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 SeptemberJune 30, 20192020
or
☐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 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
Steuart Tower, 1 Market Plaza, Suite 2400 | ||
San Francisco, California | 94105 | |
(Address of principal executive offices) | (Zip Code) |
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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒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.
|
|
|
|
|
|
|
|
Non-accelerated filer | o | Smaller reporting company | o |
Emerging growth company |
|
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. ☐o
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 |
| |
Common Stock, $0.0001 par value per share |
|
CAI INTERNATIONAL, INC.
Page No. | ||
4 | ||
Item 1. | 4 | |
Consolidated Balance Sheets at | 4 | |
6 | ||
7 | ||
8 | ||
9 | ||
11 | ||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 23 |
Item 3. | 34 | |
Item 4. | 34 | |
35 | ||
Item 1. | 35 | |
Item 1A. | 35 | |
Item 2. | 36 | |
Item 3. | 36 | |
Item 4. | 36 | |
Item 5. | 36 | |
Item 6. | 37 | |
38 |
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains certain forward-looking statements, including, without limitation, statements concerning the conditions in our industry, our operations, our economic performance and financial condition, including, in particular, statements relating to our business, operations, growth strategy, and service development efforts.efforts, our plans regarding our logistics business and the impact of the novel coronavirus (COVID-19) on our business, financial condition, liquidity and results of operations. The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for certain forward-looking statements so long as such information is identified as forward-looking and is accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those projected in the information. When used in this Quarterly Report on Form 10-Q, the words “may,” “might,” “should,” “estimate,” “project,” “plan,” “anticipate,” “expect,” “intend,” “outlook,” “believe” and other similar expressions are intended to identify forward-looking statements and information. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. These forward-looking statements are based on estimates and assumptions by our management that, although we believe to be reasonable, are inherently uncertain and subject to a number of risks and uncertainties. These risks and uncertainties include, without limitation, those in our Annual Report on Form 10-K for the year ended December 31, 20182019 filed with the Securities and Exchange Commission (SEC) on March 5, 20192020, this Quarterly Report on Form 10-Q and our other reports filed with the SEC. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law. Reference is also made to such risks and uncertainties detailed from time to time in our other filings with the SEC.
PART I — FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share information)
(UNAUDITED)
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
| ||||||
|
| September 30, |
| December 31, | June 30, | December 31, | ||||||
|
| 2019 |
| 2018 | 2020 | 2019 | ||||||
Assets |
|
|
|
|
|
| ||||||
Current assets |
|
|
|
|
|
| ||||||
Cash |
| $ | 21,503 |
| $ | 20,104 | $ | 20,159 | $ | 19,870 | ||
Cash held by variable interest entities |
|
| 26,772 |
|
| 25,211 | 27,703 | 26,594 | ||||
Accounts receivable, net of allowance for doubtful accounts of $3,626 and |
|
|
|
|
|
| ||||||
$2,042 at September 30, 2019 and December 31, 2018, respectively |
|
| 93,142 |
|
| 95,942 | ||||||
Current portion of net investment in sales-type and direct finance leases |
|
| 66,977 |
|
| 75,975 | ||||||
Accounts receivable, net of allowance for doubtful accounts of $3,942 and | ||||||||||||
$7,671 at June 30, 2020 and December 31, 2019, respectively | 70,020 | 72,984 | ||||||||||
Current portion of net investment in finance leases | 75,906 | 71,274 | ||||||||||
Prepaid expenses and other current assets | 14,880 | 9,606 | ||||||||||
Assets held for sale |
|
| 284,791 |
|
| 449,730 | 13,143 | 37,781 | ||||
Prepaid expenses and other current assets |
|
| 6,394 |
|
| 1,525 | ||||||
Total current assets |
|
| 499,579 |
|
| 668,487 | 221,811 | 238,109 | ||||
Restricted cash |
|
| 27,755 |
|
| 30,668 | 22,188 | 26,775 | ||||
Rental equipment, net of accumulated depreciation of $598,545 and |
|
|
|
|
|
| ||||||
$557,559 at September 30, 2019 and December 31, 2018, respectively |
|
| 1,889,266 |
|
| 1,816,794 | ||||||
Net investment in sales-type and direct finance leases |
|
| 472,790 |
|
| 473,792 | ||||||
Rental equipment, net of accumulated depreciation of $660,418 and | ||||||||||||
$620,990 at June 30, 2020 and December 31, 2019, respectively | 1,978,826 | 2,102,839 | ||||||||||
Net investment in finance leases | 463,251 | 496,094 | ||||||||||
Financing receivable |
|
| 31,661 |
|
| - | 53,821 | 30,693 | ||||
Goodwill |
|
| 15,794 |
|
| 15,794 | ||||||
Intangible assets, net of accumulated amortization of $6,605 and |
|
|
|
|
|
| ||||||
$5,397 at September 30, 2019 and December 31, 2018, respectively |
|
| 4,525 |
|
| 5,733 | ||||||
Other non-current assets |
|
| 9,364 |
|
| 1,349 | 6,036 | 7,255 | ||||
Total assets (1) |
| $ | 2,950,734 |
| $ | 3,012,617 | $ | 2,745,933 | $ | 2,901,765 | ||
|
|
|
|
|
|
| ||||||
Liabilities and Stockholders' Equity |
|
|
|
|
|
| ||||||
Current liabilities |
|
|
|
|
|
| ||||||
Accounts payable |
| $ | 10,668 |
| $ | 7,371 | $ | 4,557 | $ | 4,534 | ||
Accrued expenses and other current liabilities |
|
| 25,981 |
|
| 25,069 | 24,365 | 25,206 | ||||
Unearned revenue |
|
| 6,355 |
|
| 7,573 | 6,802 | 6,405 | ||||
Current portion of debt |
|
| 309,500 |
|
| 311,381 | 251,250 | 218,094 | ||||
Rental equipment payable |
|
| 54,202 |
|
| 74,139 | 3,356 | 25,137 | ||||
Liabilities held for sale | 6,517 | 8,752 | ||||||||||
Total current liabilities |
|
| 406,706 |
|
| 425,533 | 296,847 | 288,128 | ||||
Debt |
|
| 1,819,649 |
|
| 1,847,633 | 1,728,310 | 1,880,122 | ||||
Deferred income tax liability |
|
| 33,054 |
|
| 38,319 | 29,161 | 35,376 | ||||
Other non-current liabilities |
|
| 5,333 |
|
| - | 4,148 | 4,899 | ||||
Total liabilities (2) |
|
| 2,264,742 |
|
| 2,311,485 | 2,058,466 | 2,208,525 | ||||
|
|
|
|
|
|
| ||||||
Stockholders' equity |
|
|
|
|
|
| ||||||
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 | 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 | 48,875 | 48,875 | ||||
Common stock, par value $0.0001 per share; authorized 84,000,000 shares; issued and outstanding |
|
|
|
|
|
| ||||||
17,425,754 and 18,764,459 shares at September 30, 2019 and December 31, 2018, respectively |
|
| 2 |
|
| 2 | ||||||
17,553,491 and 17,479,127 shares at June 30, 2020 and December 31, 2019, respectively | 2 | 2 | ||||||||||
Additional paid-in capital |
|
| 101,317 |
|
| 132,666 | 103,342 | 102,709 | ||||
Accumulated other comprehensive loss |
|
| (6,845) |
|
| (6,513) | (6,666) | (6,630) | ||||
Retained earnings |
|
| 487,653 |
|
| 471,112 | 486,924 | 493,294 | ||||
Total stockholders' equity |
|
| 685,992 |
|
| 701,132 | 687,467 | 693,240 | ||||
Total liabilities and stockholders' equity |
| $ | 2,950,734 |
| $ | 3,012,617 | $ | 2,745,933 | $ | 2,901,765 |
|
|
|
|
(1)Total assets at June 30, 2020 and December 31, 2019 include the following assets of certain variable interest entities (VIEs) that can only be used to settle the liabilities of those VIEs: Cash, $27,703 and $26,594; Net investment in finance leases, $4,112 and $4,790; and Rental equipment, net of accumulated depreciation, $90,865, and $101,907, respectively.
(2)Total liabilities at June 30, 2020 and December 31, 2019 include the following VIE liabilities for which the VIE creditors do not have recourse to CAI International, Inc.: Current portion of debt, $33,175 and $26,931; Debt, $82,975 and $100,849, respectively.
See accompanying notes to unaudited consolidated financial statements.
CONSOLIDATED STATEMENTS OF 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, | |||||||||||||||||
| 2019 |
| 2018 |
| 2019 |
| 2018 | 2020 | 2019 | 2020 | 2019 | |||||||||||
Revenue |
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Container lease revenue | $ | 77,300 |
| $ | 75,331 |
| $ | 228,585 |
| $ | 208,298 | $ | 69,443 | $ | 74,286 | $ | 138,556 | $ | 149,797 | |||
Logistics revenue |
| 30,270 |
|
| 31,362 |
|
| 87,788 |
|
| 81,251 | |||||||||||
Rail lease revenue | 6,282 | 6,462 | 12,085 | 14,343 | ||||||||||||||||||
Total revenue |
| 107,570 |
|
| 106,693 |
|
| 316,373 |
|
| 289,549 | 75,725 | 80,748 | 150,641 | 164,140 | |||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Operating expenses |
|
|
|
|
|
|
|
| ||||||||||||||
Depreciation of rental equipment |
| 28,750 |
| 27,735 |
| 85,819 |
| 79,016 | 28,846 | 29,816 | 55,894 | 61,599 | ||||||||||
Impairment of rental equipment | 557 | 7,323 | 19,724 | 7,323 | ||||||||||||||||||
Storage, handling and other expenses |
| 4,672 |
| 2,506 |
| 12,631 |
| 5,803 | 6,474 | 5,199 | 12,222 | 10,319 | ||||||||||
Logistics transportation costs |
| 27,037 |
| 27,541 |
| 77,647 |
| 70,536 | ||||||||||||||
Gain on sale of rental equipment |
| (2,411) |
| (2,633) |
| (5,436) |
| (7,530) | (2,108) | (265) | (3,722) | (9,097) | ||||||||||
Administrative expenses |
| 12,702 |
|
| 11,895 |
|
| 38,110 |
|
| 33,445 | 7,389 | 8,049 | 15,053 | 17,223 | |||||||
Total operating expenses |
| 70,750 |
|
| 67,044 |
|
| 208,771 |
|
| 181,270 | 41,158 | 50,122 | 99,171 | 87,367 | |||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Operating income |
| 36,820 |
|
| 39,649 |
|
| 107,602 |
|
| 108,279 | 34,567 | 30,626 | 51,470 | 76,773 | |||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Other expenses |
|
|
|
|
|
|
|
| ||||||||||||||
Net interest expense |
| 20,123 |
| 15,811 |
| 60,049 |
| 43,758 | 17,595 | 23,209 | 37,974 | 47,063 | ||||||||||
Other expense |
| 380 |
|
| 116 |
|
| 537 |
|
| 510 | |||||||||||
Other (income) expense | (97) | 119 | 149 | 157 | ||||||||||||||||||
Total other expenses |
| 20,503 |
|
| 15,927 |
|
| 60,586 |
|
| 44,268 | 17,498 | 23,328 | 38,123 | 47,220 | |||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Income before income taxes |
| 16,317 |
| 23,722 |
| 47,016 |
| 64,011 | 17,069 | 7,298 | 13,347 | 29,553 | ||||||||||
Income tax expense |
| 1,152 |
|
| 1,403 |
|
| 2,871 |
|
| 3,197 | |||||||||||
Income tax expense (benefit) | 1,113 | 583 | (1,943) | 2,732 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Income from continuing operations |
| 15,165 |
| 22,319 |
| 44,145 |
| 60,814 | 15,956 | 6,715 | 15,290 | 26,821 | ||||||||||
Loss from discontinued operations, net of income taxes |
| (19,912) |
|
| (565) |
|
| (20,983) |
|
| (1,625) | (16,582) | (1,221) | (17,246) | (2,753) | |||||||
Net (loss) income |
| (4,747) |
|
| 21,754 |
|
| 23,162 |
|
| 59,189 | (626) | 5,494 | (1,956) | 24,068 | |||||||
Preferred stock dividends |
| 2,207 |
|
| 1,748 |
|
| 6,621 |
|
| 2,917 | 2,207 | 2,207 | 4,414 | 4,414 | |||||||
Net (loss) income attributable to CAI common stockholders | $ | (6,954) |
| $ | 20,006 |
| $ | 16,541 |
| $ | 56,272 | $ | (2,833) | $ | 3,287 | $ | (6,370) | $ | 19,654 | |||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Amounts attributable to CAI common stockholders |
|
|
|
|
|
|
|
| ||||||||||||||
Net income from continuing operations | $ | 12,958 |
| $ | 20,571 |
| $ | 37,524 |
| $ | 57,897 | $ | 13,749 | $ | 4,508 | $ | 10,876 | $ | 22,407 | |||
Net loss from discontinued operations |
| (19,912) |
|
| (565) |
|
| (20,983) |
|
| (1,625) | (16,582) | (1,221) | (17,246) | (2,753) | |||||||
Net (loss) income attributable to CAI common stockholders | $ | (6,954) |
| $ | 20,006 |
| $ | 16,541 |
| $ | 56,272 | $ | (2,833) | $ | 3,287 | $ | (6,370) | $ | 19,654 | |||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Net income (loss) per share attributable to CAI common |
|
|
|
|
|
|
|
| ||||||||||||||
stockholders |
|
|
|
|
|
|
|
| ||||||||||||||
Net (loss) income per share attributable to CAI | ||||||||||||||||||||||
common stockholders | ||||||||||||||||||||||
Basic |
|
|
|
|
|
|
|
| ||||||||||||||
Continuing operations | $ | 0.75 |
| $ | 1.07 |
| $ | 2.10 |
| $ | 2.93 | $ | 0.79 | $ | 0.26 | $ | 0.62 | $ | 1.24 | |||
Discontinued operations |
| (1.15) |
|
| (0.03) |
|
| (1.17) |
|
| (0.08) | (0.95) | (0.07) | (0.99) | (0.15) | |||||||
Total basic | $ | (0.40) |
| $ | 1.04 |
| $ | 0.93 |
| $ | 2.85 | $ | (0.16) | $ | 0.19 | $ | (0.37) | $ | 1.09 | |||
Diluted |
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Continuing operations | $ | 0.74 |
| $ | 1.06 |
| $ | 2.07 |
| $ | 2.90 | $ | 0.78 | $ | 0.25 | $ | 0.62 | $ | 1.22 | |||
Discontinued operations |
| (1.14) |
|
| (0.03) |
|
| (1.16) |
|
| (0.09) | (0.94) | (0.07) | (0.98) | (0.15) | |||||||
Total diluted | $ | (0.40) |
| $ | 1.03 |
| $ | 0.91 |
| $ | 2.81 | $ | (0.16) | $ | 0.18 | $ | (0.36) | $ | 1.07 | |||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Weighted average shares outstanding |
|
|
|
|
|
|
|
| ||||||||||||||
Basic |
| 17,330 |
| 19,214 |
| 17,850 |
| 19,741 | 17,470 | 17,648 | 17,451 | 18,098 | ||||||||||
Diluted |
| 17,525 |
| 19,492 |
| 18,122 |
| 19,997 | 17,601 | 17,926 | 17,641 | 18,401 |
See accompanying notes to unaudited consolidated financial statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(In thousands)
(UNAUDITED)
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
| Three Months Ended September 30, |
| Nine Months Ended September 30, | Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 | 2020 | 2019 | 2020 | 2019 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Net (loss) income |
| $ | (4,747) |
| $ | 21,754 |
| $ | 23,162 |
| $ | 59,189 | $ | (626) | $ | 5,494 | $ | (1,956) | $ | 24,068 | ||||
Other comprehensive loss, net of tax: |
|
|
|
|
|
|
|
| ||||||||||||||||
Other comprehensive income (loss), net of tax: | ||||||||||||||||||||||||
Foreign currency translation adjustments |
|
| (256) |
|
| (19) |
|
| (332) |
|
| (257) | 101 | 5 | (36) | (76) | ||||||||
Comprehensive (loss) income before preferred stock dividends |
|
| (5,003) |
|
| 21,735 |
|
| 22,830 |
|
| 58,932 | (525) | 5,499 | (1,992) | 23,992 | ||||||||
Dividends on preferred stock |
|
| (2,207) |
|
| (1,748) |
|
| (6,621) |
|
| (2,917) | (2,207) | (2,207) | (4,414) | (4,414) | ||||||||
Comprehensive (loss) income available to CAI common stockholders |
| $ | (7,210) |
| $ | 19,987 |
| $ | 16,209 |
| $ | 56,015 | ||||||||||||
Comprehensive (loss) income available to CAI | ||||||||||||||||||||||||
common stockholders | $ | (2,732) | $ | 3,292 | $ | (6,406) | $ | 19,578 |
See accompanying notes to unaudited consolidated financial statements.
