Summary Of Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2016

Summary Of Significant Accounting Policies [Abstract]

(a) Principles of Consolidation

The consolidated financial statements include the financial statements of CAI International, Inc., its wholly-owned subsidiaries, and its previously 80%-owned subsidiary, CAIJ, Inc. (CAIJ), up to its date of disposal in April 2016. All significant intercompany balances and transactions have been eliminated in consolidation.

The Company regularly performs a review of its container fund arrangements with investors to determine whether or not it has a variable interest in the fund and if the fund is a variable interest entity (VIE). If it is determined that the Company does not have a variable interest in the fund, further analysis is not required and the Company does not consolidate the fund. If it is determined that the Company does have a variable interest in the fund and the fund is a VIE, further analysis is performed to determine if the Company is the primary beneficiary of the VIE and meets both of the following criteria under Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 810:

it has power to direct the activities of a VIE that most significantly impact the VIE’s economic performance; and

it has the obligation to absorb losses of the VIE that could be potentially significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.

If in the Company’s judgment both of the above criteria are met, the VIE’s financial statements are included in the Company’s consolidated financial statements as required under FASB ASC Topic 810, Consolidation (see Note 4).

Correction Of Immaterial Errors

(b) Correction of Immaterial Errors

During the year ended December 31, 2016, the Company determined that its financial statements for the years ended December 31, 2015 and 2014 and for prior years, contained errors resulting from the incorrect accounting for debt issuance costs. The Company previously amortized debt issuance costs using the straight-line method, rather than the effective interest method. The Company’s accounting policy for debt issuance costs is described below in Note 2(j). In accordance with FASB ASC Topic 250, Accounting Changes and Error Corrections, the Company evaluated the materiality of the errors from both a quantitative and qualitative perspective, and concluded that the errors were immaterial to the Company’s prior period interim and annual consolidated financial statements, and have corrected such balances herein.

The associated correcting entries were recorded in the respective period, starting with the opening consolidated balance sheet of December 31, 2015. The consolidated balance sheet as of December 31, 2015 presented herein has been revised, resulting in a $1.2 million increase in debt and a $1.2 million decrease in retained earnings. The adjustments to the previously reported consolidated statements of income for the years ended December 31, 2015 and 2014 resulted in an increase in net interest expense of $0.2 million and $0.4 million, respectively, and a decrease to net income of $0.2 million and $0.4 million, respectively. In addition, retained earnings in the consolidated statements of stockholders’ equity at December 31, 2014 and 2013 decreased by $0.9 million and $0.5 million, respectively, to correct the accounting for debt issuance costs in prior periods.

Use Of Estimates

Certain estimates and assumptions were made by the Company’s management that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Significant items subject to such estimates and assumptions include revenue recognition, allowances for receivables, the carrying amount of rental equipment, the residual values and lives of rental equipment, and income tax uncertainties. Actual results could differ from those estimates.

Furniture, Fixtures, And Equipment

(d) Furniture, Fixtures, and Equipment

Furniture, fixtures, office equipment and software, are depreciated on a straight-line basis over estimated useful lives of five years with no salvage value. Leasehold improvements are depreciated over the shorter of their useful lives or the respective lease life.

Rental Equipment

(e) Rental equipment

Container

The Company purchases new container equipment from container manufacturers for the purpose of leasing such equipment to customers. The Company also purchases used container equipment through sale-leaseback transactions with its customers, or equipment that was previously owned by one of the Company's 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 the Company’s container equipment are based on historical disposal experience and the Company’s expectations for future used container sale prices. Depreciation estimates are reviewed on a regular basis to determine whether changes have taken place that would suggest that a change in depreciation estimates, useful lives of its equipment or the assigned residual values, is warranted.

After the Company conducted its regular depreciation policy review, it concluded that a change in the estimated residual value for 40-foot high cube dry van containers from $1,650 to $1,400 per container, effective July 1, 2016, was appropriate. The change increased the Company’s depreciation expense by $5.4 million, decreased net income by $5.2 million, and decreased diluted earnings per share by $0.27 for the year ended December 31, 2016.

Depreciation estimates were last changed for 40-foot high cube dry van containers (and other container types within the Company’s fleet) during 2012. Since that time, disposal prices for 40-foot high cube dry van containers have declined and the Company experienced losses when selling certain of these assets during 2015 and 2016. The change in residual value estimate was made to better align residual value with expectations for future used container sale prices.

