Brookfield Infrastructure Partners L.P 6-K, filed Jul 31, 2023
Brookfield Infrastructure Partners L.P. (BIP)
About this 6-K
Brookfield Infrastructure Partners L.P filed this 6-K on July 31, 2023.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 UNDER
THE SECURITIES EXCHANGE ACT OF 1934
For the month of July 2023
Commission File Number: 001-33632 |
Commission File Number: 001-39250 | |
|
BROOKFIELD (Exact name of Registrant as specified in its charter) |
BROOKFIELD (Exact name of Registrant as specified in its charter) | |
|
73 Front Street, Fifth Floor Hamilton, HM 12 United States (Address of principal executive office) |
250 Vesey Street, 15th Floor New York, NY 10281 United States (Address of principal executive office) |
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F x Form 40-F ¨
Exhibits 99.1, 99.2, 99.3 and 99.4 included in this Form 6-K are incorporated by reference into Brookfield Infrastructure Partners L.P.’s registration statements on Form F-3 (File Nos. 333-255051-01, 333-249031, 333-235653, 333-262098, 333-167860 and 333-270363).
EXHIBIT INDEX
The following documents, which are attached as exhibits hereto, are incorporated by reference herein:
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| BROOKFIELD INFRASTRUCTURE PARTNERS L.P. by its general partner, BROOKFIELD INFRASTRUCTURE PARTNERS LIMITED | |||
| Date: July 31, 2023 | By: | /s/ Jane Sheere | |
| Name: | Jane Sheere | ||
| Title: | Secretary | ||
| BROOKFIELD INFRASTRUCTURE CORPORATION | |||
| Date: July 31, 2023 | By: | /s/ Michael Ryan | |
| Name: | Michael Ryan | ||
| Title: | Corporate Secretary | ||
Exhibit 99.1
INDEX TO FINANCIAL STATEMENTS
| F-1 |
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Triton International Limited:
Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated balance sheets of Triton International Limited and subsidiaries (the Company) as of December 31, 2022 and 2021, 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, 2022, and the related notes and financial statement schedules I to II (collectively, the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of December 31, 2022, 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, 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 consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (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 audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. 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 audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
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.
| F-2 |
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.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Assessment of residual values of leasing equipment
As discussed in Note 2 to the consolidated financial statements, the net book value of leasing equipment as of December 31, 2022 was $9.5 billion. Leasing equipment is recorded at cost and depreciated to an estimated residual value on a straight-line basis over the estimated useful lives. To determine the residual values of leasing equipment, the Company evaluates historical disposal experience and expectations of future used container sales prices.
We identified the assessment of residual values of leasing equipment as a critical audit matter. Subjective auditor judgment was required given the measurement uncertainty of the residual values of leasing equipment. Specifically, auditor judgment was required to evaluate the identification and support for trends affecting future used container sales prices.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the Company's residual value estimation process, including controls over the key assumption used to estimate residual values of leasing equipment. We tested historical used container sales of the Company by examining historical sales invoices and considered their relevance and reliability to the residual values of leasing equipment. We assessed the mathematical accuracy of the historical average selling prices. We compared the historical average selling prices to current residual values. We compared identified trends in certain used container sales prices from published industry reports to trends identified by the Company within its historical data and evaluated the Company's determination of the effect of those trends on current residual value estimates. We compared the estimated residual values of certain containers to publicly available peer data.
| /s/ KPMG LLP |
We have served as the Company's auditor since 2014.
New York, New York
February 14, 2023
| F-3 |
TRITON INTERNATIONAL LIMITED
(In thousands, except share data)
| December 31, 2022 | December 31, 2021 | |||||||
| ASSETS: | ||||||||
| Leasing equipment, net of accumulated depreciation of $4,289,259 and $3,919,181 | $ | 9,530,396 | $ | 10,201,113 | ||||
| Net investment in finance leases | 1,639,831 | 1,558,290 | ||||||
| Equipment held for sale | 138,506 | 48,746 | ||||||
| Revenue earning assets | 11,308,733 | 11,808,149 | ||||||
| Cash and cash equivalents | 83,227 | 106,168 | ||||||
| Restricted cash | 103,082 | 124,370 | ||||||
| Accounts receivable, net of allowances of $2,075 and $1,178 | 226,554 | 294,792 | ||||||
| Goodwill | 236,665 | 236,665 | ||||||
| Lease intangibles, net of accumulated amortization of $291,837 and $281,340 | 6,620 | 17,117 | ||||||
| Other assets | 28,383 | 50,346 | ||||||
| Fair value of derivative instruments | 115,994 | 6,231 | ||||||
| Total assets | $ | 12,109,258 | $ | 12,643,838 | ||||
| LIABILITIES AND SHAREHOLDERS' EQUITY: | ||||||||
| Equipment purchases payable | $ | 11,817 | $ | 429,568 | ||||
| Fair value of derivative instruments | 2,117 | 48,277 | ||||||
| Deferred revenue | 333,260 | 92,198 | ||||||
| Accounts payable and other accrued expenses | 71,253 | 70,557 | ||||||
| Net deferred income tax liability | 411,628 | 376,009 | ||||||
| Debt, net of unamortized costs of $55,863 and $63,794 | 8,074,820 | 8,562,517 | ||||||
| Total liabilities | 8,904,895 | 9,579,126 | ||||||
| Shareholders' equity: | ||||||||
| Preferred shares, $0.01 par value, at liquidation preference | 730,000 | 730,000 | ||||||
| Common shares, $0.01 par value, 270,000,000 shares authorized, 81,383,024 and 81,295,366 shares issued, respectively | 814 | 813 | ||||||
| Undesignated shares, $0.01 par value, 800,000 shares authorized, no shares issued and outstanding | — | — | ||||||
| Treasury shares, at cost, 24,494,785 and 15,429,499 shares, respectively | (1,077,559 | ) | (522,360 | ) | ||||
| Additional paid-in capital | 909,911 | 904,224 | ||||||
| Accumulated earnings | 2,531,928 | 2,000,854 | ||||||
| Accumulated other comprehensive income (loss) | 109,269 | (48,819 | ) | |||||
| Total shareholders' equity | 3,204,363 | 3,064,712 | ||||||
| Total liabilities and shareholders' equity | $ | 12,109,258 | $ | 12,643,838 | ||||
The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.
| F-4 |
TRITON INTERNATIONAL LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
| Year Ended December 31, 2022 | Year Ended December 31, 2021 | Year Ended December 31, 2020 | ||||||||||
| Leasing revenues: | ||||||||||||
| Operating leases | $ | 1,564,486 | $ | 1,480,495 | $ | 1,276,697 | ||||||
| Finance leases | 115,200 | 53,385 | 31,210 | |||||||||
| Total leasing revenues | 1,679,686 | 1,533,880 | 1,307,907 | |||||||||
| Equipment trading revenues | 147,874 | 142,969 | 85,780 | |||||||||
| Equipment trading expenses | (131,870 | ) | (108,870 | ) | (70,981 | ) | ||||||
| Trading margin | 16,004 | 34,099 | 14,799 | |||||||||
| Net gain on sale of leasing equipment | 115,665 | 107,060 | 37,773 | |||||||||
| Operating expenses: | ||||||||||||
| Depreciation and amortization | 634,837 | 626,240 | 542,128 | |||||||||
| Direct operating expenses | 42,381 | 26,860 | 93,690 | |||||||||
| Administrative expenses | 93,011 | 89,319 | 80,532 | |||||||||
| Provision (reversal) for doubtful accounts | (3,102 | ) | (2,475 | ) | 2,768 | |||||||
| Total operating expenses | 767,127 | 739,944 | 719,118 | |||||||||
| Operating income (loss) | 1,044,228 | 935,095 | 641,361 | |||||||||
| Other expenses: | ||||||||||||
| Interest and debt expense | 226,091 | 222,024 | 252,979 | |||||||||
| Unrealized (gain) loss on derivative instruments, net | (343 | ) | — | 286 | ||||||||
| Debt termination expense | 1,933 | 133,853 | 24,734 | |||||||||
| Other (income) expense, net | (1,182 | ) | (1,379 | ) | (4,657 | ) | ||||||
| Total other expenses | 226,499 | 354,498 | 273,342 | |||||||||
| Income (loss) before income taxes | 817,729 | 580,597 | 368,019 | |||||||||
| Income tax expense (benefit) | 70,807 | 50,357 | 38,240 | |||||||||
| Net income (loss) | $ | 746,922 | $ | 530,240 | $ | 329,779 | ||||||
| Less: dividend on preferred shares | 52,112 | 45,740 | 41,362 | |||||||||
| Net income (loss) attributable to common shareholders | $ | 694,810 | $ | 484,500 | $ | 288,417 | ||||||
| Net income per common share—Basic | $ | 11.25 | $ | 7.26 | $ | 4.18 | ||||||
| Net income per common share—Diluted | $ | 11.19 | $ | 7.22 | $ | 4.16 | ||||||
| Cash dividends paid per common share | $ | 2.65 | $ | 2.36 | $ | 2.13 | ||||||
| Weighted average number of common shares outstanding—Basic | 61,778 | 66,728 | 69,051 | |||||||||
| Dilutive restricted shares | 322 | 340 | 294 | |||||||||
| Weighted average number of common shares outstanding—Diluted | 62,100 | 67,068 | 69,345 | |||||||||
The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.
| F-5 |
TRITON INTERNATIONAL LIMITED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
| Year Ended December 31, 2022 | Year Ended December 31, 2021 | Year Ended December 31, 2020 | ||||||||||
| Net income (loss) | $ | 746,922 | $ | 530,240 | $ | 329,779 | ||||||
| Other comprehensive income (loss), net of tax: | ||||||||||||
| Change in derivative instruments designated as cash flow hedges | 157,647 | 55,599 | (123,357 | ) | ||||||||
| Reclassification of (gain) loss on derivative instruments designated as cash flow hedges | 1,168 | 28,722 | 21,927 | |||||||||
| Foreign currency translation adjustment | (727 | ) | (105 | ) | 28 | |||||||
| Other comprehensive income (loss), net of tax | 158,088 | 84,216 | (101,402 | ) | ||||||||
| Comprehensive income | $ | 905,010 | $ | 614,456 | $ | 228,377 | ||||||
| Less: | ||||||||||||
| Dividend on preferred shares | 52,112 | 45,740 | 41,362 | |||||||||
| Comprehensive income attributable to common shareholders | $ | 852,898 | $ | 568,716 | $ | 187,015 | ||||||
| Tax (benefit) provision on change in derivative instruments designated as cash flow hedges | $ | 10,509 | $ | 3,586 | $ | (10,694 | ) | |||||
| Tax (benefit) provision on reclassification of (gain) loss on derivative instruments designated as cash flow hedges | $ | (908 | ) | $ | 1,916 | $ | 1,144 | |||||
The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.
| F-6 |
TRITON INTERNATIONAL LIMITED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except share amounts)
| Add'l | Accumulated Other | |||||||||||||||||||||||||||||||||||||||
| Preferred Shares | Common Shares | Treasury Shares | Paid in | Accumulated | Comprehensive | Total | ||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Earnings | Income | Equity | |||||||||||||||||||||||||||||||
| Balance as of December 31, 2019 | 16,200,000 | $ | 405,000 | 80,979,833 | $ | 810 | 8,771,345 | $ | (278,510 | ) | $ | 902,725 | $ | 1,533,845 | $ | (31,633 | ) | $ | 2,532,237 | |||||||||||||||||||||
| Issuance of preferred shares, net of offering expenses | 6,000,000 | 150,000 | — | — | — | — | (5,140 | ) | — | — | 144,860 | |||||||||||||||||||||||||||||
| Share-based compensation | — | — | 225,499 | 3 | — | — | 9,893 | — | — | 9,896 | ||||||||||||||||||||||||||||||
| Treasury shares acquired | — | — | — | — | 5,129,981 | (158,312 | ) | — | — | — | (158,312 | ) | ||||||||||||||||||||||||||||
| Share repurchase to settle shareholder tax obligations | — | — | (53,609 | ) | (1 | ) | — | — | (2,155 | ) | — | — | (2,156 | ) | ||||||||||||||||||||||||||
| Net income (loss) | — | — | — | — | — | — | — | 329,779 | — | 329,779 | ||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | — | — | — | — | (101,402 | ) | (101,402 | ) | ||||||||||||||||||||||||||||
| Common shares dividend declared (2.13 per share) | — | — | — | — | — | — | — | (148,021 | ) | — | (148,021 | ) | ||||||||||||||||||||||||||||
| Preferred shares dividend declared | — | — | — | — | — | — | — | (40,933 | ) | — | (40,933 | ) | ||||||||||||||||||||||||||||
| Balance as of December 31, 2020 | 22,200,000 | $ | 555,000 | 81,151,723 | $ | 812 | 13,901,326 | $ | (436,822 | ) | $ | 905,323 | $ | 1,674,670 | $ | (133,035 | ) | $ | 2,565,948 | |||||||||||||||||||||
| Issuance of preferred shares, net of offering expenses | 7,000,000 | 175,000 | — | — | — | — | (6,177 | ) | — | — | 168,823 | |||||||||||||||||||||||||||||
| Share-based compensation | — | — | 231,383 | 2 | — | — | 9,363 | — | — | 9,365 | ||||||||||||||||||||||||||||||
| Treasury shares acquired | — | — | — | — | 1,528,173 | (85,538 | ) | — | — | — | (85,538 | ) | ||||||||||||||||||||||||||||
| Share repurchase to settle shareholder tax obligations | — | — | (87,740 | ) | (1 | ) | — | — | (4,285 | ) | — | — | (4,286 | ) | ||||||||||||||||||||||||||
| Net income (loss) | — | — | — | — | — | — | — | 530,240 | — | 530,240 | ||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | — | — | — | — | 84,216 | 84,216 | ||||||||||||||||||||||||||||||
| Common shares dividend declared (2.36 per share) | — | — | — | — | — | — | — | (158,735 | ) | — | (158,735 | ) | ||||||||||||||||||||||||||||
| Preferred shares dividend declared | — | — | — | — | — | — | — | (45,321 | ) | — | (45,321 | ) | ||||||||||||||||||||||||||||
| Balance as of December 31, 2021 | 29,200,000 | $ | 730,000 | 81,295,366 | $ | 813 | 15,429,499 | $ | (522,360 | ) | $ | 904,224 | $ | 2,000,854 | $ | (48,819 | ) | $ | 3,064,712 | |||||||||||||||||||||
| Share-based compensation | — | — | 198,367 | 2 | — | — | 12,510 | — | — | 12,512 | ||||||||||||||||||||||||||||||
| Treasury shares acquired | — | — | — | — | 9,065,286 | (555,199 | ) | — | — | — | (555,199 | ) | ||||||||||||||||||||||||||||
| Share repurchase to settle shareholder tax obligations | — | — | (110,709 | ) | (1 | ) | — | — | (6,823 | ) | — | — | (6,824 | ) | ||||||||||||||||||||||||||
| Net income (loss) | — | — | — | — | — | — | — | 746,922 | — | 746,922 | ||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | — | — | — | — | 158,088 | 158,088 | ||||||||||||||||||||||||||||||
| Common shares dividend declared ($2.65 per share) | — | — | — | — | — | — | — | (163,736 | ) | — | (163,736 | ) | ||||||||||||||||||||||||||||
| Preferred shares dividend declared | — | — | — | — | — | — | — | (52,112 | ) | — | (52,112 | ) | ||||||||||||||||||||||||||||
| Balance as of December 31, 2022 | 29,200,000 | $ | 730,000 | 81,383,024 | $ | 814 | 24,494,785 | $ | (1,077,559 | ) | $ | 909,911 | $ | 2,531,928 | $ | 109,269 | $ | 3,204,363 | ||||||||||||||||||||||
The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.
| F-7 |
TRITON INTERNATIONAL LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| Year Ended December 31, 2022 | Year Ended December 31, 2021 | Year Ended December 31, 2020 | ||||||||||
| Cash flows from operating activities: | ||||||||||||
| Net income (loss) | $ | 746,922 | $ | 530,240 | $ | 329,779 | ||||||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||||||
| Depreciation and amortization | 634,837 | 626,240 | 542,128 | |||||||||
| Amortization of deferred debt cost and other debt related amortization | 11,112 | 11,603 | 12,973 | |||||||||
| Lease related amortization | 11,285 | 17,654 | 23,878 | |||||||||
| Share-based compensation expense | 12,512 | 9,365 | 9,896 | |||||||||
| Net (gain) loss on sale of leasing equipment | (115,665 | ) | (107,060 | ) | (37,773 | ) | ||||||
| Unrealized (gain) loss on derivative instruments | (343 | ) | — | 286 | ||||||||
| Debt termination expense | 1,933 | 133,853 | 24,734 | |||||||||
| Deferred income taxes | 26,018 | 43,077 | 35,662 | |||||||||
| Changes in operating assets and liabilities: | ||||||||||||
| Accounts receivable | 44,119 | (50,336 | ) | (9,955 | ) | |||||||
| Deferred revenue | 287,328 | 83,600 | 90 | |||||||||
| Accounts payable and accrued expenses | 4,620 | (6,860 | ) | (28,360 | ) | |||||||
| Net equipment sold (purchased) for resale activity | (93 | ) | 7,606 | 14,503 | ||||||||
| Cash received (paid) for settlement of interest rate swaps | 19,026 | 5,497 | (5,074 | ) | ||||||||
| Cash collections on finance lease receivables, net of income earned | 180,075 | 74,117 | 78,333 | |||||||||
| Other assets | 21,182 | 26,568 | (47,348 | ) | ||||||||
| Net cash provided by (used in) operating activities | 1,884,868 | 1,405,164 | 943,752 | |||||||||
| Cash flows from investing activities: | ||||||||||||
| Purchases of leasing equipment and investments in finance leases | (943,062 | ) | (3,434,394 | ) | (744,129 | ) | ||||||
| Proceeds from sale of equipment, net of selling costs | 296,737 | 217,078 | 255,104 | |||||||||
| Other | (638 | ) | (70 | ) | 8 | |||||||
| Net cash provided by (used in) investing activities | (646,963 | ) | (3,217,386 | ) | (489,017 | ) | ||||||
| Cash flows from financing activities: | ||||||||||||
| Issuance of preferred shares, net of underwriting discount | — | 169,488 | 145,275 | |||||||||
| Purchases of treasury shares | (554,095 | ) | (82,528 | ) | (158,312 | ) | ||||||
| Debt issuance costs | (10,162 | ) | (42,631 | ) | (26,814 | ) | ||||||
| Borrowings under debt facilities | 1,952,600 | 8,690,006 | 3,495,445 | |||||||||
| Payments under debt facilities and finance lease obligations | (2,449,367 | ) | (6,635,987 | ) | (3,737,150 | ) | ||||||
| Dividends paid on preferred shares | (52,112 | ) | (45,321 | ) | (40,933 | ) | ||||||
| Dividends paid on common shares | (162,174 | ) | (157,312 | ) | (146,476 | ) | ||||||
| Other | (6,824 | ) | (4,951 | ) | (2,746 | ) | ||||||
| Net cash provided by (used in) financing activities | (1,282,134 | ) | 1,890,764 | (471,711 | ) | |||||||
| Net increase (decrease) in cash, cash equivalents and restricted cash | $ | (44,229 | ) | $ | 78,542 | $ | (16,976 | ) | ||||
| Cash, cash equivalents and restricted cash, beginning of period | 230,538 | 151,996 | 168,972 | |||||||||
| Cash, cash equivalents and restricted cash, end of period | $ | 186,309 | $ | 230,538 | $ | 151,996 | ||||||
| Supplemental disclosures: | ||||||||||||
| Interest paid | $ | 208,714 | $ | 211,412 | $ | 244,280 | ||||||
| Income taxes paid (refunded) | $ | 47,010 | $ | 7,933 | $ | 2,191 | ||||||
| Right-of-use asset for leased property | $ | 907 | $ | 2,517 | $ | 543 | ||||||
| Supplemental non-cash investing activities: | ||||||||||||
| Equipment purchases payable | $ | 11,817 | $ | 429,568 | $ | 191,777 | ||||||
The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.
| F-8 |
TRITON INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1—Description of the Business and Basis of Presentation
Description of the Business and Basis of Presentation
Triton International Limited ("Triton" or the "Company"), through its subsidiaries, leases intermodal transportation equipment, primarily maritime containers, and provides maritime container management services through a worldwide network of service subsidiaries, third-party depots and other facilities. The majority of the Company's business is derived from leasing its containers to shipping line customers through a variety of long-term and short-term contractual lease arrangements. The Company also sells containers from its equipment leasing fleet as well as containers specifically acquired for resale from third parties. The Company's registered office is located in Bermuda.
The consolidated financial statements and accompanying notes include the accounts of the Company and its subsidiaries and are prepared in accordance with U.S. generally accepted accounting principles ("GAAP"). Certain reclassifications have been made to the accompanying prior period financial statements and notes to conform to the current year's presentation.
Note 2—Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and subsidiaries in which it has a controlling interest, and variable interest entities of which the Company is the primary beneficiary. The equity method of accounting is applied when the Company does not have a controlling interest in an entity but exerts significant influence over the entity. All significant intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities in the financial statements. Such estimates include, but are not limited to, the Company's estimates in connection with leasing equipment, including residual values and depreciable lives, values of assets held for sale and other long lived assets, provision for income tax, allowance for doubtful accounts, share-based compensation, goodwill and intangible assets. Actual results could differ from those estimates.
Segment Reporting
The Company conducts its business activities in one industry, intermodal transportation equipment, and has two reporting segments, Equipment leasing and Equipment trading. The Company also segregates total equipment leasing revenues and total equipment trading revenues by geographic location based upon the primary domicile of the Company's customers.
Concentration of Credit Risk
The Company's equipment leases and trade receivables subject it to potential credit risk. The Company extends credit to its customers based upon an evaluation of each customer's financial condition and credit history. Evaluations of the financial condition and associated credit risk of customers are performed on an ongoing basis. The Company's largest customer accounted for 20%, 21%, and 22% of its lease billings during 2022, 2021, and 2020, respectively, and accounted for 11% and 26% of its accounts receivable as of December 31, 2022 and 2021, respectively. The Company's second largest customer accounted for 17%, 16%, and 14% of its lease billings during 2022, 2021, and 2020, respectively, and accounted for 11% of its accounts receivable as of both December 31, 2022 and 2021. The Company's third largest customer accounted for 11%, 10%, and 9% of its lease billings during 2022, 2021, and 2020, respectively, and accounted for 11% and 5% of its accounts receivable as of December 31, 2022 and 2021, respectively.
Other financial instruments that are exposed to concentration of credit risk are cash and cash equivalents, and restricted cash balances. Cash and cash equivalents, and restricted cash are held with financial institutions of high quality. Balances may exceed the amount of insurance provided on such deposits.
| F-9 |
TRITON INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Fair Value Measurements
Fair value represents the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The determination of fair value may require an entity to make significant judgments or develop assumptions about market participants to reflect risks specific to the asset being valued. The Company uses the following fair value hierarchy when selecting inputs for its valuation techniques, with the highest priority given to Level 1:
· Level 1—quoted prices (unadjusted) in active markets for identical assets or liabilities;
· Level 2—inputs other than quoted prices included within Level 1 that are either directly or indirectly observable; and
· Level 3—unobservable inputs in which little or no market activity exists, therefore requiring an entity to develop its own assumptions about the assumptions that market participants would use in pricing.
Cash and cash equivalents, restricted cash, accounts receivable, equipment purchases payable and accounts payable carrying amounts approximate fair values because of the short-term nature of these instruments. The Company's other financial and non-financial assets, which include leasing equipment, net investment in finance leases, intangible assets and goodwill, are not required to be measured at fair value on a recurring basis. However, if certain triggering events occur, or if an annual impairment test is required, the Company may determine that these assets should be written down to their fair value after completing an evaluation.
For information on the fair value of equipment held for sale, debt, and the fair value of derivative instruments, please refer to Note 3 - "Equipment Held for Sale", Note 6 - "Debt" and Note 7 - "Derivative Instruments", respectively.
Cash and Cash Equivalents
Cash and cash equivalents consist of all cash balances and highly liquid investments having original maturities of three months or less at the time of purchase.
Restricted Cash
The Company's restricted cash relates to amounts held at financial institutions pursuant to certain debt arrangements. The restricted cash balances represent cash proceeds collected and required to be used to pay debt service and other related expenses.
Allowance for Doubtful Accounts
The Company's allowance for doubtful accounts is estimated based upon a review of the collectability of its receivables. This review is based on the risk profile of the receivables, credit quality indicators such as the level of past-due amounts and economic conditions. Generally, the Company does not require collateral on accounts receivable balances. An account is considered past due when a payment has not been received in accordance with the contractual terms. Changes in economic conditions or other events may necessitate additions or deductions to the allowance for doubtful accounts. The allowance for doubtful accounts is intended to provide for losses in the receivables, and requires the application of estimates and judgments as to the outcome of collection efforts, among other things. The Company believes its allowance for doubtful accounts is adequate to provide for credit losses inherent in its existing receivables.
For our net investment in finance leases and accounts receivable for sales of equipment, the Company measures expected credit loss by evaluating the overall credit quality of its customers. Expected credit losses for these financial assets are estimated using historical experience which includes multiple economic cycles, customer payment history, management's assessment of the customer's financial condition, and consideration of current conditions and reasonable forecasts.
| F-10 |
TRITON INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Net Investment in Finance Leases
The Company has entered into various lease agreements that qualify as finance leases. These leases are long-term in nature, ranging for a period of three to fourteen years, and typically include an option to purchase the equipment at the end of the lease term for a nominal price that the Company deems reasonably certain to be exercised. At the inception of a finance lease, a net investment is recorded based on the gross investment (representing the total future minimum lease payments plus the estimated residual value), net of unearned income. Unearned income represents the excess of the gross investment over the fair value of the leased equipment at lease commencement. Any gain or loss is recognized at commencement and recorded in Net gain on sale of leasing equipment.
Leasing Equipment
The Company purchases new equipment from manufacturers for the purpose of leasing to customers. The Company also purchases used equipment with the intention of selling 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 equipment include the manufactured cost of the equipment, inspection, delivery, and associated costs incurred in moving the equipment from the manufacturer to the initial on-hire location. Repair and maintenance costs that do not extend the lives of the leasing equipment are charged to direct operating expenses at the time the costs are incurred.