CAI INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| Additional |
| Other |
|
|
|
|
|
| ||
|
| Preferred Stock |
| Common Stock |
| Paid-In |
| Comprehensive |
| Retained |
| Total | ||||||||||
|
| Shares |
|
| Amount |
| Shares |
|
| Amount |
| Capital |
| Loss |
| Earnings |
| Equity | ||||
Balances as of December 31, 2018 |
| 4,155 |
| $ | 103,865 |
| 18,764 |
| $ | 2 |
| $ | 132,666 |
| $ | (6,513) |
| $ | 471,112 |
| $ | 701,132 |
Net income |
| - |
|
| - |
| - |
|
| - |
|
| - |
|
| - |
|
| 18,574 |
|
| 18,574 |
Preferred stock dividends, $0.53125/share |
| - |
|
| - |
| - |
|
| - |
|
| - |
|
| - |
|
| (2,207) |
|
| (2,207) |
Foreign currency translation adjustment |
| - |
|
| - |
| - |
|
| - |
|
| - |
|
| (81) |
|
| - |
|
| (81) |
Repurchase of common stock |
| - |
|
| - |
| (595) |
|
| - |
|
| (13,946) |
|
| - |
|
| - |
|
| (13,946) |
Stock-based compensation |
| - |
|
| - |
| 39 |
|
| - |
|
| 837 |
|
| - |
|
| - |
|
| 837 |
Balances as of March 31, 2019 |
| 4,155 |
| $ | 103,865 |
| 18,208 |
| $ | 2 |
| $ | 119,557 |
| $ | (6,594) |
| $ | 487,479 |
| $ | 704,309 |
Net income |
| - |
|
| - |
| - |
|
| - |
|
| - |
|
| - |
|
| 9,335 |
|
| 9,335 |
Preferred stock dividends, $0.53125/share |
| - |
|
| - |
| - |
|
| - |
|
| - |
|
| - |
|
| (2,207) |
|
| (2,207) |
Foreign currency translation adjustment |
| - |
|
| - |
| - |
|
| - |
|
| - |
|
| 5 |
|
| - |
|
| 5 |
Repurchase of common stock |
| - |
|
| - |
| (863) |
|
| - |
|
| (20,172) |
|
| - |
|
| - |
|
| (20,172) |
Stock-based compensation |
| - |
|
| - |
| 75 |
|
| - |
|
| 916 |
|
| - |
|
| - |
|
| 916 |
Balances as of June 30, 2019 |
| 4,155 |
| $ | 103,865 |
| 17,420 |
| $ | 2 |
| $ | 100,301 |
| $ | (6,589) |
| $ | 494,607 |
| $ | 692,186 |
Net loss |
| - |
|
| - |
| - |
|
| - |
|
| - |
|
| - |
|
| (4,747) |
|
| (4,747) |
Preferred stock dividends, $0.53125/share |
| - |
|
| - |
| - |
|
| - |
|
| - |
|
| - |
|
| (2,207) |
|
| (2,207) |
Foreign currency translation adjustment |
| - |
|
| - |
| - |
|
| - |
|
| - |
|
| (256) |
|
| - |
|
| (256) |
Stock-based compensation |
| - |
|
| - |
| 6 |
|
| - |
|
| 1,016 |
|
| - |
|
| - |
|
| 1,016 |
Balances as of September 30, 2019 |
| 4,155 |
| $ | 103,865 |
| 17,426 |
| $ | 2 |
| $ | 101,317 |
| $ | (6,845) |
| $ | 487,653 |
| $ | 685,992 |
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 |
8
Accumulated | ||||||||||||||||||||||
Additional | Other | |||||||||||||||||||||
Preferred Stock | Common Stock | Paid-In | Comprehensive | Retained | Total | |||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Loss | Earnings | Equity | |||||||||||||||
Balances as of December 31, 2018 | 4,155 | $ | 103,865 | 18,764 | $ | 2 | $ | 132,666 | $ | (6,513) | $ | 471,112 | $ | 701,132 | ||||||||
Net income | - | - | - | - | - | - | 18,574 | 18,574 | ||||||||||||||
Preferred stock dividends, $0.53125/share | - | - | - | - | - | - | (2,207) | (2,207) | ||||||||||||||
Foreign currency translation adjustment | - | - | - | - | - | (81) | - | (81) | ||||||||||||||
Repurchase of common stock | - | - | (595) | - | (13,946) | - | - | (13,946) | ||||||||||||||
Exercise of stock options | - | - | 27 | - | 107 | - | - | 107 | ||||||||||||||
Stock-based compensation, net of taxes | - | - | 12 | - | 730 | - | - | 730 | ||||||||||||||
Balances as of March 31, 2019 | 4,155 | $ | 103,865 | 18,208 | $ | 2 | $ | 119,557 | $ | (6,594) | $ | 487,479 | $ | 704,309 | ||||||||
Net income | - | - | - | - | - | - | 5,494 | 5,494 | ||||||||||||||
Preferred stock dividends, $0.53125/share | - | - | - | - | - | - | (2,207) | (2,207) | ||||||||||||||
Foreign currency translation adjustment | - | - | - | - | - | 5 | - | 5 | ||||||||||||||
Repurchase of common stock | - | - | (863) | (20,172) | (20,172) | |||||||||||||||||
Exercise of stock options | - | - | 35 | - | 228 | - | - | 228 | ||||||||||||||
Stock-based compensation, net of taxes | - | - | 40 | - | 688 | - | - | 688 | ||||||||||||||
Balances as of June 30, 2019 | 4,155 | $ | 103,865 | 17,420 | $ | 2 | $ | 100,301 | $ | (6,589) | $ | 490,766 | $ | 688,345 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 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, 2017 |
| - |
| $ | - |
| 20,391 |
| $ | 2 |
| $ | 172,325 |
| $ | (6,122) |
| $ | 397,640 |
| $ | 563,845 |
Net income |
| - |
|
| - |
| - |
|
| - |
|
| - |
|
| - |
|
| 17,138 |
|
| 17,138 |
Preferred stock dividends, $0.01181/share |
| - |
|
| - |
| - |
|
| - |
|
| - |
|
| - |
|
| (21) |
|
| (21) |
Foreign currency translation adjustment |
| - |
|
| - |
| - |
|
| - |
|
| - |
|
| 310 |
|
| - |
|
| 310 |
Issuance of common and preferred stock, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net of offering costs |
| 1,600 |
|
| 40,000 |
| 100 |
|
| - |
|
| 956 |
|
| - |
|
| - |
|
| 40,956 |
Stock-based compensation |
| - |
|
| - |
| 2 |
|
| - |
|
| 592 |
|
| - |
|
| - |
|
| 592 |
Balances as of March 31, 2018 |
| 1,600 |
| $ | 40,000 |
| 20,493 |
| $ | 2 |
| $ | 173,873 |
| $ | (5,812) |
| $ | 414,757 |
| $ | 622,820 |
Net income |
| - |
|
| - |
| - |
|
| - |
|
| - |
|
| - |
|
| 20,297 |
|
| 20,297 |
Preferred stock dividends, $0.53125/share |
| - |
|
| - |
| - |
|
| - |
|
| - |
|
| - |
|
| (1,148) |
|
| (1,148) |
Foreign currency translation adjustment |
| - |
|
| - |
| - |
|
| - |
|
| - |
|
| (548) |
|
| - |
|
| (548) |
Issuance of common and preferred stock, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net of offering costs |
| 600 |
|
| 14,990 |
| - |
|
| - |
|
| (370) |
|
| - |
|
| - |
|
| 14,620 |
Repurchase of common stock |
| - |
|
| - |
| (1,225) |
|
|
|
|
| (27,946) |
|
|
|
|
|
|
|
| (27,946) |
Stock-based compensation |
| - |
|
| - |
| 38 |
|
| - |
|
| 653 |
|
| - |
|
| - |
|
| 653 |
Balances as of June 30, 2018 |
| 2,200 |
| $ | 54,990 |
| 19,306 |
| $ | 2 |
| $ | 146,210 |
| $ | (6,360) |
| $ | 433,906 |
| $ | 628,748 |
Net income |
| - |
|
| - |
| - |
|
| - |
|
| - |
|
| - |
|
| 21,754 |
|
| 21,754 |
Preferred stock dividends, $0.53125/share |
| - |
|
| - |
| - |
|
| - |
|
| - |
|
| - |
|
| (1,748) |
|
| (1,748) |
Foreign currency translation adjustment |
| - |
|
| - |
| - |
|
| - |
|
| - |
|
| (19) |
|
| - |
|
| (19) |
Issuance of common and preferred stock, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net of offering costs |
| 1,955 |
|
| 48,875 |
| - |
|
| - |
|
| (1,893) |
|
| - |
|
| - |
|
| 46,982 |
Stock-based compensation |
| - |
|
| - |
| - |
|
| - |
|
| 752 |
|
| - |
|
| - |
|
| 752 |
Balances as of September 30, 2018 |
| 4,155 |
| $ | 103,865 |
| 19,306 |
| $ | 2 |
| $ | 145,069 |
| $ | (6,379) |
| $ | 453,912 |
| $ | 696,469 |
See accompanying notes to unaudited consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(UNAUDITED)
|
|
|
|
| ||||||||
|
|
|
|
| ||||||||
|
| Nine Months Ended September 30, | Six Months Ended June 30, | |||||||||
|
| 2019 |
| 2018 | 2020 | 2019 | ||||||
Cash flows from operating activities |
|
|
|
|
|
| ||||||
Net income |
| $ | 23,162 |
| $ | 59,189 | ||||||
Net (loss) income | $ | (1,956) | $ | 24,068 | ||||||||
Loss from discontinued operations, net of income taxes |
|
| (20,983) |
|
| (1,625) | (17,246) | (2,753) | ||||
Income from continuing operations |
|
| 44,145 |
|
| 60,814 | 15,290 | 26,821 | ||||
Adjustments to reconcile income from continuing operations to net cash provided by |
|
|
|
| ||||||||
Adjustments to reconcile net income from continuing operations to net cash provided by | ||||||||||||
operating activities: |
|
|
|
| ||||||||
Depreciation |
| 85,988 |
| 79,128 | 56,299 | 61,623 | ||||||
Impairment of rental equipment | 19,724 | 7,323 | ||||||||||
Amortization of debt issuance costs |
| 3,005 |
| 2,648 | 2,312 | 2,394 | ||||||
Amortization of intangible assets |
| 1,208 |
| 1,538 | ||||||||
Stock-based compensation expense |
| 2,142 |
| 1,888 | 801 | 1,421 | ||||||
Unrealized loss on foreign exchange |
| 345 |
| 317 | 63 | 90 | ||||||
Gain on sale of rental equipment |
| (5,436) |
| (7,530) | (3,722) | (9,097) | ||||||
Deferred income taxes |
| 1,260 |
| 2,424 | (3,127) | 2,135 | ||||||
Bad debt expense (recovery) |
| 1,224 |
| (149) | ||||||||
Bad debt (recovery) expense | (3,582) | 687 | ||||||||||
Changes in other operating assets and liabilities: |
|
|
|
| ||||||||
Accounts receivable |
| 2,556 |
| (6,889) | 4,441 | 1,200 | ||||||
Prepaid expenses and other assets |
| 398 |
| (1,611) | 606 | (2,114) | ||||||
Net investment in sales-type and direct finance leases |
| 45,400 |
| - | ||||||||
Net investment in finance leases | 35,746 | 32,824 | ||||||||||
Accounts payable, accrued expenses and other liabilities |
| 4,057 |
| (477) | (1,146) | (3,568) | ||||||
Unearned revenue |
|
| (151) |
|
| (86) | (394) | (1,862) | ||||
Net cash provided by operating activities of continuing operations |
|
| 186,141 |
|
| 132,015 | 123,311 | 119,877 | ||||
Net cash provided by operating activities of discontinued operations |
|
| 2,016 |
|
| 7,572 | ||||||
Net cash provided by (used in) operating activities of discontinued operations | 2,315 | (1,984) | ||||||||||
Net cash provided by operating activities |
|
| 188,157 |
|
| 139,587 | 125,626 | 117,893 | ||||
Cash flows from investing activities |
|
|
|
|
|
| ||||||
Purchase of rental equipment |
| (256,469) |
| (477,703) | (32,620) | (231,595) | ||||||
Purchase of financing receivable |
| (37,139) |
| - | (30,846) | (36,379) | ||||||
Proceeds from sale of rental equipment |
| 56,422 |
| 43,645 | 58,467 | 220,403 | ||||||
Receipt of principal payments from financing receivable | 2,225 | 973 | ||||||||||
Purchase of furniture, fixtures and equipment |
| (1,720) |
| (393) | (310) | (136) | ||||||
Receipt of principal payments from financing receivable |
| 1,825 |
| - | ||||||||
Receipt of principal payments from sales-type and direct finance leases |
|
| - |
|
| 26,982 | ||||||
Net cash used in investing activities of continuing operations |
|
| (237,081) |
|
| (407,469) | (3,084) | (46,734) | ||||
Net cash provided by (used in) investing activities of discontinued operations |
|
| 123,199 |
|
| (50,800) | ||||||
Net cash used in investing activities of discontinued operations | (1) | (114) | ||||||||||
Net cash used in investing activities |
|
| (113,882) |
|
| (458,269) | (3,085) | (46,848) | ||||
Cash flows from financing activities |
|
|
|
|
|
| ||||||
Proceeds from debt |
| 500,582 |
| 1,227,412 | 227,000 | 468,082 | ||||||
Principal payments on debt |
| (419,908) |
| (981,465) | (348,331) | (490,319) | ||||||
Debt issuance costs |
| (724) |
| (9,882) | (25) | (496) | ||||||
Proceeds from issuance of common and preferred stock |
| - |
| 103,681 | ||||||||
Proceeds from issuance of stock | 116 | - | ||||||||||
Repurchase of common stock |
| (34,118) |
| (27,946) | - | (34,118) | ||||||
Dividends paid to preferred stockholders |
| (6,620) |
| (1,376) | (4,414) | (4,414) | ||||||
Exercise of stock options |
|
| 532 |
|
| 24 | 113 | 335 | ||||
Net cash provided by financing activities of continuing operations |
|
| 39,744 |
|
| 310,448 | ||||||
Net cash (used in) provided by financing activities of discontinued operations |
|
| (113,098) |
|
| 31,011 | ||||||
Net cash (used in) provided by financing activities |
|
| (73,354) |
|
| 341,459 | ||||||
Net cash used in financing activities of continuing operations | (125,541) | (60,930) | ||||||||||
Net cash used in financing activities of discontinued operations | - | - | ||||||||||
Net cash used in financing activities | (125,541) | (60,930) | ||||||||||
Effect on cash of foreign currency translation |
|
| (874) |
|
| (23) | (189) | (77) | ||||
Net increase in cash and restricted cash |
|
| 47 |
|
| 22,754 | ||||||
Net (decrease) increase in cash and restricted cash | (3,189) | 10,038 | ||||||||||
Cash and restricted cash at beginning of the period (1) |
|
| 75,983 |
|
| 47,209 | 73,239 | 75,983 | ||||
Cash and restricted cash at end of the period (2) |
| $ | 76,030 |
| $ | 69,963 | $ | 70,050 | $ | 86,021 |
|
|
|
|
| ||||||||
Supplemental disclosure of cash flow information |
|
|
|
| ||||||||
Cash paid during the period for: |
|
|
|
| ||||||||
Income taxes |
| $ | 559 |
| $ | 378 | $ | 225 | $ | 441 | ||
Interest |
| 65,330 |
| 51,168 | 35,167 | 43,327 | ||||||
|
|
|
|
| ||||||||
Supplemental disclosure of non-cash operating activity |
|
|
|
| ||||||||
Lease liabilities arising from obtaining right-of-use assets |
| $ | 5,306 |
| $ | - | ||||||
Transfer of rental equipment to finance lease | $ | 140 | $ | - | ||||||||
|
|
|
|
| ||||||||
Supplemental disclosure of non-cash investing and financing activity |
|
|
|
| ||||||||
Transfer of rental equipment to sales-type and direct finance lease |
| $ | 52,895 |
| $ | 271,938 | ||||||
Transfer of sales-type and direct finance lease to rental equipment |
| 14,432 |
| - | ||||||||
Transfer of rental equipment to finance lease | $ | 7,748 | $ | 19,153 | ||||||||
Rental equipment payable |
| 54,202 |
| 257,947 | 3,356 | 75,810 |
|
|
|
|
(1)Includes cash of $19,870 and $20,104, cash held by variable interest entities of $26,594 and $25,211, and restricted cash of $26,775 and $30,668 at December 31, 2019 and 2018, respectively.
(2)Includes cash of $20,159 and $22,183, cash held by variable interest entities of $27,703 and $35,105, and restricted cash of $22,188 and $28,733 at June 30, 2020 and 2019, respectively.
See accompanying notes to unaudited consolidated financial statements.
(1) The CompanyDescription of Business and Nature of OperationsSignificant Accounting Policies
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.
The Company’s common stock, 8.50% Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual Stock and 8.50% Series B Fixed-to-Floating Rate Cumulative Redeemable Perpetual Stock are traded on the New York Stock Exchange under the symbols “CAI,” “CAI-PA” and “CAI-PB,” respectively. The Company’s corporate headquarters are located in San Francisco, California.
Basis of Presentation
The accompanying unaudited consolidated financial statements include the financial statements of CAI International, Inc. and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
In the opinion of management, the accompanying unaudited consolidated financial statements contain all normal, recurring adjustments necessary to present fairly the Company’s financial position as of SeptemberJune 30, 20192020 and December 31, 2018,2019, the Company’s results of operations for the three and ninesix months ended SeptemberJune 30, 20192020 and 2018,2019, and the Company’s cash flows for the ninesix months ended SeptemberJune 30, 20192020 and 2018.2019. Certain reclassifications have been made to prior year financial statements to conform to the current presentation. The results of operations and cash flows for the periods presented are not necessarily indicative of the results of operations or cash flows which may be reported for the remainder of 20192020 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, 2018,2019, included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on March 5, 2019.2020.
Discontinued OperationsImmaterial Correction of an Error
InAs disclosed in Note 20 to the quarterCompany’s consolidated financial statements in its Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on March 5, 2020, the Company identified misstatements in the three months ended June 30, 2019 arising from the misclassification of certain leases. The accompanying unaudited consolidated financial statements for the three and six months ended June 30, 2019 reflect the correction of these misstatements, which the Company has determined are immaterial to the unaudited consolidated financial statements.
Discontinued Operations
The Company committed to a plan to sell its railcar assets andlogistics business during the quarter ended June 30, 2020. The Company expects a sale to reallocatebe completed before the capital invested in its rail business to other investments.end of 2020. As a result, the railcarlogistics assets and liabilities have been reclassified as held for sale in the accompanying unaudited consolidated balance sheets and the operations of the raillogistics business have been reclassified as discontinued operations in the accompanying unaudited consolidated statements of operations and cash flows. All prior periods presented in these unaudited consolidated financial statements have been restated to reflect the reclassification of the railcarlogistics business as discontinued operations and assets and liabilities held for sale. See Note 32 – Discontinued Operations for more information.
Concentration of Credit Risk
(2) The Company’s equipment leases and trade receivables subject it to potential credit risk. The 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 16% and 10%, respectively, of the Company’s total billings during both the three and six months ended June 30, 2020.
CAI INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Accounting Policies and RecentPolicy Updates
Recently Adopted Accounting Pronouncements
Recent Accounting Pronouncements
In FebruaryJune 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-02, Leases2016-13, Financial Instruments – Credit Losses (Topic 842) 326) (ASU 2016-02),2016-13) and subsequently issued amendments thereto,amendments. The guidance affects the Company’s net investment in finance leases, financing receivable and accounts receivable for sales of rental equipment and logistics operations. Topic 326 requires the measurement of expected credit losses to be based on relevant information from past events, including historical experiences, current conditions and reasonable and supportable forecasts that replaced existing lease accounting guidance. The new standard requires lessors to classify leases as a sales-type, direct financing, or operating lease. A lease is a sales-type lease if any of five criteria are met, each of which indicate that the lease, in effect, transfers control of the underlying asset to the lessee. If none of those five criteria are met, but two additional criteria are both met, indicating that the lessor has transferred substantially all of the risks and benefits of the underlying asset to the lessee and a third-party, the lease is a direct financing lease. All leases that are not sales-type or direct financing leases are operating leases. The new standard also established a right-of-use model (ROU) that requires lessees to recognize an ROU asset and lease liability on the balance sheet for all leases with a term longer than twelve months.
affect collectability. The Company adopted ASU 2016-02, as amended,2016-13 effective January 1, 2019,2020, using the modified retrospective approach and the effective date as the date of initial application. Consequently, financial information will not be updated and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2019. In addition, the Company elected the following practical expedients permitted under the transition guidance within the new standard: (1) the “package of practical expedients,”method, which does not require the Company to reassess under the new standard its prior conclusions about lease identification, lease classification, and initial direct costs, (2) the short-term lease recognition exemption for its office space leases of twelve months or less, which resulted in the Company not recognizing an ROU asset or lease liability for these leases, and (3) the practical expedient to not separate lease and non-lease components for leases that qualify for the practical expedient.
12
CAI INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Adoption of the new standard resulted in the recognition of operating lease ROU assets of $3.7 million and operating lease liabilities of $4.1 million as of January 1, 2019. Adoption did not have ana significant impact on the Company’s consolidated financial statements as credit losses are not expected to be significant based on historical loss trends, the financial condition of operations or cash flows. customers, and external market factors.
Allowance for credit losses – Net investment in finance leases and financing receivable
The allowance for credit losses on net investment in finance leases and financing receivable is estimated on a collective basis by internal customer rating (see Note 5 – Leases for descriptions of ratings). Expected credit losses for these financial assets are estimated using a loss-rate methodology which considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts.
Except as described above, there were no changes to the Company’s accounting policies during the ninesix months ended SeptemberJune 30, 2019.2020. See Note 2 to the audited consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018,2019, filed with the SEC on March 5, 2019,2020, for a description of the Company’s significant accounting policies.
Accounting Policies
(a) Container and Rail Lease Revenue
The Company recognizes revenue from operating leases of its equipment as earned over the term of the lease. Where minimum lease payments vary over the lease term, revenue is recognized on a straight-line basis over the term of the lease. The Company recognizes revenue on a cash basis for certain railcar leases that are billed on an hourly or mileage basis through a third-party railcar manager. Early termination of the rental contracts subjects the lessee to a penalty, which is included in lease revenue upon such termination. Sales-type and finance lease income, and interest earned on financing receivables are recognized using the effective interest method, which generates a constant rate of interest over the term of the arrangement.
Certain leases include one or more options to renew or purchase the leased rental equipment. The exercise of lease renewal or equipment purchase options is at the sole discretion of the customer.
Included in lease revenue is revenue consisting primarily of fees charged to the lessee for handling, delivery, and repairs. These activities are considered non-lease components of the contract, which are generally accounted for separately from the lease component, and revenue is recognized as earned in accordance with Accounting Standards Codification (ASC) Topic 606, Revenue Recognition. For certain leases of railcar equipment, the Company is responsible for the repair and maintenance of the railcars throughout the lease term. For such leases, the lease and non-lease component are combined as a single lease component, and revenue is recognized as earned in accordance with ASC Topic 842, Leases.
Also included in lease revenue is revenue from management fees earned under equipment management agreements. Management fees are generally calculated as a percentage of the monthly net operating income for an investor’s portfolio and recognized as revenue in the month of service.
(b) Leases
The Company leases office space under operating leases with expiration dates through 2025. The Company determines whether an arrangement constitutes a lease and records lease liabilities and ROU assets on its consolidated balance sheets at lease commencement. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU assets also include any lease pre-payments made and exclude lease incentives. Certain of the Company’s leases include one or more options to renew, which are included in the lease term only when it is reasonably certain that the Company will exercise that option. The Company’s office space leases often include lease and non-lease components, which are combined and accounted for as a single lease component.
For short-term leases, the Company records rent expense in its consolidated statements of operations on a straight-line basis over the lease term and records variable lease payments as incurred.
(3)(2) Discontinued Operations
As discussed in Note 1, railcarnet assets of $284.8the logistics business of $6.6 million and $449.7$29.0 million were reclassified as held for sale as of SeptemberJune 30, 20192020 and December 31, 2018,2019, respectively, and the related operations of the raillogistics business were reclassified as discontinued operations in the accompanying unaudited consolidated statements of operations and cash flows. The net assets of the logistics business are expected to be sold before the end of 2020.
The Company’s held for sale railcar assets and liabilities as of the dates indicated are made up as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, |
| December 31, | ||
|
|
|
|
|
|
| 2019 |
| 2018 | ||
Rental equipment |
|
|
|
|
|
| $ | 315,868 |
| $ | 448,466 |
Other assets |
|
|
|
|
|
|
| 1,878 |
|
| 1,264 |
Loss on classification as held for sale |
|
|
|
|
|
|
| (7,323) |
|
| - |
Impairment of rental equipment |
|
|
|
|
|
|
| (25,632) |
|
| - |
Assets held for sale |
|
|
|
|
|
| $ | 284,791 |
| $ | 449,730 |
June 30, | December 31, | ||||||||||
2020 | 2019 | ||||||||||
Assets | |||||||||||
Accounts receivable, net of allowance for doubtful accounts | $ | 10,815 | $ | 15,601 | |||||||
Prepaid expenses and other assets | 1,693 | 2,263 | |||||||||
Goodwill | 15,794 | 15,794 | |||||||||
Intangible assets | 3,318 | 4,123 | |||||||||
Loss on classification as held for sale | (18,477) | - | |||||||||
Assets held for sale | $ | 13,143 | $ | 37,781 | |||||||
Liabilities | |||||||||||
Accounts payable | $ | 2,256 | $ | 2,757 | |||||||
Accrued expenses and other current liabilities | 4,261 | 5,995 | |||||||||
Liabilities held for sale | $ | 6,517 | $ | 8,752 | |||||||
Net assets | $ | 6,626 | $ | 29,029 |
CAI INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Other assets and liabilities of the rail business, including accounts receivable, accrued expenses and other liabilities, deferred tax liabilities and debt, have not been classified as held for sale in the consolidated balance sheets as of September 30, 2019 and December 31, 2018 as they will not be sold by the Company. The rail debt will be repaid upon the sale of the railcar assets.
During the three months ended June 30, 2019, a loss of $7.3 million was recorded when the assets of the railcar business were reclassified as held for sale. During the three months ended September 30, 2019, the Company incurred an additional impairment charge of $25.6 million to reduce the book value of its railcar portfolio to its estimated fair value. To assist the Company in its assessment of fair value, a third-party desk top appraisal was carried out on the railcar fleet using the market value approach. The railcars were classified within Level 3 of the fair value hierarchy.
