Annual Reports

 
Quarterly Reports

  • 10-Q (Oct 20, 2017)
  • 10-Q (Aug 1, 2017)
  • 10-Q (May 4, 2017)
  • 10-Q (Nov 9, 2016)
  • 10-Q (Aug 9, 2016)
  • 10-Q (May 6, 2016)

 
8-K

 
Other

Cai International 10-Q 2015

Documents found in this filing:

  1. 10-Q
  2. Ex-31.1
  3. Ex-31.2
  4. Ex-32.1
  5. Ex-32.2
  6. Ex-32.2
20150930 10Q Q3

 

 

 

 

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 September 30, 2015

 

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)

 

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

 

1


 

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

 

 

 

 

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

  

Smaller reporting company

(Do not check if a smaller reporting company)

 

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

 

October 31, 2015

Common Stock, $.0001 par value per share

 

20,222,243 shares

 

 

 

 

 

2


 

 

 CAI INTERNATIONAL, INC.

INDEX

 

 

 

 

 

   

   

   

   

 

Page No.

Part I — Financial Information 

   

   

   

Item 1.

Financial Statements (Unaudited)

   

   

   

   

Consolidated Balance Sheets at September 30, 2015 and December 31, 2014

   

   

   

 

Consolidated Statements of Income for the three and nine months ended September 30, 2015 and 2014

 

 

 

   

Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2015 and 2014

   

   

   

   

Consolidated Statements of Cash Flows for the nine months ended September 30, 2015 and 2014

   

   

   

   

Notes to Unaudited Consolidated Financial Statements

10 

   

   

   

Item 2.

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

24 

   

   

   

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

33 

   

   

   

Item 4.

Controls and Procedures

33 

   

   

Part II — Other Information 

34 

   

   

   

Item 1.

Legal Proceedings

34 

   

   

   

Item 1A.

Risk Factors

34 

   

   

   

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

35 

   

   

   

Item 3.

Defaults Upon Senior Securities

35 

   

   

   

Item 4.

Mine Safety Disclosures

35 

   

   

   

Item 5.

Other Information

35 

   

   

   

Item 6.

Exhibits

35 

   

   

Signatures 

36 

 

3


 

 

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, 2014 filed with the Securities and Exchange Commission (SEC) on February 27, 2015 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.

 

4


 

 

PART I — FINANCIAL INFORMATION

 

ITEM 1.FINANCIAL STATEMENTS

 

 CAI INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share information)

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

2015

 

2014

Assets

 

 

 

 

 

Current assets

 

 

 

 

 

Cash

$

13,626 

 

$

27,810 

Cash held by variable interest entities

 

50,542 

 

 

26,011 

Accounts receivable (owned fleet), net of allowance for doubtful accounts

 

 

 

 

 

of $1,047 and $680 at September 30, 2015 and December 31, 2014, respectively

 

51,322 

 

 

49,524 

Accounts receivable (managed fleet)

 

6,165 

 

 

8,498 

Current portion of direct finance leases

 

20,153 

 

 

18,150 

Prepaid expenses

 

13,728 

 

 

14,806 

Total current assets

 

155,536 

 

 

144,799 

Restricted cash

 

7,467 

 

 

8,232 

Rental equipment, net of accumulated depreciation of $330,802 and

 

 

 

 

 

$274,333 at September 30, 2015 and December 31, 2014, respectively

 

1,740,878 

 

 

1,564,777 

Net investment in direct finance leases

 

83,180 

 

 

76,814 

Goodwill

 

2,905 

 

 

 -

Intangible assets, net of accumulated amortization of $4,853 and $4,817

 

 

 

 

 

at September 30, 2015 and December 31, 2014, respectively

 

1,298 

 

 

273 

Furniture, fixtures and equipment, net of accumulated depreciation of

 

 

 

 

 

$2,692 and $2,019 at September 30, 2015 and December 31, 2014, respectively

 

754 

 

 

945 

Total assets (1)

$

1,992,018 

 

$

1,795,840 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

Current liabilities

 

 

 

 

 

Accounts payable

$

11,406 

 

$

8,414 

Accrued expenses and other current liabilities

 

8,335 

 

 

9,029 

Due to container investors

 

7,615 

 

 

12,984 

Unearned revenue

 

9,404 

 

 

7,172 

Current portion of debt

 

133,809 

 

 

203,199 

Current portion of capital lease obligations

 

32 

 

 

1,015 

Rental equipment payable

 

21,750 

 

 

7,381 

Total current liabilities

 

192,351 

 

 

249,194 

Debt

 

1,280,112 

 

 

1,058,754 

Deferred income tax liability

 

43,877 

 

 

43,419 

Capital lease obligations

 

 -

 

 

1,568 

Total liabilities (2)

 

1,516,340 

 

 

1,352,935 

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

Common stock: par value $.0001 per share; authorized 84,000,000 shares; issued and outstanding

 

 

 

 

 

20,222,243 and 20,788,277 shares at September 30, 2015 and December 31, 2014, respectively

 

 

 

Additional paid-in capital

 

149,888 

 

 

154,894 

Accumulated other comprehensive loss

 

(7,414)

 

 

(5,677)

Retained earnings

 

332,317 

 

 

292,897 

Total CAI stockholders' equity

 

474,793 

 

 

442,116 

Non-controlling interest

 

885 

 

 

789 

Total stockholders' equity

 

475,678 

 

 

442,905 

Total liabilities and stockholders' equity

$

1,992,018 

 

$

1,795,840 

 

5


 

 

(1)

Total assets at September 30, 2015 and December 31, 2014 include the following assets of certain variable interest entities (VIEs) that can only be used to settle the liabilities of those VIEs: Cash,  $50,542 and $26,011; Net investment in direct finance leases,  $346 and $156; and Rental equipment, net of accumulated depreciation, $77,870 and  $102,100, respectively.

