a50260121.htm
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
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R
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
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OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended March 31, 2012
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or
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£
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
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OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from ________ to ________
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Commission File Number 001-34931
SeaCube Container Leasing Ltd.
(Exact name of registrant as specified in its charter)
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Bermuda
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98-0655416
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(State of other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification Number)
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1 Maynard Drive
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Park Ridge, New Jersey
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07656
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(Address of principal executive offices)
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(Zip Code)
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(201) 391-0800
(Registrant’s telephone number, including area code)
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.
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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
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.
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Large accelerated filer o
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Accelerated filer x
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Non-accelerated filer o
(Do not check if a smaller
reporting company)
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Smaller reporting company o
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
The number of outstanding shares of the Registrant’s Common Stock as of May 2, 2012 was 20,288,359.
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SeaCube Container Leasing Ltd.
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FORM 10-Q
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Table of Contents
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Page No. |
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14
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22
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23
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24
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24
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24
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24
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24
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24
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25
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26
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Consolidated Balance Sheets
(Amounts in thousands, except for share amounts)
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(unaudited)
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Assets
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Cash and cash equivalents
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$ |
20,744 |
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$ |
15,006 |
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Restricted cash
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32,659 |
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29,649 |
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Accounts receivable, net of allowance of $3,825 and $3,290, respectively
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42,860 |
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41,570 |
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Net investment in direct finance leases
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671,552 |
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639,248 |
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Leasing equipment, net of accumulated depreciation of $180,743 and $171,993, respectively
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738,335 |
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748,945 |
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Goodwill
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22,483 |
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22,483 |
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Shareholder note
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8,561 |
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8,498 |
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Other assets
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16,777 |
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19,903 |
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Total assets
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$ |
1,553,971 |
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$ |
1,525,302 |
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Liabilities and shareholders’ equity
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Liabilities:
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Equipment purchases payable
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$ |
10,367 |
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$ |
26,305 |
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Accrued expenses and other liabilities
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34,806 |
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37,097 |
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Fair value of derivative instruments
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36,000 |
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38,750 |
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Deferred income
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1,991 |
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2,044 |
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Deferred income taxes
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1,234 |
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1,532 |
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Debt:
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Due within one year
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155,732 |
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161,171 |
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Due after one year
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1,085,310 |
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1,039,274 |
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Total debt
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1,241,042 |
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1,200,445 |
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Total liabilities
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1,325,440 |
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1,306,173 |
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Commitments and contingencies (Note 7)
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Shareholders’ equity:
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Preferred shares, $0.01 par value, 100,000,000 shares authorized
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— |
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— |
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| Common shares, $0.01 par value 400,000,000 shares authorized; |
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| 20,288,359 shares issued and outstanding at March 31, 2012; |
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20,163,359 shares issued and outstanding at December 31, 2011
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202 |
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201 |
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Additional paid in capital
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219,281 |
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218,879 |
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Retained earnings
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38,957 |
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32,916 |
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Accumulated other comprehensive income (loss)
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(29,909 |
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(32,867 |
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Total shareholders’ equity
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228,531 |
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219,129 |
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Total liabilities and shareholders’ equity
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$ |
1,553,971 |
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$ |
1,525,302 |
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Consolidated Statements of Operations
(Amounts in thousands, except for per share amounts)
(unaudited)
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Three months ended
March 31,
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Revenues:
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Equipment leasing revenue
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$ |
29,930 |
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$ |
21,765 |
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Finance revenue
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16,283 |
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12,625 |
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Other revenue
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2,809 |
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2,431 |
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Total revenues
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49,022 |
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36,821 |
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Expenses:
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Direct operating expenses
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1,395 |
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979 |
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Selling, general and administrative expenses
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6,103 |
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5,894 |
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Depreciation expenses
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12,910 |
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9,904 |
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Provision for doubtful accounts
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535 |
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— |
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Impairment of leasing equipment held for sale
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849 |
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196 |
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Interest expense, including non-cash interest of $1,132 and $(847), respectively
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16,723 |
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9,350 |
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Interest income
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(69 |
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(74 |
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Other expenses (income), net
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(559 |
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367 |
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Total expenses
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37,887 |
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26,616 |
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Income before provision for income taxes
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11,135 |
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10,205 |
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Provision for income taxes
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(180 |
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81 |
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Net income
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$ |
11,315 |
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$ |
10,124 |
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Net Income per common share
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Basic
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$ |
0.56 |
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$ |
0.50 |
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Diluted
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$ |
0.56 |
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$ |
0.50 |
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Dividend per common shareholder
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$ |
0.26 |
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$ |
0.22 |
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Consolidated Statements of Comprehensive Income
(Amounts in thousands)
(unaudited)
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Three months ended
March 31,
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Net income
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$ |
11,315 |
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$ |
10,124 |
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Other comprehensive income, net of tax:
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Net derivative loss reclassified into earnings
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819 |
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740 |
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Unrealized loss on derivative instruments, net of tax of $(73) and $(122), respectively
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2,131 |
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3,333 |
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Foreign currency translation
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9 |
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30 |
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Other comprehensive income
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2,959 |
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4,103 |
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Comprehensive Income
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$ |
14,274 |
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$ |
14,227 |
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Consolidated Statements of Cash Flows
(Amounts in thousands)
(unaudited)
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Three Months Ended March 31,
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Cash flows from operating activities
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Net income
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$ |
11,315 |
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$ |
10,124 |
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Adjustments to reconcile net income to net cash provided by operating activities:
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Depreciation and amortization
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13,769 |
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10,243 |
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Provision for doubtful accounts
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535 |
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— |
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Loss (gain) on sale of leasing equipment
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(560 |
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265 |
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Stock based compensation
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403 |
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284 |
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Derivative loss reclassified into earnings
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819 |
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740 |
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Ineffective portion of cash flow hedges
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(547 |
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(1,932 |
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Impairment of leasing equipment held for sale
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849 |
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196 |
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Changes in operating assets and liabilities:
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Accounts receivable
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(1,825 |
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2,178 |
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Other assets
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2,716 |
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(63 |
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Accounts payable, accrued expenses and other liabilities
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(1,567 |
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6,174 |
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Deferred income
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(131 |
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(58 |
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Net cash provided by operating activities
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25,776 |
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28,151 |
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Cash flows from investing activities
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Proceeds from sale of leasing equipment
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5,213 |
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3,516 |
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Collections on net investment in direct finance leases, net of interest earned
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29,834 |
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23,476 |
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(Increase) decrease in restricted cash
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(3,010 |
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(25,241 |
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Purchase of fixed assets
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(21 |
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(45 |
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Purchase of leasing equipment
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(23,909 |
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(125,633 |
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Investment in direct financing leases
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(62,394 |
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(14,645 |
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Increase in Shareholder Note
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(64 |
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(61 |
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Net cash provided by (used in) investing activities
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(54,351 |
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(138,633 |
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Cash flows from financing activities
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Proceeds from long-term debt
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172,000 |
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329,000 |
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Repayments of long-term debt
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(131,403 |
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(202,849 |
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Cash paid for debt issuance fees
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— |
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(3,846 |
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Cash paid for derivatives
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— |
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(676 |
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Dividends paid
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(5,275 |
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(4,004 |
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Other financing activities
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(1,018 |
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(365 |
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Net cash provided by (used in) financing activities
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34,304 |
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117,260 |
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Effect of changes in exchange rates on cash and cash equivalents
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9 |
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30 |
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Net increase in cash and cash equivalents
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5,738 |
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6,808 |
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Cash and cash equivalents, beginning of period
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15,006 |
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17,868 |
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Cash and cash equivalents, end of period
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$ |
20,744 |
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$ |
24,676 |
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Supplemental disclosures of cash flow information
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Cash paid for interest
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$ |
16,410 |
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$ |
9,668 |
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Cash paid for taxes
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$ |
3 |
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$ |
188 |
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Notes to Consolidated Financial Statements
(Dollars in thousands, except as otherwise noted)
(unaudited)
1. Description of the Business and Basis of Presentation
The accompanying consolidated financial statements of SeaCube Container Leasing Ltd. (the “Company” or “SeaCube”) are unaudited and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial reporting and, in our opinion, reflect all adjustments, including normal recurring items, which are necessary to present fairly the results for interim periods. Operating results for the periods presented are not necessarily indicative of the results that may be expected for the entire year. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been omitted in accordance with the rules and regulations of the SEC; however, we believe that the disclosures are adequate to make information presented not misleading. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2011.
