John Burns - Senior Vice President and CFO Brian Sondey - President and CEO.

Vincent Caintic - Macquarie Steven Clark - KBW John Mims - FBR Capital Markets Sal Vitale - Sterne Agee Michael Webber - Wells Fargo Doug Mewhirter - SunTrust Art Hatfield - Raymond James Rick Shane - JPMorgan.

Good morning, and welcome to the TAL International Group Second Quarter 2014 Earnings Conference Call. All participants will be in listen-only mode. (Operator Instructions). After today’s presentation there will be an opportunity to ask questions. (Operator Instructions). Please also note this event is being recorded.

I would now like to turn the conference over to John Burns, Senior Vice President and CFO Please go ahead sir..

Thank you. Good morning and thank you for joining us on today’s call. We are here to discuss TAL’s second quarter 2014 results, which were reported yesterday evening. Joining me on this morning’s call from TAL is Brian Sondey, President and CEO.

Before I turn the call over to Brian, I would like to point out that this conference call may contain forward-looking statements as the term is defined under the Private Securities Litigation Reform Act of 1995. It is possible that the company’s future financial performance may differ from expectations due to a variety of factors.

Any forward-looking statements made on this call are based on certain assumptions and analysis made by the company in light of its experience and perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate.

And any such statements are not a guarantee of future performance and actual results or developments may vary materially from those projected. Finally, the company’s views, estimates, plans and outlook as described in this call may change subsequent to this discussion.

The company is under no obligation to modify or update any or all of the statements that are made herein despite any subsequent changes the company makes in its views, estimates, plans or outlook for the future.

These statements involve risks and uncertainties, and are only predictions and may differ materially from the actual future events or results. For a discussion of such risks and uncertainties, please see the Risk Factors located in the company’s Annual Report filed on Form 10-K with the SEC.

With these formalities out of the way, I will now turn the call over to Brian..

Thanks John welcome to TAL International's second quarter 2014 earnings conference call. TAL achieved solid results in the second quarter of 2014. We generated adjusted pre-tax income of $1.45 per share an increase of 2.8% from the first quarter. We also continue to generate strong returns.

Our annualized adjusted pre-tax return on tangible equity was just under 20% for the quarter. Our solid results in the second quarter were supported by strong demand for leased containers. Trade growth this year has so far been above our customers’ expectations.

Market forecasters are currently projecting trade growth will be between 5% and 6% this year. And our customers are hopeful at the peak season for dry containers will last through the summer for the first time since 2010. The market share shift for leasing continues.

We estimate our leasing companies made up the majority of new container purchases in the first half of 2014. And we expect the leasing share of new procurement to be even a little higher in the second half of the year.

We also continue to see ongoing interest among our customers for sale lease back transactions, proportions of their existing container fleets. The increased share of the leasing continues to be driven by generally weak profitability for the shipping lines due to persistent excess vessel capacity and weak freight rates.

In the second quarter net container pick-up activity for TAL was the highest spend since the second quarter of 2010. And our utilization reached 97.7% by the end of the quarter. The financial benefit from the strong on-hire growth was somewhat muted in the second quarter.

Many of the container pick-ups occurred in the second half of the quarter and we selectively used free days to make our lease proposals more competitive. Low market per diem rates also limited the benefit of the container pick-ups.

We expect the strong pick-up activity in the second quarter to have a larger impact in the third quarter as the free days expire and as we benefit from a full quarter’s worth of leasing revenue. We also expect container pick-up activity in the third quarter to remain positive.

While leasing demand and pick-up activity have been stronger than expected, lease rates remained week. New container prices held steady during the second quarter at a relatively low level. Long-term interest rates remain exceptionally low.

And low cost financing remains widely available across the leasing industry, fueling aggressive competition for every deal. Due to these factors, market lease rates continue to be well below TAL’s portfolio average.

TAL’s average lease rates have been falling over the last few years, mainly as we’ve added new containers to our fleet and placed them on leases with lower rates. But we're also starting to face more pressure from lease rollovers.

