10-K
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For The Fiscal Year Ended
December 31, 2008
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or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the Transition Period
from to
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Commission file number-
001-32638
TAL International Group,
Inc.
(Exact name of registrant as
specified in the charter)
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Delaware
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20-1796526
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification Number)
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100 Manhattanville Road, Purchase, New York
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10577-2135
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(Address of principal executive
office)
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(Zip Code)
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(914) 251-9000
(Registrants telephone
number including area code)
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange On Which Registered
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Common stock, $0.001 par value per share
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The New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
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 if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large
accelerated
filer o
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Accelerated
filer þ
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Non-accelerated
filer o
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Smaller
reporting
company o
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in the Exchange Act
Rule 12b-2). Yes o No þ
As of June 30, 2008, the last business day of the
Registrants most recently completed second fiscal quarter,
there were 32,712,437 shares of the Registrants
common stock outstanding, and the aggregate market value of such
shares held by non-affiliates of the Registrant (based upon the
closing sale price of such shares on the New York Stock Exchange
on June 30, 2008) was approximately $180,683,000.
Shares of Registrants common stock held by each executive
officer and director and by each entity or person that, to the
Registrants knowledge, owned 5% or more of
Registrants outstanding common stock as of June 30,
2008 have been excluded in that such persons may be deemed to be
affiliates of the Registrant. This determination of affiliate
status is not necessarily a conclusive determination for other
purposes.
As of February 20, 2009, there were 32,152,977 shares
of the Registrants common stock outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
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Part of Form 10-K
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Document Incorporated by Reference
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Part II, Item 5, Part III, Items 10, 11, 12,
13, and 14
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Portion of the Registrants proxy statement to be filed in
connection with the Annual Meeting of the Stockholders of the
Registrant to be held on April 30, 2009.
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TAL
International Group, Inc.
2008
Annual Report on
Form 10-K
Table of
Contents
2
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This annual report on
Form 10-K
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 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.
WEBSITE
ACCESS TO COMPANYS REPORTS AND CODE OF ETHICS
Our Internet website address is www.talinternational.com. Our
annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Exchange Act are available
free of charge through our website as soon as reasonably
practicable after they are electronically filed with, or
furnished to, the SEC.
We have adopted a code of ethics that applies to all of our
employees, officers, and directors, including our principal
executive officer, principal financial officer and principal
accounting officer. The text of our code of ethics is posted on
our website at
http://www.talinternational.com/
within the Corporate Governance portion of the Investors section
of our website.
Also, copies of our annual report and Code of Ethics will be
made available, free of charge, upon written request to:
TAL
International Group, Inc.
100 Manhattanville Road
Purchase, New York 10577
Attn: Marc Pearlin, Vice President, General Counsel and
Secretary
Telephone:
(914) 251-9000
SERVICE
MARKS MATTERS
The following items referred to in this annual report are
registered or unregistered service marks in the United States
and/or
foreign jurisdictions pursuant to applicable intellectual
property laws and are the property of us and our subsidiaries:
TAL®,
Tradex®,
Trader®
and
Greyslot®.
3
PART I
Our
Company
Our operations commenced in 1963 and 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.
History
TAL International Group, Inc. (TAL or the
Company) was formed on October 26, 2004, and
commenced operations on November 4, 2004, when it acquired
all of the outstanding capital stock of TAL International
Container Corporation (TAL International
Corporation) and Trans Ocean Ltd. (Trans
Ocean) from TA Leasing Holding Co., Inc. (the
Acquisition). Prior to the consummation of the
Acquisition, TAL International Corporation and Trans Ocean were
subsidiaries of an international insurance and finance company
and provided long-term leases, service leases and finance
leases, maritime equipment management services and subsequent
sale of multiple types of intermodal equipment through a
worldwide network of offices, third party depots and other
facilities.
Business
Segments
We operate our business in one industry, intermodal
transportation equipment, and have two business segments:
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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.
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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.
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Equipment
Leasing Segment
Our equipment leasing operations include the acquisition,
leasing, re-leasing and ultimate sale of multiple types of
intermodal equipment. We have an extensive global presence,
offering leasing services through 20 offices in 11 countries and
185 third-party container depot facilities in 37 countries as of
December 31, 2008. Our customers are among the worlds
largest shipping lines and include, among others, APL-NOL, CMA
CGM, NYK Line, Mediterranean Shipping Company and Maersk Line.
We 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 used for the
transportation of containers domestically via rail and roads,
and tank containers, which are used to transport bulk liquid
products such as chemicals. We have also financed port equipment.
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
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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, and we classify
such leases as either long-term or service leases, depending
upon which features are more predominant.
Our leases require lessees to maintain the equipment in good
operating condition, defend and indemnify us from liabilities
relating to the equipments contents and handling, and
return the equipment to specified drop-off locations. As of
December 31, 2008, 90% of our total fleet was on-hire to
customers, with 54% of our fleet on long-term leases, 9% on
finance leases, 18% on service leases and 9% on long-term leases
whose fixed terms have expired. As of December 31, 2008,
our long-term leases had an average remaining lease term of
38 months. In addition, 7% of our total fleet was available
for lease and 3% was available for sale.
Our equipment leasing revenues primarily consist of leasing
revenues derived from the lease of our owned equipment and, to a
lesser extent, fees received for managing equipment owned by
third parties. The most important driver of our profitability is
the extent to which leasing revenues, which are driven primarily
by our owned equipment fleet size, utilization and average
rental rates, exceed our ownership and operating costs, which
primarily consist of depreciation and amortization, interest
expense, direct operating expenses and administrative expenses.
We seek to exceed a targeted return on our investment over the
life cycle of our equipment by managing equipment utilization,
per diem lease rates, drop-off restrictions and the used
equipment sale process.
Equipment
Trading Segment
Through our extensive operating network, 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 and one-way shipments. Over the last five
years, we have sold an average of approximately 37,000
twenty-foot equivalent units (TEU) of containers purchased for
resale annually.
Total revenue for the equipment trading segment is primarily
made up of equipment trading revenue, which represents the
proceeds from sales of trading equipment. The profitability of
this segment is largely driven by the volume of units purchased
and sold, our per unit selling margin, and our direct operating
and administrative expenses.
Industry
Overview
According to Drewry Shipping Consultants Limited, as of December
2008, the container shipping industry generated over
$250 billion in annual revenue. Containers provide a secure
and cost-effective method of transporting raw materials,
component parts and finished goods because they can be used in
multiple modes of transport. By making it possible to move cargo
from a point of origin to a final destination without repeated
unpacking and repacking, containers reduce freight and labor
costs. In addition, automated handling of containers permits
faster loading and unloading of vessels, more efficient
utilization of transportation equipment and reduced transit
time. The protection provided by sealed containers also reduces
cargo damage and the loss and theft of goods during shipment.
Over the last twenty-five years, containerized trade has grown
at a rate greater than that of general worldwide economic
growth. According to Clarkson Research Studies
(Clarkson), worldwide containerized cargo volume
grew in every year from 1981 through 2008, attaining a compound
annual growth rate (CAGR) of 9.7% during that
period. We believe that this historical growth was due to
several factors, including the shift in global manufacturing
capacity to lower labor cost areas such as China and India, the
continued integration of developing high growth economies into
global trade patterns and the continued conversion of cargo from
bulk shipping into containers. However, global containerized
trade growth turned significantly negative in the fourth quarter
of 2008, and our customers are projecting that trade volumes
will be exceptionally weak in 2009, especially for dry
containers. Many forecasters are projecting that global
containerized trade volumes may shrink in 2009.
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Container leasing firms maintain inventories of new and used
containers in a wide range of worldwide locations and supply
these containers primarily to shipping line customers under a
variety of short and long-term lease structures. According to
Containerisation International, container lessors
ownership was approximately 11.2 million TEU or 40.5% of
the total worldwide container fleet of 27.6 million TEU as
of mid-2008.
In general, leasing containers helps shipping lines improve
their overall container fleet efficiency and provides the
shipping lines with an alternative source of equipment
financing. Given the uncertainty and variability of export
volumes, and the fact that shipping lines have difficulty in
accurately forecasting their container requirements at a
port-by-port
level, the availability of containers for lease significantly
reduces a shipping lines need to purchase and maintain
larger container inventory buffers. In addition, the drop-off
flexibility provided by operating leases also allows the
shipping lines to adjust their container fleet sizes and the mix
of container types in their fleets both seasonally and over time
and helps to balance trade flows. Leasing containers also
provides shipping lines with an additional source of funding to
help them manage a high-growth, asset-intensive business.
Spot leasing rates are typically a function of, among other
things, new equipment prices (which are heavily influenced by
steel prices), interest rates and the equipment supply and
demand balance at a particular time and location. Average
leasing rates on an entire portfolio of leases respond more
gradually to changes in new equipment prices, because lease
agreements can only be re-priced upon the expiration of the
lease. In addition, the value that lessors receive upon resale
of equipment is closely related to the cost of new equipment.
Operations
We operate our business through 20 worldwide offices located in
11 different countries as of December 31, 2008. Our field
operations include a global sales force, a global container
operations group, an equipment resale group, and a logistics
services group. Our headquarters are located in Purchase, New
York, USA.
Our
Equipment
Intermodal containers are designed to meet a number of criteria
outlined by the International Standards Organization (ISO). The
standard criteria include the size of the container and the
gross weight rating of the container. This standardization
ensures that containers can be used by the widest possible
number of transporters and it facilitates container and vessel
sharing by the shipping lines. The standardization of the
container is also an important element of the container leasing
business since we can operate one fleet of containers that can
be used by all of our major customers.
Our fleet primarily consists of three types of equipment:
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Dry Containers. A dry container is
essentially a steel-constructed box with a set of doors on one
end. Dry containers come in lengths of 20, 40 or 45 feet.
They are 8 feet wide, and either
81/2
or
91/2
feet tall. Dry containers are the least-expensive and most
widely used type of intermodal container and are used to carry
general cargo such as manufactured component parts, consumer
staples, electronics and apparel.
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Refrigerated Containers. Refrigerated
containers include an integrated cooling machine and an
insulated container, come in lengths of 20 or 40 feet, and
are 8 feet wide, and either
81/2
or
91/2
feet tall. These containers are typically used to carry
perishable cargo such as fresh and frozen produce.
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Special Containers. Most of our
special containers are open top and flat rack containers. Open
top containers come in similar sizes as dry containers, but do
not have a fixed roof. Flat rack containers come in varying
sizes and are steel platforms with folding ends and no fixed
sides. Open top and flat rack containers are generally used to
move heavy or bulky cargos, such as marble slabs, steel coils or
factory components, that cannot be easily loaded on a fork lift
through the doors of a standard container.
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Over the last few years, we have added three equipment types to
our fleet:
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Tank Containers. Tank containers are
stainless steel cylindrical tanks enclosed in rectangular steel
frames, with the same outside dimensions as 20 foot dry
containers. They carry bulk liquids such as chemicals.
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Chassis. An intermodal chassis is a
rectangular, wheeled steel frame, generally
231/2,
40 or 45 feet in length, built specifically for the purpose
of transporting intermodal containers domestically. Longer sized
chassis, designed solely to accommodate domestic containers, can
be up to 53 feet in length. Once mounted, the chassis and
container are the functional equivalent of a trailer. When
mounted on a chassis, the container may be trucked either to its
destination or to a railroad terminal for loading onto a rail
car. Our chassis are primarily used in the United States.
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Port Equipment. We finance container
cranes, reach stackers and related equipment. We believe that
the financing of such equipment is a natural extension of our
equipment leasing business.
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Our
Leases
Most of our revenues are derived from leasing our equipment
fleet to our core shipping line customers. The majority of our
leases are structured as operating leases, though we also
provide customers with finance leases. Regardless of lease type,
we seek to exceed our targeted return on our investments over
the life cycle of the equipment by managing utilization, lease
rates, drop-off restrictions and the used equipment sale process.
Our lease products provide numerous operational and financial
benefits to our shipping line customers. These benefits include:
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Operating Flexibility. The timing,
location and daily volume of cargo movements for a shipping line
are often unpredictable. Leasing containers and chassis helps
the shipping lines manage this uncertainty and minimize the
requirement for large inventory buffers by allowing them to
pick-up
leased equipment on short notice.
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Fleet Size and Mix Flexibility. The
drop-off flexibility included in container and chassis operating
leases allows shipping lines to more quickly adjust the size of
their fleets and the mix of container types in their fleets as
their trade volumes and patterns change due to seasonality,
market changes or changes in company strategies.
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Alternative Source of Financing.
Container and chassis leases provide an additional source of
equipment financing to help shipping lines manage the high level
of investment required to maintain pace with the rapid growth of
the asset-intensive container shipping industry.
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Operating Leases. Operating leases are
structured to allow customers flexibility to
pick-up
equipment on short notice and to drop-off equipment prior to the
end of its useful life. Because of this flexibility, most of our
containers and chassis will go through several
pick-up and
drop-off cycles. Our operating lease contracts specify a per
diem rate for equipment on-hire, where and when such equipment
can be returned, how the customer will be charged for damage and
the charge for lost or destroyed equipment, among other things.
We categorize our operating leases as either long-term leases or
service leases. Some leases have contractual terms that have
features reflective of both long-term and service leases. We
classify such leases as either long-term or service leases,
depending upon which features are predominant. Long-term leases
typically have initial contractual terms ranging from three to
eight years with an average term of approximately five years at
lease inception. Our long-term leases require our customers to
maintain specific units on-hire for the duration of the lease
term, and they provide us with predictable recurring cash flow.
As of December 31, 2008, 54% of our containers and chassis
were on-hire under long-term operating leases. As of
December 31, 2008, our long-term leases had an average
remaining duration of 38 months, assuming no leases are
renewed. However, we believe that many of our customers will
renew leases for equipment that is less than sale age at the
expiration of the lease. In addition, our equipment typically
remains on-hire at the contractual per diem
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rate for an additional six to twelve months beyond the end of
the contractual lease term due to the logistical requirements of
our customers having to return the containers and chassis to
specific drop-off locations.
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. As of December 31, 2008, 9%
of our containers and chassis were on long-term leases whose
fixed terms have expired but for which the related units remain
on-hire and for which we continue to receive rental payments.
Some of our long-term leases give our customers Early
Termination Options (ETOs). If exercised, ETOs allow
customers to return equipment prior to the expiration of the
long-term lease. However, if an ETO is exercised, the customer
is required to pay a penalty per diem rate that is applied
retroactively to the beginning of the lease. As a result of this
retroactive penalty, ETOs have historically rarely been
exercised.
Service leases allow our customers to
pick-up and
drop-off equipment during the term of the lease, subject to
contractual limitations. Service leases provide the customer
with a higher level of flexibility than term leases and, as a
result, typically carry a higher per diem rate. The terms of our
service leases can range from twelve months to five years,
though because equipment can be returned during the term of a
service lease and since service leases are generally renewed or
modified and extended upon expiration, lease term does not
dictate expected on-hire time for our equipment on service
leases. As of December 31, 2008, 18% of our containers and
chassis were on-hire under service leases and this equipment has
been on-hire for an average of 47 months.
Finance Leases. Finance leases provide our
customers with an alternative method to finance their equipment
acquisitions. Finance leases typically have lease terms ranging
from five to ten years. Finance leases are generally structured
for specific quantities of equipment, generally require the
customer to keep the equipment on-hire for its remaining useful
life, and typically provide the customer with a purchase option
at the end of the lease term. As of December 31, 2008,
approximately 9% of our containers and chassis were on-hire
under finance leases.
Lease Documentation. In general, our lease
agreements consist of two basic elements, a master lease
agreement and a lease addendum. Lease addenda contain the
business terms (including daily rate, term duration and drop-off
schedule, among other things) for specific leasing transactions,
while master lease agreements outline the general rights and
obligations of the lessor and lessee under all of the lease
addenda covered by the master lease agreement (lease addenda
will specify the master lease agreement that governs the lease
addenda). For most customers, we have a small number of master
lease agreements (often one) and a large number of lease addenda.
Our master lease agreements generally require the lessees to pay
rentals, depot charges, taxes and other charges when due, to
maintain the equipment in good condition and repair, to return
the equipment in good condition in accordance with the return
condition set forth in the master lease agreement, to use the
equipment in compliance with all federal, state, local and
foreign laws, and to pay us for the value of the equipment as
determined by us if the equipment is lost or destroyed. The
default clause gives us certain legal remedies in the event that
the lessee is in breach of the lease.
The master lease agreements contain an exclusion of warranties
clause and require lessees to defend and indemnify us in most
instances from third-party claims arising out of the
lessees use, operation, possession or lease of the
equipment. Lessees are generally required to maintain all risks
physical damage insurance, comprehensive general liability
insurance and to indemnify us against loss. We also maintain our
own off-hire physical damage insurance to cover our equipment
when it is not on-hire to lessees and third-party liability
insurance for both on-hire and off-hire equipment. Nevertheless,
such insurance or indemnities may not fully protect us against
damages arising from the use of our containers.
Logistics Management, Re-leasing, Depot Management and
Equipment Disposals. We believe that managing the
period after our equipments first lease is the most
important aspect of our business. Successful management of this
period requires disciplined logistics management, extensive
re-lease capability, careful cost control and effective sales of
used equipment.
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Logistics Management. Since the Asian
financial crisis in the late 1990s, the shipping industry
has been characterized by large regional trade imbalances, with
loaded containers generally flowing from export-oriented
economies in Asia to North America and Western Europe. Because
of these trade imbalances, shipping lines have an incentive to
return leased containers in North America and Europe to reduce
the cost of empty container backhaul. For several years after
the Asian financial crisis, the return of large numbers of
containers to North America and Europe reduced utilization for
TAL and the rest of the leasing industry and significantly
increased container positioning costs as leasing companies were
forced to ship empty containers back to high container demand
areas in Asia. In the aftermath of the Asian financial crisis,
we embarked on a program to reduce logistical and utilization
risk by increasing the percentage of our containers on long-term
leases or finance leases and restricting the ability of our
customers to return containers outside of Asian demand locations.
In addition to restructuring our leases, we increased our
operational focus on moving empty containers as cheaply as
possible. To accomplish this, we developed an in-house group of
experts, which we call Greyslot, to manage our empty container
positioning program. As part of their mandate to reposition our
empty containers, Greyslot maintains frequent contact with
various shipping lines and vessel owners to identify available
vessel space, and our success with managing our own positioning
program has led to additional revenue opportunities. For the
last several years Greyslot has acted as a broker of empty
vessel space for moving additional empty containers for third
parties. Our third-party customers include leasing companies and
shipping lines, and such third-party business currently
represents a majority of the containers moved by Greyslot. While
we have made important strides over the last few years in our
logistics management, logistical risk remains an important
element of our business due to competitive pressures, changing
trade patterns and other market factors and uncertainties.
Re-Leasing. Since our operating leases allow
customers to return containers and chassis, we typically are
required to place containers and chassis on several leases
during their useful lives. Initial lease transactions for new
containers and chassis can usually be generated with a limited
sales and customer service infrastructure because initial leases
for new containers and chassis typically cover large volumes of
units and are fairly standardized transactions. Used equipment,
on the other hand, is typically leased out in small transactions
that are structured to accommodate
pick-ups and
returns in a variety of locations. As a result, to maintain high
utilization of older equipment, leasing companies benefit from
having a large number of customers and maintaining a high level
of operating contact with these customers. In addition, the
utilization of older containers and chassis is highly influenced
by the worldwide supply and demand balance of equipment at a
particular time.
Depot Management. As of December 31,
2008, we managed our equipment fleet through 185 third-party
owned and operated depot facilities located in 37 countries.
Depot facilities are generally responsible for repairing our
containers and chassis when they are returned by lessees and for
storing the equipment while it is off-hire. We have a worldwide
operations group that is responsible for managing our depot
contracts and they also periodically visit the depot facilities
to conduct inventory and repair audits. We also supplement our
internal operations group with the use of independent inspection
agents.
We are in constant communication with our depot partners through
the use of electronic data interchange, or EDI. Our depots
gather and prepare all information related to the activity of
our equipment at their facilities and transmit the information
via EDI and the Internet to us. The information we receive from
our depots updates our fully integrated container fleet
management and tracking system.
Most of the depot agency agreements follow a standard form and
generally provide that the depot will be liable for loss or
damage of equipment and, in the event of loss or damage, will
pay us the previously agreed loss value of the applicable
equipment. The agreements require the depots to maintain
insurance against equipment loss or damage and we carry
insurance to cover the risk that the depots insurance
proves insufficient.
Our container repair standards and processes are generally
managed in accordance with standards and procedures specified by
the Institute of International Container Lessors (IICL). The
IICL establishes and documents the acceptable interchange
condition for containers and the repair procedures required to
return
9
damaged containers to the acceptable interchange condition. At
the time that containers are returned by lessees, the depot
arranges an inspection of the containers to assess the repairs
required to return the containers to acceptable IICL condition.
This inspection process also splits the damage into two
components, customer damage and normal wear and tear. Items
typically designated as customer damage include dents in the
container and debris left in the container, while items such as
rust are typically designated as normal wear and tear.
Our leases are generally structured so that the lessee is
responsible for the customer damage portion of the repair costs,
and customers are billed for damages at the time the equipment
is returned. We sometimes offer our customers a repair service
program whereby we, for an additional payment by the lessee (in
the form of a higher per-diem rate or a flat fee at off-hire),
assume financial responsibility for all or a portion of the cost
of repairs upon return of the equipment (but not of total loss
of the equipment), up to a pre-negotiated amount.
Equipment Disposals. Our in-house equipment
sales group has a worldwide team of specialists that manage the
sale process for our used containers and chassis from our lease
fleet. We generally sell to domestic storage companies, freight
forwarders (who often use the containers for one-way trips) and
other purchasers of used containers. We believe we are one of
the worlds largest sellers of used containers.
We have sold over 71,000 TEU of our owned and managed used
containers on average over the last five years. The sale prices
we receive for our used containers from our lease fleet are
influenced by many factors, including the level of demand for
used containers compared to the number of used containers
available for disposal in a particular location, the cost of new
containers, and the level of damage on the containers. While our
total revenue is primarily made up of leasing revenue, gains or
losses on the sale of used containers can have a significant
positive or negative impact on our profitability.
Equipment Trading. We also buy and sell new
and used containers and chassis acquired from third parties. We
typically purchase our equipment trading fleet from many of our
shipping line customers or other sellers of used or new
equipment. Trading margins are dependent on the volume of units
purchased and resold, selling prices, cost paid for equipment
sold and selling and administrative costs. We have sold
approximately 37,000 TEU of containers purchased from third
parties for resale on average over the last five years.
Management
Services
A portion of our container fleet is managed for third-party
owners. We receive a specified percentage of the net revenue
generated by our managed containers in return for our management
services. If operating expenses were to exceed revenues, the
owners are obligated to pay the excess or we may deduct the
excess, including our management fee, from future net revenues.
We typically receive a commission for selling managed
containers, though in some cases, we are compensated for sales
through a percentage sharing of sale proceeds over an agreed
floor amount. Typically the terms of the management agreements
are 10 to 12 years from the acceptance dates of containers
under the agreement.
Environmental
We may be subject to environmental liability in connection with
our current or historical operations that could adversely affect
our business and financial prospects despite insurance coverage,
terms of leases and other arrangements for use of the containers
that place the responsibility for environmental liability on the
end user. In certain countries like the United States, the owner
of a leased container may be liable for the costs of
environmental damage from the discharge of the contents of the
container even though the owner is not at fault. We have not yet
experienced any such claims, although we cannot assure you that
we will not be subject to such claims in the future. Liability
insurance policies, including ours, usually exclude claims for
environmental damage. Our lessees are required to indemnify us
from such claims. Some of our lessees may have separate
insurance coverage for environmental damage, but we cannot
assure you that any such policies would cover or otherwise
offset any liability we may have as the owner of a leased
container. Our standard master tank container lease agreement
insurance clause requires our tank container lessees to provide
pollution
10
liability insurance. Such insurance or indemnities may not fully
protect us against damages arising from environmental damage.
Countries that are signatories to the Montreal Protocol on the
environment agreed in November 1992 to restrict the use of
environmentally destructive refrigerants, banning production
(but not use) of chlorofluorocarbon compounds (CFCs)
beginning in January 1996. Less than 1% of our refrigerated
containers still use CFC refrigerants. Over 99% of our
refrigerated containers currently use R134A or 404A refrigerant.
While R134A and 404A do not contain CFCs, the European
Union has instituted regulations to phase out the use of R134A
in automobile air conditioning systems beginning in 2011 due to
concern that the release of R134A into the atmosphere may
contribute to global warming. The European Union regulations do
not restrict the use of R134A in refrigerated containers or
trailers, though we are continuing to monitor regulatory
developments. If future regulations prohibit the use or
servicing of containers using R134A or 404A refrigerants, we
could be forced to incur large retrofitting expenses.
An additional environmental concern affecting our operations
relates to the construction materials used in our dry
containers. The floors of dry containers are plywood usually
made from tropical hardwoods. Due to concerns regarding
de-forestation of tropical rain forests and climate change, many
countries which have been the source of these hardwoods have
implemented severe restrictions on the cutting and export of
these woods. Accordingly, container manufacturers have switched
a significant portion of production to more readily available
alternatives such as birch, bamboo, and other farm grown wood
species. Container users are also evaluating alternative designs
which will limit the amount of plywood required and are also
considering possible synthetic materials to replace the plywood.
These new woods or other alternatives have not proven their
durability over the
13-15 year
life of a dry container and if they cannot perform as well as
the hardwoods have historically, the future repair and operating
costs for these containers could be significantly higher.
Credit
Controls
We monitor our customers performance and our lease
exposures on an ongoing basis. Our credit management processes
are aided by the long payment experience we have with most of
our customers and our broad network of relationships in the
shipping industry that provides current information about our
customers market reputations. Credit criteria may include,
but are not limited to, customer payment history, customer
financial position and performance (e.g., net worth, leverage,
profitability), trade routes, country of domicile, social and
political climate, and the type of, and location of, equipment
that is to be supplied.
Marketing
and Customer Service
Our global sales and customer service force is responsible for
developing and maintaining relationships with senior operations
staff at our shipping line customers, negotiating lease
contracts and maintaining
day-to-day
coordination with junior level staff at our customers. This
close customer communication helps us to negotiate lease
contracts that satisfy both our financial return requirements
and our customers operating needs and ensures that we are
aware of our customers potential equipment shortages and
that they are aware of our available equipment inventories.
Customers
We believe that we have strong, long standing relationships with
our largest customers, most of whom we have had a relationship
with for over 20 years. We currently have equipment on-hire
to more than 300 customers, although approximately 76% of our
units are on-hire to our 20 largest customers. Our customers are
mainly international shipping lines, but we also lease
containers to freight forwarding companies and manufacturers.
