tgh-6k_20180331.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 March 31, 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 months ended March 31, 2018.

 

Exhibits

 

Exhibits   

1.

Quarterly Report of Textainer Group Holdings Limited for the Three Months Ended March 31, 2018.

 

 

2


Exhibit 1

TEXTAINER GROUP HOLDINGS LIMITED

Quarterly Report on Form 6-K for the Three Months Ended March 31, 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 (Loss) for the Three Months Ended March 31, 2018 and 2017

 

5

 

 

 

 

 

 

 

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

 

6

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 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

 

23

 

 

 

 

 

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

 

32

 

 

 

 

 

Item 4. Risk Factors

 

33

 

 

 

 

 

Signature

 

34

 

 

 

3


INFORMATION REGARDING FORWARD-LOOKING STATEMENTS; CAUTIONARY LANGUAGE

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 (Loss)

Three Months Ended March 31, 2018 and 2017

(Unaudited)

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

 

 

 

Three Months Ended March 31,

 

 

 

2018

 

 

2017

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lease rental income

 

 

 

 

$

120,222

 

 

 

 

 

$

107,617

 

Management fees

 

 

 

 

 

3,988

 

 

 

 

 

 

3,222

 

Trading container sales proceeds

 

 

 

 

 

2,401

 

 

 

 

 

 

1,800

 

Gain on sale of containers, net

 

 

 

 

 

6,627

 

 

 

 

 

 

4,048

 

Total revenues

 

 

 

 

 

133,238

 

 

 

 

 

 

116,687

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct container expense

 

 

 

 

 

13,696

 

 

 

 

 

 

19,659

 

Cost of trading containers sold

 

 

 

 

 

2,105

 

 

 

 

 

 

1,289

 

Depreciation expense

 

 

 

 

 

56,334

 

 

 

 

 

 

60,608

 

Container impairment

 

 

 

 

 

832

 

 

 

 

 

 

3,811

 

Amortization expense

 

 

 

 

 

1,822

 

 

 

 

 

 

948

 

General and administrative expense

 

 

 

 

 

8,104

 

 

 

 

 

 

7,345

 

Short-term incentive compensation expense

 

 

 

 

 

938

 

 

 

 

 

 

1,360

 

Long-term incentive compensation expense

 

 

 

 

 

1,358

 

 

 

 

 

 

1,376

 

Bad debt (recovery) expense, net

 

 

 

 

 

(607

)

 

 

 

 

 

252

 

Total operating expenses

 

 

 

 

 

84,582

 

 

 

 

 

 

96,648

 

Income from operations

 

 

 

 

 

48,656

 

 

 

 

 

 

20,039

 

Other (expense) income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

 

 

 

(31,619

)

 

 

 

 

 

(28,913

)

Interest income

 

 

 

 

 

303

 

 

 

 

 

 

128

 

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

   net

 

 

 

 

 

1,184

 

 

 

 

 

 

(1,162

)

Unrealized gains on interest rate swaps, collars

   and caps, net

 

 

 

 

 

2,263

 

 

 

 

 

 

2,294

 

Other, net

 

 

 

 

 

2

 

 

 

 

 

 

(14

)

Net other expense

 

 

 

 

 

(27,867

)

 

 

 

 

 

(27,667

)

Income (loss) before income tax and noncontrolling interests

 

 

 

 

 

20,789

 

 

 

 

 

 

(7,628

)

Income tax expense

 

 

 

 

 

(560

)

 

 

 

 

 

(447

)

Net income (loss)

 

 

 

 

 

20,229

 

 

 

 

 

 

(8,075

)

Less: Net (income) loss attributable to the noncontrolling

   interests

 

 

(1,511

)

 

 

 

 

 

1,101

 

 

 

 

Net income (loss) attributable to Textainer Group Holdings

   Limited common shareholders

 

$

18,718

 

 

 

 

 

$

(6,974

)

 

 

 

Net income (loss) attributable to Textainer Group Holdings Limited

   common shareholders per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.33

 

 

 

 

 

$

(0.12

)

 

 

 

Diluted

 

$

0.33

 

 

 

 

 

$

(0.12

)

 

 

 

Weighted average shares outstanding (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

57,099

 

