Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549



FORM 10-Q

ý

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For The Quarterly Period Ended June 30, 2010oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the Transition Period
from                             to


Commission file number- 001-32638

TAL International Group, Inc.(Exact name of registrant as specified in the charter)

Delaware(State or other jurisdiction of
incorporation or organization)

0-1796526(I.R.S. Employer
Identification Number)100 Manhattanville Road, Purchase, New York(Address of principal executive office)

10577-2135(Zip Code)


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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirement for the past 90 days. Yes þ    No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to
be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files). Yes o    No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See
definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer o

Accelerated Filer þ

Non-accelerated filer o

Smaller reporting company o(Do not check if a smaller reporting company)


Indicate
by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange
Act). YES o    NO þ

As of July 30, 2010, there were 30,708,223 shares of the Registrant's common stock, $.001 par value outstanding.



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Table of Contents

TAL International Group, Inc.

Index



Page No.PART I  FINANCIAL INFORMATIONItem 1.

Financial Statements (unaudited)

3Consolidated Balance Sheets at June 30, 2010 and December 31, 2009

4Consolidated Statements of Operations for the three months and six months ended June 30, 2010 and
June 30, 2009

5Consolidated Statements of Cash Flows for the six months ended June 30, 2010 and June 30,
2009

6Notes to Consolidated Financial Statements

7Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

17Item 3.

Quantitative and Qualitative Disclosures About Market Risk

39Item 4.

Controls and Procedures

40PART II  OTHER INFORMATIONItem 1.

Legal Proceedings

41Item 1A.

Risk Factors

41Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

41Item 6.

Exhibits

41Signature

43


2

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, that involve substantial risks
and uncertainties. In addition, we, or our executive officers on our behalf, may from time to time make forward-looking statements in reports and other documents we file with the Securities and
Exchange Commission, or SEC, or in connection with oral statements made to the press, potential investors or others. All statements, other than statements of historical facts, including statements
regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans and objectives of management are forward-looking statements. The words
"expect," "estimate," "anticipate," "predict," "believe," "think," "plan," "will," "should," "intend," "seek," "potential" and similar expressions and variations are intended to identify
forward-looking statements, although not all forward-looking statements contain these identifying words.

Forward-looking
statements in this report are subject to a number of known and unknown risks and uncertainties that could cause our actual results, performance or achievements to differ
materially from those described in the forward-looking statements, including, but not limited to, the risks and
uncertainties described in the section entitled "Risk Factors" in our Annual Report on Form 10-K filed with the SEC on March 1, 2010, in this report as well as in the other documents we
file with the SEC from time to time, and such risks and uncertainties are specifically incorporated herein by reference.

Forward-looking
statements speak only as of the date the statements are made. Except as required under the federal securities laws and rules and regulations of the SEC, we undertake no
obligation to update or revise forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information. We caution you not to
unduly rely on the forward-looking statements when evaluating the information presented in this report.

PART I  FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

The consolidated financial statements of TAL International Group, Inc. ("TAL" or the "Company") as of June 30, 2010
(unaudited) and December 31, 2009 and for the three and six months ended June 30, 2010 (unaudited) and June 30, 2009 (unaudited) included herein have been prepared by the Company,
without audit, pursuant to U.S. generally accepted accounting principles and the rules and regulations of the SEC. In addition, certain information and note disclosures normally included in financial
statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the
disclosures are adequate to make the information presented not misleading. These financial statements reflect, in the opinion of management, all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the results for the interim periods. The results of operations for such interim periods are not necessarily indicative of the results for the full year. These
financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K filed with the SEC, on
March 1, 2010, from which the accompanying December 31, 2009 Balance Sheet information was derived, and all of our other filings filed with the SEC from October 11, 2005 through
the current date pursuant to the Exchange Act.

3

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TAL INTERNATIONAL GROUP, INC.

Consolidated Balance Sheets
(Dollars in thousands, except share data)

June 30,
2010

December 31,
2009(Unaudited)ASSETS:Leasing equipment, net of accumulated depreciation and allowances of $463,708 and $420,517

$
1,615,422

$
1,357,539Net investment in finance leases, net of allowances of $1,231 and $1,618


182,266


199,989Equipment held for sale


31,316


46,291Revenue earning assets


1,829,004


1,603,819Cash and cash equivalents (including restricted cash of $21,655 and $13,714)


88,135


73,604Accounts receivable, net of allowances of $535 and $757


38,982


33,086Leasehold improvements and other fixed assets, net of accumulated depreciation and amortization of $5,282 and $5,142


855


972Goodwill


71,898


71,898Deferred financing costs


16,374


8,882Other assets


6,775


6,043Fair value of derivative instruments


1,510


2,674Total assets

$
2,053,533

$
1,800,978LIABILITIES AND STOCKHOLDERS' EQUITY:Equipment purchases payable

$
48,421

$
3,312Fair value of derivative instruments


87,139


61,799Accounts payable and other accrued expenses


38,183


42,845Net deferred income tax liability


116,947


112,895Debt


1,354,038


1,161,298Total liabilities


1,644,728


1,382,149Stockholders' equity:Preferred stock, $.001 par value, 500,000 shares authorized, none issued





Common stock, $.001 par value, 100,000,000 shares authorized, 33,720,066 and 33,592,066 shares issued respectively


33


33Treasury stock, at cost, 3,011,843 and 3,009,171 shares, respectively


(37,535
)

(37,489
)Additional paid-in capital


398,816


398,016Accumulated earnings


51,912


58,253Accumulated other comprehensive (loss) income


(4,421
)

16Total stockholders' equity


408,805


418,829Total liabilities and stockholders' equity

$
2,053,533

$
1,800,978


The
accompanying notes to the unaudited consolidated financial statements are an integral part of these statements.

4

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TAL INTERNATIONAL GROUP, INC.

Consolidated Statements of Operations
(Dollars and shares in thousands, except earnings per share)

Three Months Ended
June 30,

Six Months Ended
June 30,2010

2009

2010

2009(Unaudited)

(Unaudited)Revenues:Leasing revenues:Operating leases

$
70,851

$
73,977

$
138,844

$
152,024Finance leases


4,644


5,373


9,514


10,428Total leasing revenues


75,495


79,350


148,358


162,452Equipment trading revenue


10,956


9,747


16,694


25,835Management fee income


725


669


1,493


1,338Other revenues


188


293


417


589Total revenues


87,364


90,059


166,962


190,214Operating expenses (income):Equipment trading expenses


9,675


9,582


14,853


24,357Direct operating expenses


6,637


9,641


14,817


19,466Administrative expenses


10,543


9,763


21,098


21,385Depreciation and amortization


28,287


29,354


55,253


58,463(Reversal) provision for doubtful accounts


(530
)

77


(598
)

398Net (gain) on sale of leasing equipment


(7,235
)

(2,448
)

(11,703
)

(6,044
)Total operating expenses


47,377


55,969


93,720


118,025Operating income


39,987


34,090


73,242


72,189Other expenses (income):Interest and debt expense


17,773


17,120


34,815


34,481(Gain) on debt extinguishment





(14,130
)




(14,130
)Unrealized loss (gain) on interest rate swaps


15,002


(24,455
)

21,786


(29,518
)Total other expenses (income)


32,775


(21,465
)

56,601


(9,167
)Income before income taxes


7,212


55,555


16,641


81,356Income tax expense


2,560


19,778


6,090


28,963Net income

$
4,652

$
35,777

$
10,551

$
52,393Net income per common share  Basic

$
0.15

$
1.15

$
0.35

$
1.66Net income per common share  Diluted

$
0.15

$
1.15

$
0.34

$
1.66Weighted average number of common shares outstanding  Basic


30,434


31,102


30,432


31,534Weighted average number of common shares outstanding  Diluted


30,724


31,132


30,616


31,555Cash dividends paid per common share

$
0.30

$
0.01

$
0.55

$
0.02


The
accompanying notes to the unaudited consolidated financial statements are an integral part of these statements.

5

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TAL INTERNATIONAL GROUP, INC.

Consolidated Statements of Cash Flows

(Dollars in thousands)

Six months ended
June 30,2010

2009(Unaudited)Cash flows from operating activities:Net income

$
10,551

$
52,393Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization


55,253


58,463Amortization of deferred financing costs


847


568Net (gain) on sale of leasing equipment


(11,703
)

(6,044
)Unrealized loss (gain) on interest rate swaps


21,786


(29,518
)(Gain) on debt extinguishment





(14,130
)Deferred income taxes


4,083


29,167Stock compensation charge


800


840Equipment purchased for resale


(4,940
)

3,993Changes in operating assets and liabilities


(13,581
)

2,718Net cash provided by operating activities


63,096


98,450Cash flows from investing activities:Purchases of leasing equipment


(273,039
)

(27,184
)Investments in finance leases


(433
)

(26,713
)Proceeds from sale of equipment, net of selling costs


39,634


33,063Cash collections on finance lease receivables, net of income earned


16,273


15,156Other


(124
)

(32
)Net cash used in investing activities


(217,689
)

(5,710
)Cash flows from financing activities:Common stock dividends paid


(16,741
)

(631
)Purchases of treasury stock





(11,291
)Financing fees paid under debt facilities


(8,339
)

(1,490
)Borrowings under debt facilities


391,000


Payments under debt facilities


(190,224
)

(62,247
)Payment to extinguish debt





(20,650
)Proceeds received from capital leases





10,000Payments under capital lease obligations


(6,572
)

(6,483
)(Increase) decrease in restricted cash


(7,941
)

1,505Net cash provided by (used in) financing activities


161,183


(91,287
)Net increase in cash and cash equivalents


6,590


1,453Unrestricted cash and cash equivalents, beginning of period


59,890


40,798Unrestricted cash and cash equivalents, end of period

$
66,480

$
42,251Supplemental non-cash investing activities:Accrued and unpaid purchases of equipment

$
48,421

$
2,394


The
accompanying notes to the unaudited consolidated financial statements are an integral part of these statements.

6

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TAL INTERNATIONAL GROUP, INC.        NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1  Description of the Business, Basis of Presentation, Recently Issued Accounting Pronouncements

A.    Description of the Business

TAL International Group, Inc. ("TAL" or the "Company") leases intermodal transportation equipment, primarily maritime containers, and provides
maritime container management services, through a worldwide network of offices, third party depots and other facilities. The Company operates in both international and domestic markets. The majority
of the Company's business is derived from leasing its containers to shipping line customers through a variety of long-term and short-term contractual lease arrangements. The Company also sells its own
containers and containers purchased from third parties for resale. TAL also enters into management agreements with third party container owners under which the Company manages the leasing and selling
of containers on behalf of the third party owners.

B.    Basis of Presentation

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the reported amounts of revenues and expenses during the reporting period and disclosure of contingent assets and liabilities at the date of
the financial statements. Actual results could differ from those estimates.

The
consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. Certain
reclassifications have been made to the accompanying prior period financial statements and notes to conform with the current year's presentation.

C.    Recently Issued Accounting Pronouncements

The FASB has issued Accounting Standards Update No. 2010-06 ("ASU 2010-06"),Fair Value Measurements and Disclosures
(Topic 820): Improving Disclosures about Fair Value Measurements, which is effective for interim and annual reporting periods beginning after December 15, 2009.
This ASU requires some new disclosures and clarifies some existing disclosure requirements about fair value measurement as set forth in Codification Subtopic 820-10. The FASB's objective is to
improve these disclosures and, thus, increase the transparency in financial reporting. A reporting entity should provide disclosures about the valuation techniques and inputs used to measure
fair value for both recurring and nonrecurring fair value measurements.

