UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, ~~2017~~2020

☐oTRANSITION 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		94-3109229
~~Delaware~~		~~94-3109229~~
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

Steuart Tower, 1 Market Plaza, Suite ~~900~~2400
San Francisco, California		94105
(Address of principal executive offices)		(Zip Code)

415-788-0100

~~415-788-0100~~

(Registrant’s telephone number, including area code)

None

(Former name, former address and former fiscal year, if changed since last report)

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

Le
Title of each class	Trading symbols	Name of exchange on which registered
Common Stock, par value $0.0001 per share	CAI	New York Stock Exchange
8.50% Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Stock, par value $0.0001 per share	CAI-PA	New York Stock Exchange
8.50% Series B Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Stock, par value $0.0001 per share	CAI-PB	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒x No ☐o

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an 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	☐o	Accelerated filer	☒x
Non-accelerated filer	☐o	Smaller reporting company	☐o
~~(Do not check if a smaller reporting company)~~		Emerging growth company	☐o

If an emerging growth company, indicate by check mark of 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 Rule 12b-2 of the Exchange Act). Yes ☐o No ☒x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock		October 31, 2020
~~Common~~		~~September 30, 2017~~
Common Stock, ~~$.0001~~$0.0001 par value per share		~~19,268,083~~17,742,443 shares

Table of Contents

CAI INTERNATIONAL, INC.

INDEX


		Page No.
			~~Page No.~~
Part I — Financial Information		5
		4
Item 1.	Financial Statements (Unaudited)	5
		4
	Consolidated Balance Sheets at September 30, ~~2017~~2020 and December 31, ~~2016~~2019	5
		4
	Consolidated Statements of ~~Income~~Operations for the three and nine months ended September 30, ~~2017~~2020 and ~~2016~~2019	7
		6
	Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, ~~2017~~2020 and ~~2016~~2019	8
		7
	Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2020 and 2019	8
	Consolidated Statements of Cash Flows for the nine months ended September 30, ~~2017~~2020 and ~~2016~~2019	9
		10
	Notes to Unaudited Consolidated Financial Statements	10
		12
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
		26
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28
		37
Item 4.	Controls and Procedures	29
		37
Part II — Other Information		29
		38
Item 1.	Legal Proceedings	29
		38
Item 1A.	Risk Factors	29
		38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30
		39
Item 3.	Defaults Upon Senior Securities	30
		39
Item 4.	Mine Safety Disclosures	30
		39
Item 5.	Other Information	30
		39
Item 6.	Exhibits	30
		40
Signatures		31 41

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Table of Contents

SPECIAL NOTE REGARDING ~~FORWARD LOOKING~~FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q 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, growth strategy, ~~and~~ service development ~~efforts.~~efforts, our plans regarding our logistics business and the impact of the novel coronavirus (COVID-19) on our business, financial condition, liquidity and results of operations. 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 Quarterly Report on Form 10-Q, 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 in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2019 filed with the Securities and Exchange Commission (SEC) on March ~~13, 2017~~5, 2020, this Quarterly Report on Form 10-Q and our other reports filed with the 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 other filings with the SEC.

‎

Table of Contents

PART I — FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS

CAI INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share information)

(UNAUDITED)



	September 30,		December 31,		September 30,		December 31,
	2017		2016		2020		2019
Assets
Current assets
Cash	$	12,508	$	15,685	$	15,516	$	19,870
Current portion of restricted cash						316,915		-
Cash held by variable interest entities		22,445		30,449		26,784		26,594
Accounts receivable, net of allowance for doubtful accounts of $1,636 and
$1,340 at September 30, 2017 and December 31, 2016, respectively		69,478		63,745
Current portion of net investment in direct finance leases		27,947		19,959
Accounts receivable, net of allowance for doubtful accounts of $418 and
$7,671 at September 30, 2020 and December 31, 2019, respectively						65,574		72,984
Current portion of net investment in finance leases						75,240		71,274
Prepaid expenses and other current assets		5,016		5,315		15,746		9,606
Assets held for sale						-		37,781
Total current assets		137,394		135,153		515,775		238,109
Restricted cash		12,217		6,192		23,232		26,775
Rental equipment, net of accumulated depreciation of $484,428 and
$421,153 at September 30, 2017 and December 31, 2016, respectively		1,979,012		1,807,010
Net investment in direct finance leases		199,994		80,582
Goodwill		15,794		15,794
Intangible assets, net of accumulated amortization of $2,974 and
$2,681 at September 30, 2017 and December 31, 2016, respectively		8,156		9,691
Furniture, fixtures and equipment, net of accumulated depreciation of $3,131 and
$2,833 at September 30, 2017 and December 31, 2016, respectively		370		550
Rental equipment, net of accumulated depreciation of $676,330 and
$620,990 at September 30, 2020 and December 31, 2019, respectively						2,018,142		2,102,839
Net investment in finance leases						455,168		496,094
Financing receivable						51,384		30,693
Other non-current assets		3,220		962		5,493		7,255
Total assets (1)	$	2,356,157	$	2,055,934	$	3,069,194	$	2,901,765

Liabilities and Stockholders' Equity
Current liabilities
Accounts payable	$	6,320	$	13,804	$	3,868	$	4,534
Accrued expenses and other current liabilities		13,540		11,778		26,423		25,206
Due to container investors		4,119		7,077
Unearned revenue		8,361		10,613		6,851		6,405
Current portion of debt		133,322		95,527		502,013		218,094
Rental equipment payable		190,180		25,207		89,634		25,137
Liabilities held for sale						-		8,752
Total current liabilities		355,842		164,006		628,789		288,128
Debt		1,450,588		1,380,499		1,706,170		1,880,122
Derivative instruments						1,820		-
Deferred income tax liability		51,193		51,804		29,626		35,376
Other long term liabilities		-		2,121
Other non-current liabilities						3,759		4,899
Total liabilities (2)		1,857,623		1,598,430		2,370,164		2,208,525

Stockholders' equity
Common stock: par value $.0001 per share; authorized 84,000,000 shares; issued and outstanding
19,268,083 and 19,057,217 shares at September 30, 2017 and December 31, 2016, respectively		2		2
Preferred stock, par value $0.0001 per share; authorized 10,000,000
8.50% Series A fixed-to-floating rate cumulative redeemable perpetual preferred stock, issued and
outstanding 2,199,610 shares, at liquidation preference						54,990		54,990
8.50% Series B fixed-to-floating rate cumulative redeemable perpetual preferred stock, issued and
outstanding 1,955,000 shares, at liquidation preference						48,875		48,875
Common stock, par value $0.0001 per share; authorized 84,000,000 shares; issued and outstanding
17,742,443 and 17,479,127 shares at September 30, 2020 and December 31, 2019, respectively						2		2
Additional paid-in capital		143,845		141,058		106,990		102,709
Accumulated other comprehensive loss		(6,390)		(8,132)		(7,560)		(6,630)
Retained earnings		361,077		324,576		495,733		493,294
Total stockholders' equity		498,534		457,504		699,030		693,240
Total liabilities and stockholders' equity	$	2,356,157	$	2,055,934	$	3,069,194	$	2,901,765

‎

Table of Contents

~~(1)~~

Total assets at September 30, 2017 and December 31, 2016 include the following assets of certain variable interest entities (VIEs) that can only be used to settle the liabilities of those VIEs: Cash, $22,445 and $30,~~449; Net investment in direct finance leases, $4,423 and $7,331; and Rental equipment, net of accumulated depreciation, $58,075 and $62,477, respectively.~~

~~(2)~~

Total liabilities at September 30, 2017 and December 31, 2016 include the following VIE liabilities for which the VIE creditors do not have recourse to CAI International, Inc.: Current portion of debt, $23,365 and $30,980; Debt, $71,086 and $74,887, respectively.

(1)Total assets at September 30, 2020 and December 31, 2019 include the following assets of certain variable interest entities (VIEs) that can only be used to settle the liabilities of those VIEs: Cash, $26,784 and $26,594; Net investment in finance leases, $3,326 and $4,790; and Rental equipment, net of accumulated depreciation, $84,938, and $101,907, respectively.

(2)Total liabilities at September 30, 2020 and December 31, 2019 include the following VIE liabilities for which the VIE creditors do not have recourse to CAI International, Inc.: Current portion of debt, $33,899 and $26,931; Debt, $74,602 and $100,849, respectively.

See accompanying notes to unaudited consolidated financial statements.

‎

Table of Contents

CAI INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF ~~INCOME~~OPERATIONS

(In thousands, except per share data)

(UNAUDITED)



	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016		2020		2019		2020		2019
Revenue
Container lease income	$	61,870	$	49,661	$	169,784	$	152,875
Rail lease income		7,279		7,614		23,459		22,462
Logistics revenue		21,012		21,197		61,116		41,743
Container lease revenue									$	73,890	$	75,535	$	212,446	$	225,332
Rail lease revenue										5,162		5,871		17,247		20,214
Total revenue		90,161		78,472		254,359		217,080		79,052		81,406		229,693		245,546


Operating expenses
Depreciation of rental equipment		27,788		29,873		82,814		77,401		30,428		28,030		86,322		89,629
Impairment of rental equipment										-		25,632		19,724		32,955
Storage, handling and other expenses		3,506		8,802		16,651		27,176		6,686		8,125		18,908		18,444
Logistics transportation costs		17,855		18,045		51,608		35,127
(Gain) loss on sale of used rental equipment		(1,663)		3,323		(2,539)		7,950
Gain on sale of rental equipment										(2,729)		(3,168)		(6,451)		(12,265)
Administrative expenses		10,781		11,067		31,212		28,750		6,388		9,278		21,441		26,501
Total operating expenses		58,267		71,110		179,746		176,404		40,773		67,897		139,944		155,264

Operating income		31,894		7,362		74,613		40,676		38,279		13,509		89,749		90,282

Other expenses
Net interest expense		13,959		10,902		37,916		31,535		16,630		23,102		54,604		70,165
Other expense		449		85		651		407
Write-off of debt issuance costs										3,641		-		3,641		-
Other (income) expense										(306)		380		(157)		537
Total other expenses		14,408		10,987		38,567		31,942		19,965		23,482		58,088		70,702

Income (loss) before income taxes and non-controlling interest		17,486		(3,625)		36,046		8,734
Income tax (benefit) expense		(101)		1,826		549		3,320
Income (loss) before income taxes										18,314		(9,973)		31,661		19,580
Income tax expense (benefit)										1,349		(4,830)		(594)		(2,098)

Income (loss) from continuing operations										16,965		(5,143)		32,255		21,678
Loss from discontinued operations, net of income taxes										(1,522)		(636)		(18,768)		(3,389)
Net income (loss)		17,587		(5,451)		35,497		5,414		15,443		(5,779)		13,487		18,289
Net income attributable to non-controlling interest		-		-		-		37
Preferred stock dividends										2,207		2,207		6,621		6,621
Net income (loss) attributable to CAI common stockholders	$	17,587	$	(5,451)	$	35,497	$	5,377	$	13,236	$	(7,986)	$	6,866	$	11,668

Net income (loss) per share attributable to CAI common
stockholders
Amounts attributable to CAI common stockholders
Net income (loss) from continuing operations									$	14,758	$	(7,350)	$	25,634	$	15,057
Net loss from discontinued operations										(1,522)		(636)		(18,768)		(3,389)
Net income (loss) attributable to CAI common stockholders									$	13,236	$	(7,986)	$	6,866	$	11,668

Net income (loss) per share attributable to CAI
common stockholders
Basic	$	0.92	$	(0.28)	$	1.86	$	0.28
Continuing operations									$	0.84	$	(0.42)	$	1.47	$	0.84
Discontinued operations										(0.09)		(0.04)		(1.08)		(0.19)
Total basic									$	0.75	$	(0.46)	$	0.39	$	0.65
Diluted	$	0.90	$	(0.28)	$	1.83	$	0.28
Continuing operations									$	0.83	$	(0.42)	$	1.45	$	0.83
Discontinued operations										(0.08)		(0.04)		(1.06)		(0.19)
Total diluted									$	0.75	$	(0.46)	$	0.39	$	0.64

Weighted average shares outstanding
Basic		19,180		19,130		19,108		19,427		17,570		17,330		17,491		17,850
Diluted		19,633		19,130		19,422		19,498		17,706		17,330		17,664		18,122

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

CAI INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

(UNAUDITED)

Three Months Ended September 30,

Nine Months Ended September 30,

2017

2016

2017

2016

Net income (loss)

$
17,587

$
(5,451)

$
35,497

$
5,414
Other comprehensive income, net of tax:

Foreign currency translation adjustments

698

137

1,742

1,047
Comprehensive income (loss)

18,285

(5,314)

37,239

6,461
Comprehensive income attributable to non-controlling interest

-

-

-

37
Comprehensive income (loss) attributable to CAI common

stockholders

$
18,285

$
(5,314)

$
37,239

$
6,424



	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019

Net income (loss)	$	15,443	$	(5,779)	$	13,487	$	18,289
Other comprehensive income (loss), before tax:
Change in fair value of derivative instruments designated
as cash flow hedges		(1,931)		-		(1,931)		-
Reclassification of realized loss on derivative instruments
designated as cash flow hedges		111		-		111		-
Foreign currency translation adjustments		514		(256)		478		(332)
Comprehensive income (loss) before tax		14,137		(6,035)		12,145		17,957
Income tax benefit related to items of other comprehensive
income (loss)		412		-		412		-
Comprehensive income (loss) before preferred stock
dividends, net of tax		14,549		(6,035)		12,557		17,957
Dividends on preferred stock		(2,207)		(2,207)		(6,621)		(6,621)
Comprehensive income (loss) available to CAI
common stockholders	$	12,342	$	(8,242)	$	5,936	$	11,336

See accompanying notes to unaudited consolidated financial statements.

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Table of Contents

CAI ~~INTERNATIONAL,~~INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~STOCKHOLDERS’ EQUITY

(In thousands)

(UNAUDITED)

Nine Months Ended September 30,

2017

2016
Cash flows from operating activities

Net income

$
35,497

$
5,414
Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation

83,088

77,636
Amortization of debt issuance costs

2,400

2,217
Amortization of intangible assets

1,536

682
Stock-based compensation expense

1,539

1,320
Reduction in contingent consideration

(2,211)

(1,000)
Unrealized loss on foreign exchange

42

82
(Gain) loss on sale of used rental equipment

(2,539)

7,950
Loss on disposal of subsidiary

-

146
Deferred income taxes

393

2,193
Bad debt expense

750

2,458
Changes in other operating assets and liabilities:

Accounts receivable

(6,280)

(7,560)
Prepaid expenses and other assets

(72)

(191)
Accounts payable, accrued expenses and other current liabilities

(5,887)

1,540
Due to container investors

(2,958)

(32)
Unearned revenue

(540)

1,013
Net cash provided by operating activities

104,758

93,868
Cash flows from investing activities

Purchase of rental equipment

(277,769)

(170,582)
Acquisitions, net of cash acquired

-

(15,620)
Proceeds from sale of used rental equipment

48,863

46,137
Disposal of subsidiary, net of cash disposed of

-

(460)
Purchase of furniture, fixtures and equipment

(91)

(92)
Receipt of principal payments from direct financing leases

12,362

17,368
Net cash used in investing activities

(216,635)

(123,249)
Cash flows from financing activities

Proceeds from debt

556,544

432,540
Principal payments on debt

(448,436)

(408,375)
Debt issuance costs

(3,129)

(1,461)
(Increase) decrease in restricted cash

(6,025)

765
Repurchase of stock

-

(9,176)
Exercise of stock options

1,362

-
Net cash provided by financing activities

100,316

14,293
Effect on cash of foreign currency translation

380

1
Net decrease in cash

(11,181)

(15,087)
Cash at beginning of the period

46,134

52,553
Cash at end of the period

$
34,953

$
37,466

Supplemental disclosure of cash flow information

Cash paid during the period for:

Income taxes

$
174

$
752
Interest

35,014

29,617
Supplemental disclosure of non-cash investing and financing activity

Transfer of rental equipment to direct finance lease

$
144,907

$
14,816
Transfer of direct finance lease to rental equipment

291

-


									Accumulated
							Additional		Other
	Preferred Stock			Common Stock			Paid-In		Comprehensive		Retained		Total
	Shares		Amount	Shares		Amount	Capital		Loss		Earnings		Equity
Balances as of December 31, 2019	4,155	$	103,865	17,479	$	2	$	102,709	$	(6,630)	$	493,294	$	693,240
Net loss	-		-	-		-		-		-		(1,330)		(1,330)
Preferred stock dividends, $0.53125/share	-		-	-		-		-		-		(2,207)		(2,207)
Foreign currency translation adjustments	-		-	-		-		-		(137)		-		(137)
Exercise of stock options	-		-	8		-		113		-		-		113
Stock-based compensation, net of taxes	-		-	19		-		468		-		-		468
Balances as of March 31, 2020	4,155	$	103,865	17,506	$	2	$	103,290	$	(6,767)	$	489,757	$	690,147
Net loss	-		-	-		-		-		-		(626)		(626)
Preferred stock dividends, $0.53125/share	-		-	-		-		-		-		(2,207)		(2,207)
Foreign currency translation adjustments	-		-	-		-		-		101		-		101
Exercise of stock options	-		-	3		-		-		-		-		-
Stock-based compensation, net of taxes	-		-	44		-		52		-		-		52
Balances as of June 30, 2020	4,155	$	103,865	17,553	$	2	$	103,342	$	(6,666)	$	486,924	$	687,467
Net income	-		-	-		-		-		-		15,443		15,443
Common stock dividend declared, $0.25/share	-		-	-		-		-		-		(4,427)		(4,427)
Preferred stock dividends, $0.53125/share	-		-	-		-		-		-		(2,207)		(2,207)
Change in fair value of derivative instruments
designated as cash flow hedges	-		-	-		-		-		(1,931)		-		(1,931)
Reclassification of realized loss on derivative
instruments designated as cash flow hedges	-		-	-		-		-		111		-		111
Foreign currency translation adjustments	-		-	-		-		-		514		-		514
Income tax benefit related to items of other
comprehensive income	-		-	-		-		-		412		-		412
Exercise of stock options	-		-	180		-		3,168		-		-		3,168
Stock-based compensation, net of taxes	-		-	9		-		480		-		-		480
Balances as of September 30, 2020	4,155	$	103,865	17,742	$	2	$	106,990	$	(7,560)	$	495,733	$	699,030

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Table of Contents

CAI INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (CONTINUED)

(In thousands)

(UNAUDITED)


									Accumulated
							Additional		Other
	Preferred Stock			Common Stock			Paid-In		Comprehensive		Retained		Total
	Shares		Amount	Shares		Amount	Capital		Loss		Earnings		Equity
Balances as of December 31, 2018	4,155	$	103,865	18,764	$	2	$	132,666	$	(6,513)	$	471,112	$	701,132
Net income	-		-	-		-		-		-		18,574		18,574
Preferred stock dividends, $0.53125/share	-		-	-		-		-		-		(2,207)		(2,207)
Foreign currency translation adjustments	-		-	-		-		-		(81)		-		(81)
Repurchase of common stock	-		-	(595)		-		(13,946)		-		-		(13,946)
Exercise of stock options	-		-	27		-		107		-		-		107
Stock-based compensation, net of taxes	-		-	12		-		730		-		-		730
Balances as of March 31, 2019	4,155	$	103,865	18,208	$	2	$	119,557	$	(6,594)	$	487,479	$	704,309
Net income	-		-	-		-		-		-		5,494		5,494
Preferred stock dividends, $0.53125/share	-		-	-		-		-		-		(2,207)		(2,207)
Foreign currency translation adjustments	-		-	-		-		-		5		-		5
Repurchase of common stock	-		-	(863)				(20,172)						(20,172)
Exercise of stock options	-		-	43		-		228		-		-		228
Stock-based compensation, net of taxes	-		-	32		-		688		-		-		688
Balances as of June 30, 2019	4,155	$	103,865	17,420	$	2	$	100,301	$	(6,589)	$	490,766	$	688,345
Net income	-		-	-		-		-		-		(5,779)		(5,779)
Preferred stock dividends, $0.53125/share	-		-	-		-		-		-		(2,207)		(2,207)
Foreign currency translation adjustments	-		-	-		-		-		(256)		-		(256)
Exercise of stock options	-		-	6		-		197		-		-		197
Stock-based compensation, net of taxes	-		-	-		-		819		-		-		819
Balances as of September 30, 2019	4,155	$	103,865	17,426	$	2	$	101,317	$	(6,845)	$	482,780	$	681,119

See accompanying notes to unaudited consolidated financial statements.

