TRITON INTERNATIONAL LIMITED 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 endedDecember 31, 2019 with theSEC onFebruary 14, 2020 (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 theSEC from time to time. Our actual results may differ materially from those contained in or implied by any forward-looking statements.
Our Company
Triton International Limited ("Triton", "we", "our" or the "Company") is the world's largest lessor of intermodal containers. Intermodal containers are large, standardized steel boxes used to transport freight by ship, rail or truck. Because of the handling efficiencies they provide, intermodal containers are the primary means by which many goods and materials are shipped internationally. We also lease chassis, which are used for the transportation of containers. We operate our business in one industry, intermodal transportation equipment, and have two business segments, which also represent our reporting segments: • Equipment leasing - we own, lease and ultimately dispose of containers and
chassis from our lease fleet.
• Equipment trading - we purchase containers from shipping line customers,
and other sellers of containers, and resell these containers to container
retailers and users of containers for storage or one-way shipment.
Operations
Our consolidated operations include the acquisition, leasing, re-leasing and subsequent sale of multiple types of intermodal containers and chassis. As ofJune 30, 2020 , our total fleet consisted of 3.7 million containers and chassis, representing 6.1 million twenty-foot equivalent units ("TEU") or 6.9 million cost equivalent units ("CEU"). We have an extensive global presence, offering leasing services through 19 offices and 3 independent agencies located in 16 countries and approximately 425 third-party owned and operated depot facilities in 46 countries as ofJune 30, 2020 . Our primary customers include the world's largest container shipping lines. For the six months endedJune 30, 2020 , our twenty largest customers accounted for 85% of our lease billings, our five largest customers accounted for 57% of our lease billings, and our two largest customers,CMA CGM S.A. andMediterranean Shipping Company S.A. , accounted for 21% and 15% of our lease billings, respectively. The most important driver of profitability in our business is the extent to which leasing revenues, which are driven by our owned equipment fleet size, utilization and average lease rates, exceed our ownership and operating costs. Our profitability is also driven by the gains or losses we realize on the sale of used containers in the ordinary course of our business. We lease five types of equipment: (1) dry containers, which are used for general cargo such as manufactured component parts, consumer staples, electronics and apparel, (2) refrigerated containers, which are used for perishable items such as fresh and frozen foods, (3) special containers, which are used for heavy and over-sized cargo such as marble slabs, building products and machinery, (4) tank containers, which are used to transport bulk liquid products such as chemicals, and (5) chassis, which are used for the transportation of containers on land. Our in-house equipment sales group manages the sale process for our used containers and chassis from our equipment leasing fleet and buys and sells used and new containers and chassis acquired from third parties. 22 --------------------------------------------------------------------------------
The following tables summarize our equipment fleet as of
Equipment Fleet in Units Equipment Fleet in TEU
June 30, 2020 December 31, 2019 June 30, 2019 June 30, 2020 December 31, 2019 June 30, 2019
Dry 3,215,482 3,267,624 3,312,750 5,287,639 5,369,377 5,433,686
Refrigerated 227,018 225,520 228,353 438,380 435,148 440,340
Special 93,996 94,453 94,695 170,977 171,437 171,294
Tank 12,439 12,485 12,572 12,439 12,485 12,572
Chassis 24,133 24,515 24,856 44,524 45,154 45,765
Equipment leasing fleet 3,573,068 3,624,597 3,673,226 5,953,959 6,033,601 6,103,657
Equipment trading fleet 79,778 17,906 18,205 123,377 27,121 27,483
Total 3,652,846 3,642,503 3,691,431 6,077,336 6,060,722 6,131,140
Equipment Fleet in CEU (1)
June 30, 2020 December 31, 2019 June 30, 2019Operating leases 6,478,561 6,434,434 6,499,909 Finance leases 317,159 423,638 438,986 Equipment trading fleet 120,654 37,232 41,966 Total 6,916,374 6,895,304 6,980,861
(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 1.70, and a 40-foot
high cube refrigerated container is 7.50. These factors may differ slightly
from CEU ratios used by others in the industry.
