| |
|
|
|
|
|
|
|
Dry containers
|
|
$ |
449,619 |
|
|
$ |
335,922 |
|
|
Refrigerated containers
|
|
|
542,926 |
|
|
|
562,550 |
|
|
Generator sets
|
|
|
21,557 |
|
|
|
22,466 |
|
|
Total
|
|
|
1,014,102 |
|
|
|
920,938 |
|
|
Less accumulated depreciation
|
|
|
(166,319 |
) |
|
|
(171,993 |
) |
|
Leasing equipment, net of accumulated depreciation
|
|
$ |
847,783 |
|
|
$ |
748,945 |
|
There were no assets recorded under capital leases as of September 30, 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 million from $200 million and extends the Scheduled Termination Date to March 27, 2014, from May 9, 2013.
CLI Funding V Credit Facility
On June 21, 2012, CLI Funding V LLC ("CLIF V"), an indirect wholly owned subsidiary of the Company, completed the offering of $225 million aggregate principal amount of Series 2012-1 Fixed Rate Secured Notes ("Series 2012-1 Notes"). The Series 2012-1 Notes were issued with an annual interest rate of 4.21%, have a scheduled maturity date of December 18, 2022 and a legal final maturity date of June 18, 2027. The transaction documents contain customary affirmative and negative covenants, financial covenants, representations and warranties, and events of default, which are subject to various exceptions and qualifications.
Container Revolving Credit Facility
On June 27, 2012, CLI amended and restated its existing revolving credit agreement, dated November 3, 2010 (as amended and restated, the “Fifth Amended and Restated Revolving Credit Agreement”). The Fifth Amended and Restated Revolving Credit Agreement (i) increases the total commitments of the lenders available to CLI to $150 million from $120 million; and (ii) extends the Maturity Date (as defined therein) to June 27, 2015, from November 3, 2013.
SeaCube Container Leasing Ltd.
Notes to Consolidated Financial Statements (continued)
(Dollars in thousands, except as otherwise noted)
(unaudited)
The following is a summary of the Company’s borrowings:
| |
|
|
|
|
|
|
|
Container Asset-Backed Securitizations:
|
|
|
|
|
|
|
|
Series 2006-1 Notes
|
|
$ |
243,501 |
|
|
$ |
290,128 |
|
|
CLI Funding III Credit Facility
|
|
|
190,205 |
|
|
|
245,153 |
|
|
CLI Funding IV Credit Facility
|
|
|
90,000 |
|
|
|
76,000 |
|
|
CLI Funding V Credit Facility
|
|
|
644,260 |
|
|
|
460,164 |
|
|
Unsecured Term Notes
|
|
|
50,000 |
|
|
|
50,000 |
|
|
Container Revolving Credit Facility
|
|
|
64,000 |
|
|
|
79,000 |
|
|
Total debt
|
|
|
1,281,966 |
|
|
|
1,200,445 |
|
|
Less current maturities
|
|
|
(181,411 |
) |
|
|
(161,171 |
) |
|
Long-term debt, less current maturities
|
|
$ |
1,100,555 |
|
|
$ |
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 September 30, 2012 and December 31, 2011, assets pledged as collateral on the Company’s debt amounted to $1,527,225 and $1,406,502, respectively.
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 September 30, 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 September 30, 2012, the Company does not anticipate that any of these counterparties will fail to meet their obligations. As of September 30, 2012, there are no credit risk related contingent features in any of the Company’s derivative agreements.
SeaCube Container Leasing Ltd.
Notes to Consolidated Financial Statements (continued)
(Dollars in thousands, except as otherwise noted)
(unaudited)
The Company held the following interest rate derivatives designated as cash flow hedges as of September 30, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CLI Funding Series 2006-1
|
|
|
5,417 |
|
|
Feb-2006
|
|
Oct-2013
|
|
1M LIBOR
|
|
|
4.1450 |
% |
|
|
(135 |
) |
|
CLI Funding Series 2006-1
|
|
|
22,708 |
|
|
Feb-2006
|
|
Dec-2013
|
|
1M LIBOR
|
|
|
4.2990 |
% |
|
|
(682 |
) |
|
CLI Funding Series 2006-1
|
|
|
9,375 |
|
|
Feb-2006
|
|
Dec-2013
|
|
1M LIBOR
|
|
|
4.9200 |
% |
|
|
(281 |
) |
|
CLI Funding Series 2006-1
|
|
|
124,542 |
|
|
Aug-2006
|
|
Jun-2016
|
|
1M LIBOR
|
|
|
5.2950 |
% |
|
|
(13,555 |
) |
|
CLI Funding Series 2006-1
|
|
|
38,959 |
|
|
Jan-2009
|
|
Aug-2016
|
|
1M LIBOR
|
|
|
4.6400 |
% |
|
|
(3,570 |
) |
|
CLI Funding Series 2006-1
|
|
|
42,500 |
|
|
Jan-2009
|
|
Aug-2016
|
|
1M LIBOR
|
|
|
4.9500 |
% |
|
|
(4,029 |
) |
|
CLI Funding III, LLC
|
|
|
— |
|
|
Jun-2008
