CAI INTERNATIONAL, INC. 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 endedDecember 31, 2020 filed with theSEC onMarch 1, 2021 . In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results may differ materially from those contained in or implied by any forward-looking statements. The financial information included in this discussion and in our consolidated financial statements may not be indicative of our consolidated financial position, operating results, changes in equity and cash flows in the future. See "Special Note Regarding Forward-Looking Statements" included earlier in this 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 toCAI International, Inc. and its subsidiaries. Overview We are one of the world's leading transportation finance companies. We lease equipment, primarily intermodal shipping containers, 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. The following tables show the composition of our fleet as ofSeptember 30, 2021 and 2020, and our average utilization for the three and nine months endedSeptember 30, 2021 and 2020: As of September 30, 2021 2020 Owned container fleet in TEUs 1,899,744 1,622,102 Managed container fleet in TEUs 52,110 60,085 Total container fleet in TEUs 1,951,854 1,682,187 Owned container fleet in CEUs 1,960,562 1,657,067 Managed container fleet in CEUs 69,399 75,480 Total container fleet in CEUs 2,029,961 1,732,547 Three Months Ended Nine Months Ended September 30, September 30, 2021 2020 2021 2020 Average container fleet utilization in CEUs 99.6% 98.4% 99.6% 98.2% Average owned container fleet utilization in CEUs 99.7% 98.4% 99.7% 98.3% 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. The total fleet excludes new units not yet leased and off-hire units designated for sale. 25
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Merger Agreement with Mitsubishi HC Capital Inc.
OnJune 17, 2021 , the Company entered into an Agreement and Plan of Merger (the Merger Agreement) with Mitsubishi HC Capital Inc., a Japanese corporation (Parent), andCattleya Acquisition Corp. , aDelaware corporation and wholly-owned subsidiary of Parent (Merger Sub), relating to the proposed acquisition of the Company by Parent. Pursuant to the terms of the Merger Agreement, Merger Sub will merge with and into the Company (the Merger), with the Company continuing as the surviving corporation in the Merger as a wholly-owned subsidiary of Parent. Upon completion of the Merger, the Company will cease to be a publicly traded company and at the effective time of the Merger (the Effective Time): (i) each share of the Company's common stock that is issued and outstanding immediately prior to the Effective Time (other than Excluded Shares (as defined in the Merger Agreement)) will cease to be outstanding and will be converted into the right to receive$56.00 , in cash, without interest, subject to deductions of any applicable withholding taxes; (ii) each share of the Company's 8.50% Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual Stock (Series A Preferred Stock) that is issued and outstanding immediately prior to the Effective Time, other than Excluded Shares, will be converted into the right to receive an amount equal to the sum of: (a) the liquidation preference of$25.00 per share, plus (b) the aggregate amount of all accrued and unpaid dividends on such Series A Preferred Stock as of the Effective Time, in cash, without interest, subject to deductions of any applicable withholding taxes; and (iii) each share of the Company's 8.50% Series B Fixed-to-Floating Rate Cumulative Redeemable Perpetual Stock (Series B Preferred Stock) that is issued and outstanding immediately prior to the Effective Time, other than Excluded Shares, will be converted into the right to receive an amount equal to the sum of: (a) the liquidation preference of$25.00 per share, plus (b) the aggregate amount of all accrued and unpaid dividends on such Series B Preferred Stock as of the Effective Time, in cash, without interest, subject to deductions of any applicable withholding taxes. The closing of the Merger is subject to various closing conditions, each of which is more fully described in the Company's Current Report on Form 8-K, filed with theSEC onJune 21, 2021 , and the Company's definitive proxy statement on Schedule 14A relating to the Merger, filed with theSEC onAugust 4, 2021 (the Proxy Statement). The closing of the Merger is subject to, among other things, adoption of the Merger Agreement by the affirmative vote of the holders of at least a majority of the outstanding shares of common stock entitled to vote at a special meeting of the common stockholders of the Company, which was obtained onSeptember 2, 2021 and the completion of the Migration (as defined the Proxy Statement). The Merger is expected to be completed in the fourth quarter of 2021. However, the exact timing of completion of the Merger cannot be predicted because the Merger is subject to the satisfaction or (to the extent permitted by applicable law) waiver of the conditions to the completion of the Merger more fully described in the Proxy Statement.
