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

Michael Webber - Wells Fargo Steven Kwok - KBW Art Hatfield - Raymond James Rick Shane - JPMorgan Vincent Caintic - Macquarie Sal Vitale - Sterne Agee Doug Mewhirter - SunTrust Shawn Collins - Bank of America Andrew Feinman - Iridian Asset Management.

Good morning, and welcome to the TAL International Group Third Quarter 2014 Earnings Release. All participants will be in a listen-only mode. (Operator Instructions) After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Mr.

John Burns, Senior Vice President and Chief Financial Officer. 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 third 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 perceptions 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 any 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.

Brian?.

Thanks John. Welcome to TAL International's third quarter 2014 earnings conference call. TAL achieved solid results in the third quarter of 2014. We generated adjusted pre-tax income of $1.47 per share, an increase of 1.4% from the second quarter. We also continue to generate strong returns.

Our annualized adjusted pre-tax return on tangible equity was just under 20% for the quarter and our container fleet continued to perform exceptionally well. Our utilization averaged 97.9% in the third quarter and currently stands at 98.1%. Our solid results in the third quarter were supported by strong demand for leased containers.

Trade growth in 2014 has been solidly positive. We benefited from a full summer peak season for the first time in several years. Market forecasters are currently projecting trade growth will be between 5% and 6% this year and cargo volumes, leasing demand and customer pick-up activity remains strong through the end of September.

In fact, the second and third quarters of 2014, represented our second and third best quarters ever for net pick-ups of dry containers. Leasing demand in 2014 continued to be supported by a market share shift to leasing.

We estimate that leasing companies have made up the majority of new container purchases so far in 2014, and we expect the leasing share of new procurement to be even a little higher in the last quarter of the year.

We also continue to see ongoing interest among our customers for sale leaseback transactions, proportions of their existing container fleets. Mainly because of this long peak season for dry containers, our investment hurdles are higher than we expected this year.

Year-to-date we have purchased over $585 million of new and sale leaseback containers for delivery in 2014, leaving to just under 8% growth in our revenue earning assets from the third quarter of last year.

The pricing dynamics for new container transactions improved a little bit in the third quarter, as more of the demand was for immediate pick-up acquirements which enables us to leverage the value of our expensive immediate supply capability.

But overall, lease rates remain very aggressive and our asset growth is contributing less to our current profitability than usual. The low lease rates in the market continue to be pressured by several factors.

New container prices held steady at a relatively low level for most of the third quarter and they have recently drifted even a little lower in response to a decrease in steel prices. Long-term interest rates remain exceptionally low.

And low cost financing remains widely available across the leasing industry, with little differentiation in the ratings and financing terms received by the lower tier and the top tier companies. As I mentioned earlier, TAL continues to generate strong profitability and higher returns despite the challenging rate environment.

We also continue to generate strong equity cash flow and continue to share a meaningful portion of our cash flow with our investors to our long standing dividend program and more recently through share repurchases. We've declared a dividend of $0.72 per share this quarter. This implies the payout ratio of just under 50% of our pre-tax or cash income.

I think it’s also worth noting, that based on our current trading range, this level of quarterly dividend implies an annual dividend yield of roughly 7%. We also implemented a share repurchase plan in the third quarter. The plan was established under our 2006 share repurchase authorization.

Prior to implementing the current plan, there were just over 900,000 shares remaining available under the 2006 authorization. We have repurchased 363,000 shares from September 1st, through October 21st, at an average price of $41.59 per share.

We believe the share purchase makes a good investment for us right now due to the challenging environment for new container investments and the fact that we believe we can invest into our strong franchise, at an attractive level. TAL currently trades for relatively low multiple of our equity cash flow as reflected by our 7% dividend yield.

And we also currently trade for relatively low multiple compared to our adjusted net book value. As a point of reference, the deferred taxes are treated as comparable to equity. Our adjusted tangible book value is slightly over $30 per share. I will now hand the call over to our CFO, John Burns..

Thank you, Brian. At the third quarter TAL posted adjusted pre-tax income of $49.6 million or a $47 per share, down $4 million or 8% from the prior year quarter. The decline in pre-tax earnings is driven by two major items. First, the combined gain on sale and trading margin decreased by nearly $4 million from the prior year quarter.