The shipping industry has been consolidating for a number of
years, and further consolidation could increase the portion of
our revenue that comes from our largest customers. Our five
largest customers accounted for approximately 48% of our 2008
leasing revenues. Our largest customer is APL-NOL, which
accounted for approximately 15% of our leasing revenues in 2008,
and 18% in 2007 and 2006. CMA CGM accounted for approximately
12% of our leasing revenue in 2008. No other customer exceeded
10% of our leasing revenues in 2008, 2007 or 2006. A default by
any of these major customers could have a material adverse
impact on our business, financial condition and future prospects.
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Currency
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 are 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 record unrealized foreign
currency exchange gains and losses primarily due to fluctuations
in exchange rates related to our Euro and Pound Sterling
transactions and related assets.
Systems
and Information Technology
We have a proprietary, fully integrated fleet management system.
The system tracks all of our equipment individually by unit
number, provides design specifications for the equipment, tracks
on-hire and off-hire transactions, matches each on-hire unit to
a lease contract and each off-hire unit to a depot contract,
maintains the major terms for each lease contract, calculates
the monthly bill for each customer and tracks and bills for
equipment repairs. Our system is EDI capable, which means it can
receive and process equipment activity transactions
electronically.
In addition, our system allows our business partners to conduct
business with us through the Internet. It allows customers to
check our equipment inventories, review design specifications,
request clearances for returning equipment (the system will
issue the clearance electronically if the return to the
specified location is currently allowed by the contract covering
the equipment), request bookings for equipment
pick-ups and
review and approve repair bills.
Suppliers
We have long relationships with all of our major suppliers. We
purchase most of our containers and chassis in China. There are
four large manufacturers of dry and special containers and three
large manufacturers of refrigerated containers. Our operations
staff reviews the designs for our containers and periodically
audits the production facilities of our suppliers. In addition,
we use our Asian operations group and third party inspectors to
visit factories when our containers are being produced to
provide an extra layer of quality control. Nevertheless, defects
in our containers do sometimes occur. We work with the
manufacturers to correct these defects, and our manufacturers
have generally honored their warranty obligations in such cases.
Competition
We compete with approximately ten other major intermodal
equipment leasing companies, many smaller lessors, manufacturers
of intermodal equipment and companies offering finance leases as
distinct from operating leases. It is common for our customers
to utilize several leasing companies to meet their equipment
needs.
Our competitors compete with us in many ways, including lease
pricing, lease flexibility, supply reliability and customer
service. In times of weak demand or excess supply, leasing
companies often respond by lowering leasing rates and increasing
the logistical flexibility offered in their lease agreements. In
addition, new entrants into the leasing business have been
attracted by the high rate of containerized trade growth in
recent years, and they are often aggressive on pricing and lease
flexibility.
While we are forced to compete aggressively on price, we attempt
to emphasize our supply reliability and high level of customer
service to our customers. We invest heavily to ensure adequate
equipment availability in high demand locations, dedicate large
portions of our organization to building customer relationships,
maintain close
day-to-day
coordination with customers operating staffs and have
developed powerful and user-friendly systems that allow our
customers to transact with us through the Internet.
Employees
As of December 31, 2008, we employed approximately
200 people, in 20 offices, in 11 countries. We believe that
our relations with our employees are good and we are not a party
to any collective bargaining agreements.
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Container
leasing demand is affected by numerous market factors as well as
external political and economic events that are beyond our
control, any of which could have a material adverse effect on
our business, financial condition, results of operations or cash
flows.
Demand for containers depends largely on the rate of world trade
and economic growth. Demand for leased containers is also driven
by our customers lease vs. buy decisions.
Cyclical recessions can negatively affect lessors
operating results because during economic downturns or periods
of reduced trade, shipping lines tend to lease fewer containers,
or lease containers only at reduced rates, and tend to rely more
on their own fleets to satisfy a greater percentage of their
requirements.
In 2008, the rate of global economic growth slowed significantly
causing global containerized trade growth to decrease. Economic
forecasts indicate that the global economy will be exceptionally
weak in 2009, and some forecasters are predicting that global
containerized trade volumes may shrink in 2009 for the first
time ever. Weak or negative trade growth in 2009 is likely to
lead to a decrease in leasing demand and a decrease in our
container utilization, downward pressure on our leasing rates, a
decrease in leasing revenue and an increase in container
operating costs (such as storage and positioning). To the extent
that weak or negative trade growth leads to an excess worldwide
supply of containers and reduced demand for purchases of used
containers, it is also likely that our used container disposal
prices will decrease. All of these factors can have a large
negative impact on our growth rate and financial performance.
In previous economic downturns, such as those that occurred in
2001 and 2002, we experienced many of the adverse effects
described above. Many forecasters are predicting that the
economic and global trade downturn will be significantly more
severe in 2009 than it was in previous periods of weakness.
Other general factors affecting demand for leased containers,
container utilization and per diem rental rates include:
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the available supply and prices of new and used containers;
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changes in the operating efficiency of our customers, economic
conditions and competitive pressures in the shipping industry;
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the availability and terms of equipment financing for our
customers;
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fluctuations in interest rates and foreign currency values;
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import/export tariffs and restrictions;
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customs procedures;
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foreign exchange controls and
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other governmental regulations and political or economic factors
that are inherently unpredictable and may be beyond our control.
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Any of the aforementioned factors may have a material adverse
effect on our business, financial condition, results of
operations or cash flows. For example, in 2005 the inventory of
new containers held at container factories by leasing companies
and shipping lines increased substantially despite continued
growth in the volume of world trade. We believe that this
container inventory
build-up was
mainly caused by our customers achieving improved container
operating efficiency in 2005 due to an unexpected reduction in
port and rail congestion relative to the significant congestion
problems that were experienced in 2004. The
build-up of
container inventories in Asia by our customers reduced our
volume of leasing transactions in 2005 and caused our container
utilization to decrease. Additionally, as a result of the
build-up of
inventories of new equipment, we reduced our container orders
for the third and fourth quarters of 2005.
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Equipment
prices and lease rates may decrease.
Lease rates depend on the type and length of the lease, the
type, age and location of the equipment, competition, and other
factors more fully discussed below. Container lease rates also
move with the fluctuations in prices for new containers. Because
steel is the major component used in the construction of new
containers, the price for new containers, as well as prevailing
container lease rates, are both highly correlated with the price
of steel.
A decrease in market leasing rates impacts both our new
container investments and the existing containers in our fleet.
Most of our existing containers are on operating leases, which
means that the lease term is shorter than the expected life of
the container, so the lease rate we receive for the container is
subject to change at the expiration of the current lease. As a
result, during periods of low lease rates, the average lease
rate we receive for our containers is negatively impacted by
both the addition of new containers at low lease rates as well
as the turnover of existing containers from leases with higher
lease rates to leases with lower lease rates. For example, new
container prices and lease rates decreased in the late
1990s, because of, among other factors, a drop in
worldwide steel prices and a shift in container manufacturing
from Taiwan and Korea to areas with lower labor costs in
mainland China. During this time, our average lease rates,
leasing revenue and profitability declined rapidly due to lease
rate decreases on our existing containers.
Container prices and market leasing rates have varied widely
over the past five years. Container prices and market lease
rates increased by over 40% from the middle of 2003 to the
middle of 2005 primarily due to an increase in the price of
steel in China, while during the second half of 2005 container
prices and market leasing rates decreased significantly
primarily due to reductions in the cost of steel in China.
Container prices increased in the second quarter of 2006 and
continued to increase through the second quarter of 2008. During
the second half of 2008, steel and container prices and market
lease rates decreased rapidly due to the global economic
slowdown and the resulting decrease in demand for steel.
Leasing rates can also be negatively impacted by an excess
supply of containers due to a decrease in global trade growth,
the entrance of new leasing companies, overproduction of new
containers by factories and over-buying of new containers by
shipping lines and leasing competitors. During the fourth
quarter of 2008, the inventory of containers in Asia increased
significantly primarily due to a decrease in the volume of
containerized exports from China. An excess supply of leasing
company and shipping line owned containers in Asia will depress
market leasing rates as long as the over-stock situation
continues. In addition, a number of new leasing companies have
commenced operations during the last several years, and
competition for new container leases has been very aggressive.
In addition, our lease rates may not increase when container
prices increase. In 2006, our average leasing rates decreased
throughout the year despite relatively high container prices.
The decrease in average leasing rates was mainly the result of
lease renegotiations in which we offered several customers
reduced lease rates in return for extensions of leases covering
older containers.
If recent economic and trade trends continue, our lease rates in
2009 will decrease due to low steel and new container prices,
low or negative containerized trade growth, weak leasing demand,
an excess supply of containers and aggressive competition by
leasing companies to capture the limited number of leasing
opportunities that are likely to be available.
Lessee
defaults may adversely affect our business, financial condition,
results of operations and cash flow by decreasing revenues and
increasing storage, positioning, collection, recovery and lost
equipment expenses.
Our containers and chassis are leased to numerous customers.
Rent and other charges, as well as indemnification for damage to
or loss of our equipment, are payable under the leases and other
arrangements by the lessees. Inherent in the nature of the
leases and other arrangements for use of the equipment is the
risk that once the lease is consummated, we may not receive, or
may experience delay in realizing, all of the amounts to be paid
in respect of the equipment. A delay or diminution in amounts
received under the leases
14
and other arrangements could adversely affect our business and
financial prospects and our ability to make payments on our debt.
The cash flow from our equipment, principally lease rentals,
management fees and proceeds from the sale of owned equipment,
is affected significantly by our ability to collect payments
under leases and other arrangements for the use of the equipment
and our ability to replace cash flows from terminating leases by
re-leasing or selling equipment on favorable terms. All of these
factors are subject to external economic conditions and
performance by lessees and service providers that are beyond our
control.
When lessees or sublessees of our containers and chassis
default, we may fail to recover all of our equipment, and the
containers and chassis we do recover may be returned in damaged
condition or to locations where we will not be able to
efficiently re-lease or sell them. As a result, we may have to
repair and reposition these containers and chassis to other
places where we can re-lease or sell them, and we may lose lease
revenues and incur additional operating expenses in repossessing
and storing the equipment.
In 2008 we experienced an increase in lessee defaults, and it is
likely that the number and size of customer defaults may
increase in 2009 if economic conditions and global trade growth
remain weak. In general, the profitability of our shipping line
customers deteriorated significantly in 2008 due to decreasing
freight rates caused by excess vessel capacity. Excess vessel
capacity developed in 2008 and is likely to persist for several
years due to the combination of large vessel deliveries planned
for the next several years and a decrease in the rate of global
containerized trade growth. In addition, the ongoing financial
crisis makes lessee defaults more likely since shipping lines
may face difficulty in arranging financing for their committed
vessel purchases and any operating losses they may incur. Due to
these factors, many industry observers believe that numerous
small and mid-size shipping lines will cease operation in 2009
and believe that there is a reasonable likelihood that one or
more major shipping lines could face serious financial problems.
Our balance sheet includes an allowance for doubtful accounts as
well as an equipment reserve related to the expected costs of
recovering and remarketing containers currently in the
possession of customers that have either defaulted or that we
believe currently present a significant risk of loss. These
reserves are based on our historical experience and are
currently at low levels, mainly due to the relatively low level
of defaults we have experienced in recent years. However, future
defaults may be material and any such future defaults could have
a material adverse effect on our business condition and
financial prospects.
Used
container selling prices may decrease leading to lower gains or
potentially large losses on the disposal of our
equipment.
Although our revenue primarily depends upon equipment leasing,
our profitability is also affected by the residual values of our
containers upon the expiration of their leases because, in the
ordinary course of our business, we sell certain containers when
such containers are returned to us. The volatility of the
residual values of such equipment may be significant. These
values, which can vary substantially, depend upon, among other
factors, the location of the containers, worldwide steel prices
and the cost of new containers, the supply of used containers
for disposal, applicable maintenance standards, refurbishment
needs, inflation rates, market conditions, materials and labor
costs and equipment obsolescence. Most of these factors are
outside of our control. Operating leases, which represent the
predominant form of leases in our portfolio, are subject to
greater residual value risk than finance leases.
Containers are typically sold if it is in our best interest to
do so after taking into consideration the book value, remaining
useful life, repair condition, suitability for leasing or other
uses and the prevailing local sales price for the containers. As
these considerations vary, gains or losses on sale of equipment
will also fluctuate and may be significant if we sell large
quantities of containers.
From 1999 through 2003 our average sale prices for used
containers were very low due to low prices for new containers
and an extreme over-supply of used containers in North America
and Europe following the Asia crisis. We recorded large losses
on the disposal of our equipment during these years. Used
container selling prices have generally been at historically
high levels from
2005-2008,
resulting in substantial gains on
15
the disposal of our equipment, due to the increased cost of new
containers, a high rate of containerized trade growth and the
resulting limited amount of idle container inventories.
Market conditions for used equipment in 2009 look substantially
worse than they have in recent years. Steel and new container
prices have decreased significantly since peaking in the second
quarter of 2008, a sharp decrease in containerized trade volumes
in the fourth quarter of 2008 has led to rapid growth in the
number of idle containers worldwide, and it seems likely that
used container prices will decrease in 2009 if market conditions
do not improve. A significant decrease in used container selling
prices in 2009 could result in net disposal losses and
significantly reduce our profitability.
We may
incur future asset impairment charges.
An asset impairment charge may result from the occurrence of
unexpected adverse events or management decisions that impact
our estimates of expected cash flows generated from our
long-lived assets. We review our long-lived assets, including
our container and chassis equipment, goodwill and other
intangible assets for impairment, including when events or
changes in circumstances indicate the carrying value of an asset
may not be recoverable. We may be required to recognize asset
impairment charges in the future as a result of reductions in
demand for specific container and chassis types, a weak economic
environment, challenging market conditions, events related to
particular customers or asset type, or as a result of asset or
portfolio sale decisions by management.
If we
are unable to finance capital expenditures, our business and
growth plans will be adversely affected.
We periodically make capital investments to, among other things,
maintain and expand our container fleet. Since 2006, we have
relied on our asset securitization warehouse facility and our
Asset Backed Credit facility to finance the majority of our new
container investments. However, financing has become scarcer and
more expensive due to the ongoing financial crisis. While we are
seeking to add commitments to our Asset Backed Credit facility
or obtain other suitable financing, the disruptions in the
capital markets have continued to become more severe. If we are
unsuccessful in obtaining sufficient additional financing on
acceptable terms, we will not be able to invest in our fleet to
maintain our historical growth rate and our profitability will
decrease. Even if we are successful in securing additional
financial commitments, we expect that our effective interest
rates will increase. Furthermore, there can be no assurance that
we will continue to be able to finance our capital expenditures
in future years, especially if the current disruptions in the
capital markets persist, and, if we are unable to do so, our
future growth rate and profitability will decrease.
We
have a substantial amount of debt outstanding on a consolidated
basis and have significant debt service obligations which could
adversely affect our financial condition or our ability to
fulfill our obligations and make it more difficult for us to
fund our operations.
We have a significant amount of debt outstanding on a
consolidated basis. As of December 31, 2008, we had
outstanding indebtedness of approximately $1.25 billion
under our asset backed securities program and our other credit
facilities. In addition, we have capital lease obligations in
the amount of $92.1 million. Our interest and debt expense
for the fiscal year ended December 31, 2008 was
approximately $65.0 million. As of December 31, 2008,
our total net debt (total debt plus equipment purchases payable
less unrestricted cash) to total revenue earning assets was 76%.
Our substantial debt could have important consequences for
investors, including the following:
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require us to dedicate a substantial portion of our cash flow
from operations to make payments on our debt, thereby reducing
funds available for operations, future business opportunities
and other purposes;
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limit our flexibility in planning for, or reacting to, changes
in our business and the industry in which we operate;
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make it more difficult for us to satisfy our obligations with
respect to our debt obligations, and any failure to comply with
such obligations, including financial and other restrictive
covenants, could result
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in an event of default under the agreements governing such
indebtedness, which could lead to, among other things, an
acceleration of our indebtedness or foreclosure on the assets
securing our indebtedness and which could have a material
adverse effect on our business or prospects;
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limit our ability to borrow additional funds, or to sell assets
to raise funds, if needed, for working capital, capital
expenditures, acquisitions or other purposes;
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make it more difficult for us to pay dividends on our common
stock;
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increase our vulnerability to general adverse economic and
industry conditions, including changes in interest
rates; and
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place us at a competitive disadvantage compared to our
competitors which have less debt.
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We may not generate sufficient revenues to service and repay our
debt and have sufficient funds left over to achieve or sustain
profitability in our operations, meet our working capital and
capital expenditure needs or compete successfully in our markets.
Despite
our substantial leverage, we and our subsidiaries may be able to
incur additional indebtedness. This could further exacerbate the
risks described above.
We and our subsidiaries may be able to incur substantial
additional indebtedness in the future. Although our asset backed
securities program and our other credit facilities contain
restrictions on the incurrence of additional indebtedness, such
restrictions are subject to a number of qualifications and
exceptions, and, under certain circumstances, indebtedness
incurred in compliance with such restrictions could be
substantial. To the extent that new indebtedness is added to our
and our subsidiaries current debt levels, the risks
described above would increase.
We
will require a significant amount of cash to service and repay
our outstanding indebtedness and fund future capital
expenditures. Our ability to generate cash depends on many
factors beyond our control.
Our ability to make payments on and repay our indebtedness and
to fund planned capital expenditures will depend on our ability
to generate cash in the future.
We cannot assure investors that:
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our business will generate sufficient cash flow from operations
to service and repay our debt and to fund working capital and
future capital expenditures;
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future borrowings will be available under our current or future
credit facilities in an amount sufficient to enable us to repay
our debt; or
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we will be able to refinance any of our debt on commercially
reasonable terms or at all.
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If we cannot generate sufficient cash from our operations to
meet our debt service and repayment obligations, we may need to
reduce or delay capital expenditures, the development of our
business generally and any acquisitions. In addition, we may
need to refinance our debt, obtain additional financing or sell
assets, which we may not be able to do on commercially
reasonable terms or at all.
Our
customers may decide to lease fewer containers. Should shipping
lines decide to buy a larger percentage of the containers they
operate, our utilization rate would decrease, resulting in
decreased leasing revenue, increased storage costs and increased
positioning costs.
We, like other suppliers of leased containers, are dependent
upon decisions by shipping lines to lease rather than buy their
container equipment. Should shipping lines decide to buy a
larger percentage of the containers they operate, our
utilization rate would decrease, resulting in decreased leasing
revenue, increased storage costs and increased positioning
costs. A decrease in the portion of leased containers would also
reduce our investment opportunities and significantly constrain
our growth. Most of the factors affecting the decisions of our
customers are outside our control.
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While the percentage of leased containers has been fairly steady
historically, this percentage has been decreasing over the last
few years, with the percentage of leased containers decreasing
from 46% in 2004 to 40% in 2008, according to Containerisation
International. We believe that increased share of containers
owned directly by the shipping lines is the result of the
improved financial performance, increased operating scale and
improved information systems of our customers, which make it
easier for our customers to finance and deploy new container
purchases efficiently. We expect many of these factors to
continue.
We are
dependent upon continued demand from our large customer and any.
default or significant reduction of orders from any of our large
customers, and especially our single largest customer, could
have a material adverse effect on our business, financial
condition and future prospects.
Our largest customers account for a significant portion of our
revenues. Our five largest customers represented approximately
48% of our leasing revenues for our 2008 fiscal year, with our
single largest customer representing approximately 15% during
such period. Furthermore, the shipping industry has been
consolidating for a number of years, and further consolidation
is expected and could increase the portion of our revenue that
comes from our largest customers. The loss, default or
significant reduction of orders from any of our large customers,
and especially our single largest customer, could have a
material adverse effect on our business, financial condition and
future prospects.
We
face extensive competition in the container leasing
industry.
We may be unable to compete favorably in the highly competitive
container leasing and sales business. We compete with
approximately ten other major leasing companies, many smaller
lessors, manufacturers of container equipment, companies
offering finance leases as distinct from operating leases,
promoters of container ownership and leasing as a tax shelter
investment, shipping lines, which sometimes lease their excess
container stocks, and suppliers of alternative types of
equipment for freight transport. Some of these competitors may
have greater financial resources and access to capital than we
do. Additionally, some of these competitors may have large,
underutilized inventories of containers, which could lead to
significant downward pressure on lease rates and margins.
Competition among container leasing companies depends upon many
factors, including, among others, lease rates, lease terms
(including lease duration, drop-off restrictions and repair
provisions), customer service, and the location, availability,
quality and individual characteristics of equipment. New
entrants into the leasing business have been attracted by the
high rate of containerized trade growth in recent years, and new
entrants have generally been less disciplined than we are in
pricing and structuring leases. As a result, the entry of new
market participants together with the already highly competitive
nature of our industry, may reduce lease rates and undermine our
ability to maintain our current level of container utilization
or achieve our growth plans.
Litigation
to enforce our leases and recover our containers has inherent
uncertainties that are increased by the location of our
containers in jurisdictions that have less developed legal
systems.
While almost all of our lease agreements are governed by New
York law and provide for the non-exclusive jurisdiction of the
courts located in the state of New York, our ability to enforce
the lessees obligations under the leases and other
arrangements for use of the containers often is subject to
applicable laws in the jurisdiction in which enforcement is
sought. It is not possible to predict, with any degree of
certainty, the jurisdictions in which enforcement proceedings
may be commenced. Our containers are manufactured in Asia,
primarily in China, and a substantial portion of our containers
are leased out of Asia, primarily China, and are used by our
customers in service between Asia and North America, Europe,
Central and South America, the Middle East, and Africa and in
inter-Asia trade. Litigation and enforcement proceedings have
inherent uncertainties in any jurisdiction and are expensive.
These uncertainties are enhanced in countries that have less
developed legal systems where the interpretation of laws and
regulations is not consistent, may be influenced by factors
other than legal merits and may be cumbersome, time-consuming
and even more expensive. For example, repossession from
defaulting lessees may be difficult and more expensive in
jurisdictions whose laws do not confer the same security
interests and rights to creditors and lessors as those in the
United States and where the legal system is not as well
developed. As a result, the remedies
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available and the relative success and expedience of collection
and enforcement proceedings with respect to the containers in
various jurisdictions cannot be predicted. As more of our
business shifts to areas outside of the United States and
Europe, such as China, it may become more difficult and
expensive to enforce our rights and recover our containers.
In 2008, the success of our recovery efforts for defaulted
leases was hampered by undeveloped creditor protections and
legal systems in a number of countries. In 2008, we experienced
an increase in average recovery costs per unit and a decrease in
the percentage of containers recovered in default situations
primarily due to excessive charges applied to our containers by
the depot or terminal facilities that had been storing the
containers for the defaulted lessee. In these cases, the
payments demanded by the depot or terminal operators often
significantly exceeded the amount of storage costs that we would
reasonably expect to pay for the release of the containers.
However, our legal remedies were limited in many of the
jurisdictions where the containers were being stored, and we
were sometimes forced to accept the excessive storage charges to
gain control of our containers. If the number and size of
defaults increases in the future, and if a large percentage of
the defaulted containers are being stored in countries with less
developed legal systems, losses resulting from recovery payments
and unrecovered containers could be large and our profitability
significantly reduced.
The
age of our container fleet may become a competitive
disadvantage.
As of December 31, 2008, the average age of the containers
in our fleet was 7.1 years. We believe that the average age
of most of our competitors container fleets is lower than
the average age of our fleet, and customers generally have a
preference for younger containers. Historically, we have been
successful in marketing our older equipment by positioning older
containers to areas where demand is very strong, offering
incentives for customers to extend containers on lease, and
providing greater drop-off location flexibility for containers
approaching sale age. However, our marketing strategies for
older containers may not continue to be successful, particularly
if demand for containers continues to decrease.
The
age of our fleet may result in an increase in disposals of
equipment and result in a reduction of lease revenue if we are
unable to purchase and lease similar volumes of
equipment.
As of December 31, 2008, the average age of the containers
in our fleet was 7.1 years. A large portion of our fleet
was acquired in the mid-1990s and is on leases which take
the units to the end of their serviceable life in marine
transport. Upon redelivery, this equipment is likely to be
disposed. From 2004 through 2008, we sold on average
approximately 7% of our equipment leasing fleet containers
annually. Due to the significant portion of older containers in
our fleet, we expect that our disposal rate will increase for
several years beginning in 2009. If we are unable to purchase
and lease the volumes of equipment necessary to replace the
units sold, our revenue could decrease.
Changes
in market price, availability or transportation costs of
containers in China could adversely affect our ability to
maintain our supply of containers.
China is currently the largest container producing nation in the
world, and we currently purchase substantially all of our dry
containers, special containers and refrigerated containers from
manufacturers based in China. In addition, over the last several
years, there has been a consolidation in the container
manufacturing industry, resulting in two manufacturers
controlling approximately 65% of the market. In the event that
it were to become more expensive for us to procure containers in
China or to transport these containers at a low cost from the
factory locations in China to the locations where they are
needed by our customers, because of further consolidation among
container suppliers, a dispute with one of our manufacturers,
changes in trade patterns, increased tariffs imposed by the
United States or other governments or for any other reason, we
would have to seek alternative sources of supply. We may not be
able to make alternative arrangements quickly enough to meet our
equipment needs, and the alternative arrangements may increase
our costs.
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We may
incur costs associated with relocation of leased
equipment.
When lessees return equipment to locations where supply exceeds
demand, we routinely reposition containers to higher demand
areas. Positioning expenses vary depending on geographic
location, distance, freight rates and other factors, and may not
be fully covered by drop-off charges collected from the last
lessees of the equipment or
pick-up
charges paid by the new lessees. Positioning expenses can be
significant if a large portion of our containers are returned to
locations with weak demand. For example, prior to the Asia
crisis of the late 1990s containerized trade was
relatively evenly balanced globally, and as a result, many of
our lease contracts provided extensive drop-off flexibility in
North America and Europe. However, global containerized trade
patterns changed dramatically in the aftermath of the Asia
crisis, and demand for leased containers in North America and
Europe substantially decreased. We incurred significant
positioning expenses from
2000-2003 to
shift our inventory of containers from North America and Europe
to Asia. Further changes in the pattern of global containerized
trade could force us to incur significant positioning expenses
in the future.
We currently seek to limit the number of containers that can be
returned and impose surcharges on containers returned to areas
where demand for such containers is not expected to be strong.
However, future market conditions may not enable us to continue
such practices. In addition, we cannot assure you that we have
accurately anticipated which port locations will be
characterized by weak or strong demand in the future, and our
current contracts will not provide much protection against
positioning costs if ports that we expect to be strong demand
ports turn out to be surplus container ports at the time leases
expire.
