TRITON INTERNATIONAL LIMITED You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q and with the audited consolidated financial statements included in our 2022 Annual Report on Form 10-K. The statements in this discussion regarding industry outlook, our expectations regarding our future performance, liquidity and capital resources and other non-historical statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties discussed under "Risk Factors" and "Cautionary Note Regarding Forward-Looking Statements" in our 2022 Annual Report on Form 10-K, in this Quarterly Report on Form 10-Q and in any subsequent Quarterly Reports on Form 10-Q to be filed by us, as well as in the other documents we file with theSEC from time to time. Our actual results may differ materially from those contained in or implied by any forward-looking statements. References in this Quarterly Report on Form 10-Q to the "Company," "Triton," "we," "us" and "our" refer toTriton International Limited and, where appropriate, its consolidated subsidiaries.
Our Company
Triton is the world's largest lessor of intermodal containers. Intermodal containers are large, standardized steel boxes used to transport freight by ship, rail or truck. Because of the handling efficiencies they provide, intermodal containers are the primary means by which many goods and materials are shipped internationally. We also lease chassis, which are used for the transportation of containers.
We operate our business in one industry, intermodal transportation equipment, and have two business segments, which also represent our reporting segments: •Equipment leasing - we own, lease and ultimately dispose of containers and chassis from our lease fleet. •Equipment trading - we purchase containers from shipping line customers, and other sellers of containers, and resell these containers to container retailers and users of containers for storage or one-way shipment. Recent Developments Brookfield Infrastructure Transaction OnApril 11, 2023 , we entered into an Agreement and Plan of Merger (the "Merger Agreement") with Brookfield Infrastructure Corporation, a corporation organized under the laws ofBritish Columbia ("BIPC"),Thanos Holdings Limited , an exempted company limited by shares incorporated under the laws ofBermuda ("Parent") andThanos MergerSub Limited , an exempted company limited by shares incorporated under the laws ofBermuda 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 BIPC Shares, based on the volume weighted average price of BIPC Shares for the 10 trading days endingApril 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 theNew 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 our shareholders. If the transaction is consummated, our common shares will be delisted from the NYSE and deregistered under the Exchange Act. Immediately following the 22 -------------------------------------------------------------------------------- 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.
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.
Operations
Our consolidated operations include the acquisition, leasing, re-leasing and subsequent sale of multiple types of intermodal containers and chassis. As ofMarch 31, 2023 , our total fleet consisted of 4.1 million containers and chassis, representing 7.1 million twenty-foot equivalent units ("TEU") or 7.8 million cost equivalent units ("CEU"). We have an extensive global presence, offering leasing services through a worldwide network of local offices and utilize third-party container depots spread across 46 countries to provide customers global access to our container fleet. Our primary customers include the world's largest container shipping lines. For the three months endedMarch 31, 2023 , our twenty largest customers accounted for 84% of our lease billings, our five largest customers accounted for 63% of our lease billings, and our three largest customers accounted for 20%, 17%, and 13%, respectively of our lease billings. The most important driver of profitability in our business is the extent to which leasing revenues, which are driven by our owned equipment fleet size, utilization and average lease rates, exceed our ownership and operating costs. Our profitability is also driven by the gains or losses we realize on the sale of used containers and the margins generated from trading new and used containers. We lease five types of equipment: (1) dry containers, which are used for general cargo such as manufactured component parts, consumer staples, electronics and apparel, (2) refrigerated containers, which are used for perishable items such as fresh and frozen foods, (3) special containers, which are used for heavy and over-sized cargo such as marble slabs, building products and machinery, (4) tank containers, which are used to transport bulk liquid products such as chemicals, and (5) chassis, which are used for the transportation of containers on the road. Our in-house equipment sales group manages the sale process for our used containers and chassis from our equipment leasing fleet and sells used and new containers and chassis acquired from third parties. 23 -------------------------------------------------------------------------------- The following tables summarize our equipment fleet as ofMarch 31, 2023 ,December 31, 2022 andMarch 31, 2022 indicated in units, TEU and CEU. CEU and TEU are standard industry measures of fleet size and are used to measure the quantity of containers that make up our revenue earning assets: Equipment Fleet in Units