Second, our leasing margin which excludes gain on sale and trading margin, was essentially flat despite the nearly 8% growth in revenue earning assets. And nearly $4 million decrease in the combined gain on sale and trading margin was largely due to the ongoing moderation of disposal prices.

Dry container disposal prices were down nearly 20% from the prior year, as more units have become available for sale and the cost of new containers has declined. Our used dry container sale prices remain well above our long term accounting residual values at per unit gains under the disposal of original TAL units remain relatively high.

However, TAL purchased fewer new containers in the late 1990s and early 2000s, and as a result, we had fewer original TAL units available for sale. Our investment in sale leaseback transactions has supplemented the reduced number of these older TAL units.

The timing and structure of these leaseback transactions has resulted and these units having higher book values than TAL containers of the similar age. And due to the drop in sale prices, we have started to recognize losses on sale for a large portion of these sale leaseback containers.

However, these sale lease back transactions remain profitable at an overall basis as the high purchase prices are supported by per diem revenues and drop-off fees which are reflected in leasing revenues.

The second key change from the prior year quarter is that our leasing margin was essentially flat despite the 8% growth in our revenue earning assets, reflecting the aggressive competition for new lease transactions. This weak pricing environment also negatively impacted pricing and [indiscernible] unit lease outs.

This lease rate pressure resulted in a nearly 6% reduction in our average portfolio lease rate from the prior year quarter. We've been able to offset some of the rate pressure as we refinanced various debt facilities at lower rates.

Our interest expense for the third quarter was down approximately $400,000 from the prior year quarter, despite the growth in revenue earning assets, as we have lowered our effective interest rates by approximately 18 basis points to an average of 3.62%.

This saved us approximately $1.3 million from what it would have been, without the interest rate improvement. All this improvement in interest rates has offset some 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 the ongoing pressure, if the low lease rate environment continues.

In addition to lowering our current effect of interest rate, we have continued to focus on locking-in our interest rate expense through the use of long term fixed rate debt facilities or long term interest rate swaps. Through this approach, we have minimized our exposure to the risk of rising interest rates for a number of years.

We will now return you to Brian for some additional comments..

Thanks John. The beginning of the fourth quarter typically marks the start of a slow season for dry containers. And we expect leasing demand to be quieter as we head toward the end of the year. Despite this, the global supply and demand balance for containers remains fairly tight. We expect our utilization to remain very high.

In the fourth quarter, we will benefit from a full quarter of leasing revenue from the large number of containers picked up in the third quarter. And we will also benefit from peak season rentals in our U.K. domestic storage business.

However, we expect these benefits will be offset by a further decrease in our disposal gains and we expect our adjusted pre-tax income to hold fairly steady from the third to the fourth quarter of 2014. Looking forward into 2015, we expect to face a mixed market environment.

We expect the global supply and demand balance for containers will remain tight. Inventories of new and used containers should be fairly low as we start 2015. And market forecasters are expecting trade growth to remain solidly positive. On the other hand, weak steal prices seem likely to keep container prices at a low level, at least in the near term.

And we expect a widespread excess to [indiscernible] financing will continue to fill broad competition in our market. In this mixed environment we expect that TAL will continue to experience a combination of strong utilization and decreasing average lease rates.

Financially, we expect our adjusted pre-tax income in 2015, would decrease slightly from our 2014 level. But we also expect our profitability will remain strong and expect to continue to generate attractive returns that are at the upper end of our industry. I will now open up the call for questions..

We will now begin the question-and-answer session. (Operator Instructions) We have a question from Mike Webber from Wells Fargo. Please go ahead..

Hey, good morning guys.

How are you?.

Good morning, Mike..

Brian, you mentioned in your comments that didn't it probably didn't seem like it was getting a little bit better I guess last quarter can you maybe dig into that a little bit more in terms of where the yields our net spreads are now and then kind of maybe month today or quarter today with thank you for whether that's face has been maintained and maybe an idea about what sort of scale were talking about were talking about marginal pricing?.

We don't like to talk specifically about lease rates or yields, as that maybe touch us too close to some competitive issues. I would just say in general, we saw deal activity in the third quarter where most of the deals made sense.

And I think we talked quite a bit at the beginning of the year especially in the first half about how we were passing on unusually large number of deals in the first part of the year due to just very low lease rates relative to container prices.

