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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended March 31, 2020
Or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from                             to   
Commission file number - 001-37827
Triton International Limited
(Exact name of registrant as specified in the charter)
Bermuda
 
98-1276572
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification Number)

Victoria Place, 5th Floor, 31 Victoria Street, Hamilton HM 10, Bermuda
(Address of principal executive office)
(441294-8033
(Registrant's telephone number including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
   Common shares, $0.01 par value per share
TRTN
New York Stock Exchange
8.50% Series A Cumulative Redeemable Perpetual Preference Shares
TRTN PRA
New York Stock Exchange
8.00% Series B Cumulative Redeemable Perpetual Preference Shares
TRTN PRB
New York Stock Exchange
7.375% Series C Cumulative Redeemable Perpetual Preference Shares
TRTN PRC
New York Stock Exchange
6.875% Series D Cumulative Redeemable Perpetual Preference Shares
TRTN PRD
New York Stock Exchange
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days. Yes     No 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes     No 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
 
Large Accelerated Filer
 
 
Accelerated Filer
 
 
Non-accelerated filer
 
 
Smaller reporting company
 
 
 
 
 
 
Emerging growth company
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act). Yes     No 
As of April 17, 2020, there were 70,275,947 common shares at $0.01 par value per share of the registrant outstanding.
 



Triton International Limited
Index
 
 
Page No.
4
 
4
 
5
 
6
 
7
 
8
 
8
22
33
34
35
35
36
36
37


2


CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, that involve substantial risks and uncertainties. In addition, we, or our executive officers on our behalf, may from time to time make forward-looking statements in reports and other documents we file with the Securities and Exchange Commission, or SEC, or in connection with oral statements made to the press, potential investors or others. All statements, other than statements of historical facts, including statements regarding our strategy, future operations, future financial position, future revenues, future costs, prospects, plans and objectives of management are forward-looking statements. The words "expect," "estimate," "anticipate," "predict," "believe," "think," "plan," "will," "should," "intend," "seek," "potential" and similar expressions and variations are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.
Forward-looking statements in this report are subject to a number of known and unknown risks and uncertainties that could cause our actual results, performance or achievements to differ materially from those described in the forward-looking statements, including, but not limited to, the risks and uncertainties described in the section entitled "Risk Factors" in our Annual Report on Form 10-K, filed with the SEC on February 14, 2020 (the "Form 10-K"), in this Report on Form 10-Q and in any other Form 10-Q filed or to be filed by us, as well as in the other documents we file with the SEC from time to time, and such risks and uncertainties are specifically incorporated herein by reference.
Forward-looking statements speak only as of the date the statements are made. Except as required under the federal securities laws and rules and regulations of the SEC, we undertake no obligation to update or revise forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information. We caution you not to unduly rely on the forward-looking statements when evaluating the information presented in this report.

3





ITEM 1.    FINANCIAL STATEMENTS

TRITON INTERNATIONAL LIMITED
Consolidated Balance Sheets
(In thousands, except share data)
(Unaudited)
 
March 31,
2020
 
December 31,
2019
ASSETS:
 
 
 
Leasing equipment, net of accumulated depreciation of $3,065,931 and $2,933,886
$
8,327,685

 
$
8,392,547

Net investment in finance leases
335,208

 
413,342

Equipment held for sale
122,475

 
114,504

Revenue earning assets
8,785,368

 
8,920,393

Cash and cash equivalents
417,551

 
62,295

Restricted cash
103,031

 
106,677

Accounts receivable, net of allowances of $5,522 and $1,276
213,053

 
210,697

Goodwill
236,665

 
236,665

Lease intangibles, net of accumulated amortization of $248,509 and $242,301
49,948

 
56,156

Other assets
68,739

 
38,902

Fair value of derivative instruments
35

 
10,848

Total assets
$
9,874,390

 
$
9,642,633

LIABILITIES AND SHAREHOLDERS' EQUITY:
 
 
 
Equipment purchases payable
$
29,109

 
$
24,685

Fair value of derivative instruments
153,163

 
36,087

Accounts payable and other accrued expenses
103,832

 
116,782

Net deferred income tax liability
297,196

 
301,317

Debt, net of unamortized costs of $36,883 and $39,781
6,740,840

 
6,631,525

Total liabilities
7,324,140

 
7,110,396

Shareholders' equity:
 
 
 
Preferred shares, $0.01 par value, at liquidation preference
555,000

 
405,000

Common shares, $0.01 par value, 270,000,000 shares authorized, 81,110,868 and 80,979,833 shares issued, respectively
811

 
810

Undesignated shares, $0.01 par value, 7,800,000 and 13,800,000 shares authorized, respectively, no shares issued and outstanding

 

Treasury shares, at cost, 10,136,965 and 8,771,345 shares, respectively
(315,998
)
 
(278,510
)
Additional paid-in capital
897,002

 
902,725

Accumulated earnings
1,564,059

 
1,533,845

Accumulated other comprehensive income (loss)
(150,624
)
 
(31,633
)
Total shareholders' equity
2,550,250

 
2,532,237

Total liabilities and shareholders' equity
$
9,874,390

 
$
9,642,633

   
          


4




TRITON INTERNATIONAL LIMITED
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
 
Three Months Ended 
March 31,
 
2020
 
2019
Leasing revenues:
 
 
 
Operating leases
$
312,804

 
$
330,422

Finance leases
8,664

 
10,437

Total leasing revenues
321,468

 
340,859

 
 
 
 
Equipment trading revenues
15,380

 
17,828

Equipment trading expenses
(13,447
)
 
(14,241
)
Trading margin
1,933

 
3,587

 
 
 
 
Net gain on sale of leasing equipment
4,077

 
8,469

 
 
 
 
Operating expenses:
 
 
 
Depreciation and amortization
132,695

 
134,609

Direct operating expenses
23,248

 
16,802

Administrative expenses
19,225

 
18,187

Provision (reversal) for doubtful accounts
4,279

 
(142
)
Total operating expenses
179,447

 
169,456

Operating income (loss)
148,031

 
183,459

Other expenses:
 
 
 
Interest and debt expense
69,002

 
83,520

Realized (gain) loss on derivative instruments, net
(235
)
 
(704
)
Unrealized (gain) loss on derivative instruments, net
297

 
986

Debt termination expense
31

 

Other (income) expense, net
(3,646
)
 
(1,004
)
Total other expenses
65,449

 
82,798

Income (loss) before income taxes
82,582

 
100,661

Income tax expense (benefit)
5,546

 
7,850

Net income (loss)
$
77,036

 
$
92,811

Less: income (loss) attributable to noncontrolling interest

 
592

Less: dividend on preferred shares
9,825

 
305

Net income (loss) attributable to common shareholders
$
67,211

 
$
91,914

Net income per common share—Basic
$
0.94

 
$
1.18

Net income per common share—Diluted
$
0.94

 
$
1.17

Cash dividends paid per common share
$
0.52

 
$
0.52

Weighted average number of common shares outstanding—Basic
71,596

 
77,721

Dilutive restricted shares
202

 
549

Weighted average number of common shares outstanding—Diluted
71,798

 
78,270

   



The accompanying Notes to the Unaudited Consolidated Financial Statements are an integral part of these statements.

5






TRITON INTERNATIONAL LIMITED
Consolidated Statements of Comprehensive Income
(In thousands)
(Unaudited)
 
Three Months Ended March 31,
 
2020
 
2019
Net income (loss)
$
77,036

 
$
92,811

Other comprehensive income (loss), net of tax:
 
 
 
Change in derivative instruments designated as cash flow hedges
(120,140
)
 
(14,323
)
Reclassification of (gain) loss on derivative instruments designated as cash flow hedges
1,411

 
(1,749
)
Cumulative effect for the adoption of ASU 2017-12, net of income tax effect

 
432

Foreign currency translation adjustment
(262
)
 
43

Other comprehensive income (loss), net of tax
(118,991
)
 
(15,597
)
Comprehensive income
(41,955
)
 
77,214

Less:
 
 
 
Other comprehensive income attributable to noncontrolling interest
$

 
$
592

Dividend on preferred shares
9,825

 
305

Comprehensive income attributable to common shareholders
$
(51,780
)
 
$
76,317

 
 
 
 
Tax (benefit) provision on change in derivative instruments designated as cash flow hedges
$
(9,474
)
 
$
(2,144
)
Tax (benefit) provision on reclassification of (gain) loss on derivative instruments designated as cash flow hedges
$
(152
)
 
$
(606
)
Tax (benefit) provision on cumulative effect for the adoption of ASU 2017-12
$

 
$
277

   


The accompanying Notes to the Unaudited Consolidated Financial Statements are an integral part of these statements.

