Powering Performance
in Global Transportation
CAI International, Inc.
2018 Annual Report
CAI is a leading global transportation company offering intermodal
container leasing and sales, rail leasing and operations, 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.
A powerful force. With an integrated offering
of shipping container leasing and sales, rail
leasing and operations, and global logistics
services, CAI International occupies a unique
position within the supply chain—the only
container leasing company with in-house U.S.
and global logistics capabilities. With 99+%
shipping container utilization, a double-digit
increase in railcar utilization, and an almost
50% increase in logistics business, CAI is
well-positioned for continued
growth in the future.
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CAI at a Glance
Container
Since Q4 ‘17,
utilization above
99%
51% growth over
2017 investment
2018
investment of
$722M
91%of CAI leases are
long-term leases
Founded in
1989
NYSE stock symbol
CAI
~20%
increase in number
of cars on lease
year-over-year
Rail
247
Net lease-outs in Q4
Year-end utilization of
87%
13%
improvement
over 2017
Compound annual growth rate of
14%
in book value per share since
going public in 2007
Offices in
12
countries
Logistics
Gross margin dollars
Record revenues of
15%
year-over-year
$111M
38%growth over 2017
revenue
Rail Power
CAI has a diverse fleet of railcars, providing a high level of service for custom-
ers across North America. The CAI Rail team has extensive experience in all as-
pects of rail operations and railcar leasing—delivering the best solution to get
things done. Services include buying and selling operating leases, refinancing
long- and short-term operating leases, and restructuring portfolios.
Beyond railcar leasing, CAI is a true railcar operator. The company has cars to
handle virtually all commodities and industrial products shipped by rail. And CAI
owns and maintains these assets, ensuring optimal performance and reliability.
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Case Study: How a better boxcar helps
protect the payload
Situation: A paper company has been investing heavily in mills
throughout North America in order to expand production and
provide value-added products to its customers. Its transportation
services are supplied by a regional rail carrier. Consistent, efficient
boxcar supply has been a challenge for both parties. Expanded
production has increased boxcar demand, highlighting a shortage
of proper equipment.
Success
+ CAI Rail collaborated with both parties to successfully modify
52-foot Plate F boxcars and design a new loading diagram for all
sizes of rolled paper.
+ With cars approved for use by the Association of American Railroads,
the paper company is shipping many combinations of its sensitive
commodity while more effectively protecting the payload.
+ Connecting railroads know they will get boxcars that are loaded
safely and without damage.
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Case Study: How customized solutions make
inventory more accessible
Situation: A global communications engineering company supplies
customers with delivery of products on demand. Its greatest supply
chain challenges are storing inventory on a short-term basis and finding
warehouse space across its rapidly growing network. CAI Logistics
helped secure solutions for the optimal movement of inventory storage,
warehouse movement, and disaster support for telecom infrastructure.
Success
+ Efficient supply chain solutions enable inventory to be
reclaimed at more than 100 cell-tower locations, with shipping
to one final-mile location.
+ CAI customized a project document while overseeing material
handling and packaging SOP for IT, asset recovery, shipment
optimization, and freight flow.
+ During peak periods, when demand is high and warehouse
relocation needs are required, CAI Logistics provides door-to-door
material handling and consolidation into new warehouse locations.
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Logistics Power
The logistics business continues to gain momentum. A growing customer
portfolio and deeper penetration with key clients have led to record revenue.
Growth has been particularly strong in our domestic intermodal and truck
brokerage businesses. CAI expects continued double-digit expansion of our
logistics business into 2019.
This year, our Hybrid Logistics and Challenger Overseas brands were
combined with CAI Logistics, uniting all the company’s logistics services
under one brand name. This leverages and enhances each company’s area of
strength while offering customers a level of service unparalleled in the third-
party logistics sector. Combined with an established intermodal program,
CAI Logistics’ customers will now benefit from a comprehensive suite of
shipping and supply chain solutions, all under one umbrella.
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Container Power
With approximately 1 million units in use around the world, you will find CAI
containers on railcars, ships, and highways—everywhere goods are trans-
ported. These standard and specialized containers transport finished goods,
agricultural products, refrigerated goods, commodities, raw materials, and
chemicals. The CAI container fleet serves more than 300 customers,
including many of the world’s largest international container shipping lines,
shippers, and logistics companies.
As the dynamics of global shipping continue to shift, CAI adds value
through an innovative, real-time equipment control system, providing up-to-
the-minute container visibility. And our experienced team keeps everything
moving—working with a global network of more than 200 depot facilities in
41 countries.
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Case Study: How flexibility helps optimize
container utilization
Situation: A global manufacturer of petrochemical products has more
than 94 manufacturing facilities in 31 countries. Its products must be
stored locally and distributed as needed. Since 2016, CAI International
has helped it successfully address supply chain challenges throughout
its European network. This includes moving products from factories
to storage facilities, manufacturers, and end users.
Success
+ CAI supplemented the company’s usage of line equipment, which
was creating high levels of trucking cost and potential demurrage
as products moved throughout Europe.
+ Flexible solutions are in place to accommodate market changes—so
when production is high, the company can secure equipment and
delivery options to meet the need for increased capacity.
+ Containers have proven to be a cost-effective solution for
storage facilities at the company’s various locations, making
products more easily accessible.
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Fellow Shareholders
2018 was a tremendous year for our company, as we expanded each of
our three businesses and improved both our overall financial performance
and our access to capital. We took advantage of strong container lease
demand to increase our investment in containers by 50%, grew revenue
from our logistics business by 38%, and continued to increase the
utilization of our railcar fleet in a recovering rail market. We did all of this
while improving our access to capital, with the issuance of $104 million of
perpetual preferred stock and the repurchase of 9% of our outstanding
shares. We go into 2019, our 30th anniversary year, with great momentum,
optimism, and financial strength.
The Year’s Highlights. We are always focused on
long-term financial performance and shareholder
value. Early in 2018, it was our expectation that the
economy was likely to be strong during the year.
Europe was recovering economically and benefiting
from monetary stimulus. Similarly, the United States
had recently enacted the Tax Cuts and Jobs Act of
2017, and the economy was poised to benefit from
this new legislation. We decided early on to invest
aggressively in our container segment, to take advan-
tage of what we believed was going to be a strong
container demand year. Our optimism proved correct,
and we experienced increased demand for container
equipment, particularly for delivery in the second and
third quarters of the year. By the end of 2018, we had
invested more than $700 million in marine containers
that were placed on attractive leases with terms that
averaged more than nine years in duration. Utilization
throughout the year remained strong, at more than
99%, and we continued to benefit from a strong sec-
ondary sales market. Clearly, our customers viewed
CAI as one of the most reliable equipment providers,
and we continued to see strong support from them.
As a result of the significant investment in contain-
ers, we increased our 2018 net income to $73.5 million
from $55.1 million in 2017, after adjusting for the tax
benefit related to the United States Tax Cuts and
Jobs Act. We were able to increase our net income
while managing through a downturn in our rail seg-
ment and significantly growing our investment in our
logistics business.
Our focus on diversification provides us the flex-
ibility to place capital where the returns are greatest.
As in 2017, it was clear in 2018 that the container
segment was the best place to invest. To fund some
of this investment we raised $104 million of cumula-
tive perpetual preferred stock, which also gave us
the flexibility to repurchase 1.8 million shares of our
common stock, representing $41 million of equity and
9% of our outstanding shares at the beginning of the
year. During the year, our board of directors approved
a 3 million share repurchase program, and we expect
repurchase activity to continue through 2019, due
to our confidence in the contractual cash flows we
have in place.
Container. Considering the competitive nature of the
container leasing business, we will be disciplined
in our procurement and lease terms in 2019, focusing
on high utilization, and being strategic in our second-
ary sales activity. We have the needed strength and
discipline to achieve market-leading returns, despite
the competitive nature of the market. During 2018,
we focused on all of these principles. We were
aggressive in procurement beginning early in the year,
seeking attractive long-term leases. We maintained
market-leading utilization that was more than 99%
all year, and we reported a $10 million gain on the
sale of containers, selectively moving equipment into
stronger markets. The efforts we made in 2018 have
positioned us for success in 2019, and we expect to
take advantage of market opportunities as they arise.
Rail. The rail market was challenging in 2018 but con-
tinued to steadily improve over the course of the year.
We took delivery of 482 new railcars, which primarily
came from the final year of our three-year equipment
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purchase program with a manufacturer. Most of the
equipment was delivered and placed on lease. We
have witnessed an improvement in rental rates across
all car types, particularly related to the tank segment,
where we witnessed a doubling of rates by the end
of the year. Our railcar utilization increased as the
year progressed, averaging 81% for the year and
finishing at 87%.
Our primary focus with all our businesses is to
maximize overall corporate returns. As such, we have
focused on the sale of railcars as a means to redeploy
capital into higher-yielding opportunities, such as
containers, or to increase the amount and pace of
our share repurchase program. We sold $40 million
of railcars in the fourth quarter of 2018, and have
continued this strategy into 2019, with the sale of
approximately $200 million of railcars. We believe
these decisions were in the best interest of our
shareholders and long-term strategic positioning.
Logistics. Logistics remains a great strategic op-
portunity for our company, and we are focused on
aggressively expanding that segment. In 2018, we saw
a 38% growth in revenue, most of which was in our
domestic intermodal and truck brokerage business.
We expanded the size of the teams in our existing
offices and added a new office in Dallas. We see many
opportunities to leverage our existing customer base
and organically grow the business. Growth remains
a focus considering the large market opportunity
before us, but we are also looking at leveraging our
existing investment in people and systems in order
to improve margins and
profitability. We are
optimistic about contin-
ued growth in 2019.
Strategic Perspective.
The long-term opportu-
nity within the container
leasing segment is compelling and attractive. We
believe we have the skills, capital, and customer
relationships to increase our market share and returns
in the segment. We also believe that diversification
is important and will look for opportunities to expand
beyond our core container business. Rail and logistics
provide us long-term strategic advantages that
can be expanded as market opportunities justify
the investment.
Outlook. As we look ahead to 2019, the outlook is
less certain than it was in the prior year. Uncertainties
surrounding trade negotiations are a concern, though
we believe that global trade will continue to grow in
2019. As a result, we expect good opportunities for
container investment, and we expect utilization to
remain strong. This is likely to provide the underpin-
nings for our earnings in 2019.
In our rail market, our focus will be on improving
returns. We will do so by looking at opportunities to
increase utilization rates and negotiate higher rental
rates on cars currently on lease. We think the market
will be strong enough to do both. We will also look at
current investment and see if further equipment sales
make sense as a way to improve the segment results.
On the logistics side, we expect continued growth
of our team, particularly the marketing staff. We
believe we have sufficient support and operations
staff that can be leveraged as the business grows,
thus improving financial returns in the segment. The
customer reaction to our participation in this seg-
ment has been great, and we are encouraged about
the growth prospects
for logistics in 2019 and
well beyond.
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)
Total Revenue
Operating Income
Net Income
EBITDA
2015
$249.7
67.4
26.6
181.5
2016
$294.4
53.3
6.0
159.3
2017
$348.4
111.0
72.1
223.5
2018
$432.1
160.5
73.5
283.3
Total Revenue*
Book Value Per Common Share*
4
3
2
.
1
3
4
8
.
4
2
9
4
.
4
2
4
9
.
7
3
1
.
8
3
2
7
.
6
5
2
4
.
0
1
2
2
.
8
1
2015
2016
2017
2018
2015
2016
2017
2018
Net Income*
EBITDA*
7
2
1
.
7
3
.
5
2
6
6
.
6
.
0
2
8
3
.
3
2
2
3
5
.
1
8
1
5
.
1
5
9
3
.
2015
2016
2017
2018
2015
2016
2017
2018
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*Dollars in millions
Form 10-K
CAI International, Inc.
2018 Annual Report
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A
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2018
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
Common Stock, par value $0.0001 per share
8.50% Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual
Preferred Stock, par value $0.0001 per share
8.50% Series B Fixed-to-Floating Rate Cumulative Redeemable Perpetual
Preferred Stock, par value $0.0001 per share
Securities registered pursuant to Section 12(g) of the Act: None
Name of exchange on which registered
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
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 ☐ No ☒
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such
files). Yes ☒ No ☐
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. ☐
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 ☐
Accelerated filer ☒
Smaller reporting company ☐
Emerging growth company ☐
If emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for 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 ☐ No ☒
As of June 29, 2018, the last trading 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 29, 2018) was approximately
$382.8 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 February 28, 2019, there were 18,712,252 shares of the registrant’s common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement relating to the registrant’s 2019 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, 2018, are incorporated by reference into Part III hereof.
TABLE OF CONTENTS
Annual Report on Form 10-K for the year ended December 31, 2018
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 . . . . . . . . . . . . . . . . .
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 8.
Changes in and Disagreements with Accountants on Accounting and Financial
Item 9.
Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART III
Item 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . .
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 11.
Security Ownership of Certain Beneficial Owners and Management and Related
Item 12.
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain Relationships and Related Transactions, and Director Independence . . . . . . .
Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 13.
Item 14.
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PART IV
Item 15.
Exhibits, Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Form 10-K Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 16.
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
65
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110
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.
The following tables show the composition of our fleet as of December 31, 2018 and our average
utilization for the year ended December 31, 2018:
As of
December 31,
2018
Percent of
Total
Container Fleet
Owned container fleet in TEUs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,465,799
Managed container fleet in TEUs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
74,246
Total container fleet in TEUs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,540,045
Owned container fleet in CEUs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Managed container fleet in CEUs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,501,060
67,647
Total container fleet in CEUs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,568,707
Owned railcar fleet in units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,279
95%
5%
100%
96%
4%
100%
Year Ended
December 31,
2018
Average container fleet utilization in CEUs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average owned container fleet utilization in CEUs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average railcar fleet utilization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
99.2%
99.2%
88.6%
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 97.0%, owned container fleet utilization would be 96.9%, and railcar fleet
utilization would be 81.0%, for the year ended December 31, 2018.
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, 2018, we recorded revenue of $432.1 million and net income
attributable to CAI common stockholders of $73.5 million. A comparison of our 2018 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.
We formed CAI Rail Inc. (CAI Rail), a wholly-owned subsidiary of the Company in December 2011.
CAI Rail purchases and leases our fleet of railcars in North America.
Our logistics business operates under the brand name, CAI Logistics, which is comprised of our
acquisitions of (i) ClearPointt Logistics LLC, an intermodal logistics company focused on the domestic
intermodal market, in July 2015, (ii) Challenger Overseas, LLC (Challenger), a Non-Vessel Operating
Common Carrier (NVOCC), in February 2016, and (iii) Hybrid Logistics, Inc. and its affiliate, General
Transportation Services, Inc. (collectively, Hybrid), which are asset light truck brokers, in June 2016. CAI
Logistics is headquartered in Everett, Washington.
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 www.capps.com. 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. We operate our business in 22 offices in 12 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.
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.
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.
2
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. 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.
Generator sets are units that are attached to refrigerated containers to provide the container with
cooling.
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 47% of the total worldwide container fleet, measured in TEUs, with
container leasing companies owning the remaining 53%. 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, 2018 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 . . . 1,337,809
87% 52,552
3% 75,438
5% 1,465,799
Managed container
fleet in TEUs . . .
73,267
5%
556
0%
423
0%
74,246
95%
5%
Total container
fleet in TEUs . . . 1,411,076
92% 53,108
3% 75,861
5% 1,540,045
100%
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 CEUs . . . 1,188,630
76% 190,145
12% 122,285
8% 1,501,060
Managed container
fleet in CEUs . . .
65,157
4% 1,946
0%
544
0%
67,647
96%
4%
Total container fleet
in CEUs . . . . . . . 1,253,787
80% 192,091
12% 122,829
8% 1,568,707
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 ten 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 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 and predictable, recurring revenue. A small percentage of our long-term
leases contain early termination options 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, 2018:
Long-term leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term leases
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finance leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
As of December 31, 2018
TEUs
CEUs
67%
9%
24%
69%
9%
22%
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100%
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 net operating income for each container, which is
equal to the rental revenue for a container less the 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 dollars 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. Sales of containers typically
have to be approved by 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, 2018 provide us an
advantage over our smaller competitors in re-leasing our used 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.
for use as portable storage;
In North America and Western Europe, we lease older containers on a limited basis
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 empty 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, 2018, we managed our equipment fleet through
200 independent equipment depot facilities located in 41 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, 2018, 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.
Most of our 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.
6
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 to 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. Billings from our ten largest container lessees represented 63.4% of
container leasing billings for the year ended December 31, 2018, with billings from our two largest lessees,
MSC Mediterranean Shipping Company S.A. and CMA CGM, accounting for 18.2% and 13.0%,
respectively, of container leasing billings, or $58.0 million and $41.3 million, respectively. The $58.0 million
and $41.3 million of billings generated by MSC Mediterranean Shipping Company S.A. and CMA CGM
represented 11.8% and 8.4%, respectively, of our total billings for the year ended December 31, 2018.
