ITEM 1. FINANCIAL STATEMENTS
TRITON INTERNATIONAL LIMITED
Consolidated Balance Sheets
(In thousands, except share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
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March 31,
2018
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|
December 31,
2017
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ASSETS:
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|
|
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Leasing equipment, net of accumulated depreciation of $2,329,870 and $2,218,897
|
$
|
8,439,971
|
|
|
$
|
8,364,484
|
|
Net investment in finance leases
|
286,358
|
|
|
295,891
|
|
Equipment held for sale
|
42,690
|
|
|
43,195
|
|
Revenue earning assets
|
8,769,019
|
|
|
8,703,570
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Cash and cash equivalents
|
118,272
|
|
|
132,031
|
|
Restricted cash
|
128,720
|
|
|
94,140
|
|
Accounts receivable, net of allowances of $2,873 and $3,002
|
199,297
|
|
|
199,876
|
|
Goodwill
|
236,665
|
|
|
236,665
|
|
Lease intangibles, net of accumulated amortization of $161,641 and $144,081
|
136,816
|
|
|
154,376
|
|
Other assets
|
69,495
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|
|
49,591
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Fair value of derivative instruments
|
22,662
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|
|
7,376
|
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Total assets
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$
|
9,680,946
|
|
|
$
|
9,577,625
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY:
|
|
|
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Equipment purchases payable
|
$
|
125,978
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|
|
$
|
128,133
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|
Fair value of derivative instruments
|
—
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|
|
2,503
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Accounts payable and other accrued expenses
|
109,657
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|
109,999
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Net deferred income tax liability
|
227,727
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|
|
215,439
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Debt, net of unamortized debt costs of $42,982 and $40,636
|
6,952,815
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|
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6,911,725
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Total liabilities
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7,416,177
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|
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7,367,799
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Shareholders' equity:
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|
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Common shares, $0.01 par value, 294,000,000 shares authorized, 80,815,752 and 80,687,757 shares issued and outstanding, respectively
|
808
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|
|
807
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|
Undesignated shares, $0.01 par value, 6,000,000 shares authorized, no shares issued and outstanding
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—
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|
|
—
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Additional paid-in capital
|
890,857
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|
|
889,168
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Accumulated earnings
|
1,206,848
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1,159,367
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Accumulated other comprehensive income
|
34,992
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|
|
26,942
|
|
Total shareholders' equity
|
2,133,505
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|
|
2,076,284
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Non-controlling interests
|
131,264
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|
133,542
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Total equity
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2,264,769
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|
|
2,209,826
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Total liabilities and equity
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$
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9,680,946
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$
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9,577,625
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The accompanying Notes to the Unaudited Consolidated Financial Statements are an integral part of these statements.
TRITON INTERNATIONAL LIMITED
Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
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Three Months Ended March 31,
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2018
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2017
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Leasing revenues:
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Operating leases
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$
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310,231
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$
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259,585
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Finance leases
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4,866
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|
6,017
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Total leasing revenues
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315,097
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265,602
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|
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Equipment trading revenues
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13,375
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|
5,484
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Equipment trading expenses
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(10,384
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)
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(5,092
|
)
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Trading margin
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2,991
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|
392
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|
|
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Net gain on sale of leasing equipment
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9,218
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5,161
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Operating expenses:
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Depreciation and amortization
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130,433
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|
117,880
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Direct operating expenses
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11,048
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21,954
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Administrative expenses
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19,582
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22,967
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Transaction and other (income) costs
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(29
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)
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2,472
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|
(Benefit) provision for doubtful accounts
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(101
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)
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|
574
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Total operating expenses
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160,933
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|
165,847
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Operating income
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166,373
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|
105,308
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Other expenses:
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Interest and debt expense
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75,098
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63,504
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Realized (gain) loss on derivative instruments, net
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(248
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)
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|
599
|
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Unrealized gain on derivative instruments, net
|
(1,186
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)
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(1,498
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)
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Other income, net
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(659
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)
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(742
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)
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Total other expenses
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73,005
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61,863
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Income before income taxes
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93,368
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43,445
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Income tax expense
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10,503
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|
7,142
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Net income
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$
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82,865
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|
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$
|
36,303
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Less: income attributable to noncontrolling interest
|
1,973
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|
|
1,692
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Net income attributable to shareholders
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$
|
80,892
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|
|
$
|
34,611
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Net income per common share—Basic
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$
|
1.01
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|
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$
|
0.47
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Net income per common share—Diluted
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$
|
1.00
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$
|
0.47
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Cash dividends paid per common share
|
$
|
0.45
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|
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$
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0.45
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Weighted average number of common shares outstanding—Basic
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79,968
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|
73,741
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Dilutive restricted shares and share options
|
604
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|
292
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Weighted average number of common shares outstanding—Diluted
|
80,572
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|
74,033
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|
The accompanying Notes to the Unaudited Consolidated Financial Statements are an integral part of these statements.
TRITON INTERNATIONAL LIMITED
Consolidated Statements of Comprehensive Income
(In thousands)
(Unaudited)
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Three Months Ended March 31,
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|
2018
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|
2017
|
Net income
|
$
|
82,865
|
|
|
$
|
36,303
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|
Other comprehensive income:
|
|
|
|
Change in fair value of derivative instruments designated as cash flow hedges (net of income tax effect of $3,354 and $258)
|
12,459
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|
432
|
|
Reclassification of (gain) loss on interest rate swap agreements designated as cash flow hedges (net of income tax effect of $(352) and $257)
|
(1,472
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)
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|
510
|
|
Tax reclassification to accumulated earnings for the adoption of ASU 2018-02
|
(3,029
|
)
|
|
—
|
|
Foreign currency translation adjustment
|
92
|
|
|
(3
|
)
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Other comprehensive income, net of tax
|
8,050
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|
|
939
|
|
Comprehensive income
|
90,915
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|
37,242
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|
Less: Comprehensive income attributable to noncontrolling interest
|
1,973
|
|
|
1,692
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Comprehensive income attributable to shareholders
|
$
|
88,942
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|
|
$
|
35,550
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|
The accompanying Notes to the Unaudited Consolidated Financial Statements are an integral part of these statements.
TRITON INTERNATIONAL LIMITED
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
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|
|
|
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Three Months Ended March 31,
|
|
2018
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|
2017
|
Cash flows from operating activities:
|
|
|
|
Net income
|
$
|
82,865
|
|
|
$
|
36,303
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
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|
Depreciation and amortization
|
130,433
|
|
|
117,880
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|
Amortization of deferred financing costs and other debt related amortization
|
3,113
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|
|
2,490
|
|
Lease related amortization
|
18,166
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|
|
24,138
|
|
Share-based compensation expense
|
2,512
|
|
|
1,057
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|
Net (gain) on sale of leasing equipment
|
(9,218
|
)
|
|
(5,161
|
)
|
Unrealized (gain) on derivative instruments
|
(1,186
|
)
|
|
(1,498
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)
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Deferred income taxes
|
9,301
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|
|
6,593
|
|
Changes in operating assets and liabilities:
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|
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Accounts receivable
|
(1,071
|
)
|
|
(6,269
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)
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Accounts payable and other accrued expenses
|
844
|
|
|
(3,978
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)
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Net equipment sold for resale activity
|
(5,185
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)
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|
(8,893
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)
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Other assets
|
890
|
|
|
279
|
|
Net cash provided by operating activities
|
231,464
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|
|
162,941
|
|
Cash flows from investing activities:
|
|
|
|
Purchases of leasing equipment and investments in finance leases
|
(258,668
|
)
|
|
(265,706
|
)
|
Proceeds from sale of equipment, net of selling costs
|
38,885
|
|
|
34,988
|
|
Cash collections on finance lease receivables, net of income earned
|
14,771
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|
|
15,580
|
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Other
|
55
|
|
|
(405
|
)
|
Net cash used in investing activities
|
(204,957
|
)
|
|
(215,543
|
)
|
Cash flows from financing activities:
|
|
|
|
Redemption of common shares for withholding taxes
|
(822
|
)
|
|
—
|
|
Debt issuance costs
|
(4,976
|
)
|
|
(7,517
|
)
|
Borrowings under debt facilities
|
510,210
|
|
|
388,253
|
|
Payments under debt facilities and capital lease obligations
|
(469,841
|
)
|
|
(260,475
|
)
|
Dividends paid
|
(36,008
|
)
|
|
(33,183
|
)
|
Distributions to noncontrolling interest
|
(4,249
|
)
|
|
(4,898
|
)
|
Net cash (used in) provided by financing activities
|
(5,686
|
)
|
|
82,180
|
|
Net increase in cash, cash equivalents and restricted cash
|
$
|
20,821
|
|
|
$
|
29,578
|
|
Cash, cash equivalents and restricted cash, beginning of period
|
226,171
|
|
|
163,492
|
|
Cash, cash equivalents and restricted cash, end of period
|
$
|
246,992
|
|
|
$
|
193,070
|
|
Supplemental disclosures:
|
|
|
|
Interest paid
|
$
|
56,571
|
|
|
$
|
49,043
|
|
Supplemental non-cash investing activities:
|
|
|
|
Equipment purchases payable
|
$
|
125,978
|
|
|
$
|
200,728
|
|
The accompanying Notes to the Unaudited Consolidated Financial Statements are an integral part of these statements.
TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1—Description of the Business and Significant Accounting Policies
Description of the Business
Triton International Limited ("Triton" or the "Company"), through its subsidiaries, leases intermodal transportation equipment, primarily maritime containers, and provides maritime container management services through a worldwide network of service subsidiaries, third-party depots and other facilities. The majority of the Company's business is derived from leasing its containers to shipping line customers through a variety of long-term and short-term contractual lease arrangements. The Company also sells containers from its equipment leasing fleet as well as containers specifically acquired for resale from third parties. The Company's registered office is located in Bermuda.
Basis of Presentation
The unaudited consolidated financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these financial statements do not include all information and footnotes required by GAAP for complete financial statements.
The interim consolidated balance sheet as of
March 31, 2018
, the consolidated statements of operations, the consolidated statements of comprehensive income and the consolidated statements of cash flows for the
three
months ended
March 31, 2018
and
2017
are unaudited. The consolidated balance sheet as of
December 31, 2017
, included herein, was derived from the audited financial statements as of that date, but does not include all disclosures required by GAAP. These 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 as of
March 31, 2018
and its consolidated results of operations, comprehensive income and cash flows for the
three
months ended
March 31, 2018
and
2017
. The financial data and the other financial information disclosed in the notes to the financial statements related to these periods are also unaudited. The results of operations for the
three
months ended
March 31, 2018
are not necessarily indicative of the results to be expected for the fiscal year ending
December 31, 2018
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, 2017
included in the Company’s Annual Report on Form 10-K which was filed with the SEC on
February 27, 2018
. 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 U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the reported amounts of revenues and expenses during the reporting period 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, residual values, depreciable lives, values of assets held for sale and other long lived assets, estimates related to insurance claims, the allowance for doubtful accounts, and acquired goodwill and intangible assets. Actual results could differ from those estimates.
Concentration of Credit Risk
The Company's equipment leases and trade receivables subject it to potential credit risk. The Company extends credit to its customers based upon an evaluation of each customer's financial condition and credit history. Evaluations of the financial condition and associated credit risk of customers are performed on an ongoing basis. The Company's two largest customers CMA CGM S.A. and MSC Mediterranean Shipping Company S.A., accounted for
19.7%
and
14.1%
, respectively, of the Company's lease billings during the
three
months ended
March 31, 2018
.
TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
New Accounting Pronouncements
Recently Adopted Accounting Standards Updates
In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606), amending previous updates regarding this topic. Leasing revenue recognition is specifically excluded from this ASU, and therefore, the new standard only applied to equipment trading revenues and sales of leasing equipment. The adoption of this ASU had minimal impact on the Company since the majority of its sales contracts are for containers and do not contain multiple elements. The standard allows for either “full retrospective” adoption, meaning the standard is applied to all of the periods presented, or “modified retrospective” adoption, meaning the standard is applied only to the most current period presented in the financial statements. The Company adopted the standard on January 1, 2018, using the modified retrospective approach. The adoption of Topic 606 did not impact its leasing revenue recognition model because, as noted above, leasing revenue recognition, including ancillary fees, is specifically excluded from this ASU.
The Company has assessed the requirements of the new revenue standard with respect to its equipment trading revenue and sales of leasing equipment and has concluded that the timing and amount of recognition was not materially affected based on the fact that there generally are no long-term contracts, multiple element arrangements, or significant customer acquisition costs related to these revenue streams. The Company also considered the requirement to present disaggregated revenue for its equipment trading revenue and sales of leasing equipment upon the adoption of Topic 606. The Company currently presents these revenue items separately in its statement of operations. As a result, the Company has concluded that the adoption of Topic 606 does not have a significant impact on either the timing of its revenue recognition or manner of presentation.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230):
Classification of Certain Receipts and Cash Payments
. The updated amendment provides guidance as to where certain cash flow items are presented, including debt prepayment or debt extinguishment costs and proceeds from the settlement of insurance claims. The Company adopted the standard on January 1, 2018. The adoption of this ASU did not have an impact on the consolidated financial statements since none of the cash flows items specified in the guidance are currently presented in the Company's consolidated statement of cash flows.
In October 2016, the FASB issued ASU No. 2016-16, Accounting for Income Taxes (Topic 740)
: Intra-Entity Transfers of Assets Other than Inventory
. The ASU eliminates the deferral of the tax effects of intra-entity asset transfers other than inventory. As a result, the tax expense from the intercompany sale of assets, other than inventory, and associated changes to deferred taxes will be recognized when the sale occurs even though the pre-tax effects of the transaction have not been recognized. The Company adopted the standard on January 1, 2018. The adoption of this ASU did not have a significant impact on its consolidated financial statements.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230):
Restricted Cash
. The amendments in this ASU require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. As a result, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments do not provide a definition of restricted cash or restricted cash equivalents. The Company adopted this guidance on January 1, 2018 using the retrospective approach. Upon adoption, the Company recorded an increase of
$7.3 million
in net cash provided by financing activities for the
three
months ended
March 31, 2017
related to presentation changes of its restricted cash balance from financing activities to the cash, cash equivalents and restricted cash balance within the consolidated statements of cash flows.
In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718):
Scope of Modification Accounting.
ASU 2017-09 provides clarification on when modification accounting should be used for changes to the terms or conditions of a share-based payment award. This ASU does not change the accounting for modifications but clarifies that modification accounting guidance should only be applied if there is a change to the value, vesting conditions, or award classification and would not be required if the changes are considered non-substantive. The Company adopted the standard on January 1, 2018 on a prospective basis. The adoption of this ASU did not have an impact on the consolidated financial statements since the Company did not modify its share-based payment awards since adoption of the standard.
In February 2018, the FASB issued ASU 2018-02, “Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” This ASU allows a reclassification from accumulated other comprehensive income to accumulated earnings for tax effects resulting from the Tax Cuts and Jobs Act (the “Act”) and requires certain new disclosures. ASU 2018-02 will be effective for the Company for fiscal years beginning after December 15, 2018, with early adoption permitted. The update should be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate income tax rate in the Act is recognized. The Company
TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
elected to adopt this ASU in the first quarter of 2018 by making a one-time reclassification in the period of change of stranded tax effects from accumulated other comprehensive income to accumulated earnings related to the change in tax rates resulting from the Act. The reclassified amount of
$3.0 million
represents the difference between the amount initially recorded directly to accumulated other comprehensive income at the previously enacted US federal corporate income tax rate as of December 31, 2017 and the amount that would have been recorded directly to accumulated other comprehensive income as of December 31, 2017 by using the newly enacted US federal corporate income tax rate.
In March 2018, the FASB ASU No. 2018-05, Income Taxes (Topic 740):
Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118
. The amendments in this update add various Securities and Exchange Commission (“SEC) paragraphs pursuant to the issuance of SEC Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”). The SEC issued SAB 118 to address concerns about reporting entities’ ability to timely comply with the accounting requirements to recognize all of the effects of the Act in the period of enactment. SAB 118 allows disclosure that timely determination of some or all of the income tax effects from the Act are incomplete by the due date of the financial statements and if possible to provide a reasonable estimate. The Company recorded the effects of the change in the tax law pursuant to SAB 118 as of December 31, 2017. The Company adopted the standard on January 1, 2018. There were no updates to the amounts recorded as of December 31, 2017 during the first quarter of 2018.
Recently Issued Accounting Standards Updates
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) that replaces existing lease accounting guidance. Among other things, in the amendments in ASU 2016-02, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date:
|
|
•
|
A lease liability, which is a lessee's obligation to make lease payments arising from a lease, measured on a discounted basis; and
|
|
|
•
|
A right-of-use asset, which is an asset that represents the lessee's right to use, or control the use of, a specified asset for the lease term.
|
The accounting that will be applied by lessors under ASC 842 is largely unchanged from previous GAAP. Certain targeted improvements were made to align, where necessary, lessor accounting with the lessee accounting model and ASC 606,
Revenue from Contracts with Customers
. The new lease guidance will become effective for the Company for periods beginning after December 15, 2018. The Company is currently evaluating the impact of this ASU on the consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments.
The guidance affects trade receivables and net investments in leases. The guidance 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 new guidance will be effective for fiscal years and interim periods beginning after December 15, 2019 and early adoption is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Different components of the guidance require modified retrospective and/or prospective adoption. Based on the composition of the Company's receivables, current market conditions and historical credit loss activity, the Company does not expect the adoption of this ASU to have a significant impact on the consolidated financial statements.
In August 2017, FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815):
Targeted Improvements to Accounting for Hedging Activities.
ASU 2017-12 changes the recognition and presentation requirements of hedge accounting, including: eliminating the requirement to separately measure and report hedge ineffectiveness; and presenting all items that affect earnings in the same income statement line item as the hedged item. The ASU also provides new alternatives for: applying hedge accounting to additional hedging strategies; measuring the hedged item in fair value hedges of interest rate risk; reducing the cost and complexity of applying hedge accounting by easing the requirements for effectiveness testing, hedge documentation and application of the critical terms match method; and reducing the risk of material error correction if a company applies the shortcut method inappropriately. This ASU is effective for interim periods beginning after December 15, 2018. The Company is in the process of evaluating the impact of this ASU on the consolidated financial statements.
TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 2—Fair Value of Financial Instruments
Fair value represents the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company uses the following fair value hierarchy when selecting inputs for its valuation techniques, with the highest priority given to Level 1:
|
|
•
|
Level 1—quoted prices (unadjusted) in active markets for identical assets or liabilities;
|
|
|
•
|
Level 2—inputs other than quoted prices included within Level 1 that are either directly or indirectly observable; and
|
|
|
•
|
Level 3—unobservable inputs in which little or no market activity exists, therefore requiring an entity to develop its own assumptions about the assumptions that market participants would use in pricing.
|
Fair Value of Debt
The Company does not measure debt, net of unamortized debt costs, at fair value in its consolidated balance sheets. The fair value was measured using Level 2 inputs and the carrying value and fair value are summarized in the following table (in thousands):
|
|
|
|
|
|
|
|
|
|
March 31,
2018
|
|
December 31,
2017
|
Liabilities
|
|
|
|
Total debt - carrying value
(1)
|
$
|
7,020,601
|
|
|
$
|
6,979,877
|
|
Total debt - fair value
|
$
|
7,029,691
|
|
|
$
|
6,991,537
|
|
______________________________________________________________________________
(1)
Excludes unamortized debt costs of
$43.0 million
and
$40.6 million
and purchase price debt adjustments of
$24.8 million
and
$27.5 million
as of
March 31, 2018
and
December 31, 2017
, respectively.
Fair Value of Equipment Held for Sale
The Company’s equipment held for sale fair value is measured using Level 2 inputs and is based on recent sales prices and other factors. Equipment held for sale is recorded at the lower of fair value or carrying value and an impairment charge is recorded when the carrying value of the asset exceeds its fair value. The following table summarizes the portion of the Company’s equipment held for sale measured at fair value and the cumulative impairment charges recorded to net gain on sale of leasing equipment through the periods summarized below (in thousands):
|
|
|
|
|
|
|
|
|
|
March 31,
2018
|
|
December 31,
2017
|
Assets
|
|
|
|
Equipment held for sale - assets at fair value
(1)
|
$
|
5,346
|
|
|
$
|
6,104
|
|
Cumulative impairment charges
(2)
|
$
|
(2,200
|
)
|
|
$
|
(2,242
|
)
|
___________________________________________________________________________
(1)
Represents the carrying value of containers included in equipment held for sale in the consolidated balance sheets that have been impaired to write down the value of the containers to their estimated fair value less cost to sell.
(2)
Represents the cumulative impairment charges recognized on equipment held for sale from the date of designated held for sale status to the indicated period end date.
The Company had net impairment charges of
$0.9 million
and net impairment reversals of
$0.5 million
during the
three
months ended
March 31, 2018
and 2017, respectively.
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 amounts to a single present amount (discounted) assuming that participants are motivated, but not compelled to transact. 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, basis swap adjustments and credit risk at commonly quoted intervals).
TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The fair value of derivative instruments on its consolidated balance sheets as of
March 31, 2018
and
December 31, 2017
was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
Liability Derivatives
|
Derivative Instrument
|
March 31, 2018
|
|
December 31, 2017
|
|
March 31, 2018
|
|
December 31, 2017
|
Interest rate swap contracts, designated
|
$
|
17,636
|
|
|
$
|
3,554
|
|
|
$
|
—
|
|
|
$
|
2,503
|
|
Interest rate swap contracts, not designated
|
5,008
|
|
|
3,822
|
|
|
—
|
|
|
—
|
|
Interest rate cap, designated
|
18
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total derivatives
|
$
|
22,662
|
|
|
$
|
7,376
|
|
|
$
|
—
|
|
|
$
|
2,503
|
|
Fair Value of Other Assets and Liabilities
Cash and cash equivalents, restricted cash, accounts receivable, equipment purchases payable and accounts payable carrying amounts approximate fair values because of the short-term nature of these instruments. The Company’s other financial and non-financial assets, which include leasing equipment, finance leases, intangible assets and goodwill, are not required to be measured at fair value on a recurring basis. However, if certain triggering events occur, or if an annual impairment test is required and the Company determines that these other financial and non-financial assets are impaired after completing an evaluation, these assets would be written down to their fair value.
Note 3—Share Based Compensation and Other Equity Matters
The Company recognizes share-based compensation expense for share-based payment transactions based on the grant date’s calculated 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
$2.5 million
and
$1.1 million
of share-based compensation expense in administrative expenses for the
three
months ended
March 31, 2018
and
2017
.
As of
March 31, 2018
, the total unrecognized compensation expense related to non-vested restricted shares was approximately
$12.1 million
, which is expected to be recognized through 2020.
During the
three
months ended
March 31, 2018
, the Company granted
138,445
restricted shares to certain employees and canceled
28,838
vested shares to settle payroll taxes on behalf of employees. Additional shares may be granted based upon the Company's performance measured against selected peers.
Accumulated Other Comprehensive Income
The following table summarizes the components of accumulated other comprehensive income, net of tax for the
three
months ended
March 31, 2018
and
2017
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow
Hedges
|
|
Foreign
Currency
Translation
|
|
Accumulated Other Comprehensive (Loss) Income
|
Balance as of December 31, 2017
|
$
|
31,215
|
|
|
$
|
(4,273
|
)
|
|
$
|
26,942
|
|
Change in fair value of derivative instruments designated as cash flow hedges
|
12,459
|
|
|
—
|
|
|
12,459
|
|
Reclassification of loss on interest rate swap agreements designated as cash flow hedges
|
(1,472
|
)
|
|
—
|
|
|
(1,472
|
)
|
Tax reclassification for the adoption of ASU 2018-02 accumulated earnings
|
(3,029
|
)
|
|
—
|
|
|
(3,029
|
)
|
Foreign currency translation adjustment
|
—
|
|
|
92
|
|
|
92
|
|
Other comprehensive income
|
7,958
|
|
|
92
|
|
|
8,050
|
|
Balance as of March 31, 2018
|
$
|
39,173
|
|
|
$
|
(4,181
|
)
|
|
$
|
34,992
|
|
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, 2016
|
$
|
31,182
|
|
|
$
|
(4,424
|
)
|
|
$
|
26,758
|
|
Change in fair value of derivative instruments designated as cash flow hedges
|
432
|
|
|
—
|
|
|
432
|
|
Reclassification of realized (gain) on interest rate swap agreements designated as cash flow hedges
|
510
|
|
|
—
|
|
|
510
|
|
Foreign currency translation adjustment
|
—
|
|
|
(3
|
)
|
|
(3
|
)
|
Other comprehensive income (loss)
|
942
|
|
|
(3
|
)
|
|
939
|
|
Balance as of March 31, 2017
|
$
|
32,124
|
|
|
$
|
(4,427
|
)
|
|
$
|
27,697
|
|
The following table summarizes the reclassifications out of accumulated other comprehensive income (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Amounts Reclassified From Accumulated Other Comprehensive Income
|
Affected Line Item
in the Consolidated
Statements of Income
|
|
Three Months Ended March 31,
|
|
2018
|
|
2017
|
Reclassification of (gain) loss on interest rate swap agreements
|
$
|
(1,824
|
)
|
|
$
|
767
|
|
Interest and debt expense
|
Income tax expense (benefit)
|
352
|
|
|
(257
|
)
|
Income tax expense
|
Amounts reclassified from accumulated other comprehensive income, net of tax
|
$
|
(1,472
|
)
|
|
$
|
510
|
|
Net income
|
Note 4—Debt
Debt consisted of the following (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
March 31,
2018
|
|
December 31,
2017
|
Institutional notes
|
$
|
2,358,200
|
|
|
$
|
2,381,000
|
|
Asset-backed securitization term notes
|
2,741,690
|
|
|
2,378,470
|
|
Term loan facilities
|
1,654,476
|
|
|
1,701,998
|
|
Asset-backed warehouse facility
|
130,000
|
|
|
110,000
|
|
Revolving credit facilities
|
40,000
|
|
|
305,000
|
|
Capital lease obligations
|
96,235
|
|
|
103,409
|
|
Total debt outstanding
|
7,020,601
|
|
|
6,979,877
|
|
Debt costs
|
(42,982
|
)
|
|
(40,636
|
)
|
Unamortized fair value debt adjustment
|
(24,804
|
)
|
|
(27,516
|
)
|
Debt, net of unamortized debt costs
|
$
|
6,952,815
|
|
|
$
|
6,911,725
|
|
The Company is subject to certain financial covenants under its debt agreements. The agreements remain the obligations of the respective subsidiaries, and all related debt covenants are calculated at the subsidiary level. As of
March 31, 2018
and
December 31, 2017
, the Company was in compliance with all financial covenants in accordance with the terms of its debt agreements.
As of
March 31, 2018
, the Company had
$4,638.8 million
of total debt outstanding on facilities with fixed interest rates. These fixed rate facilities had a contractual weighted average interest rate of
4.27%
, are scheduled to mature between
2018
and
2029
, and had a weighted average remaining term of
4.3 years
as of
March 31, 2018
.
TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of
March 31, 2018
, the Company had
$2,381.8 million
of debt outstanding on facilities with interest rates based on floating rate indices (LIBOR). These floating rate facilities had a contractual weighted average interest rate of
3.93%
, are scheduled to mature between
2018
and
2024
, and had a weighted average remaining term of
2.7
years as of
March 31, 2018
. Including the impact of the Company's interest rate swaps, the contractual weighted average interest rate on its floating rate facilities was
3.95%
as of
March 31, 2018
.
The Company hedges the risks associated with fluctuations in interest rates on a portion of its floating rate borrowings 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. As of
March 31, 2018
, the Company had interest rate swaps in place with a notional amount of
$1,233.0 million
to fix the floating interest rates on a portion of its floating rate debt obligations, with a weighted average fixed leg interest rate of
1.87%
and a weighted average remaining term of
4.4 years
.
As of
March 31, 2018
, the Company had
$5,871.8 million
of total debt on facilities with fixed interest rates or floating interest rates that have been synthetically fixed through interest rate swap contracts. This accounts for
83.6%
of total debt. These facilities had a contractual weighted average interest rate of
4.19%
and a weighted average remaining term of
4.3
years as of
March 31, 2018
.
Overall, the Company's total debt had a contractual weighted average interest rate of
4.16%
as of
March 31, 2018
, including the impact of the swap contracts.
The Company did not write-off any debt costs for the
three
months ended
March 31, 2018
and
March 31, 2017
.
Institutional Notes
In accordance with the institutional note agreements, interest payments on the Company's institutional notes are due semi-annually. Institutional note maturities typically range from
7
-
12
years, with level principal payments due annually following an interest-only period. The Company's institutional notes are pre-payable (in whole or in part) at the Company's option at any time, subject to certain provisions in the note agreements, including the payment of a make-whole premium in respect to such prepayment. These facilities provide for an advance rate against the net book values of designated eligible equipment generally in the range from
83%
to
85%
. These institutional notes had a contractual weighted average interest rate of
4.78%
as of
March 31, 2018
and are scheduled to mature between
2018
and
2029
.
Asset-Backed Securitization Term Notes
Under the Company’s Asset-Backed Securitization (“ABS”) facilities, indirect wholly-owned subsidiaries of the Company issue asset-backed notes. The issuance of asset-backed notes is the primary business objective of those subsidiaries. The ABS facilities 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 ten years. These facilities provide for an advance rate against the net book values of designated eligible equipment generally in the range from
77%
to
87%
. 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 type of facility.
These asset-backed securitization term notes had a contractual weighted average interest rate of
3.76%
as of
March 31, 2018
and are scheduled to mature between
2018
and
2028
.
On March 20, 2018, the Company completed an offering of
$450 million
of Class A and B fixed rate asset-backed notes. The notes have a contractual weighted average interest rate of
3.99%
and a scheduled maturity of March 20, 2028.
Term Loan Facilities
The term loan facilities amortize in monthly or quarterly installments. These facilities provide for an advance rate against the net book values of designated eligible equipment generally in the range from
80%
and
83%
. These term loan facilities had a contractual weighted average interest rate of
3.93%
as of
March 31, 2018
, and are scheduled to mature between
2019
and
2022
.
TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Asset-Backed Warehouse Facilities
Under the Company’s asset-backed warehouse facilities, indirect wholly-owned subsidiaries of the Company issue asset-backed notes. The issuance of asset-backed notes is the primary business objective of those subsidiaries. The asset-backed warehouse facilities 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 has
two
asset-backed warehouse facilities which have a combined maximum borrowing capacity of
$600.0
million. One facility has a maximum borrowing capacity of
$200.0 million
which is available on a revolving basis until March 10, 2019, after which any borrowings would convert to term notes with a maturity date of March 21, 2022. This facility has a contractual interest rate of three-month LIBOR plus
2.25%
margin until the conversion date when it would have a contractual interest rate of three-month LIBOR plus
3.25%
. The second facility has a maximum borrowing capacity of
$400.0 million
which is available on a revolving basis until September 28, 2020, after which any borrowings would convert to term notes with a maturity date of September 20, 2024. This facility has a contractual interest rate of one-month LIBOR plus
1.85%
margin until the conversion date when it would have a contractual interest rate of one-month LIBOR plus
2.85%
. As of
March 31, 2018
, the asset-backed warehouse facilities had a contractual weighted average interest rate of
3.67%
and are scheduled to mature between
2022
and
2024
.
During the revolving period, the borrowing capacity under the facilities is determined by applying an advance rate against the net book values of designated eligible equipment. The approximate average advance rate for the
two
facilities is
80%
. 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
five
months of interest expense.
Revolving Credit Facilities
The
two
revolving credit facilities have a maximum borrowing capacity of
$1,075.0 million
. These facilities provide for an advance rate against the net book values of designated eligible equipment. The approximate average advance rate for the
two
facilities is
83%
. These revolving credit facilities had a contractual weighted average interest rate of
4.62%
as of
March 31, 2018
and are scheduled to mature between
2020
and
2022
.
Capital Lease Obligations
The Company has entered into a series of direct finance lease transactions with various financial institutions to finance chassis and containers. Each lease is accounted for as a capital lease, with interest expense recognized on a level yield basis over the period preceding early purchase options, if any, which is generally
three
to
ten
years from the transaction date. These agreements have fixed interest rates ranging from
3.26%
to
4.93%
, and mature between
2018
and
2024
.
TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 5—Derivative Instruments
Interest Rate Hedging
The Company enters into interest rate swap 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. These agreements involve the receipt of floating rate amounts in exchange for fixed rate interest payments over the lives of the agreements without an exchange of the underlying principal amounts. The counterparties to the Company's interest rate swap agreements are highly rated financial institutions. In the unlikely event that the counterparties fail to meet the terms of the interest rate swap 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 interest rate swap agreements for each of these entities. In addition, certain assets of the Company's subsidiaries, are pledged as collateral for various credit facilities and the amounts payable under certain interest rate swap agreements.
The Company entered into an interest rate cap agreement during the first quarter of 2018 for a total notional amount of
$400 million
. The agreement is amortizing over a one year term. The Company has designated this interest rate cap agreement as a cash flow hedge for accounting purposes.
As of
March 31, 2018
, the Company had interest rate swap and cap agreements in place to fix the floating interest rates on a portion of the borrowings under its debt facilities as summarized below:
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
Net Notional Amount
|
|
Weighted Average
Fixed Leg (Pay) Interest Rate
|
|
Cap Rate
|
|
Weighted Average
Remaining Term
|
Interest rate swaps
|
|
$1,233.0 Million
|
|
1.87%
|
|
n/a
|
|
4.4 years
|
Interest rate cap
|
|
$396.7 Million
|
|
n/a
|
|
2.9%
|
|
0.8 years
|
The following table summarizes the impact of derivative instruments on the consolidated statements of operations and the consolidated statements of comprehensive income (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
Derivative instrument
|
Financial statement caption
|
|
2018
|
|
2017
|
Non-designated interest rate swaps
|
Realized (gain) loss on derivative instruments, net
|
|
$
|
(248
|
)
|
|
$
|
599
|
|
Non-designated interest rate swaps
|
Unrealized (gain) loss on derivative instruments, net
|
|
$
|
(1,186
|
)
|
|
$
|
(1,498
|
)
|
Designated interest rate swaps
|
Other comprehensive (income) loss
|
|
$
|
(15,813
|
)
|
|
$
|
(690
|
)
|
Designated interest rate swaps
|
Interest and debt (income) expense
|
|
$
|
(1,824
|
)
|
|
$
|
767
|
|
TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 6—Segment and Geographic Information
Segment Information
The Company operates its business in one industry, intermodal transportation equipment, and has
two
operating segments which also represent its reporting segments:
|
|
•
|
Equipment leasing—the Company owns, leases and ultimately disposes of containers and chassis from its lease fleet.
|
|
|
•
|
Equipment trading—the Company purchases containers from shipping line customers, and other sellers of containers, and resells these containers to container retailers and users of containers for storage or one-way shipment. Included in the equipment trading segment revenues are leasing revenues from equipment purchased for resale that is currently on lease until the containers are dropped off.
|
|
|
•
|
These operating segments were determined based on the chief operating decision maker's review and resource allocation of the products and service offered.
|
The following tables summarize segment information and the consolidated totals reported (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2018
|
|
2017
|
|
Equipment
Leasing
|
|
Equipment
Trading
|
|
Totals
|
|
Equipment
Leasing
|
|
Equipment
Trading
|
|
Totals
|
Total leasing revenues
|
$
|
314,429
|
|
|
$
|
668
|
|
|
$
|
315,097
|
|
|
$
|
264,859
|
|
|
$
|
743
|
|
|
$
|
265,602
|
|
Trading margin
|
—
|
|
|
2,991
|
|
|
2,991
|
|
|
—
|
|
|
392
|
|
|
392
|
|
Net gain on sale of leasing equipment
|
9,218
|
|
|
—
|
|
|
9,218
|
|
|
5,161
|
|
|
—
|
|
|
5,161
|
|
Depreciation and amortization expense
|
129,854
|
|
|
579
|
|
|
130,433
|
|
|
117,721
|
|
|
159
|
|
|
117,880
|
|
Interest and debt expense
|
74,774
|
|
|
324
|
|
|
75,098
|
|
|
63,128
|
|
|
376
|
|
|
63,504
|
|
Realized (gain) loss on derivative instruments, net
|
(248
|
)
|
|
—
|
|
|
(248
|
)
|
|
599
|
|
|
—
|
|
|
599
|
|
Income before income taxes
(1)
|
89,966
|
|
|
2,216
|
|
|
92,182
|
|
|
41,632
|
|
|
315
|
|
|
41,947
|
|
_______________________________________________________________________________
|
|
(1)
|
Segment income before income taxes excludes unrealized gains or losses on interest rate swaps and the write-off of deferred financing costs. Unrealized gains on interest rate swaps were
$1.2 million
and
$1.5 million
for the
three
months ended
March 31, 2018
and
2017
, respectively. There were
no
write-offs of deferred financing costs for the
three
months ended
March 31, 2018
and
2017
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2018
|
|
Balance as of December 31, 2017
|
|
Equipment
Leasing
|
|
Equipment
Trading
|
|
Totals
|
|
Equipment
Leasing
|
|
Equipment
Trading
|
|
Totals
|
Equipment held for sale
|
$
|
26,491
|
|
|
$
|
16,199
|
|
|
$
|
42,690
|
|
|
$
|
31,534
|
|
|
$
|
11,661
|
|
|
$
|
43,195
|
|
Goodwill
|
220,864
|
|
|
15,801
|
|
|
236,665
|
|
|
220,864
|
|
|
15,801
|
|
|
236,665
|
|
Total assets
|
9,633,998
|
|
|
46,948
|
|
|
9,680,946
|
|
|
9,534,330
|
|
|
43,295
|
|
|
9,577,625
|
|
There are
no
intercompany revenues or expenses between segments. Certain administrative expenses have been allocated between segments based on an estimate of services provided to each segment. A portion of the Company's equipment purchased for resale was purchased through certain sale-leaseback transactions with its shipping line customers. Due to the expected longer term nature of these transactions, these purchases are 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.
TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Geographic Segment Information
The Company generates the majority of its leasing revenues from international containers which are deployed by its customers in a wide variety of global trade routes. The majority of the Company's leasing related revenue is denominated in U.S. dollars.
The following table summarizes the geographic allocation of equipment leasing revenues for the
three
months ended
March 31, 2018
and
2017
based on customers' primary domicile (in thousands):
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2018
|
|
2017
|
Total equipment leasing revenues:
|
|
|
|
Asia
|
$
|
130,190
|
|
|
$
|
114,377
|
|
Europe
|
143,649
|
|
|
119,369
|
|
Americas
|
31,050
|
|
|
21,889
|
|
Other International
|
9,595
|
|
|
9,851
|
|
Bermuda
|
613
|
|
|
116
|
|
Total
|
$
|
315,097
|
|
|
$
|
265,602
|
|
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 represents the geographic allocation of equipment trading revenues for the
three
months ended
March 31, 2018
and
2017
based on the location of the sale (in thousands):
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2018
|
|
2017
|
Total equipment trading revenues:
|
|
|
|
Asia
|
$
|
2,454
|
|
|
$
|
1,957
|
|
Europe
|
4,289
|
|
|
1,586
|
|
Americas
|
4,984
|
|
|
1,120
|
|
Other International
|
1,648
|
|
|
821
|
|
Total
|
$
|
13,375
|
|
|
$
|
5,484
|
|
Note 7—Commitments
Lease Commitments
The Company has cancelable and non-cancelable operating lease agreements principally for facilities and office equipment used in the Company’s operations. Total operating lease rental expense included in administrative expenses on the consolidated statements of operations was
$0.7 million
and
$0.6 million
for the
three
months ended
March 31, 2018
and
2017
, respectively.
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.
Container Equipment Purchase Commitments
At
March 31, 2018
, the Company had commitments to purchase equipment in the amount of
$453.2 million
payable in 2018.
TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Severance Plan
The following table summarizes changes to the Company’s total severance balance (in thousands):
|
|
|
|
|
|
Total
|
Balance at December 31, 2017
|
$
|
9,677
|
|
Accrual
|
—
|
|
Payments
|
(2,411
|
)
|
Balance at March 31, 2018
|
$
|
7,266
|
|
Note 8—Income Taxes
The Company's effective tax rates were
11.2%
and
16.4%
for the
three
months ended
March 31, 2018
and
2017
, respectively. The Company has computed the provision for income taxes based on the estimated annual effective tax rate and the application of discrete items, if any, in the applicable period. The decrease in the effective tax rate is primarily due to a decrease in the U.S. federal income tax rate from 35% to 21% resulting from passage of the Tax Cuts and Jobs Act on December 22, 2017.
Note 9—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 following table summarizes payments, direct finance lease, and a loan payable balance with TriStar (in thousands):
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2018
|
|
2017
|
Payments received from TriStar on direct finance leases
|
$
|
512
|
|
|
$
|
424
|
|
Payments received from TriStar on loan payable
|
—
|
|
|
43
|
|
|
|
|
|
|
March 31,
2018
|
|
December 31,
2017
|
Direct finance lease balance
|
$
|
11,451
|
|
|
$
|
10,648
|
|
Note 10—Subsequent Events
Property Sale
On April 20, 2018, the Company completed the sale of a property and recorded a gain of approximately
$21.0 million
. Gross proceeds received from the sale were
$29.0 million
which were primarily used to pay off an existing mortgage on the property of approximately
$18.4 million
and other expenses related to the sale.
Quarterly Dividend
On May 2, 2018, the Company's Board of Directors approved and declared a
$0.52
per share quarterly cash dividend on its issued and outstanding common shares, payable on
June 22, 2018
to shareholders of record at the close of business on
June 1, 2018
.
Revolving Credit Facility
On May 8, 2018, the Company increased its borrowing capacity under one of its revolving credit facilities by
$100.0 million
to a maximum borrowing capacity of
$1,125.0 million
.
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, 2017
with the SEC on
February 27, 2018
(the "Form 10-K"). Our actual results may differ materially from those contained in or implied by any forward-looking statements
.
Our Company
Triton International Limited is the world's largest lessor of intermodal containers. Intermodal containers are large, standardized steel boxes used to transport freight by ship, rail or truck. Because of the handling efficiencies they provide, intermodal containers are the primary means by which many goods and materials are shipped internationally. We also lease chassis which are used for the transportation of containers.
We operate our business in one industry, intermodal transportation equipment, and have two business segments, which also represent our reporting segments:
|
|
•
|
Equipment leasing - we own, lease and ultimately dispose of containers and chassis from our lease fleet.
|
|
|
•
|
Equipment trading - we purchase containers from shipping line customers, and other sellers of containers, and resell these containers to container retailers and users of containers for storage or one-way shipment.
|
Operations
Our consolidated operations include the acquisition, leasing, re-leasing and subsequent sale of multiple types of intermodal containers and chassis. As of
March 31, 2018
, our total fleet consisted of
3.5 million
containers and chassis, representing
5.7 million
twenty-foot equivalent units ("TEU") or
7.1 million
cost equivalent units ("CEU"). We have an extensive global presence, offering leasing services through 23 offices in
15
countries and approximately
410
third party container depot facilities in approximately
45
countries as of
March 31, 2018
. Our primary customers include the world's largest container shipping lines. For the
three
months ended
March 31, 2018
, our twenty largest customers accounted for
85%
of our lease billings, our five largest customers accounted for
54%
of our lease billings, and our two largest customers, CMA CGM S.A. and MSC Mediterranean Shipping Company S.A., accounted for
20%
and
14%
of our lease billings, respectively.
We lease five types of equipment: (1) dry containers, which are used for general cargo such as manufactured component parts, consumer staples, electronics and apparel, (2) refrigerated containers, which are used for perishable items such as fresh and frozen foods, (3) special containers, which are used for heavy and over-sized cargo such as marble slabs, building products and machinery, (4) tank containers, which are used to transport bulk liquid products such as chemicals, and (5) chassis, which are used for the transportation of containers. Our in-house equipment sales group manages the sale process for our used containers and chassis from our equipment leasing fleet and buys and sells new and used containers and chassis acquired from third parties.
The following tables summarize our equipment fleet as of
March 31, 2018
,
December 31, 2017
and
March 31, 2017
indicated in units, TEU and CEU.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment Fleet in Units
|
|
Equipment Fleet in TEU
|
|
March 31, 2018
|
|
December 31, 2017
|
|
March 31,
2017
|
|
March 31, 2018
|
|
December 31, 2017
|
|
March 31,
2017
|
Dry
|
3,103,671
|
|
|
3,077,144
|
|
|
2,825,562
|
|
|
5,039,302
|
|
|
5,000,043
|
|
|
4,585,569
|
|
Refrigerated
|
221,810
|
|
|
218,429
|
|
|
219,837
|
|
|
426,335
|
|
|
419,673
|
|
|
422,280
|
|
Special
|
90,867
|
|
|
89,066
|
|
|
91,702
|
|
|
163,155
|
|
|
159,172
|
|
|
163,080
|
|
Tank
|
12,188
|
|
|
12,124
|
|
|
11,958
|
|
|
12,188
|
|
|
12,124
|
|
|
11,958
|
|
Chassis
|
22,477
|
|
|
22,523
|
|
|
22,115
|
|
|
40,996
|
|
|
41,068
|
|
|
40,218
|
|
Equipment leasing fleet
|
3,451,013
|
|
|
3,419,286
|
|
|
3,171,174
|
|
|
5,681,976
|
|
|
5,632,080
|
|
|
5,223,105
|
|
Equipment trading fleet
|
12,022
|
|
|
10,510
|
|
|
20,280
|
|
|
19,245
|
|
|
16,907
|
|
|
31,290
|
|
Total
|
3,463,035
|
|
|
3,429,796
|
|
|
3,191,454
|
|
|
5,701,221
|
|
|
5,648,987
|
|
|
5,254,395
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment Fleet in CEU(1)
|
|
March 31, 2018
|
|
December 31, 2017
|
|
March 31, 2017
|
Operating leases
|
6,752,636
|
|
|
6,678,282
|
|
|
6,295,201
|
|
Finance leases
|
329,659
|
|
|
328,024
|
|
|
360,869
|
|
Equipment trading fleet
|
53,454
|
|
|
51,762
|
|
|
74,638
|
|
Total
|
7,135,749
|
|
|
7,058,068
|
|
|
6,730,708
|
|
______________________________________________________________________________
|
|
(1)
|
In the equipment fleet tables above, we have included total fleet count information based on CEU. CEU is a ratio used to convert the actual number of containers in our fleet to a figure based on the relative purchase prices of our various equipment types to that of a 20 foot dry container. For example, the CEU ratio for a 40 foot high cube dry container is 1.68, and a 40 foot high cube refrigerated container is 10.0. The CEU ratios used in this calculation are from our debt covenants and may differ slightly from CEU ratios used by others in the industry.
|
The following table summarizes the percentage of our equipment fleet in units and CEU as of
March 31, 2018
:
|
|
|
|
|
|
|
Equipment Type
|
Percentage of
total fleet in
units
|
|
Percentage of total
fleet in CEU
|
Dry
|
89.6
|
%
|
|
61.7
|
%
|
Refrigerated
|
6.4
|
|
|
30.5
|
|
Special
|
2.6
|
|
|
3.0
|
|
Tank
|
0.4
|
|
|
2.7
|
|
Chassis
|
0.7
|
|
|
1.3
|
|
Equipment leasing fleet
|
99.7
|
|
|
99.2
|
|
Equipment trading fleet
|
0.3
|
|
|
0.8
|
|
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, finance leases and service leases. Long-term leases, typically with initial contractual terms ranging from three to eight years, 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. Finance leases, which are typically structured as full payout leases, 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 a greater level of operational flexibility by allowing the 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
March 31, 2018
,
December 31, 2017
and
March 31, 2017
:
|
|
|
|
|
|
|
|
|
|
Lease Portfolio
|
March 31,
2018
|
|
December 31,
2017
|
|
March 31,
2017
|
Long-term leases
|
69.7
|
%
|
|
72.2
|
%
|
|
67.9
|
%
|
Finance leases
|
4.9
|
|
|
4.9
|
|
|
5.9
|
|
Service leases
|
15.9
|
|
|
14.1
|
|
|
19.1
|
|
Expired long-term leases (units on-hire)
|
9.5
|
|
|
8.8
|
|
|
7.1
|
|
Total
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
As of
March 31, 2018
,
December 31, 2017
and
March 31, 2017
, our long-term and finance leases combined had an average remaining contractual term of approximately
42 months
,
43 months
, and
39 months
, respectively, assuming no leases are renewed.
Operating Performance
Market conditions remained favorable during the
first
quarter of
2018
. The inventory of available containers remains well controlled, with moderate levels of available new container inventories and exceptionally low inventories of available used containers. Expectations for containerized trade growth remain positive, with our customers and industry forecasters generally expecting growth to be in the five percent range in 2018. While the first quarter typically represents the slow season for dry containers, net container pick-up activity was positive in the
first
quarter of
2018
, reflecting the tight supply / demand balance for containers. In addition, several of our shipping line customers and a few of our competitors continue to limit their new container purchases. We have been able to capitalize on these market conditions to drive strong operating and financial performance.
Fleet size.
As of
March 31, 2018
, our fleet had a net book value of
$8,769.0 million
, which represents an increase of
9.0%
as compared to
March 31, 2017
. The increase in our fleet size was due to significant investments in new containers during
2017
and the
first
quarter of
2018
.
Most forecasters expect global containerized trade growth in the range of five percent in
2018
. We expect to continue to benefit from an increase in the share of new containers purchased by leasing companies and an increase in our share of new leasing transactions. As of
May 3, 2018
, we had invested
$875.1 million
in new containers for delivery in 2018.
Utilization.
Our average utilization was
98.6%
during the
first
quarter of
2018
, an increase from
98.3%
in the fourth quarter of
2017
and an increase from
95.3%
in the
first
quarter of
2017
. Our current utilization is
98.8%
. Our high utilization is supported by the current tight supply / demand balance for containers. We anticipate that the supply / demand balance for containers could moderate somewhat in 2018, though, we expect our utilization will remain historically high throughout the year.
The following table summarizes the equipment fleet utilization
(1)
for the periods indicated below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
March 31,
2018
|
|
December 31,
2017
|
|
September 30,
2017
|
|
June 30,
2017
|
|
March 31,
2017
|
Average Utilization
(1)
|
98.6
|
%
|
|
98.3
|
%
|
|
97.6
|
%
|
|
96.5
|
%
|
|
95.3
|
%
|
Ending Utilization
(1)
|
98.7
|
%
|
|
98.6
|
%
|
|
98.0
|
%
|
|
97.1
|
%
|
|
95.8
|
%
|
|
|
(1)
|
Utilization is computed by dividing our total units on lease (in CEU) by the total units in our fleet (in CEU) excluding new units not yet leased and off-hire units designated for sale.
|
Average lease rates.
Average lease rates for our dry container product line
increased
by
6.7%
in the
first
quarter of
2018
compared to the
first
quarter of
2017
. Market lease rates for new dry containers are currently slightly above the average lease rates of our dry container lease portfolio, and we expect our average dry container lease rates to increase further if new container prices remain in their current range and market conditions remain favorable.
However, we have a large number of dry container leases which are expired or will expire in 2018, and we could face pressure on our average dry container lease rates if new container prices and market lease rates were to decrease.
Average lease rates for our refrigerated container product line
decreased
by
4.0%
in the
first
quarter of
2018
compared to the
first
quarter of
2017
. The cost of refrigerated containers has trended down over the last few years, which has led to lower market lease rates. Market lease rates for refrigerated containers have also been pressured for several years by new leasing company entrants. Market lease rates for refrigerated containers remain below the average lease rates of our refrigerated container lease portfolio, and we expect our average lease rates for refrigerated containers to continue to trend down.
The average lease rates for special containers remained flat in the
first
quarter of
2018
compared to the
first
quarter of
2017
. Current market lease rates for special containers are comparable to the average lease rates in our lease portfolio.
Equipment disposals.
Average used dry container disposal prices increased by 43.7% in the
first
quarter of
2018
compared to the
first
quarter of
2017
reflecting higher new container prices and a tight supply / demand for leasing containers which has led to low drop-off volumes and reduced inventories of containers held for sale. The increase in sale prices was partially offset by a 23.3% reduction in sales volume reflecting our reduced inventories of containers held for sale.
Credit Risk.
We faced minimal credit losses in the
first
quarter of
2018
, and we recorded a slight credit-related gain in the first quarter due to recoveries on doubtful accounts. However, our credit risk is currently elevated due to the ongoing financial pressure faced by our shipping line customers. The container shipping industry has faced several years of excess vessel capacity, weak freight rates and poor financial results due to the combination of low trade growth and aggressive ordering of mega container vessels. Most of our customers have recently generated financial losses and many are burdened with high levels of debt. We anticipate the high volume of new vessels entering service over the next several years will complicate our customers’ efforts to increase freight rates, and we expect our customers’ financial performance will remain under pressure for some time.
We expect it will become more difficult for us to mitigate our exposure to credit risks in the future through the purchase of credit insurance. We let our credit insurance policies lapse at expiration since underwriters offered significantly reduced coverage and required a meaningful increase in insurance premiums. We currently have obtained a more limited credit insurance policy covering accounts receivable owed by some of our customers. This policy offers significantly reduced protections against a major customer default compared to the credit insurance we had in place previously, and the policy has exclusions and payment and other limitations, and therefore will not protect us from losses arising from customer defaults. We continue to monitor the availability and pricing of credit insurance and related products.
Dividends
We paid the following quarterly dividends during the
three
months ended
March 31, 2018
and
2017
on our issued and outstanding common shares:
|
|
|
|
|
|
|
|
Record Date
|
|
Payment
Date
|
|
Aggregate
Payment
|
|
Per Share
Payment
|
March 12, 2018
|
|
March 28, 2018
|
|
$36.0 Million
|
|
$0.45
|
March 20, 2017
|
|
March 30, 2017
|
|
$33.2 Million
|
|
$0.45
|
Results of Operations
The following
table
summarizes our results of operations for the
three
months ended
March 31, 2018
and
2017
(in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2018
|
|
2017
|
|
Variance
|
Leasing revenues:
|
|
|
|
|
|
Operating leases
|
$
|
310,231
|
|
|
$
|
259,585
|
|
|
$
|
50,646
|
|
Finance leases
|
4,866
|
|
|
6,017
|
|
|
(1,151
|
)
|
Total leasing revenues
|
315,097
|
|
|
265,602
|
|
|
49,495
|
|
|
|
|
|
|
|
|
Equipment trading revenues
|
13,375
|
|
|
5,484
|
|
|
7,891
|
|
Equipment trading expenses
|
(10,384
|
)
|
|
(5,092
|
)
|
|
(5,292
|
)
|
Trading margin
|
2,991
|
|
|
392
|
|
|
2,599
|
|
|
|
|
|
|
|
|
Net gain on sale of leasing equipment
|
9,218
|
|
|
5,161
|
|
|
4,057
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
Depreciation and amortization
|
130,433
|
|
|
117,880
|
|
|
12,553
|
|
Direct operating expenses
|
11,048
|
|
|
21,954
|
|
|
(10,906
|
)
|
Administrative expenses
|
19,582
|
|
|
22,967
|
|
|
(3,385
|
)
|
Transaction and other (income) costs
|
(29
|
)
|
|
2,472
|
|
|
(2,501
|
)
|
Provision (benefit) for doubtful accounts
|
(101
|
)
|
|
574
|
|
|
(675
|
)
|
Total operating expenses
|
160,933
|
|
|
165,847
|
|
|
(4,914
|
)
|
Operating income
|
166,373
|
|
|
105,308
|
|
|
61,065
|
|
Other expenses:
|
|
|
|
|
|
Interest and debt expense
|
75,098
|
|
|
63,504
|
|
|
11,594
|
|
Realized (gain) loss on derivative instruments, net
|
(248
|
)
|
|
599
|
|
|
(847
|
)
|
Unrealized gain on derivative instruments, net
|
(1,186
|
)
|
|
(1,498
|
)
|
|
312
|
|
Other income, net
|
(659
|
)
|
|
(742
|
)
|
|
83
|
|
Total other expenses
|
73,005
|
|
|
61,863
|
|
|
11,142
|
|
Income before income taxes
|
93,368
|
|
|
43,445
|
|
|
49,923
|
|
Income tax expense
|
10,503
|
|
|
7,142
|
|
|
3,361
|
|
Net income
|
$
|
82,865
|
|
|
$
|
36,303
|
|
|
$
|
46,562
|
|
Less: income attributable to noncontrolling interest
|
1,973
|
|
|
1,692
|
|
|
281
|
|
Net income attributable to shareholders
|
$
|
80,892
|
|
|
$
|
34,611
|
|
|
$
|
46,281
|
|
Comparison of
Three Months Ended March 31, 2018
to
Three Months Ended March 31, 2017
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2018
|
|
2017
|
|
Variance
|
|
(in thousands)
|
Leasing revenues:
|
|
|
|
|
|
Operating lease revenues:
|
|
|
|
|
|
Per diem revenues
|
$
|
300,692
|
|
|
$
|
248,005
|
|
|
$
|
52,687
|
|
Fee and ancillary lease revenues
|
9,539
|
|
|
11,580
|
|
|
(2,041
|
)
|
Total operating lease revenues
|
310,231
|
|
|
259,585
|
|
|
50,646
|
|
Finance lease revenues
|
4,866
|
|
|
6,017
|
|
|
(1,151
|
)
|
Total leasing revenues
|
$
|
315,097
|
|
|
$
|
265,602
|
|
|
$
|
49,495
|
|
Total leasing revenues were
$315.1 million
, net of lease amortization of $17.3 million, for the
three
months ended
March 31, 2018
, compared to
$265.6 million
, net of lease amortization of $23.4 million, in the same period in
2017
, an increase of
$49.5 million
.
Per diem revenues were
$300.7 million
for the
three
months ended
March 31, 2018
compared to
$248.0 million
in the same period in
2017
,
an increase
of
$52.7 million
. The primary reasons for this
increase
are as follows:
|
|
•
|
$38.5 million
increase due to an increase of 784,211 CEU in the average number of containers on-hire under operating leases;
|
|
|
•
|
$8.1 million increase due to an increase in average CEU per diem rates, excluding the impact of a reduction in amortization of the lease intangible; and
|
|
|
•
|
$6.1 million increase due to reduced lease intangible amortization.
|
Fee and ancillary lease revenues were
$9.5 million
for the
three
months ended
March 31, 2018
compared to
$11.6 million
in the same period in
2017
,
a decrease
of
$2.0 million
. The decrease was due to reduced redelivery fees relating to a decrease in the volume of container redeliveries.
Finance lease revenues were
$4.9 million
for the
three
months ended
March 31, 2018
compared to
$6.0 million
in the same period in
2017
,
a decrease
of $1.1 million. The decrease was mainly due to a reduction in the size of our finance lease portfolio.
Trading margin.
Trading margin was
$3.0 million
for the
three
months ended
March 31, 2018
compared to
$0.4 million
in the same period in
2017
, an increase of
$2.6 million
. The increase was due to an increase in both trading volume and per unit margins.
Net gain on sale of leasing equipment.
Gain on sale of equipment was
$9.2 million
for the
three
months ended
March 31, 2018
compared to
$5.2 million
in the same period in
2017
,
an increase
of $4.0 million. The increase was primarily due to a 43.7% increase in our average used container selling prices, partially offset by a 23.3% decrease in the volume of containers sold.
Depreciation and amortization.
Depreciation and amortization was
$130.4 million
for the
three
months ended
March 31, 2018
compared to
$117.9 million
in the same period in
2017
,
an increase
of
$12.6 million
. The primary reasons for the increase are as follows:
|
|
•
|
$17.3 million increase due to a net increase in the size of our depreciable fleet, partially offset by a
|
|
|
•
|
$4.7 million decrease due to equipment becoming fully depreciated.
|
Direct operating expenses.
Direct operating expenses primarily consists of our costs to repair equipment returned off lease, to store the equipment when it is not on lease and to reposition equipment that has been returned to locations with weak leasing demand. Direct operating expenses were
$11.0 million
for the
three
months ended
March 31, 2018
compared to
$22.0 million
in the same period in
2017
, a decrease of
$11.0 million
. The decrease was mainly due to a decrease in storage expense of $7.3 million,
equipment repair expense of $2.1 million and handling expense of $0.8 million, resulting from decreases in the volume of container drop-offs and the number of idle units.
Administrative expenses.
Administrative expenses were
$19.6 million
for the
three
months ended
March 31, 2018
compared to
$23.0 million
in the same period in
2017
, a decrease of
$3.4 million
. The primary reasons for the decrease are as follows:
|
|
•
|
$2.2 million decrease due to lower payroll and benefit expenses; and
|
|
|
•
|
$1.2 million decrease due to lower professional fees.
|
Transaction and other costs.
Transaction and other costs include severance and employee compensation costs, legal costs and other professional fees related to the combination of TCIL and TAL in an all stock merger (the "Merger"). There were minimal transaction and other costs related to the merger for the
three
months ended
March 31, 2018
compared to
$2.5 million
in the same period in
2017
. The reduction is due to the completion of merger related activities.
Provision for doubtful accounts.
We had a benefit for doubtful accounts of
$0.1 million
for the
three
months ended
March 31, 2018
compared to a provision for doubtful accounts of
$0.6 million
in the
three
months ended
March 31, 2017
.
Interest and debt expense.
Interest and debt expense was
$75.1 million
for the
three
months ended
March 31, 2018
, compared to
$63.5 million
in the same period in
2017
,
an increase
of
$11.6 million
. The primary reasons for this increase are as follows:
|
|
•
|
$5.2 million increase due to an increase in the average debt balance of $528.0 million for the
three
months ended
March 31, 2018
compared to the same period in
2017
; and
|
|
|
•
|
$6.4 million increase due to an increase in the average effective interest rate to 4.31% for the
three
months ended
March 31, 2018
compared to 3.94% in the same period in
2017
. The increase in the effective interest rate was primarily due to an increase in short-term interest rates combined with a larger portion of our debt balance at fixed rates.
|
Realized (gain) loss on derivative instruments, net.
Realized gain on derivative instruments, net was
$0.2 million
for the
three
months ended
March 31, 2018
, compared to a realized loss of
$0.6 million
in the same period in
2017
, an increase of
$0.8 million
. This increase is mainly due to an increase in the average one-month LIBOR rate and the reduction of the underlying swap notional amounts due to amortization, terminations, and expirations in the three months ended
March 31, 2018
compared to the same period in
2017
.
Unrealized (gain) on derivative instruments.
Unrealized gain on derivative instruments, net was
$1.2 million
for the
three
months ended
March 31, 2018
compared to
$1.5 million
in the same period in
2017
, a decrease of
$0.3 million
. The unrealized gain decreased despite a sharper increase in long-term interest rates during the three months ended
March 31, 2018
compared to the same period in 2017 as a result of a decrease in the notional value of our swap portfolio.
Income taxes.
Income tax expense
was
$10.5 million
for the
three
months ended
March 31, 2018
compared to
$7.1 million
in the same period in
2017
,
an increase in income tax expense of
$3.4 million
. The increase in income tax expense in 2018 was driven by an increase in pre-tax income of
$49.9 million
partially offset by a decrease in the effective tax rate to
11.2%
from
16.4%
. Our effective tax rate decreased due to the reduction in the U.S. federal income tax rates resulting from the passage of the Tax Cuts and Jobs Act on December 22, 2017.
Income attributable to non-controlling interests.
Income attributable to non-controlling interests was
$2.0 million
for the
three
months ended
March 31, 2018
compared to
$1.7 million
in the same period in
2017
,
an increase
of
$0.3 million
. The increase was a result of higher income from gains on the disposition of container rental equipment attributable to the non-controlling interests, partially offset by a reduction in the size of the portfolio of containers owned by the entity in which the non-controlling interests maintain their ownership.
.
Segments
We operate our business in one industry, intermodal transportation equipment, and have two business segments, Equipment leasing and Equipment trading.
Equipment leasing
We own, lease and ultimately dispose of containers and chassis from our leasing fleet. Equipment leasing segment revenues represent leasing revenues from operating and finance leases. Expenses related to equipment leasing include direct operating expenses, administrative expenses, depreciation expense and interest and debt expense. The Equipment leasing segment also includes gains and losses on the sale of owned leasing equipment.
The results of operations of our leasing segment are discussed above in our results of operations comparisons.
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. Equipment trading segment revenues represent the proceeds on the sale of containers purchased for resale. Equipment trading segment expenses include the cost of containers purchased for resale that were sold during the period and related selling costs, as well as direct operating expenses, administrative expenses and interest and debt expense.
The results of operations of our trading segment is discussed above in our results of operations comparisons in the trading margin comparison.
Segment income before income taxes
The following table lists the income before income taxes for the equipment leasing and equipment trading segments for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2018
|
|
2017
|
Income before income taxes
(1)
|
|
|
|
Equipment leasing segment
|
$
|
89,966
|
|
|
$
|
41,632
|
|
Equipment trading segment
|
2,216
|
|
|
315
|
|
Total
|
$
|
92,182
|
|
|
$
|
41,947
|
|
_______________________________________________________________________________
|
|
(1)
|
Segment income before income taxes excludes unrealized gains or losses on interest rate swaps and the write-off of deferred financing costs. Unrealized gains on interest rate swaps were
$1.2 million
and
$1.5 million
for the
three
months ended
March 31, 2018
and
2017
, respectively. There were
no
write-offs of deferred financing costs for the
three
months ended
March 31, 2018
and
2017
, respectively.
|
Liquidity and Capital Resources
Our principal sources of liquidity are cash flows provided by operating activities, proceeds from the sale of our leasing equipment, principal payments on finance lease receivables, and borrowings under our credit facilities. Our principal uses of cash include capital expenditures, debt service requirements and distributing dividends.
For the twelve months ended
March 31, 2018
, cash provided by operating activities, together with the proceeds from the sale of our leasing equipment and principal payments on our finance leases was
$1.1 billion
. In addition, as of
March 31, 2018
, we had
$118.3 million
of cash and cash equivalents and
$1.5 billion
of additional borrowing capacity under our current credit facilities.
As of
March 31, 2018
, our cash commitments in the next 12 months include
$756.5 million
of scheduled principal payments on our existing debt facilities and
$579.2 million
of committed but unpaid capital expenditures.
We believe that cash provided by operating activities, existing cash, proceeds from the sale of our leasing equipment, principal payments on our finance lease receivables and availability under our borrowing facilities will be sufficient to meet our obligations over the next 12 months.
Debt Agreements
Pursuant to the terms of certain debt agreements, we are required to maintain certain restricted cash accounts. As of
March 31, 2018
, we had restricted cash of
$128.7 million
.
