John Burns - SVP and CFO Brian Sondey - President and CEO.

Steven Kwok - Keefe, Bruyette & Woods Helane Becker - Cowen and Company Derek Rabe - Raymond James Doug Mewhirter - SunTrust Robinson Humphrey Shawn Collins - Bank of America Merrill Lynch Michael Felton - RBC Capital Markets.

Good morning, and welcome to the TAL International Group Second Quarter 2015 Earnings Release Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. Please note today’s event is being recorded. I would now like to turn the conference over to Mr.

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 2015 results, which were reported today 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 might contain forward-looking statements as the terms defined under the Private Securitization Litigation Reform Act of 1995. It is possible that the Company's future financial performance may differ from expectation 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 it believes are appropriate, and any such statements are not a guarantee of future performance and actual results may vary materially from those projected.

Finally, the Company's views, estimates, plans and outlook as described on 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.

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, 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 2015 earnings conference call. TAL achieved solid operating and financial results in the second quarter of 2015. We generated 40.9 million of adjusted pre-tax income, which translates to $1.24 of adjusted pre-tax income per share.

We grew our leasing revenue by 4.2% from the second quarter of last year and we continue to generate attractive returns for our shareholders, achieving annualized adjusted pre-tax return on tangible equity of 15.8% in the second quarter. TAL's solid performance in the second quarter was achieved in a difficult market environment.

TAL has been experiencing lease pricing pressure and decrease in disposal gains for several years due to falling steel and new container prices widely available low cost financing and aggressive competition; however, prior to this year we’d also 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 and now we're also facing a deterioration in leasing demand.

As we enter 2015, there was a general expectation that trade growth will be similar to slightly better than it was in 2014 and market forecasters were projecting that globalized trade growth to be in the 5% to 6% range this year.

Our strong deal activity at the beginning of the year seemed to confirm these expectations; however, our pick up volumes in the second quarter did not ramp up like they usually do as we approach the summer peak season. New deal activity over the last few months has been very limited as well.

We now expect leasing demand to remain weak through the rest of the year. While it's not yet possible to fully identify the reasons for weak demand this year, we think it comes from the several factors. Probably most importantly trade volumes on the Asia to Europe trade land are down so far in 2015.

The Asia to Europe trade is especially important for container demand due to the large volume of containers moved on the trade and the long duration of the round-trip voyage which magnifies the container capacity required to service the trade.

The intra-Asia trade and some other regional trades are still growing but the growth rates on these trades are down this year. Leasing demand in 2015 likely is also suffering from extra containers purchased or leased by our customers at the end of last year due to operational disruptions at ports on the West Coast of the United States.

The labor issues causing these disruptions have since been resolved, and a large number of stranded containers have been returned to regular service.

Purchases of new containers by both leasing companies and shipping lines are currently very limited and we expect that the supply and demand balance for containers will stabilize fairly quickly, but likely not in time for the summer peak season this year.

TAL's 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 current stands at 96.1%. The high level of utilization reflects the underlying strength of our lease portfolio.

As of June 30th, 74.7% of our containers on hire recovered by long-term or financed leases and these leases had an average remaining duration of 41 months assuming no leases are renewed.

Our lease portfolio is also protected by our lease structure and discipline specifically in ensuring that the vast majority of our containers on lease must be returned to strong export locations.

TAL has purchased $420 million of new and sale-leaseback containers for delivery in 2015, leading to 2.4% growth in our revenue earning asset in the first half of the 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 our close customer relationships. The pick-ups on committed leases are proceeding gradually, but we expect our investment pace and asset growth to slow in the second of the year.

As mentioned in our press release, we declared a dividend of $0.72 per share this quarter.

This dividend represents a payout ratio of 58% of our adjusted pre-tax income in the second quarter which is up from our typical historical range of roughly 50%; however, our dividend continues to be well supported by our strong and stable cash flow and due to our anticipated lower growth rate we actually expect to de-lever in the second half of the year.

I will now hand the call over to John Burns, our CFO..

