The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and related notes thereto included elsewhere in this Annual Report on Form 10-K. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results may differ materially from those contained in or implied by any forward-looking statements. See "Special Note Regarding Forward-Looking Statements." Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in Item 1A. "Risk Factors."

Overview

We are one of the world's leading container and railcar leasing and management companies. We purchase equipment, which we lease primarily to container shipping lines, freight forwarders and others and either retain as part of our owned fleet or sell to container investors for whom we then provide management services. In operating our fleet, we lease, re-lease and dispose of equipment and contract for the repair, repositioning and storage of equipment. As of December 31, 2012, our container fleet comprised 1,063,550 TEUs, 66.2% of which represented our owned fleet and 33.8% of which represented our managed fleet. In addition, we also own 1,456 railcars, which we lease in North America primarily to railroad transport companies.

Our business comprises two reportable segments for financial statement reporting purposes - equipment leasing and container management. Our equipment leasing segment revenue comprises rental revenue and finance lease income from our owned fleet, and our container management segment revenue comprises gain on sale of container portfolios and management fee revenue for managing containers for container investors.

Our equipment rental revenue depends primarily upon a combination of: (1) the number of containers and railcars in our owned fleet; (2) the utilization level of equipment in our owned fleet; and (3) the per diem rates charged under each equipment lease. The same factors in our managed fleet affect the amount of our management fee revenue. The number of TEUs in our fleet varies over time as we purchase new containers based on prevailing market conditions during the year, sell portfolios of containers to container investors and sell used containers to parties in the secondary resale market.

Our net income will fluctuate based, in part, upon changes in the proportion of our revenue from our two segments. We incur significantly lower operating expenses in connection with the revenues from our container management segment as compared to the operating expenses associated with revenues from our equipment leasing segment. In particular, we recognize an insignificant amount of operating expense in connection with our gain on sale of container portfolios in our container management segment. As a result, a change in the amount of revenue in our container management segment derived from the gain on sale of container portfolios will typically have a disproportionately larger impact on our net income than an equal change in the amount of revenue from our equipment leasing segment.

Key Metrics

Utilization. We measure container utilization on the basis of the average number of TEUs on lease expressed as a percentage of our total container fleet available for lease. We calculate TEUs available for lease by excluding containers that have been manufactured for us but have not been delivered and containers designated as held-for-sale units. Our utilization is primarily driven by the overall level of container demand, the location of our available containers and the quality of our relationships with container lessees. The location of available containers is critical because containers available in high-demand locations are more readily leased and are typically leased on more favorable terms than containers available in low-demand locations.

The container leasing market is highly competitive. As such, our relationships with our container lessees are important to ensure that container shipping lines continue to select us as one of their providers of leased containers. Our annual average fleet utilization rate for the year ended December 31, 2012 was 94.2% compared to 97.6% and 94.8% for the years ended December 31, 2011 and 2010, respectively. The decrease in our average fleet utilization from 2011 was primarily attributable to slower growth in world trade and an increase in the supply of containers. Our utilization rate may increase or decrease depending on future global economic conditions and the additional supply of new containers.

Per Diem Rates. The per diem rate for a lease is set at the time we enter into a lease agreement. Our long-term per diem rate has historically been strongly influenced by new container pricing, interest rates, the balance of supply and demand for containers at a particular time and location, our estimate of the residual value of the container at the end of the lease, the type and age of the container being leased, purchasing activities of containers by container shipping lines and efficiencies in container utilization by container shipping lines. The overall average per diem rates for containers in our owned fleet and in the portfolios of containers comprising our managed fleet do not change significantly in response to changes in new container prices because existing lease agreements can only be re-priced upon the expiration of the lease.

Revenue

Our revenue comprises rental revenue, management fee revenue, gain on sale of container portfolios and finance lease income.

Rental Revenue. We generate rental revenue by leasing our owned containers and railcars to container shipping lines and railroad companies, respectively. Approximately 98% of our rental revenue is derived from rental of containers. Container rental revenue comprises monthly lease payments due under the lease agreements together with payments for other charges set forth in the leases, such as handling fees, drop-off charges and repair charges.

