UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For The Quarterly Period Ended June 30, 2019

Or

☐ 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	98-1276572
(State or other jurisdiction of incorporation or organization)	(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)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common shares, $0.01 par value per share	TRTN	New York Stock Exchange
8.50% Series A Cumulative Redeemable Perpetual Preference Shares	TRTNpA	New York Stock Exchange
8.00% Series B Cumulative Redeemable Perpetual Preference Shares	TRTNpB	New York Stock Exchange

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 ☒    No ☐

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 ☒    No ☐

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	☒	Accelerated Filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

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 ☐    No ☒

As of July 19, 2019, there were 73,880,901 common shares at $0.01 par value per share of the registrant outstanding.

Triton International Limited

Index

		Page No.
Item 1.	Financial Statements	4
	Consolidated Balance Sheets (unaudited) as of June 30, 2019 and December 31, 2018	4
	Consolidated Statements of Operations (unaudited) for the three and six months ended June 30, 2019 and 2018	5
	Consolidated Statements of Comprehensive Income (unaudited) for the three and six months ended June 30, 2019 and 2018	6
	Consolidated Statements of Equity (unaudited) for the three and six months ended June 30, 2019 and 2018	7
	Consolidated Statements of Cash Flows (unaudited) for six months ended June 30, 2019 and 2018	8
	Notes to Consolidated Financial Statements	9
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	37
Item 4.	Controls and Procedures	38
PART II—OTHER INFORMATION
Item 1.	Legal Proceedings	39
Item 1A.	Risk Factors	39
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39
Item 6.	Exhibits	40
Signature		41

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, future 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 19, 2019 (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)

	June 30, 2019			December 31, 2018
ASSETS:
Leasing equipment, net of accumulated depreciation of $2,737,072 and $2,533,446	$	8,684,103		$	8,923,451
Net investment in finance leases	449,385			478,065
Equipment held for sale	91,768			66,453
Revenue earning assets	9,225,256			9,467,969
Cash and cash equivalents	45,622			48,950
Restricted cash	114,763			110,589
Accounts receivable, net of allowances of $1,279 and $1,240	250,673			264,382
Goodwill	236,665			236,665
Lease intangibles, net of accumulated amortization of $226,243 and $205,532	72,214			92,925
Other assets	48,958			34,610
Fair value of derivative instruments	1,682			13,923
Total assets	$	9,995,833		$	10,270,013
LIABILITIES AND SHAREHOLDERS' EQUITY:
Equipment purchases payable	$	11,015		$	22,392
Fair value of derivative instruments	53,550			10,966
Accounts payable and other accrued expenses	100,221			99,885
Net deferred income tax liability	289,023			282,129
Debt, net of unamortized debt costs of $43,465 and $44,889	7,205,416			7,529,432
Total liabilities	7,659,225			7,944,804
Shareholders' equity:
Series A Preferred shares, $0.01 par value, 3,450,000 authorized, 3,450,000 and 0 shares issued and outstanding, respectively; at liquidation preference	86,250			—
Series B Preferred shares, $0.01 par value, 5,750,000 authorized, 5,750,000 and 0 shares issued and outstanding, respectively; at liquidation preference	143,750			—
Common shares, $0.01 par value, 270,000,000 shares authorized, 81,023,732 and 80,843,472 shares issued, respectively	811			809
Undesignated shares, $0.01 par value, 20,800,000 and 30,000,000 shares authorized, respectively, no shares issued and outstanding	—			—
Treasury shares, at cost, 6,837,508 and 1,853,148 shares, respectively	(215,349		)	(58,114		)
Additional paid-in capital	909,942			896,811
Accumulated earnings	1,445,646			1,349,627
Accumulated other comprehensive income (loss)	(34,442		)	14,563
Total shareholders' equity	2,336,608			2,203,696
Noncontrolling interests	—			121,513
Total equity	2,336,608			2,325,209
Total liabilities and equity	$	9,995,833		$	10,270,013

   

