FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For The Quarterly Period Ended March 31, 2009
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or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the Transition Period
from to
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Commission file number-
001-32638
TAL International Group,
Inc.
(Exact name of registrant as
specified in the charter)
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Delaware (State or other jurisdiction of incorporation or organization)
100 Manhattanville Road, Purchase, New York (Address of principal executive office)
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20-1796526 (I.R.S. Employer Identification Number)
10577-2135 (Zip Code)
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(914) 251-9000
(Registrants telephone number
including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirement for the past
90 days. Yes x
No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files). Yes o No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large Accelerated Filer
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Accelerated Filer
x
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Non-accelerated filer
o
(Do not check if a smaller reporting company)
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Smaller reporting company
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Indicate by check mark whether the registrant is a shell company
(as defined in
rule 12b-2
of the Exchange Act). YES
o NO
x
As of May 1, 2009, there were 31,348,990 shares of the
Registrants common stock, $.001 par value outstanding.
TAL
INTERNATIONAL GROUP, INC.
INDEX
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This quarterly report on
Form 10-Q
contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, or
the Securities Act, and Section 21E of the Securities
Exchange Act of 1934, as amended, or the Exchange Act, that
involve substantial risks and uncertainties. In addition, we, or
our executive officers on our behalf, may from time to time make
forward-looking statements in reports and other documents we
file with the Securities and Exchange Commission, or SEC, or in
connection with oral statements made to the press, potential
investors or others. All statements, other than statements of
historical facts, including statements regarding our strategy,
future operations, future financial position, future revenues,
projected costs, prospects, plans and objectives of management
are forward-looking statements. The words expect,
estimate, anticipate,
predict, believe, think,
plan, will, should,
intend, seek, potential and
similar expressions and variations are intended to identify
forward-looking statements, although not all forward-looking
statements contain these identifying words.
Forward-looking statements in this report are subject to a
number of known and unknown risks and uncertainties that could
cause our actual results, performance or achievements to differ
materially from those described in the forward-looking
statements, including, but not limited to, the risks and
uncertainties described in the section entitled Risk
Factors in our Annual Report on
Form 10-K
filed with the SEC on March 3, 2009, in this report as well
as in the other documents we file with the SEC from time to
time, and such risks and uncertainties are specifically
incorporated herein by reference.
Forward-looking statements speak only as of the date the
statements are made. Except as required under the federal
securities laws and rules and regulations of the SEC, we
undertake no obligation to update or revise forward-looking
statements to reflect actual results, changes in assumptions or
changes in other factors affecting forward-looking information.
We caution you not to unduly rely on the forward-looking
statements when evaluating the information presented in this
report.
PART I
FINANCIAL INFORMATION
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ITEM 1.
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FINANCIAL
STATEMENTS
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The consolidated financial statements of TAL International
Group, Inc. (TAL or the Company) as of
March 31, 2009 (unaudited) and December 31, 2008 and
for the three months ended March 31, 2009 (unaudited) and
March 31, 2008 (unaudited) included herein have been
prepared by the Company, without audit, pursuant to
U.S. generally accepted accounting principles and the rules
and regulations of the SEC. In addition, certain information and
note disclosures normally included in financial statements
prepared in accordance with U.S. generally accepted
accounting principles have been condensed or omitted pursuant to
such rules and regulations, although the Company believes that
the disclosures are adequate to make the information presented
not misleading. These financial statements reflect, in the
opinion of management, all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the
results for the interim periods. The results of operations for
such interim periods are not necessarily indicative of the
results for the full year. These financial statements should be
read in conjunction with the consolidated financial statements
and the notes thereto included in the Companys Annual
Report on
Form 10-K
filed with the SEC, on March 3, 2009, from which the
accompanying December 31, 2008 Balance Sheet information
was derived, and all of our other filings filed with the SEC
from October 11, 2005 through the current date pursuant to
the Exchange Act.
1
TAL
INTERNATIONAL GROUP, INC.
(Dollars in thousands, except share data)
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March 31,
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December 31,
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2009
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2008
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(Unaudited)
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Assets:
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Leasing equipment, net of accumulated depreciation and
allowances of $367,289 and $352,089
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$
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1,489,051
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$
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1,535,483
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Net investment in finance leases, net of allowances of $1,517
and $1,420
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208,445
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196,490
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Equipment held for sale
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39,688
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32,549
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Revenue earning assets
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1,737,184
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1,764,522
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Cash and cash equivalents (including restricted cash of $15,180
and $16,160)
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48,792
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56,958
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Accounts receivable, net of allowances of $816 and $807
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33,627
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42,335
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Leasehold improvements and other fixed assets, net of
accumulated depreciation and amortization of $4,441 and $4,181
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1,614
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1,832
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Goodwill
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71,898
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71,898
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Deferred financing costs
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8,174
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8,462
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Other assets
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6,079
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8,540
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Fair value of derivative instruments
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1,170
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951
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Total assets
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$
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1,908,538
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$
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1,955,498
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Liabilities and stockholders equity:
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Equipment purchases payable
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$
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5,810
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$
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27,224
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Fair value of derivative instruments
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90,370
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95,224
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Accounts payable and other accrued expenses
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43,752
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43,978
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Deferred income tax liability
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82,640
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73,565
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Debt
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1,313,335
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1,351,036
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Total liabilities
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1,535,907
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1,591,027
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Stockholders equity:
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Preferred stock, $.001 par value, 500,000 shares
authorized, none issued
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Common stock, $.001 par value, 100,000,000 shares
authorized, 33,487,816 and 33,485,816 shares issued
respectively
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33
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33
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Treasury stock, at cost, 2,077,397 and 1,055,479 shares,
respectively
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(28,305
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(20,126
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Additional paid-in capital
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396,765
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396,478
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Accumulated earnings (deficit)
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4,205
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(12,090
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Accumulated other comprehensive (loss) income
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(67
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)
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176
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Total stockholders equity
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372,631
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364,471
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Total liabilities and stockholders equity
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$
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1,908,538
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$
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1,955,498
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The accompanying notes to the
unaudited consolidated financial statements are an integral part
of these statements.
2
TAL
INTERNATIONAL GROUP, INC.
(Dollars and shares in thousands, except earnings per
share)
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Three Months Ended
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March 31,
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2009
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2008
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(Unaudited)
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Revenues:
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Leasing revenues:
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Operating leases
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$
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78,047
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$
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72,432
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Finance leases
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5,055
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4,956
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Total leasing revenues
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83,102
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77,388
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Equipment trading revenue
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16,088
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22,654
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Management fee income
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669
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725
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Other revenues
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296
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331
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Total revenues
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100,155
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101,098
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Expenses:
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Equipment trading expenses
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14,775
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21,063
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Direct operating expenses
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9,825
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7,077
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Administrative expenses
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11,622
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9,787
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Depreciation and amortization
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29,109
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26,828
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Provision for doubtful accounts
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321
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47
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Net (gain) on sale of leasing equipment
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(3,596
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(4,300
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Interest and debt expense
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17,361
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14,729
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Unrealized (gain) loss on interest rate swaps
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(5,063
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31,745
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Total expenses
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74,354
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106,976
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Income (loss) before income taxes
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25,801
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(5,878
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)
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Income tax expense (benefit)
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9,185
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(2,085
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)
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Net income (loss)
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$
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16,616
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$
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(3,793
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)
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Net income (loss) per common share Basic
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$
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0.52
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$
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(0.12
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)
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Net income (loss) per common share Diluted
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$
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0.52
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$
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(0.12
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)
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Weighted average number of common shares outstanding
Basic
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31,970
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32,637
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Weighted average number of common shares outstanding
Diluted
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31,981
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32,637
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Cash dividends paid per common share
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$
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0.01
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$
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The accompanying notes to the
unaudited consolidated financial statements are an integral part
of these statements.
3
TAL
INTERNATIONAL GROUP, INC.
(Dollars in thousands)
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Three Months Ended
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March 31,
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2009
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2008
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(Unaudited)
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Cash flows from operating activities:
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Net income (loss)
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$
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16,616
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$
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(3,793
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)
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Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
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Depreciation and amortization
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29,109
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26,828
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Amortization of deferred financing costs
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288
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224
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Net (gain) on sale of leasing equipment
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(3,596
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)
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(4,300
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)
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Unrealized (gain) loss on interest rate swaps
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(5,063
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)
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31,745
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Deferred income taxes
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9,149
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(2,278
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)
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Stock compensation charge
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287
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280
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Equipment purchased for resale
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2,863
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269
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Changes in operating assets and liabilities
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6,443
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(15,058
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)
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Net cash provided by operating activities
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56,096
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33,917
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Cash flows from investing activities:
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Purchases of leasing equipment
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(24,383
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)
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(64,634
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)
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Investments in finance leases
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(17,902
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)
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(5,847
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)
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Proceeds from sale of equipment leasing fleet, net of selling
costs
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16,291
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17,153
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Cash collections on finance lease receivables, net of income
earned
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7,410
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6,464
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Other
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(83
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)
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54
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Net cash used in investing activities
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(18,667
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)
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(46,810
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)
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Cash flows from financing activities:
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Dividends paid
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(320
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)
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Purchase of treasury stock
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(8,179
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)
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(7,955
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)
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Financing fees paid under debt facilities
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(937
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)
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Borrowings under debt facilities
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103,958
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Payments under debt facilities
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(31,289
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)
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(56,936
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)
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Payments under capital lease obligations
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(5,807
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)
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(2,449
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)
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Decrease in restricted cash
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980
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115
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Net cash (used in) provided by financing activities
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(44,615
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)
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35,796
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Net (decrease) increase in cash and cash equivalents
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(7,186
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)
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22,903
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Unrestricted cash and cash equivalents, beginning of period
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40,798
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52,636
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Unrestricted cash and cash equivalents, end of period
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$
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33,612
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$
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75,539
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Supplemental non-cash investing activities:
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Accrued and unpaid purchases of equipment
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$
|
5,810
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$
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91,159
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Purchases of leasing equipment financed through capital lease
obligations
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|
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$
|
9,375
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The accompanying notes to the
unaudited consolidated financial statements are an integral part
of these statements.
4
TAL
INTERNATIONAL GROUP, INC.
Note 1
Description of the Business, Basis of Presentation, Recently
Issued Accounting Pronouncements
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A.
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Description
of the Business
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TAL International Group, Inc. (TALor the
Company) was formed on October 26, 2004 and
commenced operations on November 4, 2004. TAL consists of
the consolidated accounts of TAL International Container
Corporation, formerly known as Transamerica Leasing Inc., Trans
Ocean Ltd. and their respective subsidiaries.
The Company provides long-term leases, service leases and
finance leases, along with maritime container management
services, through a worldwide network of offices, third party
depots and other facilities. The Company operates in both
international and domestic markets. The majority of the
Companys 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 its own containers and containers purchased from third
parties for resale. TAL also enters into management agreements
with third party container owners under which the Company
manages the leasing and selling of containers on behalf of the
third party owners.
The preparation of financial statements in conformity with
U.S. generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the reported amounts
of revenues and expenses during the reporting period and
disclosure of contingent assets and liabilities at the date of
the financial statements. Actual results could differ from those
estimates.
The consolidated financial statements include the accounts of
the Company and its subsidiaries. All intercompany transactions
and balances have been eliminated in consolidation. Certain
reclassifications have been made to the accompanying prior
period financial statements and notes to conform with the
current years presentation.
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C.
|
Recently
Issued Accounting Pronouncements
|
In March 2008, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting
Standards No. 161 (SFAS 161),
Disclosures about Derivative Instruments and Hedging
Activities, an amendment of FASB Statement No. 133.
SFAS 161 requires qualitative disclosures about
objectives and strategies for using derivatives, quantitative
disclosures about fair value amounts of and gains and losses on
derivative instruments, and disclosures about
credit-risk-related contingent features in derivative
agreements. SFAS 161 is effective beginning in the first
quarter of 2009. The Company adopted SFAS 161 on
January 1, 2009. SFAS 161 did not impact the
consolidated financial results as it is disclosure-only in
nature.
In December 2007, the FASB issued Statement of Financial
Accounting Standards No. 141 (revised 2007)
(SFAS 141R), Business Combinations and
Statement of Financial Accounting Standards No. 160
(SFAS 160), Noncontrolling Interests in
Consolidated Financial Statements, an amendment of Accounting
Research Bulletin No. 51. SFAS 141R will
change how business acquisitions are accounted for and will
impact financial statements both on the acquisition date and in
subsequent periods. SFAS 160 will change the accounting and
reporting for minority interests, which will be recharacterized
as noncontrolling interests and classified as a component of
equity. SFAS 141R and SFAS 160 are effective beginning
in the first quarter of 2009. Implementation of SFAS 141R
is prospective. The Company adopted SFAS 141R and
SFAS 160 on January 1, 2009 and there was no impact on
its consolidated results of operations and financial position.
5
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|
Note 2
|
Treasury
Stock and Dividends
|
Treasury
Stock
The Company repurchased 1,021,918 shares of its outstanding
common stock in the open market during the quarter ended
March 31, 2009 at a total cost of approximately
$8.2 million.