The following table summarizes the percentage of our equipment fleet in terms of
units and CEU as of
Percentage of total Percentage of total
Equipment Type fleet in units fleet in CEU
Dry 88.0 % 67.3 %
Refrigerated 6.2 24.3
Special 2.6 3.5
Tank 0.3 1.4
Chassis 0.7 1.8
Equipment leasing fleet 97.8 98.3
Equipment trading fleet 2.2 1.7
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 have initial contractual terms ranging from
three to eight years and provide us with stable cash flow and low
transaction costs by requiring customers to maintain specific units
on-hire for the duration of the lease term.
• Finance leases are typically structured as full payout leases and provide
for a predictable recurring revenue stream with the lowest cost to the
customer as customers are generally required to retain the equipment for
the duration of its useful life.
• Service leases command a premium per diem rate in exchange for providing
customers with greater operational flexibility by allowing non-scheduled
pick-up and drop-off of units during the lease term.
We also have expired long-term leases whose fixed terms have ended but for which
the related units remain on-hire and for which we continue to receive rental
payments pursuant to the terms of the initial contract. Some leases have
contractual terms that have features reflective of both long-term and service
leases and we classify such leases as either long-term or service leases,
depending upon which features we believe are predominant.
23
--------------------------------------------------------------------------------
The following table summarizes our lease portfolio by lease type, based on CEU
on-hire as of
June 30, December 31, June 30,
Lease Portfolio 2020 2019 2019
Long-term leases 71.5 % 69.5 % 67.2 %
Finance leases 5.2 6.8 6.8
Service leases 7.7 7.8 8.8
Expired long-term leases (units on-hire) 15.6 15.9 17.2
Total 100.0 % 100.0 % 100.0 %
As of
COVID-19 The COVID-19 pandemic continues to have a meaningful impact on global trade and our business. The pandemic and related work, travel, and social restrictions have resulted in a sharp decrease in global economic and trade activity, and our customers estimate container volumes were down 15% or more during the second quarter. As a result, container leasing demand was weak during the first half of the year. We have seen increased leasing demand in July as COVID-related restrictions have eased inEurope andthe United States , but it is too early to tell whether this rebound in leasing demand will be sustained. We have been concerned that the sharp decrease in global container volumes this year would increase the financial challenges facing our customers and lead to increased credit risk. While we are not yet through the pandemic, container freight rates and the financial performance of our customers have generally held up better than anticipated. All the major shipping lines have taken aggressive action to reduce their deployed vessel capacity, decreasing their network expenses and mitigating rate pressure from reduced freight volumes. The large decrease in bunker fuel prices has also been very helpful to their financial performance. However, there is no certainty that our customers will continue to be able to manage through the challenges of the COVID-19 environment. We continue to closely monitor our customers' payment performance and expect our customer credit risk will remain elevated as long as economic and trade disruptions persist.
Operating Performance
Triton's financial performance during the second quarter of 2020 remained solid, despite the continuation of challenging market conditions as a result of the COVID-19 pandemic. Fleet size. As ofJune 30, 2020 , our revenue earning assets had a net book value of$8.8 billion and our fleet size was 6.9 million CEUs, which represent decreases of 5.0% and 0.9%, respectively, compared toJune 30, 2019 . The decrease in our fleet size was primarily due to limited procurement in 2019 and 2020. In 2019, global shipping activity was negatively impacted by the trade dispute betweenthe United States andChina , while in 2020, the global outbreak of COVID-19 has led to a significant decrease in global economic and trade activity. We have limited our new container procurement in response to the weak market conditions, and throughJuly 22, 2020 , we have invested$489.4 million in containers for delivery in 2020. Utilization. Our utilization averaged 95.0% during the second quarter of 2020, down 2.2% from the second quarter of 2019 and down 0.4% from the first quarter of 2020. Our utilization decreased throughout 2019 due to limited trade growth, weak leasing demand and limited container pick-up activity, and after a period of stabilization at the end of the fourth quarter, our utilization decreased throughout the first half of 2020 due to the impacts of the COVID-19 pandemic. However, while dry container pick-up and lease transaction activity were limited in the first half of 2020, drop-off volumes were moderate and the decrease in our utilization has been gradual. The moderate pace of container drop-offs reflects the protections in our lease portfolio, low levels of new container production and operational challenges facing our customers that have slowed the global flow of containers. As ofJuly 22, 2020 , our utilization was 95.0%. 24 -------------------------------------------------------------------------------- The following table summarizes the equipment fleet utilization for the periods indicated below: Quarter Ended June 30, March 31, December 31, September 30, June 30, 2020 2020 2019 2019 2019 Average Utilization(1) 95.0 % 95.4 % 95.8 % 96.7 % 97.2 % Ending Utilization(1) 94.8 % 95.3 % 95.4 % 96.4 % 97.1 %
(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
decreased by 3.3% in the second quarter of 2020 compared to the second quarter
of 2019 and 1.2% from the first quarter of 2020, primarily reflecting the impact
of several large lease extensions completed during 2019 and the first half of
2020 at rates below our portfolio average. Market lease rates for new dry
containers were low in 2019 due to low new container prices and weak leasing
demand. New container prices have increased in 2020 as the container
manufacturers have reduced shift capacity, and market lease rates for new dry
containers at the end of the second quarter were slightly below the average
lease rates in our portfolio.