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  June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Leasing revenues:
Operating leases	$	328,370		$	324,954		$	658,792		$	635,185
Finance leases	10,196			4,817			20,633			9,683
Total leasing revenues	338,566			329,771			679,425			644,868
Equipment trading revenues	23,209			18,099			41,037			31,474
Equipment trading expenses	(18,713		)	(14,105		)	(32,954		)	(24,489		)
Trading margin	4,496			3,994			8,083			6,985
Net gain on sale of leasing equipment	7,519			11,105			15,988			20,323
Net gain on sale of building	—			20,953			—			20,953
Operating expenses:
Depreciation and amortization	135,348			133,894			269,957			264,327
Direct operating expenses	18,097			10,195			34,899			21,243
Administrative expenses	19,988			20,774			38,175			40,327
Provision (reversal) for doubtful accounts	521			(25		)	379			(126		)
Total operating expenses	173,954			164,838			343,410			325,771
Operating income (loss)	176,627			200,985			360,086			367,358
Other expenses:
Interest and debt expense	82,260			79,027			165,780			154,125
Realized (gain) loss on derivative instruments, net	(669		)	(492		)	(1,373		)	(740		)
Unrealized (gain) loss on derivative instruments, net	1,267			(111		)	2,253			(1,297		)
Debt termination expense	558			503			558			503
Other (income) expense, net	(927		)	(585		)	(1,931		)	(1,244		)
Total other expenses	82,489			78,342			165,287			151,347
Income (loss) before income taxes	94,138			122,643			194,799			216,011
Income tax expense (benefit)	8,042			15,890			15,892			26,393
Net income	$	86,096		$	106,753		$	178,907		$	189,618
Less: income (loss) attributable to noncontrolling interest	—			1,883			592			3,856
Less: dividend on preferred shares	2,025			—			2,330			—
Net income (loss) attributable to common shareholders	$	84,071		$	104,870		$	175,985		$	185,762
Net income per common share—Basic	$	1.13		$	1.31		$	2.31		$	2.32
Net income per common share—Diluted	$	1.12		$	1.30		$	2.29		$	2.30
Cash dividends paid per common share	$	0.52		$	0.52		$	1.04		$	0.97
Weighted average number of common shares outstanding—Basic	74,598			80,044			76,151			80,007
Dilutive restricted shares	617			611			583			589
Weighted average number of common shares outstanding—Diluted	75,215			80,655			76,734			80,596

   

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 June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Net income (loss)	$	86,096		$	106,753		$	178,907		$	189,618
Other comprehensive income (loss):
Change in derivative instruments designated as cash flow hedges, net of income tax effect of ($3,813), $1,350, ($5,957) and $4,704, respectively	(31,517		)	5,005			(45,840		)	17,464
Reclassification of (gain) loss on derivative instruments designated as cash flow hedges, net of income tax effect of ($591), ($393), ($1,197) and ($745), respectively	(1,716		)	(1,461		)	(3,465		)	(2,933		)
Cumulative effect for the adoption of ASU 2017-12, net of income tax effect of $0, $0, $277 and $0, respectively	—			—			432			—
Foreign currency translation adjustment	(175		)	(178		)	(132		)	(86		)
Other comprehensive income (loss), net of tax	(33,408		)	3,366			(49,005		)	14,445
Comprehensive income	52,688			110,119			129,902			204,063
Less:
Other comprehensive income attributable to noncontrolling interest	—			1,883			592			3,856
Dividend on preferred shares	2,025			—			2,330			—
Comprehensive income attributable to common shareholders	$	50,663		$	108,236		$	126,980		$	200,207

   

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

6

TRITON INTERNATIONAL LIMITED

Consolidated Statements of Shareholders' Equity

(In thousands, except share amounts)

(Unaudited)

