UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For The Quarterly Period Ended September 30, 2009

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number- 001-32638

TAL International Group, Inc.

(Exact name of registrant as specified in the charter)

Delaware (State or other jurisdiction of incorporation or organization)		20-1796526 (I.R.S. Employer Identification Number)

100 Manhattanville Road, Purchase, New York (Address of principal executive office)		10577-2135 (Zip Code)

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

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

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

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

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

As of October 30, 2009, there were 30,686,685 shares of the Registrant’s common stock, $.001 par value outstanding.

 

 

TAL INTERNATIONAL GROUP, INC.
INDEX

				Page No.
Part I — Financial Information					3
Item 1.		Financial Statements (unaudited)			3
		Consolidated Balance Sheets at September 30, 2009 and December 31, 2008			4
		Consolidated Statements of Operations for the three and nine months ended September 30, 2009 and September 30, 2008			5
		Consolidated Statements of Cash Flows for the nine months ended September 30, 2009 and September 30, 2008			6
		Notes to Consolidated Financial Statements			7
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			15
Item 3.		Quantitative and Qualitative Disclosures About Market Risk			33
Item 4.		Controls and Procedures			34
Part II — Other Information					35
Item 1.		Legal Proceedings			35
Item 1A.		Risk Factors			35
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			35
Item 6.		Exhibits			35
Signature					36
EX-31.1
EX-31.2
EX-32.1
EX-32.2

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

     Forward-looking statements in this report are subject to a number of known and unknown risks and uncertainties that could cause our actual results, performance or achievements to differ materially from those described in the forward-looking statements, including, but not limited to, the risks and uncertainties described in the section entitled “Risk Factors” in our Annual Report on Form 10-K filed with the SEC on March 3, 2009, in this report as well as in the other documents we file with the SEC from time to time, and such risks and uncertainties are specifically incorporated herein by reference.

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

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

The consolidated financial statements of TAL International Group, Inc. (“TAL” or the “Company”) as of September 30, 2009 (unaudited) and December 31, 2008 and for the three and nine months ended September 30, 2009 (unaudited) and September 30, 2008 (unaudited) included herein have been prepared by the Company, without audit, pursuant to U.S. generally accepted accounting principles and the rules and regulations of the SEC. In addition, certain information and note disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. These financial statements reflect, in the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the results for the interim periods. The results of operations for such interim periods are not necessarily indicative of the results for the full year. These financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K filed with the SEC, on March 3, 2009, from which the accompanying December 31, 2008 Balance Sheet information was derived, and all of our other filings filed with the SEC from October 11, 2005 through the current date pursuant to the Exchange Act.

TAL INTERNATIONAL GROUP, INC.

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

		September 30,				December 31,
		2009				2008
		(Unaudited)
ASSETS:
Leasing equipment, net of accumulated depreciation and allowances of $403,067 and $352,089		$	1,387,498			$	1,535,483
Net investment in finance leases, net of allowances of $1,626 and $1,420			202,644				196,490
Equipment held for sale			43,570				32,549
Revenue earning assets			1,633,712				1,764,522
Cash and cash equivalents (including restricted cash of $14,171 and $16,160)			61,243				56,958
Accounts receivable, net of allowances of $715 and $807			33,330				42,335
Leasehold improvements and other fixed assets, net of accumulated depreciation and amortization of $5,007 and $4,181			1,068				1,832
Goodwill			71,898				71,898
Deferred financing costs			7,652				8,462
Other assets			7,204				8,540
Fair value of derivative instruments			1,542				951
Total assets		$	1,817,649			$	1,955,498
LIABILITIES AND STOCKHOLDERS’ EQUITY:
Equipment purchases payable		$	2,212			$	27,224
Fair value of derivative instruments			73,141				95,224
Accounts payable and other accrued expenses			38,350				43,978
Deferred income tax liability			104,144				73,565
Debt			1,195,542				1,351,036
Total liabilities			1,413,389				1,591,027
Stockholders’ equity:
Preferred stock, $.001 par value, 500,000 shares authorized, none issued			—				—
Common stock, $.001 par value, 100,000,000 shares authorized, 33,592,066 and 33,485,816 shares issued respectively			33				33
Treasury stock, at cost, 2,905,381 and 1,055,479 shares, respectively			(36,233	)			(20,126	)
Additional paid-in capital			397,639				396,478
Accumulated earnings (deficit)			42,542				(12,090	)
Accumulated other comprehensive income			279				176
Total stockholders’ equity			404,260				364,471
Total liabilities and stockholders’ equity		$	1,817,649			$	1,955,498

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

TAL INTERNATIONAL GROUP, INC.

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

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2009				2008				2009				2008
		(Unaudited)								(Unaudited)
Revenues:
Leasing revenues:
Operating leases		$	69,088			$	74,967			$	221,112			$	220,201
Finance leases			5,096				5,412				15,524				15,460
Total leasing revenues			74,184				80,379				236,636				235,661
Equipment trading revenue			7,869				26,098				33,704				72,802
Management fee income			675				855				2,013				2,362
Other revenues			188				355				777				1,118
Total revenues			82,916				107,687				273,130				311,943
Operating expenses (income):
Equipment trading expenses			7,578				22,972				31,935				64,284
Direct operating expenses			9,134				6,207				28,600				20,614
Administrative expenses			9,192				12,434				30,577				34,066
Depreciation and amortization			29,380				28,149				87,843				82,322
(Reversal) provision for doubtful accounts			(15	)			1,859				383				2,062
Net (gain) on sale of leasing equipment			(1,058	)			(7,563	)			(7,102	)			(18,059	)
Net (gain) on sale of container portfolios			(185	)			(2,789	)			(185	)			(2,789	)
Total operating expenses			54,026				61,269				172,051				182,500
Operating income			28,890				46,418				101,079				129,443
Other expenses (income):
Interest and debt expense			17,024				16,528				51,505				47,058
(Gain) on debt extinguishment			—				—				(14,130	)			—
Unrealized loss (gain) on interest rate swaps			6,935				7,371				(22,583	)			3,273
Total other expenses			23,959				23,899				14,792				50,331
Income before income taxes			4,931				22,519				86,287				79,112
Income tax expense			1,755				7,985				30,718				28,053
Net income		$	3,176			$	14,534			$	55,569			$	51,059
Net income per common share — Basic		$	0.10			$	0.45			$	1.78			$	1.57
Net income per common share — Diluted		$	0.10			$	0.44			$	1.78			$	1.56
Weighted average number of common shares outstanding — Basic			30,621				32,580				31,226				32,599
Weighted average number of common shares outstanding — Diluted			30,700				32,763				31,263				32,769
Cash dividends paid per common share		$	0.01			$	0.4125			$	0.03			$	1.20

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

TAL INTERNATIONAL GROUP, INC.

