tgh-6k_20180930.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 6-K

 

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO

RULE 13a-16 OR 15d-16 UNDER

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2018

Commission File Number 001-33725

 

Textainer Group Holdings Limited

(Translation of Registrant’s name into English)

 

Century House

16 Par-La-Ville Road

Hamilton HM 08

Bermuda

(441) 296-2500

(Address of principal executive office)

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F      Form 40-F  

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.  Yes      No  

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): Not applicable

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2). Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

 

 

 

 

1


This report contains the quarterly report of Textainer Group Holdings Limited for the three and nine months ended September 30, 2018.

 

Exhibits

 

Exhibits   

1.

Quarterly Report of Textainer Group Holdings Limited for the Three and Nine Months Ended September 30, 2018.

 

 

2


Exhibit 1

TEXTAINER GROUP HOLDINGS LIMITED

Quarterly Report on Form 6-K for the Three and Nine Months Ended September 30, 2018

Table of Contents

 

Information Regarding Forward-Looking Statements; Cautionary Language

 

Page

 

 

 

 

Item 1. Condensed Consolidated Financial Statements (Unaudited):

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2018 and 2017

 

5

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets as of September 30, 2018 and December 31, 2017

 

6

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2018 and 2017

 

7

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

 

9

 

 

 

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

29

 

 

 

 

 

Item 3. Quantitative and Qualitative Disclosures About Market and Credit Risk

 

40

 

 

 

 

 

Item 4. Risk Factors

 

41

 

 

 

 

 

Signature

 

42

 

 

 

3


CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 6-K, including the section entitled Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, contains forward-looking statements within the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements include all statements that are not statements of historical facts and may relate to, but are not limited to, expectations or estimates of future operating results or financial performance, capital expenditures, regulatory compliance, plans for growth and future operations, as well as assumptions relating to the foregoing. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “intend,” “potential,” “continue” or the negative of these terms or other similar terminology. The forward-looking statements contained in this Quarterly Report on Form 6-K include, but are not limited to, statements regarding  (i) factors that are likely to continue to affect our performance and (ii) our belief that, assuming that our lenders remain solvent that our cash flow from operations, proceeds from the sale of containers and borrowing availability under our debt facilities are sufficient to meet our liquidity needs, including for the payment of dividends, for the next twelve months.

Although we do not make forward-looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy, and actual results may differ materially from those we anticipated due to a number of uncertainties, many of which cannot be foreseen. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including, among others, the risks we face that are described in the section entitled Item 3, “Key Information -- Risk Factors” included in our Annual Report on Form 20-F for the fiscal year ended December 31, 2017 filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 14, 2018 (our “2017 Form 20-F”).

We believe that it is important to communicate our expectations about the future to potential investors, shareholders and other readers. However, there may be events in the future that we are not able to accurately predict or control and that may cause actual events or results to differ materially from the expectations expressed in or implied by our forward-looking statements. The risk factors listed in Item 3, “Key Information -- Risk Factors” included in our 2017 Form 20-F, as well as any cautionary language in this Quarterly Report on Form 6-K, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. Before you decide to buy, hold or sell our common shares, you should be aware that the occurrence of the events described in Item 3, “Key Information -- Risk Factors” included in our 2017 Form 20-F and elsewhere in this Quarterly Report on Form 6-K could negatively impact our business, cash flows, results of operations, financial condition and share price. Potential investors, shareholders and other readers are cautioned not to place undue reliance on our forward-looking statements.

Forward-looking statements regarding our present plans or expectations for fleet size, management contracts, container purchases, sources and availability of financing, and growth involve risks and uncertainties relative to return expectations and related allocation of resources, and changing economic or competitive conditions, as well as the negotiation of agreements with container investors, which could cause actual results to differ from present plans or expectations, and such differences could be material. Similarly, forward-looking statements regarding our present expectations for operating results and cash flow involve risks and uncertainties related to factors such as utilization rates, per diem rates, container prices, demand for containers by container shipping lines, supply and other factors discussed under Item 3, “Key Information -- Risk Factors” included in our 2017 Form 20-F or elsewhere in this Quarterly Report on Form 6-K, which could also cause actual results to differ from present plans. Such differences could be material.

