Textainer Group Holdings Ltd (TGH) 2009 Q4 法說會逐字稿

Hello and welcome to the Textainer Group Holdings Limited fourth-quarter 2009 and full-year earnings call.

There will be an opportunity for you to ask questions at the end of today's presentation. For your information, this conference is being recorded.

I would now like to turn the conference over to Mr. Phil Brewer, Executive Vice President.

Thank you and welcome to our fourth-quarter 2009 and full-year conference call.

Joining me on this morning's call are John Maccarone, President and Chief Executive Officer, Ernie Furtado, Senior Vice President and Chief Financial officer, and Robert Pedersen, Executive Vice President.

Before I turn the call over to John and Ernie, I would like to point out that this conference call contains forward-looking statements within the meaning of US Securities laws. These statements involve risks and uncertainties, are only predictions and may differ materially from actual future events or results. 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 during this call are based on certain current assumptions and analyses made by the Company in light of its experience and current perception of historical trends, conditions, expected future developments, and other factors it currently believes are appropriate. Any such statements are not a guarantee of future performance, and actual results or developments may differ from those projected.

Finally, the Company's views, estimates, plans and outlook, as described within 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 may make in its views, estimates, plans or outlook for the future.

For a discussion of such risks and uncertainties, see the risk factors included in the Company's annual report on Form 20-F for the year ended December 31, 2008 filed with the Securities and Exchange Commission on March 16, 2009.

I would also like to point out that, during this call, we will discuss non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with Generally Accepted Accounting Principles. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures will be provided either on this conference call or can be found in the Company's February 10, 2010 press release.

I would now like to turn the call over to John.

Thank you. I would like to turn everyone to Slide 3 and welcome you to our fourth-quarter and full-year 2009 earnings conference call. I will begin today's call by reviewing Textainer's fourth-quarter 2009 and full-year highlights, the current market environment, and our strategic focus. I will then turn the call over to Ernie to discuss our financials and quarterly dividend, and then Phil will provide a summary of our recent transactions as well as information on the container resale market. We will then open the call up for questions.

Turning to Slide 4, 2009 was a year of considerable success for Textainer as the Company reported excellent results and strengthens its industry-leading position during the most challenging period in the 52-year history of containerized shipping. Specific highlights from the fourth quarter and full-year 2009 include, first, we reported net income of $81.6 million for the year, excluding unrealized gains and losses on interest rate swaps, the second best in Textainer's 30-year history.

Second, the Company maintained a quarterly dividend of $0.23 a share and has now declared 10 consecutive quarterly dividends totaling $2.24 per common share since its October 2007 IPO, a return of more than $107 million to our shareholders.

Third, management invested more than $200 million in cash consideration in accretive transactions. By taking advantage of the industry downturn, we expanded our owned and managed fleet by 15% on a TEU basis in 2009.

Finally, we preserved our strong financial position with more than $268 million in available liquidity to take advantage of additional growth opportunities that meet our strict return criteria.

Turning to Slide 5, some comments about the market outlook -- while market conditions continue to improve, they remain difficult for the shipping lines. Importantly, counterparty risk has been reduced as several major container shipping lines have been able to recapitalize. Despite the challenging environment, Textainer has not experienced any major customer bankruptcies and there have been no major container shipping line failures to date.

Drewry, a shipping consultancy firm, is forecasting a modest expansion in container traffic of 3% to 4% in 2010 and suggested the industry has passed through the worst of the recession.

With respect to supply, very few new standard dry freight containers were manufactured from the fourth quarter of 2008 through the end of 2009. As a result, we believe that the world's container fleet declined by approximately 4% in 2009 through the retirement of older containers. During this period, container manufacturers lost up to 60% of their skilled workforce due to long shutdowns and have limited production capacity in 2010. Additionally, many shipping lines are strengthening their balance sheets and will not have a budget to purchase new containers in 2010. Due to these factors, container manufacturers in China forecast 2010 production at only 600,000 to 1 million TEU, compared to an average of about 3 million TEU per year, between 2004 and 2008. With this anticipated decrease in production, combined with normal retirements, the world container fleet could decline again in 2010, potentially creating a shortage of containers.

Furthermore, super-slow steaming, which our shipping line customers have engaged to reduce fuel costs and absorb excess vessel capacity, also requires the use of additional containers then at normal speed.

Based on these positive trends, we expect demand for containers to increase with the potential of both higher lease rates and utilization.

Now to Slide 6, we provide an overview of our strategic focus. For Textainer, we have experienced a slow but steady improvement in utilization each month after reaching a low point in the cyclical downturn of about 86% in September, and we ended the year at 88.8%.