6






TRITON INTERNATIONAL LIMITED
Consolidated Statements of Shareholders' Equity
(In thousands, except share amounts)
(Unaudited)
 
Preferred Shares
 
Common Shares
 
Treasury Shares
 
Add'l Paid in Capital
 
Accumulated Earnings
 
Accumulated Other Comprehensive Income
 
Non controlling Interest
 
Total Equity
 
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
 
Balance as of December 31, 2019
16,200,000

 
$
405,000

 
80,979,833

 
$
810

 
8,771,345

 
$
(278,510
)
 
$
902,725

 
$
1,533,845

 
$
(31,633
)
 
$

 
$
2,532,237

Issuance of preferred shares, net of offering expenses
6,000,000

 
150,000

 

 

 

 

 
(5,171
)
 

 

 

 
144,829

Share-based compensation

 

 
184,644

 
2

 

 

 
1,603

 

 

 

 
1,605

Treasury shares acquired

 

 

 

 
1,365,620

 
(37,488
)
 

 

 

 

 
(37,488
)
Share repurchase to settle shareholder tax obligations

 

 
(53,609
)
 
(1
)
 

 

 
(2,155
)
 

 

 

 
(2,156
)
Net income (loss)

 

 

 

 

 

 

 
77,036

 

 

 
77,036

Other comprehensive income (loss)

 

 

 

 

 

 

 

 
(118,991
)
 

 
(118,991
)
Common shares dividend declared

 

 

 

 

 

 

 
(37,427
)
 

 

 
(37,427
)
Preferred shares dividend declared

 

 

 

 

 

 

 
(9,395
)
 

 

 
(9,395
)
Balance as of March 31, 2020
22,200,000

 
$
555,000

 
81,110,868

 
$
811

 
10,136,965

 
$
(315,998
)
 
$
897,002

 
$
1,564,059

 
$
(150,624
)
 
$

 
$
2,550,250


`
Preferred Shares
 
Common Shares
 
Treasury Shares
 
Add'l Paid in Capital
 
Accumulated Earnings
 
Accumulated Other Comprehensive Income
 
Non controlling Interest
 
Total Equity
 
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
 
Balance as of December 31, 2018

 
$

 
80,843,472

 
$
809

 
1,853,148

 
$
(58,114
)
 
$
896,811

 
$
1,349,627

 
$
14,563

 
$
121,513

 
$
2,325,209

Issuance of preferred shares, net of offering expenses
3,450,000

 
86,250

 

 

 

 

 
(3,192
)
 

 

 

 
83,058

Share-based compensation

 

 
170,231

 
2

 

 

 
1,816

 

 

 

 
1,818

Treasury shares acquired

 

 

 

 
2,636.534

 
(83,293
)
 

 

 

 

 
(83,293
)
Share repurchase to settle shareholder tax obligations

 

 
(31,506
)
 

 

 

 
(978
)
 

 

 

 
(978
)
Net income (loss)

 

 

 

 

 

 

 
92,219

 

 
592

 
92,811

Other comprehensive income (loss)

 

 

 

 

 

 

 
(432
)
 
(15,597
)
 

 
(16,029
)
Purchase of noncontrolling interests

 

 

 

 

 

 
11,707

 

 

 
(82,707
)
 
(71,000
)
Distributions to noncontrolling interests

 

 

 

 

 

 

 

 

 
(2,078
)
 
(2,078
)
Common shares dividend declared

 

 

 

 

 

 

 
(40,923
)
 

 

 
(40,923
)
Balance as of March 31, 2019
3,450,000

 
$
86,250

 
80,982,197

 
$
811

 
4,489,682

 
$
(141,407
)
 
$
906,164

 
$
1,400,491

 
$
(1,034
)
 
$
37,320

 
$
2,288,595




The accompanying Notes to the Unaudited Consolidated Financial Statements are an integral part of these statements.

7






TRITON INTERNATIONAL LIMITED
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
 
Three Months Ended March 31,
 
2020
 
2019
Cash flows from operating activities:
 
 
 
Net income (loss)
$
77,036

 
$
92,811

Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
Depreciation and amortization
132,695

 
134,609

Amortization of deferred debt cost and other debt related amortization
3,595

 
3,601

Lease related amortization
7,054

 
12,254

Share-based compensation expense
1,605

 
1,818

Net (gain) loss on sale of leasing equipment
(4,077
)
 
(8,469
)
Unrealized (gain) loss on derivative instruments
297

 
986

Debt termination expense
31

 

Deferred income taxes
5,505

 
7,116

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(3,775
)
 
41,421

Accounts payable and other accrued expenses
(15,111
)
 
3,019

Net equipment sold for resale activity
1,435

 
(8,803
)
Cash collections on finance lease receivables, net of income earned
15,466

 
17,125

Other assets
(23,796
)
 
(1,757
)
Net cash provided by (used in) operating activities
197,960

 
295,731

Cash flows from investing activities:
 
 
 
Purchases of leasing equipment and investments in finance leases
(62,406
)
 
(43,981
)
Proceeds from sale of equipment, net of selling costs
49,498

 
49,947

Other
(216
)
 
26

Net cash provided by (used in) investing activities
(13,124
)
 
5,992

Cash flows from financing activities:
 
 
 
Issuance of preferred shares, net of underwriting discount
145,275

 
83,058

Purchases of treasury shares
(34,357
)
 
(82,266
)
Redemption of common shares for withholding taxes
(2,156
)
 
(978
)
Debt issuance costs

 
(1,962
)
Borrowings under debt facilities
530,000

 
125,000

Payments under debt facilities and finance lease obligations
(425,073
)
 
(293,290
)
Dividends paid on preferred shares
(9,395
)
 

Dividends paid on common shares
(37,110
)
 
(40,427
)
Distributions to noncontrolling interests

 
(2,078
)
Purchase of noncontrolling interests

 
(71,000
)
Other
(410
)
 

Net cash provided by (used in) financing activities
166,774

 
(283,943
)
Net increase (decrease) in cash, cash equivalents and restricted cash
$
351,610

 
$
17,780

Cash, cash equivalents and restricted cash, beginning of period
168,972

 
159,539

Cash, cash equivalents and restricted cash, end of period
$
520,582

 
$
177,319

Supplemental disclosures:
 
 
 
Interest paid
$
53,795

 
$
66,106

Income taxes paid (refunded)
$
139

 
$
155

Right-of-use asset for leased property
$

 
$
8,289

Supplemental non-cash investing activities:
 
 
 
Equipment purchases payable
$
29,109

 
$
38,463

   


The accompanying Notes to the Unaudited Consolidated Financial Statements are an integral part of these statements.

8




TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)



Note 1—Description of the Business, Basis of Presentation and Accounting Policy Updates

Description of the Business

Triton International Limited ("Triton" or the "Company"), through its subsidiaries, leases intermodal transportation equipment, primarily maritime containers, and provides maritime container management services through a worldwide network of service subsidiaries, third-party depots and other facilities. The majority of the Company's business is derived from leasing its containers to shipping line customers through a variety of long-term and short-term contractual lease arrangements. The Company also sells containers from its equipment leasing fleet as well as containers specifically acquired for resale from third parties. The Company's registered office is located in Bermuda.

Basis of Presentation

The unaudited consolidated financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these financial statements do not include all information and footnotes required by GAAP for complete financial statements.

