UNITEDSTATES SECURITIES AND EXCHANGECOMMISSIONWASHINGTON, D.C.20549

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FORM10-Q

    QUARTERLY REPORT PURSUANT TO SECTION13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

ForThe Quarterly Period Ended September 30,2005or

    TRANSITION REPORT PURSUANT TOSECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934  

Commission file number-001-32638

TAL International Group,Inc.(Exact name of registrant as specified inthecharter)

|                                                                                           |  |                                                     |  |  |  |  |
|-------------------------------------------------------------------------------------------|--|-----------------------------------------------------|--|--|--|--|
| **Delaware**(State or other jurisdictionofincorporation or organization)                  |  | **20-1796526**(I.R.S. EmployerIdentificationNumber) |
|                                                                                      |  |                                                |
|         100Manhattanville Road, Purchase, NewYork |  | 10577-2135                                          |
|         (Addressof principal executive office)    |  | (ZipCode)                                           |
|                                                                                           |

(914)251-9000(Registrant's telephone numberincluding area code)

Indicate by check markwhether the registrant (1) has filed all reports required to be filedby Section 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that the registrantwas required to file such reports), and (2) has been subject to suchfiling requirement for the past 90 days. Yes     No *

Indicate by check mark whether the registrant is anaccelerated filer (as defined in the Exchange Act Rule 12b-2). Yes    No 

Indicate by check mark whetherthe registrant is a shell company (as defined in the Exchange Act Rule12b-2). Yes     No 

As of November 14,2005, there were 32,882,208 shares of common stock, $.001 par valueoutstanding.

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|  | *The registrant became subject to the filingrequirements on October 11,2005. |

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TAL INTERNATIONAL GROUP,INC.

INDEX

Part I — FinancialInformation

|                                     |  |                                                                                                                                                                                                                                                 |        |         |       |        |  |  |  |  |
|-------------------------------------|--|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------|-------|--------|--|--|--|--|
|                                |  |                                                                                                                                                                                                                                            |        | PageNo. |
| Item1.                              |  | FinancialStatements                                                                                                                                                                                                                             |        |    |
|                                |  | UnauditedConsolidated Balance Sheets at September 30, 2005 (Successor) andDecember 31, 2004(Successor)                                                                                                                                          |        |    | 4     |   |
|                                |  | UnauditedConsolidated Statements of Operations for the three and nine monthsended September 30, 2005 (Successor) and Unaudited CombinedConsolidated Statements of Operations for the three and nine monthsended September 30, 2004(Predecessor) |        |    | 5     |   |
|                                |  | UnauditedConsolidated Statement of Cash Flows for the nine months endedSeptember 30, 2005 (Successor) and Unaudited Combined ConsolidatedStatement of Cash Flows for the nine months ended September 30, 2004(Predecessor)                      |        |    | 6     |   |
|                                |  | Notes toConsolidated FinancialStatements                                                                                                                                                                                                        |        |    | 7-15  |   |
| Item2.                              |  | Management's Discussion and Analysis of FinancialCondition andResults ofOperations                                                                                                                                                              |        |    | 16-28 |   |
| Item3.                              |  | Quantitative and Qualitative Disclosures About MarketRisk                                                                                                                                                                                       |        |    | 29-30 |   |
| Item 4.                             |  | ControlsandProcedures                                                                                                                                                                                                                           |        |    | 30    |   |
| **PartII — OtherInformation** |  |                                                                                                                                                                                                                                            |   |    |
| Item1.                              |  | Legal Proceedings                                                                                                                                                                                                                               |        |    | 31    |   |
| Item6.                              |  | Exhibits                                                                                                                                                                                                                                        |        |    | 31    |   |
| Signature                           |  |                                                                                                                                                                                                                                            | 32     |    |
|                                     |

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CAUTIONARYSTATEMENT FOR PURPOSES OF THE ‘‘SAFEHARBOR’’ PROVISIONS OF THE PRIVATE SECURITIES LITIGATIONREFORM ACT OF 1995

This Quarterly Report onForm 10-Q contains certain forward-looking statements,including, without limitation, statements concerning the conditions inour industry, our operations, our economic performance and financialcondition, including, in particular, statements relating to ourbusiness and growth strategy and service development efforts. ThePrivate Securities Litigation Reform Act of 1995 provides a‘‘safe harbor’’ for certain forward-lookingstatements so long as such information is identified as forward-lookingand is accompanied by meaningful cautionary statements identifyingimportant factors that could cause actual results to differ materiallyfrom those projected in the information. When used in this QuarterlyReport on Form 10-Q, the words‘‘may’’,‘‘might’’,‘‘should’’,‘‘estimate’’,‘‘project’’,‘‘plan’’,‘‘anticipate’’,‘‘expect’’,‘‘intend’’,‘‘outlook’’,‘‘believe’’ and other similar expressionsare intended to identify forward-looking statements and information.You are cautioned not to place undue reliance on these forward-lookingstatements, which speak only as of their dates. These forward-lookingstatements are based on estimates and assumptions by our managementthat, although we believe to be reasonable, are inherently uncertainand subject to a number of risks and uncertainties. These risks anduncertainties include, without limitation, those identified under thecaption ‘‘Management's Discussion and Analysis ofFinancial Condition and Results of Operations’’, under‘‘Risk Factors’’ in our registrationstatement on Form S-1 (File No. 333-126317) filed withthe Securities and Exchange Commission(‘‘SEC’’), as such registration statementbecame effective on October 11, 2005, and all of our other filingsfiled with the SEC from October 11, 2005 through the current datepursuant to the Securities Exchange Act of 1934.

Weundertake no obligation to publicly update or revise anyforward-looking statement as a result of new information, future eventsor otherwise, except as otherwise required by law. Reference is alsomade to such risks and uncertainties detailed from time to time in ourfilings with the SEC.

PART I — FINANCIALINFORMATION

ITEM 1.    FINANCIAL STATEMENTS

Theconsolidated financial statements of TAL International Group, Inc.(‘‘TAL,’’ the‘‘Company,’’ or‘‘Successor’’) as of September 30, 2005(unaudited) and December 31, 2004 and for the three and nine monthsended September 30, 2005 (unaudited), and the combined consolidatedfinancial statements of Transamerica Maritime Container (the‘‘Predecessor’’) for the three and ninemonths ended September 30, 2004 (unaudited) included herein have beenprepared by the Company, without audit, pursuant to U.S. generallyaccepted accounting principles and the rules and regulations of theSecurities and Exchange Commission (the‘‘SEC’’). However, certain information andnote disclosures normally included in financial statements prepared inaccordance with U.S. generally accepted accounting principles have beencondensed or omitted pursuant to such rules and regulations, althoughthe Company believes that the disclosures are adequate to make theinformation presented not misleading. These financial statementsreflect, in the opinion of management, all adjustments (consisting onlyof normal recurring adjustments) necessary to present fairly theresults for the interim periods. The results of operations for suchinterim periods are not necessarily indicative of the results for thefull year. These financial statements should be read in conjunctionwith the consolidated financial statements and the notes theretoincluded in the Company’s Registration Statement onForm S-1 (File No. 333-126317) filed with the Securitiesand Exchange Commission (‘‘SEC’’), as suchregistration statement became effective on October 11, 2005, andall of our other filings filed with the SEC from October 11,2005 through the current date pursuant to the Securities Exchange Actof 1934.

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TAL INTERNATIONAL GROUP,INC.     Consolidated Balance Sheets(Dollars inthousands, except sharedata)

|                                                                                                                                                            |  |                   |           |                 |  |        |           |         |  |  |
|------------------------------------------------------------------------------------------------------------------------------------------------------------|--|-------------------|-----------|-----------------|--|--------|-----------|---------|--|--|
|                                                                                                                                                       |  | Successor         |
|                                                                                                                                                       |  | September30, 2005 |           | December31,2004 |
|                                                                                                                                                       |  | (Unaudited)       |           |            |
| **Assets:**                                                                                                                                                |  |              |      |            |  |   |      |    |
| Cashand cashequivalents                                                                                                                                    |  | $                 | 42,866    |            |  | $      | 17,668    |    |
| Accountsreceivable, net of allowances of $829 and$225                                                                                                      |  |              | 30,184    |            |  |   | 35,014    |    |
| Net investment indirect financeleases                                                                                                                      |  |              | 70,425    |            |  |   | 13,262    |    |
| Leasingequipment, net of accumulated depreciation and allowances of $100,723and$19,029                                                                     |  |              | 1,059,093 |            |  |   | 1,103,423 |    |
| Leaseholdimprovements and other fixed assets, net of accumulated depreciationand amortization of $1,127 and$566                                            |  |              | 3,787     |            |  |   | 4,255     |    |
| Equipment held forsale                                                                                                                                     |  |              | 28,311    |            |  |   | 11,578    |    |
| Goodwill                                                                                                                                                   |  |              | 73,217    |            |  |   | 73,570    |    |
| Deferredfinancing costs                                                                                                                                    |  |              | 22,439    |            |  |   | 47,343    |    |
| Otherassets                                                                                                                                                |  |              | 23,495    |            |  |   | 14,770    |    |
| **Totalassets**                                                                                                                                            |  | $                 | 1,353,817 |            |  | $      | 1,320,883 |    |
| **Liabilitiesand stockholders' equity(deficit):**                                                                                                          |  |              |      |            |  |   |      |    |
| Accountspayable                                                                                                                                            |  | $                 | 20,895    |            |  | $      | 4,580     |    |
| Accruedexpenses                                                                                                                                            |  |              | 59,150    |            |  |   | 40,039    |    |
| Income taxespayable                                                                                                                                        |  |              | —   |            |  |   | 1,557     |    |
| Deferredincome taxliability                                                                                                                                |  |              | 6,862     |            |  |   | 2,393     |    |
| Debt:                                                                                                                                                      |  |              |      |            |  |   |      |    |
| Assetsecuritizationfacility                                                                                                                                |  |              | 695,000   |            |  |   | —   |    |
| Seniorsecured creditfacility                                                                                                                               |  |              | 87,000    |            |  |   | 797,000   |    |
| Seniorunsecured creditagreement                                                                                                                            |  |              | 275,000   |            |  |   | 275,000   |    |
| **Totalliabilities**                                                                                                                                       |  |              | 1,143,907 |            |  |   | 1,120,569 |    |
| Preferredstock, Series A 12.0% cumulative, subject to redemption, 210,000shares authorized, 201,205 and 200,000 shares issued and outstanding,respectively |  |              | 223,669   |            |  |   | 203,738   |    |
| Commonstock, subject to redemption, 392,034 and 338,367 shares issued andoutstanding,respectively                                                          |  |              | 4         |            |  |   | 3         |    |
| **Stockholders'equity (deficit):**                                                                                                                         |  |              |      |            |  |   |      |    |
| Preferred stock,$.001 par value, 500,000 shares authorized, noneissued                                                                                     |  |              | —   |            |  |   | —   |    |
| Commonstock, $.001 par value, 100,000,000 shares authorized, 9,812,139 sharesissued andoutstanding                                                         |  |              | —   |            |  |   | —   |    |
| Additionalpaid-in capital                                                                                                                                  |  |              | 4,014     |            |  |   | 97        |    |
| Accumulateddeficit                                                                                                                                         |  |              | (14,322   | )          |  |   | (3,541    | )  |
| Unearnedcompensation                                                                                                                                       |  |              | (3,427    | )          |  |   | —   |    |
| Accumulatedother comprehensive (loss)income                                                                                                                |  |              | (28       | )          |  |   | 17        |    |
| **Totalstockholders' equity(deficit)**                                                                                                                     |  |              | (13,763   | )          |  |   | (3,427    | )  |
| **Totalliabilities and stockholders' equity(deficit)**                                                                                                     |  | $                 | 1,353,817 |            |  | $      | 1,320,883 |    |
|                                                                                                                                                            |

Theaccompanying notes to the unaudited consolidated financialstatements are an integral part of thesestatements.

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TAL INTERNATIONAL GROUP,INC.    Consolidated Statements of Operations and CombinedConsolidated Statements of Operations (Dollars in thousands,except per share data)