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 global container leasing companies, including
both larger and smaller lessors. We also compete with bank leasing companies who offer 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 us, 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.
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.
7
Rail Leasing
Fleet Overview. We own a fleet of railcars of various types including: 50 foot and 60 foot 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 7,279 railcars as
of December 31, 2018. On February 26, 2019, we entered into an agreement to sell 2,146 railcars for
approximately $200 million. See Note 18 to our consolidated financial statements included in this
Annual Report on Form 10K.
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 2018, we entered into an
amendment to the Agreement, by which we modified the type of railcars yet to be delivered and increased
the total car count to 2,050 as of the date of the amendment. As of December 31, 2018, 1,600 railcars had
been delivered under the Agreement and the remaining 450 cars are to be delivered in 2019 at a cost of
$58.6 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. Billings
from our ten largest railcar lessees represented 54.2% of rail leasing billings for the year ended
December 31, 2018, with billings from our single largest lessee accounting for 14.7% of rail leasing billings,
or $4.2 million, for the year ended December 31, 2018. The $4.2 million of billings represented an
immaterial portion of our total billings for the year ended December 31, 2018.
Our Competition. We operate 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.
Customer Concentration. We provide services to customers in a wide variety of industries, including
consumer products, retail and durable goods. Billings from our ten largest logistics customers represented
30.2% of logistics billings for the year ended December 31, 2018, with no single customer generating more
than 10% of our logistics billings.
8
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 us 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 I 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.
Drayage is the transport of goods over a short distance and is often part of a longer overall move.
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 produced specifically for
the maritime sector by 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
Our container operations 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 (DHS) 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 (CSC), 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 (DOT), the Federal Railroad Administration (FRA), and the
Association of American Railroads (AAR). State agencies regulate some health and safety matters related
to rail operations not otherwise covered 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 DOT 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 DOT 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, 2018, we had 261 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 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 the SEC’ website at www.sec.gov and on 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 securities 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 Item 7, “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 export-oriented Asian countries) to importing countries
(e.g., other Asian countries, North America and Western Europe). 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 or already renegotiated some
existing trade agreements (i.e. NAFTA). Any further 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, Canada 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.
Increased tariffs or other actions impeding trade could adversely affect our business, financial condition and
results of operations.
The international nature of the container industry exposes us to risks relating to the imposition of
import and export duties, quotas, domestic and foreign customs and tariffs, and other impediments to
trade. These risks have increased recently due to trade actions taken by the United States and China that
have led to increased tariffs on goods traded between these two countries, and the United States has
threatened to further increase tariffs if certain demands are not met. Given the importance of the
United States and China in the global economy, these increased tariffs could significantly reduce the volume
of goods traded internationally and reduce the rate of global economic growth, leading to decreased
demand for leased containers, lower new container prices (which would indirectly reduce the value of the
Company’s inventory of containers held for lease) and decreased market leasing rates. These impacts could
have a materially adverse effect on our business, financial condition and results of operations.
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Market conditions could weaken due to a combination of factors, including significant declines in steel prices,
new container prices and used container prices, 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 2015 and 2016 there was an overall decline in worldwide
commodity prices and, in particular, steel prices. 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 reached a low point of approximately $1,250 in the
first quarter of 2016. Sale prices for used containers decreased significantly, resulting in losses on the sale of
equipment. Although container prices recovered in 2017 and 2018, with prices reaching approximately
$2,250 in the first quarter of 2018, they have since declined with prices dropping below $2,000. If steel
prices continue to 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.
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 the operating results of container lessors, such as us, 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 shares
of our common stock.
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;
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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.
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 2019 and 2020 and those that have already expired or been renegotiated have been re-priced at
relatively 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 generally been increasing since their lows in the first quarter of 2016,
although prices started to decrease in the fourth quarter of 2018. If new container prices continue to
decrease, 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
from the lows of 2016, they have recently started to decline. 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.
14
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, with five-year leases being most common, 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.
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.
Our shipping line customers are subject to requirements under environmental and operational safety laws,
regulations and conventions that could require them to incur significant expenditures, which may impact our
container leasing business.
On October 27, 2016, the International Maritime Organization’s Marine Environment Protection
Committee announced the results from a vote concerning the implementation of regulations mandating a
reduction in sulfur emissions from 3.5% to 0.5% as of the beginning of 2020 rather than pushing the
deadline back to 2025. By 2020 ships will now have to either remove sulfur from emissions through the use
of emission scrubbers or buy fuel with low sulfur content. Scrubbers can cost $3.0 million to $5.0 million to
install on existing ships. If a vessel is not retrofitted with a scrubber or other emission abatement
technology, it will need to use low sulfur bunker fuel (0.5%), which is more expensive than standard bunker
fuel. The increased demand for low sulfur bunker fuel is likely to result in an increase in the bunker price.
While we believe that these costs will be passed on to shippers through higher freight rates, if such costs are
not able to be passed on, it may impact the financial results of our shipping line customers, which may
adversely impact our business, financial condition, results of operations and cash flows.
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.
15
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. Sales
prices for used containers recovered from the lows of 2016, resulting in gains being recognized on the sale of
used equipment, but have recently started to decline. If used container prices continue to decline, 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.
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.
16
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 seventh 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 us 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. Our level of insurance coverage in 2019 is limited
to $23.2 million or $23.7 million per occurrence and $28.2 million or $28.7 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.
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. For example, 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. 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.
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. Billings from our ten largest container lessees
represented 63.4% of total billings for this segment for the year ended December 31, 2018, with billings
from our two largest container lessees accounting for 18.2% and 13.0%, respectively, of container lease
billings, or $58.0 million and $41.3 million, respectively, which represented 11.8% and 8.4%, respectively, of
our total billings for the year ended December 31, 2018. 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, Maersk and Hamburg Süd in 2017, and the formation
of Ocean Network Express (ONE), a joint venture between NYK, Mitsui OSK and K Line, in 2018. 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.
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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 operating alliances between shipping lines, such as the
formation of ONE, a joint venture between NYK, Mitsui OSK and K Line, in 2018, 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 or availability of containers in China could adversely affect our ability to maintain
our supply of containers.
The vast majority of intermodal containers are currently manufactured in China, and we currently
purchase almost all of our containers from manufacturers based there. In addition, the container
manufacturing industry in China is highly concentrated. If it became more expensive for us to procure
containers in China because of further consolidation among container suppliers, a dispute with one of our
manufacturers, increased tariffs imposed by the United States or other governments or for any other reason,
we may have to seek alternative sources of supply. We may not be able to make alternative arrangements
quickly enough to meet our equipment needs, and the alternative arrangements may increase our costs.
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.
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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 other 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;
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 DHS;
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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 DHS 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 CSC 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.
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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 Chlorofluorocarbons (CFCs)
(which have been restricted since 1995), the European Union (EU) has instituted regulations, which began
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 EU 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 (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 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.
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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.
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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 an agreement with a railcar manufacturer to purchase 2,000 new railcars. In 2018, we entered
into an amendment to the agreement, by which we modified the type of railcars yet to be delivered and
increased the total car count to 2,050 as of the date of the amendment. As of December 31, 2018,
1,600 railcars had been delivered under the agreement and the remaining 450 railcars are to be delivered in
2019 at a cost of $58.6 million. Due to a weak and highly competitive railcar leasing environment, 280 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 DOT, the FRA, and the AAR. 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.
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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. Billings from our ten largest railcar lessees represented
54.2% of total billings for this segment for the year ended December 31, 2018. 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 2019 is limited to $23.2 million or $23.7 million per
occurrence and $28.2 million and $28.7 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.
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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.
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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.
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 DOT as freight brokers. The DOT 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.
Billings from our ten largest customers represented 30.2% of total billings for this segment for the year
ended December 31, 2018. A reduction in or termination of our services by such customers could have a
material adverse effect on our revenue and business.
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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.
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.
If we fail to maintain and enhance our information technology systems, or if we fail to successfully implement
new technology or enhancements, we may be at a competitive disadvantage and lose customers.
We continue to see technology as key to driving internal efficiencies as well as providing additional
capabilities to customers and carriers. We expect our customers to continue to demand more sophisticated
technology-driven solutions from their suppliers and we may need to enhance or replace our information
technology systems in response. This may involve significant implementation costs and potential challenges.
Technology and new market entrants may also disrupt the way we and our competitors operate.
As technology improves and new companies enter the freight brokerage market, our customers may be
able to find alternatives to our services for matching shipments with available freight hauling capacity.
We will continue to develop innovative emerging technologies to source, track and provide visibility to
capacity while exploiting machine learning and artificial intelligence to further improve customer outcomes.
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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, 2018, our total
outstanding debt was $2,179.4 million. Interest expense on such debt will be $20.4 million per quarter for
2019, assuming floating interest rates remain consistent with those as of December 31, 2018. 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 indices, 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:
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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;
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, our Series A
Preferred Stock or our Series B Preferred 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, 2018, our total outstanding
debt was $2,179.4 million. Interest expense on such debt will be $20.4 million per quarter in 2019, assuming
floating interest rates remain consistent with those at December 31, 2018. These amounts will increase to
the extent we borrow additional funds and if interest rates increase. It is possible that:
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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.
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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:
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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.
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.
Possible replacement of the LIBOR benchmark interest rate may have an impact on our business.
On July 27, 2017, the U.K. Financial Conduct Authority (the “FCA”), which regulates LIBOR,
announced that it will no longer persuade or compel banks to submit rates for the calculation of LIBOR
rates after 2021. As a result, LIBOR may be discontinued after 2021. The FCA and the submitting LIBOR
banks have indicated they will support the LIBOR indices through 2021 to allow for an orderly transition to
an alternative reference rate. Financial services regulators and industry groups are evaluating the phase-out
of LIBOR and the development of alternate reference rate indices or reference rates.
As of December 31, 2018, we had $801.1 million of debt outstanding on facilities with interest rates
based on LIBOR.
Potential changes to the underlying floating rate indices may have an adverse impact on our liabilities
indexed to LIBOR and could have a material adverse effect on our operating results and financial
condition.
30
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, cause us
to breach our legal, regulatory or contractual obligations, create an inability to access or rely upon critical
business records or cause other disruptions 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. These breaches may result from human error,
equipment failure, or fraud or malice on the part of employees or third parties.
We expend significant financial resources to protect against such threats and may be required to
further expend financial resources to alleviate problems caused by physical, electronic, and cyber security
breaches. As techniques used to breach security are growing in frequency and sophistication and are
generally not recognized until launched against a target, regardless of our expenditures and protection
efforts, we may not be able to implement security measures in a timely manner or, if and when
implemented, these measures could be circumvented. Any breaches that may occur could expose us to
increased risk of lawsuits, loss of existing or potential future customers, harm to our reputation and
increases in our security costs, which could have a material adverse effect on our financial performance and
operating results.
In the event of a breach resulting in loss of data, such as personally identifiable information or other
such data protected by data privacy or other laws, we may be liable for damages, fines and penalties for such
losses under applicable regulatory frameworks despite not handling the data. Further, the regulatory
framework around data custody, data privacy and breaches varies by jurisdiction and is an evolving area of
law. We may not be able to limit our liability or damages in the event of such a loss.
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 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.
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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.
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.
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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 perception or 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 perception or
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:
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potential disruption of our ongoing business and distraction of management;
customer retention;
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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.
Risks Related to our Stock
Our common stock price has been volatile and may remain volatile.
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 common stock at $15.00 per share on May 16, 2007, the market price of our
common stock has fluctuated significantly from a high of $40.11 per share to a low of $2.12 per share
through February 28, 2019. Since the trading volume of our common stock is modest on a daily basis,
shareholders may experience difficulties in liquidating our common stock at an acceptable price. Factors
affecting the trading price of our common stock may include:
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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;
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equipment market and industry factors;
the size of our public float;
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 or preferred stock by us or outstanding shares by existing stockholders,
or the perception that there will be future sales of new shares from us or existing stockholders, may cause our
common stock or preferred stock price, as applicable, to decline and impair our ability to obtain capital
through future stock offerings.
In the future, we may sell additional shares of our common stock or preferred stock to raise additional
capital. The issuance of additional shares of our common stock, preferred stock or convertible securities,
will dilute the ownership interest of our common and preferred stockholders. In addition, our greater than
5% stockholders may sell a substantial number of their shares in the public market, which could also affect
the market price for our common and preferred stock. We cannot predict the size of future sales or
issuances of our common or preferred stock or the effect, if any, that they may have on the market price for
our common and preferred stock. The issuance and/or sale of substantial amounts of common or preferred
stock, or the perception that such issuances and/or sales may occur, could adversely affect the market price
of our common or preferred stock and impair our ability to raise capital through the sale of additional
equity or debts 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 and preferred stock 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 common and preferred stock could decline. If any analyst ceases coverage of our company,
we could lose visibility in the market, which in turn could cause our common or preferred stock price to
decline.
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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 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:
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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;
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.
The change of control conversion right in our preferred stock may make it more difficult for a party to acquire
us or discourage a party from acquiring us.
Upon the occurrence of a change of control, each holder of shares of our outstanding preferred stock
will have the right (subject to certain conditions) to convert some or all of the shares of preferred stock held
by such holder (the “Change of Control Conversion Right”). The Change of Control Conversion Right
may have the effect of discouraging a third party from making an acquisition proposal for us or of delaying,
deferring or preventing certain of our change of control transactions under circumstances that otherwise
could provide the holders of our preferred stock with the opportunity to realize a premium over the
then-current market price of such equity securities or that stockholders may otherwise believe is in their
best interests.
ITEM 1B: UNRESOLVED STAFF COMMENTS
None.
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ITEM 2: PROPERTIES
Office Locations. As of December 31, 2018, we operated our business in 22 offices in 12 different
countries including the U.S. We have 10 offices in the U.S. including our headquarters in San Francisco,
California. We have 12 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, Africa, and South
America. Our headquarters is used for our container leasing, rail leasing and logistics segments. Our offices
in Everett, Washington, Eatontown, New Jersey, Portland, Oregon, Tampa, Florida, Jacksonville, Florida,
Knoxville, Tennessee, Kennesaw, Georgia, and Dallas, Texas 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, 2018:
Office Locations — U.S.
San Francisco, CA (Headquarters)
Charleston, SC
Everett, WA
Eatontown, NJ
Portland, OR
Tampa, FL
Jacksonville, FL
Knoxville, FL
Kennesaw, GA
Dallas, TX
Office Locations — International
Brentwood, United Kingdom
St. Michael, Barbados
Antwerp, Belgium
Singapore
Delmenhorst, Germany
Hamburg, Germany
Kuala Lumpur, Malaysia
Taipei, Taiwan
Luxembourg City, Luxembourg
Hamilton, Bermuda
Seoul, South Korea
Sydney, Australia
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.
37
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.” As of February 6, 2019, there
were 38 registered holders of record of the common stock and 3,909 beneficial holders, based on
information obtained from our transfer agent.
In addition, our Series A Preferred Stock and our Series B Preferred Stock are traded on the NYSE
under the symbols “CAI-PA” and “CAI-PB,” respectively.
Dividend Policy
We have never declared or paid dividends on our common stock. We are required to pay dividends of
8.5% per annum on our outstanding shares of preferred stock. Our board of directors may consider
adopting a dividend policy in the future with respect to 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 the
absence of such a policy, other than to pay dividends on our preferred stock, we intend to retain future
earnings to finance the operation and expansion of our business, and to repurchase our common stock.
Issuer Purchases of Equity Securities
Period
Total Number of
Shares (or Units)
Purchased(1)
Average Price
Paid per Share
(or Unit)(1)
Total Number of
Shares (or Units)
Purchased as Part of
Publicly Announced
Plans or Programs(1)
Maximum Number (or
Approximate Dollar
Value) of Shares
(or Units)
that May Yet Be
Purchased Under the
Plans or Programs(1)
October 1, 2018 – October 31, 2018 . . . . .
November 1, 2018 – November 30, 2018. .
December 1, 2018 – December 31, 2018 . .
— $
285,886
255,857
Total . . . . . . . . . . . . . . . . . . . . . . . . . .
541,743
$
—
24.78
22.77
23.83
—
285,886
255,857
541,743
3,000,000
2,714,114
2,458,257
2,458,257
(1) On October 8, 2018, we announced that our Board of Directors had approved the repurchase of up to
three million shares of outstanding common stock. The repurchase plan does not have an expiration
date and does not oblige us to acquire any particular amount of our common stock. As of
December 31, 2018, approximately 2.5 million shares remained available for repurchase under our
share repurchase plan.
