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, 2019 filed with theSEC onMarch 5, 2020 . In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results may differ materially from those contained in or implied by any forward-looking statements. The financial information included in this discussion and in our consolidated financial statements may not be indicative of our consolidated financial position, operating results, changes in equity and cash flows in the future. See "Special Note Regarding Forward-Looking Statements" included earlier in this Quarterly Report on Form 10-Q. Unless the context requires otherwise, references to "CAI," the "Company," "we," "us" or "our" in this Quarterly Report on Form 10-Q refer 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 and railcars, 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, 2020 and 2019, and our average utilization for the three and nine months endedSeptember 30, 2020 and 2019: As of September 30, 2020 2019 Owned container fleet in TEUs 1,622,102 1,623,588 Managed container fleet in TEUs 60,085 72,462 Total container fleet in TEUs 1,682,187 1,696,050 Owned container fleet in CEUs 1,657,067 1,649,465 Managed container fleet in CEUs 75,480 88,493 Total container fleet in CEUs 1,732,547 1,737,958 Owned railcar fleet in units 5,039 5,504 Three Months Ended Nine Months Ended September 30, September 30, 2020 2019 2020 2019 Average container fleet utilization in CEUs 98.4% 98.4% 98.2% 98.7% Average owned container fleet utilization in CEUs 98.4% 98.6% 98.3% 98.7% Average railcar fleet utilization 87.8% 85.3% 87.5%
88.1%
The intermodal marine container industry-standard measurement unit is the 20-foot equivalent unit (TEU), which compares the size of a container to a standard 20-foot container. For example, a 20-foot container is equivalent to one TEU and a 40-foot container is equivalent to two TEUs. Containers can also be measured in cost equivalent units (CEUs), whereby the cost of each type of container is expressed as a ratio relative to the cost of a standard 20-foot dry van container. For example, the CEU ratio for a standard 40-foot dry van container is 1.6, and a 40-foot high cube container is 1.7. Utilization of containers is computed by dividing the average total units on lease during the period in CEUs, by the average total CEUs in our container fleet during the period. Utilization of railcars is computed by dividing the average number of railcars on lease during the period by the average total number of railcars in our fleet during the period. In both cases, the total fleet excludes new units not yet leased and off-hire units designated for sale. If new units not yet leased are included in the total fleet, utilization would be 97.3% and 96.4% for both the total and owned container fleet, and 85.1% and 84.6% for the railcar fleet, for the three and nine months endedSeptember 30, 2020 , respectively. COVID-19 Pandemic The COVID-19 pandemic continues to have a meaningful impact on global trade and our business. The pandemic and related work, travel, and social restrictions resulted in a sharp decrease in global economic and trade activity during the first half of the year, resulting in weak container leasing demand. We have seen increased leasing demand during the third quarter as COVID-related restrictions have eased inEurope andthe United States , but it is too early to tell whether this rebound in leasing demand will be sustained. 26
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We have been concerned that the sharp decrease in global container volumes this year would increase the financial challenges facing our customers and lead to increased credit risk. While we are not yet through the pandemic, container freight rates and the financial performance of our customers have generally held up better than anticipated. All the major shipping lines have taken aggressive actions to reduce their deployed vessel capacity, decreasing their network expenses and mitigating rate pressure from reduced freight volumes. The large decrease in bunker fuel prices has also been very helpful to their financial performance. However, there is no certainty that our customers will continue to be able to manage through the challenges of the COVID-19 environment. We continue to closely monitor our customers' payment performance and expect our customer credit risk will remain elevated as long as economic and trade disruptions persist. For additional information regarding the risk and uncertainties that we could encounter as a result of the COVID-19 pandemic and related global conditions, see "The continued spread of the COVID-19 pandemic may have a material adverse impact on our business, financial condition and results of operations" in Item 1A. "Risk Factors" in this Quarterly Report on Form 10-Q.
