|  |
|--|
|  |
|  |
|  |
|  |

UNITEDSTATES SECURITIES AND EXCHANGECOMMISSION

WASHINGTON, D.C.20549

|  |
|--|
|  |  |  |  |
|  |

FORM10-Q

|        |                                                                                       |
|--------|---------------------------------------------------------------------------------------|
|   | QUARTERLY REPORTPURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934 |

For The Quarterly Period Ended September30,2006or

|        |                                                                                        |
|--------|----------------------------------------------------------------------------------------|
|   | TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934 |

For the Transition Period from                 to                

Commission file number-001-32638

TAL International Group,Inc.

(Exact name of registrant asspecified in thecharter)

|                                                             |  |  |                                       |
|-------------------------------------------------------------|--|--|---------------------------------------|
| Delaware                                                    |  |  | 20-1796526                            |
| (Stateor other jurisdiction ofincorporation ororganization) |  |  | (I.R.S. EmployerIdentificationNumber) |
| 100 ManhattanvilleRoad,Purchase, NewYork                    |  |  | 10577-2135                            |
| (Addressof principal executiveoffice)                       |  |  | (ZipCode)                             |
|                                                             |

(914)251-9000

(Registrant's telephonenumber including area code)

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

Indicate by check mark whether the registrant isa large accelerated filer, an accelerated filer, or a non-acceleratedfiler. See definition of ‘‘accelerated filer and largeaccelerated filer’’ in Rule 12b-2 of the Exchange Act(Check one):

Large accelerated filer                     Accelerated filer                     Non-accelerated filer

Indicate by check mark whether the registrant isa shell company (as defined in the Exchange Act Rule 12b-2). Yes    No 

As of November3,  2006, there were 33,166,781 shares of the Registrant’scommon stock, $.001 par value outstanding.

|  |
|--|
|  |
|  |
|  |
|  |

----

TALINTERNATIONAL GROUP,INC.INDEX

|                                    |  |  |                                                                                                                     |  |  |        |  |  |        |
|------------------------------------|--|--|---------------------------------------------------------------------------------------------------------------------|--|--|--------|--|--|--------|
| PartI — FinancialInformation |  |  | PageNo.                                                                                                             |  |  |   |
| Item1.                             |  |  | Financial Statements(unaudited)                                                                                     |  |  | 1      |  |  |   |
|                               |  |  | ConsolidatedBalance Sheets at September  30,  2006 and December31,  2005                                            |  |  | 2      |  |  |   |
|                               |  |  | ConsolidatedStatements of Operations for the three and nine months endedSeptember  30,  2006 and September  30,2005 |  |  | 3      |  |  |   |
|                               |  |  | Consolidated Statements of CashFlows for the nine months ended September  30,  2006 andSeptember  30,2005           |  |  | 4      |  |  |   |
|                               |  |  | Notes to Consolidated FinancialStatements                                                                           |  |  | 5-13   |  |  |   |
| Item2.                             |  |  | Management's Discussion and Analysis ofFinancial Condition and Results ofOperations                                 |  |  | 14-27  |  |  |   |
| Item3.                             |  |  | Quantitative and Qualitative Disclosures AboutMarket Risk                                                           |  |  | 27-28  |  |  |   |
| Item4.                             |  |  | Controls andProcedures                                                                                              |  |  | 29     |  |  |   |
| Part II— OtherInformation    |  |  |                                                                                                                |  |  |   |
| Item1.                             |  |  | LegalProceedings                                                                                                    |  |  | 30     |  |  |   |
| Item1A.                            |  |  | RiskFactors                                                                                                         |  |  | 30     |  |  |   |
| Item2.                             |  |  | Unregistered Sales of Equity Securities, Use ofProceeds and Issuer Repurchases of EquitySecurities                  |  |  | 30     |  |  |   |
| Item6.                             |  |  | Exhibits                                                                                                            |  |  | 30     |  |  |   |
| Signature                          |  |  | 31                                                                                                                  |  |  |   |
|                                    |

----

Table of Contents

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

This Quarterly Report onForm 10-Q contains certain forward-looking statements,including, without limitation, statements concerning the conditions inour industry, our operations, our economic performance and financialcondition, including, in particular, statements relating to ourbusiness and growth strategy and service development efforts. ThePrivate Securities Litigation Reform Act of 1995 provides a‘‘safe harbor’’ for certain forward-lookingstatements so long as such information is identified as forward-lookingand is accompanied by meaningful cautionary statements identifyingimportant factors that could cause actual results to differ materiallyfrom those projected in the information. When used in this QuarterlyReport on Form 10-Q, the words‘‘may’’,‘‘might’’,‘‘should’’,‘‘estimate’’,‘‘project’’,‘‘plan’’,‘‘anticipate’’,‘‘expect’’,‘‘intend’’,‘‘outlook’’,‘‘believe’’ and other similar expressionsare intended to identify forward-looking statements and information.You are cautioned not to place undue reliance on these forward-lookingstatements, which speak only as of their dates. These forward-lookingstatements are based on estimates and assumptions by our managementthat, although we believe to be reasonable, are inherently uncertainand subject to a number of risks and uncertainties. These risks anduncertainties include, without limitation, those identified under‘‘Risk Factors’’ in our Annual Report onForm 10-K filed with the Securities and Exchange Commission(‘‘SEC’’), on March  20,  2006,and all of our other filings filed with the SEC from October11,  2005 through the current date pursuant to the SecuritiesExchange Act of 1934.

We undertake no obligation topublicly update or revise any forward-looking statement as a result ofnew information, future events or otherwise, except as otherwiserequired by law. Reference is also made to such risks and uncertaintiesdetailed from time to time in our filings with the SEC.

PART I— FINANCIAL INFORMATION

ITEM 1.    FINANCIALSTATEMENTS

The consolidated financial statements of TALInternational Group, Inc. (‘‘TAL’’ or the‘‘Company,’’) as of September30,  2006 (unaudited) and December  31,  2005 and forthe three and nine months ended September  30,  2006(unaudited) and September  30,  2005 (unaudited) includedherein have been prepared by the Company, without audit, pursuant toU.S. generally accepted accounting principles and the rules andregulations of the SEC. However, certain information and notedisclosures normally included in financial statements prepared inaccordance with U.S. generally accepted accounting principles have beencondensed or omitted pursuant to such rules and regulations, althoughthe Company believes that the disclosures are adequate to make theinformation presented not misleading. These financial statementsreflect, in the opinion of management, all adjustments (consisting onlyof normal recurring adjustments) necessary to present fairly theresults for the interim periods. The results of operations for suchinterim periods are not necessarily indicative of the results for thefull year. These financial statements should be read in conjunctionwith the consolidated financial statements and the notes theretoincluded in the Company’s Annual Report on Form 10-K filed withthe SEC, on March  20,  2006, from which the accompanyingDecember  31,  2005 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 Securities Exchange Actof 1934.

1

----

Table of Contents

TAL INTERNATIONAL GROUP,INC.

Consolidated Balance Sheets(Dollars in thousands,except sharedata)

|                                                                                                                   |  |  |                  |   |           |                 |  |  |  |   |           |   |
|-------------------------------------------------------------------------------------------------------------------|--|--|------------------|---|-----------|-----------------|--|--|--|---|-----------|---|
|                                                                                                              |  |  | September30,2006 |   |           | December31,2005 |
|                                                                                                              |  |  | (Unaudited)      |   |           |            |
| Assets:                                                                                                           |  |  |                  |   |      |                 |  |  |  |   |      |   |
| Cashand cash equivalents (including restricted cash of $13,274 and $0)                                            |  |  |                  | $ | 45,712    |                 |  |  |  | $ | 27,259    |   |
| Accountsreceivable, net of allowances of $295 and$820                                                             |  |  |                  |   | 35,724    |                 |  |  |  |   | 36,470    |   |
| Net investment infinanceleases                                                                                    |  |  |                  |   | 129,163   |                 |  |  |  |   | 73,819    |   |
| Leasingequipment, net of accumulated depreciation and allowances of $188,479and$124,543                           |  |  |                  |   | 1,099,755 |                 |  |  |  |   | 1,036,363 |   |
| Leaseholdimprovements and other fixed assets, net of accumulated depreciationand amortization of $1,878 and$1,312 |  |  |                  |   | 3,109     |                 |  |  |  |   | 3,771     |   |
| Equipment heldforsale                                                                                             |  |  |                  |   | 17,559    |                 |  |  |  |   | 24,844    |   |
| Goodwill                                                                                                          |  |  |                  |   | 71,898    |                 |  |  |  |   | 71,898    |   |
| Deferredfinancing costs                                                                                           |  |  |                  |   | 7,150     |                 |  |  |  |   | 3,540     |   |
| Otherassets (including fair value of derivativeinstruments)                                                       |  |  |                  |   | 22,484    |                 |  |  |  |   | 26,304    |   |
| Totalassets                                                                                                       |  |  |                  | $ | 1,432,554 |                 |  |  |  | $ | 1,304,268 |   |
| Liabilitiesand stockholders'equity:                                                                               |  |  |                  |   |      |                 |  |  |  |   |      |   |
| Accountspayable                                                                                                   |  |  |                  | $ | 24,442    |                 |  |  |  | $ | 12,256    |   |
| Accruedexpenses                                                                                                   |  |  |                  |   | 40,207    |                 |  |  |  |   | 30,063    |   |
| Income taxespayable                                                                                               |  |  |                  |   | 320       |                 |  |  |  |   | 116       |   |
| Deferred income taxliability                                                                                      |  |  |                  |   | 26,733    |                 |  |  |  |   | 9,239     |   |
| Debt:                                                                                                             |  |  |                  |   |      |                 |  |  |  |   |      |   |
| Assetsecuritizationfacility                                                                                       |  |  |                  |   | —   |                 |  |  |  |   | 710,000   |   |
| Assetbacked securities(ABS):                                                                                      |  |  |                  |   |      |                 |  |  |  |   |      |   |
| Term notes                                                                                                        |  |  |                  |   | 651,667   |                 |  |  |  |   | —   |   |
| Warehousefacility                                                                                                 |  |  |                  |   | 106,500   |                 |  |  |  |   | —   |   |
| Revolvingcreditfacilities                                                                                         |  |  |                  |   | 131,500   |                 |  |  |  |   | 148,000   |   |
| Financeleasefacility                                                                                              |  |  |                  |   | 12,500    |                 |  |  |  |   | —   |   |
| Otherdebt                                                                                                         |  |  |                  |   | 11,798    |                 |  |  |  |   | —   |   |
| Capitalleaseobligations                                                                                           |  |  |                  |   | 24,369    |                 |  |  |  |   | 14,627    |   |
| Totalliabilities                                                                                                  |  |  |                  |   | 1,030,036 |                 |  |  |  |   | 924,301   |   |
| Stockholders'equity:                                                                                              |  |  |                  |   |      |                 |  |  |  |   |      |   |
| Preferred stock, $.001par value, 500,000 shares authorized, noneissued                                            |  |  |                  |   | —   |                 |  |  |  |   | —   |   |
| Commonstock, $.001 par value, 100,000,000 shares authorized, 33,303,031 and32,882,208 shares issued,respectively  |  |  |                  |   | 33        |                 |  |  |  |   | 33        |   |
| Treasury stock,at cost, 136,250 shares and 0 shares,respectively                                                  |  |  |                  |   | (2,862    | )               |  |  |  |   | —   |   |
| Additionalpaid-incapital                                                                                          |  |  |                  |   | 394,434   |                 |  |  |  |   | 394,389   |   |
| Accumulatedearnings(deficit)                                                                                      |  |  |                  |   | 6,901     |                 |  |  |  |   | (13,737   | ) |
| Accumulatedother comprehensive income (loss)                                                                      |  |  |                  |   | 4,012     |                 |  |  |  |   | (718      | ) |
| Totalstockholders' equity                                                                                         |  |  |                  |   | 402,518   |                 |  |  |  |   | 379,967   |   |
| Totalliabilities and stockholders' equity                                                                         |  |  |                  | $ | 1,432,554 |                 |  |  |  | $ | 1,304,268 |   |
|                                                                                                                   |

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

2

----

Table of Contents

TAL INTERNATIONAL GROUP,INC.

Consolidated Statements of Operations (Dollars andshares in thousands, except earnings pershare)

|                                                                                                                 |  |  |                                 |   |         |                              |  |  |      |   |         |      |  |  |  |   |         |   |  |  |  |   |         |   |
|-----------------------------------------------------------------------------------------------------------------|--|--|---------------------------------|---|---------|------------------------------|--|--|------|---|---------|------|--|--|--|---|---------|---|--|--|--|---|---------|---|
|                                                                                                            |  |  | ThreeMonths Ended September 30, |   |         | Nine MonthsEndedSeptember30, |
|                                                                                                            |  |  | 2006                            |   |         | 2005                         |  |  | 2006 |   |         | 2005 |
|                                                                                                            |  |  | (Unaudited)                     |   |         | (Unaudited)                  |
| Revenues:                                                                                                       |  |  |                                 |   |    |                              |  |  |      |   |    |      |  |  |  |   |    |   |  |  |  |   |    |   |
| Leasingrevenues, including income recognized on finance leases of $3,399,$1,934, $8,516 and $3,356,respectively |  |  |                                 | $ | 67,827  |                              |  |  |      | $ | 71,001  |      |  |  |  | $ | 201,523 |   |  |  |  | $ | 215,084 |   |
| Equipmenttradingrevenue                                                                                         |  |  |                                 |   | 6,897   |                              |  |  |      |   | 7,774   |      |  |  |  |   | 17,673  |   |  |  |  |   | 17,173  |   |
| Managementfeeincome                                                                                             |  |  |                                 |   | 1,538   |                              |  |  |      |   | 1,566   |      |  |  |  |   | 4,687   |   |  |  |  |   | 4,978   |   |
| Otherrevenues                                                                                                   |  |  |                                 |   | 413     |                              |  |  |      |   | 738     |      |  |  |  |   | 1,453   |   |  |  |  |   | 1,909   |   |
| Totalrevenues                                                                                                   |  |  |                                 |   | 76,675  |                              |  |  |      |   | 81,079  |      |  |  |  |   | 225,336 |   |  |  |  |   | 239,144 |   |
| Expenses:                                                                                                       |  |  |                                 |   |    |                              |  |  |      |   |    |      |  |  |  |   |    |   |  |  |  |   |    |   |
| Equipmenttradingexpenses                                                                                        |  |  |                                 |   | 5,606   |                              |  |  |      |   | 6,026   |      |  |  |  |   | 14,545  |   |  |  |  |   | 13,257  |   |
| Directoperatingexpenses                                                                                         |  |  |                                 |   | 6,311   |                              |  |  |      |   | 6,410   |      |  |  |  |   | 19,734  |   |  |  |  |   | 20,707  |   |
| Administrativeexpenses                                                                                          |  |  |                                 |   | 9,350   |                              |  |  |      |   | 9,411   |      |  |  |  |   | 28,009  |   |  |  |  |   | 28,362  |   |
| Depreciationandamortization                                                                                     |  |  |                                 |   | 26,590  |                              |  |  |      |   | 29,418  |      |  |  |  |   | 77,782  |   |  |  |  |   | 88,076  |   |
| (Reversal)provision for doubtfulaccounts                                                                        |  |  |                                 |   | (58     | )                            |  |  |      |   | 528     |      |  |  |  |   | (500    | ) |  |  |  |   | 567     |   |
| Net(gain) on sale of leasingequipment                                                                           |  |  |                                 |   | (1,883  | )                            |  |  |      |   | (1,178  | )    |  |  |  |   | (2,859  | ) |  |  |  |   | (8,133  | ) |
| Write-offof deferred financing costs                                                                            |  |  |                                 |   | — |                              |  |  |      |   | 24,313  |      |  |  |  |   | 2,367   |   |  |  |  |   | 24,313  |   |
| Interestand debtexpense                                                                                         |  |  |                                 |   | 11,686  |                              |  |  |      |   | 21,239  |      |  |  |  |   | 35,266  |   |  |  |  |   | 63,849  |   |
| Unrealizedloss (gain) on interest rateswaps                                                                     |  |  |                                 |   | 12,174  |                              |  |  |      |   | (7,589  | )    |  |  |  |   | 8,584   |   |  |  |  |   | (8,975  | ) |
| Managementfees                                                                                                  |  |  |                                 |   | — |                              |  |  |      |   | 1,346   |      |  |  |  |   | — |   |  |  |  |   | 4,598   |   |
| Totalexpenses                                                                                                   |  |  |                                 |   | 69,776  |                              |  |  |      |   | 89,924  |      |  |  |  |   | 182,928 |   |  |  |  |   | 226,621 |   |
| Income(loss) before incometaxes                                                                                 |  |  |                                 |   | 6,899   |                              |  |  |      |   | (8,845  | )    |  |  |  |   | 42,408  |   |  |  |  |   | 12,523  |   |
| Incometax expense(benefit)                                                                                      |  |  |                                 |   | 2,449   |                              |  |  |      |   | (3,090  | )    |  |  |  |   | 15,133  |   |  |  |  |   | 4,577   |   |
| Netincome(loss)                                                                                                 |  |  |                                 |   | 4,450   |                              |  |  |      |   | (5,755  | )    |  |  |  |   | 27,275  |   |  |  |  |   | 7,946   |   |
| Preferredstockdividends                                                                                         |  |  |                                 |   | — |                              |  |  |      |   | (6,568  | )    |  |  |  |   | — |   |  |  |  |   | (18,727 | ) |
| Netincome (loss) applicable to commonstockholders                                                               |  |  |                                 | $ | 4,450   |                              |  |  |      | $ | (12,323 | )    |  |  |  | $ | 27,275  |   |  |  |  | $ | (10,781 | ) |
| Netincome (loss) per common share —Basic                                                                  |  |  |                                 | $ | 0.13    |                              |  |  |      | $ | (1.21   | )    |  |  |  | $ | 0.83    |   |  |  |  | $ | (1.06   | ) |
| Netincome (loss) per common share —Diluted                                                                |  |  |                                 | $ | 0.13    |                              |  |  |      | $ | (1.21   | )    |  |  |  | $ | 0.82    |   |  |  |  | $ | (1.06   | ) |
| Weightedaverage number of common shares outstanding — Basic                                               |  |  |                                 |   | 33,001  |                              |  |  |      |   | 10,204  |      |  |  |  |   | 32,927  |   |  |  |  |   | 10,186  |   |
| Weightedaverage number of common shares outstanding — Diluted                                             |  |  |                                 |   | 33,421  |                              |  |  |      |   | 10,204  |      |  |  |  |   | 33,450  |   |  |  |  |   | 10,186  |   |
| Cashdividends paid per commonshare                                                                              |  |  |                                 | $ | 0.20    |                              |  |  |      |   | — |      |  |  |  | $ | 0.20    |   |  |  |  |   | — |   |
|                                                                                                                 |