Consolidated Statements of Cash Flows
(Dollars in thousands)

		Nine months ended
		September 30,
		2009				2008
		(Unaudited)
Cash flows from operating activities:
Net income		$	55,569			$	51,059
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			87,843				82,322
Amortization of deferred financing costs			851				748
Net (gain) on sale of leasing equipment			(7,102	)			(18,059	)
Net (gain) on sale of container portfolios			(185	)			(2,789	)
Unrealized (gain) loss on interest rate swaps			(22,583	)			3,273
(Gain) on debt extinguishment			(14,130	)			—
Deferred income taxes			30,957				27,691
Stock compensation charge			1,162				887
Equipment purchased for resale			2,674				1,028
Changes in operating assets and liabilities			(505	)			(6,665	)
Net cash provided by operating activities			134,551				139,495
Cash flows from investing activities:
Purchases of leasing equipment			(28,002	)			(316,345	)
Investments in finance leases			(27,098	)			(38,008	)
Proceeds from sale of equipment leasing fleet, net of selling costs			53,750				63,944
Proceeds from the sale of container portfolios			8,532				40,539
Cash collections on finance lease receivables, net of income earned			22,931				19,938
Other			(77	)			330
Net cash provided by (used in) investing activities			30,036				(229,602	)
Cash flows from financing activities:
Dividends paid			(953	)			(39,094	)
Purchase of treasury stock			(16,107	)			(7,955	)
Borrowings under debt facilities			19,125				335,383
Payments under debt facilities			(142,627	)			(234,916	)
Payment to extinguish debt			(20,650	)			—
Proceeds received from capital leases			10,000				33,919
Payments under capital lease obligations			(7,329	)			(5,516	)
Other			(1,761	)			(2,997	)
Decrease in restricted cash			1,989				352
Net cash (used in) provided by financing activities			(158,313	)			79,176
Net increase (decrease) in cash and cash equivalents			6,274				(10,931	)
Unrestricted cash and cash equivalents, beginning of period			40,798				52,636
Unrestricted cash and cash equivalents, end of period		$	47,072			$	41,705
Supplemental non-cash investing activities:
Accrued and unpaid purchases of equipment		$	2,212			$	63,830
Purchases of leasing equipment financed through capital lease obligations		$	—			$	9,375

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

TAL INTERNATIONAL GROUP, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

A. Description of the Business

TAL International Group, Inc. (“TAL” or the “Company”) was formed on October 26, 2004 and commenced operations on November 4, 2004. TAL consists of the consolidated accounts of TAL International Container Corporation, formerly known as Transamerica Leasing Inc., Trans Ocean Ltd. and their respective subsidiaries.

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

B. Basis of Presentation

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

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

C. Recently Issued Accounting Pronouncements

On July 1, 2009, the Financial Accounting Standards Board (FASB) issued the Accounting Standards Codification (the Codification), which became the single source of authoritative nongovernmental U.S. GAAP, superseding existing FASB, American Institute of Certified Public Accountants (AICPA), Emerging Issues Task Force (EITF) and related literature. The Codification is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The Company has adopted the Codification for its quarter ended September 30, 2009.

In June 2009, the FASB issued Statement of Financial Accounting Standards No. 166 (“SFAS 166”), Accounting for Transfers of Financial Assets and Statement of Financial Accounting Standards No. 167 (“SFAS 167”), Amendments to FASB Interpretation No. 46(R).SFAS 166 is a revision to FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, and will require more information about transfers of financial assets, including securitization transactions. It eliminates the concept of a “qualifying special-purpose entity,” changes the requirements for derecognizing financial assets, and requires additional disclosures. SFAS 167 is a revision to FASB Interpretation No. 46 (Revised December 2003), Consolidation of Variable Interest Entities, and changes how a reporting entity determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a reporting entity is required to consolidate another entity is based on, among other things, the other entity’s purpose and design and the reporting entity’s ability to direct the activities of the other entity that most significantly impact the other entity’s economic performance.

SFAS 166 and SFAS 167 will be effective January 1, 2010, for a calendar year-end entity. Early application is not permitted. The Company is currently evaluating the potential impact of SFAS 166 and SFAS 167 on its consolidated results of operations and financial position, and believes the impact will be minimal.

Note 2 — Fair Value of Financial Instruments

The Company believes the carrying amounts of cash and cash equivalents, accounts receivable and other financial assets approximated fair value at September 30, 2009.

The interest rates charged on the majority of the Company’s various credit facilities are based on variable interest rates. The Company estimates that at September 30, 2009 the carrying value of the Company’s variable rate debt instruments was approximately $110 million higher than its fair value. The Company estimated the fair value of its debt instruments based on the net present value of its future debt payments, using a discount rate which reflected the Company’s estimate of market interest spreads at September 30, 2009.

Note 3 — Treasury Stock and Dividends

Share Repurchase Program

On April 30, 2009, the Company’s Board of Directors approved a 1.5 million share increase to the Company’s stock repurchase program which began in March 2006 and was amended in September 2007. The stock repurchase program, as now amended, authorizes the Company to repurchase up to 4.0 million shares of its common stock.