The
Company adopted the provisions of ASU 2010-06 effective January 1, 2010, and it did not impact the consolidated financial results as it is disclosure-only in nature. Refer to
Note 6 for more information.

Note 2  Fair Value of Financial Instruments

The Company believes the carrying amounts of cash and cash equivalents, accounts receivable and other financial assets approximated
fair value at June 30, 2010.

The
interest rates charged on the majority of the Company's various credit facilities are based on variable interest rates. The Company estimates that at June 30, 2010 the
carrying value of the Company's debt instruments was approximately $88.9 million higher than its fair value. The Company

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TAL INTERNATIONAL GROUP, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

estimated
the fair value of its debt instruments based on the net present value of its future debt payments, using a discount rate which reflected the Company's estimate of market interest spreads at
June 30, 2010.

Note 3  Dividends

The Company paid the following quarterly dividends during the six months ended June 30, 2010 and 2009 on its issued and
outstanding common stock:

Record
Date

Payment Date

Aggregate
Payment

Per Share
PaymentJune 3, 2010


June 24, 2010

$
9.1 million

$
0.30March 11, 2010


March 25, 2010

$
7.6 million

$
0.25June 2, 2009


June 23, 2009

$
0.3 million

$
0.01March 12, 2009


March 26, 2009

$
0.3 million

$
0.01


Note 4  Stock-Based Compensation Plans

The Company records compensation cost relating to share-based payment transactions in accordance with FASB Accounting Standards
Codification No. 718 (ASC 718)Compensation  Stock Compensation. The cost is measured at the grant date, based on the
calculated fair value of the award, and is recognized as an expense over the employee's requisite service period (generally the vesting period of the equity award).

The
following compensation costs were reported in administrative expenses in the Company's statements of operations related to the Company's stock-based compensation plans as a result of
stock options granted in 2006 and restricted shares granted during the years 2007, 2009 and 2010 (dollars in thousands):

Three Months Ended
June 30,

Six Months Ended
June 30,2010

2009

2010

2009Stock options

$
7

$
109

$
12

$
114Restricted stock


393


444


788


726Total

$
400

$
553

$
800

$
840


Total
unrecognized compensation cost of approximately $2.3 million as of June 30, 2010 related to restricted shares granted during 2007, 2009 and 2010 will be recognized
over the remaining weighted average vesting period of approximately 1.75 years.

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TAL INTERNATIONAL GROUP, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

Note 5  Debt

Debt consisted of the following (amounts in thousands):

June 30,
2010

December 31,
2009Asset backed securitizations (ABS)Term notes  Series 2006-1

$
329,583

$
357,833Term notes  Series 2005-1


318,750


342,361Term notes  Series 2010-1


197,000


2008 Asset backed credit facility


225,000


209,5002009 Asset backed credit facility


50,000


50,000Revolving credit facility





Finance lease facility


34,432


38,5052007 Term loan facility


23,613


26,6882009 Term loan facilities


30,787


32,1752010 Term loan facilities


49,639


Port equipment facility


8,117


10,547Capital lease obligations


87,117


93,689Total

$
1,354,038

$
1,161,298


2009 Asset Backed Credit Facility

In February 2010, TAL Advantage III, LLC, an indirect wholly owned subsidiary of TAL International Group, Inc.,
increased the size of its asset backed credit facility from $100 million to $150 million, and further increased this facility by $145 million in April 2010 and by
$75 million in June 2010 to bring the size of the facility to $370 million as of June 30, 2010.

2010 Asset Securitization

In June 2010, TAL Advantage IV LLC, an indirect wholly owned subsidiary of TAL International Group, Inc., issued $197,000,000 of
Series 2010-1 Fixed Rate Secured Notes ("Series 2010-1 Notes"). The Series 2010-1 Notes, which were rated "A" by Standard & Poor's, were issued at par with an annual
interest rate of 5.5%, have a scheduled maturity date of July 20, 2020 and a final legal maturity date of July 21, 2025.

Note 6  Derivative Instruments

Interest Rate Swaps

The Company has entered into interest rate swap agreements to manage interest rate risk exposure. The interest rate swap agreements
utilized by the Company effectively modify the Company's exposure to interest rate risk by converting a portion of its floating rate debt to a fixed rate basis, thus reducing the impact of interest
rate changes on future interest expense. These agreements involve the receipt of floating rate amounts in exchange for fixed rate interest payments over the lives of the agreements without an exchange
of the underlying principal amounts. The counterparties to these agreements are highly rated financial institutions. In the unlikely event that the counterparties fail to meet the terms of the
interest rate swap agreements, the Company's exposure is limited to the interest rate differential on the notional amount at each monthly settlement period over the life of the

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TAL INTERNATIONAL GROUP, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

agreements.
The Company does not anticipate any non-performance by the counterparties. Substantially all of the assets of TAL Advantage I LLC, TAL Advantage II LLC and TAL
Advantage III LLC are pledged as collateral for the underlying indebtedness and the amounts payable under the interest rate swap agreements for each of these entities. In addition,
certain assets of TAL International Container Corporation, a wholly owned subsidiary of TAL International Group, Inc. are pledged as collateral for the Revolving Credit Facility and the amounts
payable under certain interest rate swap agreements.

As
of June 30, 2010, the Company had in place total interest rate swap contracts to fix the floating interest rates on a portion of the borrowings under its debt facilities as
summarized below:

Total Notional
Amount at
June 30, 2010

Weighted Average Fixed Leg
Interest Rate at June 30, 2010

Weighted Average
Remaining Term$1,129 million


4.2%

3.1 years


Most of
the interest rate swap contracts entered into since April 12, 2006 are not accounted for as hedging instruments under FASB Accounting Standards Codification
No. 815 (ASC 815)Derivatives and Hedging, and changes in the fair value of the interest rate swap contracts are reflected in the
statements of operations as unrealized losses / (gains) on interest rate swaps. Prior to April 12, 2006, the Company had designated all existing swap contracts as cash flow hedges and then
de-designated these contracts on April 12, 2006. As of June 30, 2010, the unamortized pre tax balance reflected in accumulated other comprehensive (loss) income of these previously
designated swap contracts was approximately $0.8 million, of which $0.7 million will be amortized to income over the next 12 months.

The
Company entered into a forward starting $200 million notional value interest rate swap contract in June 2010 that has been designated as a cash flow hedging instrument, and
the effective portion of the change in fair value of a loss of $5.5 million is reflected in accumulated other comprehensive (loss) income on the Company's balance sheet as of June 30,
2010. Any ineffective portion of the cash flow hedges is recorded as unrealized losses / (gains) on interest rate swaps in the statements of operations and such amounts were immaterial as of the three
and six month periods ended June 30, 2010. Amounts recorded in accumulated other comprehensive (loss) income will be amortized into earnings as the hedged forecasted transactions impact
earnings; the amounts would also be recognized into earnings upon termination of these interest rate swap contracts and the related debt agreements. The swap is not included in the total notional
amount of swaps shown in the above table, as the payment start date is effective August 2010.

Under
the criteria established by FASB Accounting Standards Codification No. 820 (ASC 820)Fair Value Measurements and
Disclosures, the fair value measurements of the interest rate swap contracts are based on significant other observable inputs other than quoted prices, either on a direct or
indirect basis (Level 2), using valuation techniques the Company believes are appropriate.

The
Company has elected to use the income approach to value the interest rate swap contracts, using observable Level 2 market expectations at the measurement date and standard valuation
techniques to convert future amounts to a single present amount (discounted) assuming that participants are motivated, but not compelled to transact. Level 2 inputs for the swap valuations are limited
to quoted prices for similar assets or liabilities in active markets (specifically futures contracts through three years) and inputs other than quoted prices that are observable for the asset or
liability (specifically LIBOR cash rates in the very short term, LIBOR swap rates from four years and beyond, basis swap adjustments, and credit risk at commonly quoted intervals).

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TAL INTERNATIONAL GROUP, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

Foreign Currency Rate Swaps

In April 2008, the Company entered into foreign currency rate swap agreements to manage foreign currency rate risk exposure by
exchanging Euros for U.S. Dollars based on expected payments under its Euro denominated finance lease receivables. The Company will pay a total of approximately 5.4 million Euros and receive
approximately $8.2 million over the remaining term of foreign currency rate swap agreements which expire in April 2015. The Company does not account for the foreign currency rate swap
agreements as hedging instruments under ASC 815, and therefore changes in the fair value of the foreign currency rate swap agreements are reflected in the statements of operations in
administrative expenses.

Under
the criteria established by ASC 820, the fair value measurement of the foreign currency rate swap contracts are based on significant other observable inputs other than quoted
prices, either on a direct or indirect basis (Level 2), using valuation techniques the Company believes are appropriate.

The
Company has elected to use the income approach to value the foreign currency rate swap contracts, using observable Level 2 market expectations at the measurement date and standard
valuation techniques to convert future amounts to a single present amount (discounted) assuming that participants are motivated, but not compelled to transact. Level 2 inputs for the forward
valuations are
limited to quoted prices for similar assets or liabilities in active markets (specifically spot currency rates) and inputs other than quoted prices that are observable for the asset or liability
(specifically forward currency points, LIBOR cash and swap rates, and credit risk at commonly quoted intervals).

Location of Derivative Instruments in Financial Statements

Effect of Derivative Instruments on Balance Sheets  $ in Millions

Asset Derivatives

Liability DerivativesJune 30, 2010

December 31, 2009

June 30, 2010

December 31, 2009Derivative Instrument

Balance
Sheet
Location

Fair
Value

Balance
Sheet
Location

Fair
Value

Balance
Sheet
Location

Fair
Value

Balance
Sheet
Location

Fair
ValueInterest rate contracts designated

Fair Value of Derivative Instruments

$


Fair Value of Derivative Instruments

$


Fair Value of Derivative Instruments

$
5.5

Fair Value of Derivative Instruments

$
Interest rate contracts not designated

Fair Value of Derivative Instruments




Fair Value of Derivative Instruments


2.2

Fair Value of Derivative Instruments


81.6

Fair Value of Derivative Instruments


61.8Foreign exchange contracts

Fair Value of Derivative Instruments


1.5

Fair Value of Derivative Instruments


0.5

Fair Value of Derivative Instruments




Fair Value of Derivative Instruments


Total derivatives



$
1.5



$
2.7



$
87.1



$
61.8


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TAL INTERNATIONAL GROUP, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

Effect of Derivative Instruments on Statements of Operations  $ in Millions

Amount of (Gain) Loss Recognized
in Income on DerivativesThree months ended
June 30,

Six months ended
June 30,Location of
(Gain) Loss
Recognized in
Income on DerivativesDerivative
Instrument

2010

2009

2010

2009Interest rate contracts not designated as hedging instruments

Unrealized loss (gain)
on interest rate swaps

$
15.0

$
(24.5
)
$
21.8

$
(29.5
)Foreign exchange contracts

Administrative Expenses


(0.7
)

0.5


(1.1
)

0.3Total



$
14.3

$
(24.0
)
$
20.7

$
(29.2
)


Note 7  Earnings Per Share

The following table sets forth the calculation of basic and diluted earnings per share for the three months ended June 30, 2010 and
2009 (in thousands, except earnings per share):

Three Months Ended June 30,

Six Months Ended June 30,2010

2009

2010

2009Numerator:Net income applicable to common stockholders for basic and diluted earnings per share

$
4,652

$
35,777

$
10,551

$
52,393Denominator:Weighted average shares outstanding for basic earnings per share


30,434


31,102


30,432


31,534Dilutive stock options


290


30


184


21Weighted average shares for diluted earnings per share


30,724


31,132


30,616


31,555Earnings per share:Basic

$
0.15

$
1.15

$
0.35

$
1.66Diluted

$
0.15

$
1.15

$
0.34

$
1.66


For
the three and six months ended June 30, 2010, 1,500 and 13,000 options to purchase shares of common stock, respectively, were not included in the calculation of weighted
average shares for diluted earnings per share because their effects were antidilutive. For both the three and six months ended June 30, 2009, 598,691options to purchase shares of common stock and
66,000 shares of restricted stock were not included in the calculation of weighted average shares for diluted earnings per share because their effects were antidilutive.

