container Security Initiative, the Customs-Trade Partnership Against
Terrorism and Operation Safe Commerce are among the programs administered by the U.S. Department of
Homeland Security that are designed to enhance security for cargo moving throughout the international
transportation system by identifying existing vulnerabilities in the supply chain and developing improved
methods for ensuring the security of containerized cargo entering and leaving the United States. Moreover, the
International Convention for Safe Containers, 1972 (CSC), as amended, adopted by the International Maritime
Organization, applies to new and existing containers and seeks to maintain a high level of safety of human
life in the transport and handling of containers by providing uniform international safety regulations. As these
regulations develop and change, we may incur compliance costs due to the acquisition of new, compliant
equipment and/or the adaptation of existing equipment to meet new requirements imposed by such regulations.
Additionally, certain companies are currently developing or may in the future develop products designed to
enhance the security of equipment transported in international commerce. Regardless of the existence of
current or future government regulations mandating the safety standards of intermodal shipping equipment,
our competitors may adopt such products or our equipment lessees may require that we adopt such products.
In responding to such market pressures, we may incur increased costs, which could have a material adverse
effect on our business, ﬁnancial condition, results of operations and cash ﬂows.

We operate in numerous tax jurisdictions and a taxing authority within any of these jurisdictions may
challenge our operating structure which could result in additional taxes, interest and penalties that
could materially impact our ﬁnancial conditions and our future ﬁnancial results.

We have structured our Company and its domestic and international subsidiaries to minimize our income

tax obligations in countries in which we operate. There can be no assurance that our tax structure and the
amount of taxes we pay in any of these countries will not be challenged by the relevant taxing authorities. If
the tax authorities challenge our tax positions or the amount of taxes paid for the purchase, lease or sale of
equipment in each jurisdiction in which we operate, we could incur substantial expenses associated with
defending our tax position as well as expenses associated with the payment of any additional taxes, penalties
and interest that may be imposed on us. The payment of these amounts could have an adverse material effect
on our business, ﬁnancial condition, results of operations and cash ﬂows.

19

Environmental liability may adversely affect our business and ﬁnancial condition.

We are subject to federal, state, local and foreign laws and regulations relating to the protection of the

environment, including those governing the discharge of pollutants to air, ground and water, the management
and disposal of hazardous substances and wastes and the cleanup of contaminated sites. We could incur
substantial costs, including cleanup costs, ﬁnes and costs arising out of third-party claims for property or
natural resource damage and personal injury, as a result of violations of or liabilities under environmental
laws and regulations in connection with our or our lessees’ current or historical operations. Under some
environmental laws in the United States and certain other countries, the owner or operator of a container may
be liable for environmental damage, cleanup or other costs in the event of a spill or discharge of material
from a container without regard to whether or not the spill or discharge was the fault of the owner or operator.
While we typically maintain liability insurance and typically require lessees to provide us with indemnity
against certain losses, insurance coverage may not be sufficient, or available, to protect against any or all
liabilities and such indemnities may not be sufficient to protect us against losses arising from environmental
damage. Moreover, our lessees may not have adequate resources, or may refuse to honor their indemnity
obligations and our insurance coverage is subject to large deductibles, coverage limits and signiﬁcant
exclusions.

Many countries, including the United States, restrict, prohibit or otherwise regulate the use of chemical

refrigerants due to their ozone depleting and global warming effects. Our refrigerated containers currently use
R134A or 404A refrigerant. While R134A and 404A do not contain CFCs (which have been restricted since
1995), the European Union has instituted regulations beginning in 2011 to phase out the use of R134A in
automobile air conditioning systems due to concern that the release of R134A into the atmosphere may
contribute to global warming. While the European Union regulations do not currently restrict the use of
R134A or 404A in refrigerated containers or trailers, it has been proposed that, beginning in 2025, R134A and
404A usage in refrigerated containers will be banned, although the ﬁnal decision has not yet been made.
Further, certain manufacturers of refrigerated containers, including the largest manufacturer of cooling
machines for refrigerated containers, have begun testing units that utilize alternative refrigerants, such as
carbon dioxide, that may have less global warming potential than R134A and 404A. If future regulations
prohibit the use or servicing of containers using R134A or 404A refrigerants, we could be forced to incur
large retroﬁtting expenses. In addition, refrigerated containers that are not retroﬁtted may become difficult to
lease, command lower rental rates and disposal prices, or may have to be scrapped.

Before 2010, foam insulation in the walls of intermodal refrigerated containers required the use of a

blowing agent that contained hydrochloﬂuorcarbons (CFCs, speciﬁcally HCFC-141b). Since 2010, our
manufacturers have phased out the use of this blowing agent in the manufacturing process, replacing that
blowing agent with cyclopentane, which contains no CFCs. However, we may still have intermodal
refrigerated containers in our ﬂeet that used HCFC-141b in their production. The European Union (EU)
prohibits the import and the placing on the market in the EU of intermodal containers with insulation made
with HCFC-141b (EU Regulation). However, the European Commission has recognized that notwithstanding
its regulation, under international conventions governing free movement of intermodal containers, the use of
such intermodal refrigerated containers admitted into EU countries on temporary customs admission should be
permitted. Each country in the EU has its own individual and different regulations to implement the EU
Regulation. We have procedures in place that we believe comply with the EU and country regulations.
However, if such intermodal refrigerated containers exceed their temporary customs admission period and/or
their custom admissions status changes (e.g., should such container be off-hired) and such intermodal
refrigerated containers are deemed placed on the market in the EU, or if our procedures are deemed not to
comply with EU or a country’s regulation, we could be subject to ﬁnes and penalties. Also, if future
international conventions or regulations prohibit the use or servicing of containers with foam insulation that
utilized this blowing agent during the manufacturing process, we could be forced to incur large retroﬁtting
expenses and those containers that are not retroﬁtted may become more difficult to lease and command lower
rental rates and disposal prices.

20

An additional environmental concern affecting our operations relates to the construction materials used in

our dry containers. The ﬂoors of dry containers are plywood, usually made from tropical hardwoods. Due to
concerns about the de-forestation of tropical rain forests and climate change, many countries that have been
the source of these hardwoods have implemented severe restrictions on the cutting and export of these woods.
Accordingly, container manufacturers have switched a signiﬁcant portion of production to more readily
available alternatives such as birch, bamboo, and other farm grown wood species. Container users are also
evaluating alternative designs that would limit the amount of plywood required and are also considering
possible synthetic materials to replace the plywood. These new woods or other alternatives have not proven
their durability over the typical 10 to 15 year life of a dry container, and if they cannot perform as well as the
hardwoods have historically, the future repair and operating costs for these containers could be signiﬁcantly
higher and the useful life of the containers may be decreased.

Use of counterfeit and improper refrigerant in refrigeration machines for refrigerated containers could
result in irreparable damage to the refrigeration machines, death or personal injury, and materially
impair the value of our refrigerated container ﬂeet.

There are reports of counterfeit and improper refrigerant gas being used to service refrigeration machines.

The use of this counterfeit gas has led to the explosion of several refrigeration machines within the industry.
A small number of these incidents have resulted in personal injury or death and, in all cases, the counterfeit
gas has led to irreparable damage to the refrigeration machines.

A testing procedure has been developed and approved by the IICL to determine whether counterfeit gas

has been used to service a refrigeration machine. These tests are carried out on our refrigeration machines
when they are off-hired and returned to a depot. If such tests are not proven safe and effective or if the use of
such counterfeit and improper refrigerant is more widespread than currently believed, the value of our
refrigerated container ﬂeet and our ability to lease refrigerated containers could be materially impaired and
could therefore have a material adverse effect on our business, ﬁnancial condition, results of operations and
cash ﬂows.

Certain liens may arise on our equipment.

Depot operators, repairmen and transporters may come into possession of our equipment from time to
time and have sums due to them from lessees or sub-lessees of equipment. In the event of nonpayment of
those charges by lessees or sub-lessees, we may be delayed in, or entirely barred from, repossessing
equipment, or be required to make payments or incur expenses to discharge liens on our equipment.

The lack of an international title registry for containers increases the risk of ownership disputes.

There is no internationally recognized system of recordation or ﬁling to evidence our title to containers
nor is there an internationally recognized system for ﬁling security interests in containers. Although we have
not incurred material problems with respect to this lack of an internationally recognized system, the lack of an
international title recordation system for containers could result in disputes with lessees, end-users, or third
parties who may improperly claim ownership of the containers.

Risks Related to Railcar Leasing

Weak economic conditions, ﬁnancial market volatility, and other factors may decrease customer demand
for our assets and services and negatively impact our business and results of operations.

We rely on continued demand from our customers to lease our railcars. Demand for railcars depends on

the markets for our customers’ products and services and the strength and growth of their businesses. Some of
our customers operate in cyclical markets, such as the steel, chemical, energy and construction industries,
which are susceptible to macroeconomic downturns and may experience signiﬁcant changes in demand over
time. Weakness in certain sectors of the economy in the United States and other parts of the world may make
it more difficult for us to lease certain types of railcars that are either returned at the end of a lease term or
returned as a result of a customer bankruptcy or default. We have experienced continued weakness in
macroeconomic conditions in the railcar business over the last year.

21

In many cases, demand for our assets also depends on our customers’ desire to lease, rather than buy, the

assets. Tax and accounting considerations, interest rates, and operational ﬂexibility, among other factors, may
inﬂuence a customer’s decision to lease or buy assets. We have no control over these external considerations,
and changes in these factors, including potential changes to lease accounting rules, could negatively impact
demand for our assets held for lease.

Additional factors, such as changes in harvest or production volumes, changes in supply chains, choices

in types of transportation assets, availability of substitutes and other operational needs may also inﬂuence
customer demand for our assets. Signiﬁcant declines in customer demand for our assets and services or
continued weakness in macroeconomic conditions in the railcar business could adversely affect our ﬁnancial
performance.

We may be unable to maintain assets on lease at satisfactory rates.

Our proﬁtability depends on our ability to lease railcars at satisfactory rates, sell railcars, and to re-lease

railcars upon lease expiration. Circumstances such as economic downturns, changes in customer behavior,
excess capacity in particular railcar types or generally in the marketplace, or other changes in supply or
demand can adversely affect asset utilization rates and lease rates. Economic uncertainty or a decline in
customer demand for our railcars could cause customers to request shorter lease terms and lower lease rates,
which may result in a decrease in our asset utilization rate and reduced revenues. Alternatively, customers may
seek to lock-in relatively low lease rates for longer terms, which may result in an adverse impact on current
or future revenues.

We enter long-term railcar purchase commitments that could subject us to material operational and
ﬁnancial risks.

In order to obtain committed access to a supply of newly built railcars on competitive terms, we have

entered into long-term supply agreements with manufacturers to purchase signiﬁcant numbers of newly built
railcars over a multi-year period. In many cases, we cannot economically cancel or materially reduce or
reschedule our orders under these purchase commitments. If economic conditions weaken during the term of a
long-term supply agreement, it is possible that we may be required to continue to accept delivery of, and pay
for, new railcars at times when it may be difficult for us to lease such railcars and our ﬁnancing costs may be
high, which could negatively affect our revenues and proﬁtability. For example, in 2015 we entered into a
multi-year railcar order (the ‘‘Agreement’’) with a railcar manufacturer to purchase 2,000 new railcars. In
2017, we entered into an amendment to the Agreement, by which we modiﬁed the type of railcars yet to be
delivered as of the date of the amendment. As of December 31, 2017, 1,267 railcars had been delivered under
the Agreement; the remaining 733 railcars are to be delivered in 2018 at a cost of $78.5 million. Due to a
weak and highly competitive railcar leasing environment, 598 of these cars currently remain off-lease. We
intend to place all of these railcars on multi-year leases, but if we are not able to do so at rates that are
sufficient to earn a return on our investment, it could have a material adverse effect on our business, ﬁnancial
condition, results of operations and cash ﬂows.

A signiﬁcant and sustained decrease in the price of crude oil and related products could reduce
customer demand for our railcars.

Demand for railcars that are used to transport commodities used in drilling operations, including frac
sand, is dependent on the demand for these commodities. Sustained low oil prices could cause oil producers to
curtail the drilling of new wells or cease production at certain existing wells that are uneconomical to operate
at current crude price levels. Reduced oil drilling activity could result in decreased demand for our railcars
used to transport the commodities used in drilling operations, such as frac sand.

Changes in railroad efficiency may adversely affect demand for our railcars.

Railroad infrastructure investments that improve efficiency or declines in rail traffic due to decreased

demand could increase the average speed at which railroads can operate their trains, which may reduce the
number of railcars needed for railroads to haul the same amount of cargo. Adverse weather conditions,
railroad mergers, and increase in rail traffic could result in slower transit times making rail transportation less
attractive to shippers versus other modes of transport. In each case, these changes could reduce demand for
our railcars and negatively impact revenue and our result of operations.

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A signiﬁcant decrease in lease renewals by our customers could negatively impact operations and
substantially increase our costs.

Decreases in customer demand for our railcars could increase the number of leases that are not renewed

upon expiration, resulting in the early return of railcars. Railcars that are returned by our customers often must
undergo maintenance and service work before being leased to new customers. A signiﬁcant increase in the
number of railcars requiring maintenance may negatively affect our operations and substantially increase
maintenance and other related costs. In addition, low demand for certain types of railcars in our ﬂeet may
make those railcars more difficult to lease to new customers if they are returned at the end of their existing
leases or following a customer default, which could negatively affect our results of operations.

Our rail operations are subject to various laws, rules, and regulations. If these laws, rules, and
regulations change or we fail to comply with them, it could have a signiﬁcant negative effect on our
business and proﬁtability.

Our rail operations are subject to various laws, rules, and regulations administered by authorities in
jurisdictions where we do business. In the United States, our railcar ﬂeet is subject to safety, operations,
maintenance, and mechanical standards, rules, and regulations enforced by various federal and state agencies
and industry organizations, including the U.S. Department of Transportation, the Federal Railroad
Administration, and the Association of American Railroads. State agencies regulate some health and safety
matters related to rail operations not otherwise preempted by federal law. Our business and railcar ﬂeet may
be adversely impacted by new rules or regulations, or changes to existing rules or regulations, which could
require additional maintenance or substantial modiﬁcation or refurbishment of our railcars, or could make
certain types of railcars inoperable or obsolete or require them to be phased out prior to the end of their useful
lives. In addition, violations of these rules and regulations can result in substantial ﬁnes and penalties,
including potential limitations on operations or forfeitures of assets.

We are subject to extensive environmental regulations and the costs of remediation may be material.

We are subject to extensive federal, state, and local environmental laws and regulations concerning,

among other things, the discharge of hazardous materials. Under some environmental laws in the
United States, the owner of a leased railcar may be liable for environmental damage, cleanup or other costs in
the event of a spill or discharge of material from a railcar without regard to the owner’s fault. We routinely
assess environmental liabilities, including our potential obligations and the possible amount of recoveries from
other responsible parties. Due to the regulatory complexities and the potential liability for the operations of
our lessees, it is possible environmental and remediation costs could adversely affect our ﬁnancial
performance.

We may incur future asset impairment charges.

We review long-lived assets for impairment regularly, or when circumstances indicate the carrying value
of an asset or investment may not be recoverable. Among other circumstances, the following may change our
estimates of the cash ﬂows we expect our long-lived assets will generate, which could require us to recognize
asset impairment charges:

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a weak economic environment or challenging market conditions;

new laws, rules or regulations affecting our assets, or changes to existing laws, rules or regulations;

events related to particular customers or asset types; and

asset portfolio sale decisions by management.

23

Our assets may become obsolete.

In addition to changes in laws, rules, and regulations that may make assets obsolete, changes in the

preferred method our customers use to ship their products, changes in demand for particular products, or a
shift by customers toward purchasing assets rather than leasing them may adversely impact us. Our customers’
industries are driven by dynamic market forces and trends, which are inﬂuenced by economic and political
factors. Changes in our customers’ markets may signiﬁcantly affect demand for our rail assets. A reduction in
customer demand or change in customers’ preferred method of product transportation could result in the
economic obsolescence of the assets leased by those customers.

Competition could result in decreased proﬁtability.

We operate in a highly competitive business environment. In certain cases, our competitors are larger
than we are and have greater ﬁnancial resources, higher credit ratings, and a lower cost of capital. In addition,
we compete against railcar manufacturers that have leasing subsidiaries. These factors may enable our
competitors to offer leases to customers at lower rates than we can provide, thus negatively impacting our
proﬁtability, asset utilization and investment volume.

We derive a substantial portion of our revenue from a limited number of railcar lessees. The loss of, or
reduction in business by, any of these railcar lessees, or a default from any large railcar lessee, could
result in a signiﬁcant loss of revenue and cash ﬂow.

We have derived, and believe that we will continue to derive, a signiﬁcant portion of our revenue and
cash ﬂow from a limited number of railcar lessees. Revenue from our ten largest railcar lessees represented
47.8% of total revenue for this segment for the year ended December 31, 2017. The loss of such customers
would have a material adverse impact on our business, ﬁnancial condition, results of operations and cash
ﬂows. In addition, a default by any of our largest railcar lessees would result in a major reduction in our
leasing revenue, large repossession expenses, potentially large lost equipment charges and a material adverse
impact on our performance and ﬁnancial condition.

Lessee defaults may adversely affect our business, results of operations and ﬁnancial condition by
decreasing revenue and increasing storage, repositioning, collection and recovery expenses.

Our railcar equipment is leased to numerous lessees. Lessees are required to pay rent and indemnify us

for damage to or loss of equipment. Lessees may default in paying rent and performing other obligations
under their leases. A delay or diminution in amounts received under the leases, or a default in the performance
of maintenance or other lessee obligations under the leases could adversely affect our business, ﬁnancial
condition, results of operations and cash ﬂows and our ability to make payments on our debt.

Our cash ﬂows from railcar equipment, principally railcar rental revenue, are affected signiﬁcantly by
the ability to collect payments under leases and the ability to replace cash ﬂows from terminating leases by
re-leasing or selling equipment on favorable terms. All of these factors are subject to external economic
conditions and the performance by lessees and service providers that are not within our control.

In addition, when lessees default, we may fail to recover all of our equipment, and the equipment we do
recover may be returned in damaged condition or to locations where we will not be able to efficiently re-lease
or sell the equipment. As a result, we may have to repair and reposition the equipment to other places where
we can re-lease or sell it, and we may lose revenue and incur additional operating expenses in repossessing,
repositioning and storing the equipment.

We maintain insurance to reimburse the Company for customer defaults. The insurance agreements are

subject to deductibles of $3.0 million or $3.5 million per occurrence, depending on the customer’s credit
rating, and have signiﬁcant exclusions and, therefore, may not be sufficient to prevent us from suffering
material losses. Our level of insurance cover in 2018 is limited to $11.5 million or $12.0 million per
occurrence and $18.0 million and $19.0 million in aggregate, depending on the customer’s credit rating.
Additional insurance claims made by the Company may result in such insurance not being available to us in
the future on commercially reasonable terms, or at all.

24

Certain liens may arise on our equipment.

Depot operators and repairmen may come into possession of our equipment from time to time and have
sums due to them from lessees or sub-lessees of equipment. In the event of nonpayment of those charges by
lessees or sub-lessees, we may be delayed in, or entirely barred from, repossessing equipment, or be required
to make payments or incur expenses to discharge liens on our equipment.

Risk Related to Logistics

Because we depend on railroads for our operations, our operating results and ﬁnancial condition are
likely to be adversely affected by any reduction or deterioration in rail service.

We depend on the major railroads in the United States for virtually all of the intermodal services we
provide. In many markets, rail service is limited to one or two railroads. Consequently, a reduction in, or
elimination of, rail service to a particular market is likely to adversely affect our ability to provide intermodal
transportation services to some of our customers. In addition, the railroads are relatively free to adjust
shipping rates up or down as market conditions permit. Rate increases would result in higher intermodal
transportation costs, reducing the attractiveness of intermodal transportation compared to truck or other
transportation modes, which could cause a decrease in demand for our services. Further, our ability to
continue to expand our intermodal transportation business is dependent upon the railroads’ ability to increase
capacity for intermodal freight and provide consistent and reliable service. Our business could also be
adversely affected by a work stoppage at one or more railroads or by adverse weather conditions or other
factors that hinder the railroads’ ability to provide reliable transportation services. In the past, there have been
service issues when railroads have merged. As a result, we cannot predict what effect, if any, further
consolidations among railroads may have on intermodal transportation services or our results of operations.

Because our relationships with the major railroads are critical to our ability to provide intermodal
transportation services, our business may be adversely affected by any change to those relationships.

We have important relationships with certain major U.S. railroads. To date, the railroads have chosen to
rely on us, other IMCs and other intermodal competitors to market their intermodal services rather than fully
developing their own marketing capabilities. If one or more of the major railroads were to decide to reduce
their dependence on us, the volume of intermodal shipments we arrange would likely decline, which could
adversely affect our results of operations and ﬁnancial condition.

Because we rely on drayage companies in our intermodal operations, our ability to expand our business
or maintain our proﬁtability may be adversely affected by a shortage of drivers and drayage capacity.

In certain markets we serve, we use third-party drayage companies for pickup and delivery of some or all

of our intermodal containers. Most drayage companies operate relatively small ﬂeets and have limited access
to capital for ﬂeet expansion. In some of our markets, there are a limited number of drayage companies that
can meet our quality standards. This could limit our ability to expand our intermodal business or require us to
establish more of our own drayage operations in some markets, which could increase our operating costs and
could adversely affect our proﬁtability and ﬁnancial condition. Also, the trucking industry periodically
experiences a shortage of available drivers, which may limit the ability of third-party drayage companies to
expand their ﬂeets. This shortage also may require them to increase drivers’ compensation, thereby increasing
our cost of providing drayage services to our customers. Therefore, the driver shortage could also adversely
affect our proﬁtability and limit our ability to expand our intermodal business.

Because we depend on trucking companies for our truck brokerage services, our ability to maintain or
expand our truck brokerage business may be adversely affected by a shortage of trucking capacity.

We depend upon various third-party trucking companies for the transportation of our customers’ loads.
Particularly during periods of economic expansion, trucking companies may be unable to expand their ﬂeets
due to capital constraints or chronic driver shortages, and these trucking companies also may raise their rates.
If we face insufficient capacity among our third-party trucking companies, we may be unable to maintain or
expand our truck brokerage business. Also, we may be unable to pass rate increases on to our customers,
which could adversely affect our proﬁtability.

25

Our results of operations are susceptible to changes in general economic conditions and cyclical
ﬂuctuations.

Economic recession, customers’ business cycles, changes in fuel prices and supply, interest rate
ﬂuctuations, increases in fuel or energy taxes and other general economic factors affect the demand for
transportation services and the operating costs of railroads, trucking companies and drayage companies. We
have little or no control over any of these factors or their effects on the transportation industry. Increases in
the operating costs of railroads, trucking companies or drayage companies can be expected to result in higher
freight rates. Our operating margins could be adversely affected if we were unable to pass through to our
customers the full amount of higher freight rates. Economic recession or a downturn in customers’ business
cycles also may have an adverse effect on our results of operations and growth by reducing demand for our
services. Therefore, our results of operations, like the entire freight transportation industry, are cyclical and
subject to signiﬁcant period-to-period ﬂuctuations.

Relatively small increases in our transportation costs that we are unable to pass through to our
customers are likely to have a signiﬁcant effect on our gross margin and operating income.

Because transportation costs represent such a signiﬁcant portion of our costs, even relatively small
increases in these transportation costs, if we are unable to pass them through to our customers, are likely to
have a signiﬁcant effect on our gross margin and operating income.

The transportation industry is subject to government regulation, and regulatory changes could have a
material adverse effect on our operating results or ﬁnancial condition.

We are licensed by the Department of Transportation as freight brokers. The Department of

Transportation prescribes qualiﬁcations for acting in this capacity, including surety bond requirements. As
freight brokers, we may become subject to new or more restrictive regulations relating to new laws and
regulations speciﬁc to legal liability, such as motor carriers are today. Future laws and regulations may be
more stringent and require changes in operating practices, inﬂuence the demand for transportation services or
increase the cost of providing transportation services, any of which could adversely affect our business and
results of operations.

We are not able to accurately predict how new governmental laws and regulations, or changes to existing
laws and regulations, will affect the transportation industry generally, or us in particular. Although government
regulation that affects us and our competitors may simply result in higher costs that can be passed along to
customers, that may not be the case.

Our operations may be subject to various environmental laws and regulations, the violation of which
could result in substantial ﬁnes or penalties.

From time to time, we arrange for the movement of hazardous materials at the request of our customers.

As a result, we may be subject to various environmental laws and regulations relating to the handling of
hazardous materials. If we are involved in a spill or other accident involving hazardous materials, or if we are
found to be in violation of applicable laws or regulations, we could be subject to substantial ﬁnes or penalties
and to civil and criminal liability, any of which could have an adverse effect on our business and results of
operations.

We derive a signiﬁcant portion of our logistics revenue from our largest customers and the loss of
several of these customers could have a material adverse effect on our revenue and business.

Revenue from our ten largest customers represented 39.7% of total revenue for this segment for the year

ended December 31, 2017. A reduction in or termination of our services by such customers could have a
material adverse effect on our revenue and business.

Our obligation to pay our carriers is not contingent upon receipt of payment from our clients, and we
extend credit to certain clients as part of our business model.

In most cases, we take full risk of credit loss for the transportation services we procure from carriers.

Our obligation to pay our carriers is not contingent upon receipt of payments from our clients. If any of our
key clients fail to pay for our services, our proﬁtability would be negatively impacted.

26

We extend credit to certain clients in the ordinary course of business as part of our business model. By

extending credit, we increase our exposure to uncollected receivables. A deterioration in the global or
domestic economy could drive an increase in business failures, downsizing and delinquencies, which could
cause an increase in our credit risk. If we fail to monitor and manage effectively any increased credit risk, our
immediate and long-term liquidity may be adversely affected.

An economic downturn could materially adversely affect our business.

Our operations and performance depend signiﬁcantly on economic conditions. Uncertainty about global
economic conditions poses a risk as consumers and businesses may postpone spending in response to tighter
credit, negative ﬁnancial news and/or declines in income, which could have a material negative effect on
demand for transportation services. We are unable to predict the likely duration and severity of disruptions in
the ﬁnancial markets and adverse global economic conditions. If economic conditions deteriorate, our business
and results of operations could be materially and adversely affected. Other factors that could inﬂuence demand
include ﬂuctuations in fuel costs, labor costs, consumer conﬁdence, international trade or military conﬂicts,
and other macroeconomic factors affecting consumer spending behavior. There could be a number of
follow-on effects from a credit crisis on our business, including the insolvency of key transportation providers
and the inability of our customers to obtain credit to ﬁnance development and/or manufacture products
resulting in a decreased demand for transportation services. Our revenues and gross margins are dependent
upon this demand, and if demand for transportation services declines, our revenues and gross margins could
be adversely affected.

Continued weakness in the logistics business could have an adverse effect on our overall business,
results of operations and ﬁnancial condition, and may require us to record an impairment charge with
respect to the assets relating to our logistics business.

We have recently reported losses in our logistics business. Continued weakness or other disruptions in the

logistics segment could have a material adverse effect on our overall business, results of operations or
ﬁnancial condition, and could require us to record impairment charges in the future with respect to the assets
relating to our logistics business. Any impairment charge would result in an immediate reduction to our
earnings in the period in which the charge is taken, which could have a material adverse effect on our results
of operations and ﬁnancial condition.

General Business Risks

Our level of indebtedness reduces our ﬁnancial ﬂexibility and could impede our ability to operate.

We have a signiﬁcant amount of indebtedness and we intend to borrow additional amounts under our

credit facilities to purchase equipment and make acquisitions and other investments. We expect that we will
maintain a signiﬁcant amount of indebtedness on an ongoing basis. As of December 31, 2017, our total
outstanding debt was $1,714.5 million. Interest expense on such debt will be $13.3 million per quarter for
2018, assuming ﬂoating interest rates remain consistent with those as of December 31, 2017. There is no
assurance that we will be able to reﬁnance our outstanding indebtedness when it becomes due, or, if
reﬁnancing is available, that it can be obtained on terms that we can afford.

Some of our credit facilities require us to pay a variable rate of interest, which will increase or decrease

based on variations in certain ﬁnancial indexes, and increases in interest rates can signiﬁcantly decrease our
proﬁts. We do not have any hedge or similar contracts that would protect us against changes in interest rates.

The amount of our indebtedness could have important consequences for us, including the following:

•

•

requiring us to dedicate a substantial portion of our cash ﬂow from operations to make payments on
our debt, thereby reducing funds available for operations, future business opportunities and other
purposes;

limiting our ﬂexibility in planning for, or reacting to, changes in our business and the industry in
which we operate;

27

•

•

•

•

•

making it more difficult for us to satisfy our debt obligations, and any failure to comply with such
obligations, including ﬁnancial and other restrictive covenants, could result in an event of default
under the agreements governing such indebtedness, which could lead to, among other things, an
acceleration of our indebtedness or foreclosure on the assets securing our indebtedness, which could
have a material adverse effect on our business, ﬁnancial condition, results of operations and cash
ﬂows;

making it difficult for us to pay dividends on, or repurchase, our common stock;

placing us at a competitive disadvantage compared to our competitors having less debt;

limiting our ability to borrow additional funds, or to sell assets to raise funds, if needed, for working
capital, capital expenditures, acquisitions or other purposes; and

increasing our vulnerability to general adverse economic and industry conditions, including changes
in interest rates.

We may not generate sufficient cash ﬂow from operations to service and repay our debt and related
obligations and have sufficient funds left over to achieve or sustain proﬁtability in our operations, meet our
working capital and capital expenditure needs or compete successfully in our industry.

We will require a signiﬁcant amount of cash to service and repay our outstanding indebtedness and our
ability to generate cash depends on many factors beyond our control.

