UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For The Quarterly Period Ended SeptemberJune 30, 20202021
Or
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☐ | 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)
(441) 294-8033
(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.
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| 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 October 16, 2020,July 23, 2021, there were 68,607,12667,393,576 common shares at $0.01 par value per share of the registrant outstanding.
Triton International Limited
Index
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 impact of COVID-19 on our business and financial results; decreases in the demand for leased containers; decreases in market leasing rates for containers; difficulties in re-leasing containers after their initial fixed-term leases; the magnitude and duration of the ongoing COVID-19 pandemic and its impact on our business, global trade and supply chains; customers' decisions to buy rather than lease containers; dependence on a limited number of customers for a substantial portion of our revenues;and suppliers; customer defaults; decreases in the selling prices of used containers; extensive competition in the container leasing industry; difficulties stemming from the international nature of Triton's businesses; decreases in demand for international trade; disruption to Triton's operations resulting from political and economic policies of the United States and other countries, particularly China, including but not limited to, the impact of trade wars, duties and tariffs; disruption to Triton's operations from failure of, or attacks on, Triton's information technology systems; disruption to Triton's operations as a result of natural disasters; compliance with laws and regulations related to economic and trade sanctions, security, anti-terrorism, environmental protection and corruption; ability to obtain sufficient capital to support growth; restrictions imposed by the terms of Triton's debt agreements; the phase-outachievement of the London Interbank Offered Rate (LIBOR), or the replacement of LIBOR with an alternative reference rate, which may adversely affect interest rates;our capital structure plans and related timing; changes in the tax laws in Bermuda, the United States and other countries; and the other 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, 202016, 2021 (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.
ITEM 1. FINANCIAL STATEMENTS
TRITON INTERNATIONAL LIMITED
Consolidated Balance Sheets
(In thousands, except share data)
(Unaudited)
| | | September 30, 2020 | | December 31, 2019 | | June 30, 2021 | | December 31, 2020 |
ASSETS: | ASSETS: | | | | ASSETS: | | | |
Leasing equipment, net of accumulated depreciation of $3,247,980 and $2,933,886 | $ | 8,323,667 | | | $ | 8,392,547 | | |
Leasing equipment, net of accumulated depreciation of $3,637,089 and $3,370,652 | | Leasing equipment, net of accumulated depreciation of $3,637,089 and $3,370,652 | $ | 9,971,257 | | | $ | 8,630,696 | |
Net investment in finance leases | Net investment in finance leases | 296,763 | | | 413,342 | | Net investment in finance leases | 499,272 | | | 282,131 | |
Equipment held for sale | Equipment held for sale | 104,923 | | | 114,504 | | Equipment held for sale | 35,814 | | | 67,311 | |
Revenue earning assets | Revenue earning assets | 8,725,353 | | | 8,920,393 | | Revenue earning assets | 10,506,343 | | | 8,980,138 | |
Cash and cash equivalents | Cash and cash equivalents | 173,257 | | | 62,295 | | Cash and cash equivalents | 77,392 | | | 61,512 | |
Restricted cash | Restricted cash | 163,486 | | | 106,677 | | Restricted cash | 127,484 | | | 90,484 | |
Accounts receivable, net of allowances of $2,155 and $1,276 | 214,978 | | | 210,697 | | |
Accounts receivable, net of allowances of $1,230 and $2,192 | | Accounts receivable, net of allowances of $1,230 and $2,192 | 280,288 | | | 226,090 | |
Goodwill | Goodwill | 236,665 | | | 236,665 | | Goodwill | 236,665 | | | 236,665 | |
Lease intangibles, net of accumulated amortization of $259,565 and $242,301 | 38,892 | | | 56,156 | | |
Lease intangibles, net of accumulated amortization of $273,753 and $264,791 | | Lease intangibles, net of accumulated amortization of $273,753 and $264,791 | 24,704 | | | 33,666 | |
Other assets | Other assets | 72,044 | | | 38,902 | | Other assets | 82,389 | | | 83,969 | |
Fair value of derivative instruments | Fair value of derivative instruments | 0 | | | 10,848 | | Fair value of derivative instruments | 93 | | | 9 | |
Total assets | Total assets | $ | 9,624,675 | | | $ | 9,642,633 | | Total assets | $ | 11,335,358 | | | $ | 9,712,533 | |
LIABILITIES AND SHAREHOLDERS' EQUITY: | LIABILITIES AND SHAREHOLDERS' EQUITY: | | | | LIABILITIES AND SHAREHOLDERS' EQUITY: | | | |
Equipment purchases payable | Equipment purchases payable | $ | 96,798 | | | $ | 24,685 | | Equipment purchases payable | $ | 411,454 | | | $ | 191,777 | |
Fair value of derivative instruments | Fair value of derivative instruments | 154,603 | | | 36,087 | | Fair value of derivative instruments | 77,141 | | | 128,872 | |
Accounts payable and other accrued expenses | Accounts payable and other accrued expenses | 105,631 | | | 116,782 | | Accounts payable and other accrued expenses | 124,444 | | | 95,235 | |
Net deferred income tax liability | Net deferred income tax liability | 319,320 | | | 301,317 | | Net deferred income tax liability | 355,636 | | | 327,431 | |
Debt, net of unamortized costs of $41,741 and $39,781 | 6,429,434 | | | 6,631,525 | | |
Debt, net of unamortized costs of $63,184 and $42,747 | | Debt, net of unamortized costs of $63,184 and $42,747 | 7,639,606 | | | 6,403,270 | |
Total liabilities | Total liabilities | 7,105,786 | | | 7,110,396 | | Total liabilities | 8,608,281 | | | 7,146,585 | |
Shareholders' equity: | Shareholders' equity: | | | | Shareholders' equity: | | | |
Preferred shares, $0.01 par value, at liquidation preference | Preferred shares, $0.01 par value, at liquidation preference | 555,000 | | | 405,000 | | Preferred shares, $0.01 par value, at liquidation preference | 555,000 | | | 555,000 | |
Common shares, $0.01 par value, 270,000,000 shares authorized, 81,151,723 and 80,979,833 shares issued, respectively | 812 | | | 810 | | |
Undesignated shares, $0.01 par value, 7,800,000 and 13,800,000 shares authorized, respectively, 0 shares issued and outstanding | 0 | | | 0 | | |
Treasury shares, at cost, 12,544,597 and 8,771,345 shares, respectively | (385,696) | | | (278,510) | | |
Common shares, $0.01 par value, 270,000,000 shares authorized, 81,294,902 and 81,151,723 shares issued, respectively | | Common shares, $0.01 par value, 270,000,000 shares authorized, 81,294,902 and 81,151,723 shares issued, respectively | 813 | | | 812 | |
Undesignated shares, $0.01 par value, 7,800,000 shares authorized, 0 shares issued and outstanding | | Undesignated shares, $0.01 par value, 7,800,000 shares authorized, 0 shares issued and outstanding | 0 | | | 0 | |
Treasury shares, at cost, 13,901,326 shares | | Treasury shares, at cost, 13,901,326 shares | (436,822) | | | (436,822) | |
Additional paid-in capital | Additional paid-in capital | 903,346 | | | 902,725 | | Additional paid-in capital | 906,186 | | | 905,323 | |
Accumulated earnings | Accumulated earnings | 1,597,928 | | | 1,533,845 | | Accumulated earnings | 1,781,692 | | | 1,674,670 | |
Accumulated other comprehensive income (loss) | Accumulated other comprehensive income (loss) | (152,501) | | | (31,633) | | Accumulated other comprehensive income (loss) | (79,792) | | | (133,035) | |
| Total shareholders' equity | Total shareholders' equity | 2,518,889 | | | 2,532,237 | | Total shareholders' equity | 2,727,077 | | | 2,565,948 | |
Total liabilities and shareholders' equity | Total liabilities and shareholders' equity | $ | 9,624,675 | | | $ | 9,642,633 | | Total liabilities and shareholders' equity | $ | 11,335,358 | | | $ | 9,712,533 | |
The accompanying Notes to the Unaudited Consolidated Financial Statements are an integral part of these statements.
4
TRITON INTERNATIONAL LIMITED
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
| | | Three Months Ended September 30, | | | Nine Months Ended September 30, | | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
Leasing revenues: | Leasing revenues: | | | | | | | | Leasing revenues: | | | | | | | |
Operating leases | Operating leases | $ | 320,352 | | | $ | 326,800 | | | $ | 946,579 | | | $ | 985,592 | | Operating leases | $ | 360,859 | | | $ | 313,423 | | | $ | 700,653 | | | $ | 626,227 | |
Finance leases | Finance leases | 7,405 | | | 9,868 | | | 24,043 | | | 30,501 | | Finance leases | 8,925 | | | 7,974 | | | 15,874 | | | 16,638 | |
| Total leasing revenues | Total leasing revenues | 327,757 | | | 336,668 | | | 970,622 | | | 1,016,093 | | Total leasing revenues | 369,784 | | | 321,397 | | | 716,527 | | | 642,865 | |
| Equipment trading revenues | Equipment trading revenues | 26,094 | | | 25,796 | | | 58,377 | | | 66,833 | | Equipment trading revenues | 33,183 | | | 16,903 | | | 59,128 | | | 32,283 | |
Equipment trading expenses | Equipment trading expenses | (22,225) | | | (21,646) | | | (50,555) | | | (54,600) | | Equipment trading expenses | (22,457) | | | (14,883) | | | (40,261) | | | (28,330) | |
Trading margin | Trading margin | 3,869 | | | 4,150 | | | 7,822 | | | 12,233 | | Trading margin | 10,726 | | | 2,020 | | | 18,867 | | | 3,953 | |
| Net gain on sale of leasing equipment | Net gain on sale of leasing equipment | 10,737 | | | 6,196 | | | 19,351 | | | 22,184 | | Net gain on sale of leasing equipment | 31,391 | | | 4,537 | | | 53,358 | | | 8,614 | |
| | Operating expenses: | Operating expenses: | | | | | Operating expenses: | |
Depreciation and amortization | Depreciation and amortization | 136,248 | | | 133,367 | | | 402,235 | | | 403,324 | | Depreciation and amortization | 154,056 | | | 133,292 | | | 297,363 | | | 265,987 | |
Direct operating expenses | Direct operating expenses | 25,992 | | | 20,457 | | | 78,859 | | | 55,356 | | Direct operating expenses | 6,337 | | | 29,619 | | | 15,707 | | | 52,867 | |
Administrative expenses | Administrative expenses | 21,395 | | | 18,496 | | | 61,092 | | | 56,671 | | Administrative expenses | 22,979 | | | 20,472 | | | 43,900 | | | 39,697 | |
| Provision (reversal) for doubtful accounts | Provision (reversal) for doubtful accounts | (45) | | | 126 | | | 4,608 | | | 505 | | Provision (reversal) for doubtful accounts | (26) | | | 374 | | | (2,490) | | | 4,653 | |
| Total operating expenses | Total operating expenses | 183,590 | | | 172,446 | | | 546,794 | | | 515,856 | | Total operating expenses | 183,346 | | | 183,757 | | | 354,480 | | | 363,204 | |
Operating income (loss) | Operating income (loss) | 158,773 | | | 174,568 | | | 451,001 | | | 534,654 | | Operating income (loss) | 228,555 | | | 144,197 | | | 434,272 | | | 292,228 | |
Other expenses: | Other expenses: | | | | | Other expenses: | |
Interest and debt expense | Interest and debt expense | 62,776 | | | 77,401 | | | 198,652 | | | 243,181 | | Interest and debt expense | 60,004 | | | 66,874 | | | 114,627 | | | 135,876 | |
Realized (gain) loss on derivative instruments, net | 0 | | | (539) | | | (224) | | | (1,912) | | |
Unrealized (gain) loss on derivative instruments, net | 0 | | | 504 | | | 286 | | | 2,757 | | |
| Debt termination expense | Debt termination expense | 24,345 | | | 1,870 | | | 24,376 | | | 2,428 | | Debt termination expense | 89,863 | | | 0 | | | 89,863 | | | 31 | |
Other (income) expense, net | Other (income) expense, net | (631) | | | (116) | | | (4,241) | | | (2,047) | | Other (income) expense, net | (261) | | | 36 | | | (742) | | | (3,548) | |
Total other expenses | Total other expenses | 86,490 | | | 79,120 | | | 218,849 | | | 244,407 | | Total other expenses | 149,606 | | | 66,910 | | | 203,748 | | | 132,359 | |
Income (loss) before income taxes | Income (loss) before income taxes | 72,283 | | | 95,448 | | | 232,152 | | | 290,247 | | Income (loss) before income taxes | 78,949 | | | 77,287 | | | 230,524 | | | 159,869 | |
Income tax expense (benefit) | Income tax expense (benefit) | 15,825 | | | 4,845 | | | 28,070 | | | 20,737 | | Income tax expense (benefit) | 13,732 | | | 6,699 | | | 25,469 | | | 12,245 | |
Net income (loss) | Net income (loss) | $ | 56,458 | | | $ | 90,603 | | | $ | 204,082 | | | $ | 269,510 | | Net income (loss) | $ | 65,217 | | | $ | 70,588 | | | $ | 205,055 | | | $ | 147,624 | |
Less: income (loss) attributable to noncontrolling interest | 0 | | | 0 | | | 0 | | | 592 | | |
| Less: dividend on preferred shares | Less: dividend on preferred shares | 10,512 | | | 4,708 | | | 30,850 | | | 7,038 | | Less: dividend on preferred shares | 10,513 | | | 10,513 | | | 21,026 | | | 20,338 | |
Net income (loss) attributable to common shareholders | Net income (loss) attributable to common shareholders | $ | 45,946 | | | $ | 85,895 | | | $ | 173,232 | | | $ | 261,880 | | Net income (loss) attributable to common shareholders | $ | 54,704 | | | $ | 60,075 | | | $ | 184,029 | | | $ | 127,286 | |
Net income per common share—Basic | Net income per common share—Basic | $ | 0.67 | | | $ | 1.18 | | | $ | 2.49 | | | $ | 3.49 | | Net income per common share—Basic | $ | 0.82 | | | $ | 0.87 | | | $ | 2.75 | | | $ | 1.81 | |
Net income per common share—Diluted | Net income per common share—Diluted | $ | 0.67 | | | $ | 1.17 | | | $ | 2.48 | | | $ | 3.47 | | Net income per common share—Diluted | $ | 0.81 | | | $ | 0.86 | | | $ | 2.74 | | | $ | 1.80 | |
Cash dividends paid per common share | Cash dividends paid per common share | $ | 0.52 | | | $ | 0.52 | | | $ | 1.56 | | | $ | 1.56 | | Cash dividends paid per common share | $ | 0.57 | | | $ | 0.52 | | | $ | 1.14 | | | $ | 1.04 | |
Weighted average number of common shares outstanding—Basic | Weighted average number of common shares outstanding—Basic | 68,223 | | | 72,689 | | | 69,693 | | | 74,984 | | Weighted average number of common shares outstanding—Basic | 66,951 | | | 69,275 | | | 66,943 | | | 70,436 | |
Dilutive restricted shares | Dilutive restricted shares | 359 | | | 560 | | | 289 | | | 573 | | Dilutive restricted shares | 331 | | | 261 | | | 295 | | | 262 | |
Weighted average number of common shares outstanding—Diluted | Weighted average number of common shares outstanding—Diluted | 68,582 | | | 73,249 | | | 69,982 | | | 75,557 | | Weighted average number of common shares outstanding—Diluted | 67,282 | | | 69,536 | | | 67,238 | | | 70,698 | |
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 September 30, | | | Nine Months Ended September 30, | | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
Net income (loss) | Net income (loss) | $ | 56,458 | | | $ | 90,603 | | | $ | 204,082 | | | $ | 269,510 | | Net income (loss) | $ | 65,217 | | | $ | 70,588 | | | $ | 205,055 | | | $ | 147,624 | |
Other comprehensive income (loss), net of tax: | Other comprehensive income (loss), net of tax: | | | | | | | | Other comprehensive income (loss), net of tax: | | | | |
Change in derivative instruments designated as cash flow hedges | Change in derivative instruments designated as cash flow hedges | 969 | | | (20,784) | | | (135,283) | | | (66,624) | | Change in derivative instruments designated as cash flow hedges | (23,730) | | | (16,112) | | | 39,120 | | | (136,252) | |
Reclassification of (gain) loss on derivative instruments designated as cash flow hedges | Reclassification of (gain) loss on derivative instruments designated as cash flow hedges | 7,351 | | | (1,020) | | | 14,616 | | | (4,485) | | Reclassification of (gain) loss on derivative instruments designated as cash flow hedges | 6,958 | | | 5,854 | | | 14,060 | | | 7,265 | |
Cumulative effect for the adoption of ASU 2017-12, net of income tax effect | 0 | | | 0 | | | 0 | | | 432 | | |
| Foreign currency translation adjustment | Foreign currency translation adjustment | 176 | | | (139) | | | (201) | | | (271) | | Foreign currency translation adjustment | 42 | | | (115) | | | 63 | | | (377) | |
Other comprehensive income (loss), net of tax | Other comprehensive income (loss), net of tax | 8,496 | | | (21,943) | | | (120,868) | | | (70,948) | | Other comprehensive income (loss), net of tax | (16,730) | | | (10,373) | | | 53,243 | | | (129,364) | |
Comprehensive income | Comprehensive income | 64,954 | | | 68,660 | | | 83,214 | | | 198,562 | | Comprehensive income | 48,487 | | | 60,215 | | | 258,298 | | | 18,260 | |
Less: | Less: | | Less: | |
Other comprehensive income attributable to noncontrolling interest | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 592 | | |
| Dividend on preferred shares | Dividend on preferred shares | 10,512 | | | 4,708 | | | 30,850 | | | 7,038 | | Dividend on preferred shares | 10,513 | | | 10,513 | | | 21,026 | | | 20,338 | |
Comprehensive income attributable to common shareholders | Comprehensive income attributable to common shareholders | $ | 54,442 | | | $ | 63,952 | | | $ | 52,364 | | | $ | 190,932 | | Comprehensive income attributable to common shareholders | $ | 37,974 | | | $ | 49,702 | | | $ | 237,272 | | | $ | (2,078) | |
| Tax (benefit) provision on change in derivative instruments designated as cash flow hedges | Tax (benefit) provision on change in derivative instruments designated as cash flow hedges | $ | (117) | | | $ | (2,146) | | | $ | (11,103) | | | $ | (8,103) | | Tax (benefit) provision on change in derivative instruments designated as cash flow hedges | $ | (556) | | | $ | (1,512) | | | $ | 2,002 | | | $ | (10,986) | |
Tax (benefit) provision on reclassification of (gain) loss on derivative instruments designated as cash flow hedges | Tax (benefit) provision on reclassification of (gain) loss on derivative instruments designated as cash flow hedges | $ | 483 | | | $ | (510) | | | $ | 666 | | | $ | (1,707) | | Tax (benefit) provision on reclassification of (gain) loss on derivative instruments designated as cash flow hedges | $ | 481 | | | $ | 335 | | | $ | 949 | | | $ | 183 | |
Tax (benefit) provision on cumulative effect for the adoption of ASU 2017-12 | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 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 | | Preferred Shares | | Common Shares | | Treasury Shares | | Add'l Paid in Capital | | Accumulated Earnings | | Accumulated Other Comprehensive Income | | | Total Equity |
| | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | | | | | | | | | | Total Equity | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Add'l Paid in Capital | Accumulated Earnings | Accumulated Other Comprehensive Income | | Total Equity |
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) | | | $ | 0 | | | $ | 2,532,237 | | |
Issuance of preferred shares, net of offering expenses | 6,000,000 | | | 150,000 | | | — | | | — | | | — | | | — | | | (5,171) | | | — | | | — | | | — | | | 144,829 | | |