12

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Table of Contents

TAL INTERNATIONAL GROUP, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

Note 8  Segment and Geographic Information

Industry Segment Information

The Company conducts its business activities in one industry, intermodal transportation equipment, and has two
segments:



The
following tables present certain segment information and the consolidated totals reported (dollars in thousands):

Three Months Ended
June 30, 2010

Three Months Ended
June 30, 2009Equipment
Leasing

Equipment
Trading

Totals

Equipment
Leasing

Equipment
Trading

TotalsTotal revenues

$
75,430

$
11,934

$
87,364

$
80,115

$
9,944

$
90,059Equipment trading expenses





9,675


9,675





9,582


9,582Depreciation and amortization expense


28,110


177


28,287


29,310


44


29,354Net (gain) on sale of leasing equipment


(7,191
)

(44
)

(7,235
)

(2,448
)




(2,448
)Interest and debt expense


17,281


492


17,773


16,918


202


17,120Income before income taxes(1)


20,852


1,362


22,214


17,068


(98
)

16,970


---

13

---



Table of Contents

TAL INTERNATIONAL GROUP, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



Six Months Ended
June 30, 2010

Six Months Ended
June 30, 2009Equipment
Leasing

Equipment
Trading

Totals

Equipment
Leasing

Equipment
Trading

TotalsTotal revenues

$
148,626

$
18,336

$
166,962

$
164,056

$
26,158

$
190,214Equipment trading expenses





14,853


14,853





24,357


24,357Depreciation and amortization expense


54,947


306


55,253


58,385


78


58,463Net (gain) on sale of leasing equipment


(11,659
)

(44
)

(11,703
)

(6,044
)




(6,044
)Interest and debt expense


33,952


863


34,815


34,098


383


34,481Income before income taxes(2)


36,514


1,913


38,427


37,179


529


37,708Goodwill at June 30


70,898


1,000


71,898


70,898


1,000


71,898Total assets at June 30


2,012,119


41,414


2,053,533


1,860,878


14,954


1,875,832Purchases of leasing equipment(3)


257,261


15,778


273,039


27,184





27,184Investments in finance leases(3)


433





433


26,713





26,713


---

There
are no intercompany revenues or expenses between segments. Additionally, certain administrative expenses have been allocated between segments based on an estimate of services
provided to each segment. Beginning in the fourth quarter of 2009, certain equipment purchased for resale was purchased through sale leaseback transactions with our shipping line customers, and the
containers are being returned exceptionally slowly primarily due to the current worldwide shortage of containers. Due to the expected longer term nature of these transactions, these purchases are
reflected as leasing equipment as opposed to assets held for sale and the cash flows associated with these transactions are and will be reflected as purchases of leasing equipment and proceeds from
sale of equipment in investing activities.

Geographic Segment Information

The Company's customers use TAL's containers across their many worldwide trade routes. Substantially all of the Company's leasing
related revenues are denominated in U.S. dollars. The

14

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Table of Contents

TAL INTERNATIONAL GROUP, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

following
table represents the allocation of domestic and international revenues for the periods indicated based on the customers' primary domicile (in thousands):

Three Months
Ended June 30,

Six Months Ended
June 30,2010

2009

2010

2009Total revenues:United States of America

$
7,444

$
8,006

$
13,940

$
18,998Asia


36,020


37,480


66,921


75,957Europe


38,485


37,911


75,775


81,152Other International


5,415


6,662


10,326


14,107Total

$
87,364

$
90,059

$
166,962

$
190,214


As
all of the Company's containers are used internationally, where no one container is domiciled in one particular place for a prolonged period of time, substantially all of the
Company's long-lived assets are considered to be international.

Note 9  Commitments and Contingencies

Residual Value Guarantees

During 2008, the Company entered into commitments for equipment residual value guarantees in connection with certain finance leases
that were sold or brokered to financial institutions. The guarantees represent the Company's commitment that these assets will be worth a specified amount at the end of lease terms (if the lessee does
not default on the lease) which expire in 2016. At June 30, 2010, the maximum potential amount of the guarantees under which the Company could be required to perform was approximately $27.1 million.
The carrying values of the guarantees of $1.1 million have been deferred and are included in accounts payable and other accrued expenses. The Company accounts for the residual value guarantees under
FASB Accounting Standards Codification No. 450Contingencies, and expects the market value of the equipment covered by the guarantees will equal
or exceed the value of the guarantees. Under the criteria established by ASC 820, the Company performed fair value measurements of the guarantees at origination, using Level 2 inputs, which
were based on significant other observable inputs other than quoted prices, either on a direct or indirect basis.

Purchase Commitments

At June 30, 2010, commitments for capital expenditures totaled approximately $314.4 million.

Note 10  Income Taxes

The consolidated income tax expense for the three and six month periods ended June 30, 2010 and 2009 was determined based upon
estimates of the Company's consolidated effective income tax rates for the years ending December 31, 2010 and 2009, respectively. The higher effective tax rate reported for the six months ended June
30, 2010 was mainly attributed to additional tax expense related to stock compensation on restricted stock that vested on January 1, 2010. The difference between the consolidated effective income tax
rate and the U.S. federal statutory rate is primarily attributable to state income taxes, foreign income taxes and the effect of certain permanent differences.

15

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Table of Contents

TAL INTERNATIONAL GROUP, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

Note 11  Comprehensive Income and Other

The following table provides a reconciliation of the Company's net income to comprehensive income (in thousands):

Three Months Ended
June 30,

Six Months Ended
June 30,2010

2009

2010

2009Net income

$
4,652

$
35,777

$
10,551

$
52,393Other comprehensive income:Unrealized loss on derivative instrument designated as cash flow hedge (net of tax benefit of $1,948)


(3,516
)




(3,516
)

Foreign currency translation adjustments


(323
)

659


(679
)

560Amortization of net unrealized gains on derivative instruments previously designated as cash flow hedges (net of tax expense of $66, $81, $134 and $161,
respectively)


(119
)

(145
)

(242
)

(289
)Total

$
694

$
36,291

$
6,114

$
52,664


The
balance included in accumulated other comprehensive (loss) income for cumulative translation adjustments as of June 30, 2010 and December 31, 2009 was $(1,425) and $(746),
respectively.

The
Company recorded $0.1 million of unrealized foreign currency exchange losses and $0.5 million of unrealized foreign currency exchange gains which are reported in administrative
expenses in the Company's statement of operations in the quarters ended June 30, 2010 and June 30, 2009, respectively. The Company recorded $0.5 million of unrealized foreign currency exchange losses
and $0.2 million of unrealized foreign currency exchange gains which are reported in administrative expenses in the Company's statement of operations in the six months ended June 30, 2010 and June 30,
2009, respectively. These losses /gains resulted primarily from fluctuations in exchange rates related to its Euro and Pound Sterling transactions and related assets.

Note 12  Subsequent Events

Quarterly Dividend

On July 27, 2010 the Company's Board of Directors approved and declared a $0.35 per share quarterly cash dividend on its issued
and outstanding common stock, payable on September 23, 2010 to shareholders of record at the close of business on September 2, 2010.

Amendment to 2009 Asset Backed Credit Facility

On July 16, 2010, TAL Advantage III, LLC, an indirect wholly owned subsidiary of TAL International Group, Inc., reduced the size of its
asset backed credit facility from $370 million to $325 million.

16

---



Table of Contents



ITEM 2:    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of the consolidated financial condition and results of operations of TAL
International Group, Inc. and its subsidiaries should be read in conjunction with related consolidated financial data and our annual audited consolidated financial statements and related notes thereto
included in our Annual Report on Form 10-K filed with the SEC on March 1, 2010. The statements in this discussion regarding industry outlook, our expectations regarding our future performance,
liquidity and capital resources and other non-historical statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described under "Risk
Factors" and "Forward-Looking Statements" in our Form 10-K. Our actual results may differ materially from those contained in or implied by any forward-looking statements.

Our Company

We are one of the world's largest and oldest lessors of intermodal containers and chassis. Intermodal containers are large,
standardized steel boxes used to transport freight by ship, rail or truck. Because of the handling efficiencies they provide, intermodal containers are the primary means by which many goods and
materials are shipped internationally. Chassis are used for the transportation of containers domestically.

We
operate our business in one industry, intermodal transportation equipment, and have two business segments:



Operations

Our operations include the acquisition, leasing, re-leasing and subsequent sale of multiple types of intermodal containers and
chassis. As of June 30, 2010, our total fleet consisted of 765,366 containers and chassis, including containers under management for third parties, representing 1,245,758 twenty-foot equivalent
units (TEUs). We have an extensive global presence, offering leasing services through 18 offices in 11 countries and 193 third party container depot facilities in 37 countries as of June 30, 2010. Our
customers are among the largest shipping lines in the world. For the six months ended June 30, 2010, our twenty largest customers accounted for 76% of our leasing revenues, our five largest customers
accounted for 50% of our leasing revenues, and our largest customer accounted for 17% of our leasing revenues.

We
primarily lease three principal types of equipment: (1) dry freight containers, which are used for general cargo such as manufactured component parts, consumer staples, electronics
and apparel, (2)
refrigerated containers, which are used for perishable items such as fresh and frozen foods, and (3) special containers, which are used for heavy and oversized cargo such as marble slabs, building
products and machinery. We also lease chassis, which are generally used for the transportation of containers domestically, and tank containers, which are used to transport bulk liquid products such as
chemicals. We also finance port equipment, which includes container cranes, reach stackers and other related equipment. Our in-house equipment sales group manages the disposal process for our used
containers and chassis from our equipment leasing fleet and buys and sells used and new containers and chassis acquired from third parties.

