20190630 10Q Q2





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



FORM 10-Q

 

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

 For the quarterly period ended June 30, 2019



or



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

 For the transition period from           to



Commission file number: 001-33388



 

CAI International, Inc.

(Exact name of registrant as specified in its charter)





Delaware

 

94-3109229

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

 

 

Steuart Tower, 1 Market Plaza, Suite 900

 

 

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      No   

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes      No   

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer

Accelerated filer

Non-accelerated filer

  

Smaller reporting company



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. 

1


 



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes     No   



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

Common Stock

 

July 31, 2019

Common Stock, $0.0001 par value per share

 

 17,419,585 shares







 

2


 

Table of Contents

CAI INTERNATIONAL, INC.

INDEX

 



 

 

   

 

Page No.

Part I — Financial Information

Item 1.

Financial Statements (Unaudited)

   

Consolidated Balance Sheets at June 30, 2019 and December 31, 2018



Consolidated Statements of Income for the three and six months ended June 30, 2019 and 2018

   

Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2019 and 2018



Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, 2019 and 2018

   

Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and 2018

10 

   

Notes to Unaudited Consolidated Financial Statements

12 

Item 2.

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

26 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

35 

Item 4.

Controls and Procedures

36 

Part II — Other Information

36 

Item 1.

Legal Proceedings

36 

Item 1A.

Risk Factors

36 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

36 

Item 3.

Defaults Upon Senior Securities

36 

Item 4.

Mine Safety Disclosures

37 

Item 5.

Other Information

37 

Item 6.

Exhibits

38 

Signatures

39 

 

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Table of Contents

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. 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, 2018 filed with the Securities and Exchange Commission (SEC) on March 5, 2019 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.



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Table of Contents

PART I — FINANCIAL INFORMATION

 

ITEM 1.  FINANCIAL STATEMENTS

CAI INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share information)

(UNAUDITED)





 

 

 

 

 

 



 

 

 

 

 

 



 

June 30,

 

December 31,



 

2019

 

2018

Assets

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash

 

$

22,183 

 

$

20,104 

Cash held by variable interest entities

 

 

35,105 

 

 

25,211 

Accounts receivable, net of allowance for doubtful accounts of $3,049 and

 

 

 

 

 

 

$2,042 at June 30, 2019 and December 31, 2018, respectively

 

 

97,070 

 

 

95,942 

Current portion of net investment in sales-type and direct finance leases

 

 

75,174 

 

 

75,975 

Assets held for sale

 

 

320,793 

 

 

449,730 

Prepaid expenses and other current assets

 

 

6,783 

 

 

1,525 

Total current assets

 

 

557,108 

 

 

668,487 

Restricted cash

 

 

28,733 

 

 

30,668 

Rental equipment, net of accumulated depreciation of $604,417 and

 

 

 

 

 

 

$557,559 at June 30, 2019 and December 31, 2018, respectively

 

 

1,882,452 

 

 

1,816,794 

Net investment in sales-type and direct finance leases

 

 

460,235 

 

 

473,792 

Financing receivable

 

 

31,948 

 

 

 -

Goodwill

 

 

15,794 

 

 

15,794 

Intangible assets, net of accumulated amortization of $6,202 and

 

 

 

 

 

 

$5,397 at June 30, 2019 and December 31, 2018, respectively

 

 

4,928 

 

 

5,733 

Other non-current assets

 

 

3,692 

 

 

1,349 

Total assets (1)

 

$

2,984,890 

 

$

3,012,617 



 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Accounts payable

 

$

8,225 

 

$

7,371 

Accrued expenses and other current liabilities

 

 

21,509 

 

 

25,069 

Unearned revenue

 

 

6,448 

 

 

7,573 

Current portion of debt

 

 

313,064 

 

 

311,381 

Rental equipment payable

 

 

75,810 

 

 

74,139 

Total current liabilities

 

 

425,056 

 

 

425,533 

Debt

 

 

1,825,858 

 

 

1,847,633 

Deferred income tax liability

 

 

40,006 

 

 

38,319 

Other non-current liabilities

 

 

1,784 

 

 