|
|
Jun-2018
|
|
1M LIBOR
|
|
|
5.2900 |
% |
|
|
(77 |
) |
|
CLI Funding III, LLC
|
|
|
11,003 |
|
|
May-2008
|
|
Feb-2018
|
|
1M LIBOR
|
|
|
4.5200 |
% |
|
|
(1,322 |
) |
|
CLI Funding III, LLC
|
|
|
20,212 |
|
|
May-2008
|
|
Jul-2017
|
|
1M LIBOR
|
|
|
4.5300 |
% |
|
|
(2,052 |
) |
|
CLI Funding III, LLC
|
|
|
44,560 |
|
|
May-2008
|
|
Feb-2018
|
|
1M LIBOR
|
|
|
4.2075 |
% |
|
|
(2,994 |
) |
|
CLI Funding III, LLC
|
|
|
5,314 |
|
|
Jul-2008
|
|
Jun-2016
|
|
1M LIBOR
|
|
|
4.0500 |
% |
|
|
(371 |
) |
|
CLI Funding III, LLC
|
|
|
14,500 |
|
|
Jul-2008
|
|
Jul-2017
|
|
1M LIBOR
|
|
|
4.1000 |
% |
|
|
(783 |
) |
|
CLI Funding III, LLC
|
|
|
4,419 |
|
|
Jul-2008
|
|
Dec-2018
|
|
1M LIBOR
|
|
|
3.6420 |
% |
|
|
(13 |
) |
|
CLI Funding III, LLC
|
|
|
32,420 |
|
|
Mar-2010
|
|
Nov-2014
|
|
1M LIBOR
|
|
|
2.0200 |
% |
|
|
(875 |
) |
|
CLI Funding III, LLC
|
|
|
16,763 |
|
|
Jan-2011
|
|
May-2017
|
|
1M LIBOR
|
|
|
1.6250 |
% |
|
|
(417 |
) |
|
Total interest rate derivatives designated as cash flow hedges
|
|
$ |
392,692 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(31,156 |
) |
|
|
(a)
|
All interest rate derivatives are recorded in fair value of derivative instruments in the liabilities section of the consolidated balance sheets.
|
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 and nine months ended September 30, 2012 and 2011:
| |
|
For the Three Months Ended September 30, 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
|
|
|
(2,210 |
) |
Interest expense
|
|
|
4,803 |
|
Interest expense
|
|
|
(434 |
) |
| |
|
For the Three Months Ended September 30, 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
|
|
|
(6,153 |
) |
Interest expense
|
|
|
6,353 |
|
Interest expense
|
|
|
517 |
|
| |
|
For the Nine Months Ended September 30, 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
|
|
|
(7,125 |
) |
Interest expense
|
|
|
15,339 |
|
Interest expense
|
|
|
(1,371 |
) |
SeaCube Container Leasing Ltd.
Notes to Consolidated Financial Statements (continued)
(Dollars in thousands, except as otherwise noted)
(unaudited)
| |
|
For the Nine Months Ended September 30, 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
|
|
|
(15,613 |
) |
Interest expense
|
|
|
19,497 |
|
Interest expense
|
|
|
(1,148 |
) |
|
(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 September 30,
|
|
|
Nine months ended September 30,
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net settlement of interest rate derivatives
|
|
$ |
4,159 |
|
|
$ |
5,314 |
|
|
$ |
13,137 |
|
|
$ |
16,586 |
|
|
Amortization of terminated derivatives
|
|
|
644 |
|
|
|
1,039 |
|
|
|
2,202 |
|
|
|
2,911 |
|
As of September 30, 2012, the amount of Accumulated OCI related to derivatives was $23,848. 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 $14,459 and the amortization of deferred net losses on the Company’s terminated derivatives of $1,425.
6. Income Taxes
The consolidated income tax expense for the three and nine months ended September 30, 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 the fact that the majority of its income is deemed to be foreign sourced and is either not taxable or taxable at effectively lower tax rates. The Company is not subject to taxation in its country of incorporation and although the Company is subject to taxation in certain other jurisdictions, including in the U.S. and other foreign countries, these amounts are not material. Further, given the nature of the Company's operations and activities, including where its containers are used and where the lessees of its containers (or others in possession of its containers) are located, the remainder of its earnings is not attributable to any specific tax jurisdiction and is thus not taxable.
7. Commitments and Contingencies
Purchase Commitments
As of September 30, 2012, commitments for capital expenditures were $2,301.
SeaCube Container Leasing Ltd.
Notes to Consolidated Financial Statements (continued)
(Dollars in thousands, except as otherwise noted)
(unaudited)
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 September 30, 2012, the aggregate minimum rental commitment under operating leases having initial or remaining noncancelable lease terms in excess of one year was $922.