We have incurred Merger-related costs of approximately
See also Item 1A. Risk Factors--"Risks Related to the Merger."
COVID-19 Pandemic
The COVID-19 pandemic continues to have a meaningful impact on global trade and our business. The pandemic and related work, travel, and social restrictions resulted in a sharp decrease in global economic and trade activity during the first half of 2020, resulting in weak container leasing demand. However, we have seen a significant increase in leasing demand since the second half of 2020, which we expect to continue through 2021 and into 2022. However, it remains difficult to predict the future impact that COVID-19, including the emergence of new variants of the virus, will have on our business, and whether the rebound in demand will be sustained through 2022 and beyond. We were initially concerned that the sharp decrease in global container volumes early in 2020 would increase the financial challenges facing our customers and lead to increased credit risk. While we are not yet through the pandemic, container freight rates and the financial performance of our customers have generally held up better than anticipated, with freight rates reaching record levels. As the impact of the pandemic grew, all the major shipping lines have taken aggressive actions to reduce their deployed vessel capacity, decreasing their network expenses and mitigating rate pressure from reduced freight volumes. The large decrease in bunker fuel prices has also been very helpful to their financial performance. We continue to closely monitor our customers' payment performance and expect the potential for elevated credit risk as long as economic and trade disruptions persist. For additional information regarding the risk and uncertainties that we could encounter as a result of the COVID-19 pandemic and related global conditions, see "Business Risk - The continued spread of the COVID-19 pandemic may have a material adverse impact on our business, financial condition and results of operations" in Item 1A. "Risk Factors" in our Annual Report on Form 10-K for the year endedDecember 31, 2020 filed with theSEC onMarch 1, 2021 . ? 26
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Disposal of Logistics and Rail Businesses
OnAugust 14, 2020 , we sold substantially all the assets of our logistics business to NFI, a North American logistics provider, for cash proceeds of$6.2 million . OnDecember 29, 2020 , we sold all our remaining railcar fleet to affiliates of Infinity Transportation for cash proceeds of$228.1 million . As a result, the operating results of the logistics and rail leasing businesses have been classified as discontinued operations in the unaudited consolidated financial statements in this Quarterly Report on Form 10-Q. All prior periods presented in the unaudited consolidated financial statements have been restated to reflect the reclassification of the logistics and railcar leasing businesses as discontinued operations. See Note 2 - Discontinued Operations to the consolidated financial statements in this Quarterly Report on Form 10-Q for more information.
Results of Operations - Three Months Ended
The following table summarizes our results of operations for the three months
ended
Three Months Ended
September 30, Change
2021 2020 Amount Percent
Total leasing revenue $ 100,827 $ 73,890 $ 26,937 36 %
Operating expenses 34,384 36,171 (1,787) (5) %
Total other expenses 11,610 18,520 (6,910) (37) %
Net income attributable to CAI
common stockholders 48,948 13,236 35,712 270 %
The increase in total revenue for the three months endedSeptember 30, 2021 compared to the three months endedSeptember 30, 2020 , was attributable to a$13.4 million , or 23%, increase in operating lease revenue, a$6.2 million , or 55%, increase in finance lease revenue, and a$7.4 million , or 153%, increase in other lease revenue. The decrease in operating expenses for the three months endedSeptember 30, 2021 compared to the three months endedSeptember 30, 2020 , was the result of a$10.8 million , or 445%, increase in gain on sale of rental equipment and a$2.1 million , or 45%, decrease in storage, handling and other expenses, partially offset by a$4.4 million , or 16%, increase in depreciation expense and a$6.7 million , or 119%, increase in administrative expenses.
