CAI INTERNATIONAL, INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes thereto, included elsewhere in this Annual Report on Form 10-K. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results may differ materially from those contained in or implied by any forward-looking statements. See "Special Note Regarding Forward-Looking Statements." Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in Item 1A. "Risk Factors."
Overview
We are one of the world's leading transportation finance companies. We lease equipment, primarily intermodal shipping containers, to our customers. We also manage equipment for third-party investors. In operating our fleet, we lease, re-lease and dispose of equipment and contract for the repair, repositioning and storage of equipment. As ofDecember 31, 2020 , our container fleet comprised 1,798,520 CEUs, 96% of which represented our owned fleet and 4% of which represented our managed fleet.
Our revenue comprises container lease revenue from our owned container fleet and management fee revenue for managing containers for third-party investors.
Our revenue from our owned container fleet depends primarily upon a combination of: (1) the number of units in our owned fleet; (2) the utilization level of equipment in our owned fleet; and (3) the per diem rates charged under each equipment lease. The same factors in our managed fleet affect the amount of our management fee income. The number of CEUs in our container fleet varies over time as we purchase new equipment based on prevailing market conditions during the year and sell used equipment to parties in the secondary resale market.
COVID-19 Pandemic
The COVID-19 pandemic continues to have a meaningful impact on global trade and our business. The pandemic and related work, travel, and social restrictions resulted in a sharp decrease in global economic and trade activity during the first half of 2020, resulting in weak container leasing demand. However, we saw a significant increase in leasing demand during the second half of the year, but it is too early to tell whether this rebound in leasing demand will be sustained into 2021 and beyond. We were initially concerned that the sharp decrease in global container volumes early in 2020 would increase the financial challenges facing our customers and lead to increased credit risk. While we are not yet through the pandemic, container freight rates and the financial performance of our customers have generally held up better than anticipated, with freight rates reaching record levels. As the impact of the pandemic grew, all the major shipping lines have taken aggressive actions to reduce their deployed vessel capacity, decreasing their network expenses and mitigating rate pressure from reduced freight volumes. The large decrease in bunker fuel prices has also been very helpful to their financial performance. We continue to closely monitor our customers' payment performance and expect the potential for elevated credit risk as long as economic and trade disruptions persist. For additional information regarding the risk and uncertainties that we could encounter as a result of the COVID-19 pandemic and related global conditions, see "Business Risk - The continued spread of the COVID-19 pandemic may have a material adverse impact on our business, financial condition and results of operations" in Item 1A. "Risk Factors" in this Annual Report on Form 10-K.
Disposal of Logistics and Rail Businesses
OnAugust 14, 2020 , we sold substantially all the assets of our logistics business to NFI, a North American logistics provider, for cash proceeds of$6.2 million . OnDecember 29, 2020 , we sold all our remaining railcar fleet to affiliates of Infinity Transportation for cash proceeds of$228.1 million . As a result, the operating results of the logistics and rail leasing businesses have been classified as discontinued operations in the accompanying consolidated statements of income and cash flows. All prior periods presented in the consolidated financial statements in this Annual Report on Form 10-K have been restated to reflect the classification of the logistics and rail leasing businesses as discontinued operations and certain assets and liabilities as held for sale. Key Operating Metrics Utilization. We measure container utilization on the basis of the average number of CEUs on lease expressed as a percentage of our total container fleet available for lease. We calculate the total fleet available for lease by excluding new units that have been manufactured for us but either remain at the manufacturer or have not yet entered their first lease, and off-hire units that are likely to be sold. Our utilization is primarily driven by the overall level of equipment demand, the location of our available equipment and the quality of our relationships with equipment lessees. The location of available equipment is critical because equipment available in high-demand locations is more readily leased and is typically leased on more favorable terms than equipment available in low-demand locations. ? 27
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The equipment leasing market is highly competitive. As such, our relationships with our customers are important to ensure that they continue to select us as one of their providers of leased equipment. Our average container fleet utilization rate in CEUs for the year endedDecember 31, 2020 was 98.5% compared to 98.6% for the year endedDecember 31, 2019 . Our average container fleet utilization remained relatively consistent between the two periods due to limited supply of new equipment despite strong leasing demand. Our utilization rate may increase or decrease depending on future global economic conditions and the additional supply of new equipment. Per Diem Rates. The per diem rate for a lease is set at the time we enter into a lease agreement. Our long-term per diem rates have historically been strongly influenced by new equipment pricing, interest rates, the balance of supply and demand for equipment at a particular time and location, our estimate of the residual value of the equipment at the end of the lease, the type and age of the equipment being leased, and, for container per diem rates, the purchase of equipment and efficiencies in container utilization by container shipping lines. The overall average per diem rates for equipment in our owned fleet and in the portfolios of equipment comprising our managed fleet do not change significantly in response to changes in new equipment prices because existing lease agreements can only be re-priced upon the expiration of the lease.
