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TAL International Group, Inc. (NYSE:TAL)

Q3 2007 Earnings Call

November 7, 2007 9:00 am ET

Executives

Jeff Casucci - VP, Treasury and IR

Brian Sondey - President and CEO

Chand Khan - VP and CFO

Analysts

Mike Halloran - Baird

Richard Shane - Jefferies & Co.

Greg Masson - Bacon Capital

Lavatt Vanwett - Hockey Capital

Operator

Welcome to the TAL International Group Third Quarter 2007Results Conference call. As a reminder all participants will be in listen-onlymode. There will be an opportunity for you to ask questions at the end oftoday’s presentation. (Operator instructions) The conference is being recorded.

At this time, I would like to turn the conference over toMr. Jeff Casucci, Vice President of Treasury and Investor Relations. Mr. Casucci.

Jeff Casucci

Good morning and thank you for joining us on today's call.We are here to discuss TAL's third quarter and full year results, which werereported yesterday evening. Joining us on this morning's call from TAL areBrian Sondey, President and Chief Executive Officer and Chand Khan, VicePresident and Chief Financial Officer.

Before I turn the call over to Brian and Chand, I'd like topoint out that this conference call may contain forward-looking statements asthat term is defined under the Private Securities Litigation Reform Act of1995, regarding expectations for future financial performance. It is possiblethat the company's future financial performance may differ from expectationsdue to a variety of factors.

Any forward-looking statements made on this call are basedon certain assumptions and analysis made by the company in light of itsexperience and perception of historical trends, current conditions, expectedfuture developments, and other factors it believes are appropriate. Any suchstatements are not a guarantee of future performance, and actual results ordevelopments may differ materially from those projected.

Finally, the Company's views, estimates, plans, and outlookas described within this call, may change subsequent to this discussion. Thecompany is under no obligation to modify or update any or all of the statementsthat is made, herein, despite any subsequent changes, the company may make inits views, estimates, plans, or outlook for the future. These statements involverisks and uncertainties, and are only predictions, and may differ materiallyfrom actual future events or results. For a discussion of such risks anduncertainties, please see risk factors in the company's Annual Report on Form10-K, filed with the Securities and Exchange Commission on March 13th, 2007.

With these formalities out of the way, I would now like toturn the call over to Brian Sondey. Brian?

Brian Sondey

Thanks, Jeff. Welcome to TAL's third quarter 2007 EarningsCall. Thank you for taking time for this call.

We are quite pleased with our third quarter results. For thethird quarter of 2007 we reported $0.11 fully diluted earnings per share. EPSwould have been $0.42, excluding the unrealized loss on interest rate swaps.

And if we don't currently pay taxes and don't expect to paytaxes for sometime, we also like to calculate pre-tax earnings per share.Pre-tax EPS was $0.66 excluding the impact of the unrealized loss on interestrate swaps.

Our adjusted pre-tax income in the third quarter increased16% in the third quarter of last year and due to our strong start this year,our adjusted pre-tax income, year-to-date, is up over 19% from the first ninemonths of 2006.

Our market environment remains generally favorable and weare achieving solid operating results and significant growth in all of ourmajor product lines. Despite the challenges in the U.S. economy, current estimates fortrade growth remain in the 10% range for both this year and next year. Asstrong growth in the Asia to Europe trade has picked up slack for lower growthin the Asia to U.S.trade.

We continue to take advantage of the strong growth in worldcontainerized trade to ramp up investments in our business. We have purchasedabout 150,000 TEU of new containers this year and increased the size of our ownfleet by about 9% on a TEU basis, and 15% on a dollar basis this year.

The market for used equipment remained strong and wecontinue to achieve attractive gains in the sale of our older containers. Andnew container prices remain in the upper-end of the recent historical range atroughly $1900 per twenty foot dry container, supported by increased demand fornew containers and high steel, raw materials and energy prices in China.

Given the current cost of new containers, we would normallyexpect that market leasing rates would be above our portfolio average. Thecompetition for new container transactions remains very aggressive, and leaserates are currently low relative to the cost of new equipment. As a result, weare not getting a rate benefit from new container leases.