In the first five weeks of 2010 through the week ending February 5, utilization improved further to its current level of 91%. We expect another strong week this week leading up to the start of the Chinese lunar new year holiday. We are optimistic that demand will remain strong after a two to three-week pause for the holiday and then gearing up to ship more cargo.

In support of our utilization is our success and have more than 70% of our fleet locked away on long-term contracts.

We have stated in the past that every 1% improvement in Textainer's utilization equates to approximately $4.4 million in the Company's pretax income, and every $0.01 improvement in lease rates equates to approximately $3.3 million in pretax income. Going forward, with over $268 million in available liquidity and a low debt-to-equity ratio of 1.2-to-1, we remain committed to pursuing accretive acquisitions, as we have consistently done in the past.

As we continue to execute our growth strategy, we expect to further expand our future earnings potential and strengthen our position as the industry leader. Of note, depending on how strong demand for lease containers remains, we may also seek to purchase a significant quantity of new production this year. Utilizing our disciplined approach so far in 2010, we have placed new production orders for about $64 million, or 35,000 TEU, for delivery between January and May.

Turning to Slide 7, as I mentioned earlier, Textainer completed numerous accretive transactions throughout 2009 totaling more than $200 million, which contributed to our notable performance for the year. By drawing upon our significant financial flexibility and capitalizing on attractive market opportunities, we've accomplished important strategic objectives related to growing Textainer's owned and managed fleet, increasing the percentage of the fleet that we own, expanding our presence in the refrigerator container business, purchasing containers for our trading business, entering into purchase leaseback transactions with shipping lines and retiring debt.

For a list of our specific transactions in 2009, please refer to the earnings release issued earlier this morning. With the exception of the bonds repurchase, each of the investments we made this past year is expected to contribute to net income in 2010 and beyond.

In summary, we are very pleased with our fourth-quarter and full-year accomplishments during a challenging time for the global economy and the container shipping industry. We remain well positioned to emerge from the current downturn as a stronger company.

I will now turn it over to Ernie.

Thank you.

Turning to Slide 8, I'd like to take this opportunity to review our financial performance for the fourth quarter and the year ended December 31, 2009. Fleet size at the end of the quarter consisted of 2.2 million TEU of which 45% were owned and the remainder were managed, sub leased or on finance-lease. Utilization for the total fleet for the fourth quarter was 86.4%.

First, I will review the fourth-quarter results. Revenues were $67.2 million as compared to $65.6 million for the prior-year period. $2.2 million of this increase is due to an increase in the volume of container trading.

Net income, excluding unrealized gains on interest rate swaps, net of non-controlling interest, was $22.1 million, which represents a 16% decrease over the $26.3 million in the prior-year quarter. We believe net income, excluding unrealized gains or losses on interest rate swaps, will be useful a performance measure. These gains or losses are non-cash, nonoperating items. Textainer intends to hold its interest rate swaps until maturity. Over the life of an interest rate swap held to maturity, the unrealized gains or losses will net to 0.

Lease rental income decreased by $0.5 million, or 1%, compared to the prior-year quarter, primarily due to an 11.2 percentage point decrease in utilization and a 3.2% decrease in rental rates, partially offset by a 15.3% increase in fleet size.

Management fee revenue was unchanged at $6.6 million. Lower management fees, due to lower net operating income, were offset by a 6.4% increase in the size of the managed fleet, primarily due to the addition of the Amficon and Capital Intermodal fleets in 2009.

Net gain on trading containers sold increased by $0.9 million, or 252%, primarily due to a 173% increase in the number of units sold. Direct container expense increased by $4.7 million, or 69%, primarily due to increased storage expense.

Depreciation expense increased by $1.9 million, or 16%, due to an increase in the size of the owned container fleet.

Bad debt expense decreased by $0.4 million, or 82%, due to a lower net increase in the allowance for doubtful accounts.

Interest expense decreased by $4.8 million, or 63%, primarily due to a decrease in average interest rates of 2.8 percentage points and a decrease in average debt balances which were $5 million lower. Realized losses on interest rate swaps increased by $1.6 million, or 86%, due to a decrease in interest rates between the periods. Income tax benefit decreased by $2.6 million, or 65%, due to a lower effective tax rate.

EBITDA was $41.7 million, $0.7 million higher than the prior-year quarter.

Now, I will review the results for the year ended December 31, 2009. Revenues were $237.3 million as compared to $277.1 million for the prior year. $23.3 million of this in decrease is due to a decline in the volume of container trading.

Net income, excluding unrealized gains of interest rate swaps, net of non-controlling interest, was $81.6 million, which represents a 16% decrease over the $97.3 million in the prior year.