Continuing operations
Container Lease Revenue. We generate container lease revenue by leasing our owned containers primarily to container shipping lines. Approximately 80% of our container lease revenue is derived from the rental of containers. Container lease revenue is comprised of monthly lease payments due under the lease agreements together with payments for other charges set forth in the leases, such as handling fees, drop-off charges and repair charges. Approximately 24% of our owned container fleet is subject to finance leases. Under a finance lease, the lessee's payments consist of principal and interest components. The interest component is included within container lease revenue. Lessees under our finance leases have the substantive risks and rewards of equipment ownership and typically have the option to purchase the equipment at the end of the lease term for a nominal amount. Container lease revenue also includes management fee revenue generated by our management services, which include the leasing, re-leasing, repair, repositioning, storage and disposition of equipment. We provide these management services pursuant to management agreements with third-party investors. Under these agreements, which have multiple year terms, we earn fees for the management of the equipment and a commission, or a managed units' sales fee, upon disposition of equipment under management.
Operating Expenses. Our operating expenses include depreciation of rental equipment, storage, handling and other expenses applicable to our owned equipment, and administrative expenses.
We depreciate our containers on a straight-line basis over a period ranging from 12 to 15 years to a fixed estimated residual value depending on the type of container (see Note 2(d) to our consolidated financial statements included in this Annual Report on Form 10-K). We regularly assess both the estimated useful life of our containers and their expected residual values, and, when warranted, adjust our depreciation estimate accordingly. Depreciation expense for rental equipment will vary over time based upon the size of our owned rental equipment fleet and the purchase price of new equipment. If our rental equipment is impaired, the equipment is written-down to its fair value and the amount of the write-down is recorded in depreciation expense. Storage, handling and other expenses are operating costs of our owned rental equipment fleet. Storage and handling expenses occur when lessees drop off equipment at depots at the end of a lease. Storage and handling expenses vary significantly by location. Other expenses include repair expenses, which are the result of normal wear and tear on the equipment, and repositioning expenses, which are incurred when we contract to move equipment from locations where our inventories exceed actual or expected demand to locations with higher demand. Storage, handling and other expenses are directly related to the number of units in our owned fleet and inversely related to our utilization rate for those units: as utilization increases, we typically have lower storage, handling and repositioning expenses. Our administrative expenses are primarily employee-related costs such as salary, bonus and commission expenses, and employee benefits, as well as rent, bad debt and travel and entertainment costs, and expenses incurred for outside services such as legal, consulting and audit-related fees. Our operating expenses include the gain or loss on sale of rental equipment. This gain or loss is typically the result of our sale of used equipment in the secondary resale market and is the difference between: (1) the cash we receive for these units, less selling expenses; and (2) the net book value of the units.
Discontinued operations
Rail Lease Revenue. Lease revenue was generated by leasing our railcars primarily for the transport of industrial goods, materials and other products on railroad tracks throughoutNorth America . Rail lease revenue was comprised of monthly lease payments due under the lease agreements. Lease revenue was based on a fixed monthly rate or was recognized on an hourly or mileage basis. A small number of our railcars were subject to finance leases. Logistics Revenue. Logistics revenue was generated by arranging for the movement of our customers' freight through our network of non-affiliated transportation carriers and equipment providers. Revenue represented the gross price charged to our customers. 28
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Discontinued operations expenses. Operating expenses for discontinued operations include depreciation of rental equipment, storage, handling and other expenses, logistics transportation costs, loss on sale of rental equipment and administrative expenses. Logistics transportation costs represent the expenses we incur for providing logistics services to our customers. Such costs include shipping, pick-up and delivery charges, primarily from railroads and drayage companies we contract with to fulfill the movement of our customers' freight.