‎

Table of Contents

CAI INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(UNAUDITED)



	Nine Months Ended September 30,
	2020		2019
Cash flows from operating activities
Net income	$	13,487	$	18,289
Loss from discontinued operations, net of income taxes		(18,768)		(3,389)
Income from continuing operations		32,255		21,678
Adjustments to reconcile income from continuing operations to net cash provided by
operating activities:
Depreciation		86,919		89,664
Impairment of rental equipment		19,724		32,955
Amortization and write-off of debt issuance costs		6,839		3,579
Stock-based compensation expense		1,416		2,202
Unrealized loss on foreign exchange		(229)		345
Gain on sale of rental equipment		(6,451)		(12,265)
Deferred income taxes		(5,021)		(4,796)
Bad debt (recovery) expense		(6,236)		1,319
Changes in other operating assets and liabilities:
Accounts receivable		11,774		4,562
Prepaid expenses and other assets		(106)		(40)
Net investment in finance leases		54,660		48,653
Accounts payable, accrued expenses and other liabilities		214		3,541
Unearned revenue		(437)		(1,772)
Net cash provided by operating activities of continuing operations		195,321		189,625
Net cash provided by (used in) operating activities of discontinued operations		2,883		(1,423)
Net cash provided by operating activities		198,204		188,202
Cash flows from investing activities
Purchase of rental equipment		(48,782)		(335,849)
Purchase of financing receivable		(30,846)		(37,139)
Proceeds from sale of rental equipment		87,007		259,002
Receipt of principal payments from financing receivable		4,052		1,825
Purchase of furniture, fixtures and equipment		(441)		(1,416)
Net cash provided by (used in) investing activities of continuing operations		10,990		(113,577)
Net cash provided by (used in) investing activities of discontinued operations		5,614		(305)
Net cash provided by (used in) investing activities		16,604		(113,882)
Cash flows from financing activities
Proceeds from debt		1,025,527		581,582
Principal payments on debt		(915,157)		(614,006)
Debt issuance costs		(8,304)		(768)
Proceeds from issuance of stock		116		-
Repurchase of common stock		-		(34,118)
Dividends paid to common stockholders		(4,427)		-
Dividends paid to preferred stockholders		(6,621)		(6,621)
Exercise of stock options		3,281		532
Net cash provided by (used in) financing activities of continuing operations		94,415		(73,399)
Net cash used in financing activities of discontinued operations		-		-
Net cash provided by (used in) financing activities		94,415		(73,399)
Effect on cash of foreign currency translation		(15)		(874)
Net increase in cash and restricted cash		309,208		47
Cash and restricted cash at beginning of the period (1)		73,239		75,983
Cash and restricted cash at end of the period (2)	$	382,447	$	76,030

‎

Table of Contents


	Nine Months Ended September 30,
	2020		2019
Supplemental disclosure of cash flow information
Cash paid during the period for:
Income taxes	$	343	$	559
Interest		50,249		65,330
Lease liabilities arising from obtaining right-of-use assets		140		5,306

Supplemental disclosure of non-cash investing and financing activity
Transfer of rental equipment to finance lease	$	18,630	$	52,895
Transfer of finance lease to rental equipment		1,130		14,432
Rental equipment payable		89,634		54,202

(1)Includes cash of $19,870 and $20,104, cash held by variable interest entities of $26,594 and $25,211, and restricted cash of $26,775 and $30,668 at December 31, 2019 and 2018, respectively.

(2)Includes cash of $15,516 and $21,503, cash held by variable interest entities of $26,784 and $26,772, and restricted cash of $340,147 and $27,755 at September 30, 2020 and 2019, respectively.

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

CAI INTERNATIONAL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(1) Description of Business and Significant Accounting Policies

~~(1) The Company~~ ~~and Nature of Operations~~

Organization

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, for approximately $10.8 million. Challenger is headquartered in Eatontown, New Jersey.

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

The Company’s common stock, is8.50% Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual Stock and 8.50% Series B Fixed-to-Floating Rate Cumulative Redeemable Perpetual Stock are traded on the New York Stock Exchange under the ~~symbol “CAI.~~symbols “CAI,” “CAI-PA” and “CAI-PB,” respectively. The Company’s corporate headquarters are located in San Francisco, California.

Basis of Presentation

The accompanying unaudited consolidated financial statements include the financial statements of CAI International, Inc., and its wholly-owned ~~subsidiaries, and its previously 80%-owned subsidiary, CAIJ, Inc. (CAIJ), up to its date of disposal in April 2016.~~subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

In the opinion of management, the accompanying unaudited consolidated financial statements contain all normal, recurring adjustments necessary to present fairly the Company’s financial position as of September 30, ~~2017~~2020 and December 31, ~~2016,~~2019, the Company’s results of operations for the three and nine months ended September 30, ~~2017~~2020 and ~~2016,~~2019, and the Company’s cash flows for the nine months ended September 30, ~~2017~~2020 and ~~2016.~~2019. Certain reclassifications have been made to prior year financial statements to conform to the current presentation. The results of operations and cash flows for the periods presented are not necessarily indicative of the results of operations or cash flows which may be reported for the remainder of ~~2017~~2020 or in any future period. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) have been condensed or omitted. The accompanying unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, ~~2016,~~2019, included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on March ~~13, 2017.~~5, 2020.

Discontinued Operations

~~(2) Accounting Policies~~During the three months ended June 30, 2020, the Company committed to a plan to sell its logistics business. As a result, the operating results of the logistics business have been classified as discontinued operations in the accompanying unaudited consolidated statements of operations and ~~Recent Accounting Pronouncements~~

~~Accounting Policies~~

~~Container rental equipment is recorded at original cost~~cash flows. All prior periods presented in these unaudited consolidated financial statements have been restated to reflect the classification of the logistics business as discontinued operations and ~~depreciated~~assets and liabilities as held for sale. On August 14, 2020, the Company sold substantially all the assets of its logistics business to ~~an estimated residual value~~NFI, a North American logistics provider, on a ~~straight-line basis over~~debt free, cash free basis. See Note 2 – Discontinued Operations for more information.

Concentration of Credit Risk

The Company’s equipment leases and trade receivables subject it to potential credit risk. The Company extends credit to its ~~estimated useful life.~~customers based upon an evaluation of each customer’s financial condition and credit history. Evaluations of the financial condition and associated credit risk of customers are performed an on ongoing basis. The ~~estimated useful lives~~Company’s largest customer and ~~residual values~~second largest customer accounted for 16% and 10%, respectively, of the Company’s ~~container equipment are based on historical disposal experience~~total billings during both the three 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 assigned residual values, which would suggest that a change in depreciation estimates is warranted.

After the Company conducted its regular depreciation policy review for 2016, it concluded that a change in the estimated residual value for 40-foot high cube dry van containers from $1,650 to $1,400 per container, effective July 1, 2016, was appropriate. The change increased the Company’s depreciation expense by $4.4 million, decreased net income by $4.3 million, and decreased diluted earnings per share by $0.22, for the nine months ended September 30, ~~2017.~~2020.

Accounting Policy Updates

Recently Adopted Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-13, Financial Instruments – Credit Losses (Topic 326) (ASU 2016-13) and subsequently issued amendments. The guidance affects the Company’s net investment in finance leases, financing receivable and accounts receivable for sales of rental equipment and logistics operations. Topic 326 requires the measurement of expected credit losses to be based on relevant information from past events, including historical experiences, current conditions and reasonable and supportable forecasts that affect collectability. The Company ~~continuously monitors disposal prices across its entire portfolio~~adopted ASU 2016-13 effective January 1, 2020, using the modified retrospective method, which did not have a significant impact on the consolidated financial statements as credit losses are not expected to be significant based on historical loss trends, the financial condition of customers, and external market factors.

The allowance for ~~indications~~credit losses on net investment in finance leases and financing receivable is estimated on a collective basis by internal customer rating (see Note 5 – Leases for descriptions of ratings). Expected credit losses for these financial assets are estimated using a ~~sustained market downturn. The Company will adjust its residual value estimates as~~loss-rate methodology which considers historical credit loss information that is adjusted for current conditions and ~~when conditions warrant.~~reasonable and supportable forecasts.

Table of Contents

CAI INTERNATIONAL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Except as described ~~below in “Recent Accounting Pronouncements,”~~above, there were no changes to the Company’s accounting policies during the nine months ended September 30, ~~2017.~~2020. See Note 2 to the audited consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2019, filed with the SEC on March ~~13, 2017,~~5, 2020, for a description of the Company’s significant accounting policies.

~~Table of Contents~~

(2) Discontinued Operations

~~CAI INTERNATIONAL, INC.~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

~~Recent Accounting Pronouncements~~

~~In March 2016,~~As discussed in Note 1, the ~~Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-09,~~ ~~Improvements to Employee Share-Based Payment Accounting~~ ~~(ASU 2016-09). The new standard simplifies certain aspects~~Company sold substantially all of the ~~accounting~~assets of its logistics business for ~~share-based payment transactions, including income taxes, classification~~proceeds of ~~awards and classification on~~$5.6 million during the three months ended September 30, 2020. The cash proceeds from the disposal are recorded as net cash provided by investing activities of discontinued operations in the accompanying unaudited statement of cash ~~flows. The new guidance also allows an entity to make a policy election to account~~flows for ~~forfeitures~~the nine months ended September 30, 2020. A loss on classification of the logistics business as ~~they occur. The Company adopted ASU 2016-09 effective January 1, 2017. Accordingly, excess tax benefits or deficiencies from stock-based compensation are now reflected~~held for sale of $18.5 million was recognized in the three months ended June 30, 2020. NaN additional gain or loss was recognized on the sale in the three months ended September 30, 2020.

The carrying amount of the assets and liabilities of the logistics business that were reclassified as held for sale were as follows (in thousands):


	September 30,		December 31,
	2020		2019
Assets
Accounts receivable, net of allowance for doubtful accounts	$	-	$	15,601
Prepaid expenses and other assets		-		2,263
Goodwill		-		15,794
Intangible assets		-		4,123
Assets held for sale	$	-	$	37,781

Liabilities
Accounts payable	$	-	$	2,757
Accrued expenses and other current liabilities		-		5,995
Liabilities held for sale	$	-	$	8,752

Net assets	$	-	$	29,029

The following table summarizes the components of loss from discontinued operations in the accompanying unaudited consolidated statements of income as a component of the provision for income taxes, whereas they were previously recognized in equity. As a result of the adoption of ASU 2016-09, the Company recognized $1.0 million in deferred tax assets associated with excess tax benefits not previously recognized in deferred taxes as a cumulative-effect adjustment to retained earnings as of January 1, 2017. Adoption of the new standard did not have a material impact on our provision for income taxes for the three and nine months ended September 30, ~~2017. The Company elected to apply the change in presentation to the statements~~2020 and 2019 (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Revenue
Logistics revenue	$	13,550	$	30,270	$	66,304	$	87,788

Operating expenses
Logistics transportation costs		12,092		27,037		58,440		77,647
Administrative expenses		3,433		4,045		11,702		14,586
Loss on classification as held for sale		-		-		18,477		-
Total operating expenses		15,525		31,082		88,619		92,233

Operating loss		(1,975)		(812)		(22,315)		(4,445)

Interest income		(1)		(4)		(7)		(12)
Loss before income taxes		(1,974)		(808)		(22,308)		(4,433)
Income tax benefit		(452)		(172)		(3,540)		(1,044)
Net loss from discontinued operations	$	(1,522)	$	(636)	$	(18,768)	$	(3,389)

Table of cash flows prospectively and elected to account for forfeitures as they occur, rather than estimate expected forfeitures, which did not have a material impact on the Company’s consolidated financial statements.Contents

CAI INTERNATIONAL, INC.

(3) ~~Insurance Receivable and Impairment~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

In August 2016, Hanjin Shipping Co., Ltd. (Hanjin) filed for bankruptcy protection from its creditors. Based on the recovery of Hanjin containers to date and prior experience, the Company believes that most of its containers will be recovered. As of ~~September 30~~, 2017, the Company has recovered approximately 92% of the containers that were on lease to Hanjin. The Company maintains insurance to cover the value of containers that are unlikely to be recovered from its customers, the cost to recover and repair containers, and up to 180 days of lost lease rental income, subject to deductibles of $0.5 million and $2.0 million.

During the year ended December 31, 2016, the Company recorded an impairment of $3.2 million representing the book value of containers the Company estimated would not be recovered from Hanjin. As of December 31, 2016, an insurance receivable of $3.8 million was recorded for $1.2 million of estimated unrecoverable containers in excess of the insurance deductible, which was recorded in depreciation expense, and $2.6 million of recovery costs, which was recorded as a reduction to storage, handling and other expenses for the year ended December 31, 2016. During the nine months ended ~~September~~ 30, 2017, the Company recorded an additional insurance receivable of $7.4 million for $2.2 million of lost lease rental income, recognized as container lease income, and $1.5 million of repair costs and $3.7 million of recovery costs, recorded as a reduction to storage, handling and other expenses. The Company also received insurance proceeds of $8.0 million, which was recorded as a reduction to the insurance receivable. As of ~~September 30, 2017, the insurance receivable related to this customer was $3.2 million, of which payment of $1.5 million was received in October 2017.~~

(4) (3) Consolidation of Variable Interest Entities

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, a 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:~~810, Consolidation:

~~it has power to direct the activities of a 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.~~

it has power to direct the activities of a 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~~2 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. ~~Several~~All of the ~~funds that the Company manages and~~ funds under financing arrangements are Japanese container funds that were established under separate investment agreements allowed under Japanese commercial ~~laws (see Note 14).~~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 ~~are at or above~~ the ~~same level of seniority as other operating liabilities of the funds~~arrangements include only terms and conditions that are ~~incurred~~customarily present in ~~the normal course of business.~~arrangements for similar services. As such, the Company does not have a variable interest in the managed containers funds, and does not consolidate those funds. ~~The Company recognizes gain on sale of containers to the unconsolidated funds as sales in the ordinary course of business. No~~NaN container portfolios were sold to the ~~Japanese~~ funds induring the three and nine months ended September 30, ~~2017~~2020 and ~~2016.~~ 2019.

~~Table of Contents~~

~~CAI INTERNATIONAL, INC.~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

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~~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 September 30, ~~2017,~~2020 and December 31, ~~2016,~~2019, and the results of the VIEs’ operations and cash flows for the three and nine months ended September 30, ~~2017~~2020 and ~~2016,~~2019, in the Company’s consolidated financial statements.

The containers that were transferred to the Japanese investor funds had a net book value of ~~$66.1~~$88.3 million as of September 30, ~~2017.~~2020. The container equipment, together with ~~$22.4~~$26.8 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 sheets with the related liability presented in the debt section of the Company’s consolidated balance sheets as collateralized financing obligations of ~~$90.7~~$75.9 million and term loans held by VIE of ~~$3.7~~$32.6 million. NoNaN gain or loss was recognized by the Company on the initial consolidation of the VIEs. NaN containers were sold to the Japanese investor during the three and nine months ended September 30, 2020. Containers sold to the Japanese investor funds during both the three and nine months ended September 30, ~~2017 and 2016,~~2019 had a net book value of $6.0 million and $9.2 million, respectively. Containers sold to the Japanese investor funds during the nine months ended September 30, 2017 and 2016, had a book value of $13.2 million and $26.1 million, respectively.$65.0 million.

~~(5)~~ ~~Acquisitions~~
‎

In 2016, the Company completed the acquisitions of Challenger and Hybrid, for total consideration of $22.8 million, $6.0 million of which was contingent and based on their future performance. The aggregate allocation of the combined purchase price included $1.2 million of cash, $9.9 million of identifiable intangible assets, $12.9 million of residual goodwill, and $1.2 million of net liabilities assumed.

The contingent consideration liability was $2.2 million as of December 31, 2016. Expected future payments of $2.1 million and $0.1 million were recorded in Other long-term liabilities and Accrued expenses and Other current liabilities, respectively, in the Company’s consolidated balance sheets at December 31, 2016. Based on the forecasted future performance of Challenger and Hybrid, it has been estimated that there will be no future payments made and, as a result, the fair value of the contingent consideration liability has been estimated to be zero at September 30, 2017. The following table provides a reconciliation of the contingent consideration liability measured at estimated fair value based on the balance as of December 31, 2016 and updated quarterly for the nine months ended ~~September~~ ~~30, 2017 (in thousands):~~


	~~2017~~
~~January 1~~	$	~~2,211~~
~~Net decrease in estimated fair value of contingent consideration~~
~~included in Administrative expenses~~
~~Three months ended March 31, 2017~~		-
~~Three months ended June 30, 2017~~		~~(631)~~
~~Three months ended September 30, 2017~~		~~(1,580)~~
~~September 30~~	$	-

1214

Table of Contents

CAI INTERNATIONAL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

~~(6)~~(4) Rental Equipment

The following table provides a summary of the Company’s rental equipment (in thousands):


	September 30,		December 31,		September 30,		December 31,
	2017		2016		2020		2019
Dry containers	$	1,529,405	$	1,322,508	$	1,906,299	$	1,902,471
Refrigerated containers		346,996		350,776		282,239		282,155
Other specialized equipment		162,357		164,934		231,378		224,924
Total containers						2,419,916		2,409,550
Accumulated depreciation						(649,165)		(588,815)
Total containers, net of accumulated depreciation					$	1,770,751	$	1,820,735

Railcars		424,682		389,945	$	274,556	$	314,279
Accumulated depreciation						(27,165)		(32,175)
Total railcars, net of accumulated depreciation					$	247,391	$	282,104
		2,463,440		2,228,163
Accumulated depreciation		(484,428)		(421,153)
Rental equipment, net of accumulated depreciation	$	1,979,012	$	1,807,010	$	2,018,142	$	2,102,839

Impairment of railcar assets

~~(7)~~ During the quarter ended March 31, 2020, an impairment charge of $19.2 million was recognized to reduce the book value of the railcar portfolio, on an individual basis, to the lower of its net book value had the assets not been classified as held for sale, or its estimated fair value at the date when the decision was made not to sell the assets of the railcar business. To assist in the Company’s assessment of fair value, a third-party appraisal was carried out on the railcar fleet using a combination of cost and market approaches. The cost approach utilizes the current replacement cost for a particular car type and calculates an estimated depreciation based on a railcar having a 40-year life and residual value being 10% of the estimated purchase price. The market approach estimates value based on recent market transactions involving similar railcars. The railcars were classified within Level 3 of the fair value hierarchy.