The Company repurchased 362,100 shares of its outstanding
common stock in the open market during the quarter ended
March 31, 2008 at a total cost of approximately
$8.0 million.
Dividends
On February 25, 2009, the Company declared a quarterly
dividend of $0.01 per share or an aggregate of approximately
$0.3 million on its issued and outstanding common stock
which was paid on March 26, 2009 to shareholders of record
at the close of business on March 12, 2009.
On March 3, 2008, the Company declared a quarterly dividend
of $0.375 per share or an aggregate of approximately
$12.2 million on its issued and outstanding common stock
which was paid on April 10, 2008 to shareholders of record
at the close of business on March 20, 2008.
|
|
Note 3
|
Stock-Based
Compensation Plans
|
Effective January 1, 2006, the Company adopted the
provisions of Statement of Financial Accounting Standards
No. 123 (revised 2004), Share-Based Payment
(SFAS No. 123R) requiring that compensation cost
relating to share-based payment transactions be recognized in
the financial statements. The cost is measured at the grant
date, based on the calculated fair value of the award, and is
recognized as an expense over the employees requisite
service period (generally the vesting period of the equity
award).
Stock
Options
There was approximately $5,000 and $6,000 of compensation cost
reflected in administrative expense in the Companys
statements of operations for the three months ended
March 31, 2009 and March 31, 2008, respectively,
related to the Companys stock-based compensation plans as
a result of 21,000 options granted during the year ended
December 31, 2006 (of which 3,000 options were cancelled in
2007). Total unrecognized compensation cost of approximately
$27,000 as of March 31, 2009 will be recognized over the
remaining vesting period of approximately 1.25 years.
Stock option activity under the plans from January 1, 2009
to March 31, 2009 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
Aggregate
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
Intrinsic
|
|
|
|
|
|
|
Exercise
|
|
|
Remaining
|
|
|
Value
|
|
|
|
Options
|
|
|
Price
|
|
|
Life (Yrs)
|
|
|
$ in 000s
|
|
|
Outstanding January 1, 2009
|
|
|
612,692
|
|
|
$
|
18.16
|
|
|
|
6.8
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canceled
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding March 31, 2009
|
|
|
612,692
|
|
|
$
|
18.16
|
|
|
|
6.6
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable March 31, 2009
|
|
|
603,692
|
|
|
$
|
18.08
|
|
|
|
6.6
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
Stock
Approximately $264,000 and $274,000 of compensation cost is
reflected in administrative expense in the Companys
statements of operations for the three months ended
March 31, 2009 and March 31, 2008, respectively, as a
result of 127,000 restricted shares granted during 2007, of
which 61,000 shares will become fully vested on
January 1, 2010 and 66,000 shares will become fully
vested on January 1,
6
2011. Total unrecognized compensation cost of approximately
$1.3 million as of March 31, 2009 related to
restricted shares granted during 2007 will be recognized over
the remaining vesting period of approximately 1.3 years.
In addition, there was approximately $18,000 of compensation
cost reflected in administrative expense in the Companys
statement of operations for the three months ended
March 31, 2009 as a result of 2,000 restricted shares
granted to a member of the Companys Board of Directors on
February 24, 2009. The closing price of the stock on that
date was $8.83. These shares were fully vested upon issuance.
Debt consisted of the following (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Asset backed securitization (ABS)
|
|
|
|
|
|
|
|
|
Term notes
Series 2006-1
|
|
$
|
435,625
|
|
|
$
|
451,000
|
|
Term notes
Series 2005-1
|
|
|
377,778
|
|
|
|
389,583
|
|
Asset backed credit facility
|
|
|
225,000
|
|
|
|
225,000
|
|
Revolving credit facility
|
|
|
100,000
|
|
|
|
100,000
|
|
Finance lease facility
|
|
|
45,172
|
|
|
|
47,406
|
|
2007 Term loan facility
|
|
|
32,258
|
|
|
|
33,658
|
|
Port equipment facility
|
|
|
11,246
|
|
|
|
12,326
|
|
Capital lease obligations
|
|
|
86,256
|
|
|
|
92,063
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,313,335
|
|
|
$
|
1,351,036
|
|
|
|
|
|
|
|
|
|
|
Note 5
Derivative Instruments
Interest
Rate Swaps
The Company has entered into interest rate swap agreements to
manage interest rate risk exposure. The interest rate swap
agreements utilized by the Company effectively modify the
Companys 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. These agreements 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. The counterparties to these agreements are
highly rated financial institutions. In the unlikely event that
the counterparties fail to meet the terms of the interest rate
swap agreements, the Companys 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.
As of March 31, 2009, the Company had in place total
interest rate swap contracts to fix the floating interest rates
on a portion of the borrowings under its debt facilities as
summarized below:
|
|
|
|
|
Total Notional
|
|
|
|
|
Amount at
|
|
Weighted Average Fixed Leg
|
|
Weighted Average
|
March 31, 2009
|
|
Interest Rate at March 31, 2009
|
|
Remaining Term
|
|
$1,223 million
|
|
4.19%
|
|
3.4 years
|
Prior to April 12, 2006, the Company had designated all
existing interest rate swap contracts as cash flow hedges, in
accordance with Statement of Financial Accounting Standards
No. 133, Accounting for Derivative Instruments and
Hedging Activities (SFAS No. 133). On
April 12, 2006, the Company de-designated its existing
interest rate swap contracts, and the balance reflected in
accumulated other comprehensive income (loss) due to changes in
the fair value of the existing interest rate swap contracts was
$7.5 million. This amount is being recognized in income as
unrealized (gain) loss on
7
interest rate swaps using the interest method over the remaining
life of the contracts. As of March 31, 2009, the
unamortized pre-tax balance of the change in fair value
reflected in accumulated other comprehensive income (loss) was
approximately $1.9 million. The amount of other
comprehensive income which will be amortized to income over the
next 12 months is approximately $0.9 million. Amounts
recorded in accumulated other comprehensive income (loss) would
be reclassified into earnings upon termination of these interest
rate swap contracts and related debt instruments prior to their
contractual maturity. All interest rate swap contracts entered
into since April 12, 2006 are not accounted for as hedging
instruments under SFAS No, 133, and changes in the fair
value of the interest rate swap contracts are reflected in the
statements of operations as unrealized (gains)/ losses on
interest rate swaps.
Under the criteria established by Statement of Financial
Accounting Standards No. 157, Fair Value Measurements
(SFAS No. 157) the fair value
measurements of the interest rate swap contracts are based on
significant other observable inputs other than quoted prices,
either on a direct or indirect basis (Level 2), using
valuation techniques the Company believes are appropriate.
Foreign
Currency Rate Swaps
In April 2008, the Company entered into foreign currency rate
swap agreements to manage foreign currency rate risk exposure by
exchanging Euros for U.S. Dollars based on expected
payments under its Euro denominated finance lease receivables.
The Company will pay a total of approximately 6.8 million
Euros and receive approximately $10.5 million over the
remaining term of foreign currency rate swap agreements which
expire in April 2015. The Company does not account for the
foreign currency rate swap agreements as hedging instruments
under SFAS No. 133, and therefore changes in the fair
value of the foreign currency rate swap agreements are reflected
in the statements of operations in administrative expenses.
Under the criteria established by SFAS No. 157, the
fair value measurement of the foreign currency rate swap
contracts are based on significant other observable inputs other
than quoted prices, either on a direct or indirect basis
(Level 2), using valuation techniques the Company believes
are appropriate.
8
Location
of Derivative Instruments in Financial Statements
Fair Value
of Derivative Instruments
Derivatives Not Designated as Hedging Instruments Under
SFAS No. 133
$ in Millions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
|
|
March 31, 2009
|
|
|
|
December 31, 2008
|
|
Derivative Instrument
|
|
Balance Sheet Location
|
|
Fair Value
|
|
|
|
Balance Sheet Location
|
|
Fair Value
|
|
Interest rate contracts
|
|
Fair Value of Derivative
Instruments
|
|
$
|
|
|
|
|
Fair Value of Derivative
Instruments
|
|
$
|
|
|
Foreign exchange contracts
|
|
Fair Value of Derivative
Instruments
|
|
$
|
1.2
|
|
|
|
Fair Value of Derivative
Instruments
|
|
$
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Derivatives
|
|
|
|
$
|
1.2
|
|
|
|
|
|
$
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability Derivatives
|
|
|
|
March 31, 2009
|
|
|
|
December 31, 2008
|
|
Derivative Instrument
|
|
Balance Sheet Location
|
|
Fair Value
|
|
|
|
Balance Sheet Location
|
|
Fair Value
|
|
Interest rate contracts
|
|
Fair Value of Derivative
Instruments
|
|
$
|
90.4
|
|
|
|
Fair Value of Derivative
Instruments
|
|
$
|
95.2
|
|
Foreign exchange contracts
|
|
Fair Value of Derivative
Instruments
|
|
$
|
|
|
|
|
Fair Value of Derivative
Instruments
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Derivatives
|
|
|
|
$
|
90.4
|
|
|
|
|
|
$
|
95.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
Not Designated as Hedging Instruments Under
SFAS No. 133
Effect of Derivative Instruments on Statement of Operations
$ in Millions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of (Gain)
|
|
|
|
|
|
Loss Recognized in
|
|
|
|
|
|
Income on
|
|
|
|
|
|
Derivatives
|
|
|
|
Location of (Gain)
|
|
Three Months Ended
|
|
|
|
Loss Recognized in
|
|
March 31,
|
|
Derivative Instrument
|
|
Income on Derivatives
|
|
2009
|
|
|
|
2008
|
|
Interest rate contracts
|
|
Unrealized (gain)
loss of interest rate swaps
|
|
$
|
(5.1
|
)
|
|
|
$
|
31.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
Administrative Expense
|
|
$
|
(0.2
|
)
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
(5.3
|
)
|
|
|
$
|
31.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
Note 6
|
Earnings
(Loss) Per Share
|
The following table sets forth the calculation of basic and
diluted earnings (loss) per share for the three months ended
March 31, 2009 and 2008 (in thousands, except earnings per
share):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net income (loss) applicable to common stockholders for basic
and diluted earnings (loss) per share
|
|
$
|
16,616
|
|
|
$
|
(3,793
|
)
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding for basic earnings (loss)
per share
|
|
|
31,970
|
|
|
|
32,637
|
|
Dilutive stock options
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares for diluted earnings (loss) per share
|
|
|
31,981
|
|
|
|
32,637
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.52
|
|
|
$
|
(0.12
|
)
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.52
|
|
|
$
|
(0.12
|
)
|
|
|
|
|
|
|
|
|
|
For the quarter ended March 31, 2009, 683,692 shares
of restricted stock and options to purchase shares of common
stock were not included in the calculation of weighted average
shares for diluted earnings per share because their effects were
antidilutive.
Due to the net loss incurred for the quarter ended
March 31, 2008, 747,192 shares of restricted stock and
options to purchase shares of common stock were not included in
the calculation of weighted average shares for diluted earnings
per share because their effects were antidilutive.
|
|
Note 7
|
Segment
and Geographic Information
|
Industry
Segment Information
The Company conducts its business activities in one industry,
intermodal transportation equipment, and has two segments:
|
|
|
|
|
Equipment leasing the Company owns, leases and
ultimately disposes of containers and chassis from its lease
fleet, as well as manages leasing activities for containers
owned by third parties.
|
|
|
|
Equipment trading the Company purchases containers
from shipping line customers, and other sellers of containers,
and resells these containers to container traders and users of
containers for storage or one-way shipment.
|
10
The following tables show segment information for the three
months ended March 31, 2009 and March 31, 2008, and
the consolidated totals reported (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment
|
|
|
Equipment
|
|
|
|
|
2009
|
|
Leasing
|
|
|
Trading
|
|
|
Totals
|
|
|
Total revenue
|
|
$
|
83,941
|
|
|
$
|
16,214
|
|
|
$
|
100,155
|
|
Equipment trading expense
|
|
|
|
|
|
|
14,775
|
|
|
|
14,775
|
|
Depreciation expense
|
|
|
29,075
|
|
|
|
34
|
|
|
|
29,109
|
|
Net (gain) on sale of equipment
|
|
|
(3,596
|
)
|
|
|
|
|
|
|
(3,596
|
)
|
Interest expense
|
|
|
17,180
|
|
|
|
181
|
|
|
|
17,361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax
income(1)
|
|
|
20,111
|
|
|
|
627
|
|
|
|
20,738
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill at March 31
|
|
|
70,898
|
|
|
|
1,000
|
|
|
|
71,898
|
|
Total assets at March 31
|
|
|
1,892,014
|
|
|
|
16,524
|
|
|
|
1,908,538
|
|
Purchases of leasing
equipment(2)
|
|
|
24,383
|
|
|
|
|
|
|
|
24,383
|
|
Investments in finance
leases(2)
|
|
|
17,902
|
|
|
|
|
|
|
|
17,902
|
|
|
|
|
(1) |
|
Segment income before taxes excludes unrealized (gain) on
interest rate swaps of $(5,063). |
|
(2) |
|
Represents cash disbursements for purchases of leasing equipment
as reflected in the consolidated statements of cash flows for
the period indicated. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment
|
|
|
Equipment
|
|
|
|
|
2008
|
|
Leasing
|
|
|
Trading
|
|
|
Totals
|
|
|
Total revenue
|
|
$
|
78,355
|
|
|
$
|
22,743
|
|
|
$
|
101,098
|
|
Equipment trading expense
|
|
|
|
|
|
|
21,063
|
|
|
|
21,063
|
|
Depreciation expense
|
|
|
26,823
|
|
|
|
5
|
|
|
|
26,828
|
|
Net (gain) on sale of equipment
|
|
|
(4,300
|
)
|
|
|
|
|
|
|
(4,300
|
)
|
Interest expense
|
|
|
14,480
|
|
|
|
249
|
|
|
|
14,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax
income(3)
|
|
|
24,868
|
|
|
|
999
|
|
|
|
25,867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill at March 31
|
|
|
70,898
|
|
|
|
1,000
|
|
|
|
71,898
|
|
Total assets at March 31
|
|
|
1,803,543
|
|
|
|
34,255
|
|
|
|
1,837,798
|
|
Purchases of leasing
equipment(4)
|
|
|
64,634
|
|
|
|
|
|
|
|
64,634
|
|
Investments in finance
leases(4)
|
|
|
5,847
|
|
|
|
|
|
|
|
5,847
|
|
|
|
|
(3) |
|
Segment income before taxes excludes unrealized losses on
interest rate swaps of $31,745. |
|
(4) |
|
Represents cash disbursements for purchases of leasing equipment
as reflected in the consolidated statements of cash flows for
the period indicated. |
Note: There are no intercompany revenues or expenses between
segments. Additionally, certain administrative expenses have
been allocated between segments based on an estimate of services
provided to each segment.