Results of Operations
The following table summarizes our results of operations for the years ended
Year Ended December 31,
2020 2019
Revenue
Container lease revenue $ 294,013 $ 298,853
Operating expenses
Depreciation of rental equipment 109,856 111,917
Storage, handling and other expenses 17,758
17,533
Gain on sale of rental equipment (10,204) (4,402) Administrative expenses 27,312 34,188 Total operating expenses 144,722 159,236 Operating income 149,291 139,617 Other expenses Net interest expense 61,565 79,174 Write-off of debt issuance costs 6,135 - Other (income) expense (651) 313 Total other expenses 67,049 79,487 Income before income taxes 82,242 60,130 Income tax expense 1,800 4,783 Income from continuing operations 80,442
55,347
Loss from discontinued operations, net of taxes (52,709) (24,336) Net income 27,733 31,011 Preferred stock dividends 8,829 8,829
Net income attributable to CAI common stockholders
In this Management's Discussion and Analysis of Financial Condition and Results of Operations, we discuss the results of our operations and certain cash flow information for the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 . A discussion of the year endedDecember 31, 2019 compared to the year endedDecember 31, 2018 has been omitted from this Annual Report on Form 10-K, but may be found in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year endedDecember 31, 2019 , filed with theSEC onMarch 5, 2020 , which is available free of charge on theSEC's website at www.sec.gov and our corporate website (www.capps.com). ? 29
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Year Ended
Container lease revenue
Year Ended December 31, Change
2020 2019 Amount Percent
($ in thousand)
Container lease revenue $ 294,013 $ 298,853 $ (4,840) -2%
The decrease in container lease revenue between 2020 and 2019 was mainly
attributable to a $7.2 million decrease in rental revenue resulting from a 3%
reduction in average owned container per diem rental rates, a $4.4 million
decrease in rental revenue arising from a change to cash-based revenue
recognition for a certain customer due to collectability issues, a $2.2 million
decrease in lease revenue due to a lease modification resulting in a change in
lease classification from operating to finance for a specific lease, and a $0.8
million decrease in repair fee revenue resulting from an increase in utilization
rate during 2020, partially offset by a $9.8 million increase in rental revenue,
primarily due to a 4% increase in the average number of CEUs of on-lease owned
containers. The reduction in average container per diem rental rates was caused
primarily by competitive market pressure.
Depreciation of rental equipment
Year Ended December 31, Change
2020 2019 Amount Percent
($ in thousand)
Depreciation of rental equipment
The decrease in depreciation expense between 2020 and 2019 was mainly attributable to a 3% decrease in the average size of our owned container fleet subject to depreciation over the last twelve months.
Storage, handling and other expenses
Year Ended December 31, Change
2020 2019 Amount Percent
($ in thousand)
Storage, handling and other expenses $ 17,758 $ 17,533 $ 225 1%
Storage, handling and other expenses remained relatively consistent between 2020 and 2019.
Gain on sale of rental equipment
Year Ended December 31, Change
2020 2019 Amount Percent
($ in thousand)
Gain on sale of rental equipment $ 10,204 $ 4,402 $ 5,802 132%
While there was a slight decrease of 5% in the average sale price per CEU, we sold approximately 28% more CEUs of containers in 2020 compared to 2019 due to increased demand, resulting in an increase in gain on sale of rental equipment. We also recognized a net selling loss of$2.6 million at the commencement of a finance lease during 2019. Administrative expenses Year Ended December 31, Change 2020 2019 Amount Percent ($ in thousand) Administrative expenses$ 27,312 $ 34,188 $ (6,876) -20% The decrease in administrative expenses between 2020 and 2019 was primarily attributable to an$11.9 million decrease in bad debt expense, mainly due to cash receipts from a previously reserved customer and improved collection efforts, partially offset by a$2.1 million increase in legal and professional fees due to the strategic review process, a$1.7 million increase in severance costs mainly associated with the change in our Chief Executive Officer, and a$1.1 million increase in payroll-related costs. ? 30
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Other expenses
Year Ended December 31, Change
2020 2019 Amount Percent
($ in thousand)
Net interest expense $ 61,565 $ 79,174 $ (17,609) -22%
Write-off of debt issuance costs 6,135 - 6,135 -
Other (income) expense (651) 313 (964) -308%
$ 67,049 $ 79,487 $ (12,438) -16%
Net interest expense
The decrease in net interest expense between 2020 and 2019 was due primarily to
a decrease in the average interest rate on our outstanding debt from
approximately 3.6% at December 31, 2019 to 2.3% at December 31, 2020 , caused
primarily by a decrease in LIBOR, as well as a decrease in our average loan
principal balance between the two periods, as we decreased acquisition activity
for rental equipment during the first half of 2020.
