TAL Tal Education Group

TAL International Group, Inc. (NYSE:TAL), one of the world’s largest lessors of intermodal freight containers and chassis, today reported results for the second quarter ended June 30, 2015.

Highlights:

• TAL reported Adjusted pre-tax income per fully diluted common share of $1.24 for the second quarter of 2015, an increase of 0.8% from the first quarter of 2015. TAL’s Adjusted pre-tax income per fully diluted common share decreased 14.5% from the second quarter of 2014.
• TAL reported leasing revenues of $150.8 million for the second quarter of 2015, an increase of 1.2% from the first quarter of 2015, and an increase of 4.2% from the second quarter of 2014.
• TAL continues to achieve strong operational performance. Utilization averaged 97.1% for the second quarter of 2015, and through July 29, 2015, we have invested over $420 million in new and sale-leaseback containers for delivery in 2015.
• TAL announced a quarterly dividend of $0.72 per share payable on September 23, 2015 to shareholders of record as of September 2, 2015.

Financial Results

The following table depicts TAL’s selected key financial information for the three and six months ended June 30, 2015 and 2014 (dollars in millions, except per share data):

          Three Months Ended June 30,   Six Months Ended June 30, 2015   2014   % Change 2015   2014   % Change Adjusted pre-tax income(1) $40.9 $48.9 (16.4%) $81.4 $96.4 (15.6%) Adjusted pre-tax income(1) per share $1.24 $1.45 (14.5%) $2.47 $2.85 (13.3%) Leasing revenues $150.8 $144.7 4.2% $299.8 $289.5 3.6% Adjusted EBITDA(1) $141.3 $142.1 (0.6%) $279.9 $283.1 (1.1%) Adjusted net income(1) $26.4 $32.2 (18.0%) $52.7 $63.2 (16.6%) Adjusted net income(1) per share $0.80 $0.95 (15.8%) $1.60 $1.87 (14.4%) Net income $26.7 $29.4 (9.2%) $52.4 $59.4 (11.8%) Net income per share $0.81   $0.87   (6.9%)   $1.59   $1.76   (9.7%) Note: All per share data is per fully diluted common share.  

The Company focuses on adjusted pre-tax results since it considers gains and losses on interest rate swaps and the write-off of deferred financing costs to be unrelated to operating performance and since it does not expect to pay any significant income taxes for a number of years due to the availability of accelerated tax depreciation on its existing container fleet and anticipated future equipment purchases.

Operating Performance

“TAL achieved solid results in the second quarter of 2015,” commented Brian M. Sondey, President and CEO of TAL International. “We generated $40.9 million of Adjusted pre-tax income, representing $1.24 of Adjusted pre-tax income per share. We grew our leasing revenues 4.2% from the second quarter of 2014, and we continued to generate an attractive level of returns. In the second quarter of 2015, our annualized Adjusted pre-tax return on tangible equity(1) was 15.8%.”

“TAL’s solid results in the second quarter were achieved in a difficult market environment. TAL has been experiencing lease pricing pressure and decreasing disposal gains for several years due to falling steel and new container prices, widely available low-cost financing and aggressive competition. However, we have generally benefited from strong leasing demand driven by solid trade growth and a market share shift from owned to leased containers. In 2015, we are facing even heavier pricing pressures due to a 35% drop in steel prices since December of last year, and we are also facing unusually low demand this year. Our pick-up volumes usually ramp-up as we approach the summer peak season for shipping, but we did not see an increase in pick-up volumes in the second quarter this year. Trade volumes on the critical Asia to Europe trade lane have been weak in 2015, and overall global containerized trade growth now seems likely to fall below expectations.”

“Our utilization remains at a high level and continues to drive our solid profitability despite the difficult market conditions. Our utilization averaged 97.1% in the second quarter of 2015, and finished the quarter at 96.6%. Our utilization currently stands at 96.1%. The resiliency of our utilization reflects the underlying strength of our lease portfolio. As of June 30, 2015, 74.7% of our containers on-hire were covered by long-term or finance leases, and these leases have an average remaining duration of 41 months assuming no leases are renewed. Our lease portfolio is also protected by our lease structuring discipline, especially in ensuring the vast majority of our containers on lease must be returned to strong export locations.”

“We have purchased over $420 million of new and sale-leaseback containers for delivery this year. Most of this investment was placed early in the year and is supported by customer lease commitments. This solid level of investment in a challenging year reflects TAL’s strong supply capability and close customer relationships. Container pick-ups, however, on most of our committed leases are proceeding slower than expected, and we accordingly plan to slow the pace of investments in the second half of the year.”