Equipment Fleet in TEU
March 31, 2023 December 31, 2022 March 31, 2022 March 31, 2023 December 31, 2022 March 31, 2022 Dry 3,729,800 3,784,386 3,850,167 6,378,308 6,458,705 6,546,249 Refrigerated 225,208 227,628 234,274 437,784 442,489 455,261 Special 93,526 92,379 92,184 171,630 169,290 168,687 Tank 12,156 12,000 11,734 12,156 12,000 11,734 Chassis 27,616 27,937 23,711 52,198 52,744 44,272 Equipment leasing fleet 4,088,306 4,144,330 4,212,070 7,052,076 7,135,228 7,226,203 Equipment trading fleet 46,241 48,328 56,161 74,636 79,102 90,090 Total 4,134,547 4,192,658 4,268,231 7,126,712 7,214,330 7,316,293 Equipment Fleet in CEU (1) March 31, 2023 December 31, 2022 March 31, 2022 Operating leases 7,058,868 7,147,332 7,250,246 Finance leases 665,024 662,822 666,690 Equipment trading fleet 70,348 75,697 85,686 Total 7,794,240 7,885,851 8,002,622 (1)In the equipment fleet tables above, we have included total fleet count information based on CEU. CEU is a ratio used to convert the actual number of containers in our fleet to a figure based on an estimate for the historical average relative purchase prices of our various equipment types to that of a 20-foot dry container. For example, the CEU ratio for a 40-foot high cube dry container is 1.70, and a 40-foot high cube refrigerated container is 7.50. These factors may differ slightly from CEU ratios used by others in the industry.
The following table summarizes the percentage of our equipment fleet in terms of
units and CEU as of
Percentage of total Percentage of total
Equipment Type fleet in units fleet in CEU
Dry 90.1 % 71.4 %
Refrigerated 5.5 21.4
Special 2.3 3.1
Tank 0.3 1.3
Chassis 0.7 1.9
Equipment leasing fleet 98.9 % 99.1 %
Equipment trading fleet 1.1 0.9
Total 100.0 % 100.0 %
We generally lease our equipment on a per diem basis to our customers under
three types of leases:
•Long-term leases, which we categorize as operating leases, typically have
initial contractual terms ranging from five to eight or more years and provide
us with stable cash flow and low transaction costs by requiring customers to
maintain specific units on-hire for the duration of the lease term. Some of our
containers, primarily used containers, are placed on lifecycle leases which keep
the containers on-hire until the end of their useful life.
•Finance leases are typically structured as full payout leases and provide for a
predictable recurring revenue stream with generally the lowest cost to the
customer as customers are generally required to retain the equipment for the
duration of its useful life.
•Service leases, which we categorize as operating leases, command a premium per
diem rate in exchange for providing customers with greater operational
flexibility by allowing non-scheduled pick-up and drop-off of units during the
lease term.
24-------------------------------------------------------------------------------- We categorize our operating leases as either long-term leases or service leases. Some leases have contractual terms that have features reflective of both long-term and service leases. We classify such leases as either long-term or service leases, depending upon which features we believe are predominant. For example, some leases that provide redelivery flexibility during the lease term are classified as long-term leases in cases where lessees have made large upfront payments to reduce their lease payment during the lease term or in cases where lessees will incur significant redelivery fees if containers are returned during the lease term. Such leases are generally considered to be long-term leases based on the expected on-hire time and the economic protection achieved by the lease economics. We also have expired long-term leases whose fixed terms have ended but for which the related units remain on-hire and for which we continue to receive rental payments pursuant to the terms of the initial contract.
The following tables summarize our lease portfolio by lease type, based on CEU
on-hire as of
Lease Portfolio by CEU March 31, 2023 December 31, 2022 March 31, 2022 Long-term leases 70.0 % 72.4 % 72.4 % Finance leases 9.2 9.0 8.6 Subtotal 79.2 81.4 81.0 Service leases 6.8 6.7 5.0 Expired long-term leases, non-sale age (units on hire) 7.1 6.8 6.9 Expired long-term leases, sale-age (units on hire) 6.9 5.1 7.1 Total 100.0 % 100.0 % 100.0 % Weighted average remaining contractual term in months for long-term and finance leases 59 59 61 Lease Portfolio by Net Book Value March 31, 2023 December 31, 2022 March 31, 2022 Long-term leases 71.7 % 72.8 % 73.0 % Finance leases 15.7 15.4 15.0 Subtotal 87.4 88.2 88.0 Service leases 4.3 4.2 3.7 Expired long-term leases, non-sale age (units on hire) 5.0 5.0 4.9 Expired long-term leases, sale-age (units on hire) 3.3 2.6 3.4 Total 100.0 % 100.0 % 100.0 % Weighted average remaining contractual term in months for long-term and finance leases 75 76 79 Operating Performance
We maintained a high level of operating and financial performance in the first quarter of 2023, though market conditions continued to be slow.