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

3

----

Table of Contents

TAL INTERNATIONAL GROUP,INC.

Consolidated Statements of Cash Flows (Dollars inthousands)

|                                                                                 |  |  |                              |   |          |      |  |  |  |   |          |   |
|---------------------------------------------------------------------------------|--|--|------------------------------|---|----------|------|--|--|--|---|----------|---|
|                                                                            |  |  | Ninemonths endedSeptember30, |
|                                                                            |  |  | 2006                         |   |          | 2005 |
|                                                                            |  |  | (Unaudited)                  |
| Cashflows from operatingactivities:                                             |  |  |                              |   |     |      |  |  |  |   |     |   |
| Netincome                                                                       |  |  |                              | $ | 27,275   |      |  |  |  | $ | 7,946    |   |
| Adjustmentsto reconcile net income to net cash provided by operatingactivities: |  |  |                              |   |     |      |  |  |  |   |     |   |
| Depreciationandamortization                                                     |  |  |                              |   | 77,782   |      |  |  |  |   | 88,076   |   |
| Write-offof deferred financingcosts                                             |  |  |                              |   | 2,367    |      |  |  |  |   | 24,313   |   |
| Amortizationof deferred financing costs                                         |  |  |                              |   | 556      |      |  |  |  |   | 3,918    |   |
| Net (gain) on saleof leasingequipment                                           |  |  |                              |   | (2,859   | )    |  |  |  |   | (8,133   | ) |
| Unrealizedloss (gain) on interest rateswaps                                     |  |  |                              |   | 8,584    |      |  |  |  |   | (8,975   | ) |
| Deferredincometaxes                                                             |  |  |                              |   | 17,494   |      |  |  |  |   | 4,469    |   |
| Stockcompensationcharge                                                         |  |  |                              |   | 32       |      |  |  |  |   | 490      |   |
| Changes inoperating assets andliabilities                                       |  |  |                              |   | 23,191   |      |  |  |  |   | 21,083   |   |
| Netcash provided by operatingactivities                                         |  |  |                              |   | 154,422  |      |  |  |  |   | 133,187  |   |
| Cashflows from investingactivities:                                             |  |  |                              |   |     |      |  |  |  |   |     |   |
| Purchases ofleasing equipment                                                   |  |  |                              |   | (189,794 | )    |  |  |  |   | (132,235 | ) |
| Investment infinanceleases                                                      |  |  |                              |   | (39,895  | )    |  |  |  |   | (42,110  | ) |
| Proceedsfrom sale ofequipment                                                   |  |  |                              |   | 42,999   |      |  |  |  |   | 77,213   |   |
| Cashcollections on financing leases, net of unearnedincome                      |  |  |                              |   | 10,446   |      |  |  |  |   | 4,181    |   |
| Other                                                                           |  |  |                              |   | 180      |      |  |  |  |   | —  |   |
| Netcash used in investingactivities                                             |  |  |                              |   | (176,064 | )    |  |  |  |   | (92,951  | ) |
| Cashflows from financingactivities:                                             |  |  |                              |   |     |      |  |  |  |   |     |   |
| Proceeds fromissuance of common and preferredstock                              |  |  |                              |   | —  |      |  |  |  |   | 1,206    |   |
| Purchases oftreasurystock                                                       |  |  |                              |   | (2,862   | )    |  |  |  |   | —  |   |
| Stock optionsexercised                                                          |  |  |                              |   | 13       |      |  |  |  |   | —  |   |
| Dividendspaid                                                                   |  |  |                              |   | (6,637   | )    |  |  |  |   | —  |   |
| Initialborrowings under asset securitization facility                           |  |  |                              |   | —  |      |  |  |  |   | 705,000  |   |
| Net payments underasset securitizationfacility                                  |  |  |                              |   | (710,000 | )    |  |  |  |   | (10,000  | ) |
| Netpayments under senior secured credit facility                                |  |  |                              |   | —  |      |  |  |  |   | (710,000 | ) |
| Borrowings underlong-term credit facilities                                     |  |  |                              |   | 799,000  |      |  |  |  |   | —  |   |
| Payments offinance fees related to new debtagreements                           |  |  |                              |   | (6,384   | )    |  |  |  |   | —  |   |
| Paymentsunder long-term creditfacilities                                        |  |  |                              |   | (44,833  | )    |  |  |  |   | —  |   |
| Increasein other debt                                                           |  |  |                              |   | 11,798   |      |  |  |  |   | —  |   |
| (Increase) inrestricted cash                                                    |  |  |                              |   | (13,274  | )    |  |  |  |   | —  |   |
| Netcash provided by (used in) financingactivities                               |  |  |                              |   | 26,821   |      |  |  |  |   | (13,794  | ) |
| Netincrease in cash and cashequivalents                                         |  |  |                              |   | 5,179    |      |  |  |  |   | 26,442   |   |
| Unrestrictedcash and cash equivalents, beginning ofperiod                       |  |  |                              |   | 27,259   |      |  |  |  |   | 16,424   |   |
| Unrestrictedcash and cash equivalents, end ofperiod                             |  |  |                              | $ | 32,438   |      |  |  |  | $ | 42,866   |   |
| Supplementalnon-cash financingactivities:                                       |  |  |                              |   |     |      |  |  |  |   |     |   |
| Purchasesof leasing equipment financed through capital leaseobligations         |  |  |                              | $ | 9,742    |      |  |  |  | $ | —  |   |
|                                                                                 |

Theaccompanying notes to the unaudited consolidated financial statementsare an integral part of thesestatements.

4

----

Table of Contents

TALINTERNATIONAL GROUP, INC.

NOTES TO UNAUDITED CONSOLIDATEDFINANCIAL STATEMENTS

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

A.    Description of the Business

TAL International Group, Inc.(‘‘TAL,’’ or the‘‘Company’’) was formed on October26,  2004 and commenced operations on November  4,2004. TAL consists of the consolidated accounts of TAL InternationalContainer Corporation (‘‘TALI’’), formerlyknown as Transamerica Leasing Inc., Trans Ocean Ltd.(‘‘TOL’’) and their subsidiaries. EffectiveOctober  31,  2004, TAL acquired all of the outstandingcapital stock of TALI and TOL for approximately $1.2  billion incash (‘‘theAcquisition’’).

The Company provideslong-term leases, service leases and finance leases of maritimecontainers and related equipment, along with maritime containermanagement services, through a worldwide network of offices, thirdparty depots and other facilities. The Company operates in bothinternational and domestic markets. The majority of the Company'sbusiness is derived from leasing its containers to shipping linecustomers through a variety of long-term and short-term contractuallease arrangements. The Company also provides container sales andpositioning services, enters into management agreements with thirdparty container owners under which the Company manages the leasing andselling of containers on behalf of the third party owners, and leaseschassis used for the transportation of containersdomestically.

B.    Basis of Presentation

Thepreparation of financial statements in conformity with U.S. generallyaccepted accounting principles requires management to make estimatesand assumptions that affect the reported amounts of assets andliabilities, the reported amounts of revenues and expenses during thereporting period and disclosure of contingent assets and liabilities atthe date of the financial statements. Actual results could differ fromthose estimates.

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

C.    RecentlyIssued Accounting Pronouncements

In September2006, the Financial Accounting Standards Board(‘‘FASB’’) issued Statement of FinancialAccounting Standards No. 157, Fair Value Measurements(‘‘SFAS No. 157’’) which addresses howcompanies should measure fair value when they are required to use afair value measure for recognition or disclosure purposes undergenerally accepted accounting principles (GAAP). Under SFAS No. 157,there is now a common definition of fair value to be used throughoutGAAP. The new standard will make the measurement of fair value moreconsistent and comparable and improve disclosures about those measures.The Company is required to adopt the provisions of SFAS No. 157 duringthe first fiscal year beginning after November  15,  2007.The Company is currently evaluating the impact of SFAS No. 157 on itsconsolidated results of operations and financialposition.

In June  2006, the Financial AccountingStandards Board (‘‘FASB’’) issued FASBInterpretation No. 48, ‘‘Accounting for Uncertainty inIncome Taxes — an interpretation of FASB Statement No.109,’’ (‘‘FIN 48’’). FIN 48clarifies the accounting for uncertainty in income taxes recognized infinancial statements in accordance with FASB Statement No. 109,Accounting for Income Taxes. FIN 48 prescribes a recognitionthreshold and measurement attribute for the financial statementrecognition and measurement of a tax position taken or expected to betaken in a tax return. FIN 48 also provides guidance on derecognition,classification, interest and penalties, accounting in interim periods,

5

----

Table of Contents

disclosure, and transition. The Company isrequired to adopt the provisions of FIN 48 during the first fiscal yearbeginning after December  15,  2006. The Company iscurrently evaluating the impact of FIN 48 on itsconsolidated results of operations and financial position.

Note2 — Initial Public Offering

On October17,  2005, the Company sold 11.5  million shares of commonstock at a price of $18.00 per share in an initial public offering(‘‘IPO’’) which generated net proceeds ofapproximately $189.2  million, after deducting underwriterdiscounts and other offering expenses. The Company used the netproceeds of this offering, together with additional borrowings undercertain of its debt facilities and available cash, to repay the entireoutstanding principal and accrued cash interest due on the seniorunsecured credit agreement which was approximately $288.0million on October  17,  2005. On October  21,2005, the underwriters of TAL’s IPO exercised theirover-allotment option in part and purchased 1.0  millionadditional shares of common stock from certain of TAL’sstockholders. TAL did not receive any proceeds from the sale of theshares pursuant to the over-allotment option.

Note 3— Capital Stock and Stock-Based Compensation Plans

Preferred Stock Exchange

All 201,205outstanding shares of the Company’s Series A 12.0%cumulative senior preferred stock were converted into 11,178,035 sharesof common stock on October  17,  2005, based on the IPOprice of $18.00 per common share. The Company paid the aggregateoutstanding accrued dividends on the Series A 12.0% cumulativesenior preferred stock of $23.6  million in November2005.

Treasury Stock

On March13,  2006, the Company’s Board of Directors authorized astock buyback program for the repurchase of up to 1.5  millionshares of its common stock. The Company repurchased 136,250 shares ofits outstanding common stock in the open market during the quarterended September  30,  2006 at a total cost of approximately$2.9  million.

Dividends Paid

OnSeptember  26,  2006, the Company paid a quarterly dividendof $0.20 per share or an aggregate of approximately $6.6  millionon its issued and outstanding common stock. The dividend was paid toshareholders of record at the close of business on September12,  2006.

2004 Management StockPlan

During 2004, the Company adopted the 2004Management Stock Plan (the ‘‘2004 Plan’’),which provides for the issuance of awards in the form of stock options,stock appreciation rights, restricted stock and certain otherinstruments to employees, consultants and members of theCompany's board of directors. A total of 534,425 shares werereserved for issuance under the 2004 Plan.

During 2004,options to purchase a total of 400,945 shares were granted at anexercise price of $0.01 per share, which the board of directorsbelieved equaled the fair value per share of the Company's commonstock.

During 2005, options to purchase an additional53,667 shares were granted at an exercise price of $0.01 pershare.

Upon completion of the IPO on October17,  2005, all 454,612 options outstanding under the 2004 Planbecame fully vested. All options granted during 2004 and 2005 have acontractual life of ten years.

2005 Management OmnibusIncentive Plan

In October  2005, the Companyadopted the TAL International Group, Inc. 2005 Management OmnibusIncentive Plan (the ‘‘2005 Plan’’), whichprovided for the issuance of awards in the form of 

6

----

Table of Contents

stock options, stock appreciation rights andrestricted stock. A total of 2,500,000 shares of common stock werereserved for issuance under the 2005 Plan.

InOctober  2005, the board of directors approved the grant ofoptions under the 2005 Plan to purchase an aggregate of 612,195 sharesof the Company’s common stock upon consummation of the IPO withan exercise price equal to the IPO price of the common stock, a vestingperiod of four years, and a contractual life of ten years. All 612,195options granted on the IPO date became fully vested as ofDecember  30,  2005, the date their acceleration wasapproved by the Compensation Committee of the Company’s board ofdirectors. The purpose of the accelerated vesting was to avoid futurecompensation expense associated with these options that the Companywould otherwise recognize in its consolidated statements of operationsupon the adoption of SFAS No.123(R).

During the ninemonths ended September  30,  2006, options to purchase21,000 shares were granted at exercise prices equal to fair marketvalues of the stock as of the grant date, with exercise prices rangingfrom $21.99 to $24.69 per share. These options vest ratably over fouryears, and have a contractual life of ten years.

Adoption ofNew Accounting Standard — Share-BasedPayment

Effective January  1,  2006, theCompany adopted the provisions of Statement of Financial AccountingStandards No. 123 (revised 2004), Share-Based Payment (SFASNo.123R) requiring that compensation cost relating to share-basedpayment transactions be recognized in the financial statements. Thecost is measured at the grant date, based on the calculated fair valueof the award, and is recognized as an expense over theemployee’s requisite service period (generally the vestingperiod of the equity award). Prior to January  1,  2006,the Company accounted for share-based compensation to employees inaccordance with Accounting Principles Board Opinion No. 25,Accounting for Stock Issued to Employees (APB No. 25), andrelated interpretations. The Company also followed the disclosurerequirements of Statement of Financial Accounting Standards No. 123,Accounting for Stock-Based Compensation, as amended by Statementof Financial Accounting Standards No. 148, Accounting forStock-Based Compensation-Transition and Disclosure. The Companyadopted SFAS No.123R using the modified prospective method and,accordingly, financial statement amounts for prior periods presented inthis Form 10-Q have not been restated to reflect the fair value methodof recognizing compensation cost relating to stock options. Given thatthe options outstanding upon adoption of SFAS No. 123R were fullyvested, the adoption of SFAS No.123R did not have an impact on thefinancial position, results of operations or cash flows of the Company.However, grants made during the second and third quarters of 2006 andany future grants of share-based compensation did and will result inthe recognition of compensation expense.