Discontinued Operations
OnAugust 14, 2020 , we sold substantially all the assets of our logistics business to NFI, a North American logistics provider, on a debt free, cash free basis. As a result, the operating results of the logistics business have been reclassified 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 business as discontinued operations and the assets and liabilities as held for sale. 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 2020 2019 Amount Percent Total revenue $ 79,052$ 81,406 $ (2,354) (3) % Operating expenses 40,773 67,897 (27,124) (40) % Total other expenses 19,965 23,482 (3,517) (15) % Net income (loss) attributable to CAI common stockholders 13,236 (7,986)
21,222 266 %
The decrease in total revenue for the three months endedSeptember 30, 2020 compared to the three months endedSeptember 30, 2019 , was attributable to a$1.6 million , or 2%, decrease in container lease revenue and a$0.7 million , or 12%, decrease in rail lease revenue. The decrease in operating expenses for the three months endedSeptember 30, 2020 compared to the three months endedSeptember 30, 2019 , was the result of a$25.6 million , or 100%, decrease in impairment charges related to our rail assets, a$2.9 million , or 31%, decrease in administrative expenses, and a$1.4 million , or 18%, decrease in storage, handling and other expenses, partially offset by a$2.4 million , or 9%, increase in depreciation expense and a$0.4 million , or 14%, decrease in gain on sale of rental equipment. Total other expenses for the three months endedSeptember 30, 2020 decreased compared with the three months endedSeptember 30, 2019 , primarily due to a$6.5 million , or 28%, decrease in net interest expense, partially offset by a$3.6 million , or 100%, increase in write-off of debt issuance costs. Total dividends of$2.2 million on our preferred stock were recorded in both the three months endedSeptember 30, 2020 and 2019. The decrease in operating expenses and total other expense, partially offset by the decrease in revenue and the net loss from discontinued operations resulted in an increase in net income attributable to CAI common stockholders for the three months endedSeptember 30, 2020 compared to the three months endedSeptember 30, 2019 , of$21.2 million . Container lease revenue Three Months Ended September 30, Change ($ in thousand) 2020 2019 Amount Percent Container lease revenue$ 73,890 $ 75,535 $ (1,645) (2) % The decrease in container lease revenue for the three months endedSeptember 30, 2020 compared to the three months endedSeptember 30, 2019 was mainly attributable to a$1.4 million decrease in rental revenue resulting from a 2% reduction in average owned container per diem rental rates and a$0.9 million decrease in rental revenue arising from a change to cash-based revenue recognition for a certain customer due to collectability issues, partially offset by a$0.6 million increase in rental revenue resulting from a 1% increase in the average number of CEUs of on-lease owned containers. ? 27
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Table of Contents Rail lease revenue Three Months Ended September 30, Change ($ in thousand) 2020 2019 Amount Percent Rail lease revenue $ 5,162$ 5,871 $ (709) (12) % The decrease in rail lease revenue for the three months endedSeptember 30, 2020 compared to the three months endedSeptember 30, 2019 was mainly attributable to a 7% decrease in the average number of on-lease railcars.
Depreciation of rental equipment
Three Months Ended September 30, Change ($ in thousand) 2020 2019 Amount Percent Container leasing $ 28,267$ 28,030 $ 237 1 % Rail leasing 2,161 - 2,161 100 % $ 30,428$ 28,030 $ 2,398 9 % Container leasing
Depreciation expense for the three months ended
Rail leasing
The increase in depreciation expense for the three months endedSeptember 30, 2020 compared to the three months endedSeptember 30, 2019 was primarily attributable to differences in the timing of railcar assets being held for sale, during which time no depreciation was charged. Railcar assets were classified as held for sale for the three months endedSeptember 30, 2019 , while they were classified as held for use for the three months endedSeptember 30, 2020 .
Impairment of rental equipment
Three Months Ended September 30, Change ($ in thousand) 2020 2019 Amount Percent Rail leasing $ -$ 25,632 $ (25,632) (100) % An impairment charge of$25.6 million was recognized during the three months endedSeptember 30, 2019 to reduce the book value of the railcar portfolio, on an individual basis, to the lower of its net book value or its estimated fair value at the date when the decision was made to sell the assets of the railcar business.