The estimated useful lives and residual values of the Company's leasing equipment are based on the Company's expectations for future used container sale prices. The Company evaluates estimates used in its depreciation policies on a regular basis to determine whether changes have taken place that would suggest that a change in its depreciation estimates for useful lives or the assigned residual values of its equipment is warranted. For 2022, the Company completed its annual depreciation policy assessment 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 indicated below were as follows:
| As of December 31, 2022 and 2021 | ||||||
| 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, the Company adjusts its estimates for remaining useful life and residual values based on our expectations for how long the equipment will remain on-hire to the current lessee and the expected sales market for older containers when these units are redelivered.
| F-11 |
TRITON INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The net book value of the Company's leasing equipment by equipment type as of the dates indicated was (in thousands):
| December 31, 2022 | December 31, 2021 | |||||||
| Dry container | $ | 7,550,616 | $ | 8,087,346 | ||||
| Refrigerated container | 1,364,012 | 1,556,673 | ||||||
| Special container | 287,106 | 297,925 | ||||||
| Tank container | 112,166 | 102,220 | ||||||
| Chassis | 216,496 | 156,949 | ||||||
| Total | $ | 9,530,396 | $ | 10,201,113 | ||||
Included in the amounts above are units not on lease at December 31, 2022 and 2021 with a total net book value of $525.4 million and $391.3 million, respectively.
Valuation of Leasing Equipment
Leasing equipment is evaluated 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 its 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. The Company considers 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 the Company's historical experience and management's judgment of market conditions.
The Company has not record any impairment charges related to leasing equipment for the years ended December 31, 2022, 2021, and 2020.
Equipment Held for Sale
When leasing equipment is returned off lease, the Company makes a determination of whether to repair and re-lease the equipment or sell the equipment. At the time the Company determines that equipment will be sold, it reclassifies the carrying value of leasing equipment to equipment held for sale. Equipment held for sale is recorded at the lower of its estimated fair value less costs to sell or carrying value at the time identified for sale. Depreciation expense on equipment held for sale is halted and disposals generally occur within 90 days. Initial write downs of equipment held for sale to fair value are recorded as an impairment charge and are included in Net gain 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 in Net gain 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 recorded within our equipment trading segment is also included in Equipment held for sale. Gains and losses resulting from the sale of this equipment is recorded in Trading margin, and cash flows associated with the sale of this equipment are classified as cash flows from operating activities.
Operating Leases
The Company leases office space and office equipment and evaluates whether these leases are classified as operating or financing at the inception of the lease. The classification is based on certain assumptions that require judgment, such as the asset's fair value, the asset's estimated residual value, the interest rate implicit in the lease, and the asset's economic useful life.
| F-12 |
TRITON INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For operating leases, the Company records a lease liability based on the present value of the remaining minimum payments and a corresponding right-of-use ("ROU") asset. The Company uses its estimated incremental borrowing rate at the commencement date to determine the present value of lease payments. The benefits of lease incentives, including rent-free or reduced rent periods, and the cost of future rent escalations are recognized on a straight-line basis over the term of the lease. A lease liability and a corresponding ROU asset are not recognized when, at the commencement date of the lease, the term is 12 months or less.
Property, Furniture and Equipment
Costs of major additions of property, furniture, equipment and improvements are capitalized and are included in Other assets on the Consolidated Balance Sheets. The original cost is depreciated on a straight-line basis over the estimated useful lives of such property, furniture and equipment. Leasehold improvements are amortized on a straight-line basis over the shorter of the lease term or the estimated useful lives of the leased assets. Other fixed assets, which consist primarily of computer software and hardware, are recorded at cost and amortized on a straight-line basis over their respective estimated useful lives, which range from three to seven years. Expenditures for maintenance and repairs are expensed as they are incurred.
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 the Company's reporting units, which are the same as its reporting segments.
In evaluating goodwill for impairment, the Company has the option to first assess qualitative factors to determine whether further impairment testing is necessary. Among the relevant events and circumstances that affect the fair value of reporting units, the Company considers individual factors such as macroeconomic conditions, changes in its industry and the markets in which the Company operates, as well as its reporting units' historical and expected future financial performance. If, after assessing the totality of events and circumstances, the Company determines it is more-likely-than-not that the fair value of a reporting unit is greater than its carrying amount, then the quantitative goodwill impairment test is unnecessary. The quantitative goodwill impairment test compares the fair value of a reporting unit with its 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.
The Company elected to perform the qualitative assessment for its evaluation of goodwill impairment during the year ended December 31, 2022 and concluded there was no impairment. The Company has not recorded any impairment charges related to goodwill for the years ended December 31, 2022, 2021, and 2020.
Intangible Assets
Intangible assets with finite useful lives such as acquired lease intangibles are initially recorded at fair value and are amortized over their respective estimated useful lives and subsequently reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. The Company has not recorded any impairment charges related to intangible assets for the years ended December 31, 2022, 2021, and 2020.
Revenue Recognition
Lease Classification
We determine the classification of a lease at its inception as either operating leases or finance leases. If the provisions of the lease change after lease inception, other than by renewal or extension, we evaluate whether that change may have resulted in a different lease classification had the change been in effect at inception. If so, the revised agreement is considered a new lease for lease classification purposes. The classification of the lease as either an operating lease or finance lease will impact revenue recognition.
| F-13 |
TRITON INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Operating Leases with Customers
The Company enters into long-term leases and service leases with ocean carriers, principally as lessor in operating leases, for marine cargo equipment. Long-term leases provide customers with specified equipment for a specified term. The Company's leasing revenues are based upon the number of equipment units leased, the applicable per diem rate and the length of the lease. Long-term leases typically have initial contractual terms ranging from five to eight or more years. Revenues are recognized on a straight-line basis over the life of the respective lease. Revenue from advance billings are deferred and recognized in the period earned. Service leases do not specify the exact number of equipment units to be leased or the term that each unit will remain on-hire, but allow the lessee to pick-up and drop-off units at various locations specified in the lease agreement. Under a service lease, rental revenue is based on the number of equipment units on-hire for a given period. Revenue from customers considered to be non-performing is deferred and recognized when the amounts are received.
The Company recognizes billings to customers for damages and certain other operating costs as leasing revenue when earned based on the terms of the contractual agreements with the customer.
Finance Leases with Customers
The Company enters into finance leases as lessor for some of the equipment in its fleet. At the inception of the lease, the Company records the total future minimum lease payments plus the estimated residual value, net of executory costs, if any. Cash deposits reduce the net finance lease receivable and are recorded on the statement of cash flows as deferred revenue within operating activities. The net investment in finance leases represents the receivables due from lessees, net of unearned income and amounts previously billed, which are included in accounts receivable. Unearned income, which also includes any initial direct costs, is recognized on a constant yield basis over the lease term and is recorded as leasing revenue. The Company's finance leases are usually long-term in nature and typically include an option to purchase the equipment at the end of the lease term for a nominal price that the Company deems reasonably certain to be exercised.
Equipment Trading Revenues and Expenses
Equipment trading revenues represent the proceeds from the sale of equipment purchased for resale and are recognized as units are sold. The related expenses represent the cost of equipment sold as well as other selling costs that are recognized as incurred and are reflected as equipment trading expenses on the Consolidated Statements of Operations.
Direct Operating Expenses
Direct operating expenses are directly related to the Company's equipment under and available for lease. These expenses primarily consist of the Company's costs to repair and maintain the equipment, to reposition the equipment and to store the equipment when it is not on lease. These costs are recognized when incurred. Certain positioning costs may be capitalized when incurred to place new equipment on an initial lease.
Debt Costs
Debt costs represent the fees incurred in connection with debt obligation arrangements. These costs are capitalized and amortized using the effective interest method or on a straight-line basis over the term of the related obligation, depending on the type of debt obligation to which they relate. Unamortized debt costs may be written off when the related debt obligations are refinanced or extinguished prior to maturity.
Derivative Instruments
The Company primarily uses derivatives in the management of its interest rate exposure on its long-term borrowings. The Company records derivative instruments on its balance sheet at fair value and establishes criteria for both the designation and effectiveness of hedging activities.
The Company has entered into interest rate swap agreements with certain financial institutions. The interest rate swap agreements require the Company to make payments to counterparties at fixed rates in return for receipts based upon variable rates indexed to the London Interbank Offered Rate ("LIBOR") or the Secured Overnight Financing Rate ("SOFR").
| F-14 |
TRITON INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Derivative instruments are designated or non-designated for hedge accounting purposes. The fair value of the derivative instruments is measured at each balance sheet date and is reflected on a gross basis on the consolidated balance sheets. The change in fair value of the derivative instruments designated as a cash flow hedge are recorded on the Consolidated Balance Sheets in accumulated other comprehensive income (loss) and are re-classified to interest and debt expense when the hedged interest payments are recognized. The change in fair value of non-designated derivative instruments is recorded in the Consolidated Statements of Operations as unrealized (gain) loss on derivative instruments, net.
Income Taxes
The Company uses the liability method of accounting for income taxes, which requires recognition of deferred tax assets and liabilities based on the expected future tax consequences of temporary differences that currently exist between the tax basis and financial reporting basis of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Any change in the tax rate which has an effect on deferred tax assets and liabilities is recognized as an increase or decrease to income in the period that includes the enactment date of the law that resulted in the change in tax rate.
The Company recognizes the effect of income tax positions which are more-likely-than-not of being sustained. If a position does not meet the more-likely-than-not criteria, the Company records a reserve against the tax position such that a tax benefit is recognized only in the amount that has a greater than 50% likelihood of being recognized. The full impact of any change in recognition or measurement of an uncertain tax position is reflected in the period in which such change occurs. Potential interest and penalties associated with such uncertain tax positions are recorded as a component of income tax expense.
Foreign Currency Translation and Re-measurement
The Company uses the U.S. dollar as its reporting currency. The net assets and operations that are denominated in foreign currency and are subject to foreign currency translation included in the consolidated financial statements are attributable primarily to the Company's U.K. subsidiary. The accounts of this subsidiary have been converted at rates of exchange in effect at year end as to balance sheet accounts and at the annual weighted average exchange rates for the statements of operations accounts. The effects of changes in exchange rates in translating foreign subsidiaries' financial statements are included in shareholders' equity as accumulated other comprehensive (loss) income.
The Company also has certain cash accounts, certain finance lease receivables and certain obligations that are denominated in currencies other than the Company's functional currency. These assets and liabilities are generally denominated in euros or British pounds, and are re-measured at each balance sheet date at the exchange rates in effect as of those dates. The impact of changes in exchange rates on the re-measurement of assets and liabilities are included in administrative expenses on the Consolidated Statements of Operations. The Company recorded a loss of $2.0 million, a loss of $1.0 million and a gain of $0.4 million in net foreign currency exchange gains or losses for the years ended December 31, 2022, 2021 and 2020, respectively.
Share-based Compensation
The Company measures and recognizes share-based awards granted to employees based on the grant date fair value. Share-based awards may be subject to forfeiture if certain employment conditions are not met. The Company has elected to account for forfeitures as they occur. Time based awards are measured at the grant date and are recognized as compensation expense over the employee's requisite service period, generally the vesting period of the equity award, on a straight-line basis. Performance-based awards are recognized as compensation expense over the requisite service period when satisfaction of the performance condition is considered probable. The Company also grants share-based awards to non-employee directors that vest immediately and are recognized as compensation expense based on the grant date fair value.
Earnings Per Share
Basic earnings per share is computed by dividing net income attributable to common shareholders by the weighted average number of common shares outstanding for the period. Any potential issuance of common shares, including those that are contingent and do not participate in dividends, are excluded from the weighted average number of common shares outstanding. Diluted earnings per share reflect the potential dilution that would occur if securities exercisable or convertible into common shares were exercised or converted into common shares, utilizing the treasury share method.
| F-15 |
TRITON INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company excluded a de minimus amount of anti-dilutive restricted common shares from its calculation of diluted earnings per share for the years ended December 31, 2022, 2021, and 2020.
Recently Adopted Accounting Standards Updates
Lessors - Certain Leases with Variable Lease Payments
In July 2021, the Financial Accounting Standards Board issued Accounting Standards Update ("ASU") 2021-05, Lease (Topic 842): Lessors - Certain Leases with Variable Lease Payments. This guidance amends the lease classification accounting for lessors on certain leases with variable lease payments that do not depend on a reference index or a rate. The Company did not have such leases and therefore the Company's adoption of this standard on January 1, 2022 had no impact on its consolidated financial statements.
Note 3—Equipment Held for Sale
The Company's equipment held for sale is recorded at the lower of fair value less cost to sell, or carrying value at the time identified for sale. Fair value is measured using Level 2 inputs and is based predominantly on recent sales prices. An impairment charge is recorded when the carrying value of the asset exceeds its fair value less cost to sell. The following table summarizes the Company's net impairment charges recorded in Net gain on sale of leasing equipment on the Consolidated Statements of Operations (in thousands):
| Year Ended December 31, | ||||||||||||
| 2022 | 2021 | 2020 | ||||||||||
| Impairment (loss) reversal on equipment held for sale | $ | (887 | ) | $ | 16 | $ | (3,532 | ) | ||||
| Gain (loss) on sale of equipment, net of selling costs | 116,552 | 107,044 | 41,305 | |||||||||
| Net gain on sale of leasing equipment | $ | 115,665 | $ | 107,060 | $ | 37,773 | ||||||
Note 4—Intangible Assets
Intangible assets consist of lease intangibles for leases acquired with lease rates above market in a business combination. The following table summarizes the amortization of intangible assets as of December 31, 2022 (in thousands):
| Years ending December 31, | Total Intangible Assets | |||
| 2023 | $ | 4,657 | ||
| 2024 | 1,963 | |||
| Total | $ | 6,620 | ||
Amortization expense related to intangible assets was $10.5 million, $16.5 million, and $22.5 million for the years ended December 31, 2022, 2021, and 2020, respectively.
Note 5—Restricted Cash
The components of restricted cash as of December 31, 2022 and December 31, 2021 were as follows (in thousands):
| December 31, 2022 | December 31, 2021 | |||||||
| Collection accounts | $ | 37,432 | $ | 37,372 | ||||
| Trust accounts | 16,316 | 31,628 | ||||||
| Other restricted cash accounts | 49,334 | 55,370 | ||||||
| Total restricted cash | $ | 103,082 | $ | 124,370 | ||||
| F-16 |
TRITON INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Collection accounts
The Company maintains bank accounts for collections related to its containers that are financed ("the Collection Accounts"). Cash proceeds collected from leasing and disposition are deposited into the Collection Accounts and all expenses related to the operation of the containers are paid from the Collection Accounts. The Company considers the portion of the Collection Accounts which is being held in trust for the benefit of Asset Backed Securitization ("ABS") noteholders as restricted and the portion of the balance attributable to containers that are unsecured as unrestricted.
Trust accounts
Pursuant to certain debt agreements, cash is transferred from the Collection Accounts to separate accounts (the "Trust Accounts"). The Trust Accounts are maintained by an indenture trustee on behalf of certain ABS noteholders. The cash in the Trust Accounts is used to pay related ABS debt service and related expenses. After such payments, any remaining cash in these accounts is transferred to certain unrestricted bank accounts of the Company and is included in cash and cash equivalents on the Consolidated Balance Sheets.
Other restricted cash accounts
Pursuant to certain asset-backed debt agreements, cash is held at separate accounts in order to maintain an amount equal to projected interest expense for a specified number of months.
Note 6—Debt
The table below summarizes the Company's key terms and carrying value of debt:
| December 31, 2022 | December 31, 2021 | |||||||||||||||||||
| Outstanding | Contractual | Outstanding | ||||||||||||||||||
| Borrowings (in | Weighted Avg | Maturity Range(1) | Borrowings (in | |||||||||||||||||
| thousands) | Interest Rate(1) | From | To | thousands) | ||||||||||||||||
| Secured Debt Financings | ||||||||||||||||||||
| Asset-backed securitization term instruments | $ | 2,890,467 | 2.04 | % | February 2028 | February 2031 | 3,801,777 | |||||||||||||
| Asset-backed securitization warehouse | 320,000 | 5.92 | % | April 2029 | April 2029 | 225,000 | ||||||||||||||
| Finance lease obligations(2) | — | — | — | 15,042 | ||||||||||||||||
| Total secured debt financings | 3,210,467 | 4,041,819 | ||||||||||||||||||
| Unsecured Debt Financings | ||||||||||||||||||||
| Senior notes | 2,900,000 | 2.11 | % | August 2023 | March 2032 | 2,300,000 | ||||||||||||||
| Term loan facilities | 1,080,000 | 5.81 | % | May 2026 | May 2026 | 1,176,000 | ||||||||||||||
| Revolving credit facilities | 945,000 | 5.80 | % | October 2027 | October 2027 | 1,112,000 | ||||||||||||||
| Total unsecured debt financings | 4,925,000 | 4,588,000 | ||||||||||||||||||
| Total debt financings | 8,135,467 | 8,629,819 | ||||||||||||||||||
| Unamortized debt costs | (55,863 | ) | (63,794 | ) | ||||||||||||||||
| Unamortized debt premiums & discounts | (4,784 | ) | (3,508 | ) | ||||||||||||||||
| Debt, net of unamortized costs | $ | 8,074,820 | $ | 8,562,517 | ||||||||||||||||
| (1) | Data as of December 31, 2022. |
| (2) | On February 1, 2022, the Company exercised an early buyout option and paid $14.9 million of its remaining finance lease obligations. |
| F-17 |
TRITON INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Asset-Backed Securitization Term Instruments
Under the Company's ABS facilities, indirect wholly-owned subsidiaries of the Company enter into debt agreements for ABS term instruments, including ABS notes. These subsidiaries are intended to be bankruptcy remote so that such assets are not available to creditors of the Company or its affiliates until and unless the related secured borrowings have been fully discharged. These transactions do not meet accounting requirements for sales treatment and are recorded as secured borrowings.
On April 29, 2022, the Company extinguished an ABS term note and paid the outstanding balance of $391.3 million. As a result, the Company wrote off $1.3 million of debt related costs.
On September 20, 2022, the Company extinguished an ABS term loan facility and paid the outstanding balance of $186.1 million. As a result, the Company wrote off $0.2 million of debt related costs.
The Company’s borrowings under the ABS facilities amortize in monthly installments, typically in level payments over five or more years. These facilities provide for an advance rate against the net book values of designated eligible equipment. The net book values for purposes of calculating eligible equipment is determined according to the related debt agreement and may be different than those calculated per U.S. GAAP. The Company is required to maintain restricted cash balances on deposit in designated bank accounts equal to three to nine months of interest expense depending on the terms of each facility.
Asset-Backed Securitization Warehouse
Under the Company's ABS warehouse facility, an indirect wholly-owned subsidiary of the Company issues ABS notes. This subsidiary is intended to be bankruptcy remote so that such assets are not available to creditors of the Company or its affiliates until and unless the related secured borrowings have been fully discharged. These transactions do not meet accounting requirements for sales treatment and are recorded as secured borrowings.
On April 27, 2022, the Company amended its existing ABS warehouse facility with $1,125.0 million borrowing capacity to extend the revolving period to April 27, 2025 and change the interest rate to the term SOFR plus 1.60%. After the revolving period, borrowings will convert to term notes with a maturity date of April 27, 2029, paying interest at SOFR plus 2.60%. As part of this transaction, the Company wrote off $0.3 million of debt related costs.
During the revolving period, the borrowing capacity under this facility is determined by applying an advance rate against the net book values of designated eligible equipment. The net book values for purposes of calculating eligible equipment are determined according to the related debt agreement and may be different than those calculated per U.S. GAAP. The Company is required to maintain restricted cash balances on deposit in designated bank accounts equal to three months of interest expense.
Senior Notes
The Company’s senior notes are unsecured and have maturities ranging from 2 -10 years and interest payments due semi-annually. The senior notes are pre-payable (in whole or in part) at the Company's option at any time prior to the maturity date, subject to certain provisions in the senior note agreements, including the payment of a make-whole premium in respect to such prepayment.
On January 19, 2022, the Company completed a $600.0 million 3.25% senior notes offering with a maturity date of March 15, 2032.
Term Loan Facility
The Company's term loan facility has a maturity date of May 27, 2026, which amortizes in quarterly installments. On October 26, 2022, the Company amended its term loan facility to change the reference rate from LIBOR to term SOFR. There was no change to the margin over the reference rate as a result of this amendment.
This facility is subject to covenants customary for unsecured financings of this type, primarily financial covenants that require us to maintain a maximum ratio of unencumbered assets to certain financial indebtedness.
| F-18 |
TRITON INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Revolving Credit Facility
On October 26, 2022, the Company amended its revolving credit facility to extend the maturity date to October 26, 2027 and change the reference rate from LIBOR to term SOFR. There was no change to the margin over the reference rate as a result of these amendments. As part of this transaction, the Company wrote off $0.1 million of debt related costs.
The revolving credit facility has a maximum borrowing capacity of $2,000.0 million. This facility is subject to covenants customary for unsecured financings of this type, primarily financial covenants that require us to maintain a minimum ratio of unencumbered assets to certain financial indebtedness.
The Company hedges the risks associated with fluctuations in interest rates on a portion of its floating-rate debt by entering into interest rate swap agreements that convert a portion of its floating-rate debt to a fixed rate basis, thus reducing the impact of interest rate changes on future interest expense. The following table summarizes the Company's outstanding fixed-rate and floating-rate debt as of December 31, 2022:
| Balance | Contractual | Weighted Avg | ||||||||||||||||||
| Outstanding (in | Weighted Avg | Maturity Range | Remaining | |||||||||||||||||
| thousands) | Interest Rate | From | To | Term | ||||||||||||||||
| Excluding impact of derivative instruments: | ||||||||||||||||||||
| Fixed-rate debt | $ | 5,790,467 | 2.08 | % | Aug 2023 | Mar 2032 | 4.5 years | |||||||||||||
| Floating-rate debt | $ | 2,345,000 | 5.82 | % | May 2026 | Apr 2029 | 4.1 years | |||||||||||||
| Including impact of derivative instruments: | ||||||||||||||||||||
| Fixed-rate debt | $ | 5,790,467 | 2.08 | % | ||||||||||||||||
| Hedged floating-rate debt | 1,327,750 | 3.71 | % | |||||||||||||||||
| Total fixed and hedged debt | 7,118,217 | 2.38 | % | |||||||||||||||||
| Unhedged floating-rate debt | 1,017,250 | 5.82 | % | |||||||||||||||||
| Total debt outstanding | $ | 8,135,467 | 2.80 | % | ||||||||||||||||
The fair value of total debt outstanding was $7,264.7 million and $8,572.9 million as of December 31, 2022 and December 31, 2021, respectively, and was measured using Level 2 inputs.
As of December 31, 2022, the maximum borrowing levels for the ABS warehouse and the revolving credit facilities are $1,125.0 million and $2,000.0 million, respectively. Certain of these facilities are governed by either borrowing bases or an unencumbered asset test that limits borrowing capacity. Based on those limitations, the availability under these credit facilities at December 31, 2022 was approximately $1,262.3 million.
The Company is subject to certain financial covenants under its debt financings. As of December 31, 2022, the Company was in compliance with all financial covenants in accordance with the terms of its debt agreements.
Debt Maturities
At December 31, 2022, the Company's scheduled principal repayments and maturities were as follows (in thousands):
| Years ending December 31, | ||||
| 2023 | $ | 1,006,636 | ||
| 2024 | 906,845 | |||
| 2025 | 429,341 | |||
| 2026 | 1,736,102 | |||
| 2027 | 1,340,992 | |||
| 2028 and thereafter | 2,715,551 | |||
| Total debt outstanding | $ | 8,135,467 | ||
| F-19 |
TRITON INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 7—Derivative Instruments
Interest Rate Swaps / Caps
The Company enters into derivative agreements to manage interest rate risk exposure. Interest rate swap agreements are utilized to limit the Company's exposure to interest rate risk by converting a portion of its floating-rate debt to a fixed rate basis, thus reducing the impact of interest rate changes on future interest expense. Interest rate swaps involve the receipt of floating-rate amounts in exchange for fixed-rate interest payments over the lives of the agreements without an exchange of the underlying principal amounts. These swaps are designated as cash flow hedges for accounting purposes and accordingly, changes in the fair value are recorded in accumulated other comprehensive income (loss) and reclassified to interest and debt expense when they are realized.
The Company has entered into offsetting $500.0 million notional interest rate cap agreements with substantially similar economic terms related to certain debt facility requirements. These derivatives are not designated as hedging instruments, and because they offset, changes in fair value have an immaterial impact on the financial statements.
The counterparties to these agreements are highly rated financial institutions. In the unlikely event that the counterparties fail to meet the terms of these agreements, the Company's exposure is limited to the interest rate differential on the notional amount at each monthly settlement period over the life of the agreements. The Company does not anticipate any non-performance by the counterparties.
Certain assets of the Company's subsidiaries are pledged as collateral for various ABS facilities and the amounts payable under certain derivative agreements. Additionally, the Company may be required to post cash collateral on certain derivative agreements if the fair value of these contracts represents a liability. Any amounts of cash collateral posted are included in Other assets on the Consolidated Balance Sheets and are presented in operating activities of the Consolidated Statements of Cash Flows. As of December 31, 2022, the Company posted cash collateral on derivative instruments of $2.0 million.
During the year ended December 31, 2022, the Company terminated the following derivative instruments (in millions):
| Derivative Instrument | Date Terminated | Notional Amount | Funds Received (Paid)(1) | |||||||
| Interest rate swap | January 11, 2022 | $ | 150.0 | $ | 6.0 | |||||
| Interest rate swap | January 11, 2022 | $ | 150.0 | $ | 6.1 | |||||
| Interest rate cap | April 27, 2022 | $ | 200.0 | $ | 0.3 | |||||
| Interest rate cap | April 27, 2022 | $ | 200.0 | $ | 0.2 | |||||
| Interest rate swap | April 29, 2022 | $ | 62.5 | $ | 1.4 | |||||
| Interest rate swap | April 29, 2022 | $ | 100.0 | $ | 1.6 | |||||
| Interest rate swap | April 29, 2022 | $ | 100.0 | $ | 0.9 | |||||
| Interest rate swap | September 20, 2022 | $ | 186.1 | $ | 2.5 | |||||
| (1) | For interest rate swaps that were originally designated as cash flow hedges, the amounts in accumulated other comprehensive income (loss) will be amortized to debt and interest expense in the Consolidated Statements of Operations over the remaining term of the derivative instruments at time of termination. |
Within the next twelve months, we expect to reclassify $41.7 million of net unrealized and realized gains related to derivative instruments designated as cash flow hedges from accumulated other comprehensive income (loss) into earnings.