 

(2)

Total liabilities at September 30, 2015 and December 31, 2014 include the following VIE liabilities for which the VIE creditors do not have recourse to CAI International, Inc.: Current portion of debt, $62,744 and none; Debt, $69,057 and $132,419, respectively. 

 

 

See accompanying notes to unaudited consolidated financial statements. 

 

6


 

 

CAI INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

2015

 

2014

 

2015

 

2014

Revenue

 

 

 

 

 

 

 

 

 

 

 

Rental revenue

$

57,542 

 

$

55,380 

 

$

169,091 

 

$

157,557 

Logistics revenue

 

5,406 

 

 

 -

 

 

5,474 

 

 

 -

Finance lease income

 

2,256 

 

 

2,262 

 

 

6,953 

 

 

6,541 

Management fee revenue

 

913 

 

 

1,561 

 

 

2,457 

 

 

4,681 

Total revenue

 

66,117 

 

 

59,203 

 

 

183,975 

 

 

168,779 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

Depreciation of rental equipment

 

22,655 

 

 

19,888 

 

 

65,907 

 

 

57,607 

Storage, handling and other expenses

 

8,148 

 

 

6,532 

 

 

21,837 

 

 

19,322 

Logistics cost of sales

 

4,818 

 

 

 -

 

 

4,888 

 

 

 -

Gain on sale of used rental equipment

 

(72)

 

 

(1,237)

 

 

(237)

 

 

(4,561)

Marketing, general and administrative expenses

 

7,284 

 

 

6,676 

 

 

21,383 

 

 

19,779 

Amortization of intangible assets

 

28 

 

 

95 

 

 

157 

 

 

293 

Loss on foreign exchange

 

 

 

70 

 

 

61 

 

 

387 

Total operating expenses

 

42,863 

 

 

32,024 

 

 

113,996 

 

 

92,827 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

23,254 

 

 

27,179 

 

 

69,979 

 

 

75,952 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

8,968 

 

 

9,265 

 

 

26,797 

 

 

26,943 

Interest income

 

(1)

 

 

(1)

 

 

(5)

 

 

(6)

Net interest expense

 

8,967 

 

 

9,264 

 

 

26,792 

 

 

26,937 

 

 

 

 

 

 

 

 

 

 

 

 

Net income before income taxes and non-controlling interest

 

14,287 

 

 

17,915 

 

 

43,187 

 

 

49,015 

Income tax expense

 

1,272 

 

 

1,482 

 

 

3,671 

 

 

4,857 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

13,015 

 

 

16,433 

 

 

39,516 

 

 

44,158 

Net income attributable to non-controlling interest

 

(26)

 

 

(38)

 

 

(96)

 

 

(46)

Net income attributable to CAI common stockholders

$

12,989 

 

$

16,395 

 

$

39,420 

 

$

44,112 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per share attributable to CAI common stockholders

 

 

 

 

 

 

 

 

 

 

 

Basic

$

0.62 

 

$

0.78 

 

$

1.88 

 

$

2.08 

Diluted

$

0.62 

 

$

0.77 

 

$

1.86 

 

$

2.04 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

 

 

 

 

 

 

 

 

 

 

Basic

 

20,920 

 

 

20,936 

 

 

20,973 

 

 

21,193 

Diluted

 

21,059 

 

 

21,329 

 

 

21,236 

 

 

21,622 

 

 

See accompanying notes to unaudited consolidated financial statements.

7


 

 

CAI INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

 

Net income

$

13,015 

 

$

16,433 

 

$

39,516 

 

$

44,158 

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

224 

 

 

(1,950)

 

 

(1,737)

 

 

(1,961)

Comprehensive income

 

13,239 

 

 

14,483 

 

 

37,779 

 

 

42,197 

Comprehensive income attributable to non-controlling interest

 

(26)

 

 

(38)

 

 

(96)

 

 

(46)

Comprehensive income attributable to CAI common stockholders

$

13,213 

 

$

14,445 

 

$

37,683 

 

$

42,151 

 

 

See accompanying notes to unaudited consolidated financial statements.