Balance as of December 31, 2020 | | Balance as of December 31, 2020 | 22,200,000 | | | $ | 555,000 | | | 81,151,723 | | | $ | 812 | | | 13,901,326 | | | $ | (436,822) | | | $ | 905,323 | | | $ | 1,674,670 | | | $ | (133,035) | | | | $ | 2,565,948 | |
| Share-based compensation | Share-based compensation | — | | | — | | | 184,644 | | | 2 | | | — | | | — | | | 1,603 | | | — | | | — | | | — | | | 1,605 | | Share-based compensation | — | | | — | | | 207,077 | | | 2 | | | — | | | — | | | 1,713 | | | — | | | — | | | | 1,715 | |
Treasury shares acquired | — | | | — | | | — | | | — | | | 1,365,620 | | | (37,488) | | | — | | | — | | | — | | | — | | | (37,488) | | |
| Share repurchase to settle shareholder tax obligations | Share repurchase to settle shareholder tax obligations | — | | | — | | | (53,609) | | | (1) | | | — | | | — | | | (2,155) | | | — | | | — | | | — | | | (2,156) | | Share repurchase to settle shareholder tax obligations | — | | | — | | | (85,466) | | | (1) | | | — | | | — | | | (4,145) | | | — | | | — | | | | (4,146) | |
Net income (loss) | Net income (loss) | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 77,036 | | | — | | | — | | | 77,036 | | Net income (loss) | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 139,838 | | | — | | | | 139,838 | |
Other comprehensive income (loss) | Other comprehensive income (loss) | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (118,991) | | | — | | | (118,991) | | Other comprehensive income (loss) | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 69,973 | | | | 69,973 | |
| Common shares dividend declared | Common shares dividend declared | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (37,427) | | | — | | | — | | | (37,427) | | Common shares dividend declared | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (38,497) | | | — | | | | (38,497) | |
Preferred shares dividend declared | Preferred shares dividend declared | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (9,395) | | | — | | | — | | | (9,395) | | Preferred shares dividend declared | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (10,513) | | | — | | | | (10,513) | |
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) | | | $ | 0 | | | $ | 2,550,250 | | |
Issuance of preferred shares, net of offering expenses | 0 | | | 0 | | | — | | | — | | | — | | | — | | | 31 | | | — | | | — | | | — | | | 31 | | |
Balance as of March 31, 2021 | | Balance as of March 31, 2021 | 22,200,000 | | | $ | 555,000 | | | 81,273,334 | | | $ | 813 | | | 13,901,326 | | | $ | (436,822) | | | $ | 902,891 | | | $ | 1,765,498 | | | $ | (63,062) | | | | $ | 2,724,318 | |
| Share-based compensation | Share-based compensation | — | | | — | | | 38,592 | | | — | | | — | | | — | | | 4,256 | | | — | | | — | | | — | | | 4,256 | | Share-based compensation | — | | | — | | | 21,568 | | | — | | | — | | | — | | | 3,295 | | | — | | | — | | | | 3,295 | |
Treasury shares acquired | — | | | — | | | — | | | — | | | 2,050,924 | | | (58,906) | | | — | | | — | | | — | | | — | | | (58,906) | | |
| | Net income (loss) | Net income (loss) | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 70,588 | | | — | | | — | | | 70,588 | | Net income (loss) | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 65,217 | | | — | | | | 65,217 | |
Other comprehensive income (loss) | Other comprehensive income (loss) | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (10,373) | | | — | | | (10,373) | | Other comprehensive income (loss) | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (16,730) | | | | (16,730) | |
| Common shares dividend declared | Common shares dividend declared | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (36,383) | | | — | | | — | | | (36,383) | | Common shares dividend declared | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (38,510) | | | — | | | | (38,510) | |
Preferred shares dividend declared | Preferred shares dividend declared | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (10,513) | | | — | | | — | | | (10,513) | | Preferred shares dividend declared | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (10,513) | | | — | | | | (10,513) | |
Balance as of June 30, 2020 | 22,200,000 | | | $ | 555,000 | | | 81,149,460 | | | $ | 811 | | | 12,187,889 | | | $ | (374,904) | | | $ | 901,289 | | | $ | 1,587,751 | | | $ | (160,997) | | | $ | 0 | | | $ | 2,508,950 | | |
Issuance of preferred shares, net of offering expenses | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 0 | | |
Share-based compensation | — | | | — | | | 2,263 | | | 1 | | | — | | | — | | | 2,057 | | | — | | | — | | | — | | | 2,058 | | |
Treasury shares acquired | — | | | — | | | — | | | — | | | 356,708 | | | (10,792) | | | — | | | — | | | — | | | — | | | (10,792) | | |
| Net income (loss) | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 56,458 | | | — | | | — | | | 56,458 | | |
Other comprehensive income (loss) | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 8,496 | | | — | | | 8,496 | | |
Balance as of June 30, 2021 | | Balance as of June 30, 2021 | 22,200,000 | | | $ | 555,000 | | | 81,294,902 | | | $ | 813 | | | 13,901,326 | | | $ | (436,822) | | | $ | 906,186 | | | $ | 1,781,692 | | | $ | (79,792) | | | | $ | 2,727,077 | |
| Common shares dividend declared | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (35,769) | | | — | | | — | | | (35,769) | | |
Preferred shares dividend declared | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (10,512) | | | — | | | — | | | (10,512) | | |
Balance as of September 30, 2020 | 22,200,000 | | | $ | 555,000 | | | 81,151,723 | | | $ | 812 | | | 12,544,597 | | | $ | (385,696) | | | $ | 903,346 | | | $ | 1,597,928 | | | $ | (152,501) | | | $ | 0 | | | $ | 2,518,889 | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
` | Preferred Shares | | Common Shares | | Treasury Shares | | Add'l Paid in Capital | | Accumulated Earnings | | Accumulated Other Comprehensive Income | | | | 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) | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 0 | | | (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 | |
Issuance of preferred shares, net of offering expenses | 0 | | | 0 | | | — | | | — | | | — | | | — | | | 31 | | | — | | | — | | | | | 31 | |
Share-based compensation | — | | | — | | | 38,592 | | | 0 | | | — | | | — | | | 4,256 | | | — | | | — | | | | | 4,256 | |
Treasury shares acquired | — | | | — | | | — | | | — | | | 2,050,924 | | | (58,906) | | | — | | | — | | | — | | | | | (58,906) | |
| | | | | | | | | | | | | | | | | | | | | |
Net income (loss) | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 70,588 | | | — | | | | | 70,588 | |
Other comprehensive income (loss) | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (10,373) | | | | | (10,373) | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Common shares dividend declared | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (36,383) | | | — | | | | | (36,383) | |
Preferred shares dividend declared | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (10,513) | | | — | | | | | (10,513) | |
Balance as of June 30, 2020 | 22,200,000 | | | $ | 555,000 | | | 81,149,460 | | | $ | 811 | | | 12,187,889 | | | $ | (374,904) | | | $ | 901,289 | | | $ | 1,587,751 | | | $ | (160,997) | | | | | $ | 2,508,950 | |
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The accompanying Notes to the Unaudited Consolidated Financial Statements are an integral part of these statements.
7
TRITON INTERNATIONAL LIMITED
Consolidated Statements of Shareholders' EquityCash Flows
(In thousands, except share amounts)thousands)
(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, 2018 | 0 | | | $ | 0 | | | 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 | |
Issuance of preferred shares, net of offering expenses | 5,750,000 | | | 143,750 | | | — | | | — | | | — | | | — | | | (5,018) | | | — | | | — | | | — | | | 138,732 | |
Share-based compensation | — | | | — | | | 41,535 | | | 0 | | | — | | | — | | | 3,653 | | | — | | | — | | | — | | | 3,653 | |
Treasury shares acquired | — | | | — | | | — | | | — | | | 2,347,826 | | | (73,942) | | | — | | | — | | | — | | | — | | | (73,942) | |
| | | | | | | | | | | | | | | | | | | | | |
Net income (loss) | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 86,096 | | | — | | | — | | | 86,096 | |
Other comprehensive income (loss) | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (33,408) | | | — | | | (33,408) | |
Purchase of noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | 5,143 | | | — | | | — | | | (37,320) | | | (32,177) | |
| | | | | | | | | | | | | | | | | | | | | |
Common shares dividend declared | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (39,108) | | | — | | | — | | | (39,108) | |
Preferred shares dividend declared | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (1,833) | | | — | | | — | | | (1,833) | |
Balance as of June 30, 2019 | 9,200,000 | | | $ | 230,000 | | | 81,023,732 | | | $ | 811 | | | 6,837,508 | | | $ | (215,349) | | | $ | 909,942 | | | $ | 1,445,646 | | | $ | (34,442) | | | $ | 0 | | | $ | 2,336,608 | |
| | | | | | | | | | | | | | | | | | | | | |
Share-based compensation | — | | | — | | | 92,997 | | | 1 | | | — | | | — | | | 1,766 | | | — | | | — | | | — | | | 1,767 | |
Treasury shares acquired | — | | | — | | | — | | | — | | | 1,604,803 | | | (51,884) | | | — | | | — | | | — | | | — | | | (51,884) | |
Share repurchase to settle shareholder tax obligations | — | | | — | | | (143,390) | | | (2) | | | — | | | — | | | (4,686) | | | — | | | — | | | — | | | (4,688) | |
Net income (loss) | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 90,603 | | | — | | | — | | | 90,603 | |
Other comprehensive income (loss) | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (21,943) | | | — | | | (21,943) | |
| | | | | | | | | | | | | | | | | | | | | |
Common shares dividend declared | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (38,064) | | | — | | | — | | | (38,064) | |
Preferred shares dividend declared | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (4,420) | | | — | | | — | | | (4,420) | |
Balance as of September 30, 2019 | $ | 9,200 | | | $ | 230,000 | | | $ | 80,973,339 | | | $ | 810 | | | $ | 8,442,311 | | | $ | (267,233) | | | $ | 907,022 | | | $ | 1,493,765 | | | $ | (56,385) | | | $ | 0 | | | $ | 2,307,979 | |
| | | | | | | | | | | |
| Six Months Ended June 30, |
| 2021 | | 2020 |
Cash flows from operating activities: | | | |
Net income (loss) | $ | 205,055 | | | $ | 147,624 | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | |
Depreciation and amortization | 297,363 | | | 265,987 | |
Amortization of deferred debt cost and other debt related amortization | 4,255 | | | 7,187 | |
| | | |
Lease related amortization | 9,549 | | | 15,788 | |
| | | |
| | | |
Share-based compensation expense | 5,010 | | | 5,861 | |
Net (gain) loss on sale of leasing equipment | (53,358) | | | (8,614) | |
| | | |
Unrealized (gain) loss on derivative instruments | 0 | | | 286 | |
Debt termination expense | 89,863 | | | 31 | |
Deferred income taxes | 25,228 | | | 12,037 | |
Changes in operating assets and liabilities: | | | |
Accounts receivable | (12,707) | | | (20,778) | |
Accounts payable and other accrued expenses | (7,753) | | | (25,752) | |
Net equipment sold (purchased) for resale activity | 8,787 | | | (4,035) | |
Cash received (paid) for settlement of interest rate swaps | 5,481 | | | 0 | |
Cash collections on finance lease receivables, net of income earned | 27,124 | | | 46,650 | |
Other assets | 9,422 | | | (25,703) | |
Net cash provided by (used in) operating activities | 613,319 | | | 416,569 | |
Cash flows from investing activities: | | | |
Purchases of leasing equipment and investments in finance leases | (1,717,843) | | | (219,788) | |
Proceeds from sale of equipment, net of selling costs | 117,688 | | | 102,088 | |
| | | |
Other | 63 | | | (328) | |
Net cash provided by (used in) investing activities | (1,600,092) | | | (118,028) | |
Cash flows from financing activities: | | | |
Issuance of preferred shares, net of underwriting discount | 0 | | | 145,275 | |
Purchases of treasury shares | 0 | | | (95,243) | |
Redemption of common shares for withholding taxes | (4,146) | | | (2,156) | |
| | | |
Debt issuance costs | (31,502) | | | 0 | |
Borrowings under debt facilities | 5,663,432 | | | 730,000 | |
Payments under debt facilities and finance lease obligations | (4,490,788) | | | (801,044) | |
Dividends paid on preferred shares | (21,026) | | | (19,908) | |
Dividends paid on common shares | (76,317) | | | (72,964) | |
| | | |
| | | |
Other | 0 | | | (590) | |
Net cash provided by (used in) financing activities | 1,039,653 | | | (116,630) | |
Net increase (decrease) in cash, cash equivalents and restricted cash | $ | 52,880 | | | $ | 181,911 | |
Cash, cash equivalents and restricted cash, beginning of period | 151,996 | | | 168,972 | |
Cash, cash equivalents and restricted cash, end of period | $ | 204,876 | | | $ | 350,883 | |
Supplemental disclosures: | | | |
Interest paid | $ | 106,182 | | | $ | 131,457 | |
Income taxes paid (refunded) | $ | 3,445 | | | $ | 216 | |
Right-of-use asset for leased property | $ | 1,453 | | | $ | 196 | |
Supplemental non-cash investing activities: | | | |
Equipment purchases payable | $ | 411,454 | | | $ | 46,569 | |
The accompanying Notes to the Unaudited Consolidated Financial Statements are an integral part of these statements.
8
TRITON INTERNATIONAL LIMITED
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
| | | | | | | | | | | |
| Nine Months Ended September 30, | | |
| 2020 | | 2019 |
Cash flows from operating activities: | | | |
Net income (loss) | $ | 204,082 | | | $ | 269,510 | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | |
Depreciation and amortization | 402,235 | | | 403,324 | |
Amortization of deferred debt cost and other debt related amortization | 10,789 | | | 9,718 | |
| | | |
Lease related amortization | 18,358 | | | 32,317 | |
| | | |
| | | |
Share-based compensation expense | 7,919 | | | 7,238 | |
Net (gain) loss on sale of leasing equipment | (19,351) | | | (22,184) | |
| | | |
Unrealized (gain) loss on derivative instruments | 286 | | | 2,757 | |
Debt termination expense | 24,376 | | | 2,428 | |
Deferred income taxes | 28,441 | | | 18,885 | |
Changes in operating assets and liabilities: | | | |
Accounts receivable | (7,325) | | | 22,006 | |
Accounts payable and other accrued expenses | (8,832) | | | (7,202) | |
Net equipment sold (purchased) for resale activity | 5,185 | | | (1,798) | |
| | | |
Cash collections on finance lease receivables, net of income earned | 60,913 | | | 53,706 | |
Other assets | (44,735) | | | (11,198) | |
Net cash provided by (used in) operating activities | 682,341 | | | 779,507 | |
Cash flows from investing activities: | | | |
Purchases of leasing equipment and investments in finance leases | (354,425) | | | (160,518) | |
Proceeds from sale of equipment, net of selling costs | 182,819 | | | 163,033 | |
| | | |
Other | (183) | | | (245) | |
Net cash provided by (used in) investing activities | (171,789) | | | 2,270 | |
Cash flows from financing activities: | | | |
Issuance of preferred shares, net of underwriting discount | 145,275 | | | 221,790 | |
Purchases of treasury shares | (107,186) | | | (209,592) | |
Redemption of common shares for withholding taxes | (2,156) | | | (5,666) | |
| | | |
Debt issuance costs | (22,588) | | | (8,709) | |
Borrowings under debt facilities | 3,297,445 | | | 1,417,200 | |
Payments under debt facilities and finance lease obligations | (3,514,140) | | | (1,970,334) | |
Dividends paid on preferred shares | (30,420) | | | (6,253) | |
Dividends paid on common shares | (108,421) | | | (116,519) | |
Distributions to noncontrolling interests | 0 | | | (2,078) | |
Purchase of noncontrolling interests | 0 | | | (103,039) | |
Other | (590) | | | 0 | |
Net cash provided by (used in) financing activities | (342,781) | | | (783,200) | |
Net increase (decrease) in cash, cash equivalents and restricted cash | $ | 167,771 | | | $ | (1,423) | |
Cash, cash equivalents and restricted cash, beginning of period | 168,972 | | | 159,539 | |
Cash, cash equivalents and restricted cash, end of period | $ | 336,743 | | | $ | 158,116 | |
Supplemental disclosures: | | | |
Interest paid | $ | 181,576 | | | $ | 224,033 | |
Income taxes paid (refunded) | $ | 440 | | | $ | 2,504 | |
Right-of-use asset for leased property | $ | 196 | | | $ | 7,206 | |
Supplemental non-cash investing activities: | | | |
Equipment purchases payable | $ | 96,798 | | | $ | 34,922 | |
The accompanying Notes to the Unaudited Consolidated Financial Statements are an integral part of these statements.
9
TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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 SeptemberJune 30, 2020;2021; the consolidated statements of operations, the consolidated statements of comprehensive income, and the consolidated statements of shareholders' equity for the three and ninesix months ended SeptemberJune 30, 20202021 and 2019,2020, and the consolidated statements of cash flows for the ninesix months ended SeptemberJune 30, 20202021 and 20192020 are unaudited. The consolidated balance sheet as of December 31, 2019,2020, 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 and ninesix months ended SeptemberJune 30, 20202021 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 20202021 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, 20192020 included in the Company's Annual Report on Form 10-K which was filed with the SEC on February 14, 2020.16, 2021. 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 twothree largest customers CMA CGM S.A. and Mediterranean Shipping Company S.A., accounted for 21%20%, 14%, and 15%10%, respectively, of the Company's lease billings during the ninesix months ended SeptemberJune 30, 2020.2021.
TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
New Accounting Pronouncements
Recently Adopted Accounting Standards Updates
Measurement of CreditLosses 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 sales of equipment. 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.
Accounting Policy Update
Allowance for Doubtful Accounts-Net investment in finance leases and accounts receivable for sales of equipment
Upon adoption of Topic 326, the Company measures expected credit loss on net investment in finance leases and accounts receivable for sales of equipment by evaluating the overall credit quality of its customers. Expected credit losses for these financial assets are estimated using historical experience which includes economic cycles, customer payment history, management's assessment of the customer's financial condition, and consideration of current conditions and reasonable forecasts.
TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 predominantly on recent sales prices and other factors.prices. 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):
| | | | | | | | | | | |
| September 30, 2020 | | December 31, 2019 |
Equipment held for sale | $ | 9,408 | | | $ | 11,797 | |
| | | | | | | | | | | |
| June 30, 2021 | | December 31, 2020 |
Equipment held for sale | $ | 1,060 | | | $ | 4,001 | |
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 lossesNet gain on sale of leasing equipment held for sale on the consolidated statements of operations (in thousands):
| | | Three Months Ended September 30, | | | Nine Months Ended September 30, | | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
Impairment (loss) reversal on equipment held for sale | Impairment (loss) reversal on equipment held for sale | $ | (766) | | | $ | (1,364) | | | $ | (3,309) | | | $ | (4,095) | | Impairment (loss) reversal on equipment held for sale | $ | (42) | | | $ | (1,053) | | | $ | (37) | | | $ | (2,543) | |
Gain (loss) on sale of equipment, net of selling costs | Gain (loss) on sale of equipment, net of selling costs | 11,503 | | | 7,560 | | | 22,660 | | | 26,279 | | Gain (loss) on sale of equipment, net of selling costs | 31,433 | | | 5,590 | | | 53,395 | | | 11,157 | |
Net gain on sale of leasing equipment | Net gain on sale of leasing equipment | $ | 10,737 | | | $ | 6,196 | | | $ | 19,351 | | | $ | 22,184 | | Net gain on sale of leasing equipment | $ | 31,391 | | | $ | 4,537 | | | $ | 53,358 | | | $ | 8,614 | |
Note 3—Intangible Assets
Intangible assets consist of lease intangibles for leases acquired with lease rates above market at the time of acquisition.in a business combination. The following table summarizes the amortization of intangible assets as of SeptemberJune 30, 20202021 (in thousands):
| Years ending December 31, | Years ending December 31, | Total Intangible Assets | | Years ending December 31, | Total Intangible Assets | |
2020 | $ | 5,227 | | | |
2021 | 2021 | $ | 16,549 | | | 2021 | $ | 7,587 | | |
2022 | 2022 | $ | 10,497 | | | 2022 | $ | 10,497 | | |
2023 | 2023 | $ | 4,657 | | | 2023 | $ | 4,657 | | |
2024 | 2024 | $ | 1,962 | | | 2024 | $ | 1,963 | | |
2025 and thereafter | $ | 0 | | | |
| Total | Total | $ | 38,892 | | | Total | $ | 24,704 | | |
Amortization expense related to intangible assets was $5.4$4.4 million and $17.3$9.0 million for the three and ninesix months ended SeptemberJune 30, 2020,2021, respectively, and $8.8$5.7 million and $30.2$11.9 million for the three and ninesix months ended SeptemberJune 30, 2019,2020, 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 $2.1$3.3 million and $7.9$5.0 million for the three and ninesix months ended SeptemberJune 30, 2020,2021, respectively, and $1.8$4.3 million and $7.2$5.9 million for the three and ninesix months ended SeptemberJune 30, 2019,2020, respectively. Share-based compensation expense includes charges for performance-based shares and units that are deemed probable to vest.
As of SeptemberJune 30, 2020,2021, the total unrecognized compensation expense related to non-vested restricted sharesshare awards and units was approximately $9.8$13.5 million, which is expected to be recognized on a monthlystraight-line basis through 2023.2024.
During the nine months ended September 30, 2020, the Company issued 185,820 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
TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Company'sDuring the six months ended June 30, 2021, the Company issued 207,077 restricted shares, and canceled 85,466 vested shares to settle payroll taxes on behalf of employees. Additional shares may be issued based upon the satisfaction of certain performance measured against selected peers.criteria. The Company also issued 41,23521,568 shares to non-employee directors at fair value that vested immediately.
Note 5—Other Equity Matters
Share Repurchase Program
On April 21, 2020, theThe Company's Board of Directors increased the shareauthorized repurchases of shares up to a specified dollar amount as part of its repurchase authorization to $200.0 million.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.
DuringThe Company did not repurchase any shares during the ninesix months ended SeptemberJune 30, 2020, the Company repurchased a total of 3,773,252 common shares at an average price per-share of $28.39 for a total of $107.2 million. As of September 30, 2020, $153.22021 and currently has $102.1 million remains available under the common share repurchase program.
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. The Company may also redeem each Series of preferred shares prior to the lapse of the five year period upon the occurrence of certain events as described in each agreement, such as transactions that either transfer ownership of substantially all assets to a single entity or establish a majority voting interest by a single entity, and cause a downgrade or withdrawal of rating by the rating agency within 60 days of the event. 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.
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.
TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company paid the following quarterly dividends during the ninesix months ended SeptemberJune 30, 20202021 and 20192020 on its issued and outstanding Series (in millions except for the per-share amounts):
| | | Series A | | | Series B | | | Series C | | | Series D | | | Series A | | Series B | | Series C | | Series D | |
Record Date | Record Date | Payment Date | | Aggregate Payment | | Per Share Payment | | Aggregate Payment | | Per Share Payment | | Aggregate Payment | | Per Share Payment | | Aggregate Payment | | Per Share Payment | | Record Date | Payment Date | | Aggregate Payment | | Per Share Payment(1) | | Aggregate Payment | | Per Share Payment | | Aggregate Payment | | Per Share Payment(1) | | Aggregate Payment | | Per Share Payment(1) | |
September 8, 2020 | September 15, 2020 | | $1.8 | | $0.53125 | | $2.9 | | $0.50 | | $3.2 | | $0.46094 | | $2.6 | | $0.42969 | | |
June 8, 2021 | | June 8, 2021 | June 15, 2021 | | $1.8 | | $0.53 | | $2.9 | | $0.50 | | $3.2 | | $0.46 | | $2.6 | | $0.43 | |
March 8, 2021 | | March 8, 2021 | March 15, 2021 | | $1.8 | | $0.53 | | $2.9 | | $0.50 | | $3.2 | | $0.46 | | $2.6 | | $0.43 | |
| June 8, 2020 | June 8, 2020 | June 15, 2020 | | $1.8 | | $0.53125 | | $2.9 | | $0.50 | | $3.2 | | $0.46094 | | $2.6 | | $0.42969 | | June 8, 2020 | June 15, 2020 | | $1.8 | | $0.53 | | $2.9 | | $0.50 | | $3.2 | | $0.46 | | $2.6 | | $0.43 | |
March 9, 2020 | March 9, 2020 | March 16, 2020 | | $1.8 | | $0.53125 | | $2.9 | | $0.50 | | $3.2 | | $0.46094 | | $1.5 | | $0.24 | | March 9, 2020 | March 16, 2020 | | $1.8 | | $0.53 | | $2.9 | | $0.50 | | $3.2 | | $0.46 | | $1.5 | | $0.24 | |
| September 9, 2019 | September 16, 2019 | | $1.8 | | $0.53125 | | $2.6 | | $0.45 | | n/a | | n/a | | n/a | | n/a | | |
June 10, 2019 | June 17, 2019 | | $1.8 | | $0.53125 | | n/a | | n/a | | n/a | | n/a | | n/a | | n/a | | |
|
(1) Rounded to the nearest whole cent.
As of SeptemberJune 30, 2020,2021, the Company had cumulative unpaid preferred dividends of $1.8 million.
Common Share Dividends
The Company paid the following quarterly dividends during the ninesix months ended SeptemberJune 30, 20202021 and 20192020 on its issued and outstanding common shares:
| | | | | | | | | | | | | | | | | |
Record Date | Payment Date | | Aggregate Payment | | Per Share Payment |
SeptemberJune 10, 20202021 | SeptemberJune 24, 20202021 | | $35.538.2 Million | | $0.520.57 |
March 12, 2021 | March 26, 2021 | | $38.2 Million | | $0.57 |
| | | | | |
June 11, 2020 | June 25, 2020 | | $35.8 Million | | $0.52 |
March 13, 2020 | March 27, 2020 | | $37.1 Million | | $0.52 |
| | | | | |
September 5, 2019 | September 26, 2019 | | $37.6 Million | | $0.52 | |
June 6, 2019 | June 27, 2019 | | $38.6 Million | | $0.52 | |
March 12, 2019 | March 28, 2019 | | $40.4 Million | | $0.52 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Accumulated Other Comprehensive Income
The following table summarizes the components of accumulated other comprehensive income (loss), net of tax, for the ninesix months ended SeptemberJune 30, 20202021 and 20192020 (in thousands):
| | | Cash Flow Hedges | | Foreign Currency Translation | | Accumulated Other Comprehensive (Loss) Income | | Cash Flow Hedges | | Foreign Currency Translation | | Accumulated Other Comprehensive (Loss) Income |
Balance as of December 31, 2019 | $ | (27,096) | | | $ | (4,537) | | | $ | (31,633) | | |
Balance as of December 31, 2020 | | Balance as of December 31, 2020 | $ | (128,526) | | | $ | (4,509) | | | $ | (133,035) | |
Change in derivative instruments designated as cash flow hedges(1) | Change in derivative instruments designated as cash flow hedges(1) | (120,140) | | | 0 | | | (120,140) | | Change in derivative instruments designated as cash flow hedges(1) | 62,850 | | | 0 | | | 62,850 | |
Reclassification of (gain) loss on derivative instruments designated as cash flow hedges(1) | Reclassification of (gain) loss on derivative instruments designated as cash flow hedges(1) | 1,411 | | | 0 | | | 1,411 | | Reclassification of (gain) loss on derivative instruments designated as cash flow hedges(1) | 7,102 | | | 0 | | | 7,102 | |
Foreign currency translation adjustment | Foreign currency translation adjustment | 0 | | | (262) | | | (262) | | Foreign currency translation adjustment | 0 | | | 21 | | | 21 | |
Balance as of March 31, 2020 | $ | (145,825) | | | $ | (4,799) | | | $ | (150,624) | | |
Balance as of March 31, 2021 | | Balance as of March 31, 2021 | $ | (58,574) | | | $ | (4,488) | | | $ | (63,062) | |
Change in derivative instruments designated as cash flow hedges(1) | Change in derivative instruments designated as cash flow hedges(1) | (16,112) | | | 0 | | | (16,112) | | Change in derivative instruments designated as cash flow hedges(1) | (23,730) | | | $ | 0 | | | (23,730) | |
Reclassification of (gain) loss on derivative instruments designated as cash flow hedges(1) | Reclassification of (gain) loss on derivative instruments designated as cash flow hedges(1) | 5,854 | | | 0 | | | 5,854 | | Reclassification of (gain) loss on derivative instruments designated as cash flow hedges(1) | 6,958 | | | 0 | | | 6,958 | |
Foreign currency translation adjustment | Foreign currency translation adjustment | 0 | | | (115) | | | (115) | | Foreign currency translation adjustment | 0 | | | 42 | | | 42 | |
Balance as of June 30, 2020 | $ | (156,083) | | | $ | (4,914) | | | $ | (160,997) | | |
Change in derivative instruments designated as cash flow hedges(1) | 969 | | | 0 | | | 969 | | |
Reclassification of (gain) loss on derivative instruments designated as cash flow hedges(1) | 7,351 | | | 0 | | | 7,351 | | |
Foreign currency translation adjustment | 0 | | | 176 | | | 176 | | |
Balance as of September 30, 2020 | $ | (147,763) | | | $ | (4,738) | | | $ | (152,501) | | |
Balance as of June 30, 2021 | | Balance as of June 30, 2021 | $ | (75,346) | | | $ | (4,446) | | | $ | (79,792) | |
| | | | | | | | | | | | | | | | | |
| 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) | | | 0 | | | (14,323) | |
Reclassification of (gain) loss on derivative instruments designated as cash flow hedges(1) | (1,749) | | | 0 | | | (1,749) | |
Cumulative effect for the adoption of ASU 2017-12, net of income tax effect | 432 | | | 0 | | | 432 | |
Foreign currency translation adjustment | 0 | | | 43 | | | 43 | |
Balance as of March 31, 2019 | $ | 3,403 | | | $ | (4,437) | | | $ | (1,034) | |
Change in derivative instruments designated as cash flow hedges(1) | (31,517) | | | 0 | | | (31,517) | |
Reclassification of (gain) loss on derivative instruments designated as cash flow hedges(1) | (1,716) | | | 0 | | | (1,716) | |
Foreign currency translation adjustment | 0 | | | (175) | | | (175) | |
Balance as of June 30, 2019 | $ | (29,830) | | | $ | (4,612) | | | $ | (34,442) | |
Change in derivative instruments designated as cash flow hedges(1) | (20,784) | | | 0 | | | (20,784) | |
Reclassification of (gain) loss on derivative instruments designated as cash flow hedges(1) | (1,020) | | | 0 | | | (1,020) | |
Foreign currency translation adjustment | 0 | | | (139) | | | (139) | |
Balance as of September 30, 2019 | $ | (51,634) | | | $ | (4,751) | | | $ | (56,385) | |
TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | | | | | | | | | | | | | | | | |
| 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) | | | 0 | | | (120,140) | |
Reclassification of (gain) loss on derivative instruments designated as cash flow hedges(1) | 1,411 | | | 0 | | | 1,411 | |
| | | | | |
Foreign currency translation adjustment | 0 | | | (262) | | | (262) | |
Balance as of March 31, 2020 | $ | (145,825) | | | $ | (4,799) | | | $ | (150,624) | |
Change in derivative instruments designated as cash flow hedges(1) | (16,112) | | | 0 | | | (16,112) | |
Reclassification of (gain) loss on derivative instruments designated as cash flow hedges(1) | 5,854 | | | 0 | | | 5,854 | |
Foreign currency translation adjustment | 0 | | | (115) | | | (115) | |
Balance as of June 30, 2020 | $ | (156,083) | | | $ | (4,914) | | | $ | (160,997) | |
(1) Refer to Note 8 - "Derivative Instruments" for reclassification impact on the Consolidated StatementStatements of Operations
Note 6—Leases
Lessee
The CompanyCompany's leases are primarily for 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 June 30, 2021, the weighted average implicit rate was 3.36% and the weighted average remaining lease term was 2.3 years.
The following table summarizes the impact of the Company's leases in its financial statements (in thousands):
| | | | | | | | | | | | | | | | | | | |
Balance Sheet | Financial statement caption | | | | June 30, 2021 | | December 31, 2020 |
Right-of-use asset - operating | Other assets | | | | $ | 5,467 | | | $ | 5,062 | |
Lease liability - operating | Accounts payable and other accrued expenses | | | | $ | 6,332 | | | $ | 6,088 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended June 30, | | Six Months Ended June 30, |
Income Statement | Financial statement caption | | 2021 | | 2020 | | 2021 | | 2020 |
Operating lease cost(1) | Administrative expenses | | $ | 804 | | | $ | 747 | | | $ | 1,580 | | | $ | 1,506 | |
(1) Includes short-term leases that are immaterial.
Cash paid for amounts of lease liabilities included in operating cash flows was $1.6 million for both the six months ended June 30, 2021 and June 30, 2020.
TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of September 30, 2020, the weighted average implicit rate was 4.04% and the weighted average remaining lease term was 2.7 years.
The following table summarizes the components of the Company's leases (in thousands):
| | | | | | | | | | | | | | | | | | | |
Balance Sheet | Financial statement caption | | | | September 30, 2020 | | December 31, 2019 |
Right-of-use asset - operating | Other assets | | | | $ | 5,756 | | | $ | 7,616 | |
Lease liability - operating | Accounts payable and other accrued expenses | | | | $ | 6,861 | | | $ | 8,940 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended September 30, | | | | Nine Months Ended September 30, | | |
Income Statement | Financial statement caption | | 2020 | | 2019 | | 2020 | | 2019 |
Operating lease cost(1) | Administrative expenses | | $ | 754 | | | $ | 764 | | | $ | 2,260 | | | $ | 2,265 | |
(1) Includes short-term leases that are immaterial.
Cash paid for amounts included in the measurement of lease liabilities under operating cash flows was $2.4 million for both the nine months ended September 30, 2020 and September 30, 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 September 30, 2020 (in thousands):
| | | | | |
| |
| |
Years ending December 31, | |
2020 | $ | 771 | |
2021 | 2,756 | |
2022 | 2,288 | |
2023 | 1,379 | |
2024 | 67 | |
2025 and thereafter | 0 | |
Total undiscounted future cash flows related to lease payments | $ | 7,261 | |
Less: imputed interest | (400) | |
Total present value of lease liability | $ | 6,861 | |
| |
| |
Lessor
The following table summarizes the components of the net investment in finance leases (in thousands):
| | | September 30, 2020 | | December 31, 2019 | | June 30, 2021 | | December 31, 2020 |
Future minimum lease payment receivable(1) | Future minimum lease payment receivable(1) | $ | 371,985 | | | $ | 476,443 | | Future minimum lease payment receivable(1) | $ | 659,580 | | | $ | 355,755 | |
Estimated residual receivable(2) | Estimated residual receivable(2) | 59,148 | | | 102,238 | | Estimated residual receivable(2) | 82,173 | | | 53,892 | |
| Gross finance lease receivables(3) | Gross finance lease receivables(3) | 431,133 | | | 578,681 | | Gross finance lease receivables(3) | 741,753 | | | 409,647 | |
Unearned income(4) | Unearned income(4) | (134,370) | | | (165,339) | | Unearned income(4) | (242,481) | | | (127,516) | |
Net investment in finance leases(5) | Net investment in finance leases(5) | $ | 296,763 | | | $ | 413,342 | | Net investment in finance leases(5) | $ | 499,272 | | | $ | 282,131 | |
(1) There were no executory costs included in gross finance lease receivables as of SeptemberJune 30, 20202021 and December 31, 2019.2020.
(2) The Company's finance leases generally include a purchase option at nominal amounts that is reasonably certain to be exercised, 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.paid by customers.
(4) There were no unamortized initial direct costs as of SeptemberJune 30, 20202021 and December 31, 2019.2020.
(5) As of September 30, 2020, twoOne major customerscustomer represented 73%88% and 10%75% of the Company's finance lease portfolio. Asportfolio as of June 30, 2021 and December 31, 2019, three major customers represented 55%, 24% and 11% of the Company's finance lease portfolio.2020, respectively. No other customer represented more than 10% of the Company's finance lease portfolio in each of those periods.
TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Maturities of the Company's gross finance lease receivables subsequent to September 30, 2020 are as follows (in thousands):
| | | | | |
Years ending December 31, | |
2020 | $ | 24,530 | |
2021 | 76,203 | |
2022 | 51,513 | |
2023 | 45,149 | |
2024 | 44,840 | |
2025 and thereafter | 188,898 | |
Total | $ | 431,133 | |
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 and maintains allowances, if necessary, for doubtful accounts. These allowances are based on, but not limited to, historical experience which includes stronger and weaker economic cycles, each lessee's payment history, management's current assessment of each lessee's financial condition, consideration of current economic conditions and reasonable market forecasts. As of SeptemberJune 30, 2020,2021, the Company does not have an allowance on its gross finance lease receivables and does not have any material 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) | | | September 30, 2020 | | December 31, 2019 | | Contractual Weighted Avg Interest Rate(1) | | Maturity Range(1) | | June 30, 2021 | | December 31, 2020 |
| | | | From | | To | | | | | Contractual Weighted Avg Interest Rate(1) | | From | | To | June 30, 2021 | December 31, 2020 |
Institutional notes | Institutional notes | 4.57% | | Jun 2021 | | Jun 2029 | | $ | 1,694,171 | | | $ | 1,957,557 | | Institutional notes | 4.93% | | Sep 2021 | Mar 2027 | | $ | 648,931 | | | $ | 1,642,314 | |
Asset-backed securitization term notes | Asset-backed securitization term notes | 2.07% | | Aug 2023 | | May 2030 | | 2,986,912 | | | 2,719,206 | | Asset-backed securitization term notes | 1.98% | | Aug 2023 | | Feb 2031 | | 3,984,805 | | | 2,920,807 | |
Corporate notes | | Corporate notes | 2.17% | | Jun 2024 | | Jun 2031 | | 1,700,000 | | | 0 | |
Term loan facility | Term loan facility | 1.65% | | Nov 2023 | | Nov 2023 | | 860,000 | | | 1,200,375 | | Term loan facility | 1.49% | | May 2026 | | May 2026 | | 405,000 | | | 840,000 | |
Asset-backed securitization warehouse | Asset-backed securitization warehouse | 1.91% | | Dec 2025 | | Dec 2025 | | 195,000 | | | 370,000 | | Asset-backed securitization warehouse | 1.95% | | Nov 2027 | | Nov 2027 | | 185,000 | | | 264,000 | |
Revolving credit facilities | Revolving credit facilities | 1.75% | | Sep 2023 | | Jul 2024 | | 716,000 | | | 410,000 | | Revolving credit facilities | 1.74% | | Sep 2023 | | Jul 2024 | | 765,000 | | | 760,500 | |
Finance lease obligations | Finance lease obligations | 4.93% | | Feb 2024 | | Feb 2024 | | 17,852 | | | 27,024 | | Finance lease obligations | 4.93% | | Feb 2022 | | Feb 2022 | | 16,186 | | | 17,304 | |
Total debt outstanding | Total debt outstanding | | 6,469,935 | | | 6,684,162 | | Total debt outstanding | | 7,704,922 | | | 6,444,925 | |
Unamortized debt costs | Unamortized debt costs | | (41,741) | | | (39,781) | | Unamortized debt costs | | (63,184) | | | (42,747) | |
Unamortized debt premiums & discounts | Unamortized debt premiums & discounts | | (630) | | | (4,065) | | Unamortized debt premiums & discounts | | (3,526) | | | (599) | |
Unamortized fair value debt adjustment | Unamortized fair value debt adjustment | | 1,870 | | | (8,791) | | Unamortized fair value debt adjustment | | 1,394 | | | 1,691 | |
Debt, net of unamortized costs | Debt, net of unamortized costs | | $ | 6,429,434 | | | $ | 6,631,525 | | Debt, net of unamortized costs | | $ | 7,639,606 | | | $ | 6,403,270 | |
(1) Data as of SeptemberJune 30, 2020.2021.
The fair value of total debt outstanding was $6,563.3$7,728.5 million and $6,747.8$6,536.5 million as of SeptemberJune 30, 20202021 and December 31, 2019,2020, respectively, and was measured using Level 2 inputs.
As of SeptemberJune 30, 2020,2021, the maximum borrowing levels for the Asset-backed Securitization ("ABS") warehouse and the revolving credit facilityfacilities are $800.0$1,125.0 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 SeptemberJune 30, 2020,2021, the availability under these credit facilities without adding additional container assets to the borrowing base was approximately $724.1$797.5 million.
TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 SeptemberJune 30, 20202021 and December 31, 2019,2020, the Company was in compliance with all financial covenants in accordance with the terms of its debt agreements.
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 SeptemberJune 30, 20202021 (in thousands):
| | | Balance Outstanding | | Contractual Weighted Avg Interest Rate | | Maturity Range | | | Weighted Avg Remaining Term | | Balance Outstanding | | Contractual Weighted Avg Interest Rate | | Maturity Range | | Weighted Avg Remaining Term |
| | | | | | From | | To | | | Balance Outstanding | Contractual Weighted Avg Interest Rate | | From | | To | Weighted Avg Remaining Term |
Excluding impact of derivative instruments: | Excluding impact of derivative instruments: | | | | | | | | Excluding impact of derivative instruments: | | | | | |
Fixed-rate debt | Fixed-rate debt | $4,023,149 | | 3.19% | | Jun 2021 | | May 2030 | | 4.3 years | Fixed-rate debt | $5,717,820 | | 2.42% | | Sep 2021 | | Jun 2031 | | 5.0 years |
Floating-rate debt | Floating-rate debt | $2,446,786 | | 1.72% | | Aug 2023 | | Dec 2025 | | 3.1 years | Floating-rate debt | $1,987,102 | | 1.68% | | Aug 2023 | | Nov 2027 | | 3.2 years |
| Including impact of derivative instruments: | Including impact of derivative instruments: | | Including impact of derivative instruments: | |
Fixed-rate debt | Fixed-rate debt | $4,023,149 | | 3.19% | | Fixed-rate debt | $5,717,820 | | 2.42% | |
Hedged floating-rate debt | Hedged floating-rate debt | 1,805,599 | | 3.56% | | Hedged floating-rate debt | $1,671,477 | | 3.59% | |
Total fixed and hedged debt | Total fixed and hedged debt | 5,828,748 | | 3.31% | | Total fixed and hedged debt | $7,389,297 | | 2.68% | |
Unhedged floating-rate debt | Unhedged floating-rate debt | 641,187 | | 1.72% | | Unhedged floating-rate debt | $315,625 | | 1.68% | |
Total | Total | $6,469,935 | | 3.15% | | Total | $7,704,922 | | 2.64% | |
On January 31, 2020,The Company issued the Company paid $7.5 million to exercisefollowing corporate notes during the early purchase option on a finance lease obligation.six months ended June 30, 2021:
| | | | | | | | | | | | | | | | | | | | | |
Date | | Total Offering | | | Contractual Weighted Avg Interest Rate | | Maturity |
April 15, 2021 | | $600.0 Million | | | 2.05% | | Apr 2026 |
June 7, 2021 | | $500.0 Million | | | 1.15% | | Jun 2024 |
June 7, 2021 | | $600.0 Million | | | 3.15% | | Jun 2031 |
| | | | | | | |
| | | | | | | |
On September 21, 2020, theThe Company extinguished a term loan and paid the outstanding balance of $264.9 million. As a result, the Company wrote off $0.3 million of debt related costs.
In the third quarter of 2020, the Company completed offerings ofissued the following Class A and Class B fixed-rate ABS notes:fixed rate series during the six months ended June 30, 2021:
| | | | | | | | | | | | | | | | | | | | | |
Date | | Total Offering | | | Contractual Weighted Avg Interest Rate | | Expected Maturity |
August 26, 2020February 3, 2021 | | $312.9502.9 Million | | | 2.17%1.69% | | Feb 20282031 |
September 21, 2020March 17, 2021 | | $1,365.8725.0 Million | | | 2.19%1.89% | | MayDec 2030 |
September 21, 2020 | | $634.4 Million | | | 2.13% | | May 2029 | | |
| | | | | | | |
Concurrently with the issuance of the notes described above,On May 27, 2021, the Company used mostextinguished a term loan and paid the outstanding balance of the proceeds from these issuances to call 3 existing ABS notes that had an outstanding principal amount of $1,783.1$820.0 million. As a result, the Company wrote off $1.8 million of this prepayment,debt related costs. Concurrently, the Company entered into a delayed draw term loan facility with a maximum capacity of $1,200.0 million at an interest rate of 1-month LIBOR plus 1.375% and a maturity date of May 27, 2026.
On June 28, 2021, the Company redeemed approximately $821.0 million of its outstanding institutional notes. As a result, the Company paid a prepayment penaltymake-whole premium of $1.8$84.8 million and wrote off $22.3$2.5 million of debt related costs. The cash paid for the make-whole premium is classified under financing cash flows as payments under debt facilities and finance lease obligations.
Institutional Notes
In accordance with the Company's 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
TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 ABS facilities, indirect wholly-owned subsidiaries of the Company issue ABS 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.
TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)The Company’s corporate notes have maturities ranging from 3 - 10 years and interest payments due semi-annually. These corporate notes are initially secured by assets of the subsidiary. If the Company satisfies certain credit rating conditions outlined in the indenture, the corporate notes may become unsecured. The corporate notes are pre-payable (in whole or in part) at the Company's option at any time prior to the maturity date, subject to certain provisions in the corporate note agreements, including the payment of a make-whole premium in respect to such prepayment.
Term Loan Facility
The term loan facility amortizes in quarterly installments. This facility provides for an advance rate against the net book values of designated eligible equipment. This facility has a borrowing capacity of $1,200.0 million and provides a delayed draw feature which is available to the Company until November 24, 2021.
Asset-Backed Securitization Warehouse
Under the Company’s asset-backedABS warehouse facility, an indirect wholly-owned subsidiary of the Company issues ABS notes. This subsidiary is 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 asset-backedABS warehouse facility has a borrowing capacity of $800.0$1,125.0 million that is available on a revolving basis until DecemberNovember 13, 2021,2023, paying interest at LIBOR plus 1.75%1.85%, after which any borrowings will convert to term notes with a maturity date of DecemberNovember 15, 2025,2027, 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.
TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Finance Lease Obligations
Certain containers are financedleased with a financial institution under a finance lease.institution. The lease is accounted for as a finance lease, with interest expense recognized on a level yield basis over the period preceding early purchase options, which is five to seven years from the transaction date. The Company has provided notice to early terminate these finance lease obligations in the first quarter of 2022.
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 ratefixed-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.rates by placing a ceiling on the rate that will be paid under certain floating-rate debt agreements.
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
Certain assets of the Company's subsidiaries are pledged as collateral for various credit facilities and the amounts payable under certain derivative agreements. Additionally, the Company may be required to post cash collateral on these agreements. Any amounts of cash collateral posted 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 June 30, 2021, the Company has cash collateral of $28.4 million related to interest rate swap contracts.
DuringIn conjunction with the nine months ended September 30, 2020,issuance of ABS notes, the Company canceled the following interest rate swaps that were in place to hedge the impact of interest rate changes on fixed-rate debt issuances:
| | | | | | | | | | | | | | | | | | | | |
Derivative Instrument | | Date Canceled | | Notional Amount | | Funds Received |
Interest rate swap | | January 25, 2021 | | $150.0 million | | $0.3 million |
Interest rate swap | | January 27, 2021 | | $150.0 million | | $0.3 million |
Interest rate swap | | February 19, 2021 | | $150.0 million | | $2.4 million |
Interest rate swap | | February 19, 2021 | | $150.0 million | | $2.4 million |
| | | | | | |
On April 15, 2021, the Company cancelled and simultaneously entered into an interest rate swap with a notional amount of $93.8 million. The Company paid $0.1 million for the cancellation of the existing contract. The new contract with an effective date of April 20, 2020 andhas a scheduled maturity date of April 20, 2024.2024 and is indexed to 1 month LIBOR with a fixed leg interest rate of 0.25%.
On May 24, 2021, the Company entered into a new interest cap agreement with a scheduled maturity date of November 13, 2023. This contract is indexed to 1 month LIBOR, has a fixed leg interestcap rate of 0.35%5.50%, and has a notional amount of $125.0$200.0 million.
In conjunction with the redemption of the institutional notes, the Company entered into and subsequently canceled the following interest rate swaps that were in place to hedge the impact of interest rate changes related to the make-whole premium payment during the notification period. The settlement of these swaps is presented in debt termination expense on the consolidated statement of operations and in payments under debt facilities and finance lease obligations within the financing section of the consolidated statement of cash flows.
| | | | | | | | | | | | | | | | | | | | |
Derivative Instrument | | Date Canceled | | Notional Amount | | Funds Received (Paid) |
Interest rate swap | | June 25, 2021 | | $72.5 million | | $0 million |
Interest rate swap | | June 25, 2021 | | $195.9 million | | $(0.9) million |
TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of SeptemberJune 30, 2020,2021, 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) | | $1,805.61,671.5 Million | | 2.00%2.02% | | n/a | | 5.14.6 years |
Interest Rate Cap | | $200.0400.0 Million | | n/a | | 5.5% | | 1.32.4 years |
(1) The impact of forward starting swaps withwill increase total notional amount ofby $350.0 million willand increase the weighted average remaining term to 6.15.6 years.
Over the next twelve months, we expect to reclassify unrealizedUnrealized losses of $30.5$28.5 million to income of pre-tax amounts from accumulated other comprehensive income (loss) related to interest rate swap and cap agreements.agreements included in accumulated other comprehensive income (loss) are expected to be recognized in Interest and debt expense over the next twelve months.
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 September 30, | | | | Nine Months Ended September 30, | | |
Derivative Instrument | Financial statement caption | | 2020 | | 2019 | | 2020 | | 2019 |
Non-designated derivative instruments | Realized (gain) loss on derivative instruments, net | | $ | 0 | | | $ | (539) | | | $ | (224) | | | $ | (1,912) | |
| | | | | | | | | |
Non-designated derivative instruments | Unrealized (gain) loss on derivative instruments, net | | $ | 0 | | | $ | 504 | | | $ | 286 | | | $ | 2,757 | |
Designated derivative instruments | Interest and debt (income) expense | | $ | 7,834 | | | $ | (1,530) | | | $ | 15,282 | | | $ | (6,192) | |
Designated derivative instruments | Comprehensive (income) loss | | $ | (852) | | | $ | 22,930 | | | $ | 146,386 | | | $ | 74,727 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended June 30, | | Six Months Ended June 30, |
| Financial statement caption | | 2021 | | 2020 | | 2021 | | 2020 |
Non-Designated Derivative Instruments | | | | | | | | | |
Realized (gains) losses | Other (income) expense, net | | $ | 0 | | | $ | 11 | | | $ | 0 | | | $ | (224) | |
| | | | | | | | | |
Realized (gains) losses | Debt termination expense | | $ | 883 | | | $ | 0 | | | $ | 883 | | | $ | 0 | |
Unrealized (gains) losses | Other (income) expense, net | | $ | 0 | | | $ | (11) | | | $ | 0 | | | $ | 286 | |
| | | | | | | | | |
Designated Derivative Instruments | | | | | | | | | |
Realized (gains) losses | Interest and debt (income) expense | | $ | 7,439 | | | $ | 6,189 | | | $ | 15,009 | | | $ | 7,448 | |
Unrealized (gains) losses | Comprehensive (income) loss | | $ | 24,286 | | | $ | 17,624 | | | $ | (41,122) | | | $ | 147,238 | |
| | | | | | | | | |
| | | | | | | | | |
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. Substantially all 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 the fair value of derivative financial instruments on a gross basis as a separate line item on the consolidated balance sheet. AtAs of June 30, 2021 and December 31, 2019,2020, the Company had $0.3 million of interest rate contracts under derivative assets, which were not designated as hedging instruments. The Company has no material non-designated hedging instruments as of September 30, 2020. 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 September 30, 2020, there was cash collateral of $38.9 million related to interest rate swap contracts.instruments.
TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 9—Segment and Geographic Information
Segment Information
The Company operates its business in one industry, intermodal transportation equipment, and has 2 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.