All future written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. New risks and uncertainties arise from time to time, and we cannot predict those events or how they may affect us. The forward-looking statements contained in this Quarterly Report on Form 6-K speak only as of, and are based on information available to us on, the date of the filing of this Quarterly Report on Form 6-K. We assume no obligation to, and do not plan to, update any forward-looking statements after the date of this Quarterly Report on Form 6-K as a result of new information, future events or developments, except as expressly required by U.S. federal securities laws. You should read this Quarterly Report on Form 6-K and the documents that we reference and have furnished as exhibits with the understanding that we cannot guarantee future results, levels of activity, performance or achievements and that actual results may differ materially from what we expect.  

In this Quarterly Report on Form 6-K, unless otherwise specified, all monetary amounts are in U.S. dollars. To the extent that any monetary amounts are not denominated in U.S. dollars, they have been translated into U.S. dollars in accordance with our accounting policies as described in Item 18, “Financial Statements” included in our 2017 Form 20-F.

 

 

4


ITEM 1.

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

TEXTAINER GROUP HOLDINGS LIMITED AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income

Three and Nine Months Ended September 30, 2018 and 2017

(Unaudited)

(All currency expressed in United States dollars in thousands, except per share amounts)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lease rental income

 

 

 

 

$

129,834

 

 

 

 

 

$

112,195

 

 

 

 

 

$

371,639

 

 

 

 

 

$

328,591

 

Management fees

 

 

 

 

 

4,031

 

 

 

 

 

 

4,193

 

 

 

 

 

 

12,578

 

 

 

 

 

 

10,949

 

Trading container sales proceeds

 

 

 

 

 

7,123

 

 

 

 

 

 

1,237

 

 

 

 

 

 

12,681

 

 

 

 

 

 

4,089

 

Gain on sale of containers, net

 

 

 

 

 

8,450

 

 

 

 

 

 

7,975

 

 

 

 

 

 

26,480

 

 

 

 

 

 

17,905

 

Total revenues

 

 

 

 

 

149,438

 

 

 

 

 

 

125,600

 

 

 

 

 

 

423,378

 

 

 

 

 

 

361,534

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct container expense

 

 

 

 

 

16,534

 

 

 

 

 

 

11,026

 

 

 

 

 

 

43,684

 

 

 

 

 

 

45,574

 

Cost of trading containers sold

 

 

 

 

 

5,319

 

 

 

 

 

 

841

 

 

 

 

 

 

10,535

 

 

 

 

 

 

2,846

 

Depreciation expense

 

 

 

 

 

60,444

 

 

 

 

 

 

55,354

 

 

 

 

 

 

174,571

 

 

 

 

 

 

175,606

 

Container impairment

 

 

 

 

 

16,784

 

 

 

 

 

 

1,956

 

 

 

 

 

 

18,554

 

 

 

 

 

 

6,481

 

Amortization expense

 

 

 

 

 

439

 

 

 

 

 

 

1,151

 

 

 

 

 

 

3,219

 

 

 

 

 

 

3,047

 

General and administrative expense

 

 

 

 

 

8,453

 

 

 

 

 

 

7,232

 

 

 

 

 

 

25,172

 

 

 

 

 

 

21,886

 

Short-term incentive compensation expense

 

 

 

 

 

864

 

 

 

 

 

 

805

 

 

 

 

 

 

2,591

 

 

 

 

 

 

2,167

 

Long-term incentive compensation expense

 

 

 

 

 

3,170

 

 

 

 

 

 

1,473

 

 

 

 

 

 

5,902

 

 

 

 

 

 

4,254

 

Bad debt expense, net

 

 

 

 

 

275

 

 

 

 

 

 

757

 

 

 

 

 

 

1,058

 

 

 

 

 

 

1,117

 

Total operating expenses

 

 

 

 

 

112,282

 

 

 

 

 

 

80,595

 

 

 

 

 

 

285,286

 

 

 

 

 

 

262,978

 

Income from operations

 

 

 

 

 

37,156

 

 

 

 

 

 

45,005

 

 

 

 

 

 

138,092

 

 

 

 

 

 

98,556

 

Other (expense) income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

 

 

 

(35,706

)

 

 

 

 

 

(30,069

)

 

 

 

 

 

(101,838

)

 

 

 

 

 

(88,386

)

Write-off of unamortized deferred debt issuance costs

   and bond discounts

 

 

 

 

 

(881

)

 

 