 

8


 

 

CAI INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30,

 

2015

 

2014

Cash flows from operating activities

 

 

 

 

 

Net income

$

39,516 

 

$

44,158 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Depreciation

 

66,228 

 

 

57,972 

Amortization of debt issuance costs

 

1,983 

 

 

2,236 

Amortization of intangible assets

 

157 

 

 

293 

Stock-based compensation expense

 

1,436 

 

 

1,364 

Unrealized loss on foreign exchange

 

185 

 

 

114 

Gain on sale of used rental equipment

 

(237)

 

 

(4,561)

Deferred income taxes

 

458 

 

 

373 

Bad debt expense

 

326 

 

 

47 

Changes in other operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

2,692 

 

 

(3,723)

Prepaid expenses and other assets

 

822 

 

 

4,399 

Accounts payable, accrued expenses and other current liabilities

 

(594)

 

 

1,779 

Due to container investors

 

(5,369)

 

 

(1,000)

Unearned revenue

 

2,263 

 

 

1,383 

Net cash provided by operating activities

 

109,866 

 

 

104,834 

Cash flows from investing activities

 

 

 

 

 

Purchase of rental equipment

 

(304,588)

 

 

(226,118)

Acquisition of ClearPointt Logistics LLC

 

(4,100)

 

 

 -

Net proceeds from sale of used rental equipment

 

51,188 

 

 

43,014 

Purchase of furniture, fixtures and equipment

 

(73)

 

 

(31)

Receipt of principal payments from direct financing leases

 

16,071 

 

 

11,602 

Net cash used in investing activities

 

(241,502)

 

 

(171,533)

Cash flows from financing activities

 

 

 

 

 

Proceeds from debt

 

450,731 

 

 

316,853 

Principal payments on debt

 

(301,234)

 

 

(212,783)

Debt issuance costs

 

(1,662)

 

 

(1,546)

Decrease in restricted cash

 

765 

 

 

510 

Repurchase of stock

 

(12,158)

 

 

(31,390)

Exercise of stock options

 

4,744 

 

 

28 

Excess tax benefit from share-based compensation awards

 

1,006 

 

 

 -

Net cash provided by financing activities

 

142,192 

 

 

71,672 

Effect on cash of foreign currency translation

 

(209)

 

 

(264)

Net increase in cash

 

10,347 

 

 

4,709 

Cash at beginning of the period

 

53,821 

 

 

45,741 

Cash at end of the period

$

64,168 

 

$

50,450 

 

 

 

 

 

 

Supplemental disclosure of cash flow information

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

Income taxes

$

2,114 

 

$

959 

Interest

 

25,840 

 

 

25,767 

Supplemental disclosure of non-cash investing and financing activity

 

 

 

 

 

Transfer of rental equipment to direct finance lease

$

24,505 

 

$

27,826 

 

 

See accompanying notes to unaudited consolidated financial statements.

9


 

 

CAI INTERNATIONAL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

(1)The Company and Nature of Operations

Organization

CAI International, Inc. and its subsidiaries (collectively, CAI or the Company) is a transportation finance and logistics company. The Company purchases equipment, which it leases primarily to container shipping lines, freight forwarders and other transportation companies. 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’s equipment fleet consists primarily of intermodal marine containers. The Company also owns a fleet of railcars, which it leases in North America.

On July 27, 2015, the Company purchased ClearPointt Logistics LLC, a U.S.-based intermodal logistics company focused on the domestic intermodal market, for approximately $4.1 million. The Company is headquartered in Everett, Washington (see Note 4). 

The Company’s common stock is traded on the New York Stock Exchange under the symbol “CAI.” 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 the Company, its wholly-owned subsidiaries, and its 80%-owned subsidiary, CAIJ, Inc. (CAIJ). The equity attributable to the minority interest in CAIJ is shown as a non-controlling interest on the Company’s consolidated balance sheets, and the related net income is presented as net income attributable to non-controlling interest on the Company’s consolidated statements of income. All significant intercompany balances and transactions have been eliminated in consolidation.

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the Company’s financial position as of September 30, 2015 and December 31, 2014, the Company’s results of operations for the three and nine months ended September 30, 2015 and 2014, and the Company’s cash flows for the nine months ended September 30, 2015 and 2014.  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 2015 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, 2014, included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on February 27, 2015.

 

(2)Accounting Policies and Recent Accounting Pronouncements

(a)Accounting Policies

There were no changes to the Company’s accounting policies during the nine months ended September 30, 2015. See Note 2 to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014, filed with the SEC on February 27, 2015, for a description of the Company’s significant accounting policies. 

(b)Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) (ASU No. 2014-09). This new standard will replace all current U.S. GAAP guidance on this topic and eliminates industry-specific guidance. Leasing revenue recognition is specifically excluded from this ASU, and therefore, the new standard will only apply to management fee revenue, sales of equipment portfolios and dispositions of used equipment. The guidance is effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted for interim and annual periods beginning after December 15, 2016. Adoption of the guidance is not expected to have a material impact on the Company’s consolidated financial statements.  

 

In February 2015, the FASB issued Accounting Standards Update No. 2015-02, Consolidation (Topic 810): Amendment to the Consolidation Analysis (ASU No. 2015-02). The new guidance will change (1) the identification of variable interests (fees paid to a decision maker or service provider), (2) the variable interest entity (VIE) characteristics for a limited partnership or similar entity and (3) the primary beneficiary determination. The guidance is effective for annual and interim periods beginning after December 15, 2015, with early adoption permitted. The new guidance will be applied on a retrospective basis and is not expected to have a material impact on the Company’s consolidated financial statements.

