Note 1—Description of the Business, Basis of Presentation and Accounting Policy Updates
Description of the Business
Triton International Limited ("Triton" or the "Company"), through its subsidiaries, leases intermodal transportation equipment, primarily maritime containers, and provides maritime container management services through a worldwide network of service subsidiaries, third-party depots and other facilities. The majority of the Company's business is derived from leasing its containers to shipping line customers through a variety of long-term and short-term contractual lease arrangements. The Company also sells containers from its equipment leasing fleet as well as containers specifically acquired for resale from third parties. The Company's registered office is located in Bermuda.
Basis of Presentation
The unaudited consolidated financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these financial statements do not include all information and footnotes required by GAAP for complete financial statements.
The interim consolidated balance sheet as of March 31, 2020; the consolidated statements of operations, the consolidated statements of comprehensive income, the consolidated statements of shareholders' equity and the consolidated statements of cash flows for the three months ended March 31, 2020 and 2019 are unaudited. The consolidated balance sheet as of December 31, 2019, included herein, was derived from the audited financial statements as of that date, but does not include all disclosures required by GAAP. The unaudited interim financial statements have been prepared on a basis consistent with the Company's annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments necessary to state fairly the Company's financial position, results of operations, comprehensive income, shareholders' equity, and cash flows for the periods presented. The financial data and the other financial information disclosed in the notes to the financial statements related to these periods are also unaudited. The consolidated results of operations for the three months ended March 31, 2020 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2020 or for any other future annual or interim period.
These financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes thereto as of and for the year ended December 31, 2019 included in the Company's Annual Report on Form 10-K which was filed with the SEC on February 14, 2020. The unaudited consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Certain changes in presentation have been made to conform the prior period presentation to current period reporting.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities in the financial statements. Such estimates include, but are not limited to, the Company's estimates in connection with leasing equipment, including residual values and depreciable lives, values of assets held for sale and other long lived assets, provision for income tax, allowance for doubtful accounts, share-based compensation, goodwill and intangible assets. Actual results could differ from those estimates.
Concentration of Credit Risk
The Company's equipment leases and trade receivables subject it to potential credit risk. The Company extends credit to its customers based upon an evaluation of each customer's financial condition and credit history. Evaluations of the financial condition and associated credit risk of customers are performed on an ongoing basis. The Company's two largest customers, CMA CGM S.A. and Mediterranean Shipping Company S.A., accounted for 21% and 15%, respectively, of the Company's lease billings during the three months ended March 31, 2020.
Fair Value Measurements
For information on the fair value of equipment held for sale, debt, and the fair value of derivative instruments, please refer to Note 2 - "Equipment Held for Sale", Note 7 - "Debt" and Note 8 - "Derivative Instruments", respectively.
TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
New Accounting Pronouncements
Recently Adopted Accounting Standards Updates
Measurement of Credit Losses on Financial Instruments
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326) and subsequently issued amendments. The guidance affects the Company's net investment in finance leases and accounts receivable for its Equipment trading segment. The standard requires the measurement of expected credit losses to be based on relevant information from past events, including historical experiences, current conditions and reasonable and supportable forecasts that affect collectability.
The Company adopted the standard and its related amendments as of January 1, 2020. The Company has evaluated the impact of this ASU and concluded that the adoption of this standard did not have a significant impact on its consolidated financial statements.
Reference Rate Reform
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The guidance provides optional practical expedients for applying U.S. GAAP to hedging relationships affected by reference rate reform. The guidance is applicable to the Company's debt agreements, hedging relationships, and other transactions that reference LIBOR.
The Company adopted the standard and certain of its related amendments as of March 12, 2020. By adopting this standard, it will help ease the burden that the Company may face due to the transition away from certain reference rates, specifically LIBOR, which is the predominant reference rate in many of the Company’s debt agreements and hedging relationships. The practical expedients applicable to the Company are as follows: (1) contract modifications due to reference rate reform can be treated as continuations of the existing contract and potential changes to interest rate risk can be disregarded when asserting the probability of the forecasted hedged transactions; (2) hedge accounting can continue to be used for hedging relationships where critical terms change due to reference rate reform; and (3) effectiveness assessments can be performed in ways that disregard certain mismatches due to reference rate reform. The Company concluded that the adoption of this standard will not have a significant impact on our consolidated financial statements.