Thank you, Brian. As we noted in our earnings release, TAL posted adjusted pre-tax income for the second quarter of 40.9 million or $1.24 per share, down 14.5% on a per share basis from the prior year quarter. The change in pre-tax income from the prior year was driven by a few key items.

We benefited from an increase in leasing revenue by our ongoing investment in new and sale-leaseback containers. However, our leasing margin continues to be pressured by lower per diem rates reflecting the significant drop in new container prices and continued aggressive competition.

Biggest item impacting the second quarter results compared to the prior year was a $3.1 million decrease in our gain on sale, largely due to the ongoing declines in disposal prices.

Leasing revenues climbed 4.2% supported by our ongoing investment in new and sale-leaseback containers offset by a slight decrease in our average utilization from the prior year quarter.

However, the revenue growth lagged by nearly 10% growth in revenue earning assets, reflecting the weak pricing environment for both, new and depot units and the impact of the initial re-pricing of high rate leases written in 2010. This lease rate pressure resulted in a 4.6% reduction in our average lease rates from the prior year period.

We expect our average portfolio lease rates will continue to decrease for the remainder of 2015 as more of the highly priced leases written in 2010 to expire.

If lease rates remain at the current low levels for an extended period of time, we expect the decrease in our portfolio average will accelerate in 2016 and 2017 as a large number of leases with high per diem rates expire.

Our effective interest for the second quarter was 3.7% down about 10 basis points from the first quarter as the fixed portion of our debt portfolio declined to a more typical level in the low 80% range after increasing to the high 80% range in the first quarter due to the hedging of a large pre-committed lease transaction.

We anticipate our effective interest rate will decrease slightly in the third quarter reflecting the recent prepayment of $100 million securitization facility which had a higher interest rate and a lower advanced rate than our other credit facilities.

In the second quarter, we recorded a loss on container disposals largely due to a roughly 20% decline in dry container disposal prices from the prior year quarter, reflecting the decline in new container prices and moderating utilization levels.

Sale prices are currently in the range of our accounting residuals and therefore we are roughly breaking even on the disposal of original TAL units. However, we are experiencing losses on units purchased in sale-leaseback transactions.

The timing and structure of these transactions resulted in these units having higher book values than original TA containers of similar age. And due to the drop in sale prices we are recognizing losses on sale for a large portion of these containers.

However and on an overall basis these transactions remain profitable as the high purchase prices are supported by high lease revenues. I will now return you to Brian for some additional comments..

Thanks, John. We currently expect our marketing environment to remain challenging in the second half of 2015. It seems likely that leasing demand will remain week throughout the traditional summer peak season. And our leasing rate and used container sale prices will continue to be pressured by very low steel and new container prices.

However we expect our utilization to remain at a high level due to strength of our lease portfolio and pick up volumes will be supported by the large number of containers committed to leases earlier in the year. Overall, we expect our adjusted pre-tax income will decrease slightly from the second quarter of 2015 to the third quarter.

I would now open up the call for questions..

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Steven Kwok of Keefe, Bruyette & Woods. Please go ahead..

I guess the first question was just if you could provide some thoughts around your dividend and perhaps around just the sustainability of it? Thanks..

Sure. I think the first thing to note about our dividend is one and I hope everyone does this when you look at the payout ratio it is important to look at the dividend in context of pre-tax income rather than net income.

Obviously we've been talking for many years now about how we have a good I'm sorry a large GAAP tax accrual to pay very small cash taxes and so again it's the payout ratio should be looked at as a percentage of pre-tax income.

As I mentioned in the press release the payout ratio of pre-tax adds up a little bit from driven by our historical range of 50% up to 58% this quarter.

But also our asset growth rate has come down typically we have set our dividend at a level that allows us to maintain constant leverage while funding anticipated growth and holding our leverage constant and historically we've been able to fund growth in the low double-digits at our dividend payout ratio.

Again the payout ratio is up but our asset growth is down and so as I said we actually inspect that deliver in the second half of year given the current dividend that we’re paying so while we can't promise anything going forward our Board sets the dividend on a quarter-by-quarter basis. We’re certainly under no pressure to make any changes..