Treasury Stock

The Company repurchased the following amounts of its outstanding common stock in the open market during the nine months ended September 30, 2009 and September 30, 2008:

		Shares				$ in Millions
Quarter ended March 31, 2009			1,021,918			$	8.2
Quarter ended June 30, 2009			355,915				3.1
Quarter ended September 30, 2009			472,069				4.8
Total			1,849,902			$	16.1
Quarter ended March 31 2008			362,100			$	8.0
Quarter ended June 30, 2008			—				—
Quarter ended September 30, 2008			—				—
Total			362,100			$	8.0

Dividends

The Company paid the following quarterly dividends during the nine months ended September 30, 2009 and 2008 on its issued and outstanding common stock:

Record Date		Payment Date		Aggregate Payment				Per Share Payment
September 3, 2009		September 24, 2009		$  0.3 million				$		0.01
June 2, 2009		June 23, 2009		$  0.3 million				$		0.01
March 12, 2009		March 26, 2009		$  0.3 million				$		0.01
August 21, 2008		September 12, 2008		$13.5 million				$		0.4125
May 22, 2008		June 12, 2008		$13.4 million				$		0.4125
March 20, 2008		April 10, 2008		$12.2 million				$		0.375

Note 4 — Stock-Based Compensation Plans

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

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

		Three Months Ended September 30,								Nine Months Ended September 30,
		2009				2008				2009				2008
Stock options		$	5			$	5			$	119			$	16
Restricted stock			317				274				1,043				871
		$	322			$	279			$	1,162			$	887

Total unrecognized compensation cost related to 21,000 options granted during the year ended December 31, 2006 (of which 3,000 options were cancelled in 2007) of approximately $17,000 as of September 30, 2009 will be recognized over the remaining vesting period of approximately nine months.

Total unrecognized compensation cost of approximately $1.5 million as of September 30, 2009 related to 217,250 restricted shares granted during 2007 and 2009 will be recognized over the remaining weighted average vesting period of approximately 1.5 years.

Note 5 — Debt

Debt consisted of the following (amounts in thousands):

		September 30,				December 31,
		2009				2008
Asset backed securitization (ABS)
Term notes — Series 2006-1		$	371,958			$	451,000
Term notes — Series 2005-1			354,167				389,583
Asset backed credit facility			225,000				225,000
Revolving credit facility			50,000				100,000
Finance lease facility			40,601				47,406
2007 Term loan facility			28,838				33,658
Port equipment facility			11,254				12,326
Other debt			19,089				—
Capital lease obligations			94,635				92,063
Total		$	1,195,542			$	1,351,036

Debt Repurchase

On April 27, 2009, the Company repurchased approximately $35.0 million of its Series 2006-1 Term Notes and recorded a gain on debt extinguishment of approximately $14.1 million, net of the write-off of deferred financing costs of approximately $0.2 million.

Other Debt

On July 31, 2009, the Company entered into a six year $7.5 million term loan which is secured by certain containers on lease to a single customer.

On September 22, 2009 the Company entered into a repurchase agreement with a financial institution in which the Company pledged TAL Advantage I Series 2006-1 Term Notes that were repurchased by the Company in April 2009. The initial advance under the repurchase agreement was $11.7 million, and the facility has a total maximum borrowing capacity of $25.0 million. The repurchase agreement transaction was accounted for as a secured borrowing and the obligation under the repurchase agreement is classified as debt on the consolidated balance sheet. The repurchase agreement has a one year term, however, either the Company or the financial institution may terminate the loan on the settlement date of the loan (as defined), which occurs monthly.

Note 6 — Derivative Instruments

Interest Rate Swaps

The Company has entered into interest rate swap agreements to manage interest rate risk exposure. The interest rate swap agreements utilized by the Company effectively modify the Company’s exposure to interest rate risk by converting most of its floating rate debt to a fixed rate basis, thus reducing the impact of interest rate changes on future interest expense. These agreements involve the receipt of floating rate amounts in exchange for fixed rate interest payments over the lives of the agreements without an exchange of the underlying principal amounts. The counterparties to these agreements are highly rated financial institutions. In the unlikely event that

the counterparties fail to meet the terms of the interest rate swap agreements, the Company’s exposure is limited to the interest rate differential on the notional amount at each monthly settlement period over the life of the agreements. The Company does not anticipate any non-performance by the counterparties.

As of September 30, 2009, the Company had in place total interest rate swap contracts to fix the floating interest rates on a portion of the borrowings under its debt facilities as summarized below:

Total Notional
Amount at		Weighted Average Fixed Leg		Weighted Average
September 30, 2009		Interest Rate at September 30, 2009		Remaining Term
$1,172 million		4.2%		3.6 years

Prior to April 12, 2006, the Company had designated all existing interest rate swap contracts as cash flow hedges, in accordance with FASB Accounting Standards Codification No. 815 “Derivatives and Hedging” (ASC 815). On April 12, 2006, the Company de-designated its existing interest rate swap contracts, and the balance reflected in accumulated other comprehensive income due to changes in the fair value of the existing interest rate swap contracts was $7.5 million. This amount is being recognized in income as unrealized (gain) loss on interest rate swaps using the interest method over the remaining life of the contracts. As of September 30, 2009, the unamortized pre-tax balance of the change in fair value reflected in accumulated other comprehensive income was approximately $1.4 million. The amount of other comprehensive income which will be amortized to income over the next 12 months is approximately $0.8 million. Amounts recorded in accumulated other comprehensive income (loss) would be reclassified into earnings upon termination of these interest rate swap contracts and related debt instruments prior to their contractual maturity. All interest rate swap contracts entered into since April 12, 2006 are not accounted for as hedging instruments under ASC 815, and changes in the fair value of the interest rate swap contracts are reflected in the statements of operations as unrealized (gains)/ losses on interest rate swaps.

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

Foreign Currency Rate Swaps

In April 2008, the Company entered into foreign currency rate swap agreements to manage foreign currency rate risk exposure by exchanging Euros for U.S. Dollars based on expected payments under its Euro denominated finance lease receivables. The Company will pay a total of approximately 6.3 million Euros and receive approximately $9.6 million over the remaining term of foreign currency rate swap agreements which expire in April 2015. The Company does not account for the foreign currency rate swap agreements as hedging instruments under ASC 815, and therefore changes in the fair value of the foreign currency rate swap agreements are reflected in the statements of operations in administrative expenses.