The interim consolidated balance sheet as of March 31, 2020; the consolidated statements of operations, the consolidated statements of comprehensive income, the consolidated statements of shareholders' equity and the consolidated statements of cash flows for the three months ended March 31, 2020 and 2019 are unaudited. The consolidated balance sheet as of December 31, 2019, included herein, was derived from the audited financial statements as of that date, but does not include all disclosures required by GAAP. The unaudited interim financial statements have been prepared on a basis consistent with the Company's annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments necessary to state fairly the Company's financial position, results of operations, comprehensive income, shareholders' equity, and cash flows for the periods presented. The financial data and the other financial information disclosed in the notes to the financial statements related to these periods are also unaudited. The consolidated results of operations for the three months ended March 31, 2020 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2020 or for any other future annual or interim period.

These financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes thereto as of and for the year ended December 31, 2019 included in the Company's Annual Report on Form 10-K which was filed with the SEC on February 14, 2020. The unaudited consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Certain changes in presentation have been made to conform the prior period presentation to current period reporting.
Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities in the financial statements. Such estimates include, but are not limited to, the Company's estimates in connection with leasing equipment, including residual values and depreciable lives, values of assets held for sale and other long lived assets, provision for income tax, allowance for doubtful accounts, share-based compensation, goodwill and intangible assets. Actual results could differ from those estimates.

Concentration of Credit Risk

The Company's equipment leases and trade receivables subject it to potential credit risk. The Company extends credit to its customers based upon an evaluation of each customer's financial condition and credit history. Evaluations of the financial condition and associated credit risk of customers are performed on an ongoing basis. The Company's two largest customers, CMA CGM S.A. and Mediterranean Shipping Company S.A., accounted for 21% and 15%, respectively, of the Company's lease billings during the three months ended March 31, 2020.

Fair Value Measurements

For information on the fair value of equipment held for sale, debt, and the fair value of derivative instruments, please refer to Note 2 - "Equipment Held for Sale", Note 7 - "Debt" and Note 8 - "Derivative Instruments", respectively.

9


TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)



New Accounting Pronouncements

Recently Adopted Accounting Standards Updates

Measurement of Credit Losses on Financial Instruments

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326) and subsequently issued amendments. The guidance affects the Company's net investment in finance leases and accounts receivable for its Equipment trading segment. The standard requires the measurement of expected credit losses to be based on relevant information from past events, including historical experiences, current conditions and reasonable and supportable forecasts that affect collectability.

The Company adopted the standard and its related amendments as of January 1, 2020. The Company has evaluated the impact of this ASU and concluded that the adoption of this standard did not have a significant impact on its consolidated financial statements.

Reference Rate Reform

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The guidance provides optional practical expedients for applying U.S. GAAP to hedging relationships affected by reference rate reform. The guidance is applicable to the Company's debt agreements, hedging relationships, and other transactions that reference LIBOR.

The Company adopted the standard and certain of its related amendments as of March 12, 2020. By adopting this standard, it will help ease the burden that the Company may face due to the transition away from certain reference rates, specifically LIBOR, which is the predominant reference rate in many of the Company’s debt agreements and hedging relationships. The practical expedients applicable to the Company are as follows: (1) contract modifications due to reference rate reform can be treated as continuations of the existing contract and potential changes to interest rate risk can be disregarded when asserting the probability of the forecasted hedged transactions; (2) hedge accounting can continue to be used for hedging relationships where critical terms change due to reference rate reform; and (3) effectiveness assessments can be performed in ways that disregard certain mismatches due to reference rate reform. The Company concluded that the adoption of this standard will not have a significant impact on our consolidated financial statements.

Note 2—Equipment Held for Sale

The Company's equipment held for sale is recorded at the lower of fair value less cost to sell, or carrying value at the time identified for sale. Fair value is measured using Level 2 inputs and is based on recent sales prices and other factors. The following table summarizes the portion of equipment held for sale in the consolidated balance sheet that have been impaired and written down to fair value less cost to sell (in thousands):
 
March 31, 2020
 
December 31, 2019
Equipment held for sale
$
16,208

 
$
11,797


An impairment charge is recorded when the carrying value of the asset exceeds its fair value less cost to sell. The following table summarizes the Company's net impairment charges recorded in net gains or losses on sale of leasing equipment held for sale on the consolidated statements of operations (in thousands):
 
Three Months Ended March 31,
 
2020
 
2019
Impairment (loss) reversal on equipment held for sale
$
(1,490
)
 
$
(1,407
)
Gain (loss) on sale of equipment, net of selling costs
5,567

 
9,876

Net gain on sale of leasing equipment
$
4,077

 
$
8,469




10


TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)



Note 3—Intangible Assets

Intangible assets consist of lease intangibles for leases acquired with lease rates above market at the time of acquisition. The following table summarizes the amortization of intangible assets as of March 31, 2020 (in thousands):
Years ending December 31,
Total intangible assets
2020
$
16,283

2021
16,549

2022
10,497

2023
4,657

2024
1,962

2025 and thereafter

Total
$
49,948


Amortization expense related to intangible assets was $6.2 million and $11.2 million for the three months ended March 31, 2020, and 2019, respectively.

Note 4—Share-Based Compensation

The Company recognizes share-based compensation expense for share-based payment transactions based on the grant date fair value. The expense is recognized over the employee's requisite service period, which is generally the vesting period of the equity award. The Company recognized share-based compensation expense in administrative expenses of $1.6 million and $1.8 million for the three months ended March 31, 2020 and 2019, respectively. Share-based compensation expense includes charges for performance-based shares that are deemed probable to vest.

As of March 31, 2020, the total unrecognized compensation expense related to non-vested restricted shares was approximately $13.5 million, which is expected to be recognized through 2023.

During the three months ended March 31, 2020, the Company issued 184,644 time-based and performance-based restricted shares, and canceled 53,609 vested shares to settle payroll taxes on behalf of employees. Additional shares may be accrued and issued based upon the Company's performance measured against selected peers.

Note 5—Other Equity Matters

Share Repurchase Program

The Company's Board of Directors authorized repurchases of common shares up to a specified dollar amount as part of its repurchase program. Purchases under the repurchase program may be made in the open market or privately negotiated transactions, and may include transactions pursuant to a repurchase plan administered in accordance with Rules 10b5-1 and 10b-18 under the Securities Exchange Act of 1934, as amended. Purchases may be made from time to time at the Company's discretion and the timing and amount of any share repurchases will be determined based on share price, market conditions, legal requirements, and other factors. The repurchase program does not obligate the Company to acquire any particular amount of common shares, and the Company may suspend or discontinue the repurchase program at any time.

During the three months ended March 31, 2020, the Company repurchased a total of 1,365,620 common shares at an average price per-share of $27.43 for a total of $37.5 million. As of March 31, 2020, $46.1 million remains available under the common share repurchase program. 

11


TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)



Preferred Shares

The following table summarizes the Company's preferred share issuances (the "Series"):
Preferred Share Offering
 
Issuance
 
Liquidation Preference (in thousands)
 
# of Shares(1)
Series A 8.50% Cumulative Redeemable Perpetual Preference Shares ("Series A")
 
March 2019
 
$
86,250

 
3,450,000

Series B 8.00% Cumulative Redeemable Perpetual Preference Shares ("Series B")
 
June 2019
 
143,750

 
5,750,000

Series C 7.375% Cumulative Redeemable Perpetual Preference Shares ("Series C")
 
November 2019
 
175,000

 
7,000,000

Series D 6.875% Cumulative Redeemable Perpetual Preference Shares ("Series D")
 
January 2020
 
150,000

 
6,000,000

 
 
 
 
$
555,000

 
22,200,000

(1)
Represents number of shares authorized, issued, and outstanding.

In January 2020, the Company completed a public offering of the Series D shares and received $145.3 million in aggregate net proceeds after deducting underwriting discounts of $4.7 million. The net proceeds were used for general corporate purposes, including the purchase of containers, the repurchase of outstanding common shares, the payment of dividends, and the repayment or repurchase of outstanding indebtedness.

Each Series of preferred shares may be redeemed at the Company's option, at any time after approximately five years from original issuance, in whole or in part at a redemption price, which is equal to the issue price, of $25.00 per share plus an amount equal to all accumulated and unpaid dividends, whether or not declared. In the event of a Change of Control Triggering Event, the Company may also redeem each Series of preferred shares. If the Company does not elect to redeem each Series, holders of preferred shares may have the right to convert their preferred shares into common shares. A Change of Control Triggering Event occurs when a Change of Control is accompanied or followed by a downgrade or a withdrawal of the rating by the rating agency within 60 days following the Change of Control to any of the Series.