Outlook

Mr. Sondey continued, “We typically expect our operating and financial performance to improve as we move into the traditional summer peak season for shipping. However, we have not seen leasing demand improve seasonally this year, and our average lease rates will continue to fall due to the large difference between the rates on our existing leases and lease rates available in the current market. Still, our pick-up volumes will be supported by the large number of containers covered by committed leases, and we expect our utilization to remain at a high level due to the strength of our lease portfolio. Overall, we expect our Adjusted pre-tax income to decrease slightly from the second quarter to the third quarter of 2015.”

Dividend

TAL’s Board of Directors has approved and declared a $0.72 per share quarterly cash dividend on its issued and outstanding common stock, payable on September 23, 2015 to shareholders of record at the close of business on September 2, 2015. Based on the information available today, we believe this distribution will qualify as a return of capital rather than a taxable dividend for U.S. tax purposes. Investors should consult with a tax adviser to determine the proper tax treatment of this distribution.

Investors’ Webcast

TAL will hold a Webcast at 9 a.m. (New York time) on Thursday, July 30, 2015 to discuss its second quarter results. An archive of the Webcast will be available one hour after the live call through Friday, September 11, 2015. To access the live Webcast or archive, please visit the Company’s website at http://www.talinternational.com.

About TAL International Group, Inc.

TAL is one of the world’s largest lessors of intermodal freight containers and chassis with 17 offices in 11 countries and approximately 230 third-party container depot facilities in 40 countries. The Company’s global operations include the acquisition, leasing, re-leasing and subsequent sale of multiple types of intermodal containers and chassis. TAL’s fleet consists of approximately 1,468,000 containers and related equipment representing approximately 2,419,000 twenty-foot equivalent units (TEUs). This places TAL among the world’s largest independent lessors of intermodal containers and chassis as measured by fleet size.

Important Cautionary Information Regarding Forward-Looking Statements

Statements in this press release regarding TAL International Group, Inc.'s business that are not historical facts are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Readers are cautioned that these statements involve risks and uncertainties, are only predictions and may differ materially from actual future events or results. For a discussion of such risks and uncertainties, see "Risk Factors" in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 19, 2015.

The Company’s views, estimates, plans and outlook as described within this document may change subsequent to the release of this statement. The Company is under no obligation to modify or update any or all of the statements it has made herein despite any subsequent changes the Company may make in its views, estimates, plans or outlook for the future.

(1) Adjusted pre-tax income, Adjusted EBITDA, Adjusted net income, and Adjusted pre-tax return on tangible equity are non-GAAP measurements we believe are useful in evaluating our operating performance. The Company’s definition and calculation of Adjusted pre-tax income, Adjusted EBITDA, Adjusted net income, and Adjusted pre-tax return on tangible equity are outlined in the attached schedules.

Please see below for a detailed reconciliation of these financial measurements.-Financial Tables Follow-

TAL INTERNATIONAL GROUP, INC.

Consolidated Balance Sheets

(Dollars in thousands, except share data)

(Unaudited)

      June 30, December 31, 2015   2014 ASSETS: Leasing equipment, net of accumulated depreciation and allowances of $1,137,930 and $1,055,864 $ 3,855,705 $ 3,674,031 Net investment in finance leases, net of allowances of $846 and $1,056 205,525 219,872 Equipment held for sale 59,589     59,861   Revenue earning assets 4,120,819 3,953,764 Unrestricted cash and cash equivalents 72,161 79,132 Restricted cash 34,490 35,649 Accounts receivable, net of allowances of $1,003 and $978 85,269 85,681 Goodwill 74,523 74,523 Deferred financing costs 29,713 32,937 Other assets 12,852 11,400 Fair value of derivative instruments 3,209     1,898   Total assets $ 4,433,036     $ 4,274,984   LIABILITIES AND STOCKHOLDERS' EQUITY: Equipment purchases payable $ 34,760 $ 88,336 Fair value of derivative instruments 6,781 10,394 Accounts payable and other accrued expenses 50,381 57,877 Net deferred income tax liability 441,898 411,007 Debt 3,223,630     3,040,842   Total liabilities 3,757,450 3,608,456 Stockholders' equity: Preferred stock, $0.001 par value, 500,000 shares authorized, none issued

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Common stock, $0.001 par value, 100,000,000 shares authorized, 37,167,134 and 37,006,283 shares issued respectively 37 37 Treasury stock, at cost, 3,911,843 and 3,829,928 shares (75,310 ) (71,917 ) Additional paid-in capital 508,378 504,891 Accumulated earnings 251,307 246,766 Accumulated other comprehensive (loss) (8,826 )   (13,249 ) Total stockholders' equity 675,586     666,528   Total liabilities and stockholders' equity $ 4,433,036     $ 4,274,984    

TAL INTERNATIONAL GROUP, INC.