Our ability to make payments on and repay our indebtedness and to fund planned capital expenditures
will depend on our ability to generate cash in the future. As of December 31, 2017, our total outstanding debt
was $1,714.5 million. Interest expense on such debt will be $13.3 million per quarter in 2018, assuming
ﬂoating interest rates remain consistent with those at December 31, 2017. These amounts will increase to the
extent we borrow additional funds and if interest rates increase. It is possible that:

•

•

•

our business will not generate sufficient cash ﬂow from operations to service and repay our debt and
to fund working capital requirements and planned capital expenditures;

future borrowings will not be available under our current or future credit facilities in an amount
sufficient to enable us to reﬁnance our debt; or

we will not be able to reﬁnance any of our debt on commercially reasonable terms or at all.

Our credit facilities impose, and the terms of any future indebtedness may impose, signiﬁcant operating,
ﬁnancial and other restrictions on us and our subsidiaries.

Restrictions imposed by our credit facilities or other indebtedness will limit or prohibit, among other

things, our ability to:

•

•

•

•

•

•

•

•

•

incur additional indebtedness;

pay dividends on or redeem or repurchase our stock;

enter into new lines of business;

issue capital stock of our subsidiaries (except to the Company);

make loans and certain types of investments;

create liens;

sell certain assets or merge with or into other companies;

enter into certain transactions with stockholders and affiliates; and

restrict dividends, distributions or other payments from our subsidiaries.

28

These restrictions could adversely affect our ability to ﬁnance our future operations or capital needs and
pursue available business opportunities. A breach of any of these restrictions, including a breach of ﬁnancial
covenants, could result in a default in respect of the related indebtedness. If a default occurs, the relevant
lenders could elect to declare the indebtedness, together with accrued interest and fees, to be immediately due
and payable and proceed against any collateral securing that indebtedness, which would constitute
substantially all of our equipment assets.

Security breaches and other disruptions could compromise our information technology systems and
expose us to a liability, which could have a material adverse effect on our business, results of operations
and our reputation.

In the ordinary course of business, we collect and store sensitive data on our systems and networks,

including our proprietary business information and that of our customers and suppliers, and personally
identiﬁable information of our customers and employees. The secure storage, processing, maintenance and
transmission of this information is critical to our operations. Despite security measures we employ, our
information technology systems and networks may be vulnerable to attacks by hackers or breached due to
employee error, malfeasance or other disruptions. Hackers and data thieves are increasingly sophisticated and
operate large-scale and complex automated attacks. Any breach of our network may result in the loss of
valuable business data, misappropriation of our consumers’ or employees’ personal information, or a
disruption of our business. Despite our existing security procedures and controls, if our network becomes
compromised, it could give rise to unwanted media attention, materially damage our customer relationships,
harm our business, our reputation, and our ﬁnancial results, which could result in ﬁnes or lawsuits, and may
increase the costs we incur to protect against such information security breaches, such as increased investment
in technology, the costs of compliance with consumer protection laws, and costs resulting from consumer
fraud.

We are subject to legislative, regulatory, and legal developments involving taxes.

Taxes are a signiﬁcant part of our expenses. We are subject to U.S. federal, state, and foreign income,
payroll, property, sales and use, fuel, and other types of taxes. Changes in tax rates, such as those included in
the recently enacted U.S. Tax Cuts and Jobs Act, enactment of new tax laws, revisions of tax regulations, and
claims or litigation with taxing authorities could result in a material effect to our results of operations,
ﬁnancial condition, and liquidity. Higher tax rates could have a material adverse effect on our results of
operations, ﬁnancial condition, and liquidity.

Actual or threatened terrorist attacks, efforts to combat terrorism, or the outbreak of war and hostilities
could negatively impact our operations and proﬁtability and may expose us to liability.

Terrorist attacks and the threat of such attacks have contributed to economic instability in the
United States and elsewhere, and further acts or threats of terrorism, violence, war or hostilities could
similarly affect world trade and the industries in which we and our customers operate. In addition, terrorist
attacks or hostilities may directly impact ports, depots, our facilities or those of our suppliers or customers,
and could impact our sales and our supply chain. A severe disruption to the worldwide ports system and ﬂow
of goods could result in a reduction in the level of international trade and lower demand for our equipment or
services. Any of these events could also negatively affect the economy and consumer conﬁdence, which could
cause a downturn in the transportation industry. The consequence of any terrorist attacks or hostilities are
unpredictable, and we may not be able to foresee events that could have an adverse effect on our operations

It is also possible that our equipment could be involved in a terrorist attack. Although our lease
agreements require our lessees to indemnify us against all damages arising out of the use of our containers,
and we carry insurance to potentially offset any costs in the event that our customer indemniﬁcations prove to
be insufficient, our insurance does not cover certain types of terrorist attacks, and we may not be fully
protected from liability of the reputational damage that could arise from a terrorist attack which utilizes one of
our containers.

29

Our operations could be affected by natural or man-made events in the locations in which we or our
customers or suppliers operate.

We have operations in locations subject to severe weather conditions, natural disasters, the outbreak of

contagious disease, or man-made incidents such as chemical explosions, any of which could disrupt our
operations. In addition, our suppliers and customers also have operations in such locations. For example, in
2015, a chemical explosion and ﬁre in the port of Tianjin, China damaged or destroyed a small number of our
containers and disrupted operations in the port. Similarly, outbreaks of pandemic or contagious diseases, such
as H1N1 (swine) ﬂu and the Ebola virus, could signiﬁcantly reduce the demand for international shipping or
could prevent our containers from being discharged in the affected areas or in other locations after having
visited the affected areas. Any future natural or man-made disasters or health concerns in the world where we
have business operations could lead to disruption of the regional and global economies, which could result in
a decrease in demand for leased containers.

We may be affected by market or regulatory responses to climate change.

Changes in laws, rules, and regulations, or actions by authorities under existing laws, rules, or

regulations, to address greenhouse gas emissions and climate change could negatively impact our customers
and business. For example, restrictions on emissions could signiﬁcantly increase costs for our customers
whose production processes require signiﬁcant amounts of energy. Customers’ increased costs could reduce
their demand to lease our assets. Potential consequences of laws, rules, or regulations addressing climate
change could have an adverse effect on our ﬁnancial position, results of operations, and cash ﬂows.

Our business could be adversely affected by strikes or work stoppages by draymen, truckers, port
workers and railroad workers.

There has been labor unrest, including strikes and work stoppages, among workers at various

transportation providers and in industries affecting the transportation industry, such as port workers. We could
lose business due to any signiﬁcant work stoppage or slowdown and, if labor unrest results in increased rates
for transportation providers such as draymen, we may not be able to pass these cost increases on to our
customers. Strikes among longshoremen and clerical workers at ports in the past few years have slowed down
the ports for a time, creating a major impact on the transportation industry. Work stoppages occurring among
owner-operators in a speciﬁc market have increased our operating costs periodically over the past
several years. In the past several years, there have been strikes involving railroad workers. Future strikes by
railroad workers in the United States, Canada or anywhere else that our customers’ freight travels by railroad
would impact our operations. Any signiﬁcant work stoppage, slowdown or other disruption involving ports,
railroads, truckers or draymen could adversely affect our business and results of operations.

Our senior executives are critical to the success of our business and our inability to retain them or
recruit new personnel could adversely affect our business.

Most of our senior executives and other management-level employees have over ﬁfteen years of industry

experience. We rely on this knowledge and experience in our strategic planning and in our day-to-day
business operations. Our success depends in large part upon our ability to retain our senior management, the
loss of one or more of whom could have a material adverse effect on our business, ﬁnancial condition, results
of operations and cash ﬂows. Our success also depends on our ability to retain our experienced sales force
and technical personnel as well as recruiting new skilled sales, marketing and technical personnel.
Competition for these individuals in our industry is intense and we may not be able to successfully recruit,
train or retain qualiﬁed personnel. If we fail to retain and recruit the necessary personnel, our business and our
ability to obtain new equipment lessees and provide acceptable levels of customer service could suffer.

30

We rely on our information technology systems to conduct our business. If these systems fail to
adequately perform their functions, or if we experience an interruption in their operation, our business,
results of operations and ﬁnancial prospects could be adversely affected.

The efficient operation of our business is highly dependent on our information technology systems. We
rely on our systems to track transactions, such as repair and depot charges and changes to book value, and
movements associated with each of our owned or managed equipment units. We use the information provided
by our systems in our day-to-day business decisions in order to effectively manage our lease portfolio and
improve customer service. We also rely on them for the accurate tracking of the performance of our managed
ﬂeet for each third-party investor, and the tracking and billing of logistics moves. The failure of our systems
to perform as we expect could disrupt our business, adversely affect our ﬁnancial condition, results of
operations and cash ﬂows and cause our relationships with lessees and third-party investors to suffer. In
addition, our information technology systems are vulnerable to damage or interruption from circumstances
beyond our control, including ﬁre, natural disasters, power loss and computer systems failures, unauthorized
breach and viruses. Any such interruption could have a material adverse effect on our business, reputation,
results of operations and ﬁnancial prospects.

As a U.S. corporation, we are subject to U.S. Executive Orders and U.S. Treasury Sanctions Regulations
regarding doing business in or with certain nations and specially designated nationals.

As a U.S. corporation, we are subject to U.S. Executive Orders and U.S. Treasury Sanctions Regulations

restricting or prohibiting business dealings in or with certain nations and with certain specially designated
nationals (individuals and legal entities). Any determination that we have violated such Executive Orders and
U.S. Treasury Sanctions Regulations could have a material adverse effect on our business, ﬁnancial condition,
results of operations and cash ﬂows.

As a U.S. corporation, we are subject to the Foreign Corrupt Practices Act, and a determination that
we violated this act may affect our business and operations adversely.

As a U.S. corporation, we are subject to the regulations imposed by the Foreign Corrupt Practices Act

(FCPA), which generally prohibits U.S. companies and their intermediaries from making improper payments
to foreign officials for the purpose of obtaining or keeping business. Any determination that we have violated
the FCPA could have a material adverse effect on our business, ﬁnancial condition, results of operations and
cash ﬂows.

A failure to comply with export control or economic sanctions laws and regulations could have a
material adverse effect on our business, results of operations or ﬁnancial condition. We may be unable
to ensure that our agents and/or customers comply with applicable sanctions and export control laws.

We face several risks inherent in conducting our business internationally, including compliance with

applicable economic sanctions laws and regulations, such as laws and regulations administered by the
U.S. Department of Treasury’s Office of Foreign Assets Control (OFAC), the U.S. Department of State and the
U.S. Department of Commerce. We must also comply with all applicable export control laws and regulations
of the United States (including but not limited to the U.S. Export Administration Regulations) and other
countries. Any determination of a violation or an investigation into violations of export controls or economic
sanctions laws and regulations could result in signiﬁcant criminal or civil ﬁnes, penalties or other sanctions
and repercussions, including reputational harm that could materially affect our business, results of operations
or ﬁnancial condition.

We may pursue acquisitions or joint ventures in the future that could present unforeseen integration
obstacles or costs.

We have pursued, and may continue to pursue, acquisitions and joint ventures in the future. Acquisitions

involve a number of risks and present ﬁnancial, managerial and operational challenges, including:

•

•

potential disruption of our ongoing business and distraction of management;

customer retention;

31

•

•

•

difficulty integrating personnel and ﬁnancial and other systems;

hiring additional management and other critical personnel; and

increasing the scope, geographic diversity and complexity of our operations.

In addition, we may encounter unforeseen obstacles or costs in the integration of acquired businesses.
Also, the presence of one or more material liabilities of an acquired company that are unknown to us at the
time of acquisition may have a material adverse effect on our business. Acquisitions or joint ventures may not
be successful, we may not realize any anticipated beneﬁts from acquisitions or joint ventures, we may realize
dilutive earnings per share from such activities, and acquired businesses and joint ventures may incur losses.

Fluctuations in foreign exchange rates could reduce our proﬁtability.

Most of our revenues and costs are billed in U.S. dollars. Our operations and used equipment sales in
locations outside of the U.S. have some exposure to foreign currency ﬂuctuations, and trade growth and the
direction of trade ﬂows can be inﬂuenced by large changes in relative currency values. In addition, most of
our container equipment ﬂeet is manufactured in China. Although the purchase price is in U.S. dollars, our
manufacturers pay labor and other costs in the local currency, the Chinese yuan. To the extent that our
manufacturers’ costs increase due to changes in the valuation of the Chinese yuan, the dollar price we pay for
equipment could be affected. Adverse or large exchange rate ﬂuctuations may negatively affect our ﬁnancial
condition, results of operations and cash ﬂows.

Our stock price has been volatile and may remain volatile.

Risks Related to our Stock

The trading price of our common stock may be subject to wide ﬂuctuations in response to quarter-to-
quarter variations in operating results, new products or services by us or our competitors, general conditions in
the shipping industry and the intermodal equipment sales and leasing markets, changes in earnings estimates
by analysts, or other events or factors which may or may not be under our control. Broad market ﬂuctuations
may adversely affect the market price of our common stock. Since the initial public offering of our stock at
$15.00 per share on May 16, 2007, the market price of our stock has ﬂuctuated signiﬁcantly from a high of
$40.11 per share to a low of $2.12 per share through February 16, 2018. Since the trading volume of our
stock is modest on a daily basis, shareholders may experience difficulties in liquidating our stock at an
acceptable price. Factors affecting the trading price of our common stock may include:

•

•

•

•

•

•

•

•

•

•

•

•

variations in our ﬁnancial results;

changes in ﬁnancial estimates or investment recommendations by any securities analysts following
our business;

the public’s response to our press releases, our other public announcements and our ﬁlings with the
SEC;

our ability to successfully execute our business plan;

changes in accounting standards, policies, guidance, interpretations or principles;

future sales of common stock by us or our directors, officers or signiﬁcant stockholders or the
perception such sales may occur;

our ability to achieve operating results consistent with securities analysts’ projections;

the operating and stock price performance of other companies that investors may deem comparable
to us;

recruitment or departure of key personnel;

our ability to timely address changing equipment lessee and third-party investor preferences;

equipment market and industry factors;

the size of our public ﬂoat;

32

•

•

general stock market conditions; and

other events or factors, including those resulting from war, incidents of terrorism or responses to
such events.

In addition, if the market for companies deemed similar to us or the stock market in general experiences
loss of investor conﬁdence, the trading price of our common stock could decline for reasons unrelated to our
business or ﬁnancial results. The trading price of our common stock might also decline in reaction to events
that affect other companies in our industry even if these events do not directly affect us.

Future new sales of our common stock by us or outstanding shares by existing stockholders, or the
perception that there will be future sales of new shares from the Company or existing stockholders, may
cause our stock price to decline and impair our ability to obtain capital through future stock offerings.

A substantial number of shares of our common stock held by our current stockholders could be sold into

the public market at any time. In addition, the perception of, or actual sale of, new shares by us may
materially and adversely affect our stock price and could impair our ability to obtain future capital through an
offering of equity securities.

We do not currently pay dividends to holders of our common stock, and we cannot assure you that we
will pay dividends to holders of our common stock in the future.

Although our board of directors may consider a dividend policy under which we would pay cash

dividends on our common stock, any determinations by us to pay cash dividends on our common stock in the
future will be based primarily upon our ﬁnancial condition, results of operations, business requirements, tax
considerations and our board of directors’ continuing determination that the declaration of dividends under the
dividend policy are in the best interests of our stockholders and are in compliance with all laws and
agreements applicable to the dividend program. In addition, the terms of our credit agreements contain
provisions restricting the payment of cash dividends subject to certain exceptions. Consequently, investors may
be required to rely on sales of their common stock as the only way to realize any future gains on their
investment.

If securities analysts do not publish research or reports about our business or if they decrease their
ﬁnancial estimates or investment recommendations, the price of our stock could decline.

The trading market for our common shares may rely in part on the research and reports that industry or

ﬁnancial analysts publish about us or our business. We do not control or inﬂuence the decisions or opinions of
these analysts and analysts may not cover us.

If any analyst who covers us decreases his or her ﬁnancial estimates or investment recommendation, the

price of our stock could decline. If any analyst ceases coverage of our company, we could lose visibility in
the market, which in turn could cause our stock price to decline.

Our certiﬁcate of incorporation and bylaws and Delaware law contain provisions that could discourage
a third party from acquiring us and consequently decrease the market value of an investment in our
common stock.

Our certiﬁcate of incorporation and bylaws and Delaware corporate law each contain provisions that
could delay, defer or prevent a change in control of our company or changes in our management. Among
other things, these provisions:

•

•

•

•

authorize us to issue preferred stock that can be created and issued by the board of directors without
prior stockholder approval, with rights senior to those of our common stock;

permit removal of directors only for cause by the holders of a majority of the shares entitled to vote
at the election of directors and allow only the directors to ﬁll a vacancy on the board of directors;

prohibit stockholders from calling special meetings of stockholders;

prohibit stockholder action by written consent, thereby requiring all stockholder actions to be taken
at a meeting of our stockholders;

33

•

•

•

•

•

require the affirmative vote of 662⁄3% of the shares entitled to vote to amend our bylaws and certain
articles of our certiﬁcate of incorporation, including articles relating to the classiﬁed board, the size
of the board, removal of directors, stockholder meetings and actions by written consent;

allow the authorized number of directors to be changed only by resolution of the board of directors;

establish advance notice requirements for submitting nominations for election to the board of
directors and for proposing matters that can be acted upon by stockholders at a meeting;

classify our board of directors into three classes so that only a portion of our directors are elected
each year; and

allow our directors to amend our bylaws.

These provisions could discourage proxy contests and make it more difficult for our stockholders to elect

directors and take other corporate actions, which may prevent a change of control or changes in our
management that a stockholder might consider favorable. In addition, Section 203 of the Delaware General
Corporation Law, which makes unfriendly takeover more difficult, may discourage, delay or prevent a change
in control of us, which shareholders not affiliated with the takeover group might favor. Any delay or
prevention of a change in control or change in management that stockholders might otherwise consider to be
favorable could cause the market price of our common stock to decline.

34

ITEM 1B: UNRESOLVED STAFF COMMENTS

None.

ITEM 2: PROPERTIES

Offıce Locations. As of December 31, 2017, we operated our business in 23 offices in 14 different
countries including the U.S. We have 9 offices in the U.S. including our headquarters in San Francisco,
California. We have 14 offices outside the U.S., including offices operated by third-party corporate service
providers in Bermuda and Luxembourg. In addition, we have agents in Asia, Europe, South Africa, and
South America. Our headquarters is used for our container leasing, rail leasing and logistics segments. Our
offices in Everett, WA, Eatontown, NJ, Portland, OR, Tampa, FL, Jacksonville, FL, Knoxville, TN and
Kennesaw, GA are used for our logistics segment operations. Each one of our other offices is used for our
container leasing segment. All of our offices, except those operated by third party corporate service providers,
are leased.

The following table summarizes our office locations as of December 31, 2017:

Office Locations — U.S.

San Francisco, CA (Headquarters)

Charleston, SC

Everett, WA

Eatontown, NJ

Portland, OR

Tampa, FL

Jacksonville, FL

Knoxville, TN

Kennesaw, GA

Office Locations — International

Brentwood, United Kingdom

St. Michael, Barbados

Antwerp, Belgium

Hong Kong

Singapore

Delmenhorst, Germany

Hamburg, Germany

Tokyo, Japan

Kuala Lumpur, Malaysia

Taipei, Taiwan

Luxembourg

Hamilton, Bermuda

Seoul, South Korea

Sydney, Australia

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ITEM 3: LEGAL PROCEEDINGS

From time to time we may become a party to litigation matters arising in connection with the normal

course of our business, including in connection with enforcing our rights under our leases. While we cannot
predict the outcome of these matters, in the opinion of our management, any liability arising from these
matters will not have a material adverse effect on our business, ﬁnancial condition, results of operations or
cash ﬂows. Nevertheless, unexpected adverse future events, such as an unforeseen development in our existing
proceedings, a signiﬁcant increase in the number of new cases or changes in our current insurance
arrangements could result in liabilities that have a material adverse impact on our business, ﬁnancial
condition, results of operations or cash ﬂows. We are currently not party to any material legal proceedings
which are material to our business, ﬁnancial condition, results of operations or cash ﬂows.

ITEM 4: MINE SAFETY DISCLOSURES

Not applicable.

36

PART II

ITEM 5: MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER

MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is traded on the NYSE under the symbol ‘‘CAI.’’ The following table reﬂects the

range of high and low sales prices of our common stock, as reported on the NYSE in each quarter of
the years ended December 31, 2017 and 2016:

2017:
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
First Quarter

2016:
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
First Quarter

High

Low

$
$
$
$

$
$
$
$

40.11
31.61
24.50
17.92

10.40
9.32
10.49
10.35

$
$
$
$

$
$
$
$

28.04
22.60
14.43
8.70

6.75
7.50
6.88
4.83

As of February 1, 2018, there were 40 registered holders of record of the common stock and 4,492

beneﬁcial holders, based on information obtained from our transfer agent.

Dividends

We have never declared or paid dividends on our capital stock. Our board of directors may consider
adopting a dividend policy in the future. Any determinations by us to pay cash dividends on our common
stock in the future will be based primarily upon our ﬁnancial condition, results of operations, business
requirements, tax considerations and our board of directors’ continuing determination that the declaration of
dividends under the dividend policy are in the best interests of our stockholders and are in compliance with all
laws and agreements applicable to the dividend program. In the absence of such a policy, we intend to retain
future earnings to ﬁnance the operation and expansion of our business, and to repurchase our common stock.
Our ﬁnancing arrangements also contain restrictions on our ability to pay cash dividends and repurchase our
common stock.

37

Performance Graph

The graph below compares cumulative shareholder returns on our common stock as compared with the
Russell 2000 Stock Index and the Dow Jones Transportation Stock Index for the period from December 31,
2012 to December 31, 2017. The graph assumes an investment of $100 as of December 31, 2012, and that all
dividends were reinvested without the payment of any commissions. The stock performance shown on the
performance graph below is not necessarily indicative of future performance.

200

175

150

125

100

75

50

25

12/31/12

12/31/13

12/31/14

12/31/15

12/31/16

12/31/17

CAI International, Inc.

Russell 2000 Index

Dow Jones Transportation Index

Company/Index
CAI International, Inc.
. . . . . . . . . . .
Russell 2000 Index . . . . . . . . . . . . .
Dow Jones Transportation Index . . . .

Dec. 31,
2012

2013

Returns as of December 31,
2015

2016

2014

$

$

100
100
100

$

107
137
139

106
142
172

$

46 $

134
141

39
160
170

$

2017

129
181
200

ITEM 6:

SELECTED FINANCIAL DATA

The selected ﬁnancial data presented below have been derived from our audited consolidated ﬁnancial
statements. Historical results are not necessarily indicative of the results of operations to be expected in future
periods. You should read the selected consolidated ﬁnancial data and operating data presented below in
conjunction with ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations’’
and with our consolidated ﬁnancial statements and related notes included elsewhere in this Annual Report on
Form 10-K.

38

Consolidated Statement of Operations Data

(Dollars in thousands, except per share data)
Revenue
Container lease revenue . . . . . . . . . . . . . . . . . . $ 235,365 $ 202,328 $ 220,732 $ 217,253 $ 205,226
7,179
Rail lease revenue . . . . . . . . . . . . . . . . . . . . . .
—
Logistics revenue . . . . . . . . . . . . . . . . . . . . . . .
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . .
212,405

10,336
—
227,589

17,433
11,502
249,667

30,490
61,536
294,354

32,476
80,552
348,393

2016

2013

2017

2014

Year Ended December 31,
2015

Operating expenses
. . . . . . . . . . . .
Depreciation of rental equipment
Storage, handling and other expenses . . . . . . . . .
Logistics transportation costs . . . . . . . . . . . . . . .
. . . .
(Gain) loss on sale of used rental equipment
Administrative expenses . . . . . . . . . . . . . . . . . .
Total operating expenses . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . .

Other expenses
Net interest expense . . . . . . . . . . . . . . . . . . . . .
Other expenses . . . . . . . . . . . . . . . . . . . . . . . .
Total other expenses . . . . . . . . . . . . . . . . . . . .
Income before income taxes and non-controlling
interest . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax (beneﬁt) expense . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to non-controlling

110,952
20,918
68,155
(5,347)
42,699
237,377
111,016

53,052
765
53,817

57,199
(14,861)
72,060

104,877
35,862
51,980
12,671
35,678
241,068
53,286

42,754
654
43,408

9,878
3,844
6,034

113,590
30,194
10,172
654
27,617
182,227
67,440

36,271
182
36,453

30,987
4,252
26,735

77,976
26,043
—
(6,522)
26,538
124,035
103,554

67,109
19,257
—
(7,356)
24,628
103,638
108,767

35,592
773
36,365

67,189
7,191
59,998

36,477
1,190
37,667

71,100
7,057
64,043

interest

. . . . . . . . . . . . . . . . . . . . . . . . . . . .

—

37

134

111

594

Net income attributable to CAI common

stockholders . . . . . . . . . . . . . . . . . . . . . . . . $ 72,060 $

5,997 $

26,601 $

59,887 $

63,449

Net income per share attributable to CAI

common stockholders

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $

3.74 $
3.68 $

0.31 $
0.31 $

1.28 $
1.27 $

2.89 $
2.83 $

2.86
2.80

Weighted average shares outstanding
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

19,253
19,607

19,318
19,393

20,773
20,988

20,732
21,155

22,157
22,672

Other Financial Data
EBITDA (unaudited)(1)
Purchase of equipment

. . . . . . . . . . . . . . . . . . $ 223,514 $ 159,274 $ 181,359 $ 181,910 $ 176,502
312,144

. . . . . . . . . . . . . . . . . . .

502,050

251,165

307,283

389,331

39

Consolidated Balance Sheet Data

2017
47,209 $

(Dollars in thousands)
Cash* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Rental equipment, net . . . . . . . . . . . . . . . . . . . 2,004,961
276,513
Net investment in direct ﬁnance leases . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . 2,430,402
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,702,822
Debt
. . . . . . . . . . . . . . . . . . . . . . . 1,866,557
Total liabilities
563,845
Total CAI stockholders’ equity . . . . . . . . . . . . .

As of December 31,
2015
59,765 $

2016
52,326 $

2014
62,053 $

1,807,010
100,541
2,055,934
1,476,026
1,598,430
457,504

1,748,211
103,368
1,973,585
1,419,809
1,513,480
459,182

1,564,777
94,964
1,784,018
1,253,633
1,342,032
441,197

2013
54,994
1,465,092
81,208
1,662,615
1,125,553
1,248,021
414,000

*

Includes restricted cash of $11,789, $6,192, $7,212, $8,232, and $9,253 and cash owned by variable
interest entities of $20,685, $30,449, $35,106, $26,011, and $14,600 at December 31, 2017, 2016, 2015,
2014, and 2013, respectively.

. . . . . . . . .

Selected Operating Data (unaudited):
Owned container ﬂeet in TEUs(2)
Managed container ﬂeet in TEUs(2)

. . . . . . . . . . . 1,146,268
80,736
1,227,004
Owned container ﬂeet in CEUs(3) . . . . . . . . . . . 1,209,209
Managed container ﬂeet in CEUs(3)
73,530
1,282,739
7,172

Owned railcar ﬂeet in units . . . . . . . . . . . . . . .
Percentage of on-lease container ﬂeet on

. . . . . . . . .

921,694
162,582
1,084,276
1,014,078
146,258
1,160,336
6,459

984,085
198,093
1,182,178
1,029,117
177,958
1,207,075
5,096

934,101
235,538
1,169,639
961,244
214,432
1,175,676
2,361

860,729
283,725
1,144,454
903,713
262,071
1,165,784
1,804

long-term leases(4)

. . . . . . . . . . . . . . . . . . .

Percentage of on-lease container ﬂeet on

short-term leases(4)

. . . . . . . . . . . . . . . . . . .

Percentage of on-lease container ﬂeet on ﬁnance

leases . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Average container ﬂeet utilization in CEUs(5) . . .
Average railcar ﬂeet utilization(6)
. . . . . . . . . . .

72%

13%

15%
100%
97.4%
90.0%

75%

16%

9%
100%
92.8%
93.9%

74%

17%

9%
100%
92.5%
95.8%

73%

20%

7%
100%
92.3%
95.8%

75%

20%

5%
100%
92.7%
94.2%

(1) EBITDA is a non-GAAP measure, and is deﬁned as net income before interest, income taxes,

depreciation and amortization of intangible assets. We believe EBITDA is helpful in understanding our
past ﬁnancial performance as a supplement to net income and other performance measures calculated in
conformity with accounting principles generally accepted in the United States (GAAP). Our management
believes that EBITDA is useful to investors in evaluating our operating performance because it provides a
measure of operating results unaffected by differences in capital structures, capital investment cycles and
ages of related assets among otherwise comparable companies in our industry. EBITDA has limitations as
an analytical tool, which you should not consider in isolation or as a substitute for any measure reported
under GAAP; its usefulness as a performance measure as compared to net income is limited by the fact
that EBITDA excludes the impact of interest expense, depreciation and amortization expense and taxes.
We borrow money in order to ﬁnance our operations; therefore, interest expense is a necessary element of
our costs and ability to generate revenue. Similarly, our use of capital assets makes depreciation and
amortization expense a necessary element of our costs and ability to generate income. In addition, since
we are subject to state and federal income taxes, any measure that excludes tax expense has material
limitations.

40

The following table provides a reconciliation of EBITDA to net income, the most comparable

performance measure under GAAP (in thousands):

Net income attributable

to CAI common
stockholders . . . . . . . . $
Net interest expense . . .
Depreciation . . . . . . . .
Amortization of

2017

Year Ended December 31,
2015

2014

2016

2013

72,060
53,052
111,294

$

5,997
42,754
105,236

$

26,601
36,271
114,003

$

59,887
35,998
78,451

$

63,449
37,585
67,631

intangible assets . . . .