Lease rental income decreased by $8.8 million, or 4%, compared to the prior year, primarily due to an 8.8 percentage point decrease in utilization and a 7.9% decrease in rental rates, partially offset by an 8.8% increase in fleet size and a $3.5 million increase in income from direct finance leases.

Management fee revenue decreased by $3.4 million, or 12%, primarily due to lower net operating income, a smaller size of the managed fleet, excluding the Amficon and Capital Intermodal fleets. This was partially offset by $3.2 million in management fees from the Amficon and Capital Intermodal fleets.

Net gain on trading containers sold decreased by $5.6 million, or 74%, primarily due to a 57% decrease in the number of units sold. Gains on sale of containers decreased by $4.3 million, or 27%, primarily due to lower sale prices, partially offset by a 40% increase in the number of units sold. Direct container expense increased by $13.4 million, or 52%, primarily due to increased storage expense.

Depreciation expense decreased by $0.4 million, or 1%, due to an increase in estimated residual values used in the calculation of depreciation expense, partially offset by an increase in the size of an owned container fleet.

General and administrative expense decreased by $0.7 million, or 3%, primarily due to decreased professional fees and travel expenses.

Short-term incentive compensation expense decreased by $1.3 million, or 31%, due to lower net income, excluding unrealized gains on interest rate swaps net of noncontrolling interest, which is the primary determinant of short-term incentive compensation.

Interest expense decreased by $14.5 million, or 55%, primarily due to a decrease in average interest rates of 2.4 percentage points, partially offset by an increase in average debt balances which were $45 million higher. Realized losses on interest rate swaps increased by $8.6 million, or 144%, due to a decrease in interest rates between the periods.

A gain on early extinction of debt of $19.4 million was recorded for the repurchase of $39.9 million of our bonds at a discount. The gain, net of noncontrolling interest and income taxes, was $15.4 million. Income tax expense increased from a benefit of $0.8 million in 2008 to an expense of $3.5 million in 2009, primarily due to a $4.4 million decrease in income tax expense in 2008 due to the completion of an IRS examination.

EBITDA was $168.7 million, $9.1 million lower than the prior year.

Moving to Slide 9, you'll see that we've maintained a strong balance sheet during the fourth quarter of 2009. Of note, as of December 31, 2009, our cash position was $56.8 million. Our total assets as of December 31, 2009 were $1.4 billion. Leverage remains at an attractive ratio of 1.2-to-1.

Turning to Slide 10, based on our strong financial results, significant contract coverage and industry outlook, Textainer's dividend for the fourth quarter will remain unchanged at $0.23 per share. This represents 50% and 54% of net income, excluding unrealized gains on interest rate swaps, net of noncontrolling interest for the three months and year ended December 31, 2009 respectively. Dividends have averaged 50% of net income, excluding unrealized gains or losses, since the IPO, enabling the Company to retain capital for growth. We have paid dividends for 20 consecutive years and it's an important part of the total return that Textainer provides to its shareholders.

As John mentioned, we have continued to pay dividends during a time when we have maintained significant financial flexibility. Textainer's Board of Directors considers dividends on a quarterly basis. Historically, Textainer has paid about 50% of net income, excluding unrealized gains or losses on interest rate swaps, in dividends, but the Board takes a fresh view every quarter and sets the dividend subject to cash gains for opportunities that may be available to us. We are pleased with our fourth-quarter results, and now I will turn it over to Phil.

I would like to take a moment to talk about disposal container sales and prices, trading containers and our financing plans for 2010 as outlined on Slide 11.

Disposal container -- let's talk about disposal container sales and prices. For the first time in Textainer's history, we sold more than 100,000 containers in 2009. Total sales were 20% above 2008. Sales of in-fleet containers, including containers purchased and leased back to shipping lines, were up more than 40%, while sales of trading containers, which are a much smaller portion of total sales, were down more than 50%. The increase in in-fleet sales was primarily a result of more containers being put to disposal through due to weak lease-out market conditions during the first three quarters of 2009. The decrease in trading sales was due to the decrease (inaudible) sales containers from shipping lines and our other trading customers.

Used container prices declined by approximately 25% over the past 12 months. However, prices reached their lowest point during the summer and have increased approximately 5% since August. This increase has occurred at the same time that the quantity of containers sold also increased. The trend of increasing prices is expected to continue because the supply is likely to be under pressure primarily due to higher utilization of in-fleet containers and the ability of manufacturers to keep new build prices in the range of $1900 to $2000.