Our
asset backed securities program and our other credit facilities
impose significant operating and financial restrictions, which
may prevent us from pursuing certain business opportunities and
taking certain actions.
Our asset backed securities program and other credit facilities
impose, and the terms of any future indebtedness may impose,
significant operating, financial and other restrictions on us
and our subsidiaries. These restrictions will limit or prohibit,
among other things, our ability to:
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incur additional indebtedness;
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pay dividends on or redeem or repurchase our stock;
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issue capital stock of us and our subsidiaries;
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make loans and investments;
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create liens;
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sell certain assets or merge with or into other companies;
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enter into certain transactions with stockholders and affiliates;
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cause our subsidiaries to make dividends, distributions and
other payments to TAL; and
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otherwise conduct necessary corporate activities.
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These restrictions could adversely affect our ability to finance
our future operations or capital needs and pursue available
business opportunities. A breach of any of these restrictions
could result in a default in respect of the related
indebtedness. If a default occurs, the relevant lenders could
elect to declare the indebtedness, together with accrued
interest and fees, to be immediately due and payable and proceed
against any collateral securing that indebtedness, which will
constitute substantially all of our material container assets.
It may
become more expensive for us to store our off-hire
containers.
We are dependent on third party depot operators to repair and
store our equipment in port areas throughout the world. In many
locations the land occupied by these depots is increasingly
being considered as prime real estate. Accordingly, local
communities are considering increasing restrictions on the depot
operations which would increase their costs and in some cases
force depots to relocate to sites further from the
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port areas. If these changes affect a large number of our depots
it could significantly increase the cost of maintaining and
storing our off-hire containers.
In addition, due to the reduction in cargo volumes, depots in
several major port locations are becoming full. Therefore, it
may become more difficult and expensive to store our containers.
Sustained
Asian economic instability could reduce demand for
leasing.
A number of the shipping lines to which we lease containers are
entities domiciled in Asian countries. In addition, many of our
customers are substantially dependent upon shipments of goods
exported from Asia. From time to time, there have been economic
disruptions, financial turmoil and political instability in this
region. If these events were to occur in the future, they could
adversely affect these customers and lead to a reduced demand
for leasing of our containers or otherwise adversely affect us.
Manufacturers
of our equipment may be unwilling or unable to honor
manufacturer warranties covering defects in our
equipment.
We obtain warranties from the manufacturers of our equipment.
When defects in the containers occur, we work with the
manufacturers to identify and rectify the problem. However,
there is no assurance that manufacturers will be willing or able
to honor warranty obligations. If defects are discovered in
containers that are not covered by manufacturer warranties we
could be required to expend significant amounts of money to
repair the containers
and/or the
useful life of the containers could be shortened and the value
of the containers reduced.
We
rely on our information technology systems to conduct our
business. If these systems fail to adequately perform these
functions, or if we experience an interruption in their
operation, our business and financial results could be adversely
affected.
The efficient operation of our business is highly dependent on
two of our information technology systems: our equipment
tracking and billing system and our customer interface system.
For example, these systems allow customers to place
pick-up and
drop-off orders on the Internet, view current inventory and
check contractual terms in effect with respect to any given
container lease agreement. We correspondingly rely on such
information systems to track transactions, such as container
pick-ups and
drop-offs, repairs, and to bill our customers for the use and
damage to our equipment. We also use the information provided by
these systems in our
day-to-day
business decisions in order to effectively manage our lease
portfolio and improve customer service. The failure of these
systems to perform as we anticipate could disrupt our business
and results of operation and cause our relationships with our
customers to suffer. In addition, our information technology
systems are vulnerable to damage or interruption from
circumstances beyond our control, including fire, natural
disasters, power loss and computer systems failures and viruses.
Any such interruption could have a material adverse effect on
our business.
A
number of key personnel are critical to the success of our
business.
Most of our senior executives and other management-level
employees have been with us for over ten years and have
significant industry experience. We rely on this knowledge and
experience in our strategic planning and in our
day-to-day
business operations. Our success depends in large part upon our
ability to retain our senior management, the loss of one or more
of whom could have a material adverse effect on our business.
Our success also depends on our ability to retain our
experienced sales force and technical personnel as well as
recruiting new skilled sales, marketing and technical personnel.
Competition for these persons in our industry is intense and we
may not be able to successfully recruit, train or retain
qualified personnel. If we fail to retain and recruit the
necessary personnel, our business and our ability to retain
customers and provide acceptable levels of customer service
could suffer.
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The
international nature of the container industry exposes us to
numerous risks
We are subject to risks inherent in conducting business across
national boundaries, any one of which could adversely impact our
business. These risks include:
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regional or local economic downturns;
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changes in governmental policy or regulation;
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restrictions on the transfer of funds into or out of countries
in which we operate;
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compliance with U.S. Treasury sanctions regulations
restricting doing business with certain nations or specially
designated nationals;
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import and export duties and quotas;
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domestic and foreign customs and tariffs;
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international incidents;
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military outbreaks;
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government instability;
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nationalization of foreign assets;
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government protectionism;
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compliance with export controls, including those of the
U.S. Department of Commerce;
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compliance with import procedures and controls, including those
of the U.S. Department of Homeland Security;
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potentially negative consequences from changes in tax laws;
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requirements relating to withholding taxes on remittances and
other payments by subsidiaries;
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labor or other disruptions at key ports;
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difficulty in staffing and managing widespread
operations; and
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restrictions on our ability to own or operate subsidiaries, make
investments or acquire new businesses in these jurisdictions.
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Any one or more of these factors could impair our current or
future international operations and, as a result, harm our
overall business.
Certain
liens may arise on our containers.
Depot operators, repairmen and transporters may come into
possession of our containers from time to time and have sums due
to them from the lessees or sublessees of the containers. In the
event of nonpayment of those charges by the lessees or
sublessees, we may be delayed in, or entirely barred from,
repossessing the containers, or be required to make payments or
incur expenses to discharge such liens on the containers.
The
lack of an international title registry for containers increases
the risk of ownership disputes.
There is no internationally recognized system of recordation or
filing to evidence our title to containers nor is there an
internationally recognized system for filing security interest
in containers. Although this has not occurred to date, the lack
of a title recordation system with respect to containers could
result in disputes with lessees, end-users, or third parties who
may improperly claim ownership of the containers.
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As a
U.S. corporation, we are subject to the Foreign Corrupt
Practices Act, and a determination that we violated this act may
affect our business and operations adversely.
As a U.S. corporation, we are subject to the regulations
imposed by the Foreign Corrupt Practices Act (FCPA), which
generally prohibits U.S. companies and their intermediaries
from making improper payments to foreign officials for the
purpose of obtaining or keeping business. Any determination that
we have violated the FCPA could have a material adverse effect
on our business, financial condition, results of operations and
cash flows.
As a
U.S. corporation, we are subject to U.S. Executive
Orders and U.S. Treasury Sanctions Regulations regarding
doing business in or with certain nations and specially
designated nationals (SDNs).
As a U.S. corporation, we are subject to
U.S. Executive Orders and U.S. Treasury sanctions
regulations restricting or prohibiting business dealings in or
with certain nations and with certain specially designated
nationals (individuals and legal entities). Any determination
that we have violated such Executive Orders and
U.S. Treasury sanctions regulations could have a material
adverse effect on our business, financial condition, results of
operations and cash flows.
We may
incur increased costs associated with the implementation of new
security regulations, which could have a material adverse effect
on our business, financial condition, results of operations and
cash flows.
We may be subject to regulations promulgated in various
countries, including the United States, seeking to protect the
integrity of international commerce and prevent the use of
containers for international terrorism or other illicit
activities. For example, the Container Safety Initiative, the
Customs-Trade Partnership Against Terrorism and Operation Safe
Commerce are among the programs administered by the
U.S. Department of Homeland Security that are designed to
enhance security for cargo moving throughout the international
transportation system by identifying existing vulnerabilities in
the supply chain and developing improved methods for ensuring
the security of containerized cargo entering and leaving the
United States. Moreover, the International Convention for Safe
Containers, 1972 (CSC), as amended, adopted by the International
Maritime Organization, applies to containers and seeks to
maintain a high level of safety of human life in the transport
and handling of containers by providing uniform international
safety regulations. As these regulations develop and change, we
may incur increased compliance costs due to the acquisition of
new, compliant containers
and/or the
adaptation of existing containers to meet any new requirements
imposed by such regulations. Additionally, certain companies are
currently developing or may in the future develop products
designed to enhance the security of containers transported in
international commerce. Regardless of the existence of current
or future government regulations mandating the safety standards
of intermodal shipping containers, our competitors may adopt
such products or our customers may require that we adopt such
products in the conduct of our container leasing business. In
responding to such market pressures, we may incur increased
costs, which could have a material adverse effect on our
business, financial condition, results of operations and cash
flows.
Terrorist
attacks could negatively impact our operations and our
profitability and may expose us to liability and reputational
damage.
Terrorist attacks may negatively affect our operations. Such
attacks have contributed to economic instability in the United
States and elsewhere, and further acts of terrorism, violence or
war could similarly affect world trade and the industries in
which we and our customers operate. In addition, terrorist
attacks or hostilities may directly impact ports our containers
come in and out of, depots, our physical facilities or those of
our suppliers or customers and could impact our sales and our
supply chain. A severe disruption to the worldwide ports system
and flow of goods could result in a reduction in the level of
international trade and lower demand for our containers. The
consequences of any terrorist attacks or hostilities are
unpredictable, and we may not be able to foresee events that
could have an adverse effect on our operations.
It is also possible that one of our containers could be involved
in a terrorist attack. Although our lease agreements require our
lessees to indemnify us against all damages arising out of the
use of our containers,
23
and we carry insurance to potentially offset any costs in the
event that our customer indemnifications prove to be
insufficient, our insurance does not cover certain types of
terrorist attacks, and we may not be fully protected from
liability or the reputational damage that could arise from a
terrorist attack which utilizes one of our containers.
Environmental
liability may adversely affect our business and financial
situation.
We are subject to federal, state, local and foreign laws and
regulations relating to the protection of the environment,
including those governing the discharge of pollutants to air and
water, the management and disposal of hazardous substances and
wastes and the cleanup of contaminated sites. We could incur
substantial costs, including cleanup costs, fines and
third-party claims for property damage and personal injury, as a
result of violations of or liabilities under environmental laws
and regulations in connection with our current or historical
operations. Under some environmental laws in the United States
and certain other countries, the owner of a leased container may
be liable for environmental damage, cleanup or other costs in
the event of a spill or discharge of material from a container
without regard to the owners fault. We have not yet
experienced any such claims, although we cannot assure you that
we will not be subject to such claims in the future. Liability
insurance policies, including ours, usually exclude claims for
environmental damage. Some of our lessees may have separate
insurance coverage for environmental damage, but we cannot
assure you that any such policies would cover or otherwise
offset any liability we may have as the owner of a leased
container. Our standard master tank container lease agreement
insurance clause requires our tank container lessees to provide
pollution liability insurance. Such insurance or indemnities may
not fully protect us against damages arising from environmental
damage.
Many countries, including the United States, restrict, prohibit
or otherwise regulate the use of chlorofluorocarbon compounds
(CFCs) due to their ozone depleting and global
warming effects. Over 99% of our refrigerated containers
currently use R134A or 404A refrigerant. While R134A and 404A do
not contain CFCs, the European Union has instituted
regulations to phase out the use of R134A in automobile air
conditioning systems beginning in 2011 due to concern that the
release of R134A into the atmosphere may contribute to global
warming. While the European Union regulations do not currently
restrict the use of 134A in refrigerated containers or trailers,
it is possible that the phase out of R134A in automobile air
conditioning systems will be extended to intermodal containers
in the future. If future regulations prohibit the use or
servicing of containers using R134A or 404A refrigerants, we
could be forced to incur large retrofitting expenses. In
addition, refrigerated containers that are not retrofitted may
become difficult to lease and command lower prices in the market
for used containers once we retire these containers from our
fleet.
An additional environmental concern affecting our operations
relates to the construction materials used in our dry
containers. The floors of dry containers are plywood usually
made from tropical hardwoods. Due to concerns regarding
de-forestation of tropical rain forests and climate change, many
countries which have been the source of these hardwoods have
implemented severe restrictions on the cutting and export of
these woods. Accordingly, container manufacturers have switched
a significant portion of production to more readily available
alternatives such as birch, bamboo, and other farm grown wood
species. Container users are also evaluating alternative designs
that would limit the amount of plywood required and are also
considering possible synthetic materials to replace the plywood.
These new woods or other alternatives have not proven their
durability over the
13-15 year
life of a dry container and if they cannot perform as well as
the hardwoods have historically the future repair and operating
costs for these containers could be significantly higher.
Fluctuations
in foreign exchange rates could reduce our
profitability.
The majority of our revenues and costs are billed in
U.S. dollars. Most of our
non-U.S. dollar
transactions are individually of small amounts and in various
denominations and thus are not suitable for cost-effective
hedging. In addition, almost all of our container purchases are
paid for in U.S. dollars.
Our operations and used container sales in locations outside of
the U.S. have some exposure to foreign currency
fluctuations, and trade growth and the direction of trade flows
can be influenced by large changes in
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relative currency values. Adverse or large exchange rate
fluctuations may negatively affect our results of operations and
financial condition.
Most of our equipment fleet is manufactured in China. Although
the purchase price is in U.S. dollars, our manufacturers
pay labor and other costs in the local currency, the Chinese
Yuan. To the extent that our manufacturers costs increase
due to changes in the valuation of the Chinese Yuan, the dollar
price we pay for equipment could be affected.
Increases
in the cost of or the lack of availability of insurance could
increase our risk exposure and reduce our
profitability.
Our lessees and depots are required to maintain all risks
physical damage insurance, comprehensive general liability
insurance and to indemnify us against loss. We also maintain our
own contingent liability insurance and off-hire physical damage
insurance. Nevertheless, lessees and depots
insurance or indemnities and our insurance may not fully protect
us. The cost of such insurance may increase or become
prohibitively expensive for us and our customers and such
insurance may not continue to be available.
We also maintain director and officer liability insurance.
Potential new accounting standards and new corporate governance
regulations may make it more difficult and more expensive for us
to obtain director and officer liability insurance, and we may
be required to incur substantial costs to maintain increased
levels of coverage or it may not continue to be available.
We
could become subject to additional risks associated with
financing of port equipment, which could have a material adverse
effect on our business, financial condition, results of
operations or cash flows.
We from time to time may enter into port equipment finance
transactions in which we finance container cranes, reach
stackers, and related equipment. The financing of port equipment
such as container cranes involves additional risks such as the
additional maintenance requirements for the equipment which if
not followed could reduce the value of the equipment, the risk
of personal injury inherent in operating this equipment, the
limited remarketing opportunities for such equipment, the
increased risk of technical obsolescence of such equipment and
the high cost of transporting the equipment should it need to be
repositioned.
We are
a controlled company within the meaning established
by the New York Stock Exchange and, as a result, qualify for,
and intend to rely on, exemptions from certain corporate
governance requirements.
The Resolute Fund, L.P., its affiliated funds and the other
parties to a shareholders agreement among the investors who
acquired our company in November 2004, management and certain of
our other shareholders, as a group, control a majority of our
outstanding common stock, and, as a result, we are considered a
controlled company within the meaning of the
corporate governance standards of the New York Stock Exchange.
Under these rules, a controlled company is exempt
from complying with certain corporate governance requirements,
including (1) the requirement that a majority of the board
of directors consist of independent directors, (2) the
requirement that we have a nominating/corporate governance
committee that is composed entirely of independent directors and
(3) the requirement that we have a compensation committee
that is composed entirely of independent directors. As a result,
our board of directors does not consist of a majority of
independent directors nor does our board of directors have
compensation and nominating/corporate governance committees
consisting entirely of independent directors. Accordingly,
investors do not have the same protections afforded to
stockholders of companies that are subject to all of the
corporate governance requirements of the New York Stock Exchange.
Our
strategy to selectively pursue complementary acquisitions and
joint ventures may present unforeseen integration obstacles or
costs.
We may selectively pursue complementary acquisitions and joint
ventures. Acquisitions involve a number of risks and present
financial, managerial and operational challenges, including:
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potential disruption of our ongoing business and distraction of
management;
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difficulty with integration of personnel and financial and other
systems;
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hiring additional management and other critical
personnel; and
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increasing the scope, geographic diversity and complexity of our
operations.
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In addition, we may encounter unforeseen obstacles or costs in
the integration of acquired businesses. Also, the presence of
one or more material liabilities of an acquired company that are
unknown to us at the time of acquisition may have a material
adverse effect on our business. Our acquisition and joint
venture strategy may not be successfully received by customers,
and we may not realize any anticipated benefits from
acquisitions or joint ventures.
The
price of our common stock may be highly volatile and may decline
regardless of our operating performance.
The trading price of our common shares is likely to be subject
to wide fluctuations. Factors affecting the trading price of our
common shares may include:
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variations in our financial results;
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changes in financial estimates or investment recommendations by
securities analysts following our business;
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the publics response to our press releases, our other
public announcements and our filings with the Securities and
Exchange Commission;
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changes in accounting standards, policies, guidance or
interpretations or principles;
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future sales of common stock by us and our directors, officers
and significant stockholders;
|
|
|
|
announcements of technological innovations or enhanced or new
products by us or our competitors;
|
|
|
|
our failure to achieve operating results consistent with
securities analysts projections;
|
|
|
|
the operating and stock price performance of other companies
that investors may deem comparable to us;
|
|
|
|
changes in our dividend policy;
|
|
|
|
fluctuations in the worldwide equity markets;
|
|
|
|
recruitment or departure of key personnel;
|
|
|
|
our failure to timely address changing customer preferences;
|
|
|
|
broad market and industry factors; and
|
|
|
|
other events or factors, including those resulting from war,
incidents of terrorism or responses to such events.
|
In addition, if the market for intermodal equipment leasing
company stocks or the stock market in general experiences loss
of investor confidence, the trading price of our common shares
could decline for reasons unrelated to our business or financial
results. The trading price of our common shares might also
decline in reaction to events that affect other companies in our
industry even if these events do not directly affect us.
If
securities analysts do not publish research or reports about our
business or if they downgrade our stock, the price of our stock
could decline.
The trading market for our common shares relies in part on the
research and reports that industry or financial analysts publish
about us or our business or our industry. We have no influence
or control over these analysts. Furthermore, if one or more of
the analysts who do cover us downgrades our stock, the price of
our stock could decline. If one or more of these analysts ceases
coverage of our company, we could lose visibility in the market,
which in turn could cause our stock price to decline.
26
Our
failure to comply with required public company corporate
governance and financial reporting practices and regulations
could materially and adversely impact our financial condition,
operating results and the price of our common
stock.
The Sarbanes-Oxley Act of 2002 requires that we maintain
effective internal controls for financial reporting and
disclosure controls and procedures. If we do not maintain
compliance with the requirements of Section 404 of the
Sarbanes-Oxley Act of 2002, or if we or our independent
registered public accounting firm identify deficiencies in our
internal controls over financial reporting that are deemed to be
material weaknesses, we could suffer a loss of investor
confidence in the reliability of our financial statements, which
could cause the market price of our stock to decline. We can
also be subject to sanctions or investigations by the New York
Stock Exchange, the Securities and Exchange Commission or other
regulatory authorities for failure to comply with public company
corporate governance and financial reporting practices and
regulations.
Our
internal controls over financial reporting may not detect all
errors or omissions in the financial statements.
Section 404 of the Sarbanes-Oxley Act requires an annual
management assessment of the effectiveness of internal controls
over financial reporting and a report by our independent
registered public accounting firm. If we fail to maintain the
adequacy of internal controls over financial accounting, we may
not be able to conclude on an ongoing basis that we have
effective internal controls over financial reporting in
accordance with the Sarbanes-Oxley Act of 2002 and related
regulations. Although our management has concluded that adequate
internal control procedures are currently in place, no system of
internal controls can provide absolute assurance that the
financial statements are accurate and free of material errors.
As a result, the risk exists that our internal controls may not
detect all errors or omissions in the financial statements.
Adverse
changes in business conditions could negatively impact our
income tax provision or cash payments.
Our net deferred tax liability balance includes a deferred tax
asset for U.S. federal and various states resulting from
net operating loss carryforwards. A reduction to our future
earnings, which will lower taxable income, may require us to
record a charge against earnings, in the form of a valuation
allowance, if it is determined it is more-likely-than-not that
some or all of the loss carryforwards will not be realized.
In addition, under certain conditions, if our future investment
in new container and chassis operating leases is significantly
less than estimated, we may fail to benefit from future
accelerated depreciation for income tax purposes. If this occurs
we could pay significant income taxes sooner than we currently
project.
Equipment
trading is dependent upon a steady supply of used
equipment.
We purchase used containers for resale from our shipping line
customers and other sellers. If the supply of equipment becomes
limited because these sellers develop other means for disposing
of their equipment or develop their own sales network, we may
not be able to purchase the inventory necessary to meet our
goals, and our equipment trading revenues and our profitability
could be negatively impacted.
Abrupt
changes in selling prices on equipment purchased for resale
could negatively affect our equipment trading
margins.
We purchase and sell containers opportunistically as part of our
equipment trading segment. We purchase equipment for resale on
the premise that we will turnover this inventory in a relatively
short time frame. If selling prices rapidly deteriorate and we
are holding a large inventory that was purchased when prices for
equipment were higher, then our gross margins could decline or
become negative.
|
|
ITEM 1B.
|
UNRESOLVED
STAFF COMMENTS
|
None
27
Office Locations. As of December 31,
2008, our employees are located in 20 offices in 11 different
countries. We have 8 offices in the U.S. including our
headquarters in Purchase, New York. We have 12 offices outside
the U.S. We lease all of our office space.
|
|
ITEM 3.
|
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, 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 4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
No matters were submitted to a vote of security holders of TAL
International Group, Inc. during the fourth quarter of 2008.
PART II
|
|
ITEM 5.
|
MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER
MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
|
Our common stock has been traded on the New York Stock Exchange
under the symbol TAL since October 12, 2005.
Prior to that time, there was no public market for our common
stock.
The following table reflects the range of high and low sales
prices, as reported on the New York Stock Exchange, for our
common stock in each quarter of the years ended
December 31, 2008 and 2007.
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
2008:
|
|
|
|
|
|
|
|
|
Fourth Quarter
|
|
$
|
20.82
|
|
|
$
|
8.00
|
|
Third Quarter
|
|
$
|
26.96
|
|
|
$
|
20.06
|
|
Second Quarter
|
|
$
|
28.35
|
|
|
$
|
22.51
|
|
First Quarter
|
|
$
|
25.26
|
|
|
$
|
19.78
|
|
2007:
|
|
|
|
|
|
|
|
|
Fourth Quarter
|
|
$
|
25.46
|
|
|
$
|
20.96
|
|
Third Quarter
|
|
$
|
30.28
|
|
|
$
|
22.62
|
|
Second Quarter
|
|
$
|
30.75
|
|
|
$
|
23.94
|
|
First Quarter
|
|
$
|
27.89
|
|
|
$
|
22.75
|
|
On February 20, 2009, the closing price of a share of our
common stock was $8.38, as reported on the New York Stock
Exchange. On that date, there were approximately 51 holders of
record of the common stock and approximately 4,895 beneficial
holders, based on information obtained from our transfer agent.
28
PERFORMANCE
GRAPH
The graph below compares our cumulative shareholder returns with
the S&P 500 Stock Index and the Russell 2000 Stock Index
for the period from October 12, 2005 (the date our common
stock began trading) to December 31, 2008. The graph
assumes the investment of $100 as of October 12, 2005 and
the reinvestment of all dividends.
Comparison
of Cumulative Total Return
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
Base Period
|
|
|
|
|
|
|
|
|
Company/Index
|
|
10/12/05
|
|
12/31/05
|
|
12/31/06
|
|
12/31/07
|
|
12/31/08
|
TAL International Group, Inc.
|
|
$
|
100
|
|
|
$
|
114.72
|
|
|
$
|
151.18
|
|
|
$
|
136.68
|
|
|
$
|
92.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S&P 500 Index
|
|
|
100
|
|
|
|
106.52
|
|
|
|
123.34
|
|
|
|
130.12
|
|
|
|
81.98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Russell 2000 Index
|
|
|
100
|
|
|
|
108.62
|
|
|
|
128.58
|
|
|
|
126.56
|
|
|
|
83.80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
We paid the following quarterly dividends during the years ended
December 31, 2008 and 2007 on our issued and outstanding
common stock:
|
|
|
|
|
|
|
|
|
|
|
Record Date
|
|
Payment Date
|
|
Aggregate Payment
|
|
|
Per Share Payment
|
|
|
November 19, 2008
|
|
December 10, 2008
|
|
$
|
13.4 million
|
|
|
$
|
0.4125
|
|
August 21, 2008
|
|
September 12, 2008
|
|
$
|
13.5 million
|
|
|
$
|
0.4125
|
|
May 22, 2008
|
|
June 12, 2008
|
|
$
|
13.4 million
|
|
|
$
|
0.4125
|
|
March 20, 2008
|
|
April 10, 2008
|
|
$
|
12.2 million
|
|
|
$
|
0.3750
|
|
November 6, 2007
|
|
December 10, 2007
|
|
$
|
12.5 million
|
|
|
$
|
0.3750
|
|
August 15, 2007
|
|
August 29, 2007
|
|
$
|
12.5 million
|
|
|
$
|
0.3750
|
|
May 17, 2007
|
|
May 30, 2007
|
|
$
|
12.5 million
|
|
|
$
|
0.3750
|
|
February 23, 2007
|
|
March 9, 2007
|
|
$
|
10.0 million
|
|
|
$
|
0.3000
|
|
Beginning in the first quarter of 2009, we reduced our quarterly
cash dividend to $0.01 per share. We cannot provide any
assurance as to future dividends because they depend on our
future earnings, capital requirements, and financial condition.
29
Stock
Repurchase Program
On March 13, 2006, our Board of Directors authorized a
stock repurchase program for the repurchase of up to
1.5 million shares of our common stock. On
September 5, 2007, our Board of Directors authorized a
1.0 million share increase to our stock repurchase program
that began in March 2006. The stock repurchase program, as now
amended, authorizes us to repurchase up to 2.5 million
shares of our common stock.