Fleet size. As ofMarch 31, 2023 , the net book value of our revenue earning assets was$11.1 billion , a decrease of 1.9% compared toDecember 31, 2022 and a decrease of 5.4% compared toMarch 31, 2022 . The decrease in our fleet size was primarily due to limited procurement in 2022, which has continued into the first quarter of 2023. Market conditions weakened in the second half of 2022 and lease demand remained low during the first quarter of 2023. ThroughApril 25, 2023 , we have invested$98.2 million in containers for delivery in 2023. Utilization. Our average utilization was 97.6% for the first quarter of 2023, a decrease of 0.8% compared to the fourth quarter of 2022. The decrease in our utilization is due to increased drop-off volumes and limited pick up activity as the result of weak lease demand. Our ending utilization was 97.2% as ofMarch 31, 2023 and currently stands at 97.1%. 25 -------------------------------------------------------------------------------- The following tables summarize our equipment fleet utilization for the periods indicated below. Utilization is computed by dividing our total units on lease (in CEU) by the total units in our fleet (in CEU), excluding new units not yet leased and off-hire units designated for sale: Quarter Ended December 31, September 30, June 30, March 31, March 31, 2023 2022 2022 2022 2022 Average Utilization 97.6 % 98.4 % 99.1 % 99.4 % 99.6 % Ending Utilization 97.2 % 98.1 % 98.8 % 99.3 % 99.5 % Average lease rates. Average lease rates for our dry container product line decreased by 0.5% from the fourth quarter of 2022 primarily due to the impact of lease extension transactions concluded with rates below our portfolio average. New container prices decreased during 2022 from the record levels reached in 2021, and new container prices and market lease rates for new containers were slightly above the average lease rates in our portfolio in the first quarter of 2023. Average lease rates for our refrigerated container product line continued to decrease in the first quarter of 2023. We have been experiencing larger differences in lease rates for older refrigerated containers compared to rates on new equipment, and we expect our average lease rates for refrigerated containers will continue to gradually trend down.
The average lease rates for special containers decreased by 0.9% in the first quarter of 2023 compared to the fourth quarter of 2022.
Interest and Debt Expense. Our interest expense decreased in the first quarter of 2023 compared to the fourth quarter of 2022 reflecting a decrease in our average debt balance, partially offset by an increase in our effective interest rate. Our average debt balance decreased 2.79% in the first quarter as a result of our limited investment in new containers in 2022 and the first quarter of 2023. Our effective rate increased 6 basis points to 2.93% in the first quarter due to the increase in interest rates on our floating-rate debt. Equipment disposals. Equipment disposal gains decreased in the first quarter due to a decrease in selling prices partially offset by an increase in disposal volumes. The decrease in used container sale prices reflected a decrease in new container prices, decreased demand for one-way cargo and an increased supply of used containers available for sale. Our disposal volumes increased in the first quarter of 2023 due to increased redeliveries and an increase in our inventory of containers available for sale.
Liquidity and Capital Resources
Our principal sources of liquidity are cash flows provided by operating activities, proceeds from the sale of our leasing equipment, borrowings under our credit facilities and proceeds from other financing activities. Our principal uses of cash include capital expenditures, debt service, dividends, and share repurchases. For the trailing twelve months endedMarch 31, 2023 , cash provided by operating activities, together with the proceeds from the sale of our leasing equipment, was$2,116.1 million . In addition, as ofMarch 31, 2023 , we had$92.8 million of unrestricted cash and cash equivalents and$1,930.0 million of borrowing capacity remaining under our existing credit facilities. As ofMarch 31, 2023 , our cash commitments in the next twelve months include$1,006.8 million of scheduled principal payments on our existing debt facilities and$60.4 million of committed but unpaid capital expenditures, primarily for the purchase of equipment.
