e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For The Quarterly Period Ended June 30, 2009
or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Transition Period from to
Commission file number- 001-32638
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)
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20-1796526
(I.R.S. Employer
Identification Number) |
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100 Manhattanville Road,
Purchase, New York
(Address of principal executive office)
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10577-2135
(Zip Code) |
(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 þ 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 definitions of large accelerated filer,
accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer o |
Accelerated Filer þ |
Non-Accelerated Filer o (Do not check if a smaller reporting company) |
Smaller Reporting Company o |
Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the
Exchange Act). YES o NO þ
As of
July 31, 2009, there were 30,947,749 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
ITEM 1. FINANCIAL STATEMENTS
The consolidated financial statements of TAL International Group, Inc. (''TAL or the ''Company)
as of June 30, 2009 (unaudited) and December 31, 2008 and for the three and six months ended June
30, 2009 (unaudited) and June 30, 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.
3
TAL INTERNATIONAL GROUP, INC.
Consolidated Balance Sheets
(Dollars in thousands, except share data)
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June 30, |
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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
$383,581 and $352,089 |
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$ |
1,443,000 |
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$ |
1,535,483 |
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Net investment in finance leases, net of allowances of $1,609 and $1,420 |
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210,817 |
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196,490 |
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Equipment held for sale |
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45,174 |
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32,549 |
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Revenue earning assets |
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1,698,991 |
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1,764,522 |
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Cash and cash equivalents (including restricted cash of $14,655 and
$16,160) |
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56,906 |
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56,958 |
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Accounts receivable, net of allowances of $762 and $807 |
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31,843 |
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42,335 |
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Leasehold improvements and other fixed assets, net of accumulated
depreciation and amortization of $4,734 and $4,181 |
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1,332 |
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1,832 |
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Goodwill |
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71,898 |
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71,898 |
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Deferred financing costs |
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7,664 |
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8,462 |
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Other assets |
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6,537 |
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8,540 |
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Fair value of derivative instruments |
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661 |
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951 |
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Total assets |
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$ |
1,875,832 |
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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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$ |
2,394 |
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$ |
27,224 |
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Fair value of derivative instruments |
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64,769 |
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95,224 |
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Accounts payable and other accrued expenses |
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42,918 |
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43,978 |
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Deferred income tax liability |
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102,466 |
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73,565 |
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Debt |
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1,257,235 |
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1,351,036 |
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Total liabilities |
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1,469,782 |
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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, $.001 par value, 100,000,000 shares authorized,
33,593,816 and 33,485,816 shares issued respectively |
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33 |
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33 |
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Treasury stock, at cost, 2,433,312 and 1,055,479 shares, respectively |
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(31,417 |
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(20,126 |
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Additional paid-in capital |
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397,317 |
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396,478 |
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Accumulated earnings (deficit) |
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39,669 |
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(12,090 |
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Accumulated other comprehensive income |
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448 |
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176 |
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Total stockholders equity |
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406,050 |
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364,471 |
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Total liabilities and stockholders equity |
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$ |
1,875,832 |
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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.
4
TAL INTERNATIONAL GROUP, INC.
Consolidated Statements of Operations
(Dollars and shares in thousands, except earnings per share)
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Three Months Ended |
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Six Months Ended |
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June 30, |
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June 30, |
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2009 |
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2008 |
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2009 |
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2008 |
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(Unaudited) |
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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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$ |
73,977 |
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$ |
72,802 |
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$ |
152,024 |
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$ |
145,234 |
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Finance leases |
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5,373 |
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5,092 |
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10,428 |
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10,048 |
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Total leasing revenues |
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79,350 |
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77,894 |
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162,452 |
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155,282 |
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Equipment trading revenue |
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9,747 |
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24,050 |
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25,835 |
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46,704 |
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Management fee income |
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669 |
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782 |
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1,338 |
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1,507 |
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Other revenues |
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293 |
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432 |
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589 |
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763 |
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Total revenues |
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90,059 |
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103,158 |
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190,214 |
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204,256 |
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Expenses: |
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Equipment trading expenses |
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9,582 |
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20,249 |
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24,357 |
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41,312 |
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Direct operating expenses |
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9,641 |
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7,331 |
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19,466 |
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14,408 |
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Administrative expenses |
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9,763 |
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11,845 |
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21,385 |
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21,632 |
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Depreciation and amortization |
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29,354 |
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27,345 |
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58,463 |
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54,173 |
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Provision for doubtful accounts |
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77 |
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155 |
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398 |
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202 |
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Net (gain) on sale of leasing equipment |
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(2,448 |
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(6,196 |
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(6,044 |
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(10,496 |
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Interest and debt expense |
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17,120 |
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15,801 |
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34,481 |
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30,530 |
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(Gain) on debt extinguishment |
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(14,130 |
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(14,130 |
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Unrealized (gain) on interest rate swaps |
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(24,455 |
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(35,843 |
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(29,518 |
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(4,098 |
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Total expenses |
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34,504 |
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40,687 |
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108,858 |
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147,663 |
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Income before income taxes |
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55,555 |
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62,471 |
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81,356 |
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56,593 |
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Income tax expense |
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19,778 |
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22,153 |
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28,963 |
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20,068 |
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Net income |
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$ |
35,777 |
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$ |
40,318 |
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$ |
52,393 |
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$ |
36,525 |
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Net income per common share Basic |
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$ |
1.15 |
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$ |
1.24 |
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$ |
1.66 |
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$ |
1.12 |
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Net income per common share Diluted |
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$ |
1.15 |
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$ |
1.23 |
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$ |
1.66 |
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$ |
1.11 |
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Weighted average number of common shares outstanding Basic |
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31,102 |
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32,579 |
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31,534 |
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32,608 |
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Weighted average number of common shares outstanding Diluted |
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31,132 |
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32,773 |
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31,555 |
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32,771 |
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Cash dividends paid per common share |
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$ |
0.01 |
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$ |
0.7875 |
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$ |
0.02 |
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$ |
0.7875 |
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The accompanying notes to the unaudited consolidated financial statements are an integral part of these statements.
5
TAL INTERNATIONAL GROUP, INC.
Consolidated Statements of Cash Flows
(Dollars in thousands)
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Six months ended |
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June 30, |
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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 |
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$ |
52,393 |
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$ |
36,525 |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
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58,463 |
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54,173 |
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Amortization of deferred financing costs |
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568 |
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|
479 |
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Net (gain) on sale of leasing equipment |
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(6,044 |
) |
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(10,496 |
) |
Unrealized (gain) on interest rate swaps |
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(29,518 |
) |
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(4,098 |
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(Gain) on debt extinguishment |
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(14,130 |
) |
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Deferred income taxes |
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29,167 |
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19,851 |
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Stock compensation charge |
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840 |
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|
609 |
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Equipment purchased for resale |
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3,993 |
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(4,978 |
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Changes in operating assets and liabilities |
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2,718 |
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(2,194 |
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Net cash provided by operating activities |
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98,450 |
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89,871 |
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Cash flows from investing activities: |
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Purchases of leasing equipment |
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(27,184 |
) |
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(146,100 |
) |
Investments in finance leases |
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(26,713 |
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(28,237 |
) |
Proceeds from sale of equipment leasing fleet, net of selling costs |
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33,063 |
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38,469 |
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Cash collections on finance lease receivables, net of income earned |
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15,156 |
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12,832 |
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Other |
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(32 |
) |
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(86 |
) |
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Net cash used in investing activities |
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(5,710 |
) |
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(123,122 |
) |
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Cash flows from financing activities: |
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Dividends paid |
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(631 |
) |
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(25,656 |
) |
Purchase of treasury stock |
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(11,291 |
) |
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|
(7,955 |
) |
Borrowings under debt facilities |
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|
190,957 |
|
Payments under debt facilities |
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(62,247 |
) |
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|
(119,342 |
) |
Payment to extinguish debt |
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|
(20,650 |
) |
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|
Proceeds received from capital leases |
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|
10,000 |
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Payments under capital lease obligations |
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(6,483 |
) |
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(3,322 |
) |
Other |
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(1,490 |
) |
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(2,022 |
) |
Decrease (increase) in restricted cash |
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|
1,505 |
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(140 |
) |
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Net cash (used in) provided by financing activities |
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|
(91,287 |
) |
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|
32,520 |
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Net increase (decrease) in cash and cash equivalents |
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|
1,453 |
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|
(731 |
) |
Unrestricted cash and cash equivalents, beginning of period |
|
|
40,798 |
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|
52,636 |
|
|
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Unrestricted cash and cash equivalents, end of period |
|
$ |
42,251 |
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|
$ |
51,905 |
|
|
|
|
|
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Supplemental non-cash investing activities: |
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Accrued and unpaid purchases of equipment |
|
$ |
2,394 |
|
|
$ |
80,662 |
|
Purchases of leasing equipment financed through capital lease obligations |
|
$ |
|
|
|
$ |
9,375 |
|
The accompanying notes to the unaudited consolidated financial statements are an integral part of these statements.
6
TAL INTERNATIONAL GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 Description of the Business, Basis of Presentation, Recently Issued Accounting
Pronouncements
A. Description of the Business
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.
B. Basis of Presentation
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.
C. Recently Issued Accounting Pronouncements
In June 2009, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards No. 166 (SFAS 166), Accounting for Transfers of Financial Assets and
Statement of Financial Accounting Standards No. 167 (SFAS 167), Amendments to FASB Interpretation
No. 46(R).SFAS 166 is a revision to FASB Statement No. 140, Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities, and will require more information about
transfers of financial assets, including securitization transactions. It eliminates the concept of
a qualifying special-purpose entity, changes the requirements for derecognizing financial assets,
and requires additional disclosures. SFAS 167 is a revision to FASB Interpretation No. 46 (Revised
December 2003), Consolidation of Variable Interest Entities, and changes how a reporting entity
determines when an entity that is insufficiently capitalized or is not controlled through voting
(or similar rights) should be consolidated. The determination of whether a reporting entity is
required to consolidate another entity is based on, among other things, the other entitys purpose
and design and the reporting entitys ability to direct the activities of the other entity that
most significantly impact the other entitys economic performance.
SFAS 166 and SFAS 167 will be effective January 1, 2010, for a calendar year-end entity. Early
application is not permitted. The Company is currently evaluating the potential impact of SFAS 166
and SFAS 167 on its consolidated results of operations and financial position, and believes the
impact will be minimal.
7
In May 2009, the FASB issued Statement of Financial Accounting Standards No. 165 (SFAS 165),
Subsequent Events. SFAS 165 establishes general standards of accounting for and disclosure of
events that occur after the balance sheet date but before financial statements are issued or are
available to be issued.