(5) Leases

The Company leases its rental equipment on either short-term operating leases through master lease agreements, long-term non-cancelable operating leases, or finance leases. The following table summarizes the components of lease revenue (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Lease revenue - operating leases	$	62,954	$	65,933	$	184,083	$	201,092
Interest income on finance leases		11,272		11,287		34,187		33,769
Other revenue		3,648		3,499		8,810		9,404
Interest income on financing receivable		1,178		687		2,613		1,281
Total lease revenue	$	79,052	$	81,406	$	229,693	$	245,546

For finance leases, the net selling loss recognized at lease commencement, representing the difference between the estimated fair value of rental equipment placed on lease and net book value, in the amount of $0.1 million for the three months ended September 30, 2020 and $0.1 million and $2.6 million for the nine months ended September 30, 2020 and 2019, respectively, is included in “gain on sale of rental equipment” in the consolidated statement of operations.

‎

Table of Contents

CAI INTERNATIONAL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Net ~~Investment~~investment in ~~Direct Finance Leases~~finance leases

The following table represents the components of the Company’s net investment in ~~direct~~ finance leases (in thousands):



	September 30,		December 31,		September 30,		December 31,
	2017		2016		2020		2019
Gross finance lease receivables (1)	$	329,223	$	123,563	$	745,315	$	806,019
Unearned income (2)		(101,282)		(23,022)		(214,865)		(238,651)
Net investment in direct finance leases	$	227,941	$	100,541
Net investment in finance leases						530,450		567,368
Allowance for credit losses						(42)		-
Net investment in finance leases, net of allowance for credit losses					$	530,408	$	567,368

(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 $76.2 million and $74.3 million of unguaranteed residual value at September 30, 2020 and December 31, 2019, respectively, included in gross finance lease receivables. There were 0 executory costs included in gross finance lease receivables as of September 30, 2020 and December 31, 2019.

(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 0 unamortized initial direct costs as of September 30, 2020 and December 31, 2019.

(3)NaN major customer represented 67% and 65% of the Company’s finance lease portfolio as of September 30, 2020 and December 31, 2019, respectively. No other customer represented more than 10% of the Company’s finance lease portfolio in each of those periods.

Contractual maturities of the Company's gross finance lease receivables subsequent to September 30, 2020 for the years ending September 30 are as follows (in thousands):

~~(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 $21.9 million and $2.1 million unguaranteed residual value at September 30, 2017 and December 31, 2016, respectively, included in gross finance lease receivables. There were no executory costs included in gross finance lease receivables as of September 30, 2017 and December 31, 2016.


2021	$	115,917
2022		108,321
2023		105,169
2024		69,982
2025		55,158
2026 and thereafter		290,768
	$	745,315

Financing receivable

During 2020 and 2019, the Company purchased containers and leased back the containers to the seller-lessees through finance leaseback arrangements. As control of the equipment was retained by the customers, the Company concluded that sale-leaseback accounting was not applicable and treated the arrangements as financing transactions. The Company recorded a financing receivable in the amount paid for the containers. Payments made by the seller-lessee are recorded as a reduction to the financing receivable and as interest income, calculated using the effective interest method.

The following table summarizes the components of the Company’s financing receivable (in thousands):

~~(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 September 30, 2017 and December 31, 2016.


	September 30,		December 31,
	2020		2019
Gross financing receivable	$	75,224	$	45,530
Unearned income		(14,460)		(11,111)
		60,764		34,419
Allowance for credit losses		(3)		-
Total financing receivable	$	60,761	$	34,419
Amounts due within one year (1)		9,377		3,726
Amounts due beyond one year (2)		51,384		30,693
Total financing receivable	$	60,761	$	34,419

(1)Included in prepaid expenses and other current assets in the consolidated balance sheets.

(2)Included in financing receivable in the consolidated balance sheets.

‎

Table of Contents

CAI INTERNATIONAL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Credit quality information

In order to estimate the allowance for losses contained in ~~gross~~net investment in finance ~~lease receivables,~~leases and financing receivable, the Company reviews the credit worthiness of its customers on an ongoing basis. The review includes monitoring credit quality indicators, historical credit loss activity, current market and economic conditions, and reasonable and supportable forecasts.

The Company uses the ~~aging of customer receivables and general economic conditions.~~following definitions for risk ratings:

~~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.

As of September 30, 2020 and December 31, 2019, based on the most recent analysis performed, the risk category of the Company’s net investment in finance leases and financing receivable, based on year of origination is as follows (in thousands):


September 30, 2020	2020		2019		2018		2017		2016		Prior		Total
Net investment in finance leases
Tier 1	$	11,951	$	53,257	$	235,653	$	164,342	$	6,373	$	1,141	$	472,717
Tier 2		5,121		28,119		13,372		4,616		1,429		5,076		57,733
Tier 3		-		-		-		-		-		-		-
Total net investment in finance leases	$	17,072	$	81,376	$	249,025	$	168,958	$	7,802	$	6,217	$	530,450

Financing receivable
Tier 1	$	29,103	$	31,032	$	-	$	-	$	-	$	-	$	60,135
Tier 2		-		629		-		-		-		-		629
Tier 3		-		-		-		-		-		-		-
Total financing receivable	$	29,103	$	31,661	$	-	$	-	$	-	$	-	$	60,764



	Net investment in		Financing
December 31, 2019	finance leases		receivable
Tier 1	$	502,265	$	33,694
Tier 2		65,103		725
Tier 3		-		-
	$	567,368	$	34,419

‎

Table of Contents

CAI INTERNATIONAL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

~~Based on the above categories, the Company's gross finance lease receivables were as follows (in thousands):~~

September 30,

December 31,

2017

2016
Tier 1

$
273,742

$
74,777
Tier 2

55,481

48,786
Tier 3

-

-

$
329,223

$
123,563

~~Contractual maturities of the Company's gross finance lease receivables subsequent to~~(6) Debt and ~~as of September 30, 2017 for the years ending September 30 were as follows (in thousands):~~Derivative Instruments

2018

$
46,735
2019

62,606
2020

32,929
2021

30,873
2022

27,974
2023 and thereafter

128,106

$
329,223

Debt

~~(8)~~ ~~Intangible Assets~~

~~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~~	~~8 years~~

~~The Company’s intangible assets as of September 30, 2017 and December 31, 2016 were as follows (in thousands):~~

Gross Carrying Amount

Accumulated Amortization

Net Carrying Amount
September 30, 2017

Trademarks and tradenames

$
1,786

$
(1,269)

$
517
Customer relationships

9,344

(1,705)

7,639

$
11,130

$
(2,974)

$
8,156
December 31, 2016

Trademarks and tradenames

$
3,028

$
(1,850)

$
1,178
Customer relationships

9,344

(831)

8,513

$
12,372

$
(2,681)

$
9,691

Total amortization expense was $0.4 million for both the three months ended September 30, 2017 and 2016, respectively, and $1.5 million and $0.7 million for the nine months ended September 30, 2017 and 2016, respectively, and was included in administrative expenses in the consolidated statements of income.

~~As of September 30, 2017, estimated future amortization expenses are as follows (in thousands):~~

2018

$
1,637
2019

1,213
2020

1,167
2021

1,167
2022

1,167
2023 and thereafter

1,805

$
8,156

~~Table of Contents~~

~~CAI INTERNATIONAL, INC.~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

~~(9) Debt~~

Details of the Company’s debt as of September 30, ~~2017~~2020 and December 31, ~~2016~~2019 were as follows (dollars in thousands):

										��

	September 30, 2017					December 31, 2016						September 30, 2020					December 31, 2019
	Outstanding				Average	Outstanding				Average		Outstanding				Average	Outstanding				Average
	Current		Long-term		Interest	Current		Long-term		Interest	Maturity	Current		Long-term		Interest	Current		Long-term		Interest	Maturity

Revolving credit facility	$	-	$	407,000	3.0%	$	-	$	526,000	2.5%	March 2020
Revolving credit (1)												$	-	$	655,000	1.6%	$	-	$	624,000	3.3%	June 2023
Revolving credit facility - Rail(2)		-		254,000	2.7%		-		223,500	2.4%	October 2020		-		137,500	1.6%		-		137,500	3.3%	October 2023
Revolving credit facility - Euro		-		14,534	2.0%		-		-	-	September 2020		-		22,513	2.4%		21,537		-	2.0%	September 2023
Term loan		22,350		-	3.2%		1,800		21,900	2.9%	April 2018		1,800		24,150	2.3%		1,800		25,500	3.9%	April 2023
Term loan		9,000		114,000	2.8%		9,000		120,750	2.3%	October 2019		70,250		-	1.9%		7,000		68,500	3.5%	June 2021
Term loan		7,000		84,250	3.0%		7,000		89,500	2.5%	June 2021		14,325		-	3.4%		15,284		-	3.4%	December 2020
Term loan		1,188		16,827	3.4%		1,158		17,723	3.4%	December 2020		38,399		-	3.6%		3,016		37,635	3.6%	August 2021
Term loan		2,780		44,270	3.6%		2,705		46,365	3.6%	August 2021		6,000		82,000	4.6%		6,000		86,500	4.6%	October 2023
Senior secured notes		6,110		58,885	4.9%		6,110		64,995	4.9%	September 2022		6,110		40,555	4.9%		6,110		46,665	4.9%	September 2022
Asset-backed notes		65,307		394,311	3.5%		40,000		202,875	3.4%	June 2042
Asset-backed notes 2012-1 (3)													-		-	-		17,100		31,350	3.5%	-
Asset-backed notes 2013-1 (3)													-		-	-		22,900		51,525	3.4%	-
Asset-backed notes 2017-1 (4)													-		-	-		25,307		164,496	3.7%	-
Asset-backed notes 2018-1 (4)													-		-	-		34,890		250,045	4.0%	-
Asset-backed notes 2018-2 (5)													274,800		-	4.4%		34,350		266,213	4.4%	September 2043
Asset-backed notes 2020-1													62,411		680,289	2.3%		-		-	-	September 2045
Collateralized financing obligations		23,365		67,343	1.3%		28,693		71,346	1.1%	September 2020		28,474		47,457	1.6%		21,681		69,615	1.5%	February 2026
Term loans held by VIE		-		3,743	2.7%		2,287		3,541	2.5%	June 2019		5,425		27,145	4.2%		5,250		31,234	4.2%	February 2026
		137,100		1,459,163			98,753		1,388,495				507,994		1,716,609			222,225		1,890,778
Debt issuance costs		(3,778)		(8,575)			(3,226)		(7,996)
Debt discount and debt issuance costs													(5,981)		(10,439)			(4,131)		(10,656)
Total Debt	$	133,322	$	1,450,588		$	95,527	$	1,380,499			$	502,013	$	1,706,170		$	218,094	$	1,880,122

~~On June 16, 2017,~~(1) $500 million of this outstanding debt is subject to an interest rate swap at a cost of 0.29% as described below in Derivative Instruments.

(2) The maximum credit commitment under the ~~Company entered into an amendment to the Third Amended and Restated Revolving Credit Agreement, pursuant to which the~~Rail revolving credit facility was ~~amended to increase the commitment level~~decreased on July 2, 2020 from ~~$775.0~~$250 million to ~~$960.0~~$150 million.

(3) On April 27, 2020, the Company repaid in full the outstanding debt associated with the asset-backed notes 2012-1 and 2013-1.

(4) On September 25, 2020, the Company repaid in full the outstanding debt associated with the asset-backed notes 2017-1 and 2018-1.

(5) On October 26, 2020, the Company repaid in full the outstanding debt associated with the asset-backed notes 2018-2.

The Company maintains its revolving credit facilities to finance the acquisition of rental equipment and for general working capital purposes. As of September 30, ~~2017,~~2020, the Company had ~~$813.9~~$464.2 million in total availability under its revolving credit facilities (net of $0.1 million in letters of credit). , subject to the Company’s ability to meet the collateral requirements under the agreements governing the facilities. Based on the borrowing base and collateral requirements at September 30, 2020, the borrowing availability under the Company’s revolving credit facilities was $164.1 million, assuming no additional contributions of assets.

On ~~July 6, 2017,~~September 9, 2020, CAL Funding ~~III~~IV Limited (CAL Funding ~~III)~~IV), a wholly-owned indirect subsidiary of CAI, issued ~~$240.9~~$715.9 million of ~~3.6%~~2.2% Class A fixed rate asset-backed notes and ~~$12.2~~$26.8 million of ~~4.6%~~3.5% Class B fixed rate asset-backed notes (collectively, the series 2020-1 Asset-Backed Notes). Principal and interest on the Series 2020-1 Asset-Backed Notes is payable monthly commencing on ~~July 25, 2017,~~October 26, 2020, with ~~the Notes maturing in June 2042.~~ a scheduled maturity date of March 27, 2028.

The net proceeds from the issuance of the 2020-1 Asset-Backed Notes of $742.5 million were used ~~for general corporate purposes, including repayment of~~to repay in full the outstanding debt byassociated with the ~~Company.~~asset-backed notes 2017-1 and 2018-1 on September 25, 2020. The ~~Notes are secured by all~~balance of the ~~assets~~net proceeds, $316.9 million, is included in restricted cash in the consolidated balance sheet as of ~~CAL Funding III.~~September 30, 2020 and was used to repay in full the outstanding debt associated with the asset-backed notes 2018-2 on October 26, 2020, the balance being returned to the Company.

The agreements relating to all of the Company’s debt contain various financial and other covenants. As of September 30, ~~2017,~~2020, the Company was in compliance with all of its ~~debt~~financial and other covenants.

For further information on the Company’s debt instruments, see Note 10 to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2019, filed with the SEC on March ~~13, 2017.~~5, 2020.

Table of Contents

CAI INTERNATIONAL, INC.

~~(10)~~ NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Derivative Instruments

The Company enters into derivative agreements to manage interest rate risk exposure. Interest rate swap agreements are utilized to limit the Company’s exposure to interest rate risk by converting a portion of its floating-rate debt to a fixed rate basis, thus reducing the impact of interest rate changes on future interest expense. Interest rate swaps involve the receipt of floating-rate amounts in exchange for fixed rate interest payments over the lives of the agreements without an exchange of the underlying principal amounts.

The counterparties to these agreements are highly rated financial institutions. In the unlikely event that the counterparties fail to meet the terms of these agreements, the Company’s exposure is limited to the interest rate differential on the notional amount at each monthly settlement period over the life of the agreements. The Company does not anticipate any non-performance by the counterparties.

During the three months ended September 30, 2020, the Company entered into an interest rate swap agreement with an effective date of July 31, 2020 and scheduled maturity date of June 30, 2025. This contract is indexed to 1-month LIBOR, has a fixed leg interest rate of 0.29%, and a notional amount of $500.0 million.

As of September 30, 2020, the Company has designated interest rate swap agreements for a total notional amount of $500.0 million as cash flow hedges for accounting purposes. The change in fair value of cash flow hedging instruments during the three and nine months ended September 30, 2020 was recorded on the consolidated balance sheets in ‘Accumulated other comprehensive loss’ and reclassified to ‘Net interest expense’ when realized. The Company had no derivative instruments as of December 31, 2019.

Over the next twelve months, the Company expects to reclassify an estimated net loss of $0.4 million related to the designated interest rate swap agreements from ‘Accumulated other comprehensive loss’ in the consolidated statements of comprehensive income to ‘Net interest expense’ in the consolidated statements of operations.

The following table summarizes the impact of derivative instruments designated in cash flow hedging relationships on the consolidated statements of operations and the consolidated statements of comprehensive income (loss) on a pretax basis (in thousands):


		Three Months Ended September 30,				Nine Months Ended September 30,
Derivative Instrument	Financial Statement Caption	2020		2019		2020		2019
Interest rate swap	Comprehensive loss	$	1,931	$	-	$	1,931	$	-
Interest rate swap	Net interest expense	$	111	$	-	$	111	$	-

(7) Stock–Based Compensation Plan

~~Stock Options~~

~~The Company grants stock options from time to time to certain employees~~2019 Incentive Plan

In June 2019, the Company’s stockholders approved the CAI International, Inc. 2019 Incentive Plan (2019 Plan), which replaced the CAI International, Inc. Amended and ~~independent directors pursuant to its~~Restated 2007 Equity Incentive Plan ~~as amended (Plan)~~(2007 Plan). No further awards will be made under the 2007 Plan. Under the 2019 Plan, a maximum of ~~3,421,980~~2,577,075 share awards may be granted. Under the 2019 Plan, the Company may grant incentive and nonqualified stock options, stock appreciation rights, restricted stock awards, restricted stock units, performance awards and other stock or cash-based awards.

Stock Options

Stock options granted to employees have a vesting period of four years from the grant date, with 25% vesting after one year, and 1/48th vesting each month thereafter until fully vested. Stock options granted to independent directors vest in one year. All of the stock options have a contractual term of ten years.

‎

1519

Table of Contents

CAI INTERNATIONAL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The following table summarizes the Company’s stock option activities for the nine months ended September 30, ~~2017~~2020 and ~~2016:~~2019:



		Nine Months Ended September 30,							Nine Months Ended September 30,
	2017				2016				2020				2019
			Weighted				Weighted				Weighted				Weighted
			Average				Average				Average				Average
	Number of		Exercise		Number of		Exercise		Number of		Exercise		Number of		Exercise
	Shares		Price		Shares		Price		Shares		Price		Shares		Price
Options outstanding at January 1		1,428,255	$	16.31		1,189,255	$	18.08		646,946	$	16.96		850,167	$	16.46
Options granted		230,500	$	16.80		245,000	$	7.87
Options exercised		(240,173)	$	11.40		-	$	-		(197,499)	$	14.96		(138,723)	$	13.95
Options forfeited/cancelled		-	$	16.94		(6,000)	$	21.99
Options forfeited										(11,814)	$	15.64		(3,000)	$	12.88
Options expired										(80,310)	$	23.31		(15,000)	$	25.53
Options outstanding at September 30		1,418,582	$	17.22		1,428,255	$	16.31		357,323	$	16.67		693,444	$	16.78
Options exercisable		975,087	$	18.24		1,033,518	$	17.47		344,612	$	16.70		591,842	$	17.42
Weighted average remaining term		5.0 years				4.7 years				5.1 years				5.7 years

The aggregate intrinsic value of stock options exercised during both the nine months ended September 30, ~~2017~~2020 and 2019 was ~~$2.2~~$1.4 million. The aggregate intrinsic value of all options outstanding as of September 30, ~~2017~~2020 was ~~$18.6~~$3.9 million based on the closing price of the Company’s common stock of ~~$30.32~~$27.53 per share on September ~~29, 2017,~~30, 2020, the last trading day of the quarter.