|                                                                                                                     |  |                                |            |                               |  |           |         |             |  |        |            |         |  |        |         |        |  |  |
|---------------------------------------------------------------------------------------------------------------------|--|--------------------------------|------------|-------------------------------|--|-----------|---------|-------------|--|--------|------------|---------|--|--------|---------|--------|--|--|
|                                                                                                                |  | Successor                      |            | Predecessor                   |  | Successor |         | Predecessor |
|                                                                                                                |  | ThreeMonths EndedSeptember 30, |            | Nine MonthsEndedSeptember 30, |
|                                                                                                                |  | 2005                           |            | 2004                          |  | 2005      |         | 2004        |
|                                                                                                                |  | (Unaudited)                    |            | (Unaudited)                   |
| **Revenues:**                                                                                                       |  |                           |       |                          |  |      |    |        |  |   |       |    |  |   |    |   |
| Leasingrevenues, including income recognized on direct financing leases of$1,934, $99, $3,356 and $155,respectively |  | $                              | 71,001     |                          |  | $         | 72,701  |        |  | $      | 215,084    |    |  | $      | 218,389 |   |
| Equipmenttradingrevenue                                                                                             |  |                           | 7,774      |                          |  |      | 3,173   |        |  |   | 17,173     |    |  |   | 8,790   |   |
| Managementfeeincome                                                                                                 |  |                           | 1,566      |                          |  |      | 1,679   |        |  |   | 4,978      |    |  |   | 5,520   |   |
| Otherrevenues                                                                                                       |  |                           | 738        |                          |  |      | 484     |        |  |   | 1,909      |    |  |   | 3,122   |   |
| **Totalrevenues**                                                                                                   |  |                           | 81,079     |                          |  |      | 78,037  |        |  |   | 239,144    |    |  |   | 235,821 |   |
| **Expenses:**                                                                                                       |  |                           |       |                          |  |      |    |        |  |   |       |    |  |   |    |   |
| Equipmenttradingexpenses                                                                                            |  |                           | 6,026      |                          |  |      | 2,326   |        |  |   | 13,257     |    |  |   | 6,504   |   |
| Directoperatingexpenses                                                                                             |  |                           | 6,393      |                          |  |      | 6,862   |        |  |   | 20,428     |    |  |   | 20,350  |   |
| Administrativeexpenses                                                                                              |  |                           | 9,411      |                          |  |      | 8,372   |        |  |   | 28,362     |    |  |   | 25,822  |   |
| Depreciationandamortization                                                                                         |  |                           | 29,418     |                          |  |      | 35,914  |        |  |   | 88,076     |    |  |   | 107,475 |   |
| Equipmentrentalexpense                                                                                              |  |                           | 17         |                          |  |      | 1,402   |        |  |   | 279        |    |  |   | 4,217   |   |
| Provisionfor doubtfulaccounts                                                                                       |  |                           | 528        |                          |  |      | 880     |        |  |   | 567        |    |  |   | 1,899   |   |
| Net(gain) loss on sale of leasingequipment                                                                          |  |                           | (1,178     | )                        |  |      | 695     |        |  |   | (8,133     | )  |  |   | 6,679   |   |
| Write-offof deferred financingcosts                                                                                 |  |                           | 24,313     |                          |  |      | — |        |  |   | 24,313     |    |  |   | — |   |
| Interestand debtexpense                                                                                             |  |                           | 21,239     |                          |  |      | 6,722   |        |  |   | 63,849     |    |  |   | 20,001  |   |
| Unrealized(gain) on interest rateswaps                                                                              |  |                           | (7,589     | )                        |  |      | — |        |  |   | (8,975     | )  |  |   | — |   |
| OtherParent Company charges and managementfees                                                                      |  |                           | 1,346      |                          |  |      | 1,667   |        |  |   | 4,598      |    |  |   | 13,969  |   |
| **Totalexpenses**                                                                                                   |  |                           | 89,924     |                          |  |      | 64,840  |        |  |   | 226,621    |    |  |   | 206,916 |   |
| (Loss)income before incometaxes                                                                                     |  |                           | (8,845     | )                        |  |      | 13,197  |        |  |   | 12,523     |    |  |   | 28,905  |   |
| Incometax (benefit)expense                                                                                          |  |                           | (3,090     | )                        |  |      | 4,838   |        |  |   | 4,577      |    |  |   | 10,561  |   |
| **Net(loss)income**                                                                                                 |  |                           | (5,755     | )                        |  | $         | 8,359   |        |  |   | 7,946      |    |  | $      | 18,344  |   |
| Preferredstockdividends                                                                                             |  |                           | (6,568     | )                        |  |      |    |        |  |   | (18,727    | )  |  |   |    |   |
| **Netloss applicable to commonstockholders**                                                                        |  | $                              | (12,323    | )                        |  |      |    |        |  | $      | (10,781    | )  |  |   |    |   |
| Netloss per common share: Basic and Diluted(a)                                                                      |  | $                              | (1.21      | )                        |  |      |    |        |  | $      | (1.06      | )  |  |   |    |   |
| Weightedaverage number of common shares outstanding — Basic andDiluted                                        |  |                           | 10,204,173 |                          |  |      |    |        |  |   | 10,186,284 |    |  |   |    |   |
|                                                                                                                     |

(a)For the three and nine month periods ended September 30, 2004, noincome (loss) per share data has been presented as thePredecessor’s results were consolidated with TransamericaFinance Corporation (see Note 1).

Theaccompanying notes to the unaudited consolidated financialstatementsare an integral part of these statements.

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TAL INTERNATIONAL GROUP,INC.

Consolidated Statement of Cash Flows and CombinedConsolidated Statement of Cash Flows (Dollars inthousands)

|                                                                                 |  |                               |          |             |  |        |          |         |  |  |
|---------------------------------------------------------------------------------|--|-------------------------------|----------|-------------|--|--------|----------|---------|--|--|
|                                                                            |  | Successor                     |          | Predecessor |
|                                                                            |  | Ninemonths ended September30, |
|                                                                            |  | 2005                          |          | 2004        |
|                                                                            |  | (Unaudited)                   |
| **Cashflows from operating activities:**                                        |  |                          |     |        |  |   |     |    |
| NetIncome                                                                       |  | $                             | 7,946    |        |  | $      | 18,344   |    |
| Adjustmentsto reconcile net income to net cash provided by operatingactivities: |  |                          |     |        |  |   |     |    |
| Depreciation andamortization                                                    |  |                          | 88,076   |        |  |   | 107,475  |    |
| Amortizationof deferred financingcosts                                          |  |                          | 3,918    |        |  |   | —  |    |
| Write-offof deferred financingcosts                                             |  |                          | 24,313   |        |  |   | —  |    |
| Net(gain) loss on sale of leasingequipment                                      |  |                          | (8,133   | )      |  |   | 6,679    |    |
| Unrealized(gain) on interest rateswaps                                          |  |                          | (8,975   | )      |  |   | —  |    |
| Deferredincometaxes                                                             |  |                          | 4,469    |        |  |   | (14,580  | )  |
| Stockcompensationcharge                                                         |  |                          | 490      |        |  |   | —  |    |
| Changesin operating assets andliabilities                                       |  |                          | 19,839   |        |  |   | (27,999  | )  |
| **Netcash provided by operatingactivities**                                     |  |                          | 131,943  |        |  |   | 89,919   |    |
| **Cashflows from investingactivities:**                                         |  |                          |     |        |  |   |     |    |
| Purchases of leasingequipment                                                   |  |                          | (132,235 | )      |  |   | (243,257 | )  |
| Investment indirect financeleases                                               |  |                          | (42,110  | )      |  |   | (2,829   | )  |
| Proceedsfrom sale ofequipment                                                   |  |                          | 77,213   |        |  |   | 48,183   |    |
| Cashcollections on direct financing leases, net of unearnedincome               |  |                          | 4,181    |        |  |   | 1,816    |    |
| **Netcash (used in) investingactivities**                                       |  |                          | (92,951  | )      |  |   | (196,087 | )  |
| **Cashflows from financingactivities:**                                         |  |                          |     |        |  |   |     |    |
| Change in due toaffiliates,net                                                  |  |                          | —  |        |  |   | 80,889   |    |
| Initialborrowings under asset securitizationfacility                            |  |                          | 705,000  |        |  |   | —  |    |
| Paymentsunder asset securitizationfacility                                      |  |                          | (10,000  | )      |  |   | —  |    |
| Netpayments under senior secured creditfacility                                 |  |                          | (710,000 | )      |  |   | —  |    |
| Proceedsfrom issuance of preferredstock                                         |  |                          | 1,205    |        |  |   | —  |    |
| Proceeds fromissuance of commonstock                                            |  |                          | 1        |        |  |   | —  |    |
| Distribution toparent                                                           |  |                          | —  |        |  |   | (12,390  | )  |
| Capitalcontributions                                                            |  |                          | —  |        |  |   | 37,527   |    |
| **Netcash (used in)/provided by financingactivities**                           |  |                          | (13,794  | )      |  |   | 106,026  |    |
| **Netincrease (decrease) in cash and cashequivalents**                          |  |                          | 25,198   |        |  |   | (142     | )  |
| Cashand cash equivalents, beginning ofperiod                                    |  |                          | 17,668   |        |  |   | 3,161    |    |
| **Cashand cash equivalents, end ofperiod**                                      |  | $                             | 42,866   |        |  | $      | 3,019    |    |
|                                                                                 |

Theaccompanying notes to the unaudited consolidated financialstatements are an integral part of thesestatements.

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TALINTERNATIONAL GROUP, INC.

NOTES TO UNAUDITED CONSOLIDATEDFINANCIAL STATEMENTS

Note 1 — Description of theBusiness, Basis of Presentation, Recently Issued AccountingPronouncements

A.    Description of theBusiness

TAL International Group, Inc.(‘‘TAL,’’ the‘‘Company,’’ or‘‘Successor’’) was formed on October 26,2004 and commenced operations on November 4, 2004 with the completionof the acquisition transaction described below. The agreementsaffecting this acquisition provided for an effective date of October31, 2004, at which date the risks and rewards of ownership of thebusiness were transferred to TAL. TAL consists of the consolidatedaccounts of Trans Ocean Ltd. (‘‘TOL’’) andTAL International Container Corporation(‘‘TALI’’), formerly known as TransamericaLeasing Inc., and their subsidiaries.

TransamericaMaritime Container (the ‘‘Predecessor’’)consisted of the maritime container operations of Transamerica FinanceCorporation (‘‘TFC,’’ the‘‘Parent’’ or ‘‘ParentCompany’’). The combined consolidated financialstatements of the Predecessor have been derived from the accountingrecords of TOL and TALI and certain of their subsidiaries. Materialintercompany and inter-division balances have been eliminated incombination and consolidation. TOL and TALI were wholly owned indirectsubsidiaries of TFC, which is an indirect subsidiary of AEGON N. V.

Effective October 31, 2004, TAL acquired all of theoutstanding capital stock of TOL and TALI for approximately $1.2billion in cash, including $275.0 million of financing provided by theseller (an affiliate of AEGON N.V.). This acquisition of TOL and TALIis referred to as the ‘‘Acquisition.’’ TheAcquisition was accounted for using the purchase method of accounting,and, accordingly, the consideration paid has been allocated based onthe estimated fair values of the assets acquired and liabilitiesassumed. The excess of the consideration paid over the estimated fairvalue of the net assets acquired and liabilities assumed, includingseparately identifiable intangible assets, was allocated to goodwill.The change in goodwill from December 31, 2004 to September 30, 2005resulted from adjustments to the purchase priceallocation.

The following unaudited pro forma informationpresents the results of operations of the Company as if the Acquisitionhad taken place as of January 1, 2004. The pro forma financialinformation is not necessarily indicative of the actual results ofoperations had the transaction been effected on the assumed date. Thefollowing is the pro forma information for the three and nine monthsended September 30, 2004 (in thousands, except sharedata):

|                                                   |  |                                     |         |                                    |  |        |         |        |  |  |
|---------------------------------------------------|--|-------------------------------------|---------|------------------------------------|--|--------|---------|--------|--|--|
|                                              |  | Threemonths endedSeptember 30, 2004 |         | Nine monthsendedSeptember 30, 2004 |
| Totalrevenues                                     |  | $                                   | 78,905  |                               |  | $      | 238,425 |   |
| Net (loss)income applicable to commonstockholders |  |                                | (41     | )                             |  |   | 6,664   |   |
| Earningsper commonshare:                          |  |                                |    |                               |  |   |    |   |
| Basic                                             |  | $                                   | — |                               |  | $      | 0.66    |   |
| Diluted                                           |  | $                                   | — |                               |  | $      | 0.63    |   |
|                                                   |

Thepro forma net income amounts reflect the following items: (i) reversalof the amortization of initial direct lease costs, (ii) adjustments todepreciation expense arising from the valuation of the leasingequipment, as a result of the purchase price allocation from theAcquisition, (iii) increase in net loss (gain) on sale of leasingequipment associated with the fair value adjustments to leasingequipment under the purchase method of accounting, (iv) adjustments forinterest expense from new borrowings related to the Acquisition and theelimination of historical interest on debt repaid in the Acquisition,(v) elimination of non-recurring Predecessor expenses, (vi) to recordmanagement fees resulting from the Acquisition, (vii) the relatedincome tax effect of the above items based upon a pro forma effectiveincome tax rate of 37.0% and (viii) adjustments for the accrueddividends related to the preferred stock.

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B.    Basis ofPresentation

The preparation of financial statements inconformity with U.S. generally accepted accounting principles requiresmanagement to make estimates and assumptions that affect the reportedamounts of assets and liabilities, the reported amounts of revenues andexpenses during the reporting period and disclosure of contingentassets and liabilities at the date of the financial statements. Actualresults could differ from those estimates.

As a result ofthe Acquisition, the financial information for the three and ninemonths ended September 30, 2005 represents that of the Successor. Thecombined consolidated financial statements for the three and ninemonths ended September 30, 2004 include the accounts of the Predecessoras described above. Due to the change in the basis of accountingresulting from the application of the purchase method of accounting,the Predecessor's combined consolidated financial statements andSuccessor's consolidated financial statements are not necessarilycomparable.

The consolidated financial statements includethe accounts of the respective entities and their subsidiaries. Allintercompany transactions and balances have been eliminated inconsolidation. Certain reclassifications have been made to theaccompanying prior period financial statements and notes to conformwith the current year’s presentation.

C.    RecentlyIssued Accounting Pronouncements

In December 2004, theFinancial Accounting Standards Board(‘‘FASB’’) issued Statement of FinancialAccounting Standards No. 123R, ‘‘Share-BasedPayment,’’ (revised 2004), (‘‘SFAS No.123R’’). This Statement is a revision of SFAS No. 123.SFAS No. 123R supercedes APB Opinion No. 25, and its relatedimplementation guidance. SFAS No. 123R requires companies to recognizein the statement of operations the fair value of all employeeshare-based payments, including grants of employee stock options, aswell as compensatory employee stock purchase plans. The Company isevaluating the requirements under SFAS 123R, including the valuationmethods and support for the assumptions that underlie the valuation ofthe awards, as well as the transition methods (modified prospectivetransition method or modified retrospective transition method). TheCompany is required to adopt SFAS No. 123R on January 1, 2006. Based onthe number of options currently outstanding and not vested, managementdoes not expect the adoption of SFAS No.123R to have a significantimpact on the financial position, results of operations or cash flowsof the Company. However, future grants of share-based compensation willresult in the recognition of compensation expense.

InMay 2005, the FASB issued Statement of Financial AccountingStandards No. 154 ‘‘Accounting Changes and ErrorCorrections’’(‘‘SFAS No. 154’’).SFAS No. 154 replaces APB Opinion No. 20 and FASBStatement No. 3. This statement provides guidance on theaccounting for and reporting of accounting changes and errorcorrections. It requires retrospective application as the requiredmethod for reporting a change in accounting principle in the absence ofexplicit transition requirements specific to the newly adoptedaccounting principle. SFAS No. 154 carries forwardwithout change the guidance contained in APB No. 20 forreporting the correction of an error in previously issued financialstatements and a change in accounting estimate. SFAS No. 154 iseffective for accounting changes and corrections of errors made infiscal years beginning after December 15, 2005. The adoption ofSFAS No. 154 will not have a material impact on theCompany’s consolidated financial statements.

Otherpronouncements issued by the FASB or other authoritative accountingstandards groups with future effective dates are either not applicableor not significant to the Company's consolidated financialstatements.