Geographic
Segment Information
The Companys customers use the Companys containers
throughout their many worldwide trade routes. Substantially all
of the Companys leasing related revenues are denominated
in U.S. dollars. The following table represents the
allocation of domestic and international leasing revenues for
the periods
11
indicated based on the customers primary domicile and the
allocation of domestic and international equipment trading
revenue, which is based on location of sale (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Total revenues:
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
11,029
|
|
|
$
|
9,780
|
|
Asia
|
|
|
38,195
|
|
|
|
48,593
|
|
Europe
|
|
|
42,749
|
|
|
|
34,537
|
|
Other International
|
|
|
8,182
|
|
|
|
8,188
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
100,155
|
|
|
$
|
101,098
|
|
|
|
|
|
|
|
|
|
|
As all of the Companys containers are used
internationally, where no one container is domiciled in one
particular place for a prolonged period of time, substantially
all of the Companys containers are considered to be
international.
|
|
Note 8
|
Commitments
and Contingencies
|
Residual
Value Guarantees
During 2008, the Company entered into commitments for equipment
residual value guarantees in connection with certain sale
transactions and broker transactions. The guarantees represent
the Companys commitment that these assets will be worth a
specified amount at the end of lease terms which expire in 2016.
At March 31, 2009, the maximum potential amount of the
guarantees under which the Company could be required to perform
was approximately $27.1 million. The carrying values of the
guarantees of $1.1 million have been deferred and are
included in accounts payable and accrued expenses. The Company
expects the market value of the equipment covered by the
guarantees will equal or exceed the value of the guarantees.
Under the criteria established by SFAS No. 157, the
Company performed fair value measurements of the guarantees at
origination, using Level 2 inputs, which are based on
significant other observable inputs other than quoted prices,
either on a direct or indirect basis. The Company is using
valuation techniques it believes are appropriate.
Purchase
Commitments
At March 31, 2009, commitments for capital expenditures
totaled approximately $8.1 million.
The consolidated income tax expense (benefit) for the three
month periods ended March 31, 2009 and 2008 was determined
based upon estimates of the Companys consolidated
effective income tax rates for the years ending
December 31, 2009 and 2008, respectively. The difference
between the consolidated effective income tax rate and the
U.S. federal statutory rate is primarily attributable to
state income taxes, foreign income taxes and the effect of
certain permanent differences.
12
|
|
Note 10
|
Comprehensive
Income (Loss) and Other
|
The following table provides a reconciliation of the
Companys net income (loss) to comprehensive income (loss)
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Net income (loss)
|
|
$
|
16,616
|
|
|
$
|
(3,793
|
)
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
(99
|
)
|
|
|
54
|
|
Amortization of net unrealized gains on derivative instruments
previously designated as cash flow hedges (net of tax expense of
$(80) and $(127), respectively)
|
|
|
(144
|
)
|
|
|
(229
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
16,373
|
|
|
$
|
(3,968
|
)
|
|
|
|
|
|
|
|
|
|
The balance included in comprehensive income (loss) for
cumulative translation adjustments as of March 31, 2009 and
December 31, 2008 was $(1,260) and $(1,161), respectively.
The Company recorded $(0.3) million of unrealized foreign
currency exchange losses and $1.2 million of unrealized
foreign currency exchange gains which are reported in
administrative expenses in the Companys statement of
operations in the quarters ended March 31, 2009 and
March 31, 2008, respectively, which resulted primarily from
fluctuations in exchange rates related to its Euro and Pound
Sterling transactions and related assets.
|
|
Note 11
|
Subsequent
Events
|
Debt
Repurchase
On April 27, 2009, the Company repurchased approximately
$35.0 million of its
Series 2006-1
Term Notes and recorded a gain on debt extinguishment of
approximately $14.1 million, net of the write-off of
deferred financing costs of approximately $0.2 million.
Quarterly
Dividend
On April 30, 2009 the Companys Board of Directors
approved and declared a $0.01 per share quarterly cash dividend
on its issued and outstanding common stock, payable on
June 23, 2009 to shareholders of record at the close of
business on June 2, 2009.
Share
Repurchase Program
On April 30, 2009, the Companys Board of Directors
approved a 1.5 million share increase to the Companys
stock repurchase program which began in March 2006 and was
amended in September 2007. The stock repurchase program, as now
amended, authorizes the Company to repurchase up to
4.0 million shares of its common stock.
13
|
|
ITEM 2:
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
The following discussion and analysis of the consolidated
financial condition and results of operations of TAL
International Group, Inc. and its subsidiaries should be read in
conjunction with related consolidated financial data and our
annual audited consolidated financial statements and related
notes thereto included in our Annual Report on
Form 10-K
filed with the SEC on March 3, 2009. The statements in this
discussion regarding industry outlook, our expectations
regarding our future performance, liquidity and capital
resources and other non-historical statements are subject to
numerous risks and uncertainties, including, but not limited to,
the risks and uncertainties described under Risk
Factors and Forward-Looking Statements in our
Form 10-K.
Our actual results may differ materially from those contained in
or implied by any forward-looking statements.
Our
Company
We are one of the worlds largest and oldest lessors of
intermodal containers and chassis. 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. Chassis
are used for the transportation of containers domestically.
We operate our business in one industry, intermodal
transportation equipment, and have two business segments:
|
|
|
|
|
Equipment leasing we own, lease and ultimately
dispose of containers and chassis from our lease fleet, as well
as manage leasing activities for containers owned by third
parties.
|
|
|
|
Equipment trading we purchase containers from
shipping line customers, and other sellers of containers, and
sell these containers to container traders and users of
containers for storage, one-way shipment or other uses.
|
Operations
Our operations include the acquisition, leasing, re-leasing and
subsequent sale of multiple types of intermodal containers and
chassis. As of March 31, 2009, our total fleet consisted of
743,054 containers and chassis, including 33,040 containers
under management for third parties, representing 1,202,693
twenty-foot equivalent units (TEUs). We have an extensive global
presence, offering leasing services through 19 offices in 11
countries and 200 third party container depot facilities in 38
countries as of March 31, 2009. Our customers are among the
largest shipping lines in the world. For the three months ended
March 31, 2009, our twenty largest customers accounted for
79% of our leasing revenues, our five largest customers
accounted for 53% of our leasing revenues, and our largest
customer accounted for 17% of our leasing revenues.
We primarily lease three principal types of equipment:
(1) dry freight 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,
and (3) special containers, which are used for heavy and
oversized cargo such as marble slabs, building products and
machinery. We also lease chassis, which are generally used for
the transportation of containers domestically, and tank
containers, which are used to transport bulk liquid products
such as chemicals. We also finance port equipment, which
includes container cranes, reach stackers and other related
equipment. Our in-house equipment sales group manages the sale
process for our used containers and chassis from our equipment
leasing fleet and buys and sells used and new containers and
chassis acquired from third parties.
14
The following tables provide the composition of our equipment
fleet as of the dates indicated below (in both units and TEUs):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment Fleet in Units
|
|
|
|
March 31, 2009
|
|
|
December 31, 2008
|
|
|
March 31, 2008
|
|
|
|
Owned
|
|
|
Managed
|
|
|
Total
|
|
|
Owned
|
|
|
Managed
|
|
|
Total
|
|
|
Owned
|
|
|
Managed
|
|
|
Total
|
|
|
Dry
|
|
|
601,337
|
|
|
|
29,636
|
|
|
|
630,973
|
|
|
|
610,759
|
|
|
|
30,079
|
|
|
|
640,838
|
|
|
|
566,767
|
|
|
|
26,612
|
|
|
|
593,379
|
|
Refrigerated
|
|
|
37,826
|
|
|
|
598
|
|
|
|
38,424
|
|
|
|
37,119
|
|
|
|
621
|
|
|
|
37,740
|
|
|
|
36,905
|
|
|
|
826
|
|
|
|
37,731
|
|
Special
|
|
|
47,328
|
|
|
|
2,806
|
|
|
|
50,134
|
|
|
|
48,054
|
|
|
|
2,839
|
|
|
|
50,893
|
|
|
|
43,350
|
|
|
|
3,567
|
|
|
|
46,917
|
|
Tank
|
|
|
1,350
|
|
|
|
|
|
|
|
1,350
|
|
|
|
1,319
|
|
|
|
|
|
|
|
1,319
|
|
|
|
472
|
|
|
|
|
|
|
|
472
|
|
Chassis
|
|
|
8,790
|
|
|
|
|
|
|
|
8,790
|
|
|
|
8,796
|
|
|
|
|
|
|
|
8,796
|
|
|
|
8,855
|
|
|
|
|
|
|
|
8,855
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment leasing fleet
|
|
|
696,631
|
|
|
|
33,040
|
|
|
|
729,671
|
|
|
|
706,047
|
|
|
|
33,539
|
|
|
|
739,586
|
|
|
|
656,349
|
|
|
|
31,005
|
|
|
|
687,354
|
|
Equipment trading fleet
|
|
|
13,383
|
|
|
|
|
|
|
|
13,383
|
|
|
|
16,735
|
|
|
|
|
|
|
|
16,735
|
|
|
|
26,474
|
|
|
|
|
|
|
|
26,474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
710,014
|
|
|
|
33,040
|
|
|
|
743,054
|
|
|
|
722,782
|
|
|
|
33,539
|
|
|
|
756,321
|
|
|
|
682,823
|
|
|
|
31,005
|
|
|
|
713,828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
|
|
|
95.6
|
%
|
|
|
4.4
|
%
|
|
|
100.0
|
%
|
|
|
95.6
|
%
|
|
|
4.4
|
%
|
|
|
100.0
|
%
|
|
|
95.7
|
%
|
|
|
4.3
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment Fleet in TEUs
|
|
|
|
March 31, 2009
|
|
|
December 31, 2008
|
|
|
March 31, 2008
|
|
|
|
Owned
|
|
|
Managed
|
|
|
Total
|
|
|
Owned
|
|
|
Managed
|
|
|
Total
|
|
|
Owned
|
|
|
Managed
|
|
|
Total
|
|
|
Dry
|
|
|
954,178
|
|
|
|
52,953
|
|
|
|
1,007,131
|
|
|
|
968,772
|
|
|
|
53,692
|
|
|
|
1,022,464
|
|
|
|
914,531
|
|
|
|
46,584
|
|
|
|
961,115
|
|
Refrigerated
|
|
|
69,581
|
|
|
|
985
|
|
|
|
70,566
|
|
|
|
68,270
|
|
|
|
1,022
|
|
|
|
69,292
|
|
|
|
67,350
|
|
|
|
1,372
|
|
|
|
68,722
|
|
Special
|
|
|
81,092
|
|
|
|
4,566
|
|
|
|
85,658
|
|
|
|
82,322
|
|
|
|
4,624
|
|
|
|
86,946
|
|
|
|
72,336
|
|
|
|
5,960
|
|
|
|
78,296
|
|
Tank
|
|
|
1,400
|
|
|
|
|
|
|
|
1,400
|
|
|
|
1,369
|
|
|
|
|
|
|
|
1,369
|
|
|
|
472
|
|
|
|
|
|
|
|
472
|
|
Chassis
|
|
|
15,633
|
|
|
|
|
|
|
|
15,633
|
|
|
|
15,645
|
|
|
|
|
|
|
|
15,645
|
|
|
|
15,723
|
|
|
|
|
|
|
|
15,723
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment leasing fleet
|
|
|
1,121,884
|
|
|
|
58,504
|
|
|
|
1,180,388
|
|
|
|
1,136,378
|
|
|
|
59,338
|
|
|
|
1,195,716
|
|
|
|
1,070,412
|
|
|
|
53,916
|
|
|
|
1,124,328
|
|
Equipment trading fleet
|
|
|
22,305
|
|
|
|
|
|
|
|
22,305
|
|
|
|
28,736
|
|
|
|
|
|
|
|
28,736
|
|
|
|
41,384
|
|
|
|
|
|
|
|
41,384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,144,189
|
|
|
|
58,504
|
|
|
|
1,202,693
|
|
|
|
1,165,114
|
|
|
|
59,338
|
|
|
|
1,224,452
|
|
|
|
1,111,796
|
|
|
|
53,916
|
|
|
|
1,165,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
|
|
|
95.1
|
%
|
|
|
4.9
|
%
|
|
|
100.0
|
%
|
|
|
95.2
|
%
|
|
|
4.8
|
%
|
|
|
100.0
|
%
|
|
|
95.4
|
%
|
|
|
4.6
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We generally lease our equipment on a per diem basis to our
customers under three types of leases: long-term leases, finance
leases and service leases. Long-term leases, typically with
initial contractual terms of three to eight years, 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. Finance leases, which are typically structured as
full payout leases, provide for a predictable recurring revenue
stream with the lowest daily cost to the customer because
customers are generally required to retain the equipment for the
duration of its useful life. Service leases command a premium
per diem rate in exchange for providing customers with a greater
level of operational flexibility by allowing the
pick-up and
drop-off of units during the lease term. We also have expired
long-term leases whose fixed terms have ended but for which the
related units remain on-hire and for which we continue to
receive rental payments pursuant to the terms of the initial
contract. Some leases have contractual terms that have features
reflective of both long-term and service leases. We classify
such leases as either long-term or service leases, depending
upon which features are more predominant.
