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~~June 30, ~~2017~~2021

☐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		July 29, 2021
~~Common~~		~~September 30, 2017~~
Common Stock, ~~$.0001~~$0.0001 par value per share		~~19,268,083~~17,357,549 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~~June 30, ~~2017~~2021 and December 31, ~~2016~~2020	5
		4
	Consolidated Statements of ~~Income~~Operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 and ~~2016~~2020	7
		6
	Consolidated Statements of Comprehensive Income (Loss) for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 and ~~2016~~2020	8
		7
	Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, 2021 and 2020	8
	Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 and ~~2016~~2020	9

	Notes to Unaudited Consolidated Financial Statements	10
		11
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
		24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28
		33
Item 4.	Controls and Procedures	29
		34
Part II — Other Information		29
		34
Item 1.	Legal Proceedings	29
		34
Item 1A.	Risk Factors	29
		34
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30
		36
Item 3.	Defaults Upon Senior Securities	30
		36
Item 4.	Mine Safety Disclosures	30
		36
Item 5.	Other Information	30
		36
Item 6.	Exhibits	30
		37
Signatures		31 38

‎

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,~~but not limited to, statements relating to the proposed Merger (as defined herein), the occurrence of any event, change or other circumstances that could give rise to the termination of the Merger Agreement (as defined herein), the failure to obtain requisite stockholder approval of the proposed Merger or the failure to satisfy the closing conditions in the Merger Agreement (including the Migration (as defined herein)), risks related to disruption of management’s attention from the Company’s ongoing business operations due to the proposed Merger, the effect of the announcement of the proposed Merger on the ability of the Company to retain and hire key personnel and maintain relationships with its customers, suppliers, operating results and business generally, unexpected costs, liabilities or delays involving the proposed Merger, uncertainty surrounding the proposed Merger, including the timing of the consummation of the Merger, the outcome of any legal proceeding relating to the proposed Merger, our business, operations, growth strategy, ~~and~~ service development ~~efforts.~~efforts 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~~2020 filed with the Securities and Exchange Commission (SEC) on March ~~13, 2017~~1, 2021, our Quarterly Reports 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.

Unless stated otherwise, any forward-looking information contained herein does not take into account or give any effect to the impact of the proposed Merger.

‎

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,		June 30,		December 31,
	2017		2016		2021		2020
Assets
Current assets
Cash	$	12,508	$	15,685	$	17,554	$	26,691
Cash held by variable interest entities		22,445		30,449		21,256		26,856
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
Current portion of restricted cash						600		600
Accounts receivable, net of allowance for doubtful accounts of $418 and
$393 at June 30, 2021 and December 31, 2020, respectively						63,917		65,310
Current portion of net investment in finance leases						87,830		78,992
Current portion of financing receivable						14,354		9,550
Prepaid expenses and other current assets		5,016		5,315		5,405		6,663
Total current assets		137,394		135,153		210,916		214,662
Restricted cash		12,217		6,192		11,819		12,355
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 $715,911 and
$669,360 at June 30, 2021 and December 31, 2020, respectively						1,944,221		1,781,321
Net investment in finance leases						728,971		550,573
Financing receivable						47,798		48,888
Derivative instruments						7,830		-
Other non-current assets		3,220		962		3,793		4,833
Total assets (1)	$	2,356,157	$	2,055,934	$	2,955,348	$	2,612,632

Liabilities and Stockholders' Equity
Current liabilities
Accounts payable	$	6,320	$	13,804	$	4,380	$	3,666
Accrued expenses and other current liabilities		13,540		11,778		31,921		29,598
Due to container investors		4,119		7,077
Unearned revenue		8,361		10,613		2,438		3,029
Current portion of debt		133,322		95,527		116,433		183,448
Rental equipment payable		190,180		25,207		311,871		100,509
Total current liabilities		355,842		164,006		467,043		320,250
Debt		1,450,588		1,380,499		1,706,731		1,562,283
Deferred income tax liability		51,193		51,804
Other long term liabilities		-		2,121
Derivative instruments						-		80
Net deferred income tax liability						22,324		24,442
Other non-current liabilities						2,989		3,337
Total liabilities (2)		1,857,623		1,598,430		2,199,087		1,910,392

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
17,357,549 and 17,562,779 shares at June 30, 2021 and December 31, 2020, respectively						2		2
Additional paid-in capital		143,845		141,058		90,098		100,795
Accumulated other comprehensive loss		(6,390)		(8,132)		96		(5,743)
Retained earnings		361,077		324,576		562,200		503,321
Total stockholders' equity		498,534		457,504		756,261		702,240
Total liabilities and stockholders' equity	$	2,356,157	$	2,055,934	$	2,955,348	$	2,612,632

‎

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 June 30, 2021 and December 31, 2020 include the following assets of certain variable interest entities (VIEs) that can only be used to settle the liabilities of those VIEs: Cash, $21,256 and $26,856; Net investment in finance leases, $1,813 and $2,683; and Rental equipment, net of accumulated depreciation, $68,579, and $77,907, respectively.

(2)Total liabilities at June 30, 2021 and December 31, 2020 include the following VIE liabilities for which the VIE creditors do not have recourse to CAI International, Inc.: Current portion of debt, $42,542 and $41,344; Debt, $40,407 and $59,519, 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 June 30,				Six Months Ended June 30,
	2017		2016		2017		2016		2021		2020		2021		2020
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
Total revenue		90,161		78,472		254,359		217,080
Leasing revenue
Operating leases									$	65,821	$	54,750	$	129,688	$	109,378
Finance leases										14,259		11,260		27,504		22,850
Other										5,615		3,433		9,303		6,328
Total leasing revenue										85,695		69,443		166,495		138,556

Operating expenses
Depreciation of rental equipment		27,788		29,873		82,814		77,401		29,270		26,750		57,821		53,798
Storage, handling and other expenses		3,506		8,802		16,651		27,176		2,444		5,163		4,933		9,592
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										(7,026)		(1,788)		(13,769)		(3,435)
Administrative expenses		10,781		11,067		31,212		28,750		10,168		6,825		17,908		13,720
Total operating expenses		58,267		71,110		179,746		176,404		34,856		36,950		66,893		73,675

Operating income		31,894		7,362		74,613		40,676		50,839		32,493		99,602		64,881

Other expenses
Net interest expense		13,959		10,902		37,916		31,535		11,114		15,702		22,286		33,976
Other expense		449		85		651		407
Write-off of debt issuance costs										-		432		-		432
Other (income) expense										(74)		(97)		336		149
Total other expenses		14,408		10,987		38,567		31,942		11,040		16,037		22,622		34,557

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 before income taxes										39,799		16,456		76,980		30,324
Income tax expense										1,856		904		4,360		2,103

Income from continuing operations										37,943		15,552		72,620		28,221
(Loss) income from discontinued operations, net of income taxes										-		(16,178)		1,063		(30,177)
Net income (loss)		17,587		(5,451)		35,497		5,414		37,943		(626)		73,683		(1,956)
Net income attributable to non-controlling interest		-		-		-		37
Preferred stock dividends										2,207		2,207		4,414		4,414
Net income (loss) attributable to CAI common stockholders	$	17,587	$	(5,451)	$	35,497	$	5,377	$	35,736	$	(2,833)	$	69,269	$	(6,370)

Net income (loss) per share attributable to CAI common
stockholders
Amounts attributable to CAI common stockholders
Net income from continuing operations									$	35,736	$	13,345	$	68,206	$	23,807
Net (loss) income from discontinued operations										-		(16,178)		1,063		(30,177)
Net income (loss) attributable to CAI common stockholders									$	35,736	$	(2,833)	$	69,269	$	(6,370)

Net income (loss) per share attributable to CAI
common stockholders
Basic	$	0.92	$	(0.28)	$	1.86	$	0.28
Continuing operations									$	2.07	$	0.76	$	3.95	$	1.36
Discontinued operations										-		(0.92)		0.06		(1.73)
Total basic									$	2.07	$	(0.16)	$	4.01	$	(0.37)
Diluted	$	0.90	$	(0.28)	$	1.83	$	0.28
Continuing operations									$	2.04	$	0.76	$	3.90	$	1.35
Discontinued operations										-		(0.92)		0.06		(1.71)
Total diluted									$	2.04	$	(0.16)	$	3.96	$	(0.36)

Weighted average shares outstanding
Basic		19,180		19,130		19,108		19,427		17,281		17,470		17,276		17,451
Diluted		19,633		19,130		19,422		19,498		17,479		17,601		17,504		17,641

See accompanying notes to unaudited consolidated financial statements.

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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 June 30,				Six Months Ended June 30,
	2021		2020		2021		2020

Net income (loss)	$	37,943	$	(626)	$	73,683	$	(1,956)
Other comprehensive income (loss), net of tax:
Change in fair value of derivative instruments designated
as cash flow hedges		(1,990)		-		7,519		-
Reclassification of realized loss on derivative instruments designated
as cash flow hedges		234		-		391		-
Foreign currency translation adjustments		113		101		(409)		(36)
Comprehensive income (loss) before tax		36,300		(525)		81,184		(1,992)
Income tax benefit (expense) related to items of other comprehensive
income (loss)		369		-		(1,662)		-
Comprehensive income (loss) before preferred stock dividends, net of tax		36,669		(525)		79,522		(1,992)
Dividends on preferred stock		(2,207)		(2,207)		(4,414)		(4,414)
Comprehensive income (loss) available to CAI common stockholders	$	34,462	$	(2,732)	$	75,108	$	(6,406)

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, 2020	4,155	$	103,865	17,563	$	2	$	100,795	$	(5,743)	$	503,321	$	702,240
Net income	-		-	-		-		-		-		35,740		35,740
Common stock dividend declared, $0.30/share												(5,192)		(5,192)
Preferred stock dividends, $0.53125/share	-		-	-		-		-		-		(2,207)		(2,207)
Change in fair value of derivative instrument designated
as cash flow hedges	-		-	-		-		-		9,509		-		9,509
Reclassification of realized loss on derivative
instruments designated as cash flow hedges	-		-	-		-		-		157		-		157
Foreign currency translation adjustment	-		-	-		-		-		(522)		-		(522)
Income tax expense related to items of other
comprehensive income	-		-	-		-		-		(2,031)		-		(2,031)
Repurchase of common stock	-		-	(390)		-		(12,788)		-		-		(12,788)
Exercise of stock options	-		-	107		-		1,499		-		-		1,499
Stock-based compensation, net of taxes	-		-	24		-		(198)		-		-		(198)
Balances as of March 31, 2021	4,155	$	103,865	17,304	$	2	$	89,308	$	1,370	$	531,662	$	726,207
Net income	-		-	-		-		-		-		37,943		37,943
Common stock dividend declared, $0.30/share												(5,198)		(5,198)
Preferred stock dividends, $0.53125/share	-		-	-		-		-		-		(2,207)		(2,207)
Change in fair value of derivative instrument designated
as cash flow hedges	-		-	-		-		-		(1,990)		-		(1,990)
Reclassification of realized loss on derivative
instruments designated as cash flow hedges	-		-	-		-		-		234		-		234
Foreign currency translation adjustment	-		-	-		-		-		113		-		113
Income tax expense related to items of other
comprehensive income	-		-	-		-		-		369		-		369
Repurchase of common stock	-		-	-		-		-		-		-		-
Exercise of stock options	-		-	21		-		145		-		-		145
Stock-based compensation, net of taxes	-		-	33		-		645		-		-		645
Balances as of June 30, 2021	4,155	$	103,865	17,358	$	2	$	90,098	$	96	$	562,200	$	756,261


									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 adjustment	-		-	-		-		-		(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 adjustment	-		-	-		-		-		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

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

CAI INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(UNAUDITED)