The following table summarizes the components of net loss from discontinued operations in the accompanying unaudited consolidated statements of operationsincome for the three and ninesix months ended SeptemberJune 30, 20192020 and 20182019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended September 30, |
| Nine Months Ended September 30, | ||||||||
| 2019 |
| 2018 |
| 2019 |
| 2018 | ||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
Rail lease revenue | $ | 5,871 |
| $ | 8,759 |
| $ | 20,214 |
| $ | 26,982 |
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
Depreciation of rental equipment |
| - |
|
| 3,537 |
|
| 5,248 |
|
| 10,505 |
Storage, handling and other expenses |
| 3,453 |
|
| 1,008 |
|
| 5,813 |
|
| 4,424 |
(Gain) loss on sale of rental equipment |
| (757) |
|
| 8 |
|
| (9,418) |
|
| (9) |
Administrative expenses |
| 620 |
|
| 974 |
|
| 2,977 |
|
| 2,825 |
Total operating expenses |
| 3,316 |
|
| 5,527 |
|
| 4,620 |
|
| 17,745 |
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
| 2,555 |
|
| 3,232 |
|
| 15,594 |
|
| 9,237 |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
| 2,975 |
|
| 3,972 |
|
| 10,104 |
|
| 11,364 |
(Loss) income before income taxes |
| (420) |
|
| (740) |
|
| 5,490 |
|
| (2,127) |
|
|
|
|
|
|
|
|
|
|
|
|
Loss on classification as held for sale and subsequent impairment |
| 25,632 |
|
| - |
|
| 32,955 |
|
| - |
Loss from discontinued operations before income taxes |
| (26,052) |
|
| (740) |
|
| (27,465) |
|
| (2,127) |
Income tax benefit |
| (6,140) |
|
| (175) |
|
| (6,482) |
|
| (502) |
Net loss from discontinued operations | $ | (19,912) |
| $ | (565) |
| $ | (20,983) |
| $ | (1,625) |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||
Revenue | |||||||||||
Logistics revenue | $ | 22,648 | $ | 29,802 | $ | 52,754 | $ | 57,518 | |||
Operating expenses | |||||||||||
Logistics transportation costs | 19,533 | 26,091 | 46,348 | 50,610 | |||||||
Administrative expenses | 4,107 | 5,319 | 8,269 | 10,541 | |||||||
Loss on classification as held for sale | 18,477 | - | 18,477 | - | |||||||
Total operating expenses | 42,117 | 31,410 | 73,094 | 61,151 | |||||||
Operating loss | (19,469) | (1,608) | (20,340) | (3,633) | |||||||
Interest income | (3) | (4) | (6) | (8) | |||||||
Loss before income taxes | (19,466) | (1,604) | (20,334) | (3,625) | |||||||
Income tax benefit | (2,884) | (383) | (3,088) | (872) | |||||||
Net loss from discontinued operations | $ | (16,582) | $ | (1,221) | $ | (17,246) | $ | (2,753) |
The loss on classification as held for sale for both the three and six months ended June 30, 2020 includes an impairment charge of $15.8 million and $2.3 million to reduce the book value of goodwill and intangible assets, respectively, to their estimated fair value based on estimated sale proceeds for the business. The net assets of the logistics business were classified within Level 3 of the fair value hierarchy.
(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, 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.
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 two2 types of container fund arrangements with investors which are reviewed under FASB ASC Topic 810, Consolidation. These arrangements include container funds that the Company manages for investors and container funds that have entered into financing arrangements with investors. All of the funds under financing arrangements are Japanese container funds that were established under separate investment agreements allowed under Japanese commercial laws. Each of the funds is financed by unrelated Japanese third-party investors.
14
CAI INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Managed Container Funds
The fees earned by the Company for arranging, managing and establishing container funds are commensurate with the level of effort required to provide those services, and the arrangements include only terms and conditions that are customarily present in arrangements for similar services. As such, the Company does not have a variable interest in the managed containers funds, and does not consolidate those funds. NoNaN container portfolios were sold to the funds during the three and ninesix months ended SeptemberJune 30, 20192020 and 2018. 2019.
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. The Company concluded these were financing transactions under which sale-leaseback accounting was not applicable.
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 SeptemberJune 30, 20192020 and December 31, 2018,2019, and the results of the VIEs’ operations and cash flows for the three and ninesix months ended SeptemberJune 30, 20192020 and 2018,2019, in the Company’s consolidated financial statements.
The containers that were transferred to the Japanese investor funds had a net book value of $114.4$95.0 million as of SeptemberJune 30, 2019.2020. The container equipment, together with $26.8$27.7 million of cash held by the investor funds that can only be used to settle the liabilities of the VIEs, has been included on the Company’s consolidated balance sheets with the related liability presented in the debt section of the Company’s consolidated balance sheets as collateralized financing obligations of $99.4$82.3 million and term loans held by VIE of $37.8$33.9 million. NoNaN gain or loss was recognized by the Company on the initial consolidation of the VIEs. NaN containers were sold to the Japanese investor during the three and six months ended June 30, 2020. Containers sold to the Japanese investor funds during both the three and ninesix months ended SeptemberJune 30, 2019 had a net book value of $65.0 million. Containers sold to the Japanese investor during the three and nine months ended September 30, 2018 had a net book value of $14.6 million and $29.8 million, respectively.
(5)(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, | ||||||
|
| 2019 |
| 2018 | 2020 | 2019 | ||||||
Dry containers |
| $ | 1,966,688 |
| $ | 1,840,304 | $ | 1,866,091 | $ | 1,902,471 | ||
Refrigerated containers |
| 298,202 |
| 341,983 | 275,682 | 282,155 | ||||||
Other specialized equipment |
|
| 222,921 |
|
| 192,066 | 215,365 | 224,924 | ||||
Railcars | 282,106 | 314,279 | ||||||||||
|
|
| 2,487,811 |
|
| 2,374,353 | 2,639,244 | 2,723,829 | ||||
Accumulated depreciation |
|
| (598,545) |
|
| (557,559) | (660,418) | (620,990) | ||||
Rental equipment, net of accumulated depreciation |
| $ | 1,889,266 |
| $ | 1,816,794 | $ | 1,978,826 | $ | 2,102,839 |
Impairment of railcar assets
During the quarter ended March 31, 2020, an impairment charge of $19.2 million was recognized to reduce the book value of the railcar portfolio, on an individual basis, to the lower of its net book value had the assets not been classified as held for sale, or its estimated fair value at the date when the decision was made not to sell the assets of the railcar business. To assist in the Company’s assessment of fair value, a third-party appraisal was carried out on the railcar fleet using a combination of cost and market approaches. The cost approach utilizes the current replacement cost for a particular car type and calculates an estimated depreciation based on a railcar having a 40-year life and residual value being 10% of the estimated purchase price. The market approach estimates value based on recent market transactions involving similar railcars. The railcars were classified within Level 3 of the fair value hierarchy.
(6)
(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, | |||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||
Lease revenue - operating leases | $ | 60,730 | $ | 65,962 | $ | 121,129 | $ | 135,159 | ||||
Interest income on finance leases | 11,292 | 11,092 | 22,915 | 22,482 | ||||||||
Other revenue | 2,945 | 3,100 | 5,162 | 5,905 | ||||||||
Interest income on financing receivable | 758 | 594 | 1,435 | 594 | ||||||||
Total lease revenue | $ | 75,725 | $ | 80,748 | $ | 150,641 | $ | 164,140 |
CAI INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For finance leases, the net selling loss recognized at lease commencement, representing the difference between the estimated fair value of rental equipment placed on lease and net book value, in the amount of $2.6 million for the three and six months ended June 30, 2019 is included in “gain on sale of rental equipment” in the consolidated statement of operations.
Net Investmentinvestment in Sales-Type and Direct Finance Leasesfinance leases
The following table represents the components of the Company’s net investment in sales-type and direct finance leases (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, |
| December 31, | ||
|
| 2019 |
| 2018 | ||
Gross sales-type and finance lease receivables (1) |
| $ | 781,624 |
| $ | 804,511 |
Unearned income (2) |
|
| (241,857) |
|
| (254,744) |
Net investment in sales-type and direct finance leases |
| $ | 539,767 |
| $ | 549,767 |
June 30, | December 31, | |||||
2020 | 2019 | |||||
Gross finance lease receivables (1) | $ | 757,461 | $ | 806,019 | ||
Unearned income (2) | (218,260) | (238,651) | ||||
Net investment in finance leases | 539,201 | 567,368 | ||||
Allowance for credit losses | (44) | - | ||||
Net investment in finance leases, net of allowance for credit losses | $ | 539,157 | $ | 567,368 |
15
CAI INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(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 sales-type and finance lease receivables. The gross sales-type and finance lease receivables are reduced as customer payments are received. There was $74.3 million and $74.4 million of unguaranteed residual value at SeptemberJune 30, 20192020 and December 31, 2018,2019, respectively, included in gross sales-type and finance lease receivables. There were no0 executory costs included in gross sales-type and finance lease receivables as of SeptemberJune 30, 20192020 and December 31, 2018.2019.
(2)The difference between the gross sales-type and 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 no0 unamortized initial direct costs as of SeptemberJune 30, 20192020 and December 31, 2018.2019.
(3)NaN major customer represented 66% and 65% of the Company’s finance lease portfolio as of June 30, 2020 and December 31, 2019, respectively. No other customer represented more than 10% of the Company’s finance lease portfolio in each of those periods.
Contractual maturities of the Company's gross finance lease receivables subsequent to June 30, 2020 for the years ending June 30 are as follows (in thousands):
2021 | $ | 117,567 | ||||
2022 | 108,526 | |||||
2023 | 108,342 | |||||
2024 | 72,990 | |||||
2025 | 57,037 | |||||
2026 and thereafter | 292,999 | |||||
$ | 757,461 |
Financing receivable
During 2020 and 2019, the Company purchased containers and leased back the containers to the seller-lessees through finance leaseback arrangements. As control of the equipment was retained by the customers, the Company concluded that sale-leaseback accounting was not applicable and treated the arrangements as financing transactions. The Company recorded a financing receivable in the amount paid for the containers. Payments made by the seller-lessee are recorded as a reduction to the financing receivable and as interest income, calculated using the effective interest method.
The following table summarizes the components of the Company’s financing receivable (in thousands):
June 30, | December 31, | ||||||
2020 | 2019 | ||||||
Gross financing receivable | $ | 78,669 | $ | 45,530 | |||
Unearned income | (15,638) | (11,111) | |||||
63,031 | 34,419 | ||||||
Allowance for credit losses | (3) | - | |||||
Total financing receivable | $ | 63,028 | $ | 34,419 | |||
Amounts due within one year (1) | 9,207 | 3,726 | |||||
Amounts due beyond one year (2) | 53,821 | 30,693 | |||||
Total financing receivable | $ | 63,028 | $ | 34,419 |
(1)Included in prepaid expenses and other current assets in the consolidated balance sheets.
(2)Included in financing receivable in the consolidated balance sheets.
CAI INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Credit quality information
In order to estimate the allowance for losses contained in gross sales-typenet investment in finance leases and finance lease receivables,financing receivable, the Company reviews the credit worthiness of its customers on an ongoing basis. The review includes monitoring credit quality indicators, historical credit loss activity, current market and economic conditions, and reasonable and supportable forecasts.
The Company uses the aging of customer receivables and general economic conditions.following definitions for risk ratings:
The categories of gross finance lease receivables based on the Company's internal customer credit ratings can be described as follows:
Tier 1— These customers are typically large international shipping lines that have been in business for many years and have world-class operating capabilities and significant financial resources. In most cases, the Company has had a long commercial relationship with these customers and currently maintains regular communication with them at several levels of management, which provides the Company with insight into the customer's current operating and financial performance. In the Company's view, these customers have the greatest ability to withstand cyclical down turns and would likely have greater access to needed capital than lower-rated customers. The Company views the risk of default for Tier 1 customers to range from minimal to moderate.
Tier 2— These customers are typically either smaller shipping lines or freight forwarders with less operating scale or with a high degree of financial leverage, and accordingly the Company views these customers as subject to higher volatility in financial performance over the business cycle. The Company generally expects these customers to have less access to capital markets or other sources of financing during cyclical down turns. The Company views the risk of default for Tier 2 customers as moderate.
Tier 3— Customers in this category exhibit volatility in payments on a regular basis.
BasedAs of June 30, 2020 and December 31, 2019, based on the above categories,most recent analysis performed, the Company's gross sales-typerisk category of the Company’s net investment in finance leases and finance lease receivables werefinancing receivable, based on year of origination is as follows (in thousands):
|
|
|
|
| |||||||||||||||||||||||
|
|
|
|
| |||||||||||||||||||||||
|
| September 30, |
| December 31, | |||||||||||||||||||||||
|
| 2019 |
| 2018 | |||||||||||||||||||||||
June 30, 2020 | 2020 | 2019 | 2018 | 2017 | 2016 | Prior | Total | ||||||||||||||||||||
Net investment in finance leases | |||||||||||||||||||||||||||
Tier 1 |
| $ | 714,921 |
| $ | 698,014 | $ | 2,967 | $ | 56,469 | $ | 242,365 | $ | 167,783 | $ | 6,800 | $ | 1,401 | $ | 477,785 | |||||||
Tier 2 |
| 66,703 |
| 106,497 | 3,609 | 29,859 | 13,955 | 6,456 | 1,830 | 5,707 | 61,416 | ||||||||||||||||
Tier 3 |
|
| - |
|
| - | - | - | - | - | - | - | - | ||||||||||||||
Total net investment in finance leases | $ | 6,576 | $ | 86,328 | $ | 256,320 | $ | 174,239 | $ | 8,630 | $ | 7,108 | $ | 539,201 | |||||||||||||
|
| $ | 781,624 |
| $ | 804,511 | |||||||||||||||||||||
Financing receivable | |||||||||||||||||||||||||||
Tier 1 | $ | 30,420 | $ | 31,948 | $ | - | $ | - | $ | - | $ | - | $ | 62,368 | |||||||||||||
Tier 2 | - | 663 | - | - | - | - | 663 | ||||||||||||||||||||
Tier 3 | - | - | - | - | - | - | - | ||||||||||||||||||||
Total financing receivable | $ | 30,420 | $ | 32,611 | $ | - | $ | - | $ | - | $ | - | $ | 63,031 |
Net investment in | Financing | |||||
December 31, 2019 | finance leases | receivable | ||||
Tier 1 | $ | 502,265 | $ | 33,694 | ||
Tier 2 | 65,103 | 725 | ||||
Tier 3 | - | - | ||||
$ | 567,368 | $ | 34,419 |
Contractual maturities of the Company's gross sales-type and finance lease receivables subsequent to September 30, 2019 for the years ending September 30 are as follows (in thousands):
|
|
|
|
|
|
|
2020 |
|
|
|
| $ | 109,400 |
2021 |
|
|
|
|
| 98,955 |
2022 |
|
|
|
|
| 91,883 |
2023 |
|
|
|
|
| 91,211 |
2024 |
|
|
|
|
| 61,405 |
2025 and thereafter |
|
|
|
|
| 328,770 |
|
|
|
|
| $ | 781,624 |
CAI INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(7) Financing Receivable(6) Debt
The Company has entered into agreements with customers to purchase rental equipment and to lease the equipment back to the customers on a finance lease. As control of the equipment has been retained by the customers, the Company concluded that sale-leaseback accounting was not applicable and has treated the arrangements as financing transactions. The amount paid by the Company has been recorded as a financing receivable. Payments made by the customers 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):
| |||||||
|
| ||||||
|
|
| |||||
|
| ||||||
|
|
In order to estimate an allowance for losses from financing receivables, the Company reviews the credit worthiness of its customers on an ongoing basis. As of September 30, 2019, $34.6 million and $0.7 million of the Company’s financing receivable would be categorized as Tier 1 and Tier 2, respectively, based on the internal customer credit ratings as described in Note 6.
(8) Intangible Assets
The Company amortizes intangible assets on a straight line-basis over their estimated useful lives as follows:
|
|
|
|
The Company’s intangible assets as of September 30, 2019 and December 31, 2018 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Gross Carrying Amount |
| Accumulated Amortization |
| Net Carrying Amount | |||
September 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks and tradenames |
|
|
|
| $ | 1,786 |
| $ | (1,786) |
| $ | - |
Customer relationships |
|
|
|
|
| 9,344 |
|
| (4,819) |
|
| 4,525 |
|
|
|
|
| $ | 11,130 |
| $ | (6,605) |
| $ | 4,525 |
December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks and tradenames |
|
|
|
| $ | 1,786 |
| $ | (1,786) |
| $ | - |
Customer relationships |
|
|
|
|
| 9,344 |
|
| (3,611) |
|
| 5,733 |
|
|
|
|
| $ | 11,130 |
| $ | (5,397) |
| $ | 5,733 |
Amortization expense was $0.4 million and $0.5 million for the three months ended September 30, 2019 and 2018, respectively, and $1.2 million and $1.5 million for the nine months ended September 30, 2019 and 2018, respectively, and was included in administrative expenses in the consolidated statements of operations.
As of September 30, 2019, estimated future amortization expenses are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
2020 |
|
|
|
|
|
|
|
|
|
| $ | 1,609 |
2021 |
|
|
|
|
|
|
|
|
|
|
| 1,609 |
2022 |
|
|
|
|
|
|
|
|
|
|
| 664 |
2023 |
|
|
|
|
|
|
|
|
|
|
| 474 |
2024 |
|
|
|
|
|
|
|
|
|
|
| 169 |
|
|
|
|
|
|
|
|
|
|
| $ | 4,525 |
17
CAI INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(9) Leases
Lessor
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 |
| Nine months | ||||||
|
|
|
|
|
|
|
| ended |
| ended | ||
|
|
|
|
|
|
|
| September 30, |
| September 30, | ||
|
|
|
|
|
| 2019 |
| 2019 | ||||
Lease revenue - sales-type and direct finance leases |
|
|
|
|
|
|
|
|
|
|
|
|
Profit at lease commencement |
|
|
|
|
|
|
| $ | - |
| $ | - |
Interest income on lease receivable |
|
|
|
|
|
|
|
| 11,112 |
|
| 33,436 |
|
|
|
|
|
|
|
|
| 11,112 |
|
| 33,436 |
Lease revenue - operating leases |
|
|
|
|
|
|
|
| 62,002 |
|
| 184,464 |
Other revenue |
|
|
|
|
|
|
|
| 3,499 |
|
| 9,404 |
Interest income on financing receivable |
|
|
|
|
|
|
|
| 687 |
|
| 1,281 |
Total lease revenue |
|
|
|
|
|
|
| $ | 77,300 |
| $ | 228,585 |
The following represents future minimum rents receivable under long-term non-cancelable operating leases (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| As of | ||
|
|
|
|
|
|
|
|
|
|
| September 30, | |
|
|
|
|
|
|
|
|
|
|
| 2019 | |
2020 |
|
|
|
|
|
|
|
|
|
| $ | 159,590 |
2021 |
|
|
|
|
|
|
|
|
|
|
| 138,980 |
2022 |
|
|
|
|
|
|
|
|
|
|
| 118,278 |
2023 |
|
|
|
|
|
|
|
|
|
|
| 84,772 |
2024 |
|
|
|
|
|
|
|
|
|
|
| 48,966 |
2025 and thereafter |
|
|
|
|
|
|
|
|
|
|
| 85,945 |
Total |
|
|
|
|
|
|
|
|
|
| $ | 636,531 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| As of | |
|
|
|
|
|
|
|
|
|
|
| December 31, | |
|
|
|
|
|
|
|
|
|
|
| 2018 | |
2019 |
|
|
|
|
|
|
|
|
|
| $ | 158,252 |
2020 |
|
|
|
|
|
|
|
|
|
|
| 129,740 |
2021 |
|
|
|
|
|
|
|
|
|
|
| 112,111 |
2022 |
|
|
|
|
|
|
|
|
|
|
| 96,964 |
2023 |
|
|
|
|
|
|
|
|
|
|
| 66,864 |
2024 and thereafter |
|
|
|
|
|
|
|
|
|
|
| 107,346 |
Total |
|
|
|
|
|
|
|
|
|
| $ | 671,277 |
See Note 6 for contractual maturities of the Company’s gross sales-type and finance lease receivables.
Lessee
The Company has entered into various non-cancelable office space leases with original lease periods expiring between 2019 and 2025. As of September 30, 2019, operating lease ROU assets of $6.8 million were reported in other non-current assets in the consolidated balance sheets. As of September 30, 2019, total operating lease liabilities were $7.7 million, of which $2.4 million are due within one year and $5.3 million are due beyond one year and were recorded in accrued expenses and other current liabilities and other non-current liabilities, respectively, in the consolidated balance sheets.
Certain leases provide for increases in future minimum annual rental payments as defined in the lease agreements. Lease expense for lease payments is recognized on a straight-line basis over the lease term and is reported in administrative expenses in the consolidated statements of operations.
18
CAI INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table summarizes the components of lease expense (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three months |
| Nine months | ||
|
|
|
|
|
|
|
| ended |
| ended | ||
|
|
|
|
|
|
|
| September 30, |
| September 30, | ||
|
|
|
|
|
| 2019 |
| 2019 | ||||
Operating lease cost |
|
|
|
|
|
|
| $ | 684 |
| $ | 1,870 |
Short-term lease cost |
|
|
|
|
|
|
|
| 19 |
|
| 50 |
Variable lease cost |
|
|
|
|
|
|
|
| 112 |
|
| 269 |
Total lease cost |
|
|
|
|
|
|
| $ | 815 |
| $ | 2,189 |
The weighted-average remaining term of the Company’s operating leases was 3.2 years and the weighted-average discount rate used to measure the present value of the Company’s operating lease liabilities was 3.7% as of September 30, 2019.