On September 30, 2022, the Company entered into an interest rate swap agreement with a scheduled maturity date of September 30, 2025. This contract is indexed to 1 month term SOFR, has a fixed rate of 3.82%, and has a notional amount of $200.0 million.
| F-20 |
TRITON INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of December 31, 2022, the Company had derivative agreements in place to fix interest rates on a portion of the borrowings under its debt facilities with floating interest rates as summarized below:
| Derivatives | Notional Amount (in millions) | Weighted Average Fixed Leg (Pay) Interest Rate | Weighted Average Remaining Term | |||||||
| Interest Rate Swap(1) | $ | 1,327.8 | 2.22 | % | 4.0 years | |||||
| (1) | Excludes certain interest rate swaps with an effective date in a future period ("forward starting swaps"). Including these instruments will increase total notional amount by $350.0 million and increase the weighted average remaining term to 5.3 years. |
The following table summarizes the impact of derivative instruments on the consolidated statements of operations and the consolidated statements of comprehensive income on a pretax basis (in thousands):
| Year Ended December 31, | ||||||||||||||
| Financial statement caption | 2022 | 2021 | 2020 | |||||||||||
| Non-Designated Derivative Instruments | ||||||||||||||
| Realized (gains) losses | Other (income) expense, net | $ | — | $ | — | $ | (224 | ) | ||||||
| Realized (gains) losses | Debt termination expense | $ | — | $ | 883 | $ | — | |||||||
| Unrealized (gains) losses | Unrealized (gain) loss on derivative instruments, net | $ | (343 | ) | $ | — | $ | 286 | ||||||
| Designated Derivative Instruments | ||||||||||||||
| Realized (gains) losses | Interest and debt (income) expense | $ | 260 | $ | 30,638 | $ | 23,071 | |||||||
| Unrealized (gains) losses | Comprehensive (income) loss | $ | (168,156 | ) | $ | (59,185 | ) | $ | 134,051 | |||||
Fair Value of Derivative Instruments
The Company presents the fair value of derivative financial instruments on a gross basis as a separate line item on the consolidated balance sheet.
The Company has elected to use the income approach to value its interest rate swap and cap agreements, using Level 2 market expectations at the measurement date and standard valuation techniques to convert future values to a single discounted present value. The Level 2 inputs for the interest rate swap and cap valuations are inputs other than quoted prices that are observable for the asset or liability (specifically LIBOR and swap rates and credit risk at commonly quoted intervals). In response to the expected phase out of LIBOR, the Company continues to work with its counterparties to identify an alternative reference rate. Substantially all of the Company's derivative agreements have fallback provisions that would govern their transition to another benchmark, and the Company also adopted various practical expedients which will facilitate the transition.
Note 8—Leases
Lessee
The Company's leases are primarily for multiple office facilities which are contracted under various cancelable and non-cancelable operating leases, most of which provide extension or early termination options. The Company's lease agreements do not contain any residual value guarantees or material restrictive covenants.
The weighted average implicit rate was 3.98% and 3.50% for the years ended December 31, 2022 and 2021, respectively and the weighted average remaining lease term was 1.6 years and 2.1 years for the years ended December 31, 2022 and 2021, respectively.
| F-21 |
TRITON INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes the impact of the Company's leases in its financial statements (in thousands):
| Balance Sheet | Financial statement caption | December 31, 2022 | December 31, 2021 | |||||||
| Right-of-use asset - operating | Other assets | $ | 3,145 | $ | 5,099 | |||||
| Lease liability - operating | Accounts payable and other accrued expenses | $ | 3,465 | $ | 5,790 | |||||
| Income Statement | Financial statement caption | Year Ended December 31, 2022 | Year Ended December 31, 2021 | Year Ended December 31, 2020 | ||||||||||
| Operating lease cost(1) | Administrative expenses | $ | 3,205 | $ | 3,183 | $ | 3,005 | |||||||
| (1) | Includes short-term leases that are immaterial. |
Cash paid for amounts of lease liabilities included in operating cash flows was $3.4 million, $3.3 million, and $3.1 million for the years ended December 31, 2022, 2021, and 2020, respectively.
The following represents our future undiscounted cash flows related to lease liabilities for each of the next five years and thereafter as of December 31, 2022 (in thousands):
| Years ending December 31, | ||||
| 2023 | $ | 2,509 | ||
| 2024 | 743 | |||
| 2025 | 343 | |||
| 2026 | — | |||
| 2027 | — | |||
| 2028 and thereafter | — | |||
| Total undiscounted future cash flows related to lease payments | $ | 3,595 | ||
| Less: imputed interest | (130 | ) | ||
| Total present value of lease liability | $ | 3,465 | ||
The Company entered into an amended agreement in September 2022 with a non-affiliated third party to relocate office space in Purchase, New York (our principal executive offices) (“New Premises”). The lessor and its agents are currently renovating this new office space and the Company does not have control of this office space during renovations. The New Premises lease is expected to commence in mid-2023 when renovations are completed.
Lessor
Operating Leases
The following is the minimum future rental income as of December 31, 2022 under non-cancelable operating leases, assuming the minimum contractual lease term (in thousands):
| Years ending December 31, | ||||
| 2023 | $ | 1,049,676 | ||
| 2024 | 897,993 | |||
| 2025 | 762,561 | |||
| 2026 | 602,042 | |||
| 2027 | 474,552 | |||
| 2028 and thereafter | 1,416,675 | |||
| Total | $ | 5,203,499 | ||
| F-22 |
TRITON INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of December 31, 2022, the Company has deferred revenue balances related to operating leases with uneven payment terms. These amounts will be amortized into revenue as follows (in thousands):
| Years ending December 31, | ||||
| 2023 | $ | 74,003 | ||
| 2024 | 76,534 | |||
| 2025 | 65,793 | |||
| 2026 | 42,768 | |||
| 2027 | 16,370 | |||
| 2028 and thereafter | 57,792 | |||
| Total | $ | 333,260 | ||
Finance Leases
The following table summarizes the components of the net investment in finance leases (in thousands):
| December 31, 2022 | December 31, 2021 | |||||||
| Future minimum lease payment receivable(1) | $ | 2,161,192 | $ | 2,122,165 | ||||
| Estimated residual receivable(2) | 218,004 | 205,994 | ||||||
| Gross finance lease receivables(3) | 2,379,196 | 2,328,159 | ||||||
| Unearned income(4) | (739,365 | ) | (769,869 | ) | ||||
| Net investment in finance leases(5) | $ | 1,639,831 | $ | 1,558,290 | ||||
| (1) | There were no executory costs included in gross finance lease receivables as of December 31, 2022 and December 31, 2021. |
| (2) | The Company's finance leases generally include a purchase option at nominal amounts that is reasonably certain to be exercised, and therefore, the Company has immaterial residual value risk for assets. |
| (3) | The gross finance lease receivable is reduced as billed to customers and reclassified to accounts receivable until paid by customers. |
| (4) | There were no unamortized initial direct costs as of December 31, 2022 and December 31, 2021. |
| (5) | One major customer represented 90% and 91% of the Company's finance lease portfolio as of December 31, 2022 and 2021, respectively. No other customer represented more than 10% of the Company's finance lease portfolio in each of those years. |
Maturities of the Company's gross finance lease receivables subsequent to December 31, 2022 are as follows (in thousands):
| Years ending December 31, | ||||
| 2023 | $ | 219,325 | ||
| 2024 | 211,258 | |||
| 2025 | 208,939 | |||
| 2026 | 205,053 | |||
| 2027 | 172,778 | |||
| 2028 and thereafter | 1,361,843 | |||
| Total | $ | 2,379,196 | ||
The Company’s finance lease portfolio lessees are primarily comprised of the largest international shipping lines. In its estimate of expected credit losses, the Company evaluates the overall credit quality of its finance lease portfolio. The Company considers an account past due when a payment has not been received in accordance with the terms of the related lease agreement and maintains allowances, if necessary, for doubtful accounts. These allowances are based on, but not limited to, historical experience which includes stronger and weaker economic cycles, each lessee's payment history, management's current assessment of each lessee's financial condition, consideration of current economic conditions and reasonable market forecasts.
During 2022, there was a default on certain finance leases in our portfolio for which the full amount is not expected to be recovered, and the Company recognized a net impairment charge of $5.9 million which is recorded in the provision for doubtful
| F-23 |
TRITON INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
accounts in the Consolidated Statements of Operations. At the time of default, the net investment in finance lease was re-classified to leasing equipment on the Consolidated Balance Sheet.
The Company has reviewed the remaining finance lease portfolio for expected credit losses considering the factors noted above for each lessee, and based on its assessment as of December 31, 2022, further credit losses are not expected in the portfolio. As of December 31, 2022 and December 31, 2021, the Company does not have an allowance on its gross finance lease receivables and does not have any material past due balances.
Also included in the provision for doubtful accounts is a benefit of $9.0 million related to the settlement and recovery of amounts due from customers that had defaulted a number of years ago.
Note 9—Share-Based Compensation
The Company's 2016 Equity Incentive Plan ("2016 Equity Plan") provides for the granting of service-based and performance-based restricted shares and units to executives, employees and directors. The maximum aggregate number of shares and units that may be issued under the 2016 Equity Plan is 5,000,000 common shares and units. Any awards issued under the 2016 Equity Plan that are forfeited by the participant, will become available for future grant under the 2016 Equity Plan.
The following table summarizes the Company's restricted share activity for the year ended December 31, 2022:
| Number of Shares | Weighted Average Fair Value | |||||||
| Non-vested balance at December 31, 2021 | 598,429 | $ | 40.15 | |||||
| Shares/units granted(1) | 216,982 | 62.36 | ||||||
| Shares/units vested(2) | (284,483 | ) | 61.55 | |||||
| Non-vested balance at December 31, 2022 | 530,928 | $ | 50.61 | |||||
| (1) | Additional shares and units may be granted based upon the satisfaction of certain performance criteria. |
| (2) | Plan participants tendered 107,166 common shares to satisfy income tax withholding obligations. These shares were subsequently retired by the Company. Additionally, the Company issued 9,527 shares to employees that vested immediately and canceled 3,543 vested shares to settle payroll taxes. |
The share-based compensation expense for the years ended December 31, 2022, 2021 and 2020 included in administrative expenses on the Consolidated Statements of Operations was $12.5 million, $9.4 million, and $9.9 million, respectively. Share based compensation expense includes charges for performance-based shares and units that are deemed probable to vest.
As of December 31, 2022, the total unrecognized compensation expense related to non-vested restricted share awards and units was approximately $10.2 million, which is expected to be recognized over the remaining weighted average vesting period of approximately 1.7 years.
Note 10—Other Equity Matters
Share Repurchase Program
The Company's Board of Directors authorized repurchases of shares up to a specified dollar amount as part of its repurchase program. Purchases under the repurchase program may be made in the open market or privately negotiated transactions, and may include transactions pursuant to a repurchase plan administered in accordance with Rules 10b5-1 and 10b-18 under the Securities Exchange Act of 1934, as amended. Purchases may be made from time to time at the Company's discretion and the timing and amount of any share repurchases will be determined based on share price, market conditions, legal requirements, and other factors. The repurchase program does not obligate the Company to acquire any particular amount of common shares, and the Company may suspend or discontinue the repurchase program at any time.
During the year ended December 31, 2022, the Company repurchased a total of 9,065,286 common shares at an average price per-share of $61.22 for a total of $555.2 million. As of December 31, 2022, $355.6 million remains available under the Share Repurchase Program.
| F-24 |
TRITON INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Preferred Shares
The following table summarizes the Company's preferred share issuances (each, a "Series"):
| Preferred Share Offering | Issuance | Liquidation Preference (in thousands) | # of Shares(1) | Underwriting Discounts (in thousands) | ||||||||||
| Series A 8.50% Cumulative Redeemable Perpetual Preference Shares ("Series A") | March 2019 | $ | 86,250 | 3,450,000 | $ | 2,717 | ||||||||
| Series B 8.00% Cumulative Redeemable Perpetual Preference Shares ("Series B") | June 2019 | 143,750 | 5,750,000 | $ | 4,528 | |||||||||
| Series C 7.375% Cumulative Redeemable Perpetual Preference Shares ("Series C") | November 2019 | 175,000 | 7,000,000 | $ | 5,513 | |||||||||
| Series D 6.875% Cumulative Redeemable Perpetual Preference Shares ("Series D") | January 2020 | 150,000 | 6,000,000 | $ | 4,725 | |||||||||
| Series E 5.75% Cumulative Redeemable Perpetual Preference Shares ("Series E") | August 2021 | 175,000 | 7,000,000 | $ | 5,513 | |||||||||
| $ | 730,000 | 29,200,000 | $ | 22,996 | ||||||||||
| (1) | Represents number of shares authorized, issued, and outstanding. |
As a result of these offerings, the Company received $707.0 million in aggregate net proceeds which were used for general corporate purposes, including the purchase of containers, the repurchase of outstanding common shares, the payment of dividends, and the repayment or repurchase of outstanding indebtedness.
Each Series of preferred shares may be redeemed at the Company's option, at any time after approximately five years from original issuance, in whole or in part at a redemption price, plus an amount equal to all accumulated and unpaid dividends, whether or not declared. The Company may also redeem each Series of preferred shares prior to the lapse of the five year period upon the occurrence of certain events as described in each instrument, such as transactions that either transfer ownership of substantially all assets to a single entity or establish a majority voting interest by a single entity, and cause a downgrade or withdrawal of rating by the rating agency within 60 days of the event. If the Company does not elect to redeem each Series upon the occurrence of the preceding events, holders of preferred shares may have the right to convert their preferred shares into common shares. Specifically for Series E only, the Company may redeem the Series E Preference Shares if an applicable rating agency changes the methodology or criteria that were employed in assigning equity credit to securities similar to the Series E Preference Shares when originally issued, which either (a) shortens the period of time during which equity credit pertaining to the Series E Preference Shares would have been in effect had the methodology not been changed or (b) reduces the amount of equity credit as compared with the amount of equity credit that the rating agency had assigned to the Series E Preference Shares when originally issued.
Holders of preferred shares generally have no voting rights. If the Company fails to pay dividends for six or more quarterly periods (whether or not consecutive), holders will be entitled to elect two additional directors to the Board of Directors and the size of the Board of Directors will be increased to accommodate such election. Such right to elect two directors will continue until such time as there are no accumulated and unpaid dividends in arrears.
Dividends
Dividends on shares of each Series are cumulative from the date of original issue and will be payable quarterly in arrears on the 15th day of March, June, September and December of each year, when, as and if declared by the Company's Board of Directors. Dividends will be payable equal to the stated rate per annum of the $25.00 liquidation preference per share. The Series rank senior to the Company's common shares with respect to dividend rights and rights upon the Company's liquidation, dissolution or winding up, whether voluntary or involuntary.
| F-25 |
TRITON INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company paid the following quarterly dividends during the years ended December 31, 2022, 2021, and 2020 on its issued and outstanding Series (in millions except for the per-share amounts):
| Year ended December 31, | ||||||||||||||||||||||||
| 2022 | 2021 | 2020 | ||||||||||||||||||||||
| Series | Per Share Payment | Aggregate Payment | Per Share Payment | Aggregate Payment | Per Share Payment | Aggregate Payment | ||||||||||||||||||
| A(1) | $ | 2.12 | $ | 7.2 | $ | 2.12 | $ | 7.2 | $ | 2.12 | $ | 7.2 | ||||||||||||
| B | $ | 2.00 | $ | 11.6 | $ | 2.00 | $ | 11.6 | $ | 2.00 | $ | 11.6 | ||||||||||||
| C(1) | $ | 1.84 | $ | 12.8 | $ | 1.84 | $ | 12.8 | $ | 1.84 | $ | 12.8 | ||||||||||||
| D(1) | $ | 1.72 | $ | 10.4 | $ | 1.72 | $ | 10.4 | $ | 1.53 | $ | 9.3 | ||||||||||||
| E(1) | $ | 1.44 | $ | 10.1 | $ | 0.47 | $ | 3.3 | $ | — | $ | — | ||||||||||||
| Total | $ | 52.1 | $ | 45.3 | $ | 40.9 | ||||||||||||||||||
| (1) | Per share payments rounded to the nearest whole cent. |
As of December 31, 2022, the Company had cumulative unpaid preferred dividends of $2.2 million.
Accumulated Other Comprehensive Income
The following table summarizes the components of accumulated other comprehensive income (loss), net of tax, for the years ended December 31, 2022, 2021, and 2020 (in thousands):
| Cash Flow Hedges | Foreign Currency Translation | Accumulated Other Comprehensive (Loss) Income | ||||||||||
| Balance at January 1, 2020 | $ | (27,096 | ) | $ | (4,537 | ) | $ | (31,633 | ) | |||
| Change in derivative instruments designated as cash flow hedges(1) | (123,357 | ) | — | (123,357 | ) | |||||||
| Reclassification of (gain) loss on derivative instruments designated as cash flow hedges(1) | 21,927 | — | 21,927 | |||||||||
| Foreign currency translation adjustment | — | 28 | 28 | |||||||||
| Balance at December 31, 2020 | $ | (128,526 | ) | $ | (4,509 | ) | $ | (133,035 | ) | |||
| Change in derivative instruments designated as cash flow hedges(1) | 55,599 | — | 55,599 | |||||||||
| Reclassification of (gain) loss on derivative instruments designated as cash flow hedges(1) | 28,722 | — | 28,722 | |||||||||
| Foreign currency translation adjustment | — | (105 | ) | (105 | ) | |||||||
| Balance at December 31, 2021 | $ | (44,205 | ) | $ | (4,614 | ) | $ | (48,819 | ) | |||
| Change in derivative instruments designated as cash flow hedges(1) | 157,647 | — | 157,647 | |||||||||
| Reclassification of (gain) loss on derivative instruments designated as cash flow hedges(1) | 1,168 | — | 1,168 | |||||||||
| Foreign currency translation adjustment | — | (727 | ) | (727 | ) | |||||||
| Balance at December 31, 2022 | $ | 114,610 | $ | (5,341 | ) | $ | 109,269 | |||||
| (1) | Refer to Note 7 - "Derivative Instruments" for reclassification impact on the Consolidated Statements of Operations. |
Note 11—Segment and Geographic Information
Segment Information
The Company operates its business in one industry, intermodal transportation equipment, and has two operating segments which also represent its reporting segments:
· Equipment leasing - the Company owns, leases and ultimately disposes of containers and chassis from its lease fleet.
· Equipment trading - the Company purchases containers from shipping line customers, and other sellers of containers, and resells these containers to container retailers and users of containers for storage or one-way shipment. Included in the equipment trading segment revenues are leasing revenues from equipment purchased for resale that is currently on lease until the containers are dropped off.
| F-26 |
TRITON INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
These operating segments were determined based on the chief operating decision maker's review and resource allocation of the products and services offered.
The following tables summarizes our segment information and the consolidated totals reported (in thousands):
| As of and for the Year Ended December 31, 2022 | Equipment Leasing | Equipment Trading | Totals | |||||||||
| Total leasing revenues | $ | 1,665,880 | $ | 13,806 | $ | 1,679,686 | ||||||
| Trading margin | — | 16,004 | 16,004 | |||||||||
| Net gain on sale of leasing equipment | 115,665 | — | 115,665 | |||||||||
| Depreciation and amortization expense | 634,090 | 747 | 634,837 | |||||||||
| Interest and debt expense | 224,470 | 1,621 | 226,091 | |||||||||
| Segment income (loss) before income taxes(1) | 794,280 | 25,039 | 819,319 | |||||||||
| Equipment held for sale | 97,463 | 41,043 | 138,506 | |||||||||
| Goodwill | 220,864 | 15,801 | 236,665 | |||||||||
| Total assets | 12,010,654 | 98,604 | 12,109,258 | |||||||||
| Purchases of leasing equipment and investments in finance leases(2) | $ | 943,062 | $ | — | $ | 943,062 | ||||||
| As of and for the Year Ended December 31, 2021 | Equipment Leasing | Equipment Trading | Totals | |||||||||
| Total leasing revenues | $ | 1,519,434 | $ | 14,446 | $ | 1,533,880 | ||||||
| Trading margin | — | 34,099 | 34,099 | |||||||||
| Net gain on sale of leasing equipment | 107,060 | — | 107,060 | |||||||||
| Depreciation and amortization expense | 625,519 | 721 | 626,240 | |||||||||
| Interest and debt expense | 220,292 | 1,732 | 222,024 | |||||||||
| Segment income (loss) before income taxes(1) | 673,477 | 40,973 | 714,450 | |||||||||
| Equipment held for sale | 16,936 | 31,810 | 48,746 | |||||||||
| Goodwill | 220,864 | 15,801 | 236,665 | |||||||||
| Total assets | 12,543,270 | 100,568 | 12,643,838 | |||||||||
| Purchases of leasing equipment and investments in finance leases(2) | $ | 3,434,394 | $ | — | $ | 3,434,394 | ||||||
| As of and for the Year Ended December 31, 2020 | Equipment Leasing | Equipment Trading | Totals | |||||||||
| Total leasing revenues | $ | 1,300,346 | $ | 7,561 | $ | 1,307,907 | ||||||
| Trading margin | — | 14,799 | 14,799 | |||||||||
| Net gain on sale of leasing equipment | 37,773 | — | 37,773 | |||||||||
| Depreciation and amortization expense | 541,406 | 722 | 542,128 | |||||||||
| Interest and debt expense | 251,145 | 1,834 | 252,979 | |||||||||
| Segment income (loss) before income taxes(1) | 375,957 | 17,082 | 393,039 | |||||||||
| Equipment held for sale | 43,275 | 24,036 | 67,311 | |||||||||
| Goodwill | 220,864 | 15,801 | 236,665 | |||||||||
| Total assets | 9,612,251 | 100,282 | 9,712,533 | |||||||||
| Purchases of leasing equipment and investments in finance leases(2) | $ | 744,129 | $ | — | $ | 744,129 | ||||||
| (1) | Segment income before income taxes excludes unrealized gains or losses on derivative instruments and debt termination expense. The Company recorded debt termination expense of $1.9 million, $133.9 million, and $24.7 million for the years ended December 31, 2022, 2021, and 2020, respectively and an unrealized gain of $0.3 million, nil, and an unrealized loss of $0.3 million for the years ended December 31, 2022, 2021, and 2020, respectively. |
| (2) | Represents cash disbursements for purchases of leasing equipment and investments in finance lease as reflected in the Consolidated Statements of Cash Flows for the periods indicated, but excludes cash flows associated with the purchase of equipment held for resale. |
There are no intercompany revenues or expenses between segments. Certain administrative expenses have been allocated between segments based on an estimate of services provided to each segment. A portion of the Company's equipment purchased for resale in the equipment trading segment may be leased for a period of time and is reflected as leasing equipment as opposed to equipment held for sale and the cash flows associated with these transactions are reflected as purchases of leasing equipment and proceeds from the sale of equipment in investing activities in the Company's Consolidated Statements of Cash Flows.
| F-27 |
TRITON INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Geographic Segment Information
The Company generates the majority of its leasing revenues from international containers which are deployed by its customers in a wide variety of global trade routes. The majority of the Company's leasing related revenue is denominated in U.S. dollars.
The following table summarizes the geographic allocation of total leasing revenues for the years ended December 31, 2022, 2021, and 2020 based on customers' primary domicile (in thousands):
| Year Ended December 31, | ||||||||||||
| 2022 | 2021 | 2020 | ||||||||||
| Total leasing revenues: | ||||||||||||
| Asia | $ | 602,985 | $ | 556,837 | $ | 471,820 | ||||||
| Europe | 876,691 | 807,735 | 685,906 | |||||||||
| Americas | 142,822 | 118,430 | 105,643 | |||||||||
| Bermuda | 3,135 | 2,424 | 1,820 | |||||||||
| Other International | 54,053 | 48,454 | 42,718 | |||||||||
| Total | $ | 1,679,686 | $ | 1,533,880 | $ | 1,307,907 | ||||||
Since the majority of the Company's containers are used internationally, where no one container is domiciled in one particular place for a prolonged period of time, all of the Company's long-lived assets are considered to be international.