Write-off of debt issuance costs
The
Other (income) expense Other income, representing a gain on foreign exchange of$0.7 million for the year endedDecember 31, 2020 , increased from a loss of$0.3 million for the year endedDecember 31, 2019 , primarily as a result of movements in theU.S. Dollar exchange rate against the Euro.
Income tax expense
Year Ended December 31, Change
2020 2019 Amount Percent
($ in thousand)
Income tax expense $ 1,800 $ 4,783 $ (2,983) -62%
While income before tax increased between the two periods, the effective tax
rate decreased from 8.0% for the year ended December 31, 2019 to 2.2% for the
year ended December 31, 2020 . The decrease in the effective tax rate was
primarily caused by a $3.2 million tax benefit in 2020 as a result of revaluing
our state deferred tax liability due to the sale of the logistics and rail
businesses, an increase in the proportion of pretax income generated in lower
tax jurisdictions, and a decrease in the proportion of interest income generated
by foreign finance leases subject to both foreign and U.S. income tax.
Note 9 to our consolidated financial statements included in this Annual Report
on Form 10-K includes a reconciliation between the tax expense calculated at the
statutory U.S. income tax rate and the actual tax expense for the years ended
December 31, 2020 and 2019.
Preferred stock dividends
Year Ended December 31, Change
2020 2019 Amount Percent
($ in thousand)
Preferred stock dividends $ 8,829 $ 8,829 $ - 0%
Preferred stock dividends for 2020 remained consistent with 2019. ?
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Loss from discontinued operations
The following table summarizes our results of discontinued operations for the
years ended
Year Ended December 31, Change
2020 2019 Amount Percent
($ in thousand)
Total revenue $ 89,253 $ 143,817 $ (54,564) -38%
Operating expenses 145,680 161,795 (16,115) -10%
Interest expense 7,070 13,327 (6,257) -47%
Income tax benefit 10,788 6,969 3,819 55%Net loss from discontinued operations 52,709 24,336 28,373
117%
The decrease in revenue from discontinued operations between 2020 and 2019 was
the result of a $51.4 million decrease in logistics revenue, primarily
attributable to the sale of the logistics business during the quarter ended
September 30, 2020 , and a $3.2 million decrease in rail lease revenue, primarily
attributable to a decrease in the size of the on-lease railcar fleet between the
two periods due to the sale of railcars.
The decrease in operating expenses from discontinued operations between 2020 and
2019 was mainly the result of a $45.7 million decrease in logistics
transportation costs primarily attributable to the sale of the logistics
business during the quarter ended September 30, 2020 , a $13.2 million decrease
in impairment of rental equipment due to changes in the fair value of railcar
assets held for sale, and a $4.8 million decrease in administrative expenses
primarily attributable to a decrease in payroll-related costs which is partially
offset by an increase in severance costs related to the sale of the businesses.
These decreases were partially offset by a $29.1 million increase in loss on
sale of rental equipment due to the sale of the remaining railcar fleet and an
$18.5 million loss on classification as held for sale of the logistics business,
primarily due to the write down of goodwill and intangible assets, and certain
sale related costs.
The decrease in interest expense from discontinued operations between 2020 and
2019 was mainly attributable to a decrease in the average interest rate on the
outstanding debt of the rail business and a decrease in the average loan
principal balance between the two periods. The increase in income tax benefit
from discontinued operations between 2020 and 2019 was attributable to the
increase in loss before tax. The decrease in revenue, partially offset by the
decrease in operating expenses and interest expense, and the increase in income
tax benefit, resulted in an increase in net loss from discontinued operations
for the year ended December 31, 2020 compared to the year ended December 31,
2019 , of $28.4 million .
Liquidity and Capital Resources
As ofDecember 31, 2020 , we had cash and cash equivalents of$53.5 million , including$26.9 million of cash held by variable interest entities (VIEs). Our principal sources of liquidity are cash in-flows provided by operating activities, proceeds from the sale of rental equipment, borrowings under our debt agreements, and equity and debt offerings. Our cash in-flows are used to finance capital expenditures and meet debt service requirements.