As of March 31, 2009, approximately 86.5% of our containers
and chassis were on-hire to customers, down from 90.0% at
December 31, 2008 and 89.2% at March 31, 2008.
15
The following table provides a summary of our lease portfolio,
based on units in the total fleet as of the dates indicated
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
March 31,
|
|
Lease Portfolio
|
|
2009
|
|
|
2008
|
|
|
2008
|
|
|
Long-term leases
|
|
|
54.6
|
%
|
|
|
54.3
|
%
|
|
|
48.4
|
%
|
Finance leases
|
|
|
9.4
|
|
|
|
8.9
|
|
|
|
9.8
|
|
Service leases
|
|
|
13.7
|
|
|
|
18.3
|
|
|
|
22.0
|
|
Expired long-term leases (units on hire)
|
|
|
8.8
|
|
|
|
8.5
|
|
|
|
9.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total leased
|
|
|
86.5
|
|
|
|
90.0
|
|
|
|
89.2
|
|
Used units available for lease
|
|
|
6.8
|
|
|
|
4.3
|
|
|
|
2.9
|
|
New units not yet leased
|
|
|
2.3
|
|
|
|
2.5
|
|
|
|
5.1
|
|
Available for sale
|
|
|
4.4
|
|
|
|
3.2
|
|
|
|
2.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fleet
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In March 2009, we reached agreement with one of our largest
customers that limited the total number of containers that could
be returned from expired leases through February 28, 2010.
We have included the maximum number of containers that can be
returned during the previously described limitation period as
expired term leases, while the balance of the affected units are
included in current term leases. As of March 31, 2009, our
long-term leases had an average remaining contract term of
approximately 34 months, assuming no leases are renewed.
Operating
Performance
Our profitability is primarily determined by the extent to which
our leasing and other revenues exceed our ownership, operating
and administrative expenses. Our profitability is also impacted
by the gain or loss that we realize on the sale of our used
equipment and the net sales margins on our equipment trading
activities.
Our leasing revenue is primarily driven by our owned fleet size,
utilization and average rental rates. Our leasing revenue is
also impacted by the mix of leases in our portfolio.
As of March 31, 2009, our owned fleet included 1,144,189
TEUs, a decrease of 1.8% from December 31, 2008 and up 2.9%
from March 31, 2008. The decrease in fleet size in 2009
relative to the end of 2008 was mainly due to the small amount
of new containers purchased in the first quarter of 2009
combined with our normal disposal of used containers. Global
containerized trade growth turned sharply negative in the fourth
quarter of 2008, and trade volumes remained 15% or more below
the 2008 level in the first quarter of 2009. Our shipping line
customers have been decreasing their container fleets in
response to this decrease in trade volumes and we experienced
little demand for leased containers in the first quarter.
The increase in fleet size in 2009 relative to the first quarter
of 2008 was mainly due to the delivery of a large number of
containers during the second and third quarters of 2008, as well
as the purchase lease-back of approximately 53,000 TEUs of
containers with one of our largest customers in the fourth
quarter of 2008. Leasing demand was strong in the first three
quarters of 2008 due to ongoing trade growth (through October
2008) and reduced direct purchases of new containers by our
shipping line customers.
As of March 31, 2009, our revenue earning assets (leasing
equipment, net investment in finance leases, and equipment held
for sale) totaled approximately $1.7 billion, a decrease of
$27 million, or 1.5% from December 31, 2008, but an
increase of $134 million, or 8.4% over March 31, 2008.
Our revenue earning assets decreased in the first quarter of
2009 due to our limited purchases of new containers during the
quarter.
16
In the first quarter of 2009, we sold approximately 18,000 TEUs
of our owned containers, or 1.6% of our equipment leasing fleet
as of the beginning of the quarter. This annualized disposal
rate of approximately 6.4% is similar to the 6 to 8% annual
disposal rate we have been experiencing for the last few years,
and is generally consistent with our expected long-term average
disposal rate given the 12 14 year expected
useful life of our containers. However, based on the age profile
of our leasing fleet, scheduled lease expirations and the
prospects for reduced leasing demand due to reduced trade
growth, we expect that our rate of disposals will increase this
year and remain at an above-average level for several years
before decreasing significantly for several years thereafter.
During years of above-average disposals, our TEU growth rate may
be constrained if we are unable to generate a sufficient number
of attractive lease transactions for an expanded level of new
container investment.
The following table sets forth our average equipment fleet
utilization for the periods indicated below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
September 30,
|
|
June 30,
|
|
March 31,
|
|
|
2009
|
|
2008
|
|
2008
|
|
2008
|
|
2008
|
|
|
3 months
|
|
3 months
|
|
3 months
|
|
3 months
|
|
3 months
|
|
Average
Utilization(1)
|
|
|
88.1
|
%
|
|
|
91.6
|
%
|
|
|
92.0
|
%
|
|
|
90.7
|
%
|
|
|
90.1
|
%
|
|
|
|
(1) |
|
Utilization is computed by dividing our total units on lease by
the total units in our fleet (which includes leased units, new
and used units available for lease and units available for sale). |
The following tables set forth our ending fleet utilization for
the dates indicated below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
September 30,
|
|
|
June 30,
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
Ending Utilization
|
|
|
86.5
|
%
|
|
|
90.0
|
%
|
|
|
92.7
|
%
|
|
|
91.7
|
%
|
|
|
89.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
September 30,
|
|
|
June 30,
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
Ending Utilization (excluding new units not yet leased)
|
|
|
88.5
|
%
|
|
|
92.4
|
%
|
|
|
95.8
|
%
|
|
|
95.4
|
%
|
|
|
94.0
|
%
|
Our average utilization was 88.1% in the first quarter of 2009,
a decrease of 2.0% from the first quarter of 2008, and a
decrease of 3.5% from the fourth quarter of 2008. Ending
utilization decreased 3.5% from 90.0% as of December 31,
2008 to 86.5% as of March 31, 2009, while ending
utilization excluding new units not yet leased decreased 3.9% in
the first quarter of 2009 from 92.4% to 88.5%. The decrease in
our utilization in the first quarter of 2009 was mainly the
result of reduced containerized trade volumes which has led to
low leasing demand for dry containers, increased dry container
drop-offs and very low dry container
pick-ups. We
expect dry container drop-offs to remain high and dry container
pick-ups
low, and expect utilization to decrease as long as containerized
trade volumes remain well below the 2008 level.
Leasing demand for our refrigerated containers remained strong
in the first quarter of 2009. The utilization of our
refrigerated containers does not heavily influence our overall
utilization since they represent only approximately 5% of the
units in our fleet. However, these container types are
significantly more expensive than dry containers, generate
higher per diem lease rates and currently represent
approximately 24% of our leasing revenue. While we expect that
demand for refrigerated containers will be negatively impacted
by the global recession in 2009, the impact so far has not been
as severe as it has been for dry containers.
Leasing demand for special containers weakened in the first
quarter of 2009, while demand for our chassis product line
remained weak during the first quarter of 2009 due to low
U.S. import growth and an oversupply of chassis in the
marketplace.
Average lease rates for our dry container product line in the
first quarter of 2009 were 0.4% lower compared to the average
level of the first quarter of 2008 and 1.3% lower than the
fourth quarter of 2008. The decrease in average lease rates in
the first quarter of 2009 primarily reflects the more rapid
return of our higher per diem short term leases as well as lease
rate concessions provided to customers
17
for extending leases and reducing drop-off volumes. In addition,
new container prices have been decreasing since the fourth
quarter of 2008 primarily due to decreasing steel prices, and
the price for a 20 dry container was in the range of
$2,000 at the end of first quarter of 2009, as compared to
$2,300 at the end of the first quarter of 2008. Going forward,
our average dry container leasing rates will likely be further
pressured by additional concessions for lease extension
transactions and aggressive leasing company competition due to
the build-up
of idle container inventories.
Average lease rates for refrigerated containers in the first
quarter of 2009 were 2.7% lower compared to the first quarter of
2008, and 0.5% lower than the fourth quarter of 2008, while
average rental rates for our special containers were 0.9% higher
during the first quarter of 2009 compared to the first quarter
of 2008, and 0.4% higher compared to the fourth quarter of 2008.
Market leasing rates for new refrigerated containers are still
below our portfolio average rates, so we generally expect our
average rates for refrigerated containers to continue to trend
down. The increase in average leasing rates for special
containers was primarily caused by strong demand and increased
prices for special containers in 2008.
During the first quarter of 2009, we recognized a
$3.6 million gain on the sale of our used containers
compared to a $4.3 million gain in the first quarter of
2008. The decrease compared to the first quarter of 2008 mainly
resulted from a decrease in average selling prices. Looking
forward, we expect our results from used container disposals in
2009 to increasingly lag the results we achieved in 2008. During
2008, our gains on disposals trended up from the first quarter
level as leasing demand and new container prices provided strong
support for disposal prices in the second and third quarters of
the year. This year, it seems likely that our used container
sale prices and disposal gains will be increasingly pressured by
the build-up
of idle used container inventories until trade volumes improve.
During the first quarter of 2009, we recognized a net equipment
trading margin of $1.3 million on the sale of equipment
purchased for resale, compared to a $1.6 million margin in
the first quarter of 2008. In 2009, we expect that our trading
volume will be considerably lower than in 2008 due to the weaker
disposal environment and our intention to focus our efforts on
the sale of our owned equipment.
Our ownership expenses, principally depreciation and interest
expense increased by $4.9 million, or 11.8% in the first
quarter of 2009 from the first quarter of 2008. The percentage
increase in ownership expense was higher than the 8.4% increase
in the net book value of our revenue earning assets.
Depreciation expense increased 8.5% in the first quarter of 2009
compared to the first quarter of 2008, roughly in line with the
increase in our revenue earning assets, while interest expense
increased 17.9% in the first quarter of 2009 compared to the
first quarter of 2008. Interest expense and related average debt
balances increased more rapidly than our revenue earning assets
in the first quarter of 2009 primarily due to the way our
containers are purchased. Because new containers are typically
accepted into our fleet before payment is made to the
manufacturer, our debt balances and related interest expense
will lag fleet growth. This difference can be material in
periods of rapid growth such as the first quarter 2008 when
$91.2 million of the first quarters 2008 container
purchases were funded by Equipment purchases payable at the end
of the quarter rather than debt. At March 31, 2009 only
$5.8 million of container purchases were funded by
Equipment purchases payable.
Our provision for doubtful accounts was $0.3 million for
the quarter ended March 31, 2009, up from $0.1 million
in the quarter ended March 31, 2008, but down from
$2.4 million in the fourth quarter of 2008. During the
third and fourth quarters of 2008, we recorded sizable credit
provisions primarily due to the default on a finance lease by
one of our customers, and we recorded additional provisions to
increase the loss reserves for the remaining leases in the
finance lease portfolio. We did not incur any material
additional defaults in the first quarter of 2009.
However, we remain concerned that we may see an increase in the
number and size of customer defaults in 2009 due to the
deteriorating financial performance of our shipping line
customers combined with the constrained capital markets that
could make it difficult for our customers to finance any
operating losses they may incur as well as their vessel orders
and other expansion commitments. Many of our major customers
were in the middle of major expansion programs when trade
volumes
18
began to decrease at the end of 2008, and vessel capacity is
expected to grow ten percent or more annually for the next
several years despite the recent sharp reduction in trade
volumes. This combination of reduced trade volumes and
increasing vessel capacity has led to a substantial decrease in
freight rates on the major trade lanes.