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
|
|
|
(86,132 |
) |
|
|
12.79 |
|
|
Nonvested at September 30, 2012
|
|
|
270,075 |
|
|
$ |
15.08 |
|
The Company recorded compensation expense of $459 and $1,322 for the three and nine months ended September 30, 2012, respectively, and $291 and $865 for the three and nine months ended September 30, 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 $3,051 at September 30, 2012 which is expected to be recognized over the remaining weighted-average vesting period of 1.9 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 September 30,
|
|
|
Nine months ended September 30,
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares outstanding
|
|
|
20,018,284 |
|
|
|
19,932,152 |
|
|
|
20,018,284 |
|
|
|
19,932,152 |
|
|
Restricted common shares
|
|
|
270,075 |
|
|
|
231,207 |
|
|
|
245,440 |
|
|
|
203,659 |
|
|
Total weighted-average shares
|
|
|
20,288,359 |
|
|
|
20,163,359 |
|
|
|
20,263,724 |
|
|
|
20,135,811 |
|
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 September 30,
|
|
|
Nine months ended September 30,
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
11,412 |
|
|
$ |
8,783 |
|
|
$ |
34,573 |
|
|
$ |
27,181 |
|
|
Less: Undistributed earnings allocated to restricted shareholders
|
|
|
(152 |
) |
|
|
(101 |
) |
|
|
(419 |
) |
|
|
(275 |
) |
|
Income attributable to common shareholders
|
|
$ |
11,260 |
|
|
$ |
8,682 |
|
|
$ |
34,154 |
|
|
$ |
26,906 |
|
|
Income per share attributable to common shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.56 |
|
|
$ |
0.44 |
|
|
$ |
1.71 |
|
|
$ |
1.35 |
|
|
Diluted
|
|
$ |
0.56 |
|
|
$ |
0.44 |
|
|
$ |
1.71 |
|
|
$ |
1.35 |
|
There were no potentially dilutive common shares for any period in these consolidated financial statements.
The following table sets forth the quarterly dividends declared by our Board of Directors for the nine months ended September, 30 2012:
|
|
|
Dividend per
Common
Share
|
|
|
Aggregate
Dividend
Amount
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
February 29, 2012
|
|
$ |
0.26 |
|
|
$ |
5,275 |
|
|
March 13, 2012
|
|
March 20, 2012
|
|
May 7, 2012
|
|
$ |
0.28 |
|
|
$ |
5,681 |
|
|
June 7, 2012
|
|
June 14, 2012
|
|
August 6, 2012
|
|
$ |
0.29 |
|
|
$ |
5,883 |
|
|
September 7, 2012
|
|
September 14, 2012
|
10. Related Party Transactions
Shareholder Note
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 $65 and $193 for the three and nine months ended September 30, 2012, respectively, and $64 and $187 for the three and nine months ended September 30, 2011, respectively.
Management Services
On September 5, 2012, the Company entered into an agreement to provide management services on container equipment that is owned in part by private equity funds that are managed by an affiliate of Fortress Investment Group LLC. Management revenue earned from this agreement was $65 for both the three and nine months ended September 30, 2012
SeaCube Container Leasing Ltd.
Notes to Consolidated Financial Statements (continued)
(Dollars in thousands, except as otherwise noted)
(unaudited)
11. 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 September 30, 2012 and December 31, 2011:
| |
|
Fair Value
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
$ |
34,614 |
|
|
$ |
34,614 |
|
|
$ |
— |
|
|
$ |
— |
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments
|
|
|
31,156 |
|
|
|
— |
|
|
|
31,156 |
|
|
|
— |
|
| |
|
Fair Value
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
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:
| |
|
September 30, 2012
|
|
|
December 31, 2011
|
|
| |
|
Carrying
Amount of Asset (Liability)
|
|
|
Fair Value
of Asset
(Liability)
|
|
|
Carrying
Amount of Asset (Liability)
|
|
|
Fair Value
of Asset
(Liability)
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$ |
(1,281,966 |
) |
|
$ |
(1,332,756 |
) |
|
$ |
(1,200,445 |
) |
|
$ |
(1,206,707 |
) |
|
Derivative Instrument
|
|
|
(31,156 |
) |
|
|
(31,156 |
) |
|
|
(38,750 |
) |
|
|
(38,750 |
) |
SeaCube Container Leasing Ltd.
Notes to Consolidated Financial Statements (continued)
(Dollars in thousands, except as otherwise noted)
(unaudited)
12. Subsequent Events
Dividend
On November 5, 2012, the Company’s Board of Directors approved and declared a $0.30 per share cash dividend on its issued and outstanding common stock, payable on December 14, 2012 to shareholders of record at the close of business on December 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.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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 September 30, 2012, we employ 77 people in seven offices worldwide and have total assets of $1.6 billion.