Maturities of the Company’s operating lease liabilities, which do not include short-term leases, as of September 30, 2019 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
2020 |
|
|
|
|
|
|
|
|
|
| $ | 2,628 |
2021 |
|
|
|
|
|
|
|
|
|
|
| 2,612 |
2022 |
|
|
|
|
|
|
|
|
|
|
| 2,219 |
2023 |
|
|
|
|
|
|
|
|
|
|
| 499 |
2024 |
|
|
|
|
|
|
|
|
|
|
| 216 |
2025 and thereafter |
|
|
|
|
|
|
|
|
|
|
| 39 |
Total lease payments |
|
|
|
|
|
|
|
|
|
|
| 8,213 |
Less imputed interest |
|
|
|
|
|
|
|
|
|
|
| (467) |
Total operating lease liabilities |
|
|
|
|
|
|
|
|
|
| $ | 7,746 |
Cash paid for operating leases was $1.8 million during the nine months ended September 30, 2019.
(10) Debt
Details of the Company’s debt as of SeptemberJune 30, 20192020 and December 31, 20182019 were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
| September 30, 2019 |
| December 31, 2018 |
|
| June 30, 2020 | December 31, 2019 | |||||||||||||||||||||||||||
| Outstanding |
| Average |
| Outstanding |
| Average |
|
| Outstanding | Average | Outstanding | Average | |||||||||||||||||||||
| Current |
| Long-term |
| Interest |
| Current |
| Long-term |
| Interest |
| Maturity | Current | Long-term | Interest | Current | Long-term | Interest | Maturity | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Revolving credit | $ | - |
| $ | 480,000 |
| 3.5% |
| $ | 4,200 |
| $ | 301,000 |
| 4.2% |
| June 2023 | $ | 2,000 | $ | 695,000 | 1.7% | $ | - | $ | 624,000 | 3.3% | June 2023 | ||||||
Revolving credit facility - Rail (1) (2) |
| - |
|
| 162,500 |
| 3.5% |
|
| - |
|
| 272,500 |
| 4.2% |
| October 2023 | |||||||||||||||||
Revolving credit facility - Rail (1) | - | 137,500 | 1.7% | - | 137,500 | 3.3% | October 2023 | |||||||||||||||||||||||||||
Revolving credit facility - Euro |
| 18,559 | �� |
| - |
| 2.0% |
|
| - |
|
| 19,457 |
| 2.0% |
| September 2020 | 21,561 | - | 2.0% | 21,537 | - | 2.0% | September 2020 | ||||||||||
Term loan |
| 1,800 |
|
| 25,950 |
| 4.3% |
|
| 1,800 |
|
| 27,300 |
| 4.5% |
| April 2023 | 1,800 | 24,600 | 2.8% | 1,800 | 25,500 | 3.9% | April 2023 | ||||||||||
Term loan (3) |
| 107,250 |
|
| - |
| 3.6% |
|
| 111,750 |
|
| - |
| 3.8% |
| October 2019 | |||||||||||||||||
Term loan |
| 7,000 |
|
| 70,250 |
| 3.8% |
|
| 7,000 |
|
| 75,500 |
| 4.0% |
| June 2021 | 72,000 | - | 2.7% | 7,000 | 68,500 | 3.5% | June 2021 | ||||||||||
Term loan (1) |
| 1,273 |
|
| 14,325 |
| 3.4% |
|
| 1,240 |
|
| 15,284 |
| 3.4% |
| December 2020 | |||||||||||||||||
Term loan (1) |
| 2,989 |
|
| 38,399 |
| 3.6% |
|
| 2,909 |
|
| 40,651 |
| 3.6% |
| August 2021 | |||||||||||||||||
Term loan | 14,647 | - | 3.4% | 15,284 | - | 3.4% | December 2020 | |||||||||||||||||||||||||||
Term loan | 3,071 | 36,086 | 3.6% | 3,016 | 37,635 | 3.6% | August 2021 | |||||||||||||||||||||||||||
Term loan |
| 6,000 |
|
| 88,000 |
| 4.6% |
|
| 6,000 |
|
| 92,500 |
| 4.6% |
| October 2023 | 6,000 | 83,500 | 4.6% | 6,000 | 86,500 | 4.6% | October 2023 | ||||||||||
Senior secured notes |
| 6,110 |
|
| 46,665 |
| 4.9% |
|
| 6,110 |
|
| 52,775 |
| 4.9% |
| September 2022 | 6,110 | 43,610 | 4.9% | 6,110 | 46,665 | 4.9% | September 2022 | ||||||||||
Asset-backed notes 2012-1 |
| 17,100 |
|
| 35,625 |
| 3.5% |
|
| 17,100 |
|
| 48,450 |
| 3.5% |
| October 2027 | |||||||||||||||||
Asset-backed notes 2013-1 |
| 22,900 |
|
| 57,250 |
| 3.4% |
|
| 22,900 |
|
| 74,425 |
| 3.4% |
| March 2028 | |||||||||||||||||
Asset-backed notes 2012-1 (2) | - | - | - | 17,100 | 31,350 | 3.5% | - | |||||||||||||||||||||||||||
Asset-backed notes 2013-1 (2) | - | - | - | 22,900 | 51,525 | 3.4% | - | |||||||||||||||||||||||||||
Asset-backed notes 2017-1 |
| 25,307 |
|
| 170,822 |
| 3.7% |
|
| 25,307 |
|
| 189,802 |
| 3.7% |
| June 2042 | 25,307 | 151,842 | 3.7% | 25,307 | 164,496 | 3.7% | June 2042 | ||||||||||
Asset-backed notes 2018-1 |
| 34,890 |
|
| 258,767 |
| 4.0% |
|
| 34,890 |
|
| 284,935 |
| 4.0% |
| February 2043 | 34,890 | 232,600 | 4.0% | 34,890 | 250,045 | 4.0% | February 2043 | ||||||||||
Asset-backed notes 2018-2 |
| 34,350 |
|
| 274,800 |
| 4.4% |
|
| 34,350 |
|
| 300,563 |
| 4.4% |
| September 2043 | 34,350 | 249,038 | 4.4% | 34,350 | 266,213 | 4.4% | September 2043 | ||||||||||
Collateralized financing obligations |
| 23,455 |
|
| 75,917 |
| 1.5% |
|
| 39,610 |
|
| 67,615 |
| 1.2% |
| December 2021 | 27,808 | 54,455 | 0.8% | 21,681 | 69,615 | 1.5% | February 2026 | ||||||||||
Term loans held by VIE |
| 5,195 |
|
| 32,570 |
| 4.2% |
|
| 1,456 |
|
| - |
| 3.3% |
| June 2019 | 5,367 | 28,520 | 4.2% | 5,250 | 31,234 | 4.2% | February 2026 | ||||||||||
|
| 314,178 |
|
| 1,831,840 |
|
|
|
| 316,622 |
|
| 1,862,757 |
|
|
|
| 254,911 | 1,736,751 | 222,225 | 1,890,778 | |||||||||||||
Debt issuance costs |
| (4,678) |
|
| (12,191) |
|
|
|
| (5,241) |
|
| (15,124) |
|
|
|
| (3,661) | (8,441) | (4,131) | (10,656) | |||||||||||||
Total Debt | $ | 309,500 |
| $ | 1,819,649 |
|
|
| $ | 311,381 |
| $ | 1,847,633 |
|
|
|
| $ | 251,250 | $ | 1,728,310 | $ | 218,094 | $ | 1,880,122 |
19
CAI INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) These facilities will be repaid upon the sale of the railcar assets.
(2) The maximum credit commitment under the Rail revolving credit facility was decreased on October 1, 2019July 2, 2020 from $550$250 million to $250$150 million.
(3) Outstanding balance of $107.3 million was(2) On April 27, 2020, the Company repaid on October 1, 2019.in full the outstanding debt associated with the asset-backed notes 2012-1 and 2013-1.
The Company maintains its revolving credit facilities to finance the acquisition of rental equipment and for general working capital purposes. As of SeptemberJune 30, 2019,2020, the Company had $1,016.1$521.9 million in total availability under its revolving credit facilities (net of $0.1 million in letters of credit), subject to the Company’s ability to meet the collateral requirements under the agreements governing the facilities. Based on the borrowing base and collateral requirements at SeptemberJune 30, 2019,2020, the borrowing availability under the Company’s revolving credit facilities was $88.4$162.7 million, assuming no additional contributions of assets.
On March 29, 2019, one of the Japanese investor funds that is consolidated by the Company as a VIE (see Note 4) entered into a term loan agreement with a bank. Under the terms of the term loan agreement, the Japanese investor fund entered into a seven-year, amortizing term loan of $40.8 million at a fixed interest rate of 4.2%. The term loan is secured by assets of the Japanese investor fund, and is subject to certain borrowing conditions set out in the term loan agreement.
The agreements relating to all of the Company’s debt contain various financial and other covenants. As of SeptemberJune 30, 2019,2020, the Company was in compliance with all of its financial and other covenants.
In early July 2020, the Company completed an interest rate hedging transaction swapping one month LIBOR for a fixed rate of 0.29% on $500 million of its floating rate debt for a term of five years.
For further information on the Company’s debt instruments, see Note 810 to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018,2019, filed with the SEC on March 5, 2019.2020.
(11) (7) Stock–Based Compensation Plan
2019 Incentive Plan
In June 2019, the Company’s stockholders approved the CAI International, Inc. 2019 Incentive Plan (2019 Plan), which replacesreplaced the CAI International, Inc. Amended and Restated 2007 Equity Incentive Plan (2007 Plan). No further awards will be made under the 2007 Plan. Under the 2019 Plan, a maximum of 2,577,075 share awards may be granted. Under the 2019 Plan, the Company may grant incentive and nonqualified stock options, stock appreciation rights, restricted stock awards, restricted stock units, performance awards and other stock or cash-based awards.
Stock Options
Stock options granted to employees have a vesting period of four years from the grant date, with 25% vesting after one year, and 1/48th vesting each month thereafter until fully vested. Stock options granted to independent directors vest in one year. All of the stock options have a contractual term of ten years.
CAI INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table summarizes the Company’s stock option activities for the ninesix months ended SeptemberJune 30, 20192020 and 2018:2019:
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
|
| Nine Months Ended September 30, | Six Months Ended June 30, | ||||||||||||||||||||
|
| 2019 |
| 2018 | 2020 | 2019 | ||||||||||||||||||
|
|
|
|
| Weighted |
|
|
|
| Weighted | Weighted | Weighted | ||||||||||||
|
|
|
| Average |
|
|
| Average | Average | Average | ||||||||||||||
|
| Number of |
| Exercise |
| Number of |
| Exercise | Number of | Exercise | Number of | Exercise | ||||||||||||
|
| Shares |
| Price |
| Shares |
| Price | Shares | Price | Shares | Price | ||||||||||||
Options outstanding at January 1 |
|
| 850,167 |
| $ | 16.46 |
|
| 859,560 |
| $ | 16.44 | 646,946 | $ | 16.96 | 850,167 | $ | 16.46 | ||||||
Options exercised |
| (138,723) |
| $ | 13.95 |
| (9,393) |
| $ | 14.76 | (17,750) | $ | 13.94 | (125,504) | $ | 14.14 | ||||||||
Options forfeited |
| (3,000) |
| $ | 12.88 |
| - |
| $ | - | (11,814) | $ | 15.64 | (3,000) | $ | 12.88 | ||||||||
Options expired |
|
| (15,000) |
| $ | 25.53 |
|
| - |
| $ | - | - | $ | - | (10,000) | $ | 26.41 | ||||||
Options outstanding at September 30 |
|
| 693,444 |
| $ | 16.78 |
|
| 850,167 |
| $ | 16.46 | ||||||||||||
Options outstanding at June 30 | 617,382 | $ | 17.07 | 711,663 | $ | 16.75 | ||||||||||||||||||
Options exercisable |
|
| 591,842 |
| $ | 17.42 |
|
| 625,263 |
| $ | 17.54 | 596,297 | $ | 17.11 | 586,408 | $ | 17.58 | ||||||
Weighted average remaining term |
| 5.7 years |
|
|
| 6.0 years |
|
| 3.3 years | 5.9 years |
The aggregate intrinsic value of stock options exercised during the ninesix months ended SeptemberJune 30, 2020 and 2019 and 2018 was $1.4$0.2 million and $0.1$1.2 million, respectively. The aggregate intrinsic value of all options outstanding as of SeptemberJune 30, 20192020 was $3.7$1.5 million based on the closing price of the Company’s common stock of $21.77$16.66 per share on SeptemberJune 30, 2019,2020, the last trading day of the quarter.
20
CAI INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company recognized stock-based compensation expense relating to stock options of $0.1 million and $0.2 million for both the three months ended SeptemberJune 30, 2020 and 2019, respectively, and 2018, and $0.6$0.3 million and $1.0$0.4 million for the ninesix months ended SeptemberJune 30, 2019 and 2018,2020, respectively. As of SeptemberJune 30, 2019,2020, the remaining unamortized stock-based compensation cost relating to stock options granted to the Company’s employees and independent directors was approximately $0.7$0.2 million, which is to be recognized over the remaining weighted average vesting period of approximately 1.10.6 years.
The Company did not0t grant any stock options during the ninesix months ended SeptemberJune 30, 20192020 and 2018.2019.
Restricted Stock Awards, Time-Based Restricted Stock Units and PerformancePerformance-Based Restricted Stock Units
The Company grants time-based restricted stock units to certain employees and restricted stock awards to independent directors from time to time to certain employees and independent directors pursuant to the 2019 Plan. RestrictedTime-based restricted stock units granted to employees hashave a vesting period of four years; 25% vesting on each anniversary of the grant date. Restricted stock awards granted to independent directors vestsvest 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 performanceperformance-based restricted stock units to certain executives and other key employees. The performanceperformance-based restricted stock units vests at the end of a 3-year performance cycle if certain financial performance targets are met. The Company recognizes compensation cost associated with the performanceperformance-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 performanceperformance-based restricted stock units under the 2019 Plan:
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
|
|
|
|
|
|
| Weighted | Weighted | |||||||||||||||
|
|
|
|
|
|
|
|
|
| Average | Average | |||||||||||||
|
|
|
|
|
| Number of |
| Grant Date | Number of | Grant Date | ||||||||||||||
|
|
|
|
|
| Shares |
| Fair Value | Shares | Fair Value | ||||||||||||||
Outstanding at December 31, 2018 |
|
|
|
|
|
|
|
| 204,730 |
| $ | 20.45 | ||||||||||||
Outstanding at December 31, 2019 | 281,736 | $ | 23.18 | |||||||||||||||||||||
Granted |
|
|
|
|
|
|
|
| 166,939 |
| $ | 25.37 | 143,957 | $ | 25.60 | |||||||||
Vested |
|
|
|
|
| (81,259) |
| $ | 20.89 | (86,009) | $ | 22.00 | ||||||||||||
Forfeited |
|
|
|
|
| (8,674) |
| $ | 22.42 | (86,208) | $ | 25.33 | ||||||||||||
Outstanding at September 30, 2019 |
|
|
|
|
| 281,736 |
| $ | 23.18 | |||||||||||||||
Outstanding at June 30, 2020 | 253,476 | $ | 24.22 |
The Company recognized stock-based compensation expense relating to restricted stock and performance stock awards of $0.7 million and $0.5 million for the three months ended SeptemberJune 30, 2019 and 2018, respectively, and $1.8$0.6 million and $1.1$1.2 million for the ninesix months ended SeptemberJune 30, 2020 and 2019, respectively, and 2018, respectively.a benefit of $0.1 million for the three months ended June 30, 2020. As of SeptemberJune 30, 2019,2020, unamortized stock-based compensation expense relating to restricted stock and performance stock was $4.8$4.3 million, which will be recognized over the remaining average vesting period of 2.21.9 years.
CAI INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Stock-based compensation expense is recorded as a component of administrative expenses in the Company’s consolidated statements of operations with a corresponding credit to additional paid-in capital in the Company’s consolidated balance sheets.
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 may be given an opportunity to purchase shares of the Company’s common stock at a discount using payroll deductions. The ESPP authorizes the issuance of up to 250,000 shares of the Company’s common stock. The first offering period under the ESPP has not yet been implemented and nocommenced in December 2019. The Company issued 7,258 shares were issuedof the Company common stock under the ESPP during the three and six months ended SeptemberJune 30, 2019.2020. The Company recognized stock-based compensation expense relating to the ESPP of less than $0.1 million for the three and six months ended June 30, 2020.
The consolidated income tax expense for the three and ninesix months ended SeptemberJune 30, 20192020 and 2018,2019, was determined based upon estimates of the Company’s consolidated annual effective income tax rate for the years ending December 31, 20192020 and 2018,2019, respectively. The difference between the consolidated annual effective income tax rate and the U.S. federal statutory rate is primarily attributable to foreign income taxes, state income taxes and the effect of certain permanent differences.
The Company’s estimated effective tax rate before discrete items was 6.1%8.2% at SeptemberJune 30, 2019,2020, compared to 5.0%an effective tax rate of 5.6% at SeptemberJune 30, 2018. 2019. Discrete items during the three and six months ended June 30, 2020 primarily related to the impairment of railcar assets (Note 4) of $19.2 million, which resulted in a tax benefit of $4.5 million.
21
CAI INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 SeptemberJune 30, 2019,2020, the Company had unrecognized tax benefits of $0.3 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 SeptemberJune 30, 2019.2020. The Company does not believe the total amount of unrecognized tax benefits as of SeptemberJune 30, 20192020 will change for the remainder of 2019.2020.
(13)(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.
The carrying amounts of cash, restricted cash, accounts receivable and accounts payable reflected in the balance sheets as of SeptemberJune 30, 20192020 and December 31, 2018,2019, approximate their fair value due to the short-term nature of these financial assets and liabilities. The carrying value of variable ratevariable-rate debt in the balance sheets as of SeptemberJune 30, 20192020 and December 31, 20182019 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 and collateralized financing obligations was $151.0$143.3 million, $931.8$728.0 million and $99.4$82.3 million as of SeptemberJune 30, 2019,2020, with a fair value of approximately $153.7$144.9 million, $945.3$735.9 million and $100.8$84.0 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 $1,032.7$148.4 million, $898.2 million and $107.2$91.3 million as of December 31, 2018,2019, with a fair value of approximately $1,024.7$151.0 million, $911.0 million and $108.9$93.0 million, respectively. Management believes that the balances of the Company’s senior secured notes of $49.7 million and $52.8 million, and $58.9 million and term loans held by VIE of $37.8$33.9 million and $1.5$36.5 million, as of September 30, 2019 and December 31, 2018, respectively, fixed-rate term loans of $158.6 million as of December 31, 2018, and financing receivable of $35.3$63.0 million and $34.4 million as of SeptemberJune 30, 2020 and December 31, 2019, respectively, approximate their fair values. The fair value of these financial instruments would be categorized as Level 2 in the fair value hierarchy.
(14)(10) Commitments and Contingencies
In addition to its debt obligations described in Note 96 above, the Company had commitments to purchase approximately $32.8$6.8 million of containers as of SeptemberJune 30, 2019,2020, all in the twelve months ending SeptemberJune 30, 2020. 2021.
CAI INTERNATIONAL, INC.
(15)NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(11) Stockholders’ Equity
Stock Repurchase Plan
In October 2018, the Company announced that the Board of Directors approved the repurchase of up to three3 million shares of its outstanding common stock. The number, price, structure and timing of 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 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 nine months ended September 30, 2019, the Company repurchased 1.5 million shares of its common stock under this repurchase plan, at a cost of approximately $34.1 million. The Company did not0t repurchase any shares under this repurchase plan during the threesix months ended SeptemberJune 30, 2019.2020. As of SeptemberJune 30, 2019,2020, approximately 1.0 million shares remained available for repurchase under this share repurchase program.
Common Stock At-the-Market (ATM) Offering Program
In October 2017, the Company commenced an ATM offering program with respect to its common stock, which allows the Company to issue and sell up to 2.0 million shares of its common stock. The Company did not issue any shares under this ATM offering program during the nine months ended September 30, 2019. The Company has remaining capacity to issue and sell up to approximately 1.0 million of additional shares of common stock under this ATM offering program.
Series A Preferred Stock Underwritten Offering
In March 2018, the Company completed an underwritten public offering of 1,600,000 shares of its 8.5% Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Stock, par value $0.0001 per share and liquidation preference $25.00 per share (Series A Preferred Stock), resulting in net proceeds to the Company of approximately $38.3 million, after deducting the underwriting discount and other offering expenses. In April 2018, the Company sold an additional 170,900 shares of Series A Preferred Stock upon the partial exercise by the underwriters of their option to purchase additional Series A Preferred Stock, resulting in net proceeds to the Company of approximately $4.1 million, after deducting the underwriting discount of $0.1 million. The net proceeds were used for repayment of debt and general corporate purposes.
22
CAI INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Series A Preferred Stock ATM Offering Program
In May 2018, the Company commenced an ATM offering program with respect to its Series A Preferred Stock, which allows the Company to issue and sell up to 2.2 million shares of its Series A Preferred Stock. The Company did not issue any shares under this ATM offering program during the nine months ended September 30, 2019. The Company has remaining capacity to issue and sell up to approximately 1.8 million of additional shares of Series A Preferred Stock under this ATM offering program.
Series B Preferred Stock Underwritten Offering
In August 2018, the Company completed an underwritten public offering of 1,700,000 shares of its 8.5% Series B Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Stock, par value $0.0001 per share and liquidation preference $25.00 per share (Series B Preferred Stock), resulting in net proceeds to the Company of approximately $41.2 million, after deducting the underwriting discount. The Company sold an additional 255,000 shares of Series B Preferred Stock upon the exercise by the underwriters of their option to purchase additional Series B Preferred Stock, resulting in net proceeds to the Company of approximately $6.2 million, after deducting the underwriting discount of $0.2 million. The net proceeds were used for repayment of debt and general corporate purposes.
For further information on the Company’s shareholders’ equity, see Note 1416 to the consolidated financial statements in the Company’ Annual Report on Form 10-K for the year ended December 31, 2018,2019, filed with the SEC on March 5, 2019.2020.