 

 

 

 

 

56,790

 

 

 

 

Diluted

 

 

57,530

 

 

 

 

 

 

56,790

 

 

 

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

 

 

 

106

 

 

 

 

 

 

32

 

Comprehensive income (loss)

 

 

 

 

 

20,335

 

 

 

 

 

 

(8,043

)

Comprehensive (income) loss income attributable to the

   noncontrolling interests

 

 

 

 

 

(1,511

)

 

 

 

 

 

1,101

 

Comprehensive income (loss) attributable to Textainer Group Holdings

    Limited common shareholders

 

 

 

 

$

18,824

 

 

 

 

 

$

(6,942

)

 

See accompanying notes to condensed consolidated financial statements.

5


TEXTAINER GROUP HOLDINGS LIMITED AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

March 31, 2018 and December 31, 2017

(Unaudited)

(All currency expressed in United States dollars in thousands)

 

 

 

2018

 

 

2017

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

180,685

 

 

$

137,894

 

Accounts receivable, net of allowance for doubtful accounts of $5,001 and $5,775, respectively

 

 

85,654

 

 

 

78,312

 

Net investment in direct financing and sales-type leases

 

 

57,186

 

 

 

56,959

 

Trading containers

 

 

9,445

 

 

 

10,752

 

Containers held for sale

 

 

26,011

 

 

 

22,089

 

Prepaid expenses and other current assets

 

 

12,957

 

 

 

12,243

 

Insurance receivable

 

 

14,922

 

 

 

15,909

 

Due from affiliates, net

 

 

1,323

 

 

 

1,134

 

Total current assets

 

 

388,183

 

 

 

335,292

 

Restricted cash

 

 

91,985

 

 

 

99,675

 

Containers, net of accumulated depreciation of $1,209,766 and $1,172,355, respectively

 

 

3,968,240

 

 

 

3,791,610

 

Net investment in direct financing and sales-type leases

 

 

126,399

 

 

 

125,665

 

Fixed assets, net of accumulated depreciation of $11,040 and $10,788, respectively

 

 

2,155

 

 

 

2,151

 

Intangible assets, net of accumulated amortization of $41,534 and $44,279, respectively

 

 

9,283

 

 

 

11,105

 

Interest rate swaps, collars and caps

 

 

10,020

 

 

 

7,787

 

Deferred taxes

 

 

1,569

 

 

 

1,563

 

Other assets

 

 

5,137

 

 

 

5,494

 

Total assets

 

$

4,602,971

 

 

$

4,380,342

 

Liabilities and Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

6,822

 

 

$

6,867

 

Accrued expenses

 

 

10,751

 

 

 

13,365

 

Container contracts payable

 

 

158,793

 

 

 

131,087

 

Other liabilities

 

 

228

 

 

 

235

 

Due to owners, net

 

 

6,523

 

 

 

11,131

 

Debt, net of unamortized deferred financing costs of $6,278 and $3,989, respectively

 

 

243,703

 

 

 

233,681

 

Total current liabilities

 

 

426,820

 

 

 

396,366

 

Debt, net of unamortized deferred financing costs of $18,628 and $20,045, respectively

 

 

2,926,440

 

 

 

2,756,627

 

Interest rate swaps, collars and caps

 

 

51

 

 

 

81

 

Income tax payable

 

 

9,184

 

 

 

9,081

 

Deferred taxes

 

 

6,359

 

 

 

5,881

 

Other liabilities

 

 

1,971

 

 

 

2,024

 

Total liabilities

 

 

3,370,825

 

 

 

3,170,060

 

Equity:

 

 

 

 

 

 

 

 

Textainer Group Holdings Limited shareholders' equity:

 

 

 

 

 

 

 

 

Common shares, $0.01 par value. Authorized 140,000,000 shares; 57,729,249 shares issued and

  57,099,249 shares outstanding at 2018; 57,727,220 shares issued and 57,097,220 shares

  outstanding at 2017

 

 

578

 

 

 

578

 

Additional paid-in capital

 

 

399,350

 

 

 

397,821

 

Treasury shares, at cost, 630,000 shares

 

 

(9,149

)

 

 

(9,149

)

Accumulated other comprehensive loss

 

 

(203

)

 

 

(309

)

Retained earnings

 

 

782,319

 

 

 

763,601

 

Total Textainer Group Holdings Limited shareholders’ equity

 

 

1,172,895

 

 

 

1,152,542

 

Noncontrolling interests

 

 

59,251

 

 

 

57,740

 

Total equity

 

 

1,232,146

 

 

 

1,210,282

 

Total liabilities and equity

 

$

4,602,971

 

 

$

4,380,342

 

 

See accompanying notes to condensed consolidated financial statements.