As of
Current Current
Amount Maximum
Outstanding Borrowing Level
Revolving credit facilities $ 703,550 $ 1,205,664
Term loans 180,500 180,500
Senior secured notes 46,665 46,665
Asset-backed notes 726,918 726,918
Collateralized financing obligations 69,629 69,629
Term loans held by VIE 31,234 31,234
1,758,496 2,260,610
Debt discount and debt issuance costs (12,765) -
Total $ 1,745,731 $ 2,260,610 As of
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As ofDecember 31, 2020 , we had$1,460.9 million of debt in facilities with fixed interest rates or floating interest rates that have been synthetically fixed through interest rate swap agreements. This accounts for 83% of our total outstanding debt. These fixed rate facilities are scheduled to mature between 2021 and 2045 and had a weighted average interest rate of 2.3% as ofDecember 31, 2020 . As ofDecember 31, 2020 , we had$297.5 million of debt in facilities with interest rates based on floating rate indices (primarily LIBOR). These floating rate facilities are schedule to mature between 2021 and 2023 and had a weighted average interest rate of 1.8% as ofDecember 31, 2020 . We have typically funded a significant portion of the purchase price for new equipment through borrowings under our credit facilities. However, from time to time we have funded new equipment acquisitions through the use of working capital.
The revolving credit facility and term loans associated with our rail business
were repaid in full upon the sale of our remaining railcars in
Revolving Credit Facilities
We have two revolving credit facilities, which have a maximum borrowing capacity of$1,175.0 million and €25.0 million, respectively, and maturity dates ofJune 2023 andSeptember 2023 , respectively. The entire amount of the facilities drawn at any time plus accrued interest and fees is callable on demand in the event of certain specified events of default. We use the revolving credit facilities primarily to fund the purchase of rental equipment. As ofDecember 31, 2020 , in addition to a rental equipment payable of$100.5 million , we had commitments to purchase$140.9 million of containers in the twelve months endingDecember 31, 2021 .
Term Loans
We utilize our term loans as an important funding source for the purchase of rental equipment. Our term loans amortize in monthly or quarterly installments and mature betweenJune 2021 andOctober 2023 .
Senior Secured Notes
We used the proceeds from the senior secured notes primarily to fund the
purchase of rental equipment, as discussed in Note 7 to our consolidated
financial statements included in this Annual Report on Form 10-K. The notes
amortize in semi-annual installments and mature in
Asset-Backed Notes
Our asset-backed notes were issued by our indirect wholly-owned subsidiary, which was established to facilitate asset-backed note financings. We used the proceeds from the issuance of the asset-backed notes primarily to repay our outstanding balance under previously issued asset-backed notes.
Our borrowings under the asset-backed facilities amortize in monthly
installments and mature in
Other Debt Obligations
We have entered into a series of collateralized financing obligations with Japanese investor funds that are consolidated by us as VIEs (see Note 4 to our consolidated financial statements included in this Annual Report on Form 10-K). The obligations have maturity dates betweenMarch 2021 andFebruary 2026 . One of our Japanese investor funds that is consolidated by us as a VIE entered into a term loan agreement with a bank. The VIE term loan matures inFebruary 2026 . Our term loans, senior secured notes, asset-backed notes, collateralized financing obligations and term loans held by VIEs are secured by specific pools of rental equipment and other assets owned by the Company, the underlying leases thereon and the Company's interest in any money received under such contracts. We continue to monitor the COVID-19 outbreak and its impact on our overall liquidity position and outlook. The ultimate impact that COVID-19 may have on our operations and financial performance over the next twelve months is currently uncertain and will depend on certain developments, including, among others, the impact of COVID-19 on our customers and the magnitude and duration of the pandemic. Assuming that our customers meet their contractual commitments, we currently believe that cash provided by operating activities and existing cash, proceeds from the sale of rental equipment, and borrowing availability under out debt facilities are sufficient to meet our liquidity needs for at least the next twelve months. ? 33
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In addition to customary events of default, our revolving credit facilities and term loans contain restrictive covenants, including limitations on certain liens, indebtedness and investments and restrictions on dividends, distributions or other payments from our subsidiaries. In addition, all of our debt facilities contain various restrictive financial and other covenants. The financial covenants in our debt facilities require us to maintain (1) a consolidated funded debt to consolidated tangible net worth ratio of no more than 3.75:1.00, and in the case of our asset-backed notes, of no more than 4.50:1:00; and (2) a fixed charge coverage ratio of at least 1.20:1.00, and in the case of our asset-backed notes, an interest coverage ratio of at least 2.50:1.00. As ofDecember 31, 2020 , we were in compliance with all of our debt covenants. Under certain conditions, as defined in our credit agreements with our banks and/or note holders, we are subject to certain cross default provisions that may result in an acceleration of principal repayment under these credit facilities if an uncured default condition were to exist. Our asset-backed notes are not subject to any such cross-default provisions.
