TAL International Group, Inc. Reports Third Quarter 2009 Results
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PURCHASE, N.Y.--(BUSINESS WIRE)-- TAL International Group, Inc. (NYSE: TAL), one of the world's largest lessors of intermodal freight containers and chassis, today reported results for the third quarter and nine months ended September 30, 2009.
Adjusted pre-tax income (1), excluding unrealized gains / losses on interest rate swaps, was $11.9 million in the third quarter of 2009, compared to $29.9 million in the third quarter of 2008. The Company focuses on adjusted pre-tax results since it considers unrealized gains / losses on interest rate swaps and gains on debt extinguishment 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 net operating loss carryovers and accelerated tax depreciation on its existing container fleet and expected future equipment purchases.
Leasing revenues for the third quarter of 2009 were $74.2 million compared to $80.4 million in the third quarter of 2008. Adjusted EBITDA (2), including principal payments on finance leases, was $66.0 million for the quarter versus $81.7 million in the prior year period.
Adjusted Net Income (3), excluding unrealized gains / losses on interest rate swaps, was $7.6 million for the third quarter of 2009, compared to $19.3 million in the third quarter of 2008. Adjusted Net Income per fully diluted common share was $0.25 in the third quarter of 2009, versus $0.59 per fully diluted common share in the third quarter of 2008.
Reported net income for the third quarter of 2009 was $3.2 million, versus net income of $14.5 million, in the third quarter of 2008. Net income per fully diluted common share was $0.10 for the third quarter of 2009, versus net income per fully diluted common share of $0.44 in the third quarter of 2008. The difference between Adjusted Net Income and the reported net income was primarily due to unrealized gains / losses 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 third quarter of 2009, long-term interest rates decreased, resulting in a $6.9 million decrease in the market value of TAL's swap contracts.
"While business conditions remain challenging due to the cumulative effects of the ongoing global recession, our business momentum over the last few months has improved," commented Brian M. Sondey, President and CEO of TAL International. "In the third quarter, improved global containerized trade volumes led to an increase in demand for leased containers as a number of our customers added container capacity back into their fleets after several quarters of aggressive fleet reductions. After falling steadily since the last quarter of 2008, our core utilization (excluding idle factory units) increased 1.7% in the third quarter of 2009 to reach 87.6% as of September 30. Our core utilization was 88.3% as of October 31. In addition, we have made good progress in raising new financing, and as of October 31, we had over $200 million of cash and unused borrowing capacity."
"However, while our business momentum improved in the third quarter, our profitability continued to decrease. Despite the increase in our utilization during the third quarter, the average number of containers on-hire to customers decreased from the second quarter level, due to the ongoing reduction in the size of our container fleet and the fact that our utilization fell more quickly in the second quarter than it recovered in the third quarter. In addition, our third quarter results reflect additional rate discounts provided to customers to extend containers on lease. We also recorded lower fees associated with the redelivery of containers in the third quarter due to a decrease in drop-off volumes, and our disposal gains were further pressured by a $0.9 million loss resulting from placing high-cost equipment purchased in 2008 onto a finance lease."
Adjusted pre-tax income (1), excluding gains on debt extinguishment and unrealized gains / losses on interest rate swaps, was $49.6 million in the first nine months of 2009, compared to $82.4 million in the first nine months of 2008.
Leasing revenues for the first nine months of 2009 were $236.6 million compared to $235.7 million in the first nine months of 2008. Adjusted EBITDA (2), including principal payments on finance leases, was $211.9 million for the first nine months of 2009 versus $231.7 million in the same period last year.
Adjusted Net Income (3), excluding gains on debt extinguishment and unrealized gains / losses on interest rate swaps, was $31.9 million for the first nine months of 2009, compared to $53.2 million in the prior year period. Adjusted Net Income per fully diluted common share was $1.02 in the first nine months of 2009, versus $1.62 per fully diluted common share in the prior year period.