Management Fee Revenue. Management fee revenue is generated by our management services, which include the leasing, re-leasing, repair, repositioning, storage and disposition of containers. We provide these management services pursuant to management agreements with container investors that purchase portfolios of containers from us. Under these agreements, which have multiple year terms, we earn fees for the management of the containers and a commission, or a managed units' sales fee, upon disposition of containers under management. Our management fees are calculated as a percentage of net operating income for each managed container, which is calculated as the lease payment and any other revenue attributable to a specific container owned by the container investor under a lease, minus operating expenses related to the container, excluding the container investor's depreciation and financing expense. The management fee percentage varies based upon the type of lease and the terms of the management agreement. Management fee percentages for long-term leases are generally lower than management fee percentages for short-term leases because less management time is required to manage long-term leases. Managed units' sales fees are equal to a fixed dollar amount or based upon a percentage of the sales price.

Gain on Sale of Container Portfolios. Gain on sale of container portfolios is generated when we sell containers, most of which are on lease at the time of sale, to container investors. Historically, we have entered into management agreements with container investors to manage portfolios of containers that we have sold to them. The amount of revenue we recognize on these sales of containers is equal to the difference between the cash we receive from container investors and the net book value of the containers sold. We rely upon our borrowing capacity under our credit facilities for the flexibility to hold containers until we sell them to container investors. We have historically been able to sell leased containers to container investors at a gain, and we have typically recognized higher revenue from gain on sale of container portfolios in periods of rising container prices. Because we enter into firm purchase orders for containers before we find lessees for the containers, there is a risk that the time necessary to lease these containers may be longer than we anticipate or that the price that container investors are willing to pay for portfolios of containers may decline before we take delivery.

Finance Lease Income. A small percentage of our total fleet is subject to finance leases. Under a finance lease, the lessee's payment consists of principal and interest components. The interest component is recognized as finance lease income. Lessees under our finance leases have the substantive risks and rewards of container ownership and may have the option to purchase the containers at the end of the lease term for a nominal amount.

Operating Expenses

Our operating expenses are depreciation of rental equipment, amortization of intangible assets, storage, handling and other expenses applicable to our owned equipment, as well as marketing, general and administrative expenses for our total fleet.

We depreciate our containers on a straight line basis over a period ranging from 12 to 15 years to a fixed estimated residual value depending on the type of container (See Note 2(d) in our consolidated financial statements). We regularly assess both the estimated useful life of our containers and the expected residual values, and, when warranted, adjust our depreciation estimate accordingly. Railcar equipment is depreciated over its estimated useful life of between 40 and 43 years to its estimated residual value using the straight line method. Depreciation expense for rental equipment will vary over time based upon the number and the purchase price of our owned equipment.

Storage, handling and other expenses are operating costs of our owned fleet. Storage and handling expenses occur when container shipping lines drop off containers at depots around the world. Storage and handling expenses vary significantly by location. Other expenses include repair expenses, which are the result of normal wear and tear on the containers, and repositioning expenses, which are incurred when we contract to move containers from locations where our inventories exceed actual or expected demand to locations with higher demand. Storage, handling and other expenses are directly related to the number of containers in our owned fleet and inversely related to our utilization rate for those containers: as utilization increases, we typically have lower storage, handling and repositioning expenses.

Our marketing, general and administrative expenses are primarily employee-related costs such as salary, bonus and commission expenses, employee benefits, rent, allowance for doubtful accounts and travel and entertainment costs, as well as expenses incurred for outside services such as legal, consulting and audit-related fees.

Our operating expenses are offset by the gain on disposition of used rental equipment. This gain is the result of our sale of older used equipment in the secondary resale market and is the difference between: (1) the cash we receive for these units, less selling expenses; and (2) the net book value of the units.

