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EX-32.2 - EXHIBIT 32.2 - Triton International Ltda3226-30x2016.htm
EX-32.1 - EXHIBIT 32.1 - Triton International Ltda3216-30x2016.htm
EX-31.2 - EXHIBIT 31.2 - Triton International Ltda3126-30x2016.htm
EX-31.1 - EXHIBIT 31.1 - Triton International Ltda3116-30x2016.htm

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 

FORM 10-Q
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended June 30, 2016
Or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from                             to   
Commission file number- 001-37827
TRITON INTERNATIONAL LIMITED
(Exact name of registrant as specified in the charter)
Bermuda
(State or other jurisdiction of
incorporation or organization)
 
98-1276572
(I.R.S. Employer
Identification Number)
 
 
 
22 Victoria Street, Hamilton HM 12, Bermuda
(Address of principal executive office)
 
 
 
(441) 295-2287
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days. Yes o    No ý
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý    No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer o
 
Accelerated Filer o
 
Non-accelerated Filer ý
 
Smaller Reporting Company o
 
 
 
 
(Do not check if a smaller reporting company)
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES o    NO ý
As of August 8, 2016, there were 73,912,686 common shares, par value $0.01 per share, outstanding.
 







Explanatory Note
On July 12, 2016, Triton International Limited, a Bermuda exempted limited liability company ("Triton" or the "Company"), Triton Container International Limited, a Bermuda exempted limited liability company ("TCIL"), TAL International Group, Inc., a Delaware corporation ("TAL"), Ocean Delaware Sub, Inc., a Delaware corporation and direct wholly-owned subsidiary of Triton (“Delaware Merger Sub”), and Ocean Bermuda Sub Limited, a Bermuda exempted limited liability company and direct wholly-owned subsidiary of Triton (“Bermuda Merger Sub”), completed the previously announced transactions contemplated by the transaction agreement, dated as of November 9, 2015, by and among Triton, TCIL, TAL, Delaware Merger Sub and Bermuda Merger Sub (the “mergers”). On the day of completion of the mergers, both TCIL and TAL became wholly owned subsidiaries of Triton with former TCIL shareholders owning approximately 55% and former TAL stockholders owning approximately 45% of the outstanding equity of the Company.
On July 12, 2016, Triton filed a registration statement on Form 8-A, registering its common shares, par value $0.01 per share ("Triton Common Shares"), pursuant to Section 12(b) of the Securities Exchange Act of 1934, (the “Exchange Act”). As a result, Triton is subject to the reporting requirements under the Exchange Act, and the rules and regulations promulgated thereunder. On July 13, 2016, Triton Common Shares began regular-way trading on the NYSE under the ticker symbol “TRTN”.
Prior to the combination, TCIL shares were not registered shares under the Exchange Act and therefore, TCIL was not subject to the reporting requirements under the Exchange Act. It was determined that TCIL is the accounting acquirer and as such, Triton is providing supplemental disclosures in Appendix I regarding TCIL, pursuant to instructions to Form 10-Q and Rule 10-01 of Regulation S-X for interim financial statements. As TCIL is the accounting acquirer and predecessor of Triton, TCIL’s results will be included for the full year and the accounting policies and practices of TCIL will be applied by Triton after the merger. TAL’s results will be included in Triton’s consolidated results effective July 13, 2016.
As a result of the combination, TAL is no longer subject to the reporting requirements under the Exchange Act. However, in order to provide continuity of information to investors, Triton is providing supplemental disclosures in Appendix II regarding TAL, pursuant to the instructions to Form 10-Q and Rule 10-01 of Regulation S-X for interim financial statements. The information contained in Appendix II is incorporated by reference and should be read in conjunction with this Triton Quarterly Report on Form 10-Q for the quarter ended June 30, 2016 (the “Form 10-Q”).
Since the combination was completed after the end of the June 30, 2016 quarter covered by the Form 10-Q, the Form 10-Q reflects the results of Triton for periods prior to the combination. The information contained in Appendix I and II reflects the individual results of TCIL and TAL for periods prior to the combination and does not include any adjustments that may be required as a result of the application of the acquisition method of accounting.







TRITON INTERNATIONAL LIMITED

Index


3



ITEM 1.    FINANCIAL STATEMENTS
Triton International Limited and its subsidiaries
Consolidated Balance Sheets
(Dollars in thousands)
(Unaudited)
 
June 30, 2016
 
December 31, 2015
ASSETS:
 
 
 
Prepaid assets
$
8

 
$

Total current assets
8

 

Total assets
$
8

 
$

 
 
 
 
LIABILITIES AND SHAREHOLDER'S EQUITY:
 
 
 
Accounts payable
$

 
$
11

Total current liabilities

 
11

Total liabilities

 
11

Shareholder's equity:
 
 
 
Common shares, $0.01 par value, 100 shares authorized, and 100 shares issued respectively

 

Receivable from TCIL common shares

 

Additional paid-in capital
44

 

Accumulated (deficit)
(36
)
 
(11
)
Total shareholder's equity
8

 
(11
)
Total liabilities and shareholder's equity
$
8

 
$

   
















See the accompanying notes to the unaudited consolidated financial statements.

4



Triton International Limited and its subsidiaries
Consolidated Statements of Operations
(Dollars in thousands, except per share data)
(Unaudited)
 
Three Months Ended June 30, 2016
 
Six Months Ended June 30, 2016
Revenues:
 
 
 
 Revenues
$

 
$

Total revenues

 

 
 
 
 
Operating expenses:
 
 
 
Administrative expenses
21

 
25

Operating expenses

 

Total operating expenses
21

 
25

Operating (loss)
(21
)
 
(25
)
Other expenses:
 
 
 
Other expenses

 

Total other expenses

 

(Loss) before income taxes
(21
)
 
(25
)
(Loss) tax expense

 

Net (loss)
$
(21
)
 
$
(25
)
Net (loss) per common share—Basic
$
(210
)
 
$
(250
)
Net (loss) per common share—Diluted
$
(210
)
 
$
(250
)
Cash dividends paid per common share
$

 
$

Weighted average number of common shares outstanding—Basic
100

 
100

Dilutive share options and restricted shares

 

Weighted average number of common shares outstanding—Diluted
100

 
100

   













See the accompanying notes to the unaudited consolidated financial statements.

5



Triton International Limited and its subsidiaries
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
 
Six Months Ended June 30, 2016
Cash flows from operating activities:
 
Net loss
$
(25
)
Adjustments to reconcile net loss:
 
Expenses paid by TCIL on behalf of Triton
44

Changes in assets and liabilities:
 
Increase in prepaid assets
(8
)
Decrease in accounts payable
(11
)
Net cash provided by operating activities

Cash flows from investing activities:
 
Net cash provided by investing activities

Cash flows from financing activities:
 
Net cash provided by financing activities

Net increase in unrestricted cash and cash equivalents
$

Cash and cash equivalents, beginning of period

Cash and cash equivalents, end of period
$

Supplemental non-cash activities:
 
Capital contribution from TCIL in the form of expenses paid on behalf of Triton
$
44

   

















See the accompanying notes to the unaudited consolidated financial statements.

6


Triton International Limited and its subsidiaries
Notes to Consolidated Financial Information
(Dollars in Thousands Except Per Share Data)

Note 1.    Organization and Basis of Presentation
A. Organization
Triton International Limited ("Triton" or the "Company") is a Bermuda exempted company and as of June 30, 2016, was a wholly owned subsidiary of Triton Container International Limited, a Bermuda exempted limited liability company ("TCIL"), which was formed for the purpose of effecting the business combination of TCIL and TAL International Group, Inc. a Delaware corporation ("TAL"), pursuant to the transaction agreement, dated as of November 9, 2015.

As of June 30, 2016, Triton had not commenced operations, had no significant assets or liabilities and had not conducted any material activities, other than those incidental to its formation and those undertaken in connection with the transactions pursuant to the transaction agreement.

On July 12, 2016, the transactions contemplated by the transaction agreement (the "mergers") were approved by the stockholders of TAL and became effective. Immediately following the completion of the mergers, former TCIL shareholders owned approximately 55% of the outstanding equity of the Company and former TAL stockholders owned approximately 45% of the outstanding equity of the Company. The Company, through its subsidiaries, leases intermodal transportation equipment, primarily maritime containers, and provide maritime container management services through a worldwide network of offices, third-party depots and other facilities. Triton operates in both international and U.S. markets. The majority of Triton's business is derived from leasing its containers to shipping line customers through a variety of long-term and short-term contractual lease arrangements. Triton also sells its own containers and containers purchased from third parties for resale.

Since the mergers were completed after the end of the second quarter ended June 30, 2016, this Form 10-Q reflects the results of Triton on a stand-alone basis for periods prior to the mergers.
 B. Basis of Presentation
The preparation of financial statements in conformity with U.S. generally accepted accounting principles 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 at the date of the financial statements. Actual results could differ from those estimates.
The consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.
Net loss is equal to comprehensive loss.
Note 2.    Subsequent Events
Mergers and Closing
On July 12, 2016, Triton, TCIL, TAL, Ocean Delaware Sub, Inc., a Delaware corporation and direct wholly-owned subsidiary of Triton (“Delaware Merger Sub”), and Ocean Bermuda Sub Limited, a Bermuda exempted limited liability company and direct wholly-owned subsidiary of Triton (“Bermuda Merger Sub”), completed the previously announced transactions contemplated by the transaction agreement, dated as of November 9, 2015, by and among Triton, TCIL, TAL, Delaware Merger Sub and Bermuda Merger Sub.
Pro Forma Results
The pro forma information reflects the “acquisition” method of accounting in accordance with the FASB issued Accounting Standards Topic No. 805, Business Combinations (“ASC No. 805”). TCIL has been treated as the acquirer in the mergers for accounting purposes. In making the determination of the accounting acquirer, TCIL considered all pertinent information and facts related to the combined entity as identified by ASC No. 805-10-55-12 to 15, which included relative voting rights, presence of a large minority interest, composition of the Board of Directors and senior management, terms of the exchange of equity interests, and relative size. In the aggregate, it was concluded that factors such as the TCIL's 55% voting rights in the combined entity, after considering certain voting limitations, the presence of a large minority voting interest concentrated within the former Company shareholders and the relative size of TCIL in relation to TAL, indicated that TCIL should be the accounting acquirer. As the accounting acquirer, the unaudited pro forma combined financial information reflects TCIL's accounting for the transaction by

7


Triton International Limited and its subsidiaries
Notes to Consolidated Financial Information
(Dollars in Thousands Except Per Share Data)

using TCIL's historical information and adding TAL’s assets and liabilities at their estimated fair values as of June 30, 2016, based on available information and upon assumptions that management believes are reasonable in order to reflect, on a pro forma basis, the impact of the transaction on the historical financial statements. These amounts are preliminary and may be subject to refinements as additional information becomes available.
The consideration for the transaction was paid out in common shares of Triton. TAL stockholders received one common share of Triton in exchange for each share of TAL common stock. TCIL's shareholders received 0.7986554526 Triton common shares for each of TCIL's common share based on a formula that resulted in former TAL stockholders holding approximately 45%, and former TCIL shareholders holding approximately 55%, of Triton common shares issued and outstanding immediately after the consummation of the mergers.
The fair value of the consideration, or the purchase price, in the unaudited pro forma financial information is approximately $510,280. This amount was derived based on 33,395,291 outstanding shares of TAL common stock as of July 12, 2016 inclusive of 408,000 shares of restricted stock that was converted to common shares of Triton at closing, the exchange ratio and a price per share of TAL common stock of $15.28, which represents the closing price of TAL's common stock on July 12, 2016.
TCIL allocated the purchase price paid by TCIL to the fair value of the TAL assets acquired and liabilities assumed based on preliminary estimates. The pro forma purchase price allocation below has been developed based on preliminary estimates of fair value using the historical financial statements of TAL as of June 30, 2016. In addition, the allocation of the purchase price to acquire tangible and intangible assets is based on preliminary fair value estimates and is subject to final management analysis, with the assistance of third-party valuation advisers.
The residual amount of the purchase price after the preliminary allocation to identifiable intangibles has been allocated to goodwill. The actual amounts recorded when the final allocations are complete may differ materially from the pro forma amounts presented below:
Net assets acquired:
(in thousands)

Unrestricted cash and cash equivalents
$
54,331

Restricted cash
28,358

Accounts receivable, net
91,358

Container rental equipment
3,083,796

Net investment in direct financing leases
162,144

Equipment held for sale
80,682

Goodwill
153,605

Other assets
12,979

Intangible assets
361,754

Accounts payable and other accrued expenses
(47,992
)
Derivative instruments
(67,191
)
Container rental equipment payable
(8,304
)
Deferred income tax liability
(308,974
)
Debt, net of deferred financing costs
(3,086,266
)
Total consideration
$
510,280


The following table provides the unaudited pro forma results of operations, which gives effect to the transaction as if it had occurred on the first day of the earliest period presented (January 1, 2015). The pro forma results of operations reflects adjustments (i) to adjust amortization and depreciation expense resulting from the write-down of leasing equipment to fair value and the fair value of operating lease contracts over the current market rate as a result of purchase accounting and (ii) to eliminate non-recurring charges that were incurred in connection with the transactions including acquisition-related share-based compensation, transaction costs related to legal, accounting, and other advisory fees, and transaction costs related to retention and benefit costs.

8


Triton International Limited and its subsidiaries
Notes to Consolidated Financial Information
(Dollars in Thousands Except Per Share Data)

 
 
Six Months Ended
 
Six Months Ended
 
 
June 30, 2016
 
June 30, 2015
Total revenues
$
546,400

 
$
593,159

Net income (loss)
$
6,993

 
$
108,183

Quarterly Dividend
On August 11, 2016, the Company's Board of Directors approved and declared a $0.45 per share quarterly cash dividend on its issued and outstanding common stock, payable on September 22, 2016 to shareholders of record at the close of business on September 8, 2016.

ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
On July 12, 2016, TCIL and TAL completed a strategic combination. Upon completion of this transaction, TCIL and TAL became wholly owned subsidiaries of Triton.
Prior to the completion of the mergers, the Company has not conducted any material activities other than those incidental to the formation and those undertaken in connection with the transactions contemplated by the transaction agreement.
ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
During the period covered by this Quarterly Report on Form 10-Q, the Company did not conduct any material activities other than those incidental to its formation and those undertaken in connection with the transactions contemplated by the transaction agreement, and therefore did not incur any significant interest rate risk, liquidity risk, credit risk, foreign currency exchange rate risk or other relevant market risks.

ITEM 4.    CONTROLS AND PROCEDURES.
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures (as defined in Rule 15d-15(e) of the Exchange Act) were effective.
There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act that occurred during our fiscal quarter ended June 30, 2016, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.


9



PART II—OTHER INFORMATION
ITEM 1A.    RISK FACTORS.
During the period covered by this Quarterly Report on Form 10-Q, the Company did not conduct any material activities other than those incidental to its formation and those undertaken in connection with the transactions contemplated by the transaction agreement, and therefore did not incur any significant risks. For information regarding risks related to the mergers, risks related to the Company after the consummation of the mergers and other risks, please see the risk factors set forth in the section entitled “Risk Factors” beginning on page 34 of the proxy statement/prospectus included in the Registration Statement on Form S-4.

ITEM 6.    EXHIBITS.
Exhibit
Number
 
Exhibit Description
31.1*
 
Certification of the Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended
31.2*
 
Certification of the Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended
32.1*
 
Certification by Principal Executive Officer pursuant to 18 U.S.C. Section 1350
32.2*
 
Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350
101.INS
 
XBRL Instance Document
101.SCH
 
XBRL Instance Extension Schema
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase
101.LAB
 
XBRL Taxonomy Extension Label Linkbase
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase
______________________________________________________________________________
*
Filed herewith.

SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
TRITON INTERNATIONAL LIMITED
 
 
 
August 15, 2016
By:
/s/ BRIAN SONDEY
 
Name:
Brian Sondey
 
Title:
Chief Executive Officer
 
 
 
 
By:
/s/ JOHN BURNS
 
Name:
John Burns
 
Title:
Chief Financial Officer (Principal Financial Officer)


10




Appendix I and II
Explanatory Note
On July 12, 2016, Triton International Limited, a Bermuda exempted limited liability company ("Triton" or the "Company"), Triton Container International Limited, a Bermuda exempted limited liability company ("TCIL"), TAL International Group, Inc., a Delaware corporation ("TAL"), Ocean Delaware Sub, Inc., a Delaware corporation and direct wholly-owned subsidiary of Triton (“Delaware Merger Sub”), and Ocean Bermuda Sub Limited, a Bermuda exempted limited liability company and direct wholly-owned subsidiary of Triton (“Bermuda Merger Sub”), completed the previously announced transactions contemplated by the transaction agreement, dated as of November 9, 2015, by and among Triton, TCIL, TAL, Delaware Merger Sub and Bermuda Merger Sub (the “mergers”). On the day of completion of the mergers, both TCIL and TAL became wholly owned subsidiaries of Triton with former TCIL shareholders owning approximately 55% and former TAL stockholders owning approximately 45% of the outstanding equity of the Company.
On July 12, 2016, Triton filed a registration statement on Form 8-A, registering its common shares, par value $0.01 per share ("Triton Common Shares"), pursuant to Section 12(b) of the Securities Exchange Act of 1934, (the “Exchange Act”). As a result, Triton is subject to the reporting requirements under the Exchange Act, and the rules and regulations promulgated thereunder. On July 13, 2016, Triton Common Shares began regular-way trading on the NYSE under the ticker symbol “TRTN”.
Prior to the combination, TCIL shares were not registered shares under the Exchange Act and therefore, TCIL was not subject to the reporting requirements under the Exchange Act. It was determined that TCIL is the accounting acquirer and as such, Triton is providing supplemental disclosures in Appendix I regarding TCIL, pursuant to instructions to Form 10-Q and Rule 10-01 of Regulation S-X for interim financial statements. As TCIL is the accounting acquirer and predecessor of Triton, TCIL’s results will be included for the full year and the accounting policies and practices of TCIL will be applied by Triton after the merger. TAL’s results will be included in Triton’s consolidated results effective July 13, 2016.
As a result of the combination, TAL is no longer subject to the reporting requirements under the Exchange Act. However, in order to provide continuity of information to investors, Triton is providing supplemental disclosures in Appendix II regarding TAL, pursuant to the instructions to Form 10-Q and Rule 10-01 of Regulation S-X for interim financial statements. The information contained in Appendix II is incorporated by reference and should be read in conjunction with this Triton Quarterly Report on Form 10-Q for the quarter ended June 30, 2016 (the “Form 10-Q”).
Since the combination was completed after the end of the June 30, 2016 quarter covered by the Form 10-Q, the Form 10-Q reflects the results of Triton for periods prior to the combination. The information contained in Appendix I and II reflects the individual results of TCIL and TAL for periods prior to the combination and does not include any adjustments that may be required as a result of the application of the acquisition method of accounting.




11



Triton Container International Limited and Subsidiaries
Index


12



TRITON CONTAINER INTERNATIONAL LIMITED AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in thousands, except share data)
(Unaudited)
 
June 30,
2016
 
December 31,
2015
ASSETS:
 

 
 

Leasing equipment, net of accumulated depreciation and allowances of $1,651,513 and $1,566,963
$
4,189,723

 
$
4,362,043

Net investment in finance leases
64,664

 
68,107

Revenue earning assets
4,254,387

 
4,430,150

Unrestricted cash and cash equivalents
89,788

 
56,689

Restricted cash
20,918

 
22,575

Accounts receivable, net of allowances of $7,143 and $8,297
127,346

 
127,676

Other assets
36,126

 
37,911

Fair value of derivative instruments

 
2,153

Total assets
$
4,528,565

 
$
4,677,154

LIABILITIES AND SHAREHOLDERS' EQUITY:
 

 
 

Equipment purchases payable
$
1,232

 
$
12,128

Fair value of derivative instruments
6,833

 
257

Accounts payable and other accrued expenses
115,934

 
120,033

Debt, net of unamortized deferred financing costs of $21,279 and $19,024
3,021,044

 
3,166,903

Total liabilities
3,145,043

 
3,299,321

Equity:
 

 
 

Class A common shares, $0.01 par value; 294,000,000 authorized, 44,537,630 and 44,535,732 issued and outstanding
445

 
445

Class B common shares, $0.01 par value; 6,000,000 authorized, issued and outstanding
60

 
60

Additional paid-in capital
177,054

 
176,088

Accumulated earnings
1,059,318

 
1,044,402

Accumulated other comprehensive (loss)
(3,810
)
 
(3,666
)
Noncontrolling interests
150,455

 
160,504

Total equity
1,383,522

 
1,377,833

Total liabilities and equity
$
4,528,565

 
$
4,677,154

 















See accompanying notes to unaudited consolidated financial statements.

13



TRITON CONTAINER INTERNATIONAL LIMITED AND SUBSIDIARIES
Consolidated Statements of Income
(Dollars and shares in thousands, except earnings per share)
(Unaudited)
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2016
 
2015
 
2016
 
2015
Leasing revenues:
 
 
 
 
 
 
 
Operating leases
$
156,367

 
$
176,986

 
$
317,362

 
$
355,137

Finance leases
1,966

 
2,003

 
3,996

 
3,983

Total leasing revenues
158,333

 
178,989

 
321,358

 
359,120

 
 
 
 
 
 
 
 
(Loss) gain on sale of leasing equipment, net
(1,930
)
 
1,077

 
(3,767
)
 
6,325

 
 
 
 
 
 
 
 
Operating expenses:

 

 

 

Depreciation and amortization
81,132

 
71,040

 
160,276

 
140,120

Direct operating expenses
12,015

 
13,506

 
26,482

 
26,122

Administrative expenses
13,166

 
14,367

 
27,679

 
29,730

Transaction and other non-recurring costs
3,537

 
4,173

 
6,948

 
9,956

(Reversal of) provision for doubtful accounts
(52
)
 
84

 
(171
)
 
(2,132
)
Total operating expenses
109,798

 
103,170

 
221,214

 
203,796

Operating income
46,605

 
76,896

 
96,377

 
161,649

Other expenses:

 

 

 

Interest and debt expense
33,491

 
35,929

 
67,189

 
70,466

Realized loss on derivative instruments
749

 
1,438

 
1,403

 
3,013

Write-off of deferred financing costs
141

 

 
141

 

Loss (gain) on interest rate swaps, net
4,133

 
(2,059
)
 
8,729

 
1,674

Other (income) expense, net
(756
)
 
261

 
(989
)
 
(265
)
Total other expenses
37,758

 
35,569

 
76,473

 
74,888

Income before income taxes
8,847

 
41,327

 
19,904

 
86,761

Income tax expense
1,192

 
1,346

 
2,184

 
2,944

Net income
$
7,655

 
$
39,981

 
$
17,720

 
$
83,817

Less: income attributable to noncontrolling interest
$
1,481

 
$
3,740

 
$
2,804

 
$
6,706

Net income attributable to shareholders
$
6,174

 
$
36,241

 
$
14,916

 
$
77,111














See accompanying notes to unaudited consolidated financial statements.

14



TRITON CONTAINER INTERNATIONAL LIMITED AND SUBSIDIARIES
 
 
 
 
 
 
 
 
 
 Consolidated Statements of Comprehensive Income
 
 (Unaudited, dollars in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
 
 Net income
 
$
7,655

 
$
39,981

 
$
17,720

 
$
83,817

 Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 Foreign currency translation adjustments
 
(245
)
 
29

 
(144
)
 
(226
)
 Comprehensive income
 
7,410

 
40,010

 
17,576

 
83,591

 Comprehensive income attributable to noncontrolling interests
 
(1,481
)
 
(3,740
)
 
(2,804
)
 
(6,706
)
 Comprehensive income attributable to shareholders
 
$
5,929

 
$
36,270

 
$
14,772

 
$
76,885












































See accompanying notes to unaudited consolidated financial statements.

15



TRITON CONTAINER INTERNATIONAL LIMITED AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
 
Six Months Ended 
 June 30,
 
2016
 
2015
Cash flows from operating activities:
 
 
 
Net income
$
17,720

 
$
83,817

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
160,276

 
140,120

Amortization of deferred financing costs
2,672

 
2,851

Loss (gain) on sale of leasing equipment, net
3,767

 
(6,325
)
Loss on interest rate swaps, net
8,729

 
1,674

Write-off of deferred financing costs
141

 

Stock compensation charge
2,288

 
8,102

Changes in operating assets and liabilities:
 
 
 
Other changes in operating assets and liabilities
(6,308
)
 
(1,325
)
Net cash provided by operating activities
189,285

 
228,914

Cash flows from investing activities:
 
 
 
Purchases of leasing equipment and investments in finance leases
(64,098
)
 
(302,853
)
Proceeds from sale of equipment, net of selling costs
60,820

 
89,824

Cash collections on finance lease receivables, net of income earned
7,911

 
6,578

Other
(574
)
 
(1,562
)
Net cash provided by (used in) investing activities
4,059

 
(208,013
)
Cash flows from financing activities:
 
 
 
Redemption of common shares
(376
)
 

Financing fees paid under debt facilities
(5,068
)
 
(2,972
)
Borrowings under debt facilities
44,700

 
535,000

Payments under debt facilities and capital lease obligations
(188,304
)
 
(535,061
)
Decrease in restricted cash
1,656

 
3,873

Distributions to noncontrolling interests
(12,853
)
 
(26,772
)
Net cash (used in) provided by financing activities
(160,245
)
 
(25,932
)
Net increase (decrease) in unrestricted cash and cash equivalents
$
33,099

 
$
(5,031
)
Unrestricted cash and cash equivalents, beginning of period
56,689

 
65,607

Unrestricted cash and cash equivalents, end of period
$
89,788

 
$
60,576

Supplemental non-cash investing activities:
 
 
 
 Amounts incurred, but not yet paid, for container rental equipment purchased
$
1,232

 
$
16,889










See accompanying notes to unaudited consolidated financial statements.

16


TRITON CONTAINER INTERNATIONAL LIMITED AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(Dollars in Thousands Except Per Share Data)

1. Business and Summary of Significant Accounting Policies

(a)
Nature of Operations

Triton Container International Limited (“TCIL”) was founded in 1980, began operations in Bermuda in 1981 and was incorporated in 1985 as a Bermuda exempted limited liability company under the provisions of Section 14 of the Companies Act 1981 of Bermuda (as amended). TCIL operates and manages a worldwide fleet of intermodal marine dry van, refrigerated and specialized cargo containers (the “containers”) for its own account and on behalf of its container owning subsidiaries (the “container owners”) within its consolidated group (the “Company”). The container owners are comprised of Triton Container Investments LLC (“TCI”), Triton Container Finance LLC (“TCF”), Triton Container Finance II LLC (“TCF-II”), Triton Container Finance III LLC (“TCF-III”), Triton Container Finance IV LLC (“TCF-IV”) and Amphitrite II Ltd (“Amphitrite-II”).
TCIL operates and manages the containers pursuant to agreements with the container owners. These agreements govern the operation and management of the containers and allocation of the proceeds therefrom.
(b)
Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). However, certain information and disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted, although the Company believes that the disclosures are adequate such that the information presented herein is not misleading. These financial statements reflect all adjustments, consisting of normal recurring adjustments, which management believes are necessary to fairly present the consolidated balance sheets as of June 30, 2016 and December 31, 2015, the consolidated statements of income and the consolidated statements of comprehensive income for the three and for the six months ended June 30, 2016 and 2015, and the consolidated statements of cash flows for the six months ended June 30, 2016 and 2015. The results of operations for such periods are not necessarily indicative of the results for the six months ended June 30, 2016 and 2015.
These financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included elsewhere in this registration statement.
The consolidated statement of cash flows now reflects in investing activities the cash flows from direct finance leases, net of income earned.  This change in presentation on the consolidated statement of cash flows for the six month period ended June 30, 2015 resulted in a $3,983 increase in net cash provided by operating activities and a decrease in cash flows provided by (used in) investing activities from amounts previously reported.

(c)    New Accounting Pronouncements
In August 2014, the FASB issued Accounting Standards Update No. 2014-15, Presentation of Financial Statements (Topic 205): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. This standard requires management to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that financial statements are issued and to disclose those conditions if management has concluded that substantial doubt exists. Subsequent to adoption, this guidance will need to be applied by management at the end of each annual period and interim period therein to determine what, if any, impact there will be on the consolidated financial statements in a given reporting period. These changes become effective for the Company for the 2016 annual period. Management has determined that the adoption of these changes will not have an impact on the consolidated financial statements as this standard is disclosure only.
In February 2015, the FASB issued Accounting Standards Update No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis (“ASU No. 2015-02”). This standard requires companies to reevaluate all legal entities under new consolidation guidance. The new guidance primarily amends the criteria companies use to evaluate whether they should consolidate certain variable interest entities that have fee arrangements and the criteria used to determine whether partnerships and similar entities are variable interest entities. The Company adopted ASU No. 2015-02 which has no impact on its income or cash flows or its financial position.

17


TRITON CONTAINER INTERNATIONAL LIMITED AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(Dollars in Thousands Except Per Share Data)

In April 2015, the FASB issued Accounting Standards Update No. 2015-03, Imputation of Interest (Topic 835): Simplifying the Presentation of Debt Issuance Costs (“ASU No. 2015-03”), which was updated in August 2015 by Accounting Standards Update No. 2015-15, Imputation of Interest (Topic 835): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Agreements (“ASU No. 2015-15,” together with ASU No. 2015-03, the “ASU”). These standards change the presentation of debt issuance costs in the financial statements but do not affect the recognition and measurement of debt issuance costs. The ASU specify that debt issuance costs related to a note shall be reported in the balance sheet as a direct deduction from the face amount of that note and that amortization of debt issuance costs also shall be reported as interest expense. In addition, for debt issuance costs related to line-of-credit arrangements, the SEC would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. These changes became effective for the Company as of December 31, 2015. The Company adopted ASU No. 2015-15 in conjunction with ASU No. 2015-03, which have no impact on its income or cash flows and no material impact on its financial position.
In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842) (“ASC No. 2016-02”), that replaces existing lease guidance. The accounting applied by lessors under ASC No. 2016-02 is largely unchanged from previous U.S. GAAP. Some changes to the lessor accounting guidance were made to align both of the following: i) the lessor accounting guidance with certain changes made to the lessee accounting guidance and ii) key aspects of the lessor accounting model with revenue recognition guidance. These changes will become effective for the Company for periods beginning after December 15, 2018. The Company is currently evaluating the effect the guidance will have on the consolidated financial statements, but does not expect any material impact to its consolidated financial statements.
In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2016-08, Revenue from Contracts with Customers (Topic 606) (“ASU No. 2016-08”), amending previous updates regarding this topic. The effective date is interim periods beginning after December 15, 2017. Earlier application is permitted. The Company is evaluating the transition method that will be elected and the potential effects of adopting the provisions of ASU No. 2016-08.
In March 2016, the FASB issued Accounting Standards Update No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The updated guidance changes how companies account for certain aspects of share-based payment awards to employees, including the accounting for income taxes, forfeitures and statutory tax withholding requirements, as well as classification in the statement of cash flows. The update to the standard is effective for the Company for periods beginning after December 15, 2016. The Company is currently evaluating the effect the guidance will have on the consolidated financial statements.
(d)
Use of Estimates
Management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates are reviewed regularly by management and include valuation of accounts receivable, depreciable lives, residual values and the value of share-based compensation arrangements.
(e)    Reclassifications
Certain prior year balances were reclassified to conform to the current year’s presentation.

18


TRITON CONTAINER INTERNATIONAL LIMITED AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(Dollars in Thousands Except Per Share Data)


2. Operating Leases Revenue

The components of operating leases revenue for the periods indicated below were as follows:
 
 
Three Months Ended
 
 
June 30, 2016
 
June 30, 2015
Per diem
 
$
146,891

 
$
166,238

Ancillary
 
9,476

 
10,748

Total operating leases revenue
 
$
156,367

 
$
176,986


 
 
Six Months Ended
 
 
June 30, 2016
 
June 30, 2015
Per diem
 
$
298,569

 
$
334,267

Ancillary
 
18,793

 
20,870

Total operating leases revenue
 
$
317,362

 
$
355,137


3. Net Investment in Direct Financing Leases

The components of net investment in direct financing leases as of the dates indicated below were as follows:
 
 
June 30, 2016
 
December 31, 2015
Future minimum lease payments receivable
 
$
86,395

 
$
91,488

Estimated residuals receivable
 
123

 
125

Less: Unearned income
 
(21,854
)
 
(23,506
)
Net investment in direct financing leases
 
$
64,664

 
$
68,107


4. Debt

The outstanding principal balances of the Company’s debt as of the dates indicated below were as follows:
 
 
June 30, 2016
 
December 31, 2015
Revolving credit facilities
 
$
107,250

 
$
142,750

Term loans
 
318,950

 
331,500

Institutional notes
 
2,100,286

 
2,140,857

Asset-backed notes
 
504,813

 
557,144

Other secured financings
 
11,024

 
13,676

Total debt
 
$
3,042,323

 
$
3,185,927

Deferred financing costs
 
(21,279
)
 
(19,024
)
Debt, net of unamortized deferred financing costs
 
$
3,021,044

 
$
3,166,903


At June 30, 2016 and December 31, 2015, the Company was in compliance with all covenants in accordance with the terms of its debt agreements.
Notwithstanding the inclusion of the accounts of the container owners in these consolidated financial statements, the respective assets and credit (i.e., borrowing capacity) of the container owners are not available to directly satisfy the debts of TCIL or any other person.

19


TRITON CONTAINER INTERNATIONAL LIMITED AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(Dollars in Thousands Except Per Share Data)

At June 30, 2016 and December 31, 2015, the assets of the container owners totaled $1,032,729 and $1,108,209, respectively. At December 31, 2015, the credit of the container owners totaled $55,229.
TCF-III Series 2009-1 Notes
On April 8, 2016, TCF-III and the holders of the TCF-III Series 2009-1 Notes restructured the TCF-III Series 2009-1 Notes from a warehouse facility to a five-year amortizing term loan. Effective April 8, 2016, TCF-III was no longer able to borrow under the TCF-III Series 2009-1 Notes. The outstanding principal balance of the TCF-III Series 2009-1 Notes at closing was $316,743. The contractual interest rate of the TCF-III Series 2009‑1 Notes was modified from (x) one-month LIBOR, or the commercial paper rate, plus an applicable margin of 1.60% to (y) one-month LIBOR, or the commercial paper rate, plus an applicable margin of 2.00%.
Between May 31, 2016 and June 1, 2016, TCF-III entered into three interest rate swap agreements in order to fix the interest rate on a portion of the outstanding principal balance of the TCF-III Series 2009-1 Notes. These interest rate swaps have fixed interest rates ranging between 1.11% and 1.12% per year and termination dates through April 2021 and had a total notional amount of $229,089 at June 30, 2016.
TCIL and TCI Credit Facilities
On April 15, 2016, TCIL and a group of commercial banks entered into an amendment and restatement of the TCIL Credit Facility providing for the extension of the facility termination date from November 4, 2016 to April 15, 2021, and the reduction of the aggregate commitment amount thereunder from $600,000 (which was shared under the prior TCIL Credit Facility with the TCI Credit Facility) to an aggregate commitment, available to TCIL only, of $300,000. An accordion feature provided for up to $300,000 of increased and/or additive commitments for TCIL (for a total of up to $600,000 of aggregate commitments). No changes were made to the borrowing base or to the pricing of the TCIL Credit Facility.
On May 23, 2016, the aggregate commitments under the TCIL Credit Facility were increased to $555,000 pursuant to the accordion feature.
On June 30, 2016, TCI refinanced the $4,450 outstanding principal balance under the TCI Credit Facility with a senior secured term loan provided by a financial institution. Interest on the outstanding amounts due under the term loan is calculated, at TCI’s option, at either (i) the U.S. prime rate plus 0.75% and/or (ii) LIBOR plus 1.75%. The term loan matures on January 31, 2017.
TCIL 2013 Term Loan
On May 5, 2016, TCIL and the lenders under the TCIL 2013 Term Loan amended the term loan with respect to the calculation of certain financial covenants and the definition of an “IPO.” There were no changes made to the contractual rate of interest payable, scheduled principal payments or the final maturity date.
TCF-II Series 2013-1 Notes
On May 13, 2016, TCF-II and the holders of the TCF-II Series 2013-1 Notes entered into various amendments to the transaction documentation relating to the TCF-II Series 2013-1 Notes. These amendments included revised financial covenants, the addition of supplemental principal payments and incremental subordination of TCIL’s management fee. There were no changes made to the contractual rate of interest payable, scheduled principal payments or the final maturity date.
TCF Series 1999-1 Note and the TCF-IV Series 2010-1 Note
On June 30, 2016, TCF, TCF-IV, the holder of the TCF Series 1999-1 Note and the holder of the TCF-IV Series 2010-1 Note entered into various agreements providing for the merger of TCF with and into TCF-IV, with TCF‑IV as the surviving entity, and the addition of the $5,358 principal balance of the TCF Series 1999-1 Note outstanding at the time of the merger to the outstanding principal balance of the TCF-IV Series 2010-1 Note. The interest rate swap agreements in place at TCF on June 30, 2016 were terminated. The transaction documentation governing the TCF‑IV Series 2010-1 Note was amended to include revised financial covenants, supplemental principal payment opportunities and increased subordination of TCIL’s management fee. The legal final maturity date of the TCF-IV Series 2010-1 Note was changed from December 16, 2019 to

20


TRITON CONTAINER INTERNATIONAL LIMITED AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(Dollars in Thousands Except Per Share Data)

December 14, 2018 (extendable at TCF-IV’s election to June 14, 2021) and the contractual rate of interest payable was reduced from LIBOR plus 3.13% to LIBOR plus 1.50%. There were no changes made to the existing interest rate swap agreement at TCF-IV.
TCIL Institutional Notes
On June 10, 2016, TCIL and the requisite majority of holders of the institutional notes amended the note agreements with respect to certain financial covenants and the definition of an “IPO.” There were no changes made to the contractual rates of interest payable, scheduled principal payments or the final maturity dates of the institutional notes.
5. Derivative Instruments

The Company has entered into interest rate swap agreements (collectively, the “Interest Rate Swaps”) in order to fix the interest rates on portions of the TCIL 2013 Term Loan and certain asset-backed notes.
The Interest Rate Swaps have fixed interest rates ranging between 1.11% and 2.25% per year and termination dates through April 2021. The Interest Rate Swaps had a total notional amount of $530,814 and $326,778 at June 30, 2016 and December 31, 2015, respectively. The notional amounts of the Interest Rate Swaps decline at a rate consistent with the scheduled amortization of the asset-backed notes.
The Company entered into two interest rate cap agreements to provide for payments to TCF-II from the counterparties if one-month LIBOR exceeds 4.00%. The interest rate caps had notional amounts of $99,750 and $115,050 at June 30, 2016 and December 31, 2015, respectively. The notional amounts decline ratably over the term of the TCF-II Series 2013-1 Notes.
The fair value of derivative instruments reflected on the consolidated balance sheets as of the dates indicated below was as follows:
 
Location on
Balance Sheet
 
June 30, 2016
 
December 31, 2015
Assets:
 
 
 
 
 
Interest rate cap
Derivative instruments
 
$

 
$
2

Interest rate swaps
Derivative instruments
 

 
2,151

 
 
 
$

 
$
2,153

 
 
 
 
 
 
Liabilities:
 
 
 
 
 
Interest rate swaps
Derivative instruments
 
$
6,833

 
$
257

 
 
 
$
6,833

 
$
257


The change in the fair value of the derivative instruments reflected on the consolidated statements of income as unrealized loss (gain) on derivative instruments, net, for the periods indicated below was as follows:
 
Three Months Ended
June 30
 
Six Months Ended
June 30
 
2016
 
2015
 
2016
 
2015
Interest rate cap
$

 
$
17

 
$
2

 
$
75

Interest rate swaps
4,133

 
(2,076
)
 
8,727

 
1,794

Credit contract

 

 

 
(195
)
 
$
4,133

 
$
(2,059
)
 
$
8,729

 
$
1,674



21


TRITON CONTAINER INTERNATIONAL LIMITED AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(Dollars in Thousands Except Per Share Data)

Payments to counterparties, net of payments from counterparties, reflected on the consolidated statements of income as realized loss on derivative instruments, net, for the periods indicated below were as follows:
 
Three Months Ended
June 30
 
Six Months Ended
June 30
 
2016
 
2015
 
2016
 
2015
Interest rate cap
$

 
$

 
$

 
$
27

Interest rate swaps
749

 
1,438

 
1,403

 
2,986

 
$
749

 
$
1,438

 
$
1,403

 
$
3,013


To further limit credit risk, collateral security arrangements provide for collateral to be received or posted when the credit rating of the counterparty fluctuates adversely from contractually established thresholds.
6. Fair Value of Financial Instruments

Financial instruments include cash and cash equivalents, restricted cash, accounts receivable, accounts payable and other accrued expenses, container rental equipment payable, and debt. At June 30, 2016 and December 31, 2015, fair value of financial instruments approximated book value except for debt.
Measured under Level 2 inputs, debt had a fair value of approximately $3,161,235 and $3,256,284 at June 30, 2016 and December 31, 2015, respectively, compared to its book value of $3,042,323 and $3,185,927, respectively.
Assets and liabilities, measured at fair value on a recurring basis as of the dates indicated below were as follows:
 
 
Quoted Prices in Active Markets for Identical Assets
(Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
June 30, 2016
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
Interest rate cap and interest rate swaps
 
$

 
$

 
$

 
 
$

 
$

 
$

Liabilities:
 
 
 
 
 
 
Interest rate swaps
 
$

 
$
6,833

 
$

 
 
$

 
$
6,833

 
$

 
 
 
 
 
 
 
December 31, 2015
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
Interest rate swaps
 
$

 
$
2,153

 
$

 
 
$

 
$
2,153

 
$

Liabilities:
 
 
 
 
 
 
Interest rate swaps
 
$

 
$
257

 
$

 
 
$

 
$
257

 
$


7. Income Taxes

TCIL is a Bermuda exempted limited liability company. Bermuda does not impose a corporate income tax. The Company is subject to taxation in certain foreign jurisdictions on a portion of its income attributable to such jurisdictions.
The consolidated income tax expense for the six months ended June 30, 2016 and 2015 was determined based upon the

22


TRITON CONTAINER INTERNATIONAL LIMITED AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(Dollars in Thousands Except Per Share Data)

Company’s consolidated forecasted annual effective income tax rates for 2016 and 2015, respectively.
8. Share-Based Compensation

Options
Effective May 23, 2011, a share-based compensation plan (the “Option Plan”) was adopted by the Company’s Board of Directors for the benefit of certain executives of the Company and its consolidated subsidiaries. The Option Plan allows for the issuance of service-based and market-based options.
The Company accounts for compensation cost relating to share-based payment transactions in accordance with the FASB Accounting Standards Codification No. 718, Compensation-Stock Compensation. The cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the employee's requisite service period (generally the vesting period of the equity award) on a straight-line basis.
On November 9, 2015, the Company entered into option transaction agreements (the “Option Transaction Agreements”) with option holders in anticipation of the merger transaction with TAL International. In accordance with the terms of the Option Transaction Agreements, the Company settled and cancelled all vested and unvested market-based options as of November 9, 2015 in exchange for 865,156.83 fully vested Class A common shares. Of the 865,156.83 Class A common shares received by market-based option holders under the Option Transaction Agreements, there were 371,319.74 Class A common shares redeemed in a cashless settlement in order to satisfy shareholder withholding tax obligations.
On May 19, 2016, the Company entered into equity repurchase and cash bonus agreements with certain management shareholders and non-employee directors whereby the Company agreed to repurchase 30,729.43 shares at a fair market value redemption price of $12.26 per share.
As of June 30, 2016, the fair value of the vested service-based options was estimated to be $7,118 which resulted in an increase of $946 to the carrying amount of the share-based liability during the period as recorded in the consolidated balance sheet as part of accrued compensation.
As of June 30, 2016, the number of Class A common shares to be issued in settlement and cancellation of the service-based options was estimated at 650,752 shares, and the per share fair value used to determine the fair value of the service-based options was approximately $10.94.
The Company recognized $2,088 and $8,002 of compensation costs that were reported in management, general and administrative expense on the consolidated statements of income for the six months ended June 30, 2016 and 2015, respectively, and $780 and $3,480 for the three months ended June 30, 2016 and 2015, respectively, which relate to options granted under the Option Plan and as modified by the Option Transaction Agreements.
There were no options granted, exercised or canceled during the six months ended June 30, 2016 and 2015.
As of June 30, 2016, there was approximately $210 of total unearned compensation cost related to non-vested options, all of which is expected to be recognized during 2016.
Non-Employee Director Equity Plan
On May 19, 2016, a total of 32,627 restricted Class A common shares were issued to participants of the non-employee director equity plan, having a grant date fair value of $12.26 per share and a total fair value of $400.
Non-employee director compensation cost was included on the consolidated statements of income in management, general and administrative expense for the periods indicated below as follows:

23


TRITON CONTAINER INTERNATIONAL LIMITED AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(Dollars in Thousands Except Per Share Data)

 
Three Months Ended
June 30
 
Six Months Ended
June 30
 
2016
 
2015
 
2016
 
2015
Non-employee director compensation costs
$
150

 
$
50

 
$
200

 
$
100


As of June 30, 2016, remaining unearned compensation cost related to non-employee director shares was $400, all of which is anticipated to be recognized in 2016.
9. Related Party Transactions
Payments to Affiliate
Payments made to an affiliate for services which were mainly related to container repositioning for the periods indicated below were as follows:
 
Three Months Ended
June 30
 
Six Months Ended
June 30
 
2016
 
2015
 
2016
 
2015
Payments to affiliate
$
38

 
$
213

 
$
136

 
$
307


MBIA Insurance Corporation (“MBIA”) is a related party, as certain affiliates of Warburg Pincus LLC are significant minority shareholders in MBIA and certain affiliates of Warburg Pincus LLC have a controlling interest in TCIL’s issued share capital. Payments made to MBIA for the periods indicated below were as follows:
 
Three Months Ended
June 30
 
Six Months Ended
June 30
 
2016
 
2015
 
2016
 
2015
Payments to MBIA
$

 
$
13

 
$

 
$
13


Marine Container Services (India) Private Limited (“MCS”) is a related party, as MCS is party to a joint venture agreement with TCIL. Payments made to MCS for services related primarily to container operations for the periods indicated below were as follows:
 
Three Months Ended
June 30
 
Six Months Ended
June 30
 
2016
 
2015
 
2016
 
2015
Payments to MCS
$
50

 
$
87

 
$
123

 
$
103


10.
Commitments and Contingencies
At June 30, 2016, the Company had outstanding purchase commitments with various manufacturers to purchase containers having an estimated value of approximately $3,716. The purchase of these containers is funded through borrowings and through funds internally generated from operations.
11.
Segment Reporting
Industry Segment Information
The Company earns its revenues from its customers when the containers are on lease to those customers.

24


TRITON CONTAINER INTERNATIONAL LIMITED AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(Dollars in Thousands Except Per Share Data)

Geographic Segment Information
The geographic allocation of revenue based on the primary domicile of the Company’s customers for the periods indicated below was as follows:
 
Three Months Ended
June 30
 
Six Months Ended
June 30
 
2016
 
2015
 
2016
 
2015
Asia
$
86,602

 
$
101,747

 
$
173,156

 
$
205,426

Europe
52,852

 
57,186

 
107,431

 
114,248

North / South America
10,171

 
11,138

 
23,369

 
21,899

Bermuda
131

 
22

 
234

 
34

All other international
8,577

 
8,896

 
17,168

 
17,513

 
$
158,333

 
$
178,989

 
$
321,358

 
$
359,120


Substantially all of the Company’s long-lived assets are considered to be international with no single country of use since all of the Company’s containers are used internationally and no containers are domiciled in one particular place for a prolonged period of time. Substantially all of the Company’s revenue is denominated in U.S. dollars.
12. Transaction and other non-recurring costs
Transaction and other non-recurring costs associated with the mergers during the three and six months ended June 30, 2016 and 2015 were as follows:
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2016
 
2015
 
2016
 
2015
Employee compensation costs
$
1,910

 
$
4,062

 
$
4,256

 
$
9,832

Professional fees
769

 
111

 
1,203

 
112

Legal expenses
849

 

 
1,480

 
12

Other
9

 

 
9

 

     Total
$
3,537

 
$
4,173

 
$
6,948

 
$
9,956

13.
Subsequent Events
Mergers and Closing
On July 12, 2016, the Company, TAL International Group, Inc., a Delaware corporation (“TAL”), Triton International Limited, a Bermuda exempted limited liability company (“Triton”), Ocean Delaware Sub, Inc., a Delaware corporation and direct wholly-owned subsidiary of Triton (“Delaware Merger Sub”), and Ocean Bermuda Sub Limited, a Bermuda exempted limited liability company and direct wholly-owned subsidiary of Triton (“Bermuda Merger Sub”), completed the previously announced transactions contemplated by the transaction agreement, dated as of November 9, 2015, by and among the Company, TAL, Triton, Delaware Merger Sub and Bermuda Merger Sub (the “mergers”).

25


TRITON CONTAINER INTERNATIONAL LIMITED AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(Dollars in Thousands Except Per Share Data)

The following events occurred at or around the time of the mergers:
On July 8, 2016, the Company declared a dividend in the amount of $18,367, or approximately $0.36 per share, of which the large majority was paid on July 11, 2016.

On July 8, 2016, 142,667.58 restricted Class A common shares were issued to Option Plan participants after approval and authorization by the Board of Directors The shares had a grant date fair value of approximately $10.94 per share and a total fair value of $1,561, which will be recognized evenly over an approximately thirty-month vesting period.

On July 8, 2016, TCIL canceled 2,590,330 service-based options in exchange for 647,389.25 fully vested Class A common shares with a fair value of $7,079, or $10.94 per share, in addition to a simultaneous cashless settlement of 290,893.30 shares.

On July 12, 2016, the restricted Class A common shares issued to participants of the non-employee director equity plan, having a grant date fair value of $12.26 per share and a total fair value of $400, became fully vested upon the closing of the mergers.

On July 12, 2016, the restricted Class A common shares issued to participants of the non-employee director equity plan on May 19, 2016 became fully vested.

On July 13, 2016, the Company recognized $30,571 of severance costs, and is expected to accrue an additional $7,044 of retention expenses, which will be reflected in management, general and administrative expenses.

Pro Forma Results
The pro forma information reflects the “acquisition” method of accounting in accordance with the FASB issued Accounting Standards Topic No. 805, Business Combinations (“ASC No. 805”). The Company has been treated as the acquirer in the mergers for accounting purposes. In making the determination of the accounting acquirer, Triton considered all pertinent information and facts related to the combined entity as identified by ASC No. 805-10-55-12 to 15, which included relative voting rights, presence of a large minority interest, composition of the Board of Directors and senior management, terms of the exchange of equity interests, and relative size. In the aggregate, it was concluded that factors such as the Company’s 55% voting rights in the combined entity, after considering certain voting limitations, the presence of a large minority voting interest concentrated within the former Company shareholders and the relative size of the Company in relation to TAL, indicated that the Company should be the accounting acquirer. As the accounting acquirer, the unaudited pro forma combined financial information reflects the Company’s accounting for the transaction by using the Company’s historical information and adding TAL’s assets and liabilities at their estimated fair values as of June 30, 2016, based on available information and upon assumptions that management believes are reasonable in order to reflect, on a pro forma basis, the impact of the transaction on the historical financial statements. These amounts are preliminary and may be subject to refinements as additional information becomes available.
The consideration for the transaction was paid out in common shares of Holdco. TAL stockholders received one common share of Holdco in exchange for each share of TAL common stock. The Company’s shareholders will receive 0.7986554526 Holdco common shares for each of the Company’s common share based on a formula that resulted in former TAL stockholders holding approximately 45%, and former Company shareholders holding approximately 55%, of the Holdco common shares issued and outstanding immediately after the consummation of the mergers.
The fair value of the consideration, or the purchase price, in the unaudited pro forma financial information is approximately $510,280. This amount was derived based on 33,395,291 outstanding shares of TAL common stock as of July 12, 2016 inclusive of 408,000 shares of restricted stock that was converted to common shares of Holdco at closing, the exchange ratio and a price per share of TAL common stock of $15.28, which represents the closing price of TAL's common stock on July 12, 2016.
The Company allocated the purchase price paid by the Company to the fair value of the TAL assets acquired and liabilities assumed based on preliminary estimates. The pro forma purchase price allocation below has been developed based on preliminary estimates of fair value using the historical financial statements of TAL as of June 30, 2016. In addition, the

26


TRITON CONTAINER INTERNATIONAL LIMITED AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(Dollars in Thousands Except Per Share Data)

allocation of the purchase price to acquire tangible and intangible assets is based on preliminary fair value estimates and is subject to final management analysis, with the assistance of third-party valuation advisers.
The residual amount of the purchase price after the preliminary allocation to identifiable intangibles has been allocated to goodwill. The actual amounts recorded when the final allocations are complete may differ materially from the pro forma amounts presented below:
Net assets acquired:
(in thousands)

Unrestricted cash and cash equivalents
$
54,331

Restricted cash
28,358

Accounts receivable, net
91,358

Container rental equipment
3,083,796

Net investment in direct financing leases
162,144

Equipment held for sale
80,682

Goodwill
153,605

Other assets
12,979

Intangible assets
361,754

Accounts payable and other accrued expenses
(47,992
)
Derivative instruments
(67,191
)
Container rental equipment payable
(8,304
)
Deferred income tax liability
(308,974
)
Debt, net of deferred financing costs
(3,086,266
)
Total consideration
$
510,280


The following table provides the unaudited pro forma results of operations, which gives effect to the transaction as if it had occurred on the first day of the earliest period presented (January 1, 2015). The pro forma results of operations reflects adjustments (i) to adjust amortization and depreciation expense resulting from the write-down of leasing equipment to fair value and the fair value of operating lease contracts over the current market rate as a result of purchase accounting and (ii) to eliminate non-recurring charges that were incurred in connection with the transactions including acquisition-related share-based compensation, transaction costs related to legal, accounting, and other advisory fees, and transaction costs related to retention and benefit costs.
 
 
Six Months Ended
 
Six Months Ended
 
 
June 30, 2016
 
June 30, 2015
Total revenues
$
546,400

 
$
593,159

Net income (loss)
$
6,993

 
$
108,183


27




TAL International Group, Inc.
Index


28



TAL INTERNATIONAL GROUP, INC.
Consolidated Balance Sheets
(Dollars in thousands, except share data)
(Unaudited)
 
June 30,
2016
 
December 31,
2015
ASSETS:
 
 
 
Leasing equipment, net of accumulated depreciation and allowances of $1,289,204 and $1,218,826
$
3,813,218

 
$
3,908,292

Net investment in finance leases, net of allowances of $671 and $805
159,693

 
177,737

Equipment held for sale
80,682

 
74,899

Revenue earning assets
4,053,593

 
4,160,928

Unrestricted cash and cash equivalents
54,331

 
58,907

Restricted cash
28,358

 
30,302

Accounts receivable, net of allowances of $1,209 and $1,314
91,358

 
95,709

Goodwill
74,523

 
74,523

Other assets
15,091

 
13,620

Fair value of derivative instruments

 
87

Total assets
$
4,317,254

 
$
4,434,076

LIABILITIES AND STOCKHOLDERS' EQUITY:
 
 
 
Equipment purchases payable
$
8,304

 
$
20,009

Fair value of derivative instruments
67,191

 
20,348

Accounts payable and other accrued expenses
53,480

 
56,096

Net deferred income tax liability
447,992

 
456,123

Debt, net of unamortized deferred financing costs of $23,720 and $25,245
3,146,494

 
3,216,488

Total liabilities
3,723,461

 
3,769,064

Stockholders' equity:
 
 
 
Preferred stock, $0.001 par value, 500,000 shares authorized, none issued

 

Common stock, $0.001 par value, 100,000,000 shares authorized, 37,307,134 and 37,167,134 shares issued respectively
37

 
37

Treasury stock, at cost, 3,911,843 shares
(75,310
)
 
(75,310
)
Additional paid-in capital
513,162

 
511,297

Accumulated earnings
204,568

 
248,183

Accumulated other comprehensive (loss)
(48,664
)
 
(19,195
)
Total stockholders' equity
593,793

 
665,012

Total liabilities and stockholders' equity
$
4,317,254

 
$
4,434,076

   





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


29



TAL INTERNATIONAL GROUP, INC.
Consolidated Statements of Operations
(Dollars and shares in thousands, except earnings per share)
(Unaudited)
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2016
 
2015
 
2016
 
2015
Leasing revenues:
 
 
 
 
 
 
 
Operating leases
$
138,137

 
$
146,569

 
$
283,035

 
$
291,137

Finance leases
2,926

 
3,887

 
6,033

 
7,911

Other revenues
210

 
382

 
1,428

 
765

Total leasing revenues
141,273

 
150,838

 
290,496

 
299,813

 
 
 
 
 
 
 
 
Equipment trading revenues
11,463

 
16,478

 
22,755

 
33,323

Equipment trading expenses
(11,471
)
 
(14,957
)
 
(22,736
)
 
(30,388
)
Trading margin
(8
)
 
1,521

 
19

 
2,935

 
 
 
 
 
 
 
 
(Loss) on sale of leasing equipment, net
(15,508
)
 
(660
)
 
(29,438
)
 
(2,109
)
 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
Depreciation and amortization
63,157

 
60,021

 
126,383

 
118,405

Direct operating expenses
19,576

 
10,011

 
37,535

 
18,833

Administrative expenses
10,855

 
10,467

 
21,568

 
22,249

Transaction and other non-recurring costs
2,295

 
900

 
4,534

 
1,100

Provision (reversal) for doubtful accounts
78

 
(165
)
 
(231
)
 
(188
)
Total operating expenses
95,961

 
81,234

 
189,789

 
160,399

Operating income
29,796

 
70,465

 
71,288

 
140,240

Other expenses:
 
 
 
 
 
 
 
Interest and debt expense
28,874

 
29,602

 
58,025

 
58,845

Write-off of deferred financing costs
173

 

 
536

 

Loss (gain) on interest rate swaps, net
135

 
(364
)
 
948

 
352

Total other expenses
29,182

 
29,238

 
59,509

 
59,197

Income before income taxes
614

 
41,227

 
11,779

 
81,043

Income tax expense
2,584

 
14,557

 
7,327

 
28,616

Net (loss) income
$
(1,970
)
 
$
26,670

 
$
4,452

 
$
52,427

   





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

30



TAL INTERNATIONAL GROUP, INC.
Consolidated Statements of Comprehensive (Loss) Income
(Dollars in thousands)
(Unaudited)
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2016
 
2015
 
2016
 
2015
Net (loss) income
$
(1,970
)
 
$
26,670

 
$
4,452

 
$
52,427

Other comprehensive income (loss):
 
 
 
 
 
 
 
Change in fair value of derivative instruments designated as cash flow hedges (net of income tax effect of $(8,366), $7,041, $(21,350) and $(1,570), respectively)
(9,898
)
 
12,983

 
(32,938
)
 
(2,855
)
Reclassification of realized loss on interest rate swap agreements designated as cash flow hedges (net of income tax effect of $3,392, $1,729, $5,167 and $3,448, respectively)
737

 
3,164

 
3,140

 
6,316

Amortization of net loss on terminated derivative instruments designated as cash flow hedges (net of income tax effect of $196, $235, $402 and $477, respectively)
363

 
433

 
742

 
878

Foreign currency translation adjustment
(290
)
 
241

 
(413
)
 
84

Other comprehensive (loss) income, net of tax
(9,088
)
 
16,821

 
(29,469
)
 
4,423

Comprehensive (loss) income
$
(11,058
)
 
$
43,491

 
$
(25,017
)
 
$
56,850

   


















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

31



TAL INTERNATIONAL GROUP, INC.
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
 
Six Months Ended 
 June 30,
 
2016
 
2015
Cash flows from operating activities:
 
 
 
Net income
$
4,452

 
$
52,427

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
126,383

 
118,405

Amortization of deferred financing costs
3,351

 
3,941

Amortization of net loss on terminated derivative instruments designated as cash flow hedges
1,144

 
1,355

Amortization of lease intangibles
3,580

 
1,047

Loss on sale of leasing equipment, net
29,438

 
2,109

Loss on interest rate swaps, net
948

 
352

Write-off of deferred financing costs
536

 

Deferred income taxes
7,327

 
28,616

Stock compensation charge
2,177

 
3,449

Changes in operating assets and liabilities:
 
 
 
Net equipment (purchased) sold for resale activity
(483
)
 
(4,809
)
Other changes in operating assets and liabilities
(624
)
 
(3,759
)
Net cash provided by operating activities
178,229

 
203,133

Cash flows from investing activities:
 
 
 
Purchases of leasing equipment and investments in finance leases
(145,667
)
 
(428,963
)
Proceeds from sale of equipment, net of selling costs
61,301

 
66,026

Cash collections on finance lease receivables, net of income earned
21,325

 
21,289

Other
(296
)
 
74

Net cash (used in) investing activities
(63,337
)
 
(341,574
)
Cash flows from financing activities:
 
 
 
Purchases of treasury stock

 
(4,446
)
Stock options exercised and stock related activity

 
38

Financing fees paid under debt facilities
(2,362
)
 
(717
)
Borrowings under debt facilities
190,001

 
365,000

Payments under debt facilities and capital lease obligations
(261,555
)
 
(182,251
)
Decrease in restricted cash
1,944

 
1,159

Common stock dividends paid
(47,496
)
 
(47,313
)
Net cash (used in) provided by financing activities
(119,468
)
 
131,470

Net (decrease) in unrestricted cash and cash equivalents
$
(4,576
)
 
$
(6,971
)
Unrestricted cash and cash equivalents, beginning of period
58,907

 
79,132

Unrestricted cash and cash equivalents, end of period
$
54,331

 
$
72,161

Supplemental non-cash investing activities:
 
 
 
 Amounts incurred, but not yet paid, for container rental equipment purchased
$
8,304

 
$
34,670

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

32


TAL INTERNATIONAL GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


Note 1—Description of the Business, Basis of Presentation and Recently Adopted Accounting Pronouncements
A.    Description of the Business
TAL International Group, Inc. ("TAL" or the "Company") leases intermodal transportation equipment, primarily maritime containers, and provides maritime container management services, through a worldwide network of offices, third party depots and other facilities. The Company operates in both international and domestic markets. 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 its own containers and containers purchased from third parties for resale. TAL also enters into management agreements with third party container owners under which the Company manages the leasing and selling of containers on behalf of the third party owners.
B.    Basis of Presentation
On July 12, 2016, pursuant to the transaction agreement dated November 9, 2015, TAL became a wholly owned subsidiary of Triton International Limited. See Note 12 for a description of the merger transaction.
The preparation of financial statements in conformity with U.S. generally accepted accounting principles 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 at the date of the financial statements. Actual results could differ from those estimates.
The consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. Certain reclassifications have been made to the accompanying prior period financial statements and notes to conform to the current year's presentation.
C.    New Accounting Pronouncements
In March 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2016-08 ("ASU No. 2016-08"), Revenue from Contracts with Customers (Topic 606), amending previous updates regarding this topic. The effective date is interim periods beginning after December 15, 2017. Earlier application is permitted. The Company is evaluating the transition method that will be elected and the potential effects of adopting the provisions of ASU No. 2016-08.
In August 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2014-15 ("ASU No. 2014-15"), Presentation of Financial Statements (Topic 205): Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern. This standard requires management to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that financial statements are issued and to disclose those conditions if management has concluded that substantial doubt exists. Subsequent to adoption, this guidance will need to be applied by management at the end of each annual period and interim period therein to determine what, if any, impact there will be on the Consolidated Financial Statements in a given reporting period. These changes become effective for the Company for the 2016 annual period. Management has determined that the adoption of these changes will not have an impact on the Consolidated Financial Statements as this standard is disclosure only.
In April 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2015-03 ("ASU No. 2015-03"), Imputation of Interest (Topic 835): Simplifying the Presentation of Debt Issuance Costs, which was updated in August 2015 by Accounting Standards Update No. 2015-15 ("ASU No. 2015-15"), Imputation of Interest (Topic 835): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Agreements. These standards change the presentation of debt issuance costs in the financial statements but do not affect the recognition and measurement of debt issuance costs. The ASU specifies that debt issuance costs related to a note shall be reported in the balance sheet as a direct deduction from the face amount of that note and that amortization of debt issuance costs also shall be reported as interest expense. In addition, for debt issuance costs related to line-of-credit arrangements, the Securities and Exchange Commission ("SEC") would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. These changes became effective for the Company as of December 31, 2015. The Company adopted ASU No. 2015-15 in conjunction with ASU No. 2015-03, which have no impact on its income or cash flows and no material impact on its financial position.

33


TAL INTERNATIONAL GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1—Description of the Business, Basis of Presentation and Recently Adopted Accounting Pronouncements (Continued)
In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2016-02 ("ASU No. 2016-02"), Leases (Topic 842) that replaces existing lease guidance. The accounting applied by lessors under Topic 842 is largely unchanged from previous GAAP. Some changes to the lessor accounting guidance were made to align both of the following: i) the lessor accounting guidance with certain changes made to the lessee accounting guidance and ii) key aspects of the lessor accounting model with revenue recognition guidance. These changes will become effective for the Company for periods beginning after December 15, 2018. The Company is currently evaluating the effect the guidance will have on the Consolidated Financial Statements, but does not expect any material impact to its financial statements.
In March 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2016-09 ("ASU No. 2016-09"), Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The updated guidance changes how companies account for certain aspects of share-based payment awards to employees, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The update to the standard is effective for the Company for periods beginning after December 15, 2016. The Company is currently evaluating the effect the guidance will have on the Consolidated Financial Statements.
Note 2—Fair Value of Financial Instruments
The Company believes that the carrying amounts of its cash and cash equivalents, accounts receivable, equipment purchases payable, and accounts payable approximated their fair value as of June 30, 2016 and December 31, 2015.
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 utilizes the following fair value hierarchy when selecting inputs for its valuation techniques, with the highest priority given to Level 1:
Level 1—Financial assets and liabilities whose values are based on observable inputs such as quoted prices for identical instruments in active markets (unadjusted).
Level 2—Financial assets and liabilities whose values are based on observable inputs such as (i) quoted prices for similar instruments in active markets; (ii) quoted prices for identical or similar instruments in markets that are not active; or (iii) model-derived valuations in which all significant inputs are observable in active markets.
Level 3—Financial assets and liabilities whose values are derived from valuation techniques based on one or more significant unobservable inputs.
The Company does not measure net investment in finance leases or debt at fair value in its consolidated balance sheets. The fair value, which was measured using Level 2 inputs, and the carrying value of the Company's net investment in finance leases and debt are listed in the table below as of the dates indicated (in thousands):
 
June 30,
2016
 
December 31,
2015
Assets
 
 
 
Net investment in finance leases, net of allowances - carrying value
$
159,693

 
$
177,737

Net investment in finance leases, net of allowances - estimated fair value
$
162,412

 
$
180,565

Liabilities
 
 
 
Total debt(1) - carrying value
$
3,170,214

 
$
3,241,733

Total debt(1) - estimated fair value
$
3,089,127

 
$
3,210,722

______________________________________________________________________________
(1) Excludes unamortized deferred financing costs of $23.7 million and $25.2 million as of June 30, 2016 and December 31, 2015, respectively.

34


TAL INTERNATIONAL GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 2—Fair Value of Financial Instruments (Continued)
The Company estimated the fair value of its net investment in finance leases and debt instruments based on the net present value of its future receipts or payments, using a discount rate which reflects the Company's estimate of current market interest rates and spreads as of the balance sheet date.
For the fair value of derivatives, please refer to Note 7 - "Derivative Instruments".
Note 3—Dividends and Treasury Stock
Dividends
The Company paid the following quarterly dividends during the six months ended June 30, 2016 and 2015 on its issued and outstanding common stock prior to the merger transaction described in Note 1 (B) and Note 12:
Record Date
Payment
Date
 
Aggregate
Payment
 
Per Share
Payment
June 8, 2016
June 15, 2016
 
$17.8 Million
 
$0.54
May 12, 2016
May 26, 2016
 
$14.8 Million
 
$0.45
March 10, 2016
March 24, 2016
 
$14.8 Million
 
$0.45
June 3, 2015
June 24, 2015
 
$23.7 Million
 
$0.72
March 3, 2015
March 24, 2015
 
$23.7 Million
 
$0.72
Treasury Stock & Stock Repurchase Program
In the first half of 2016, TAL had no repurchases of shares. TAL repurchased 81,915 shares in the first half of 2015, at an average price of $41.40 per share. As part of the joint announcement of the merger transaction on November 9, 2015, a share repurchase program of up to $250 million was announced, which supplants all prior stock repurchase programs.
Note 4—Capital Stock and Stock Options
Stock Based Compensation Plans
The Company recorded compensation cost relating to previously existing stock based payment transactions in accordance with ASC 718. The cost was measured at the grant date, based on the calculated fair value of the award, and was recognized as an expense over the employee's requisite service period (generally the vesting period of the equity award) on a straight-line basis.
The Company recognized compensation costs in administrative expenses related to restricted shares granted in 2013, 2014, 2015 and 2016 under the Company's previously existing stock-based compensation plans of $1.1 million and $1.4 million during the three months ended June 30, 2016 and 2015, respectively and $2.2 million and $3.4 million during the six months ended June 30, 2016 and 2015, respectively.
Total unrecognized compensation costs of approximately $5.2 million as of June 30, 2016 related to restricted shares granted during 2014, 2015 and 2016. The Company's previously existing stock based compensation plans consisted of the 2005 Management Omnibus Incentive Plan and the 2014 Equity Incentive Plan and under those plans 140,000 restricted shares and 158,750 restricted shares were issued during the first half of June 30, 2016 and 2015, respectively. The restricted shares granted in 2014 and 2015 vested on July 12, 2016 upon the closing of the mergers.  The restricted shares granted in 2016 were converted to Triton shares and will vest in approximately 2.5 years.

35


TAL INTERNATIONAL GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 4—Capital Stock and Stock Options (continued)
Accumulated Other Comprehensive (Loss)
Accumulated other comprehensive (loss) consisted of the following as of the dates indicated (in thousands and net of tax effects):
 
Cash Flow
Hedges
 
Foreign
Currency
Translation
 
Accumulated Other Comprehensive (Loss) Income
Balance as of December 31, 2015
$
(17,898
)
 
$
(1,297
)
 
$
(19,195
)
Change in fair value of derivative instruments designated as cash flow hedges
(32,938
)
 

 
(32,938
)
Reclassification of realized loss on interest rate swap agreements designated as cash flow hedges
3,140

 

 
3,140

Amortization of net loss on derivative instruments previously designated as cash flow hedges
742

 

 
742

Foreign currency translation adjustment

 
(413
)
 
(413
)
Other comprehensive (loss)
(29,056
)
 
(413
)
 
(29,469
)
Balance as of June 30, 2016
$
(46,954
)
 
$
(1,710
)
 
$
(48,664
)
 
Cash Flow
Hedges
 
Foreign
Currency
Translation
 
Accumulated Other Comprehensive (Loss) Income
Balance as of December 31, 2014
$
(12,145
)
 
$
(1,104
)
 
$
(13,249
)
Change in fair value of derivative instruments designated as cash flow hedges
(2,855
)
 

 
(2,855
)
Reclassification of realized loss on interest rate swap agreements designated as cash flow hedges
6,316

 

 
6,316

Amortization of net loss on derivative instruments previously designated as cash flow hedges
878

 

 
878

Foreign currency translation adjustment

 
84

 
84

Other comprehensive income
4,339

 
84

 
4,423

Balance as of June 30, 2015
$
(7,806
)
 
$
(1,020
)
 
$
(8,826
)
The following table presents reclassifications out of Accumulated other comprehensive (loss) for the period indicated (in thousands):
 
Amounts Reclassified From Accumulated Other Comprehensive (Loss)
Affected Line Item
in the Consolidated
Statements of Income
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2016
 
2015
 
2016
 
2015
Realized loss on interest rate swap agreements, designated as cash flow hedges
$
4,129

 
$
4,893

 
$
8,307

 
$