Let's talk about trading containers for a moment. Although our trading business declined in 2009, trading activity in the fourth quarter 2009 saw a dramatic improvement compared to earlier in the year. 60% of trading sales and profits occurred during the last quarter and were a direct result of an approximate $10 million trading deal for more than 11,000 units with a shipping line, which represents the 10th transaction with this customer over the past 13 years. Given the recent increase in utilization, though, we expect that trading opportunities will remain limited.

Now, I'd like to talk a moment about our debt facilities. We have in place two debt facilities. We have a $205 million revolver at Textainer Limited that matures in 2013. We also have a $475 million warehouse facility at Textainer Marine Containers Limited that either must be extended by July 2010 or it terms out over 10 years.

We held a bank meeting in New York last November to get an early start on extending this facility. Many banks new to Textainer attended the meeting as well as some banks that are already familiar with the Company. Subsequent to the meeting, several of these banks expressed an interest in participating in this facility. The indicative term sheet is now in the final stages of discussion and should be distributed to both new and old banks shortly. We are optimistic that we will successfully extend this facility. However, as mentioned earlier, if we are unable to do so. the facility terms out over a period of 10 years at an attractive rate.

That concludes our opening remarks. I would now like to open the call for questions.

Thank you. The question-and-answer session will be conducted electronically. (Operator Instructions). Rick Shane, Jefferies.

Thanks, guys. Two questions -- one is a housekeeping question and the other is sort of a strategic outlook question.

In terms of the end-of-period fleet size, could you just give us the detail on the managed and owned fleet numbers, please?

Well, we had 2.2 million TEU, of which 45% were owned and the balance were managed.

Great. Thank you, Ernie. Then in context of the container purchases that you've already put in, it sounds like still you'd given the context of $1900 to $2000 a container. The 33,000 containers you are purchasing are at the low end of that range.

Are you aware of other leasing companies that are starting to get their toe back into the market as well? Have you heard that? Then the other question is are you dealing with both manufacturers or just one manufacturer in terms of that order and what sort of pricing power do you think you had?

This is Robert here. Yes, other leasing companies are also buying containers. I would say there are probably four or five other leasing companies that are active out there at this stage here. We are buying from four different manufacturers.

As to the pricing power, I don't think we or any other leasing company has pricing power in terms of our purchase prices. But obviously with the increased demand we are seeing for our lease-outs, there is some degree of pricing power on that level.

Great, Robert. Thank you. And then just one follow-up. Historically, there has sort of been -- the industry has gravitated to about 50% leased, 50% owned by the shipping lines.

Are you hearing the lines buying containers as well, or is this going to be a year where it is maybe closer to 55/45 or even 60/40 in terms of leases versus owned containers?

I'm not sure what the final percentage is going to be but there are very few lines that are going to buy any containers in 2010. I just came back from two weeks in Asia. Basically, all global carriers are not likely to buy any containers. The ones that are going to buy containers are the smaller to mid-sized regional operators. But the total volume versus leasing company intake is going to be pretty insignificant, I think.

Great. Guys, thank you for your insights.

Michael Weber, Deutsche Bank.

Good morning, guys. Just a handful of questions -- I guess first, on utilization, can you maybe walk us through how that trended specifically throughout the quarter? I know you threw out current utilization rates of about 91% with the Chinese New Year approaching. Do you guys have any lease renewals was coming up during Chinese New Year or any material lease renewals coming up during Chinese New Year? Will that have an impact on Q1 utilization rates?

The biggest impact on our Q1 utilization is going to be the massive lease-outs that we are currently having. Basically if we look at our performance in the past several weeks, we've improved our utilization by 0.4% to 0.5% a week. That is not likely to stop in the very near future.

Again, as a result of my trip to Asia, most of our customers are expecting a two, three week slow down after Chinese New Year, after which the market is likely going to pick up to almost the same level as pre Luna New Year.

As to lease renewals, I mean we have so many long-term leases from -- with various expiration dates. That's kind of a constant thing. It's not something that is really related to pre or post-Chinese New Year. We just have long-term leases expiring going forward all of the time. Obviously, we think that we will be able to improve our extension ratio with the improved (inaudible) conditions out there. Certainly, very few customers, if any, are going to return containers in Asia right now when there's such a huge shortage to get supply.

Sure. Okay, no, that makes sense. I guess turning quickly, you guys mentioned your low leverage at 1.2-to-1. I know you guys are looking at deals pretty much constantly.

Can you guys give a little bit of color on what kinds of deals you are looking at, maybe the size and scope and maybe what is more prevalent in the marketplace right now?

Mike, we are constantly talking to competitors and customers. We are still very interested in additional purchase lease-backs. We like those types of transactions. We think there is a possibility that an acquisition may be accomplished this year, although we have nothing at the moment that we are really at liberty to talk about.