	Preferred Shares			Common Shares				Treasury Shares				Add'l Paid in Capital			Accumulated Earnings			Accumulated Other Comprehensive Income			Non controlling Interest			Total Equity
	Shares	Amount		Shares		Amount		Shares	Amount
Balance as of December 31, 2018	—	$	—	80,843,472		$	809	1,853,148	$	(58,114	)	$	896,811		$	1,349,627		$	14,563		$	121,513		$	2,325,209
Issuance of preferred shares, net of offering expenses	3,450,000	86,250		—		—		—	—			(3,192		)	—			—			—			83,058
Share-based compensation	—	—		170,231		2		—	—			1,816			—			—			—			1,818
Treasury shares acquired	—	—		—		—		2,636,534	(83,293		)	—			—			—			—			(83,293		)
Share repurchase to settle shareholder tax obligations	—	—		(31,506	)	—		—	—			(978		)	—			—			—			(978		)
Net income (loss)	—	—		—		—		—	—			—			92,219			—			592			92,811
Other comprehensive income (loss)	—	—		—		—		—	—			—			(432		)	(15,597		)	—			(16,029		)
Purchase of noncontrolling interests	—	—		—		—		—	—			11,707			—			—			(82,707		)	(71,000		)
Distributions to noncontrolling interests	—	—		—		—		—	—			—			—			—			(2,078		)	(2,078		)
Common shares dividend declared	—	—		—		—		—	—			—			(40,923		)	—			—			(40,923		)
Balance as of March 31, 2019	3,450,000	$	86,250	80,982,197		$	811	4,489,682	$	(141,407	)	$	906,164		$	1,400,491		$	(1,034	)	$	37,320		$	2,288,595
Issuance of preferred shares, net of offering expenses	5,750,000	143,750		—		—		—	—			(5,018		)	—			—			—			138,732
Share-based compensation	—	—		41,535		—		—	—			3,653			—			—			—			3,653
Treasury shares acquired	—	—		—		—		2,347,826	(73,942		)	—			—			—			—			(73,942		)
Net income (loss)	—	—		—		—		—	—			—			86,096			—			—			86,096
Other comprehensive income (loss)	—	—		—		—		—	—			—			—			(33,408		)	—			(33,408		)
Purchase of noncontrolling interests	—	—		—		—		—	—			5,143			—			—			(37,320		)	(32,177		)
Common shares dividend declared	—	—		—		—		—	—			—			(39,108		)	—			—			(39,108		)
Preferred shares dividend declared	—	—		—		—		—	—			—			(1,833		)	—			—			(1,833		)
Balance as of June 30, 2019	9,200,000	$	230,000	81,023,732		$	811	6,837,508	$	(215,349	)	$	909,942		$	1,445,646		$	(34,442	)	$	—		$	2,336,608

`	Preferred Shares			Common Shares				Treasury Shares			Add'l Paid in Capital			Accumulated Earnings			Accumulated Other Comprehensive Income			Non controlling Interest			Total Equity
	Shares	Amount		Shares		Amount		Shares	Amount
Balance as of December 31, 2017	—	$	—	80,687,757		$	807	—	$	—	$	889,168		$	1,159,367		$	26,942		$	133,542		$	2,209,826
Share-based compensation	—	—		156,833		1		—	—		2,511			—			—			—			2,512
Share repurchase to settle shareholder tax obligations	—	—		(28,838	)	—		—	—		(822		)	—			—			—			(822		)
Net income (loss)	—	—		—		—		—	—		—			80,892			—			1,973			82,865
Tax reclassification to accumulated earnings for the adoption of ASU 2018-02	—	—		—		—		—	—		—			3,029			(3,029		)	—			—
Other comprehensive income (loss)	—	—		—		—		—	—		—			—			11,079			—			11,079
Distributions to noncontrolling interests	—	—		—		—		—	—		—			—			—			(4,251		)	(4,251		)
Common shares dividend declared	—	—		—		—		—	—		—			(36,440		)	—			—			(36,440		)
Balance as of March 31, 2018	—	$	—	80,815,752		$	808	—	$	—	$	890,857		$	1,206,848		$	34,992		$	131,264		$	2,264,769
Share-based compensation	—	—		39,320		1		—	—		3,148			—			—			—			3,149
Net income (loss)	—	—		—		—		—	—		—			104,870			—			1,883			106,753
Other comprehensive income (loss)	—	—		—		—		—	—		—			—			3,366			—			3,366
Distributions to noncontrolling interests	—	—		—		—		—	—		—			—			—			(3,492		)	(3,492		)
Common shares dividend declared	—	—		—		—		—	—		—			(42,289		)	—			—			(42,289		)
Balance as of June 30, 2018	—	$	—	80,855,072		$	809	—	$	—	$	894,005		$	1,269,429		$	38,358		$	129,655		$	2,332,256