 -

Total liabilities (2)

 

 

2,292,704 

 

 

2,311,485 



 

 

 

 

 

 

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, at June 30, 2019 and December 31, 2018

 

 

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, at June 30, 2019 and December 31, 2018

 

 

48,875 

 

 

48,875 

Common stock, par value $0.0001 per share; authorized 84,000,000 shares; issued and outstanding

 

 

 

 

 

 

17,419,585 and 18,764,459 shares at June 30, 2019 and December 31, 2018, respectively

 

 

 

 

Additional paid-in capital

 

 

100,301 

 

 

132,666 

Accumulated other comprehensive loss

 

 

(6,589)

 

 

(6,513)

Retained earnings

 

 

494,607 

 

 

471,112 

Total stockholders' equity

 

 

692,186 

 

 

701,132 

Total liabilities and stockholders' equity

 

$

2,984,890 

 

$

3,012,617 

5


 

Table of Contents



(1)

Total assets at June 30, 2019 and December 31, 2018 include the following assets of certain variable interest entities (VIEs) that can only be used to settle the liabilities of those VIEs: Cash, $35,105 and $25,211; Net investment in direct finance leases, $9,959 and $13,862; and Rental equipment, net of accumulated depreciation, $113,995, and $71,958, respectively.

(2)

Total liabilities at June 30, 2019 and December 31, 2018 include the following VIE liabilities for which the VIE creditors do not have recourse to CAI International, Inc.: Current portion of debt, $38,070 and $41,066;  Debt, $116,311 and $67,615, respectively. 



See accompanying notes to unaudited consolidated financial statements. 

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Table of Contents

CAI INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)

(UNAUDITED)





 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



Three Months Ended June 30,

 

Six Months Ended June 30,



2019

 

2018

 

2019

 

2018

Revenue

 

 

 

 

 

 

 

 

 

 

 

Container lease revenue

$

75,774 

 

$

68,333 

 

$

151,285 

 

$

132,967 

Logistics revenue

 

29,802 

 

 

28,253 

 

 

57,518 

 

 

49,889 

Total revenue

 

105,576 

 

 

96,586 

 

 

208,803 

 

 

182,856 



 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

Depreciation of rental equipment

 

28,657 

 

 

26,103 

 

 

57,069 

 

 

51,281 

Storage, handling and other expenses

 

4,063 

 

 

969 

 

 

7,959 

 

 

3,297 

Logistics transportation costs

 

26,091 

 

 

24,330 

 

 

50,610 

 

 

42,995 

Gain on sale of rental equipment

 

(1,583)

 

 

(2,662)

 

 

(3,025)

 

 

(4,897)

Administrative expenses

 

12,338 

 

 

11,325 

 

 

25,408 

 

 

21,550 

Total operating expenses

 

69,566 

 

 

60,065 

 

 

138,021 

 

 

114,226 



 

 

 

 

 

 

 

 

 

 

 

Operating income

 

36,010 

 

 

36,521 

 

 

70,782 

 

 

68,630 



 

 

 

 

 

 

 

 

 

 

 

Other expenses

 

 

 

 

 

 

 

 

 

 

 

Net interest expense

 

20,021 

 

 

14,594 

 

 

39,926 

 

 

27,948 

Other expense

 

119 

 

 

429 

 

 

157 

 

 

394 

Total other expenses

 

20,140 

 

 

15,023 

 

 

40,083 

 

 

28,342 



 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

15,870 

 

 

21,498 

 

 

30,699 

 

 

40,288 

Income tax expense

 

1,335 

 

 

847 

 

 

1,719 

 

 

1,758 



 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

14,535 

 

 

20,651 

 

 

28,980 

 

 

38,530 

Loss from discontinued operations, net of income taxes

 

(5,200)

 

 

(354)

 

 

(1,071)

 

 

(1,095)

Net income

 

9,335 

 

 

20,297 

 

 

27,909 

 

 

37,435 

Preferred stock dividends

 

2,207 

 

 

1,148 

 

 

4,414 

 

 

1,169 

Net income attributable to CAI common stockholders

$

7,128 

 

