Part I Key Information This section presents selected five-year financial data and outlines key business, industry, and share ownership risks Selected Financial Data Provides key financial and operational metrics from 2014 to 2018, showing performance trends and a recovery in 2018 Selected Financial Data (2014-2018) (in thousands, except per share data and utilization rate) | Indicator | 2018 | 2017 | 2016 | 2015 | 2014 | | :--- | :--- | :--- | :--- | :--- | :--- | | Lease Rental Income | $612,704 | $549,454 | $565,938 | $646,505 | $656,241 | | Income from Operations | $194,426 | $143,866 | $26,210 | $211,819 | $272,749 | | Net Income (Loss) Attributable to Shareholders | $50,378 | $19,365 | $(52,483) | $108,408 | $190,555 | | Diluted EPS | $0.88 | $0.34 | $(0.93) | $1.90 | $3.34 | | Cash Dividends per Share | $— | $— | $0.51 | $1.65 | $1.88 | | Total Assets | $4,744,296 | $4,380,342 | $4,294,026 | $4,365,312 | $4,334,748 | | Long-term Debt | $3,409,827 | $2,990,308 | $3,038,297 | $3,003,648 | $2,974,311 | | Utilization Rate | 98.10% | 96.40% | 94.70% | 96.80% | 96.10% | Risk Factors Details significant risks affecting the company's business, financial condition, and common shares Risks Related to Our Business and Industry Outlines industry-specific risks including global trade dependency, lessee credit risk, and regulatory changes - Demand for leased containers is highly dependent on factors beyond the company's control, such as the rate of growth of world trade, economic conditions, and customers' 'lease vs buy' decisions2729 - The August 2016 bankruptcy of Hanjin Shipping Co, which represented approximately 4.8% of the company's total fleet, resulted in substantial costs and significantly impacted financial performance37 - A significant portion of lease billings comes from a limited number of lessees, with the top 20 customers accounting for 82.8% of total fleet billings in 2018, concentrating credit risk5254 - The company operates with significant debt, totaling $3,437.8 million as of December 31, 2018, which reduces financial flexibility5758 - New International Maritime Organization (IMO) rules effective January 1, 2020, will reduce permitted sulphur oxide emissions, potentially increasing costs for shipping line customers and weakening their financial performance45 Risks Related to Our Common Shares Covers risks for common shareholders, including price volatility and concentrated ownership influence - The market price of common shares has been highly volatile, fluctuating from an intra-day low of $4.23 to a high of $43.96 since the IPO147 - Trencor Limited, a South African company, owns approximately 47.5% of outstanding common shares, giving it significant influence over shareholder matters and the ability to prevent a change in control150 - As a foreign private issuer, the company is exempt from certain NYSE corporate governance rules, such as the requirement for a majority of independent directors on the board159160 - The company's bye-laws contain provisions that may discourage a change of control, such as a supermajority vote requirement and a classified board with staggered terms165 Information on the Company Details the company's history, business segments, competitive position, and organizational structure History and Development of the Company Highlights significant corporate events from 2016 to 2018, including the Hanjin bankruptcy impact and major financing activities - In August 2016, the bankruptcy of Hanjin Shipping Co led to a $22.1 million impairment charge and a $19.0 million bad debt expense for the company in that year173174 - In 2017, the company issued $920 million in Fixed Rate Asset Backed Notes to repay existing debt and for other corporate purposes176 - In September 2018, the TL Revolving Credit Facility was amended, increasing its commitment from $700 million to $1.5 billion and extending its maturity to 2023186 - In October 2018, the company purchased the remaining 75% of TW Container Leasing Ltd from Wells Fargo Container Corp for $29.7 million189 Capital Expenditures and Proceeds from Asset Sales (2016-2018) | Year | Capital Expenditures | Proceeds from Sale of Assets | | :--- | :--- | :--- | | 2018 | $854.4 million | $147.3 million | | 2017 | $300.1 million | $135.3 million | | 2016 | $505.5 million | $126.6 million | Business Overview Describes the company's position as a leading container lessor, its fleet composition, lease types, and strategic focus - The company operates a total fleet of approximately 2.2 million containers, representing almost 3.4 million TEU, making it one of the world's largest lessors195 - The business is structured into three core segments: Container Ownership (79% of fleet), Container Management (21% of fleet), and Container Resale198201 - As of December 31, 2018, approximately 81% of the company's total on-hire fleet was on long-term leases, providing predictable revenue streams216 - Key business strategies include leveraging its scale, being a reliable supplier, pursuing acquisitions, maintaining high utilization and operating efficiency, and growing the container resale business225226227228231 Top Intermodal Leasing Companies by TEU (Jan 2018) | Company | TEU (000's) | Percent of Total | | :--- | :--- | :--- | | Triton International Limited | 5,650 | 27.2% | | Florens Leasing | 3,700 | 17.8% | | Textainer | 3,355 | 16.1% | | SeaCo Global | 2,400 | 11.5% | | Beacon Intermodal Leasing | 1,320 | 6.3% | Organizational Structure Outlines the