The following table summarizes the geographic allocation of equipment trading revenues for the years ended December 31, 2022, 2021 and 2020 based on the location of the sale (in thousands):
| Year Ended December 31, | ||||||||||||
| 2022 | 2021 | 2020 | ||||||||||
| Total equipment trading revenues: | ||||||||||||
| Asia | $ | 71,739 | $ | 64,588 | $ | 22,748 | ||||||
| Europe | 27,620 | 22,167 | 22,031 | |||||||||
| Americas | 43,120 | 47,644 | 30,681 | |||||||||
| Bermuda | — | — | — | |||||||||
| Other International | 5,395 | 8,570 | 10,320 | |||||||||
| Total | $ | 147,874 | $ | 142,969 | $ | 85,780 | ||||||
Note 12—Income Taxes
The Company is a Bermuda exempted company. Bermuda does not impose a corporate income tax. The Company is subject to taxation in certain foreign jurisdictions on a portion of its income attributable to such jurisdictions. The two main subsidiaries of Triton are TCIL and TAL. TCIL is a Bermuda exempted company and therefore no income tax is imposed. However, a portion of TCIL's income is subject to taxation in the U.S. TAL is a U.S. company and therefore is subject to taxation in the U.S.
| F-28 |
TRITON INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table sets forth the income tax expense (benefit) for the periods indicated (in thousands):
| December 31, 2022 | December 31, 2021 | December 31, 2020 | ||||||||||
| Current taxes: | ||||||||||||
| Bermuda | $ | — | $ | — | $ | — | ||||||
| U.S. | 46,380 | 6,528 | 2,518 | |||||||||
| Foreign | 952 | 230 | 60 | |||||||||
| $ | 47,332 | $ | 6,758 | $ | 2,578 | |||||||
| Deferred taxes: | ||||||||||||
| Bermuda | $ | — | $ | — | $ | — | ||||||
| U.S. | 23,522 | 43,604 | 35,628 | |||||||||
| Foreign | (47 | ) | (5 | ) | 34 | |||||||
| 23,475 | 43,599 | 35,662 | ||||||||||
| Total income tax expense (benefit) | $ | 70,807 | $ | 50,357 | $ | 38,240 | ||||||
The following table sets forth the components of income (loss) before income taxes (in thousands):
| December 31, 2022 | December 31, 2021 | December 31, 2020 | ||||||||||
| Bermuda sources | $ | 532,391 | $ | 346,023 | $ | 200,453 | ||||||
| U.S. sources | 284,468 | 233,518 | 166,031 | |||||||||
| Foreign sources | 870 | 1,056 | 1,535 | |||||||||
| Income (loss) before income taxes | $ | 817,729 | $ | 580,597 | $ | 368,019 | ||||||
The following table sets forth the difference between the Bermuda statutory income tax rate and the effective tax rate on the Consolidated Statements of Operations for the periods indicated below:
| December 31, 2022 | December 31, 2021 | December 31, 2020 | ||||||||||
| Bermuda tax rate | — | % | — | % | — | % | ||||||
| Change in enacted tax act | 0.66 | % | — | % | 0.65 | % | ||||||
| U.S. income taxed at other than the statutory rate | 7.58 | % | 8.75 | % | 9.80 | % | ||||||
| Effect of uncertain tax positions | (0.06 | )% | (0.09 | )% | (0.12 | )% | ||||||
| Foreign income taxed at other than the statutory rate | 0.16 | % | 0.11 | % | 0.14 | % | ||||||
| Effect of permanent differences | 0.10 | % | 0.21 | % | 0.19 | % | ||||||
| Other discrete items | 0.22 | % | (0.31 | )% | (0.27 | )% | ||||||
| Effective income tax rate | 8.66 | % | 8.67 | % | 10.39 | % | ||||||
| F-29 |
TRITON INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table sets forth the components of deferred income tax assets and liabilities (in thousands):
| December 31, 2022 | December 31, 2021 | |||||||
| Deferred income tax assets: | ||||||||
| Net operating loss and interest expense limitation carryforwards | $ | 3,669 | $ | 1,237 | ||||
| Allowance for losses | — | 13 | ||||||
| Derivative instruments | — | 4,810 | ||||||
| Deferred income | 2,444 | 366 | ||||||
| Accrued liabilities and other payables | 3,076 | 5,138 | ||||||
| Total gross deferred tax assets | 9,189 | 11,564 | ||||||
| Less: Valuation allowance | (200 | ) | (200 | ) | ||||
| Net deferred tax assets | $ | 8,989 | $ | 11,364 | ||||
| Deferred income tax liabilities: | ||||||||
| Accelerated depreciation | $ | 337,375 | $ | 333,610 | ||||
| Goodwill and other intangible amortization | 3,974 | 3,879 | ||||||
| Derivative instruments | 5,383 | 121 | ||||||
| Deferred income | 302 | 2,613 | ||||||
| Deferred partnership income (loss) | 73,583 | 47,150 | ||||||
| Total gross deferred tax liability | 420,617 | 387,373 | ||||||
| Net deferred income tax liability | $ | 411,628 | $ | 376,009 | ||||
At December 31, 2022, the Company had U.S. state net operating loss carryforwards of $13.5 million that expire at various times beginning in 2024 and net interest expense limitation carryforwards of $13.5 million that have an indefinite carryforward period. The Company maintained a valuation allowance of $0.2 million at December 31, 2022 related to U.S. state net operating losses, as it is more likely than not that the Company will be unable to utilize these losses. There has been no change in the Company's valuation allowance from December 31, 2021.
In assessing the potential future realization of deferred tax assets, management considers whether it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. The Company considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods during which the deferred tax assets are deductible, the Company believes it is more-likely-than-not that the Company will realize the benefits of these deductible differences at December 31, 2022.
Certain income taxes on unremitted earnings have not been reflected on the consolidated financial statements because such earnings are intended to be permanently reinvested in those jurisdictions. Such earnings and related income taxes are estimated to be approximately $236.6 million and $70.7 million, respectively, at December 31, 2022.
The following table sets forth the unrecognized tax benefit amounts (in thousands):
| December 31, 2022 | December 31, 2021 | |||||||
| Beginning balance at January 1 | $ | 327 | $ | 650 | ||||
| Lapse of statute of limitations | (327 | ) | (337 | ) | ||||
| Foreign exchange adjustment | — | 14 | ||||||
| Ending balance at December 31 | $ | — | $ | 327 | ||||
The Company files income tax returns in several jurisdictions including the U.S. and certain U.S. states. The tax years 2019 through 2022 remain subject to examination by major tax jurisdictions.
| F-30 |
TRITON INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company accrues interest and penalties related to income taxes in the provision for income taxes. The following table summarizes interest and penalty expense (in thousands):
| December 31, 2022 | December 31, 2021 | December 31, 2020 | ||||||||||
| Interest expense (benefit) | $ | (86 | ) | $ | (78 | ) | $ | (51 | ) | |||
| Penalty expense (benefit) | $ | (98 | ) | $ | (97 | ) | $ | (93 | ) | |||
The following table summarizes the components of income taxes payable included in Accounts payable and other accrued expenses on the Consolidated Balance Sheets (in thousands):
| December 31, 2022 | December 31, 2021 | |||||||
| Corporate income taxes payable | $ | — | $ | 108 | ||||
| Unrecognized tax benefits | — | 327 | ||||||
| Interest accrued | — | 86 | ||||||
| Penalties | — | 98 | ||||||
| Income taxes payable | $ | — | $ | 619 | ||||
Note 13—Other Postemployment Benefits
The Company's U.S. employees participate in a defined contribution plan. Under the provisions of the plan, an employee is fully vested with respect to Company contributions after four years of service. The Company matches employee contributions of 100% up to a maximum of $6,000 of qualified compensation and may, at its discretion, make voluntary contributions. The Company's contributions were $0.8 million for the year ended December 31, 2022, and $0.7 million for the years ended December 31, 2021, and 2020, respectively.
Note 14—Commitments and Contingencies
Container Equipment Purchase Commitments
As of December 31, 2022, the Company had commitments to purchase equipment in the amount of $29.1 million to be paid in 2023.
Lease Commitment
In September 2022, the Company entered into an amended lease agreement for New Premises and therefore, has a commitment to pay base rent of approximately $15 million over the lease term of 12 years. The lease is expected to commence in mid-2023 when renovations are completed.
Contingencies
The Company is party to various pending or threatened legal or regulatory proceedings arising in the ordinary course of its business. Based upon information presently available, the Company does not expect any liabilities arising from these matters to have a material effect on the consolidated financial position, results of operations or cash flows of the Company.
Note 15—Related Party Transactions
The Company holds a 50% interest in TriStar Container Services (Asia) Private Limited ("TriStar"), which is primarily engaged in the selling and leasing of container equipment in the domestic and short sea markets in India. The Company's equity investment in TriStar is included in Other assets on the Consolidated Balance Sheets. The Company received payments on finance leases with TriStar of $2.0 million for both years ended December 31, 2022 and 2021. The Company has a direct finance lease balance with TriStar of $7.4 million and $8.9 million as of the years ended December 31, 2022 and December 31, 2021.
| F-31 |
TRITON INTERNATIONAL LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 16—Subsequent Events
On February 8, 2023, the Company's Board of Directors approved and declared a quarterly cash dividend of $0.70 per share on its issued and outstanding common shares, payable on March 24, 2023 to shareholders of record at the close of business on March 10, 2023.
On February 8, 2023, the Company's Board of Directors also approved and declared a cash dividend on its issued and outstanding preferred shares, payable on March 15, 2023 to holders of record as the close of business on March 8, 2023 as follows:
| Preferred Share Offering | Dividend Rate | Dividend Per Share | ||||||
| Series A | 8.500 | % | $ | 0.5312500 | ||||
| Series B | 8.000 | % | $ | 0.5000000 | ||||
| Series C | 7.375 | % | $ | 0.4609375 | ||||
| Series D | 6.875 | % | $ | 0.4296875 | ||||
| Series E | 5.750 | % | $ | 0.3593750 | ||||
| F-32 |
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
TRITON INTERNATIONAL LIMITED
Parent Company Condensed Balance Sheets
(In thousands, except share data)
| December 31, 2022 | December 31, 2021 | |||||||
| ASSETS: | ||||||||
| Cash and cash equivalents | $ | 8 | $ | 13 | ||||
| Investment in subsidiaries | 3,212,600 | 3,071,654 | ||||||
| Other assets | 37 | 35 | ||||||
| Total assets | $ | 3,212,645 | $ | 3,071,702 | ||||
| LIABILITIES AND SHAREHOLDERS' EQUITY: | ||||||||
| Accounts payable and other accrued expenses | $ | 7,126 | $ | 5,936 | ||||
| Payables with affiliates, net | 1,156 | 1,054 | ||||||
| Total liabilities | 8,282 | 6,990 | ||||||
| Shareholders' equity | ||||||||
| Preferred shares, $0.01 par value, at liquidation preference | 730,000 | 730,000 | ||||||
| Common shares, $0.01 par value, 270,000,000 shares authorized, 81,383,024 and 81,295,366 shares issued, respectively | 814 | 813 | ||||||
| Undesignated shares, $0.01 par value, 800,000 shares authorized, no shares issued and outstanding | — | — | ||||||
| Treasury shares, at cost, 24,494,785 and 15,429,499 shares, respectively | (1,077,559 | ) | (522,360 | ) | ||||
| Additional paid-in capital | 909,911 | 904,224 | ||||||
| Accumulated earnings | 2,531,928 | 2,000,854 | ||||||
| Accumulated other comprehensive income | 109,269 | (48,819 | ) | |||||
| Total shareholders' equity | 3,204,363 | 3,064,712 | ||||||
| Total liabilities and shareholders' equity | $ | 3,212,645 | $ | 3,071,702 | ||||
| S-1 |
TRITON INTERNATIONAL LIMITED
Parent Company Condensed Statements of Operations
(In thousands)
| Year Ended December 31, | ||||||||||||
| 2022 | 2021 | 2020 | ||||||||||
| Revenues: | ||||||||||||
| Revenues | $ | — | $ | — | $ | — | ||||||
| Total revenues | — | — | — | |||||||||
| Operating expenses: | ||||||||||||
| Administrative expenses | 9,986 | 8,061 | 7,298 | |||||||||
| Operating income (loss) | (9,986 | ) | (8,061 | ) | (7,298 | ) | ||||||
| Other income (expenses): | ||||||||||||
| Interest and debt expense | — | — | — | |||||||||
| Net income from subsidiaries | 756,908 | 538,301 | 337,077 | |||||||||
| Total other income (expenses) | 756,908 | 538,301 | 337,077 | |||||||||
| Income (loss) before income taxes | 746,922 | 530,240 | 329,779 | |||||||||
| Income tax expense (benefit) | — | — | — | |||||||||
| Net income (loss) | $ | 746,922 | $ | 530,240 | $ | 329,779 | ||||||
| S-2 |
TRITON INTERNATIONAL LIMITED
Parent Company Condensed Statements of Cash Flows
(In thousands)
| Year Ended December 31, | ||||||||||||
| 2022 | 2021 | 2020 | ||||||||||
| Cash flows from operating activities: | ||||||||||||
| Net income (loss) | $ | 746,922 | $ | 530,240 | $ | 329,779 | ||||||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||||||
| Net (income) loss from subsidiaries | (756,908 | ) | (538,301 | ) | (337,077 | ) | ||||||
| Dividends received from subsidiaries | 778,388 | 293,866 | 352,903 | |||||||||
| Share-based compensation expense | 1,348 | 1,268 | 1,177 | |||||||||
| Changes in operating assets and liabilities: | ||||||||||||
| Other | (1,374 | ) | (1,236 | ) | (589 | ) | ||||||
| Net cash provided by (used in) operating activities | 768,376 | 285,837 | 346,193 | |||||||||
| Cash flows from investing activities: | ||||||||||||
| Investment in subsidiary | — | (169,488 | ) | (145,157 | ) | |||||||
| Net cash provided by (used in) investing activities | — | (169,488 | ) | (145,157 | ) | |||||||
| Cash flows from financing activities: | ||||||||||||
| Issuance of preferred shares, net of underwriting discount | — | 169,488 | 145,275 | |||||||||
| Purchases of treasury shares | (554,095 | ) | (82,528 | ) | (158,312 | ) | ||||||
| Dividends paid on preferred shares | (52,112 | ) | (45,321 | ) | (40,933 | ) | ||||||
| Dividends paid on common shares | (162,174 | ) | (157,312 | ) | (146,476 | ) | ||||||
| Other | — | (664 | ) | (590 | ) | |||||||
| Net cash provided by (used in) financing activities | (768,381 | ) | (116,337 | ) | (201,036 | ) | ||||||
| Net increase (decrease) in cash and cash equivalents | $ | (5 | ) | $ | 12 | $ | — | |||||
| Cash, cash equivalents and restricted cash, beginning of period | 13 | 1 | 1 | |||||||||
| Cash, cash equivalents and restricted cash, end of period | $ | 8 | $ | 13 | $ | 1 | ||||||
| S-3 |
TRITON INTERNATIONAL LIMITED
Valuation and Qualifying Accounts
(In thousands)
| For the year ended December 31, | ||||||||||||
| 2022 | 2021 | 2020 | ||||||||||
| Accounts Receivable-Allowance for doubtful accounts: | ||||||||||||
| Beginning Balance | $ | 1,178 | $ | 2,192 | $ | 1,276 | ||||||
| Additions / (Reversals) | 910 | (910 | ) | 1,082 | ||||||||
| Write-offs | (13 | ) | (104 | ) | (166 | ) | ||||||
| Ending Balance | $ | 2,075 | $ | 1,178 | $ | 2,192 | ||||||
| S-4 |
Exhibit 99.2
CONSOLIDATED FINANCIAL STATEMENTS
TRITON INTERNATIONAL LIMITED
Consolidated Balance Sheets
(In thousands, except share data)
(Unaudited)
| March 31, 2023 | December 31, 2022 | |||||||
| ASSETS: | ||||||||
| Leasing equipment, net of accumulated depreciation of $4,305,897 and $4,289,259 | $ | 9,290,628 | $ | 9,530,396 | ||||
| Net investment in finance leases | 1,621,341 | 1,639,831 | ||||||
| Equipment held for sale | 178,327 | 138,506 | ||||||
| Revenue earning assets | 11,090,296 | 11,308,733 | ||||||
| Cash and cash equivalents | 92,825 | 83,227 | ||||||
| Restricted cash | 103,032 | 103,082 | ||||||
| Accounts receivable, net of allowances of $2,240 and $2,075 | 249,828 | 226,554 | ||||||
| Goodwill | 236,665 | 236,665 | ||||||
| Lease intangibles, net of accumulated amortization of $293,184 and $291,837 | 5,273 | 6,620 | ||||||
| Other assets | 30,814 | 28,383 | ||||||
| Fair value of derivative instruments | 92,462 | 115,994 | ||||||
| Total assets | $ | 11,901,195 | $ | 12,109,258 | ||||
| LIABILITIES AND SHAREHOLDERS' EQUITY: | ||||||||
| Equipment purchases payable | $ | 19,610 | $ | 11,817 | ||||
| Fair value of derivative instruments | 1,982 | 2,117 | ||||||
| Deferred revenue | 315,643 | 333,260 | ||||||
| Accounts payable and other accrued expenses | 86,225 | 71,253 | ||||||
| Net deferred income tax liability | 412,583 | 411,628 | ||||||
| Debt, net of unamortized costs of $52,068 and $55,863 | 7,907,392 | 8,074,820 | ||||||
| Total liabilities | 8,743,435 | 8,904,895 | ||||||
| Shareholders' equity: | ||||||||
| Preferred shares, $0.01 par value, at liquidation preference | 730,000 | 730,000 | ||||||
| Common shares, $0.01 par value, 270,000,000 shares authorized, 81,441,414 and 81,383,024 shares issued, respectively | 814 | 814 | ||||||
| Undesignated shares, $0.01 par value, 800,000 shares authorized, no shares issued and outstanding | — | — | ||||||
| Treasury shares, at cost, 26,239,401 and 24,494,785 shares, respectively | (1,194,519 | ) | (1,077,559 | ) | ||||
| Additional paid-in capital | 906,644 | 909,911 | ||||||
| Accumulated earnings | 2,629,499 | 2,531,928 | ||||||
| Accumulated other comprehensive income (loss) | 85,322 | 109,269 | ||||||
| Total shareholders' equity | 3,157,760 | 3,204,363 | ||||||
| Total liabilities and shareholders' equity | $ | 11,901,195 | $ | 12,109,258 | ||||
The accompanying Notes to the Unaudited Consolidated Financial Statements are an integral part of these statements.
1
TRITON INTERNATIONAL LIMITED
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
| Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Leasing revenues: | ||||||||
| Operating leases | $ | 370,348 | $ | 388,945 | ||||
| Finance leases | 27,375 | 28,143 | ||||||
| Total leasing revenues | 397,723 | 417,088 | ||||||
| Equipment trading revenues | 19,102 | 34,120 | ||||||
| Equipment trading expenses | (18,033 | ) | (29,979 | ) | ||||
| Trading margin | 1,069 | 4,141 | ||||||
| Net gain on sale of leasing equipment | 15,500 | 28,969 | ||||||
| Operating expenses: | ||||||||
| Depreciation and amortization | 148,435 | 160,716 | ||||||
| Direct operating expenses | 23,241 | 6,220 | ||||||
| Administrative expenses | 22,864 | 21,300 | ||||||
| Provision (reversal) for doubtful accounts | (1,797 | ) | (27 | ) | ||||
| Total operating expenses | 192,743 | 188,209 | ||||||
| Operating income (loss) | 221,549 | 261,989 | ||||||
| Other expenses: | ||||||||
| Interest and debt expense | 58,824 | 54,510 | ||||||
| Unrealized (gain) loss on derivative instruments, net | (4 | ) | (439 | ) | ||||
| Debt termination expense | — | 36 | ||||||
| Other (income) expense, net | (44 | ) | (308 | ) | ||||
| Total other expenses | 58,776 | 53,799 | ||||||
| Income (loss) before income taxes | 162,773 | 208,190 | ||||||
| Income tax expense (benefit) | 12,960 | 13,932 | ||||||
| Net income (loss) | $ | 149,813 | $ | 194,258 | ||||
| Less: dividend on preferred shares | 13,028 | 13,028 | ||||||
| Net income (loss) attributable to common shareholders | $ | 136,785 | $ | 181,230 | ||||
| Net income per common share—Basic | $ | 2.45 | $ | 2.79 | ||||
| Net income per common share—Diluted | $ | 2.44 | $ | 2.78 | ||||
| Cash dividends paid per common share | $ | 0.70 | $ | 0.65 | ||||
| Weighted average number of common shares outstanding—Basic | 55,885 | 64,887 | ||||||
| Dilutive restricted shares | 255 | 267 | ||||||
| Weighted average number of common shares outstanding—Diluted | 56,140 | 65,154 | ||||||
The accompanying Notes to the Unaudited Consolidated Financial Statements are an integral part of these statements.
2
TRITON INTERNATIONAL LIMITED
Consolidated Statements of Comprehensive Income
(In thousands)
(Unaudited)
| Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Net income (loss) | $ | 149,813 | $ | 194,258 | ||||
| Other comprehensive income (loss), net of tax: | ||||||||
| Change in derivative instruments designated as cash flow hedges | (15,236 | ) | 74,017 | |||||
| Reclassification of (gain) loss on derivative instruments designated as cash flow hedges | (8,729 | ) | 6,307 | |||||
| Foreign currency translation adjustment | 18 | (166 | ) | |||||
| Other comprehensive income (loss), net of tax | (23,947 | ) | 80,158 | |||||
| Comprehensive income | 125,866 | 274,416 | ||||||
| Less: | ||||||||
| Dividend on preferred shares | 13,028 | 13,028 | ||||||
| Comprehensive income attributable to common shareholders | $ | 112,838 | $ | 261,388 | ||||
| Tax (benefit) provision on change in derivative instruments designated as cash flow hedges | $ | (505 | ) | $ | 5,546 | |||
| Tax (benefit) provision on reclassification of (gain) loss on derivative instruments designated as cash flow hedges | $ | (1,059 | ) | $ | 463 | |||
The accompanying Notes to the Unaudited Consolidated Financial Statements are an integral part of these statements.
3
TRITON INTERNATIONAL LIMITED
Consolidated Statements of Shareholders' Equity
(In thousands, except share amounts)
(Unaudited)
| Preferred Shares | Common Shares | Treasury Shares | Add'l Paid in | Accumulated | Accumulated Other Comprehensive | Total | |||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Earnings | Income (Loss) | Equity | ||||||||||||||||||||||||||||||
| Balance as of December 31, 2022 | 29,200,000 | $ | 730,000 | 81,383,024 | $ | 814 | 24,494,785 | $ | (1,077,559 | ) | $ | 909,911 | $ | 2,531,928 | $ | 109,269 | $ | 3,204,363 | |||||||||||||||||||||
| Share-based compensation | — | — | 135,716 | 1 | — | — | 2,212 | — | — | 2,213 | |||||||||||||||||||||||||||||
| Treasury shares acquired | — | — | — | — | 1,744,616 | (116,960 | ) | — | — | — | (116,960 | ) | |||||||||||||||||||||||||||
| Share repurchase to settle shareholder tax obligations | — | — | (77,326 | ) | (1 | ) | — | — | (5,479 | ) | — | — | (5,480 | ) | |||||||||||||||||||||||||
| Net income (loss) | — | — | — | — | — | — | — | 149,813 | — | 149,813 | |||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | — | — | — | — | (23,947 | ) | (23,947 | ) | |||||||||||||||||||||||||||
| Common shares dividend declared ($0.70 per share) | — | — | — | — | — | — | — | (39,214 | ) | — | (39,214 | ) | |||||||||||||||||||||||||||
| Preferred shares dividend declared | — | — | — | — | — | — | — | (13,028 | ) | — | (13,028 | ) | |||||||||||||||||||||||||||
| Balance as of March 31, 2023 | 29,200,000 | $ | 730,000 | 81,441,414 | $ | 814 | 26,239,401 | $ | (1,194,519 | ) | $ | 906,644 | $ | 2,629,499 | $ | 85,322 | $ | 3,157,760 | |||||||||||||||||||||
| Preferred Shares | Common Shares | Treasury Shares | Add'l Paid in | Accumulated | Accumulated Other Comprehensive | Total | |||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Earnings | Income (Loss) | Equity | ||||||||||||||||||||||||||||||
| Balance as of December 31, 2021 | 29,200,000 | $ | 730,000 | 81,295,366 | $ | 813 | 15,429,499 | $ | (522,360 | ) | $ | 904,224 | $ | 2,000,854 | $ | (48,819 | ) | $ | 3,064,712 | ||||||||||||||||||||
| Share-based compensation | — | — | 164,932 | 2 | — | — | 2,554 | — | — | 2,556 | |||||||||||||||||||||||||||||
| Treasury shares acquired | — | — | — | — | 1,257,374 | (80,166 | ) | — | — | — | (80,166 | ) | |||||||||||||||||||||||||||
| Share repurchase to settle shareholder tax obligations | — | — | (93,253 | ) | (1 | ) | — | — | (5,628 | ) | — | — | (5,629 | ) | |||||||||||||||||||||||||
| Net income (loss) | — | — | — | — | — | — | — | 194,258 | — | 194,258 | |||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | — | — | — | — | 80,158 | 80,158 | |||||||||||||||||||||||||||||
| Common shares dividend declared ($0.65 per share) | — | — | — | — | — | — | — | (42,307 | ) | — | (42,307 | ) | |||||||||||||||||||||||||||
| Preferred shares dividend declared | — | — | — | — | — | — | — | (13,028 | ) | — | (13,028 | ) | |||||||||||||||||||||||||||
| Balance as of March 31, 2022 | 29,200,000 | $ | 730,000 | 81,367,045 | $ | 814 | 16,686,873 | $ | (602,526 | ) | $ | 901,150 | $ | 2,139,777 | $ | 31,339 | $ | 3,200,554 | |||||||||||||||||||||
The accompanying Notes to the Unaudited Consolidated Financial Statements are an integral part of these statements.
4
TRITON INTERNATIONAL LIMITED
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
| Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income (loss) | $ | 149,813 | $ | 194,258 | ||||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | 148,435 | 160,716 | ||||||
| Amortization of deferred debt cost and other debt related amortization | 1,945 | 3,526 | ||||||
| Lease related amortization | 1,455 | 3,013 | ||||||
| Share-based compensation expense | 2,213 | 2,556 | ||||||
| Net (gain) loss on sale of leasing equipment | (15,500 | ) | (28,969 | ) | ||||
| Unrealized (gain) loss on derivative instruments | (4 | ) | (439 | ) | ||||
| Debt termination expense | — | 36 | ||||||
| Deferred income taxes | 2,519 | 5,193 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable, net | (25,332 | ) | (23,835 | ) | ||||
| Deferred revenue | (17,617 | ) | 35,237 | |||||
| Accounts payable and other accrued expenses | 15,120 | 4,143 | ||||||
| Net equipment sold (purchased) for resale activity | 8,724 | (7,749 | ) | |||||
| Cash received (paid) for settlement of interest rate swaps | — | 12,178 | ||||||
| Cash collections on finance lease receivables, net of income earned | 29,666 | 28,745 | ||||||
| Other assets | 1,380 | 10,061 | ||||||
| Net cash provided by (used in) operating activities | 302,817 | 398,670 | ||||||
| Cash flows from investing activities: | ||||||||
| Purchases of leasing equipment and investments in finance leases | (35,316 | ) | (511,027 | ) | ||||
| Proceeds from sale of equipment, net of selling costs | 87,585 | 57,274 | ||||||
| Other | (6 | ) | (135 | ) | ||||
| Net cash provided by (used in) investing activities | 52,263 | (453,888 | ) | |||||
| Cash flows from financing activities: | ||||||||
| Purchases of treasury shares | (116,655 | ) | (81,720 | ) | ||||
| Debt issuance costs | — | (5,507 | ) | |||||
| Borrowings under debt facilities | 55,000 | 932,600 | ||||||
| Payments under debt facilities and finance lease obligations | (226,502 | ) | (766,686 | ) | ||||
| Dividends paid on preferred shares | (13,028 | ) | (13,028 | ) | ||||
| Dividends paid on common shares | (38,867 | ) | (41,950 | ) | ||||
| Other | (5,480 | ) | (5,629 | ) | ||||
| Net cash provided by (used in) financing activities | (345,532 | ) | 18,080 | |||||
| Net increase (decrease) in cash, cash equivalents and restricted cash | $ | 9,548 | $ | (37,138 | ) | |||
| Cash, cash equivalents and restricted cash, beginning of period | 186,309 | 230,538 | ||||||
| Cash, cash equivalents and restricted cash, end of period | $ | 195,857 | $ | 193,400 | ||||
| Supplemental disclosures: | ||||||||
| Interest paid | $ | 54,008 | $ | 39,127 | ||||
| Income taxes paid (refunded) | $ | 214 | $ | 137 | ||||
| Supplemental non-cash investing activities: | ||||||||
| Equipment purchases payable | $ | 19,610 | $ | 56,804 | ||||
The accompanying Notes to the Unaudited Consolidated Financial Statements are an integral part of these statements.