The Company purchases intermodal containers and leases them to shipping and transportation companies, both domestically and internationally. Containers include refrigerated and dry freight containers as well as generator sets, which are leased to shipping line customers through a variety of long-term and short-term contractual leasing arrangements. The Company operates in a single segment.
SeaCube was incorporated by Seacastle Operating Company Ltd. (the “Initial Shareholder” or “Seacastle Operating”) in Bermuda in March 2010. Container Leasing International, LLC (d/b/a SeaCube Containers, LLC), the entity through which we conduct all of our operations (“CLI”), was founded in 1993 and was acquired by an affiliate of the Initial Shareholder in 2006. On October 27, 2010, the SEC declared effective the registration statement relating to the Company’s initial public offering (“IPO”).
New Accounting Pronouncements
Adopted in 2012
In June 2011, the FASB issued Accounting Standards Update No. 2011-05, Presentation of Comprehensive Income (“ASU 2011-05”), which eliminates the option to present other comprehensive income and its components in the statement of shareholders’ equity. The Company may either present the total of comprehensive income, the components of net income, and the components of other comprehensive income in a single continuous statement of comprehensive income or in two separate but consecutive statements. The Company adopted ASU 2011-05 on January 1, 2012 and now presents the components of net income and other comprehensive income in two separate but consecutive statements.
SeaCube Container Leasing Ltd.
Notes to Consolidated Financial Statements (continued)
(Dollars in thousands, except as otherwise noted)
(unaudited)
2. Leasing Activity
Equipment Leasing Revenue
The Company has noncancelable operating leases for its leasing equipment. As of March 31, 2012, future minimum lease revenue under these agreements was estimated as follows:
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2012
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$ |
87,919 |
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2013
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73,863 |
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2014
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62,523 |
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2015
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54,224 |
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2016
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36,206 |
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Thereafter
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58,622 |
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$ |
373,357 |
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Finance Revenue
At March 31, 2012, receivables under these direct finance leases are collectible through 2024 as follows:
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2012
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$ |
134,821 |
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$ |
45,981 |
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$ |
88,840 |
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2013
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172,406 |
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51,075 |
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121,331 |
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2014
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189,694 |
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38,103 |
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151,591 |
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2015
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116,112 |
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26,592 |
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89,520 |
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2016
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80,560 |
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|
19,196 |
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61,364 |
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Thereafter
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|
195,153 |
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36,247 |
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|
158,906 |
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| |
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$ |
888,746 |
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$ |
217,194 |
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$ |
671,552 |
|
The Company does not record an allowance for credit losses associated with direct finance leases. The Company maintains a strong credit performance due to our comprehensive credit underwriting and monitoring in addition to certain attributes of our business including the size and quality of our customers and our ability to recover containers and remarket them in default situations.
As of March 31, 2012 and December 31, 2011, the Company had guaranteed and unguaranteed residual values for leasing equipment on direct finance leases of $116,936 and $113,476, respectively. As of December 31, 2011, the Company had total lease receivables, unearned lease income and net lease receivables of $842,321, $203,073 and $639,248, respectively. The unguaranteed residual values are reflected in the ‘‘Net Lease Receivables’’ above.
SeaCube Container Leasing Ltd.
Notes to Consolidated Financial Statements (continued)
(Dollars in thousands, except as otherwise noted)
(unaudited)
3. Leasing Equipment
The following is a summary of leasing equipment recorded:
| |
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Dry containers
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$ |
332,607 |
|
|
$ |
335,922 |
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Refrigerated containers
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|
564,487 |
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|
562,550 |
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Generator sets
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|
21,984 |
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|
22,466 |
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Total
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|
|
919,078 |
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|
920,938 |
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Less accumulated depreciation
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(180,743 |
) |
|
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(171,993 |
) |
|
Leasing equipment, net of accumulated depreciation
|
|
$ |
738,335 |
|
|
$ |
748,945 |
|
There were no assets recorded under capital leases as of March 31, 2012 and December 31, 2011, respectively.
4. Borrowings
CLI Funding IV Credit Facility
On March 27, 2012, CLI Funding IV LLC, an indirect wholly owned subsidiary of the Company, amended and restated in its entirety its existing credit facility, dated May 18, 2010 (as amended and restated, the “Amended and Restated Credit Agreement”). The Amended and Restated Credit Agreement increases the total commitments of the Lenders available to $300,000 from $200,000 and extends the Scheduled Termination Date to March 27, 2014, from May 9, 2013.
The following is a summary of the Company’s borrowings:
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Container Asset-Backed Securitizations:
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|
Series 2006-1 Notes
|
|
$ |
274,586 |
|
|
$ |
290,128 |
|
|
CLI Funding III Credit Facility
|
|
|
227,201 |
|
|
|
245,153 |
|
|
CLI Funding IV Credit Facility
|
|
|
169,500 |
|
|
|
76,000 |
|
|
CLI Funding V Credit Facility
|
|
|
448,755 |
|
|
|
460,164 |
|
|
Unsecured Term Notes
|
|
|
50,000 |
|
|
|
50,000 |
|
|
Container Revolving Credit Facility
|
|
|
71,000 |
|
|
|
79,000 |
|
|
Total debt
|
|
|
1,241,042 |
|
|
|
1,200,445 |
|
|
Less current maturities
|
|
|
(155,732 |
) |
|
|
(161,171 |
) |
|
Long-term debt, less current maturities
|
|
$ |
1,085,310 |
|
|
$ |
1,039,274 |
|
The Company has debt obligations that are collateralized by the Company’s restricted cash, leasing equipment and net investment in direct finance leases. As of March 31, 2012 and December 31, 2011, assets pledged as collateral on the Company’s debt amounted to $1,432,120 and $1,406,502, respectively.
SeaCube Container Leasing Ltd.
Notes to Consolidated Financial Statements (continued)
(Dollars in thousands, except as otherwise noted)
(unaudited)
5. Derivatives and Hedging Activities
In the normal course of business the Company utilizes interest rate derivatives to manage our exposure to interest rate risks. Specifically, interest rate derivatives are hedging variable rate interest payments on its various debt facilities. If certain conditions are met, an interest rate derivative may be specifically designated as a cash flow hedge. All of the Company’s designated interest rate derivatives are cash flow hedges. For effective cash flow hedges, changes in fair value are recorded in accumulated other comprehensive income (loss) and subsequently reclassified into earnings when the interest payments on the debt are recorded in earnings.