In considering changes to residual values for the three major dry van categories, the Company reviewed 3-year, 5-year, 7-year, and 11-year average disposition pricings trends. As with all estimates, particularly related to long-lived assets, current market performance may not necessarily be indicative of long-term residual values, so the Company does not adjust residual values to point-in-time prices. Rather, the Company considers the mix of data shown in the following table and uses the average over time to either confirm residual value estimates or support revisions to those estimates.

The sale-related unit proceeds by dry van container category that we considered as of December 31, 2016 are shown below:


Category	3-year Avg.		5-year Avg.		7-year Avg.		11-year Avg.
20-ft. standard dry van containers	$	957	$	1,076	$	1,125	$	1,109
40-ft. standard dry van containers		1,172		1,332		1,396		1,358
40-ft. high cube dry van containers		1,189		1,346		1,438		1,454

The Company’s residual value estimates ($1,050 for a 20-ft. dry van, $1,300 for a 40-ft. dry van, and $1,400 for a 40-ft. high cube dry van) are lower in each instance than the historical averages, with the exception of the 3-year average for all equipment types and the 5-year average for 40-ft high cube dry vans. While the Company experienced losses when selling certain of these assets during 2015 and 2016, the Company does not adjust long-term residual value estimates based on short-term data points, such as current year sale results and the 3-year average shown above, as the Company does not believe they are indicative of a change in the long-term market value for these containers. The Company regularly reviews this data and updates its analysis, and will make further revisions to residual value estimates as and when conditions warrant.

The largest segment of the Company’s non-dry van container fleet consists of 20-ft. refrigerated containers and 40-ft. high cube refrigerated containers. The Company regularly reviews the residual value estimates associated with its refrigerated containers. Given the specific nature of these assets and the lower volumes of containers that are sold each year in the secondary market, there is less variability in asset pricing. Similar to the Company’s dry van containers, the Company evaluates the relationship between sales prices and residual values over a long-term horizon. When measured at December 31, 2016, sales proceeds for 20-ft. refrigerated and 40-ft. high cube refrigerated containers averaged $3,180 and $4,052, respectively, over the prior 3-year period, and $3,219 and $4,098, respectively, over the prior 5-year period. The Company excluded 7-year and 11-year historical averages from its analysis as it does not have a long enough history of sales for refrigerated containers. The current residual values for 20-ft. refrigerated and 40-ft. high cube refrigerated containers are set at $2,750 and $3,500, respectively. Based on the data trends, the Company believes that the residual value estimates for its refrigerated containers are appropriate and do not warrant revision.

The Company continuously monitors disposal prices across its entire portfolio for indications of a deeper, more sustained market downturn. The Company will adjust its residual value estimates as and when conditions warrant.

The estimated useful lives and residual values for the majority of the Company's container equipment purchased new from the factory are as follows:



			Depreciable Life
	Residual Value		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 $1,000 to $3,500, over its estimated useful life of between 12.5 years and 15 years.

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.

Rail

Railcar equipment is recorded at original cost and depreciated over its estimated useful life of 43 years to its estimated residual value of $8,700 using the straight-line method. The useful life is based on an estimate of the period over which the asset will generate revenue for the Company. Residual value is based on the average estimated scrap value of the Company’s railcars. The Company periodically reviews the appropriateness of its estimates of useful life and residual value based on changes in economic circumstances and other factors.

The Company’s railcars may undergo refurbishment and upgrade programs to, for example, extend their useful life, meet higher car classification grades, enter new product or service segments, increase the tonnage carried, or to achieve higher utilization. If the cost incurred for such a program is in excess of $5,000 per car, the costs are capitalized.

Normal repairs and maintenance associated with the Company’s railcar assets are expensed as incurred.

Impairment Of Long-Lived Assets

(f) Impairment of Long-Lived Assets

On at least an annual basis, the Company evaluates its 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 its 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.

When testing for impairment, equipment is generally grouped by rental 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, the Company considers market trends, published value for similar assets, recent transactions of similar assets and in certain cases, quotes from third party appraisers. During the year ended December 31, 2015, the market conditions for certain off-lease containers changed which resulted in their carrying value exceeding their fair value. The fair value was estimated based on recent gross sales proceeds for sales of similar containers and management’s judgment of market conditions. The resulting impairment charge of $24.5 million relating to the container leasing segment is included in depreciation expense in the consolidated statement of income. No impairment charges were recorded in 2016 and 2014.