During the third quarter, our overall utilization increased2.7% to 92.4% as we achieved solid on-hire growth during the summer peak seasonfor dry containers. And as our new container delivery slowed, utilization ofour existing containers, excluding new factory units, remains excellent at over95%, and we also are continuing to increase the revenue earning life of ourexisting equipment.

The average sell age of our used containers has increased to13.7 years in 2007. We bleeded the sell age to severely higher than that from mostof our competitors, and together with the high utilization of our existingunits and high disposal prices, it has allowed us to generate higher lifetimevalues for our container investments, than many of our competitors typicallyachieve.

As we head into the fourth quarter, we expect demand for ourlargest product line dry containers to slow, due to the end of the summer peakseason for dry containers. However, all higher volumes of dry containers shouldremain fairly low due to our contractual protections. And demand for ourrefrigerated containers typically picks up in the fourth quarter, as we headinto the traditional winter peak season, for refrigerated containers.

In the 10-Q, you will see shortly, we mentioned that we arein the process of expanding our asset-backed security warehouse facility. SinceApril of 2006, we have financed most of our container fleet throughasset-backed securities. There are two components of our ABS program; termnotes and the warehouse facility.

As of September 30th, we had $583 million of term notesoutstanding and $322 million outstanding under the warehouse facility. Weinitially planned to refinance the warehouse with a second term series, whenthe amount outstanding under the warehouse reached about $300 million.

However, due to the turmoil in the financial markets, and inthe ABS term market in particular, we are in the process of expanding ourwarehouse facility to allow us to delay a term issuance into next year. Overthe next several months, we will valuate the state and direction of the ABSterm market to determine whether and when we want to pursue the term ABSissuance or whether it would be preferable to develop an alternative fundingvehicle for 2008 gross capital spending.

While we are hopeful that the ABS term market will stabilizeand improve, it should be noted that while we negotiate hard for every basispoint, an increase in our new container funding costs will not significantlychange our current profitability or equity returns. For example, even if weassumed a 100% basis-point increase to $300 million ABS term note, I calculatethat our annualized year-to-date 2007 adjusted pre-tax or cash return on equitywill change from 21.0% to 20.3%.

In the press release, we mentioned that effective as ofOctober 1st, we purchased 57,000 TEU containers from our largest third partycontainer owner. The containers are currently about 12 years old, on average,but over 95% of the containers remain on hire to customers and we expect toearn several more years of leasing revenue on the portfolio, on average.

We believe that the purchase of this portfolio playsdirectly into our strength in getting more revenue years and higher residualvalues out of our containers that most of our competitors typically achieve.While these containers have been managed by us for many years, we expect thatthe transfer of this portfolio from our managed fleet to our owned fleet willcontribute positively to our results for the next several years.

I will now hand the call over to Chand Khan, our CFO.

Chand Khan

Thank you, Brian. Good morning and thank you for joining us.I would like to review our financial performance for the third quarter and ninemonths ended September 30, 2007.

Our EBITDA, pre-tax and net income were affected byunrealized loss on interest rate swaps, which we consider non-operational.During this call, we will only review our adjusted EBITDA, adjusted pre-tax andadjusted net income; since we feel these financial measures more accuratelyreflect the company's operational performance. For a full reconciliationbetween our reported financial results and our adjusted financial results,please see our press release.

Adjusted pre-tax income in the third quarter increased 16%to $22.1 million, versus the prior period. Adjusted pre-tax income for thefirst nine months increased 19% to $63.7 million versus the prior period.

It should be noted that our adjusted pre-tax EPS for thefirst nine months was $1.90 for fully diluted common share. As we have said inthe past, we believe that our adjusted pre-tax results are the best measure ofour business. We record tax provision of approximately 36%, but expect to be alittle or no U.S Federal and State income tax for the foreseeable future. Inaddition, we have paid very little foreign income taxes. The reason for thistax deferral is the accelerated tax depreciation on our leasing equipment.

Adjusted net income for the third quarter increased $1.9million to $14.2 million, while EPS increased 14% to $0.42 for fully dilutedcommon share. Adjusted net income for the first nine months increased $6.6million to $40.9 million, while EPS increased 18% to $1.22 for fully dilutedcommon share. As I said earlier, our adjusted pre-tax income for the first ninemonths increased 19%.