There wasapproximately thirteen thousand dollars of compensation cost reflectedin administrative expense in the Company’s statement ofoperations related to the Company’s stock-based compensationplans as a result of 21,000 new options granted during the nine monthsended September  30,  2006. Total unrecognized compensationcost of approximately ninety thousand dollars as of September 30, 2006related to the new options granted during the nine months endedSeptember  30,  2006 will be recognized over the remainingvesting period of approximately 3.75 years.

In addition,approximately twenty thousand dollars of compensation cost is reflectedin administrative expense related to a stock option modificationrelated to a previously vested option grant. The Board of Directorsapproved an amendment to the stock option plans to permit participantswhose employment terminates to exercise any unexercised vested optionswithin 90 days of the date their employment terminates.

The Company computed the estimated fair value of each optionaward on the date of grant using the Black-Scholes option-pricingmodel. Expected volatility was based on computed volatility fromtrading activity of TAL stock since its IPO date and volatilities ofother similar companies. The Company derives an expected term for itsoptions using an estimated option exercise date based on historicalemployee termination behavior. The expected term represents an estimateof the time options are expected to remain outstanding. The risk-freerate for periods within the contractual life of the option is based onthe U.S. treasury yield curve in effect at the time of grant. Foroptions granted during the 

7

----

Table of Contents

nine months ended September  30,2006, the following assumptions were utilized in computing the fairvalue of the options: expected volatility of 28%, expected termof 6.5 years, expected annual dividends of $0.80, and risk-free ratesof 4.73% – 4.82%.

The weighted-averagefair value of options granted during the nine months endedSeptember  30,  2006 was $4.88. Cash received from employeeexercises of stock options for the nine months ended September30,  2006 was approximately thirteen thousand dollars. TAL didnot recognize any tax benefits associated with theseexercises.

All previously granted options in 2005 and 2004were fully vested as of December  30,2005.

The following table illustrates the effect on netincome and earnings per share had the fair value method of accountingbeen applied consistent with the requirements of SFAS No. 123 to theCompany's stock compensation plans for the three and nine monthsended September  30,  2005 (in thousands, except earningspershare):

|                                                                               |  |  |                                     |   |         |                                   |  |  |  |   |         |   |
|-------------------------------------------------------------------------------|--|--|-------------------------------------|---|---------|-----------------------------------|--|--|--|---|---------|---|
|                                                                          |  |  | Threemonths endedSeptember 30, 2005 |   |         | Nine monthsendedSeptember 30,2005 |
| Net(loss) income applicable to commonstockholders:                            |  |  |                                     |   |    |                                   |  |  |  |   |    |   |
| Asreported                                                                    |  |  |                                     | $ | (12,323 | )                                 |  |  |  | $ | (10,781 | ) |
| Add:Stock-based compensation expense included in reported netincome           |  |  |                                     |   | 245     |                                   |  |  |  |   | 490     |   |
| Deduct: Stock-basedcompensation expense determined under the fair valuemethod |  |  |                                     |   | (245    | )                                 |  |  |  |   | (490    | ) |
| Proforma net (loss) applicable to commonstockholders                          |  |  |                                     | $ | (12,323 | )                                 |  |  |  | $ | (10,781 | ) |
| (Loss)earnings per commonshare:                                               |  |  |                                     |   |    |                                   |  |  |  |   |    |   |
| As reported —Basic andDiluted                                           |  |  |                                     | $ | (1.21   | )                                 |  |  |  | $ | (1.06   | ) |
| Proforma — Basic andDiluted                                             |  |  |                                     | $ | (1.21   | )                                 |  |  |  | $ | (1.06   | ) |
| Weightedaverage number of common sharesoutstanding                            |  |  |                                     |   |    |                                   |  |  |  |   |    |   |
| —Basic                                                                  |  |  |                                     |   | 10,204  |                                   |  |  |  |   | 10,186  |   |
| —Diluted                                                                |  |  |                                     |   | 10,204  |                                   |  |  |  |   | 10,186  |   |
|                                                                               |

Stockoption activity under the Plans from January  1,  2006 toSeptember  30,  2006 was as follows:

|                               |  |  |         |  |           |                              |  |  |                                   |   |        |                                        |  |  |  |  |        |  |  |  |  |   |        |  |
|-------------------------------|--|--|---------|--|-----------|------------------------------|--|--|-----------------------------------|---|--------|----------------------------------------|--|--|--|--|--------|--|--|--|--|---|--------|--|
|                          |  |  | Options |  |           | WeightedAverageExercisePrice |  |  | WeightedAverageRemainingLife(Yrs) |   |        | AggregateIntrinsicValue$ in000’s |
| Outstanding January  1,2006   |  |  |         |  | 1,066,807 |                              |  |  |                                   | $ | 10.33  |                                        |  |  |  |  | 9.4    |  |  |  |  |   |   |  |
| Granted                       |  |  |         |  | 21,000    |                              |  |  |                                   | $ | 23.28  |                                        |  |  |  |  |   |  |  |  |  |   |   |  |
| Exercised                     |  |  |         |  | (420,823  | )                            |  |  |                                   | $ | 0.03   |                                        |  |  |  |  |   |  |  |  |  | $ | 9,521  |  |
| Canceled                      |  |  |         |  | (1,500    | )                            |  |  |                                   |   |   |                                        |  |  |  |  |   |  |  |  |  |   |   |  |
| OutstandingSeptember  30,2006 |  |  |         |  | 665,484   |                              |  |  |                                   | $ | 17.24  |                                        |  |  |  |  | 9.0    |  |  |  |  | $ | 2,642  |  |
| Exercisable:                  |  |  |         |  |      |                              |  |  |                                   |   |   |                                        |  |  |  |  |   |  |  |  |  |   |   |  |
| September30,2006              |  |  |         |  | 644,484   |                              |  |  |                                   | $ | 17.04  |                                        |  |  |  |  | 9.0    |  |  |  |  | $ | 2,687  |  |
|                               |

Note4 — Debt

Asset Backed Securitization Program

Effective August  1,  2005, the Companyentered into an asset securitization facility (the‘‘Asset Securitization Facility’’) pursuantto which it had contributed certain eligible containers, together withthe related leases, to TAL Advantage I LLC, a special purpose entity(the ‘‘SPE’’) which is a wholly-ownedconsolidated subsidiary of the Company, whose primary business activityis to issue asset backed notes.

On April  12,2006, the SPE issued two series of floating rate secured notes underits Asset Backed Securitization (‘‘ABS’’)program designed to reduce borrowing costs and enhance financingresources 

8

----

Table of Contents

for the Company's equipment fleet.Included in the issuance was $680.0  million of floating ratesecured term notes (the ‘‘Series 2006-1Notes’’ or ‘‘ABS TermNotes’’). The proceeds from this issuance, along withavailable cash, were used to repay the outstanding borrowings under theAsset Securitization Facility. A write-off of $2.4  million wasrecorded for certain deferred financing fees during the nine monthsended September  30,  2006 associated with thisre-financing. The Series 2006-1 Notes amortize in equal monthlyinstallments and have a legal final maturity of April  2021. AtSeptember  30,  2006, the outstanding balance under the ABSTerm Notes was $651.7  million. At September  30,2006, the applicable interest rate, including the insurance premium,was LIBOR plus 0.48%. The weighted average interest rate on theABS Term Notes for the period from the refinancing date toSeptember  30,  2006 was 5.7%.

OnApril  12,  2006, the SPE entered into a floating raterevolving facility (the ‘‘Series 2005-1Notes’’ or the ‘‘ABS WarehouseFacility’’) under the ABS program. The ABS WarehouseFacility provides up to $300.0  million of borrowing capacity tosupport future fleet expansion. The Series 2005-1 Notes have a two yearrevolving period that precedes a term period in which the outstandingbalance amortizes in equal monthly installments. The ABS WarehouseFacility has a legal final maturity of April  2023. AtSeptember  30,  2006, the outstanding balance under the ABSWarehouse Facility was $106.5  million. At September30,  2006, the applicable commitment fee was 0.30%,including the insurance premium, and the applicable interest rate wasLIBOR plus 0.74%, including the insurance premium. The weightedaverage interest rate on the ABS Warehouse Facility for the period fromthe refinancing date to September  30,  2006 was6.0%.

All debt issued under the ABS program iscollateralized by the assets of the SPE consisting of the revenueearning containers used in the Company’s leasing business,restricted cash and certain receivables related to revenue earningequipment. The SPE's borrowing capacity under the ABS program isdetermined by reference to an advance rate percentage of the net bookvalues, as calculated in the ABS program documents of the SPE'seligible containers, subject to certain adjustments and restrictedcash. Under the ABS program, the SPE is required to maintain restrictedcash balances on deposit in a designated bankaccount.

Based on the applicable advance rate of82%, the SPE’s borrowing capacity was $761.2million at September  30,  2006. At September30,  2006, the Company was in compliance with all of the variousABS program covenant requirements.

Revolving CreditFacilities

In connection with the Acquisition, theCompany entered into an $875.0  million Senior Secured CreditFacility (‘‘SSCF’’). Upon the closing ofthe Asset Securitization Facility on August  1,  2005, theCompany amended and restated the SSCF to, among other things, reducethe maximum aggregate commitments thereunder to $175.0  million.Effective June  1,  2006, the Company further amended theSSCF to reduce the interest rate margin from LIBOR plus 2.125%to LIBOR plus 1.375% and to reduce the maximum aggregatecommitments thereunder to $165.0  million. The final maturitydate of this facility is August  1,  2008. The outstandingbalance under the facility was $131.5  million atSeptember  30,  2006 and $148.0  million atDecember  31,  2005.

The Company’sborrowing capacity under this facility is based upon a variable advancerate percentage of the net book values, as calculated in the creditagreement, of the Company’s eligible containers and eligiblechassis, subject to certain adjustments. At September  30,2006, the variable advance rate percentage was 85%, and issubject to annual decreases of 1% for each full calendar yearfollowing the IPO until a minimum advance rate of 82% isreached. At September  30,  2006, the unused borrowingcapacity was $33.5  million based on aggregate availability of$165.0  million. The Company’s eligible containers for thepurposes of determining borrowing capacity under this facility does notinclude any containers transferred to the SPE. The SSCF is secured by afirst priority lien on the Company’s eligible containers,eligible chassis, related leases and lease rights and a pledge of theequity interests of the SPE.

At September30,  2006, the SSCF applicable commitment fee was 0.375%,and the applicable interest rate was LIBOR plus 1.375%. Interestand fees and a portion of the outstanding principal amount of

9

----

Table of Contents

the loans under this facility, together withcertain other amounts, are payable on a quarterly basis. The portion ofthe outstanding principal amount of the loans, if any, payable on anysuch payment date will be equal to the amount by which the outstandingprincipal amount of the loans exceeds the Company’s theneffective borrowing capacity. The weighted average interest rate underthis facility for the nine months ended September  30,2006 was 6.8%. At September  30,  2006, the Companywas compliant with all of the various covenant requirements under thisfacility.

Effective June  7,  2006, theCompany entered into an additional revolving credit facility (the‘‘Swing Line Facility’’) to support generalworking capital requirements. The Company’s borrowing capacityunder this facility is based upon a 90% advance rate on the netbook values of the containers and chassis not included in the SPE. Thecommitment under the Swing Line Facility is $10.0  million andthere was no outstanding balance at September  30,  2006.At September  30,  2006, the applicable commitment fee was0.375%, and the applicable interest rate was LIBOR plus2.00%.

Finance Lease Facility

OnJuly  31,  2006, the Company entered into a credit facilityto support the growth of its finance lease business (the‘‘Finance Lease Facility’’). TheCompany’s borrowing capacity under this facility is based upon a90% advance rate on the net present values of finance leasereceivables on certain containers and chassis not included in the SPE.The Finance Lease Facility has a two year revolving period thatprecedes a 10 year term in which the outstanding balance, as of theterm conversion date, amortizes in monthly installments. The commitmentunder the Finance Lease Facility is $50.0  million. AtSeptember  30,  2006, the applicable commitment fee andinterest rate is 0.30% and LIBOR plus 1.00%,respectively. The outstanding balance under the facility was$12.5  million at September  30,  2006.The weighted average interest rate on the Finance LeaseFacility for the three months ended September 30, 2006 was6.3%.

Capital Lease Obligations and OtherDebt

The Company has entered into a series ofcapital leases with various financial institutions to finance thepurchase of chassis. The lease agreements are structured as tenyear Terminal Rental Adjustment Clause(‘‘TRAC’’) leases with purchase options atthe end of the lease terms equal to the TRAC amount as defined in eachlease. For income tax purposes, these leases are treated as operatingleases. The weighted average interest rate for these leases as ofSeptember  30,  2006 is 5.3%. The total leaseobligation was $24.4 million as of September  30,  2006,and was $14.6  million as of December  31,2005.

During June  2006, the Company entered into aninterim agreement with a financial institution to provide funding forchassis equipment that will be included in a TRAC lease by the end of2006. At September  30,  2006, the advances totaled$11.8  million and are classified as ‘‘OtherDebt’’ on the consolidated balance sheet. The interestrate at September  30,  2006 was LIBOR plus 1.375%and the weighted average interest rate for the three months endedSeptember  30,  2006 was 6.8%.

InterestRate Swaps 

To hedge the risk associated withfluctuations in interest rates on long-term borrowings, the Company hasentered into interest rate swap contracts with various financialinstitutions. The counterparties to these agreements are highly ratedfinancial institutions. In the unlikely event that the counterpartiesfail to meet the terms of the interest rate swap contracts, theCompany’s exposure is limited to the interest rate differentialon the notional amount at each monthly settlement period over the lifeof the agreements. The Company does not anticipate any non-performanceby the counterparties.

10

----

Table of Contents

As of September  30,2006, the Company had in place interest rate swap contracts to fix thefloating interest rates on a portion of the borrowings under its debtfacilities as summarizedbelow:

|                   |  |  |                 |  |  |                       |  |  |                                  |
|-------------------|--|--|-----------------|--|--|-----------------------|--|--|----------------------------------|
| SwapDate          |  |  | Notional Amount |  |  | FixedLeg InterestRate |  |  | Term                             |
| December14,2004   |  |  | $200.0million   |  |  | 3.82%                 |  |  | 7years — amortizing        |
| December  14,2004 |  |  | $200.0  million |  |  | 3.82%                 |  |  | 7 years— amortizing        |
| December  14,2004 |  |  | $100.0  million |  |  | 3.82%                 |  |  | 7 years— amortizing        |
| October  28,2005  |  |  | $100.0  million |  |  | 4.82%                 |  |  | 6 years— non-amortizing    |
| October  28,2005  |  |  | $25.0  million  |  |  | 4.71%                 |  |  | 2.75years — non-amortizing |
| July  13,2006     |  |  | $50.0  million  |  |  | 5.52%                 |  |  | 5 years— non-amortizing    |
| July  19,2006     |  |  | $33.0  million  |  |  | 5.56%                 |  |  | 11 years— amortizing       |
|                   |

As of April12,  2006, in conjunction with the ABS program described above,the Company de-designated all of its existing interest rate swapcontracts. Previously, the Company had designated all existing interestrate swap contracts as cash flow hedges, in accordance with Statementof Financial Accounting Standards No.133, ‘‘Accountingfor Derivative Instruments and Hedging Activities’’.Therefore, during the designation period beginning November1,  2005 through April  12,  2006, substantially allchanges in the fair value of the interest rate swap contracts werereflected in accumulated other comprehensive income (loss). Changes inthe fair value of these interest rate swap contracts in periods beforeand after designation have been recognized in the consolidatedstatements of operations as unrealized losses or gains on interest rateswaps.