1,969

1,443

232

383

780

Income tax (beneﬁt)

expense . . . . . . . . . .
EBITDA . . . . . . . . . . . . $

(14,861)
223,514

3,844
$ 159,274

4,252
$ 181,359

7,191
$ 181,910

7,057
$ 176,502

(2) Reﬂects the total number of TEUs in our managed or owned equipment ﬂeet, as applicable, as of the end
of the period indicated, including units for sale and units we have purchased but held at the manufacturer.
(3) Reﬂects the total number of CEUs in our managed or owned equipment ﬂeet, as applicable, as of the end
of the period indicated, including units for sale and units we have purchased but held at the manufacturer.

(4) Long-term leases comprise leases that had a contractual term in excess of twelve months at the time of
inception of the leases, including leases that permit cancellation by the lessee within 12 months if
penalties are paid, and leases that have exceeded their initial contractual term of 12 months or greater.
Short-term leases comprise leases that had a contractual term of 12 months or less at the time of
inception of the leases.

(5) Reﬂects the average number of CEUs in our equipment ﬂeet on lease as a percentage of total CEUs

available for lease. In calculating CEUs available for lease, we exclude units for sale and units held at
the manufacturer that we have purchased.

(6) Reﬂects the average number of units in our railcar ﬂeet on lease as a percentage of total units available

for lease. In calculating units available for lease, we exclude units for sale and units held at the
manufacturer that we have purchased. If new railcars not yet leased are included in the total railcar ﬂeet,
railcar ﬂeet utilization would be 78.3% for the year ended December 31, 2017.

41

ITEM 7: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

The following discussion and analysis of our ﬁnancial condition and results of operations should be read
in conjunction with our consolidated ﬁnancial statements and related notes thereto, included elsewhere in this
Annual Report on Form 10-K. In addition to historical consolidated ﬁnancial information, the following
discussion contains forward-looking statements that reﬂect our plans, estimates and beliefs. Our actual results
may differ materially from those contained in or implied by any forward-looking statements. See ‘‘Special Note
Regarding Forward-Looking Statements.’’ Factors that could cause or contribute to these differences include
those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in Item 1A. ‘‘Risk
Factors.’’

Unless the context requires otherwise, references to ‘‘CAI,’’ the ‘‘Company,’’ ‘‘we,’’ ‘‘us’’ or ‘‘our’’ in this

Annual Report on Form 10-K refer to CAI International, Inc. and its subsidiaries.

Overview

We are one of the world’s leading transportation ﬁnance and logistics companies. We purchase

equipment, primarily intermodal shipping containers and railcars, which we lease to our customers. We also
manage equipment for third-party investors. In operating our ﬂeet, we lease, re-lease and dispose of equipment
and contract for the repair, repositioning and storage of equipment. We also provide domestic and international
logistics services. As of December 31, 2017, our container ﬂeet comprised 1,282,739 CEUs, 94% of which
represented our owned ﬂeet and 6% of which represented our managed ﬂeet. In addition, we also own 7,172
railcars, which we lease within North America.

In July 2015, we purchased CAI Logistics (previously ClearPointt Logistics LLC), an intermodal logistics

company focused on the domestic intermodal market, for approximately $4.1 million. CAI Logistics is
headquartered in Everett, Washington.

In February 2016, we purchased Challenger, an NVOCC, for approximately $10.8 million. Challenger is

headquartered in Eatontown, New Jersey.

In June 2016, we purchased Hybrid, asset light truck brokers, for approximately $12.0 million. Hybrid is

headquartered in Portland, Oregon.

Our revenue comprises container lease revenue and rail lease revenue from our owned container and
railcar ﬂeets, management fee revenue for managing containers for third-party investors, and logistics revenue
for the provision of logistics services.

Our container and rail lease revenue from our owned ﬂeets depends primarily upon a combination of:

(1) the number of units in our owned ﬂeet; (2) the utilization level of equipment in our owned ﬂeet; and
(3) the per diem rates charged under each equipment lease. The same factors in our managed ﬂeet affect the
amount of our management fee income. The number of CEUs in our container ﬂeet, and the number of cars in
our railcar ﬂeet, varies over time as we purchase new equipment based on prevailing market conditions during
the year and sell used equipment to parties in the secondary resale market.

Key Metrics

Utilization. We measure container utilization on the basis of the average number of CEUs on lease
expressed as a percentage of our total container ﬂeet available for lease. We measure railcar utilization on the
basis of the average number of railcars on lease expressed as a percentage of our total railcar ﬂeet available
for lease. In both cases, we calculate the total ﬂeet available for lease by excluding new units that have been
manufactured for us but either remain at the manufacturer or have not yet entered their ﬁrst lease, and
off-hire units that are likely to be sold. Our utilization is primarily driven by the overall level of equipment
demand, the location of our available equipment and the quality of our relationships with equipment lessees.
The location of available equipment is critical because equipment available in high-demand locations is more
readily leased and is typically leased on more favorable terms than equipment available in low-demand
locations.

42

The equipment leasing market is highly competitive. As such, our relationships with our customers are

important to ensure that they continue to select us as one of their providers of leased equipment. Our average
container ﬂeet utilization rate in CEUs for the year ended December 31, 2017 was 97.4% compared to 92.8%
and 92.5% for the years ended December 31, 2016 and 2015, respectively. The increase in our average ﬂeet
utilization from 2016 is primarily attributable to an increase in the volume of off-lease containers sold during
2016 and 2017 and an increase in demand for leased containers towards the end of 2016 that continued into
2017. Our average railcar ﬂeet utilization rate for the year ended December 31, 2017 was 90.0% compared to
93.9% and 95.8% for the years ended December 31, 2016 and 2015, respectively. If new railcars not yet
leased are included in the total railcar ﬂeet, railcar ﬂeet utilization would be 78.3% for the year ended
December 31, 2017. The decrease in the utilization of our railcar ﬂeet has been primarily caused by decreased
demand and competitive pressure in the rail market. Our utilization rate may increase or decrease depending
on future global economic conditions and the additional supply of new equipment.

Per Diem Rates. The per diem rate for a lease is set at the time we enter into a lease agreement. Our
long-term per diem rates have historically been strongly inﬂuenced by new equipment pricing, interest rates,
the balance of supply and demand for equipment at a particular time and location, our estimate of the residual
value of the equipment at the end of the lease, the type and age of the equipment being leased, and, for
container per diem rates, the purchase of equipment and efficiencies in container utilization by container
shipping lines. The overall average per diem rates for equipment in our owned ﬂeet and in the portfolios of
equipment comprising our managed ﬂeet do not change signiﬁcantly in response to changes in new equipment
prices because existing lease agreements can only be re-priced upon the expiration of the lease.

Revenue

Our revenue is comprised of container lease revenue, rail lease revenue, and logistics revenue.

Container Lease Revenue. We generate container lease revenue by leasing our owned containers

primarily to container shipping lines. Approximately 89% of our container lease revenue is derived from rental
of containers. Container lease revenue is comprised of monthly lease payments due under the lease
agreements together with payments for other charges set forth in the leases, such as handling fees, drop-off
charges and repair charges. Approximately 15% of our owned container ﬂeet is subject to ﬁnance leases.
Under a ﬁnance lease, the lessee’s payments consist of principal and interest components. The interest
component is included within container lease revenue. Lessees under our ﬁnance leases have the substantive
risks and rewards of equipment ownership and may have the option to purchase the equipment at the end of
the lease term for a nominal amount.

Container lease revenue also includes management fee revenue generated by our management services,
which include the leasing, re-leasing, repair, repositioning, storage and disposition of equipment. We provide
these management services pursuant to management agreements with third-party investors. Under these
agreements, which have multiple year terms, we earn fees for the management of the equipment and a
commission, or a managed units’ sales fee, upon disposition of equipment under management.

Rail Lease Revenue. We generate rail lease revenue by leasing our railcars primarily for the transport

of industrial goods, materials and other products on railroad tracks throughout North America. Rail lease
revenue is comprised of monthly lease payments due under the lease agreements. Lease revenue may be based
on a ﬁxed monthly rate or may be recognized on an hourly or mileage basis. None of our railcars are subject
to ﬁnance leases.

Logistics Revenue. We generate logistics revenue by arranging for the movement of our customers’

freight through our network of non-affiliated transportation carriers and equipment providers. Revenue is
comprised of the gross price charged to our customers.

Operating Expenses

Our operating expenses include transportation costs, depreciation of rental equipment, storage, handling

and other expenses applicable to our owned equipment, and administrative expenses.

43

We depreciate our containers on a straight-line basis over a period ranging from 12 to 15 years to a ﬁxed

estimated residual value depending on the type of container (see Note 2(d) in our consolidated ﬁnancial
statements included in this Annual Report on Form 10-K). We regularly assess both the estimated useful life
of our containers and their expected residual values, and, when warranted, adjust our depreciation estimate
accordingly. Railcar equipment is depreciated over its estimated useful life of 43 years to its estimated
residual value using the straight-line method. Depreciation expense for rental equipment will vary over time
based upon the size of our owned rental equipment ﬂeet and the purchase price of new equipment. If our
rental equipment is impaired, the equipment is written-down to its fair value and the amount of the
write-down is recorded in depreciation expense.

Storage, handling and other expenses are operating costs of our owned rental equipment ﬂeet. Storage
and handling expenses occur when lessees drop off equipment at depots at the end of a lease. Storage and
handling expenses vary signiﬁcantly by location. Other expenses include repair expenses, which are the result
of normal wear and tear on the equipment, and repositioning expenses, which are incurred when we contract
to move equipment from locations where our inventories exceed actual or expected demand to locations with
higher demand. Storage, handling and other expenses are directly related to the number of units in our owned
ﬂeet and inversely related to our utilization rate for those units: as utilization increases, we typically have
lower storage, handling and repositioning expenses.

Logistics transportation costs represent the expenses we incur for providing logistics services to our
customers. Such costs include shipping, pick-up and delivery charges, primarily from railroads and drayage
companies we contract with to fulﬁll the movement of our customers’ freight.

Our administrative expenses are primarily employee-related costs such as salary, bonus and commission
expenses, employee beneﬁts, rent, allowance for doubtful accounts and travel and entertainment costs, as well
as expenses incurred for outside services such as legal, consulting and audit-related fees.

Our operating expenses include the gain or loss on sale of used rental equipment. This gain or loss is the

result of our sale of older used equipment in the secondary resale market and is the difference between:
(1) the cash we receive for these units, less selling expenses; and (2) the net book value of the units.

44

Results of Operations

The following table summarizes our results of operations for the three years ended December 31, 2017,

2016 and 2015 (in thousands):

Year Ended December 31,
2016

2015

2017

$ 235,365
32,476
80,552
348,393

$ 202,328
30,490
61,536
294,354

$

220,732
17,433
11,502
249,667

Revenue
Container lease revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rail lease revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Logistics revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Operating expenses
Depreciation of rental equipment
. . . . . . . . . . . . . . . . . . . . . . . . .
Storage, handling and other expenses . . . . . . . . . . . . . . . . . . . . . .
Logistics transportation costs . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Gain) loss on sale of used rental equipment
. . . . . . . . . . . . . . . . .
Administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

110,952
20,918
68,155
(5,347)
42,699
237,377
111,016

Other expenses
Net interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes and non-controlling interest
. . . . . . . . .
Income tax (beneﬁt) expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to non-controlling interest
. . . . . . . . . . . . .
Net income attributable to CAI common stockholders . . . . . . . . .

53,052
765
53,817
57,199
(14,861)
72,060
—
$ 72,060

$

2017 Compared with 2016 and 2016 Compared with 2015

104,877
35,862
51,980
12,671
35,678
241,068
53,286

42,754
654
43,408
9,878
3,844
6,034
37
5,997

113,590
30,194
10,172
654
27,617
182,227
67,440

36,271
182
36,453
30,987
4,252
26,735
134
26,601

$

Container lease revenue

($ in thousand)
Container lease

Year Ended December 31,
2016

2015

2017

2017 vs 2016

2016 vs 2015

$ Change

% Change

$ Change

% Change

revenue . . . . . . . .

$235,365

$202,328

$220,732

$33,037

16%

$(18,404)

-8%

The increase in container lease revenue between 2017 and 2016 was a result of a $35.2 million increase

in rental revenue, primarily due to a 19% increase in the average number of CEUs of on-lease owned
containers, partially offset by a $5.7 million decrease in rental revenue resulting from a 3% decrease in
average owned container per diem rental rates, and a decrease of $1.4 million reﬂecting lost revenue related to
the bankruptcy of Hanjin in 2016, net of $2.2 million of insurance proceeds for lost lease rental revenue,
recognized during the year ended December 31, 2017. The reduction in average container per diem rental
rates has been caused by competitive market pressure. Finance lease income increased by $5.0 million,
primarily attributable to new ﬁnance lease contracts entered into during 2017.

The decrease in container lease revenue between 2016 and 2015 was a result of a $14.0 million decrease

in rental revenue resulting from a 5% decrease in average owned container per diem rental rates, and a
decrease of $3.6 million reﬂecting lost revenue related to the bankruptcy of Hanjin in 2016. The reduction in
average container per diem rental rates has been caused by competitive market pressure. Management fee
revenue decreased by $1.1 million, primarily due to a 21% reduction in the size of the on-lease managed
container ﬂeet and a decrease of 15% in the average per diem rates in our management, partially offset by a
non-recurring charge of $0.8 million recorded during the year ended December 31, 2015, related to an
adjustment of prior period management fees.

45

Rail lease revenue

($ in thousand)
Rail lease revenue . . .

Year Ended December 31,
2016
$30,490

2015
$17,433

2017
$32,476

2017 vs 2016

2016 vs 2015

$ Change
$1,986

% Change
7%

$ Change
$13,057

% Change
75%

Rail lease revenue increased between 2017 and 2016, primarily as a result of a $1.0 million settlement

with a customer for damaged railcars, and a 2% increase in the average size of our on-lease railcar ﬂeet
during the last twelve months. The average lease revenue per railcar has also increased as new railcars, which
command higher per diem rental rates than used railcars, now form a larger percentage of the ﬂeet.

Rail lease revenue increased between 2016 and 2015, primarily as a result of a 74% increase in the
average size of our on-lease railcar ﬂeet between the two periods. The average lease revenue per railcar also
increased as new railcars formed a larger percentage of the ﬂeet.

Logistics revenue and transportation costs

($ in thousand)
Logistics revenue . . . . . .
Logistics transportation

costs . . . . . . . . . . . . .
Logistics gross margin . . .

Logistics revenue

Year Ended December 31,
2016
$61,536

2015
$11,502

2017
$80,552

2017 vs 2016
$ Change % Change
$19,016

31%

2016 vs 2015

$ Change
$50,034

% Change
435%

68,155
$12,397

51,980
$ 9,556

10,172
$ 1,330

16,175
$ 2,841

31%
30%

41,808
$ 8,226

411%
619%

The increase in logistics revenue between 2017 and 2016 was primarily due to an additional

$15.8 million of revenue from the acquisition of Challenger in February 2016 and Hybrid in June 2016, as
well as new customers generating an additional $3.4 million of revenue at CAI Logistics.

The increase in logistics revenue between 2016 and 2015 was mainly attributable to the acquisition of

Challenger in February 2016 and Hybrid in June 2016.

Logistics transportation costs

The increase in logistics transportation costs between 2017 and 2016 was mainly attributable to an

additional $14.2 million of costs from the acquisition of Challenger in February 2016 and Hybrid in
June 2016, as well as an increase of $1.8 million in CAI Logistics costs as a result of new customer activity.

The increase in logistics transportation costs between 2016 and 2015 was mainly attributable to the

acquisition of Challenger in February 2016 and Hybrid in June 2016.

Logistics gross margin

The gross margin generated from our logistics business increased between 2017 and 2016, primarily due

to the acquisitions made in the logistics business in 2016. The gross margin percentage of our logistics
business for the year ended December 31, 2017 was 15.4%, consistent with the prior year.

The gross margin generated from our logistics business increased between 2016 and 2015, mainly due to
the acquisition of Challenger in February 2016 and Hybrid in June 2016. The gross margin percentage of our
logistics business for the year ended December 31, 2016 was 15.5%, which increased from a gross
margin percentage of 11.6% for the year ended December 31, 2015. The increase was mainly attributable to
the acquisition of Challenger in 2016, which operates at higher margins.

Depreciation of rental equipment

($ in thousand)
Container Leasing . . .
Rail Leasing . . . . . .

Year Ended December 31,
2016
$ 95,755
9,122
$104,877

2015
$108,996
4,594
$113,590

2017
$ 99,753
11,199
$110,952

2017 vs 2016

2016 vs 2015

$ Change
$3,998
2,077
$6,075

% Change

4%
23%
6%

$ Change
$(13,241)
4,528
$ (8,713)

% Change
-12%
99%
-8%

46

Container Leasing

The increase in depreciation expense between 2017 and 2016 was primarily attributable to an increase of
$4.4 million resulting from a decrease in the residual value estimates for 40-foot high cube dry van containers
implemented in 2016, a $1.3 million write-off of rental equipment on lease to a bankrupt customer and a 7%
increase in the average size of our owned ﬂeet between the two periods, partially offset by a decrease due to a
one-time impairment charge of $2.0 million, related to the Hanjin bankruptcy, recorded in 2016.

The decrease in depreciation expense between 2016 and 2015 was primarily attributable to a

$24.5 million impairment charge recorded during 2015 for certain off-lease containers, partially offset by an
increase of $5.4 million as a result of a decrease in our estimate of residual value for 40-foot high cube dry
van containers implemented in 2016, a $2.0 million impairment charge, net of insurance recoveries, related to
estimated irrecoverable equipment on lease to Hanjin, and a $3.1 million impairment charge recorded during
the year for certain off-lease damaged containers that we intended to sell.

Rail Leasing

The increase in depreciation expense between 2017 and 2016 was primarily attributable to a 16%

increase in the average size of the railcar ﬂeet. There has also been an increase in the proportion of new
railcars in the ﬂeet leading to higher depreciation per railcar.

The increase in depreciation expense between 2016 and 2015 was primarily attributable to a 70%

increase in the average size of the railcar ﬂeet.

Storage, handling and other expenses

($ in thousand)
Container Leasing . . .
Rail Leasing . . . . . .
Logistics . . . . . . . . .

Container Leasing

Year Ended December 31,
2016
$32,465
3,386
11
$35,862

2015
$27,653
2,540
1
$30,194

2017
$15,207
5,615
96
$20,918

2017 vs 2016

2016 vs 2015

$ Change
$(17,258)
2,229
85
$(14,944)

% Change
-53%
66%
773%
-42%

$ Change
$4,812
846
10
$5,668

% Change
17%
33%
1000%
19%

The decrease in storage, handling and other expenses between 2017 and 2016 was primarily attributable
to a $13.7 million decrease in storage costs as the size of the off-lease ﬂeet decreased compared to the prior
year, a $2.7 million decrease in repair and maintenance costs, and $1.5 million of insurance proceeds recorded
related to repair costs associated with the previously reported Hanjin bankruptcy, partially offset by an
increase of $0.5 million in container liability insurance premium resulting from the Hanjin insurance claim.

The increase in storage, handling and other expenses between 2016 and 2015 was primarily attributable
to a $3.1 million increase in storage costs and a $2.0 million increase in handling and positioning fees, both
caused by the average volume of off-lease and for sale owned container equipment increasing by 24%
compared to the prior year.

Rail Leasing

The increase in storage, handling and other expenses between 2017 and 2016 was primarily attributable

to a $1.2 million increase in storage and handling expenses as the size of the railcar ﬂeet increased, while
utilization decreased by 4%, between the two periods, as well as a $0.7 million increase in repair related costs
and positioning fees, reﬂecting our efforts to put railcars on lease.

The increase in storage, handling and other expenses between 2016 and 2015 was primarily attributable

to a $0.6 million increase in repair related costs and positioning fees.

47

(Gain) loss on sale of used rental equipment

($ in thousand)
Container Leasing . . .
Rail Leasing . . . . . .
Logistics . . . . . . . . .

Container Leasing

Year Ended December 31,
2016
$12,750
33
(112)
$12,671

2017
$(5,333)
(14)
—
$(5,347)

2015
$ 2,276
(1,622)
—
654

$

2017 vs 2016

2016 vs 2015

$ Change
$(18,083)
(47)
112
$(18,018)

% Change
-142%
-142%
-100%
-142%

$ Change
$10,474
1,655
(112)
$12,017

% Change
460%
-102%
100%
1837%

While we sold 30% less used containers in 2017 compared to the prior year, there was an increase of

166% in the average margin per unit, reﬂecting the recovery in new equipment prices during the year,
resulting in a gain on sale of used rental equipment.

While we sold approximately 62% more used containers in 2016 compared to the prior year, there was a
reduction of 21% in the average sale price per unit, reﬂecting the decline in new equipment prices during the
year, and an increase of 205% in the average loss per unit, resulting in a loss on sale of used rental
equipment. The loss on sale in 2016 was also impacted by the strengthening of the U.S. dollar compared to
other currencies, particularly the Euro.

Rail Leasing

We recorded a gain and a loss on the sale of used rental equipment of less than $0.1 million for the years

ended December 31, 2017 and 2016, respectively, compared to a gain of $1.6 million for the year ended
December 31, 2015. The $1.6 million gain in 2015 resulted from the sale of newly manufactured railcars.

Administrative expenses

($ in thousand)
Container Leasing . . .
Rail Leasing . . . . . .
Logistics . . . . . . . . .

Container Leasing

Year Ended December 31,
2016
$ 20,453
3,759
11,466
$ 35,678

2015
$ 21,969
3,131
2,517
$ 27,617

2017
$ 22,925
4,756
15,018
$ 42,699

2017 vs 2016

2016 vs 2015

$ Change
$ 2,472
997
3,552
$ 7,021

% Change
12%
27%
31%
20%

$ Change
$(1,516)
628
8,949
$ 8,061

% Change
-7%
20%
356%
29%

The increase in administrative expenses between 2017 and 2016 was primarily attributable to a

$3.9 million increase in payroll related expenses, mainly bonus expense, and a $1.6 million decrease in credits
related to adjustments to our estimated contingent consideration related to our acquisitions, partially offset by
a $2.3 million decrease in bad debt expense resulting from the $2.5 million charge incurred in 2016 related to
the bankruptcy of Hanjin.

The decrease in administrative expenses between 2016 and 2015 was primarily attributable to a
$3.8 million credit related to an adjustment to our estimated contingent consideration related to our
acquisitions, partially offset by $2.5 million of bad debt expense incurred during the year related to the
bankruptcy of Hanjin.

Rail Leasing

The increase in administrative expenses between 2017 and 2016 was primarily a result of higher
employee-related costs, as well as an increase in allocated overhead costs due to the increase in size of the
railcar ﬂeet between the two periods.

The increase in administrative expenses between 2016 and 2015 was primarily due to an increase in

allocated overhead costs resulting from the increase in size of the railcar ﬂeet between the two periods.

Logistics

The increase in administrative expenses between 2017 and 2016 was primarily a result of $3.9 million of

additional administrative expenses and a $0.6 million increase in amortization expense incurred by the
logistics companies acquired in February and June 2016, partially offset by a $0.9 million decrease in
administrative expenses for CAI Logistics, mainly attributable to a decrease in payroll related expenses due to
a reduction in headcount.

48

The increase in administrative expenses between 2016 and 2015 was primarily a result of $5.0 million of

administrative expenses incurred by Challenger (acquired in February) and Hybrid (acquired in June 2016),
$2.0 million of additional administrative expenses incurred by CAI Logistics (acquired in July 2015), and a
$1.3 million increase in amortization expense related to all of the logistics acquisitions.

Other expenses

($ in thousand)
Net interest expense . . . .
Other expense . . . . . . . .

Net interest expense

Year Ended December 31,
2016
$42,754
654
$43,408

2015
$36,271
182
$36,453

2017
$53,052
765
$53,817

2017 vs 2016
$ Change % Change
$10,298
111
$10,409

24%
17%
24%

2016 vs 2015

$ Change
$6,483
472
$6,955

% Change
18%
259%
19%

The increase in net interest expense between 2017 and 2016 was due primarily to an increase in our
average loan principal balance between the two periods, as we continue to increase our borrowings to ﬁnance
our acquisition of additional rental equipment, as well as an increase in the average interest rate on our
outstanding debt, caused by an increase in LIBOR, from approximately 2.7% to 3.2%.

The increase in net interest expense between 2016 and 2015 was due primarily to an increase in our
average loan principal balance, as well as an increase in the average interest rate on our outstanding debt,
caused by an increase in LIBOR, from approximately 2.3% to 2.7%.

Other expense

Other expense, being a loss on foreign exchange, of $0.8 million for the year ended December 31, 2017

remained relatively consistent with the loss on foreign exchange of $0.7 million for the year ended
December 31, 2016. Gains and losses on foreign currency primarily occur when foreign denominated ﬁnancial
assets and liabilities are either settled or re-measured in U.S. dollars. The loss on foreign exchange for
the years ended December 31, 2017 and 2016 were primarily the result of movements in the U.S. dollar
exchange rate against the Euro.

Other expense, being a loss on foreign exchange, of $0.7 million for the year ended December 31, 2016

increased $0.5 million, or 259%, from a loss on foreign exchange of $0.2 million for the year ended
December 31, 2015. The loss on foreign exchange for the years ended December 31, 2016 and 2015 were
primarily the result of movements in the U.S. dollar exchange rate against the Euro.

Income tax (beneﬁt) expense

($ in thousand)
Income tax (beneﬁt)

Year Ended December 31,

2017 vs 2016

2016 vs 2015

2017

2016

2015

$ Change

%
Change

$ Change

% Change

expense

. . . . . . . . . . .

$(14,861)

$3,844

$4,252

$(18,705)

-487%

$(408)

-10%

The decrease in income tax expense between 2017 and 2016 is mainly attributable to a $16.9 million tax
beneﬁt arising from the U.S. Tax Cuts and Jobs Act (the Tax Act) that reduced the federal tax rate from 35%
to 21%, resulting in the remeasurement of our net deferred tax liabilities, and a beneﬁt of $1.8 million related
to stock-based compensation excess tax beneﬁts, partially offset by $1.9 million of tax expense related to prior
year true-ups. Excluding these items, income tax expense was $2.0 million for the year ended December 31,
2017, a decrease of $1.8 million, or 47%, compared to the prior year. Excluding the items noted above, the
effective tax rate for the year ended December 31, 2017 was 3.6% compared to an effective tax rate of 39%
for the year ended December 31, 2016. The lower effective tax rate for the year ended December 31, 2017
was due to an increase in the proportion of pretax income generated in lower tax jurisdictions by our
container leasing business, and a corresponding decrease in the proportion of pretax income generated in
higher tax jurisdictions, primarily by our railcar business.

49

We have not completed our accounting for the income tax effects of certain elements of the Tax Act,

including the new Global Intangible Low Taxed Income and base erosion anti-abuse taxes. Due to the
complexity of these new tax rules, we are continuing to evaluate these provisions of the Tax Act and whether
such taxes are recorded as a current period expense when incurred of whether such amounts should be
factored into a company’s measurement of its deferred taxes. As a result, we have not included an estimate of
the tax expense/beneﬁt related to these items for the period ended December 31, 2017.

The increase in income tax expense between 2016 and 2015 was mainly attributable to an increase in the

effective tax rate between the two periods. The effective tax rate for the year ended December 31, 2016 was
39% compared to an effective tax rate of 14% for the year ended December 31, 2015. The increase in rate is
primarily attributable to the increase in the proportion of the railcar ﬂeet’s pretax income, all of which is U.S.
income, combined with a decrease in pretax income in lower tax jurisdictions that has led to a corresponding
increase in the proportion of pretax income generated in higher tax jurisdictions. Net income was also
impacted by our determination that foreign tax credits arising from the sale of a subsidiary could not be
utilized, resulting in a non-cash tax charge of $1.4 million during the year.

Note 12 to our consolidated ﬁnancial statements included in this Annual Report on Form 10-K includes a

reconciliation between the tax expense calculated at the statutory U.S. income tax rate and the actual tax
expense for the years ended December 31, 2017, 2016 and 2015.

Liquidity and Capital Resources

As of December 31, 2017, we had cash and cash equivalents of $35.4 million, including $20.7 million of
cash held by variable interest entities (VIEs). Our principal sources of liquidity are cash in-ﬂows provided by
operating activities, proceeds from the sale of rental equipment, borrowings from ﬁnancial institutions, and
equity offerings. Our cash in-ﬂows are used to ﬁnance capital expenditures and meet debt service
requirements.

As of December 31, 2017, our outstanding indebtedness and the related maximum borrowing level was

as follows (in thousands):

Revolving credit facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Term loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Senior secured notes
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset-backed notes
Collateralized ﬁnancing obligations
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Term loans held by VIE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total

Amount
Outstanding
$ 814,736
296,237
64,995
443,291
91,990
3,286
1,714,535
(11,713)
$1,702,822

Maximum
Borrowing
Level
$1,489,950
296,237
64,995
443,291
91,990
3,286
2,389,749
—
$2,389,749

As of December 31, 2017, we had $675.1 million in availability under our revolving credit facilities (net

of $0.1 million in letters of credit) subject to our ability to meet the collateral requirements under the
agreements governing the facilities. Based on the borrowing base and collateral requirements as of
December 31, 2017, the borrowing availability under our revolving credit facilities was $100.2 million,
assuming no additional contributions of assets.

As of December 31, 2017, we had $664.4 million of total debt outstanding on facilities with ﬁxed
interest rates. These ﬁxed rate facilities are scheduled to mature between 2020 and 2042, and had a weighted
average interest rate of 3.3% as of December 31, 2017.

As of December 31, 2017, we had $1,050.2 million of total debt outstanding on facilities with interest
rates based on ﬂoating rate indices (primarily LIBOR). These ﬂoating rate facilities are schedule to mature
between 2018 and 2021, and had a weighted average interest rate of 3.2% as of December 31, 2017.

50

We have typically funded a signiﬁcant portion of the purchase price for new equipment through

borrowings under our credit facilities. However, from time to time we have funded new equipment
acquisitions through the use of working capital.