Cash Flow
The following table sets forth certain cash flow information for the years ended
Year Ended December 31,
2020 2019
Net income $ 27,733 $ 31,011
Net income from continuing operations adjusted
for non-cash items 186,420 179,412
Changes in working capital 83,470
73,324
Net cash provided by operating activities of continuing operations 269,890
252,736
Net cash used in investing activities of continuing operations (142,631)
(271,538)
Net cash (used in) provided by financing activities of continuing operations (193,947)
30,669
Net cash provided by (used in) discontinued operations 59,854
(14,794)
Effect on cash of foreign currency translation 97
183
Net decrease in cash (6,737)
(2,744)
Cash and restricted cash at beginning of period 73,239
75,983
Cash and restricted cash at end of period$ 66,502
Cash Flows from Continuing Operations
Operating Activities
Net cash provided by operating activities of continuing operations was$269.9 million for the year endedDecember 31, 2020 , an increase of$17.2 million compared to$252.7 million for the year endedDecember 31, 2019 . The increase was due to a$10.1 million increase in our net working capital adjustments and a$7.0 million increase in income from continuing operations as adjusted for depreciation, amortization and other non-cash items. The increase of$7.0 million in net income as adjusted for non-cash items was primarily due to a$25.1 million increase in income from continuing operations and a$5.5 million increase in amortization and write-off of unamortized debt issuance costs, partially offset by a decrease of$11.9 million in bad debt expense due to receipt of payments from a previously reserved customer, an increase of$5.8 million in the gain on sale of rental equipment, a decrease of$2.8 million in deferred income taxes, and a decrease of$1.5 million in depreciation expense. Net working capital provided by operating activities of$83.5 million for the year endedDecember 31, 2020 was mainly attributable to a$74.4 million decrease in net investment in finance leases, representing the receipt of principal payments, an$11.0 million decrease in accounts receivable, primarily caused by the timing of cash receipts from customers, and a$0.3 million increase in accounts payable, accrued expenses and other liabilities, primarily caused by the timing of payments, partially offset by a$1.8 million increase in prepaid expenses and other assets. Net working capital provided by operating activities of$73.3 million for the year endedDecember 31, 2019 was due to a$65.7 million decrease in net investment in finance leases, representing the receipt of principal payments, a$3.1 million decrease in accounts receivable, primarily caused by the timing of cash receipts from customers, and a$6.6 million increase in accounts payable, accrued expenses and other liabilities, primarily caused by the timing of payments, partially offset by a$2.1 million increase in prepaid expenses and other assets.
Investing Activities
Net cash used in investing activities of continuing operations decreased$128.9 million to$142.6 million for the year endedDecember 31, 2020 from$271.5 million for the year endedDecember 31, 2019 . The decrease in cash usage was primarily attributable to a$97.9 million decrease in the purchase of rental equipment, a$19.6 million increase in proceeds from sale of rental equipment, a$6.3 million decrease in the purchase of financing receivables, and a$3.6 million increase in the receipt of principal payments from financing receivables. ? 34
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Financing Activities
Net cash used in financing activities of continuing operations was$193.9 million for the year endedDecember 31, 2020 , an increase of$224.6 million compared to net cash provided by financing activities of continuing operations of$30.7 million for the year endedDecember 31, 2019 . During the year endedDecember 31, 2020 , our net cash outflow for borrowings was$163.4 million compared to net cash inflow from borrowings of$73.2 million for the year endedDecember 31, 2019 , reflecting a decrease in investment in rental equipment during 2020 compared to 2019. The increase in net cash outflow for borrowings, an$8.9 million increase in dividends paid to common stockholders, and an$8.2 million increase in payments made for debt issuance costs were partially offset by a$26.2 million decrease in the repurchase of common stock and a$2.7 million increase in proceeds from employee stock option exercises.