And then maybe even more importantly just due to poor leasing structures and particular poor logistics and leases that we typically won’t do. And we were seeing a lot of deals just move away from us. I’d say in the third quarter, the competitive circle tightened up a little bit.

I think mainly because shipping lines were quite short on an immediate need basis and the bigger leasing companies, that maintain large ready stocks of new factory units like TAL and the other large players.

We’re able to compete with that business regularly while some of the small to mid-size players without the same kind of supply capabilities that we have – participate as aggressively and just - that was a better environment. I wouldn't say that pricing was good.

I would just say that rather than seeing a large portion of deals flow under our minimum return hurdles, more of the deals kind of limped over them..

That makes sense. Have you guys seen any change in terms of size of deals, [indiscernible] outside of any sort of, shelf advantage you guys have in a peak season that, if we do see a recovery and demand, in the size of deals in terms of – there has been a number of deals would increase and that would benefit the larger players.

I am just curious whether are we going to move away from peak season and towards more I guess kind of strategic buy whether there was any change in the size of the deals?.

We saw a lot of customers pick up a lot of containers this year. And I think as you’re pointing out, that does tend to support the share for the bigger players that typically shipping lines don’t want to cobble together five or six suppliers to meet one particular set of demands.

And so as you see bigger requirements, that does help us and I think that probably is one of the factors that helps pricing improve just a little bit in the third quarter of this year from where it had been in the first part of the year..

Just one more thing and I'll turn it over. I just want to make sure I caught you right on the authorization. On the buyback authorization you had 900,000 shares bottomed out and you've got about two thirds of that remaining.

Is that number correct and is there any thought process around- authorization or maybe putting some idea behind the scale over the next 12 months if we continue see this kind of value in your stock, what sort of capital you can throw about there?.

Yeah. The numbers are right. Before we started the current repurchases, we had about 900,000 shares remaining under our 2006 authorization. The initial authorization was for 4 million shares I believe but we spent a lot of those or brought a lot of those I should say, during 2009.

We are currently structuring the plan to make small daily purchases in our stock and so we’re not making big block buys when we see market timing right, we’re not trying to time it. We were just buying small volumes everyday unless our share price remains in a certain range.

I think we’ll have to see how the business progresses and how our share price progresses over the next couple of months to decide whether or not we want to increase the authorized amount. As I mentioned we think right now that the share buybacks are pretty good investments for us.

We have gone through a lot of equity cash flow and coming from our strong profitability, also in some ways supported by the more difficult new investment environment, always the biggest use internally of our cash flow is funding growth than to the extent that we have [indiscernible] recently from growth rates that have been near 20% for a few years around 2010, 2011, 2012 to something still solid but single digit type levels of growth.

That brings up a lot of cash and for us we've – had a view in this current buyback at least, that buying back shares is a pretty good investment relative to trying to save of course more investment or de-leveraging or doing something else.

And so I think, again we just have to see how the market progresses, how our performance progresses, how our growth expectations progress, but again in this environment and right now we think its pretty good use of our cash flow..

Got you. Great. I appreciate the time guys. Thank you..

.

:.

Hi, thanks.

Just around your 2015 the preliminary guidance, what assumptions are you using and can you provide some sensitivity analysis around if let's say we see rates go up how would that impact your assumptions?.

I think as we try to describe in the press release and in the call that we see - say broadly speaking, the market dynamics in 2015 probably being fairly similar to what they were this year.

A combination of pretty tight container supply and solid trade growth leading to - in some ways of less towards market for utilization and demand for new and used containers.

On the other hand, we expect to see ongoing lease rate pressure due to all the drivers that are keeping lease rates low including the low container prices, low interest rates, aggressive financing terms being offered to even small players.

And our general view is that all of those things are likely to continue so that we would expect 2015 from a performance standpoint to be a lot like it was this year. The major driver over the last year for us, in terms of our profitability, is down from 2013 to 2014.

The major drivers have been the drop and disposal gains, and the pressure on lease rates. Going forward, we expect to see that the pressure on disposal gains lighten a little bit. The disposal sale prices are getting into sort of a normal type range, relative to current container cost.

And based upon that, we expect to see some reduced level of pressure. On the other hand, we expect to see the lease rate pressure continue, and I think as John pointed in 2013 and 2014, we were able to offset some of the pressure by lowering our interest rates, and I think that's going to be more difficult.