And if market lease rates remain low, this pressure will accelerate in 2015 and 2016 due to the large number of leases that will start to expire next year. TAL has passed on unusually large number of potential leasing transactions this year due to pricing and structuring concerns.

But our extensive supply capability and strong customer relationships continue to generate solid investment opportunities. We also continue to make large investments in our factory inventory to ensure we give our customers confidence who will be able to help and manage any spot shortages that develop.

Year-to-date, we purchased $460 million of containers for delivery in 2014. As mentioned in the press release, we’ve declared a dividend of $0.72 per share this quarter. This represents a payout of just under 50% of our adjusted pre-tax income in the second quarter. I'll now hand the call back to John Burns..

Thank you, Brian. As it’s probably noted in the earnings release, we’ve revised our financial statement presentation. We eliminated the total revenue line and moved the equipment trading revenue and equipment trading expense line items together and added a line called trading margin.

We think this new presentation better highlights the trends in the leasing business and the relative size and contribution of the equipment trading business. For the second quarter, TAL posted adjusted pre-tax income of $48.9 million or $1.45 per share, down $7 million or 12.7% from the prior year quarter.

The biggest item impacting the second quarter results was a combined $7.7 million decrease in our gain on sale and trading margin largely due to the ongoing moderation of disposal prices. Dry container disposal prices were down nearly 20% from the prior year quarter as supply and demand continue to moderate leading to more units available for sale.

We expect some further declines in disposal gains going forward. As Brian noted, we continue to experience significant lease rate pressure and the impact of this pricing environment accumulates overtime. This challenge in rate environment is reflected in the 5.5% reduction in our average portfolio lease rates from the prior year quarter.

Despite this pressure on leasing revenue, our leasing margin which excludes gains and trading margin was essentially flat compared to the prior year quarter as we have been able to offset the significant lease rate pressures with reductions in our financing cost.

Interest expense for the second quarter was actually down 1.4 million from the prior year quarter, despite the 5.7% increase in our revenue earning assets. As we continue to opportunistically refinance certain debt facilities and issue new debt at interest rates lower than those on existing facilities.

The second quarter effective interest rate is down roughly 35 basis points from the prior year quarter savings us 2.6 million from the prior year quarter from what it would have been without the interest rate improvement.

While this improvement in the interest rate has offset a significant amount of the margin pressure over the last year, our overall effective interest rate is close to current market levels.

Therefore we do not expect much further benefit in this area, making it increasingly difficult to offset ongoing pressure if the low lease rate environment continues.

In addition to lowering our effective interest rate, the actions we have taken have increased the portion of our debt portfolio with fixed interest rates to approximately 85% with the weighted average remaining term of 60 months. This position protects us from the risk of rising interest rates for a number of years.

Looking forward, we expect to get a full quarters revenue benefit from the strong unhurried activity in the second quarter along with further positive pickup activity this quarter. In addition the improvement in utilization should also contribute to further reductions in our operating expenses.

And now I'll turn you to Brian for some additional comments..

Thanks John. As we look forward to the second half of the year, we expect to continue to achieve strong operational and financial performance and we expect to continue to generate attractive returns for our investors. We expect leasing demand will remain strong through the third quarter.

We expect our utilization will remain high and expect that we'll have another good quarter for container pickup activity, but we also expect our disposal gains and trading margins to be down slightly from the second quarter level. Overall, we expect our adjusted pretax income to increase slightly from the second to the third quarter of 2014.

I would now like to open up the call for questions..

Thank you sir. We will now begin the question-and-answer session. (Operator Instructions). And our first question comes from Vincent Caintic of Macquarie. Please go ahead..

Hi, good morning. And I have two questions, first on the three days in the second quarter. I was wondering if that's kind of a normal price the sort of an accelerating practice and if that might be driving perhaps some more rate decline that we should be expecting a little bit next couple of quarters.