The Company recognized stock-based compensation expense relating to stock options of ~~$0.4~~$0.1 million and ~~$0.3~~$0.2 million for the three months ended September 30, ~~2017~~2020 and ~~2016,~~2019, respectively, and ~~$1.2~~$0.3 million and ~~$1.0~~$0.6 million for the nine months ended September 30, ~~2017~~2020 and ~~2016,~~2019, respectively. As of September 30, ~~2017,~~2020, the remaining unamortized stock-based compensation cost relating to stock options granted to the Company’s employees and independent directors was approximately ~~$2.9~~$0.1 million, which is to be recognized over the remaining weighted average vesting period of approximately ~~2.5~~0.4 years.

The ~~fair value of~~Company did 0t grant any stock options ~~granted to the Company’s employees and independent directors was estimated using the Black-Scholes-Merton pricing model using the following weighted average assumptions:~~

Nine Months Ended September 30,

2017

2016
Stock price

$
16.80

$
7.87
Exercise price

$
16.80

$
7.87

Expected term (years)

5.50 - 6.25

5.50 - 6.25
Expected volatility (%)

56.40 - 57.50

45.40 - 46.70
Risk-free interest rate (%)

1.77 - 2.14

1.30 - 1.40
Dividend yield (%)

-

-

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 rate was estimated on all options granted during the nine months ended September 30, ~~2017, as the Company accounts for forfeitures as they occur (see Note 2).~~2020 and 2019.

~~Table of Contents~~

~~CAI INTERNATIONAL, INC.~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

Restricted Stock Awards, Time-Based Restricted Stock Units and Performance-Based Restricted Stock Units

The Company grants time-based restricted stock units to certain employees and restricted stock awards to independent directors from time to time ~~to certain employees~~ pursuant to the 2019 Plan. ~~The~~Time-based restricted stock ~~is valued~~units granted to employees have a vesting period of four years; 25% vesting on each anniversary of the grant date. Restricted stock awards granted to independent directors vest in one year. The Company recognizes the compensation cost associated with restricted stock awards and time-based restricted stock units over the vesting period based on the closing price of the Company’s common stock on the date of ~~grant~~grant.

The Company grants performance-based restricted stock units to certain executives and ~~has~~other key employees. The performance-based restricted stock units vest at the end of a ~~vesting period~~3-year performance cycle if certain financial performance targets are met. The Company recognizes compensation cost associated with the performance-based restricted stock units 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 ~~four years.~~ the Company’s common stock on the date of grant.

The following table summarizes the activity of restricted stock awards, time-based restricted stock units and performance-based restricted stock units under the 2019 Plan:

Number of

Weighted

Shares of

Average

Restricted

Grant Date

Stock

Fair Value
Restricted stock outstanding, December 31, 2016

65,802

$
14.75
Restricted stock granted

37,414

$
17.14
Restricted stock vested

(24,674)

$
17.83
Restricted stock outstanding, September 30, 2017

78,542

$
14.92



		Weighted
		Average
	Number of	Grant Date
	Shares	Fair Value
Outstanding at December 31, 2019	281,736	$	23.18
Granted	143,957	$	25.60
Vested	(107,323)	$	22.65
Forfeited	(105,955)	$	25.29
Outstanding at September 30, 2020	212,415	$	24.04

‎

Table of Contents

CAI INTERNATIONAL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The Company recognized ~~$0.1 million of~~ stock-based compensation expense relating to restricted stock and performance stock of $1.0 million and $0.7 million for ~~both~~ the three months ended September 30, ~~2017~~2020 and ~~2016,~~2019, respectively, and ~~$0.4~~$1.6 million and ~~$0.3~~$1.8 million for the nine months ended September 30, ~~2017~~2020 and ~~2016,~~2019, respectively. As of September 30, ~~2017,~~2020, unamortized stock-based compensation expense relating to restricted stock and performance stock was ~~$1.0~~$3.1 million, which will be recognized over the remaining average vesting period of ~~2.6~~1.7 years.

Stock-based compensation expense is recorded as a component of administrative expenses in the Company’s consolidated statements of ~~income~~operations with a corresponding credit to additional paid-in capital in the Company’s consolidated balance sheets.

Employee Stock Purchase Plan

~~(11)~~ In June 2019, the Company’s stockholders approved the CAI International, Inc. 2019 Employee Stock Purchase Plan (ESPP). The ESPP provides a means by which eligible employees may be given an opportunity to purchase shares of the Company’s common stock at a discount using payroll deductions. The ESPP authorizes the issuance of up to 250,000 shares of the Company’s common stock. The first offering period under the ESPP commenced in December 2019. The Company issued 7,258 shares of the Company common stock under the ESPP during the nine months ended September 30, 2020. The Company recognized stock-based compensation expense relating to the ESPP of less than $0.1 million for the nine months ended September 30, 2020.

(8) Income Taxes

The consolidated income tax expense for the three and nine months ended September 30, ~~2017~~2020 and ~~2016,~~2019, was determined based upon estimates of the Company’s consolidated annual effective income tax rate for the years ending December 31, ~~2017~~2020 and ~~2016,~~2019, respectively. The difference between the consolidated annual effective income tax rate and the U.S. federal statutory rate is primarily attributable to foreign income taxes, state income taxes and the effect of certain permanent differences.

The Company’s estimated effective tax rate before discrete items was ~~1.5%~~8.1% at September 30, ~~2017,~~2020, compared to ~~38.0%~~an effective tax rate of 6.1% at September 30, ~~2016. The lower estimated effective tax rate at~~2019. Discrete items during the nine months ended September 30, ~~2017 was due~~2020 primarily related to ~~a significant increase~~the impairment of railcar assets (Note 4) of $19.2 million, which resulted in ~~the proportion of pretax income generated in lower tax jurisdictions.~~

The Company accounts for uncertain tax positions based on an evaluation as to whether it is more likely than not that a position will be sustained on audit, including resolution of any related appeals or litigation processes. This evaluation is based on all available evidence and assumes that the appropriate tax authorities have full knowledge of all relevant information concerning the tax position. Once it has been determined that a tax ~~position is more likely than not to be sustained on its technical merits, the tax~~ benefit ~~recognized is based on the largest amount that is greater than 50% likely~~ of being realized upon ultimate settlement. As of September 30, 2017, the Company had unrecognized tax benefits of $0.2 million, which if recognized, would reduce the Company’s effective tax rate. Total accrued interest relating to unrecognized tax benefits was less than $0.1 million as of September 30, 2017. The Company does not believe the total amount of unrecognized tax benefits as of September 30, 2017 will change for the remainder of 2017. $4.5 million.

The Company was notified on May 1, 2017 that their 2015 federal income tax return was selected for examination. An initial meeting with the examining agent was held in August 2017. The examination is in its preliminary data gathering stage.

~~(12)~~(9) Fair Value of Financial Instruments

Fair value represents the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The ~~carrying amounts reported~~Company uses the following fair value hierarchy when selecting inputs for its valuation techniques, with highest priority given to Level 1:

Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2 – inputs other than quoted prices included within Level 1 that are either directly or indirectly observable; and

Level 3 – unobservable inputs in which little or no market activity exists, therefore requiring an entity to develop its own assumptions about the assumptions that market participants would use in pricing.

Derivative Financial Instruments

The Company has entered into an interest rate swap agreement to mitigate its exposure associated with its variable rate debt. The Company has utilized the income approach to measure at each balance sheet date the fair value of its derivative instruments using observable (Level 2) market inputs. See Note 6 – Debt and Derivative Instruments for further discussions.

The table below presents the Company’s derivative instruments measured at fair value on a recurring basis as of September 30, 2020 (in thousands):


	Total
	Fair Value		Level 2
September 30, 2020
Derivative liabilities - interest rate swaps	$	1,820	$	1,820

As of September 30, 2020, the Company has designated interest rate swap agreements for a total notional amount of $500.0 million as cash flow hedges for accounting purposes. The Company recognized a loss of $1.9 million on the consolidated balance sheets in ‘Accumulated other comprehensive loss’ during the three and nine months ended September 2020 for the change in fair value of the derivative instrument and a loss of $0.1 million was reclassified to ‘Net interest expense’ when realized for both the three and nine months ended September 30, 2020. As of December 31, 2019, the Company did 0t have any interest rate swap agreements.

‎

Table of Contents

CAI INTERNATIONAL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Other Financial Instruments

The carrying amounts of cash, restricted cash, accounts receivable and accounts payable reflected in the balance sheets as of September 30, 2020 and December 31, 2019, approximate their fair value ~~because of~~due to the ~~immediate or~~ short-term ~~maturity~~nature of these financial ~~instruments.~~assets and liabilities. The carrying value of variable-rate debt in the balance sheets as of September 30, 2020 and December 31, 2019 approximates fair value as the changes in their associated interest rates reflect the current market and credit risk is similar to when the loans were originally obtained.

The principal balance of the Company’s ~~asset-backed notes of $459.6 million~~fixed-rate term loans and collateralized financing obligations ~~of $90.7~~was $140.7 million and $75.9 million as of September 30, ~~2017 were estimated to have~~2020, with a fair value of approximately ~~$458.0~~$142.2 million and ~~$92.2~~$77.8 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 in the fair value hierarchy. The principal balance of the Company’s fixed-rate term loans, asset-backed notes and collateralized financing obligations was $148.4 million, $898.2 million and $91.3 million as of December 31, 2019, with a fair value of approximately $151.0 million, $911.0 million and $93.0 million, respectively. Management believes that the balances of the Company’s ~~revolving credit facilities~~asset-backed notes of ~~$675.5~~$1,017.5 million ~~term loans totaling $301.7 million,~~as of September 30, 2020, and senior secured notes of ~~$65.0~~$46.7 million and $52.8 million, term loans held by VIE of ~~$3.7~~$32.6 million and ~~net investment in direct finance leases~~$36.5 million, and financing receivable of ~~$227.9~~ $60.8 million and $34.4 million as of September 30, 2020 and December 31, 2019, respectively, approximate their fair ~~values as of September 30, 2017.~~values. The fair value of these financial instruments would be categorized as Level 2 in the fair value hierarchy.

~~Table of Contents~~

~~CAI INTERNATIONAL, INC.~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

~~(13)~~(10) Commitments and Contingencies

In addition to its debt obligations described in Note 96 above, the Company had commitments to purchase approximately ~~$63.9~~$116.9 million of containers ~~and $150.2 million of railcars~~ as of September 30, ~~2017; $63.9 million of containers and $113.5 million of railcars~~2020, all in the twelve months ending September 30, 2021.

(11) Stockholders’ Equity

Stock Repurchase Plan

In October 2018, the Company announced that the Board of Directors approved the repurchase of up to 3 million shares of its outstanding common stock. The number, price, structure and ~~$36.7 million~~timing of ~~railcars~~the repurchases, if any, will be at the Company’s sole discretion and will be evaluated by the Company depending on prevailing market conditions, corporate needs, and other factors. The stock repurchases may be made in the ~~twelve~~open market, block trades or privately negotiated transactions. This stock repurchase program replaces any available prior share repurchase authorization and may be discontinued at any time. The Company did 0t repurchase any shares under this repurchase plan during the nine months ~~ending~~ended September 30, ~~2019.~~2020. As of September 30, 2020, approximately 1.0 million shares remained available for repurchase under this share repurchase program.

For further information on the Company’s shareholders’ equity, see Note 16 to the consolidated financial statements in the Company’ Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on March 5, 2020.

(12) Related Parties

The Company is responsible for settling income tax liabilities of certain employees related to stock-based compensation. The Company is then reimbursed for those amounts by the employees. At September 30, 2020 and December 31, 2019, the Company had a liability of $1.2 million representing tax due to the UK tax authorities in respect of an officer of the Company. The Company also utilizes certain office facilities and equipment under long-term non-cancellable operating lease agreements with total future minimum lease payments of approximately $4.3 million as of September 30, 2017.

~~(14)~~ ~~Related Party Transactions~~

The Company has transferred legal ownership of certain containers to Japanese container funds that were established by Japan Investment Adviser Co., Ltd. (JIA) and CAIJ, Inc. (CAIJ). Prior to April 2016, CAIJ was an 80%-owned subsidiary of CAI with the remaining 20% owned by JIA. Prior to the transfer of containers from the Company, the container funds received contributions from unrelated Japanese investors, under separate Japanese investment agreements allowed under Japanese commercial laws. The contributions were used to purchase container equipment from the Company. Under the terms of the agreements, the CAI-related Japanese entities manage the activities of certain Japanese entities but may outsource the whole or part of each operation to a third party. Pursuant to its services agreements with investors, the Japanese container funds outsourced the general management of their operations to CAIJ. The Japanese container funds also entered into equipment management service agreements and financing arrangements whereby the Company managed the leasing activity of containers owned by the Japanese container funds.

As described in Note 4, the Japanese managed container funds and financing arrangements are considered VIEs. However, with the exception of the financing arrangements described in Note 4, the Company does not consider its interest in the managed Japanese container funds to be a variable interest. As such, the Company did not consolidate the assets and liabilities, results of operations or cash flows of these funds in its consolidated financial statements.

~~As described in Note 4, the Company has~~ included in its ~~consolidated financial statements,~~balance sheets at September 30, 2020 and December 31, 2019 a current asset of $1.2 million, representing the ~~assets and liabilities, results of operations, and cash flows of~~amount that will be reimbursed to the ~~financing arrangements, in accordance with FASB ASC Topic 810,~~ ~~Consolidation~~. Company by that officer.

~~(15)~~(13) Segment and Geographic Information

The Company organizes itself by the nature of the services it ~~provides which includes equipment leasing (consisting~~provides.

As disclosed in Note 2, the Company sold substantially all of ~~container leasing~~the assets of its logistics business during the three months ended September 30, 2020 and ~~rail leasing) and logistics.~~the operations of the logistics business have been reclassified as discontinued operations in the accompanying unaudited consolidated statements of operations. As a result, the Company will no longer report Logistics as a segment. The Company revised prior period information to conform to current period presentation.

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~~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 material inter-segment revenues.

With the exception of administrative expenses, operating expenses are directly attributable to each segment. Administrative expenses that are not directly attributable to a segment are allocated to ~~container~~the segments based upon relative asset values or ~~rail leasing based on the net book value~~revenue.

Table of ~~equipment in each segment.~~Contents

CAI INTERNATIONAL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The following tables show condensed segment information for the three and nine months ended September 30, ~~2017~~2020 and ~~2016,~~2019, reconciled to the Company’s income before income taxes ~~and non-controlling interest~~ as shown in its consolidated statements of ~~income~~operations for such periods (in thousands):


	Three Months Ended September 30, 2020
	Container Leasing		Rail Leasing		Total
Total revenue	$	73,890	$	5,162	$	79,052
Total operating expenses		35,950		4,823		40,773
Operating income		37,940		339		38,279
Net interest and other expenses		18,520		1,445		19,965
Income (loss) before income taxes	$	19,420	$	(1,106)	$	18,314
Purchase of rental equipment (1)	$	16,162	$	-	$	16,162


	Three Months Ended September 30, 2017								Three Months Ended September 30, 2019
	Container Leasing		Rail Leasing		Logistics		Total		Container Leasing		Rail Leasing		Total
Total revenue	$	61,870	$	7,279	$	21,012	$	90,161	$	75,535	$	5,871	$	81,406
Total operating expenses		30,270		5,534		22,463		58,267		38,949		28,948		67,897
Operating income (loss)		31,600		1,745		(1,451)		31,894		36,586		(23,077)		13,509
Total other expenses		11,537		2,871		-		14,408
Income (loss) before income taxes and non-controlling interest	$	20,063	$	(1,126)	$	(1,451)	$	17,486
Goodwill	$	-	$	-	$	15,794	$	15,794
Total assets	$	1,910,899	$	405,118	$	40,140	$	2,356,157
Net interest and other expenses										20,507		2,975		23,482
Income (loss) before income taxes									$	16,079	$	(26,052)	$	(9,973)
Purchase of rental equipment (1)	$	132,405	$	16,771	$	-	$	149,176	$	89,027	$	15,227	$	104,254


	Nine Months Ended September 30, 2020
	Container Leasing		Rail Leasing		Total
Total revenue	$	212,446	$	17,247	$	229,693
Total operating expenses		109,346		30,598		139,944
Operating income (loss)		103,100		(13,351)		89,749
Net interest and other expenses		53,077		5,011		58,088
Income (loss) before income taxes	$	50,023	$	(18,362)	$	31,661
Purchase of rental equipment (1)	$	48,782		-	$	48,782

~~Table of Contents~~


	Nine Months Ended September 30, 2019
	Container Leasing		Rail Leasing		Total
Total revenue	$	225,332	$	20,214	$	245,546
Total operating expenses		117,689		37,575		155,264
Operating income (loss)		107,643		(17,361)		90,282
Net interest and other expenses		60,598		10,104		70,702
Income (loss) before income taxes	$	47,045	$	(27,465)	$	19,580
Purchase of rental equipment (1)	$	256,469	$	79,380	$	335,849

~~CAI INTERNATIONAL, INC.~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

Three Months Ended September 30, 2016

Container Leasing

Rail Leasing

Logistics

Total
Total revenue

$
49,661

$
7,614

$
21,197

$
78,472
Total operating expenses

45,184

4,367

21,559

71,110
Operating income (loss)

4,477

3,247

(362)

7,362
Total other expenses

9,159

1,827

1

10,987
(Loss) income before income taxes and non-controlling interest

$
(4,682)

$
1,420

$
(363)

$
(3,625)
Goodwill

$
-

$
-

$
15,579

$
15,579
Total assets

$
1,643,929

$
343,214

$
40,059

$
2,027,202
Purchase of rental equipment (1)

$
19,730

$
20,613

$
-

$
40,343

Nine Months Ended September 30, 2017

Container Leasing

Rail Leasing

Logistics

Total
Total revenue

$
169,784

$
23,459

$
61,116

$
254,359
Total operating expenses

99,788

16,038

63,920

179,746
Operating income (loss)

69,996

7,421

(2,804)

74,613
Total other expenses

30,346

8,220

1

38,567
Income (loss) before income taxes and non-controlling interest

$
39,650

$
(799)

$
(2,805)

$
36,046
Purchase of rental equipment (1)

$
246,378

$
31,391

$
-

$
277,769

Nine Months Ended September 30, 2016

Container Leasing

Rail Leasing

Logistics

Total
Total revenue

$
152,875

$
22,462

$
41,743

$
217,080
Total operating expenses

121,519

12,363

42,522

176,404
Operating income (loss)

31,356

10,099

(779)

40,676
Total other expenses

27,203

4,738

1

31,942
Income (loss) before income taxes and non-controlling interest

$
4,153

$
5,361

$
(780)

$
8,734
Purchase of rental equipment (1)

$
68,183

$
102,399

$
-

$
170,582

(1) Represents cash disbursements for purchasing of rental equipment as reflected in the consolidated statements of cash flows for the periods indicated.