Holders of preferred shares generally have no voting rights. If the Company fails to pay dividends for six or more quarterly periods (whether or not consecutive), holders will be entitled to elect two additional directors to the Board of Directors and the size of the Board of Directors will be increased to accommodate such election. Such right to elect two directors will continue until such time as there are no accumulated and unpaid dividends in arrears.

Dividends

Dividends on shares of each Series are cumulative from the date of original issue and will be payable quarterly in arrears on the 15th day of March, June, September and December of each year, when, as and if declared by the Company's Board of Directors. Dividends on shares of each Series will be payable equal to the applicable stated rate per annum of the $25.00 liquidation preference per share. The Series rank senior to the Company's common shares with respect to dividend rights and rights upon the Company's liquidation, dissolution or winding up, whether voluntary or involuntary.

The Company paid the following quarterly dividends during the three months ended March 31, 2020 on its issued and outstanding Series (in millions except for per-share amounts):
 
 
 
Series A
 
Series B
 
Series C
 
Series D
Record Date
Payment Date
 
Aggregate Payment
 
Per Share
Payment
 
Aggregate Payment
 
Per Share
Payment
 
Aggregate Payment
 
Per Share
Payment
 
Aggregate Payment
 
Per Share
Payment
March 9, 2020
March 16, 2020
 
$1.8
 
$0.53125
 
$2.9
 
$0.50
 
$3.2
 
$0.4609375
 
$1.5
 
$0.24349

As of March 31, 2020, the Company had cumulative unpaid preferred dividends of $1.8 million.


12


TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)



Common Share Dividends

The Company paid the following quarterly dividends during the three months ended March 31, 2020 and 2019 on its issued and outstanding common shares:
Record Date
Payment Date
 
Aggregate Payment
 
Per Share Payment
March 13, 2020
March 27, 2020
 
$37.1 Million
 
$0.52
March 12, 2019
March 28, 2019
 
$40.4 Million
 
$0.52

Accumulated Other Comprehensive Income

The following table summarizes the components of accumulated other comprehensive income (loss), net of tax, for the three months ended March 31, 2020 and 2019 (in thousands):
 
Cash Flow
Hedges
 
Foreign
Currency
Translation
 
Accumulated Other Comprehensive (Loss) Income
Balance as of December 31, 2019
$
(27,096
)
 
$
(4,537
)
 
$
(31,633
)
Change in derivative instruments designated as cash flow hedges(1)
(120,140
)
 

 
(120,140
)
Reclassification of (gain) loss on derivative instruments designated as cash flow hedges(1)
1,411

 

 
1,411

Foreign currency translation adjustment

 
(262
)
 
(262
)
Balance as of March 31, 2020
$
(145,825
)
 
$
(4,799
)
 
$
(150,624
)
 
Cash Flow
Hedges
 
Foreign
Currency
Translation
 
Accumulated Other Comprehensive (Loss) Income
Balance as of December 31, 2018
$
19,043

 
$
(4,480
)
 
$
14,563

Change in derivative instruments designated as cash flow hedges(1)
(14,323
)
 

 
(14,323
)
Reclassification of (gain) loss on derivative instruments designated as cash flow hedges(1)
(1,749
)
 

 
(1,749
)
Cumulative effect for the adoption of ASU 2017-12, net of income tax effect
432

 

 
432

Foreign currency translation adjustment

 
43

 
43

Balance as of March 31, 2019
$
3,403

 
$
(4,437
)
 
$
(1,034
)

(1)
Refer to Note 8 - "Derivative Instruments" for reclassification impact on the Consolidated Statement of Operations

Note 6—Leases

Lessee

The Company leases multiple office facilities which are contracted under various cancelable and non-cancelable operating leases, most of which provide extension or early termination options. The Company's lease agreements do not contain any residual value guarantees or material restrictive covenants.

As of March 31, 2020, the weighted average implicit rate was 4.10% and the weighted average remaining lease term was 3.1 years.

The following table summarizes the components of the Company's leases (in thousands):
Balance Sheet
Financial statement caption
 
March 31, 2020
 
December 31, 2019
Right-of-use asset - operating
Other assets
 
$
6,833

 
$
7,616

Lease liability - operating
Accounts payable and other accrued expenses
 
$
8,086

 
$
8,940


13


TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)



 
 
 
Three Months Ended March 31,
Income Statement
 
 
2020
 
2019
Operating lease cost(1)
Administrative expenses
 
$
759

 
$
734

(1)
Includes short-term leases that are immaterial.

Cash paid for amounts included in the measurement of lease liabilities under operating cash flows was $0.8 million for both the three month periods ended March 31, 2020 and March 31, 2019.

The following represents our future undiscounted cash flows for each of the next five years and thereafter and reconciliation to the lease liabilities as of March 31, 2020 (in thousands):
Years ending December 31,
 
2020
$
2,290

2021
2,655

2022
2,247

2023
1,379

2024
67

2025 and thereafter

Total undiscounted future cash flows related to lease payments
$
8,638

Less: imputed interest
(552
)
Total present value of lease liability
$
8,086



Lessor
     
The following table summarizes the components of the net investment in finance leases (in thousands):
 
March 31,
2020
 
December 31,
2019
Future minimum lease payment receivable(1)
$
424,836

 
$
476,443

Estimated residual receivable(2)
59,059

 
102,238

Gross finance lease receivables(3)
483,895

 
578,681

Unearned income(4)
(148,687
)
 
(165,339
)
Net investment in finance leases(5)
$
335,208

 
$
413,342


(1)
There were no executory costs included in gross finance lease receivables as of March 31, 2020 and December 31, 2019.
(2)
The Company's finance leases generally include a bargain purchase option and therefore, the Company has immaterial residual value risk for assets.
(3)
The gross finance lease receivable is reduced as billed to customers and reclassified to accounts receivable until paid.
(4)
There were no unamortized initial direct costs as of March 31, 2020 and December 31, 2019.
(5)
As of March 31, 2020, two major customers represented 66% and 12% of the Company's finance lease portfolio. As of December 31, 2019, three major customers represented 55%, 24% and 11% of the Company's finance lease portfolio. No other customer represented more than 10% of the Company's finance lease portfolio in each of those periods.

Maturities of the Company's gross finance lease receivables subsequent to March 31, 2020 are as follows (in thousands):
Years ending December 31,
 
2020
$
82,373

2021
74,295

2022
50,246

2023
44,802

2024
44,591

2025 and thereafter
187,588

Total
$
483,895



The Company’s finance lease portfolio lessees are primarily comprised of the largest international shipping lines. In its estimate of expected credit losses, the Company evaluates the overall credit quality of its finance lease portfolio. The Company considers an account past due when a payment has not been received in accordance with the terms of the related lease agreement

14


TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)



and maintains allowances, if necessary, for doubtful accounts. These allowances are based on, but not limited to, historical experience which included stronger and weaker economic cycles, each lessee's payment history, management's current assessment of each lessee's financial condition, consideration of current conditions and reasonable forecasts. As of March 31, 2020, the Company does not have an allowance on its gross finance lease receivables and does not have any past due balances.

Note 7—Debt

The table below summarizes the Company's key terms and carrying value of debt (in thousands):
 
Contractual Weighted Avg Interest Rate(1)
 
Maturity Range(1)
 
March 31, 2020
 
December 31, 2019
 
 
From
 
To
 
 
Institutional notes
4.68%
 
Apr 2020
 
Jun 2029
 
$
1,926,614

 
$
1,957,557

Asset-backed securitization term notes
3.45%
 
May 2022
 
Jun 2028
 
2,623,676

 
2,719,206

Term loan facilities
2.47%
 
Apr 2022
 
Nov 2023
 
1,172,375

 
1,200,375

Asset-backed securitization warehouse
2.59%
 
Dec 2025
 
Dec 2025
 
270,000

 
370,000

Revolving credit facilities
2.47%
 
Sep 2023
 
Jul 2024
 
777,500

 
410,000

Finance lease obligations
4.93%
 
Feb 2024
 
Feb 2024
 
18,924

 
27,024

   Total debt outstanding
 
 
 
 
 
 
6,789,089

 
6,684,162

Unamortized debt costs
 
 
 
 
 
 
(36,883
)
 
(39,781
)
Unamortized debt premiums & discounts
 
 
 
 
 
 
(3,785
)
 
(4,065
)
Unamortized fair value debt adjustment
 
 
 
 
 
 
(7,581
)
 
(8,791
)
   Debt, net of unamortized costs
 
 
 
 
 
 
$
6,740,840

 
$
6,631,525


(1)
Data as of March 31, 2020.