Revolving Credit Facilities

We have three revolving credit facilities which have a maximum borrowing capacity of $960.0 million,

$500.0 million, and €25.0 million and maturity dates of March 2020, October 2020, and September 2020,
respectively. The entire amount of the facilities drawn at any time plus accrued interest and fees is callable on
demand in the event of certain speciﬁed events of default.

We use the revolving credit facilities primarily to fund the purchase of rental equipment. As of
December 31, 2017, in addition to a rental equipment payable of $92.4 million, we had commitments to
purchase $17.6 million of containers and $89.1 million of railcars in the twelve months ending December 31,
2018.

Term Loans

We utilize our term loans as an important funding source for the purchase of rental equipment. Our term

loans amortize in monthly or quarterly installments and mature between April 2018 and August 2021.

Senior Secured Notes

We used the proceeds from the senior secured notes primarily to fund the purchase of rental equipment.

The notes amortize in semi-annual installments and mature in September 2022.

Asset-Backed Notes

Our asset-backed notes were issued by two of our indirect wholly-owned subsidiaries, which were

established to facilitate asset-backed note ﬁnancings. We used the proceeds from the issuance of the
asset-backed notes primarily to repay part of our borrowings under the senior revolving credit facility and to
reduce the balance on one of our term loans.

Our borrowings under the asset-backed facilities amortize in monthly installments and mature in

June 2042. We are required to maintain a restricted cash account to cover payments of the obligations. As of
December 31, 2017, the restricted cash account had a balance of $11.8 million.

Other Debt Obligations

We have entered into a series of collateralized ﬁnancing obligations with Japanese investor funds that are

consolidated by us as VIEs (see Note 4 to our consolidated ﬁnancial statements included in this Annual
Report on Form 10-K). The obligations have maturity dates between March 2018 and December 2020.

One of our Japanese investor funds that is consolidated by us as a VIE entered into a term loan

agreement with a bank. The VIE term loan matures in June 2019.

Our term loans, senior secured notes, asset-backed notes, collateralized ﬁnancing obligations and term
loans held by VIEs are secured by speciﬁc pools of rental equipment and other assets owned by the Company,
the underlying leases thereon and the Company’s interest in any money received under such contracts.

In addition to customary events of default, our revolving credit facilities and term loans contain
restrictive covenants, including limitations on certain liens, indebtedness and investments. In addition, all of
our debt facilities contain various restrictive ﬁnancial and other covenants. The ﬁnancial covenants in our debt
facilities require us to maintain (1) a consolidated funded debt to consolidated tangible net worth ratio of no
more than 3.75:1.00, and in the case of our asset-backed notes, of no more than 4.50:1:00; and (2) a ﬁxed
charge coverage ratio of at least 1.20:1.00, and in the case of our asset-backed notes, of at least 1.10:1.00. As
of December 31, 2017, we were in compliance with all of our debt covenants.

Under certain conditions, as deﬁned in our credit agreements with our banks and/or note holders, we are

subject to certain cross default provisions that may result in an acceleration of principal repayment under these
credit facilities if an uncured default condition were to exist. Our asset-backed notes are not subject to any
such cross-default provisions.

51

Cash Flow

The following table sets forth certain cash ﬂow information for the years ended December 31, 2017,

2016 and 2015 (in thousands):

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by operating activities
. . . . . . . . . . . . . . . .
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . .
Net cash provided by ﬁnancing activities . . . . . . . . . . . . . . . . .
Effect on cash of foreign currency translation . . . . . . . . . . . . . .
Net decrease in cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . .
Cash at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Operating Activities Cash Flows

Year Ended December 31,
2016

2017
$ 72,060
83,132
155,192
(411,751)
245,625
220
(10,714)
46,134
$ 35,420

$

6,034
123,222
129,256
(181,600)
46,599
(674)
(6,419)
52,553
$ 46,134

2015
$ 26,735
120,634
147,369
(305,248)
156,536
75
(1,268)
53,821
$ 52,553

Net cash provided by operating activities of $155.2 million for the year ended December 31, 2017,
increased $25.9 million from $129.3 million for the year ended December 31, 2016. The increase was due to
a $37.7 million increase in net income as adjusted for depreciation, amortization and other non-cash items,
partially offset by a decrease of $11.8 million in our net working capital adjustments. The increase in net
income as adjusted for non-cash items was primarily due to a $66.0 million increase in net income, a
$6.1 million increase in depreciation expense, and a $1.6 million reduction in contingent consideration,
partially offset by an $18.0 million increase in gain on sale of used rental equipment, a $16.1 million decrease
in deferred income taxes, and a $2.7 million decrease in bad debt expense as a result of the Hanjin
bankruptcy. Net working capital used in operating activities of $13.5 million during the year ended
December 31, 2017, was due to a $7.8 million increase in accounts receivable, primarily caused by an
increase in lease and logistics activity, a $2.2 million decrease in accounts payable, accrued expenses and
other current liabilities, primarily caused by a decrease in accrued tax expense as a result of excess tax
beneﬁts from share-based compensation awards, a $3.0 million decrease in due to container investors due to
the decrease in our managed ﬂeet, and a $1.3 million decrease in unearned revenue.

Net cash provided by operating activities of $129.2 million for the year ended December 31, 2016,
decreased $18.1 million from $147.4 million for the year ended December 31, 2015. The decrease was due to
a $21.1 million decrease in net income as adjusted for depreciation, amortization and other non-cash items,
and a decrease of $3.0 million in our net working capital adjustments. The decrease in net income as adjusted
for non-cash items was primarily due to a $20.7 million decrease in net income, an $8.8 million decrease in
depreciation expense, a $3.8 million reduction in contingent consideration and a $3.8 million decrease in
deferred income taxes, partially offset by an increase of $12.0 million in loss on sale of used rental equipment
and a $2.7 million increase in bad debt expense as a result of the Hanjin bankruptcy. Net working capital used
in operating activities of $1.8 million during the year ended December 31, 2016, was due to a $1.8 million
increase in accounts receivable, primarily caused by an increase in rail and logistic billings and the timing of
receipts, a $2.7 million increase in prepaid expenses and other assets, primarily due to an insurance receivable
related to the Hanjin bankruptcy, and a $2.1 million decrease in unearned revenue, partially offset by an
increase of $3.6 million in accounts payable, accrued expenses and other current liabilities, primarily caused
by the timing of payments, and a $1.3 million increase in due to container investors.

Investing Activities Cash Flows

Net cash used in investing activities increased $230.2 million to $411.8 million for the year ended
December 31, 2017 from $181.6 million for the year ended December 31, 2016. The increase in cash usage
was primarily attributable to a $250.9 million increase in the purchase of rental equipment, partially offset by
a $15.6 million decrease in acquisition costs and a $4.4 million increase in receipt of principal payments from
direct ﬁnancing leases.

52

Net cash used in investing activities decreased $123.6 million to $181.6 million for the year ended
December 31, 2016 from $305.2 million for the year ended December 31, 2015. The decrease in cash usage
was primarily attributable to a $138.2 million decrease in the purchase of rental equipment, partially offset by
an increase of $11.5 million for the acquisition of our new logistics companies and a $2.5 million decrease in
receipt of principal payments from direct ﬁnancing leases.

Financing Activities Cash Flows

Net cash provided by ﬁnancing activities of $245.6 million for the year ended December 31, 2017
increased $199.0 million compared to the year ended December 31, 2016, primarily as a result of higher net
borrowings being required to ﬁnance the acquisition of rental equipment. During the year ended December 31,
2017, our net cash inﬂow from borrowings was $226.5 million compared to $56.3 million for the year ended
December 31, 2016, reﬂecting an increase in investment in rental equipment during 2017 compared to 2016.
The increase was also attributable to an increase of $28.0 million in proceeds received from the issuance of
stock and a decrease of $9.2 million used to repurchase our stock pursuant to our previously announced stock
repurchase plan, partially offset by a $6.6 million increase in restricted cash and a $1.9 million increase in
debt issuance costs, both primarily related to the asset-backed notes issued in the current year.

Net cash provided by ﬁnancing activities of $46.6 million for the year ended December 31, 2016
decreased $109.9 million compared to the year ended December 31, 2015, primarily as a result of lower net
borrowings being required to ﬁnance the acquisition of rental equipment. During the year ended December 31,
2016, our net cash inﬂow from borrowings was $56.3 million compared to $167.0 million for the year ended
December 31, 2015, reﬂecting a decrease in investment in rental equipment during 2016 compared to 2015.
The decrease was also attributable to a decrease of $4.7 million in proceeds received from the exercise of
stock options, partially offset by a decrease of $3.8 million used to repurchase our stock pursuant to our
previously announced stock repurchase plan.

Stock Repurchase Plan

On December 14, 2015, we announced that our Board of Directors had approved the repurchase of up to
one million shares of our outstanding common stock. On February 4, 2016, the Company’s Board of Directors
approved a one million share increase in the previously approved share repurchase program bringing the total
authorized for repurchase to two million shares of our outstanding common stock. The number, price,
structure and timing of the repurchases, if any, will be at our sole discretion and future repurchases will be
evaluated by us depending on market conditions, liquidity needs and other factors. Stock repurchases may be
made in the open market, block trades or privately negotiated transactions. The repurchase authorization does
not have an expiration date and does not oblige us to acquire any particular amount of our common stock. As
of December 31, 2017, approximately 0.8 million shares remained available for repurchase under our share
repurchase plan.

At-the-Market Offering Program

In October 2017, we commenced an at-the-market offering program, which allows us to sell and issue up

to 2.0 million shares of our common stock. In the fourth quarter of 2017, we issued 888,453 shares of
common stock under our at-the-market offering for gross proceeds of $30.0 million. We paid commissions to
our sales agents of $0.6 million and incurred other offering related expenses of $0.3 million. Net proceeds of
$29.1 million were used for general corporate purposes. We have remaining capacity to issue up to
approximately 1.1 million of additional shares of common stock under the at-the-market offering program.

53

Contractual Obligations and Commercial Commitments

The following table sets forth our contractual obligations and commercial commitments by due date as of

December 31, 2017 (in thousands):

Payments Due by Period

Less
than
1 year

Total

1 − 2
years

2 − 3
years

3 − 4
years

4 − 5
years

More
than
5 years

Total debt obligations:

Revolving credit facilities
Term loans
Senior secured notes
Asset-backed notes
Collateralized ﬁnancing

. . . . . . . . . . . .
. . . . . .
. . . . . . .

. . . $ 814,736
296,237
64,995
443,291

obligations . . . . . . . . . . .
Term loans held by VIE . . . .
Interest on debt and capital

lease obligations(1)

. . . . . .
Rental equipment payable . . . . .
Rent, office facilities and

91,990
3,286

159,912
92,415

41,903
6,110
65,307

22,549
—

53,250
92,415

equipment . . . . . . . . . . . . .

5,450

2,439

1,881

Equipment purchase

commitments − Containers . . .

17,594

17,594

—

Equipment purchase

$

— $

— $814,736
25,299
6,110
65,307

122,899
6,110
65,307

— $

$
106,136
6,110
65,307

— $
—
40,555
62,457

—
—
—
119,606

39,666
3,286

49,759
—

21,775
—

27,985
—

357

—

8,000
—

12,074
—

329

—

—
—

7,365
—

228

—

—
—

9,479
—

216

—

commitments − Rail . . . . . . .

88,659
Total contractual obligations . . . $2,078,565

88,659
$390,226

—
$288,908

—
$961,569

—
$197,956

—
$110,605

—
$129,301

(1) Our estimate of interest expense commitment includes $62.7 million relating to our revolving credit
facilities, $23.1 million relating to our term loans, $12.6 million relating to our senior secured notes,
$59.5 million relating to our asset backed notes, $2.0 million relating to our collateralized ﬁnancing
obligations, and $0.1 million related to our term loans held by VIEs. The calculation of interest
commitment related to our debt assumes the following weighted average interest rates as of
December 31, 2017: revolving credit facilities, 3.2%; term loans, 3.3%; senior secured notes, 4.9%; asset
backed notes, 3.5%; collateralized ﬁnancing obligations, 1.2%; and term loans held by VIEs, 2.7%. These
calculations assume that interest rates will remain at the same level over the next ﬁve years. We expect
that interest rates will vary over time based upon ﬂuctuations in the underlying indexes upon which these
interest rates are based.

See Note 10 to our consolidated ﬁnancial statements included in this Annual Report on Form 10-K for a

description of the terms of our revolving credit facilities, term loans and asset-based notes.

Off-Balance Sheet Arrangements

As of December 31, 2017, we had no material off-balance sheet arrangements or obligations that have or

are reasonably likely to have a current or future effect on our ﬁnancial condition, change in ﬁnancial
condition, revenue or expenses, results of operations, liquidity capital expenditure, or capital resources that are
material to investors. An off-balance sheet arrangement includes any contractual obligation, agreement or
transaction arrangement involving an unconsolidated entity under which we would have: (1) retained a
contingent interest in transferred assets; (2) an obligation under derivative instruments classiﬁed as equity;
(3) any obligation arising out of a material variable interest in an unconsolidated entity that provides
ﬁnancing, liquidity, market risk or credit risk support to us, or that engages in leasing, hedging or research and
development services with us; or (4) made guarantees.

54

Critical Accounting Policies and Estimates

The preparation of ﬁnancial statements in conformity with GAAP requires management to use judgment

in making estimates and assumptions that affect reported amounts of assets and liabilities, the reported
amounts of income and expenses during the reporting period and the disclosure of contingent assets and
liabilities as of the date of the ﬁnancial statements. We have identiﬁed the policies and estimates below as
among those critical to our business operations and the understanding of our results of operations. These
policies and estimates are considered critical due to the existence of uncertainty at the time the estimate is
made, the likelihood of changes in estimates from period to period and the potential impact that these
estimates can have on our ﬁnancial statements. The following accounting policies and estimates include
inherent risks and uncertainties related to judgments and assumptions made by us. Our estimates are based on
the relevant information available at the end of each period. Actual results could differ from those estimates.

Revenue Recognition

We provide a range of services to our customers incorporating rental, sale and management of equipment,

and the provision of logistics services. Revenue for all forms of service is recognized when earned following
the guidelines under Financial Accounting Standards Board (FASB) Accounting Standards Codiﬁcation
(ASC) 605, Revenue Recognition and FASB ASC 840, Leases. Revenue is reported net of any related
sales tax.

Container and Rail Lease Revenue. We recognize revenue from operating leases of our owned
equipment as earned over the term of the lease. Where minimum lease payments vary over the lease term,
revenue is recognized on a straight-line basis over the term of the lease. We recognize revenue on a cash basis
for certain railcar leases that are billed on an hourly or mileage basis through a third-party railcar manager.
Finance lease income is recognized using the effective interest method, which generates a constant rate of
interest over the period of the lease. We cease recognition of lease revenue if and when a lessee defaults in
making timely lease payments or we otherwise determine that future lease payments are not likely to be
collected from the lessee. Our determination of the collectability of future lease payments is made by
management on the basis of available information, including the current creditworthiness of lessees, historical
collection results and review of speciﬁc past due receivables. If we experience unexpected payment defaults
from our lessees, we will cease accruing rental revenue as earned and will recognize revenue as cash is
received.

Revenue from management fees earned under management agreements is recognized on a monthly basis
and included in container lease revenue. Fees are calculated as a percentage of net operating income, which is
revenue from the equipment under management minus direct operating expense related to those units. If a
lessee of a managed unit defaults in making timely lease payments or we otherwise determine that future lease
payments are not likely to be collected from the lessee, then we will cease to record lease revenue for
purposes of our internal record keeping in connection with determining the amount of management fees that
we have earned, which in turn will result in reduced management fee revenue.

Logistics Revenue. Our logistics business derives its revenue from three principal sources: (1) truck

brokerage services, (2) intermodal transportation services, and (3) international ocean freight and freight
forwarding services. We recognize logistics revenue when these services are provided to our customers. For
truck brokerage services, revenue is recognized when delivery has been completed due to the short transit
time related to these services. Intermodal transportation services can take a longer time to complete; for any
such services not completed at the end of a reporting period, we use a percentage of completion method to
allocate the appropriate revenue to each separate reporting period using relative transit time. We provide
international freight forwarding services as an indirect carrier, sometimes referred to as a Non-Vessel
Operating Common Carrier (NVOCC). When we act as an NVOCC with respect to shipments of freight, a
House Ocean Bill of Lading (HOBL) is typically issued to the customer. Based upon the terms in the contract
of carriage (the HOBL), revenue and purchased transportation costs for these shipments are recognized at the
time the freight departs the terminal of origin which is when the customer is billed and we have no further
obligation to the customer.

55

We report logistics revenue on a gross basis as we are the primary obligor and responsible for providing

the services desired by the customer. We are responsible for fulﬁllment, including the acceptability of the
service, and have discretion in setting sales prices and as a result, our earnings may vary. We also have
discretion in selecting vendors from multiple suppliers for the services ordered by our customers. Lastly, we
have credit risk for our receivables.

Rental Equipment
Container

We purchase new container equipment from manufacturers to lease to our customers. We also purchase

used container equipment through sale-leaseback transactions with our customers, or equipment that was
previously owned by one of our third party investors. Used equipment is typically purchased with an existing
lease in place.

Container rental equipment is recorded at original cost and depreciated to an estimated residual value on

a straight-line basis over its estimated useful life. The estimated useful lives and residual values of our
container equipment are based on historical disposal experience and our expectations for future used container
sale prices. Depreciation estimates are reviewed on a regular basis to determine whether sustained changes
have taken place in the useful lives of our equipment or assigned residual values, which would suggest that a
change in depreciation estimates is warranted.

In considering changes to residual values for the three major dry van categories, we reviewed 3-year,
5-year, 7-year, and 12-year average disposition pricing trends. As with all estimates, particularly related to
long-lived assets, current market performance may not necessarily be indicative of long-term residual values,
so we do not adjust residual values to point-in-time prices. Rather, we consider the mix of data shown in the
following tables and use the average over time to either conﬁrm residual value estimates or support revisions
to those estimates.

The sale-related unit proceeds by dry van container category that we considered as of October 31, 2017,

when we performed our annual residual value analysis, are shown below:

Category
. . . . . . . . . . . .
20-ft. standard dry van container
. . . . . . . . . . . .
40-ft. standard dry van container
40-ft. high cube dry van container
. . . . . . . . . . .
20-ft. refrigerated container . . . . . . . . . . . . . . . .
40-ft. high cube refrigerated container . . . . . . . . .

3-year Avg.
927
$
1,101
1,094
2,998
4,045

5-year Avg.
1,038
$
1,234
1,257
3,219
4,048

7-year Avg.
1,122
$
1,365
1,368
N/A
N/A

12-year Avg.
1,110
$
1,340
1,416
N/A
N/A

Our residual value estimates ($1,050 for a 20-ft. dry van, $1,300 for a 40-ft. dry van, and $1,400 for a

40-ft. high cube dry van) are lower in each instance than the historical average, with the exception of the
3-year average for all equipment types and the 5-year average for 40-ft. high cube dry vans. While we
experienced losses when selling certain of these assets during 2015 and 2016, there was a recovery in prices
during 2017 that resulted in gains on sale of our equipment. Due to this cyclical nature in the container
market, we do not adjust long-term residual value estimates based on short-term data points, such as current
year sale results and the 3-year average shown above, as we do not believe they are indicative of a change in
the long-term market value for these containers. As such, no change to the residual values of dry van
containers was considered necessary during the year ended December 31, 2017. We regularly review this data
and update our analysis, and will make revisions to residual value estimates as and when conditions warrant.

The largest segment of our non-dry van container ﬂeet consists of 20-ft. refrigerated containers and 40-ft.

high cube refrigerated containers. We regularly review the residual value estimates associated with our
refrigerated containers. Given the speciﬁc nature of these assets and the lower volumes of containers that are
sold each year in the secondary market, not always at the end of the container’s life, there is more variability
in asset pricing. Similar to our dry van containers, we evaluate the relationship between sales prices and
residual values over a long-term horizon. We excluded 7-year and 12-year historical averages from our
analysis as we do not have a long enough history of sales for refrigerated containers. The current residual
values for 20-ft. refrigerated and 40-ft. high cube refrigerated containers are set at $2,750 and $3,500,
respectively. Based on the data trends, we believe that the residual value estimates for our refrigerated
containers are appropriate and do not warrant revision.

56

After we conducted our regular depreciation policy review for 2016, we concluded that a change in the

estimated residual value for 40-foot high cube dry van containers from $1,650 to $1,400 per container,
effective July 1, 2016, was appropriate. The change increased our depreciation expense by $4.4 million and
$5.4 million, decreased net income by $4.3 million and $5.2 million, and decreased diluted earnings per share
by $0.22 and $0.27 for the years ended December 31, 2017 and 2016, respectively.

The estimated useful lives and residual values for the majority of our container equipment purchased new

from the factory are as follows:

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20-ft. standard dry van container
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
40-ft. standard dry van container
40-ft. high cube dry van container
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20-ft. refrigerated container . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
40-ft. high cube refrigerated container . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$
$
$
$
$

1,050
1,300
1,400
2,750
3,500

Residual
Value

Depreciable
Life in Years
13.0
13.0
13.0
12.0
12.0

Other specialized equipment is depreciated to its estimated residual value, which ranges from $1,000 to

$3,500, over its estimated useful life of between 12.5 years and 15 years.

For used container equipment acquired through sale-leaseback transactions, we often adjust our estimates

for remaining useful life and residual values based on current conditions in the sale market for older
containers and our expectations for how long the equipment will remain on-hire to the current lessee.

Rail

Railcar equipment is recorded at original cost and depreciated over its estimated useful life of 43 years to

its estimated residual value of $8,700 using the straight-line method. We determine the useful life based on
our estimate of the period over which the asset will generate revenue. Residual value is based on the average
estimated scrap value of our railcars. We periodically review the appropriateness of our estimates of useful life
and residual value based on changes in economic circumstances and other factors.

Our railcars may undergo refurbishment and upgrade programs to, for example, extend their useful life,
meet higher car classiﬁcation grades, enter new product or service segments, increase the tonnage carried, or
to achieve higher utilization. The costs for these programs are capitalized.

Normal repairs and maintenance associated with our railcar assets are expensed as incurred.

Impairment of Long-Lived Assets

On at least an annual basis, we evaluate our rental equipment ﬂeet to determine whether there have been
any events or changes in circumstances indicating that the carrying amount of all, or part, of our ﬂeet may not
be recoverable. Events which would trigger an impairment review include, among others, a signiﬁcant
decrease in the long-term average market value of rental equipment, a signiﬁcant decrease in the utilization
rate of rental equipment resulting in an inability to generate income from operations and positive cash ﬂow in
future periods, or a change in market conditions resulting in a signiﬁcant decrease in lease rates.

When testing for impairment, equipment is generally grouped by equipment type, and is tested separately
from other groups of assets and liabilities. Potential impairment exists when the estimated future undiscounted
cash ﬂows generated by an asset group, comprised of lease proceeds and residual values, less related operating
expenses, are less than the carrying value of that asset group. If potential impairment exists, the equipment is
written down to its fair value. In determining the fair value of an asset group, we consider market trends,
published value for similar assets, recent transactions of similar assets and in certain cases, quotes from third
party appraisers. During the year ended December 31, 2015, our annual impairment review resulted in a
charge for certain off-lease containers of $24.5 million, which is included in depreciation expense in our
consolidated statement of income. No impairment charges were recorded in 2017 and 2016 as a result of our
annual review.

57

Recent Accounting Pronouncements.

In August 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-15, Statement of Cash

Flows (Topic 230): Classiﬁcation of Certain Cash Receipts and Cash Payments (ASU 2016-15). ASU 2016-15
is intended to reduce diversity in practice in how certain transactions are classiﬁed in the statement of cash
ﬂows. In November 2016, the FASB also issued ASU No. 2016-18, Statement of Cash Flows (Topic 230):
Restricted Cash, which will require that the statement of cash ﬂows explains the change during the period in
the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash
equivalents. Companies will also be required to reconcile such total to amounts on the balance sheet and
disclose the nature of the restrictions. ASU 2016-15 and ASU 2016-18 are effective for interim and annual
periods beginning after December 15, 2017, with early adoption permitted, using a retrospective transition
method to each period presented. We plan to adopt this guidance effective January 1, 2018 and do not believe
adoption will have a material impact on our consolidated statements of cash ﬂows.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (ASU 2016-02). The FASB

issued ASU 2016-02 to increase transparency and comparability among organizations recognizing lease assets
and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Under
ASU 2016-02, lessors will account for leases using an approach that is substantially equivalent to existing
U.S. GAAP for sales-type leases, direct ﬁnancing leases and operating leases. Unlike current guidance,
however, a lease with collectability uncertainties may be classiﬁed as a sales-type lease. If collectability of
lease payments, plus any amount necessary to satisfy a lessee residual value guarantee, is not probable, lease
payments received will be recognized as a deposit liability and the underlying asset will not be derecognized
until collectability of the remaining amounts becomes probable. ASU 2016-02 is effective for interim and
annual periods beginning after December 15, 2018, with early adoption permitted, and must be adopted using
a modiﬁed retrospective transition. We plan to adopt this guidance effective January 1, 2019 and are currently
evaluating the potential impact the adoption will have on our consolidated ﬁnancial statements and related
disclosures.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606)

(ASU 2014-09), which supersedes previous revenue recognition guidance. Leasing revenue recognition is
speciﬁcally excluded, and therefore, the new standard will only apply to logistics service agreements,
management service agreements, and sale of used rental equipment. The new standard deﬁnes a ﬁve-step
process to achieve the core principle of ASU 2014-09, which is to recognize revenue when promised goods or
services are transferred to customers in amounts that reﬂect the consideration the Company expects to receive
in exchange for those goods or services. Additional disclosures are also required to help users of ﬁnancial
statements understand the nature, amount and timing of revenue and cash ﬂows arising from contracts.

In July 2016, the FASB deferred the effective date for interim and annual periods beginning after

December 31, 2017. Early adoption is permitted to the original effective date of periods beginning after
December 31, 2016. The amendments may be applied retrospectively to each prior period presented or
retrospectively with the cumulative effect recognized as of the date of initial application.

We will be adopting this guidance effective January 1, 2018, using the modiﬁed retrospective approach.
We have completed our full assessment of adopting the new standard and have determined that adoption will
not have a material impact on the amount or timing of revenue recognized, or on our consolidated ﬁnancial
statements and related disclosures.

58

ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk represents the risk of changes in value of a ﬁnancial instrument, derivative or non-derivative,

caused by ﬂuctuations in foreign exchange rates and interest rates. Changes in these factors could cause
ﬂuctuations in our results of operations and cash ﬂows. We are exposed to the market risks described below.

Interest Rate Risk. The nature of our business exposes us to market risk arising from changes in
interest rates to which our variable-rate debt is linked. As of December 31, 2017, the principal amount of debt
outstanding under variable-rate revolving credit facilities was $814.7 million. In addition, at December 31,
2017 we had balances on our variable rate term loans of $232.2 million, and $3.3 million of variable rate
loans held by a VIE. As of December 31, 2017, our total outstanding variable-rate debt was $1,050.2 million,
which represented 61% of our total debt at that date. The average interest rate on our variable-rate debt was
3.2% as of December 31, 2017 based on LIBOR plus a margin based on certain conditions.

A 1.0% increase or decrease in underlying interest rates for these obligations will increase or decrease
interest expense by approximately $10.5 million annually assuming debt remains constant at December 31,
2017 levels.

We do not currently participate in hedging, interest rate swaps or other transactions to manage the market

risks described above.

Foreign Exchange Rate Risk. Although we have signiﬁcant foreign-based operations, the U.S. dollar is
our primary operating currency. Thus, most of our revenue and expenses are denominated in U.S. Dollars. We
have equipment sales in British Pound Sterling, Euros and Japanese Yen and incur overhead costs in foreign
currencies, primarily in British Pound Sterling and Euros. During the year ended December 31, 2017, the
U.S. Dollar decreased in value in relation to other major foreign currencies (such as the Euro and British
Pound Sterling). The decrease in the value of the U.S. Dollar has decreased our revenues and expenses
denominated in foreign currencies. The decrease in the value of the U.S. Dollar relative to foreign currencies
will also result in U.S. dollar denominated assets held at some of our foreign subsidiaries to decrease in value
relative to the foreign subsidiaries’ local currencies. For the year ended December 31, 2017, we recognized a
loss on foreign exchange of $0.8 million. A 10% change in foreign exchange rates would not have a material
impact on our business, ﬁnancial position, results of operations or cash ﬂows.

ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The consolidated ﬁnancial statements and ﬁnancial statement schedule are contained in Item 15 of this

Annual Report on Form 10-K, and are incorporated herein by reference. See Part IV, Item 15(a) for an index
to the consolidated ﬁnancial statements and supplementary data.

ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND

FINANCIAL DISCLOSURE

None.

ITEM 9A: CONTROLS AND PROCEDURES

Management’s Evaluation of Disclosure Controls and Procedures

In accordance with Rule 13a-15(b) under the Exchange Act, we carried out an evaluation, under the
supervision and with the participation of our management, including our President and Chief Executive Officer
and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and
procedures (as deﬁned in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this
Annual Report on Form 10-K. Based upon their evaluation of these disclosure controls and procedures, our
President and Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls
and procedures were effective as of December 31, 2017.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over ﬁnancial reporting (as such term is deﬁned in

Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended December 31, 2017 that have
materially affected, or are reasonably likely to materially affect, our internal control over ﬁnancial reporting.

59

Management’s Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over ﬁnancial

reporting (as deﬁned in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Our internal control over
ﬁnancial reporting is a process designed with the participation of our principal executive officer and principal
ﬁnancial officer or persons performing similar functions to provide reasonable assurance regarding the
reliability of ﬁnancial reporting and the preparation of our ﬁnancial statements for external reporting purposes
in accordance with U.S. generally accepted accounting principles. Our internal control over ﬁnancial reporting
includes policies and procedures that: (a) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reﬂect our transactions and dispositions of assets; (b) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of ﬁnancial statements in accordance with
U.S. generally accepted accounting principles, and that our receipts and expenditures are being made only in
accordance with authorizations of our management and Board of Directors; and (c) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets
that could have a material effect on our ﬁnancial statements.

