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EX-32.2 - EXHIBIT 32.2 - Triton International Ltdexhibit3229-30x2018.htm
EX-32.1 - EXHIBIT 32.1 - Triton International Ltdexhibit3219-30x2018.htm
EX-31.2 - EXHIBIT 31.2 - Triton International Ltdexhibit3129-30x2018.htm
EX-31.1 - EXHIBIT 31.1 - Triton International Ltdexhibit3119-30x2018.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 September 30, 2018
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)
 
 
 
Canon's Court, 22 Victoria Street, Hamilton HM12, Bermuda
(Address of principal executive office)
 
 
 
(441) 294-8033
(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 ý    No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý    No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer ý
 
 
 
Accelerated Filer o
 
 
Non-accelerated filer o
 
 
 
Smaller reporting company o
 
 
 
 
 
 
Emerging growth company o
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act). YES o    NO ý
As of October 31, 2018, there were 79,874,665 common shares, $0.01 par value, of the registrant outstanding.
 



Triton International Limited
Index
 
 
Page No.
 
 
 
 
 


2


CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, that involve substantial risks and uncertainties. In addition, we, or our executive officers on our behalf, may from time to time make forward-looking statements in reports and other documents we file with the Securities and Exchange Commission, or SEC, or in connection with oral statements made to the press, potential investors or others. All statements, other than statements of historical facts, including statements regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans and objectives of management are forward-looking statements. The words "expect," "estimate," "anticipate," "predict," "believe," "think," "plan," "will," "should," "intend," "seek," "potential" and similar expressions and variations are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.
Forward-looking statements in this report are subject to a number of known and unknown risks and uncertainties that could cause our actual results, performance or achievements to differ materially from those described in the forward-looking statements, including, but not limited to, the risks and uncertainties described in the section entitled "Risk Factors" in our Annual Report on Form 10-K, filed with the SEC on February 27, 2018, (the "Form 10-K"), in this Report on Form 10-Q and in any other Form 10-Q filed or to be filed by us, as well as in the other documents we file with the SEC from time to time, and such risks and uncertainties are specifically incorporated herein by reference.
Forward-looking statements speak only as of the date the statements are made. Except as required under the federal securities laws and rules and regulations of the SEC, we undertake no obligation to update or revise forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information. We caution you not to unduly rely on the forward-looking statements when evaluating the information presented in this report.


3



ITEM 1.    FINANCIAL STATEMENTS
TRITON INTERNATIONAL LIMITED
Consolidated Balance Sheets
(In thousands, except share data)
(Unaudited)
 
September 30,
2018
 
December 31,
2017
ASSETS:
 
 
 
Leasing equipment, net of accumulated depreciation of $2,556,600 and $2,218,897
$
9,208,539

 
$
8,364,484

Net investment in finance leases
255,750

 
295,891

Equipment held for sale
50,976

 
43,195

Revenue earning assets
9,515,265

 
8,703,570

Cash and cash equivalents
75,177

 
132,031

Restricted cash
127,282

 
94,140

Accounts receivable, net of allowances of $3,085 and $3,002
220,460

 
199,876

Goodwill
236,665

 
236,665

Lease intangibles, net of accumulated amortization of $192,286 and $144,081
106,171

 
154,376

Other assets
32,199

 
49,591

Fair value of derivative instruments
35,278

 
7,376

Total assets
$
10,348,497

 
$
9,577,625

LIABILITIES AND SHAREHOLDERS' EQUITY:
 
 
 
Equipment purchases payable
$
127,755

 
$
128,133

Fair value of derivative instruments
820

 
2,503

Accounts payable and other accrued expenses
108,277

 
109,999

Net deferred income tax liability
254,649

 
215,439

Debt, net of unamortized debt costs of $43,263 and $40,636
7,472,846

 
6,911,725

Total liabilities
7,964,347

 
7,367,799

Shareholders' equity:
 
 
 
Common shares, $0.01 par value, 294,000,000 shares authorized, 80,851,188 and 80,687,757 shares issued, respectively
809

 
807

Undesignated shares, $0.01 par value, 6,000,000 shares authorized, no shares issued and outstanding

 

Treasury shares, at cost, 33,700 shares and no shares, respectively
(1,115
)
 

Additional paid-in capital
895,461

 
889,168

Accumulated earnings
1,321,547

 
1,159,367

Accumulated other comprehensive income
40,781

 
26,942

Total shareholders' equity
2,257,483

 
2,076,284

Non-controlling interests
126,667

 
133,542

Total equity
2,384,150

 
2,209,826

Total liabilities and equity
$
10,348,497

 
$
9,577,625

   




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

4




TRITON INTERNATIONAL LIMITED
Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Leasing revenues:
 
 
 
 
 
 
 
Operating leases
$
346,461

 
$
296,669

 
$
981,646

 
$
832,414

Finance leases
3,617

 
5,451

 
13,300

 
17,247

Total leasing revenues
350,078

 
302,120

 
994,946

 
849,661

 
 
 
 
 
 
 
 
Equipment trading revenues
25,292

 
11,974

 
56,766

 
30,213

Equipment trading expenses
(19,482
)
 
(10,605
)
 
(43,971
)
 
(27,124
)
Trading margin
5,810

 
1,369

 
12,795

 
3,089

 
 
 
 
 
 
 
 
Net gain on sale of leasing equipment
7,055

 
10,263

 
27,378

 
25,063

Net gain on sale of building

 

 
20,953

 

 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
Depreciation and amortization
141,337

 
128,581

 
405,664

 
370,552

Direct operating expenses
11,489

 
13,833

 
32,732

 
51,396

Administrative expenses
19,964

 
21,233

 
60,321

 
66,268

Transaction and other (income) costs
2

 
32

 
(28
)
 
3,340

Provision for doubtful accounts
677

 
783

 
551

 
1,244

Total operating expenses
173,469

 
164,462

 
499,240

 
492,800

Operating income
189,474

 
149,290

 
556,832

 
385,013

Other expenses:
 
 
 
 
 
 
 
Interest and debt expense
82,502

 
73,795

 
236,627

 
208,076

Realized (gain) loss on derivative instruments, net
(608
)
 
20

 
(1,348
)
 
902

Unrealized (gain) loss on derivative instruments, net
322

 
629

 
(975
)
 
(80
)
Write-off of debt costs
1,348

 
4,073

 
1,851

 
4,116

Other expense (income), net
492

 
164

 
(752
)
 
(1,552
)
Total other expenses
84,056

 
78,681

 
235,403

 
211,462

Income before income taxes
105,418

 
70,609

 
321,429

 
173,551

Income tax expense
9,789

 
11,063

 
36,182

 
29,688

Net income
$
95,629

 
$
59,546

 
$
285,247

 
$
143,863

Less: income attributable to noncontrolling interest
1,393

 
2,390

 
5,249

 
6,425

Net income attributable to shareholders
$
94,236

 
$
57,156

 
$
279,998

 
$
137,438

Net income per common share—Basic
$
1.18

 
$
0.76

 
$
3.50

 
$
1.85

Net income per common share—Diluted
$
1.17

 
$
0.75

 
$
3.47

 
$
1.84

Cash dividends paid per common share
$
0.52

 
$
0.45

 
$
1.49

 
$
1.35

Weighted average number of common shares outstanding—Basic
80,064

 
75,214

 
80,026

 
74,245

Dilutive restricted shares and share options
664

 
493

 
594

 
402

Weighted average number of common shares outstanding—Diluted
80,728

 
75,707

 
80,620

 
74,647

   

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

5




TRITON INTERNATIONAL LIMITED
Consolidated Statements of Comprehensive Income
(In thousands)
(Unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Net income
$
95,629

 
$
59,546

 
$
285,247

 
$
143,863

Other comprehensive income:
 
 
 
 
 
 
 
Change in fair value of derivative instruments designated as cash flow hedges (net of income tax effect of $1,087, ($542), $5,791 and ($2,651), respectively)
4,159

 
(1,011
)
 
21,623

 
(4,928
)
Reclassification of (gain) loss on interest rate swap agreements designated as cash flow hedges (net of income tax effect of ($472), ($56), ($1,217) and $405, respectively)
(1,689
)
 