$

19,149 

 

$

23,495 

 

$

36,266 



 

 

 

 

 

 

 

 

 

 

 

Amounts attributable to CAI common stockholders

 

 

 

 

 

 

 

 

 

 

 

Net income from continuing operations

$

12,328 

 

$

19,503 

 

$

24,566 

 

$

37,361 

Net loss from discontinued operations

 

(5,200)

 

 

(354)

 

 

(1,071)

 

 

(1,095)

Net income attributable to CAI common stockholders

$

7,128 

 

$

19,149 

 

$

23,495 

 

$

36,266 



 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share attributable to CAI common

 

 

 

 

 

 

 

 

 

 

 

stockholders

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

$

0.70 

 

$

1.00 

 

$

1.36 

 

$

1.86 

Discontinued operations

 

(0.30)

 

 

(0.02)

 

 

(0.06)

 

 

(0.05)

Total basic

$

0.40 

 

$

0.98 

 

$

1.30 

 

$

1.81 

Diluted

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

$

0.69 

 

$

0.99 

 

$

1.34 

 

$

1.84 

Discontinued operations

 

(0.29)

 

 

(0.02)

 

 

(0.06)

 

 

(0.05)

Total diluted

$

0.40 

 

$

0.97 

 

$

1.28 

 

$

1.79 



 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

 

 

 

 

 

 

 

 

 

 

Basic

 

17,648 

 

 

19,613 

 

 

18,098 

 

 

20,013 

Diluted

 

17,926 

 

 

19,843 

 

 

18,401 

 

 

20,258 



See accompanying notes to unaudited consolidated financial statements.

7


 

Table of Contents

CAI INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(UNAUDITED)





 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended June 30,

 

Six Months Ended June 30,



 

2019

 

2018

 

2019

 

2018



 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

9,335 

 

$

20,297 

 

$

27,909 

 

$

37,435 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

 

 

(548)

 

 

(76)

 

 

(238)

Comprehensive income before preferred stock dividends

 

 

9,340 

 

 

19,749 

 

 

27,833 

 

 

37,197 

Dividends on preferred stock

 

 

(2,207)

 

 

(1,148)

 

 

(4,414)

 

 

(1,169)

Comprehensive income available to CAI common stockholders

 

$

7,133 

 

$

18,601 

 

$

23,419 

 

$

36,028 



See accompanying notes to unaudited consolidated financial statements.

8


 

Table of Contents

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 

 

$

 

$

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 

 

$

 

$

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

 

 -

 

 

 -

 

 -

 

 

 -

 

 

 -

 

 

 

 

 -

 

 

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 

 

$

 

$

100,301 

 

$

(6,589)

 

$

494,607 

 

$

692,186 









 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 

 

$

 

$

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

 

 -

 

 

 -

 

 

 

 -

 

 

592 

 

 

 -

 

 

 -

 

 

592 

Balances as of March 31, 2018

 

1,600 

 

$

40,000 

 

20,493 

 

$

 

$

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 

 

$

 

$

146,210 

 

$

(6,360)

 

$

433,906 

 

$

628,748 



See accompanying notes to unaudited consolidated financial statements.









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CAI INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(UNAUDITED)





 

 

 

 

 

 



 

 

 

 

 

 



 

Six Months Ended June 30,



 

2019

 

2018

Cash flows from operating activities

 

 

 

 

 

 

Net income

 

$

27,909 

 

$

37,435 

Loss from discontinued operations, net of income taxes

 

 

(1,071)

 

 

(1,095)

Income from continuing operations

 

 

28,980 

 

 

38,530 

Adjustments to reconcile net income from continuing operations to net cash provided by

 

 

 

 

 

 

operating activities:

 

 

 

 

 

 

Depreciation

 

 

57,179 

 

 

51,350 

Amortization of debt issuance costs

 

 

2,011 

 

 

1,808 

Amortization of intangible assets

 

 

805 

 

 

1,087 

Stock-based compensation expense

 

 

1,401 

 

 

1,206 

Unrealized loss on foreign exchange

 

 

90 

 

 

266 

Gain on sale of rental equipment

 