Because of its inherent limitations, our internal controls and procedures may not prevent or detect

misstatements. A control system, no matter how well conceived and operated, can only provide reasonable, not
absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that all control issues and instances
of fraud, if any, have been detected. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions or that the degree of
compliance with the policies or procedures may deteriorate.

As of December 31, 2017, our management, with the participation of our President and Chief Executive

Officer and our Chief Financial Officer, conducted an evaluation of the effectiveness of our internal control
over ﬁnancial reporting based on the framework established in Internal Control — Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on
this evaluation, management has determined that our internal control over ﬁnancial reporting is effective as of
December 31, 2017.

KPMG LLP, the independent registered public accounting ﬁrm that audited our 2017 consolidated
ﬁnancial statements included in this Annual Report on Form 10-K, has issued an attestation report on our
internal control over ﬁnancial reporting. The report appears below.

60

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors
CAI International, Inc.:

Opinion on Internal Control Over Financial Reporting

We have audited CAI International, Inc. and subsidiaries’ (the Company) internal control over ﬁnancial
reporting as of December 31, 2017, based on criteria established in Internal Control — Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion,
the Company maintained, in all material respects, effective internal control over ﬁnancial reporting as of
December 31, 2017, based on criteria established in Internal Control — Integrated Framework (2013) issued
by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2017 and
2016, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash
ﬂows for each of the years in the three-year period ended December 31, 2017, and the related notes and
ﬁnancial statement schedule II (collectively, the consolidated ﬁnancial statements), and our report dated
February 27, 2018 expressed an unqualiﬁed opinion on those consolidated ﬁnancial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over ﬁnancial reporting
and for its assessment of the effectiveness of internal control over ﬁnancial reporting, included in the
accompanying Form 10-K. Our responsibility is to express an opinion on the Company’s internal control over
ﬁnancial reporting based on our audit. We are a public accounting ﬁrm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws
and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective internal control over ﬁnancial
reporting was maintained in all material respects. Our audit of internal control over ﬁnancial reporting
included obtaining an understanding of internal control over ﬁnancial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design and operating effectiveness of internal control
based on the assessed risk. Our audit also included performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Deﬁnition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over ﬁnancial reporting is a process designed to provide reasonable assurance
regarding the reliability of ﬁnancial reporting and the preparation of ﬁnancial statements for external purposes
in accordance with generally accepted accounting principles. A company’s internal control over ﬁnancial
reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reﬂect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of ﬁnancial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of
the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the ﬁnancial
statements.

Because of its inherent limitations, internal control over ﬁnancial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.

/s/ KPMG LLP

San Francisco, California
February 27, 2018

61

ITEM 9B: OTHER INFORMATION

None.

PART III

ITEM 10: DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by this item is incorporated herein by reference from our deﬁnitive proxy
statement for our 2018 Annual Meeting of Stockholders, which will be ﬁled no later than 120 days after
December 31, 2017.

Code of Ethics

We have a written Code of Business Conduct and Ethics in place that applies to all our employees,
including our principal executive officer, principal ﬁnancial officer, principal accounting officer and controller,
and persons performing similar functions. A copy of our Code of Business Conduct and Ethics is available on
our website at http://www.capps.com. We intend to use our website as a method of disseminating any change
to, or waiver from, our Code of Business Conduct and Ethics as permitted by the applicable SEC rules.

ITEM 11: EXECUTIVE COMPENSATION

The information required by this item is incorporated herein by reference from our deﬁnitive proxy
statement for our 2018 Annual Meeting of Stockholders, which will be ﬁled no later than 120 days after
December 31, 2017.

ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

AND RELATED STOCKHOLDER MATTERS

The information required by this item is incorporated herein by reference from our deﬁnitive proxy
statement for our 2018 Annual Meeting of Stockholders, which will be ﬁled no later than 120 days after
December 31, 2017.

ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR

INDEPENDENCE

The information required by this item is incorporated herein by reference from our deﬁnitive proxy
statement for our 2018 Annual Meeting of Stockholders, which will be ﬁled no later than 120 days after
December 31, 2017.

ITEM 14: PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required by this item is incorporated herein by reference from our deﬁnitive proxy
statement for our 2018 Annual Meeting of Stockholders, which will be ﬁled no later than 120 days after
December 31, 2017.

62

PART IV

ITEM 15: EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a)(1) Financial Statements.

The following ﬁnancial statements are included in Item 8 of this report:

Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets as of December 31, 2017 and 2016 . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Income for the years ended December 31, 2017, 2016 and 2015 . . . . . .
Consolidated Statements of Comprehensive Income for the years ended December 31, 2017, 2016

and 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2017, 2016 and
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015 . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(a)(2) Financial Statement Schedules.

Page
64
65
66

67

68
69
70

The following ﬁnancial statement schedule for the Company is ﬁled as part of this report:

Schedule II — Valuation Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

98

Schedules not listed above have been omitted because the information required to be set forth therein is

not applicable or is shown in the accompanying Consolidated Financial Statements or notes thereto.

(a)(3) List of Exhibits.

The exhibits set forth on the accompanying Exhibit Index immediately following the ﬁnancial

statement schedule are ﬁled as part of, or incorporated by reference into, this Annual Report on
Form 10-K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

99

ITEM 16: FORM 10-K SUMMARY

None.

63

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors
CAI International, Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of CAI International, Inc. and subsidiaries (the
Company) as of December 31, 2017 and 2016, the related consolidated statements of income, comprehensive
income, stockholders’ equity, and cash ﬂows for each of the years in the three-year period ended
December 31, 2017, and the related notes and ﬁnancial statement schedule II (collectively, the consolidated
ﬁnancial statements). In our opinion, the consolidated ﬁnancial statements present fairly, in all material
respects, the ﬁnancial position of the Company as of December 31, 2017 and 2016, and the results of its
operations and its cash ﬂows for each of the years in the three-year period ended December 31, 2017, in
conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (PCAOB), the Company’s internal control over ﬁnancial reporting as of December 31, 2017,
based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission, and our report dated February 27, 2018 expressed an
unqualiﬁed opinion on the effectiveness of the Company’s internal control over ﬁnancial reporting.

Basis for Opinion

These consolidated ﬁnancial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated ﬁnancial statements based on our audits. We are a
public accounting ﬁrm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the consolidated ﬁnancial statements
are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to
assess the risks of material misstatement of the consolidated ﬁnancial statements, whether due to error or
fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test
basis, evidence regarding the amounts and disclosures in the consolidated ﬁnancial statements. Our audits also
included evaluating the accounting principles used and signiﬁcant estimates made by management, as well as
evaluating the overall presentation of the consolidated ﬁnancial statements. We believe that our audits provide
a reasonable basis for our opinion.

/s/ KPMG LLP

We have served as the Company’s auditor since 1989.

San Francisco, California
February 27, 2018

64

CAI INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS
(In thousands, except share information)

December 31,
2017

December 31,
2016

Assets
Current assets

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash held by variable interest entities
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net of allowance for doubtful accounts of $1,440
and $1,340 at December 31, 2017 and 2016, respectively . . . . . . . . . . . . . . .
Current portion of net investment in direct ﬁnance leases . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rental equipment, net of accumulated depreciation of $505,546

and $421,153 at December 31, 2017 and 2016, respectively . . . . . . . . . . . . .
Net investment in direct ﬁnance leases . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets, net of accumulated amortization of $3,407

and $2,681 at December 31, 2017 and 2016, respectively . . . . . . . . . . . . . . .

Furniture, ﬁxtures and equipment, net of accumulated depreciation of $3,201

and $2,833 at December 31, 2017 and 2016, respectively . . . . . . . . . . . . . . .
Other non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

14,735
20,685

$

15,685
30,449

70,598
30,063
4,258
140,339
11,789

2,004,961
246,450
15,794

63,745
19,959
5,315
135,153
6,192

1,807,010
80,582
15,794

7,723

9,691

338
3,008
$2,430,402

550
962
$2,055,934

Liabilities and Stockholders’ Equity
Current liabilities

Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other current liabilities . . . . . . . . . . . . . . . . . . . . . .
Due to container investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unearned revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rental equipment payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long term liabilities
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

7,831
15,706
4,119
7,811
132,049
92,415
259,931
1,570,773
35,853
—
1,866,557

$

13,804
11,778
7,077
10,613
95,527
25,207
164,006
1,380,499
51,804
2,121
1,598,430

Stockholders’ equity
Common stock: par value $.0001 per share; authorized 84,000,000 shares; issued
and outstanding 20,390,622 and 19,057,217 shares at December 31, 2017 and
2016, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . .

2
172,325
(6,122)
397,640
563,845
$2,430,402

2
141,058
(8,132)
324,576
457,504
$2,055,934

(1) Total assets at December 31, 2017 and December 31, 2016 include the following assets of certain

variable interest entities (VIEs) that can only be used to settle the liabilities of those VIEs: Cash, $20,685
and $30,449; Net investment in direct ﬁnance leases, $4,423 and $7,331; and Rental equipment net of
accumulated depreciation, $61,842 and $62,477, respectively.

(2) Total liabilities at December 31, 2016 and December 31, 2015 include the following VIE liabilities for

which the VIE creditors do not have recourse to CAI International, Inc.: Current portion of debt, $22,549
and $30,980; Debt, $72,727 and $74,887, respectively.

See accompanying notes to consolidated ﬁnancial statements.

65

CAI INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)

Revenue
Container lease revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rail lease revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Logistics revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Operating expenses
. . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation of rental equipment
. . . . . . . . . . . . . . . . . . . . . .
Storage, handling and other expenses
Logistics transportation costs . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Gain) loss on sale of used rental equipment . . . . . . . . . . . . . . . . . .
Administrative expenses
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Year Ended December 31,
2016

2015

2017

$235,365
32,476
80,552
348,393

$202,328
30,490
61,536
294,354

$220,732
17,433
11,502
249,667

110,952
20,918
68,155
(5,347)
42,699
237,377

104,877
35,862
51,980
12,671
35,678
241,068

113,590
30,194
10,172
654
27,617
182,227

Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

111,016

53,286

67,440

Other expenses
Net interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

53,052
765
53,817

Income before income taxes and non-controlling interest . . . . . . .
Income tax (beneﬁt) expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .

57,199
(14,861)

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to non-controlling interest . . . . . . . . . . . . . .
Net income attributable to CAI common stockholders . . . . . . . . .

72,060
—
$ 72,060

Net income per share attributable to CAI common stockholders
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$
$

3.74
3.68

42,754
654
43,408

9,878
3,844

6,034
37
5,997

36,271
182
36,453

30,987
4,252

26,735
134
$ 26,601

0.31
0.31

$
$

1.28
1.27

$

$
$

Weighted average shares outstanding
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

19,253
19,607

19,318
19,393

20,773
20,988

See accompanying notes to consolidated ﬁnancial statements.

66

CAI INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Other comprehensive income, net of tax:
Foreign currency translation adjustments . . . . . . . . . . . . . . . . . . . . .
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .
Comprehensive income attributable to non-controlling interest
. . .
Comprehensive income attributable to CAI common stockholders

Year Ended December 31,
2016
$6,034

2015
$26,735

2017
$72,060

2,010
74,070
—
$74,070

(815)
5,219
37
$5,182

(2,245)
24,490
134
$24,356

See accompanying notes to consolidated ﬁnancial statements.

67

CAI INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)

Common Stock
Shares Amount

Balances as of December 31, 2014 . . . 20,788
Net income . . . . . . . . . . . . . . . . . . .
Foreign currency translation

$ 2
— —

Additional
Paid-In
Capital
$154,894
—

Accumulated
Other
Comprehensive
Loss
$(5,677)
—

Retained
Earnings
$291,978
26,601

Non-
Controlling
Interest
$ 789
134

Total
Equity
$441,986
26,735

adjustment . . . . . . . . . . . . . . . . . .
Repurchase of common stock . . . . . . .
Exercise of stock options . . . . . . . . . .
Stock based compensation − options . . .
Stock based compensation − restricted

stock . . . . . . . . . . . . . . . . . . . . .

Excess tax beneﬁt from share-based

— —

—
(1,089) — (12,997)
4,744
1,542

415 —
— —

21 —

373

3

(2,245)
—
—
—

—

—

—
—
—
—

—

—

compensation awards . . . . . . . . . . .

— —

Payment of income tax withheld on

vested restricted stock . . . . . . . . . .

Balances as of December 31, 2015 . . . 20,133
Net income . . . . . . . . . . . . . . . . . . .
Foreign currency translation

(2) —
2
— —

(36)
148,523
—

—
(7,922)
—

—
318,579
5,997

adjustment . . . . . . . . . . . . . . . . . .
Disposal of subsidiary . . . . . . . . . . . .
Repurchase of common stock . . . . . . .
Stock based compensation − options . . .
Stock based compensation − restricted

stock . . . . . . . . . . . . . . . . . . . . .

Payment of income tax withheld on

vested restricted stock . . . . . . . . . .

Balances as of December 31, 2016 . . . 19,057
Net income . . . . . . . . . . . . . . . . . . .
Adoption of ASU 2016-09 (Note 2(p)). .
Foreign currency translation

— —
— —
(1,104) —
— —

—
—
(9,176)
1,292

(815)
605
—
—

31 —

440

—

—
—
—
—

—

(3) —
2
— —
— —

(21)
141,058
—
—

—
(8,132)
—
—

—
324,576
72,060
1,004

adjustment . . . . . . . . . . . . . . . . . .

— —

—

2,010

Issuance of common stock, net of

offering costs . . . . . . . . . . . . . . . .
Exercise of stock options . . . . . . . . . .
Stock based compensation − options . . .
Stock based compensation − restricted

stock . . . . . . . . . . . . . . . . . . . . .

Payment of income tax withheld on

vested restricted stock . . . . . . . . . .

889 —
414 —
— —

29,148
145
1,593

37 —

494

—
—
—

—

—

—
—
—

—

—
—
—
—

—

—

—
923
37

—
(960)
—
—

—

—
—
—
—

—

—
—
—

—

(2,245)
(12,997)
4,744
1,542

373

3

(36)
460,105
6,034

(815)
(355)
(9,176)
1,292

440

(21)
457,504
72,060
1,004

2,010

29,148
145
1,593

494

Balances as of December 31, 2017 . . . 20,391

(6) —
$ 2

(113)
$172,325

—
$(6,122)

—
$397,640

—

(113)
$ — $563,845

See accompanying notes to consolidated ﬁnancial statements.

68

CAI INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

Year Ended December 31,
2016

2015

2017

Cash ﬂows from operating activities
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 72,060

$

6,034

$ 26,735

Adjustments to reconcile net income to net cash provided by operating

activities:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . .
Reduction in contingent consideration . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized loss on foreign exchange . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . .
(Gain) loss on sale of used rental equipment
Loss on disposal of subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bad debt expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Changes in other operating assets and liabilities:

Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other assets
. . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable, accrued expenses and other current liabilities . . . . . . .
Due to container investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unearned revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . .

Cash ﬂows from investing activities
Purchase of rental equipment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of used rental equipment
. . . . . . . . . . . . . . . . . . . . .
Disposal of subsidiary, net of cash disposed of . . . . . . . . . . . . . . . . . . . .
Purchase of furniture, ﬁxtures and equipment . . . . . . . . . . . . . . . . . . . . .
Receipt of principal payments from direct ﬁnance leases
. . . . . . . . . . . . .
Net cash used in investing activities
. . . . . . . . . . . . . . . . . . . . . . . . .

Cash ﬂows from ﬁnancing activities
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from debt
Principal payments on debt
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Increase) decrease in restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from issuance of stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchase of stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercise of stock options
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by ﬁnancing activities . . . . . . . . . . . . . . . . . . . . . .
Effect on cash of foreign currency translation . . . . . . . . . . . . . . . . . . . .
Net decrease in cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash at beginning of the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash at end of the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Supplemental disclosure of cash ﬂow information
Cash paid during the period for:

111,294
3,306
1,969
2,087
(2,211)
106
(5,347)
—
(14,947)
402

(7,802)
735
(2,206)
(2,958)
(1,296)
155,192

105,236
2,975
1,443
1,732
(3,789)
276
12,671
146
1,138
3,151

(1,799)
(2,691)
3,572
1,276
(2,115)
129,256

(502,050)
—
66,364
—
(126)
24,061
(411,751)

(251,165)
(15,599)
66,073
(460)
(82)
19,633
(181,600)

114,003
2,943
232
1,915
—
251
654
—
4,967
448

4,733
(81)
(3,654)
(7,183)
1,406
147,369

(389,331)
(4,100)
66,150
—
(83)
22,116
(305,248)

754,340
(527,850)
(3,441)
(5,597)
28,028
—
145
245,625
220
(10,714)
46,134
$ 35,420

552,540
(496,270)
(1,515)
1,020
—
(9,176)
—
46,599
(674)
(6,419)
52,553
$ 46,134

748,731
(581,739)
(3,226)
1,020
—
(12,997)
4,747
156,536
75
(1,268)
53,821
$ 52,553

Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest

$

194
47,596

$

889
38,491

$

2,340
33,124

Supplemental disclosure of non-cash investing and ﬁnancing activity
Transfer of rental equipment to direct ﬁnance lease . . . . . . . . . . . . . . . . .
Transfer of direct ﬁnance lease to rental equipment . . . . . . . . . . . . . . . . .
Rental equipment payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 205,033
413
92,415

$ 19,036
732
25,207

$ 30,604
—
10,901

See accompanying notes to consolidated ﬁnancial statements.

69

CAI INTERNATIONAL, INC.

Notes to Consolidated Financial Statements

(1) The Company and Nature of Operations

CAI International, Inc., together with its subsidiaries (collectively, CAI or the Company), is a
transportation ﬁnance and logistics company. The Company purchases equipment, primarily intermodal
shipping containers and railcars, which it leases to its customers. The Company also manages equipment for
third-party investors. In operating its ﬂeet, the Company leases, re-leases and disposes of equipment and
contracts for the repair, repositioning and storage of equipment. The Company also provides domestic and
international logistics services.

In July 2015, the Company purchased CAI Logistics (formerly ClearPointt Logistics LLC), an intermodal

logistics company focused on the domestic intermodal market, for approximately $4.1 million. CAI Logistics
is headquartered in Everett, Washington.

In February 2016, the Company purchased Challenger Overseas LLC (Challenger), a Non-Vessel

Operating Common Carrier (NVOCC), for approximately $10.8 million. Challenger is headquartered in
Eatontown, New Jersey.

In June 2016, the Company purchased Hybrid Logistics, Inc. and its affiliate, General Transportation
Services, Inc. (collectively, Hybrid), asset light truck brokers, for approximately $12.0 million. Hybrid is
headquartered in Portland, Oregon.

The Company’s common stock is traded on the New York Stock Exchange under the symbol ‘‘CAI’’. The

Company’s corporate headquarters are located in San Francisco, California.

(2) Summary of Signiﬁcant Accounting Policies

(a) Principles of Consolidation

The consolidated ﬁnancial statements include the ﬁnancial statements of CAI International, Inc., its

wholly-owned subsidiaries, and its previously 80%-owned subsidiary, CAIJ, Inc. (CAIJ), up to its date of
disposal in April 2016. All signiﬁcant intercompany balances and transactions have been eliminated in
consolidation.

The Company regularly performs a review of its container fund arrangements with investors to determine

whether or not it has a variable interest in the fund and if the fund is a variable interest entity (VIE). If it is
determined that the Company does not have a variable interest in the fund, further analysis is not required and
the Company does not consolidate the fund. If it is determined that the Company does have a variable interest
in the fund and the fund is a VIE, further analysis is performed to determine if the Company is the primary
beneﬁciary of the VIE and meets both of the following criteria under Financial Accounting Standards Board
(FASB) Accounting Standards Codiﬁcation (ASC) Topic 810:

•

•

it has power to direct the activities of the VIE that most signiﬁcantly impact the VIE’s economic
performance; and

it has the obligation to absorb losses of the VIE that could be potentially signiﬁcant to the VIE or
the right to receive beneﬁts from the VIE that could potentially be signiﬁcant to the VIE.

If in the Company’s judgment both of the above criteria are met, the VIE’s ﬁnancial statements are

included in the Company’s consolidated ﬁnancial statements as required under FASB ASC Topic 810,
Consolidation (see Note 4).

(b) Use of Estimates

Certain estimates and assumptions were made by the Company’s management 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 revenue and expenses during the reporting periods. Signiﬁcant items
subject to such estimates and assumptions include revenue recognition, allowances for receivables, the
carrying amount of rental equipment, the residual values and lives of rental equipment, and income tax
uncertainties. Actual results could differ from those estimates.

70

CAI INTERNATIONAL, INC.

Notes to Consolidated Financial Statements

(c) Furniture, Fixtures, and Equipment

Furniture, ﬁxtures, office equipment and software, are depreciated on a straight-line basis over estimated
useful lives of ﬁve years with no salvage value. Leasehold improvements are depreciated over the shorter of
their useful lives or the respective lease life.

(d) Rental equipment

Container

The Company purchases new container equipment from manufacturers to lease to its customers. The
Company also purchases used container equipment through sale-leaseback transactions with its customers, or
equipment that was previously owned by one of the Company’s third party investors. Used equipment is
typically purchased with an existing lease in place.

Container rental equipment is recorded at original cost and depreciated to an estimated residual value on

a straight-line basis over its estimated useful life. The estimated useful lives and residual values of the
Company’s container equipment are based on historical disposal experience and the Company’s expectations
for future used container sale prices. Depreciation estimates are reviewed on a regular basis to determine
whether sustained changes have taken place in the useful lives of equipment or the assigned residual values,
which would suggest that a change in depreciation estimates is warranted.

After the Company conducted its regular depreciation policy review for 2016, it concluded that a change
in the estimated residual value for 40-foot high cube dry van containers from $1,650 to $1,400 per container,
effective July 1, 2016, was appropriate. The change increased the Company’s depreciation expense by
$4.4 million and $5.4 million, decreased net income by $4.3 million and $5.2 million, and decreased diluted
earnings per share by $0.22 and $0.27, for the years ended December 31, 2017 and 2016, respectively. No
change to residual values was considered necessary during the year ended December 31, 2017.

The estimated useful lives and residual values for the majority of the Company’s container equipment

purchased new from the factory are as follows:

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20-ft. standard dry van container
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
40-ft. standard dry van container
40-ft. high cube dry van container
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20-ft. refrigerated container . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
40-ft. high cube refrigerated container . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Residual
Value
$1,050
$1,300
$1,400
$2,750
$3,500

Depreciable
Life in Years
13.0
13.0
13.0
12.0
12.0

Other specialized equipment is depreciated to its estimated residual value, which ranges from $1,000 to

$3,500, over its estimated useful life of between 12.5 years and 15 years.

For used container equipment acquired through sale-leaseback transactions, we often adjust our estimates

for remaining useful life and residual values based on current conditions in the sale market for older
containers and our expectations for how long the equipment will remain on-hire to the current lessee.

Rail

Railcar equipment is recorded at original cost and depreciated over its estimated useful life of 43 years to
its estimated residual value of $8,700 using the straight-line method. The useful life is based on an estimate of
the period over which the asset will generate revenue for the Company. Residual value is based on the
average estimated scrap value of the Company’s railcars. The Company periodically reviews the
appropriateness of its estimates of useful life and residual value based on changes in economic circumstances
and other factors.

71

CAI INTERNATIONAL, INC.

Notes to Consolidated Financial Statements

The Company’s railcars may undergo refurbishment and upgrade programs to, for example, extend their
useful life, meet higher car classiﬁcation grades, enter new product or service segments, increase the tonnage
carried, or to achieve higher utilization. The costs for these programs are capitalized.

Normal repairs and maintenance associated with the Company’s railcar assets are expensed as incurred.

(e) Impairment of Long-Lived Assets

On at least an annual basis, the Company evaluates its rental equipment ﬂeet to determine whether there

have been any events or changes in circumstances indicating that the carrying amount of all, or part, of its
ﬂeet may not be recoverable. Events which would trigger an impairment review include, among others, a
signiﬁcant decrease in the long-term average market value of rental equipment, a signiﬁcant decrease in the
utilization rate of rental equipment resulting in an inability to generate income from operations and positive
cash ﬂow in future periods, or a change in market conditions resulting in a signiﬁcant decrease in lease rates.

When testing for impairment, equipment is generally grouped by rental type, and is tested separately
from other groups of assets and liabilities. Potential impairment exists when the estimated future undiscounted
cash ﬂows generated by an asset group, comprised of lease proceeds and residual values, less related operating
expenses, are less than the carrying value of that asset group. If potential impairment exists, the equipment is
written down to its fair value. In determining the fair value of an asset group, the Company considers market
trends, published value for similar assets, recent transactions of similar assets and in certain cases, quotes
from third party appraisers. During the year ended December 31, 2015, the market conditions for certain
off-lease containers changed which resulted in their carrying value exceeding their fair value. The fair value
was estimated based on recent gross sales proceeds for sales of similar containers and management’s judgment
of market conditions. The resulting impairment charge of $24.5 million relating to the container leasing
segment is included in depreciation expense in the consolidated statement of income. No impairment charges
were recorded in 2017 and 2016.

(f) Intangible Assets

Intangible assets with deﬁnite useful lives are reviewed for impairment whenever events or changes in
circumstances indicate an asset’s carrying value may not be recoverable. The Company amortizes intangible
assets on a straight-line basis over their estimated useful lives as follows:

Trademarks and tradenames . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2 − 3 years
5 − 8 years

(g) Goodwill

In connection with the acquisitions of CAI Logistics in 2015 and Challenger and Hybrid in 2016, the

Company recorded $15.8 million of goodwill. Goodwill represents the excess of the purchase price over the
fair value of the net assets acquired in a business combination. Goodwill is not amortized but is evaluated for
impairment at the reporting unit level annually, or more frequently if events or changes in circumstances
indicate that impairment may exist.

The Company assesses qualitative factors such as industry and market considerations, overall ﬁnancial
performance and other relevant events and factors affecting a reporting unit to determine if it is more likely
than not that impairment may exist and whether it is necessary to perform the quantitative goodwill
impairment test. This involves comparing the fair value to the carrying value of each reporting unit that has
goodwill assigned to it. The Company recognizes an impairment charge for the amount by which the carrying
value of the reporting unit exceeds the fair value. The Company performed the annual impairment test during
the fourth quarter of 2017 and concluded that there was no impairment of goodwill.

(h) Direct Finance Leases

Interest on ﬁnance leases is recognized using the effective interest method. Lease income is recorded in
decreasing amounts over the term of the contract, resulting in a level rate of return on the net investment in
direct ﬁnance leases.

72

CAI INTERNATIONAL, INC.

Notes to Consolidated Financial Statements

(i) Debt Issuance Costs

To the extent that the Company is required to pay issuance fees or direct costs relating to its debt and

credit facilities, such fees are amortized over the lives of the related debt using the effective interest method
and reﬂected in interest expense. Unamortized debt issuance costs of $11.7 million and $11.2 million are
presented as a reduction of debt on the Company’s consolidated balance sheets as of December 31, 2017 and
2016, respectively.

(j) Foreign Currency Translation

The accounts of the Company’s foreign subsidiaries have been converted at rates of exchange in effect at

year-end for balance sheet accounts and average exchange rates for the year for income statement accounts.
The effects of changes in exchange rates in translating foreign subsidiaries’ ﬁnancial statements are included
in stockholders’ equity as accumulated other comprehensive income.

(k) Accounts Receivable

Amounts billed under leases for equipment owned by the Company, as well as amounts due from
customers for the provision of logistics services, are recorded in accounts receivable. The Company estimates
an allowance for doubtful accounts for accounts receivable it does not consider fully collectible. The
allowance for doubtful accounts is developed based on two key components: (1) speciﬁc reserves for
receivables for which management believes full collection is doubtful; and (2) a general reserve for estimated
losses inherent in the receivables. The general reserve is estimated by applying certain percentages to
receivables that have not been speciﬁcally reserved, ranging from 1.0% on accounts that are one to thirty days
overdue, to 100% on accounts that are one year or more overdue. The allowance for doubtful accounts is
reviewed regularly by management and is based on the risk proﬁle of the receivables, credit quality indicators
such as the level of past due amounts and non-performing accounts and economic conditions. Changes in
economic conditions or other events may necessitate additions or deductions to the allowance for doubtful
accounts. The allowance is intended to provide for losses inherent in the company’s accounts receivable, and
requires the application of estimates and judgments as to the outcome of collection efforts and the realization
of collateral, among other things.

Amounts billed under leases for equipment owned by third-party investors are also recorded in accounts

receivable with a corresponding credit to due to container investors account. The credit risk on accounts
receivable related to managed equipment is the responsibility of the third-party investors. Under the
Company’s management agreements with investors, the third-party investors are obligated to reimburse the
Company for any amounts the Company had previously paid to them in advance of receiving the amount from
the equipment lessee if the Company is unable to ultimately collect any amount due from a managed
equipment lessee. Accounts receivable attributable to the managed ﬂeet included in accounts receivable as of
December 31, 2017 and 2016 was $2.3 million and $5.1 million, respectively.

(l) Income Taxes

Income taxes are accounted for using the asset-and-liability method. Under this method, deferred income

taxes are recognized for the future tax consequences of differences between the tax bases of assets and
liabilities and their ﬁnancial reporting amounts at each year-end. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Valuation allowances are established when it is more likely
than not that deferred tax assets will not be recovered.

The Company recognizes the effect of income tax positions only if those positions are more likely than

not of being sustained. Recognized income tax positions are measured at the largest amount that is greater
than 50% likely of being realized. Changes in recognition or measurement are reﬂected in the period in which
the change in judgment occurs. The Company records penalties and interest related to unrecognized tax
beneﬁts within income tax expense (see Note 12).