SFAS 165 specifically provides the period after the balance sheet date during which management of a
reporting entity should evaluate events or transactions that may occur for potential recognition
or disclosure in the financial statements; the circumstances under which an entity should recognize
events or transactions occurring after the balance sheet date in its financial statements; and the
disclosures that an entity should make about events or transactions that occurred after the balance
sheet date.
SFAS 165 is effective for interim or annual financial periods ending after June 15, 2009, and shall
be applied prospectively. The Company adopted SFAS 165 on June 30, 2009. SFAS 165 did not impact
the consolidated financial results as it is disclosure-only in nature. Refer to Note 12 for
disclosure information.
In March 2008, the 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 was 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. Refer to Note 6 for disclosure information.
Note 2 Fair Value of Financial Instruments
The Company believes the carrying amounts of cash and cash equivalents, accounts receivable and
other assets approximated fair value at June 30, 2009.
The interest on the Companys various credit facilities is based on variable interest rates. The
Company estimates that at June 30, 2009 the carrying value of the Companys debt instruments was
approximately $105.8 million higher than its fair value. The Company estimated the fair value of
its debt instruments based on the net present value of its future debt payments, using a discount
rate which reflected the Companys estimate of current market interest spreads at that time.
Note 3 Treasury Stock and Dividends
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.
Treasury Stock
The Company repurchased the following amounts of its outstanding common stock in the open market
during the six months ended June 30, 2009 and June 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
$ in Millions |
Quarter ended March 31, 2009 |
|
|
1,021,918 |
|
|
$ |
8.2 |
|
Quarter ended June 30, 2009 |
|
|
355,915 |
|
|
|
3.1 |
|
|
|
|
Total |
|
|
1,377,833 |
|
|
$ |
11.3 |
|
|
|
|
|
Quarter ended March 31 2008 |
|
|
362,100 |
|
|
$ |
8.0 |
|
Quarter ended June 30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
362,100 |
|
|
$ |
8.0 |
|
|
|
|
8
Dividends
The Company paid the following quarterly dividends during the six months ended June 30, 2009 and
2008 on its issued and outstanding common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
Record Date |
|
Payment Date |
|
Aggregate Payment |
|
Per Share Payment |
June 2, 2009 |
|
June 23, 2009 |
|
$0.3 million |
|
$ |
0.01 |
|
March 12, 2009 |
|
March 26, 2009 |
|
$0.3 million |
|
$ |
0.01 |
|
May 22, 2008 |
|
June 12, 2008 |
|
$13.4 million |
|
$ |
0.4125 |
|
March 20, 2008 |
|
April 10, 2008 |
|
$12.2 million |
|
$ |
0.375 |
|
Note 4 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).
The following compensation costs were reported in administrative expenses in the Companys
statements of operations related to the Companys stock-based compensation plans as a result of
stock options granted in 2006 and restricted shares granted during the years 2007 and 2009 (dollars
in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
Stock options |
|
$ |
109 |
|
|
$ |
5 |
|
|
$ |
114 |
|
|
$ |
11 |
|
Restricted stock |
|
|
444 |
|
|
|
324 |
|
|
|
726 |
|
|
|
598 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
553 |
|
|
$ |
329 |
|
|
$ |
840 |
|
|
$ |
609 |
|
|
|
|
|
|
|
|
|
|
Total unrecognized compensation cost related to 21,000 options granted during the year ended
December 31, 2006 (of which 3,000 options were cancelled in 2007) of approximately $22,000 as of
June 30, 2009 will be recognized over the remaining vesting period of approximately one year.
Total unrecognized compensation cost of approximately $1.9 million as of June 30, 2009 related to
219,000 restricted shares granted during 2007 and 2009 will be recognized over the remaining
weighted average vesting period of approximately 1.7 years.
Note 5 Debt
Debt consisted of the following (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
Asset backed securitization (ABS)
|
|
|
|
|
|
|
|
|
Term notes Series 2006-1 |
|
$ |
386,083 |
|
|
$ |
451,000 |
|
Term notes Series 2005-1 |
|
|
365,972 |
|
|
|
389,583 |
|
Asset backed credit facility |
|
|
225,000 |
|
|
|
225,000 |
|
Revolving credit facility |
|
|
100,000 |
|
|
|
100,000 |
|
Finance lease facility |
|
|
42,869 |
|
|
|
47,406 |
|
2007 Term loan facility |
|
|
30,458 |
|
|
|
33,658 |
|
Port equipment facility |
|
|
11,372 |
|
|
|
12,326 |
|
Capital lease obligations |
|
|
95,481 |
|
|
|
92,063 |
|
|
|
|
|
|
|
|
Total |
|
$ |
1,257,235 |
|
|
$ |
1,351,036 |
|
|
|
|
|
|
|
|
9
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.
Note 6 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 June 30, 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 |
June 30, 2009 |
|
Interest Rate at June 30, 2009 |
|
Remaining Term |
$1,198 million |
|
|
4.20 |
% |
|
3.8 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 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 interest rate swaps using the interest method over the remaining life of the
contracts. As of June 30, 2009, the unamortized pre-tax balance of the change in fair value
reflected in accumulated other comprehensive income was approximately $1.6 million. The amount of
other comprehensive income which will be amortized to income over the next 12 months is
approximately $0.8 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
10
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 6.5
million Euros
and receive approximately $10.0 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.
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 |
|
|
|
Liability Derivatives |
|
|
|
June 30, 2009 |
|
|
|
December 31, 2008 |
|
|
|
June 30, 2009 |
|
|
|
December 31, 2008 |
|
Derivative |
|
Balance Sheet |
|
|
|
|
|
|
|
Balance |
|
|
|
|
|
|
|
Balance Sheet |
|
|
|
|
|
|
|
Balance Sheet |
|
|
|
|
Instrument |
|
Location |
|
|
Fair Value |
|
|
|
Sheet Location |
|
|
Fair Value |
|
|
|
Location |
|
|
Fair Value |
|
|
|
Location |
|
|
Fair Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate |
|
Fair value of |
|
|
|
|
|
|
Fair value of |
|
|
|
|
|
|
Fair value of |
|
|
|
|
|
|
Fair value of |
|
|
|
|
contracts |
|
derivative |
|
|
|
|
|
|
derivative |
|
|
|
|
|
|
derivative |
|
|
|
|
|
|
derivative |
|
|
|
|
|
|
instruments |
|
$ |
|
|
|
|
instruments |
|
$ |
|
|
|
|
instruments |
|
$ |
64.8 |
|
|
|
instruments |
|
$ |
95.2 |
|
Foreign exchange |
|
Fair value of |
|
|
|
|
|
|
Fair value of |
|
|
|
|
|
|
Fair value of |
|
|
|
|
|
|
Fair value of |
|
|
|
|
contracts |
|
derivative |
|
|
|
|
|
|
derivative |
|
|
|
|
|
|
derivative |
|
|
|
|
|
|
derivative |
|
|
|
|
|
|
instruments |
|
$ |
0.7 |
|
|
|
instruments |
|
$ |
1.0 |
|
|
|
instruments |
|
$ |
|
|
|
|
instruments |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Derivatives |
|
|
|
|
|
$ |
0.7 |
|
|
|
|
|
|
|
$ |
1.0 |
|
|
|
|
|
|
|
$ |
64.8 |
|
|
|
|
|
|
|
$ |
95.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
Derivatives Not Designated as Hedging Instruments Under SFAS No. 133
Effect of Derivative Instruments on Statement of Operations
$ in Millions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of |
|
|
|
|
|
|
(Gain)/Loss |
|
|
|
|
|
|
Recognized in |
|
|
Amount
of (Gain)/Loss Recognized in Income on Derivatives |
|
Derivative |
|
Income on |
|
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|
Instrument |
|
Derivatives |
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Interest
rate contracts |
|
Unrealized (gain) of interest rate swaps |
|
$ |
(24.5 |
) |
|
$ |
(35.8 |
) |
|
$ |
(29.5 |
) |
|
$ |
(4.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
exchange contracts |
|
Administrative Expense |
|
$ |
0.5 |
|
|
$ |
0.1 |
|
|
$ |
0.3 |
|
|
$ |
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
(24.0 |
) |
|
$ |
(35.7 |
) |
|
$ |
(29.2 |
) |
|
$ |
(4.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 7 Earnings Per Share
The following table sets forth the calculation of basic and diluted earnings per share for the
three and six months ended June 30, 2009 and 2008 (in thousands, except earnings per share):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income applicable
to common
stockholders for
basic and diluted
earnings per share |
|
$ |
35,777 |
|
|
$ |
40,318 |
|
|
$ |
52,393 |
|
|
$ |
36,525 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
shares outstanding
for basic earnings
per share |
|
|
31,102 |
|
|
|
32,579 |
|
|
|
31,534 |
|
|
|
32,608 |
|
Dilutive stock options |
|
|
30 |
|
|
|
194 |
|
|
|
21 |
|
|
|
163 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
shares for diluted
earnings per share |
|
|
31,132 |
|
|
|
32,773 |
|
|
|
31,555 |
|
|
|
32,771 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
1.15 |
|
|
$ |
1.24 |
|
|
$ |
1.66 |
|
|
$ |
1.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
1.15 |
|
|
$ |
1.23 |
|
|
$ |
1.66 |
|
|
$ |
1.11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the quarter and six months ended June 30, 2009, 66,000 shares of restricted stock and
598,691 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. For the
quarter and six months ended June 30, 2008, 6,500 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.