Total other expenses for the three months ended
The increase in revenue together with the decrease in operating expenses, total other expense and net loss from discontinued operations resulted in an increase in net income attributable to CAI common stockholders for the three months endedSeptember 30, 2021 of$35.7 million compared to the three months endedSeptember 30, 2020 . Total leasing revenue Three Months Ended September 30, Change ($ in thousand) 2021 2020 Amount Percent Total leasing revenue $ 100,827$ 73,890 $ 26,937 36 % The increase in total leasing revenue for the three months endedSeptember 30, 2021 compared to the three months endedSeptember 30, 2020 was mainly attributable to an$8.8 million increase in operating lease revenue resulting from a 14% increase in the average number of CEUs of on-lease owned containers, a$6.2 million increase in interest income on finance leases resulting from an increase in the average number of CEUs on finance leases, a$4.8 million increase in operating lease revenue resulting from an 8% increase in average owned container per diem rental rates, and a$7.7 million increase in other lease revenue, mainly attributable to an increase in one-way contracts due to the high demand for containers.
Depreciation of rental equipment
Three Months Ended
September 30, Change
($ in thousand) 2021 2020 Amount Percent
Depreciation of rental equipment
16 %
The increase in depreciation expense for the three months endedSeptember 30, 2021 compared to the three months endedSeptember 30, 2020 was attributable to a 12% increase in the average size of our owned container fleet subject to depreciation over the last twelve months. ? 27
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Storage, handling and other expenses
Three Months Ended
September 30, Change
($ in thousand) 2021 2020 Amount Percent
Storage, handling and other expenses
The decrease in storage, handling and other expenses for the three months endedSeptember 30, 2021 compared to the three months endedSeptember 30, 2020 was primarily attributable to a$1.7 million decrease in storage and handlings costs and a$0.6 million decrease in repair expenses due to a decrease in the average size of the off-lease fleet, partially offset by a$0.2 million increase in container liability insurance.
Gain on sale of rental equipment
Three Months Ended
September 30, Change
($ in thousand) 2021 2020 Amount Percent
Gain on sale of rental equipment
445 %
While there was a decrease of 47% in the number of CEUs of containers sold during the three months endedSeptember 30, 2021 compared to the three months endedSeptember 30, 2020 , there was a 72% increase in the average sale price per CEU, resulting in a 394% increase in gain per CEU, due to an increase in demand for equipment. There was also a$7.5 million increase in net selling gains recognized at lease commencement of certain finance leases. Administrative expenses Three Months Ended September 30, Change ($ in thousand) 2021 2020 Amount Percent Administrative expenses $ 12,294$ 5,610 $ 6,684 119 % The increase in administrative expenses for the three months endedSeptember 30, 2021 compared to the three months endedSeptember 30, 2020 was primarily attributable to a$2.5 million bad debt recovery during the third quarter of 2020 due to cash receipts from a previously reserved customer, a$2.3 million increase in legal and professional fees mainly due to the Merger Agreement with MHC, and a$2.8 million expense in the third quarter of 2021 resulting from a fraudulent wire payment, partially offset by a$0.7 million decrease in incentive-based compensation. Other expense Three Months Ended September 30, Change ($ in thousand) 2021 2020 Amount Percent Net interest expense $ 11,458$ 18,826 $ (7,368) (39) % Other expense (income) 152 (306) 458 150 % $ 11,610$ 18,520 $ (6,910) (37) % Net interest expense The decrease in net interest expense for the three months endedSeptember 30, 2021 compared to the three months endedSeptember 30, 2020 was due primarily to a decrease in the average interest rate on our outstanding debt from approximately 2.5% as ofSeptember 30, 2020 to 2.0% as ofSeptember 30, 2021 , caused primarily by a decrease in LIBOR, as well as a decrease in our average loan principal balance between the two periods, mainly due to the paydown of debt with proceeds from the sale of our railcar portfolio in 2020.