73

CAI INTERNATIONAL, INC.

Notes to Consolidated Financial Statements

(m) Revenue Recognition

The Company provides a range of services to its customers incorporating rental, sale and management of
equipment and the provision of logistics services. Revenue for all forms of service is recognized when earned
following the guidelines under FASB ASC Topic 605, Revenue Recognition and FASB ASC Topic 840,
Leases. Revenue is reported net of any related sales tax.

Container and Rail Lease Revenue

The Company recognizes revenue from operating leases of its owned equipment as earned over the term

of the lease. Where minimum lease payments vary over the lease term, revenue is recognized on a
straight-line basis over the term of the lease. The Company recognizes revenue on a cash basis for certain
railcar leases that are billed on an hourly or mileage basis through a third-party railcar manager. Early
termination of the rental contracts subjects the lessee to a penalty, which is included in lease revenue upon
such termination. Finance lease income is recognized using the effective interest method, which generates a
constant rate of interest over the period of the lease.

Included in lease revenue is revenue consisting primarily of fees charged to the lessee for handling,
delivery, repairs, and fees relating to the Company’s damage protection plan, which are recognized as earned.

Also included in lease revenue is revenue from management fees earned under equipment management
agreements as earned on a monthly basis. Management fees are typically a percentage of net operating income
of each investor group’s ﬂeet calculated on an accrual basis. Included in the Company’s balance sheet are
accounts receivable from the managed ﬂeet which are uncollected lease billings related to managed
equipment. The Company’s ﬁnancial statements include accounts payable and accruals of expenses related to
managed equipment. The net amount of rentals billed less expenses payable, less management fees, is
recorded in amounts due to container investors on the balance sheet.

Logistics Revenue

The Company’s logistics business derives its revenue from three principal sources: (1) truck brokerage

services, (2) intermodal transportation services, and (3) international ocean freight and freight forwarding
services. The Company recognizes logistics revenue when these services are provided to its customers. For
truck brokerage services, revenue is recognized when delivery has been completed, due to the short transit
time related to these services. Intermodal transportation services can take a longer time to complete; for any
such services not completed at the end of a reporting period, a percentage of completion method is used to
allocate the appropriate revenue to each separate reporting period using relative transit time. The Company
provides international freight forwarding services as an indirect carrier, sometimes referred to as a Non-Vessel
Operating Common Carrier (NVOCC). When the Company acts as an NVOCC with respect to shipments of
freight, a House Ocean Bill of Lading (HOBL) is typically issued to the customer. Based upon the terms in
the contract of carriage (the HOBL), revenue and purchased transportation costs for these shipments are
recognized at the time the freight departs the terminal of origin, which is when the customer is billed and the
Company has no further obligation to the customer.

The Company reports logistics revenue on a gross basis as it is the primary obligor and responsible for

providing the services desired by the customer. The Company is responsible for fulﬁllment, including the
acceptability of the service, and has discretion in setting sales prices and as a result, its earnings may vary.
The Company also has discretion in selecting vendors from multiple suppliers for the services ordered by the
customers. Lastly, the Company has credit risk for the related receivables.

74

CAI INTERNATIONAL, INC.

Notes to Consolidated Financial Statements

(n) Stock-Based Compensation

The Company has granted stock options and restricted stock to certain directors and employees under its
2007 Equity Incentive Plan. The Company accounts for stock-based compensation in accordance with FASB
ASC Topic 718, Compensation — Stock Compensation, which requires that compensation cost related to
stock-based compensation be recognized in the ﬁnancial statements. The cost is measured at the date the
award is granted based on the fair value of the award. The fair value of stock options is calculated using the
Black-Scholes-Merton option pricing model. The stock-based compensation expense is recognized over the
vesting period of the grant on a straight-line basis (see Note 11). The company accounts for forfeitures as they
occur.

(o) Repairs and Maintenance

The Company’s leases generally require the lessee to pay for any damage to the equipment beyond

normal wear and tear at the end of the lease term. The Company accounts for repairs and maintenance
expense on an accrual basis when an obligation to pay has been incurred.

(p) Recent Accounting Pronouncements

In March 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update

(ASU) No. 2016-09, Improvements to Employee Share-Based Payment Accounting (ASU 2016-09) to simplify
certain aspects of the accounting for share-based payment transactions to employees. The new standard
requires excess tax beneﬁts and tax deﬁciencies to be recorded in the statement of income as a component of
the provision for income taxes when stock awards vest or are settled. In addition, it eliminates the requirement
to reclassify cash ﬂows related to excess tax beneﬁts from operating activities to ﬁnancing activities on the
consolidated statements of cash ﬂows. The standard also provides an accounting policy election to account for
forfeitures as they occur. The Company adopted ASU 2016-09 effective January 1, 2017. Accordingly, excess
tax beneﬁts or deﬁciencies from stock-based compensation are now reﬂected in the consolidated statements of
income as a component of the provision for income taxes, whereas they were previously recognized in equity.
The Company also elected to account for forfeitures as they occur, rather than estimate expected forfeitures.
As a result of the adoption of ASU 2016-09, the Company recognized $1.0 million in deferred tax assets
associated with excess tax beneﬁts not previously recognized in deferred taxes as a cumulative-effect
adjustment to retained earnings as of January 1, 2017. Adoption of the new standard also resulted in a beneﬁt
of $1.8 million on our provision for income taxes for the year ended December 31, 2017. The Company
elected to adopt the aspects of the standard affecting cash ﬂow presentation prospectively, which did not have
a material impact on the consolidated statements of cash ﬂows.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles — Goodwill and Other (Topic 350):
Simplifying the Test for Goodwill Impairment (ASU 2017-04), which eliminates step two from the goodwill
impairment test. Under ASU 2017-04, an entity should recognize an impairment charge for the amount by
which the carrying amount of a reporting unit exceeds its fair value up to the amount of goodwill allocated to
that reporting unit. The Company early adopted ASU 2017-04 effective January 1, 2017. Adoption of the
standard did not have a material impact on the Company’s consolidated ﬁnancial statements.

(3) Insurance Receivable and Impairment

In August 2016, Hanjin Shipping Co., Ltd. (Hanjin) ﬁled for court protection from its creditors. Based on

the recovery of Hanjin containers to date and prior experience, the Company believes that most of its
containers will be recovered. As of December 31, 2017, the Company has recovered approximately 92% of
the containers that were on lease to Hanjin. The Company maintains insurance to cover the value of
containers that are unlikely to be recovered from its customers, the cost to recover and repair containers, and
up to 180 days of lost lease rental income, subject to deductibles of $0.5 million and $2.0 million.

75

CAI INTERNATIONAL, INC.

Notes to Consolidated Financial Statements

During the year ended December 31, 2016, the Company recorded an impairment of $3.2 million
representing the book value of containers the Company estimated would not be recovered from Hanjin. As of
December 31, 2016, an insurance receivable of $3.8 million was recorded for $1.2 million of estimated
irrecoverable containers in excess of the insurance deductible, which was recorded in depreciation expense,
and $2.6 million of recovery costs, which was recorded as a reduction to storage, handling and other expenses
for the year ended December 31, 2016. During the year ended December 31, 2017, the Company recorded an
additional insurance receivable of $7.6 million for $2.2 million of lost lease rental income, recognized as
container lease revenue, and $1.5 million of repair costs and $3.9 million of recovery costs, recorded as a
reduction to storage, handling and other expenses. The Company also received insurance proceeds of
$9.5 million, which were recorded as a reduction to the insurance receivable. As of December 31, 2017, the
insurance receivable related to this claim was $1.9 million.

(4) Consolidation of Variable Interest Entities as a Non-Controlling Interest

The Company regularly performs a review of its container fund arrangements with investors to determine

whether or not it has a variable interest in the fund and if the fund is a VIE. If it is determined that the
Company does not have a variable interest in the fund, further analysis is not required and the Company does
not consolidate the fund. If it is determined that the Company does have a variable interest in the fund and
the fund is a VIE, further analysis is performed to determine if the Company is a primary beneﬁciary of the
VIE and meets both of the following criteria under FASB ASC Topic 810:

•

•

it has power to direct the activities of the VIE that most signiﬁcantly impact the VIE’s economic
performance; and

it has the obligation to absorb losses of the VIE that could be potentially signiﬁcant to the VIE or
the right to receive beneﬁts from the VIE that could potentially be signiﬁcant to the VIE.

If in the Company’s judgment both of the above criteria are met, the VIE’s ﬁnancial statements are

included in the Company’s consolidated ﬁnancial statements as required under FASB ASC Topic 810,
Consolidation.

The Company currently enters into two types of container fund arrangements with investors which are
reviewed under FASB ASC Topic 810, Consolidation. These arrangements include container funds that the
Company manages for investors and container funds that have entered into ﬁnancing arrangements with
investors. All of the funds under ﬁnancing arrangements are Japanese container funds that were established
under separate investment agreements allowed under Japanese commercial laws (see Note 15). Each of the
funds is ﬁnanced by unrelated Japanese third-party investors.

Managed Container Funds

The fees earned by the Company for arranging, managing and establishing container funds are

commensurate with the level of effort required to provide those services, and are at or above the same level of
seniority as other liabilities of the funds that are incurred in the normal course of business. As such, the
Company does not have a variable interest in the managed container funds, and does not consolidate those
funds. The Company recognizes gain on sale of containers to the unconsolidated funds as sales in the ordinary
course of business. No container portfolios were sold to the funds in the years ended December 31, 2017,
2016 and 2015.

Collateralized Financing Obligations

The Company has transferred containers to Japanese investor funds while concurrently entering into lease

agreements for the same containers, under which the Company leases the containers back from the Japanese
investors. In accordance with FASB ASC Topic 840, Sale-Leaseback Transactions, the Company concluded
these were ﬁnancing transactions under which sale-leaseback accounting was not applicable.

76

CAI INTERNATIONAL, INC.

Notes to Consolidated Financial Statements

The terms of the transactions with container funds under ﬁnancing arrangements include options for the

Company to purchase the containers from the funds at a ﬁxed price. As a result of the residual interest
resulting from the ﬁxed price call option, the Company concluded that it may absorb a signiﬁcant amount of
the variability associated with the funds’ anticipated economic performance and, as a result, the Company has
a variable interest in the funds. The funds are considered VIEs under FASB ASC Topic 810, Consolidation,
because, as lessee of the funds, the Company has the power to direct the activities that most signiﬁcantly
impact each entity’s economic performance, including the leasing and managing of containers owned by the
funds. As the Company has the power to direct the activities that most signiﬁcantly impact the economic
performance of the VIEs and the variable interest provides the Company with the right to receive beneﬁts
from the entity that could potentially be signiﬁcant to the funds, the Company determined that it is the
primary beneﬁciary of these VIEs and included the VIEs’ assets and liabilities as of December 31, 2017 and
2016, and the results of the VIEs’ operations and cash ﬂows for the years ended December 31, 2017, 2016
and 2015 in the Company’s consolidated ﬁnancial statements.

The containers that were transferred to the Japanese investor funds had a net book value of $70.0 million

as of December 31, 2017. The container equipment, together with $20.7 million of cash held by the investor
funds that can only be used to settle the liabilities of the VIEs, has been included on the Company’s
consolidated balance sheet with the related liability presented in the debt section of the Company’s
consolidated balance sheet as collateralized ﬁnancing obligations of $92.0 million and term loans held by VIE
of $3.3 million. See Note 10(e) and Note 10(f) for additional information. No gain or loss was recognized by
the Company on the initial consolidation of the VIEs. Containers sold to the Japanese investor funds during
the years ended December 31, 2017, 2016 and 2015, had book values of $20.5 million, $36.2 million and
$30.4 million, respectively.

(5) Acquisitions

In 2016, the Company completed the acquisitions of Challenger and Hybrid, for total consideration of
$22.8 million, $6.0 million of which was contingent and based on their future performance. The aggregate
allocation of the combined purchase price included $1.2 million of cash, $9.9 million of identiﬁable intangible
assets, $12.9 million of residual goodwill, and $1.2 million of net liabilities assumed.

The contingent consideration liability was $2.2 million as of December 31, 2016. Expected future
payments of $2.1 million and $0.1 million were recorded in Other long-term liabilities and Accrued expenses
and Other current liabilities, respectively, in the Company’s consolidated balance sheet at December 31, 2016.
Based on the forecasted future performance of Challenger and Hybrid, it has been estimated that there will be
no future payments made and, as a result, the fair value of the contingent consideration liability has been
estimated to be zero at December 31, 2017.

The following table provides a reconciliation of the contingent consideration liability measured at
estimated fair value based on the balance as of December 31, 2016 and updated quarterly for the year ended
December 31, 2017 (in thousands):

January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net decrease in estimated fair value of contingent consideration included in Administrative

2017
$ 2,211

expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(2,211)
$ —

77

CAI INTERNATIONAL, INC.

Notes to Consolidated Financial Statements

(6) Rental Equipment

The following table provides a summary of the Company’s rental equipment (in thousands):

Dry containers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Refrigerated containers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other specialized equipment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Railcars . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rental equipment, net of accumulated depreciation . . . . . . . . . . . . . . . . . . . .

December 31,
2017
$1,533,063
345,744
160,529
471,171
2,510,507
(505,546)
$2,004,961

December 31,
2016
$1,322,508
350,776
164,934
389,945
2,228,163
(421,153)
$1,807,010

(7) Net Investment in Direct Finance Leases

The following table represents the components of the Company’s net investment in direct ﬁnance leases

(in thousands):

Gross ﬁnance lease receivables(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unearned income(2)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net investment in direct ﬁnance leases . . . . . . . . . . . . . . . . . . . . . . . . . . . .

December 31,
2017
$ 412,489
(135,976)
$ 276,513

December 31,
2016
$123,563
(23,022)
$100,541

(1) At the inception of the lease, the Company records the total minimum lease payments, executory costs, if

any, and unguaranteed residual value as gross ﬁnance lease receivables. The gross ﬁnance lease
receivables are reduced as customer payments are received. There was $34.4 million and $2.1 million
unguaranteed residual value at December 31, 2017 and 2016, respectively, included in gross ﬁnance lease
receivables. There were no executory costs included in gross ﬁnance lease receivables as of
December 31, 2017 and 2016.

(2) The difference between the gross ﬁnance lease receivables and the cost of the equipment or carrying
amount at the lease inception is recorded as unearned income. Unearned income, together with initial
direct costs, are amortized to income over the lease term so as to produce a constant periodic rate of
return. There were no unamortized initial direct costs as of December 31, 2017 and 2016.

In order to estimate the allowance for losses contained in the gross ﬁnance lease receivables, the

Company reviews the credit worthiness of its customers on an ongoing basis. The review includes monitoring
credit quality indicators, the aging of customer receivables and general economic conditions.

The categories of gross ﬁnance lease receivables based on the Company’s internal customer credit ratings

can be described as follows:

Tier 1 — These customers are typically large international shipping lines that have been in business for
many years and have world-class operating capabilities and signiﬁcant ﬁnancial resources. In most cases, the
Company has had a long commercial relationship with these customers and currently maintains regular
communication with them at several levels of management, which provides the Company with insight into the
customer’s current operating and ﬁnancial performance. In the Company’s view, these customers have the
greatest ability to withstand cyclical down turns and would likely have greater access to needed capital than
lower-rated customers. The Company views the risk of default for Tier 1 customers to range from minimal to
moderate.

Tier 2 — These customers are typically either smaller shipping lines or freight forwarders with less

operating scale or with a high degree of ﬁnancial leverage, and accordingly the Company views these
customers as subject to higher volatility in ﬁnancial performance over the business cycle. The Company
generally expects these customers to have less access to capital markets or other sources of ﬁnancing during
cyclical down turns. The Company views the risk of default for Tier 2 customers as moderate.

78

CAI INTERNATIONAL, INC.

Notes to Consolidated Financial Statements

Tier 3 — Customers in this category exhibit volatility in payments on a regular basis.

Based on the above categories, the Company’s gross ﬁnance lease receivables were as follows

(in thousands):

Tier 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tier 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tier 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

December 31,
2017
$366,629
45,860
—
$412,489

December 31,
2016
$ 74,777
48,786
—
$123,563

Contractual maturities of the Company’s gross ﬁnance lease receivables subsequent to December 31,

2017 for the years ending December 31 are as follows (in thousands):

2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 and thereafter

$ 53,102
67,539
38,387
38,358
31,127
183,976
$412,489

(8) Intangible Assets

The Company’s intangible assets as of December 31, 2017 and 2016 were as follows (in thousands):

December 31, 2017

Trademarks and tradenames . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer relationships

December 31, 2016

Trademarks and tradenames . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer relationships

Gross
Carrying
Amount

$ 1,786
9,344
$11,130

$ 3,028
9,344
$12,372

Accumulated
Amortization

Net Carrying
Amount

$(1,411)
(1,996)
$(3,407)

$(1,850)
(831)
$(2,681)

$ 375
7,348
$7,723

$1,178
8,513
$9,691

Amortization expense recorded for the years ended December 31, 2017, 2016 and 2015 was $2.0 million,

$1.4 million and $0.2 million, respectively, and was included in administrative expenses in the consolidated
statements of income.

As of December 31, 2017, estimated future amortization expenses are as follows (in thousands):

2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 and thereafter

$1,984
1,609
1,609
1,518
474
529
$7,723

79

CAI INTERNATIONAL, INC.

Notes to Consolidated Financial Statements

(9) Equipment Leases

The Company leases its equipment on either short-term operating leases through master lease agreements,

long-term non-cancelable operating leases, or ﬁnance leases. The following represents future minimum rents
receivable under long-term non-cancelable operating leases as of December 31, 2017 (in thousands):

2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 and thereafter

$174,369
128,418
98,614
76,239
54,290
175,068
$706,998

See Note 7 for contractual maturities of the Company’s gross ﬁnance lease receivables.

(10) Debt

Details of the Company’s debt as of December 31, 2017 and 2016 were as follows (dollars in thousands):

December 31, 2017

December 31, 2016

Reference
(a)(i)
(a)(ii)
(a)(iii)
(b)(i)
(b)(ii)
(b)(iii)
(b)(iv)
(b)(v)
(c)
(d)
(e)
(f)

Revolving credit facility . . . . . . . . . $
Revolving credit facility − Rail . . . . .
Revolving credit facility − Euro. . . . .
Term loan. . . . . . . . . . . . . . . . . . .
Term loan. . . . . . . . . . . . . . . . . . .
Term loan. . . . . . . . . . . . . . . . . . .
Term loan. . . . . . . . . . . . . . . . . . .
Term loan. . . . . . . . . . . . . . . . . . .
Senior secured notes . . . . . . . . . . . .
Asset-backed notes . . . . . . . . . . . . .
Collateralized ﬁnancing obligations . .
Term loans held by VIE . . . . . . . . .

Debt issuance costs
Total Debt

Outstanding

Current

Long-term
— $ 528,000
272,000
—
14,736
—
—
21,900
111,750
9,000
82,500
7,000
16,524
1,198
43,560
2,805
58,885
6,110
377,984
65,307
69,441
22,549
—
3,286
1,578,666
135,869
(7,893)
(3,820)
$1,570,773
$132,049

Average
Interest

Outstanding
Current Long-term
3.2% $ — $ 526,000
223,500
—
3.2%
—
2.0%
1,800
3.4%
9,000
3.1%
7,000
3.3%
1,158
3.4%
2,705
3.6%
6,110
4.9%
40,000
3.5%
28,693
1.2%
2,287
2.7%
98,753
(3,226)
$95,527

21,900
120,750
89,500
17,723
46,365
64,995
202,875
71,346
3,541
1,388,495
(7,996)
$1,380,499

Average
Interest
2.5%
2.4%

Maturity
March 2020
October 2020
— 0.0% September 2020
April 2018
2.9%
October 2019
2.3%
2.5%
June 2021
3.4% December 2020
3.6%
August 2021
4.9% September 2022
3.4%
June 2042
1.1% December 2020
June 2019
2.5%

(a) Revolving Credit Facilities

Revolving credit facilities consist of the following:

(i) On March 15, 2013, the Company entered into a Third Amended and Restated Revolving Credit
Agreement, as amended, with a consortium of banks to ﬁnance the acquisition of container rental equipment
and for general working capital purposes. On June 16, 2017, the Company entered into an amendment to the
Third Amended and Restated Revolving Credit Agreement, pursuant to which the revolving credit facility was
amended to increase the commitment level from $775.0 million to $960.0 million.

80

CAI INTERNATIONAL, INC.

Notes to Consolidated Financial Statements

As of December 31, 2017, the maximum commitment under the revolving credit facility was

$960.0 million. There is a commitment fee on the unused amount of the total commitment, payable quarterly
in arrears. The revolving credit facility provides that swing line loans (short-term borrowings of up to
$25.0 million in the aggregate that are payable within 10 business days or at maturity date, whichever comes
earlier) and standby letters of credit (up to $30.0 million in the aggregate) will be available to the Company.
These credit commitments are part of, and not in addition to, the total commitment provided under the
revolving credit facility. The interest rates vary depending upon whether the loans are characterized as Base
Rate loans or Eurodollar rate loans, as deﬁned in the revolving credit agreement. Interest rates are based on
LIBOR for Eurodollar loans and Base Rate for Based Rate loans. In addition to various ﬁnancial and other
covenants, the Company’s revolving credit facility also includes certain restrictions on the Company’s ability
to incur other indebtedness or pay dividends to stockholders. As of December 31, 2017, the Company was in
compliance with the terms of the revolving credit facility.

As of December 31, 2017, the Company had $431.9 million in availability under the revolving credit

facility (net of $0.1 million in letters of credit) subject to its ability to meet the collateral requirements
under the agreement governing the facility. Based on the borrowing base and collateral requirements at
December 31, 2017, the borrowing availability under the revolving credit facility was $95.8 million, assuming
no additional contribution of assets. The entire amount of the facility drawn at any time plus accrued interest
and fees is callable on demand in the event of certain speciﬁed events of default.

The Company’s revolving credit facility, including any amounts drawn on the facility, is secured by

substantially all of the assets of the Company (not otherwise used as security for its other credit facilities)
including containers owned by the Company, which had a net book value of $749.7 million as of
December 31, 2017, the underlying leases and the Company’s interest in any money received under such
contracts.

(ii) On October 22, 2015, the Company and CAI Rail Inc. (CAI Rail), a wholly-owned subsidiary of the
Company, entered into the Second Amended and Restated Revolving Credit Agreement with a consortium of
banks, pursuant to which the revolving credit facility for CAI Rail was amended to extend the maturity date
to October 22, 2020, reduce the interest rate, increase the commitment level from $250.0 million to
$500.0 million, which may be increased up to a maximum of $700.0 million subject to certain conditions, and
revise certain of the covenants and restrictions under the prior facility to provide the Company with additional
ﬂexibility. As of December 31, 2017, the maximum credit commitment under the revolving line of credit was
$500.0 million.

Borrowings under this revolving credit facility bear interest at a variable rate. The interest rates vary
depending upon whether the loans are characterized as Base Rate loans or Eurodollar rate loans, as deﬁned in
the revolving credit agreement. Interest rates are based on LIBOR for Eurodollar loans, and Base Rate for
Base Rate loans.

As of December 31, 2017, CAI Rail had $228.0 million in availability under the revolving credit facility,

subject to its ability to meet the collateral requirements under the agreement governing the facility. Based on
the borrowing base and collateral requirements at December 31, 2017, the borrowing availability under the
revolving credit facility was $2.7 million, assuming no additional contribution of assets. The entire amount of
the facility drawn at any time plus accrued interest and fees is callable on demand in the event of certain
speciﬁed events of default.

The agreement governing CAI Rail’s revolving credit facility contains various ﬁnancial and other
covenants. As of December 31, 2017, CAI Rail was in compliance with the terms of the revolving credit
facility. CAI Rail’s revolving credit facility, including any amounts drawn on the facility, is secured by all of
the assets of CAI Rail, which had a net book value of $343.4 million as of December 31, 2017, and is
guaranteed by the Company.

81

CAI INTERNATIONAL, INC.

Notes to Consolidated Financial Statements

(iii) On September 23, 2016, the Company and CAI International GmbH (CAI GmbH), a wholly-owned
subsidiary of the Company, entered into a Revolving Credit Agreement with a ﬁnancial institution to ﬁnance
the acquisition of rental equipment. As of December 31, 2017, the maximum credit commitment under the
revolving credit facility was €25.0 million. Borrowings under this revolving credit facility bear interest at a
variable rate. Interest rates are based on EURIBOR.

As of December 31, 2017, CAI GmbH had €12.7 million in availability under the revolving credit
facility, subject to its ability to meet the collateral requirements under the agreement governing the facility.
Based on the borrowing base and collateral requirements at December 31, 2017, the borrowing availability
under the revolving credit facility was €1.4 million, assuming no additional contribution of assets. The entire
amount of the facility drawn at any time plus accrued interest and fees is callable on demand in the event of
certain speciﬁed events of default.

The agreement governing CAI GmbH’s revolving credit facility containers various ﬁnancial and other
covenants. As of December 31, 2017, CAI GmbH was in compliance with the terms of the revolving credit
facility. CAI GmbH’s revolving credit facility, including any amounts drawn on the facility, is secured by all
of the assets of CAI GmbH, which had a net book value of €18.3 million as of December 31, 2017, and is
guaranteed by the Company.

(b) Term Loans
Term loans consist of the following:

(i) On March 22, 2013, the Company entered into a $30.0 million ﬁve-year term loan agreement with

Development Bank of Japan (DBJ). The loan is payable in 19 quarterly installments of $0.5 million starting
July 31, 2013 and a ﬁnal payment of $21.5 million on April 30, 2018. The loan bears interest at variable rates
based on LIBOR. As of December 31, 2017, the loan had a balance of $21.9 million.

The following are the estimated future principal and interest payments under these loans as of

December 31, 2017 (in thousands). The payments were calculated assuming the interest rate remains 3.4%
through maturity of the loan.

2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Less: Amount representing interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Term loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$22,268
22,268
(368)
$21,900

(ii) On December 20, 2010, the Company entered into a term loan agreement with a consortium of
banks. Under this loan agreement, the Company was eligible to borrow up to $300.0 million, subject to
certain borrowing conditions, which amount is secured by certain assets of the Company’s wholly-owned
foreign subsidiaries. The loan agreement is an amortizing facility with a term of six years. The interest rates
vary depending upon whether the loans are characterized as Base Rate loans or Eurodollar rate loans, as
deﬁned in the term loan agreement. The loan bears a variable interest rate based on LIBOR for Eurodollar
loans, and Base Rate for Base Rate loans.

On March 28, 2013, the term loan was amended which reduced the principal balance of the loan from

$249.4 million to $125.0 million through payment of $124.4 million from the proceeds of the $229.0 million
ﬁxed-rate asset-backed notes issued by the Company’s indirect wholly-owned subsidiary, CAL Funding II
Limited (CAL II) (see Note 10 (d) below).

On October 1, 2014, the Company entered into an amended and restated term loan agreement with a

consortium of banks, pursuant to which the prior loan agreement was reﬁnanced. The amended and restated
term loan agreement, which contains similar terms to the prior loan agreement, was amended to, among other
things: (a) reduce the borrowing rates from LIBOR plus 2.25% to LIBOR plus 1.6% (per annum) for
Eurodollar loans, (b) increase the loan commitment from $115.0 million to $150.0 million, (c) extend the
maturity date to October 1, 2019, and (d) revise certain of the covenants and restrictions under the prior loan
agreement to provide the Company with additional ﬂexibility. As of December 31, 2017, the term loan had a
balance of $120.8 million.

82

CAI INTERNATIONAL, INC.

Notes to Consolidated Financial Statements

The following are the estimated future principal and interest payments under this loan as of

December 31, 2017 (in thousands). The payments were calculated assuming the interest rate remains 3.1%
through maturity of the loan.

2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Less: Amount representing interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Term loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 12,690
114,436
127,126
(6,376)
$120,750

(iii) On April 11, 2012, the Company entered into a term loan agreement with a consortium of banks.
The agreement, as amended, provided for a ﬁve-year term loan of up to $142.0 million, subject to certain
borrowing conditions, which amount is secured by certain assets of the Company.

On June 30, 2016, the Company entered into an amended and restated term loan agreement, pursuant to

which the prior loan agreement was reﬁnanced. The amended and restated term loan agreement, which
contains similar terms to the prior loan agreement, was amended to, among other things: (a) provide the
Company with the ability to increase the commitments under the facility to a maximum of $100.0 million,
subject to certain conditions, (2) extend the maturity date to June 30, 2021, and (c) revise certain of the
covenants and restrictions under the prior agreement to provide the Company with additional ﬂexibility. The
term loan’s outstanding principal is amortized quarterly, with quarterly payments equal to 1.75% multiplied by
the original outstanding principal. The amended and restated term loan agreement bears a variable interest rate
based on LIBOR for Eurodollar loans, and Base Rate for base rate loans. As of December 31, 2017, the loan
had a balance of $89.5 million.

The following are the estimated future principal and interest payments under this loan as of

December 31, 2017 (in thousands). The payments were calculated assuming the interest rate remains 3.3%
through maturity of the loan.

2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Less: Amount representing interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Term loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 9,923
9,687
9,459
69,628
98,697
(9,197)
$89,500

(iv) On December 22, 2015, the Company entered into a $20.0 million ﬁve-year term loan agreement for

CAI Rail with a ﬁnancial institution. The term loan’s outstanding principal bears interest at a ﬁxed rate of
3.4% per annum and is amortized quarterly. Any unpaid principal and interest is due and payable on
December 22, 2020. The proceeds from the term loan were primarily used to repay outstanding amounts under
CAI Rail’s revolving credit facility. As of December 31, 2017, the loan had a balance of $17.7 million.

The following are the estimated future principal and interest payments under this loan as of

December 31, 2017 (in thousands). The payments were calculated based on the ﬁxed interest rate of 3.4%.

2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Less: Amount representing interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Term loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 1,793
1,793
15,793
19,379
(1,657)
$17,722

83

CAI INTERNATIONAL, INC.