12
Note 8 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. |
The following tables present certain segment information and the consolidated totals reported
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Three Months Ended |
|
|
June 30, 2009 |
|
June 30, 2008 |
|
|
Equipment |
|
Equipment |
|
|
|
|
|
Equipment |
|
Equipment |
|
|
|
|
Leasing |
|
Trading |
|
Totals |
|
Leasing |
|
Trading |
|
Totals |
Total revenues |
|
$ |
80,115 |
|
|
$ |
9,944 |
|
|
$ |
90,059 |
|
|
$ |
78,942 |
|
|
$ |
24,216 |
|
|
$ |
103,158 |
|
Equipment trading expenses |
|
|
|
|
|
|
9,582 |
|
|
|
9,582 |
|
|
|
|
|
|
|
20,249 |
|
|
|
20,249 |
|
Depreciation and amortization |
|
|
29,310 |
|
|
|
44 |
|
|
|
29,354 |
|
|
|
27,341 |
|
|
|
4 |
|
|
|
27,345 |
|
Net (gain) on sale of
leasing equipment |
|
|
(2,448 |
) |
|
|
|
|
|
|
(2,448 |
) |
|
|
(6,196 |
) |
|
|
|
|
|
|
(6,196 |
) |
Interest and debt expense |
|
|
16,918 |
|
|
|
202 |
|
|
|
17,120 |
|
|
|
15,409 |
|
|
|
392 |
|
|
|
15,801 |
|
Pre-tax income (loss) (1) |
|
|
17,068 |
|
|
|
(98 |
) |
|
|
16,970 |
|
|
|
23,585 |
|
|
|
3,043 |
|
|
|
26,628 |
|
|
|
|
(1) |
|
Segment income before taxes excludes unrealized (gains) on interest rate swaps of
$(24,455) for the three months ended June 30, 2009 and $(35,843) for the three months ended
June 30, 2008, and excludes (gain) on debt extinguishment of $(14,130) for the three months
ended June 30, 2009. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, 2009 |
|
|
June 30, 2008 |
|
|
|
Equipment |
|
|
Equipment |
|
|
|
|
|
|
Equipment |
|
|
Equipment |
|
|
|
|
|
|
Leasing |
|
|
Trading |
|
|
Totals |
|
|
Leasing |
|
|
Trading |
|
|
Totals |
|
Total revenues |
|
$ |
164,056 |
|
|
$ |
26,158 |
|
|
$ |
190,214 |
|
|
$ |
157,297 |
|
|
$ |
46,959 |
|
|
$ |
204,256 |
|
Equipment trading expenses |
|
|
|
|
|
|
24,357 |
|
|
|
24,357 |
|
|
|
|
|
|
|
41,312 |
|
|
|
41,312 |
|
Depreciation and amortization |
|
|
58,385 |
|
|
|
78 |
|
|
|
58,463 |
|
|
|
54,164 |
|
|
|
9 |
|
|
|
54,173 |
|
Net (gain) on sale of
leasing equipment |
|
|
(6,044 |
) |
|
|
|
|
|
|
(6,044 |
) |
|
|
(10,496 |
) |
|
|
|
|
|
|
(10,496 |
) |
Interest and debt expense |
|
|
34,098 |
|
|
|
383 |
|
|
|
34,481 |
|
|
|
29,889 |
|
|
|
641 |
|
|
|
30,530 |
|
Pre-tax income (2) |
|
|
37,179 |
|
|
|
529 |
|
|
|
37,708 |
|
|
|
48,453 |
|
|
|
4,042 |
|
|
|
52,495 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill at June 30 |
|
|
70,898 |
|
|
|
1,000 |
|
|
|
71,898 |
|
|
|
70,898 |
|
|
|
1,000 |
|
|
|
71,898 |
|
Total assets at June 30 |
|
|
1,860,878 |
|
|
|
14,954 |
|
|
|
1,875,832 |
|
|
|
1,836,976 |
|
|
|
29,055 |
|
|
|
1,866,031 |
|
Purchases of leasing
equipment(3) |
|
|
27,184 |
|
|
|
|
|
|
|
27,184 |
|
|
|
146,100 |
|
|
|
|
|
|
|
146,100 |
|
Investments in finance
leases(3) |
|
|
26,713 |
|
|
|
|
|
|
|
26,713 |
|
|
|
28,237 |
|
|
|
|
|
|
|
28,237 |
|
13
|
|
|
(2) |
|
Segment income before taxes excludes unrealized (gains) on interest rate swaps of
$(29,518) for the six months ended June 30, 2009 and $(4,098) for the six months
ended June 30, 2008, and excludes (gain) on debt extinguishment of $(14,130) for the six
months ended June 30, 2009. |
|
(3) |
|
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 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 |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Total revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic |
|
$ |
8,006 |
|
|
$ |
12,715 |
|
|
$ |
18,998 |
|
|
$ |
22,495 |
|
Asia |
|
|
37,480 |
|
|
|
46,029 |
|
|
|
75,957 |
|
|
|
94,266 |
|
Europe |
|
|
37,911 |
|
|
|
35,385 |
|
|
|
81,152 |
|
|
|
69,935 |
|
Other International |
|
|
6,662 |
|
|
|
9,029 |
|
|
|
14,107 |
|
|
|
17,560 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
90,059 |
|
|
$ |
103,158 |
|
|
$ |
190,214 |
|
|
$ |
204,256 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 9 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 June 30, 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 were based on significant other observable inputs other than quoted prices, either on a
direct or indirect basis.
Purchase Commitments
At June 30, 2009, commitments for capital expenditures totaled approximately $0.1 million.
14
Note 10 Income Taxes
The consolidated income tax expense for the three and six month periods ended June 30, 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.
Note 11 Comprehensive Income and Other
The following table provides a reconciliation of the Companys net income to comprehensive income
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Net income |
|
$ |
35,777 |
|
|
$ |
40,318 |
|
|
$ |
52,393 |
|
|
$ |
36,525 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
|
659 |
|
|
|
30 |
|
|
|
560 |
|
|
|
84 |
|
Amortization of net unrealized gains on
derivative instruments previously designated
as cash flow hedges (net of tax expense of
$(81), $(114), $(161) and $(241), respectively) |
|
|
(145 |
) |
|
|
(208 |
) |
|
|
(289 |
) |
|
|
(437 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
$ |
36,291 |
|
|
$ |
40,140 |
|
|
$ |
52,664 |
|
|
$ |
36,172 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The balance included in comprehensive income for cumulative translation adjustments as of June 30,
2009 and December 31, 2008 was $(601) and $(1,161), respectively.
The Company recorded $0.5 million of unrealized foreign currency exchange gains and $0.4 million of
unrealized foreign currency exchange losses which are reported in administrative expenses in the
Companys statements of operations in the quarters ended June 30, 2009 and June 30, 2008,
respectively. The Company recorded $0.2 million of unrealized foreign currency exchange gains and
$0.8 million of unrealized foreign currency exchange gains which are reported in administrative
expenses in the Companys statements of operations in the six months ended June 30, 2009 and June
30, 2008, respectively, These gains / losses resulted primarily from fluctuations in exchange rates
related to its Euro and Pound Sterling transactions and related assets.
Note 12 Subsequent Events
The
Company has evaluated all subsequent events as of August 7, 2009, the date the financial
statements were issued. The following subsequent event has taken place:
Quarterly Dividend
On July 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 September 24, 2009 to
shareholders of record at the close of business on September 3, 2009.
15
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 resell these containers to container traders and users of
containers for storage or one-way shipment. |
Operations
Our operations include the acquisition, leasing, re-leasing and subsequent sale of multiple types
of intermodal containers and chassis. As of June 30, 2009, our total fleet consisted of 726,736
containers and chassis, including 32,493 containers under management for third parties,
representing 1,178,826 twenty-foot equivalent units (TEUs). We have an extensive
global presence, offering leasing services through 19 offices in 11 countries and 198 third party
container depot facilities in 37 countries as of June 30, 2009. Our customers are among the largest
shipping lines in the world. For the six months ended June 30, 2009, our twenty largest customers
accounted for 77% of our leasing revenues, our five largest customers accounted for 52% 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.
The following tables provide the composition of our equipment fleet as of the dates indicated below
(in both units and TEUs):
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment Fleet in Units |
|
|
June 30, 2009 |
|
December 31, 2008 |
|
June 30, 2008 |
|
|
Owned |
|
Managed |
|
Total |
|
Owned |
|
Managed |
|
Total |
|
Owned |
|
Managed |
|
Total |
Dry |
|
|
588,718 |
|
|
|
29,212 |
|
|
|
617,930 |
|
|
|
610,759 |
|
|
|
30,079 |
|
|
|
640,838 |
|
|
|
567,884 |
|
|
|
24,834 |
|
|
|
592,718 |
|
Refrigerated |
|
|
37,526 |
|
|
|
525 |
|
|
|
38,051 |
|
|
|
37,119 |
|
|
|
621 |
|
|
|
37,740 |
|
|
|
37,804 |
|
|
|
722 |
|
|
|
38,526 |
|
Special |
|
|
46,757 |
|
|
|
2,756 |
|
|
|
49,513 |
|
|
|
48,054 |
|
|
|
2,839 |
|
|
|
50,893 |
|
|
|
45,345 |
|
|
|
2,864 |
|
|
|
48,209 |
|
Tank |
|
|
1,350 |
|
|
|
|
|
|
|
1,350 |
|
|
|
1,319 |
|
|
|
|
|
|
|
1,319 |
|
|
|
799 |
|
|
|
|
|
|
|
799 |
|
Chassis |
|
|
8,787 |
|
|
|
|
|
|
|
8,787 |
|
|
|
8,796 |
|
|
|
|
|
|
|
8,796 |
|
|
|
8,852 |
|
|
|
|
|
|
|
8,852 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment
leasing fleet |
|
|
683,138 |
|
|
|
32,493 |
|
|
|
715,631 |
|
|
|
706,047 |
|
|
|
33,539 |
|
|
|
739,586 |
|
|
|
660,684 |
|
|
|
28,420 |
|
|
|
689,104 |
|
Equipment trading
fleet |
|
|
11,105 |
|
|
|
|
|
|
|
11,105 |
|
|
|
16,735 |
|
|
|
|
|
|
|
16,735 |
|
|
|
22,115 |
|
|
|
|
|
|
|
22,115 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
694,243 |
|
|
|
32,493 |
|
|
|
726,736 |
|
|
|
722,782 |
|
|
|
33,539 |
|
|
|
756,321 |
|
|
|
682,799 |
|
|
|
28,420 |
|
|
|
711,219 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage |
|
|
95.5 |
% |
|
|
4.5 |
% |
|
|
100.0 |
% |
|
|
95.6 |
% |
|
|
4.4 |
% |
|
|
100.0 |
% |
|
|
96.0 |
% |
|
|
4.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment Fleet in TEUs |
|
|
June 30, 2009 |
|
December 31, 2008 |
|
June 30, 2008 |
|
|
Owned |
|
Managed |
|
Total |
|
Owned |
|
Managed |
|
Total |
|
Owned |
|
Managed |
|
Total |
Dry |
|
|
936,082 |
|
|
|
52,298 |
|
|
|
988,380 |
|
|
|
968,772 |
|
|
|
53,692 |
|
|
|
1,022,464 |
|
|
|
917,347 |
|
|
|
43,527 |
|
|
|
960,874 |
|
Refrigerated |
|
|
69,158 |
|
|
|
863 |
|
|
|
70,021 |
|
|
|
68,270 |
|
|
|
1,022 |
|
|
|
69,292 |
|
|
|
69,293 |
|
|
|
1,188 |
|
|
|
70,481 |
|
Special |
|
|
80,113 |
|
|
|
4,485 |
|
|
|
84,598 |
|
|
|
82,322 |
|
|
|
4,624 |
|
|
|
86,946 |
|
|
|
76,297 |
|
|
|
4,655 |
|
|
|
80,952 |
|
Tank |
|
|
1,400 |
|
|
|
|
|
|
|
1,400 |
|
|
|
1,369 |
|
|
|
|
|
|
|
1,369 |
|
|
|
799 |
|
|
|
|
|
|
|
799 |
|
Chassis |
|
|
15,628 |
|
|
|
|
|
|
|
15,628 |
|
|
|
15,645 |
|
|
|
|
|
|
|
15,645 |
|
|
|
15,718 |
|
|
|
|
|
|
|
15,718 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment
leasing fleet |
|
|
1,102,381 |
|
|
|
57,646 |
|
|
|
1,160,027 |
|
|
|
1,136,378 |
|
|
|
59,338 |
|
|
|
1,195,716 |
|
|
|
1,079,454 |
|
|
|
49,370 |
|
|
|
1,128,824 |
|
Equipment trading
fleet |
|
|
18,799 |
|
|
|
|
|
|
|
18,799 |
|
|
|
28,736 |
|
|
|
|
|
|
|
28,736 |
|
|
|
36,564 |
|
|
|
|
|
|
|
36,564 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
1,121,180 |
|
|
|
57,646 |
|
|
|
1,178,826 |
|
|
|
1,165,114 |
|
|
|
59,338 |
|
|
|
1,224,452 |
|
|
|
1,116,018 |
|
|
|
49,370 |
|
|
|
1,165,388 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage |
|
|
95.1 |
% |
|
|
4.9 |
% |
|
|
100.0 |
% |
|
|
95.2 |
% |
|
|
4.8 |
% |
|
|
100.0 |
% |
|
|
95.8 |
% |
|
|
4.2 |
% |
|
|
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 we believe are more predominant.