As of September 30, 2012, we own or manage a fleet of 703,305 units, representing 1,092,091 TEUs of containers and generator sets. For the three months ended September 30, 2012, our average utilization was 97.9%, 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, TEU and our owned fleet by net book value as of September 30, 2012:
|
Equipment Fleet by Units
|
|
| |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
|
34,647 |
|
|
|
143,476 |
|
|
|
2,492 |
|
|
|
180,615 |
|
|
Direct Finance Leases
|
|
|
26,034 |
|
|
|
243,984 |
|
|
|
2,556 |
|
|
|
272,574 |
|
|
Total Owned
|
|
|
60,681 |
|
|
|
387,460 |
|
|
|
5,048 |
|
|
|
453,189 |
|
|
Managed
|
|
|
30,216 |
|
|
|
218,562 |
|
|
|
1,338 |
|
|
|
250,116 |
|
|
Total Fleet
|
|
|
90,897 |
|
|
|
606,022 |
|
|
|
6,386 |
|
|
|
703,305 |
|
|
Equipment Fleet by TEUs
|
|
| |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
|
63,988 |
|
|
|
222,752 |
|
|
|
2,492 |
|
|
|
289,232 |
|
|
Direct Finance Leases
|
|
|
50,617 |
|
|
|
376,961 |
|
|
|
2,556 |
|
|
|
430,134 |
|
|
Total Owned
|
|
|
114,605 |
|
|
|
599,713 |
|
|
|
5,048 |
|
|
|
719,366 |
|
|
Managed
|
|
|
57,352 |
|
|
|
314,035 |
|
|
|
1,338 |
|
|
|
372,725 |
|
|
Total Fleet
|
|
|
171,957 |
|
|
|
913,748 |
|
|
|
6,386 |
|
|
|
1,092,091 |
|
|
Container Fleet by Net Book Value
|
|
| |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
$ |
417,091 |
|
|
$ |
419,651 |
|
|
$ |
11,041 |
|
|
$ |
847,783 |
|
|
Direct Finance Leases
|
|
|
225,358 |
|
|
|
414,187 |
|
|
|
13,061 |
|
|
|
652,606 |
|
|
Total Fleet
|
|
$ |
642,449 |
|
|
$ |
833,838 |
|
|
$ |
24,102 |
|
|
$ |
1,500,389 |
|
Results of Operations
Comparison of the Three Months Ended September 30, 2012 to the Three Months Ended September 30, 2011
| |
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
(dollars in thousands)
|
|
Equipment leasing revenue
|
|
$ |
30,754 |
|
|
$ |
28,726 |
|
|
$ |
2,028 |
|
|
|
7 |
% |
|
Finance revenue
|
|
|
16,213 |
|
|
|
13,945 |
|
|
|
2,268 |
|
|
|
16 |
% |
|
Other revenue
|
|
|
2,531 |
|
|
|
2,558 |
|
|
|
(27 |
) |
|
|
-1 |
% |
|
Total revenues
|
|
$ |
49,498 |
|
|
$ |
45,229 |
|
|
$ |
4,269 |
|
|
|
9 |
% |
Revenue
Total revenue was $49.5 million for the three months ended September 30, 2012 compared to $45.2 million for the three months ended September 30, 2011, an increase of $4.3 million or 9%.
Equipment leasing revenue was $30.8 million for the three months ended September 30, 2012 compared to $28.7 million for the three months ended September 30, 2011, an increase of $2.0 million or 7%. This was primarily due to the average on-hire fleet increasing by approximately 40,600 units.
Finance revenue was $16.2 million for the three months ended September 30, 2012 compared to $13.9 million for the three months ended September 30, 2011, an increase of $2.3 million or 16%. The increase was the result of new investments that increased the average size of our finance lease portfolio.
Other revenue, which includes management fee revenues and re-billable costs to our lessees, was $2.5 million for the three months ended September 30, 2012 compared to $2.6 million for the three months ended September 30, 2011. This small decrease was attributable to higher rebillable costs which were offset by lower management fee revenues.
| |
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
(dollars in thousands)
|
|
|
|
Direct operating expenses
|
|
$ |
1,306 |
|
|
$ |
2,092 |
|
|
$ |
(786 |
) |
|
|
-38 |
% |
|
Selling, general and administrative expenses
|
|
|
5,949 |
|
|
|
5,996 |
|
|
|
(47 |
) |
|
|
-1 |
% |
|
Depreciation expenses
|
|
|
13,328 |
|
|
|
12,242 |
|
|
|
1,086 |
|
|
|
9 |
% |
|
Provision for doubtful accounts
|
|
|
224 |
|
|
|
180 |
|
|
|
44 |
|
|
|
* |
|
|
Impairment of leasing equipment held for sale
|
|
|
536 |
|
|
|
539 |
|
|
|
(3 |
) |
|
|
* |
|
|
Total
|
|
$ |
21,343 |
|
|
$ |
21,049 |
|
|
$ |
294 |
|
|
|
1 |
% |
Direct Operating Expenses
Direct operating expenses were $1.3 million for the three months ended September 30, 2012 compared to $2.1 million for the three months ended September 30, 2011, a decrease of $0.8 million or 38%. In the prior year period, we incurred higher recovery costs attributable to one customer.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $5.9 million for the three months ended September 30, 2012 compared to $6.0 million for the three months ended September 30, 2011, a slight decrease. Slightly higher compensation expenses were offset by savings in travel, professional and legal fees.
Depreciation Expenses
Depreciation of leasing equipment was $13.3 million for the three months ended September 30, 2012 compared to $12.2 million for the three months ended September 30, 2011, an increase of $1.1 million or 9%. Depreciation on new additions net of disposals and sales accounted for an increase of $1.5 million, which was partially offset by a decrease of $0.4 million due to equipment reaching the end of their depreciable lives.