The Company’s interest rate derivatives involve counterparty credit risk. As of March 31, 2012, all of the Company’s interest rate derivatives are held with counterparties or guaranteed by parties with a credit rating of at least A3 by Moody’s. The Company monitors the credit risk associated with these instruments periodically to validate that it is probable that the counterparty (or guarantor) will perform. As of March 31, 2012, the Company does not anticipate that any of these counterparties will fail to meet their obligations. As of March 31, 2012, there are no credit risk related contingent features in any of the Company’s derivative agreements.
The Company held the following interest rate derivatives designated as cash flow hedges as of March 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CLI Funding Series 2006-1
|
|
|
7,917 |
|
|
Feb-2006
|
|
|
Oct-2013
|
|
|
1M LIBOR
|
|
|
4.1450 |
% |
|
|
(267 |
) |
|
CLI Funding Series 2006-1
|
|
|
31,458 |
|
|
Feb-2006
|
|
|
Dec-2013
|
|
|
1M LIBOR
|
|
|
4.2990 |
% |
|
|
(1,226 |
) |
|
CLI Funding Series 2006-1
|
|
|
13,125 |
|
|
Feb-2006
|
|
|
Dec-2013
|
|
|
1M LIBOR
|
|
|
4.9200 |
% |
|
|
(532 |
) |
|
CLI Funding Series 2006-1
|
|
|
131,292 |
|
|
Aug-2006
|
|
|
Jun-2016
|
|
|
1M LIBOR
|
|
|
5.2950 |
% |
|
|
(15,298 |
) |
|
CLI Funding Series 2006-1
|
|
|
43,294 |
|
|
Jan-2009
|
|
|
Aug-2016
|
|
|
1M LIBOR
|
|
|
4.6400 |
% |
|
|
(3,998 |
) |
|
CLI Funding Series 2006-1
|
|
|
47,500 |
|
|
Jan-2009
|
|
|
Aug-2016
|
|
|
1M LIBOR
|
|
|
4.9500 |
% |
|
|
(4,591 |
) |
|
CLI Funding III, LLC
|
|
|
— |
|
|
Jun-2008
|
|
|
Jun-2018
|
|
|
1M LIBOR
|
|
|
5.2900 |
% |
|
|
(51 |
) |
|
CLI Funding III, LLC
|
|
|
12,222 |
|
|
May-2008
|
|
|
Feb-2018
|
|
|
1M LIBOR
|
|
|
4.5200 |
% |
|
|
(1,338 |
) |
|
CLI Funding III, LLC
|
|
|
24,449 |
|
|
May-2008
|
|
|
Jul-2017
|
|
|
1M LIBOR
|
|
|
4.5300 |
% |
|
|
(2,225 |
) |
|
CLI Funding III, LLC
|
|
|
51,991 |
|
|
May-2008
|
|
|
Feb-2018
|
|
|
1M LIBOR
|
|
|
4.2075 |
% |
|
|
(3,524 |
) |
|
CLI Funding III, LLC
|
|
|
3,717 |
|
|
Jul-2008
|
|
|
Jun-2016
|
|
|
1M LIBOR
|
|
|
4.0500 |
% |
|
|
(402 |
) |
|
CLI Funding III, LLC
|
|
|
16,000 |
|
|
Jul-2008
|
|
|
Jul-2017
|
|
|
1M LIBOR
|
|
|
4.1000 |
% |
|
|
(982 |
) |
|
CLI Funding III, LLC
|
|
|
10,050 |
|
|
Jul-2008
|
|
|
Dec-2018
|
|
|
1M LIBOR
|
|
|
3.6420 |
% |
|
|
(138 |
) |
|
CLI Funding III, LLC
|
|
|
36,393 |
|
|
Mar-2010
|
|
|
Nov-2014
|
|
|
1M LIBOR
|
|
|
2.0200 |
% |
|
|
(1,020 |
) |
|
CLI Funding III, LLC
|
|
|
17,852 |
|
|
Jan-2011
|
|
|
May-2017
|
|
|
1M LIBOR
|
|
|
1.6250 |
% |
|
|
(408 |
) |
|
Total interest rate derivatives designated as cash flow hedges
|
|
$ |
447,260 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(36,000 |
) |
|
(a)
|
All interest rate derivatives are recorded in fair value of derivative instruments in the liabilities section of the consolidated balance sheets.
|
SeaCube Container Leasing Ltd.
Notes to Consolidated Financial Statements (continued)
(Dollars in thousands, except as otherwise noted)
(unaudited)
The following tables set forth the net of tax effect of the Company’s cash flow hedge derivative instruments on the consolidated financial statements for the three months ended March 31, 2012 and 2011:
| |
|
For the Three Months Ended March 31, 2012
|
|
| |
|
|
|
|
|
|
|
|
Change in
Unrealized (Gain)
Loss Recognized
in OCI(a)
|
|
Location of (Gain)
Loss reclassified
from Accumulated
OCI into Income
|
|
(Gain) Loss
Reclassified from
Accumulated
OCI into
Income(b)
|
|
Location of
(Gain) Loss
Recognized Directly
in Income
|
|
(Gain) Loss
Recognized
Directly in
Income
|
|
|
Interest rate derivatives
|
|
|
(2,462) |
|
Interest expense
|
|
|
5,412 |
|
Interest expense
|
|
|
(547 |
) |
| |
|
For the Three Months Ended March 31, 2011
|
|
| |
|
|
|
|
|
|
|
|
Change in
Unrealized (Gain)
Loss Recognized
in OCI(a)
|
|
Location of (Gain)
Loss reclassified
from Accumulated
OCI into Income
|
|
(Gain) Loss
Reclassified from
Accumulated
OCI into
Income(b)
|
|
Location of
(Gain) Loss
Recognized Directly
in Income
|
|
(Gain) Loss
Recognized
Directly in
Income
|
|
|
Interest rate derivatives
|
|
|
(2,165 |
) |
Interest expense
|
|
|
6,238 |
|
Interest expense
|
|
|
(1,932 |
) |
|
(a)
|
Represents the change in the fair market value of the Company’s interest rate derivatives, net of tax, offset by the amount of actual cash paid related to the net settlements of the interest rate derivatives.
|
|
(b)
|
Represents the amount of actual cash paid related to the net settlements of the interest rate derivatives and amortization of deferred losses on the Company’s terminated derivatives as follows:
|
| |
|
Three months ended
March 31,
|
| |
|
|
|
|
|
| |
|
|
|
|
|
|
Net settlement of interest rate derivatives
|
|
$ |
4,593 |
|
|
$ |
5,498 |
|
|
Amortization of terminated derivatives
|
|
|
819 |
|
|
|
740 |
|
As of March 31, 2012, the amount of Accumulated OCI related to derivatives was $(30,003). The amount of loss expected to be reclassified from OCI into interest expense over the next 12 months consists of net interest settlements on active interest rate derivatives in the amount of $16,351 and the amortization of deferred net losses on the Company’s terminated derivatives of $2,266.