And then just given where your stock price is at, do you think maybe it makes sense to shift some of the spending towards perhaps either buying back some of your stock or whether it is also to be used for other acquisitions of other companies that are perhaps trading at low valuations as well?.

I guess first in terms of the share buybacks typically we can consider share buybacks to be a third order use of our capital and usually we consider investing in our franchise and making sure we are supporting our key customers as the most important use for our capital.

Secondly we've had a long-term view that in general dividends are a better way to return capital to our shareholders than stock buybacks of course with a dividend we don't have to bet against our stock price and we just don’t think that's necessarily our purpose or something we’re particularly good at and so we then have you get share buybacks it is something that do with extra capital after we funded growth and after we paid our dividends and as I just mentioned a few minutes ago we do think that that will deliver in the second half of this year even with our current dividend and the lower anticipated growth rate and so it is possible where we consider buying back stock later this year we did last year for much of the same reason but again can't really say for sure we will have to see when we get there and how the share price looks and just how our capital usage shapes up for the rest of the year in terms of whether our lower growth expectations are accurate or not.

In terms of thinking about using capital for M&A activity I don’t think we would pursue with an M&A transaction just because we have extra capital and I think we might consider an M&A transaction as something that made sense strategically and we do think in general that consolidation is specially in our industry does makes sense the cost savings emerging to leasing companies are substantial in many ways you can actually improve your supply capability and perhaps customer service through bigger scale and so we think fundamentally it makes sense and in the past we've actually participated in most of the M&A processes that are in our industry as of yet we haven’t been successful in any as we just haven’t seen the economics of the deals provide good balances of risk and award but just fundamentally we remain interested we think it remains something that makes sense to happen in our industry and we will hope to participate and we will see what happens..

And our next question comes from Helane Becker of Cowen and Company. Please go ahead..

Brian, you know how you guys always talk about not having to worry about paying taxes, cash taxes; and as you slow your growth does that change at all? Do we need to be worried that you will actually have a higher cash tax rate than before?.

There is certainly no worry in the near to medium-term. We do lots of tax modeling here internally and our model show us that we could go many years not even at low growth but with zero investment before we have to see any cash taxes and s even if you have some minimum level of growth, the cash tax horizon gets pushed back very far.

And I think we've got some charts on these things in our Investor Presentation, so even looking at pretty low levels of growth. And the main reason why we don't have any immediate and even medium-term concern is that you were well covered with what we've already done.

So right now we have a NOL that's probably going to be in the range of $0.5 billion by the end of 2015, and then also depreciation on container investments typically is down on a six years straight line basis and so again even if we stop investing on a go forward basis, we still have large tax deprecation coming from the investments that we've done over the last few years and so in general we still think internally I think it makes sense for our shareholders to think this way that's the best way to evaluate our profitability and our cash flow is on a pre-tax basis..

Perfect. And then I actually have a depreciation-related question, because I think John mentioned that the purchase leaseback transactions were the ones that were causing some of these losses. So a few years ago you guys changed your residual value assumptions.

Do you think you have to make another adjustment to reflect more accurately pricing that's out in the marketplace now?.

I'd say a couple of things about that, first is that when we changed our residuals in 2012 I think at the end, and we are actually the most conservative public company out there and so where our residuals are now for our general fleet are actually pretty consistent with where our sale prices are even in this environment with very low new container prices and so in general I think maybe less so than some of the public companies, we don't see any real disconnect between our residual values and even sales prices now.

Secondly of course changing residual value to the long-term thing that you don't necessarily just look at container prices today and sales prices today, you're trying to estimate over the next 13-year life of container you're purchasing where residual values are likely to be later.

And so even if we didn’t' start to feel some pressure versus our accounting residuals that wouldn’t lead to an immediate re-evaluation of our accounting residuals. And then finally, I think and Maybe John can talk this in a second, for the sale-leasebacks we actually use deal specific depreciation for those transactions.

So they are sort of slightly off our regular track..

Yes, that's right, so typically we make some estimates as to what we think, how long units will remain on higher after a transaction is done and what the sale prices might be.