 

 

 

(238

)

 

 

 

 

 

(881

)

 

 

 

 

 

(7,466

)

Interest income

 

 

 

 

 

446

 

 

 

 

 

 

191

 

 

 

 

 

 

1,153

 

 

 

 

 

 

408

 

Realized gains (losses) on interest rate swaps, collars and

   caps, net

 

 

 

 

 

1,268

 

 

 

 

 

 

154

 

 

 

 

 

 

3,951

 

 

 

 

 

 

(1,487

)

Unrealized gains on interest rate swaps, collars

   and caps, net

 

 

 

 

 

22

 

 

 

 

 

 

151

 

 

 

 

 

 

2,248

 

 

 

 

 

 

1,213

 

Other, net

 

 

 

 

 

(1

)

 

 

 

 

 

(4

)

 

 

 

 

 

(1

)

 

 

 

 

 

(1

)

Net other expense

 

 

 

 

 

(34,852

)

 

 

 

 

 

(29,815

)

 

 

 

 

 

(95,368

)

 

 

 

 

 

(95,719

)

Income before income tax and noncontrolling interests

 

 

 

 

 

2,304

 

 

 

 

 

 

15,190

 

 

 

 

 

 

42,724

 

 

 

 

 

 

2,837

 

Income tax benefit (expense), net

 

 

 

 

 

224

 

 

 

 

 

 

4,783

 

 

 

 

 

 

(1,262

)

 

 

 

 

 

(431

)

Net income

 

 

 

 

 

2,528

 

 

 

 

 

 

19,973

 

 

 

 

 

 

41,462

 

 

 

 

 

 

2,406

 

Less: Net income attributable to the noncontrolling

   interests

 

 

(615

)

 

 

 

 

 

(1,492

)

 

 

 

 

 

(3,325

)

 

 

 

 

 

(252

)

 

 

 

Net income attributable to Textainer Group

   Holdings Limited common shareholders

 

$

1,913

 

 

 

 

 

$

18,481

 

 

 

 

 

$

38,137

 

 

 

 

 

$

2,154

 

 

 

 

Net income attributable to Textainer Group Holdings

   Limited common shareholders per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.03

 

 

 

 

 

$

0.33

 

 

 

 

 

$

0.67

 

 

 

 

 

$

0.04

 

 

 

 

Diluted

 

$

0.03

 

 

 

 

 

$

0.32

 

 

 

 

 

$

0.66

 

 

 

 

 

$

0.04

 

 

 

 

Weighted average shares outstanding (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

57,212

 

 

 

 

 

 

56,823

 

 

 

 

 

 

57,144

 

 

 

 

 

 

56,806

 

 

 

 

Diluted

 

 

57,426

 

 

 

 

 

 

57,180

 

 

 

 

 

 

57,438

 

 

 

 

 

 

57,042

 

 

 

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

 

 

 

(93

)

 

 

 

 

 

53

 

 

 

 

 

 

(82

)

 

 

 

 

 

149

 

Comprehensive income

 

 

 

 

 

2,435

 

 

 

 

 

 

20,026

 

 

 

 

 

 

41,380

 

 

 

 

 

 

2,555

 

Comprehensive income attributable to the

   noncontrolling interests

 

 

 

 

 

(615

)

 

 

 

 

 

(1,492

)

 

 

 

 

 

(3,325

)

 

 

 

 

 

(252

)

Comprehensive income attributable to Textainer Group

    Holdings Limited common shareholders

 

 

 

 

$

1,820

 

 

 

 

 

$

18,534

 

 

 

 

 

$

38,055

 

 

 

 

 

$

2,303

 

 

See accompanying notes to condensed consolidated financial statements.