So it's just what we do all of the time -- trading deals, purchase lease-back, acquisitions. As I mentioned, we are kind of hedging our bets a little bit by ordering a significant amount of new production as well.

One other piece -- we are always, of course, looking at the containers that we manage and discussing with the owners whether they have any interest in selling their containers. But I think we should note we did pass on General Motors (laughter).

Fair enough, fair enough. Looking I guess at pricing now, I mean, historically, this has been -- the renewal rates have been kind of flat at best. But I mean do you guys think you're going to be able to generate any I guess leverage or pricing power off the bottom here, and to what degree? Do you think that will be an H1 2010 event if it happens, or is it more in the back half of the year?

Well, we are certainly able to raise rates on the module lease-outs, meaning the incremental lease-outs we are seeing right now. We are certainly also testing the waters for increasing rates on lease renewals.

It's a little early to say how successful we will be, but I would say that the market conditions have not been much better to try to pursue that than now.

Okay, all right. That makes sense.

I guess finally, you guys mentioned the fact that you guys are in conversations to extend your facility. I was curious as to what is the pricing like or at least what has been discussed on the extension? I guess, if you can't give a direct number, what sort of spreads should we be thinking about between that and I guess the rate at which you could term out at?

Well, we can term out at LIBOR plus 2.25, Greg. We certainly don't expect to term out. We've had that opportunity in the past. We think maintaining positive relationships with our banks is a very important part of operating our business going forward. Therefore, we certainly don't intend to term out the facility. The pricing that we are discussing -- and of course this is very early stages -- is, I would say, in the order of 200 basis points, between 150 and 250 basis points higher than where we could term out the facility.

Great. I appreciate it, guys. That's all I have.

Gregory Lewis, with Credit Suisse.

Thank you and good morning. You must have known I was coming next. Ernie, I guess my first question is regarding the balance sheet. It looked like, Q4 versus Q3, there was a spike up in Accounts Receivable. At the same time, it looked like bad debt expense went down quarter-over-quarter. So I was just trying to gauge maybe why that account receivable moved up.

Yes, we have seen a slowdown in collections. Also remember the size of the fleet has increased by 15%, so we have a larger fleet that we are billing, but there has been some slowdown this year. The allowance is actually larger, but if you just look at it quarter-over-quarter bad debt expense, that can be influenced by periodic changes to the reserve. So there is no doubt there has been some slowdown with some customers. That's generally why the Accounts Receivable is up a bit this year.

Okay, great. Then, Phil, you mentioned that you sold about 100,000 containers and it was primarily in-fleet more than trading containers. As you look back over 2009, would you say the average age of those containers from the in-fleet that you were selling were younger or older versus previous years?

Well, first, Greg, I would like to say to Mike, I apologize for calling you Mike, Greg, but now, Greg I am speaking to you, so Mike, I'm sorry. Greg, no the age has been pretty consistent over the past many, many years of selling containers. It's generally averaged between 11.5 to 12.5 years of age for in-fleet containers sales.

Okay, great. That's kind of what I was thinking. Then lastly, given the fact that utilization has been on the rise, at this point, how much of the fleet is in depots that you would -- that is able to move back into the fleet?

Yes, I look at that every day, Greg. I looked at our unbooked inventory as of yesterday. There's about 57%, 58% of that is in Asia. So one of the things we are focusing on very strongly right now is how to activate some of the really dead inventory -- the New Yorks and the Londons and the Rotterdams and places like that. But we still have quite a bit of inventory in Asia of the off-lease inventory.

Okay, and then when I think about it, if things continue to remain strong, then we could see utilization pop up another 1%, 2%. Is that sort of a good number?

I think we could see more than that. I think, if I look at our open bookings, which are quite strong, assuming they get turned into lease-outs, and the remaining inventory in Asia, I think there is another maybe 3 points before we start having to figure out how to activate some of the really low demand inventory.

Okay, great. Thank you very much for your time, guys.

Sameer Gokhale, KBW.

Just a few questions. Firstly, as it relates to your end-period owned TEU, it doesn't look like there was that much of an increase. It seems kind of flattish with your end-of-period TEU from last quarter. I know you talked about the average utilization rate being up something like 100 BIPS or so sequentially from Q3 to Q4. But when I look at the lease rental income compared to Q3 and your statistic which talks about every 1% increase in utilization results in $4.4 million increase in pretax income -- when I look at the sequential increase in your lease income and try to look at the components of expenses, it seems like there was a clear increase in the lease income and pretax income contribution relative to the 100 basis point increase in the utilization rate. So, I may have missed that in some of your comments, but if you would provide some color on that, that would be helpful.

Remember that the $4.4 million we referred to be is effect over an entire year, so you won't see that in one quarter.