We believe that cash provided by operating activities, existing cash, proceeds from the sale of our leasing equipment, and availability under our credit facilities will be sufficient to meet our obligations over the next twelve months and beyond.
Capital Activity
During the three months ended
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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 cost
of $116.9 million under its share repurchase program.
For additional information on the share repurchase program and dividends, please refer to Note 5 - "Other Equity Matters" in the Notes to the Unaudited Consolidated Financial Statements.
Debt Activity
We may, from time to time, seek to retire or purchase our outstanding debt through cash purchases and/or exchanges for equity or debt, in open-market purchases, privately negotiated transactions, tender offers or otherwise. Such repurchases or exchanges, if any, may be funded from operating cash flows or other sources, will be on such terms and at prices as we may determine, and will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.
Credit Ratings
Our investment-grade corporate and long-term debt credit ratings enable us to lower our cost of funds and broaden our access to attractively priced capital. While a ratings downgrade, on its own, would not result in a default under any of our debt agreements, it could adversely affect our ability to issue debt and obtain new financings, or renew existing financings, and it would increase the cost of our financings. Additionally, under the terms of our senior notes, certain ratings downgrades following public announcement of a change of control, as more fully described in the relevant agreements governing those instruments, could give holders of those notes certain redemption rights. The Company's long-term debt and corporate ratings of BBB- from bothS&P Global Ratings and Fitch Ratings remained unchanged in the first quarter of 2023. Following the announcement of the Merger,S&P Global Ratings placed our credit rating on CreditWatch with positive implications.
Debt Agreements
As of
March 31, 2023
Outstanding Maximum
Borrowings Borrowing Level
Secured Debt Financings
Asset-backed securitization term instruments $ 2,813.0 $ 2,813.0
Asset-backed securitization warehouse 235.0 1,125.0
Total secured debt financings 3,048.0 3,938.0
Unsecured Debt Financings
Senior notes 2,900.0 2,900.0
Term loan facilities 1,056.0 1,056.0
Revolving credit facilities 960.0 2,000.0
Total unsecured debt financings 4,916.0 5,956.0
Total debt financings 7,964.0 9,894.0
Unamortized debt costs (52.1) -
Unamortized debt premiums & discounts (4.5) -
Debt, net of unamortized costs $
7,907.4
The maximum borrowing levels depicted in the table above may not reflect the actual availability under all of the credit facilities. Certain of these facilities are governed by either borrowing bases or an unencumbered asset test that limits borrowing capacity. Based on those limitations, the availability under these credit facilities atMarch 31, 2023 was approximately$1,334.1 million . 27 -------------------------------------------------------------------------------- As ofMarch 31, 2023 , we had a combined$7,040.7 million of total debt on facilities with fixed interest rates or floating interest rates that have been synthetically fixed through interest rate swap contracts. This accounts for 88% of our total debt. The following table summarizes the weighted average interest rates and remaining terms on this portion of our debt: Weighted Balance Contractual Avg Outstanding (in Weighted Avg Remaining millions) Interest Rate Term Fixed-rate debt$ 5,713.0 2.08% 4.3 years Hedged floating-rate debt 1,327.7 3.71% 3.7 years Total fixed and hedged debt$ 7,040.7 2.38% 4.2 years
Pursuant to the terms of certain debt agreements, we are required to maintain
certain amounts in restricted cash accounts. As of
For additional information on our debt, please refer to Note 7 - "Debt" in the Notes to the Unaudited Consolidated Financial Statements.
Debt Covenants
We are subject to certain financial covenants related to leverage and interest coverage as defined in our debt agreements. Failure to comply with these covenants could result in a default under the related credit agreements and the acceleration of our outstanding debt if we were unable to obtain a waiver from the creditors. As ofMarch 31, 2023 , we were in compliance with all such covenants.
Cash Flow
The following table sets forth certain cash flow information for the three
months ended
Three Months
Ended
2023 2022 Variance
Net cash provided by (used in) operating activities $ 302,817 $ 398,670 $ (95,853)
Net cash provided by (used in) investing activities $ 52,263 $ (453,888) $ 506,151
Net cash provided by (used in) financing activities $ (345,532) Operating Activities
Net cash provided by operating activities decreased by$95.9 million to$302.8 million in the three months endedMarch 31, 2023 compared to$398.7 million in the same period in 2022. The decrease is primarily due to lower profitability in the first quarter of 2023 of$49.0 million and the impact of large prepayments on certain leases in the prior year that did not occur in the current period.