And then secondly I appreciate the focus on cash EPS results versus GAAP tax EPS, but also recognize the build up of the DTL so wondering if you had any thoughts on the more permanent tax strategy, particularly in light of the reason you use on the practice of inversions, thanks..

Sure. Thanks, first in terms of the free days, free days are a common feature of the leasing business and like lease rates when the market is weak the customers are pushed for free days a little more aggressively and just as they pushed for lower rates.

And we always look at the combination of free days and rates to evaluate the value of the transaction. And we've seen a little more free days in this weak market environment. But it's nothing that I would say it's accelerating, it's just been a feature of the market for the last 12 to 18 months.

But it's one thing that did just given the large number of pick ups in the second quarter, the presence of the free days deferred the revenue benefit at least part of the revenue benefit from the second into the third quarter. In terms of the inversions certainly we've noticed the activity for other companies and the stories in the financial press.

And we certainly understand the reasons why companies are pursuing that strategy and the benefits obviously. But I would say it's very important to note though that our tax situation and cash situation is quite different from a lot of the companies that are pursuing those inversions.

My understanding is that a lot of the companies that are aggressively trying to invert are doing so because they have large amounts of their cash trapped offshore in foreign subsidiaries. For us we have full access to all of our equity cash flows.

And the reason we don’t pay cash taxes because we [snatch] the cash away in foreign subsidiaries, it is because we have accelerated tax depreciation on our container investments and we don’t expect that cash tax situation or full access to our cash flows to change at anytime soon.

And I think it’s also important to note that as we model these cash taxes out even if we start to pay some cash taxes far off into the future our estimates are that as long as we don’t go into some kind of real sustained liquidation that our cash taxes are always going to remain a pretty small fraction of our earnings.

And so from a real economic reality standpoint we don’t have a real big incentive to pursue those transactions.

That said, we think we had very little value in our share price for all the cash flows that we have because we think investors for whatever reason continue to reduce our multiple by the amount of GAAP taxes that we accrue or reduce our valuation for the GAAP taxes that we accrue.

And so inversions for us really would be a way not to manage our cash tax exposure or gain access to cash that’s hived way offshore, it would just be a way to try to reduce the GAAP tax accrual which is less than a motivation I think. It is something that does impact our share price but in some extent it doesn’t impact our cash or reality.

And so while we see some benefit in those transactions I don’t think we have the same level of incentives as some of the other companies that are pursuing them..

Got it. Thanks very much..

Our next question comes from Steven Clark of KBW. Please go ahead..

Hi. Thanks for taking my question. Just wondering if you could quantify the impact of the free days during the quarter, if you could quantify what the impact at P&L was as a result of some of the investments also coming on later in the quarter as well..

To be honest, I can't quantify it for you, it's nothing that had a dramatic impact on the P&L. it hasn't, I wouldn't say it was a major mover of our profitability in the second quarter. But it just had the effect of deferring some of the revenue from the new containers that were picked up in the quarter, from the second to the third.

And so it will be to one of the thing that is going to help us we think achieve sequential profitability from the second to the third quarter is the fact that we will really get the full benefit from those pickups as the free days expire. And so it had an impact but it wasn't say quarter changing..

Got it, got it.

And then can you talk about how the different regions around the world in terms of trade growth are there any regions that are strong occur than the expectations or any that are weaker than expectations?.

We don't really see it in our container flows in the sense that for almost all of the trades the head whole leg originates in Asia in particular in China. And we see the pickup locations and so we don't really have way to follow the containers as they move around and so we don't have direct views into which trades are growing relative to others.

That said we talk to our customers very regularly and we hear from them what's happening with their business.

And our sense is that there is strength all around that the Asia to Europe trade is performing quite a bit better than expected that Asia to North America is fairly strong, now intra-Asia we hear has been quite a good market this year as well. And so it seems to be fairly across the board..

Got it. And final question is just I mean we've seen utilizations rates improve. However, lease-based remained weak.

Are there any changes to the way how people are thinking about in terms of their rate or return is that why it’s pushing down the lease rates? I mean what in help lease rates recover from here?.

