EDGAR 10-K Filing

Company CIK: 1660734
Filing Year: 2021
Filename: 1660734_10-K_2021_0001660734-21-000041.json

---

ITEM 1. BUSINESS
ITEM 1. BUSINESS
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.
Triton was formed on July 12, 2016 through an all-stock merger (the "Merger") between Triton Container International Limited ("TCIL") and TAL International Group, Inc ("TAL"). Our combined experience in the container leasing industry dates back to 1963.
Our operations include the acquisition, leasing, re-leasing and subsequent sale of multiple types of intermodal containers and chassis. As of December 31, 2020, our total fleet consisted of 3.7 million containers and chassis, representing 6.2 million twenty-foot equivalent units ("TEU") or 7.0 million cost equivalent units ("CEU"). We have an extensive global presence offering leasing services through local offices and utilize third-party container depots throughout the world. Our primary customers include the world's largest container shipping lines. Our global field operations include sales, operations, equipment resale, and logistics services. Our registered office is located in Bermuda.
The most important driver of our profitability is the extent to which leasing revenues, which are driven by our owned equipment fleet size, utilization and average rental 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.
Industry Overview
Intermodal containers provide a secure and cost-effective method of transporting raw materials, component parts and finished goods because they can be used in multiple modes of transport. By making it possible to move cargo from a point of origin to a final destination without repeated unpacking and repacking, containers reduce freight and labor costs. In addition, automated handling of containers permits faster loading and unloading of vessels, more efficient utilization of transportation equipment and reduced transit time. The protection provided by sealed containers also reduces cargo damage and the loss and theft of goods during shipment.
Over the last thirty years, containerized trade has grown at a rate greater than that of general worldwide economic growth. According to Clarkson Research Studies, worldwide containerized cargo volume increased at a compound annual growth rate ("CAGR") of 7.8% from 1990 to 2020. We believe that this high historical growth was due to several factors, including the shift in global manufacturing capacity to lower labor cost areas such as China and India, the continued integration of developing high growth economies into global trade patterns and the continued conversion of cargo from bulk shipping into containers. However, worldwide containerized cargo volume growth has been lower over the last few years, averaging 4.3% CAGR from 2015 to 2020, due to weak global economic growth and a significant reduction in the difference between global trade growth and global economic growth.
Container leasing companies maintain inventories of new and used containers in a wide range of worldwide locations and supply these containers primarily to shipping line customers under a variety of short and long-term lease structures. We estimate that container lessors owned approximately 50% of the total worldwide container fleet of roughly 45 million TEU at the end of 2020.
Leasing containers helps shipping lines improve their container fleet efficiency and provides shipping lines with an alternative source of equipment financing. Given the uncertainty and variability of export volumes, and the fact that shipping lines have difficulty in accurately forecasting their container requirements on a day-by-day, port-by-port basis, the availability of containers for lease on short notice reduces shipping lines' need to purchase and maintain larger container inventory buffers. In addition, the drop-off flexibility provided by operating leases also allows the shipping lines to adjust their container fleet sizes and the mix of container types in their fleets both seasonally and over time and helps balance their trade flows.
Spot leasing rates are typically a function of, among other things, new equipment prices (which are heavily influenced by steel prices), interest rates and the equipment supply and demand balance at a particular time and location. Average leasing rates on an entire portfolio of leases respond more gradually to changes in new equipment prices or changes in the balance of
container supply and demand because lease agreements are generally only re-priced upon the expiration of the lease. In addition, the value that lessors receive upon resale of equipment is closely related to the cost of new equipment.
Our Equipment
Intermodal containers are designed to meet a number of criteria outlined by the International Standards Organization (ISO). The standard criteria include the size of the container and the gross weight rating of the container. This standardization ensures that containers can be used by the widest possible number of transporters and it facilitates container and vessel sharing by the shipping lines. The standardization of the container is also an important element of the container leasing business since we can operate one fleet of containers that can be used by all of our major customers.
Our fleet primarily consists of five types of equipment:
•Dry Containers. A dry container is a steel constructed box with a set of doors on one end. Dry containers come in lengths of 20, 40 or 45 feet. They are 8 feet wide, and either 8½ or 9½ feet tall. Dry containers are the least expensive and most widely used type of intermodal container and are used to carry general cargo such as manufactured component parts, consumer staples, electronics and apparel.
•Refrigerated Containers. Refrigerated containers include an integrated cooling machine and an insulated container. Refrigerated containers come in lengths of 20 or 40 feet. They are 8 feet wide, and are either 8½ or 9½ feet tall. These containers are typically used to carry perishable cargo such as fresh and frozen produce.
•Special Containers. Most of our special containers are open top and flat rack containers. Open top containers come in similar sizes as dry containers, but do not have a fixed roof. Flat rack containers come in varying sizes and are steel platforms with folding ends and no fixed sides. Open top and flat rack containers are generally used to move heavy or bulky cargos, such as marble slabs, steel coils or factory components, that cannot be easily loaded on a fork lift through the doors of a standard container.
•Tank Containers. Tank containers are stainless steel cylindrical tanks enclosed in rectangular steel frames with the same outside dimensions as 20 foot dry containers. These containers carry bulk liquids such as chemicals.
•Chassis. An intermodal chassis is a rectangular, wheeled steel frame, generally 23½, 40 or 45 feet in length, built specifically for the purpose of transporting intermodal containers over the road. Longer sized chassis, designed to solely accommodate rail containers, can be up to 53 feet in length. When mounted on a chassis, the container may be trucked either to its destination or to a railroad terminal for loading onto a rail car. Our chassis are primarily used in the United States.
Our Leases
Most of our revenues are derived from leasing our equipment to our core shipping line customers. The majority of our leases are structured as operating leases, though we also provide customers with finance leases. Regardless of the lease type, we seek to exceed our targeted return on our investments over the life cycle of the equipment by managing utilization, lease rates, and the used equipment sale process.
Our lease products provide numerous operational and financial benefits to our shipping line customers. These benefits include:
•Operating Flexibility. The timing, location and daily volume of cargo movements for a shipping line are often unpredictable. Leasing containers and chassis helps our customers manage this uncertainty and minimizes the requirement for large inventory buffers by allowing them to pick-up leased equipment on short notice.
•Fleet Size and Mix Flexibility. The drop-off flexibility included in container and chassis operating leases allows our customers to more quickly adjust the size of their fleets and the mix of container types in their fleets as their trade volumes and patterns change due to seasonality, market changes or changes in company strategies.
•Alternative Source of Financing. Container and chassis leases provide an additional source of equipment financing to help our customers manage the high level of investment required to maintain pace with the growth of the asset intensive container shipping industry.
Operating Leases. Operating leases are structured to allow customers flexibility to pick-up equipment on short notice and to drop-off equipment prior to the end of its useful life. Because of this flexibility, most of our containers and chassis will go through several pick-up and drop-off cycles. Our operating lease contracts specify a per diem rate for equipment on-hire, where and when such equipment can be returned, how the customer will be charged for damage and the charge for lost or destroyed equipment, among other things.
We categorize our operating leases as either long-term leases or service leases. Some leases have contractual terms that have features reflective of both long-term and service leases. We classify such leases as either long-term or service leases, depending upon which features we believe are predominant. Long-term leases typically have initial contractual terms ranging from three to eight or more years. Our long-term leases require our customers to maintain specific units on-hire for the duration of the lease term, and they provide us with predictable recurring cash flow. As of December 31, 2020, 73.8% of our on-hire containers and chassis were under long-term operating leases.
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. As of December 31, 2020, 14.6% of our on-hire containers and chassis were on long-term leases whose fixed terms have expired but for which the related units remain on-hire and for which we continue to receive rental payments.
Service leases allow our customers to pick-up and drop-off equipment during the term of the lease, subject to contractual limitations. Service leases provide the customer with a higher level of flexibility than long-term leases and, as a result, typically carry a higher per diem rate. The terms of our service leases can range from 12 months to five years, though because equipment can be returned during the term of a service lease and since service leases are generally renewed or modified and extended upon expiration, lease term does not dictate expected on-hire time for our equipment on service leases. As of December 31, 2020, 7.2% of our on-hire containers and chassis were under service leases and this equipment has been on-hire for an average of 31 months.
Finance Leases. Finance leases provide our customers with an alternative method to finance their equipment acquisitions. Finance leases are generally structured for specific quantities of equipment, generally require the customer to keep the equipment on-hire for its remaining useful life, and typically provide the customer with a purchase option at the end of the lease term. As of December 31, 2020, approximately 4.4% of our on-hire containers and chassis were under finance leases.
The following table provides a summary of our equipment lease portfolio by lease type, based on cost equivalent units (CEU), as of December 31, 2020:
Lease Portfolio December 31, 2020
Long-term leases 73.8 %
Finance leases 4.4
Service leases 7.2
Expired long-term leases (units on-hire) 14.6
Total 100.0 %
As of December 31, 2020, our long-term and finance leases had an average remaining duration of 49 months, assuming no leases are renewed. However, we believe that many of our customers will renew operating leases for equipment that is less than sale age at the expiration of the lease. In addition, our equipment on operating leases typically remains on-hire at the contractual per diem rate for an additional six to twelve months beyond the end of the contractual lease term due to the logistical requirements in our leases that require our customers to return the containers and chassis to specific drop-off locations.
Logistics Management, Re-leasing, Depot Management and Equipment Disposals
We believe that managing the period after our equipment's first lease is the most important aspect of our business. Successful management of this period requires disciplined logistics management, extensive re-lease capability, careful cost control and effective sales of used equipment.
Logistics Management. Since the late 1990's, the shipping industry has been characterized by large regional trade imbalances, with loaded containers generally flowing from export-oriented economies in Asia to North America and Western Europe. Because of these trade imbalances, shipping lines have an incentive to return leased containers in North America and Europe to reduce the cost of empty container backhaul. Triton attempts to mitigate the risk of these unbalanced trade flows by maintaining a large portion of our fleet on long-term and finance leases and by contractually restricting the ability of our customers to return containers outside of Asian demand locations.
In addition, we attempt to minimize the costs of any container imbalances by finding local users in surplus locations and by moving empty containers as inexpensively as possible. While we believe we manage our logistics risks and costs effectively,
logistical risk remains an important element of our business due to competitive pressures, changing trade patterns and other market factors and uncertainties.
Re-leasing. Since our operating leases allow customers to return containers and chassis prior to the end of their useful lives, we typically place containers and chassis on several leases during their useful lives. Initial lease transactions for new containers and chassis can usually be generated with a limited sales and customer service infrastructure because initial leases for new containers and chassis typically cover large volumes of units and are fairly standardized transactions. Used equipment, on the other hand, is typically leased out in small transactions that are structured to accommodate pick-ups and returns in a variety of locations. As a result, leasing companies benefit from having an extensive global marketing and operations infrastructure, a large number of customers, and a high level of operating contact with these customers.
Depot Management. As of December 31, 2020, we managed our equipment fleet through 430 third-party owned and operated depot facilities located in 46 countries. Depot facilities are generally responsible for repairing our containers and chassis when they are returned by lessees and for storing the equipment while it is off-hire. We have a global operations group that is responsible for managing our depot contracts and they also regularly visit the depot facilities to conduct inventory and repair audits. We also supplement our internal operations group with the use of independent inspection agents.
Our leases are generally structured so that the lessee is responsible for the customer damage portion of the repair costs, and customers are billed for damages at the time the equipment is returned. We sometimes offer our customers a repair service program whereby we, for an additional payment by the lessee (in the form of a higher per-diem rate or a flat fee at off-hire), assume financial responsibility for all or a portion of the cost of repairs upon return of the equipment.
Equipment Disposals. Our in-house equipment sales group has a worldwide team of specialists that manage the sale process for our used containers and chassis from our lease fleet. We generally sell to portable storage companies, freight forwarders (who often use the containers for one-way trips) and other purchasers of used containers. We believe we are one of the world's largest sellers of used containers.
The sale prices we receive for our used containers are influenced by many factors, including the level of demand for used containers compared to the number of used containers available for disposal in a particular location, the cost of new containers, and the level of damage on the containers. While our total revenue is primarily made up of leasing revenues, gains or losses on the sale of used containers can have a significant positive or negative impact on our profitability.
Equipment Trading. We also buy and sell new and used containers and chassis acquired from third parties. We typically purchase our equipment trading fleet from our shipping line customers or other sellers of used or new equipment. Trading margins are dependent on the volume of units purchased and resold, selling prices, costs paid for equipment sold and selling and administrative costs.
Locations
We have an extensive global presence, offering leasing services through 19 offices and 3 independent agencies located in 16 countries.
Customers
Our customers are mainly international shipping lines, though we also lease containers to freight forwarding companies and manufacturers. We believe that we have strong, long-standing relationships with our largest customers, most of whom we have done business with for more than 30 years. Our twenty largest customers account for 84% of our lease billings. The shipping industry has been consolidating for a number of years, and further consolidation could increase the portion of our revenues that come from our largest customers. Our five largest customers accounted for 58% of our lease billings, and our two largest customers accounted for 22% and 14% of our lease billings in 2020. A default by one of our major customers could have a material adverse impact on our business, financial condition and future prospects.
Marketing and Customer Service
Our global marketing team and our customer service representatives are responsible for developing and maintaining relationships with senior operations staff at our shipping line customers, supporting lease negotiations and maintaining day-to-day coordination with junior level staff at our customers. This close customer communication is critical to our ability to provide customers with a high level of service, helps us to negotiate lease contracts that satisfy both our financial return
requirements and our customers' operating needs, ensures that we are aware of our customers' potential equipment shortages, and provides customers knowledge of our available equipment inventories.
Credit Controls
We monitor our customers' performance and our lease exposures on an ongoing basis. Our credit management processes are aided by the long payment experience we have with most of our customers and our broad network of relationships in the shipping industry that provides current information about our customers' market reputations. Credit criteria may include, but are not limited to, customer payment history, customer financial position and performance (e.g., net worth, leverage and profitability), trade routes, country of domicile and the type of, and location of, equipment that is to be supplied.
We historically maintained credit insurance to help mitigate the cost and risk of lessee defaults. However, after a major bankruptcy in the shipping industry in 2016, the availability of credit insurance protection became much more limited and the cost of the more limited protection increased substantially. Therefore, we may be forced to incur all of the losses resulting from future lessee defaults, significantly increasing the likelihood that a lessee default would have a material adverse impact on our profitability and financial condition.
Competition
We compete with at least six other major intermodal equipment leasing companies in addition to many smaller lessors, manufacturers of intermodal equipment, and companies offering finance leases as distinct from operating leases. It is common for our customers to utilize several leasing companies to meet their equipment needs.
Our competitors compete with us in many ways, including lease pricing, lease flexibility, supply reliability and customer service. In times of weak demand or excess supply, leasing companies often respond by lowering leasing rates and increasing the logistical flexibility offered in their lease agreements. In addition, new entrants into the leasing business are often aggressive on pricing and lease flexibility. Furthermore, customers also have the option to purchase intermodal equipment and utilize owned equipment instead of leasing, relying on their own fleets to satisfy their intermodal equipment needs and even leasing their excess container stock to other shipping companies.
While we are forced to compete aggressively on price, we attempt to emphasize our supply reliability and high level of customer service to our customers. We invest heavily to ensure adequate equipment availability in high demand locations, dedicate large portions of our organization to building customer relationships and maintaining close day-to-day coordination with customers' operating staffs, and have developed powerful and user-friendly systems that allow our customers to transact with us through the Internet.
Suppliers
We have long-standing relationships with all of our major suppliers. We purchase most of our equipment in China. There are four large manufacturers of dry containers and four large manufacturers of refrigerated containers, though for both dry containers and refrigerated containers, the largest manufacturer accounts for more than 40% of global production volume. Our procurement and engineering staff reviews the designs for our containers and periodically audits the production facilities of our suppliers. In addition, we use our procurement and engineering group and third-party inspectors to visit factories when our containers are being produced to provide an extra layer of quality control. Nevertheless, defects in our containers sometimes occur. We work with the manufacturers to correct these defects, and our manufacturers have generally honored their warranty obligations in such cases.
Systems and Information Technology
The efficient operation of our business is highly dependent on our information technology systems to track transactions, bill customers and provide the information needed to report our financial results. Our systems allow customers to facilitate sales orders and drop-off requests on the Internet, view current inventories and check contractual terms in effect with respect to any given container lease agreement. Our systems also maintain a database, which accounts for the containers in our fleet and our leasing agreements, processes leasing and sale transactions, and bills our customers for their use of and damage to our containers. We also use the information provided by these systems in our day-to-day business to make business decisions and improve our operations and customer service.
Segments
We operate our business in one industry, intermodal transportation equipment, and have two business segments, which also represent our reporting segments:
•Equipment leasing-Our equipment leasing operations include the acquisition, leasing, re-leasing and ultimate sale of multiple types of intermodal transportation equipment, primarily intermodal containers.
•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.
Human Capital Management
We seek to attract, retain, and develop the best talent available in order to drive our continued success and achieve our business goals. Our workforce as of December 31, 2020 was comprised of approximately 242 employees located in 19 offices and 13 countries. Approximately 40% of our workforce is located outside the U.S. We are not a party to any collective bargaining agreements. Our workforce was relatively flat in 2020 compared to 2019. Voluntary workforce turnover for the year was 3.7%.
Our approach to human capital management is underpinned by our corporate culture, which seeks to foster an inclusive and respectful work environment where employees are empowered at all levels to implement new ideas to better serve our global customer base and continuously improve our processes and operations. This culture is supported by a flat organizational structure that enables speed of decision making and execution; compensation programs that emphasize Company-wide common shared objectives; a diverse, international team that mirrors our local communities and customer base; robust training and development opportunities; and resources for employees to seek guidance and raise concerns when needed. We believe the combination of competitive compensation and benefits, career growth and development opportunities and our strong corporate culture promote increased employee tenure and reduced voluntary turnover. Our average employee tenure was 13 years for all employees and 20 years for leadership (defined as vice president level and above). In 2020, 40% of open positions were filled with internal candidates.
As of December 31, 2020, our global workforce was approximately 60% male and 40% female. In the U.S., approximately 30% of our workforce was comprised of racial and ethnic minorities. Triton is committed to diversity and inclusion across our Company, and one of our goals is to increase diverse talent across our leadership. Our commitment to diversity recruiting includes partnering with external organizations to develop a diverse talent pipeline, applying a diverse slate approach to increase diversity within our executive management team and developing policies and initiatives aimed at further promoting diversity and inclusion in our organization.
In 2020, the COVID-19 pandemic had a significant impact on our human capital management. A majority of our workforce worked remotely beginning in the first quarter and continuing through the end of the year, and we instituted reduced office capacity and staggered shifts, upgraded cleaning practices, social distancing requirements and other safety measures and procedures for those employees who worked at our office locations during this time. We did not furlough or conduct any employee layoffs due to the pandemic during the year.
For additional information, please see the section titled “Human Capital Management, Talent Development and Succession Planning” in our 2020 Proxy Statement.
Environmental
We face a number of environmental concerns, including potential liability due to accidental discharge from our containers, potential equipment obsolescence or retrofitting expenses due to changes in environmental regulations, and increased risk of container performance problems due to container design changes driven by environmental factors. These risks are particularly significant for our refrigerated container product line. These containers use refrigerant gasses with high global warming potential and the blowing agent historically used in the insulation for refrigerated containers has also been targeted for elimination in the European Union. Refrigerated container manufacturers are also planning to change the treatment process for the steel frame of refrigerated containers in a way that may lead to increased corrosion risk. Additional information on environmental and equipment performance risks is located in the Risk Factors section.
While we maintain environmental liability insurance coverage, and the terms of our leases and other arrangements for use of our containers place the responsibility for environmental liability on the end user, we still may be subject to environmental liability in connection with our current or historical operations. In certain countries like the United States, the owner of a leased
container may be liable for the costs of environmental damage from the discharge of the contents of the container even though the owner is not at fault. Our lessees are required to indemnify us from environmental claims and our standard master tank container lease agreement insurance clause requires our tank container lessees to provide pollution liability insurance.
Currency
The U.S. dollar is the operating currency for the large majority of our leases and obligations, and most of our revenues and expenses are denominated in U.S. dollars. However, we pay our subsidiaries' non-U.S. staff in local currencies, and our direct operating expenses and disposal transactions for our older containers are often structured in foreign currencies. We record realized and unrealized foreign currency exchange gains and losses primarily due to fluctuations in exchange rates related to our Euro and Pound Sterling transactions and related assets and liabilities.
Information about our Executive Officers
Name Age Current Position Position Held Since
Brian M. Sondey 53 Chairman, Chief Executive Officer 2016
John Burns 60 Senior Vice President and Chief Financial Officer 2016
Carla Heiss 51 Senior Vice President, General Counsel and Secretary 2019
John F. O'Callaghan 60 Executive Vice President and Global Head of Marketing & Operations 2016
Kevin Valentine 55 Senior Vice President, Triton Container Sales 2016
Brian M. Sondey is our Chairman and Chief Executive Officer. Upon the closing of the merger of TCIL and TAL in July 2016, Mr. Sondey, who had served as Chairman, President and Chief Executive Officer of TAL since 2004, became Chairman and Chief Executive Officer of Triton. Mr. Sondey joined TAL’s former parent, Transamerica Corporation, in April 1996 as Director of Corporate Development. He then joined TAL International Container Corporation in November 1998 as Senior Vice President of Business Development. In September 1999, Mr. Sondey became President of TAL International Container Corporation. Prior to his work with Transamerica Corporation and TAL International Container Corporation, Mr. Sondey worked as a Management Consultant at the Boston Consulting Group and as a Mergers & Acquisitions Associate at J.P. Morgan. Mr. Sondey holds an MBA from The Stanford Graduate School of Business and a BA degree in Economics from Amherst College.
John Burns is our Senior Vice President and Chief Financial Officer. Upon the closing of the merger of TCIL and TAL in July 2016, Mr. Burns, who had served as the Senior Vice President and Chief Financial Officer of TAL since 2009, became the Senior Vice President and Chief Financial Officer of Triton. Mr. Burns joined TAL’s former parent, Transamerica Corporation in 1996 as Director of Internal Audit and progressed over time to positions of increasing responsibility. Prior to his work with Transamerica Corporation and TAL International Container Corporation, Mr. Burns worked as an Audit Senior Manager at Ernst & Young LLP. Mr. Burns holds a BA in Finance from the University of St. Thomas, St. Paul, Minnesota and is a certified public accountant.
Carla Heiss is our Senior Vice President, General Counsel and Secretary and has served in this role since December 2019. Prior to joining Triton, Ms. Heiss was Deputy General Counsel and Secretary at Bunge Limited, where she worked from 2003 to 2019. Prior to that, she worked as an Associate in Capital Markets and International Finance at Shearman & Sterling, LLP from 1994 to 2003. Ms. Heiss holds a J.D. degree from the George Washington University Law School and earned her B.A. degree in Government from Cornell University.
John O’Callaghan is our Executive Vice President and Global Head of Field Marketing and Operations. Upon the closing of the merger of TCIL and TAL in July 2016, Mr. O’Callaghan, who had served as the Senior Vice President for Europe, North America, South America and the Indian Subcontinent of TCIL since 2006, became the Executive Vice President, Global Head of Field Marketing & Operations of Triton. Mr. O’Callaghan joined TCIL in 1994 as Marketing Manager of Refrigerated Containers and progressed over time to positions of increasing responsibility. Prior to his work with TCIL, Mr. O’Callaghan worked as an Architect at Buro Bolles Wilson, Germany & Young LLP and was also an Architect at Canary Wharf development with Koetter Kim. Mr. O’Callaghan studied engineering at Trinity College Dublin and qualified with RIBA (Royal Institute of British Architects) as an architect with the Architectural Association in London.
Kevin Valentine is our Senior Vice President of Triton Container Sales. Upon the closing of the merger of TCIL and TAL in July 2016, Mr. Valentine, who had served as the Senior Vice President of Trader and Global Operations of TAL since 2011, became the Senior Vice President of Triton Container Sales of Triton. Mr. Valentine joined TAL International Container Corporation in 1994 as Regional Marketing Manager and progressed over time to positions of increasing responsibility. Prior to his work with TAL, Mr. Valentine worked as a Marketing Manager at Tiphook Container Rental. Mr. Valentine received a BA (Hons) degree in Business from Middlesex University, London, England.