6. Income Taxes
The consolidated income tax expense for the three months ended March 31, 2012 and 2011 was determined based upon estimates of the Company's consolidated effective income tax rates for the years ending December 31, 2012 and 2011, respectively. The Company’s effective tax rate differs from the U.S. federal tax rate of 35% primarily due to its lower or nontaxed foreign sourced income.
SeaCube Container Leasing Ltd.
Notes to Consolidated Financial Statements (continued)
(Dollars in thousands, except as otherwise noted)
(unaudited)
7. Commitments and Contingencies
Lease Commitments
The Company and its subsidiaries are parties to various operating leases relating to office facilities, transportation vehicles, and certain other equipment with various expiration dates through 2016. All leasing arrangements contain normal leasing terms without unusual purchase options or escalation clauses.
As of March 31, 2012, the aggregate minimum rental commitment under operating leases having initial or remaining noncancelable lease terms in excess of one year was $1,113.
8. Share Based Payments
A summary of the restricted shares under the Company’s incentive plan is as follows:
| |
|
|
|
|
Weighted-average
per share at
grant date
|
|
|
Nonvested at January 1, 2012
|
|
|
231,207 |
|
|
$ |
13.47 |
|
|
Granted
|
|
|
125,000 |
|
|
|
16.68 |
|
|
Vested
|
|
|
(49,283 |
) |
|
|
14.76 |
|
|
Nonvested at March 31, 2012
|
|
|
306,924 |
|
|
$ |
14.57 |
|
The Company recorded compensation expense of $403 and $284 for the three months ended March 31, 2012 and 2011, respectively. Compensation expense is recorded as a component of selling, general and administrative expenses in the Company’s consolidated statements of operations. Total unrecognized compensation cost was approximately $3,969 at March 31, 2012 which is expected to be recognized over the remaining weighted-average vesting period of 2.3 years.
9. Earnings per Share and Dividends
The computation of basic earnings per share is based on the weighted average number of common shares outstanding including participating securities outstanding during the period. Diluted EPS is calculated by dividing Net income (loss) by the weighted average number of common shares outstanding during the period while also giving effect to all potentially dilutive common shares based on the treasury stock method.
In accordance with the Earnings per Share Topic, any unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of EPS pursuant to the two-class method. Accordingly, all of the Company’s restricted common shares are participating securities.
| |
|
Three months ended
March 31,
|
|
| |
|
|
|
|
|
|
|
Weighted-average shares:
|
|
|
|
|
|
|
|
Common shares outstanding
|
|
|
19,981,435 |
|
|
|
19,902,152 |
|
|
Restricted common shares
|
|
|
232,748 |
|
|
|
177,646 |
|
|
Total weighted-average shares
|
|
|
20,214,183 |
|
|
|
20,079,798 |
|
SeaCube Container Leasing Ltd.
Notes to Consolidated Financial Statements (continued)
(Dollars in thousands, except as otherwise noted)
(unaudited)
The calculation for basic and diluted earnings per share is as follows:
| |
|
Three months ended
March 31,
|
|
| |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
Net income
|
|
$ |
11,315 |
|
|
$ |
10,124 |
|
|
Less: Undistributed earnings allocated to restricted shareholders
|
|
|
(130 |
) |
|
|
(90 |
) |
|
Income attributable to common shareholders
|
|
$ |
11,185 |
|
|
$ |
10,034 |
|
|
Income per share attributable to common shareholders:
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.56 |
|
|
$ |
0.50 |
|
|
Diluted
|
|
$ |
0.56 |
|
|
$ |
0.50 |
|
There were no potentially dilutive common shares for any period in these consolidated financial statements.
On February 29, 2012, the Company’s Board of Directors approved and declared a $0.26 per share cash dividend on its issued and outstanding common shares, payable on March 20, 2012 to shareholders of record at the close of business on March 13, 2012.
10. Geographic Information
The Company’s customers use containers to conduct their global trading operations which utilize a vast network of worldwide trade routes. The Company earns its revenues from such customers when the equipment is in use carrying cargo around the world. Substantially all of the Company’s revenues are denominated in U.S. dollars. The following table represents the allocation of domestic and international revenues for the periods indicated based upon the customers’ primary domicile. As all of the Company’s containers are used internationally and not domiciled in one particular place for a prolonged period of time, these assets are considered to be international.
| |
|
Three Months Ended March 31,
|
|
|
Total revenues
|
|
|
|
|
|
|
|
Asia
|
|
$ |
21,059 |
|
|
$ |
12,321 |
|
|
Australia/New Zealand
|
|
|
110 |
|
|
|
156 |
|
|
Europe/Africa/Middle East
|
|
|
17,247 |
|
|
|
13,335 |
|
|
North America
|
|
|
4,168 |
|
|
|
4,820 |
|
|
South America
|
|
|
6,438 |
|
|
|
6,189 |
|
| |
|
$ |
49,022 |
|
|
$ |
36,821 |
|
SeaCube Container Leasing Ltd.
Notes to Consolidated Financial Statements (continued)
(Dollars in thousands, except as otherwise noted)
(unaudited)
11. Related Party Transactions
Shareholder Note and Dividend
In August 2010, the Company distributed $3.75 million to the Initial Shareholder in the form of a loan which was used to make interest and principal payments on Seacastle’s Credit Facility. In September 2010, the Company distributed $4.4 million to the Initial Shareholder in the form of a loan which was used to make interest and principal payments and pay fees on Seacastle’s Credit Facility. The loans have an annual interest rate of 3% and are payable in full upon maturity in 2015. Interest income earned from this note was $64 and $61 for the three months ended March 31, 2012 and 2011, respectively.
12. Fair Value of Financial Instruments
The following tables set forth the valuation of the Company’s financial assets and liabilities measured at fair value on a recurring basis by input levels as of March 31, 2012 and December 31, 2011:
| |
|
Fair Value
as of
March 31,
|
|
|
Fair Value Measurement as of
March 31, 2012 Using
Fair Value Hierarchy
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
$ |
32,659 |
|
|
$ |
32,659 |
|
|
$ |
— |
|
|
$ |
— |
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments
|
|
|
36,000 |
|
|
|
— |
|
|
|
36,000 |
|
|
|
— |
|
| |
|
Fair Value
as of
December 31,
|
|
|
Fair Value Measurement as of
December 31, 2011 Using
Fair Value Hierarchy
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
$ |
29,649 |
|
|
$ |
29,649 |
|
|
|
— |
|
|
|
— |
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments
|
|
|
38,750 |
|
|
|
— |
|
|
|
38,750 |
|
|
|
— |
|
Restricted cash: Restricted cash consists of cash that is held by the Company for security deposits received from lessees pursuant to the terms of various lease agreements and rent collections held in lockbox accounts pursuant to the Company’s credit facilities and securitization agreements.
Derivative instruments: The Company’s interest rate derivatives are recorded at fair value on the Company’s Consolidated Balance Sheets and consist of United States dollar denominated LIBOR-based interest rate derivatives, and their fair values are determined using cash flows discounted at relevant market interest rates in effect at the period close. The fair value generally reflects the estimated amounts that the Company would receive or pay to transfer the contracts at the reporting date and therefore reflects the Company’s or counterparty’s non-performance risk.
Leasing assets held for sale are measured at fair value on a non-recurring basis. The fair value is calculated using the income approach based on inputs classified as level 2 in the fair value hierarchy. There were no other assets and liabilities measured at fair value on a nonrecurring basis.
SeaCube Container Leasing Ltd.