If one of our major customers ceased operations because of a
deterioration in its financial performance, we would face
reduced revenue and we would likely incur substantial lost unit
and recovery expenses. We do not maintain an equipment reserve
for units on lease to performing customers, so a major customer
default would have a significant impact on our financial
statements at the time the major customer defaulted. We have not
yet experienced a general deterioration of our customers
lease payment performance, though we continue to actively review
our portfolio to make sure we identify potential problem
accounts as early as possible; and we continue to be more
selective in pursuing new business opportunities.
Our direct operating expenses increased to $9.8 million in
the first quarter of 2009. We typically experience an increase
in our direct operating expenses during periods of weak leasing
demand. During the first quarter of 2009, we incurred increased
repair expenses due to the increase in the volume of containers
dropped off by our customers, and we incurred increased storage
costs due to the increase in the number of idle used containers.
We expect our direct operating expenses to continue to increase
as long as trade volumes and leasing demand remain extremely
weak.
Dividends
On February 25, 2009, we declared a quarterly dividend of
$0.01 per share or an aggregate of approximately
$0.3 million on our issued and outstanding common stock
which was paid on March 26, 2009 to shareholders of record
at the close of business on March 12, 2009.
On March 3, 2008, we declared a quarterly dividend of
$0.375 per share or an aggregate of approximately
$12.2 million on our issued and outstanding common stock
which was paid on April 10, 2008 to shareholders of record
at the close of business on March 20, 2008.
Treasury
Stock
We repurchased 1,021,918 shares of our outstanding common
stock in the open market during the quarter ended March 31,
2009 at a total cost of approximately $8.2 million.
We repurchased 362,100 shares of our outstanding common
stock in the open market during the quarter ended March 31,
2008 at a total cost of approximately $8.0 million.
19
Results
of Operations
The following table summarizes our results of operations for the
three months ended March 31, 2009 and 2008 in thousands of
dollars and as a percentage of total revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Dollars
|
|
|
Percent
|
|
|
Dollars
|
|
|
Percent
|
|
|
Leasing revenues
|
|
$
|
83,102
|
|
|
|
83.0
|
%
|
|
$
|
77,388
|
|
|
|
76.6
|
%
|
Equipment trading revenue
|
|
|
16,088
|
|
|
|
16.0
|
|
|
|
22,654
|
|
|
|
22.4
|
|
Management fee income
|
|
|
669
|
|
|
|
0.7
|
|
|
|
725
|
|
|
|
0.7
|
|
Other revenues
|
|
|
296
|
|
|
|
0.3
|
|
|
|
331
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
100,155
|
|
|
|
100.0
|
|
|
|
101,098
|
|
|
|
100.0
|
|
Equipment trading expenses
|
|
|
14,775
|
|
|
|
14.8
|
|
|
|
21,063
|
|
|
|
20.9
|
|
Direct operating expenses
|
|
|
9,825
|
|
|
|
9.8
|
|
|
|
7,077
|
|
|
|
7.0
|
|
Administrative expenses
|
|
|
11,622
|
|
|
|
11.6
|
|
|
|
9,787
|
|
|
|
9.7
|
|
Depreciation and amortization
|
|
|
29,109
|
|
|
|
29.0
|
|
|
|
26,828
|
|
|
|
26.5
|
|
Provision for doubtful accounts
|
|
|
321
|
|
|
|
0.3
|
|
|
|
47
|
|
|
|
0.0
|
|
Net (gain) on sale of leasing equipment
|
|
|
(3,596
|
)
|
|
|
(3.6
|
)
|
|
|
(4,300
|
)
|
|
|
(4.3
|
)
|
Interest and debt expense
|
|
|
17,361
|
|
|
|
17.3
|
|
|
|
14,729
|
|
|
|
14.6
|
|
Unrealized (gain) loss on interest rate swaps
|
|
|
(5,063
|
)
|
|
|
(5.0
|
)
|
|
|
31,745
|
|
|
|
31.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
74,354
|
|
|
|
74.2
|
|
|
|
106,976
|
|
|
|
105.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
25,801
|
|
|
|
25.8
|
|
|
|
(5,878
|
)
|
|
|
(5.8
|
)
|
Income tax expense (benefit)
|
|
|
9,185
|
|
|
|
9.2
|
|
|
|
(2,085
|
)
|
|
|
(2.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
16,616
|
|
|
|
16.6
|
%
|
|
$
|
(3,793
|
)
|
|
|
(3.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparison of Three Months Ended March 31, 2009 to Three
Months Ended March 31, 2008.
Leasing revenues. The principal
components of our leasing revenues are presented in the
following table. Per diem revenue represents revenue earned
under operating lease contracts; fee and ancillary lease revenue
represent 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; and finance lease revenue represents
interest income earned under finance lease contracts.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(in thousands)
|
|
|
Leasing revenues:
|
|
|
|
|
|
|
|
|
Operating lease revenues:
|
|
|
|
|
|
|
|
|
Per diem revenue
|
|
$
|
68,216
|
|
|
$
|
64,067
|
|
Fee and ancillary lease revenue
|
|
|
9,831
|
|
|
|
8,365
|
|
|
|
|
|
|
|
|
|
|
Total operating lease revenue
|
|
|
78,047
|
|
|
|
72,432
|
|
Finance lease revenue
|
|
|
5,055
|
|
|
|
4,956
|
|
|
|
|
|
|
|
|
|
|
Total leasing revenues
|
|
$
|
83,102
|
|
|
$
|
77,388
|
|
|
|
|
|
|
|
|
|
|
Total leasing revenues were $83.1 million for the three
months ended March 31, 2009, compared to $77.4 million
for the three months ended March 31, 2008, an increase of
$5.7 million, or 7.4%.
20
Per diem revenue increased by $4.1 million compared to
2008. The primary reasons for the increase are as follows:
|
|
|
|
|
$4.0 million increase due to an increase in fleet size,
reflecting a larger number of dry and special containers,
chassis and tanks in our fleet compared to the prior year;
|
|
|
|
$1.0 million increase due to revenue from a negotiated
lease agreement with one of our largest customers for the early
drop-off of equipment in the current year;
|
|
|
|
$0.9 million increase due to higher utilization from
special, refrigerated and tank containers and chassis compared
to the prior year;
|
|
|
|
$1.1 million decrease due to lower utilization from dry
containers compared to the prior year; and
|
|
|
|
$0.6 million decrease due to lower per diem rates primarily
for dry and refrigerated containers.
|
Fee and ancillary lease revenue increased by $1.5 million
as compared to the prior year primarily due to an increase in
repair and handling revenue resulting from an increase in drop
off volume.
Finance lease revenue increased by $0.1 million in 2009,
primarily due to an increase in the average size of our finance
lease portfolio.
Equipment Trading Activities. Equipment
trading revenue represents the proceeds on the sale of equipment
purchased for resale. Equipment trading expenses represent the
cost of equipment sold, including costs associated with the
acquisition, maintenance and selling of trading inventory, such
as positioning, repairs, handling and storage costs, and
estimated direct selling and administrative costs.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(in thousands)
|
|
|
Equipment trading revenues
|
|
$
|
16,088
|
|
|
$
|
22,654
|
|
Equipment trading expenses
|
|
|
(14,775
|
)
|
|
|
(21,063
|
)
|
|
|
|
|
|
|
|
|
|
Equipment trading margin
|
|
$
|
1,313
|
|
|
$
|
1,591
|
|
|
|
|
|
|
|
|
|
|
The equipment trading margin decreased $0.3 million for the
three months ended March 31, 2009 compared to the three
months ended March 31, 2008. The trading margin decreased
primarily due to a decrease in sales volume.
Direct operating expenses. Direct
operating expenses primarily consist of our costs to repair
equipment returned off lease, to store the equipment when it is
not on lease, and to reposition equipment that has been returned
to locations with weak leasing demand.
Direct operating expenses were $9.8 million for the three
months ended March 31, 2009, compared to $7.1 million
for the three months ended March 31, 2008, an increase of
$2.7 million. The primary reasons for the increase are
outlined below:
|
|
|
|
|
$1.4 million increase in storage costs due to an increase
in units off-hire;
|
|
|
|
$1.3 million increase in repair costs due to a higher
repair volume, primarily for our dry and refrigerated
containers; and
|
|
|
|
$0.3 million increase in handling costs due to greater
off-hire activity for our equipment;
|
|
|
|
$0.4 million decrease in surveying costs due to a decrease
in new equipment purchases.
|
Administrative expenses. Administrative
expenses were $11.6 million for the three months ended
March 31, 2009, compared to $9.8 million for the three
months ended March 31, 2008, an increase of
$1.8 million or 18.4%. The increase was primarily due to a
one-time charge for certain severance
21
benefits of $0.9 million in 2009 and $0.3 million in
foreign exchange losses in 2009 versus foreign exchange gains of
$1.2 million in 2008.
Depreciation and
amortization. Depreciation and amortization
was $29.1 million for the three months ended March 31,
2009, compared to $26.8 million for the three months ended
March 31, 2008, an increase of $2.3 million or 8.5%.
Depreciation increased by $4.8 million due to a larger
fleet size, which was partially offset by a $2.3 million
decrease due to another vintage year of older equipment becoming
fully depreciated in the fourth quarter of 2008.
Net (gain) on sale of leasing
equipment. Gain on sale of equipment was
$3.6 million for the three months ended March 31,
2009, compared to a gain of $4.3 million for the three
months ended March 31, 2008, a decrease of
$0.7 million. Gain on sale decreased by $1.1 million
due to lower selling prices and $0.2 million due to lower
volume of units sold. These decreases were partially offset by a
gain of $0.6 million related to older containers placed on
finance leases.
Interest and debt expense. Interest and
debt expense was $17.4 million for the three months ended
March 31, 2009, compared to $14.7 million for the
three months ended March 31, 2008, an increase of
$2.7 million. The increase was primarily due to an increase
in the average debt balance driven by the increase in the size
of our container fleet during 2008.
Unrealized (gain) loss on interest rate
swaps. Unrealized gain on interest rate swaps
was $5.1 million for the three months ended March 31,
2009, compared to an unrealized loss of $31.7 million for
the three months ended March 31, 2008. The net fair value
of the interest rate swap contracts was a net liability of
$90.4 million at March 31, 2009, compared to a net
liability of $95.2 million at December 31, 2008,
resulting from an increase in long-term interest rates in 2009.
Income tax expense (benefit). Income
tax expense was $9.2 million for the three months ended
March 31, 2009, compared to an income tax benefit of
$2.1 million for the three months ended March 31,
2008, and the effective tax rates were 35.6% for the three
months ended March 31, 2009 and 35.5% for the three months
ended March 31, 2008.
While we record income tax expense, we do not currently pay any
significant federal, state or foreign income taxes due to the
availability of accelerated tax depreciation for our equipment.
The vast majority of the expense recorded for income taxes is
recorded as a deferred income tax liability on the balance
sheet. We expect the deferred income tax liability balance to
grow for the foreseeable future.
Business
Segments
We operate our business in one industry, intermodal
transportation equipment, and in two business segments,
Equipment leasing and Equipment trading.
Equipment
leasing
We own, lease and ultimately dispose of containers and chassis
from our lease fleet, as well as manage leasing activities for
containers owned by third parties. Equipment leasing segment
revenues represent leasing revenues from operating and finance
leases, fees earned on managed container leasing activities, as
well as other revenues. Expenses related to equipment leasing
include direct operating expenses, administrative expenses,
depreciation expense, and interest expense. The Equipment
leasing segment also includes gains and losses on the sale of
owned leasing equipment.
22
The following table lists selected revenue and expense items for
our Equipment leasing segment for the three months ended
March 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(in thousands)
|
|
|
Equipment leasing segment:
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
83,941
|
|
|
$
|
78,355
|
|
Depreciation expense
|
|
|
29,075
|
|
|
|
26,823
|
|
Interest expense
|
|
|
17,180
|
|
|
|
14,480
|
|
Net (gain) on sale of leasing equipment
|
|
|
(3,596
|
)
|
|
|
(4,300
|
)
|
|
|
|
|
|
|
|
|
|
Pre-tax
income(1)
|
|
$
|
20,111
|
|
|
|
24,868
|
|
|
|
|
(1) |
|
Pre-tax income excludes unrealized (gains) and losses on
interest rate swaps of $(5,063) and $31,745 for the three months
ended March 31, 2009 and 2008, respectively. |
Segment
Comparison of Quarter Ended March 31, 2009 to Quarter Ended
March 31, 2008
Equipment leasing revenue. Total
revenue for the Equipment leasing segment was $83.9 million
in the three months ended March 31, 2009 compared to
$78.4 million in the three months ended March 31,
2008, an increase of $5.5 million, or 7.0%. The primary
reasons for the increase are as follows:
|
|
|
|
|
$4.0 million increase due to an increase in fleet size,
reflecting a larger number of dry and special containers,
chassis and tanks in our fleet compared to the prior year;
|
|
|
|
$1.0 million increase due to revenue from a negotiated
lease agreement with one of our largest customers for the early
drop-off of equipment in the current year;
|
|
|
|
$0.9 million increase due to higher utilization from
special, refrigerated and tank containers and chassis compared
to the prior year;
|
|
|
|
$1.1 million decrease due to lower utilization from dry
containers compared to the prior year; and
|
|
|
|
$0.6 million decrease due to lower per diem rates primarily
for dry and refrigerated containers.
|
Fee and ancillary lease revenue increased by $1.5 million
as compared to the prior year primarily due to an increase in
repair and handling revenue resulting from an increase in drop
off volume.