Investing Activities
Net cash provided by investing activities was$52.3 million in the three months endedMarch 31, 2023 compared to net cash used in investing activities of$453.9 million in the same period in 2022. The change was primarily due to a$475.7 million decrease in equipment purchases. In addition, disposal proceeds increased by$30.3 million in the first quarter of 2023.
Financing Activities
Net cash used in financing activities was$345.5 million in the three months endedMarch 31, 2023 , compared to net cash provided by financing activities of$18.1 million in the same period in 2022. The change was primarily due to a$337.4 million change in debt activity from net borrowings to net debt repayments due to the decrease in equipment purchases and related financing requirements. In addition we paid$116.7 million for share repurchases in the first quarter of 2023, which represents a$34.9 million increase from the first quarter of 2022. 28
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Results of Operations
The following table summarizes our comparative results of operations for the
three months ended
Three Months Ended
2023 2022 Variance
Leasing revenues:
Operating leases $ 370,348 $ 388,945 $ (18,597)
Finance leases 27,375 28,143 (768)
Total leasing revenues 397,723 417,088 (19,365)
Equipment trading revenues 19,102 34,120 (15,018)
Equipment trading expenses (18,033) (29,979) 11,946
Trading margin 1,069 4,141 (3,072)
Net gain (loss) on sale of leasing equipment 15,500 28,969 (13,469)
Operating expenses:
Depreciation and amortization 148,435 160,716 (12,281)
Direct operating expenses 23,241 6,220 17,021
Administrative expenses 22,864 21,300 1,564
Provision (reversal) for doubtful accounts (1,797) (27) (1,770)
Total operating expenses 192,743 188,209 4,534
Operating income (loss) 221,549 261,989 (40,440)
Other expenses:
Interest and debt expense 58,824 54,510 4,314
Unrealized (gain) loss on derivative instruments, net (4) (439) 435
Debt termination expense - 36 (36)
Other (income) expense, net (44) (308) 264
Total other expenses 58,776 53,799 4,977
Income (loss) before income taxes 162,773 208,190 (45,417)
Income tax expense (benefit) 12,960 13,932 (972)
Net income (loss) $ 149,813 Less: dividend on preferred shares 13,028 13,028 -
Net income (loss) attributable to common shareholders
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Comparison of the Three months ended
Leasing revenues. Per diem revenue represents revenue earned under operating
lease contracts. Fee and ancillary lease revenue represents fees billed for the
pick-up and drop-off of containers in certain geographic locations and billings
of certain reimbursable operating costs such as repair and handling expenses.
Finance lease revenue represents interest income earned under finance lease
contracts. The following table summarizes our leasing revenues for the periods
indicated below (in thousands):
Three Months Ended March 31,
2023 2022 Variance
Leasing revenues:
Operating leases
Per diem revenues $ 352,180 $ 377,514 $ (25,334)
Fee and ancillary revenues 18,168 11,431 6,737
Total operating lease revenues 370,348 388,945 (18,597)
Finance leases 27,375 28,143 (768)
Total leasing revenues $ 397,723 $ 417,088 $ (19,365)
Total leasing revenues were $397.7 million for the three months ended March 31,
2023 compared to $417.1 million in the same period in 2022, a decrease of $19.4
million .
Per diem revenues were $352.2 million for the three months ended March 31, 2023
compared to $377.5 million in the same period in 2022, a decrease of $25.3
million , primarily due to a decrease of approximately 0.5 million CEU in the
average number of containers on-hire.
Fee and ancillary lease revenues were $18.2 million for the three months ended
March 31, 2023 compared to $11.4 million in the same period in 2022, an increase
of $6.8 million , primarily due to an increase in repair and handling revenue due
to a higher volume of redeliveries.
Finance lease revenues were $27.4 million for the three months ended March 31,
2023 compared to $28.1 million in the same period in 2022, a decrease of $0.7
million . This decrease is primarily due to an early buyout of containers under a
finance lease in the fourth quarter of 2022.
Trading margin. Trading margin was $1.1 million for the three months ended
March 31, 2023 compared to $4.1 million in the same period in 2022, a decrease
of $3.0 million . Container selling margins decreased in 2023 as a result of a
decrease in selling prices.