17

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Table of Contents

As
of June 30, 2010, the percentages of our equipment fleet and leasing revenues by equipment type are as follows:

Equipment Type

Percent of total
fleet units

Percent of
leasing revenueDry


83
%

57
%Refrigerated


5


24Special


6


11Chassis


1


3Tank





1Equipment leasing fleet


95


96Equipment trading fleet


5


4Total


100
%

100
%


The
following tables provide the composition of our equipment fleet as of the dates indicated below (in both units and TEUs):

Equipment Fleet in UnitsJune 30, 2010

December 31, 2009

June 30, 2009Owned

Managed

Total

Owned

Managed

Total

Owned

Managed

TotalDry


606,933


26,384


633,317


564,885


28,068


592,953


588,718


29,212


617,930Refrigerated


39,524


351


39,875


35,611


450


36,061


37,526


525


38,051Special


44,056


2,304


46,360


45,238


2,619


47,857


46,757


2,756


49,513Tank


1,849





1,849


1,350





1,350


1,350





1,350Chassis


8,764





8,764


8,778





8,778


8,787





8,787Equipment leasing fleet


701,126


29,039


730,165


655,862


31,137


686,999


683,138


32,493


715,631Equipment trading fleet


35,201





35,201


14,947





14,947


11,105





11,105Total


736,327


29,039


765,366


670,809


31,137


701,946


694,243


32,493


726,736Percentage


96.2
%

3.8
%

100.0
%

95.6
%

4.4
%

100.0
%

95.5
%

4.5
%

100.0
%




Equipment Fleet in TEUsJune 30, 2010

December 31, 2009

June 30, 2009Owned

Managed

Total

Owned

Managed

Total

Owned

Managed

TotalDry


971,668


47,665


1,019,333


899,599


50,426


950,025


936,082


52,298


988,380Refrigerated


74,158


619


74,777


65,971


758


66,729


69,158


863


70,021Special


75,744


3,839


79,583


77,617


4,255


81,872


80,113


4,485


84,598Tank


1,899





1,899


1,400





1,400


1,400





1,400Chassis


15,584





15,584


15,612





15,612


15,628





15,628Equipment leasing fleet


1,139,053


52,123


1,191,176


1,060,199


55,439


1,115,638


1,102,381


57,646


1,160,027Equipment trading fleet


54,582





54,582


23,885





23,885


18,799





18,799Total


1,193,635


52,123


1,245,758


1,084,084


55,439


1,139,523


1,121,180


57,646


1,178,826Percentage


95.8
%

4.2
%

100.0
%

95.1
%

4.9
%

100.0
%

95.1
%

4.9
%

100.0
%


We generally lease our equipment on a per diem basis to our customers under three types of leases: long-term leases, finance leases and service
leases. Long-term leases, typically with initial contractual terms of three to eight years, provide us with stable cash flow and low transaction costs by

18

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Table of Contents

requiring
customers to maintain specific units on-hire for the duration of the lease. Finance leases, which are typically structured as full payout leases, provide for a predictable recurring revenue
stream with the lowest daily cost to the customer because customers are generally required to retain the equipment for the duration of its useful life. Service leases command a premium per diem rate
in exchange for providing customers with a greater level of operational flexibility by allowing the pick-up and drop-off of units during the lease term. We also have expired long-term leases whose
fixed terms have ended but for which the related units remain on-hire and for which we continue to receive rental payments pursuant to the terms of the initial contract. Some leases have contractual
terms that have features reflective of both long-term and service leases and we classify such leases as either long-term or service leases, depending upon which features we believe are more
predominant.

The
following table provides a summary of our equipment leasing fleet portfolio by lease type, based on total on-hire units as of the dates indicated below:

Lease Portfolio

June 30,
2010

December 31,
2009

June 30,
2009Long-term leases


63.5
%

68.7
%

66.9
%Finance leases


10.1


11.7


11.7Service leases


16.1


15.2


12.4Expired long-term leases (units on hire)


10.3


4.4


9.0Total


100.0
%

100.0
%

100.0
%


During
2009, we reached agreements with several of our customers that limit the total number of containers that could be returned from expired leases. During the redelivery limitation
periods we have included the maximum number of containers that can be returned as expired term leases, while the balance of the affected units are included in current term leases. During the first
half of 2010 several of these agreements expired.

As
of June 30, 2010, our long-term leases had an average remaining contract term of approximately 50 months, assuming no leases are renewed.

Operating Performance

Our profitability is primarily determined by the extent to which our leasing revenue exceeds our ownership, operating and
administrative expenses. Our profitability is also impacted by the gain or loss that we realize on the sale of our used equipment and the net sales margins on our equipment trading activities.

Our
leasing revenue is primarily driven by our owned fleet size, utilization and average rental rates. Our leasing revenue also includes ancillary fees generally driven by the
volume of containers returned off-hire.

As
of June 30, 2010, our owned fleet included 1,193,635 TEUs, an increase of 10.1% from December 31, 2009, and an increase of approximately 6.5 % from June 30, 2009. The increase in
fleet size during the first six months of 2010 was due to several factors, including an increase in new container purchases and the completion of several sale-leaseback transactions for trading
containers.

TAL
has increased new container purchases in 2010 due to a strong recovery in demand for leased containers.  Trade volumes were exceptionally weak from the end of 2008
through the middle of 2009, leading to a decrease in demand for containers and a build-up of excess container inventories. In response to this, leasing companies and shipping lines effectively
ceased purchasing containers in 2009, and we estimate that global container capacity decreased five percent or more from September 2008 through the end of 2009 as containers aged out of service and
were not replaced. However, trade volumes began to recover in the second half of 2009, and they have improved steadily during the first six months of 2010. In 2010, this combination of
decreased container capacity and recovering trade

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Table of Contents

volumes
has led to a global shortage of containers, strong leasing demand and rapidly increasing utilization for TAL.

Due
to the strong leasing demand, TAL has placed large orders for new containers in 2010. As of the end of July 2010, TAL has ordered over $675 million of new equipment, including
230,000 TEU of new dry containers and 21,000 TEU of new refrigerated containers. Slightly less than half of the ordered units were delivered by June 30, 2010, with the balance of existing
orders generally scheduled for delivery during the third and early fourth quarters of 2010. TAL's purchases of new containers in 2010 have also been supported by a shift in the mix of shipping-line
owned vs. leased containers. Historically, shipping lines have purchased and owned 55% to 60% of the containers they operate, and leased 40% to 45% of their operated containers from leasing companies
like TAL. However, most shipping lines have been cautious about committing to large purchases of new containers this year despite the global container shortage. Many shipping lines continue to face
financial constraints from reduced profitability and increased capital outlays associated with their aggressive ship building programs, and they are relying more heavily on the leasing market for
access to additional container capacity.

In
the first six months of 2010, we sold approximately 42,477 TEUs of our owned containers, or 4.0% of our equipment leasing fleet as of the beginning of 2010. This annualized disposal
rate of approximately 8.0% is similar to the 6 to 8% annual disposal rate we have been experiencing for the last few years, and is generally consistent with our expected long-term average disposal
rate given the 12 - 14 year expected useful life of our containers. For much of 2009, our disposal rate did not keep pace with the rate at which older containers were being returned to us and
our inventory of disposal containers increased throughout the year. However, drop-off volumes have decreased sharply in 2010 due to the global shortage of containers, and our disposal rate in the
first half of 2010 was much higher than the rate at which older containers were returned to us. As a result, our inventory of disposal containers has been decreasing this year. If container drop off
volumes remain exceptionally low in the second half of 2010, our disposal rate may begin to decrease.

Our
average utilization was 95.4% in the second quarter of 2010, an increase of 8.4% from the second quarter of 2009, and an increase of 3.6% from the first quarter of 2010. Ending
utilization increased 3.7% from 93.4% as of March 31, 2010 to 97.1% as of June 30, 2010. The increase in our utilization in the second quarter of 2010 was mainly the result of strong leasing demand
for our dry containers due to the combination of recovering containerized trade volumes and the 2009 decrease in global container capacity. We expect utilization for our dry containers to remain
strong for the remainder of 2010.

Utilization
and leasing demand for our refrigerated containers remained strong in the second quarter of 2010. The utilization of our refrigerated containers does not heavily influence
our overall utilization since they represent only 5% of the units in our fleet. However, these container types are significantly more expensive than dry containers, generate higher per diem lease
rates and currently represent approximately 24% of our leasing revenue. Leasing demand for special containers was moderate in the second quarter of 2010 while demand for our chassis product line
remained weak due to an oversupply of chassis in the marketplace.

The
following tables set forth our equipment fleet utilization (1) for the periods indicated below:

Quarter Ended
June 30,
2010

Quarter Ended
March 31,
2010

Quarter Ended
December 31,
2009

Quarter Ended
September 30,
2009

Quarter Ended
June 30,
2009

Quarter Ended
March 31,
2009Average Utilization


95.4%


91.8%


88.7%


86.2%


87.0%


90.1%


20

---



Table of Contents



June 30,
2010

March 31,
2010

December 31,
2009

September 30,
2009

June 30,
2009

March 31,
2009Ending Utilization


97.1%


93.4%


90.3%


87.6%


85.9%


88.5%


(1)Utilization
is computed by dividing our total units on lease by the total units in our fleet excluding new units not yet leased.


Average lease rates for our dry container product line in the second quarter of 2010 were 0.5% lower compared to the average level of the second
quarter of 2009 and 5.0% higher than the first quarter of 2010. The increase in average lease rates from the first quarter to the second quarter of 2010 was primarily the result of the expiration of
incentives that had been provided to certain customers to encourage them to pick-up or keep units on-hire. In addition, due to the high current cost of new dry containers, new units picked up
during the second quarter were placed on leases with lease rates significantly higher than the average rates in our portfolio. We expect our average lease rates for dry containers to continue
to increase throughout the remainder of 2010 as previously-issued incentives continue to expire and as containers are supplied to leases with above-average lease rates.

Average
lease rates for refrigerated containers in the second quarter of 2010 were 2.7% lower compared to the second quarter of 2009, and 0.3% lower than the first quarter of 2010, while
average rental rates for our special containers were 0.4% lower during the second quarter of 2010 compared to the second quarter of 2009 and flat compared to the first quarter of 2010. The decrease in
average lease rates for our refrigerated containers from the second quarter of 2009 to the second quarter of 2010 was primarily due to lease rate concessions provided to certain customers in 2009 for
lease extension transactions. In addition, market leasing rates for new refrigerated containers remain slightly below our portfolio average rates due to a decrease in the price of new refrigerated
containers over the last several years. The decrease in average leasing rates for special containers from the second quarter of 2009 to the second quarter of 2010 was primarily due to discounts
associated with lease extension transactions completed in 2009.

Fee
and ancillary revenue decreased more than 50% in the second quarter of 2010 compared to the second quarter of 2009. Most of our fee and ancillary revenue, including repair
charges, handling fees and logistical and early termination fees, are related to container drop-offs, and the volume of container drop-offs was exceptionally low in the second quarter of 2010 due to
the global shortage of containers.

During
the second quarter of 2010, we recognized a $7.2 million gain on the sale of our used containers compared to a $2.4 million gain in the second quarter of 2009 and $4.5 million in
the first quarter 2010. The increase compared to the second quarter of 2009 and first quarter of 2010 mainly resulted from higher selling prices. Looking forward, we expect used container selling
prices to remain high for the rest of this year due to the global shortage of container capacity and decreasing inventories of disposal containers, though the size of our gains may start to be
constrained by lower selling volumes if drop-off volumes remain exceptionally low.

During
the second quarter of 2010, we recognized a net equipment trading margin of $1.3 million on the sale of equipment purchased for resale, compared to a $0.2 million margin in the
second quarter of 2009 and a $0.6 million margin in the first quarter 2010. In 2009, our trading margins decreased from the high levels achieved in previous years as we decreased our purchase volumes
due to concerns about future selling prices, and as we experienced low per-unit margins from selling containers that had been purchased in prior years at relatively high prices. In 2010, our per unit
trading margins have improved due to an increase in used container selling prices, though we expect overall trading margins to remain historically low due to low trading volumes. Beginning in the
fourth quarter of 2009, we started to significantly increase our purchases of trading containers, and our equipment trading inventory increased to 54,582 TEU as of June 30, 2010 compared to 16,590 TEU
as of September 30, 2009. However, most of these trading containers were purchased through sale-leaseback

21

---



Table of Contents

transactions
with our shipping line customers, and are not expected to be returned to us in the near future due to the current worldwide shortage of containers.