 

(3,025)

 

 

(4,897)

Deferred income taxes

 

 

1,652 

 

 

1,248 

Bad debt expense

 

 

529 

 

 

315 

Changes in other operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

(922)

 

 

(14,567)

Prepaid expenses and other assets

 

 

(654)

 

 

(2,121)

Net investment in sales-type and direct financing leases

 

 

31,336 

 

 

 -

Accounts payable, accrued expenses and other liabilities

 

 

(2,279)

 

 

(1,115)

Unearned revenue

 

 

(129)

 

 

14 

Net cash provided by operating activities of continuing operations

 

 

116,974 

 

 

73,124 

Net cash provided by operating activities of discontinued operations

 

 

919 

 

 

5,288 

Net cash provided by operating activities

 

 

117,893 

 

 

78,412 

Cash flows from investing activities

 

 

 

 

 

 

Purchase of rental equipment

 

 

(167,442)

 

 

(226,033)

Purchase of financing receivable

 

 

(36,379)

 

 

 -

Proceeds from sale of rental equipment

 

 

33,479 

 

 

25,124 

Purchase of furniture, fixtures and equipment

 

 

(249)

 

 

(196)

Receipt of principal payments from financing receivable

 

 

973 

 

 

 -

Receipt of principal payments from sales-type and direct financing leases

 

 

 -

 

 

19,046 

Net cash used in investing activities of continuing operations

 

 

(169,618)

 

 

(182,059)

Net cash provided by (used in) investing activities of discontinued operations

 

 

122,770 

 

 

(45,594)

Net cash used in investing activities

 

 

(46,848)

 

 

(227,653)

Cash flows from financing activities

 

 

 

 

 

 

Proceeds from debt

 

 

387,082 

 

 

675,289 

Principal payments on debt

 

 

(324,263)

 

 

(564,953)

Debt issuance costs

 

 

(496)

 

 

(6,201)

Proceeds from issuance of common and preferred stock

 

 

 -

 

 

56,699 

Repurchase of common stock

 

 

(34,118)

 

 

(27,946)

Dividends paid to preferred stockholders

 

 

(4,414)

 

 

 -

Exercise of stock options

 

 

335 

 

 

24 

Net cash provided by financing activities of continuing operations

 

 

24,126 

 

 

132,912 

Net cash (used in) provided by financing activities of discontinued operations

 

 

(85,056)

 

 

31,016 

Net cash (used in) provided by financing activities

 

 

(60,930)

 

 

163,928 

Effect on cash of foreign currency translation

 

 

(77)

 

 

(20)

Net increase in cash and restricted cash

 

 

10,038 

 

 

14,667 

Cash and restricted cash at beginning of the period (1)

 

 

75,983 

 

 

47,209 

Cash and restricted cash at end of the period (2)

 

$

86,021 

 

$

61,876 

10


 

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Supplemental disclosure of cash flow information

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

Income taxes

 

$

441 

 

$

172 

Interest

 

 

43,327 

 

 

27,651 



 

 

 

 

 

 

Supplemental disclosure of non-cash investing and financing activity

 

 

 

 

 

 

Transfer of rental equipment to direct finance lease

 

$

19,153 

 

$

71,807 

Rental equipment payable

 

 

75,810 

 

 

184,258 



(1)

Includes cash of $20,104 and $14,735, cash held by variable interest entities of $25,211 and $20,685, and restricted cash of $30,668 and $11,789 at December 31, 2018 and 2017, respectively.

(2)

Includes cash of $22,183 and $16,462, cash held by variable interest entities of $35,105 and $24,348, and restricted cash of $28,733 and $21,066 at June 30, 2019 and 2018, respectively.



See accompanying notes to unaudited consolidated financial statements.



 

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CAI INTERNATIONAL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

(1)  The Company and Nature of Operations



Organization

CAI International, Inc., together with its subsidiaries (collectively, CAI or the Company), is a transportation finance and logistics company. The Company purchases equipment, primarily intermodal shipping containers and railcars, which it leases to its customers. The Company also manages equipment for third-party investors. In operating its fleet, the Company leases, re-leases and disposes of equipment and contracts for the repair, repositioning and storage of equipment. The Company also provides domestic and international logistics services.