Note 2—Equipment Held for Sale
The Company's equipment held for sale is recorded at the lower of fair value less cost to sell, or carrying value at the time identified for sale. Fair value is measured using Level 2 inputs and is based on recent sales prices and other factors. The following table summarizes the portion of equipment held for sale in the consolidated balance sheet that have been impaired and written down to fair value less cost to sell (in thousands):
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
December 31, 2019
|
Equipment held for sale
|
$
|
16,208
|
|
|
$
|
11,797
|
|
An impairment charge is recorded when the carrying value of the asset exceeds its fair value less cost to sell. The following table summarizes the Company's net impairment charges recorded in net gains or losses on sale of leasing equipment held for sale on the consolidated statements of operations (in thousands):
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2020
|
|
2019
|
Impairment (loss) reversal on equipment held for sale
|
$
|
(1,490
|
)
|
|
$
|
(1,407
|
)
|
Gain (loss) on sale of equipment, net of selling costs
|
5,567
|
|
|
9,876
|
|
Net gain on sale of leasing equipment
|
$
|
4,077
|
|
|
$
|
8,469
|
|
TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 3—Intangible Assets
Intangible assets consist of lease intangibles for leases acquired with lease rates above market at the time of acquisition. The following table summarizes the amortization of intangible assets as of March 31, 2020 (in thousands):
|
|
|
|
|
Years ending December 31,
|
Total intangible assets
|
2020
|
$
|
16,283
|
|
2021
|
16,549
|
|
2022
|
10,497
|
|
2023
|
4,657
|
|
2024
|
1,962
|
|
2025 and thereafter
|
—
|
|
Total
|
$
|
49,948
|
|
Amortization expense related to intangible assets was $6.2 million and $11.2 million for the three months ended March 31, 2020, and 2019, respectively.
Note 4—Share-Based Compensation
The Company recognizes share-based compensation expense for share-based payment transactions based on the grant date fair value. The expense is recognized over the employee's requisite service period, which is generally the vesting period of the equity award. The Company recognized share-based compensation expense in administrative expenses of $1.6 million and $1.8 million for the three months ended March 31, 2020 and 2019, respectively. Share-based compensation expense includes charges for performance-based shares that are deemed probable to vest.
As of March 31, 2020, the total unrecognized compensation expense related to non-vested restricted shares was approximately $13.5 million, which is expected to be recognized through 2023.
During the three months ended March 31, 2020, the Company issued 184,644 time-based and performance-based restricted shares, and canceled 53,609 vested shares to settle payroll taxes on behalf of employees. Additional shares may be accrued and issued based upon the Company's performance measured against selected peers.
Note 5—Other Equity Matters
Share Repurchase Program
The Company's Board of Directors authorized repurchases of common shares up to a specified dollar amount as part of its repurchase program. Purchases under the repurchase program may be made in the open market or privately negotiated transactions, and may include transactions pursuant to a repurchase plan administered in accordance with Rules 10b5-1 and 10b-18 under the Securities Exchange Act of 1934, as amended. Purchases may be made from time to time at the Company's discretion and the timing and amount of any share repurchases will be determined based on share price, market conditions, legal requirements, and other factors. The repurchase program does not obligate the Company to acquire any particular amount of common shares, and the Company may suspend or discontinue the repurchase program at any time.
During the three months ended March 31, 2020, the Company repurchased a total of 1,365,620 common shares at an average price per-share of $27.43 for a total of $37.5 million. As of March 31, 2020, $46.1 million remains available under the common share repurchase program.
TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Preferred Shares
The following table summarizes the Company's preferred share issuances (the "Series"):
|
|
|
|
|
|
|
|
|
|
|
Preferred Share Offering
|
|
Issuance
|
|
Liquidation Preference (in thousands)
|
|
# of Shares(1)
|
Series A 8.50% Cumulative Redeemable Perpetual Preference Shares ("Series A")
|
|
March 2019
|
|
$
|
86,250
|
|
|
3,450,000
|
|
Series B 8.00% Cumulative Redeemable Perpetual Preference Shares ("Series B")
|
|
June 2019
|
|
143,750
|
|
|
5,750,000
|
|
Series C 7.375% Cumulative Redeemable Perpetual Preference Shares ("Series C")
|
|
November 2019
|
|
175,000
|
|
|
7,000,000
|
|
Series D 6.875% Cumulative Redeemable Perpetual Preference Shares ("Series D")
|
|
January 2020
|
|
150,000
|
|
|
6,000,000
|
|
|
|
|
|
$
|
555,000
|
|
|
22,200,000
|
|
|
|
(1)
|
Represents number of shares authorized, issued, and outstanding.
|
In January 2020, the Company completed a public offering of the Series D shares and received $145.3 million in aggregate net proceeds after deducting underwriting discounts of $4.7 million. The net proceeds were used for general corporate purposes, including the purchase of containers, the repurchase of outstanding common shares, the payment of dividends, and the repayment or repurchase of outstanding indebtedness.
Each Series of preferred shares may be redeemed at the Company's option, at any time after approximately five years from original issuance, in whole or in part at a redemption price, which is equal to the issue price, of $25.00 per share plus an amount equal to all accumulated and unpaid dividends, whether or not declared. In the event of a Change of Control Triggering Event, the Company may also redeem each Series of preferred shares. If the Company does not elect to redeem each Series, holders of preferred shares may have the right to convert their preferred shares into common shares. A Change of Control Triggering Event occurs when a Change of Control is accompanied or followed by a downgrade or a withdrawal of the rating by the rating agency within 60 days following the Change of Control to any of the Series.