Results of Operations

The following table summarizes our results of operations for the three years ended December 31, 2012, 2011 and 2010 (in thousands):

                                                            Year Ended December 31,
                                                       2012          2011          2010
Revenue
Rental revenue                                       $ 152,982     $ 106,694     $  64,892
Management fee revenue                                  12,094        12,957        10,348
Gain on sale of container portfolios                     1,256         2,345           614
Finance lease income                                     7,593         3,710         2,045
Total revenue                                          173,925       125,706        77,899
Operating expenses
Depreciation of rental equipment                        48,352        33,633        20,807
Amortization of intangible assets                          902         1,254         1,377
Gain on disposition of used rental equipment           (12,445 )     (13,374 )      (9,112 )
Storage, handling and other expenses                     9,402         5,513         6,170
Marketing, general and administrative expenses          24,658        21,009        21,218
Loss (gain) on foreign exchange                            170          (354 )         513
Total operating expenses                                71,039        47,681        40,973

Operating income                                       102,886        78,025        36,926
Net interest expense                                    28,787        16,127         5,169

Net income before income taxes and non-controlling
interest                                                74,099        61,898        31,757
Income tax expense                                       9,818        11,084         3,555

Net income                                              64,281        50,814        28,202
Net (income) loss attributable to non-controlling
interest                                                  (816 )        (625 )         181

Net income attributable to CAI common stockholders   $  63,465     $  50,189     $  28,383

Year Ended December 31, 2012 Compared to Year Ended December 31, 2011

Revenue. The above table shows the composition of our revenue. The following discussion explains the significant changes in the composition of our total revenue for the year ended December 31, 2012 compared to the year ended December 31, 2011:

Rental Revenue. Rental revenue increased $46.3 million, or 43%, to $153.0 million for the year ended December 31, 2012, from $106.7 million for the year ended December 31, 2011. This was primarily due to a $46.9 million increase in rental revenue attributable to a 44% increase in the average number of TEUs of owned containers on lease and $3.0 million of revenue from the lease of railcars by CAI Rail. The increase in rental revenue was partially offset by a $6.1 million decrease in rental revenue which resulted from a 6% decrease in average per diem rental rates during 2012.

Management Fee Revenue. Management fee revenue for the year ended December 31, 2012 was $12.1 million, a decrease of $0.9 million, or 7%, from $13.0 million for the year ended December 31, 2011. The decrease was primarily due to a 14% reduction in the size of the average on-lease managed container fleet, partially offset by an increase in arrangement fees earned by CAIJ, Inc. (CAIJ).

Gain on Sale of Container Portfolios. Gain on sale of container portfolios decreased $1.1 million to $1.3 million for the year ended December 31, 2012, a 46% decrease from a gain of $2.3 million for the year ended December 31, 2011. The decrease was due primarily to fewer containers sold to investors during the year ended December 31, 2012 compared to the year ended December 31, 2011.

Finance Lease Income. Finance lease income increased by $3.9 million, or 105%, to $7.6 million during the year ended December 31, 2012, from $3.7 million during the year ended December 31, 2011. The increase was primarily attributable to new finance lease contracts entered into during 2012.

Expenses. The following discussion explains the significant changes in expenses for the year ended December 31, 2012 compared to the year ended December 31, 2011:

Depreciation of Rental Equipment. Depreciation of rental equipment increased by $14.7 million, or 44%, to $48.4 million for the year ended December 31, 2012, from $33.6 million for the year ended December 31, 2011. This increase was primarily attributable to a 42% increase in average TEUs of owned containers and the addition of railcar equipment, partially offset by a reduction in depreciation expense resulting from the increase in residual values and useful life of our containers effective January 1, 2012. We do not expect that the change in estimated residual values will have a material effect on the reported gain on disposition of equipment over the next several years since the equipment estimated to be sold during the coming years has already been substantially depreciated. See Note 2(d) to our consolidated financial statements included in this Annual Report on Form 10-K.

Amortization of Intangible Assets. Amortization of intangible assets decreased $0.4 million, or 28%, to $0.9 million for the year ended December 31, 2012, from $1.3 million for the year ended December 31, 2011. The decrease was due to certain intangible assets that became fully amortized during the third quarter of 2011.