Our strong earnings are supported by several factors; first,we had strong utilization, the utilization of our existing fleet, whichexcludes factory equipment was 95.5 % for the third quarter of 2007 and 94.8%for the first nine months.

Second, we continue to grow our fleet, or owned fleet, on aTEU basis, it grew approximately 9% over the last nine months to 1 millionTEUs.

Third, our gain on sale of equipment remained strong,increasing $5.5 million for the first nine months, due to higher selling priceand higher gain from the selling of older equipments, older units. These unitstypically have a low carrying value due to their age. For the first nine monthof 2007, the average age of our units sold was 13.7 years, which is up fromprior periods.

Fourth, our net equipment tradingmargin which consist of equipment trading revenue and equipment tradingexpenses, increased $3.5 million for the first nine months of 2007 to $6.6million, due to good demand and favorable selling prices.

The fifth item is ourdepreciation expenses. Domestic value of our leasing equipment increased $150million in 2007. However, during this period our depreciation expense decreased$2.8 billion, due to two main factors.

First, in November 2006, 55,000TEU of equipment became fully depreciated. This resulted in lower depreciationexpense for 2007. It should be noted that as of September 2007, we had 107,000TEU of fully depreciated equipment, with most of these units still on lease tocustomers. This represents over 10% of our old fleet that is fully depreciated.

Second, as of January 2007, westarted to depreciate new units when the unit-go on higher as opposed to thedate of acceptance from the manufacturer. This is in line with the physicalutilization of the unit. We expect additional depreciation benefits whenanother group of containers become fully depreciated in November, 2007. Thisbenefit will be partially offset by additional depreciation from the managedweekly purchase in October. Our new units added to our fleet.

Adjusted EBITDA for the first nine months increased $9.9million to $176.3 million, versus the prior period. In the past we have talkedabout the accounting difference between operating leases and finance leases.For the first nine months of 2007, we built $30.9 million to finance leasedcustomers, but we only recorded $13.3 million in finance lease revenue. Ourrevenue earning assets, which consists of leasing equipment, net investment infinance leases and equipment held for sale, grew by 16% from September 2006 to$1.44 billion.

During the first nine months of 2007, we acquired $292million of revenue earning assets. On that September 30, 2007, we havecommitments to purchase $53.1 million of revenue earning assets.

In addition, on October 1st, we purchased approximately57,000 TEUs of previously managed containers. This fleet had an average age ofapproximately 12 years, with over 95% of these is still on lease to customers.

We are pleased with our results. And I will now return it toBrian.

Brian Sondey

Thank you, Chand. I'll now finish the prepared part of thecall with some thoughts on our current outlook. Our strong results for thefirst three quarters of 2007 put us in good shape to have an excellent year. Onthe year-to-date basis, our operating profitability is up almost 20%, comparedto the first nine months of 2006, and we expect our good performance in 2007 tocontinue.

As I mentioned before, demand for our dry container productline is expected to slow in the fourth quarter for seasonal reasons. The demandfor our refrigerated containers should improve in the fourth quarter and weexpect a positive contribution from the purchase of the portfolio of oldercontainers. In addition, large vintage year containers will reach the end ofits depreciable life in early November, providing a significant reduction todepreciation expense. Overall, we expect our fourth quarter pre-tax income toincrease from the third quarter level.

In conclusion, with our third quarter and year-to-dateresults, TAL continues to generate an attractive mix of gross profitability andcurrent cash-flow. We have achieved double-digit asset and profitability growthfrom the comparable period of last year. Our adjusted pre-tax or cashreturn-on-equity has increased over 20% for the year.

We continue to use our strong cash-flow to provide asubstantial current yield to our investors through our dividend program and weexpect our market environment and our business performance to remain solid forthe balance of the year.

I would now like to open the discussion for questions.

Question-and-AnswerSession

Operator

(Operator Instructions). Our first question comes from Mike Halloranfrom Baird.

Mike Halloran - Baird

Just on the price aggression of the new units. Have you seenany stabilization on that yet?

Brian Sondey

Well, say we have seen stabilization, although we’vestabilized at a lower level relative to the new units than where we were in thepast. I think for us, we really saw pricing relative to the cost of new unitsdrop a bit, I’d say towards the end of the first quarter this year and sincethen it’s been a little bit weak throughout the year again relative to typicallevels.