6


TEXTAINER GROUP HOLDINGS LIMITED AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

Three Months Ended March 31, 2018 and 2017

(Unaudited)

(All currency expressed in United States dollars in thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2018

 

 

2017 (1)

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

20,229

 

 

$

(8,075

)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation expense

 

 

56,334

 

 

 

60,608

 

Container impairment

 

 

832

 

 

 

3,811

 

Bad debt (recovery) expense, net

 

 

(607

)

 

 

252

 

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

 

 

(2,263

)

 

 

(2,294

)

Amortization of unamortized deferred debt issuance costs and

   accretion of bond discount

 

 

2,213

 

 

 

4,639

 

Amortization of intangible assets

 

 

1,822

 

 

 

948

 

Gain on sale of containers, net

 

 

(6,627

)

 

 

(4,048

)

Share-based compensation expense

 

 

1,504

 

 

 

1,597

 

Changes in operating assets and liabilities

 

 

(8,339

)

 

 

(10,743

)

Total adjustments

 

 

44,869

 

 

 

54,770

 

Net cash provided by operating activities

 

 

65,098

 

 

 

46,695

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of containers and fixed assets

 

 

(253,619

)

 

 

(8,898

)

Proceeds from sale of containers and fixed assets

 

 

32,639

 

 

 

31,741

 

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

 

 

12,893

 

 

 

17,616

 

Net cash (used in) provided by investing activities

 

 

(208,087

)

 

 

40,459

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from debt

 

 

714,000

 

 

 

30,000

 

Principal payments on debt

 

 

(533,367

)

 

 

(88,976

)

Debt issuance costs

 

 

(2,674

)

 

 

(7,480

)

Issuance of common shares upon exercise of share options

 

 

25

 

 

 

 

Net cash provided by (used in) financing activities

 

 

177,984

 

 

 

(66,456

)

Effect of exchange rate changes

 

 

106

 

 

 

32

 

Net increase in cash, cash equivalents and restricted cash

 

 

35,101

 

 

 

20,730

 

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

 

 

237,569

 

 

 

142,123

 

Cash, cash equivalents and restricted cash, end of period

 

$

272,670

 

 

$

162,853

 

 

 

(1)

Certain amounts for the three months ended March 31, 2017 have been restated for the adoption of Accounting Standards Update No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments and Accounting Standards Update No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. The Company adopted ASU 2016-15 and ASU 2016-18 on April 1, 2017.

 

See accompanying notes to condensed consolidated financial statements.

7


TEXTAINER GROUP HOLDINGS LIMITED AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

Three Months Ended March 31, 2018 and 2017

(Unaudited)

(All currency expressed in United States dollars in thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2018

 

 

2017

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

 

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

 

$

27,755

 

 

$

25,130

 

Net income taxes paid

 

$

14

 

 

$

160

 

Supplemental disclosures of noncash investing activities:

 

 

 

 

 

 

 

 

Increase (decrease) in accrued container purchases

 

$

27,706

 

 

$

(7,330

)

Containers placed in direct financing and sales-type leases

 

$

14,335

 

 

$

1,337

 

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

 

$

1,246

 

 

$

 

 

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 a fleet 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 March 31, 2018, and the Company’s condensed consolidated results of operations for the three months ended March 31, 2018 and 2017 and condensed consolidated cash flows for the three months ended March 31, 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 (loss) attributable to the noncontrolling interests’ operations is shown as net (income) loss attributable to the noncontrolling interests on the Company’s condensed consolidated statements of comprehensive income (loss).

 

 

(c)

Cash and Cash Equivalents and Restricted Cash

Cash and cash equivalents are comprised of interest-bearing deposits or 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.