---

ITEM 1A. RISK FACTORS
ITEM 1A. RISK FACTORS
Risks Related to the COVID-19 Pandemic
The continued spread of the COVID-19 pandemic may have a material adverse impact on our business, financial condition and results of operations.
The ongoing COVID-19 pandemic has resulted in a significant impact to businesses and supply chains globally. The imposition of work, social and travel restrictions, as well as other actions by government authorities to contain the outbreak, led to a significant decline in the global economy in the first half of 2020, including extended shutdowns of certain businesses, lower factory production, reduced volumes of global exports and disruptions in global shipping. This led to reduced container demand, which pressured container lease rates in the first half of 2020, and increased the credit risk profile of our shipping line customers. Following the easing of measures to contain the spread of the pandemic and the initial reopening of businesses, trade volumes and container demand recovered strongly in the third quarter of 2020. However, many countries are seeing a resurgence in COVID-19 cases, including our main demand locations in China, and there continues to be a high degree of risk and uncertainty with respect to the outlook for global economic conditions, global trade and container demand.
Risks associated with the COVID-19 pandemic on the Company include, but are not limited to:
•an increase in credit concerns relating to our shipping line customers in the event that they face reduced demand, operational disruptions and increased costs relating to the pandemic, including the risk of bankruptcy or significant payment defaults or delays;
•reduced demand for containers and increased pressure on lease rates;
•reduced demand for sale of containers;
•operational issues that could prevent our containers from being discharged or picked up in affected areas or in other locations after having visited affected areas for a prolonged period of time;
•business continuity risks associated with remote working arrangements adopted during the pandemic, including increased cybersecurity risks, internet capacity constraints or other systems problems, and unanticipated difficulties or delays in our financial reporting processes;
•liquidity risks, including that disruptions in financial markets as a result of the pandemic may increase the cost and availability of capital, and the risk of non-compliance with financial covenants in debt agreements;
•potential impacts on key management, including health impacts and distraction caused by the pandemic response; and
•potential impacts on business relationships due to prolonged restrictions on travel.
The magnitude of the COVID-19 pandemic, including the extent of any impact on our business, financial position, results of operations or liquidity, which could be material, cannot be reasonably determined at this time due to the rapid development and fluidity of the situation. The effects of the pandemic on our business will depend on its duration and severity, whether business disruptions will continue and the overall impact on the global economy.
Risks Related to Our Business and Industry
The international nature of our business exposes us to numerous risks.
Our ability to enforce lessees’ obligations will be subject to applicable law in the jurisdiction in which enforcement is sought. As containers are used in international commerce, it is not possible to predict, with any degree of certainty, the jurisdictions in which enforcement proceedings may be commenced. For example, repossession from defaulting lessees may be difficult and more expensive in jurisdictions in which laws do not confer the same security interests and rights to creditors and lessors as those in the United States and in other jurisdictions where recovery of containers from defaulting lessees is more cumbersome. As a result, the costs, relative success and expedience of collecting receivables or pursuing enforcement proceedings with respect to containers in various jurisdictions cannot be predicted.
We are also subject to numerous other risks inherent in conducting business across national boundaries, any one of which could adversely impact our business. Several of these risks are discussed in more detail throughout this Risk Factors section. Additional risks of international operations include, but are not limited to:
•changes in governmental policy or regulation affecting our business and industry;
•restrictions on the transfer of funds into or out of countries in which we operate;
•government instability;
•nationalization of foreign assets;
•government protectionism; and
•labor or other disruptions at key ports or at manufacturing facilities of our suppliers.
We are also subject to the impact of political, economic and social instability. For example, the United Kingdom has exited from the European Union ("Brexit"), effective on January 31, 2020. The long-term effect of Brexit will depend on the terms negotiated between the UK and the EU, which may take years to complete and may include, among other things, greater restrictions on imports and exports between the UK and EU countries, fluctuations in currency exchange rates and additional regulatory complexity, as well as potential higher costs of conducting business in Europe. Any one or more of these or other factors could adversely affect our current or future international operations and business.
Container leasing demand can be negatively affected by decreases in global trade due to global and regional economic downturns, government policies and trade disputes.
Overall demand for containers depends largely on the rate of world trade and economic growth. A significant downturn in global economic growth or recessionary conditions in major geographic regions, or reductions in global trade due to government trade policies, such as tariffs, duties, subsidies, taxes and import and export restrictions, as well as international trade disputes, can negatively affect container demand and lessors' decisions to lease containers. During economic downturns or periods of reduced trade, shipping lines tend to use and lease fewer containers, or lease containers only at reduced rates, and tend to rely more on their own fleets to satisfy a greater percentage of their requirements. As a result, during periods of weak global economic activity or reduced trade, container lessors typically experience decreased leasing demand, decreased equipment utilization, lower average rental rates, decreased leasing revenue, decreased used container resale prices and significantly decreased profitability. These effects can be severe.
For example, our key operating metrics and profitability in 2019 and the first half of 2020 were negatively impacted by reduced trade and economic growth, both of which were affected by increased trade tariffs due to the U.S./China trade dispute and the onset of the COVID -19 pandemic and related lockdowns. Our utilization, average leasing rates and used container prices decreased steadily throughout 2019 and the first half of the 2020, and our profitability decreased during this period as well. We have also experienced a number of other periods of weak performance due to adverse global economic conditions, including in 2009 due to the global financial crisis, and during 2015 and 2016 due to a global manufacturing recession. During both of these periods, our profitability and growth rate were significantly impacted by weak container demand.
Fluctuations in global trade cause our business to experience cyclicality.
Market conditions in our industry have historically experienced a high level of cyclicality, with periods of strong growth in global trade and high demand for containers followed by periods of weak conditions. Market conditions were exceptionally strong during the second half of 2020 after being weak for much of 2019 and the first half of 2020, but the current outlook for the global economy, global trade and the container leasing market are highly uncertain due to the ongoing COVID-19 pandemic.
New container prices have also experienced a high level of volatility, and a decrease in new container prices typically negatively impacts our profitability by reducing the lease rates and sale prices we receive for our equipment. These impacts can be severe when new container prices are low for an extended period of time.
We face extensive competition in the container leasing industry.
The container leasing and sales business is highly competitive. We compete with six other major leasing companies, many smaller container lessors, equipment financing companies, and manufacturers of container equipment, who sometimes lease and finance containers directly with our shipping line customers. Some of these competitors may have greater financial resources and access to capital than us and may have lower investment return expectations. Additionally, some of these competitors may, at times, accumulate a high volume of underutilized inventories of containers, which could lead to significant downward pressure on lease rates and margins.
Competition among container leasing companies involves many factors, including, among others, lease rates, lease terms (including lease duration, and drop-off and repair provisions), customer service, and the location, availability, quality and individual characteristics of equipment. The highly competitive nature of our industry may reduce our lease rates and margins and undermine our ability to maintain our current level of container utilization or achieve our growth plans.
Increased tariffs or other trade actions could adversely affect our business, financial condition and results of operations.
The international nature of the container industry exposes us to risks relating to the imposition of import and export duties and quotas and domestic and foreign customs and tariffs. These risks have increased recently as the United States and other countries have adopted protectionist trade policies and have encouraged the onshoring of manufacturing. Trade growth and demand for leased containers decreased significantly from 2018 to 2019 due to a trade dispute between the U.S. and China that led to both countries imposing tariffs on imported goods from the other. While the United States and China agreed in January 2020 to limit further actions, tariffs and other trade barriers remain historically high and key areas of difference remain unresolved. Given the importance of the United States and China in the global economy, these increased tariffs and duties could significantly reduce the volume of goods traded internationally and reduce the rate of global economic growth. Increased trade barriers and the risk of further disruptions is also motivating some manufacturers and retailers to reduce their reliance on overseas production and could reduce the long-term growth rate for international trade, leading to decreased demand for leased containers, lower new container prices, decreased market leasing rates and lower used container disposal prices. These impacts could have a materially adverse effect on our business, profitability and cash flows.
In addition, various government bodies continue to take actions impacting international trade. For example, in December 2020, the U.S. Commerce Department issued an affirmative preliminary countervailing duty determination on certain chassis and subassemblies imported from China and is expected to announce its preliminary findings with respect to anti-dumping duties in early 2021. As a result, we may face increased costs to acquire chassis going forward, which we may be unable to recover through increases in leasing rates.
Our customers may decide to lease fewer containers. Should shipping lines decide to buy a larger percentage of the containers they operate, our utilization rate and level of investment would decrease, resulting in decreased leasing revenues, increased storage costs, increased repositioning costs and lower growth.
We, like other suppliers of leased containers, are dependent upon decisions by shipping lines to lease rather than buy their container equipment. Should shipping lines decide to buy a larger percentage of the containers they operate, our utilization rate would decrease, resulting in decreased leasing revenues, increased storage costs and increased repositioning costs. A decrease in the portion of leased containers operated by shipping lines would also reduce our investment opportunities and significantly constrain our growth. Most of the factors affecting the lease versus buy decisions of our customers are outside of our control.
Effective January 1, 2019, new accounting standards for operating leases required the recognition of a right-of-use ("ROU") asset and corresponding lease liability on the lessee's balance sheet for leases with a lease term greater than one year, resulting in higher levels of reported leverage. Previously, operating leases were not presented on the balance sheet and this difference in accounting treatment may cause our customers to consider lease structures with shorter duration and reevaluate their lease versus buy decisions.
Market leasing rates may decrease due to a decrease in new container prices, weak leasing demand, increased competition or other factors.
Market leasing rates are typically a function of, among other things, new equipment prices (which are heavily influenced by steel prices), interest rates, the type and length of the lease, the equipment supply and demand balance at a particular time and location, and other factors described in this “Risk Factors” section.
A decrease in market leasing rates negatively impacts the leasing rates on both new container investments and the existing containers in our fleet. Most of our existing containers are on operating leases, with lease terms shorter than the expected life of the container, thus the lease rate we receive for the container is subject to change at the expiration of the current lease. The profitability impact of decreasing lease rates on existing containers can be particularly severe since it leads to a reduction in revenue with no corresponding reduction in investment or expenses.
We purchase containers from a small number of container manufacturers primarily based in China, potentially limiting our ability to maintain an adequate supply of containers and increasing our risk of negative outcomes from any manufacturing disputes.
The vast majority of intermodal containers are currently manufactured in China, and we currently purchase substantially all of our dry, refrigerated, special, and tank containers from manufacturers based there. In addition, the container manufacturing industry in China is highly concentrated. In the event that it were to become more difficult or more expensive for us to procure containers in China because of further consolidation among container suppliers, reduced production by our suppliers, increased
tariffs imposed by the United States or other governments or for any other reason, we may be unable to fully pass these increased costs through to our customers in the form of higher lease rates and we may not be able to adequately invest in and grow our container fleet.
Additionally, we may face significant challenges in the event of disputes with container manufacturers due to the limited number of potential alternative suppliers and higher uncertainty of outcomes for commercial disputes in China. Such disputes could involve manufacturers’ warranties or manufacturers’ ability and willingness to comply with key terms of our purchase agreements such as container quantities, container quality, delivery timing and price.
Manufacturers of equipment may be unwilling or unable to honor manufacturer warranties covering defects in our equipment or we may incur significant increased costs or reductions in the useful life of equipment due to changes in manufacturing processes, which could adversely affect our business, financial condition and results of operations.
We obtain warranties from the manufacturers of equipment that we purchase. When defects in the containers occur, we work with the manufacturers to identify and rectify the problems. However, there is no assurance that manufacturers will be willing or able to honor warranty obligations. In addition, manufacturers’ warranties typically do not cover the full expected life of our containers. If the manufacturer is unwilling or unable to honor warranties covering failures occurring within the warranty period or if defects are discovered in containers that are no longer covered by manufacturers' warranties, we could be required to expend significant amounts of money to repair the containers, the useful lives of the containers could be shortened and the value of the containers reduced.
Several key container components and manufacturing processes have undergone changes over the last several years, in many cases due to environmental concerns. These changes include, but are not limited to, the following:
•Changes in paint application systems to water-based from solvent-based;
•Changes to the wood floorboard materials to farm-grown woods from tropical hard woods; and
•Changes to insulation foaming processes for the walls of refrigerated containers.
These changes have not yet proven their durability over the typical 12 to 15 year life of a container in a marine environment. Therefore, the impact of these and future changes in manufacturing processes or materials on the quality and durability of our equipment is uncertain and may result in increased costs to maintain or a significant reduction in the useful life of the equipment.
We are exposed to customer credit risk, including the risk of lessee defaults.
Our containers and chassis are leased to numerous customers, who are responsible to pay lease rentals and other charges, including repair fees and costs for damage to or loss of equipment. Some of our customers are privately owned and do not provide detailed financial information regarding their operations. Our customers could incur financial difficulties, or otherwise have difficulty making payments to us when due for any number of factors which we may be unable to anticipate. A delay or diminution in amounts received under the leases, or a default in the performance of our lessees' obligations under the leases could adversely affect our business, financial condition, results of operations and cash flows and our ability to make payments on our debt.
In addition, when lessees default, we may fail to recover all of our equipment, and the equipment we do recover may be returned in damaged condition or to locations where we may not be able to efficiently re-lease or sell them. As a result, we may have to repair and reposition our equipment to other places where we can re-lease or sell them and we may lose lease revenues and incur additional operating expenses in repossessing, repositioning and storing the equipment. We also often incur extra costs when repossessing containers from a defaulting lessee. These costs typically arise when our lessee has also defaulted on payments owed to container terminals or depot facilities where the repossessed containers are located. In such cases, the terminal or depot facility may delay or bar us from taking possession of our containers or sometimes seek to have us repay a portion of the lessee's unpaid bills as a condition to releasing the containers back to us.
While the container shipping industry experienced improved profitability in 2020, the industry has generally been characterized by excess vessel capacity and weak financial performance. A number of our customers generated significant financial losses in the years prior to 2020 and many are burdened by high levels of debt. We experienced a major lessee default in 2016 when Hanjin Shipping Co. Ltd. ("Hanjin") filed for court protection and immediately began a liquidation process. At that time, we had approximately 87,000 containers on lease to Hanjin with a net book value of $243.3 million. We recorded a loss of $29.7 million during the third quarter ended September 30, 2016, related to the Hanjin bankruptcy. The impact of the
Hanjin bankruptcy was significantly lessened by credit insurance policies in place during 2016, which covered the value of containers that were unrecoverable, costs incurred to recover containers and a portion of lost lease revenue. Since that time, the cost of credit insurance in our industry has increased significantly such that adequate coverage for the size of our operations has not been available at levels considered to be economical, and we may not be able to obtain such insurance in the future. As a result, a major customer default could have a significant adverse impact on our business, financial condition and cash flows.
Our customer base is highly concentrated. A default by or significant reduction in leasing business from any of our large customers could have a material adverse impact on our business and financial performance.