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 June 30, 2019 and December 31, 2018, the Company’s results of operations for the three and six months ended June 30, 2019 and 2018, and the Company’s cash flows for the six months ended June 30, 2019 and 2018Certain 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 2019 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, included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on March 5, 2019.

Discontinued Operations

In the quarter ended June 30, 2019, the Company committed to a plan to sell its railcar assets and to reallocate the capital invested in its rail business to other investments. The Company expects a sale to be completed before the end of 2019. As a result, the railcar assets have been reclassified as held for sale in the accompanying unaudited consolidated balance sheets and the operations of the rail business have been reclassified as discontinued operations in the accompanying unaudited consolidated statements of income and cash flows. All prior periods presented in these unaudited consolidated financial statements have been restated to reflect the reclassification of the railcar business as discontinued operations and assets held for sale. See Note 3 – Discontinued Operations for more information.

 

(2)  Accounting Policies and Recent Accounting Pronouncements

Recent Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842) (ASU 2016-02), and subsequently issued amendments thereto, 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.

The Company adopted ASU 2016-02, as amended, effective January 1, 2019, 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,” 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.  

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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 an impact on the Company’s consolidated statements of income or cash flows. 

Except as described above, there were no changes to the Company’s accounting policies during the six months ended June 30, 2019. 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, filed with the SEC on March 5, 2019, for a description of the Company’s significant accounting policies.

Accounting Policies

(aContainer 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 2024. 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 income on a straight-line basis over the lease term and records variable lease payments as incurred. 



(3)  Discontinued Operations



As discussed in Note 1, railcar assets of $320.8 million and $449.7 million were reclassified as held for sale as of June 30, 2019 and December 31, 2018, respectively, and the related operations of the rail business as discontinued operations in the accompanying unaudited consolidated statements of income and cash flows. The railcar assets are expected to be sold before the end of 2019. 

The Company’s held for sale railcar assets as of the dates indicated are made up as follows (in thousands):







 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

June 30,

 

December 31,



 

 

 

 

 

 

2019

 

2018

Rental equipment

 

 

 

 

 

 

$

326,058 

 

$

448,466 

Other assets

 

 

 

 

 

 

 

2,058 

 

 

1,264 

Loss on classification as held for sale

 

 

 

 

 

 

 

(7,323)

 

 

 -

Assets held for sale

 

 

 

 

 

 

$

320,793 

 

$

449,730 

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Table of Contents

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 June 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.

The following table summarizes the components of income (loss) from discontinued operations in the accompanying unaudited consolidated statements of income for the three and six months ended June 30, 2019 and 2018 (in thousands):







 

 

 

 

 

 

 

 

 

 

 



Three Months Ended June 30,

 

Six Months Ended June 30,



2019

 

2018

 

2019

 

2018

Revenue

 

 

 

 

 

 

 

 

 

 

 

Rail lease revenue

$

6,462 

 

$

9,119 

 

$

14,343 

 

$

18,223 



 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

Depreciation of rental equipment

 

1,878 

 

 

3,299 

 

 

5,249 

 

 

6,968 

Storage, handling and other expenses

 

1,136 

 

 

1,644 

 

 

2,360 

 

 

3,416 

Gain on sale of rental equipment

 

(1,271)

 

 

(57)

 

 

(8,661)

 

 

(17)

Administrative expenses

 

1,030 

 

 

835 

 

 

2,356 

 

 

1,851 

Total operating expenses

 

2,773 

 

 

5,721 

 

 

1,304 

 

 

12,218 



 

 

 

 

 

 

 

 

 

 

 

Operating income

 

3,689 

 

 

3,398 

 

 

13,039 

 

 

6,005 



 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

3,184 

 

 

3,846 

 

 

7,129 

 

 

7,391 

Income (loss) before income taxes

 

505 

 

 

(448)

 

 

5,910 

 

 

(1,386)



 

 

 

 

 

 

 

 

 

 

 

Loss on classification as held for sale

 

7,323 

 

 

 -