Sales prices have come down little faster than we had anticipated when we did some of those deals, but again as I mentioned the overall economics remain very positive and sometimes too we have to be estimate on the overall transaction.

So sometime an initial part would be getting the more positive news on residuals than at the end, but overall we're very happy with the transactions and the accounting for them..

Okay.

And then just one last question, in terms of the overall weakness that you are seeing coming out of Asia, is there any one industry group that is accounting for that? Like is it apparel that is weaker or tech that is weaker? Is there anything you can point to that would account for these slower?.

Good question, we don't see the flows ourselves, it's all much more kind of anecdotal what we hear from our customers about why picks are down and just see the net effect.

I think the main thing we hear from customers is just kind of what I've mentioned in a comments is that, the Asia to Europe trade has been, had gone from being slightly to moderately positive last year to negative this year and just given the size of that trade and again the voyage duration which soaks up lots of containers, that has had a big impact on the demand for equipment.

And I think the other thing is just there is not really are particular bright spot out there. Globally that's offsetting the European weakness for a number of years we had strong growth in regional trade that offset some of the weakness in the U.S. and in Europe, but those have come down as well.

And so and I think we're just seeing kind of real fundamental weakness in the European trade and probably driven by the devaluation of the euro as well as just the challenges in Europe. And then there is just nothing else to really lift it up..

And our next question comes from Art Hatfield of Raymond James. Please go ahead..

This is Derek Rabe on for Art.

With the drop in the container prices that we have seen since mid-2014, really since that time, what are you seeing from the container manufacturers, particularly this year, whether to curve production rates even further? Then any sense just holistically what level of production they are looking for?.

Sure. And first maybe just in terms of prices.

I think with the container manufactures care about most really is the spread between the price of containers and the price of steel and other inputs but steel is a much important and so as prices come down margins really haven’t compressed that much but most of its been driven by drops and inputs in particular in steel cost and so the sense that we get is that the container manufacturers are actually still profitable at the prices where container have been produced for most of this year.

With that said as really just because a lack of demand for additional containers coming into the fleet purchases of new containers are very slow right now for both listing companies and shipping lines and I think if the manufacturers they have certainly have taken actions to adjust their labor capacity and their ship structure to accommodate that much reduced production volume.

I am sort of reluctant to hazard agues on exactly where production will end up this year but it is going to be a combination of relatively high production levels for the first four or five month of the year offset by very low production levels for the balance of the year.

And I guess it is just the question of whether orders that low enough that that manufactures decide is better just to close and we will have to see manufactures don’t produce to inventory they only produce to actual orders and so I think that is really just mainly going to be driven by whether or not any leasing companies or shipping lines want to try that to play the market a bit in the second half of the year..

Okay. And to that point, we are hearing that leasing share will be high this year kind of on the back of the last couple of years being relatively high, relative to historical standards.

Can you just talk about what the discussions, maybe internally, you guys are having? Why it might make sense to continue buying new containers at these levels? Just assuming that cash-on-cash returns have come off a little bit of late with the further pressure in container prices and then also, maybe just from a market perspective, the market weakness; how that's impacting the shipping lines' interest in sale-leaseback activity..

Sure.

I guess just in terms of buying containers the thing that main that drives us to buy containers is to maintain a capability to supply our customers I think shipping lines look to the major leasing companies like us that always have some inventory available and that's one of the reason why we tend to get some preferential treatment when it comes to winning deals and so we buy some containers in all market environments just to maintain that supply capability.

And in terms of our interest in buying containers now we do have a probably slightly smaller than normal shop of equipment but we clearly do have the shop of equipment.

And it really just have to be sort of what our view was on the future trajectory of steel and container prices and just how long we thought that the current situation of limited demand would last.

I'd say from the demand standpoint our view is that one of the nice things about this business is that supply and demand come back into to balance fairly quickly and so our hope is and certainly our view is that this is the weak demand is a 2015 issue and likely won't push into next year that's it's a very natural adjustment of the container fleet as orders go down and disposals go up I think will come to back into balance in a reasonably short period of time but again probably not in time for the peak season in 2015.