So, on that we expect maybe a little less pressure on disposal gains, but we expect to have maybe a little bit more difficultly offsetting the lease rate pressure with interest rate reductions..

Got it.

And then just around the dividend you mentioned that currently you’re about 7% dividend yield, how sustainable is that dividend? And on top of that, do you envision that perhaps at some point carrying back on a divided and then using more of it toward share repurchases?.

Yeah. I think that the first thing to point out about our dividend is that, the payout ratio isn’t so high.

One of the things that always has us banging our heads is when we see the dividend yield, the dividend payout ratio quoted as a percentage of net income, which includes of course our GAAP tax allocation, which we don’t pay currently and shouldn’t pay for many, many, many years.

And so, when you look at the dividend as a portion of our pre-tax or cash income, again the payout ratio is only about 50%, which we think borrowing catastrophe in our business, our performance, should be pretty sustainable.

I'd say, we’ve been talking for a while that, 50% payout ratio given the typical returns we've made in our business has allowed us to fund asset growth in the low double digits. More recently, over the last year or two, the returns are down a little bit, but so is the asset growth.

So, we continue to think we’ve got fair bit of room to pay a healthy dividend and still have enough cash left over to do, to spot the growth in our business and, again, more recently just brought some share repurchases..

Great, thanks for taking my questions..

And our next question is from Art Hatfield from Raymond James. Please go ahead, sir..

Hey, morning, Brian and John.

Actually, my questions were about – you’ve kind of addressed them on the 2015 guidance but I just want to make sure I understood, Brian you said that, on disposal gains you don’t expect a lot more pressure in 2015 relative to what you saw in 2014, is that correct?.

I think, we think that the rate of erosion should be less. In 2000, I think John pointed out from Q3 2013 to Q3 2014, sale prices were down something like 20%.

While of course we never have a crystal ball, our view is that, we're not likely to see that level of price erosion going from here, just given that disposable prices are getting into their typical range where they were historically..

Okay. And then you had made a comment about some of the units that you’re disposing now, are units were not original TAL units and that you’ve booked some loss of them, some of those.

Is the makeup of what you expect to dispose over the next few quarters, and I understand like you said you don’t have a crystal ball, is it feasible that you could potentially book a loss on disposals at any given quarter over the next two, three quarters?.

Look, it's always is feasible.

I think your first question was a good one in a sense that, we do expect the mix of original TAL containers being sold and the sale-leaseback containers being sold to still remain heavily oriented towards the sale-leaseback containers for at least another couple of years, mainly just coming out of the fact that we have very few containers that we bought for ourselves, in late 1990s and early 2000s.

I think it’s important to play out though that, even if we were to shift to a loss on disposal, it’s not – because of the fact that the sale-leaseback transactions would be a drag on our business.

It’s really, I’d say, an income stage geography issue, where the deals that we do for sale-leaseback transactions almost always carry a very significant per diem revenue component as well as, in some cases substantial drop-off fees.

If containers are returned into locations where there is a weak sale market, those contributions income show up in leasing revenue, where adjusted a pure gain or loss on the container value shows up on the gain and so..

No, I appreciate you’re addressing that.

I was getting that, I was just curious kind of what the makeup of what you expected to dispose, how we should think about it just from a modeling standpoint?.

I'd say consistent..

Okay, no, no. I appreciate that.

The other thing I want to go back to more of just pure fundamentals as you talk about next year and what you said about your pre-tax net income being slightly down, one of the assumptions, can you address what your expectations are for fleet additions next year that maybe able to contribute in the back half for the year so we can think about if the market were to change and you were able to accelerate what you do that may have a little bit better and expected impact on the business?.

Yeah, so, I could say broadly speaking, when we talk with our customers, there's a expectation that that trade growth in 2015 will be in the same range as 2014, and such as same thing we see if you read market forecasters typically projecting trade growth, high 5%, slow 6%.

I think we’ll continue to see shipping lines being cautious about buying their own containers, and so, I think in that environment we will have opportunities like we did this year to do good deals, well, I should say to do a volume of deals and really the question for us is going to be, how is the pricing environment, I think if we see that perhaps some of these guys had really been pressuring, lease rates and in particular say, leasing structures like they did in the first part of this year, if they're going to say on the sidelines, they had enough, that would obviously be constructive and will give us the chance maybe it’s to do better than our expectations on new investment.