Holders of preferred shares generally have no voting rights. If the Company fails to pay dividends for six or more quarterly periods (whether or not consecutive), holders will be entitled to elect two additional directors to the Board of Directors and the size of the Board of Directors will be increased to accommodate such election. Such right to elect two directors will continue until such time as there are no accumulated and unpaid dividends in arrears.
Dividends
Dividends on shares of each Series are cumulative from the date of original issue and will be payable quarterly in arrears on the 15th day of March, June, September and December of each year, when, as and if declared by the Company's Board of Directors. Dividends on shares of each Series will be payable equal to the applicable stated rate per annum of the $25.00 liquidation preference per share. The Series rank senior to the Company's common shares with respect to dividend rights and rights upon the Company's liquidation, dissolution or winding up, whether voluntary or involuntary.
The Company paid the following quarterly dividends during the three months ended March 31, 2020 on its issued and outstanding Series (in millions except for per-share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A
|
|
Series B
|
|
Series C
|
|
Series D
|
Record Date
|
Payment Date
|
|
Aggregate Payment
|
|
Per Share
Payment
|
|
Aggregate Payment
|
|
Per Share
Payment
|
|
Aggregate Payment
|
|
Per Share
Payment
|
|
Aggregate Payment
|
|
Per Share
Payment
|
March 9, 2020
|
March 16, 2020
|
|
$1.8
|
|
$0.53125
|
|
$2.9
|
|
$0.50
|
|
$3.2
|
|
$0.4609375
|
|
$1.5
|
|
$0.24349
|
As of March 31, 2020, the Company had cumulative unpaid preferred dividends of $1.8 million.
TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Common Share Dividends
The Company paid the following quarterly dividends during the three months ended March 31, 2020 and 2019 on its issued and outstanding common shares:
|
|
|
|
|
|
|
Record Date
|
Payment Date
|
|
Aggregate Payment
|
|
Per Share Payment
|
March 13, 2020
|
March 27, 2020
|
|
$37.1 Million
|
|
$0.52
|
March 12, 2019
|
March 28, 2019
|
|
$40.4 Million
|
|
$0.52
|
Accumulated Other Comprehensive Income
The following table summarizes the components of accumulated other comprehensive income (loss), net of tax, for the three months ended March 31, 2020 and 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow
Hedges
|
|
Foreign
Currency
Translation
|
|
Accumulated Other Comprehensive (Loss) Income
|
Balance as of December 31, 2019
|
$
|
(27,096
|
)
|
|
$
|
(4,537
|
)
|
|
$
|
(31,633
|
)
|
Change in derivative instruments designated as cash flow hedges(1)
|
(120,140
|
)
|
|
—
|
|
|
(120,140
|
)
|
Reclassification of (gain) loss on derivative instruments designated as cash flow hedges(1)
|
1,411
|
|
|
—
|
|
|
1,411
|
|
Foreign currency translation adjustment
|
—
|
|
|
(262
|
)
|
|
(262
|
)
|
Balance as of March 31, 2020
|
$
|
(145,825
|
)
|
|
$
|
(4,799
|
)
|
|
$
|
(150,624
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow
Hedges
|
|
Foreign
Currency
Translation
|
|
Accumulated Other Comprehensive (Loss) Income
|
Balance as of December 31, 2018
|
$
|
19,043
|
|
|
$
|
(4,480
|
)
|
|
$
|
14,563
|
|
Change in derivative instruments designated as cash flow hedges(1)
|
(14,323
|
)
|
|
—
|
|
|
(14,323
|
)
|
Reclassification of (gain) loss on derivative instruments designated as cash flow hedges(1)
|
(1,749
|
)
|
|
—
|
|
|
(1,749
|
)
|
Cumulative effect for the adoption of ASU 2017-12, net of income tax effect
|
432
|
|
|
—
|
|
|
432
|
|
Foreign currency translation adjustment
|
—
|
|
|
43
|
|
|
43
|
|
Balance as of March 31, 2019
|
$
|
3,403
|
|
|
$
|
(4,437
|
)
|
|
$
|
(1,034
|
)
|
|
|
(1)
|
Refer to Note 8 - "Derivative Instruments" for reclassification impact on the Consolidated Statement of Operations
|
Note 6—Leases
Lessee
The Company leases multiple office facilities which are contracted under various cancelable and non-cancelable operating leases, most of which provide extension or early termination options. The Company's lease agreements do not contain any residual value guarantees or material restrictive covenants.
As of March 31, 2020, the weighted average implicit rate was 4.10% and the weighted average remaining lease term was 3.1 years.