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 September 30, | | | Three Months Ended June 30, |
| | 2020 | | | 2019 | | | 2021 | | 2020 |
| | Equipment Leasing | | Equipment Trading | | Totals | | Equipment Leasing | | Equipment Trading | | Totals | | Equipment Leasing | | Equipment Trading | | Totals | | Equipment Leasing | | Equipment Trading | | Totals |
Total leasing revenues | Total leasing revenues | $ | 325,279 | | | $ | 2,478 | | | $ | 327,757 | | | $ | 336,088 | | | $ | 580 | | | $ | 336,668 | | Total leasing revenues | $ | 366,989 | | | $ | 2,795 | | | $ | 369,784 | | | $ | 319,620 | | | $ | 1,777 | | | $ | 321,397 | |
Trading margin | Trading margin | 0 | | | 3,869 | | | 3,869 | | | 0 | | | 4,150 | | | 4,150 | | Trading margin | 0 | | | 10,726 | | | 10,726 | | | 0 | | | 2,020 | | | 2,020 | |
Net gain on sale of leasing equipment | Net gain on sale of leasing equipment | 10,737 | | | 0 | | | 10,737 | | | 6,196 | | | 0 | | | 6,196 | | Net gain on sale of leasing equipment | 31,391 | | | 0 | | | 31,391 | | | 4,537 | | | 0 | | | 4,537 | |
Depreciation and amortization expense | Depreciation and amortization expense | 136,058 | | | 190 | | | 136,248 | | | 133,194 | | | 173 | | | 133,367 | | Depreciation and amortization expense | 153,881 | | | 175 | | | 154,056 | | | 133,116 | | | 176 | | | 133,292 | |
Interest and debt expense | Interest and debt expense | 62,138 | | | 638 | | | 62,776 | | | 77,058 | | | 343 | | | 77,401 | | Interest and debt expense | 59,594 | | | 410 | | | 60,004 | | | 66,483 | | | 391 | | | 66,874 | |
Realized (gain) loss on derivative instruments, net | 0 | | | 0 | | | 0 | | | (536) | | | (3) | | | (539) | | |
Income (loss) before income taxes(1) | 91,986 | | | 4,642 | | | 96,628 | | | 94,394 | | | 3,428 | | | 97,822 | | |
| Segment income (loss) before income taxes(1) | | Segment income (loss) before income taxes(1) | 157,324 | | | 11,488 | | | 168,812 | | | 74,843 | | | 2,433 | | | 77,276 | |
Purchases of leasing equipment and investments in finance leases(2) | Purchases of leasing equipment and investments in finance leases(2) | $ | 134,637 | | | $ | 0 | | | $ | 134,637 | | | $ | 10,532 | | | $ | 0 | | | $ | 10,532 | | Purchases of leasing equipment and investments in finance leases(2) | $ | 1,138,632 | | | $ | 0 | | | $ | 1,138,632 | | | $ | 157,382 | | | $ | 0 | | | $ | 157,382 | |
| | | | Six Months Ended June 30, |
| | | 2021 | | 2020 |
| | | Equipment Leasing | | Equipment Trading | | Totals | | Equipment Leasing | | Equipment Trading | | Totals |
Total leasing revenues | | Total leasing revenues | $ | 710,794 | | | $ | 5,733 | | | $ | 716,527 | | | $ | 640,657 | | | $ | 2,208 | | | $ | 642,865 | |
Trading margin | | Trading margin | 0 | | | 18,867 | | | 18,867 | | | 0 | | | 3,953 | | | 3,953 | |
Net gain on sale of leasing equipment | | Net gain on sale of leasing equipment | 53,358 | | | 0 | | | 53,358 | | | 8,614 | | | 0 | | | 8,614 | |
Depreciation and amortization expense | | Depreciation and amortization expense | 297,018 | | | 345 | | | 297,363 | | | 265,634 | | | 353 | | | 265,987 | |
Interest and debt expense | | Interest and debt expense | 113,815 | | | 812 | | | 114,627 | | | 135,182 | | | 694 | | | 135,876 | |
| Segment income (loss) before income taxes(1) | | Segment income (loss) before income taxes(1) | 299,513 | | | 20,874 | | | 320,387 | | | 156,360 | | | 3,826 | | | 160,186 | |
Purchases of leasing equipment and investments in finance leases(2) | | Purchases of leasing equipment and investments in finance leases(2) | $ | 1,717,843 | | | $ | 0 | | | $ | 1,717,843 | | | $ | 219,788 | | | $ | 0 | | | $ | 219,788 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, | | | | | | | | | | |
| 2020 | | | | | | 2019 | | | | |
| Equipment Leasing | | Equipment Trading | | Totals | | Equipment Leasing | | Equipment Trading | | Totals |
Total leasing revenues | $ | 965,936 | | | $ | 4,686 | | | $ | 970,622 | | | $ | 1,014,055 | | | $ | 2,038 | | | $ | 1,016,093 | |
Trading margin | 0 | | | 7,822 | | | 7,822 | | | 0 | | | 12,233 | | | 12,233 | |
Net gain on sale of leasing equipment | 19,351 | | | 0 | | | 19,351 | | | 22,184 | | | 0 | | | 22,184 | |
Depreciation and amortization expense | 401,692 | | | 543 | | | 402,235 | | | 402,797 | | | 527 | | | 403,324 | |
Interest and debt expense | 197,320 | | | 1,332 | | | 198,652 | | | 242,115 | | | 1,066 | | | 243,181 | |
Realized (gain) loss on derivative instruments, net | (223) | | | (1) | | | (224) | | | (1,905) | | | (7) | | | (1,912) | |
Income (loss) before income taxes(1) | 248,346 | | | 8,468 | | | 256,814 | | | 285,154 | | | 10,278 | | | 295,432 | |
Purchases of leasing equipment and investments in finance leases(2) | $ | 354,425 | | | $ | 0 | | | $ | 354,425 | | | $ | 160,518 | | | $ | 0 | | | $ | 160,518 | |
(1) Segment income before income taxes excludes unrealized gains or losses on derivative instruments and debt termination expense. The Company recorded animmaterial amounts of unrealized gain/loss on derivative instruments for the three months ended June 30, 2021 and 2020, and for the six months ended June 30, 2021. The Company recorded $0.3 million of unrealized loss on derivative instruments of $0.3for the six months ended June 30, 2020. The Company recorded $89.9 million for debt termination expense for both the ninethree and six months ended SeptemberJune 30, 2020,2021 and an unrealized loss on derivative instrumentsimmaterial amounts of $0.5 million and $2.8 milliondebt termination expense for the three and ninesix months ended SeptemberJune 30, 2019, respectively. The Company recorded debt termination expense of $24.3 million and $24.4 million for the three and nine months ended September 30, 2020 and $1.9 million and $2.4 million for the three and nine months ended September 30, 2019, respectively.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.
| | | September 30, 2020 | | | December 31, 2019 | | | June 30, 2021 | | December 31, 2020 |
| | Equipment Leasing | | Equipment Trading | | Totals | | Equipment Leasing | | Equipment Trading | | Totals | | Equipment Leasing | | Equipment Trading | | Totals | | Equipment Leasing | | Equipment Trading | | Totals |
Equipment held for sale | Equipment held for sale | $ | 75,266 | | | $ | 29,657 | | | $ | 104,923 | | | $ | 89,755 | | | $ | 24,749 | | | $ | 114,504 | | Equipment held for sale | $ | 14,368 | | | $ | 21,446 | | | $ | 35,814 | | | $ | 43,275 | | | $ | 24,036 | | | $ | 67,311 | |
Goodwill | Goodwill | 220,864 | | | 15,801 | | | 236,665 | | | 220,864 | | | 15,801 | | | 236,665 | | Goodwill | 220,864 | | | 15,801 | | | 236,665 | | | 220,864 | | | 15,801 | | | 236,665 | |
Total assets | Total assets | $ | 9,516,904 | | | $ | 107,771 | | | $ | 9,624,675 | | | $ | 9,596,263 | | | $ | 46,370 | | | $ | 9,642,633 | | Total assets | $ | 11,242,922 | | | $ | 92,436 | | | $ | 11,335,358 | | | $ | 9,612,251 | | | $ | 100,282 | | | $ | 9,712,533 | |
TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
There are 0no 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 in the equipment trading segment 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.
TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes the geographic allocation of equipment leasing revenues for the three and ninesix months ended SeptemberJune 30, 20202021 and 20192020 based on customers' primary domicile (in thousands):
| | | Three Months Ended September 30, | | | Nine Months Ended September 30, | | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
Total equipment leasing revenues: | Total equipment leasing revenues: | | | | | | | | Total equipment leasing revenues: | | | | | | | |
Asia | Asia | $ | 115,084 | | | $ | 133,787 | | | $ | 353,464 | | | $ | 405,592 | | Asia | $ | 135,853 | | | $ | 117,574 | | | $ | 259,747 | | | $ | 238,380 | |
Europe | Europe | 175,629 | | | 164,197 | | | 503,106 | | | 490,190 | | Europe | 194,070 | | | 163,214 | | | 380,443 | | | 327,477 | |
Americas | Americas | 25,055 | | | 28,701 | | | 81,668 | | | 90,391 | | Americas | 27,336 | | | 30,352 | | | 52,049 | | | 56,613 | |
Bermuda | Bermuda | 450 | | | 515 | | | 1,331 | | | 1,732 | | Bermuda | 597 | | | 438 | | | 1,172 | | | 881 | |
Other International | Other International | 11,539 | | | 9,468 | | | 31,053 | | | 28,188 | | Other International | 11,928 | | | 9,819 | | | 23,116 | | | 19,514 | |
Total | Total | $ | 327,757 | | | $ | 336,668 | | | $ | 970,622 | | | $ | 1,016,093 | | Total | $ | 369,784 | | | $ | 321,397 | | | $ | 716,527 | | | $ | 642,865 | |
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.
The following table summarizes the geographic allocation of equipment trading revenues for the three and ninesix months ended SeptemberJune 30, 20202021 and 20192020 based on the location of the sale (in thousands):
| | | Three Months Ended September 30, | | | Nine Months Ended September 30, | | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
Total equipment trading revenues: | Total equipment trading revenues: | | | | | | | | Total equipment trading revenues: | | | | | | | |
Asia | Asia | $ | 7,546 | | | $ | 4,814 | | | $ | 12,232 | | | $ | 11,799 | | Asia | $ | 14,310 | | | $ | 3,154 | | | $ | 21,769 | | | $ | 4,686 | |
Europe | Europe | 6,329 | | | 9,756 | | | 16,542 | | | 22,187 | | Europe | 5,040 | | | 5,261 | | | 12,162 | | | 10,213 | |
Americas | Americas | 8,316 | | | 8,827 | | | 21,755 | | | 24,880 | | Americas | 10,834 | | | 6,844 | | | 19,375 | | | 13,439 | |
Bermuda | Bermuda | 0 | | | 0 | | | 0 | | | 0 | | Bermuda | 0 | | | 0 | | | 0 | | | 0 | |
Other International | Other International | 3,903 | | | 2,399 | | | 7,848 | | | 7,967 | | Other International | 2,999 | | | 1,644 | | | 5,822 | | | 3,945 | |
Total | Total | $ | 26,094 | | | $ | 25,796 | | | $ | 58,377 | | | $ | 66,833 | | Total | $ | 33,183 | | | $ | 16,903 | | | $ | 59,128 | | | $ | 32,283 | |
Note 10—Commitments and Contingencies
Container Equipment Purchase Commitments
At SeptemberJune 30, 2020,2021, the Company had commitments to purchase equipment in the amount of $552.8$1,138.6 million payable in 2020 and 2021.
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.
TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 11—Income Taxes
The Company's effective tax rates were 21.9%17.4% and 5.1%8.7% for the three months ended SeptemberJune 30, 20202021 and 2019,2020, respectively, and 12.1%11.0% and 7.1%7.7% for the ninesix months ended SeptemberJune 30, 20202021 and 2019,2020, 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 increase in the effective tax rates in 2021 compared to the same periods in 2020 was primarily due to an $8.6 millionincreased proportion of the Company's income generated in higher tax expensejurisdictions as a result of the payment of a make-whole premium related to the termination of certain institutional notes in the second quarter of 2021. The taxes related to the Company's make-whole premium payment were recorded as a U.S. entity to foreign entity intra-company asset sale that occurreddiscrete item during the three and nine months ended September 30, 2020.period.
TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 and $1.4$1.0 million for both the three and ninesix months ended SeptemberJune 30, 2021, respectively, and $0.5 million and $0.9 million for the three and six months ended June 30, 2020, and September 30, 2019.respectively. The Company has a direct finance lease balance with TriStar of $10.7$9.6 million for both Septemberand $10.3 million as of June 30, 20202021 and December 31, 2019.2020, 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.
Note 14—Subsequent Events
On October 21, 2020,July 20, 2021, the Company's Board of Directors approved and declared a quarterly cash dividend of $0.57 per share on its issued and outstanding common shares, payable on DecemberSeptember 23, 20202021 to holders of record at the close of business on December 10, 2020.September 9, 2021.
On October 21, 2020,July 20, 2021, the Company's Board of Directors also approved and declared a cash dividend on its issued and outstanding preferred shares, payable on December 15, 2020September 14, 2021 to holders of record at the close of business on December 8, 2020September 7, 2021 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 |
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, 20192020 with the SEC on February 14, 202016, 2021 (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 SeptemberJune 30, 2020,2021, our total fleet consisted of 3.64.0 million containers and chassis, representing 6.16.9 million twenty-foot equivalent units ("TEU") or 6.97.6 million cost equivalent units ("CEU"). We have an extensive global presence, offering leasing services through 19 offices and 3 independent agencies located in 16 countries and 428407 third-party owned and operated depot facilities in 46 countries as of SeptemberJune 30, 2020.2021. Our primary customers include the world's largest container shipping lines. For the ninesix months ended SeptemberJune 30, 2020,2021, our twenty largest customers accounted for 85%86% of our lease billings, our five largest customers accounted for 58%59% of our lease billings, and our twothree largest customers CMA CGM S.A. and Mediterranean Shipping Company S.A., accounted for 21%20%, 14%, and 15%10% of our lease billings, respectively.billings.
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 on land. 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.
The following tables summarize our equipment fleet as of SeptemberJune 30, 2020,2021, December 31, 20192020 and SeptemberJune 30, 20192020 indicated in units, TEU and CEU. CEU and TEU are standard industry measures of fleet size and are used to measure the quantity of containers that make up our revenue earning assets:
| | | Equipment Fleet in Units | | | Equipment Fleet in TEU | | | Equipment Fleet in Units | | Equipment Fleet in TEU |
| | September 30, 2020 | | December 31, 2019 | | September 30, 2019 | | September 30, 2020 | | December 31, 2019 | | September 30, 2019 | | June 30, 2021 | | December 31, 2020 | | June 30, 2020 | | June 30, 2021 | | December 31, 2020 | | June 30, 2020 |
Dry | Dry | 3,220,631 | | | 3,267,624 | | | 3,287,025 | | | 5,306,071 | | | 5,369,377 | | | 5,393,705 | | Dry | 3,604,794 | | | 3,295,908 | | | 3,215,482 | | | 6,084,381 | | | 5,466,421 | | | 5,287,639 | |
Refrigerated | Refrigerated | 226,627 | | | 225,520 | | | 226,114 | | | 437,886 | | | 435,148 | | | 436,129 | | Refrigerated | 236,978 | | | 227,519 | | | 227,018 | | | 459,389 | | | 439,956 | | | 438,380 | |
Special | Special | 93,639 | | | 94,453 | | | 94,678 | | | 170,471 | | | 171,437 | | | 171,579 | | Special | 93,238 | | | 93,885 | | | 93,996 | | | 170,259 | | | 170,792 | | | 170,977 | |
Tank | Tank | 11,153 | | | 12,485 | | | 12,539 | | | 11,153 | | | 12,485 | | | 12,539 | | Tank | 11,513 | | | 11,312 | | | 12,439 | | | 11,513 | | | 11,312 | | | 12,439 | |
Chassis | Chassis | 24,916 | | | 24,515 | | | 24,704 | | | 45,380 | | | 45,154 | | | 45,498 | | Chassis | 24,275 | | | 24,781 | | | 24,133 | | | 44,391 | | | 45,188 | | | 44,524 | |
Equipment leasing fleet | Equipment leasing fleet | 3,576,966 | | | 3,624,597 | | | 3,645,060 | | | 5,970,961 | | | 6,033,601 | | | 6,059,450 | | Equipment leasing fleet | 3,970,798 | | | 3,653,405 | | | 3,573,068 | | | 6,769,933 | | | 6,133,669 | | | 5,953,959 | |
Equipment trading fleet | Equipment trading fleet | 72,444 | | | 17,906 | | | 17,054 | | | 111,369 | | | 27,121 | | | 25,764 | | Equipment trading fleet | 53,802 | | | 64,243 | | | 79,778 | | | 84,455 | | | 98,991 | | | 123,377 | |
Total | Total | 3,649,410 | | | 3,642,503 | | | 3,662,114 | | | 6,082,330 | | | 6,060,722 | | | 6,085,214 | | Total | 4,024,600 | | | 3,717,648 | | | 3,652,846 | | | 6,854,388 | | | 6,232,660 | | | 6,077,336 | |
|
| | | Equipment Fleet in CEU (1) | | | Equipment Fleet in CEU (1) |
| | September 30, 2020 | | December 31, 2019 | | September 30, 2019 | | June 30, 2021 | | December 31, 2020 | | June 30, 2020 |
Operating leases | Operating leases | 6,492,628 | | | 6,434,434 | | | 6,455,594 | | Operating leases | 7,171,845 | | | 6,649,350 | | | 6,478,561 | |
Finance leases | Finance leases | 308,513 | | | 423,638 | | | 431,043 | | Finance leases | 369,130 | | | 295,784 | | | 317,159 | |
Equipment trading fleet | Equipment trading fleet | 109,469 | | | 37,232 | | | 36,998 | | Equipment trading fleet | 82,980 | | | 98,420 | | | 120,654 | |
Total | Total | 6,910,610 | | | 6,895,304 | | | 6,923,635 | | Total | 7,623,955 | | | 7,043,554 | | | 6,916,374 | |
|
(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 an estimate for the historical average 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 SeptemberJune 30, 2020:2021:
| Equipment Type | Equipment Type | Percentage of total fleet in units | | Percentage of total fleet in CEU | Equipment Type | Percentage of total fleet in units | | Percentage of total fleet in CEU |
Dry | Dry | 88.2 | % | | 67.4 | % | Dry | 89.6 | % | | 69.9 | % |
Refrigerated | Refrigerated | 6.2 | | | 24.3 | | Refrigerated | 5.9 | | | 23.0 | |
Special | Special | 2.6 | | | 3.5 | | Special | 2.3 | | | 3.1 | |
Tank | Tank | 0.3 | | | 1.3 | | Tank | 0.3 | | | 1.2 | |
Chassis | Chassis | 0.7 | | | 1.9 | | Chassis | 0.6 | | | 1.7 | |
Equipment leasing fleet | Equipment leasing fleet | 98.0 | | | 98.4 | | Equipment leasing fleet | 98.7 | | | 98.9 | |
Equipment trading fleet | Equipment trading fleet | 2.0 | | | 1.6 | | Equipment trading fleet | 1.3 | | | 1.1 | |
Total | Total | 100.0 | % | | 100.0 | % | 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 or more 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. Some of our containers, primarily used containers, are placed on lifecycle leases which keep the containers on-hire until the end of their useful life.
•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.
The following table summarizes our lease portfolio by lease type, based on CEU on-hire as of SeptemberJune 30, 2020,2021, December 31, 20192020 and SeptemberJune 30, 2019:2020:
| Lease Portfolio | Lease Portfolio | September 30, 2020 | | December 31, 2019 | | September 30, 2019 | Lease Portfolio | June 30, 2021 | | December 31, 2020 | | June 30, 2020 |
Long-term leases | Long-term leases | 73.6 | % | | 69.5 | % | | 69.1 | % | Long-term leases | 75.3 | % | | 73.8 | % | | 71.5 | % |
Finance leases | Finance leases | 4.8 | | | 6.8 | | | 6.8 | | Finance leases | 5.0 | | | 4.4 | | | 5.2 | |
Service leases | Service leases | 7.2 | | | 7.8 | | | 8.4 | | Service leases | 6.0 | | | 7.2 | | | 7.7 | |
Expired long-term leases (units on-hire) | Expired long-term leases (units on-hire) | 14.4 | | | 15.9 | | | 15.7 | | Expired long-term leases (units on-hire) | 13.7 | | | 14.6 | | | 15.6 | |
Total | Total | 100.0 | % | | 100.0 | % | | 100.0 | % | Total | 100.0 | % | | 100.0 | % | | 100.0 | % |
As of SeptemberJune 30, 2020,2021, December 31, 20192020 and SeptemberJune 30, 2019,2020, our long-term and finance leases combined had an average remaining contractual term of approximately 4855 months, 49 months, and 47 months, respectively, assuming no leases are renewed.
Market Overview and COVID-19
The COVID-19 pandemic has meaningfully impactedcontinues to have a meaningful impact on global trade and our business in 2020.business. The pandemicinitial outbreak of COVID-19 and relatedresulting social and economic shutdowns resulted inlockdowns led to a significantsharp decrease in global trade volumes in the first half of the year, and2020.During this time, we faced weak container demand for containers and decreasingpressure on our utilization and profitability.However, our lease portfolio provided strong protections and our utilization and profitability in the first two quarters of 2020. However, with the easing of COVID-19 related restrictions in the United States and Europe, global containerized trade hasdecreased gradually.
Trade volumes rebounded significantlyrapidly in the third quarter of 2020 as lockdowns eased and container export volumesconsumers shifted spending from China now exceed pre-pandemic levels. services and experiences to goods.Demand for containers was further boosted by extensive logistical disruptions such as reduced port productivity and a shortage of trucking capacity that slowed turn times for containers.This rebound has resultedstrong and unexpected increase in strong container demand led to a severe shortage of containers and an increasesignificant increases in the price of new and used containers and market leasing rates.In addition, we have been able to drive our utilization close to maximum levels and profitability. Whilehave invested aggressively in new containers to support our shipping line customers generallycustomers.Our profitability increased rapidly during the second half of 2020 and first half of 2021.