Note 2 — Initial Public Offering

On October 17, 2005, the Company sold 11.5 million shares ofcommon stock at a price of $18.00 per share in an initial publicoffering (‘‘IPO’’) which generated netproceeds of approximately $189.2 million, after deducting underwriterdiscounts and other offering expenses. The Company used the netproceeds of this offering, together with additional borrowings underthe new asset securitization 

8

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facility and the amended and restated seniorsecured credit facility, to repay the entire outstanding principal andaccrued cash interest due on the senior unsecured credit agreementwhich was approximately $288.0 million on October 17, 2005. Related tothe IPO, the following activities alsooccurred:

|  |          |                                                                                                                                                                                                                                                                           |
|--|----------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | 1)  | The Company’sstockholders approved a 101.5052-for-1 stock split which becameeffective prior to the consummation of the IPO. All share and per shareinformation in the accompanying financial statements have beenretroactively restated to reflect this stocksplit. |

|  |          |                                                                                                                                                                                                                                                                                                                                                                                                                     |
|--|----------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | 2)  | All 201,205 outstandingshares of the Company’s Series A 12.0% cumulative seniorpreferred stock were converted into 11,178,035 shares of common stockon October 17, 2005, based on the IPO price of $18.00 per common share.As a result of the IPO, the stock split and the preferred stockconversion, the Company had 32,882,208 shares of common stock issuedand outstanding as of the completion of theIPO. |

|  |          |                                                                                                                                                                                                                                                                                                           |
|--|----------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | 3)  | Previously issued optionsgranted to various employees of the Company to purchase 454,612 sharesof common stock became fully vested on October 17, 2005, and as aresult, the unamortized balance of unearned compensation ofapproximately $3.4 million was recognized as compensation expense atthat date. |

|  |          |                                                                                                                                                                                                                                                                                                                                                                    |
|--|----------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | 4)  | Options were grantedfor 612,195 shares of the Company's common stock which becameeffective as of the IPO date, with an exercise price equal to the IPOprice of the common stock of $18.00. After issuance of these options,there remains 1,887,805 shares of common stock available for futurestock option grants under the 2005 Management Omnibus IncentivePlan. |

|  |          |                                                                                                                                        |
|--|----------|----------------------------------------------------------------------------------------------------------------------------------------|
|  | 5)  | Management consultingagreements between the Company and certain of the Company’sstockholders were terminated on October 17,2005. |

|  |          |                                                                                                                                                |
|--|----------|------------------------------------------------------------------------------------------------------------------------------------------------|
|  | 6)  | The Company expects to paythe aggregate outstanding accrued dividends on the Series A12.0% cumulative senior preferred stock of $23.6 million. |

Sale of Additional Shares — Over-AllotmentOption

On October 21, 2005, the underwriters ofTAL’s IPO of 11.5 million shares of common stock exercised theirover-allotment option in part to purchase 1.0 million additional sharesof common stock from certain of TAL’s stockholders. TAL did notreceive any proceeds from the sale of the shares pursuant to theover-allotment option. The underwriters waived their rights withrespect to the remaining 725,000 shares of common stock covered by theover-allotment option.

Note 3 — Financing Activities

Summary of major activities

During the thirdand fourth quarters of 2005, the Company completed the followingrefinancingtransactions:

|  |           |                                                                                                                                                                                                |
|--|-----------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | (1)  | Effective August 1,2005, the Company entered into a new asset securitization facilitywhich provides for advances from time to time up to a maximum aggregateprincipal amount of $875.0million. |

|  |           |                                                                                                                                                                                                                                                                                          |
|--|-----------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | (2)  | The Company used theproceeds of its initial borrowings of $705.0 million under the newasset securitization facility to repay a portion of the outstandingprincipal amount under the $875.0 million senior secured creditfacility that it entered into in connection with theAcquisition. |

|  |           |                                                                                                                                                                                                                                                                                  |
|--|-----------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | (3)  | The Company amendedand restated the $875.0 million senior secured credit facility,reducing the maximum aggregate commitment amount thereunder to $175.0million, and as a result, the Company wrote off $24.3 million ofdeferred financing costs during the third quarter of2005. |

9

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|  |           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|--|-----------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | (4)  | On October17, 2005, the Company used the net proceeds of the IPO, as well asadditional borrowings under its new asset securitization facility andthe amended and restated senior secured credit facility, to repay theentire outstanding principal and accrued cash interest due on thesenior unsecured credit agreement of approximately $288.0 million. Inconnection with the repayment of the senior unsecured credit agreement,in October 2005, the Company wrote off $13.8 million of deferredfinancing costs, net of excess accrued interest. |

AssetSecuritization Facility

Effective August 1, 2005,the Company entered into a new asset securitization facility pursuantto which it contributed, and may from time to time in the futurecontinue to contribute, certain eligible containers, together with therelated leases, to TAL Advantage I LLC, a newly created special purposeentity (the ‘‘SPE’’) which is awholly-owned consolidated subsidiary of the Company, whose solebusiness activity is to issue asset backed notes under theCompany’s asset securitization facility. On August 1, 2005, theCompany made its initial transfer of eligible containers to the SPE,which subsequently issued an initial series of asset backed notes witha maximum aggregate principal amount of $875.0 million, the‘‘Series 2005-1 Notes’’, the terms of whichare more fully described below. The SPE’s initial borrowingunder the asset securitization facility was $705.0 million.

The Company’s asset securitization facility is securedby a first priority lien on substantially all of the SPE'sassets. The leasing business related to the eligible containerstransferred to the SPE is managed by the Company and, in connectionwith its role as manager, it receives management fees equal to12% of the net cash receipts (after direct operating expenses)of the SPE together with disposition fees equal to 5% of thesales and casualty proceeds in respect of any of the SPE'scontainers, all as defined. To the extent that distributable cashremains after the payment of all principal, interest, fees, hedgingcosts and other amounts payable pursuant to the asset securitizationfacility, such remaining amounts may be dividended by the SPE to theCompany.

The Series 2005-1 Notes initially have a threeyear revolving period, and, unless the SPE issues an additional seriesof asset backed notes in a rated securitization that meets certaintiming, rating and principal thresholds (a ‘‘RatedSecuritization’’) prior to August 1, 2008, this revolvingperiod will be followed by a ten year scheduled principal amortizationperiod. In the event that the SPE consummates a Rated Securitizationprior to August 1, 2007, the revolving period of the Series 2005-1Notes will automatically convert into a 364-day revolving period (whichperiod can be extended with the consent of the noteholders), and in theevent that the SPE consummates a Rated Securitization between August 1,2007 and August 1, 2008, the revolving period shall be converted intosuch period as the SPE and the noteholders shall then agree (or in theevent that no such agreement shall be reached, a period terminating onAugust 1, 2008).

The SPE's borrowing capacity underthe Series 2005-1 Notes is determined by reference to a variableadvance rate percentage of the net book values of the SPE'seligible containers, subject to certain adjustments. At September 30,2005, the applicable commitment fee and interest rate was 0.375%and LIBOR plus 2.125%, respectively, and the applicable advancerate was 80%. Upon completion of the IPO, the applicable advancerate under the asset securitization facility increased to 82%and the Series 2005-1 Notes commitment fees and interest rate decreasedto 0.250% per annum and LIBOR plus 1.500% per annum,respectively. To the extent a Rated Securitization is not completed bythe SPE prior to August 1, 2007, the currently prevailing interest ratewill increase to LIBOR plus 1.625% per annum from that timethrough maturity of the facility.

Accrued interest andfees and a portion of the outstanding principal amount of the Series2005-1 Notes, together with certain other amounts, are payable by theSPE on a monthly basis. The portion of the outstanding principal amountof the Series 2005-1 Notes, if any, payable on any such payment dateduring the revolving period will be equal to the amount by which theoutstanding principal amount of the Series 2005-1 Notes exceeds theSPE's then effective borrowing capacity. The weighted averageinterest rate on this facility as of September 30, 2005 was5.9%.

10

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In addition to customary events ofdefault and early amortization events, the Series 2005-1 Notes containvarious financial covenants, as well as customary restrictions relatingto incurring indebtedness or liens, paying dividends and otherrestricted payments, the making of certain investments and certainother matters.

Senior Secured CreditFacility

In connection with the Acquisition, theCompany entered into an $875.0 million senior secured credit facility.Upon the closing of the new asset securitization facility on August 1,2005, the Company amended and restated the senior secured creditfacility to, among other things, reduce the maximum aggregatecommitments thereunder to $175.0 million. The final maturity date ofthis facility is August 1, 2008.

The Company’sborrowing capacity under this facility is based upon a variable advancerate percentage of the net book values as calculated in the creditagreement of the Company’s eligible containers and eligiblechassis, subject to certain adjustments. The variable advance ratepercentage was 70% at September 30, 2005. Upon completion of theIPO, the variable advance rate percentage increased to 85%, butis subject to annual decreases of 1% for each full calendar yearfollowing the IPO until a minimum advance rate of 82% isreached. The Company’s eligible containers for the purposes ofdetermining borrowing capacity under this facility will not include anycontainers transferred to the SPE in connection with the assetsecuritization facility described above. The senior secured creditfacility is secured by a first priority lien on the Company’seligible containers and eligible chassis and related leases and leaserights and by a pledge of the equity interests of the SPE.

At September 30, 2005, the senior secured credit facilityapplicable commitment fee and interest rate was 0.375% and LIBORplus 2.750%, respectively. The weighted average interest rateunder this facility as of September 30, 2005 was 6.6%. Uponcompletion of the IPO, the senior secured credit facility interest ratedecreased to LIBOR plus 2.125% per annum. This rate will remainin place until such time as the variable advance rate percentagedecreases to 82%, at which time the interest rate will furtherdecrease to LIBOR plus 2.00% per annum. Interest and fees and aportion of the outstanding principal amount of the loans under thisfacility, together with certain other amounts, are payable on aquarterly basis. The portion of the outstanding principal amount of theloans, if any, payable on any such payment date will be equal to theamount by which the outstanding principal amount of the loans exceedsthe the Company’s then effective borrowing capacity.

In addition to customary events of default, this facilitycontains various financial covenants as well as containing restrictionson incurring indebtedness or liens, paying dividends and otherrestricted payments, the making of certain investments and certainother matters.

Due to the refinancing noted above, theCompany wrote off $24.3 million of deferred financing costs during thethird quarter of 2005 that related to the senior secured creditfacility.

Senior Unsecured CreditAgreement

In connection with the Acquisition, TALentered into a senior unsecured credit agreement with an affiliate ofits former parent which provided for a $275.0 million term loanfacility with a final maturity of November 2, 2014. This creditfacility bore interest at an initial interest rate of 8.75%which increased by 0.25% per annum each 90-day period followingthe Acquisition, up to a maximum interest rate of 11.5% perannum. As of September 30, 2005, TAL had outstanding principalindebtedness of $275.0 million and no additional borrowing availabilityunder this credit facility. The interest rate under this facility was9.50% at September 30, 2005, however, the Company accruedinterest on a level rate basis of 11.08%, based on theassumption that the balance would remain outstanding until the finalcontractual maturity of the facility.

On October 17, 2005,the Company used the net proceeds of the IPO, as well as additionalborrowings under its new asset securitization facility and its amendedand restated senior secured credit facility, to repay the entireoutstanding principal and accrued cash interest due on the seniorunsecured credit agreement of approximately $288.0million.

11

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Due to the repayment of the seniorunsecured credit agreement noted above, the Company wrote off $13.8million of deferred financing costs, net of excess accrued interest,during the fourth quarter of 2005.

Interest Rate Swaps

To hedge the risk associated with fluctuations ininterest rates, the Company entered into interest rate swap agreementson December 14, 2004 with a financial institution to fix the floatinginterest rates on a portion of the senior secured credit facility. Theinterest rate swap contracts had a fixed rate of approximately3.82%, an initial notional amount of $500 million and anamortizing term of seven years.

The Company recognizedadditional interest expense of $0.4 million under the interest rateswap contracts for the three months ended September 30, 2005 and $2.9million under the swap contracts for the nine months ended September30, 2005.

The interest rate swaps are accounted for on amark-to-market basis. The fair value of the interest rate swaps was$11.4 million at September 30, 2005, which is included in other assetsin the accompanying consolidated balance sheet. In its consolidatedstatement of operations, the Company recognized a net unrealized gainof $7.6 million and $9.0 million for the three and nine months endedSeptember 30, 2005, respectively, related to the change in the fairvalue of the interest rate swaps since December 31,2004.

In addition, on October 28, 2005, the Companyentered into two new interest rate swap agreements with a financialinstitution to fix the floating interest rates on both its seniorsecured credit facility and its asset securitization facility. One swaphas a notional amount of $100 million, a non-amortizing term of 6years, with a fixed rate of approximately 4.82%. The second swaphas a notional amount of $25 million, a non-amortizing term ofapproximately 2.75 years, with a fixed rate of approximately4.71%.

Note 4 — Stock-Based Compensation

The Company accounts for its stock-based compensation plansusing the intrinsic value method prescribed in Accounting PrinciplesBoard Opinion No. 25, ‘‘Accounting for Stock Issued toEmployees’’ (‘‘APB 25’’).Under the intrinsic value method, compensation cost equal to thedifference between the fair value of the shares and the exercise priceon the date of grant is recognized from the date of grant over thevesting period of the options. The Company has adopted the disclosureonly provisions of SFAS No. 123, ‘‘Accounting forStock-Based Compensation’’ (‘‘SFAS No.123’’), as amended by SFAS No. 148,‘‘Accounting for Stock-Based Compensation —Transition and Disclosure’’ (‘‘SFAS No.148’’).