Our
ownership expenses, principally depreciation and interest expense, decreased by $0.4 million, or 0.9% in the second quarter of 2010 as compared to the second quarter of 2009. 
While TAL has committed to large new container purchases this year, our equipment fleet decreased throughout 2009, and large scale deliveries of new containers just started to ramp-up in the second
quarter of 2010. As a result, our average fleet size in the second quarter of 2010 was only slightly larger than the average size of our fleet in the second quarter of 2009. In
addition, we typically pay for containers several months after they are delivered, so the financing cost of our 2010 container orders was not yet highly reflected in our interest expense in the second
quarter. Our ownership expenses should start to increase during the second half of this year as the bulk of our equipment is delivered, paid for and placed on-hire.

For
the second quarter of 2010, we reversed $0.5 million of our allowance for doubtful accounts, as compared to a provision of $0.1 million in the second quarter of 2009.
In the second quarter of 2010, our provision for doubtful accounts reflected the reversal of provisions for certain customers recorded in 2009 that were no longer deemed necessary.

Our
credit performance remained strong in the first six months of 2010, and the profitability in the shipping industry has improved significantly with most shipping lines projecting
solid profitability for the full year 2010 compared to the large losses most of them recorded in 2009. However, shipping lines continue to face excess vessel capacity and recent improvements in
freight rates and shipping line profitability may be pressured if trade volumes drop from their current level. In addition, several major shipping lines, including our largest customer, are currently
involved in comprehensive financial restructuring negotiations with their major creditors; according we remain vigilant with our credit and collection processes.

If
one of our major customers were to default on our leases and cease operations because of deterioration in its financial performance, we would face reduced revenues and we would
likely incur significant write-offs due to lost units and recovery expenses. While the current shortage of container
capacity and resulting strong current leasing demand would help our recovery and re-marketing efforts in a default situation, we still expect that the financial impact of a major customer default
would be significant. We do not maintain an equipment reserve for units on lease to performing customers, so a major customer default would have a significant impact on our financial statements at the
time the major customer defaults. To mitigate this impact from potential defaults, we entered into a credit insurance policy in the third quarter of 2009 that in certain circumstances covers losses
and costs incurred in default situations. However, this policy has significant deductibles, exclusions and payment and other limitations, and therefore may not protect us from losses arising from
customer defaults.

Our
direct operating expenses were $6.6 million in the second quarter of 2010, compared to $9.6 million in the second quarter of 2009, and $8.2 million in the first quarter of 2010. We
incurred significantly less repair and storage costs in the second quarter of 2010 due to less redeliveries and fewer units off-hire during the period.

Treasury Stock

There were no material Treasury Stock repurchases during the six months ended June 30, 2010, compared to such purchases during
the equivalent periods in 2009. The following amounts of Treasury Stock were purchased during the six months ended June 30, 2009:

Quarter ended

Shares Purchased

Amount PaidMarch 31, 2009


1,021,918

$
8.2 millionJune 30, 2009


355,915

$
3.1 millionTotal


1,377,833

$
11.3 million


22

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Table of Contents

Dividends

We paid the following quarterly dividends during the six months ended June 30, 2010 and 2009 on our issued and outstanding
common stock:

Record Date

Payment Date

Aggregate Payment

Per Share PaymentJune 3, 2010

June 24,2010

$
9.1 million

$
0.30March 11, 2010

March 25, 2010

$
7.6 million

$
0.25June 2, 2009

June 23, 2009

$
0.3 million

$
0.01March 12, 2009

March 26, 2009

$
0.3 million

$
0.01


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Table of Contents

Results of Operations

The following table summarizes our results of operations for the three and six months ended June 30, 2010 and 2009 in thousands
of dollars and as a percentage of total revenues:

Three Months Ended June 30,

Six Months Ended June 30,2010

2009

2010

2009Dollars

Percent

Dollars

Percent

Dollars

Percent

Dollars

PercentLeasing revenues

$
75,495


86.4
%
$
79,350


88.1
%
$
148,358


88.9
%
$
162,452


85.4
%Equipment trading revenue


10,956


12.6


9,747


10.8


16,694


10.0


25,835


13.6Management fee income


725


0.8


669


0.8


1,493


0.9


1,338


0.7Other revenues


188


0.2


293


0.3


417


0.2


589


0.3Total revenues


87,364


100.0


90,059


100.0


166,962


100.0


190,214


100.0Operating expenses (income):Equipment trading expenses


9,675


11.0


9,582


10.6


14,853


8.9


24,357


12.8Direct operating expenses


6,637


7.6


9,641


10.7


14,817


8.9


19,466


10.2Administrative expenses


10,543


12.1


9,763


10.8


21,098


12.6


21,385


11.2Depreciation and amortization


28,287


32.4


29,354


32.6


55,253


33.1


58,463


30.8(Reversal) provision for doubtful accounts


(530
)

(0.6
)

77


0.1


(598
)

(0.4
)

398


0.2Net (gain) on sale of leasing equipment


(7,235
)

(8.3
)

(2,448
)

(2.7
)

(11,703
)

(7.0
)

(6,044
)

(3.2
)Total operating expenses


47,377


54.2


55,969


62.1


93,720


56.1


118,025


62.0Operating income


39,987


45.8


34,090


37.9


73,242


43.9


72,189


38.0Other expenses (income):Interest and debt expense


17,773


20.3


17,120


19.0


34,815


20.9


34,481


18.1(Gain) on debt extinguishment








(14,130
)

(15.7
)







(14,130
)

(7.4
)Unrealized loss (gain) on interest rate swaps


15,002


17.2


(24,455
)

(27.1
)

21,786


13.0


(29,518
)

(15.5
)Total other expenses (income)


32,775


37.5


(21,465
)

(23.8
)

56,601


33.9


(9,167
)

(4.8
)Income before income taxes


7,212


8.3


55,555


61.7


16,641


10.0


81,356


42.8Income tax expense


2,560


2.9


19,778


22.0


6,090


3.7


28,963


15.2Net income

$
4,652


5.4
%
$
35,777


39.7
%
$
10,551


6.3
%
$
52,393


27.6
%


24

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Table of Contents

Comparison of Three Months Ended June 30, 2010 to Three Months Ended June 30, 2009.

Leasing revenues.The principal components of our leasing revenues are presented in the following table. Per diem revenue
represents revenue earned
under operating lease contracts; fee and ancillary lease revenue represent fees billed for the pick-up and drop-off of containers in certain geographic locations and billings of certain reimbursable
operating costs such as repair and handling expenses; and finance lease revenue represents interest income earned under finance lease contracts.

Three Months Ended June 30,2010

2009(in thousands)Leasing revenues:Operating lease revenues:Per diem revenue

$
67,000

$
65,817Fee and ancillary lease revenue


3,851


8,160Total operating lease revenue


70,851


73,977Finance lease revenue


4,644


5,373Total leasing revenues

$
75,495

$
79,350


Total
leasing revenues were $75.5 million for the three months ended June 30, 2010, compared to $79.4 million for the three months ended June 30, 2009, a decrease of $3.9
million, or 4.9%.

Per
diem revenue increased by $1.2 million compared to 2009. The primary reasons for the increase are as follows:



Fee
and ancillary lease revenue decreased by $4.3 million as compared to the prior year primarily due to a decrease in repair and handling revenue resulting from a significant decrease
in drop off volume.

Finance
lease revenue decreased by $0.7 million in 2010, primarily due to a decrease in the average size of our finance lease portfolio.

Equipment Trading Activities.Equipment trading revenue represents the proceeds on the sale of equipment purchased for resale.
Equipment trading
expenses represent the cost of equipment sold,

25

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Table of Contents

including
costs associated with the acquisition, maintenance and selling of trading inventory, such as positioning, repairs, handling and storage costs, and estimated direct selling and administrative
costs.

Three Months Ended June 30,2010

2009(in thousands)Equipment trading revenues

$
10,956

$
9,747Equipment trading expenses


(9,675
)

(9,582
)Equipment trading margin

$
1,281

$
165


The
equipment trading margin increased $1.1 million for the three months ended June 30, 2010 compared to the three months ended June 30, 2009. The trading margin increased
primarily due to an increase in selling prices.

Direct operating expenses.Direct operating expenses primarily consist of our costs to repair equipment returned off lease, to
store the equipment
when it is not on lease, and to reposition equipment that has been returned to locations with weak leasing demand.

Direct
operating expenses were $6.6 million for the three months ended June 30, 2010, compared to $9.6 million for the three months ended June 30, 2009, a decrease of $3.0
million. The primary reasons for the decrease are as follows:



Administrative expenses.Administrative expenses were $10.5 million for the three months ended June 30, 2010, compared to
$9.8 million for the
three months ended June 30, 2009, an increase of $0.7 million or 7.1%. The increase was primarily due to foreign currency losses incurred on our Euro and GBP denominated assets.

Depreciation and amortization.Depreciation and amortization was $28.3 million for the three months ended June 30, 2010,
compared to $29.4
million for the three months ended June 30, 2009, a decrease of $1.1 million or 3.7%. Depreciation decreased by $1.5 million due to another vintage year of older equipment becoming fully
depreciated in the fourth quarter of 2009 and increased by $0.4 million due to a net increase in the size of the depreciable fleet.

(Reversal) provision for doubtful accounts.There was a net reversal for doubtful accounts of $0.5 million for the three months
ended June 30,
2010, compared to a provision for doubtful accounts of $0.1 million for the three months ended June 30, 2009. The decrease in the provision for doubtful accounts in the second quarter of 2010
was due to the reversal of certain provisions recorded in 2009 due to better than expected container recoveries.

Net (gain) on sale of leasing equipment.Gain on sale of equipment was $7.2 million for the three months ended June 30,
2010, compared to a
gain of $2.4 million for the three months ended June 30, 2009, an increase of $4.8 million. Gain on sale increased by $4.0 million due to higher selling prices and $0.4 million due to a higher
volume of units sold. In addition, gain on sale increased by $0.3 million due to lower selling costs.

Interest and debt expense.Interest and debt expense was $17.8 million for the three months ended June 30, 2010, compared to
$17.1 million for
the three months ended June 30, 2009, an increase of $0.7

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million.
The increase was primarily due to an increase in our average effective interest rate, partially offset by lower debt outstanding during the quarter.

(Gain) on debt extinguishment.There were no gains on debt extinguishment for the three months ended June 30, 2010. Gain on
debt
extinguishment of $14.1 million (net of the write-off of deferred financing costs of approximately $0.2 million) for the three months ended June 30, 2009 was due to the repurchase of a portion
of the Series 2006-1 Term Notes.

Unrealized loss (gain) on interest rate swaps.Unrealized loss on interest rate swaps was $15.0 million for the three months
ended June 30,
2010, compared to an unrealized gain of $24.5 million for the three months ended June 30, 2009. The fair value of the interest rate swap contracts not designated was a liability of $81.6
million at June 30, 2010, compared to a net liability of $59.6 million at December 31, 2009. The increase in the liability resulted from a decrease in long-term interest rates in 2010.

Income tax expense.Income tax expense was $2.6 million for the three months ended June 30, 2010, compared to $19.8 million
for the three
months ended June 30, 2009.The effective tax rates were 35.5% for the three months ended June 30, 2010 and 35.6% for the three months ended June 30, 2009.