We think there is a variety of factors that are leading to the low lease rates today and it’s a combination of low container prices, low interest rates and aggressive competition, so lower returns relative even to the low container prices and interest rates.

And so, our hope is that as some of those factors and hopefully all of them eventually change, that’s what will drive lease rates to be better.

We do hear some stirrings that some of the companies in the leasing space have gotten, maybe perhaps a little discouraged or something with the low levels of returns but -- and so we are hoping that will translate eventually into more thoughtful investment and lease structuring and pricing.

But for sure today, the market remains very aggressive and container prices and interest rates remain low. So as low as those things stay in place, lease rates will be under pressure.

The things that we would look forward to see a major change would be some inflation in commodity prices, in particular will be very helpful for us to see steel prices go up. That would push container prices up.

An increase the long-term interest rates would be quite positive for us in the sense that that very naturally leads the higher lease rates, while we have locked in our interest costs for all the activity we have done to extend the duration of the interest rates of our debt portfolio.

And then finally, as I mentioned, some change in the competitive dynamics and target investment returns would of course be helpful as well..

Got it. And sorry, just to sneak one last one in. I believe one of your peers had an investment by another of the players in the space and just wondering what your thoughts are around that..

Right there was an announcement that [Cronos] has reached an agreement with [Seaco] which is owned by [HNA] in China to be acquired by them. At this point, it's just an agreement that deal hasn't close and isn't likely to close for some time. But it really marks that the first to give consolidation in our space in a while.

And I do think we'll see more consolidating activity going forward for a number of reasons. First just as organic investments become harder to come by it makes growth through acquisition more interesting for the existing players.

And secondly a lot of firms were changed hands too, private equity firms over the last number of years and I think some of them will help facilitate perhaps some of this consolidating activity. But I think it's a move that made a lot of sense for us [Seaco] to do it against some scale and I think we may see some more of it..

Great. Thanks for taking my questions..

Thank you..

Our next question comes from John Mims of FBR Capital Markets. Please go ahead..

Hey, good morning guys. Brian, let me ask and I’m sorry, I had to jump off for a second, so I may have missed as you were, John, were describing this. But the 5.5% reduction rate, jlease rate, which you saw year-over-year and from a margin standpoint, you said these were largely offset by lower interest expense which makes sense.

But how many more levers do you have to pull on the interest side? If you still have lease rate ticking down over the next couple of years; when does that offset sort of expire and you have less ability to offset so you’re taking these on at significantly lower margins?.

Well I think it really doesn't not so much to do with the new containers we're taking on, but we've been able to use the reductions in our average debt cost to offset pressure really on the existing portfolio, that's where you see most of the say the profitability pressure coming from lower lease rate.

And I think one of points John was trying to make in his comments was that it is going to become more difficult for us to use reducing our financing cost to offset leas pressure in the future as we've picked most of the lower hanging fruits in terms of our expensive debt facilities.

And so as John pointed out that our average effective interest rate is now fairly close to the current market level and so we -- while there is probably still some selected opportunities to take advantage of the low rates for not just new containers but also some of our existing facilities, some possible for the refinancings.

In general, it's going to become a lot more difficult. So that as we see further lease rate pressure, especially for the existing containers as they roll over on leases, it does become very difficult to offset that profitability impact..

Okay.

Is this a change in tone from the Analyst Day and in this scenario assuming this market is going to stay the same for the next couple of years that it’s shortened the window of time you have before the tax liabilities begin to come due?.

No. So, I think -- well first of all, I guess a couple of different questions there. I think the overall view on our ability to offset the lease rate pressure hasn't changed from the Analyst Day. This is something we've been talking about for a while; this lease rate pressure from roll over is something we've been planning for.

And it's essentially the same as we've been trying to lay it out over the last couple of quarters. So there has been no change there. In terms of the tax liability, again we see this as being a little bit unrelated. In fact I guess it’s nothing that we would want but lower profitability of course extends the tax shelter.