Provision for Doubtful Accounts
Provision for doubtful accounts was $0.2 million for both the three months ended September 30, 2012 and September 30, 2011.
Impairment of Leasing Equipment Held for Sale
We recorded an impairment of leasing equipment held for sale of $0.5 million for both the three months ended September 30, 2012 and September 30, 2011. 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 not a reduction of impairment losses. The number of units that were returned and expected to be sold were similar in the current and prior year periods.
| |
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
(dollars in thousands)
|
|
|
|
Interest expense
|
|
$ |
17,763 |
|
|
$ |
15,424 |
|
|
$ |
2,339 |
|
|
|
15 |
% |
|
Interest income
|
|
|
(71 |
) |
|
|
(68 |
) |
|
|
(3 |
) |
|
|
4 |
% |
|
Other expenses (income), net
|
|
|
(949 |
) |
|
|
6 |
|
|
|
(955 |
) |
|
|
* |
|
|
Total
|
|
$ |
16,743 |
|
|
$ |
15,362 |
|
|
$ |
1,381 |
|
|
|
9 |
% |
Interest Expense
Interest expense was $17.8 million for the three months ended September 30, 2012 compared to $15.4 million for the three months ended September 30, 2011, an increase of $2.3 million or 15%. Our weighted average debt balance for the three months ended September 30, 2012 increased by approximately $203 million due to our investment in new containers. This resulted in an increase of approximately $2.9 million to interest expense. In addition, we had slightly higher commitment fees in the current year of $0.3 million. These increases were offset by a decrease in non-cash interest expense in the current period by $0.9 million. Higher amortization of deferred financing fees of $0.4 million was offset by an increase in gains recognized directly into income for ineffective derivatives of $0.9 million and lower amortization of terminated derivatives of $0.4 million.
Interest Income
Interest income was $0.1 million for both the three months ended September 30, 2012 and 2011.
Other Expense (Income), Net
Other expense (income), net was $(0.9) million for the three months ended September 30, 2012 compared to $0.0 million for the three months ended September 30, 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
|
|
$ |
— |
|
|
$ |
35 |
|
|
$ |
(35 |
) |
|
|
* |
|
Provision (benefit) for income taxes was $0.0 million for the three months ended September 30, 2012 compared to $0.03 million for the three months ended September 30, 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
|
|
$ |
11,412 |
|
|
$ |
8,783 |
|
|
$ |
2,629 |
|
|
|
30 |
% |
|
Adjusted net income**
|
|
$ |
12,832 |
|
|
$ |
11,111 |
|
|
$ |
1,721 |
|
|
|
15 |
% |
|
Adjusted EBITDA**
|
|
$ |
74,172 |
|
|
$ |
61,589 |
|
|
$ |
12,583 |
|
|
|
20 |
% |
**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 $11.4 million for the three months ended September 30, 2012 compared to $8.8 million for the three months ended September 30, 2011. The increase in net income was attributable to the items above.
Adjusted Net Income
Adjusted net income was $12.8 million for the three months ended September 30, 2012 compared to $11.1 million for the three months ended September 30, 2011, an increase of $1.7 million or 15%. In addition to the changes in net income noted above, the three months ended September 30, 2012, includes a decrease in non-cash interest expense of $0.9 million, which is excluded from the adjusted net income calculation.
Adjusted EBITDA
Adjusted EBITDA was $74.2 million for the three months ended September 30, 2012 compared to $61.6 million for the three months ended September 30, 2011, an increase of $12.6 million or 20%. In addition to the changes in net income noted above, the three months ended September 30, 2012, includes higher depreciation of $1.1 million and higher interest expense of $2.3 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 $6.6 million.
Comparison of the Nine Months Ended September 30, 2012 to the Nine Months Ended September 30, 2011
| |
|
Nine Months Ended
|
|
|
Nine Months Ended
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
(dollars in thousands)
|
|
|
Equipment leasing revenue
|
|
$ |
90,707 |
|
|
$ |
75,444 |
|
|
$ |
15,263 |
|
|
|
20 |
% |
|
Finance revenue
|
|
|
49,102 |
|
|
|
40,281 |
|
|
|
8,821 |
|
|
|
22 |
% |
|
Other revenue
|
|
|
8,147 |
|
|
|
7,089 |
|
|
|
1,058 |
|
|
|
15 |
% |
|
Total revenues
|
|
$ |
147,956 |
|
|
$ |
122,814 |
|
|
$ |
25,142 |
|
|
|
20 |
% |
Revenue
Total revenue was $148.0 million for the nine months ended September 30, 2012 compared to $122.8 million for the nine months ended September 30, 2011, an increase of $25.1 million or 20%.
Equipment leasing revenue was $90.7 million for the nine months ended September 30, 2012 compared to $75.4 million for the nine months ended September 30, 2011, an increase of $15.3 million or 20%. This was primarily due to the average on-hire fleet increasing by approximately 44,500 units.
Finance revenue $49.1 million for the nine months ended September 30, 2012 compared to $40.3 million for the nine months ended September 30, 2011, an increase of $8.8 million or 22%. The increase was the result of new investments that increased the average size of our finance lease portfolio.