 

10


 

 

CAI INTERNATIONAL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

In April 2015, the FASB issued Accounting Standards Update No. 2015-03, Simplifying the Presentation of Debt Issuance Costs (ASU No. 2015-03).  The new guidance will require debt issuance costs to be presented in the balance sheet as a direct deduction from the associated debt liability. The guidance is effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years, with early adoption permitted. The new guidance will be applied on a retrospective basis and is not expected to have a material impact on the Company’s consolidated financial statements.

 

(3)Consolidation of Variable Interest Entities as a Non-Controlling Interest

The Company regularly performs a review of its container fund arrangements with investors to determine whether a fund is a VIE and whether the Company (a) has a variable interest that provides it with a controlling financial interest and (b) is the primary beneficiary of the VIE in accordance with FASB Accounting Standard Codification (ASC) Topic 810, Consolidation. If the fund is determined to be a VIE, further analysis is performed to determine if the Company is a primary beneficiary of the VIE and meets both of the following criteria under Paragraph 14A of ASC Topic 810:

·

It has power to direct the activities of a VIE that most significantly impact the entity’s economic performance; and

·

It has the obligation to absorb losses of the entity that could be potentially significant to the VIE or the right to receive benefits from the entity 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 ASC Topic 810, Consolidation. The equity attributable to the VIE is shown as a non-controlling interest on the Company’s consolidated balance sheets and the after-tax result attributable to its operations is shown as a net income or loss attributable to non-controlling interest on the Company’s consolidated statements of income.

The Company currently enters into two types of container fund arrangements with investors which are reviewed under ASC Topic 810, Consolidation. These arrangements include container funds that the Company manages for investors and container funds that have entered into financing arrangements with investors. Several of the funds that the Company manages, and all of the funds under financing arrangements, are Japanese container funds that were established by a related party under separate investment agreements allowed under Japanese commercial laws (see Note 13). Each of the funds is financed by unrelated Japanese third party investors.

Managed Container Funds

All container funds under management by the Company are considered VIEs because, as manager of the funds, the Company has the power to direct the activities that most significantly impact the entity’s economic performance including the leasing and managing of containers owned by the funds. The fees earned for arranging, managing and establishing the funds are not significant to the expected returns of the funds, so the Company does not have a variable interest in the funds. The rights to receive benefits and obligations to absorb losses that could potentially be significant to the funds belong to the third party investors, so the Company concluded that it is not the primary beneficiary of the funds. Consequently the Company has not consolidated the managed container funds. The Company recognizes gain on sale of containers to the unconsolidated VIEs as sales in the ordinary course of business. For the three and nine months ended September 30, 2015 and 2014, the Company sold no container portfolios to the VIEs. 

Collateralized Financing Obligations

As of September 30, 2015, the Company has transferred containers with a total net book value of $156.9 million at the time of transfer to Japanese investor funds while concurrently entering into lease agreements for the same containers, under which the Company leases the containers back from the Japanese investors. In accordance with ASC Topic 840, Sale-Leaseback Transactions, the Company concluded these were financing transactions under which sale-leaseback accounting was not applicable.

The container funds under financing arrangements are considered VIEs under 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. The terms of the transactions 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. As the Company has the power to direct the activities that most significantly impact the economic performance of the VIEs and the variable interest provides the Company with the right to receive benefits from the entity that could potentially be significant to the funds, the Company determined that it is the primary beneficiary of these VIEs and included the VIEs’ assets and liabilities as of September 30, 2015 and December 31, 2014, and the results of the VIEs’ operations and cash flows for the three and nine months ended September 30, 2015 and 2014 in the Company’s consolidated financial statements.

11


 

 

CAI INTERNATIONAL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

The containers that were transferred to the Japanese investor funds had a net book value of $78.2 million as of September 30, 2015.  The container equipment, together with $50.5 million of cash held by the investor funds, has been included on the Company’s consolidated balance sheets with the offsetting liability related to the funds presented in the debt section of the Company’s consolidated balance sheets as collateralized financing obligations of $123.8 million and term loans held by VIE of $8.0 million.  See Note 8(e) and 8(f) for additional information. No gain or loss was recognized by the Company on the initial consolidation of the VIEs.

 

(4)Acquisition of ClearPointt Logistics LLC

 

On July 27, 2015, the Company purchased ClearPointt Logistics LLC (ClearPointt), a U.S.-based intermodal logistics company focused on the domestic intermodal market, for approximately $4.1 million. The Company is headquartered in Everett, Washington. ClearPointt has 22 employees and agents and over 280 customers.

The acquisition was recorded during the third quarter of 2015 using the purchase method of accounting as prescribed under ASC 805, Business Combinations. Accordingly, assets acquired and liabilities assumed were recorded at their fair value estimated by management as of July 27, 2015. The purchase price for the acquisition has been allocated to the assets acquired and liabilities assumed as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

 

$

2,683 

Property and equipment, net

 

 

 

 

56 

Goodwill

 

 

 

 

2,905 

Intangible assets

 

 

 

 

1,188 

Other assets

 

 

 

 

72 

Total assets

 

 

 

 

6,904 

 

 

 

 

 

 

Accounts payable

 

 

 

 

2,620 

Other liabilities

 

 

 

 

184 

Total liabilities

 

 

 

 

2,804 

 

 

 

 

 

 

Purchase price

 

 

 

$

4,100 

 

Adjustments to record the assets acquired and liabilities assumed at fair value include the recognition of $1.2 million of intangible assets as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amount

 

Estimated Life

Tradename

$

568 

 

 

5 years

Customer relationships

 

620 

 

 

8 years

 

The Company’s results for the three and nine months ended September 30, 2015 include the results of ClearPointt for the period since the date of acquisition. Pro forma financial statements are not presented as they are not material to the Company’s overall financial statements.