And so we continue to have a lot of protection from tax reversal, I think we estimated and talked at the Analyst Day, but even if we didn’t do any investment for, and this is not even no growth this is no investment at all for six or seven years we wouldn’t save any cash taxes and even if we invest we achieve very modest levels of growth.

We push that meaningful cash taxes off for quite a long time. And again even when they may eventually kick in if we grow it at low rate for an extended period of time, we believe that as long as we’re not in some kind of sustained liquidation that those cash taxes should remain a very small portion of our profitability.

So I think the point what I am trying to make is just we’ve been able to hold the leasing margin steady for now kind of 18 months into a very difficult pricing environment, mainly by getting offsetting benefits in our debt portfolio those offsets are getting a lot harder to find and if we remain in this very competitive, very low rate low lease rate environment for a long period going forward, it becomes a lot harder to offset the profitability pressure..

Sure. That makes perfect sense, thanks. And one last one just on the industry you talked about pickups being strong this year strongest in four years.

Can you comment on, and I assume box prices have stayed relatively flat in kind of the $2,000, $2,100 range, but can you comment on inventories and lead times for new boxes and kind of what you’re hearing from the manufacturers as far as their ability to kind of control pricing in this environment?.

So prices have remained flat in the range that you indicated. Factory inventories also remained fairly controlled. On of the things that pressured the market last year in 2013 was that factory inventories grew to over a 1 million TEU at the start of the peak season and then the peak season kind of fizzled.

This year we started the peak season with an inventory of just over 500,000 TEU and my sense is that we’re probably in the same range. And so inventories of new factory units are fairly low, depot stocks and used equipment are also low. So the supply of containers have actually pretty tight right now.

And the manufactures haven't pushed price up despite that tied inventory just because there remains enough manufacturing capacity to handle the volumes of that the shipping lines are looking for.

But I'd say we expect prices going forward to probably hold steady for a little while here and it's possible they could go down a little bit towards the fourth quarter, if demand falls off, but we don't think there is a tremendous amount of downside there..

Sure.

Are you seeing any uptick in short-term lease demand?.

We're seeing a lot of demand for both long-term leases and short-term leases.

The real challenge has been try to gain any pricing leverage off of that and I that’s just because, I think there is enough leasing companies with available inventories and also enough manufacturing capacity as I mentioned that has been difficult to translate that demand into improved lease rates..

Right, okay. I appreciate the time. Thanks..

Our next question comes from Sal Vitale of Sterne Agee. Please go ahead..

Good morning, gentlemen..

Good morning..

First question if I could just start with some detailed questions. If I look at the G&A line, I see that came down pretty significantly, sequentially that’s balanced around for the last few quarters.

How do we think about that going forward, was there anything specific in the quarter that drove that decline?.

Yes, usually the first quarter, we do have directive compensation, stock compensation invest right away so that moves the first quarter typically. But I think as you get into the second quarter nothing very unusual there. So I think the second quarter is kind of reflective of the run rate.

Okay. .

But we get a bump, typically a bump in the first quarter..

Okay, that’s helpful.

And then Brian you made some comment on the tax side if I look at your GAAP tax rate that’s come down to last I guess three to four quarters, so it’s about 34.1%, should we be modeling roughly around that level going forward?.

You know, a couple of things. One the tax rate is, federal tax is 35 we’ve had some catch up items that have bought that down a little bit, some unusual items. But I think over the long-term its the federal rate of 35 and a small couple of basis points for state taxes..

Okay, that’s helpful.

And then you mentioned the trading gains were a little stronger in 2Q and you expect them to trend down again 3Q, is there anything specific 2Q is it just the timing?.

No, our volumes of trading activity bounced up and down. And in fact that one reason why we thought it made sense to restructure the way we present the numbers in our financial statements because the changes in trading revenue tend to screw up to some extent the trends in our leasing revenue.