38
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, 2013 to December 31, 2018. The graph assumes an investment of $100 as of December 31,
2013, 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
12/31/13
12/31/14
12/31/15
12/31/16
12/31/17
12/31/18
CAI International, Inc.
Russell 2000 Index
Dow Jones Transportation Index
Company/Index
CAI International, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . .
Russell 2000 Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dow Jones Transportation Index . . . . . . . . . . . . . . . . . . .
Dec. 31,
2013
$100
100
100
Returns as of December 31,
2014
2015
2016
2017
2018
$ 98
104
124
$ 43
98
101
$ 37
117
122
$120
132
143
$ 99
116
124
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 Item 7, “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.
39
Consolidated Statement of Income Data
(Dollars in thousands, except per share data)
2018
2017
2016
2015
2014
Year Ended December 31,
Revenue
Container lease revenue . . . . . . . . . . . . . . . . .
$284,924
$235,365
$202,328
$220,732
$217,253
Rail lease revenue . . . . . . . . . . . . . . . . . . . . . .
35,703
Logistics revenue . . . . . . . . . . . . . . . . . . . . . .
111,471
32,476
80,552
30,490
61,536
17,433
11,502
10,336
—
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . .
432,098
348,393
294,354
249,667
227,589
Operating expenses
Depreciation of rental equipment . . . . . . . . . . .
121,298
110,952
104,877
113,590
Storage, handling and other expenses . . . . . . . .
Logistics transportation costs . . . . . . . . . . . . .
14,545
97,170
20,918
68,155
(Gain) loss on sale of used rental equipment . . .
(11,725)
(5,347)
Administrative expenses . . . . . . . . . . . . . . . . .
50,305
42,699
35,862
51,980
12,671
35,678
30,194
10,172
654
27,617
77,976
26,043
—
(6,522)
26,538
Total operating expenses . . . . . . . . . . . . . . . . .
271,593
237,377
241,068
182,227
124,035
Operating income . . . . . . . . . . . . . . . . . . . . . .
160,505
111,016
53,286
67,440
103,554
Other expenses
Net interest expense . . . . . . . . . . . . . . . . . . . .
Other expense . . . . . . . . . . . . . . . . . . . . . . . .
Total other expenses . . . . . . . . . . . . . . . . . . . .
Income before income taxes and non-controlling
interest
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense (benefit) . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . .
Preferred stock dividends . . . . . . . . . . . . . . . .
Net income attributable to non-controlling
78,345
677
79,022
81,483
2,887
78,596
5,124
53,052
765
53,817
57,199
(14,861)
72,060
—
42,754
654
43,408
9,878
3,844
6,034
—
36,271
182
36,453
30,987
4,252
26,735
—
35,998
367
36,365
67,189
7,191
59,998
—
interest
. . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
37
134
111
Net income attributable to CAI common
stockholders . . . . . . . . . . . . . . . . . . . . . . . .
$ 73,472
$ 72,060
$
5,997
$ 26,601
$ 59,887
Net income per share attributable to CAI
common stockholders
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
3.76
3.71
$
$
3.74
3.68
$
$
0.31
0.31
$
$
1.28
1.27
$
$
2.89
2.83
Weighted average shares of common stock
outstanding
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19,562
19,822
19,253
19,607
19,318
19,393
20,773
20,988
20,732
21,155
Other Financial Data
EBITDA (unaudited)(1) . . . . . . . . . . . . . . . . . .
Purchase of equipment . . . . . . . . . . . . . . . . . .
$283,311
812,021
$223,514
502,050
$159,311
251,165
$181,493
389,331
$182,021
307,283
40
Consolidated Balance Sheet Data
(Dollars in thousands)
Cash* . . . . . . . . . . . . . . . . . . . . . . . . . $
Rental equipment, net . . . . . . . . . . . . . .
Net investment in direct finance leases . . .
Total assets . . . . . . . . . . . . . . . . . . . . .
Debt . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . .
Redeemable preferred stock . . . . . . . . . .
Total CAI stockholders’ equity . . . . . . . .
2018
75,983 $
As of December 31,
2016
52,326 $
2017
47,209 $
2015
59,765 $
2,265,260
549,767
3,012,617
2,159,014
2,311,485
103,865
701,132
2,004,961
276,513
2,428,128
1,702,822
1,864,283
—
563,845
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
2014
62,053
1,564,777
94,964
1,784,018
1,253,633
1,342,032
—
441,197
*
Includes restricted cash of $30,668, $11,789, $6,192, $7,212, and $8,232 and cash owned by VIEs of
$25,211, $20,685, $30,449, $35,106, and $26,011 at December 31, 2018, 2017, 2016, 2015, and 2014,
respectively.
Selected Operating Data (unaudited)
Owned container fleet in TEUs(2)
. . . . . .
Managed container fleet in TEUs(2) . . . . .
Owned container fleet in CEUs(3)
. . . . . .
Managed container fleet in CEUs(3) . . . . .
Owned railcar fleet in units . . . . . . . . . . .
Percentage of on-lease container fleet on
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) . . . . . . .
1,465,799
74,246
1,540,045
1,501,060
67,647
1,568,707
7,279
1,146,268
80,736
1,227,004
1,209,209
73,530
1,282,739
7,172
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
69%
9%
22%
100%
99.2%
88.6%
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%
(1) EBITDA is a non-GAAP financial measure, and is defined as net income before interest expense,
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). EBITDA is also frequently used by analysts, investors, and other interested parties to
evaluate companies in our industry. 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 and you should
not consider it 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.
41
The following table provides a reconciliation of net income, the most comparable performance measure
under GAAP (in thousands):
Year Ended December 31,
2018
2017
2016
2015
2014
Net income . . . . . . . . . . . . . . . . . . . .
$ 78,596
$ 72,060
$
6,034
$ 26,735
$ 59,998
Net interest expense . . . . . . . . . . . .
78,345
53,052
Income tax expense (benefit) . . . . . .
2,887
(14,861)
42,754
3,844
36,271
4,252
Depreciation . . . . . . . . . . . . . . . . .
121,494
111,294
105,236
114,003
Amortization of intangible assets . .
1,989
1,969
1,443
232
35,998
7,191
78,451
383
EBITDA . . . . . . . . . . . . . . . . . . . . .
$283,311
$223,514
$159,311
$181,493
$182,021
(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 81.0% for the year ended December 31, 2018.
42
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.”
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, 2018, our container fleet comprised 1,568,707
CEUs, 96% of which represented our owned fleet and 4% of which represented our managed fleet. In
addition, we also own 7,279 railcars, which we lease within North America.
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.
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, 2018 was 99.2% compared
to 97.4% and 92.8% for the years ended December 31, 2017 and 2016, respectively. The increase in our
average fleet utilization from 2017 is primarily attributable to an increase in demand for leased containers
that continued from 2017. Our average railcar fleet utilization rate for the year ended December 31, 2018
was 88.6% compared to 90.0% and 93.9% for the years ended December 31, 2017 and 2016, respectively. If
new railcars not yet leased are included in the total railcar fleet, railcar fleet utilization would be 81.0% for
the year ended December 31, 2018. 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.
43
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 96% of our container lease revenue is derived from the
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 22% 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 typically 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.
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(c) to 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.
44
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
typically the result of our sale of 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.
45
Results of Operations
The following table summarizes our results of operations for the three years ended December 31, 2018,
2017 and 2016 (in thousands):
Year Ended December 31,
2018
2017
2016
Revenue
Container lease revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$284,924
$235,365
$202,328
Rail lease revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
35,703
Logistics revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
111,471
32,476
80,552
30,490
61,536
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
432,098
348,393
294,354
Operating expenses
Depreciation of rental equipment . . . . . . . . . . . . . . . . . . . . . . . . . . .
121,298
110,952
104,877
Storage, handling and other expenses . . . . . . . . . . . . . . . . . . . . . . . . .
Logistics transportation costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Gain) loss on sale of used rental equipment . . . . . . . . . . . . . . . . . . . .
Administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14,545
97,170
(11,725)
50,305
20,918
68,155
(5,347)
42,699
35,862
51,980
12,671
35,678
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
271,593
237,377
241,068
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
160,505
111,016
53,286
Other expenses
Net interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes and non-controlling interest . . . . . . . . . . .
Income tax expense (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Preferred stock dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to non-controlling interest . . . . . . . . . . . . . . .
78,345
677
79,022
81,483
2,887
78,596
5,124
—
53,052
765
53,817
57,199
(14,861)
72,060
—
—
42,754
654
43,408
9,878
3,844
6,034
—
37
Net income attributable to CAI common stockholders . . . . . . . . . . . . . .
$ 73,472
$ 72,060
$
5,997
2018 Compared with 2017, and 2017 Compared with 2016
Container lease revenue
($ in thousand)
2018
2017
2016
$ Change
% Change
$ Change
% Change
Container lease revenue . . $284,924
$235,365
$202,328
$49,559
21%
$33,037
16%
Year Ended December 31,
2018 vs 2017
2017 vs 2016
The increase in container lease revenue between 2018 and 2017 was a result of a $54.2 million increase
in rental revenue, primarily due to a 25% increase in the average number of CEUs of on-lease owned
containers, partially offset by a $2.2 million decrease in rental revenue resulting from a 1% decrease in
average owned container per diem rental rates, and $2.2 million of container lease revenue from insurance
proceeds recognized in 2017 that was not recurring in 2018. The reduction in average container per diem
rental rates has been caused primarily by competitive market pressure.
46
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 $2.2 million of insurance proceeds for lost lease rental revenue,
recognized in 2017. The reduction in average container per diem rental rates has been primarily caused by
competitive market pressure.
Rail lease revenue
($ in thousand)
2018
2017
2016
$ Change
% Change
$ Change
% Change
Rail lease revenue . . . . . .
$35,703
$32,476
$30,490
$3,227
10%
$1,986
7%
Year Ended December 31,
2018 vs 2017
2017 vs 2016
Rail lease revenue increased between 2018 and 2017, primarily as a result of a 14% increase in the
average size of our on-lease railcar fleet and a 2% increase in rental rates, partially offset by a $1.0 million
settlement with a customer for damaged railcars recognized in 2017.
Rail lease revenue increased between 2017 and 2016, primarily as a result of a $1.0 million settlement
with a customer for damaged railcars recognized in 2017, and a 2% increase in the average size of our
on-lease railcar fleet. The average lease revenue per railcar also increased as new railcars, which command
higher per diem rental rates than used railcars, formed a larger percentage of the fleet.
Logistics revenue and gross margin
($ in thousand)
2018
2017
2016
$ Change
% Change
$ Change
% Change
Year Ended December 31,
2018 vs 2017
2017 vs 2016
Logistics revenue . . . . . . . $111,471
Logistics transportation
$80,552
$61,536
$30,919
38%
$19,016
31%
costs . . . . . . . . . . . . . .
97,170
68,155
51,980
29,015
Logistics gross margin . . . $ 14,301
$12,397
$ 9,556
$ 1,904
43%
15%
16,175
$ 2,841
31%
30%
The increase in logistics revenue between 2018 and 2017 was primarily due to an increase in freight
rates in our intermodal and truck brokerage operations. Transportation costs increased at a slightly higher
rate than revenue due primarily to increased volume in our lower margin intermodal business and resulted
in a decrease in the gross margin percentage from 15.4% for the year ended December 31, 2017 to 12.8% for
the year ended December 31, 2018.
The increase in logistics revenue between 2017 and 2016 was primarily due to an additional
$15.8 million of revenue from the acquisitions of Challenger in February 2016 and Hybrid in June 2016, as
well as new customers generating an additional $3.4 million of revenue. The increase in logistics
transportation costs was mainly attributable to an additional $14.2 million of costs from the acquisitions of
Challenger in February 2016 and Hybrid in June 2016, as well as an increase of $1.8 million as a result of
new customer activity. The gross margin percentage of our logistics business for the year ended
December 31, 2017 was 15.4%, consistent with the prior year.
Depreciation of rental equipment
Year Ended December 31,
2018 vs 2017
2017 vs 2016
($ in thousand)
2018
2017
2016
$ Change
% Change
$ Change
% Change
Container Leasing . . . . . . $107,109
$ 99,753
$ 95,755
$
7,356
7% $
3,998
Rail Leasing . . . . . . . . . .
14,189
11,199
9,122
2,990
27%
2,077
$121,298
$110,952
$104,877
$ 10,346
9% $
6,075
4%
23%
6%
47
Container Leasing
The increase in depreciation expense between 2018 and 2017 was primarily attributable to a 12%
increase in the average size of our owned fleet between the two periods, partially offset by a $1.3 million
one-time write-off of rental equipment on lease to a bankrupt customer, which was recognized in 2017, and
an increase in assets on direct finance leases.
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.
Rail Leasing
The increase in depreciation expense between 2018 and 2017 was primarily attributable to a 16%
increase in the average size of the railcar fleet, excluding new railcars not yet on lease, during the last
twelve months and an impairment charge of $0.6 million related to off-lease railcars designated for scrap
recognized in 2018. There was also an increase in the proportion of new railcars in the fleet leading to
higher depreciation per railcar.
The increase in depreciation expense between 2017 and 2016 was primarily attributable to a 16%
increase in the average size of the railcar fleet. There was also an increase in the proportion of new railcars
in the fleet leading to higher depreciation per railcar.
Storage, handling and other expenses
Year Ended December 31,
2018 vs 2017
2017 vs 2016
($ in thousand)
2018
2017
2016
$ Change
% Change
$ Change
% Change
Container Leasing . . . . . .
Rail Leasing . . . . . . . . . .
$ 8,853
5,692
$15,303
5,615
$32,476
3,386
$(6,450)
77
-42% $(17,173)
2,229
1%
$14,545
$20,918
$35,862
$(6,373)
-30% $(14,944)
-53%
66%
-42%
Container Leasing
The decrease in storage, handling and other expenses between 2018 and 2017 was primarily
attributable to a $3.9 million decrease in storage and handling costs and a $1.1 million decrease in
positioning fees, both due to a decrease in the size of the off-lease fleet and a 2% increase in average
utilization between the two periods, and a $1.8 million credit recorded in recovery costs as a result of
insurance proceeds received in 2018 relating to the Hanjin bankruptcy, partially offset by an increase of
$0.5 million in container liability insurance premium.
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.
Rail Leasing
Storage, handling and other expenses remained relatively consistent between 2018 and 2017.
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 $0.7 million increase in repair related
costs and positioning fees, reflecting our efforts to put railcars on lease.
48
(Gain) loss on sale of used rental equipment
Year Ended December 31,
2018 vs 2017
2017 vs 2016
($ in thousand)
2018
2017
2016
$ Change
% Change
$ Change
% Change
Container Leasing . . . . . .
$ (9,886)
$(5,333)
$12,750
$(4,553)
85% $(18,083)
Rail Leasing . . . . . . . . . .
(1,839)
Logistics . . . . . . . . . . . . .
—
(14)
—
33
(1,825)
(112)
—
NM
—
(47)
112
$(11,725)
$(5,347)
$12,671
$(6,378)
119% $(18,018)
-142%
-142%
100%
-142%
NM = Not meaningful
Container Leasing
While we sold 28% fewer CEUs of used containers in 2018 compared to the prior year, there was an
increase of 54% in the average sales price per unit, which reflected the recovery in new equipment prices in
the last twelve months as well as a limited supply of used equipment on the market, and resulted in an
increase in gain on sale of used rental equipment.
While we sold 30% fewer used containers in 2017 compared to the prior year, there was an increase of
26% in the average sales price per unit, reflecting the recovery in new equipment prices during the year,
resulting in a gain on sale of used rental equipment.
Rail Leasing
We recorded a gain of $1.8 million on the sale of used rental equipment for the year ended
December 31, 2018, compared to a gain of less than $0.1 million in 2017, and a loss of less than
$0.1 million in 2016, respectively. The $1.8 million gain in 2018 resulted from the sale of 385 newly
manufactured railcars.
Administrative expenses
Year Ended December 31,
2018 vs 2017
2017 vs 2016
($ in thousand)
2018
2017
2016
$ Change
% Change
$ Change
% Change
Container Leasing . . . . . .
Rail Leasing . . . . . . . . . .
Logistics . . . . . . . . . . . . .
$27,560
5,297
17,448
$22,925
4,756
15,018
$20,453
3,759
11,466
$50,305
$42,699
$35,678
$4,635
541
2,430
$7,606
20%
11%
16%
18%
$ 2,472
997
3,552
$ 7,021
12%
27%
31%
20%
Container Leasing
The increase in administrative expenses between 2018 and 2017 was primarily attributable to a
$2.2 million decrease in credits related to adjustments to our estimated contingent consideration liability
related to our previous acquisitions, a $0.6 million increase in rent expense, a $0.6 million increase in
marketing expenses due to an increased effort to promote our brand and services, and a $0.3 million
increase in payroll-related costs, largely due to increased headcount and increased stock-based
compensation expense, partially offset by a reduction in incentive compensation.