As of June 30, 2009, approximately 84.0% of our containers and chassis were on-hire to
customers, down from 90.0% at December 31, 2008 and 91.7% at June 30, 2008.
The following table provides a summary of our lease portfolio, based on the number of units in our
total fleet as of the dates indicated below:
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
|
June 30, |
Lease Portfolio |
|
2009 |
|
2008 |
|
2008 |
Long-term leases |
|
|
55.8 |
% |
|
|
54.3 |
% |
|
|
48.7 |
% |
Finance leases |
|
|
9.7 |
|
|
|
8.9 |
|
|
|
10.2 |
|
Service leases |
|
|
11.0 |
|
|
|
18.3 |
|
|
|
21.6 |
|
Expired long-term leases
(units on hire) |
|
|
7.5 |
|
|
|
8.5 |
|
|
|
11.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total leased |
|
|
84.0 |
|
|
|
90.0 |
|
|
|
91.7 |
|
Used units available for lease |
|
|
8.6 |
|
|
|
4.3 |
|
|
|
2.1 |
|
New units not yet leased |
|
|
2.2 |
|
|
|
2.5 |
|
|
|
3.9 |
|
Available for sale |
|
|
5.2 |
|
|
|
3.2 |
|
|
|
2.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 June 30, 2009, our long-term leases had an average remaining contract
term of approximately 47 months, assuming no leases are renewed. The increase in average remaining
contract term in the second quarter was primarily due to the effect of lease extension transactions
completed in the second quarter.
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
June 30, 2009, our owned fleet included 1,121,180 TEUs, a decrease of 3.8% from December 31,
2008 and an increase of 0.5 % from June 30, 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 two
quarters of 2009 combined with our normal disposal of used containers. Global containerized trade
volumes have been exceptionally weak since the fourth quarter of 2008, and our shipping line
customers have been decreasing the number of containers in their fleets. As a result, we have
experienced weak leasing demand and we have significantly reduced our investment in new equipment.
The increase in fleet size in 2009 relative to the second quarter of 2008 was mainly due to the
delivery of a large number of containers during the second half 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 June 30, 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 $66 million,
or 3.7% from December 31, 2008, but an increase of $44 million, or 2.6% over June 30, 2008. Our
revenue earning assets decreased in the first half of 2009 due to our limited purchases of new
containers during the first and second quarters.
In the second quarter of 2009, we sold approximately 20,000 TEUs of our owned containers, or 1.8%
of our owned equipment leasing fleet as of the beginning of the quarter. This annualized disposal rate of
approximately 7.2% is similar to the 6 to 8% annual disposal rate we have been experiencing for the
last few years, and is
18
generally consistent with our expected long-term average disposal rate given
the 12 14 year expected useful life of our containers. However, the rate of our disposals in
2009 has not kept pace with the rate at
which older units are being returned off lease and being designated as available for sale. As a
result, the portion of our fleet designated as available for sale has increased from 3.2% as of
December 31, 2008 to 5.2% as of June 30, 2009. Based on our increased inventory of containers
available for sale, the age profile of our leasing fleet, scheduled lease expirations and the
prospects for continued weak leasing demand due to reduced trade growth, we expect that our rate of
disposals will increase 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 and leasing revenue 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
March 31, |
|
December 31, |
|
September 30, |
|
June 30, |
|
|
2009 |
|
2009 |
|
2008 |
|
2008 |
|
2008 |
|
|
3 months |
|
3 months |
|
3 months |
|
3 months |
|
3 months |
Average Utilization(1) |
|
|
85.1 |
% |
|
|
88.1 |
% |
|
|
91.6 |
% |
|
|
92.0 |
% |
|
|
90.7 |
% |
|
|
|
(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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
March 31, |
|
December 31, |
|
September 30, |
|
June 30, |
|
|
2009 |
|
2009 |
|
2008 |
|
2008 |
|
2008 |
Ending Utilization |
|
|
84.0 |
% |
|
|
86.5 |
% |
|
|
90.0 |
% |
|
|
92.7 |
% |
|
|
91.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
March 31, |
|
December 31, |
|
September 30, |
|
June 30, |
|
|
2009 |
|
2009 |
|
2008 |
|
2008 |
|
2008 |
Ending Utilization
(excluding new
units not yet
leased) |
|
|
85.9 |
% |
|
|
88.5 |
% |
|
|
92.4 |
% |
|
|
95.8 |
% |
|
|
95.4 |
% |
Our average utilization was 85.1% in the second quarter of 2009, a decrease of 5.6% from the second
quarter of 2008, and a decrease of 3.0% from the first quarter of 2009. Ending utilization
decreased 2.5% from 86.5% as of March 31, 2009 to 84.0% as of June 30, 2009, while ending
utilization excluding new units not yet leased decreased 2.6% in the second quarter of 2009 to
85.9%. The decrease in our utilization in the second quarter of 2009 was mainly the result of
ongoing exceptional weakness in global trade. Since the fourth quarter of 2008, global
containerized trade volumes have been running 15% or more below the previous years level, which
has resulted in excess container capacity and exceptionally low leasing demand, especially for dry
containers. 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 relatively healthy in the second quarter of
2009. The utilization of our refrigerated containers does not heavily influence our overall
utilization since they represent only approximately 5.2% 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.
19
Leasing demand for special containers weakened in the second quarter of 2009. Leasing demand for
our chassis product line remained weak during the second quarter of 2009 due to ongoing weakness in
U.S. containerized imports and an oversupply of chassis in the marketplace.
Average lease rates for our dry container product line in the second quarter of 2009 were 4.5%
lower compared to the average level of the second quarter of 2008 and 3.8% lower than the first
quarter of 2009.
The decrease in average lease rates in the second 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
certain customers for extending leases and reducing drop-off volumes.
Average lease rates for refrigerated containers in the second quarter of 2009 were 4.7% lower
compared to the second quarter of 2008, and 3.0% lower than the first quarter of 2009, while
average rental rates for our special containers were 2.1% lower during the second quarter of 2009
compared to the second quarter of 2008, and 1.7% lower compared to the first quarter of 2009.
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. In
addition, our refrigerated container leasing rates in the second quarter of 2009 were impacted by
rate concessions provided to certain customers for lease extension transactions. The decrease in
average leasing rates for special containers was primarily due to discounts associated with lease
extension transactions and weaker demand.
During the second quarter of 2009, we recognized a $2.4 million gain on the sale of our used
containers compared to a $6.2 million gain in the second quarter of 2008. The decrease compared to
the second quarter of 2008 mainly resulted from a decrease in 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 throughout the year 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 second quarter of 2009, we recognized a net equipment trading margin of $0.2 million on
the sale of equipment purchased for resale, compared to a $3.8 million margin in the second 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. In addition, our per unit trading margin has been pressured by decreasing used
container selling prices in 2009. Approximately 50% of the units in our equipment trading fleet
were acquired in 2008 in purchase / leaseback transactions, and these units were generally
purchased at prices that are high compared to the current market level. As these units are
returned by our customers and sold by us at current market prices, we are realizing a reduced
selling margin.
Our ownership expenses, principally depreciation and interest expense increased by $3.3 million, or
7.7% in the second quarter of 2009 from the second quarter of 2008. The percentage increase in
ownership expense was higher than the 2.6% increase in the net book value of our revenue earning
assets. Depreciation expense increased 7.3% in the second quarter of 2009 compared to the second
quarter of 2008, while interest expense increased 8.3% in the second quarter of 2009 compared to
the second quarter of 2008. Interest expense and related average debt balances increased more
rapidly than our revenue earning assets in the second 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 second quarter 2008
when $80.7 million of the second quarters 2008 container purchases were funded by Equipment
purchases payable at the end of the quarter. At June 30, 2009 only $2.4 million of container
purchases were funded by Equipment purchases payable.
20
Our provision for doubtful accounts was $0.1 million for the quarter ended June 30, 2009, down from
$0.2 million in the quarter ended June 30, 2008, and 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 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 the operating losses they
are incurring as well as their vessel orders and other expansion commitments. Many of our customers were in the middle of major expansion programs when trade volumes 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. Many shipping lines have reported large first quarter losses, and while our
collections performance in 2009 has so far been generally strong, a number of customers, including
major shipping lines, have missed contractual payment dates.
If one of our major customers defaulted on our leases and ceased operations because of
deterioration in its financial performance, we would face reduced revenue and we would likely incur
significant write-offs due to lost units 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.
Our direct operating expenses increased to $9.6 million in the second quarter of 2009, compared to
$7.3 million in the second quarter of 2008. We typically experience an increase in our direct operating expenses
during periods of weak leasing demand. During the second 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.
In April 2009, we repurchased approximately $35.0 million of our 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.