At the time of de-designation, the change in fairvalue reflected in accumulated other comprehensive income was$7.5  million. This amount is being recognized in income asunrealized (gain) loss on interest rate swaps using the interest methodover the remaining life of the contracts. As of September30,  2006, the unamortized pre-tax balance of the change in fairvalue reflected in accumulated other comprehensive income was$6.0  million. The amount of other comprehensive income whichwill be amortized to income over the next 12 months is approximately$2.4  million. Amounts recorded in accumulated othercomprehensive income (loss) would be reclassified into earnings upontermination of these interest rate swap contracts and related debtinstruments prior to their contractual maturity.

The netfair value of the interest rate swap contracts was $12.4  millionat September  30,  2006, and $13.9  million atDecember  31,  2005. Fair value of $13.4  million asof September  30,  2006 and $13.9  million atDecember  31,  2005 are included in other assets in theconsolidated balance sheets. Fair value of $1.0  million atSeptember  30,  2006 is a liability and is included inaccrued expenses in the consolidated balance sheets. In itsconsolidated statements of operations, the Company recognized a netunrealized loss of $12.2  million for the three months endedSeptember  30,  2006, a net unrealized (gain) of $(7.6)million for the three months ended September  30,  2005, anet unrealized loss of $8.6  million for the nine months endedSeptember  30,  2006, and a net unrealized (gain) of $(9.0)million for the nine months ended September  30,  2005,which predominantly represents the change in fair value of the interestrate swap contracts.

11

----

Table of Contents

Note 5 — Earnings (Loss) PerShare

The following table sets forth the calculation ofbasic and diluted earnings (loss) per share for the three and ninemonths ended September  30,  2006 and 2005 (in thousands,except earnings pershare):

|                                                                                           |  |  |                                |   |        |                              |  |  |      |   |         |      |  |  |  |   |        |  |  |  |  |   |         |   |
|-------------------------------------------------------------------------------------------|--|--|--------------------------------|---|--------|------------------------------|--|--|------|---|---------|------|--|--|--|---|--------|--|--|--|--|---|---------|---|
|                                                                                      |  |  | ThreeMonths EndedSeptember 30, |   |        | Nine MonthsEndedSeptember30, |
|                                                                                      |  |  | 2006                           |   |        | 2005                         |  |  | 2006 |   |         | 2005 |
| Numerator:                                                                                |  |  |                                |   |   |                              |  |  |      |   |    |      |  |  |  |   |   |  |  |  |  |   |    |   |
| Netincome (loss) applicable to common stockholders for basic and dilutedearnings pershare |  |  |                                | $ | 4,450  |                              |  |  |      | $ | (12,323 | )    |  |  |  | $ | 27,275 |  |  |  |  | $ | (10,781 | ) |
| Denominator:                                                                              |  |  |                                |   |   |                              |  |  |      |   |    |      |  |  |  |   |   |  |  |  |  |   |    |   |
| Weightedaverage shares outstanding for basic earnings (loss) pershare                     |  |  |                                |   | 33,001 |                              |  |  |      |   | 10,204  |      |  |  |  |   | 32,927 |  |  |  |  |   | 10,186  |   |
| Dilutivestockoptions                                                                      |  |  |                                |   | 420    |                              |  |  |      |   | — |      |  |  |  |   | 523    |  |  |  |  |   | — |   |
| Weightedaverage shares for diluted earnings (loss) pershare                               |  |  |                                |   | 33,421 |                              |  |  |      |   | 10,204  |      |  |  |  |   | 33,450 |  |  |  |  |   | 10,186  |   |
| Earnings(loss) pershare:                                                                  |  |  |                                |   |   |                              |  |  |      |   |    |      |  |  |  |   |   |  |  |  |  |   |    |   |
| Basic                                                                                     |  |  |                                | $ | 0.13   |                              |  |  |      | $ | (1.21   | )    |  |  |  | $ | 0.83   |  |  |  |  | $ | (1.06   | ) |
| Diluted                                                                                   |  |  |                                | $ | 0.13   |                              |  |  |      | $ | (1.21   | )    |  |  |  | $ | 0.82   |  |  |  |  | $ | (1.06   | ) |
|                                                                                           |

Optionsfor 16,500 shares were considered to be anti-dilutive for the three andnine months ended September  30,  2006 and were thereforenot included in the calculation of diluted earnings pershare.

Note 6 — Related Party Transactions

The Company recognized $1.3  million for the threemonths ended September  30,  2005, and $4.6  millionfor the nine months ended September  30,  2005 ofmanagement fees and expenses relating to the management consultingagreements with certain of the Company’s stockholders. Themanagement consulting agreements were terminated as of the effectivedate of the IPO, October  17,  2005.

Note 7 —Segment and Geographic Information

Industry SegmentInformation

The Company operates in one industrysegment, intermodal equipment leasing.

Geographic SegmentInformation

The Company's customers use thecontainers for their global trade utilizing many worldwide traderoutes. The following table represents the allocation of domestic(U.S.) and international revenues for the periods indicated based onthe customers' primary domicile (inthousands):

|                    |  |  |                                 |   |        |                              |  |  |      |   |        |      |  |  |  |   |         |  |  |  |  |   |         |  |
|--------------------|--|--|---------------------------------|---|--------|------------------------------|--|--|------|---|--------|------|--|--|--|---|---------|--|--|--|--|---|---------|--|
|               |  |  | ThreeMonths Ended September 30, |   |        | Nine MonthsEndedSeptember30, |
|               |  |  | 2006                            |   |        | 2005                         |  |  | 2006 |   |        | 2005 |
| Totalrevenues:     |  |  |                                 |   |   |                              |  |  |      |   |   |      |  |  |  |   |    |  |  |  |  |   |    |  |
| Domestic           |  |  |                                 | $ | 7,754  |                              |  |  |      | $ | 7,866  |      |  |  |  | $ | 22,517  |  |  |  |  | $ | 23,474  |  |
| Asia               |  |  |                                 |   | 36,028 |                              |  |  |      |   | 36,790 |      |  |  |  |   | 105,203 |  |  |  |  |   | 106,918 |  |
| Europe             |  |  |                                 |   | 27,665 |                              |  |  |      |   | 31,682 |      |  |  |  |   | 82,774  |  |  |  |  |   | 95,314  |  |
| OtherInternational |  |  |                                 |   | 5,228  |                              |  |  |      |   | 4,741  |      |  |  |  |   | 14,842  |  |  |  |  |   | 13,438  |  |
| Total              |  |  |                                 | $ | 76,675 |                              |  |  |      | $ | 81,079 |      |  |  |  | $ | 225,336 |  |  |  |  | $ | 239,144 |  |
|                    |

12

----

Table of Contents

As substantially all of theCompany's containers are used internationally, where no onecontainer is domiciled in one particular place for a prolonged periodof time, all of the Company's containers are considered to beinternational.

Note 8 — Commitments andContingencies

At September  30,  2006,commitments for capital expenditures totaled approximately $15.2million, principally through the remainder of 2006.

Note 9— Income Taxes

The consolidated income taxexpense for the nine month periods ended September  30,2006 and 2005 was determined based upon estimates of theCompany's consolidated effective income tax rates for the yearsending December  31,  2006 and 2005, respectively. Thedifference between the consolidated effective income tax rate and theU.S. federal statutory rate is primarily attributable to state incometaxes, foreign income taxes and the effect of certain permanentdifferences.

Note 10 — Comprehensive Income

The following table provides a reconciliation of theCompany’s net income to comprehensive income (inthousands):

|                                                                                                                                          |  |  |                                |   |        |                              |  |  |      |   |         |      |  |  |  |   |        |  |  |  |  |   |         |   |
|------------------------------------------------------------------------------------------------------------------------------------------|--|--|--------------------------------|---|--------|------------------------------|--|--|------|---|---------|------|--|--|--|---|--------|--|--|--|--|---|---------|---|
|                                                                                                                                     |  |  | ThreeMonths EndedSeptember 30, |   |        | Nine MonthsEndedSeptember30, |
|                                                                                                                                     |  |  | 2006                           |   |        | 2005                         |  |  | 2006 |   |         | 2005 |
| Netincome(loss)                                                                                                                          |  |  |                                | $ | 4,450  |                              |  |  |      | $ | (5,755  | )    |  |  |  | $ | 27,275 |  |  |  |  | $ | 7,946   |   |
| Othercomprehensive income(loss):                                                                                                         |  |  |                                |   |   |                              |  |  |      |   |    |      |  |  |  |   |   |  |  |  |  |   |    |   |
| Foreigncurrency translationadjustments                                                                                                   |  |  |                                |   | 45     |                              |  |  |      |   | (2      | )    |  |  |  |   | 180    |  |  |  |  |   | (45     | ) |
| Unrealized(loss) gain on derivative instruments designated as cash flow hedges(net of taxes of $(243), $0, $2,162 and $0, respectively ) |  |  |                                |   | (433   | )                            |  |  |      |   | — |      |  |  |  |   | 4,550  |  |  |  |  |   | — |   |
| Total                                                                                                                                    |  |  |                                | $ | 4,062  |                              |  |  |      | $ | (5,757  | )    |  |  |  | $ | 32,005 |  |  |  |  | $ | 7,901   |   |
|                                                                                                                                          |

Thebalance included in comprehensive income for cumulative translationadjustments as of September  30,  2006 and September30,  2005 was $130 and $(28), respectively.

Note 11— Subsequent Events    

Fourth Quarter Dividend

The Company’s Board of Directors approved and declareda $0.25 per share quarterly cash dividend on its issued and outstandingcommon stock, payable on December  8,  2006 to shareholdersof record at the close of business on November  21,2006.

13

----

Table of Contents

|              |                                                                                      |
|--------------|--------------------------------------------------------------------------------------|
| ITEM2:  | MANAGEMENT'S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS |

Thefollowing discussion and analysis of the consolidated financialcondition and results of operations of TAL International Group, Inc.and its subsidiaries should be read in conjunction with relatedconsolidated financial data and our annual audited consolidatedfinancial statements and related notes thereto included in our AnnualReport on Form 10-K filed with the Securities and Exchange Commissionon March  20,  2006. The statements in this discussionregarding industry outlook, our expectations regarding our futureperformance, liquidity and capital resources and other non-historicalstatements 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 Form10-K. Our actual results may differ materially from those contained inor implied by any forward-looking statements.

OurCompany

We are one of the world's largest andoldest lessors of intermodal freight containers and chassis. Intermodalfreight containers are large, standardized steel boxes used totransport freight by ship, rail or truck. Chassis are used for thetransportation of containers domestically via rail and roads. Becauseof the handling efficiencies they provide, intermodal freightcontainers are the primary means by which many goods and materials areshipped internationally.

Our operations include theacquisition, leasing, re-leasing and subsequent sale of multiple typesof intermodal containers and chassis. As of September  30,2006, our fleet consisted of 645,622 containers and chassis, including72,257 containers under management for third parties, representing morethan one million twenty-foot equivalent units (TEU). We have anextensive global presence, offering leasing services through 20 officesin 12 countries and approximately 190 third party container depotfacilities in 41 countries as of September  30,  2006. Ourcustomers are among the world's largest shippinglines.

Our lease products provide numerous operational andfinancial benefits to our shipping line customers. These benefitsinclude:

|  |              |                                                                                                                                                                                                                                                                                                                            |
|--|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | Operating Flexibility— The timing, location and daily volume of cargo movements for ashipping line are often unpredictable. Leasing containers helps theshipping lines manage this uncertainty and minimize the requirement forlarge inventory buffers by allowing them to pick-up leased containerson short notice. |

|  |              |                                                                                                                                                                                                                |
|--|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | Fleet SizeFlexibility — Container leases allow shipping lines toadjust the size and mix of their fleets as their trade volumes changedue to seasonality, market changes or changes in companystrategies. |

|  |              |                                                                                                                                                                                                                                                                         |
|--|--------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | Alternative Source ofFinancing — Container leases provide an additional sourceof equipment financing to help shipping lines manage the high level ofinvestment required to maintain pace with the rapid growth of theasset-intensive container shipping industry. |

We leasethree principal types of containers: (1) dry freight containers, whichare 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 cargosuch as marble slabs, building products and machinery. We also manageour own container disposals, act as the disposal agent for a number ofour shipping line customers, and buy and sell used containers throughour Trader group. As of September  30,  2006, dry,refrigerated, special containers and Trader represented approximately86%, 5%, 7% and 1% of our fleet on a unitbasis, respectively. Our chassis leasing business, which commenced inthe fourth quarter of 2005, represented approximately 1% of ourfleet on a unit basis as of September  30,2006.

14

----

Table of Contents

The following tables provide thecomposition of our equipment fleet as of the dates indicated below (inboth units and TEU’s). Certain reclassifications have been madeto the accompanying prior period equipment fleet data to conform withthe current year’spresentation.

|              |  |  |                        |  |         |                   |  |  |                   |  |         |        |  |  |         |  |         |       |  |  |        |  |         |         |  |  |       |  |         |  |  |  |  |  |         |  |  |  |  |  |         |  |  |  |  |  |         |  |  |  |  |  |         |  |
|--------------|--|--|------------------------|--|---------|-------------------|--|--|-------------------|--|---------|--------|--|--|---------|--|---------|-------|--|--|--------|--|---------|---------|--|--|-------|--|---------|--|--|--|--|--|---------|--|--|--|--|--|---------|--|--|--|--|--|---------|--|--|--|--|--|---------|--|
|         |  |  | EquipmentFleet inUnits |
|         |  |  | September30, 2006      |  |         | December 31, 2005 |  |  | September 30,2005 |
|         |  |  | Owned*                 |  |         | Managed           |  |  | Total             |  |         | Owned* |  |  | Managed |  |         | Total |  |  | Owned* |  |         | Managed |  |  | Total |
| Dry          |  |  |                        |  | 499,947 |                   |  |  |                   |  | 55,864  |        |  |  |         |  | 555,811 |       |  |  |        |  | 464,353 |         |  |  |       |  | 59,180  |  |  |  |  |  | 523,533 |  |  |  |  |  | 470,187 |  |  |  |  |  | 60,055  |  |  |  |  |  | 530,242 |  |
| Refrigerated |  |  |                        |  | 34,300  |                   |  |  |                   |  | 1,251   |        |  |  |         |  | 35,551  |       |  |  |        |  | 34,006  |         |  |  |       |  | 1,625   |  |  |  |  |  | 35,631  |  |  |  |  |  | 34,322  |  |  |  |  |  | 1,648   |  |  |  |  |  | 35,970  |  |
| Special      |  |  |                        |  | 27,577  |                   |  |  |                   |  | 15,142  |        |  |  |         |  | 42,719  |       |  |  |        |  | 27,389  |         |  |  |       |  | 16,025  |  |  |  |  |  | 43,414  |  |  |  |  |  | 27,443  |  |  |  |  |  | 16,315  |  |  |  |  |  | 43,758  |  |
| Chassis      |  |  |                        |  | 6,079   |                   |  |  |                   |  | — |        |  |  |         |  | 6,079   |       |  |  |        |  | 1,210   |         |  |  |       |  | — |  |  |  |  |  | 1,210   |  |  |  |  |  | — |  |  |  |  |  | — |  |  |  |  |  | — |  |
| Subtotal     |  |  |                        |  | 567,903 |                   |  |  |                   |  | 72,257  |        |  |  |         |  | 640,160 |       |  |  |        |  | 526,958 |         |  |  |       |  | 76,830  |  |  |  |  |  | 603,788 |  |  |  |  |  | 531,952 |  |  |  |  |  | 78,018  |  |  |  |  |  | 609,970 |  |
| Trader       |  |  |                        |  | 5,462   |                   |  |  |                   |  | — |        |  |  |         |  | 5,462   |       |  |  |        |  | 10,123  |         |  |  |       |  | — |  |  |  |  |  | 10,123  |  |  |  |  |  | 14,386  |  |  |  |  |  | — |  |  |  |  |  | 14,386  |  |
| Total        |  |  |                        |  | 573,365 |                   |  |  |                   |  | 72,257  |        |  |  |         |  | 645,622 |       |  |  |        |  | 537,081 |         |  |  |       |  | 76,830  |  |  |  |  |  | 613,911 |  |  |  |  |  | 546,338 |  |  |  |  |  | 78,018  |  |  |  |  |  | 624,356 |  |
|              |