Intangible Assets

(g) Intangible Assets

Intangible assets with definite useful lives are reviewed for impairment whenever events or changes in circumstances indicate an asset’s carrying value may not be recoverable. The Company amortizes intangible assets on a straight-line basis over their estimated useful lives as follows:


Trademarks and tradenames	2-3 years
Customer relationships	8 years

Goodwill

(h) Goodwill

In connection with the acquisitions of ClearPointt in 2015 and Challenger and Hybrid in 2016, the Company recorded $15.8 million of goodwill. Goodwill represents the excess of the purchase price over the fair value of the net assets acquired in a business combination. Goodwill is not amortized but is evaluated for impairment at the reporting unit level annually, or more frequently if events or changes in circumstances indicate that impairment may exist.

The Company assesses qualitative factors such as industry and market considerations, overall financial performance and other relevant events and factors affecting a reporting unit to determine if it is more likely than not that impairment may exist and whether it is necessary to perform the two-step quantitative goodwill impairment test. The first step involves comparing the fair value to the carrying value of each reporting unit that has goodwill assigned to it. If the carrying value exceeds the fair value, a second step is performed to compute the amount of the impairment. The Company performed the annual impairment test during the fourth quarter of 2016 and concluded that there was no impairment of goodwill.

Direct Finance Leases

(i) Direct Finance Leases

Interest on finance leases is recognized using the effective interest method. Lease income is recorded in decreasing amounts over the term of the contract, resulting in a level rate of return on the net investment in direct finance leases.

Debt Issuance Costs

(j) Debt Issuance Costs

To the extent that the Company is required to pay issuance fees or direct costs relating to its debt and credit facilities, such fees are amortized over the lives of the related debt using the effective interest method and reflected in interest expense.

Foreign Currency Translation

(k) Foreign Currency Translation

The accounts of the Company’s foreign subsidiaries have been converted at rates of exchange in effect at year-end for balance sheet accounts and average exchange rates for the year for income statement accounts. The effects of changes in exchange rates in translating foreign subsidiaries’ financial statements are included in stockholders’ equity as accumulated other comprehensive income.

Accounts Receivable

(l) Accounts Receivable

Amounts billed under leases for equipment owned by the Company, as well as amounts due from customers for the provision of logistics services, are recorded in accounts receivable. The Company estimates an allowance for doubtful accounts for accounts receivable it does not consider fully collectible. The allowance for doubtful accounts is developed based on two key components: (1) specific reserves for receivables for which management believes full collection is doubtful; and (2) a general reserve for estimated losses inherent in the receivables. The general reserve is estimated by applying certain percentages to receivables that have not been specifically reserved, ranging from 1.0% on accounts that are one to thirty days overdue, to 100% on accounts that are one year overdue. The allowance for doubtful accounts is reviewed regularly by management and is based on the risk profile of the receivables, credit quality indicators such as the level of past due amounts and non-performing accounts and economic conditions. Changes in economic conditions or other events may necessitate additions or deductions to the allowance for doubtful accounts. The allowance is intended to provide for losses inherent in the company’s accounts receivable, and requires the application of estimates and judgments as to the outcome of collection efforts and the realization of collateral, among other things.

Amounts billed under leases for equipment owned by third-party investors are also recorded in accounts receivable with a corresponding credit to due to container investors account. The credit risk on accounts receivable related to managed equipment is the responsibility of the third-party investors. Under the Company’s management agreements with investors, the third-party investors are obligated to reimburse the Company for any amounts the Company had previously paid to them in advance of receiving the amount from the equipment lessee if the Company is unable to ultimately collect any amount due from a managed equipment lessee. Accounts receivable attributable to the managed fleet included in accounts receivable as of December 31, 2016 and 2015 was $5.1 million and $4.5 million, respectively.

Income Taxes

(m) Income Taxes

Income taxes are accounted for using the asset-and-liability method. Under this method, deferred income taxes are recognized for the future tax consequences of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year-end. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Valuation allowances are established when it is more likely than not that deferred tax assets will not be recovered.

The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company records penalties and interest related to unrecognized tax benefits within income tax expense (see Note 12).

Revenue Recognition

(n) Revenue Recognition

The Company provides a range of services to its customers incorporating rental, sale and management of equipment and the provision of logistics services. Revenue for all forms of service is recognized when earned following the guidelines under FASB ASC Topic 605, Revenue Recognition and FASB ASC Topic 840, Leases. Revenue is reported net of any related sales tax.