Consolidated Statements of Income

(Dollars and shares in thousands, except earnings per share)

(Unaudited)

     

Three Months Ended

June 30,

Six Months Ended

June 30,

2015   2014 2015   2014 Leasing revenues: Operating leases $ 146,569 $ 139,489 $ 291,137 $ 278,819 Finance leases 3,887 4,724 7,911 9,677 Other revenues 382   510   765   994   Total leasing revenues 150,838   144,723   299,813   289,490     Equipment trading revenues 16,478 18,794 33,323 31,281 Equipment trading expenses (14,957 ) (16,579 ) (30,388 ) (27,418 ) Trading margin 1,521   2,215   2,935   3,863     Net (loss) gain on sale of leasing equipment (660 ) 2,461 (2,109 ) 5,557   Operating expenses: Depreciation and amortization 60,021 54,237 118,405 108,040 Direct operating expenses 10,011 8,267 18,833 16,949 Administrative expenses 11,367 11,128 23,349 22,960 (Reversal) provision for doubtful accounts (165 ) 5   (188 ) 36   Total operating expenses 81,234   73,637   160,399   147,985   Operating income 70,465 75,762 140,240 150,925 Other expenses: Interest and debt expense 29,602 26,888 58,845 54,507 Write-off of deferred financing costs

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3,729

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4,899 Net (gain) loss on interest rate swaps (364 ) 582   352   955   Total other expenses 29,238   31,199   59,197   60,361   Income before income taxes 41,227 44,563 81,043 90,564 Income tax expense 14,557   15,201   28,616   31,191   Net income $ 26,670   $ 29,362   $ 52,427   $ 59,373  

Net income per common share-Basic

$ 0.81   $ 0.87   $ 1.60   $ 1.77  

Net income per common share-Diluted

$ 0.81   $ 0.87   $ 1.59   $ 1.76   Cash dividends paid per common share $ 0.72 $ 0.72 $ 1.44 $ 1.44

Weighted average number of common shares outstanding-Basic

32,857 33,619 32,859 33,614 Dilutive stock options and restricted stock 151   178     149     168  

Weighted average number of common shares outstanding-Diluted

33,008   33,797   33,008   33,782    

TAL INTERNATIONAL GROUP, INC.

Consolidated Statements of Cash Flows

(Dollars in thousands)

(Unaudited)

   

 

Six Months Ended

June 30,

2015   2014 Cash flows from operating activities: Net income $ 52,427 $ 59,373 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 118,405 108,040 Amortization of deferred financing costs 3,941 3,861 Amortization of net loss on terminated derivative instruments designated as cash flow hedges 1,355 1,463 Amortization of lease premiums 1,047

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Net loss (gain) on sale of leasing equipment 2,109 (5,557 ) Net loss on interest rate swaps 352 955 Write-off of deferred financing costs

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4,899 Deferred income taxes 28,616 31,191 Stock compensation charge 3,449 3,419 Changes in operating assets and liabilities: Net equipment purchased for resale activity (4,809 ) (4,627 ) Net realized gain (loss) on interest rate swaps terminated prior to their contractual maturities

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(1,700 ) Other changes in operating assets and liabilities (3,759 ) (23,109 ) Net cash provided by operating activities 203,133   178,208   Cash flows from investing activities: Purchases of leasing equipment and investments in finance leases (428,963 ) (289,766 ) Proceeds from sale of equipment, net of selling costs 66,026 83,503 Cash collections on finance lease receivables, net of income earned 21,289 24,100 Other 74   97   Net cash (used in) investing activities (341,574 ) (182,066 ) Cash flows from financing activities: Purchases of treasury stock (4,446 )