The following table summarizes the components of the Company's leases (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet
|
Financial statement caption
|
|
March 31, 2020
|
|
December 31, 2019
|
Right-of-use asset - operating
|
Other assets
|
|
$
|
6,833
|
|
|
$
|
7,616
|
|
Lease liability - operating
|
Accounts payable and other accrued expenses
|
|
$
|
8,086
|
|
|
$
|
8,940
|
|
TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
Income Statement
|
|
|
2020
|
|
2019
|
Operating lease cost(1)
|
Administrative expenses
|
|
$
|
759
|
|
|
$
|
734
|
|
|
|
(1)
|
Includes short-term leases that are immaterial.
|
Cash paid for amounts included in the measurement of lease liabilities under operating cash flows was $0.8 million for both the three month periods ended March 31, 2020 and March 31, 2019.
The following represents our future undiscounted cash flows for each of the next five years and thereafter and reconciliation to the lease liabilities as of March 31, 2020 (in thousands):
|
|
|
|
|
Years ending December 31,
|
|
2020
|
$
|
2,290
|
|
2021
|
2,655
|
|
2022
|
2,247
|
|
2023
|
1,379
|
|
2024
|
67
|
|
2025 and thereafter
|
—
|
|
Total undiscounted future cash flows related to lease payments
|
$
|
8,638
|
|
Less: imputed interest
|
(552
|
)
|
Total present value of lease liability
|
$
|
8,086
|
|
Lessor
The following table summarizes the components of the net investment in finance leases (in thousands):
|
|
|
|
|
|
|
|
|
|
March 31,
2020
|
|
December 31,
2019
|
Future minimum lease payment receivable(1)
|
$
|
424,836
|
|
|
$
|
476,443
|
|
Estimated residual receivable(2)
|
59,059
|
|
|
102,238
|
|
Gross finance lease receivables(3)
|
483,895
|
|
|
578,681
|
|
Unearned income(4)
|
(148,687
|
)
|
|
(165,339
|
)
|
Net investment in finance leases(5)
|
$
|
335,208
|
|
|
$
|
413,342
|
|
|
|
(1)
|
There were no executory costs included in gross finance lease receivables as of March 31, 2020 and December 31, 2019.
|
|
|
(2)
|
The Company's finance leases generally include a bargain purchase option and therefore, the Company has immaterial residual value risk for assets.
|
|
|
(3)
|
The gross finance lease receivable is reduced as billed to customers and reclassified to accounts receivable until paid.
|
|
|
(4)
|
There were no unamortized initial direct costs as of March 31, 2020 and December 31, 2019.
|
|
|
(5)
|
As of March 31, 2020, two major customers represented 66% and 12% of the Company's finance lease portfolio. As of December 31, 2019, three major customers represented 55%, 24% and 11% of the Company's finance lease portfolio. No other customer represented more than 10% of the Company's finance lease portfolio in each of those periods.
|
Maturities of the Company's gross finance lease receivables subsequent to March 31, 2020 are as follows (in thousands):
|
|
|
|
|
Years ending December 31,
|
|
2020
|
$
|
82,373
|
|
2021
|
74,295
|
|
2022
|
50,246
|
|
2023
|
44,802
|
|
2024
|
44,591
|
|
2025 and thereafter
|
187,588
|
|
Total
|
$
|
483,895
|
|
The Company’s finance lease portfolio lessees are primarily comprised of the largest international shipping lines. In its estimate of expected credit losses, the Company evaluates the overall credit quality of its finance lease portfolio. The Company considers an account past due when a payment has not been received in accordance with the terms of the related lease agreement
TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
and maintains allowances, if necessary, for doubtful accounts. These allowances are based on, but not limited to, historical experience which included stronger and weaker economic cycles, each lessee's payment history, management's current assessment of each lessee's financial condition, consideration of current conditions and reasonable forecasts. As of March 31, 2020, the Company does not have an allowance on its gross finance lease receivables and does not have any past due balances.
Note 7—Debt
The table below summarizes the Company's key terms and carrying value of debt (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual Weighted Avg Interest Rate(1)
|
|
Maturity Range(1)
|
|
March 31, 2020
|
|
December 31, 2019
|
|
|
From
|
|
To
|
|
|
Institutional notes
|
4.68%
|
|
Apr 2020
|
|
Jun 2029
|
|
$
|
1,926,614
|
|
|
$
|
1,957,557
|
|
Asset-backed securitization term notes
|
3.45%
|
|
May 2022
|
|
Jun 2028
|
|
2,623,676
|
|
|
2,719,206
|
|
Term loan facilities
|
2.47%
|
|
Apr 2022
|
|
Nov 2023
|
|
1,172,375
|
|
|
1,200,375
|
|
Asset-backed securitization warehouse
|
2.59%
|
|
Dec 2025
|
|
Dec 2025
|
|
270,000
|
|
|
370,000
|
|
Revolving credit facilities
|
2.47%
|
|
Sep 2023
|
|
Jul 2024
|
|
777,500
|
|
|
410,000
|
|
Finance lease obligations
|
4.93%
|
|
Feb 2024
|
|
Feb 2024
|
|
18,924
|
|
|
27,024
|
|
Total debt outstanding
|
|
|
|
|
|
|
6,789,089
|
|
|
6,684,162
|
|
Unamortized debt costs
|
|
|
|
|
|
|
(36,883
|
)
|
|
(39,781
|
)
|
Unamortized debt premiums & discounts
|
|
|
|
|
|
|
(3,785
|
)
|
|
(4,065
|
)
|
Unamortized fair value debt adjustment
|
|
|
|
|
|
|
(7,581
|
)
|
|
(8,791
|
)
|
Debt, net of unamortized costs
|
|
|
|
|
|
|
$
|
6,740,840
|
|
|
$
|
6,631,525
|
|
|
|
(1)
|
Data as of March 31, 2020.