Our five largest customers represented approximately 58% of our lease billings in 2020. Our single largest customer, CMA CGM S.A., represented approximately 22% of lease billings in 2020, and our second largest customer Mediterranean Shipping Company S.A., represented approximately 14% of lease billings in 2020. Furthermore, the shipping industry has been consolidating for a number of years, and further consolidation could increase the portion of our revenues that come from our largest customers. Given the high concentration of our customer base, a default by or a significant reduction in future lease transactions with any of our major customers could materially reduce our leasing revenues, profitability, liquidity and growth prospects.
Used container sales prices are volatile and sale prices can fall below our accounting residual values, leading to losses on the disposal of our equipment.
Although our revenues primarily depend upon equipment leasing, our profitability is also affected by the gains or losses we realize on the sale of used containers because, in the ordinary course of our business, we sell certain containers when they are returned by customers upon lease expiration. The volatility of the selling prices and gains or losses from the disposal of such equipment can be significant. Used container selling prices, which can vary substantially, depend upon, among other factors, the cost of new containers, the global supply and demand balance for containers, the location of the containers, the supply and demand balance for used containers at a particular location, the physical condition of the container, refurbishment needs, materials and labor costs and obsolescence of certain equipment or technology. Most of these factors are outside of our control.
Containers are typically sold if it is in our best interest to do so after taking into consideration local and global leasing and sale market conditions and the age, location and physical condition of the container. As these considerations vary, gains or losses on sale of equipment will also fluctuate and may be significant if we sell large quantities of containers.
Used container selling prices and the gains or losses that we have recognized from selling used containers have varied widely. In 2015 and 2016, used container prices dropped to levels below our estimated residual values, resulting in significant losses on sale of leasing equipment. Used container sale prices rebounded significantly in 2017 and 2018, declined in 2019, and again rebounded significantly in the second half of 2020. If disposal prices were to fall back below our residual values for an extended period, it would have a significantly negative impact on our profitability and cash flows.
Equipment trading results have been highly volatile and are subject to many factors outside of our control.
The profitability of our equipment trading activities has varied widely. Our ability to sustain a high level of equipment trading profitability will require securing large volumes of additional trading equipment and continuing to achieve high selling margins. Several factors could limit our trading volumes. Shipping lines that have sold containers to us could develop other means for disposing their equipment or develop their own sales networks. In addition, we may limit our purchases if we have concerns that used container selling prices might decrease. Our equipment trading results would also be negatively impacted by a reduction in our selling margins by increased competition for purchasing trading containers or by decreased sales prices. If sales prices rapidly deteriorate and we hold a large inventory of equipment that was purchased when prices for equipment were higher, then we may incur losses.
A number of key personnel are critical to the success of our business.
We have senior executives and other management level employees with extensive industry experience. We rely on this knowledge and experience in our strategic planning and in our day-to-day business operations. Our success depends in large part upon our ability to retain our senior management, the loss of one or more of whom could have a material adverse effect on our business. Our success also depends on our ability to retain our experienced sales team and technical personnel, as well as to recruit new skilled sales, marketing and technical personnel. Competition for experienced managers in our industry can be intense. If we fail to retain and recruit the necessary personnel, our business and our ability to retain customers and provide acceptable levels of customer service could suffer.
We may incur future asset impairment charges.
An asset impairment charge may result from the occurrence of an adverse change in market conditions, unexpected adverse events or management decisions that impact our estimates of expected cash flows generated from our long-lived assets. We review our long-lived assets, including our container and chassis equipment, goodwill and other intangible assets, for impairment when events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. We may be required to recognize asset impairment charges in the future as a result of reductions in demand for specific container and chassis types, a weak economic environment, challenging market conditions, events related to particular customers or asset types, or as a result of asset or portfolio sale decisions by management. The likelihood that we could incur asset impairment charges increases during periods of low new container prices, low market lease rates and low used container selling prices.
In addition, while used container selling prices are currently above our estimated residual values, they are extremely volatile and if disposal prices fall below our residual values for an extended period, we would likely need to revise our estimates for residual values. Decreasing estimates for residual values would result in an immediate impairment charge on containers older than the estimated useful life in our depreciation calculations, and would result in increased depreciation expense for all of our other containers in subsequent periods. Asset impairment charges could significantly impact our profitability and could potentially cause us to breach the financial covenants contained in some or all of our debt agreements. The impact of asset impairment charges and a potential covenant default could be severe.
We may incur significant costs associated with relocation of leased equipment.
When lessees return equipment to locations where supply exceeds demand, containers are routinely repositioned to higher demand areas. Positioning expenses vary depending on geographic location, distance, freight rates and other factors. Positioning expenses can be significant if a large portion of our containers are returned to locations with weak demand. We seek to limit the number of containers that can be returned to areas where demand is not expected to be strong. However, future market conditions may not enable us to continue such practices. In addition, we may not be successful in accurately anticipating which port locations will be characterized by weak or strong demand in the future, and current contracts will not provide much protection against positioning costs if ports that are expected to be strong demand ports turn out to be low demand ports when the equipment is returned. In particular, many of our lease contracts are structured so that most containers will be returned to areas with current strong demand, especially major ports in China. If the economy in China continues to evolve in a way that leads to less focus on manufacturing and exports and more focus on consumer spending, imports and services, we may face large positioning costs in the future to relocate containers dropped off into China.
It may become more expensive for us to store our off-hire containers.
We are dependent on third-party depot operators to repair and store our equipment in port areas throughout the world. In many of these locations, the land occupied by these depots is increasingly being considered as prime real estate. Accordingly, some depots are seeking to increase the rates we pay to store our containers, and some local communities are increasing restrictions on depot operations which increase their costs of operation and, in some cases, force depots to relocate to sites further from the port areas. Additionally, depots in prime locations may become filled to capacity based on market conditions and may refuse additional containers due to space constraints. As a result of these factors, the cost of maintaining and storing our off-hire containers could increase significantly.
Sustained China and Asia economic, social or political instability could reduce demand for leasing.
Many of the shipping lines to which we lease containers are entities domiciled in Asian countries. In addition, many of our customers are substantially dependent upon shipments of goods exported from Asia. From time to time, there have been economic disruptions, financial turmoil and political instability in this region. These events could adversely affect our customers and lead to reduced demand for our containers or otherwise have an adverse effect on market conditions and our performance.
Catastrophic events caused by terrorist attacks or the outbreak of war and hostilities, severe weather or other events could negatively impact our operations and profitability and may expose us to liability.
Catastrophic events can be caused by natural factors, such as hurricanes or other severe storms, earthquakes, fires, or other events, such as chemical explosions, accidents or terrorist attacks. Severe weather conditions, including as a result of the effects of climate change, or other natural or man-made disasters where we have business operations could lead to economic instability and disruptions to world trade, disruptions to our operations and damage to or loss of our equipment, which could be
material. In addition, any of these incidents or factors may directly impact ports, depots, our facilities or those of our suppliers or customers and could impact our and our customers' operations and supply chains. A severe disruption to the worldwide ports system and flow of goods and resulting adverse effects on the economy or consumer confidence, could result in a reduction in the level of international trade and lower demand for our containers. The incidence, severity and consequences of any these events are unpredictable.
It is also possible that our containers could be involved in a terrorist attack. Although our lease agreements typically require our customers to indemnify us against all damages and liabilities arising out of the use of our containers and we carry insurance to potentially offset any costs in the event that our customer indemnifications prove to be insufficient, our insurance does not cover certain types of terrorist attacks. We may also experience reputational harm from a terrorist attack in which one of our containers is involved.
Risks Related to Our Indebtedness and Liquidity
We have a substantial amount of debt outstanding and have significant debt service requirements. Our high level of indebtedness may reduce our financial flexibility, impede our ability to operate and increase our risk of default.
We use substantial amounts of debt to fund our operations, particularly our purchase of equipment. As of December 31, 2020, we had outstanding indebtedness of approximately $6,403.3 million under our debt facilities. Total interest and debt expense for the year ended December 31, 2020 was $253.0 million.
Our substantial amount of debt could have important consequences for investors, including:
•making it more difficult for us to satisfy our obligations with respect to our debt facilities, which could result in an event of default under the agreements governing such indebtedness and potentially lead to insolvency;
•requiring us to dedicate a substantial portion of our cash flow from operations to make payments on our debt, thereby reducing funds available for operations, capital expenditures, future business opportunities and other purposes;
•limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
▪reducing our profit margin and investment returns on new container investments if we are unable to pass along increases in our cost of financing to our customers through higher lease rates,
•making it difficult for us to pay dividends on or repurchase our common and preferred shares;
•increasing our vulnerability to general adverse economic and industry conditions, including changes in interest rates; and
•placing us at a competitive disadvantage compared to our competitors having less debt.
We may also incur substantial additional indebtedness in the future. To the extent that new indebtedness is added to current debt levels, the risks described above would increase.
We may not be able to refinance any of our indebtedness on commercially reasonable terms or at all.
During difficult market environments, lenders to the container leasing industry may become more cautious, decreasing our sources of available debt financing and increasing our borrowing costs. In addition, we are the largest container leasing exposure for many of our lenders, and the amount of incremental loans available from our existing lenders may become constrained due to single-name credit limitations. If we cannot refinance our indebtedness, we may have to take actions such as selling assets, seeking equity capital or reducing or delaying future capital expenditures or other business investments, which could have a material adverse impact on our growth rate, profitability and cash flows. Such actions, if necessary, may not be effected on commercially reasonable terms.
Our credit facilities impose significant operating and financial restrictions, which may prevent us from pursuing certain business opportunities and taking certain actions.
Our credit facilities and other indebtedness impose, and the terms of any future indebtedness may impose, significant operating, financial and other restrictions on us and our subsidiaries. These restrictions may limit or prohibit, among other things, our ability to:
•incur additional indebtedness;
•pay dividends on or redeem or repurchase our shares;
•issue additional share capital;
•make loans and investments;
•create liens;
•sell certain assets or merge with or into other companies;
•enter into certain transactions with our shareholders and affiliates;
•cause our subsidiaries to make dividend, distributions and other payments to us; and
•otherwise conduct necessary corporate activities.
These restrictions could adversely affect our ability to finance our future operations or capital needs and pursue available business opportunities. In addition, certain agreements governing our indebtedness contain financial maintenance covenants that require us to satisfy certain ratios such as maximum leverage, minimum net worth and minimum fixed charge coverage. A breach of any of the above restrictions or financial covenants could result in an event of default in respect of the related indebtedness. If a default occurs, the relevant lenders could elect to declare the indebtedness to be immediately due and payable and proceed against any collateral securing that indebtedness, which under certain circumstances could constitute substantially all of our container assets.
We have a complex debt structure with numerous credit facilities containing various non-financial covenants which are not standardized between facilities. This increases the risk of a technical default that could lead to the acceleration of our repayment obligations in certain instances.
We have a significant number of credit facilities containing numerous non-financial covenants, such as, but not limited to, reporting and notification requirements, which are not standardized between facilities requiring extensive monitoring and compliance. Failure to comply with any of these non-financial covenants could result in an event of default, which could trigger cross-defaults of multiple facilities. Should we fail to comply with any of these non-financial covenants we may be unable to obtain waivers and lenders could accelerate our debt repayment obligations and proceed against any collateral securing that indebtedness.
A significant increase in our borrowing costs could negatively affect our financial condition, cash flow and results of operations.
Our lease rental stream is generally fixed over the life of our leases whereas our interest costs can vary over time. The interest rates on our debt financings have several components, including credit spreads and underlying benchmark rates. We employ various hedging strategies to mitigate this interest rate risk. Our hedging strategies rely considerably on assumptions and projections regarding our assets and lease portfolio as well as general market factors. If any of these assumptions or projections prove to be incorrect or our hedges do not adequately mitigate the impact of changes in interest rates, we may experience volatility in our earnings that could adversely affect our profitability and financial condition. In addition, we may not be able to find market participants that are willing to act as our hedging counterparties on acceptable terms or at all, which could have an adverse effect on the success of our hedging strategies.
The expected discontinuation of the LIBOR benchmark interest rate may have an impact on our business.
On July 27, 2017, the U.K. Financial Conduct Authority (the "FCA"), which regulates LIBOR, announced that it will no longer persuade or compel banks to submit rates for the calculation of LIBOR rates after 2021. As a result, the continuation of LIBOR on the current basis cannot be guaranteed after 2021 and it is likely that LIBOR will be phased out or modified by 2023. The FCA and the submitting LIBOR banks have indicated they will support the LIBOR indices through 2021 to allow for an orderly transition to an alternative reference rate. Financial services regulators and industry groups are evaluating the phase-out of LIBOR and the development of alternate reference rate indices or reference rates.
In the United States, the Alternative Reference Rate Committee ("ARRC"), a group of diverse private-market participants assembled by the Federal Reserve Board and the Federal Reserve Bank of New York, was tasked with identifying alternative reference rates to replace LIBOR. The Secured Overnight Finance Rate ("SOFR") has emerged as the ARRC's preferred alternative rate for LIBOR. SOFR is a broad measure of the cost of borrowing cash overnight collateralized by Treasury securities in the repurchase agreement market. At this time, it is not possible to predict how markets will respond to SOFR or other alternative reference rates. In addition, it is uncertain what methods of calculating a replacement rate will be adopted generally or whether different industry bodies, such as the loan market and the derivatives market, will adopt the same methodologies.
As of December 31, 2020, we had $2,525.7 million of total debt outstanding under facilities with interest rates based on floating-rate indices. In addition, we had $1,710.0 million notional value of interest rate swaps in place that are indexed to
LIBOR. Our credit facilities include fallback language that seeks to facilitate an agreement with our lenders on a replacement rate for LIBOR in the event of its discontinuance. We cannot predict what reference rate would be agreed upon or what the impact of any such replacement rate would be to our interest expense. The Company's swap agreements are governed by the International Swap Dealers Association ("ISDA"), which has developed fallback language for swap agreements and has established guidelines to allow counterparties to modify historical trades to include the new fallback language. Potential changes to the underlying floating-rate indices and reference rates may have an adverse impact on our agreements indexed to LIBOR and could have a negative impact on our profitability and cash flows. Furthermore, we cannot predict or quantify the time, effort and cost required to transition to the use of new benchmark rates, including with respect to negotiating and implementing any necessary changes to existing contractual arrangements, and implementing changes to our systems and processes. We continue to evaluate the operational and other effects of such changes.
Risks Related to Information Technology and Data Security
We rely on our information technology systems to conduct our business. If there are disruptions and these systems fail to adequately perform their functions, or if we experience an interruption in our operations, our business and financial results could be adversely affected.