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Stock options exercised and stock related activity 38 (234 ) Financing fees paid under debt facilities (717 ) (8,246 ) Borrowings under debt facilities 365,000 912,935 Payments under debt facilities and capital lease obligations (182,251 ) (862,871 ) Decrease (increase) in restricted cash 1,159 (390 ) Common stock dividends paid (47,313 ) (48,409 ) Net cash provided by (used in) financing activities 131,470   (7,215 ) Net (decrease) in unrestricted cash and cash equivalents $ (6,971 ) $ (11,073 ) Unrestricted cash and cash equivalents, beginning of period 79,132   68,875   Unrestricted cash and cash equivalents, end of period $ 72,161   $ 57,802   Supplemental non-cash investing activities: Equipment purchases payable $ 34,760 $ 61,579  

The following table sets forth TAL’s equipment fleet utilization(2) as of and for the quarter ended June 30, 2015:

Average and Ending Utilization for the

Quarter Ended June 30, 2015

Average Utilization   Ending Utilization 97.1 %   96.6 %

(2) Utilization is computed by dividing TAL’s total units on lease (in cost equivalent units, or "CEUs") by the total units in TAL’s fleet (in CEUs) excluding new units not yet leased and off-hire units designated for sale.

The following table provides the composition of TAL’s equipment fleet as of June 30, 2015 (in units, TEUs and CEUs):

    June 30, 2015 Equipment Fleet in Units   Equipment Fleet in TEUs Owned   Managed   Total   Owned   Managed   Total Dry 1,273,097   14,706   1,287,803   2,072,780   25,649   2,098,429 Refrigerated 66,051 29 66,080 125,428 46 125,474 Special 55,517 698 56,215 101,406 1,232 102,638 Tank 9,852

-

9,852 9,852

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9,852 Chassis 20,293    

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    20,293     36,325    

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    36,325   Equipment leasing fleet 1,424,810 15,433 1,440,243 2,345,791 26,927 2,372,718 Equipment trading fleet 28,256    

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    28,256     46,614    

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    46,614   Total 1,453,066     15,433     1,468,499     2,392,405     26,927     2,419,332   Percentage 98.9 %   1.1 %   100.0 %   98.9 %   1.1 %   100.0 %   June 30, 2015 Equipment Fleet in CEUs Owned Managed Total Operating leases 2,625,942 23,022 2,648,964 Finance leases 195,005 794 195,799 Equipment trading fleet 119,226    

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    119,226   Total 2,940,173     23,816     2,963,989   Percentage 99.2 %   0.8 %   100.0 %

Non-GAAP Financial Measures

We use the terms "EBITDA", “Adjusted EBITDA”, "Adjusted pre-tax income", "Adjusted net income", and "Adjusted pre-tax return on tangible equity" throughout this press release.

EBITDA is defined as net income before interest and debt expense, income tax expense, depreciation and amortization, and the write-off of deferred financing costs. Adjusted EBITDA is defined as EBITDA excluding gains and losses on interest rate swaps, plus principal payments on finance leases.

Adjusted pre-tax income is defined as income before income taxes as further adjusted for certain items which are described in more detail below, which management believes are not representative of our operating performance. Adjusted pre-tax income excludes gains and losses on interest rate swaps and the write-off of deferred financing costs. Adjusted net income is defined as net income further adjusted for the items discussed above, net of income tax.

Adjusted pre-tax return on tangible equity is defined as the current quarter's Annualized adjusted pre-tax income divided by the average adjusted tangible equity. Adjusted tangible equity is defined as total stockholders' equity plus net deferred income tax liability and the net fair value of derivative instruments less goodwill.

EBITDA, Adjusted EBITDA, Adjusted pre-tax income, Adjusted net income, and Adjusted pre-tax return on tangible equity are not presentations made in accordance with U.S. GAAP. EBITDA, Adjusted EBITDA, Adjusted pre-tax income, Adjusted net income, and Adjusted pre-tax return on tangible equity should not be considered as alternatives to, or more meaningful than, amounts determined in accordance with U.S. GAAP, including net income, or net cash from operating activities.

We believe that EBITDA, Adjusted EBITDA, Adjusted pre-tax income, Adjusted net income, and Adjusted pre-tax return on tangible equity are useful to an investor in evaluating our operating performance because:

-- these measures are widely used by securities analysts and investors to measure a company's operating performance without regard to items such as interest and debt expense, income tax expense, depreciation and amortization, and gains and losses on interest rate swaps, which can vary substantially from company to company depending upon accounting methods and the book value of assets, capital structure and the method by which assets were acquired;

-- these measures help investors to more meaningfully evaluate and compare the results of our operations from period to period by removing the impact of our capital structure, our asset base and certain non-routine events which we do not expect to occur in the future; and

-- these measures are used by our management for various purposes, including as measures of operating performance to assist in comparing performance from period to period on a consistent basis, in presentations to our board of directors concerning our financial performance and as a basis for strategic planning and forecasting.