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

Location of Derivative Instruments in Financial Statements

Fair Value of Derivative Instruments
Derivatives Not Designated as Hedging Instruments
$ in Millions

		Asset Derivatives												Liability Derivatives
		September 30, 2009						December 31, 2008						September 30, 2009						December 31, 2008
Derivative		Balance Sheet						Balance Sheet						Balance Sheet						Balance Sheet
Instrument		Location		Fair Value				Location		Fair Value				Location		Fair Value				Location		Fair Value
Interest rate contracts		Fair value of derivative instruments		$	1.2			Fair value of derivative instruments		$	—			Fair value of derivative instruments		$	73.1			Fair value of derivative instruments		$	95.2
Foreign exchange contracts		Fair value of derivative instruments		$	0.3			Fair value of derivative instruments		$	1.0			Fair value of derivative instruments		$	—			Fair value of derivative instruments		$	—
Total Derivatives				$	1.5					$	1.0					$	73.1					$	95.2

Derivatives Not Designated as Hedging Instruments
Effect of Derivative Instruments on Statement of Operations
$ in Millions

		Location of Loss / (Gain)		Amount of Loss / (Gain) Recognized in Income on Derivatives
Derivative		Recognized in		Three months ended Sept 30,								Nine months ended Sept 30,
Instrument		Income on Derivatives		2009				2008				2009				2008
Interest rate contracts		Unrealized loss (gain) on interest rate swaps		$	6.9			$	7.4			$	(22.6	)		$	3.3
Foreign exchange contracts		Administrative Expense			0.3				(0.9	)			0.6				(0.9	)
Total				$	7.2			$	6.5			$	(22.0	)		$	2.4

Note 7 — Earnings Per Share

The following table sets forth the calculation of basic and diluted earnings per share for the three and nine months ended September 30, 2009 and 2008 (in thousands, except earnings per share):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2009				2008				2009				2008
Numerator:
Net income applicable to common stockholders for basic and diluted earnings per share		$	3,176			$	14,534			$	55,569			$	51,059
Denominator:
Weighted average shares outstanding for basic earnings per share			30,621				32,580				31,226				32,599
Dilutive stock options			79				183				37				170
Weighted average shares for diluted earnings per share			30,700				32,763				31,263				32,769
Earnings per share:
Basic		$	0.10			$	0.45			$	1.78			$	1.57
Diluted		$	0.10			$	0.44			$	1.78			$	1.56

For the three and nine months ended September 30, 2009 and September 30, 2008, 598,691 and 6,500 options to purchase shares of common stock, respectively, were not included in the calculation of weighted average shares for diluted earnings per share because their effects were antidilutive. For the nine months ended September 30, 2009, 61,500 shares of restricted stock were not included in the calculation of weighted average shares for diluted earnings per share because their effects were antidilutive.

Note 8 — Segment and Geographic Information

Industry Segment Information

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

•

Equipment leasing — the Company owns, leases and ultimately disposes of containers and chassis from its lease fleet, as well as manages containers owned by third parties.

•

Equipment trading — the Company purchases containers from its shipping line customers and other sellers of containers, and resells these containers to container traders and users of containers for storage or one-way shipment.

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

		Three Months Ended												Three Months Ended
		September 30, 2009												September 30, 2008
		Equipment				Equipment								Equipment				Equipment
		Leasing				Trading				Totals				Leasing				Trading				Totals
Total revenues		$	74,747			$	8,169			$	82,916			$	81,453			$	26,234			$	107,687
Equipment trading expenses			—				7,578				7,578				—				22,972				22,972
Depreciation and amortization			29,308				72				29,380				28,144				5				28,149
Net (gain) on sale of leasing equipment			(1,058	)			—				(1,058	)			(7,563	)			—				(7,563	)
Interest and debt expense			16,830				194				17,024				16,215				313				16,528
Pre-tax income (loss) (1)			11,725				141				11,866				27,488				2,402				29,890

		Nine Months Ended												Nine Months Ended
		September 30, 2009												September 30, 2008
		Equipment				Equipment								Equipment				Equipment
		Leasing				Trading				Totals				Leasing				Trading				Totals
Total revenues		$	238,803			$	34,327			$	273,130			$	238,750			$	73,193			$	311,943
Equipment trading expenses			—				31,935				31,935				—				64,284				64,284
Depreciation and amortization			87,693				150				87,843				82,308				14				82,322
Net (gain) on sale of leasing equipment			(7,102	)			—				(7,102	)			(18,059	)			—				(18,059	)
Interest and debt expense			50,928				577				51,505				46,104				954				47,058
Pre-tax income (2)			48,904				670				49,574				75,941				6,444				82,385
Goodwill at September 30			70,898				1,000				71,898				70,898				1,000				71,898
Total assets at September 30			1,803,858				13,791				1,817,649				1,897,331				20,796				1,918,127
Purchases of leasing equipment(3)			28,002				—				28,002				316,345				—				316,345
Investments in finance leases(3)			27,098				—				27,098				38,008				—				38,008

Note: There are no intercompany revenues or expenses between segments. Additionally, certain administrative expenses have been allocated between segments based on an estimate of services provided to each segment.