The following table illustrates theeffect on net income and earnings per share had the fair value methodof accounting been applied to the Company's stock compensationplans for the three and nine months ended September 30, 2005 (inthousands, except sharedata):

|                                                                               |  |                                     |         |                                    |  |        |         |         |  |  |
|-------------------------------------------------------------------------------|--|-------------------------------------|---------|------------------------------------|--|--------|---------|---------|--|--|
|                                                                          |  | Threemonths endedSeptember 30, 2005 |         | Nine monthsendedSeptember 30, 2005 |
| Net income(loss) applicable to commonstockholders:                            |  |                                |         |                               |
| Asreported                                                                    |  | $                                   | (12,323 | )                             |  | $      | (10,781 | )  |
| Add:Stock-based compensation expense included in reported net income(loss)    |  |                                | 245     |                               |  |   | 490     |    |
| Deduct: Stock-basedcompensation expense determined under the fair valuemethod |  |                                | (245    | )                             |  |   | (490    | )  |
| Proforma net income (loss) applicable to commonstockholders                   |  | $                                   | (12,323 | )                             |  | $      | (10,781 | )  |
| Earnings(loss) per common share:                                              |  |                                |    |                               |  |   |    |    |
| As reported— Basic andDiluted                                           |  | $                                   | (1.21   | )                             |  | $      | (1.06   | )  |
| Pro forma— Basic andDiluted                                             |  | $                                   | (1.21   | )                             |  | $      | (1.06   | )  |
|                                                                               |

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Note 5 — Earnings (Loss) PerShare

The following table sets forth the calculation ofbasic and diluted earnings (loss) per share of the Successor for thethree and nine months ended September 30, 2005 (in thousands, exceptsharedata):

|                                                                                                  |  |                                     |            |                                   |  |        |            |         |  |  |
|--------------------------------------------------------------------------------------------------|--|-------------------------------------|------------|-----------------------------------|--|--------|------------|---------|--|--|
|                                                                                             |  | Threemonths endedSeptember 30, 2005 |            | Nine monthsendedSeptember 30,2005 |
| Numerator:                                                                                       |  |                                |            |                              |
| Netincome (loss) applicable to common stockholders for basic and dilutedearnings (loss) pershare |  | $                                   | (12,323    | )                            |  | $      | (10,781    | )  |
| Denominator:                                                                                     |  |                                |       |                              |  |   |       |    |
| Weightedaverage shares outstanding for basic earnings (loss) pershare                            |  |                                | 10,204,173 |                              |  |   | 10,186,284 |    |
| Dilutivestockoptions                                                                             |  |                                | —    |                              |  |   | —    |    |
| Weightedaverage shares for diluted earnings (loss) pershare                                      |  |                                | 10,204,173 |                              |  |   | 10,186,284 |    |
| Earnings(loss) per share:                                                                        |  |                                |       |                              |  |   |       |    |
| Basic andDiluted                                                                                 |  | $                                   | (1.21      | )                            |  | $      | (1.06      | )  |
|                                                                                                  |

Forthe three and nine month periods ended September 30, 2005, options topurchase 454,612 and 436,723 shares of common stock, respectively, werenot included in the calculation of weighted average shares for dilutedearnings per share because their effects wereantidilutive.

For the three and nine month periods endedSeptember 30, 2004, no income (loss) per share data has been presentedas the Predecessor was a component of TFC.

Note 6 —Capital and Stock Options

On February 9, 2005, theCompany's board of directors approved and on April 1, 2005, theCompany sold to certain members of management of the Company 1,205shares of its Series A 12.0% Cumulative Senior Preferred Stock(the ‘‘Series A Preferred Stock’’) and53,667 shares of common stock for approximately $1.2 million. Inaddition, the Company's board of directors approved the grant ofoptions to purchase 53,667 shares of common stock. The price of thecommon stock issued and the exercise price of the options granted weredeemed to be less than their fair value for financial statementreporting purposes by approximately $3.9 million. Included in the stocksubscription agreements were call provisions which gave the Company,under certain circumstances, the right to repurchase the common andpreferred shares for a price less than estimated market value for afour year period. The options also had a four year vesting schedule. Asa result, the total unearned compensation of $3.9 million was beingamortized over four years. The Company recognized $245,000 and $490,000in compensation expense as of the three and nine month periods endedSeptember 30, 2005, respectively. As of September 30, 2005, there wereoptions to purchase an aggregate of 454,612 shares of theCompany's common stock issued pursuant to the Company's2004 Management Stock Plan outstanding, including the options topurchase 53,667 shares of common stock that were issued thereunder in2005 as discussed above. The Company’s call provision terminatedand all of the options became fully vested upon the consummation of theIPO on October 17, 2005, and the unamortized balance of unearnedcompensation of approximately $3.4 million was recognized ascompensation expense at that date.

Preferred ShareExchange

In August 2005, the holders of all of theSeries A Preferred Stock agreed to amend the terms of the Series APreferred Stock to make it automatically convert into shares of theCompany's common stock upon the closing of an initial publicoffering of shares of the Company's common stock. The conversionprice was equal to the IPO price of shares of the Company'scommon stock. This agreement was effected by the Company'samended and restated certificate of incorporation which becameeffective on October 5, 2005. All accrued but unpaid dividends on theSeries A Preferred Stock through the date of the conversion remainedpayable in cash.

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2005 Management Omnibus IncentivePlan

In October 2005, the Company adopted the TALInternational Group, Inc. 2005 Management Omnibus Incentive Plan (the‘‘2005 Plan’’), which provides for theissuance of awards in the form of stock options, stock appreciationrights and restricted stock. A total of 2,500,000 shares of commonstock have been reserved for issuance under the 2005 Plan. In October2005, the board of directors approved the grant of options under the2005 Plan to purchase an aggregate of 612,195 shares of theCompany’s common stock upon consummation of the IPO with anexercise price equal to the IPO price of the common stock.

Note7 — Related Party Transactions

The Companyrecognized $1.3 million and $4.6 million, respectively, for the threeand nine months ended September 30, 2005 of management fees andexpenses relating to the management consulting agreements with certainof the Company’s stockholders. The management consultingagreements were terminated as of the effective date of the IPO, October17, 2005.

During the three and nine months ended September 30,2005, the Company paid $0.2 million and $0.4 million, respectively, inBoard of Directors fees to related parties.

Prior to theAcquisition and in the normal course of its operations, the Predecessorhad transactions with its Parent and their affiliates. Thesetransactions consisted of borrowings and repayments, capitaltransactions, interest on advances and pension, stock savings plans andother post retirement benefits. Other Parent costs included legal,human resources, finance and certain information technology functions.The allocation of these costs was based upon specific identification,salary and headcount statistics and estimates based on analyses of timespent by individual employees. Had the Predecessor not been part of theconsolidated operations of TFC, actual expenses incurred may have beendifferent. The following table sets forth certain of these transactionsand their effects on the combined consolidated financial statements forthe three and nine months ended September 30, 2004 (in thousands,except percentageamounts): 

|                            |  |                                     |         |                                    |  |        |        |         |  |  |
|----------------------------|--|-------------------------------------|---------|------------------------------------|--|--------|--------|---------|--|--|
|                       |  | Predecessor                         |         | Predecessor                        |
|                       |  | Threemonths endedSeptember 30, 2004 |         | Nine monthsendedSeptember 30, 2004 |
| TFC allocatedinterest      |  | $                                   | 6,722   |                               |  | $      | 20,001 |    |
| Averageannual interestrate |  |                                | 3.75    | %                             |  |   | 3.85   | %  |
| Employeecompensation       |  | $                                   | — |                               |  | $      | 8,968  |    |
| OtherParent costs          |  | $                                   | 1,667   |                               |  | $      | 5,001  |    |
|                            |

Note 8— Segment and Geographic Information

IndustrySegment Information

The Company currently operates inone business segment, intermodal containerleasing.

Geographic Segment Information

TheCompany's customers use containers on an interchangable basisacross their many worldwide trade routes. The following tablerepresents the allocation of domestic (U.S.) and international revenuesfor the periods indicated based the customers' primary domicile(in thousands):

14

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|                    |  |                                |        |                              |  |           |        |             |  |        |         |        |  |        |         |        |  |  |
|--------------------|--|--------------------------------|--------|------------------------------|--|-----------|--------|-------------|--|--------|---------|--------|--|--------|---------|--------|--|--|
|               |  | Successor                      |        | Predecessor                  |  | Successor |        | Predecessor |
|               |  | ThreeMonths EndedSeptember 30, |        | Nine MonthsEndedSeptember30, |
|               |  | 2005                           |        | 2004                         |  | 2005      |        | 2004        |
| Totalrevenues:     |  |                           |   |                         |  |      |   |        |  |   |    |   |  |   |    |   |
| Domestic           |  | $                              | 7,866  |                         |  | $         | 7,662  |        |  | $      | 23,474  |   |  | $      | 24,743  |   |
| Asia               |  |                           | 36,790 |                         |  |      | 34,290 |        |  |   | 106,918 |   |  |   | 101,482 |   |
| Europe             |  |                           | 31,682 |                         |  |      | 32,193 |        |  |   | 95,314  |   |  |   | 97,389  |   |
| Otherinternational |  |                           | 4,741  |                         |  |      | 3,892  |        |  |   | 13,438  |   |  |   | 12,207  |   |
| Total              |  | $                              | 81,079 |                         |  | $         | 78,037 |        |  | $      | 239,144 |   |  | $      | 235,821 |   |
|                    |

Asall of the Company's containers are used internationally, whereno one container is domiciled in one particular place for a prolongedperiod of time, all of the Company's long-lived assets areconsidered to be international.

Note 9 — Commitments andContingencies

At September 30, 2005, commitments forcapital expenditures totaled approximately $25.9 million, principallythrough the remainder of 2005.

Note 10 — IncomeTaxes

The consolidated income tax expense for the threeand nine month periods ended September 30, 2005 and 2004 was determinedbased upon estimates of the Company's consolidated effectiveincome tax rates for the years ending December 31, 2005 and 2004,respectively. The difference between the consolidated effective incometax rate and the U.S. federal statutory rate is primarily attributableto state income taxes and the effect of certain permanentdifferences.

Note 11 — Comprehensive Income(Loss)

Comprehensive income (loss) includes net income(loss) and foreign translation adjustments. No other elements ofcomprehensive income (loss) exist. Comprehensive income (loss) for thenine months ended September 30, 2005 and 2004 was $7.9 million and$18.4 million, respectively.

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|               |                                                                                      |
|---------------|--------------------------------------------------------------------------------------|
| ITEM 2:  | MANAGEMENT'S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS |

Thefollowing discussion and analysis of the consolidated and combinedfinancial condition and results of operations of TAL InternationalGroup, Inc. and its subsidiaries should be read in conjunction withrelated consolidated and combined financial data and our annual auditedconsolidated and combined financial statements and related notesthereto included in our registration statement on Form S-1 (FileNo. 333-126317) filed with the Securities and ExchangeCommission (‘‘SEC’’), as such registrationstatement became effective on October 11, 2005. The statements in thisdiscussion regarding industry outlook, our expectations regarding ourfuture performance, liquidity and capital resources and othernon-historical statements are subject to numerous risks anduncertainties, including, but not limited to, the risks anduncertainties described under ‘‘RiskFactors’’ and ‘‘Forward-LookingStatements’’ in our Form S-1. Our actual results maydiffer materially from those contained in or implied by anyforward-looking statements.

Our Company

We areone of the world's largest and oldest lessors of intermodalfreight containers. Intermodal freight containers are large,standardized steel boxes used to transport freight by ship, rail ortruck. Because of the handling efficiencies they provide, intermodalfreight containers are the primary means by which many goods andmaterials are shipped internationally.

Our operationsinclude the acquisition, leasing, re-leasing and subsequent sale ofmultiple types of intermodal containers. As of September 30, 2005, ourfleet consisted of 624,356 containers including 77,526 containers undermanagement for third parties, representing approximately one milliontwenty-foot equivalent units (TEU). We have an extensive globalpresence, offering leasing services through 19 offices in 12 countriesand approximately 199 third party container depot facilities in 40countries as of September 30, 2005. Our customers are among theworld's largest shipping lines and include, among others,APL-NOL, CMA-CGM, Hanjin Shipping, Maersk Line, Mediterranean ShippingCompany and NYK Line.

We lease three principal types ofcontainers: (1) dry freight containers, which are used for generalcargo such as manufactured component parts, consumer staples,electronics and apparel, (2) refrigerated containers, which are usedfor perishable items such as fresh and frozen foods, and (3) specialcontainers, which are used for heavy and oversized cargo such as marbleslabs, building products and machinery. We also manage our owncontainer disposals, act as the disposal agent for a number of ourshipping line customers, and buy and sell used containers through ourTrader group. As of September 30, 2005, dry, refrigerated, specialcontainers and Trader represented 85%, 6%, 7% and2% of our fleet on a unit basis, respectively.

Thefollowing tables provide the composition of our equipment fleet as ofthe dates indicated below (in both units andTEU’s):

|                  |  |                        |         |                   |  |                   |                |        |  |         |         |        |  |        |         |         |  |        |                |        |  |        |         |        |  |        |         |        |  |        |                |        |  |        |         |        |  |  |
|------------------|--|------------------------|---------|-------------------|--|-------------------|----------------|--------|--|---------|---------|--------|--|--------|---------|---------|--|--------|----------------|--------|--|--------|---------|--------|--|--------|---------|--------|--|--------|----------------|--------|--|--------|---------|--------|--|--|
|             |  | EquipmentFleet inUnits |
|             |  | September30, 2005      |         | December 31, 2004 |  | September 30,2004 |
|             |  | Owned                  |         | Managed           |  | Total             |                | Owned  |  | Managed |         | Total  |  | Owned  |         | Managed |  | Total  |
| **Dry**          |  |                   | 470,679 |              |  |              | 59,563         |   |  |    | 530,242 |   |  |   | 478,171 |    |  |   | 60,219         |   |  |   | 538,390 |   |  |   | 479,221 |   |  |   | 61,105         |   |  |   | 540,326 |   |
| **Refrigerated** |  |                   | 34,322  |              |  |              | 1,648          |   |  |    | 35,970  |   |  |   | 34,154  |    |  |   | 1,697          |   |  |   | 35,851  |   |  |   | 34,072  |   |  |   | 1,706          |   |  |   | 35,778  |   |
| **Special**      |  |                   | 27,443  |              |  |              | 16,315         |   |  |    | 43,758  |   |  |   | 29,145  |    |  |   | 17,652         |   |  |   | 46,797  |   |  |   | 29,751  |   |  |   | 17,963         |   |  |   | 47,714  |   |
| **Subtotal**     |  |                   | 532,444 |              |  |              | 77,526         |   |  |    | 609,970 |   |  |   | 541,470 |    |  |   | 79,568         |   |  |   | 621,038 |   |  |   | 543,044 |   |  |   | 80,774         |   |  |   | 623,818 |   |
| **Trader**       |  |                   | 14,386  |              |  |              | —— |   |  |    | 14,386  |   |  |   | 5,531   |    |  |   | —— |   |  |   | 5,531   |   |  |   | 5,225   |   |  |   | —— |   |  |   | 5,225   |   |
| **Total**        |  |                   | 546,830 |              |  |              | 77,526         |   |  |    | 624,356 |   |  |   | 547,001 |    |  |   | 79,568         |   |  |   | 626,569 |   |  |   | 548,269 |   |  |   | 80,774         |   |  |   | 629,043 |   |
|                  |