|
The fair value of total debt outstanding was $6,458.9 million and $6,747.8 million as of March 31, 2020 and December 31, 2019, respectively, and was measured using Level 2 inputs.
As of March 31, 2020, the maximum borrowing levels for the ABS warehouse and the revolving credit facility are $800.0 million and $1,560.0 million, respectively. These facilities are governed by borrowing bases that limit borrowing capacity to an established percentage of relevant assets. As of March 31, 2020, the availability under these credit facilities without adding additional container assets to the borrowing base was approximately $515.8 million.
The Company is subject to certain financial covenants under its debt agreements. The agreements remain the obligations of the respective subsidiaries, and all related debt covenants are calculated at the subsidiary level. As of March 31, 2020 and December 31, 2019, the Company was in compliance with all financial covenants in accordance with the terms of its debt agreements.
TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company hedges the risks associated with fluctuations in interest rates on a portion of its floating-rate debt by entering into interest rate swap agreements that convert a portion of its floating-rate debt to a fixed rate basis, thus reducing the impact of interest rate changes on future interest expense. The following table summarizes the Company's outstanding fixed-rate and floating-rate debt as of March 31, 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Balance Outstanding
|
|
Contractual Weighted Avg Interest Rate
|
|
Maturity Range
|
|
Weighted Avg Remaining Term
|
|
|
|
From
|
|
To
|
|
Excluding impact of derivative instruments:
|
|
|
|
|
|
|
|
|
|
Fixed-rate debt
|
$3,864,305
|
|
4.25%
|
|
Apr 2020
|
|
Jun 2029
|
|
3.3 years
|
Floating-rate debt
|
$2,924,784
|
|
2.47%
|
|
Apr 2022
|
|
Dec 2025
|
|
3.4 years
|
|
|
|
|
|
|
|
|
|
|
Including impact of derivative instruments:
|
|
|
|
|
|
|
|
|
|
Fixed-rate debt
|
$3,864,305
|
|
4.25%
|
|
|
|
|
|
|
Hedged floating-rate debt
|
1,786,843
|
|
3.59%
|
|
|
|
|
|
|
Total fixed and hedged debt
|
5,651,148
|
|
4.04%
|
|
|
|
|
|
|
Unhedged floating-rate debt
|
1,137,941
|
|
2.47%
|
|
|
|
|
|
|
Total
|
$6,789,089
|
|
3.78%
|
|
|
|
|
|
|
On January 31, 2020, the Company paid $7.5 million to exercise the early purchase option on a finance lease obligation.
To provide additional liquidity and enhance its financial flexibility in response to recent global economic uncertainty and financial market volatility caused by the COVID-19 pandemic, the Company drew down $350.0 million from a revolving credit facility as a precautionary measure in March 2020.
Institutional Notes
In accordance with the institutional note agreements, interest payments on the Company's institutional notes are due semi-annually. Institutional note maturities typically range from 7 - 12 years, with level principal payments due annually following an interest-only period. The Company's institutional notes are pre-payable (in whole or in part) at the Company's option at any time, subject to certain provisions in the note agreements, including the payment of a make-whole premium in respect to such prepayment. These facilities provide for an advance rate against the net book values of designated eligible equipment.
Asset-Backed Securitization Term Notes
Under the Company's Asset-backed Securitization ("ABS") facilities, indirect wholly-owned subsidiaries of the Company issue asset-backed notes. These subsidiaries are intended to be bankruptcy remote so that such assets are not available to creditors of the Company or its affiliates until and unless the related secured borrowings have been fully discharged. These transactions do not meet accounting requirements for sales treatment and are recorded as secured borrowings.
The Company’s borrowings under the ABS facilities amortize in monthly installments, typically in level payments over five or more years. These facilities provide for an advance rate against the net book values of designated eligible equipment. The net book values for purposes of calculating eligible equipment is determined according to the related debt agreement and may be different than those calculated per U.S. GAAP. The Company is required to maintain restricted cash balances on deposit in designated bank accounts equal to three to nine months of interest expense depending on the terms of each facility.