Our share purchase activity during the year ended
December 31, 2008 is summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
|
Maximum Number of
|
|
|
|
|
|
|
|
|
|
Shares Purchased as
|
|
|
Shares that May Yet
|
|
|
|
|
|
|
|
|
|
Part of Publicly
|
|
|
Be Purchased Under
|
|
|
|
Total Number of
|
|
|
Average Price
|
|
|
Announced Plans or
|
|
|
the Plans or
|
|
Period
|
|
Shares Purchased
|
|
|
Paid per Share
|
|
|
Programs
|
|
|
Programs
|
|
|
January 1 31, 2008
|
|
|
362,100
|
|
|
$
|
21.97
|
|
|
|
362,100
|
|
|
|
1,725,621
|
|
November 1 30, 2008
|
|
|
73,200
|
|
|
$
|
10.06
|
|
|
|
73,200
|
|
|
|
1,652,421
|
|
December 1 31, 2008
|
|
|
207,900
|
|
|
$
|
10.89
|
|
|
|
207,900
|
|
|
|
1,444,521
|
|
There were no shares purchased by us during the months of
February through October 2008.
Stock repurchases under this program may be made through open
market
and/or
privately negotiated transactions at such times and in such
amounts as a committee of our Board of Directors deems
appropriate. The timing and actual number of shares repurchased
will depend on a variety of factors including price, corporate
and regulatory requirements, restrictions regarding a repurchase
program included in our credit facilities and other market
conditions. The stock repurchase program does not have an
expiration date and may be limited or terminated by the Board of
Directors at any time without prior notice.
Recent
Sales of Unregistered Securities; Use of Proceeds From
Registered Securities
None.
Securities
Authorized for Issuance Under Equity Compensation
Plans
The information required by this Item is incorporated herein by
reference from our proxy statement to be issued in connection
with the Annual Meeting of our Stockholders to be held on
April 30, 2009, which proxy statement will be filed with
the SEC within 120 days of the close of our fiscal year
ended December 31, 2008.
30
|
|
ITEM 6.
|
SELECTED
FINANCIAL DATA
|
The following table sets forth certain selected historical
financial, operating and other data of TAL International Group,
Inc. (the Successor) and Trans Ocean and certain
operations of TAL International Container Corporation on a
combined basis (collectively, the Predecessor). The
selected historical consolidated statement of operations data,
balance sheet data and other financial data for the fiscal years
ended December 31, 2008, 2007, 2006 and 2005 and for the
two months ended December 31, 2004 were derived from the
Successors audited consolidated financial statements and
related notes. The selected historical combined consolidated
statement of operations data, balance sheet data and other
financial data for the ten months ended October 31, 2004
were derived from the Predecessors audited combined
consolidated financial statements and related notes. The
historical results are not necessarily indicative of the results
to be expected in any future period.
All actual common share and per share data have been adjusted to
retroactively reflect the 101.5052-to-1 stock split that
occurred on October 5, 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Two Months
|
|
|
Ten Months
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
October 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2004
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leasing revenues
|
|
$
|
319,292
|
|
|
$
|
286,273
|
|
|
$
|
273,157
|
|
|
$
|
287,218
|
|
|
$
|
48,365
|
|
|
$
|
242,963
|
|
Equipment trading revenue
|
|
|
95,394
|
|
|
|
49,214
|
|
|
|
23,665
|
|
|
|
24,244
|
|
|
|
1,713
|
|
|
|
9,641
|
|
Management fee income
|
|
|
3,136
|
|
|
|
5,475
|
|
|
|
6,454
|
|
|
|
6,482
|
|
|
|
1,071
|
|
|
|
6,046
|
|
Other revenues
|
|
|
2,170
|
|
|
|
2,303
|
|
|
|
2,301
|
|
|
|
2,383
|
|
|
|
313
|
|
|
|
2,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
419,992
|
|
|
|
343,265
|
|
|
|
305,577
|
|
|
|
320,327
|
|
|
|
51,462
|
|
|
|
261,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment trading expenses
|
|
|
84,216
|
|
|
|
43,920
|
|
|
|
21,863
|
|
|
|
21,715
|
|
|
|
1,503
|
|
|
|
8,573
|
|
Direct operating expenses
|
|
|
28,678
|
|
|
|
28,644
|
|
|
|
25,935
|
|
|
|
27,773
|
|
|
|
5,474
|
|
|
|
26,531
|
|
Administrative expenses
|
|
|
46,154
|
|
|
|
39,843
|
|
|
|
36,950
|
|
|
|
39,428
|
|
|
|
6,315
|
|
|
|
28,339
|
|
Depreciation and amortization
|
|
|
110,450
|
|
|
|
101,670
|
|
|
|
103,849
|
|
|
|
115,138
|
|
|
|
19,769
|
|
|
|
119,449
|
|
Provision (reversal) for doubtful accounts
|
|
|
4,446
|
|
|
|
700
|
|
|
|
(526
|
)
|
|
|
559
|
|
|
|
225
|
|
|
|
300
|
|
Net (gain) loss on sale of leasing equipment
|
|
|
(23,534
|
)
|
|
|
(12,119
|
)
|
|
|
(6,242
|
)
|
|
|
(9,665
|
)
|
|
|
(126
|
)
|
|
|
3,325
|
|
Net (gain) on sale of container portfolios
|
|
|
(2,789
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Write-off of deferred financing costs(1)
|
|
|
250
|
|
|
|
204
|
|
|
|
2,367
|
|
|
|
43,503
|
|
|
|
|
|
|
|
|
|
Interest and debt expense(2)
|
|
|
64,983
|
|
|
|
52,129
|
|
|
|
47,578
|
|
|
|
72,379
|
|
|
|
13,185
|
|
|
|
22,181
|
|
(Gain) on debt extinguishment(3)
|
|
|
(23,772
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss (gain) on interest rate swaps(4)
|
|
|
76,047
|
|
|
|
27,883
|
|
|
|
8,282
|
|
|
|
(12,499
|
)
|
|
|
(2,432
|
)
|
|
|
|
|
Management fees and other Parent Company charges(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,878
|
|
|
|
|
|
|
|
28,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
365,129
|
|
|
|
282,874
|
|
|
|
240,056
|
|
|
|
303,209
|
|
|
|
43,913
|
|
|
|
237,058
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
54,863
|
|
|
|
60,391
|
|
|
|
65,521
|
|
|
|
17,118
|
|
|
|
7,549
|
|
|
|
24,450
|
|
Income tax expense
|
|
|
19,067
|
|
|
|
21,600
|
|
|
|
23,388
|
|
|
|
7,446
|
|
|
|
2,680
|
|
|
|
8,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
35,796
|
|
|
|
38,791
|
|
|
|
42,133
|
|
|
|
9,672
|
|
|
|
4,869
|
|
|
$
|
15,524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock dividends and accretion to redemption value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,868
|
)
|
|
|
(8,410
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) applicable to common stockholders
|
|
$
|
35,796
|
|
|
$
|
38,791
|
|
|
$
|
42,133
|
|
|
$
|
(10,196
|
)
|
|
$
|
(3,541
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) Per Share Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per share applicable to common stockholders
|
|
$
|
1.10
|
|
|
$
|
1.17
|
|
|
$
|
1.28
|
|
|
$
|
(0.68
|
)
|
|
$
|
(0.35
|
)
|
|
|
N/A
|
|
Diluted income (loss) per share applicable to common stockholders
|
|
$
|
1.09
|
|
|
$
|
1.16
|
|
|
$
|
1.26
|
|
|
$
|
(0.68
|
)
|
|
$
|
(0.35
|
)
|
|
|
N/A
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N/A
|
|
Basic
|
|
|
32,572,901
|
|
|
|
33,183,252
|
|
|
|
32,987,077
|
|
|
|
14,912,242
|
|
|
|
10,150,506
|
|
|
|
N/A
|
|
Diluted
|
|
|
32,693,320
|
|
|
|
33,369,958
|
|
|
|
33,430,438
|
|
|
|
14,912,242
|
|
|
|
10,150,506
|
|
|
|
N/A
|
|
Cash dividends paid per common share
|
|
$
|
1.61
|
|
|
$
|
1.43
|
|
|
$
|
0.45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Write-off of deferred financing costs in 2005 of
$43.5 million was due to refinancing and repayment of
various debt facilities in 2005. |
31
|
|
|
(2) |
|
Interest and debt expense in 2005 of $72.4 million was the
result of changes in our capital structure resulting from the
Acquisition, which increased debt levels and effective interest
rates. |
|
(3) |
|
Gain on debt extinguishment of $23.8 million for the year
ended December 31, 2008 was due to the repurchase of a
portion of the
Series 2006-1
Term Notes. |
|
(4) |
|
Unrealized gains and losses on interest rate swaps are primarily
due to changes in interest rates. The swaps were designated as
hedges during the period from November 2005 to April 2006. For
all other periods, changes in fair value of the swaps were
recorded to the statement of operations. |
|
(5) |
|
Management fees of $4.9 million in 2005 payable pursuant to
certain management agreements were terminated upon completion of
the initial public offering in October 2005. Parent Company
charges of $28.4 million in 2004 consisted primarily of
long-term incentive and termination payments that were triggered
by the sale of TAL and TALs sister divisions in 2004. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Two Months
|
|
|
Ten Months
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
October 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2004
|
|
|
Balance Sheet Data (end of period):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents (including restricted cash)
|
|
$
|
56,958
|
|
|
$
|
70,695
|
|
|
$
|
58,167
|
|
|
$
|
27,259
|
|
|
$
|
16,424
|
|
|
|
|
|
Accounts receivable, net
|
|
|
42,335
|
|
|
|
41,637
|
|
|
|
39,318
|
|
|
|
36,470
|
|
|
|
35,014
|
|
|
|
|
|
Revenue earning assets, net
|
|
|
1,764,522
|
|
|
|
1,500,056
|
|
|
|
1,253,877
|
|
|
|
1,135,026
|
|
|
|
1,128,263
|
|
|
|
|
|
Total assets
|
|
|
1,955,498
|
|
|
|
1,705,887
|
|
|
|
1,455,663
|
|
|
|
1,304,268
|
|
|
|
1,319,639
|
|
|
|
|
|
Total debt
|
|
|
1,351,036
|
|
|
|
1,174,654
|
|
|
|
958,317
|
|
|
|
872,627
|
|
|
|
1,072,000
|
|
|
|
|
|
Redeemable preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
203,738
|
|
|
|
|
|
Redeemable common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
Stockholders equity (deficit)/ owners net investment
|
|
|
364,471
|
|
|
|
393,477
|
|
|
|
398,750
|
|
|
|
379,967
|
|
|
|
(3,427
|
)
|
|
|
|
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
492,635
|
|
|
$
|
392,883
|
|
|
$
|
253,340
|
|
|
$
|
186,133
|
|
|
$
|
29,775
|
|
|
$
|
261,183
|
|
Proceeds from sale of equipment leasing fleet, net of selling
costs
|
|
|
83,956
|
|
|
|
63,006
|
|
|
|
58,462
|
|
|
|
90,481
|
|
|
|
9,721
|
|
|
|
46,898
|
|
Selected Fleet Data(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dry container units(2)
|
|
|
640,838
|
|
|
|
576,887
|
|
|
|
547,172
|
|
|
|
523,533
|
|
|
|
538,390
|
|
|
|
540,428
|
|
Refrigerated container units(2)
|
|
|
37,740
|
|
|
|
37,511
|
|
|
|
35,038
|
|
|
|
35,631
|
|
|
|
35,851
|
|
|
|
35,706
|
|
Special container units(2)
|
|
|
50,893
|
|
|
|
45,668
|
|
|
|
42,183
|
|
|
|
43,414
|
|
|
|
46,797
|
|
|
|
47,363
|
|
Trader(2)
|
|
|
16,735
|
|
|
|
14,583
|
|
|
|
8,815
|
|
|
|
10,123
|
|
|
|
5,531
|
|
|
|
5,199
|
|
Chassis(2)
|
|
|
8,796
|
|
|
|
7,955
|
|
|
|
6,579
|
|
|
|
1,210
|
|
|
|
|
|
|
|
|
|
Tank container units(2)
|
|
|
1,319
|
|
|
|
110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total container units/chassis(2)
|
|
|
756,321
|
|
|
|
682,714
|
|
|
|
639,787
|
|
|
|
613,911
|
|
|
|
626,569
|
|
|
|
628,696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total containers/chassis in TEU(2)
|
|
|
1,224,452
|
|
|
|
1,111,164
|
|
|
|
1,037,323
|
|
|
|
988,295
|
|
|
|
1,002,391
|
|
|
|
1,002,469
|
|
Average utilization%
|
|
|
91.1
|
%
|
|
|
91.3
|
%
|
|
|
90.8
|
%
|
|
|
90.7
|
%
|
|
|
92.8
|
%
|
|
|
92.5
|
%
|
|
|
|
(1) |
|
Includes our operating fleet (which is comprised of our owned
and managed fleet) plus certain other units including finance
leases. |
|
(2) |
|
Calculated as of the end of the relevant period. |
32
|
|
ITEM 7:
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
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 Cautionary Note Regarding
Forward-Looking Statements as discussed elsewhere in this
Form 10-K.
Our actual results may differ materially from those contained in
or implied by any forward-looking statements.
Our
Company
We are one of the worlds largest and oldest lessors of
intermodal containers and chassis. Intermodal containers are
large, standardized steel boxes used to transport freight by
ship, rail or truck. Because of the handling efficiencies they
provide, intermodal containers are the primary means by which
many goods and materials are shipped internationally. Chassis
are used for the transportation of containers domestically.
We operate our business in one industry, intermodal
transportation equipment, and have two business segments:
|
|
|
|
|
Equipment leasing we own, lease and ultimately
dispose of containers and chassis from our lease fleet, as well
as manage leasing activities for containers owned by third
parties.
|
|
|
|
Equipment trading we purchase containers from
shipping line customers, and other sellers of containers, and
sell these containers to container traders and users of
containers for storage, one-way shipment or other uses.
|
Operations
Our consolidated operations include the acquisition, leasing,
re-leasing and subsequent sale of multiple types of intermodal
containers and chassis. As of December 31, 2008, our total
fleet consisted of 756,321 containers and chassis, including
33,539 containers under management for third parties,
representing 1,224,452 twenty-foot equivalent units (TEU). We
have an extensive global presence, offering leasing services
through 20 offices in 11 countries and 185 third party container
depot facilities in 37 countries as of December 31, 2008.
Our customers are among the worlds largest shipping lines
and include, among others, APL-NOL, CMA CGM, NYK Line,
Mediterranean Shipping Company and Maersk Line. For the year
ended December 31, 2008, our twenty largest customers
accounted for 76% of our leasing revenue, our five largest
customers accounted for 48% of our leasing revenues, and our
largest customer accounted for 15% of our leasing revenues.
We 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 used for the
transportation of containers domestically via rail and roads,
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. We believe that these additional equipment
types represent natural extensions for our business.
As of December 31, 2008, dry, refrigerated and special
containers represented approximately 85%, 5% and 7% of our total
fleet on a unit basis, respectively. Our chassis equipment,
which was first purchased in the fourth quarter of 2005,
represented 1% of our fleet on a unit basis as of
December 31, 2008. Our Equipment trading fleet represents
approximately 2% of our total fleet.
For the fiscal year 2008, dry, refrigerated and special
containers represented approximately 60%, 26% and 12% of our
leasing revenues, respectively. Our chassis represented
approximately 2% of our leasing revenues during 2008.
33
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 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment Fleet in Units
|
|
|
|
December 31, 2008
|
|
|
December 31, 2007
|
|
|
December 31, 2006
|
|
|
|
Owned
|
|
|
Managed
|
|
|
Total
|
|
|
Owned
|
|
|
Managed*
|
|
|
Total
|
|
|
Owned
|
|
|
Managed
|
|
|
Total
|
|
|
Dry
|
|
|
610,759
|
|
|
|
30,079
|
|
|
|
640,838
|
|
|
|
549,800
|
|
|
|
27,087
|
|
|
|
576,887
|
|
|
|
492,497
|
|
|
|
54,675
|
|
|
|
547,172
|
|
Refrigerated
|
|
|
37,119
|
|
|
|
621
|
|
|
|
37,740
|
|
|
|
36,650
|
|
|
|
861
|
|
|
|
37,511
|
|
|
|
33,990
|
|
|
|
1,048
|
|
|
|
35,038
|
|
Special
|
|
|
48,054
|
|
|
|
2,839
|
|
|
|
50,893
|
|
|
|
42,049
|
|
|
|
3,619
|
|
|
|
45,668
|
|
|
|
27,418
|
|
|
|
14,765
|
|
|
|
42,183
|
|
Tank
|
|
|
1,319
|
|
|
|
|
|
|
|
1,319
|
|
|
|
110
|
|
|
|
|
|
|
|
110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chassis
|
|
|
8,796
|
|
|
|
|
|
|
|
8,796
|
|
|
|
7,955
|
|
|
|
|
|
|
|
7,955
|
|
|
|
6,579
|
|
|
|
|
|
|
|
6,579
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment leasing fleet
|
|
|
706,047
|
|
|
|
33,539
|
|
|
|
739,586
|
|
|
|
636,564
|
|
|
|
31,567
|
|
|
|
668,131
|
|
|
|
560,484
|
|
|
|
70,488
|
|
|
|
630,972
|
|
Equipment trading fleet
|
|
|
16,735
|
|
|
|
|
|
|
|
16,735
|
|
|
|
14,583
|
|
|
|
|
|
|
|
14,583
|
|
|
|
8,815
|
|
|
|
|
|
|
|
8,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
722,782
|
|
|
|
33,539
|
|
|
|
756,321
|
|
|
|
651,147
|
|
|
|
31,567
|
|
|
|
682,714
|
|
|
|
569,299
|
|
|
|
70,488
|
|
|
|
639,787
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
|
|
|
95.6
|
%
|
|
|
4.4
|
%
|
|
|
100.0
|
%
|
|
|
95.4
|
%
|
|
|
4.6
|
%
|
|
|
100.0
|
%
|
|
|
89.0
|
%
|
|
|
11.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment Fleet in TEUs
|
|
|
|
December 31, 2008
|
|
|
December 31, 2007
|
|
|
December 31, 2006
|
|
|
|
Owned
|
|
|
Managed
|
|
|
Total
|
|
|
Owned
|
|
|
Managed*
|
|
|
Total
|
|
|
Owned
|
|
|
Managed
|
|
|
Total
|
|
|
Dry
|
|
|
968,772
|
|
|
|
53,692
|
|
|
|
1,022,464
|
|
|
|
886,816
|
|
|
|
47,315
|
|
|
|
934,131
|
|
|
|
787,687
|
|
|
|
93,525
|
|
|
|
881,212
|
|
Refrigerated
|
|
|
68,270
|
|
|
|
1,022
|
|
|
|
69,292
|
|
|
|
66,625
|
|
|
|
1,436
|
|
|
|
68,061
|
|
|
|
61,208
|
|
|
|
1,652
|
|
|
|
62,860
|
|
Special
|
|
|
82,322
|
|
|
|
4,624
|
|
|
|
86,946
|
|
|
|
69,544
|
|
|
|
6,023
|
|
|
|
75,567
|
|
|
|
43,449
|
|
|
|
24,495
|
|
|
|
67,944
|
|
Tank
|
|
|
1,369
|
|
|
|
|
|
|
|
1,369
|
|
|
|
110
|
|
|
|
|
|
|
|
110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chassis
|
|
|
15,645
|
|
|
|
|
|
|
|
15,645
|
|
|
|
13,924
|
|
|
|
|
|
|
|
13,924
|
|
|
|
11,508
|
|
|
|
|
|
|
|
11,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment leasing fleet
|
|
|
1,136,378
|
|
|
|
59,338
|
|
|
|
1,195,716
|
|
|
|
1,037,019
|
|
|
|
54,774
|
|
|
|
1,091,793
|
|
|
|
903,852
|
|
|
|
119,672
|
|
|
|
1,023,524
|
|
Equipment trading fleet
|
|
|
28,736
|
|
|
|
|
|
|
|
28,736
|
|
|
|
19,371
|
|
|
|
|
|
|
|
19,371
|
|
|
|
13,799
|
|
|
|
|
|
|
|
13,799
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,165,114
|
|
|
|
59,338
|
|
|
|
1,224,452
|
|
|
|
1,056,390
|
|
|
|
54,774
|
|
|
|
1,111,164
|
|
|
|
917,651
|
|
|
|
119,672
|
|
|
|
1,037,323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
|
|
|
95.2
|
%
|
|
|
4.8
|
%
|
|
|
100.0
|
%
|
|
|
95.1
|
%
|
|
|
4.9
|
%
|
|
|
100.0
|
%
|
|
|
88.5
|
%
|
|
|
11.5
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
The decrease in our managed equipment fleet from
December 31, 2006 to December 31, 2007 is due
primarily to our purchase of approximately 34,000 units, or
approximately 57,000 TEU of managed containers from the third
party owner in October 2007 which are included in our owned
equipment fleet as of December 31, 2007. |
We generally lease our equipment on a per diem basis to our
customers under three types of leases: long-term leases, finance
leases and service leases. Long-term leases, typically with
initial contractual terms of three to eight years, provide us
with stable cash flow and low transaction costs by requiring
customers to maintain specific units on-hire for the duration of
the lease. Finance leases, which are typically structured as
full payout leases, provide for a predictable recurring revenue
stream with the lowest daily cost to the customer because
customers are generally required to retain the equipment for the
duration of its useful life. Service leases command a premium
per diem rate in exchange for providing customers with a greater
level of operational flexibility by allowing the
pick-up and
drop-off of units during the lease term. We also have expired
long-term leases whose fixed terms have ended but for which the
related units remain on-hire and for which we continue to
receive rental payments pursuant to the terms of the initial
contract. Some leases have contractual terms that have features
reflective of both long-term and service leases. We classify
such leases as either long-term or service leases, depending
upon which features are more predominant.
As of December 31, 2008, approximately 90% of our
containers and chassis were on-hire to customers, with
approximately 54% of our equipment on long-term leases,
approximately 9% on finance leases,
34
approximately 18% on service leases and approximately 9% on
long-term leases whose fixed terms have expired. In addition,
approximately 7% of our fleet was available for lease and
approximately 3% was available for sale.
The following table provides a summary of our lease portfolio,
based on units in the total fleet as of the dates indicated
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
Sept 30,
|
|
|
June 30,
|
|
|
March 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
Lease Portfolio
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Long-term leases
|
|
|
54.3
|
%
|
|
|
50.7
|
%
|
|
|
48.7
|
%
|
|
|
48.4
|
%
|
|
|
54.0
|
%
|
|
|
56.7
|
%
|
Finance leases
|
|
|
8.9
|
|
|
|
10.4
|
|
|
|
10.2
|
|
|
|
9.8
|
|
|
|
9.9
|
|
|
|
8.2
|
|
Service leases
|
|
|
18.3
|
|
|
|
20.7
|
|
|
|
21.6
|
|
|
|
22.0
|
|
|
|
21.7
|
|
|
|
21.9
|
|
Expired long-term leases (units on hire)
|
|
|
8.5
|
|
|
|
10.9
|
|
|
|
11.2
|
|
|
|
9.0
|
|
|
|
6.0
|
|
|
|
6.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total leased
|
|
|
90.0
|
|
|
|
92.7
|
|
|
|
91.7
|
|
|
|
89.2
|
|
|
|
91.6
|
|
|
|
93.5
|
|
Used units available for lease
|
|
|
4.3
|
|
|
|
2.0
|
|
|
|
2.1
|
|
|
|
2.9
|
|
|
|
2.8
|
|
|
|
3.1
|
|
New units not yet leased
|
|
|
2.5
|
|
|
|
3.2
|
|
|
|
3.9
|
|
|
|
5.1
|
|
|
|
3.0
|
|
|
|
1.3
|
|
Available for sale
|
|
|
3.2
|
|
|
|
2.1
|
|
|
|
2.3
|
|
|
|
2.8
|
|
|
|
2.6
|
|
|
|
2.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fleet
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 profitability for the year ended
December 31, 2008 was supported by the growth of our
container fleet, increased utilization in all of our major
product lines, exceptional gains on the sale of our used
containers, and strong sales margins from our equipment trading
activity. Additionally, we concluded several container portfolio
sales for which we realized gains.
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.
During 2008, our owned container fleet increased 10.3% on a TEU
basis to 1.165 million owned TEU. As of December 31,
2008, our revenue earning assets (leasing equipment, net
investment in finance leases, and equipment held for sale)
totaled approximately $1.8 billion, an increase of
approximately $265 million, or 17.6%, over
December 31, 2007. Our revenue earning asset growth has
been higher on a dollar basis than our fleet growth has been on
a TEU basis due to our large purchases of refrigerated
containers, special containers and tank containers, which are
more expensive than dry containers on a per TEU basis. In
addition, the growth of our fleet has decreased the average age
and increased the average net book value of the units in our
owned fleet.
In 2008, excluding equipment trading units purchased for resale,
we purchased approximately 195,000 TEU of new equipment for
approximately $490.0 million including a purchase
lease-back transaction with one of our largest customers in the
fourth quarter of 2008. In this transaction, we purchased
approximately 53,000 TEU of in-service equipment for
approximately $80.0 million and leased the equipment back
to the customer on long-term lease. Leasing demand for
containers and the utilization of our fleet for most of 2008 was
supported by continued worldwide containerized trade growth and
reduced direct container purchases by our shipping line
customers due to the high cost of new containers and the
increased scarcity of capital.
Looking forward, we expect that our purchases of new leasing
equipment will decrease significantly in 2009. Global
containerized trade growth turned negative in the fourth quarter
of 2008, and our customers are projecting that trade volumes
will be exceptionally weak in 2009, especially for dry
containers. As a result, we expect new dry container purchases
for shipping lines and leasing companies to be unusually low in
2009. However, we expect to continue to invest in new
refrigerated and special containers as conditions warrant and
35
we will seek further opportunities for purchase lease-back
transactions for containers currently in service with our
shipping line customers.
In 2008 we sold approximately 78,000 TEU of our older
containers, excluding containers purchased for resale. Over the
last three years, our disposal of older containers has averaged
approximately 70,000 TEU per year, which represents an average
of approximately 7% of our equipment leasing fleet at the
beginning of each year. This 7% annual disposal rate is close to
our theoretical steady-state disposal rate given the
12-14 year
expected useful life of our containers. However, based on the
age profile of our existing fleet, scheduled lease expirations
and the prospects for decreased leasing demand due to reduced
trade growth, we expect our rate of disposals will increase in
2009 and remain elevated before decreasing several years
thereafter. A disproportionately large share of our containers
were produced before 1997 since we invested in a relatively
small number of containers from 1997 through 2003. We expect
that we will sell most of the pre-1997 units over the next
several years. During years of above-average disposals, our TEU
growth rate may be constrained if we are unable to generate a
sufficient number of attractive lease transactions for an
expanded level of new container purchases.