On the other hand if we see years start up like it did last year with everybody trying to get their piece of each deal, that might keep us on the low end, even in the market where there’s lots of leasing demand.

I’ll tell you the main thing though is that, while we think we’re doing deals that are acceptable and again at higher rate than we thought this year, higher volume than we thought this year, the contribution on a current profitability basis is less than it usually is even at the better deals that we did this year.

And we don’t think in the near term at least that investment volume is going to be enough to outpace the lease rate pressure, at least until container prices rise or interest rates rise..

So, I understand you frankly, then the assumption is that you’ve built in for 2015 currently and what you’ve kind of guided to us on that profitability measure for 2015, would assume you adding to the fleet at the same pace as trade growth, is that the right way to think about?.

It's probably about right. .

Okay. So, theoretically things change and you were able to do a lot better than that that may have a little bit better and expected impact in Q3 and Q4. .

Yeah, for sure. And in particular, one thing that we really haven't seen even this year, is the year where our trade significantly outperformed expectations.

And we've point out a few times that the current supply and demand balance of containers is really tight and trade in 2014 only outperformed expectations by, I’d say less than a percentage point, that led to a really sustainable peak season for leasing companies.

If we ever got back into year like we used to see pretty regularly, where our trade growth outperformed by 2% or 3%, things could tighten up very quickly on both a container price and competitive pricing basis for leasing.

But that said, you look at the world right now, and it's not easy to point to a catalyst that's going to lead to 2% or 3% out performance for trade..

I am with the – I am not trying to take it or say that – I am not modeling for that but I just wanted to get a sense for how the guidance was working – I appreciate your time. Thanks. .

And our next question is from Rick Shane from JPMorgan. Please go ahead, sir..

Thanks, guys. Good morning. I appreciate you taking my questions. Most of my questions have been asked and answered but just wanted to talk a little bit about pricing pressure in terms of new containers.

One of the things historically we’d seen is this manufacturers, particularly as commodity prices fall are unwilling to sell containers below their historical commodity costs and we’ve seen the pullback in steel prices pretty sharply recently.

Is there any sense that the manufacturers are doing anything to help maintain container pricing at this point?.

You pointed out something that is true, that the manufacturers, it's a relatively concentrated business in container manufacturing. And usually the manufacturers have been able to in past to either close or take coordinated action to mitigate the pressure on container prices.

The fallen steel prices happened fairly recently just in a last say, a month or so. And we’re actually passed the peak season for containers now. So, there's hasn’t been a lot of needed ordering in the last four to six weeks for our containers. That said, we have seen container prices quoted at there, come down some.

I'm not sure they get fully reflect the drop in steel prices, but it will be interesting to see how it plays out again. We don’t expect to see – while steel prices are lower, they're not dramatically lower, as well as you point out that the manufacturers do tend to act in a way that prevent steep drops in container prices.

But, there’s a long way to go between now and the next peak season. So, if steel prices remain below level, we do think our container prices will eventually follow..

Got it. And so realistically you wont see the order books given where we are now in terms of pick-ups.

You won’t see meaningful orders going to the manufacturers probably into March or April?.

Well, you start to see orders, if and when the price is right. And so, companies like us are trying to make determinations about how much we want to pre-order and to, say, buy ahead of the peak season because on an average basis, you tend to do better when you buy in the off season than you do when you buy during the peak season.

But of course, that depends on thinking that you’re getting a good price, and so, I think the – we’ll just have to see how price plays out I think that will influence, how many orders are placed..

Got it. Okay. Thank you, Brian..

Thanks Rick..

Our next question is from Vincent Caintic from Macquarie. Please go ahead..

Hey, thanks. Thanks and good morning. Could you remind us what you’re depreciating your containers to and I was wondering if the current lower use container prices affect your depreciation assumptions over time. .

Sure, I think the dry container depreciation residuals are probably the most relevant here and we use $1,000 as a fixed residual for 20-foot dry containers, $1,200 for 40-foot, standard high dry containers and $1,400 for 40-foot high keep dry containers.

I think John mentioned in his remarks that the sale prices remain pretty high above that level on a global basis. So that, we could absorb even quite a bit more use container sale price erosion before we would pressure those residuals..