And so, we always have a volatile amount of containers that we are trading from quarter-to-quarter and just as we look at the container we have purchased recently and the deals we are currently discussing, our sense is that the trading volume will be down a little bit we don’t think it’s going to be a dramatic change from the second to the third quarter but we do expect that a margin be a little bit less..

Okay. And then just big picture Brian just to follow up on your comments on the M&A side, do you think that the transaction with being acquired or being agreed to be acquired do you think that was driven by an awareness that M&A is necessary in order to improve the pricing dynamic and the environment.

I mean was Cronos for example was that one of the companies that you think was a little aggressive on the pricing side?.

It's very higher question, the motivation of the other parties, obviously we weren't part of those discussions. My sense is though that HNA and SeaCo were mainly interested in the acquisition to gain scale.

I think that scale matters a lot in our business, we cover with our infrastructure in every major shipping line, we cover every major port location that we want to cover with our infrastructure and operating group.

And it'd be competitive on a marketing basis with our customers, the smaller and mid-sized companies have to offer the same global flexibility that we do and it's difficult for them to try to match TAL and the other sort of larger companies with their infrastructure, but you can't really afford it if you are smaller or do you try to provide global flexibility without true global coverage.

And so for smaller and mid-size companies it's really quite a dilemma. And it's one reason why the bigger companies tend to outperform overtime. And I think again the main motivation was for SeaCo and actually Cronos both, they trying to get out of that the middle range and try to combining to get up to top tier scale.

And certainly in terms of the size the transaction will help them do that..

Do you have any color by the way in terms of what the multiple table is?.

We do not have inside into the purchase price..

Okay, great. Thank you very much. I appreciate it..

Thank you. (Operator Instructions). Our next question comes from Michael Webber of Wells Fargo. Please go ahead..

Hey, good morning guys.

How are you?.

Good morning..

Hey Mike..

I wanted to go back and talk a bit about the competitive pricing. I think we've been talking about the last 5 quarters or 6 quarters.

We talked a bit about this at the Investor Day, but if you could kind of talk the pricing environment may be the yield you are seeing right now in the market versus where we were six months ago has there been any easing to that was ever as we move through peak season there have been a bit more deals in the market or we have been relatively flat?.

I would say at the margin the pricings are little better as we've gotten into June and July I think for a little while there was a feeling that the inventories of available containers especially in South China might have been a little tight relative to the needs of our customers and that helped create a little bit of firmness and (inaudible) call it good pricing but may be a little bit less weakness in pricing especially for those locations.

But overall I would say the pricing still remains very difficult in fact I've now been in this position for just about 15 years and lease rates in an absolute sense are the lowest they have every been in my tenure.

So I think that's obviously makes it a challenging environment but also does give us some hope that there will be some better days to come if we can get some help on one of those key levers of container prices or interest rates or adjust the return expectation..

That makes sense. When you look at the deals that are in the market today versus where they were six months or a year ago, have you done any difference in terms of the number of deals or the size of the deals.

And I guess that kind of coming from an angle where if we do start to see an increase in pricing it will may be due to the size of the deals moving higher which was closing this more clear, is that sort of a realistic scenario or we just really need to see financing ease up before what we see any real lift in the pricing structure..

Well I think it did happen to some extent over the last month to six weeks that we have seen a number of large transactions this year and when you see large transactions this year.

And when you see large transactions, I think they tend -- the shipping lines tend to want to go with the bigger leasing companies for those, for a variety of reasons, I think because when the transactions are large of course you just need more containers. And we have a larger shelf inventories for those containers.

Also I think when you get into market like this one where the customers are surprised to the upside with trade volumes, the operating guys want to make sure they don’t screw it up and fall down on providing the containers fly to their customers.

And I think just companies like us and the other big companies have very good reputations for the liability and so if we promise to deliver the containers as we do.

And so I think with what I mentioned before that we’ve seen a little less weakness in pricing over the last couple of weeks, over the last say month or up to six weeks, partially is reflecting that the large size of the deals and just the value of working with the bigger companies.

But again, I’d say, it hasn’t been a dramatic change, just been a marginal..