	Six Months Ended June 30,
	2021		2020
Cash flows from operating activities
Net income (loss)	$	73,683	$	(1,956)
Income (loss) from discontinued operations, net of income taxes		1,063		(30,177)
Income from continuing operations		72,620		28,221
Adjustments to reconcile income from continuing operations to net cash provided by operating activities:
Depreciation		58,241		54,203
Amortization of debt issuance costs		1,618		2,122
Stock-based compensation expense		1,133		667
Unrealized loss on foreign exchange		278		63
Gain on sale of rental equipment		(13,769)		(3,435)
Deferred income taxes		(3,205)		1,173
Bad debt expense (recovery)		8		(3,505)
Changes in other operating assets and liabilities:
Accounts receivable		(2,390)		4,100
Prepaid expenses and other assets		1,756		295
Net investment in finance leases		46,861		35,724
Accounts payable, accrued expenses and other liabilities		2,400		(968)
Unearned revenue		(175)		(432)
Net cash provided by operating activities of continuing operations		165,376		118,228
Net cash (used in) provided by operating activities of discontinued operations		(3,312)		7,398
Net cash provided by operating activities		162,064		125,626
Cash flows from investing activities
Purchase of rental equipment		(276,639)		(32,620)
Purchase of financing receivable		(8,774)		(30,846)
Proceeds from sale of rental equipment		51,380		48,286
Receipt of principal payments from financing receivable		5,297		2,225
Purchase of furniture, fixtures and equipment		(87)		(310)
Net cash used in investing activities of continuing operations		(228,823)		(13,265)
Net cash provided by investing activities of discontinued operations		1,252		10,180
Net cash used in investing activities		(227,571)		(3,085)
Cash flows from financing activities
Proceeds from debt		260,000		227,000
Principal payments on debt		(183,743)		(346,200)
Debt issuance costs		-		(25)
Proceeds from issuance of common stock		53		116
Repurchase of common stock		(12,788)		-
Dividends paid to common stockholders		(10,391)		-
Dividends paid to preferred stockholders		(4,414)		(4,414)
Exercise of stock options		1,644		113
Net cash provided by (used in) financing activities of continuing operations		50,361		(123,410)
Net cash used in financing activities of discontinued operations		-		(2,131)
Net cash provided by (used in) financing activities		50,361		(125,541)
Effect on cash of foreign currency translation		(127)		(189)
Net decrease in cash and restricted cash		(15,273)		(3,189)
Cash and restricted cash at beginning of the period (1)		66,502		73,239
Cash and restricted cash at end of the period (2)	$	51,229	$	70,050

‎

Table of Contents


	Six Months Ended June 30,
	2021		2020
Supplemental disclosure of cash flow information
Cash paid during the period for:
Income taxes	$	3,321	$	225
Interest		19,187		35,167
Lease liabilities arising from obtaining right-of-use assets		262		-

Supplemental disclosure of non-cash investing and financing activity
Transfer of rental equipment to finance lease	$	233,471	$	7,748
Rental equipment payable		311,870		3,356

(1)Includes cash of $26,691 and $19,870, cash held by variable interest entities of $26,856 and $26,594, and restricted cash of $12,955 and $26,775 at December 31, 2020 and 2019, respectively.

(2)Includes cash of $17,554 and $20,159, cash held by variable interest entities of $21,256 and $27,703, and restricted cash of $12,419 and $22,188 at June 30, 2021 and 2020, 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 (Series A Preferred Stock) and 8.50% Series B Fixed-to-Floating Rate Cumulative Redeemable Perpetual Stock (Series B Preferred 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.~~

Inconsolidation.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~~June 30, ~~2017~~2021 and December 31, ~~2016,~~2020, the Company’s results of operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 and ~~2016,~~2020, and the Company’s cash flows for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 and ~~2016.~~2020. 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~~2021 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,~~2020, included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on March ~~13, 2017.~~1, 2021.

Merger Agreement with Mitsubishi HC Capital Inc.

~~(2) Accounting Policies~~On June 17, 2021, the Company entered into an Agreement and ~~Recent Accounting Pronouncements~~

~~Accounting Policies~~

~~Container rental equipment is recorded~~Plan of Merger (the Merger Agreement) with Mitsubishi HC Capital Inc., a Japanese corporation (Parent), and Cattleya Acquisition Corp., a Delaware corporation and wholly-owned subsidiary of Parent (Merger Sub), relating to the proposed acquisition of the Company by Parent. Pursuant to the terms of the Merger Agreement, Merger Sub will merge with and into the Company (the Merger), with the Company continuing as the surviving corporation in the Merger as a wholly-owned subsidiary of Parent. Upon completion of the Merger, the Company will cease to be a publicly traded company and 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~~the effective time of the Merger (the Effective Time): (i) each share of the Company’s ~~container equipment are based~~common stock that is issued and outstanding immediately prior to the Effective Time (other than Excluded Shares (as defined in the Merger Agreement)) will cease to be outstanding and will be converted into the right to receive $56.00, in cash, without interest, subject to deductions of any applicable withholding taxes; (ii) each share of the Company’s Series A Preferred Stock that is issued and outstanding immediately prior to the Effective Time, other than Excluded Shares, will be converted into the right to receive an amount equal to the sum of: (a) the liquidation preference of $25.00 per share, plus (b) the aggregate amount of all accrued and unpaid dividends on ~~historical disposal experience~~such Series A Preferred Stock as of the Effective Time, in cash, without interest, subject to deductions of any applicable withholding taxes; and (iii) each share of the Company’s Series B Preferred Stock that is issued and outstanding immediately prior to the Effective Time, other than Excluded Shares, will be converted into the right to receive an amount equal to the sum of: (a) the liquidation preference of $25.00 per share, plus (b) the aggregate amount of all accrued and unpaid dividends on such Series B Preferred Stock as of the Effective Time, in cash, without interest, subject to deductions of any applicable withholding taxes.

The closing of the Merger is subject to various closing conditions, each of which is more fully described in the Company’s Current Report on Form 8-K, filed with the SEC on June 21, 2021, the Company’s preliminary proxy statement on Schedule 14A relating to the Merger, filed with the SEC on July 12, 2021 (the Preliminary Proxy Statement), and the Company’s ~~expectations for future used container sale prices. Depreciation estimates are reviewed~~definitive proxy statement on Schedule 14A relating to the Merger to be filed with the SEC.

The closing of the Merger is subject to, among other things, adoption of the Merger Agreement by the affirmative vote of the holders of at least a majority of the outstanding shares of common stock entitled to vote at a special meeting of the common stockholders of the Company to be held on a ~~regular basis~~date to ~~determine whether sustained changes have taken place~~be announced, the completion of the Migration (as defined the Preliminary Proxy Statement) and receipt of regulatory approval.

The Merger is expected to be completed in the ~~useful lives~~late third quarter or early fourth quarter of ~~equipment~~2021. However, the exact timing of completion of the Merger cannot be predicted because the Merger is subject to the satisfaction or ~~assigned residual values, which would suggest that a change~~(to the extent permitted by applicable law) waiver of the conditions to the completion of the Merger more fully described in ~~depreciation estimates is warranted.~~the Preliminary Proxy Statement.

~~After~~

Table of Contents

CAI INTERNATIONAL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Discontinued Operations

On August 14, 2020, the Company ~~conducted~~sold substantially all of the assets and liabilities of its ~~regular depreciation policy review~~logistics business to NFI, a North American logistics provider, for ~~2016, it concluded that~~cash proceeds of $6.2 million. On December 29, 2020, the Company sold its remaining railcar fleet to affiliates of Infinity Transportation for cash proceeds of $228.1 million. As a ~~change~~result, the operating results of the logistics and rail businesses have been classified as discontinued operations in the ~~estimated residual value~~ accompanying unaudited consolidated statements of income and cash flows. All prior periods presented in these consolidated financial statements have been restated to reflect the classification of the logistics and rail leasing businesses as discontinued operations. See Note 2 – Discontinued Operations for ~~40-foot high cube dry van containers from $1,650~~more information.

Concentration of Credit Risk

The Company’s equipment leases and trade receivables subject it to ~~$1,400 per container, effective July 1, 2016, was appropriate.~~potential credit risk. The ~~change increased~~Company extends credit to its 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 Company’s largest customer and second largest customer accounted for 21% and 10%, respectively, of 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~~total billings during the ~~nine~~three months ended ~~September~~June 30, ~~2017.~~2021, and 20% and 10%, respectively, of the Company’s total billings during the six months ended June 30, 2021.

The Company continuously monitors disposal prices across its entire portfolio for indications of a sustained market downturn. The Company will adjust its residual value estimates as and when conditions warrant.Accounting Policy Updates

~~Except as described below in “Recent Accounting Pronouncements,” there~~There were no changes to the Company’s accounting policies during the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2021. 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,~~2020, filed with the SEC on March ~~13, 2017,~~1, 2021, for a description of the Company’s significant accounting policies.

(2) Discontinued Operations

As discussed in Note 1, the Company sold substantially all of the assets of its logistics business for proceeds of $6.2 million and its remaining railcar assets for proceeds of $228.1 million during the quarters ended September 30, 2020 and December 31, 2020, respectively. The logistics and rail leasing businesses have been classified as discontinued operations in the accompanying unaudited consolidated statements of income and cash flows for the three and six months ended June 30, 2021 and 2020.

The Company recognized an impairment charge of $19.7 million during the six months ended June 30, 2020 to reduce the book value of its railcar portfolio, on an individual basis, to its estimated fair value, or to its net book value had the assets not been classified as held for sale. 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 utilized the current replacement cost for a particular car type and calculated 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 estimated value based on recent market transactions involving similar railcars. The railcars were classified within Level 3 of the fair value hierarchy.

‎

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Table of Contents

CAI INTERNATIONAL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

~~Recent Accounting Pronouncements~~

~~In March 2016,~~The following tables summarize 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~~components of ~~the accounting for share-based payment transactions, including~~net income taxes, classification of awards and classification on the statement of cash flows. The new guidance also allows an entity to make a policy election to account for forfeitures as they occur. The Company adopted ASU 2016-09 effective January 1, 2017. Accordingly, excess tax benefits or deficiencies(loss) from ~~stock-based compensation are now reflected~~discontinued operations in the accompanying unaudited consolidated statements of income ~~as a component of~~for the ~~provision~~three months ended June 30, 2020 and the six months ended June 30, 2021 and 2020 (in thousands). There was no income or expense arising from discontinued operations for ~~income taxes, whereas they~~the three months ended June 30, 2021. Revenue and operating expenses for the six months ended June 30, 2021 were ~~previously recognized in equity. As~~ a result of immaterial differences in the ~~adoption of ASU 2016-09,~~actual transactions from 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~~amounts accrued prior to ~~retained earnings as of January 1, 2017. Adoption~~the sale of the ~~new standard did not have a material impact on our provision for income taxes for the three~~logistics and ~~nine months ended September 30, 2017. The Company elected to apply the change~~railcar businesses in ~~presentation to the statements~~2020.


	Three Months Ended June 30, 2020
	Rail		Logistics		Total
Revenue
Rail lease revenue	$	6,282	$	-	$	6,282
Logistics revenue		-		22,648		22,648
Total revenue		6,282		22,648		28,930

Operating expenses
Depreciation of rental equipment		2,096		-		2,096
Impairment of rental equipment		557		-		557
Storage, handling and other expenses		1,311		-		1,311
Logistics transportation costs		-		19,533		19,533
Gain on sale of rental equipment		(320)		-		(320)
Administrative expenses		564		22,584		23,148
Total operating expenses		4,208		42,117		46,325

Operating income (loss)		2,074		(19,469)		(17,395)

Interest expense (income)		1,461		(3)		1,458
Income (loss) before income taxes		613		(19,466)		(18,853)
Income tax expense (benefit)		209		(2,884)		(2,675)
Net income (loss) from discontinued operations	$	404	$	(16,582)	$	(16,178)


	Six Months Ended June 30, 2021
	Rail		Logistics		Total
Revenue
Rail lease revenue	$	293	$	-	$	293
Total revenue		293		-		293

Operating expenses
Storage, handling and other expenses		(142)		-		(142)
Gain on sale of rental equipment		(33)		-		(33)
Administrative expenses		91		(240)		(149)
Total operating expenses		(84)		(240)		(324)

Operating income		377		240		617

Income before income taxes		377		240		617
Income tax (benefit) expense		(496)		50		(446)
Net income from discontinued operations	$	873	$	190	$	1,063

‎

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.~~


	Six Months Ended June 30, 2020
	Rail		Logistics		Total
Revenue
Rail lease revenue	$	12,085	$	-	$	12,085
Logistics revenue		-		52,754		52,754
Total revenue		12,085		52,754		64,839

Operating expenses
Depreciation of rental equipment		2,096		-		2,096
Impairment of rental equipment		19,724		-		19,724
Storage, handling and other expenses		2,630		-		2,630
Logistics transportation costs		-		46,348		46,348
Gain on sale of rental equipment		(287)		-		(287)
Administrative expenses		1,333		26,746		28,079
Total operating expenses		25,496		73,094		98,590

Operating loss		(13,411)		(20,340)		(33,751)

Interest expense (income)		3,566		(6)		3,560
Loss before income taxes		(16,977)		(20,334)		(37,311)
Income tax benefit		(4,046)		(3,088)		(7,134)
Net loss from discontinued operations	$	(12,931)	$	(17,246)	$	(30,177)

(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~~six months ended ~~September~~June 30, ~~2017~~2021 and ~~2016.~~ 2020.