5


TEXTAINER GROUP HOLDINGS LIMITED AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

September 30, 2018 and December 31, 2017

(Unaudited)

(All currency expressed in United States dollars in thousands)

 

 

 

2018

 

 

2017

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

154,572

 

 

$

137,894

 

Accounts receivable, net of allowance for doubtful accounts of $2,554 and $5,775, respectively

 

 

93,645

 

 

 

78,312

 

Net investment in direct financing and sales-type leases

 

 

50,885

 

 

 

56,959

 

Trading containers

 

 

12,197

 

 

 

10,752

 

Containers held for sale

 

 

29,937

 

 

 

22,089

 

Prepaid expenses and other current assets

 

 

12,988

 

 

 

12,243

 

Insurance receivable

 

 

653

 

 

 

15,909

 

Due from affiliates, net

 

 

1,415

 

 

 

1,134

 

Total current assets

 

 

356,292

 

 

 

335,292

 

Restricted cash

 

 

84,690

 

 

 

99,675

 

Containers, net of accumulated depreciation of $1,278,386 and $1,172,355, respectively

 

 

4,174,469

 

 

 

3,791,610

 

Net investment in direct financing and sales-type leases

 

 

116,496

 

 

 

125,665

 

Fixed assets, net of accumulated depreciation of $11,344 and $10,788, respectively

 

 

1,967

 

 

 

2,151

 

Intangible assets, net of accumulated amortization of $42,763 and $44,279, respectively

 

 

7,886

 

 

 

11,105

 

Interest rate swaps, collars and caps

 

 

9,985

 

 

 

7,787

 

Deferred taxes

 

 

1,558

 

 

 

1,563

 

Other assets

 

 

4,238

 

 

 

5,494

 

Total assets

 

$

4,757,581

 

 

$

4,380,342

 

Liabilities and Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

7,110

 

 

$

6,867

 

Accrued expenses

 

 

16,521

 

 

 

13,365

 

Container contracts payable

 

 

249,915

 

 

 

131,087

 

Other liabilities

 

 

216

 

 

 

235

 

Due to owners, net

 

 

9,968

 

 

 

11,131

 

Debt, net of unamortized deferred financing costs of $5,836 and $3,989, respectively

 

 

195,950

 

 

 

233,681

 

Total current liabilities

 

 

479,680

 

 

 

396,366

 

Debt, net of unamortized deferred financing costs of $24,097 and $20,045, respectively

 

 

3,003,282

 

 

 

2,756,627

 

Interest rate swaps, collars and caps

 

 

31

 

 

 

81

 

Income tax payable

 

 

9,436

 

 

 

9,081

 

Deferred taxes

 

 

7,233

 

 

 

5,881

 

Other liabilities

 

 

1,867

 

 

 

2,024

 

Total liabilities

 

 

3,501,529

 

 

 

3,170,060

 

Equity:

 

 

 

 

 

 

 

 

Textainer Group Holdings Limited shareholders' equity:

 

 

 

 

 

 

 

 

Common shares, $0.01 par value. Authorized 140,000,000 shares; 57,779,493 shares issued and

  57,149,493 shares outstanding at 2018; 57,727,220 shares issued and 57,097,220 shares

  outstanding at 2017

 

 

578

 

 

 

578

 

Additional paid-in capital

 

 

404,207

 

 

 

397,821

 

Treasury shares, at cost, 630,000 shares

 

 

(9,149

)

 

 

(9,149

)

Accumulated other comprehensive loss

 

 

(391

)

 

 

(309

)

Retained earnings

 

 

801,738

 

 

 

763,601

 

Total Textainer Group Holdings Limited shareholders’ equity

 

 

1,196,983

 

 

 

1,152,542

 

Noncontrolling interests

 

 

59,069

 

 

 

57,740

 

Total equity

 

 

1,256,052

 

 

 

1,210,282

 

Total liabilities and equity

 

$

4,757,581

 

 

$

4,380,342

 

 

See accompanying notes to condensed consolidated financial statements.

6


TEXTAINER GROUP HOLDINGS LIMITED AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

Nine Months Ended September 30, 2018 and 2017

(Unaudited)

(All currency expressed in United States dollars in thousands)

 

 

 

Nine Months Ended September 30,

 

 

 

2018

 

 

2017

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

41,462

 

 

$

2,406

 

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

 

 

 

 

 

 

 

 

Depreciation expense

 

 

174,571

 

 

 

175,606

 

Container impairment

 

 

18,554

 

 

 

6,481

 

Bad debt expense, net

 

 

1,058

 

 

 

1,117

 

Unrealized gains on interest rate swaps, collars and caps, net

 

 

(2,248

)

 

 

(1,213

)

Amortization and write-off of unamortized deferred debt issuance costs and

   accretion of bond discounts

 

 

7,616

 

 

 

18,345

 

Amortization of intangible assets

 

 

3,219

 

 

 

3,047

 

Gain on sale of containers, net

 