The fair value of total debt outstanding was $6,458.9 million and $6,747.8 million as of March 31, 2020 and December 31, 2019, respectively, and was measured using Level 2 inputs.

As of March 31, 2020, the maximum borrowing levels for the ABS warehouse and the revolving credit facility are $800.0 million and $1,560.0 million, respectively. These facilities are governed by borrowing bases that limit borrowing capacity to an established percentage of relevant assets. As of March 31, 2020, the availability under these credit facilities without adding additional container assets to the borrowing base was approximately $515.8 million.

The Company is subject to certain financial covenants under its debt agreements. The agreements remain the obligations of the respective subsidiaries, and all related debt covenants are calculated at the subsidiary level. As of March 31, 2020 and December 31, 2019, the Company was in compliance with all financial covenants in accordance with the terms of its debt agreements.


15


TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)



The Company hedges the risks associated with fluctuations in interest rates on a portion of its floating-rate debt by entering into interest rate swap agreements that convert a portion of its floating-rate debt to a fixed rate basis, thus reducing the impact of interest rate changes on future interest expense. The following table summarizes the Company's outstanding fixed-rate and floating-rate debt as of March 31, 2020 (in thousands):
 
Balance Outstanding
 
Contractual Weighted Avg Interest Rate
 
Maturity Range
 
Weighted Avg Remaining Term
 
 
 
From
 
To
 
Excluding impact of derivative instruments:
 
 
 
 
 
 
 
 
 
Fixed-rate debt
$3,864,305
 
4.25%
 
Apr 2020
 
Jun 2029
 
3.3 years
Floating-rate debt
$2,924,784
 
2.47%
 
Apr 2022
 
Dec 2025
 
3.4 years
 
 
 
 
 
 
 
 
 
 
Including impact of derivative instruments:
 
 
 
 
 
 
 
 
 
Fixed-rate debt
$3,864,305
 
4.25%
 
 
 
 
 
 
Hedged floating-rate debt
1,786,843
 
3.59%
 
 
 
 
 
 
Total fixed and hedged debt
5,651,148
 
4.04%
 

 

 
 
Unhedged floating-rate debt
1,137,941
 
2.47%
 
 
 
 
 
 
Total
$6,789,089
 
3.78%
 
 
 
 
 
 


On January 31, 2020, the Company paid $7.5 million to exercise the early purchase option on a finance lease obligation.

To provide additional liquidity and enhance its financial flexibility in response to recent global economic uncertainty and financial market volatility caused by the COVID-19 pandemic, the Company drew down $350.0 million from a revolving credit facility as a precautionary measure in March 2020.

Institutional Notes

In accordance with the institutional note agreements, interest payments on the Company's institutional notes are due semi-annually. Institutional note maturities typically range from 7 - 12 years, with level principal payments due annually following an interest-only period. The Company's institutional notes are pre-payable (in whole or in part) at the Company's option at any time, subject to certain provisions in the note agreements, including the payment of a make-whole premium in respect to such prepayment. These facilities provide for an advance rate against the net book values of designated eligible equipment.

Asset-Backed Securitization Term Notes

Under the Company's Asset-backed Securitization ("ABS") facilities, indirect wholly-owned subsidiaries of the Company issue asset-backed notes. These subsidiaries are intended to be bankruptcy remote so that such assets are not available to creditors of the Company or its affiliates until and unless the related secured borrowings have been fully discharged. These transactions do not meet accounting requirements for sales treatment and are recorded as secured borrowings.

The Company’s borrowings under the ABS facilities amortize in monthly installments, typically in level payments over five or more years. These facilities provide for an advance rate against the net book values of designated eligible equipment. The net book values for purposes of calculating eligible equipment is determined according to the related debt agreement and may be different than those calculated per U.S. GAAP. The Company is required to maintain restricted cash balances on deposit in designated bank accounts equal to three to nine months of interest expense depending on the terms of each facility.

Term Loan Facilities

The term loan facilities amortize in monthly or quarterly installments. These facilities provide for an advance rate against the net book values of designated eligible equipment.

Asset-Backed Securitization Warehouse

Under the Company’s asset-backed warehouse facility, indirect wholly-owned subsidiaries of the Company issue asset-backed notes. These subsidiaries are intended to be bankruptcy remote so that such assets are not available to creditors of the Company

16


TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)



or its affiliates until and unless the related secured borrowings have been fully discharged. These transactions do not meet accounting requirements for sales treatment and are recorded as secured borrowings.

The Company's asset-backed warehouse facility has a borrowing capacity of $800.0 million that is available on a revolving basis until December 13, 2021, paying interest at LIBOR plus 1.75%, after which any borrowings will convert to term notes with a maturity date of December 15, 2025, paying interest at LIBOR plus 2.85%.

During the revolving period, the borrowing capacity under this facility is determined by applying an advance rate against the net book values of designated eligible equipment. The net book values for purposes of calculating eligible equipment are determined according to the related debt agreement and may be different than those calculated per U.S. GAAP. The Company is required to maintain restricted cash balances on deposit in designated bank accounts equal to three months of interest expense.

Revolving Credit Facilities

The revolving credit facilities have a maximum borrowing capacity of $1,560.0 million. These facilities provide for an advance rate against the net book values of designated eligible equipment.

Finance Lease Obligations

The Company has one finance lease contract with a financial institution for some of our containers. Each lease is accounted for as a finance lease, with interest expense recognized on a level yield basis over the period preceding early purchase options, if any, which is five to seven years from the transaction date.

Note 8—Derivative Instruments

Interest Rate Swaps / Caps

The Company enters into derivative agreements to manage interest rate risk exposure. Interest rate swap agreements are utilized to limit the Company's exposure to interest rate risk by converting a portion of its floating-rate debt to a fixed rate basis, thus reducing the impact of interest rate changes on future interest expense. Interest rate swaps involve the receipt of floating-rate amounts in exchange for fixed rate interest payments over the lives of the agreements without an exchange of the underlying principal amounts. The Company also utilizes interest rate cap agreements to manage interest rate risk exposure. Interest rate cap agreements place a ceiling on the Company's exposure to rising interest rates.

The counterparties to these agreements are highly rated financial institutions. In the unlikely event that the counterparties fail to meet the terms of these agreements, the Company's exposure is limited to the interest rate differential on the notional amount at each monthly settlement period over the life of the agreements. The Company does not anticipate any non-performance by the counterparties. Substantially all of the assets of certain indirect, wholly-owned subsidiaries of the Company have been pledged as collateral for the underlying indebtedness and the amounts payable under the agreements for each of these entities. In addition, certain assets of the Company's subsidiaries are pledged as collateral for various credit facilities and the amounts payable under certain agreements.

As of March 31, 2020, the Company had interest rate swap and cap agreements in place to fix or limit the floating interest rates on a portion of the borrowings under its debt facilities summarized below:
Derivatives
 
Notional Amount
 
Weighted Average
Fixed Leg (Pay) Interest Rate
 
Cap Rate
 
Weighted Average
Remaining Term
Interest Rate Swap(1)
 
$1,786.8 million
 
2.02%
 
n/a
 
4.9 years
Interest Rate Cap
 
$200.0 million
 
n/a
 
5.5%
 
1.8 years
(1)
The impact of forward starting swaps with total notional amount of $550.0 million will increase the weighted average remaining term to 6.5 years.