Storage, handling and other expenses
Three Months Ended September 30, Change ($ in thousand) 2020 2019 Amount Percent Container leasing $ 4,713$ 4,672 $ 41 1 % Rail leasing 1,973 3,453 (1,480) (43) % $ 6,686$ 8,125 $ (1,439) (18) % Container leasing Storage, handling and other expenses for the three months endedSeptember 30, 2020 remained relatively consistent with the three months endedSeptember 30, 2019 . Rail leasing The decrease in storage, handling and other expenses for the three months endedSeptember 30, 2020 compared to the three months endedSeptember 30, 2019 was primarily attributable to a$1.8 million decrease in repair and maintenance costs, partially offset by a$0.4 million increase in positioning fees. ? 28
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Gain on sale of rental equipment
Three Months Ended September 30, Change ($ in thousand) 2020 2019 Amount Percent Container leasing $ 2,419$ 2,411 $ 8 - Rail leasing 310 757 (447) (59) % $ 2,729$ 3,168 $ (439) (14) % Container leasing
Gain on sale of rental equipment for the three months ended
Rail leasing
The decrease in gain on sale of rental equipment for the three months endedSeptember 30, 2020 compared to the three months endedSeptember 30, 2019 was mainly attributable to a 97% decrease in the average sale price per unit as sales made in the three months endedSeptember 30, 2020 were for scrap, partially offset by a 121% increase in the number of units sold, between the two periods. Administrative expenses Three Months Ended September 30, Change ($ in thousand) 2020 2019 Amount Percent Container leasing $ 5,389$ 8,658 $ (3,269) (38) % Rail leasing 999 620 379 61 % $ 6,388$ 9,278 $ (2,890) (31) % Container leasing The decrease in administrative expenses for the three months endedSeptember 30, 2020 compared to the three months endedSeptember 30, 2019 was primarily attributable to a$3.5 million decrease in bad debt expense, mainly due to cash receipts from a previously reserved customer, partially offset by a$0.2 million increase in payroll-related costs.
Rail leasing
The increase in administrative expenses for the three months endedSeptember 30, 2020 compared to the three months endedSeptember 30, 2019 was primarily attributable to a$0.2 million increase in allocated overhead costs and a$0.1 million increase in bad debt expense. Other expense Three Months Ended September 30, Change ($ in thousand) 2020 2019 Amount Percent Net interest expense$ 16,630 $ 23,102 $ (6,472) (28) % Write-off of debt issuance costs 3,641 - 3,641 100 % Other (income) expense (306) 380 (686) 181 %$ 19,965 $ 23,482 $ (3,517) (15) % Net interest expense The decrease in net interest expense for the three months endedSeptember 30, 2020 compared to the three months endedSeptember 30, 2019 was due primarily to a decrease in the average interest rate on our outstanding debt from approximately 3.7% as ofSeptember 30, 2019 to 2.5% as ofSeptember 30, 2020 , caused primarily by a decrease in LIBOR, as well as a decrease in our average loan principal balance between the two periods, as we decreased acquisition activity for rental equipment.
Write-off of debt issuance costs
The$3.6 million write-off of debt issuance costs during the three months endedSeptember 30, 2020 was due to the early repayment of debt associated with our Series 2017-1 and Series 2018-1 asset-backed notes.
Other (income) expense
Other income, representing a gain on foreign exchange of$0.3 million for the three months endedSeptember 30, 2020 , increased from a loss of$0.4 million for the three months endedSeptember 30, 2019 , primarily as a result of movements in theU.S. Dollar exchange rate against the Euro. ? 29
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Table of Contents Income tax expense (benefit) Three Months Ended September 30, Change ($ in thousand) 2020 2019 Amount Percent Income tax expense (benefit) $ 1,349$ (4,830) $ 6,179 128 % The increase in income tax expense for the three months endedSeptember 30, 2020 compared to three months endedSeptember 30, 2019 was mainly attributable to a tax benefit resulting from the impairment of railcar assets of$25.6 million during the three months endedSeptember 30, 2019 , as well as an increase in the estimated effective tax rate. The full-year estimated effective tax rate was 8.1% atSeptember 30, 2020 , compared to an effective tax rate of 6.1% atSeptember 30, 2019 . The increase in the estimated full-year effective tax rate was primarily due to an increase in the amount of interest income generated by foreign finance leases subject to both foreign andU.S. income tax. Preferred stock dividends Three Months Ended September 30, Change ($ in thousand) 2020 2019 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 2020 2019 Amount Percent Logistics revenue$ 13,550 $ 30,270 $ (16,720) (55) % Operating expenses 15,525 31,082 (15,557) (50) % Interest income 1 4
(3) (75) % Net loss from discontinued operations (1,522) (636) (886) 139 %
The decrease in logistics revenue and transportation costs for the three months endedSeptember 30, 2020 compared to the three months endedSeptember 30, 2019 , was primarily attributable to the sale of the logistics business during the three months endedSeptember 30, 2020 . The increase in the net loss from discontinued operations for the three months endedSeptember 30, 2020 compared to the three months endedSeptember 30, 2019 , was primarily due to certain sale related costs including severance and bonus payments.