Okay, great. Got it.

And, apologize if I missed this, but, could you update us on where the new lease rates are relative to your existing portfolio rates and what the new lease ROE is?.

Yeah. There is still a very big gap between the current market leasing rates and the average in our portfolio - probably somewhere in the range of 20% to maybe even a little higher in terms of the 23% or slight, in our recent analysis, gap between the portfolio average and the current market rate. But that's an analytical construction.

It's not a exact data point. You can point too for a blended per diem rate for all the different container types we operate. In terms of the current pricing environment, you never know exactly the ROE you’re going to get on a container investment because the re-leasing period and the resale of the container are unknown.

We typically talk that we’ve been, say historically remodel deals to the kind of mid-teen type levered equity returns and hope to outperform, our assumptions along the way and typically we have, just given that our average ROE over the last 10 years is probably over 20%.

But more recently, we’ve been saying, we’ve been modeling deals to low double-digits and we’ve had to push our assumptions more towards base case. So, that's the way we’re looking at it, but again, all that's going to depend on the actual performance of the containers as we get to the re-leasing period and resale..

Got it, great. Thanks very much..

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

Good morning, gentlemen..

Good morning, Sal..

Just a quick question to start, the leasing fees and other one within your operating lease revenue last quarter was about $6.8 million, where do you look like this quarter?.

In the same range, a little bit higher, 6.9%..

Okay, that’s helpful.

Second question, just looking at your leverage ratio ticked up a little bit, I guess how do I think about that in the context of where you think you are in the cycle, what your returns are and the fact that you decided to given the low returns in the current environment to return some cash to shareholders in terms of a buyback?.

I'd say the first thing to point out is, we look at leverage, I am not sure we’re looking at the same metric that you are. So, when we think of our leverage, we always look at our net debt, so it's our gross amount of debt, plus our, the payable we’ve outstanding for containers less cash.

We compare that net debt number to our revenue and to the net book value of our revenue earning assets. And that number has been real stable for a long time, typically somewhere in the mid upper 70% range, as we look at that number, it’s actually quite flat, if anything, a little bit down over the course of the year.

So again we continue to think that, given our performance and maybe you’re getting a little bit less growth in the market and less growth for us, that we've got plenty of equity cash flow to cover the dividend and that's why we also got buyback some shares..

Okay, that’s helpful. So, you said it’s actually decrease slightly..

I'd say more than anything, it's stable..

Say it’s flat.

So, I guess – in terms of your capital allocation decisions you’ve wanted to remain stable I guess over the next year or two, is that?.

We don't sell for it, we don’t need to remain at 75.9% or something like that, but broadly speaking we like, we think it's comfortable for us to be in the big debt of 70% in a good mix of taking advantage of the cheap debt markets that are out there while also preserving lots of room to absorb upside opportunities or possible downside surprises.

And anyway we typically think of our dividend, setting it in a range that allows us to fund the growth we anticipate and maintain leverage in a constant range and given the lower growth we've been able to, has an extra cash flow to deploy into the share purchases..

Right, and then, I know you made some comments on this earlier on your buyback, the size of it. So, there roughly, let’s call it 500,000ish shares remaining on that.

How do you think about upsizing that, increasing it – I guess renewing the share authorization?.

Yeah, it's something that we will consider and I think it really, would just depend on how things progress, that - we’ve been making small daily purchases.

And so the remaining 500,000 shares and change under the authorization carries us for little longer here and as we get to the end of it, we’ll take a look at the market, take a look at our performance, think about cash flow, think about growth and make a determination about whether we feel it makes sense to continue..

Okay. And then, just a last question on the container prices, you said they’ve come down a little bit over the course of the third quarter.

So, are they currently about 2,000 or little below that?.

Little bit below..

Okay.

And then, at that little bit below 2,000 price, how do we think about the margin on the – from the manufacturers side, has that deteriorated or is that remain flat with steel prices coming down?.

It's in the same range..

Okay, that's helpful. Thank you very much..

Yeah, thanks Sal..

And our next question is from Doug Mewhirter from SunTrust. Please go ahead, sir..

Hi, good morning. Just a couple of quick questions.