Reported net income for the first nine months of 2009 was $55.6 million, versus net income of $51.1 million, in the prior year period. Net income per fully diluted common share was $1.78 for the first nine months of 2009, versus net income per fully diluted common share of $1.56 in the first nine months of 2008.
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.
Outlook
Mr. Sondey continued, "Containerized trade volumes typically decrease as we head into the fourth quarter of the year, and we expect trade volumes to come under pressure as the peak season for dry containers ends. However, early indications are that trade volumes, leasing demand and our utilization should hold up reasonably well through the end of the year. In addition, another vintage year of containers will reach the end of its depreciable life in November. Overall, we expect our financial performance in the fourth quarter to remain steady or improve slightly from the third quarter level."
"As we head into 2010, we expect to increasingly benefit from an improved relationship between the global supply and demand for containers, especially after we pass through the seasonally-slow first quarter. New container purchases have been extremely limited this year, and we expect purchases to remain at a low level until existing container inventories are more fully utilized. Container disposals have remained near their historic levels this year, and we estimate that global container capacity has been shrinking at an annual rate of 4-6% since the fourth quarter of 2008. As a result, we should not need global containerized trade volumes to fully recover to their pre-crisis levels before we see the container supply and demand situation and our utilization improve significantly."
"The main risk we continue to see to our outlook is the possibility that one of our major customers ceases operations and defaults on our leases. 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 half of 2009. While trade volumes improved in the third quarter, the market environment facing our customers remains extremely challenging, and 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."
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 December 22, 2009 to shareholders of record at the close of business on December 1, 2009.
Investors' Webcast
TAL will hold a Webcast at 9 a.m. (New York time) on Wednesday, November 4, 2009 to discuss its fiscal third quarter results. An archive of the Webcast will be available one hour after the live call through Friday November 27, 2009. To access the live Webcast or archive, please visit the Company's Web site at http://www.talinternational.com.
About TAL International Group, Inc.
TAL is one of the world's largest lessors of intermodal freight containers and chassis with 19 offices in 11 countries and approximately 197 third party container depot facilities in 36 countries. The Company's global operations include the acquisition, leasing, re-leasing and subsequent sale of multiple types of intermodal containers. TAL's fleet consists of approximately 705,000 containers and related equipment representing approximately 1,145,000 twenty-foot equivalent units (TEU). This places TAL among the world's largest independent lessors of intermodal containers and chassis as measured by fleet size.
Important Cautionary Information Regarding Forward-Looking Statements
Statements in this press release regarding TAL International Group, Inc.'s business that are not historical facts are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Readers are cautioned that these statements involve risks and uncertainties, are only predictions and may differ materially from actual future events or results. For a discussion of such risks and uncertainties, see "Risk Factors" in the Company's Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 3, 2009.
The Company's views, estimates, plans and outlook as described within this document may change subsequent to the release of this statement. The Company is under no obligation to modify or update any or all of the statements it has made herein despite any subsequent changes the Company may make in its views, estimates, plans or outlook for the future.
(1) Adjusted pre-tax income is a non-GAAP measurement we believe is useful in evaluating our operating performance. The Company's definition and calculation of adjusted pre-tax income is outlined in the attached schedules.
(2) Adjusted EBITDA is a non-GAAP measurement we believe is useful in evaluating our operating performance. The Company's definition and calculation of Adjusted EBITDA is outlined in the attached schedules.
(3) Adjusted net income is a non-GAAP measurement we believe is useful in evaluating our operating performance. The Company's definition and calculation of adjusted net income is outlined in the attached schedules.
(1)(2)(3) Please see page 7 for a detailed reconciliation of these financial measurements.
TAL INTERNATIONAL GROUP, INC.