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 2020 2019 Amount Percent Total revenue$ 229,693 $ 245,546 $ (15,853) (6) % Operating expenses 139,944 155,264 (15,320) (10) % Total other expenses 58,088 70,702 (12,614) (18) % Net income attributable to CAI common stockholders 6,866 11,668
(4,802) (41) %
The decrease in total revenue for the nine months endedSeptember 30, 2020 compared to the nine months endedSeptember 30, 2019 , was attributable to a$12.9 million , or 6%, decrease in container lease revenue and a$3.0 million , or 15%, decrease in rail lease revenue. The decrease in operating expenses for the nine months endedSeptember 30, 2020 compared to the nine months endedSeptember 30, 2019 , was the result of a$13.2 million , or 40%, decrease in impairment charges related to our rail assets, a$5.1 million , or 19%, decrease in administrative expenses and a$3.3 million , or 4%, decrease in depreciation expense, partially offset by a$5.8 million , or 47% decrease in gain on sale of rental equipment, and a$0.5 million , or 3% increase in storage, handling and other expenses. Total other expenses for the nine months endedSeptember 30, 2020 decreased compared with the nine months endedSeptember 30, 2019 , primarily due to a$15.6 million , or 22%, decrease in net interest expense and a$0.7 million , or 129%, increase in other income, partially offset by a$3.6 million , or 100%, increase in write-off of debt issuance costs. Total dividends of$6.6 million on our preferred stock were recorded in both the nine months endedSeptember 30, 2020 and 2019. The decrease in revenue and net loss from discontinued operations, partially offset by the decrease in operating expenses and total other expenses resulted in a decrease in net income attributable to CAI common stockholders for the nine months endedSeptember 30, 2020 compared to the nine months endedSeptember 30, 2019 , of$4.8 million . 30
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Table of Contents Container lease revenue Nine Months Ended September 30, Change ($ in thousand) 2020 2019 Amount Percent Container lease revenue $ 212,446$ 225,332 $ (12,886) (6) % The decrease in container lease revenue for the nine months endedSeptember 30, 2020 compared to the nine months endedSeptember 30, 2019 was mainly attributable to an$11.0 million decrease in rental revenue resulting from a 6% reduction in average owned container per diem rental rates and a$7.5 million decrease in rental revenue arising from a change to cash-based revenue recognition for a certain customer due to collectability issues, partially offset by a$5.4 million increase in rental revenue resulting from a 3% increase in the average number of CEUs of on-lease owned containers. Rail lease revenue Nine Months Ended September 30, Change ($ in thousand) 2020 2019 Amount Percent Rail lease revenue $ 17,247$ 20,214 $ (2,967) (15) % The decrease in rail lease revenue for the nine months endedSeptember 30, 2020 compared to the nine months endedSeptember 30, 2019 was mainly attributable to a 12% decrease in the average size of the on-lease railcar fleet, caused primarily by the sale of railcars.
Depreciation of rental equipment
Nine Months Ended September 30, Change ($ in thousand) 2020 2019 Amount Percent Container leasing $ 82,065$ 84,381 $ (2,316) (3) % Rail leasing 4,257 5,248 (991) (19) % $ 86,322$ 89,629 $ (3,307) (4) % Container leasing The decrease in depreciation expense for the nine months endedSeptember 30, 2020 compared to the nine months endedSeptember 30, 2019 was mainly attributable to a 1% decrease in the average size of our owned container fleet during the last twelve months and 6% of containers purchased during the same period being used, which depreciate at a lower rate or are already fully depreciated.