At
March 31, 2018
, our outstanding indebtedness was comprised of the following (amounts in millions):
|
|
|
|
|
|
|
|
|
|
Amount
Outstanding
|
|
Maximum
Borrowing
Level
|
Institutional notes
|
$
|
2,358.2
|
|
|
$
|
2,358.2
|
|
Asset-backed securitization term notes
|
2,741.7
|
|
|
2,741.7
|
|
Term loan facilities
|
1,654.5
|
|
|
1,654.5
|
|
Asset-backed warehouse facility
|
130.0
|
|
|
600.0
|
|
Revolving credit facilities
|
40.0
|
|
|
1,075.0
|
|
Capital lease obligations
|
96.2
|
|
|
96.2
|
|
Total debt outstanding
|
7,020.6
|
|
|
8,525.6
|
|
Debt costs
|
(43.0
|
)
|
|
—
|
|
Unamortized fair value debt adjustment
|
(24.8
|
)
|
|
—
|
|
Total debt outstanding
|
$
|
6,952.8
|
|
|
$
|
8,525.6
|
|
The maximum borrowing levels depicted in the chart 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
March 31, 2018
, the actual availability under all of our credit facilities was approximately
$458.9 million
.
As of
March 31, 2018
, we had
$4,638.8 million
of total debt outstanding on facilities with fixed interest rates. These fixed rate facilities are scheduled to mature between
2018
and
2029
and had a contractual weighted average interest rate of
4.27%
as of
March 31, 2018
.
As of
March 31, 2018
, we had
$2,381.8 million
of total debt outstanding on facilities with interest rates based on floating rate indices (LIBOR). These floating rate facilities are scheduled to mature between
2018
and
2024
and had a contractual weighted average interest rate of
3.93%
as of
March 31, 2018
. Including the impact of our interest rate swaps, the contractual weighted average interest rate on our floating rate facilities was
3.95%
as of
March 31, 2018
.
We hedge the risks associated with fluctuations in interest rates on a portion of our floating rate borrowings by entering into interest rate swap agreements that convert a portion of our floating rate debt to a fixed rate basis, thus reducing the impact of interest rate changes on future interest expense. As of
March 31, 2018
, we had interest rate swaps in place with a notional amount of
$1,233.0 million
to fix the floating interest rates on a portion of our floating rate debt obligations. As of
March 31, 2018
, these interest rate swaps had a weighted average fixed leg interest rate of
1.87%
and a weighted average remaining term of
4.4 years
.
As of
March 31, 2018
, we had a combined
$5,871.8 million
of total debt on facilities with fixed interest rates or floating interest rates that have been synthetically fixed through interest rate swap contracts. The fixed facilities and fixed interest rate swap contracts had a contractual weighted average interest rate of
4.19%
and a weighted average remaining term of
4.3
years.
Overall, we had a contractual weighted average interest rate of
4.16%
as of
March 31, 2018
, including the impact of the swap contracts.
For additional information on our debt obligations, please refer to Note 4 - “Debt” in the Notes to Consolidated Financial Statements in Item 1.
Debt Covenants
We are subject to certain financial covenants under 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
March 31, 2018
, we were in compliance with all such covenants.
Non-GAAP Measures
We primarily rely on our results measured in accordance with generally accepted accounting principles ("GAAP") in evaluating our business. The covenant descriptions below include non-GAAP financial measures that are defined in our debt agreements. Fixed Charge Coverage Ratio, Minimum Consolidated Tangible Net Worth ("CTNW"), Funded Debt Ratio, Earnings Before Interest and Taxes ("EBIT"), Cash Interest Expense, Minimum Tangible Net Worth ("TNW") and Indebtedness are non-GAAP financial measures defined in our debt agreements that are used to determine our compliance with certain covenants contained in our debt agreements and should not be used as a substitute for analysis of our results as reported under GAAP. However, we believe
that the inclusion of this non-GAAP information provides additional information to investors regarding our debt covenant compliance.
TCIL Covenants
The Fixed Charge Coverage Ratio is the rolling six-quarter ratio of consolidated net income of our Triton Container International Limited ("TCIL") subsidiary available for fixed charges to fixed charges. Consolidated net income excludes non-cash gains and losses on derivatives and certain Merger costs, plus cash distributions received from certain unrestricted subsidiaries, plus all fixed charges. Fixed charges are the sum of interest expense and operating rental payments less interest income and the amortization of debt costs.
Minimum CTNW of our TCIL subsidiary comprises the equity of TCIL and its restricted subsidiaries, excluding any non-cash gains and/or losses from derivatives, less the sum of all intangible assets and restricted investments of TCIL and its subsidiaries. For the purpose of calculating Minimum CTNW, TCIL's investments in certain unrestricted subsidiaries are included in equity.
Funded Debt Ratio is the ratio of total debt of our TCIL subsidiary to CTNW.
TAL Covenants
The EBIT to Cash Interest Expense ratio is the rolling four-quarter ratio of EBIT to Cash Interest Expense for our TAL International Group, Inc. ("TAL") subsidiary. EBIT is calculated as earnings before interest expense and income taxes, net gain or losses on interest rate swaps, certain non-cash charges, and Merger costs. Cash Interest Expense is calculated as interest expense paid in cash and excludes interest income and amortization of debt costs.
Minimum TNW is calculated as total tangible assets less total indebtedness for our TAL subsidiary.
Indebtedness to TNW is calculated as the ratio of Indebtedness to TNW for our TAL subsidiary.
The compliance levels of our primary financial covenants as of
March 31, 2018
are summarized as follows:
|
|
|
|
|
|
|
|
Financial Covenant
|
|
Entity
|
|
Covenant Threshold
|
|
Actual Value
|
Fixed Charge Coverage Ratio
|
|
TCIL
|
|
Shall not be less than 1.25:1
|
|
2.03:1
|
Minimum Consolidated Tangible Net Worth
|
|
TCIL
|
|
Shall not be less than $855 million
|
|
$1,642.4 million
|
Funded Debt Ratio
|
|
TCIL
|
|
Shall not exceed 4.0:1
|
|
2.36:1
|
EBIT to Cash Interest Expense
|
|
TAL
|
|
Shall not be less than 1.10:1
|
|
2.16:1
|
Minimum TNW
|
|
TAL
|
|
Shall not be less than $750 million
|
|
$868.9 million
|
Indebtedness to TNW
|
|
TAL
|
|
Shall not exceed 4.75:1
|
|
3.66:1
|
Cash Flow
The following table sets forth certain cash flow information for the
three
months ended
March 31, 2018
and
2017
(in thousands):
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2018
|
|
2017
|
Net cash provided by operating activities
|
$
|
231,464
|
|
|
$
|
162,941
|
|
Net cash (used in) investing activities
|
$
|
(204,957
|
)
|
|
$
|
(215,543
|
)
|
Net cash (used in) provided by financing activities
|
$
|
(5,686
|
)
|
|
$
|
82,180
|
|
Operating Activities
Net cash provided by
operating activities
increased
by
$68.6 million
to
$231.5 million
in the
three
months ended
March 31, 2018
compared to
$162.9 million
in the same period in
2017
, primarily due to an increase in our profitability.
Investing Activities
Net cash used in
investing activities
decreased
by
$10.5 million
to
$205.0 million
in the
three
months ended
March 31, 2018
, compared to
$215.5 million
in the same period in
2017
. This decrease was primarily due to a decrease in the purchases of leasing equipment of
$7.0 million
and an increase in cash proceeds from the sale of equipment of
$3.9 million
.
Financing Activities
In the
three
months ended
March 31, 2018
, cash flows used in financing activities was
$5.7 million
, compared to cash flows provided by financing activities of
$82.2 million
in the same period in
2017
. Net borrowings, inclusive of debt issuance costs, under debt facilities decreased to
$35.4 million
during the
three
months ended
March 31, 2018
compared to an increase of
$120.3 million
during the same period in
2017
. In the
first
quarter of
2018
, net borrowings under our debt facilities decreased as a result of an increase in our profitability combined with a slight reduction in our purchases of leasing equipment.
Contractual Obligations
We are party to various operating and capital 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
March 31, 2018
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual Obligations by Period
|
Contractual Obligations:
|
Total
|
|
Remaining 2018
|
|
2019
|
|
2020
|
|
2021
|
|
2022 and thereafter
|
Principal debt obligations
|
$
|
6,930.6
|
|
|
$
|
582.7
|
|
|
$
|
1,223.2
|
|
|
$
|
1,035.5
|
|
|
$
|
888.1
|
|
|
$
|
3,201.1
|
|
Interest on debt obligations
(1)
|
1,107.2
|
|
|
212.5
|
|
|
245.1
|
|
|
198.8
|
|
|
159.7
|
|
|
291.1
|
|
Capital lease obligations
(2)
|
109.9
|
|
|
23.7
|
|
|
11.2
|
|
|
10.8
|
|
|
10.8
|
|
|
53.4
|
|
Operating leases (mainly facilities)
|
10.5
|
|
|
3.8
|
|
|
2.6
|
|
|
1.7
|
|
|
1.2
|
|
|
1.2
|
|
Purchase obligations:
|
|
|
|
|
|
|
|
|
|
|
|
Equipment purchases payable
|
126.0
|
|
|
126.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Equipment purchase commitments
|
453.2
|
|
|
453.2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Severance benefit commitment
|
7.3
|
|
|
7.3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total contractual obligations
|
$
|
8,744.7
|
|
|
$
|
1,409.2
|
|
|
$
|
1,482.1
|
|
|
$
|
1,246.8
|
|
|
$
|
1,059.8
|
|
|
$
|
3,546.8
|
|
_______________________________________________________________________________
|
|
(1)
|
Amounts include actual interest for fixed debt and estimated interest for floating rate debt based on
March 31, 2018
rates and the net effect of our interest rate swaps.
|
|
|
(2)
|
Amounts include interest.
|
Off-Balance Sheet Arrangements
As of
March 31, 2018
, 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. On an ongoing basis, we evaluate our estimates and assumptions. Our actual results may differ from these estimates under different assumptions or conditions. Our critical accounting policies are discussed in our Form 10-K.