17


TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)



The following table summarizes the impact of derivative instruments on the consolidated statements of operations and the consolidated statements of comprehensive income on a pretax basis (in thousands):
 
 
 
Three Months Ended 
March 31,
Derivative Instrument
Financial statement caption
 
2020
 
2019
Non-designated derivative instruments
Realized (gain) loss on derivative instruments, net
 
$
(235
)
 
$
(704
)
Non-designated derivative instruments
Unrealized (gain) loss on derivative instruments, net
 
$
297

 
$
986

Designated derivative instruments
Interest and debt (income) expense
 
$
1,259

 
$
(2,355
)
Designated derivative instruments
Comprehensive loss
 
$
129,614

 
$
16,467



Fair Value of Derivative Instruments

The Company has elected to use the income approach to value its interest rate swap and cap agreements, using Level 2 market expectations at the measurement date and standard valuation techniques to convert future values to a single discounted present value. The Level 2 inputs for the interest rate swap and cap valuations are inputs other than quoted prices that are observable for the asset or liability (specifically LIBOR and swap rates and credit risk at commonly quoted intervals). In response to the expected phase out of LIBOR, the Company continues to work with its counterparties to identify an alternative reference rate. Many of the Company's debt agreements already include transition language, and the Company also adopted various practical expedients which will facilitate the transition.

The Company presents its derivative financial instruments on a gross basis on the consolidated balance sheet. Any amounts of cash collateral received or posted related to derivative instruments are included in Other Assets on the consolidated balance sheet and are presented in operating activities of the consolidated statements of cash flows. As of March 31, 2020, there was cash collateral of $35.8 million related to interest rate swap contracts.

The fair value of derivative instruments on the Company's consolidated balance sheets as of March 31, 2020 and December 31, 2019 was as follows (in thousands):
 
Asset Derivatives
 
Liability Derivatives
Derivative Instrument
March 31, 2020
 
December 31, 2019
 
March 31, 2020
 
December 31, 2019
Interest rate hedges, designated
$
35

 
$
10,562

 
$
153,152

 
$
36,087

Interest rate hedges, non-designated

 
286

 
11

 

Total derivatives
$
35

 
$
10,848

 
$
153,163

 
$
36,087



Note 9—Segment and Geographic Information

Segment Information

The Company operates its business in one industry, intermodal transportation equipment, and has two operating segments which also represent its reporting segments:
Equipment leasing - the Company owns, leases and ultimately disposes of containers and chassis from its lease fleet.
Equipment trading - the Company purchases containers from shipping line customers, and other sellers of containers, and resells these containers to container retailers and users of containers for storage or one-way shipment. Included in the equipment trading segment revenues are leasing revenues from equipment purchased for resale that is currently on lease until the containers are dropped off.

These operating segments were determined based on the chief operating decision maker's review and resource allocation of the products and services offered.


18


TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)



The following tables summarizes our segment information and the consolidated totals reported (in thousands):
 
Three Months Ended March 31,
 
2020
 
2019
 
Equipment
Leasing
 
Equipment
Trading
 
Totals
 
Equipment
Leasing
 
Equipment
Trading
 
Totals
Total leasing revenues
$
321,037

 
$
431

 
$
321,468

 
$
340,070

 
$
789

 
$
340,859

Trading margin

 
1,933

 
1,933

 

 
3,587

 
3,587

Net gain on sale of leasing equipment
4,077

 

 
4,077

 
8,469

 

 
8,469

Depreciation and amortization expense
132,518

 
177

 
132,695

 
134,422

 
187

 
134,609

Interest and debt expense
68,699

 
303

 
69,002

 
83,174

 
346

 
83,520

Realized (gain) loss on derivative instruments, net
(234
)
 
(1
)
 
(235
)
 
(702
)
 
(2
)
 
(704
)
Income (loss) before income taxes(1)
81,517

 
1,393

 
82,910

 
98,466

 
3,181

 
101,647

Purchases of leasing equipment and investments in finance leases(2)
$
62,406

 
$

 
$
62,406

 
$
43,981

 
$

 
$
43,981

(1)
Segment income (loss) before income taxes excludes unrealized loss on derivative instruments of $0.3 million and $1.0 million for the three months ended March 31, 2020 and March 31, 2019, respectively, and an immaterial amount for debt termination expense for the three months ended March 31, 2020.
(2)
Represents cash disbursements for purchases of leasing equipment and investments in finance lease as reflected in the consolidated statements of cash flows for the periods indicated, but excludes cash flows associated with the purchase of equipment held for resale.
 
March 31, 2020
 
December 31, 2019
 
Equipment Leasing
 
Equipment Trading
 
Totals
 
Equipment Leasing
 
Equipment Trading
 
Totals
Equipment held for sale
$
97,403

 
$
25,072

 
$
122,475

 
$
89,755

 
$
24,749

 
$
114,504

Goodwill
220,864

 
15,801

 
236,665

 
220,864

 
15,801

 
236,665

Total assets
$
9,828,479

 
$
45,911

 
$
9,874,390

 
$
9,596,263

 
$
46,370

 
$
9,642,633



There are no intercompany revenues or expenses between segments. Certain administrative expenses have been allocated between segments based on an estimate of services provided to each segment. A portion of the Company's equipment purchased for resale may be leased for a period of time and is reflected as leasing equipment as opposed to equipment held for sale and the cash flows associated with these transactions are reflected as purchases of leasing equipment and proceeds from the sale of equipment in investing activities in the Company's consolidated statements of cash flows.

Geographic Segment Information

The Company generates the majority of its leasing revenues from international containers which are deployed by its customers in a wide variety of global trade routes. The majority of the Company's leasing related revenue is denominated in U.S. dollars.

The following table summarizes the geographic allocation of equipment leasing revenues for the three months ended March 31, 2020 and 2019 based on customers' primary domicile (in thousands):
 
Three Months Ended March 31,
 
2020
 
2019
Total equipment leasing revenues:
 
 
 
Asia
$
120,806

 
$
137,450

Europe
164,263

 
162,557

Americas
26,261

 
30,782

Bermuda
443

 
678

Other International
9,695

 
9,392

Total
$
321,468

 
$
340,859



Since the majority of the Company's containers are used internationally, where no one container is domiciled in one particular place for a prolonged period of time, all of the Company's long-lived assets are considered to be international.

19


TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)



The following table summarizes the geographic allocation of equipment trading revenues for the three months ended March 31, 2020 and 2019 based on the location of the sale (in thousands):
 
Three Months Ended March 31,
 
2020
 
2019
Total equipment trading revenues:
 
 
 
Asia
$
1,532

 
$
3,292

Europe
4,952

 
4,871

Americas
6,595

 
6,765

Bermuda

 

Other International
2,301

 
2,900

Total
$
15,380

 
$
17,828



Note 10—Commitments and Contingencies

Container Equipment Purchase Commitments

At March 31, 2020, the Company had commitments to purchase equipment in the amount of $133.9 million payable in 2020.

Contingencies

The Company is party to various pending or threatened legal or regulatory proceedings arising in the ordinary course of its business. Based upon information presently available, the Company does not expect any liabilities arising from these matters to have a material effect on the consolidated financial position, results of operations or cash flows of the Company.

Note 11—Income Taxes

The Company's effective tax rates were 6.7% and 7.8% for the three months ended March 31, 2020 and 2019, respectively. The Company has computed the provision for income taxes based on the estimated annual effective tax rate and the application of discrete items, if any, in the applicable period. The decrease in effective tax rates in 2020 was primarily the result of an increased proportion of the Company's income generated in lower tax jurisdictions. In addition, there were tax expenses related to uncertain tax positions recorded in 2019 that did not reoccur in 2020.

Note 12—Related Party Transactions

The Company holds a 50% interest in TriStar Container Services (Asia) Private Limited ("TriStar"), which is primarily engaged in the selling and leasing of container equipment in the domestic and short sea markets in India.  The Company's equity investment in TriStar is included in Other assets on the consolidated balance sheet. The Company received payments on direct finance leases with TriStar of $0.5 million for both of the three month periods ended March 31, 2020 and March 31, 2019. The Company has a direct finance lease balance with TriStar of $11.1 million and $10.7 million as of March 31, 2020 and December 31, 2019, respectively.