 

(5)Rental Equipment

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

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

2015

 

2014

Dry containers

$

1,421,195 

 

$

1,364,331 

Refrigerated containers

 

306,743 

 

 

254,788 

Other specialized equipment

 

158,516 

 

 

130,697 

Rail cars

 

185,226 

 

 

89,294 

 

 

2,071,680 

 

 

1,839,110 

Accumulated depreciation

 

(330,802)

 

 

(274,333)

Rental equipment, net of accumulated depreciation

$

1,740,878 

 

$

1,564,777 

 

 

12


 

 

CAI INTERNATIONAL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

(6)Net Investment in Direct Finance Leases 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

2015

 

2014

Gross finance lease receivables (1)

$

125,500 

 

$

116,992 

Unearned income (2)

 

(22,167)

 

 

(22,028)

Net investment in direct finance leases

$

103,333 

 

$

94,964 

 

(1)

At the inception of the lease, the Company records the total minimum lease payments, executory costs, if any, and unguaranteed residual value as gross finance lease receivables. The gross finance lease receivables are reduced as customer payments are received.  There was no unguaranteed residual value at September 30, 2015 and December 31, 2014 included in gross finance lease receivables. There were no executory costs included in gross finance lease receivables as of September 30, 2015 and December 31, 2014.

 

(2)

The difference between the gross finance lease receivables and the cost of the equipment or carrying amount at lease inception is recorded as unearned income. Unearned income, together with initial direct costs, are amortized to income over the lease term so as to produce a constant periodic rate of return. There were no unamortized initial direct costs as of September 30, 2015 and December 31, 2014.

 

In order to estimate the allowance for losses contained in gross finance lease receivables, the Company reviews the credit worthiness of its customers on an ongoing basis. The review includes monitoring credit quality indicators, the aging of customer receivables and general economic conditions.

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.

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

2015

 

2014

Tier 1

$

85,388 

 

$

89,960 

Tier 2

 

40,112 

 

 

27,032 

Tier 3

 

 -

 

 

 -

 

$

125,500 

 

$

116,992 

13


 

 

CAI INTERNATIONAL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

Contractual maturities of the Company's gross finance lease receivables subsequent to and as of September 30, 2015 for the years ending September 30 were as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

2016

 

 

 

$

28,186 

2017

 

 

 

 

36,556 

2018

 

 

 

 

26,750 

2019

 

 

 

 

16,415 

2020

 

 

 

 

7,985 

2021 and thereafter

 

 

 

 

9,608 

 

 

 

 

$

125,500 

 

 

 

 

 

 

 

 

 

 

(7)Intangible Assets

The Company amortizes intangible assets on a straight line basis over their estimated useful lives as follows:

 

 

Trademarks and tradename

                 1-10 years

Contracts – owned equipment

  5-7 years

Customer relationships

8 years

 

Total amortization expense was less than $0.1 million and $0.1 million for the three months ended September 30, 2015 and 2014, respectively, and $0.2 million and $0.3 million for the nine months ended September 30, 2015 and 2014, respectively.

Intangible assets as of September 30, 2015 and December 31, 2014 were as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Carrying Amount

 

Accumulated Amortization

 

Net Carrying Amount

September 30, 2015

 

 

 

 

 

 

 

 

Trademarks and tradename

$

1,842 

 

$

(1,164)

 

$

678 

Contracts- owned equipment

 

3,689 

 

 

(3,689)

 

 

 -

Customer relationships

 

620 

 

 

 -

 

 

620 

 

$

6,151 

 

$

(4,853)

 

$

1,298 

December 31, 2014

 

 

 

 

 

 

 

 

Trademarks and tradename

$

1,278 

 

$

(1,084)

 

$

194 

Contracts- owned equipment

 

3,812 

 

 

(3,733)

 

 

79 

 

$

5,090 

 

$

(4,817)

 

$

273 

     

14


 

 

CAI INTERNATIONAL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

(8Debt and Capital Lease Obligations

Debt

Details of the Company’s debt as of September 30, 2015 and December 31, 2014 were as follows (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2015

 

December 31, 2014

 

 

 

 

Outstanding

 

Average

 

Outstanding

 

Average

 

Maturity

Reference

 

Current

 

Long-term

 

Interest

 

Current

 

Long-term

 

Interest

 

Date

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)(i)

Revolving credit facility

$

3,150 

 

$

494,000 

 

1.7%

 

$

 -

 

$

289,000 

 

1.9%

 

March 2020

(a)(ii)

Revolving credit facility - Rail

 

 -

 

 

135,000 

 

2.0%

 

 

 -

 

 

61,769 

 

1.9%

 

July 2019

(b)(i)

Term loan

 

1,800 

 

 

24,150 

 