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)

 

The Company adopted Accounting Standards Update No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (“ASU 2016-18”) in April 2017, which resulted in a $10,757 decrease in net cash used in financing activities and the inclusion of restricted cash balances of $58,078 and $68,835 to the beginning of the year and end of period cash, cash equivalents and restricted cash, respectively, in the Company’s condensed consolidated statements of cash flows for the three months ended March 31, 2017.

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:

 

 

March 31,

 

 

December 31,

 

 

 

2018

 

 

2017

 

Cash and cash equivalents

 

$

180,685

 

 

$

137,894

 

Restricted cash included in long-term assets

 

 

91,985

 

 

 

99,675

 

Cash, cash equivalents and restricted cash, end of period

 

$

272,670

 

 

$

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 cost, accumulated depreciation and net book value of the Company’s container leasing equipment by equipment type as of March 31, 2018 and December 31, 2017 were as follows:

 

 

 

March 31, 2018

 

 

December 31, 2017

 

 

 

Cost

 

 

Accumulated

Depreciation

 

 

Net Book

Value

 

 

Cost

 

 

Accumulated

Depreciation

 

 

Net Book

Value

 

Dry containers other than

   folding flat rack and open top

   containers:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

20' standard

 

$

1,589,312

 

 

$

(356,075

)

 

$

1,233,237

 

 

$

1,497,557

 

 

$

(347,910

)

 

$

1,149,647

 

40' standard

 

 

210,752

 

 

 

(72,124

)

 

 

138,628

 

 

 

223,916

 

 

 

(75,610

)

 

 

148,306

 

40' high cube

 

 

2,160,537

 

 

 

(492,318

)

 

 

1,668,219

 

 

 

2,043,253

 

 

 

(476,238

)

 

 

1,567,015

 

45' high cube dry van

 

 

28,396

 

 

 

(8,835

)

 

 

19,561

 

 

 

29,010

 

 

 

(8,494

)

 

 

20,516

 

Refrigerated containers:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

20' standard

 

 

23,821

 

 

 

(5,763

)

 

 

18,058

 

 

 

24,062

 

 

 

(5,394

)

 

 

18,668

 

20' high cube

 

 

5,094

 

 

 

(2,399

)

 

 

2,695

 

 

 

5,139

 

 

 

(2,327

)

 

 

2,812

 

40' high cube

 

 

1,015,650

 

 

 

(244,045

)

 

 

771,605

 

 

 

1,002,843

 

 

 

(229,465

)

 

 

773,378

 

Floating flat rack and open top containers:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

20' folding flat rack

 

 

16,547

 

 

 

(3,673

)

 

 

12,874

 

 

 

16,595

 

 

 

(3,525

)

 

 

13,070

 

40' folding flat rack

 

 

45,218

 

 

 

(14,716

)

 

 

30,502

 

 

 

43,334

 

 

 

(14,394

)

 

 

28,940

 

20' open top

 

 

10,799

 

 

 

(1,310

)

 

 

9,489

 

 

 

10,837

 

 

 

(1,237

)

 

 

9,600

 

40' open top

 

 

26,565

 

 

 

(4,650

)

 

 

21,915

 

 

 

26,690

 

 

 

(4,469

)

 

 

22,221

 

Tank containers

 

 

45,315

 

 

 

(3,858

)

 

 

41,457

 

 

 

40,729

 

 

 

(3,292

)

 

 

37,437

 

 

 

$

5,178,006

 

 

$

(1,209,766

)

 

$

3,968,240

 

 

$

4,963,965

 

 

$

(1,172,355

)

 

$

3,791,610

 

 

 

 

 

 

 

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)

 

Impairment of Container Rental Equipment

The Company reviews its containers for impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable. The Company compares the carrying value of the containers to the expected future undiscounted cash flows for the purpose of assessing the recoverability of the recorded amounts. If the carrying value exceeds expected future undiscounted cash flows, the assets are reduced to fair value. There was no such impairment for the three months ended March 31, 2018 and 2017.

The Company evaluates the recoverability of the recorded amount of container rental equipment that is unlikely to be recovered from lessees in default. During the three months ended March 31, 2017, container impairment included $852 for containers that were unlikely to be recovered from lessees in default. There was no such impairment for the three months ended March 31, 2018.