Note 13—Noncontrolling Interest

During 2019, the Company acquired all of the remaining third-party partnership interests in Triton Container Investments LLC for an aggregate of $103.0 million in cash.


20


TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)



Note 14—Subsequent Events

On April 21, 2020, the Company's Board of Directors approved and declared a quarterly cash dividend of $0.52 per share on its issued and outstanding common shares, payable on June 25, 2020 to holders of record at the close of business on June 11, 2020.

On April 21, 2020, the Company's Board of Directors also approved and declared a cash dividend on its issued and outstanding preferred shares, payable on June 15, 2020 to holders of record at the close of business on June 8, 2020 as follows:
Preferred Share Offering
 
Dividend Rate
 
Dividend Per Share
Series A
 
8.500%
 
$0.5312500
Series B
 
8.000%
 
$0.5000000
Series C
 
7.375%
 
$0.4609375
Series D
 
6.875%
 
$0.4296875

 
On April 21, 2020, the Company's Board of Directors increased the share repurchase authorization to $200.0 million. The revised authorization may be used by the Company to repurchase common or preferred shares.

21


ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The statements in this discussion regarding industry outlook, our expectations regarding our future performance, liquidity and capital resources and other non-historical statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described under "Risk Factors" and "Cautionary Note Regarding Forward-Looking Statements" as discussed in our Annual Report on Form 10-K filed for the fiscal year ended December 31, 2019 with the SEC on February 14, 2020 (the "Form 10-K"), in this Report on Form 10-Q and in any other Form 10-Q filed or to be filed by us, and in other documents we file with the SEC from time to time. Our actual results may differ materially from those contained in or implied by any forward-looking statements.

Our Company

Triton International Limited ("Triton", "we", "our" or the "Company") is the world's largest lessor of intermodal containers. Intermodal containers are large, standardized steel boxes used to transport freight by ship, rail or truck. Because of the handling efficiencies they provide, intermodal containers are the primary means by which many goods and materials are shipped internationally. We also lease chassis, which are used for the transportation of containers.

We operate our business in one industry, intermodal transportation equipment, and have two business segments, which also represent our reporting segments:
Equipment leasing - we own, lease and ultimately dispose of containers and chassis from our lease fleet.
Equipment trading - we purchase containers from shipping line customers, and other sellers of containers, and resell these containers to container retailers and users of containers for storage or one-way shipment.

Operations

Our consolidated operations include the acquisition, leasing, re-leasing and subsequent sale of multiple types of intermodal containers and chassis. As of March 31, 2020, our total fleet consisted of 3.6 million containers and chassis, representing 6.0 million twenty-foot equivalent units ("TEU") or 6.8 million cost equivalent units ("CEU"). We have an extensive global presence, offering leasing services through 20 offices and 3 independent agencies located in 16 countries and approximately 420 third-party owned and operated depot facilities in 44 countries as of March 31, 2020. Our primary customers include the world's largest container shipping lines. For the three months ended March 31, 2020, our twenty largest customers accounted for 85% of our lease billings, our five largest customers accounted for 57% of our lease billings, and our two largest customers, CMA CGM S.A. and Mediterranean Shipping Company S.A., accounted for 21% and 15% of our lease billings, respectively.

The most important driver of profitability in our business is the extent to which leasing revenues, which are driven by our owned equipment fleet size, utilization and average lease rates, exceed our ownership and operating costs. Our profitability is also driven by the gains or losses we realize on the sale of used containers in the ordinary course of our business.

We lease five types of equipment: (1) dry containers, which are used for general cargo such as manufactured component parts, consumer staples, electronics and apparel, (2) refrigerated containers, which are used for perishable items such as fresh and frozen foods, (3) special containers, which are used for heavy and over-sized cargo such as marble slabs, building products and machinery, (4) tank containers, which are used to transport bulk liquid products such as chemicals, and (5) chassis, which are used for the transportation of containers. Our in-house equipment sales group manages the sale process for our used containers and chassis from our equipment leasing fleet and buys and sells used and new containers and chassis acquired from third parties.



22


The following tables summarize our equipment fleet as of March 31, 2020, December 31, 2019 and March 31, 2019 indicated in units, TEU and CEU.
 
Equipment Fleet in Units
 
Equipment Fleet in TEU
 
March 31, 2020
 
December 31, 2019
 
March 31, 2019
 
March 31, 2020
 
December 31, 2019
 
March 31, 2019
Dry
3,239,306

 
3,267,624

 
3,322,723

 
5,324,756

 
5,369,377

 
5,448,267

Refrigerated
225,026

 
225,520

 
229,971

 
434,263

 
435,148

 
443,402

Special
93,743

 
94,453

 
93,361

 
170,225

 
171,437

 
168,755

Tank
12,469

 
12,485

 
12,600

 
12,469

 
12,485

 
12,600

Chassis
24,319

 
24,515

 
24,879

 
44,828

 
45,154

 
45,885

Equipment leasing fleet
3,594,863

 
3,624,597

 
3,683,534

 
5,986,541

 
6,033,601

 
6,118,909

Equipment trading fleet
17,549

 
17,906

 
17,504

 
26,185

 
27,121

 
27,014

Total
3,612,412

 
3,642,503

 
3,701,038

 
6,012,726

 
6,060,722

 
6,145,923


 
Equipment Fleet in CEU (1)
 
March 31, 2020
 
December 31, 2019
 
March 31, 2019
Operating leases
6,474,701

 
6,434,434

 
6,516,357

Finance leases
338,242

 
423,638

 
442,903

Equipment trading fleet
35,632

 
37,232

 
42,402

Total
6,848,575

 
6,895,304

 
7,001,662

                    
(1)
In the equipment fleet tables above, we have included total fleet count information based on CEU. CEU is a ratio used to convert the actual number of containers in our fleet to a figure based on the relative purchase prices of our various equipment types to that of a 20-foot dry container. For example, the CEU ratio for a 40-foot high cube dry container is 1.70, and a 40-foot high cube refrigerated container is 7.50. These factors may differ slightly from CEU ratios used by others in the industry.

The following table summarizes the percentage of our equipment fleet in terms of units and CEU as of March 31, 2020:
Equipment Type
Percentage of total fleet in units
 
Percentage of total fleet in CEU
Dry
89.7
%
 
68.3
%
Refrigerated
6.2

 
24.3

Special
2.6

 
3.5

Tank
0.3

 
1.5

Chassis
0.7

 
1.9

Equipment leasing fleet
99.5

 
99.5

Equipment trading fleet
0.5

 
0.5

Total
100.0
%
 
100.0
%

We generally lease our equipment on a per diem basis to our customers under three types of leases:
Long-term leases typically have initial contractual terms ranging from three to eight years and provide us with stable cash flow and low transaction costs by requiring customers to maintain specific units on-hire for the duration of the lease term.
Finance leases are typically structured as full payout leases and provide for a predictable recurring revenue stream with the lowest cost to the customer as customers are generally required to retain the equipment for the duration of its useful life.
Service leases command a premium per diem rate in exchange for providing customers with greater operational flexibility by allowing non-scheduled pick-up and drop-off of units during the lease term.

We also have expired long-term leases whose fixed terms have ended but for which the related units remain on-hire and for which we continue to receive rental payments pursuant to the terms of the initial contract. Some leases have contractual terms that have features reflective of both long-term and service leases and we classify such leases as either long-term or service leases, depending upon which features we believe are predominant.


23


The following table summarizes our lease portfolio by lease type, based on CEU on-hire as of March 31, 2020, December 31, 2019 and March 31, 2019:
Lease Portfolio
March 31,
2020

December 31,
2019

March 31,
2019
Long-term leases
71.1
%
 
69.5
%
 
64.8
%
Finance leases
5.5

 
6.8

 
6.8

Service leases
7.7

 
7.8

 
11.6

Expired long-term leases (units on-hire)
15.7

 
15.9

 
16.8

Total
100.0
%
 
100.0
%
 
100.0
%

As of March 31, 2020, December 31, 2019 and March 31, 2019, our long-term and finance leases combined had an average remaining contractual term of approximately 48 months, 48 months, and 49 months, respectively, assuming no leases are renewed.