 

(26,480

)

 

 

(17,905

)

Share-based compensation expense

 

 

6,334

 

 

 

4,701

 

Changes in operating assets and liabilities

 

 

(852

)

 

 

3,869

 

Total adjustments

 

 

181,772

 

 

 

194,048

 

Net cash provided by operating activities

 

 

223,234

 

 

 

196,454

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of containers and fixed assets

 

 

(572,948

)

 

 

(57,717

)

Proceeds from sale of containers and fixed assets

 

 

106,504

 

 

 

97,794

 

Receipt of payments on direct financing and sales-type leases, net of income earned

 

 

45,321

 

 

 

48,492

 

Insurance proceeds received for unrecoverable containers

 

 

 

 

 

12,466

 

Net cash (used in) provided by investing activities

 

 

(421,123

)

 

 

101,035

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from debt

 

 

1,688,026

 

 

 

1,510,130

 

Principal payments on debt

 

 

(1,476,401

)

 

 

(1,719,019

)

Debt issuance costs

 

 

(10,017

)

 

 

(25,911

)

Dividends paid to noncontrolling interest

 

 

(1,996

)

 

 

 

Issuance of common shares upon exercise of share options

 

 

52

 

 

 

494

 

Net cash provided by (used in) financing activities

 

 

199,664

 

 

 

(234,306

)

Effect of exchange rate changes

 

 

(82

)

 

 

149

 

Net increase in cash, cash equivalents and restricted cash

 

 

1,693

 

 

 

63,332

 

Cash, cash equivalents and restricted cash, beginning of the year

 

 

237,569

 

 

 

142,123

 

Cash, cash equivalents and restricted cash, end of period

 

$

239,262

 

 

$

205,455

 

 

 

See accompanying notes to condensed consolidated financial statements.

7


TEXTAINER GROUP HOLDINGS LIMITED AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

Nine Months Ended September 30, 2018 and 2017

(Unaudited)

(All currency expressed in United States dollars in thousands)

 

 

 

Nine Months Ended September 30,

 

 

 

2018

 

 

2017

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

 

Interest expense and realized gains (losses) on interest rate swaps, collars and caps, net

 

$

89,331

 

 

$

79,232

 

Net income taxes paid

 

$

675

 

 

$

522

 

Supplemental disclosures of noncash investing activities:

 

 

 

 

 

 

 

 

Increase in container contracts payable

 

$

118,828

 

 

$

122,318

 

Containers placed in direct financing and sales-type leases

 

$

29,257

 

 

$

8,694

 

Decrease in insurance receivable due to a decrease in estimated unrecoverable containers

 

$

2,049

 

 

$

7,696

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

8


TEXTAINER GROUP HOLDINGS LIMITED AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(All currency expressed in United States dollars in thousands, except per share amounts)

 

(1)

Nature of Business

Textainer Group Holdings Limited (“TGH”) is incorporated in Bermuda. TGH is the holding company of a group of companies, consisting of TGH and its subsidiaries (collectively, the “Company”), involved in the purchase, management, leasing and resale of marine cargo containers. The Company manages and provides administrative support to the affiliated and unaffiliated owners (the “Owners”) of the containers, and structures and manages container leasing investment programs.

The Company conducts its business activities in three main areas: Container Ownership, Container Management and Container Resale (see Note 8 “Segment Information”).

 

(2)     Accounting Policies and Recent Accounting Pronouncements

 

(a)

Basis of Accounting

Certain information and footnote disclosure normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted. The accompanying unaudited condensed consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 20-F for the fiscal year ended December 31, 2017 filed with the Securities and Exchange Commission on March 14, 2018.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of only normal and recurring adjustments) necessary to present fairly the Company’s condensed consolidated financial position as of September 30, 2018, and the Company’s condensed consolidated results of operations for the three and nine months ended September 30, 2018 and 2017 and condensed consolidated cash flows for the nine months ended September 30, 2018 and 2017. These condensed consolidated financial statements are not necessarily indicative of the results of operations or cash flows that may be reported for the remainder of the fiscal year ending December 31, 2018.

The condensed consolidated financial statements of the Company include TGH and all of its subsidiaries. All material intercompany balances have been eliminated in consolidation.