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

7

TRITON INTERNATIONAL LIMITED

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	Six Months Ended June 30,
	2019			2018
Cash flows from operating activities:
Net income (loss)	$	178,907		$	189,618
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	269,957			264,327
Amortization of deferred debt cost and other debt related amortization	6,849			6,627
Lease related amortization	23,835			37,722
Share-based compensation expense	5,471			5,661
Net (gain) loss on sale of leasing equipment	(15,988		)	(20,323		)
Net (gain) loss on sale of building	—			(20,953		)
Unrealized (gain) loss on derivative instruments	2,253			(1,297		)
Debt termination expense	558			503
Deferred income taxes	13,910			23,946
Changes in operating assets and liabilities:
Accounts receivable	12,545			(30,551		)
Accounts payable and other accrued expenses	(8,860		)	(16,788		)
Net equipment sold for resale activity	(8,517		)	(11,686		)
Cash collections on finance lease receivables, net of income earned	33,680			29,598
Other assets	(12,786		)	(1,218		)
Net cash provided by (used in) operating activities	501,814			455,186
Cash flows from investing activities:
Purchases of leasing equipment and investments in finance leases	(149,986		)	(884,007		)
Proceeds from sale of equipment, net of selling costs	106,603			83,443
Proceeds from the sale of building	—			27,630
Other	(130		)	(64		)
Net cash provided by (used in) investing activities	(43,513		)	(772,998		)
Cash flows from financing activities:
Issuance of preferred shares, net of underwriting discount and expenses	221,790			—
Purchases of treasury shares	(157,075		)	—
Redemption of common shares for withholding taxes	(978		)	(822		)
Debt issuance costs	(5,455		)	(9,567		)
Borrowings under debt facilities	1,143,000			1,417,985
Payments under debt facilities and capital lease obligations	(1,472,827		)	(1,049,996		)
Dividends paid on preferred and common shares	(80,793		)	(77,638		)
Distributions to noncontrolling interests	(2,078		)	(7,743		)
Purchase of noncontrolling interests	(103,039		)	—
Net cash provided by (used in) financing activities	(457,455		)	272,219
Net increase (decrease) in cash, cash equivalents and restricted cash	$	846		$	(45,593	)
Cash, cash equivalents and restricted cash, beginning of period	159,539			226,171
Cash, cash equivalents and restricted cash, end of period	$	160,385		$	180,578
Supplemental disclosures:
Interest paid	$	160,211		$	148,007
Income taxes paid (refunded)	$	2,216		$	541
Right-of-use asset for leased property	$	7,862		$	—
Supplemental non-cash investing activities:
Equipment purchases payable	$	11,015		$	159,454

   

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

8

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 June 30, 2019; the consolidated statements of operations, the consolidated statements of comprehensive income, the consolidated statements of shareholders' equity for the three and six months ended June 30, 2019 and 2018, and the consolidated statements of cash flows for the six months ended June 30, 2019 and 2018 are unaudited. The consolidated balance sheet as of December 31, 2018, included herein, was derived from the audited financial statements as of that date, but does not include all disclosures required by GAAP. The unaudited interim financial statements have been prepared on a basis consistent with the Company’s annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments necessary to state fairly the Company’s financial position, results of operations, comprehensive income, equity, and cash flows for the periods presented. The financial data and the other financial information disclosed in the notes to the financial statements related to these periods are also unaudited. The consolidated results of operations for the three and six months ended June 30, 2019 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2019 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, 2018 included in the Company’s Annual Report on Form 10-K which was filed with the SEC on February 19, 2019. The unaudited consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Certain changes in presentation have been made to conform the prior period presentation to current period reporting.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities in the financial statements. Such estimates include, but are not limited to, the Company's estimates in connection with leasing equipment, including residual values and depreciable lives, values of assets held for sale and other long lived assets, provision for income tax, allowance for doubtful accounts, share-based compensation, goodwill and intangible assets. Actual results could differ from those estimates.

Concentration of Credit Risk

The Company's equipment leases and trade receivables subject it to potential credit risk. The Company extends credit to its customers based upon an evaluation of each customer's financial condition and credit history. Evaluations of the financial condition and associated credit risk of customers are performed on an ongoing basis. The Company's two largest customers CMA CGM S.A. and Mediterranean Shipping Company S.A., accounted for 21% and 14%, respectively, of the Company's lease billings during the six months ended June 30, 2019.

9

TRITON INTERNATIONAL LIMITED

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Accounting Policy Updates

The Company adopted Accounting Standards Update ("ASU") 2016-02, Leases (Topic 842) on January 1, 2019. The Company evaluates whether leases are classified as operating or capital in nature based on certain assumptions that require judgment, such as the asset's fair value, the asset's estimated residual value, the interest rate implicit in the lease, and the asset's economic useful life.