While
we record income tax expense we do not pay any significant federal, state or foreign income taxes due to the availability of net operating loss carryovers and accelerated tax
depreciation for our equipment. The majority of the expense recorded for income taxes is recorded as a deferred tax liability on the balance sheet. We anticipate that the deferred income tax liability
will continue to grow for the foreseeable future.

Comparison of Six Months Ended June 30, 2010 to Six Months Ended June 30, 2009.

Leasing revenues.The principal components of our leasing revenues are presented in the following table. Per diem revenue
represents revenue earned
under operating lease contracts; fee and ancillary lease revenue represent fees billed for the pick-up and drop-off of containers in certain geographic locations and billings of certain reimbursable
operating costs such as repair and handling expenses; and finance lease revenue represents interest income earned under finance lease contracts.

Six Months Ended June 30,2010

2009(in thousands)Leasing revenues:Operating lease revenues:Per diem revenue

$
129,265

$
134,033Fee and ancillary lease revenue


9,579


17,991Total operating lease revenue


138,844


152,024Finance lease revenue


9,514


10,428Total leasing revenues

$
148,358

$
162,452


Total
leasing revenues were $148.4 million for the six months ended June 30, 2010, compared to $162.5 million for the six months ended June 30, 2009, a decrease of $14.1
million, or 8.7%.

Per
diem revenue decreased by $4.8 million compared to 2009. The primary reasons for the decrease are as follows:



27

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Fee
and ancillary lease revenue decreased by $8.4 million as compared to the prior year primarily due to a decrease in repair and handling revenue resulting from a significant decrease
in drop off volume.

Finance
lease revenue decreased by $0.9 million in 2010, primarily due to a decrease in the average size of our finance lease portfolio.

Equipment Trading Activities.Equipment trading revenue represents the proceeds on the sale of equipment purchased for resale.
Equipment trading
expenses represent the cost of equipment sold, including costs associated with the acquisition, maintenance and selling of trading inventory, such as positioning, repairs, handling and storage costs,
and estimated direct selling and administrative costs.

Six Months Ended June 30,2010

2009(in thousands)Equipment trading revenues

$
16,694

$
25,835Equipment trading expenses


(14,853
)

(24,357
)Equipment trading margin

$
1,841

$
1,478


The
equipment trading margin increased $0.4 million for the six months ended June 30, 2010 compared to the six months ended June 30, 2009. The trading margin increased by
$1.2 million due to an increase in selling prices, partially offset by a $0.8 million reduction in sales volume.

Direct operating expenses.Direct operating expenses primarily consist of our costs to repair equipment returned off lease, to
store the equipment
when it is not on lease, and to reposition equipment that has been returned to locations with weak leasing demand.

Direct
operating expenses were $14.8 million for the six months ended June 30, 2010, compared to $19.5 million for the six months ended June 30, 2009, a decrease of $4.7 million.
The primary reasons for the decrease are as follows:



Administrative expenses.Administrative expenses were $21.1 million for the six months ended June 30, 2010, compared
to $21.4 million
for the six months ended June 30, 2009, a decrease of $0.3 million or 1.4%. The decrease was primarily due to lower salary and benefits in 2010 as compared to 2009, which included one-time severance
charges and employee terminations that occurred in 2009. Partially offsetting these decreases were higher foreign currency losses incurred on our Euro and GBP denominated assets and higher
incentive charges in 2010.

Depreciation and amortization.Depreciation and amortization was $55.3 million for the six months ended June 30, 2010, compared
to $58.5 million for
the six months ended June 30, 2009, a decrease of

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$3.2
million or 5.5%. Depreciation decreased by $3.0 million due to another vintage year of older equipment becoming fully depreciated in the fourth quarter of 2009 and by $0.2 million due to a net
smaller depreciable fleet.

(Reversal) provision for doubtful accounts.There was a net reversal for doubtful accounts of $0.6 million for the six months
ended June 30,
2010, compared to a provision for doubtful accounts of $0.4 million for the six months ended June 30, 2009. The decrease in the provision for doubtful accounts was due to the reversal of
certain provisions recorded in 2009 due to better than expected container recoveries.

Net (gain) on sale of leasing equipment.Gain on sale of equipment was $11.7 million for the six months ended June 30, 2010,
compared to a gain of
$6.0 million for the six months ended June 30, 2009, an
increase of $5.7 million. Gain on sale increased by $3.4 million due to higher selling prices and by $1.4 million due to a higher volume of units sold. In addition, there was $0.8 million in
lower selling costs.

Interest and debt expense.Interest and debt expense was $34.8 million for the six months ended June 30, 2010, compared to $34.5
million for the six
months ended June 30, 2009, an increase of $0.3 million. The increase was primarily due to an increase in our average effective interest rate, partially offset by lower average debt outstanding during
the six months.

(Gain) on debt extinguishment.There were no gains on debt extinguishment for the six months ended June 30, 2010. Gain on debt
extinguishment of
$14.1 million (net of the write-off of deferred financing costs of approximately $0.2 million) for the six months ended June 30, 2009 was due to the repurchase of a portion of the Series 2006-1 Term
Notes.

Unrealized loss (gain) on interest rate swaps.Unrealized loss on interest rate swaps was $21.8 million for the six months ended
June 30, 2010,
compared to an unrealized gain of $29.5 million for the six months ended June 30, 2009. The fair value of the interest rate swap contracts not designated was a liability of $81.6 million at
June 30, 2010, compared to a net liability of $59.6 million at December 31, 2009. The increase in the liability resulted from a decrease in long-term interest rates in 2010.

Income tax expense.Income tax expense was $6.1 million for the six months ended June 30, 2010, compared to $29.0 million for
the six months ended
June 30, 2009.The effective tax rates were 36.6% for the six months ended June 30, 2010 and 35.6% for the three months ended June 30, 2009. The higher effective tax rate reported for the six months
ended June 30, 2010 was mainly attributed to additional tax expense related to stock compensation on restricted stock that vested on January 1, 2010. We anticipate that our annual effective tax rate
will be approximately 35.5%.

While
we record income tax expense we do not pay any significant federal, state or foreign income taxes due to the availability of net operating loss carryovers and accelerated tax
depreciation for our equipment. The majority of the expense recorded for income taxes is recorded as a deferred tax liability on the balance sheet. We anticipate that the deferred income tax liability
will continue to grow for the foreseeable future.

Business Segments

We operate our business in one industry, intermodal transportation equipment, and in two business segments, Equipment leasing and
Equipment trading.

Equipment leasing

We own, lease and ultimately dispose of containers and chassis from our lease fleet, as well as manage leasing activities for
containers owned by third parties. Equipment leasing segment revenues

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Table of Contents

represent
leasing revenues from operating and finance leases, fees earned on managed container leasing activities, as well as other revenues. Expenses related to equipment leasing include direct
operating expenses, administrative expenses, depreciation expense, and interest expense. The Equipment leasing segment also includes gains and losses on the sale of owned leasing equipment.

Segment Comparison of Quarter Ended June 30, 2010 to Quarter Ended June 30, 2009

The following table lists selected revenue and expense items for our Equipment leasing segment for the three months ended June 30, 2010
and 2009:

Three Months Ended June 30,2010

2009(in thousands)Total revenues

$
75,430

$
80,115Depreciation and amortization expense


28,110


29,310Interest and debt expense


17,281


16,918Net (gain) on sale of leasing equipment


(7,191
)

(2,448
)Income before income taxes(1)


20,852


17,068


---

Equipment leasing revenue.Total revenue for the Equipment leasing segment was $75.4 million in the
three months ended June 30, 2010 compared to $80.1 million in the three months ended June 30, 2009, a decrease of $4.7 million, or 5.9%. The primary reasons for the decrease are as
follows:



Equipment leasing income before income taxes.Income before income taxes for the Equipment leasing segment was $20.9 million in the
three months
ended June 30, 2010 compared to $17.1 million in the three months ended June 30, 2009, an increase of $3.8 million, or 22.2%. The primary reasons for the increase in income before income taxes are as
follows:



30

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Table of Contents



Segment Comparison of Six Months Ended June 30, 2010 to Six Months Ended June 30, 2009

The following table lists selected revenue and expense items for our Equipment leasing segment for the six months ended June 30, 2010
and 2009:

Six Months Ended June 30,2010

2009(in thousands)Total revenues

$
148,626

$
164,056Depreciation and amortization expense


54,947


58,385Interest and debt expense


33,952


34,098Net (gain) on sale of leasing equipment


(11,659
)

(6,044
)Income before income taxes(1)


36,514


37,179


---

Equipment leasing revenue.Total revenue for the Equipment leasing segment was $148.6 million in the six months ended June 30, 2010
compared to
$164.1 million in the six months ended June 30, 2009, a decrease of $15.5 million, or 9.4%. The primary reasons for the decrease are as follows:



Equipment leasing income before income taxes.Income before income taxes for the Equipment leasing segment was $36.5 million in the six
months ended
June 30, 2010 compared to $37.2 million in the six months ended June 30, 2009, a decrease of $0.7 million, or 1.9%. The primary reasons for the decrease in income before income taxes are as
follows:



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Table of Contents

Equipment trading

We purchase containers from shipping line customers and other sellers of containers, and resell these containers to container traders
and users of containers for storage or one-way shipment. Equipment trading segment revenues primarily represent the proceeds on the sale of containers purchased for resale. Also included in Equipment
trading segment revenues are leasing revenues from equipment purchased for resale that is currently on lease. Equipment trading expenses represent the cost of equipment sold, including costs
associated with the acquisition, maintenance and selling of trading inventory, such as positioning, repairs, handling and storage costs, and estimated direct selling and administrative costs. Other
expenses in this segment include administrative overhead expenses, depreciation expense, provision for doubtful accounts and interest expense.

Segment Comparison of Quarter Ended June 30, 2010 to Quarter Ended June 30, 2009

The following table lists selected revenue and expense items for our Equipment trading segment for the three months ended June 30, 2010
and 2009:

Three Months Ended June 30,2010

2009(in thousands)Total leasing revenues

$
978

$
197Equipment trading revenues


10,956


9,747Equipment trading expense


(9,675
)

(9,582
)Equipment trading margin


1,281


165Interest and debt expense


492


202Income (loss) before income taxes(1)


1,362


(98
)


---

Equipment trading margin.The equipment trading margin, the difference between Equipment trading revenue and expenses, increased $1.1
million in 2010
compared to 2009 primarily due to higher selling prices.

Equipment trading income (loss) before income taxes.Income before income taxes for the Equipment trading segment was $1.4 million in
the three
months ended June 30, 2010, compared to a loss of $0.1 million for the three months ended June 30, 2009. Income before income taxes increased due to an increase in the equipment trading margin, as
well as an increase in leasing revenue resulting from several sale leaseback transactions completed in the first quarter of 2010.

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Table of Contents

Segment Comparison of Six Months Ended June 30, 2010 to Six Months Ended June 30, 2009

The following table lists selected revenue and expense items for our Equipment trading segment for the six months ended June 30, 2010
and 2009:

Six Months Ended June 30,2010

2009(in thousands)Total leasing revenues

$
1,642

$
323Equipment trading revenues


16,694


25,835Equipment trading expense


(14,853
)

(24,357
)Equipment trading margin


1,841


1,478Interest and debt expense


863


383Income before income taxes(1)


1,913


529


---

Equipment trading margin.The equipment trading margin, the difference between Equipment trading revenue and expenses, increased $0.4
million in 2010
compared to 2009 primarily due to higher selling prices.