Cash Flows from Discontinued Operations
Net cash provided by discontinued operations was$59.9 million for the year endedDecember 31, 2020 , an increase of$74.6 million compared to net cash used in discontinued operations of$14.8 million for the year endedDecember 31, 2019 . The increase in cash provided by discontinued operations was primarily attributable to an$83.2 million decrease in net cash used in financing activities of discontinued operations due to a decrease in net cash outflow to repay borrowings for rail operations, and a$5.9 million increase in net cash provided by operating activities of discontinued operations, partially offset by a decrease of$14.4 million in net cash provided by investing activities of discontinued operations, mainly as a result of a decrease in proceeds received from the sale of railcar assets.
Equity Transactions
Stock Repurchase Plan
InOctober 2018 , we announced that our Board of Directors had approved the repurchase of up to 3.0 million shares of our outstanding common stock. The number, price, structure and timing of the repurchases, if any, will be at our sole discretion and will be evaluated by us depending on market conditions, corporate needs and other factors. Stock repurchases may be made in the open market, block trades or privately negotiated transactions. This stock repurchase program replaced any available prior share repurchase authorization and may be discontinued at any time. During the year endedDecember 31, 2020 , we repurchased 0.2 million shares of our common stock under this repurchase plan, at a cost of approximately$7.9 million . As ofDecember 31, 2020 , approximately 0.8 million shares remained available for repurchase under our share repurchase program. InFebruary 2021 , our Board of Directors increased the share repurchase plan by an additional 2.0 million shares.
Contractual Obligations and Commercial Commitments
The following table sets forth our contractual obligations and commercial
commitments by due date as of
Payments Due by Period
Less than 1-2 2-3 3-4 4-5 More than
Total 1 year years years years years 5 years
Total debt obligations:
Revolving credit facilities $ 703,550 $ - $ - $ 703,550 $ - $ - $ -
Term loans 180,500 76,300 7,800 96,400 - - -
Senior secured notes 46,665 6,110 40,555 - - - -
Asset-backed notes 726,918 63,130 63,130 63,130 63,594 64,985 408,949
Collateralized financing
obligations 69,629 35,862 16,282 - - - 17,485
Term loans held by VIE 31,234 5,482 5,719 5,969 6,223 6,494 1,347
Interest on debt obligations
(1) 139,454 37,316 34,143 22,938 12,027 10,296 22,734
Rental equipment payable 100,509 100,509 - - - - -
Rent, office facilities and
equipment 4,310 2,423 1,452 274 146 15 -
Equipment purchase
commitments - Containers 140,873 140,873 - - - - -
Total contractual obligations
(1)Our estimate of interest expense commitment includes$9.0 million relating to our revolving credit facilities subject to variable interest rates,$22.2 million relating to our revolving credit facilities subject to fixed interest rates,$12.1 million relating to our term loans,$4.1 million relating to our senior secured notes,$82.0 million relating to our asset-backed notes,$6.2 million relating to our collateralized financing obligations, and$3.7 million related to our term loans held by VIEs. The calculation of interest commitment related to our debt assumes the following weighted average interest rates as ofDecember 31, 2020 : variable-rate revolving credit facilities, 1.7%; fixed-rate revolving credit facilities, 1.8%; term loans, 3.2%; senior secured notes, 4.9%; asset-backed notes, 2.3%; collateralized financing obligations, 1.7%; and term loans held by VIEs, 4.2%. These calculations assume that interest rates will remain at the same level over the next five years. We expect that interest rates will vary over time based upon fluctuations in the underlying indexes upon which these interest rates are based, including the potential discontinuation of LIBOR after 2021. ? 35
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See Note 7 to our consolidated financial statements included in this Annual Report on Form 10-K for a description of the terms of our revolving credit facilities, term loans, senior secured notes, asset-based notes, collateralized financing obligations, and term loans held by VIEs.