Average lease rates for our refrigerated container product line decreased by
3.9% in the second quarter of 2020 compared to the second quarter of 2019. The
cost of refrigerated containers has trended down over the last few years, which
has led to lower market lease rates. In addition, we have been experiencing
larger differences in lease rates for older refrigerated containers compared to
rates on new equipment, and we expect our average lease rates for refrigerated
containers will continue to gradually trend down.
The average lease rates for special containers remained flat in the second
quarter of 2020 compared to the second quarter of 2019. Current market lease
rates for special containers are below the average lease rates in our lease
portfolio, but we experienced limited lease renewal and new lease activity in
the first half of 2020.
Equipment disposals. Disposal volumes of our used dry containers were flat in
the second quarter of 2020 compared to the second quarter of 2019 and increased
0.9% compared to the first quarter of 2020. Selling prices of our used dry
containers decreased 7.1% in the second quarter of 2020 compared to the second
quarter of 2019 and have remained relatively flat through the first half of
2020. Used container selling prices have been supported by the rebound in new
container prices and the moderate level of container drop-offs to leasing
companies. We continue to generate gains on used container disposals as our
average used container selling prices currently are above our residual values.
25--------------------------------------------------------------------------------
Liquidity and Capital Resources
Our principal sources of liquidity are cash flows provided by operating activities, proceeds from the sale of our leasing equipment, and borrowings under our credit facilities. Our principal uses of cash include capital expenditures, debt service requirements, paying dividends, and repurchasing our common shares.
For the trailing twelve months endedJune 30, 2020 , cash provided by operating activities, together with the proceeds from the sale of our leasing equipment, was$1,189.4 million . In addition, as ofJune 30, 2020 , we had$252.4 million of cash and cash equivalents and$1,171.5 million of maximum borrowing capacity under our current credit facilities. We continue to maintain an elevated cash balance to provide protection against the increased level of business and financial market risk and uncertainty caused by the COVID-19 pandemic.
As of
We believe that cash provided by operating activities, existing cash, proceeds from the sale of our leasing equipment, and availability under our borrowing facilities will be sufficient to meet our obligations over the next twelve months.
Share Repurchase Program
During the six months endedJune 30, 2020 , the Company repurchased a total of 3.4 million common shares at an average price per share of$28.19 for a total cost of$96.3 million under its Board authorized share repurchase program. As ofJuly 22, 2020 , the Company has purchased over 12.4 million shares, or 15.4% of our common shares since the commencement of the program inAugust 2018 .
Preferred Share Offering
In
The Company used the net proceeds from this offering for general corporate purposes, including the purchase of containers, the repurchase of outstanding common shares, the payment of dividends, and the repayment or repurchase of outstanding indebtedness.
For additional information on the Share Repurchase Program and the Preferred Share Offering, please refer to Note 5 - "Other Equity Matters" in the Notes to the Unaudited Consolidated Financial Statements.
Debt Agreements
AtJune 30, 2020 , our outstanding indebtedness was comprised of the following (amounts in millions): June 30, 2020 Maximum Borrowing Level Institutional notes$ 1,733.7 $ 1,733.7 Asset-backed securitization term notes 2,527.6
2,527.6
Term loan facilities 1,144.9
1,144.9
Asset-backed securitization warehouse 470.0 800.0 Revolving credit facilities 718.5 1,560.0 Finance lease obligations 18.4 18.4 Total debt outstanding 6,613.1 7,784.6 Unamortized debt costs (34.1 ) - Unamortized debt premiums & discounts (3.5 )
-
Unamortized fair value debt adjustment (6.4 )
-
Debt, net of unamortized costs$ 6,569.1 $ 7,784.6 26
-------------------------------------------------------------------------------- The maximum borrowing levels depicted in the table above may not reflect the actual availability under all of the credit facilities. Certain of these facilities are governed by borrowing bases that limit borrowing capacity to an established percentage of relevant assets. As ofJune 30, 2020 , the availability under these credit facilities without adding additional container assets to the borrowing base was approximately$576.6 million . As ofJune 30, 2020 , we had a combined$5,412.4 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 82% of total debt. Pursuant to the terms of certain debt agreements, we are required to maintain certain restricted cash accounts. As ofJune 30, 2020 , we had restricted cash of$98.5 million .
For additional information on our debt, please refer to Note 7 - "Debt" in the Notes to the Unaudited Consolidated Financial Statements.
Debt Covenants
We are subject to certain financial covenants related to leverage, interest coverage and net worth as defined in our debt agreements. The debt agreements are the obligations of our subsidiaries and all related debt covenants are calculated at the subsidiary level. Failure to comply with these covenants could result in a default under the related credit agreements and the acceleration of our outstanding debt if we were unable to obtain a waiver from the creditors. As ofJune 30, 2020 , we were in compliance with all such covenants. The table below reflects the key covenants for the Company that cover the majority of our debt agreements: TCIL TAL Financial Covenant Covenant Actual Covenant Actual Fixed charge Shall not be less Shall not be less coverage ratio than 1.25:1 2.62:1 than 1.10:1 1.97:1 Shall not be less$2,165.3 Shall not be less Minimum net worth than$855 million million than$500 million $906.0 million Shall not exceed Shall not exceed Leverage ratio 4.0:1 1.91:1 4.75:1 2.13:1 Cash Flow
The following table sets forth certain cash flow information for the six months
ended
Six Months Ended
2020 2019
Net cash provided by (used in) operating activities$ 416,569 $ 501,814 Net cash provided by (used in) investing activities$ (118,028 ) $ (43,513 ) Net cash provided by (used in) financing activities$ (116,630 ) $ (457,455 ) Operating Activities Net cash provided by operating activities decreased by$85.2 million to$416.6 million in the six months endedJune 30, 2020 compared to$501.8 million in the same period in 2019. The decrease is primarily due to reduced profitability and the timing of collections/payments on accounts receivable and accounts payable.
Investing Activities
Net cash used in investing activities was$118.0 million in the six months endedJune 30, 2020 compared to$43.5 million in the same period in 2019, or a change of$74.5 million . The change was primarily due to a$69.8 million increase in payments for leasing equipment.
Financing Activities
Net cash used in financing activities decreased by
27
--------------------------------------------------------------------------------
the issuance of preferred shares of $76.5 million . Additionally, we paid $103.0
million in the first half of 2019 for the purchase of noncontrolling interests
that did not reoccur in 2020.
28--------------------------------------------------------------------------------
Results of Operations
The following table summarizes our comparative results of operations for the
three months ended
Three Months Ended June 30,
2020 2019 Variance
Leasing revenues:
Operating leases $ 313,423 $ 328,370 $ (14,947 )
Finance leases 7,974 10,196 (2,222 )
Total leasing revenues 321,397 338,566 (17,169 )
Equipment trading revenues 16,903 23,209 (6,306 )
Equipment trading expenses (14,883 ) (18,713 ) 3,830
Trading margin 2,020 4,496 (2,476 )
Net gain on sale of leasing equipment 4,537 7,519 (2,982 )
Operating expenses:
Depreciation and amortization 133,292 135,348 (2,056 )
Direct operating expenses 29,619 18,097 11,522
Administrative expenses 20,472 19,988 484
Provision (reversal) for doubtful accounts 374 521 (147 )
Total operating expenses 183,757 173,954 9,803
Operating income (loss) 144,197 176,627 (32,430 )
Other expenses:
Interest and debt expense 66,874 82,260 (15,386 )
Realized (gain) loss on derivative instruments, net 11 (669 ) 680
Unrealized (gain) loss on derivative instruments, net (11 ) 1,267 (1,278 )
Debt termination expense - 558 (558 )
Other (income) expense, net 36 (927 ) 963
Total other expenses 66,910 82,489 (15,579 )
Income (loss) before income taxes 77,287 94,138 (16,851 )
Income tax expense (benefit) 6,699 8,042 (1,343 )
Net income (loss) $ 70,588 $ 86,096 $ (15,508 )
Less: dividend on preferred shares 10,513
2,025 8,488
Net income (loss) attributable to common shareholders
29
--------------------------------------------------------------------------------
Comparison of the three months ended
Leasing revenues. Per diem revenue represents revenue earned under operating
lease contracts. Fee and ancillary lease revenue represents fees billed for the
pick-up and drop-off of containers in certain geographic locations and billings
of certain reimbursable operating costs such as repair and handling expenses.
Finance lease revenue represents interest income earned under finance lease
contracts. The following table summarizes our leasing revenue for the periods
indicated below (in thousands):
Three Months Ended June 30,
2020 2019 Variance
Leasing revenues:
Operating leases
Per diem revenues $ 294,748 $ 312,042 $ (17,294 ) Fee and ancillary revenues 18,675 16,328 2,347 Total operating lease revenues 313,423 328,370 (14,947 ) Finance leases
7,974 10,196 (2,222 )
Total leasing revenues $ 321,397 $ 338,566 $ (17,169 )
Total leasing revenues were $321.4 million , net of lease intangible amortization
of $5.7 million , for the three months ended June 30, 2020 , compared to $338.6
million , net of lease intangible amortization of $10.0 million , in the same
period in 2019, a decrease of $17.2 million .
Per diem revenues were
•$9.0 million decrease due to a decrease in average per diem rates reflecting the impact of several large lease extension transactions at rates below our portfolio average; partially offset by
•
•
from finance leases to operating leases in the first quarter of 2020 as a
result of the renegotiation of the contracts and the elimination of
purchase options.
Fee and ancillary lease revenues were $18.7 million for the three months ended
June 30, 2020 compared to $16.3 million in the same period in 2019, an increase
of $2.4 million . The increase was primarily due to higher pick-up and drop-off
activity.
Finance lease revenues were $8.0 million for the three months ended June 30,
2020 compared to $10.2 million in the same period in 2019, a decrease of $2.2
million . The decrease was due to the reclassification of certain finance leases
to operating leases in the first quarter of 2020 as a result of the
renegotiation of certain contracts and the runoff of the existing portfolio.
Trading margin. Trading margin was $2.0 million for the three months ended
June 30, 2020 compared to $4.5 million in the same period in 2019, a decrease of
$2.5 million . The decrease was due to a decrease in per unit margins as a result
of a decrease in selling prices and a decrease in sales volume.
Net gain on sale of leasing equipment. Gain on sale of equipment was $4.5
million for the three months ended June 30, 2020 compared to $7.5 million in the
same period in 2019, a decrease of $3.0 million . The decrease was primarily due
to a 7.1% decrease in average used dry container selling prices.
Depreciation and amortization. Depreciation and amortization was $133.3 million
for the three months ended June 30, 2020 compared to $135.3 million in the same
period in 2019, a decrease of $2.0 million . The primary reasons for the decrease
are as follows:
• $3.5 million decrease due to a net decrease in the size of the depreciable
fleet; partially offset by
•
from finance leases to operating leases in the first quarter of 2020 as a
result of the renegotiation of the contracts and the elimination of
purchase options.
30-------------------------------------------------------------------------------- Direct operating expenses. Direct operating expenses primarily consist of our costs to repair equipment returned off lease, to store the equipment when it is not on lease and to reposition equipment from locations with weak leasing demand. Direct operating expenses were$29.6 million for the three months endedJune 30, 2020 compared to$18.1 million in the same period in 2019, an increase of$11.5 million . The primary reasons for the increase are as follows: •$6.3 million increase in storage expense due to an increase in idle units;
•
of redeliveries; and
•
requirements from specific locations.
Administrative expenses. Administrative expenses were$20.5 million for the three months endedJune 30, 2020 compared to$20.0 million in the same period in 2019, an increase of$0.5 million . The primary reasons for the increase are as follows: •$1.1 million increase in professional fees; and
•
•
by the COVID-19 pandemic.
Provision (reversal) for doubtful accounts. Provision for doubtful accounts was$0.4 million for the three months endedJune 30, 2020 compared to$0.5 million in the same period in 2019, a decrease of$0.1 million . This decrease is primarily due to lower reserves against customer receivables. Interest and debt expense. Interest and debt expense was$66.9 million for the three months endedJune 30, 2020 , compared to$82.3 million in the same period in 2019, a decrease of$15.4 million . The primary reasons for the decrease are as follows: •$8.0 million decrease due to a decrease in the average effective interest
rate to 3.92% from 4.39%; and
•
$665.3 million Realized (gain) loss on derivative instruments, net. There was an immaterial realized gain on derivative instruments, net for the three months endedJune 30, 2020 , compared to$0.7 million for the same period in 2019. The decrease is primarily due to the expirations of certain interest rate swap contracts.
Unrealized (gain) loss on derivative instruments. There was an immaterial
unrealized loss on derivative instruments, net for the three months ended
Income taxes. Income tax expense was$6.7 million for the three months endedJune 30, 2020 compared to$8.0 million in the same period in 2019, a decrease in income tax expense of$1.3 million . The decrease in income tax expense was primarily the result of a decrease in pre-tax income in the three months endedJune 30, 2020 . Additionally, the Company recorded tax expenses related to uncertain tax positions in the prior period that did not reoccur in 2020. 31 --------------------------------------------------------------------------------
Results of Operations
The following table summarizes our comparative results of operations for the six
months ended
Six Months Ended June 30,
2020 2019 Variance
Leasing revenues:
Operating leases $ 626,227 $ 658,792 $ (32,565 )
Finance leases 16,638 20,633 (3,995 )
Total leasing revenues 642,865 679,425 (36,560 )
Equipment trading revenues 32,283 41,037 (8,754 )
Equipment trading expenses (28,330 ) (32,954 ) 4,624
Trading margin 3,953 8,083 (4,130 )
Net gain on sale of leasing equipment 8,614 15,988 (7,374 )
Operating expenses:
Depreciation and amortization 265,987 269,957 (3,970 )
Direct operating expenses 52,867 34,899 17,968
Administrative expenses 39,697 38,175 1,522
Provision (reversal) for doubtful accounts 4,653 379 4,274
Total operating expenses 363,204 343,410 19,794
Operating income (loss) 292,228 360,086 (67,858 )
Other expenses:
Interest and debt expense 135,876 165,780 (29,904 )
Realized (gain) loss on derivative instruments, net (224 ) (1,373 ) 1,149
Unrealized (gain) loss on derivative instruments,
net 286 2,253 (1,967 )
Debt termination expense 31 558 (527 )
Other (income) expense, net (3,610 ) (1,931 ) (1,679 )
Total other expenses 132,359 165,287 (32,928 )
Income (loss) before income taxes 159,869 194,799 (34,930 )
Income tax expense (benefit) 12,245 15,892 (3,647 )
Net income (loss) $ 147,624 $ 178,907
- 592 (592 )
Less: dividend on preferred shares 20,338 2,330 18,008
Net income (loss) attributable to common shareholders$ 127,286 $ 175,985 $ (48,699 ) 32
--------------------------------------------------------------------------------
Comparison of the six months ended
Leasing revenues. Per diem revenue represents revenue earned under operating
lease contracts. Fee and ancillary lease revenue represents fees billed for the
pick-up and drop-off of containers in certain geographic locations and billings
of certain reimbursable operating costs such as repair and handling expenses.
Finance lease revenue represents interest income earned under finance lease
contracts. The following table summarizes our leasing revenue for the periods
indicated below (in thousands):
Six Months Ended June 30,
2020 2019 Variance
Leasing revenues:
Operating leases
Per diem revenues $ 593,234 $ 627,394 $ (34,160 ) Fee and ancillary revenues 32,993 31,398 1,595 Total operating lease revenues 626,227 658,792 (32,565 ) Finance leases
16,638 20,633 (3,995 )
Total leasing revenues $ 642,865 $ 679,425 $ (36,560 )
Total leasing revenues were $642.9 million , net of lease intangible amortization
of $11.9 million , for the six months ended June 30, 2020 , compared to $679.4
million , net of lease intangible amortization of $20.7 million , in the same
period in 2019, a decrease of $36.5 million .
Per diem revenues were
•$18.2 million decrease due to a decrease in average per diem rates reflecting the impact of several large lease extension transactions at rates below our portfolio average; partially offset by
•
•
from finance leases to operating leases in the first quarter of 2020 as a
result of the renegotiation of the contracts and the elimination of
purchase options.
Fee and ancillary lease revenues were $33.0 million for the six months ended
June 30, 2020 compared to $31.4 million in the same period in 2019, an increase
of $1.6 million . The increase was primarily due to higher pick-up and drop-off
activity.
Finance lease revenues were $16.6 million for the six months ended June 30, 2020
compared to $20.6 million in the same period in 2019, a decrease of $4.0
million . The decrease was due to the reclassification of certain finance leases
to operating leases in the first quarter of 2020 as a result of the
renegotiation of certain contracts and the runoff of the existing portfolio.
Trading margin. Trading margin was $4.0 million for the six months ended
June 30, 2020 compared to $8.1 million in the same period in 2019, a decrease of
$4.1 million . The decrease was due to decrease in per unit margins as a result
of a decrease in selling prices and a decrease in sales volume.
Net gain (loss) on sale of leasing equipment. Gain on sale of equipment was
$8.6 million for the six months ended June 30, 2020 compared to $16.0 million in
the same period in 2019, a decrease of $7.4 million . The primary reasons for the
decrease are as follows:
• $6.0 million decrease due to an 8.6% decrease in average used dry
container selling prices, partially offset by a 9.8% increase in selling
volumes; and
•
2019 related to units declared lost by a customer which did not reoccur in
2020.
Depreciation and amortization. Depreciation and amortization was $266.0 million
for the six months ended June 30, 2020 compared to $270.0 million in the same
period in 2019, a decrease of $4.0 million . The primary reasons for the decrease
are as follows:
• $6.3 million decrease due to a net decrease in the size of the depreciable
fleet; and
•
partially offset by
•
from finance leases to operating leases in the first quarter of 2020 as a
result of the renegotiation of the contracts and the elimination of
purchase options.
33-------------------------------------------------------------------------------- Direct operating expenses. Direct operating expenses primarily consist of our costs to repair equipment returned off lease, to store the equipment when it is not on lease and to reposition equipment from locations with weak leasing demand. Direct operating expenses were$52.9 million for the six months endedJune 30, 2020 compared to$34.9 million in the same period in 2019, an increase of$18.0 million . The primary reasons for the increase are as follows: •$12.3 million increase in storage expense due to an increase in idle units; •$2.5 million increase in positioning expense due to customer pick-up
requirements from specific locations; and
•$2.2 million increase in repair expense due to an increase in the volume of redeliveries. Administrative expenses. Administrative expenses were$39.7 million for the six months endedJune 30, 2020 compared to$38.2 million in the same period in 2019, an increase of$1.5 million . The primary reasons for this increase are as follows: •$1.5 million increase due to an increase in professional fees; and
•
offset by
•
restrictions caused by the COVID-19 pandemic.