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|                  |  |                        |         |                   |  |                   |         |        |  |        |           |        |       |        |         |        |         |        |         |        |  |        |           |        |  |        |         |        |  |        |         |        |  |        |           |        |  |  |
|------------------|--|------------------------|---------|-------------------|--|-------------------|---------|--------|--|--------|-----------|--------|-------|--------|---------|--------|---------|--------|---------|--------|--|--------|-----------|--------|--|--------|---------|--------|--|--------|---------|--------|--|--------|-----------|--------|--|--|
|             |  | EquipmentFleet inTEU's |
|             |  | September30, 2005      |         | December 31, 2004 |  | September 30,2004 |
|             |  |                   | Owned   |              |  |              | Managed |   |  | Total  |           |   | Owned |   |         |   | Managed |   |         | Total  |  |   | Owned     |   |  |   | Managed |   |  | Total  |
| **Dry**          |  |                   | 746,089 |              |  |              | 101,184 |   |  |   | 847,273   |   |       |   | 757,690 |   |         |   | 101,511 |   |  |   | 859,201   |   |  |   | 755,395 |   |  |   | 102,858 |   |  |   | 858,253   |   |
| **Refrigerated** |  |                   | 61,019  |              |  |              | 2,435   |   |  |   | 63,454    |   |       |   | 59,787  |   |         |   | 2,521   |   |  |   | 62,308    |   |  |   | 59,383  |   |  |   | 2,533   |   |  |   | 61,916    |   |
| **Special**      |  |                   | 42,195  |              |  |              | 26,594  |   |  |   | 68,789    |   |       |   | 44,796  |   |         |   | 28,586  |   |  |   | 73,382    |   |  |   | 45,772  |   |  |   | 29,086  |   |  |   | 74,858    |   |
| **Subtotal**     |  |                   | 849,303 |              |  |              | 130,213 |   |  |   | 979,516   |   |       |   | 862,273 |   |         |   | 132,618 |   |  |   | 994,891   |   |  |   | 860,550 |   |  |   | 134,477 |   |  |   | 995,027   |   |
| **Trader**       |  |                   | 22,985  |              |  |              | — |   |  |   | 22,985    |   |       |   | 7,500   |   |         |   | — |   |  |   | 7,500     |   |  |   | 7,307   |   |  |   | — |   |  |   | 7,307     |   |
| **Total**        |  |                   | 872,288 |              |  |              | 130,213 |   |  |   | 1,002,501 |   |       |   | 869,773 |   |         |   | 132,618 |   |  |   | 1,002,391 |   |  |   | 867,857 |   |  |   | 134,477 |   |  |   | 1,002,334 |   |
|                  |

Welease our containers on a per diem basis to our customers under threetypes of leases: long-term leases, service leases and finance leases.Long-term leases, typically with terms of three to eight years, provideus with stable cash flow and low transaction costs by requiringcustomers to maintain specific containers on-hire for the duration ofthe lease. Service leases command a premium per diem rate in exchangefor providing customers with a greater level of operational flexibilityby allowing the pick-up and drop-off of containers during the leaseterm. Finance leases, which are typically structured as full payoutleases, provide for a predictable recurring revenue stream with thelowest daily cost to the customer because customers are generallyrequired to retain the container for the duration of its useful life.In each case, our leases require lessees to maintain the containers ingood operating condition, defend and indemnify us from liabilitiesrelating to the containers’ contents and handling and return thecontainers to specified drop-off locations. As of September 30, 2005,90% of our containers were on-hire to customers, with 59%of our containers on long-term leases, 27% on service leases orlong-term leases whose fixed terms have expired but for which therelated units remain on-hire and for which we continue to receiverental payments, and 4% on finance leases. In addition,7% of our containers were available for lease and 3% wereavailable for sale.

The following table provides a summary ofour lease portfolio as of the dates indicatedbelow:

|                                  |  |                   |       |                   |  |                   |       |         |  |        |       |         |  |  |
|----------------------------------|--|-------------------|-------|-------------------|--|-------------------|-------|---------|--|--------|-------|---------|--|--|
| LeasePortfolio *                 |  | September 30,2005 |       | December 31, 2004 |  | September 30,2004 |
| Financelease                     |  |              | 4.3   | %            |  |              | 1.2   | %  |  |   | 1.0   | %  |
| Long-termlease                   |  |              | 59.2  |              |  |              | 64.4  |    |  |   | 64.5  |    |
| Servicelease                     |  |              | 26.7  |              |  |              | 28.3  |    |  |   | 29.5  |    |
| Totalleased                      |  |              | 90.2  |              |  |              | 93.9  |    |  |   | 95.0  |    |
| Existingunits available forlease |  |              | 4.4   |              |  |              | 2.9   |    |  |   | 2.7   |    |
| New unitsavailable forlease      |  |              | 2.8   |              |  |              | 1.5   |    |  |   | 0.6   |    |
| Availableforsale                 |  |              | 2.6   |              |  |              | 1.7   |    |  |   | 1.7   |    |
| Totalportfolio                   |  |              | 100.0 | %            |  |              | 100.0 | %  |  |   | 100.0 | %  |
|                                  |

|   |                         |
|---|-------------------------|
| * | Basedon units in fleet. |

Our operating performance in 2005has generally been strong. Growth in world containerized trade hascreated strong demand for containers for the last several years, andthis, combined with the high portion of our containers on long-termlease, has resulted in high utilization for our container fleet. Inaddition, prices for new dry containers increased by nearly 50%from late 2003 to mid 2005, leading to increased market lease rates fornew dry containers. As a result, our average leasing rate for drycontainers has increased over the last two years. Strong demand forcontainers and the higher price of new dry containers has alsosupported an increase in the sale price of our used containers, and wehave realized substantial gains on the sales of our used containers in2005.

The following table sets forth our average container fleetutilization for the periods indicatedbelow:

|                    |  |                   |      |                    |  |                   |      |                   |  |        |      |         |  |        |      |         |  |  |
|--------------------|--|-------------------|------|--------------------|--|-------------------|------|-------------------|--|--------|------|---------|--|--------|------|---------|--|--|
|               |  | September30, 2005 |      | September 30, 2005 |  | September 30,2004 |      | September 30,2004 |
|               |  | 3 months          |      | 9 months           |  | 3 months          |      | 9 months          |
| AverageUtilization |  |              | 89.8 | %             |  |              | 90.9 | %            |  |   | 93.9 | %  |  |   | 92.2 | %  |
|                    |

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While our container utilization isstill strong, it is operating slightly below our December 31, 2004utilization level due to our increased buying of new containers and abuild-up of container inventories in Asia by leasing companies andshipping lines. Many leasing companies and shipping lines placed largecontainer orders in the first half of 2005 due to expectations forcontinued strong growth in world trade. While growth in overallcontainer liftings is estimated by Clarkson's Research Studies toreach approximately 10% for 2005, it is our understanding thatmost shipping lines are experiencing an unexpected improvement incontainer operating efficiency this year, and many newly producedcontainers have not yet been picked up from the factories. We believethat this improved efficiency is a result of a reduction in thecongestion that slowed operations at North American and European portsand caused rail delays in 2004. In addition, partially as a result ofthis excess inventory of new containers and partially due to areduction in Asian steel prices, new container prices have droppedsignificantly from the level reached in the second quarter of 2005,though they still remain higher than the average price levelexperienced during 1999-2003. If new container prices fall muchfurther, it will become difficult for us to continue to increaseleasing rates, and the selling prices for our used containers could benegatively impacted.

In response to the oversupply of newcontainers, we reduced our level of container orders for the third andfourth quarters of 2005. However, we estimate that the oversupply ofnew containers has been reduced by over 50% since the beginningof the third quarter, and we expect the number of new containersavailable for lease to return to normal levels for us and the market bythe end of 2005. As a result, our purchasing plans for 2006 have notbeen changed.

Initial Public Offering

On October17, 2005, we completed an initial public offering("IPO") of our common stock that generatednet proceeds of $189.2 million. We used the net proceeds, together withadditional borrowings under our restructured senior secured borrowingfacilities and available cash to repay the entire outstanding balanceon our senior unsecured debt and all of our accrued preferreddividends. In addition, all of our outstanding preferred stock wasconverted to common stock at the offering price and no preferred stockremains outstanding. The IPO and the related transactions have resultedin the following:

|  |          |                                                                                                                                                            |
|--|----------|------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | 1)  | The number of outstandingcommon shares increased from 10,204,173 on a split-adjusted basis as ofSeptember 30, 2005 to 32,882,208 upon completion of theIPO |

|  |          |                                                                                                                                   |
|--|----------|-----------------------------------------------------------------------------------------------------------------------------------|
|  | 2)  | The total amount of outstanding debtdecreased from $1,057 million on September 30, 2005 to $897 millionupon completion of the IPO |

|  |          |                                                                                                                                                                  |
|--|----------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | 3)  | Our averageeffective interest rate decreased from 7.3% the day immediatelyprior to the IPO to 5.4% the day immediately after the IPO andthe related transactions |

|  |          |                                                                                                                           |
|--|----------|---------------------------------------------------------------------------------------------------------------------------|
|  | 4)  | Management agreementswith certain affiliates and the associated management fees wereterminated upon completion of the IPO |

Basis ofPresentation

TAL International Group, Inc.(‘‘TAL,’’ the‘‘Company,’’ or‘‘Successor’’) was formed on October 26,2004 and commenced operations on November 4, 2004 with the completionof the acquisition transaction described below. The agreementsaffecting this acquisition provided for an effective date of October31, 2004, at which date the risks and rewards of ownership of thebusiness were transferred to TAL. TAL consists of the consolidatedaccounts of Trans Ocean Ltd. (‘‘TOL’’) andTAL International Container Corporation, formerly known as TransamericaLeasing Inc., (‘‘TALI’’) and theirsubsidiaries.

Transamerica Maritime Container (the‘‘Predecessor’’) consisted of the maritimecontainer operations of Transamerica Finance Corporation(‘‘TFC,’’ the‘‘Parent’’ or ‘‘ParentCompany’’). The combined consolidated financialstatements of the Predecessor have been derived from the accountingrecords of TOL and TALI and certain of their subsidiaries. Materialintercompany and inter-division balances have been eliminated incombination and consolidation. TOL and TALI were wholly owned indirectsubsidiaries of TFC, which is an indirect subsidiary of AEGON N.V.

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Effective October 31, 2004, TALacquired all of the outstanding capital stock of TOL and TALI forapproximately $1.2 billion in cash, including $275.0 million offinancing provided by the seller. This acquisition of TOL and TALI isreferred to as the ‘‘Acquisition.’’ TheAcquisition was accounted for using the purchase method of accounting,and, accordingly, the consideration paid has been allocated based onthe estimated fair values of the assets acquired and liabilitiesassumed.  The financial statements for periods prior to November1, 2004 have been prepared using the Predecessor’s historicalbasis in the assets and liabilities presented as of the dates specifiedtherein and the historical results of operations for such periods on acombined basis.

Results of Operations

The followingtable summarizes our results of operations for the three and ninemonths ended September 30, 2005 and 2004 in dollars and as a percentageof totalrevenues.