The efficient operation of our business is highly dependent on our information technology systems, including our transaction tracking and billing systems and our customer interface systems. These systems allow customers to facilitate sales orders and drop-off requests, view current inventory and check contractual terms in effect with respect to any given container lease agreement. These systems also process and track transactions, such as container pick-ups, drop-offs and repairs, and bill customers for the use of and damage to our equipment. If our information technology systems are damaged or an interruption is caused by a computer systems failure, viruses, security breach, hacker attack, ransom attack, fire, natural disasters or power loss, the disruption to our normal business operations and impact on our costs, competitiveness and financial results could be significant.
Security breaches and other disruptions could compromise our information technology systems and expose us to liability, which could cause our business and reputation to suffer.
In the ordinary course of our business, we collect and store sensitive data on our systems and networks, including our proprietary business information and that of our customers and suppliers, and personally identifiable information of our customers and employees. The secure storage, processing, maintenance and transmission of this information is critical to our operations. Despite the security measures we employ, our information technology systems and networks may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. Any such breach could compromise such systems and networks and the information stored therein could be accessed, publicly disclosed and/or lost or stolen. Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, disruption to our operations, damage to our reputation and/or loss of competitive position.
Risks Related to Legal, Tax, and Other Regulatory and Compliance Matters
We may incur increased costs associated with the implementation of security regulations, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
We may be subject to regulations promulgated in various countries, including the United States, seeking to protect the integrity of international commerce and prevent the use of containers for international terrorism or other illicit activities. For example, the Container Safety Initiative, the Customs-Trade Partnership Against Terrorism and Operation Safe Commerce are among the programs administered by the U.S. Department of Homeland Security that are designed to enhance security for containerized cargo entering and leaving the United States. Moreover, the International Convention for Safe Containers (“CSC”) applies to containers and seeks to maintain a high level of safety of human life in the transport and handling of containers by providing uniform international safety regulations. As these regulations develop and change, we may incur increased costs for the acquisition of new, compliant containers and/or the adaptation of existing containers to meet any new requirements imposed by such regulations. Additionally, certain companies are currently developing or may in the future develop products designed to enhance the security of containers transported in international commerce. We may incur increased costs associated with the adoption of these products, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
The lack of an international title registry for containers increases the risk of ownership disputes.
There is no internationally recognized system for recording or filing to evidence our title to containers nor is there an internationally recognized system for filing security interests in containers. Although this has not occurred to date, the lack of an international title recordation system for containers could result in disputes with lessees, end-users, or third parties who may improperly claim ownership of the containers.
If we fail to comply with applicable regulations that impact our international operations, our business, results of operations or financial condition could be adversely affected.
Due to the international scope of our operations, we are subject to a numerous laws and regulations, including economic sanctions, anti-corruption, anti-money laundering, import and export and similar laws. Recent years have seen a substantial increase in the enforcement of many of these laws in the United States and other countries. Any failure or perceived failure to comply with existing or new laws and regulations may subject us to significant fines, penalties, criminal and civil lawsuits, forfeiture of significant assets, and other enforcement actions in one or more jurisdictions, result in significant additional compliance requirements and costs, increase regulatory scrutiny of our business, result in the loss of customers, restrict our operations and limit our ability to grow our business, adversely affect our results of operations, and harm our reputation.
Environmental regulations and liability may adversely affect our business and financial condition.
We are subject to U.S. federal, state, local and foreign laws and regulations relating to the protection of the environment, including those governing the discharge of pollutants to air and water, the management and disposal of hazardous substances and wastes and the cleanup of contaminated sites. We could incur substantial costs, including cleanup costs, fines and third-party claims for property damage and personal injury, as a result of violations of or liabilities under environmental laws and regulations in connection with our or our lessees’ current or historical operations. Under some environmental laws in the United States and certain other countries, the owner of a leased container may be liable for environmental damage, cleanup or other costs in the event of a spill or discharge of material from a container without regard to the owner's fault. Our insurance coverage and any indemnities provided by our lessees may be insufficient to compensate us for losses arising from environmental damage.
Changes in laws and regulations, or actions by authorities under existing laws or regulations, to address greenhouse gas emissions and climate change could negatively impact our and our customers’ business. For example, restrictions on emissions could significantly increase costs for our customers whose operations require significant amounts of energy. Customers’ increased costs could reduce their demand to lease our assets. Additionally, many countries, including the United States, restrict, prohibit or otherwise regulate the use of chemical refrigerants due to their ozone depleting and global warming effects. Our refrigerated containers currently use various refrigerants. Manufacturers of cooling machines for refrigerated containers have begun selling units that utilize alternative refrigerants, as well as natural refrigerants such as carbon dioxide, that may have less global warming potential than current refrigerants. If future regulations prohibit the use or servicing of containers using current refrigerants, we could be forced to incur large retrofitting expenses. In addition, refrigerated containers that are not retrofitted may become difficult to lease, command lower rental rates and disposal prices, or may have to be scrapped.
Also, historically, the foam insulation in the walls of refrigerated intermodal containers required the use of a blowing agent that contained CFCs. The manufacturers producing our refrigerated containers have eliminated the use of this blowing agent in the manufacturing process, but a large number of our refrigerated containers manufactured prior to 2014 contain these CFCs. The EU prohibits the import and the placing on the market in the EU of intermodal containers with insulation made with such process. However, we believe international conventions governing free movement of intermodal containers allow the use of such intermodal refrigerated containers in the EU if they have been admitted into EU countries on temporary customs admission. We have procedures in place that we believe comply with the relevant EU and country regulations. If such intermodal refrigerated containers exceed their temporary customs admission period and/or their customs admission status changes and such intermodal refrigerated containers are deemed placed on the market in the EU, or if our procedures are deemed not to comply with EU or a country’s regulation, we could be subject to fines and penalties. Also, if future international regulations change, we could be forced to incur large retrofitting expenses and those containers that are not retrofitted may become more difficult to lease and command lower rental rates and disposal prices. Potential consequences of changes in laws and regulations addressing climate change and other environmental impacts could have a material adverse effect on our financial condition and results of operations and cash flows.
Future U.S. tax rule changes that result in tax rate increases or a reduction in our level of continuing investment in U.S. subsidiaries may subject us to unanticipated tax liabilities that may have a material adverse effect on our results of operations and cash flows.
We are a Bermuda company, however, a significant portion of our operations is subject to taxation in the U.S. Our U.S. subsidiaries record tax provisions in their financial statements based on current tax rates. If there was an increase in the tax rate due to changes in enacted tax laws, our tax provision and effective tax rate would increase and our results of operations would be negatively impacted. Furthermore, certain of these subsidiaries currently do not pay any meaningful U.S. income taxes primarily due to the benefit they currently receive from accelerated tax depreciation of their container investments. A reduction in the level of investment in new containers, a change in rules governing the tax depreciation for these U.S. subsidiaries' containers, or a change in the average length of initial leases of these containers, that increases the period over which they must depreciate their containers for tax purposes, could reduce or eliminate this tax benefit and significantly increase these U.S. subsidiaries' cash tax payments.
Beginning in 2022, a company's U.S. net interest expense deduction will be limited to 30% of its current year taxable income before net interest expense. In future years, the benefit the U.S. subsidiaries receive from accelerated tax depreciation of their container investments is expected to result in annual interest expense limitations, which may significantly increase these U.S. subsidiaries' cash tax payments and our overall effective tax rate.
We may be subject to unanticipated tax liabilities due to future foreign tax rule changes that may have a material adverse effect on our results of operations.
We are a Bermuda company, and we believe that the income derived from our operations will not be subject to tax in Bermuda, which currently has no corporate income tax. We further believe that a significant portion of the income derived from our operations will not be subject to tax in many other countries in which our customers or containers are located. However, this belief is also based on our understanding of the tax laws of the countries in which our customers use containers. The tax positions we take in various jurisdictions are subject to review and possible challenge by taxing authorities and to possible changes in law or rates that may have retroactive effect.
The Organization for Economic Co-operation and Development (“OECD”) is coordinating a global effort to reform certain aspects of the international tax system which includes proposals for market-based transfer pricing and global minimum tax regimes. Related to these efforts, Bermuda implemented the Economic Substance Act 2018 which requires affected Bermuda registered companies to maintain a substantial economic presence in Bermuda. This legislation and/or other OECD efforts could require us to incur substantial additional costs to maintain compliance, result in the imposition of significant penalties, create additional tax liabilities globally, and possibly require us to re-domicile our company or any Bermuda subsidiary to a jurisdiction with higher tax rates. Our results of operations could be materially and adversely affected if we become subject to these or other unanticipated tax liabilities.
Our U.S. investors could suffer adverse tax consequences if we are characterized as a passive foreign investment company for U.S. federal income tax purposes.
Based upon the nature of our business activities, we may be classified as a passive foreign investment company ("PFIC") for U.S. federal income tax purposes. Such characterization could result in adverse U.S. tax consequences for direct or indirect U.S. investors in our common and preferred shares. For example, if we are a PFIC, our U.S. investors could become subject to increased tax liabilities under U.S. tax laws and regulations and could become subject to burdensome reporting requirements. The determination of whether or not we are a PFIC is made on an annual basis and depends on the composition of our income and assets from time to time. Specifically, for any taxable year, we will be classified as a PFIC for U.S. tax purposes if either:
•75% or more of the our gross income in a taxable year is passive income; or
•the average percentage of our assets (which includes cash) by value in a taxable year which produce or are held for the production of passive income is at least 50%.
Based on the composition of our income, valuation of our assets and our election to treat certain of our subsidiaries as disregarded entities for U.S. federal income tax purposes, we do not expect that we should be treated as a PFIC for the current taxable year or for the foreseeable future. However, because the PFIC determination in our case is made by taking into account all of the relevant facts and circumstances regarding our business without the benefit of clearly defined bright line rules, it is possible that we may be a PFIC for any taxable year or that the U.S. Internal Revenue Service (the "IRS") may challenge our
determination concerning our PFIC status. U.S. investors should consult their own tax advisors regarding the application of the PFIC rules, including the availability of any elections that may mitigate adverse U.S. tax consequences in the event that we are or become a PFIC.
Risks Related to Owning Our Common or Preferred Shares
The price of our common and preferred shares has been highly volatile and may decline regardless of our operating performance.
The trading price of our common and preferred shares has been and may remain highly volatile. Factors affecting the trading price of our common and preferred shares may include:
•broad market and industry factors, including global and political instability, trade actions and interest rate and currency changes;
•variations in our financial results;
•changes in financial estimates or investment recommendations by securities analysts following our business;
•the public's response to our press releases, other public announcements and filings with the SEC;
•changes in accounting standards, policies, guidance or interpretations or principles;
•future sales of common shares by our directors, officers and significant shareholders;
•announcements of technological innovations or enhanced or new products by us or our competitors;
•the failure to achieve operating results consistent with securities analysts' projections;
•the operating and stock price performance of other companies that investors may deem comparable to us;
•changes in our dividend policy and share repurchase programs;
•fluctuations in the worldwide equity markets;
•recruitment or departure of key personnel;
•failure to timely address changing customer preferences; and
•other events or factors, including those resulting from the perceived or actual threat of impending natural disasters, coups, terrorism, war, or other armed conflict, as well as the actual occurrence of such events or responses to such events.
In addition, if the market for intermodal equipment leasing company stocks or the stock market in general experiences a loss of investor confidence, the trading price of our common and preferred shares could decline for reasons unrelated to our business or financial results. The trading price of our common and preferred shares might also decline in reaction to events that affect other companies in our industry even if these events do not directly affect us.
If securities analysts do not publish research or reports about our business or if they downgrade our shares, the price of our common shares could decline.
The trading market for our common shares relies in part on research and reports that industry or financial analysts publish about us, our business or our industry. We have no influence or control over the decisions or opinions of these analysts. In addition, regulatory changes such as Markets in Financial Instruments Regulation (MiFIR) have led to a reduction in the number of sell side research analysts covering companies of our size and our industry. If more of these analysts cease coverage of us, we could lose visibility in the market, which in turn could cause our share price to decline. Furthermore, if one or more analysts covering our Company downgrades our shares, the price of our shares could decline.
Future sales of our common or preferred shares, or the perception in the public markets that such sales may occur, may depress our share price.
The issuance of additional common and preferred shares or other equity securities or securities convertible into equity by us for financing or in connection with our incentive plans, acquisitions or otherwise may dilute the economic and voting rights of our existing shareholders or reduce the market price of our common and preferred shares or both. Sales or other issuances of substantial amounts of our common or preferred shares, or the perception that such sales could occur, could adversely affect the price of our common and preferred shares and could impair our ability to raise capital through the sale of additional shares.
We are incorporated in Bermuda and a significant portion of our assets are located outside the United States. As a result, it may not be possible for shareholders to enforce civil liability provisions of the federal or state securities laws of the United States against the Company. Additionally, Bermuda law differs from the laws of the United States and may afford less protections to shareholders.
We are incorporated under the laws of Bermuda and a significant portion of our assets are located outside the United States. It may not be possible to enforce court judgments obtained in the United States against us in Bermuda or in countries, other than the United States, where we will have assets, based on the civil liability provisions of the federal or state securities laws of the United States. In addition, there is some doubt as to whether the courts of Bermuda and other countries would recognize or enforce judgments of United States courts obtained against us or our officers or directors based on the civil liability provisions of the federal or state securities laws of the United States or would hear actions against us or those persons based on those laws. We have been advised by our legal advisors in Bermuda that the United States and Bermuda do not currently have a treaty providing for the reciprocal recognition and enforcement of judgments in civil and commercial matters. Therefore, a final judgment for the payment of money rendered by any federal or state court in the United States based on civil liability, whether or not based solely on United States federal or state securities laws, would not automatically be enforceable in Bermuda. Similarly, those judgments may not be enforceable in countries, other than the United States, where we have assets.
Additionally, our shareholders might have more difficulty protecting their interests than would shareholders of a corporation incorporated in a jurisdiction of the United States. As a Bermuda company, we are governed by the Bermuda Companies Act. The Bermuda Companies Act differs in some material respects from laws generally applicable to United States corporations and shareholders, including the provisions relating to interested directors, mergers, amalgamations and acquisitions, takeovers, shareholder lawsuits and indemnification of directors.
Certain provisions of our bye-laws and Bermuda law could hinder, delay or prevent a change in control that you might consider favorable, which could also adversely affect the price of our common shares.
Certain provisions of our bye-laws and Bermuda law could discourage, delay or prevent a transaction involving a change in control, even if doing so would benefit our shareholders. These provisions may include customary anti-takeover provisions. Anti-takeover provisions could substantially impede the ability of our public shareholders to benefit from a change in control or change of our management and Board of Directors and, as a result, may materially adversely affect the market price of our common shares and your ability to realize any potential change of control premium. These provisions could also discourage proxy contests and make it more difficult for you and other shareholders to elect directors of your choosing and to cause us to take other corporate actions you desire.