Provision (reversal) for doubtful accounts. Provision for doubtful accounts was$4.7 million for the six months endedJune 30, 2020 compared to$0.4 million in the same period in 2019, an increase of$4.3 million . The increase is primarily due to reserves against the receivables from one of our mid-sized customers where we have been experiencing extended payment delays. Interest and debt expense. Interest and debt expense was$135.9 million for the six months endedJune 30, 2020 , compared to$165.8 million in the same period in 2019, a decrease of$29.9 million . The primary reasons for the decrease are as follows: •$18.5 million decrease due to a decrease in the average debt balance of
•
rate to 4.05% from 4.42%.
Realized (gain) loss on derivative instruments, net. Realized gain on derivative instruments, net was$0.2 million for the six months endedJune 30, 2020 , compared to$1.4 million in the same period in 2019, a decrease of$1.2 million . The decrease is primarily due to a decrease in the average one-month LIBOR rate and the reduction of the underlying derivative notional amounts due to expirations of certain interest rate swap contracts. Unrealized loss (gain) on derivative instruments. Unrealized loss on derivative instruments, net was$0.3 million for the six months endedJune 30, 2020 compared to$2.3 million in the same period in 2019. The decrease is primarily due to the expiration of the underlying swap notional amounts during the six months endedJune 30, 2020 . Income taxes. Income tax expense was$12.2 million for the six months endedJune 30, 2020 compared to$15.9 million in the same period in 2019, a decrease in income tax expense of$3.7 million . The decrease in income tax expense was primarily the result of a decrease in pre-tax income in the six months endedJune 30, 2020 . Additionally, the Company recorded tax expenses related to uncertain tax positions in the prior period that did not reoccur in 2020. Income attributable to noncontrolling interests. There was no income attributable to noncontrolling interests for the six months endedJune 30, 2020 compared to$0.6 million in the same period in 2019. All third-party partnership interests inTriton Container Investments LLC were acquired during the first half of 2019. 34
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Contractual Obligations
We are party to various operating and finance leases and are obligated to make payments related to our borrowings. We are also obligated under various commercial commitments, including obligations to our equipment manufacturers. Our equipment manufacturer obligations are in the form of conventional accounts payable, and are satisfied by cash flows from operations and financing activities.
The following table summarizes our contractual obligations and commercial
commitments as of
Contractual Obligations by Period
2025 and
Contractual Obligations: Total Remaining 2020 2021 2022 2023 2024 thereafter
(dollars in millions)
Principal debt $ 6,594.7 $ 349.0 $ 827.1 $ 1,061.6 $ 1,648.1 $ 1,370.6 $ 1,338.3
obligations
Interest on debt 890.6 118.2 213.0 181.7 144.8 92.9 140.0
obligations(1)
Finance lease
obligations(2) 20.6 1.5 3.1 3.1 3.1 9.8 -
Operating leases (mainly
facilities) 8.5 1.6 3.0 2.4 1.4 0.1 -
Purchase obligations:
Equipment purchases
payable 46.6 46.6 - - - - -
Equipment purchase
commitments 45.9 45.9 - - - - -
Total contractual
obligations $ 7,606.9 $ 562.8 $ 1,046.2 $ 1,248.8 $ 1,797.4 $ 1,473.4 $ 1,478.3 (1) Amounts include actual interest for fixed debt, estimated interest for
floating-rate debt and interest rate swaps which are in a payable position
based on
(2) Amounts include interest.
Off-Balance Sheet Arrangements
As ofJune 30, 2020 , we did not have any relationships with unconsolidated entities or financial partnerships, which are often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements. We are, therefore, not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.
Critical Accounting Policies
Our consolidated financial statements have been prepared in conformity with
GAAP, which requires us to make estimates and assumptions that affect the
amounts and disclosures reported in the consolidated financial statements and
accompanying notes. We base our estimates and judgments on historical experience
and on various other assumptions that we believe are reasonable under the
circumstances. We evaluate our estimates and assumptions on an ongoing basis.
Our actual results may differ from these estimates under different assumptions
or conditions. Our critical accounting policies are discussed in our Form 10-K.
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