2.3%

 

 

1,800 

 

 

25,500 

 

2.2%

 

April 2018

(b)(ii)

Term loan

 

9,000 

 

 

132,000 

 

1.9%

 

 

9,000 

 

 

138,750 

 

1.8%

 

October 2019

(b)(iii)

Term loan

 

9,940 

 

 

101,925 

 

1.9%

 

 

9,940 

 

 

109,380 

 

1.9%

 

April 2017

(c)

Senior secured notes

 

7,175 

 

 

71,105 

 

4.9%

 

 

8,240 

 

 

78,280 

 

4.9%

 

September 2022

(d)

Asset backed notes

 

40,000 

 

 

252,875 

 

3.4%

 

 

40,000 

 

 

282,875 

 

3.4%

 

March 2028

(e)

Collateralized financing obligations

 

60,915 

 

 

62,852 

 

0.7%

 

 

57,390 

 

 

65,184 

 

0.8%

 

June 2019

(f)

Term loans held by VIE

 

1,829 

 

 

6,205 

 

2.6%

 

 

1,829 

 

 

8,016 

 

2.6%

 

June 2019

(g)

Short term line of credit

 

 -

 

 

 -

 

1.5%

 

 

75,000 

 

 

 -

 

1.5%

 

May 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Debt

$

133,809 

 

$

1,280,112 

 

 

 

$

203,199 

 

$

1,058,754 

 

 

 

 

 

(a)Revolving Credit Facilities

Revolving credit facilities consist of the following:

(i) On March 15, 2013, the Company entered into the Third Amended and Restated Revolving Credit Agreement, as amended, with a consortium of banks to finance the acquisition of container rental equipment and for general working capital purposes. On January 30, 2015, the Company entered into an amendment to the Third Amended and Restated Revolving Credit Agreement, pursuant to which the revolving credit facility was amended to extend the maturity date to March 15, 2020, reduce the interest rate, increase the commitment level from $760.0 million to $775.0 million, and revise certain of the covenants and restrictions to provide the Company with additional flexibility.

As of September 30, 2015, the maximum commitment under the revolving credit facility was $775.0 million. The revolving credit facility may be increased up to a maximum of $960.0 million, in accordance with the terms of the agreement, so long as no default or event of default exists either before or immediately after giving effect to the increase. There is a commitment fee on the unused amount of the total commitment, payable quarterly in arrears. The revolving credit facility provides that swing line loans (short-term borrowings of up to $10.0 million in the aggregate that are payable within 10 business days or at maturity date, whichever comes earlier) and standby letters of credit (up to $15.0 million in the aggregate) will be available to the Company. These credit commitments are part of, and not in addition to, the total commitment provided under the revolving credit facility. The interest rates vary depending upon whether the loans are characterized as Base Rate loans or Eurodollar rate loans, as defined in the revolving credit agreement.  Interest rates are based on LIBOR for Eurodollar loans and Base Rate for Base Rate loans. In addition to various financial and other covenants, the Company’s revolving credit facility also includes certain restrictions on the Company’s ability to incur other indebtedness or pay dividends to stockholders.  As of September 30, 2015, the Company was in compliance with the terms of the revolving credit facility.

As of September 30, 2015, the Company had $277.8 million in availability under the revolving credit facility (net of $0.1 million in letters of credit) subject to its ability to meet the collateral requirements under the agreement governing the facility. Based on the borrowing base and collateral requirements at September 30, 2015, the borrowing availability under the revolving credit facility was $126.2 million, assuming no additional contribution of assets. The entire amount of the facility drawn at any time plus accrued interest and fees is callable on demand in the event of certain specified events of default.

The Company’s revolving credit facility, including any amounts drawn on the facility, is secured by substantially all of the assets of the Company (not otherwise used as security for its other credit facilities) including equipment owned by the Company, which had a net book value of $752.4 million as of September 30, 2015, the underlying leases and the Company’s interest in any money received under such contracts.

15


 

 

CAI INTERNATIONAL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

(ii) On July 25, 2014, the Company and CAI Rail Inc. (CAI Rail), a wholly-owned subsidiary of the Company, entered into an Amended and Restated Revolving Credit Agreement, as amended, with a consortium of banks to finance the acquisition of railcars.  As of September 30, 2015, the maximum credit commitment under the revolving credit facility was $250.0 million. CAI Rail’s revolving credit facility may be increased up to a maximum of $325.0 million, in accordance with the terms of the agreement, subject to certain conditions.

Borrowings under this revolving credit facility bear interest at a variable rate. The interest rates vary depending upon whether the loans are characterized as Base Rate loans or Eurodollar rate loans, as defined in the revolving credit agreement.  Interest rates are based on LIBOR for Eurodollar loans and Base Rate for Base Rate loans.

As of September 30, 2015, CAI Rail had $115.0 million in availability under the revolving credit facility, subject to its ability to meet the collateral requirements under the agreement governing the facility. Based on the borrowing base and collateral requirements at September 30, 2015, the borrowing availability under the revolving credit facility was $3.6 million, assuming no additional contribution of assets. The entire amount of the facility drawn at any time plus accrued interest and fees is callable on demand in the event of certain specified events of default.