Notes to Consolidated Financial Statements (concluded)
(Dollars in thousands, except as otherwise noted)
(unaudited)
The Company’s financial instruments, other than cash, consist principally of cash equivalents, restricted cash, accounts receivable, accounts payable, debt and interest rate derivatives. The fair value of cash and cash equivalents, restricted cash, accounts receivable and accounts payable approximates the carrying value of these financial instruments because of their short-term nature. The fair values of our debt are estimated using a discounted cash flow analysis, based on our current incremental borrowing rates for similar types of borrowing arrangements.
The carrying amounts and fair values of the Company’s financial instruments are as follows:
| |
|
|
|
|
December 31, 2011 |
|
|
| |
|
Carrying
Amount of Asset
(Liability)
|
|
|
|
Fair Value
|
|
|
Carrying
Amount of Asset
(Liability)
|
|
|
Fair Value
of Asset
(Liability)
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$ |
(1,241,042 |
) |
|
$ |
(1,266,724 |
) |
|
$ |
(1,200,445 |
) |
|
$ |
(1,206,707 |
) |
|
Derivative Instrument
|
|
|
(36,000 |
) |
|
|
(36,000 |
) |
|
|
(38,750 |
) |
|
|
(38,750 |
) |
13. Subsequent Events
Dividend
On May 7, 2012, the Company’s Board of Directors approved and declared a $0.28 per share cash dividend on its issued and outstanding common stock, payable on June 14, 2012 to shareholders of record at the close of business on June 7, 2012.
The Company has evaluated all significant activities through the time of filing these financial statements with the SEC and has concluded that no additional subsequent events have occurred that would require recognition in the consolidated financial statements or disclosure in the notes to the consolidated financial statements.
This management’s discussion and analysis of financial condition and results of operations contains forward-looking statements that involve risks and uncertainties. You should read the following discussion in conjunction with our historical consolidated financial statements included in this Form 10-Q and our annual audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. The results of operations for the periods reflected herein are not necessarily indicative of results that may be expected for future periods, and our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including but not limited to those listed under ‘‘Risk Factors’’ included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.
Overview
SeaCube Container Leasing Ltd (“SeaCube” or “the Company”) is one of the world’s largest container leasing companies based on total assets. Containers are the primary means by which products are shipped internationally because they facilitate efficient movement of goods via multiple transportation modes including ships, rail and trucks. The principal activities of our business include the acquisition, leasing, re-leasing and subsequent sale of refrigerated and dry containers and generator sets. The Company leases our containers primarily under long-term contracts to a diverse group of the world’s leading shipping lines. As of March 31, 2012, we employ 77 people in seven offices worldwide and have total assets of 1.6 billion.
As of March 31, 2012, we own or manage a fleet of 580,379 units, representing 914,313 TEUs of containers and generator sets. For the three months ended March 31, 2012, our average utilization was 97.7%, as measured in units.
We lease three types of assets:
●Refrigerated containers (‘‘reefers’’), which are used for perishable items such as fresh and frozen foods;
●Dry freight containers, which are used for general cargo such as manufactured component parts, consumer staples and apparel; and
●Generator sets (‘‘gensets’’), which are diesel generators used to provide mobile power to reefers.
We lease these assets on a per diem basis on two principal lease types under which the lessee is responsible for all operating costs including taxes, insurance and maintenance:
●Operating leases, typically with initial terms of five to eight years, under which containers are re-leased or returned to us at expiration of the initial lease; and
●Direct finance leases, which are typically structured as long-term leases with a bargain purchase option, under which ownership transfers to the lessee at expiration of the lease.
The tables below summarize the composition of our fleet by unit and TEU as of March 31, 2012:
|
Equipment Fleet by Units
|
|
| |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
|
37,113 |
|
|
|
104,876 |
|
|
|
2,562 |
|
|
|
144,551 |
|
|
Direct Finance Leases
|
|
|
21,529 |
|
|
|
253,179 |
|
|
|
2,543 |
|
|
|
277,251 |
|
|
Total Owned
|
|
|
58,642 |
|
|
|
358,055 |
|
|
|
5,105 |
|
|
|
421,802 |
|
|
Managed
|
|
|
25,862 |
|
|
|
131,354 |
|
|
|
1,361 |
|
|
|
158,577 |
|
|
Total Fleet
|
|
|
84,504 |
|
|
|
489,409 |
|
|
|
6,466 |
|
|
|
580,379 |
|
|
Equipment Fleet by TEUs
|
|
| |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
|
68,279 |
|
|
|
164,161 |
|
|
|
2,562 |
|
|
|
235,002 |
|
|
Direct Finance Leases
|
|
|
41,512 |
|
|
|
392,215 |
|
|
|
2,543 |
|
|
|
436,270 |
|
|
Total Owned
|
|
|
109,791 |
|
|
|
556,376 |
|
|
|
5,105 |
|
|
|
671,272 |
|
|
Managed
|
|
|
48,590 |
|
|
|
193,090 |
|
|
|
1,361 |
|
|
|
243,041 |
|
|
Total Fleet
|
|
|
158,381 |
|
|
|
749,466 |
|
|
|
6,466 |
|
|
|
914,313 |
|
The table below summarizes the composition of our owned fleet by net book value as of March 31, 2012:
|
Container Fleet by Net Book Value
|
|
| |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
$ |
414,928 |
|
|
$ |
311,454 |
|
|
$ |
11,953 |
|
|
$ |
738,335 |
|
|
Direct Finance Leases
|
|
|
208,788 |
|
|
|
448,546 |
|
|
|
14,218 |
|
|
|
671,552 |
|
|
Total Fleet
|
|
$ |
623,716 |
|
|
$ |
760,000 |
|
|
$ |
26,171 |
|
|
$ |
1,409,887 |
|
Results of Operations
Comparison of the Three Months Ended March 31, 2012 to the Three Months Ended March 31, 2011
| |
|
Three Months
Ended
|
|
|
Three Months
Ended
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
(dollars in thousands)
|
|
|
Equipment leasing revenue
|
|
$ |
29,930 |
|
|
$ |
21,765 |
|
|
$ |
8,165 |
|
|
|
38 |
% |
|
Finance revenue
|
|
|
16,283 |
|
|
|
12,625 |
|
|
|
3,658 |
|
|
|
29 |
% |
|
Other revenue
|
|
|
2,809 |
|
|
|
2,431 |
|
|
|
378 |
|
|
|
16 |
% |
|
Total revenues
|
|
$ |
49,022 |
|
|
$ |
36,821 |
|
|
$ |
12,201 |
|
|
|
33 |
% |
Revenue
Total revenue was $49.0 million for the three months ended March 31, 2012 compared to $36.8 million for the three months ended March 31, 2011, an increase of $12.2 million or 33%.
Equipment leasing revenue was $29.9 million for the three months ended March 31, 2012 compared to $21.8 million for the three months ended March 31, 2011, an increase of $8.2 million or 38%. This was primarily due to the average on-hire fleet increasing by 47,100 units.
Finance revenue was $16.3 million for the three months ended March 31, 2012 compared to $12.6 million for the three months ended March 31, 2011, an increase of $3.7 million or 29%. The increase was the result of new investments that were made in excess of the amortization of the current lease portfolio.