Notes to Consolidated Financial Statements

(v) On August 30, 2016, CAI Rail entered into a term loan agreement of up to $100.0 million with a
consortium of banks for the acquisition of railcars, subject to certain borrowing conditions, which is secured
by certain railcars and other assets of CAI Rail. The loan agreement is an amortizing facility with a term of
ﬁve years. Borrowings under the loan bear interest at a ﬁxed rate as speciﬁed in the applicable term note
entered into at the time a draw is made under the loan agreement. Principal and interest on the borrowings are
payable monthly during the ﬁve-year term of the note. At closing of the loan agreement, CAI Rail made a
draw of $50.0 million on the facility at a ﬁxed interest rate of 3.6% per annum. Any unpaid principal and
interest is due on August 30, 2021. As of December 31, 2017, the loan had a balance of $46.4 million.

The following are the estimated future principal and interest payments under this loan as of

December 31, 2017 (in thousands). The payments were calculated based on the ﬁxed interest rate of 3.6%.

2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Less: Amount representing interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Term loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 4,441
4,441
4,441
38,524
51,847
(5,482)
$46,365

The Company’s term loans are secured by rental equipment owned by the Company, which had a net

book value of $356.0 million as of December 31, 2017.

(c) Senior Secured Notes

On September 13, 2012, Container Applications Limited (CAL), a wholly-owned subsidiary of the
Company, entered into a Note Purchase Agreement with certain institutional investors, pursuant to which CAL
issued $103.0 million of its 4.90% Senior Secured Notes due September 13, 2022 (the Notes) to the investors.
The Notes are guaranteed by the Company and secured by certain assets of CAL and the Company.

The Notes bear interest at 4.9% per annum, due and payable semiannually on March 13 and

September 13 of each year, commencing on March 13, 2013. In addition, CAL is required to make certain
principal payments on March 13 and September 13 of each year, commencing on March 13, 2013. Any
unpaid principal and interest is due and payable on September 13, 2022. The Note Purchase Agreement
provides that CAL may prepay at any time all or any part of the Notes in an amount not less than 10% of the
aggregate principal amount of the Notes then outstanding. As of December 31, 2017, the Notes had a balance
of $65.0 million.

The following are the estimated future principal and interest payments under the Notes as of

December 31, 2017 (in thousands). The payments were calculated based on the ﬁxed interest rate of 4.9%.

2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Less: Amount representing interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Senior secured notes

$ 9,220
8,920
8,621
8,322
42,467
77,550
(12,555)
$ 64,995

The Company’s senior secured notes are secured by rental equipment owned by the Company, which had

a net book value of $85.2 million as of December 31, 2017.

84

CAI INTERNATIONAL, INC.

Notes to Consolidated Financial Statements

(d) Asset-Backed Notes

On October 18, 2012, CAL II issued $171.0 million of 3.47% ﬁxed rate asset-backed notes
(Series 2012-1 Asset-Backed Notes). Principal and interest on the Series 2012-1 Asset-Backed Notes is
payable monthly commencing on November 26, 2012, and the Series 2012-1 Asset-Backed Notes mature in
October 2027. The proceeds from the Series 2012-1 Asset-Backed Notes were used to repay part of the
Company’s borrowings under its senior revolving credit facility. As of December 31, 2017, the Series 2012-1
Asset-Backed Notes had a balance of $82.7 million.

On March 28, 2013, CAL II issued $229.0 million of 3.35% ﬁxed rate asset-backed notes (Series 2013-1

Asset-Backed Notes). Principal and interest on the Series 2013-1 Asset-Backed Notes is payable monthly
commencing on April 25, 2013, and the Series 2013-1 Asset-Backed Notes mature in March 2028. The
proceeds from the Series 2013-1 Asset-Backed Notes were used partly to reduce the balance of the Company’s
term loan as described in Note 10 (b)(ii) above, and to partially pay down the Company’s senior
revolving credit facility. The Series 2013-1 Asset-Backed Notes had a balance of $120.2 million as of
December 31, 2017.

On July 6, 2017, CAL Funding III Limited (CAL Funding III), a wholly-owned indirect subsidiary of
CAI, issued $240.9 million of 3.6% Class A ﬁxed rate asset-backed notes and $12.2 million of 4.6% Class B
ﬁxed rate asset-backed notes (collectively, the Series 2017-01 Asset-Backed Notes). Principal and interest on
the Series 2017-01 Asset-Backed Notes is payable monthly commencing on July 25, 2017, with the
Series 2017-01 Asset-Backed Notes maturing in June 2042. The proceeds from the Series 2017-01
Asset-Backed Notes were used for general corporate purposes, including repayment of debt by the Company.
As of December 31, 2017, the Series 2017-01 Asset-Backed Notes had a balance of $240.4 million.

The following are the estimated future principal and interest payments under the Asset-Backed Notes as

of December 31, 2017 (in thousands). The payments were calculated based on the weighted average ﬁxed
interest rate of 3.5%.

2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 and thereafter

Less: Amount representing interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset-backed notes

$ 79,862
77,585
75,309
73,032
67,910
129,086
502,784
(59,493)
$443,291

The Company’s asset-backed notes are secured by rental equipment owned by the Company, which had a

net book value of $566.1 million as of December 31, 2017.

The agreements under each of the asset-backed notes described above require the Company to maintain a

restricted cash account to cover payment of the obligations. As of December 31, 2017, the restricted cash
account had a balance of $11.8 million.

(e) Collateralized Financing Obligations

As of December 31, 2017, the Company had collateralized ﬁnancing obligations of $92.0 million (see
Note 4). The obligations had an average interest rate of 1.2% as of December 31, 2017 with maturity dates
between March 2018 and December 2020. The debt is secured by a pool of containers covered under the
ﬁnancing arrangements.

85

CAI INTERNATIONAL, INC.

Notes to Consolidated Financial Statements

The following are the estimated future principal and interest payments under the Company’s

collateralized ﬁnancing obligations as of December 31, 2017 (in thousands). The payments were calculated
assuming an average interest rate of 1.2% through maturity of the obligations.

2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Less: Amount representing interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Collateralized ﬁnancing obligations

$22,978
40,840
22,086
8,120
94,024
(2,034)
$91,990

(f) Term Loans Held by VIE

On June 25, 2014, one of the Japanese investor funds that is consolidated by the Company as a VIE (see

Note 4) entered into a term loan agreement with a bank. Under the terms of the agreement, the Japanese
investor fund entered into two loans; a ﬁve year, amortizing loan of $9.2 million at a ﬁxed interest rate of
2.7%, and a ﬁve year, non-amortizing loan of $1.6 million at a variable interest rate based on LIBOR. The
debt is secured by assets of the Japanese investor fund, and is subject to certain borrowing conditions set out
in the loan agreement. As of December 31, 2017, the term loans held by the Japanese investor fund totaled
$3.3 million and had an average interest rate of 2.7%.

The following are the estimated future principal and interest payments under this loan as of

December 31, 2017 (in thousands). The payments were calculated assuming the interest rate remains 2.7%
through maturity of the loan.

2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Less: Amount representing interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Term loans held by VIE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ —
3,380
3,380
(94)
$3,286

The Company’s term loans held by VIE are secured by rental equipment owned by the Japanese investor

fund, which had a net book value of $9.6 million as of December 31, 2017.

The agreements relating to all of the Company’s debt contain various ﬁnancial and other covenants. As of

December 31, 2017, the Company was in compliance with all of its debt covenants.

(11) Stock-Based Compensation Plan

Stock Options

The Company grants stock options to certain employees and independent directors pursuant to its 2007

Equity Incentive Plan, as amended (Plan). Under the Plan, a maximum of 3,421,980 share awards may be
granted.

Stock options granted to employees have a vesting period of four years from grant date, with 25%

vesting after one year, and 1⁄48
independent directors vest in one year. All of the stock options have a contractual term of ten years.

th vesting each month thereafter until fully vested. Stock options granted to

86

CAI INTERNATIONAL, INC.

Notes to Consolidated Financial Statements

The following table summarizes the Company’s stock option activities for the three years ended

December 31, 2017:

Options outstanding, December 31, 2014 . . . . . . .
Options granted . . . . . . . . . . . . . . . . . . . . . .
Options exercised . . . . . . . . . . . . . . . . . . . . .
Options outstanding, December 31, 2015 . . . . . . .
Options granted . . . . . . . . . . . . . . . . . . . . . .
Options forfeited/cancelled . . . . . . . . . . . . . . .
Options outstanding, December 31, 2016 . . . . . . .
Options granted . . . . . . . . . . . . . . . . . . . . . .
Options exercised . . . . . . . . . . . . . . . . . . . . .
Options outstanding, December 31, 2017 . . . . . . .
Options exercisable at December 31, 2017 . . . . . .
Expected to vest after December 31, 2017 . . . . . .

Number of
Shares
1,420,749
183,000
(414,494)
1,189,255
245,000
(6,000)
1,428,255
230,500
(799,195)
859,560
443,689
415,871

Weighted
Average
Exercise
Price
$15.67
$21.72
$11.45
$18.08
$ 7.87
$21.99
$16.31
$16.80
$16.31
$16.44
$17.85
$14.94

Weighted
Average
Remaining
Contractual
Term
(in years)

Aggregate
Intrinsic Value
(in thousands)

7.2
5.9
8.7

$10,210
$ 4,645
$ 5,565

The aggregate intrinsic value represents the value by which the Company’s closing stock price of $28.32
per share on the last trading day of the year ended December 31, 2017 exceeds the exercise price of the stock
multiplied by the number of options outstanding or exercisable, excluding options that have a zero or negative
intrinsic value. The aggregate intrinsic value of options exercised during 2017 and 2015, based on the closing
share price on the date each option was exercised, was $11.7 million and $4.9 million, respectively.

The Company recorded stock-based compensation expense of $1.6 million, $1.3 million and $1.5 million

relating to stock options for the years ended December 31, 2017, 2016 and 2015, respectively. As of
December 31, 2017, the remaining unamortized stock-based compensation cost relating to stock options
granted to the Company’s employees and independent directors was approximately $2.5 million which is to be
recognized over the remaining weighted average vesting period of approximately 2.4 years.

The total fair value of stock options granted to the Company’s employees and independent directors at
the time of grant was approximately $2.1 million, or $9.16 per share, $0.9 million, or $3.55 per share, and
$1.7 million, or $9.20 per share for the years ended December 31, 2017, 2016 and 2015, respectively,
calculated using the Black-Scholes-Merton pricing model under the following weighted average assumptions:

Stock price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercise price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected term (years) . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . .
Expected volatility (%)
Risk-free interest rate (%)
. . . . . . . . . . . . . . . . . . . . . . . .
Dividend yield (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$
$

16.80
16.80
5.5 − 6.25
56.4 − 57.5
1.77 − 2.14
—

$
$

7.87
7.87
5.5 − 6.25
45.4 − 46.7
1.30 − 1.40
—

$
$

21.72
21.72
5.5 − 6.25
39.5 − 41.8
1.85 − 2.00
—

2017

2016

2015

The expected option term is calculated using the simpliﬁed method in accordance with SEC guidance.

The expected volatility was derived from the average volatility of the Company’s stock over a period
approximating the expected term of the options. The risk-free rate is based on daily U.S. Treasury yield curve
with a term approximating the expected term of the options. No forfeiture was estimated on all options
granted during the years ended December 31, 2017, 2016 and 2015, as the Company accounts for forfeitures
as they occur (see Note 2(p)).

87

CAI INTERNATIONAL, INC.

Notes to Consolidated Financial Statements

Restricted Stock

The Company grants restricted stock to certain employees pursuant to the Plan. The restricted stock is
valued based on the closing price of the Company’s stock on the date of grant and has a vesting period of
four years. The following table summarizes the activity of restricted stock under the Plan:

Restricted stock outstanding, December 31, 2014 . . . . . . . . . . . . . . . . . . . . .
Restricted stock granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted stock vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted stock outstanding, December 31, 2015 . . . . . . . . . . . . . . . . . . . . .
Restricted stock granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted stock vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted stock forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted stock outstanding, December 31, 2016 . . . . . . . . . . . . . . . . . . . . .
Restricted stock granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted stock vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted stock outstanding, December 31, 2017 . . . . . . . . . . . . . . . . . . . . .

Number of
Shares of
Restricted
Stock
42,502
21,000
(15,477)
48,025
34,500
(14,379)
(2,344)
65,802
37,414
(24,674)
78,542

Weighted
Average
Grant Date
Fair Value
$23.87
$21.15
$23.81
$22.70
$ 7.87
$23.61
$21.96
$14.75
$17.14
$17.83
$14.92

The Company recognized stock-based compensation expense relating to restricted stock of $0.5 million

for the year ended December 31, 2017 and $0.4 million for both the years ended December 31, 2016 and
2015. As of December 31, 2017, unamortized stock-based compensation expense relating to restricted stock
was $0.8 million, which will be recognized over the remaining average vesting period of 2.5 years.

Stock-based compensation expense is recorded as a component of administrative expenses in the

Company’s consolidated statements of income with a corresponding credit to additional paid-in capital in the
Company’s consolidated balance sheets.

(12) Income Taxes

For the years ended December 31, 2017, 2016 and 2015, net income before income taxes and

non-controlling interest consisted of the following (in thousands):

Year Ended December 31,
2016
$8,996
882
$9,878

2015
$ 6,682
24,305
$30,987

2017
$ (2,080)
59,279
$57,199

U.S. operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign operations

88

CAI INTERNATIONAL, INC.

Notes to Consolidated Financial Statements

Income tax (beneﬁt) expense attributable to income from operations consisted of (in thousands):

Year Ended December 31,
2016

2015

2017

Current

Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

(531)
86
531
86

Deferred

Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Income tax (beneﬁt) expense . . . . . . . . . . . . . . . . . . . . . . . . .

(19,304)
3,172
1,185
(14,947)
$(14,861)

$

312
56
2,338
2,706

3,090
238
(2,190)
1,138
$ 3,844

$(2,083)
(4)
1,372
(715)

5,406
19
(458)
4,967
$ 4,252

The reconciliations between the Company’s income tax expense and the amounts computed by applying

the U.S. federal income tax rate of 35.0% for the years ended December 31, 2017, 2016 and 2015 are as
follows (in thousands):

Computed expected tax expense . . . . . . . . . . . . . . . . . . . . . . .

Increase (decrease) in income taxes resulting from:

. . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign tax differential
State income tax expense, net of federal income tax beneﬁt
. .
Change in Federal tax rate . . . . . . . . . . . . . . . . . . . . . . . . . .
Subpart F income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustment to contingent consideration . . . . . . . . . . . . . . . . . .
Increase in uncertain tax positions . . . . . . . . . . . . . . . . . . . . .
Non-deductible stock-based compensation . . . . . . . . . . . . . . . .
Excess tax beneﬁt related to stock-based compensation . . . . . . .
Prior year true-ups . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in valuation allowance . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2017
$ 20,020

Year Ended December 31,
2016
$3,458

2015
$10,845

(19,032)
191
(16,945)
683
(429)
61
218
(1,858)
1,894
—
336
$(14,861)

(88)
310
—
711
(634)
36
155
—
—
(15)
(89)
$3,844

(7,676)
220
—
597
—
17
134
—
—
(152)
267
$ 4,252

As of December 31, 2017, the Company had $136.9 million, $33.2 million and $93.2 million of net

operating loss (NOL) carry forwards available to offset future federal, foreign and state taxable income,
respectively. The NOL carry forwards will begin to expire in 2035, 2022 and 2018 for federal, foreign and
state income tax purposes, respectively.

89

CAI INTERNATIONAL, INC.

Notes to Consolidated Financial Statements

The tax effects of temporary differences that give rise to signiﬁcant portions of the deferred tax assets

and deferred tax liabilities as of December 31, 2017 and 2016 are presented below (in thousands):

Year Ended December 31,

2017

2016

Deferred tax assets:

Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other current liabilities . . . . . . . . . . . . . . . . . . . . . .
Unearned revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net operating loss carry forwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Deferred tax liabilities:

Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred subpart F income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

68
886
198
744
89
34,758
36,743
—
36,743

1,734
65,609
943
4,310
72,596
$35,853

$

307
423
856
2,280
616
27,225
31,707
—
31,707

2,946
73,305
760
6,500
83,511
$51,804

The realization of deferred tax assets is dependent upon the generation of future taxable income during
the periods in which those temporary differences become deductible. The Company’s management considers
the projected future taxable income for making this assessment. Based upon the level of historical taxable
income and projections for future taxable income over the periods in which the deferred tax assets are
deductible, the Company’s management believes it is more likely than not the Company will realize the
beneﬁts of the deductible differences noted above.

The U.S Tax Cuts and Jobs Act of 2017 (the Tax Act) was signed into law on December 22, 2017. The

most signiﬁcant effects of the Tax Act on the Company were the U.S. federal corporate tax rate reduction
from the current rate of 35% to a new ﬂat rate of 21%, limitations on the deductibility of interest expense and
executive compensation, and the creation of the base erosion anti-abuse tax (BEAT), a new minimum tax. A
change in tax laws is accounted for in the period of enactment, which requires re-measurement of all of an
entity’s U.S. deferred income tax assets and liabilities during this year-end. As the Company is in an overall
net deferred tax liability position, the corporate tax rate reduction resulted in a net tax beneﬁt of
approximately $16.9 million in 2017 when the deferred tax assets and liabilities are revalued downward. The
Company’s 2017 effective tax rate was favorably affected by 29.6% due to this law change. The Tax Act also
imposes a one-time transition tax on accumulated undistributed foreign earnings. However, the Company did
not have any transition tax due to its overall net foreign earnings deﬁcit.

In response to the Tax Act, the SEC staff issued guidance on accounting for the tax effects of the Tax
Act. The guidance provides for a one-year measurement period for companies to complete the accounting. The
Company reﬂected the income tax effects of those aspects of the Tax Act for which the accounting is
complete. To the extent the accounting for certain income tax effects of the Tax Act is incomplete but the
Company is able to determine a reasonable estimate, the Company recorded a provisional estimate in the
ﬁnancial statements. If a company cannot determine a provisional estimate to be included in the ﬁnancial
statements, it should continue to apply the provisions of the tax law that were in effect immediately before the
enactment of the Tax Act.

90

CAI INTERNATIONAL, INC.

Notes to Consolidated Financial Statements

The Company has not completed its accounting for the income tax effects of certain elements of the Tax
Act. The Tax Act creates a new requirement that certain income such as Global Intangible Low-Taxed Income
(GILTI) earned by a controlled foreign corporation (CFC) must be included in the gross income of the CFC
U.S. shareholder. Because of the complexity of the new GILTI and BEAT tax rules, the Company is
continuing to evaluate these provisions of the Tax Act and whether taxes due on future U.S. inclusions related
to GILTI or BEAT should be recorded as a current-period expense when incurred, or factored into the
measurement of its deferred taxes. As a result, the Company has not included an estimate of the tax expense
or beneﬁt related to these items for the period ended December 31, 2017.

In March 2016, the FASB issued ASU 2016-09, which simpliﬁes certain aspects of the accounting for

share-based payment transactions, including income taxes. The Company adopted ASU 2016-09 effective
January 1, 2017 (see Note 2 (p)). As a result of the adoption of ASU 2016-09, the Company recognized
$1.0 million in deferred tax assets associated with excess tax beneﬁts not previously recognized in deferred
taxes as a cumulative-effect adjustment to retained earnings as of January 1, 2017.

Deferred income taxes have not been provided on the undistributed earnings of foreign subsidiaries.
These earnings have been permanently reinvested and the Company does not plan to initiate any action that
would precipitate the payment of income taxes thereon. While the Company has an overall foreign earnings
deﬁcit, as of December 31, 2017, the amount of positive foreign earnings totaled approximately $28.3 million
related to certain subsidiaries. The amount of income taxes that would have resulted had such earnings been
repatriated would be approximately $0.2 million due to withholding taxes.

The following table summarizes the activity related to the Company’s unrecognized tax beneﬁts

(in thousands):

Balance at January 1, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increases related to current year tax positions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decreases related to lapsing of statute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increases related to current year tax positions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$220
77
(31)
266
11
$277

The unrecognized tax beneﬁts of approximately $0.3 million at December 31, 2017, if recognized, would

reduce the Company’s effective tax rate. The Company accrued potential interest and penalties of less than
$0.1 million related to unrecognized tax beneﬁts for each of the years ended December 31, 2017 and 2016.

The Company’s tax returns, including the United States, California, New Jersey and South Carolina, are
subject to examination by the tax authorities. The Company accrues for unrecognized tax beneﬁts based upon
its best estimate of the additional taxes, interest and penalties expected to be paid. These estimates are updated
over time as more deﬁnitive information becomes available from taxing authorities, completion of tax audits,
expiration of statute of limitations, or upon occurrence of other events.

The Company does not believe the total amount of unrecognized tax beneﬁt as of December 31, 2017
will increase or decrease signiﬁcantly in the next twelve months. As of December 31, 2017, the statute of
limitations for tax examinations in the United States has not expired for the years ended December 31, 2014
through 2016. California, New Jersey and South Carolina have not expired for tax returns ﬁled for the years
ended December 31, 2013 through 2016, and Barbados has not expired for tax returns ﬁled for the years
ended December 31, 2008 to 2016. The Company was notiﬁed on May 1, 2017 that its 2015 U.S. federal
income tax return was selected for examination. The examination is in the information gathering stage.

91

CAI INTERNATIONAL, INC.

Notes to Consolidated Financial Statements

(13) Fair Value of Financial Instruments

The carrying amounts reported in the consolidated balance sheets for cash, accounts receivable and
accounts payable approximate fair value because of the immediate or short-term maturity of these ﬁnancial
instruments. The Company’s asset-backed notes of $443.3 million and collateralized ﬁnancing obligations of
$92.0 million as of December 31, 2017 were estimated to have a fair value of approximately $441.6 million
and $93.5 million, respectively, based on the fair value of estimated future payments calculated using
prevailing interest rates. The fair value of these ﬁnancial instruments would be categorized as Level 2 of the
fair value hierarchy. Management believes that the balances of the Company’s revolving credit facilities of
$814.7 million, term loans totaling $296.2 million, senior secured notes of $65.0 million, term loans held by
VIE of $3.3 million and net investment in direct ﬁnance leases of $276.5 million approximate their fair values
as of December 31, 2017. The fair value of these ﬁnancial instruments would be categorized as Level 2 of the
fair value hierarchy.

(14) Commitments and Contingencies

The Company utilizes certain office facilities and office equipment under non-cancelable operating lease
agreements which generally have original terms of up to ﬁve years. Future minimum lease payments required
under non-cancellable operating leases having an original term of more than one year as of December 31,
2017 are as follows (in thousands):

Year ending December 31:
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 and thereafter

Office Facilities
and Equipment

$2,439
1,881
357
329
228
216
$5,450

Office facility expense was $2.0 million, $1.7 million, and $1.5 million for the years ended December 31,

2017, 2016 and 2015, respectively, which was included in administrative expenses in the consolidated
statements of income.

As of December 31, 2017 and 2016, the Company had one outstanding letter of credit of $0.1 million.

The letter of credit guarantees the Company’s obligations under certain operating lease agreements.

In addition to the rental equipment payable of $92.4 million, the Company had commitments to purchase

approximately $17.6 million of containers and $88.7 million railcars as of December 31, 2017; all in the
twelve months ended December 31, 2018.

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 tax matters, governmental regulations, and contractual
relationships. Performance under these indemnities would generally be triggered by a breach of terms of a
contract or by a third-party claim. The Company regularly evaluates the probability of having to incur costs
associated with these indemniﬁcations and as of December 31, 2017 there were no claims outstanding under
such indemniﬁcations and the Company believes that no claims are probable of occurring in the future.

92

CAI INTERNATIONAL, INC.

Notes to Consolidated Financial Statements

(15) Related Party Transactions

The Company has transferred legal ownership of certain containers to Japanese container funds that were
established by Japan Investment Adviser Co., Ltd. (JIA) and CAIJ, Inc. (CAIJ). Prior to April 2016, CAIJ was
an 80%-owned subsidiary of CAI with the remaining 20% owned by JIA. Prior to the transfer of containers
from the Company, the Japanese container funds received contributions from unrelated Japanese investors,
under separate Japanese investment agreements allowed under Japanese commercial laws. The contributions
were used to purchase container equipment from the Company. Under the terms of the agreements, the
Japanese container funds manage the activities of certain Japanese entities but may outsource all or part of
each operation to a third party. Pursuant to its services agreements with investors, the Japanese container
funds have outsourced the general management of their operations to CAIJ. The Japanese container funds
have also entered into equipment management service agreements and ﬁnancing arrangements whereby the
Company managed the leasing activity of containers owned by the Japanese container funds.

As described in Note 4, the Japanese managed container funds and ﬁnancing arrangements are considered
VIEs. However, with the exception of the ﬁnancing arrangements described in Note 4, the Company does not
consider its interest in the managed Japanese container funds to be a variable interest. As such, the Company
did not consolidate the assets and liabilities, results of operations or cash ﬂows of these funds in its
consolidated ﬁnancial statements.

As described in Note 4, the Company has included in its consolidated ﬁnancial statements, the assets and

liabilities, results of operations, and cash ﬂows of the ﬁnancing arrangements, in accordance with FASB
ASC Topic 810, Consolidation.

(16) Capital Stock

On May 12, 2017 the Company ﬁled a universal shelf registration statement on Form S-3 with the
SEC which was declared effective by the SEC on June 2, 2017. Under this shelf registration statement,
the Company may sell various debt and equity securities, or a combination thereof, to be offered from
time-to-time up to an aggregate offering price of $300.0 million for all securities, and the selling stockholders
may sell up to 3,000,000 shares of common stock in one or more offerings.

In October 2017, the Company commenced an at-the-market offering program, which allows the

Company to sell and issue up to 2.0 million shares of its common stock. In the three months ended
December 41, 2017, the Company issued 888,453 shares of common stock under the at-the-market offering
program for gross proceeds of $30.0 million. The Company paid commissions to the sales agent of
$0.6 million and incurred other offering related expenses of $0.3 million. Net proceeds of $29.1 million were
used for general corporate purposes. The Company has remaining capacity to issue up to approximately
1.1 million of additional shares of common stock under the at-the-market offering program.

(17) Segment and Geographic Information

The Company organizes itself by the nature of the services it provides which includes equipment leasing

(consisting of container leasing and rail leasing) and logistics.

The container leasing segment is aggregated with equipment management and derives its revenue from
the ownership and leasing of containers and fees earned for managing container portfolios on behalf of third
party investors. The rail leasing segment derives its revenue from the ownership and leasing of railcars. The
logistics segment derives its revenue from the provision of logistics services. There are no inter-segment
revenues.

With the exception of administrative expenses, operating expenses are directly attributable to each
segment. Administrative expenses that are not directly attributable to a segment are allocated to container or
rail leasing based on the net book value of equipment in each segment.

93

CAI INTERNATIONAL, INC.

Notes to Consolidated Financial Statements

The following tables show condensed segment information for the years ended December 31, 2017, 2016
and 2015, reconciled to the Company’s net income before income taxes and non-controlling interest as shown
in its consolidated statements of income for such periods (in thousands):

Year Ended December 31, 2017

Container lease revenue . . . . . . . . . . . . . . . . . .
Rail lease revenue . . . . . . . . . . . . . . . . . . . . . .
Logistics revenue . . . . . . . . . . . . . . . . . . . . . . .
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation of rental equipment
. . . . . . . . . . . .
Storage, handling and other expenses . . . . . . . . .
Logistics transportation costs . . . . . . . . . . . . . . .
Gain on sale of used rental equipment
. . . . . . . .
Administrative expenses . . . . . . . . . . . . . . . . . .
Total operating expenses . . . . . . . . . . . . . . . . . .
Operating income (loss)
. . . . . . . . . . . . . . . . . .
Net interest expense . . . . . . . . . . . . . . . . . . . . .
Other expense . . . . . . . . . . . . . . . . . . . . . . . . .
Total other expenses . . . . . . . . . . . . . . . . . . . . .
Net income (loss) before income taxes and

non-controlling interest

. . . . . . . . . . . . . . . . .
Goodwill
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of rental equipment(1)
. . . . . . . . . . . . .

Container lease revenue . . . . . . . . . . . . . . . . . .
Rail lease revenue . . . . . . . . . . . . . . . . . . . . . .
Logistics revenue . . . . . . . . . . . . . . . . . . . . . . .
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation of rental equipment
. . . . . . . . . . . .
Storage, handling and other expenses . . . . . . . . .
Logistics transportation costs . . . . . . . . . . . . . . .
. . . .
Loss (gain) on sale of used rental equipment
Administrative expenses . . . . . . . . . . . . . . . . . .
Total operating expenses . . . . . . . . . . . . . . . . . .
Operating income (loss)
. . . . . . . . . . . . . . . . . .
Net interest expense . . . . . . . . . . . . . . . . . . . . .
Other expense . . . . . . . . . . . . . . . . . . . . . . . . .
Total other expenses . . . . . . . . . . . . . . . . . . . . .
Income (loss) before income taxes and

non-controlling interest

. . . . . . . . . . . . . . . . .
Goodwill
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of rental equipment(1)
. . . . . . . . . . . . .