Economists expect trade volumessome shift in consumption back to remain solid throughservices and experiences as COVID-19 vaccinations are rolled out globally, and we expect global logistical bottlenecks will eventually ease. However, the end of the year, many countries are seeingtiming for a resurgence in COVID-19 cases and a number are re-instituting restrictions on social and business activity. Overall, there continuesreturn to be a high degree of uncertainty in the outlook for global trade and container demand.more normal market conditions is uncertain.
Operating Performance
Triton'sOur operating and financial performance inflected upward duringin the thirdsecond quarter of 2020 as a result of increased2021 continued to benefit from very favorable market conditions driven by strong global trade volumes, logistical disruptions that have slowed container turn times, and strong lease demand.limited availability of containers.
Fleet size. As of SeptemberJune 30, 2020,2021, our revenue earning assets had a net book value of $8.7$10.5 billion, a decreasean increase of 3.6%19.9% from SeptemberJune 30, 2019.2020 and 17.0% from December 31, 2020. This decreaseincrease was primarily due to limited procurementincreased purchases of new containers in 2019 andresponse to the first half of 2020. During this period,surge in global containerized trade volumes and strong leasing demand, as well as higher container demand were negatively impacted by the trade dispute between the United States and China and disruptions related to the global outbreakprices. As of COVID-19.
Trade volumes rebounded sharply during the third quarterJuly 23, 2021, we have placed orders for over $3.4 billion of 2020 and we experienced a surge of lease activity. While we accelerated container purchases during the third quarter, our ability to purchase large numbers of containers for quick delivery has been constrained by tight container manufacturing capacity. We have purchased approximately $800 million of new and sale-leaseback containers for delivery in 2020 and approximately $350 million for delivery in2021. Approximately $1.8 billion of these containers were delivered through the first few monthsend of 2021.the second quarter. The vast majority of containers that have not been delivered have already been committed to leases.
Utilization. Our ending utilization increased 2.6% during the third quarter to reach 97.4% as of September 30, 2020, reflecting a surge in leasing demand as global containerized trade volumes rebounded sharply. Averageaverage utilization was 96.1% during99.4% for the third quarter of 2020,ended June 30, 2021, an increase of 1.1% from4.4% compared to the second quarter of 2020 and a decreasean increase of 0.6%0.3% from the thirdfirst quarter of 2019.2021. Our utilization decreased throughout 2019 andincreased rapidly in the firstsecond half of 2020 reflecting weak leasing demand due to a very high volume of container pick-ups and limited drop-off activity. In 2021, utilization has continued to increase although at a slower pace given the trade dispute betweenlimited amount of available inventory. Our utilization ended the United Statessecond quarter at 99.5% and China and disruptions related to the global outbreak of COVID-19. As of October 16, 2020, our utilization was 97.6%currently stands at 99.6%.
The following table summarizes theour equipment fleet utilization for the periods indicated below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Quarter Ended | | | | | | | | |
| September 30, 2020 | | June 30, 2020 | | March 31, 2020 | | December 31, 2019 | | September 30, 2019 |
Average Utilization(1) | 96.1 | % | | 95.0 | % | | 95.4 | % | | 95.8 | % | | 96.7 | % |
Ending Utilization(1) | 97.4 | % | | 94.8 | % | | 95.3 | % | | 95.4 | % | | 96.4 | % |
(1)below. 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.sale:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Quarter Ended |
| June 30, 2021 | | March 31, 2021 | | December 31, 2020 | | September 30, 2020 | | June 30, 2020 |
Average Utilization | 99.4 | % | | 99.1 | % | | 98.1 | % | | 96.1 | % | | 95.0 | % |
Ending Utilization | 99.5 | % | | 99.3 | % | | 98.9 | % | | 97.4 | % | | 94.8 | % |
Average lease rates. Average lease rates for our dry container product line decreasedincreased by 3.3%5.1% in the third quarter of 2020 compared to the third quarter of 2019 and 0.4% from the second quarter of 2020.2021 compared to the second quarter of 2020, and increased by 2.9% from the first quarter of 2021. The decreaseincrease in our average dry container lease rates was primarily driven by the impactaddition of several largenew containers with lease extensions completed during 2019rates well above the average rates in our lease portfolio. New container prices and the first half of 2020 atmarket lease rates below our portfolio average, as well as by the pick-up of a large number of containers in the third quarter of 2020 on lifecycle leases, which often have lower ratesincreased sharply due to the long expected on-hire time. Marketsurge in container demand. Container manufacturers are currently quoting over $3,800 for 20' dry containers and market lease rates for new dry containers are currentlyremain well above the average dry container lease rates in our portfolio dueportfolio. We expect our average dry container lease rates will continue to an increase inif container prices and strong leasing demand. As of October 16, 2020, container factories are quoting roughly $2,500 for 20' dry containers.market lease rates remain at their current levels.
Average lease rates for our refrigerated container product line decreased by 4.2%5.1% in the thirdsecond quarter of 20202021 compared to the thirdsecond quarter of 2019. The cost2020. During the second quarter of 2021, we completed a large lease extension transaction for refrigerated containers has trended down overthat lowered the last few years, which has led to lower market lease rates. In addition, werates on expired leases in return for a lease extension covering the remaining useful life of the equipment. We have also 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 will continue to gradually trend down.
The average lease rates for special containers remained flatdecreased by 2.0% in the thirdsecond quarter of 2021 compared to the second quarter of 2020 comparedprimarily due to the third quartera lease extension transaction for a large number of 2019.special containers.
Equipment disposals. Disposal volumesgains continued to be exceptionally strong through the second quarter of our2021, reflecting very high used container selling prices. Our average used dry containers increased by 38.0%container sale price in the thirdsecond quarter of 2020 compared to2021 increased 21.1% from the thirdfirst quarter of 20192021, and increased 128.3% from the second quarter of 2020. The current worldwide shortage of containers and the large increase in new container prices has resulted in strong demand for used containers and continued increases in sale prices. The benefit of the large increase in used dry container sale prices was partially offset by 53.9%a substantial decrease in disposal volumes compared to the second quarter of 2020. The sharp increase in tradeContainer drop-off volumes has ledhave been very low due to increasedthe strong demand and our inventory of used containers for sale containers, especially for one-way cargo shipments. Selling prices of ouris limited. Our used dry containers were relatively flat compared to the third quarter of 2019 and increasedcontainer sales volumes decreased by 3.3%41.9% compared to the second quarter of 2020. Used container disposal prices started to increase in the third quarter of 2020 in response to increased demand.
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, dividends, and share repurchases.
For the trailing twelve months ended SeptemberJune 30, 2020,2021, cash provided by operating activities, together with the proceeds from the sale of our leasing equipment, was $1,201.8$1,411.2 million. In addition, as of SeptemberJune 30, 2020,2021, we had $173.3$77.4 million of cash and cash equivalents and $1,449.0$2,530.0 million of maximum borrowing capacity under our current credit facilities.
As of SeptemberJune 30, 2020,2021, our cash commitments in the next twelve months include $652.0$675.4 million of scheduled principal payments on our existing debt facilities and $649.6$1,550.1 million of committed but unpaid capital expenditures.expenditures, primarily for the purchase of equipment.
We believe that cash provided by operating activities, existing cash, proceeds from the sale of our leasing equipment, and availability under our credit facilities will be sufficient to meet our obligations over the next twelve months.
Asset-backed Securitization ("ABS") Note Issuances
Debt Activity
During the three months ended SeptemberJune 30, 2020,2021, the Company issued $2,313.1 million$1.7 billion of senior secured corporate notes with a range of maturities of 3 - 10 years at a weighted average interest rate of 2.2%. These corporate notes may become unsecured if we satisfy credit rating conditions specified in the indenture agreement. During the first quarter of 2021, the Company issued $1.2 billion in ABS notes at a weighted average interest rate of 2.2%1.8%. The majority of the proceedsProceeds from these issuances were primarily used to call $1,783.1 million of higher cost notes, which is expected to reduce our interest expense by more than $25 million over the next year.facilitate additional capital expenditures and prepay existing debt.
Share Repurchase ProgramIn June 2021, the Company prepaid $821.0 million in aggregate principal of its outstanding institutional notes with a weighted average interest rate of 4.1% and paid a related make-whole premium of $84.8 million.
Capital Activity
During the ninethree and six months ended SeptemberJune 30, 2020,2021 the Company repurchased a totalpaid dividends on preferred shares of 3.8$10.5 million and $21.0 million, respectively, and paid dividends on common shares at an average price per share of $28.39 for a total cost of $107.2$38.2 million under its Board authorized share repurchase program. Since the inception of the program in August 2018, the Company has purchased over 12.5and $76.3 million, shares, or 15.5% of our common shares.
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 costs associated with the offering, inclusive of underwriting discount and other offering expenses, were $5.1 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 prepayment of outstanding indebtedness.respectively.
For additional information on the Share Repurchase Program and the Preferred Share Offering,Dividends, please refer to Note 5 - “Other Equity Matters” in the Notes to the Unaudited Consolidated Financial Statements.
Debt Agreements
At SeptemberJune 30, 2020,2021 our outstanding indebtedness was comprised of the following (amounts in millions):
| | | September 30, 2020 | | Maximum Borrowing Level | | June 30, 2021 | | Maximum Borrowing Level |
Institutional notes | Institutional notes | $ | 1,694.2 | | | $ | 1,694.2 | | Institutional notes | $ | 648.9 | | | $ | 648.9 | |
Asset-backed securitization term notes | Asset-backed securitization term notes | 2,986.8 | | | 2,986.8 | | Asset-backed securitization term notes | 3,984.8 | | | 3,984.8 | |
Corporate notes | | Corporate notes | 1,700.0 | | | 1,700.0 | |
Term loan facility | Term loan facility | 860.0 | | | 860.0 | | Term loan facility | 405.0 | | | 1,200.0 | |
Asset-backed securitization warehouse | Asset-backed securitization warehouse | 195.0 | | | 800.0 | | Asset-backed securitization warehouse | 185.0 | | | 1,125.0 | |
Revolving credit facilities | Revolving credit facilities | 716.0 | | | 1,560.0 | | Revolving credit facilities | 765.0 | | | 1,560.0 | |
Finance lease obligations | Finance lease obligations | 17.9 | | | 17.9 | | Finance lease obligations | 16.2 | | | 16.2 | |
Total debt outstanding | Total debt outstanding | 6,469.9 | | | 7,918.9 | | Total debt outstanding | $ | 7,704.9 | | | $ | 10,234.9 | |
Unamortized debt costs | Unamortized debt costs | (41.7) | | | — | | Unamortized debt costs | (63.2) | | | — | |
Unamortized debt premiums & discounts | Unamortized debt premiums & discounts | (0.6) | | | — | | Unamortized debt premiums & discounts | (3.5) | | | — | |
Unamortized fair value debt adjustment | Unamortized fair value debt adjustment | 1.8 | | | — | | Unamortized fair value debt adjustment | 1.4 | | | — | |
Debt, net of unamortized costs | Debt, net of unamortized costs | $ | 6,429.4 | | | $ | 7,918.9 | | Debt, net of unamortized costs | $ | 7,639.6 | | | $ | 10,234.9 | |
The maximum borrowing levels depicted in the table above may not reflect the actual availability under all of the credit facilities. Certain of these facilities are governed by borrowing bases that limit borrowing capacity to an established percentage of relevant assets. As of SeptemberJune 30, 2020,2021, the availability under these credit facilities without adding additional container assets to the borrowing base was approximately $724.1$797.5 million.
As of SeptemberJune 30, 2020,2021, we had a combined $5,828.7$7,389.3 million of total debt on facilities with fixed interest rates or floating interest rates that have been synthetically fixed through interest rate swap contracts. Thiscontracts, which accounts for 90%96% of total debt.
Pursuant to the terms of certain debt agreements, we are required to maintain certain amounts in restricted cash accounts. As of SeptemberJune 30, 2020,2021, we had restricted cash of $163.5$127.5 million.
For additional information on our debt, please refer to Note 7 - "Debt" in the Notes to the Unaudited Consolidated Financial Statements.
Debt Covenants
We are subject to certain financial covenants related to leverage, interest coverage and net worth as defined in our debt agreements. The debt agreements are the obligations of our subsidiaries and all related debt covenants are calculated at the subsidiary level. Failure to comply with these covenants could result in a default under the related credit agreements and the acceleration of our outstanding debt if we were unable to obtain a waiver from the creditors. As of SeptemberJune 30, 2020,2021, we were in compliance with all such covenants. The table below reflects the key debt covenants for the Company that cover the majority of our debt agreements:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | TCIL | | | | TAL | | |
Financial Covenant | | Covenant | | Actual | | Covenant | | Actual |
Fixed charge coverage ratio | | Shall not be less than 1.25:1 | | 2.56:2.15:1 | | Shall not be less than 1.10:1 | | 1.92:2.98:1 |
Minimum net worth | | Shall not be less than $855 million | | $2,154.52,153.4 million | | Shall not be less than $500 million | | $917.61,032.1 million |
Leverage ratio | | Shall not exceed 4.0:1 | | 1.83:2.78:1 | | Shall not exceed 4.75:1 | | 1.85:1.48:1 |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Cash Flow
The following table sets forth certain cash flow information for the ninesix months ended SeptemberJune 30, 20202021 and 20192020 (in thousands):
| | | Nine Months Ended September 30, | | | Six Months Ended June 30, |
| | September 30, 2020 | | September 30, 2019 | | 2021 | | 2020 |
Net cash provided by (used in) operating activities | Net cash provided by (used in) operating activities | $ | 682,341 | | | $ | 779,507 | | Net cash provided by (used in) operating activities | $ | 613,319 | | | $ | 416,569 | |
Net cash provided by (used in) investing activities | Net cash provided by (used in) investing activities | $ | (171,789) | | | $ | 2,270 | | Net cash provided by (used in) investing activities | $ | (1,600,092) | | | $ | (118,028) | |
Net cash provided by (used in) financing activities | Net cash provided by (used in) financing activities | $ | (342,781) | | | $ | (783,200) | | Net cash provided by (used in) financing activities | $ | 1,039,653 | | | $ | (116,630) | |
Operating Activities
Net cash provided by operating activities decreasedincreased by $97.2$196.8 million to $682.3$613.3 million in the ninesix months ended SeptemberJune 30, 20202021 compared to $779.5$416.6 million in the same period in 2019.2020. The decrease issignificant increase was primarily due to reducedan increase in profitability anddue to strong market conditions. Additionally, changes in working capital accounts were mostly positive compared to the timing of collections on accounts receivable.same period last year.
Investing Activities
Net cash used in investing activities was $171.8increased by $1,482.1 million to $1,600.1 million in the ninesix months ended SeptemberJune 30, 20202021 compared to net cash provided by investing activities of $2.3$118.0 million in the same period in 2019, or a change of $174.1 million.2020. The change was primarily due to a $193.9$1,498.1 million increase in payments for leasing equipment partially offset by a $19.8 million increase in cash proceeds frompurchases to support the sale of equipment.strong container demand.
Financing Activities
Net cash provided by financing activities increased by $1,156.3 million to $1,039.7 million in the six months ended June 30, 2021, compared to net cash used in financing activities decreased by $440.4 million to $342.8 million in the nine months ended September 30, 2020, compared to $783.2of $116.6 million in the same period in 2019.2020. The decreaseincrease was primarily due to a decrease of $336.4$1,243.7 million increase in net repayments of debt and a $102.4 million decrease in share repurchases. This was partially offset by a decrease in proceeds fromborrowings to finance the issuance of preferred shares of $76.5 million. Additionally, we paid $103.0 million in the first half of 2019 for thesubstantial purchase of noncontrolling interests that did not reoccur in 2020.leasing equipment.
Results of Operations
The following table summarizes our comparative results of operations for the three months ended SeptemberJune 30, 20202021 and September 30, 20192020 (in thousands).