Gain on Disposition of Used Rental Equipment. Gain on sale of used rental equipment decreased $0.9 million to $12.4 million for the year ended December 31, 2012, a 7% decrease from a gain of $13.4 million for the year ended December 31, 2011. The decrease was due primarily to a 9% reduction in the volume of used containers sold in the year ended December 31, 2012 compared to the year ended December 31, 2011, partially offset by higher margins on sales made in the year ended December 31, 2012.

Storage, Handling and Other Expenses. Storage, handling and other expenses increased by $3.9 million, or 71%, to $9.4 million for the year ended December 31, 2012, from $5.5 million for the year ended December 31, 2011. The decrease in utilization of our owned containers has resulted in more containers in storage during the year ended December 31, 2012 resulting in higher storage, handling, and other related charges. Additionally, we incurred increased repairs and maintenance costs relating to our railcars during the year ended December 31, 2012.

Marketing, General and Administrative Expense. MG&A expense increased by $3.7 million, or 17%, to $24.7 million for the year ended December 31, 2012, from $21.0 million for the year ended December 31, 2011. The increase was primarily due to a $1.7 million increase in personnel related costs, release of a $0.9 million bad debt reserve during the year ended December 31, 2011, and a $0.8 million increase in professional fees that were primarily associated with CAIJ's investor transactions in the year ended December 31, 2012 and the formation of CAI Rail.

Loss (Gain) on Foreign Exchange. We recorded a loss of $0.2 million on foreign exchange transactions for the year ended December 31, 2012 compared to a gain of $0.4 million during the year ended December 31, 2011. Gains and losses on foreign currency primarily occur when foreign denominated financial assets and liabilities are either settled or remeasured in U.S. dollars. The loss on foreign exchange for the year ended December 31, 2012 was primarily the result of the weakening of the U.S. dollar against foreign currencies, primarily the Euro.

Net Interest Expense. Net interest expense of $28.8 million for the year ended December 31, 2012 increased $12.7 million, or 79%, from $16.1million for the year ended December 31, 2011. The increase in net interest expense was due primarily to an increase in the average principal balance of our debt.

Income Tax Expense. Income tax expense of $9.8 million for the year ended December 31, 2012 decreased $1.3 million from $11.1 million for the year ended December 31, 2011. The effective tax rate for the year ended December 31, 2012 was 13.2% compared to an effective tax rate of 17.9% for the year ended December 31, 2011. The lower effective tax rate for the year ended December 31, 2012 was due primarily to a higher proportion of pretax income being generated by our foreign operations where income tax rates are lower than in the U.S.

Segment Information

The following table summarizes our results of operations for each of our
business segments for the years ended December 31, 2012 and 2011 (dollars in
thousands):

                                                                                        Year Ended December 31                Change
                                                                                          2012            2011         Amount       Percent
Equipment Leasing
Total revenue                                                                         $    160,575      $ 110,404     $ 50,171            45 %
Operating expenses                                                                          64,286         40,455       23,831            59
Interest expense                                                                            28,796         16,139       12,657            78
Net income before income taxes and non-controlling interest attributable to segment   $     67,493      $  53,810     $ 13,683            25
Container Management
Total revenue                                                                         $     13,350      $  15,302     $ (1,952 )         (13 ) %
Operating expenses                                                                           6,753          7,226         (473 )          (7 )
Net income before income taxes and non-controlling interest attributable to segment   $      6,597      $   8,076     $ (1,479 )         (18 )

Equipment Leasing. Total revenue from our equipment leasing segment increased $50.2 million, or 45%, to $160.6 million for the year ended December 31, 2012 from $110.4 million for the year ended December 31, 2011. The increase was primarily due to a $46.3 million increase in rental revenue resulting primarily from the increase in the average number of owned containers on lease and revenues from CAI Rail, and a $3.9 million increase in finance lease income.

Total operating expenses for the equipment leasing segment for December 31, 2012 increased $23.8 million, or 59%, to $64.3 million, from $40.5 million for the year ended December 31, 2011. The increase was primarily attributable to higher depreciation expense resulting from the increase in the number of owned containers, increase in storage, handling and other container related expenses as a result of a decrease in utilization, decrease in gain on sale of used rental equipment and an increase in MG&A expense.