(104
)
 
(4,622
)
 
896

Reclassification of amortization of interest rate cap premium (net of income tax effect of $1, $0, $1 and $0, respectively)
3

 

 
3

 

Tax reclassification to accumulated earnings for the adoption of ASU 2018-02

 

 
(3,029
)
 

Foreign currency translation adjustment
(50
)
 
39

 
(136
)
 
151

Other comprehensive income (loss), net of tax
2,423

 
(1,076
)
 
13,839

 
(3,881
)
Comprehensive income
98,052

 
58,470

 
299,086

 
139,982

Less:
 
 
 
 
 
 
 
Other comprehensive income attributable to noncontrolling interest
1,393

 
2,390

 
5,249

 
6,425

Comprehensive income attributable to shareholders
$
96,659

 
$
56,080

 
$
293,837

 
$
133,557

   















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

6




TRITON INTERNATIONAL LIMITED
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
 
Nine Months Ended September 30,
 
2018
 
2017
Cash flows from operating activities:
 
 
 
Net income
$
285,247

 
$
143,863

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
405,664

 
370,552

Amortization of deferred financing cost and other debt related amortization
10,070

 
10,185

Lease related amortization
54,965

 
70,423

Share-based compensation expense
7,412

 
4,491

Net (gain) on sale of leasing equipment
(27,378
)
 
(25,063
)
Net (gain) on sale of building
(20,953
)
 

Unrealized (gain) on derivative instruments
(975
)
 
(80
)
Write-off of debt cost
1,851

 
4,116

Deferred income taxes
34,636

 
28,372

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(21,440
)
 
(3,928
)
Accounts payable and other accrued expenses
(3,469
)
 
(36,198
)
Net equipment sold for resale activity
(6,031
)
 
5,292

Cash received for settlement of interest rate swaps

 
2,117

Other assets
(578
)
 
648

Net cash provided by operating activities
719,021

 
574,790

Cash flows from investing activities:
 
 
 
Purchases of leasing equipment and investments in finance leases
(1,347,202
)
 
(1,185,481
)
Proceeds from sale of equipment, net of selling costs
122,100

 
136,647

Proceeds from the sale of building
27,630

 

Cash collections on finance lease receivables, net of income earned
45,164

 
45,146

Other
(103
)
 
67

Net cash (used in) investing activities
(1,152,411
)
 
(1,003,621
)
Cash flows from financing activities:
 
 
 
Issuance of common shares, net of underwriter expenses

 
192,932

Redemption of common shares for withholding taxes
(1,117
)
 
(71
)
Debt issuance costs
(12,492
)
 
(32,738
)
Borrowings under debt facilities
2,118,637

 
2,782,825

Payments under debt facilities and capital lease obligations
(1,563,947
)
 
(2,334,409
)
Dividends paid
(119,280
)
 
(99,586
)
Distributions to noncontrolling interests
(12,123
)
 
(14,273
)
Other

 
1,130

Net cash provided by financing activities
409,678

 
495,810

Net (decrease) increase in cash, cash equivalents and restricted cash
$
(23,712
)
 
$
66,979

Cash, cash equivalents and restricted cash, beginning of period
226,171

 
163,492

Cash, cash equivalents and restricted cash, end of period
$
202,459

 
$
230,471

Supplemental disclosures:
 
 
 
Interest paid
$
213,577

 
$
184,081

Supplemental non-cash investing activities:
 
 
 
Equipment purchases payable
$
127,755

 
$
94,052

   


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

7


TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


Note 1—Description of the Business and Significant Accounting Policies

Description of the Business

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

Basis of Presentation

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

The interim consolidated balance sheet as of September 30, 2018, the consolidated statements of operations and the consolidated statements of comprehensive income for the three and nine months ended September 30, 2018 and 2017, and the consolidated statements of cash flows for the nine months ended September 30, 2018 and 2017 are unaudited. The consolidated balance sheet as of December 31, 2017, included herein, was derived from the audited financial statements as of that date, but does not include all disclosures required by GAAP. These unaudited interim financial statements have been prepared on a basis consistent with the Company’s annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments necessary to state fairly the Company’s financial position, results of operations, comprehensive income, and cash flows for the periods presented. The financial data and the other financial information disclosed in the notes to the financial statements related to these periods are also unaudited. The consolidated results of operations for the three and nine months ended September 30, 2018 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2018 or for any other future annual or interim period.

These financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto as of and for the year ended December 31, 2017 included in the Company’s Annual Report on Form 10-K which was filed with the SEC on February 27, 2018. The unaudited consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Certain changes in presentation have been made to conform the prior period presentation to current period reporting.
 
Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the reported amounts of revenues and expenses during the reporting period and disclosure of contingent assets and liabilities in the financial statements. Such estimates include, but are not limited to, the Company's estimates in connection with leasing equipment, residual values, depreciable lives, values of assets held for sale and other long lived assets, 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 MSC Mediterranean Shipping Company S.A., accounted for 20% and 14%, respectively, of the Company's lease billings during the nine months ended September 30, 2018.


8


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



New Accounting Pronouncements

Recently Adopted Accounting Standards Updates

In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations, amending previous updates regarding this topic. Leasing revenue recognition is specifically excluded from this ASU, and therefore, the new standard only applied to equipment trading revenues and sales of leasing equipment. The adoption of this ASU had minimal impact on the Company since the majority of its sales contracts are for containers and do not contain multiple elements. The standard allows for either “full retrospective” adoption, meaning the standard is applied to all of the periods presented, or “modified retrospective” adoption, meaning the standard is applied only to the most current period presented in the financial statements. The Company adopted the standard on January 1, 2018, using the modified retrospective approach. The adoption of Topic 606 did not impact its leasing revenue recognition model because, as noted above, leasing revenue recognition, including ancillary fees, is specifically excluded from this ASU.

The Company has assessed the requirements of the new revenue standard with respect to its equipment trading revenue and sales of leasing equipment and has concluded that the timing and amount of recognition was not materially affected based on the fact that there generally are no long-term contracts, multiple element arrangements, or significant customer acquisition costs related to these revenue streams. The Company also considered the requirement to present disaggregated revenue for its equipment trading revenue and sales of leasing equipment upon the adoption of Topic 606. The Company currently presents these revenue items separately in its statements of operations. As a result, the Company concluded that the adoption of Topic 606 did not have a significant impact on either the timing of its revenue recognition or manner of presentation.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Receipts and Cash Payments. The updated amendment provides guidance as to where certain cash flow items are presented, including debt prepayment or debt extinguishment costs and proceeds from the settlement of insurance claims. The Company adopted the standard on January 1, 2018. The adoption of this ASU did not have an impact on the consolidated financial statements since none of the cash flow items specified in the guidance changed our current presentation in the Company's consolidated statement of cash flows.

In October 2016, the FASB issued ASU No. 2016-16, Accounting for Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other than Inventory. The ASU eliminates the deferral of the tax effects of intra-entity asset transfers other than inventory. As a result, the tax expense from the intercompany sale of assets, other than inventory, and associated changes to deferred taxes will be recognized when the sale occurs even though the pre-tax effects of the transaction have not been recognized. The Company adopted the standard on January 1, 2018. The adoption of this ASU did not have a significant impact on its consolidated financial statements.

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. The amendments in this ASU require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. As a result, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments do not provide a definition of restricted cash or restricted cash equivalents. The Company adopted this guidance on January 1, 2018 using the retrospective approach. As a result, the Company recorded an increase of $33.9 million in net cash provided by financing activities for the nine months ended September 30, 2017 related to presentation changes of its restricted cash balance from financing activities to the cash, cash equivalents and restricted cash balance within the consolidated statements of cash flows.

In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting. ASU 2017-09 provides clarification on when modification accounting should be used for changes to the terms or conditions of a share-based payment award. This ASU does not change the accounting for modifications but clarifies that modification accounting guidance should only be applied if there is a change to the value, vesting conditions, or award classification and would not be required if the changes are considered non-substantive. The Company adopted the standard on January 1, 2018 on a prospective basis. The adoption of this ASU did not have an impact on the consolidated financial statements since the Company did not modify its share-based payment awards since adoption of the standard.

In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This ASU allows a reclassification from accumulated other comprehensive income to accumulated earnings for tax effects resulting from the Tax Cuts and Jobs Act (the “Act”) and requires certain new disclosures. ASU 2018-02 will be effective for the Company for fiscal years beginning after

9


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



December 15, 2018, with early adoption permitted. The update should be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate income tax rate in the Act is recognized. The Company elected to adopt this ASU in the first quarter of 2018 by making a one-time reclassification in the period of change of stranded tax effects from accumulated other comprehensive income to accumulated earnings related to the change in tax rates resulting from the Act. The reclassified amount of $3.0 million represents the difference between the amount initially recorded directly to accumulated other comprehensive income at the previously enacted US federal corporate income tax rate as of December 31, 2017 and the amount that would have been recorded directly to accumulated other comprehensive income as of December 31, 2017 by using the newly enacted US federal corporate income tax rate.

In March 2018, the FASB issued ASU No. 2018-05, Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118. The amendments in this ASU add various Securities and Exchange Commission (“SEC) paragraphs pursuant to the issuance of SEC Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”). The SEC issued SAB 118 to address concerns about reporting entities’ ability to timely comply with the accounting requirements to recognize all of the effects of the Act in the period of enactment. SAB 118 allows disclosure that timely determination of some or all of the income tax effects from the Act are incomplete by the due date of the financial statements and if possible to provide a reasonable estimate. The Company recorded the effects of the change in the tax law pursuant to SAB 118 as of December 31, 2017. The Company adopted the standard on January 1, 2018. There were no updates to the amounts recorded as of December 31, 2017 during the first nine months of 2018.

Recently Issued Accounting Standards Updates

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) and subsequently issued amendments thereto, that replaced existing lease accounting guidance. The accounting standard will require lessees to recognize a right of use asset and a corresponding lease liability on their balance sheets. The accounting that will be applied by lessors under ASC 842 is largely unchanged from previous GAAP. Certain targeted improvements were made to align, where necessary, lessor accounting with the lessee accounting model and ASC 606, Revenue from Contracts with Customers. We currently plan to adopt the standard on its effective date of January 1, 2019. We are currently quantifying the expected recognition on our balance sheet for a right to use asset and a lease liability as required by the standard. We do not expect the adoption of the standard to have a significant impact on the consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The guidance affects trade receivables and net investments in leases and requires the measurement of expected credit losses to be based on relevant information from past events, including historical experiences, current conditions and reasonable and supportable forecasts that affect collectability. The new guidance will be effective for fiscal years and interim periods beginning after December 15, 2019 and early adoption is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Different components of the guidance require modified retrospective and/or prospective adoption. Based on the composition of the Company's receivables, current market conditions and historical credit loss activity, the Company does not expect the adoption of this ASU to have a significant impact on the consolidated financial statements.

In August 2017, FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. ASU 2017-12 changes the recognition and presentation requirements of hedge accounting, including: eliminating the requirement to separately measure and report hedge ineffectiveness; and presenting all items that affect earnings in the same income statement line item as the hedged item. The ASU also provides new alternatives for: applying hedge accounting to additional hedging strategies; measuring the hedged item in fair value hedges of interest rate risk; reducing the cost and complexity of applying hedge accounting by easing the requirements for effectiveness testing, hedge documentation and application of the critical terms match method; and reducing the risk of material error correction if a company applies the shortcut method inappropriately. This ASU is effective for interim periods beginning after December 15, 2018. The Company is currently evaluating the impact of this ASU on the consolidated financial statements.

In June 2018, the FASB issued ASU 2018-07 (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting that expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. An entity should apply the requirements of Topic 718 to nonemployee awards except for certain exemptions specified in the amendment. The guidance is effective for fiscal years beginning after December 15, 2018, including interim reporting periods within that fiscal year. Early adoption is permitted, but no earlier than an entity’s adoption date of Topic 606. The Company does not expect the adoption of this ASU to have a significant impact on the consolidated financial statements.


10


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



In July 2018, the FASB issued ASU 2018-09, Codification Improvements. The amendments in this ASU represent changes to clarify, correct errors in, or make minor improvements to the Accounting Standards Codification (ASC). The transition and effective date guidance are based on the facts and circumstances of each amendment. Some of the amendments do not require transition guidance and will be effective upon issuance. However, many of the amendments in this ASU do have transition guidance with effective dates for annual periods beginning after December 15, 2018. The Company is currently evaluating the impact of the guidance on its consolidated financial statements.

Note 2—Fair Value of Financial Instruments

Fair value represents the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company uses the following fair value hierarchy when selecting inputs for its valuation techniques, with the highest priority given to Level 1:
Level 1—quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2—inputs other than quoted prices included within Level 1 that are either directly or indirectly observable; and
Level 3—unobservable inputs in which little or no market activity exists, therefore requiring an entity to develop its own assumptions about the assumptions that market participants would use in pricing.

Fair Value of Debt

The Company does not measure debt, net of unamortized debt costs, at fair value in its consolidated balance sheets. The fair value was measured using Level 2 inputs and the carrying value and fair value are summarized in the following table (in thousands):
 
September 30,
2018
 
December 31,
2017
Liabilities
 
 
 
Total debt - carrying value (1)
$
7,535,612

 
$
6,979,877

Total debt - fair value
$
7,475,226

 
$
6,991,537

(1)
Excludes unamortized debt costs of $43.3 million and $40.6 million and purchase price debt adjustments of $19.5 million and $27.5 million as of September 30, 2018 and December 31, 2017, respectively.

Fair Value of Equipment Held for Sale

The Company’s equipment held for sale fair value is measured using Level 2 inputs and is based on recent sales prices and other factors. Equipment held for sale is recorded at the lower of fair value or carrying value and an impairment charge is recorded when the carrying value of the asset exceeds its fair value. The following table summarizes the portion of the Company’s equipment held for sale measured at fair value and the cumulative impairment charges recorded to net gain on sale of leasing equipment through the periods summarized below (in thousands):
 
September 30,
2018
 
December 31,
2017
Assets
 
 
 
Equipment held for sale - assets at fair value (1)
$
4,095

 
$
6,104

Cumulative impairment charges (2)
$
(1,599
)
 
$
(2,242
)
(1)
Represents the fair value of containers included in equipment held for sale in the consolidated balance sheets that have been impaired to write down the carrying value of the containers to their estimated fair value less costs to sell.
(2)
Represents the cumulative impairment charges recognized on equipment held for sale from the date of designated held for sale status to the indicated period end date.

The Company recognized net impairment charges of $1.3 million and $2.7 million for the three and nine months ended September 30, 2018, respectively. The Company recognized net impairment charges of $0.3 million and net impairment reversals of $0.6 million for the three and nine months ended September 30, 2017, respectively.

Fair Value of Derivative Instruments

The Company has elected to use the income approach to value its interest rate swap and cap agreements, using Level 2 market expectations at the measurement date and standard valuation techniques to convert future amounts to a single present amount (discounted) assuming that participants are motivated, but not compelled to transact. The Level 2 inputs for the interest rate swap

11


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



and cap valuations are inputs other than quoted prices that are observable for the asset or liability (specifically LIBOR and swap rates, basis swap adjustments and credit risk at commonly quoted intervals).

The fair value of derivative instruments on the Company's consolidated balance sheets as of September 30, 2018 and December 31, 2017 was as follows (in thousands):
 
Asset Derivatives
Liability Derivatives
Derivative Instrument
September 30, 2018
 
December 31, 2017
 
September 30, 2018
 
December 31, 2017
Interest rate swap contracts, designated
$
30,480

 
$
3,554

 
$
820

 
$
2,503

Interest rate swap contracts, not designated
4,798

 
3,822

 

 

Total derivatives
$
35,278

 
$
7,376

 
$
820

 
$
2,503


Fair Value of Other Assets and Liabilities

Cash and cash equivalents, restricted cash, accounts receivable, equipment purchases payable and accounts payable carrying amounts approximate fair values because of the short-term nature of these instruments. The Company’s other financial and non-financial assets, which include leasing equipment, net investment in finance leases, intangible assets and goodwill, are not required to be measured at fair value on a recurring basis. However, if certain triggering events occur, or if an annual impairment test is required, and the Company determines that these other financial and non-financial assets are impaired after completing an evaluation, these assets would be written down to their fair value.