~~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.

‎

Table of Contents

CAI INTERNATIONAL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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~~June 30, ~~2017,~~2021 and December 31, ~~2016,~~2020, and the results of the VIEs’ operations and cash flows for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 and ~~2016,~~2020, 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~~$70.4 million as of ~~September~~June 30, ~~2017.~~2021. The container equipment, together with ~~$22.4~~$21.3 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~~$54.4 million and term loans held by VIE of ~~$3.7~~$28.5 million. NoNaN gain or loss was recognized by the Company on the initial consolidation of the VIEs. ~~Containers~~NaN containers were sold to the Japanese investor funds during the three and six months ended ~~September~~June 30, ~~2017~~2021 and 2016, 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.2020.

~~(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~~	$	-

~~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,		June 30,		December 31,
	2017		2016		2021		2020
Dry containers	$	1,529,405	$	1,322,508	$	2,038,904	$	1,940,572
Refrigerated containers		346,996		350,776		362,523		315,641
Other specialized equipment		162,357		164,934		258,705		194,468
Railcars		424,682		389,945
		2,463,440		2,228,163		2,660,132		2,450,681
Accumulated depreciation		(484,428)		(421,153)		(715,911)		(669,360)
Rental equipment, net of accumulated depreciation	$	1,979,012	$	1,807,010	$	1,944,221	$	1,781,321

~~(7)~~

(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 June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Leasing revenue - operating leases	$	65,821	$	54,750	$	129,688	$	109,378
Interest income on finance leases		14,259		11,260		27,504		22,850
Other revenue		4,465		2,675		7,001		4,893
Interest income on financing receivable		1,150		758		2,302		1,435
Total leasing revenue	$	85,695	$	69,443	$	166,495	$	138,556

For finance leases, the net selling gain recognized at lease commencement, representing the difference between the estimated fair value of rental equipment place on lease and net book value, in the amount of $0.2 million for the three and six months ended June 30, 2021 is included in “gain on sale of rental equipment” in the consolidated statements 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,		June 30,		December 31,
	2017		2016		2021		2020
Gross finance lease receivables (1)	$	329,223	$	123,563	$	1,201,835	$	909,727
Unearned income (2)		(101,282)		(23,022)		(384,983)		(280,116)
Net investment in direct finance leases	$	227,941	$	100,541
Net investment in finance leases						816,852		629,611
Allowance for credit losses						(51)		(46)
Net investment in finance leases, net of allowance for credit losses					$	816,801	$	629,565

(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 $135.6 million and $98.2 million of unguaranteed residual value at June 30, 2021 and December 31, 2020, respectively, included in gross finance lease receivables. There were 0 executory costs included in gross finance lease receivables as of June 30, 2021 and December 31, 2020.

(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 June 30, 2021 and December 31, 2020.

(3)NaN major customer represented 74% and 75% of the Company’s finance lease portfolio as of June 30, 2021 and December 31, 2020, 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 June 30, 2021 for the years ending June 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.


2022	$	147,046
2023		147,166
2024		112,305
2025		95,476
2026		88,329
2027 and thereafter		611,513
	$	1,201,835

Financing receivable

The Company has 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.


	June 30,		December 31,
	2021		2020
Gross financing receivable	$	74,383	$	71,761
Unearned income		(12,225)		(13,320)
		62,158		58,441
Allowance for credit losses		(6)		(3)
Total financing receivable	$	62,152	$	58,438

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.

Table of Contents

CAI INTERNATIONAL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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 June 30, 2021 and December 31, 2020, 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):


June 30, 2021	2021		2020		2019		2018		2017		Prior		Total
Net investment in finance leases
Tier 1	$	210,211	$	139,755	$	43,416	$	214,193	$	153,210	$	5,514	$	766,299
Tier 2		5,493		7,284		19,814		10,916		3,633		3,413		50,553
Tier 3		-		-		-		-		-		-		-
Total net investment in finance leases	$	215,704	$	147,039	$	63,230	$	225,109	$	156,843	$	8,927	$	816,852

Financing receivable
Tier 1	$	-	$	25,072	$	28,205	$	-	$	-	$	-	$	53,277
Tier 2		8,354		-		527		-		-		-		8,881
Tier 3		-		-		-		-		-		-		-
Total financing receivable	$	8,354	$	25,072	$	28,732	$	-	$	-	$	-	$	62,158


December 31, 2020	2020		2019		2018		2017		2016		Prior		Total
Net investment in finance leases
Tier 1	$	127,215	$	49,986	$	228,802	$	160,197	$	5,945	$	875	$	573,020
Tier 2		8,425		25,726		12,576		4,272		1,136		4,456		56,591
Tier 3		-		-		-		-		-		-		-
Total net investment in finance leases	$	135,640	$	75,712	$	241,378	$	164,469	$	7,081	$	5,331	$	629,611

Financing receivable
Tier 1	$	27,762	$	30,083	$	-	$	-	$	-	$	-	$	57,845
Tier 2		-		596		-		-		-		-		596
Tier 3		-		-		-		-		-		-		-
Total financing receivable	$	27,762	$	30,679	$	-	$	-	$	-	$	-	$	58,441

‎

Table of Contents

CAI INTERNATIONAL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(6) Debt and Derivative Instruments

~~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

Debt

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

2018

$
46,735
2019

62,606
2020

32,929
2021

30,873
2022

27,974
2023 and thereafter

128,106

$
329,223

~~(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~~June 30, ~~2017~~2021 and December 31, ~~2016~~2020 were as follows (dollars in thousands):

										��

	September 30, 2017					December 31, 2016						June 30, 2021					December 31, 2020
	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 facility - Rail		-		254,000	2.7%		-		223,500	2.4%	October 2020
Revolving credit (1)												$	-	$	883,000	1.6%	$	-	$	680,000	1.6%	June 2023
Revolving credit facility - Euro		-		14,534	2.0%		-		-	-	September 2020		-		21,026	2.4%		-		23,550	2.5%	September 2023
Term loan		22,350		-	3.2%		1,800		21,900	2.9%	April 2018		1,800		22,800	2.2%		1,800		23,700	2.2%	April 2023
Term loan		9,000		114,000	2.8%		9,000		120,750	2.3%	October 2019		-		-	-		68,500		-	1.9%	-
Term loan		7,000		84,250	3.0%		7,000		89,500	2.5%	June 2021		6,000		77,500	4.6%		6,000		80,500	4.6%	October 2023
Term loan		1,188		16,827	3.4%		1,158		17,723	3.4%	December 2020
Term loan		2,780		44,270	3.6%		2,705		46,365	3.6%	August 2021
Senior secured notes		6,110		58,885	4.9%		6,110		64,995	4.9%	September 2022		6,110		37,500	4.9%		6,110		40,555	4.9%	September 2022
Asset-backed notes		65,307		394,311	3.5%		40,000		202,875	3.4%	June 2042
Asset-backed notes 2020-1													63,130		632,223	2.3%		63,130		663,788	2.3%	September 2045
Collateralized financing obligations		23,365		67,343	1.3%		28,693		71,346	1.1%	September 2020		36,943		17,484	1.9%		35,862		33,767	1.7%	February 2026
Term loans held by VIE		-		3,743	2.7%		2,287		3,541	2.5%	June 2019		5,599		22,923	4.2%		5,482		25,752	4.2%	February 2026
		137,100		1,459,163			98,753		1,388,495				119,582		1,714,456			186,884		1,571,612
Debt issuance costs		(3,778)		(8,575)			(3,226)		(7,996)
Debt discount and debt issuance costs													(3,149)		(7,725)			(3,436)		(9,329)
Total Debt	$	133,322	$	1,450,588		$	95,527	$	1,380,499			$	116,433	$	1,706,731		$	183,448	$	1,562,283

~~On June 16, 2017, the Company entered into~~(1) $500 million of this outstanding debt is subject to an amendment to the Third Amended and Restated Revolving Credit Agreement, pursuant to which the revolving credit facility was amended to increase the commitment level from $775.0 million to $960.0 million. interest rate swap at a cost of 0.29% as described below in Derivative Instruments.

The Company maintains its revolving credit facilities to finance the acquisition of rental equipment and for general working capital purposes. As of ~~September~~June 30, ~~2017,~~2021, the Company had ~~$813.9~~$300.6 million in total availability under its revolving credit facilities (net of $0.1 million in letters of credit).

~~On July 6, 2017, CAL Funding III Limited (CAL Funding III)~~, ~~a wholly-owned indirect subsidiary of CAI, issued $240.9 million of 3.6% Class A fixed rate asset-backed notes and $12.2 million of 4.6% Class B fixed rate asset-backed notes (collectively,~~subject to the ~~Notes). Principal and interest~~Company’s ability to meet the collateral requirements under the agreements governing the facilities. Based on the ~~Notes is payable monthly commencing on July 25, 2017, with~~borrowing base and collateral requirements at June 30, 2021, the ~~Notes maturing in June 2042. The proceeds from~~borrowing availability under the ~~Notes were used for general corporate purposes, including repayment~~Company’s revolving credit facilities was $276.0 million, assuming no additional contributions of ~~debt by the Company. The Notes are secured by all of the assets of CAL Funding III.~~assets.

The agreements relating to all of the Company’s debt contain various financial and other covenants. As of ~~September~~June 30, ~~2017,~~2021, 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 107 to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2020, filed with the SEC on March ~~13, 2017.~~1, 2021.

Derivative Instruments

~~(10)~~ In July 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.

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 six months ended June 30, 2021 was recorded on the consolidated balance sheets in ‘Accumulated other comprehensive loss’ and reclassified to ‘Net interest expense’ when realized. The Company had 0 derivative instruments as of June 30, 2020.

Over the next twelve months, the Company expects to reclassify an estimated net loss of $0.8 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 June 30,				Six Months Ended June 30,
Derivative Instrument	Financial Statement Caption	2021		2020		2021		2020
Interest rate swap	Comprehensive income	$	(1,990)	$	-	$	7,519	$	-
Interest rate swap	Net interest expense	$	234	$	-	$	391	$	-

‎

Table of Contents

CAI INTERNATIONAL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The fair value of derivative instruments on the Company’s consolidated balance sheets as of June 30, 2021 and December 31, 2020 was as follows (in thousands):


	Total
	Fair Value		Level 2
June 30, 2021
Derivative assets - interest rate swaps	$	7,830	$	7,830
December 31, 2020
Derivative liabilities - interest rate swaps	$	80	$	80

(7) Stock–Based Compensation Plan

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

The Company grants time-based restricted stock ~~options~~units to certain employees and restricted stock awards to independent directors from time to time ~~to certain employees and independent directors~~ pursuant to its ~~2007 Equity~~2019 Incentive Plan (2019 Plan). Time-based restricted stock units granted to employees have a vesting period of four years, subject to continued employment with the Company; 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.

The Company grants performance-based restricted stock units to certain executives and other key employees. The performance-based restricted stock units vest at the end of a 3-year performance cycle if certain financial performance targets are met. The Company recognizes compensation cost associated with the performance-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 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:



		Weighted
		Average
	Number of	Grant Date
	Shares	Fair Value
Outstanding at December 31, 2020	186,471	$	23.91
Granted	78,823	$	37.21
Vested	(96,163)	$	21.48
Forfeited	(5,071)	$	21.90
Outstanding at June 30, 2021	164,060	$	31.79

The Company recognized stock-based compensation expense relating to restricted stock and performance stock in continuing operations of $0.6 million for the three months ended June 30, 2021, and $1.1 million and $0.5 million for the six months ended June 30, 2021 and 2020, respectively, and a benefit of $0.1 million for the three months ended June 30, 2020. As of June 30, 2021, unamortized stock-based compensation expense relating to restricted stock and performance stock was $4.0 million, which will be recognized over the remaining average vesting period of 2.1 years.

Stock-based compensation expense is recorded as ~~amended (Plan). Under~~a component of administrative expenses in the ~~Plan,~~Company’s consolidated statements of operations with a ~~maximum of 3,421,980 share awards may be granted.~~corresponding credit to additional paid-in capital in the Company’s consolidated balance sheets.