(16)(12) Related Parties
In May 2018,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 June 30, 2020 and December 31, 2019, the Company purchased, and subsequently cancelled, 1,225,214 shareshad a liability of its common stock, from$1.2 million representing tax due to the UK tax authorities in respect of an affiliate of Andrew S. Ogawa in a privately-negotiated transactions. Mr. Ogawa is a memberofficer of the Company’s BoardCompany. The Company also included in its balance sheets at June 30, 2020 and December 31, 2019 a current asset of Directors. The stock was purchase at a price of $22.81 per share, which represented a 2% discount$1.2 million, representing the amount that will be reimbursed to the closing price on the date of purchase.Company by that officer.
(17)(13) Segment and Geographic Information
The Company organizes itself by the nature of the services it provides which includes equipment leasing (consisting of container leasing and rail leasing) and logistics.
As disclosed in Note 3,2, the net assets of the Company’s railcar assetslogistics business have been reclassified as held for sale in the accompanying unaudited consolidated balance sheets and the operations of the raillogistics business have been reclassified as discontinued operations in the accompanying unaudited consolidated statements of operations. As a result, the Company will no longer report Rail leasingLogistics as a segment. The Company revised prior period information to conform to current period presentation.
The container leasing segment is aggregated with equipment management and derives its revenue from the ownership and leasing of containers and fees earned for managing container portfolios on behalf of third-party investors. The logisticsrail leasing segment derives its revenue from the provisionownership and leasing of logistics services.railcars. There are no material inter-segment revenues andrevenues.
With the exception of administrative expenses, operating expenses are directly attributable to each segment. Administrative expenses that are not directly attributable to a segment are allocated to the segments based upon relative asset values or revenue.
The following tables show condensed segment information for the three and ninesix months ended SeptemberJune 30, 20192020 and 2018,2019, reconciled to the Company’s income before income taxes as shown in its consolidated statements of operations for such periods (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended September 30, 2019 | |||||||
|
|
|
|
| Container Leasing |
| Logistics |
| Total | |||
Total revenue |
|
|
|
| $ | 77,300 |
| $ | 30,270 |
| $ | 107,570 |
Operating expenses |
|
|
|
|
| 39,668 |
|
| 30,679 |
|
| 70,347 |
Amortization of intangible assets |
|
|
|
|
| - |
|
| 403 |
|
| 403 |
Total operating expenses |
|
|
|
|
| 39,668 |
|
| 31,082 |
|
| 70,750 |
Operating income (loss) |
|
|
|
|
| 37,632 |
|
| (812) |
|
| 36,820 |
Net interest and other expenses (income) |
|
|
|
|
| 20,507 |
|
| (4) |
|
| 20,503 |
Income (loss) before income taxes |
|
|
|
| $ | 17,125 |
| $ | (808) |
| $ | 16,317 |
Purchase of rental equipment (1) |
|
|
|
| $ | 89,027 |
| $ | - |
| $ | 89,027 |
Three Months Ended June 30, 2020 | |||||||||
Container Leasing | Rail Leasing | Total | |||||||
Total revenue | $ | 69,443 | $ | 6,282 | $ | 75,725 | |||
Total operating expenses | 36,757 | 4,401 | 41,158 | ||||||
Operating income | 32,686 | 1,881 | 34,567 | ||||||
Net interest and other expenses | 16,037 | 1,461 | 17,498 | ||||||
Income before income taxes | $ | 16,649 | $ | 420 | $ | 17,069 | |||
Purchase of rental equipment (1) | $ | 5,120 | $ | - | $ | 5,120 |
CAI INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
|
|
|
|
|
|
|
|
| |||||||||||||
|
|
|
| Three Months Ended September 30, 2018 | Three Months Ended June 30, 2019 | ||||||||||||||||
|
|
|
|
| Container Leasing |
| Logistics |
| Total | Container Leasing | Rail Leasing | Total | |||||||||
Total revenue |
|
|
| $ | 75,331 |
| $ | 31,362 |
| $ | 106,693 | $ | 74,286 | $ | 6,462 | $ | 80,748 | ||||
Operating expenses |
|
|
|
| 32,985 |
|
| 33,608 |
|
| 66,593 | ||||||||||
Amortization of intangible assets |
|
|
|
| - |
|
| 451 |
|
| 451 | ||||||||||
Total operating expenses |
|
|
|
| 32,985 |
|
| 34,059 |
|
| 67,044 | 40,026 | 10,096 | 50,122 | |||||||
Operating income (loss) |
|
|
|
| 42,346 |
|
| (2,697) |
|
| 39,649 | 34,260 | (3,634) | 30,626 | |||||||
Net interest and other expenses (income) |
|
|
|
| 15,932 |
|
| (5) |
|
| 15,927 | ||||||||||
Net interest and other expenses | 20,144 | 3,184 | 23,328 | ||||||||||||||||||
Income (loss) before income taxes |
|
|
| $ | 26,414 |
| $ | (2,692) |
| $ | 23,722 | $ | 14,116 | $ | (6,818) | $ | 7,298 | ||||
Purchase of rental equipment (1) |
|
|
| $ | 251,670 |
| $ | - |
| $ | 251,670 | $ | 59,352 | $ | 31,031 | $ | 90,383 |
|
|
|
|
|
|
|
|
| |||||||||||||
|
|
|
| Nine Months Ended September 30, 2019 | Six Months Ended June 30, 2020 | ||||||||||||||||
|
|
|
|
| Container Leasing |
| Logistics |
| Total | Container Leasing | Rail Leasing | Total | |||||||||
Total revenue |
|
|
| $ | 228,585 |
| $ | 87,788 |
| $ | 316,373 | $ | 138,556 | $ | 12,085 | $ | 150,641 | ||||
Operating expenses |
|
|
|
| 116,538 |
|
| 91,025 |
|
| 207,563 | ||||||||||
Amortization of intangible assets |
|
|
|
| - |
|
| 1,208 |
|
| 1,208 | ||||||||||
Total operating expenses |
|
|
|
| 116,538 |
|
| 92,233 |
|
| 208,771 | 73,396 | 25,775 | 99,171 | |||||||
Operating income (loss) |
|
|
|
| 112,047 |
|
| (4,445) |
|
| 107,602 | 65,160 | (13,690) | 51,470 | |||||||
Net interest and other expenses (income) |
|
|
|
| 60,598 |
|
| (12) |
|
| 60,586 | ||||||||||
Net interest and other expenses | 34,557 | 3,566 | 38,123 | ||||||||||||||||||
Income (loss) before income taxes |
|
|
| $ | 51,449 |
| $ | (4,433) |
| $ | 47,016 | $ | 30,603 | $ | (17,256) | $ | 13,347 | ||||
Purchase of rental equipment (1) |
|
|
| $ | 256,469 |
| $ | - |
| $ | 256,469 | $ | 32,620 | - | $ | 32,620 |
Six Months Ended June 30, 2019 | |||||||||
Container Leasing | Rail Leasing | Total | |||||||
Total revenue | $ | 149,797 | $ | 14,343 | $ | 164,140 | |||
Total operating expenses | 78,740 | 8,627 | 87,367 | ||||||
Operating income | 71,057 | 5,716 | 76,773 | ||||||
Net interest and other expenses | 40,091 | 7,129 | 47,220 | ||||||
Income (loss) before income taxes | $ | 30,966 | $ | (1,413) | $ | 29,553 | |||
Purchase of rental equipment (1) | $ | 167,442 | $ | 64,153 | $ | 231,595 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nine Months Ended September 30, 2018 | |||||||
|
|
|
|
| Container Leasing |
| Logistics |
| Total | |||
Total revenue |
|
|
|
| $ | 208,298 |
| $ | 81,251 |
| $ | 289,549 |
Operating expenses |
|
|
|
|
| 96,129 |
|
| 83,603 |
|
| 179,732 |
Amortization of intangible assets |
|
|
|
|
| - |
|
| 1,538 |
|
| 1,538 |
Total operating expenses |
|
|
|
|
| 96,129 |
|
| 85,141 |
|
| 181,270 |
Operating income (loss) |
|
|
|
|
| 112,169 |
|
| (3,890) |
|
| 108,279 |
Net interest and other expenses (income) |
|
|
|
|
| 44,284 |
|
| (16) |
|
| 44,268 |
Income (loss) before income taxes |
|
|
|
| $ | 67,885 |
| $ | (3,874) |
| $ | 64,011 |
Purchase of rental equipment (1) |
|
|
|
| $ | 477,703 |
| $ | - |
| $ | 477,703 |
(1) Represents cash disbursements for purchasing of rental equipment as reflected in the consolidated statements of cash flows for the periods indicated.
The summary below presents total assets for the Company's segments as of the dates indicated (in thousands):
|
|
|
|
|
|
|
|
| |||||||||||||
|
|
|
|
|
|
|
| September 30, 2019 |
| December 31, 2018 | June 30, | December 31, 2019 | |||||||||
Container leasing |
|
|
|
|
| $ | 2,611,755 |
| $ | 2,506,279 | $ | 2,465,139 | $ | 2,565,828 | |||||||
Rail | 261,874 | 293,459 | |||||||||||||||||||
Logistics (2) |
|
|
|
|
| 44,380 |
| 45,951 | 18,920 | 42,478 | |||||||||||
Rail (3) |
|
|
|
|
|
| 294,599 |
|
| 460,387 | |||||||||||
Total assets |
|
|
|
|
| $ | 2,950,734 |
| $ | 3,012,617 | $ | 2,745,933 | $ | 2,901,765 |
(2) Includes goodwill of $15.8 million as of September 30, 2019 and December 31, 2018.
(3) Represents total assets related to discontinued operations, including assets held for sale of $284.8$13.1 million and $449.7$37.8 million as of SeptemberJune 30, 20192020 and December 31, 2018,2019, respectively.
24
CAI INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
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 |
| Nine Months Ended | Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||
|
| September 30, |
| September 30, | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 | ||||||||||||||||
Switzerland | $ | 12,472 | $ | 12,339 | $ | 24,988 | $ | 26,387 | ||||||||||||||||
Singapore | 10,098 | 10,316 | 19,948 | 20,350 | ||||||||||||||||||||
Korea | 9,899 | 10,684 | 19,138 | 20,554 | ||||||||||||||||||||
France | 7,730 | 8,881 | 15,360 | 17,814 | ||||||||||||||||||||
United States |
| $ | 31,887 |
| $ | 33,162 |
| $ | 92,840 |
| $ | 86,706 | 7,439 | 8,128 | 14,478 | 17,778 | ||||||||
Switzerland |
| 13,837 |
| 13,929 |
| 41,712 |
| 36,246 | ||||||||||||||||
Korea |
| 10,807 |
| 8,707 |
| 31,361 |
| 21,927 | ||||||||||||||||
Singapore |
| 10,655 |
| 5,987 |
| 31,005 |
| 16,725 | ||||||||||||||||
France |
| 8,768 |
| 9,295 |
| 26,582 |
| 27,435 | ||||||||||||||||
Other Europe | 13,593 | 15,324 | 28,833 | 30,523 | ||||||||||||||||||||
Other Asia |
| 14,638 |
| 18,828 |
| 44,613 |
| 52,608 | 13,676 | 14,667 | 26,263 | 29,975 | ||||||||||||
Other Europe |
| 16,529 |
| 14,636 |
| 47,052 |
| 40,794 | ||||||||||||||||
Other International |
|
| 449 |
|
| 2,149 |
|
| 1,208 |
|
| 7,108 | 818 | 409 | 1,633 | 759 | ||||||||
Total revenue |
| $ | 107,570 |
| $ | 106,693 |
| $ | 316,373 |
| $ | 289,549 | $ | 75,725 | $ | 80,748 | $ | 150,641 | $ | 164,140 |
(18)(14) Earnings Per Share
Basic earningsnet (loss) income per share is computed by dividing income available to common stockholders bybased on the weighted average number of shares of common sharesstock outstanding for theduring 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, 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 ninesix months ended SeptemberJune 30, 20192020 and 20182019 (in thousands, except per share data):
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
| Three Months Ended |
| Nine Months Ended | ||||||||||||||||||||
|
| September 30, |
| September 30, | Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 | 2020 | 2019 | 2020 | 2019 | ||||||||||||
Numerator |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Net income from continuing operations |
| $ | 12,958 |
| $ | 20,571 |
| $ | 37,524 |
| $ | 57,897 | $ | 13,749 | $ | 4,508 | $ | 10,876 | $ | 22,407 | ||||
Net loss from discontinued operations |
|
| (19,912) |
|
| (565) |
|
| (20,983) |
|
| (1,625) | (16,582) | (1,221) | (17,246) | (2,753) | ||||||||
Net (loss) income attributable to CAI common stockholders |
| $ | (6,954) |
| $ | 20,006 |
| $ | 16,541 |
| $ | 56,272 | $ | (2,833) | $ | 3,287 | $ | (6,370) | $ | 19,654 | ||||
Denominator |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Weighted-average shares used in per share computation - basic |
| 17,330 |
| 19,214 |
| 17,850 |
| 19,741 | 17,470 | 17,648 | 17,451 | 18,098 | ||||||||||||
Effect of dilutive securities: |
|
|
|
|
|
|
|
| ||||||||||||||||
Stock options and restricted stock |
|
| 195 |
|
| 278 |
|
| 272 |
|
| 256 | 131 | 278 | 190 | 303 | ||||||||
Weighted-average shares used in per share computation - diluted |
|
| 17,525 |
|
| 19,492 |
|
| 18,122 |
|
| 19,997 | 17,601 | 17,926 | 17,641 | 18,401 | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Net income (loss) per share attributable to CAI common |
|
|
|
|
|
|
|
| ||||||||||||||||
stockholders: |
|
|
|
|
|
|
|
| ||||||||||||||||
Net (loss) income per share attributable to CAI | ||||||||||||||||||||||||
common stockholders: | ||||||||||||||||||||||||
Basic |
|
|
|
|
|
|
|
| ||||||||||||||||
Continuing operations |
| $ | 0.75 |
| $ | 1.07 |
| $ | 2.10 |
| $ | 2.93 | $ | 0.79 | $ | 0.26 | $ | 0.62 | $ | 1.24 | ||||
Discontinued operations |
| $ | (1.15) |
| $ | (0.03) |
| $ | (1.17) |
| $ | (0.08) | (0.95) | (0.07) | (0.99) | (0.15) | ||||||||
Total basic |
| $ | (0.40) |
| $ | 1.04 |
| $ | 0.93 |
| $ | 2.85 | $ | (0.16) | $ | 0.19 | $ | (0.37) | $ | 1.09 | ||||
Diluted |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Continuing operations |
| $ | 0.74 |
| $ | 1.06 |
| $ | 2.07 |
| $ | 2.90 | $ | 0.78 | $ | 0.25 | $ | 0.62 | $ | 1.22 | ||||
Discontinued operations |
| $ | (1.14) |
| $ | (0.03) |
| $ | (1.16) |
| $ | (0.09) | (0.94) | (0.07) | (0.98) | (0.15) | ||||||||
Total diluted |
| $ | (0.40) |
| $ | 1.03 |
| $ | 0.91 |
| $ | 2.81 | $ | (0.16) | $ | 0.18 | $ | (0.36) | $ | 1.07 |
25
CAI INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The calculationCertain 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 forbecause they were anti-dilutive. For the three and six months ended SeptemberJune 30, 20192020, 654,384 shares and 2018, excluded from the denominator 246,750and 86,055379,662 shares, respectively, of common stock options, because their effect would have been anti-dilutive. The calculation of diluted earnings per share forrestricted stock awards and time- and performance-based restricted stock units were excluded. For the ninethree and six months ended SeptemberJune 30, 2019, 146,116 shares and 2018, excluded from the denominator 127,135and 158,495126,184 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.
ITEM 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, 20182019 filed with the SEC on March 5, 2019.2020. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results may differ materially from those contained in or implied by any forward-looking statements. The financial information included in this discussion and in our consolidated financial statements may not be indicative of our consolidated financial position, operating results, changes in equity and cash flows in the future. See “Special Note Regarding Forward-Looking Statements” included earlier in this 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 equipment, primarily intermodal shipping containers and railcars, which we lease to our customers. We also manage equipment for third-party investors. In operating our fleet, we lease, re-lease and dispose of equipment and contract for the repair, repositioning and storage of equipment. We also provide domestic and international logistics services.
The following tables show the composition of our fleet as of SeptemberJune 30, 20192020 and 2018,2019, and our average utilization for the three and ninesix months ended SeptemberJune 30, 20192020 and 2018:2019:
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
|
|
|
|
|
| As of September 30, | As of June 30, | ||||||||||||||||
|
|
|
|
|
|
| 2019 |
| 2018 | 2020 | 2019 | |||||||||||||
Owned container fleet in TEUs |
|
|
|
|
|
| 1,623,588 |
|
| 1,435,516 | 1,597,898 | 1,553,231 | ||||||||||||
Managed container fleet in TEUs |
|
|
|
|
|
| 72,462 |
|
| 75,872 | 63,757 | 69,805 | ||||||||||||
Total container fleet in TEUs |
|
|
|
|
|
| 1,696,050 |
|
| 1,511,388 | 1,661,655 | 1,623,036 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Owned container fleet in CEUs |
|
|
|
|
| 1,649,465 |
| 1,475,142 | 1,630,054 | 1,584,456 | ||||||||||||||
Managed container fleet in CEUs |
|
|
|
|
|
| 88,493 |
|
| 69,134 | 79,643 | 63,492 | ||||||||||||
Total container fleet in CEUs |
|
|
|
|
|
| 1,737,958 |
|
| 1,544,276 | 1,709,697 | 1,647,948 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Owned railcar fleet in units |
|
|
|
|
|
| 5,504 |
|
| 7,489 | 5,276 | 5,631 |
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
| Three Months Ended |
| Nine Months Ended | ||||||||||||||||||||
|
| September 30, |
| September 30, | Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 | 2020 | 2019 | 2020 | 2019 | ||||||||||||
Average container fleet utilization in CEUs |
|
| 98.4% |
|
| 99.2% |
|
| 98.7% |
|
| 99.2% | 98.0% | 98.8% | 98.1% | 98.8% | ||||||||
Average owned container fleet utilization in CEUs |
| 98.6% |
| 99.2% |
| 98.7% |
| 99.2% | 98.0% | 98.8% | 98.2% | 98.8% | ||||||||||||
Average railcar fleet utilization |
| 85.3% |
| 89.0% |
| 88.1% |
| 88.1% | 89.6% | 88.1% | 87.3% | 89.3% | ||||||||||||
|
|
|
|
|
|
|
|
|
The intermodal marine container industry-standard measurement unit is the 20-foot equivalent unit (TEU), which compares the size of a container to a standard 20-foot container. For example, a 20-foot container is equivalent to one TEU and a 40-foot container is equivalent to two TEUs. Containers can also be measured in cost equivalent units (CEUs), whereby the cost of each type of container is expressed as a ratio relative to the cost of a standard 20-foot dry van container. For example, the CEU ratio for a standard 40-foot dry van container is 1.6, and a 40-foot high cube container is 1.7.
Utilization of containers is computed by dividing the average total units on lease during the period in CEUs, by the average total CEUs in our container fleet during the period. Utilization of railcars is computed by dividing the average number of railcars on lease during the period by the average total number of railcars in our fleet during the period. In both cases, the total fleet excludes new units not yet leased and off-hire units designated for sale. If new units not yet leased are included in the total fleet, utilization would be 95.9%96.1% and 96.4%96.0% for both the total container fleet, 95.9% and 96.4% for the owned container fleet, and 82.1%86.6% and 84.6%84.3% for the railcar fleet, for the three and ninesix months ended SeptemberJune 30, 2019,2020, respectively.
COVID-19 Pandemic
The COVID-19 pandemic continues to have a meaningful impact on global trade and our business. The pandemic and related work, travel, and social restrictions have resulted in a sharp decrease in global economic and trade activity, and a decline in container volumes during the second quarter. As a result, container leasing demand was weak during the first half of the year. We have seen increased leasing demand in July as COVID-related restrictions have eased in Europe and the United States, but it is too early to tell whether this rebound in leasing demand will be sustained.
We have been concerned that the sharp decrease in global container volumes this year would increase the financial challenges facing our customers and lead to increased credit risk. While we are not yet through the pandemic, container freight rates and the financial performance of our customers have generally held up better than anticipated. All the major shipping lines have taken aggressive actions to reduce their deployed vessel capacity, decreasing their network expenses and mitigating rate pressure from reduced freight volumes. The large decrease in bunker fuel prices has also been very helpful to their financial performance. However, there is no certainty that our customers will continue to be able to manage through the challenges of the COVID-19 environment. We continue to closely monitor our customers’ payment performance and expect our customer credit risk will remain elevated as long as economic and trade disruptions persist.
For additional information regarding the risk and uncertainties that we could encounter as a result of the COVID-19 pandemic and related global conditions, see “The continued spread of the COVID-19 pandemic may have a material adverse impact on our business, financial condition and results of operations” in Item 1A. “Risk Factors” in this Quarterly Reports on Form 10-Q.
Change in Chief Executive Officer
In June 2020, the Board terminated Victor M. Garcia as President and Chief Executive Officer of the Company and promoted Timothy B. Page to Executive Vice President, and Interim President and Chief Executive Officer of the Company. The Board is actively searching for a permanent replacement for its Chief Executive Officer.
Discontinued Operations
In the quarter ended June 30, 2019, weWe committed to a plan to sell our railcar assets as we believe it is inlogistics business during the best interestquarter ended June 30, 2020. We expect a sale to be completed before the end of our shareholders to reallocate the capital invested in our rail business to other investments.2020. As a result, the railcarlogistics assets and liabilities have been classifiedreclassified as held for sale and the operations of the raillogistics business have been classifiedreclassified as discontinued operations in the unaudited consolidated financial statements in this Quarterly Report on Form 10-Q. All prior periods presented in the unaudited consolidated financial statements have been restated to reflect the reclassification.
