TAL International Group, Inc. Reports Fourth Quarter 2009 Results

News was prepared under the information support of Online Daily Newspaper on Hellenic and international Shipping "Hellenic Shipping News".

25 Feb 2010

TAL International Group, Inc., one of the world's largest lessors of intermodal freight containers and chassis, today reported results for the fourth quarter and twelve months ended December 31, 2009.
Adjusted pre-tax income (1), excluding gains on debt extinguishment and unrealized gains / losses on interest rate swaps, was $12.0 million in the fourth quarter of 2009, compared to $24.8 million in the fourth quarter of 2008. Adjusted pre-tax income per fully diluted common share was $0.39 in the fourth quarter of 2009, compared to $0.76 in the fourth quarter of 2008. The Company focuses on its adjusted pre-tax results since it does not currently pay any meaningful income taxes and does not expect to for some time due to the accelerated tax depreciation on its existing and planned future container investments, and since it considers unrealized gains / losses on interest rate swaps and gains on debt extinguishment to be unrelated to operating performance.
Leasing revenues for the fourth quarter of 2009 were $72.6 million compared to $83.6 million in the fourth quarter of 2008. Adjusted EBITDA (2), including principal payments on finance leases, was $65.7 million for the quarter versus $79.4 million in the prior year period.
Adjusted Net Income (3), excluding gains on debt extinguishment and unrealized gains / losses on interest rate swaps, was $7.9 million for the fourth quarter of 2009, compared to $16.4 million in the fourth quarter of 2008. Adjusted Net Income per fully diluted common share was $0.26 in the fourth quarter of 2009, versus $0.50 per fully diluted common share in the fourth quarter of 2008.
Reported net income for the fourth quarter of 2009 was $16.0 million, versus net loss of $(15.3) million, in the fourth quarter of 2008. Net income per fully diluted common share was $0.52 for the fourth quarter of 2009, versus net loss per fully diluted common share of $(0.47) in the fourth 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 fourth quarter of 2009, long-term interest rates increased, resulting in a $12.6 million increase in the market value of TAL's swap contracts.
"In the fourth quarter of 2009, our operating and financial results started to recover from the affects of the global economic recession," commented Brian M. Sondey, President and CEO of TAL International. "After falling steadily from the fourth quarter of 2008 through the third quarter of 2009, our pretax income increased slightly in the fourth quarter of 2009, and our major operating metrics started to improve as well."
"Leasing demand for dry containers, our largest product line, typically slows in the fourth quarter as the summer peak season fades, but leasing demand improved throughout the fourth quarter of 2009. Our customers have indicated that trade volumes have been stronger than expected since the middle of 2009, and many needed to add container capacity back into their fleets after aggressively returning containers in the first half of the year. Leasing demand in the fourth quarter was also supported by an almost total lack of new dry container production in 2009. Our core utilization (excluding idle factory units) increased 2.7% during the fourth quarter to reach 90.3% as of December 31, 2009, and our operating expenses and disposal gains improved during the quarter as well. The financial impact of improving utilization was partially offset in the fourth quarter by temporary pick-up incentives provided to certain customers and a reduction in fee income due to a sharp decrease in the number of containers returned off lease. However, we finished the year with strong operating momentum and expect our improved operating performance to be more fully reflected in our financial results as we head into 2010."
Adjusted pre-tax income (1), excluding gains on debt extinguishment and unrealized gains / losses on interest rate swaps, was $61.6 million in the full twelve months of 2009, compared to $107.1 million in the full twelve months of 2008. Adjusted pre-tax income per fully diluted common share was $1.98 in the full twelve months of 2009, compared to $3.28 in the full twelve months of 2008.
Leasing revenues for the full twelve months of 2009 were $309.3 million compared to $319.3 million in the full twelve months of 2008. Adjusted EBITDA (2), including principal payments on finance leases, was $277.6 million for the full twelve months of 2009 versus $311.1 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 $39.8 million for the full twelve months of 2009, compared to $69.5 million in the prior year period. Adjusted Net Income per fully diluted common share was $1.28 in the full twelve months of 2009, versus $2.13 per fully diluted common share in the prior year period.