Other revenue, which includes management fee revenues and re-billable costs to our lessees, was $8.1 million for the nine months ended September 30, 2012 compared to $7.1 million for the nine months ended September 30, 2011, an increase of $1.1 million or 15%. This increase was attributable to higher rebillable costs of $1.3 million, which were partially offset by lower management fee revenues of $0.2 million.
| |
|
Nine Months Ended
|
|
|
Nine Months Ended
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
(dollars in thousands)
|
|
|
|
Direct operating expenses
|
|
$ |
4,134 |
|
|
$ |
4,341 |
|
|
$ |
(207 |
) |
|
|
-5 |
% |
|
Selling, general and administrative expenses
|
|
|
18,158 |
|
|
|
17,641 |
|
|
|
517 |
|
|
|
3 |
% |
|
Depreciation expenses
|
|
|
39,485 |
|
|
|
33,159 |
|
|
|
6,326 |
|
|
|
19 |
% |
|
Provision for doubtful accounts
|
|
|
894 |
|
|
|
220 |
|
|
|
674 |
|
|
|
* |
|
|
Impairment of leasing equipment held for sale
|
|
|
1,946 |
|
|
|
904 |
|
|
|
1,042 |
|
|
|
* |
|
|
Total
|
|
$ |
64,617 |
|
|
$ |
56,265 |
|
|
$ |
8,352 |
|
|
|
15 |
% |
Direct Operating Expenses
Direct operating expenses were $4.1 million for the nine months ended September 30, 2012 compared to $4.3 million for the nine months ended September 30, 2011, a decrease of $0.2 million or 5%. 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. This was offset by higher recovery costs incurred in the prior year that were attributable to one customer.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $18.2 million for the nine months ended September 30, 2012 compared to $17.6 million for the nine months ended September 30, 2011, an increase of $0.5 million or 3%. This is primarily due to merit increases and higher incentive compensation expense that was partially offset by savings in travel, professional and legal fees.
Depreciation Expenses
Depreciation of leasing equipment was $39.5 million for the nine months ended September 30, 2012 compared to $33.2 million for the nine months ended September 30, 2011, an increase of $6.3 million or 19%. Depreciation on new additions net of disposals and sales accounted for an increase of $7.1 million, which was partially offset by a decrease of $0.8 million due to equipment reaching the end of their depreciable lives.
Provision for Doubtful Accounts
Provision for doubtful accounts was $0.9 million for the nine months ended September 30, 2012 compared to $0.2 million for the nine months ended September 30, 2011. In the current year period, provision for doubtful account increased moderately compared to the prior year period.
Impairment of Leasing Equipment Held for Sale
We recorded an impairment of leasing equipment held for sale of $1.9 million for the nine months ended September 30, 2012 compared to $0.9 million for the nine months ended September 30, 2011, an increase of $1.0 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 not a reduction of impairment losses. In the current year period, we had more containers returned and sold upon the completion of their lease term.
| |
|
Nine Months Ended
|
|
|
Nine Months Ended
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
(dollars in thousands)
|
|
|
|
Interest expense
|
|
$ |
51,370 |
|
|
$ |
39,283 |
|
|
$ |
12,087 |
|
|
|
31 |
% |
|
Interest income
|
|
|
(209 |
) |
|
|
(211 |
) |
|
|
2 |
|
|
|
-1 |
% |
|
Other expenses (income), net
|
|
|
(2,268 |
) |
|
|
438 |
|
|
|
(2,706 |
) |
|
|
* |
|
|
Total
|
|
$ |
48,893 |
|
|
$ |
39,510 |
|
|
$ |
9,383 |
|
|
|
24 |
% |
Interest Expense
Interest expense was $51.4 million for the nine months ended September 30, 2012 compared to $39.3 million for the nine months ended September 30, 2011, an increase of $12.1 million or 31%. Our weighted average debt balance for the nine months ended September 30, 2012 increased by approximately $291 million due to our investment in new containers. This resulted in an increase of approximately $11.4 million to interest expense. In the current year period, there were slightly higher commitment fees of $0.2 million. In addition, non-cash interest expense increased in the current period by $0.5 million, which included higher amortization of deferred financing fees of $1.4 million partially offset by increases in gains recognized directly into income for ineffective derivatives of $0.2 million and by lower amortization of terminated derivatives of $0.7 million.
Interest Income
Interest income was $0.2 million for both the nine months ended September 30, 2012 and 2011.