Other revenue, which includes management fee revenues and re-billable costs to our lessees, was $2.8 million for the three months ended March 31, 2012 compared to $2.4 million for the three months ended March 31, 2011, an increase of $0.4 million or 16%. This increase was attributable to higher rebillable costs of $0.5 million, which was partially offset by lower management fee revenues of $0.1 million.
| |
|
Three Months
Ended
|
|
|
Three Months
Ended
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
(dollars in thousands)
|
|
|
Direct operating expenses
|
|
$ |
1,395 |
|
|
$ |
979 |
|
|
$ |
416 |
|
|
|
42 |
% |
|
Selling, general and administrative expenses
|
|
|
6,103 |
|
|
|
5,894 |
|
|
|
209 |
|
|
|
4 |
% |
|
Depreciation expenses
|
|
|
12,910 |
|
|
|
9,904 |
|
|
|
3,006 |
|
|
|
30 |
% |
|
Provision for doubtful accounts
|
|
|
535 |
|
|
|
— |
|
|
|
535 |
|
|
|
* |
|
|
Impairment of leasing equipment held for sale
|
|
|
849 |
|
|
|
196 |
|
|
|
653 |
|
|
|
* |
|
|
Total
|
|
$ |
21,792 |
|
|
$ |
16,973 |
|
|
$ |
4,819 |
|
|
|
28 |
% |
Direct Operating Expenses
Direct operating expenses were $1.4 million for the three months ended March 31, 2012, compared to $1.0 million for the three months ended March 31, 2011, an increase of $0.4 million or 42%. During the current year period, more containers were returned upon the completion of their lease than in the prior year period resulting in higher positioning as well as maintenance and repair costs.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $6.1 million for the three months ended March 31, 2012, compared to $5.9 million for the three months ended March 31, 2011, an increase of $0.2 million or 4%. This is primarily due to merit increases and higher incentive compensation expense in the current period.
Depreciation Expenses
Depreciation of leasing equipment was $12.9 million for the three months ended March 31, 2012 compared to $9.9 million for three months ended March 31, 2011, an increase of $3.0 million or 30%. Depreciation on new additions net of disposals and sales accounted for an increase of $3.2 million, which was partially offset by a decrease of $0.2 million due to equipment reaching the end of their depreciable lives.
Provision for Doubtful Accounts
Provision for doubtful accounts was $0.5 million for the three months ended March 31, 2012 compared to $0.0 million for three months ended March 31, 2011. In the prior year period, we had no bad debt expense. In the current quarter, we increased our provision for doubtful accounts to reserve for a few small customers.
Impairment of Leasing Equipment Held for Sale
We recorded an impairment of leasing equipment held for sale of $0.8 million for the three months ended March 31, 2012, compared to $0.2 million for the three months ended March 31, 2011, an increase of $0.7 million. We evaluate the recovery of our containers and gensets designated for sale and record a loss if the ultimate sales value is expected to be below the current carrying cost. The majority of our impairments occur at the conclusion of an operating lease when our equipment is older and has incurred a certain amount of damage that the lessee is responsible for. These impairments do not include amounts that we recover from lessees to return containers to leasable condition, in accordance with industry standards. We bill our lessees for the cost to repair equipment to this industry standard even if we do not repair the container. This revenue is recorded as Other Revenue and does not offset impairment losses. In the current year period, we had more containers returned and sold upon the completion of their lease term.
| |
|
Three Months
Ended
|
|
|
Three Months
Ended
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
(dollars in thousands)
|
|
|
Interest expense
|
|
$ |
16,723 |
|
|
$ |
9,350 |
|
|
$ |
7,373 |
|
|
|
79 |
% |
|
Interest income
|
|
|
(69 |
) |
|
|
(74 |
) |
|
|
5 |
|
|
|
* |
|
|
Other expenses (income), net
|
|
|
(559 |
) |
|
|
367 |
|
|
|
(926 |
) |
|
|
* |
|
|
Total
|
|
$ |
16,095 |
|
|
$ |
9,643 |
|
|
$ |
6,452 |
|
|
|
67 |
% |
Interest Expense
Interest expense was $16.7 million for the three months ended March 31, 2012, compared to $9.4 million for the three months ended March 31, 2011, an increase of $7.4 million or 79%. Our weighted average debt balance for the three months ended March 31, 2012 increased by approximately $419 million due to our investment in new containers, resulting in a $5.4 million increase in interest cost. In addition, non-cash interest expense increased in the current period by $2.0 million which included higher amortization of deferred financing fees of $0.5 million, a decrease in gains recognized directly into income for ineffective derivatives of $1.4 million and higher amortization of terminated derivatives of $0.1 million.
Interest Income
Interest income was $0.1 million for both the three months ended March 31, 2012 and 2011.
Other Expense (Income), Net
Other expense (income), net was $(0.6) million for the three months ended March 31, 2012, compared to $0.4 million for the three months ended March 31, 2011. This is attributable to higher gains on the sale of equipment in the current year period due to more containers being returned and sold upon the completion of leases.
| |
|
Three Months
Ended
|
|
|
Three Months
Ended
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
(dollars in thousands)
|
|
|
Provision (benefit) for income taxes
|
|
$ |
(180 |
) |
|
$ |
81 |
|
|
|
(261 |
) |
|
|
* |
|
Provision (benefit) for income taxes was $(0.2) million for the three months ended March 31, 2012 compared to $0.1 million for the three months ended March 31, 2011. The change in the effective tax rate is primarily attributable to the impact of the U.S. effectively connected income tax liability on the overall provision calculation.
| |
|
Three Months
Ended
|
|
|
Three Months
Ended
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
(dollars in thousands)
|
|
|
Net income
|
|
$ |
11,315 |
|
|
$ |
10,124 |
|
|
$ |
1,191 |
|
|
|
12 |
% |
|
Adjusted net income**
|
|
$ |
12,465 |
|
|
$ |
9,274 |
|
|
$ |
3,191 |
|
|
|
34 |
% |
|
Adjusted EBITDA**
|
|
$ |
70,533 |
|
|
$ |
52,861 |
|
|
$ |
17,672 |
|
|
|
33 |
% |
|
**
|
Adjusted net income and adjusted EBITDA are measures of financial and operational performance that are not defined by U.S. GAAP. See “Non-GAAP Measures” for the discussion of adjusted net income and adjusted EBITDA as a non-GAAP measures and their reconciliation to net income (loss).
|
Net Income
Net income was $11.3 million for the three months ended March 31, 2012 as compared to $10.1 million for the three months ended March 31, 2011. The increase in net income was attributable to the items above.
Adjusted Net Income
Adjusted net income was $12.5 million for the three months ended March 31, 2012 compared to $9.3 million for the three months ended March 31, 2011, an increase of $3.2 million or 34%. In addition to the changes in net income noted above, the three months ended March 31, 2012, includes an increase in the non-cash interest expense of $2.0 million, which is excluded from the adjusted net income calculation.
Adjusted EBITDA
Adjusted EBITDA was $70.5 million for the three months ended March 31, 2012 compared to $52.9 million for the three months ended March 31, 2011, an increase of $17.7 million or 33%. In addition to the changes in net income noted above, the three months ended March 31, 2012, includes higher depreciation of $3.0 million and higher interest expense of $7.4 million, which are excluded from the adjusted EBITDA calculation. In addition, the current year period had higher collections on investments in direct financing leases of $6.4 million.