|              |  |  |                              |  |         |                   |  |  |                    |  |         |        |  |  |         |  |           |       |  |  |        |  |         |         |  |  |       |  |         |  |  |  |  |  |         |  |  |  |  |  |         |  |  |  |  |  |         |  |  |  |  |  |           |  |
|--------------|--|--|------------------------------|--|---------|-------------------|--|--|--------------------|--|---------|--------|--|--|---------|--|-----------|-------|--|--|--------|--|---------|---------|--|--|-------|--|---------|--|--|--|--|--|---------|--|--|--|--|--|---------|--|--|--|--|--|---------|--|--|--|--|--|-----------|--|
|         |  |  | EquipmentFleet inTEU’s |
|         |  |  | September 30,  2006          |  |         | December  31,2005 |  |  | September  30,2005 |
|         |  |  | Owned*                       |  |         | Managed           |  |  | Total              |  |         | Owned* |  |  | Managed |  |           | Total |  |  | Owned* |  |         | Managed |  |  | Total |
| Dry          |  |  |                              |  | 798,123 |                   |  |  |                    |  | 95,473  |        |  |  |         |  | 893,596   |       |  |  |        |  | 737,802 |         |  |  |       |  | 100,759 |  |  |  |  |  | 838,561 |  |  |  |  |  | 745,106 |  |  |  |  |  | 102,167 |  |  |  |  |  | 847,273   |  |
| Refrigerated |  |  |                              |  | 61,682  |                   |  |  |                    |  | 1,898   |        |  |  |         |  | 63,580    |       |  |  |        |  | 60,674  |         |  |  |       |  | 2,394   |  |  |  |  |  | 63,068  |  |  |  |  |  | 61,019  |  |  |  |  |  | 2,435   |  |  |  |  |  | 63,454    |  |
| Special      |  |  |                              |  | 43,465  |                   |  |  |                    |  | 24,994  |        |  |  |         |  | 68,459    |       |  |  |        |  | 42,249  |         |  |  |       |  | 26,179  |  |  |  |  |  | 68,428  |  |  |  |  |  | 42,195  |  |  |  |  |  | 26,594  |  |  |  |  |  | 68,789    |  |
| Chassis      |  |  |                              |  | 10,608  |                   |  |  |                    |  | — |        |  |  |         |  | 10,608    |       |  |  |        |  | 2,270   |         |  |  |       |  | — |  |  |  |  |  | 2,270   |  |  |  |  |  | — |  |  |  |  |  | — |  |  |  |  |  | —   |  |
| Subtotal     |  |  |                              |  | 913,878 |                   |  |  |                    |  | 122,365 |        |  |  |         |  | 1,036,243 |       |  |  |        |  | 842,995 |         |  |  |       |  | 129,332 |  |  |  |  |  | 972,327 |  |  |  |  |  | 848,320 |  |  |  |  |  | 131,196 |  |  |  |  |  | 979,516   |  |
| Trader       |  |  |                              |  | 7,698   |                   |  |  |                    |  | — |        |  |  |         |  | 7,698     |       |  |  |        |  | 15,968  |         |  |  |       |  | — |  |  |  |  |  | 15,968  |  |  |  |  |  | 22,985  |  |  |  |  |  | — |  |  |  |  |  | 22,985    |  |
| Total        |  |  |                              |  | 921,576 |                   |  |  |                    |  | 122,365 |        |  |  |         |  | 1,043,941 |       |  |  |        |  | 858,963 |         |  |  |       |  | 129,332 |  |  |  |  |  | 988,295 |  |  |  |  |  | 871,305 |  |  |  |  |  | 131,196 |  |  |  |  |  | 1,002,501 |  |
|              |

|  |
|--|
|  |  |
|  |

|   |                                                  |
|---|--------------------------------------------------|
| * | Includesunits placed on finance lease contracts. |

We lease ourequipment on a per diem basis to our customers under three types ofleases: long-term leases, service leases and finance leases. Long-termleases, typically with terms of three to eight years, provide us withstable cash flow and low transaction costs by requiring customers tomaintain specific containers on-hire for the duration of the lease.Service leases command a premium per diem rate in exchange forproviding customers with a greater level of operational flexibility byallowing the pick-up and drop-off of containers during the lease term.Finance leases, which are typically structured as full payout leases,provide for a predictable recurring revenue stream with the lowestdaily cost to the customer because customers are generally required toretain the container for the duration of its useful life. As ofSeptember  30,  2006, approximately 93% of ourcontainers were on-hire to customers, with approximately 58% ofour containers on long-term leases, approximately 27% on serviceleases or long-term leases whose fixed terms have expired but for whichthe related units remain on-hire and for which we continue to receiverental payments, and approximately 8% on finance leases. Inaddition, approximately 5% of our containers were available forlease and approximately 2% were available forsale.

15

----

Table of Contents

The following table provides asummary of our lease portfolio, based on units in the fleet as of thedates indicatedbelow:

|                                  |  |  |                   |  |       |                   |  |  |                   |  |       |   |  |  |  |  |       |   |
|----------------------------------|--|--|-------------------|--|-------|-------------------|--|--|-------------------|--|-------|---|--|--|--|--|-------|---|
| LeasePortfolio                   |  |  | September 30,2006 |  |       | December 31, 2005 |  |  | September 30,2005 |
| Long-termlease                   |  |  |                   |  | 58.0  | %                 |  |  |                   |  | 59.0  | % |  |  |  |  | 59.2  | % |
| Servicelease                     |  |  |                   |  | 26.8  |                   |  |  |                   |  | 25.6  |   |  |  |  |  | 26.7  |   |
| Financelease                     |  |  |                   |  | 7.7   |                   |  |  |                   |  | 4.6   |   |  |  |  |  | 4.3   |   |
| Totalleased                      |  |  |                   |  | 92.5  |                   |  |  |                   |  | 89.2  |   |  |  |  |  | 90.2  |   |
| Existingunits available forlease |  |  |                   |  | 3.3   |                   |  |  |                   |  | 5.1   |   |  |  |  |  | 4.5   |   |
| New unitsavailable forlease      |  |  |                   |  | 1.8   |                   |  |  |                   |  | 2.6   |   |  |  |  |  | 2.7   |   |
| Availableforsale                 |  |  |                   |  | 2.4   |                   |  |  |                   |  | 3.1   |   |  |  |  |  | 2.6   |   |
| Totalportfolio                   |  |  |                   |  | 100.0 | %                 |  |  |                   |  | 100.0 | % |  |  |  |  | 100.0 | % |
|                                  |

OperatingPerformance

Our profitability is primarily determined bythe extent to which our leasing and other revenues exceed ourownership, operating and administrative expenses. Our profitability isalso impacted by the gain or loss that we realize on the sale of ourused containers. During the first quarter of 2006, seasonal factors andmarket conditions placed pressure on our profitability. Our operatingprofitability improved in the second and third quarters as we were ableto benefit from an increase in container prices and an improvement inmarket conditions.

Our leasing revenue is primarilydriven by our owned fleet size, utilization and average rental rates.Our leasing revenue is also impacted by the mix of leases in ourportfolio. As of September  30,  2006, our owned fleetincluded 921,576 TEU, an increase of 7.3% from December31,  2005. The increase in fleet size relative to the fourthquarter of 2005 was mainly due to the delivery of a large number ofcontainers purchased in the first and second quarters of 2006. Thesecontainer deliveries proved to be timely since they allowed us tocapitalize on the strong leasing demand for dry containers that weexperienced early in the second quarter and late in the third quarter.We expect the pace of container deliveries to slow in the fourthquarter since we ordered fewer containers in the third quarter due toprice uncertainty and our expectation for reduced dry container demandafter the end of the summer peak season.

OurSeptember  30,  2006 owned container fleet size was5.8% greater than our owned container fleet size as ofSeptember  30,  2005. Our fleet size decreased during thefourth quarter of 2005 due to a reduction in our trading equipmentresale inventories and a reduction in our investment in new containersdue to a temporary surplus of new containers in China.

Ouraverage utilization was 91.0% in the third quarter of 2006, anincrease of 1.2% from the second quarter of 2006. Endingutilization increased 1.6% from 90.9% as of June30,  2006 to 92.5% as of September  30,  2006.We experienced strong demand for dry and special containers in thelatter half of the third quarter, and we managed to increase ouraverage utilization while also absorbing a net increase of over 20,000TEU of containers in our fleet. Demand for refrigerated containersremained weak in the 2006 third quarter and the average utilization ofour refrigerated containers decreased during the quarter. While theutilization of our refrigerated containers does not heavily influenceour overall utilization, it has a disproportionate impact on ourleasing revenue due to the much higher unit cost and lease rates ofrefrigerated containers.

Our average utilization in thethird quarter of 2006 was 1.2% higher than it was in the thirdquarter of 2005, while our average utilization for the nine monthsending September  30,  2006 was 0.9 % lower than ouraverage utilization for the nine months ending September30,  2005. In 2006, our utilization has increased on a quarterlybasis due to the strong leasing demand for dry containers weexperienced early in the second quarter and late in the third quarterof this year. During 2005, utilization was very high at the beginningof the year after the exceptional leasing market of 2004, but thendecreased throughout the year due to a build-up of an excess inventoryof new containers in China during the middle of theyear.

16

----

Table of Contents

The following table setsforth our average fleet utilization for the periods indicatedbelow:

|                    |  |  |                   |  |      |                    |  |  |                   |  |      |                   |  |  |  |  |      |   |  |  |  |  |      |   |
|--------------------|--|--|-------------------|--|------|--------------------|--|--|-------------------|--|------|-------------------|--|--|--|--|------|---|--|--|--|--|------|---|
|               |  |  | September30, 2006 |  |      | September 30, 2005 |  |  | September30, 2006 |  |      | September 30,2005 |
|               |  |  | 3months           |  |      | 3 months           |  |  | 9 months          |  |      | 9months           |
| AverageUtilization |  |  |                   |  | 91.0 | %                  |  |  |                   |  | 89.8 | %                 |  |  |  |  | 90.0 | % |  |  |  |  | 90.9 | % |
|                    |

Averagelease rates for our dry container product line in the third quarterdecreased by 1.6% from the average level of the second quarterdespite the high new container prices that prevailed during the thirdquarter. The decrease in average dry container leasing rates wasprimarily caused by several large lease extension transactionscompleted during the second and third quarters. The profitability ofour shipping line customers has come under pressure this year due to alarge increase in vessel capacity and declining freight rates, and ourcustomers are actively seeking ways to reduce operating expenses. Inseveral cases, we have responded to our customers’ requests forlease rate reductions by renewing or extending lease agreements inreturn for lease rate savings, and in 2006 we have completed leaseextension transactions that cover more than 10% of the drycontainers and nearly 10% of the refrigerated containers in ourfleet. While these lease extension transactions have reduced ourcurrent revenue, we expect they will have a positive impact on the netpresent value of our lease portfolio, particularly for our oldercontainers, since they extend the revenue-earning life of thecontainers. The higher price of new containers has also not beenheavily reflected in our average lease rates since most of thecontainers we supplied to our customers in the third quarter wereplaced on leases negotiated during the first quarter when containerprices and market leasing rates were lower. New container prices beganto decrease at the end of the third quarter, although they remain15% to 20% higher than they were at the beginning of theyear.

Average lease rates for refrigerated containers inthe third quarter decreased by 4.8% from the average level inthe second quarter mainly due to a large lease extension transactioncompleted at the beginning of the third quarter. Average rental ratesfor special containers decreased by 1.1% during the thirdquarter.

During the third quarter of 2006, the percentageof our units on finance leases increased to 7.7% compared to4.3% as of September  30,  2005. Finance leaserevenue increased from $1.9  million to $3.4  million forthe three months ended September  30,  2006 as compared tothe prior year period. Additionally, finance lease revenue increasedfrom $3.4 million to $8.5 million for the nine months ended September30, 2006 as compared to the prior year period. However, the increase inthe portion of our units on finance leases resulted in a reduction inour overall leasing revenue, since under a finance lease we recognizeinterest income as revenue, whereas under an operating lease werecognize the entire monthly billing as revenue.

Duringthe third quarter of 2006, we recognized a $(1.9)  million (gain)on the sale of our used containers compared to a $(1.1)  million(gain) in the second quarter of 2006 and a $(1.2)  million (gain)in the third quarter of 2005. The improvement compared to the secondquarter of 2006 mainly resulted from higher sales volumes which reducedthe number of containers in the assets held for sale category andallowed us to realize unrecognized gains on the units previously heldfor sale. The portion of our container fleet identified as for saledecreased from 3.3% as of June  30,  2006 to2.4% as of September  30,  2006. The increase ingain relative to the third quarter of 2005 mainly resulted from highervolume of units sold, and placement of certain existing equipment onfinance leases.

Our direct operating expenses decreasedby $1.1  million in the third quarter of 2006 from the secondquarter of 2006 mainly due to lower positioning and storage costs. Ourdirect operating expenses for the third quarter of 2006 were alsoslightly less than our direct operating expenses in the third quarterof 2005.

Our ownership expenses, principally depreciationand interest expense increased by $1.4  million in the thirdquarter of 2006 from the second quarter, mainly due to the increase inthe size of our owned container fleet. However, our ownership expenseswere much lower in the third quarter of 2006 than they were for thethird quarter of 2005. The decrease in depreciation expense in 2006resulted from the termination of depreciation charges for containersthat reached the end of their accounting useful life at the end of 2005but remain in our fleet. The significant reduction in interest expensein the third quarter of 2006 compared to the level we experienced in2005 was due to the benefits of our 

17

----

Table of Contents

securitization as well as the large reductionin the amount of outstanding debt and interest rates that we achievedas a result of our initial public offering in the fourth quarter oflast year.

On July  31,  2006, we entered intoa credit facility to support the growth of our finance lease business(the ‘‘Finance Lease Facility’’). Ourborrowing capacity under this facility is based upon a 90%advance rate on the net present values of finance lease receivables oncertain containers and chassis not included in the SPE. The FinanceLease Facility has a two year revolving period that precedes a 10 yearterm in which the outstanding balance, as of the term conversion date,amortizes in monthly installments.

On September26,  2006, we paid a quarterly dividend of $0.20 per share or anaggregate of approximately $6.6  million on our issued andoutstanding common stock. The dividend was paid to shareholders ofrecord at the close of business on September  12, 2006. Inaddition, the Company repurchased 136,250 shares of its outstandingcommon stock in the open market during the quarter endedSeptember  30,  2006 at a total cost of approximately$2.9  million.