COVID-19

The outbreak of COVID-19 is having a meaningful impact on global trade and our business. In late January 2020, China implemented extensive work restrictions to control the outbreak, which led to a steep drop in exports from China and limited container demand. Work restrictions in China started to ease in March, and export volumes from China increased throughout the month. However, the spread of COVID-19 to other parts of the world and the strong actions taken by many countries to reduce exposures have led to a sharp decrease in global economic activity during the second quarter and a second steep drop in global containerized trade volumes. We expect demand for leased containers to be negatively impacted for as long as global economic activity and trade volumes are weak. A prolonged slowdown in trade volumes due to the pandemic could also significantly increase the financial challenges facing our customers. We are closely monitoring our customers’ payment performance and expect our customer credit risk will remain high as long as economic and trade disruptions persist.

Operating Performance

Triton's financial performance was solid during the first quarter of 2020, despite the challenging market conditions as a result of the COVID-19 pandemic.

Fleet size. As of March 31, 2020, our revenue earning assets had a net book value of $8.8 billion and our fleet size was 6.8 million CEUs, which represent decreases of 6.0% and 2.2%, respectively, compared to March 31, 2019. The decrease in our fleet size was primarily due to limited procurement in 2019. In 2019, global shipping activity was negatively impacted by the trade dispute between the United States and China, which led to low trade growth, weak leasing demand, and low new lease transaction activity. In addition, aggressive competition among leasing companies led to reduced projected returns on new container investments and caused us to further restrict new container purchases. The global outbreak of COVID-19 has led to significant reductions in shipping volumes, and our procurement remains below our target level so far this year. Through April 17, 2020, we have invested $192.8 million in containers for delivery in 2020.

Utilization(1). Our utilization averaged 95.4% during the first quarter of 2020, down 2.3% from the first quarter of 2019 and down 0.4% from the fourth quarter of 2019. Our utilization decreased throughout 2019 due to limited trade growth, weak leasing demand and limited container pick-up activity. Our utilization stabilized in December and January, but has been decreasing again since February due to the impacts of the COVID-19 outbreak. However, the decrease in our utilization has been gradual. Dry container drop-off volumes have remained moderate due to protections in our lease portfolio, low levels of new container production and operational challenges facing our customers that have slowed the global flow of containers. Demand for our refrigerated containers was also less affected by the trade dispute in 2019 and the COVID-19 outbreak in 2020. As of April 17, 2020, our utilization was 95.2%.

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The following table summarizes the equipment fleet utilization for the periods indicated below:
 
Quarter Ended
 
March 31,
2020
 
December 31,
2019
 
September 30,
2019
 
June 30,
2019
 
March 31,
2019
Average Utilization
95.4
%
 
95.8
%
 
96.7
%
 
97.2
%
 
97.7
%
Ending Utilization
95.3
%
 
95.4
%
 
96.4
%
 
97.1
%
 
97.4
%

(1)
Utilization is computed by dividing our total units on lease (in CEU) by the total units in our fleet (in CEU) excluding new units not yet leased and off-hire units designated for sale.

Average lease rates. Average lease rates for our dry container product line decreased by 3.5% in the first quarter of 2020 compared to the first quarter of 2019 and 1.4% from the fourth quarter of 2019, primarily reflecting the impact of several large lease extensions completed during 2019 at rates below our portfolio average. Market lease rates were well below our portfolio average lease rates throughout much of 2019 due to low new container prices, weak lease demand, a decrease in interest rates and aggressive competition for available lease transactions. Market lease rates for dry containers increased in the first quarter of 2020 due to an increase in new container prices, reflecting early expectations for improved trade growth and actions by container manufacturers to rationalize shift capacity. Market lease rates for dry containers at the end of the first quarter were slightly below the average lease rates in our portfolio.

Average lease rates for our refrigerated container product line decreased by 3.3% in the first quarter of 2020 compared to the first quarter of 2019. The cost of refrigerated containers has trended down over the last few years, which has led to lower market lease rates. In addition, we have been experiencing larger differences in lease rates for older refrigerated containers compared to rates on new equipment, and we expect our average lease rates for refrigerated containers to continue to gradually trend down.

The average lease rates for special containers remained flat in the first quarter of 2020 compared to the first quarter of 2019. Current market lease rates for special containers are below the average lease rates in our lease portfolio, but we experienced limited lease renewal and new lease activity in the first quarter of 2020.

Equipment disposals. Disposal volumes of our used dry containers increased 22.6% in the first quarter of 2020 from the first quarter of 2019 reflecting an increased level of inventory available for sale. Average used dry container disposal prices decreased by 10.4% in the first quarter of 2020 compared to the first quarter of 2019, mainly reflecting a decrease in sale prices during 2019. Average used container sale prices decreased gradually throughout 2019 reflecting low new container prices and decreasing leasing company utilizations and increased inventories of containers held for sale. Our average selling prices for used containers stabilized in the first quarter of 2020, and we continue to generate gains on used container disposals as our average used container selling prices currently are above our residual values. We expect used container selling prices could come under further pressure in 2020 if trade volumes and leasing company utilizations are heavily impacted by COVID-19 economic disruptions.

Credit Risk.    We established a $3.9 million reserve in the first quarter against the receivables of one of our mid-sized customers where we had been experiencing lengthy payment delays. Historically, we have experienced limited credit losses. However, our credit risk has been elevated due to the ongoing financial pressure faced by our shipping line customers as a result of persistent excess vessel capacity and low freight rates. Many of our customers also have high levels of leverage and several generated financial losses in 2019.

Credit risk has recently increased further as a result of the COVID-19 pandemic. It is widely expected that the aggressive actions taken by many countries to slow the spread of COVID-19 will lead to a steep drop in global economic and shipping activity. While our customers’ payment performance was generally solid in the first quarter, many of our customers are taking aggressive actions to reduce expenses and a number of customers have approached us about extending payment terms.


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Liquidity and Capital Resources

Our principal sources of liquidity are cash flows provided by operating activities, proceeds from the sale of our leasing equipment, and borrowings under our credit facilities. Our principal uses of cash include capital expenditures, debt service requirements, paying dividends, and repurchasing our common shares.

For the trailing twelve months ending March 31, 2020, cash provided by operating activities, together with the proceeds from the sale of our leasing equipment, was $1,181.0 million. In addition, as of March 31, 2020, we had $417.6 million of cash and cash equivalents and $1,312.5 million of additional borrowing capacity under our current credit facilities. We increased our cash balances during the first quarter to provide greater protection against the increased level of business and financial market risk and uncertainty caused by the COVID-19 pandemic.

As of March 31, 2020, our cash commitments in the next twelve months include $827.2 million of scheduled principal payments on our existing debt facilities and $163.0 million of committed but unpaid capital expenditures.

We believe that cash provided by operating activities, existing cash, proceeds from the sale of our leasing equipment, and availability under our borrowing facilities will be sufficient to meet our obligations over the next twelve months.

Share Repurchase Program

During the three months ended March 31, 2020, the Company repurchased a total of 1.4 million common shares at an average price per share of $27.43 for a total of $37.5 million under its Board authorized share repurchase program. As of April 17, 2020, the Company has purchased over 10.8 million shares, or 13.4%, of our common shares since August 2018.

Preferred Share Offering

In January 2020, the Company completed a public offering of 6.875% Series D preference shares, selling 6,000,000 shares and generating $150.0 million of gross proceeds. The estimated costs associated with the offering, inclusive of underwriting discount and other offering expenses, were $5.2 million.

The Company used the net proceeds from this offering for general corporate purposes, including the purchase of containers, the repurchase of outstanding common shares, the payment of dividends, and the repayment or repurchase of outstanding indebtedness.

For additional information, please refer to Note 5 - “Other Equity Matters” in the Notes to the Unaudited Consolidated Financial Statements.

Debt Agreements

At March 31, 2020 and December 31, 2019, our outstanding indebtedness was comprised of the following (amounts in millions):
 
March 31, 2020
 
December 31, 2019
Institutional notes
$
1,926.6

 
$
1,957.6

Asset-backed securitization term notes
2,623.7

 
2,719.2

Term loan facilities
1,172.4

 
1,200.4