Impairment of Containers Held for Sale

The Company records impairment to write-down the value of containers held for sale to their estimated fair value less cost to sell. The fair value was estimated based on recent gross sales proceeds for sales of similar containers. When containers are retired or otherwise disposed of, the cost and related accumulated depreciation is removed and any resulting gain or loss is recognized. Any subsequent increase in fair value less costs to sell is recognized as a reversal of container impairment but not in excess of the cumulative loss previously recognized.

During the three months ended March 31, 2018 and 2017, container impairment included $1,260 and $7,669, respectively, to write down the value of containers held for sale to their estimated fair value less cost to sell. During the three months ended March 31, 2018 and 2017, container impairment included $428 and $4,710, respectively, to record the reversal of previously recorded impairments on containers held for sale due to rising used container prices.

 

                                  

 

(e)

Concentrations

The Company’s customers are mainly international shipping lines, which transport goods on international trade routes. Once the containers are on-hire with a lessee, the Company does not track their location. The domicile of the lessee is not indicative of where the lessee is transporting the containers. The Company’s business risk in its foreign concentrations lies with the creditworthiness of the lessees rather than the geographic location of the containers or the domicile of the lessees.

Except for the lessees noted in the tables below, no other single lessee made up greater than 10% of the Company’s lease rental income for the three months ended March 31, 2018 and 2017, as well as there is no other single lessee that accounted for more than 10% of the Company’s gross accounts receivable as of March 31, 2018 and December 31, 2017:

 

 

 

Three Months Ended

 

 

 

March 31,

 

Lease Rental Income

 

2018

 

 

2017

 

Customer A

 

14.2%

 

 

14.9%

 

Customer B

 

13.3%

 

 

13.4%

 

 

 

 

 

 

 

 

 

 

Gross Accounts Receivable

 

March 31, 2018

 

 

December 31, 2017

 

Customer B

 

16.7%

 

 

12.9%

 

Customer A

 

13.3%

 

 

13.1%

 

 

 

 


11


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)

 

 

 

(f)

Net Income (Loss) Attributable to Textainer Group Holdings Limited Common Shareholders Per Share

Basic earnings per share (“EPS”) is computed by dividing net income (loss) attributable to Textainer Group Holdings Limited common shareholders by the weighted average number of shares outstanding during the applicable period. Diluted EPS reflects the potential dilution that could occur if all outstanding share options were exercised for, and all outstanding restricted share units were converted into, common shares. Potentially dilutive share options and restricted share units that were anti-dilutive under the treasury stock method were excluded from the computation of diluted EPS. A reconciliation of the numerator and denominator of basic EPS with that of diluted EPS is presented as follows:

 

 

 

Three Months Ended

 

 

 

March 31,

 

Share amounts in thousands

 

2018

 

 

2017

 

Numerator:

 

 

 

 

 

 

 

 

Net income (loss) attributable to Textainer Group Holdings Limited

   common shareholders

 

$

18,718

 

 

$

(6,974

)

Denominator:

 

 

 

 

 

 

 

 

Weighted average common shares outstanding - basic

 

 

57,099

 

 

 

56,790

 

Dilutive share options and restricted share units

 

 

431

 

 

 

 

Weighted average common shares outstanding - diluted

 

 

57,530

 

 

 

56,790

 

Net income (loss) attributable to Textainer Group Holdings Limited

   common shareholders per common share

 

 

 

 

 

 

 

 

Basic

 

$

0.33

 

 

$

(0.12

)

Diluted

 

$

0.33

 

 

$

(0.12

)

 

 

 

 

 

 

 

 

 

Anti-dilutive share options and restricted share units, excluded from the

    computation of diluted EPS because they were anti-dilutive

 

 

1,213

 

 

 

1,225

 

 

Given that the Company had a net loss attributable to Textainer Group Holdings Limited common shareholders for the three months ended March 31, 2017, there was no dilutive effect of share options and restricted share units.