Other expense (income)
Other expense, representing a loss on foreign exchange of$0.2 million for the three months endedSeptember 30, 2021 , increased from a gain of$0.3 million for the three months endedSeptember 30, 2020 , primarily as a result of movements in theU.S. Dollar exchange rate against the Euro. Income tax expense Three Months Ended September 30, Change ($ in thousand) 2021 2020 Amount Percent Income tax expense $ 3,678$ 1,697 $ 1,981 117 % The increase in income tax expense for the three months endedSeptember 30, 2021 compared to three months endedSeptember 30, 2020 was mainly attributable to an increase in income before tax, partially offset by a decrease in the estimated effective tax rate. The full-year estimated effective tax rate before discrete items was 6.1% atSeptember 30, 2021 , compared to an effective tax rate before discrete items of 8.1% atSeptember 30, 2020 . The decrease in the estimated full-year effective tax rate was primarily due to an increase in the proportion of pretax income generated in lower tax jurisdictions. ? 28
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Preferred stock dividends
Three Months Ended
September 30, Change
($ in thousand) 2021 2020 Amount Percent
Preferred stock dividends $ 2,207 $ 2,207 $ - - %
Preferred stock dividends for the three months ended
Loss from discontinued operations
Three Months Ended
September 30, Change
2021 2020 Amount Percent
($ in thousand)
Total revenue $ - $ 18,712 $ (18,712) (100) %
Operating expenses - 20,127 (20,127) (100) %
Interest expense - 1,444 (1,444) (100) %
Income tax benefit - (800) 800 (100) %
Net loss from discontinued operations $ - $ (2,059) $ 2,059 (100) %
There was no income or expense arising from discontinued operations for the
three months ended
Results of Operations - Nine Months Ended
The following table summarizes our results of operations for the nine months
ended
Nine Months Ended
September 30, Change
2021 2020 Amount Percent
Total leasing revenue $ 267,322 $ 212,446 $ 54,876 26 %
Operating expenses 101,277 109,846 (8,569) (8) %
Total other expenses 34,232 53,077 (18,845) (36) %
Net income attributable to CAI
common stockholders 118,217 6,866 111,351 1,622 %
The increase in total revenue for the nine months endedSeptember 30, 2021 compared to the nine months endedSeptember 30, 2020 , was attributable to a$33.7 million , or 20%, increase in operating lease revenue, a$10.8 million , or 32%, increase in finance lease revenue, and a$10.3 million , or 93%, increase in other lease revenue. The decrease in operating expenses for the nine months endedSeptember 30, 2021 compared to the nine months endedSeptember 30, 2020 , was the result of a$21.1 million , or 361%, increase in gain on sale of rental equipment and a$6.8 million , or 47%, decrease in storage, handling and other expenses, partially offset by an$8.4 million , or 10%, increase in depreciation expense and a$10.9 million , or 56%, increase in administrative expenses.
Total other expenses for the nine months ended
The increase in revenue together with the decrease in operating expenses, total other expense and net loss from discontinued operations resulted in an increase in net income attributable to CAI common stockholders for the nine months endedSeptember 30, 2021 of$111.4 million compared to the nine months endedSeptember 30, 2020 . Total leasing revenue Nine Months Ended September 30, Change ($ in thousand) 2021 2020 Amount Percent Total leasing revenue$ 267,322 $ 212,446 $ 54,876 26 % The increase in total leasing revenue for the nine months endedSeptember 30, 2021 compared to the nine months endedSeptember 30, 2020 was mainly attributable to a$19.4 million increase in operating lease revenue resulting from an 11% increase in the average number of CEUs of on-lease owned containers, an$11.6 million increase in interest income on finance leases and financing receivable resulting from an increase in the average number of CEUs on finance leases and financing receivable, a$9.0 million increase in operating lease revenue resulting from a 5% increase in the average owned container per diem rental rates, and an$11.0 million increase in other lease revenue, mainly attributable to an increase in one-way contracts due to the high demand for containers. ? 29
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Depreciation of rental equipment
Nine Months Ended
September 30, Change
($ in thousand) 2021 2020 Amount Percent
Depreciation of rental equipment
10 %
The increase in depreciation expense for the nine months endedSeptember 30, 2021 compared to the nine months endedSeptember 30, 2020 was mainly attributable to a 9% increase in the average size of our owned container fleet subject to depreciation over the last twelve months.
Storage, handling and other expenses
Nine Months Ended September
30, Change
($ in thousand) 2021 2020
Amount Percent
Storage, handling and other expenses $ 7,537
The decrease in storage, handling and other expenses for the nine months endedSeptember 30, 2021 compared to the nine months endedSeptember 30, 2020 was primarily attributable to a$5.1 million decrease in storage and handling costs and a$2.0 million decrease in repair expenses due to a decrease in the average size of the off-lease fleet, partially offset by a$0.7 million increase in container liability insurance.