Rail leasing
The decrease in depreciation expense for the nine months endedSeptember 30, 2020 compared to the nine months endedSeptember 30, 2019 was primarily attributable to differences in the timing of railcar assets being held for sale, during which time no depreciation was charged. Railcar assets were classified as held for sale for three months during the nine months endedSeptember 30, 2020 , compared to four months during the nine months endedSeptember 30, 2019 . There was also a 12% decrease in the average size of the railcar fleet during the last twelve months.
Impairment of rental equipment
Nine Months Ended September 30, Change ($ in thousand) 2020 2019 Amount Percent Rail leasing $ 19,724$ 32,955 $ (13,231) (40) % A charge of$33.0 million was recognized during the nine months endedSeptember 30, 2019 to reflect the loss on classification of the railcar portfolio as held for sale, and its subsequent impairment. The impairment charge for the nine months endedSeptember 30, 2020 included a charge of$19.2 million that was recognized during the three months endedMarch 31, 2020 , when the held for sale criteria for the railcar assets were no longer met. The impairment reduced the book value of the railcar portfolio, on an individual basis, to the lower of its net book value had the assets not been classified as held for sale, or its estimated fair value at the date when the held for sale criteria were no longer met. For additional information on the impairment, see Note 4 to our consolidated financial statements in this Quarterly Report on Form 10-Q. ? 31
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Storage, handling and other expenses
Nine Months Ended September 30, Change ($ in thousand) 2020 2019 Amount Percent Container leasing $ 14,305$ 12,631 $ 1,674 13 % Rail leasing 4,603 5,813 (1,210) (21) % $ 18,908$ 18,444 $ 464 3 % Container leasing The increase in storage, handling and other expenses for the nine months endedSeptember 30, 2020 compared to the nine months endedSeptember 30, 2019 was primarily attributable to a$1.7 million increase in storage and repair expenses due to an increase in the average size of the off-lease fleet.
Rail leasing
The decrease in storage, handling and other expenses for the nine months ended
Gain on sale of rental equipment
Nine Months Ended September 30, Change ($ in thousand) 2020 2019 Amount Percent Container leasing $ 5,854$ 2,847 $ 3,007 106 % Rail leasing 597 9,418 (8,821) (94) % $ 6,451$ 12,265 $ (5,814) (47) % Container leasing
The increase in gain on sale of rental equipment for the nine months ended
Rail leasing
The decrease in gain on sale of rental equipment for the nine months endedSeptember 30, 2020 compared to the nine months endedSeptember 30, 2019 was mainly attributable to an 80% decrease in the number of railcars sold between the two periods, primarily due to the sale of 1,946 railcars onFebruary 26, 2019 , resulting in a gain on sale of$7.0 million . Administrative expenses Nine Months Ended September 30, Change ($ in thousand) 2020 2019 Amount Percent Container leasing $ 18,830$ 23,524 $ (4,694) (20) % Rail leasing 2,611 2,977 (366) (12) % $ 21,441$ 26,501 $ (5,060) (19) % Container leasing The decrease in administrative expenses for the nine months endedSeptember 30, 2020 compared to the nine months endedSeptember 30, 2019 was primarily attributable to a$7.3 million decrease in bad debt expense, mainly due to cash receipts from a previously reserved customer, partially offset by a$1.7 million increase in severance costs mainly associated with the change in our Chief Executive Officer and an increase of$1.3 million in professional fees due to the strategic review process.
Rail leasing
The decrease in administrative expenses for the nine months ended
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Table of Contents Other expense Nine Months Ended September 30, Change ($ in thousand) 2020 2019 Amount Percent Net interest expense$ 54,604 $ 70,165 $ (15,561) (22) % Write-off of debt issuance costs 3,641 - 3,641 100 % Other (income) expense (157) 537 (694) (129) %$ 58,088 $ 70,702 $ (12,614) (18) % Net interest expense The decrease in net interest expense for the nine months endedSeptember 30, 2020 compared to the nine months endedSeptember 30, 2019 was due primarily to a decrease in the average interest rate on our outstanding debt from approximately 3.7% as ofSeptember 30, 2019 to 2.5% as ofSeptember 30, 2020 , caused primarily by a decrease in LIBOR, as well as a decrease in our average loan principal balance between the two periods, as we decreased acquisition activity for rental equipment.