---

ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.

---

ITEM 2. PROPERTIES
ITEM 2. PROPERTIES
Office Locations. As of December 31, 2020, our employees are located in 19 offices in 13 countries.

---

ITEM 3. LEGAL PROCEEDINGS
ITEM 3. LEGAL PROCEEDINGS
From time to time we are a party to various legal proceedings, including claims, suits and government proceedings and investigations arising in connection with the normal course of our business. While we cannot predict the outcome of these matters, in the opinion of our management, any liability arising from these matters will not have a material adverse effect on our business. Nevertheless, unexpected adverse future events, such as an unforeseen development in our existing proceedings, a significant increase in the number of new cases or changes in our current insurance arrangements could result in liabilities that have a material adverse impact on our business.

---

ITEM 4. MINE SAFETY DISCLOSURE
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II

---

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common shares have been listed on the NYSE under the symbol "TRTN" since July 13, 2016. Prior to that time, there was no public market for our common shares.
On February 5, 2021, there were 46 holders of record of our common shares and 42,754 beneficial holders, based on information obtained from our transfer agent.
The following table provides certain information with respect to our purchases of the Company's common shares during the fourth quarter for the year ended December 31, 2020.
Issuer Purchases of Common Shares(1)
Period Total number of shares purchased Average price paid per share Approximate dollar value of shares that may yet be purchased under the plan (in thousands)
October 1, 2020 through October 31, 2020 1,306,729 $ 37.62 $ 104,055
November 1, 2020 through November 30, 2020 50,000 $ 39.30 $ 102,089
December 1, 2020 through December 31, 2020 - $ - $ 102,089
Total 1,356,729 $ 37.68 $ 102,089
(1) On April 21, 2020, the Company's Board of Directors increased the share repurchase authorization to $200.0 million. The revised authorization may be used by the Company to repurchase common or preferred shares.
Performance Graph
The graph below compares our cumulative shareholder returns with the S&P 500 Stock Index and the Russell 2000 Stock Index for the period from July 13, 2016 (the first day our common shares were traded) through December 31, 2020. The graph assumes that the value of the investment in our common shares, the S&P 500 Stock Index and the Russell 2000 Stock Index was $100 on July 13, 2016 and that all dividends were reinvested.
Comparison of Cumulative Total Return
July 13, 2016 through December 31, 2020
Base Period as of INDEXED RETURNS FOR THE YEARS ENDED
Company / Index July 13, 2016 December 31, 2016 December 31, 2017 December 31, 2018 December 31, 2019 December 31, 2020
Triton International Limited $100.00 $105.49 $264.66 $232.76 $320.75 $413.44
S&P 500 Index $100.00 $105.06 $127.99 $122.38 $160.91 $190.52
Russell 2000 Index $100.00 $113.77 $130.43 $116.07 $145.69 $174.77