Consolidated Balance Sheets
(Dollars in thousands, except share data)
September 30, December 31,
2009 2008
ASSETS: (Unaudited)
Leasing equipment, net of accumulated
depreciation and allowances of $ 1,387,498 $ 1,535,483
$403,067 and $352,089
Net investment in finance leases, net of 202,644 196,490
allowances of $1,626 and $1,420
Equipment held for sale 43,570 32,549
Revenue earning assets 1,633,712 1,764,522
Cash and cash equivalents (including restricted 61,243 56,958
cash of $14,171 and $16,160)
Accounts receivable, net of allowances of $715 33,330 42,335
and $807
Leasehold improvements and other fixed assets,
net of accumulated
1,068 1,832
depreciation and amortization of $5,007 and
$4,181
Goodwill 71,898 71,898
Deferred financing costs 7,652 8,462
Other assets 7,204 8,540
Fair value of derivative instruments 1,542 951
Total assets $ 1,817,649 $ 1,955,498
LIABILITIES AND STOCKHOLDERS' EQUITY:
Equipment purchases payable $ 2,212 $ 27,224
Fair value of derivative instruments 73,141 95,224
Accounts payable and other accrued expenses 38,350 43,978
Deferred income tax liability 104,144 73,565
Debt 1,195,542 1,351,036
Total liabilities 1,413,389 1,591,027
Stockholders' equity:
Preferred stock, $.001 par value, 500,000 -- --
shares authorized, none issued
Common stock, $.001 par value, 100,000,000
shares authorized, 33,592,066 33 33
and 33,485,816 shares issued respectively
Treasury stock, at cost, 2,905,381 and (36,233 ) (20,126 )
1,055,479 shares, respectively
Additional paid-in capital 397,639 396,478
Accumulated earnings (deficit) 42,542 (12,090 )
Accumulated other comprehensive income 279 176
Total stockholders' equity 404,260 364,471
Total liabilities and stockholders' equity $ 1,817,649 $ 1,955,498
TAL INTERNATIONAL GROUP, INC.
Consolidated Statements of Operations
(Dollars and shares in thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
(Unaudited) (Unaudited)
Revenues:
Leasing revenues:
Operating leases $ 69,088 $ 74,967 $ 221,112 $ 220,201
Finance leases 5,096 5,412 15,524 15,460
Total leasing revenues 74,184 80,379 236,636 235,661
Equipment trading revenue 7,869 26,098 33,704 72,802
Management fee income 675 855 2,013 2,362
Other revenues 188 355 777 1,118
Total revenues 82,916 107,687 273,130 311,943
Operating expenses
(income):
Equipment trading expenses 7,578 22,972 31,935 64,284
Direct operating expenses 9,134 6,207 28,600 20,614
Administrative expenses 9,192 12,434 30,577 34,066
Depreciation and 29,380 28,149 87,843 82,322
amortization
(Reversal) provision for (15 ) 1,859 383 2,062
doubtful accounts
Net (gain) on sale of (1,058 ) (7,563 ) (7,102 ) (18,059 )
leasing equipment
Net (gain) on sale of (185 ) (2,789 ) (185 ) (2,789 )
container portfolios
Total operating expenses 54,026 61,269 172,051 182,500
Operating income 28,890 46,418 101,079 129,443
Other expenses (income):
Interest and debt expense 17,024 16,528 51,505 47,058
(Gain) on debt - - (14,130 ) -
extinguishment
Unrealized loss (gain) on 6,935 7,371 (22,583 ) 3,273
interest rate swaps
Total other expenses 23,959 23,899 14,792 50,331
Income before income taxes 4,931 22,519 86,287 79,112
Income tax expense 1,755 7,985 30,718 28,053
Net income $ 3,176 $ 14,534 $ 55,569 $ 51,059
Net income per common $ 0.10 $ 0.45 $ 1.78 $ 1.57
share - Basic
Net income per common $ 0.10 $ 0.44 $ 1.78 $ 1.56
share - Diluted
Weighted average number of
common shares outstanding 30,621 32,580 31,226 32,599
- Basic
Weighted average number of
common shares outstanding 30,700 32,763 31,263 32,769
- Diluted
Cash dividends paid per $ 0.01 $ 0.4125 $ 0.03 $ 1.20
common share
Non-GAAP Financial Measures
We use the terms "EBITDA", "Adjusted EBITDA", "Adjusted Pre-tax Income", and "Adjusted Net Income" throughout this press release. EBITDA is defined as net income before interest and debt expense, income tax expense and depreciation and amortization, and excludes gains on debt extinguishments and unrealized gains /losses on interest rate swaps. Adjusted EBITDA is defined as EBITDA plus principal payments on finance leases.