|                                                |  |                                 |        |                                |  |           |       |             |  |         |         |         |  |         |         |         |  |        |         |         |  |        |       |         |  |        |         |        |  |        |         |         |  |  |
|------------------------------------------------|--|---------------------------------|--------|--------------------------------|--|-----------|-------|-------------|--|---------|---------|---------|--|---------|---------|---------|--|--------|---------|---------|--|--------|-------|---------|--|--------|---------|--------|--|--------|---------|---------|--|--|
|                                           |  | Successor                       |        | Predecessor                    |  | Successor |       | Predecessor |
|                                           |  | Threemonths Ended September 30, |        | Nine Months Ended September30, |
|                                           |  | 2005                            |        | 2004                           |  | 2005      |       | 2004        |
|                                           |  | Dollars                         |        | Percent                        |  | Dollars   |       | Percent     |  | Dollars |         | Percent |  | Dollars |         | Percent |
| Leasingrevenues*                               |  | $                               | 71,001 |                           |  |      | 87.6  | %      |  | $       | 72,701  |    |  |    | 93.2    | %  |  | $      | 215,084 |    |  |   | 89.9  | %  |  | $      | 218,389 |   |  |   | 92.6    | %  |
| Equipmenttradingrevenue                        |  |                            | 7,774  |                           |  |      | 9.6   |        |  |    | 3,173   |    |  |    | 4.1     |    |  |   | 17,173  |    |  |   | 7.2   |    |  |   | 8,790   |   |  |   | 3.7     |    |
| Managementfeeincome                            |  |                            | 1,566  |                           |  |      | 1.9   |        |  |    | 1,679   |    |  |    | 2.1     |    |  |   | 4,978   |    |  |   | 2.1   |    |  |   | 5,520   |   |  |   | 2.4     |    |
| Otherrevenues                                  |  |                            | 738    |                           |  |      | 0.9   |        |  |    | 484     |    |  |    | 0.6     |    |  |   | 1,909   |    |  |   | 0.8   |    |  |   | 3,122   |   |  |   | 1.3     |    |
| Totalrevenues                                  |  |                            | 81,079 |                           |  |      | 100.0 |        |  |    | 78,037  |    |  |    | 100.0   |    |  |   | 239,144 |    |  |   | 100.0 |    |  |   | 235,821 |   |  |   | 100.0   |    |
| Equipmenttradingexpenses                       |  |                            | 6,026  |                           |  |      | 7.4   |        |  |    | 2,326   |    |  |    | 3.0     |    |  |   | 13,257  |    |  |   | 5.6   |    |  |   | 6,504   |   |  |   | 2.8     |    |
| Directoperatingexpenses                        |  |                            | 6,393  |                           |  |      | 7.9   |        |  |    | 6,862   |    |  |    | 8.8     |    |  |   | 20,428  |    |  |   | 8.6   |    |  |   | 20,350  |   |  |   | 8.6     |    |
| Administrativeexpenses                         |  |                            | 9,411  |                           |  |      | 11.6  |        |  |    | 8,372   |    |  |    | 10.7    |    |  |   | 28,362  |    |  |   | 11.9  |    |  |   | 25,822  |   |  |   | 11.0    |    |
| Depreciationandamortization                    |  |                            | 29,418 |                           |  |      | 36.3  |        |  |    | 35,914  |    |  |    | 46.0    |    |  |   | 88,076  |    |  |   | 36.8  |    |  |   | 107,475 |   |  |   | 45.5    |    |
| Equipmentrentalexpense                         |  |                            | 17     |                           |  |      | 0.0   |        |  |    | 1,402   |    |  |    | 1.8     |    |  |   | 279     |    |  |   | 0.1   |    |  |   | 4,217   |   |  |   | 1.8     |    |
| Provisionfor doubtfulaccounts                  |  |                            | 528    |                           |  |      | 0.7   |        |  |    | 880     |    |  |    | 1.1     |    |  |   | 567     |    |  |   | 0.2   |    |  |   | 1,899   |   |  |   | 0.8     |    |
| Net(gain) loss on sale of leasingequipment     |  |                            | (1,178 | )                         |  |      | (1.5  | )      |  |    | 695     |    |  |    | 0.9     |    |  |   | (8,133  | )  |  |   | (3.4  | )  |  |   | 6,679   |   |  |   | 2.8     |    |
| Write-offof deferred financingcosts            |  |                            | 24,313 |                           |  |      | 30.0  |        |  |    | — |    |  |    | — |    |  |   | 24,313  |    |  |   | 10.2  |    |  |   | — |   |  |   | — |    |
| Interestand debtexpense                        |  |                            | 21,239 |                           |  |      | 26.2  |        |  |    | 6,722   |    |  |    | 8.6     |    |  |   | 63,849  |    |  |   | 26.7  |    |  |   | 20,001  |   |  |   | 8.5     |    |
| Unrealized(gain) on interest rateswaps         |  |                            | (7,589 | )                         |  |      | (9.4  | )      |  |    | — |    |  |    | — |    |  |   | (8,975  | )  |  |   | (3.8  | )  |  |   | — |   |  |   | — |    |
| OtherParent Company charges and managementfees |  |                            | 1,346  |                           |  |      | 1.7   |        |  |    | 1,667   |    |  |    | 2.2     |    |  |   | 4,598   |    |  |   | 1.9   |    |  |   | 13,969  |   |  |   | 5.9     |    |
| Totalexpenses                                  |  |                            | 89,924 |                           |  |      | 110.9 |        |  |    | 64,840  |    |  |    | 83.1    |    |  |   | 226,621 |    |  |   | 94.8  |    |  |   | 206,916 |   |  |   | 87.7    |    |
| (Loss)income before incometaxes                |  |                            | (8,845 | )                         |  |      | (10.9 | )      |  |    | 13,197  |    |  |    | 16.9    |    |  |   | 12,523  |    |  |   | 5.2   |    |  |   | 28,905  |   |  |   | 12.3    |    |
| Income(benefit) tax expense                    |  |                            | (3,090 | )                         |  |      | (3.8  | )      |  |    | 4,838   |    |  |    | 6.2     |    |  |   | 4,577   |    |  |   | 1.9   |    |  |   | 10,561  |   |  |   | 4.5     |    |
| Net(loss) income                               |  | $                               | (5,755 | )                         |  |      | (7.1  | )%     |  | $       | 8,359   |    |  |    | 10.7    | %  |  | $      | 7,946   |    |  |   | 3.3   | %  |  | $      | 18,344  |   |  |   | 7.8     | %  |
|                                                |

|  |              |                                                       |
|--|--------------|-------------------------------------------------------|
|  | •  | Includesincome recognized on direct financing leases. |

Comparison ofThree Months Ended September 30, 2005 to Three Months Ended September30, 2004.

Revenues. Total revenues were $81.1million for the three months ended September 30, 2005, compared to$78.0 million for the three months ended September 30, 2004, anincrease of $3.1 million, or 4.0%. The increase was primarilydue to higher equipment trading revenue of $4.6 million, resulting froman increase in sales volume and equipment sales prices. The increase inequipment trading revenue was partially offset by a $1.7 milliondecrease in leasing revenue, primarily resulting from a decrease inequipment utilization.

Equipment tradingexpenses. Equipment trading expenses were $6.0 million forthe three months ended September 30, 2005, compared to $2.3 million forthe three months ended September 30, 2004, an increase of $3.7 million,resulting from more units sold and the higher cost basis of equipmentsold.

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Direct operatingexpenses. Direct operating expenses were $6.4 million forthe three months ended September 30, 2005, compared to $6.9 million forthe three months ended September 30, 2004, a decrease of $0.5 millionor 7.2%. During the three months ended September 30, 2005,positioning costs declined by $0.4 million compared to the same periodof 2004, and repairs were $0.9 million lower in the three months endedSeptember 30, 2005 compared to the same period of 2004 due to adecrease in the number of units repaired. These declines were partiallyoffset by an increase in storage costs of $0.8 million due to a declinein utilization.

Administrativeexpenses. Administrative expenses were $9.4 million for thethree months ended September 30, 2005, compared to $8.4 million for thethree months ended September 30, 2004, an increase of $1.0 million or11.9%. This increase was primarily due to higher professionalfees and other administrative expenses related to becoming a publiccompany.

Depreciation andamortization. Depreciation and amortization was $29.4million for the three months ended September 30, 2005, compared to$35.9 million for the three months ended September 30, 2004, a decreaseof $6.5 million or 18.1%. The decrease was primarily due topurchase accounting. Under purchase accounting each unit was assigned afair value at the date of the Acquisition. The net book value assignedto the fleet under purchase accounting was $1,101.2 million, ascompared to the net book value of acquired fleet of $1,057.8 million,an increase of $43.4 million or 4.1%. However, the allocation ofvalues to the specific units had the effect of increasing values of theyounger containers, while decreasing values of the older containers.Since the younger containers have a longer remaining depreciable life,this shift in value resulted in lower overalldepreciation.

Equipment rental expense. Equipmentrental expense was zero for the three months ended September 30, 2005,compared to $1.4 million for the three months ended September 30, 2004,a decrease of $1.4 million. The decrease was primarily due to thepurchase of certain equipment in the first quarter of 2005 that waspreviously leased-in under operating leases.

Provision fordoubtful accounts. Provision for doubtful accounts was $0.5million for the three months ended September 30, 2005, compared to aprovision of $0.9 million for the three months ended September 30,2004. The decrease is primarily due to improved credit conditions in2005.

Net (gain) loss on sale of leasingequipment. Gain on sale of equipment was $1.2 million forthe three months ended September 30, 2005, compared to a loss of $0.7million for the three months ended September 30, 2004, an increase of$1.9 million. The increase was primarily due to increased sellingprices for our used containers, as well as a higher number of unitssold.

Write-off of deferred financingcosts. Write-off of deferred financing costs was $24.3million for the three months ended September 30, 2005, compared to zerofor the three months ended September 30, 2004. As a result ofrefinancing our senior secured credit facility on August 1, 2005, wewrote off $24.3 million of unamortized financing costs that werepreviously deferred.

Interest and debtexpense. Interest and debt expense was $21.2 million forthe three months ended September 30, 2005, compared to $6.7 million forthe three months ended September 30, 2004, an increase of $14.5million. The increase was primarily due to changes in our capitalstructure resulting from the Acquisition, which increased our debtlevel and effective interest rate.

Unrealized (gain) oninterest rate swaps. Unrealized (gain) on interest rateswaps was $7.6 million for the three months ended September 30, 2005,compared to zero for the three months ended September 30, 2004. Weentered into interest rate swap agreements on December 14, 2004 to fixthe floating interest rate on our senior secured credit facility. Theinterest rate swaps were accounted for on a mark-to-market basis andtheir fair value was approximately $11.4 million at September 30, 2005,as compared to $3.8 million at June 30, 2005, with the increase in fairvalue due to an increase in interest rates.

Other ParentCompany charges and management fees. Other Parent Companycharges and management fees were $1.3 million for the three monthsended September 30, 2005, compared to $1.7 million for the three monthsended September 30, 2004. Other Parent Company charges of $1.7 millionfor the three months ended September 30, 2004 represented allocatedoverhead costs for 

20

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services such as legal, human resources,finance and certain information technology functions. Management feesof $1.3 million in the three months ended September 30, 2005 arepayable pursuant to certain management agreements which terminated uponthe completion of the IPO in October 2005.

Income tax(benefit) expense. Income tax benefit was ($3.1) millionfor the three months ended September 30, 2005, compared to an incometax expense of $4.8 million for the three months ended September 30,2004, and the effective tax rates for the periods were 34.9% and36.7% respectively. The state tax rate was reduced from3% to 1% in the nine months ended September 30, 2005 as aresult of a favorable change in New York State tax law. This changeresulted in the effective rate being reduced from 36.7% to35.7%. The remaining difference in the rate between 35.7%and 34.9% is due to the effect of certain permanent differences.In conjunction with the Acquisition, both the seller and the purchaserelected to have the provisions of Internal Revenue Code Section338(h)(10) apply to the sale, resulting in the transaction beingtreated as a taxable asset sale for U.S. federal income tax purposes.As a result of this election, the tax basis of our assets was adjustedto fair market value for U.S. federal income tax purposes, resulting intax depreciation allowances over periods ranging from 5 to 7 years aswell as the elimination of the net deferred U.S. federal income taxliability balance that existed immediately prior to the sale.

Wedo not expect to pay U.S. federal income taxes for the foreseeablefuture, although we will be recording income tax expense, due to thefollowing:

|  |          |                                                                                                                                                              |
|--|----------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | 1)  | The Section338(h)(10) election associated with the Acquisition, and theavailability of accelerated U.S. tax depreciation to the existingcontainer fleet, and |

|  |          |                                                                                            |
|--|----------|--------------------------------------------------------------------------------------------|
|  | 2)  | Theavailability of accelerated U.S. tax depreciation on our futurepurchases of containers. |

Net (loss) income. Netloss was ($5.8) million for the three months ended September 30, 2005,compared to net income of $8.4 million for the three months endedSeptember 30, 2004, a decrease of $14.2 million. The decrease in netincome was due to all of the factors discussedabove.

Comparison of Nine Months Ended September30, 2005 to Nine Months Ended September 30,2004.

Revenues. Total revenues were $239.1million for the nine months ended September 30, 2005, compared to$235.8 million for the nine months ended September 30, 2004, anincrease of $3.3 million, or 1.4%. The increase was primarilydue to an increase in equipment trading revenue of $8.4 millionresulting from an increase in sales volume and equipment sales prices.This increase was partially offset by a decrease in leasing revenues of$3.3 million primarily resulting from a decline in utilization.

Equipment trading expenses. Equipment tradingexpenses were $13.3 million for the nine months ended September 30,2005, compared to $6.5 million for the nine months ended September 30,2004, an increase of $6.8 million or 104.6%, resulting from moreunits sold and the higher cost basis of equipmentsold.

Direct operating expenses. Direct operatingexpenses were $20.4 million for the nine months ended September 30,2005, basically unchanged as compared to the nine months endedSeptember 30, 2004. During the nine months ended September 30, 2004, werecovered units on lease from non-performing customers, previouslyprovided for under our allowance policy. This recovery resulted in areversal of the provision of $2.7 million in the first nine months of2004. During the nine months ended September 30, 2005, positioningcosts declined by $1.5 million compared to the same period of 2004.Additionally, costs such as storage, handling and repairs were $1.8million lower in the nine months ended September 30, 2005 compared tothe same period of 2004.

Administrativeexpenses. Administrative expenses were $28.4 million forthe nine months ended September 30, 2005, compared to $25.8 million forthe nine months ended September 30, 2004, an increase of $2.6 millionor 10.1%. This increase was primarily due to higher professionalfees and other administrative expenses related to becoming a publiccompany.

Depreciation andamortization. Depreciation and amortization was $88.1million for the nine months ended September 30, 2005, compared to$107.5 million for the nine months ended September 

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30, 2004, a decrease of $19.4 million or18.0%. The decrease was primarily due to purchase accounting.Under purchase accounting each unit was assigned a fair value at thedate of the Acquisition. The net book value assigned to the fleet underpurchase accounting was $1,101.2 million, as compared to the net bookvalue of acquired fleet of $1,057.8 million, an increase of $43.4million or 4.1%. However, the allocation of values to thespecific units had the effect of increasing values of the youngercontainers, while decreasing values of the older containers. Since theyounger containers have a longer remaining depreciable life, this shiftin value resulted in lower overall depreciation.

Equipmentrental expense. Equipment rental expense was $0.3 millionfor the nine months ended September 30, 2005, compared to $4.2 millionfor the nine months ended September 30, 2004, a decrease of $3.9million or 92.9%. The decrease was primarily due to the purchaseof certain equipment in the first quarter 2005 that was previouslyleased-in under operating leases.

Provision for doubtfulaccounts. Provision for doubtful accounts was $0.6 millionfor the nine months ended September 30, 2005, compared to a provisionof $1.9 million for the nine months ended September 30, 2004. Thedecrease is primarily due to improved credit conditions in2005.

Net (gain) loss on sale of leasingequipment. Gain on sale of equipment was $8.1 million forthe nine months ended September 30, 2005 compared to a loss of $6.7million for the nine months ended September 30, 2004, an increase of$14.8 million. The increase was primarily due to increased sellingprices for our used containers.

Write-off of deferredfinancing costs. Write-off of deferred financing costs was$24.3 million for the nine months ended September 30, 2005, compared tozero for the nine months ended September 30, 2004, an increase of $24.3million. As a result of refinancing our senior secured credit facilityon August 1, 2005, we wrote off $24.3 million of unamortized financingcosts that were previously deferred.

Interest and debtexpense. Interest and debt expense was $63.8 million forthe nine months ended September 30, 2005, compared to $20.0 million forthe nine months ended September 30, 2004, an increase of $43.8 million.The increase was primarily due to changes in our capital structureresulting from the Acquisition, which increased our debt level andeffective interest rate.

Unrealized (gain) on interest rateswaps. Unrealized (gain) on interest rate swaps was $9.0million for the nine months ended September 30, 2005, compared to zerofor the nine months ended September 30, 2004. We entered into interestrate swap agreements on December 14, 2004 to fix the floating interestrate on our senior secured credit facility. The interest rate swapswere accounted for on a mark-to-market basis and their fair value wasapproximately $11.4 million at September 30, 2005 as compared to $2.4million at December 31, 2004, with the increase in fair value due to anincrease in interest rates.