Write-off of debt issuance costs
The$3.6 million write-off of debt issuance costs during the nine months endedSeptember 30, 2020 is due to the early repayment of debt associated with our Series 2017-1 and Series 2018-1 asset-backed notes.
Other (income) expense
Other income, representing a gain on foreign exchange of$0.2 million for the nine months endedSeptember 30, 2020 , increased from a loss of$0.5 million for the nine months endedSeptember 30, 2019 , primarily as a result of movements in theU.S. Dollar exchange rate against the Euro. Income tax benefit Nine Months Ended September 30, Change ($ in thousand) 2020 2019 Amount Percent Income tax benefit $ 594$ 2,098 $ (1,504) (72) % The decrease in income tax benefit for the nine months endedSeptember 30, 2020 compared to nine months endedSeptember 30, 2019 was mainly attributable to a decrease in the discrete tax benefit arising from the impairment of railcars, and an increase in the estimated full-year effective tax rate to 8.1% atSeptember 30, 2020 , compared to an effective tax rate of 6.1% atSeptember 30, 2019 . The increase in the estimated full-year effective tax rate before discrete items was primarily due to an increase in income before tax and the amount of interest income generated by foreign finance leases subject to both foreign andU.S. income tax. Preferred stock dividends Nine Months Ended September 30, Change ($ in thousand) 2020 2019 Amount Percent Preferred stock dividends $ 6,621$ 6,621 $ - - %
Preferred stock dividends for the nine months ended
Loss from discontinued operations
Nine Months Ended September 30, Change 2020 2019 Amount Percent Logistics revenue$ 66,304 $ 87,788 $ (21,484) (24) % Operating expenses 88,619 92,233 (3,614) (4) % Interest income 7 12
(5) (42) % Net loss from discontinued operations (18,768) (3,389) (15,379) 454 %
The decrease in logistics revenue and transportation costs for the nine months endedSeptember 30, 2020 compared to the nine months endedSeptember 30, 2019 , was primarily attributable to the sale of the logistics business during the three months endedSeptember 30, 2020 . The increase in the net loss from discontinued operations for the nine months endedSeptember 30, 2020 compared to the nine months endedSeptember 30, 2019 , was a result of the$18.5 million loss on classification as held for sale recorded during the three months endedJune 30, 2020 , primarily due to the write down of goodwill and intangible assets, and certain sale related costs including severance and bonus payments. ? 33
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Liquidity and Capital Resources
As ofSeptember 30, 2020 , we had cash and cash equivalents of$382.4 million , including$340.1 million of restricted cash, and$26.8 million of cash held by variable interest entities (VIEs). The restrictions on$316.9 million of the restricted cash atSeptember 30, 2020 were lifted onOctober 26, 2020 , when the cash was used to repay in full the amount outstanding under the Series 2020-2 asset-backed notes, with the balance being returned to the Company.
Our principal sources of liquidity are cash in-flows provided by operating activities, proceeds from the sale of rental equipment, borrowings from financial institutions, and equity and debt offerings. Our cash in-flows are used to finance capital expenditures and meet debt service requirements.