The following table sets forth our average equipment fleet
utilization for the periods indicated below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Quarter Ended
|
|
|
Quarter Ended
|
|
|
Quarter Ended
|
|
|
Quarter Ended
|
|
Average Utilization(1)
|
|
December 31,
|
|
|
December 31,
|
|
|
September 30,
|
|
|
June 30,
|
|
|
March 31,
|
|
|
2008
|
|
|
91.1
|
%
|
|
|
91.6
|
%
|
|
|
92.0
|
%
|
|
|
90.7
|
%
|
|
|
90.1
|
%
|
2007
|
|
|
91.3
|
%
|
|
|
91.9
|
%
|
|
|
91.0
|
%
|
|
|
90.3
|
%
|
|
|
92.1
|
%
|
2006
|
|
|
90.8
|
%
|
|
|
93.0
|
%
|
|
|
91.0
|
%
|
|
|
89.8
|
%
|
|
|
88.7
|
%
|
|
|
|
(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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Utilization
|
|
December 31,
|
|
|
September 30,
|
|
|
June 30,
|
|
|
March 31,
|
|
|
2008
|
|
|
90.0
|
%
|
|
|
92.7
|
%
|
|
|
91.7
|
%
|
|
|
89.2
|
%
|
2007
|
|
|
91.6
|
%
|
|
|
92.4
|
%
|
|
|
89.7
|
%
|
|
|
90.8
|
%
|
2006
|
|
|
93.5
|
%
|
|
|
92.5
|
%
|
|
|
90.9
|
%
|
|
|
88.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Utilization (Excluding
|
|
|
|
|
|
|
|
|
|
|
|
|
New Units not yet Leased)
|
|
December 31,
|
|
|
September 30,
|
|
|
June 30,
|
|
|
March 31,
|
|
|
2008
|
|
|
92.4
|
%
|
|
|
95.8
|
%
|
|
|
95.4
|
%
|
|
|
94.0
|
%
|
2007
|
|
|
94.4
|
%
|
|
|
95.5
|
%
|
|
|
94.8
|
%
|
|
|
93.9
|
%
|
2006
|
|
|
95.0
|
%
|
|
|
94.2
|
%
|
|
|
92.7
|
%
|
|
|
90.9
|
%
|
Utilization of our container fleet was relatively high
throughout 2008. Our average utilization decreased 0.2% from
91.3% for the year ended December 31, 2007 to 91.1% for the
year ended December 31, 2008, while utilization of our
containers excluding off-hire new units was fairly steady and
quite strong throughout 2008 in the range of 93% to 96%.
Utilization for our dry containers was supported during the
first three quarters of 2008 by strong cargo growth, limited
direct purchasing of new containers by our shipping line
customers, a low volume of drop-offs, enhanced logistical
protections in our lease contracts, high prices for new
containers and the strong used container sale market. Our
utilization was also supported by the large percentage of our
dry containers on long-term lease and finance lease.
However, in the fourth quarter of 2008, our utilization began to
decrease, particularly for dry containers. In the fourth
quarter, global trade growth turned significantly negative
causing our customers to significantly increase their rate of
dry container drop-offs and significantly reduced their rate of
container
pick-ups.
Our dry container utilization typically decreases in the fourth
quarter due to the end of the summer peak season, but the
decrease in the fourth quarter of 2008 was larger than usual. We
expect dry container off-hires to remain high and dry container
pick-ups
low, and expect utilization to continue to decrease as long as
containerized trade growth remains unusually weak.
36
Leasing demand for our refrigerated containers was relatively
strong, though seasonal, in 2008. The utilization of our
refrigerated containers does not heavily influence our overall
utilization since they represent only approximately 5% of the
units in our fleet. However, these container types are
significantly more expensive than dry containers, generate
higher per diem lease rates and currently represent
approximately 26% of our leasing revenue. We achieved solid
on-hire and utilization growth early in the year during the
2007/2008
winter peak season and late in the year at the start of the
2008/2009
winter peak season. Demand during the typically slow summer
season for refrigerated containers was light. While we expect
that demand for refrigerated containers will be negatively
impacted by the global recession in 2009, the impact on
refrigerated containers has not yet been as severe as it has
been for dry containers.
Leasing demand and utilization for our special containers was
strong throughout 2008, while leasing demand for chassis was
weak during most of the year due to the combination of chassis
operating efficiency gains through a greater use of chassis
pools and a slowdown in the growth of the Asia to North America
trade. We expect the market conditions for chassis to remain
weak in 2009.
Average lease rates for our dry container product line in 2008
stayed relatively flat compared to the average lease rates in
2007. We experienced an increase in dry container lease rates
during the third and fourth quarters of 2008, relative to the
average levels during the same periods in 2007. New dry
container prices rose during the first nine months of 2008 to a
peak of $2,600 for a 20 dry container, and then declined
in the last three months of 2008 to under $2,000 due to
decreasing steel prices in China. While we do not expect to
purchase large numbers of new dry containers during the first
two quarters of 2009, it is likely that our per diem rates will
be negatively impacted by lower steel and new containers prices,
a build-up
of idle shipping line and leasing company containers in Asia,
and aggressive leasing company competition due to the sharp
economic contraction and the decrease in trade volumes the
market has been experiencing since November 2008.
Average lease rates for refrigerated containers in 2008
decreased by 1.3% compared to 2007, and declined slightly from
the third to fourth quarters of 2008. Market leasing rates for
new refrigerated containers are still below our portfolio
average rates.
Average lease rates for special containers increased 2.6% during
2008 compared to 2007, reflecting increased prices for special
containers and strong leasing demand.
During the third quarter of 2008, we concluded the sale of
several small container portfolios. The containers included in
these portfolio sales were generally younger containers on
long-term leases with our shipping lines customers, and we will
continue to be involved with and receive fees for collections
and other management services. These portfolios sales were
mainly undertaken to expand our network of third-party container
investors, diversify our funding sources and manage our customer
concentrations. We received total proceeds of $40.5 million
for the portfolio sales and recorded gains of approximately
$2.8 million.
For the year ended December 31, 2008, we recognized a
$23.5 million gain on the sale of our used containers
compared to a $12.1 million gain for the year ended
December 31, 2007. The improvement compared to last year
mainly resulted from higher selling prices for containers sold
in 2008, as well as an increase in sales volume. For most of
2008, selling prices for used containers were supported by high
prices for new containers and high utilization of leasing
company and shipping line containers. High utilization of
containers constrains the supply of used containers available
for sale. The average container sale age for TAL increased to
14.1 years in 2008 from 13.6 years in 2007 and
13.2 years in 2006. Older units generally have a lower net
book value and result in higher disposal gains since used
container sale prices are not highly affected by the age of the
container.
Market conditions for used equipment sales in 2009 look
substantially worse than they were in 2008 due to the recent
decrease in new container prices and the rapid increase in the
number of idle containers worldwide. Our used container selling
prices and disposal gains could decrease significantly in 2009
if current market conditions persist.
During 2008, we recognized a net sales margin of
$11.2 million on the sale of equipment purchased for resale
compared to $5.3 million of net sales margin for 2007. In
2008, we sold higher volumes and achieved
37
higher per unit selling margins. Unit sale margins in 2008 were
helped by a steady increase in used container sale prices during
the year. It typically takes us two to three months to sell
containers purchased for resale, and when used container sale
prices are increasing, our selling margin is boosted by the
increase in market prices during our holding period. In
addition, the strong sale market for used containers and the
upward trend in used container selling prices allowed us to be
aggressive in the volume of containers purchased for resale. We
expect the volume of containers purchased for resale to decrease
in 2009.
Our ownership expenses, principally depreciation and interest
expense increased by $21.6 million, or 14.1% for the year
ended December 31, 2008, slightly less than the 17.6%
increase in the dollar value of our revenue earning assets over
the same time. Our depreciation expense increased 8.6%,
substantially less than our revenue earning asset growth. Growth
in depreciation expense has been less than our asset growth due
to the increasing average sale age of our containers and the
resulting increase in the portion of our containers that have
become fully depreciated. Interest expense increased 24.7% in
the year ended December 31, 2008, compared to the year
ended December 31, 2007. Interest expense increased more
rapidly than our revenue earning assets due to higher average
daily debt balances in 2008 versus 2007 resulting from large
equipment payments in the latter half of 2007 and the first half
of 2008.
During the fourth quarter of 2008, we repurchased approximately
$48.2 million of our
Series 2006-1
Term Notes and recorded a gain on debt extinguishment of
$23.8 million, net of the write-off of deferred financing
costs of $0.3 million.
Our provision for doubtful accounts was $4.4 million for
the year ended December 31, 2008, up from $0.7 million
in the year ended December 31, 2007. The increase in the
provision for doubtful accounts in 2008 primarily relates to a
partial reserve of $2.7 million against a finance lease for
one of our customers. We also recorded a $1.4 million
provision on the remaining leases in our finance lease portfolio.
Most of our shipping line customers have reported significant
decreases in profitability in the second half of 2008, and many
are expecting to incur losses in at least the first few quarters
of 2009. At least eight small shipping lines ceased operation in
2008, and we had exposure to two of these lines. In general, we
remain concerned that we may continue to see an increase in the
number and size of customer defaults due to the deteriorating
financial performances of our shipping line customers combined
with the constrained capital markets that could make it
difficult for our customers to finance any operating losses they
may incur as well as their vessel orders and other expansion
commitments. We have not yet experienced a general deterioration
of our customers lease payment performance, though we
continue to actively review our portfolio to make sure we
identify potential problem accounts as early as possible and we
continue to be more selective in pursuing new business
opportunities.
Dividends
We paid the following quarterly dividends during the years ended
December 31, 2008 and 2007 on our issued and outstanding
common stock:
|
|
|
|
|
|
|
|
|
|
|
Record Date
|
|
Payment Date
|
|
Aggregate Payment
|
|
|
Per Share Payment
|
|
|
November 19, 2008
|
|
December 10, 2008
|
|
$
|
13.4 million
|
|
|
$
|
0.4125
|
|
August 21, 2008
|
|
September 12, 2008
|
|
$
|
13.5 million
|
|
|
$
|
0.4125
|
|
May 22, 2008
|
|
June 12, 2008
|
|
$
|
13.4 million
|
|
|
$
|
0.4125
|
|
March 20, 2008
|
|
April 10, 2008
|
|
$
|
12.2 million
|
|
|
$
|
0.3750
|
|
November 6, 2007
|
|
December 10, 2007
|
|
$
|
12.5 million
|
|
|
$
|
0.3750
|
|
August 15, 2007
|
|
August 29, 2007
|
|
$
|
12.5 million
|
|
|
$
|
0.3750
|
|
May 17, 2007
|
|
May 30, 2007
|
|
$
|
12.5 million
|
|
|
$
|
0.3750
|
|
February 23, 2007
|
|
March 9, 2007
|
|
$
|
10.0 million
|
|
|
$
|
0.3000
|
|
38
Treasury
Stock
We repurchased 643,200 shares of our outstanding common
stock in the open market during 2008 at a total cost of
approximately $10.9 million.
We repurchased 276,029 of our common shares in the open market
during 2007 at a total cost of approximately $6.3 million.
We repurchased 136,250 of our common shares in the open market
during 2006 at a total cost of approximately $2.9 million.
Results
of Operations
The following table summarizes our results of operations for the
three years ended December 31, 2008, 2007 and 2006 in
dollars (in thousands) and as a percentage of total revenues.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
Dollars
|
|
|
Percent
|
|
|
Dollars
|
|
|
Percent
|
|
|
Dollars
|
|
|
Percent
|
|
|
Leasing revenues
|
|
$
|
319,292
|
|
|
|
76.0
|
%
|
|
$
|
286,273
|
|
|
|
83.4
|
%
|
|
$
|
273,157
|
|
|
|
89.4
|
%
|
Equipment trading revenue
|
|
|
95,394
|
|
|
|
22.7
|
|
|
|
49,214
|
|
|
|
14.3
|
|
|
|
23,665
|
|
|
|
7.7
|
|
Management fee income
|
|
|
3,136
|
|
|
|
0.8
|
|
|
|
5,475
|
|
|
|
1.6
|
|
|
|
6,454
|
|
|
|
2.1
|
|
Other revenues
|
|
|
2,170
|
|
|
|
0.5
|
|
|
|
2,303
|
|
|
|
0.7
|
|
|
|
2,301
|
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
419,992
|
|
|
|
100.0
|
|
|
|
343,265
|
|
|
|
100.0
|
|
|
|
305,577
|
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment trading expenses
|
|
|
84,216
|
|
|
|
20.1
|
|
|
|
43,920
|
|
|
|
12.8
|
|
|
|
21,863
|
|
|
|
7.2
|
|
Direct operating expenses
|
|
|
28,678
|
|
|
|
6.8
|
|
|
|
28,644
|
|
|
|
8.4
|
|
|
|
25,935
|
|
|
|
8.4
|
|
Administrative expenses
|
|
|
46,154
|
|
|
|
11.0
|
|
|
|
39,843
|
|
|
|
11.6
|
|
|
|
36,950
|
|
|
|
12.1
|
|
Depreciation and amortization
|
|
|
110,450
|
|
|
|
26.3
|
|
|
|
101,670
|
|
|
|
29.6
|
|
|
|
103,849
|
|
|
|
34.0
|
|
Provision (reversal) for doubtful accounts
|
|
|
4,446
|
|
|
|
1.1
|
|
|
|
700
|
|
|
|
0.2
|
|
|
|
(526
|
)
|
|
|
(0.2
|
)
|
Net (gain) on sale of leasing equipment
|
|
|
(23,534
|
)
|
|
|
(5.6
|
)
|
|
|
(12,119
|
)
|
|
|
(3.6
|
)
|
|
|
(6,242
|
)
|
|
|
(2.0
|
)
|
Net (gain) on sale of container portfolios
|
|
|
(2,789
|
)
|
|
|
(0.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Write-off of deferred financing costs
|
|
|
250
|
|
|
|
0.1
|
|
|
|
204
|
|
|
|
0.1
|
|
|
|
2,367
|
|
|
|
0.8
|
|
Interest and debt expense
|
|
|
64,983
|
|
|
|
15.4
|
|
|
|
52,129
|
|
|
|
15.2
|
|
|
|
47,578
|
|
|
|
15.6
|
|
(Gain) on debt extinguishment
|
|
|
(23,772
|
)
|
|
|
(5.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on interest rate swaps
|
|
|
76,047
|
|
|
|
18.1
|
|
|
|
27,883
|
|
|
|
8.1
|
|
|
|
8,282
|
|
|
|
2.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
365,129
|
|
|
|
86.9
|
|
|
|
282,874
|
|
|
|
82.4
|
|
|
|
240,056
|
|
|
|
78.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
54,863
|
|
|
|
13.1
|
|
|
|
60,391
|
|
|
|
17.6
|
|
|
|
65,521
|
|
|
|
21.4
|
|
Income tax expense
|
|
|
19,067
|
|
|
|
4.5
|
|
|
|
21,600
|
|
|
|
6.3
|
|
|
|
23,388
|
|
|
|
7.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
35,796
|
|
|
|
8.6
|
%
|
|
$
|
38,791
|
|
|
|
11.3
|
%
|
|
$
|
42,133
|
|
|
|
13.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparison
of Year Ended December 31, 2008 to Year Ended
December 31, 2007
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
39
billings of certain reimbursable operating costs such as repair
and handling expenses; and finance lease revenue represents
interest income earned under finance lease contracts.
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
|
Leasing revenues:
|
|
|
|
|
|
|
|
|
Operating lease revenues:
|
|
|
|
|
|
|
|
|
Per diem revenue
|
|
$
|
266,978
|
|
|
$
|
240,409
|
|
Fee and ancillary lease revenue
|
|
|
31,935
|
|
|
|
27,596
|
|
|
|
|
|
|
|
|
|
|
Total operating lease revenue
|
|
|
298,913
|
|
|
|
268,005
|
|
|
|
|
|
|
|
|
|
|
Finance lease revenues
|
|
|
20,379
|
|
|
|
18,268
|
|
|
|
|
|
|
|
|
|
|
Total leasing revenues
|
|
$
|
319,292
|
|
|
$
|
286,273
|
|
|
|
|
|
|
|
|
|
|
Total leasing revenues were $319.3 million for 2008,
compared to $286.3 million for 2007, an increase of
$33.0 million, or 11.5%.
Per diem revenue increased by $26.6 million from 2007
primarily due to an increase in fleet size, partially offset by
a decrease in per diem rates. Below outlines the primary reasons
for the increase:
|
|
|
|
|
$24.5 million increase due to an increase in fleet size,
reflecting a larger number of dry, special and refrigerated
containers, chassis and tanks in our fleet compared to the prior
year;
|
|
|
|
$1.8 million increase due to higher utilization from
special and refrigerated containers and chassis compared to the
prior year; and
|
|
|
|
$0.5 million decrease due to lower per diem rates primarily
for dry and refrigerated containers.
|
Fee and ancillary lease revenue increased by $4.3 million
as compared to the prior year primarily due to an increase in
drop off volume.
Finance lease revenue increased by $2.1 million in 2008,
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.
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
|
Equipment trading revenues
|
|
$
|
95,394
|
|
|
$
|
49,214
|
|
Equipment trading expenses
|
|
|
(84,216
|
)
|
|
|
(43,920
|
)
|
|
|
|
|
|
|
|
|
|
Equipment trading margin
|
|
$
|
11,178
|
|
|
$
|
5,294
|
|
|
|
|
|
|
|
|
|
|
The equipment trading margin increased $5.9 million for
2008 compared to 2007. The trading margin increased by
$7.2 million due to a higher volume of units sold and by
$1.8 million due to a higher per unit trading margin. These
increases were partially offset by an increase of
$3.1 million in selling costs and administrative expenses
related to the volume of units sold. Equipment trading margins
were higher in 2008 partially due to the upward trend in used
container selling prices in 2008. We typically experience a lag
of several months between the time that we buy and sell used
containers, so that we benefit from inventory profits in
addition to our target sales margins when prices are increasing.
40
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 $28.7 million for 2008,
compared to $28.6 million for 2007, an increase of
$0.1 million. Below outlines the primary reasons for the
increase:
|
|
|
|
|
handling costs increased by $0.9 million due to greater on
hire and off hire activity for our equipment;
|
|
|
|
surveying costs increased by $0.5 million due to an
increase in our fleet size;
|
|
|
|
other operating costs increased by $0.4 million primarily
due to an increase in equipment loss reserves for equipment on
hire to non-performing customers;
|
|
|
|
positioning costs decreased by $0.9 million due to a lower
volume of dry and refrigerated containers moved; and
|
|
|
|
repair costs decreased by $0.7 million due to a lower
repair volume, primarily for our dry and refrigerated containers.
|
Administrative expenses. Administrative
expenses were $46.2 million for 2008, compared to
$39.8 million for 2007, an increase of $6.4 million,
or 16.1%. This increase was mainly due to higher employee
incentive and compensation costs of $4.2 million related to
our high level of profitability growth in 2008 and
$1.8 million in foreign exchanges losses in 2008 versus
foreign exchange gains in 2007.
Depreciation and
amortization. Depreciation and amortization
was $110.5 million for 2008, compared to
$101.7 million for 2007, an increase of $8.8 million,
or 8.6%. Depreciation expense increased by $12.1 million
due to new equipment added to the fleet and placed in service in
2008, and increased by $5.6 million due to the purchase of
57,000 TEU of older managed units in the fourth quarter of 2007.
The increase in depreciation expense in 2008 was partially
offset by a decrease of $9.0 million due to certain
equipment becoming fully depreciated in the fourth quarter of
2007 and 2008.
Provision (reversal) for doubtful
accounts. There was a provision for doubtful
accounts for $4.4 million for 2008, compared to
$0.7 million for 2007, an increase of $3.7 million.
The increase was primarily due to a $2.7 million reserve
established for amounts estimated to be uncollectible under a
finance lease receivable for one of our customers, as well as an
additional provision of $1.4 million against our finance
lease portfolio for expected uncollectible accounts.
Net (gain) on sale of leasing
equipment. Gain on sale of equipment was
$23.5 million for 2008, compared to a gain of
$12.1 million for 2007, an increase of $11.4 million.
Gain on sale of equipment increased by $8.5 million due to
higher selling prices for used containers, and increased by
$2.9 million primarily due to higher volume of units sold.
Net (gain) on sale of container
portfolios. Gain on the sale of container
portfolios was $2.8 million for 2008. There were no sales
of container portfolios for the year ended December 31,
2007. In the third quarter of 2008 we sold several container
portfolios for total proceeds of $40.5 million.
Interest and debt expense. Interest and
debt expense was $65.0 million for 2008, compared to
$52.1 million for 2007, an increase of $12.9 million.
The increase was primarily due to an increase in the average
debt balance driven by the increase in the average size of our
fleet. Our average effective interest rate was slightly lower
during 2008 as compared to 2007.
(Gain) on debt extinguishment. Gain on
debt extinguishment of $23.8 million (net of the write-off
of deferred financing costs of $0.3 million) for 2008 was
due to the repurchase of a portion of the
Series 2006-1
Term Notes. There were no gains on debt extinguishment for 2007.
Unrealized loss on interest rate
swaps. Unrealized loss on interest rate swaps
was $76.0 million for 2008, compared to $27.9 million
for 2007. The net fair value of the interest rate swap contracts
was a net liability of $95.2 million at December 31,
2008, compared to net liability of $17.9 million at
December 31, 2007, with the decrease in fair value due to
the decrease in long-term interest rates during 2008.
41
Income tax expense. Income tax expense
was $19.1 million for 2008, compared to $21.6 million
for 2007, and the effective tax rate was 34.8% in 2008 compared
to 35.8% in 2007. The decrease in our effective rate is
primarily due to a decrease in our state tax rate.
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.
Comparison
of Year Ended December 31, 2007 to Year Ended
December 31, 2006
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.
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in thousands)
|
|
|
Leasing revenues:
|
|
|
|
|
|
|
|
|
Operating lease revenues:
|
|
|
|
|
|
|
|
|
Per diem revenue
|
|
$
|
240,409
|
|
|
$
|
230,217
|
|
Fee and ancillary lease revenue
|
|
|
27,596
|
|
|
|
30,518
|
|
|
|
|
|
|
|
|
|
|
Total operating lease revenue
|
|
|
268,005
|
|
|
|
260,735
|
|
|
|
|
|
|
|
|
|
|
Finance lease revenues
|
|
|
18,268
|
|
|
|
12,422
|
|
|
|
|
|
|
|
|
|
|
Total leasing revenues
|
|
$
|
286,273
|
|
|
$
|
273,157
|
|
|
|
|
|
|
|
|
|
|
Total leasing revenues were $286.3 million for 2007,
compared to $273.2 million for 2006, an increase of
$13.1 million, or 4.8%.
Per diem revenue increased by $10.2 million from 2006
primarily due to an increase in fleet size, partially offset by
a decrease in per diem rates. Below outlines the primary reasons
for the increase:
|
|
|
|
|
$9.1 million increase due to an increase in fleet size,
reflecting a larger number of dry and special containers and
chassis in our fleet compared to the prior year;
|
|
|
|
$2.5 million increase due to higher utilization from dry
and refrigerated containers compared to the prior year;
|
|
|
|
$3.5 million increase due to the purchase of 57,000 TEU of
older managed equipment, which had the effect of increasing our
leasing revenue, operating expenses, depreciation and interest
expenses, and decreasing our management fees; and
|
|
|
|
$5.5 million decrease due to lower per diem rates primarily
for dry and refrigerated containers.
|
Fee and ancillary lease revenue decreased by $2.9 million
as compared to the prior year primarily due to a reduction in
drop off volume.
Finance lease revenue increased by $5.8 million in 2007,
primarily due to an increase in the size of our finance lease
portfolio. While our finance lease revenue increased, the
increase in the portion of our units on finance leases compared
to the prior year resulted in a reduction in our overall leasing
revenue compared to the amount we would have recognized if the
units were placed on operating leases. Under a finance lease, we
only recognize interest income as revenue while the principal
component of the lease payment reduces the net finance lease
receivable on the balance sheet. Under an operating lease we
recognize the entire monthly billing as revenue, and reduce the
net book value of the underlying equipment through depreciation
expense. For
42
2007, our finance lease billings exceeded our recognized finance
lease revenue by $24.8 million. For 2006, our finance lease
billings exceeded our recognized finance lease revenue by
$15.2 million.
Equipment trading activities. Equipment
trading revenue represents the proceeds on the sale of equipment
purchased for resale. Equipment trading expenses represents the
cost of equipment sold as well as related selling costs.
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in thousands)
|
|
|
Equipment trading revenues
|
|
$
|
49,214
|
|
|
$
|
23,665
|
|
Equipment trading expenses
|
|
|
(43,920
|
)
|
|
|
(21,863
|
)
|
|
|
|
|
|
|
|
|
|
Equipment trading margin
|
|
$
|
5,294
|
|
|
$
|
1,802
|
|
|
|
|
|
|
|
|
|
|
Equipment trading revenues and equipment trading expenses
increased significantly for 2007 compared to 2006 primarily due
to an increase in the number of units purchased and sold. The
equipment trading margin, the difference between equipment
trading revenues and expenses, increased $3.5 million for
2007 compared to 2006. The trading margin increased by
$2.9 million due to a higher volume of units sold and by
$1.6 million due to a higher per unit trading margin. These
increases were partially offset by an increase of allocated
administrative expenses of $1.0 million related to an
increase in the volume of units sold.
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 $28.6 million for 2007,
compared to $25.9 million for 2006, an increase of
$2.7 million or 10.4%. Below outlines the primary reasons
for the increase:
|
|
|
|
|
positioning costs increased by $2.0 million due to a higher
volume of dry containers moved;
|
|
|
|
repair costs increased by $2.1 million due to a higher cost
per unit repaired, primarily for our refrigerated containers,
partially offset by lower repair volume;
|
|
|
|
other operating costs increased by $1.4 million primarily
due to an increase in equipment loss reserves for equipment on
hire to non-performing customers; and
|
|
|
|
storage and handling costs decreased by $2.4 million due to
higher utilization of our equipment compared to the prior year.
|
Administrative expenses. Administrative
expenses were $39.8 million for 2007, compared to
$37.0 million for 2006, an increase of $2.8 million or
7.6%. This increase was mainly due to higher employee incentive
compensation costs of $2.9 million related to our high
level of profitability growth in 2007, partially offset by
$0.4 million in lower professional fees in 2007 primarily
due to Sarbanes-Oxley consulting fees incurred in 2006.
Depreciation and
amortization. Depreciation and amortization
was $101.7 million for 2007, compared to
$103.8 million for 2006, a decrease of $2.1 million or
2.0%. Depreciation expense decreased by $8.1 million due to
certain equipment becoming fully depreciated in the fourth
quarter of 2006, and decreased by $3.8 million from the
delay in the start date of depreciation for units purchased in
2007. In past years, depreciation on new units started after our
inspection and acceptance of units at the manufacturer.