5
TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1—Description of the Business, Basis of Presentation and Accounting Policy Updates
Description of the Business
Triton International Limited ("Triton" or the "Company"), through its subsidiaries, leases intermodal transportation equipment, primarily maritime containers, and provides maritime container management services through a worldwide network of service subsidiaries, third-party depots and other facilities. The majority of the Company's business is derived from leasing its containers to shipping line customers through a variety of long-term and short-term contractual lease arrangements. The Company also sells containers from its equipment leasing fleet as well as containers specifically acquired for resale from third parties. The Company's registered office is located in Bermuda.
Basis of Presentation
The unaudited consolidated financial statements and accompanying notes include the accounts of the Company and its subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these financial statements do not include all information and footnotes required by GAAP for complete financial statements.
The interim Consolidated Balance Sheet as of March 31, 2023; the Consolidated Statements of Operations, the Consolidated Statements of Comprehensive Income, and the Consolidated Statements of Shareholders' Equity for the three months ended March 31, 2023 and 2022; and the Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and 2022 are unaudited. The Consolidated Balance Sheet as of December 31, 2022, included herein, was derived from the audited financial statements as of that date, but does not include all disclosures required by GAAP. The unaudited interim financial statements have been prepared on a basis consistent with the Company's annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments necessary to state fairly the Company's financial position, results of operations, comprehensive income, shareholders' equity, and cash flows for the periods presented. The financial data and the other financial information disclosed in the notes to the financial statements related to these periods are also unaudited. The consolidated results of operations for the three months ended March 31, 2023 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2023 or for any other future annual or interim period.
These financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes thereto as of and for the year ended December 31, 2022 included in the Company's Annual Report on Form 10-K which was filed with the Securities and Exchange Commission on February 14, 2023. The unaudited consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Certain changes in presentation have been made to conform the prior period presentation to current period reporting.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities in the financial statements. Such estimates include, but are not limited to, the Company's estimates in connection with leasing equipment, including residual values and depreciable lives, values of assets held for sale and other long lived assets, provision for income tax, allowance for doubtful accounts, share-based compensation, goodwill and intangible assets. Actual results could differ from those estimates.
Concentration of Credit Risk
The Company's equipment leases and trade receivables subject it to potential credit risk. The Company extends credit to its customers based upon an evaluation of each customer's financial condition and credit history. Evaluations of the financial condition and associated credit risk of customers are performed on an ongoing basis. The Company's three largest customers accounted for 20%, 17%, and 13%, respectively, of the Company's lease billings for the three months ended March 31, 2023.
6
TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Fair Value Measurements
For information on the fair value of equipment held for sale, debt, and the fair value of derivative instruments, please refer to Note 2 - "Equipment Held for Sale", Note 7 - "Debt" and Note 8 - "Derivative Instruments", respectively.
Note 2—Equipment Held for Sale
The Company's equipment held for sale is recorded at the lower of fair value less cost to sell, or carrying value at the time identified for sale. Fair value is measured using Level 2 inputs and is based predominantly on recent sales prices. An impairment charge is recorded when the carrying value of the asset exceeds its fair value less cost to sell. The following table summarizes the Company's net impairment charges recorded in Net gain on sale of leasing equipment on the Consolidated Statements of Operations (in thousands):
| Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Impairment (loss) reversal on equipment held for sale | $ | (1,033 | ) | $ | (73 | ) | ||
| Gain (loss) on sale of equipment, net of selling costs | 16,533 | 29,042 | ||||||
| Net gain on sale of leasing equipment | $ | 15,500 | $ | 28,969 | ||||
Note 3—Intangible Assets
Intangible assets consist of lease intangibles for leases acquired with lease rates above market in a business combination. The following table summarizes the amortization of intangible assets as of March 31, 2023 (in thousands):
| Year ending December 31, | Total Intangible Assets | |||
| 2023 (Remaining 9 months) | $ | 3,310 | ||
| 2024 | 1,963 | |||
| Total | $ | 5,273 | ||
Amortization expense related to intangible assets was $1.3 million and $2.8 million for the three months ended March 31, 2023, and 2022 respectively.
Note 4—Share-Based Compensation
The Company recognizes share-based compensation expense for share-based payment transactions based on the grant date fair value. The expense is recognized over the employee's requisite service period, which is generally the vesting period of the equity award. The Company recognized share-based compensation expense in administrative expenses of $2.2 million and $2.6 million for the three months ended March 31, 2023 and 2022, respectively. Share-based compensation expense includes charges for performance-based shares and units that are deemed probable to vest.
As of March 31, 2023, the total unrecognized compensation expense related to non-vested restricted share awards and units was $18.2 million, which is expected to be recognized on a straight-line basis through January 2026.
During the three months ended March 31, 2023, the Company issued 135,716 restricted shares, and canceled 77,326 vested shares to settle payroll taxes on behalf of employees. Additional shares may be issued based upon the satisfaction of certain performance criteria.
Note 5—Other Equity Matters
Share Repurchase Program
The Company's Board of Directors authorized repurchases of shares up to a specified dollar amount as part of its repurchase program. Purchases under the repurchase program may be made in the open market or privately negotiated transactions, and may include transactions pursuant to a repurchase plan administered in accordance with Rules 10b5-1 and 10b-18 under the Securities Exchange Act of 1934, as amended. Purchases may be made from time to time at the Company's
7
TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
discretion and the timing and amount of any share repurchases will be determined based on share price, market conditions, legal requirements, and other factors. The repurchase program does not obligate the Company to acquire any particular amount of common shares, and the Company may suspend or discontinue the repurchase program at any time.
During the three months ended March 31, 2023, the Company repurchased a total of 1,744,616 common shares at an average price per-share of $67.02 for a total of $116.9 million. As of March 31, 2023, $241.6 million remains available under the Share Repurchase Program.
Preferred Shares
The following table summarizes the Company's preferred share issuances (each, a "Series"):
| Preferred Share Offering | Issuance | Liquidation Preference (in thousands) | # of Shares(1) | |||||||
| Series A 8.50% Cumulative Redeemable Perpetual Preference Shares ("Series A") | March 2019 | $ | 86,250 | 3,450,000 | ||||||
| Series B 8.00% Cumulative Redeemable Perpetual Preference Shares ("Series B") | June 2019 | 143,750 | 5,750,000 | |||||||
| Series C 7.375% Cumulative Redeemable Perpetual Preference Shares ("Series C") | November 2019 | 175,000 | 7,000,000 | |||||||
| Series D 6.875% Cumulative Redeemable Perpetual Preference Shares ("Series D") | January 2020 | 150,000 | 6,000,000 | |||||||
| Series E 5.75% Cumulative Redeemable Perpetual Preference Shares ("Series E") | August 2021 | 175,000 | 7,000,000 | |||||||
| $ | 730,000 | 29,200,000 | ||||||||
(1) Represents number of shares authorized, issued, and outstanding.
Each Series of preferred shares may be redeemed at the Company's option, at any time after approximately five years from original issuance, in whole or in part at a redemption price, plus an amount equal to all accumulated and unpaid dividends, whether or not declared. The Company may also redeem each Series of preferred shares prior to the lapse of the five year period upon the occurrence of certain events as described in each instrument, such as transactions that either transfer ownership of substantially all assets to a single entity or establish a majority voting interest by a single entity, and cause a downgrade or withdrawal of rating by the rating agency within 60 days of the event. If the Company does not elect to redeem each Series upon the occurrence of the preceding events, holders of preferred shares may have the right to convert their preferred shares into common shares. Specifically for Series E only, the Company may redeem the Series E Preference Shares if an applicable rating agency changes the methodology or criteria that were employed in assigning equity credit to securities similar to the Series E Preference Shares when originally issued, which either (a) shortens the period of time during which equity credit pertaining to the Series E Preference Shares would have been in effect had the methodology not been changed or (b) reduces the amount of equity credit as compared with the amount of equity credit that the rating agency had assigned to the Series E Preference Shares when originally issued.
Holders of preferred shares generally have no voting rights. If the Company fails to pay dividends for six or more quarterly periods (whether or not consecutive), holders will be entitled to elect two additional directors to the Board of Directors and the size of the Board of Directors will be increased to accommodate such election. Such right to elect two directors will continue until such time as there are no accumulated and unpaid dividends in arrears.
Dividends
Dividends on shares of each Series are cumulative from the date of original issue and will be payable quarterly in arrears on the 15th day of March, June, September and December of each year, when, as and if declared by the Company's Board of Directors. Dividends will be payable equal to the stated rate per annum of the $25.00 liquidation preference per share. The Series rank senior to the Company's common shares with respect to dividend rights and rights upon the Company's liquidation, dissolution or winding up, whether voluntary or involuntary.
8
TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company paid the following quarterly dividends on its issued and outstanding Series (in millions except for the per-share amounts):
| Three Months Ended March 31, | ||||||||||||||||
| 2023 | 2022 | |||||||||||||||
| Series | Per Share Payment | Aggregate Payment | Per Share Payment | Aggregate Payment | ||||||||||||
| A(1) | $ | 0.53 | $ | 1.8 | $ | 0.53 | $ | 1.8 | ||||||||
| B | $ | 0.50 | $ | 2.9 | $ | 0.50 | $ | 2.9 | ||||||||
| C(1) | $ | 0.46 | $ | 3.2 | $ | 0.46 | $ | 3.2 | ||||||||
| D(1) | $ | 0.43 | $ | 2.6 | $ | 0.43 | $ | 2.6 | ||||||||
| E(1) | $ | 0.36 | $ | 2.5 | $ | 0.36 | $ | 2.5 | ||||||||
| Total | $ | 13.0 | $ | 13.0 | ||||||||||||
(1) Per share payments rounded to the nearest whole cent.
As of March 31, 2023, the Company had cumulative unpaid preferred dividends of $2.2 million.
Note 6—Leases
Lessee
The Company's leases are primarily for multiple office facilities which are contracted under various cancellable and non-cancelable operating leases, most of which provide extension or early termination options. The Company's lease agreements do not contain any residual value guarantees or material restrictive covenants.
As of March 31, 2023, the weighted average implicit rate was 4.08% and the weighted average remaining lease term was 1.6 years.
The following table summarizes the impact of the Company's leases in its financial statements (in thousands):
| Balance Sheet | Financial statement caption | March 31, 2023 | December 31, 2022 | |||||||
| Right-of-use asset - operating | Other assets | $ | 2,461 | $ | 3,145 | |||||
| Lease liability - operating | Accounts payable and other accrued expenses | $ | 2,682 | $ | 3,465 | |||||
| Three Months Ended March 31, | ||||||||||
| Income Statement | Financial statement caption | 2023 | 2022 | |||||||
| Operating lease cost(1) | Administrative expenses | $ | 767 | $ | 824 | |||||
(1) Includes short-term leases that are immaterial.
Cash paid for amounts of lease liabilities included in operating cash flows was $0.8 million and $0.9 million for the three months ended March 31, 2023 and 2022, respectively.
9
TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Lessor
Operating Leases
As of March 31, 2023, the Company has deferred revenue balances related to operating leases with uneven payment terms. These amounts will be amortized into revenue as follows (in thousands):
| Year ending December 31, | ||||
| 2023 (Remaining 9 months) | $ | 56,015 | ||
| 2024 | 76,295 | |||
| 2025 | 65,177 | |||
| 2026 | 42,857 | |||
| 2027 | 16,821 | |||
| 2028 and thereafter | 58,478 | |||
| Total | $ | 315,643 | ||
Finance Leases
The following table summarizes the components of the net investment in finance leases (in thousands):
| March 31, 2023 | December 31, 2022 | |||||||
| Future minimum lease payment receivable(1) | $ | 2,117,915 | $ | 2,161,192 | ||||
| Estimated residual receivable(2) | 218,411 | 218,004 | ||||||
| Gross finance lease receivables(3) | 2,336,326 | 2,379,196 | ||||||
| Unearned income(4) | (714,985 | ) | (739,365 | ) | ||||
| Net investment in finance leases(5) | $ | 1,621,341 | $ | 1,639,831 | ||||
(1) There were no executory costs included in gross finance lease receivables as of March 31, 2023 and December 31, 2022.
(2) The Company's finance leases generally include a purchase option at nominal amounts that is reasonably certain to be exercised, and therefore, the Company has immaterial residual value risk for assets.
(3) The gross finance lease receivable is reduced as billed to customers and reclassified to accounts receivable until paid by customers.
(4) There were no unamortized initial direct costs as of March 31, 2023 and December 31, 2022.
(5) One major customer represented 90% of the Company's finance lease portfolio as of March 31, 2023 and December 31, 2022. No other customer represented more than 10% of the Company's finance lease portfolio in each of those periods.
The Company’s finance lease portfolio lessees are primarily comprised of the largest international shipping lines. In its estimate of expected credit losses, the Company evaluates the overall credit quality of its finance lease portfolio. The Company considers an account past due when a payment has not been received in accordance with the terms of the related lease agreement and maintains allowances, if necessary, for doubtful accounts. These allowances are based on, but not limited to, historical experience which includes stronger and weaker economic cycles, each lessee's payment history, management's current assessment of each lessee's financial condition, consideration of current economic conditions and reasonable market forecasts.
During the first quarter of 2023, we reversed $1.8 million of a reserve established in 2022 on certain finance leases due to better than expected recoveries. As of March 31, 2023 and December 31, 2022, the Company does not have an allowance on its gross finance lease receivables and does not have any material past due balances.
10
TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 7—Debt
The table below summarizes the Company's key terms and carrying value of debt:
March 31, 2023 | December 31, 2022 | |||||||||||||||
| Outstanding | Contractual | Outstanding | ||||||||||||||
| Borrowings | Weighted Avg | Maturity Range(1) | Borrowings | |||||||||||||
| (in thousands) | Interest Rate(1) | From | To | (in thousands) | ||||||||||||
| Secured Debt Financings | ||||||||||||||||
| Asset-backed securitization term instruments | $ | 2,812,965 | 2.04 | % | February 2028 | February 2031 | $ | 2,890,467 | ||||||||
| Asset-backed securitization warehouse | 235,000 | 6.41 | % | April 2029 | April 2029 | 320,000 | ||||||||||
| Total secured debt financings | 3,047,965 | 3,210,467 | ||||||||||||||
| Unsecured Debt Financings | ||||||||||||||||
| Senior notes | 2,900,000 | 2.11 | % | August 2023 | March 2032 | 2,900,000 | ||||||||||
| Term loan facilities | 1,056,000 | 6.29 | % | May 2026 | May 2026 | 1,080,000 | ||||||||||
| Revolving credit facilities | 960,000 | 6.28 | % | October 2027 | October 2027 | 945,000 | ||||||||||
| Total unsecured debt financings | 4,916,000 | 4,925,000 | ||||||||||||||
| Total debt financings | 7,963,965 | 8,135,467 | ||||||||||||||
| Unamortized debt costs | (52,068 | ) | (55,863 | ) | ||||||||||||
| Unamortized debt premiums & discounts | (4,505 | ) | (4,784 | ) | ||||||||||||
| Debt, net of unamortized costs | $ | 7,907,392 | $ | 8,074,820 | ||||||||||||
(1) Data as of March 31, 2023.
Asset-Backed Securitization Term Instruments
Under the Company's ABS facilities, indirect wholly-owned subsidiaries of the Company enter into debt agreements for ABS term instruments, including ABS notes. These subsidiaries are intended to be bankruptcy remote so that such assets are not available to creditors of the Company or its affiliates until and unless the related secured borrowings have been fully discharged. These transactions do not meet accounting requirements for sales treatment and are recorded as secured borrowings.
The Company’s borrowings under the ABS facilities amortize in monthly installments, typically in level payments over five or more years. These facilities provide for an advance rate against the net book values of designated eligible equipment. The net book values for purposes of calculating eligible equipment is determined according to the related debt agreement and may be different than those calculated per GAAP. The Company is required to maintain restricted cash balances on deposit in designated bank accounts equal to three to nine months of interest expense depending on the terms of each facility.
Asset-Backed Securitization Warehouse
Under the Company’s ABS warehouse facility, an indirect wholly-owned subsidiary of the Company issues ABS notes. This subsidiary is intended to be bankruptcy remote so that such assets are not available to creditors of the Company or its affiliates until and unless the related secured borrowings have been fully discharged. These transactions do not meet accounting requirements for sales treatment and are recorded as secured borrowings.
The Company's ABS warehouse facility has a borrowing capacity of $1,125.0 million that is available on a revolving basis to April 27, 2025 paying interest at term SOFR plus 1.60%. After the revolving period, borrowings will convert to term notes with a maturity date of April 27, 2029, paying interest at SOFR plus 2.60%.
During the revolving period, the borrowing capacity under this facility is determined by applying an advance rate against the net book values of designated eligible equipment. The net book values for purposes of calculating eligible equipment are determined according to the related debt agreement and may be different than those calculated per GAAP. The Company is required to maintain restricted cash balances on deposit in designated bank accounts equal to three months of interest expense.
11
TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Senior Notes
The Company’s senior notes are unsecured and have maturities ranging from 2 - 10 years and interest payments due semi-annually. The senior notes are pre-payable (in whole or in part) at the Company's option at any time prior to the maturity date, subject to certain provisions in the senior note agreements, including the payment of a make-whole premium in respect to such prepayment.
Term Loan Facility
The Company's term loan facility has a maturity date of May 27, 2026, which amortizes in quarterly installments and has a reference rate of term SOFR plus 1.48%. This facility is subject to covenants customary for unsecured financings of this type, primarily financial covenants that require us to maintain a minimum ratio of unencumbered assets to certain financial indebtedness.
Revolving Credit Facility
The revolving credit facility has a maturity date of October 26, 2027, and has a maximum borrowing capacity of $2,000.0 million. The reference rate is term SOFR plus 1.48%. This facility is subject to covenants customary for unsecured financings of this type, primarily financial covenants that require us to maintain a minimum ratio of unencumbered assets to certain financial indebtedness.
The Company hedges the risks associated with fluctuations in interest rates on a portion of its floating-rate debt by entering into interest rate swap agreements that convert a portion of its floating-rate debt to a fixed rate basis, thus reducing the impact of interest rate changes on future interest expense. The following table summarizes the Company's outstanding fixed-rate and floating-rate debt as of March 31, 2023:
| Balance | Contractual | |||||||||||||
| Outstanding (in | Weighted Avg | Maturity Range | Weighted Avg | |||||||||||
| thousands) | Interest Rate | From | To | Remaining Term | ||||||||||
| Excluding impact of derivative instruments: | ||||||||||||||
| Fixed-rate debt | $ | 5,712,965 | 2.08 | % | Aug 2023 | Mar 2032 | 4.3 years | |||||||
| Floating-rate debt | $ | 2,251,000 | 6.30 | % | May 2026 | Apr 2029 | 3.8 years | |||||||
| Including impact of derivative instruments: | ||||||||||||||
| Fixed-rate debt | $ | 5,712,965 | 2.08 | % | ||||||||||
| Hedged floating-rate debt | $ | 1,327,750 | 3.71 | % | ||||||||||
| Total fixed and hedged debt | $ | 7,040,715 | 2.38 | % | ||||||||||
| Unhedged floating-rate debt | $ | 923,250 | 6.30 | % | ||||||||||
| Total debt | $ | 7,963,965 | 2.84 | % | ||||||||||
The fair value of total debt outstanding was $7,199.3 million and $7,264.7 million as of March 31, 2023 and December 31, 2022, respectively, and was measured using Level 2 inputs.
As of March 31, 2023, the maximum borrowing levels for the ABS warehouse and the revolving credit facilities are $1,125.0 million and $2,000.0 million, respectively. Certain of these facilities are governed by either borrowing bases or an unencumbered asset test that limits borrowing capacity. Based on those limitations, the availability under these credit facilities at March 31, 2023 was approximately $1,334.1 million.
The Company is subject to certain financial covenants under its debt financings. As of March 31, 2023, the Company was in compliance with all financial covenants in accordance with the terms of its debt agreements.
12
TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 8—Derivative Instruments
Interest Rate Swaps / Caps
The Company enters into derivative agreements to manage interest rate risk exposure. Interest rate swap agreements are utilized to limit the Company's exposure to interest rate risk by converting a portion of its floating-rate debt to a fixed rate basis, thus reducing the impact of interest rate changes on future interest expense. Interest rate swaps involve the receipt of floating-rate amounts in exchange for fixed-rate interest payments over the lives of the agreements without an exchange of the underlying principal amounts. These swaps are designated as cash flow hedges for accounting purposes and accordingly, changes in the fair value are recorded in accumulated other comprehensive income (loss) and reclassified to interest and debt expense when they are realized.
The Company has entered into offsetting $500.0 million notional interest rate cap agreements with substantially similar economic terms related to certain debt facility requirements. These derivatives are not designated as hedging instruments, and because they offset, changes in fair value have an immaterial impact on the financial statements.
The counterparties to these agreements are highly rated financial institutions. In the unlikely event that the counterparties fail to meet the terms of these agreements, the Company's exposure is limited to the interest rate differential on the notional amount at each monthly settlement period over the life of the agreements. The Company does not anticipate any non-performance by the counterparties.
Certain assets of the Company's subsidiaries are pledged as collateral for various ABS facilities and the amounts payable under certain derivative agreements. Additionally, the Company may be required to post cash collateral on certain derivative agreements if the fair value of these contracts represents a liability. Any amounts of cash collateral posted are included in Other assets on the Consolidated Balance Sheets and are presented in operating activities of the Consolidated Statements of Cash Flows. As of March 31, 2023, the Company posted cash collateral on derivative instruments of $1.8 million.
Within the next twelve months, we expect to reclassify $40.0 million of net unrealized and realized gains related to derivative instruments designated as cash flow hedges from accumulated other comprehensive income (loss) into earnings.
In the first quarter of 2023, the Company entered into forward starting interest rate swaps with a notional value of $300.0 million that will commence on August 1, 2023 and have a termination date of March 31, 2025. These swaps were designated as cash flow hedges to fix the interest rates on a portion of our floating rate debt.
As of March 31, 2023, the Company had derivative agreements in place to fix interest rates on a portion of the borrowings under its debt facilities with floating interest rates as summarized below:
| Derivatives | Notional Amount (in millions) | Weighted Average Fixed Leg (Pay) Interest Rate | Weighted Average Remaining Term | |||||||||
| Interest Rate Swap(1) | $ | 1,327.8 | 2.22 | % | 3.7 years | |||||||
(1) Excludes certain interest rate swaps with an effective date in a future period ("forward starting swaps"). Including these instruments will increase total notional amount by $650.0 million and increase the weighted average remaining term to 5.4 years.
The following table summarizes the impact of derivative instruments on the Consolidated Statements of Operations and the Consolidated Statements of Comprehensive Income on a pretax basis (in thousands):
| Three Months Ended March 31, | ||||||||||
| Financial statement caption | 2023 | 2022 | ||||||||
| Non-Designated Derivative Instruments | ||||||||||
| Unrealized (gains) losses | Unrealized (gain) loss on derivative instruments, net | $ | (4 | ) | $ | (439 | ) | |||
| Designated Derivative Instruments | ||||||||||
| Realized (gains) losses | Interest and debt (income) expense | $ | (9,788 | ) | $ | 6,770 | ||||
| Unrealized (gains) losses | Comprehensive (income) loss | $ | 15,741 | $ | (79,563 | ) | ||||
13
TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Fair Value of Derivative Instruments
The Company presents the fair value of derivative financial instruments on a gross basis as a separate line item on the Consolidated Balance Sheet.
The Company has elected to use the income approach to value its interest rate swap and cap agreements, using Level 2 market expectations at the measurement date and standard valuation techniques to convert future values to a single discounted present value. The Level 2 inputs for the interest rate swap and cap valuations are inputs other than quoted prices that are observable for the asset or liability (specifically LIBOR and swap rates and credit risk at commonly quoted intervals). In response to the expected phase out of LIBOR, the Company continues to work with its counterparties to identify an alternative reference rate. Substantially all of the Company's derivative agreements have fallback provisions that would govern their transition to another benchmark, and the Company also adopted various practical expedients which will facilitate the transition.
Note 9—Segment and Geographic Information
Segment Information
The Company operates its business in one industry, intermodal transportation equipment, and has two operating segments which also represent its reporting segments:
| · | Equipment leasing - the Company owns, leases and ultimately disposes of containers and chassis from its lease fleet. | |
| · | Equipment trading - the Company purchases containers from shipping line customers, and other sellers of containers, and resells these containers to container retailers and users of containers for storage or one-way shipment. Included in the equipment trading segment revenues are leasing revenues from equipment purchased for resale that is currently on lease until the containers are dropped off. |
These operating segments were determined based on the chief operating decision maker's review and resource allocation of the products and services offered.
The following tables summarizes our segment information and the consolidated totals reported (in thousands):
| Three Months Ended March 31, | ||||||||||||||||||||||||
| 2023 | 2022 | |||||||||||||||||||||||
| Equipment Leasing | Equipment Trading | Totals | Equipment Leasing | Equipment Trading | Totals | |||||||||||||||||||
| Total leasing revenues | $ | 395,851 | $ | 1,872 | $ | 397,723 | $ | 413,691 | $ | 3,397 | $ | 417,088 | ||||||||||||
| Trading margin | — | 1,069 | 1,069 | — | 4,141 | 4,141 | ||||||||||||||||||
| Net gain on sale of leasing equipment | 15,500 | — | 15,500 | 28,969 | — | 28,969 | ||||||||||||||||||
| Depreciation and amortization expense | 148,250 | 185 | 148,435 | 160,532 | 184 | 160,716 | ||||||||||||||||||
| Interest and debt expense | 58,568 | 256 | 58,824 | 54,251 | 259 | 54,510 | ||||||||||||||||||
| Segment income (loss) before income taxes(1) | 160,270 | 2,499 | 162,769 | 201,141 | 6,646 | 207,787 | ||||||||||||||||||
| Purchases of leasing equipment and investments in finance leases(2) | $ | 35,316 | $ | — | $ | 35,316 | $ | 511,027 | $ | — | $ | 511,027 | ||||||||||||
(1) Segment income before income taxes excludes unrealized gains or losses on derivative instruments and debt termination expense. For the three months ended March 31, 2023, the Company recorded an immaterial amount of unrealized losses and did not record any debt termination expense. For the three months ended March 31, 2022, the Company recorded an unrealized gain of $0.4 million and an immaterial amount of debt termination expense.