As of
Current Current Amount Maximum Outstanding Borrowing Level Revolving credit facilities$ 815,013 $ 1,279,315 Term loans 236,924 236,924 Senior secured notes 46,665 46,665 Asset-backed notes 1,017,500 1,017,500 Collateralized financing obligations 75,931 75,931 Term loans held by VIE 32,570 32,570 2,224,603 2,688,905 Debt discount and debt issuance costs (16,420) - Total$ 2,208,183 $ 2,688,905
As of
As ofSeptember 30, 2020 , we had a total of$1,813.4 million of debt in facilities with fixed interest rates or floating interest rates that have been synthetically fixed through interest rate swap agreements. This accounts for 82% of our total outstanding debt. 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 10 to the consolidated financial statements in our Annual Report on Form 10-K for the year endedDecember 31, 2019 , filed with theSEC onMarch 5, 2020 . We continue to monitor the COVID-19 outbreak and its impact on our overall liquidity position and outlook. The ultimate impact that COVID-19 may have on our operational and financial performance over the next 12 months is currently uncertain and will depend on certain developments, including, among others, the impact of COVID-19 on our customers and the magnitude and duration of the pandemic. Assuming that our customers meet their contractual commitments, we currently believe that cash provided by operating activities and existing cash, proceeds from the sale of rental equipment, and borrowing availability under our debt facilities are sufficient to meet our liquidity needs for at least the next twelve months. In addition to customary events of default, the agreements governing our indebtedness contain restrictive covenants, including limitations on certain liens, indebtedness and investments. In addition, the agreements governing our indebtedness contain various restrictive financial and other covenants. The financial covenants in the agreements governing our indebtedness require us to maintain: (1) in the case of our debt facilities, a consolidated funded debt to consolidated tangible net worth ratio of no more than 3.75:1.00, and in the case of our asset-backed notes, of no more than 4.50:1.00; and (2) in the case of our debt facilities, a fixed charge coverage ratio of at least 1.20:1.00, and in the case of our asset-backed notes, of at least 1.10:1.00. As ofSeptember 30, 2020 , 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. ? 34
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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, 2020 2019 Net income $ 13,487
129,216
134,681
Changes in working capital 66,105
54,944
Net cash provided by operating activities of continuing operations
195,321
189,625
Net cash provided by (used in) investing activities of continuing operations
10,990
(113,577)
Net cash provided by (used in) financing activities of continuing operations
94,415
(73,399)
Net cash provided by (used in) discontinued operations 8,497
(1,728)
Effect on cash of foreign currency translation (15)
(874)
Net increase in cash and restricted cash 309,208 47 Cash and restricted cash at beginning of period 73,239
75,983
Cash and restricted cash at end of period$ 382,447
Cash Flows from Continuing Operations
Operating Activities
Net cash provided by operating activities of continuing operations was$195.3 million for the nine months endedSeptember 30, 2020 , an increase of$5.7 million compared to$189.6 million for the nine months endedSeptember 30, 2019 . The increase was due to an$11.2 million increase in our net working capital adjustments, partially offset by a$5.5 million decrease in income from continuing operations as adjusted for depreciation, impairment and other non-cash items. The decrease of$5.5 million in income from continuing operations as adjusted for non-cash items was primarily due to a decrease of$13.2 million in impairment of rental equipment, a decrease of$7.6 million in bad debt expense due to receipt of payments from a previously reserved customer, and a decrease of$2.7 million in depreciation expense, partially offset by a$5.8 million decrease in gain on sale of rental equipment mainly due to a large sale of railcars in the prior year and an increase of$3.3 million in amortization and write-off of unamortized debt issuance costs. Net working capital provided by operating activities of$66.1 million in the nine months endedSeptember 30, 2020 , was due to a$54.7 million decrease in net investment in finance leases, representing the receipt of principal payments, and an$11.8 million decrease in accounts receivable, primarily caused by the timing of cash receipts from customers. Net working capital provided by operating activities of$54.9 million in the nine months endedSeptember 30, 2019 was due to a$48.7 million decrease in net investment in finance leases, representing the receipt of principal payments, a$4.6 million decrease in accounts receivable, primarily caused by the timing of cash receipts from customers, and a$3.5 million increase in accounts payable, accrued expenses and other liabilities, primarily caused by the timing of payments, partially offset by a$1.8 million decrease in unearned revenue.
Investing Activities
Net cash provided by investing activities of continuing operations was$11.0 million for the nine months endedSeptember 30, 2020 , an increase of$124.6 million compared to net cash used in investing activities of$113.6 million for the nine months endedSeptember 30, 2019 . The increase in cash provided was attributable to a$287.1 million decrease in purchase of rental equipment, a$6.3 million decrease in purchase of financing receivable, a$2.2 million increase in receipt of principal payments from financing receivables, and a$1.0 million decrease in purchase of furniture, fixtures and equipment, partially offset by a$172.0 million decrease in proceeds from sale of rental equipment. Financing Activities Net cash provided by financing activities of continuing operations was$94.4 million for the nine months endedSeptember 30, 2020 , an increase of$167.8 million compared to net cash used in financing activities of$73.4 million for the nine months endedSeptember 30, 2019 . During the nine months endedSeptember 30, 2020 , our net cash inflow from borrowings was$110.4 million compared to net cash outflow of$32.4 million for the nine months endedSeptember 30, 2019 . The increase in net cash inflow from borrowings and a decrease of$34.1 million in the repurchase of common stock were partially offset by an increase of$7.5 million in debt issuance costs and an increase of$4.4 million in dividends paid to common stockholders. ? 35
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Cash Flows from Discontinued Operations
Net cash provided by discontinued operations was$8.5 million for the nine months endedSeptember 30, 2020 , an increase of$10.2 million compared to net cash used by discontinued operations of$1.7 million for the nine months endedSeptember 30, 2019 . The increase in cash was primarily attributable to a$5.9 million increase in net cash provided by investing activities of discontinued operations, resulting from proceeds received upon sale of the business, and a$4.3 million increase in net cash provided by operating activities of discontinued operations, mainly resulting from a decrease in accounts receivable due to a decrease in the volume of sales between the two periods.