We have provided reconciliations of net income, the most directly comparable U.S. GAAP measure, to EBITDA and Adjusted EBITDA in the tables below for the three and six months ended June 30, 2015 and 2014. We have provided reconciliations of income before income taxes and net income, the most directly comparable U.S. GAAP measures, to Adjusted pre-tax income and Adjusted net income in the tables below for the three and six months ended June 30, 2015 and 2014.

We have also provided a reconciliation of Adjusted pre-tax return on tangible equity in the tables below for the current quarter.

TAL INTERNATIONAL GROUP, INC.

Non-GAAP Reconciliations of EBITDA and Adjusted EBITDA(Dollars in Thousands)

      Three Months Ended June 30,   Six Months Ended June 30, 2015   2014   2015   2014 Net income $ 26,670   $ 29,362 $ 52,427   $ 59,373 Add: Depreciation and amortization 60,021 54,237 118,405 108,040 Interest and debt expense 29,602 26,888 58,845 54,507 Write-off of deferred financing costs

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3,729

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4,899 Income tax expense 14,557     15,201     28,616     31,191 EBITDA 130,850 129,417 258,293 258,010 Add: Net (gain) loss on interest rate swaps (364 ) 582 352 955 Principal payments on finance lease 10,815     12,096     21,289     24,100 Adjusted EBITDA $ 141,301     $ 142,095     $ 279,934     $ 283,065     TAL INTERNATIONAL GROUP, INC.

Non-GAAP Reconciliations of Adjusted Pre-tax Income and Adjusted Net Income(Dollars and Shares in Thousands, Except Per Share Data)

  Three Months Ended June 30,   Six Months Ended June 30, 2015   2014   2015   2014 Income before income taxes $ 41,227 $ 44,563 $ 81,043 $ 90,564 Add: Write-off of deferred financing costs

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3,729

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4,899 Net (gain) loss on interest rate swaps (364 )   582     352     955 Adjusted pre-tax income $ 40,863     $ 48,874     $ 81,395     $ 96,418 Adjusted pre-tax income per fully diluted common share $1.24     $1.45     $2.47     $2.85

Weighted average number of common shares outstanding-Diluted

33,008 33,797 33,008 33,782   Three Months Ended June 30,   Six Months Ended June 30, 2015   2014   2015   2014 Net income $ 26,670 $ 29,362 $ 52,427 $ 59,373 Add: Write-off of deferred financing costs, net of tax(a)

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2,450

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3,212 Net (gain) loss on interest rate swaps, net of tax(a) (235 )   382     228     626 Adjusted net income(a) $ 26,435     $ 32,194     $ 52,655     $ 63,211 Adjusted net income per fully diluted common share $0.80     $0.95     $1.60     $1.87

Weighted average number of common shares outstanding-Diluted

33,008 33,797 33,008 33,782   (a) The differences between Adjusted net income and reported net income in the three and six months ended June 30, 2015 and 2014 were due to net gains and losses on interest rate swaps and the write-off of deferred financing costs. TAL uses interest rate swaps to synthetically fix the interest rates for most of its floating rate debt so that the duration of the fixed interest rates more closely matches the expected duration of TAL’s lease portfolio. TAL INTERNATIONAL GROUP, INC.Non-GAAP Reconciliations of Adjusted Pre-tax Return on Tangible Equity (Dollars in Thousands)       Balance as of June 30, 2015   Balance as of March 31, 2015 Total stockholders' equity $ 675,586   $ 654,554 Net deferred income tax liability 441,898 418,298 Net fair value of derivative instruments liability 3,572 28,781 Goodwill (74,523 )   (74,523 ) Total adjusted tangible equity $ 1,046,533     $ 1,027,110   Average adjusted tangible equity(a) $ 1,036,822

 

Adjusted pre-tax income (for the current three months ended) $ 40,863 Annualized adjusted pre-tax income (Adjusted pre-tax income * 4) $ 163,452 Adjusted pre-tax return on tangible equity 15.8 %   (a) Calculated by taking the average of the current quarter's and the prior quarter's ending total adjusted tangible equity.

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TAL International Group, Inc.John Burns, (914) 697-2900Senior Vice President and Chief Financial OfficerInvestor Relations