No, I realize that. Like I was saying, okay, if it is a quarter, let's say it is $1.1 million sequentially just for rough math, but it seems like your actual income increase was greater than $1.1 million would imply. So I was wondering why the number was higher than what --

There's a couple of things. One, we had the -- we purchased a portion of the fleet that we formerly managed from Amficon. That was defective October 1. The revenue from that fleet was about $3.5 million for the quarter, the gross revenue. We also had -- that was probably one of the larger transactions.

What was the other part of the question?

I guess those assets would be included in your own TEU, though, right? Your own TEU didn't seem to increase. If I'm doing my math correctly, they were kind of flat quarter-over-quarter, so I didn't know if there was a difference or --.

I think, at the last, if I remember, I think we had about 43% of the fleet owned at the last quarter. Now we are up to 45. We were -- we weren't purchasing new containers except for some refrigerated containers. At the same time, the volume of disposals was quite a bit higher. As Phil mentioned, we had over 100,000 total in-fleet containers, of which some were owned containers. So we've got disposals offsetting some of the increase from Amficon containers.

Yes, that's why it's one of our main strategies for growing the overall size of the fleets(inaudible) through acquisitions because, with a fleet the size that we have now, you are disposing just through age and a large number of containers each year, so just being able to buy replacements, new replacements, is difficult just to stay even. So in order to get a significant jump in the size of the fleet, you really have to do an acquisition or a major purchase lease-back.

Okay. That's helpful. Then just another question -- you had mentioned that Drewry report talking about 3.4% growth in containerized trade forecasted for 2010. I was curious if you -- as you look out through the year, if you agree with that forecast or if you think that is conservative. I know historically containerized trade volumes have been a multiple of forecasted global GDP growth and the IMF seems to be looking for 4% GDP growth in 2010. So relative to that, is the 3% to 4% growth in containerized trade -- does that seem conservative to you or is that a realistic number in your opinion?

In my own opinion, I think it's conservative because we read the industry publications when we are constantly updating our investor presentation that we put on our website. The Drewry was -- when I updated it just another day, Drewry was 2.4%. Then they went from there to 3% to 4%. The IMF was 2.5% GDP growth and I haven't seen the latest, if you're saying 4%.

So it is a fluid situation changing literally day by day. I think Robert came back from many, many meetings over a two-week period and had -- not to put words in your mouth, Robert, but I think a pretty optimistic view of where things are going this year.

And then just my last question -- I was curious if you were seeing any sort of change in the mix of goods that are being shipped by your containers. I know historically there's apparel, equipment, parts and things like that. But is there anything to be gleaned from that in terms of you are seeing more consumer durable goods being sold versus other types (inaudible) any color you can provide on that?

I can say, from having spent the two weeks in Asia, basically everything is being shipped. The lines are cutting a little bit short on chemicals because they don't want to weigh out their vessels, but the main shippers out of China primarily right now are the big buyers, the Wal-Marts of the world, the Target, the Home Depot. There is an increase in car auto parts being shipped. Everybody wants their products shipped right now. That goes to the global shipping lines, the medium carriers, the intra-Asia carriers, you name it. There's just an incredible pressure on both equipment, containers and obviously containers (inaudible) this stage here.

To the extent that many shipping lines have snuck in additional capacity, some of their laid up capacity is being called back. Whether that is being announced officially or not is a different story, but many of the global shipping lines are putting in extra loaders right now to absorb the increased loading they are experiencing.

I would think the number is conservative, looking at the front end loading we are seeing on these increased shipments here. If it's true, what I heard from most of our customers that the market will resume at a pretty strong level two, three weeks after Chinese New Year, then I would definitely think the number is conservative.

That's very good and helpful color. Thank you.

Brian Hogan, Piper Jaffray.

Good morning, guys. Kind of a follow-up on the last question is trade routes in general, is it just intra-Asia or is it all trade routes -- trans-Pacific, trans-Atlantic? Any color there?

The biggest increase in loadings over and above the last quarter is definitely the trade to Europe. That's where the biggest container vessels are being utilized, and that's definitely also where the biggest surge in loadings has taken place.

Trans-Pacific has seen an increase but not anywhere close to the same level as Europe has seen. And intra-Asia has kind of remained strong all throughout this.

Sure. Then the retail values of containers -- you mentioned (inaudible) obviously they are moving up kind of slowly, steadily and maintaining I guess with a strong or steady prices of new containers and less supply -- but is there consistent demand? Has demand increased for the new containers or I should say use?

As I noted, we sold 100,000 containers last year, the first time we've ever sold more than 100,000 containers.