Gain on sale of rental equipment
Nine Months Ended
September 30, Change
($ in thousand) 2021 2020 Amount Percent
Gain on sale of rental equipment
361 %
While there was a decrease of 37% in the number of CEUs of containers sold during the nine months endedSeptember 30, 2021 compared to the nine months endedSeptember 30, 2020 , there was a 49% increase in the average sale price per CEU, resulting in a 430% increase in gain per CEU, due to an increase in demand for equipment. There was also a$7.7 million increase in net selling gains recognized at lease commencement of certain finance leases. Administrative expenses Nine Months Ended September 30, Change ($ in thousand) 2021 2020 Amount Percent Administrative expenses $ 30,202$ 19,330 $ 10,872 56 % The increase in administrative expenses for the nine months endedSeptember 30, 2021 compared to the nine months endedSeptember 30, 2020 was primarily attributable to a$1.3 million increase in incentive-based compensation, a$6.1 million bad debt recovery during 2020 due to cash receipts from a previously reserved customer, a$2.8 million increase in legal and professional fees mainly due to the Merger Agreement with MHC, and a$2.8 million expense in 2021 resulting from a fraudulent wire payment, partially offset by a$1.7 million decrease in severance costs mainly associated with the change in our Chief Executive Officer during the second quarter of 2020. Other expense Nine Months Ended September 30, Change ($ in thousand) 2021 2020 Amount Percent Net interest expense $ 33,744$ 53,234 $ (19,490) (37) % Other expense (income) 488 (157) 645 (411) % $ 34,232$ 53,077 $ (18,845) (36) % Net interest expense The decrease in net interest expense for the nine months endedSeptember 30, 2021 compared to the nine months endedSeptember 30, 2020 was due primarily to a decrease in the average interest rate on our outstanding debt from approximately 2.5% as ofSeptember 30, 2020 to 2.0% as ofSeptember 30, 2021 , caused primarily by a decrease in LIBOR, as well as a decrease in our average loan principal balance between the two periods, mainly due to the paydown of debt with proceeds from the sale of our railcar portfolio in 2020.
Other expense (income)
Other expense, representing a loss on foreign exchange of$0.5 million for the nine months endedSeptember 30, 2021 , increased from a gain of$0.2 million for the nine months endedSeptember 30, 2020 , primarily as a result of movements in theU.S. Dollar exchange rate against the Euro. ? 30
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Income tax expense
Nine Months Ended September 30, Change
($ in thousand) 2021 2020 Amount Percent
Income tax expense $ 8,038 $ 3,800 $ 4,238 112 %
The increase in income tax expense for the nine months ended September 30, 2021
compared to nine months ended September 30, 2020 was mainly attributable to an
increase in income before tax, partially offset by a decrease in the estimated
effective tax rate. The full-year estimated effective tax rate before discrete
items was 6.1% at September 30, 2021 , compared to an effective tax rate before
discrete items of 8.1% at September 30, 2020 . The decrease in the estimated
full-year effective tax rate was primarily due to an increase in the proportion
of pretax income generated in lower tax jurisdictions.
Preferred stock dividends
Nine Months Ended
September 30, Change
($ in thousand) 2021 2020 Amount Percent
Preferred stock dividends $ 6,621 $ 6,621 $ - - %
Preferred stock dividends for the nine months ended
Income (loss) from discontinued operations
Nine Months Ended September
30, Change
2021 2020 Amount Percent
Total revenue $ 293 $ 83,551 $ (83,258) (100) %
Operating (income) expenses (324) 118,717 (119,041) (100) %
Interest expense - 5,004 (5,004) (100) %
Income tax benefit (446) 7,934 (8,380) (106) %
Net income (loss) from discontinued
operations $ 1,063 $ (32,236) $ 33,299 (103) %
Total revenue and operating expenses from discontinued operations for the nine months endedSeptember 30, 2021 were a result of immaterial differences in the actual transactions from the amounts accrued prior to the sale of the logistics and railcar businesses in 2020.