During the three months ended June 30, 2019, a loss of $7.3 million was recorded when the assets of the railcar business were reclassified as held for sale. During the three months ended September 30, 2019, we incurred an additional impairment charge of $25.6 million to reduce the book value of our railcar portfolio to its estimated fair value. To assist us in our assessment of fair value, a third-party desk top appraisal was carried out on the railcar fleet using the market value approach. See Note 32 – Discontinued Operations to the consolidated financial statements in this Quarterly Report on Form 10-Q for more information.
Results of Operations - Three Months Ended SeptemberJune 30, 20192020 Compared to Three Months Ended SeptemberJune 30, 20182019
The following table summarizes our results of operations for the three months ended SeptemberJune 30, 20192020 and 20182019 (dollars in thousands):
|
|
|
|
|
|
|
|
|
| |||||||||||||||
|
| Three Months Ended September 30, |
| Increase/(Decrease) | Three Months Ended June 30, | Change | ||||||||||||||||||
|
| 2019 |
| 2018 |
| Amount |
| Percent | 2020 | 2019 | Amount | Percent | ||||||||||||
Total revenue |
| $ | 107,570 |
| $ | 106,693 |
| $ | 877 |
| 1 | % | $ | 75,725 | $ | 80,748 | $ | (5,023) | (6) | % | ||||
Operating expenses |
| 70,750 |
| 67,044 |
| 3,706 |
| 6 | % | 41,158 | 50,122 | (8,964) | (18) | % | ||||||||||
Total other expenses |
| 20,503 |
| 15,927 |
| 4,576 |
| 29 | % | 17,498 | 23,328 | (5,830) | (25) | % | ||||||||||
Net income from continuing operations |
| 12,958 |
| 20,571 |
| (7,613) |
| (37) | % | |||||||||||||||
Net loss from discontinued operations |
| (19,912) |
| (565) |
| (19,347) |
| 3,424 | % | |||||||||||||||
Net (loss) income attributable to CAI common stockholders |
| (6,954) |
| 20,006 |
| (26,960) |
| (135) | % | (2,833) | 3,287 | (6,120) | (186) | % |
The increasedecrease in total revenue for the three months ended SeptemberJune 30, 20192020 compared to the three months ended SeptemberJune 30, 2018,2019, was primarily attributable to a $2.0$4.8 million, or 3%7%, increasedecrease in container lease revenue, partially offset by a $1.1 million, or 3%, decrease in logistics revenue. The increasedecrease in operating expenses for the three months ended SeptemberJune 30, 20192020 compared to the three months ended SeptemberJune 30, 2018,2019, was as aprimarily the result of a $2.2$6.8 million, or 86%92%, increasedecrease in storage, handling and other expenses,impairment charges related to our rail assets, a $1.0 million, or 4%3%, increasedecrease in depreciation expense, a $0.8$1.8 million, or 7%, increase in administrative expenses, and a $0.2 million, or 8%695%, decrease in gain on sale of used rental equipment, and a $0.7 million, or 8%, decrease in administrative expenses, partially offset by a $0.5$1.3 million, or 2%, decrease25% increase in logistics transportation costs. storage, handling and other expenses.
Total other expenses for the three months ended SeptemberJune 30, 2019 increased2020 decreased compared with the three months ended SeptemberJune 30, 2018,2019, primarily due to a $4.3$5.6 million, or 27%24%, increasedecrease in net interest expense. Total dividends of $2.2 million on our preferred stock were recorded in both the three months ended SeptemberJune 30, 2019, compared to total dividends of $1.7 million for2020 and 2019.
The decrease in revenue and the three months ended September 30, 2018. The increase in revenue,net loss from discontinued operations, partially offset by the increasedecrease in operating expenses and total other expenses preferred stock dividends, and the loss from discontinued operations resulted in a decrease in net income attributable to CAI common stockholders for the three months ended SeptemberJune 30, 20192020 compared to the three months ended SeptemberJune 30, 2018,2019, of $27.0$6.1 million.
Container lease revenue
|
|
|
|
|
|
|
|
|
| |||||||||||||||
|
| Three Months Ended September 30, |
| Increase | Three Months Ended June 30, | Change | ||||||||||||||||||
($ in thousand) |
| 2019 |
| 2018 |
| Amount |
| Percent | 2020 | 2019 | Amount | Percent | ||||||||||||
Container lease revenue |
| $ | 77,300 |
| $ | 75,331 |
| $ | 1,969 |
| 3 | % | $ | 69,443 | $ | 74,286 | $ | (4,843) | (7) | % |
The increasedecrease in container lease revenue for the three months ended SeptemberJune 30, 20192020 compared to the three months ended SeptemberJune 30, 20182019 was mainly attributable to an $8.9a $3.9 million decrease in rental revenue resulting from a 6% reduction in average owned container per diem rental rates and a $3.3 million decrease in rental revenue arising from a change to cash-based revenue recognition for a certain customer due to collectability issues, partially offset by a $1.2 million increase in rental revenue primarily due toresulting from a 15%2% increase in the average number of CEUs of on-lease owned containers partially offset byand a $7.0$0.4 million decrease resulting from a 10% reductionincrease in average owned container per diem rental rates.interest income on finance leases and financing receivables.
LogisticsRail lease revenue and gross margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended September 30, |
| Decrease | ||||||||
($ in thousand) |
| 2019 |
| 2018 |
| Amount |
| Percent | ||||
Logistics revenue |
| $ | 30,270 |
| $ | 31,362 |
| $ | (1,092) |
| (3) | % |
Logistics transportation costs |
|
| 27,037 |
|
| 27,541 |
|
| (504) |
| (2) | % |
Logistics gross margin |
| $ | 3,233 |
| $ | 3,821 |
| $ | (588) |
| (15) | % |
Three Months Ended June 30, | Change | |||||||||||
($ in thousand) | 2020 | 2019 | Amount | Percent | ||||||||
Rail lease revenue | $ | 6,282 | $ | 6,462 | $ | (180) | (3) | % |
28
The decrease in logisticsRail lease revenue for the three months ended SeptemberJune 30, 2019 compared to2020 remained relatively consistent with the three months ended SeptemberJune 30, 2018 was primarily due to a decrease in rates, partially offset by an increase in volume in our intermodal and truck brokerage operations. The gross margin percentage fell from 12.2% for the three months ended September 30, 2018 to 10.7% for the three months ended September 30, 2019 due primarily to lower margins being achieved in our intermodal and truck brokerage operations.2019.
Depreciation of rental equipment
|
|
|
|
|
|
|
|
|
| |||||||||||||||
|
| Three Months Ended September 30, |
| Increase | Three Months Ended June 30, | Change | ||||||||||||||||||
($ in thousand) |
| 2019 |
| 2018 |
| Amount |
| Percent | 2020 | 2019 | Amount | Percent | ||||||||||||
Container leasing |
| $ | 28,750 |
| $ | 27,735 |
| $ | 1,015 |
| 4 | % | $ | 26,750 | $ | 27,938 | $ | (1,188) | (4) | % | ||||
Rail leasing | 2,096 | 1,878 | 218 | 12 | % | |||||||||||||||||||
$ | 28,846 | $ | 29,816 | $ | (970) | (3) | % |
Container leasing
Depreciation expense for the three months ended SeptemberJune 30 2019 increased, 2020 decreased compared to the three months ended SeptemberJune 30 2018. While there was, 2019, primarily attributable to a 14% increase1% decrease in the average size of our owned container fleet during the last twelve months 32%and 22% of containers purchased during the current year weresame period being used, which depreciate at a lower rate or are already fully depreciated.
Rail leasing
Depreciation expense for the three months ended June 30, 2020 remained relatively consistent with the three months ended June 30, 2019.
Impairment of rental equipment
Three Months Ended June 30, | Change | |||||||||||
($ in thousand) | 2020 | 2019 | Amount | Percent | ||||||||
Rail leasing | $ | 557 | $ | 7,323 | $ | (6,766) | (92) | % |
An impairment charge of $7.3 million was recognized during the three months ended June 30, 2019 to reduce the book value of the railcar portfolio, on an individual basis, to the lower of its net book value or its estimated fair value at the date when the decision was made to sell the assets of the railcar business.
Storage, handling and other expenses
|
|
|
|
|
|
|
|
|
| |||||||||||||||
|
| Three Months Ended September 30, |
| Increase | Three Months Ended June 30, | Change | ||||||||||||||||||
($ in thousand) |
| 2019 |
| 2018 |
| Amount |
| Percent | 2020 | 2019 | Amount | Percent | ||||||||||||
Container leasing |
| $ | 4,672 |
| $ | 2,506 |
| $ | 2,166 |
| 86 | % | $ | 5,163 | $ | 4,063 | $ | 1,100 | 27 | % | ||||
Rail leasing | 1,311 | 1,136 | 175 | 15 | % | |||||||||||||||||||
$ | 6,474 | $ | 5,199 | $ | 1,275 | 25 | % |
Container leasing
The increase in storage, handling and other expenses for the three months ended SeptemberJune 30, 20192020 compared to the three months ended SeptemberJune 30, 20182019 was primarily attributable to a $1.3$1.1 million increase in storage handling and repair expenses due to an increase in the average size of the off-lease fleet, a $0.4 million credit recorded in recovery costs infleet.
Rail leasing
Storage, handling and other expenses for the prior year as a result of insurance proceeds received relating tothree months ended June 30, 2020 remained relatively consistent with the bankruptcy of Hanjin Shipping Co. Ltd. (Hanjin), and a $0.2 million increase in container liability insurance.three months ended June 30, 2019.
Gain (loss) on sale of rental equipment
|
|
|
|
|
|
|
|
|
| |||||||||||||||
|
| Three Months Ended September 30, |
| Decrease | Three Months Ended June 30, | Change | ||||||||||||||||||
($ in thousand) |
| 2019 |
| 2018 |
| Amount |
| Percent | 2020 | 2019 | Amount | Percent | ||||||||||||
Container leasing |
| $ | 2,411 |
| $ | 2,633 |
| $ | (222) |
| (8) | % | $ | 1,788 | $ | (1,006) | $ | 2,794 | 278 | % | ||||
Rail leasing | 320 | 1,271 | (951) | 75 | % | |||||||||||||||||||
$ | 2,108 | $ | 265 | $ | 1,843 | (695) | % |
While we sold approximately 45% more CEUsContainer leasing
The increase in gain on sale of containers duringrental equipment for the three months ended SeptemberJune 30, 20192020 compared to the three months ended SeptemberJune 30, 2018, there2019 was mainly attributable to a $2.6 million net selling loss recognized at the commencement of a finance lease during the quarter ended June 30, 2019.
Rail leasing
The decrease in gain on sale of rental equipment for the three months ended June 30, 2020 compared to the three months ended June 30, 2019 was mainly attributable to a 13% decrease in the number of railcars sold and a 44% decrease in the average sale price per unit resulting in a decrease in gain on sale.between the two periods.
Administrative expenses
|
|
|
|
|
|
|
|
|
| |||||||||||||||
|
| Three Months Ended September 30, |
| Increase/(Decrease) | Three Months Ended June 30, | Change | ||||||||||||||||||
($ in thousand) |
| 2019 |
| 2018 |
| Amount |
| Percent | 2020 | 2019 | Amount | Percent | ||||||||||||
Container leasing |
| $ | 8,666 |
| $ | 7,241 |
| $ | 1,425 |
| 20 | % | $ | 6,633 | $ | 7,019 | $ | (386) | (5) | % | ||||
Logistics |
|
| 4,036 |
|
| 4,654 |
|
| (618) |
| (13) | % | ||||||||||||
Rail leasing | 756 | 1,030 | (274) | (27) | % | |||||||||||||||||||
|
| $ | 12,702 |
| $ | 11,895 |
| $ | 807 |
| 7 | % | $ | 7,389 | $ | 8,049 | $ | (660) | (8) | % |
Container leasing
The increase in administrative expenses for the three months ended September 30, 2019 compared to the three months ended September 30, 2018 was primarily attributable to a $1.3 million increase in bad debt expense resulting from non-payment from certain customers called into default and a $0.5 million increase in legal and professional fees, partially offset by a $0.3 million decrease in incentive-based compensation.
Logistics
The decrease in administrative expenses for the three months ended SeptemberJune 30, 20192020 compared to the three months ended SeptemberJune 30, 20182019 was primarily attributable to a $2.0 million decrease in bad debt expense due to cash receipts from a previously reserved customer, partially offset by a $1.5 million increase in severance costs associated with the change in our Chief Executive Officer.
Rail leasing
The decrease in administrative expenses for the three months ended June 30, 2020 compared to the three months ended June 30, 2019 was primarily attributable to a $0.4 million decrease in payroll-related costs between the two periodsbad debt expense due to a reduction in headcount. improved cash collection from customers.
Other expenses
|
|
|
|
|
|
|
|
|
| |||||||||||||||
|
| Three Months Ended September 30, |
| Increase | Three Months Ended June 30, | Change | ||||||||||||||||||
($ in thousand) |
| 2019 |
| 2018 |
| Amount |
| Percent | 2020 | 2019 | Amount | Percent | ||||||||||||
Net interest expense |
| $ | 20,123 |
| $ | 15,811 |
| $ | 4,312 |
| 27 | % | $ | 17,595 | $ | 23,209 | $ | (5,614) | (24) | % | ||||
Other expense |
|
| 380 |
|
| 116 |
|
| 264 |
| 228 | % | ||||||||||||
Other (income) expense | (97) | 119 | (216) | 182 | % | |||||||||||||||||||
|
| $ | 20,503 |
| $ | 15,927 |
| $ | 4,576 |
| 29 | % | $ | 17,498 | $ | 23,328 | $ | (5,830) | (25) | % |
29
Net interest expense
The increasedecrease in net interest expense for the three months ended SeptemberJune 30, 20192020 compared to the three months ended SeptemberJune 30, 20182019 was due primarily to an increasea decrease in the average interest rate on our outstanding debt from approximately 3.9% as of June 30, 2019 to 2.9% as of June 30, 2020, caused primarily by a decrease in LIBOR, as well as a decrease in our average loan principal balance between the two periods, as we continue to increase borrowings to finance thedecreased acquisition of additionalactivity for rental equipment, partially offset by a decrease in the average interest rate on our outstanding debt, caused by a slight decrease in LIBOR, from approximately 3.8% as of September 30, 2018 to 3.7% as of September 30, 2019.equipment.
Other (income) expense
Other expense,income, representing a lossgain on foreign exchange of $0.4$0.1 million for the three months ended SeptemberJune 30, 2019, increased2020, decreased from a loss of $0.1 million for the three months ended SeptemberJune 30, 2018,2019, primarily as a result of movements in the U.S. Dollar exchange rate against the Euro.
Income tax expense
|
|
|
|
|
|
|
|
|
| |||||||||||||||
|
| Three Months Ended September 30, |
| Decrease | Three Months Ended June 30, | Change | ||||||||||||||||||
($ in thousand) |
| 2019 |
| 2018 |
| Amount |
| Percent | 2020 | 2019 | Amount | Percent | ||||||||||||
Income tax expense |
| $ | 1,152 |
| $ | 1,403 |
| $ | (251) |
| (18) | % | $ | 1,113 | $ | 583 | $ | 530 | 91 | % |
IncomeThe increase in income tax expense for the three months ended SeptemberJune 30, 2019 remained relatively consistent with the2020 compared to three months ended SeptemberJune 30, 2018. While income before2019 was mainly attributable to an increase in the estimated effective tax decreased between the two periods, therate. The full-year estimated effective tax rate increased from 5.0%was 8.2% at SeptemberJune 30, 20182020, compared to 6.1%an effective tax rate of 5.6% at SeptemberJune 30, 2019. The increase in the estimated full-year effective tax rate was primarily caused bydue to an increase in the amount of interest income generated by foreign direct finance leases subject to both foreign and U.S. income tax.
Preferred stock dividends
|
|
|
|
|
|
|
|
|
| |||||||||||||||
|
| Three Months Ended September 30, |
| Increase | Three Months Ended June 30, | Change | ||||||||||||||||||
($ in thousand) |
| 2019 |
| 2018 |
| Amount |
| Percent | 2020 | 2019 | Amount | Percent | ||||||||||||
Preferred stock dividends |
| $ | 2,207 |
| $ | 1,748 |
| $ | 459 |
| 26 | % | $ | 2,207 | $ | 2,207 | $ | - | - | % |
An accrual for preferredPreferred stock dividends of $2.2 million was recorded in the three months ended September 30, 2019 attributable to the shares of preferred stock that were issued in 2018 and outstanding as of September 30, 2019. The Series B Preferred Stock was issued in August 2018 and as a result, the accrual for preferred stock dividends was $1.7 million for the three months ended SeptemberJune 30, 2018. 2020 remained consistent with the three months ended June 30, 2019.
Loss from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended September 30, |
| Increase/(Decrease) | ||||||||
|
| 2019 |
| 2018 |
| Amount |
| Percent | ||||
Rail lease revenue |
| $ | 5,871 |
| $ | 8,759 |
| $ | (2,888) |
| (33) | % |
Operating expenses |
|
| 3,316 |
|
| 5,527 |
|
| (2,211) |
| (40) | % |
Interest expense |
|
| 2,975 |
|
| 3,972 |
|
| (997) |
| (25) | % |
Impairment of rental equipment |
|
| 25,632 |
|
| - |
|
| 25,632 |
| 100 | % |
Net loss from discontinued operations |
|
| (19,912) |
|
| (565) |
|
| (19,347) |
| 3,424 | % |
Three Months Ended June 30, | Change | |||||||||||
2020 | 2019 | Amount | Percent | |||||||||
Logistics revenue | $ | 22,648 | $ | 29,802 | $ | (7,154) | (24) | % | ||||
Operating expenses | 42,117 | 31,410 | 10,707 | 34 | % | |||||||
Interest income | 3 | 4 | (1) | (25) | % | |||||||
Net loss from discontinued operations | (16,582) | (1,221) | (15,361) | 1,258 | % |
The decrease in rail leaselogistics revenue for the three months ended SeptemberJune 30, 20192020 compared to the three months ended SeptemberJune 30, 2018,2019, was primarily attributable to a decrease in the size of the on-lease railcar fleet between the two periods.volume and rates in our intermodal and truck brokerage operations. The decreaseincrease in operating expenses for the three months ended SeptemberJune 30, 20192020 compared to the three months ended SeptemberJune 30, 2018,2019, was asmainly a result of an $18.5 million loss on classification as held for sale recorded during the quarter ended June 30, 2020, primarily due to the write down of goodwill and intangible assets, partially offset by a $3.5$6.6 million, or 100%25%, decrease in depreciation expense,logistics transportation costs, primarily attributable to a $0.8decrease in volume and rates.
Results of Operations - Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019
The following table summarizes our results of operations for the six months ended June 30, 2020 and 2019 (dollars in thousands):
Six Months Ended June 30, | Change | |||||||||||
2020 | 2019 | Amount | Percent | |||||||||
Total revenue | $ | 150,641 | $ | 164,140 | $ | (13,499) | (8) | % | ||||
Operating expenses | 99,171 | 87,367 | 11,804 | 14 | % | |||||||
Total other expenses | 38,123 | 47,220 | (9,097) | (19) | % | |||||||
Net income attributable to CAI common stockholders | (6,370) | 19,654 | (26,024) | (132) | % |
The decrease in total revenue for the six months ended June 30, 2020 compared to the six months ended June 30, 2019, was attributable to an $11.2 million, or 8%, decrease in container lease revenue and a $2.3 million, or 16%, decrease in rail lease revenue. The increase in operating expenses for the six months ended June 30, 2020 compared to the six months ended June 30, 2019, was primarily the result of a $12.4 million, or 169%, increase in impairment charges related to our rail assets, a $5.4 million, or 59% decrease in gain on sale of rental equipment, and a $0.4$1.9 million, or 36% decrease in administrative expenses, partially offset by a $2.4 million, or 243%, increase in storage, handing and other expenses. The decrease in interest expense for the three months ended September 30, 2019 compared with the three months ended September 30, 2018, was primarily attributable to a decrease in our average loan principal balance between the two periods. The decrease in revenue and the $25.6 million impairment of rental equipment, partially offset by the decrease in operating expenses and interest expense resulted in an increase in net loss from discontinued operations for the three months ended September 30, 2019 compared to the three months ended September 30, 2018, of $19.3 million.
30
Results of Operations - Nine Months Ended September 30, 2019 Compared to Nine Months Ended September 30, 2018
The following table summarizes our results from operations for the nine months ended September 30, 2019 and 2018 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nine Months Ended September 30, |
| Increase/(Decrease) | ||||||||
|
| 2019 |
| 2018 |
| Amount |
| Percent | ||||
Total revenue |
| $ | 316,373 |
| $ | 289,549 |
| $ | 26,824 |
| 9 | % |
Operating expenses |
|
| 208,771 |
|
| 181,270 |
|
| 27,501 |
| 15 | % |
Total other expenses |
|
| 60,586 |
|
| 44,268 |
|
| 16,318 |
| 37 | % |
Net income from continuing operations |
|
| 37,524 |
|
| 57,897 |
|
| (20,373) |
| (35) | % |
Net loss from discontinued operations |
|
| (20,983) |
|
| (1,625) |
|
| (19,358) |
| 1,191 | % |
Net income attributable to CAI common stockholders |
|
| 16,541 |
|
| 56,272 |
|
| (39,731) |
| (71) | % |
The increase in total revenue for the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018, was attributable to a $20.3 million, or 10%, increase in container lease revenue and a $6.5 million, or 8%, increase in logistics revenue. The increase in operating expenses for the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018, was as a result of a $7.1 million, or 10%, increase in logistics transportation costs, a $6.8 million, or 9%, increase in depreciation expense, a $6.8 million, or 118%,18% increase in storage, handling and other expenses, partially offset by a $4.7$5.7 million, or 14%, increase in administrative expenses, and a $2.1 million, or 28%9%, decrease in gain on sale of used rental equipment. depreciation expense and a $2.2 million, or 13% decrease in administrative expenses.