Results of Operations

Thefollowing table summarizes our results of operations for the threemonths and nine months ended September  30,  2006 and 2005in dollars and as a percentage of totalrevenues:

|                                             |  |  |                                 |   |         |                                |  |  |         |  |         |         |  |  |         |   |        |         |  |  |         |  |       |         |  |  |  |   |         |   |  |  |  |  |         |   |  |  |  |   |         |   |  |  |  |  |       |   |
|---------------------------------------------|--|--|---------------------------------|---|---------|--------------------------------|--|--|---------|--|---------|---------|--|--|---------|---|--------|---------|--|--|---------|--|-------|---------|--|--|--|---|---------|---|--|--|--|--|---------|---|--|--|--|---|---------|---|--|--|--|--|-------|---|
|                                        |  |  | ThreeMonths Ended September 30, |   |         | Nine Months Ended September30, |
|                                        |  |  | 2006                            |   |         | 2005                           |  |  | 2006    |  |         | 2005    |
|                                        |  |  | Dollars                         |   |         | Percent                        |  |  | Dollars |  |         | Percent |  |  | Dollars |   |        | Percent |  |  | Dollars |  |       | Percent |
| Leasingrevenues                             |  |  |                                 | $ | 67,827  |                                |  |  |         |  | 88.5    | %       |  |  |         | $ | 71,001 |         |  |  |         |  | 87.6  | %       |  |  |  | $ | 201,523 |   |  |  |  |  | 89.4    | % |  |  |  | $ | 215,084 |   |  |  |  |  | 89.9  | % |
| Equipmenttradingrevenue                     |  |  |                                 |   | 6,897   |                                |  |  |         |  | 9.0     |         |  |  |         |   | 7,774  |         |  |  |         |  | 9.6   |         |  |  |  |   | 17,673  |   |  |  |  |  | 7.8     |   |  |  |  |   | 17,173  |   |  |  |  |  | 7.2   |   |
| Managementfeeincome                         |  |  |                                 |   | 1,538   |                                |  |  |         |  | 2.0     |         |  |  |         |   | 1,566  |         |  |  |         |  | 1.9   |         |  |  |  |   | 4,687   |   |  |  |  |  | 2.1     |   |  |  |  |   | 4,978   |   |  |  |  |  | 2.1   |   |
| Otherrevenues                               |  |  |                                 |   | 413     |                                |  |  |         |  | 0.5     |         |  |  |         |   | 738    |         |  |  |         |  | 0.9   |         |  |  |  |   | 1,453   |   |  |  |  |  | 0.7     |   |  |  |  |   | 1,909   |   |  |  |  |  | 0.8   |   |
| Totalrevenues                               |  |  |                                 |   | 76,675  |                                |  |  |         |  | 100.0   |         |  |  |         |   | 81,079 |         |  |  |         |  | 100.0 |         |  |  |  |   | 225,336 |   |  |  |  |  | 100.0   |   |  |  |  |   | 239,144 |   |  |  |  |  | 100.0 |   |
| Equipmenttradingexpenses                    |  |  |                                 |   | 5,606   |                                |  |  |         |  | 7.3     |         |  |  |         |   | 6,026  |         |  |  |         |  | 7.4   |         |  |  |  |   | 14,545  |   |  |  |  |  | 6.5     |   |  |  |  |   | 13,257  |   |  |  |  |  | 5.6   |   |
| Directoperatingexpenses                     |  |  |                                 |   | 6,311   |                                |  |  |         |  | 8.2     |         |  |  |         |   | 6,410  |         |  |  |         |  | 7.9   |         |  |  |  |   | 19,734  |   |  |  |  |  | 8.8     |   |  |  |  |   | 20,707  |   |  |  |  |  | 8.7   |   |
| Administrativeexpenses                      |  |  |                                 |   | 9,350   |                                |  |  |         |  | 12.2    |         |  |  |         |   | 9,411  |         |  |  |         |  | 11.6  |         |  |  |  |   | 28,009  |   |  |  |  |  | 12.4    |   |  |  |  |   | 28,362  |   |  |  |  |  | 11.9  |   |
| Depreciationandamortization                 |  |  |                                 |   | 26,590  |                                |  |  |         |  | 34.7    |         |  |  |         |   | 29,418 |         |  |  |         |  | 36.3  |         |  |  |  |   | 77,782  |   |  |  |  |  | 34.5    |   |  |  |  |   | 88,076  |   |  |  |  |  | 36.8  |   |
| (Reversal)provision for doubtfulaccounts.   |  |  |                                 |   | (58     | )                              |  |  |         |  | (0.1    | )       |  |  |         |   | 528    |         |  |  |         |  | 0.7   |         |  |  |  |   | (500    | ) |  |  |  |  | (0.2    | ) |  |  |  |   | 567     |   |  |  |  |  | 0.2   |   |
| Net(gain) on sale of leasingequipment       |  |  |                                 |   | (1,883  | )                              |  |  |         |  | (2.5    | )       |  |  |         |   | (1,178 | )       |  |  |         |  | (1.5  | )       |  |  |  |   | (2,859  | ) |  |  |  |  | (1.3    | ) |  |  |  |   | (8,133  | ) |  |  |  |  | (3.4  | ) |
| Write-offof deferred financingcosts         |  |  |                                 |   | — |                                |  |  |         |  | — |         |  |  |         |   | 24,313 |         |  |  |         |  | 30.0  |         |  |  |  |   | 2,367   |   |  |  |  |  | 1.0     |   |  |  |  |   | 24,313  |   |  |  |  |  | 10.2  |   |
| Interestand debtexpense                     |  |  |                                 |   | 11,686  |                                |  |  |         |  | 15.3    |         |  |  |         |   | 21,239 |         |  |  |         |  | 26.2  |         |  |  |  |   | 35,266  |   |  |  |  |  | 15.7    |   |  |  |  |   | 63,849  |   |  |  |  |  | 26.7  |   |
| Unrealizedloss (gain) on interest rateswaps |  |  |                                 |   | 12,174  |                                |  |  |         |  | 15.9    |         |  |  |         |   | (7,589 | )       |  |  |         |  | (9.4  | )       |  |  |  |   | 8,584   |   |  |  |  |  | 3.8     |   |  |  |  |   | (8,975  | ) |  |  |  |  | (3.8  | ) |
| Managementfees                              |  |  |                                 |   | — |                                |  |  |         |  | — |         |  |  |         |   | 1,346  |         |  |  |         |  | 1.7   |         |  |  |  |   | — |   |  |  |  |  | — |   |  |  |  |   | 4,598   |   |  |  |  |  | 1.9   |   |
| Totalexpenses                               |  |  |                                 |   | 69,776  |                                |  |  |         |  | 91.0    |         |  |  |         |   | 89,924 |         |  |  |         |  | 110.9 |         |  |  |  |   | 182,928 |   |  |  |  |  | 81.2    |   |  |  |  |   | 226,621 |   |  |  |  |  | 94.8  |   |
| Income(loss) before incometaxes             |  |  |                                 |   | 6,899   |                                |  |  |         |  | 9.0     |         |  |  |         |   | (8,845 | )       |  |  |         |  | (10.9 | )       |  |  |  |   | 42,408  |   |  |  |  |  | 18.8    |   |  |  |  |   | 12,523  |   |  |  |  |  | 5.2   |   |
| Incometax expense(benefit)                  |  |  |                                 |   | 2,449   |                                |  |  |         |  | 3.2     |         |  |  |         |   | (3,090 | )       |  |  |         |  | (3.8  | )       |  |  |  |   | 15,133  |   |  |  |  |  | 6.7     |   |  |  |  |   | 4,577   |   |  |  |  |  | 1.9   |   |
| Netincome (loss)                            |  |  |                                 | $ | 4,450   |                                |  |  |         |  | 5.8     | %       |  |  |         | $ | (5,755 | )       |  |  |         |  | (7.1  | )%      |  |  |  | $ | 27,275  |   |  |  |  |  | 12.1    | % |  |  |  | $ | 7,946   |   |  |  |  |  | 3.3   | % |
|                                             |

Comparisonof Three Months Ended September  30,  2006 to Three MonthsEnded September  30,  2005. 

Leasingrevenues.    The principal components of our leasing revenuesare presented in the following table. Per diem revenue representsrevenue earned under operating lease contracts; finance lease revenuerepresents interest income earned under finance lease contracts; andfee and ancillary lease revenue represent fees billed for the pick-upand drop-off of containers in certain geographic locations and billingsof certain reimbursable operating costs such as repair and handlingexpenses.

18

----

Table of Contents

|                               |  |  |                                |   |        |      |  |  |  |   |        |  |
|-------------------------------|--|--|--------------------------------|---|--------|------|--|--|--|---|--------|--|
|                          |  |  | ThreeMonths Ended September30, |
|                          |  |  | 2006                           |   |        | 2005 |
| Leasingrevenues:              |  |  |                                |   |   |      |  |  |  |   |   |  |
| Per diemrevenue               |  |  |                                | $ | 57,857 |      |  |  |  | $ | 61,848 |  |
| Financelease revenue          |  |  |                                |   | 3,399  |      |  |  |  |   | 1,934  |  |
| Feeand ancillary leaserevenue |  |  |                                |   | 6,571  |      |  |  |  |   | 7,219  |  |
| Totalleasingrevenues          |  |  |                                | $ | 67,827 |      |  |  |  | $ | 71,001 |  |
|                               |

Totalleasing revenues were $67.8  million for the three months endedSeptember  30,  2006, compared to $71.0  million forthe three months ended September  30,  2005, a decrease of$3.2  million, or 4.5%. The decrease primarily resultedfrom lower per diem rates for dry and refrigerated containers, anddecreased utilization of refrigerated containers, partially offset byan increase in finance lease revenue and an increase in dry containerutilization.

Equipment TradingActivities.    Equipment trading revenue represents theproceeds on the sale of equipment purchased for resale. Equipmenttrading expenses represents the cost of equipment sold as well asrelated sellingcosts.

|                            |  |  |                                |   |        |      |  |  |  |   |        |   |
|----------------------------|--|--|--------------------------------|---|--------|------|--|--|--|---|--------|---|
|                       |  |  | ThreeMonths Ended September30, |
|                       |  |  | 2006                           |   |        | 2005 |
| Equipmenttradingrevenues   |  |  |                                | $ | 6,897  |      |  |  |  | $ | 7,774  |   |
| Equipmenttradingexpenses   |  |  |                                |   | (5,606 | )    |  |  |  |   | (6,026 | ) |
| Netequipment tradingmargin |  |  |                                | $ | 1,291  |      |  |  |  | $ | 1,748  |   |
|                            |

Thenet equipment trading margin decreased $0.5  million for thethree months ended September  30,  2006 compared to thethree months ended September  30,  2005. In 2005,third-party selling margins were supported by increasing used containersale prices for most of the year, which generally increased the valueof our trading inventory during the period the containers wereheld.

Direct operating expenses.    Direct operatingexpenses primarily consist of our costs to repair containers andchassis returned off lease, to store the equipment when it is not onlease, and to reposition equipment that has been returned to locationswith weak leasing demand.

During the three months endedSeptember  30,  2006, direct operating costs decreased by$0.1  million compared to the same period of 2005, mainly due toa decrease in repair costs of $0.5  million and positioning costsof $0.5  million. These decreases were partially offset by highersurveying and inspection costs incurred on the acceptance of newunits.

Depreciation andamortization.    Depreciation and amortization was$26.6  million for the three months ended September30,  2006, compared to $29.4  million for the three monthsended September  30,  2005, a decrease of $2.8million or 9.5%. The decrease was primarily due to certainequipment becoming fully depreciated in the fourth quarter of 2005. Inaddition, a larger portion of our fleet was placed on finance leases in2006, which are not subject to depreciation.

(Reversal)provision for doubtful accounts.    There was a (reversal) fordoubtful accounts for $(0.1) million for the three months endedSeptember  30,  2006, compared to a provision of$0.5  million for the three months ended September30,  2005.

Net (gain) on sale of leasingequipment.    (Gain) on sale of equipment was $(1.9) millionfor the three months ended September  30,  2006, comparedto a (gain) of $(1.2) million for the three months endedSeptember  30,  2005, an increase of $0.7  million.Results in 2006 were impacted by higher volume of units sold and gainsrelated to the placement of certain existing equipment on financeleases.

Write-off of deferred financingcosts.    Write-off of deferred financing costs was zero forthe three months ended September  30,  2006, compared to$24.3  million for the three months ended September30,  2005. The prior year write-off was the result of therefinancing of the Company’s senior secured credit facility inAugust  2005.

19

----

Table of Contents

Interest and debtexpense.    Interest and debt expense was $11.7  millionfor the three months ended September  30,  2006, comparedto $21.2  million for the three months ended September30,  2005, a decrease of $9.5  million. The decrease wasprimarily due to changes in our capital structure resulting from theIPO, which decreased our debt level and effective interestrate.

Unrealized loss (gain) on interest rateswaps.    Unrealized loss on interest rate swaps was$12.2  million for the three months ended September30,  2006, compared to an unrealized (gain) of $(7.6) million forthe three months ended September  30,  2005. The fairmarket value of the swap contracts decreased to approximately$12.4  million in the third quarter of 2006 due to a decrease ininterest rates. The $(7.6) million unrealized (gain) incurred in thethree months ended September  30, 2005 represented an increase inthe fair value of the interest rate swap contracts due to an increasein interest rates from the second quarter of 2005.

Managementfees.    Management fees were zero for the three months endedSeptember  30,  2006, compared to $1.3  million forthe three months ended September  30,  2005. Managementfees of $1.3  million for the period ended September30,  2005 were payable pursuant to certain management agreementswhich terminated upon the completion of the IPO in October2005.

Income tax expense (benefit).    Income taxexpense was $2.4  million for the three months endedSeptember  30,  2006, compared to an income tax (benefit)of $(3.1) million for the three months ended September30,  2005, and the effective tax rates were 35.5% for thethree months ended September  30,  2006and 34.9% for the three months ended September30,  2005.

We do not expect to pay any significantU.S. federal or state or local income taxes for a number of years dueto the availability of accelerated U.S. tax depreciation for ourexisting container fleet and our planned future equipment purchases.Any material changes in market conditions or company strategy couldeither accelerate or further defer the timing of our taxpayments.

Comparison of Nine Months EndedSeptember  30,  2006 to Nine Months Ended September30,  2005.

Leasing revenues.    Theprincipal components of our leasing revenues are presented in thefollowing table. Per diem revenue represents revenue earned underoperating lease contracts; finance lease revenue represents interestincome earned under finance lease contracts; and fee and ancillarylease revenue represent fees billed for the pick-up and drop-off ofcontainers in certain geographic locations and billings of certainreimbursable operating costs such as repair and handlingexpenses.

|                               |  |  |                               |   |         |      |  |  |  |   |         |  |
|-------------------------------|--|--|-------------------------------|---|---------|------|--|--|--|---|---------|--|
|                          |  |  | NineMonths Ended September30, |
|                          |  |  | 2006                          |   |         | 2005 |
| Leasingrevenues:              |  |  |                               |   |    |      |  |  |  |   |    |  |
| Per diemrevenue               |  |  |                               | $ | 170,952 |      |  |  |  | $ | 189,076 |  |
| Financelease revenue          |  |  |                               |   | 8,516   |      |  |  |  |   | 3,356   |  |
| Feeand ancillary leaserevenue |  |  |                               |   | 22,055  |      |  |  |  |   | 22,652  |  |
| Totalleasingrevenues          |  |  |                               | $ | 201,523 |      |  |  |  | $ | 215,084 |  |
|                               |

Totalleasing revenues were $201.5  million for the nine months endedSeptember  30,  2006, compared to $215.1  million forthe nine months ended September  30,  2005, a decrease of$13.6  million, or 6.3%. The decrease primarily resultedfrom lower utilization and lower per diem rates for dry andrefrigerated containers, partially offset by an increase in financelease revenue due to an increase in the finance leaseportfolio.

Equipment TradingActivities.    Equipment trading revenue represents theproceeds on the sale of equipment purchased for resale. Equipmenttrading expenses represents the cost of equipment sold as well asrelated selling costs.

20

----

Table of Contents

|                            |  |  |                               |   |         |      |  |  |  |   |         |   |
|----------------------------|--|--|-------------------------------|---|---------|------|--|--|--|---|---------|---|
|                       |  |  | NineMonths Ended September30, |
|                       |  |  | 2006                          |   |         | 2005 |
| Equipmenttradingrevenues   |  |  |                               | $ | 17,673  |      |  |  |  | $ | 17,173  |   |
| Equipmenttradingexpenses   |  |  |                               |   | (14,545 | )    |  |  |  |   | (13,257 | ) |
| Netequipment tradingmargin |  |  |                               | $ | 3,128   |      |  |  |  | $ | 3,916   |   |
|                            |

Thenet equipment trading margin decreased $0.8  million for the ninemonths ended September  30,  2006 compared to the ninemonths ended September  30,  2005. In 2005, third-partyselling margins were supported by increasing used container sale pricesfor most of the year, which generally increased the value of ourtrading inventory during the period the containers wereheld.

Direct operating expenses.    Direct operatingexpenses primarily consist of our costs to repair containers andchassis returned off lease, to store the equipment when it is not onlease, and to reposition equipment that has been returned to locationswith weak leasing demand.

During the nine months endedSeptember  30,  2006, direct operating expenses were$19.7  million, compared to $20.7  million for the ninemonths ended September  30,  2005, a decrease of4.8%. Positioning costs decreased by $1.0  million andrepair costs decreased by $2.7  million in the nine months endedSeptember  30,  2006 compared to the same period of 2005.These decreases were partially offset by an increase in handling andstorage costs of $2.3  million.

Depreciation andamortization.    Depreciation and amortization was$77.8  million for the nine months ended September30,  2006, compared to $88.1  million for the nine monthsended September  30,  2005, a decrease of $10.3million or 11.7%. The decrease was primarily due to certainequipment becoming fully depreciated in the fourth quarter of 2005. Inaddition, a larger portion of our fleet was placed on finance leases in2006, which are not subject to depreciation.