Liquidity and Capital Resources
As ofSeptember 30, 2021 , we had cash and cash equivalents of$62.3 million , including$15.3 million of restricted cash, and$21.8 million of cash held by variable interest entities (VIEs). Our principal sources of liquidity are cash in-flows provided by operating activities, proceeds from the sale of rental equipment, borrowings from financial institutions, and equity and debt offerings. Our cash in-flows are used to finance capital expenditures and meet debt service requirements.
As of
Current Current
Amount Maximum
Outstanding Borrowing Level
Revolving credit facilities $ 1,149,515 $ 1,878,975
Term loans 331,150 331,150
Senior secured notes 40,555 40,555
Asset-backed notes 679,571 679,571
Collateralized financing obligations 47,465 47,465
Term loans held by VIE 27,145 27,145
2,275,401 3,004,861
Debt discount and debt issuance costs (15,772) -
Total $ 2,259,629 $ 3,004,861
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OnAugust 31, 2021 , we entered into an amendment to the Third Amended and Restated Revolving Credit Agreement, pursuant to which the revolving credit facility was amended to, among other things, increase the commitment level from$1,175.0 million to$1,350.0 million , with ability to increase the facility by an additional$150.0 million without lender approval, subject to certain conditions. As ofSeptember 30, 2021 , we had$729.4 million in total 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 atSeptember 30, 2021 , the borrowing availability under our revolving credit facilities was$170.2 million , assuming no additional contributions of assets. As ofSeptember 30, 2021 , we had a total of$1,376.7 million of debt in facilities with fixed interest rates or floating interest rates that have been synthetically fixed through interest rate swap agreements, which accounts for 60% of our total outstanding debt. OnSeptember 21, 2021 ,CAI WF LLC (CAI WF), our wholly-owned subsidiary, entered into a term loan agreement with a consortium of lenders. The loan agreement provides for a term loan to us in an aggregate principal amount of$252.0 million , which is secured by certain assets of CAI WF. At closing of the loan agreement, we made a draw of$225.0 million on the facility, which is scheduled to mature inSeptember 2024 . The interest rates vary depending upon whether the loans are characterized as Base Rate loans or LIBOR rate loans. The unpaid principal balance of all term loans will be payable on the 25th day of each month, which commenced onOctober 25, 2021 . OnOctober 15, 2021 , we drew down an additional$27.0 million and entered into an interest rate swap agreement for the full$252.0 million outstanding loan. The fixed rate payable under the terms of the swap is 0.74%. OnSeptember 29, 2021 ,CAI MUFG LLC (CAI MUFG), our wholly-owned subsidiary, entered into a credit agreement with a consortium of lenders. The credit agreement provides for a revolving credit facility in an aggregate principal amount of$400.0 million , which is secured by certain assets of CAI MUFG and scheduled to mature inMarch 2024 , subject to certain extensions set forth in the credit agreement. Subject to certain conditions, we may request an increase in the total aggregate commitment level to$800.0 million . The interest rates vary depending upon whether the loans are characterized as Base Rate loans, LIBOR rate loans, or commercial paper loans. We initially drew down$275.0 million at closing. For further information on our debt instruments, see Note 6 to the consolidated financial statements in this Quarterly Report on Form 10-Q and Note 7 to the consolidated financial statements in our Annual Report on Form 10-K for the year endedDecember 31, 2020 , filed with theSEC onMarch 1, 2021 . We continue to monitor the COVID-19 pandemic and its impact on our overall liquidity position and outlook. The ultimate impact that COVID-19 may have on our operational and financial performance over the next 12 months is currently uncertain and will depend on certain developments, including, among others, the impact of COVID-19 on our customers, the magnitude and duration of the pandemic, and the rollout and efficacy of vaccines. Assuming that our customers continue to meet their contractual commitments, we currently believe that cash provided by operating activities and existing cash, proceeds from the sale of rental equipment, and borrowing availability under our debt facilities are sufficient to meet our liquidity needs for at least the next twelve months. 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) a consolidated funded debt to consolidated tangible net worth ratio, in the case of our debt facilities, of no more than 3.75:1.00, and in the case of our asset-backed notes, of no more than 4.50:1.00; and (2) a fixed charge coverage ratio, in the case of our debt facilities, of at least 1.20:1.00, and in the case of our asset-backed notes, of at least 2.50:1.00. As ofSeptember 30, 2021 , we were in compliance with all of our financial and other covenants and we expect to remain in compliance for at least the next twelve months. ? 32