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.
Rail Leasing
The increase in administrative expenses between 2018 and 2017 was primarily a result of higher
employee-related costs, largely due to increased incentive compensation.
49
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.
Logistics
The increase in administrative expenses between 2018 and 2017 was primarily attributable to an
increase of $2.1 million in payroll-related costs due to a 36% increase in headcount.
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 $0.9 million decrease in
administrative expenses for CAI Logistics, mainly attributable to a decrease in payroll related expenses due
to a reduction in headcount.
Other expenses
Year Ended December 31,
2018 vs 2017
2017 vs 2016
($ in thousand)
2018
2017
2016
$ Change
% Change
$ Change
% Change
Net interest expense . . . . .
Other expense . . . . . . . . .
$78,345
677
$53,052
765
$42,754
654
$25,293
(88)
$79,022
$53,817
$43,408
$25,205
48%
-12%
47%
$10,298
111
$10,409
24%
17%
24%
Net interest expense
The increase in net interest expense between 2018 and 2017 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 3.3% at December 31, 2017 to
3.9% at December 31, 2018.
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 increased 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% at December 31, 2016 to 3.3%
at December 31, 2017.
Other expense
Other expense, being a loss on foreign exchange, of $0.7 million for the year ended December 31, 2018
remained relatively consistent with other expense of $0.8 million for the year ended December 31, 2017.
Other expense of $0.8 million for the year ended December 31, 2017 remained relatively consistent
with other expense of $0.7 million for the year ended December 31, 2016.
Income tax expense (benefit)
($ in thousand)
2018
2017
2016
$ Change
% Change
$ Change
% Change
Year Ended December 31,
2018 vs 2017
2017 vs 2016
Income tax expense
(benefit)
. . . . . . . . . . .
$2,887
$(14,861)
$3,844
$17,748
-119% $(18,705)
-487%
The increase in income tax expense between 2018 and 2017 was mainly attributable to a $16.9 million
tax benefit arising from the U.S. Tax Cuts and Jobs Act, which was recognized in 2017. Excluding this
one-off benefit and other discrete items, the effective tax rate was 3.6% and related income tax expense was
$2.0 million for the year ended December 31, 2017. The effective tax rate for the year ended December 31,
2018 remained relatively consistent at 3.5%.
50
The decrease in income tax expense between 2017 and 2016 was mainly attributable to a $16.9 million
tax benefit arising from 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.
Note 10 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, 2018, 2017 and 2016.
Liquidity and Capital Resources
As of December 31, 2018, we had cash and cash equivalents of $45.3 million, including $25.2 million
of cash held by 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 and debt
offerings. Our cash in-flows are used to finance capital expenditures and meet debt service requirements.
As of December 31, 2018, 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current
Amount
Outstanding
Current
Maximum
Borrowing Level
$ 597,157
381,934
58,885
1,032,722
107,225
1,456
2,179,379
(20,365)
$1,678,614
381,934
58,885
1,032,722
107,225
1,456
3,260,836
—
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,159,014
$3,260,836
As of December 31, 2018, we had $1,081.4 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, 2018, the borrowing availability under our revolving credit facilities was $111.2 million,
assuming no additional contributions of assets.
As of December 31, 2018, we had $1,358.3 million of total debt outstanding on facilities with fixed
interest rates. These fixed rate facilities are scheduled to mature between 2019 and 2043, and had a weighted
average interest rate of 3.8% as of December 31, 2018.
As of December 31, 2018, we had $821.0 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 2019 and 2023, and had a weighted average interest rate of 4.1% as of December 31, 2018.
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.
51
Revolving Credit Facilities
We have three revolving credit facilities, which have a maximum borrowing capacity of
$1,100.0 million, $550.0 million, and €25.0 million, respectively, and maturity dates of June 2023,
October 2023, 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, 2018, in addition to a rental equipment payable of $74.1 million, we had commitments to
purchase $9.4 million of containers and $64.4 million of railcars in the twelve months ending December 31,
2019.
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 October 2019 and
October 2023.
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 between
October 2027 and September 2043. We are required to maintain a restricted cash account to cover
payments of the obligations. As of December 31, 2018, the restricted cash account had a balance of
$30.7 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 3 to our consolidated financial statements included in this
Annual Report on Form 10-K). The obligations have maturity dates between March 2019 and
December 2021.
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, 2018, 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.
52
Cash Flow
The following table sets forth certain cash flow information for the years ended December 31, 2018,
2017 and 2016 (in thousands):
Year Ended December 31,
2018
2017
2016
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 78,596
$ 72,060
$
6,034
Net income adjusted for non-cash items . . . . . . . . . . . . . . . . . . . . .
200,965
168,719
131,013
Changes in working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(21,195)
(13,527)
(1,757)
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . .
179,770
155,192
129,256
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . .
(663,343)
(411,751)
(181,600)
Net cash provided by financing activities
. . . . . . . . . . . . . . . . . . . .
512,350
251,222
45,579
Effect on cash of foreign currency translation . . . . . . . . . . . . . . . . .
(3)
Net increase (decrease) in cash . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and restricted cash at beginning of period . . . . . . . . . . . . . . . .
28,774
47,209
220
(5,117)
52,326
(674)
(7,439)
59,765
Cash and restricted cash at end of period . . . . . . . . . . . . . . . . . . . .
$ 75,983
$ 47,209
$ 52,326
Operating Activities Cash Flows
Net cash provided by operating activities of $179.8 million for the year ended December 31, 2018,
increased $24.6 million from $155.2 million for the year ended December 31, 2017. The increase was due to
a $32.2 million increase in net income as adjusted for depreciation, amortization and other non-cash items,
partially offset by a decrease of $7.7 million in our net working capital adjustments. The increase in net
income as adjusted for non-cash items was primarily due to a $6.5 million increase in net income, a
$10.2 million increase in depreciation expense, a $17.4 million increase in deferred income taxes, a
$2.2 million reduction in contingent consideration, and a $1.0 million increase in amortization of debt
issuance costs, partially offset by a $6.4 million increase in gain on sale of used rental equipment. Net
working capital used in operating activities of $21.2 million during the year ended December 31, 2018, was
due to a $19.3 million increase in accounts receivable, primarily caused by an increase in lease and logistics
activity and a $2.4 million increase in prepaid expenses and other assets as a result of an increase in initial
direct costs related to new railcar leases.
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 $5.0 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 $5.8 million decrease in due to container investors due to
the decrease in our managed fleet, and a $1.3 million decrease in unearned revenue.
Investing Activities Cash Flows
Net cash used in investing activities increased $251.6 million to $663.3 million for the year ended
December 31, 2018 from $411.8 million for the year ended December 31, 2017. The increase in cash usage
was primarily attributable to a $310.0 million increase in the purchase of rental equipment, partially offset
by a $39.8 million increase in proceeds from sale of used rental equipment and a $19.3 million increase in
receipt of principal payments from direct financing leases.
53
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.
Financing Activities Cash Flows
Net cash provided by financing activities of $512.4 million for the year ended December 31, 2018
increased $261.1 million compared to the year ended December 31, 2017, primarily as a result of higher net
borrowings being required to finance the acquisition of rental equipment. During the year ended
December 31, 2018, our net cash inflow from borrowings was $458.2 million compared to $226.5 million for
the year ended December 31, 2017, reflecting an increase in investment in rental equipment during 2018
compared to 2017. The increase was also attributable to an increase of $75.4 million in proceeds received
from issuances of common stock under our At-the-Market (ATM) offering program and issuances of
Preferred Stock in underwritten offerings and Series A Preferred Stock under our Series A Preferred Stock
ATM offering program, partially offset by a $40.9 million increase in the repurchase of our common stock.
Net cash provided by financing activities of $251.2 million for the year ended December 31, 2017
increased $205.6 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 common stock under our ATM offering program and a decrease of $9.2 million used
to repurchase our common stock, partially offset by a $1.9 million increase in debt issuance costs, primarily
related to the asset-backed notes issued in 2017.
Equity Transactions
Stock Repurchase Plan
In May 2018, we purchased, and subsequently cancelled, 1.2 million shares of our common stock,
from an affiliate of Andrew S. Ogawa in a privately-negotiated transaction. Mr. Ogawa is a member of our
Board of Directors. The stock was purchased at a price of $22.81 per share, which represented a 2%
discount to the closing price as reported on the New York Stock Exchange on the date of purchase.
In October 2018, we announced that our Board of Directors had approved the repurchase of up to
three 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 will be evaluated by us depending on market
conditions, corporate needs and other factors. Stock repurchases may be made in the open market, block
trades or privately negotiated transactions. This stock repurchase program replaced any available prior
share repurchase authorization and may be discontinued at any time. In the fourth quarter of 2018, we
repurchased 541,743 shares of our common stock under this repurchase plan, at a cost of approximately
$12.9 million. As of December 31, 2018, approximately 2.5 million shares remained available for repurchase
under our share repurchase plan.
Common Stock ATM Offering Program
In October 2017, we commenced an ATM offering program with respect to our common stock, which
allows us to issue and sell up to 2.0 million shares of our common stock. As of December 31, 2017, we had
issued 888,453 shares of common stock and had remaining capacity to issue up to approximately
1.1 million of additional shares of common stock under the ATM offering program. During the year ended
December 31, 2018, we issued 100,000 shares of common stock under the ATM offering program for net
proceeds of $2.8 million. We paid commissions to the sales agent of $0.1 million in connection with the
sales of common stock under this ATM offering program during the year ended December 31, 2018. The
net proceeds were used for general corporate purposes. As of December 31, 2018, we have remaining
capacity to issue up to approximately 1.0 million of additional shares of common stock under this ATM
offering program.
54
Series A Preferred Stock Underwritten Offering
In March 2018, we completed an underwritten public offering of 1,600,000 shares of our 8.50%
Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Stock, par value $0.0001 per
share and liquidation preference $25.00 per share (Series A Preferred Stock), resulting in net proceeds to us
of approximately $38.3 million, after deducting the underwriting discount and other offering expenses. In
April 2018, we sold an additional 170,900 shares of our Series A Preferred Stock upon the exercise by the
underwriters of their option to purchase additional Series A Preferred Stock, resulting in net proceeds to us
of approximately $4.1 million, after deducting the underwriting discount. The net proceeds were used for
repayment of debt and general corporate purposes.
See Note 14 to our consolidated financial statements in this Annual Report on Form 10-K for
additional information related to our Series A Preferred Stock.
Series A Preferred Stock ATM Offering Program
In May 2018, we commenced an ATM offering program with respect to our Series A Preferred Stock,
which allows us to issue and sell up to 2.2 million shares of our Series A Preferred Stock. During the year
ended December 31, 2018, we issued 428,710 shares of Series A Preferred Stock under the ATM offering
program for net proceeds of $10.5 million. We paid commissions to the sales agent of $0.2 million in
connection with the sales of Series A Preferred Stock under this ATM offering program during the year
ended December 31, 2018. The net proceeds were used for debt repayment and general corporate purposes.
As of December 31, 2018, we have remaining capacity to issue up to approximately 1.8 million of additional
shares of Series A Preferred Stock under this ATM program.
Series B Preferred Stock Underwritten Offering
In August 2018, we completed an underwritten public offering of 1,700,000 shares of our 8.50%
Series B Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Stock, par value $0.0001 per
share and liquidation preference $25.00 per share (Series B Preferred Stock), resulting in net proceeds to us
of approximately $41.2 million, after deducting the underwriting discount and other offering expenses. We
sold an additional 255,000 shares of Series B Preferred Stock upon the exercise by the underwriters of their
option to purchase additional Series B Preferred Stock, resulting in net proceeds to us of approximately
$6.2 million, after deducting the underwriting discount. The net proceeds were used for repayment of debt
and general corporate purposes.
See Note 14 to our consolidated financial statements in this Annual Report on Form 10-K for
additional information related to our Series B Preferred Stock.
55
77
—
—
Contractual Obligations and Commercial Commitments
The following table sets forth our contractual obligations and commercial commitments by due date as
of December 31, 2018 (in thousands):
Payments Due by Period
Total
Less than
1 year
1 – 2
years
2 – 3
years
3 – 4
years
4 – 5
years
More than
5 years
Total debt obligations:
Revolving credit facilities . . . . . $ 597,157 $ 4,200 $ 19,457 $
Term loans . . . . . . . . . . . . . .
Senior secured notes . . . . . . . .
Asset-backed notes . . . . . . . . .
Collateralized financing
381,934
58,885
1,032,722
33,100
6,110
134,547
130,699
6,110
134,547
— $
— $573,500 $
113,935
6,110
134,547
7,800
40,555
131,697
96,400
—
100,272
—
—
—
397,112
obligations . . . . . . . . . . . . .
Term loans held by VIE . . . . . .
Interest on debt obligations(1) . .
Rental equipment payable . . . . . .
Rent, office facilities and
equipment . . . . . . . . . . . . . . .
Equipment purchase
107,225
1,456
341,199
74,139
39,610
1,456
81,742
74,139
21,773
—
70,941
—
35,855
—
62,297
—
9,987
—
53,721
—
—
—
37,085
—
—
—
35,413
—
4,904
2,395
801
707
531
393
commitments – Containers
. . .
9,427
9,427
Equipment purchase
commitments – Rail
. . . . . . . .
64,413
64,413
—
—
—
—
—
—
—
—
Total contractual obligations . . . . $2,673,461 $548,738 $286,729 $353,451 $244,291 $807,650 $432,602
(1) Our estimate of interest expense commitment includes $112.6 million relating to our revolving credit
facilities, $40.4 million relating to our term loans, $9.4 million relating to our senior secured notes,
$176.5 million relating to our asset-backed notes, $2.2 million relating to our collateralized financing
obligations, and less than $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, 2018: revolving credit facilities, 4.1%; term loans, 4.1%; senior secured notes, 4.9%;
asset-backed notes, 4.0%; collateralized financing obligations, 1.2%; and term loans held by
VIEs, 3.3%. 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 8 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, 2018, 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.
56
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) Topic 606, Revenue Recognition and FASB ASC Topic 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. 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, and repairs, which are recognized as earned.
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.
Also included in lease revenue is revenue from management fees earned under equipment management
agreements. Management fees are generally calculated as a percentage of the monthly net operating income
for an investor’s portfolio and recognized as revenue in the month of service.
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.
For truck brokerage services, which typically involve a short transit time, revenue is recognized when
delivery has been completed due to the lack of reliable information to reasonably measure progress toward
complete satisfaction of the performance obligation. For intermodal transportation services, which can take
a longer time to complete, revenue is recognized over time by measuring progress toward complete
satisfaction of the performance obligation, utilizing input methods. For any such services not completed at
the end of a reporting period, we use a percentage of completion method based on costs incurred to date to
allocate the appropriate revenue to each separate reporting period. We provide international freight
forwarding services as an indirect carrier, sometimes referred to as a Non-Vessel Operating Common
Carrier. Due to the lack of reliable information to reasonably measure progress toward complete
satisfaction of the performance obligation, revenue from these shipments is 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.
57
We report logistics revenue on a gross basis as we are primarily responsible for fulfilling the promise to
provide the specified service desired by the customer and have discretion in establishing the price for the
specified service.
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 and two refrigerated
container categories, we reviewed 3-year, 5-year, 7-year, and 13-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 and refrigerated container category that we considered as of
October 31, 2018, when we performed our annual residual value analysis, are shown below:
Category
3-year Avg.
5-year Avg.
7-year Avg.
13-year Avg.
. . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . .
$
977
1,086
1,137
2,903
4,353
$
1,025
1,202
1,251
3,181
4,058
$
1,104
1,321
1,357
N/A
N/A
$ 1,124
1,348
1,439
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 slightly higher than the 3-year and 5-year average sale price for all equipment
types and the 7-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 has continued into
2018, resulting 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, the 3-year average and even the 5-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, 2018. We regularly review
this data and update our analysis, and will make revisions to residual value estimates as and when
conditions warrant.
58
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 13-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.
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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. 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.
59
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. No impairment charges were recorded in 2018, 2017 and
2016 as a result of our annual review.
Recent Accounting Pronouncements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (ASU 2016-02), which
requires lessors to classify leases as a sales-type, direct financing, or operating lease. Topic 842 was
subsequently amended by ASU 2018-01, Land Easement Practical Expedient for Transition to Topic 842,
ASU 2018-10, Codification Improvements to Topic 842, Leases, ASU 2018-11, Targeted Improvements, and
ASU 2018-20, Narrow-Scope Improvements for Lessors. A lease is a sales-type lease if any of five criteria are
met, each of which indicate that the lease, in effect, transfers control of the underlying asset to the lessee. If
none of those five criteria are met, but two additional criteria are both met, indicating that the lessor has
transferred substantially all of the risks and benefits of the underlying asset to the lessee and a third-party,
the lease is a direct financing lease. All leases that are not sales-type or direct financing leases are operating
leases. The new standard also established a right-of-use model (ROU) that requires a lessee to recognize an
ROU asset and lease liability on the balance sheet for all leases with a term longer than twelve months.