Beginning in 2007, new units start depreciation the earlier of
when they are placed in service or January 1 of the year
following the year of purchase. These decreases were partially
offset by $9.8 million of increased depreciation expense
for new equipment added to the fleet and placed in service in
2007, including the purchase of 57,000 TEU of older managed
units in the fourth quarter of 2007.
Provision (reversal) for doubtful
accounts. There was a provision for doubtful
accounts for $0.7 million for 2007, compared to a
(reversal) of $(0.5) million for 2006. In 2006, we recorded
a benefit for the reversal
43
of an allowance upon collecting a past due repair receivable
from one of our large customers. In 2007, we recorded a reserve
for a past due receivable unlikely to be recovered.
Net (gain) loss on sale of leasing
equipment. Gain on sale of equipment was
$12.1 million for 2007, compared to a gain of
$6.2 million for 2006, an increase of $5.9 million.
Gain on sale of equipment increased by $5.4 million due to
higher selling prices for used containers, and increased by
$0.5 million primarily due to lower impairment charges for
units identified for sale.
Write-off of deferred financing
costs. Write-off of deferred financing costs
was $0.2 million for 2007, compared to $2.4 million
for 2006. The current year write-off is the result of the
refinancing of the companys senior secured credit facility
in August 2007. The prior year write-off is the result of the
refinancing of our asset securitization facility in April 2006.
Interest and debt expense. Interest and
debt expense was $52.1 million for 2007, compared to
$47.6 million for 2006, an increase of $4.5 million.
The increase was primarily due to an increase in the average
debt balance due to the purchase of additional fleet equipment
in 2007, including the purchase of 57,000 TEU of older managed
equipment.
Unrealized loss (gain) on interest rate
swaps. Unrealized loss on interest rate swaps
was $27.9 million for 2007, compared to an unrealized loss
of $8.3 million for 2006. The net fair value of the
interest rate swap contracts was a net liability of
$17.9 million at December 31, 2007, compared to net
asset of $11.9 million at December 31, 2006, with the
decrease in fair value due to a decrease in interest rates.
Income tax expense. Income tax expense
was $21.6 million for 2007, compared to an income tax
expense of $23.4 million for 2006, and the effective tax
rates for the periods were 35.8% and 35.7%, respectively.
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.
44
The following table lists selected revenue and expense items for
our Equipment leasing segment for the years ended
December 31, 2008, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in thousands)
|
|
|
Equipment leasing segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
324,083
|
|
|
$
|
293,062
|
|
|
$
|
281,068
|
|
Depreciation expense
|
|
|
110,400
|
|
|
|
101,670
|
|
|
|
103,849
|
|
Interest expense
|
|
|
63,797
|
|
|
|
51,656
|
|
|
|
47,339
|
|
Net (gain) on sale of leasing equipment
|
|
|
(23,534
|
)
|
|
|
(12,119
|
)
|
|
|
(6,242
|
)
|
Pre-tax income(1)(2)
|
|
|
98,724
|
|
|
|
83,753
|
|
|
|
74,552
|
|
|
|
|
(1) |
|
Pre-tax income excludes unrealized gains and losses on interest
rate swaps, and gain on debt extinguishment. |
|
(2) |
|
Pre-tax income for the year ended December 31, 2006
excludes write-off of deferred financing costs of $2,367. |
Segment
Comparison of Year Ended December 31, 2008 to Year Ended
December 31, 2007
Equipment leasing revenue. Total revenue for
the Equipment leasing segment was $324.1 million in 2008
compared to $293.1 million in 2007, an increase of
$31.0 million, or 10.6%. In 2008, leasing revenue increased
by $24.5 million due to a larger fleet size and by
$1.8 million due to higher utilization of our leasing
equipment. Fee and ancillary lease revenue increased by
$4.3 million as compared to the prior year. These increases
were partially offset by a $0.5 million reduction in
leasing revenue from lower per diem rates.
Equipment leasing pretax income. Pretax income
for the Equipment leasing segment was $98.7 million in 2008
compared to $83.8 million in 2007, an increase of
$14.9 million, or 17.8%. Equipment leasing revenue
increased by $31.0 million in 2008, and the gain on the
sale of leasing equipment increased by $11.4 million
primarily due to higher selling prices for used containers in
2008 compared to 2007.
The increase in revenue and gain on sale of leasing equipment
were partially offset by an $8.7 million increase in
depreciation expense, a $12.4 million increase in interest
expense, and a $5.6 million increase in administrative
expenses.
Segment
Comparison of Year Ended December 31, 2007 to Year Ended
December 31, 2006
Equipment leasing revenue. Total revenue for
the Equipment leasing segment was $293.1 million in 2007
compared to $281.1 million in 2006, an increase of
$12.0 million, or 4.3%. In 2007, leasing revenue increased
by $12.6 million due to a larger fleet size and by
$2.5 million due to higher utilization of our leasing
equipment. These increases were partially offset by a
$5.5 million reduction in leasing revenue from lower per
diem rates.
Equipment leasing pretax income. Pretax income
for the Equipment leasing segment was $83.8 million in 2007
compared to $74.6 million in 2006, an increase of
$9.2 million, or 12.3%. Equipment leasing revenue increased
by $12.0 million in 2007, while our depreciation expense
decreased by $2.2 million due to certain equipment becoming
fully depreciated in the fourth quarter of 2006 as well as the
delay in the start of depreciation for units purchased in 2007.
In addition, the gain on the sale of leasing equipment increased
by $5.9 million primarily due to higher selling prices for
used containers in 2007 compared to 2006. These increases were
partially offset by a $2.7 million increase in container
operating expenses and a $2.4 million increase in
administrative expenses.
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
45
segment revenues represent the proceeds on the sale of
containers purchased for resale. Expenses related to equipment
trading include the cost of containers purchased for resale that
were sold and related selling costs, as well as direct operating
expenses, administrative expenses and interest expense.
The following table lists selected revenue and expense items for
our Equipment trading segment for the years ended
December 31, 2008, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in thousands)
|
|
|
Equipment trading segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment trading revenue
|
|
$
|
95,394
|
|
|
$
|
49,214
|
|
|
$
|
23,665
|
|
Equipment trading expense
|
|
|
(84,216
|
)
|
|
|
(43,920
|
)
|
|
|
(21,863
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment trading margin
|
|
|
11,178
|
|
|
|
5,294
|
|
|
|
1,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
1,186
|
|
|
|
473
|
|
|
|
239
|
|
Pre-tax income(1)
|
|
|
8,414
|
|
|
|
4,521
|
|
|
|
1,618
|
|
|
|
|
(1) |
|
Pre-tax income excludes unrealized gains and losses on interest
rate swaps, and gain on debt extinguishment. |
Segment
Comparison of Year Ended December 31, 2008 to Year Ended
December 31, 2007
Equipment trading margin. Equipment trading
revenues and Equipment trading expenses increased significantly
in 2008 compared to 2007 primarily due to an increase in the
number of units purchased and sold. The equipment trading
margin, the difference between Equipment trading revenue and
expenses, increased $5.9 million in 2008 compared to 2007.
The trading margin increased by $7.2 million due to a
higher volume of units sold and by $1.8 million due to a
higher per unit trading margin. These increases were partially
offset by an increase in selling costs and administrative
expenses related to the volume of units sold.
Equipment trading pretax income. Pretax income
for the Equipment trading segment was $8.4 million in 2008
compared to $4.5 million in 2007, an increase of
$3.9 million, or 86.7%. The Equipment trading margin
increased by $5.9 million in 2008. The increase in
Equipment trading margin was partially offset by a
$0.7 million increase in administrative expenses and
$0.7 million increase in interest expense. The increase in
administrative expenses was primarily due to higher allocated
corporate expenses. Corporate expenses are allocated to the
equipment trading segment primarily based on the volume of units
sold in the equipment trading fleet relative to total units sold
from both the equipment trading and equipment leasing fleets.
Segment
Comparison of Year Ended December 31, 2007 to Year Ended
December 31, 2006
Equipment trading margin. Equipment trading
revenues and Equipment trading expenses increased significantly
in 2007 compared to 2006 primarily due to an increase in the
number of units purchased and sold. The Equipment trading
margin, the difference between Equipment trading revenue and
expenses, increased $3.5 million in 2007 compared to 2006.
The trading margin increased by $2.9 million due to a higher
volume of units sold and by $1.6 million due to a higher
per unit trading margin. These increases were partially offset
by an increase of allocated administrative expenses of
$1.0 million related to an increase in the volume of units
sold.
Equipment trading pretax income. Pretax income
for the Equipment trading segment was $4.5 million in 2007
compared to $1.6 million in 2006, an increase of
$2.9 million, or 181%. The Equipment trading margin
increased by $3.5 million in 2007. The increase in
Equipment trading margin was partially offset by a
$1.0 million increase in administrative expenses. The
increase in administrative expenses was primarily due to higher
allocated corporate expenses. Corporate expenses are allocated
to the Equipment trading segment primarily based on the volume
of units sold in the Equipment trading fleet. relative to total
units sold from both the Equipment trading and Equipment leasing
fleets.
46
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 2008, 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 $313.2 million. In
addition, as of December 31, 2008 we had approximately
$40.8 million of unrestricted cash.
As of December 31, 2008, major committed cash outflows in
the next 12 months include $40.0 million of committed
but unpaid capital expenditures and $133.9 million of
scheduled payments on our existing debt facilities.
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 and implement our current growth plans will also be
dependent on our ability to increase our lending commitments,
and we cannot assure you 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 our growth plans, though
disruptions in the capital markets have become more severe, and
this 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,
we will not be able to invest in our fleet at our target level
and our future growth rate and profitability will decrease.
At December 31, 2008, 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
|
|
$
|
451.0
|
|
|
$
|
451.0
|
|
Term notes
Series 2005-1
(converted from warehouse facility)
|
|
|
389.6
|
|
|
|
389.6
|
|
Asset backed credit facility
|
|
|
225.0
|
|
|
|
225.0
|
|
Revolving credit facility
|
|
|
100.0
|
|
|
|
100.0
|
|
Finance lease facility
|
|
|
47.4
|
|
|
|
47.4
|
|
2007 Term loan facility
|
|
|
33.6
|
|
|
|
33.6
|
|
Port equipment facility
|
|
|
12.3
|
|
|
|
12.3
|
|
Capital lease obligations
|
|
|
92.1
|
|
|
|
92.1
|
|
|
|
|
|
|
|
|
|
|
Total Debt
|
|
$
|
1,351.0
|
|
|
$
|
1,351.0
|
|
|
|
|
|
|
|
|
|
|
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 December 31, 2008, 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
|
47
|
|
|
|
|
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 the Asset Backed Securitization (ABS),
Asset Backed and Revolving Credit Facilities. The TAL Advantage
I LLC and the TAL Advantage II LLC Minimum EBIT to Cash
Interest Expense ratio is fixed at 1.10 to 1.00 for the Asset
Backed Securitization and the Asset Backed Credit Facilities.
The Finance Lease Facility Consolidated Minimum EBIT to Cash
Interest Expense ratio is fixed at 1.05 to 1.00.
Below is the calculation of EBIT to Cash Interest Expense as of
December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
EBIT to Cash Interest
Expense:
|
|
Consolidated(1)
|
|
|
TAL Adv I
|
|
|
TAL Adv II(2)
|
|
|
Net income (loss)
|
|
$
|
35,796
|
|
|
$
|
16,105
|
|
|
$
|
(11,048
|
)
|
Plus:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit)
|
|
|
19,067
|
|
|
|
8,577
|
|
|
|
(5,884
|
)
|
Interest expense including write-off of deferred financing costs
|
|
|
65,233
|
|
|
|
46,521
|
|
|
|
5,330
|
|
Unrealized losses on interest rate swaps
|
|
|
76,047
|
|
|
|
41,899
|
|
|
|
17,884
|
|
All non-cash expenses attributable to incentive arrangements
|
|
|
1,203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBIT
|
|
$
|
197,346
|
|
|
$
|
113,102
|
|
|
$
|
6,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense (excluding interest income of $1,371, $849, and
$0 respectively)
|
|
$
|
66,604
|
|
|
$
|
47,371
|
|
|
$
|
5,324
|
|
Amortization and write-off of deferred financing costs
|
|
|
(1,296
|
)
|
|
|
(674
|
)
|
|
|
(394
|
)
|
Accrued interest (represents 2008 interest expense not paid)
|
|
|
(3,207
|
)
|
|
|
(1,121
|
)
|
|
|
(347
|
)
|
Cash payments of prior period accrued interest
|
|
|
2,287
|
|
|
|
1,564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Interest Expense
|
|
$
|
64,388
|
|
|
$
|
47,140
|
|
|
$
|
4,583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBIT to Cash Interest Expense Ratio
|
|
|
3.06
|
|
|
|
2.40
|
|
|
|
1.37
|
|
Required Minimum EBIT to Cash Interest Expense Ratio
|
|
|
1.10
|
|
|
|
1.10
|
|
|
|
1.10
|
|
48
|
|
|
(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. |
|
(2) |
|
TAL Advantage II incurred a net loss during 2008 largely
due to $17.9 million in losses on interest rate swaps. In
addition, since this special purpose company was established in
March 2008 to finance new factory units, the build up of lease
revenue trailed interest cost until the majority of the units
were leased out. |
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 $321.3 million plus 50% of
cumulative net income or loss since January 1, 2006. At
December 31, 2008, the required minimum TNW for the ABS
facilities was $379.7 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 December 31, 2008:
|
|
|
|
|
Tangible Net Worth
Covenants:
|
|
Consolidated
|
|
|
Tangible Assets
|
|
|
|
|
Total Assets
|
|
$
|
1,955,498
|
|
Deferred Financing Costs
|
|
|
(8,462
|
)
|
Goodwill
|
|
|
(71,898
|
)
|
Intangibles
|
|
|
(3,687
|
)
|
Fair value of derivative instruments (asset)
|
|
|
(951
|
)
|
|
|
|
|
|
Total Tangible Assets(A)
|
|
$
|
1,870,500
|
|
|
|
|
|
|
All indebtedness:
|
|
|
|
|
Total debt
|
|
$
|
1,351,036
|
|
Accrued interest
|
|
|
3,160
|
|
Fair value of derivative instruments (liability)
|
|
|
95,224
|
|
Equipment purchases payable
|
|
|
27,224
|
|
|
|
|
|
|
Total Indebtedness(B)
|
|
$
|
1,476,644
|
|
|
|
|
|
|
Tangible Net Worth (A-B=C)
|
|
$
|
393,856
|
|
Required Minimum Tangible Net Worth
|
|
$
|
300,000
|
|
Debt to Tangible Net Worth Ratio (B/C)
|
|
|
3.75
|
|
Required Maximum Debt to Tangible Net Worth Ratio
|
|
|
5.00
|
|
For the purpose of calculating TNW applicable 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 $393.9 million as per the table above plus
$95.2 million (the fair value of derivative instruments
excluded), for a total TNW of $489.1 million at
December 31, 2008, versus a required minimum TNW of
$379.7 million.
49
For the purpose of calculating Debt to TNW Ratio under the ABS
facility, the fair value of derivative instruments
($95.2 million) is included in the calculation of
indebtedness. As a result, the total indebtedness for the
purpose of this calculation is $1,476.6 million as shown in
the table above, the TNW is $489.1 million as shown in the
paragraph above, and the calculated Debt to TNW Ratio was 3.02
at December 31, 2008, 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
is excluded from the calculation of indebtedness. As a result,
the total indebtedness for the purpose of this calculation is
$1,476.6 million as per the table above less
$95.2 million (the fair value of derivative instruments
excluded), for a total Indebtedness of $1,381.4 million.
The TNW is $489.1 million as shown in the first paragraph
directly above, and the calculated Debt to TNW Ratio was 2.82 at
December 31, 2008, 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.
Asset
Backed Securitization Term Notes
Our Asset Backed Securitization program was the primary funding
source used to finance our existing container fleet and new
container purchases from the programs inception in April
of 2006 through the conversion of the Term Note
Series 2005-1
to a term loan in April 2008. The Term Note
Series 2006-1
issued in April 2006 were used to finance the majority of the
containers in our fleet at that time, and the Term Notes
Series 2005-1
was primarily used to finance our new container purchases
between April 2006 and April 2008.
The Term Note
Series 2005-1
was initially structured to have a limit of $300 million.
On August 24, 2007, we increased the facility from
$300 million to $350 million. On November 19,
2007, we increased the facility from $350 million to
$425 million. It was our original intention to issue term
notes to refinance the containers funded through the facility.
However, the market for asset-backed term notes has been
significantly disrupted, which has limited our ability to
refinance the notes. The facility automatically converted to a
nine year amortizing term loan with a 25 basis point
increase to the interest margin as of April 12, 2008.
During the fourth quarter of 2008, we repurchased approximately
$48.2 million of our
Series 2006-1
Term Notes and recorded a gain on debt extinguishment of
$23.8 million, net of the write-off of deferred financing
costs of $0.3 million.
The borrowing capacity under the ABS program is determined by
applying the advance rate of 82% against the net book values of
designated eligible containers plus accounts receivable for sold
containers not outstanding more than 60 days plus
restricted cash. The net book value for purposes of calculating
our borrowing capacity is the original equipment cost
depreciated over 12 years to a range of 20% to 32% of
original equipment cost depending on equipment type. Under the
ABS program, the borrower is required to maintain restricted
cash balances on deposit in a designated bank account equal to
five months of interest expense.
Asset
Backed Credit Facility
On March 27, 2008, we entered into a $125 million
Asset Backed Credit Facility. The facility initially had a
15 month revolving credit period, commencing on the date of
the facility, followed by a nine year term period in which the
outstanding balance amortizes in equal monthly installments. On
June 30, 2008, the borrowing capacity was increased to
$150 million. On September 15, 2008, the borrowing
capacity was further increased to $225 million and the
revolving period was extended to June 30, 2010, on which
date the facility will convert to a term facility and amortize
in equal monthly installments through June 2018. The interest
rate margin will increase by 75 basis points when converted
to a term facility.
The borrowing capacity under the Asset Backed Credit Facility is
determined by applying the advance rate of 82% against the net
book values of designated eligible containers plus accounts
receivable for sold containers not outstanding more than
60 days. The net book value for purposes of calculating our
borrowing
50
capacity is the original equipment cost depreciated over
12 years to a range of 20% to 32% of original equipment
cost depending on equipment type.
Revolving
Credit Facility
On August 15, 2007, we entered into a Revolving Credit
Agreement which refinanced a predecessor facility, which was
terminated in accordance with its terms. The initial commitment
under the Revolving Credit Facility was $135.0 million, but
in accordance with the terms of the facility stepped down to
$110.0 million on January 1, 2008, and
$100.0 million on March 31, 2008. The maturity date of
the Revolving Credit Facility is August 15, 2012. We are
required to maintain unencumbered assets equivalent to 50% of
the maximum commitment.
Finance
Lease Facility
On July 31, 2006, we entered into a $50 million credit
facility to support the growth of our finance lease business
(the Finance Lease Facility). The Finance Lease
Facility had a two year revolving period which preceded a ten
year term in which the outstanding balance, as of the term
conversion date, amortizes in monthly installments. The Finance
Lease Facility is secured by the finance lease receivables
associated with certain containers. The Finance Lease Facility
has a final maturity of July 2018.
The borrowing capacity under the Finance Lease Facility is
determined by applying the advance rate of 90% against the
lesser of the original equipment cost or the net present value
of the minimum lease payments discounted using the facility rate
at the time of borrowing.
2007
Term Loan Facility
On November 19, 2007, we entered into a three year term
loan, which is secured by approximately 57,000 TEU of previously
managed dry and special containers that we purchased on
October 1, 2007. The final maturity date of the loan is
November 19, 2010. Our initial borrowing under this
facility of $20.0 million was made on November 19,
2007. We made an additional borrowing under this facility of
$19.9 million on January 2, 2008 pursuant to a lender
commitment dated December 20, 2007.
The borrowing capacity under the 2007 Term Loan Facility is
determined by applying the advance rate of 80% against the net
book values of designated eligible containers plus accounts
receivable for sold containers not outstanding more than
90 days. The net book value for purposes of the borrowing
base calculation is the equipment acquisition cost depreciated
at an annual rate of 8%.
Port
Equipment Facility
On December 28, 2006, we entered into a Euro denominated
credit facility to support a port equipment financing
transaction (the Port Equipment Facility). The Port
Equipment Facility has an eight year term and amortizes in equal
monthly installments.
Capital
Lease Obligations
We have entered into a series of capital leases with various
financial institutions to finance the purchase of chassis. The
lease agreements have been structured as ten year Terminal
Rental Adjustment Clause (TRAC) leases with purchase
options at the end of the lease terms equal to the TRAC amount
as defined in each lease. For income tax purposes, these leases
are treated as operating leases.
In August 2008 and December 2008, we entered into sale-leaseback
transactions for approximately 12,500 and 2,250 of containers
for net proceeds of $33.9 million and $10.5 million,
respectively. The leases were accounted for as capital leases
with interest expense recognized on a level yield basis over
seven years, at which point there are early purchase options. As
the estimated fair value of the assets sold exceeded their
carrying value, in the August 2008 transaction, the excess of
the carrying value over the proceeds resulted in a loss of
$0.4 million, which was deferred and will be recognized
over the estimated life of the leased assets,
51
which is twelve years. The December 2008 transaction resulted in
a gain of $0.7 million, which was deferred and will be
recognized over the estimated life of the leased assets, which
is twelve years.
Dividends
Paid
We paid the following quarterly dividends during the year ended
December 31, 2008 and 2007 on our issued and outstanding
common stock:
|
|
|
|
|
|
|
|
|
|
|
Record Date
|
|
Payment Date
|
|
Aggregate Payment
|
|
|
Per Share Payment
|
|
|
November 19, 2008
|
|
December 10, 2008
|
|
$
|
13.4 million
|
|
|
$
|
0.4125
|
|
August 21, 2008
|
|
September 12, 2008
|
|
$
|
13.5 million
|
|
|
$
|
0.4125
|
|
May 22, 2008
|
|
June 12, 2008
|
|
$
|
13.4 million
|
|
|
$
|
0.4125
|
|
March 20, 2008
|
|
April 10, 2008
|
|
$
|
12.2 million
|
|
|
$
|
0.3750
|
|
November 6, 2007
|
|
December 10, 2007
|
|
$
|
12.5 million
|
|
|
$
|
0.3750
|
|
August 15, 2007
|
|
August 29, 2007
|
|
$
|
12.5 million
|
|
|
$
|
0.3750
|
|
May 17, 2007
|
|
May 30, 2007
|
|
$
|
12.5 million
|
|
|
$
|
0.3750
|
|
February 23, 2007
|
|
March 9, 2007
|
|
$
|
10.0 million
|
|
|
$
|
0.3000
|
|
Treasury
Stock
On March 13, 2006, our Board of Directors authorized a
stock buyback program for the repurchase of up to
1.5 million shares of our common stock. On
September 5, 2007, our Board of Directors authorized a
1.0 million share increase to our stock buyback program
that began in March 2006. The stock buyback program, as now
amended, authorizes us to repurchase up to 2.5 million
shares of our common stock.
During the year ended December 31, 2008, there were
643,200 shares repurchased under the stock buyback program
at a total cost of approximately $10.9 million.
During the year ended December 31, 2007, there were
276,029 shares repurchased under the stock buyback program
at a total cost of approximately $6.3 million.
During the year ended December 31, 2006, there were
136,250 shares repurchased under the stock buyback program
at a total cost of approximately $2.9 million.
Cash
Flow
The following table sets forth certain cash flow information for
the three years ended December 31, 2008, 2007 and 2006
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Net cash provided by operating activities
|
|
$
|
201,013
|
|
|
$
|
166,404
|
|
|
$
|
173,871
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of leasing equipment
|
|
$
|
(450,902
|
)
|
|
$
|
(334,476
|
)
|
|
$
|
(188,676
|
)
|
Investments in finance leases
|
|
|
(41,733
|
)
|
|
|
(58,407
|
)
|
|
|
(64,664
|
)
|
Proceeds from sale of equipment, net of selling costs
|
|
|
124,495
|
|
|
|
63,006
|
|
|
|
58,462
|
|
Cash collections on finance lease receivables, net of income
earned
|
|
|
28,232
|
|
|
|
24,791
|
|
|
|
15,248
|
|
Other
|
|
|
134
|
|
|
|
92
|
|
|
|
353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
$
|
(339,774
|
)
|
|
$
|
(304,994
|
)
|
|
$
|
(179,277
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
$
|
126,923
|
|
|
$
|
147,585
|
|
|
$
|
21,788
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52
Operating
Activities
Net cash provided by operating activities increased by
$34.6 million to $201.0 million in 2008 compared to
$166.4 million in 2007 primarily due to an increase in our
level of operating profitability.
Net cash provided by operating activities decreased by
$7.5 million to $166.4 million in 2007 compared to
$173.9 million in 2006 primarily due to an increased
inventory of equipment purchased for resale.
Investing
Activities
Net cash used in investing activities increased by
$34.8 million to $339.8 million for 2008 compared to
$305.0 million in 2007. Major reasons for the increase were
as follows:
|
|
|
|
|
Capital expenditures were $492.6 million, including
investments in finance leases of $41.7 million, for 2008
compared to $392.9 million, including investments in
finance leases of $58.4 million, for 2007. Capital
expenditures increased by $99.7 million in 2008 primarily
due to an increase in the number of leasing units purchased and
an increase in new equipment prices, including units purchased
as part of a purchase lease-back transaction, as well as higher
per unit costs.
|
|
|
|
Sales proceeds from the disposal of equipment increased
$61.5 million to $124.5 million in 2008 compared to
$63.0 million in 2007. The proceeds from disposals include
$40.5 million in 2008 from the sale of container portfolios
while no container portfolios were sold in 2007. In addition,
proceeds from the disposal of used containers increased in 2008
due to an increase in the number of units sold, as well as
higher equipment selling prices.
|
|
|
|
Cash collections on finance leases, net of income earned,
increased by $3.4 million to $28.2 million for 2008
compared to $24.8 million for 2007 as a result of an
increase in our finance lease portfolio.
|
Net cash used in investing activities increased by
$125.7 million to $305.0 million for 2007 compared to
$179.3 million in 2006. Major reasons for the increase were
as follows:
|
|
|
|
|
Capital expenditures were $392.9 million, including
investments in finance leases of $58.4 million, for 2007
compared to $253.3 million, including investments in
finance leases of $64.7 million, for 2006. Capital
expenditures increased by $139.6 million in 2007 primarily
due to an increase in the number of new units purchased, as well
as higher per unit costs. In addition, capital expenditures in
2007 were boosted by the purchase of 57,000 TEU of previously
managed older containers.
|
|
|
|
Sales proceeds from the disposal of equipment increased
$4.5 million to $63.0 million in 2007 compared to
$58.5 million in 2006. The increase in sales proceeds is
primarily due to an increase in equipment selling prices.
|
|
|
|
Cash collections on finance leases, net of income earned
increased by $9.6 million to $24.8 million for 2007,
compared to $15.2 million for 2006 as a result of an
increase in our finance lease portfolio.
|
Financing
Activities
Net cash provided by financing activities was
$126.9 million for 2008 compared to $147.6 million for
2007. The major changes were as follows:
|
|
|
|
|
During 2008, we had net borrowings of $215.8 million under
our various credit facilities and capital lease obligations,
primarily used to finance the purchase of new equipment.
|
|
|
|
We also extinguished $48.2 million of our outstanding debt
in a repurchase for $24.1 million, which resulted in a gain
on debt extinguishment, of $23.8 million, net of the
write-off of deferred financing costs of $0.3 million.
|
|
|
|
$52.5 million was used in 2008 to pay dividends on our
common stock outstanding.
|
|
|
|
$10.9 million was used during 2008 to purchase treasury
shares.
|
53
We entered into capital leases in 2008 for $9.4 million to
finance the acquisition of chassis equipment, which is
considered a non-cash financing activity.