Finance lease revenue increased by $0.1 million in 2009,
primarily due to an increase in the average size of our finance
lease portfolio.
Equipment leasing pretax income. Pretax
income for the Equipment leasing segment was $20.1 million
in the three months ended March 31, 2009 compared to
$24.9 million in the three months ended March 31,
2008, a decrease of $4.8 million, or 19.3%. The primary
reasons for the decrease in pretax income are as follows:
|
|
|
|
|
$5.5 million increase in Equipment leasing revenue in 2009;
|
|
|
|
$2.3 million increase in depreciation expense, primarily
due to an increase in fleet size;
|
|
|
|
$2.7 million increase in interest expense, primarily due to
an increase in the average debt balance driven by the increase
in the size of our container fleet during 2008;
|
|
|
|
$2.7 million increase in direct operating expenses,
primarily related to increased storage costs and increased
repair costs associated with increased drop off activity;
|
23
|
|
|
|
|
$1.8 million increase in administrative expenses due to a
one-time charge for certain severance benefits of
$0.9 million in 2009 and $0.3 million in foreign
exchange losses in 2009 versus foreign exchange gains of
$1.2 million in 2008; and
|
|
|
|
$0.7 million decrease in gain on the sale of leasing
equipment, primarily due to lower selling prices in 2009
compared to 2008.
|
Equipment
trading
We purchase containers from shipping line customers and other
sellers of containers, and resell these containers to container
traders and users of containers for storage or one-way shipment.
Equipment trading segment revenues represent the proceeds on the
sale of containers purchased for resale. Equipment trading
expenses represent the cost of equipment sold, including costs
associated with the acquisition, maintenance and selling of
trading inventory, such as positioning, repairs, handling and
storage costs, and estimated direct selling and administrative
costs. Other expenses in this segment include administrative
overhead expenses, depreciation expense, provision for doubtful
accounts and interest expense.
The following table lists selected revenue and expense items for
our Equipment trading segment for the three months ended
March 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(in thousands)
|
|
|
Equipment trading segment:
|
|
|
|
|
|
|
|
|
Equipment trading revenue
|
|
$
|
16,088
|
|
|
$
|
22,654
|
|
Equipment trading expense
|
|
|
(14,775
|
)
|
|
|
(21,063
|
)
|
|
|
|
|
|
|
|
|
|
Equipment trading margin
|
|
|
1,313
|
|
|
|
1,591
|
|
Interest expense
|
|
|
181
|
|
|
|
249
|
|
|
|
|
|
|
|
|
|
|
Pre-tax
income(1)
|
|
|
627
|
|
|
|
999
|
|
|
|
|
(1) |
|
Pre-tax income excludes unrealized (gains) and losses on
interest rate swaps of $(5,063) and $31,745 for the three months
ended March 31, 2009 and 2008, respectively. |
Segment
Comparison of Quarter Ended March 31, 2009 to Quarter Ended
March 31, 2008
Equipment trading margin. Equipment
trading revenues and Equipment trading expenses decreased in the
three months ended March 31, 2009 compared to the three
months ended March 31, 2008 primarily due to a decrease in
the number of units purchased and sold. The equipment trading
margin, the difference between Equipment trading revenue and
expenses, decreased $0.3 million in 2009 compared to 2008
primarily due to a lower volume of units sold.
Equipment trading pretax income. Pretax
income for the Equipment trading segment was $0.6 million
in the three months ended March 31, 2009 compared to
$1.0 million in the three months ended March 31, 2008,
a decrease of $0.4 million, or 40.0%, which is in line with
the Equipment trading margin decrease of $0.3 million.
Liquidity
and Capital Resources
Our principal sources of liquidity are cash flows provided by
operating activities, proceeds from the sale of our leasing
equipment, principal payments on finance lease receivables and
borrowings under our credit facilities. Our cash in-flows and
borrowings are used to finance capital expenditures, meet debt
service requirements and pay dividends.
24
We continue to have sizable cash in-flows. For the quarter ended
March 31, 2009, cash provided by operating activities,
together with the proceeds from the sale of our leasing
equipment and principal payments on our finance leases, was
approximately $79.8 million. In addition, as of
March 31, 2009 we had approximately $33.6 million of
unrestricted cash.
As of March 31, 2009, major committed cash outflows in the
next 12 months include $13.9 million of committed but
unpaid capital expenditures. In addition, over the next
12 months we have scheduled principal payments on our
existing debt facilities of $129.9 million, which we expect
to fund with ongoing operating cash flows.
We believe that cash provided by operating activities and
existing cash, proceeds from the sale of our leasing equipment
and principal payments on our finance lease receivables will be
sufficient to meet our committed obligations over the next
12 months. However, our ability to make future capital
expenditures will also be dependent on our ability to increase
our lending commitments, and we cannot assure that we will be
able to do so on commercially reasonable terms, or at all. We
continue to seek additional sources of financing to fund future
capital expenditures, though disruptions in the capital markets
have continued, and may make it more difficult and more
expensive for us to secure additional financing commitments. If
we are unsuccessful in obtaining sufficient additional financing
we deem suitable, investment in our fleet will be constrained
and our future growth rate and profitability will decrease.
At March 31, 2009, our outstanding indebtedness was
comprised of the following (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
Current
|
|
|
Maximum
|
|
|
|
Amount
|
|
|
Borrowing
|
|
|
|
Outstanding
|
|
|
Level
|
|
|
Asset backed securitization (ABS)
|
|
|
|
|
|
|
|
|
Term notes
Series 2006-1
|
|
$
|
435.6
|
|
|
$
|
435.6
|
|
Term notes
Series 2005-1
|
|
|
377.8
|
|
|
|
377.8
|
|
Asset backed credit facility
|
|
|
225.0
|
|
|
|
225.0
|
|
Revolving credit facility
|
|
|
100.0
|
|
|
|
100.0
|
|
Finance lease facility
|
|
|
45.2
|
|
|
|
45.2
|
|
2007 Term loan facility
|
|
|
32.3
|
|
|
|
32.3
|
|
Port equipment facility
|
|
|
11.2
|
|
|
|
11.2
|
|
Capital lease obligations
|
|
|
86.2
|
|
|
|
86.2
|
|
|
|
|
|
|
|
|
|
|
Total Debt
|
|
$
|
1,313.3
|
|
|
$
|
1,313.3
|
|
|
|
|
|
|
|
|
|
|
Interest rates on all of our debt obligations (except capital
lease obligations) are based on floating rate indices (such as
LIBOR). We economically hedge the risks associated with
fluctuations in interest rates on our long-term borrowings by
entering into interest rate swap contracts.
Debt
Covenants
We are subject to certain financial covenants under our debt
facilities. At March 31, 2009, we were in compliance with
all such covenants. Below are the primary financial covenants to
which we are subject:
|
|
|
|
|
Minimum Earnings Before Interest and Taxes (EBIT) to
Cash Interest Expense;
|
|
|
|
Minimum Tangible Net Worth (TNW); and
|
|
|
|
Maximum Indebtedness to TNW.
|
Non-GAAP Measures
We rely primarily on our results measured in accordance with
generally accepted accounting principles (GAAP) in
evaluating our business. EBIT, Cash Interest, TNW, and
Indebtedness are non-GAAP financial measures used to determine
our compliance with certain covenants contained in our debt
25
agreements and should not be used as a substitute for analysis
of our results as reported under GAAP. However, we believe that
the inclusion of this non-GAAP information provides additional
information to investors regarding our debt covenant compliance.
Minimum
EBIT to Cash Interest Expense
For the purpose of this covenant, EBIT is calculated based on
the cumulative sum of our earnings for the last four quarters
(excluding income taxes, interest expense,
amortization / write off of deferred financing
charges, unrealized gain or loss on interest rate swaps and
non-cash compensation). Cash Interest Expense is calculated
based on interest expense adjusted to exclude interest income,
amortization of deferred financing costs, and the difference
between current and prior period interest expense accruals.
Minimum EBIT to Cash Interest Expense is calculated at the
consolidated level and for TAL Advantage I LLC and TAL
Advantage II LLC, wholly owned special purpose entities
whose primary activity is to issue asset backed notes. The
Consolidated Minimum EBIT to Cash Interest Expense ratio is
fixed at 1.10 to 1.00 for our Asset backed securitization (ABS),
Asset backed facility and Revolving credit facility. The TAL
Advantage I LLC and the TAL Advantage II LLC Minimum EBIT
to Cash Interest Expense ratio is fixed at 1.10 to 1.00 for the
Asset backed securitization and the Asset backed credit
facilities. The Finance lease facility Consolidated Minimum EBIT
to Cash Interest Expense ratio is fixed at 1.05 to 1.00.
Below is the calculation of EBIT to Cash Interest Expense as of
March 31, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
EBIT to Cash Interest
Expense:
|
|
Consolidated(1)
|
|
|
TAL Adv I
|
|
|
TAL Adv II
|
|
|
Net income (loss)
|
|
$
|
56,205
|
|
|
$
|
41,010
|
|
|
$
|
(10,552
|
)
|
Plus:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit)
|
|
|
30,337
|
|
|
|
22,280
|
|
|
|
(5,610
|
)
|
Interest expense including write-off of deferred financing costs
|
|
|
67,865
|
|
|
|
44,851
|
|
|
|
8,540
|
|
Unrealized losses on interest rate swaps
|
|
|
39,239
|
|
|
|
12,498
|
|
|
|
16,628
|
|
All non-cash expenses attributable to incentive arrangements
|
|
|
1,210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBIT
|
|
$
|
194,856
|
|
|
$
|
120,639
|
|
|
$
|
9,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense (excluding interest income of $1,040, $634, and
$0 respectively)
|
|
$
|
68,905
|
|
|
$
|
45,485
|
|
|
|
8,540
|
|
Amortization and write-off of deferred financing costs
|
|
|
(1,360
|
)
|
|
|
(664
|
)
|
|
|
(467
|
)
|
Accrued interest (represents 2009 interest expense not paid)
|
|
|
(2,763
|
)
|
|
|
(1,307
|
)
|
|
|
(443
|
)
|
Cash payments of prior period accrued interest
|
|
|
2,066
|
|
|
|
1,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Interest Expense
|
|
$
|
66,848
|
|
|
$
|
45,034
|
|
|
$
|
7,630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBIT to Cash Interest Expense Ratio
|
|
|
2.91
|
|
|
|
2.68
|
|
|
|
1.18
|
|
Required Minimum EBIT to Cash Interest Expense Ratio
|
|
|
1.10
|
|
|
|
1.10
|
|
|
|
1.10
|
|
|
|
|
(1) |
|
The consolidated amounts shown above include all consolidated
subsidiaries of TAL International Group, Inc., including TAL
Advantage I, LLC and TAL Advantage II, LLC. |
Minimum
TNW and Maximum Indebtedness to TNW Covenants
We are required to meet Minimum TNW and Maximum Indebtedness to
TNW covenants. For purposes of these covenants TNW is equal to
tangible assets (total assets less excluded assets including
deferred financing costs, goodwill and other intangibles), less
all debt (including capital leases) and equipment
26
purchases payable. The Maximum Indebtedness to TNW ratio is
calculated as all indebtedness (including capital leases), fair
value of derivative instruments, equipment purchases payable,
and accrued interest divided by TNW as determined above.
For the ABS and Asset backed credit facilities, the required
minimum TNW is calculated as $321.3 million plus 50% of
cumulative net income or loss since January 1, 2006. At
March 31, 2009, the required minimum TNW for the ABS
facilities was $388.0 million. For the Finance lease
facility the required minimum TNW is fixed at $300 million.
The Maximum Indebtedness to TNW ratio is fixed at 4.75 to 1.00
for the ABS, Asset backed and Revolving credit facilities and
5.00 to 1.00 for the Finance lease and Port equipment facilities.