Term Loan Facilities
The term loan facilities amortize in monthly or quarterly installments. These facilities provide for an advance rate against the net book values of designated eligible equipment.
Asset-Backed Securitization Warehouse
Under the Company’s asset-backed warehouse facility, indirect wholly-owned subsidiaries of the Company issue asset-backed notes. These subsidiaries are intended to be bankruptcy remote so that such assets are not available to creditors of the Company
TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
or its affiliates until and unless the related secured borrowings have been fully discharged. These transactions do not meet accounting requirements for sales treatment and are recorded as secured borrowings.
The Company's asset-backed warehouse facility has a borrowing capacity of $800.0 million that is available on a revolving basis until December 13, 2021, paying interest at LIBOR plus 1.75%, after which any borrowings will convert to term notes with a maturity date of December 15, 2025, paying interest at LIBOR plus 2.85%.
During the revolving period, the borrowing capacity under this facility is determined by applying an advance rate against the net book values of designated eligible equipment. The net book values for purposes of calculating eligible equipment are determined according to the related debt agreement and may be different than those calculated per U.S. GAAP. The Company is required to maintain restricted cash balances on deposit in designated bank accounts equal to three months of interest expense.
Revolving Credit Facilities
The revolving credit facilities have a maximum borrowing capacity of $1,560.0 million. These facilities provide for an advance rate against the net book values of designated eligible equipment.
Finance Lease Obligations
The Company has one finance lease contract with a financial institution for some of our containers. Each lease is accounted for as a finance lease, with interest expense recognized on a level yield basis over the period preceding early purchase options, if any, which is five to seven years from the transaction date.
Note 8—Derivative Instruments
Interest Rate Swaps / Caps
The Company enters into derivative agreements to manage interest rate risk exposure. Interest rate swap agreements are utilized to limit the Company's exposure to interest rate risk by converting a portion of its floating-rate debt to a fixed rate basis, thus reducing the impact of interest rate changes on future interest expense. Interest rate swaps involve the receipt of floating-rate amounts in exchange for fixed rate interest payments over the lives of the agreements without an exchange of the underlying principal amounts. The Company also utilizes interest rate cap agreements to manage interest rate risk exposure. Interest rate cap agreements place a ceiling on the Company's exposure to rising interest rates.
The counterparties to these agreements are highly rated financial institutions. In the unlikely event that the counterparties fail to meet the terms of these agreements, the Company's exposure is limited to the interest rate differential on the notional amount at each monthly settlement period over the life of the agreements. The Company does not anticipate any non-performance by the counterparties. Substantially all of the assets of certain indirect, wholly-owned subsidiaries of the Company have been pledged as collateral for the underlying indebtedness and the amounts payable under the agreements for each of these entities. In addition, certain assets of the Company's subsidiaries are pledged as collateral for various credit facilities and the amounts payable under certain agreements.
As of March 31, 2020, the Company had interest rate swap and cap agreements in place to fix or limit the floating interest rates on a portion of the borrowings under its debt facilities summarized below:
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
Notional Amount
|
|
Weighted Average
Fixed Leg (Pay) Interest Rate
|
|
Cap Rate
|
|
Weighted Average
Remaining Term
|
Interest Rate Swap(1)
|
|
$1,786.8 million
|
|
2.02%
|
|
n/a
|
|
4.9 years
|
Interest Rate Cap
|
|
$200.0 million
|
|
n/a
|
|
5.5%
|
|
1.8 years
|
|
|
(1)
|
The impact of forward starting swaps with total notional amount of $550.0 million will increase the weighted average remaining term to 6.5 years.
|
TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes the impact of derivative instruments on the consolidated statements of operations and the consolidated statements of comprehensive income on a pretax basis (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
Derivative Instrument
|
Financial statement caption
|
|
2020
|
|
2019
|
Non-designated derivative instruments
|
Realized (gain) loss on derivative instruments, net
|
|
$
|
(235
|
)
|
|
$
|
(704
|
)
|
Non-designated derivative instruments
|
Unrealized (gain) loss on derivative instruments, net
|
|
$
|
297
|
|
|
$
|
986
|
|
Designated derivative instruments
|
Interest and debt (income) expense
|
|
$
|
1,259
|
|
|
$
|
(2,355
|
)
|
Designated derivative instruments
|
Comprehensive loss
|
|
$
|
129,614
|
|
|
$
|
16,467
|
|
Fair Value of Derivative Instruments
The Company has elected to use the income approach to value its interest rate swap and cap agreements, using Level 2 market expectations at the measurement date and standard valuation techniques to convert future values to a single discounted present value. The Level 2 inputs for the interest rate swap and cap valuations are inputs other than quoted prices that are observable for the asset or liability (specifically LIBOR and swap rates and credit risk at commonly quoted intervals). In response to the expected phase out of LIBOR, the Company continues to work with its counterparties to identify an alternative reference rate. Many of the Company's debt agreements already include transition language, and the Company also adopted various practical expedients which will facilitate the transition.