Other Expense (Income), Net
Other expense (income), net was $(2.3) million for the nine months ended September 30, 2012 compared to $0.4 million for the nine months ended September 30, 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.
| |
|
Nine Months Ended
|
|
|
Nine Months Ended
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
(dollars in thousands)
|
|
|
|
Provision (benefit) for income taxes
|
|
$ |
(127 |
) |
|
$ |
(142 |
) |
|
$ |
15 |
|
|
|
* |
|
Provision (benefit) for income taxes was $(0.1) million for both the nine months ended September 30, 2012 and September 30, 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.
| |
|
Nine Months Ended
|
|
|
Nine Months Ended
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
(dollars in thousands)
|
|
|
|
Net income
|
|
$ |
34,573 |
|
|
$ |
27,181 |
|
|
$ |
7,392 |
|
|
|
27 |
% |
|
Adjusted net income**
|
|
$ |
38,619 |
|
|
$ |
30,760 |
|
|
$ |
7,859 |
|
|
|
26 |
% |
|
Adjusted EBITDA**
|
|
$ |
215,693 |
|
|
$ |
175,206 |
|
|
$ |
40,487 |
|
|
|
23 |
% |
**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 $34.6 million for the nine months ended September 30, 2012 compared to $27.2 million for the nine months ended September 30, 2011. The increase in net income was attributable to the items above.
Adjusted Net Income
Adjusted net income was $38.6 million for the nine months ended September 30, 2012 compared to $30.8 million for the nine months ended September 30, 2011, an increase of $7.9 million or 26%. In addition to the changes in net income noted above, the nine months ended September 30, 2012, includes an increase in the non-cash interest expense of $0.5 million, which is excluded from the adjusted net income calculation.
Adjusted EBITDA
Adjusted EBITDA was $215.7 million for the nine months ended September 30, 2012 compared to $175.2 million for the nine months ended September 30, 2011, an increase of $40.5 million or 23%. In addition to the changes in net income noted above, the nine months ended September 30, 2012, includes higher depreciation of $6.3 million and higher interest expense of $12.1 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 $14.7 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 $167.5 million and $140.9 million for the nine months ended September 30, 2012 and 2011, respectively.
|
|
|
•
|
Lines of credit and other secured borrowings, under which $1,282.0 million was outstanding and $296 million was available as of September 30, 2012.
|
|
|
•
|
Sales of our older leasing equipment, which was $17.1 million and $9.7 million for the nine months ended September 30, 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. On June 21, 2012, CLI Funding V LLC, an indirect wholly owned subsidiary of the Company, completed the offering of $225 million aggregate principal amount of Series 2012-1 Fixed Rate Secured Notes ("Series 2012-1 Notes"). The Series 2012-1 Notes were issued with an annual interest rate of 4.21%, have a scheduled maturity date of December 18, 2022 and a legal final maturity date of June 18, 2027. The transaction documents contain customary affirmative and negative covenants, financial covenants, representations and warranties, and events of default, which are subject to various exceptions and qualifications. On June 27, 2012, CLI amended and restated its existing revolving credit agreement, dated November 3, 2010 (as amended and restated, the “Fifth Amended and Restated Revolving Credit Agreement”). The Fifth Amended and Restated Revolving Credit Agreement (i) increases the total commitments of the lenders available to CLI to $150 million from $120 million; and (ii) extends the Maturity Date (as defined therein) to June 27, 2015, from November 3, 2013. We will use the net proceeds of these offerings for container purchases and other general business purposes.
Foreign Cash
As of September 30, 2012, substantially all of the Company’s cash and cash equivalents are held in banks in the United States.
Covenants
The Company’s debt instruments contain typical representations and covenants for loans of this type that, among other things, restrict the ability of CLI and certain restricted subsidiaries, to incur indebtedness and/or create liens against its assets and/or to make investments, to dispose of assets, to merge or consolidate with any other person, to engage in transactions with affiliates except on an arm's-length basis in the ordinary course of business, or to incur certain restrictions or prohibitions on granting liens and/or making distributions, dividends or similar payments. For all of our asset-backed securitizations and our Container Revolving Credit Facility, CLI shall not permit the tangible net worth of CLI and its subsidiaries at any time to be less than the amount stated in the respective agreements ($175 million for the CLI Funding Series 2006-1 Notes and the CLI Funding V Credit Facility and $200 million for the Container Revolving Credit Facility, the CLI Funding III Credit Facility, and the CLI Funding IV Credit Facility). In addition, for the Container Revolving Credit Facility and the CLI Funding IV Credit Facility, CLI will also be required to comply with a maximum consolidated leverage ratio of 5.25 times adjusted EBITDA through the third anniversary of the facility and of 5.00 times adjusted EBITDA with respect to the time period thereafter. At September 30, 2012, the Company was in compliance with all of the covenants described above.
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 October 26, 2012, SeaCube has ordered approximately $318.8 million of new equipment for delivery through January 2013. Of this amount, approximately $272.4 million, or 85%, has been committed to long-term leases.
Cash Flow
The following table sets forth cash flow information for the nine months ended September 30, 2012 and 2011.
| |
|
Nine Months Ended
September 30, 2012
|
|
|
Nine Months Ended
September 30, 2011
|
|
| |
|
(dollars in thousands)
|
|
|
Net cash provided by operating activities
|
|
$ |
76,934 |
|
|
$ |
64,919 |
|
|
Net cash provided by (used in) investing activities
|
|
|
(129,454 |
) |
|
|
(307,663 |
) |
|
Net cash provided by (used in) financing activities
|
|
|
55,718 |
|
|
|
245,945 |
|
|
Effect of changes in exchange rates on cash and cash equivalents
|
|
|
(119 |
) |
|
|
(65 |
) |
|
Net increase (decrease) in cash and cash equivalents
|
|
$ |
3,079 |
|
|
$ |
3,136 |
|
Net cash provided by operating activities was $76.9 million for the nine months ended September 30, 2012 compared to $64.9 million for the nine months ended September 30, 2011, a $12.0 million increase. The increase in operating cash flow was primarily the result of increased profitability.