And so I think anyone looking at purchases now would are really just be a question of when you get a good enough price in this soft environment to justify sitting on the equipments for a while it is something we look at from time to time I know others do as well my general guess is that you are not going to see lot of that type of speculation but we will have to see in and in terms of the shipping lines I think for some of the same reasons that we’re seeing weak demand shipping lines are seeing quite weak freight rates especially I think which will impact their results in the second half of the year and we do generally think things that will increase demand for sale lease back so we continue to see the lease back opportunities we continue to really like them in the sense that we think it's more limited universe of leasing companies that can really participate in those effectively and where the economics are at least in our view relatively more attractive than some of the other investments out these but so we will see I think perhaps the one upside from a tough market like this one is that some of the things that we can do for our customers become maybe more important..

Okay, great. And my last question was centered around the vintage year expiration schedule. Just wanted to get more color on that last quarter you mentioned that you did a large customer and I think you are up to three customers.

Just, one, did you see any activity in the quarter on that front? And, two, any color that you could potentially provide between or on how much you've been able to touch of that schedule maybe not from a quantity perspective, but maybe just from a customer expiration timetable perspective?.

Yes.

So just in general I think we've been talking for a while now that we do have leases with very high per diem rate expiring over the next number of years and these leases were written in 2010 and 2011 mostly but even now given the short drop in steel prices and new container prices a lot of the leases done 2012 suddenly look over market as well and so we are pretty mindful that as those leases expire if we don’t see a change in new container prices and interest rates and lease rates that there will be re-pricing pressure as those leases expire.

Fortunately I think -- again, as we've talked a number of times is that the explorations schedule for these lease is fairly gradual and it's I'd say evenly spread roughly over the next 4 or 5 years, so that -- while there will be pricing pressure it's not going to be a sort of what kind of thing where suddenly a whole bunch of exploration show up and you fall off cliff.

And we're certainly hopeful that over the next 4 or 5 years we'll see an improvement on some of the things that are causing the market to be so difficult and we wouldn't need see everything turn around but it would certainly be nice if would have some help either with steel prices or container prices or with demand or with interest rates or with widespread of availability and financing to leasing companies that frankly don't have long or strong franchises.

And so we do think some pressure eventually has got to come off and that said, we have been active in trying to find customers that want to extend early. If we think that it provides a better answer then harvesting the higher per diems in the meantime in waiting and we did that big deal at the beginning of this year along those lines.

We haven't really done anything major since then, but I do think given the challenges facing some of the lines their interest perhaps in bringing forward some of the savings and agreeing to pre-extension that makes sense for us on an NPV basis provide earlier savings for them. I do think there will be more opportunities for those things..

[Operator Instructions] Our next question comes from Doug Mewhirter from SunTrust. Please go ahead..

Good morning. I just had two questions, the first question around your expected delivery, de-levering in the second half of the year.

By what metric would we see that de-levering show up? Would it be, I guess, debt to net container assets?.

When we talk about leverage, we always mean the ratio of our net debt to our revenue earning asset..

Okay.

So you expect it -- because I guess paying off the principle on that ABS would be I guess the first or maybe the middle step in that process, are there any other I guess tranches of debt coming due or that you would pay early, or is that payoff of ABS the catalyst?.

It wasn't really that we would necessarily have to prepay any debt to de-lever, we do have several facilities that act as revolvers and so really what you do is just adjust the amount we have drawn against the revolver..

And that's just what we did with the prepayment was just put into a revolving facility..

Okay, thanks for that and my second and final question, maybe a bigger picture. There's a lot of talk about the China weakness, China slowing down. The stock market went sort of parabolic straight up and then it crashed straight down and there was a lot of speculation over with that China is having a hard landing.

And it's obviously affected your stocks.

But given the fact that China is more of an export economy and it sounds like, with the context of your commentary on the trade lanes, that it's more of Europe being weaker, not necessarily China been weaker, are you also seeing a slowdown that is caused directly by China may be slowing down? Maybe there's less import volumes into China or there's intra-Asia maybe that is triggered by any weakness in China? I'm just wondering if you've detected any of that in your analysis..