---

ITEM 6. SELECTED FINANCIAL DATA
ITEM 6. SELECTED FINANCIAL DATA
The following table summarizes certain selected historical financial, operating and other data of Triton. The selected historical consolidated statements of operations data, balance sheet data and other financial data for each of the five years ended December 31, 2020 were derived from the Company's audited Consolidated Financial Statements and related notes. The data below should be read in conjunction with, and is qualified by reference to, our Management's Discussion and Analysis of Financial Condition and Results of Operation and our Consolidated Financial Statements and notes thereto contained elsewhere in this report. The historical results are not necessarily indicative of the results to be expected in any future period. The following financial data for Triton included herein for the periods prior to the date of the Merger on July 12, 2016 are for TCIL operations alone as TCIL was treated as the acquirer in the Merger for accounting purposes.
Year Ended December 31,
(In thousands, except per share data)
Statements of Operations Data: 2020 2019 2018 2017 2016
Leasing revenues:
Operating leases $ 1,276,697 $ 1,307,218 $ 1,328,756 $ 1,141,165 $ 813,357
Finance leases 31,210 40,051 21,547 22,352 15,337
Total leasing revenues 1,307,907 1,347,269 1,350,303 1,163,517 828,694
Equipment trading revenues(1)
85,780 83,993 83,039 37,419 16,418
Equipment trading expenses(1)
(70,981) (69,485) (64,118) (33,235) (15,800)
Trading margin 14,799 14,508 18,921 4,184 618
Net gain (loss) on sale of leasing equipment 37,773 27,041 35,377 35,812 (20,347)
Net gain (loss) on sale of building - - 20,953 - -
Operating expenses:
Depreciation and amortization 542,128 536,131 545,138 500,720 392,592
Direct operating expenses 93,690 79,074 48,326 62,891 84,256
Administrative expenses 80,532 75,867 80,033 87,609 65,618
Transaction and other costs(2)
- - 88 9,272 66,916
Provision (reversal) for doubtful accounts 2,768 590 (231) 3,347 23,304
Insurance recovery income - - - (6,764) -
Total operating expenses 719,118 691,662 673,354 657,075 632,686
Operating income 641,361 697,156 752,200 546,438 176,279
Other expenses (income):
Interest and debt expense 252,979 316,170 322,731 282,347 184,014
Realized (gain) loss on derivative instruments, net (224) (2,237) (2,072) 900 3,438
Unrealized (gain) loss on derivative instruments, net(3)
286 3,107 430 (1,397) (4,405)
Debt termination expense 24,734 2,543 6,090 6,973 141
Other (income) expense, net (4,433) (3,257) (2,292) (2,637) (1,076)
Total other expenses 273,342 316,326 324,887 286,186 182,112
Income (loss) before income taxes 368,019 380,830 427,313 260,252 (5,833)
Income tax expense (benefit) 38,240 27,551 70,641 (93,274) (48)
Net income (loss) $ 329,779 $ 353,279 $ 356,672 $ 353,526 $ (5,785)
Less: income attributable to noncontrolling interest - 592 7,117 8,928 7,732
Less: dividend on preferred shares 41,362 13,646 - - -
Net income (loss) attributable to shareholders $ 288,417 $ 339,041 $ 349,555 $ 344,598 $ (13,517)
Earnings Per Share Data:
Net income (loss) per common share-Basic $ 4.18 $ 4.57 $ 4.38 $ 4.55 $ (0.24)
Net income (loss) per common share-Diluted $ 4.16 $ 4.54 $ 4.35 $ 4.52 $ (0.24)
Weighted average common shares and non-voting common shares outstanding:
Basic 69,051 74,190 79,782 75,679 56,032
Diluted 69,345 74,700 80,364 76,188 56,032
Cash dividends paid per common share $ 2.13 $ 2.08 $ 2.01 $ 1.80 $ 1.35
(1) Triton acquired the Equipment trading segment as part of the Merger on July 12, 2016 and had no such reporting segment prior to that date.
(2) Includes retention and stock compensation expense pursuant to the Merger and the plans established as part of TCIL's 2011 re-capitalization.
(3) Unrealized (gains) losses on derivative instruments, net are primarily due to changes in interest rates, and reflect changes in the fair value of interest rate swaps not designated as cash flow hedges.
As of December 31,
(In thousands)
2020 2019 2018 2017 2016
Balance Sheet Data (end of period):
Cash and cash equivalents (including restricted cash) $ 151,996 $ 168,972 $ 159,539 $ 226,171 $ 163,492
Accounts receivable, net 226,090 210,697 264,382 199,876 173,585
Revenue earning assets, net 8,980,138 8,920,393 9,467,969 8,703,570 7,817,192
Total assets 9,712,533 9,642,633 10,270,013 9,577,625 8,713,571
Debt, net of unamortized debt costs 6,403,270 6,631,525 7,529,432 6,911,725 6,353,449
Shareholders' equity 2,565,948 2,532,237 2,203,696 2,076,284 1,663,233
Noncontrolling interests(1)
- - 121,513 133,542 143,504
Total equity (including noncontrolling interests) 2,565,948 2,532,237 2,325,209 2,209,826 1,806,737
Other Financial Data:
Capital expenditures 744,129 240,170 1,603,507 1,562,863 629,332
Proceeds from sale of equipment, net of selling costs 255,104 217,296 163,256 190,744 145,572
(1) The Company acquired all of the remaining third-party partnership interests in Triton Container Investments LLC during 2019.