‎

Table of Contents

CAI INTERNATIONAL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The summary below presents total assets for the Company's segments as of the dates indicated (in thousands):


	September 30, ‎2020		December 31, 2019
Container leasing	$	2,810,569	$	2,565,828
Rail		258,625		293,459
Logistics (2)		-		42,478
Total assets	$	3,069,194	$	2,901,765

(2) Represents total assets related to discontinued operations, including assets held for sale of $37.8 million as of December 31, 2019.

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 $397.2 million as of September 30, 2017, are used primarily to transport cargo within North America.~~

~~Table of Contents~~

~~CAI INTERNATIONAL, INC.~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

The following table represents the geographic allocation of revenue for the periods indicated based on customers’ primary domicile (in thousands):



	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Switzerland	$	13,045	$	12,072	$	38,033	$	38,459
Singapore		10,542		10,655		30,490		31,005
Korea		11,195		10,807		30,333		31,361
France		8,078		8,768		23,438		26,582
United States		6,347		7,488		20,825		25,266
Other Europe		14,600		16,529		43,433		47,052
Other Asia		14,387		14,638		40,650		44,613
Other International		858		449		2,491		1,208
Total revenue	$	79,052	$	81,406	$	229,693	$	245,546

Three Months Ended

Nine Months Ended

September 30,

September 30,

2017

2016

2017

2016
United States

$
30,131

$
30,777

$
90,208

$
70,156
France

8,938

7,138

25,600

21,447
Switzerland

9,182

4,874

21,087

14,883
Japan

5,132

5,368

15,199

16,806
Singapore

5,345

3,846

14,669

12,486
Korea

5,831

3,616

14,096

11,158
Other Asia

11,151

10,184

32,614

31,475
Other Europe

11,815

9,950

32,904

30,138
Other International

2,636

2,719

7,982

8,531
Total revenue

$
90,161

$
78,472

$
254,359

$
217,080

~~(16)~~(14) Earnings Per Share

Basic ~~earnings~~net income (loss) per share is computed ~~by dividing income available to common stockholders by~~based on the weighted average number of shares of common ~~shares~~stock outstanding ~~for the~~during each 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,~~stock. However, potential common equivalent shares are excluded if their effect is anti-dilutive.

‎

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CAI INTERNATIONAL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The following table sets forth the reconciliation of basic and diluted net income per share for the three and nine months ended September 30, ~~2017~~2020 and ~~2016~~2019 (in thousands, except per share data):

Three Months Ended

Nine Months Ended

September 30,

September 30,

2017

2016

2017

2016
Numerator

Net income (loss) attributable to CAI common stockholders used

in the calculation of basic and diluted earnings per share

$
17,587

$
(5,451)

$
35,497

$
5,377
Denominator

Weighted-average shares used in the calculation of basic

earnings per share

19,180

19,130

19,108

19,427
Effect of dilutive securities:

Stock options and restricted stock

453

-

314

71
Weighted-average shares used in the calculation of diluted

earnings per share

19,633

19,130

19,422

19,498

Net income (loss) per share attributable to CAI common

stockholders:

Basic

$
0.92

$
(0.28)

$
1.86

$
0.28
Diluted

$
0.90

$
(0.28)

$
1.83

$
0.28




	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Numerator
Net income (loss) from continuing operations	$	14,758	$	(7,350)	$	25,634	$	15,057
Net loss from discontinued operations		(1,522)		(636)		(18,768)		(3,389)
Net income (loss) attributable to CAI common stockholders	$	13,236	$	(7,986)	$	6,866	$	11,668
Denominator
Weighted-average shares used in per share computation - basic		17,570		17,330		17,491		17,850
Effect of dilutive securities:
Stock options and restricted stock		136		-		173		272
Weighted-average shares used in per share computation - diluted		17,706		17,330		17,664		18,122

Net income (loss) per share attributable to CAI
common stockholders:
Basic
Continuing operations	$	0.84	$	(0.42)	$	1.47	$	0.84
Discontinued operations		(0.09)		(0.04)		(1.08)		(0.19)
Total basic	$	0.75	$	(0.46)	$	0.39	$	0.65
Diluted
Continuing operations	$	0.83	$	(0.42)	$	1.45	$	0.83
Discontinued operations		(0.08)		(0.04)		(1.06)		(0.19)
Total diluted	$	0.75	$	(0.46)	$	0.39	$	0.64

~~The calculation~~Certain options, restricted stock awards and time- and performance-based restricted stock units issued under employee benefit plans are excluded from the computation of diluted earnings per share ~~for~~because they were anti-dilutive. For the three and nine months ended September 30, 2020, 365,126 shares and 362,943 shares, respectively, of stock options, restricted stock awards and time- and performance-based restricted stock units were excluded. For the three months ended September 30, ~~2017 and 2016, excluded from the denominator 41,989and 1,231,455~~2019, all outstanding shares ~~respectively,~~ of ~~common~~ stock options, ~~because their effect would have been anti-dilutive. The calculation of diluted earnings per share for~~restricted stock awards and time- and performance-based restricted stock units were excluded. For the nine months ended September 30, ~~2017 and 2016, excluded from the denominator~~ ~~822,226~~ ~~and 1,103,495~~2019, 127,135 shares ~~respectively,~~ of ~~common~~ stock options, ~~because their effect would have been anti-dilutive.~~restricted stock awards and time- and performance-based restricted stock units were excluded.

2025

Table of Contents

ITEM 2:2.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 audited consolidated financial statements and related notes thereto, included in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2019 filed with the SEC on March ~~13, 2017.~~5, 2020. 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. The financial information included in this discussion and in our consolidated financial statements may not be indicative of our consolidated financial position, operating results, changes in equity and cash flows in the future. See “Special Note Regarding Forward-Looking Statements” included earlier in this ~~report.~~Quarterly Report on Form 10-Q.

Unless the context requires otherwise, references to “CAI,” the “Company,” “we,” “us” or “our” in this Quarterly Report on Form 10-Q refer to CAI International, Inc. and its subsidiaries.

Overview

We are one of the world’s leading transportation finance ~~and logistics~~ companies. We ~~purchase~~lease equipment, primarily intermodal shipping containers and railcars, ~~which we lease~~ to our customers. We also manage equipment for third-party investors. In operating our fleet, we lease, re-lease and dispose of equipment and contract for the repair, repositioning and storage of equipment. ~~We also provide domestic and international logistics services, through CAI Logistics, Challenger Overseas LLC and Hybrid Logistics, Inc.~~

~~In February 2016, we purchased Challenger Overseas LLC (Challenger), a Non-Vessel Operating Common Carrier, for approximately $10.8 million. Challenger is headquartered in Eatontown, New Jersey.~~

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

The following tables show the composition of our fleet as of September 30, ~~2017~~2020 and ~~2016,~~2019, and our average utilization for the three and nine months ended September 30, ~~2017~~2020 and ~~2016:~~2019:



	As of September 30,				As of September 30,
	2017		2016		2020		2019
Owned container fleet in TEUs		1,121,355		941,345		1,622,102		1,623,588
Managed container fleet in TEUs		83,086		174,162		60,085		72,462
Total container fleet in TEUs		1,204,441		1,115,507		1,682,187		1,696,050

Owned container fleet in CEUs		1,188,078		1,010,083		1,657,067		1,649,465
Managed container fleet in CEUs		75,596		156,543		75,480		88,493
Total container fleet in CEUs		1,263,674		1,166,626		1,732,547		1,737,958

Owned railcar fleet in units		6,795		6,136		5,039		5,504



	Three Months Ended				Nine Months Ended
	September 30, 2017				September 30, 2017				Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016		2020		2019		2020		2019
Average container fleet utilization in CEUs		98.0%		93.3%		96.9%		92.5%		98.4%		98.4%		98.2%		98.7%
Average owned container fleet utilization in CEUs		98.2%		94.0%		97.1%		93.2%		98.4%		98.6%		98.3%		98.7%
Average railcar fleet utilization		89.3%		96.2%		91.0%		96.0%		87.8%		85.3%		87.5%		88.1%

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.

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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, utilization would be ~~97.2%~~97.3% and ~~95.9%~~96.4% for both the total ~~container fleet, 97.2%~~ and ~~95.9% for the~~ owned container fleet, and ~~77.4%~~85.1% and ~~79.9%~~84.6% for the railcar fleet, for the three and nine months ended September 30,~~, 2017, respectively.~~ 2020, respectively.

COVID-19 Pandemic

The COVID-19 pandemic continues to have a meaningful impact on global trade and our business. The pandemic and related work, travel, and social restrictions resulted in a sharp decrease in global economic and trade activity during the first half of the year, resulting in weak container leasing demand. We have seen increased leasing demand during the third quarter as COVID-related restrictions have eased in Europe and the United States, but it is too early to tell whether this rebound in leasing demand will be sustained.

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We have been concerned that the sharp decrease in global container volumes this year would increase the financial challenges facing our customers and lead to increased credit risk. While we are not yet through the pandemic, container freight rates and the financial performance of our customers have generally held up better than anticipated. All the major shipping lines have taken aggressive actions to reduce their deployed vessel capacity, decreasing their network expenses and mitigating rate pressure from reduced freight volumes. The large decrease in bunker fuel prices has also been very helpful to their financial performance. However, there is no certainty that our customers will continue to be able to manage through the challenges of the COVID-19 environment. We continue to closely monitor our customers’ payment performance and expect our customer credit risk will remain elevated as long as economic and trade disruptions persist.

For additional information regarding the risk and uncertainties that we could encounter as a result of the COVID-19 pandemic and related global conditions, see “The continued spread of the COVID-19 pandemic may have a material adverse impact on our business, financial condition and results of operations” in Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q.

Discontinued Operations

On August ~~31, 2016, Hanjin Shipping Co., Ltd. (Hanjin),~~14, 2020, we sold substantially all the ~~world’s 7~~th largest container shipping line, announced that it had filed for court protection in South Korea from its creditors. At the time of default, we had approximately 15,000 owned containers on lease to Hanjin representing $40 million of equipment exposure based on net book value, or approximately 2%assets of our ~~rental revenue assets. We maintain insolvency insurance that covers~~logistics business to NFI, a North American logistics provider, on a debt free, cash free basis. As a result, the ~~value~~operating results of ~~unreturned containers, damage~~the logistics business have been reclassified as discontinued operations in the unaudited consolidated financial statements in this Quarterly Report on Form 10-Q. All prior periods presented in the unaudited consolidated financial statements have been restated to ~~recovered containers, recovery costs, legal expenses,~~reflect the reclassification of the logistics business as discontinued operations and the ~~loss of post-bankruptcy income~~assets and liabilities as held for ~~a period from the default date~~ sale. See Note 2 – Discontinued Operations to the ~~earlier~~consolidated financial statements in this Quarterly Report on Form 10-Q for more information.

Results of ~~the return of the equipment or six months. As discussed below, during the nine months ended~~ ~~September~~ ~~30, 2017, we recognized $2.2 million in container lease revenue from insurance proceeds for lost revenue associated with the bankruptcy of Hanjin.~~

Operations - Three Months Ended September 30, ~~2017~~2020 Compared to Three Months Ended September 30, ~~2016~~2019

The following table summarizes our ~~operating~~ results of operations for the three months ended September 30, ~~2017~~2020 and ~~2016~~2019 (dollars in thousands):



	Three Months Ended
	September 30,				Increase/(Decrease)				Three Months Ended September 30,				Change
	2017		2016		Amount		Percent		2020		2019		Amount		Percent
Total revenue	$	90,161	$	78,472	$	11,689	15	%	$	79,052	$	81,406	$	(2,354)	(3)	%
Operating expenses		58,267		71,110		(12,843)	(18)			40,773		67,897		(27,124)	(40)	%
Total other expenses		14,408		10,987		3,421	31			19,965		23,482		(3,517)	(15)	%
Net income (loss) attributable to CAI common stockholders		17,587		(5,451)		23,038	(423)			13,236		(7,986)		21,222	266	%

~~Total~~The decrease in total revenue for the three months ended September 30, ~~2017 increased $11.7 million, or 15%,~~2020 compared to the three months ended September 30, ~~2016, due~~2019, was attributable to a ~~$12.2~~$1.6 million, or ~~25%~~2%, ~~increase~~decrease in container lease ~~income, offset by~~revenue and a ~~$0.3~~$0.7 million, or 4%12%, decrease in rail lease ~~income and a $0.2 million, or 1%,~~revenue. The decrease in ~~logistics revenue. Operating~~operating expenses for the three months ended September 30, ~~2017 decreased $12.8 million, or 18%,~~2020 compared to the three months ended September 30, ~~2016, as a~~2019, was the result of a ~~$2.1~~$25.6 million, or 7%100%, decrease in ~~depreciation expense,~~impairment charges related to our rail assets, a ~~$5.3~~$2.9 million, or ~~60%~~31%, decrease in administrative expenses, and a $1.4 million, or 18%, decrease in storage, handling and other expenses, partially offset by a ~~$0.2~~$2.4 million, or 1%9%, increase in depreciation expense and a $0.4 million, or 14%, decrease in ~~logistics transportation costs, a $5.0 million, or 150%, decrease in loss~~gain on sale of ~~used~~ rental ~~equipment, and a $0.3 million, or 3%, decrease in administrative expenses.~~ equipment.

Total other expenses ~~primarily net interest expense,~~ for the three months ended September 30, ~~2017 increased $3.4 million, or 31%,~~2020 decreased compared with the three months ended September 30, ~~2016. The~~2019, primarily due to a $6.5 million, or 28%, decrease in net interest expense, partially offset by a $3.6 million, or 100%, increase in ~~revenue~~write-off of debt issuance costs. Total dividends of $2.2 million on our preferred stock were recorded in both the three months ended September 30, 2020 and 2019.

The decrease in operating expenses and total other expense, partially offset by the decrease in revenue and the net loss from discontinued operations resulted in ~~a $23.0 million, or 423%,~~an increase in net income attributable to CAI common stockholders for the three months ended September 30, ~~2017~~2020 compared to the three months ended September 30, ~~2016.~~2019, of $21.2 million.

~~Revenue.~~Container lease revenue


	Three Months Ended September 30,				Change
($ in thousand)	2020		2019		Amount		Percent
Container lease revenue	$	73,890	$	75,535	$	(1,645)	(2)	%

The ~~following discussion explains the significant changes~~decrease in ~~the composition of our total~~container lease revenue for the three months ended September 30, ~~2017,~~2020 compared to the three months ended September 30, ~~2016:~~

~~Container Lease Income.~~ ~~Container lease income increased $12.2~~2019 was mainly attributable to a $1.4 million ~~or 25%,~~decrease in rental revenue resulting from a 2% reduction in average owned container per diem rental rates and a $0.9 million decrease in rental revenue arising from a change to ~~$61.9 million~~cash-based revenue recognition for ~~the three months ended September 30, 2017, from $49.7 million for the three months ended September 30, 2016. Rental revenue increased by $10.7 million, primarily~~a certain customer due to collectability issues, partially offset by a ~~23%~~$0.6 million increase in rental revenue resulting from a 1% increase in the average number of CEUs of on-lease owned ~~containers and~~containers.

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Rail lease revenue


	Three Months Ended September 30,				Change
($ in thousand)	2020		2019		Amount		Percent
Rail lease revenue	$	5,162	$	5,871	$	(709)	(12)	%

The decrease in rail lease revenue for the three months ended September 30, 2020 compared to the three months ended September 30, 2019 was mainly attributable to a ~~$0.9 million increase~~7% decrease in ~~handling revenues as a result~~the average number of ~~an increase in lease-outs between~~on-lease railcars.

Depreciation of rental equipment


	Three Months Ended September 30,				Change
($ in thousand)	2020		2019		Amount		Percent
Container leasing	$	28,267	$	28,030	$	237	1	%
Rail leasing		2,161		-		2,161	100	%
	$	30,428	$	28,030	$	2,398	9	%

Container leasing

Depreciation expense for the ~~two periods.~~ three months ended September 30, 2020 remained relatively consistent with the three months ended September 30, 2019.

Rail leasing

The increase in rental revenue was partially offset by a $0.5 million decrease resulting from a 1% decrease in average owned container per diem rental rates and a $0.5 million decrease in repair fees and other container revenue as a result of our efforts in the prior year to off-load older containers from our fleet. In addition to the net increase in rental revenue, there was an increase of $1.4 million in finance lease income as a result of an increase in our investment in direct finance leases.

~~Rail Lease Income.~~ ~~Rail lease income decreased $0.3 million, or 4%, to $7.3 million~~depreciation expense for the three months ended September 30, ~~2017, from $7.6 million~~2020 compared to the three months ended September 30, 2019 was primarily attributable to differences in the timing of railcar assets being held for sale, during which time no depreciation was charged. Railcar assets were classified as held for sale for the three months ended September 30, ~~2016, primarily due to a $0.4 million decrease resulting from the expiration of a significant lease.~~

~~Logistics Revenue.~~ ~~Logistics revenue remained relatively consistent between the two periods, decreasing by $0.2 million, or 1%, to $21.0 million~~2019, while they were classified as held for use for the three months ended September 30, ~~2017, from $21.2~~2020.

Impairment of rental equipment


	Three Months Ended September 30,				Change
($ in thousand)	2020		2019		Amount		Percent
Rail leasing	$	-	$	25,632	$	(25,632)	(100)	%

An impairment charge of $25.6 million ~~for~~was recognized during the three months ended September 30, ~~2016.~~2019 to reduce the book value of the railcar portfolio, on an individual basis, to the lower of its net book value or its estimated fair value at the date when the decision was made to sell the assets of the railcar business.

~~Expenses.~~ ~~The following discussion explains the significant changes in~~Storage, handling and other expenses


	Three Months Ended September 30,				Change
($ in thousand)	2020		2019		Amount		Percent
Container leasing	$	4,713	$	4,672	$	41	1	%
Rail leasing		1,973		3,453		(1,480)	(43)	%
	$	6,686	$	8,125	$	(1,439)	(18)	%

Container leasing

Storage, handling and other expenses for the three months ended September 30, ~~2017~~2020 remained relatively consistent with the three months ended September 30, 2019.

Rail leasing

The decrease in storage, handling and other expenses for the three months ended September 30, 2020 compared to the three months ended September 30, ~~2016:~~2019 was primarily attributable to a $1.8 million decrease in repair and maintenance costs, partially offset by a $0.4 million increase in positioning fees.

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Gain on sale of rental equipment


	Three Months Ended September 30,				Change
($ in thousand)	2020		2019		Amount		Percent
Container leasing	$	2,419	$	2,411	$	8	-
Rail leasing		310		757		(447)	(59)	%
	$	2,729	$	3,168	$	(439)	(14)	%

Container leasing

~~Depreciation of Rental Equipment.~~ ~~Depreciation~~Gain on sale of rental equipment ~~decreased by $2.1 million, or 7%, to $27.8 million~~for the three months ended September 30, ~~2017, from $29.9 million~~2020 remained relatively consistent with the three months ended September 30, 2019.

Rail leasing

The decrease in gain on sale of rental equipment for the three months ended September 30, ~~2016. This decrease was primarily due~~2020 compared to ~~the one-time impairment charge of $2.0 million, related to the Hanjin bankruptcy, recorded during~~ the three months ended September ~~2016. Increased depreciation caused by investment~~30, 2019 was mainly attributable to a 97% decrease in the ~~owned container fleet has been~~average sale price per unit as sales made in the three months ended September 30, 2020 were for scrap, partially offset by a 121% increase in the ~~decreasing impact~~number of units sold, between the ~~change~~two periods.