Mike Halloran - Baird

Okay, that's fair and then could you compare this toprevious cycles, have you seen something similar in previous containerpurchasing cycles, and if so what did bring things back to equilibrium?

Brian Sondey

Yeah, certainly we have seen over the years rates go up anddown relative to the cost of equipment. I think I talked earlier on severalcalls that our view is that a lot of this stuff, you know, price competition,is being caused by mid tier and lower tier leasing companies. Somebody's kindof been attracted by the successive guys like us and have got into thebusiness.

What we typically see over the cycle is that it's easy comeinto this business. Relatively easy I should say, when capital is somewhatavailable, because the operating element of our business doesn't really kick intill the container's age. And a lot of these newer and smaller companies don’thave mature fleets and then once their fleets start to mature and as thebusiness ever does hit a bit of a down year, there tends to be shake out andconsolidation. Those guys generally take to bought out, at least that's what'shappened in the past.

In addition, this year, I think, one other thing that may beleading to a little bit of price erosion is that the residual values for thecontainers are so strong. The actual prices we are getting today, especiallyour dry containers, relative to our assumed residuals and our depreciationpolicies are well in excess of that.

So, to some extent, given the real strength in theresiduals, and I think what we've seen is as very deep market for usedcontainers. People may be putting a little more faith on the residual than theyused to and that also has the affect of lowering the rates.

Mike Halloran - Baird

That's good color. And then, on the managed fleet containerpurchase that you just recently made. Could you, give me little color on whatpercentage of the managed fleet that you currently run that this represents?

Brian Sondey

You see in 10-Q we are about to file, which was that thestatistics for the fleet are before the deal was completed. There was a littleover a 100,000 TEU of managed containers and so this purchase represents abouthalf of our previously managed fleet.

Mike Halloran - Baird

And so, there's going to be a corresponding and maybe alittle bit of up tick from a revenue standpoint, moving from managed containerinto the overall leasing revenues?

Brian Sondey

Right, what we typically recognize on the managed containersis the commission that we earn from managing the containers for the owner, thatshows up as fee income in our revenues and that typically say ranges from 10%to 15% of the revenue on the container. As we shifted from a managed containerto an owned container, that now is going to be grossed up. So, instead ofshowing the fee growth of about 15% of the revenue, we're going to show all therevenue.

In addition, we're now also going to show depreciation andinterest expense associated with the purchase. Both that said, we do believethat's (inaudible) its certainly going to be grossed up on revenue depreciationand interest. But, we also believe, based upon the performance of the fleetthat it will be net positive at the pretax line as well.

Mike Halloran - Baird

Okay, that's fair. And then, on the depreciation line, lastcouple of years we've seen that line come down from the third quarter into thefourth and then into the first quarter. Could you just give us a little senseon what kind magnitude you are expecting, because when you look at the '05period, I think the magnitude was twice the '06 period. And I'm just kind ofwondering, which way you thinking it plays out?

Brian Sondey

We don't like to forecast too specifically individualP&L items, but I can say that the vintage year that is becoming fully depreciatedthis year is larger than the vintage year that became fully depreciated lastyear. So, we do expect the depreciation benefit from this year's vintage thatis becoming fully depreciated to be larger this year than it was last year.

That said, and going to the first quarter, we expect to givea little of that back. As Chand mentioned, we're depreciating equipment when itgoes on-hire, but we also have a rule that says, if anything is less in thefactory at the end of the year, that starts depreciating as of January 1st. So,we do expect to give a little bit of our fourth quarter benefit back in thefirst quarter, but it still should be a significantly net positive for both,the fourth quarter and the first quarter.

Mike Halloran - Baird

So it’s actually depreciation falls from the third quarterto the fourth quarter and then start building up that on over the years?

Brian Sondey

As we start buying equipment and putting it on-hire in 2008.

Mike Halloran - Baird

Okay. Last question then, what would be average overallutilization for the third quarter?

Chand Khan

I've got the actual number here. Excuse me, just one second.The ending utilization, as I think I mentioned in my prepared comments was92.4%, that includes everything. That was the ending though. The averageutilization during the quarter was 91.0%.