 

 

 

(g)

Fair Value Measurements

 

The Company measures the fair value of its $1,222,343 notional amount of interest rate swaps, collars and caps using observable (Level 2) market inputs. The valuation also reflects the credit standing of the Company and the counterparties to the interest rate swaps, collars and caps. The valuation technique utilized by the Company to calculate the fair value of the interest rate swaps, collars and caps is the income approach.  This approach represents the present value of future cash flows based upon current market expectations. The Company’s interest rate swap, collar and cap agreements had a fair value asset and a fair value liability of $10,020 and $51 as of March 31, 2018, respectively, and a fair value asset and a fair value liability of $7,787 and $81 as of December 31, 2017, respectively, which are inclusive of counterparty risk. The credit valuation adjustment was determined to be $11 (a reduction to the net asset) and $31 (an addition to the net liability) as of March 31, 2018 and December 31, 2017, respectively. The change in fair value for the three months ended March 31, 2018 and 2017 of $2,263 and $2,294, respectively, was recorded in the condensed consolidated statements of comprehensive income (loss) as unrealized gains on interest rate swaps, collars and caps, net.

When the Company is required to write down the cost basis of its containers held for sale to fair value less cost to sell, the Company measures the fair value of its containers held for sale under a Level 2 input. The Company relies on its recent sales prices for identical or similar assets in markets, by geography, that are active. The Company’s containers held for sale had a fair value asset of $7,530 and $8,984 as of March 31, 2018 and December 31, 2017, respectively. The Company recorded impairments to write down the value of containers identified for sale to their estimated fair value less cost to sell. Subsequent additions or reductions to the fair values of these written down assets are recorded as adjustments to the carrying value of the equipment held for sale. Any subsequent increase in fair value less costs to sell is recognized as a reversal of container impairment but not in excess of the cumulative loss previously recognized.

12


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 Company’s financial instruments include cash and cash equivalents, restricted cash, accounts receivable and payable, net investment in direct financing and sales-type leases, due from affiliates, net, container contracts payable, due to owners, net, debt and interest rate swaps, collars and caps.

At March 31, 2018 and December 31, 2017, the fair value of the Company’s financial instruments approximated the related book value of such instruments except that, the fair value of net investment in direct financing and sales-type leases (including the short-term balance) was approximately $180,859 and $183,305 at March 31, 2018 and December 31, 2017, respectively, compared to book values of $183,585 and $182,624 at March 31, 2018 and December 31, 2017, respectively, and the fair value of long-term debt (including current maturities) based on the borrowing rates available to the Company was approximately $3,164,225 and $2,995,190 at March 31, 2018 and December 31, 2017, respectively, compared to book values of $3,170,143 and $2,990,308 at March 31, 2018 and December 31, 2017, respectively.

 

 

(h)

Revenue Recognition

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). This new standard replaces all current U.S. GAAP guidance on this topic and eliminates industry-specific guidance. Leasing revenue recognition is specifically excluded from ASU 2014-09, and therefore, the new standard only applies to sales of equipment portfolios, dispositions of used equipment and management service agreements. The new guidance defines a five-step process to achieve the core principle of ASU 2014-09, which is to recognize revenues when promised goods or services are transferred to customers in amounts that reflect the consideration to which an entity expects to be entitled for those goods or services.

The Company adopted the new revenue standards on the effective date of January 1, 2018 using the modified retrospective method. The adoption of ASU 2014-09 did not have an impact on the timing of revenue recognition or on its consolidated financial statements and related disclosures. The components of the Company’s revenue as presented in the condensed consolidated statements of comprehensive income (loss) and in Note 8 “Segment Information” are as follows:

Lease Rental Income

Leasing income arises principally from the renting of containers owned by the Company to various international shipping lines. Revenue is recorded when earned according to the terms of the container rental contracts. These contracts are typically for terms of three to five years, but can vary from one to eight years, and are generally classified as operating leases. Where minimum lease payments vary over the lease term, revenue is recognized on a straight-line basis over the term of the lease. Lease rental income comprises daily per diem rental charges due under the lease agreements, together with payments for other charges set forth in the leases, such as handling fees, drop-off charges, pick-up charges, and charges for a damage protection plan.

The Company enters into finance leases, which provide lessees with an alternative method to finance their container acquisitions and ordinarily provide lessees with a right to purchase the subject containers for a nominal amount at the end of the lease term. Finance lease income is recognized using the effective interest method, which generates a constant rate of interest over the period of the lease. Gain on sale of containers, net, also includes gains and losses recognized at the inception of sales-type leases, representing the excess of the estimated fair value of containers placed on sales-type leases over their book value.