Administrative expenses


	Three Months Ended September 30,				Change
($ in thousand)	2020		2019		Amount		Percent
Container leasing	$	5,389	$	8,658	$	(3,269)	(38)	%
Rail leasing		999		620		379	61	%
	$	6,388	$	9,278	$	(2,890)	(31)	%

Container leasing

The decrease in ~~residual values that was made effective on July 1, 2016.~~

~~Storage, Handling and Other Expenses.~~ ~~Storage, handling and other~~administrative expenses ~~decreased by $5.3 million, or 60%, to $3.5 million~~ for the three months ended September 30, ~~2017,~~2020 compared to the three months ended September 30, 2019 was primarily attributable to a $3.5 million decrease in bad debt expense, mainly due to cash receipts from ~~$8.8~~a previously reserved customer, partially offset by a $0.2 million increase in payroll-related costs.

Rail leasing

The increase in administrative expenses for the three months ended September 30, ~~2016. The decrease~~2020 compared to the three months ended September 30, 2019 was primarily attributable to a $3.6 million decrease in storage costs as the size of the off-lease fleet decreased and $1.5 million of insurance proceeds recorded related to repair costs associated with the previously reported Hanjin bankruptcy. These decreases were partially offset by a $0.5$0.2 million increase in ~~storage~~allocated overhead costs and ~~handling expenses~~a $0.1 million increase in ~~the Rail business as the size of the fleet increased, and decreased utilization led to increased storage costs.~~ bad debt expense.

~~Logistics Transportation Costs.~~ ~~Logistics transportation costs remained relatively consistent between the two periods, decreasing by $0.2 million, or 1%, to $17.9 million~~Other expense


	Three Months Ended September 30,				Change
($ in thousand)	2020		2019		Amount		Percent
Net interest expense	$	16,630	$	23,102	$	(6,472)	(28)	%
Write-off of debt issuance costs		3,641		-		3,641	100	%
Other (income) expense		(306)		380		(686)	181	%
	$	19,965	$	23,482	$	(3,517)	(15)	%

Net interest expense

The decrease in net interest expense for the three months ended September 30, ~~2017, from $18.0 million for~~2020 compared to the three months ended September 30, ~~2016. The gross margin generated from our logistics business also remained consistent between the two periods at $3.2 million for both the three months ended September 30, 2017 and 2016.~~

~~Gain on Sale of Used Rental Equipment.~~ ~~We recorded a gain on the sale of used rental equipment of $1.7 million during the three months ended September 30, 2017, compared~~2019 was due primarily to a ~~loss of $3.3 million for the three months ended September 30, 2016. While we sold approximately 41% less used containers compared to the prior year, there was an increase of 175%~~decrease in the average ~~margin per unit, resulting in an increase in gain~~interest rate on ~~sale~~our outstanding debt from approximately 3.7% as of ~~used rental equipment.~~

~~Administrative Expenses.~~ ~~Administrative expenses decreased by $0.3 million, or 3%, to $10.8 million for the three months ended~~ September 30, ~~2017, from $11.1 million for the three months ended~~2019 to 2.5% as of September 30, 2016. Administrative expenses during the three months ended September 30, 2016 included $2.2 million of bad debt expense related to the Hanjin bankruptcy. Excluding this expense, administrative expenses would have increased2020, caused primarily by ~~$1.9 million, primarily due to~~ a ~~$1.4 million increase~~decrease in ~~payroll-related costs as a result of an increase in headcount and an increase in the bonus accrual,~~LIBOR, as well as a ~~$0.7 million increase~~decrease in ~~bad debt expense arising from certain slow paying customers. These increases were partially offset by a $0.6 million reduction in the contingent consideration liability related to acquisitions.~~

~~Net Interest Expense~~. Net interest expense increased by $3.1 million, or 28%, to $14.0 million for the three months ended September 30, 2017, from $10.9 million for the three months ended September 30, 2016. The increase was due to an increase in theour average loan principal balance between the two periods, as ~~well as an increase in~~we decreased acquisition activity for rental equipment.

Write-off of debt issuance costs

The $3.6 million write-off of debt issuance costs during the three months ended September 30, 2020 was due to the early repayment of debt associated with our ~~average interest rate, caused by an increase in LIBOR,~~Series 2017-1 and Series 2018-1 asset-backed notes.

Other (income) expense

Other income, representing a gain on foreign exchange of $0.3 million for the three months ended September 30, 2020, increased from ~~approximately 2.6% to 3.1%.~~

~~Other Expense. Other expense increased by $0.4 million, or 428%, to~~a loss of $0.4 million for the three months ended September 30, ~~2017, from~~2019, primarily as a ~~$0.1 million loss~~result of movements in the U.S. Dollar exchange rate against the Euro.

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Income tax expense (benefit)


	Three Months Ended September 30,				Change
($ in thousand)	2020		2019		Amount		Percent
Income tax expense (benefit)	$	1,349	$	(4,830)	$	6,179	128	%

The increase in income tax expense for the three months ended September 30, ~~2016,~~2020 compared to three months ended September 30, 2019 was mainly attributable to a tax benefit resulting from the impairment of railcar assets of $25.6 million during the three months ended September 30, 2019, as well as an increase in the estimated effective tax rate. The full-year estimated effective tax rate was 8.1% at September 30, 2020, compared to an effective tax rate of 6.1% at September 30, 2019. The increase in the estimated full-year effective tax rate was primarily due to an increase in the amount of interest income generated by foreign ~~exchange losses. Gains~~finance leases subject to both foreign and ~~losses on foreign currency primarily occur when foreign denominated financial assets and liabilities are either settled or re-measured in~~ U.S. ~~dollars. The loss on foreign exchange~~income tax.

Preferred stock dividends


	Three Months Ended September 30,				Change
($ in thousand)	2020		2019		Amount		Percent
Preferred stock dividends	$	2,207	$	2,207	$	-	-	%

Preferred stock dividends for the three months ended September 30, ~~2017 was caused primarily by settling intercompany loans that were denominated~~2020 remained consistent with the three months ended September 30, 2019.

Loss from discontinued operations


	Three Months Ended September 30,				Change
	2020		2019		Amount		Percent
Logistics revenue	$	13,550	$	30,270	$	(16,720)	(55)	%
Operating expenses		15,525		31,082		(15,557)	(50)	%
Interest income		1		4		(3)	(75)	%
Net loss from discontinued operations		(1,522)		(636)		(886)	139	%

The decrease in ~~Euros.~~

~~Income Tax Expense.~~ ~~Income tax expense decreased by $1.9 million, or 106%, to a benefit of $0.1 million~~logistics revenue and transportation costs for the three months ended September 30, ~~2017,~~2020 compared to the three months ended September 30, 2019, was primarily attributable to the sale of the logistics business during the three months ended September 30, 2020. The increase in the net loss from ~~an expense of $1.8 million~~discontinued operations for the three months ended September 30, ~~2016. The estimated effective tax rate at September 30, 2017 was 1.5%,~~2020 compared to ~~38.0% for~~ the three months ended September 30, ~~2016. The lower estimated effective tax rate at September 30, 2017~~2019, was primarily due to ~~an increase in the proportion~~certain sale related costs including severance and bonus payments.

Results of ~~pretax income generated in lower tax jurisdictions.~~

Operations - Nine Months Ended September 30, ~~2017~~2020 Compared to Nine Months Ended September 30, ~~2016~~2019

The following table summarizes our ~~operating~~ results of operations for the nine months ended September 30, ~~2017~~2020 and ~~2016~~2019 (dollars in thousands):



	Nine Months Ended
	September 30,				Increase				Nine Months Ended September 30,				Change
	2017		2016		Amount		Percent		2020		2019		Amount		Percent
Total revenue	$	254,359	$	217,080	$	37,279	17	%	$	229,693	$	245,546	$	(15,853)	(6)	%
Operating expenses		179,746		176,404		3,342	2			139,944		155,264		(15,320)	(10)	%
Total other expenses		38,567		31,942		6,625	21			58,088		70,702		(12,614)	(18)	%
Net income attributable to CAI common stockholders		35,497		5,377		30,120	560			6,866		11,668		(4,802)	(41)	%

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~~Total~~The decrease in total revenue for the nine months ended September 30, ~~2017 increased $37.3 million, or 17%,~~2020 compared to the nine months ended September 30, ~~2016, due~~2019, was attributable to a ~~$16.9~~$12.9 million, or ~~11%~~6%, ~~increase~~decrease in container lease ~~income,~~revenue and a ~~$1.0~~$3.0 million, or 4%15%, ~~increase~~decrease in rail lease ~~income and a $19.4 million, or 46%, increase~~revenue. The decrease in ~~logistics revenue. Operating~~operating expenses for the nine months ended September 30, ~~2017 increased $3.3 million, or 2%,~~2020 compared to the nine months ended September 30, ~~2016, as a~~2019, was the result of a ~~$5.4~~$13.2 million, or 7%40%, ~~increase~~decrease in impairment charges related to our rail assets, a $5.1 million, or 19%, decrease in administrative expenses and a $3.3 million, or 4%, decrease in depreciation expense, partially offset by a ~~$16.5~~$5.8 million, or 47%~~, increase in logistics transportation costs, and a $2.5 million, or 9%, increase in administrative expenses, offset by a $10.5 million, or 39%,~~ decrease in ~~storage, handing and other expenses and a $10.5 million, or 132%, decrease in loss~~gain on sale of ~~used~~ rental ~~equipment.~~ equipment, and a $0.5 million, or 3% increase in storage, handling and other expenses.

Total other expenses ~~primarily net interest expense,~~ for the nine months ended September 30, ~~2017 increased $6.6 million, or 21%,~~2020 decreased compared with the nine months ended September 30, ~~2016. The~~2019, primarily due to a $15.6 million, or 22%, decrease in net interest expense and a $0.7 million, or 129%, increase in other income, partially offset by a $3.6 million, or 100%, increase in write-off of debt issuance costs. Total dividends of $6.6 million on our preferred stock were recorded in both the nine months ended September 30, 2020 and 2019.

The decrease in revenue ~~was~~and net loss from discontinued operations, partially offset by the ~~increase~~decrease in operating expenses and total other expenses resulted in a ~~$30.1 million, or 560%, increase~~decrease in net income attributable to CAI common stockholders for the nine months ended September 30, ~~2017~~2020 compared to the ~~same nine-month period~~nine months ended September 30, 2019, of $4.8 million.

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Container lease revenue


	Nine Months Ended September 30,				Change
($ in thousand)	2020		2019		Amount		Percent
Container lease revenue	$	212,446	$	225,332	$	(12,886)	(6)	%

The decrease in ~~2016.~~

~~Revenue.~~ ~~The following discussion explains the significant changes in the composition of our total~~container lease revenue for the nine months ended September 30, ~~2017,~~2020 compared to the nine months ended September 30, ~~2016:~~

~~Container Lease Income.~~ ~~Container lease income increased $16.9~~2019 was mainly attributable to an $11.0 million ~~or 11%,~~decrease in rental revenue resulting from a 6% reduction in average owned container per diem rental rates and a $7.5 million decrease in rental revenue arising from a change to ~~$169.8 million~~cash-based revenue recognition for ~~the nine months ended September 30, 2017, from $152.9 million for the nine months ended September 30, 2016. Rental revenue increased by $21.0 million~~a certain customer due to collectability issues, partially offset by a ~~15%~~$5.4 million increase in rental revenue resulting from a 3% increase in the average number of CEUs of on-lease owned ~~containers, partially offset by a $4.3 million decrease resulting from a 3%~~containers.

Rail lease revenue


	Nine Months Ended September 30,				Change
($ in thousand)	2020		2019		Amount		Percent
Rail lease revenue	$	17,247	$	20,214	$	(2,967)	(15)	%

The decrease in rail lease revenue for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 was mainly attributable to a 12% decrease in the average ~~owned container per diem~~size of the on-lease railcar fleet, caused primarily by the sale of railcars.

Depreciation of rental ~~rates.~~ equipment


	Nine Months Ended September 30,				Change
($ in thousand)	2020		2019		Amount		Percent
Container leasing	$	82,065	$	84,381	$	(2,316)	(3)	%
Rail leasing		4,257		5,248		(991)	(19)	%
	$	86,322	$	89,629	$	(3,307)	(4)	%

Container leasing

The ~~reduction~~decrease in ~~average container per diem rental rates has been caused by competitive market pressure~~.

~~Rail Lease Income.~~ ~~Rail lease income increased $1.0 million, or 4%, to $23.5 million~~depreciation expense for the nine months ended September 30, ~~2017, from $22.5 million~~ 2020 compared to the nine months ended September 30, 2019 was mainly attributable to a 1% decrease in the average size of our owned container fleet during the last twelve months and 6% of containers purchased during the same period being used, which depreciate at a lower rate or are already fully depreciated.

Rail leasing

The decrease in depreciation expense for the nine months ended September 30, ~~2016,~~2020 compared to the nine months ended September 30, 2019 was primarily attributable to differences in the timing of railcar assets being held for sale, during which time no depreciation was charged. Railcar assets were classified as held for sale for three months during the nine months ended September 30, 2020, compared to four months during the nine months ended September 30, 2019. There was also a ~~result of an 8% increase~~12% decrease in the average size of ~~our on-lease~~the railcar fleet during the last twelve months.

Impairment of rental equipment


	Nine Months Ended September 30,				Change
($ in thousand)	2020		2019		Amount		Percent
Rail leasing	$	19,724	$	32,955	$	(13,231)	(40)	%

A charge of $33.0 million was recognized during the nine months ~~partially offset by a $0.4 million decrease resulting from~~ended September 30, 2019 to reflect the ~~expiration~~loss on classification of ~~a significant lease.~~

~~Logistics Revenue.~~ ~~Logistics revenue increased $19.4 million, or 46%, to $61.1 million~~the railcar portfolio as held for sale, and its subsequent impairment. The impairment charge for the nine months ended September 30, ~~2017, from $41.7~~2020 included a charge of $19.2 million that was recognized during the three months ended March 31, 2020, when the held for sale criteria for the ~~nine months ended September 30, 2016.~~ railcar assets were no longer met. The impairment reduced the book value of the railcar portfolio, on an individual basis, to the lower of its net book value had the assets not been classified as held for sale, or its estimated fair value at the date when the held for sale criteria were no longer met. For additional information on the impairment, see Note 4 to our consolidated financial statements in this Quarterly Report on Form 10-Q.

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Storage, handling and other expenses


	Nine Months Ended September 30,				Change
($ in thousand)	2020		2019		Amount		Percent
Container leasing	$	14,305	$	12,631	$	1,674	13	%
Rail leasing		4,603		5,813		(1,210)	(21)	%
	$	18,908	$	18,444	$	464	3	%

Container leasing

The increase ~~was primarily due to an additional $17.9 million of revenue from the acquisition of Challenger~~ in ~~February 2016~~storage, handling and ~~Hybrid in June 2016, as well as new customers generating an additional $1.5 million of revenue at CAI Logistics.~~

~~Expenses.~~ ~~The following discussion explains the significant changes in~~other expenses for the nine months ended September 30, ~~2017~~2020 compared to the nine months ended September 30, ~~2016:~~2019 was primarily attributable to a $1.7 million increase in storage and repair expenses due to an increase in the average size of the off-lease fleet.

~~Depreciation of Rental Equipment.~~ ~~Depreciation of rental equipment increased by $5.4 million, or 7%, to $82.8 million~~Rail leasing

The decrease in storage, handling and other expenses for the nine months ended September 30, ~~2017, from $77.4~~2020 compared to the nine months ended September 30, 2019 was primarily attributable to a $1.7 million decrease in repair and maintenance costs, partially offset by a $0.7 million increase in positioning fees.

Gain on sale of rental equipment


	Nine Months Ended September 30,				Change
($ in thousand)	2020		2019		Amount		Percent
Container leasing	$	5,854	$	2,847	$	3,007	106	%
Rail leasing		597		9,418		(8,821)	(94)	%
	$	6,451	$	12,265	$	(5,814)	(47)	%

Container leasing

The increase in gain on sale of rental equipment for the nine months ended September 30, ~~2016. This increase was primarily attributable~~2020 compared to an increase of $4.4 million resulting from a decrease in the residual value estimate 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 an increase of $1.9 million in depreciation attributable to our railcar fleet, reflecting the increase in size of our railcar fleet over the past twelve months. The increase was partially offset by a decrease due to the one-time impairment charge of $2.0 million, related to the Hanjin bankruptcy, recorded during the nine months ended September ~~2016.~~ 30, 2019 was mainly attributable to a $2.6 million net selling loss recognized at the commencement of a finance lease during the quarter ended June 30, 2019.

~~Storage, Handling and Other Expenses.~~ ~~Storage, handling and other expenses decreased by $10.5 million, or 39%, to $16.7 million~~Rail leasing

The decrease in gain on sale of rental equipment for the nine months ended September 30, ~~2017, from $27.2 million~~2020 compared to the nine months ended September 30, 2019 was mainly attributable to an 80% decrease in the number of railcars sold between the two periods, primarily due to the sale of 1,946 railcars on February 26, 2019, resulting in a gain on sale of $7.0 million.

Administrative expenses


	Nine Months Ended September 30,				Change
($ in thousand)	2020		2019		Amount		Percent
Container leasing	$	18,830	$	23,524	$	(4,694)	(20)	%
Rail leasing		2,611		2,977		(366)	(12)	%
	$	21,441	$	26,501	$	(5,060)	(19)	%

Container leasing

The decrease in administrative expenses for the nine months ended September 30, ~~2016. The decrease~~2020 compared to the nine months ended September 30, 2019 was primarily attributable to a ~~$10.6~~$7.3 million decrease in ~~storage costs as the size of the off-lease fleet decreased compared~~bad debt expense, mainly due to ~~the prior year and $1.5 million of insurance proceeds recorded related to repair costs associated with the~~cash receipts from a previously ~~reported Hanjin bankruptcy. These decreases were~~reserved customer, partially offset by a ~~$1.3~~$1.7 million increase in ~~storage and handling expenses~~severance costs mainly associated with the change in ~~the Rail business as the size of the fleet increased, while utilization decreased by 5%,~~our Chief Executive Officer and an increase of ~~$0.5~~$1.3 million in ~~container liability insurance premium resulting from~~professional fees due to the ~~Hanjin insurance claim.~~ strategic review process.

~~Logistics Transportation Costs.~~ ~~Logistics transportation costs increased by $16.5 million, or 47%, to $51.6 million~~Rail leasing

The decrease in administrative expenses for the nine months ended September 30, ~~2017, from $35.1~~2020 compared to the nine months ended September 30, 2019 was primarily attributable to a $0.4 million decrease in bad debt expense due to improved collection efforts.