Reported net income for the full twelve months of 2009 was $71.6 million, versus net income of $35.8 million, in the prior year period. Net income per fully diluted common share was $2.30 for the full twelve months of 2009, versus net income per fully diluted common share of $1.09 in the full twelve months of 2008.
Mr. Sondey continued, "Overall, 2009 was a challenging year. Trade volumes dropped precipitously from October 2008 through the summer of 2009, and during the first half of the year we faced a large increase in container returns, very weak container pick-ups, falling utilization and decreasing used container disposal prices. Our average rental rates also fell throughout the year as we kept containers on-hire by providing reduced lease rates for lease extensions or temporary discount periods for container pick-ups or reduced drop-off volumes."
"However, while we faced significant challenges in 2009, our performance last year in many ways highlighted the inherent strength and resilience of our business. Our adjusted pretax return on equity was over 15% in 2009 despite the fact that the underlying market of global containerized trade had its worst year ever in terms of year-to-year changes in cargo volumes, and our financial performance and operating metrics stabilized and began to improve within twelve months of the start of the economic crisis. We were also able to reduce our leverage in 2009 with internal cash flow despite the challenging environment, and the ratio of our net debt to revenue earning assets decreased from 75% to 68% over the course of the year. Our solid performance and relatively rapid stabilization reflect the revenue and cash flow stability provided by the large portion of our containers on multi-year leases and the fact that container capacity is relatively self-correcting due to the short ordering cycle for containers and steady disposal rate for older containers as they age out of ocean service. Our ability to de-lever in a difficult environment was supported by the stability of our operating cash flow and our ability to shut off new procurement quickly."
Outlook
"While the first quarter typically represents our weakest quarter of the year, trade volumes continued to recover in January and February, and many customers continued to add containers back into their fleets. Most major shipping lines intend to keep new container purchases low for the foreseeable future, and most are currently turning to the leasing market for container additions. The strong leasing activity over the last few months has allowed us to place a large portion of our idle containers back on-hire, and our core utilization (excluding idle factory containers) is currently 92.2%. Market leasing rates are also currently strong, supported by new container prices in excess of $2,000 per 20' dry container and a shortage of depot units in China, though our average lease rates will continue to be affected by discounts provided in 2009. We have re-started active investment in our fleet and have ordered over 70,000 TEU of dry containers and over 7,000 TEU of refrigerated containers already this year."
"Looking forward, we expect that leasing demand will continue to be supported by some improvement in trade volumes and continued limited direct procurement from our shipping line customers. In the first quarter, we expect our improved utilization will lead to a 10%-20% increase in our Adjusted Pretax Income from the fourth quarter of 2009, and we expect our quarterly results will improve throughout 2010 as utilization fully recovers and as some of the discount incentives we provided in 2009 expire. If current trends continue, we expect our full year results for 2010 to exceed last year's level by 15% - 25%."
Dividend
TAL's Board of Directors has approved and declared a $0.25 per share quarterly cash dividend on its issued and outstanding common stock, payable on March 25, 2010 to shareholders of record at the close of business on March 11, 2010. Based on the information available today, we believe the distribution will qualify as a return of capital rather than a taxable dividend for U.S. tax purposes. Investors should consult with a tax advisor to determine the proper tax treatment of this distribution.
Mr. Sondey concluded "We are very pleased to increase our dividend back to a more significant level. We effectively discontinued the dividend in early 2009 due to the rapid decrease in global trade volumes and uncertainty about future market conditions. However, as I have noted, we were able to deliver solid results in 2009 despite the challenging conditions, and we are now expecting a much improved market environment and improved performance in 2010. Based on this, we decided it was appropriate to restart our dividend program and have set the initial quarterly dividend at $0.25 per share."
TAL is one of the world's largest lessors of intermodal freight containers and chassis with 18 offices in 11 countries and approximately 199 third party container depot facilities in 37 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 702,000 containers and related equipment representing approximately 1,140,000 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.

Source: TAL International Group, Inc.