Net cash provided by financing activities was
$147.6 million for 2007 compared to $21.8 million for
2006. The major changes were as follows:
|
|
|
|
|
During 2007, we had net borrowings of $205.1 million under
our various credit facilities and capital lease obligations,
primarily used to finance the purchase of new equipment.
|
|
|
|
$47.3 million was used during 2007 to pay dividends on our
common stock outstanding.
|
|
|
|
$5.9 million was used in 2007 to purchase treasury shares.
|
We entered into capital leases in 2007 and 2006 for
$9.7 million and $25.2 million, respectively, to
finance the acquisition of chassis equipment, which is
considered a non-cash financing activity.
Contractual
Obligations
We are party to various operating 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
purchase obligations are in the form of conventional accounts
payable, and are satisfied from cash flows from operating
and/or long
term financing activities.
The following table summarizes our contractual obligations and
commercial commitments as of December 31, 2008: (does not
include amounts potentially due under guarantees, as amounts, if
any, are indeterminable)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual Obligations by Twelve Month Period Ending
December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013 and
|
|
Contractual Obligations:
|
|
Total
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
thereafter
|
|
|
|
(Dollars in millions)
|
|
|
Total debt obligations(1)
|
|
$
|
1,496.5
|
|
|
$
|
184.1
|
|
|
$
|
220.4
|
|
|
$
|
195.6
|
|
|
$
|
280.1
|
|
|
$
|
616.3
|
|
Capital lease obligations(2)
|
|
|
115.0
|
|
|
|
11.1
|
|
|
|
11.4
|
|
|
|
11.5
|
|
|
|
11.7
|
|
|
|
69.3
|
|
Operating leases (mainly facilities)
|
|
|
6.0
|
|
|
|
3.2
|
|
|
|
1.7
|
|
|
|
0.9
|
|
|
|
0.2
|
|
|
|
|
|
Purchase obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment purchases payable
|
|
|
27.2
|
|
|
|
27.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment purchase commitments
|
|
|
12.8
|
|
|
|
12.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
1,657.5
|
|
|
$
|
238.4
|
|
|
$
|
233.5
|
|
|
$
|
208.0
|
|
|
$
|
292.0
|
|
|
$
|
685.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amounts include actual and estimated interest for floating-rate
debt based on December 31, 2008 rates and the net effect of
the interest rate swaps. |
|
(2) |
|
Amounts include interest. |
Off-Balance
Sheet Arrangements
At December 31, 2008, we did not have any relationships
with unconsolidated entities or financial partnerships, which
are often referred to as structured finance or special purpose
entities, which would have been 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. The following paragraphs summarize our critical
accounting policies. Additional
54
accounting policies are discussed in the notes to our historical
financial statements contained elsewhere in this
Form 10-K.
Revenue
Recognition
Operating
Leases with Customers
We enter into long-term leases and service leases with ocean
carriers, principally as lessor in operating leases, for marine
cargo equipment. Long-term leases provide our customers with
specified equipment for a specified term. Our leasing revenues
are based upon the number of equipment units leased, the
applicable per diem rate and the length of the lease. Long-term
leases typically range for a period of three to eight years.
Revenues are recognized on a straight-line basis over the life
of the respective lease. Advanced billings are deferred and
recognized in the period earned. Service leases do not specify
the exact number of equipment units to be leased or the term
that each unit will remain on-hire but allow the lessee to pick
up and drop off units at various locations specified in the
lease agreement. Under a service lease, rental revenue is based
on the number of equipment units on hire for a given period.
Revenue for customers where collection is not reasonably assured
is deferred and recognized when the amounts are received.
In accordance with EITF
No. 99-19,
Reporting Revenue Gross as a Principal versus Net as an
Agent, we recognize billings to customers for damages and
certain other operating costs as leasing revenue as it is earned
based on the terms of the contractual agreements with the
customer. As principal, we are responsible for fulfillment of
the services, supplier selection and service specifications, and
we have ultimate responsibility to pay the supplier for the
services whether or not we collect the amount billed to the
lessee.
Finance
Leases with Customers
We enter into finance leases as lessor for some of the equipment
in our fleet. The net investment in finance leases represents
the receivables due from lessees, net of unearned income.
Unearned income is recognized on a level yield basis over the
lease term and is recorded as leasing revenue. Finance leases
are usually long-term in nature, typically ranging for a period
of five to ten years and typically include a bargain purchase
option that enables the lessee to purchase the equipment at the
end of the lease term.
Equipment
Trading Revenue and Expense
Equipment trading revenue represents the proceeds from the sale
of equipment purchased for resale and is recognized as units are
sold and delivered to the customer. The related expenses
represent the cost of equipment sold as well as other selling
costs that are recognized as incurred and are reflected as
equipment trading expense in the consolidated statements of
operations.
Management
Fee Income
We manage equipment which is owned by third parties and we earn
management fees based on the income earned by the leasing and
sales of such equipment. Management fees are recognized as
services are provided. We collect amounts billed and pay
operating costs as agent on behalf of the third parties that own
such equipment. These billings and operating costs are not
included in revenue and expense; instead, the net amounts owed
to these equipment owners are reflected as accrued expenses in
our financial statements until paid as required by our contracts.
Other
Revenues
Other revenues include fee income for third party positioning of
equipment.
Direct
Operating Expenses
Direct operating expenses are directly related to our equipment
under and available for lease. These expenses primarily consist
of our costs to repair and maintain the equipment, to reposition
the equipment, to store the equipment when it is not on lease,
to inspect newly manufactured equipment and a provision for
55
equipment lost or not expected to be returned. These costs are
recognized when incurred. In limited situations, certain
positioning costs may be capitalized.
Leasing
Equipment
In general, we purchase new equipment from equipment
manufacturers for the purpose of leasing such equipment to our
customers. Occasionally, we may also purchase used equipment
with the intention of leasing such equipment. Used units are
typically purchased with an existing lease in place or were
previously owned by one of our third party owner investors.
Leasing equipment is recorded at cost and depreciated to an
estimated residual value on a straight-line basis over the
estimated useful life. We will continue to review our
depreciation policies on a regular basis to determine whether
changes have taken place that would suggest that a change in our
depreciation policies, useful lives of our equipment or the
assigned residual values is warranted. If indicators of
impairment are present, a determination is made as to whether
the carrying value of our fleet exceeds its estimated future
undiscounted cash flows. Leasing equipment is tested for
impairment whenever events or changes in circumstances indicate
that its carrying amount may not be recovered. Key indicators of
impairment on leasing equipment include, among other factors, a
sustained decrease in operating profitability, a sustained
decrease in utilization, or indications of technological
obsolescence.
When testing for impairment, leasing equipment is generally
grouped by equipment type, and is tested separately from other
groups of assets and liabilities. Some of the significant
estimates and assumptions used to determine future undiscounted
cash flows and the measurement for impairment are the remaining
useful life, expected utilization, expected future lease rates,
and expected disposal prices of the equipment. We consider the
assumptions on expected utilization and the remaining useful
life to have the greatest impact on our estimated future
undiscounted cash flows. These estimates are principally based
on historical experience and managements judgment of
market conditions.
Estimated useful lives and residual values have been principally
determined based on our historical disposal experience. The
estimated useful lives and residual values for our leasing
equipment from the date of manufacture are currently as follows:
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Useful
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Lives
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(Years)
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Residual Values ($)
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Dry container units
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13
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$750 to $900
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Refrigerated container units
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12
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$2,200 to $2,700
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Special container units
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14
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$600 to $1,200
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Tank container units
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20
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$3,000
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Chassis
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20
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$1,200
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Costs incurred to place new equipment into service, including
costs to transport the equipment to its initial on-hire
location, are capitalized. We charge to expense inspection costs
on new equipment and repair and maintenance costs that do not
extend the lives of the assets at the time the costs are
incurred, and include these costs in direct operating expenses.
An allowance is provided through direct operating expenses based
on the net book value of a percentage of the units on lease to
certain customers that are considered to be non-performing which
we believe we will not ultimately recover. The percentage is
developed based on our historical experience.
Equipment
Held For Sale
When leasing equipment is returned off lease, we make a
determination of whether to repair and re-lease the equipment or
sell the equipment. At the time we determine that equipment will
be sold, we reclassify the appropriate amounts previously
recorded as leasing equipment to equipment held for sale. In
accordance with the Financial Accounting Standards Boards
(FASB) Statement of Financial Accounting Standards
No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets (SFAS No. 144),
equipment held for sale is
56
carried at the lower of its estimated fair value, based on
current transactions, less costs to sell, or carrying value;
depreciation on such assets is halted and disposals generally
occur within 90 days. Subsequent changes to the
assets fair value, either increases or decreases, are
recorded as adjustments to the carrying value of the equipment
held for sale; however, any such adjustments may not exceed the
equipments carrying value at the time it was initially
classified as held for sale. Initial write-downs of assets held
for sale are recorded as an impairment charge and are included
in net (gain) loss on sale of leasing equipment. Realized gains
and losses resulting from the sale of equipment held for sale
are recorded as a (gain) loss on sale of leasing equipment, and
cash flows associated with the disposal of equipment held for
sale are classified as cash flows from investing activities.
Equipment
Held For Resale Trading Activity
On an opportunistic basis, we purchase used equipment with
markings or specifications different from our own equipment for
purposes of reselling it within a short time frame for a net
profit.
Equipment purchased for resale is reported as equipment held for
sale due to the short timeframe, generally less than one year,
between the time the equipment is purchased and the time the
equipment is sold. Due to this short expected holding period,
cash flows associated with equipment held for resale are
classified as operating cash flows. Equipment trading revenue
represents the proceeds from the sale of this equipment, while
Equipment trading expense includes the cost of equipment sold
and any costs to sell such equipment, including administrative
costs.
Allowance
for Doubtful Accounts
Our allowance for doubtful accounts is updated on a regular
basis and is based upon a review of the collectibility of our
receivables. This review considers the risk profile of the
customer, credit quality indicators such as the level of
past-due amounts and economic conditions. An account is
considered past due when a payment has not been received in
accordance with the contractual terms. Accounts are generally
charged off after an analysis is completed which indicates that
collection of the full principal balance is in doubt. Changes in
economic conditions or other events may necessitate additions or
deductions to the allowance for doubtful accounts. The allowance
for doubtful accounts is intended to provide for losses inherent
in our receivables, and requires the application of estimates
and judgments as to the outcome of collection efforts and the
realization of collateral, among other things. We believe our
allowance for doubtful accounts is adequate to provide for
credit losses inherent in our existing receivables. However,
actual losses could exceed the amounts provided for in certain
periods.
Income
Taxes
We account for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, Accounting for
Income Taxes (SFAS No. 109). Under
SFAS No. 109, deferred tax assets and liabilities are
determined based on the difference between our financial
statements and the tax basis of assets and liabilities using
enacted tax rates in effect for the year in which the
differences are expected to reverse. We adopted FASB
Interpretation 48, Accounting for Uncertainty in Income
Taxes, effective January 1, 2007.
Goodwill
We account for goodwill in accordance with Statement of
Financial Accounting Standards No. 142, Goodwill and
Other Intangible Assets
(SFAS No. 142). SFAS No. 142
requires goodwill and other intangible assets with indefinite
lives to be reviewed for impairment annually or more frequently
if circumstances indicate a possible impairment. In connection
with the Acquisition, we recorded $71.9 million of
goodwill. Management determined that the Company has two
reporting units, Equipment leasing and Equipment trading, and
allocated $70.9 million and $1.0 million,
respectively, to each reporting unit. The annual impairment test
is conducted by comparing the Companys carrying amount, to
the fair value of the Company using a market capitalization
approach. Market capitalization of the entity is compared to the
carrying value of the entity since virtually all of the goodwill
is allocated to, and nearly all of the market capitalization is
attributable to,
57
the Equipment leasing reporting unit. If the carrying value of
the entity exceeds its market capitalization, then a second step
would be performed that compares the implied fair value of
goodwill with the carrying amount of goodwill. The determination
of implied fair value of goodwill would require management to
compare the estimated fair value of the reporting units to the
estimated fair value of the assets and liabilities of the
reporting units. Any excess fair value represents the implied
fair value of goodwill. To the extent that the carrying amount
of the goodwill exceeds its implied fair value, an impairment
loss would be recorded. Our annual review of goodwill, conducted
in the fourth quarter of 2008, indicated that no impairment of
goodwill existed.
Recently
Issued Accounting Pronouncements
In March 2008, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting
Standards No. 161 (SFAS 161),
Disclosures about Derivative Instruments and Hedging
Activities, an amendment of FASB Statement No. 133.
SFAS 161 requires qualitative disclosures about
objectives and strategies for using derivatives, quantitative
disclosures about fair value amounts of and gains and losses on
derivative instruments, and disclosures about
credit-risk-related contingent features in derivative
agreements. SFAS 161 is effective beginning in the first
quarter of 2009. We will adopt SFAS 161 on January 1,
2009.
In December 2007, the FASB issued Statement of Financial
Accounting Standards No. 141 (revised 2007)
(SFAS 141R), Business Combinations and
Statement of Financial Accounting Standards No. 160
(SFAS 160), Noncontrolling Interests in
Consolidated Financial Statements, an amendment of Accounting
Research Bulletin No. 51. SFAS 141R will
change how business acquisitions are accounted for and will
impact financial statements both on the acquisition date and in
subsequent periods. SFAS 160 will change the accounting and
reporting for minority interests, which will be recharacterized
as noncontrolling interests and classified as a component of
equity. SFAS 141R and SFAS 160 are effective beginning
in the first quarter of 2009. Early adoption is not permitted.
Implementation of SFAS 141R is prospective. We will adopt
SFAS 141R and SFAS 160 on January 1, 2009 and
believe that the adoption of these accounting standards will not
have an impact on our current consolidated results of operations
and financial position.
In February 2007, the FASB issued Statement of Financial
Accounting Standards No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities
(SFAS No. 159), which permits
companies to choose to measure many financial instruments and
certain other items at fair value. The Statements
objective is to improve financial reporting by providing
companies with the opportunity to mitigate volatility in
reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge
accounting provisions. We adopted SFAS No. 159 on
January 1, 2008 and elected not to fair value our existing
financial assets and liabilities, and as a result, there was no
impact on our consolidated results of operations and financial
position.
In September 2006, the FASB issued Statement of Financial
Accounting Standards No. 157, Fair Value Measurements
(SFAS No. 157), which addresses how
companies should measure fair value when they are required to
use a fair value measure for recognition or disclosure purposes
under generally accepted accounting principles (GAAP). Under
SFAS No. 157, there is now a common definition of fair
value to be used throughout GAAP. The new standard makes the
measurement of fair value more consistent and comparable and
improves disclosures about those measures. We adopted the
provisions of SFAS No. 157 on January 1, 2008,
and there was no material impact on our consolidated results of
operations and financial position.
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ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DICLOSURES ABOUT MARKET RISK
|
Market risk represents the risk of changes in value of a
financial instrument, derivative or non-derivative, caused by
fluctuations in interest rates, foreign exchange rates and
equity prices. Changes in these factors could cause fluctuations
in results of our operations and cash flows. In the ordinary
course of business, we are exposed to interest rate and foreign
currency exchange rate risks.
58
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 our overall operating goals.
External risk is defined as those risks outside of our direct
control, including counterparty credit risk, liquidity risk,
systemic risk and legal risk. Internal risk relates to those
operational risks within the management oversight structure and
includes actions taken in contravention of our policy.
The primary external risk of our interest rate swap contracts is
counterparty credit exposure, which is defined as the ability of
a counterparty to perform its financial obligations under a
derivative contract. All derivative agreements are with major
money center financial institutions rated investment grade by
nationally recognized rating agencies, with our counterparties
rated A or better. Credit exposures are measured
based on the market value of outstanding derivative instruments.
Both current exposures and potential exposures are calculated
for each derivative contract to monitor counterparty credit
exposure.
As of December 31, 2008, we had in place interest rate swap
contracts to fix the floating interest rates on a portion of the
borrowings under our debt facilities as summarized below:
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Weighted Average
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Fixed Leg
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Total Notional Amount at
|
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Interest Rate at
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Weighted Average
|
December 31, 2008
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December 31, 2008
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Remaining Term
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$1,200 million
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4.25%
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|
3.4 years
|
Changes in the fair value on these interest rate swap contracts
will be recognized in the consolidated statements of operations
as unrealized gains or losses on interest rate swaps.
Since approximately 89% 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 year ended December 31,
2008, unrealized losses on interest rate swaps totaled
$76.0 million, compared to unrealized losses on interest
rate swaps of $27.9 million for the year ended
December 31, 2007.
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 2008 and 2007 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 $1.1 million
of unrealized foreign currency exchange losses in the year ended
December 31, 2008 and $0.8 million of unrealized
foreign currency exchange gains in the year ended
December 31, 2007, which resulted primarily from
fluctuations in exchange rates related to our Euro and Pound
Sterling transactions and related assets.
In April 2008, we entered into a foreign currency rate swap
agreement to exchange Euros for U.S. Dollars based on
expected payments under its Euro denominated finance lease
receivables. The foreign currency rate swap agreement expires in
April 2015. The fair value of this derivative contract was
approximately $1.0 million at December 31, 2008, and
is reported as an asset in Fair Value of Derivative Instruments
on the consolidated balance sheet.
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ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
The consolidated financial statements and financial statement
schedule listed under Item 15 Exhibits and
Financial Statement Schedules are filed as a part of this
Item 8. Supplementary financial information may be found in
Note 13 to the consolidated financial statements.
59
|
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ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|
None.
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ITEM 9A.
|
CONTROLS
AND PROCEDURES
|
MANAGEMENTS
REPORT REGARDING THE EFFECTIVENESS OF DISCLOSURE CONTROLS AND
PROCEDURES
We carried out an evaluation, under the supervision and with the
participation of our management, including our President and
Chief Executive Officer along with our Senior Vice President and
Chief Financial Officer, of the effectiveness of the design and
operation of our disclosure controls and procedures as of the
end of the period covered by this Annual Report on
Form 10-K.
Based upon their evaluation of these disclosure controls and
procedures, our President and Chief Executive Officer along with
the Senior Vice President and Chief Financial Officer concluded,
as of the end of the period covered by this Annual Report on
Form 10-K,
that our disclosure controls and procedures were effective.
MANAGEMENTS
REPORT ON INTERNAL CONTROL OVER FINANCIAL
REPORTING
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting (as defined
in
Rules 13a-15(f)
and
15d-15(f)
under the Exchange Act). Our internal control over financial
reporting is a process designed with the participation of our
principal executive officer and principal financial officer or
persons performing similar functions to provide reasonable
assurance regarding the reliability of financial reporting and
the preparation of our financial statements for external
reporting purposes in accordance with U.S. generally
accepted accounting principles.
Our internal control over financial reporting includes policies
and procedures that: (a) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly
reflect our transactions and dispositions of assets;
(b) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial
statements in accordance with U.S. generally accepted
accounting principles, and that our receipts and expenditures
are being made only in accordance with authorizations of our
management and Board of Directors; and (c) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of our assets that
could have a material effect on our financial statements.
Because of its inherent limitations, our internal controls and
procedures may not prevent or detect misstatements. A control
system, no matter how well conceived and operated, can only
provide reasonable, not absolute, assurance that the objectives
of the control system are met. Because of the inherent
limitations in all control systems, no evaluation of controls
can provide absolute assurance that all control issues and
instances of fraud, if any, have been detected. Also,
projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate
because of changes in conditions or that the degree of
compliance with the policies or procedures may deteriorate.
As of December 31, 2008, our management, with the
participation of our President and Chief Executive Officer and
our Senior Vice President and Chief Financial Officer, conducted
an evaluation of the effectiveness of our internal control over
financial reporting based on the framework established in
Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Based on this evaluation, management has
determined that TAL International Group, Inc.s internal
control over financial reporting is effective as of
December 31, 2008.
Ernst & Young LLP, the independent registered public
accounting firm that audited our 2008 consolidated financial
statements included in this Annual Report on
Form 10-K,
has issued an attestation report on our internal control over
financial reporting. The report appears elsewhere in this Annual
Report on
Form 10-K.
60
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of
TAL International Group, Inc.
We have audited TAL International Group, Inc.s internal
control over financial reporting as of December 31, 2008,
based on criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria).
TAL International Group, Inc.s management is responsible
for maintaining effective internal control over financial
reporting, and for its assessment of the effectiveness of
internal control over financial reporting included in the
accompanying Managements Report on Internal Control Over
Financial Reporting. Our responsibility is to express an opinion
on the companys internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, TAL International Group, Inc. maintained, in all
material respects, effective internal control over financial
reporting as of December 31, 2008, based on the COSO
criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of TAL International Group, Inc. as
of December 31, 2008 and 2007, and the related consolidated
statements of operations, stockholders equity and
comprehensive income, and cash flows for each of the three years
in the period ended December 31, 2008 of TAL International
Group, Inc. and our report dated February 26, 2009
expressed an unqualified opinion thereon.
New York, New York
February 26, 2009
61
Changes
in Internal Controls
There were no changes in our internal controls over financial
reporting (as such term is defined in
Rule 13a-15(f)
and
15d-15(f)
under the Exchange Act ) during the period covered by this
Annual Report on
Form 10-K
that have materially affected, or are reasonably likely to
materially affect, our internal controls over financial
reporting.
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ITEM 9B.
|
OTHER
INFORMATION
|
Not applicable.
PART III
|
|
ITEM 10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
The information required by this Item is incorporated herein by
reference from the sections captioned Election of
Directors, Occupations of Directors and Executive
Officers, and Section 16(a) Beneficial
Ownership Reporting Compliance in our proxy statement to
be issued in connection with the Annual Meeting of Stockholders
to be held on April 30, 2009 (the 2009 Proxy
Statement), which will be filed with the SEC within
120 days after the close of our fiscal year ended
December 31, 2008.
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|
ITEM 11.
|
EXECUTIVE
COMPENSATION
|
The information required by this Item is incorporated herein by
reference from the section captioned Compensation and
Other Information Concerning Directors and Officers in the
2009 Proxy Statement, which will be filed with the SEC within
120 days after the close of our fiscal year ended
December 31, 2008.
|
|
ITEM 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
The information required by this Item is incorporated herein by
reference from the section captioned Management and
Principal Holders of Voting Securities in the 2009 Proxy
Statement, which will be filed with the SEC within 120 days
after the close of our fiscal year ended December 31, 2008.
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ITEM 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
The information required by this Item is incorporated herein by
reference from the section captioned Certain Relationships
and Related Transactions in the 2009 Proxy Statement,
which will be filed with the SEC within 120 days after the
close of our fiscal year ended December 31, 2008.
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|
ITEM 14.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
The information required by this Item is incorporated herein by
reference from the section captioned Auditor Fees in
the 2009 Proxy Statement, which will be filed with the SEC
within 120 days after the close of our fiscal year ended
December 31, 2008.
62
PART IV
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ITEM 15.
|
EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES
|
(a)(1) Financial Statements.
The following financial statements are included in Item 8
of this report:
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Page
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F-2
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F-3
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|
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F-4
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F-5
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F-6
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F-7
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(a)(2) Financial Statement Schedules
The following financial statement schedule for the Company is
filed as part of this report:
Schedules not listed above have been omitted because the
information required to be set forth therein is not applicable
or is shown in the accompanying Consolidated Financial
Statements or notes thereto.
(a)(3) List of Exhibits.
The following exhibits are filed as part of and incorporated by
reference into this Annual Report on
Form 10-K:
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Exhibit
|
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|
No.
|
|
Description
|
|
|
2
|
.1
|
|
Stock Purchase Agreement, dated July 10, 2004, by and between TA
Leasing Holding Co, Inc. and Klesch & Company Limited
(incorporated by reference from exhibit number 2.1 to TAL
International Group, Inc.s Form S-1 filed on June 30,
2005, file number 333-126317)
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2
|
.2
|
|
First Amendment to Stock Purchase Agreement, dated August 10,
2004, by and among TA Leasing Holding Co, Inc., Klesch &
Company Limited and Transamerica Corporation (incorporated by
reference from exhibit number 2.2 to Amendment No. 1 to TAL
International Group, Inc.s Form S-1 filed on August 26,
2005, file number 333-126317)
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2
|
.3
|
|
Second Amendment to Stock Purchase Agreement, dated September
30, 2004, by and among TA Leasing Holding Co, Inc., Klesch
& Company Limited and Transamerica Corporation
(incorporated by reference from exhibit number 2.3 to Amendment
No. 1 to TAL International Group, Inc.s Form S-1 filed on
August 26, 2005, file number 333-126317)
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2
|
.4
|
|
Third Amendment to Stock Purchase Agreement, dated November 3,
2004, by and among TA Leasing Holding Co, Inc., Klesch &
Company Limited, TAL International Group, Inc. and Transamerica
Corporation (incorporated by reference from exhibit number 2.4
to Amendment No. 1 to TAL International Group, Inc.s Form
S-1 filed on August 26, 2005, file number 333-126317)
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2
|
.5
|
|
Fourth Amendment to Stock Purchase Agreement, dated January 3,
2005, by and among TA Leasing Holding Co, Inc., Klesch &
Company Limited, TAL International Group, Inc. and Transamerica
Corporation (incorporated by reference from exhibit number 2.5
to Amendment No. 1 to TAL International Group, Inc.s Form
S-1 filed on August 26, 2005, file number 333-126317)
|
|
2
|
.6
|
|
Fifth Amendment to Stock Purchase Agreement, dated March 31,
2005, by and among TA Leasing Holding Co, Inc., Klesch &
Company Limited, TAL International Group, Inc. and Transamerica
Corporation (incorporated by reference from exhibit number 2.6
to Amendment No. 1 to TAL International Group, Inc.s Form
S-1 filed on August 26, 2005, file number 333-126317)
|
63
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
3
|
.1
|
|
Second Amended and Restated Certificate of Incorporation of TAL
International Group, Inc. (incorporated by reference from
Exhibit 3.1 to TAL International Group, Inc.s Form 10-K
filed on March 20, 2006)
|
|
3
|
.2
|
|
Amended and Restated Bylaws of TAL International Group, Inc.