Container and Rail Lease Revenue

The Company recognizes revenue from operating leases of its owned equipment as earned over the term of the lease. Where minimum lease payments vary over the lease term, revenue is recognized on a straight-line basis over the term of the lease. The Company recognizes revenue on a cash basis for certain railcar leases that are billed on an hourly or mileage basis through a third-party railcar manager. Early termination of the rental contracts subjects the lessee to a penalty, which is included in lease revenue upon such termination. Finance lease income is recognized using the effective interest method, which generates a constant rate of interest over the period of the lease.

Included in lease revenue is revenue consisting primarily of fees charged to the lessee for handling, delivery, repairs, and fees relating to the Company’s damage protection plan, which are recognized as earned.

Management Fee Revenue

The Company recognizes revenue from management fees earned under equipment management agreements as earned on a monthly basis. Management fees are typically a percentage of net operating income of each investor group’s fleet calculated on an accrual basis. Included in the Company’s balance sheet are accounts receivable from the managed fleet which are uncollected lease billings related to managed equipment. The Company’s financial statements include accounts payable and accruals of expenses related to managed equipment. The net amount of rentals billed less expenses payable, less management fees, is recorded in amounts due to container investors on the balance sheet.

Logistics Revenue

The Company’s logistics business derives its revenue from three principal sources: (1) truck brokerage services, (2) intermodal transportation services, and (3) international ocean freight and freight forwarding services. The Company recognizes logistics revenue when these services are provided to its customers. For truck brokerage services, revenue is recognized when delivery has been completed. Intermodal transportation services can take a longer time to complete; for any such services not completed at the end of a reporting period, a percentage of completion method is used to allocate the appropriate revenue to each separate reporting period using relative transit time. The Company provides international freight forwarding services as an indirect carrier, sometimes referred to as a Non-Vessel Operating Common Carrier (NVOCC). When the Company acts as an NVOCC with respect to shipments of freight, a House Ocean Bill of Lading (HOBL) is typically issued to the customer. Based upon the terms in the contract of carriage (the HOBL), revenue and purchased transportation costs for these shipments are recognized at the time the freight departs the terminal or origin.

The Company reports logistics revenue on a gross basis as it is the primary obligor and responsible for providing the services desired by the customer. The Company is responsible for fulfillment, including the acceptability of the service, and has discretion in setting sales prices and as a result, its earnings may vary. The Company also has discretion in selecting vendors from multiple suppliers for the services ordered by the customers. Lastly, the Company has credit risk for the related receivables.

Stock-Based Compensation

(o) Stock-Based Compensation

The Company has granted stock options and restricted stock to certain directors and employees under its 2007 Equity Incentive Plan. The Company accounts for stock-based compensation in accordance with FASB ASC Topic 718, Compensation – Stock Compensation, which requires that compensation cost related to stock-based compensation be recognized in the financial statements. The cost is measured at the date the award is granted based on the fair value of the award. The fair value of stock options is calculated using the Black-Scholes-Merton option pricing model. The stock-based compensation expense is recognized over the vesting period of the grant on a straight-line basis (see Note 11).

Repairs And Maintenance

(p) Repairs and Maintenance

The Company’s leases generally require the lessee to pay for any damage to the equipment beyond normal wear and tear at the end of the lease term. The Company accounts for repairs and maintenance expense on an accrual basis when an obligation to pay has been incurred.

Recent Accounting Pronouncements

(q) Recent Accounting Pronouncements

In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes (ASU 2015-17), which requires companies to present all deferred tax assets and liabilities as noncurrent on the balance sheet. The Company early adopted ASU 2015-17 effective December 31, 2015 on a prospective basis. No prior periods were retrospectively adjusted, and adoption did not have an impact on the Company’s consolidated financial statements.

In April 2015, the FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs (ASU 2015-03). The new guidance requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with the accounting treatment for debt discounts. The Company adopted ASU 2015-03 effective January 1, 2016. Adoption of the guidance resulted in the reclassification of unamortized debt issuance costs of $11.2 million and $11.8 million as of December 31, 2016 and 2015, respectively, from prepaid expenses and other current assets to a reduction of debt on the Company’s consolidated balance sheets.

In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendment to the Consolidation Analysis (ASU 2015-02). The new guidance changes (1) the identification of variable interests (fees paid to a decision maker or service provider), (2) the VIE characteristics for a limited partnership or similar entity, and (3) the primary beneficiary determination. The guidance is effective for annual and interim periods beginning after December 15, 2015, with early adoption permitted. The Company adopted ASU 2015-02 effective January 1, 2016, and adoption had no impact on the Company’s consolidated financial statements.