(Reversal)provision for doubtful accounts.    There was a (reversal) fordoubtful accounts for $(0.5) million for the nine months endedSeptember  30,  2006, compared to a provision of$0.6  million for the nine months ended September30,  2005. In the nine months ended September  30,2006, we recorded a benefit for the reversal of an allowance uponcollecting a past due repair receivable from one of our largecustomers.

Net (gain) on sale of leasingequipment.    (Gain) on sale of equipment was $(2.9) millionfor the nine months ended September  30,  2006, compared toa (gain) of $(8.1) million for the nine months ended September30,  2005, a decrease of $5.2  million. The (gain) recordedin 2005 included a $(2.9)  million benefit from the sale ofon-hire containers to one of our customers and a sale of equipment toan investor as part of our managed equipment program. In addition,results in 2005 were supported by very strong selling prices for usedcontainers.

Write-off of deferred financingcosts.    Write-off of deferred financing costs was$2.4  million for the nine months ended September30,  2006, compared to $24.3  million for the nine monthsended September  30,  2005. The current year write-off isthe result of the refinancing of the Company’s assetsecuritization facility in April  2006. The prior year write-offwas the result of the refinancing of the Company’s seniorsecured credit facility in August  2005.

Interest anddebt expense.    Interest and debt expense was $35.3million for the nine months ended September  30,  2006,compared to $63.8  million for the nine months endedSeptember  30,  2005, a decrease of $28.5  million.The decrease was primarily due to changes in our capital structureresulting from the IPO, which decreased our debt level and effectiveinterest rate.

Unrealized loss (gain) on interest rateswaps.    Unrealized loss on interest rate swaps was$8.6  million for the nine months ended September30,  2006, compared to an unrealized (gain) of $(9.0) million forthe nine months ended September  30,  2005. The fair marketvalue of the swap contracts decreased to approximately $12.4million as of September  30,  2006 due to a decrease ininterest rates over the last nine months of 2006. The $(9.0) millionunrealized (gain) incurred in the nine months ended September30,  2005 represented an increase in the fair value of theinterest rate swap contracts due to an increase in expected interestrates from the beginning of 2005.

Managementfees.    Management fees were zero for the nine months endedSeptember  30,  2006, compared to $4.6  million forthe nine months ended September  30,  2005. Management feesof 

21

----

Table of Contents

$4.6  million for the period endedSeptember  30,  2005 were payable pursuant to certainmanagement agreements which terminated upon the completion of the IPOin October  2005.

Income taxexpense.    Income tax expense was $15.1  million forthe nine months ended September  30,  2006, compared toincome tax expense of $4.6  million for the nine months endedSeptember  30,  2005, and the effective tax rateswere 35.7% for the nine months ended September30,  2006 and 36.5% for the nine months endedSeptember  30,  2005.

We do not expect to payany significant U.S. federal or state or local income taxes for anumber of years due to the availability of accelerated U.S. taxdepreciation for our existing container fleet and our planned futureequipment purchases. Any material changes in market conditions orcompany strategy could either accelerate or further defer the timing ofour tax payments.

Liquidity and CapitalResources    

Our principalsources of liquidity are cash flows generated from operations,borrowings under our Asset Backed Securitization(‘‘ABS’’) program and our revolving creditfacilities. Our cash flows will be used to finance capitalexpenditures, provide working capital, meet debt service requirements,and pay dividends. We believe that cash from operations and existingcash, together with available borrowings under our ABS program and ourrevolving credit facilities will be sufficient to meet our liquidityrequirements for at least the next twelve months. However, our futureoperating performance and ability to extend or refinance ourindebtedness will be dependent on future economic conditions andfinancial, business and other factors that are beyond ourcontrol.

At September  30,  2006, ouroutstanding indebtedness was comprised of the following (amounts inmillions):

|                           |  |  |                          |   |         |                               |  |  |  |   |         |  |
|---------------------------|--|--|--------------------------|---|---------|-------------------------------|--|--|--|---|---------|--|
|                      |  |  | CurrentAmountOutstanding |   |         | CurrentMaximumCommitmentLevel |
| ABS TermNotes             |  |  |                          | $ | 651.7   |                               |  |  |  | $ | 651.7   |  |
| ABS WarehouseFacility     |  |  |                          |   | 106.5   |                               |  |  |  |   | 300.0   |  |
| RevolvingCredit Facility  |  |  |                          |   | 131.5   |                               |  |  |  |   | 165.0   |  |
| FinanceLease Facility     |  |  |                          |   | 12.5    |                               |  |  |  |   | 50.0    |  |
| Swing LineFacility        |  |  |                          |   | — |                               |  |  |  |   | 10.0    |  |
| Other Debt                |  |  |                          |   | 11.8    |                               |  |  |  |   | 11.8    |  |
| Capital Lease Obligations |  |  |                          |   | 24.4    |                               |  |  |  |   | 24.4    |  |
| TotalDebt                 |  |  |                          | $ | 938.4   |                               |  |  |  | $ | 1,212.9 |  |
|                           |

Themaximum commitment levels depicted in the chart above may not reflectthe actual availability under all of the credit facilities. Certain of these facilities are governed by borrowing basesthat limit borrowing capacity to an established percentage of relevantassets.

ABS Term Notes

On April12,  2006, we issued our $680.0  million floating ratesecured notes (‘‘ABS Term Notes’’). Theproceeds from the issuance were used to repay outstanding borrowingsunder our asset securitization facility. The ABS Term Notes amortize inequal monthly installments and have a legal final maturity ofApril  2021.

ABS WarehouseFacility

On April  12,  2006, we enteredinto a floating rate revolving facility (the ‘‘ABSWarehouse Facility’’). The ABS Warehouse Facility has a twoyear revolving period that precedes a term period in which theoutstanding balance amortizes in equal monthly installments. The ABSWarehouse Facility has a legal final maturity of April  2023.

All debt to be issued under the ABS program is collateralizedby the assets of TAL Advantage I LLC, a special purpose entity (the‘‘SPE’’) consisting of revenue earningcontainers that we use in our 

22

----

Table of Contents

leasing business, restricted cash andcertain receivables related to revenue earning equipment. The Series2005-1 Notes and the Series 2006-1 Notes were both issued by theSPE.

Revolving Credit Facilities

Inconnection with the Acquisition, the Company entered into an$875.0  million Senior Secured Credit Facility(‘‘SSCF’’). Upon the closing of the AssetSecuritization Facility on August  1,  2005, the Companyamended and restated the SSCF to, among other things, reduce themaximum aggregate commitments thereunder to $175.0  million.Effective June  1,  2006, the Company further amended theSSCF to reduce the interest rate margin from LIBOR plus 2.125%to LIBOR plus 1.375% and to reduce the maximum aggregatecommitments thereunder to $165.0  million. The final maturitydate of this facility is August  1,2008.

Finance Lease Facility

OnJuly  31,  2006, the Company entered into a credit facilityto support the growth of our finance lease business (the‘‘Finance Lease Facility’’). The FinanceLease Facility has a two year revolving period that precedes a 10 yearterm in which the outstanding balance, as of the term conversion date,amortizes in monthly installments. The Finance Lease Facility issecured by the finance lease receivables associated with certaincontainers and chassis not included in the SPE.

CapitalLease Obligations and Other Debt

The Company hasentered into a series of capital leases with various financialinstitutions to finance the purchase of chassis. The leaseagreements are structured as ten year Terminal Rental Adjustment Clause(‘‘TRAC’’) leases with purchase options atthe end of the lease terms equal to the TRAC amount as defined in eachlease. For income tax purposes, these leases are treated as operatingleases.

During June  2006, the Company entered intoan interim agreement with a financial institution to provide fundingfor chassis equipment that is intended to be included in a TRAClease.

The Company is subject to various covenantrequirements under its debt facilities. At September  30,2006, the Company was in compliance with allcovenants.

Treasury Stock

On March13,  2006, the Company’s Board of Directors authorized astock buyback program for the repurchase of up to 1.5  millionshares of its common stock. The Company repurchased 136,250 shares ofits outstanding common stock in the open market during the quarterended September  30,  2006 at a total cost of approximately$2.9  million.

Dividends Paid

OnSeptember  26,  2006, the Company paid a quarterly dividendof $0.20 per share or an aggregate of approximately $6.6  millionon its issued and outstanding common stock. The dividend was paid toshareholders of record at the close of business on September12,  2006.

23

----

Table of Contents

Cash Flow

The followingtable sets forth certain cash flow information for the nine monthsended September  30,  2006 and 2005 (inthousands):

|                                                            |  |  |                               |   |          |      |  |  |  |   |          |   |
|------------------------------------------------------------|--|--|-------------------------------|---|----------|------|--|--|--|---|----------|---|
|                                                       |  |  | NineMonths Ended September30, |
|                                                       |  |  | 2006                          |   |          | 2005 |
| Netcash provided by operatingactivities                    |  |  |                               | $ | 154,422  |      |  |  |  | $ | 133,187  |   |
| Netcash provided by (used in) investingactivities:         |  |  |                               |   |     |      |  |  |  |   |     |   |
| Purchases ofleasingequipment                               |  |  |                               | $ | (189,794 | )    |  |  |  | $ | (132,235 | ) |
| Investmentin financeleases                                 |  |  |                               |   | (39,895  | )    |  |  |  |   | (42,110  | ) |
| Proceedsfrom sale ofequipment                              |  |  |                               |   | 42,999   |      |  |  |  |   | 77,213   |   |
| Cashcollections on financing leases, net of unearnedincome |  |  |                               |   | 10,446   |      |  |  |  |   | 4,181    |   |
| Other                                                      |  |  |                               |   | 180      |      |  |  |  |   | —  |   |
| Netcash (used in) investingactivities                      |  |  |                               | $ | (176,064 | )    |  |  |  | $ | (92,951  | ) |
| Netcash provided by (used in) financingactivities          |  |  |                               | $ | 26,821   |      |  |  |  | $ | (13,794  | ) |
|                                                            |

OperatingActivities 

Net cash provided by operatingactivities increased by $21.2  million to $154.4  millionin the nine months ended September  30,  2006, compared to$133.2  million in the nine months ended September30,  2005 primarily due to an increase in netincome.

Investing Activities 

Net cashused in investing activities was $176.1  million in the ninemonths ended September  30,  2006, as compared to$93.0  million in the nine months ended September30,  2005. Capital expenditures were $229.7  million,including investments in finance leases of $39.9  million, in thenine months ended September  30,  2006, compared to$174.3  million, including investments in finance leases of$42.1  million, in the nine months ended September30,  2005. Capital expenditures increased by $55.4  millionprimarily due to an increase in the number of units purchased, as wellas higher per unit costs. Sales proceeds from the disposal of equipmentdecreased $34.2  million to $43.0  million in the ninemonths ended September  30,  2006, compared to $77.2million in the nine months ended September  30,  2005.Included in sales proceeds in the first nine months of 2005 were$26.4  million of sale proceeds related to the sale of on-hirecontainers to one of our customers and the sale of containers to aninvestor as part of our managed equipment program. The remainingdecrease in sales proceeds is primarily due to a decrease in equipmentselling prices. Cash collections on financing leases, net of unearnedincome increased by $6.2  million to $10.4  million for thenine months ended September  30,  2006, compared to$4.2  million for the nine months ended September30,  2005 as a result of an increase in our finance leaseportfolio.

Financing Activities 

Net cashprovided by financing activities was $26.8  million for the ninemonths ended September  30,  2006, compared to net cashused in financing activities of $13.8  million for the ninemonths ended September  30,  2005. On April12,  2006, we issued secured term notes under our ABS program andused the proceeds to pay off the outstanding balance on our AssetSecuritization Facility. In addition, during the nine months endedSeptember  30,  2006, we increased borrowings under our ABSWarehouse Facility and finance lease facility, the proceeds of whichwere primarily used to finance the purchase of new equipment. This wasoffset by net cash used to pay down borrowings on our ABS term notesand revolving credit facilities. In addition, cash was used during thethird quarter 2006 to purchase treasury shares and pay dividends on ourcommon stock outstanding. In the nine months ended September30,  2005, net cash used in financing activities was primarilyused to pay down borrowings under our senior secured creditfacility.

24

----

Table of Contents

ContractualObligations    

We are party to various operating andcapital leases and are obligated to make payments related to our longterm borrowings. We are also obligated under various commercialcommitments, including obligations to our equipment manufacturers. Ourequipment manufacturer obligations are in the form of conventionalaccounts payable, and are satisfied from cash flows from operating andlong term financing activities.

The following tablesummarizes our contractual obligations and commercial commitments as ofSeptember  30,  2006:

|                                    |  |  |                                                                   |   |         |      |  |  |      |   |       |      |  |  |      |   |         |                   |  |  |  |   |         |  |  |  |  |   |         |  |  |  |  |   |         |  |
|------------------------------------|--|--|-------------------------------------------------------------------|---|---------|------|--|--|------|---|-------|------|--|--|------|---|---------|-------------------|--|--|--|---|---------|--|--|--|--|---|---------|--|--|--|--|---|---------|--|
|                               |  |  | ContractualObligations by Twelve Month Period Ending September30, |
|                               |  |  | (dollars inmillions)                                              |
| ContractualObligations:            |  |  | Total                                                             |   |         | 2007 |  |  | 2008 |   |       | 2009 |  |  | 2010 |   |         | 2011andthereafter |
| Total debtobligations(1):          |  |  |                                                                   | $ | 1,139.1 |      |  |  |      | $ | 126.4 |      |  |  |      | $ | 248.1   |                   |  |  |  | $ | 112.2   |  |  |  |  | $ | 108.8   |  |  |  |  | $ | 543.6   |  |
| Capitalleaseobligations            |  |  |                                                                   |   | 33.2    |      |  |  |      |   | 2.9   |      |  |  |      |   | 4.1     |                   |  |  |  |   | 2.2     |  |  |  |  |   | 2.5     |  |  |  |  |   | 21.5    |  |
| Operatingleases (mainlyfacilities) |  |  |                                                                   |   | 5.3     |      |  |  |      |   | 1.6   |      |  |  |      |   | 1.2     |                   |  |  |  |   | 1.2     |  |  |  |  |   | 1.3     |  |  |  |  |   | — |  |
| Equipmentpurchaseobligations       |  |  |                                                                   |   | 15.2    |      |  |  |      |   | 15.2  |      |  |  |      |   | — |                   |  |  |  |   | — |  |  |  |  |   | — |  |  |  |  |   | — |  |
| Totalcontractualobligations        |  |  |                                                                   | $ | 1,192.8 |      |  |  |      | $ | 146.1 |      |  |  |      | $ | 253.4   |                   |  |  |  | $ | 115.6   |  |  |  |  | $ | 112.6   |  |  |  |  | $ | 565.1   |  |
|                                    |

|  |
|--|
|  |  |
|  |

|     |                                                                                                                                                      |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1) | Amountsinclude actual and estimated interest for floating-rate debt based onSeptember  30,  2006 rates and the net effect of theinterest rate swaps. |

Off-Balance Sheet Arrangements

At September  30,  2006, we did not have anyrelationships with unconsolidated entities or financial partnerships,such entities which are often referred to as structured finance orspecial purpose entities, which would have been established for thepurpose of facilitating off-balance sheet arrangements. We are,therefore, not exposed to any financing, liquidity, market or creditrisk that could arise if we had engaged in suchrelationships.

Critical Accounting Policies

Ourconsolidated financial statements have been prepared in conformity withaccounting principles generally accepted in the United States, whichrequire us to make estimates and assumptions that affect the amountsand disclosures reported in the consolidated financial statements andaccompanying notes. Our estimates are based on historical experienceand currently available information. Actual results could differ fromsuch estimates. The following paragraphs summarize our criticalaccounting policies. Additional accounting policies are discussed inthe notes to our 2005 Form 10-K and elsewhere in this Form10-Q.