Other Parent Company charges andmanagement fees. Other Parent Company charges andmanagement fees were $4.6 million for the nine months ended September30, 2005, compared to $14.0 million for the nine months ended September30, 2004. During the first nine months of 2004, our former parent paid$9.0 million of incentive and other management compensation to certainof our employees and allocated $5.0 million of certain overhead costsfor services such as legal, human resources, finance and certaininformation technology functions. The payment for incentive andmanagement compensation was the result of a retention and incentiveprogram established by our former parent that was triggered in January2004 by the sale of other businesses by our former parent. In the firstnine months of 2005, we recognized an expense of $4.6 million ofmanagement fees payable under certain management agreements, which wereterminated upon completion of the IPO in October 2005.

Incometax (benefit) expense. Income tax expense was $4.6 millionfor the nine months ended September 30, 2005, compared to $10.6 millionfor the nine months ended September 30, 2004, a decrease of $6.0million, and the effective tax rates for the periods were 36.6%and 36.5 % respectively. The state tax rate was reduced from3% to 1% in the nine months ended September 30, 2005 as aresult of a favorable change in the New York State tax law. The benefitof the state tax rate reduction was substantially offset by the effectof certain permanent differences. In conjunction with 

22

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the Acquisition, both the seller and thepurchaser elected to have the provisions of Internal Revenue CodeSection 338(h)(10) apply to the sale, resulting in the transactionsbeing treated as a taxable asset sale for U.S. federal income taxpurposes. As a result of this election, the tax basis of our assets wasadjusted to fair market value for U.S. federal income tax purposes,resulting in tax depreciation allowances over periods ranging from 5 to7 years as well as the elimination of the net deferred U.S. federalincome tax liability balance that existed immediately prior to thesale.

We do not expect to pay U.S. federal income taxes for theforeseeable future, although we will be recording income tax expense,due to the following:

|  |          |                                                                                                                                                              |
|--|----------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | 1)  | TheSection 338(h)(10) election associated with the Acquisition, and theavailability of accelerated U.S. tax depreciation to the existingcontainer fleet, and |

|  |          |                                                                                            |
|--|----------|--------------------------------------------------------------------------------------------|
|  | 2)  | Theavailability of accelerated U.S. tax depreciation on our futurepurchases of containers. |

Net income (loss). Netincome was $7.9 million for the nine months ended September 30, 2005compared to net income of $18.3 million for the nine months endedSeptember 30, 2004, a decrease of $10.4 million. The decrease in netincome was due to all of the factors discussed above.

Liquidityand Capital Resources 

Our principal sources ofliquidity are cash flows generated from operations and borrowings underour senior secured credit facility and our asset securitizationfacility. Our cash flows will be used to finance capital expenditures,provide working capital and meet debt service requirements. We believethat cash from operations and existing cash, together with availableborrowings under our senior secured credit facility and our assetsecuritization facility will be sufficient to meet our liquidityrequirements for at least the next twelve months. However, our futureoperating performance and ability to extend or refinance ourindebtedness will be dependent on future economic conditions andfinancial, business and other factors that are beyond our control.

Historically, our primary funding source had been cashprovided by operations and cash from the sale of our owned usedcontainers. Prior to the Acquisition, we had the ability to borrow fromour former parent. As a result of the Acquisition, however, our capitalstructure changed, and we are now dependent on third parties forfinancing.

In connection with the financing of theAcquisition, we entered into an $875.0 million senior secured creditfacility and made initial borrowings of $805.0 million thereunder. Atthat time we also entered into a $275.0 million senior unsecured creditagreement with an affiliate of our former parent and made initialborrowings of $275.0 million thereunder. In addition, certain of ourequity investors made preferred and common equity investments in ustotaling $200.1 million.

Effective August 1, 2005, weentered into a new asset securitization facility which provides foradvances from time to time up to a maximum aggregate principal amountof $875.0 million. We used the proceeds of our initial borrowings of$705.0 million under this facility to repay a portion of theoutstanding principal amount of the $875.0 million senior securedcredit facility that we entered into in connection with theAcquisition. In connection with our new asset securitization facilityand the application of our initial borrowings thereunder, effectiveAugust 1, 2005, we amended and restated the $875.0 million seniorsecured credit facility that we entered into in connection with theAcquisition to, among other things, reduce the maximum aggregatecommitment amount thereunder to $175.0 million. Accordingly, as ofSeptember 30, 2005, our debt structure consisted of an $875.0 millionasset securitization facility, a $175.0 million senior secured creditfacility and a $275.0 million senior unsecured credit agreement.

On October 17, 2005, we completed an initial public offeringof our common stock that generated net proceeds of $189.2 million. Weused the net proceeds of this offering, together with additionalborrowings under the new asset securitization facility and the amendedand restated senior secured credit facility, to repay the entireoutstanding balance on our senior unsecured debt of $275.0 million. Inaddition, all of our outstanding preferred stock was converted tocommon stock at the offering price and no preferred stock remainsoutstanding.

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Cash Flow

The followingtable sets forth certain cash flow information for the nine monthsended September 30, 2005 and the nine months ended September 30,2004.

|                                                                          |  |                                    |          |                                    |  |        |          |         |  |  |
|--------------------------------------------------------------------------|--|------------------------------------|----------|------------------------------------|--|--------|----------|---------|--|--|
|                                                                     |  | Successor                          |          | Predecessor                        |
|                                                                     |  | NineMonths Ended September 30,2005 |          | Nine MonthsEnded September 30,2004 |
| Net cash providedby operatingactivities                                  |  | $                                  | 131,943  |                               |  | $      | 89,919   |    |
| Purchasesof leasingequipment                                             |  | $                                  | (132,235 | )                             |  | $      | (243,257 | )  |
| Investmentin direct financeleases                                        |  |                               | (42,110  | )                             |  |   | (2,829   | )  |
| Proceedsfrom disposition ofequipment                                     |  |                               | 77,213   |                               |  |   | 48,183   |    |
| Cashcollected on direct finance lease receivables, net of unearnedincome |  |                               | 4,181    |                               |  |   | 1,816    |    |
| Netcash (used in) investingactivities                                    |  | $                                  | (92,951  | )                             |  | $      | (196,087 | )  |
| Netcash (used in) / provided by financingactivities                      |  | $                                  | (13,794  | )                             |  | $      | 106,026  |    |
|                                                                          |

OperatingActivities 

Net cash provided by operatingactivities increased by $42.0 million to $131.9 million in the ninemonths ended September 30, 2005, compared to $89.9 million in the ninemonths ended September 30, 2004. In the nine months ended September 30,2004 there were cash uses of $30.6 million in respect of U.S. Federalincome taxes, while in the nine months ended September 30, 2005 we hadno U.S. Federal income tax liability. In addition, accounts payable andaccrued expenses increased at September 30, 2005 due to more newequipment purchases on account and more accrued interest in the ninemonths ended September 30, 2005 as compared to the same period in2004.

Investing Activities 

Net cash usedin investing activities decreased by $103.1 million to $93.0 million inthe nine months ended September 30, 2005, as compared to $196.1 millionin the nine months ended September 30, 2004. Capital expenditures were$174.3 million, including investments in direct finance leases of $42.1million, in the nine months ended September 30, 2005, compared to$246.1 million, including investment in direct finance leases of $2.8million, in the nine months ended September 30, 2004. On January 2,2004, we elected to exercise a purchase option for 67,251 units for$150.7 million that we had formerly leased-in on an operating lease.Excluding this purchase of existing containers, capital expendituresincreased primarily due to an increase in the level of procurement andan increase in new container prices. Sales proceeds from the disposalof equipment increased $29.0 million to $77.2 million in the ninemonths ended September 30, 2005, compared to $48.2 million in the ninemonths ended September 30, 2004. The increase was due to highercontainer sales prices and an increase in units sold. Net cash providedfrom finance receivables increased by $2.4 million to $4.2 million forthe nine months ended September 30, 2005, compared to $1.8 million forthe nine months ended September 30, 2004.

FinancingActivities 

Prior to the Acquisition, our primarysource of financing was our former parent, which resulted in borrowingsor repayments and capital transactions with our former parent. Sincethe Acquisition, our principal source of financing has been borrowingsunder our asset securitization facility and our senior secured creditfacility.

Net cash used in financing activities was $13.8million for the nine months ended September 30, 2005, compared to netcash provided by financing activities of $106.0 million for the ninemonths ended 

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September 30, 2004. In the nine months endedSeptember 30, 2005, net cash used in financing activities was primarilyused to pay down borrowings under our senior secured credit facility.Additionally, we sold 1,205 shares of our Series A 12.0%cumulative senior preferred stock and 53,667 shares of our common stockto certain members of our management for approximately $1.2 million inApril 2005.

Contractual Obligations

We areparties to various operating leases and are obligated to make paymentrelated to our long term borrowings. We are also obligated undervarious commercial commitments, including obligations to our equipmentmanufacturers. Our equipment manufacturer obligations are in the formof conventional accounts payable, and are satisfied from cash flowsfrom operating and long term financing activities.

Thefollowing table summarizes our contractual obligations and commercialcommitments as of September 30, 2005.

|                                    |  |                       |         |                       |  |                      |        |                     |  |                                      |         |        |  |        |         |        |  |        |         |        |  |  |
|------------------------------------|--|-----------------------|---------|-----------------------|--|----------------------|--------|---------------------|--|--------------------------------------|---------|--------|--|--------|---------|--------|--|--------|---------|--------|--|--|
|                               |  | PaymentsDue by Period |
|                               |  | (dollars inmillions)  |
| ContractualObligations:            |  | Total                 |         | Less than 1year(2005) |  | 1-3 years(2006-2008) |        | 3-5years(2009-2011) |  | More than 5years (2012andthereafter) |
| Total debtobligations(1):          |  |                  |    |                  |  |                 |   |                |  |                                 |    |   |  |   |    |   |  |   |    |   |
| Assetsecuritizationfacility        |  | $                     | 1,028.8 |                  |  | $                    | 10.8   |                |  | $                                    | 156.8   |   |  | $      | 311.1   |   |  | $      | 550.1   |   |
| Seniorsecured creditfacility       |  |                  | 104.0   |                  |  |                 | 1.6    |                |  |                                 | 102.4   |   |  |   | — |   |  |   | — |   |
| Seniorunsecured creditagreement(2) |  |                  | 288.0   |                  |  |                 | 288.0  |                |  |                                 | — |   |  |   | — |   |  |   | — |   |
| Operatingleases                    |  |                  | 8.8     |                  |  |                 | 0.6    |                |  |                                 | 4.6     |   |  |   | 3.4     |   |  |   | 0.2     |   |
| Purchaseobligations                |  |                  | 25.9    |                  |  |                 | 25.9   |                |  |                                 | — |   |  |   | — |   |  |   | — |   |
| Preferredstockdividends(3)         |  |                  | 23.6    |                  |  |                 | 23.6   |                |  |                                 | — |   |  |   | — |   |  |   | — |   |
| Totalcontractualobligations        |  | $                     | 1,479.1 |                  |  | $                    | 350.5  |                |  | $                                    | 263.8   |   |  | $      | 314.5   |   |  | $      | 550.3   |   |
|                                    |

|  |
|--|
|  |  |
|  |

|     |                                                                                                                                                    |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------|
| (1) | Amountsinclude actual and estimated interest for floating-rate debt based onSeptember 30, 2005 rates and the net effect of the interest rateswaps. |

|     |                                                                                                                                                                                                                                                                                   |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | We used the net proceeds of the IPO,together with additional borrowings under our asset securitizationfacility and senior secured credit facility to repay the entireoutstanding principal and cash interest due under this senior unsecuredcredit agreement on October 17, 2005. |

|     |                                                                                                                                                                                                                                                                                                           |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (3) | We had201,205 shares of Series A 12.0% cumulative senior preferredstock issued and outstanding as of September 30, 2005, which wereconverted to common stock in connection with the IPO on October 17,2005. The dividend requirement on these shares is expected to be paidin the fourth quarter of 2005. |

Effective August 1,2005, we entered into a new asset securitization facility pursuant towhich TALI has sold, and may from time to time in the future continueto sell, certain eligible containers, together with the related leases,to TAL Advantage I LLC, a newly created special purpose entity (the‘‘SPE’’) and a wholly-owned consolidatedsubsidiary of TALI whose sole business activity is to issue assetbacked notes under our asset securitization facility. On August 1,2005, TALI made its initial sale of eligible containers to the SPEpursuant to the asset securitization facility and the SPE issued aninitial series of asset backed notes, the Series 2005-1 Notes. OnAugust 1, 2005, the SPE issued Series 2005-1 Notes with a maximumaggregate principal amount of $875.0 million, under which an initialdraw of $705.0 million was made. At September 30, 2005 the balance dueunder this facility was $695.0 million.

In connection withour new asset securitization facility, effective August 1, 2005, weamended and restated our senior secured credit facility to, among otherthings, reduce the maximum aggregate commitments thereunder to $175.0million. At September 30, 2005, the balance due under this facility was$87.0 million.

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Off-Balance SheetArrangements

At September 30, 2005, we did not have anyrelationships with unconsolidated entities or financial partnerships,such entities which are often referred to as structured finance orspecial purpose entities, which would have been established for thepurpose of facilitating off-balance sheet arrangements. We are,therefore, not materially exposed to any financing, liquidity, marketor credit risk that could arise if we had engaged in suchrelationships.

Critical Accounting Policies

Ourconsolidated financial statements have been prepared in conformity withaccounting principles generally accepted in the United States, whichrequire us to make estimates and assumptions that affect the amountsand disclosures reported in the consolidated financial statements andaccompanying notes. Our estimates are based on historical experienceand currently available information. Actual results could differ fromsuch estimates. The following paragraphs summarize our criticalaccounting policies. Additional accounting policies are discussed inthe notes to our historical financial statements contained elsewhere inthis Form 10-Q.

RevenueRecognition

Operating Leases withCustomers

We enter into long-term leases and serviceleases with ocean carriers, principally as lessor in operating leases,for marine cargo containers. Long-term leases provide the oceancarriers with specified container equipment for a specified term. Ourleasing revenues are based upon the number of containers leased, theapplicable per diem rate and the length of the lease. Long-term leasestypically range for a period of three to eight years. Revenues arerecognized on a straight-line basis over the life of the respectivelease. Advanced billings are deferred and recognized in the periodearned. Service leases do not specify the exact number of containers tobe leased or the term that each container will remain on-hire but allowthe lessee to pick up and drop off containers at various locationsspecified in the lease agreement. Under a service lease, rental revenueis based on the number of containers utilized at contracted per diemrates. Revenue for customers where collection is not assured isdeferred and recognized when the amounts are received. Also, inaccordance with EITF No. 99-19, Reporting Revenue Gross as aPrincipal versus Net as an Agent, we recognize billings tocustomers for damages incurred and certain other pass through costs asleasing revenue as it is earned based on the terms of the contractualagreements with the customer.