Geographic Segment Information

The Company’s customers use the Company’s containers throughout their many worldwide trade routes. Substantially all of the Company’s leasing related revenues are denominated in U.S. dollars. The following table represents the allocation of domestic and international leasing revenues for the periods indicated based on the customers’ primary domicile and the allocation of domestic and international equipment trading revenue, which is based on location of sale (in thousands):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2009				2008				2009				2008
Total revenues:
Domestic		$	7,348			$	11,401			$	26,342			$	33,986
Asia			33,900				49,716				109,880				143,338
Europe			36,444				38,291				117,636				107,620
Other International			5,224				8,279				19,272				26,999
Total		$	82,916			$	107,687			$	273,130			$	311,943

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

Note 9 — Commitments and Contingencies

Residual Value Guarantees

     During 2008, the Company entered into commitments for equipment residual value guarantees in connection with certain finance leases that were sold or brokered to financial institutions. The guarantees represent the Company’s commitment that these assets will be worth a specified amount at the end of lease terms (if the lessee does not default on the lease) which expires in 2016. At September 30, 2009, the maximum potential amount of the guarantees under which the Company could be required to perform was approximately $27.1 million. The carrying values of the guarantees of $1.1 million have been deferred and are included in accounts payable and other accrued expenses. The Company accounts for the residual value guarantees under Accounting Standards Codification 450 (Contingencies) and expects the market value of the equipment covered by the guarantees will equal or exceed the value of the guarantees. Under the criteria established by ASC 820, the Company performed fair value measurements of the guarantees at origination, using Level 2 inputs, which were based on significant other observable inputs other than quoted prices, either on a direct or indirect basis.

Purchase Commitments

At September 30, 2009, commitments for capital expenditures totaled approximately $0.6 million.

Note 10 — Income Taxes

The consolidated income tax expense for the three and nine month periods ended September 30, 2009 and 2008 was determined based upon estimates of the Company’s consolidated effective income tax rates for the years ending December 31, 2009 and 2008, respectively. The difference between the consolidated effective income tax rate and the U.S. federal statutory rate is primarily attributable to state income taxes, foreign income taxes and the effect of certain permanent differences.

Note 11 — Comprehensive Income and Other

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

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2009				2008				2009				2008
Net income		$	3,176			$	14,534			$	55,569			$	51,059
Other comprehensive income:
Foreign currency translation adjustments			(12	)			(716	)			548				(632	)
Amortization of net unrealized gains on derivative instruments previously designated as cash flow hedges (net of tax expense of $(87), $(113), $(248) and $(354), respectively)			(157	)			(204	)			(446	)			(641	)
Total comprehensive income		$	3,007			$	13,614			$	55,671			$	49,786

The balance included in accumulated other comprehensive income for cumulative translation adjustments as of September 30, 2009 and December 31, 2008 was $(613) and $(1,161), respectively.

The Company recorded unrealized foreign currency exchange losses which are reported in administrative expenses in the Company’s statements of operations as shown in the table below ($ in millions):

		Three Months Ended September 30,								Nine Months Ended September 30,
		2009				2008				2009				2008
		$	0.2			$	1.4			$	0.1			$	0.6

These losses resulted primarily from fluctuations in exchange rates related to its Euro and Pound Sterling transactions and related assets.

Note 12 — Subsequent Events

The Company has evaluated all subsequent events as of November 6, 2009, the date the financial statements were issued. The following subsequent events have taken place:

Quarterly Dividend

On October 29, 2009 the Company’s Board of Directors approved and declared a $0.01 per share quarterly cash dividend on its issued and outstanding common stock, payable on December 22, 2009 to shareholders of record at the close of business on December 1, 2009.

2009 Asset Backed Credit Facility

On October 26, 2009, TAL Advantage III, LLC, an indirect wholly owned subsidiary of TAL International Group, Inc., entered into a $75 million asset backed credit facility, which may be increased to $100 million under certain circumstances. Funds are available under the facility on a revolving basis until October 25, 2011, after which the notes issued under the facility convert to term notes with a maturity date of October 25, 2015. The proceeds will be used to finance the acquisition of equipment and for other general corporate purposes.

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

The following discussion and analysis of the consolidated financial condition and results of operations of TAL International Group, Inc. and its subsidiaries should be read in conjunction with related consolidated financial data and our annual audited consolidated financial statements and related notes thereto included in our Annual Report on Form 10-K filed with the SEC on March 3, 2009. The statements in this discussion regarding industry outlook, our expectations regarding our future performance, liquidity and capital resources and other non-historical statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described under “Risk Factors” and “Forward-Looking Statements” in our Form 10-K. Our actual results may differ materially from those contained in or implied by any forward-looking statements.

Our Company

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

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

	•		Equipment leasing — we own, lease and ultimately dispose of containers and chassis from our lease fleet, as well as manage containers owned by third parties.
	•		Equipment trading — we purchase containers from shipping line customers, and other sellers of containers, and resell these containers to container traders and users of containers for storage or one-way shipment.

Operations

Our operations include the acquisition, leasing, re-leasing and subsequent sale of multiple types of intermodal containers and chassis. As of September 30, 2009, our total fleet consisted of 704,839 containers and chassis, including 31,774 containers under management for third parties, representing 1,145,461 twenty-foot equivalent units (TEUs). We have an extensive global presence, offering leasing services through 19 offices in 11 countries and 197 third party container depot facilities in 36 countries as of September 30, 2009. Our customers are among the largest shipping lines in the world. For the nine months ended September 30, 2009, our twenty largest customers accounted for 77% of our leasing revenues, our five largest customers accounted for 52% of our leasing revenues, and our largest customer accounted for 17% of our leasing revenues.

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

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

		Equipment Fleet in Units
		September 30, 2009												December 31, 2008												September 30, 2008
		Owned				Managed				Total				Owned				Managed				Total				Owned				Managed				Total
Dry			570,320				28,624				598,944				610,759				30,079				640,838				584,481				29,415				613,896
Refrigerated			36,795				491				37,286				37,119				621				37,740				37,600				635				38,235
Special			45,940				2,659				48,599				48,054				2,839				50,893				48,132				2,785				50,917
Tank			1,350				—				1,350				1,319				—				1,319				1,101				—				1,101
Chassis			8,782				—				8,782				8,796				—				8,796				8,802				—				8,802
Equipment leasing fleet			663,187				31,774				694,961				706,047				33,539				739,586				680,116				32,835				712,951
Equipment trading fleet			9,878				—				9,878				16,735				—				16,735				16,567				—				16,567
Total			673,065				31,774				704,839				722,782				33,539				756,321				696,683				32,835				729,518
Percentage			95.5	%			4.5	%			100.0	%			95.6	%			4.4	%			100.0	%			95.5	%			4.5	%%			100.0	%