Mike Halloran - Baird

All right. I appreciate.

Chand Khan

It went up throughout the quarter, which typically happensin the third quarter, since it's the peak season for dry containers.

Mike Halloran - Baird

I appreciate it Chand. Thank you.

Chand Khan

Thanks for questions.

Operator

The next question comes from Richard Shane from Jefferies& Co.

Richard Shane -Jefferies & Co.

Thanks, guys, for taking my questions. Just a couple, canyou talk a little bit about the economics of buying the managed fleet in,roughly sort of what pricing you paid. And, help us understand, because, givenI think that you said the average age on these containers is about 12 years.How many more years of useful life do you expect to get out of them and justsort of walk us through how that trends actually play out economically, if youprobably only have a year or two more before you sell them off.

Brian Sondey

I will give you some general thoughts. I don’t want to getspecific into how we think about it, since we may do all the transactions likethis one. And also don’t want to give a specific price for the same reason.But, in general, I think the transaction for us, and when we looked out, itmakes sense that we really view one of our core strength as being able to getextra revenue years out of our containers than most other leasing companiesget.

And we, through our investments in our resale group, believewe get higher residual values than most other leasing companies get, and sotherefore, we tend to place a higher value and have more confidence in thevalue of our older containers than most other people in the industry. And sotherefore, we sort of looking general and say there is probably a range of adeal for older containers where, we are willing to place a higher value onthose containers than perhaps our third party container investors that reallyare just used to seeing kind of industry average returns and containers of thatage.

What we look at and what we consider that the purchaseversus managed decision for this older units, is we, we know the lease of thesecontainers horizon that already operating in our fleet, we do a forecast, howquickly we expect the containers to come back just given the leases that areon, as well as our past and current experience with the wind down rate forcontainers of similar ages.

And we also look at the market for selling these containersand because they are fairly old we’ve got a pretty decent amount of visibilityinto what we are likely to sale, at least a good portion of the containers for.Then we simply look at the cash evaluation and say, what would we pay for thiscontainer fleet, noting of course also that we are giving up the managementfees. And we so do net that out against the cash flow value of the portfolioand then we just see if our evaluation is adequate to incent the current ownerto sale.

While the containers are 12 years old, it’s a little bit,I'd think its sort of like life insurance that our average containers sell ageright now is say is 13.5 years old or little more than that, but for containersthat are already 12 years older to sale, we expect them to live longer thanaverage. And so we do expect to get some revenue from these units probably forfour year or five year. I don’t want to pin down exactly the average expectedlife, but it’s certainly in the several year range that will get good amount ofleasing revenue on an average, as well as strong residuals, sell these units.

Richard Shane -Jefferies & Co.

Brian, and you bring up an interesting comment that you madecouple of times which is that you expect that you get industry leading life outof your assets. Is that just that you're willing to leash them longer beforeyou sell them off, because it’s sort of hard to imagine that if, all thesecontainers are sitting in on a ship together, that you are doing something,ones that are out of your control that gives you better physical performanceout of the assets?

Brian Sondey

Well, I think there's a couple of things that leads us tohave that, sort of a higher average selling price. It’s not really and we doput a lot time and effort into our container design, but I don't think the mainreason is the fact that our container's are actually physically last longerthan anybody else's, though perhaps, they might, some peoples.

I think it really has to do with how we manage our leaseportfolio. The thing that really ages containers out of the most leasingcompany fleets. Again, isn't necessary that the container becomes physicallyunusable at 11 or 12 years old. It tends to end up in a place where demand isweak, the shipping line have an incentive in general, to return containers toareas where they, where they are excess and just given the relatively strongimbalances in containerized trade, most shipping lines have excesses in thesame spot.

And so, if you manage your lease portfolio in a way thatallows shipping lines to return these containers, when they are fairly young tothose locations, you are going to end up selling a large numbers of youngercontainers.