| | | Three Months Ended September 30, | | | Variance | | Three Months Ended June 30, |
| | 2020 | | 2019 | | | Variance | 2021 | | 2020 | | Variance |
Leasing revenues: | Leasing revenues: | | | | | | | | | | |
Operating leases | Operating leases | $ | 320,352 | | | $ | 326,800 | | | $ | (6,448) | | Operating leases | $ | 360,859 | | | $ | 313,423 | | | $ | 47,436 | |
Finance leases | Finance leases | 7,405 | | | 9,868 | | | (2,463) | | Finance leases | 8,925 | | | 7,974 | | | 951 | |
| Total leasing revenues | Total leasing revenues | 327,757 | | | 336,668 | | | (8,911) | | Total leasing revenues | 369,784 | | | 321,397 | | | 48,387 | |
| Equipment trading revenues | Equipment trading revenues | 26,094 | | | 25,796 | | | 298 | | Equipment trading revenues | 33,183 | | | 16,903 | | | 16,280 | |
Equipment trading expenses | Equipment trading expenses | (22,225) | | | (21,646) | | | (579) | | Equipment trading expenses | (22,457) | | | (14,883) | | | (7,574) | |
Trading margin | Trading margin | 3,869 | | | 4,150 | | | (281) | | Trading margin | 10,726 | | | 2,020 | | | 8,706 | |
| Net gain on sale of leasing equipment | Net gain on sale of leasing equipment | 10,737 | | | 6,196 | | | 4,541 | | Net gain on sale of leasing equipment | 31,391 | | | 4,537 | | | 26,854 | |
| | Operating expenses: | Operating expenses: | | Operating expenses: | |
Depreciation and amortization | Depreciation and amortization | 136,248 | | | 133,367 | | | 2,881 | | Depreciation and amortization | 154,056 | | | 133,292 | | | 20,764 | |
Direct operating expenses | Direct operating expenses | 25,992 | | | 20,457 | | | 5,535 | | Direct operating expenses | 6,337 | | | 29,619 | | | (23,282) | |
Administrative expenses | Administrative expenses | 21,395 | | | 18,496 | | | 2,899 | | Administrative expenses | 22,979 | | | 20,472 | | | 2,507 | |
| Provision (reversal) for doubtful accounts | Provision (reversal) for doubtful accounts | (45) | | | 126 | | | (171) | | Provision (reversal) for doubtful accounts | (26) | | | 374 | | | (400) | |
| Total operating expenses | Total operating expenses | 183,590 | | | 172,446 | | | 11,144 | | Total operating expenses | 183,346 | | | 183,757 | | | (411) | |
Operating income (loss) | Operating income (loss) | 158,773 | | | 174,568 | | | (15,795) | | Operating income (loss) | 228,555 | | | 144,197 | | | 84,358 | |
Other expenses: | Other expenses: | | Other expenses: | |
Interest and debt expense | Interest and debt expense | 62,776 | | | 77,401 | | | (14,625) | | Interest and debt expense | 60,004 | | | 66,874 | | | (6,870) | |
Realized (gain) loss on derivative instruments, net | — | | | (539) | | | 539 | | |
Unrealized (gain) loss on derivative instruments, net | — | | | 504 | | | (504) | | |
| Debt termination expense | Debt termination expense | 24,345 | | | 1,870 | | | 22,475 | | Debt termination expense | 89,863 | | | — | | | 89,863 | |
Other (income) expense, net | Other (income) expense, net | (631) | | | (116) | | | (515) | | Other (income) expense, net | (261) | | | 36 | | | (297) | |
Total other expenses | Total other expenses | 86,490 | | | 79,120 | | | 7,370 | | Total other expenses | 149,606 | | | 66,910 | | | 82,696 | |
Income (loss) before income taxes | Income (loss) before income taxes | 72,283 | | | 95,448 | | | (23,165) | | Income (loss) before income taxes | 78,949 | | | 77,287 | | | 1,662 | |
Income tax expense (benefit) | Income tax expense (benefit) | 15,825 | | | 4,845 | | | 10,980 | | Income tax expense (benefit) | 13,732 | | | 6,699 | | | 7,033 | |
Net income (loss) | Net income (loss) | $ | 56,458 | | | $ | 90,603 | | | $ | (34,145) | | Net income (loss) | $ | 65,217 | | | $ | 70,588 | | | $ | (5,371) | |
| Less: dividend on preferred shares | Less: dividend on preferred shares | 10,512 | | | 4,708 | | | 5,804 | | Less: dividend on preferred shares | 10,513 | | | 10,513 | | | — | |
Net income (loss) attributable to common shareholders | Net income (loss) attributable to common shareholders | $ | 45,946 | | | $ | 85,895 | | | $ | (39,949) | | Net income (loss) attributable to common shareholders | $ | 54,704 | | | $ | 60,075 | | | $ | (5,371) | |
Comparison of the three months ended SeptemberJune 30, 20202021 and 20192020
Leasing revenues. Per diem revenue represents revenue earned under operating lease contracts. Fee and ancillary lease revenue represents fees billed for the pick-up and drop-off of containers in certain geographic locations and billings of certain reimbursable operating costs such as repair and handling expenses. Finance lease revenue represents interest income earned under finance lease contracts. The following table summarizes our leasing revenue for the periods indicated below (in thousands):
| | | Three Months Ended September 30, | | | Variance | | Three Months Ended June 30, |
| | 2020 | | 2019 | | | Variance | 2021 | | 2020 | | Variance |
Leasing revenues: | Leasing revenues: | | | | | | | | | | |
Operating leases | Operating leases | | | | | Operating leases | | | | |
Per diem revenues | Per diem revenues | $ | 304,510 | | | $ | 311,199 | | | $ | (6,689) | | Per diem revenues | $ | 353,277 | | | $ | 294,748 | | | $ | 58,529 | |
Fee and ancillary revenues | Fee and ancillary revenues | 15,842 | | | 15,601 | | | 241 | | Fee and ancillary revenues | 7,582 | | | 18,675 | | | (11,093) | |
Total operating lease revenues | Total operating lease revenues | 320,352 | | | 326,800 | | | (6,448) | | Total operating lease revenues | 360,859 | | | 313,423 | | | 47,436 | |
Finance leases | Finance leases | 7,405 | | | 9,868 | | | (2,463) | | Finance leases | 8,925 | | | 7,974 | | | 951 | |
| Total leasing revenues | Total leasing revenues | $ | 327,757 | | | $ | 336,668 | | | $ | (8,911) | | Total leasing revenues | $ | 369,784 | | | $ | 321,397 | | | $ | 48,387 | |
Total leasing revenues were $327.8 million, net of lease intangible amortization of $5.4$369.8 million for the three months ended SeptemberJune 30, 2020,2021, compared to $336.7 million, net of lease intangible amortization of $8.7$321.4 million in the same period in 2019, a decrease2020, an increase of $8.9$48.4 million.
Per diem revenues were $304.5$353.3 million for the three months ended SeptemberJune 30, 20202021 compared to $311.2$294.7 million in the same period in 2019, a decrease2020, an increase of $6.7$58.6 million. The primary reasons for this decreaseincrease are as follows:
•$9.550.4 million decreaseincrease due to an increase of over 1.0 million CEU in the average number of units on-hire;
•$6.8 million increase primarily due to an increase in average per diem rates for our dry containers partially offset by a decrease in average per diem rates reflecting the impact of several large lease extension transactions at rates belowfor our portfolio average and the pick-up of a large number of containers in the third quarter of 2020 on lifecycle leases at rates below our portfolio average;refrigerated containers; and
•$3.9 million decrease due to a decrease in average units on-hire; partially offset by
•$3.4 million increase due to the reclassification of certain contracts from finance leases to operating leases in the first quarter of 2020 as a result of the renegotiation of the contracts and the elimination of purchase options; and
•$3.31.3 million increase due to a decrease in lease intangible amortization.
Fee and ancillary lease revenues were $15.8$7.6 million for the three months ended SeptemberJune 30, 20202021 compared to $15.6$18.7 million in the same period in 2019, an increase2020, a decrease of $0.2 million. The increase was$11.1 million, primarily due to an increase in pick-uplower drop-off activity.
Finance lease revenues were $7.4$8.9 million for the three months ended SeptemberJune 30, 20202021 compared to $9.9$8.0 million in the same period in 2019, a decrease2020, an increase of $2.5$0.9 million. The decreaseincrease was primarily due to the reclassificationaddition of certainseveral new finance leases to operating leases in the first quarter of 2020 as a result of the renegotiation of certain contracts andpartially offset by the runoff of the existing portfolio.
Trading margin. Trading margin was $3.9$10.7 million for the three months ended SeptemberJune 30, 20202021 compared to $4.2$2.0 million in the same period in 2019, a decrease2020, an increase of $0.3$8.7 million. The decreaseincrease was due to a decrease in per unit margins as a result of a decrease in selling prices, partially offset by an increase in sales volume.per container selling margins due to a significant increase in used container selling prices.
Net gain on sale of leasing equipment. Gain on sale of equipment was $10.7$31.4 million for the three months ended SeptemberJune 30, 20202021 compared to $6.2$4.5 million in the same period in 2019,2020, an increase of $4.5$26.9 million. The increase was primarily due to a 38.0%128.3% increase in the average sale price of our used dry containers. This increase was partially offset by a 41.9% decrease in sales volume due to very low container drop-off volumes and our limited inventory of used dry containers.containers available for sale.
Depreciation and amortization. Depreciation and amortization was $136.2$154.1 million for the three months ended SeptemberJune 30, 20202021 compared to $133.4$133.3 million in the same period in 2019,2020, an increase of $2.8$20.8 million. The primary reasons for the increase are as follows:
•$4.529.5 million increase due to the increased size of our container fleet; partially offset by
•$7.5 million decrease due to an increase in the number of new production units being placed on-hire; and
•$1.9 million increase due to the reclassification of certain contracts from finance leases to operating leases in the first quarter of 2020 as a result of the renegotiation of the contracts and the elimination of purchase options; partially offset by;
•$3.4 million decrease due to an increase in containers that have become fully depreciated or reclassified to assets held for sale.depreciated.
Direct operating expenses. Direct operating expenses primarily consist of our costs to repair equipment returned off lease, to store the equipment when it is not on lease and to reposition equipment from locations with weak leasing demand. Direct operating expenses were $26.0$6.3 million for the three months ended SeptemberJune 30, 20202021 compared to $20.5$29.6 million in the same period in 2019, an increase2020, a decrease of $5.5$23.3 million. The primary reasons for the increasedecrease are as follows:
•$2.612.2 million increasedecrease in storage expense due to an increaseresulting from a decrease in the number of idle units; and
•$2.17.9 million increasedecrease in repair and handling and repair expense primarily due to higher net pick-up andlower drop-off activity.
Administrative expenses. Administrative expenses were $21.4$23.0 million for the three months ended SeptemberJune 30, 20202021 compared to $18.5$20.5 million in the same period in 2019,2020, an increase of $2.9 million. The primary reasons for the increase are as follows:
•$3.3$2.5 million, increasewhich was primarily due to an increase in our annual incentive expense; andcompensation expense.
•
Provision (reversal) for doubtful accounts.$0.6 There was an immaterial reversal for doubtful accounts for the three months ended June 30, 2021, compared to a provision of $0.4 million increasein the same period in 2020. The decrease is primarily due to an increase in professional fees; partially offset by
•$0.9 million decrease in travel expense due to travel restrictions caused by the COVID-19 pandemic.lower reserves against customer receivables.
Interest and debt expense. Interest and debt expense was $62.8$60.0 million for the three months ended SeptemberJune 30, 2020,2021, compared to $77.4$66.9 million in the same period in 2019,2020, a decrease of $14.6$6.9 million. The primary reasons for the decrease are as follows:
•$7.5 million decrease due to a decrease in the average debt balance of $697.5 million; and
•$7.112.6 million decrease due to a decrease in the average effective interest rate to 3.79%3.20% from 4.22%.3.92%; partially offset by
•$5.9 million increase due to an increase in the average debt balance of $731.3 million.
Debt termination expense.Debt termination expense was $24.3$89.9 million for the three months ended SeptemberJune 30, 20202021 compared to $1.9 millionno expense in the same period in 2019, an increase of $22.4 million. This2020. The increase was primarily due to write-offs for unamortized debt and other coststhe payment of a make-whole premium related to the $1.8 billion prepayment of ABS$821.0 million of institutional notes in September 2020.June 2021.
Income taxes. Income tax expense was $15.8$13.7 million for the three months ended SeptemberJune 30, 20202021 compared to $4.8$6.7 million in the same period in 2019,2020, an increase in income tax expense of $11.0$7.0 million. ThePre-tax income in the second quarter of 2021 was relatively unchanged compared to the second quarter of 2020 due to a charge for a make-whole premium included in debt termination costs. However, a larger portion of pre-tax income was generated in higher tax jurisdictions which resulted in an increase to in income tax expense was primarily due to an $8.6 million increase related to an intra-company sale of assets from a U.S. entity to a foreign entity that occurred during the three months ended September 30, 2020.expense.
Results of Operations
The following table summarizes our comparative results of operations for the ninesix months ended SeptemberJune 30, 20202021 and September 30, 20192020 (in thousands).
| | | Nine Months Ended September 30, | | | Variance | | Six Months Ended June 30, |
| | 2020 | | 2019 | | | Variance | 2021 | | 2020 | | Variance |
Leasing revenues: | Leasing revenues: | | | | | | | | | | |
Operating leases | Operating leases | $ | 946,579 | | | $ | 985,592 | | | $ | (39,013) | | Operating leases | $ | 700,653 | | | $ | 626,227 | | | $ | 74,426 | |
Finance leases | Finance leases | 24,043 | | | 30,501 | | | (6,458) | | Finance leases | 15,874 | | | 16,638 | | | (764) | |
| Total leasing revenues | Total leasing revenues | 970,622 | | | 1,016,093 | | | (45,471) | | Total leasing revenues | 716,527 | | | 642,865 | | | 73,662 | |
| Equipment trading revenues | Equipment trading revenues | 58,377 | | | 66,833 | | | (8,456) | | Equipment trading revenues | 59,128 | | | 32,283 | | | 26,845 | |
Equipment trading expenses | Equipment trading expenses | (50,555) | | | (54,600) | | | 4,045 | | Equipment trading expenses | (40,261) | | | (28,330) | | | (11,931) | |
Trading margin | Trading margin | 7,822 | | | 12,233 | | | (4,411) | | Trading margin | 18,867 | | | 3,953 | | | 14,914 | |
| Net gain on sale of leasing equipment | Net gain on sale of leasing equipment | 19,351 | | | 22,184 | | | (2,833) | | Net gain on sale of leasing equipment | 53,358 | | | 8,614 | | | 44,744 | |
| | Operating expenses: | Operating expenses: | | | | | Operating expenses: | | | | |
Depreciation and amortization | Depreciation and amortization | 402,235 | | | 403,324 | | | (1,089) | | Depreciation and amortization | 297,363 | | | 265,987 | | | 31,376 | |
Direct operating expenses | Direct operating expenses | 78,859 | | | 55,356 | | | 23,503 | | Direct operating expenses | 15,707 | | | 52,867 | | | (37,160) | |
Administrative expenses | Administrative expenses | 61,092 | | | 56,671 | | | 4,421 | | Administrative expenses | 43,900 | | | 39,697 | | | 4,203 | |
| Provision (reversal) for doubtful accounts | Provision (reversal) for doubtful accounts | 4,608 | | | 505 | | | 4,103 | | Provision (reversal) for doubtful accounts | (2,490) | | | 4,653 | | | (7,143) | |
| Total operating expenses | Total operating expenses | 546,794 | | | 515,856 | | | 30,938 | | Total operating expenses | 354,480 | | | 363,204 | | | (8,724) | |
Operating income (loss) | Operating income (loss) | 451,001 | | | 534,654 | | | (83,653) | | Operating income (loss) | 434,272 | | | 292,228 | | | 142,044 | |
Other expenses: | Other expenses: | | | | | Other expenses: | | | | |
Interest and debt expense | Interest and debt expense | 198,652 | | | 243,181 | | | (44,529) | | Interest and debt expense | 114,627 | | | 135,876 | | | (21,249) | |
Realized (gain) loss on derivative instruments, net | (224) | | | (1,912) | | | 1,688 | | |
Unrealized (gain) loss on derivative instruments, net | 286 | | | 2,757 | | | (2,471) | | |
| Debt termination expense | Debt termination expense | 24,376 | | | 2,428 | | | 21,948 | | Debt termination expense | 89,863 | | | 31 | | | 89,832 | |
Other (income) expense, net | Other (income) expense, net | (4,241) | | | (2,047) | | | (2,194) | | Other (income) expense, net | (742) | | | (3,548) | | | 2,806 | |
Total other expenses | Total other expenses | 218,849 | | | 244,407 | | | (25,558) | | Total other expenses | 203,748 | | | 132,359 | | | 71,389 | |
Income (loss) before income taxes | Income (loss) before income taxes | 232,152 | | | 290,247 | | | (58,095) | | Income (loss) before income taxes | 230,524 | | | 159,869 | | | 70,655 | |
Income tax expense (benefit) | Income tax expense (benefit) | 28,070 | | | 20,737 | | | 7,333 | | Income tax expense (benefit) | 25,469 | | | 12,245 | | | 13,224 | |
Net income (loss) | Net income (loss) | $ | 204,082 | | | $ | 269,510 | | | $ | (65,428) | | Net income (loss) | $ | 205,055 | | | $ | 147,624 | | | $ | 57,431 | |
Less: income (loss) attributable to noncontrolling interest | — | | | 592 | | | (592) | | |
| Less: dividend on preferred shares | Less: dividend on preferred shares | 30,850 | | | 7,038 | | | 23,812 | | Less: dividend on preferred shares | 21,026 | | | 20,338 | | | 688 | |
Net income (loss) attributable to common shareholders | Net income (loss) attributable to common shareholders | $ | 173,232 | | | $ | 261,880 | | | $ | (88,648) | | Net income (loss) attributable to common shareholders | $ | 184,029 | | | $ | 127,286 | | | $ | 56,743 | |
Comparison of the ninesix months ended SeptemberJune 30, 20202021 and 20192020
Leasing revenues. Per diem revenue represents revenue earned under operating lease contracts. Fee and ancillary lease revenue represents fees billed for the pick-up and drop-off of containers in certain geographic locations and billings of certain reimbursable operating costs such as repair and handling expenses. Finance lease revenue represents interest income earned under finance lease contracts. The following table summarizes our leasing revenue for the periods indicated below (in thousands):
| | | Nine Months Ended September 30, | | | Variance | | Six Months Ended June 30, |
| | 2020 | | 2019 | | | Variance | 2021 | | 2020 | | Variance |
Leasing revenues: | Leasing revenues: | | | | | | | | | | |
Operating leases | Operating leases | | | | | Operating leases | | | | |
Per diem revenues | Per diem revenues | $ | 897,744 | | | $ | 938,593 | | | $ | (40,849) | | Per diem revenues | $ | 684,529 | | | $ | 593,234 | | | $ | 91,295 | |
Fee and ancillary revenues | Fee and ancillary revenues | 48,835 | | | 46,999 | | | 1,836 | | Fee and ancillary revenues | 16,124 | | | 32,993 | | | (16,869) | |
Total operating lease revenues | Total operating lease revenues | 946,579 | | | 985,592 | | | (39,013) | | Total operating lease revenues | 700,653 | | | 626,227 | | | 74,426 | |
Finance leases | Finance leases | 24,043 | | | 30,501 | | | (6,458) | | Finance leases | 15,874 | | | 16,638 | | | (764) | |
| Total leasing revenues | Total leasing revenues | $ | 970,622 | | | $ | 1,016,093 | | | $ | (45,471) | | Total leasing revenues | $ | 716,527 | | | $ | 642,865 | | | $ | 73,662 | |
Total leasing revenues were $970.6 million, net of lease intangible amortization of $17.3$716.5 million for the ninesix months ended SeptemberJune 30, 2020,2021, compared to $1,016.1 million, net of lease intangible amortization of $29.4$642.9 million, in the same period in 2019, a decrease2020, an increase of $45.5$73.6 million.
Per diem revenues were $897.7$684.5 million for the ninesix months ended SeptemberJune 30, 20202021 compared to $938.6$593.2 million in the same period in 2019, a decrease2020, an increase of $40.9$91.3 million. The primary reasons for this decreaseincrease are as follows:
•$34.383.2 million decreaseincrease due to a decreasean increase of over 0.8 million CEU in the average number of units on-hire; and
•$27.85.2 million decreaseincrease primarily due to an increase in average per diem rates for our dry containers partially offset by a decrease in average per diem rates reflecting the impact of several large lease extension transactionsfor our refrigerated containers; and the pick-up of a large number of containers in the third quarter of 2020 on lifecycle leases at rates below our portfolio average; partially offset by
•$12.12.9 million increase due to a decrease in lease intangible amortization; and
•$9.1 million increase due to the reclassification of certain contracts from finance leases to operating leases in the first quarter of 2020 as a result of the renegotiation of the contracts and the elimination of purchase options.amortization.
Fee and ancillary lease revenues were $48.8$16.1 million for the ninesix months ended SeptemberJune 30, 20202021 compared to $47.0$33.0 million in the same period in 2019, an increase2020, a decrease of $1.8 million. The increase was$16.9 million, primarily due to an increase in pick-up activity in the third quarter of 2020.lower drop-off activity.