Management Fee Revenue

Under the Company’s management service agreements with container investors, management fee revenue is earned for the management, acquisition, and disposition of containers under management. Management fees earned under management agreements are typically calculated as a fixed percentage of net operating income, which is revenue from the containers under management minus direct operating expenses related to those containers. The Company’s acquisition fees and sales commissions are generally calculated as a fixed percentage of the cost of the managed containers purchased and the proceeds from the sale of managed containers, respectively. Revenue is recognized over time as services are provided and billed to the customers on a monthly basis.


13


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)

 

 

Container Resale Revenue

The Company’s trading container sales proceeds revenue arise from the resale of used containers to a wide variety of buyers. The Company also generally sells containers at the end of their useful lives or when it is financially attractive to do so. Revenue is recorded at a point in time following the transfer of control of the containers to the customer, which typically occurs upon delivery to, or pick-up by, the customer and when collectability is reasonably assured. The related expenses represent the cost of trading containers sold as well as other selling costs that are recognized as incurred.

 

 

(i)

Recently Issued Accounting Standards

 In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). ASU 2016-02 will replace all current U.S. GAAP guidance on this topic. Under ASU 2016-02, lessors will account for leases using an approach that is substantially equivalent to existing U.S. GAAP for sales-type leases, direct financing leases and operating leases and lessors should be precluded from recognizing selling profit and revenue at lease commencement for a lease that does not transfer control of the underlying asset to the lessees.

ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, with early application permitted. ASU 2016-02 requires the use of the modified retrospective method for all periods presented, with certain practical expedients available to simplify the transition to the new standard. The Company expects to apply the practical expedients to assist in implementation of ASU 2016-02, such as follows:

 

An entity may elect to apply the provisions of the new lease guidance at the effective date, without adjusting the comparative periods presented.

 

A lessor may elect by class of underlying asset to not separate non-lease components of a contract from the lease component to which they relate when specific criteria are met.

 

 

 

The Company plans to adopt ASU 2016-02 effective January 1, 2019 and is continuing to analyze and evaluate the potential impact on its current accounting practices, consolidated financial statements and related disclosures. The Company expects the adoption of ASU 2016-02 will not have a material impact on our consolidated financial statements. The accounting for capital leases will remain substantially unchanged upon adoption of ASU 2016-02. The Company expects to complete its assessment of the impact of ASU 2016-02 in fiscal year 2018.

 

In June 2016, the FASB issued Accounting Standards Update No. 2016-13, Financial Instruments – Credit Losses (Topic 326) (“ASU 2016-13”). This guidance affects trade receivables and net investments in leases and the amendments in this update replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses. The guidance requires the measurement of expected credit losses to be based on relevant information from past events, current conditions, and reasonable and supportable information that affect collectability. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years and with early adoption permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the potential impact on its consolidated financial statements and related disclosures. The Company expects to complete its assessment of the impact of ASU 2016-13 in fiscal year 2019.


14


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)

 

 

  (3)Insurance Receivable and Impairment

In August 2016, one of the Company’s customers filed for bankruptcy. The Company maintains insurance that covers a portion of the exposure related to the value of containers that are unlikely to be recovered from this customer, the cost to recover containers, up to 183 days of lost lease rental income and defaulted accounts receivable. The Company reassessed its estimate of unrecoverable containers to actual amount of loss commensurate with the insurance claim filing and accordingly, the Company recorded a $1,246 reduction to the insurance receivable and addition to the containers, net, during the three months ended March 31, 2018. For the three months ended March 31, 2018 and 2017, insurance receivable of $259 and $21,088 was recorded for recovery costs as a reduction to direct container expense. Insurance receivable on the Company’s owned fleet related to this bankrupt customer are as follows:

 

Insurance receivable associated with bankruptcy customer as of December 31, 2017

 

$

15,909

 

Recovery costs

 

 

259

 

Reassessment associated with its estimate of unrecoverable containers to actual

   amount of loss commensurate with the insurance claim filing

 

 

(1,246

)

Insurance receivable associated with bankruptcy customer as of March 31, 2018

 

$

14,922

 

 

 

 

(4)

Transactions with Affiliates and Owners

Amounts due from affiliates, net generally result from cash advances and the payment of affiliated companies’ administrative expenses by the Company on behalf of such affiliates. Balances are generally paid within 30 days.