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.~~vested, subject to continued employment with the Company. 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~~six months ended ~~September~~June 30, ~~2017~~2021 and ~~2016:~~2020:



		Nine Months Ended September 30,								Six Months Ended June 30,
	2017				2016				2021				2020
			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		301,176	$	16.39		646,946	$	16.96
Options granted		230,500	$	16.80		245,000	$	7.87
Options exercised		(240,173)	$	11.40		-	$	-		(133,025)	$	14.49		(17,750)	$	13.94
Options forfeited/cancelled		-	$	16.94		(6,000)	$	21.99
Options outstanding at September 30		1,418,582	$	17.22		1,428,255	$	16.31
Options forfeited										-	$	-		(11,814)	$	15.64
Options outstanding at June 30										168,151	$	17.89		617,382	$	17.07
Options exercisable		975,087	$	18.24		1,033,518	$	17.47		168,151	$	17.89		596,297	$	17.11
Weighted average remaining term		5.0 years				4.7 years				4.2 years				3.3 years

The aggregate intrinsic value of stock options exercised during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 and 2020 was ~~$2.2 million.~~$3.8 million and $0.2 million, respectively. The aggregate intrinsic value of all options outstanding as of ~~September~~June 30, ~~2017~~2021 was ~~$18.6~~$6.4 million based on the closing price of the Company’s common stock of ~~$30.32~~$56.00 per share on ~~September 29, 2017,~~June 30, 2021, the last trading day of the quarter.

The Company recognized stock-based compensation expense relating to stock options in continuing operations of ~~$0.4 million and $0.3~~$0.1 million for the three months ended ~~September~~June 30, ~~2017~~2020, and ~~2016, respectively, and $1.2~~less than $0.1 million and ~~$1.0~~$0.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 and ~~2016,~~2020, respectively. As of ~~September~~June 30, ~~2017, the~~2021, there was 0 remaining unamortized stock-based compensation cost relating to stock options granted to the Company’s employees and independent ~~directors was approximately $2.9 million, which is to be recognized over the remaining weighted average vesting period of approximately 2.5 years.~~directors.

The ~~fair value of~~Company did 0t grant any stock options ~~granted to~~during the six months ended June 30, 2021 and 2020.

Employee Stock Purchase Plan

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 ~~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~~may be given an opportunity to purchase shares of the Company’s common stock ~~over~~at a ~~period approximating~~discount using payroll deductions. The ESPP authorizes the ~~expected term~~issuance 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).

~~Table of Contents~~

~~CAI INTERNATIONAL, INC.~~

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

~~Restricted Stock~~

~~The Company grants restricted stock from time~~up to ~~time to certain employees pursuant to the Plan. The restricted stock is valued based on the closing price~~250,000 shares of the Company’s ~~stock on the date of grant and has a vesting period of four years.~~common stock. The ~~following table summarizes the activity of restricted stock~~Company issued 1,922 shares under the ~~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

ESPP during the three and six months ended June 30, 2021, and 7,258 shares during the three and six months ended June 30, 2020. The Company recognized ~~$0.1 million of~~ stock-based compensation expense relating to ~~restricted stock~~the ESPP of less than $0.1 million for both the three and six months ended ~~September~~June 30, ~~2017~~2021 and 2016, and $0.4 million and $0.3 million for the nine months ended September 30, 2017 and 2016, respectively. As of September 30, 2017, unamortized stock-based compensation expense relating to restricted stock was $1.0 million, which will be recognized over the remaining average vesting period of 2.6 years.2020.

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

~~(11)~~ (8) Income Taxes

The consolidated income tax expense for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 and ~~2016,~~2020, was determined based upon estimates of the Company’s consolidated annual effective income tax rate for the years ending December 31, ~~2017~~2021 and ~~2016,~~2020, 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%~~5.7% at ~~September~~June 30, ~~2017,~~2021, compared to ~~38.0% at September 30, 2016. The lower estimated~~an effective tax rate of 8.2% at ~~September~~June 30, ~~2017 was due to a significant increase in the proportion~~2020.

The Barbados Revenue Authority examination 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.

~~The Company was notified on May 1, 2017 that their 2015 federal~~Container Applications Limited 2019 corporate income tax return, ~~was selected for examination. An initial meeting~~concluded on May 28, 2021 with ~~the examining agent was held in August 2017. The examination is in its preliminary data gathering stage.~~no changes.

~~(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 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.

Table of Contents

CAI INTERNATIONAL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The carrying amounts ~~reported in the consolidated balance sheets for~~of cash, restricted cash, accounts receivable and accounts payable reflected in the balance sheets as of June 30, 2021 and December 31, 2020, 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 June 30, 2021 and December 31, 2020 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 fixed-rate term loans, asset-backed notes ~~of $459.6 million~~ and collateralized financing obligations ~~of $90.7~~was $83.5 million, $695.4 million, and $54.4 million as of ~~September~~June 30, ~~2017 were estimated to have~~2021, with a fair value of approximately ~~$458.0~~$87.2 million, $694.3 million, and ~~$92.2~~$56.6 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 $86.5 million, $726.9 million and $69.6 million as of December 31, 2020, with a fair value of approximately $91.1 million, $725.8 million and $71.6 million, respectively. Management believes that the balances of the Company’s ~~revolving credit facilities of $675.5 million, term loans totaling $301.7 million,~~ senior secured notes of ~~$65.0~~$43.6 million and $46.7 million, term loans held by VIE of ~~$3.7~~$28.5 million and ~~net investment in direct finance leases~~$31.2 million, and financing receivable of ~~$227.9~~ $62.2 million and $58.4 million as of June 30, 2021 and December 31, 2020, 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~~$343.3 million of containers ~~and $150.2 million of railcars~~ as of ~~September~~June 30, ~~2017; $63.9 million of containers and $113.5 million of railcars~~2021, all in the twelve months ending ~~September~~June 30, 2022.

(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. In February 2021, the Board of Directors increased the share repurchase plan by an additional 2.0 million shares. 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. During the six months ~~ending September~~ended June 30, ~~2019.~~2021, the Company repurchased 0.4 million shares of its common stock under this repurchase plan, at a cost of approximately $12.8 million. As of June 30, 2021, approximately 2.4 million shares remained available for repurchase under this share repurchase program.

For further information on the Company’s shareholders’ equity, see Note 13 to the consolidated financial statements in the Company’ Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on March 1, 2021.

(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 December 31, 2020, 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 June 30, 2021 and December 31, 2020 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 of~~operates under 1 reportable segment, container leasing, ~~and rail leasing) and logistics.~~

~~The container leasing segment~~which 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~~

As disclosed in Note 2, the Company sold substantially all of the assets of its logistics business and all its railcar assets during the year ended December 31, 2020, and the operations of the logistics and rail ~~leasing segment derives its revenue from~~businesses have been reclassified as discontinued operations in the ~~ownership and leasing of railcars. The logistics segment derives its revenue from the provision of logistics services. There are no inter-segment revenues.~~

With the exception of administrative expenses, operating expenses are directly attributable to each segment. Administrative expenses that are not directly attributable to a segment are allocated to container or rail leasing based on the net book value of equipment in each segment.

The following tables show condensed segment information for the three and nine months ended September 30, 2017 and 2016, reconciled to the Company’s income before income taxes and non-controlling interest as shown in itsaccompanying unaudited consolidated statements of ~~income for such periods (in thousands):~~operations. As a result, the Company will no longer report Logistics or Rail Leasing as segments.

Three Months Ended September 30, 2017

Container Leasing

Rail Leasing

Logistics

Total
Total revenue

$
61,870

$
7,279

$
21,012

$
90,161
Total operating expenses

30,270

5,534

22,463

58,267
Operating income (loss)

31,600

1,745

(1,451)

31,894
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
Purchase of rental equipment (1)

$
132,405

$
16,771

$
-

$
149,176

~~Table of Contents~~

~~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.~~

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.~~
‎

1921

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 June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Switzerland	$	19,620	$	12,472	$	35,934	$	24,988
Korea		11,095		9,899		22,405		19,138
Singapore		10,763		10,098		21,369		19,948
France		9,353		7,730		17,747		15,360
United States		1,200		1,157		2,377		2,393
Other Europe		17,730		13,593		36,080		28,833
Other Asia		15,121		13,676		28,939		26,263
Other International		813		818		1,644		1,633
Total leasing revenue	$	85,695	$	69,443	$	166,495	$	138,556

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.

The following table sets forth the reconciliation of basic and diluted net income per share for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 and ~~2016~~2020 (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 June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Numerator
Net income from continuing operations	$	35,736	$	13,345	$	68,206	$	23,807
Net (loss) income from discontinued operations		-		(16,178)		1,063		(30,177)
Net income (loss) attributable to CAI common stockholders	$	35,736	$	(2,833)	$	69,269	$	(6,370)
Denominator
Weighted-average shares used in per share computation - basic		17,281		17,470		17,276		17,451
Effect of dilutive securities:
Stock options and restricted stock		198		131		228		190
Weighted-average shares used in per share computation - diluted		17,479		17,601		17,504		17,641

Net income (loss) per share attributable to CAI
common stockholders:
Basic
Continuing operations	$	2.07	$	0.76	$	3.95	$	1.36
Discontinued operations		-		(0.92)		0.06		(1.73)
Total basic	$	2.07	$	(0.16)	$	4.01	$	(0.37)
Diluted
Continuing operations	$	2.04	$	0.76	$	3.90	$	1.35
Discontinued operations		-		(0.92)		0.06		(1.71)
Total diluted	$	2.04	$	(0.16)	$	3.96	$	(0.36)

~~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 six months ended ~~September~~June 30, ~~2017 and 2016, excluded from the denominator 41,989and 1,231,455 shares, respectively, of common~~2021, 0 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~~three and six months ended ~~September~~June 30, ~~2017~~2020, 654,384 shares and ~~2016, excluded from the denominator~~ ~~822,226~~ ~~and 1,103,495~~379,662 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.

2022

Table of Contents

CAI INTERNATIONAL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(13) Subsequent Events

Since the announcement of the Merger, two lawsuits have been filed by alleged Company stockholders. The first lawsuit was filed on July 14, 2021 in the United States District Court for the Southern District of New York and is captioned Stein v. CAI International, Inc., et al., No. 1:21-cv-06034. The second lawsuit was filed on July 16, 2021 in the United States District Court for the District of New Jersey and is captioned Whitfield v. CAI International, Inc., et al., No. 2:21-cv-13753-BRM-MAH. Both lawsuits name the Company and members of the Company’s board of directors as defendants. Both lawsuits allege, among other things, that the defendants violated provisions of the Securities and Exchange Act of 1934, as amended, because the Preliminary Proxy Statement allegedly omits material information with respect to the transactions contemplated therein and is therefore false and misleading. The lawsuits seek, among other things, injunctive relief, rescissory damages, and awards of plaintiffs’ fees and expenses.

The Company believes that the allegations against it in each of the foregoing lawsuits lack merit, however, there can be no assurance that any of the defendants will prevail in either of the lawsuits. The Company is not able to estimate any possible loss from this litigation at this time.

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~~2020 filed with the SEC on March ~~13, 2017.~~1, 2021. 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~~June 30, ~~2017~~2021 and ~~2016,~~2020, and our average utilization for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 and ~~2016:~~2020:



	As of September 30,				As of June 30,
	2017		2016		2021		2020
Owned container fleet in TEUs		1,121,355		941,345		1,806,375		1,597,898
Managed container fleet in TEUs		83,086		174,162		55,230		63,757
Total container fleet in TEUs		1,204,441		1,115,507		1,861,605		1,661,655

Owned container fleet in CEUs		1,188,078		1,010,083		1,868,606		1,630,054
Managed container fleet in CEUs		75,596		156,543		72,304		79,643
Total container fleet in CEUs		1,263,674		1,166,626		1,940,910		1,709,697

Owned railcar fleet in units		6,795		6,136



	Three Months Ended				Nine Months Ended
	September 30, 2017				September 30, 2017				Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016		2021		2020		2021		2020
Average container fleet utilization in CEUs		98.0%		93.3%		96.9%		92.5%		99.6%		98.0%		99.6%		98.1%
Average owned container fleet utilization in CEUs		98.2%		94.0%		97.1%		93.2%		99.7%		98.0%		99.7%		98.2%
Average railcar fleet utilization		89.3%		96.2%		91.0%		96.0%

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

~~Table of Contents~~

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~~The total fleet excludes new units not yet leased and off-hire units designated for sale. If

Table of Contents

Merger Agreement with Mitsubishi HC Capital Inc.