Equipment trading income before income taxes.Income before income taxes for the Equipment trading segment was $1.9 million in the
six months
ended June 30, 2010, compared to $0.5 million for the six months ended June 30, 2009. Income before income taxes increased due to an increase in the equipment trading margin, as
well as an increase in leasing revenue resulting from several sale leaseback transactions completed in the first half of 2010 and a decrease in administrative expenses due to lower allocated
corporate expenses. Corporate expenses are allocated to the equipment trading segment primarily based on the number of units sold in the equipment trading fleet relative to total units sold from both
the equipment trading and equipment leasing fleets.

Liquidity and Capital Resources

Our principal sources of liquidity are cash flows provided by operating activities, proceeds from the sale of our leasing equipment,
principal payments on finance lease receivables and borrowings under our credit facilities. Our cash in-flows and borrowings are used to finance capital expenditures, meet debt service requirements
and pay dividends.

We
continue to have sizable cash in-flows. For the six months ended June 30, 2010, cash provided by operating activities, together with the proceeds from the sale of our leasing
equipment and principal payments on our finance leases, was $119.0 million. In addition, as of June 30, 2010 we had $66.5 million of unrestricted cash and $470.0 million of
additional borrowing capacity under our current credit facilities.

As
of June 30, 2010, major committed cash outflows in the next 12 months include $362.8 million of committed but unpaid capital expenditures and
$199.2 million of scheduled principal payments on our existing debt facilities.

We
believe that cash provided by operating activities and existing cash, proceeds from the sale of our leasing equipment, principal payments on our finance lease receivables and
available additional borrowing capacity under our current credit facilities will be sufficient to meet our committed obligations over the next 12 months.

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Table of Contents

At June 30, 2010, our outstanding indebtedness was comprised of the following (amounts in millions):

Current
Amount
Outstanding

Current
Maximum
Borrowing
LevelAsset backed securitizations (ABS)Term notes  Series 2006-1

$
329.6

$
329.6Term notes  Series 2005-1


318.8


318.8Term notes  Series 2010-1


197.0


197.02008 Asset backed credit facility


225.0


225.02009 Asset backed credit facility


50.0


370.0Revolving credit facility





100.0Finance lease facility


34.4


34.42007 Term loan facility


23.6


23.62009 Term loan facilities


30.8


30.82010 Term loan facilities


49.6


99.6Port equipment facility


8.1


8.1Capital lease obligations


87.1


87.1Total debt

$
1,354.0

$
1,824.0


The
maximum commitment levels depicted in the chart above may not reflect the actual availability under all of the credit facilities. Certain of these facilities are
governed by borrowing bases that limit borrowing capacity to an established percentage of relevant assets.

Interest
rates on the majority of our debt obligations are based on floating rate indices (such as LIBOR). We economically hedge the risks associated with fluctuations in interest rates
on our long-term borrowings by entering into interest rate swap contracts.

Debt Covenants

We are subject to certain financial covenants under our debt facilities. At June 30, 2010, we were in compliance with all such covenants. Below are the
primary financial covenants to which we are subject:



Non-GAAP Measures

We rely primarily on our results measured in accordance with generally accepted accounting principles ("GAAP") in evaluating our business. EBIT, Cash Interest,
TNW, and Indebtedness are non-GAAP financial measures used to determine our compliance with certain covenants contained in our debt agreements and should not be used as a substitute for analysis of
our results as reported under GAAP. However, we believe that the inclusion of this non-GAAP information provides additional information to investors regarding our debt covenant compliance.

Minimum EBIT to Cash Interest Expense

For the purpose of this covenant, EBIT is calculated based on the cumulative sum of our earnings for the last four quarters (excluding income taxes, interest
expense, amortization / write off of deferred financing charges, unrealized gain or loss on interest rate swaps and certain non-cash charges). Cash

34

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Table of Contents

Interest
Expense is calculated based on interest expense adjusted to exclude interest income, amortization of deferred financing costs, and the difference between current and prior period interest
expense accruals.

Minimum
EBIT to Cash Interest Expense is calculated at the consolidated level and for TAL Advantage I LLC, TAL Advantage II LLC and TAL Advantage III LLC,
wholly owned special purpose entities whose primary activity is to issue asset backed notes. The Consolidated Minimum EBIT to Cash Interest Expense ratio is fixed at 1.10 to 1.00 for our Asset
backed securitizations (ABS), 2008 and 2009 Asset backed facilities and Revolving credit facility and at 1.05 to 1.00 for the Finance lease facility. The TAL Advantage I LLC and
the TAL Advantage II LLC Minimum EBIT to Cash Interest Expense ratio is fixed at 1.10 to 1.00 for the Asset backed securitization and the Asset backed credit facilities. The TAL
Advantage III LLC Minimum EBIT to Cash Interest Expense ratio is fixed at 1.30 to 1.00 for the 2009 Asset Backed Credit Facility.

TAL
Advantage IV LLC is a wholly owned special purpose entity whose primary activity is to issue asset backed notes. TAL Advantage IV LLC must maintain
a Minimum EBIT to Cash Interest Expense ratio of 1.10 to 1.00. The first compliance date for this covenant is December 31, 2010.

Below
is the calculation of EBIT to Cash Interest Expense (based on the last four quarters) as of June 30, 2010 (in thousands):

EBIT to Cash Interest Expense:

Consolidated(1)

TAL Adv I

TAL Adv II

TAL Adv III(2)Net income (loss)

$
29,744

$
23,195

$
(2,305
)
$
(776
)Plus: Income tax expense (benefit)


16,395


12,786


(1,270
)

(427
)Interest expense including write-off of deferred financing costs


69,141


36,406


13,071


2,862Unrealized losses (gains) on interest rate swaps


16,153


3,580


9,393


1,833All other non-cash expenses


1,588


152


4


62EBIT

$
133,021

$
76,119

$
18,893

$
3,554Interest expense (excluding interest income of $71, $8, $0 and $0 respectively)

$
69,212

$
36,414

$
13,071

$
2,862Amortization and write-off of deferred financing costs


(1,449
)

(599
)

(294
)

(249
)Accrued interest (represents 2010 interest expense not paid)


(2,715
)

(919
)

(371
)

(190
)Cash payments of prior period accrued interest


2,293


944


339


Cash Interest Expense

$
67,341

$
35,840

$
12,745

$
2,423EBIT to Cash Interest Expense Ratio


1.98


2.12


1.48


1.47Required Minimum EBIT to Cash Interest Expense Ratio


1.10 / 1.05


1.10


1.10


1.30


(1)The
consolidated amounts shown above include all consolidated subsidiaries of TAL International Group, Inc., including TAL
Advantage I, LLC, TAL Advantage II, LLC and TAL Advantage III, LLC.(2)TAL
Advantage III, LLC commenced operations effective November 1, 2009, therefore the calculation of EBIT to Cash Interest Expense represents
the period from November 1, 2009 to June 30, 2010.


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Minimum TNW and Maximum Indebtedness to TNW Covenants

We are required to meet consolidated Minimum TNW and Maximum Indebtedness to TNW covenants. For the purposes of calculating these covenants, all amounts are based
on the consolidated balance sheet of TAL International Group, Inc.

For
the ABS and Asset backed credit facilities, the required minimum TNW is calculated as $321.4 million plus 50% of cumulative net income or loss since January 1, 2006. At
June 30, 2010, the required minimum TNW for the ABS facilities was $420.8 million. For the Finance lease facility the required minimum TNW is fixed at $300 million.

The
Maximum Indebtedness to TNW ratio is fixed at 4.75 to 1.00 for the ABS, 2008 and 2009 Asset backed credit facilities, 2007 Term loan and Revolving credit facility and
5.00 to 1.00 for the Finance lease and Port equipment facilities.

Below
is the calculation of the covenant compliance for the consolidated Minimum TNW and consolidated Maximum Indebtedness to TNW as of June 30, 2010 for the ABS, Asset backed
credit facilities and other facilities (in thousands):

Other Facilities*

ABS

2008/2009 Asset
Backed
Credit FacilitiesMinimum TNW:Tangible AssetsTotal Assets

$
2,053,533

$
2,053,533

$
2,053,533Deferred Financing Costs


(16,374
)

(16,374
)

(16,374
)Goodwill


(71,898
)

(71,898
)

(71,898
)Intangibles


(1,270
)

(1,270
)

(1,270
)Fair value of derivative instruments (asset)


(1,510
)

(1,510
)

(1,510
)Total Tangible Assets

$
1,962,481

$
1,962,481

$
1,962,481All indebtedness:Total debt

$
1,354,038

$
1,354,038

$
1,354,038Accrued interest


2,715


2,715


2,715Fair value of derivative instruments (liability)


87,139


N/A


N/AEquipment purchases payable


48,421


48,421


48,421Total Indebtedness

$
1,492,313

$
1,405,174

$
1,405,174TNW (Total Tangible Assets less Total Indebtedness)

$
470,168

$
557,307

$
557,307Required Minimum TNW

$
300,000

$
420,780

$
420,780Maximum Indebtedness to TNW:Total Indebtedness

$
1,492,313

$
1,405,174

$
1,405,174Fair value of derivative instruments (liability)


N/A


87,139


N/ATotal Indebtedness for Maximum Indebtedness to TNW

$
1,492,313

$
1,492,313

$
1,405,174TNW

$
470,168

$
557,307

$
557,307Total Indebtedness / TNW


3.17


2.68


2.52Maximum Allowable Indebtedness to TNW


4.75 / 5.00


4.75


4.75


*The
Minimum TNW covenant only applies to the Finance lease facility. The Maximum Indebtedness to TNW covenant applies to the Finance lease facility, Revolving
credit facility, 2007 Term loan facility and Port equipment facility.N/A 
Not applicable for calculation purposes.


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Failure to comply with these covenants would result in a default under the related credit agreements and could result in the acceleration of our outstanding debt
if we were unable to obtain a waiver from the creditors.

Treasury Stock

There were no material Treasury Stock repurchases during the six months ended June 30, 2010, compared to such purchases during
the equivalent periods in 2009. The following amounts of Treasury Stock were purchased during the six months ended June 30, 2009:

Quarter ended

Shares Purchased

Amount PaidMarch 31, 2009


1,021,918

$
8.2 millionJune 30, 2009


355,915

$
3.1 millionTotal


1,377,833

$
11.3 million


Dividends

We paid the following quarterly dividends during the six months ended June 30, 2010 and 2009 on our issued and outstanding common
stock:

Record Date

Payment Date

Aggregate Payment

Per Share PaymentJune 3, 2010

June 24,2010

$
9.1 million

$
0.30March 11, 2010

March 25, 2010

$
7.6 million

$
0.25June 2, 2009

June 23, 2009

$
0.3 million

$
0.01March 12, 2009

March 26, 2009

$
0.3 million

$
0.01


Cash Flow

The following table sets forth certain cash flow information for the six months ended June 30, 2010 and 2009 (in thousands):

Six Months Ended June 30,2010

2009Net cash provided by operating activities

$
63,096

$
98,450Net cash used in investing activities:Purchases of leasing equipment

$
(273,039
)
$
(27,184
)Investment in finance leases


(433
)

(26,713
)Proceeds from sale of equipment, net of selling costs


39,634


33,063Cash collections on finance lease receivables, net of income earned


16,273


15,156Other


(124
)

(32
)Net cash used in investing activities

$
(217,689
)
$
(5,710
)Net cash provided by (used in) financing activities

$
161,183

$
(91,287
)


Operating Activities

Net cash provided by operating activities decreased by $35.4 million to $63.1million in the six months ended June 30, 2010, compared to
$98.5 million in the six months ended June 30, 2009 primarily due to decrease in the level of cash generated by operating income of $8.2 million, the timing of cash collections on our accounts
receivables, and an increase in net purchases of trading containers.