The new standard is effective for us on January 1, 2019, with early adoption permitted. A modified
retrospective transition approach is required, applying the new standard to all leases existing at the date of
initial application. An entity may choose to use either (1) its effective date or (2) the beginning of the
earliest comparative period presented in the financial statements as its date of initial application. If an
entity chooses the second option, the transitions requirements for existing leases also apply to leases entered
into between the date of initial application and the effective date. The entity must also recast its comparative
period financial statements and provide the disclosures required by the new standard for the comparative
periods. We expect to adopt the new standard on January 1, 2019 and use the effective date as our date of
initial application. Consequently, financial information will not be updated and the disclosures required
under the new standard will not be provided for dates and periods before January 1, 2019.
The new standard provides a number of optional practical expedients in transition. We expect to elect
(1) the “package of practical expedients”, which permits us not to reassess under the new standard our
prior conclusions about lease identification, lease classification, and initial direct costs, (2) the short-term
lease recognition exemption for our office space leases of twelve months or less, which means we will not
recognize an ROU asset or lease liability for these leases, and (3) the practical expedient to not separate
lease and non-lease components for all of our leases. We do not expect to elect the use-of-hindsight or the
practical expedient pertaining to land easements; the latter not being applicable to us.
We have completed our full assessment of adopting the new standard and have determined that
adoption will not have a material effect on our financial statements and related disclosures.
60
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, 2018, the principal amount of
debt outstanding under variable-rate revolving credit facilities was $597.2 million. In addition, at
December 31, 2018, we had balances on our variable rate term loans of $223.4 million, and $0.5 million of
variable rate loans held by a VIE. As of December 31, 2018, our total outstanding variable-rate debt was
$821.1 million, which represented 38% of our total debt at that date. The average interest rate on our
variable-rate debt was 4.1% as of December 31, 2018 based on LIBOR plus a margin based on certain
conditions.
A 1.0% increase or decrease in underlying interest rates for these obligations would increase or decrease
interest expense by approximately $8.2 million annually, assuming debt remains constant at December 31,
2018 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,
2018, the U.S. Dollar increased in value in relation to other major foreign currencies (such as the Euro and
British Pound Sterling). The increase in the relative value of the U.S. Dollar has decreased our revenues and
expenses denominated in foreign currencies. The associated decrease in the value of certain foreign
currencies as compared to the U.S. Dollar has also caused assets held at some of our foreign subsidiaries to
decrease in value when translated to U.S. Dollars. For the year ended December 31, 2018, we recognized a
loss on foreign exchange of $0.7 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, 2018.
61
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, 2018 that
have materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting.
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, 2018, 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, 2018.
KPMG LLP, the independent registered public accounting firm that audited our 2018 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.
62
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, 2018, 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, 2018, 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, 2018
and 2017, 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, 2018, and the related notes
and financial statement schedule II (collectively, the consolidated financial statements), and our report
dated March 5, 2019 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
March 5, 2019
63
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 2019 Annual Meeting of Stockholders, which will be filed no later than 120 days after
December 31, 2018.
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 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 2019 Annual Meeting of Stockholders, which will be filed no later than 120 days after
December 31, 2018.
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 2019 Annual Meeting of Stockholders, which will be filed no later than 120 days after
December 31, 2018.
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 2019 Annual Meeting of Stockholders, which will be filed no later than 120 days after
December 31, 2018.
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 2019 Annual Meeting of Stockholders, which will be filed no later than 120 days after
December 31, 2018.
64
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, 2018 and 2017 . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Income for the years ended December 31, 2018, 2017 and 2016 . . . .
Consolidated Statements of Comprehensive Income for the years ended December 31, 2018, 2017
and 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2018, 2017
and 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016 . .
Notes to Consolidated Financial Statements
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page
66
67
68
69
70
71
72
(a)(2) Financial Statement Schedules.
The following financial statement schedule for the Company is filed as part of this report:
Schedule II — Valuation Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
104
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
105
ITEM 16: FORM 10-K SUMMARY
None.
65
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, 2018 and 2017, 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, 2018, 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, 2018 and 2017, and the results
of its operations and its cash flows for each of the years in the three-year period ended December 31, 2018,
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, 2018, 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
March 5, 2019 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
March 5, 2019
66
CAI INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share information)
December 31,
2018
December 31,
2017
Assets
Current assets
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Cash held by variable interest entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net of allowance for doubtful accounts of $2,042 and $1,440
at December 31, 2018 and 2017, 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 $599,443 and $505,546 at
December 31, 2018 and 2017, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net investment in direct finance leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets, net of accumulated amortization of $5,397 and $3,407 at
December 31, 2018 and 2017, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture, fixtures and equipment, net of accumulated depreciation of $2,635 and
20,104 $
25,211
14,735
20,685
95,942
75,975
2,789
220,021
30,668
68,324
30,063
4,258
138,065
11,789
2,265,260
473,792
15,794
2,004,961
246,450
15,794
5,733
7,723
$3,201 at December 31, 2018 and 2017, respectively . . . . . . . . . . . . . . . . . . . . . .
Other non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets(1)
338
3,008
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,012,617 $2,428,128
964
385
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities(2)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22,460
2,609
7,573
311,381
74,139
425,533
1,847,633
38,319
2,311,485
7,371 $
7,831
15,706
1,845
7,811
132,049
92,415
257,657
1,570,773
35,853
1,864,283
Stockholders’ equity
Preferred stock, par value $.0001 per share; authorized 10,000,000 and 5,000,000 shares
at December 31, 2018 and 2017, respectively:
8.50% Series A fixed-to-floating rate cumulative redeemable perpetual preferred
stock, issued and outstanding 2,199,610 and 0 shares at December 31, 2018 and
2017, respectively, at liquidation preference . . . . . . . . . . . . . . . . . . . . . . . . . .
8.50% Series B fixed-to-floating rate cumulative redeemable perpetual preferred
stock, issued and outstanding 1,955,000 and 0 shares at December 31, 2018 and
2017, respectively, at liquidation preference . . . . . . . . . . . . . . . . . . . . . . . . . .
54,990
48,875
—
—
Common stock: par value $.0001 per share; authorized 84,000,000 shares; issued and
outstanding 18,764,459 and 20,390,622 shares at December 31, 2018 and 2017,
2
respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
172,325
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital
(6,122)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss
397,640
Retained earnings
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
563,845
Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,012,617 $2,428,128
2
132,666
(6,513)
471,112
701,132
(1) Total assets at December 31, 2018 and December 31, 2017 include the following assets of certain variable interest entities
(VIEs) that can only be used to settle the liabilities of those VIEs: Cash, $25,211 and $20,685; Net investment in direct
finance leases, $13,862 and $4,423; and Rental equipment net of accumulated depreciation, $71,958 and $61,842,
respectively.
(2) Total liabilities at December 31, 2018 and December 31, 2017 include the following VIE liabilities for which the VIE
creditors do not have recourse to CAI International, Inc.: Current portion of debt, $41,066 and $22,549; Debt, $67,615
and $72,727, respectively.
See accompanying notes to consolidated financial statements.
67
CAI INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Year Ended December 31,
2018
2017
2016
Revenue
Container lease revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$284,924
$235,365
$202,328
Rail lease revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Logistics revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
35,703
111,471
432,098
32,476
80,552
30,490
61,536
348,393
294,354
Operating expenses
Depreciation of rental equipment . . . . . . . . . . . . . . . . . . . . . . . . .
121,298
110,952
104,877
Storage, handling and other expenses . . . . . . . . . . . . . . . . . . . . . .
Logistics transportation costs . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Gain) loss on sale of used rental equipment . . . . . . . . . . . . . . . . .
Administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14,545
97,170
(11,725)
50,305
20,918
68,155
(5,347)
42,699
35,862
51,980
12,671
35,678
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
271,593
237,377
241,068
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
160,505
111,016
53,286
Other expenses
Net interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes and non-controlling interest . . . . . . . . . .
Income tax expense (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Preferred stock dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . .
Net income attributable to non-controlling interest
78,345
677
79,022
81,483
2,887
78,596
5,124
—
53,052
765
53,817
57,199
(14,861)
72,060
—
—
42,754
654
43,408
9,878
3,844
6,034
—
37
Net income attributable to CAI common stockholders . . . . . . . . . . .
$ 73,472
$ 72,060
$
5,997
Net income per share attributable to CAI common stockholders
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
3.76
3.71
$
$
3.74
3.68
$
$
0.31
0.31
Weighted average shares of common stock outstanding
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19,562
19,822
19,253
19,607
19,318
19,393
See accompanying notes to consolidated financial statements.
68
CAI INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Year Ended December 31,
2018
2017
2016
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$78,596
$72,060
$6,034
Other comprehensive income, net of tax:
Foreign currency translation adjustments . . . . . . . . . . . . . . . . . . .
(391)
Comprehensive income before preferred stock dividends . . . . . . . . .
Dividends on preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive income attributable to non-controlling interest . . . .
78,205
5,124
—
2,010
74,070
—
—
(815)
5,219
—
37
Comprehensive income attributable to CAI common stockholders . .
$73,081
$74,070
$5,182
See accompanying notes to consolidated financial statements.
69
CAI INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
Preferred Stock
Common Stock Additional
Shares Amount
Shares Amount
Accumulated
Other
Comprehensive
Loss
Retained
Earnings
Non-
Controlling
Interest
Total
Equity
Paid-In
Capital
Balances as of December 31, 2015 . . . . . . — $
— 20,133 $
2 $148,523 $
(7,922) $318,579 $
923 $460,105
Net income . . . . . . . . . . . . . . . . . . —
Foreign currency translation adjustment . . —
Disposal of subsidiary . . . . . . . . . . . . —
—
—
—
—
—
—
—
—
—
—
—
—
Repurchase of common stock . . . . . . . . —
— (1,104) —
(9,176)
Stock based compensation – options . . . . —
Stock based compensation – restricted
stock . . . . . . . . . . . . . . . . . . . . —
Payment of income tax withheld on
vested restricted stock . . . . . . . . . . —
—
—
—
—
31
—
—
1,292
440
(3) —
(21)
—
5,997
(815)
605
—
—
—
—
—
—
—
—
—
—
37
—
(960)
—
—
—
—
6,034
(815)
(355)
(9,176)
1,292
440
(21)
Balances as of December 31, 2016 . . . . . . —
— 19,057
141,058
(8,132) 324,576
— 457,504
Net income . . . . . . . . . . . . . . . . . . —
Adoption of ASU 2016-09 . . . . . . . . . —
Foreign currency translation adjustment . . —
Issuance of common stock, net of
offering costs . . . . . . . . . . . . . . . . —
Exercise of stock options
. . . . . . . . . . —
— 414
Stock based compensation – options . . . . —
Stock based compensation – restricted
stock . . . . . . . . . . . . . . . . . . . . —
Payment of income tax withheld on vested
restricted stock . . . . . . . . . . . . . . —
—
—
—
—
—
—
—
—
—
2
—
—
—
—
—
—
— 889
— 29,148
—
—
—
145
1,593
494
—
37
(6) —
(113)
Balances as of December 31, 2017 . . . . . . —
— 20,391
Net income . . . . . . . . . . . . . . . . . . —
Preferred stock dividends
. . . . . . . . . . —
Foreign currency translation adjustment . . —
—
—
—
—
—
—
Issuance of common and preferred stock,
net of offering costs . . . . . . . . . . . . 4,155
103,865
100
2
—
—
—
—
—
—
—
(1,552)
Repurchase of common stock . . . . . . . . —
— (1,767) — (40,869)
Exercise of stock options
. . . . . . . . . . —
Stock based compensation – options . . . . —
Stock based compensation – restricted
stock . . . . . . . . . . . . . . . . . . . . —
Payment of income tax withheld on vested
restricted stock . . . . . . . . . . . . . . —
—
—
—
—
5
—
42
—
—
—
24
1,236
1,631
(7) —
(129)
— 72,060
— 72,060
—
1,004
2,010
—
—
—
—
—
—
—
—
—
—
—
—
—
1,004
2,010
— 29,148
—
—
—
—
145
1,593
494
(113)
— 78,596
— 78,596
— (5,124)
(391)
—
—
—
—
—
—
—
—
—
—
—
—
—
(5,124)
(391)
—
— 102,313
— (40,869)
—
—
—
—
24
1,236
1,631
(129)
172,325
(6,122) 397,640
— 563,845
Balances as of December 31, 2018 . . . . . . 4,155 $103,865 18,764 $
2 $132,666 $
(6,513) $471,112 $
— $701,132
See accompanying notes to consolidated financial statements.
70
CAI INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Cash flows from operating activities
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
78,596
$ 72,060
$
6,034
Year Ended December 31,
2017
2016
2018
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 . . . . . . . . . . . . . . . . . . . . . . . . . . .
121,494
4,350
1,989
2,867
—
436
(11,725)
—
2,466
492
(19,269)
(2,361)
15
764
(344)
179,770
111,294
3,306
1,969
2,087
(2,211)
106
(5,347)
—
(14,947)
402
(4,994)
735
(2,206)
(5,766)
(1,296)
155,192
(812,021)
—
106,149
—
(823)
43,352
(663,343)
(502,050)
—
66,364
—
(126)
24,061
(411,751)
Cash flows from financing activities
Proceeds from debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Principal payments on debt
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt issuance costs
Proceeds from issuance of common and preferred stock . . . . . . . . . . . . .
Repurchase of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends paid to preferred stockholders . . . . . . . . . . . . . . . . . . . . . . .
Exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by financing activities . . . . . . . . . . . . . . . . . . . . . . . .
Effect on cash of foreign currency translation . . . . . . . . . . . . . . . . . . . .
Net increase (decrease) in cash and restricted cash . . . . . . . . . . . . . . . . . .
Cash and restricted cash at beginning of the period(1)
. . . . . . . . . . . . . . .
Cash and restricted cash at end of the period(2) . . . . . . . . . . . . . . . . . . . . $
1,695,064
(1,236,912)
(5,130)
103,433
(40,869)
(3,260)
24
512,350
(3)
28,774
47,209
75,983
754,340
(527,850)
(3,441)
28,028
—
—
145
251,222
220
(5,117)
52,326
$ 47,209
105,236
2,975
1,443
1,732
(3,789)
276
12,671
146
1,138
3,151
(1,175)
(2,691)
3,572
652
(2,115)
129,256
(251,165)
(15,599)
66,073
(460)
(82)
19,633
(181,600)
552,540
(496,270)
(1,515)
—
(9,176)
—
—
45,579
(674)
(7,439)
59,765
$ 52,326
Supplemental disclosure of cash flow information
Cash paid during the period for:
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Interest
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
651
71,286
$
194
47,596
$
889
38,491
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
316,697
—
74,139
$ 205,033
413
92,415
$ 19,036
732
92,415
(1)
(2)
Includes cash of $14,735, $15,685, and $17,447, cash held by variable interest entities of $20,685, $30,449, and $35,106,
and restricted cash of $11,789, $6,192, and $7,212 at December 31, 2017, 2016, and 2015, respectively.
Includes cash of $20,104, $14,735, and $15,685, cash held by variable interest entities of $25,211, $20,685, and $30,449,
and restricted cash of $30,668, $11,789, and $6,192 at December 31, 2018, 2017, and 2016, respectively.
See accompanying notes to consolidated financial statements.
71
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 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.
In July 2018, the Company combined the operations of its three logistics companies under one brand
name, CAI Logistics. CAI Logistics is headquartered in Everett, Washington.
The Company’s common stock, 8.50% Series A Fixed-to-Floating Rate Cumulative Redeemable
Perpetual Stock and 8.50% Series B Fixed-to-Floating Rate Cumulative Redeemable Perpetual Stock are
each traded on the New York Stock Exchange under the symbols “CAI,” “CAI-PA” and “CAI-PB,”
respectively. The Company’s corporate headquarters are located in San Francisco, California.
(2) Summary of Significant Accounting Policies and Recent Accounting Pronouncements
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update
(ASU) 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 is only applicable to the Company’s logistics services agreements, management services
agreements, and the 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. The Company adopted ASU 2014-09 effective January 1, 2018, which
did not have a material impact on the Company’s consolidated financial statements and related disclosures.