The Company presents its derivative financial instruments on a gross basis on the consolidated balance sheet. Any amounts of cash collateral received or posted related to derivative instruments are included in Other Assets on the consolidated balance sheet and are presented in operating activities of the consolidated statements of cash flows. As of March 31, 2020, there was cash collateral of $35.8 million related to interest rate swap contracts.
The fair value of derivative instruments on the Company's consolidated balance sheets as of March 31, 2020 and December 31, 2019 was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
Liability Derivatives
|
Derivative Instrument
|
March 31, 2020
|
|
December 31, 2019
|
|
March 31, 2020
|
|
December 31, 2019
|
Interest rate hedges, designated
|
$
|
35
|
|
|
$
|
10,562
|
|
|
$
|
153,152
|
|
|
$
|
36,087
|
|
Interest rate hedges, non-designated
|
—
|
|
|
286
|
|
|
11
|
|
|
—
|
|
Total derivatives
|
$
|
35
|
|
|
$
|
10,848
|
|
|
$
|
153,163
|
|
|
$
|
36,087
|
|
Note 9—Segment and Geographic Information
Segment Information
The Company operates its business in one industry, intermodal transportation equipment, and has two operating segments which also represent its reporting segments:
|
|
•
|
Equipment leasing - the Company owns, leases and ultimately disposes of containers and chassis from its lease fleet.
|
|
|
•
|
Equipment trading - the Company purchases containers from shipping line customers, and other sellers of containers, and resells these containers to container retailers and users of containers for storage or one-way shipment. Included in the equipment trading segment revenues are leasing revenues from equipment purchased for resale that is currently on lease until the containers are dropped off.
|
These operating segments were determined based on the chief operating decision maker's review and resource allocation of the products and services offered.
TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following tables summarizes our segment information and the consolidated totals reported (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2020
|
|
2019
|
|
Equipment
Leasing
|
|
Equipment
Trading
|
|
Totals
|
|
Equipment
Leasing
|
|
Equipment
Trading
|
|
Totals
|
Total leasing revenues
|
$
|
321,037
|
|
|
$
|
431
|
|
|
$
|
321,468
|
|
|
$
|
340,070
|
|
|
$
|
789
|
|
|
$
|
340,859
|
|
Trading margin
|
—
|
|
|
1,933
|
|
|
1,933
|
|
|
—
|
|
|
3,587
|
|
|
3,587
|
|
Net gain on sale of leasing equipment
|
4,077
|
|
|
—
|
|
|
4,077
|
|
|
8,469
|
|
|
—
|
|
|
8,469
|
|
Depreciation and amortization expense
|
132,518
|
|
|
177
|
|
|
132,695
|
|
|
134,422
|
|
|
187
|
|
|
134,609
|
|
Interest and debt expense
|
68,699
|
|
|
303
|
|
|
69,002
|
|
|
83,174
|
|
|
346
|
|
|
83,520
|
|
Realized (gain) loss on derivative instruments, net
|
(234
|
)
|
|
(1
|
)
|
|
(235
|
)
|
|
(702
|
)
|
|
(2
|
)
|
|
(704
|
)
|
Income (loss) before income taxes(1)
|
81,517
|
|
|
1,393
|
|
|
82,910
|
|
|
98,466
|
|
|
3,181
|
|
|
101,647
|
|
Purchases of leasing equipment and investments in finance leases(2)
|
$
|
62,406
|
|
|
$
|
—
|
|
|
$
|
62,406
|
|
|
$
|
43,981
|
|
|
$
|
—
|
|
|
$
|
43,981
|
|
|
|
(1)
|
Segment income (loss) before income taxes excludes unrealized loss on derivative instruments of $0.3 million and $1.0 million for the three months ended March 31, 2020 and March 31, 2019, respectively, and an immaterial amount for debt termination expense for the three months ended March 31, 2020.
|
|
|
(2)
|
Represents cash disbursements for purchases of leasing equipment and investments in finance lease as reflected in the consolidated statements of cash flows for the periods indicated, but excludes cash flows associated with the purchase of equipment held for resale.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
December 31, 2019
|
|
Equipment Leasing
|
|
Equipment Trading
|
|
Totals
|
|
Equipment Leasing
|
|
Equipment Trading
|
|
Totals
|
Equipment held for sale
|
$
|
97,403
|
|
|
$
|
25,072
|
|
|
$
|
122,475
|
|
|
$
|
89,755
|
|
|
$
|
24,749
|
|
|
$
|
114,504
|
|
Goodwill
|
220,864
|
|
|
15,801
|
|
|
236,665
|
|
|
220,864
|
|
|
15,801
|
|
|
236,665
|
|
Total assets
|
$
|
9,828,479
|
|
|
$
|
45,911
|
|
|
$
|
9,874,390
|
|
|
$
|
9,596,263
|
|
|
$
|
46,370
|
|
|
$
|
9,642,633
|
|
There are no intercompany revenues or expenses between segments. Certain administrative expenses have been allocated between segments based on an estimate of services provided to each segment. A portion of the Company's equipment purchased for resale may be leased for a period of time and is reflected as leasing equipment as opposed to equipment held for sale and the cash flows associated with these transactions are reflected as purchases of leasing equipment and proceeds from the sale of equipment in investing activities in the Company's consolidated statements of cash flows.