Below is the calculation of the covenant compliance for the
Finance lease facility as of March 31, 2009 (in thousands):
|
|
|
|
|
Tangible Net Worth
Covenants:
|
|
Consolidated
|
|
|
Tangible Assets
|
|
|
|
|
Total Assets
|
|
$
|
1,908,538
|
|
Deferred Financing Costs
|
|
|
(8,174
|
)
|
Goodwill
|
|
|
(71,898
|
)
|
Intangibles
|
|
|
(3,194
|
)
|
Fair value of derivative instruments (asset)
|
|
|
(1,170
|
)
|
|
|
|
|
|
Total Tangible Assets(A)
|
|
$
|
1,824,102
|
|
|
|
|
|
|
All indebtedness:
|
|
|
|
|
Total debt
|
|
$
|
1,313,335
|
|
Accrued interest
|
|
|
2,716
|
|
Fair value of derivative instruments (liability)
|
|
|
90,370
|
|
Equipment purchases payable
|
|
|
5,810
|
|
|
|
|
|
|
Total Indebtedness(B)
|
|
$
|
1,412,231
|
|
|
|
|
|
|
Tangible Net Worth (A-B=C)
|
|
$
|
411,871
|
|
Required Minimum Tangible Net Worth
|
|
$
|
300,000
|
|
Debt to Tangible Net Worth Ratio (B/C)
|
|
|
3.43
|
|
Required Maximum Debt to Tangible Net Worth Ratio
|
|
|
5.00
|
|
For the purpose of calculating TNW under the ABS and Asset
backed credit facilities, the fair value of derivative
instruments is excluded from the Total Indebtedness calculation.
As a result, the calculated TNW for these facilities was the sum
of TNW of $411.9 million as per the table above plus
$90.4 million (the fair value of derivative instruments
(liability) excluded), for a total TNW of $502.3 million at
March 31, 2009, versus a required minimum TNW of
$388.0 million.
For the purpose of calculating Debt to TNW ratio under the ABS
facility, the fair value of derivative instruments (liability of
$90.4 million) is included in the calculation of
indebtedness. As a result, the total indebtedness for the
purpose of this calculation is $1,412.2 million as shown in
the table above, the TNW is $502.3 million as shown in the
paragraph above, and the calculated Debt to TNW ratio was 2.81
at March 31, 2009, versus a required maximum Debt to TNW
ratio of 4.75.
For the purpose of calculating Debt to TNW ratio under the Asset
backed credit facility, the fair value of derivative instruments
(liability) is excluded from the calculation of indebtedness. As
a result, the total indebtedness for the purpose of this
calculation is $1,412.2 million as per the table above less
$90.4 million (the fair value of derivative instruments
(liability) excluded), for a total indebtedness of
$1,321.8 million. The TNW is $502.3 million as shown
in the first paragraph directly above, and the calculated Debt
to TNW ratio was 2.63 at March 31, 2009, versus a required
maximum Debt to TNW ratio of 4.75.
27
Failure to comply with these covenants would result in a default
under the related credit agreements and could result in the
acceleration of our outstanding debt if we were unable to obtain
a waiver from the creditors.
Dividends
On February 25, 2009, we declared a quarterly dividend of
$0.01 per share or an aggregate of approximately
$0.3 million on our issued and outstanding common stock
which was paid on March 26, 2009 to shareholders of record
at the close of business on March 12, 2009.
On March 3, 2008, we declared a quarterly dividend of
$0.375 per share or an aggregate of approximately
$12.2 million on our issued and outstanding common stock
which was paid on April 10, 2008 to shareholders of record
at the close of business on March 20, 2008.
Treasury
Stock
We repurchased 1,021,918 shares of our outstanding common
stock in the open market during the quarter ended March 31,
2009 at a total cost of approximately $8.2 million.
We repurchased 362,100 shares of our outstanding common
stock in the open market during the quarter ended March 31,
2008 at a total cost of approximately $8.0 million.
Cash
Flow
The following table sets forth certain cash flow information for
the three months ended March 31, 2009 and 2008 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Net cash provided by operating activities
|
|
$
|
56,096
|
|
|
$
|
33,917
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities:
|
|
|
|
|
|
|
|
|
Purchases of leasing equipment
|
|
$
|
(24,383
|
)
|
|
$
|
(64,634
|
)
|
Investment in finance leases
|
|
|
(17,902
|
)
|
|
|
(5,847
|
)
|
Proceeds from sale of equipment leasing fleet, net of selling
costs
|
|
|
16,291
|
|
|
|
17,153
|
|
Cash collections on finance lease receivables, net of income
earned
|
|
|
7,410
|
|
|
|
6,464
|
|
Other
|
|
|
(83
|
)
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) investing activities
|
|
$
|
(18,667
|
)
|
|
$
|
(46,810
|
)
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
$
|
(44,615
|
)
|
|
$
|
35,796
|
|
|
|
|
|
|
|
|
|
|
Operating
Activities
Net cash provided by operating activities increased by
$22.2 million to $56.1 million in the three months
ended March 31, 2009, compared to $33.9 million in the
three months ended March 31, 2008 primarily due to the
timing of cash collections on our accounts receivable. Accounts
receivable collections exceeded billings by $8.7 million in
the three months ended March 31, 2009 versus accounts
receivable billings that exceeded collections by
$8.9 million in the three months ended March 31, 2008.
Investing
Activities
Net cash used in investing activities decreased by
$28.1 million to $18.7 million in the three months
ended March 31, 2009 compared to $46.8 million in
2008. Major reasons for the decrease were as follows:
|
|
|
|
|
Capital expenditures were $42.3 million, including
investments in finance leases of $17.9 million, in the
three months ended March 31, 2009 compared to
$70.5 million, including investments in
|
28
|
|
|
|
|
finance leases of $5.8 million, for 2008. Capital
expenditures decreased by $28.2 million in 2009 primarily
due to a decrease in the number of leasing units purchased.
|
|
|
|
|
|
Sales proceeds from the disposal of equipment decreased
$0.9 million to $16.3 million in the three months
ended March 31, 2009 compared to $17.2 million in
2008. Proceeds from the disposal of used containers decreased in
2009 primarily due to lower equipment selling prices.
|
|
|
|
Cash collections on finance leases, net of income earned,
increased by $0.9 million to $7.4 million in the three
months ended March 31, 2009 compared to $6.5 million
in 2008 as a result of an increase in our finance lease
portfolio.
|
Financing
Activities
Net cash used in financing activities was $44.6 million in
the three months ended March 31, 2009 compared to net cash
provided by financing activities of $35.8 million for the
same period in 2008.
During the three months ended March 31, 2009, we had net
payments of $37.1 million under our various credit
facilities and capital lease obligations, primarily used to
finance the purchase of new equipment, as compared to net
borrowings of $44.6 million under our various credit
facilities and capital lease obligations during the three months
ended March 31, 2008.
Contractual
Obligations
We are party to various operating and capital leases and are
obligated to make payments related to our long term borrowings.
We are also obligated under various commercial commitments,
including obligations to our equipment manufacturers. Our
equipment manufacturer obligations are in the form of
conventional accounts payable, and are satisfied by cash flows
from operating and long term financing activities.
The following table summarizes our contractual obligations and
commercial commitments as of March 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual Obligations by Period
|
|
|
|
(dollars in millions)
|
|
|
|
|
|
|
Remaining
|
|
|
|
|
|
|
|
|
|
|
|
2013 and
|
|
Contractual Obligations:
|
|
Total
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
thereafter
|
|
|
Total debt
obligations(1)
|
|
$
|
1,456.4
|
|
|
$
|
138.5
|
|
|
$
|
220.6
|
|
|
$
|
196.4
|
|
|
$
|
281.1
|
|
|
$
|
619.8
|
|
Capital lease
obligations(2)
|
|
|
107.1
|
|
|
|
3.2
|
|
|
|
11.4
|
|
|
|
11.5
|
|
|
|
11.7
|
|
|
|
69.3
|
|
Operating leases (mainly facilities)
|
|
|
5.9
|
|
|
|
2.6
|
|
|
|
2.0
|
|
|
|
1.0
|
|
|
|
0.3
|
|
|
|
|
|
Purchase obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment purchases payable
|
|
|
5.8
|
|
|
|
5.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment purchase commitments
|
|
|
8.1
|
|
|
|
8.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
1,583.3
|
|
|
$
|
158.2
|
|
|
$
|
234.0
|
|
|
$
|
208.9
|
|
|
$
|
293.1
|
|
|
$
|
689.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amounts include actual and estimated interest for floating-rate
debt based on March 31, 2009 rates and the net effect of
the interest rate swaps. |
|
(2) |
|
Amounts include interest. |
Off-Balance
Sheet Arrangements
At March 31, 2009, we did not have any relationships with
unconsolidated entities or financial partnerships, such entities
which are often referred to as structured finance or special
purpose entities, which were established for the purpose of
facilitating off-balance sheet arrangements. We are, therefore,
not exposed to any financing, liquidity, market or credit risk
that could arise if we had engaged in such relationships.
29
Critical
Accounting Policies
Our consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the
United States, which require us to make estimates and
assumptions that affect the amounts and disclosures reported in
the consolidated financial statements and accompanying notes.
Our estimates are based on historical experience and currently
available information. Actual results could differ from such
estimates. The following paragraphs summarize our critical
accounting policies. Additional accounting policies are
discussed in the notes to our 2008
Form 10-K
and elsewhere in this
Form 10-Q.
Revenue
Recognition
Operating
Leases with Customers
We enter into long-term leases and service leases with ocean
carriers, principally as lessor in operating leases, for marine
cargo equipment. Long-term leases provide our customers with
specified equipment for a specified term. Our 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 range for a period of three to eight years.
Revenues are recognized on a straight-line basis over the life
of the respective lease. Advanced 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 for customers where collection is not reasonably assured
is deferred and recognized when the amounts are received.
In accordance with EITF
No. 99-19,
Reporting Revenue Gross as a Principal versus Net as an
Agent, we recognize billings to customers for damages and
certain other operating costs as leasing revenue as it is earned
based on the terms of the contractual agreements with the
customer. As principal, we are responsible for fulfillment of
the services, supplier selection and service specifications, and
we have ultimate responsibility to pay the supplier for the
services whether or not we collect the amount billed to the
lessee.
Finance
Leases with Customers
We enter into finance leases as lessor for some of the equipment
in our fleet. The net investment in finance leases represents
the receivables due from lessees, net of unearned income.
Unearned income is recognized on a level yield basis over the
lease term and is recorded as leasing revenue. Finance leases
are usually long-term in nature, typically ranging for a period
of five to ten years and typically include a bargain purchase
option that enables the lessee to purchase the equipment at the
end of the lease term.
Equipment
Trading Revenue and Expense
Equipment trading revenue represents the proceeds from the sale
of equipment purchased for resale and is recognized as units are
sold and delivered to the customer. 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 expense in the consolidated statements of
operations.
Management
Fee Income
We manage equipment which is owned by third parties and we earn
management fees based on the income earned by the leasing and
sales of such equipment. Management fees are recognized as
services are provided. We collect amounts billed and pay
operating costs as agent on behalf of the third parties that own
such equipment. These billings and operating costs are not
included in revenue and expense;
30
instead, the net amounts owed to these equipment owners are
reflected as accrued expenses in our financial statements until
paid as required by our contracts.
Other
Revenues
Other revenues include fee income for third party positioning of
equipment.
Direct
Operating Expenses
Direct operating expenses are directly related to our equipment.
These expenses primarily consist of our costs to repair and
maintain the equipment, to reposition the equipment, to store
the equipment when it is not on lease, to inspect newly
manufactured equipment and a provision for equipment lost or not
expected to be returned. These costs are recognized when
incurred. In limited situations, certain positioning costs may
be capitalized.
Leasing
Equipment
In general, we purchase new equipment from equipment
manufacturers for the purpose of leasing such equipment to our
customers. Occasionally, we may also purchase used equipment
with the intention of leasing such equipment. Used units are
typically purchased with an existing lease in place or were
previously owned by one of our third party owner investors.
Leasing equipment is recorded at cost and depreciated to an
estimated residual value on a straight-line basis over the
estimated useful life. We will continue to review our
depreciation policies on a regular basis to determine whether
changes have taken place that would suggest that a change in our
depreciation policies, useful lives of our equipment or the
assigned residual values is warranted. If indicators of
impairment are present, a determination is made as to whether
the carrying value of our fleet exceeds its estimated future
undiscounted cash flows. Leasing equipment is tested for
impairment whenever events or changes in circumstances indicate
that its carrying amount may not be recovered. Key indicators of
impairment on leasing equipment include, among other factors, a
sustained decrease in operating profitability, a sustained
decrease in utilization, or indications of technological
obsolescence.
When testing for impairment, leasing equipment is generally
grouped by equipment type, and is tested separately from other
groups of assets and liabilities. Some of the significant
estimates and assumptions used to determine future undiscounted
cash flows and the measurement for impairment are the remaining
useful life, expected utilization, expected future lease rates,
and expected disposal prices of the equipment. We consider the
assumptions on expected utilization and the remaining useful
life to have the greatest impact on our estimated future
undiscounted cash flows. These estimates are principally based
on historical experience and managements judgment of
market conditions.
Estimated useful lives and residual values have been principally
determined based on our historical disposal experience. The
estimated useful lives and residual values for our leasing
equipment from the date of manufacture are currently as follows:
|
|
|
|
|
|
|
|
|
Useful
|
|
|
|
|
|
Lives
|
|
|
|
|
|
(Years)
|
|
|
Residual Values ($)
|
|
Dry container units
|
|
|
13
|
|
|
$750 to $900
|
Refrigerated container units
|
|
|
12
|
|
|
$2,200 to $2,700
|
Special container units
|
|
|
14
|
|
|
$600 to $1,200
|
Tank container units
|
|
|
20
|
|
|
$3,000
|
Chassis
|
|
|
20
|
|
|
$1,200
|
Costs incurred to place new equipment into service, including
costs to transport the equipment to its initial on-hire
location, are capitalized. We charge to expense inspection costs
on new equipment and
31
repair and maintenance costs that do not extend the lives of the
assets at the time the costs are incurred, and include these
costs in direct operating expenses.