 

(b)

Principles of Consolidation and Variable Interest Entity

The condensed consolidated financial statements of the Company include TGH and all of its subsidiaries in which the Company has a controlling financial interest. All significant intercompany accounts and balances have been eliminated in consolidation.

TAP Funding Ltd. (“TAP Funding”) (a Bermuda company) is a joint venture between the Company’s wholly-owned subsidiary, Textainer Limited (“TL”) (a Bermuda company) and TAP Ltd. (“TAP”) in which TL owns 50.1%, TAP owns 49.9% of the common shares of TAP Funding, and TAP Funding is a voting interest entity (“VME”).  The Company consolidates TAP Funding as the Company has a controlling financial interest in TAP Funding.

The Company has determined that it has a variable interest in TW Container Leasing, Ltd. (“TW”) (a Bermuda company), a joint venture between the Company’s wholly-owned subsidiary, TL, and Wells Fargo Container Corp (“WFC”) in which TL owns 25% and WFC owns 75% of the common shares of TW, and that TW is a variable interest entity (“VIE”). The Company has determined that it is the primary beneficiary of TW by its equity ownership in the entity and by virtue of its role as manager, namely that the Company has the power to direct the activities of TW that most significantly impact TW’s economic performance.

The equity owned by TAP and WFC in TAP Funding and TW, respectively, is shown as noncontrolling interests on the Company’s condensed consolidated balance sheets and the net income attributable to the noncontrolling interests’ operations is shown as net income attributable to the noncontrolling interests on the Company’s condensed consolidated statements of comprehensive income.

 


9


TEXTAINER GROUP HOLDINGS LIMITED AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(All currency expressed in United States dollars in thousands, except per share amounts)

 

 

(c)

Cash and Cash Equivalents and Restricted Cash

Cash and cash equivalents are comprised of interest-bearing deposits and money market securities with original maturities of three months or less. The Company maintains cash and cash equivalents and restricted cash (see Note 9 “Commitments and Contingencies—Restricted Cash”) with various financial institutions. Restricted cash is excluded from cash and cash equivalents and is included in long-term assets.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported in the condensed consolidated balance sheets that sum to the amounts shown in the condensed consolidated statements of cash flows:

 

 

 

September 30,

 

 

December 31,

 

 

 

2018

 

 

2017

 

Cash and cash equivalents

 

$

154,572

 

 

$

137,894

 

Restricted cash included in long-term assets

 

 

84,690

 

 

 

99,675

 

Cash, cash equivalents and restricted cash, end of period

 

$

239,262

 

 

$

237,569

 

 

 

 

(d)

Containers

Capitalized container costs include the container cost payable to the manufacturer and the associated transportation costs incurred in moving the containers from the manufacturer to the containers’ first destined port. Containers are depreciated using the straight-line method over their estimated useful lives to an estimated dollar residual value. Used containers are depreciated based upon their remaining useful lives at the date of acquisition to an estimated dollar residual value.

The Company evaluates the estimated residual values and remaining estimated useful lives on a regular basis to determine whether a change in its estimates of useful lives and residual values is warranted. The Company takes a long-term view when assessing its residual values and typically does not change its residual values until disposal prices have been significantly above or below residual values for a period longer than a year. Container prices have risen significantly since December 31, 2016 and the Company has subsequently recorded consecutive quarters of impairment reversals for containers designated for sale. As a result, the Company increased the estimated future residual value of its 20’ dry containers, 40’ dry containers and 40’ high cube dry containers effective July 1, 2017, as stated in the below table on the Company’s useful lives and residual values estimates.

Container prices continued to increase after July 1, 2017 through December 2017 and then stabilized through August 2018.

During the three months ended September 30, 2018, the Company reassessed the estimates used in its depreciation policy. To perform the assessment, the Company analyzed sales data from 2008 to August 2018 as this period reflects the cyclical nature of the global economic environment and more specifically, the Company’s industry. This period includes multiple business cycles, including two periods of weak trade growth (2009 and 2014 through 2016) and three periods of strong container demand (2008, 2010 through 2012, and 2017 through August 2018). The Company believes the best comparison points are the weighted averages for this period excluding the highest and lowest years or periods and average sales prices for the last two periods/years which highlight the most current period trends as shown in the table below for each of our major equipment types.