		Equipment Fleet in TEUs
		September 30, 2009												December 31, 2008												September 30, 2008
		Owned				Managed				Total				Owned				Managed				Total				Owned				Managed				Total
Dry			908,768				51,352				960,120				968,772				53,692				1,022,464				933,683				52,733				986,416
Refrigerated			67,856				812				68,668				68,270				1,022				69,292				69,020				1,047				70,067
Special			78,743				4,321				83,064				82,322				4,624				86,946				82,088				4,559				86,647
Tank			1,400				—				1,400				1,369				—				1,369				1,101				—				1,101
Chassis			15,619				—				15,619				15,645				—				15,645				15,657				—				15,657
Equipment leasing fleet			1,072,386				56,485				1,128,871				1,136,378				59,338				1,195,716				1,101,549				58,339				1,159,888
Equipment trading fleet			16,590				—				16,590				28,736				—				28,736				27,492				—				27,492
Total			1,088,976				56,485				1,145,461				1,165,114				59,338				1,224,452				1,129,041				58,339				1,187,380
Percentage			95.1	%			4.9	%			100.0	%			95.2	%			4.8	%			100.0	%			95.1	%			4.9	%			100.0	%

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

As of September 30, 2009, approximately 86.3% of our containers and chassis were on-hire to customers, down from 90.0% at December 31, 2008 and 92.7% at September 30, 2008.

The following table provides a summary of our lease portfolio, based on the number of units in our total fleet as of the dates indicated below:

		September 30,				December 31,				September 30,
Lease Portfolio		2009				2008				2008
Long-term leases			60.1	%			54.3	%			50.7	%
Finance leases			10.0				8.9				10.4
Service leases			11.5				18.3				20.7
Expired long-term leases (units on hire)			4.7				8.5				10.9
Total leased			86.3				90.0				92.7
Used units available for lease			7.6				4.3				2.0
New units not yet leased			1.5				2.5				3.2
Available for sale			4.6				3.2				2.1
Total fleet			100.0	%			100.0	%			100.0	%

During the first half of 2009, we reached agreements with several of our customers that limit the total number of containers that could be returned from expired leases. We have included the maximum number of containers that can be returned during the limitation periods as expired term leases, while the balance of the affected units are included in current term leases. As of September 30, 2009, our long-term leases had an average remaining contract term of approximately 45 months, assuming no leases are renewed.

Operating Performance

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

Our leasing revenue is primarily driven by our owned fleet size, utilization and average rental rates. As of September 30, 2009, our owned fleet included 1,088,976 TEUs, a decrease of 6.5% from December 31, 2008 and a decrease of 3.5% from September 30, 2008. The decrease in fleet size in 2009 relative to the end of 2008 and the third quarter of 2008 was mainly due to the small amount of new containers purchased in the first three quarters of 2009 combined with our normal disposal of used containers. Global containerized trade volumes have been exceptionally weak since the fourth quarter of 2008, and our shipping line customers have been decreasing the number of containers in their fleets. As a result, we have experienced weak leasing demand and we have significantly reduced our investment in new equipment.

As of September 30, 2009, our revenue earning assets (leasing equipment, net investment in finance leases, and equipment held for sale) totaled approximately $1,634 million, a decrease of $131 million, or 7.4% from December 31, 2008, and a decrease of $83 million, or 4.8% from September 30, 2008. Our revenue earning assets decreased in the first nine months of 2009 due to our limited purchases of new containers during the first nine months of 2009, while our rate of disposals remained steady.

For the nine months ended September 30, 2009, we sold approximately 64,000 TEUs of our owned containers, or 5.6% of our owned equipment leasing fleet as of the beginning of the year. This annualized disposal rate of approximately 7.5% is in line with the 6 to 8% annual disposal rate we have been experiencing for the last several years, and is generally consistent with our expected long-term average disposal rate given the 12 — 14 year expected useful life of our containers. However, the rate of our disposals in 2009 has not kept pace with the rate at which older units are being returned off lease and being designated as available for sale, and our disposal rate would have been higher in the first nine months of 2009 than it has been in the last few years if the disposal market had been better this year. In 2009, the gap between the rate of returns of older units and our disposal rate has caused the portion of our fleet designated as available for sale to increase from 3.2% as of December 31, 2008 to 4.6% as of September 30, 2009. Based on our increased inventory of containers available for sale, the age profile of our leasing fleet and scheduled lease expirations, we expect that our rate of disposals will increase when the market for used container disposals improves and then remain at an above-average level for several years before decreasing significantly for several years thereafter. During years of above-average disposals, our TEU growth rate and leasing revenue may be constrained if we are unable to generate a sufficient number of attractive lease transactions for an expanded level of new container investment.

Our average utilization was 84.6% in the third quarter of 2009, a decrease of 7.4% from the third quarter of 2008, and a decrease of 0.5% from the second quarter of 2009. Ending utilization increased 2.3% from 84.0% as of June 30, 2009 to 86.3% as of September 30, 2009, while ending utilization excluding new units not yet leased increased 1.7% in the third quarter of 2009 to 87.6%. The increase in our utilization during the third quarter of 2009 was supported by an increase in global containerized trade volumes from the low level recorded in the first half of the year. During the first half of 2009, our shipping line customers returned a large volume of leased containers and many also accelerated the disposal of their older equipment. As a result, while trade volumes have not recovered to pre-crisis levels, several shipping lines needed to add equipment back into their fleets to accommodate the higher volume of shipments achieved in the third quarter of 2009. In addition, we entered into several lease extension transactions in the second quarter of 2009 which helped reduce the number of container returns in the third quarter.

Utilization and leasing demand for our refrigerated containers remained solid in the third quarter of 2009. The utilization of our refrigerated containers does not heavily influence our overall utilization since they represent only 5% of the units in our fleet. However, these container types are significantly more expensive than dry containers, generate higher per diem lease rates and currently represent approximately 25% of our leasing revenue.