First, can you talk about how you may have shifted the terms of bid on your leases, are you actually looking at more spot leases or shorter term leases to maybe hopefully roll them quicker in anticipation if any kind of improvements, say, 2016? Or is your – when you do negotiations, you kind of generally sticking with that four to six year tenure?.

Well, I’d say a couple of things. First, that the market does remain kind of centered around five year leases as the standard.

And so, regardless of our intent and interest we typically end up with a lot of leases done in that five year range, just because that’s what customers are used to and that allows them to compare leasing up by offers between each other. And so, regardless of the market environment, we always end up in a lot of five year leases.

But, you’re right, in this environment we are less focused on term duration and more focused on other things. And so, we believe and we hope that lease rates are at – they're at all time low, we don’t think they’ll remain at all time lows forever.

And so there is an opportunity to buy containers today and lease them out and then hopefully if container prices rise and or interest rates rise, or competitive behavior becomes more normal, we’ll have an opportunity to do better on those containers in the future.

And so we have been willing for the last 18 months or so to consider shorter term leases and that makes sense. Similarly in this type market, we are hyper focused on logistics.

That the returns on the current leases are marginal at best and so you really sort of betting on being able to do better and later in life of the container and to do that, you have to keep it where it's wanted by the customers.

And in particular you can't use other tools like extra duration or other things to cover you for any anticipated logistical costs.

Quite frankly, the opposite in 2010 when lease rates were really high, we focused if anything on duration making sure we do lock-in that market environment for as long as possible and which is why we don’t have a huge rush of expirations on those leases..

That’s great. Thanks. And also, you had mentioned your U.K.

storage [indiscernible], could you just give maybe just a little bit more detail on – it’s obvious in how you target your business, but just how that fits in with your company and your value chain and maybe what’s the annual contribution of that business?.

It's not a big business for us overall, it’s a business in the U.K that rents containers for local usage. One of our big customer basis are supermarkets in the U.K. and they rent containers to store extra inventory.

And that just happens at the inventory they have peaks around Christmas, you want to put all the Christmas gooses and so on into our refrigerated containers and we have a very big bunch for rentals in that business in December.

It’s not huge, especially relative to the annual revenue or performance of the company but it is enough to sort of change the trajectory of earnings in Q3 to Q4, so, little extra bump in revenue and profitability that offsets the end of the peak season for dry containers..

And these are sort of your active in-life containers that you use or are these off out of fleet disposed normally…?.

Typically, it's been older containers, there are some purpose built containers but it’s a separate fleet of equipment that manages this part of that business - for the most part..

Okay, thanks. That's all my questions..

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

Great. Hi, Brian and John, good morning..

Good morning..

Can you just talk about –are you seeing any change in demand by your customers for the mix of containers as a regard to dry or refrigerated , specialized tanks, is there any change there?.

There's always year-to-year changes. For example, 2013 the market, the refrigerated containers was very big, and maybe customer lease many refrigerated containers because in 2014 for the first part of the year, at least the market for refrigerated containers was slow. But overall I’d say, the mix is relatively unchanged in the marketplace.

We’ve been focusing ourselves away from reverse because we look at the returns and the risks in that business and say it doesn’t compensate you - the extra return you’re getting does not compensate you for the shorter life and the bigger technical risks, right now at least.

And so, we’ve been allocating away to other product lines but I’d say in the marketplace, broadly speaking the relative intensity with which containers are being used, hasn’t changed dramatically..

Okay, great. Thank you for that.

Can you just comment on the difference in return between dry versus refrigerated, is that two percentage points or six or rough delta?.

So, it depends what you mean by return. And so, for example, we always focus on expected levered equity returns over the full life of the equipment. Under that measure we think refers are returning lower than dry's right now.

In addition, we always think that, it's a bell curve of likely outcomes, we always think the dry containers is skewed to the upside because of the impacts of an inflation where we think that the refer expect to returns just skewed to the downside due to the risks of technological ops lessons, new technology introductions, some confusion among what machines - customers are going to want in the future and so on.

And so, we typically want to see higher expected returns in levered equity for refers than we do for dry’s, but right now we actually think they're lower.

On the other hand, a lot of people when they look at the leasing industry focused on current cash-on-cash returns, which is the year one lease revenue relative to the cost of the container, and that too always higher for refers simply because refers have a shorter useful life and they have a much lower residual value compared to the original cost of the equipment because the machine deteriorates.