Geographic Segment Information
The Company generates the majority of its leasing revenues from international containers which are deployed by its customers in a wide variety of global trade routes. The majority of the Company's leasing related revenue is denominated in U.S. dollars.
The following table summarizes the geographic allocation of equipment leasing revenues for the three months ended March 31, 2020 and 2019 based on customers' primary domicile (in thousands):
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2020
|
|
2019
|
Total equipment leasing revenues:
|
|
|
|
Asia
|
$
|
120,806
|
|
|
$
|
137,450
|
|
Europe
|
164,263
|
|
|
162,557
|
|
Americas
|
26,261
|
|
|
30,782
|
|
Bermuda
|
443
|
|
|
678
|
|
Other International
|
9,695
|
|
|
9,392
|
|
Total
|
$
|
321,468
|
|
|
$
|
340,859
|
|
Since the majority of the Company's containers are used internationally, where no one container is domiciled in one particular place for a prolonged period of time, all of the Company's long-lived assets are considered to be international.
TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes the geographic allocation of equipment trading revenues for the three months ended March 31, 2020 and 2019 based on the location of the sale (in thousands):
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2020
|
|
2019
|
Total equipment trading revenues:
|
|
|
|
Asia
|
$
|
1,532
|
|
|
$
|
3,292
|
|
Europe
|
4,952
|
|
|
4,871
|
|
Americas
|
6,595
|
|
|
6,765
|
|
Bermuda
|
—
|
|
|
—
|
|
Other International
|
2,301
|
|
|
2,900
|
|
Total
|
$
|
15,380
|
|
|
$
|
17,828
|
|
Note 10—Commitments and Contingencies
Container Equipment Purchase Commitments
At March 31, 2020, the Company had commitments to purchase equipment in the amount of $133.9 million payable in 2020.
Contingencies
The Company is party to various pending or threatened legal or regulatory proceedings arising in the ordinary course of its business. Based upon information presently available, the Company does not expect any liabilities arising from these matters to have a material effect on the consolidated financial position, results of operations or cash flows of the Company.
Note 11—Income Taxes
The Company's effective tax rates were 6.7% and 7.8% for the three months ended March 31, 2020 and 2019, respectively. The Company has computed the provision for income taxes based on the estimated annual effective tax rate and the application of discrete items, if any, in the applicable period. The decrease in effective tax rates in 2020 was primarily the result of an increased proportion of the Company's income generated in lower tax jurisdictions. In addition, there were tax expenses related to uncertain tax positions recorded in 2019 that did not reoccur in 2020.
Note 12—Related Party Transactions
The Company holds a 50% interest in TriStar Container Services (Asia) Private Limited ("TriStar"), which is primarily engaged in the selling and leasing of container equipment in the domestic and short sea markets in India. The Company's equity investment in TriStar is included in Other assets on the consolidated balance sheet. The Company received payments on direct finance leases with TriStar of $0.5 million for both of the three month periods ended March 31, 2020 and March 31, 2019. The Company has a direct finance lease balance with TriStar of $11.1 million and $10.7 million as of March 31, 2020 and December 31, 2019, respectively.
Note 13—Noncontrolling Interest
During 2019, the Company acquired all of the remaining third-party partnership interests in Triton Container Investments LLC for an aggregate of $103.0 million in cash.
TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 14—Subsequent Events
On April 21, 2020, the Company's Board of Directors approved and declared a quarterly cash dividend of $0.52 per share on its issued and outstanding common shares, payable on June 25, 2020 to holders of record at the close of business on June 11, 2020.
On April 21, 2020, the Company's Board of Directors also approved and declared a cash dividend on its issued and outstanding preferred shares, payable on June 15, 2020 to holders of record at the close of business on June 8, 2020 as follows:
|
|
|
|
|
|
Preferred Share Offering
|
|
Dividend Rate
|
|
Dividend Per Share
|
Series A
|
|
8.500%
|
|
$0.5312500
|
Series B
|
|
8.000%
|
|
$0.5000000
|
Series C
|
|
7.375%
|
|
$0.4609375
|
Series D
|
|
6.875%
|
|
$0.4296875
|
On April 21, 2020, the Company's Board of Directors increased the share repurchase authorization to $200.0 million. The revised authorization may be used by the Company to repurchase common or preferred shares.