Utilization of our special containers remained relatively healthy in the third quarter of 2009, though we are seeing signs that leasing demand for special containers is weakening. Leasing demand for our chassis product line remained weak during the third quarter of 2009 due to ongoing weakness in U.S. containerized imports and an oversupply of chassis in the marketplace.

The following table sets forth our average equipment fleet utilization for the periods indicated below:

		September 30,				June 30,				March 31,				December 31,				September 30,
		2009				2009				2009				2008				2008
		3 months				3 months				3 months				3 months				3 months
Average Utilization(1)			84.6	%			85.1	%			88.1	%			91.6	%			92.0	%

The following tables set forth our ending fleet utilization for the dates indicated below:

		September 30,				June 30,				March 31,				December 31,				September 30,
		2009				2009				2009				2008				2008
Ending Utilization			86.3	%			84.0	%			86.5	%			90.0	%			92.7	%

		September 30,				June 30,				March 31,				December 31,				September 30,
		2009				2009				2009				2008				2008
Ending Utilization (excluding new units not yet leased)			87.6	%			85.9	%			88.5	%			92.4	%			95.8	%

Average lease rates for our dry container product line in the third quarter of 2009 were 7.4% lower compared to the average level of the third quarter of 2008 and 2.0% lower than the second quarter of 2009. The decrease in average lease rates in the third quarter of 2009 primarily reflects the impact of lease extension transactions completed in the first nine months of 2009. In addition, lease rates for containers placed on hire in the third quarter of 2009 were much lower than our portfolio average, while a significant portion of the containers returned to us this year have been from our higher per diem short term leases. Our average lease rates for dry containers will remain under pressure until a better supply and demand balance is reached.

Average lease rates for refrigerated containers in the third quarter of 2009 were 5.8% lower compared to the third quarter of 2008, and 2.1% lower than the second quarter of 2009, while average rental rates for our special containers were 1.4% lower during the third quarter of 2009 compared to the third quarter of 2008, and 0.5% lower compared to the second quarter of 2009. The decrease in average lease rates for our refrigerated containers was primarily due to lease rate concessions provided to certain customers for lease extension transactions, though market leasing rates for new refrigerated containers are still below our portfolio average rates, so we generally expect our average rates for refrigerated containers to continue to trend down. The decrease in average leasing rates for special containers was primarily due to discounts associated with lease extension transactions and weaker demand.

During the third quarter of 2009, we recognized a $1.1 million gain on the sale of our used containers compared to a $7.6 million gain in the third quarter of 2008. The decrease compared to the third quarter of 2008 mainly resulted from a decrease in selling prices of our used containers. Used container selling prices have decreased this year due to the slowdown in global containerized trade and the resulting increase in worldwide idle container inventories. We expect that our used container sale prices and disposal gains will continue to be pressured until trade volumes improve. In addition, in the third quarter of 2009 we recorded a $0.9 million loss on new factory units placed on a finance lease. The units were purchased in 2008 when equipment prices were historically high and we leased them out in the third quarter at a lower implied price per container. We recognize an up-front gain or loss when we place existing equipment on finance leases and the market value of the equipment is different from our net book value. We do not incur up-front gains or losses when we place existing equipment on operating leases.

During the third quarter of 2009, we recognized a net equipment trading margin of $0.3 million on the sale of equipment purchased for resale, compared to a $3.1 million margin in the third quarter of 2008. In 2009, our trading volume is considerably lower than in 2008 due to the weaker disposal environment and our decision to focus on the sale of our owned equipment. In addition, our per unit trading margin has been pressured by decreasing used container selling prices in 2009. Approximately 50% of the units in our equipment trading fleet were acquired in 2008 through purchase / leaseback transactions, and these units were generally purchased at prices that are high compared to the current market level. As these units have been returned by our customers and sold by us at current market prices, we have been realizing a reduced selling margin.

Our ownership expenses, principally depreciation and interest expense, increased by $1.7 million, or 3.9% in the third quarter of 2009 from the third quarter of 2008, while the net book value of our revenue earning assets decreased by 4.8% during the same period. Depreciation expense increased 4.4% in the third quarter of 2009 compared to the third quarter of 2008. The increase in depreciation expense despite the lower net book value of our revenue earning equipment is primarily due to the fact that we have very little new equipment not subject to depreciation this year, while we had a significant amount of new equipment not subject to depreciation in the third quarter of 2008. We initiate depreciation for idle factory equipment at the end of the calendar year in which it was purchased if the equipment has not yet been placed on-hire, and we typically incur very little depreciation expense from our idle factory units since we usually lease the units out the same year the units are purchased. However most of the idle factory units in our fleet as of September 30, 2009 were purchased in 2008 as we were unable to lease out all of our 2008 equipment purchases due to the sharp decrease in global containerized trade volumes and leasing demand in the fourth quarter of 2008, and we have purchased very little new equipment in 2009.

Interest expense increased 3.0% in the third quarter of 2009 compared to the third quarter of 2008 despite a decrease in our revenue earning assets, primarily due to an increase in our effective rate. Additionally, our average debt balance did not decrease as rapidly as

our decrease in revenue earning assets due to the way our containers are purchased. Because new containers are typically accepted into our fleet before payment is made to the manufacturer, our debt balances and related interest expense will lag fleet growth. This difference can be material in periods of rapid growth such as the third quarter 2008 when $63.8 million of the third quarter’s 2008 container purchases were funded by Equipment purchases payable at the end of the quarter. At September 30, 2009 only $2.2 million of container purchases were funded by Equipment purchases payable.

For the quarter ended September 30, 2009, we had a net reversal of our provision for doubtful accounts of $15 thousand, down from a provision of $1.9 million in the quarter ended September 30, 2008. During the third quarter of 2009, we recorded provisions for several small customer defaults; however, these provisions were offset by a reversal of certain provisions recorded in 2008 due to better than expected container recoveries. During the third and fourth quarters of 2008, we recorded sizable credit provisions primarily due to the default on a finance lease by one of our customers, and we recorded additional provisions to increase the loss reserves for the remaining leases in the finance lease portfolio. However, as noted above, during 2009 our recovery of containers from this customer has exceeded our initial estimates, and accordingly we have reversed a portion of the initial provision.