On June 17, 2021, the Company entered into an Agreement and Plan of Merger (the Merger Agreement) with Mitsubishi HC Capital Inc., a Japanese corporation (Parent), and Cattleya Acquisition Corp., a Delaware corporation and wholly-owned subsidiary of Parent (Merger Sub), relating to the proposed acquisition of the Company by Parent. Pursuant to the terms of the Merger Agreement, Merger Sub will merge with and into the Company (the Merger), with the Company continuing as the surviving corporation in the Merger as a wholly-owned subsidiary of Parent. Upon completion of the Merger, the Company will cease to be a publicly traded company and at the effective time of the Merger (the Effective Time): (i) each share of the Company’s common stock that is issued and outstanding immediately prior to the Effective Time (other than Excluded Shares (as defined in the Merger Agreement)) will cease to be outstanding and will be converted into the right to receive $56.00, in cash, without interest, subject to deductions of any applicable withholding taxes; (ii) each share of the Company’s 8.50% Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual Stock (Series A Preferred Stock) that is issued and outstanding immediately prior to the Effective Time, other than Excluded Shares, will be converted into the right to receive an amount equal to the sum of: (a) the liquidation preference of $25.00 per share, plus (b) the aggregate amount of all accrued and unpaid dividends on such Series A Preferred Stock as of the Effective Time, in cash, without interest, subject to deductions of any applicable withholding taxes; and (iii) each share of the Company’s 8.50% Series B Fixed-to-Floating Rate Cumulative Redeemable Perpetual Stock (Series B Preferred Stock) that is issued and outstanding immediately prior to the Effective Time, other than Excluded Shares, will be converted into the right to receive an amount equal to the sum of: (a) the liquidation preference of $25.00 per share, plus (b) the aggregate amount of all accrued and unpaid dividends on such Series B Preferred Stock as of the Effective Time, in cash, without interest, subject to deductions of any applicable withholding taxes.

The closing of the Merger is subject to various closing conditions, each of which is more fully described in the Company’s Current Report on Form 8-K, filed with the SEC on June 21, 2021, the Company’s preliminary proxy statement on Schedule 14A relating to the Merger, filed with the SEC on July 12, 2021 (the Preliminary Proxy Statement), and the Company’s definitive proxy statement on Schedule 14A relating to the Merger to be filed with the SEC.

The closing of the Merger is subject to, among other things, adoption of the Merger Agreement by the affirmative vote of the holders of at least a majority of the outstanding shares of common stock entitled to vote at a special meeting of the common stockholders of the Company to be held on a date to be announced, the completion of the Migration (as defined the Preliminary Proxy Statement) and receipt of regulatory approval.

The Merger is expected to be completed in the late third quarter or early fourth quarter of 2021. However, the exact timing of completion of the Merger cannot be predicted because the Merger is subject to the satisfaction or (to the extent permitted by applicable law) waiver of the conditions to the completion of the Merger more fully described in the Preliminary Proxy Statement.

We have incurred Merger-related costs of approximately $3.1 million during the six months ended June 30, 2021.

See also Item 1A. Risk Factors——“Risks Related to the Merger.”

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 2020, resulting in weak container leasing demand. However, we have seen a significant increase in leasing demand since the second half of 2020, which we expect to continue through 2021. However, it remains difficult to predict the future impact that COVID-19, including the emergence of new ~~units~~variants of the virus, will have on our business, and whether the rebound in demand will be sustained into 2022 and beyond.

We were initially concerned that the sharp decrease in global container volumes early in 2020 would increase the financial challenges facing our customers and lead to increased credit risk. While we are not yet ~~leased are included~~through the pandemic, container freight rates and the financial performance of our customers have generally held up better than anticipated, with freight rates reaching record levels. As the impact of the pandemic grew, 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. We continue to closely monitor our customers’ payment performance and expect the potential for elevated credit risk 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 “Business Risk – 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 our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on March 1, 2021.

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Disposal of Logistics and Rail Businesses

On August 14, 2020, we sold substantially all the assets of our logistics business to NFI, a North American logistics provider, for cash proceeds of $6.2 million. On December 29, 2020, we sold all our remaining railcar fleet to affiliates of Infinity Transportation for cash proceeds of $228.1 million. As a result, the operating results of the logistics and rail leasing businesses have been classified as discontinued operations in the ~~total fleet, utilization would be 97.2%~~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 reflect the reclassification of the logistics and ~~95.9% for the total container fleet, 97.2% and 95.9% for the owned container fleet, and 77.4% and 79.9% for the~~ railcar ~~fleet, for the three and nine months ended~~ ~~September 30, 2017, respectively.~~

~~On August 31, 2016, Hanjin Shipping Co., Ltd. (Hanjin), 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% of our rental revenue assets. We maintain insolvency insurance that covers the value of unreturned containers, damage to recovered containers, recovery costs, legal expenses, and the loss of post-bankruptcy income for a period from the default date leasing businesses as discontinued operations. 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~~June 30, ~~2017~~2021 Compared to Three Months Ended ~~September~~Jun 30, ~~2016~~2020

The following table summarizes our ~~operating~~ results of operations for the three months ended ~~September~~June 30, ~~2017~~2021 and ~~2016~~2020 (dollars in thousands):


									Three Months Ended June 30,				Change
	Three Months Ended								2021		2020		Amount		Percent
	September 30,				Increase/(Decrease)
	2017		2016		Amount		Percent
Total revenue	$	90,161	$	78,472	$	11,689	15	%
Total leasing revenue									$	85,695	$	69,443	$	16,252	23	%
Operating expenses		58,267		71,110		(12,843)	(18)			34,856		36,950		(2,094)	(6)	%
Total other expenses		14,408		10,987		3,421	31			11,040		16,037		(4,997)	(31)	%
Net income (loss) attributable to CAI common stockholders		17,587		(5,451)		23,038	(423)			35,736		(2,833)		38,569	(1,361)	%

~~Total~~The increase in total revenue for the three months ended ~~September~~June 30, ~~2017 increased $11.7 million, or 15%,~~2021 compared to the three months ended ~~September~~June 30, ~~2016, due~~2020, was attributable to ~~a $12.2~~an $11.1 million, or ~~25%~~20%, increase in ~~container~~operating lease ~~income, offset by~~revenue, a ~~$0.3~~$3.0 million, or 4%27%, increase in finance lease revenue, and a $2.2 million, or 64%, increase in other lease revenue. The decrease in ~~rail lease income and a $0.2 million, or 1%, decrease in logistics revenue. Operating~~operating expenses for the three months ended ~~September~~June 30, ~~2017 decreased $12.8 million, or 18%,~~2021 compared to the three months ended ~~September~~June 30, ~~2016, as a~~2020, was the result of a ~~$2.1~~$5.2 million, or 7%293%, ~~decrease~~increase in ~~depreciation expense,~~gain on sale of rental equipment and a ~~$5.3~~$2.7 million, or ~~60%~~53%, decrease in storage, handling and other expenses, partially offset by a ~~$0.2~~$2.5 million, or 1%9%, ~~decrease~~increase in ~~logistics transportation costs,~~depreciation expense and a ~~$5.0~~$3.3 million, or ~~150%~~49%, ~~decrease in loss on sale of used rental equipment, and a $0.3 million, or 3%, decrease~~increase in administrative expenses.

Total other expenses ~~primarily net interest expense,~~ for the three months ended ~~September~~June 30, ~~2017 increased $3.4 million, or 31%,~~2021 decreased compared with the three months ended ~~September~~June 30, ~~2016.~~ 2020, primarily due to a $4.6 million, or 29%, decrease in net interest expense.

The increase in revenue ~~and~~together with the decrease in operating expenses, total other expense and 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~~June 30, ~~2017~~2021 of $38.6 million compared to the three months ended ~~September~~June 30, ~~2016.~~2020.

~~Revenue.~~Total leasing revenue


	Three Months Ended June 30,				Change
($ in thousand)	2021		2020		Amount		Percent
Total leasing revenue	$	85,695	$	69,443	$	16,252	23	%

The ~~following discussion explains the significant changes~~increase in ~~the composition of our~~ total leasing revenue for the three months ended ~~September~~June 30, ~~2017,~~2021 compared to the three months ended ~~September~~June 30, ~~2016:~~

~~Container Lease Income.~~ ~~Container lease income increased $12.2~~2020 was mainly attributable to an $8.9 million ~~or 25%, to $61.9 million for the three months ended September 30, 2017,~~increase in rental revenue resulting from ~~$49.7 million for the three months ended September 30, 2016. Rental revenue increased by $10.7 million, primarily due to~~ a ~~23%~~16% increase in the average number of CEUs of on-lease owned containers, a $3.4 million increase in rental revenue arising from payments made by a cash-based customer, a $3.0 million increase in interest income on finance leases resulting from an increase in the average number of CEUs on finance leases, and a $0.9 million increase in ~~handling revenues as a result of an increase in lease-outs between the two periods. The increase in~~ rental revenue ~~was partially offset by a $0.5 million decrease~~ resulting from a ~~1% decrease~~2% increase in average owned container per diem rental ~~rates and a $0.5 million decrease in repair fees and other container revenue as a result~~rates.

Depreciation of ~~our efforts in the prior year to off-load older containers from our fleet. In addition to the net~~rental equipment


	Three Months Ended June 30,				Change
($ in thousand)	2021		2020		Amount		Percent
Depreciation of rental equipment	$	29,270	$	26,750	$	2,520	9	%

The 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~~June 30, ~~2017, from $7.6 million for~~2021 compared to the three months ended ~~September~~June 30, ~~2016, primarily due~~2020 was attributable to ~~a $0.4 million~~an 8% increase in the average size of our owned container fleet subject to depreciation over the last twelve months.

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Storage, handling and other expenses


	Three Months Ended June 30,				Change
($ in thousand)	2021		2020		Amount		Percent
Storage, handling and other expenses	$	2,444	$	5,163	$	(2,719)	(53)	%

The 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 for the three months ended September 30, 2017, from $21.2 million for the three months ended September 30, 2016.

~~Expenses.~~ ~~The following discussion explains the significant changes~~ in storage, handling and other expenses for the three months ended ~~September~~June 30, ~~2017~~2021 compared to the three months ended ~~September~~June 30, ~~2016:~~2020 was primarily attributable to a $1.9 million decrease in storage and handlings costs and a $0.9 million decrease in repair expenses due to a decrease in the average size of the off-lease fleet.

~~Table of Contents~~

~~Depreciation of Rental Equipment.~~ ~~Depreciation~~Gain on sale of rental equipment ~~decreased by $2.1 million, or 7%,~~


	Three Months Ended June 30,				Change
($ in thousand)	2021		2020		Amount		Percent
Gain on sale of rental equipment	$	7,026	$	1,788	$	5,238	293	%

While there was a decrease of 43% in the number of CEUs of containers sold during the three months ended June 30, 2021 compared to ~~$27.8 million~~the three months ended June 30, 2020, there was a 50% increase in the average sale price per CEU, resulting in a 541% increase in gain per CEU, due to an increase in demand for equipment.

Administrative expenses


	Three Months Ended June 30,				Change
($ in thousand)	2021		2020		Amount		Percent
Administrative expenses	$	10,168	$	6,825	$	3,343	49	%

The increase in administrative expenses for the three months ended ~~September~~June 30, ~~2017, from $29.9 million for~~2021 compared to the three months ended ~~September~~June 30, ~~2016. This decrease~~2020 was primarily due 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 in the owned container fleet has been offset by the decreasing impact of the change in residual values that was made effective on July 1, 2016.

~~Storage, Handling and Other Expenses.~~ Storage, handling and other expenses decreased by $5.3 million, or 60%, to $3.5 million for the three months ended September 30, 2017, from $8.8 million for the three months ended September 30, 2016. The decrease 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 million increase in storage and handling expenses in the Rail business as the size of the fleet increased, and decreased utilization led to increased storage costs.

~~Logistics Transportation Costs.~~ Logistics transportation costs remained relatively consistent between the two periods, decreasing by $0.2 million, or 1%, to $17.9 million for the three months ended September 30, 2017, from $18.0 million for 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 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% in the average margin per unit, resulting in an increase in gain on sale 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 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 increased by $1.9 million, primarily due to a $1.4 million increase in payroll-related costs, aslargely due to increased incentive-based compensation, a ~~result of an increase in headcount and an increase in the bonus accrual, as well as a $0.7~~$2.3 million increase in bad debt expense ~~arising~~due to cash receipts from ~~certain slow paying customers. These increases were~~a previously reserved customer during the second quarter of 2020, and a $1.4 million increase in legal expense mainly due to the Merger Agreement with MHC, partially offset by a ~~$0.6~~$1.5 million ~~reduction~~decrease in severance costs associated with the ~~contingent consideration liability related to acquisitions.~~change in our Chief Executive Officer during the second quarter of 2020.