---

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
ITEM 7. 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 elsewhere in this Form 10-K. 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 of December 31, 2020, our total fleet consisted of 3.7 million containers and chassis, representing 6.2 million TEU or 7.0 million CEU. Our primary customers include the world's largest container shipping lines. For the year ended December 31, 2020, our twenty largest customers accounted for 84% of our lease billings, our five largest customers accounted for 58% of our lease billings, and our two largest customers accounted for 22% and 14% of our lease billings.
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.
The following tables summarize our equipment fleet as of December 31, 2020, 2019 and 2018, indicated in units, TEU and CEU. CEU and TEU are standard industry measures of fleet size and are used to measure the quantity of containers that make up our revenue earning assets:
Equipment Fleet in Units Equipment Fleet in TEU
December 31, 2020 December 31, 2019 December 31, 2018 December 31, 2020 December 31, 2019 December 31, 2018
Dry 3,295,908 3,267,624 3,340,946 5,466,421 5,369,377 5,476,406
Refrigerated 227,519 225,520 228,778 439,956 435,148 440,781
Special 93,885 94,453 93,900 170,792 171,437 169,614
Tank 11,312 12,485 12,509 11,312 12,485 12,509
Chassis 24,781 24,515 24,832 45,188 45,154 45,787
Equipment leasing fleet 3,653,405 3,624,597 3,700,965 6,133,669 6,033,601 6,145,097
Equipment trading fleet 64,243 17,906 13,138 98,991 27,121 21,361
Total 3,717,648 3,642,503 3,714,103 6,232,660 6,060,722 6,166,458
Equipment Fleet in CEU(1)
December 31, 2020 December 31, 2019 December 31, 2018
Operating Leases 6,649,350 6,434,434 6,532,172
Finance Leases 295,784 423,638 442,585
Equipment trading fleet 98,420 37,232 39,008
Total 7,043,554 6,895,304 7,013,765
(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 December 31, 2020:
Equipment Type Percentage of
total fleet
in units Percentage of total fleet in CEU
Dry 88.7 % 68.2 %
Refrigerated 6.1 23.9
Special 2.5 3.4
Tank 0.3 1.3
Chassis 0.7 1.8
Equipment leasing fleet 98.3 98.6
Equipment trading fleet 1.7 1.4
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 or more 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. Some of our containers, primarily used containers, are placed on lifecycle leases which keep the containers on-hire until the end of their useful life.
•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.
The following table summarizes our lease portfolio by lease type, based on CEU on-hire as of December 31, 2020, 2019 and 2018:
Lease Portfolio December 31,
2020 December 31,
2019 December 31,
Long-term leases 73.8 % 69.5 % 66.7 %
Finance leases 4.4 6.8 6.7
Service leases 7.2 7.8 11.8
Expired long-term leases (units on-hire) 14.6 15.9 14.8
Total 100.0 % 100.0 % 100.0 %
As of December 31, 2020, 2019 and 2018, our long-term and finance leases combined had an average remaining contractual term of approximately 49 months, 48 months, and 47 months, respectively, assuming no leases are renewed.
COVID-19
The COVID-19 pandemic had a meaningful impact on global trade and our business in 2020. The pandemic and the initial economic shutdowns together with the lingering impact of the United States and China trade disputes resulted in a significant decrease in trade volumes in the first half of the year. This drove weak container demand and decreasing utilization and profitability in the first two quarters of 2020. However, global containerized trade volumes rebounded sharply in the third quarter as lockdowns eased in the United States and Europe, and trade volumes benefited further from a shift in consumer spending from experiences and services to goods. The magnitude of the increase in containerized trade volumes in the second half of the year together with limited new container production in 2019 and the first half of 2020 led to a worldwide shortage of containers. This shortage of containers drove a significant increase in our procurement of new containers, near full utilization of our existing containers by year-end, and a rapid increase in container disposal volumes and prices, all contributing to a sharp increase in our profitability in the second half of 2020 compared to the first half.
Our shipping line customers generally expect trade volumes to remain solid at least through the first quarter of 2021. However, many countries are experiencing very high numbers of COVID-19 cases and many countries are re-instituting restrictions on social and business activity. Overall, there continues to be a high degree of uncertainty in the outlook for global trade and container demand.
Operating Performance
Our operating and financial performance was solid for the year ended 2020, however as noted above, there was a distinct difference in our performance between the first and second halves of the year.
Fleet size. As of December 31, 2020, the net book value of our fleet was $9.0 billion, a slight increase compared to December 31, 2019, but an increase of 2.5% compared to June 30, 2020. Procurement of new containers was limited in the first half of 2020 as a result of a decrease in global trade volumes and weak container demand due to the lingering trade dispute between the United States and China and disruptions related to the global outbreak of COVID-19. However, we accelerated purchases of new containers during the second half of 2020 in response to a surge in global containerized trade volumes and lease demand. During 2020, we purchased $861.8 million of new and sale-leaseback containers for delivery in 2020 and as of February 9, 2021, we have ordered approximately $1.7 billion for delivery in 2021. The vast majority of the containers ordered for 2021 delivery are already committed to leases.
Utilization. Our ending utilization was 98.9% as of December 31, 2020, an increase of 3.5% compared to December 31, 2019, and an increase of 4.1% from June 30, 2020. Our utilization was under pressure during the first half of 2020 due to decreasing trade volumes and weak container demand caused by the severe economic and social lockdowns imposed at the start of the COVID-19 pandemic. However, the high percentage of our containers on long-term lease provided protection from the weak market conditions, and our utilization decreased gradually. Our utilization increased rapidly during the second half of 2020 due to a surge in global trade volumes and leasing demand following the easing of the lockdowns. Trade volumes and leasing demand were further supported by a shift in consumer spending from services and experiences to goods.
Average utilization was 96.2% during 2020, a slight decrease of 0.7% compared to 2019, reflecting the gradual decrease in utilization throughout 2019 and the first half of 2020, largely offset by the spike in utilization in the second half of 2020. As of February 9, 2021, our utilization was 99.1%.
The following tables summarize our equipment fleet utilization for the periods indicated below. 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:
Year Ended December 31, Quarter Ended
Average Utilization December 31, September 30, June 30, March 31,
2020 96.2 % 98.1 % 96.1 % 95.0 % 95.4 %
2019 96.9 % 95.8 % 96.7 % 97.2 % 97.7 %
2018 98.6 % 98.3 % 98.8 % 98.8 % 98.8 %
Quarter Ended
Ending Utilization December 31, September 30, June 30, March 31,
2020 98.9% 97.4% 94.8% 95.3%
2019 95.4% 96.4% 97.1% 97.4%
2018 97.9% 98.7% 98.8% 98.8%
Average lease rates. Average lease rates for our dry container product line decreased by 3.1% in 2020 compared to 2019, primarily reflecting the impact of several large lease extensions completed during 2019 and the first half of 2020 at rates below our portfolio average. Our average lease rates were also impacted by the large number of containers placed on lifecycle leases in the third quarter of 2020 during the initial surge in leasing demand. Lifecycle leases typically have lower lease rates due to extended on-hire periods and market lease rates in the third quarter of 2020 had not yet benefited from the large increase in new container prices. New container prices increased significantly in the fourth quarter of 2020 and the first quarter of 2021, and current price quotes for 20’ dry containers are in the range of $3,500. Market lease rates for new dry containers are currently significantly above the average dry container lease rates in our portfolio and we expect our average dry container lease rates will start to increase if container prices and market lease rates remain at their current levels.
Average lease rates for our refrigerated container product line decreased by 4.0% in 2020 compared to 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 continue to experience larger differences in lease rates for older refrigerated containers compared to rates on new equipment and we expect our average rates for refrigerated containers will continue to gradually trend down. The average lease rates for our special container product line remained flat in 2020 compared to 2019.
Equipment disposals. Disposal volumes of our used dry containers increased by 17.6% in 2020 compared to 2019. The sharp increase in trade volumes in the second half of the year led to increased demand for sale containers, especially for one-way shipments. Selling prices for used dry containers increased by 1.6% in 2020 as compared to 2019, as a 10.1% increase in the second half of 2020 offset the gradual decrease in prices from 2019 through the first half of 2020. Sale prices in the second half of 2020 were supported by increased demand, decreased availability of sale containers due to the general shortage of containers and the large increase in new container prices during the fourth quarter.
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, dividends, and share repurchases.
For the year ended December 31, 2020, cash provided by operating activities, together with the proceeds from the sale of our leasing equipment, was $1,198.9 million. In addition, as of December 31, 2020 we had $61.5 million of cash and cash equivalents and $1,660.5 million of maximum borrowing capacity remaining under our current credit facilities.
As of December 31, 2020, our cash commitments in the next twelve months include $661.4 million of scheduled principal payments on our existing debt facilities, and $1,256.6 million of committed but unpaid capital expenditures, primarily for the purchase of equipment.
We believe that cash provided by operating activities, existing cash, proceeds from the sale of our leasing equipment, and availability under our credit facilities will be sufficient to meet our obligations over the next twelve months.
Asset-backed Securitization ("ABS") Note Issuances
During the year ended December 31, 2020, the Company issued $2,313.1 million in ABS notes at a weighted average interest rate of 2.2%. The majority of the proceeds from these issuances were used to call and prepay $1,783.1 million of higher cost notes.
Share Repurchase Program
During the year ended December 31, 2020, the Company repurchased a total of 5.1 million common shares at an average price per share of $30.85 and a total cost of $158.3 million under its share repurchase program. Since the inception of the program in August 2018, the Company has purchased over 13.9 million shares, or 17.2% of our common shares as of that date.
Preferred Share Offering
In January 2020, the Company completed a public offering of 6.875% Series D cumulative redeemable perpetual preference shares, selling 6,000,000 shares and generating $150.0 million of gross proceeds. The costs associated with the offering, inclusive of underwriting discount and other offering expenses, were $5.1 million.
Dividends
During the year ended December 31, 2020 and 2019, the Company paid $40.9 million and $12.3 million, respectively, of dividends related to preferred shares. Additionally, the Company paid dividends on outstanding common shares totaling $146.5 million and $153.9 million for the years ended December 31, 2020 and 2019, respectively.
For additional information on the Share Repurchase Program, Preferred Share Offering, and Dividends, please refer to Note 10 - "Other Equity Matters" in Part IV, Item 15 of this Annual Report on Form 10-K.
Debt Agreements
As of December 31, 2020, our outstanding indebtedness was comprised of the following (amounts in millions):
December 31, 2020 Maximum Borrowing Level
Institutional notes $ 1,642.3 $ 1,642.3
Asset-backed securitization term notes 2,920.8 2,920.8
Term loan facility 840.0 840.0
Asset-backed securitization warehouse 264.0 1,125.0
Revolving credit facilities 760.5 1,560.0
Finance lease obligations 17.3 17.3
Total debt outstanding $ 6,444.9 $ 8,105.4
Unamortized debt costs (42.7) -
Unamortized debt premiums & discounts (0.6) -
Unamortized fair value debt adjustment 1.7 -
Debt, net of unamortized costs $ 6,403.3 $ 8,105.4
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 of December 31, 2020, the availability under these credit facilities without adding additional container assets to the borrowing base was $711.6 million.
As of December 31, 2020, we had a combined $5,629.2 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 87% of total debt.
Pursuant to the terms of certain debt agreements, we are required to maintain certain amounts in restricted cash accounts. As of December 31, 2020, we had restricted cash of $90.5 million.
For additional information on our debt, please see Note 6 - "Debt" in Part IV, Item 15 of this Annual Report on Form 10-K.
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 of December 31, 2020, we were in compliance with all such covenants. The table below reflects the key debt covenants for the Company that cover the majority of our debt agreements:
TCIL TAL
Financial Covenant Covenant Actual Covenant Actual
Fixed charge coverage ratio Shall not be less than 1.25:1 2.73:1 Shall not be less than 1.10:1 2.08:1
Minimum net worth Shall not be less than $855 million $2,139.3 million Shall not be less than $500 million $947.5 million
Leverage ratio Shall not exceed 4.0:1 1.90:1 Shall not exceed 4.75:1 1.76:1
Cash Flow
The following table sets forth certain cash flow information for the years ended December 31, 2020 and 2019 (in thousands):
Year Ended December 31,
2020 2019
Net cash provided by (used in) operating activities $ 943,752 $ 1,061,906
Net cash provided by (used in) investing activities $ (489,017) $ (23,720)
Net cash provided by (used in) financing activities $ (471,711) $ (1,028,753)
Operating Activities
Net cash provided by operating activities decreased by $118.2 million to $943.8 million in 2020, compared to $1,061.9 million in 2019. The change was primarily due to the timing of collections and payments on the company’s accounts receivable and accounts payable and decreased profitability.
Investing Activities
Net cash used in investing activities increased by $465.3 million to $489.0 million in 2020 compared to $23.7 million in 2019. The change was primarily due to a $504.0 million increase in leasing equipment purchases, partially offset by a $37.8 million increase in proceeds from container disposals.
Financing Activities
Net cash used in financing activities decreased by $557.1 million to $471.7 million in 2020 compared to $1,028.8 million in 2019. The decrease was primarily due to a $670.1 million decrease in net debt repayments as a result of an increase in leasing equipment purchases. This was partially offset by a $247.0 million decrease in proceeds received from the issuance of preferred shares. Additionally, we paid $103.0 million in 2019 for the purchase of noncontrolling interests that did not reoccur in 2020 and there was a $63.9 million decrease in share repurchases.
Results of Operations
The following table summarizes our results of operations for the years ended December 31, 2020 and 2019 (in thousands):
Year Ended December 31,
2020 2019 Variance
Leasing revenues:
Operating leases $ 1,276,697 $ 1,307,218 $ (30,521)
Finance leases 31,210 40,051 (8,841)
Total leasing revenues 1,307,907 1,347,269 (39,362)
Equipment trading revenues 85,780 83,993 1,787
Equipment trading expenses (70,981) (69,485) (1,496)
Trading margin 14,799 14,508 291
Net gain (loss) on sale of leasing equipment 37,773 27,041 10,732
Operating expenses:
Depreciation and amortization 542,128 536,131 5,997
Direct operating expenses 93,690 79,074 14,616
Administrative expenses 80,532 75,867 4,665
Provision (reversal) for doubtful accounts 2,768 590 2,178
Total operating expenses 719,118 691,662 27,456
Operating income (loss) 641,361 697,156 (55,795)
Other expenses:
Interest and debt expense 252,979 316,170 (63,191)
Realized (gain) loss on derivative instruments, net (224) (2,237) 2,013
Unrealized (gain) loss on derivative instruments, net 286 3,107 (2,821)
Debt termination expense 24,734 2,543 22,191
Other (income) expense, net (4,433) (3,257) (1,176)
Total other expenses 273,342 316,326 (42,984)
Income (loss) before income taxes 368,019 380,830 (12,811)
Income tax expense (benefit) 38,240 27,551 10,689
Net income (loss) $ 329,779 $ 353,279 $ (23,500)
Less: income (loss) attributable to noncontrolling interest - 592 (592)
Less: dividend on preferred shares 41,362 13,646 27,716
Net income (loss) attributable to common shareholders $ 288,417 $ 339,041 $ (50,624)
For the discussion on the Results of Operations for the Year Ended December 31, 2019 compared to the Year Ended December 31, 2018, see the Results of Operations section in Part II, Item 7 of our 2019 Annual Report on Form 10-K, filed with the SEC on February 14, 2020.
Comparison of the Year Ended December 31, 2020 to the Year Ended December 31, 2019
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):
Year Ended December 31,
Leasing revenues 2020 2019 Variance
Operating leases:
Per diem revenues $ 1,217,423 $ 1,244,297 $ (26,874)
Fee and ancillary revenues 59,274 62,921 (3,647)
Total operating lease revenues 1,276,697 1,307,218 (30,521)
Finance leases 31,210 40,051 (8,841)
Total leasing revenues $ 1,307,907 $ 1,347,269 $ (39,362)
Total leasing revenues were $1,307.9 million, net of lease intangible amortization of $22.5 million, in 2020 compared to $1,347.3 million, net of lease intangible amortization of $36.8 million, in 2019, a decrease of $39.4 million.
Per diem revenues were $1,217.4 million in 2020 compared to $1,244.3 million in 2019, a decrease of $26.9 million. The primary reasons for this decrease are as follows:
•$36.3 million decrease due to a decrease in average per diem rates reflecting the impact of several large lease extension transactions and the pick-up of a large number of containers in the second half of 2020 on lifecycle leases at rates below our portfolio average as well as the continued reduction of rates for refrigerated containers; and
•$17.1 million decrease due to a decrease in average units on-hire. The number of containers on-hire decreased throughout 2019 and the first half of 2020, leading to a decrease in average on-hires for 2020 despite the sharp increase during the second half of the year; partially offset by
•$14.3 million increase due to a decrease in lease intangible amortization; and
•$12.5 million increase due to the reclassification of certain contracts 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 $59.3 million in 2020 compared to $62.9 million in 2019, a decrease of $3.6 million. The decrease was primarily related to lower drop-off activity. This decrease was partially offset by an increase in ancillary lease revenues due to an increase in pick-up activity in the second half of 2020.
Finance lease revenues were $31.2 million in 2020 compared to $40.1 million in 2019, a decrease of $8.9 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 $14.8 million in 2020 compared to $14.5 million in 2019, an increase of $0.3 million. The increase was primarily due to an increase in trading volume, partially offset by a decrease in per unit margins.
Net gain (loss) on sale of leasing equipment. Gain on sale of equipment was $37.8 million in 2020 compared to $27.0 million in 2019, an increase of $10.8 million. The increase was primarily due to a 17.6% increase in sales volume of used dry containers. In addition, selling prices for used containers increased by 1.6% in 2020 as compared to 2019, as a 10.1% increase in the second half of 2020 offset the gradual decrease in prices from 2019 through the first half of 2020.
Depreciation and amortization. Depreciation and amortization was $542.1 million in 2020 compared to $536.1 million in 2019, an increase of $6.0 million. The primary reasons for the increase are as follows:
•$19.6 million increase due to an increase in the number of new production units being placed on-hire; and
•$7.1 million increase due to the reclassification of certain contracts 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; partially offset by
•$21.0 million decrease due to an increase in the number of containers that have become fully depreciated or reclassified to assets held for sale.
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 reposition equipment from locations with weak leasing demand. Direct operating expenses were $93.7 million in 2020 compared to $79.1 million in 2019, an increase of $14.6 million. The primary reasons for the increase are as follows:
•$8.8 million increase in storage expense due to an increase in idle units throughout 2019 and the first half of 2020, partially offset by a decrease in off-hire and sale inventory in the second half of 2020;
•$2.8 million increase in positioning expense due to customer pick-up requirements from specific locations; and
•$2.4 million increase in repair and handling expense due to higher net pick-up and drop-off activity.
Administrative expenses. Administrative expenses were $80.5 million in 2020 compared to $75.9 million in 2019, an increase of $4.6 million. The primary reasons for the increase are as follows:
•$6.9 million increase due to an increase in compensation costs, largely related to an increase in our annual incentive expense; and
•$2.1 million increase due to an increase in professional fees; partially offset by
•$3.0 million decrease in travel expense due to travel restrictions caused by the COVID-19 pandemic.
Provision (reversal) for doubtful accounts. Provision for doubtful accounts was $2.8 million for the year ended December 31, 2020 compared to $0.6 million in 2019, an increase of $2.2 million. The increase is primarily due to a reserve recorded against the receivables from one of our mid-sized customers where we had been experiencing extended payment delays.
Interest and debt expense. Interest and debt expense was $253.0 million for the year ended December 31, 2020, compared to $316.2 million in the same period in 2019, a decrease of $63.2 million. The primary reasons for this decrease are as follows:
•$33.3 million decrease due to a decrease in the average effective interest rate to 3.81% from 4.31%; and
•$30.8 million decrease due to a decrease in the average debt balance of $702.7 million.
Debt termination expense. Debt termination expense was $24.7 million in 2020 compared to $2.5 million in 2019, an increase of $22.2 million. The increase was primarily due to write-offs for unamortized debt and other costs related to the $1.8 billion prepayment of ABS notes in September 2020.
Income taxes. Income tax expense was $38.2 million in 2020 compared to $27.6 million in 2019, an increase of $10.6 million. The increase in income tax expense was primarily due to an $8.6 million increase related to an intra-company asset sale from a U.S. entity to foreign entity that occurred during 2020.
Segments
Our leasing segment is discussed in our results of operations comparisons and the trading segment is discussed in the trading margin comparison within the results of operations comparisons.
For additional information on our segments, please see Note 11 - "Segment and Geographic Information" in Part IV, Item 15 of this Annual Report on Form 10-K.
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 commitments and obligations as of December 31, 2020 and the effect such obligations are expected to have on our liquidity and cash flows in future periods:
Contractual Obligations by Period
Contractual Obligations: Total 2021 2022 2023 2024 2025 2026 and thereafter
(dollars in millions)
Principal debt obligations $ 6,427.6 $ 659.1 $ 716.2 $ 1,535.5 $ 1,384.4 $ 395.1 $ 1,737.3
Interest on debt obligations(1)
809.3 195.1 170.9 143.1 96.5 69.6 134.1
Finance lease obligations(2)
19.1 3.1 3.1 3.1 9.8 - -
Operating leases (mainly facilities) 7.2 3.1 2.4 1.6 0.1 - -
Purchase obligations:
Equipment purchases payable 191.8 191.8 - - - - -
Equipment purchase commitments 1,064.8 1,064.8 - - - - -
Total contractual obligations $ 8,519.8 $ 2,117.0 $ 892.6 $ 1,683.3 $ 1,490.8 $ 464.7 $ 1,871.4
(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 December 31, 2020 rates.
(2) Amounts include interest.
Off-Balance Sheet Arrangements
As of December 31, 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.
Leasing Equipment
We purchase new equipment from equipment manufacturers for the purpose of leasing such equipment to customers. We also purchase used equipment with the intention of selling such equipment in one or more years from the date of purchase.
Leasing equipment is recorded at cost and depreciated to an estimated residual value on a straight-line basis over the estimated useful lives. Capitalized costs for new container rental equipment include the manufactured cost of the container, inspection, delivery, and associated costs incurred in moving the container from the manufacturer to the initial on-hire location of such container. Repair and maintenance costs that do not extend the lives of the container rental equipment are charged to direct operating expenses at the time the costs are incurred.
The estimated useful lives and residual values of our leasing equipment are based on historical disposal experience and our expectations for future used container sale prices. We review the estimates used in our depreciation policies on a regular basis to determine whether changes have taken place that would suggest that a change in our depreciation estimates of useful lives of our equipment or the assigned residual values is warranted. For 2020, the Company completed its annual depreciation policy review during the fourth quarter and concluded no change was necessary.
The estimated useful lives and residual values for each major equipment type for the periods are indicated below as follows:
As of December 31, 2020 and 2019
Equipment Type
Depreciable Life Residual Value
Dry containers
20-foot dry container 13 years $ 1,000
40-foot dry container 13 years $ 1,200
40-foot high cube dry container 13 years $ 1,400
Refrigerated containers
20-foot refrigerated container 12 years $ 2,350
40-foot high cube refrigerated container 12 years $ 3,350
Special containers
40-foot flat rack container 16 years $ 1,700
40-foot open top container 16 years $ 2,300
Tank containers 20 years $ 3,000
Chassis 20 years $ 1,200
Depreciation on leasing equipment commences on the date of initial on-hire.
For leasing equipment purchased for resale that may be leased for a period of time, we adjust our estimates for remaining useful life and residual values based on current conditions in the sales market for older containers and our expectations for how long the equipment will remain on-hire to the current lessee.
The net book value of our leasing equipment by equipment type is as follows (in thousands):
December 31, 2020 December 31, 2019
Dry container $ 6,589,960 $ 6,308,038
Refrigerated container 1,483,820 1,520,747
Special container 307,765 321,099
Tank container 97,982 101,677
Chassis 151,169 140,986
Total $ 8,630,696 $ 8,392,547
Included in the amounts above are units not on lease at December 31, 2020 and 2019 with a total net book value of $173.2 million and $721.7 million, respectively. Depreciation on equipment purchased under finance lease obligations is included in depreciation and amortization expense on the consolidated statements of operations.
Valuation of Leasing Equipment
Leasing equipment is reviewed for impairment whenever events or changes in circumstances indicate that its carrying value may not be recoverable. Recoverability of an asset to be held and used is measured by a comparison of the carrying value to its estimated undiscounted future cash flows expected to be generated by the asset. If the carrying value of an asset exceeds our estimated undiscounted future cash flows, an impairment charge is recognized in the amount by which the carrying value of the asset exceeds the fair value of the asset. Key indicators of impairment on leasing equipment include, among other factors, a sustained decrease in operating profitability, a sustained decrease in utilization, or indications of technological obsolescence.
When testing for impairment, leasing equipment is generally grouped by equipment type, and is tested separately from other groups of assets and liabilities. Some of the significant estimates and assumptions used to determine future undiscounted cash flows and the measurement for impairment are the remaining useful life, expected utilization, expected future lease rates and expected disposal prices of the equipment. We consider the assumptions on expected utilization and the remaining useful life to have the greatest impact on its estimate of future undiscounted cash flows. These estimates are principally based on our historical experience and management's judgment of market conditions.
We did not record any impairment charges related to leasing equipment for the years ended December 31, 2020 and 2019.
Equipment Held for Sale
When leasing equipment is returned off lease, we make a determination of whether to repair and re-lease the equipment or sell the equipment. At the time we determine that equipment will be sold, we reclassify the appropriate amounts previously recorded as leasing equipment to equipment held for sale. Equipment held for sale is carried at the lower of its estimated fair value, based on current transactions, less costs to sell, or carrying value. Depreciation expense on equipment held for sale is halted and disposals generally occur within 90 days. Initial write downs of equipment held for sale are recorded as an impairment charge and are included in net gain or loss on sale of leasing equipment. Subsequent increases or decreases to the fair value of those assets are recorded as adjustments to the carrying value of the equipment held for sale, however, any such adjustments may not exceed the respective equipment's carrying value at the time it was initially classified as held for sale. Realized gains and losses resulting from the sale of equipment held for sale are recorded as net gain or loss on sale of leasing equipment, and cash flows associated with the disposal of equipment held for sale are classified as cash flows from investing activities.
Equipment purchased for resale and included in the Equipment Trading segment is reported as equipment held for sale when the time frame between when equipment is purchased and when it is sold is expected to be less than one year.
During the years ended December 31, 2020 and 2019, we recorded the following net gains or losses on equipment held for sale on the consolidated statements of operations (in thousands):
Year Ended December 31,
2020 2019
Impairment (loss) reversal on equipment held for sale $ (3,532) $ (5,299)
Gain (loss) on sale of equipment, net of selling costs 41,305 32,340
Net gain on sale of leasing equipment $ 37,773 $ 27,041
Goodwill
Goodwill is tested for impairment at least annually on October 31 of each fiscal year or more frequently if events occur or circumstances exist that indicate that the fair value of a reporting unit may be below its carrying value. Goodwill has been allocated to our reporting units which are also our operating segments.
In evaluating goodwill for impairment, we have the option to first assess qualitative factors to determine whether further impairment testing is necessary. Among other relevant events and circumstances that affect the fair value of reporting units, we consider individual factors such as macroeconomic conditions, changes in our industry and the markets in which we operate, as well as our reporting units' historical and expected future financial performance. If, after assessing the totality of events or circumstances, we determine it is more-likely-than-not that the fair value of a reporting unit is greater than our carrying amount, then the quantitative goodwill impairment test is unnecessary. The quantitative goodwill impairment test compares the fair value of a reporting unit with our carrying amount, including goodwill. If the carrying amount of the reporting unit is less than its fair value, no impairment exists. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit.
We elected to perform the qualitative assessment for our evaluation of goodwill impairment during the year ended December 31, 2020 and concluded there was no impairment. Since inception through December 31, 2020, we did not have any goodwill impairment.
For additional information on our accounting policies, please see Note 2 - "Summary of Significant Accounting Policies" in Part IV, Item 15 of this Annual Report on Form 10-K.
Recent Accounting Pronouncements
See Note 2 - "Summary of Significant Accounting Policies" in Part IV, Item 15 of this Annual Report on Form 10-K for a full description of recent accounting pronouncements.