Adjusted Pre-tax Income is defined as income before income taxes as further adjusted for certain items which are described in more detail below, which management believes are not representative of our operating performance. Adjusted Pre-tax Income excludes gains on debt extinguishments and unrealized gains / losses on interest rate swaps. Adjusted Net Income is defined as net income further adjusted for the items discussed above, net of income tax.
EBITDA, Adjusted EBITDA, Adjusted Pre-tax Income, and Adjusted Net Income are not presentations made in accordance with GAAP, and should not be considered as alternatives to, or more meaningful than, amounts determined in accordance with GAAP, including net income, or net cash from operating activities.
We believe that EBITDA, Adjusted EBITDA, Adjusted Pre-tax Income, and Adjusted Net Income are useful to an investor in evaluating our operating performance because:
-- these measures are widely used by securities analysts and investors to measure a company's operating performance without regard to items such as interest and debt expense, income tax expense, depreciation and amortization, gains on debt extinguishments and unrealized gains / losses on interest rate swaps, which can vary substantially from company to company depending upon accounting methods and book value of assets, capital structure and the method by which assets were acquired;
-- these measures help investors to more meaningfully evaluate and compare the results of our operations from period to period by removing the impact of our capital structure, our asset base and certain non-routine events which we do not expect to occur in the future; and
-- these measures are used by our management for various purposes, including as measures of operating performance to assist in comparing performance from period to period on a consistent basis, in presentations to our board of directors concerning our financial performance and as a basis for strategic planning and forecasting.
We have provided reconciliations of net income, the most directly comparable GAAP measure, to EBITDA and Adjusted EBITDA in the tables below for the three and nine months ended September 30, 2009 and 2008.
Additionally, we have provided reconciliations of income before income taxes and net income, the most directly comparable GAAP measures to Adjusted Pre-tax Income and Adjusted Net Income in the tables below for the three and nine months ended September 30, 2009 and 2008.
TAL INTERNATIONAL GROUP, INC.
Non-GAAP Reconciliations of EBITDA and Adjusted EBITDA
(Dollars in Thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
Net income $3,176 $14,534 $55,569 $51,059
Add (subtract):
Depreciation and amortization 29,380 28,149 87,843 82,322
Interest and debt expense 17,024 16,528 51,505 47,058
Income tax expense 1,755 7,985 30,718 28,053
(Gain) on debt extinguishment - - (14,130 ) -
Unrealized loss (gain) on interest 6,935 7,371 (22,583 ) 3,273
rate swaps
EBITDA 58,270 74,567 188,922 211,765
Add:
Principal payments on finance 7,775 7,106 22,931 19,938
leases
Adjusted EBITDA $66,045 $81,673 $211,853 $231,703
TAL INTERNATIONAL GROUP, INC.
Non-GAAP Reconciliations of Adjusted Pre-tax Income and Adjusted Net Income
(Dollars in Thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
Income before income taxes $4,931 $22,519 $86,287 $79,112
Add (subtract):
(Gain) on debt extinguishment - - (14,130 ) -
Unrealized loss (gain) on interest 6,935 7,371 (22,583 ) 3,273
rate swaps
Adjusted pre-tax income $11,866 $29,890 $49,574 $82,385
Net income $3,176 $14,534 $55,569 $51,059
Add (subtract)(a):
(Gain) on debt extinguishment - - (9,100 ) -
Unrealized loss (gain) on interest 4,466 4,757 (14,543 ) 2,112
rate swaps
Adjusted net income $7,642 $19,291 $31,926 $53,171
(a) All net income adjustments are reflected net of income taxes.
Source: TAL International Group, Inc.
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