Net gain (loss) on sale of leasing equipment. Gain on sale of equipment was
$15.5 million for the three months ended March 31, 2023 compared to $29.0
million in the same period in 2022, a decrease of $13.5 million . The decrease
was primarily due to a 50% decrease in the average sales price of used dry
containers, partially offset by a 160% increase in sales volume.
Depreciation and amortization. Depreciation and amortization was $148.4 million
for the three months ended March 31, 2023 compared to $160.7 million in the same
period in 2022, a decrease of $12.3 million . The primary reasons for the
decrease are as follows:
•$15.5 million decrease due to an increase in the number of containers that have
become fully depreciated or reclassified to assets held for sale; partially
offset by
•$4.0 million increase due to new production units placed on hire during 2022
that have a full quarter of depreciation in 2023.
Direct operating expenses. Direct operating expenses primarily consist of our
costs to repair equipment returned off lease, store equipment when it is not on
lease and reposition equipment from locations with weak leasing demand. Direct
operating expenses were $23.2 million for the three months ended March 31, 2023
compared to $6.2 million in the same period in 2022, an increase of $17.0
million . The primary reasons for the increase are as follows:
•$11.5 million increase in storage expense resulting from an increase in the
number of idle units; and
•$5.0 million increase in repair and handling expense primarily due to a higher
volume of drop-off activity
30
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Administrative expenses. Administrative expenses were $22.9 million for the
three months ended March 31, 2023 compared to $21.3 million in the same period
in 2022, an increase of $1.6 million , primarily due to an increase in
compensation costs and benefits and travel related expenses.
Provision (reversal) for doubtful accounts. Reversal for doubtful accounts was
$1.8 million for the three months ended March 31, 2023 compared to an immaterial
reversal in the same period in 2022. In the first quarter of 2023, we reversed
$1.8 million of a reserve established in 2022 due to better than expected
recoveries.
Interest and debt expense. Interest and debt expense was $58.8 million for the
three months ended March 31, 2023 , compared to $54.5 million in the same period
in 2022, an increase of $4.3 million . The primary reasons for the increase are
as follows:
•$8.6 million increase due to an increase in the average effective interest rate
to 2.93% from 2.50%; partially offset by
•$4.2 million decrease due to a decrease in the average debt balance of
$674.1 million .
Income taxes. Income tax expense was $13.0 million for the three months ended
March 31, 2023 compared to $13.9 million in the same period in 2022, a decrease
of $0.9 million . The Company's effective tax rate was 8.0% for the three months
ended March 31, 2023 compared to 6.7% in the same period in 2022. The decrease
in income tax expense was primarily the result of a decrease in pre-tax income
partially offset by an increase in the portion of income generated in higher tax
jurisdictions in the three months ended March 31, 2023 .
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Contractual Obligations
We are party to various operating and finance leases and are obligated to make payments related to our borrowings. We are also obligated under various commercial commitments, including payment obligations to our equipment manufacturers.
The following table summarizes our contractual commitments and obligations as of
Contractual Obligations by Period
2028 and
Contractual Obligations: Total Remaining 2023 2024 2025 2026 2027 thereafter
(dollars in millions)
Principal debt obligations
$ 2,653.3 Interest on debt obligations(1) 993.7 175.6 209.3 194.1 150.5 109.3 154.9 Operating leases (mainly facilities) 18.7 1.8 2.1 1.7 1.6 1.3 10.2 Purchase obligations: Equipment purchases payable 19.6 19.6 - - - - - Equipment purchase commitments 40.8 40.8 - - - - -
Total contractual obligations
(1)Amounts include actual interest for fixed debt, estimated interest for floating-rate debt and interest rate swaps.
Critical Accounting Estimates
Our consolidated financial statements have been prepared in conformity with
GAAP, which requires us to make estimates and assumptions that affect the
amounts and disclosures reported in the consolidated financial statements and
accompanying notes. We base our estimates and judgments on historical experience
and on various other assumptions that we believe are reasonable under the
circumstances. We evaluate our estimates and assumptions on an ongoing basis.
Our actual results may differ from these estimates under different assumptions
or conditions. For a discussion of our critical accounting estimates, see Part
II, Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations in our 2022 Annual Report on Form 10-K. There have been no
significant changes to our critical accounting estimates since our 2022 Annual
Report on Form 10-K.
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