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Table of Contents Cash Flows
The following table sets forth certain cash flow information for the nine months
ended
Nine Months Ended
September 30,
2021 2020
Net income $ 124,838 $ 13,487 Net income from continuing operations adjusted for non-cash items
193,545 122,967
Changes in working capital 70,051
66,095
Net cash provided by operating activities of continuing operations
263,596 189,062
Net cash used in investing activities of continuing operations
(744,178) (339)
Net cash provided by financing activities of continuing operations
479,173 97,626
Net cash (used in) provided by discontinued operations (2,667)
22,874
Effect on cash of foreign currency translation (114)
(15)
Net (decrease) increase in cash and restricted cash (4,190)
309,208
Cash and restricted cash at beginning of period 66,502
73,239
Cash and restricted cash at end of period$ 62,312 $
382,447
Cash Flows from Continuing Operations
Operating Activities
Net cash provided by operating activities of continuing operations was$263.6 million for the nine months endedSeptember 30, 2021 , an increase of$74.5 million compared to$189.1 million for the nine months endedSeptember 30, 2020 . The increase was due to a$70.6 million increase in income from continuing operations as adjusted for depreciation, impairment and other non-cash items, and a$4.0 million increase in our net working capital adjustments. The increase of$70.6 million in income from continuing operations as adjusted for non-cash items was primarily attributable to an increase of$78.1 million in income from continuing operations, a decrease of$6.1 million in bad debt recovery due to cash receipts from a cash-based customer in the prior year, an increase of$8.5 million in depreciation expense, and an increase of$1.9 million in deferred income taxes, partially offset by an increase of$21.1 million in gain on sale of rental equipment, mainly due to an increase in container prices as a result of high demand, and a decrease of$3.9 million in amortization and write-off of debt issuance costs. Net working capital provided by operating activities of$70.1 million in the nine months endedSeptember 30, 2021 , was due to an$88.3 million decrease in net investment in finance leases, representing the receipt of principal payments and a$3.0 million decrease in prepaid expenses and other assets, partially offset by an$18.1 million increase in accounts receivable, primarily caused by the increase in billings and the timing of cash receipts from customers, and a$4.0 million decrease in accounts payable, accrued expenses and other liabilities, primarily caused by the timing of cash payments. Net working capital provided by operating activities of$66.1 million in the nine months endedSeptember 30, 2020 was due to a$54.6 million decrease in net investment in finance leases, representing the receipt of principal payments, an$11.0 million decrease in accounts receivable, primarily caused by the timing of cash receipts from customers, and a$1.6 million increase in accounts payable, accrued expenses and other liabilities, primarily caused by the timing of cash payments. Investing Activities Net cash used in investing activities of continuing operations was$744.2 million for the nine months endedSeptember 30, 2021 , an increase of$743.8 million compared to net cash used in investing activities of$0.3 million for the nine months endedSeptember 30, 2020 . The increase in cash used was attributable to a$773.0 million increase in purchase of rental equipment, partially offset by a$22.1 million decrease in purchase of financing receivable, a$2.1 million increase in proceeds from sale of rental equipment and a$4.6 million increase in receipt of principal payments from financing receivable.
Financing Activities
Net cash provided by financing activities of continuing operations was$479.2 million for the nine months endedSeptember 30, 2021 , an increase of$381.5 million compared to net cash provided by financing activities of$97.6 million for the nine months endedSeptember 30, 2020 . During the nine months endedSeptember 30, 2021 , our net cash inflow from borrowings was$514.0 million compared to net cash inflow of$113.6 million for the nine months endedSeptember 30, 2020 . The increase in net cash inflow from borrowings was partially offset by an increase of$12.8 million for the repurchase of common stock and an increase of$11.2 million in dividends paid to common stockholders. ? 33
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Cash Flows from Discontinued Operations
Net cash used in discontinued operations was$2.7 million for the nine months endedSeptember 30, 2021 , a decrease of$25.5 million compared to net cash provided by discontinued operations of$22.9 million for the nine months endedSeptember 30, 2020 . The change between the two periods was primarily due to the sale of the logistics and railcar businesses in 2020.