An allowance is provided through direct operating expenses based
on the net book value of a percentage of the units on lease to
certain customers that are considered to be non-performing which
we believe we will not ultimately recover. The percentage is
developed based on our historical experience.
Equipment
Held For Sale
When leasing equipment is returned off lease, we make a
determination of whether to repair and re-lease the equipment or
sell the equipment. At the time we determine that equipment will
be sold, we reclassify the appropriate amounts previously
recorded as leasing equipment to equipment held for sale. In
accordance with the Financial Accounting Standards Boards
(FASB) Statement of Financial Accounting Standards
No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, equipment held for sale is carried at the
lower of its estimated fair value, based on current
transactions, less costs to sell, or carrying value;
depreciation on such assets is halted and disposals generally
occur within 90 days. Subsequent changes to the
assets fair value, either increases or decreases, are
recorded as adjustments to the carrying value of the equipment
held for sale; however, any such adjustments may not exceed the
equipments carrying value at the time it was initially
classified as held for sale. Initial write-downs of assets held
for sale are recorded as an impairment charge and are included
in net (gain) loss on sale of leasing equipment. Realized gains
and losses resulting from the sale of equipment held for sale
are recorded as a (gain) loss on sale of leasing equipment, and
cash flows associated with the disposal of equipment held for
sale are classified as cash flows from investing activities.
Equipment
Held For Resale Trading Activity
On an opportunistic basis, we purchase used equipment with
markings or specifications different from our own equipment for
purposes of reselling it within a short time frame for a net
profit.
Equipment purchased for resale is reported as equipment held for
sale due to the short timeframe, generally less than one year,
between the time the equipment is purchased and the time the
equipment is sold. Due to this short expected holding period,
cash flows associated with equipment held for resale are
classified as operating cash flows. Equipment trading revenue
represents the proceeds from the sale of this equipment, while
Equipment trading expense includes the cost of equipment sold
and any costs to sell such equipment, including administrative
costs.
Allowance
for Doubtful Accounts
Our allowance for doubtful accounts is updated on a regular
basis and is based upon a review of the collectibility of our
receivables. This review considers the risk profile of the
customer, credit quality indicators such as the level of
past-due amounts and economic conditions. An account is
considered past due when a payment has not been received in
accordance with the contractual terms. Accounts are generally
charged off after an analysis is completed which indicates that
collection of the full principal balance is in doubt. 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 inherent
in our receivables, and requires the application of estimates
and judgments as to the outcome of collection efforts and the
realization of collateral, among other things. We believe our
allowance for doubtful accounts is adequate to provide for
credit losses inherent in our existing receivables. However,
actual losses could exceed the amounts provided for in certain
periods.
Income
Taxes
We account for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, Accounting for
Income Taxes (SFAS No. 109). Under
SFAS No. 109, deferred tax assets and liabilities are
determined based on the difference between our financial
statements and the tax basis of
32
assets and liabilities using enacted tax rates in effect for the
year in which the differences are expected to reverse. We
adopted FASB Interpretation 48, Accounting for Uncertainty in
Income Taxes, effective January 1, 2007.
Goodwill
We account for goodwill in accordance with Statement of
Financial Accounting Standards No. 142, Goodwill and
Other Intangible Assets
(SFAS No. 142). SFAS No. 142
requires goodwill and other intangible assets with indefinite
lives to be reviewed for impairment annually or more frequently
if circumstances indicate a possible impairment. In connection
with the Acquisition, we recorded $71.9 million of
goodwill. Management determined that we have two reporting
units, Equipment leasing and Equipment trading, and allocated
$70.9 million and $1.0 million, respectively, to each
reporting unit. The annual impairment test is conducted by
comparing the Companys carrying amount, to the fair value
of the Company using a market capitalization approach. Market
capitalization of the entity is compared to the carrying value
of the entity since virtually all of the goodwill is allocated
to, and nearly all of the market capitalization is attributable
to, the Equipment leasing reporting unit. If the carrying value
of the entity exceeds its market capitalization, then a second
step would be performed that compares the implied fair value of
goodwill with the carrying amount of goodwill. The determination
of implied fair value of goodwill would require management to
compare the estimated fair value of the reporting units to the
estimated fair value of the assets and liabilities of the
reporting units. Any excess fair value represents the implied
fair value of goodwill. To the extent that the carrying amount
of the goodwill exceeds its implied fair value, an impairment
loss would be recorded. Our annual review of goodwill, conducted
in the fourth quarter of 2008, indicated that no impairment of
goodwill existed.
Recently
Issued Accounting Pronouncements
In March 2008, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting
Standards No. 161 (SFAS 161),
Disclosures about Derivative Instruments and Hedging
Activities, an amendment of FASB Statement No. 133.
SFAS 161 requires qualitative disclosures about
objectives and strategies for using derivatives, quantitative
disclosures about fair value amounts of and gains and losses on
derivative instruments, and disclosures about
credit-risk-related contingent features in derivative
agreements. SFAS 161 is effective beginning in the first
quarter of 2009. We adopted SFAS 161 on January 1,
2009. SFAS 161 did not impact the consolidated financial
results as it is disclosure-only in nature.
In December 2007, the FASB issued Statement of Financial
Accounting Standards No. 141 (revised 2007)
(SFAS 141R), Business Combinations and
Statement of Financial Accounting Standards No. 160
(SFAS 160), Noncontrolling Interests in
Consolidated Financial Statements, an amendment of Accounting
Research Bulletin No. 51. SFAS 141R changes
how business acquisitions are accounted for and impacts
financial statements both on the acquisition date and in
subsequent periods. SFAS 160 changes the accounting and
reporting for minority interests, which is recharacterized as
noncontrolling interests and classified as a component of
equity. SFAS 141R and SFAS 160 are effective beginning
in the first quarter of 2009. Implementation of SFAS 141R
is prospective. We adopted SFAS 141R and SFAS 160 on
January 1, 2009 and there was no impact on our consolidated
results of operations and financial position.
|
|
ITEM 3:
|
Quantitative
and Qualitative Disclosures About Market Risk
|
Market risk represents the risk of changes in value of a
financial instrument, derivative or non-derivative, caused by
fluctuations in interest rates, foreign exchange rates and
equity prices. Changes in these factors could cause fluctuations
in results of our operations and cash flows. In the ordinary
course of business, we are exposed to interest rate and foreign
currency exchange rate risks.
Interest
Rate Risk
We enter into interest rate swap contracts to fix the interest
rates on a portion of our debt. We assess and manage the
external and internal risk associated with these derivative
instruments in accordance
33
with the overall operating goals. External risk is defined as
those risks outside of our direct control, including
counterparty credit risk, liquidity risk, systemic risk and
legal risk. Internal risk relates to those operational risks
within the management oversight structure and includes actions
taken in contravention of our policy.
The primary external risk of our interest rate swap contracts is
counterparty credit exposure, which is defined as the ability of
a counterparty to perform its financial obligations under a
derivative contract. All derivative agreements are with major
money center financial institutions rated investment grade by
nationally recognized rating agencies, with our counterparties
rated A or better. Credit exposures are measured
based on the market value of outstanding derivative instruments.
Both current exposures and potential exposures are calculated
for each derivative contract to monitor counterparty credit
exposure.
As of March 31, 2009, we had in place total interest rate
swap contracts to fix the floating interest rates on a portion
of the borrowings under our debt facilities as summarized below:
|
|
|
|
|
|
|
Weighted Average Fixed
|
|
|
Total Notional Amount at
|
|
Leg Interest Rate at
|
|
Weighted Average
|
March 31, 2009
|
|
March 31, 2009
|
|
Remaining Term
|
|
$1,223 million
|
|
4.19%
|
|
3.4 years
|
Changes in the fair value on these interest rate swap contracts
will be recognized in the consolidated statements of operations
as unrealized gains or losses on interest rate swaps.
Since approximately 93% of our debt is hedged using interest
rate swaps, our interest expense is not significantly affected
by changes in interest rates. However, our earnings are impacted
by changes in interest rate swap valuations which cause gains or
losses to be recorded. During the quarter ended March 31,
2009, unrealized gains on interest rate swaps totaled
$5.1 million, compared to unrealized losses on interest
rate swaps of $31.7 million for the quarter ended
March 31, 2008.
Foreign
Currency Exchange Rate Risk
Although we have significant foreign-based operations, the
U.S. dollar is the operating currency for the large
majority of our leases (and company obligations), and most of
our revenues and expenses in 2009 and 2008 were denominated in
U.S. dollars. However we pay our
non-U.S. staff
in local currencies, and our direct operating expenses and
disposal transactions for our older containers are often
structured in foreign currencies. We recorded $0.3 million
of unrealized foreign currency exchange losses in the quarter
ended March 31, 2009 and $1.2 million of unrealized
foreign currency exchange gains in the quarter ended
March 31, 2008, which resulted primarily from fluctuations
in exchange rates related to our Euro and Pound Sterling
transactions and related assets.
In April 2008, we entered into a foreign currency rate swap
agreement to exchange Euros for U.S. Dollars based on
expected payments under its Euro denominated finance lease
receivables. The foreign currency rate swap agreement expires in
April 2015. The fair value of this derivative contract was
approximately $1.2 million at March 31, 2009, and is
reported as an asset in Fair Value of Derivative Instruments on
the consolidated balance sheet.
|
|
ITEM 4.
|
CONTROLS
AND PROCEDURES.
|
Based upon the required evaluation of our disclosure controls
and procedures, our President and Chief Executive Officer and
our Vice President and Chief Financial Officer concluded that as
of March 31, 2009 our disclosure controls and procedures
were adequate and effective to ensure that information was
gathered, analyzed and disclosed on a timely basis.
There has been no change in our internal control over financial
reporting (as defined in
Rules 13a-15(f)
and
15d-15(f)
under the Exchange Act) that occurred during our fiscal quarter
ended March 31, 2009, that has materially affected, or is
reasonably likely to materially affect, our internal control
over financial reporting.
34
PART II
OTHER INFORMATION
|
|
ITEM 1.
|
LEGAL
PROCEEDINGS.
|
From time to time, we are a party to litigation matters arising
in connection with the normal course of our business. While we
cannot predict the outcome of these matters, in the opinion of
our management, based on information presently available to us,
we believe that we have adequate legal defenses, reserves or
insurance coverage and any liability arising from these matters
will not have a material adverse effect on our business.
Nevertheless, unexpected adverse future events, such as an
unforeseen development in our existing proceedings, a
significant increase in the number of new cases or changes in
our current insurance arrangements could result in liabilities
that have a material adverse impact on our business.
For a complete listing of our risk factors, refer to our 2008
Form 10-K
filed with the Securities and Exchange Commission on
March 3, 2009.
|
|
ITEM 2.
|
UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
|
On March 13, 2006, our Board of Directors authorized a
stock repurchase program for the repurchase of up to
1.5 million shares of our common stock. On
September 5, 2007, our Board of Directors authorized a
1.0 million increase to the Companys stock repurchase
program that began in March 2006. The stock repurchase program,
as amended, authorizes the Company to repurchase up to
2.5 million shares of its common stock. The Companys
share purchase activity during the quarter ended March 31,
2009 is summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
|
Maximum Number
|
|
|
|
|
|
|
|
|
|
Shares Purchased
|
|
|
of Shares that May
|
|
|
|
|
|
|
|
|
|
as Part of Publicly
|
|
|
Yet Be Purchased
|
|
|
|
Total Number of
|
|
|
Average Price Paid
|
|
|
Announced Plans
|
|
|
Under the Plans
|
|
Period
|
|
Shares Purchased
|
|
|
per Share
|
|
|
or Programs
|
|
|
or Programs
|
|
|
January 1 31, 2009
|
|
|
138,360
|
|
|
$
|
11.17
|
|
|
|
138,360
|
|
|
|
1,306,161
|
|
February 1 28, 2009
|
|
|
256,400
|
|
|
$
|
8.65
|
|
|
|
256,400
|
|
|
|
1,049,761
|
|
March 1 31, 2009
|
|
|
627,158
|
|
|
$
|
7.04
|
|
|
|
627,158
|
|
|
|
422,603
|
|
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit Description
|
|
|
31
|
.1*
|
|
Certification of the Chief Executive Officer pursuant to Rules
13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934,
as amended
|
|
31
|
.2*
|
|
Certification of the Chief Financial Officer pursuant to Rules
13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934,
as amended
|
|
32
|
.1*
|
|
Certification by Chief Executive Officer pursuant to
18 U.S.C. Section 1350
|
|
32
|
.2*
|
|
Certification by Chief Financial Officer pursuant to
18 U.S.C. Section 1350
|
35
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.
TAL International Group, Inc.
May 8, 2009
Chand Khan
Senior Vice President and
Chief Financial Officer
(Principal Accounting Officer)
36