Note 3—Share-Based Compensation and Other Equity Matters

The Company recognizes share-based compensation expense for share-based payment transactions based on the grant date’s 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 $1.7 million and $1.2 million of share-based compensation expense in administrative expenses for the three months ended September 30, 2018 and 2017, respectively, and recognized $7.4 million and $4.5 million of share-based compensation expense in administrative expenses for the nine months ended September 30, 2018 and 2017, respectively. Included in the expense are certain performance-based share expense where the achievement of the performance condition was deemed probable.

As of September 30, 2018, the total unrecognized compensation expense related to non-vested restricted shares was approximately $8.7 million, which is expected to be recognized through 2020.

During the nine months ended September 30, 2018, the Company granted 138,445 time-based restricted shares and 50,441 performance-based shares, and canceled 36,642 vested shares to settle payroll taxes on behalf of employees. Additional shares may be accrued and granted based upon the Company's performance measured against selected peers. On May 2, 2018, the Company granted 39,320 shares to non-employee directors at a fair value of $31.85 per share that vested immediately.

Share Repurchase Program

On August 1, 2018, the Company's Board of Directors authorized the repurchase of up to $200 million of its common shares. 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 September 30, 2018, the Company repurchased 33,700 common shares at an average price per-share of $33.07 for a total of $1.1 million. As of September 30, 2018$198.9 million remains available of the $200.0 million common share repurchase authorized by the Board in August 2018. 


12


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



Accumulated Other Comprehensive Income

The following table summarizes the components of accumulated other comprehensive income, net of tax, for the nine months ended September 30, 2018 and 2017 (in thousands):
 
Cash Flow
Hedges
 
Foreign
Currency
Translation
 
Accumulated Other Comprehensive (Loss) Income
Balance as of December 31, 2017
$
31,215

 
$
(4,273
)
 
$
26,942

Change in fair value of derivative instruments designated as cash flow hedges
21,623

 

 
21,623

Reclassification of (gain) on interest rate swap agreements designated as cash flow hedges
(4,622
)
 

 
(4,622
)
Reclassification of amortization of interest rate cap premium
3

 

 
3

Tax reclassification for the adoption of ASU 2018-02 accumulated earnings
(3,029
)
 

 
(3,029
)
Foreign currency translation adjustment

 
(136
)
 
(136
)
Other comprehensive income
13,975

 
(136
)
 
13,839

Balance as of September 30, 2018
$
45,190

 
$
(4,409
)
 
$
40,781


 
Cash Flow
Hedges
 
Foreign
Currency
Translation
 
Accumulated Other Comprehensive (Loss) Income
Balance as of December 31, 2016
$
31,182

 
$
(4,424
)
 
$
26,758

Change in fair value of derivative instruments designated as cash flow hedges
(4,928
)
 

 
(4,928
)
Reclassification of loss on interest rate swap agreements designated as cash flow hedges
896

 

 
896

Foreign currency translation adjustment

 
151

 
151

Other comprehensive income (loss)
(4,032
)
 
151

 
(3,881
)
Balance as of September 30, 2017
$
27,150

 
$
(4,273
)
 
$
22,877


The following table summarizes the reclassifications out of accumulated other comprehensive income (in thousands):
 
Amounts Reclassified From Accumulated Other Comprehensive Income
Affected Line Item
in the Consolidated
Statements of Income
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Realized (gain) loss on interest rate swap agreements, designated as cash flow hedges
$
(2,161
)
 
$
(160
)
 
$
(5,839
)
 
$
1,301

Interest and debt expense
Reclassification of amortization of interest rate cap premium
4

 

 
4

 

Interest and debt expense
Reclassification of (gain) loss on interest rate swap agreements
$
(2,157
)
 
$
(160
)
 
$
(5,835
)
 
$
1,301

Interest and debt expense
Income tax expense (benefit)
471

 
56

 
1,216

 
(405
)
Income tax expense
Amounts reclassified from accumulated other comprehensive income, net of tax
$
(1,686
)
 
$
(104
)
 
$
(4,619
)
 
$
896

Net income


13


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



Note 4—Debt

Debt consisted of the following (in thousands):
 
September 30,
2018
 
December 31,
2017
Institutional notes
$
2,206,057

 
$
2,381,000

Asset-backed securitization term notes
3,154,532

 
2,378,470

Term loan facilities
1,403,709

 
1,701,998

Asset-backed warehouse facility
232,000

 
110,000

Revolving credit facilities
450,000

 
305,000

Capital lease obligations
89,314

 
103,409

Total debt outstanding
7,535,612

 
6,979,877

Debt costs
(43,263
)
 
(40,636
)
Unamortized fair value debt adjustment
(19,503
)
 
(27,516
)
Debt, net of unamortized debt costs
$
7,472,846

 
$
6,911,725


The Company is subject to certain financial covenants under its debt agreements. The agreements remain the obligations of the respective subsidiaries, and all related debt covenants are calculated at the subsidiary level. As of September 30, 2018 and December 31, 2017, the Company was in compliance with all financial covenants in accordance with the terms of its debt agreements.

As of September 30, 2018, the Company had $4,695.5 million of total debt outstanding on facilities with fixed interest rates. These fixed rate facilities had a contractual weighted average interest rate of 4.23%, are scheduled to mature between 2018 and 2029, and had a weighted average remaining term of 4.1 years as of September 30, 2018.

As of September 30, 2018, the Company had $2,840.1 million of debt outstanding on facilities with interest rates based on floating rate indices (LIBOR). These floating rate facilities had a contractual weighted average interest rate of 4.16%, are scheduled to mature between 2019 and 2024, and had a weighted average remaining term of 3.1 years as of September 30, 2018.

The Company hedges the risks associated with fluctuations in interest rates on a portion of its floating rate borrowings by entering into interest rate swap agreements that convert a portion of its floating rate debt to a fixed rate basis, thus reducing the impact of interest rate changes on future interest expense. As of September 30, 2018, the Company had interest rate swaps in place with a notional amount of $1,715.0 million to fix the floating interest rates on a portion of its floating rate debt obligations, with a weighted average fixed leg interest rate of 2.22% and a weighted average remaining term of 4.4 years. Including the impact of the Company's interest rate swaps, the contractual weighted average interest rate on its floating rate facilities was 4.16% as of September 30, 2018.

As of September 30, 2018, the Company had $6,410.5 million of total debt on facilities with fixed interest rates or floating interest rates that have been synthetically fixed through interest rate swap contracts. This accounts for 85.1% of total debt. These facilities had a contractual weighted average interest rate of 4.22% and a weighted average remaining term of 4.2 years as of September 30, 2018.

Overall, the Company's total debt had a contractual weighted average interest rate of 4.21% as of September 30, 2018, including the impact of the swap contracts.

The Company wrote-off $1.3 million and $1.9 million of debt related costs for the three and nine months ended September 30, 2018 and wrote-off $4.1 million of debt related costs for the three and nine months ended September 30, 2017.

Institutional Notes

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

14


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



These facilities provide for an advance rate against the net book values of designated eligible equipment generally in the range from 83% to 85%. These institutional notes had a contractual weighted average interest rate of 4.70% as of September 30, 2018 and are scheduled to mature between 2020 and 2029.

Asset-Backed Securitization Term Notes

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

The Company’s borrowings under the ABS facilities amortize in monthly installments, typically in level payments over five or more years. These facilities provide for an advance rate against the net book values of designated eligible equipment generally in the range from 77% to 87%. The net book values for purposes of calculating eligible equipment is determined according to the related debt agreement and may be different than those calculated per U.S. GAAP. The Company is required to maintain restricted cash balances on deposit in designated bank accounts equal to three to nine months of interest expense depending on the terms of each facility.

These asset-backed securitization term notes had a contractual weighted average interest rate of 3.87% as of September 30, 2018 and are scheduled to mature between 2022 and 2028.

During the nine months ended September 30, 2018, the Company completed offerings of the following Class A and B fixed rate asset-backed notes:
Date Completed
Total Offering
Contractual Weighted Average Interest Rate
Scheduled Maturity
March 20, 2018
$450.0 million
3.99%
March 20, 2028
June 20, 2018
$367.9 million
4.23%
June 20, 2028
August 9, 2018
$260.6 million
3.67%
August 21, 2023
On September 14, 2018, the Company extinguished a term note and paid the remaining balance of $4.7 million.
Term Loan Facilities

The term loan facilities amortize in monthly or quarterly installments. These facilities provide for an advance rate against the net book values of designated eligible equipment generally in the range from 80% to 83%. These term loan facilities had a contractual weighted average interest rate of 4.18% as of September 30, 2018, and are scheduled to mature between 2019 and 2022.

On April 20, 2018, the Company sold an office building for net proceeds of $27.6 million and recorded a gain on sale of $21.0 million. The proceeds of the sale were used to pay off the mortgage balance of $18.3 million plus accrued interest of $0.1 million.

On May 31, 2018, the Company extinguished a term loan and paid the outstanding balance of $93.9 million.

On August 1, 2018, the Company amended a term loan agreement and extended the maturity date to April 20, 2022.

On September 28, 2018, the Company concurrently extinguished a term loan and entered into a new revolving credit facility with a maturity date of September 28, 2023. The outstanding term loan balance of $52.5 million was repaid using proceeds drawn from the revolving credit facility.

Asset-Backed Warehouse Facility

Under the Company’s asset-backed warehouse facility, an indirect wholly-owned subsidiary of the Company issues asset-backed notes. The issuance of asset-backed notes is the primary business objective of that subsidiary. The asset-backed warehouse facility is intended to be bankruptcy remote so that such assets are not available to creditors of the Company or its affiliates until and unless the related secured borrowings have been fully discharged. These transactions do not meet accounting requirements for sales treatment and are recorded as secured borrowings.

15


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




The Company's asset-backed warehouse facility has a maximum borrowing capacity of $400.0 million which is available on a revolving basis until September 28, 2020, after which any borrowings would convert to term notes with a maturity date of September 20, 2024. This facility has a contractual interest rate of one-month LIBOR plus 1.85% margin until the conversion date when it would have a contractual interest rate of one-month LIBOR plus 2.85%. As of September 30, 2018, the asset-backed warehouse facility had a contractual interest rate of 4.02%.

During the revolving period, the borrowing capacity under the facility is determined by applying an advance rate against the net book values of designated eligible equipment. The advance rate for the facility is 81%. The net book values for purposes of calculating eligible equipment is determined according to the related debt agreement and may be different than those calculated per U.S. GAAP. The Company is required to maintain restricted cash balances on deposit in designated bank accounts equal to three to five months of interest expense.

On August 20, 2018, the Company terminated a warehouse agreement for a second asset-backed warehouse facility. There was no outstanding balance under that warehouse facility at the date of termination.
Revolving Credit Facilities

The revolving credit facilities have a maximum borrowing capacity of $1,285.0 million. These facilities provides for an advance rate against the net book values of designated eligible equipment. The approximate average advance rate for these facilities is 83%. The revolving credit facilities had a contractual weighted average interest rate of 4.25% as of September 30, 2018 and are scheduled to mature between 2020 and 2023.

On May 8, 2018, the Company increased its credit limit on one of its revolving credit facilities from $1,025.0 million to $1,125.0 million. This revolving credit facility’s contractual weighted average interest rate remained at one-month LIBOR plus 2.00%.

On September 28, 2018, concurrent with the extinguishment of a term loan, the Company entered into a new $110.0 million revolving credit facility. This facility has an interest rate of one-month LIBOR plus 1.85% and a scheduled maturity date of September 28, 2023.

Capital Lease Obligations

The Company has entered into a series of direct finance lease transactions with various financial institutions to finance chassis and containers. Each lease is accounted for as a capital lease, with interest expense recognized on a level yield basis over the period preceding early purchase options, if any, which is generally three to ten years from the transaction date. These agreements have fixed interest rates ranging from 3.26% to 4.93%, and mature between 2018 and 2024.

Note 5—Derivative Instruments

Interest Rate Hedging

The Company enters into interest rate swap agreements to manage interest rate risk exposure. Interest rate swap agreements are utilized to limit the Company's exposure to interest rate risk by converting a portion of its floating rate debt to a fixed rate basis, thus reducing the impact of interest rate changes on future interest expense. These agreements involve the receipt of floating rate amounts in exchange for fixed rate interest payments over the lives of the agreements without an exchange of the underlying principal amounts. The counterparties to the Company's interest rate swap agreements are highly rated financial institutions. In the unlikely event that the counterparties fail to meet the terms of the interest rate swap agreements, the Company's exposure is limited to the interest rate differential on the notional amount at each monthly settlement period over the life of the agreements. The Company does not anticipate any non-performance by the counterparties. Substantially all of the assets of certain indirect, wholly-owned subsidiaries of the Company have been pledged as collateral for the underlying indebtedness and the amounts payable under the interest rate swap agreements for each of these entities. In addition, certain assets of the Company's subsidiaries, are pledged as collateral for various credit facilities and the amounts payable under certain interest rate swap agreements.

The Company entered into an interest rate cap agreement during the first quarter of 2018 for a total notional amount of $400.0 million. The agreement is amortizing over a one year term. The Company has designated this interest rate cap agreement as a cash flow hedge for accounting purposes.

16


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




The Company entered into three interest rate swaps during the third quarter of 2018 for a total notional amount of $557.6 million. The first agreement has a notional amount of $257.6 million amortizing over a five year term and is indexed to the three-month LIBOR. The second and third agreements have notional amounts of $100.0 million and $200.0 million, respectively, amortizing over seven year terms and are indexed to one-month LIBOR. The Company has designated these interest rate swap agreements as cash flow hedges for accounting purposes.

As of September 30, 2018, the Company had interest rate swap and cap agreements in place to fix the floating interest rates on a portion of the borrowings under its debt facilities as summarized below:
Derivatives
 
Net Notional Amount
 
Weighted Average
Fixed Leg (Pay) Interest Rate
 
Cap Rate
 
Weighted Average
Remaining Term
Interest rate swaps
 
$
1,715.0
 Million
 
2.22%
 
n/a
 
4.4 years
Interest rate cap
 
$
386.7
 Million
 
n/a
 
2.9%
 
0.3 years

The following table summarizes the impact of derivative instruments on the consolidated statements of operations and the consolidated statements of comprehensive income on a pretax basis (in thousands):
 
 
 
Three Months Ended  September 30,
 
Nine Months Ended  September 30,
Derivative instrument
Financial statement caption
 
2018
 
2017
 
2018
 
2017
Non-designated interest rate swaps
Realized (gain) loss on derivative instruments, net
 
$
(608
)
 
$
20

 
$
(1,348
)
 
$
902

Non-designated interest rate swaps
Unrealized (gain) loss on derivative instruments, net
 
$
322

 
$
629

 
$
(975
)
 
$
(80
)
Designated interest rate swaps
Other comprehensive (income) loss
 
$
(5,246
)
 
$
1,553

 
$
(27,414
)
 
$
7,579

Designated interest rate swaps
Interest and debt (income) expense
 
$
(2,161
)
 
$
(160
)
 
$
(5,839
)
 
$
1,301

Amortization of interest rate cap
Interest and debt (income) expense
 
$
4

 
$

 
$
4

 
$


Note 6—Segment and Geographic Information

Segment Information

The Company operates its business in one industry, intermodal transportation equipment, and has two operating segments which also represent its reporting segments:

Equipment leasing—the Company owns, leases and ultimately disposes of containers and chassis from its lease fleet.

Equipment trading—the Company purchases containers from shipping line customers, and other sellers of containers, and resells these containers to container retailers and users of containers for storage or one-way shipment. Included in the equipment trading segment revenues are leasing revenues from equipment purchased for resale that is currently on lease until the containers are dropped off.

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

17


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




The following tables summarize segment information and the consolidated totals reported (in thousands):
 
Three Months Ended September 30,
 
2018
 
2017
 
Equipment
Leasing
 
Equipment
Trading
 
Totals
 
Equipment
Leasing
 
Equipment
Trading
 
Totals
Total leasing revenues
$
349,022

 
$
1,056

 
$
350,078

 
$
301,282

 
$
838

 
$
302,120

Trading margin

 
5,810

 
5,810

 

 
1,369

 
1,369

Net gain on sale of leasing equipment
7,055

 

 
7,055

 
10,263

 

 
10,263

Depreciation and amortization expense
141,263

 
74

 
141,337

 
128,428

 
153

 
128,581

Interest and debt expense
82,116

 
386

 
82,502

 
73,466

 
329

 
73,795

Realized (gain) loss on derivative instruments, net
(606
)
 
(2
)
 
(608
)
 
20

 

 
20

Income before income taxes (1)
$
104,226

 
$
2,862

 
$
107,088

 
$
73,232

 
$
2,079

 
$
75,311

(1)
Segment income before income taxes excludes unrealized gains or losses on derivative instruments and the write-off of debt costs. Unrealized losses on derivative instruments of $0.3 million and $0.6 million for the three months ended September 30, 2018 and 2017, respectively. Write-off of debt costs was $1.3 million and $4.1 million for the three months ended September 30, 2018 and 2017, respectively.

 
Nine Months Ended September 30,
 
2018
 
2017
 
Equipment
Leasing
 
Equipment
Trading
 
Totals
 
Equipment
Leasing
 
Equipment
Trading
 
Totals
Total leasing revenues
$
991,639

 
$
3,307

 
$
994,946

 
$
847,136

 
$
2,525

 
$
849,661

Trading margin

 
12,795

 
12,795

 

 
3,089

 
3,089

Net gain on sale of leasing equipment
27,378

 

 
27,378

 
25,063

 

 
25,063

Depreciation and amortization expense
404,927

 
737

 
405,664

 
370,081

 
471

 
370,552

Interest and debt expense
235,531

 
1,096

 
236,627

 
206,959

 
1,117

 
208,076

Realized (gain) loss on derivative instruments, net
(1,345
)
 
(3
)
 
(1,348
)
 
902

 

 
902

Income before income taxes (1)(2)
$
310,623

 
$
11,682

 
$
322,305

 
$
173,330

 
$
4,257

 
$
177,587

(1)
Segment income before income taxes excludes unrealized gains or losses on derivative instruments and the write-off of debt costs. Unrealized gains on derivative instruments were $1.0 million and $0.1 million for the nine months ended September 30, 2018 and 2017, respectively. Write-off of debt costs was $1.9 million and $4.1 million for the nine months ended September 30, 2018 and 2017, respectively.
(2)
Equipment leasing segment includes gain on sale of an office building of $21.0 million for the nine months ended September 30, 2018.



 
September 30, 2018
 
December 31, 2017
 
Equipment
Leasing
 
Equipment
Trading
 
Totals
 
Equipment
Leasing
 
Equipment
Trading
 
Totals
Equipment held for sale
$
28,602

 
$
22,374

 
$
50,976

 
$
31,534

 
$
11,661

 
$
43,195

Goodwill
220,864

 
15,801

 
236,665

 
220,864

 
15,801

 
236,665

Total assets
$
10,297,814

 
$
50,683

 
$
10,348,497

 
$
9,534,330

 
$
43,295

 
$
9,577,625


There are no intercompany revenues or expenses between segments. Certain administrative expenses have been allocated between segments based on an estimate of services provided to each segment. A portion of the Company's equipment purchased for resale was purchased through certain sale-leaseback transactions with its shipping line customers. Due to the expected longer term nature of these transactions, these purchases are reflected as leasing equipment as opposed to equipment held for sale and the cash flows associated with these transactions are reflected as purchases of leasing equipment and proceeds from the sale of equipment in investing activities in the Company's consolidated statements of cash flows.

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.

18


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




The following table summarizes the geographic allocation of equipment leasing revenues for the three and nine months ended September 30, 2018 and 2017 based on the Company's customers' primary domicile (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Total equipment leasing revenues:
 
 
 
 
 
 
 
Asia
$
142,978

 
$
127,205

 
$
407,919

 
$
361,975

Europe
164,812

 
133,752

 
462,943

 
376,414

Americas
31,796

 
31,014

 
92,949

 
80,464

Bermuda
778

 
645

 
2,112

 
1,037

Other International
9,714

 
9,504

 
29,023

 
29,771

Total
$
350,078

 
$
302,120

 
$
994,946

 
$
849,661


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

The following table summarizes the geographic allocation of equipment trading revenues for the three and nine months ended September 30, 2018 and 2017 based on the location of the sale (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Total equipment trading revenues:
 
 
 
 
 
 
 
Asia
$
5,824

 
$
6,582

 
$
11,539

 
$
15,063

Europe
6,475

 
2,510

 
15,829

 
6,728

Americas
10,407

 
1,973

 
23,164

 
5,672

Bermuda

 

 

 
22

Other International
2,586

 
909

 
6,234

 
2,728

Total
$
25,292

 
$
11,974

 
$
56,766

 
$
30,213



19


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



Note 7—Commitments and Contingencies

Lease Commitments

The Company has cancelable and non-cancelable operating lease agreements principally for facilities and office equipment used in the Company’s operations. Total operating lease rental expense included in administrative expenses on the consolidated statements of operations was $0.8 million and $0.6 million for the three months ended September 30, 2018 and 2017, respectively. Total operating lease rental expense included in administrative expenses on the consolidated statements of operations was $2.2 million and $1.8 million for the nine months ended September 30, 2018 and 2017, respectively.

Contingencies

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

Container Equipment Purchase Commitments

At September 30, 2018, the Company had commitments to purchase equipment in the amount of $111.4 million payable in 2018.

Severance Plan

The Company established severance plans in order to provide severance benefits to eligible employees who are involuntarily terminated for reasons other than cause, or who resign for “good reason”. Employees eligible for benefits under the severance plans would receive a severance and other benefits based upon their tenure. The following table summarizes changes to the Company’s total severance balance (in thousands):
 
Total
Balance at December 31, 2017
$
9,677

Accrual

Payments / Adjustments
(6,014
)
Balance at September 30, 2018
$
3,663


Note 8—Income Taxes

The Company's effective tax rates were 9.3% and 15.7% for the three months ended September 30, 2018 and 2017, and 11.3% and 17.1% for the nine months ended September 30, 2018 and 2017, respectively. The Company has computed the provision for income taxes based on the estimated annual effective tax rate and the application of discrete items, if any, in the applicable period. The decrease in the effective tax rate is primarily due to a decrease in the U.S. federal income tax rate from 35% to 21% resulting from passage of the Tax Cuts and Jobs Act on December 22, 2017.


20


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



Note 9—Related Party Transactions

The Company holds a 50% interest in TriStar Container Services (Asia) Private Limited (“TriStar”), which is primarily engaged in the selling and leasing of container equipment in the domestic and short sea markets in India. The Company's equity investment in TriStar is included in other assets on the consolidated balance sheet. The following table summarizes payments, direct finance lease, and a loan payable balance with TriStar (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Payments received from TriStar on direct finance leases
$
426

 
$
477

 
$
1,388

 
$
1,373

Payments received from TriStar on loan payable
$

 
$

 
$

 
$
86

 
 
 
 
 
 
 
 
 
 
 
 
 
September 30,
2018
 
December 31,
2017
Direct finance lease balance
 
$
10,973

 
$
10,648

Loan payable balance
 
$

 
$


Note 10—Subsequent Events

Quarterly Dividend

On October 31, 2018, the Company's Board of Directors approved and declared a $0.52 per share quarterly cash dividend on its issued and outstanding common shares, payable on December 20, 2018 to shareholders of record at the close of business on December 3, 2018.



21



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

The statements in this discussion regarding industry outlook, our expectations regarding our future performance, liquidity and capital resources and other non-historical statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described under "Risk Factors" and "Cautionary Note Regarding Forward-Looking Statements" as discussed in our Annual Report on Form 10-K filed for the fiscal year ended December 31, 2017 with the SEC on February 27, 2018 (the "Form 10-K"), in this Report on Form 10-Q and in any other Form 10-Q filed or to be filed by us, and in other documents we file with the SEC from time to time. Our actual results may differ materially from those contained in or implied by any forward-looking statements.

Our Company

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

We operate our business in one industry, intermodal transportation equipment, and have two business segments, which also represent our reporting segments:

Equipment leasing - we own, lease and ultimately dispose of containers and chassis from our lease fleet.

Equipment trading - we purchase containers from shipping line customers, and other sellers of containers, and resell these containers to container retailers and users of containers for storage or one-way shipment.

Operations

Our consolidated operations include the acquisition, leasing, re-leasing and subsequent sale of multiple types of intermodal containers and chassis. As of September 30, 2018, our total fleet consisted of 3.7 million containers and chassis, representing 6.2 million twenty-foot equivalent units ("TEU") or 7.6 million cost equivalent units ("CEU"). We have an extensive global presence, offering leasing service through 23 offices located in 15 countries, and we provide access to our containers through a network of approximately 400 third-party container depot facilities located in approximately 45 countries as of September 30, 2018. Our primary customers include the world's largest container shipping lines. For the nine months ended September 30, 2018, our twenty largest customers accounted for 85% of our lease billings, our five largest customers accounted for 54% of our lease billings, and our two largest customers, CMA CGM S.A. and MSC Mediterranean Shipping Company S.A., accounted for 20% and 14% of our lease billings, respectively.
    
We lease five types of equipment: (1) dry containers, which are used for general cargo such as manufactured component parts, consumer staples, electronics and apparel, (2) refrigerated containers, which are used for perishable items such as fresh and frozen foods, (3) special containers, which are used for heavy and over-sized cargo such as marble slabs, building products and machinery, (4) tank containers, which are used to transport bulk liquid products such as chemicals, and (5) chassis, which are used for the transportation of containers. Our in-house equipment sales group manages the sale process for our used containers and chassis from our equipment leasing fleet and buys and sells new and used containers and chassis acquired from third parties.


22



The following tables summarize our equipment fleet as of September 30, 2018, December 31, 2017 and September 30, 2017 indicated in units, TEU and CEU.
 
Equipment Fleet in Units
 
Equipment Fleet in TEU
 
September 30, 2018
 
December 31, 2017
 
September 30,
2017
 
September 30, 2018
 
December 31, 2017
 
September 30,
2017
Dry
3,336,793

 
3,077,144

 
2,997,356

 
5,464,515

 
5,000,043

 
4,873,026

Refrigerated
228,559

 
218,429

 
217,121

 
440,164

 
419,673

 
417,138

Special
94,038

 
89,066

 
89,219

 
169,870

 
159,172

 
159,243

Tank
12,284

 
12,124

 
11,948

 
12,284

 
12,124

 
11,948

Chassis
23,396

 
22,523

 
22,522

 
42,911

 
41,068

 
41,062

Equipment leasing fleet
3,695,070

 
3,419,286

 
3,338,166

 
6,129,744

 
5,632,080

 
5,502,417

Equipment trading fleet
14,513

 
10,510

 
10,998

 
23,182

 
16,907

 
17,993

Total
3,709,583

 
3,429,796

 
3,349,164

 
6,152,926

 
5,648,987

 
5,520,410


 
Equipment Fleet in CEU (1)
 
September 30, 2018
 
December 31, 2017
 
September 30, 2017
Operating leases
7,208,106

 
6,678,282

 
6,544,960

Finance leases
318,607

 
328,024

 
334,121

Equipment trading fleet
53,730

 
51,762

 
55,483

Total
7,580,443

 
7,058,068

 
6,934,564

(1)
In the equipment fleet tables above, we have included total fleet count information based on CEU. CEU is a ratio used to convert the actual number of containers in our fleet to a figure based on the relative purchase prices of our various equipment types to that of a 20 foot dry container. For example, the CEU ratio for a 40 foot high cube dry container is 1.68, and a 40 foot high cube refrigerated container is 10.0. The CEU ratios used in this calculation are from our debt covenants and may differ from the current relative cost of our various equipment types and the CEU ratios used by others in the industry.
__________________________________________________________________________________________________________________________

The following table summarizes the percentage of our equipment fleet in units and CEU as of September 30, 2018:
Equipment Type
Percentage of
total fleet in
units
 
Percentage of total
fleet in CEU
Dry
90.0
%
 
62.9
%
Refrigerated
6.2

 
29.6

Special
2.5

 
2.9

Tank
0.3

 
2.6

Chassis
0.6

 
1.3

Equipment leasing fleet
99.6

 
99.3

Equipment trading fleet
0.4

 
0.7

Total
100.0
%
 
100.0
%

We generally lease our equipment on a per diem basis to our customers under three types of leases:

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

We also have expired long-term leases whose fixed terms have ended but for which the related units remain on-hire and for which we continue to receive rental payments pursuant to the terms of the initial contract. Some leases have contractual terms that

23



have features reflective of both long-term and service leases and we classify such leases as either long-term or service leases, depending upon which features we believe are predominant.

The following table summarizes our lease portfolio by lease type, based on CEU on-hire as of September 30, 2018, December 31, 2017 and September 30, 2017:
Lease Portfolio
September 30,
2018

December 31,
2017

September 30,
2017
Long-term leases
70.9
%
 
72.2
%
 
70.7
%
Finance leases
4.4

 
4.9

 
5.1

Service leases
11.7

 
14.1

 
14.7

Expired long-term leases (units on-hire)
13.0

 
8.8

 
9.5

Total
100.0
%
 
100.0
%
 
100.0
%

As of September 30, 2018, December 31, 2017 and September 30, 2017, our long-term and finance leases combined had an average remaining contractual term of approximately 44 months, 43 months, and 40 months, respectively, assuming no leases are renewed.

Operating Performance

Market conditions remained favorable in the third quarter of 2018. Demand for our containers was supported by several factors, including solid trade growth, an increased preference for leasing relative to direct container purchases by our shipping line customers, and a strong leasing share for Triton. The supply of containers remained well controlled, with a moderate inventory of available new containers and a very limited inventory of available used leasing containers. Pick-up activity for our containers remained strong in the third quarter, reflecting solid peak season trade growth and a continued favorable supply / demand environment for containers.

The start of the fourth quarter typically marks the end of the peak shipping season for dry containers, and net pick-up activity has slowed from the high volumes we generated in the second and third quarters. New and used container prices have also decreased slightly as demand has decreased seasonally. In addition, tariffs have been increased recently for a wide range of goods traded between the United States and China. While many of our customers have indicated to us that they believe the increased tariffs will not have a significant impact on overall global container trading volumes, the increased tariffs have added uncertainty to expectations for global economic growth and trade growth in 2019.

Fleet size. As of September 30, 2018, our fleet had a net book value of $9,515.3 million, which represents an increase of 12.1% as compared to September 30, 2017. The increase in our fleet size was due to significant investments in new containers during the last quarter of 2017 and the first nine months of 2018.

During 2018, we benefited from solid trade growth, an increase in the share of new containers purchased by leasing companies and a strong share of new leasing transactions. As of October 31, 2018, we have invested $1.5 billion in containers for delivery in 2018.

Utilization. Our utilization averaged 98.7% during the third quarter of 2018 compared to 98.8% in the second quarter of 2018 and 97.6% in the third quarter of 2017. As of October 31, 2018, our utilization was 98.4%. Our high utilization has been supported by the favorable supply / demand balance for containers. While we expect the supply / demand balance for containers to remain generally favorable, we expect our utilization to gradually decrease in the fourth quarter of 2018 due to the end of the peak shipping season for dry containers.

24




The following table summarizes the equipment fleet utilization(1) for the periods indicated below.
 
Quarter Ended
 
September 30,
2018
 
June 30,
2018
 
March 31,
2018
 
December 31,
2017
 
September 30,
2017
Average Utilization (1)
98.7
%
 
98.8
%
 
98.6
%
 
98.3
%
 
97.6
%
Ending Utilization (1)
98.6
%
 
98.7
%
 
98.7
%
 
98.6
%
 
98.0
%
(1)
Utilization is computed by dividing our total units on lease (in CEU) by the total units in our fleet (in CEU) excluding new units not yet leased and off-hire units designated for sale.


Average lease rates. Average lease rates for our dry container product line increased by 3.0% in the third quarter of 2018 compared to the third quarter of 2017. Market lease rates for dry containers were slightly above our portfolio average lease rates for most of 2018, though container prices and market lease rates decreased slightly toward the end of the third quarter and are now slightly below our portfolio average.

We have a large number of dry container leases which are expired or will expire in 2019. The average rates on these leases are slightly above current market lease rates. We could face increased pressure on our average dry container lease rates if new container prices and market lease rates were to decrease more significantly.

Average lease rates for our refrigerated container product line decreased by 1.0% in the third quarter of 2018 compared to the third quarter of 2017. The cost of refrigerated containers has trended down over the last few years, which has led to lower market lease rates. Market lease rates for refrigerated containers have also been pressured for several years by new leasing company entrants. Market lease rates for refrigerated containers remain below the average lease rates of our refrigerated container lease portfolio, and we expect our average lease rates for refrigerated containers to continue to gradually trend down.

The average lease rates for special containers decreased by 1.3% in the third quarter of 2018 compared to the third quarter of 2017. Current market lease rates for special containers are comparable to the average lease rates in our lease portfolio.

Equipment disposals. Average used dry container disposal prices increased by 13.5% in the third quarter of 2018 compared to the third quarter of 2017, reflecting the tight supply / demand for leasing containers, low drop-off volumes and reduced inventories of containers held for sale. Disposal volumes of our used leasing containers remained relatively low in the third quarter due to our reduced inventory of containers held for sale. Trading volumes of new containers and used containers purchased from third-parties were relatively high in the third quarter. We expect our average used container sale prices to decrease slightly from the third quarter of 2018 to the fourth quarter due to the end of the peak shipping season for dry containers.

Credit Risk.    We faced minimal credit losses in the third quarter of 2018. However, our credit risk is currently elevated due to the ongoing financial pressure faced by our shipping line customers. The container shipping industry has faced several years of excess vessel capacity, weak freight rates and poor financial results due to aggressive ordering of mega container vessels. Most of our customers have recently generated financial losses and many are burdened with high levels of debt. In addition, we anticipate the high volume of new vessels entering service over the next several years will complicate our customers’ efforts to increase freight rates, and new environmental regulations expected to become effective in January 2020 will increase the cost of fuel and potentially require our shipping line customers to make large capital outlays. As a result, we expect our customers’ financial performance will remain under pressure for some time. The recent tariffs imposed on certain goods traded between the United States and China and the threat of additional tariffs could lead to reduced trade and lower freight rates and further increase the financial pressure on our customers.

We expect it will become more difficult for us to mitigate our exposure to credit risks in the future through the purchase of credit insurance. We let our credit insurance policies lapse at expiration in December 2016 and early 2017 since underwriters offered significantly reduced coverage and required a meaningful increase in insurance premiums as a result of the bankruptcy of Hanjin Shipping Co. We currently have obtained a more limited credit insurance policy covering accounts receivable owed by some of our customers. This policy offers significantly reduced protections against a major customer default compared to the credit insurance we had in place previously, and the policy has exclusions and payment and other limitations. We continue to monitor the availability and pricing of credit insurance and related products.




25




Dividends

We paid the following quarterly dividends during the nine months ended September 30, 2018 and 2017 on our issued and outstanding common shares:
Record Date
 
Payment
Date
 
Aggregate
Payment
 
Per Share
Payment
September 4, 2018
 
September 25, 2018
 
$41.6 Million
 
$0.52
June 1, 2018
 
June 22, 2018
 
$41.6 Million
 
$0.52
March 12, 2018
 
March 28, 2018
 
$36.0 Million
 
$0.45
September 1, 2017
 
September 22, 2017
 
$33.2 Million
 
$0.45
June 1, 2017
 
June 22, 2017
 
$33.2 Million
 
$0.45
March 20, 2017
 
March 30, 2017
 
$33.2 Million
 
$0.45



26



Results of Operations

The following table summarizes our results of operations for the three and nine months ended September 30, 2018 and 2017 (in thousands).

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Leasing revenues:
 
 
 
 
 
 
 
Operating leases
$
346,461

 
$
296,669

 
$
981,646

 
$
832,414

Finance leases
3,617

 
5,451

 
13,300

 
17,247

Total leasing revenues
350,078

 
302,120

 
994,946

 
849,661

 
 
 
 
 
 
 
 
Equipment trading revenues
25,292

 
11,974

 
56,766

 
30,213

Equipment trading expenses
(19,482
)
 
(10,605
)
 
(43,971
)
 
(27,124
)
Trading margin
5,810

 
1,369

 
12,795

 
3,089

 
 
 
 
 
 
 
 
Net gain on sale of leasing equipment
7,055

 
10,263

 
27,378

 
25,063

Net gain on sale of building

 

 
20,953

 

 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
Depreciation and amortization
141,337

 
128,581

 
405,664

 
370,552

Direct operating expenses
11,489

 
13,833

 
32,732

 
51,396

Administrative expenses
19,964

 
21,233

 
60,321

 
66,268

Transaction and other (income) costs
2

 
32

 
(28
)
 
3,340

Provision for doubtful accounts
677

 
783

 
551

 
1,244

Total operating expenses
173,469

 
164,462

 
499,240

 
492,800

Operating income
189,474

 
149,290

 
556,832

 
385,013

Other expenses:
 
 
 
 
 
 
 
Interest and debt expense
82,502

 
73,795

 
236,627

 
208,076

Realized (gain) loss on derivative instruments, net
(608
)
 
20

 
(1,348
)
 
902

Unrealized (gain) loss on derivative instruments, net
322

 
629

 
(975
)
 
(80
)
Write-off of debt costs
1,348

 
4,073

 
1,851

 
4,116

Other expense (income), net
492

 
164

 
(752
)
 
(1,552
)
Total other expenses
84,056

 
78,681

 
235,403

 
211,462

Income before income taxes
105,418

 
70,609

 
321,429

 
173,551

Income tax expense
9,789

 
11,063

 
36,182

 
29,688

Net income
$
95,629

 
$
59,546

 
$
285,247

 
$
143,863

Less: income attributable to noncontrolling interest
1,393

 
2,390

 
5,249

 
6,425

Net income attributable to shareholders
$
94,236

 
$
57,156

 
$
279,998

 
$
137,438



27



The following table summarizes our comparative results of operations for the three months ended September 30, 2018 and 2017 (in thousands).
 
Three Months Ended September 30,
 
2018
 
2017
 
Variance
Leasing revenues:
 
 
 
 
 
Operating leases
$
346,461

 
$
296,669

 
$
49,792

Finance leases
3,617

 
5,451

 
(1,834
)
Total leasing revenues
350,078

 
302,120

 
47,958

 
 
 
 
 
 
Equipment trading revenues
25,292

 
11,974

 
13,318

Equipment trading expenses
(19,482
)
 
(10,605
)
 
(8,877
)
Trading margin
5,810

 
1,369

 
4,441

 
 
 
 
 
 
Net gain on sale of leasing equipment
7,055

 
10,263

 
(3,208
)
Net gain on sale of building

 

 

 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
Depreciation and amortization
141,337

 
128,581

 
12,756

Direct operating expenses
11,489

 
13,833

 
(2,344
)
Administrative expenses
19,964

 
21,233

 
(1,269
)
Transaction and other (income) costs
2

 
32

 
(30
)
Provision for doubtful accounts
677

 
783

 
(106
)
Total operating expenses
173,469

 
164,462

 
9,007

Operating income
189,474

 
149,290

 
40,184

Other expenses:
 
 
 
 
 
Interest and debt expense
82,502

 
73,795

 
8,707

Realized (gain) loss on derivative instruments, net
(608
)
 
20

 
(628
)
Unrealized (gain) loss on derivative instruments, net
322

 
629

 
(307
)
Write-off of debt costs
1,348

 
4,073

 
(2,725
)
Other expense (income), net
492

 
164

 
328

Total other expenses
84,056

 
78,681

 
5,375

Income before income taxes
105,418

 
70,609

 
34,809

Income tax expense
9,789

 
11,063

 
(1,274
)
Net income
$
95,629

&