Revenue Recognition

Operating Leases withCustomers

We enter into long-term leases and service leaseswith ocean carriers and other parties, principally as lessor inoperating leases, for marine cargo containers. Long-term leases providethe ocean carriers with specified container equipment for a specifiedterm. Our leasing revenues are based upon the number of containersleased, the applicable per diem rate and the length of the lease.Long-term leases typically range for a period of three to eight years.Revenues are recognized on a straight-line basis over the life of therespective lease. Advanced billings are deferred and recognized in theperiod earned. Service leases do not specify the exact number ofcontainers to be leased or the term that each container will remainon-hire but allow the lessee to pick up and drop off containers atvarious locations specified in the lease agreement. Under a servicelease, rental revenue is based on the number of containers utilized atcontracted per diem rates. Revenue for customers where collection is

25

----

Table of Contents

not assured is deferred and recognized whenthe amounts are received. Also, in accordance with FASB EITF No. 99-19,Reporting Revenue Gross as a Principal versus Net as an Agent,we recognize billings to customers for damages incurred and certainother pass through costs as leasing revenue based on the terms of thecontractual agreements with the customer.

Finance Leases withCustomers

We enter into finance leases as lessor for containerequipment that we own. The net investment in finance leases representsthe receivables due from lessees, net of unearned income. Unearnedincome is recognized on a level yield basis over the lease term and isrecognized as leasing revenue. Finance leases are usually long-term innature, typically ranging for a period of five to ten years and mayinclude a bargain purchase option to purchase the equipment at the endof the lease term.

Leasing Equipment

Leasing equipment is recorded at cost anddepreciated to an estimated residual value on a straight-line basisover the estimated useful life. We will continue to review ourdepreciation policies on a regular basis to determine whether changeshave taken place that would suggest that a change in our depreciationpolicies, useful lives of our equipment or the assigned residual valuesis warranted. In addition, periodically a determination is made, ifindicators of impairment are present, as to whether the carrying valueof our fleet exceeds its estimated future undiscounted cash flows. Theestimated useful lives for our leasing equipment ranges from 10 to 20years from the date of manufacture. Estimated useful lives have beenbased on independent appraisals and will be adjusted if necessary basedon actual experience. Costs incurred to place new equipment intoservice, including costs to transport the equipment to its initialon-hire location, are capitalized. We charge repair and maintenancecosts as incurred and include these costs in direct operatingexpenses.

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

Equipment Held for Sale 

Inaccordance with the Financial Accounting Standards Board(‘‘FASB’’) Statement No. 144, Accountingfor the Impairment or Disposal of Long-Lived Assets(‘‘SFAS No. 144’’), container equipmentheld for sale is carried at the lower of its fair value, less costs tosell, based on current transactions, or carrying value; depreciation onsuch assets is halted and disposals generally occur within ninety days.Subsequent changes to the asset's fair value, either increases ordecreases, are recorded as adjustments to the carrying value of theequipment held for sale; however, any such adjustments would not exceedthe equipment's carrying value at the time it was initiallyclassified as held for sale. Initial write-downs of assets held forsale are recorded as an impairment charge and are included in net(gain) loss on sale of leasing equipment. Realized gains and lossesresulting from the sale of equipment held for sale are recorded as anet (gain) loss on sale of leasing equipment.

Allowance forDoubtful Accounts 

Our allowance for doubtfulaccounts is updated on a regular basis and is based upon a review ofthe collectibility of our receivables. This review considers the riskprofile of the customer, credit quality indicators such as the level ofpast-due amounts and economic conditions. An account is considered pastdue when a payment has not been received in accordance with thecontractual terms. Accounts are generally charged off after an analysisis completed which indicates that collection of the full principalbalance is deemed uncollectible. Changes in economic conditions orother events may necessitate additions or deductions to the allowancefor doubtful accounts. The allowance for doubtful accounts is intendedto provide for losses inherent in the accounts receivable, and requiresthe application of estimates and judgments as to the outcome ofcollection efforts and the realization of collateral, among otherthings. We believe our allowance for doubtful accounts is adequate toprovide for credit losses inherent in our accounts receivable. However,actual losses could exceed the amounts provided for in certainperiods.

26

----

Table of Contents

Recently Issued AccountingPronouncements

In September  2006, the FinancialAccounting Standards Board (‘‘FASB’’)issued Statement of Financial Accounting Standards No. 157, FairValue Measurements (‘‘SFAS No. 157’’)which addresses how companies should measure fair value when they arerequired to use a fair value measure for recognition or disclosurepurposes under generally accepted accounting principles (GAAP). UnderSFAS No. 157, there is now a common definition of fair value to be usedthroughout GAAP. The new standard will make the measurement of fairvalue more consistent and comparable and improve disclosures aboutthose measures. The Company is required to adopt the provisions of SFASNo. 157 during the first fiscal year beginning after November15,  2007. The Company is currently evaluating the impact of SFASNo. 157 on its consolidated results of operations and financialposition.

In June  2006, the Financial AccountingStandards Board (‘‘FASB’’) issued FASBInterpretation No. 48, ‘‘Accounting forUncertainty in Income Taxes — an interpretation of FASBStatement No. 109,’’ (‘‘FIN48’’). FIN 48 clarifies the accounting for uncertainty inincome taxes recognized in financial statements in accordance with FASBStatement No. 109, Accounting for Income Taxes. FIN 48prescribes a recognition threshold and measurement attribute for thefinancial statement recognition and measurement of a tax position takenor expected to be taken in a tax return. FIN 48 also provides guidanceon derecognition, classification, interest and penalties, accounting ininterim periods, disclosure, and transition. The Company is required toadopt the provisions of FIN 48 during the first fiscal year beginningafter December  15,  2006. The Company is currentlyevaluating the impact of FIN 48 on its consolidated results ofoperations and financial position.

|              |                                                           |
|--------------|-----------------------------------------------------------|
| ITEM3:  | Quantitative and Qualitative Disclosures AboutMarket Risk |

Market risk represents the risk of changes invalue of a financial instrument, derivative or non-derivative, causedby fluctuations in interest rates, foreign exchange rates and equityprices. Changes in these factors could cause fluctuations in results ofour operations and cash flows. In the ordinary course of business, weare exposed to foreign currency, interest rate, and creditrisks.

Foreign Currency Exchange RateRisk    

Although we have significantforeign-based operations, the U.S. dollar is the operating currency forthe large majority of our leases (both customers obligations andcompany obligations), and most of our revenues and expenses in 2006 and2005 were denominated in U.S. dollars. As a result, foreign currencyfluctuations did not materially impact our financial results in thoseperiods.

Interest Rate Risk    

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

Theprimary external risk of our interest rate swap contracts iscounterparty credit exposure, which is defined as the ability of acounterparty to perform its financial obligations under a derivativecontract. All derivative agreements are with major money centerfinancial institutions rated investment grade by nationally recognizedrating agencies, with our counterparties rated‘‘AA’’ or better. Credit exposures aremeasured based on the market value of outstanding derivativeinstruments. Both current exposures and potential exposures arecalculated for each derivative contract to monitor counterparty creditexposure.

27

----

Table of Contents

As of September  30,2006, the Company had in place interest rate swap contracts to fix thefloating interest rates on a portion of the borrowings under its debtfacilities as summarizedbelow:

|                   |  |  |                 |  |  |                       |  |  |                                  |
|-------------------|--|--|-----------------|--|--|-----------------------|--|--|----------------------------------|
| SwapDate          |  |  | Notional Amount |  |  | FixedLeg InterestRate |  |  | Term                             |
| December14,2004   |  |  | $200.0million   |  |  | 3.82%                 |  |  | 7years — amortizing        |
| December  14,2004 |  |  | $200.0  million |  |  | 3.82%                 |  |  | 7 years— amortizing        |
| December  14,2004 |  |  | $100.0  million |  |  | 3.82%                 |  |  | 7 years— amortizing        |
| October  28,2005  |  |  | $100.0  million |  |  | 4.82%                 |  |  | 6 years— non-amortizing    |
| October  28,2005  |  |  | $25.0  million  |  |  | 4.71%                 |  |  | 2.75years — non-amortizing |
| July  13,2006     |  |  | $50.0  million  |  |  | 5.52%                 |  |  | 5 years— non-amortizing    |
| July  19,2006     |  |  | $33.0  million  |  |  | 5.56%                 |  |  | 11 years— amortizing       |
|                   |

Changes in the fairvalue on these interest rate swap contracts will be recognized in theconsolidated statements of operations as unrealized gains or losses oninterest rate swaps.

While we utilize interest rate swapcontracts to manage the market risk associated with fluctuations ininterest rates on a large portion of our variable rate indebtedness,our earnings are affected by changes in interest rates. If marketinterest rates for our variable rate indebtedness averaged 50 basispoints more than the weighted average interest rate actually paidduring the three months ended September  30,  2006, ourinterest expense, after considering the effects of our interest rateswap agreements, would have increased, and income before incomes taxeswould have decreased, by $0.8  million for the three months endedSeptember  30,  2006. These amounts are determined byconsidering the impact of the hypothetical interest rates on ourborrowings and interest rate swap agreements. This analysis does notconsider the effects of the reduced level of overall economic activitythat could exist in such an environment.

Credit Risk

We maintain detailed credit records regarding ourcustomers and set maximum exposure limits for our significant customersbased on our review of these records. Credit criteria include, but arenot limited to, customer payment history, customer financial positionand performance (e.g., net worth leverage, profitability, trade routes,country of domicile, social and political climate, and the type of, andlocation of, containers that are to be supplied.) We diligently monitorour customers' performance and our lease exposures on an ongoingbasis, and our credit management processes are aided by the longpayment experience we have with most of our customers and our broadnetwork of long-standing relationships in the shipping industry thatprovide current information about our customers.

Industryfactors that provide incremental credit protection include the stronggrowth in the container industry, effective collection tools, our highrecovery rate for containers in default situations and there-marketability of our container fleet. The strong growth in thecontainer industry helps minimize the risk of customer defaults sincethe core assets of a poorly performing shipping line, its ships andcontainers, are generally needed to meet world containerized tradedemand. As a result, poorly performing shipping lines are oftenacquired by others. In addition, the law in certain major portlocations is highly favorable to creditors and many of our largecustomers call on ports that will allow us to arrest, or seize, thecustomer’s ships or bunkers, or repossess our containers if thecustomer is in default under our container leases. We have historicallyrecovered approximately 90% of our containers that were thesubject of defaulted contracts and we are able to successfullyre-market these repossessed containers through our worldwide salesinfrastructure. However, we typically incur operating expenses such asrepairs and positioning when containers are recovered after a customerdefault.

For the nine months ended September30,  2006, our five largest customers accounted for approximately46% of our leasing revenues, with our largest customeraccounting for approximately 18% of our leasing revenues. As ofSeptember  30,  2006, approximately 78% of ourcontainers were on-hire to our 20 largest customers.

Theallowance for doubtful accounts is an estimate of allowances necessaryfor receivables on our operating lease receivables.

28

----

Table of Contents

|               |                         |
|---------------|-------------------------|
| ITEM 4.  | CONTROLS ANDPROCEDURES. |

Based upon the required evaluation of ourdisclosure controls and procedures (as defined inRules 13a-15(e) and 15d-15(e) under the Securities and ExchangeAct of 1934, as amended (the ‘‘ExchangeAct’’)), our President and Chief Executive Officer andour Vice President and Chief Financial Officer concluded that as ofSeptember 30, 2006 our disclosure controls and procedures wereadequate and effective to ensure that information was gathered,analyzed and disclosed on a timely basis.

There has beenno change in our internal control over financial reporting (as definedin Rules 13a-15(f) and 15d-15(f) under the Exchange Act) thatoccurred during our fiscal quarter ended September 30, 2006,that has materially affected, or is reasonably likely to materiallyaffect, our internal control over financialreporting.

29

----

Table of Contents

PART II — OTHERINFORMATION

|               |                    |
|---------------|--------------------|
| ITEM 1.  | LEGAL PROCEEDINGS. |

From time to time, we are a party to litigation mattersarising in connection with the normal course of our business. While wecannot predict the outcome of these matters, in the opinion of ourmanagement, based on information presently available to us, we believethat we have adequate legal defenses, reserves or insurance coverageand any liability arising from these matters will not have a materialadverse effect on our business. Nevertheless, unexpected adverse futureevents, such as an unforeseen development in our existing proceedings,a significant increase in the number of new cases or changes in ourcurrent insurance arrangements could result in liabilities that have amaterial adverse impact on our business.

|               |               |
|---------------|---------------|
| ITEM1A.  | RISK FACTORS. |

For a completelisting of our risk factors, refer to our 2005 Form 10-K filed with theSecurities and Exchange Commission on March  20,2006.

|               |                                                                                                     |
|---------------|-----------------------------------------------------------------------------------------------------|
| ITEM 2.  | UNREGISTERED SALES OF EQUITYSECURITIES, USE OF PROCEEDS AND ISSUER REPURCHASES OF EQUITYSECURITIES. |

The following table provides informationrelating to the Company’s repurchase of common stock for thequarter ended September  30,2006:

|                                       |  |  |                                 |  |         |                             |  |  |                                                                    |   |         |                                                                    |  |  |  |  |         |  |  |  |  |  |           |  |
|---------------------------------------|--|--|---------------------------------|--|---------|-----------------------------|--|--|--------------------------------------------------------------------|---|---------|--------------------------------------------------------------------|--|--|--|--|---------|--|--|--|--|--|-----------|--|
| Period                                |  |  | TotalNumber Of Shares Purchased |  |         | Average PricePaid Per Share |  |  | Total Number Of Shares PurchasedAs Part Of Publicly Announced Plan |   |         | Maximum Number OfShares That May Yet Be Purchased Under ThePlan(1) |
| July  1 – July31,2006           |  |  |                                 |  | — |                             |  |  |                                                                    |   | — |                                                                    |  |  |  |  | — |  |  |  |  |  | 1,500,000 |  |
| August1 – August  31,2006       |  |  |                                 |  | 118,550 |                             |  |  |                                                                    | $ | 20.95   |                                                                    |  |  |  |  | 118,550 |  |  |  |  |  | 1,381,450 |  |
| September1 – September  30,2006 |  |  |                                 |  | 17,700  |                             |  |  |                                                                    | $ | 21.36   |                                                                    |  |  |  |  | 17,700  |  |  |  |  |  | 1,363,750 |  |
| Total                                 |  |  |                                 |  | 136,250 |                             |  |  |                                                                    |   |    |                                                                    |  |  |  |  | 136,250 |  |  |  |  |  |      |  |
|                                       |

|  |
|--|
|  |  |
|  |

|     |                                                                                                                                                                                                                                                          |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1) | InMarch  2006, the Board of Directors of the Company authorized astock buyback program for the repurchase of up to 1,500,000 shares ofour common stock. As of September  30,  2006, 1,363,750shares may yet be purchased under the stock buybackprogram. |

|               |           |
|---------------|-----------|
| ITEM 6.  | EXHIBITS. |

|               |  |  |                                                                                                                                        |
|---------------|--|--|----------------------------------------------------------------------------------------------------------------------------------------|
| ExhibitNumber |  |  | ExhibitDescription                                                                                                                     |
| 31.1*         |  |  | Certificationof the Chief Executive Officer pursuant to Rules 13a-14(a) and15d-14(a) of the Securities Exchange Act of 1934, asamended |
| 31.2*         |  |  | Certification of the ChiefFinancial Officer pursuant to Rules 13a-14(a) and 15d-14(a) of theSecurities Exchange Act of 1934, asamended |
| 32.1*         |  |  | Certification by ChiefExecutive Officer pursuant to 18 U.S.C. Section1350                                                              |
| 32.2*         |  |  | Certification by Chief FinancialOfficer pursuant to 18 U.S.C. Section1350                                                              |
|               |

|  |
|--|
|  |  |
|  |

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

30

----

Table of Contents

SIGNATURE

Pursuantto the requirements of the Securities Exchange Act of 1934, theRegistrant has duly caused this report to be signed on its behalf bythe undersigned thereunto dulyauthorized.

|                    |  |  |                                                                                 |
|--------------------|--|--|---------------------------------------------------------------------------------|
|               |  |  | TAL International Group, Inc.                                                   |
| November  9,  2006 |  |  |                                                                            |
|               |  |  | /s/Chand Khan                                                                   |
|               |  |  | Chand KhanVice PresidentandChief Financial Officer(Principal AccountingOfficer) |
|                    |

31

----