~~Net Interest Expense~~. Other expense


	Three Months Ended June 30,				Change
($ in thousand)	2021		2020		Amount		Percent
Net interest expense	$	11,114	$	16,134	$	(5,020)	(31)	%
Other income		(74)		(97)		23	24	%
	$	11,040	$	16,037	$	(4,997)	(31)	%

Net interest expense ~~increased by $3.1 million, or 28%, to $14.0 million~~

The decrease in net interest expense for the three months ended ~~September~~June 30, ~~2017, from $10.9 million for~~2021 compared to the three months ended ~~September~~June 30, ~~2016. The increase~~2020 was due primarily to ~~an increase~~a decrease in the average interest rate on our outstanding debt from approximately 2.9% as of June 30, 2020 to 2.2% as of June 30, 2021, caused primarily by a decrease in LIBOR, as well as a decrease in our average loan principal balance between the two periods, ~~as well as an increase~~mainly due to the paydown of debt with proceeds from the sale of our railcar portfolio in ~~our average interest rate, caused by an increase in LIBOR, from approximately 2.6% to 3.1%.~~2020.

Other ~~Expense~~. income

Other ~~expense increased by $0.4 million, or 428%, to $0.4 million~~income for the three months ended ~~September~~June 30, ~~2017, from a $0.1 million loss~~2021 remained relatively consistent with the three months ended June 30, 2020.

Income tax expense


	Three Months Ended June 30,				Change
($ in thousand)	2021		2020		Amount		Percent
Income tax expense	$	1,856	$	904	$	952	105	%

The increase in income tax expense for the three months ended ~~September~~June 30, ~~2016, due~~2021 compared 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. The loss on foreign exchange for the three months ended ~~September~~June 30, ~~2017~~2020 was ~~caused primarily~~mainly attributable to an increase in income before tax, partially offset by ~~settling intercompany loans that were denominated~~a decrease in ~~Euros.~~

~~Income Tax Expense.~~ ~~Income~~the estimated effective tax expense decreased by $1.9 million, or 106%, to a benefit of $0.1 million for the three months ended September 30, 2017, from an expense of $1.8 million for the three months ended September 30, 2016.rate. The full-year estimated effective tax rate before discrete items was 5.7% at ~~September~~June 30, ~~2017 was 1.5%,~~2021, compared to ~~38.0% for the three months ended September 30, 2016. The lower estimated~~an effective tax rate of 8.2% at ~~September~~June 30, ~~2017~~2020. The decrease in the estimated full-year effective tax rate was primarily due to an increase in the proportion of pretax income generated in lower tax jurisdictions.

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~~Nine~~

Preferred stock dividends


	Three Months Ended June 30,				Change
($ in thousand)	2021		2020		Amount		Percent
Preferred stock dividends	$	2,207	$	2,207	$	-	-	%

Preferred stock dividends for the three months ended June 30, 2021 remained consistent with the three months ended June 30, 2020.

Loss from discontinued operations


	Three Months Ended June 30,				Change
	2021		2020		Amount		Percent
($ in thousand)
Total revenue	$	-	$	28,930	$	(28,930)	(100)	%
Operating expenses		-		46,325		(46,325)	(100)	%
Interest expense		-		1,458		(1,458)	(100)	%
Income tax benefit		-		(2,675)		2,675	(100)	%
Net loss from discontinued operations	$	-	$	(16,178)	$	16,178	(100)	%

There was no income or expense arising from discontinued operations for the three months ended June 30, 2021.

Results of Operations - Six Months Ended ~~September~~June 30, ~~2017~~2021 Compared to ~~Nine~~Six Months Ended ~~September~~June 30, ~~2016~~2020

The following table summarizes our ~~operating~~ results of operations for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 and ~~2016~~2020 (dollars in thousands):


									Six Months Ended June 30,				Change
	Nine Months Ended								2021		2020		Amount		Percent
	September 30,				Increase
	2017		2016		Amount		Percent
Total revenue	$	254,359	$	217,080	$	37,279	17	%
Total leasing revenue									$	166,495	$	138,556	$	27,939	20	%
Operating expenses		179,746		176,404		3,342	2			66,893		73,675		(6,782)	(9)	%
Total other expenses		38,567		31,942		6,625	21			22,622		34,557		(11,935)	(35)	%
Net income attributable to CAI common stockholders		35,497		5,377		30,120	560
Net income (loss) attributable to CAI common stockholders										69,269		(6,370)		75,639	(1,187)	%

~~Table of Contents~~

~~Total~~The increase in total revenue for the ~~nine~~six months ended ~~September~~June 30, ~~2017 increased $37.3 million, or 17%,~~2021 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016, due~~2020, was attributable to a ~~$16.9~~$20.3 million, or ~~11%~~19%, increase in ~~container~~operating lease ~~income,~~revenue, a ~~$1.0~~$4.7 million, or 4%20%, increase in ~~rail~~finance lease ~~income~~revenue, and a ~~$19.4~~$3.0 million, or ~~46%~~47%, increase in ~~logistics~~other lease revenue. ~~Operating~~The decrease in operating expenses for the ~~nine~~six months ended ~~September~~June 30, ~~2017 increased $3.3 million, or 2%,~~2021 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016, as a~~2020, was the result of a ~~$5.4~~$10.3 million, or 301%, increase in gain on sale of rental equipment and a $4.7 million, or 49%, decrease in storage, handling and other expenses, partially offset by a $4.0 million, or 7%, increase in depreciation expense and a ~~$16.5~~$4.2 million, or ~~47%, increase in logistics transportation costs, and a $2.5 million, or 9%~~31%, increase in administrative expenses.

Total other expenses ~~offset by~~for the six months ended June 30, 2021 decreased compared with the six months ended June 30, 2020, primarily due to a ~~$10.5~~$12.1 million, or 39%, decrease in ~~storage, handing and other expenses and a $10.5 million, or 132%, decrease in loss on sale of used rental equipment. Total other expenses, primarily~~ net interest ~~expense, for the nine months ended September 30, 2017 increased $6.6 million, or 21%, compared with the nine months ended September 30, 2016.~~ expense.

The increase in revenue ~~was partially offset by~~together with the ~~increase~~decrease in operating expenses, total other expense and net loss from discontinued operations resulted in ~~a $30.1 million, or 560%,~~an increase in net income attributable to CAI common stockholders for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 of $75.6 million compared to the ~~same nine-month period~~six months ended June 30, 2020.

Total leasing revenue


	Six Months Ended June 30,				Change
($ in thousand)	2021		2020		Amount		Percent
Total leasing revenue	$	166,495	$	138,556	$	27,939	20	%

The increase in ~~2016.~~

~~Revenue.~~ ~~The following discussion explains the significant changes in the composition of our~~ total leasing revenue for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2021 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016:~~

~~Container Lease Income.~~ Container lease income increased $16.9 million, or 11%, to $169.8 million 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 due2020 was mainly attributable to a ~~15%~~$15.1 million increase in rental revenue resulting from a 14% increase in the average number of CEUs of on-lease owned containers, an $8.7 million increase in rental revenue arising from payments made by a cash-based customer, and a $5.5 million increase in interest income on finance leases and financing receivable resulting from an increase in the average number of CEUs on finance leases and financing receivable, partially offset by a ~~$4.3~~$1.4 million decrease in rental revenue resulting from a 3%1% decrease in the average owned container per diem rental rates.

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Depreciation of rental equipment


	Six Months Ended June 30,				Change
($ in thousand)	2021		2020		Amount		Percent
Depreciation of rental equipment	$	57,821	$	53,798	$	4,023	7	%

The ~~reduction~~increase 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~~six months ended ~~September~~June 30, ~~2017, from $22.5 million~~ ~~for~~2021 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016, primarily as~~2020 was mainly attributable to a ~~result of an 8%~~5% increase in the average size of our ~~on-lease railcar~~owned container fleet ~~during~~subject to depreciation over the last twelve ~~months, partially offset by a $0.4 million decrease resulting from the expiration of a significant lease.~~ months.

~~Logistics Revenue.~~ Logistics revenue increased $19.4 million, or 46%, to $61.1 million for the nine months ended September 30, 2017, from $41.7 million for the nine months ended September 30, 2016. The increase was primarily due to an additional $17.9 million of revenue from the acquisition of Challenger in February 2016 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 expenses for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016:~~

~~Depreciation of Rental Equipment.~~ ~~Depreciation of rental equipment increased by $5.4 million, or 7%, to $82.8 million~~for the nine months ended September 30, 2017, from $77.4 million for the nine months ended September 30, 2016. This increase was primarily attributable 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.

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


	Six Months Ended June 30,				Change
($ in thousand)	2021		2020		Amount		Percent
Storage, handling and other expenses	$	4,933	$	9,592	$	(4,659)	(49)	%

The decrease in storage, handling and other expenses for the ~~nine~~six months ended ~~September~~June 30, ~~2017, from $27.2 million for~~2021 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016. The decrease~~2020 was primarily attributable to a ~~$10.6~~$3.4 million decrease in storage and handling costs asand a $1.3 million decrease in repair expenses due to a decrease in the average size of the off-lease ~~fleet decreased~~fleet.

Gain on sale of rental equipment


	Six Months Ended June 30,				Change
($ in thousand)	2021		2020		Amount		Percent
Gain on sale of rental equipment	$	13,769	$	3,435	$	10,334	301	%

While there was a decrease of 31% in the number of CEUs of containers sold during the six months ended June 30, 2021 compared to the prior year 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 $1.3 million increase in storage and handling expenses in the Rail business as the size of the fleet increased, while utilization decreased by 5%, and an increase of $0.5 million in container liability insurance premium resulting from the Hanjin insurance claim.

~~Logistics Transportation Costs.~~ ~~Logistics transportation costs increased by $16.5 million, or 47%, to $51.6 million for the nine~~six months ended ~~September~~June 30, 2017, from $35.1 million for the nine months ended September 30, 2016. The increase was mainly attributable 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, 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,2020, there was ana 39% increase ~~of 137%~~ in the average ~~margin~~sale price per ~~unit,~~CEU, resulting in a 453% increase in gain ~~on sale 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 September 30, 2016. The increase was 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 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 wasper CEU, due to an increase in demand for equipment.

Administrative expenses


	Six Months Ended June 30,				Change
($ in thousand)	2021		2020		Amount		Percent
Administrative expenses	$	17,908	$	13,720	$	4,188	31	%

The increase in administrative expenses for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 was primarily attributable to a $2.1 million increase in payroll-related costs, largely due to increased incentive-based compensation, and a $3.5 million increase in bad debt expense due to cash receipts from a previously reserved customer during the second quarter of 2020, partially offset by a $1.5 million decrease in severance costs associated with the change in our Chief Executive Officer during the second quarter of 2020.

Other expense


	Six Months Ended June 30,				Change
($ in thousand)	2021		2020		Amount		Percent
Net interest expense	$	22,286	$	34,408	$	(12,122)	(35)	%
Other expense		336		149		187	126	%
	$	22,622	$	34,557	$	(11,935)	(35)	%

Net interest expense

The decrease in net interest expense for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 was due primarily to a decrease in the average interest rate on our outstanding debt from approximately 2.9% as of June 30, 2020 to 2.2% as of June 30, 2021, caused primarily by a decrease in LIBOR, as well as a decrease in our average loan principal balance between the two periods, ~~as well as an increase~~mainly due to the paydown of debt with proceeds from the sale of our railcar portfolio in ~~our average interest rate, caused by an increase in LIBOR, from approximately 2.6% to 3.1%.~~2020.

Other ~~Expense~~. expense

Other expense, ~~increased by $~~0.2 million, or 60%, to $0.7 million for the nine months ended September 30, 2017, 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. Therepresenting a 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 $0.5~~of $0.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2021, increased from ~~$3.3~~a loss of $0.1 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~ 2020, primarily as a result of movements in the U.S. Dollar exchange rate against the Euro.

‎

Table of Contents

Income tax expense


	Six Months Ended June 30,				Change
($ in thousand)	2021		2020		Amount		Percent
Income tax expense	$	4,360	$	2,103	$	2,257	107	%

The increase in income tax expense for the six months ended June 30, 2021 compared to six months ended June 30, 2020 was mainly attributable to an increase in income before tax, partially offset by a decrease in the estimated effective tax rate. The full-year estimated effective tax rate before discrete items was 5.7% at ~~September~~June 30, ~~2017 was 1.5%,~~2021, compared to ~~38.0% for the nine months ended September 30, 2016. The lower estimated~~an effective tax rate of 8.2% at ~~September~~June 30, ~~2017~~2020. The decrease in the estimated full-year effective tax rate was primarily due to an increase in the proportion of pretax income generated in lower tax jurisdictions.