Management fees, including acquisition fees and sales commissions for the three months ended March 31, 2018 and 2017 were as follows:

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2018

 

 

2017

 

Fees from affiliated owner

 

$

921

 

 

$

658

 

Fees from unaffiliated owners

 

 

2,575

 

 

 

2,086

 

Fees from owners

 

 

3,496

 

 

 

2,744

 

Other fees

 

 

492

 

 

 

478

 

Total management fees

 

$

3,988

 

 

$

3,222

 

 

Due to owners, net represents lease rentals collected on behalf of and payable to Owners, net of direct expenses and management fees and reimbursement of equipment purchases paid by the Company. Due to owners, net at March 31, 2018 and December 31, 2017 consisted of the following:

 

 

 

March 31,

 

 

December 31,

 

 

 

2018

 

 

2017

 

Affiliated owner

 

$

(2,707

)

 

$

1,409

 

Unaffiliated owners

 

 

9,230

 

 

 

9,722

 

Total due to owners, net

 

$

6,523

 

 

$

11,131

 

 

 

 


15


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)

 

 

(5)

Direct Financing and Sales-type Leases

The Company leases containers under direct financing and sales-type leases. The Company had 112,832 and 111,059 containers on direct financing and sales-type leases as of March 31, 2018 and December 31, 2017, respectively.

The components of the net investment in direct financing and sales-type leases, which are reported in the Company’s Container Ownership segment in the condensed consolidated balance sheets as of March 31, 2018 and December 31, 2017 were as follows:

 

 

 

March 31, 2018

 

 

December 31, 2017

 

Future minimum lease payments receivable

 

$

210,698

 

 

$

204,451

 

Residual value of containers

 

 

4,937

 

 

 

4,885

 

Less unearned income

 

 

(32,050

)

 

 

(26,712

)

Net investment in direct financing and sales-type

   leases

 

$

183,585

 

 

$

182,624

 

Amounts due within one year

 

$

57,186

 

 

$

56,959

 

Amounts due beyond one year

 

 

126,399

 

 

 

125,665

 

Net investment in direct financing and sales-type

   leases

 

$

183,585

 

 

$

182,624

 

 

The Company maintains detailed credit records about its container lessees. The Company’s credit committee sets different maximum exposure limits for its container lessees. The Company uses various credit criteria to set maximum exposure limits rather than a standardized internal credit rating. The Company monitors its container lessees’ performance and its lease exposures on an ongoing basis, and its credit management processes are aided by the long payment experience the Company has had with most of its container lessees and the Company’s broad network of long-standing relationships in the shipping industry that provide the Company current information about its container lessees.

If the aging of current billings for the Company’s direct financing and sales-type leases included in accounts receivable, net were applied to the related balances of the unbilled future minimum lease payments receivable component of the Company’s net investment in direct financing leases and sales-type leases as of March 31, 2018, the aging would be as follows:

 

1-30 days

 

$

15,883

 

31-60 days

 

 

 

61-90 days

 

 

2,279

 

Greater than 90 days

 

 

329

 

Sub total

 

 

18,491

 

Current

 

 

192,207

 

Total future minimum lease payments

 

$

210,698

 

 


16


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 Company maintains allowances, if necessary, for doubtful accounts and estimated losses resulting from the inability of its lessees to make required payments under direct financing and sales-type leases based on, but not limited to, each lessee’s payment history, management’s current assessment of each lessee’s financial condition and the adequacy of the fair value of containers that collateralize the leases compared to the book value of the related net investment in direct financing and sales-type leases. The changes in the carrying amount of the allowance for doubtful accounts related to billed amounts under direct financing and sales-type leases and included in accounts receivable, net, during the three months ended March 31, 2018 are as follows:

 

Balance as of December 31, 2017

 

$

247

 

Additions charged to expense

 

 

10

 

Balance as of March 31, 2018