corporate structure, key subsidiaries, and the significant ownership stake held by Trencor Limited - Textainer Group Holdings Limited is a holding company with two main direct subsidiaries: Textainer Equipment Management Limited (TEML) and Textainer Limited (TL)170 - The principal shareholder, Trencor Limited, held 47.5% of the company's outstanding shares as of December 31, 2018284 Property, Plant and Equipment Details the company's global office locations, all of which are operated under lease agreements - The company operates through 14 regional and area offices in 13 countries, with its headquarters in Bermuda and an administrative office in San Francisco285 - All office spaces are leased, with the San Francisco lease expiring in May 2027 and the Bermuda office lease expiring in December 2020286 Operating and Financial Review and Prospects Provides management's analysis of financial results, liquidity, capital resources, and contractual obligations Operating Results Analyzes operating results for 2016-2018, highlighting revenue growth, expense drivers, and segment performance - Lease rental income increased by 11.5% from 2017 to 2018, primarily due to a 2.9% increase in average per diem rental rates, a 2.0% increase in utilization, and a 6.5% increase in the total fleet315 - Container impairment increased by 231.7% from 2017 to 2018, primarily due to increased impairment for containers unlikely to be recovered from defaulting lessees324 - Interest expense rose 17.8% from 2017 to 2018 due to a higher average debt balance and higher average interest rates328 Revenue and Gain on Sale of Containers (2016-2018) (in thousands) | (In thousands) | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | | Lease rental income | $612,704 | $549,454 | $565,938 | | Management fees - non-leasing | $8,529 | $7,146 | $5,937 | | Trading container margin | $3,450 | $1,456 | $(276) | | Gain on sale of owned fleet containers, net | $36,071 | $26,210 | $6,761 | Operating Expenses (2016-2018) (in thousands) | (In thousands) | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | | Direct container expense - owned fleet | $58,813 | $60,321 | $62,596 | | Depreciation expense | $235,705 | $231,043 | $236,144 | | Container impairment | $26,775 | $8,072 | $94,623 | | General and administrative expense | $44,317 | $39,677 | $34,540 | | Bad debt expense, net | $2,697 | $477 | $21,166 | | Gain on insurance recovery | $(8,692) | $— | $— | | Total operating expenses | $466,328 | $440,400 | $552,150 | Liquidity and Capital Resources Details the company's sources of liquidity, debt facilities, cash flow trends, and dividend payment restrictions - The company is a holding company and depends on dividends and other payments from its subsidiaries to meet financial obligations and pay dividends, which are subject to certain limits372 Debt Facilities as of Dec 31, 2018 (in thousands) | Facility | Current Borrowing | Total Commitment | Available Borrowing | | :--- | :--- | :--- | :--- | | TMCL II Secured Debt Facility | $657,637 | $1,200,000 | $— | | TL Revolving Credit Facility | $1,280,000 | $1,500,000 | $136,637 | | TAP Funding Revolving Credit Facility | $173,000 | $190,000 | $2,798 | | TMCL VI Term Loan | $278,724 | $278,724 | $— | | 2017-1 Bonds | $357,210 | $357,210 | $— | | 2017-2 Bonds | $439,915 | $439,915 | $— | | 2018-1 Bonds | $251,327 | $251,327 | $— | | Total | $3,437,813 | $4,217,176 | $139,435 | Historical Cash Flow Summary (in thousands) | Cash Flow Activity | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $252,272 | $250,975 | $277,894 | | Net cash used in investing activities | $(672,940) | $(85,364) | $(280,430) | | Net cash provided by (used in) financing activities | $408,154 | $(70,372) | $(4,619) | Tabular Disclosure of Contractual Obligations Summarizes the company's total contractual obligations of approximately $4.12 billion as of December 31, 2018 Contractual Obligations as of December 31, 2018 (in thousands) | Obligation Type | Total | Due in 2019 | Due in 2020-2021 | Due in 2022-2023 | | :--- | :--- | :--- | :--- | :--- | | Total debt obligations | $3,437,813 | $197,427 | $554,277 | $1,509,945 | | Interest on obligations | $625,417 | $138,470 | $250,490 | $200,367 | | Office lease obligations | $17,621 | $2,186 | $4,222 | $3,930 | | Container contracts payable | $42,710 | $42,710 | $— | $— | | Total | $4,120,940 | $377,125 | $809,634 | $1,714,242 | Directors, Senior Management and Employees Provides information on the company's leadership, compensation, board practices, and employee base - As of March 4, 2019, the board of directors consisted of eight members, with two new executive appointments in 2018: Olivier Ghesquiere as President and CEO, and Michael K Chan as EVP and CFO411417428 - Aggregate direct compensation paid to executive officers as a group (four persons) for 2018 was approximately $3.7 million430434 - The company's 2015 Share Incentive Plan allows for the grant of share options and other awards, with 330,060 shares available for future issuance as of December 31, 2018435 - As of December 31, 2018, the company had 178 employees and is not a party to any collective bargaining agreements450 Major Shareholders and Related Party Transactions Details the company's ownership structure and transactions with related parties, including its largest shareholder - The company has a management agreement with LAPCO, an indirect subsidiary of major shareholder Trencor, from which it received $2.5 million