For operating leases, the Company records a lease liability based on the present value of the remaining minimum rental payments and corresponding Right-of-Use ("ROU") asset. The Company uses its estimated incremental borrowing rate at the commencement date to determine the present value of lease payments. Lease incentives are recognized for periods of reduced rent or for larger than usual rent escalations over the term of the lease. The benefit of a rent-free period and the cost of future rent escalations are recognized on a straight-line basis over the term of the lease. The Company elected the short-term lease recognition exemption whereby a lease liability and corresponding ROU asset will not be recognized when leases, at the commencement date, have a lease term of 12 months or less.

Capital leases are classified as revenue earning assets and the related depreciation is recorded on the assets. Debt related to capital leases is included in the Company’s debt obligations.

New Accounting Pronouncements

Recently Adopted Accounting Standards Updates

Leases

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) and subsequently issued amendments that replaced existing lease accounting guidance. The accounting standard requires lessees to recognize a lease liability and corresponding right-of-use asset 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.

The Company adopted the standard on January 1, 2019, through a cumulative-effect adjustment. Additionally, the Company elected the “package of practical expedients,” which provides: (1) An entity need not reassess whether any expired or existing contracts are or contain leases; (2) An entity need not reassess the lease classification for any expired or existing leases; and (3) An entity need not reassess initial direct costs for any existing leases. Furthermore, the Company elected the optional transition method and continued to apply the guidance in ASC 840, including its disclosure requirements, in the comparative prior year periods.

At adoption, the Company recognized a lease liability of $10.5 million based on the present value of the remaining minimum rental payments under current leasing standards for existing operating leases and corresponding ROU asset of $8.9 million. The Company assessed the requirements from both a lessee and lessor perspective and concluded the adoption of this standard did not have a significant impact on the consolidated financial statements.  As a result of this adoption, the Company reclassified $29.6 million of cash collections on finance lease receivables, net of income earned, from investing activities to operating activities on its consolidated statement of cash flows for the six months ended June 30, 2018.

Targeted Improvements to Accounting for Hedging Activities.

In August 2017, FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815). 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 Company adopted the standard on January 1, 2019, and applied the modified retrospective approach. The Company has evaluated the impact of this ASU and concluded the adoption of this standard did not have a significant impact on the consolidated financial statements.

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TRITON INTERNATIONAL LIMITED

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Recently Issued Accounting Standards Updates

Measurement of Credit Losses on Financial Instruments

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326). 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. 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.

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):

	June 30, 2019		December 31, 2018
Liabilities
Total debt - carrying value (1)	$	7,266,096	$	7,595,922
Total debt - fair value	$	7,342,573	$	7,559,063

(1) Excludes unamortized debt costs of $43.5 million and $44.9 million, purchase price debt adjustments of $12.6 million and $16.3 million, and unamortized debt discounts of $4.7 million and $5.3 million as of June 30, 2019 and December 31, 2018, 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):

	June 30, 2019			December 31, 2018
Assets
Equipment held for sale - assets at fair value (1)	$	10,006		$	5,750
Cumulative impairment charges (2)	$	(2,707	)	$	(1,846	)

(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 six months ended June 30, 2019, respectively and net impairment charges of $0.5 million and $1.4 million for the three and six months ended June 30, 2018, respectively.

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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.

For information on the fair value of derivative instruments, please refer to Note 8 - “Derivative Instruments” in the Notes to the Unaudited Consolidated Financial Statements.

Note 3—Intangible Assets

Intangible assets are comprised of above market lease intangibles and customer intangibles related to the chassis and tank customer lists from a business combination. The following table summarizes the intangible assets amortization as of June 30, 2019 (in thousands):

Years ending December 31,	Above market lease intangibles		Customer intangibles (1)		Total intangible assets
2019	$	16,057	$	47	$	16,104
2020	22,491		—		22,491
2021	16,549		—		16,549
2022	10,497		—		10,497
2023	4,657		—		4,657
2024 and thereafter	1,963		—		1,963
Total	$	72,214	$	47	$	72,261

(1) Customer intangibles are included in other assets on the consolidated balance sheets.