Demand has not been an issue. Yes, prices were down and prices were also affected somewhat by exchange rate differentials as we report in US dollars and some of our containers sales occurred in other currencies, although most are in US dollars.

So no, it hasn't been an issue. There has not been any problem with finding the demand for the containers to sell.

All right. More of kind of a broad question -- on competition, do you think the competition is being rational? Do you think it is being aggressive on pricing, putting -- you know, ordering too many containers? Just kind of comments around that, please.

I think competition is being quite rational. You can't really order too many containers. See, the container manufacturers lost about 60% of their workforce in 2009. Right now, despite strong demand, there are still producing at one shift. In fact, due to a lack of skilled labor there, they are having a hard time even filling one shift. So there is a limit to what the output can be. The question going forward will be, will the manufacturers stay to one shift or will they go to two? We think they will stick to one in as much as the shipping lines are not yet buying and the purchase intake will depend on a handful of leasing companies and what our appetite is.

But I mean, if you look at right now for the new production we have, we probably have more inquiries on the table right now than we will be able to cater for just on the orders we've placed and we've probably placed orders, you know, one of the top three out there. So --.

All right, and then John, you mentioned utilization going up stronger, and it peaked at around 97% or so back in, I guess I believe was it '08, early '08 timeframe?

No, it was actually the last part of the September of '08 where it peaked at 97.5% and then in the fourth quarter, that is when the cyclical downturn started in earnest and then it just went straight down from there.

Sure. Do you see it going back to those levels or where do you kind of see like the long term -- with all these industry shifts going on? Where do you see it kind of leveling out?

Well, you know, we had a five-year average through 2008 of about 93%. I think we can certainly get back to that level.

Getting higher depends upon us being able to reactivate some of the inventory that is in very low demand areas, but I certainly think 93%, 94% is a very realistic scenario in the not-too-distant future.

Sure. Utilization -- but investment volume -- historically you've done $320 million in 2008, $207 million in 2007 or so. You just put in an order for a total of $64 million for delivery through May. Where do you see kind of investment volume playing out for 2010 or so?

Well, you know, it's going to depend upon the strength of the market. I think, as Robert said, it's going to be -- the manufacturers have been fairly seriously handicapped in terms of their labor, so they are trying to hire people; they are trying to train them. There's also not a lot of buyers. There's maybe three of our competitors are buying in any significant quantity. The KG funded lessors, as we predicted, are not buying anything to speak of. So I think you're going to face a couple of issues. One is limits to supply, and we just have to see how it goes, but depending on how that goes, we could have a pretty big year in terms of new production.

All right, thanks, guys.

Jordan Hymowitz, Philadelphia Financial.

Congratulations on an excellent quarter all-around. First of all, let's talk about what percent of the business is now leased on the margin versus owned by the shipping companies?

I just saw a -- let me see, I think I have that report here. This is a preliminary report from [Andrew Foxboro], the British writer who does -- compiles all of these statistics. He is showing that, as of January 2010, the leasing company share of the standard dry freight market is 42.5%

Okay, but that's the hallmark. If you would say what's being done in the past six months, how much would be leasing companies and what would be shipping?

Okay. Well, what he has compiled is that, in 2009, again we are looking at very, very small quantities here. He has taken all types of containers -- dry freight standard, dry freight special, refrigerated, tanks, domestic containers -- these are the 53-foot. He is saying that, among that, leasing companies bought 235,000 TEU, shipping lines bought 120,000, and other transport 70,000. These other transport are such things as traders, some of these container traders that buy brand-new low-spec containers and then sell them in the secondary market. So if you look at -- what he's claiming is a total world production last year of all types of roughly 400,000, then shipping lines bought only about a third of that.

Okay. Now let's take that a little further. Now, of the leasing companies, how much of that was companies like you guys versus the KG funds?

Well --

Guess if you don't know the number!

No, I'm looking what was supposedly purchased last year. If I look at -- this is a very small amount -- of the KG funded companies, it was -- very, very little of that was KG.

Okay. So the other way to look at that, then, that even if the industry grows by 3% to 4%, so to speak, you could grow substantially faster than that because your share is going to be almost triple -- double or triple what it normally is because there is no competition from KG funds or very little competition from shipping companies. Is that a reasonable thought process?

Yes, well, yes. We are looking at -- if we look at the total picture, even if we look at the upside of what the manufacturers are telling us they are going to produce, which is about 1 million TEU, retirements from service will also be around 1 million TEU. So, I think the growth fleet is not likely to grow at all this year.

Now, within the new production, if there is 1 million TEU made, my suspicion is that the leasing companies will account for a very big portion of that 1 billion TEU.

The leasing could be half of it arguably.