The agreement governing CAI Rail’s revolving credit facility contains various financial and other covenants.  As of September 30, 2015, CAI Rail was in compliance with the terms of the revolving credit facility.  CAI Rail’s revolving credit facility, including any amounts drawn on the facility, is secured by all of the assets of CAI Rail, which had a net book value of $173.3 million as of September 30, 2015, and is guaranteed by the Company.

On October 22, 2015, the Company and CAI Rail entered into the Second Amended and Restated Revolving Credit Agreement with a consortium of banks, pursuant to which the prior revolving credit facility was refinanced. The agreement was amended to extend the maturity date to October 22, 2020, reduce the interest rate, increase the commitment level from $250.0 million to $500.0 million, which may be increased up to a maximum of $700.0 million subject to certain conditions, and revise certain of the covenants and restrictions under the prior facility to provide the Company with additional flexibility.

(b)Term Loans

Term loans consist of the following:

(i)  On March 22, 2013, the Company entered into a $30.0 million five-year term loan agreement with Development Bank of Japan (DBJ). The loan is payable in 19 quarterly installments of $0.5 million starting July 31, 2013 and a final payment of $21.5 million on April 30, 2018. The loan bears interest at a variable rate based on LIBOR. As of September 30, 2015, the loan had a balance of $26.0 million.

(ii)  On December 20, 2010, the Company entered into a term loan agreement with a consortium of banks. Under this loan agreement, the Company was eligible to borrow up to $300.0 million, subject to certain borrowing conditions, which amount is secured by certain assets of the Company’s wholly-owned foreign subsidiaries.  The loan agreement is an amortizing facility with a term of six years. The interest rates vary depending upon whether the loans are characterized as Base Rate loans or Eurodollar rate loans, as defined in the term loan agreement. The loan bears a variable interest rate based on LIBOR for Eurodollar loans, and Base Rate for base rate loans.  

 On March 28, 2013, the term loan was amended which reduced the principal balance of the loan from $249.4 million to $125.0 million through payment of $124.4 million from the proceeds of the $229.0 million fixed-rate asset-backed notes issued by the Company’s indirect wholly-owned subsidiary, CAL Funding II Limited (see Note 8(d) below).

On October 1, 2014, the Company entered into an amended and restated term loan agreement with a consortium of banks, pursuant to which the prior loan agreement was refinanced. The amended and restated term loan agreement, which contains similar terms to the prior loan agreement, was amended to, among other things: (a) reduce borrowing rates from LIBOR plus 2.25% to LIBOR plus 1.6% (per annum) for Eurodollar loans, (b) increase the loan commitment from $115.0 million to $150.0 million, (c) extend the maturity date to October 1, 2019, and (d) revise certain of the covenants and restrictions under the prior loan agreement to provide the Company with additional flexibility. As of September 30, 2015, the term loan had a balance of $141.0 million.

16


 

 

CAI INTERNATIONAL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

(iii) On April 11, 2012, the Company entered into a term loan agreement with a consortium of banks. The agreement, as amended, provides for a five-year term loan of up to $142.0 million, subject to certain borrowing conditions, which amount is secured by certain assets of the Company. The commitment under the loan may be increased to a maximum of $200.0 million under certain conditions described in the agreement. The term loan’s outstanding principal bears interest based on LIBOR and is amortized quarterly, with quarterly payments equal to 1.75% multiplied by the outstanding principal amount at such time. The facility contains various financial and other covenants. The full $142.0 million has been drawn and was primarily used to repay outstanding amounts under the Company’s senior revolving credit facility. All unpaid amounts then outstanding are due and payable on April 11, 2017.  As of September 30, 2015, the loan had a balance of $111.9 million.

The Company’s term loans are secured by rental equipment owned by the Company, which had a net book value of $336.6 million as of September 30, 2015.

(c)Senior Secured Notes

On September 13, 2012, Container Applications Limited (CAL), a wholly-owned subsidiary of the Company, entered into a Note Purchase Agreement with certain institutional investors, pursuant to which CAL issued $103.0 million of its 4.90% Senior Secured Notes due September 13, 2022 (the Notes) to the investors. The Notes are guaranteed by the Company and secured by certain assets of CAL and the Company.

The Notes bear interest at 4.9% per annum, due and payable semiannually on March 13 and September 13 of each year, commencing on March 13, 2013.  In addition, CAL is required to make certain principal payments on March 13 and September 13 of each year, commencing on March 13, 2013.  Any unpaid principal and interest is due and payable on September 13, 2022.  The Note Purchase Agreement provides that CAL may prepay at any time all or any part of the Notes in an amount not less than 10% of the aggregate principal amount of the Notes then outstanding. As of September 30, 2015, the Notes had a balance of $78.3 million.

The Notes are secured by certain rental equipment owned by the Company, which had a net book value of $103.5 million as of September 30, 2015.

(d)Asset-Backed Notes

On October 18, 2012, CAL Funding II Limited (CAL II), a wholly-owned indirect subsidiary of CAI, issued $171.0 million of 3.47% fixed rate asset-backed notes (Series 2012-1 Asset-Backed Notes).  Principal and interest on the Series 2012-1 Asset-Backed Notes is payable monthly commencing on November 26, 2012, and the Series 2012-1 Asset-Backed Notes mature in October 2027.  The proceeds from the Series 2012-1 Asset-Backed Notes were used to repay part of the Company’s borrowings under its senior revolving credit facility. As of September 30, 2015, the Series 2012-1 Asset-Backed Notes had a balance of $121.1 million.