Preferred stock dividends


	Six Months Ended June 30,				Change
($ in thousand)	2021		2020		Amount		Percent
Preferred stock dividends	$	4,414	$	4,414	$	-	-	%

Preferred stock dividends for the six months ended June 30, 2021 remained consistent with the six months ended June 30, 2020.

Income (loss) from discontinued operations


	Six Months Ended June 30,				Change
	2021		2020		Amount		Percent
Total revenue	$	293	$	64,839	$	(64,546)	(100)	%
Operating (income) expenses		(324)		98,590		(98,914)	(100)	%
Interest expense		-		3,560		(3,560)	(100)	%
Income tax benefit		(446)		(7,134)		6,688	(94)	%
Net income (loss) from discontinued operations	$	1,063	$	(30,177)	$	31,240	(104)	%

Total revenue and operating expenses from discontinued operations for the six months ended June 30, 2021 were a result of immaterial differences in the actual transactions from the amounts accrued prior to the sale of the logistics and railcar businesses in 2020.

Liquidity and Capital Resources

As of ~~September~~June 30, ~~2017,~~2021, we had cash and cash equivalents of ~~$35.0~~$51.2 million, including ~~$22.4~~$12.4 million of restricted cash, and $21.3 million of cash held by variable interest ~~entities.~~entities (VIEs). Our principal sources of liquidity are cash in-flows provided by operating activities, proceeds from the sale of rental equipment, borrowings from financial institutions, and equity and debt offerings. Our cash in-flows are used to finance capital expenditures and meet debt service requirements.

As of ~~September~~June 30, ~~2017,~~2021, 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	$	904,026	$	1,204,698
Term loans		301,665		301,665		108,100		108,100
Senior secured notes		64,995		64,995		43,610		43,610
Asset-backed notes		459,618		459,618		695,353		695,353
Collateralized financing obligations		90,708		90,708		54,427		54,427
Term loans held by VIE		3,743		3,743		28,522		28,522
		1,596,263		2,410,269		1,834,038		2,134,710
Debt issuance costs		(12,353)		-
Debt discount and debt issuance costs						(10,874)		-
Total	$	1,583,910	$	2,410,269	$	1,823,164	$	2,134,710

As of ~~September 30, 2017,~~March 31, 2021, we had ~~$813.9~~$300.6 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~~June 30, ~~2017,~~2021, the borrowing availability under our revolving credit facilities was ~~$74.6~~$276.0 million, assuming no additional contributions of assets.

~~On July 6, 2017, CAL Funding III Limited (CAL Funding III),~~As of June 30, 2021, we had a ~~wholly-owned indirect subsidiary~~total of ~~CAI, issued $240.9~~$1,405.4 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, which accounts for 77% 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~~

Table of ~~the assets of CAL Funding III.~~Contents

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 107 to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2020, filed with the SEC on March ~~13, 2017.~~1, 2021.

We continue to monitor the COVID-19 pandemic 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, the magnitude and duration of the pandemic, and the rollout and efficacy of vaccines. Assuming that our ~~lenders remain solvent,~~customers continue to 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) a consolidated funded debt to consolidated tangible net worth ratio, in the case of our debt facilities, of no more than 3.75:1.00, and in the case of our asset-backed notes, of no more than 4.50:1.00; and (2) a fixed charge coverage ratio, in the case of our debt facilities, of at least 1.20:1.00, and in the case of our asset-backed notes, of at least ~~1.10:~~2.50:1.00. As of ~~September~~June 30, ~~2017,~~2021, 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.

~~Table of Contents~~

Cash Flows

~~Cash Flow~~

The following table sets forth certain cash flow information for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 and ~~2016~~2020 (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



	Six Months Ended June 30,
	2021		2020
Net income (loss)	$	73,683	$	(1,956)

Net income from continuing operations adjusted for non-cash items		116,924		79,509
Changes in working capital		48,452		38,719
Net cash provided by operating activities of continuing operations		165,376		118,228
Net cash used in investing activities of continuing operations		(228,823)		(13,265)
Net cash provided by (used in) financing activities of continuing operations		50,361		(123,410)
Net cash (used in) provided by discontinued operations		(2,060)		15,447
Effect on cash of foreign currency translation		(127)		(189)
Net decrease in cash and restricted cash		(15,273)		(3,189)
Cash and restricted cash at beginning of period		66,502		73,239
Cash and restricted cash at end of period	$	51,229	$	70,050

Cash Flows from Continuing Operations

Operating Activities ~~Cash Flows~~

Net cash provided by operating activities of ~~$104.8~~continuing operations was $165.4 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017, increased $10.9~~2021, an increase of $47.1 million ~~from $93.9~~compared to $118.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2020. The increase was due to a ~~$21.4~~$37.4 million increase in ~~net~~ income from continuing operations as adjusted for depreciation, ~~amortization~~impairment and other non-cash items, ~~offset by~~and a ~~$10.5~~$9.7 million ~~decrease~~increase in our net working capital adjustments. The increase of $37.4 million in ~~net~~ income from continuing operations as adjusted for non-cash items was primarily attributable to an increase of $44.4 million in income from continuing operations, a decrease of $3.5 million in bad debt recovery due to cash receipts from a cash-based customer in the prior year, and an increase of $4.0 million in depreciation expense, partially offset by an increase of $10.3 million in gain on sale of rental equipment, mainly due to an increase in container prices as a result of ~~$30.1~~high demand, and a decrease of $4.4 million in ~~net~~deferred income ~~an increase~~taxes.

Net working capital provided by operating activities of ~~$5.5~~$48.5 million in ~~depreciation expense,~~the six months ended June 30, 2021, was due to a $46.9 million decrease in net investment in finance leases, representing the receipt of principal payments, a $2.4 million increase in accounts payable, accrued expenses and ~~an increase~~other liabilities, primarily caused by the timing of ~~$0.9~~cash payments, and a $1.8 million decrease in ~~amortization of intangible~~prepaid expenses and other 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 debt expense, and a $1.2 million reduction in contingent consideration. Net working capital used in operating activities of $15.7 million in the nine months ended September 30, 2017, was due to a $6.3$2.4 million increase in accounts receivable, primarily caused by ~~an increase~~the timing of cash receipts from customers. Net working capital provided by operating activities of $38.7 million in ~~lease~~the six months ended June 30, 2020 was due to a $35.7 million decrease in net investment in finance leases, representing the receipt of principal payments and ~~logistics activity,~~ a ~~$5.9~~$4.1 million decrease in accounts receivable, primarily caused by the timing of cash receipts from customers, partially offset by a $1.0 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. Net working capital used in operating activitiescash payments.

‎

Table of $5.2 million in the nine months ended September 30, 2016, was due to a $7.6 million increase in accounts receivable, primarily a result of the logistics acquisitions, partially offset by a $1.5 million increase in accounts payable, accrued expenses and other liabilities, primarily caused by the timing of payments, and a $1.0 million increase in unearned revenue. Contents

Investing Activities ~~Cash Flows~~

Net cash used in investing activities ~~increased $93.4 million to $216.6~~of continuing operations was $228.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017, from $123.2~~2021, an increase of $215.6 million compared to net cash used in investing activities of $13.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2020. The increase in cash ~~usage~~used was ~~primarily~~ attributable to a ~~$107.2~~$244.0 million increase in ~~the~~ purchase of rental equipment, partially offset by a $22.1 million decrease in purchase of financing receivable, a $3.1 million increase in proceeds from sale of rental equipment and a ~~$5.0~~$3.1 million ~~decrease~~increase in receipt of principal payments from ~~direct~~ financing ~~leases, partially offset by a $15.6 million decrease in acquisition costs and a $2.7 million increase in proceeds from the sale of used containers.~~ receivable.

Financing Activities ~~Cash Flows~~

Net cash provided by financing activities of continuing operations was $50.4 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017, increased $86.0~~2021, an increase of $173.8 million compared to net cash used in financing activities of $123.4 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2020. During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2021, our net cash inflow from borrowings was ~~$108.1~~$76.3 million compared to ~~$24.2~~net cash outflow of $119.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016, reflecting an~~2020. The increase in net cash inflow from borrowings ~~used~~was partially offset by an increase of $12.8 million for the ~~acquisition~~repurchase of ~~rental equipment during~~common stock and an increase of $10.4 million in dividends paid to common stockholders.

Cash Flows from Discontinued Operations

Net cash used in discontinued operations was $2.1 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017, compared to the nine months ended September 30, 2016. The increase was also a result of~~2021, a decrease of ~~$9.2~~$17.5 million ~~used~~compared to ~~repurchase our stock pursuant to our previously announced stock repurchase plan and a $1.4~~net cash provided by discontinued operations of $15.4 million ~~increase in proceeds received from~~for the ~~exercise of stock options, partially offset by a $6.8 million increase in restricted cash and a $1.7 million increase in debt issuance costs, both~~six months ended June 30, 2020. The change between the two periods was primarily ~~related~~due to the ~~asset-backed notes issued~~sale of the logistics and railcar businesses in ~~the current year.~~2020.

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 In February ~~4, 2016, the Company’s~~2021, our Board of Directors ~~approved a one million share increase in~~increased the ~~previously approved~~ share repurchase ~~program, bringing the total authorized for repurchase to two~~plan by an additional 2.0 million ~~shares of our outstanding common stock. T~~heshares. 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 not have an expiration date~~ and ~~does not oblige us to acquire~~may be discontinued at any ~~particular amount~~time. During the six months ended June 30, 2021, we repurchased 0.4 million shares of our common stock. under this repurchase plan, at a cost of approximately $12.8 million. As of ~~September~~June 30, ~~2017,~~2021, approximately ~~0.8~~2.4 million shares remained available for repurchase under our share repurchase ~~plan.~~program.

‎

Table of Contents

Contractual Obligations and Commercial Commitments

The following table sets forth our contractual obligations and commercial commitments by due date as of ~~September~~June 30, ~~2017~~2021 (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	$	-	$	-	$	904,026	$	-	$	883,000	$	21,026	$	-	$	-	$	-
Term loans		301,665		42,318		17,862		118,511		122,974		-		-		108,100		7,800		28,800		71,500		-		-		-
Senior secured notes		64,995		6,110		6,110		6,110		6,110		40,555		-		43,610		6,110		37,500		-		-		-		-
Asset-backed notes		459,618		65,307		65,307		65,307		65,307		65,307		133,083		695,353		63,130		63,130		63,130		64,522		64,986		376,455
Collateralized financing obligations		90,708		23,365		37,468		29,875		-		-		-		54,427		36,943		-		-		-		17,484		-
Term loans held by VIE		3,743		-		3,743		-		-		-		-		28,522		5,599		5,841		6,097		6,356		4,629		-
Interest on debt and capital lease obligations (1)		153,276		46,815		43,831		30,235		13,833		7,930		10,632		126,265		38,604		34,751		14,076		11,170		14,882		12,782
Rental equipment payable		190,180		190,180		-		-		-		-		-		311,871		311,871		-		-		-		-		-
Rent, office facilities and equipment		4,342		2,140		1,801		230		97		74		-		3,329		2,430		581		257		61		-		-
Equipment purchase commitments - Containers		63,927		63,927		-		-		-		-		-
Equipment purchase commitments - Rail		150,179		113,478		36,701		-		-		-		-
Equipment purchase commitments																343,287		343,287		-		-		-		-		-
Total contractual obligations	$	2,158,167	$	553,640	$	212,823	$	671,802	$	462,321	$	113,866	$	143,715	$	2,618,790	$	815,774	$	1,053,603	$	176,086	$	82,109	$	101,981	$	389,237

~~(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 $13.2 million relating to our revolving credit facilities subject to variable interest rates, $17.8 million relating to our revolving credit facilities subject to fixed interest rates, $9.2 million relating to our term loans, $3.0 million relating to our senior secured notes, $73.9 million relating to our asset-back notes, $6.0 million relating to our collateralized financing obligations, and $3.1 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 June 30, 2021: variable-rate revolving credit facilities, 1.6%; fixed-rate revolving credit facilities, 1.8%; term loans, 4.0%; senior secured notes, 4.9%; asset-backed notes, 2.3%; collateralized financing obligations, 1.9%; 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~~June 30, ~~2017,~~2021, 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.

~~Table of Contents~~

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~~three months ended ~~September~~June 30, ~~2017.~~2021. See Critical Accounting Policies and Estimates in our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on March 1, 2021.