And so again a lot of our thinking on what's happening with trade line and is more anecdotal we have been talking to our customers just making our own assessments of how we read what is happening in the world, but I would say similar what you're saying is that from a trade volume perspective we have always felt it's more important what's happening to consumption levels in the States and in Europe than what's happening with say growth in China for example given the fact that the dominant legs of the main trades are export oriented.

That said, I do think the weakness in China has had a major impact on us although I think it's mainly on the pricing in the sense back I think the downward shifting of anyone's expectations for long-term growth in China is leading to a lot of the weakness in commodity prices sort of across the commodity spectrum including steel.

And so just as China growth has gone down and then factory construction and road construction all the other things that's used up lots -- and building construction of course that uses lots of steel, steel prices have come down.

That's pressure containers prices and lease rates and used containers sale prices is lower and that’s having a major effect, but in terms of the trade volumes I do think it's more driven by this year especially lower imports into Europe then it is by say a drop in the China’s growth rate..

And our next question comes from Shawn Collins with Bank of America. Please go ahead..

Great. Good morning, Brian, and good morning, John. I apologize if you've covered this; I jumped on just a bit late. I know you have spent $420 million on new containers year-to-date and you mentioned that you will spend less than this in the second half of 2015, given the slowdown.

We initially were modeling about $600 million for the full year of 2015.

I guess my question is that too much? Is that online? Can you provide some quantitative guidance around this?.

We don’t like to provide too much go forward guidance on items other than just our bottom line results and so I don’t really want to talk specifically about our estimate for where CapEx will end up.

Other than just to reiterate that we do think the growth rate will be slow in the second half of the year we got after a very strong start with our CapEx in 2015 due to some of the big transactions we talked about last quarter but then just given the slowdown up trade growth and pent up container demand we haven’t been restocking the shelves at the typical pace that we do this time of the year.

With that said we still have we've got a variety of product lines not all of which are being effective by the slowdown we’re seeing in dry containers and so we continue to invest in other parts of our business we continue to have to expect to have opportunities to do further sale lease back transactions and so we will continue to invest it just going to be in a slower pace in the first half of the year..

Okay, understand. Thank you, Brian.

Just my second and last question, I guess it's obviously a difficult market, but on a positive note can you talk a bit about your global operating infrastructure? Where the major offices are and how many people are staffed in those major spots given that you guys are really one of the leaders in the space? Can you just run through a quick summary of some of those advantages?.

Yes sure.

I mean we've always felt that our sort of operating scale and extensive remarketing and operating capabilities really give us a major advantage and I think it's true for the other few large leasing companies as well they give us the ability to service our customers and to touch them in a wide variety of locations I think we have something in the range of 16 or 17 office globally.

And that allows us not just to market on the large deals that are being tendered by the shipping lines but we do really well on pushing the small batch on hires of our used equipment that's spread around the world and that allows us to maintain a much higher life time utilization of our equipment compared to a lot of that the mid size and some smaller leasing companies.

Similarly we've get a much easier time in controlling our operating expenses as utilization comes down our operating guys spend lots of time in our container depots and making sure that repair estimates are being drawn proper and repairs are being done efficiently and so on.

And I'm always I've said that the I think when people think of this business they think about what advantage do you have renting 5,000 containers you just purchased in a factory to the shipping line and there the advantage is we don’t have that much advantage relative to everyone else it maybe some small financing advantage but that's gotten that's gone away a little bit over the last year few years.

But we still have a really big advantage in remarketing our used equipment and maintaining utilizations about the equipment’s life and to keeping operating expenses low through those re-leasing cycles and it would allows us we typically sell our containers two or three years later than everybody else because of our remarketing capabilities and the way we structure our leases.

And we keep our cost lower relative to our fleet and certainly there is a smaller and mid size guys and that allows us in good markets and bad we can either take those advantageous and either have them translate to higher returns if we price that market or when we want to where there is typical markets or with customers that we think important to protect share we can use some of those longer term advantages to price aggressively up front and it is really where the franchise value comes in this business..

And our next question comes from Michael Felton of RBC Capital Markets. Please go ahead..