I think it will be more than (multiple speakers) much more than half. Because, you know --

It could easily be 70 --

It could be 70, yes. As we talk to shipping lines, and really we have not found anybody yet that is planning to make a major purchase of new containers.

So arguably the industry growth rate understates dramatically the growth rate potentially of the leasing companies like yourselves because you're going to gain new [share]?

Yes, but based on a very small number, 1 million versus the 3 million average TEU yield over the last for to five years prior to 2009.

Okay. A different topic for a second and that is a number of bank analysts are pitching these FBI assisted deals on you know, you are not paying any (inaudible) for them but they felt a lot of things could be worked out. When you buy these other companies that you're bidding on, you bought two or three of them at this point, you have almost no G&A that comes over with them and the integration is almost nothing as well, so it's almost purely accretive. Is that correct?

Well, I think one thing that's important to keep in mind is we are not buying companies.

Well, when you buy the portfolios, rather?

Right. Well, it is correct but I mean employees aren't coming over or SG&A is not coming over because what we are acquiring in general have been assets into our management rights. So there are no -- we don't also acquire the other pieces you're talking about.

Now, if we were going to acquire a company, that might be different.

Okay, thank you.

James Ellman, Seacliff Capital.

If I could follow up with a bit of that question on the weaker competitors or owners, the shippers and some of the German organizations, as your market share grows, could you comment on what happens to pricing power on your side? What happens to some of the marketshare of some of these companies? Would you believe that some of them might actually just get out of the ownership business?

Well, I think you have to look at it on a competitor-by-competitor basis. Historically, we've taken over the fleets of six competitors in the last ten or so years, most of that in the last three years. I think it's safe to say that we just absorb that capacity into our -- and we have relationships with all of these customers even before we've taken over, so our on-hire position with a particular customer is just additive.

We also found an interesting phenomenon as we got to be larger, that several customers, large shipping lines that we had not done a lot of business with, came to us and said "You know, we realize that Textainer is now of a size that we can't afford not to have you as a major supplier." So if anything, I think we've picked up some volume with some key customers that we just hadn't been able to break the magic code, whether it was lease rates that were not acceptable to us or other conditions.

So generally speaking, I think that, as you are able to acquire competitors, you're able to see a net growth in your on-hire position with most of the major shipping lines.

As your share grows --

John Maccarone (multiple speakers)

As your share grows, do you see any improvement in pricing power?

Pricing power is really a function of supply and demand. In the situation we are in now, we think -- well, we don't want to get too far ahead of ourselves -- we think that this is a year that we are going to have some level of pricing power, but I don't want people to think we are suddenly going to be able to raise prices by 20%, 30%; that isn't going to happen.

But with the leverage in your model, just a couple percent of course would have a significant impact on the bottom line.

Absolutely. The utilization has a huge impact, as we talked about on an annualized basis. 1 percentage point is about $4.4 million, but even $0.01 increase in per diem rates over the entire fleet for a year is about $3.3 million. So there's a lot of leverage in this business, and then even within our company, we have a very, very low debt-to-equity leverage. So as we find opportunities that justify increasing the leverage, that gives us some upside potential there as well.

All right, one other question -- the institutional investors that you are managing portfolios for that you purchased the portfolios back from them or took them over this year, or in 2009, why are the institutional investors selling out of their positions? And why are you buying them? Obviously, I would imagine it's just because they are accretive to earnings. So my question is, why are they selling? How many TEU are you still managing for institutional investors? Are there other institutional investors out there with portfolios that might be willing to sell?

Well, let's start with why are they selling? The ones that sold needed cash, pure and simple.

Why are we buying? We make about three times more in net income on an owned container than a managed container. So while we like to own, we also like to make money, and there's an opportunity to make more money.

How much are we managing? About 55% of our total fleet is managed, most of that for institutional investors.

Will there be additional sales? You know, we talk to them continuously. We literally just looked at a portfolio last week and we couldn't come to terms on price, so I don't know how to answer that question. As the market improves, then these owners would probably be less compelled to sell at a price that we would want to pay.

What about institutional investors not in your portfolio but potentially willing to sell their portfolio?

Well, that's difficult because buying a container from an institutional investor that's managed by another leasing company presents a big array of problems that I don't want to go into it at this moment, but it is highly unlikely that would be something we would do.

Okay, so for 2010, it's just whether or not you can chip away at that 55% and break it out further?

Right, exactly.

At this time, we have no further questions in the question queue, so I'd like to turn the call back over to management for any additional or closing remarks.

Well, I would just say thank you very much for your support, and we appreciate all of the good questions and look forward to seeing you again at the next quarterly earnings call. Thank you.

This does conclude today's conference. Thank you for your participation.