Interest expense for the year ended December 31, 2012 increased $12.7 million, or 78%, to $28.8 million compared to $16.1 million for the year ended December 31, 2011. The increase in interest expense was primarily due to the increase in our average debt balance as we continued to increase our borrowings to finance our acquisition of additional rental equipment.

Container Management. Total revenue of $13.4 million from our container management segment for the year ended December 31, 2012 decreased $1.9 million, or 13%, from $15.3 million for the year ended December 31, 2011, mainly as a result of decreases in management fee revenue and gain on sale of container portfolios.

Total operating expenses for the container management segment decreased $0.5 million, or 7%, to $6.7 million for the year ended December 31, 2012, from $7.2 million for the year ended December 31, 2011 as a result of the reduction of MG&A expense allocated to the segment due to a decrease in the proportion of managed TEUs in the total fleet during 2012.

Year Ended December 31, 2011 Compared to Year Ended December 31, 2010

Revenue. The following discussion explains the significant changes in the composition of our total revenue for the year ended December 31, 2011 compared to the year ended December 31, 2010:

Rental Revenue. Rental revenue increased $41.8 million, or 64%, to $106.7 million for the year ended December 31, 2011 from $64.9 million for the year ended December 31, 2010. This was primarily caused by an increase in revenue of $25.0 million attributable to a 39% increase in the average number of TEUs of owned containers on lease, and a $13.2 million increase due to a 20% increase in average per diem rental rates.

Management Fee Revenue. Management fee revenue for the year ended December 31, 2011 was $13.0 million, an increase of $2.7 million, or 25%, from $10.3 million for the year ended December 31, 2010. The increase in managed container utilization and average per diem rates, partially offset by a reduction in the size of the managed container fleet, resulted in higher profitability in most of our investors' portfolios. In addition, we earned higher commissions on the sale of managed containers as a result of higher average selling prices during the year ended December 31, 2011.

Gain on Sale of Container Portfolios. Gain on sale of container portfolios of $2.3 million for the year ended December 31, 2011 was $1.7 million, or 282%, higher than the gain of $0.6 million recognized for the year ended December 31, 2010. The increase was due primarily to higher margins on containers sold to investors, partly offset by lower volumes of containers sold compared to the year ended December 31, 2010.

Finance Lease Income. Finance lease income increased $1.7 million, or 81%, to $3.7 million for the year ended December 31, 2011, from $2.0 million for the year ended December 31, 2010, due primarily to higher interest income resulting from an increase in new finance lease contracts.

Operating Expenses. The following discussion explains the significant changes in
expenses for the year ended December 31, 2011 compared to the year ended
December 31, 2010:

Depreciation of Rental Equipment. Depreciation of rental equipment increased by
$12.8 million, or 62%, to $33.6 million for the year ended December 31, 2011,
from $20.8 million for the year ended December 31, 2010. This increase was
primarily attributable to a 39% increase in average TEUs of owned containers,
partly offset by the net impact of implementing higher estimated residual values
in 2011. This change in estimated residual values reduced depreciation expense
and increased our pre-tax income by approximately $3.5 million for the year
ended December 31, 2011.

Amortization of Intangible Assets. Amortization expense relating to intangible
assets for the year ended December 31, 2011 decreased $0.1 million, or 9%, to
$1.3 million from $1.4 million for the year ended December 31, 2010. The
decrease resulted primarily from certain contracts and customer relationships
that have been fully amortized.

Gain on Disposition of Used Rental Equipment. Gain on disposition of used
container equipment increased by $4.3 million, or 47 %, to $13.4 million for the
year ended December 31, 2011, from $9.1 million for the year ended December 31,
2010. Although we sold 31% fewer containers during the year ended December 31,
2011 compared to the year ended December 31, 2010, the sales price and
associated profit margin in 2011 were significantly higher.

Storage, Handling and Other Expenses. Storage, handling and other expenses
declined by $0.7 million, or 11%, to $5.5 million for the year ended December
31, 2011, from $6.2 million for the year ended December 31, 2010. The increase
in the average utilization rate of our owned containers resulted in lower
. . .