Can you talk about or say where current per diem rates are versus your fleet average? I think you given that data point a couple times over the past few quarters..

We do give it typically in our investor presentation we've got a chart that kind of tried to put a per diem on a CTU base as I think and then look across our fleet yes it's on an index basis of course I don’t have that number it's a substantial difference though..

But I guess I think last [Multiple Speakers]..

And certainly last -- it's maybe a little bit more than it was last quarter..

Okay, so a little bit better I guess..

Well of course..

A couple first thing here, 70 percentage point or 70% last quarter to maybe..

So it's probably 65..

Okay-okay. And then I guess as we think through that and you talked about lease rates accelerating if we hold the current level.

Should we think about that going from it looked like about down 7.5 this quarter; should we think about that peaking out at low double digits, say, around 10% if we hold steady or should we think?.

Again we don’t to like to give guidance that focuses too much on sub components of our profitability but I would say I think John mentioned in his comments that lease rates across our fleet I think were down in the range of 5% from the second quarter of 2015 versus second quarter of 2014 and the other way that to put it in context would be again roughly I will say where somewhere on 35% in terms of the difference between market rate and within our portfolio we do typically expect that as we go to renewals that you are going to be renewing your leases down then typically you don’t have to bring the rates all the way to the current market that there is some benefit to the shipping line of avoiding the off-hire cost of repairs and trucking and..

Yes, we meet in the middle somewhere..

Yes, you can meet a lot of us should be in the middle given the difference, but certainly maybe not at the bottom.

And so some portion of that 35% difference hopefully will be -- we can capture in our lease re-negotiations and then just said too that those expirations are pretty well spread over the next five years and I mean it is not just exactly linear, but if you think about that 35% difference it's going to be -- if nothing changes between now and five years from now, it would be spread over that, that period.

Again, we're all hopeful that maybe containers for a few quarters now but we're hopeful that the pricing environment can only get a little bit better, but we'll see..

Okay and then quickly thinking about utilization.

You guys discussed slowing container purchases in the back half of the year, so should we think about your unused inventory or your new inventory declining and the utilization ticking back up into something with -- something closer to more historical levels?.

Yes so just maybe one point of clarification for our, our utilization number that we give doesn't include our container repurchase at factory and have not yet been put on hire. We keep those out because we don't pay any storage for those. We don't have depreciation on them until they start to being used.

And so the utilization number just reflects the utilization of our leasing fleet of equipment that has been in service and so -- we do think for that fleet again excluding the factory units that we are actually like to see a little bit of further pressure from here through the end of the year, if we don't see demand rebound.

But it's a very gradual give just given the strength of our lease portfolio and a very slow expiration of our containers coming off lease especially slow relative to how short the supply and demand cycle typically is for containers given that you can shut off purchases as companies have and disposals continue..

Okay. Then I guess one last one, if you guys are comfortable discussing kind of how the board or you guys think about limits around the dividend, the payout ratio.

I know you are still pretty well covered now, but I guess how bad would things have to get before you would have to rethink that?.

So as I said, we don't have any hard lines around what is acceptable payout ratio, again we typically think of our dividend is around what level of dividends can we pay and hold leverage relatively constant in a range where we're comfortable given the growth needs that we see in the business to protect our franchise, to invest in an attractive opportunities and support our customers.

And as early in the short-term we expect investment opportunities to be somewhat limited just because of the lack of demand, so as I mentioned in my comments that we actually expect to de-lever in the second half of the year at the current dividend rate just as we invest less in the business and so we don't really face any immediate pressures to consider it and again I can't promise what we'll do in the future.

The Board sets the dividend on a quarter-by-quarter basis, but we're certainly up against no immediate pressures to have to do a hard reconsider..

And thank you, this concludes our question-and-answer session. I'd like to turn the conference back to the management team for any final remarks..

I'd just like to thank everyone for your ongoing participation and interest in TAL and we'll be looking forward to speaking with in the future. Thanks again..

And thank you for your time sir. We thank you all for attending today's presentation. Today conference has now concluded. You may disconnect your line and have a great day..