See Note 2(l) for further details.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230):
Classification of Certain Cash Receipts and Cash Payments (ASU 2016-15), which clarifies the classification
of certain cash receipts and cash payments in the statement of cash flows, including debt prepayment or
extinguishment costs, settlement of contingent consideration arising from a business combination and
insurance settlement proceeds. The Company adopted ASU 2016-15 effective January 1, 2018, which did
not result in any changes to the presentation of amounts shown on the Company’s consolidated statements
of cash flows for all periods presented.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230):
Restricted Cash (ASU 2016-18), that requires the inclusion of restricted cash and restricted cash equivalents
with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts
shown on the statement of cash flows. The Company adopted ASU 2016-18 effective January 1, 2018,
which resulted in the inclusion of the Company’s restricted cash balances along with cash in the Company’s
consolidated statements of cash flows and separate line items showing changes in restricted cash balances
were eliminated from the Company’s consolidated statements of cash flows. ASU 2016-18 was applied
retrospectively to all periods presented.
72
CAI INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
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., 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 a primary beneficiary of the VIE and meets both of the following criteria under Financial
Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 810, Consolidation:
•
•
it has the 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 3).
(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.
(c) 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.
73
CAI INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
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, the Company often
adjusts its estimates for remaining useful life and residual values based on current conditions in the sale
market for older containers and its 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.
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.
(d) 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 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, the
Company considers market trends, published value for similar assets, recent transactions of similar assets
and in certain cases, quotes from third party appraisers. No impairment charges were recorded in 2018,
2017 and 2016.
74
CAI INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
(e) 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
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2 – 3 years
Customer relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5 – 8 years
(f) Goodwill
In connection with acquisitions made in 2015 and 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 2018 and concluded that there was no impairment of goodwill.
(g) 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.
(h) 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 $20.4 million and $11.7 million are
presented as a reduction of debt on the Company’s consolidated balance sheets as of December 31, 2018
and 2017, respectively.
(i) 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.
75
CAI INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
(j) 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 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.
(k) 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 10).
(l) Revenue Recognition
The Company provides a range of services to its customers incorporating the 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 606, 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, and repairs, which are recognized as earned.
Also included in lease revenue is revenue from management fees earned under equipment management
agreements. Management fees are generally calculated as a percentage of the monthly net operating income
for an investor’s portfolio and recognized as revenue in the month of service.
76
CAI INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
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. For truck brokerage services, which typically involve a short transit time, revenue is recognized
when delivery has been completed due to lack of reliable information to reasonably measure progress
toward complete satisfaction of the performance obligation. For intermodal transportation services, which
can take a longer time to complete, revenue is recognized over time by measuring progress toward complete
satisfaction of the performance obligation, utilizing input methods. For any such services not completed as
of the end of a reporting period, a percentage of completion method based on costs incurred to date is used
to allocate the appropriate revenue to each separate reporting period. The Company provides international
freight forwarding services as an indirect carrier, sometimes referred to as a Non-Vessel Operating Common
Carrier. Due to the lack of reliable information to reasonably measure progress toward complete
satisfaction of the performance obligation, revenue for these shipments is 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 primarily responsible for fulfilling the
promise to provide the specified service desired by the customers and has discretion in establishing the price
for the specified service.
Unearned Revenue
The Company records unearned revenue when cash payments are received in advance of the Company
satisfying its performance obligations.
Payment terms vary by customer and type of service. The term between invoicing and when payment is
due is not significant. For certain customers or services, the Company may require payment before the
services are delivered or performed for the customer.
Practical Expedients
The Company expenses sales commissions when incurred because the period of amortization would
have been one year or less. These costs are recorded within administrative expenses.
The Company does not disclose the value of unsatisfied performance obligations for (i) contracts with
an original expected length of one year or less and (ii) contracts with variable consideration for a distinct
good or service that forms part of a single performance obligation.
(m) 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.
(n) 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.
77
CAI INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
(3) 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, Consolidation:
•
•
it has the 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. 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 the arrangements include only
terms and conditions that are customarily present in arrangements for similar services. As such, the
Company does not have a variable interest in the managed container funds, and does not consolidate those
funds. No container portfolios were sold to the funds in the years ended December 31, 2018, 2017 and 2016.
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.
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, 2018 and 2017, and the results of the VIEs’ operations and cash flows for the years ended
December 31, 2018, 2017 and 2016 in the Company’s consolidated financial statements.
78
CAI INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
The containers that were transferred to the Japanese investor funds had a net book value of
$85.8 million as of December 31, 2018. The container equipment, together with $25.2 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 $107.2 million and term
loans held by VIE of $1.5 million. See Note 8(e) and Note 8(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, 2018, 2017 and 2016, had a net book value of
$40.6 million, $20.5 million and $36.2 million, respectively.
(4) 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2018
$ 1,840,304
341,983
192,035
490,381
December 31,
2017
$ 1,533,063
345,744
160,529
471,171
2,864,703
(599,443)
2,510,507
(505,546)
Rental equipment, net of accumulated depreciation . . . . . . . . . . . . . . . . .
$ 2,265,260
$ 2,004,961
(5) 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 . . . . . . . . . . . . . . . . . . . . . . . . . .
$
804,511
(254,744)
$
549,767
$
$
412,489
(135,976)
276,513
December 31,
2018
December 31,
2017
(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 $74.4 million and $34.4 million
unguaranteed residual value at December 31, 2018 and 2017, respectively, included in gross finance
lease receivables. There were no executory costs included in gross finance lease receivables as of
December 31, 2018 and 2017.
(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, 2018 and 2017.
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.
79
CAI INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
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.
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):
December 31,
2018
December 31,
2017
Tier 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tier 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tier 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
698,014
106,497
—
$
366,629
45,860
—
$
804,511
$
412,489
Contractual maturities of the Company’s gross finance lease receivables subsequent to December 31,
2018 for the years ending December 31 are as follows (in thousands):
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
117,719
88,634
85,339
78,496
73,260
361,063
$
804,511
80
CAI INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
(6) Intangible Assets
The Company’s intangible assets as of December 31, 2018 and 2017 were as follows (in thousands):
Gross
Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
December 31, 2018
Trademarks and tradenames . . . . . . . . . . . . . . . . . . . . . . .
$
Customer relationships . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,786
9,344
$
(1,786)
(3,611)
$
11,130
$
(5,397)
December 31, 2017
Trademarks and tradenames . . . . . . . . . . . . . . . . . . . . . . .
$
Customer relationships . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,786
9,344
$
(1,411)
(1,996)
$
11,130
$
(3,407)
$
$
$
$
—
5,733
5,733
375
7,348
7,723
Amortization expense was $2.0 million for both the years ended December 31, 2018 and 2017, and
$1.4 million for the year ended December 31, 2016, and was included in administrative expenses in the
consolidated statements of income.
As of December 31, 2018, estimated future amortization expenses are as follows (in thousands):
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
1,609
1,609
1,516
474
457
68
5,733
(7) 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, 2018
(in thousands):
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
184,978
152,927
129,361
107,776
71,762
108,714
$
755,518
See Note 5 for contractual maturities of the Company’s gross finance lease receivables.
81
CAI INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
(8) Debt
Details of the Company’s debt as of December 31, 2018 and 2017 were as follows (dollars in
thousands):
Reference
December 31, 2018
December 31, 2017
Outstanding
Current
Long-term
Average
Interest
Outstanding
Current
Long-term
(a)(i)
Revolving credit facility . . . . . . . . .
$
4,200
$ 301,000
4.2% $
— $ 528,000
(a)(ii) Revolving credit facility – Rail . . . . .
(a)(iii) Revolving credit facility – Euro . . . .
—
—
(b)(i)
Term loan . . . . . . . . . . . . . . . .
1,800
272,500
19,457
27,300
4.2%
2.0%
4.5%
(b)(ii)
Term loan . . . . . . . . . . . . . . . .
111,750
— 3.8%
(b)(iii) Term loan . . . . . . . . . . . . . . . .
(b)(iv) Term loan . . . . . . . . . . . . . . . .
(b)(v)
Term loan . . . . . . . . . . . . . . . .
(b)(vi) Term loan . . . . . . . . . . . . . . . .
(c)
Senior secured notes. . . . . . . . . . .
(d)(i)
Asset-backed notes 2012-1 . . . . . . .
(d)(ii) Asset-backed notes 2013-1 . . . . . . .
(d)(iii) Asset-backed notes 2017-1 . . . . . . .
(d)(iv) Asset-backed notes 2018-1 . . . . . . .
(d)(v) Asset-backed notes 2018-2 . . . . . . .
(e)
(f)
Collateralized financing obligations . .
Term loans held by VIE . . . . . . . . .
7,000
1,240
2,909
6,000
6,110
17,100
22,900
25,307
34,890
34,350
39,610
1,456
75,500
15,284
40,651
92,500
52,775
48,450
74,425
189,802
284,935
300,563
67,615
4.0%
3.4%
3.6%
4.6%
4.9%
3.5%
3.4%
3.7%
4.0%
4.4%
1.2%
Average
Interest
3.2%
3.2%
Maturity
June 2023
October 2023
272,000
—
—
14,736
2.0% September 2020
21,900
— 3.4%
April 2023
9,000
7,000
1,198
2,805
—
6,110
17,100
22,900
25,307
—
—
111,750
82,500
3.1%
3.3%
October 2019
June 2021
16,524
3.4% December 2020
43,560
3.6%
August 2021
— —
October 2023
58,885
4.9% September 2022
65,550
97,325
215,109
3.5%
3.4%
3.7%
October 2027
March 2028
June 2042
— —
February 2043
— —
September 2043
22,549
69,441
1.2% December 2021
— 3.3%
—
3,286
2.7%
June 2019
Debt issuance costs
Total Debt
316,622
1,862,757
135,869
1,578,666
(5,241)
(15,124)
(3,820)
(7,893)
$311,381
$1,847,633
$132,049
$1,570,773
(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 27, 2018, 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, among other things, increase the commitment level from
$960.0 million to $1,100.0 million, with the ability to increase the revolving credit facility by an additional
$250.0 million without lender approval, subject to certain conditions. The amendment also extended the
maturity date of the revolving credit facility to June 26, 2023 and revised certain covenants, restrictions and
events of default to provide the Company with additional flexibility, including an increase in the maximum
total leverage ratio from 3.75:1.00 to 4.00:1.00, subject to certain conditions.
82
CAI INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
As of December 31, 2018, the maximum commitment under the revolving credit facility was
$1,100.0 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, 2018, the Company was in compliance with the terms of the revolving credit facility.
As of December 31, 2018, the Company had $794.7 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, 2018, the borrowing availability under the revolving credit facility was $91.2 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 $477.0 million as of
December 31, 2018, the underlying leases and the Company’s interest in any money received under such
contracts.
(ii) On October 22, 2018, the Company and CAI Rail Inc. (CAI Rail), a wholly-owned subsidiary of
the Company, entered into the Third Amended and Restated Revolving Credit Agreement with a
consortium of banks, pursuant to which the revolving credit facility for CAI Rail was amended to, among
other things, (i) extend the maturity date from October 22, 2020 to October 23, 2023, (ii) increase the
commitment level from $500.0 million to $550.0 million, with the ability to increase the facility by an
additional $150.0 million, subject to certain conditions, and (iii) revise certain of the covenants and
restrictions under the prior facility to provide the Company with additional flexibility. As of December 31,
2018, the maximum credit commitment under the revolving line of credit was $550.0 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, 2018, CAI Rail had $277.5 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, 2018, the borrowing availability
under the revolving credit facility was $18.6 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, 2018, 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
certain assets of CAI Rail, which had a net book value of $363.9 million as of December 31, 2018, and is
guaranteed by the Company.
83
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, 2018, 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, 2018, CAI GmbH had €8.0 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, 2018, the borrowing availability
under the revolving credit facility was €1.2 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, 2018, 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 €24.2 million as of December 31, 2018, and is
guaranteed by the Company.
(b) Term Loans
Term loans consist of the following:
(i) On April 19, 2018, the Company entered into a $30.0 million five-year term loan agreement with a
bank. The loan is payable in 19 quarterly installments of $0.5 million starting July 31, 2018 and a final
payment of $21.5 million on April 30, 2023. The loan bears interest at a variable rate based on LIBOR. As
of December 31, 2018, the loan had a balance of $29.1 million.
The following are the estimated future principal and interest payments under these loans as of
December 31, 2018 (in thousands). The payments were calculated assuming the interest rate remains 4.5%
through maturity of the loan.
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Amount representing interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3,086
3,005
2,924
2,842
22,391
34,248
(5,148)
Term loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$29,100
(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 8 (d) below).
84
CAI INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
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,
2018, the term loan had a balance of $111.8 million.
The following are the estimated future principal and interest payments under this loan as of
December 31, 2018 (in thousands). The payments were calculated assuming the interest rate remains 3.8%
through maturity of the loan.
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$115,275
Less: Amount representing interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
115,275
(3,525)
Term loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$111,750
(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, 2018, the loan had a balance of $82.5 million.
The following are the estimated future principal and interest payments under this loan as of
December 31, 2018 (in thousands). The payments were calculated assuming the interest rate remains 4.0%
through maturity of the loan.
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Amount representing interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$10,459
10,165
69,953
90,577
(8,077)
Term loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$82,500
(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, 2018, the loan had a balance of
$16.5 million.
85
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, 2018 (in thousands). The payments were calculated based on the fixed interest rate of 3.4%.
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,793
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Amount representing interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15,793
17,586
(1,062)
Term loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$16,524
(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, 2018, the loan had a balance
of $43.6 million.
The following are the estimated future principal and interest payments under this loan as of
December 31, 2018 (in thousands). The payments were calculated based on the fixed interest rate of 3.6%.
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Amount representing interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 4,441
4,441
38,524
47,406
(3,846)
Term loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$43,560
(vi) On October 18, 2018, the Company entered into a $100.0 million five-year term loan agreement
with a bank. The loan is payable in 20 quarterly installments of $1.5 million starting December 20, 2018
and a final payment of $70.0 million on October 18, 2023. The outstanding principal amounts under the
loan bear interest at a fixed rate per annum of 4.6%. As of December 31, 2018, the loan had a balance of
$98.5 million.
The following are the estimated future principal and interest payments under this loan as of
December 31, 2018 (in thousands). The payments were calculated based on the fixed interest rate of 4.6%.
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Amount representing interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 10,396
10,122
9,848
9,574
77,266
117,206
(18,706)
Term loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 98,500
86
CAI INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
The Company’s term loans are secured by rental equipment owned by the Company, which had a net
book value of $461.8 million as of December 31, 2018.
(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, 2018, the Notes had a
balance of $58.9 million.
The following are the estimated future principal and interest payments under the Notes as of
December 31, 2018 (in thousands). The payments were calculated based on the fixed interest rate of 4.9%.
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Amount representing interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 8,921
8,621
8,322
42,467
68,331
(9,446)
Senior secured notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$58,885
The Company’s senior secured notes are secured by rental equipment owned by the Company, which
had a net book value of $76.2 million as of December 31, 2018.
(d) Asset-Backed Notes
Asset-backed notes consist of the following:
(i) 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, 2018, the Series 2012-1
Asset-Backed Notes had a balance of $65.6 million.
87
CAI INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
The following are the estimated future principal and interest payments under the Series 2012-1
Asset-Backed Notes as of December 31, 2018 (in thousands). The payments were calculated based on the
fixed interest rate of 3.5%.
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$19,103
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18,509
17,916
14,477
70,005
Less: Amount representing interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4,455)
Asset-backed notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$65,550
(ii) 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
$97.3 million as of December 31, 2018.
The following are the estimated future principal and interest payments under the Series 2013-1
Asset-Backed Notes as of December 31, 2018 (in thousands). The payments were calculated based on the
fixed interest rate of 3.4%.
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Amount representing interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 25,809
25,042
24,274
23,507
5,757
104,389
(7,064)
Asset-backed notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 97,325
(iii) On July 6, 2017, CAL Funding III Limited (CAL 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 2017-1 Asset-Backed Notes). Principal and interest on the
Series 2017-1 Asset-Backed Notes is payable monthly commencing on July 25, 2017, with the Series 2017-1
Asset-Backed Notes maturing in June 2042. The proceeds from the Series 2017-1 Asset-Backed Notes were
used for general corporate purposes, including repayment of debt by the Company. As of December 31,
2018, the Series 2017-1 Asset-Backed Notes had a balance of $215.1 million.
88
CAI INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
The following are the estimated future principal and interest payments under the Series 2017-1
Asset-Backed Notes as of December 31, 2018 (in thousands). The payments were calculated based on the
weighted average fixed interest rate of 3.7%.