Treasury Stock
The Company repurchased the following amounts of its outstanding common stock in the open market
during the six months ended June 30, 2009 and June 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
$ in Millions |
Quarter ended March 31, 2009 |
|
|
1,021,918 |
|
|
$ |
8.2 |
|
Quarter ended June 30, 2009 |
|
|
355,915 |
|
|
|
3.1 |
|
|
|
|
Total |
|
|
1,377,833 |
|
|
$ |
11.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended March 31 2008 |
|
|
362,100 |
|
|
$ |
8.0 |
|
Quarter ended June 30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
362,100 |
|
|
$ |
8.0 |
|
|
|
|
Dividends
The company paid the following quarterly dividends during the six months ended June 30, 2009 and
2008 on its issued and outstanding common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
Record Date |
|
Payment Date |
|
Aggregate Payment |
|
Per Share Payment |
June 2, 2009 |
|
June 23, 2009 |
|
$0.3 million |
|
$ |
0.01 |
|
March 12, 2009 |
|
March 26, 2009 |
|
$0.3 million |
|
$ |
0.01 |
|
May 22, 2008 |
|
June 12, 2008 |
|
$13.4 million |
|
$ |
0.4125 |
|
March 20, 2008 |
|
April 10, 2008 |
|
$12.2 million |
|
$ |
0.375 |
|
21
Results of Operations
The following table summarizes our results of operations for the three months and six months ended
June 30, 2009 and 2008 in thousands of dollars and as a percentage of total revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
Dollars |
|
|
Percent |
|
|
Dollars |
|
|
Percent |
|
|
Dollars |
|
|
Percent |
|
|
Dollars |
|
|
Percent |
|
Leasing revenues |
|
$ |
79,350 |
|
|
|
88.1 |
% |
|
$ |
77,894 |
|
|
|
75.5 |
% |
|
$ |
162,452 |
|
|
|
85.4 |
% |
|
$ |
155,282 |
|
|
|
76.0 |
% |
Equipment trading revenue |
|
|
9,747 |
|
|
|
10.8 |
|
|
|
24,050 |
|
|
|
23.3 |
|
|
|
25,835 |
|
|
|
13.6 |
|
|
|
46,704 |
|
|
|
22.9 |
|
Management fee income |
|
|
669 |
|
|
|
0.8 |
|
|
|
782 |
|
|
|
0.8 |
|
|
|
1,338 |
|
|
|
0.7 |
|
|
|
1,507 |
|
|
|
0.7 |
|
Other revenues |
|
|
293 |
|
|
|
0.3 |
|
|
|
432 |
|
|
|
0.4 |
|
|
|
589 |
|
|
|
0.3 |
|
|
|
763 |
|
|
|
0.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
90,059 |
|
|
|
100.0 |
|
|
|
103,158 |
|
|
|
100.0 |
|
|
|
190,214 |
|
|
|
100.0 |
|
|
|
204,256 |
|
|
|
100.0 |
|
Equipment trading expenses |
|
|
9,582 |
|
|
|
10.6 |
|
|
|
20,249 |
|
|
|
19.6 |
|
|
|
24,357 |
|
|
|
12.8 |
|
|
|
41,312 |
|
|
|
20.2 |
|
Direct operating expenses |
|
|
9,641 |
|
|
|
10.7 |
|
|
|
7,331 |
|
|
|
7.1 |
|
|
|
19,466 |
|
|
|
10.2 |
|
|
|
14,408 |
|
|
|
7.1 |
|
Administrative expenses |
|
|
9,763 |
|
|
|
10.8 |
|
|
|
11,845 |
|
|
|
11.5 |
|
|
|
21,385 |
|
|
|
11.2 |
|
|
|
21,632 |
|
|
|
10.6 |
|
Depreciation and amortization |
|
|
29,354 |
|
|
|
32.6 |
|
|
|
27,345 |
|
|
|
26.5 |
|
|
|
58,463 |
|
|
|
30.8 |
|
|
|
54,173 |
|
|
|
26.5 |
|
Provision for doubtful
accounts |
|
|
77 |
|
|
|
0.1 |
|
|
|
155 |
|
|
|
0.2 |
|
|
|
398 |
|
|
|
0.2 |
|
|
|
202 |
|
|
|
0.1 |
|
Net (gain) on sale of
leasing equipment |
|
|
(2,448 |
) |
|
|
(2.7 |
) |
|
|
(6,196 |
) |
|
|
(6.0 |
) |
|
|
(6,044 |
) |
|
|
(3.2 |
) |
|
|
(10,496 |
) |
|
|
(5.1 |
) |
Interest and debt expense |
|
|
17,120 |
|
|
|
19.0 |
|
|
|
15,801 |
|
|
|
15.3 |
|
|
|
34,481 |
|
|
|
18.1 |
|
|
|
30,530 |
|
|
|
14.9 |
|
(Gain) on debt
extinguishment |
|
|
(14,130 |
) |
|
|
(15.7 |
) |
|
|
|
|
|
|
|
|
|
|
(14,130 |
) |
|
|
(7.4 |
) |
|
|
|
|
|
|
|
|
Unrealized (gain) on
interest rate swaps |
|
|
(24,455 |
) |
|
|
(27.2 |
) |
|
|
(35,843 |
) |
|
|
(34.8 |
) |
|
|
(29,518 |
) |
|
|
(15.5 |
) |
|
|
(4,098 |
) |
|
|
(2.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
34,504 |
|
|
|
38.3 |
|
|
|
40,687 |
|
|
|
39.4 |
|
|
|
108,858 |
|
|
|
57.2 |
|
|
|
147,663 |
|
|
|
72.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
55,555 |
|
|
|
61.7 |
|
|
|
62,471 |
|
|
|
60.6 |
|
|
|
81,356 |
|
|
|
42.8 |
|
|
|
56,593 |
|
|
|
27.7 |
|
Income tax expense |
|
|
19,778 |
|
|
|
22.0 |
|
|
|
22,153 |
|
|
|
21.5 |
|
|
|
28,963 |
|
|
|
15.3 |
|
|
|
20,068 |
|
|
|
9.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
35,777 |
|
|
|
39.7 |
% |
|
$ |
40,318 |
|
|
|
39.1 |
% |
|
$ |
52,393 |
|
|
|
27.5 |
% |
|
$ |
36,525 |
|
|
|
17.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparison of Three Months Ended June 30, 2009 to Three Months Ended June 30, 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 June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(in thousands) |
|
Leasing revenues: |
|
|
|
|
|
|
|
|
Operating lease revenues: |
|
|
|
|
|
|
|
|
Per diem revenue |
|
$ |
65,817 |
|
|
$ |
65,144 |
|
Fee and ancillary lease revenue |
|
|
8,160 |
|
|
|
7,658 |
|
|
|
|
|
|
|
|
Total operating lease revenue |
|
|
73,977 |
|
|
|
72,802 |
|
Finance lease revenue |
|
|
5,373 |
|
|
|
5,092 |
|
|
|
|
|
|
|
|
Total leasing revenues |
|
$ |
79,350 |
|
|
$ |
77,894 |
|
|
|
|
|
|
|
|
Total leasing revenues were $79.4 million for the three months ended June 30, 2009, compared
to $77.9 million for the three months ended June 30, 2008, an increase of $1.5 million, or 1.9%.
22
Per diem revenue increased by $0.7 million compared to 2008. The primary reasons for the
increase are as follows:
|
|
|
$3.5 million increase due to the recognition of fee revenue for the early termination of
certain lease contracts held with one customer. In the first quarter of 2009, we negotiated
the early termination of several contracts with one customer for a fee of approximately
$11.0 million. As of June 30, 2009, approximately $6.3 million of this fee remains
categorized as deferred revenue and will be recognized as units are redelivered. |
|
|
|
|
$1.8 million increase due to an increase in fleet size, reflecting a larger number of dry
and special containers, and tanks in our fleet; |
|
|
|
|
$2.7 million decrease due to overall lower utilization; |
|
|
|
|
$2.2 million decrease due to lower per diem rates primarily related to certain lease
concessions that were given in return for extended on hire time. |
Fee and ancillary lease revenue increased by $0.5 million as compared to the prior year
primarily due to a $0.9 million increase in repair revenue resulting from an increase in
drop off volume, partially offset by $0.4 million in lower logistical fees due to a higher
percentage of re-deliveries of units to demand locations.
Finance lease revenue increased by $0.3 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 June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(in thousands) |
|
Equipment trading revenues |
|
$ |
9,747 |
|
|
$ |
24,050 |
|
Equipment trading expenses |
|
|
(9,582 |
) |
|
|
(20,249 |
) |
|
|
|
|
|
|
|
Equipment trading margin |
|
$ |
165 |
|
|
$ |
3,801 |
|
|
|
|
|
|
|
|
The equipment trading margin decreased $3.6 million for the three months ended June 30, 2009
compared to the three months ended June 30, 2008. The trading margin decreased primarily due to a
downward trend in used container selling prices during 2009. We typically experience a lag of
several months between the time we buy and sell used containers, and in periods of falling prices
inventory losses reduce our normal sales margins.
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.
23
Direct operating expenses were $9.6 million for the three months ended June 30, 2009, compared
to $7.3 million for the three months ended June 30, 2008, an increase of $2.3 million. The
primary reasons for the increase are outlined below:
|
|
|
$2.9 million increase in storage costs due to an increase in units off-hire; |
|
|
|
|
$0.7 million increase in repair costs due to a higher repair volume; |
|
|
|
|
$0.4 million decrease in positioning and handling costs due to lower on hire activity;
and |
|
|
|
|
$0.3 million decrease in surveying costs due to a decrease in new equipment purchases. |
Administrative expenses. Administrative expenses were $9.8 million for the three months ended June
30, 2009, compared to $11.8 million for the three months ended June 30, 2008, a decrease of $2.0
million or 16.9%. The decrease was primarily due to $0.9 million in lower incentive accruals in
2009 and $0.5 million in foreign exchange gains in 2009 versus foreign exchange losses of $0.4
million in 2008.
Depreciation and amortization. Depreciation and amortization was $29.4 million for the three months
ended June 30, 2009, compared to $27.3 million for the three months ended June 30, 2008, an
increase of $2.1 million or 7.7%. Depreciation increased by $3.8 million due to a larger fleet
size, resulting from our large investment in equipment in the second half of 2008. This increase
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 leasing equipment was $2.4 million for the
three months ended June 30, 2009, compared to a gain of $6.2 million for the three months ended
June 30, 2008, a decrease of $3.8 million. Gain on sale decreased by $3.8 million largely due to
lower selling prices.
Interest and debt expense. Interest and debt expense was $17.1 million for the three months ended
June 30, 2009, compared to $15.8 million for the three months ended June 30, 2008, an increase of
$1.3 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.
(Gain) on debt extinguishment. Gain on debt extinguishment of $14.1 million (net of the write-off
of deferred financing costs of approximately $0.2 million) for the three months ended June 30, 2009
was due to the repurchase of a portion of the Series 2006-1 Term Notes. There were no gains on
debt extinguishment for the three months ended June 30, 2008.
Unrealized (gain) on interest rate swaps. Unrealized gain on interest rate swaps was $24.5 million
for the three months ended June 30, 2009, compared to an unrealized gain of $35.8 million for the
three months ended June 30, 2008. The net fair value of the interest rate swap contracts was a net
liability of $64.8 million at June 30, 2009, compared to a net liability of $95.2 million at
December 31, 2008. The decrease in the liability resulted from an increase in long-term interest rates in 2009.
