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 June 30, 2009

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

For the Transition Period from                      to                     

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. Yes þ     No o

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

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

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

As of July 31, 2009, there were 30,947,749 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 June 30, 2009 and December 31, 2008			4
		Consolidated Statements of Operations for the three months and six months ended June 30, 2009 and June 30, 2008			5
		Consolidated Statements of Cash Flows for the six months ended June 30, 2009 and June 30, 2008			6
		Notes to Consolidated Financial Statements			7
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			16
Item 3.		Quantitative and Qualitative Disclosures About Market Risk			37
Item 4.		Controls and Procedures			39
Part II — Other Information					40
Item 1.		Legal Proceedings			40
Item 1A.		Risk Factors			40
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			40
Item 4.		Submission of Matters to a Vote of Security Holders.			40
Item 6.		Exhibits			41
Signature					42
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 June 30, 2009 (unaudited) and December 31, 2008 and for the three and six months ended June 30, 2009 (unaudited) and June 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)

		June 30,				December 31,
		2009				2008
		(Unaudited)
ASSETS:
Leasing equipment, net of accumulated depreciation and allowances of $383,581 and $352,089		$	1,443,000			$	1,535,483
Net investment in finance leases, net of allowances of $1,609 and $1,420			210,817				196,490
Equipment held for sale			45,174				32,549
Revenue earning assets			1,698,991				1,764,522
Cash and cash equivalents (including restricted cash of $14,655 and $16,160)			56,906				56,958
Accounts receivable, net of allowances of $762 and $807			31,843				42,335
Leasehold improvements and other fixed assets, net of accumulated depreciation and amortization of $4,734 and $4,181			1,332				1,832
Goodwill			71,898				71,898
Deferred financing costs			7,664				8,462
Other assets			6,537				8,540
Fair value of derivative instruments			661				951
Total assets		$	1,875,832			$	1,955,498
LIABILITIES AND STOCKHOLDERS’ EQUITY:
Equipment purchases payable		$	2,394			$	27,224
Fair value of derivative instruments			64,769				95,224
Accounts payable and other accrued expenses			42,918				43,978
Deferred income tax liability			102,466				73,565
Debt			1,257,235				1,351,036
Total liabilities			1,469,782				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, 33,593,816 and 33,485,816 shares issued respectively			33				33
Treasury stock, at cost, 2,433,312 and 1,055,479 shares, respectively			(31,417	)			(20,126	)
Additional paid-in capital			397,317				396,478
Accumulated earnings (deficit)			39,669				(12,090	)
Accumulated other comprehensive income			448				176
Total stockholders’ equity			406,050				364,471
Total liabilities and stockholders’ equity		$	1,875,832			$	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 earnings per share)

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2009				2008				2009				2008
		(Unaudited)								(Unaudited)
Revenues:
Leasing revenues:
Operating leases		$	73,977			$	72,802			$	152,024			$	145,234
Finance leases			5,373				5,092				10,428				10,048
Total leasing revenues			79,350				77,894				162,452				155,282
Equipment trading revenue			9,747				24,050				25,835				46,704
Management fee income			669				782				1,338				1,507
Other revenues			293				432				589				763
Total revenues			90,059				103,158				190,214				204,256
Expenses:
Equipment trading expenses			9,582				20,249				24,357				41,312
Direct operating expenses			9,641				7,331				19,466				14,408
Administrative expenses			9,763				11,845				21,385				21,632
Depreciation and amortization			29,354				27,345				58,463				54,173
Provision for doubtful accounts			77				155				398				202
Net (gain) on sale of leasing equipment			(2,448	)			(6,196	)			(6,044	)			(10,496	)
Interest and debt expense			17,120				15,801				34,481				30,530
(Gain) on debt extinguishment			(14,130	)			—				(14,130	)			—
Unrealized (gain) on interest rate swaps			(24,455	)			(35,843	)			(29,518	)			(4,098	)
Total expenses			34,504				40,687				108,858				147,663
Income before income taxes			55,555				62,471				81,356				56,593
Income tax expense			19,778				22,153				28,963				20,068
Net income		$	35,777			$	40,318			$	52,393			$	36,525
Net income per common share — Basic		$	1.15			$	1.24			$	1.66			$	1.12
Net income per common share — Diluted		$	1.15			$	1.23			$	1.66			$	1.11
Weighted average number of common shares outstanding — Basic			31,102				32,579				31,534				32,608
Weighted average number of common shares outstanding — Diluted			31,132				32,773				31,555				32,771
Cash dividends paid per common share		$	0.01			$	0.7875			$	0.02			$	0.7875