Liquidity and Capital Resources
We have historically met our liquidity requirements primarily from the following sources:
|
|
●
|
Revenues including operating lease revenues, total finance lease collections, billings to lessors for repairs and maintenance, and asset management fees. Cash flows from operating activities and principal collections on finance leases were $55.6 million and $51.6 million for the three months ended March 31, 2012 and 2011, respectively.
|
|
|
●
|
Lines of credit and other secured borrowings, under which $1,241.0 million was outstanding and $179.5 million was available as of March 31, 2012.
|
|
|
●
|
Sales of our older leasing equipment, which was $5.2 million and $3.5 million for the three months ended March 31, 2012 and 2011, respectively.
|
We expect that our cash flows from our operations, principal collections on direct finance leases, existing credit facilities and sales of older equipment will be sufficient to meet our liquidity needs. Our current projections of cash flows from operations and the availability of funds under our revolving credit agreement are expected to be sufficient to fund our maturing debt and contractual obligations in the next several years. In the future, we will need to borrow funds to finance the purchases of new assets we intend to buy to expand our business.
On March 27, 2012, CLI Funding IV LLC, an indirect wholly owned subsidiary of the Company, amended and restated in its entirety its existing credit facility, dated May 18, 2010 (as amended and restated, the “Amended and Restated Credit Agreement”). The Amended and Restated Credit Agreement increases the total commitments of the Lenders available to $300 million from $200 million and extends the Scheduled Termination Date to March 27, 2014, from May 9, 2013. We will use the net proceeds of the offering for container purchases and other general business purposes.
Liquidity Needs to Acquire Equipment to be Leased
The acquisition of leasing assets fuels our growth. As a result, we expect to invest substantial funds to acquire containers and gensets, although there can be no assurances as to the timing and amount of such acquisitions. Going forward, provided there is sufficient demand, production capacity, appropriate pricing and available financing, we intend to invest in new containers at a level that is consistent with our historical investment activity. As of April 30, 2012, SeaCube has ordered approximately $240.8 million of new equipment for delivery through September 2012. Of this amount, approximately $153.1 million, or 64%, has been committed to long-term leases.
Cash Flow
The following table sets forth certain historical cash flow information for the three months ended March 31, 2012 and 2011.
|
|
|
Three Months
Ended
March 31, 2012
|
|
|
Three Months
Ended
March 31, 2011
|
|
| |
|
(dollars in thousands)
|
|
|
Net cash provided by operating activities
|
|
$ |
25,776 |
|
|
$ |
28,151 |
|
|
Net cash provided by (used in) investing activities
|
|
|
(54,351 |
) |
|
|
(138,633 |
) |
|
Net cash provided by (used in) financing activities
|
|
|
34,304 |
|
|
|
117,260 |
|
|
Effect of changes in exchange rates on cash and cash equivalents
|
|
|
9 |
|
|
|
30 |
|
|
Net increase (decrease) in cash and cash equivalents
|
|
$ |
5,738 |
|
|
$ |
6,808 |
|
Net cash provided by operating activities was $25.8 million and $28.2 million for the three months ended March 31, 2012 and 2011, respectively, a $2.4 million decrease. The decrease was primarily the result of a modest working capital increase in the current period offset by an increase in profitability.
Net cash provided by (used in) investing activities was $(54.4) million and $(138.6) million for the three months ended March 31, 2012 and 2011, respectively, a $84.3 million increase to cash flow. The primary driver of the increase is the timing of purchases of leased equipment as well as investment in direct finance leases. Our restricted cash balances increased by $3.0 million in the three months ended March 31, 2012 versus $25.2 million in the three months ended March 31, 2011. In addition, we had higher collections on net investment in direct finance leases and higher proceeds from the sale of leasing equipment of $6.4 million and $1.7 million, respectively.
Net cash provided by (used in) financing activities was $34.3 million and $117.3 million for the three months ended March 31, 2012 and 2011, respectively, a decrease of $83.0 million to cash flow. During the current period, the proceeds of long-term debt (net of payments) decreased by $85.6 million versus the prior period. This is primarily attributable to higher proceeds in the prior year period from the Series 2011-1 Notes. In conjunction with the closing of the Series 2011-1 Notes and the repayment of the borrowings under CLIF IV in the prior year period, we incurred debt issuance costs of $3.8 million and paid $0.7 million, which represented the fair value of the derivative on the CLIF IV borrowings. These increases to cash flow were partially offset by higher dividends paid during the three months ended March 31, 2012 of $1.3 million.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of March 31, 2012.
Non-GAAP Measures
Adjusted Net Income
Adjusted net income is a measure of financial and operating performance that is not defined by U.S. GAAP and should not be considered a substitute for net income, income from operations or cash flow from operations, as determined in accordance with U.S. GAAP. Adjusted net income is a measure of our operating and financial performance used by management to focus on consolidated financial and operating performance exclusive of income and expenses that relate to non-routine or significant non-cash items of the business.
We define adjusted net income (loss) as net income before non-cash interest expense related to terminations and modifications of derivative instruments, losses on retirement of debt, fair value adjustments on derivative instruments, loss on swap terminations, and write-offs of goodwill. We use adjusted net income to assess our consolidated financial and operating performance, and we believe this non-GAAP measure is helpful to management and investors in identifying trends in our performance. This measure helps management make decisions which are expected to facilitate meeting current financial goals as well as achieve optimal financial performance. Adjusted net income provides us with a measure of financial performance of the business based on operational factors including the profitability of assets on an economic basis net of operating expenses and the capital costs of the business on a consistent basis as it removes the impact of certain non-routine and non-cash items from our operating results. Adjusted net income is a key metric used by senior management and our board of directors to review the consolidated financial performance of the business.
The following table shows the reconciliation of net income, the most directly comparable U.S. GAAP measure to adjusted net income:
| |
|
Three Months Ended March 31,
|
|
| |
|
|
|
|
|
|
|
Net income
|
|
$ |
11,315 |
|
|
$ |
10,124 |
|
|
Non-cash interest expense, net of tax
|
|
|
1,150 |
|
|
|
(850 |
) |
|
Adjusted net income
|
|
$ |
12,465 |
|
|
$ |
9,274 |
|
Adjusted EBITDA
Adjusted earnings before interest, taxes, depreciation and amortization (“adjusted EBITDA”) is a measure of financial and operating performance that is not defined by U.S. GAAP and should not be considered a substitute for net income, income from operations or cash flow from operations, as determined in accordance with U.S. GAAP.
We define adjusted EBITDA as income (loss) from continuing operations before income taxes, interest expenses including loss on retirement of debt, depreciation and amortization, fair value adjustments on derivative instruments, loss on terminations and modification of derivative instruments, gain on sale of assets, and write-offs of goodwill plus principal collections on direct finance lease receivables. SeaCube has presented adjusted EBITDA as a supplemental financial measure as a means to evaluate performance of the Company’s business. SeaCube believes that, when viewed with GAAP results and the accompanying reconciliation, it provides a more complete understanding of factors and trends affecting the Company’s business than the GAAP results alone.
The following table shows the reconciliation of net income, the most directly comparable U.S. GAAP measure to adjusted EBITDA:
SeaCube Container Leasing Ltd.