While our provisions for doubtful accounts have been limited so far in 2009, we remain concerned that we may see an increase in the number and size of customer defaults due to the ongoing severe market conditions our customers are facing. Many of our customers were in the middle of major expansion programs when trade volumes collapsed at the end of 2008, and vessel capacity is expected to grow ten percent or more annually for the next several years despite the recent sharp reduction in trade volumes. The combination of reduced trade volumes and increasing vessel capacity has led to substantial decreases in freight rates on the major trade lanes, and many shipping lines reported large first half losses. While our collections performance in 2009 has so far been generally strong and the average number of days outstanding for our receivables remains close to where it was at the beginning of this year, several of our customers, including a few major shipping lines, have missed contractual payment dates. In addition, several major shipping lines, including some of our largest customers, are currently involved in comprehensive financial restructuring negotiations with their major creditors.

If one of our major customers defaulted on our leases and ceased operations because of deterioration in its financial performance, we would face reduced revenue and we would likely incur significant write-offs due to lost units and recovery expenses. We do not maintain an equipment reserve for units on lease to performing customers, so a major customer default would have a significant impact on our financial statements at the time the major customer defaulted. To mitigate this impact from potential defaults, we entered into a credit insurance policy in the third quarter of 2009 that in certain circumstances covers losses and costs incurred in default situations. However, this policy has significant deductibles, exclusions and payment and other limitations, and therefore may not protect us from losses arising from customer defaults.

Our direct operating expenses were $9.1 million in the third quarter of 2009, compared to $6.2 million in the third quarter of 2008 and $9.6 million in the second quarter of 2009. We typically experience an increase in our direct operating expenses during periods of weak leasing demand as higher drop-off volumes lead to higher repair expenses and as an increased number of idle containers leads to higher storage costs. We incurred significantly more repair and storage costs in the third quarter 2009 compared to the third quarter of 2008 due to the increased level of drop-offs and idle containers in 2009, while repair and storage costs in the third quarter of 2009 were down slightly from the second quarter level due to the improvement in our utilization during the third quarter.

Treasury Stock

The Company repurchased the following amounts of its outstanding common stock in the open market during the nine months ended September 30, 2009 and September 30, 2008:

		Shares				$ in Millions
Quarter ended March 31, 2009			1,021,918			$	8.2
Quarter ended June 30, 2009			355,915				3.1
Quarter ended September 30, 2009			472,069				4.8
Total			1,849,902			$	16.1
Quarter ended March 31 2008			362,100			$	8.0
Quarter ended June 30, 2008			—				—
Quarter ended September 30, 2008			—				—
Total			362,100			$	8.0

Dividends

The Company paid the following quarterly dividends during the nine months ended September 30, 2009 and 2008 on its issued and outstanding common stock:

Record Date		Payment Date		Aggregate Payment		Per Share Payment
September 3, 2009		September 24, 2009		$  0.3 million		$		0.01
June 2, 2009		June 23, 2009		$  0.3 million		$		0.01
March 12, 2009		March 26, 2009		$  0.3 million		$		0.01
August 21, 2008		September 12, 2008		$13.5 million		$		0.4125
May 22, 2008		June 12, 2008		$13.4 million		$		0.4125
March 20, 2008		April 10, 2008		$12.2 million		$		0.375

Results of Operations

The following table summarizes our results of operations for the three months and nine months ended September 30, 2009 and 2008 in thousands of dollars and as a percentage of total revenues:

		Three Months Ended September 30,																Nine Months Ended September 30,
		2009								2008								2009								2008
		Dollars				Percent				Dollars				Percent				Dollars				Percent				Dollars				Percent
Leasing revenues		$	74,184				89.5	%		$	80,379				74.7	%		$	236,636				86.7	%		$	235,661				75.5	%
Equipment trading revenue			7,869				9.5				26,098				24.2				33,704				12.3				72,802				23.3
Management fee income			675				0.8				855				0.8				2,013				0.7				2,362				0.8
Other revenues			188				0.2				355				0.3				777				0.3				1,118				0.4
Total revenues			82,916				100.0				107,687				100.0				273,130				100.0				311,943				100.0
Operating expenses (income):
Equipment trading expenses			7,578				9.2				22,972				21.3				31,935				11.7				64,284				20.6
Direct operating expenses			9,134				11.0				6,207				5.8				28,600				10.5				20,614				6.6
Administrative expenses			9,192				11.1				12,434				11.6				30,577				11.2				34,066				10.9
Depreciation and amortization			29,380				35.4				28,149				26.1				87,843				32.2				82,322				26.4
(Reversal) provision for doubtful accounts			(15	)			—				1,859				1.7				383				0.1				2,062				0.7
Net (gain) on sale of leasing equipment			(1,058	)			(1.3	)			(7,563	)			(7.0	)			(7,102	)			(2.6	)			(18,059	)			(5.8	)
Net (gain) on sale of container portfolios			(185	)			(0.2	)			(2,789	)			(2.6	)			(185	)			(0.1	)			(2,789	)			(0.9	)
Total operating expenses			54,026				65.2				61,269				56.9				172,051				63.0				182,500				58.5
Operating income			28,890				34.8				46,418				43.1				101,079				37.0				129,443				41.5
Other expenses (income):
Interest and debt expense			17,024				20.5				16,528				15.4				51,505				18.9				47,058				15.1
(Gain) on debt extinguishment			—				—				—				—				(14,130	)			(5.2	)			—				—
Unrealized loss (gain) on interest rate swaps			6,935				8.4				7,371				6.8				(22,583	)			(8.3	)			3,273				1.0
Total other expenses			23,959				28.9				23,899				22.2				14,792				5.4				50,331				16.1
Income before income taxes			4,931				5.9				22,519				20.9				86,287				31.6				79,112				25.4
Income tax expense			1,755				2.0				7,985				7.4				30,718				11.3				28,053				9.0
Net income		$	3,176				3.9	%		$	14,534				13.5	%		$	55,569				20.3	%		$	51,059				16.4	%