---

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss to future earnings, values or cash flows that may result from changes in the price of a financial instrument. The fair value of a financial instrument, derivative or non-derivative, might change as a result of changes in interest rates, exchange rates, commodity prices, equity prices and other market changes. We have operations internationally and we are exposed to market risks in the ordinary course of our business. These risks include interest rate and foreign currency exchange rate risks.
Interest Rate Risk
We enter into derivative agreements to fix the interest rates on a portion of our floating-rate debt. We assess and manage the external and internal risk associated with these derivative instruments in accordance with our overall operating goals. External risk is defined as those risks outside of our direct control, including counterparty credit risk, liquidity risk, systemic risk and legal risk. Internal risk relates to those operational risks within the management oversight structure and includes actions taken in contravention of our policies.
The primary external risk of our derivative agreements is counterparty credit exposure, which is defined as the ability of a counterparty to perform its financial obligations under the agreement. All of our derivative agreements are with highly-rated financial institutions. Credit exposures are measured based on the market value of outstanding derivative instruments. Both current and potential exposures are calculated for each derivative agreement to monitor counterparty credit exposure.
As of December 31, 2020, we had derivative agreements in place to fix interest rates on a portion of our borrowings under debt facilities with floating interest rates as summarized below:
Derivatives Notional Amount Weighted Average
Fixed Leg (Pay) Interest Rate Cap Rate Weighted Average
Remaining Term
Interest Rate Swap(1)
$1,710.0 million 2.01% n/a 5.0 years
Interest Rate Cap $200.0 million n/a 5.5% 2.9 years
(1) The impact of forward starting swaps with total notional amount of $950.0 million will increase the weighted average remaining term to 6.0 years.
Our derivative agreements are designated as cash flow hedges for accounting purposes. Any unrealized gains or losses related to the changes in fair value are recognized in accumulated other comprehensive income and reclassified to interest and debt expense as they are realized. As of December 31, 2020, we do not have any material non-designated derivatives. Previously, a portion of our swap portfolio was not designated and changes in the fair value of non-designated derivative agreements were recognized in the consolidated statements of operations as unrealized (gain) loss on derivative instruments, net and reclassified to realized (gain) loss on derivative instruments, net as they were realized.
Approximately 87% of our debt is either fixed or hedged using derivative instruments which helps mitigate the impact of changes in short-term interest rates. However, a 100 basis point increase in the interest rates on our unhedged debt (primarily LIBOR) would result in an increase of approximately $8.0 million in interest expense over the next 12 months.
Foreign currency exchange rate risk
Although we have significant foreign-based operations, the majority of our revenues and our operating expenses are denominated in U.S. dollars. However, we pay our non-U.S. employees in local currencies and certain operating expenses are denominated in foreign currencies. Net foreign currency exchange gains and losses were immaterial for the years ended December 31, 2020 and, 2019.

---

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and financial statement schedules listed under Item 15 - Exhibits and Financial Statement Schedules are filed as a part of this Item 8. Supplementary financial information may be found in Note 15 to the Consolidated Financial Statements.

---

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.

---

ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9A. CONTROLS AND PROCEDURES
Management's Report Regarding the Effectiveness of Disclosure Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Senior Vice President and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Annual Report on Form 10-K. Based upon management's evaluation of these disclosure controls and procedures, our Chief Executive Officer and our Senior Vice President and Chief Financial Officer concluded, as of the end of the period covered by this Annual Report on Form 10-K, that our disclosure controls and procedures were effective.
Management's Report on Internal Control Over Financial Reporting
We are responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
We assessed our internal control over financial reporting as of December 31, 2020 and based our assessment on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our assessment, we have concluded that our internal control over financial reporting was effective as of December 31, 2020.
KPMG LLP, an independent registered public accounting firm, has audited the consolidated financial statements included in this Annual Report on Form 10-K and, as part of the audit, has issued a report on the effectiveness of our internal control over financial reporting as of December 31, 2020.
Changes in Internal Controls
There were no changes in our internal control over financial reporting identified in management's evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the three months ended December 31, 2020 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Triton International Limited:
Opinion on Internal Control Over Financial Reporting
We have audited Triton International Limited and subsidiaries' (the Company) internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income, shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes and financial statement Schedule I - Condensed Financial Information of Registrant and Schedule II - Valuation and Qualifying Accounts (collectively, the consolidated financial statements), and our report dated February 16, 2021 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KPMG LLP
New York, New York
February 16, 2021

---

ITEM 9B. OTHER INFORMATION
ITEM 9B. OTHER INFORMATION
Not applicable.
PART III

---

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this Item regarding our Code of Ethics, Code of Ethics for Senior Company Officers, Audit Committee and Audit Committee Financial Experts, compliance with Section 16(a) of the Exchange Act, and corporate governance is contained in the sections captioned “Code of Ethics”, "Board Committees", "Proposal 1: Election of Directors", "Delinquent Section 16(a) Reports" and possibly elsewhere in our proxy statement to be issued in connection with the Annual General Meeting of Shareholders to be held on April 27, 2021, which will be filed with the SEC within 120 days after the end of our fiscal year ended December 31, 2020 (the "2021 Proxy Statement") and that information is incorporated herein by reference.
Information regarding our executive officers is included after Item 1 in Part I of this Form 10-K and is incorporated herein by reference.

---

ITEM 11. EXECUTIVE COMPENSATION
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference from the sections captioned "Director Compensation Table", "Compensation Discussion and Analysis", "Executive Compensation Tables", "Risk Consideration in our Compensation Programs", "Compensation and Talent Management Committee Interlocks and Insider Participation", "Report of the Compensation and Talent Management Committee" and possibly elsewhere in the 2021 Proxy Statement.

---

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS
The information required by this Item is incorporated herein by reference from the sections captioned "Equity Compensation Plan Information", "Information Regarding Beneficial Ownership of Management and Principal Shareholders" and possibly elsewhere in the 2021 Proxy Statement.

---

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this Item is incorporated herein by reference from the sections captioned "Certain Relationships and Related Party Transactions", "Board Independence" and possibly elsewhere in the 2021 Proxy Statement.

---

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item is incorporated herein by reference from the section captioned "Audit Fees" in the 2021 Proxy Statement.
PART IV

---

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1) Financial Statements
The following financial statements are included in Item 8 of this report:
Page
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2020 and December 31, 2019
Consolidated Statements of Operations for the years ended December 31, 2020, 2019 and 2018
Consolidated Statements of Comprehensive Income for the years ended December 31, 2020, 2019 and 2018
Consolidated Statements of Shareholders' Equity for the years ended December 31, 2020, 2019 and 2018
Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018
Notes to Consolidated Financial Statements
(a)(2) Financial Statement Schedules
The following financial statement schedules for the Company are filed as part of this report:
Schedule I - Condensed Financial Information of Registrant
S-1
Schedule II - Valuation and Qualifying Accounts
S-4
Schedules not listed above have been omitted because the information required to be set forth therein is not applicable or is shown in the accompanying Consolidated Financial Statements or notes thereto.
(a)(3) List of Exhibits
The following exhibits are filed as part of and incorporated by reference into this Annual Report on Form 10-K:
Exhibit No. Description
3.1
Amended and Restated By-Laws of Triton International Limited, dated July 12, 2016 (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K, filed July 14, 2016)
4.1
Memorandum of Association of Triton International Limited, dated September 29, 2015 (incorporated by reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q, filed June 23, 2016)
4.2
Certificate of Designations of 8.50% Series A Cumulative Redeemable Perpetual Preference Shares (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed March 14, 2019)
4.3
Certificate of Designations of 8.00% Series B Cumulative Redeemable Perpetual Preference Shares (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed June 20, 2019)
4.4
Certificate of Designations of 7.375% Series C Cumulative Redeemable Perpetual Preference Shares (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed November 6, 2019)
4.5
Certificate of Designations of 6.875% Series D Cumulative Redeemable Perpetual Preference Shares (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed January 21, 2020)
4.6
Indenture, dated September 21, 2020, between Triton Container Finance VIII LLC and Wilmington Trust, National Association, as indenture trustee (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed September 21, 2020)
Exhibit No. Description
4.7
Series 2020-1 Supplement, dated September 21, 2020, between Triton Container Finance VIII LLC and Wilmington Trust, National Association, as indenture trustee (incorporated by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K filed September 21, 2020)
4.8
Description of the Registrant's Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934 (incorporated by reference to Exhibit 4.6 to the Company's Annual Report on Form 10-K for the year ended December 31, 2019, filed on February 14, 2020)
4.9 As permitted by Item 601(b)(4)(iii)(A) of Regulation S-K, the Company has not filed with this Annual Report on Form 10-K certain instruments defining the rights of holders of long-term debt of the Company and its subsidiaries because the total amount of securities authorized under any of such instruments does not exceed 10% of the total assets of the Company and its subsidiaries on a consolidated basis. The Company agrees to furnish a copy of any such agreements to the Securities and Exchange Commission upon request.
10.1+
Triton International Limited 2016 Equity Incentive Plan (incorporated by reference to Exhibit 10.4 to the Company's Current Report on Form 8-K, filed July 14, 2016)
10.2
Tenth Restated and Amended Credit Agreement, dated as of May 16, 2019, by and among Triton Container International Limited and TAL International Container Corporation, as Borrowers, various lenders, and Bank of America, N.A., as Administrative Agent and an Issuer, and other parties thereto (incorporated by reference to Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2019, filed on July 25, 2019)
10.3
Term Loan Agreement dated as of November 30, 2018 by and among Triton Container International Limited, as Borrower, various lenders, and PNC Bank, National Association, as a lender and Administrative Agent (incorporated by reference to Exhibit 10.10 to the Company's Annual Report on Form 10-K for the year ended December 31, 2018, filed February 19, 2019)
10.4
Loan and Security Agreement (Conformed), dated as of December 13, 2018, among TIF Funding LLC, Borrower, certain other wholly-owned subsidiaries of Triton International Limited, Wells Fargo Bank, National Association, as Administrative Agent, certain lenders party thereto and Wilmington Trust, National Association, as Collateral Agent and Securities Intermediary, as amended by Amendment Number 1 to Loan and Security Agreement, dated as of February 8, 2019, Amendment Number 2 to Loan and Security Agreement, dated as of November 4 , 2019, and the Omnibus Amendment No. 1, dated as of November 13, 2020 (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed November 16, 2020)
10.5+
Employment Offer Letter between Carla Heiss and Triton Container International, Incorporated of North America (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2020, filed April 24, 2020)
10.6+
Employment Agreement, dated as of November 3, 2004, by and between TAL International Group, Inc. and Brian M. Sondey (incorporated by reference from exhibit number 10.13 to TAL International Group, Inc.'s Form S-1 filed on June 30, 2005, file number 333-126317)
10.7+
* Form of Restricted Share Award Agreement under the Triton International Limited 2016 Equity Incentive Plan
10.8
Form of Indemnification Agreement for Directors and Certain Officers (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 14, 2016)
21.1
* List of Subsidiaries
23.1
* Consent of Independent Registered Public Accounting Firm
24.1
* Powers of Attorney (included on the signature page to this Annual Report on Form 10-K)
Exhibit No. Description
31.1
* Certification of the Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended
31.2
* Certification of the Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended
32.1
** Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350
32.2
** Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350
101.INS Inline XBRL Instance Document - the instance document does not appear on the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH Inline XBRL Instance Extension Schema
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase
101.LAB Inline XBRL Taxonomy Extension Label Linkbase
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase
104 Cover Page Inline XBRL Data (formatted as Inline XBRL and contained in Exhibit 101)
+ Indicates a management contract or compensatory plan or arrangement.
* Filed herewith.
** Furnished herewith.
(b) Exhibits.
The Company hereby files as part of this Annual Report on Form 10-K the exhibits listed in Item 15(a)(3) set forth above.
(c) Financial Statement Schedules
The Company hereby files as part of this Annual Report on Form 10-K the financial statement schedule listed in Item 15(a)(2) set forth above.