I think, as we talked before, we take a general view, thatwe are willing to be very aggressive on rate, where we need to, but we tend tobe very conservative in looking for very long lease durations on our units, andalso we like to have very tight logistics to ensure that the vast majority ofour leasable age containers they are going to come up higher, again return toareas where demands is strong so that, for example, if you have an eleven yearcontainer and dry container in Hong Kong and a eleven year dry container in NewYork, you are going to put that eleven year container on hire in Hong Kong andyou sell the one in New York. And so because of the cost of getting one from New York back to someplace where you can lease it.

So, I think what we do is, we focus all across theorganization, very tightly on, making sure we're doing the right leases andstructuring them in the right way to get that extra-value. We've over theyears, we haven't believed at least, that it's better to be relatively cheapcontainer to pickup and hold then a more difficult container to get out fromour customers. We also have a lot of customers that like that equation as well.And so I think that really is the driver.

In addition, we invest very heavily in our operations andmarketing infrastructure. We've got offices all over the world. So we can touchour customers in many locations. And really that high-touch service to thecustomer is what drives a lot of the small batch on-hires of our older usedequipment. I think we've talked in the past that either the containers new outof the factory go on-hire in batches of a 1,000 or 2,000 and they are in Chinawhere the shipping lines want them. And so that the smaller mid-sized leasingcompanies don't really need large operating or sales infrastructure to getthose first leases.

However, the containers for the second lease, and thirdquarter, and fourth quarter lease, they typically go out in very small batchon-hires. And there it's really critical to have an extensive sales andoperating network, and that's something that we think we're very good at. And,so in general we get this extra-life, because of our lease portfolio as well asour ability to keep containers, get them out in the second, and third, andfourth time on-hire.

Richard Shane -Jefferies & Co.

Fine, thank you, that's very helpful. It's actually a great[segue] way to my second question which is that, you talk about pricingpressure on new unit leases, what about on seasoned containers coming out ofthe Depo. Are you seeing the same level of pressure?

Brian Sondey

Not really. Yeah certainly, it's always better for your usedunits if you have a high price environment for the new one. To some extent,certainly in locations where there is factories, the new container leases put aceiling, some kind of ceiling on what we can get for our used containers. Butthat said, what we see in the market is that a lot of the companies that arevery aggressive on the new containers are not well established companies withlarge fleets or extensive sales infrastructures. So, they are generally nottalking to our customers about the ones and twos and threes pickups that havenon-factory locations. And so we don’t see the same kind of real aggressivepricing on the used units that we see on the new ones.

Richard Shane -Jefferies & Co.

Okay, great. Thank you very much.

Operator

The next question comes from [Greg Masson] from [BaconCapital].

Greg Masson - BaconCapital

Morning.

Brian Sondey

Good morning.

Greg Masson - BaconCapital

So, the incremental lease rate is lower than the average forthe fleet.

Brian Sondey

It's not lower, it's probably very similar. We are seeingvery flat rates, we are seeing in the dry containers. Rates don’t change much,quarter-to-quarter right now.

Greg Masson - BaconCapital

Okay. But when you said you would expect market leasingrates above the portfolio average, it just means that it's at the average atthe moment.

Brian Sondey

At the average now, yeah. I mean, you really need to thinkabout it on an apples-to-apples basis and so it's not always easy to say that,what is the benchmark lease rate today compared to our average in ourportfolio, because it really depends what's the duration of the lease, what'sthe off hire characteristics of the lease. But in general, as you try to dothat apples-to-apples comparison, it seems that the rates we are getting on newcontainer leases are about equal to our portfolio averages on anapples-to-apples basis.

Greg Masson - BaconCapital

Okay. And then what are examples of alternative financingvehicles that you would explore should the ABS market remain difficult?

Brian Sondey

Well, I think the most obvious one is just going back to thebank market. I think a lot of companies in our space, the bigger ones, over thelast couple of years migrated to the ABS market just because on a net basis itwas cheaper than the bank market, as we continue to look at which path should wego down should we actually hit the button and do a term issuance or look tosomething else. I think that’s going to be the most obvious point of comparisonfor us.

Greg Masson - BaconCapital

Okay, thank you.

Operator

(Operator Instructions). Our next question comes from [LavattVanwett at Hockey Capital].

Lavatt Vanwett -Hockey Capital

Good morning, guys.

Brian Sondey

Good morning.

Lavatt Vanwett -Hockey Capital

I am trying to, and I apologize, I am a little new to thestory. I am trying to really get a better feel for how you are looking at theoutlook going forward. You said something that I guess at least in my mind arelittle conflicting as to how I should think about the outlook. You said thelease rates obviously with the amount of competition out there or not, let’ssay optimal. At the same time the ABS market is a little close so that’s shouldhelpfully eliminate some of the ability or some of the others to continue toget more containers out there? Europe, Asia trade is kind of offsetting some ofthe weakness in the U.S.How do you kind of envision this all playing out over the next 12 months to 18months?

Brian Sondey

In general we think that we are in a pretty good environmentright now overall. I think on the positive element we don’t really, we are notimpacted so much by one trade lane versus the next. All of our major customersare global shipping lines that trade in all the major trade vats routes, Asiato U.S., Asia to Europe,inter Asia, Asia to Middle East et cetera. So,we really focus on say the growth side much more what’s expected to happen inoverall containerized trade volumes than in particular lanes.

As I said, the overall volume forecast remains prettypositive in the double-digit range for the next couple of years. Despite thefact that there continues to be bad news at least I guess in the U.S.economic front. So we from a volume standpoint feel pretty good about the nextcouple of years.

In addition, new container prices are high, which we likebecause it does, both help prop up lease rates to some extent as well as ithelps give us a higher residual values on our older containers and while wecertainly don't consider ourselves experts at forecasting commodity prices, onthis most things that we read and most things that we hear when we talk to ourmanufacturers, seems to imply that containers prices will remain pretty strong,because steel prices and energy prices and raw materials prices will remainrelatively high for the foreseeable future.

Also, our utilization and our lease portfolio, our leaseportfolio composition, in terms of a very high component of long-term leasesand finance leases, as well as, just the high growth in world trade, give us afair bit of confidence that our utilization will remain in a pretty good place,certainly for the near-term, and as far as we can, forecast with confidence.

The one thing that is, as we've referred to a number oftimes that it’s a little bit of a negative aspects right now is just the leaserates, that we do see a lot of competition out there for new containertransactions and lease rates are lower than we would like for our new containerinvestments. That said, we are getting a lot more utilization and we typically,my expectation will be long-term as well and so in general, it's a pretty goodenvironment for us.

Lavatt Vanwett -Hockey Capital

So, as another way of kind of interpreting that is that inessence really, this doesn’t apply demand relationship type of market likeanything else, even though the smaller and medium size competitors out there,kind of making things little more miserable, they can't get their hands onenough container to make it that much more miserable and supply demand rule aday so we continue to make money for the foreseeable future?

Brian Sondey

I think, that's fairly accurate and I'm not sure it’s theimitating factors on the smaller guys, isn't there lack of ability to get theirhands on the container, because the manufacturers would have capacity toproduce them if the smaller guys wanted. But, I think, there the restarting tobe -- I think, you alluded to a little bit of a tightening in the capitalmarket, which in the long-term actually may be kind of good for us. And thoseguys have also, as start-up companies or smaller companies have a limitedability to impact the market. And so, they certainly do impact things at themargin, but given our size and our existing fleet and our operating and salesnetwork, we believe we can stick a lot there and make good money.

Lavatt Vanwett - HockeyCapital

Final question, is there a way for you to think about howyou look at kind of global growth into '09 or is that too far out?

Brian Sondey

We certainly think about it. And our view for the nextcouple of years influences our buying decisions in terms of how many newcontainers you want to have available. But I'm certainly not bold enough tomake a forecast. There is a number of services out there that do provideseveral years of forward forecast, we look at collections, our research studies,our (inaudible) that's forecast on containerized trade growth for a couple ofyears. And so definitely I'll refer you to those guys well I'm giving the brandonly forecast.

Lavatt Vanwett -Hockey Capital

Okay. Thank you.

Operator

(Operator Instructions). There are no more questions at thistime Mr. Sondey, would you like to make any closing comments?

Brian Sondey

I'd like to thank all of you for your ongoing support of TAL,and we look forward to speaking with you soon. Thank you.

Operator

Thank you all very much for participating in the TAL resultsconference call. This concludes today's event.

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Source: TAL International Group Q3 2007 Earnings Call Transcript

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