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)

		Six months ended
		June 30,
		2009				2008
		(Unaudited)
Cash flows from operating activities:
Net income		$	52,393			$	36,525
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			58,463				54,173
Amortization of deferred financing costs			568				479
Net (gain) on sale of leasing equipment			(6,044	)			(10,496	)
Unrealized (gain) on interest rate swaps			(29,518	)			(4,098	)
(Gain) on debt extinguishment			(14,130	)			—
Deferred income taxes			29,167				19,851
Stock compensation charge			840				609
Equipment purchased for resale			3,993				(4,978	)
Changes in operating assets and liabilities			2,718				(2,194	)
Net cash provided by operating activities			98,450				89,871
Cash flows from investing activities:
Purchases of leasing equipment			(27,184	)			(146,100	)
Investments in finance leases			(26,713	)			(28,237	)
Proceeds from sale of equipment leasing fleet, net of selling costs			33,063				38,469
Cash collections on finance lease receivables, net of income earned			15,156				12,832
Other			(32	)			(86	)
Net cash used in investing activities			(5,710	)			(123,122	)
Cash flows from financing activities:
Dividends paid			(631	)			(25,656	)
Purchase of treasury stock			(11,291	)			(7,955	)
Borrowings under debt facilities			—				190,957
Payments under debt facilities			(62,247	)			(119,342	)
Payment to extinguish debt			(20,650	)			—
Proceeds received from capital leases			10,000				—
Payments under capital lease obligations			(6,483	)			(3,322	)
Other			(1,490	)			(2,022	)
Decrease (increase) in restricted cash			1,505				(140	)
Net cash (used in) provided by financing activities			(91,287	)			32,520
Net increase (decrease) in cash and cash equivalents			1,453				(731	)
Unrestricted cash and cash equivalents, beginning of period			40,798				52,636
Unrestricted cash and cash equivalents, end of period		$	42,251			$	51,905
Supplemental non-cash investing activities:
Accrued and unpaid purchases of equipment		$	2,394			$	80,662
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 provides long-term leases, service leases and finance leases, along with 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

In June 2009, the Financial Accounting Standards Board (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.

In May 2009, the FASB issued Statement of Financial Accounting Standards No. 165 (“SFAS 165’), Subsequent Events. SFAS 165 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. SFAS 165 specifically provides the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements; the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements; and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date.

SFAS 165 is effective for interim or annual financial periods ending after June 15, 2009, and shall be applied prospectively. The Company adopted SFAS 165 on June 30, 2009. SFAS 165 did not impact the consolidated financial results as it is disclosure-only in nature. Refer to Note 12 for disclosure information.

In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161 (''SFAS 161’’), Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133. SFAS 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. SFAS 161 was effective beginning in the first quarter of 2009. The Company adopted SFAS 161 on January 1, 2009. SFAS 161 did not impact the consolidated financial results as it is disclosure-only in nature. Refer to Note 6 for disclosure information.

Note 2 — Fair Value of Financial Instruments

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

The interest on the Company’s various credit facilities is based on variable interest rates. The Company estimates that at June 30, 2009 the carrying value of the Company’s debt instruments was approximately $105.8 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 current market interest spreads at that time.

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 six months ended June 30, 2009 and June 30, 2008:

		Shares				$ in Millions
Quarter ended March 31, 2009			1,021,918			$	8.2
Quarter ended June 30, 2009			355,915				3.1
Total			1,377,833			$	11.3
Quarter ended March 31 2008			362,100			$	8.0
Quarter ended June 30, 2008			—				—
Total			362,100			$	8.0

Dividends

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

Record Date

Payment Date

Aggregate Payment

Per Share Payment

June 2, 2009

June 23, 2009

$0.3 million

$

0.01

March 12, 2009

March 26, 2009

$0.3 million

$

0.01

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

Effective January 1, 2006, the Company adopted the provisions of Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (SFAS No.123R) requiring that compensation cost relating to share-based payment transactions be recognized in the financial statements. 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 June 30,								Six Months Ended June 30,
		2009				2008				2009				2008
Stock options		$	109			$	5			$	114			$	11
Restricted stock			444				324				726				598
		$	553			$	329			$	840			$	609

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 $22,000 as of June 30, 2009 will be recognized over the remaining vesting period of approximately one year.