Equity Transactions
Stock Repurchase Plan
InOctober 2018 , we announced that our Board of Directors approved the repurchase of up to three million shares of our outstanding common stock. InFebruary 2021 , our Board of Directors increased the share repurchase plan by an additional 2.0 million shares. 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 endedSeptember 30, 2021 , we repurchased 0.4 million shares of our common stock under this repurchase plan, at a cost of approximately$12.8 million . As ofSeptember 30, 2021 , approximately 2.4 million shares remained available for repurchase under our share repurchase program.
Contractual Obligations and Commercial Commitments
The following table sets forth our contractual obligations and commercial
commitments by due date as of
Payments Due by Period
Less than 1-2 2-3 3-4 4-5 More than
Total 1 year years years years years 5 years
Total debt obligations:
Revolving credit facilities $ 1,149,515 $ - $ 874,515 $ 275,000 $ - $ - $ -
Term loans 331,150 27,960 48,510 254,680 - - -
Senior secured notes 40,555 40,555 - - - - -
Asset-backed notes 679,571 63,130 63,130 63,130 64,986 64,986 360,209
Collateralized financing
obligations 47,465 29,981 - - - 17,484 -
Term loans held by VIE 27,145 5,659 5,906 6,157 6,426 2,997 -
Interest on debt and
capital lease obligations
(1) 140,176 46,606 38,081 19,612 10,733 14,464 10,680
Rental equipment payable 139,358 139,358 - - - - -
Rent, office facilities and
equipment 11,970 2,161 2,398 2,452 2,361 2,392 206
Equipment purchase
commitments 212,724 212,724 - - - - -
Total contractual
obligations $ 2,779,629 $ 568,134 $ 1,032,540 $ 621,031 $ 84,506 $ 102,323 $ 371,095
(1)Our estimate of interest expense commitment includes $20.4 million relating
to our revolving credit facilities subject to variable interest rates, $15.5
million relating to our revolving credit facilities subject to fixed interest
rates, $23.7 million relating to our term loans, $1.9 million relating to our
senior secured notes, $70.0 million relating to our asset-back notes,
$5.8 million relating to our collateralized financing obligations, and
$2.8 million relating to our term loans held by VIE. The calculation of interest
commitment related to our debt assumes the following weighted-average interest
rates as of September 30, 2021 : variable-rate revolving credit facilities,
1.5%; fixed-rate revolving credit facilities, 1.8%; term loans, 2.4%; senior
secured notes, 4.9%; asset-backed notes, 2.3%; collateralized financing
obligations, 2.0%; 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 ofSeptember 30, 2021 , we had no material off-balance sheet arrangements or obligations that have or are reasonably likely to have a current or future effect on our financial condition, change in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that are material to investors.
Critical Accounting Policies and Estimates
There have been no changes to our critical accounting policies during the three months endedSeptember 30, 2021 . See Critical Accounting Policies and Estimates in our Annual Report on Form 10-K for the year endedDecember 31, 2020 , filed with theSEC onMarch 1, 2021 . ? 34
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Recent Accounting Pronouncements
InMarch 2020 , theFinancial Accounting Standards Board (FASB) issued Accounting Standards Update 2020-04 (ASU 2020-04), which adds ASC Topic 848, Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 provides temporary optional expedients and exceptions to ease financial reporting burdens related to applying current GAAP to modifications of contracts, hedging relationships and other transactions in connection with the transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. InJanuary 2021 , the FASB issued ASU 2021-01 to clarify that certain optional expedients and exceptions apply to modifications of derivative contracts and certain hedging relationships affected by changes in the interest rates used for discounting cash flows, computing variation margin settlements, and for calculating price alignment interest. ASU 2020-04 is effective beginning onMarch 12, 2020 and may be applied prospectively to such transactions throughDecember 31, 2022 and ASU 2021-01 is effective beginning onJanuary 7, 2021 and may be applied retrospectively or prospectively to such transactions throughDecember 31, 2022 . We will apply ASU 2020-04 and 2021-01 prospectively as and when we enter into transactions to which these updates apply.
Except as described above, there are no other recent accounting pronouncement that are relevant to our business.
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