Finance lease revenues were $24.0$15.9 million for the ninesix months ended SeptemberJune 30, 20202021 compared to $30.5$16.6 million in the same period in 2019,2020, a decrease of $6.5$0.7 million. TheThis decrease wasis primarily due to the reclassification of certain finance leases to operating leases in the first quarter of 2020 as a result of the renegotiation of certain contracts and the runoffamortization of the existing portfolio.portfolio, largely offset by the addition of several new finance leases.
Trading margin. Trading margin was $7.8$18.9 million for the ninesix months ended SeptemberJune 30, 20202021 compared to $12.2$4.0 million in the same period in 2019, a decrease2020, an increase of $4.4$14.9 million. The decreaseincrease was due to a decreasean increase in per unitcontainer selling margins asdue to a result of a decreasesignificant increase in used container selling prices.
Net gain (loss) on sale of leasing equipment. Gain on sale of equipment was $19.4$53.4 million for the ninesix months ended SeptemberJune 30, 20202021 compared to $22.2$8.6 million in the same period in 2019, a decrease2020, an increase of $2.8$44.8 million. The primary reasons for the decrease are as follows:
•$2.1 million decreaseincrease was primarily due to a 5.0% decrease110.1% increase in the average sale price of our used dry container selling prices,containers, partially offset by a 20.3% increase44.5% decrease in selling volumes; and
•$1.5 million decreasesales volume due to a gain recognized in the first quartervery low container drop-off volumes and our limited inventory of 2019 related to units declared lost by a customer which did not reoccur in 2020.containers available for sale.
Depreciation and amortization. Depreciation and amortization was $402.2$297.4 million for the ninesix months ended SeptemberJune 30, 20202021 compared to $403.3$266.0 million in the same period in 2019, a decrease2020, an increase of $1.1$31.4 million. The primary reasons for the decreaseincrease are as follows:
•$16.748.6 million decreaseincrease due to an increase in containers that have become fully depreciated or reclassified to assets held for sale;the increased size of our container fleet; partially offset by
•$10.115.0 million increasedecrease due to an increase in the number of new production units being placed on-hire; and
•$5.1 million increase due to the reclassification of certain contracts from finance leases to operating leases in the first quarter of 2020 as a result of the renegotiation of the contracts and the elimination of purchase options.containers that have become fully depreciated.
Direct operating expenses. Direct operating expenses primarily consist of our costs to repair equipment returned off lease, to store the equipment when it is not on lease and to reposition equipment from locations with weak leasing demand. Direct operating expenses were $78.9$15.7 million for the ninesix months ended SeptemberJune 30, 20202021 compared to $55.4$52.9 million in the same period in 2019, an increase2020, a decrease of $23.5$37.2 million. The primary reasons for the increasedecrease are as follows:
•$15.022.4 million increasedecrease in storage expense due to an increaseresulting from a decrease in the number of idle units; and
•$5.212.0 million increasedecrease in repair and handling expense primarily due to higher net pick-up andlower drop-off activity; andactivity.
•
$2.8 million increase in positioning expense due to customer pick-up requirements from specific locations.
Administrative expenses. Administrative expenses were $61.1$43.9 million for the ninesix months ended SeptemberJune 30, 20202021 compared to $56.7$39.7 million in the same period in 2019,2020, an increase of $4.4 million. The primary reasons for this increase are as follows:
•$3.5$4.2 million, increasewhich was primarily due to an increase in our annual incentive expense;
•$2.2 million increase due to an increase in professional fees;
•$1.4 million increase due to higher compensation costs; and
•$0.6 million increase due to an increase in share-based compensation; partially offset by
•$2.1 million decrease in travel expense due to travel restrictions caused by the COVID-19 pandemic.expense.
Provision (reversal) for doubtful accounts. ProvisionThere was a reversal for doubtful accounts was $4.6of $2.5 million for the ninesix months ended SeptemberJune 30, 20202021 compared to $0.5a provision of $4.7 million in the same period in 2019, an increase2020, a decrease of $4.1$7.2 million. The increase is primarily due toWe reversed reserves in the first quarter of 2021 which were recorded in the first quarter of 2020last year against the receivables from one of oura mid-sized customers where we had been experiencing extended payment delays.customer's receivable.
Interest and debt expense. Interest and debt expense was $198.7$114.6 million for the ninesix months ended SeptemberJune 30, 2020,2021, compared to $243.2$135.9 million in the same period in 2019,2020, a decrease of $44.5$21.3 million. The primary reasons for the decrease are as follows:
•$26.0 million decrease due to a decrease in the average debt balance of $784.5 million; and
•$19.427.7 million decrease due to a decrease in the average effective interest rate to 3.97%3.25% from 4.35%.4.05%; partially offset by
•$6.8 million increase due to an increase in the average debt balance of $418.5 million.
Debt termination expense.Debt termination expense was $24.4$89.9 million for the ninesix months ended SeptemberJune 30, 20202021 compared to $2.4 millionan immaterial amount in the same period in 2019, an increase of $22.0 million.2020. The increase was primarily due to write-offs for unamortized debt and other coststhe payment of a make-whole premium related to the $1.8 billion prepayment of ABS$821.0 million of institutional notes in September 2020.June 2021.
Income taxes. Income tax expense was $28.1$25.5 million for the ninesix months ended SeptemberJune 30, 20202021 compared to $20.7$12.2 million in the same period in 2019,2020, an increase in income tax expense of $7.4$13.3 million. The increase in income tax expense was primarily due to an $8.6 million increase related to an intra-company asset sale from a U.S. entity to foreign entity that occurred during the nine months ended September 30, 2020, partially offset by a decrease in taxes as a result of decreasean increase in pre-tax income.income and an increase in the portion of income generated in higher tax jurisdictions.
Contractual Obligations
We are party to various operating and finance leases and are obligated to make payments related to our borrowings. We are also obligated under various commercial commitments, including obligations to our equipment manufacturers. Our equipment manufacturer obligations are in the form of conventional accounts payable, and are satisfied by cash flows from operations and financing activities.
The following table summarizes our contractual obligations and commercial commitments as of SeptemberJune 30, 2020:2021 and the effect such obligations are expected to have on our liquidity and cash flows in future periods:
| | | Contractual Obligations by Period | | | Contractual Obligations by Period |
Contractual Obligations: | Contractual Obligations: | Total | | Remaining 2020 | | 2021 | | 2022 | | 2023 | | 2024 | | 2025 and thereafter | Contractual Obligations: | Total | | Remaining 2021 | | 2022 | | 2023 | | 2024 | | 2025 | | 2026 and thereafter |
| | (dollars in millions) | | | (dollars in millions) |
Principal debt obligations | Principal debt obligations | $ | 6,452.0 | | | $ | 138.0 | | | $ | 659.1 | | | $ | 735.7 | | | $ | 1,553.6 | | | $ | 1,330.0 | | | $ | 2,035.6 | | Principal debt obligations | $ | 7,688.6 | | | $ | 295.0 | | | $ | 662.5 | | | $ | 858.1 | | | $ | 1,885.1 | | | $ | 386.3 | | | $ | 3,601.6 | |
Interest on debt obligations(1) | Interest on debt obligations(1) | 838.8 | | | 51.7 | | | 193.1 | | | 168.2 | | | 139.9 | | | 94.2 | | | 191.7 | | Interest on debt obligations(1) | 963.9 | | | 103.5 | | | 190.9 | | | 168.0 | | | 130.7 | | | 103.6 | | | 267.2 | |
Finance lease obligations(2) | Finance lease obligations(2) | 19.9 | | | 0.8 | | | 3.1 | | | 3.1 | | | 3.1 | | | 9.8 | | | — | | Finance lease obligations(2) | 16.7 | | | 1.5 | | | 15.2 | | | — | | | — | | | — | | | — | |
Operating leases (mainly facilities) | Operating leases (mainly facilities) | 7.3 | | | 0.7 | | | 2.9 | | | 2.2 | | | 1.4 | | | 0.1 | | | — | | Operating leases (mainly facilities) | 7.9 | | | 1.8 | | | 3.5 | | | 2.1 | | | 0.4 | | | 0.1 | | | — | |
Purchase obligations: | Purchase obligations: | | | | | | | | | | | | Purchase obligations: | | | | | | | | | | | |
Equipment purchases payable | Equipment purchases payable | 96.8 | | | 96.8 | | | — | | | — | | | — | | | — | | | — | | Equipment purchases payable | 411.5 | | | 411.5 | | | — | | | — | | | — | | | — | | | — | |
Equipment purchase commitments | Equipment purchase commitments | 552.8 | | | 352.8 | | | 200.0 | | | — | | | — | | | — | | | — | | Equipment purchase commitments | 1,138.6 | | | 1,138.6 | | | — | | | — | | | — | | | — | | | — | |
| Total contractual obligations | Total contractual obligations | $ | 7,967.6 | | | $ | 640.8 | | | $ | 1,058.2 | | | $ | 909.2 | | | $ | 1,698.0 | | | $ | 1,434.1 | | | $ | 2,227.3 | | Total contractual obligations | $ | 10,219.3 | | | $ | 1,950.1 | | | $ | 868.6 | | | $ | 1,026.1 | | | $ | 2,015.8 | | | $ | 489.9 | | | $ | 3,868.8 | |
(1)Amounts include actual interest for fixed debt, estimated interest for floating-rate debt and interest rate swaps which are in a payable position based on SeptemberJune 30, 20202021 rates.
(2)Amounts include interest.
Off-Balance Sheet Arrangements
As of SeptemberJune 30, 2020,2021, we did not have any relationships with unconsolidated entities or financial partnerships, which are often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements. We are, therefore, not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.
Critical Accounting Policies
Our consolidated financial statements have been prepared in conformity with GAAP, which requires us to make estimates and assumptions that affect the amounts and disclosures reported in the consolidated financial statements and accompanying notes. We base our estimates and judgments on historical experience and on various other assumptions that we believe are reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions. Our critical accounting policies are discussed in our Form 10-K.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss to future earnings, values or cash flows that may result from changes in the price of a financial instrument. The fair value of a financial instrument, derivative or non-derivative, might change as a result of changes in interest rates, exchange rates, commodity prices, equity prices and other market changes. We have operations internationally and we are exposed to market risks in the ordinary course of our business. These risks include interest rate and foreign currency exchange rate risks.
Interest Rate Risk
We enter into derivative agreements to fix the interest rates on a portion of our floating-rate debt. We assess and manage the external and internal risk associated with these derivative instruments in accordance with our overall operating goals. External risk is defined as those risks outside of our direct control, including counterparty credit risk, liquidity risk, systemic risk and legal risk. Internal risk relates to those operational risks within the management oversight structure and includes actions taken in contravention of our policies.
The primary external risk of our derivative agreements is counterparty credit exposure, which is defined as the ability of a counterparty to perform its financial obligations under the agreement. All of our derivative agreements are with highly-rated financial institutions. Credit exposures are measured based on the market value of outstanding derivative instruments. BothIn order to monitor counterparty credit exposure, both current and potential exposures are calculated for each derivative agreement to monitor counterparty credit exposure.calculated.
As of SeptemberJune 30, 2020,2021, we had derivative agreements in place to fix interest rates on a portion of our borrowings under debt facilities with floating interest rates as summarized below:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Derivatives | | Notional Amount | | Weighted Average Fixed Leg (Pay) Interest Rate | | Cap Rate | | Weighted Average Remaining Term |
Interest Rate Swap(1) | | $1,805.61,671.5 Million | | 2.00%2.02% | | n/a | | 5.14.6 years |
Interest Rate Cap | | $200.0400.0 Million | | n/a | | 5.5% | | 1.32.4 years |
(1) The impact of forward starting swaps with total notional amount of $350.0 million will increase the weighted average remaining term to 6.15.6 years.
Our derivative agreements are designated as cash flow hedges for accounting purposes. Any unrealized gains or losses related to the changes in fair value are recognized in accumulated other comprehensive income and reclassified to interest and debt expense as they are realized. As of SeptemberJune 30, 2020,2021, we do not have any material non-designated derivatives. Previously,Prior to the third quarter of 2020, a portion of our swap portfolio was not designated and unrealized and realized changes in the fair value of non-designated derivativethese agreements were recognized in the consolidated statements of operations as unrealized (gain) loss on derivative instruments, net and reclassified to realized (gain) loss on derivative instruments, net as they were realized.other (income) expense, net.
Approximately 90%96% of our debt is either fixed or hedged using derivative instruments which helps mitigate the impact of changes in short-term interest rates. However, aA 100 basis point increase in the interest rates on our unhedged debt (primarily LIBOR) would result in an increase of approximately $6.3$3.0 million in interest expense over the next 12 months.
Foreign currency exchange rate risk
Although we have significant foreign-based operations, the majority of our revenues and our operating expenses are denominated in U.S. dollars. However, we pay our non-U.S. employees in local currencies and certain operating expenses are denominated in foreign currencies. Net foreign currency exchange gains and losses were immaterial for the three and ninesix months ended SeptemberJune 30, 20202021 and 2019.2020.
ITEM 4. CONTROLS AND PROCEDURES.
Our senior management has evaluated the effectiveness and design of our disclosure controls and procedures (as defined under Rules 13a-15(e) and 15d-15(e)), as of SeptemberJune 30, 2020.2021. Based upon their evaluation of these disclosure controls and procedures, our Chief Executive Officer and our Senior Vice President and Chief Financial Officer concluded, as of SeptemberJune 30, 2020,2021, that our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the three and nine months ended SeptemberJune 30, 2020,2021, which have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II—OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
From time to time, we are a party to litigation matters arising in connection with the normal course of our business. While we cannot predict the outcome of these matters, in the opinion of our management, based on information presently available to us, we believe that we have adequate legal defenses, reserves or insurance coverage and any liability arising from these matters will not have a material adverse effect on our business. Nevertheless, unexpected adverse future events, such as an unforeseen development in our existing proceedings, a significant increase in the number of new cases or changes in our current insurance arrangements could result in liabilities that have a material adverse impact on our business.
ITEM 1A. RISK FACTORS.
In additionFor detailed discussion of our risk factors, refer to the other information set forth in this report, you should carefully consider the factors discussed in Part I, "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2019 (the "Form 10-K"), which could materially affect our business, financial condition or future results. The risk factor below updates those set forth in Part I, Item 1A, of the Form 10-K. The risks described in this report and in the Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results.
The continued spread of the COVID-19 pandemic may have a material adverse impact on our business, financial condition and results of operations.
The ongoing COVID-19 pandemic has resulted in a significant impact to businesses and supply chains globally. The imposition of work, social and travel restrictions, as well as other actions by government authorities to contain the outbreak, led to a significant decline in the global economy in the first half of 2020, including extended shutdowns of certain businesses, lower factory production, reduced volumes of global exports and disruptions in global shipping. This led to reduced container demand, which pressured container lease rates in the first half of the year, and increased the credit risk profile of our shipping line customers. Following the easing of measures to contain the spread of the pandemic and the initial reopening of businesses, trade volumes and container demand recovered strongly in the third quarter.However, many countries are seeing a resurgence in COVID-19 cases and there continues to be a high degree of risk and uncertainty with respect to the outlook for global economic conditions, global trade and container demand.
Risks associated with the COVID-19 pandemic on the Company include, but are not limited to:
•an increase in credit concerns relating to our shipping line customers in the event that they face reduced demand, operational disruptions and increased costs relating to the pandemic, including the risk of bankruptcy or significant payment defaults or delays;
•reduced demand for containers and increased pressure on lease rates;
•reduced demand for sale of containers;
•operational issues that could prevent our containers from being discharged or picked up in affected areas or in other locations after having visited affected areas for a prolonged period of time;
•business continuity risks associated with remote working arrangements adopted during the pandemic, including increased cybersecurity risks, internet capacity constraints or other systems problems, and unanticipated difficulties or delays in our financial reporting processes;
•liquidity risks, including that disruptions in financial markets as a result of the pandemic may increase the cost and availability of capital, and the risk of non-compliance with financial covenants in debt agreements;
•potential impacts on key management, including health impacts and distraction caused by the pandemic response; and
•potential impacts on business relationships due to prolonged restrictions on travel.
The magnitude of the COVID-19 pandemic, including the extent of any impact on our business, financial position, results of operations or liquidity, which could be material, cannot be reasonably determined at this time due to the rapid development and fluidity of the situation. The effects of the pandemic on our business will depend on its duration and severity, whether business disruptions will continue and the overall impact on the global economy.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Share Repurchase Program
The following table provides certain information with respect to the Company's purchases of its common shares duringDuring the three months ended SeptemberJune 30, 2020:
| | | | | | | | | | | | | | | | | | | |
| Issuer Purchases of Common Shares(1) | | | | | | |
Period | Total number of shares purchased(2) | | Average price paid per share | | | | Approximate dollar value of shares that may yet be purchased under the plan (in thousands) |
July 1, 2020 through July 31, 2020 | 285,719 | | | $ | 29.84 | | | | | $ | 155,474 | |
August 1, 2020 through August 31, 2020 | 70,989 | | | $ | 31.81 | | | | | $ | 153,215 | |
September 1, 2020 through September 30, 2020 | — | | | $ | — | | | | | $ | 153,215 | |
Total | 356,708 | | | $ | 30.23 | | | | | $ | 153,215 | |
(1)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 by2021, the Company to repurchasemade no repurchases of its common or preferred shares. As of June 30, 2021, the Company has $102.1 million remaining under the current authorization.
(2)This column represents the total number of shares purchased and the total number of shares purchased as part of publicly announced plans.
ITEM 6. EXHIBITS.
| | | | | | | | |
Exhibit Number | | Exhibit Description |
| | Amended and Restated Bye-Laws of Triton International Limited. |
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| | Indenture,Term Loan Agreement, dated September 21, 2020, betweenas of May 27, 2021, by and among Triton Container Finance VIII LLCInternational Limited, as Borrower, various lenders, and Wilmington Trust,PNC Bank, National Association, as indenture trustee (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed September 21, 2020) |
| | Series 2020-1 Supplement, dated September 21, 2020, between Triton Container Finance VIII LLCa lender and Wilmington Trust, National Association, as indenture trustee (incorporated by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K filed September 21, 2020)Administrative Agent |
| | Certification of the Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended |
| | Certification of the Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended |
| | Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350 |
| | Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350 |
101.INS | | XBRL Instance Document - the instance document does not appear on the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
101.SCH | | XBRL Instance Extension Schema |
101.CAL | | XBRL Taxonomy Extension Calculation Linkbase |
101.DEF | | XBRL Taxonomy Extension Definition Linkbase |
101.LAB | | XBRL Taxonomy Extension Label Linkbase |
101.PRE | | XBRL Taxonomy Extension Presentation Linkbase |
104 | | Cover Page Inline XBRL Data (formatted as Inline XBRL and contained in Exhibit 101) |
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* | Filed herewith. |
** | Furnished herewith. |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| TRITON INTERNATIONAL LIMITED | |
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October 23, 2020July 27, 2021 | By: | /s/ JOHN BURNS |
| | John Burns |
| | Chief Financial Officer |