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In
the first six months of 2009, we experienced collections in excess of our billings of $10.5 million, versus the first six months of 2010, when billings exceeded collections by $5.9
million. In addition, during the first six months of 2010, we had net purchases of trading equipment of $4.9 million, while we had net disposals of trading equipment of $4.0 million in the first six
months of 2009.

Investing Activities

Net cash used in investing activities increased by $212.0 million to $217.7 million in the six months ended June 30, 2010 compared to
$5.7 million in 2009. Major reasons for the increase were as follows:



Financing Activities

Net cash provided by financing activities was $161.2 million in the six months ended June 30, 2010 compared to net cash used in
financing activities of $91.3 million for the same period in 2009.

During
the six months ended June 30, 2010, we had net borrowings of $194.2 million under our various credit facilities, primarily used to finance the purchase of new equipment, as
compared to net payments of $58.7 million under our various credit facilities and capital lease obligations during the six months ended June 30, 2009. During the six months ended June 30, 2010, we
paid $16.7 million in dividends as compared to $0.6 million in dividends paid during the six months ended June 30, 2009. In 2009, we repurchased treasury stock for $11.3 million and paid $20.7
million for the repurchase of debt prior to maturity.

Contractual Obligations

We are party to various operating and capital leases and are obligated to make payments related to our long term borrowings. We are
also obligated under various commercial commitments, including obligations to our equipment manufacturers. Our equipment manufacturer obligations are in the form of conventional accounts payable, and
are satisfied by cash flows from operating and long term financing activities.

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The
following table summarizes our contractual obligations and commercial commitments as of June 30, 2010:

Contractual Obligations by Period(dollars in millions)Contractual Obligations:

Total

Remaining 2010

2011

2012

2013

2014 and
thereafterTotal debt obligations(1)

$
1,545.8

$
146.5

$
237.4

$
227.3

$
211.5

$
723.1Capital lease obligations(2)


105.0


2.8


13.0


13.2


11.2


64.8Operating leases (mainly facilities)


4.3


1.3


2.1


0.9





Purchase obligations:Equipment purchases payable


48.4


48.4











Equipment purchase commitments


314.4


314.4











Total contractual obligations

$
2,017.9

$
513.4

$
252.5

$
241.4

$
222.7

$
787.9


(1)Amounts
include actual and estimated interest for floating-rate debt based on June 30, 2010 rates and the net effect of the interest rate swaps.(2)Amounts
include interest.


Off-Balance Sheet Arrangements

At June 30, 2010, we did not have any relationships with unconsolidated entities or financial partnerships, such entities which are
often referred to as structured finance or special purpose entities, which were established for the purpose of facilitating off-balance sheet arrangements. We are, therefore, not exposed to any
financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.

Critical Accounting Policies

Our consolidated financial statements have been prepared in conformity with United States generally accepted accounting principles,
which require us to make estimates and assumptions that affect the amounts and disclosures reported in the consolidated financial statements and accompanying notes. Our estimates are based on
historical experience and currently available information. Actual results could differ from such estimates. Our critical accounting policies are discussed in our 2009 Form 10-K filed with the SEC on
March 1, 2010.

ITEM 3:    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk represents 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 factors could cause fluctuations in results of our operations and cash flows. In the ordinary course of business, we are
exposed to interest rate and foreign currency exchange rate risks.

Interest Rate Risk

We enter into interest rate swap contracts to fix the interest rates on a portion of our debt. We assess and manage the external and
internal risk associated with these derivative instruments in accordance with the overall operating goals. External risk is defined as those risks outside of our direct control, including counterparty
credit risk, liquidity risk, systemic risk and legal risk. Internal risk relates to those operational risks within the management oversight structure and includes actions taken in contravention of our
policy.

The
primary external risk of our interest rate swap contracts is in derivative asset positions counterparty credit exposure, which is defined as the ability of a counterparty to perform
its financial

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obligations
under a derivative contract. All derivative agreements are with highly rated financial institutions. Credit exposures are measured based on the market value of outstanding derivative
instruments. Both current exposures and potential exposures are calculated for each derivative contract to monitor counterparty credit exposure.

As
of June 30, 2010, we had in place total interest rate swap contracts to fix the floating interest rates on a portion of the borrowings under our debt facilities (excluding $200
million notional value on an interest rate swap contract effective August 2010) as summarized below:

Total Notional Amount at
June 30, 2010

Weighted Average
Fixed Leg
Interest Rate
at June 30, 2010

Weighted Average
Remaining Term$1,129 million


4.2%

3.1 years


Most
of the changes in the fair value on these interest rate swap contracts will be recognized in the consolidated statements of operations as unrealized gains or losses on interest rate
swaps. We entered into a swap in June 2010 which has been designated as a cash flow hedging instrument, and the effective portion of the change in its fair value is reflected in accumulated other
comprehensive (loss) income on the Company's balance sheet as of June 30, 2010.

Since
approximately 83% of our debt is hedged using interest rate swaps, our interest expense is not significantly affected by changes in interest rates. However, our earnings are
impacted by certain changes in interest rate swap valuations which cause gains or losses to be recorded. During the quarter and six months ended June 30, 2010, unrealized losses on interest rate swaps
totaled $15.0 million and $21.8 million, respectively, compared to unrealized gains on interest rate swaps of $24.5 million and $29.5 million, respectively, for the quarter and six months ended June
30, 2009.

Foreign Currency Exchange Rate Risk

Although we have significant foreign-based operations, the U.S. dollar is the operating currency for the large majority of our leases
and company obligations, and most of our revenues and expenses in 2010 and 2009 were denominated in U.S. dollars. However we pay our non-U.S. staff in local currencies, and certain of our direct
operating expenses and disposal transactions for our older containers are structured in foreign currencies. We recorded $0.1 million of unrealized foreign currency exchange losses and $0.5 million of
unrealized foreign currency exchange gains in the quarters ended June 30, 2010 and June 30, 2009, respectively. We recorded $0.5 million of unrealized
foreign currency exchange losses and $0.2 million of unrealized foreign currency exchange gains in the six months ended June 30, 2010 and June 30, 2009, respectively, These gains / losses resulted
primarily from fluctuations in exchange rates related to our Euro and Pound Sterling transactions and related assets.

In
April 2008, we entered into a foreign currency rate swap agreement to exchange Euros for U.S. Dollars based on expected payments under our Euro denominated finance lease receivables.
The foreign currency rate swap agreement expires in April 2015. The fair value of this derivative contract was approximately $1.5 million at June 30, 2010, and is reported as an asset in Fair Value of
Derivative Instruments on the consolidated balance sheet.

ITEM 4.    CONTROLS AND PROCEDURES.

Based upon the required evaluation of our disclosure controls and procedures, our President and Chief Executive Officer and our Vice
President and Chief Financial Officer concluded that as of June 30, 2010 our disclosure controls and procedures were adequate and effective to ensure that information was gathered, analyzed and
disclosed on a timely basis.

There
has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during our fiscal quarter
ended June 30, 2010, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II  OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS.

From time to time, we are a party to litigation matters arising in connection with the normal course of our business. While we cannot
predict the outcome of these matters, in the opinion of our management, based on information presently available to us, we believe that we have adequate legal defenses, reserves or insurance coverage
and any liability arising from these matters will not have a material adverse effect on our business. Nevertheless, unexpected adverse future events, such as an unforeseen development in our existing
proceedings, a significant increase in the number of new cases or changes in our current insurance arrangements could result in liabilities that have a material adverse impact on our business.

ITEM 1A.    RISK FACTORS.

For a complete listing of our risk factors, refer to our 2009 Form 10-K filed with the Securities and Exchange Commission on
March 1, 2010.

ITEM 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

On March 13, 2006, our Board of Directors authorized a stock repurchase program for the repurchase of our common stock. The
stock repurchase program, as amended, authorizes us to repurchase up to 4.0 million shares of our common stock. Our share purchase activity during the quarter ended June 30, 2010 is
summarized in the following table:

Period

Total Number
of Shares
Purchased

Average
Price Paid
per Share

Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs

Maximum Number
of Shares that May
Yet Be Purchased
Under the Plans
or ProgramsApril 1  30, 2010











989,038May 1  31, 2010


881

$
25.99


881


988,157June 1  30, 2010











988,157


ITEM 6.    EXHIBITS.

Exhibit
Number

Exhibit Description4.44*

Amendment No. 4 dated June 21, 2010 to Series 2009-1 Supplement dated as of October 23, 2009 between TAL Advantage III LLC and Wells Fargo Bank, National Association.4.45*

Amendment No. 5 dated June 21, 2010 to Series 2009-1 Note Purchase Agreement dated as of October 23, 2009 between TAL Advantage III LLC, Wells Fargo Securities LLC, Wells Fargo Bank,
National Association, the other Noteholders from time to time party thereto and the other financial institutions from time to time party thereto.4.46*

Amendment No. 2 dated June 21, 2010 to the Indenture dated as of October 23, 2009 by and between TAL Advantage III LLC and Wells Fargo Bank, National Association.4.47*

Indenture, dated as of June 28, 2010, by and between TAL Advantage IV, LLC and Wells Fargo Bank, National Association, as Indenture Trustee.4.48*

Series 2010-1 Supplement dated as of June 28, 2010, by and between TAL Advantage IV, LLC and Wells Fargo Bank, National Association, as Indenture Trustee.4.49*

Management Agreement dated as of June 28, 2010 by and between TAL International Container Corporation and TAL Advantage IV LLC.


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Table of Contents

Exhibit
Number

Exhibit Description4.50*

Contribution and Sale Agreement dated as of June 28, 2010 by and between TAL International Container Corporation and TAL Advantage IV LLC.4.51*

Transition Agent Agreement dated as of June 28, 2010 by and between Wells Fargo Bank, National Association, TAL International Container Corporation and TAL Advantage IV LLC.4.52*

Series 2010-1 Note Purchase Agreement dated as of June 28, 2010 by and between TAL Advantage IV LLC, TAL International Container Corporation and Wells Fargo Securities, LLC.4.53*

Amendment No. 3 dated as of July 16, 2010 to the Indenture dated as of October 23, 2009 by and between TAL Advantage III LLC and Wells Fargo Bank, National Association.4.54*

Amendment No. 1 dated as of July 16, 2010 to the Management Agreement dated as of October 23, 2009 by and between TAL Advantage III LLC and TAL International Container Corporation.4.55*

Amendment No. 5 dated July 16 2010 to Series 2009-1 Supplement dated as of October 23, 2009 by and between TAL Advantage III LLC and Wells Fargo Bank, National Association.4.56*

Amendment No. 6 dated July 16, 2010 to Series 2009-1 Note Purchase Agreement dated as of October 23, 2009 between TAL Advantage III LLC, Wells Fargo Securities LLC, Wells Fargo Bank,
National Association, the other Noteholders from time to time party thereto and the other financial institutions from time to time party thereto.10.16*

Agreement dated June 1, 2010 by and among TAL International Group, Inc. and certain of its stockholders31.1*

Certification of the Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended31.2*

Certification of the Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended32.1*

Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 135032.2*

Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350


*Filed
herewith.


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SIGNATURE

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

TAL International Group, Inc.July 30, 2010

By:

/s/ John BurnsJohn Burns Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)


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