Total other expenses for the ninesix months ended SeptemberJune 30, 2019 increased2020 decreased compared with the ninesix months ended SeptemberJune 30, 2018,2019, primarily due to a $16.3$9.1 million, or 37%19%, increasedecrease in net interest expense. Total dividends of $6.6$4.4 million on our preferred stock waswere recorded in both the ninesix months ended SeptemberJune 30, 2019, compared to total dividends of $2.9 million for the nine months ended September 30, 2018. 2020 and 2019.
The increasedecrease in revenue, offset by the increase in operating expenses, total other expenses, preferred stock dividend, and the increase innet loss from discontinued operations, partially offset by the decrease in total other expenses resulted in a decrease in net income attributable to CAI common stockholders for the ninesix months ended SeptemberJune 30, 20192020 compared to the ninesix months ended SeptemberJune 30, 2018,2019, of $39.7$26.0 million.
Container lease revenue
|
|
|
|
|
|
|
|
|
| |||||||||||||||
|
| Nine Months Ended September 30, |
| Increase | Six Months Ended June 30, | Change | ||||||||||||||||||
($ in thousand) |
| 2019 |
| 2018 |
| Amount |
| Percent | 2020 | 2019 | Amount | Percent | ||||||||||||
Container lease revenue |
| $ | 228,585 |
| $ | 208,298 |
| $ | 20,287 |
| 10 | % | $ | 138,556 | $ | 149,797 | $ | (11,241) | (8) | % |
The increasedecrease in container lease revenue for the ninesix months ended SeptemberJune 30, 20192020 compared to the ninesix months ended SeptemberJune 30, 20182019 was mainly attributable to a $32.9$9.5 million increasedecrease in rental revenue primarily due to a 19% increase in the average number of CEUs of on-lease owned containers, partially offset by a $12.7 million decrease resulting from a 7% reduction in average owned container per diem rental rates.
Logisticsrates, a $0.7 million decrease in repair fee revenue, and gross margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nine Months Ended September 30, |
| Increase/(Decrease) | ||||||||
($ in thousand) |
| 2019 |
| 2018 |
| Amount |
| Percent | ||||
Logistics revenue |
| $ | 87,788 |
| $ | 81,251 |
| $ | 6,537 |
| 8 | % |
Logistics transportation costs |
|
| 77,647 |
|
| 70,536 |
|
| 7,111 |
| 10 | % |
Logistics gross margin |
| $ | 10,141 |
| $ | 10,715 |
| $ | (574) |
| (5) | % |
The increasea $6.6 million decrease in logisticsrental revenue arising from a change to cash-based revenue recognition for the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018 wasa certain customer due to an increase in freight rates,collectability issues, partially offset by a $4.7 million increase in rental revenue resulting from a 4% increase in the average number of CEUs of on-lease owned containers and a $0.8 million increase in interest on financing receivable.
Rail lease revenue
Six Months Ended June 30, | Change | |||||||||||
($ in thousand) | 2020 | 2019 | Amount | Percent | ||||||||
Rail lease revenue | $ | 12,085 | $ | 14,343 | $ | (2,258) | (16) | % |
The decrease in volume in our intermodal and truck brokerage operations. Transportation costs increased atrail lease revenue for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 was mainly attributable to a slightly higher rate than revenue due primarily to increased volume in our lower margin intermodal business and resulted in a18% decrease in the gross margin percentage from 13.2% foraverage size of the nine months ended September 30, 2018 to 11.6% foron-lease railcar fleet, caused primarily by the nine months ended September 30, 2019.sale of railcars.
Depreciation of rental equipment
|
|
|
|
|
|
|
|
|
| |||||||||||||||
|
| Nine Months Ended September 30, |
| Increase | Six Months Ended June 30, | Change | ||||||||||||||||||
($ in thousand) |
| 2019 |
| 2018 |
| Amount |
| Percent | 2020 | 2019 | Amount | Percent | ||||||||||||
Container leasing |
| $ | 85,819 |
| $ | 79,016 |
| $ | 6,803 |
| 9 | % | $ | 53,798 | $ | 56,350 | $ | (2,552) | (5) | % | ||||
Rail leasing | 2,096 | 5,249 | (3,153) | (60) | % | |||||||||||||||||||
$ | 55,894 | $ | 61,599 | $ | (5,705) | (9) | % |
Container leasing
Depreciation expense for the ninesix months ended SeptemberJune 30, 2019 increased2020 decreased compared to the ninesix months ended SeptemberJune 30, 2018.2019. While there was a 19%2% increase in the average size of our owned container fleet during the last twelve months, 32%22% of containers purchased during the current yearsame period were used, which depreciate at a lower rate or are already fully depreciated.
Rail leasing
The decrease in depreciation expense for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 was primarily attributable to differences in the timing of railcar assets being held for sale, during which time no depreciation was charged. Railcar assets were classified as held for sale for three months during the six months ended June 30, 2020, compared to one month during the six months ended June 30, 2019. There was also a 14% decrease in the average size of the railcar fleet during the last twelve months.
Impairment of rental equipment
Six Months Ended June 30, | Change | |||||||||||
($ in thousand) | 2020 | 2019 | Amount | Percent | ||||||||
Rail leasing | $ | 19,724 | $ | 7,323 | $ | 12,401 | 169 | % |
An impairment charge of $7.3 million was recognized during the six months ended June 30, 2019 to reduce the book value of the railcar portfolio, on an individual basis, to the lower of its net book value or its estimated fair value at the date when the decision was made to sell the assets of the railcar business. The impairment charge for the six months ended June 30, 2020 included a charge of $19.2 million that was recognized during the three months ended March 31, 2020, when the held for sale criteria for the railcar assets were no longer met. The impairment reduced the book value of the railcar portfolio, on an individual basis, to the lower of its net book value had the assets not been classified as held for sale, or its estimated fair value at the date when the decision was made not to sell the assets of the railcar business. For additional information on the impairment, see Note 4 to our consolidated financial statements in this Quarterly Report on Form 10-Q.
Storage, handling and other expenses
|
|
|
|
|
|
|
|
|
| |||||||||||||||
|
| Nine Months Ended September 30, |
| Increase | Six Months Ended June 30, | Change | ||||||||||||||||||
($ in thousand) |
| 2019 |
| 2018 |
| Amount |
| Percent | 2020 | 2019 | Amount | Percent | ||||||||||||
Container leasing |
| $ | 12,631 |
| $ | 5,803 |
| $ | 6,828 |
| 118 | % | $ | 9,592 | $ | 7,959 | $ | 1,633 | 21 | % | ||||
Rail leasing | 2,630 | 2,360 | 270 | 11 | % | |||||||||||||||||||
$ | 12,222 | $ | 10,319 | $ | 1,903 | 18 | % |
Container leasing
The increase in storage, handling and other expenses for the ninesix months ended SeptemberJune 30, 20192020 compared to the ninesix months ended SeptemberJune 30, 20182019 was primarily attributable to a $1.8 million credit recorded in recovery costs in the prior year as a result of insurance proceeds received relating to the bankruptcy of Hanjin, a $2.9$1.6 million increase in storage handling and repair expenses due to an increase in the average size of the off-lease fleetfleet.
Rail leasing
Storage, handling and a $0.6 million increase in container liability insurance.other expenses for the six months ended June 30, 2020 remained relatively consistent with the six months ended June 30, 2019.
Gain on sale of rental equipment
|
|
|
|
|
|
|
|
|
| |||||||||||||||
|
| Nine Months Ended September 30, |
| Decrease | Six Months Ended June 30, | Change | ||||||||||||||||||
($ in thousand) |
| 2019 |
| 2018 |
| Amount |
| Percent | 2020 | 2019 | Amount | Percent | ||||||||||||
Container leasing |
| $ | 5,436 |
| $ | 7,530 |
| $ | (2,094) |
| (28) | % | $ | 3,435 | $ | 436 | $ | 2,999 | 688 | % | ||||
Rail leasing | 287 | 8,661 | (8,374) | (97) | % | |||||||||||||||||||
$ | 3,722 | $ | 9,097 | $ | (5,375) | (59) | % |
While we sold approximately 41% more CEUsContainer leasing
The increase in gain on sale of containers duringrental equipment for the ninesix months ended SeptemberJune 30, 20192020 compared to the ninesix months ended SeptemberJune 30, 2018, there2019 was mainly attributable to a decrease$2.6 million net selling loss recognized at the commencement of 7% ina finance lease during the average sale price per unit, resulting in aquarter ended June 30, 2019.
Rail leasing
The decrease in gain on sale.sale of rental equipment for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 was mainly attributable to a 91% increase in the number of railcars sold between the two periods, primarily due to the sale of 1,946 railcars on February 26, 2019, resulting in a gain on sale of $7.0 million.
Administrative expenses
|
|
|
|
|
|
|
|
|
| |||||||||||||||
|
| Nine Months Ended September 30, |
| Increase | Six Months Ended June 30, | Change | ||||||||||||||||||
($ in thousand) |
| 2019 |
| 2018 |
| Amount |
| Percent | 2020 | 2019 | Amount | Percent | ||||||||||||
Container leasing |
| $ | 23,531 |
| $ | 20,705 |
| $ | 2,826 |
| 14 | % | $ | 13,442 | $ | 14,867 | $ | (1,425) | (10) | % | ||||
Logistics |
|
| 14,579 |
|
| 12,740 |
|
| 1,839 |
| 14 | % | ||||||||||||
Rail leasing | 1,611 | 2,356 | (745) | (32) | % | |||||||||||||||||||
|
| $ | 38,110 |
| $ | 33,445 |
| $ | 4,665 |
| 14 | % | $ | 15,053 | $ | 17,223 | $ | (2,170) | (13) | % |
Container leasing
The increasedecrease in administrative expenses for the ninesix months ended SeptemberJune 30, 20192020 compared to the ninesix months ended SeptemberJune 30, 20182019 was primarily attributable to a $1.3 increase$3.8 million decrease in bad debt expense resultingdue to cash receipts from non-payment from certain customers called into default, a $0.8previously reserved customer, partially offset by a $1.5 million increase in severance costs associated with the change in our Chief Executive Officer and an increase of $1.2 million in professional fees due to the strategic review process.
Rail leasing
The decrease in administrative expenses for the three months ended June 30, 2020 compared to the three months ended June 30, 2019 was primarily attributable to a $0.5 million decrease in bad debt expense due to improved collection efforts and a $0.2 million decrease in payroll-related costs, largely due to increased incentivedecreased incentive-based compensation and increased stock-based compensation expense, and a $0.8 million increase in legal and professional fees. expense.
Logistics
The increase in administrative expenses for the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018 was primarily attributable to a $1.5 million increase in payroll-related costs between the two periods due to an increase in average headcount.
Other expenses
|
|
|
|
|
|
|
|
|
| |||||||||||||||
|
| Nine Months Ended September 30, |
| Increase | Six Months Ended June 30, | Change | ||||||||||||||||||
($ in thousand) |
| 2019 |
| 2018 |
| Amount |
| Percent | 2020 | 2019 | Amount | Percent | ||||||||||||
Net interest expense |
| $ | 60,049 |
| $ | 43,758 |
| $ | 16,291 |
| 37 | % | $ | 37,974 | $ | 47,063 | $ | (9,089) | (19) | % | ||||
Other expense |
|
| 537 |
|
| 510 |
|
| 27 |
| 5 | % | 149 | 157 | (8) | (5) | % | |||||||
|
| $ | 60,586 |
| $ | 44,268 |
| $ | 16,318 |
| 37 | % | $ | 38,123 | $ | 47,220 | $ | (9,097) | (19) | % |
Net interest expense
The increasedecrease in net interest expense for the ninesix months ended SeptemberJune 30, 20192020 compared to the ninesix months ended SeptemberJune 30, 20182019 was due primarily to an increasea decrease in the average interest rate on our outstanding debt from approximately 3.9% as of June 30, 2019 to 2.9% as of June 30, 2020, caused primarily by a decrease in LIBOR, as well as a decrease in our average loan principal balance between the two periods, as we continue to increase borrowings to finance thedecreased acquisition of additionalactivity for rental equipment, partially offset by a decrease in the average interest rate on our outstanding debt, caused by a decrease in LIBOR, from approximately 3.8% as of September 30, 2018 to 3.7% as of September 30, 2019.equipment.
Other expense
Other expense representing a loss on foreign exchange of $0.5 million for the ninesix months ended SeptemberJune 30, 2019,2020 remained relatively consistent with the ninesix months ended SeptemberJune 30, 2018.2019.
32
Income tax expense
|
|
|
|
|
|
|
|
|
| |||||||||||||||
|
| Nine Months Ended September 30, |
| Decrease | Six Months Ended June 30, | Change | ||||||||||||||||||
($ in thousand) |
| 2019 |
| 2018 |
| Amount |
| Percent | 2020 | 2019 | Amount | Percent | ||||||||||||
Income tax expense |
| $ | 2,871 |
| $ | 3,197 |
| $ | (326) |
| (10) | % | ||||||||||||
Income tax (benefit) expense | $ | (1,943) | $ | 2,732 | $ | (4,675) | (171) | % |
IncomeThe decrease in income tax expense for the ninesix months ended SeptemberJune 30, 2020 compared to six months ended June 30, 2019 remained relatively consistent comparedwas mainly attributable to a discrete tax benefit of $4.5 million resulting from the nineimpairment of railcar assets charge of $19.2 million during the three months ended September 30, 2018. While income beforeMarch 31, 2020, partially offset by an increase in the estimated effective tax decreased between the two periods, therate. The full-year estimated effective tax rate increased from 5.0%before discrete items was 8.2% at SeptemberJune 30, 20182020, compared to 6.1%an effective tax rate of 5.6% at SeptemberJune 30, 2019. The increase in the estimated full-year estimated effective tax rate before discrete items was primarily caused bydue to an increase in the amount of interest income generated by foreign direct finance leases subject to both foreign and U.S. income tax.
Preferred stock dividends
|
|
|
|
|
|
|
|
|
| |||||||||||||||
|
| Nine Months Ended September 30, |
| Increase | Six Months Ended June 30, | Change | ||||||||||||||||||
($ in thousand) |
| 2019 |
| 2018 |
| Amount |
| Percent | 2020 | 2019 | Amount | Percent | ||||||||||||
Preferred stock dividends |
| $ | 6,621 |
| $ | 2,917 |
| $ | 3,704 |
| 127 | % | $ | 4,414 | $ | 4,414 | $ | - | - | % |
An accrual for preferredPreferred stock dividends of $6.6 million was recorded infor the ninesix months ended SeptemberJune 30, 2019 attributable to2020 remained consistent with the shares of preferred stock that were issued in 2018 and outstanding as of September 30, 2019. The Series B Preferred Stock being was issued in August 2018 and as a result, the accrual for preferred stock dividends was $2.9 million for the ninesix months ended SeptemberJune 30, 2018. 2019.
Loss from discontinued operations
The following table summarizes our results of discontinued operations for the nine months ended September 30, 2019 and 2018 (in thousands):
Six Months Ended June 30, | Change | |||||||||||
2020 | 2019 | Amount | Percent | |||||||||
Logistics revenue | $ | 52,754 | $ | 57,518 | $ | (4,764) | (8) | % | ||||
Operating expenses | 73,094 | 61,151 | 11,943 | 20 | % | |||||||
Interest income | 6 | 8 | (2) | (25) | % | |||||||
Net loss from discontinued operations | (17,246) | (2,753) | (14,493) | 526 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nine Months Ended September 30, |
| Increase/(Decrease) | ||||||||
|
| 2019 |
| 2018 |
| Amount |
| Percent | ||||
Rail lease revenue |
| $ | 20,214 |
| $ | 26,982 |
| $ | (6,768) |
| (25) | % |
Operating expenses |
|
| 4,620 |
|
| 17,745 |
|
| (13,125) |
| (74) | % |
Interest expense |
|
| 10,104 |
|
| 11,364 |
|
| (1,260) |
| (11) | % |
Loss on classification as held for sale and subsequent impairment |
|
| 32,955 |
|
| - |
|
| 32,955 |
| 100 | % |
Net loss from discontinued operations |
|
| (20,983) |
|
| (1,625) |
|
| (19,358) |
| 1,191 | % |
The decrease in rail leaselogistics revenue for the ninesix months ended SeptemberJune 30, 20192020 compared to the ninesix months ended SeptemberJune 30, 2018,2019, was primarily attributable to a decrease in the size of the on-lease railcar fleet between the two periods.volume and a decrease in rates in our intermodal and truck brokerage operations. The decreaseincrease in operating expenses for the ninesix months ended SeptemberJune 30, 20192020 compared to the ninesix months ended SeptemberJune 30, 2018,2019, was asmainly a result of an $9.4 million increase in gain on sale of rental equipment and a $5.3 million, or 50%, decrease in depreciation expense, partially offset by a $1.4 million, or 31%, increase in storage, handing and other expenses. The decrease in interest expense for the nine months ended September 30, 2019 compared with the nine months ended September 30, 2018, was primarily attributable to a decrease in our average loan principal balance between the two periods. The decrease in revenue and the $33.0$18.5 million loss on classification as held for sale recorded during the quarter ended June 30, 2020, primarily due to the write down of goodwill and subsequent impairment,intangible assets, partially offset by thea $4.3 million, or 8%, decrease in operating expenses and interest expense resultedlogistics transportation costs, primarily attributable to a decrease in an increase in net loss from discontinued operations for the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018, of $19.4 million.volume.
Liquidity and Capital Resources
As of SeptemberJune 30, 2019,2020, we had cash and cash equivalents of $48.3$70.1 million, including $26.8$27.7 million of cash held by variable interest entities (VIEs). and $22.2 million of restricted cash. 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 SeptemberJune 30, 2019,2020, our outstanding indebtedness and current maximum borrowing level was as follows (in thousands):
|
|
|
|
| ||||||||
|
| Current |
| Current | Current | Current | ||||||
|
| Amount |
| Maximum | Amount | Maximum | ||||||
|
| Outstanding |
| Borrowing Level | Outstanding | Borrowing Level | ||||||
Revolving credit facilities |
| $ | 661,059 |
| $ | 1,677,293 | $ | 856,061 | $ | 1,378,074 | ||
Term loans |
| 363,236 |
| 363,236 | 241,704 | 241,704 | ||||||
Senior secured notes |
| 52,775 |
| 52,775 | 49,720 | 49,720 | ||||||
Asset-backed notes |
| 931,811 |
| 931,811 | 728,027 | 728,027 | ||||||
Collateralized financing obligations |
| 99,372 |
| 99,372 | 82,263 | 82,263 | ||||||
Term loans held by VIE |
|
| 37,765 |
|
| 37,765 | 33,887 | 33,887 | ||||
|
|
| 2,146,018 |
|
| 3,162,252 | 1,991,662 | 2,513,675 | ||||
Debt issuance costs |
|
| (16,869) |
|
| - | (12,102) | - | ||||
Total |
| $ | 2,129,149 |
| $ | 3,162,252 | $ | 1,979,560 | $ | 2,513,675 |
As of SeptemberJune 30, 2019,2020, we had $1,016.1$521.9 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 SeptemberJune 30, 2019,2020, the borrowing availability under our revolving credit facilities was $88.4$162.7 million, assuming no additional contributions of assets.
TheWe reduced the maximum credit commitment under the Rail revolving credit facility was decreased on October 1, 2019July 2, 2020 from $550$250 million to $250$150 million.
In early July 2020, we entered into an interest rate swap fixing $500 million of our variable rate debt. Approximately 77% of our debt is now fixed rate.
For further information on our debt instruments, see Note 106 to the consolidated financial statements in this Quarterly Report on Form 10-Q and Note 810 to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2018,2019, filed with the SEC on March 5, 2019.2020.
We continue to monitor the COVID-19 outbreak and its impact on our overall liquidity position and outlook. The ultimate impact that COVID-19 may have on our operational and financial performance over the next 12 months is currently uncertain and will depend on certain developments, including, among others, the impact of COVID-19 on our customers and the magnitude and duration of the pandemic. Assuming that our customers meet their contractual commitments, we currently believe that cash provided by operating activities and existing cash, proceeds from the sale of rental equipment, and borrowing availability under our debt facilities are sufficient to meet our liquidity needs for at least the next twelve months. We will continue to monitor our liquidity and the credit markets.
In addition to customary events of default, the agreements governing our indebtedness contain restrictive covenants, including limitations on certain liens, indebtedness and investments. In addition, the agreements governing our indebtedness contain various restrictive financial and other covenants. The financial covenants in the agreements governing our indebtedness require us to maintain: (1) in the case of our debt facilities, a consolidated funded debt to consolidated tangible net worth ratio of no more than 3.75:1.00, and in the case of our asset-backed notes, of no more than 4.50:1.00; and (2) in the case of our debt facilities, a fixed charge coverage ratio of at least 1.20:1.00, and in the case of our asset-backed notes, of at least 1.10:1.00. As of SeptemberJune 30, 2019,2020, we were in compliance with all of our financial and other covenants.covenants and we expect to remain in compliance for at least the next twelve months.