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Other expense


	Nine Months Ended September 30,				Change
($ in thousand)	2020		2019		Amount		Percent
Net interest expense	$	54,604	$	70,165	$	(15,561)	(22)	%
Write-off of debt issuance costs		3,641		-		3,641	100	%
Other (income) expense		(157)		537		(694)	(129)	%
	$	58,088	$	70,702	$	(12,614)	(18)	%

Net interest expense

The decrease in net interest expense for the nine months ended September 30, ~~2016. The increase was mainly attributable~~2020 compared to an additional $15.3 million of costs from the acquisition of Challenger in February 2016 and Hybrid in June 2016, as well as an increase of $1.2 million in CAI Logistics costs as a result of new customer activity. The gross margin generated from our logistics business increased from $6.6 million for the nine months ended September 30, ~~2016 to $9.5 million for the nine months ended September 30, 2017,~~2019 was due primarily ~~due to the acquisitions made in the logistics business in 2016.~~

~~Gain on Sale of Used Rental Equipment.~~ ~~We recorded a gain on the sale of used rental equipment of $2.5 million during the nine months ended September 30, 2017, compared~~ to a ~~loss of $8.0 million for the nine months ended September 30, 2016. While we sold 13% less used containers compared to the prior year, there was an increase of 137%~~decrease in the average ~~margin per unit, resulting in a gain~~interest rate on ~~sale~~our outstanding debt from approximately 3.7% as of ~~used rental equipment.~~

~~Administrative Expenses.~~ ~~Administrative expenses increased by $2.5 million, or 9%, to $31.2 million for the nine months ended~~ September 30, ~~2017, from $28.8 million for the nine months ended~~2019 to 2.5% as of September 30, ~~2016. The increase was~~2020, caused primarily ~~a result of $3.7 million of additional administrative expenses incurred by our newly acquired logistics companies, partially offset~~ by a ~~$1.2 million reduction~~decrease in ~~the contingent consideration liability related to the acquisitions.~~

~~Table of Contents~~

~~Net Interest Expense~~. Net interest expense increased by $6.4 million, or 20%, to $37.9 million for the nine months ended September 30, 2017, from $31.5 million for the nine months ended September 30, 2016. The increase was due to an increaseLIBOR, as well as a decrease in ~~the~~our average loan principal balance between the two periods, as ~~well as an increase in~~we decreased acquisition activity for rental equipment.

Write-off of debt issuance costs

The $3.6 million write-off of debt issuance costs during the nine months ended September 30, 2020 is due to the early repayment of debt associated with our ~~average interest rate, caused by an increase in LIBOR, from approximately 2.6% to 3.1%.~~Series 2017-1 and Series 2018-1 asset-backed notes.

Other ~~Expense~~. (income) expense

Other ~~expense increased by $0.2 million, or 60%, to $0.7~~income, representing a gain on foreign exchange of $0.2 million for the nine months ended September 30, ~~2017,~~2020, increased from $0.4 million for the nine months ended September 30, 2016, which related to foreign exchange losses. Gains and losses on foreign currency primarily occur when foreign denominated financial assets and liabilities are either settled or re-measured in U.S. dollars. Thea loss ~~on foreign exchange for the three months ended September 30, 2017 was caused primarily by settling intercompany loans that were denominated in Euros.~~

~~Income Tax Expense.~~ ~~Income tax expense decreased by $2.8 million, or 83%, to~~of $0.5 million for the nine months ended September 30, ~~2017, from $3.3 million~~2019, primarily as a result of movements in the U.S. Dollar exchange rate against the Euro.

Income tax benefit


	Nine Months Ended September 30,				Change
($ in thousand)	2020		2019		Amount		Percent
Income tax benefit	$	594	$	2,098	$	(1,504)	(72)	%

The decrease in income tax benefit for the nine months ended September 30, ~~2016. The~~2020 compared to nine months ended September 30, 2019 was mainly attributable to a decrease in the discrete tax benefit arising from the impairment of railcars, and an increase in the estimated full-year effective tax rate to 8.1% at September 30, ~~2017 was 1.5%,~~2020, compared to ~~38.0%~~an effective tax rate of 6.1% at September 30, 2019. The increase in the estimated full-year effective tax rate before discrete items was primarily due to an increase in income before tax and the amount of interest income generated by foreign finance leases subject to both foreign and U.S. income tax.

Preferred stock dividends


	Nine Months Ended September 30,				Change
($ in thousand)	2020		2019		Amount		Percent
Preferred stock dividends	$	6,621	$	6,621	$	-	-	%

Preferred stock dividends for the nine months ended September 30, ~~2016. The lower estimated effective tax rate at~~2020 remained consistent with the nine months ended September 30, ~~2017~~2019.

Loss from discontinued operations


	Nine Months Ended September 30,				Change
	2020		2019		Amount		Percent
Logistics revenue	$	66,304	$	87,788	$	(21,484)	(24)	%
Operating expenses		88,619		92,233		(3,614)	(4)	%
Interest income		7		12		(5)	(42)	%
Net loss from discontinued operations		(18,768)		(3,389)		(15,379)	454	%

The decrease in logistics revenue and transportation costs for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, was ~~due~~primarily attributable to anthe sale of the logistics business during the three months ended September 30, 2020. The increase in the ~~proportion~~net loss from discontinued operations for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019, was a result of ~~pretax income generated in lower tax jurisdictions.~~the $18.5 million loss on classification as held for sale recorded during the three months ended June 30, 2020, primarily due to the write down of goodwill and intangible assets, and certain sale related costs including severance and bonus payments.

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Liquidity and Capital Resources

As of September 30, ~~2017,~~2020, we had cash and cash equivalents of ~~$35.0~~$382.4 million, including ~~$22.4~~$340.1 million of restricted cash, and $26.8 million of cash held by variable interest ~~entities.~~ entities (VIEs). The restrictions on $316.9 million of the restricted cash at September 30, 2020 were lifted on October 26, 2020, when the cash was used to repay in full the amount outstanding under the Series 2020-2 asset-backed notes, with the balance being returned to the Company.

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 September 30, ~~2017,~~2020, our outstanding indebtedness and current maximum borrowing level was ~~comprised of the following~~as follows (in thousands):


	Current		Current		Current		Current
	Amount		Maximum		Amount		Maximum
	Outstanding		Borrowing Level		Outstanding		Borrowing Level
Revolving credit facilities	$	675,534	$	1,489,540	$	815,013	$	1,279,315
Term loans		301,665		301,665		236,924		236,924
Senior secured notes		64,995		64,995		46,665		46,665
Asset-backed notes		459,618		459,618		1,017,500		1,017,500
Collateralized financing obligations		90,708		90,708		75,931		75,931
Term loans held by VIE		3,743		3,743		32,570		32,570
		1,596,263		2,410,269		2,224,603		2,688,905
Debt issuance costs		(12,353)		-
Debt discount and debt issuance costs						(16,420)		-
Total	$	1,583,910	$	2,410,269	$	2,208,183	$	2,688,905

As of September 30, ~~2017,~~2020, we had ~~$813.9~~$464.2 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 at September 30, ~~2017,~~2020, the borrowing availability under our revolving credit facilities was ~~$74.6~~$164.1 million, assuming no additional contributions of assets.

~~On July 6, 2017, CAL Funding III Limited (CAL Funding III),~~As of September 30, 2020, we had a ~~wholly-owned indirect subsidiary~~total of ~~CAI, issued $240.9~~$1,813.4 million of ~~3.6% Class A~~debt in facilities with fixed interest rates or floating interest rates that have been synthetically fixed through interest rate ~~asset-backed notes and $12.2 million~~swap agreements. This accounts for 82% of 4.6% Class B fixed rate asset-backed notes (collectively, the Notes). Principal and interest on the Notes is payable monthly commencing on July 25, 2017, with the Notes maturing in June 2042. The proceeds from the Notes were used for general corporate purposes, including repayment ofour total outstanding debt. ~~The Notes are secured by all of the assets of CAL Funding III.~~

For further information on our debt instruments, see Note 96 to the consolidated financial statements in this Quarterly Report on Form 10-Q and Note 10 to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2019, filed with the SEC on March ~~13, 2017.~~5, 2020.

We continue to monitor the COVID-19 outbreak and its impact on our overall liquidity position and outlook. The ultimate impact that COVID-19 may have on our operational and financial performance over the next 12 months is currently uncertain and will depend on certain developments, including, among others, the impact of COVID-19 on our customers and the magnitude and duration of the pandemic. Assuming that our ~~lenders remain solvent,~~customers meet their contractual commitments, we currently believe that cash provided by operating activities and existing cash, proceeds from the sale of rental equipment, and borrowing availability under our debt facilities are sufficient to meet our liquidity needs for at least the next twelve months. ~~We will continue to monitor our liquidity and the credit markets.~~

In addition to customary events of default, the agreements governing our ~~revolving credit facilities and term loans~~indebtedness contain restrictive covenants, including limitations on certain liens, indebtedness and investments. In addition, ~~all of~~the agreements governing our ~~debt facilities~~indebtedness contain various restrictive financial and other covenants. The financial covenants in the agreements governing our ~~debt facilities~~indebtedness require us to maintain: (1) in the case of our debt facilities, 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) in the case of our debt facilities, 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 September 30, ~~2017,~~2020, we were in compliance with all of our financial and other covenants and we expect to remain in compliance for at least the ~~applicable debt covenants.~~next twelve months.

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Cash Flows

~~Cash Flow~~

The following table sets forth certain cash flow information for the nine months ended September 30, ~~2017~~2020 and ~~2016~~September 30, 2019 (in thousands):

Nine Months Ended

September 30,

2017

2016
Net income

$
35,497

$
5,414
Net income adjusted for non-cash items

120,495

99,098
Changes in working capital

(15,737)

(5,230)
Net cash provided by operating activities

104,758

93,868
Net cash used in investing activities

(216,635)

(123,249)
Net cash provided by financing activities

100,316

14,293
Effect on cash of foreign currency translation

380

1
Net decrease in cash

(11,181)

(15,087)
Cash at beginning of period

46,134

52,553
Cash at end of period

$
34,953

$
37,466



	Nine Months Ended September 30,
	2020		2019
Net income	$	13,487	$	18,289
Net income from continuing operations adjusted for non-cash items		129,216		134,681
Changes in working capital		66,105		54,944
Net cash provided by operating activities of continuing operations		195,321		189,625
Net cash provided by (used in) investing activities of continuing operations		10,990		(113,577)
Net cash provided by (used in) financing activities of continuing operations		94,415		(73,399)
Net cash provided by (used in) discontinued operations		8,497		(1,728)
Effect on cash of foreign currency translation		(15)		(874)
Net increase in cash and restricted cash		309,208		47
Cash and restricted cash at beginning of period		73,239		75,983
Cash and restricted cash at end of period	$	382,447	$	76,030

Cash Flows from Continuing Operations

Operating Activities ~~Cash Flows~~

Net cash provided by operating activities of ~~$104.8~~continuing operations was $195.3 million for the nine months ended September 30, ~~2017, increased $10.9~~2020, an increase of $5.7 million ~~from $93.9~~compared to $189.6 million for the nine months ended September 30, ~~2016.~~2019. The increase was due to ~~a $21.4~~an $11.2 million increase ~~in net income as adjusted for depreciation, amortization and other non-cash items, offset by a $10.5 million decrease~~ in our net working capital ~~adjustments.~~adjustments, partially offset by a $5.5 million decrease in income from continuing operations as adjusted for depreciation, impairment and other non-cash items. The ~~increase~~decrease of $5.5 million in ~~net~~ income from continuing operations as adjusted for non-cash items was primarily due to ~~an increase~~a decrease of ~~$30.1~~$13.2 million in ~~net income, an increase~~impairment of ~~$5.5~~rental equipment, a decrease of $7.6 million in bad debt expense due to receipt of payments from a previously reserved customer, and a decrease of $2.7 million in depreciation expense, partially offset by a $5.8 million decrease in gain on sale of rental equipment mainly due to a large sale of railcars in the prior year and an increase of ~~$0.9~~$3.3 million in amortization and write-off of ~~intangible assets, partially offset by a $10.5 million decrease in the loss on sale of used rental equipment, a $1.8 million decrease in deferred income taxes, a $1.7 million decrease in bad~~unamortized debt ~~expense, and a $1.2 million reduction in contingent consideration.~~ issuance costs.

Net working capital ~~used in~~provided by operating activities of ~~$15.7~~$66.1 million in the nine months ended September 30, ~~2017,~~2020, was due to a ~~$6.3~~$54.7 million ~~increase~~decrease in net investment in finance leases, representing the receipt of principal payments, and an $11.8 million decrease in accounts receivable, primarily caused by ~~an increase in lease and logistics activity, a $5.9 million decrease in accounts payable, accrued expenses and other liabilities, primarily caused by~~ the timing of ~~payments, a $3.0 million decrease in due to container investors due to the decrease in our managed fleet, and a $0.5 million decrease in unearned revenue.~~cash receipts from customers. Net working capital ~~used in~~provided by operating activities of ~~$5.2~~$54.9 million in the nine months ended September 30, ~~2016,~~2019 was due to a ~~$7.6~~$48.7 million ~~increase~~decrease in net investment in finance leases, representing the receipt of principal payments, a $4.6 million decrease in accounts receivable, primarily caused by the timing of cash receipts from customers, and a ~~result of the logistics acquisitions, partially offset by a $1.5~~$3.5 million increase in accounts payable, accrued expenses and other liabilities, primarily caused by the timing of payments, ~~and~~partially offset by a ~~$1.0~~$1.8 million ~~increase~~decrease in unearned revenue.

Investing Activities ~~Cash Flows~~

Net cash ~~used in~~provided by investing activities ~~increased $93.4 million to $216.6~~of continuing operations was $11.0 million for the nine months ended September 30, ~~2017, from $123.2~~2020, an increase of $124.6 million compared to net cash used in investing activities of $113.6 million for the nine months ended September 30, ~~2016.~~2019. The increase in cash ~~usage~~provided was ~~primarily~~ attributable to a ~~$107.2~~$287.1 million ~~increase~~decrease in ~~the~~ purchase of rental equipment, ~~and~~ a ~~$5.0~~$6.3 million decrease in purchase of financing receivable, a $2.2 million increase in receipt of principal payments from ~~direct~~ financing ~~leases,~~receivables, and a $1.0 million decrease in purchase of furniture, fixtures and equipment, partially offset by a ~~$15.6~~$172.0 million decrease in ~~acquisition costs and a $2.7 million increase in~~ proceeds from ~~the~~ sale of ~~used containers.~~ rental equipment.

Financing Activities ~~Cash Flows~~

Net cash provided by financing activities for the nine months ended September 30, 2017, increased $86.0 million compared to the nine months ended September 30, 2016. During the nine months ended September 30, 2017, our net cash inflow from borrowingsof continuing operations was ~~$108.1 million compared to $24.2~~$94.4 million for the nine months ended September 30, ~~2016, reflecting~~2020, an increase of $167.8 million compared to net cash used in ~~net borrowings used~~financing activities of $73.4 million for ~~the acquisition of rental equipment during~~ the nine months ended September 30, ~~2017, compared to~~2019. During the nine months ended September 30, ~~2016.~~2020, our net cash inflow from borrowings was $110.4 million compared to net cash outflow of $32.4 million for the nine months ended September 30, 2019. The increase ~~was also a result of~~in net cash inflow from borrowings and a decrease of ~~$9.2~~$34.1 million ~~used to~~in the repurchase ~~our~~of common stock ~~pursuant to our previously announced stock repurchase plan and a $1.4 million increase in proceeds received from the exercise of stock options,~~were partially offset by ~~a $6.8~~an increase of $7.5 million ~~increase in restricted cash and a $1.7 million increase~~ in debt issuance costs ~~both~~and an increase of $4.4 million in dividends paid to common stockholders.
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Cash Flows from Discontinued Operations

Net cash provided by discontinued operations was $8.5 million for the nine months ended September 30, 2020, an increase of $10.2 million compared to net cash used by discontinued operations of $1.7 million for the nine months ended September 30, 2019. The increase in cash was primarily ~~related~~attributable to a $5.9 million increase in net cash provided by investing activities of discontinued operations, resulting from proceeds received upon sale of the ~~asset-backed notes issued~~business, and a $4.3 million increase in net cash provided by operating activities of discontinued operations, mainly resulting from a decrease in accounts receivable due to a decrease in the ~~current year.~~volume of sales between the two periods.

Equity Transactions

~~Table of Contents~~

Stock Repurchase Plan

~~On December 14, 2015,~~In October 2018, we announced that our Board of Directors ~~had~~ approved the repurchase of up to ~~one~~three million shares of our outstanding common stock.On February 4, 2016, the Company’s Board of Directors approved a one million share increase in the previously approved share repurchase program, bringing the total authorized for repurchase to two million shares of our outstanding common stock. The The number, price, structure and timing of the repurchases, if any, will be at our sole discretion and ~~future repurchases~~ will be evaluated by us depending on prevailing market conditions, ~~liquidity~~corporate needs, and other factors. ~~Stock~~The stock repurchases may be made in the open market, block trades or privately negotiated transactions. ~~The~~This stock repurchase program replaces any available prior share repurchase authorization ~~does~~and may be discontinued at any time. We did not ~~have an expiration date and does not oblige us to acquire~~repurchase any ~~particular amount of our common stock~~.shares under this repurchase plan during the nine months ended September 30, 2020. As of September 30, ~~2017,~~2020, approximately ~~0.8~~1.0 million shares remained available for repurchase under our share repurchase ~~plan.~~program.

Contractual Obligations and Commercial Commitments

The following table sets forth our contractual obligations and commercial commitments by due date as of September 30, ~~2017~~2020 (in thousands):



	Payments Due by Period														Payments Due by Period
			Less than		1-2		2-3		3-4		4-5		More than				Less than		1-2		2-3		3-4		4-5		More than
	Total		1 year		years		years		years		years		5 years		Total		1 year		years		years		years		years		5 years
Total debt obligations:
Revolving credit facilities	$	675,534	$	-	$	-	$	421,534	$	254,000	$	-	$	-	$	815,013	$	-	$	-	$	677,513	$	137,500	$	-	$	-
Term loans		301,665		42,318		17,862		118,511		122,974		-		-		236,924		130,774		7,800		28,350		70,000		-		-
Senior secured notes		64,995		6,110		6,110		6,110		6,110		40,555		-		46,665		6,110		40,555		-		-		-		-
Asset-backed notes		459,618		65,307		65,307		65,307		65,307		65,307		133,083		1,017,500		337,211		62,411		62,411		62,411		64,201		428,855
Collateralized financing obligations		90,708		23,365		37,468		29,875		-		-		-		75,931		28,474		29,973		-		-		-		17,484
Term loans held by VIE		3,743		-		3,743		-		-		-		-		32,570		5,425		5,660		5,906		6,157		6,426		2,996
Interest on debt and capital lease obligations (1)		153,276		46,815		43,831		30,235		13,833		7,930		10,632		159,407		42,894		37,425		29,752		12,946		10,845		25,545
Rental equipment payable		190,180		190,180		-		-		-		-		-		89,634		89,634		-		-		-		-		-
Rent, office facilities and equipment		4,342		2,140		1,801		230		97		74		-		5,041		2,541		1,988		298		175		39		-
Equipment purchase commitments - Containers		63,927		63,927		-		-		-		-		-		116,941		116,941		-		-		-		-		-
Equipment purchase commitments - Rail		150,179		113,478		36,701		-		-		-		-
Total contractual obligations	$	2,158,167	$	553,640	$	212,823	$	671,802	$	462,321	$	113,866	$	143,715	$	2,595,626	$	760,004	$	185,812	$	804,230	$	289,189	$	81,511	$	474,880

~~(1)~~

Our estimate of interest expense commitment includes $51.1 million relating to our revolving credit facilities, $24.0 million relating to our term loans, $12.6 million relating to our senior secured notes, $63.5 million relating to our asset back notes, $2.1 million relating to our collateralized financing obligations, and $0.1 million relating 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 September 30, 2017: revolving credit facilities, 2.9%; term loans, 3.1%; senior secured notes, 4.9%; asset-backed notes, 3.5%; collateralized financing obligations, 1.3%; and term loans held by VIE, 2.7%. These calculations assume that weighted-average 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 rates are based.