And so that cash-on-cash is higher right now as it always is, but we think that the investment return is lower and more risky. .

Great. That’s helpful. And then, just real quick.

We’ve seen a lot of volatile market activity over the last month or so, I know most of your businesses connected to Asia, but have you seen any change due to this volatility or any weakness particularly out of Europe from this?.

We don't see it that closely. For us trade flows are genuinely dominant from Asia to everywhere else. And so, we get the vast majority of our containers picked up out of Asia, and we don’t see so much what’s happening on all of the back halls because it doesn’t really influence the total demand for containers.

Also for us, the peak season finishes at the end of the September. And so, even in strong economic environments, we expect to see a big decrease in leasing demand and pick up activity as you get into October and November, which we’re seeing.

So, we don’t see anything unusual I’d say, that demand dropped off in October as it usually does, we're not seeing a spike in drop-off volumes, or we haven’t heard from customers that they’re greatly concerned about next year.

But, I don’t think really going to have a sense for how the economy is shaking out until we get to the beginning part of the peak season next year, which typically is March, April, May. .

Great, that’s helpful. Thank you very much for the time and the insight, guys..

Thanks..

(Operator Instructions) We have a question from Andrew Feynman from Meridien Asset Management. Please go ahead..

So, it would seem to me that this is the time to be opportunistic and what I mean is, you’re spending $585 million on CapEx so far this year, and you said that, to maintain your franchise in your network and your franchise.

But at the same time, and you’re doing a lot of little things to maximize the possibility that’s available on the current environment. But not enough to stop the decline in return on equity that you’re suffering. So with the money that you’re spending on capital, you could buy 40% of your outstanding shares.

I know that’s extreme because you wouldn’t want to spend nothing.

On the other hand there is, it wouldn’t be the first time that the leasing – transportation equipment leasing company has shrunk during the period of time when returns are declining, thinking about, well anyway – and on alternative yields would also be that, you could be a [indiscernible].

So I am just wondering why, whether you’re thinking about either of those three alternatives which would be opportunistic now in the time when – as oppose to just kind of waiting for the market to turn as interest rates go back?.

I think you make a lot of very good point. I think I’d say just as a point of clarification, first, that when we think about how much money we’re deploying into capital spending, typically we only think of about 25% of the amount because usually we borrow $0.75 of every dollar that we spend on new containers.

And so, I think if we did shift our focus from CapEx, containers to share buybacks, it wouldn’t be the $585 million that gets shifted, that would be 25% of that. That said, it’s still a lot of money and we try to be pretty thoughtful about how we’re spending our money.

I’d say there’s a bias in the company to wanting to say yes to customers when they come to us with deals that we think are added above our hurdle rates. One of the things that we believe about this business at least is that the most important thing to our customer base is availability and consistency of supply and reliability of supply.

And we do have some fears that if we pull back from the market too much, that will sort of lose our position with customers and one thing that in the other, I’d say major container leasing companies have is we’ve got pool relationships with a lot of the big customers where we don’t need to rather market ourselves to try to win a transaction everyday that we get the calls that they need containers here and there and they just take them from us.

And as always we price and say what’s expected to be the competitive range and we are greatly reluctant to put that at risk.

That said, I think we do challenge ourselves every day about where we’re drawing that line of acceptable return and we do think we’ve got good uses for our cash outside of container investments and particular we’ve been paying a bid dividend which we think is become a major part of why some investors like us at least.

And then, secondly we’ve got cash to buyback shares and we look at the way we trade and we think we’re significantly under value to our peers in this space because of the misunderstanding of our income and our equity, because of the gap tax accrual. And so we are talking about and thinking about all the stuffs you’re saying regularly.

We will continue to think about how we adjust those knobs but we are thinking about all those things..

Thank you for the answer. And I would just say that I understand position with customers is important. And what I asked – and what caused, or what returned, its – and I think you guys are really smart.

So I know that you know, every single opportunistic alternative that’s out there, and I’d just urge you to take some bold steps to capitalize on this environment as oppose to just waiting for the turn. .

Yeah, well, thanks..

And ladies and gentlemen, this will conclude our question-and-answer session. I would like to turn the conference back over to management for any closing remarks..

Once again, just want to thank everybody for your interest and ongoing participation with TAL. And we look forward to talking with you again soon. Thank you..

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines..