News Column

TRAC INTERMODAL LLC - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations

May 12, 2014

The following discussion and analysis of the financial condition and results of operations of the Company should be read in conjunction with the interim consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q. All dollar amounts discussed below are in thousands of U.S. dollars except per share amounts, or unless otherwise stated. The interim financial statements have been prepared in accordance with U.S. GAAP. This discussion and analysis contains forward-looking statements that involve risk, uncertainties and assumptions. Our actual results could differ materially from those anticipated in the "Forward-looking statements" set forth in this Quarterly Report on Form 10-Q as a result of many factors, including those included and discussed in "Forward-looking statements" and "Risk factors" set forth in PartI-Item 1A of our Annual Report on Form 10-K for fiscal year 2013 and elsewhere in this report. Overview We are the largest intermodal chassis solutions provider, measured by total assets, for domestic and international transportation companies in North America. Our principal business is providing marine and domestic chassis on both long and short-term leases or rental agreements to a diversified customer base including the world's leading shipping lines, Class I railroads, major U.S. intermodal transportation companies and motor carriers. Our fleet of equipment primarily consists of marine and domestic chassis. These assets are owned, leased-in or managed by us on behalf of third-party owners in pooling arrangements. As of March 31, 2014, we owned, leased-in or managed a fleet of 309,430 chassis and units available for remanufacture. The net book value of our owned equipment was approximately $1.41 billion.



We operate our business through two operating segments: the Marine Market segment and the Domestic Market segment.

† Marine Market segment-primarily serving shipping lines and motor carriers with 20', 40' and 45' foot chassis. These chassis are used in the transport of dry or refrigerated marine shipping containers of the same size carrying goods between port terminals and/or railroad ramps and retail or wholesale warehouses or store locations, principally in the United States. We offer customers both long-term leases and short-term leases or rental agreements. As of March 31, 2014, our active fleet included 201,100 marine chassis. † Domestic Market segment-primarily serving railroads and major U.S. intermodal transportation companies with 53' chassis. These chassis are used in the transport of domestic shipping containers of the same size carrying goods between railroad ramps and retail or wholesale warehouses or store locations, principally in the United States. We offer customers both long-term leases and short-term leases or rental agreements. As of March 31, 2014, our active fleet included 73,789 domestic chassis. As of March 31, 2014, approximately 22%, 3%, and 75% of our on-hire chassis fleet was leased on term leases, direct finance leases or in chassis pools, respectively. As of March 31, 2014, 35% of our on-hire fleet was under existing agreements that provided for total contractual cash flow of $250.0 million over the remaining life of the contracts assuming no leases are further renewed upon expiration. Our utilization rates are determined by the percentage of our total fleet that is on-hire divided by the total fleet, excluding chassis awaiting the remanufacture process. As of March 31, 2014 and 2013, our utilization rates were 92.7% and 92.3%, respectively. 30 --------------------------------------------------------------------------------

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

The table below summarizes our total fleet by type of lease as of March 31, 2014: Units Net book value Average % of $ in age On-hire Total fleet by lease type # of units % of total millions % of total (in years) fleet Term lease 57,070 18 $ 292.2 21 13.0 22 Direct finance lease 6,373 2 21.7 1 11.7 3 Marine chassis pool 130,985 42 529.0 38 14.2 51 Domestic chassis pool 60,422 20 390.9 28 7.4 24 On-hire fleet 254,850 82 1,233.8 88 12.4 100 Available fleet 20,039 7 84.4 6 15.8 Active fleet 274,889 89 1,318.2 94 12.7 Units available for remanufacture 34,541 11 90.5 6 Total fleet 309,430 100 $ 1,408.7 100 Term lease products Under a term lease, the lessee commits to a fixed lease term, typically between 1 and 5 years. We retain the benefit and residual value of equipment ownership, and bear the risk of re-leasing the asset upon expiration of the lease. For the three months ended March 31, 2014, our term lease renewal rate was approximately 98% with very little movement of assets from term arrangements to pool arrangements during the quarter.



Direct finance lease products

Direct finance lease terms and conditions are similar to those of our term leases, except that, under a direct finance lease, the customer commits to a fixed lease term and typically receives a bargain purchase option at the expiration of the lease. Under this arrangement, the substantive risks and benefits of equipment ownership are passed on to the lessee. The lease payments are segregated into principal and interest components that are similar to a loan. The interest component, calculated using the effective interest method over the term of the lease, is recognized by us as Finance revenue. The principal component of the lease is reflected as a reduction to the net investment in the direct finance lease. The typical initial term on these leases is between 5 and 10 years, with multiple renewals to extend the lease term by another 1 to 3 years. Chassis pools We operate and maintain domestic and marine chassis pools. A chassis pool is similar to a car rental model in which we provide a shared pool of chassis at major intermodal transportation points such as port terminals and railroad ramps for use by multiple customers on an as-needed basis. Because substantially all our major customers have regular shipments requiring chassis, many commit to subscription levels for minimum chassis usage to ensure sufficient chassis supply. As of March 31, 2014, 22% of chassis pool revenue was generated by such minimum usage arrangements. 31

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

Marine chassis pools We operate pools in many of the major port terminals and railroad ramps on the Eastern seaboard, Gulf Coast, West Coast and Midwest, using marine 20', 40' and 45' chassis. As of March 31, 2014, we owned 116,408 units and managed 14,577 units owned and contributed by shipping lines for a total of 130,985 units. The net book value of our owned marine pool units amounted to $529.0 million as of March 31, 2014. Marine chassis pool customers pay per diem rates and in some cases are subject to subscription levels for minimum chassis usage that are typically one year in length. For the three months ended March 31, 2014, approximately 6% of marine chassis pool revenue was generated under subscription arrangements. Domestic chassis pools We also operate pools for domestic 53' chassis at railroad ramps throughout the United States. As of March 31, 2014, we had 60,422 units, including 8,349 that we lease-in, engaged in providing this service. The net book value of the domestic pool units that we own totaled $390.9 million, as of March 31, 2014. Currently, we have exclusive arrangements with five of the seven Class I railroads that carry freight in the United States to provide this service at many of their railroad ramps. With regard to the leasing of these domestic chassis, we have long-term contracts with many of the largest intermodal logistics companies that operate standard-size domestic intermodal equipment. A large portion of our domestic units are leased under these contracts and under similar contracts with other customers and contain minimum chassis usage subscription levels. For the three months ended March 31, 2014, approximately 62% of domestic chassis pool revenue was generated under subscription arrangements. Other revenue



Other revenue is derived from three primary sources: maintenance and repair service revenue, repositioning revenue and management services revenue.

Critical Accounting Policies There have been no material changes in our critical accounting policies from those disclosed in our 2013 Annual Report on Form 10-K. For discussion of our critical accounting policies, refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies" in Part II, Item 7 of our 2013 Annual Report on Form 10-K. 32 --------------------------------------------------------------------------------

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

Comparison of our consolidated results for the three months ended March 31, 2014 to the three months ended March 31, 2013

Three Months Ended March 31, Variance 2014 2013 $ change % change Revenues: Equipment leasing revenue $ 131,369$ 107,547$ 23,822 22 Finance revenue 595 1,010 (415 ) (41 ) Other revenue 7,687 9,342 (1,655 ) (18 ) Total revenues $ 139,651$ 117,899$ 21,752 18 Expenses: Direct operating expenses 66,833 61,003 5,830 10 Selling, general and administrative expenses 18,569 13,514 5,055 37 Depreciation expense 18,504 17,274 1,230 7 Provision for doubtful accounts 3,457 2,156 1,301 60 Impairment of leasing equipment 1,126 2,133 (1,007 ) (47 ) Loss on modification and extinguishment of debt and capital lease obligations 22 647 (625 ) (97 ) Interest expense 22,216 22,722 (506 ) (2 ) Interest income (24 ) (2 ) (22 ) ** Other income, net (382 ) (798 ) 416 (52 ) Total expenses 130,321 118,649 11,672 10 Income (loss) before provision (benefit) for income taxes 9,330 (750 ) 10,080 ** Provision (benefit) for income taxes 3,856 (315 ) 4,171 ** Net income (loss) $ 5,474$ (435 )$ 5,909 ** Adjusted net income(1) $ 9,348$ 4,203$ 5,145 122 Adjusted EBITDA(1) $ 52,197$ 42,967$ 9,230 21

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** Not meaningful (1) For a reconciliation of Adjusted net (loss) income and



Adjusted EBITDA to the most directly comparable U.S. GAAP measures, see -Non-GAAP Measures.

Revenues Total Company revenue was $139.7 million for the three months ended March 31, 2014 compared to $117.9 million for the three months ended March 31, 2013, an increase of $21.8 million or 18%. Equipment leasing revenue was $131.4 million for the three months ended March 31, 2014 compared to $107.5 million for the three months ended March 31, 2013, an increase of $23.9 million or 22%. This increase was primarily the result of a 17% increase in average per diem rates, which resulted in an increase in equipment leasing revenue of $18.9 million, and an increase in the average on-hire fleet of approximately 10,900 chassis, or 5%, which led to an increase in equipment leasing revenue of $4.9 million. 33 --------------------------------------------------------------------------------

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The increase in average per diem rates is primarily due to a product mix shift away from term leasing to pool arrangements, where the per diem rates are significantly higher. We are also able to charge a higher rate to motor carriers as shipping lines transition from providing chassis as part of their transportation-related services. We have also benefited from negotiated rate increases to shipping line, railroad and intermodal logistics customers. The increase in the average on-hire fleet was primarily due to growth in the marine pools, partially offset by a reduced number of chassis on-hire under long-term leases. Growth in our marine pools was due to the Company's purchase of 22,376 chassis from our shipping line customers from April 1, 2013 through March 31, 2014 as well as a shift of 19,769 term lease units into our pools over the same period. Such purchases and movements from long-term lease arrangements to pools are consistent with our expectations as the industry shift to the motor carrier model continues to evolve. Finance revenue was $0.6 million for the three months ended March 31, 2014 compared to $1.0 million for the three months ended March 31, 2013, a decrease of $0.4 million or 40%. This decrease was primarily the result of a reduction in the average investment in direct finance leases of $16.4 million due to normal amortization through principal payments and assets transitioned to the motor carrier model. Other revenue was $7.7 million for the three months ended March 31, 2014 compared to $9.3 million for the three months ended March 31, 2013, a decrease of $1.6 million or 17%. This decrease was primarily attributable to the absence of $2.9 million in fees earned for arranging the sale of managed containers to a third party in 2013, a $0.3 million reduction in fees earned for management services and lower scrap metal proceeds in connection with the disposal of end-of-life chassis of $0.3 million. These decreases were partially offset by an increase in billings to pool customers for the repositioning of equipment of $1.8 million and an increase in repair billings of $0.2 million. Marine Market segment Total Marine Market segment revenue was $95.9 million for the three months ended March 31, 2014 compared to $75.8 million for the three months ended March 31, 2013, an increase of $20.1 million or 27%. Three Months Ended March 31, Key Operating Statistics 2014 2013 Variance % Change Marine Market segment Pool Statistics Per Diem Revenue $ 80,778$ 57,019$ 23,759 42 Average Total Fleet 132,103 98,180 33,923 35



Average Daily Revenue per Chassis $ 6.79$ 6.45$ 0.34

5 Term Lease Statistics Per Diem Revenue $ 10,149$ 14,593$ (4,444 ) (30 ) Average Total Fleet 43,277 65,382 (22,105 ) (34 ) Average Daily Revenue per Chassis $ 2.61$ 2.48$ 0.13 5 Per Diem Revenue represents revenues billed under operating leases and excludes amounts billed to lessees for maintenance and repair, positioning and handling, and other ancillary charges.



Average Total Fleet is based upon the total fleet at each month end.

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Equipment leasing revenue was $90.9 million for the three months ended March 31, 2014 compared to $71.6 million for the three months ended March 31, 2013, an increase of $19.3 million or 27%. Marine pool per diem revenues increased $23.8 million or 42% due to a 35% increase in the average number of chassis in our marine pools and a 5% increase in the average per diem rate. The increased number of chassis in our marine pools is due to the Company's purchase of 22,376 chassis from our shipping line customers from April 1, 2013 through March 31, 2014 as well as a shift of 19,769 term lease units from our term lease product toward our pools, over the same period, as our shipping line customers transition to the motor carrier model. The increase in the average per diem rates in the marine pools is primarily due to a favorable mix of higher per diem rates billed to motor carriers and negotiated per diem rate increases to shipping line customers, partially offset by the dilutive effect of a significant number of newly introduced chassis added to our marine pools since April 1, 2013 without a proportional increase in billable usage. Marine pool per diem revenues attributable to motor carriers rose to 46% of total marine pool per diem revenue in the first quarter of 2014 from 35% in the first quarter of 2013. Marine term lease revenues decreased $4.4 million or 30% due to a 34% decrease in the average number of chassis on-hire, the vast majority of which represented transfers to the marine pool. This decrease was partially offset by a 5% increase in the average per diem rates. Finance revenue was $0.6 million for the three months ended March 31, 2014 compared to $1.0 million for the three months ended March 31, 2013, a decrease of $0.4 million or 40%. This decrease was primarily the result of a reduction in the average investment in direct finance leases of $16.4 million due to normal amortization through principal payments and assets transitioned to the motor carrier model. Other revenue was $4.4 million for the three months ended March 31, 2014 compared to $3.2 million for the three months ended March 31, 2013, an increase of $1.2 million or 38%. This increase was primarily attributable to increases in billings to rebalance our pools of $1.0 million and repair billings to customers for damage incurred while the chassis was on lease of $0.2 million. Domestic Market segment



Total Domestic Market segment revenue was $42.8 million for the three months ended March 31, 2014 compared to $37.3 million for the three months ended March 31, 2013, an increase of $5.5 million or 15%.

Three Months Ended March 31, Key Operating Statistics 2014 2013 Variance % Change Domestic Market segment Pool Statistics Per Diem Revenue $ 35,288$ 31,412$ 3,876 12 Average Total Fleet 60,290 59,779 511 1 Average Daily Revenue per Chassis $ 6.50$ 5.84$ 0.66 11 Term Lease Statistics Per Diem Revenue $ 5,154$ 4,523$ 631 14 Average Total Fleet 12,849 14,285 (1,436 ) (10 ) Average Daily Revenue per Chassis (*excluding early termination revenue) $ 3.49 * $ 3.52$ (0.03 ) (1 ) Per Diem Revenue represents revenues billed under operating leases and excludes amounts billed to lessees for maintenance and repair, positioning and handling, and other ancillary charges.



Average Total Fleet is based upon the total fleet at each month end.

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

Equipment leasing revenue was $40.4 million for the three months ended March 31, 2014 compared to $35.9 million for the three months ended March 31, 2013, an increase of $4.5 million or 13%. Domestic pool per diem revenues increased $3.9 million or 12% due to an 11% increase in the average per diem rates and a 1% increase in the average number of chassis in our domestic pools. The increase in the average per diem rates in the domestic pool is primarily due to negotiated per diem rate increases with railroad and intermodal logistic customers. Domestic term lease revenues increased $0.6 million or 14% primarily due to early termination revenue associated with an expiring term lease which also had the effect of reducing revenue due to a 10% decrease in the average number of chassis on lease. Other revenue was $2.4 million for the three months ended March 31, 2014 compared to $1.4 million for the three months ended March 31, 2013, an increase of $1.0 million or 71%. This increase was primarily attributable to increases in billings to rebalance our pools of $0.8 million and repair billings to customers for damage incurred while the chassis was on lease of $0.2 million. Direct operating expenses Total Company direct operating expenses were $66.8 million for the three months ended March 31, 2014 compared to $61.0 million for the three months ended March 31, 2013, an increase of $5.8 million or 10%. Maintenance and repair expenses increased $3.7 million or 9%, which was primarily due to a 22% increase in the average number of chassis operating in marine and domestic chassis pools. We experienced a lower average cost per repair and lower frequency of repair per pooled chassis utilized during the three months ended March 31, 2014 versus the comparable period of 2013. Additionally, increasing customer demand in chassis pools and the associated costs of placing equipment on-hire resulted in increases in repositioning and handling expenses and other direct operating expenses of $1.3 million and $0.8 million, respectively. Marine Market segment Direct operating expenses for the Marine Market segment were $49.4 million for the three months ended March 31, 2014 compared to $41.2 million for the three months ended March 31, 2013, reflecting an increase of $8.2 million or 20%. Maintenance and repair expenses increased $4.8 million or 16%, primarily due to a 35% increase in the average number of chassis operating in our marine pools. We experienced a lower average cost per repair and lower frequency of repair per pooled chassis utilized during the three months ended March 31, 2014 versus the comparable period of 2013. Additionally, increasing customer demand in chassis pools and the associated costs of placing equipment on-hire resulted in an increase in repositioning and handling expense of $1.9 million and an increase in pool operational expense of $1.0 million. Other direct operating expenses such as storage and insurance related expenses contributed to the remaining increase of $0.5 million. Domestic Market segment Direct operating expenses for the Domestic Market segment were $13.5 million for the three months ended March 31, 2014 compared to $15.6 million for the three months ended March 31, 2013, reflecting a decrease of $2.1 million or 13%. Maintenance and repair expenses decreased $1.1 million or 10%. We experienced a lower average cost per repair and lower frequency of repair per pooled chassis utilized during the three months ended March 31, 2014 versus the comparable period of 2013. Additionally, the purchase of previously rented equipment contributed to a $1.2 million decrease in chassis rental expenses. These decreases were partially offset by a $0.2 million increase in other direct operating expenses. 36

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

Revenues and Adjusted EBITDA by segment

Revenues Adjusted EBITDA Three Three Three Three Months Months Months Months Ended Ended Ended Ended March 31, March 31, March 31, March 31, 2014 2013 Variance 2014 2013 Variance Consolidated Statement of Operations Data: Marine Market segment $ 95,886$ 75,817$ 20,069$ 32,888$ 25,532$ 7,356 Domestic Market segment 42,814 37,289 5,525 25,472 18,488 6,984 Total Reportable segments $ 138,700$ 113,106$ 25,594$ 58,360$ 44,020$ 14,340 Other 951 4,793 (3,842 ) (6,163 ) (1,053 ) (5,110 ) Total Company $ 139,651$ 117,899$ 21,752$ 52,197$ 42,967$ 9,230 Principal collections on direct finance leases (1,187 ) (1,460 ) Non-cash share-based compensation (218 ) (281 ) Depreciation expense (18,504 ) (17,274 ) Impairment of leasing equipment (1,126 ) (2,133 ) Loss on modification and extinguishment of debt and capital lease obligations (22 ) (647 ) Interest expense (22,216 ) (22,722 ) Other income, net 382 798 Interest income 24 2 Income (loss) before provision (benefit) for income taxes 9,330 (750 ) Provision (benefit) for income taxes 3,856 (315 ) Net income (loss) $ 5,474$ (435 )



Selling, general and administrative expenses

Selling, general and administrative expenses were $18.6 million for the three months ended March 31, 2014 compared to $13.5 million for the three months ended March 31, 2013, an increase of $5.1 million or 38%. This increase was primarily due to incremental employee-related costs resulting from headcount additions in support of the industry shift to the motor carrier model and consulting fees in support of information technology initiatives. Depreciation expense Depreciation expense was $18.5 million for the three months ended March 31, 2014 compared to $17.3 million for the three months ended March 31, 2013, an increase of $1.2 million or 7%. This increase was primarily due to depreciation on chassis acquired throughout 2013 and during the three months ended March 31, 2014 and to a lesser extent, computer equipment purchased to support information technology initiatives. Such chassis acquisitions were related to marine chassis purchased from the shipping lines as they continue to migrate to the motor carrier model and the purchase of previously leased-in domestic chassis to support the growth in the domestic pool. 37 --------------------------------------------------------------------------------

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

Provision for doubtful accounts

The provision for doubtful accounts was $3.5 million for the three months ended March 31, 2014 compared to $2.2 million for the three months ended March 31, 2013, an increase of $1.3 million. The increase was primarily attributable to a more diversified customer base which includes a larger population of motor carriers as shipping lines continue to migrate to the motor carrier model. As a result, we are providing a greater number of chassis directly to motor carriers, thereby increasing credit risk.



Impairment of leasing equipment

We recorded impairment charges on leasing equipment of $1.1 million for the three months ended March 31, 2014 compared to $2.1 million for the three months ended March 31, 2013, a decrease of $1.0 million or 48%. This decrease was primarily due to a lesser number of end-of-life chassis impaired in the first quarter of 2014 as compared to the first quarter of 2013. This decrease was partially offset by write-downs associated with axle sets and chassis determined to be unsuitable for the remanufacturing program.



Loss on modification and extinguishment of debt and capital lease obligations

The decrease in the loss on modification and extinguishment of debt and capital lease obligations of $0.6 million for the three months ended March 31, 2014, as compared to the corresponding prior year period, was primarily due to the exercise of early purchase options on two capital leases during the three months ended March 31, 2013. In accordance with such exercise, we recognized a $0.6 million loss on the extinguishment of debt related to contractual premiums paid and the write-off of previously capitalized costs. Interest expense Interest expense was $22.2 million for the three months ended March 31, 2014 compared to $22.7 million for the three months ended March 31, 2013, a decrease of $0.5 million or 2%. The non-cash interest portion of this decrease (consisting of deferred financing fees, amortized losses on terminations of derivative instruments, and fair value adjustments for derivative instruments) amounted to $0.6 million, while the cash interest portion resulted in an increase amounting to $0.1 million. The decrease in non-cash interest expense was primarily due to a $0.6 million decrease in the amortization of deferred mark-to-market losses on terminated interest rate swap agreements. The increase in cash interest expense for the three months ended March 31, 2014 was primarily due to a $35.0 million increase in the average balance of debt outstanding during the current year period which yielded incremental cash interest expense of $0.5 million. Partially offsetting this increase was a reduction in the weighted-average interest rate from 5.66% during the first quarter of 2013 to 5.51% during the first quarter of 2014, which accounted for a $0.4 million decrease in cash interest expense. The increase in the average debt outstanding was primarily due to additional borrowings to support the growth of our chassis fleet. 38

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

Other income, net Other income, net for the three months ended March 31, 2014 was $0.4 million compared to $0.8 million for the three months ended March 31, 2013. The decrease of $0.4 million was primarily due to the reversal of a residual value liability related to the sale of managed domestic containers during the three months ended March 31, 2013. This decrease was partially offset by the gain on sale associated with domestic chassis on an expiring term lease.



Provision (benefit) for income taxes

The effective income tax rates for the three months ended March 31, 2014 and 2013 were 41% and 42%, respectively. In both periods, the effective tax rate was adversely impacted by Canadian and Mexican tax provisions. Net income (loss) Net income was $5.5 million for the three months ended March 31, 2014 compared to a net loss of $0.4 million for the three months ended March 31, 2013. The increase in the net income was attributable to the items noted above. 39 --------------------------------------------------------------------------------

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

Liquidity and Capital Resources

We have historically met our liquidity requirements primarily from revenues from operating activities from our subsidiaries, lines of credit and other secured and unsecured borrowings. Revenues from operating activities include term lease and marine and domestic pool revenues, direct finance lease collections, billings to lessees for maintenance and repairs and billings to lessees for repositioning and management services. Cash flow provided by operating activities was $23.0 million and $4.4 million for the three months ended March 31, 2014 and 2013, respectively. This increase was primarily due to a $21.8 million increase in revenues, partially offset by a $10.8 million increase in direct operating costs and selling, general and administrative expenses. Additionally, cash provided by working capital increased by $9.1 million. Amounts outstanding under existing lines of credit and other secured and unsecured borrowings were $1,145.5 million as of March 31, 2014 and $1,164.1 million as of December 31, 2013. As of March 31, 2014, we had $707.0 million outstanding under the ABL Facility and the ability to draw $243.0 million. No other amounts are available to draw under other currently secured or unsecured borrowings. Other Considerations As of March 31, 2014, we had approximately $37.7 million of scheduled debt amortization over the next 12 month period. These amounts do not include $60.4 million of interest payments, $4.0 million of asset purchase commitments and $3.0 million of operating lease commitments existing as of March 31, 2014 and maturing over the next 12 months. We expect that cash flows from operations and principal collections on direct finance leases will be sufficient to meet our liquidity needs for the next 12 months including maturing debt and contractual obligations. We believe that we will be able to maintain compliance with any applicable covenants in our indebtedness for the next 12 months. We may need to borrow funds to finance the purchases of new and used assets or to remanufacture assets to expand the business. No assurance can be made that we will be able to meet our financing and other liquidity needs as currently contemplated. Historically, the Company has had the ability to service debt obligations and to obtain additional financing as needed by the business. The majority of our debt is secured by long-lived assets which have proven to be an attractive collateral source for our lenders evidenced by our long history of obtaining capital lease obligations, term-loans and most recently, asset backed lending. 40 --------------------------------------------------------------------------------

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

Liquidity needs for acquisition of new chassis

We expect to invest substantial funds to acquire new and used chassis and remanufacture chassis, although there can be no assurances as to the timing and amount of such acquisitions. In 2013, $141.1 million was invested to acquire marine chassis ($102.8 million) and to exercise purchase options on expiring operating leased domestic chassis ($38.3 million). During the three months ended March 31, 2014, $15.8 million was invested to acquire marine chassis ($14.9 million) and to refurbish axles ($0.9 million). We anticipate additional equipment investment during the remainder of 2014; however, deterioration in our performance, the credit markets or our inability to obtain additional financing on attractive terms, or at all, could limit our access to funding or drive the cost of capital higher than the current cost. These factors, as well as numerous other factors could limit our ability to raise funds and further the growth of our business. Cash flow Cash was $6,115 at March 31, 2014 compared to $11,843 at December 31, 2013, a decrease of $5,728. Cash flow information for the three months ended March 31, 2014 and 2013 are as follows: Three months Ended March 31, (Dollars in thousands) 2014 2013 Net cash provided by operating activities $ 22,951 $



4,415

Net cash used in investing activities (9,179 ) (31,966 ) Net cash (used in) provided by financing activities (19,329 )



22,873

Effect of changes in exchange rates on cash and cash equivalents

(171 ) (131 ) Net decrease in cash and cash equivalents $ (5,728 )$ (4,809 )



Comparison of the three months ended March 31, 2014 to the three months ended March 31, 2013

Net cash provided by operating activities was $23.0 million for the three months ended March 31, 2014 compared to $4.4 million for the three months ended March 31, 2013, an increase of $18.6 million. This increase was primarily due to a $21.8 million increase in revenues, partially offset by a $10.8 million increase in direct operating costs and selling, general and administrative expenses. Additionally, cash provided by working capital increased by $9.1 million. Net cash used in investing activities was $9.2 million for the three months ended March 31, 2014 compared to $32.0 million for the three months ended March 31, 2013, a $22.8 million decrease in cash out-flows. The decrease was primarily driven by a $17.9 million decrease in capital spending coupled with a $5.2 million increase in proceeds from the sales of leasing equipment in the first three months of 2014. 41

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

Net cash used in financing activities was $19.3 million for the three months ended March 31, 2014 compared to net cash provided by financing activities of $22.9 million for the three months ended March 31, 2013, a $42.2 million change in cash flow. The change in cash flow is primarily attributable to a $34.0 million decrease in borrowings and an $8.8 million increase in repayments of long term debt during the first three months of 2014 compared to the first three months of 2013.



Contractual obligations and commitments

The following table summarizes our various contractual obligations in order of their maturity dates as of March 31, 2014.

Maturity in years Total as of Less than 1 (Dollars in thousands) Mar 31, 2014 Year 2 Years 3 Years 4 Years 5 Years Thereafter ABL Facility $ 707,000 $ - $ - $ - $ 707,000 $ - $ - TRAC 2019 Senior Secured Notes 300,000 - - - - - 300,000 Loan payable to CIMC 18,706 2,354 2,463 2,577 2,697 2,821 5,794 Capital lease obligations 119,765 35,389 17,591 42,404 5,799 17,329 1,253 Lease asset purchase commitments 3,979 3,979 - - - - - Interest payments 266,933 60,447 58,452 56,888 41,850 33,800 15,496 Operating leases 8,917 3,027 1,910 1,631 1,252 891 206 Total $ 1,425,300$ 105,196$ 80,416$ 103,500$ 758,598$ 54,841$ 322,749 Our contractual obligations consist of principal and interest payments related to the ABL Facility, the notes, chassis purchase commitments and operating lease payments for our chassis. Interest payments are based upon the net effect of swapping our variable interest rate payments for fixed rate payments. Covenants Under the indenture governing the notes, the ABL Facility and our other debt instruments, we are required to maintain certain financial covenants (as defined in each agreement) including a minimum tangible net worth test, a funded debt to tangible net worth test and a fixed charge coverage test. As of March 31, 2014, we were in compliance with all covenants under the indenture, the ABL Facility and other agreements. Commitments Purchase commitments Our chassis purchase commitments are generally related to purchase orders placed for the remanufacture of domestic chassis in the normal course of business and committed chassis acquisitions from shipping lines. We do not bear the risks and rewards of ownership until delivery and therefore do not record an asset or a liability related to these commitments. As of March 31, 2014, we had commitments totaling $4.0 million for the purchase of leasing equipment and the refurbishment of axles. 42

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

Operating leases We are a party to various operating leases relating to office facilities and certain other equipment with various expiration dates through 2019. Minimum rent payments under our material leases were $8.9 million as of March 31, 2014.



Off-balance sheet arrangements

In the ordinary course of business, we execute contracts involving indemnifications standard in the industry and indemnifications specific to a transaction, such as an assignment and assumption agreement. These indemnifications might include claims related to tax matters, governmental regulations, and contractual relationships, among others. Performance under these indemnities would generally be triggered by a breach of terms of the contract or by a third-party claim. One of the principal types of indemnification for which payment is possible is taxes. The other principal type of indemnity we may agree to is one in favor of certain lenders and chassis pool hosts indemnifying them against certain claims relating to the operation of our chassis, although this type of indemnity generally is covered by insurance or an indemnity in our favor from a third-party, such as a lessee or a vendor. We regularly evaluate the probability of having to incur costs associated with these indemnifications and have concluded that none are probable. We do not believe such arrangements have or are reasonably likely to have a current or future material effect on our financial condition, revenues and expenses, results of operations, liquidity, capital expenditures or capital resources. Pursuant to our tax-related indemnifications, the indemnified party is typically protected from certain events that result in a tax treatment different from that originally anticipated. Our liability is typically fixed when a final determination of the indemnified party's tax liability is made. In some cases, a payment under a tax indemnification may be offset in whole or in part by refunds from the applicable governmental taxing authority. We are party to various tax indemnifications and many of these indemnities do not limit potential payment; therefore, we are unable to estimate a maximum amount of potential future payments that could result from claims made under these indemnities.



Operating leases are part of our off-balance sheet arrangements. For more information on our liability under operating leases, see "-Commitments-Operating leases".

Emerging Growth Company Section 107 of the JOBS Act provides that an "emerging growth company" can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards after April 5, 2012. However, we are choosing to "opt out" of such extended transition period and as a result, we will comply with the new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable. 43

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Table of Contents PART I. FINANCIAL INFORMATION



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

Non-GAAP Measures Adjusted Net (Loss) Income Adjusted net (loss) income is a measure of financial and operating performance that is not defined by U.S. GAAP and should not be considered a substitute for net income, income from operations or cash flow from operations, as determined in accordance with U.S. GAAP. Adjusted net (loss) income is a measure of our operating and financial performance used by management to focus on consolidated financial and operating performance exclusive of income and expenses that relate to non-routine or significant non-cash items of the business. We define adjusted net (loss) income as net (loss) income before non-cash interest expense related to deferred financing fees, non-cash share-based compensation, loss on modification and extinguishment of debt and capital lease obligations, and terminations, modification, and fair value adjustments of derivative instruments. We use adjusted net (loss) income to assess our consolidated financial and operating performance, and we believe this non-GAAP measure is helpful to management and investors in identifying trends in our performance. This measure helps management make decisions that are expected to facilitate meeting current financial goals as well as achieve optimal financial performance. Adjusted net (loss) income provides us with a measure of financial performance of the business based on operational factors, including the profitability of assets on an economic basis, net of operating expenses, and the capital costs of the business on a consistent basis as it removes the impact of certain non-routine and non-cash items from our operating results. Adjusted net (loss) income is a key metric used by senior management and our board of directors to review the consolidated financial performance of the business.



The following table shows the reconciliation of net income (loss), the most directly comparable U.S. GAAP measure, to adjusted net income:

Three Months Ended March 31, (dollars in thousands) 2014 2013 Net income (loss) $ 5,474$ (435 ) Non-cash interest expense, net of tax 978



951

Non-cash share-based compensation, net of tax 131



169

Loss on modification and extinguishment of debt and capital lease obligations 13



388

Loss on termination and modification of derivative instruments, net of tax 2,764



3,130

Fair value adjustment for derivative instruments, net of tax (12 ) - Adjusted net income $ 9,348$ 4,203 44

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Table of Contents PART I. FINANCIAL INFORMATION



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

Adjusted EBITDA Adjusted EBITDA is a measure of both operating performance and liquidity that is not defined by U.S. GAAP and should not be considered a substitute for net income, income from operations or cash flow from operations, as determined in accordance with U.S. GAAP. We define Adjusted EBITDA as income (loss) before income taxes, interest expense, depreciation and amortization expense, impairment of assets and leasing equipment, loss on modification and extinguishment of debt and capital lease obligations, other expense (income), interest income, remanufacturing expenses, non-cash share-based compensation and principal collections on direct finance leases.



Set forth below is additional detail as to how we use Adjusted EBITDA as a measure of both operating performance and liquidity, as well as reconciliations of Adjusted EBITDA to our U.S. GAAP net (loss) income and cash flow from operating activities.

Operating performance: Management and our board of directors use Adjusted EBITDA in a number of ways to assess our consolidated financial and operating performance, and we believe this measure is helpful to management, the board of directors and investors in identifying trends in our performance. We use Adjusted EBITDA as a measure of our consolidated operating performance exclusive of income and expenses that relate to financing, income taxes, and capitalization of the business. Also, Adjusted EBITDA assists us in comparing our operating performance on a consistent basis as it removes the impact of our capital structure (primarily interest charges on our outstanding debt) and asset base (primarily depreciation and amortization) from our operating results. In addition, Adjusted EBITDA helps management identify controllable expenses and make decisions designed to help us meet our current financial goals and optimize our financial performance. Accordingly, we believe this metric measures our financial performance based on operational factors that management can impact in the short-term, namely the cost structure and expenses of the organization. Lastly, Adjusted EBITDA as defined herein is the basis for calculating selected financial ratios as required in the debt covenants of our ABL Facility. Liquidity: In addition to the uses described above, management and our board of directors use Adjusted EBITDA as an indicator of the amount of cash flow we have available to service our debt obligations, and we believe this measure can serve the same purpose for our investors. We add back certain remanufacturing expenses because these costs would have been capitalized if we built new chassis versus remanufacturing. We also include principal collections on direct finance lease receivables in Adjusted EBITDA because these collections represent cash that we have available to service our debt obligations that is not otherwise included in net (loss) income. As a result, by adding back remanufacturing related expenses and non-cash share-based compensation expenses and by including principal collections on direct finance lease receivables in Adjusted EBITDA, we believe Adjusted EBITDA is a more accurate indicator of our available cash flow to service our debt obligations than net (loss) income. 45 --------------------------------------------------------------------------------

Table of Contents PART I. FINANCIAL INFORMATION



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

The following table shows the reconciliation of net income (loss), the most directly comparable U.S. GAAP measure, to Adjusted EBITDA:

Three Months Ended March 31, (dollars in thousands) 2014 2013 Net income (loss) $ 5,474$ (435 ) Income tax provision (benefit) 3,856 (315 ) Interest expense 22,216 22,722 Depreciation expense 18,504 17,274 Impairment of leasing equipment 1,126



2,133

Loss on modification and extinguishment of debt and capital lease obligations 22 647 Other income, net (382 ) (798 ) Interest income (24 ) (2 ) Non-cash share-based compensation 218



281

Principal collections on direct finance leases, net of interest earned 1,187 1,460 Adjusted EBITDA $ 52,197$ 42,967 46

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Table of Contents PART I. FINANCIAL INFORMATION



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

The following table shows the reconciliation of cash flows from operating activities, the most directly comparable U.S. GAAP measure of the Company's cash generation, to Adjusted EBITDA:

Three Months Ended March 31, (dollars in thousands) 2014 2013 Net cash provided by operations $ 22,951 $



4,415

Depreciation and amortization (18,560 ) (17,339 ) Provision for doubtful accounts (3,457 ) (2,156 ) Amortization of deferred financing fees (1,574 ) (1,519 ) Derivative loss reclassified into earnings (4,606 ) (5,217 ) Ineffective portion of cash flow hedges 21



-

Loss on modification and extinguishment of debt and capital lease obligations

(22 ) (647 ) Non-cash share-based compensation (218 ) (281 ) Other, net 384



73

Impairment of leasing equipment (1,126 ) (2,133 ) Changes in assets and liabilities: Accounts receivable 5,456 12,388 Other assets 2,132 1,867 Accounts payable (2,054 ) (2,776 ) Accrued expenses and other liabilities 9,304



12,422

Deferred income taxes, net (3,157 )



468

Provision (benefit) for income taxes 3,856 (315 ) Interest expense 22,216 22,722 Depreciation expense 18,504 17,274 Impairment of leasing equipment 1,126



2,133

Loss on modification and extinguishment of debt and capital lease obligations 22 647 Other income, net (382 ) (798 ) Interest income (24 ) (2 ) Non-cash share-based compensation 218



281

Principal collections on direct finance leases, net of interest earned 1,187 1,460 Adjusted EBITDA $ 52,197$ 42,967 47

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Table of Contents

PART I. FINANCIAL INFORMATION


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