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 32,770
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Amount representing interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
31,842
30,914
29,986
29,058
94,394
248,964
(33,855)
Asset-backed notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$215,109
(iv) On February 28, 2018, CAL III issued $332.0 million of 4.0% Class A fixed rate asset-backed
notes and $16.9 million of 4.8% Class B fixed rate asset-backed notes (collectively, the Series 2018-1
Asset-Backed Notes). Principal and interest on the Series 2018-1 Asset-Backed Notes is payable monthly
commencing on March 26, 2018, with the Series 2018-1 Asset-Backed Notes maturing in February 2043.
The proceeds were used for general corporate purposes, including repayment of debt by the Company. As of
December 31, 2018, the Series 2018-1 Asset-Backed Notes had a balance of $319.8 million.
The following are the estimated future principal and interest payments under the Series 2018-1
Asset-Backed Notes as of December 31, 2018 (in thousands). The payments were calculated based on the
weighted average fixed interest rate of 4.0%.
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Amount representing interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 47,045
45,650
44,254
42,858
41,462
157,734
379,003
(59,178)
Asset-backed notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$319,825
(v) On September 19, 2018, CAL III issued $331.5 million of 4.3% Class A fixed rate asset-backed
notes and $12.0 million of 5.2% Class B fixed rate asset-backed notes (collectively, the Series 2018-2
Asset-Backed Notes). Principal and interest on the Series 2018-2 Asset-Backed Notes is payable monthly
commencing on October 25, 2018, with the Series 2018-2 Asset-Backed Notes maturing in September 2043.
The proceeds were used for general corporate purposes, including repayment of debt by the Company. As of
December 31, 2018, the Series 2018-2 Asset-Backed Notes had a balance of $334.9 million.
89
CAI INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
The following are the estimated future principal and interest payments under the Series 2018-2
Asset-Backed Notes as of December 31, 2018 (in thousands). The payments were calculated based on the
weighted average fixed interest rate of 4.4%.
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 48,300
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Amount representing interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
46,799
45,297
43,796
42,295
180,397
406,884
(71,971)
Asset-backed notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$334,913
The Company’s asset-backed notes are secured by rental equipment owned by the Company, which had
a net book value of $1,249.2 million as of December 31, 2018.
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, 2018, the
restricted cash account had a balance of $30.7 million.
(e) Collateralized Financing Obligations
As of December 31, 2018, the Company had collateralized financing obligations of $107.2 million (see
Note 3). The obligations had an average interest rate of 1.2% as of December 31, 2018 with maturity dates
between March 2019 and December 2021. The debt is secured by a pool of containers covered under the
financing arrangements.
The following are the estimated future principal and interest payments under the Company’s
collateralized financing obligations as of December 31, 2018 (in thousands). The payments were calculated
assuming an average interest rate of 1.2% through maturity of the obligations.
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 40,784
22,084
36,414
10,147
109,429
Less: Amount representing interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2,204)
Collateralized financing obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$107,225
(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 3) 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, 2018, the term loans held by the Japanese
investor fund totaled $1.5 million and had an average interest rate of 3.3%.
90
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, 2018 (in thousands). The payments were calculated assuming the interest rate remains
3.3% through maturity of the loan.
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Amount representing interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,486
1,486
(30)
Term loans held by VIE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,456
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 $8.5 million as of December 31, 2018.
The agreements relating to all of the Company’s debt contain various financial and other covenants.
As of December 31, 2018, the Company was in compliance with all of its debt covenants.
(9) Stock–Based Compensation Plan
Stock Options
The Company may grant stock options from time to time 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
The following table summarizes the Company’s stock option activities for the three years ended
December 31, 2018:
Options outstanding, December 31, 2015 . . . . . .
Options granted . . . . . . . . . . . . . . . . . . . . .
Options forfeited/cancelled . . . . . . . . . . . . . .
Options outstanding, December 31, 2016 . . . . . .
Options granted . . . . . . . . . . . . . . . . . . . . .
Options exercised . . . . . . . . . . . . . . . . . . . . .
Number of
Shares
1,189,255
245,000
(6,000)
1,428,255
230,500
(799,195)
Options outstanding, December 31, 2017 . . . . . .
859,560
Options granted . . . . . . . . . . . . . . . . . . . . .
Options exercised . . . . . . . . . . . . . . . . . . . . .
Options outstanding, December 31, 2018 . . . . . .
Options exercisable at December 31, 2018 . . . . .
Expected to vest after December 31, 2018 . . . . .
—
(9,393)
850,167
657,471
192,696
Weighted
Average
Exercise
Price
$18.08
$ 7.87
$21.99
$16.31
$16.80
$16.31
$16.44
$ —
$14.76
$16.46
$17.38
$13.33
Weighted
Average
Remaining
Contractual
Term
(in years)
Aggregate
Intrinsic
Value
(in thousands)
5.9
5.3
7.7
$5,936
$4,028
$1,907
The aggregate intrinsic value represents the value by which the Company’s closing stock price of
$23.23 per share on the last trading day of the year ended December 31, 2018 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 stock options exercised during 2018 and 2017,
based on the closing share price on the date each option was exercised, was $0.1 million and $11.7 million,
respectively.
91
CAI INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
The Company recognized stock-based compensation expense relating to stock options of $1.2 million,
$1.6 million and $1.3 million for the years ended December 31, 2018, 2017 and 2016, respectively. As of
December 31, 2018, the remaining unamortized stock-based compensation cost relating to stock options
granted to the Company’s employees and independent directors was approximately $1.3 million, which is to
be recognized over the remaining weighted average vesting period of approximately 1.7 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 and $0.9 million, or $3.55 per share for
the years ended December 31, 2017 and 2016, respectively, calculated using the Black-Scholes-Merton
pricing model under the following weighted average assumptions:
Stock price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercise price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017
2016
$
$
16.80
16.80
$
$
7.87
7.87
Expected term (years)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected volatility (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend yield (%)
5.5 – 6.25
56.4 – 57.5
1.77 – 2.14
—
5.5 – 6.25
45.4 – 46.7
1.30 – 1.40
—
No options were granted by the Company during the year ended December 31, 2018.
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 the 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 and 2016, as the Company accounts for
forfeitures as they occur (see Note 2(m)).
Restricted Stock and Performance Stock
The Company grants restricted stock, comprising restricted stock units and restricted stock awards,
from time to time to certain employees and independent directors pursuant to the Plan. Restricted stock
granted to employees has a vesting period of four years; 25% vesting on each anniversary of the grant date.
Restricted stock granted to independent directors vests in one year. The company recognizes the
compensation cost associated with restricted stock over the vesting period based on the closing price of the
Company’s stock on the date of grant.
The Company grants performance stock to selected executives and other key employees. The
performance stock vests at the end of a 3-year performance cycle if certain financial performance targets
are met. The Company recognizes compensation cost associated with the performance stock ratably over
the 3-year term when it is considered probable that performance targets will be met. Compensation cost is
based on the closing price of the Company’s common stock on the date of grant.
92
CAI INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
The following table summarizes the activity of restricted stock and performance stock under the Plan:
Outstanding at December 31, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at December 31, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at December 31, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of
Shares
Weighted
Average
Grant Date
Fair Value
48,025
34,500
(14,379)
(2,344)
65,802
37,414
(24,674)
78,542
156,165
(29,977)
204,730
$22.70
$ 7.87
$23.61
$21.96
$14.75
$17.14
$17.83
$14.92
$22.48
$16.52
$20.45
The Company recognized stock-based compensation expense relating to restricted stock and
performance stock awards of $1.6 million, $0.5 million and $0.4 million for the three years ended
December 31, 2018, 2017 and 2016, respectively. As of December 31, 2018, unamortized stock-based
compensation expense relating to restricted stock and performance stock was $2.7 million, which will be
recognized over the remaining average vesting period of 2.0 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.
(10) Income Taxes
For the years ended December 31, 2018, 2017 and 2016, net income before income taxes and
non-controlling interest consisted of the following (in thousands):
U.S. operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (5,391)
86,874
$ (2,080)
59,279
$
8,996
882
$81,483
$57,199
$ 9,878
Year Ended December 31,
2018
2017
2016
93
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,
2018
2017
2016
Current
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
26
113
282
421
$
(531)
$
86
531
86
Deferred
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,415
(19,304)
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(528)
1,579
2,466
3,172
1,185
(14,947)
312
56
2,338
2,706
3,090
238
(2,190)
1,138
Income tax (benefit) expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,887
$(14,861)
$ 3,844
The reconciliations between the Company’s income tax expense and the amounts computed by
applying the U.S. federal income tax rate of 21.0% for the year ended December 31, 2018 and 35.0% for
the years ended December 31, 2017 and 2016 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 . . . . . . . .
Subpart F income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
IRC Section 162(m) excess officer’s compensation . . . . . . . . . . . . . . . .
Non-deductible stock-based compensation . . . . . . . . . . . . . . . . . . . . .
Excess tax benefit related to stock-based compensation . . . . . . . . . . . .
Increase in uncertain tax positions
. . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustment for prior years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in Federal tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustment to contingent consideration . . . . . . . . . . . . . . . . . . . . . .
Change in valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2018
2017
2016
$ 17,112
$ 20,020
$ 3,458
(16,384)
25
2,202
172
133
(34)
25
(431)
(19,032)
191
683
—
218
(1,858)
61
1,894
— (16,945)
(429)
—
—
—
336
67
(88)
310
711
—
155
—
36
—
—
(634)
(15)
(89)
$ 2,887
$(14,861)
$ 3,844
As of December 31, 2018, the Company had $149.9 million and $19.9 million of net operating loss
(NOL) carry forwards available to offset future federal and state taxable income, respectively. The NOL
carry forwards will begin to expire in 2035 and 2029 for federal and state income tax purposes, respectively.
94
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, 2018 and 2017 are presented below (in thousands):
Year Ended December 31,
2018
2017
Deferred tax assets:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Accrued expenses and other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . .
Unearned revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
144
743
51
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,060
Other
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net operating loss carry forwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
62
37,464
39,524
—
68
886
198
744
89
34,758
36,743
—
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
39,524
36,743
Deferred tax liabilities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred subpart F income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
68,859
1,047
1,425
6,512
77,843
65,609
943
1,734
4,310
72,596
Net deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$38,319
$35,853
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.
Deferred income taxes have not been provided on the undistributed earnings of foreign subsidiaries.
As of December 31, 2018, the amount of such earnings totaled approximately $28.5 million. 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. The amount of income taxes that would have resulted had
such earnings been repatriated is not practically determinable.
The following table summarizes the activity related to the Company’s unrecognized tax benefits
(in thousands):
Balance at January 1, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$266
Increases related to current year tax positions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increases related to current year tax positions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11
277
14
Balance at December 31, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$291
95
CAI INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
The unrecognized tax benefits of approximately $0.3 million at December 31, 2018, 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, 2018 and
2017.
The U.S. Tax Cuts and Job Act of 2017 (TCJA) was signed into law on December 22, 2017. The most
significant effect of TCJA on the Company was the U.S. federal corporate tax rate reduction from 35% to
21%, which required re-measurement of the Company’s U.S. deferred income tax assets and liabilities as of
December 31, 2017. As the Company was in an overall net deferred tax liability position, the corporate tax
rate reduction resulted in a net tax benefit of $16.9 million in 2017.
Other significant provisions of the TCJA that became effective in 2018 that may impact the Company’s
income taxes are: the limitation on the deduction of interest expense in excess of 30 percent of adjusted
taxable income; limitation on the utilization of net operating losses generated after fiscal year 2017 to
80 percent of taxable income; the taxation of global intangible low-taxed income of controlled foreign
corporations; and limitation on the deduction for executive compensation.
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, 2018
will increase or decrease significantly in the next twelve months. As of December 31, 2018, the statute of
limitations for tax examinations in the United States has not expired for the years ended December 31, 2015
through 2017. California, New Jersey and South Carolina have not expired for tax returns filed for the years
ended December 31, 2014 through 2017. The Company was notified on May 1, 2017 that its 2015 U.S.
federal income tax return was selected for examination. The examination was concluded on June 20, 2018
with no impact to tax expense.
(11) 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 $1,032.7 million and collateralized financing obligations
of $107.2 million as of December 31, 2018 were estimated to have a fair value of approximately
$1,024.7 million and $108.9 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 $597.2 million, variable-rate term loans totaling $223.4 million, fixed-rate term loans of
$158.6 million, senior secured notes of $58.9 million and term loans held by VIE of $1.5 million
approximate their fair values as of December 31, 2018. The fair value of these financial instruments would
be categorized as Level 2 of the fair value hierarchy.
96
CAI INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
(12) 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, 2018 are as follows (in thousands):
Office Facilities
and Equipment
Year ending December 31:
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
2,395
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
801
707
530
393
78
$
4,904
Office facility expense was $2.7 million, $2.0 million, and $1.7 million for the years ended
December 31, 2018, 2017 and 2016, respectively, which was included in administrative expenses in the
consolidated statements of income.
As of December 31, 2018 and 2017, 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 $74.1 million, the Company had commitments to
purchase approximately $9.4 million of containers and $64.4 million railcars as of December 31, 2018; all in
the twelve months ended December 31, 2019.
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, 2018
there were no claims outstanding under such indemnifications and the Company believes that no claims are
probable of occurring in the future.
(13) Related Party Transactions
In May 2018, the Company purchased, and subsequently cancelled, 1,225,214 shares of its common
stock, from an affiliate of Andrew S. Ogawa in a privately-negotiated transaction. Mr. Ogawa is a member
of the Company’s Board of Directors. The stock was purchased at a price of $22.81 per share, which
represented a 2% discount to the closing price on the date of purchase.
97
CAI INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
(14) Stockholders’ Equity
Common Stock At-the-Market (ATM) Offering Program
In October 2017, the Company commenced an ATM offering program with respect to its common
stock, which allows the Company to issue and sell up to 2.0 million shares of its common stock. During the
year ended December 31, 2018, the Company issued 100,000 shares of common stock under the ATM
offering program for net proceeds of $2.8 million. The Company paid commissions to the sales agent of
$0.1 million in connection with the sales of common stock under this ATM offering program during the
year ended December 31, 2018. The net proceeds were used for general corporate purposes. The Company
has remaining capacity to issue up to approximately 1.0 million of additional shares of common stock
under this ATM offering program.
Series A Preferred Stock Underwritten Offering
In March 2018, the Company completed an underwritten public offering of 1,600,000 shares of its
8.5% Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Stock, par value $0.0001
per share and liquidation preference $25.00 per share (Series A Preferred Stock), resulting in net proceeds to
the Company of approximately $38.3 million, after deducting the underwriting discount and other offering
expenses. In April 2018, the Company sold an additional 170,900 shares of Series A Preferred Stock upon
the partial exercise by the underwriters of their option to purchase additional Series A Preferred Stock,
resulting in net proceeds to the Company of approximately $4.1 million, after deducting the underwriting
discount of $0.1 million. The net proceeds were used for repayment of debt and general corporate purposes.
Dividends on the Series A Preferred Stock accrue daily and are cumulative from and including the date
of original issuance and are payable quarterly in arrears on the 15th day of each April, July, October and
January. Dividends accrue at the Fixed Dividend Rate (as defined in the certificate of designations for the
Series A Preferred Stock (Series A Certificate of Designations)) at an annual rate of 8.5% of the $25.00
liquidation preference per annum from, and including, the date of original issuance to, but not including,
April 15, 2023. On and after April 15, 2023, dividends on the Series A Preferred Stock shall accrue at an
annual rate equal to the sum of (a) Three-Month LIBOR (as defined in the Series A Certificate of
Designations) as calculated on each applicable date and (b) 5.82% of the $25.00 liquidation preference per
share of Series A Preferred Stock. The Series A Preferred Stock ranks senior to the Company’s common
stock with respect to dividend rights and rights upon the Company’s liquidation, dissolution or winding up.
The Series A Preferred Stock becomes redeemable by the Company beginning April 15, 2023 for cash
at a redemption price of $25.00 per share of Series A Preferred Stock, plus accrued but unpaid dividends
thereon to, but not including, the date fixed for redemption. In addition, upon the occurrence of a Change
of Control (as defined in the Series A Certificate of Designations), subject to certain restrictions, the
Company may, at its option, upon not less than thirty (30) days’ nor more than sixty (60) days’ written
notice, redeem the Series A Preferred Stock, in whole or in part, within one hundred twenty (120) days after
the first date on which such Change of Control occurred, for cash at a redemption price of $25.00 per
share, plus any accumulated and unpaid dividends thereon to, but not including, the date fixed for
redemption. There is no mandatory redemption of the Series A Preferred Stock or redemption at the option
of the holders. Holders of the Series A Preferred Stock generally have no voting rights except for limited
voting rights if the Company fails to pay dividends on the Series A Preferred Stock for six or more
quarterly periods (whether or not consecutive) or the Company fails to maintain the listing of the Series A
Preferred Stock on a National Exchange (as defined in the Series A Certificate of Designations) for a period
of 180 consecutive days.