Okay. That’s fair.

We’ve also been hearing a lot about some of the manufacturers starting to charge for storage, I guess on the margin which it seems like we kind of takeaway that December trade or we would see any of this, less [airlines] place orders in December and kind of the lower end of the box pricing side for couple hundred dollars improvement for the year.

Do you think, did that change purchasing patterns for the [Lessor] group in the back half of the year? And in terms of how that would actually get incorporated, what assuming now would be capitalized in the cost of box, but just any color there and if that has the meaningful impact on what we see in terms of CapEx budgets and things like that for the back end of the year?.

It’s a good question. It is something that the manufacturers have pushed for from time-to-time and it did come up again this say fourth quarter and first quarter, the idea that the manufacturers wanted after a period of -- certain period of time to charge storage.

And it's hard to say what happened with everybody, it’s something that we resist pretty strongly. And also I'd say in most years, the manufacturers actually have a pretty big incentive who want to encourage leasing companies to buy in the fourth quarter, so they can keep their factories open.

And obviously as we think about fourth quarter production, integral in that as an expectation that you're going to have to sit on the containers for a quarter or two. So I think charging storage would discourage companies from buying in the fourth quarter.

And I guess it really just comes down to whether that’s something the manufactures are willing live try to get storage compensation..

Got you.

So, it’s more a function of margin and price on there than anything else?.

And just how important it’s been they feel the fourth quarter production versus how much they want to get paid for the space. Like everything else, it depends on who’s got the leverage..

Got you, okay. That's helpful. I appreciate the time, guys. Thanks..

Yes. Thanks..

Our next question comes from Doug Mewhirter of SunTrust. Please go ahead..

Hi, good morning. Most of my questions have been answered. I guess maybe a general question. Brian, you had a pretty detailed overview of market conditions during your Investor Day and it’s been a couple months since then, but I know that things are very dynamic especially with beginning of the peak season.

Is there anything, any major lever in market condition, demand or enterprises or lease rates that have changed from your general outlook of the market since then?.

No, I'd say it remains basically the same. It's a market where we see demand for lease containers being little stronger than we had expected as we started the year and that's been positive for us in terms of on-hired growth and utilization and been supportive to the performance of the company.

On the other hand, it’s a market environment that remains just very weak from a pricing standpoint. And again, those key drivers of lease freights, of new container prices and long-term interest rates and widely available financing and desire for growth and we haven’t seen any of those key drivers change dramatically.

And we are hopeful at least we will start to see some inflation or some easing by the central governments around the world to start pushing interest rates up. And as I mentioned, I we have started to see some rethinking by some leasing companies about whether some of these investments have made sense.

But we haven’t yet seen any of those things translate to really change the market dynamic..

Okay, thanks. Those are all my questions..

Thank you. (Operator Instructions). Our next question comes from Art Hatfield from Raymond James. Please go ahead..

Hey, good morning, Brian and John.

Quick question on your disposal market, just as I think about that and think about the long-term nature of really the life of the containers; have you seen or have you started to see any signs of potential saturation in your storage disposal market?.

No, certainly not saturation, one of the odd things we are to communicate what’s happening in that market is that while used container sale prices have come down about 20% over the last year as John has mentioned and even more than that relative to their peak in 2011, new container sale prices remain historically high.

And we continue to get very significant margins over the net book value of our older equipment. And I think I also mentioned though that we don’t have so much of the old original TAL equipment because of our low procurements in early 2000, late 1999s. But in general, actually that the sales prices for these containers are pretty robust.

And one thing we have found over many, many years is that there is a lot of utility to these old boxes and in fact we think well more than half of them are used for cargo movements, where freight forwarders or other shippers that are looking to move cargo into areas like Central Asia or Africa with very difficult backhaul logistics and cost will buy these old containers, load them with cargo and send them on a one way basis to those dumping grounds.

So the containers are then used out for something else, but it's really the cargo movement that drives the demand rather than the ultimate use of the container where it ends up. And on the other hand, for the containers that are being sold off into domestic uses and primarily in the U.S. and in Europe and some places in Asia.