Note 4—Share-Based Compensation

The Company recognizes share-based compensation expense for share-based payment transactions based on the fair value as of the grant date. The expense is recognized over the employee's requisite service period, which is generally the vesting period of the equity award. The Company recognized share-based compensation expense in administrative expenses of $3.7 million and $5.5 million for the three and six months ended June 30, 2019, respectively, and recognized $3.2 million and $5.7 million for the three and six months ended June 30, 2018, respectively. Share-based compensation expense includes charges for performance-based shares that are deemed probable to vest.

As of June 30, 2019, the total unrecognized compensation expense related to non-vested restricted shares was approximately $10.7 million, which is expected to be recognized through 2021.

During the six months ended June 30, 2019, the Company issued 168,731 time-based and performance-based restricted shares, and canceled 31,506 vested shares to settle payroll taxes on behalf of employees. Additional shares may be accrued and issued based upon the Company's performance measured against selected peers. The Company also issued 43,035 shares to non-employee directors at fair value that vested immediately.

Note 5—Other Equity Matters

Share Repurchase Program

On April 25, 2019, the Company's Board of Directors authorized a new $200.0 million repurchase program for its common shares, replacing the previous repurchase program authorized on August 1, 2018. 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

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 six months ended June 30, 2019, the Company repurchased a total of 4,984,360 common shares at an average price per share of $31.50 for a total of $157.2 million under both the current and previous authorization. As of June 30, 2019, the Company has a total of $146.7 million remaining under the current authorization.

Preferred Shares

The Company intends to use the net proceeds from preferred share offerings 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.

Series A

In March 2019, the Company completed a public offering of 8.50% Series A Cumulative Redeemable Perpetual Preference Shares ("Series A"), selling 3,450,000 shares and generating gross proceeds of $86.3 million. The estimated costs associated with the offering, inclusive of underwriting discount and other offering expenses, were $3.2 million. At any time on or after March 15, 2024, the Series A may be redeemed at the Company's option.

Series B

In June 2019, the Company completed a public offering of 8.00% Series B Cumulative Redeemable Perpetual Preference Shares ("Series B"), selling 5,750,000 shares and generating gross proceeds of $143.8 million. The estimated costs associated with the offering, inclusive of underwriting discount and other offering expenses, were $5.0 million. At any time on or after September 15, 2024, the Series B may be redeemed at the Company's option.

Dividends

Dividends on shares of each Series are cumulative from the date of original issue and will be payable quarterly in arrears on the 15th day of March, June, September and December of each year, when, as and if declared by the Company's Board of Directors. Dividends will be payable out of amounts legally available equal to the stated rate per annum of the $25.00 liquidation preference per share.

The Company paid dividends of $1.8 million or $0.53125 per share on the Series A for the three and six months ended June 30, 2019. As of June 30, 2019, the Company had cumulative unpaid preferred dividends of $0.5 million.

Redemption Provisions

Preferred shares may be redeemed at the Company's option, at any time on or after the redemption date for each Series, in whole or in part, out of funds legally available at a redemption price of $25.00 per share plus an amount equal to all accumulated and unpaid dividends thereon to, but not including, the date of redemption, whether or not declared. The Company may also redeem each Series of preferred shares in the event of a Change of Control Triggering Event as defined in the applicable Certificate of Designations (the "Certificate of Designations"). In addition, upon the occurrence of a Change of Control Triggering Event, holders of preferred shares will have the right to convert their preferred shares into common shares in accordance with the applicable Certificate of Designations. Holders of preferred shares generally have no voting rights, except as provided in the following sentence or as provided by Bermuda law. If the Company fails to pay dividends for six or more quarterly periods (whether or not consecutive), holders will be entitled to elect two additional directors to the Board of Directors and the size of the Board of Directors will be increased to accommodate such election. Such right to elect two directors will continue until such time as there are no accumulated and unpaid dividends in arrears.

Common Share Dividends

The Company paid the following quarterly dividends during the six months ended June 30, 2019 and 2018 on its issued and outstanding common shares:

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Record Date	Payment Date	Aggregate Payment	Per Share Payment
June 6, 2019	June 27, 2019	$38.6 Million	$0.52
March 12, 2019	March 28, 2019	$40.4 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

Accumulated Other Comprehensive Income

The following table summarizes the components of accumulated other comprehensive income, net of tax, for the six months ended June 30, 2019 and 2018