Total unrecognized compensation cost of approximately $1.9 million as of June 30, 2009 related to 219,000 restricted shares granted during 2007 and 2009 will be recognized over the remaining weighted average vesting period of approximately 1.7 years.

Note 5 — Debt

Debt consisted of the following (amounts in thousands):

		June 30,				December 31,
		2009				2008
Asset backed securitization (ABS)
Term notes — Series 2006-1		$	386,083			$	451,000
Term notes — Series 2005-1			365,972				389,583
Asset backed credit facility			225,000				225,000
Revolving credit facility			100,000				100,000
Finance lease facility			42,869				47,406
2007 Term loan facility			30,458				33,658
Port equipment facility			11,372				12,326
Capital lease obligations			95,481				92,063
Total		$	1,257,235			$	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.

Note 6 —Derivative Instruments

Interest Rate Swaps

The Company has entered into interest rate swap agreements to manage interest rate risk exposure. The interest rate swap agreements utilized by the Company effectively modify the Company’s exposure to interest rate risk by converting a portion of its floating rate debt to a fixed rate basis, thus reducing the impact of interest rate changes on future interest expense. These agreements involve the receipt of floating rate amounts in exchange for fixed rate interest payments over the lives of the agreements without an exchange of the underlying principal amounts. The counterparties to these agreements are highly rated financial institutions. In the unlikely event that the counterparties fail to meet the terms of the interest rate swap agreements, the Company’s exposure is limited to the interest rate differential on the notional amount at each monthly settlement period over the life of the agreements. The Company does not anticipate any non-performance by the counterparties.

As of June 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
June 30, 2009		Interest Rate at June 30, 2009				Remaining Term
$1,198 million			4.20	%		3.8 years

Prior to April 12, 2006, the Company had designated all existing interest rate swap contracts as cash flow hedges, in accordance with Statement of Financial Accounting Standards No.133, ''Accounting for Derivative Instruments and Hedging Activities’’ (SFAS No. 133). 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 June 30, 2009, the unamortized pre-tax balance of the change in fair value reflected in accumulated other comprehensive income was approximately $1.6 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 SFAS No, 133, 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 Statement of Financial Accounting Standards No.157, Fair Value Measurements (“SFAS No. 157”) 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 6.5 million Euros and receive approximately $10.0 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 SFAS No. 133, 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 SFAS No. 157, 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 Under SFAS No. 133
$ in Millions

Asset Derivatives

Liability Derivatives

June 30, 2009

December 31, 2008

June 30, 2009

December 31, 2008

Derivative

Balance Sheet

Balance

Balance Sheet

Balance Sheet

Instrument

Location

Fair Value

Sheet Location

Fair Value

Location

Fair Value

Location

Fair Value

Interest rate

Fair value of

Fair value of

Fair value of

Fair value of

contracts

derivative

derivative

derivative

derivative

instruments

$

—

instruments

$

—

instruments

$

64.8

instruments

$

95.2

Foreign exchange

Fair value of

Fair value of

Fair value of

Fair value of

contracts

derivative

derivative

derivative

derivative

instruments

$

0.7

instruments

$

1.0

instruments

$

—

instruments

$

—

Total Derivatives

$

0.7

$

1.0

$

64.8

$

95.2

Derivatives Not Designated as Hedging Instruments Under SFAS No. 133
Effect of Derivative Instruments on Statement of Operations
$ in Millions

		Location of
		(Gain)/Loss
		Recognized in				Amount of (Gain)/Loss Recognized in Income on Derivatives
Derivative		Income on				Three months ended June 30,								Six months ended June 30,
Instrument		Derivatives				2009				2008				2009				2008
Interest rate contracts		Unrealized (gain) of interest rate swaps				$	(24.5	)		$	(35.8	)		$	(29.5	)		$	(4.1	)
Foreign exchange contracts		Administrative Expense				$	0.5			$	0.1			$	0.3			$	0.1
Total						$	(24.0	)		$	(35.7	)		$	(29.2	)		$	(4.0	)

Note 7 — Earnings Per Share

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

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2009				2008				2009				2008
Numerator:
Net income applicable to common stockholders for basic and diluted earnings per share		$	35,777			$	40,318			$	52,393			$	36,525
Denominator:
Weighted average shares outstanding for basic earnings per share			31,102				32,579				31,534				32,608
Dilutive stock options			30				194				21				163
Weighted average shares for diluted earnings per share			31,132				32,773				31,555				32,771
Earnings per share:
Basic		$	1.15			$	1.24			$	1.66			$	1.12
Diluted		$	1.15			$	1.23			$	1.66			$	1.11