(2) Represents cash disbursements for purchases of leasing equipment and investments in finance lease as reflected in the Consolidated Statements of Cash Flows for the periods indicated, but excludes cash flows associated with the purchase of equipment held for resale.
| March 31, 2023 | December 31, 2022 | |||||||||||||||||||||||
| Equipment Leasing | Equipment Trading | Totals | Equipment Leasing | Equipment Trading | Totals | |||||||||||||||||||
| Equipment held for sale | $ | 142,869 | $ | 35,458 | $ | 178,327 | $ | 97,463 | $ | 41,043 | $ | 138,506 | ||||||||||||
| Goodwill | 220,864 | 15,801 | 236,665 | 220,864 | 15,801 | 236,665 | ||||||||||||||||||
| Total assets | $ | 11,811,055 | $ | 90,140 | $ | 11,901,195 | $ | 12,010,654 | $ | 98,604 | $ | 12,109,258 | ||||||||||||
There are no intercompany revenues or expenses between segments. Certain administrative expenses have been allocated between segments based on an estimate of services provided to each segment. A portion of the Company's equipment purchased for resale in the equipment trading segment may be leased for a period of time and is reflected as leasing equipment as opposed to equipment held for sale and the cash flows associated with these transactions are reflected as purchases of leasing
14
TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
equipment and proceeds from the sale of equipment in investing activities in the Company's Consolidated Statements of Cash Flows.
Geographic Segment Information
The Company generates the majority of its leasing revenues from international containers which are deployed by its customers in a wide variety of global trade routes. The majority of the Company's leasing related revenue is denominated in U.S. dollars.
The following table summarizes the geographic allocation of total leasing revenues based on customers' primary domicile (in thousands):
| Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Total leasing revenues: | ||||||||
| Asia | $ | 140,235 | $ | 149,986 | ||||
| Europe | 208,126 | 220,106 | ||||||
| Americas | 34,393 | 34,209 | ||||||
| Bermuda | 1,367 | 630 | ||||||
| Other International | 13,602 | 12,157 | ||||||
| Total | $ | 397,723 | $ | 417,088 | ||||
Since the majority of the Company's containers are used internationally, where no one container is domiciled in one particular place for a prolonged period of time, all of the Company's long-lived assets are considered to be international.
The following table summarizes the geographic allocation of equipment trading revenues based on the location of the sale (in thousands):
| Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Total equipment trading revenues: | ||||||||
| Asia | $ | 7,627 | $ | 13,908 | ||||
| Europe | 3,408 | 8,962 | ||||||
| Americas | 6,649 | 10,187 | ||||||
| Bermuda | — | — | ||||||
| Other International | 1,418 | 1,063 | ||||||
| Total | $ | 19,102 | $ | 34,120 | ||||
Note 10—Commitments and Contingencies
Container Equipment Purchase Commitments
As of March 31, 2023, the Company had commitments to purchase equipment in the amount of $40.8 million to be paid in 2023.
Contingencies
The Company is party to various pending or threatened legal or regulatory proceedings arising in the ordinary course of its business. Based upon information presently available, the Company does not expect any liabilities arising from these matters to have a material effect on the consolidated financial position, results of operations or cash flows of the Company.
15
TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 11—Income Taxes
The following table summarizes the Company's effective tax rate:
| Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Effective Income Tax Rate | 8.0 | % | 6.7 | % | ||||
The Company has computed the provision for income taxes based on the estimated annual effective tax rate and the application of discrete items, if any, in the applicable period. The increase in the effective tax rate for the three months ended March 31, 2023 compared to the same period in 2022 was primarily due to an increased proportion of the Company's income generated in higher tax jurisdictions.
Note 12—Related Party Transactions
The Company holds a 50% interest in TriStar Container Services (Asia) Private Limited ("TriStar"), which is primarily engaged in the selling and leasing of container equipment in the domestic and short sea markets in India. The Company's equity investment in TriStar is included in Other assets on the Consolidated Balance Sheets. The Company received payments on finance leases with TriStar of $0.5 million for both the three months ended March 31, 2023 and 2022. The Company has a direct finance lease balance with TriStar of $7.0 million and $7.4 million as of March 31, 2023 and December 31, 2022, respectively.
Note 13—Subsequent Events
On April 11, 2023, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Brookfield Infrastructure Corporation, a corporation organized under the laws of British Columbia (“BIPC”), Thanos Holdings Limited, an exempted company limited by shares incorporated under the laws of Bermuda (“Parent”) and Thanos MergerSub Limited, an exempted company limited by shares incorporated under the laws of Bermuda and a subsidiary of Parent (“Merger Sub”). Under the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into Triton (the “Merger”), with Triton surviving the Merger as a direct subsidiary of Parent and an indirect subsidiary of BIPC.
Under the terms of the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each common share of the Company issued and outstanding immediately prior to the Effective Time (other than (A) common shares owned by the Company or any of its wholly owned subsidiaries, (B) common shares owned by BIPC, Parent, Merger Sub or any of their wholly owned subsidiaries and (C) any dissenting common shares), will be canceled and automatically converted into the right to receive $68.50 per common share in cash and $16.50 per common share in Class A exchangeable subordinate voting shares of BIPC (“BIPC Shares”), based on the volume weighted average price of BIPC Shares for the 10 trading days ending April 11, 2023 (the “Merger Consideration”). The stock portion of the Merger Consideration will be subject to a collar mechanism based on the volume weighted average price of BIPC Shares on the New York Stock Exchange (the “NYSE”) over the 10 trading days ending on the second trading day prior to the Effective Time (the “BIPC Final Stock Price”). If the BIPC Final Stock Price is greater than or equal to $42.36 but less than or equal to $49.23, our shareholders will receive a number of BIPC Shares between 0.3352 and 0.3895 per common share equal to $16.50 in value. Our shareholders will receive 0.3895 BIPC Shares per common share if the BIPC Final Stock Price is below $42.36, and 0.3352 BIPC Shares per common share if the BIPC Final Stock Price is above $49.23. Our shareholders will have the option to elect to receive their consideration in cash, BIPC Shares or the mixture described above, subject to pro rata cut backs to the extent cash or BIPC Shares are oversubscribed.
The Merger, which is expected to close in the fourth quarter of 2023, is subject to the receipt of required regulatory approvals and other customary closing conditions, including approval by the Company’s shareholders. If the transaction is consummated, our common shares will be delisted from the NYSE and deregistered under the Exchange Act. Immediately following the closing of the Merger, our Series A-E cumulative redeemable perpetual preference shares will remain outstanding as an obligation of the Company and are expected to remain listed on the NYSE.
In connection with the Merger, the Company suspended its share repurchase program after the close of business on April 6, 2023.
In connection with the Merger, on April 28, 2023, the Company, as guarantor, and its wholly-owned subsidiaries, Triton Container International Limited and TAL International Container Corporation, as borrowers (the "Borrowers"), entered into
16
TRITON INTERNATIONAL LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
consents and second amendments to the Borrowers’ (a) term loan facility with PNC Bank, National Association, as administrative agent, and various lenders party thereto (the "Term Loan Consent and Amendment") and (b) revolving credit facility (together with the term loan facility, the “Debt Facilities”) with Bank of America, N.A., as administrative agent, and various lenders party thereto (the "Revolver Consent and Amendment" and together with the Term Loan Consent and Amendment, the "Consents and Amendments"). Pursuant to the Consents and Amendments, contingent upon and effective as of the Effective Time, the definition of “Change of Control” in the Debt Facilities is amended to exclude any transaction pursuant to which more than 50% of the total of all voting stock of the Company is owned or continues to be owned directly or indirectly by Brookfield (as defined in the Consents and Amendments). Additionally, pursuant to the Consents and Amendments, the lenders party to the Debt Facilities (x) consented to the Merger, and (y) agreed that the Merger Agreement and Merger do not constitute a breach, potential default or default or give rise to any other right under the Debt Facilities.
For additional information on the Merger, see "Risks Related to the Merger" under the caption "Risk Factors" in this Quarterly Report on Form 10-Q.
On April 27, 2023, the Company's Board of Directors approved and declared a quarterly cash dividend of $0.70 per share on its issued and outstanding common shares, payable on June 22, 2023 to holders of record at the close of business on June 8, 2023.
On April 27, 2023, the Company's Board of Directors also approved and declared a cash dividend on its issued and outstanding preferred shares, payable on June 15, 2023 to holders of record at the close of business on June 8, 2023 as follows:
| Preferred Share Offering | Dividend Rate | Dividend Per Share | ||||||
| Series A | 8.500 | % | $ | 0.5312500 | ||||
| Series B | 8.000 | % | $ | 0.5000000 | ||||
| Series C | 7.375 | % | $ | 0.4609375 | ||||
| Series D | 6.875 | % | $ | 0.4296875 | ||||
| Series E | 5.750 | % | $ | 0.3593750 | ||||
17
Exhibit 99.3
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
These Unaudited Pro Forma Financial Statements of Brookfield Infrastructure Partners L.P. (“BIP”, “Brookfield Infrastructure” or the “partnership”), are prepared based on the historical consolidated financial statements of the partnership, Triton International Ltd. (“Triton”), HomeServe PLC (“HomeServe”), Compass Datacenters LLC (“Compass”) Transmissora Sertaneja de Eletricidade S.A. (“Sertaneja”), DFMG Deutsche Funkturm GmbH (“DFMG”) and Data4 Group (“Data4”). These unaudited pro forma financial statements have been prepared to illustrate the expected effects of the following transactions (collectively, the “Transactions”) on the consolidated financial statements of the partnership:
Consummated transactions:
| · | On January 4, 2023, the partnership, alongside institutional partners (the “HomeServe consortium”), completed the acquisition of HomeServe, a residential decarbonization infrastructure business operating in North America and Europe for total cash consideration of $1.2 billion (HomeServe consortium - $4.9 billion). The partnership has 100% voting interest and an effective 26% and 25% economic interest in HomeServe’s North American and European businesses, respectively. Brookfield Infrastructure consolidates HomeServe effective January 4, 2023. |
| · | On February 1, 2023, Brookfield Infrastructure acquired an effective 6% interest in DFMG, a European telecom tower operation in Germany and Austria, for consideration of approximately $0.7 billion. The partnership accounts for its interest in DFMG using the equity method of accounting. |
| · | On May 2, 2023, the partnership, alongside institutional partners (the “Sertaneja consortium”) exercised its option to acquire an additional 15% interest in Sertaneja for $35 million (Sertaneja consortium total of 50% for $114 million), a Brazilian electricity transmission operation, increasing the partnership’s voting interest to 100% and economic interest to 31% (Sertaneja consortium total of 100%). The partnership previously accounted for its interest in Sertaneja using the equity method and consolidates the entity effective May 2, 2023. |
Probable transactions:
| · | On April 11, 2023, the partnership, alongside institutional partners (the “Triton consortium”), entered into an agreement to acquire Triton for approximately $4.7 billion through its subsidiary Brookfield Infrastructure Corporation (“BIPC”). Each Triton shareholder will receive total consideration of $85.00 per Triton common share (“Triton Share”), which will consist of $68.50 in cash and $16.50 in BIPC class A exchangeable shares (“BIPC Shares”). The stock portion of the consideration is subject to a collar, ensuring Triton shareholders receive the number of BIPC shares equal to $16.50 in value for every Triton Share if the ten-day volume weighted average price of BIPC shares (measured two days prior to closing) (the “BIPC Final Stock Price”) is between $42.36 and $49.23 (the “Collar”). Triton shareholders will receive 0.390 BIPC Shares for each Triton Share if the BIPC Final Stock Price is below $42.36, and 0.335 BIPC Shares for each Triton Share if the BIPC Final Stock Price is above $49.23. With the collar, between 18.4 and 21.3 million BIPC Shares will be issued to Triton shareholders. Subsequent to the acquisition, we expect that BIP will have 100% of voting interest and hold an approximate 22% economic interest in Triton through BIPC (Triton consortium total of 100%). If the price of BIPC Shares falls within the Collar, then an increase or a decrease in share price will result in a decrease or an increase in the number of shares issued, respectively, such that total value received by holders of the Common Shares will not be impacted. Should the BIPC Share price drop by 10% outside of the Collar, total consideration will decrease by approximately $80 million. Should the BIPC Share price increase by 10% outside the Collar, total consideration will increase by approximately $100 million. The partnership will consolidate Triton upon closing of the acquisition, which is expected to be in the third quarter of 2023. |
| · | On April 12, 2023, the partnership, alongside institutional partners (the “Data4 consortium”), entered into an agreement to acquire Data4, a pan-European hyperscale data center platform for total consideration of $0.7 billion (Data4 consortium - $2.6 billion). The partnership will hold an approximate 28% interest in Data4 (Data4 consortium total of 100%). The partnership will consolidate Data4 upon closing of the acquisition, which is expected to be in the third quarter of 2023. |
| · | On June 20, 2023, the partnership entered into an agreement to acquire an effective 13.7% interest in Compass, a leading North American data center developer, for cash consideration of approximately $0.4 billion. The acquisition is expected to close in the fourth quarter of 2023 and the partnership will account for its interest in Compass using the equity method of accounting. |
The information in the Unaudited Pro Forma Statements of Operating Results for the year ended December 31, 2022 and for the three months ended March 31, 2023 gives effect to transaction accounting adjustments as if each of the Transactions had been consummated on January 1, 2022. No adjustments were made for the acquisition of HomeServe to the Unaudited Pro Forma Statements of Operating Results for the three months ended March 31, 2023 as the historical financial results of the partnership for the three months ended March 31, 2023 already include the financial results of the businesses acquired during the first quarter of 2023.
The information in the Unaudited Pro Forma Statement of Financial Position as at March 31, 2023 gives effect to transaction accounting adjustments as if the Data4, Triton, Sertaneja and Compass acquisitions had been consummated on March 31, 2023. No adjustments were made for HomeServe and DFMG to the Unaudited Pro Forma Statement of Financial Position as at March 31, 2023 as the financial position of the acquired businesses are already included in the partnership’s historical financial information as at such date.
All financial data in the Unaudited Pro Forma Financial Statements is presented in U.S. dollars, unless otherwise noted, and the Unaudited Pro Forma Financial Statements have been prepared using accounting policies that are consistent with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
These Unaudited Pro Forma Financial Statements are based on preliminary estimates, accounting judgments and currently available information and assumptions that management believes are reasonable. The notes to these Unaudited Pro Forma Financial Statements provide information of how the adjustments presented herein were derived. All financial data for the HomeServe, DFMG, Data4, Triton, Sertaneja and Compass acquisitions has been derived from the historical actual financial information of the businesses acquired. The notes to the Unaudited Pro Forma Financial Statements provide a detailed discussion of how such adjustments were derived and presented in the Unaudited Pro Forma Financial Statements. The Unaudited Pro Forma Financial Statements should be read in conjunction with (1) the audited annual financial statements of the partnership, with the notes thereto, as of and for the year ended December 31, 2022, which are included in the partnership’s most recently filed Annual Report on Form 20-F, and the unaudited interim financial statements of the partnership as of and for the three months ended March 31, 2023, which have been filed as Exhibit 99.1 to a Report on Form 6-K, dated May 10, 2023; and (2) the audited annual financial statements of Triton as of and for the year ended December 31, 2022, and the unaudited interim combined financial statements of Triton as of and for the three months ended March 31, 2023, which have been filed as Exhibits 99.1 and 99.2, respectively, to the Report on Form 6-K on which these Unaudited Pro Forma Financial Statements have been filed as Exhibit 99.3.
The Unaudited Pro Forma Financial Statements have been prepared for illustrative purposes only and are not necessarily indicative of the financial position or operating results of the partnership had the Transactions occurred on the dates indicated, nor is such pro forma financial information necessarily indicative of the results to be expected for any future period. The actual financial position and operating results may differ significantly from the pro forma amounts reflected herein due to a variety of factors, and remain subject to the closing of the Data4, Triton and Compass acquisitions. Accordingly, readers are cautioned to not place undue reliance on these Unaudited Pro Forma Financial Statements.
UNAUDITED PRO FORMA STATEMENT OF FINANCIAL POSITION
US$ MILLIONS
As at March 31, 2023
| Brookfield
Infrastructure Partners (Historical) | Triton | Data4 | Sertaneja | Compass | Proforma
Combined Total | |||||||||||||||||||
| 1 | 2 | 3 | 6 | |||||||||||||||||||||
| Assets | ||||||||||||||||||||||||
| Cash and cash equivalents | $ | 1,515 | $ | 196 | $ | (220 | ) | $ | 1 | $ | (370 | ) | $ | 1,122 | ||||||||||
| Financial Assets | 1,103 | (2 | ) | 17 | - | - | 1,118 | |||||||||||||||||
| Accounts receivable and other | 3,506 | 469 | 163 | 9 | - | 4,147 | ||||||||||||||||||
| Inventory | 500 | 35 | 4 | - | - | 539 | ||||||||||||||||||
| Assets classified as held for sale | 913 | 143 | - | - | - | 1,056 | ||||||||||||||||||
| Current assets | 7,537 | 841 | (36 | ) | 10 | (370 | ) | 7,982 | ||||||||||||||||
| Property, plant and equipment | 37,597 | 10,430 | 40 | - | - | 48,067 | ||||||||||||||||||
| Equipment held for sale | ||||||||||||||||||||||||
| Intangible assets | 15,459 | 5 | 6 | 477 | - | 15,947 | ||||||||||||||||||
| Investments in associates and joint ventures | 5,824 | - | - | (22 | ) | 370 | 6,172 | |||||||||||||||||
| Investment properties | 727 | - | 3,169 | - | - | 3,896 | ||||||||||||||||||
| Goodwill | 11,670 | 415 | 1,449 | 25 | - | 13,559 | ||||||||||||||||||
| Financial assets (non-current) | 610 | 52 | 56 | - | - | 718 | ||||||||||||||||||
| Other assets | 2,372 | 1,431 | - | - | - | 3,803 | ||||||||||||||||||
| Deferred income tax asset | 129 | - | 1 | - | - | 130 | ||||||||||||||||||
| Non-current assets | 74,388 | 12,333 | 4,721 | 480 | 370 | 92,292 | ||||||||||||||||||
| Total assets | $ | 81,925 | $ | 13,174 | $ | 4,685 | $ | 490 | $ | - | $ | 100,274 | ||||||||||||
| Liabilities and partnership capital | ||||||||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||
| Accounts payable and other | $ | 5,114 | $ | 220 | $ | 275 | $ | 39 | $ | - | $ | 5,648 | ||||||||||||
| Corporate borrowings | 1,235 | - | - | - | - | 1,235 | ||||||||||||||||||
| Non-recourse borrowings | 3,570 | 927 | 7 | - | - | 4,504 | ||||||||||||||||||
| Financial liabilities | 362 | 2 | - | - | - | 364 | ||||||||||||||||||
| Liabilities directly associated with assets classified as held for sale | 490 | - | - | - | - | 490 | ||||||||||||||||||
| Current liabilities | 10,771 | 1,149 | 282 | 39 | - | 12,241 | ||||||||||||||||||
| Corporate borrowings | 3,336 | 58 | - | - | - | 3,394 | ||||||||||||||||||
| Non-recourse borrowings (non-current) | 26,676 | 6,272 | 2,180 | 197 | - | 35,325 | ||||||||||||||||||
| Financial liabilities (non-current) | 1,725 | - | - | - | - | 1,725 | ||||||||||||||||||
| Other liabilities (non-current) | 4,285 | - | 3 | - | - | 4,288 | ||||||||||||||||||
| Deferred income tax liability | 6,800 | 591 | 427 | 83 | - | 7,901 | ||||||||||||||||||
| Preferred shares | 20 | - | - | - | - | 20 | ||||||||||||||||||
| Non-current liabilities | 42,842 | 6,921 | 2,610 | 280 | - | 52,653 | ||||||||||||||||||
| Total liabilities | $ | 53,613 | $ | 8,070 | $ | 2,892 | $ | 319 | $ | - | $ | 64,894 | ||||||||||||
| Partnership capital | ||||||||||||||||||||||||
| Limited partners | $ | 5,112 | $ | (15 | ) | $ | (13 | ) | $ | 12 | $ | - | $ | 5,096 | ||||||||||
| General partner | 25 | - | - | - | - | 25 | ||||||||||||||||||
| Non-controlling interest attributable to: | ||||||||||||||||||||||||
| Redeemable Partnership Units held by Brookfield | 2,149 | (6 | ) | (5 | ) | - | - | 2,138 | ||||||||||||||||
| BIPC | 1,225 | 900 | (4 | ) | - | - | 2,121 | |||||||||||||||||
| Exchange LP Units | 68 | - | - | - | - | 68 | ||||||||||||||||||
| Perpetual subordinated notes | 293 | - | - | - | - | 293 | ||||||||||||||||||
| Interest of others in operating subsidiaries | 18,522 | 4,225 | 1,815 | 159 | - | 24,721 | ||||||||||||||||||
| Preferred unit capital | 918 | - | - | - | - | 918 | ||||||||||||||||||
| Total partnership capital | 28,312 | 5,104 | 1,793 | 171 | - | 35,380 | ||||||||||||||||||
| Total liabilities and partnership capital | $ | 81,925 | $ | 13,174 | $ | 4,685 | $ | 490 | $ | - | $ | 100,274 | ||||||||||||
See the accompanying notes to the Unaudited Pro Forma Financial Statements.
UNAUDITED PRO FORMA STATEMENT OF OPERATING RESULTS
US$ MILLIONS
For the three-month period ended March 31, 2023
| Brookfield
Infrastructure Partners (Historical) | Triton | Data4 | Sertaneja | Compass | DFMG | Proforma
combined total | ||||||||||||||||||||||
| 1 | 2 | 3 | 6 | 5 | ||||||||||||||||||||||||
| Revenues | $ | 4,218 | $ | 416 | $ | 98 | $ | 9 | $ | - | $ | - | $ | 4,739 | ||||||||||||||
| Direct operating costs | (3,229 | ) | (242 | ) | (50 | ) | (2 | ) | - | - | (3,519 | ) | ||||||||||||||||
| General and administrative expenses | (103 | ) | - | - | - | - | - | (103 | ) | |||||||||||||||||||
| 886 | 174 | 48 | 7 | - | - | 1,117 | ||||||||||||||||||||||
| Interest expense | (568 | ) | (102 | ) | (30 | ) | (4 | ) | - | - | (704 | ) | ||||||||||||||||
| Share of earnings from investments in associates and joint ventures | 103 | - | - | (1 | ) | (6 | ) | 3 | 99 | |||||||||||||||||||
| Mark-to-market gains (losses) | (94 | ) | - | - | - | - | - | (94 | ) | |||||||||||||||||||
| Other income (expenses) | (95 | ) | 16 | - | - | - | - | (80 | ) | |||||||||||||||||||
| Income before income tax | 232 | 88 | 18 | 2 | (6 | ) | 3 | 337 | ||||||||||||||||||||
| Income tax (expense) recovery | ||||||||||||||||||||||||||||
| Current | (132 | ) | (13 | ) | - | - | - | - | (145 | ) | ||||||||||||||||||
| Deferred | 43 | 6 | 2 | (1 | ) | - | - | 50 | ||||||||||||||||||||
| Net income | $ | 143 | $ | 81 | $ | 20 | $ | 1 | $ | (6 | ) | $ | 3 | $ | 242 | |||||||||||||
| Attributable to: | ||||||||||||||||||||||||||||
| Limited partners | $ | (25 | ) | $ | 10 | $ | 3 | $ | - | $ | (4 | ) | $ | 2 | $ | (14 | ) | |||||||||||
| General partner | 65 | - | - | - | - | - | 65 | |||||||||||||||||||||
| Non-controlling interest attributable to: | ||||||||||||||||||||||||||||
| Redeemable Partnership Units held by Brookfield | (11 | ) | 4 | 1 | - | (2 | ) | 1 | (7 | ) | ||||||||||||||||||
| BIPC exchangeable shares | (6 | ) | 3 | 1 | - | (1 | ) | - | (3 | ) | ||||||||||||||||||
| Exchangeable units | - | - | - | - | - | - | - | |||||||||||||||||||||
| Interest of others in operating subsidiaries | 120 | 64 | 15 | 1 | 1 | - | 202 | |||||||||||||||||||||
| Basic and diluted earnings per unit attributable to: | ||||||||||||||||||||||||||||
| Limited partners | $ | (0.07 | ) | $ | 0.02 | $ | 0.01 | $ | - | $ | (0.01 | ) | $ | 0.01 | $ | (0.05 | ) | |||||||||||
See the accompanying notes to the Unaudited Pro Forma Financial Statements.
UNAUDITED PRO FORMA STATEMENT OF OPERATING RESULTS
US$ MILLIONS
For the year ended December 31, 2022
| Brookfield Infrastructure Partners (Historical) |
HomeServe | DFMG | Triton | Sertaneja | Data4 | Compass | Proforma combined total |
|||||||||||||||||||||||||
| 4 | 5 | 1 | 3 | 2 | 6 | |||||||||||||||||||||||||||
| Revenues | $ | 14,427 | $ | 2,020 | $ | - | $ | 1,827 | $ | 98 | $ | 235 | $ | - | $ | 18,607 | ||||||||||||||||
| Direct operating costs | (10,510 | ) | (1,648 | ) | - | (1,024 | ) | (34 | ) | (159 | ) | - | (13,375 | ) | ||||||||||||||||||
| General and administrative expenses | (433 | ) | - | - | - | - | - | - | (433 | ) | ||||||||||||||||||||||
| 3,484 | 372 | - | 803 | 64 | 76 | - | 4,799 | |||||||||||||||||||||||||
| Interest expense | (1,855 | ) | (35 | ) | - | (402 | ) | (14 | ) | (74 | ) | - | (2,380 | ) | ||||||||||||||||||
| Share of earnings from investments
in associates and joint ventures |
12 | - | 1 | - | (4 | ) | - | (23 | ) | (14 | ) | |||||||||||||||||||||
| Mark-to-market gains (losses) | 202 | 10 | - | - | - | - | - | 212 | ||||||||||||||||||||||||
| Other income (expenses) | 92 | (306 | ) | - | 2 | 2 | 441 | - | 231 | |||||||||||||||||||||||
| Income before income tax | 1,935 | 41 | 1 | 403 | 48 | 443 | (23 | ) | 2,848 | |||||||||||||||||||||||
| Income tax (expense) recovery | ||||||||||||||||||||||||||||||||
| Current | (474 | ) | (44 | ) | - | (47 | ) | (1 | ) | - | - | (566 | ) | |||||||||||||||||||
| Deferred | (86 | ) | 25 | - | 12 | (13 | ) | (103 | ) | - | (165 | ) | ||||||||||||||||||||
| Net income | $ | 1,375 | $ | 22 | $ | 1 | $ | 368 | $ | 34 | $ | 340 | $ | (23 | ) | $ | 2,117 | |||||||||||||||
| Attributable to: | ||||||||||||||||||||||||||||||||
| Limited partners | $ | 101 | $ | 3 | $ | - | $ | 46 | $ | 6 | $ | 55 | $ | (13 | ) | $ | 198 | |||||||||||||||
| General partner | 240 | - | - | - | - | - | - | 240 | ||||||||||||||||||||||||
| Non-controlling interest attributable to: | ||||||||||||||||||||||||||||||||
| Redeemable Partnership Units held by Brookfield | 42 | 1 | - | 19 | 3 | 23 | (6 | ) | 82 | |||||||||||||||||||||||
| BIPC exchangeable shares | 24 | 1 | - | 13 | 2 | 16 | (4 | ) | 52 | |||||||||||||||||||||||
| Exchangeable units | - | - | - | 1 | - | 1 | - | 2 | ||||||||||||||||||||||||
| Interest of others in operating subsidiaries | 968 | 17 | 1 | 289 | 23 | 245 | - | 1,543 | ||||||||||||||||||||||||
| Basic and diluted earnings per unit attributable to: | ||||||||||||||||||||||||||||||||
| Limited partners | $ | 0.14 | $ | 0.01 | $ | - | $ | 0.10 | $ | 0.01 | $ | 0.12 | $ | (0.03 | ) | $ | 0.35 | |||||||||||||||
See the accompanying notes to the Unaudited Pro Forma Financial Statements.