98
CAI INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
Series A Preferred Stock ATM Offering Program
In May 2018, the Company commenced an ATM offering program with respect to its Series A
Preferred Stock, which allows the Company to issue and sell up to 2.2 million shares of its Series A
Preferred Stock. During the year ended December 31, 2018, the Company issued 428,710 shares of Series A
Preferred Stock under the ATM offering program for net proceeds of $10.5 million. The Company paid
commissions to the sales agent of $0.2 million in connection with the sales of Series A Preferred Stock
under this ATM offering program during the year ended December 31, 2018. The net proceeds were used
for repayment of debt and general corporate purposes. The Company has remaining capacity to issue up to
approximately 1.8 million of additional shares of Series A Preferred Stock under this ATM offering
program.
Series B Preferred Stock Underwritten Offering
In August 2018, the Company completed an underwritten public offering of 1,700,000 shares of its
8.5% Series B Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Stock, par value $0.0001
per share and liquidation preference $25.00 per share (Series B Preferred Stock), resulting in net proceeds to
the Company of approximately $41.2 million, after deducting the underwriting discount, and other offering
expenses. The Company sold an additional 255,000 shares of Series B Preferred Stock upon the exercise by
the underwriters of their option to purchase additional Series B Preferred Stock, resulting in net proceeds
to the Company of approximately $6.2 million, after deducting the underwriting discount of $0.2 million.
The net proceeds were used for repayment of debt and general corporate purposes.
Dividends on the Series B Preferred Stock accrue daily and are cumulative from and including the date
of original issuance and are payable quarterly in arrears on the 15th day of each January, April, July and
October. Dividends accrue at the Fixed Dividend Rate (as defined in the Series B certificate of designations
for the Series B Preferred Stock (Series B Certificate of Designations)) at an annual rate of 8.5% of the
$25.00 liquidation preference per annum from, and including, the date of original issuance to, but not
including, August 15, 2023. On and after August 15, 2023, dividends on the Series B Preferred Stock shall
accrue at an annual rate equal to the sum of (a) Three-Month LIBOR (as defined in the Certificate of
Designations) as calculated on each applicable date and (b) 5.69% of the $25.00 liquidation preference per
share of Series B Preferred Stock. The Series B Preferred Stock ranks senior to the Company’s common
stock with respect to dividend rights and rights upon the Company’s liquidation, dissolution or winding up.
The Series B Preferred Stock becomes redeemable by the Company beginning August 15, 2023 for cash
at a redemption price of $25.00 per share of Series B Preferred Stock, plus accrued but unpaid dividends
thereon to, but not including, the date fixed for redemption. In addition, upon the occurrence of a Change
of Control (as defined in the Series B Certificate of Designations), subject to certain restrictions, the
Company may, at its option, upon not less than thirty (30) days’ nor more than sixty (60) days’ written
notice, redeem the Series B Preferred Stock, in whole or in part, within one hundred twenty (120) days after
the first date on which such Change of Control occurred, for cash at a redemption price of $25.00 per
share, plus any accumulated and unpaid dividends thereon to, but not including, the date fixed for
redemption. There is no mandatory redemption of the Series B Preferred Stock or redemption at the option
of the holders. Holders of the Series B Preferred Stock generally have no voting rights except for limited
voting rights if the Company fails to pay dividends on the Series B Preferred Stock for six or more quarterly
periods (whether or not consecutive) or the Company fails to maintain the listing of the Series B Preferred
Stock on a National Exchange (as defined in the Series B Certificate of Designations) for a period of
180 consecutive days.
99
CAI INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
(15) 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 the
segments based upon relative asset values or revenue.
The following tables show condensed segment information for the years ended December 31, 2018,
2017 and 2016, reconciled to the Company’s 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, 2018
Container
Leasing
Rail Leasing
Logistics
Total
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 . . . . . . . . . . . . . . . . . . . .
284,924
—
—
284,924
107,109
8,853
—
(9,886)
27,560
133,636
151,288
62,572
677
63,249
$
— $
35,703
—
35,703
14,189
5,692
—
(1,839)
5,297
23,339
12,364
15,773
—
15,773
— $
—
111,471
111,471
—
—
97,170
—
17,448
114,618
(3,147)
—
—
—
Income (loss) before income taxes . . . . . . . . . . . $
88,039
$
(3,409)
$
(3,147)
Goodwill
. . . . . . . . . . . . . . . . . . . . . . . . . . . . $
— $
— $
15,794
$
$
284,924
35,703
111,471
432,098
121,298
14,545
97,170
(11,725)
50,305
271,593
160,505
78,345
677
79,022
81,483
15,794
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,506,279
Purchase of rental equipment(1)
. . . . . . . . . . . . $
739,944
$ 460,387
$
72,077
$
$
45,951
$ 3,012,617
— $
812,021
100
CAI INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
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 . . . . . . . . . . . . . . . . . . . .
Income (loss) before income taxes . . . . . . . . . . .
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
. . . . . . . . . . . . . . . .
Purchase of rental equipment(1)
. . . . . . . . . . . .
Rail Leasing
$
— $
Logistics
Container
Leasing
$ 235,365
—
—
235,365
99,753
15,207
—
(5,333)
22,925
132,552
102,813
41,815
765
42,580
60,233
$
32,476
—
32,476
11,199
5,615
—
(14)
4,756
21,556
10,920
11,237
—
11,237
(317)
$
— $
—
80,552
80,552
—
96
68,155
—
15,018
83,269
(2,717)
—
—
—
$ (2,717)
$
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
— $
$
$1,938,723
— $ 15,794
$ 40,029
$ 449,376
$
15,794
$ 2,428,128
$ 445,168
$
56,882
$
— $
502,050
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
Logistics
— $
—
61,536
61,536
—
11
51,980
(112)
11,466
63,345
(1,809)
—
—
—
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
$
$
4,467
118,374
$
$
7,220
132,791
$
$
(1,809)
$
9,878
— $
251,165
(1) Represents cash disbursements for purchasing of rental equipment as reflected in the consolidated
statements of cash flows for the periods indicated.
101
CAI INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
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 $448.5 million as of December 31, 2018, 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Switzerland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
France . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Korea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Singapore . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
$
2018
154,427
50,805
37,565
31,877
26,854
67,695
54,677
8,198
$
2017
120,558
32,430
34,862
20,755
19,856
64,097
45,176
10,659
$
2016
99,824
19,636
29,273
14,904
16,172
63,190
40,170
11,185
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
432,098
$
348,393
$
294,354
(16) Concentration of Credit Risk
The Company’s single largest container lessee accounted for 11.8%, or $58.0 million, 9.7%, or
$34.7 million, and 6.9% or $20.6 million, of total billings for the years ended December 31, 2018, 2017 and
2016, respectively, and accounted for 6% of its accounts receivable as of December 31, 2018 and 2017. The
Company’s second largest container lessee accounted for 8.4%, or $41.3 million, 10.5%, or $37.5 million,
and 10.6%, or $31.7 million, of total billings for the years ended December 31, 2018, 2017 and 2016,
respectively, and accounted for 15% and 9% of its accounts receivable as of December 31, 2018 and 2017,
respectively.
(17) 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.
102
CAI INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
The following table sets forth the reconciliation of basic and diluted net income per share for the years
ended December 31, 2018, 2017 and 2016 (in thousands, except per share data):
Year Ended December 31,
2018
2017
2016
Numerator
Net income attributable to CAI common stockholders . . . . . . . . .
$ 73,472
$ 72,060
$
5,997
Denominator
Weighted-average shares used in per share computation – basic . . .
19,562
19,253
19,318
Effect of dilutive securities:
Stock options and restricted stock . . . . . . . . . . . . . . . . . . . . .
260
354
75
Weighted-average shares used in per share computation – diluted . .
19,822
19,607
19,393
Net income per share attributable to CAI common stockholders:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
3.76
3.71
$
$
3.74
3.68
$
$
0.31
0.31
The calculation of diluted earnings per share for the years ended December 31, 2018, 2017 and 2016,
excluded from the denominator 160,163 shares, 458,857 shares and 1,135,711 shares, respectively, of
common stock options because their effect would have been anti-dilutive.
(18) Subsequent Events
On February 26, 2019, the Company entered into an agreement to sell 2,146 railcars. The sale of 1,946
railcars for consideration of $165.3 million was completed in February 2019; the sale of the remaining 200
railcars, which are currently being manufactured, for consideration of approximately $32.0 million is
expected to complete in the second quarter of 2019.
(19) Selected Quarterly Financial Data (Unaudited)
The following table sets forth key interim financial information for the years ended December 31, 2018
and 2017 (in thousands, except per share amount):
Revenue . . . . . . . . . . . . . . . . $115,567 $115,452 $105,705 $95,374 $94,034 $90,161 $82,692 $81,506
2018 Quarters Ended
2017 Quarters Ended
Dec. 31
Sept. 30
June 30 Mar. 31 Dec. 31
Sept. 30
June 30 Mar. 31
Operating expenses . . . . . . . . .
Operating income . . . . . . . . . .
Net income attributable to CAI
common stockholders . . . . .
Net income per share
attributable to CAI common
stockholders:
Basic . . . . . . . . . . . . . . . . . $
Diluted . . . . . . . . . . . . . . . $
72,578
42,989
72,571
42,881
65,786
39,919
60,658
34,716
57,631
36,403
58,267
31,894
57,924
24,768
63,555
17,951
17,200
20,006
19,149
17,117
36,563
17,587
12,638
5,272
0.90 $
0.89 $
1.04 $
1.03 $
0.98 $
0.84 $
1.86 $
0.92 $
0.66 $ 0.28
0.97 $
0.83 $
1.81 $
0.90 $
0.65 $ 0.27
103
Schedule II
Valuation Accounts
(In thousands)
Balance at
Beginning
of Period
Net Additions
to Expense
(Deductions)/
Recoveries*
Balance at
End of
Period
December 31, 2016
Accounts receivable, allowance for doubtful accounts . . .
$
548
$ 3,151
$(2,359)
$
1,340
December 31, 2017
Accounts receivable, allowance for doubtful accounts . . .
$
1,340
December 31, 2018
Accounts receivable, allowance for doubtful accounts . . .
$
1,440
$
$
402
$ (302)
$
1,440
492
$
110
$
2,042
*
Primarily consists of write-offs, net of recoveries and other adjustments
104
Exhibit No.
Description
EXHIBIT INDEX
2.1
3.1
3.2
3.3
3.4
3.5
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
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).
Certificate of Amendment to the Amended and Restated Certificate of Incorporation of CAI
International, Inc., dated June 4, 2018 (incorporated by reference to Exhibit 3.1 to our Current
Report on Form 8-K filed on June 5, 2018).
Certificate of Designations of Rights and Preferences of 8.50% Series A Fixed-to-Floating
Rate Cumulative Redeemable Perpetual Preferred Stock, dated March 28, 2018 (incorporated
by reference to Exhibit 3.1 to our Current Report on Form 8-K filed on March 28, 2018).
Certificate of Designations of Rights and Preferences of 8.50% Series B Fixed-to-Floating
Rate Cumulative Redeemable Perpetual Preferred Stock, dated August 10, 2018 (incorporated
by reference to Exhibit 3.1 to our Current Report on Form 8-K filed on August 10, 2018).
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).
Series 2018-1 Supplement, dated February 28, 2018, to Indenture dated July 6, 2017, between
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 March 5, 2018).
Series 2018-2 Supplement, dated September 19, 2018, to Indenture dated July 6, 2017, between
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 September 25, 2018).
105
Exhibit No.
Description
10.1
10.2*
10.3*
10.4‡‡
10.5
10.6
10.7
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).
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).
106
Exhibit No.
Description
10.8
10.9
10.10
10.11
10.12
10.12
10.13
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).
Amendment No. 6 to Third Amended and Restated Revolving Credit Agreement, dated
June 26, 2018, by and among CAI International, Inc., Container Applications Limited, the
guarantors named therein, Bank of America, N.A., as a lender and administrative agent, the
other lending institutions party thereto, Merrill Lynch, Pierce, Fenner & Smith Incorporated
(“Merrill Lynch”), MUFG Union Bank, N.A. and Wells Fargo Bank, N.A., as syndication
agents, Merrill Lynch, as lead arranger and book runner, and ABN AMRO Capital USA,
LLC, Compass Bank, Bank of Montreal, Royal Bank of Canada and PNC Bank, National
Association, as documentation agents (incorporated by reference to Exhibit 10.1 of our
Current Report on Form 8-K filed on June 28, 2018).
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).
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).
Third Amended and Restated Revolving Credit Agreement, dated October 22, 2018, among
CAI Rail Inc., CAI International, Inc., the lending institutions from time to time listed on
Schedule 1 thereto, MUFG Union Bank, N.A., as administrative agent and lead arranger and
bookrunner, 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.
107
Exhibit No.
Description
10.14
10.15
10.16
10.17
10.18*
10.19*
10.20*
10.21*
10.22*
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).
Term Loan Agreement, dated October 18, 2018, among Container Applications Limited, CAI
International, Inc., the lending institutions from time to time listed on Schedule 1 thereto, and
Wells Fargo Bank, N.A., as administrative agent.
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).
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).
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).
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).
10.25
10.24
10.23‡‡ 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).
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).
At the Market Issuance Sales Agreement, dated May 2, 2018, between CAI International, Inc.
and B. Riley FBR, Inc. (incorporated by reference to Exhibit 1.1 of our Current Report on
Form 8-K filed on May 2, 2018).
Subsidiaries of CAI International, Inc.
Consent of KPMG LLP.
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.
21.1
23.1
31.1
31.2
32.1
32.2
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.
108
Exhibit No.
Description
101
The following financial statements, formatted in XBRL: (i) Consolidated Balance Sheets as of
December 31, 2018 and 2017, (ii) Consolidated Statements of Income for the years ended
December 31, 2018, 2017 and 2016; (iii) Consolidated Statements of Comprehensive Income
for the years ended December 31, 2018, 2017 and 2016; (iv) Consolidated Statements of
Stockholders’ Equity for the years ended December 31, 2018, 2017 and 2016; (v) Consolidated
Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016; 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.
109
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: March 5, 2019
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 5th day of
March, 2019.
Signature
Title(s)
/s/ VICTOR M. GARCIA
Victor M. Garcia
/s/ TIMOTHY B. PAGE
Timothy B. Page
/s/ DAVID REMINGTON
David Remington
/s/ MASAAKI (JOHN) NISHIBORI
Masaaki (John) Nishibori
/s/ KATHRYN G. JACKSON
Kathryn G. Jackson
/s/ GARY M. SAWKA
Gary M. Sawka
/s/ ANDREW OGAWA
Andrew Ogawa
/s/ JOHN WILLIFORD
John Williford
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
Director
110
CAI INTERNATIONAL, INC.
LIST OF SUBSIDIARIES
Exhibit 21.1
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.
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.)
Bermuda
Bermuda
New Jersey
Malaysia
Singapore
Australia
United Kingdom
Japan
Barbados
Oregon
Nevada
United Kingdom
Consent of Independent Registered Public Accounting Firm
Exhibit 23.1
The Board of Directors
CAI International, Inc.:
We consent to the incorporation by reference in the registration statements (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 March 5, 2019, with respect
to the consolidated balance sheets of CAI International, Inc. as of December 31, 2018 and 2017, 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, 2018, 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, 2018, which reports appear in the December 31, 2018
annual report on Form 10-K of CAI International, Inc.
/s/ KPMG LLP
San Francisco, California
March 5, 2019
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: March 5, 2019
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: March 5, 2019
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, 2018 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: March 5, 2019
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, 2018 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: March 5, 2019
By:
/s/ TIMOTHY B. PAGE
Timothy B. Page
Chief Financial Officer
[This Page Intentionally Left Blank]
Corporate Information
Directors (pictured left to right)
Masaaki (John) Nishibori
Director
Andrew Ogawa
Director
David G. Remington
Chairman of the Board
Victor M. Garcia
President, Chief Executive Officer, and Director
Kathryn G. Jackson
Compensation Committee Chair
Gary M. Sawka
Audit Committee Chair
John Williford
Nominating and Corporate
Governance Committee Chair
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
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This document is printed on paper certified to the environmental
and social standards of the Forest Stewardship CouncilTM (FSC®).
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 2018 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 2019 annual meeting of stockholders will be
held on Friday, June 7, 2019, at 10 a.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.
CAI International, Inc.
Steuart Tower, 1 Market Plaza, Suite 900
San Francisco, CA 94105
415 788 0100
www.capps.com