Net cash provided by (used in) investing activities was $(129.5) million for the nine months ended September 30, 2012 compared to $(307.7) million for the nine months ended September 30, 2011, an increase of $178.2 million 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 $5.0 million in the nine months ended September 30, 2012 versus $8.2 million in the nine months ended September 30, 2011. In addition, we had higher collections on net investment in direct finance leases and higher proceeds from the sale of leasing equipment of $14.7 million and $7.4 million, respectively.
Net cash provided by (used in) financing activities was $55.7 million for the nine months ended September 30, 2012 compared to $245.9 million for the nine months ended September 30, 2011, a decrease of $190.2 million to cash flow. During the current period, the proceeds of long-term debt (net of payments) decreased by $186.5 million versus the prior period. In conjunction with the closing of the Series 2012-1 Notes and the restatement of the revolving credit facility in the current year period, we incurred debt issuance costs of $5.8 million. 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. In addition, there were higher dividends paid during the nine months ended September 30, 2012 of $4.0 million.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of September 30, 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 amortization of deferred financing fees, 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 September 30,
|
|
|
Nine Months Ended September 30,
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
11,412 |
|
|
$ |
8,783 |
|
|
$ |
34,573 |
|
|
$ |
27,181 |
|
|
Non-cash interest expense, net of tax
|
|
|
1,420 |
|
|
|
2,328 |
|
|
|
4,046 |
|
|
|
3,579 |
|
|
Adjusted net income
|
|
$ |
12,832 |
|
|
$ |
11,111 |
|
|
$ |
38,619 |
|
|
$ |
30,760 |
|
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. We use adjusted EBITDA in a number of ways to assess our consolidated financial and operating performance, and we believe this measure is helpful to management, the board of directors and investors in identifying trends in our performance. We use adjusted EBITDA as a measure of our consolidated operating performance exclusive of income and expenses that relate to the financing, income taxes, and capitalization of the business. Also, adjusted EBITDA assists us in comparing our operating performance on a consistent basis as it removes the impact of our capital structure (primarily interest charges on our outstanding debt) and asset base (primarily depreciation and amortization) from our operating results. In addition, Adjusted EBITDA helps management identify controllable expenses and make decisions designed to help us meet our current financial goals and optimize our financial performance. Accordingly, we believe this metric measures our financial performance based on operational factors that management can impact in the short-term, namely the cost structure and expenses of the organization. Lastly, adjusted EBITDA is the basis for calculating selected financial ratios as required in the debt covenants of one of our credit facilities and one of our management agreements.
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 September 30,
|
|
|
Nine months ended September 30,
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
11,412 |
|
|
$ |
8,783 |
|
|
$ |
34,573 |
|
|
$ |
27,181 |
|
|
Provision (benefit) for income taxes
|
|
|
— |
|
|
|
35 |
|
|
|
(127 |
) |
|
|
(142 |
) |
|
Depreciation expenses
|
|
|
13,328 |
|
|
|
12,242 |
|
|
|
39,485 |
|
|
|
33,159 |
|
|
Interest expense, net of interest income
|
|
|
17,692 |
|
|
|
15,356 |
|
|
|
51,161 |
|
|
|
39,072 |
|
|
Collections on net investment in direct financing leases, net of interest earned
|
|
|
31,740 |
|
|
|
25,173 |
|
|
|
90,601 |
|
|
|
75,936 |
|
|
Adjusted EBITDA
|
|
$ |
74,172 |
|
|
$ |
61,589 |
|
|
$ |
215,693 |
|
|
$ |
175,206 |
|
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 September 30, 2012, we estimate that cash flows from interest expense relating to variable rate debt and the relevant interest rate swap agreement would increase by $0.04 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.
Item 4. Controls and Procedures
(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 September 30, 2012. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of September 30, 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.
PART II. OTHER INFORMATION
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
|
|
|
|
|
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.
|
|
32.1
|
|
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.
|
|
32.2
|
|
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.
|
|
101.INS
|
|
XBRL Instance Document.
|
|
101.SCH
|
|
XBRL Taxonomy Extension Schema Document.
|
|
101.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase Document.
|
|
101.DEF
|
|
XBRL Taxonomy Extension Definition Linkbase Document.
|
|
101.LAB
|
|
XBRL Taxonomy Extension Label Linkbase Document.
|
|
101.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase Document.
|
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: November 6, 2012
|
|
|
| |
| |
| |
| |
|
SEACUBE CONTAINER LEASING LTD.
|
| |
|
Registrant
|
| |
| |
| |
By:
|
/s/ Stephen P. Bishop
|
| |
|
Stephen P. Bishop
|
| |
|
Chief Operating and Chief Financial Officer
|
| |
|
(Principal Financial and Accounting Officer and
|
| |
|
Duly Authorized Officer)
|
-31-