Direct Finance Leases withCustomers

We enter into direct finance leases aslessor for container equipment that we own. The net investment indirect finance leases represents the receivables due from lessees, netof unearned income. Unearned income is recognized on a level yieldbasis over the lease term and is recorded as leasing revenue. Directfinance leases are usually long-term in nature, typically ranging for aperiod of five to ten years and may include a bargain purchase optionto purchase the equipment at the end of the leaseterm.

Management Fee Income

We manageequipment, which is owned by third parties and we earn management feesbased on the income earned by the leasing and sales of such equipment.Amounts we collect as agent on behalf of third parties that own suchequipment are not included in revenue and costs paid for managedequipment are not included in expense.

Equipment TradingRevenue

Equipment trading revenue represents theproceeds on the sale of equipment purchased for resale. The relatedexpenses are recognized as incurred and are disclosed as equipmenttrading expense in the consolidated statements ofoperations.

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OtherRevenues

Other revenues include fee income for thirdparty positioning of equipment.

Direct OperatingExpenses

Direct operating expenses are directlyrelated to our equipment under and available for lease. These expensesprimarily consist of our costs to repair and maintain the equipment, tostore the equipment when it is not on lease, to re-position theequipment and a provision for equipment lost or not expected to bereturned. These costs are recognized when incurred. In limitedsituations, certain positioning costs may becapitalized.

Leasing Equipment

Leasingequipment is recorded at cost and depreciated to an estimated residualvalue on a straight-line basis over the estimated useful life. We willcontinue to review our depreciation policies on a regular basis todetermine whether changes have taken place that would suggest that achange in our depreciation policies, useful lives of our equipment orthe assigned residual values is warranted. In addition, periodically adetermination is made, if indicators of impairment are present, as towhether the carrying value of our fleet exceeds its estimated futureundiscounted cash flows. The estimated useful lives for our leasingequipment ranges from 10 to 15 years from the date of manufacture, forboth the Successor and Predecessor companies. Estimated useful liveshave been based on independent appraisals and will be adjusted ifnecessary based on actual experience. Costs incurred to place newequipment into service, including costs to transport the equipment toits initial on-hire location, are capitalized. We charge repair andmaintenance costs that do not extend the lives of the assets asincurred and include these costs in direct operatingexpenses.

An allowance is provided through directoperating expenses based on the net book value of a percentage of theunits on lease to certain customers that are considered to benon-performing which we believe we will not ultimately recover. Thepercentage is developed based on historicalexperience.

Equipment Held for Sale

Inaccordance with the Financial Accounting Standards Board(‘‘FASB’’) Statement No. 144, Accountingfor the Impairment or Disposal of Long-Lived Assets(‘‘SFAS No. 144’’), container equipmentheld for sale is carried at the lower of its fair value, based oncurrent transactions, less costs to sell or carrying value;depreciation on such assets is halted and disposals generally occurwithin ninety days. Subsequent changes to the asset's fair value,either increases or decreases, are recorded as adjustments to thecarrying value of the equipment held for sale; however, any suchadjustments would not exceed the equipment's carrying value atthe time it was initially classified as held for sale. Initialwrite-downs of assets held for sale are recorded as an impairmentcharge and are included in net loss (gain) on sale of leasingequipment. Realized gains and losses resulting from the sale ofequipment held for sale are recorded as a net loss (gain) on sale ofleasing equipment.

Allowance for DoubtfulAccounts

Our allowance for doubtful accounts isupdated on a regular basis and is based upon a review of thecollectibility of our receivables. This review considers the riskprofile of the customer, credit quality indicators such as the level ofpast-due amounts and economic conditions. An account is considered pastdue when a payment has not been received in accordance with thecontractual terms. Accounts are generally charged off after an analysisis completed which indicates that collection of the full principalbalance is in doubt. Changes in economic conditions or other events maynecessitate additions or deductions to the allowance for doubtfulaccounts. The allowance for doubtful accounts is intended to providefor losses inherent in the accounts receivable, and requires theapplication of estimates and judgments as to the outcome of collectionefforts and the realization of collateral, among other things. Webelieve our allowance for doubtful accounts is adequate to provide forcredit losses inherent in our accounts receivable. However, actuallosses could exceed the amounts provided for in certainperiods.

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Income Taxes

Weaccount for income taxes in accordance with Statement of FinancialAccounting Standards No. 109, Accounting for Income Taxes,(‘‘SFAS No. 109’’). Under SFAS No. 109,deferred tax assets and liabilities are determined based on thedifference between our financial statements and the tax basis of assetsand liabilities using enacted tax rates in effect for the year in whichthe differences are expected toreverse.

Goodwill

In accordance with SFASNo. 142, ‘‘Goodwill and Other Intangibles’’we will evaluate our goodwill balance for possible impairment at leastannually, in the fourth quarter of each year. A review of goodwill mayalso be initiated if events or circumstances indicate the carryingvalue may be impaired. In the future, in performing this evaluationmanagement will consider many factors including projected futureoperating results and cash flows, economic trends and other marketplace data.

Recently Issued AccountingPronouncements

In December 2004, the FASB issuedSFAS No. 123R, Share-Based Payment, (revised 2004),(‘‘SFAS No. 123R’’). This Statement isa revision of SFAS No. 123. SFAS No. 123R supercedes APB No. 25, andits related implementation guidance. SFAS No. 123R requires companiesto recognize in the statement of operations the fair value of allemployee share-based payments, including grants of employee stockoptions, as well as compensatory employee stock purchase plans. We areevaluating the requirements under SFAS 123R including the valuationmethods and support for the assumptions that underlie the valuation ofthe awards, as well as the transition methods (modified prospectivetransition method or modified retrospective transition method). We arerequired to adopt SFAS No. 123R on January 1, 2006. Based on the numberof options currently outstanding and not vested, we do not expect theadoption of SFAS No. 123R to have a significant impact on our financialposition, results of operations or cash flows. However, future grantsof shared-based compensation will result in the recognition ofcompensation expense.

In May 2005, the FASB issuedStatement of Financial Accounting Standards No. 154‘‘Accounting Changes and ErrorCorrections’’(‘‘SFAS No. 154’’).SFAS No. 154 replaces APB Opinion No. 20 and FASBStatement No. 3. This Statement provides guidance on theaccounting for and reporting of accounting changes and errorcorrections. It requires retrospective application as the requiredmethod for reporting a change in accounting principle in the absence ofexplicit transition requirements specific to the newly adoptedaccounting principle. SFAS No. 154 carries forwardwithout change the guidance contained in APB No. 20 forreporting the correction of an error in previously issued financialstatements and a change in accounting estimate. SFAS No. 154 iseffective for accounting changes and corrections of errors made infiscal years beginning after December 15, 2005. The adoption ofSFAS No. 154 will not have a material impact on our consolidatedfinancial statements.

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ITEM 3:    Quantitativeand Qualitative Disclosures About Market Risk

Market riskrepresents the risk of changes in value of a financial instrument,derivative or non-derivative, caused by fluctuations in interest rates,foreign exchange rates and equity prices. Changes in these factorscould cause fluctuations in results of our operations and cash flows.In the ordinary course of business, we are exposed to foreign currency,interest rate, and credit risks.

Foreign Currency ExchangeRate Risk

Although we have significant foreign-basedoperations, the U.S. dollar is the operating currency for the majorityof our leases (both customers obligations and company obligations), andmost of our revenues and expenses in fiscal years 2004 and 2005 weredenominated in U.S. dollars. As a result, foreign currency fluctuationsdid not materially impact our financial results in thoseperiods.

Interest Rate Risk

We enter intointerest rate swaps to fix the interest rates on a portion of our debt.We assess and manage the external and internal risk associated withthese derivative instruments in accordance with the overall operatinggoals. External risk is defined as those risks outside of our directcontrol, including counterparty credit risk, liquidity risk, systemicrisk and legal risk. Internal risk relates to those operational riskswithin the management oversight structure and includes actions taken incontravention of our policy.

The primary external risk ofour interest rate swap agreements instruments is counterparty creditexposure, which is defined as the ability of a counterparty to performits financial obligations under a derivative contract. All derivativeagreements are with major money center financial institutions ratedinvestment grade by nationally recognized rating agencies, with themajority of our counterparties rated ‘‘AA’’or better. Credit exposures are measured based on the market value ofoutstanding derivatives instruments. Both current exposures andpotential exposures are calculated for each derivative contract tomonitor counterparty credit exposure.

As of September 30,2005, the initial notional principal amount underlying our interestrate swaps was $500 million. These interest rate swaps were enteredinto on December 14, 2004, have an amortizing 7 year term and a fixedrate of approximately 3.82%.

In addition, onOctober 28, 2005, the Company entered into two new interest rate swapagreements with a financial institution to fix the floating interestrates on its debt facilities. One swap has a notional amount of $100million, a non-amortizing term of 6 years, with a fixed rate ofapproximately 4.82%. The second swap has a notional amount of$25 million, a non-amortizing term of approximately 2.75 years, with afixed rate of approximately 4.71%.

As a result ofour variable rate indebtedness, our earnings are affected by changes ininterest rates. However, we utilize interest rate swap agreements tomanage the market risk associated with fluctuations in interest rates.If market interest rates for our variable rate indebtedness averaged 50basis points more than the weighted average interest rate actually paidduring 2005, our interest expense, after considering the effects of ourinterest rate swap agreements, would have increased, and income beforeincomes taxes would have decreased, by $1.1 million for the nine monthsended September 30, 2005. These amounts are determined by consideringthe impact of the hypothetical interest rates on our borrowings andinterest rate swap agreements. This analysis does not consider theeffects of the reduced level of overall economic activity that couldexist in such an environment.

CreditRisk

We maintain detailed credit records regardingour customers and set maximum exposure limits for our significantcustomers based on our review of these records. Credit criteriainclude, but are not limited to, customer payment history, customerfinancial position and performance (e.g., net worth leverage,profitability, trade routes, country of domicile, social and politicalclimate, and the type of, and location of, containers that are to besupplied.) We diligently monitor our customers' performance andour lease exposures on an ongoing basis, and our credit managementprocesses are aided by the long payment experience we have with most ofour customers and our broad network of long-standing relationships inthe shipping industry that provide current information about ourcustomers.

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Industry factors that provideincremental credit protection include the strong growth in thecontainer industry, effective collection tools, our high recovery ratefor containers in default situations and the re-marketability of ourcontainer fleet. The strong growth in the container industry helpsminimize the risk of customer defaults since the core assets of apoorly performing shipping line, its ships and containers, aregenerally needed to meet world containerized trade demand. As a result,poorly performing shipping lines are often acquired by others. Inaddition, the law in certain major port locations is highly favorableto creditors and many of our large customers call on ports that willallow us to arrest, or seize, the customer’s ships or bunkers,or repossess our containers if the customer is in default under ourcontainer leases. We have historically recovered approximately90% of our containers that were subject of defaulted contractsand we are able to successfully re-market these repossessed containersthrough our worldwide sales infrastructure. However, we typically incuroperating expenses such as repairs and positioning when containers arerecovered after a customer default.

For the nine monthsended September 30, 2005, our five largest customers accounted forapproximately 45% of our leasing revenues, with our largestcustomer accounting for approximately 17% of our leasingrevenues. As of September 30, 2005, approximately 74% of ourcontainers were on-hire to our 20 largest customers.

Theallowance for doubtful accounts includes an estimate of allowancesnecessary for receivables on our operating leasereceivables.

ITEM 4.    CONTROLS AND PROCEDURES.

Based upon the required evaluation of our disclosure controlsand procedures (as defined in Rules 13a-15(e) and 15d-15(e)under the Securities and Exchange Act of 1934, as amended (the‘‘Exchange Act’’)), our President and ChiefExecutive Officer and our Vice President and Chief Financial Officerconcluded that as of September 30, 2005 our disclosure controlsand procedures were adequate and effective to ensure that informationwas gathered, analyzed and disclosed on a timely basis.

There has been no change in our internal control overfinancial reporting (as defined in Rules 13a-15(f) and 15d-15(f)under the Exchange Act) that occurred during our fiscal quarter endedSeptember 30, 2005, that has materially affected, or isreasonably likely to materially affect, our internal control overfinancial reporting.

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PART II — OTHERINFORMATION

ITEM 1.    LEGAL PROCEEDINGS.

Fromtime to time, we are a party to litigation matters arising inconnection with the normal course of our business. While we cannotpredict the outcome of these matters, in the opinion of our management,based on information presently available to us, we believe that we haveadequate legal defenses, reserves or insurance coverage and anyliability arising from these matters will not have a material adverseeffect on our business. Nevertheless, unexpected adverse future events,such as an unforeseen development in our existing proceedings, asignificant increase in the number of new cases or changes in ourcurrent insurance arrangements could result in liabilities that have amaterial adverse impact on our business.

ITEM6.    EXHIBITS.

|               |  |                                                                                                                                          |  |  |  |  |
|---------------|--|------------------------------------------------------------------------------------------------------------------------------------------|--|--|--|--|
| ExhibitNumber |  | Exhibit Description                                                                                                                      |
| 31.1          |  | Certification of theChief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) ofthe Securities Exchange Act of 1934, as amended* |
| 31.2          |  | Certification of the Chief FinancialOfficer pursuant to Rules 13a-14(a) and 15d-14(a) of the SecuritiesExchange Act of 1934, as amended* |
| 32.1          |  | Certification by Chief ExecutiveOfficer pursuant to 18 U.S.C. Section 1350*                                                              |
| 32.2          |  | Certification by Chief FinancialOfficer pursuant to 18 U.S.C. Section 1350*                                                              |
|               |

|  |
|--|
|  |  |
|  |

|         |                |
|---------|----------------|
| *  | Filedherewith. |

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Actof 1934, the Registrant has duly caused this report to be signed on itsbehalf by the undersigned thereunto duly authorized.

TAL International Group, Inc.

November 21,2005

|  | /s/ ChandKhan            Chand KhanVice PresidentandChief Financial Officer(PrincipalAccounting Officer) |
|--|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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