1. Acquisition of Triton
The following tables and explanatory notes present Triton’s statement of financial position as of March 31, 2023 as adjusted to give effect to the acquisition as if it had occurred on March 31, 2023, and Triton's statements of operating results for the three months ended March 31, 2023 and for the year ended December 31, 2022 as adjusted to give effect to the acquisition as if it had occurred on January 1, 2022 with transaction accounting adjustments calculated using information as of July 25, 2023 which is the most recent practicable date prior to the filing of this 6-K, given Triton is a probable acquisition.
US$ MILLIONS
As at March 31, 2023
| Triton historical | Reclassification
to conform presentation |
Transaction accounting adjustments |
Proforma Combined Total |
|||||||||||||||
| 1(a) | ||||||||||||||||||
| Assets | ||||||||||||||||||
| Cash and cash equivalents | $ | 93 | $ | 103 | $ | - | $ | 196 | ||||||||||
| Restricted cash | 103 | (103 | ) | - | - | |||||||||||||
| Financial Assets | - | 40 | (42 | ) | 1(b),(c) | (2 | ) | |||||||||||
| Accounts receivable and other | 250 | 219 | - | 469 | ||||||||||||||
| Inventory | - | 35 | - | 35 | ||||||||||||||
| Assets classified as held for sale | - | 143 | - | 143 | ||||||||||||||
| Current assets | 446 | 437 | (42 | ) | 841 | |||||||||||||
| Property, plant and equipment | - | 9,293 | 1,137 | 1(e) | 10,430 | |||||||||||||
| Leasing equipment, net of accumulated depreciation | 9,291 | (9,291 | ) | - | - | |||||||||||||
| Net Investment in finance leases | 1,621 | (1,621 | ) | - | - | |||||||||||||
| Equipment held for sale | 178 | (178 | ) | - | - | |||||||||||||
| Intangible assets | - | 5 | - | 5 | ||||||||||||||
| Lease intangibles, net of accumulated amortization | 5 | (5 | ) | - | - | |||||||||||||
| Goodwill | 237 | - | 178 | 1(e) | 415 | |||||||||||||
| Financial assets (non-current) | - | 52 | - | 52 | ||||||||||||||
| Fair value of derivative instrument | 92 | (92 | ) | - | - | |||||||||||||
| Other assets | 31 | 1,400 | - | 1,431 | ||||||||||||||
| Non-current assets | 11,455 | (437 | ) | 1,315 | 12,333 | |||||||||||||
| Total assets | $ | 11,901 | $ | - | $ | 1,273 | $ | 13,174 | ||||||||||
| Liabilities and partnership capital | ||||||||||||||||||
| Liabilities | ||||||||||||||||||
| Accounts payable and other | $ | 86 | $ | 336 | $ | (202 | ) | 1(e),(g) | $ | 220 | ||||||||
| Equipment purchase payable | 20 | (20 | ) | - | - | |||||||||||||
| Fair value of derivative instruments | 2 | (2 | ) | - | - | |||||||||||||
| Non-recourse borrowings | - | 1,007 | (80 | ) | 1(h) | 927 | ||||||||||||
| Financial liabilities | - | 2 | - | 2 | ||||||||||||||
| Deferred revenue | 316 | (316 | ) | - | 1(e) | - | ||||||||||||
| Current liabilities | 424 | 1,007 | (282 | ) | 1,149 | |||||||||||||
| Corporate borrowings | - | - | 58 | 1(d) | 58 | |||||||||||||
| Debt, net of unamortized costs | 7,907 | (7,907 | ) | - | - | |||||||||||||
| Non-recourse borrowings (non-current) | - | 6,900 | (628 | ) | 1(h) | 6,272 | ||||||||||||
| Deferred income tax liability | 413 | - | 178 | 1(e) | 591 | |||||||||||||
| Non-current liabilities | 8,320 | (1,007 | ) | (392 | ) | 6,921 | ||||||||||||
| Total liabilities | $ | 8,744 | $ | - | $ | (674 | ) | $ | 8,070 | |||||||||
| Partnership capital | ||||||||||||||||||
| Limited partners | $ | - | $ | - | $ | (15 | ) | 1(g) | $ | (15 | ) | |||||||
| General partner | - | - | - | - | ||||||||||||||
| Non-controlling interest attributable to: | ||||||||||||||||||
| Redeemable Partnership Units held by Brookfield | - | - | (6 | ) | 1(g) | (6 | ) | |||||||||||
| BIPC | - | - | 900 | 1(a),(g) | 900 | |||||||||||||
| Exchange LP Units | - | - | - | - | ||||||||||||||
| Perpetual subordinated notes | - | - | - | - | ||||||||||||||
| Interest of others in operating subsidiaries | - | - | 4,225 | 1(c),(f),(g) | 4,225 | |||||||||||||
| Preferred unit capital | - | - | - | - | ||||||||||||||
| Equity | - | - | - | - | ||||||||||||||
| Preferred shares | 730 | - | (730 | ) | 1(e) | - | ||||||||||||
| Common shares | 1 | - | (1 | ) | 1(e) | - | ||||||||||||
| Undesignated shares | - | - | - | - | ||||||||||||||
| Treasury shares | (1,195 | ) | - | 1,195 | 1(e) | - | ||||||||||||
| Issued share capital | - | - | - | - | ||||||||||||||
| Additional paid-in capital | 907 | - | (907 | ) | 1(e) | - | ||||||||||||
| Accumulated earnings | 2,629 | - | (2,629 | ) | 1(e) | - | ||||||||||||
| Accumulated other comprehensive income | 85 | - | (85 | ) | 1(e) | - | ||||||||||||
| Total partnership capital | 3,157 | - | 1,947 | 5,104 | ||||||||||||||
| Total liabilities and partnership capital | $ | 11,901 | $ | - | $ | 1,273 | $ | 13,174 | ||||||||||
US$ MILLIONS
For the three-month period ended March 31, 2023
| Triton historical | Reclassification
to conform presentation | Transaction
accounting adjustments | Proforma
combined total | |||||||||||||||
| 1(a) | ||||||||||||||||||
| Revenues | $ | - | $ | 416 | $ | - | $ | 416 | ||||||||||
| Leasing revenue - Operating leases | 370 | (370 | ) | - | - | |||||||||||||
| Leasing revenue - Finance leases | 27 | (27 | ) | - | - | |||||||||||||
| Equipment trading revenue | 19 | (19 | ) | - | - | |||||||||||||
| Net gain on sale of leasing equipment | 16 | (16 | ) | - | - | |||||||||||||
| Direct operating costs | (23 | ) | (187 | ) | (32 | ) | 1(k) | (242 | ) | |||||||||
| Equipment trading expenses | (18 | ) | 18 | - | - | |||||||||||||
| General and administrative expenses | (23 | ) | 23 | - | - | |||||||||||||
| Provision (reversal) for doubtful accounts | 2 | (2 | ) | - | - | |||||||||||||
| Depreciation and amortization expense | (148 | ) | 148 | - | - | |||||||||||||
| 222 | (16 | ) | (32 | ) | 174 | |||||||||||||
| Interest expense | (59 | ) | - | (43 | ) | 1(l) | (102 | ) | ||||||||||
| Other income (expenses) | - | 16 | - | 16 | ||||||||||||||
| Income before income tax | 163 | - | (75 | ) | 88 | |||||||||||||
| Income tax (expense) recovery | ||||||||||||||||||
| Current | (13 | ) | - | - | (13 | ) | ||||||||||||
| Deferred | - | - | 6 | 1(m) | 6 | |||||||||||||
| Net income | $ | 150 | $ | - | $ | (69 | ) | $ | 81 | |||||||||
| Attributable to: | ||||||||||||||||||
| Limited partners | - | - | - | $ | 10 | |||||||||||||
| General partner | - | - | - | - | ||||||||||||||
| Non-controlling interest attributable to: | ||||||||||||||||||
| Redeemable Partnership Units held by Brookfield | - | - | - | 4 | ||||||||||||||
| BIPC exchangeable shares | - | - | - | 3 | ||||||||||||||
| Exchangeable units | - | - | - | - | ||||||||||||||
| Interest of others in operating subsidiaries | - | - | - | 64 | ||||||||||||||
| Preferred unitholders | - | - | - | - | ||||||||||||||
| Basic and diluted earnings per unit attributable to: | ||||||||||||||||||
| Limited partners | - | - | - | $ | 0.02 |
US$ MILLIONS
For the year ended December 31, 2022
| Triton historical | Reclassification
to conform presentation | Transaction accounting adjustments | Proforma combined total | |||||||||||||||
| 1(a) | ||||||||||||||||||
| Revenues | $ | - | $ | 1,827 | $ | - | $ | 1,827 | ||||||||||
| Leasing revenue - Operating leases | 1,564 | (1,564 | ) | - | - | |||||||||||||
| Leasing revenue - Finance leases | 115 | (115 | ) | - | - | |||||||||||||
| Equipment trading revenue | 148 | (148 | ) | - | - | |||||||||||||
| Net gain on sale of leasing equipment | 116 | (116 | ) | - | - | |||||||||||||
| Direct operating costs | (42 | ) | (857 | ) | (125 | ) | 1(o) | (1,024 | ) | |||||||||
| Equipment trading expenses | (132 | ) | 132 | - | - | |||||||||||||
| General and administrative expenses | (93 | ) | 93 | - | - | |||||||||||||
| Provision (reversal) for doubtful accounts | 3 | (3 | ) | - | - | |||||||||||||
| Depreciation and amortization expense | (635 | ) | 635 | - | - | |||||||||||||
| 1,044 | (116 | ) | (125 | ) | 803 | |||||||||||||
| Interest expense | (226 | ) | - | (176 | ) | 1(p) | (402 | ) | ||||||||||
| Debt termination expense | (2 | ) | 2 | - | - | |||||||||||||
| Other income (expenses) | 2 | 114 | (114 | ) | 1(q) | 2 | ||||||||||||
| Income before income tax | 818 | - | (415 | ) | 403 | |||||||||||||
| Income tax (expense) recovery | ||||||||||||||||||
| Current | (47 | ) | - | - | (47 | ) | ||||||||||||
| Deferred | (24 | ) | - | 36 | 1(r) | 12 | ||||||||||||
| Net income | $ | 747 | $ | - | $ | (379 | ) | $ | 368 | |||||||||
| Attributable to: | ||||||||||||||||||
| Limited partners | - | - | - | $ | 46 | |||||||||||||
| General partner | - | - | - | - | ||||||||||||||
| Preferred shares | - | - | - | - | ||||||||||||||
| Common shares | - | - | - | - | ||||||||||||||
| Non-controlling interest attributable to: | ||||||||||||||||||
| Redeemable Partnership Units held by Brookfield | - | - | - | 19 | ||||||||||||||
| BIPC exchangeable shares | - | - | - | 13 | ||||||||||||||
| Exchangeable units | - | - | - | 1 | ||||||||||||||
| Interest of others in operating subsidiaries | - | - | - | 289 | ||||||||||||||
| Preferred unitholders | - | - | - | - | ||||||||||||||
| Basic and diluted earnings per unit attributable to: | - | - | - | - | ||||||||||||||
| Limited partners | - | - | - | $ | 0.10 |
| a) | Management determined there to be no material adjustments to reconcile the financial statements of Triton, prepared under accounting standards generally accepted in the United States, to IFRS. Certain adjustments that have been made to conform the presentation of the consolidated financial statements of Triton to the presentation of financial information in BIP’s and BIPC’s financial statements. Such reclassifications include: |
| i. | Triton’s fair value of derivative instrument has been adjusted to current and non-current financial asset as disclosed in Note 8 of Triton’s financial statements for the three-month period ended March 31, 2023. |
| ii. | Triton’s equipment held for sale has been reclassified to held for sale and inventory, as disclosed in Note 9 of Triton’s financial statements for the three-month period ended March 31, 2023. |
| iii. | Other assets have been adjusted to include the non-current portion of net investment in finance leases as disclosed in Note 8 of Triton’s financial statement for the period ended December 31, 2022 as it was the most recent financial data available and immaterial changes for the interim period were assumed. |
| iv. | Current accounts payable and other has been adjusted to reflect equipment purchase payable and deferred revenue as disclosed on Triton’s financial statements for the period ended March 31, 2023. |
| v. | Triton’s debt, net of unamortized costs, has been adjusted to current and non-current non-recourse borrowings as disclosed in Triton’s financial statements for the period ended March 31, 2023. |
| vi. | Net income reported by Triton was reallocated to components of BIP, as appropriate. |
| vii. | Other reclassifications have been made to conform Triton’s financial statement line items to those of BIP . |
The following table provides the preliminary purchase price allocation:
| (In US$ millions, unless otherwise noted) | ||||||
| Estimated number of BIPC shares to be issued (millions of shares) | 19.26 | |||||
| Price of BIPC Shares ($ per share) | 1(b) | $ | 46.95 | |||
| Total estimated share consideration | 904 | |||||
| Total estimated cash consideration | 1(b) | 58 | ||||
| Pre-existing interest in Triton | 1(b) | 42 | ||||
| Consideration provided by non-controlling interests | 1(c) | 3,654 | ||||
| Total estimated fair value of consideration | $ | 4,658 | ||||
| Current assets | 740 | |||||
| Property, plant, and equipment | 10,430 | |||||
| Intangibles and goodwill | 420 | |||||
| Net assets held for sale | 143 | |||||
| Non-current assets | 1,483 | |||||
| Current liabilities | (108 | ) | ||||
| Non-recourse borrowings | (7,199 | ) | ||||
| Deferred tax liabilities | (591 | ) | ||||
| Non-controlling interest (preferred shares issued by Triton at fair value) | (660 | ) | ||||
| Fair value of net assets acquired | $ | 4,658 | ||||
| Total fair value of consideration is calculated based upon the assumptions (i) that there are 54.8 million outstanding Common Shares, including all vested stock awards and (ii) holders of the Common Shares will receive total consideration of $85.00 per outstanding common share of Triton, which will consist of $68.50 in cash and $16.50 in BIPC Shares. The unaudited pro forma financial statements are prepared assuming that total consideration attributed to BIP (through BIPC) of approximately $1.0 billion will be comprised of approximately $900 million BIPC Shares, cash consideration, and our pre-existing interest. For the purposes of the pro forma financial statements, it is assumed that 19.3 million BIPC shares are issued in association with the acquisition. Total Brookfield consideration of $4.7 billion will be comprised of consideration from BIP and BIPC as noted above and cash consideration from institutional partners (presented as non-controlling interests) that will be paid to the holders of the Triton's outstanding common shares. |
| Triton shareholders receive the number of BIPC shares equal to $16.50 in value for every Triton Share if the ten-day volume weighted average price of BIPC shares (measured two days prior to closing) (the “BIPC Final Stock Price”) is between $42.36 and $49.23 (the “Collar”). Triton shareholders will receive 0.390 BIPC Shares for each Triton Share if the BIPC Final Stock Price is below $42.36, and 0.335 BIPC Shares for each Triton Share if the BIPC Final Stock Price is above $49.23. With the collar, between 18.4 and 21.3 million BIPC Shares will be issued to Triton shareholders | ||
| If the price of BIPC Shares falls within the Collar, then an increase or a decrease in share price will result in a decrease or an increase in the number of shares issued, respectively, such that total value received by holders of the Common Shares will not be impacted. Should the BIPC Share price drop by 10% outside of the Collar, total consideration will decrease by approximately $80 million. Should the BIPC Share price increase by 10% outside the Collar, total consideration will increase by approximately $100 million. |
| As of March 31, 2023, Brookfield Corporation and its subsidiaries held an aggregate economic interest in approximately 2.7 million outstanding common shares of Triton, representing approximately 4.8% of the issued and outstanding shares of Triton (BIP’s share is approximately 1%). BIP’s share of the interest was accounted for as a financial asset and had a fair market value of $42 million as at March 31, 2023. | ||
| b) | The acquisition of Triton is a probable acquisition and will be accounted for as a business combination. The purchase consideration, assets acquired and liabilities assumed are therefore recorded at their estimated fair value based on information available in the public domain as of July 25, 2023 unless otherwise noted. Actual amounts recognized by BIP on the effective date of the Transactions, if consummated, may differ materially from these estimates. |
| c) | Represents the consideration paid for the interest acquired by Brookfield, excluding BIP and BIPC, measured at fair value net of transaction costs of $3,654 million. | |
| d) | For the purposes of BIP’s pro forma financial statements, corporate borrowings were adjusted to reflect an additional $58 million to finance cash consideration. | |
| e) | Assets acquired and liabilities assumed were re-measured to fair value as of July 25, 2023. Differences between the fair value of consideration paid and the carrying values of assets acquired and liabilities assumed have been first reflected as an adjustment to items where fair value information is readily available. Deferred revenue is not recognized as a liability of the combined entity given it relates to rent received in advance. The remaining difference was allocated to property, plant and equipment as management determines that the majority of the value of Triton’s business is derived from its property, plant and equipment given its business is mainly shipping container leasing. The increase to deferred tax liabilities represents the tax impact of the difference between the fair value and the carrying value of net assets calculated based on a tax rate of 8%, which represents the effective income tax rate of Triton as disclosed in Note 11 of Triton’s March 31, 2023 interim consolidated financial statements. The recognition of deferred tax liabilities resulted in a corresponding increase in goodwill for the same amount. Triton’s historical shareholders’ equity have been removed as a part of the purchase accounting. Readers are cautioned that the purchase price allocation shown herein is preliminary and is subject to change, and changes to the assumptions used could have a material impact on the fair values. | |
| f) | Preferred Shares will remain unaffected by the proposed acquisition, and therefore have been reflected as non-controlling interest—attributable to interest of others in operating subsidiaries on both BIP and BIPC’s unaudited pro forma financial statements. The carrying value of the Preferred Shares have been adjusted to a fair value of $660 million based on publicly traded prices as at July 25, 2023. | |
| g) | Accounts payable and other include $114 million of estimated transaction costs as a result of the Triton acquisition, which are non-recurring. The accrual of transaction costs reduces partnership capital. The reduction is allocated to equity holders based on their proportionate share of net income/loss. | |
| h) | Non-recourse borrowings reflect the fair value of Triton’s debt as disclosed in Note 7 of Triton’s March 31, 2023 interim consolidated financial statements and proportionately allocated between current and non-current. |
| i) | The unaudited pro forma statement of operating results for the three-month period ended March 31, 2023 have been adjusted to give effect to the probable acquisition of Triton as if it had occurred on January 1, 2022. |
| j) | Reclassification to conform presentation adjustments have been made to conform Triton’s financial statement line items to those of BIP. | |
| k) | Depreciation expense has been adjusted to reflect the additional depreciation expense due to the fair value adjustment as a result of the Triton acquisition, which has been calculated using an estimated average remaining useful life of 9 years, based on current depreciation expense in respect to the cost of the property, plant and equipment as reported by Triton in its March 31, 2023 interim consolidated financial statements. | |
| l) | Interest expenses have been adjusted to reflect incremental borrowings at BIP level to fund the cash component of the transaction with an approximate rate of 6% based on BIP’s credit facility rate. In addition, interest expense has been adjusted to reflect the amortization of the fair value adjustment of the assumed debt using the effective interest rate method, over the weighted average remaining term disclosed in Note 7 Triton’s March 31, 2023 interim consolidated financial statements. | |
| m) | Deferred income taxes as a result of transaction accounting adjustments on the unaudited pro forma statement of operating results of BIP have been adjusted based on a tax rate of 8% for the three-month period ended March 31, 2023. The rates are based on the effective income tax rate of Triton as disclosed in Note 11 of Triton’s consolidated financial statements for the three-month period ended March 31, 2023. |
| n) | The unaudited pro forma statement of operating results for the year ended December 31, 2022 have been adjusted to give effect to the probable acquisition of Triton as if it had occurred on January 1, 2022. |
| o) | Depreciation expense has been adjusted to reflect the additional depreciation expense due to the fair value adjustment as a result of the Triton acquisition, which has been calculated using an estimated average remaining useful life of 9 years, based on current depreciation expense in respect to the cost of the property, plant and equipment as reported by Triton in its March 31, 2023 interim consolidated financial statements. | |
| p) | Interest expenses have been adjusted to reflect incremental borrowings at BIP level to fund the cash component of the transaction with an approximate rate of 6% based on BIP’s credit facility rate. In addition, interest expense has been adjusted to reflect the amortization of the fair value adjustment of the assumed debt using the effective interest rate method, over the weighted average remaining term disclosed in Note 7 Triton’s March 31, 2023 interim consolidated financial statements. | |
| q) | Other income (expenses) in BIP’s unaudited pro forma statement of operating results has been adjusted for $114 million of estimated transaction costs, which are non-recurring. | |
| r) | Deferred income taxes as a result of transaction accounting adjustments on the unaudited pro forma statement of operating results of BIP have been adjusted based on a tax rate of 8.66% for the year ended December 31, 2022. The rates are based on the effective income tax rate of Triton as disclosed in Note 12 of Triton’s consolidated financial statements for the period ended December 31, 2022. |
2. Acquisition of Data4
The following tables and explanatory notes present Data4’s statement of financial position as of March 31, 2023 as adjusted to give effect to the acquisition as if it had occurred on March 31, 2023, and Data4's statements of operating results for the three months ended March 31, 2023 and for the year ended December 31, 2022 as adjusted to give effect to the acquisition as if it had occurred on January 1, 2022 with transaction accounting adjustments calculated using information as of July 25, 2023 which is the most recent practicable date prior to the filing of this 6-K, given Data4 is a probable acquisition.