in management fees in 2018467 - A Voting Limitation Deed is in place with Trencor to ensure that, for IFRS purposes, Trencor is not considered to have control or significant influence over the company464 Major Shareholders as of March 4, 2019 | Holder | Beneficially Owned Shares | Percentage | | :--- | :--- | :--- | | Trencor Limited | 27,278,802 | 47.5% | | Isam K. Kabbani | 3,653,250 | 6.4% | | All directors and executive officers as a group (9 persons) | 29,489,553 | 51.4% | Financial Information Confirms the inclusion of audited financial statements and outlines the company's dividend policy - The company's audited consolidated financial statements for the years ended December 31, 2018, 2017, and 2016 are included in the report472 - The company suspended its dividend payments after the third quarter of 2016, with future payments subject to board discretion and debt covenants474475476 Dividends Declared (2015-2016) (in thousands) | Date Declared | Dividend per Share | Total Dividend | | :--- | :--- | :--- | | February 2015 | $0.47 | $26,781 | | April 2015 | $0.47 | $26,783 | | July 2015 | $0.47 | $26,796 | | October 2015 | $0.24 | $13,719 | | February 2016 | $0.24 | $13,479 | | April 2016 | $0.24 | $13,577 | | August 2016 | $0.03 | $1,698 | The Offer and Listing Provides details about the trading market and historical stock price for the company's common shares - The company's common shares are listed on the New York Stock Exchange (NYSE) under the symbol 'TGH'480 Annual Stock Price Range (High/Low) | Year | High | Low | | :--- | :--- | :--- | | 2018 | $25.85 | $9.30 | | 2017 | $23.55 | $8.50 | | 2016 | $15.72 | $7.05 | | 2015 | $34.44 | $13.48 | | 2014 | $39.87 | $29.25 | Additional Information Provides supplementary corporate, tax, and regulatory information relevant to the company and its shareholders - The company is an exempted company incorporated under the laws of Bermuda489 - Major shareholder Trencor is subject to South African exchange control regulations, which could restrict the company's ability to issue new shares492 - The company has obtained an assurance from the Bermuda Minister of Finance that it will not be subject to any tax on profits, income, or capital gains in Bermuda until March 31, 2035497 - A portion of the company's income is subject to U.S. federal income tax, and the company does not believe it was a Passive Foreign Investment Company (PFIC) for its prior taxable year507531 Quantitative and Qualitative Disclosures About Market Risk Details the company's exposure to foreign exchange and interest rate risks and its strategies for mitigation - The company's primary market risks are foreign exchange rate risk and interest rate risk561 - In 2018, 19% of direct container expenses were paid in up to 20 different foreign currencies, and the company does not hedge this exposure562 - To mitigate interest rate risk, the company uses interest rate swaps, collars, and caps, with a total notional amount of $1.23 billion as of December 31, 2018563568569 - A hypothetical 1% increase in interest rates would result in a net increase of $10.4 million in interest expense571 Part II Controls and Procedures Discloses a material weakness in internal control over financial reporting and its impact on disclosure controls - Management concluded that disclosure controls and procedures were not effective as of December 31, 2018581 - A material weakness was identified in internal control over financial reporting related to the accounting for management agreements for the managed fleet585 - The control deficiency resulted in an immaterial restatement of prior period financial statements to change the presentation of managed fleet revenue and expenses from a 'net' to a 'gross' basis582583586 - The independent auditor, KPMG LLP, issued an adverse opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2018588 Corporate Governance and Other Information Covers various governance topics, including audit committee experts, codes of conduct, and accountant fees - The board has determined that Messrs Shwiel and Cottingham are audit committee financial experts592 - The company has adopted a Code of Business Conduct and Ethics applicable to all directors and employees593 - As a foreign private issuer, the company follows Bermuda corporate governance practices in lieu of certain NYSE requirements, such as not having a majority of independent directors on its board604605 Principal Accountant Fees (in thousands) | Fee Category | 2018 | 2017 | | :--- | :--- | :--- | | Audit Fees | $1,835 | $1,766 | | Audit-Related Fees | $173 | $195 | | Tax Fees | $14 | $22 | | Total Fees | $2,022 | $1,983 | Part III Financial Statements Contains the audited consolidated financial statements and the independent auditor's report for 2016-2018 - The independent auditor, KPMG LLP, issued an unqualified opinion on the consolidated financial statements, stating they present fairly the financial position of the company614 - KPMG LLP issued an adverse opinion on the company's internal control over financial reporting as of December 31, 2018, due to a material weakness619621 - Note 2 details an immaterial reclassification and adjustment of prior periods to present revenue and expenses for the managed fleet on a 'gross' basis instead of 'net', with no impact on net income737738739 - Note 12 provides a detailed breakdown of the company's $3.41 billion in debt obligations as of December 31, 2018778
Textainer (TGH) - 2018 Q4 - Annual Report