Recent Accounting Pronouncements

In ~~August 2016,~~March 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update ~~(ASU) No. 2016-15,~~ ~~Statement~~2020-04 (ASU 2020-04), which adds ASC Topic 848, Reference Rate Reform: Facilitation of ~~Cash Flows (Topic 230): Classification~~the Effects of ~~Certain Cash Receipts and Cash Payments~~ ~~(ASU 2016-15)~~Reference Rate Reform on Financial Reporting. ASU ~~2016-15 is intended~~2020-04 provides temporary optional expedients and exceptions to ~~reduce diversity~~ease financial reporting burdens related to applying current GAAP to modifications of contracts, hedging relationships and other transactions in ~~practice in how certain transactions are classified in~~connection with the ~~statement of cash flows.~~transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. In ~~November 2016,~~January 2021, 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 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~~2021-01 to ~~increase transparency~~clarify that certain optional expedients and ~~comparability among organizations recognizing lease assets~~exceptions apply to modifications of derivative contracts and ~~lease liabilities~~certain hedging relationships affected by changes in the interest rates used for discounting cash flows, computing variation margin settlements, and for calculating price alignment interest. ASU 2020-04 is effective beginning on ~~the balance sheet~~March 12, 2020 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~~applied prospectively to ~~satisfy a lessee residual value guarantee, is not probable, lease payments received will be recognized as a deposit liability~~such transactions through December 31, 2022 and ~~the underlying assets will not be derecognized until collectability of the remaining amounts becomes probable.~~ ASU ~~2016-02~~2021-01 is effective ~~for interim~~beginning on January 7, 2021 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 or prospectively to ~~each prior period presented or retrospectively with the cumulative effect recognized~~such transactions through December 31, 2022. We will apply ASU 2020-04 and 2021-01 prospectively as ~~of the date of initial application. We plan~~and when we enter into transactions to ~~adopt this guidance effective January 1, 2018 using the modified retrospective approach and~~which these updates apply.

Except as described above, there 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 believeno other recent accounting pronouncement 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 adopted accounting pronouncements~~ are ~~described in Note 2(b)~~relevant to our ~~unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q.~~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.

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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~~six months ended ~~September~~June 30, ~~2017,~~2021, the U.S. Dollar ~~decreased~~increased in value in relation to other major foreign currencies (such as the ~~Euro and British Pound Sterling)~~Euro). The ~~decrease~~increase in the relative value of the U.S. Dollar has decreased our revenues and expenses denominated in foreign currencies. The associated decrease in the value of certain foreign currencies as compared to the U.S. Dollar ~~relative to foreign currencies will~~has also ~~result in U.S. dollar denominated~~caused assets held at some of our foreign subsidiaries to decrease in value ~~relative~~when translated to ~~the foreign subsidiaries’ local currencies. For the nine months ended September 30, 2017, we~~US dollars. We recognized a loss on foreign exchange of ~~$0.7 million.~~$0.3 million for the six months ended June 30, 2021. 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. In 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 variable-rate borrowings. Under the 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 0.29%. Any changes in the fair value of the derivative instrument are recognized in accumulated other comprehensive loss and reclassified to net interest expense as they are realized.

As of ~~September~~June 30, ~~2017, the principal amount of debt outstanding under the variable-rate arrangements~~2021, approximately 77% of our revolving credit facilities was $675.5 million. In addition, at September 30, 2017, we had balances on our variable-rate term loans 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,~~either fixed or hedged using derivative instruments, which ~~represented 57%~~helps mitigate any negative impact of ~~our total debt at that date. The average~~changes 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 $4.3 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~~June 30, ~~2017~~2021 our disclosure controls and procedures were effective with respect to controls 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,~~officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

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~~June 30, ~~2017,~~2021, which has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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.~~flows, other than as set forth in Note 13, Subsequent Events, in the accompanying notes to the unaudited consolidated financial statements included in Part I – Item 1. Financial Statements of this Quarterly Report on Form 10-Q.

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~~2020 filed with the SEC on March ~~13, 2017.~~1, 2021. These risks are not the only ones facing our ~~company.~~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 each 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 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.~~2020, except as set forth below.

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The announcement and pendency of the Merger may have an adverse effect on our business, financial condition, operating results and cash flows.

On June 17, 2021, we entered into the Merger Agreement with Parent and Merger Sub, relating to the proposed acquisition of the Company by Parent. Upon consummation of the Merger pursuant to the Merger Agreement, the Company will continue as the surviving corporation as a wholly-owned subsidiary of Parent.

Upon the terms and subject to the conditions set forth in the Merger Agreement, at the Effective Time, (i) each share of the Company’s common stock that is issued and outstanding immediately prior to the Effective Time (other than Excluded Shares (as defined in the Merger Agreement)) will cease to be outstanding and will be converted into the right to receive $56.00, in cash, without interest, subject to deductions of any applicable withholding taxes; (ii) each share of the Company’s Series A Preferred Stock that is issued and outstanding immediately prior to the Effective Time, other than Excluded Shares, will be converted into the right to receive an amount equal to the sum of: (a) the liquidation preference of $25.00 per share, plus (b) the aggregate amount of all accrued and unpaid dividends on such Series A Preferred Stock as of the Effective Time, in cash, without interest, subject to deductions of any applicable withholding taxes; and (iii) each share of the Company’s Series B Preferred Stock that is issued and outstanding immediately prior to the Effective Time, other than Excluded Shares, will be converted into the right to receive an amount equal to the sum of: (a) the liquidation preference of $25.00 per share, plus (b) the aggregate amount of all accrued and unpaid dividends on such Series B Preferred Stock as of the Effective Time, in cash, without interest, subject to deductions of any applicable withholding taxes.

Uncertainty about the effect of the proposed Merger on our employees, partners, customers and other third parties may disrupt our sales and marketing or other key business activities and may have a material adverse effect on our business, financial condition, operating results and cash flows. Current and prospective employees may experience uncertainty about their roles following the Merger, and this may have an effect on our corporate culture. There can be no assurance we will be able to attract and retain key talent to the same extent that we have previously been able to attract and retain employees. Any loss or distraction of such employees could have a material adverse effect on our business, financial condition and operating results. In addition, we have devoted, and will continue to devote, significant management and other internal resources towards the completion of the Merger and planning for integration, which could materially adversely affect our business, financial condition, operating results and cash flows. Parties with which we have business relationships may experience uncertainty as to the future of such relationships and may delay or defer certain business decisions, seek alternative relationships with third parties or seek to alter their present business relationships with us. Parties with whom we otherwise may have sought to establish business relationships may seek alternative relationships with third parties.

The Merger Agreement generally requires us to operate our business in the ordinary course pending consummation of the proposed Merger and generally restricts us from taking certain specified actions until the Merger is completed. These restrictions may affect our ability to execute our business strategies, to respond effectively to competitive pressures and industry developments, and to attain our financial and other goals and may otherwise harm our business, financial condition, operating results and cash flows.

The failure to complete the Merger in a timely manner or at all could negatively impact the market price of our common stock, Series A Preferred Stock and/or Series B Preferred Stock as well as adversely affect our business, financial condition, operating results and cash flows.

Completion of the Merger is subject to conditions beyond our control that may prevent, delay or otherwise adversely affect its completion in a material way, including the requirement that the Merger Agreement be adopted by the affirmative vote of the holders of at least a majority of the outstanding shares of common stock entitled to vote at a special meeting of the common stockholders of the Company to be held on a date to be announced.

The Merger cannot be completed until the conditions to closing are satisfied or (if permissible under applicable law) waived. These conditions, including the Migration, are more fully described in the Preliminary Proxy Statement. We cannot guarantee that the closing conditions set forth in the Merger Agreement will be satisfied or, even if satisfied, that no event of termination will take place. In the event that the Merger is not completed for any reason, the holders of our capital stock will not receive any payment for their shares of capital stock in connection with the proposed Merger. Instead, we will remain an independent public company and the holders of our capital stock will continue to own their shares of stock.

If the Merger or a similar transaction is not completed, the share price of our common stock, Series A Preferred Stock and/or Series B Preferred Stock may drop to the extent that the current market price of our common stock, Series A Preferred Stock and/or Series B Preferred Stock reflects an assumption that a transaction will be completed.

Furthermore, if the Merger is significantly delayed or not completed, we may suffer other consequences that could adversely affect our business, results of operations and stock price, including the following:

we could be required to pay a termination fee equal to $35.0 million to Parent, and up to $5.0 million of Parent’s fees and expenses incurred in connection with the Merger Agreement and related transactions, under certain circumstances as described in the Merger Agreement;

we would have incurred significant costs in connection with the Merger that we would be unable to recover;

we may be subject to negative publicity or be negatively perceived by the investment or business communities;

we may be subject to legal proceedings related to any delay or failure to complete the Merger;

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any disruptions to our business resulting from the announcement and pendency of the Merger, including any adverse changes in our relationships with our customers, suppliers, other business partners and employees, may continue or intensify in the event the Merger is not consummated; and

we may not be able to take advantage of alternative business opportunities or effectively respond to competitive pressures.

There can be no assurance that our business, financial condition, operating results and cash flows will not be adversely affected, as compared to our condition prior to the announcement of the Merger, if the Merger is not consummated.

The Merger Agreement contains provisions that could discourage or deter a potential competing acquirer that might be willing to pay more to affect an alternative transaction with us.

The Merger Agreement contains provisions that, subject to certain exceptions, limit our ability to initiate, solicit or knowingly encourage, or engage in discussions or negotiations with respect to, or provide non-public information in connection with, a proposal from a third party with respect to an alternative transaction. In addition, under specified circumstances in which the Merger Agreement is terminated, we could be required to pay a termination fee of up to $35.0 million to Parent. It is possible that these or other provisions in the Merger Agreement might discourage a potential competing acquirer that might have an interest in acquiring all or a significant part of our Company from considering or proposing an acquisition or might result in a potential competing acquirer proposing to pay a lower per share price to acquire our common stock than it might otherwise have proposed to pay. Additional information regarding these restrictions is provided in the Preliminary Proxy Statement.

Litigation challenging the Merger Agreement may prevent the Merger from being consummated at all or within the expected timeframe and may result in substantial costs to us.

As described in Note 13, Subsequent Events, in the accompanying notes to the unaudited consolidated financial statements included in Part I – Item 1. Financial Statements of this Quarterly Report on Form 10-Q, two lawsuits have been filed against us and our board of directors in relation to the Preliminary Proxy Statement. The lawsuits seek, among other things, injunctive relief, rescissory damages, and awards of plaintiffs’ fees and expenses. If the plaintiffs in any such lawsuits are successful in obtaining an injunction prohibiting us from completing the Merger on the agreed upon terms, then the Merger may not be consummated at all or within the expected timeframe. Also, if our insurance provider were to deny coverage under the existing insurance policies covering such actions or should such policies fail to cover the costs of defending either or both of the lawsuits, we may incur substantial costs.

We will incur substantial transaction fees and costs in connection with the Merger.

As of June 30, 2021, we have incurred $3.1 million of expenses and fees for professional services and other transaction costs in connection with the Merger and expect to continue to incur additional significant costs. A material portion of these expenses are payable by us whether or not the Merger is completed. While we have assumed that a certain amount of transaction expenses will be incurred, factors beyond our control could affect the total amount or the timing of these expenses. Many of the expenses that will be incurred, by their nature, are difficult to estimate accurately. These expenses may exceed the costs historically borne by us. These costs could adversely affect our business, financial condition, operating results and cash flows.

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

None.

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
2.1*		Agreement and Plan of Merger, dated as of June 17, 2021, by and among Mitsubishi HC Capital Inc., Cattleya Acquisition Corp. and CAI International, Inc. (incorporated by reference to Exhibit 2.1 to our Current Report on Form 8-K filed on June 21, 2021).
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).
3.6		Amendment to 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 June 21, 2021).
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 June 30, 2021 and December 31, 2020, (ii) Consolidated Statements of Operations for the three and six months ended June 30, 2021 and 2020, (iii) Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2021 and 2020, (iv) Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, 2021 and 2020, (v) Consolidated Statements of Cash Flows for the six months ended June 30, 2021 and 2020, and (vi) Notes to Unaudited Consolidated Financial Statements.
104		Cover Page Interactive Data File (embedded within the Inline XBRL document).

*Schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. 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~~August 3, 2021	/s/ ~~VICTOR M. GARCIA~~TIMOTHY B. PAGE
	~~Victor M. Garcia~~Timothy B. Page
	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, 2017
	Container Leasing		Rail Leasing		Logistics		Total
Total revenue	$	61,870	$	7,279	$	21,012	$	90,161
Total operating expenses		30,270		5,534		22,463		58,267
Operating income (loss)		31,600		1,745		(1,451)		31,894
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
Purchase of rental equipment (1)	$	132,405	$	16,771	$	-	$	149,176


	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