There is a lot of uses for those boxes and I was sort of just kind of put it back to people, what do you think you would pay, if you went to home depot and try to buy a storage unit of that size, that was made for storage and my guess is it'd be $5,000 or something.

You just can buy these things for a $1,000 or a little more than that $1,200 to $1,500 or whatever. Just because they are manufactured by the millions and try and get here for free. And so we've always found that these markets for used equipment are pretty deep and resilient..

Okay.

Has the mix change between the transport side and the storage side of the two different channels?.

No, I wouldn't say we've got perfect visibility into that, we look at it, we feed on a very granular basis day in and day out. And it's not always apparent exactly where the boxes are going.

But our guess it's remained relatively stable over the last number of years with probably a little more than half of the boxes for freight forwarding and one way shipments and the best of them for some type of domestic applications..

Perfect, thank you. That's all I got this morning..

Thank you. Our next question comes from Rick Shane of JPMorgan. Please go head..

Good morning guys, thanks for taking my question. Hey Brian, there is really interesting supply demand characteristics in the industry right now. And it sounds like one of the issues is just the capacity within the manufacturers and the fact that, that keeps new container prices so low.

Historically you've seen the manufactures behave very rationally in terms of capacity and managing pricing and managing margin.

Is there any conversation at this point in the industry of the manufacturers reducing capacity so that they can create a little bit of drive margin back into the business?.

I would say in most years, we find that the price of containers really doesn't vary so much from the cost of producing the container. And most of that cost is the marginal cost of the steel and the wood and the paint.

And it's really because when you think of at least what we think of manufacturing capacity, we don't think of factory space, we think labored capacity. And the factories have gotten fairly good of upsizing their shifts when containers are needed and downsizing their shifts when they are not.

And so you always almost always end up with the labor driven capacity being pretty close to what the demand of production is being demanded. That wasn't the case for a while in 2010 where we did see absolute shortages of production. But I would say it almost every other year we see that the prices and costs staying very closely inline.

You are right I think that the manufacturers are pretty rational in the way that they approach this. Again a lot of it is because of their input cost or what drives the pricing of the containers they don't have very big fixed cost they need to cover and keep the factory lines open or something.

They produce when it makes sense and they don’t produce when it doesn’t.

We sometimes see conservative efforts by the manufacturers to coordinate their activity in total production in fact that happened a little bit at the end of 2013 and beginning of 2014, but those things tend to fall apart pretty quickly and ultimately when we think the container prices are really driven mostly by input cost..

Got it. Okay great. Thank you..

Our next question comes from [Michael Fountain of RBC Capital]. Please go ahead..

Hi good morning guys. Have you seen any imbalances in your network, I guess maybe is there any pre-shipping on the Asia to U.S.

trade line and maybe what that would mean for pickup activity in the third and fourth quarters?.

Well again it’s a good question. And I think what you’re referring to is that there was concern in the West Coast that there’ll be a strike in the summer time. And as the contract for the long-term workers expired this year.

And there was probably some speculation about whether shippers were bringing shipments forward into the second quarter to avoid the disruptions that would happen if there was strike. We don’t really have a window to see that ourselves, we’re not talking the shippers, we’re talking to shipment lines.

The sense I got it that, there wasn’t huge expectation that there was going to be a strike this year. I think the communications from both sides were pretty controlled and I don’t think again those a large amount of pre-shipments just from what I hear from our customers, but I really don’t know to be honest.

I think we’re just going to have to see how the volumes play out from the second quarter to the third..

Fair enough, that’s all for me..

Thank you. And this concludes our question-and-answer session. I’d like to turn the conference back over to management for any closing remarks..

Well I just like to thank everybody for your interest and ongoing participation with TAL. And we look forward to talking to you in the future. Thanks very much..

And thank you for your time gentlemen. This conference is now concluded and we thank you all for attending today's presentation. You may now disconnect and have a wonderful day..