Income tax expense. Income tax expense was $19.8 million for the three months ended June 30, 2009,
compared to an income tax expense of $22.2 million for the three months ended June 30, 2008, and
the effective tax rates were 35.6% for the three months ended June 30, 2009 and 35.5% for the three
months ended June 30, 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.
24
Comparison of Six Months Ended June 30, 2009 to Six Months Ended June 30, 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.
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(in thousands) |
|
Leasing revenues: |
|
|
|
|
|
|
|
|
Operating lease revenues: |
|
|
|
|
|
|
|
|
Per diem revenue |
|
$ |
134,033 |
|
|
$ |
129,211 |
|
Fee and ancillary lease revenue |
|
|
17,991 |
|
|
|
16,023 |
|
|
|
|
|
|
|
|
Total operating lease revenue |
|
|
152,024 |
|
|
|
145,234 |
|
Finance lease revenue |
|
|
10,428 |
|
|
|
10,048 |
|
|
|
|
|
|
|
|
Total leasing revenues |
|
$ |
162,452 |
|
|
$ |
155,282 |
|
|
|
|
|
|
|
|
Total leasing revenues were $162.5 million for the six months ended June 30, 2009, compared to
$155.3 million for the six months ended June 30, 2008, an increase of $7.2 million, or 4.6%.
Per diem revenue increased by $4.8 million compared to 2008. The primary reasons for the
increase are as follows:
|
|
|
$5.7 million increase due to an increase in fleet size, reflecting a larger number of dry
and special containers, chassis and tanks in our fleet; |
|
|
|
|
$4.6 million increase due to the recognition of fee revenue for the early termination of
certain lease contracts with one customer. In 2009, we negotiated the early termination of
several contracts with one customer for a fee of approximately $11.0 million. As of
June 30, 2009, approximately $6.3 million of this fee remains categorized as deferred
revenue and will be recognized as units are redelivered. |
|
|
|
|
$0.9 million increase in one time fees charged for the early drop off of equipment from
other customers; |
|
|
|
|
$2.9 million decrease due to overall lower utilization; |
|
|
|
|
$3.4 million decrease due to lower per diem rates primarily related to certain lease
concessions that were given in return for extended on hire time. |
Fee and ancillary lease revenue increased by $2.0 million as compared to the prior year
primarily due to an increase in repair revenue resulting from an increase in drop off volume.
Finance lease revenue increased by $0.4 million in 2009, primarily due to an increase in the
average size of our finance lease portfolio.
25
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.
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(in thousands) |
|
Equipment trading revenues |
|
$ |
25,835 |
|
|
$ |
46,704 |
|
Equipment trading expenses |
|
|
(24,357 |
) |
|
|
(41,312 |
) |
|
|
|
|
|
|
|
Equipment trading margin |
|
$ |
1,478 |
|
|
$ |
5,392 |
|
|
|
|
|
|
|
|
The equipment trading margin decreased $3.9 million for the six months ended June 30, 2009
compared to the six months ended June 30, 2008. The
trading margin decreased primarily due to a downward trend in used container selling prices during
2009. We typically experience a lag of several months between the time we buy and sell used
containers, and in periods of falling prices inventory losses reduce our normal sales margins.
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 $19.5 million for the six months ended June 30, 2009, compared
to $14.4 million for the six months ended June 30, 2008, an increase of $5.1 million. The
primary reasons for the increase are outlined below:
|
|
|
$4.3 million increase in storage costs due to an increase in units off-hire; |
|
|
|
|
$1.9 million increase in repair costs due to a higher repair volume, primarily for our
dry and refrigerated containers; |
|
|
|
|
$0.7 million decrease in surveying costs due to a decrease in new equipment purchases;
and |
|
|
|
|
$0.4 million decrease in other operating costs due to lower equipment reserve charges in
2009. |
Administrative expenses. Administrative expenses were $21.4 million for the six months ended June
30, 2009, compared to $21.6 million for the six months ended June 30, 2008, a decrease of $0.2
million or 0.9%. The decrease was primarily due to $1.6 million in lower incentive accruals and
$0.4 million of lower travel expenses in 2009, partially offset by $0.7 million in lower foreign
exchange gains in 2009 versus 2008 and a charge for certain severance benefits of $1.1 million in
2009.
Depreciation and amortization. Depreciation and amortization was $58.5 million for the six months
ended June 30, 2009, compared to $54.2 million for the six months ended June 30, 2008, an increase
of $4.3 million or 7.9%. Depreciation increased by $8.1 million due to a larger fleet size,
resulting from our large investment in equipment in the second half of 2008. This increase was
partially offset by a $4.4 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 leasing equipment was $6.0 million for the
six months ended June 30, 2009, compared to a gain of $10.5 million for the six months ended June
30, 2008, a
26
decrease of $4.5 million. Gain on sale decreased $3.9 million due to lower selling
prices and $0.6 million due to lower volume of units sold.
Interest and debt expense. Interest and debt expense was $34.5 million for the six months ended
June 30, 2009, compared to $30.5 million for the six months ended June 30, 2008, an increase of
$4.0 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.
(Gain) on debt extinguishment. Gain on debt extinguishment of $14.1 million (net of the write-off
of deferred financing costs of approximately $0.2 million) for the six months ended June 30, 2009
was due to the repurchase of a portion of the Series 2006-1 Term Notes. There were no gains on
debt extinguishment for the six months ended June 30, 2008.
Unrealized (gain) on interest rate swaps. Unrealized gain on interest rate swaps was $29.5 million
for the six months ended June 30, 2009, compared to an unrealized gain of $4.1 million for the six
months ended June 30, 2008. The net fair value of the interest rate swap contracts was a net
liability of $64.8 million at June 30, 2009, compared to a net liability of $95.2 million at
December 31, 2008. The decrease in the liability resulted from an increase in long-term interest rates in 2009.
Income tax expense. Income tax expense was $29.0 million for the six months ended June 30, 2009,
compared to an income tax expense of $20.1 million for the six months ended June 30, 2008, and the
effective tax rates were 35.6% for the six months ended June 30, 2009 and 35.5% for the six months
ended June 30, 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.
The following table lists selected revenue and expense items for our Equipment leasing segment
for the three months and six months ended June 30, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment leasing segment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
80,115 |
|
|
$ |
78,942 |
|
|
$ |
164,056 |
|
|
$ |
157,297 |
|
Depreciation
and amortization expense |
|
|
29,310 |
|
|
|
27,341 |
|
|
|
58,385 |
|
|
|
54,164 |
|
Interest and
debt expense |
|
|
16,918 |
|
|
|
15,409 |
|
|
|
34,098 |
|
|
|
29,889 |
|
Net (gain) on sale of leasing equipment |
|
|
(2,448 |
) |
|
|
(6,196 |
) |
|
|
(6,044 |
) |
|
|
(10,496 |
) |
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax income(1) |
|
|
17,068 |
|
|
|
23,585 |
|
|
|
37,179 |
|
|
|
48,453 |
|
|
|
|
(1) |
|
Pre-tax income excludes unrealized (gains) on interest rate swaps of
$(24,455) and $(35,843) for the three months ended June 30, 2009 and
2008, respectively, and $(29,518) and $(4,098) for the six months
ended June 30, 2009 and 2008, respectively. Pre-tax income also
excludes (gain) on debt extinguishment of $(14,130) for the three and
six months ended June 30, 2009. |
Segment
Comparison of Three Months Ended June 30, 2009 to Three Months Ended June 30, 2008
Equipment leasing revenue. Total revenue for the Equipment leasing segment was $80.1 million
in the three months ended June 30, 2009 compared to $78.9 million in the three months ended June
30, 2008, an increase of $1.2 million, or 1.5%. The primary reasons for the increase are as
follows:
|
|
|
$3.5 million increase due to the recognition of fee revenue for the early termination of
certain lease contracts with one customer. |
|
|
|
|
$1.8 million increase due to an increase in fleet size, reflecting a larger number of dry
and special containers, and tanks in our fleet compared to the prior year; |
|
|
|
|
$2.7 million decrease due to overall lower utilization; |
|
|
|
|
$2.2 million decrease due to lower per diem rates primarily related to certain lease
concessions that were given in return for extended on hire time. |
Fee and ancillary lease revenue increased by $0.5 million as compared to the prior year
primarily due to $0.9 million increase in repair revenue resulting from an increase in drop off
volume, partially offset by $0.4 million in lower logistics fees.
Finance lease revenue increased by $0.3 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 $17.1
million in the three months ended June 30, 2009 compared to $23.6 million in the three months ended
June 30, 2008, a decrease of $6.5 million, or 27.5%. The primary reasons for the decrease in pretax
income are as follows:
|
|
|
$1.2 million increase in Equipment leasing revenue in 2009; |
|
|
|
|
$2.0 million increase in depreciation expense, primarily due to an increase in fleet size; |
|
|
|
|
$1.5 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; |
|
|
|
|
$2.3 million increase in direct operating expenses, primarily related to increased storage
costs and
increased repair costs associated with increased drop off activity; |
28
|
|
|
$1.8 million decrease in administrative expenses, primarily due to $0.9 million in lower
incentive accruals in 2009 and $0.5 million in foreign exchange gains in 2009 versus foreign
exchange losses of $0.4 million in 2008. |
|
|
|
|
$3.8 million decrease in gain on the sale of leasing equipment, primarily due to lower
selling prices
in 2009 compared to 2008. |
Segment Comparison of Six Months Ended June 30, 2009 to Six Months Ended June 30, 2008
Equipment leasing revenue. Total revenue for the Equipment leasing segment was $164.1 million
in the six months ended June 30, 2009 compared to $157.3 million in the six months ended June 30,
2008, an increase of $6.8 million, or 4.3%. The primary reasons for the increase are as follows:
|
|
|
$5.7 million increase due to an increase in fleet size, reflecting a larger number of dry
and special containers, chassis and tanks in our fleet; |
|
|
|
|
$4.6 million increase due to the recognition of fee revenue for the early termination of
certain lease contracts with one customer; |
|
|
|
|
$0.9 million increase in one time fees charged for the early drop off of equipment from
other customers; |
|
|
|
|
$2.9 million decrease due to overall lower utilization; |
|
|
|
|
$3.4 million decrease due to lower per diem rates primarily related to certain lease
concessions that were given in return for extended on hire time. |
Fee and ancillary lease revenue increased by $2.0 million as compared to the prior year
primarily due to an increase in repair revenue resulting from an increase in drop off volume.