Equity Transactions
Stock Repurchase Plan
InOctober 2018 , we announced that our Board of Directors approved the repurchase of up to three million shares of our outstanding common stock. The number, price, structure and timing of the repurchases, if any, will be at our sole discretion and will be evaluated by us depending on prevailing market conditions, corporate needs, and other factors. The stock repurchases may be made in the open market, block trades or privately negotiated transactions. This stock repurchase program replaces any available prior share repurchase authorization and may be discontinued at any time. We did not repurchase any shares under this repurchase plan during the nine months endedSeptember 30, 2020 . As ofSeptember 30, 2020 , approximately 1.0 million shares remained available for repurchase under our share repurchase program.
Contractual Obligations and Commercial Commitments
The following table sets forth our contractual obligations and commercial
commitments by due date as of
Payments Due by Period Less than 1-2 2-3 3-4 4-5 More than Total 1 year years years years years 5 years Total debt obligations: Revolving credit facilities$ 815,013 $ - $ -$ 677,513 $ 137,500 $ - $ - Term loans 236,924 130,774 7,800 28,350 70,000 - - Senior secured notes 46,665 6,110 40,555 - - - - Asset-backed notes 1,017,500 337,211 62,411 62,411 62,411 64,201 428,855 Collateralized financing obligations 75,931 28,474 29,973 - - - 17,484 Term loans held by VIE 32,570 5,425 5,660 5,906 6,157 6,426 2,996 Interest on debt and capital lease obligations (1) 159,407 42,894 37,425 29,752 12,946 10,845 25,545 Rental equipment payable 89,634 89,634 - - - - - Rent, office facilities and equipment 5,041 2,541 1,988 298 175 39 - Equipment purchase commitments - Containers 116,941 116,941 - - - - - Total contractual obligations$ 2,595,626 $ 760,004 $ 185,812 $ 804,230 $ 289,189 $ 81,511 $ 474,880 (1)Our estimate of interest expense commitment includes$15.5 million relating to our revolving credit facilities subject to variable interest rates,$26.5 million relating to our revolving credit facilities subject to fixed interest rates,$15.0 million relating to our term loans,$4.1 million relating to our senior secured notes,$87.9 million relating to our asset-back notes,$6.2 million relating to our collateralized financing obligations, and$4.1 million relating to our term loans held by VIE. The calculation of interest commitment related to our debt assumes the following weighted-average interest rates as ofSeptember 30, 2020 : variable-rate revolving credit facilities, 1.6%; fixed-rate revolving credit facilities, 1.9%; term loans, 3.3%; senior secured notes, 4.9%; asset-backed notes, 2.9%; collateralized financing obligations, 1.6%; 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, 2020 , we had no material off-balance sheet arrangements or obligations that have or are reasonably likely to have a current or future effect on our financial condition, change in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that are material to investors.
Critical Accounting Policies and Estimates
There have been no changes to our critical accounting policies during the nine months endedSeptember 30, 2020 . See Critical Accounting Policies and Estimates in our Annual Report on Form 10-K for the year endedDecember 31, 2019 , filed with theSEC onMarch 5, 2020 . 36
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Recent Accounting Pronouncements
Except for the most recently adopted accounting pronouncements described in Note 1 to our unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q, there are no other recent accounting pronouncement that are relevant to our business.
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