 

 

Dry Containers

 

 

Refrigerated Containers

 

 

 

20'

 

 

40'

 

 

40' High Cube

 

 

40' High Cube

 

Weighted average sales price from 2008 to

   August 2018 (excludes the highest and

   lowest periods)

 

$

1,124

 

 

$

1,404

 

 

$

1,546

 

 

$

4,932

 

Average sales price:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2017

 

$

1,187

 

 

$

1,374

 

 

$

1,520

 

 

$

4,952

 

Year-to-date August 2018

 

$

1,361

 

 

$

1,632

 

 

$

1,848

 

 

$

4,412

 


10


TEXTAINER GROUP HOLDINGS LIMITED AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(All currency expressed in United States dollars in thousands, except per share amounts)

 

The average of weighted average long-term sales prices excluding the highest and lowest years and the year-to-date August 2018 sales prices for 20’, 40’ and 40’ high cube dry containers were significantly above their residual values, so the Company performed additional qualitative analyses. While our average sales prices for the 20’ and 40’ dry containers have been above their residual values year-to-date August 2018, the Company does not believe the increase in value is sustainable in the long-term because the current weighted average long-term sales prices excluding the highest and lowest years on these two container types both decreased as compared to prior year’s long-term weighted average of $1,163 and $1,443 on its 20’ and 40’ dry containers, respectively. Along with the qualitative analyses, the Company concluded that the estimated future residual values of its 20’ and 40’ dry containers are at the appropriate levels and do not warrant revision. The average sales price for the 40’ high cube dry containers has been significantly above its residual value for the year-to-date August 2018. Among other qualitative factors which the Company considered was the greater demand on the larger cargo volume of 40’ high cube dry containers over 20’ and 40’ dry containers. Although the current weighted average long-term sales price excluding the highest and lowest years decreased from the prior year’s long-term weighted average of $1,607, the Company outweighed its qualitative analyses over its quantitative analyses and concluded that a higher residual value is appropriate and has accordingly increased the estimated future residual value of its 40’ high cube dry containers from $1,350 to $1,400, beginning July 1, 2018.

The average of long-term weighted average sales price excluding the highest and lowest years and the year-to-date August 2018 sales price for the 40’ high cube refrigerated containers was not significantly above its residual value, the Company also performed additional qualitative analyses on this container type as there is limited quantitative data (and industry data). Among other qualitative factors which the Company considered were the possible future technical obsolescence on the machinery and, the lack of sufficient sales data from its own relatively young fleet which has not yet reached disposal age and industry data. The Company outweighed its qualitative analyses over its quantitative analyses and concluded that a lower residual value is appropriate and accordingly reduced the estimated future residual value of its 40’ high cube refrigerated containers from $4,500 to $4,000, beginning July 1, 2018.

Depreciation expense may fluctuate in future periods based on fluctuations in these estimates. The net effect of these changes was a decrease in depreciation expense of $62 for both the three and nine months ended September 30, 2018, respectively.

 

The Company estimates the useful lives and residual values of its containers to be as follows:

 

 

 

Effective July 1, 2018

 

 

July 1, 2017 through June 30, 2018

 

 

January 1, 2017 through June 30, 2017

 

 

 

Estimated useful

 

 

Residual

 

 

Estimated useful

 

 

Residual

 

 

Estimated useful

 

 

Residual

 

 

 

life (years)

 

 

Value

 

 

life (years)

 

 

Value

 

 

life (years)

 

 

Value

 

Dry containers other than folding

   flat rack and open top containers:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

20' standard

 

 

13

 

 

$

1,000

 

 

 

13

 

 

$

1,000

 

 

 

13

 

 

$

950

 

40' standard

 

 

14

 

 

$

1,200

 

 

 

14

 

 

$

1,200

 

 

 

14

 

 

$

1,150

 

40' high cube

 

 

13

 

 

$

1,400

 

 

 

13

 

 

$

1,350

 

 

 

13

 

 

$

1,300

 

45' high cube dry van

 

 

13

 

 

$

1,500

 

 

 

13

 

 

$

1,500

 

 

 

13

 

 

$

1,500

 

Refrigerated containers:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

20' standard

 

 

12

 

 

$

2,750

 

 

 

12

 

 

$

2,750

 

 

 

12

 

 

$

2,750

 

20' high cube

 

 

12

 

 

$

2,049

 

 

 

12

 

 

$

2,049

 

 

 

12

 

 

$

2,049