(1)Our estimate of interest expense commitment includes $15.5 million relating to our revolving credit facilities subject to variable interest rates, $26.5 million relating to our revolving credit facilities subject to fixed interest rates, $15.0 million relating to our term loans, $4.1 million relating to our senior secured notes, $87.9 million relating to our asset-back notes, $6.2 million relating to our collateralized financing obligations, and $4.1 million relating to our term loans held by VIE. The calculation of interest commitment related to our debt assumes the following weighted-average interest rates as of September 30, 2020: variable-rate revolving credit facilities, 1.6%; fixed-rate revolving credit facilities, 1.9%; term loans, 3.3%; senior secured notes, 4.9%; asset-backed notes, 2.9%; collateralized financing obligations, 1.6%; and term loans held by VIE, 4.2%. These calculations assume that weighted-average 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 rates are based, including the potential discontinuation of LIBOR after 2021.

Off-Balance Sheet Arrangements

As of September 30, ~~2017,~~2020, 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, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that are material to investors.

Critical Accounting Policies and Estimates

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.

After we conducted our regular depreciation policy review for 2016, we concluded that a change in the estimated residual value for 40-foot high cube dry van containers from $1,650 to $1,400 per container, effective July 1, 2016, was appropriate. The change increased our depreciation expense by $4.4 million, decreased net income by $4.3 million, and decreased diluted earnings per share by $0.22, for the nine months ended September 30, 2017.

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We continuously monitor disposal prices across our entire portfolio for indications of a sustained market downturn. If necessary, we will adjust our estimates if there are indicators that the current weak market for containers will be sustained over a longer time horizon.

There have been no changes to our critical accounting policies during the nine months ended September 30, ~~2017.~~2020. See Critical Accounting Policies and Estimates in our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on March 5, 2020.

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Recent Accounting Pronouncements

~~In August 2016, the~~ ~~Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-15,~~ ~~Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments~~ (ASU 2016-15). ASU 2016-15 is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. In November 2016, the FASB also issued ASU No. 2016-18, ~~Statement of Cash Flows (Topic 230): Restricted Cash, which will require amounts generally described as restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the total beginning and ending amounts~~Except for the periods shown on the statement of cash flows. ASU 2016-15 and ASU 2016-18 are effective for interim and annual periods beginning after December 15, 2017, using a retrospective transition method to each period presented. We are currently evaluating the potential impact adoption of the standard will have on our consolidated statements of cash flows.

~~In February 2016, the~~ ~~FASB issued ASU~~ ~~No. 2016-02,~~ ~~Leases (Topic 842)~~ (ASU 2016-02). The FASB issued ASU 2016-02 to increase transparency and comparability among organizations recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Under ASU 2016-02, lessors will account for leases using an approach that is substantially equivalent to existing U.S. GAAP for sales-type leases, direct financing leases and operating leases. Unlike current guidance, however, a lease with collectability uncertainties may be classified as a sales-type lease. If collectability of lease payments, plus any amount necessary to satisfy a lessee residual value guarantee, is not probable, lease payments received will be recognized as a deposit liability and the underlying assets will not be derecognized until collectability of the remaining amounts becomes probable. ASU 2016-02 is effective for interim and annual periods beginning after December 15, 2018, with early adoption permitted, and must be adopted using a modified retrospective transition. We plan to adopt this guidance effective January 1, 2019 and are currently evaluating the potential impact adoption will have on our consolidated financial statements and related disclosures.

~~In May 2014, the~~ ~~FASB issued ASU No. 2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606)~~ (ASU 2014-09), which supersedes previous revenue recognition guidance. ASU 2014-09 requires that a company recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration the company expects to receive in exchange for those goods or services. Companies will need to use more judgment and estimates than under the guidance currently in effect, including estimating the amount of variable revenue to recognize over each identified performance obligation. Additional disclosures will be required to help users of financial statements understand the nature, amount and timing of revenue and cash flows arising from contracts. In July 2016, the FASB deferred the effective date for interim and annual periods beginning after December 15, 2017. Early adoption is permitted to the original effective date of periods beginning after December 15, 2016. The amendments may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of initial application. We plan to adopt this guidance effective January 1, 2018 using the modified retrospective approach and are currently in the process of evaluating the impact adoption will have on our consolidated financial statements and related disclosures. While we have not completed our full assessment, we do not believe that adoption will have a material impact on the amount or timing of revenue recognized or our revenue recognition policies. We expect to complete our assessment of the impact towards the end of 2017.

~~The~~ most ~~recent~~recently adopted accounting pronouncements ~~are~~ described in Note ~~2(b)~~1 to our unaudited consolidated financial statements included in this Quarterly Report on Form ~~10-Q.~~10-Q, there are no other recent accounting pronouncement that are relevant to our business.

ITEM 3:3. 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.

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 nine months ended September 30, ~~2017,~~2020, the U.S. Dollar decreased in value in relation to other major foreign currencies (such as the Euro and British Pound Sterling). The decrease in the relative value of the U.S. Dollar has ~~decreased~~increased our revenues and expenses denominated in foreign currencies. The ~~decrease~~associated increase in the value of certain foreign currencies as compared to the U.S. Dollar ~~relative to foreign currencies will~~has also ~~result in U.S. dollar denominated~~caused assets held at some of our foreign subsidiaries to ~~decrease~~increase in value ~~relative~~when translated to US dollars. We recognized a gain on foreign exchange of $0.3 million and $0.2 million for the ~~foreign subsidiaries’ local currencies. For the~~three and nine months ended September 30, ~~2017, we recognized a loss on foreign exchange of $0.7 million.~~2020, respectively. A 10% change in foreign exchange rates would not have a material impact on our ~~business,~~ financial position, results of operations or cash flows.

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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. AsIn July 2020, we entered into a five-year interest rate swap agreement to hedge against changes in future cash flows resulting from changes in interest rates on $500.0 million of ~~September 30, 2017,~~variable-rate borrowings. Under the ~~principal~~terms of the interest rate swap agreement, we receive from the counterparty interest on the notional amount based on one-month LIBOR and pay to the counterparty a fixed rate of ~~debt outstanding under~~0.29%. Any changes in the ~~variable-rate arrangements~~fair value of the derivative instrument are recognized in accumulated other comprehensive loss and reclassified to net interest expense as they are realized.

Approximately 82% of our ~~revolving credit facilities was $675.5 million. In addition, at September 30, 2017, we had balances on our variable-rate term loans~~debt is either fixed or hedged using derivative instruments, which helps mitigate the impact of $236.6 million and our variable-rate term loans held by VIE of $3.7 million. As of September 30, 2017, our total outstanding variable-rate debt was $915.9 million, which represented 57% of our total debt at that date. The averagechanges in short-term interest ~~rate on our variable-rate debt was 2.9% as of September 30, 2017, based on LIBOR plus~~rates. However, a ~~margin based on certain conditions set forth in our debt agreements.~~

A 1.0% increase or decrease in ~~underlying~~the interest rates ~~for these~~on our unhedged debt ~~obligations will~~would result in an increase or decrease of approximately $4.1 million in interest expense ~~by approximately $9.2 million annually assuming debt remains constant at September 30, 2017 levels.~~over the next 12 months.

~~We do not currently participate in hedging in the form of interest rate swaps or other derivative instruments to manage the market risks described above.~~

ITEM 4:4. CONTROLS AND PROCEDURES

Management Evaluation of Disclosure Controls and Procedures

In accordance with Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended (the Exchange Act), we carried out an evaluation, under the supervision and with the participation of our management, including our ~~President~~principal executive and ~~Chief Executive Officer and our Chief Financial Officer,~~financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon such evaluation, our ~~President~~principal executive and ~~Chief Executive Officer and our Chief Financial Officer~~financial officer concluded that as of September 30, ~~2017~~2020 our disclosure controls and procedures were not effective ~~with respect~~due to ~~controls~~a material weakness in internal control over financial reporting described in management’s annual report on internal control over financial reporting in our Annual Report on Form 10-K for the year ended December 31, 2019.

Remediation and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and are accumulated and communicated to the Company’s management, including the Company’s principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

~~There~~We have taken actions to improve our internal control over financial reporting, including implementing plans as identified in Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2019, to address our material weakness. The material weakness will not be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We expect that remediation of this material weakness will be completed in 2020.

Except as noted above, there has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under Exchange Act) that occurred during the quarter ended September 30, ~~2017,~~2020, which has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II — OTHER INFORMATION

ITEM 1:1. LEGAL PROCEEDINGS

From time to time we may be a party to litigation matters or disputes arising in the ordinary course of business, including in connection with enforcing our rights under our leases. Currently, we are not a party to any legal proceedings which are material to our business, financial condition, results of operations or cash flows.

ITEM ~~1A:~~ 1A. RISK FACTORS

Before making an investment decision, investors should carefully consider the risks in the “Risk Factors” in Part 1: Item 1A of our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2019 filed with the SEC on March ~~13, 2017.~~5, 2020. These risks are not the only ones facing our company. Additional risks not currently known to us or that we currently believe are immaterial may also impair our business operations. Any of these risks could adversely affect our business, cash flows, financial condition and results of operations. The trading price of our common stock and preferred stock could fluctuate due to any of these risks, and investors may lose all or part of their investment. In assessing these risks, investors should also refer to the other information contained or incorporated by reference in this Quarterly Report on Form 10-Q. ~~There~~Except as set forth below, there have been no material changes in our risk factors from those discussed in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2019.

The continued spread of the COVID-19 pandemic may have a material adverse impact on our business, financial condition and results of operations.

The ongoing COVID-19 pandemic has resulted in a significant impact to businesses and supply chains globally. The imposition of work and travel restrictions, as well as other actions by government authorities to contain the outbreak, have led to extended shutdowns of certain businesses, lower factory production, reduced volumes of global imports and exports and disruptions both of global and domestic transportation. The supply chain disruptions and government actions to counter the pandemic further exacerbated financial challenges faced by our shipping line and other customers. Additionally, the economic uncertainty created by the pandemic is affecting demand in several manufacturing sectors and has resulted in a slowdown in the global economy, the extent and duration of which are uncertain. Further, in response to the pandemic, many businesses, including ourselves, have implemented remote working arrangements for their employees that may continue, in whole or in part, for an extended period. Risks associated with the COVID-19 pandemic on our business include, but are not limited to:

increased credit concerns relating to our shipping line and rail shipper customers as they face reduced demand, operational disruptions and increased costs relating to the pandemic, including the risk of bankruptcy or significant payments defaults or delays;

further reduced demand for rental equipment and increased pressure on lease rates;

reduced demand for sale of rental equipment and increased pressure on sale rates;

operational issues that could prevent our rental equipment from being discharged or picked up in affected areas or in other locations after having visited affected areas for a prolonged period of time;

business community risks associated with the transition to remote working arrangements, including increased cybersecurity risks, internet capacity constraints or other systems problems, and unanticipated difficulties or delays in our financial reporting processes;

liquidity risks, including that disruptions in financial markets as a result of the pandemic may increase the cost and availability of capital, and the risk of non-compliance with financial covenants in debt agreements;

potential impacts on key management, including health impacts and distractions caused by the pandemic response; and

potential impacts on business relationships due to restrictions on travel.

The magnitude of the COVID-19 pandemic, including the extent of any impact on our business, financial position, results of operations or liquidity, which could be material, cannot be reasonably determined at this time due to the rapid development and fluidity of the situation. The effects of the pandemic on our business will depend on its duration and severity, whether business disruptions will continue and the continued overall impact on the global economy.

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ITEM 2:2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

~~None.~~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⁾
July 1, 2020 – July 31, 2020⁽²⁾	222	$	15.87	-	1,000,000
August 1, 2020 – August 31, 2020⁽²⁾	307		21.96	-	1,000,000
September 1, 2020 – September 30, 2020	-		-	-	1,000,000
Total	529	$	19.40	-	1,000,000

⁽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 September 30, 2020, 1.0 million shares remained available for repurchase under our share repurchase plan.

⁽²⁾Represents shares withheld by the Company to satisfy the tax obligations of certain of our employees upon the vesting of restricted stock awards.

ITEM 3:3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4:4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5:5. OTHER INFORMATION

None.

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ITEM 6:6. EXHIBITS

See ~~the Exhibit Index following the signature page to this Quarterly Report on Form 10-Q~~below for a list of exhibits filed or furnished with this report, which are incorporated by reference herein.


Exhibit No.		Description
3.1		Amended and Restated Certificate of Incorporation of CAI International, Inc. (incorporated by reference to Exhibit 3.1 to our Registration Statement on Form S-1, as amended, File No. 333-140496 filed on April 24, 2007).
3.2		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).
3.3		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).
3.4		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).
3.5		Amended and Restated Bylaws of CAI International, Inc. (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed on March 10, 2009).
4.1*		Indenture, dated September 9, 2020, between CAL Funding IV Limited and Wilmington Trust, National Association (incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K filed on September 14, 2020).
4.2*		Series 2020-1 Supplement, dated September 9, 2020, to Indenture dated September 9, 2020, between CAL Funding IV Limited and Wilmington Trust, National Association (incorporated by reference to Exhibit 4.2 to our Current Report on Form 8-K filed on September 14, 2020).
31.1		Certification of principal executive officer and principal financial officer pursuant to Exchange Act Rule 13a-14(a)/15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of principal executive officer and principal financial officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101		The following financial statements, formatted in XBRL: (i) Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019, (ii) Consolidated Statements of Operations for the three and nine months ended September 30, 2020 and 2019, (iii) Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2020 and 2019, (iv) Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2020 and 2019, (v) Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019, and (vi) Notes to Unaudited Consolidated Financial Statements.
104		Cover Page Interactive Data File (embedded within the Inline XBRL document).

* Certain schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K under the Securities Exchange Act of 1934, as amended. The Company hereby undertakes to supplementally furnish copies of any omitted schedules to the Securities and Exchange Commission upon request.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	CAI International, Inc.
	(Registrant)

~~October 20, 2017~~November 2, 2020	/s/ ~~VICTOR M. GARCIA~~TIMOTHY B. PAGE
	~~Victor M. Garcia~~Timothy B. Page
	Executive Vice President, Interim President and Chief Executive Officer
	(Principal Executive and Financial Officer)

~~October 20, 2017~~	~~/s/ TIMOTHY B. PAGE~~
	~~Timothy B. Page~~
	~~Chief Financial Officer~~
	~~(Principal Financial and Accounting Officer)~~

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~~EXHIBITS INDEX~~


~~Exhibit No.~~		~~Description~~
~~3.1~~		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).

~~3.2~~		~~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).~~

~~4.1~~		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 July 11, 2017.

~~4.2~~		Series 2017-1 Supplement, dated July 6, 2017, to Indenture dated July 6, 2017, between 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).

~~10.1~~		Note Purchase Agreement, dated June 29, 2017, among CAL Funding III Limited, Container Applications Limited, CAI International, Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Wells Fargo Securities, LLC, BBVA Securities Inc. and MUFG Securities Americas Inc. (incorporated by reference to Exhibit 99.1 of our Current Report on Form 8-K filed on July 11, 2017).

~~31.1~~		~~Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a)/15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.~~

~~31.2~~		~~Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a)/15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.~~

~~32.1~~		~~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.~~

~~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.~~

~~101~~		The following financial statements, formatted in XBRL: (i) Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016, (ii) Consolidated Statements of Income for the three and nine months ended September 30, 2017 and 2016, (iii) Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2017 and 2016, (iv) Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and 2016, and (v) Notes to Unaudited Consolidated Financial Statements.



2018	$	46,735
2019		62,606
2020		32,929
2021		30,873
2022		27,974
2023 and thereafter		128,106
	$	329,223



	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
September 30, 2017
Trademarks and tradenames	$	1,786	$	(1,269)	$	517
Customer relationships		9,344		(1,705)		7,639
	$	11,130	$	(2,974)	$	8,156
December 31, 2016
Trademarks and tradenames	$	3,028	$	(1,850)	$	1,178
Customer relationships		9,344		(831)		8,513
	$	12,372	$	(2,681)	$	9,691


2018	$	1,637
2019		1,213
2020		1,167
2021		1,167
2022		1,167
2023 and thereafter		1,805
	$	8,156



	Number of	Weighted
	Shares of	Average
	Restricted	Grant Date
	Stock	Fair Value
Restricted stock outstanding, December 31, 2016	65,802	$	14.75
Restricted stock granted	37,414	$	17.14
Restricted stock vested	(24,674)	$	17.83
Restricted stock outstanding, September 30, 2017	78,542	$	14.92


	Three Months Ended September 30, 2016
	Container Leasing		Rail Leasing		Logistics		Total
Total revenue	$	49,661	$	7,614	$	21,197	$	78,472
Total operating expenses		45,184		4,367		21,559		71,110
Operating income (loss)		4,477		3,247		(362)		7,362
Total other expenses		9,159		1,827		1		10,987
(Loss) income before income taxes and non-controlling interest	$	(4,682)	$	1,420	$	(363)	$	(3,625)
Goodwill	$	-	$	-	$	15,579	$	15,579
Total assets	$	1,643,929	$	343,214	$	40,059	$	2,027,202
Purchase of rental equipment (1)	$	19,730	$	20,613	$	-	$	40,343


	Nine Months Ended September 30, 2017
	Container Leasing		Rail Leasing		Logistics		Total
Total revenue	$	169,784	$	23,459	$	61,116	$	254,359
Total operating expenses		99,788		16,038		63,920		179,746
Operating income (loss)		69,996		7,421		(2,804)		74,613
Total other expenses		30,346		8,220		1		38,567
Income (loss) before income taxes and non-controlling interest	$	39,650	$	(799)	$	(2,805)	$	36,046
Purchase of rental equipment (1)	$	246,378	$	31,391	$	-	$	277,769


	Nine Months Ended September 30, 2016
	Container Leasing		Rail Leasing		Logistics		Total
Total revenue	$	152,875	$	22,462	$	41,743	$	217,080
Total operating expenses		121,519		12,363		42,522		176,404
Operating income (loss)		31,356		10,099		(779)		40,676
Total other expenses		27,203		4,738		1		31,942
Income (loss) before income taxes and non-controlling interest	$	4,153	$	5,361	$	(780)	$	8,734
Purchase of rental equipment (1)	$	68,183	$	102,399	$	-	$	170,582