Off-Balance Sheet Arrangements
As ofDecember 31, 2020 , we had no material off-balance sheet arrangements or obligations that have or are reasonably likely to have a current or future effect on our financial condition, change in financial condition, revenue or expenses, results of operations, liquidity capital expenditure, or capital resources that are material to investors. An off-balance sheet arrangement includes any contractual obligation, agreement or transaction arrangement involving an unconsolidated entity under which we would have: (1) retained a contingent interest in transferred assets; (2) an obligation under derivative instruments classified as equity; (3) any obligation arising out of a material variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to us, or that engages in leasing, hedging or research and development services with us; or (4) made guarantees.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with GAAP requires management to use judgment in making estimates and assumptions that affect reported amounts of assets and liabilities, the reported amounts of income and expenses during the reporting period and the disclosure of contingent assets and liabilities as of the date of the financial statements. We have identified the policies and estimates below as among those critical to our business operations and the understanding of our results of operations. These policies and estimates are considered critical due to the existence of uncertainty at the time the estimate is made, the likelihood of changes in estimates from period to period and the potential impact that these estimates can have on our financial statements. The following accounting policies and estimates include inherent risks and uncertainties related to judgments and assumptions made by us. Our estimates are based on the relevant information available at the end of each period. Actual results could differ from those estimates.
Rental Equipment
We purchase new container equipment from manufacturers to lease to our customers. We also purchase used container equipment through sale-leaseback transactions with our customers, or equipment that was previously owned by one of our third party investors. Used equipment is typically purchased with an existing lease in place.
Container rental equipment is recorded at original cost and depreciated to an estimated residual value on a straight-line basis over its estimated useful life. The estimated useful lives and residual values of our container equipment are based on historical disposal experience and our expectations for future used container sale prices. Depreciation estimates are reviewed on a regular basis to determine whether sustained changes have taken place in the useful lives of our equipment or assigned residual values, which would suggest that a change in depreciation estimates is warranted. We completed our annual depreciation policy review during the fourth quarter of 2020 and concluded no change was necessary.
The estimated useful lives and residual values for each major equipment type purchased new from the factory are as follows:
Depreciable
Residual Value Life in Years
20-ft. standard dry van container $ 1,050 13.0
40-ft. standard dry van container $ 1,300 13.0
40-ft. high cube dry van container $ 1,400 13.0
20-ft. refrigerated container $ 2,750 12.0
40-ft. high cube refrigerated container $ 3,500 12.0
Other specialized equipment is depreciated to its estimated residual value,
which ranges from
For used container equipment acquired through sale-leaseback transactions, we often adjust our estimates for remaining useful life and residual values based on current conditions in the sale market for older containers and our expectations for how long the equipment will remain on-hire to the current lessee.
Impairment of Long-Lived Assets
On at least an annual basis, we evaluate our rental equipment fleet to determine
whether there have been any events or changes in circumstances indicating that
the carrying amount of all, or part, of our fleet may not be recoverable. Events
which would trigger an impairment review include, among others, a significant
decrease in the long-term average market value of rental equipment, a
significant decrease in the utilization rate of rental equipment resulting in an
inability to generate income from operations and positive cash flow in future
periods, or a change in market conditions resulting in a significant decrease in
lease rates.
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When testing for impairment, equipment is generally grouped by equipment type, and is tested separately from other groups of assets and liabilities. Potential impairment exists when the estimated future undiscounted cash flows generated by an asset group, comprised of lease proceeds and residual values, less related operating expenses, are less than the carrying value of that asset group. If potential impairment exists, the equipment is written down to its fair value. In determining the fair value of an asset group, we consider market trends, published value for similar assets, recent transactions of similar assets and in certain cases, quotes from third party appraisers. No impairment charges were recorded as a result of our annual review completed during the fourth quarter of 2020.
Recent Accounting Pronouncements.
InMarch 2020 , theFinancial Accounting Standards Board (FASB) issued Accounting Standards Update 2020-04 (ASU 2020-04), which adds ASC Topic 848, Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 provided temporary optional expedients and exceptions to ease financial reporting burdens related to applying current GAAP to modifications of contracts, hedging relationships and other transactions in connection with the transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. InJanuary 2021 , the FASB issued ASU 2021-04 to clarify that certain optional expedients and exceptions apply to modifications of derivative contracts and certain hedging relationships affected by changes in the interest rates used for discounting cash flows, computing variation margin settlements, and for calculating price alignment interest. ASU 2020-04 is effective beginning onMarch 12, 2020 and may be applied prospectively to such transactions throughDecember 31, 2022 and ASU 2021-01 is effective beginning onJanuary 7, 2021 and may be applied retrospectively or prospectively to such transactions throughDecember 31, 2022 . We will apply ASU 2020-04 and ASU 2021-01 prospectively as and when we enter into transactions to which these updates apply. The most recently adopted accounting pronouncements are described in Note 2 to our consolidated financial statements included in this Annual Report on Form 10-K.
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