TAL International Group Posts 2Q 2009 Results

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Aug 07, 2009 (Close-Up Media via COMTEX) -- TAL | Quote | Chart | News | PowerRating -- TAL International Group, Inc., a lessor of intermodal freight containers and chassis, has reported results for the second quarter and six months ended June 30.

In a release on August 4, the Company noted:

Adjusted pre-tax income, excluding gains on debt extinguishment and unrealized gains on interest rate swaps, was $17.0 million in the second quarter of 2009, compared to $26.6 million in the second quarter of 2008. The Company focuses on adjusted pre-tax results since it considers gains on debt extinguishment and unrealized gains on interest rate swaps to be unrelated to operating performance and since it does not expect to pay any significant income taxes for a number of years due to the availability of accelerated tax depreciation on its existing container fleet and planned future equipment purchases.

Leasing revenues for the second quarter of 2009 were $79.4 million compared to $77.9 million in the second quarter of 2008. Adjusted EBITDA (2), including principal payments on finance leases, was $71.2 million for the quarter versus $76.1 million in the prior year period.

Adjusted Net Income (3), excluding gains on debt extinguishment and unrealized gains on interest rate swaps, was $10.9 million for the second quarter of 2009, compared to $17.2 million in the second quarter of 2008. Adjusted Net Income per fully diluted common share was $0.35 in the second quarter of 2009, versus $0.52 per fully diluted common share in the second quarter of 2008.

Reported net income for the second quarter of 2009 was $35.8 million, versus net income of $40.3 million, in the second quarter of 2008. Net income per fully diluted common share was $1.15 for the second quarter of 2009, versus net income per fully diluted common share of $1.23 in the second quarter of 2008. The difference between Adjusted Net Income and the reported net income was primarily due to gains on debt extinguishment and unrealized gains on interest rate swaps. TAL uses interest rate swaps to synthetically fix the interest rates for most of its floating rate debt so that the duration of the fixed interest rates matches the expected duration of TAL's lease portfolio. TAL does not use hedge accounting for the swaps, so any change in the market value of TAL's interest rate swap portfolio is reflected in reported income. During the second quarter of 2009, long-term interest rates increased, resulting in a $24.5 million increase in the market value of TAL's swap contracts.

During the second quarter of 2009, the Company repurchased a portion of its Asset Backed Series 2006-1 Term Notes and recorded a gain on debt extinguishment of $14.1 million.

"We are pleased that TAL remained solidly profitable in the second quarter of 2009," commented Brian M. Sondey, President and CEO of TAL International. "While our market environment remains challenging and leasing demand weak, our equipment utilization, leasing revenue and cash flow continue to be protected by our strong lease portfolio. In addition, the downward pressure from excess container capacity has started to moderate. Very few new containers have been purchased since the summer of 2008 while container disposal volumes have remained solid. We have also made good progress with our customers in extending or temporarily protecting expired leases. Our core utilization, excluding new factory units, decreased 2.6 percent in the second quarter to reach 85.9 percent as of June 30th, but utilization fell only 0.6 percent in June. This reduced rate of decrease has continued into the third quarter, and utilization fell only 0.3 percent in July."

"In the second quarter, TAL continued to take advantage of unique investment opportunities provided by the current market conditions. As previously disclosed, we repurchased another portion of our Asset Backed Term Notes for a substantial discount to par value. This discounted purchase, together with our strong cash flow, allowed us to make further progress with reducing leverage. We also continued to repurchase our shares at prices below our tangible book value per share (excluding interest rate hedge liabilities)."

Adjusted pre-tax income, excluding gains on debt extinguishment and unrealized gains on interest rate swaps, was $37.7 million in the first six months of 2009, compared to $52.5 million in the first six months of 2008.

Leasing revenues for the first six months of 2009 were $162.5 million compared to $155.3 million in the first six months of 2008. Adjusted EBITDA (2), including principal payments on finance leases, was $145.8 million for the first six months of 2009 versus $150.0 million in the same period last year.

Adjusted Net Income, excluding gains on debt extinguishment and unrealized gains on interest rate swaps, was $24.3 million for the first six months of 2009, compared to $33.9 million in the prior year period. Adjusted Net Income per fully diluted common share was $0.77 in the first six months of 2009, versus $1.03 per fully diluted common share in the prior year period.

Reported net income for the first six months of 2009 was $52.4 million, versus net income of $36.5 million, in the prior year period. Net income per fully diluted common share was $1.66 for the first six months of 2009, versus net income per fully diluted common share of $1.11 in the first six months of 2008.

Outlook

Sondey continued, "While the volume of international trade remains well below the 2008 level, our customers are reporting that shipments during the summer months have improved from the levels achieved in the first five months of the year. These improved trade volumes, the steady reduction in the size of the global container fleet, and the protections provided by lease extension transactions should help keep further utilization decreases for TAL limited for the next several months. However, global container capacity continues to exceed demand, the lease extension deals we have completed have lowered our average lease rates, and our disposal gains and trading margins will continue to be challenged. Overall, we expect to remain solidly profitable for the second half of 2009, assuming none of our major customers default on their leases, though we expect that our earnings will continue to trend down until a better balance between global container supply and demand is reached."

"The market environment facing our customers remains extremely challenging. Excess vessel capacity has caused the freight rates our customers receive to decrease significantly this year, and many shipping lines reported large losses for the first quarter of 2009. In addition, excess vessel capacity is likely to persist for some time due to the large order book for new vessels. Our credit and collections performance has been strong so far this year, but default risk will remain a major concern for us until trade volumes, vessel utilization and freight rates return closer to normal levels."

"As indicated above, the pressure we face from excess container capacity is starting to moderate. It is not possible for us to predict the point at which the container supply and demand balance will tip back in our favor, but we expect that very few new containers will be produced for the foreseeable future and expect that container disposals will continue at a healthy pace. As a result, the global container fleet should continue to gradually decrease, and we should not need to wait for a full recovery of trade volumes before leasing demand improves. Over 90 percent of our containers available for lease are in the Asia / Pacific region, so improved leasing demand should quickly translate to improved utilization for TAL."

Dividend

TAL's Board of Directors has approved and declared a $0.01 per share quarterly cash dividend on its issued and outstanding common stock, payable on September 24, to shareholders of record at the close of business on September 3.

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