Non-GAAP Reconciliation of Adjusted EBITDA
(Amounts in thousands)
(unaudited)
| |
|
Three months ended March 31,
|
|
| |
|
|
|
|
|
|
|
Net income
|
|
$ |
11,315 |
|
|
$ |
10,124 |
|
|
Provision (benefit) for income taxes
|
|
|
(180 |
) |
|
|
81 |
|
|
Depreciation expenses
|
|
|
12,910 |
|
|
|
9,904 |
|
|
Interest expense, net of interest income
|
|
|
16,654 |
|
|
|
9,276 |
|
|
Collections on net investment in direct financing leases, net of interest earned
|
|
|
29,834 |
|
|
|
23,476 |
|
|
Adjusted EBITDA
|
|
$ |
70,533 |
|
|
$ |
52,861 |
|
New Accounting Pronouncements
Adopted in 2012
In June 2011, the FASB issued Accounting Standards Update No. 2011-05, Presentation of Comprehensive Income (“ASU 2011-05”), which eliminates the option to present other comprehensive income and its components in the statement of shareholders’ equity. The Company may either present the total of comprehensive income, the components of net income, and the components of other comprehensive income in a single continuous statement of comprehensive income or in two separate but consecutive statements. The Company adopted ASU 2011-05 on January 1, 2012 and now presents the components of net income and other comprehensive income in two separate but consecutive statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
While our leasing per diems are billed and paid to us in U.S. dollars, we are subject to exchange gains and losses for local currency expenditures. We record the effect of non-U.S. dollar currency transactions when we translate the non-U.S. subsidiaries’ financial statements into U.S. dollars using exchange rates as they exist at the end of each month.
We have long-term debt obligations that accrue interest at variable rates. Interest rate changes may therefore impact the amount of interest payments, future earnings and cash flows. We have entered into interest rate swap agreements to mitigate the impact of changes in interest rates that may result from fluctuations in the variable rates of interest accrued by our long-term debt obligations. Based on the debt obligation payable as of March 31, 2012, we estimate that cash flows from interest expense relating to variable rate debt and the relevant interest rate swap agreement would increase by $0.07 million on an annual basis in the event interest rates were to increase by 10%.
We are subject to concentrations of credit risk with respect to amounts due from customers. We seek to limit our credit risk by performing ongoing credit evaluations and, when deemed necessary, require letters of credit, guarantees or collateral. Our credit policy sets different maximum exposure guidelines for each customer. Credit criteria may include, but are not limited to, customer trade route, country, social and political climate, assessments of net worth, asset ownership, bank and trade credit references, credit bureau reports, operational history and financial strength.
We seek to reduce credit risk by maintaining insurance coverage against customer insolvency and related equipment losses. We maintain contingent physical damage, recovery and loss of revenue insurance, which provides coverage in the event of a customer’s insolvency, bankruptcy or default giving rise to our demand for return of all of our equipment. Subject to the policy’s deductible and other terms and conditions, it covers the cost of recovering our equipment, damage to the equipment, loss of equipment and, to a limited extent, lost revenues. This coverage automatically renews for one additional one-year term on the anniversary of the commencement date subject to maintaining a certain claim experience rate.
Our hedging transactions using derivative instruments have counterparty credit risk. The counterparties to our derivative arrangements and repurchase agreements are major financial institutions with high credit ratings. As a result, we do not anticipate that any of these counterparties will fail to meet their obligations. However, there can be no assurance that we will be able to adequately protect against this risk and will ultimately realize an economic benefit from our hedging strategies or recover the full value of the securities underlying our repurchase agreements in the event of a default by a counterparty.
|
|
Provision for Doubtful Accounts
|
The provision for doubtful accounts includes our estimate of allowances necessary for receivables on both operating and direct financing lease receivables. The provision for doubtful accounts is developed based on two key components (1) specific reserves for receivables which are impaired for which management believes full collection is doubtful and (2) reserves for estimated losses inherent in the receivables based upon historical trends. We believe our provision for doubtful accounts is adequate to provide for credit losses inherent in our accounts receivable. The provision for doubtful accounts requires the application of estimates and judgments as to the outcome of collection efforts and the realization of collateral, among other things. In addition, changes in economic conditions or other events may necessitate additions or deductions to the provision for doubtful accounts. Direct financing leases are evaluated on a case-by-case basis. When evaluating our operating and direct financing lease receivables for impairment, we consider, among other things, the level of past due amounts of the respective receivable, the borrower’s financial condition, credit quality indicators of the borrower, the value of underlying collateral and third party credit enhancements such as guarantees and insurance policies. Once a direct financing lease is determined to be non-performing, our procedures provide for the following events to take place in order to evaluate collectability:
|
|
●
|
The past due amounts are reclassified to accounts receivable,
|
|
|
●
|
The equipment value supporting such direct financing lease is reclassified to leasing equipment, and
|
|
|
●
|
Collectability is evaluated, taking into consideration equipment book value and the total outstanding receivable, as well as the likelihood of collection through the recovery of equipment.
|
The adequacy of our provision for doubtful accounts is provided based upon a monthly review of the collectability of our receivables. This review is based on the risk profile of the receivables, credit quality indicators such as the level of past-due amounts and economic conditions, as well as the value of underlying collateral in the case of direct financing lease receivables.
(a) Disclosure Controls and Procedures.
The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of March 31, 2012. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of March 31, 2012, the Company’s disclosure controls and procedures are effective at the reasonable assurance level.
(b) Changes in Internal Control Over Financial Reporting.
There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
We have been, and may from time to time be, involved in litigation and claims incidental to the conduct of our business in the ordinary course. Our industry is also subject to scrutiny by government regulators, which could result in enforcement proceedings or litigation related to regulatory compliance matters. We maintain insurance policies in amounts and with the coverage and deductibles we believe are adequate, based on the nature and risks of our business, historical experience and industry standards. As of the date of this Form 10-Q, we are not a party to any material legal or adverse regulatory proceedings.
In addition to the information set forth in this Form 10-Q, you should carefully consider the risk factors described under the caption "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2011. As of the date of this Form 10-Q, there have been no significant changes from the risk factors previously disclosed therein.
|
|
Unregistered Sales of Equity Securities and Use of Proceeds
|
NONE
|
|
Defaults Upon Senior Securities
|
NONE
NONE
NONE
|
|
|
|
|
10.24
|
|
Amended and Restated Credit Agreement, dated March 27, 2012 between CLI Funding IV LLC and Wells Fargo Bank, National Association, Deutsche Bank Trust Company America and other lenders from time to time and Wells Fargo Securities, LLC, as Administrative Agent (incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed with the SEC on March 27, 2012).
|
| |
|
|
|
31.1
|
|
Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
| |
|
|
|
31.2
|
|
Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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32.1
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Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
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32.2
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Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
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101.INS
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XBRL Instance Document.
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101.SCH
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XBRL Taxonomy Extension Schema Document.
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101.CAL
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XBRL Taxonomy Extension Calculation Linkbase Document.
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101.DEF
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XBRL Taxonomy Extension Definition Linkbase Document.
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101.LAB
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XBRL Taxonomy Extension Label Linkbase Document.
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101.PRE
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XBRL Taxonomy Extension Presentation Linkbase Document.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned there unto duly authorized.
Date: May 8, 2012
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SEACUBE CONTAINER LEASING LTD.
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Registrant
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By:
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/s/Stephen P. Bishop
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Stephen P. Bishop
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Chief Operating and Chief Financial Officer
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(Principal Financial and Accounting Officer and
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Duly Authorized Officer)
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-26-