Finance lease revenue increased by $0.4 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 $37.2
million in the six months ended June 30, 2009 compared to $48.5 million in the six months ended
June 30, 2008, a decrease of $11.3 million, or 23.3%. The primary reasons for the decrease in
pretax income are as follows:
|
|
|
$6.8 million increase in Equipment leasing revenue in 2009; |
|
|
|
|
$4.2 million increase in depreciation expense, primarily due to an increase in fleet size; |
|
|
|
|
$4.2 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; |
|
|
|
|
$5.1 million increase in direct operating expenses, primarily related to increased storage
costs and
increased repair costs associated with increased drop off activity; |
29
|
|
|
$4.5 million decrease in gain on the sale of leasing equipment, primarily due to lower
selling prices
in 2009. |
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 and six months ended June 30, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
|
(in thousands) |
Equipment trading segment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment trading revenue |
|
$ |
9,747 |
|
|
$ |
24,050 |
|
|
$ |
25,835 |
|
|
$ |
46,704 |
|
Equipment trading expense |
|
|
(9,582 |
) |
|
|
(20,249 |
) |
|
|
(24,357 |
) |
|
|
(41,312 |
) |
|
|
|
Equipment trading margin |
|
|
165 |
|
|
|
3,801 |
|
|
|
1,478 |
|
|
|
5,392 |
|
Interest expense |
|
|
202 |
|
|
|
392 |
|
|
|
383 |
|
|
|
641 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-tax (loss) income(1) |
|
|
(98 |
) |
|
|
3,043 |
|
|
|
529 |
|
|
|
4,042 |
|
|
|
|
(1) |
|
Pre-tax (loss) income excludes unrealized (gains) on interest rate
swaps of $(24,455) and $(35,843) for the three months ended June 30,
2009 and 2008, respectively, and $(29,518) and $(4,098) for the six
months ended June 30, 2009 and 2008, respectively. Pre-tax (loss)
income also excludes (gain) on debt extinguishment of $(14,130) for
the three and six months ended June 30, 2009. |
Segment
Comparison of Three Months Ended June 30, 2009 to Three Months Ended June 30, 2008
Equipment trading margin. Equipment trading revenues and Equipment trading expenses decreased
in the three months ended June 30, 2009 compared to the three months ended June 30, 2008. The equipment trading margin, the
difference between Equipment trading revenue and expenses, decreased $3.6 million in 2009 compared
to 2008 primarily due to a lower volume of units sold ($2.6 million). In addition, our equipment
trading margin decreased by $1.0 million due to lower per unit margins primarily caused by the
downward trend in used container selling prices during 2009. We typically experience a lag of
several months between the time we buy and sell used containers, and in periods of falling prices
inventory losses reduce our normal sales margins.
Equipment trading pretax income. Pretax (loss) income for the Equipment trading segment was
a loss of $0.1 million in the three months ended June 30,
2009 compared to pretax income of $3.0 million in the three
months ended June 30, 2008, a decrease of $3.1 million, which was primarily due to the Equipment
trading margin decrease of $3.6 million.
30
Segment Comparison of Six Months Ended June 30, 2009 to Six Months Ended June 30, 2008
Equipment trading margin. Equipment trading revenues and Equipment trading expenses decreased
in the six months ended June 30, 2009 compared to the six months ended June 30, 2008. The equipment trading margin, the
difference between Equipment trading revenue and expenses, decreased $3.9 million in 2009 compared
to 2008 primarily due to a lower volume of units sold ($3.0 million). In addition, our equipment
trading margin decreased by $1.5 million due to lower per unit margins primarily caused by the
downward trend in used container selling prices during 2009. We typically experience a lag of
several months between the time we buy and sell used containers, and in periods of falling prices
inventory losses reduce our normal sales margins.
Equipment trading pretax income. Pretax income for the Equipment trading segment was $0.5
million in the six months ended June 30, 2009 compared to $4.0 million in the six months ended June
30, 2008, a decrease of $3.5 million, or 87.5%, which was primarily due to the Equipment trading
margin decrease of $3.9 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.
We continue to have sizable cash in-flows. For the six months ended June 30, 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 $146.7 million. In addition, as of
June 30, 2009 we had approximately $42.3 million of unrestricted cash.
As of June 30, 2009, major committed cash outflows in the next 12 months include $2.5 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 $125.7 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 raise additional financing,
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 June 30, 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 |
|
$ |
386.1 |
|
|
$ |
386.1 |
|
Term notes Series 2005-1 |
|
|
366.0 |
|
|
|
366.0 |
|
Asset backed credit facility |
|
|
225.0 |
|
|
|
225.0 |
|
Revolving credit facility |
|
|
100.0 |
|
|
|
100.0 |
|
Finance lease facility |
|
|
42.9 |
|
|
|
42.9 |
|
2007 Term loan facility |
|
|
30.5 |
|
|
|
30.5 |
|
Port equipment facility |
|
|
11.3 |
|
|
|
11.3 |
|
Capital lease obligations |
|
|
95.4 |
|
|
|
95.4 |
|
|
|
|
|
|
|
|
Total Debt |
|
$ |
1,257.2 |
|
|
$ |
1,257.2 |
|
|
|
|
|
|
|
|
31
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 June 30, 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 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.
32
Below is the calculation of EBIT to Cash Interest Expense as of June 30, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
EBIT to Cash Interest Expense: |
|
Consolidated(1) |
|
TAL Adv I |
|
TAL Adv II |
Net income (loss) |
|
$ |
51,664 |
|
|
$ |
20,361 |
|
|
$ |
(3,290 |
) |
Plus: |
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit) |
|
|
27,962 |
|
|
|
11,877 |
|
|
|
(1,595 |
) |
Interest expense including write-off of deferred
financing costs |
|
|
69,184 |
|
|
|
42,818 |
|
|
|
11,243 |
|
Unrealized losses on interest rate swaps |
|
|
50,627 |
|
|
|
28,095 |
|
|
|
6,982 |
|
All non-cash expenses attributable to incentive
arrangements |
|
|
1,434 |
|
|
|
|
|
|
|
52 |
|
|
|
|
EBIT |
|
$ |
200,871 |
|
|
$ |
103,151 |
|
|
$ |
13,392 |
|
|
|
|
Interest expense (excluding interest income of $759,
$457, and $22 respectively) |
|
$ |
69,944 |
|
|
$ |
43,275 |
|
|
$ |
11,295 |
|
Amortization and write-off of deferred financing costs |
|
|
(1,385 |
) |
|
|
(646 |
) |
|
|
(509 |
) |
Accrued interest (represents 2009 interest expense
not paid) |
|
|
(2,309 |
) |
|
|
(944 |
) |
|
|
(339 |
) |
Cash payments of prior period accrued interest |
|
|
2,211 |
|
|
|
1,424 |
|
|
|
115 |
|
|
|
|
Cash Interest Expense |
|
$ |
68,461 |
|
|
$ |
43,109 |
|
|
$ |
10,562 |
|
|
|
|
EBIT to Cash Interest Expense Ratio |
|
|
2.93 |
|
|
|
2.39 |
|
|
|
1.27 |
|
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 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
$321.4 million plus 50% of cumulative net income or loss since January 1, 2006. At June 30, 2009,
the required minimum TNW for the ABS facilities was $405.9 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 June
30, 2009 (in thousands):
|
|
|
|
|
Tangible Net Worth Covenants: |
|
Consolidated |
|
Tangible Assets |
|
|
|
|
Total Assets |
|
$ |
1,875,832 |
|
Deferred Financing Costs |
|
|
(7,664 |
) |
Goodwill |
|
|
(71,898 |
) |
Intangibles |
|
|
(2,717 |
) |
Fair value of derivative instruments (asset) |
|
|
(661 |
) |
|
|
|
|
33
|
|
|
|
|
Tangible Net Worth Covenants: |
|
Consolidated |
|
Total Tangible Assets(A) |
|
$ |
1,792,892 |
|
|
|
|
|
All indebtedness: |
|
|
|
|
Total debt |
|
$ |
1,257,235 |
|
Accrued interest |
|
|
2,292 |
|
Fair value of derivative instruments (liability) |
|
|
64,769 |
|
Equipment purchases payable |
|
|
2,394 |
|
|
|
|
|
Total Indebtedness(B) |
|
$ |
1,326,690 |
|
|
|
|
|
Tangible Net Worth (C= A-B) |
|
$ |
466,202 |
|
Required Minimum Tangible Net Worth |
|
$ |
300,000 |
|
Debt to Tangible Net Worth Ratio (B/C) |
|
|
2.85 |
|
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 $466.2 million as per the table above
plus $64.8 million (the fair value of derivative instruments (liability) excluded), for a total TNW
of $531.0 million at June 30, 2009, versus a required minimum TNW of $405.9 million.
For the purpose of calculating Debt to TNW ratio under the ABS facility, the fair value of
derivative instruments (liability of $64.8 million) is included in the calculation of indebtedness.
As a result, the total indebtedness for the purpose of this calculation is $1,326.7 million as
shown in the table above, the TNW is $531.0 million as shown in the paragraph above, and the
calculated Debt to TNW ratio was 2.50 at June 30, 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 $1,326.7 million as per
the table above less $64.8 million (the fair value of derivative instruments (liability)
excluded), for a total indebtedness of $1,261.9 million. The TNW is $531.0 million as
shown in the first paragraph directly above, and the calculated Debt to TNW ratio was 2.38 at June
30, 2009, versus a required maximum Debt to TNW ratio of 4.75.
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.