On March 28, 2013, CAL II issued $229.0 million of 3.35% fixed rate asset-backed notes (Series 2013-1 Asset-Backed Notes). Principal and interest on the Series 2013-1 Asset-Backed Notes is payable monthly commencing on April 25, 2013, and the Series 2013-1 Asset-Backed Notes mature in March 2028. The proceeds from the Series 2013-1 Asset-Backed Notes were used partly to reduce the balance of the Company’s term loan as described in Note 8  (b)(ii) above, and to partially pay down the Company’s senior revolving credit facility. The Series 2013-1 Asset-Backed Notes had a balance of $171.8 million as of September 30, 2015.

The Company’s asset-backed notes are secured by certain rental equipment owned by the Company, which had a net book value of $364.2 million as of September 30, 2015.

The agreements under each of the asset-backed notes described above require the Company to maintain a restricted cash account to cover payment of the obligations. As of September 30, 2015, the restricted cash account had a balance of $7.5 million.

(e)Collateralized Financing Obligations

As of September 30, 2015, the Company had collateralized financing obligations of $123.8 million (see Note 3). The obligations had an average interest rate of 0.7% as of September 30, 2015 with maturity dates between December 2015 and June 2019. The debt is secured by a pool of containers covered under the financing arrangements.

(f)Term Loans Held by VIE

On June 25, 2014, one of the Japanese investor funds that is consolidated by the Company as a VIE (see Note 3) entered into a term loan agreement with a bank. Under the terms of the agreement, the Japanese investor fund entered into two loans; a five-year, amortizing loan of $9.2 million at a fixed interest rate of 2.7%, and a five-year, non-amortizing loan of $1.6 million at a variable interest rate based on LIBOR. The debt is secured by assets of the Japanese investor fund, and is subject to certain borrowing conditions set out in the loan agreement. As of September 30, 2015, the term loans held by the Japanese investor fund totaled $8.0 million and had an average interest rate of 2.6%.

17


 

 

CAI INTERNATIONAL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

The Company’s term loans held by VIE are secured by rental equipment owned by the Japanese investor fund, which had a net book value of $17.9 million as of September 30, 2015.

 (g)Short Term Line of Credit

On May 8, 2014, CAL entered into a short term uncommitted line of credit agreement. Under this credit agreement, CAL is eligible to borrow up to $75.0 million, subject to certain borrowing conditions. Loans made under the line of credit are repayable on the earlier of (a) 3 months after the loan is made, and (b) the facility termination date of May 8, 2016. Outstanding loans bear a variable interest rate based on LIBOR. The full $75.0 million was drawn and was primarily used to repay outstanding amounts under the Company’s senior revolving credit facility. As of September 30, 2015, the full $75.0 million was paid down.

On October 2, 2015, the full $75.0 million was drawn again, which is due and payable on December 2, 2015. The Company intends to renew the loan prior to the maturity date. Interest is charged on the outstanding loan at an annual rate of 1.5%.  

The agreements relating to all of the Company’s debt contain various financial and other covenants. As of September 30, 2015, the Company was in compliance with all of its debt covenants.

Capital Lease Obligations

As of September 30, 2015, the Company had capital lease obligations of less than $0.1 million. The underlying obligations are denominated in Euros at floating interest rates averaging 2.8% as of September 30, 2015 with maturity dates between December 2015 and March 2016. The loans are secured by certain containers owned by the Company, which had a net book value of less than $0.1 million as of September 30, 2015.

 

(9)Stock–Based Compensation Plan

Stock Options

The Company grants stock options to certain employees and independent directors pursuant to its 2007 Equity Incentive Plan (Plan), as amended, which was originally adopted on April 23, 2007. Under the Plan, a maximum of 1,921,980 share awards may be granted.

Stock options granted to employees have a vesting period of four years from 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.

The following table summarizes the Company’s stock option activities for the nine months ended September 30, 2015 and 2014:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30,

 

2015

 

2014

 

 

 

Weighted

 

 

 

Weighted

 

 

 

Average

 

 

 

Average

 

Number of

 

Exercise

 

Number of

 

Exercise

 

Shares

 

Price

 

Shares

 

Price

Options outstanding at January 1

1,420,749 

 

$

15.67 

 

1,263,485 

 

$

14.84 

Options granted - employees

133,000 

 

$

21.66 

 

120,000 

 

$

22.09 

Options granted - directors

50,000 

 

$

21.89 

 

50,000 

 

$

22.09 

Options forfeited - employees

 -

 

$

 -

 

(5,417)

 

$

22.55 

Options exercised - employees

(414,494)

 

$

11.45 

 

(1,583)

 

$

17.77 

 

 

 

 

 

 

 

 

 

 

Options outstanding at September 30

1,189,255 

 

$

18.08 

 

1,426,485 

 

$

15.67 

Options exercisable

884,817 

 

$

16.76 

 

1,154,844 

 

$

14.13 

Weighted average remaining term

5.1 years