Cash Flows
The following table sets forth certain cash flow information for the ninesix months ended SeptemberJune 30, 2020 and June 30, 2019 and 2018 (in thousands):
|
|
|
|
| ||||||||
|
|
| ||||||||||
|
| Nine Months Ended September 30, | Six Months Ended June 30, | |||||||||
|
| 2019 |
| 2018 | 2020 | 2019 | ||||||
Net income |
| $ | 23,162 |
| $ | 59,189 | ||||||
Net (loss) income | $ | (1,956) | $ | 24,068 | ||||||||
Net income from continuing operations adjusted for non-cash items |
| 133,881 |
| 141,078 | 84,058 | 93,397 | ||||||
Changes in working capital |
|
| 52,260 |
|
| (9,063) | 39,253 | 26,480 | ||||
Net cash provided by operating activities of continuing operations |
|
| 186,141 |
|
| 132,015 | 123,311 | 119,877 | ||||
Net cash used in investing activities of continuing operations |
| (237,081) |
| (407,469) | (3,084) | (46,734) | ||||||
Net cash provided by financing activities of continuing operations |
| 39,744 |
| 310,448 | ||||||||
Net cash used in financing activities of continuing operations | (125,541) | (60,930) | ||||||||||
Net cash provided by (used in) discontinued operations |
| 12,117 |
| (12,217) | 2,314 | (2,098) | ||||||
Effect on cash of foreign currency translation |
|
| (874) |
|
| (23) | (189) | (77) | ||||
Net increase in cash and restricted cash |
|
| 47 |
|
| 22,754 | ||||||
Net (decrease) increase in cash and restricted cash | (3,189) | 10,038 | ||||||||||
Cash and restricted cash at beginning of period |
|
| 75,983 |
|
| 47,209 | 73,239 | 75,983 | ||||
Cash and restricted cash at end of period |
| $ | 76,030 |
| $ | 69,963 | $ | 70,050 | $ | 86,021 |
34
Cash Flows from Continuing Operations
Operating Activities
Net cash provided by operating activities of continuing operations was $186.1$123.3 million for the ninesix months ended SeptemberJune 30, 2019,2020, an increase of $54.1$3.4 million compared to $132.0$119.9 million for the ninesix months ended SeptemberJune 30, 2018.2019. The increase was due to a $61.3$12.8 million increase in our net working capital adjustments, partially offset by a $7.2$9.3 million decrease in income from continuing operations as adjusted for depreciation, amortizationimpairment and other non-cash items. The decrease of $7.2$9.3 million in net income from continuing operations as adjusted for non-cash items was primarily due to a $16.7decrease of $11.5 million decrease in income from continuing operations, and a $1.2 million decrease in deferred income taxes, partially offset by an increase of $6.9$5.3 million in depreciation expense, a decrease of $2.1$5.3 million in thedeferred income taxes, and a decrease of $4.3 million in bad debt expense due to receipt of payments from a previously reserved customer, partially offset by an increase of $12.4 million in impairment of rental equipment and a $5.4 million decrease in gain on sale of rental equipment and an increasedue to a large sale of $1.4 millionrailcars in bad debt expense. the prior year.
Net working capital provided by operating activities of $52.3$39.3 million in the ninesix months ended SeptemberJune 30, 2019,2020, was due to a $45.4$35.7 million decrease in net investment in sales-type and direct finance leases, primarily due to receipt of principal payments and a $2.6$4.4 million decrease in accounts receivable, primarily caused by the timing of cash receipts from customers, andpartially offset by a $4.1$1.1 million increasedecrease in accounts payable, accrued expenses and other liabilities, primarily caused by the timing of payments. Net working capital used inprovided by operating activities of $9.1$26.5 million in the ninesix months ended SeptemberJune 30, 20182019 was due to a $6.9$32.8 million increasedecrease in net investment in finance leases, primarily due to receipt of principal payments, and a $1.2 million decrease in accounts receivable, primarily caused by an increase in lease and logistics activity,the timing of cash receipts from customers, partially offset by a $1.6 million increase in prepaid expenses and other assets, and a $0.5$3.6 million decrease in accounts payable, accrued expenses and other liabilities, primarily caused by the timing of payments. payments, a $2.1 million increase in prepaid expenses and other current assets, primarily as a result of timing of payments and a $1.9 million decrease in unearned revenue.
Investing Activities
Net cash used in investing activities of continuing operations was $237.1$3.1 million for the ninesix months ended SeptemberJune 30, 2019,2020, a decrease of $170.4$43.7 million compared to net cash used in investing activities of $407.5$46.7 million for the ninesix months ended SeptemberJune 30, 2018.2019. The decrease in cash used was primarily attributable to a $221.2$199.0 million decrease in purchase of rental equipment and a $12.8$5.5 million increasedecrease in purchase of financing receivable, partially offset by a $161.9 million decrease in proceeds from sale of rental equipment, partially offset by a $37.1 million decrease for the purchase of financing receivables and a $27.0 million decrease in receipt of principal payments from sales-type and direct finance leases. equipment.
Financing Activities
Net cash provided byused in financing activities fromof continuing operations was $39.7$125.5 million for the ninesix months ended SeptemberJune 30, 2019, a decrease2020, an increase of $270.7$64.6 million compared to net cash provided byused in financing activities of $310.4$60.9 million for the ninesix months ended SeptemberJune 30, 2018.2019. During the ninesix months ended SeptemberJune 30, 2019,2020, our net cash inflowoutflow from borrowings was $80.7$121.3 million compared to net cash inflow of $245.9$22.2 million for the ninesix months ended SeptemberJune 30, 2018, which reflected2019. The increase in net cash outflow from borrowings was partially offset by a decrease in net borrowings used for the acquisition of rental equipment during the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018. The decrease was also a result of a $103.7$34.1 million decrease in proceeds received from the issuance of common stock and preferred stock, a $6.2 million increase in the repurchase of common stock, and a $5.2 million increase in dividends paid to preferred stockholders during the nine months ended September 30, 2019, partially offset by a $9.2 million decrease in payments made for debt issuance costs.stock.
Cash Flows from Discontinued Operations
Net cash provided by discontinued operations was $12.1$2.3 million for the ninesix months ended SeptemberJune 30, 2019,2020, an increase of $24.3$4.4 million compared to net cash used by discontinued operations of $12.2$2.1 million for the ninesix months ended SeptemberJune 30, 2018.2019. The increase in cash was primarily attributable to a $174.0$4.3 million increase in net cash provided by investing activities of discontinued operations, mainly as a result of proceeds received from the sale of railcar assets, partially offset by a $144.1 million increase in net cash used in financing activities of discontinued operations due to an increase in net cash outflow from borrowings for rail operations, and a $5.6 million decrease in net cash provided by operating activities of discontinued operations.operations, mainly resulting from a decrease in accounts receivable due to a decrease in the volume of sales between the two periods.
Equity Transactions
Stock Repurchase Plan
In October 2018, we announced that our Board of Directors approved the repurchase of up to three million shares of our outstanding common stock. The number, price, structure and timing of the repurchases, if any, will be at our sole discretion and will be evaluated by us depending on prevailing market conditions, corporate needs, and other factors. The stock repurchases may be made in the 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 nine months ended September 30, 2019, we repurchased 1.5 million shares of our common stock under this repurchase plan, at a cost of approximately $34.1 million. We did not repurchase any shares under this repurchase plan during the threesix months ended SeptemberJune 30, 2019.2020. As of SeptemberJune 30, 2019,2020, approximately 1.0 million shares remained available for repurchase under our share repurchase program.
35
Common Stock At-the-Market (ATM) Offering Program
In October 2017, we commenced an ATM offering program with respect to our common stock, which allows us to issue and sell up to 2.0 million shares of our common stock. We did not issue any shares under this ATM program during the ninesix months ended SeptemberJune 30, 2019.2020. We have remaining capacity to issue up to approximately 1.0 million of additional shares of common stock under this ATM offering program.
Series A Preferred Stock ATM Offering Program
In May 2018, we commenced an ATM offering program with respect to our Series A Preferred Stock, which allows us to issue and sell up to 2.2 million shares of our Series A Preferred Stock. We did not issue any shares under this ATM program during the ninesix months ended SeptemberJune 30, 2019.2020. We have remaining capacity to issue up to approximately 1.8 million of additional shares of Series A Preferred Stock under this ATM offering program.
Contractual Obligations and Commercial Commitments
The following table sets forth our contractual obligations and commercial commitments by due date as of SeptemberJune 30, 20192020 (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 | $ | 661,059 |
| $ | 18,559 |
| $ | - |
| $ | - |
|
| 480,000 |
| $ | 162,500 |
| $ | - | $ | 856,061 | $ | 23,561 | $ | - | $ | 695,000 | $ | 137,500 | $ | - | $ | - | ||||||
Term loans |
| 363,236 |
|
| 126,312 |
|
| 130,774 |
|
| 7,800 |
|
| 28,350 |
|
| 70,000 |
|
| - | 241,704 | 97,518 | 43,886 | 28,800 | 71,500 | - | - | |||||||||||||
Senior secured notes |
| 52,775 |
|
| 6,110 |
|
| 6,110 |
|
| 40,555 |
|
| - |
|
| - |
|
| - | 49,720 | 6,110 | 6,110 | 37,500 | - | - | - | |||||||||||||
Asset-backed notes |
| 931,811 |
|
| 134,547 |
|
| 134,547 |
|
| 134,547 |
|
| 107,421 |
|
| 94,547 |
|
| 326,202 | 728,027 | 94,547 | 94,547 | 94,547 | 94,547 | 94,547 | 255,292 | |||||||||||||
Collateralized financing obligations |
| 99,372 |
|
| 23,455 |
|
| 28,468 |
|
| 29,965 |
|
| - |
|
| - |
|
| 17,484 | 82,263 | 27,808 | 36,971 | - | - | - | 17,484 | |||||||||||||
Term loans held by VIE |
| 37,765 |
|
| 5,195 |
|
| 5,426 |
|
| 5,659 |
|
| 5,906 |
|
| 6,157 |
|
| 9,422 | 33,887 | 5,367 | 5,599 | 5,841 | 6,096 | 6,355 | 4,629 | |||||||||||||
Interest on debt and capital lease obligations |
| 281,060 |
|
| 72,317 |
|
| 64,439 |
|
| 55,100 |
|
| 42,578 |
|
| 16,601 |
|
| 30,025 | 192,516 | 53,768 | 46,387 | 39,928 | 18,796 | 12,900 | 20,737 | |||||||||||||
Rental equipment payable |
| 54,202 |
|
| 54,202 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - | 3,356 | 3,356 | - | - | - | - | - | |||||||||||||
Rent, office facilities and equipment |
| 8,366 |
|
| 2,762 |
|
| 2,625 |
|
| 2,221 |
|
| 502 |
|
| 217 |
|
| 39 | 6,498 | 2,816 | 2,639 | 674 | 308 | 61 | - | |||||||||||||
Equipment purchase commitments - Containers |
| 32,797 |
|
| 32,797 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - | 6,762 | 6,762 | - | - | - | - | - | |||||||||||||
Total contractual obligations | $ | 2,522,443 |
| $ | 476,256 |
| $ | 372,389 |
| $ | 275,847 |
| $ | 664,757 |
| $ | 350,022 |
| $ | 383,172 | $ | 2,200,794 | $ | 321,613 | $ | 236,139 | $ | 902,290 | $ | 328,747 | $ | 113,863 | $ | 298,142 |
|
|
|
|
(1)Our estimate of interest expense commitment includes $42.8 million relating to our revolving credit facilities, $17.4 million relating to our term loans, $5.3 million relating to our senior secured notes, $116.1 million relating to our asset-back notes, $6.5 million relating to our collateralized financing obligations, and $4.5 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, 2020: revolving credit facilities, 1.7%; term loans, 3.6%; senior secured notes, 4.9%; asset-backed notes, 4.1%; collateralized financing obligations, 0.8%; 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 SeptemberJune 30, 2019,2020, we had no material off-balance sheet arrangements or obligations that have or are reasonably likely to have a current or future effect on our financial condition, change in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that are material to investors.
Critical Accounting Policies and Estimates
There have been no changes to our critical accounting policies during the ninesix months ended SeptemberJune 30, 2019.2020. See Critical Accounting Policies and Estimates in our Annual Report on Form 10-K for the year ended December 31, 2018,2019, filed with the SEC on March 5, 2019.2020.
36
Recent Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board issued Accounts Standards Update (ASU) No. 2016-13, Financial Instruments – Credit Losses (Topic 326) (ASU 2016-13). This guidance affects net investment in sales-type and direct finance leases and the amendments in this update replace the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses. The guidance requires the measurement of expected credit losses to be based on relevant information from past events, current conditions, and reasonable and supportable information that affects collectability. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years and with early adoption permitted for fiscal years beginning after December 15, 2018. Further, ASU 2018-19 was issued in November 2018 to clarify that operating lease receivables should be accounted for under the new lease standard, Topic 842, and are not within the scope of Topic 326. The Company is currently evaluating the potential impact of Topic 326 on its consolidated financial statements and related disclosures.
The most recent adopted accounting pronouncements are described in Note 21 to our unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk represents the risk of changes in value of a financial instrument, derivative or non-derivative, caused by fluctuations in foreign exchange rates and interest rates. Changes in these factors could cause fluctuations in our results of operations and cash flows. We are exposed to the market risks described below.
Foreign Exchange Rate Risk. Although we have significant foreign-based operations, the U.S. Dollar is our primary operating currency. Thus, most of our revenue and expenses are denominated in U.S. Dollars. We have equipment sales in British Pound Sterling, Euros and Japanese Yen and incur overhead costs in foreign currencies, primarily in British Pound Sterling and Euros. During the ninesix months ended SeptemberJune 30, 2019,2020, the U.S. Dollar increased in value in relation to other major foreign currencies (such as the Euro and British Pound Sterling). The increase in the relative value of the U.S. Dollar has decreased our revenues and expenses denominated in foreign currencies. The associated decrease in the value of certain foreign currencies as compared to the U.S. Dollar has also caused assets held at some of our foreign subsidiaries to decrease in value when translated to US dollars. For the nine months ended September 30, 2019, weWe recognized a gain on foreign exchange of $0.1 million and a loss on foreign exchange of $0.5 million.$0.1 million for the three and six months ended June 30, 2020, respectively. A 10% change in foreign exchange rates would not have a material impact on our financial position, results of operations or cash flows.
Interest Rate Risk. The nature of our business exposes us to market risk arising from changes in interest rates to which our variable-rate debt is linked. As of SeptemberJune 30, 2019,2020, the principal amount of debt outstanding under the variable-rate arrangements of our revolving credit facilities was $661.1$856.1 million. In addition, at SeptemberJune 30, 2019,2020, we had balances on our variable-rate term loans of $212.2$98.4 million. As of SeptemberJune 30, 2019,2020, our total outstanding variable-rate debt was $873.3$954.5 million, which represented 41%48% of our total debt at that date. The average interest rate on our variable-rate debt was 3.6%1.8% as of SeptemberJune 30, 2019,2020, based on LIBOR plus a margin based on certain conditions set forth in our debt agreements.
A 1.0% increase or decrease in underlying interest rates for these debt obligations would increase or decrease interest expense by approximately $8.7$9.5 million annually assuming debt remains constant at SeptemberJune 30, 20192020 levels.
WhileIn early July 2020, we actively manage our interest exposure by adjusting the ratio of floating and fixed-rate debt, we do not currently participate in hedging in the form ofentered into an interest rate swaps or other derivative instruments to manage the market risks described above.swap fixing $500 million of our variable rate debt. Approximately 77% of our debt is now fixed rate.
ITEM 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 Executive Vice President, and Interim President and Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in 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 Executive Vice President, and Interim President and Chief Executive Officer and our Chief Financial Officer concluded that as of SeptemberJune 30, 20192020 our disclosure controls and procedures were not effective with respectdue to controlsa material weakness in internal control over financial reporting described in management’s annual report on internal control over financial reporting in our Annual Report on Form 10-K for the year ended December 31, 2019.
Remediation and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and are accumulated and communicated to the Company’s management, including the Company’s principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
ThereWe have taken actions to improve our internal control over financial reporting, including implementing plans as identified in Item 9A of our 2019 Form 10-K, to address our material weakness. The material weakness will not be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We expect that remediation of this material weakness will be completed in 2020.
Except as noted above, there has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under Exchange Act) that occurred during the quarter ended SeptemberJune 30, 2019,2020, which has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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.
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, 20182019 filed with the SEC on March 5, 2019.2020. These risks are not the only ones facing our company. Additional risks not currently known to us or that we currently believe are immaterial may also impair our business operations. Any of these risks could adversely affect our business, cash flows, financial condition and results of operations. The trading price of our common stock and preferred stock could fluctuate due to any of these risks, and investors may lose all or part of their investment. In assessing these risks, investors should also refer to the other information contained or incorporated by reference in this Quarterly Report on Form 10-Q. Except as set forth below, there have been no material changes in our risk factors from those discussed in our Annual Report on Form 10-K for the year ended December 31, 2018.2019.
We may incur additional impairment charges on our rail assets, whichThe continued spread of the COVID-19 pandemic may have ana material adverse effectimpact on our business, financial condition orand results of operations.
DueThe ongoing COVID-19 pandemic has resulted in a significant impact to businesses and supply chains globally. The imposition of work and travel restrictions, as well as other actions by government authorities to contain the outbreak, have led to extended shutdowns of certain businesses, lower factory production, reduced volumes of global imports and exports and disruptions both of global and domestic transportation. The supply chain disruptions and government actions to counter the pandemic further exacerbated financial challenges faced by our shipping line and other customers. Additionally, the economic uncertainty created by the pandemic is affecting demand in several manufacturing sectors and has resulted in a slowdown in the global economy, the extent and duration of which are uncertain. Further, in response to the reclassificationpandemic, many businesses, including ourselves, have implemented remote working arrangements for their employees during the first quarter of 2020 that may continue, in whole or in part, for an extended period. Risks associated with the COVID-19 pandemic on our railcar business include, but are not limited to:
increased credit concerns relating to our shipping lines, rail shippers and logistics customers as “assets heldthey face reduced demand, operational disruptions and increased costs relating to the pandemic, including the risk of bankruptcy or significant payments defaults or delays;
further reduced demand for sale”, we recorded an asset impairment chargerental equipment and increased pressure on lease rates;
reduced demand for sale of $7.3 millionrental equipment;
reduced demand for logistics services, both internationally and domestically;
disruption to carriers impacting our ability to provide logistics services to our customers;
operational issues that could prevent our rental equipment from being discharged or picked up in affected areas or in other locations after having visited affected areas for a prolonged period of time;
business community risks associated with the quarter ending June 30, 2019transition to remote working arrangements, including increased cybersecurity risks, internet capacity constraints or other systems problems, and an additional impairment chargeunanticipated difficulties or delays in our financial reporting processes;
liquidity risks, including that disruptions in financial markets as a result of $25.6 million for the quarter ending September 30, 2019, reducingpandemic may increase the valuecost and availability of our railcar assets to their estimated fair value. The fair value was estimated based on the latest information available at June 30, 2019 and September 30, 2019. There are a limited number of purchasers of rail assetscapital, and the price that we can receive, netrisk of sale-related expenses, is dependentnon-compliance with financial covenants in debt agreements;
potential impacts on many factors, including: market conditions, such askey management, including health impacts and distractions caused by the statepandemic response; and
potential impacts on business relationships due to restrictions on travel.
The magnitude of the economy andCOVID-19 pandemic, including the numberextent of comparable new and used railcars available for purchase; demand for railcars in the particular configurations of the railcars in our fleet; and whether particular railcars are currently subject to leases, and if so, the terms of such leases. As a result, although the impairment charges reflect our best estimate of the value of our rail assets as of the dates specified, no assurance can be provided that we will not incur additional impairment charges or losses on sale. Any additional impairment charges could have a material adverse effectany impact on our business, financial condition orposition, results of operations.
In addition, no assurance canoperations or liquidity, which could be given that our railcar business canmaterial, cannot be sold for a price that in our opinion reflects its intrinsic value. If a salereasonably determined at this time due to the rapid development and fluidity of the railcarsituation. The effects of the pandemic on our business at what we consider to be a reasonable price is not available, we may decide to cease efforts to sellwill depend on its duration and severity, whether business disruptions will continue and the rail assets and resume operatingoverall impact on the railcar assets as an ongoing business.global economy.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period |
| Total Number of Shares (or Units) Purchased (1) |
|
| Average Price Paid per Share (or Unit) (1) |
| Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs (1) |
|
| Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs (1) |
July 1, 2019 – July 31, 2019 |
| - |
| $ | - |
| - |
|
| 1,000,000 |
August 1, 2019 – August 31, 2019(2) |
| 175 |
|
| 24.30 |
| - |
|
| 1,000,000 |
September 1, 2019 – September 30, 2019 |
| - |
|
| - |
| - |
|
| 1,000,000 |
Total |
| 175 |
| $ | 24.30 |
| - |
|
| 1,000,000 |
Period | Total Number of Shares (or Units) Purchased (1) | Average Price Paid per Share (or Unit) (1) | Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs (1) | Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs (1) | ||||||
April 1, 2020 – April 30, 2020 | - | $ | - | - | 1,000,000 | |||||
May 1, 2020 – May 31, 2020(2) | 2,648 | 15.58 | - | 1,000,000 | ||||||
June 1, 2020 – June 30, 2020 | - | - | - | 1,000,000 | ||||||
Total | 2,648 | $ | 15.58 | - | 1,000,000 |
|
|
|
|
(1)On October 8, 2018, we announced that our Board of Directors had approved the repurchase of up to three million shares of outstanding common stock. The repurchase plan does not have an expiration date and does not oblige us to acquire any particular amount of our common stock. As of June 30, 2020, 1.0 million shares remained available for repurchase under our share repurchase plan.
(2)Represents shares withheld by the Company to satisfy the tax obligations of certain of our employees upon the vesting of restricted stock awards.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
38
ITEM 5. OTHER INFORMATION
None.
See below for a list of exhibits filed or furnished with this report, which are incorporated by reference herein.
Exhibit No. | Description |
| |
| |||
| The following financial statements, formatted in XBRL: (i) Consolidated Balance Sheets as of | ||
104 | Cover Page Interactive Data File (embedded within the Inline XBRL document). |
* Management contract or compensatory plan.
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) | |
| /s/ |
| |
Executive Vice President, Interim President and Chief Executive Officer | |
(Principal Executive and Financial Officer) | |
|
|
| |
| |
|