(incorporated by reference from Exhibit 3.2 to TAL International
Group, Inc.s Form 10-K filed on March 20, 2006)
|
|
4
|
.1
|
|
Form of Common Stock Certificate (incorporated by reference from
exhibit number 4.1 to Amendment No. 3 to TAL International
Group, Inc.s Form S-1 filed on October 5, 2005, file
number 333-126317)
|
|
4
|
.2
|
|
Amended and Restated Indenture dated as of April 12, 2006 by and
between TAL Advantage I LLC and U. S. Bank National Association
(incorporated by reference from Exhibit 10.35 to TAL
International Group, Inc.s Form 10-Q filed on May 12, 2006)
|
|
4
|
.3
|
|
First Supplemental Indenture between TAL Advantage I LLC and
U.S. Bank National Association dated June 26, 2007 to the
Amended and Restated Indenture dated as of April 12, 2006
(incorporated by reference from Exhibit 10.58 to TAL
International Group, Inc.s Form 10-Q filed on August 8,
2008)
|
|
4
|
.4
|
|
Second Supplemental Indenture between TAL Advantage I LLC and
U.S. Bank National Association dated November 19, 2007 to the
Amended and Restated Indenture dated as of April 12, 2006
(incorporated by reference from Exhibit 10.59 to TAL
International Group, Inc.s Form 10-Q filed on August 8,
2008)
|
|
4
|
.5
|
|
Amended and Restated Series 2005-1 Supplement dated as of April
12, 2006 between Advantage I LLC and U. S. Bank National
Association (incorporated by reference from Exhibit 10.40 to TAL
International Group, Inc.s Form 10-Q filed on May 12, 2006)
|
|
4
|
.6
|
|
Amended and Restated Management Agreement dated as of April 12,
2006 by and between TAL International Container Corporation and
TAL Advantage I LLC (incorporated by reference from Exhibit
10.36 to TAL International Group, Inc.s Form 10-Q filed on
May 12, 2006)
|
|
4
|
.7
|
|
Amended and Restated Contribution and Sale Agreement dated as of
April 12, 2006 by and between TAL International Container
Corporation and TAL Advantage I LLC (incorporated by reference
from Exhibit 10.37 to TAL International Group, Inc.s Form
10-Q filed on May 12, 2006)
|
|
4
|
.8
|
|
Amended and Restated Series 2005-1 Note Purchase Agreement dated
as of April 7, 2006 by and between TAL Advantage I LLC, the
Noteholders from time to time party thereto and the other
financial institutions from time to time party thereto
(incorporated by reference from Exhibit 10.41 to TAL
International Group, Inc.s Form 10-Q filed on May 12, 2006)
|
|
4
|
.9
|
|
Series 2006-1 Supplement dated as of April 12, 2006 by and
between TAL Advantage I LLC and U. S. Bank National Association
(incorporated by reference from Exhibit 10.38 to TAL
International Group, Inc.s Form 10-Q filed on May 12, 2006)
|
|
4
|
.10
|
|
Series 2006-1 Note Purchase Agreement dated as of April 7, 2006
by and between TAL Advantage I LLC, TAL International Container
Corporation, and Fortis Securities LLC and Credit Suisse
Securities (USA) LLC (incorporated by reference from Exhibit
10.39 to TAL International Group, Inc.s Form 10-Q filed on
May 12, 2006)
|
|
4
|
.11*
|
|
Intercreditor Agreement Dated April 12, 2006 by and among TAL
International Container Corporation, TAL Advantage I LLC, U. S.
Bank National Association and Fortis Capital Corp.
|
|
4
|
.12
|
|
Omnibus Amendment No. 2, dated June 1, 2006 (incorporated by
reference from exhibit 10.42 to TAL International Group,
Inc.s Form 8-K filed on June 6, 2006)
|
|
4
|
.13
|
|
Credit Agreement, dated as of July 31, 2006, by and among TAL
International Container Corporation, Fortis Capital Corp. and
the Lenders party thereto (incorporated by reference from
Exhibit 10.43 to TAL International Group, Inc.s Form 8-K
filed on August 4, 2006)
|
|
4
|
.14
|
|
Amendment No. 1 dated July 13, 2007 to Credit Agreement, dated
as of July 31, 2006, by and among TAL International Container
Corporation, Fortis Capital Corp. and the Lenders party thereto
(incorporated by reference from Exhibit 10.47 to TAL
International Group, Inc.s Form 8-K filed on July 17,
2007)
|
64
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
4
|
.15
|
|
Security Agreement, dated as of July 31, 2006, by and among TAL
International Container Corporation and Fortis Capital Corp.
(incorporated by reference from Exhibit 10.44 to TAL
International Group, Inc.s Form 8-K filed on August 4,
2006)
|
|
4
|
.16
|
|
Pledge Agreement, dated as of July 31, 2006, by and among TAL
International Container Corporation and Fortis Capital Corp.
(incorporated by reference from Exhibit 10.45 to TAL
International Group, Inc.s Form 8-K filed on August 4,
2006)
|
|
4
|
.17
|
|
Guaranty, dated as of July 31, 2006, made by TAL International
Group, Inc. (incorporated by reference from Exhibit 10.46 to TAL
International Group, Inc.s Form 8-K filed on August 4,
2006)
|
|
4
|
.18
|
|
Credit Agreement, dated as of August 15, 2007, by and among TAL
International Container Corporation, National City Bank, as
Administrative Agent and Collateral Agent, and the Lenders party
thereto (incorporated by reference from Exhibit 10.48 to TAL
International Group, Inc.s Form 8-K filed August 16, 2007)
|
|
4
|
.19
|
|
Security Agreement, dated as of August 15, 2007, by and among
TAL International Container Corporation and National City Bank,
as Collateral Agent (incorporated by reference from Exhibit
10.49 to TAL International Group, Inc.s Form 8-K filed on
August 16, 2007)
|
|
4
|
.20
|
|
Pledge Agreement, dated as of August 15, 2007, by and among TAL
International Container Corporation and National City Bank, as
Collateral Agent (incorporated by reference from Exhibit 10.50
to TAL International Group, Inc.s Form 8-K filed on August
16, 2007)
|
|
4
|
.21
|
|
Guaranty, dated as of August 15, 2007, made by TAL International
Group, Inc. (incorporated by reference from Exhibit 10.51 to TAL
International Group, Inc.s Form 8-K filed on August 16,
2007)
|
|
4
|
.22
|
|
Indenture, dated as of March 27, 2008, by and between TAL
Advantage II LLC and U. S. Bank National Association
(incorporated by reference from Exhibit 10.52 to TAL
International Group, Inc.s Form 10-Q filed on May 9, 2008)
|
|
4
|
.23
|
|
First Supplemental Indenture between TAL Advantage II LLC
and U.S. Bank National Association dated June 20, 2008 to the
Indenture dated March 27, 2008 (incorporated by reference from
Exhibit 10.60 to TAL International Group, Inc.s Form 10-Q
filed on August 8, 2008)
|
|
4
|
.24
|
|
Third Supplemental Indenture between TAL Advantage I LLC and
U.S. Bank National Association dated June 23, 2008 to the
Amended and Restated Indenture dated as of April 12, 2006
(incorporated by reference from Exhibit 10.61 to TAL
International Group, Inc.s Form 10-Q filed on August 8,
2008)
|
|
4
|
.25
|
|
Series 2008-1 Supplement, dated as of March 27, 2008, by and
between TAL Advantage II LLC and U. S. Bank National
Association (incorporated by reference from Exhibit 10.53 to TAL
International Group, Inc.s Form 10-Q filed on May 9, 2008)
|
|
4
|
.26
|
|
Management Agreement dated as of March 27, 2008, by and between
TAL Advantage II LLC and TAL International Container
Corporation (incorporated by reference from Exhibit 10.54 to TAL
International Group, Inc.s Form 10-Q filed on May 9, 2008)
|
|
4
|
.27
|
|
Contribution and Sale Agreement, dated as of March 27, 2008, by
and between TAL Advantage II LLC and TAL International
Container Corporation (incorporated by reference from Exhibit
10.55 to TAL International Group, Inc.s Form 10-Q filed on
May 9, 2008)
|
|
4
|
.28
|
|
Series 2008-1 Note Purchase Agreement, dated as of March 27,
2008, by and among TAL Advantage II LLC, Fortis Capital
Corp., the other purchasers party thereto from time to time and
the other parties named therein (incorporated by reference from
Exhibit 10.56 to TAL International Group, Inc.s Form 10-Q
filed on May 9, 2008)
|
|
4
|
.29
|
|
Guaranty dated March 27, 2008 made by TAL International Group,
Inc. (incorporated by reference from Exhibit 10.57 to TAL
International Group, Inc.s Form 10-Q filed on May 9, 2008)
|
|
10
|
.1
|
|
Amended and Restated Shareholders Agreement, dated as of October
11, 2005, by and among TAL International Group, Inc. and certain
of its stockholders (incorporated by reference from Exhibit 10.7
to TAL International Group, Inc.s Form 10-K filed on March
20, 2006)
|
65
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
10
|
.2
|
|
Investor Subscription Agreement, dated as of November 3, 2004,
by and among TAL International Group, Inc., The Resolute Fund,
L.P., The Resolute Fund Singapore PV, L.P., The Resolute Fund
Netherlands PV I, L.P., The Resolute Fund Netherlands PV
II, L.P., The Resolute Fund NQP, L.P., JZ Equity Partners plc,
Fairholme Partners, L.P., Fairholme Ventures II, LLC, Fairholme
Holdings, Ltd., Edgewater Private Equity Fund III, L.P.,
Edgewater Private Equity Fund IV, L.P. and Seacon Holdings
Limited (incorporated by reference from exhibit number 10.8 to
TAL International Group, Inc.s Form S-1 filed on June 30,
2005, file number 333-126317)
|
|
10
|
.3
|
|
Amendment No. 1 to Investor Subscription Agreement, dated as of
October 11, 2005, by and among TAL International Group, Inc.,
The Resolute Fund, L.P., The Resolute Fund Singapore PV, L.P.,
The Resolute Fund Netherlands PV I, L.P., The Resolute Fund
Netherlands PV II, L.P., The Resolute Fund NQP, L.P., JZ Equity
Partners plc, Fairholme Partners, L.P., Fairholme Ventures II,
LLC, Fairholme Holdings, Ltd., Edgewater Private Equity Fund
III, L.P., Edgewater Private Equity Fund IV, L.P. and Seacon
Holdings Limited (incorporated by reference from Exhibit 10.32
to TAL International Group, Inc.s Form 10-K filed on March
20, 2006)
|
|
10
|
.4
|
|
Amended and Restated Management Subscription Agreement, dated as
of October 11, 2005, by and among TAL International Group, Inc.,
Brian M. Sondey, Chand Khan, Frederico Baptista, Adrian Dunner,
John C. Burns, Bernd Schackier and John Pearson (incorporated by
reference from Exhibit 10.9 to TAL International Group,
Inc.s Form 10-K filed on March 20, 2006)
|
|
10
|
.5
|
|
Amended and Restated Tax Sharing Agreement, dated as of August
1, 2005, by and among TAL International Group, Inc. and its
subsidiaries named therein (incorporated by reference from
exhibit number 10.12 to Amendment No. 1 to TAL International
Group, Inc.s Form S-1 filed on August 26, 2005, file
number 333-126317)
|
|
10
|
.6+
|
|
Employment Agreement, dated as of November 3, 2004, by and
between TAL International Group, Inc. and Brian M. Sondey
(incorporated by reference from exhibit number 10.13 to TAL
International Group, Inc.s Form S-1 filed on June 30,
2005, file number 333-126317)
|
|
10
|
.7+
|
|
2004 Management Stock Plan (incorporated by reference from
exhibit number 10.14 to TAL International Group, Inc.s
Form S-1 filed on June 30, 2005, file number 333-126317)
|
|
10
|
.8+
|
|
First Amendment to 2004 Management Stock Plan (incorporated by
reference from Exhibit 10.34 to TAL International Group,
Inc.s Form 10-K filed on March 20, 2006)
|
|
10
|
.9+
|
|
Stock Option Agreement, dated November 3, 2004, by and between
TAL International Group, Inc. and Brian M. Sondey (incorporated
by reference from exhibit number 10.15 to TAL International
Group, Inc.s Form S-1 filed on June 30, 2005, file number
333-126317)
|
|
10
|
.10+
|
|
Stock Option Agreement, dated November 3, 2004, by and between
TAL International Group, Inc. and Chand Khan (incorporated by
reference from exhibit number 10.16 to TAL International Group,
Inc.s Form S-1 filed on June 30, 2005, file number
333-126317)
|
|
10
|
.11+
|
|
Stock Option Agreement, dated November 3, 2004, by and between
TAL International Group, Inc. and Frederico Baptista
(incorporated by reference from exhibit number 10.17 to TAL
International Group, Inc.s Form S-1 filed on June 30,
2005, file number 333-126317)
|
|
10
|
.12+
|
|
Stock Option Agreement, dated November 3, 2004, by and between
TAL International Group, Inc. and John C. Burns (incorporated by
reference from exhibit number 10.18 to TAL International Group,
Inc.s Form S-1 filed on June 30, 2005, file number
333-126317)
|
|
10
|
.13+
|
|
Stock Option Agreement, dated November 3, 2004, by and between
TAL International Group, Inc. and Adrian Dunner (incorporated by
reference from exhibit number 10.21 to TAL International Group,
Inc.s Form S-1 filed on June 30, 2005, file number
333-126317)
|
|
10
|
.14+
|
|
Form of Indemnity Agreement between TAL International Group,
Inc., certain of its subsidiaries, each of their respective
current directors and certain of their respective current
officers (incorporated by reference from exhibit number 10.22 to
Amendment No. 2 to TAL International Group, Inc.s Form S-1
filed on September 20, 2005, file number 333-126317)
|
|
10
|
.15 +
|
|
2005 Management Omnibus Incentive Plan (incorporated by
reference from Exhibit 10.33 to TAL International Group,
Inc.s Form 10-K filed on March 20, 2006)
|
|
21
|
.1*
|
|
List of Subsidiaries
|
66
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
23
|
.1*
|
|
Consent of Independent Registered Public Accounting Firm
|
|
24
|
.1*
|
|
Powers of Attorney (included on the signature page to this
Annual Report on Form 10-K)
|
|
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
|
|
|
|
+ |
|
Indicates a management contract or compensatory plan or
arrangement. |
|
* |
|
Filed herewith. |
|
** |
|
Furnished herewith. |
(b) Exhibits.
The Company hereby files as part of this Annual Report on
Form 10-K
the exhibits listed in Item 15(a)(3) set forth above.
|
|
|
|
(c)
|
Financial Statement Schedules
|
The Company hereby files as part of this Annual Report on
Form 10-K
the financial statement schedule listed in Item 15(a)(2)
set forth above.
67
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
|
|
|
|
|
|
Date: March 2, 2009
|
|
By:
|
|
/s/ Brian
M. Sondey
|
|
|
|
|
Brian M. Sondey
|
|
|
|
|
President and Chief Executive Officer
|
POWER OF
ATTORNEY AND SIGNATURES
We, the undersigned officers and directors of TAL International
Group, Inc. hereby severally constitute and appoint Brian M.
Sondey and Chand Khan and each of them singly, our true and
lawful attorneys, with the power to them and each of them
singly, to sign for us and in our names in the capacities
indicated below, any amendments to this Annual Report on
Form 10-K,
and generally to do all things in our names and on our behalf in
such capacities to enable TAL International Group, Inc. to
comply with the provisions of the Securities Exchange Act of
1934, as amended, and all the requirements of the Securities and
Exchange Commission.
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant, in the capacities indicated, on the
2nd day of March 2009.
|
|
|
|
|
Signature
|
|
Title(s)
|
|
|
|
|
/s/ Brian
M. Sondey
Brian
M. Sondey
|
|
President and Chief Executive Officer
(Principal Executive Officer), Director
|
|
|
|
/s/ Chand
Khan
Chand
Khan
|
|
Senior Vice President, Chief Financial Officer
(Principal Financial Officer)
|
|
|
|
/s/ Malcolm
P. Baker
Malcolm
P. Baker
|
|
Director
|
|
|
|
/s/ A.
Richard Caputo, Jr.
A.
Richard Caputo, Jr.
|
|
Director
|
|
|
|
/s/ Claude
Germain
Claude
Germain
|
|
Director
|
|
|
|
/s/ Brian
J. Higgins
Brian
J. Higgins
|
|
Director
|
|
|
|
/s/ John
W. Jordan II
John
W. Jordan II
|
|
Director
|
|
|
|
/s/ Frederic
H. Lindeberg
Frederic
H. Lindeberg
|
|
Director
|
|
|
|
/s/ David
W. Zalaznick
David
W. Zalaznick
|
|
Director
|
|
|
|
/s/ Douglas
J. Zych
Douglas
J. Zych
|
|
Director
|
68
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of
TAL International Group, Inc.
We have audited the accompanying consolidated balance sheets of
TAL International Group, Inc. as of December 31, 2008 and
2007, and the related consolidated statements of operations,
stockholders equity and comprehensive income, and cash
flows for each of the three years in the period ended
December 31, 2008. Our audits also included the financial
statement schedule listed in the Index To Financial Statements
at Schedule II. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of TAL International Group, Inc. at
December 31, 2008 and 2007, and the consolidated results of
its operations and its cash flows for each of the three years in
the period ended December 31, 2008, in conformity with
U.S. generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the
information set forth therein.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), TAL
International Group, Incs internal control over financial
reporting as of December 31, 2008, based on criteria
established in Internal Control-Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated February 26, 2009 expressed
an unqualified opinion thereon.
New York, New York
February 26, 2009
F-2
TAL
INTERNATIONAL GROUP, INC.
(Dollars in thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
ASSETS:
|
|
|
|
|
|
|
|
|
Leasing equipment, net of accumulated depreciation and
allowances of $352,089 and $283,159
|
|
$
|
1,535,483
|
|
|
$
|
1,270,942
|
|
Net investment in finance leases, net of allowances of $1,420
and $0
|
|
|
196,490
|
|
|
|
193,986
|
|
Equipment held for sale
|
|
|
32,549
|
|
|
|
35,128
|
|
|
|
|
|
|
|
|
|
|
Revenue earning assets
|
|
|
1,764,522
|
|
|
|
1,500,056
|
|
Cash and cash equivalents (including restricted cash of $16,160
and $18,059)
|
|
|
56,958
|
|
|
|
70,695
|
|
Accounts receivable, net of allowances of $807 and $961
|
|
|
42,335
|
|
|
|
41,637
|
|
Leasehold improvements and other fixed assets, net of
accumulated depreciation and amortization of $4,181 and $3,142
|
|
|
1,832
|
|
|
|
2,767
|
|
Goodwill
|
|
|
71,898
|
|
|
|
71,898
|
|
Deferred financing costs
|
|
|
8,462
|
|
|
|
6,880
|
|
Other assets
|
|
|
8,540
|
|
|
|
11,124
|
|
Fair value of derivative instruments
|
|
|
951
|
|
|
|
830
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,955,498
|
|
|
$
|
1,705,887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY:
|
|
|
|
|
|
|
|
|
Equipment purchases payable
|
|
$
|
27,224
|
|
|
$
|
26,994
|
|
Fair value of derivative instruments
|
|
|
95,224
|
|
|
|
18,726
|
|
Accounts payable and other accrued expenses
|
|
|
43,978
|
|
|
|
36,481
|
|
Deferred income tax liability
|
|
|
73,565
|
|
|
|
55,555
|
|
Debt
|
|
|
1,351,036
|
|
|
|
1,174,654
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,591,027
|
|
|
|
1,312,410
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $.001 par value, 500,000 shares
authorized, none issued
|
|
|
|
|
|
|
|
|
Common stock, $.001 par value, 100,000,000 shares
authorized, 33,485,816 and 33,482,316 shares issued
respectively
|
|
|
33
|
|
|
|
33
|
|
Treasury stock, at cost, 1,055,479 and 412,279 shares,
respectively
|
|
|
(20,126
|
)
|
|
|
(9,171
|
)
|
Additional paid-in capital
|
|
|
396,478
|
|
|
|
395,230
|
|
Accumulated (deficit) earnings
|
|
|
(12,090
|
)
|
|
|
4,858
|
|
Accumulated other comprehensive income
|
|
|
176
|
|
|
|
2,527
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
364,471
|
|
|
|
393,477
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
1,955,498
|
|
|
$
|
1,705,887
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes to consolidated financial statements are
an integral part of these statements.
F-3
TAL
INTERNATIONAL GROUP, INC.
(Dollars in thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Leasing revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases
|
|
$
|
298,913
|
|
|
$
|
268,005
|
|
|
$
|
260,735
|
|
Finance leases
|
|
|
20,379
|
|
|
|
18,268
|
|
|
|
12,422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total leasing revenues
|
|
|
319,292
|
|
|
|
286,273
|
|
|
|
273,157
|
|
Equipment trading revenue
|
|
|
95,394
|
|
|
|
49,214
|
|
|
|
23,665
|
|
Management fee income
|
|
|
3,136
|
|
|
|
5,475
|
|
|
|
6,454
|
|
Other revenues
|
|
|
2,170
|
|
|
|
2,303
|
|
|
|
2,301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
419,992
|
|
|
|
343,265
|
|
|
|
305,577
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment trading expenses
|
|
|
84,216
|
|
|
|
43,920
|
|
|
|
21,863
|
|
Direct operating expenses
|
|
|
28,678
|
|
|
|
28,644
|
|
|
|
25,935
|
|
Administrative expenses
|
|
|
46,154
|
|
|
|
39,843
|
|
|
|
36,950
|
|
Depreciation and amortization
|
|
|
110,450
|
|
|
|
101,670
|
|
|
|
103,849
|
|
Provision (reversal) for doubtful accounts
|
|
|
4,446
|
|
|
|
700
|
|
|
|
(526
|
)
|
Net (gain) on sale of leasing equipment
|
|
|
(23,534
|
)
|
|
|
(12,119
|
)
|
|
|
(6,242
|
)
|
Net (gain) on sale of container portfolios
|
|
|
(2,789
|
)
|
|
|
|
|
|
|
|
|
Write-off of deferred financing costs
|
|
|
250
|
|
|
|
204
|
|
|
|
2,367
|
|
Interest and debt expense
|
|
|
64,983
|
|
|
|
52,129
|
|
|
|
47,578
|
|
(Gain) on debt extinguishment
|
|
|
(23,772
|
)
|
|
|
|
|
|
|
|
|
Unrealized loss on interest rate swaps
|
|
|
76,047
|
|
|
|
27,883
|
|
|
|
8,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
365,129
|
|
|
|
282,874
|
|
|
|
240,056
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
54,863
|
|
|
|
60,391
|
|
|
|
65,521
|
|
Income tax expense
|
|
|
19,067
|
|
|
|
21,600
|
|
|
|
23,388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
35,796
|
|
|
$
|
38,791
|
|
|
$
|
42,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.10
|
|
|
$
|
1.17
|
|
|
$
|
1.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
1.09
|
|
|
$
|
1.16
|
|
|
$
|
1.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
32,572,901
|
|
|
|
33,183,252
|
|
|
|
32,987,077
|
|
Weighted average number of common shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
32,693,320
|
|
|
|
33,369,958
|
|
|
|
33,430,438
|
|
Cash dividends paid per common share
|
|
$
|
1.61
|
|
|
$
|
1.43
|
|
|
$
|
0.45
|
|
The accompanying notes to consolidated financial statements are
an integral part of these statements.
F-4
TAL
INTERNATIONAL GROUP, INC.
(Dollars in thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Accumulated
|
|
|
Other
|
|
|
|
|
|
|
Common Stock
|
|
|
Treasury Stock
|
|
|
Paid-in
|
|
|
Earnings
|
|
|
Comprehensive
|
|
|
Comprehensive
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
(Deficit)
|
|
|
Income
|
|
|
Income
|
|
|
Balance at December 31, 2005
|
|
|
32,882,208
|
|
|
$
|
33
|
|
|
|
|
|
|
|
|
|
|
$
|
394,389
|
|
|
$
|
(13,737
|
)
|
|
$
|
(718
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock compensation issuance of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options exercised
|
|
|
420,823
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury stock acquired
|
|
|
|
|
|
|
|
|
|
|
136,250
|
|
|
|
(2,862
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,133
|
|
|
|
|
|
|
$
|
42,133
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
353
|
|
|
|
353
|
|
Unrealized gains cash flow hedges, net of income
taxes of $2,232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,028
|
|
|
|
4,028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
46,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock dividends declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24,920
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
|
33,303,031
|
|
|
|
33
|
|
|
|
136,250
|
|
|
|
(2,862
|
)
|
|
|
394,440
|
|
|
|
3,476
|
|
|
|
3,663
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock compensation issuance of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options exercised
|
|
|
47,285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock compensation issuance of restricted stock
|
|
|
132,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury stock acquired
|
|
|
|
|
|
|
|
|
|
|
276,029
|
|
|
|
(6,309
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,791
|
|
|
|
|
|
|
$
|
38,791
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
91
|
|
|
|
91
|
|
Amortization of cash flow hedges, net of income taxes of $(679)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,227
|
)
|
|
|
(1,227
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
37,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock dividends declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(37,409
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
33,482,316
|
|
|
|
33
|
|
|
|
412,279
|
|
|
|
(9,171
|
)
|
|
|
395,230
|
|
|
|
4,858
|
|
|
|
2,527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock compensation issuance of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options exercised
|
|
|
2,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock compensation issuance of restricted stock
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury stock acquired
|
|
|
|
|
|
|
|
|
|
|
643,200
|
|
|
|
(10,955
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,796
|
|
|
|
|
|
|
|
35,796
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,556
|
)
|
|
|
(1,556
|
)
|
Amortization of cash flow hedges, net of income taxes of $ (439)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(795
|
)
|
|
|
(795
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
33,445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock dividends declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(52,744
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
33,485,816
|
|
|
$
|
33
|
|
|
|
1,055,479
|
|
|
$
|
(20,126
|
)
|
|
$
|
396,478
|
|
|
$
|
(12,090
|
)
|
|
$
|
176
|
|
|
|
|
|
|