Container
Leasing
$ 235,365
—
—
235,365
99,753
15,207
—
(5,333)
22,925
132,552
102,813
41,815
765
42,580

Rail Leasing
—
$
32,476
—
32,476
11,199
5,615
—
(14)
4,756
21,556
10,920
11,237
—
11,237

$
— $

60,233

$
$
$1,940,997
$ 445,168

(317)
—
$449,376
$ 56,882

Logistics
$ —
—
80,552
80,552
—
96
68,155
—
15,018
83,269
(2,717)
—
—
—

$ (2,717)
$15,794
$40,029
$ —

Year Ended December 31, 2016

Container
Leasing
$ 202,328
—
—
202,328
95,755
32,465
—
12,750
20,453
161,423
40,905
35,784
654
36,438

Rail Leasing
—
$
30,490
—
30,490
9,122
3,386
—
33
3,759
16,300
14,190
6,970
—
6,970

$
— $

4,467

$
$
$1,638,263
$ 118,374

7,220
—
$378,059
$132,791

Logistics
$ —
—
61,536
61,536
—
11
51,980
(112)
11,466
63,345
(1,809)
—
—
—

$ (1,809)
$15,794
$39,612
$ —

Total
$ 235,365
32,476
80,552
348,393
110,952
20,918
68,155
(5,347)
42,699
237,377
111,016
53,052
765
53,817

57,199
$
$
15,794
$2,430,402
$ 502,050

Total
$ 202,328
30,490
61,536
294,354
104,877
35,862
51,980
12,671
35,678
241,068
53,286
42,754
654
43,408

9,878
$
$
15,794
$2,055,934
$ 251,165

94

CAI INTERNATIONAL, INC.

Notes to Consolidated Financial Statements

Container lease revenue . . . . . . . . . . . . . . . . . .
Rail lease revenue . . . . . . . . . . . . . . . . . . . . . .
Logistics revenue . . . . . . . . . . . . . . . . . . . . . . .
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . .
Depreciation of rental equipment
Storage, handling and other expenses . . . . . . . . .
Logistics transportation costs . . . . . . . . . . . . . . .
Loss (gain) on sale of used rental equipment
. . . .
Administrative expenses . . . . . . . . . . . . . . . . . .
Total operating expenses . . . . . . . . . . . . . . . . . .
Operating income (loss)
. . . . . . . . . . . . . . . . . .
Net interest expense . . . . . . . . . . . . . . . . . . . . .
Other expense . . . . . . . . . . . . . . . . . . . . . . . . .
Total other expenses . . . . . . . . . . . . . . . . . . . . .
Income (loss) before income taxes and

non-controlling interest

Purchase of rental equipment(1)

. . . . . . . . . . . . . . . . .
. . . . . . . . . . . . .

Year Ended December 31, 2015

Container
Leasing
$220,732
—
—
220,732
108,996
27,653
—
2,276
21,969
160,894
59,838
33,156
182
33,338

Rail Leasing
—
$
17,433
—
17,433
4,594
2,540
—
(1,622)
3,131
8,643
8,790
3,109
—
3,109

$ 26,500
$226,469

$
5,681
$162,862

Logistics
$ —
—
11,502
11,502
—
1
10,172
—
2,517
12,690
(1,188)
6
—
6

$ (1,194)
$ —

Total
$220,732
17,433
11,502
249,667
113,590
30,194
10,172
654
27,617
182,227
67,440
36,271
182
36,453

$ 30,987
$389,331

(1) Represents cash disbursements for purchasing of rental equipment as reﬂected in the consolidated

statements of cash ﬂows for the periods indicated.

Geographic Data

The Company earns its revenue primarily from intermodal containers which are deployed by its
customers in a wide variety of global trade routes. Virtually all of the Company’s containers are used
internationally and typically no container is domiciled in one particular place for a prolonged period of time.
As such, substantially all of the Company’s long-lived assets are considered to be international, with no single
country of use.

The Company’s railcars, with a net book value of $440.8 million as of December 31, 2017, are used to

transport cargo within North America.

The following table represents the geographic allocation of revenue for the periods indicated based on

customers’ primary domicile (in thousands):

United States
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
France . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Switzerland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Korea
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Singapore . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Year Ended December 31,

2017
$120,558
34,862
32,430
20,755
20,388
19,856
45,176
43,709
10,659
$348,393

2016
$ 99,824
29,273
19,636
14,904
21,717
16,172
40,170
41,473
11,185
$294,354

2015
$ 36,197
27,603
20,215
18,933
26,559
18,627
41,034
47,301
13,198
$249,667

95

CAI INTERNATIONAL, INC.

Notes to Consolidated Financial Statements

(18) Revenue Concentration

Revenue from the Company’s ten largest lessees represented 44.5%, 41.5% and 51.9% of total revenue

for the years ended December 31, 2017, 2016 and 2015, respectively. Revenue from the Company’s single
largest lessee accounted for 10.8%, or $37.5 million, 10.8%, or $31.7 million, and 11.6%, or $29.0 million, of
total revenue for the years ended December 31, 2017, 2016 and 2015, respectively. Revenue from the
Company’s second largest lessee accounted for 10.0%, or $34.7 million, 7.0%, or $20.6 million, and 8.4%, or
$21.1 million, of total revenue for the years ended December 31, 2017, 2016 and 2015, respectively.

(19) Earnings per Share

Basic earnings per share is computed by dividing income available to common stockholders by the
weighted average number of common shares outstanding for the period. Diluted earnings per share reﬂects the
potential dilution that would occur if securities or other contracts to issue common stock were exercised or
converted into common stock; however, potential common equivalent shares are excluded if their effect is
anti-dilutive.

The following table sets forth the reconciliation of basic and diluted net income per share for the years

ended December 31, 2017, 2016 and 2015 (in thousands, except per share data):

Numerator
Net income attributable to CAI common stockholders used in the
calculation of basic and diluted earnings per share . . . . . . . . .

Denominator
Weighted-average shares used in the calculation of basic earnings
per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Effect of dilutive securities:
Stock options and restricted stock . . . . . . . . . . . . . . . . . . . . .
Weighted-average shares used in the calculation of diluted

Year Ended December 31,
2016

2015

2017

$72,060

$ 5,997

$26,601

19,253

19,318

20,773

354

75

215

earnings per share

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

19,607

19,393

20,988

Net income per share attributable to CAI common stockholders:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 3.74
3.68
$

$
$

0.31
0.31

$
$

1.28
1.27

The calculation of diluted income per share for the years ended December 31, 2017, 2016 and 2015,
excluded from the denominator 458,857 shares, 1,135,711 shares and 763,847 shares, respectively, of common
stock options because their effect would have been anti-dilutive.

96

CAI INTERNATIONAL, INC.

Notes to Consolidated Financial Statements

(20) Selected Quarterly Financial Data (Unaudited)

The following table sets forth key interim ﬁnancial information for the years ended December 31, 2017

and 2016 (in thousands, except per share amount):

2017 Quarters Ended

2016 Quarters Ended
Sept. 30

June 30 Mar. 31
Revenue . . . . . . . . . . . . . . . . . . . $94,034 $90,161 $82,692 $81,506 $77,274 $78,472 $71,642 $66,966
48,510
. . . . . . . . . . . 57,631
Operating expenses
18,456
Operating income . . . . . . . . . . . . 36,403

56,784
14,858

64,664
12,610

57,924
24,768

58,267
31,894

63,555
17,951

71,110
7,362

June 30 Mar. 31

Sept. 30

Dec. 31

Dec. 31

Net income (loss) attributable to

CAI common stockholders . . . 36,563

17,587

12,638

5,272

620

(5,451)

3,711

7,117

Net income (loss) per share

attributable to CAI common
stockholders:
Basic . . . . . . . . . . . . . . . . . . . $ 1.86 $
Diluted . . . . . . . . . . . . . . . . . . $ 1.81 $

0.92 $
0.90 $

0.66 $
0.65 $

0.28 $
0.27 $

0.03 $ (0.28) $
0.03 $ (0.28) $

0.19 $
0.19 $

0.36
0.36

97

Schedule II

Valuation Accounts
(In thousands)

Balance at
Beginning of
Period

Net
Additions
to Expense

Deductions*

Balance at
End of
Period

December 31, 2015
Accounts receivable, allowance for doubtful accounts . .
December 31, 2016
Accounts receivable, allowance for doubtful accounts . .
December 31, 2017
Accounts receivable, allowance for doubtful accounts . .

$ 680

$ 448

$ (580)

$ 548

$ 548

$3,151

$(2,359)

$1,340

$1,340

$ 402

$ (302)

$1,440

*

Primarily consists of write-offs, net of recoveries and other adjustments

98

Exhibit No.

Description

EXHIBIT INDEX

2.1

3.1

3.2

4.1

4.2

4.3

4.4

4.5

4.6

10.1

10.2*

10.3*

10.4‡‡

Stock Purchase Agreement, dated June 1, 2016, among CAI International, Inc., Hybrid Logistics,
Inc., General Transportation Service, Inc., the shareholders named therein, and Zions Bank, a
division of ZB, National Association, as escrow agent (incorporated by reference to Exhibit 2.1
of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2016, ﬁled on August 9,
2016).

Amended and Restated Certiﬁcate of Incorporation of CAI International, Inc. (incorporated by
reference to Exhibit 3.1 of our Registration Statement on Form S-1, as amended,
File No. 333-140496, ﬁled on April 24, 2007).

Amended and Restated Bylaws of CAI International, Inc. (incorporated by reference to
Exhibit 3.1 of our Current Report on Form 8-K, ﬁled on March 10, 2009).

Form of Common Stock Certiﬁcate (incorporated by reference to Exhibit 4.1 of our Registration
Statement on Form S-1, as amended, File No. 333-140496, ﬁled on April 24, 2007).

Indenture, dated October 18, 2012, between CAL Funding II Limited and Wells Fargo Bank,
National Association (incorporated by reference to Exhibit 4.1 of our Current Report on
Form 8-K, ﬁled on October 23, 2012).

Series 2012-1 Supplement, dated October 18, 2012, to Indenture dated October 18, 2012,
between CAL Funding II Limited and Wells Fargo Bank, National Association (incorporated by
reference to Exhibit 4.2 of our Current Report on Form 8-K, ﬁled on October 23, 2012).
Series 2013-1 Supplement, dated March 28, 2013, to Indenture dated October 18, 2012, between
CAL Funding II Limited and Wells Fargo Bank, National Association (incorporated by reference
to Exhibit 4.1 of our Current Report on Form 8-K, ﬁled on April 3, 2013).
Indenture, dated July 6, 2017, among CAL Funding III Limited and Wells Fargo Bank, National
Association (incorporated by reference to Exhibit 4.1 of our Current Report on Form 8-K, ﬁled
on July 11, 2017).
Series 2017-01 Supplement, dated July 6, 2017, among CAL Funding III Limited and Wells
Fargo Bank, National Association (incorporated by reference to Exhibit 4.2 of our Current Report
on Form 8-K, ﬁled on July 11, 2017).
Amended and Restated Registration Rights Agreement, dated February 16, 2007, among CAI
International, Inc., Hiromitsu Ogawa, Ogawa Family Trust dated 7/06/98, Ogawa Family Limited
Partnership and DBJ Value Up Fund (incorporated by reference to Exhibit 10.7 of our
Registration Statement on Form S-1, as amended, File No. 333-140496, ﬁled on March 21,
2007).
Form of Indemniﬁcation Agreement between CAI International, Inc. and each of its current
executive officers and directors (incorporated by reference to Exhibit 10.8 of our Registration
Statement on Form S-1, as amended, File No. 333-140496, ﬁled on April 24, 2007).
CAI International, Inc. 2007 Equity Incentive Plan, as amended (incorporated by reference to
Exhibit 10.1 of our Current Report on Form 8-K, ﬁled on June 7, 2017).

P&R Management Agreement, dated March 14, 2006, among Container Applications
International, Inc., P&R Equipment & Finance Corporation and Interpool Containers Limited
(incorporated by reference to Exhibit 10.12 of our Registration Statement on Form S-1, as
amended, File No. 333-140496, ﬁled on March 27, 2007).

99

Exhibit No.

Description

10.5

10.6

10.7

10.8

10.9

Third Amended and Restated Revolving Credit Agreement, dated March 15, 2013, by and among
CAI International, Inc., Container Applications Limited, the lending institutions listed on
Schedule I thereto, Bank of America, N.A., as administrative agent, Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Union Bank, N.A. and Wells Fargo Bank, N.A., as syndication
agents, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Union Bank, N.A. and Wells Fargo
Securities, LLC, as joint lead arrangers and book managers, and Bank of Montreal (Chicago
Branch), JPMorgan Chase Bank, N.A. and Sovereign Bank, N.A., as co-agents (incorporated by
reference to Exhibit 99.1 of our Current Report on Form 8-K, ﬁled on March 21, 2013).

Amendment No. 1 to Third Amended and Restated Revolving Credit Agreement, dated October
1, 2013, by and among CAI International, Inc., Container Applications Limited, Bank of
America, N.A. and other lending institutions from time to time party to the Third Amended and
Restated Revolving Credit Agreement, Bank of America, N.A., as administrative agent, Merrill
Lynch, Pierce, Fenner & Smith Incorporated, Union Bank, N.A. and Wells Fargo Bank, N.A., as
syndication agents, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Union Bank, N.A. and
Wells Fargo Securities, LLC, as joint lead arrangers and book managers, and Bank of Montreal
(Chicago Branch), JP Morgan Chase Bank, N.A. and Sovereign Bank, N.A., as co-agents
(incorporated by reference to Exhibit 10.6 of our Annual Report on Form 10-K for the ﬁscal year
ended December 31, 2014, ﬁled on February 27, 2015).
Amendment No. 2 to Third Amended and Restated Revolving Credit Agreement, dated August
15, 2014, by and among CAI International, Inc., Container Applications Limited, Bank of
America, N.A. and other lending institutions from time to time party to the Third Amended and
Restated Revolving Credit Agreement, Bank of America, N.A., as administrative agent, Merrill
Lynch, Pierce, Fenner & Smith Incorporated, Union Bank, N.A. and Wells Fargo Bank, N.A., as
syndication agents, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Union Bank, N.A. and
Wells Fargo Securities, LLC, as joint lead arrangers and book managers, and Bank of Montreal
(Chicago Branch), JP Morgan Chase Bank, N.A. and Santander Bank, N.A., as co-agents
(incorporated by reference to Exhibit 10.7 of our Annual Report on Form 10-K for the ﬁscal year
ended December 31, 2014, ﬁled on February 27, 2015).
Amendment No. 3 to Third Amended and Restated Revolving Credit Agreement, dated January
30, 2015, by and among CAI International, Inc., Container Applications Limited, Bank of
America, N.A. and other lending institutions from time to time party to the Third Amended and
Restated Revolving Credit Agreement, Bank of America, N.A., as administrative agent, Merrill
Lynch, Pierce, Fenner & Smith Incorporated, MUFG Union Bank, N.A. and Wells Fargo Bank,
N.A., as syndication agents, Merrill Lynch, Pierce, Fenner & Smith Incorporated, MUFG Union
Bank, N.A. and Wells Fargo Securities, LLC, as joint lead arrangers and book managers, and
Bank of Montreal (Chicago Branch), JP Morgan Chase Bank, N.A. and Santander Bank, N.A., as
co-agents (incorporated by reference to Exhibit 99.1 of our Current Report on Form 8-K, ﬁled on
February 5, 2015).
Commitment Increase, Amendment No. 5 and Joinder, dated June 16, 2017, by and among CAI
International, Inc., Container Applications Limited, the guarantors named therein, Bank of
America, N.A., as a lender and administrative agent of the lenders, the other lending institutions
party thereto, Merrill Lynch, Pierce, Fenner & Smith Incorporated, MUFG Union Bank, N.A. and
Wells Fargo Bank, N.A., as syndication agents, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, MUFG Union Bank, N.A. and Wells Fargo Securities, LLC, as joint lad arrangers
and book managers, and Bank of Montreal (Chicago branch), JPMorgan Chase Bank, N.A. and
Santander Bank N.A. as co-agents (incorporated by reference to Exhibit 10.1 to our Current
Report on Form 8-K, ﬁled on June 22, 2017).

10.10

Amended and Restated Term Loan Agreement, dated October 1, 2014, among Container
Applications Limited, CAI International, Inc., the lending institutions from time to time listed on
Schedule I thereto, ING Bank N.V. and ING Bank, branch of ING-DIBA AG (incorporated by
reference to Exhibit 99.1 of our Current Report on Form 8-K, ﬁled on October 7, 2014).

100

Exhibit No.

Description

10.11

10.12

10.13

10.14

10.15

10.16*

10.17*

10.18*

10.19*

10.20*

10.21*

Amended and Restated Term Loan Agreement, dated June 30, 2016, among Container
Applications Limited, CAI International, Inc., the Lenders listed on Schedule I thereto, SunTrust
Bank and SunTrust Robinson Humphrey, Inc. (incorporated by reference to Exhibit 99.1 of our
Current Report on Form 8-K, ﬁled on July 7, 2016).

Second Amended and Restated Revolving Credit Agreement, dated October 22, 2015, among
CAI Rail, Inc., CAI International, Inc., the lending institutions from time to time listed on
Schedule 1 thereto, MUFG Union Bank, N.A. and Bank of America, N.A., as joint lead arrangers
and joint bookrunners, Bank of America, N.A., as syndication agent, and ING Bank, a branch of
ING-Diba AG and The Huntington National Bank, as co-documentation agents (incorporated by
reference to Exhibit 99.1 of our Current Report on Form 8-K, ﬁled on October 27, 2015).

Contribution and Sale Agreement, dated October 18, 2012, between Container Applications
Limited and CAL Funding II Limited (incorporated by reference to Exhibit 99.2 of our Current
Report on Form 8-K, ﬁled on October 23, 2012).

Performance Guaranty, dated October 18, 2012, made by CAI International, Inc. for the beneﬁt
of Wells Fargo Bank, National Association (incorporated by reference to Exhibit 99.3 of our
Current Report on Form 8-K, ﬁled on October 23, 2012).

Loan and Security Agreement, dated August 30, 2016, among CAI Rail, Inc., the lenders from
time to time party thereto, and Bank of Utah, as administrative and collateral agent (incorporated
by reference to Exhibit 99.1 of our Current Report on Form 8-K ﬁled on September 6, 2016).
Amended and Restated Employment Agreement, dated April 29, 2011, between CAI
International, Inc. and Victor Garcia (incorporated by reference to Exhibit 10.1 of our Quarterly
Report on Form 10-Q for the ﬁscal quarter ended March 31, 2011, ﬁled on May 6, 2011).
Employment Agreement, dated August 20, 2013, between CAI International, Inc. and Timothy B.
Page (incorporated by reference to Exhibit 99.1 of our Current Report on Form 8-K, ﬁled on
August 23, 2013).
Amendment No. 1 to Service Agreement, dated March 7, 2017, between Container Applications
International (UK) Limited and Daniel Hallahan (incorporated by reference to Exhibit 10.1 of our
Quarterly Report on Form 10-Q for the quarter ended March 31, 2017, ﬁled on May 4, 2017).
Service Agreement, dated August 20, 2013, between Container Applications International (UK)
Limited and Daniel Hallahan (incorporated by reference to Exhibit 99.2 of our Current Report on
Form 8-K, ﬁled on August 23, 2013).
Chairman of the Board Compensation Agreement, dated June 5, 2009, between CAI
International, Inc. and Hiromitsu Ogawa (incorporated by reference to Exhibit 10.1 of
Amendment No. 1 to our Quarterly Report on Form 10-Q/A for the ﬁscal quarter ended June 30,
2009, ﬁled on September 21, 2009).
Continuing Services Agreement, dated April 29, 2011, between Masaaki Nishibori and CAI
International, Inc. (incorporated by reference to Exhibit 10.3 of our Quarterly Report on
Form 10-Q for the ﬁscal quarter ended March 31, 2011, ﬁled on May 6, 2011).

10.22‡‡ Multi-Year Railcar Order, dated June 29, 2015, among CAI Rail, Inc., Trinity North America
Freight Car, Inc. and Trinity Tank Car, Inc. (incorporated by reference to Exhibit 10.1 of our
Quarterly Report on Form 10-Q for the ﬁscal quarter ended June 30, 2015, ﬁled on August 5,
2015).

10.23

Equity Distribution Sales Agreement, dated October 23, 2017, among CAI International, Inc.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated, and Wells Fargo Securities, Inc.
(incorporated by reference to Exhibit 1.1 of our Current Report on Form 8-K, ﬁled on
October 23, 2017).

21.1
23.1

Subsidiaries of CAI International, Inc.
Consent of KPMG LLP.

101

Exhibit No.

Description

31.1

31.2

32.1

32.2

101

Certiﬁcation of Chief Executive Officer Pursuant to Exchange Act Rule 13a-14(a).

Certiﬁcation of Chief Financial Officer Pursuant to Exchange Act Rule 13a-14(a).

Certiﬁcation of Chief Executive Officer Furnished Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Certiﬁcation of Chief Financial Officer Furnished Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

The following ﬁnancial statements, formatted in XBRL: (i) Consolidated Balance Sheets as of
December 31, 2017 and 2016, (ii) Consolidated Statements of Income for the years ended
December 31, 2017, 2016 and 2015; (iii) Consolidated Statements of Comprehensive Income for
the years ended December 31, 2017, 2016 and 2015; (iv) Consolidated Statements of
Stockholders’ Equity for the years ended December 31, 2017, 2016 and 2015; (v) Consolidated
Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015; and
(vi) Notes to Consolidated Financial Statements.

* Management contract or compensatory plan.
‡‡ Conﬁdential treatment granted as to portions of this exhibit. Conﬁdential information has been omitted

and ﬁled separately with the Securities and Exchange Commission.

102

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the

registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: February 27, 2018

CAI INTERNATIONAL, INC.

By:

/s/ VICTOR M. GARCIA
Victor M. Garcia
President and Chief 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, in the capacities indicated, on the 27th day of February,
2018.

Signature

Title(s)

/s/ VICTOR M. GARCIA
Victor M. Garcia

/s/ TIMOTHY B. PAGE
Timothy B. Page

/s/ DAVID REMINGTON
David Remington

/s/ MARVIN DENNIS
Marvin Dennis

/s/ KATHRYN G. JACKSON
Kathryn G. Jackson

/s/ MASAAKI (JOHN) NISHIBORI
Masaaki (John) Nishibori

/s/ GARY M. SAWKA
Gary M. Sawka

President and Chief Executive Officer, Director
(Principal Executive Officer)

Chief Financial Officer (Principal Financial and
Accounting Officer)

Chairman of the Board of Directors

Director

Director

Director

Director

103

(This page intentionally left blank) 

Exhibit 21.1

CAI INTERNATIONAL, INC.

LIST OF SUBSIDIARIES

Subsidiary

CAI Chile S.p.A
CAI Consent Sweden AB
CAI Intermodal LLC
CAI International GmbH
CAI Korea Yuhan Hoesa
CAI Logistics Inc.
CAI Luxembourg S.a r.l.
CAI Rail Inc.
CAI South Africa (Pty) Ltd
CAL Funding II Limited
CAL Funding III Limited
Challenger Overseas LLC
Container Applications (Malaysia) SDN BHD
Container Applications (Singapore) Pte. Ltd.
Container Applications International (Australia) Pty Ltd
Container Applications International (U.K.) Limited
Container Applications International Ltd.
Container Applications Limited
General Transportation Services, Inc.
Hybrid Logistics, Inc.
Sky Container Trading, Ltd.

Jurisdiction

Chile
Sweden
Washington (U.S.A.)
Germany
South Korea
Delaware (U.S.A.)
Luxembourg
Delaware (U.S.A.)
South Africa
Bermuda
Bermuda
New Jersey
Malaysia
Singapore
Australia
United Kingdom
Japan
Barbados
Oregon
Nevada
United Kingdom

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

The Board of Directors
CAI International, Inc.:

We consent to the incorporation by reference in the registration statement (Nos. 333-143000, 333-159870,

333-176369, 333-187058, 333-206102, 333-212135 and 333-219615) on Form S-8 and (No. 333-217915) on
Form S-3 of CAI International, Inc. of our reports dated February 27, 2018, with respect to the consolidated
balance sheets of CAI International, Inc. as of December 31, 2017 and 2016, and the related consolidated
statements of income, comprehensive income, stockholders’ equity, and cash ﬂows for each of the years in the
three-year period ended December 31, 2017, and the related notes (and ﬁnancial statement schedule II)
(collectively, the ‘‘consolidated ﬁnancial statements’’), and the effectiveness of internal control over ﬁnancial
reporting as of December 31, 2017, which reports appear in the December 31, 2017 annual report on
Form 10-K of CAI International, Inc.

/s/ KPMG LLP

San Francisco, California
February 27, 2018

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Victor M. Garcia, certify that:

Exhibit 31.1

1.

I have reviewed this Annual Report on Form 10-K of CAI International, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the ﬁnancial statements, and other ﬁnancial information included in this
report, fairly present in all material respects the ﬁnancial condition, results of operations and cash
ﬂows of the registrant as of, and for, the periods presented in this report;

4.

The registrant’s other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as deﬁned in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over ﬁnancial reporting (as deﬁned in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and

procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over ﬁnancial reporting, or caused such internal control over
ﬁnancial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of ﬁnancial reporting and the preparation of ﬁnancial statements for
external purposes in accordance with generally accepted accounting principles;

c.

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures,
as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over ﬁnancial reporting
that occurred during the registrant’s most recent ﬁscal quarter (the registrant’s fourth ﬁscal
quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over ﬁnancial reporting; and

5.

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of
internal control over ﬁnancial reporting, to the registrant’s auditors and the audit committee of the
registrant’s board of directors (or persons performing the equivalent functions):

a. All signiﬁcant deﬁciencies and material weaknesses in the design or operation of internal

control over ﬁnancial reporting which are reasonably likely to adversely affect the registrant’s
ability to record, process, summarize and report ﬁnancial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a

signiﬁcant role in the registrant’s internal control over ﬁnancial reporting.

Date: February 27, 2018

By: /s/ VICTOR M. GARCIA

Victor M. Garcia
President and Chief Executive Officer

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Timothy B. Page, certify that:

Exhibit 31.2

1.

I have reviewed this Annual Report on Form 10-K of CAI International, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the ﬁnancial statements, and other ﬁnancial information included in this
report, fairly present in all material respects the ﬁnancial condition, results of operations and cash
ﬂows of the registrant as of, and for, the periods presented in this report;

4.

The registrant’s other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as deﬁned in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over ﬁnancial reporting (as deﬁned in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and

procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over ﬁnancial reporting, or caused such internal control over
ﬁnancial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of ﬁnancial reporting and the preparation of ﬁnancial statements for
external purposes in accordance with generally accepted accounting principles;

c.

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures,
as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over ﬁnancial reporting
that occurred during the registrant’s most recent ﬁscal quarter (the registrant’s fourth ﬁscal
quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over ﬁnancial reporting; and

5.

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of
internal control over ﬁnancial reporting, to the registrant’s auditors and the audit committee of the
registrant’s board of directors (or persons performing the equivalent functions):

a. All signiﬁcant deﬁciencies and material weaknesses in the design or operation of internal

control over ﬁnancial reporting which are reasonably likely to adversely affect the registrant’s
ability to record, process, summarize and report ﬁnancial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a

signiﬁcant role in the registrant’s internal control over ﬁnancial reporting.

Date: February 27, 2018

By: /s/ TIMOTHY B. PAGE
Timothy B. Page
Chief Financial Officer

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of CAI International, Inc. (the ‘‘Company’’) on Form 10-K for the
year ended December 31, 2017 as ﬁled with the Securities and Exchange Commission on the date hereof (the
‘‘Report’’), I, Victor M. Garcia, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities

Exchange Act of 1934; and

(2) The information contained in the Report presents, in all material respects, the ﬁnancial condition and

results of operations of the Company.

Date: February 27, 2018

By: /s/ VICTOR M. GARCIA

Victor M. Garcia
President and Chief Executive Officer

Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE AS SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of CAI International, Inc. (the ‘‘Company’’) on Form 10-K for the
year ended December 31, 2017 as ﬁled with the Securities and Exchange Commission on the date hereof (the
‘‘Report’’), I, Timothy B. Page, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities

Exchange Act of 1934; and

(2) The information contained in the Report presents, in all material respects, the ﬁnancial condition and

results of operations of the Company.

Date: February 27, 2018

By: /s/ TIMOTHY B. PAGE
Timothy B. Page
Chief Financial Officer

Corporate Information

Directors (pictured left to right) 
Gary M. Sawka 
Chairman of the Nominating and Corporate 
Governance Committee, Chairman of Compensation 
Committee and Director

Kathryn G. Jackson 
Director

David G. Remington 
Chairman of the Board and Audit Committee

Victor M. Garcia 
President, Chief Executive Officer, and Director

Marvin Dennis 
Presiding Nonmanagement Director

Masaaki (John) Nishibori 
Director

Corporate Headquarters 
Steuart Tower, 1 Market Plaza, Suite 900 
San Francisco, CA 94105 
Tel: 415 788 0100

Independent Accountants 
KPMG LLP

Stockholder Inquiries  
Investor Relations 
Steuart Tower, 1 Market Plaza, Suite 900 
San Francisco, CA 94105 
Tel: 415 788 0100

Stock Listing 
Our common shares are listed on  
the NYSE under the symbol CAI.

Legal Counsel 
Perkins Coie LLP 
3150 Porter Drive 
Palo Alto, CA 94304

Stock Transfer Agent 
Computershare Investor Services 
250 Royall Street 
Canton, MA 02021 
Tel: 781 575 2879

Investor Center 

www.computershare.com/investor

Annual Report (Form 10-K) 
A copy of the company’s 2017 Annual Report on Form 
10-K filed with the Securities and Exchange Commission 
is available to stockholders, without charge, through the 
company’s website at www.capps.com or upon written 
request to the company’s headquarters.

Annual Meeting 
The 2018 annual meeting of stockholders will be held on 
Friday, June 1, 2018, at 2 p.m. (PDT) at the offices of Perkins 
Coie, at 3150 Porter Drive, Palo Alto, CA 94304.

Website 
The company’s website provides access to a wide range 
of information about the company and our products.  
Please visit us at www.capps.com.

Investor Relations on the Web 
For more information related to investing in the 
company, please see the Investors tab on our website 
at www.capps.com.

This document is printed on paper certified to the environmental  
and social standards of the Forest Stewardship Council®  (FSC®).

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CAI International, Inc. 
Steuart Tower, 1 Market Plaza, Suite 900  
San Francisco, CA 94105 
415 788 0100

www.capps.com