US$ MILLIONS
As at March 31, 2023
| Data4 historical | Reclassification
to conform presentation | Transaction
accounting adjustments | Proforma combined total | |||||||||||||||
| 2(a) | 2(a) | |||||||||||||||||
| Assets | ||||||||||||||||||
| Cash and cash equivalents | $ | 110 | $ | - | $ | (330 | ) | 2(b),(e) | $ | (220 | ) | |||||||
| Financial Assets | - | 17 | - | 17 | ||||||||||||||
| Derivative financial instruments | 17 | (17 | ) | - | - | |||||||||||||
| Accounts receivable and other | 163 | - | - | 163 | ||||||||||||||
| Inventory | 4 | - | - | 4 | ||||||||||||||
| Current assets | 294 | - | (330 | ) | (36 | ) | ||||||||||||
| Property, plant and equipment | 40 | - | - | 40 | ||||||||||||||
| Intangible assets | 6 | - | - | 6 | ||||||||||||||
| Investment properties | - | 3,169 | - | 3,169 | ||||||||||||||
| Investment property measured at fair value | 2,751 | (2,751 | ) | - | - | |||||||||||||
| Investment property measured at cost | 415 | (415 | ) | - | - | |||||||||||||
| Investments at fair value through other comprehensive income | 3 | (3 | ) | - | - | |||||||||||||
| Goodwill | - | - | 1,449 | 2(b),(d) | 1,449 | |||||||||||||
| Financial assets (non-current) | - | 56 | - | 56 | ||||||||||||||
| Derivative financial instruments | 56 | (56 | ) | - | - | |||||||||||||
| Deferred income tax asset | 1 | - | - | 1 | ||||||||||||||
| Non-current assets | 3,272 | - | 1,449 | 4,721 | ||||||||||||||
| Total assets | $ | 3,566 | $ | - | $ | 1,119 | $ | 4,685 | ||||||||||
| Liabilities and partnership capital | ||||||||||||||||||
| Liabilities | ||||||||||||||||||
| Accounts payable and other | $ | 159 | $ | 36 | $ | 80 | 2(f) | $ | 275 | |||||||||
| Non-recourse borrowings | - | 7 | - | 7 | ||||||||||||||
| Loans and borrowings | 7 | (7 | ) | - | - | |||||||||||||
| Lease liabilities | 3 | (3 | ) | - | - | |||||||||||||
| Other liabilities | 33 | (33 | ) | - | - | |||||||||||||
| Current liabilities | 202 | - | 80 | 282 | ||||||||||||||
| Non-recourse borrowings (non-current) | - | 1,781 | 399 | 2(b),(d),(e) | 2,180 | |||||||||||||
| Loans and borrowings | 1,781 | (1,781 | ) | - | - | |||||||||||||
| Other liabilities (non-current) | - | 3 | - | 3 | ||||||||||||||
| Lease liabilities | 3 | (3 | ) | - | - | |||||||||||||
| Deferred income tax liability | 427 | - | - | 2(b),(d) | 427 | |||||||||||||
| Non-current liabilities | 2,211 | - | 399 | 2,610 | ||||||||||||||
| Total liabilities | 2,413 | - | 479 | 2,892 | ||||||||||||||
| Partnership capital | ||||||||||||||||||
| Limited partners | $ | - | $ | 187 | $ | (200 | ) | 2(b)-(d),(f) | $ | (13 | ) | |||||||
| General partner | - | 1 | (1 | ) | 2(b)-(d),(f) | - | ||||||||||||
| Non-controlling interest attributable to: | ||||||||||||||||||
| Redeemable Partnership Units held by Brookfield | - | 79 | (84 | ) | 2(b)-(d),(f) | (5 | ) | |||||||||||
| BIPC | - | 53 | (57 | ) | 2(b)-(d),(f) | (4 | ) | |||||||||||
| Exchange LP Units | - | 3 | (3 | ) | 2(b)-(d),(f) | - | ||||||||||||
| Perpetual subordinated notes | - | - | - | - | ||||||||||||||
| Interest of others in operating subsidiaries | - | 830 | 985 | 2(b)-(d),(f) | 1,815 | |||||||||||||
| Equity | ||||||||||||||||||
| Issued share capital | 2 | (2 | ) | - | - | |||||||||||||
| Additional paid-in capital | 173 | (173 | ) | - | - | |||||||||||||
| Retained earnings | 978 | (978 | ) | - | - | |||||||||||||
| Total partnership capital | 1,153 | - | 640 | 1,793 | ||||||||||||||
| Total liabilities and partnership capital | $ | 3,566 | $ | - | $ | 1,119 | $ | 4,685 |
US$ MILLIONS
For the three-month period ended March 31, 2023
| Data4 historical | Reclassification
to conform presentation | Transaction
accounting adjustments | Proforma combined total | |||||||||||||||
| 2(a) | 2(a) | |||||||||||||||||
| Revenues | $ | - | $ | 98 | $ | - | $ | 98 | ||||||||||
| Rendering of services data canters | 65 | (65 | ) | - | - | |||||||||||||
| Other operating income | 33 | (33 | ) | - | - | |||||||||||||
| Direct operating costs | - | (50 | ) | - | (50 | ) | ||||||||||||
| Operating expenses | (43 | ) | 43 | - | - | |||||||||||||
| Employee expenses | (5 | ) | 5 | - | - | |||||||||||||
| Depreciation and amortization expense | (2 | ) | 2 | - | - | |||||||||||||
| 48 | - | - | 48 | |||||||||||||||
| Interest expense | - | (23 | ) | (7 | ) | 2(h) | (30 | ) | ||||||||||
| Net foreign exchange gains/(losses) | (1 | ) | 1 | - | - | |||||||||||||
| Financial income | 1 | (1 | ) | - | - | |||||||||||||
| Financial costs | (23 | ) | 23 | - | - | |||||||||||||
| 25 | - | (7 | ) | 18 | ||||||||||||||
| Income tax (expense) recovery | ||||||||||||||||||
| Deferred | - | - | 2 | 2(i) | 2 | |||||||||||||
| Net income | $ | 25 | $ | - | $ | (5 | ) | $ | 20 | |||||||||
| Attributable to: | ||||||||||||||||||
| Limited partners | - | - | - | $ | 3 | |||||||||||||
| General partner | - | - | - | - | ||||||||||||||
| Non-controlling interest attributable to: | - | |||||||||||||||||
| Redeemable Partnership Units held by Brookfield | - | - | - | 1 | ||||||||||||||
| BIPC exchangeable shares | - | - | - | 1 | ||||||||||||||
| Exchangeable units | - | - | - | - | ||||||||||||||
| Interest of others in operating subsidiaries | - | - | - | 15 | ||||||||||||||
| Preferred unitholders | - | - | - | - | ||||||||||||||
| Basic and diluted earnings per unit attributable to: | ||||||||||||||||||
| Limited partners | - | - | - | $ | 0.01 |
US$ MILLIONS
For the year ended December 31, 2022
| Data4 historical | Reclassification
to conform presentation | Transaction accounting adjustments | Proforma
combined total | |||||||||||||||
| 2(a) | 2(a) | |||||||||||||||||
| Revenues | $ | - | $ | 235 | $ | - | $ | 235 | ||||||||||
| Rendering of services data canters | 162 | (162 | ) | - | - | |||||||||||||
| Other operating income | 74 | (74 | ) | - | - | |||||||||||||
| Direct operating costs | - | (159 | ) | - | (159 | ) | ||||||||||||
| Operating expenses | (133 | ) | 133 | - | - | |||||||||||||
| Employee expenses | (17 | ) | 17 | - | - | |||||||||||||
| 86 | (10 | ) | - | 76 | ||||||||||||||
| Interest expense | - | (46 | ) | (28 | ) | 2(k) | (74 | ) | ||||||||||
| Other income (expenses) | - | 521 | (80 | ) | 2(l) | 441 | ||||||||||||
| Fair value adjustments on investment property | 470 | (470 | ) | - | - | |||||||||||||
| Financial income | 52 | (52 | ) | - | - | |||||||||||||
| Financial costs | (46 | ) | 46 | - | - | |||||||||||||
| Other non-operating expense | (1 | ) | 1 | - | - | |||||||||||||
| 561 | (10 | ) | (108 | ) | 443 | |||||||||||||
| Income tax (expense) recovery | ||||||||||||||||||
| Deferred | (130 | ) | - | 27 | 2(m) | (103 | ) | |||||||||||
| Net income | $ | 431 | $ | (10 | ) | $ | (81 | ) | $ | 340 | ||||||||
| Attributable to: | ||||||||||||||||||
| Limited partners | - | - | - | $ | 55 | |||||||||||||
| General partner | - | - | - | - | ||||||||||||||
| Non-controlling interest attributable to: | ||||||||||||||||||
| Redeemable Partnership Units held by Brookfield | - | - | - | 23 | ||||||||||||||
| BIPC exchangeable shares | - | - | - | 16 | ||||||||||||||
| Exchangeable units | - | - | - | 1 | ||||||||||||||
| Interest of others in operating subsidiaries | - | - | - | 245 | ||||||||||||||
| Basic and diluted earnings per unit attributable to: | ||||||||||||||||||
| Limited partners | - | - | - | $ | 0.12 |
| a) | Reclassification to conform presentation adjustments have been made to conform Data4's financial statement line items to those of BIP. |
| b) | The acquisition of Data4 is a probable acquisition and will be accounted for as a business combination. The purchase consideration, assets acquired and liabilities assumed are therefore recorded at their estimated fair value based on information available as of July 25, 2023. Actual amounts recognized by BIP on the effective date of the Data4 acquisition, if consummated, may differ materially from these estimates. |
The following table provides the preliminary purchase price allocation:
| (In US$ millions, unless otherwise noted) | ||||||
| Total estimated cash consideration | 728 | |||||
| Consideration provided by non-controlling interests | 2(c) | 1,874 | ||||
| Total estimated fair value of consideration | $ | 2,602 | ||||
| Current assets | 293 | |||||
| Property, plant, and equipment | 40 | |||||
| Investment properties | 3,167 | |||||
| Intangibles and goodwill | 1,455 | |||||
| Non-current assets | 60 | |||||
| Current liabilities | (198 | ) | ||||
| Non-recourse borrowings | (1,788 | ) | ||||
| Deferred tax liabilities | (427 | ) | ||||
| Fair value of net assets acquired | $ | 2,602 | ||||
The unaudited pro forma financial statements are prepared assuming that total consideration attributed to BIP of approximately $0.7 billion will be comprised of all cash consideration. Total Brookfield consideration of $2.6 billion will be comprised of consideration from BIP as noted above and cash consideration from institutional partners (presented as non-controlling interests).
| c) | Represents the consideration paid for the interest acquired by Brookfield, excluding BIP, measured at fair value of $1,874 million. |
| d) | Assets acquired and liabilities assumed were re-measured to fair value as of July 25, 2023. Differences between the fair value of consideration paid and the carrying values of assets acquired and liabilities assumed have been first reflected as an adjustment to items where fair value information is readily available. A significant portion of Data4's assets are comprised of investment properties where the carrying values approximate fair value and, as a result, the entire fair value difference was allocated to goodwill. Readers are cautioned that the purchase price allocation shown herein is preliminary and is subject to change, and changes to the assumptions used could have a material impact on the fair values. |
| e) | Non-recourse borrowings were adjusted to reflect an additional $0.4 billion to finance cash consideration. |
| f) | Accounts payable and other include $80 million of estimated transaction costs as a result of the Data4 acquisition, which are non-recurring. The accrual of transaction costs reduces partnership capital. The reduction is allocated to equity holders based on their proportionate share of net income/loss. |
| g) | The unaudited pro forma statement of operating result for the three-month period ended March 31, 2023 have been adjusted to give effect to the probable acquisition of Data4 as if it had occurred on January 1, 2022. Reclassification to conform presentation adjustments have been made to conform Data4's financial statement line items to those of BIP. |
| h) | Interest expense has been adjusted to reflect incremental borrowings at BIP level to fund a portion of the purchase price of the transaction with an approximate rate of 6.9% based on the EURIBOR plus 3%. |
| i) | Deferred income taxes as a result of transaction accounting adjustments on the unaudited pro forma statement of operating results of BIP have been adjusted based on a tax rate of 24.94% which is the statutory income tax rate of Data4 for the three months ended March 31, 2023. |
| j) | The unaudited pro forma statement of operating result for the year ended December 31, 2022 have been adjusted to give effect to the probable acquisition Data4 as if it had occurred on January 1, 2022. Reclassification to conform presentation adjustments have been made to conform Data4's financial statement line items to those of BIP. |
| k) | In BIP’s unaudited pro forma statement of operating results, interest expense has been adjusted to reflect incremental borrowings at BIP level to fund a portion of the purchase price of the transaction with an approximate rate of 7% based on the EURIBOR plus 3%. |
| l) | Other income (expenses) for the year ended December 31, 2022 has been adjusted for $80 million of estimated transaction costs, which are non-recurring. |
| m) | Deferred income taxes as a result of transaction accounting adjustments on the unaudited pro forma statement of operating results of BIP have been adjusted based on a tax rate of 24.94% which is the statutory income tax rate of Data4 for the year ended December 31, 2022. |
3. Acquisition of Sertaneja
The following tables and explanatory notes present Sertaneja’s statement of financial position as of March 31, 2023 as adjusted to give effect to the acquisition as if it had occurred on March 31, 2023, and Sertaneja's statements of operating results for the three months ended March 31, 2023 and for the year ended December 31, 2022 as adjusted to give effect to the acquisition as if it had occurred on January 1, 2022 with transaction accounting adjustments calculated using information as of July 25, 2023 which is the most recent practicable date prior to the filing of this 6-K.
US$ MILLIONS
As at March 31, 2023
| Sertaneja historical | Reclassification to conform presentation | Transaction accounting adjustments | Proforma combined total | |||||||||||||||
| 3(a) | 3(a) | |||||||||||||||||
| Assets | ||||||||||||||||||
| Cash and cash equivalents | $ | 36 | $ | - | $ | (35 | ) | 3(b)-(e) | $ | 1 | ||||||||
| Accounts receivable and other | 9 | - | - | 9 | ||||||||||||||
| Current assets | 45 | - | (35 | ) | 10 | |||||||||||||
| Intangible assets | 400 | - | 77 | 3(b)-(e) | 477 | |||||||||||||
| Investments in associates and joint ventures | - | - | (22 | ) | 3(b)-(e) | (22 | ) | |||||||||||
| Goodwill | - | - | 25 | 3(b)-(e) | 25 | |||||||||||||
| Non-current assets | 400 | - | 80 | 480 | ||||||||||||||
| Total assets | $ | 445 | $ | - | $ | 45 | $ | 490 | ||||||||||
| Liabilities and partnership capital | ||||||||||||||||||
| Liabilities | ||||||||||||||||||
| Accounts payable and other | $ | 39 | $ | - | $ | - | $ | 39 | ||||||||||
| Current liabilities | 39 | - | - | 39 | ||||||||||||||
| Non-recourse borrowings (non-current) | 197 | - | - | 197 | ||||||||||||||
| Deferred income tax liability | 56 | - | 27 | 3(b)-(e) | 83 | |||||||||||||
| Non-current liabilities | 253 | - | 27 | 280 | ||||||||||||||
| Total liabilities | $ | 292 | $ | - | $ | 27 | $ | 319 | ||||||||||
| Partnership capital | ||||||||||||||||||
| Limited partners | $ | - | $ | 27 | $ | (15 | ) | 3(b)-(e) | $ | 12 | ||||||||
| General partner | - | - | - | 3(b)-(e) | - | |||||||||||||
| Non-controlling interest attributable to: | ||||||||||||||||||
| Redeemable Partnership Units held by Brookfield | - | 11 | (11 | ) | 3(b)-(e) | - | ||||||||||||
| BIPC | - | 8 | (8 | ) | 3(b)-(e) | - | ||||||||||||
| Exchange LP Units | - | - | - | - | ||||||||||||||
| Perpetual subordinated notes | - | - | - | - | ||||||||||||||
| Interest of others in operating subsidiaries | - | 107 | 52 | 3(b)-(e) | 159 | |||||||||||||
| Equity | ||||||||||||||||||
| Share capital | 41 | (41 | ) | - | - | |||||||||||||
| Retained earnings | 112 | (112 | ) | - | - | |||||||||||||
| Total partnership capital | 153 | - | 18 | 171 | ||||||||||||||
| Total liabilities and partnership capital | $ | 445 | $ | - | $ | 45 | $ | 490 | ||||||||||
US$ MILLIONS
For the three-month period ended March 31, 2023
| Sertaneja historical | Transaction accounting adjustments | Proforma Combined Total | ||||||||||||
| 3(a) | ||||||||||||||
| Revenues | $ | 9 | $ | - | $ | 9 | ||||||||
| Direct operating costs | (1 | ) | (1 | ) | 3(g) | (2 | ) | |||||||
| 8 | (1 | ) | 7 | |||||||||||
| Interest expense | (4 | ) | - | (4 | ) | |||||||||
| Share of earnings from investments in associates and joint ventures | - | (1 | ) | 3(h) | (1 | ) | ||||||||
| Income before income tax | 4 | (2 | ) | 2 | ||||||||||
| Income tax (expense) recovery | ||||||||||||||
| Deferred | (1 | ) | - | 3(i) | (1 | ) | ||||||||
| Net income | $ | 3 | $ | (2 | ) | $ | 1 | |||||||
| Attributable to: | ||||||||||||||
| Limited partners | - | |||||||||||||
| General partner | - | |||||||||||||
| Non-controlling interest attributable to: | ||||||||||||||
| Redeemable Partnership Units held by Brookfield | - | |||||||||||||
| BIPC exchangeable shares | - | |||||||||||||
| Exchangeable units | - | |||||||||||||
| Interest of others in operating subsidiaries | 1 | |||||||||||||
| Preferred unitholders | - | |||||||||||||
| Basic and diluted earnings per unit attributable to: | ||||||||||||||
| Limited partners | - | - | $ | - | ||||||||||
US$ MILLIONS
For the year ended December 31, 2022
| Sertaneja historical | Transaction accounting adjustments | Proforma Combined Total | ||||||||||||
| 3(a) | ||||||||||||||
| Revenues | $ | 98 | $ | - | $ | 98 | ||||||||
| Direct operating costs | (31 | ) | (3 | ) | 3(g) | (34 | ) | |||||||
| 67 | (3 | ) | 64 | |||||||||||
| Interest expense | (14 | ) | - | (14 | ) | |||||||||
| Share of earnings from investments in associates and joint ventures | - | (4 | ) | 3(h) | (4 | ) | ||||||||
| Other income (expenses) | (10 | ) | 12 | 3(j) | 2 | |||||||||
| Income before income tax | 43 | 5 | 48 | |||||||||||
| Income tax (expense) recovery | ||||||||||||||
| Current | (1 | ) | - | (1 | ) | |||||||||
| Deferred | (12 | ) | (1 | ) | 3(i) | (13 | ) | |||||||
| Net income | $ | 30 | $ | 4 | $ | 34 | ||||||||
| Attributable to: | ||||||||||||||
| Limited partners | - | - | $ | 6 | ||||||||||
| General partner | - | - | - | |||||||||||
| Non-controlling interest attributable to: | ||||||||||||||
| Redeemable Partnership Units held by Brookfield | - | - | 3 | |||||||||||
| BIPC exchangeable shares | - | - | 2 | |||||||||||
| Exchangeable units | - | - | - | |||||||||||
| Interest of others in operating subsidiaries | - | - | 23 | |||||||||||
| Basic and diluted earnings per unit attributable to: | ||||||||||||||
| Limited partners | - | - | $ | 0.01 | ||||||||||
| a) | Reclassification to conform presentation adjustments have been made to conform Sertaneja's financial statement line items to those of BIP. |
| b) | The acquisition of Sertaneja is accounted for as a business combination effective on May 2, 2023, which is the acquisition date. The purchase consideration, assets acquired and liabilities assumed are therefore recorded at their acquisition date fair value based on information available as of July 25, 2023. Actual amounts recognized by BIP on the effective date of the Sertaneja acquisition, if consummated, may differ materially from these estimates. |
The following table provides the preliminary purchase price allocation:
| (In US$ millions, unless otherwise noted) | ||||||
| Total estimated cash consideration | 35 | |||||
| Pre-existing interest in business | 3(c) | 35 | ||||
| Consideration provided by non-controlling interests | 3(d) | 158 | ||||
| Total estimated fair value of consideration | 3(d) | $ | 228 | |||
| Current assets | 45 | |||||
| Intangibles and goodwill | 502 | |||||
| Current liabilities | (44 | ) | ||||
| Non-recourse borrowings | (192 | ) | ||||
| Deferred tax liabilities | (83 | ) | ||||
| Fair value of net assets acquired | $ | 228 | ||||
The unaudited pro forma financial statements are prepared assuming that total consideration attributed to BIP of approximately $70 million will be comprised of (i) cash consideration of $35 million and (ii) the fair value of the pre-existing interest in the business, accounted for as an investment in associate, using the equity method of accounting, of $35 million.
| c) | Represents the fair value of BIP's existing interest in the business, accounted for as an investment in associate. Upon acquisition of Sertaneja, BIP recorded a gain on its existing interest of $12 million, recognized through equity attributable to the partnership. |
| d) | Total Brookfield consideration of $228 million will be comprised of consideration from BIP as noted above of $70 million and cash consideration from institutional partners (presented as non-controlling interests) in addition to their pre-existing interest in the business for total non-controlling interest of $158 million. |
| e) | Assets acquired and liabilities assumed were re-measured to their acquisition date fair value. Differences between the fair value of consideration paid and the carrying values of assets acquired and liabilities assumed have been first reflected as an adjustment to items where fair value information is readily available. A significant portion of Sertaneja's assets are comprised of concession agreements which are recorded as intangible assets on the balance sheet which had an acquisition date fair value of approximately $477 million. The increase to deferred tax liabilities represents the tax impact of the difference between the fair value and the carrying value of net assets calculated based on a tax rate of 34%, which represents the statutory income tax rate of Sertaneja. The recognition of deferred tax liabilities resulted in a corresponding increase in goodwill for the same amount. Sertaneja's historical shareholders’ equity have been removed as a part of the purchase accounting. Readers are cautioned that the purchase price allocation shown herein is preliminary and is subject to change, and changes to the assumptions used could have a material impact on the fair values. |
| f) | The unaudited pro forma statement of operating result for the three-month period ended March 31, 2023 have been adjusted to give effect to the probable acquisition of Sertaneja as if it had occurred on January 1, 2022. |
| g) | Depreciation expense has been adjusted to reflect the additional depreciation expense due to the fair value adjustment to intangible assets as a result of the Sertaneja acquisition, which has been calculated using an estimated average remaining useful life of 24 years based on the remaining term of the related contracts. |
| h) | BIP’s share of earnings from associate income have been adjusted to remove income earned from BIP's existing interest in Sertaneja. |
| i) | Deferred income taxes as a result of transaction accounting adjustments on the unaudited pro forma statement of operating results of BIP have been adjusted based on a tax rate of 34% for the three-month period ended March 31, 2023. The rates are based on the statutory tax rate of Sertaneja for the three-month period ended March 31, 2023. |
| j) | Other income (expense) for the year ended December 31, 2022 has been adjusted to reflect a net realized gain of $12 million relating to a fair value step up of BIP's existing interest in Sertaneja, upon discontinuation of equity method accounting. which is non-recurring. |
| k) | Deferred income taxes as a result of transaction accounting adjustments on the unaudited pro forma statement of operating results of BIP have been adjusted based on a tax rate of 34%. The rates are based on the effective income tax rate of Sertaneja for the three months ended March 31, 2023 and the year ended December 31, 2022. |
4. Acquisition of HomeServe
The following tables and explanatory notes present HomeServe’s statements of operating results for the year ended December 31, 2022 as adjusted to give effect to the acquisition as if it had occurred on January 1, 2022.
US$ MILLIONS
For the year ended December 31, 2022
| HomeServe historical | Transaction accounting adjustments | Proforma combined total | ||||||||||||
| Revenues | $ | 2,020 | $ | - | $ | 2,020 | ||||||||
| Direct operating costs | (1,521 | ) | (127 | ) | 4(a) | (1,648 | ) | |||||||
| 499 | (127 | ) | 372 | |||||||||||
| Interest expense | (35 | ) | - | (35 | ) | |||||||||
| Mark-to-market gains (losses) | 10 | - | 10 | |||||||||||
| Other income (expenses) | (306 | ) | - | 4(c) | (306 | ) | ||||||||
| Income before income tax | $ | 168 | $ | (127 | ) | $ | 41 | |||||||
| Income tax (expense) recovery | ||||||||||||||
| Current | (44 | ) | - | (44 | ) | |||||||||
| Deferred | (7 | ) | 32 | 4(b) | 25 | |||||||||
| Net income | $ | 117 | $ | (95 | ) | $ | 22 | |||||||
| Attributable to: | ||||||||||||||
| Limited partners | - | - | $ | 3 | ||||||||||
| General partner | - | - | - | |||||||||||
| Non-controlling interest attributable to: | ||||||||||||||
| Redeemable Partnership Units held by Brookfield | - | - | 1 | |||||||||||
| BIPC exchangeable shares | - | - | 1 | |||||||||||
| Exchangeable units | - | - | - | |||||||||||
| Interest of others in operating subsidiaries | - | - | 17 | |||||||||||
| Basic and diluted earnings per unit attributable to: | ||||||||||||||
| Limited partners | - | - | $ | 0.01 | ||||||||||
The partnership and HomeServe have different fiscal years ending December 31 and March 31, respectively. Accordingly, HomeServe’s historical statement of operations for the fiscal year ended March 31, 2023 has been aligned to the fiscal year of the partnership for the fiscal year ended December 31, 2022 by adjusting to include HomeServe’s unaudited consolidated statement of operations data for the three months ended March 31, 2022 and to exclude HomeServe’s unaudited consolidated statement of operations data for the three months ended March 31, 2023. Additionally, reclassification adjustments have been made to conform presentation to the partnership’s statement of operating results. As a result of the acquisition, HomeServe’s assets and liabilities were adjusted to their acquisition date fair value.
| a) | Depreciation expense has been adjusted to reflect the additional depreciation expense due to the fair value adjustment made to intangible assets as a result of the HomeServe acquisition, which has been calculated using an estimated average remaining useful life of 19 years. |
| b) | Deferred income taxes as a result of transaction accounting adjustments on the unaudited pro forma statement of operating results of BIP have been adjusted based on a tax rate of 25% for the year ended December 31, 2022. The rates are based on the effective income tax rate of HomeServe for the year ended December 31, 2022. |
| c) | Transaction costs of $55 million has been recognized in the partnership's statement of operating results for the three months ended march 31, 2023 and is therefore not included as a transaction accounting adjustment. These transaction costs are non-recurring in nature. |
5. DFMG
| a) | As the partnership’s investment in DFMG is accounted for using the equity method, transaction accounting adjustments as a result of the DFMG transaction include the following: |
| · | For the year ended December 31, 2022, share of earnings from investments in associates and joint ventures included approximately $22 million for the partnership’s share in DFMG’s net income, adjusted to reflect (i) depreciation and amortization to reflect the additional depreciation expense due to adjusting the net assets of the investee to their acquisition date fair value as a result of the acquisition, (ii) interest expense incurred on approximately $1.6 billion of incremental borrowings to finance a part of the purchase consideration, and (iii) deferred tax impact of the aforementioned adjustments, calculated at a statutory tax rate of 32% based on disclosures in DFMG’s historical financial statement. |
| · | For the three months ended March 31, 2023, share of earnings from investments in associates and joint ventures included the partnership’s share of DFMG’s net income described above for the period from January 1, 2023 to February 6, 2023 prior to the partnership’s investment in DFMG. |
6. Acquisition of Compass
As the partnership’s investment in Compass will be accounted for using the equity method, transaction accounting adjustments as a result of the Compass transaction are expected to include:
| · | $370 million of investments in associates and joint ventures together with $370 million cash consideration to be transferred as at March 31, 2023. | |
| · | A $23 million loss and a $6 million loss for the year ended December 31, 2022 and the three months ended March 31, 2023, respectively, in share of earnings from investments in associates and joint ventures, reflecting the partnership’s share in the investee’s net loss adjusted for estimated transaction costs net of its deferred tax impact calculated at a statutory tax rate of 21% for the year ended December 31, 2022. |
7. Pro forma basic and diluted earnings per unit attributable to limited partners
| For the purpose of BIP’s unaudited pro forma statement of operating results, pro forma basic and diluted earnings per unit attributable to limited partners is calculated as pro forma combined net income attributable to limited partners less preferred unit distributions for the period, divided by the weighted average number of BIP Units outstanding during the period. |
8. Master Services Agreement with Brookfield Corporation
Brookfield Corporation and its subsidiaries provide management services to BIP pursuant to a master services agreement (the “Master Services Agreement”). Pursuant to the Master Services Agreement, on a quarterly basis, BIP pays a base management fee to the service providers equal to 0.3125% (1.25% annually) of the market value of BIP. For purposes of calculating the base management fee, the market value of BIP is equal to the aggregate value of all the outstanding units, preferred units and securities of the other service recipients, which includes BIPC, plus all outstanding third party debt with recourse to a service recipient, less all cash held by such entities. Based on $0.9 billion of BIPC Shares assumed to be issued in connection with the acquisition, the base management fee is expected to increase by $11 million annually, which has not been reflected in the Pro Forma Financial Statements.
Exhibit 99.4
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the Brookfield Infrastructure Partners L.P.’s registration statements (No. 333-255051-01, 333-249031, 333-235653, 333-262098, 333-167860 and 333-270363) on Form F-3 of our report dated February 14, 2023, with respect to the consolidated financial statements of Triton International Limited and the effectiveness of internal control over financial reporting.
/s/ KPMG LLP
New York, New York
July 31, 2023