Treasury Stock
The Company repurchased the following amounts of its outstanding common stock in the open market
during the six months ended June 30, 2009 and June 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
$ in Millions |
Quarter ended March 31, 2009 |
|
|
1,021,918 |
|
|
$ |
8.2 |
|
Quarter ended June 30, 2009 |
|
|
355,915 |
|
|
|
3.1 |
|
|
|
|
Total |
|
|
1,377,833 |
|
|
$ |
11.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended March 31 2008 |
|
|
362,100 |
|
|
$ |
8.0 |
|
Quarter ended June 30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
362,100 |
|
|
$ |
8.0 |
|
|
|
|
34
Dividends
The company paid the following quarterly dividends during the six months ended June 30, 2009 and
2008 on its issued and outstanding common stock:
|
|
|
|
|
|
|
|
|
|
|
|
Record Date |
|
Payment Date |
|
Aggregate Payment |
|
Per Share Payment |
June 2, 2009 |
|
June 23, 2009 |
|
$ |
0.3 million |
|
$ |
0.01 |
|
March 12, 2009 |
|
March 26, 2009 |
|
$ |
0.3 million |
|
$ |
0.01 |
|
May 22, 2008 |
|
June 12, 2008 |
|
$ |
13.4 million |
|
$ |
0.4125 |
|
March 20, 2008 |
|
April 10, 2008 |
|
$ |
12.2 million |
|
$ |
0.375 |
|
Cash Flow
The following table sets forth certain cash flow information for the six months ended June 30, 2009
and 2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
Net cash provided by operating activities |
|
$ |
98,450 |
|
|
$ |
89,871 |
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities: |
|
|
|
|
|
|
|
|
Purchases of leasing equipment |
|
$ |
(27,184 |
) |
|
$ |
(146,100 |
) |
Investment in finance leases |
|
|
(26,713 |
) |
|
|
(28,237 |
) |
Proceeds from sale of equipment leasing fleet, net of selling costs |
|
|
33,063 |
|
|
|
38,469 |
|
Cash collections on finance lease receivables, net of income earned |
|
|
15,156 |
|
|
|
12,832 |
|
Other |
|
|
(32 |
) |
|
|
(86 |
) |
|
|
|
|
|
|
|
Net cash (used in) investing activities |
|
$ |
(5,710 |
) |
|
$ |
(123,122 |
) |
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities |
|
$ |
(91,287 |
) |
|
$ |
32,520 |
|
|
|
|
|
|
|
|
Operating Activities
Net cash provided by operating activities increased by $8.6 million to $98.5 million in the six
months ended June 30, 2009, compared to $89.9 million in the six months ended June 30, 2008
primarily due to the timing of cash collections on our accounts receivable. Accounts receivable
collections exceeded billings by $10.5 million in the six months ended June 30, 2009 versus
accounts receivable billings that exceeded collections by $4.0 million in the six months ended June
30, 2008.
Investing Activities
Net cash used in investing activities decreased by $117.4 million to $5.7 million in the six
months ended June 30, 2009 compared to $123.1 million in 2008. Major reasons for the decrease were
as follows:
|
|
|
Capital expenditures were $53.9 million, including investments in finance leases of $26.7
million, in the six months ended June 30, 2009 compared to $174.3 million, including
investments in finance leases of $28.2 million, for 2008. Capital expenditures decreased by
$120.4 million in 2009 primarily due to a decrease in the number of leasing units purchased. |
|
|
|
|
Sales proceeds from the disposal of equipment decreased $5.4 million to $33.1 million in
the six months ended June 30, 2009 compared to $38.5 million in 2008. Proceeds from the
disposal of used containers decreased in 2009 primarily due to lower
selling prices. |
35
|
|
|
Cash collections on finance leases, net of income earned, increased by $2.4 million to
$15.2 million in the six months ended June 30, 2009 compared to $12.8 million in 2008 as a
result of an increase in our finance lease portfolio. |
Financing Activities
Net cash used in financing activities was $91.3 million in the six months ended June 30, 2009
compared to net cash provided by financing activities of $32.5 million for the same period in 2008.
During the six months ended June 30, 2009, we had net payments of $79.4 million under our
various credit facilities and capital lease obligations, including $20.7 of debt repurchased prior
to maturity, as compared to net borrowings of $68.3 million under our various credit facilities and
capital lease obligations during the six months ended June 30, 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 June
30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual Obligations by Period |
|
|
|
(dollars in millions) |
|
|
|
|
|
|
|
Remaining |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013 and |
|
|
|
Total |
|
|
2009 |
|
|
2010 |
|
|
2011 |
|
|
2012 |
|
|
thereafter |
|
Contractual Obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt obligations(1) |
|
$ |
1,401.6 |
|
|
$ |
89.4 |
|
|
$ |
214.3 |
|
|
$ |
191.3 |
|
|
$ |
279.1 |
|
|
$ |
627.5 |
|
Capital lease obligations(2) |
|
|
117.7 |
|
|
|
2.8 |
|
|
|
12.8 |
|
|
|
13.0 |
|
|
|
13.2 |
|
|
|
75.9 |
|
Operating leases (mainly facilities) |
|
|
6.7 |
|
|
|
1.3 |
|
|
|
2.6 |
|
|
|
2.0 |
|
|
|
0.8 |
|
|
|
|
|
Purchase obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment purchases payable |
|
|
2.4 |
|
|
|
2.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment purchase commitments |
|
|
0.1 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations |
|
$ |
1,528.5 |
|
|
$ |
96.0 |
|
|
$ |
229.7 |
|
|
$ |
206.3 |
|
|
$ |
293.1 |
|
|
$ |
703.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amounts include actual and estimated interest for floating-rate debt based on June 30,
2009 rates and the net effect of the interest rate swaps. |
|
(2) |
|
Amounts include interest. |
Off-Balance Sheet Arrangements
At June 30, 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.
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. Our critical accounting policies are discussed in our 2008 Form 10-K filed
with the SEC on March 3, 2009.
36
Recently Issued Accounting Pronouncements
In June 2009, the FASB issued Statement of Financial Accounting Standards No. 166 (SFAS 166),
Accounting for Transfers of Financial Assets and Statement of Financial Accounting Standards No.
167 (SFAS 167), Amendments to FASB Interpretation No. 46(R).SFAS 166 is a revision to FASB
Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities, and will require more information about transfers of financial assets, including
securitization transactions. It eliminates the concept of a qualifying special-purpose entity,
changes the requirements for derecognizing financial assets, and requires additional disclosures.
SFAS 167 is a revision to FASB Interpretation No. 46 (Revised December 2003), Consolidation of
Variable Interest Entities, and changes how a reporting entity determines when an entity that is
insufficiently capitalized or is not controlled through voting (or similar rights) should be
consolidated. The determination of whether a reporting entity is required to consolidate another
entity is based on, among other things, the other entitys purpose and design and the reporting
entitys ability to direct the activities of the other entity that most significantly impact the
other entitys economic performance.
SFAS 166 and SFAS 167 will be effective January 1, 2010,
for a calendar year-end entity. Early
application is not permitted. We are currently evaluating the potential impact of SFAS 166
and SFAS 167 on our consolidated results of operations and financial position.
In May 2009, the FASB issued Statement of Financial Accounting Standards No. 165 (SFAS 165),
Subsequent Events. SFAS 165 establishes general standards of accounting for and disclosure of
events that occur after the balance sheet date but before financial statements are issued or are
available to be issued.
SFAS 165 specifically provides the period after the balance sheet date during which management of a
reporting entity should evaluate events or transactions that may occur for potential recognition
or disclosure in the financial statements; the circumstances under which an entity should recognize
events or transactions occurring after the balance sheet date in its financial statements; and the
disclosures that an entity should make about events or transactions that occurred after the balance
sheet date.
SFAS 165 is effective for interim or annual financial periods ending after June 15, 2009, and shall
be applied prospectively. We adopted SFAS 165 on June 30, 2009. SFAS 165 did not impact
the consolidated financial results as it is disclosure-only in
nature. Refer to Note 12 for disclosure information.
In March 2008, the 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. Refer to Note 6 for disclosure information.
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
37
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 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 financial institutions
rated investment grade by nationally recognized rating agencies. 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 June 30, 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 |
June 30, 2009 |
|
June 30, 2009 |
|
Remaining Term |
$1,198 million
|
|
4.2%
|
|
3.8 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 95% 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 June 30, 2009, unrealized gains on interest rate swaps totaled $24.5 million,
compared to unrealized gains on interest rate swaps of $35.9 million for the quarter ended June 30,
2008. During the six months ended June 30, 2009, unrealized gains on interest rate swaps totaled
$29.5 million, compared to unrealized gains on interest rate swaps of $4.1 million for the six
months ended June 30, 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 $0.5 million of unrealized
foreign currency exchange gains and $0.4 million of unrealized foreign currency exchange losses in
the quarters ended June 30, 2009 and June 30, 2008, respectively. We recorded $0.2 million of
unrealized foreign currency exchange gains and $0.8 million of unrealized foreign currency exchange
gains in the six months ended June 30, 2009 and June 30, 2008, respectively, These gains / losses
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 our Euro denominated finance lease receivables. The
foreign currency rate swap agreement expires in April 2015. The fair value of this derivative
contract was
approximately $0.7 million at June 30, 2009, and is
reported as an asset in Fair value of
derivative instruments on the consolidated balance sheet.
38
ITEM 4. CONTROLS AND PROCEDURES.
Based upon the required evaluation of our disclosure controls and procedures, our President and
Chief Executive Officer and our Senior Vice President and Chief Financial Officer concluded that as of
June 30, 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 June
30, 2009, that has materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
39
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.
ITEM 1A. RISK FACTORS.
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 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.
The Companys share purchase activity during the quarter ended June 30, 2009 is summarized in the
following table:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
April 1 30, 2009 |
|
|
167,429 |
|
|
|
7.28 |
|
|
|
167,429 |
|
|
|
1,755,174 |
|
May 1 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,755,174 |
|
June 1 30, 2009 |
|
|
188,486 |
|
|
|
10.04 |
|
|
|
188,486 |
|
|
|
1,566,688 |
|
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On April 30, 2009, the Company held its Annual Meeting of Stockholders. At the Annual Meeting, the
stockholders of the Company voted on (i) the election of nine directors to serve until the 2010
Annual Meeting of Stockholders or until their respective successors are elected and qualified, and
(ii) to ratify the appointment of Ernst & Young LLP as the Companys independent registered public
accounting firm for the fiscal year ending December 31, 2009.
The number of votes cast for the election of the nine directors were as follows:
|
|
|
|
|
|
|
|
|
|
|
Number of Shares |
Nominee |
|
For |
|
Withhold Authority |
Brian M. Sondey |
|
|
25,065,978 |
|
|
|
3,127,172 |
|
Malcolm P. Baker |
|
|
27,772,341 |
|
|
|
420,809 |
|
A. Richard Caputo Jr. |
|
|
23,780,683 |
|
|
|
4,412,467 |
|
Claude Germain |
|
|
27,769,045 |
|
|
|
424,105 |
|
Brian J. Higgins |
|
|
24,925,280 |
|
|
|
3,267,870 |
|
John W. Jordan II |
|
|
22,959,330 |
|
|
|
5,233,820 |
|
Frederic H. Lindeberg |
|
|
27,772,737 |
|
|
|
420,413 |
|
David W. Zalaznick |
|
|
23,942,916 |
|
|
|
4,250,234 |
|
Douglas J. Zych |
|
|
24,925,009 |
|
|
|
3,268,141 |
|
40
The number of votes cast to ratify the appointment of Ernst & Young LLP as the Companys
independent registered public accounting firm were as follows:
|
|
|
|
|
Number of Shares |
For |
|
Against |
|
Abstain |
28,181,526
|
|
7,556
|
|
4,068 |
ITEM 6. EXHIBITS.
|
|
|
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 |
41
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.
|
|
August 6 , 2009 |
/s/ John Burns
|
|
|
John Burns |
|
|
Senior Vice President and
Chief Financial Officer
(Principal Accounting Officer) |
|
|
42