For the quarter and six months ended June 30, 2009, 66,000 shares of restricted stock and 598,691 options to purchase shares of common stock were not included in the calculation of weighted average shares for diluted earnings per share because their effects were antidilutive. For the quarter and six months ended June 30, 2008, 6,500 options to purchase shares of common 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 leasing activities for containers owned by third parties.
	•		Equipment trading — the Company purchases containers from 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
		June 30, 2009												June 30, 2008
		Equipment				Equipment								Equipment				Equipment
		Leasing				Trading				Totals				Leasing				Trading				Totals
Total revenues		$	80,115			$	9,944			$	90,059			$	78,942			$	24,216			$	103,158
Equipment trading expenses			—				9,582				9,582				—				20,249				20,249
Depreciation and amortization			29,310				44				29,354				27,341				4				27,345
Net (gain) on sale of leasing equipment			(2,448	)			—				(2,448	)			(6,196	)			—				(6,196	)
Interest and debt expense			16,918				202				17,120				15,409				392				15,801
Pre-tax income (loss) (1)			17,068				(98	)			16,970				23,585				3,043				26,628

		Six Months Ended												Six Months Ended
		June 30, 2009												June 30, 2008
		Equipment				Equipment								Equipment				Equipment
		Leasing				Trading				Totals				Leasing				Trading				Totals
Total revenues		$	164,056			$	26,158			$	190,214			$	157,297			$	46,959			$	204,256
Equipment trading expenses			—				24,357				24,357				—				41,312				41,312
Depreciation and amortization			58,385				78				58,463				54,164				9				54,173
Net (gain) on sale of leasing equipment			(6,044	)			—				(6,044	)			(10,496	)			—				(10,496	)
Interest and debt expense			34,098				383				34,481				29,889				641				30,530
Pre-tax income (2)			37,179				529				37,708				48,453				4,042				52,495
Goodwill at June 30			70,898				1,000				71,898				70,898				1,000				71,898
Total assets at June 30			1,860,878				14,954				1,875,832				1,836,976				29,055				1,866,031
Purchases of leasing equipment(3)			27,184				—				27,184				146,100				—				146,100
Investments in finance leases(3)			26,713				—				26,713				28,237				—				28,237

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								Six Months Ended
		June 30,								June 30,
		2009				2008				2009				2008
Total revenues:
Domestic		$	8,006			$	12,715			$	18,998			$	22,495
Asia			37,480				46,029				75,957				94,266
Europe			37,911				35,385				81,152				69,935
Other International			6,662				9,029				14,107				17,560
Total		$	90,059			$	103,158			$	190,214			$	204,256

As all of the Company’s containers are used internationally, where no one container is domiciled in one particular place for a prolonged period of time, substantially all of the Company’s 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 sale transactions and broker transactions. The guarantees represent the Company’s commitment that these assets will be worth a specified amount at the end of lease terms which expire in 2016. At June 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 accrued expenses. The Company 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 SFAS No. 157, the Company performed fair value measurements of the guarantees at origination, using Level 2 inputs, which were based on significant other observable inputs other than quoted prices, either on a direct or indirect basis.

Purchase Commitments

At June 30, 2009, commitments for capital expenditures totaled approximately $0.1 million.

Note 10 — Income Taxes

The consolidated income tax expense for the three and six month periods ended June 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								Six Months Ended
		June 30,								June 30,
		2009				2008				2009				2008
Net income		$	35,777			$	40,318			$	52,393			$	36,525
Other comprehensive income:
Foreign currency translation adjustments			659				30				560				84
Amortization of net unrealized gains on derivative instruments previously designated as cash flow hedges (net of tax expense of $(81), $(114), $(161) and $(241), respectively)			(145	)			(208	)			(289	)			(437	)
Total comprehensive income		$	36,291			$	40,140			$	52,664			$	36,172

The balance included in comprehensive income for cumulative translation adjustments as of June 30, 2009 and December 31, 2008 was $(601) and $(1,161), respectively.

The Company recorded $0.5 million of unrealized foreign currency exchange gains and $0.4 million of unrealized foreign currency exchange losses which are reported in administrative expenses in the Company’s statements of operations in the quarters ended June 30, 2009 and June 30, 2008, respectively. The Company recorded $0.2 million of unrealized foreign currency exchange gains and $0.8 million of unrealized foreign currency exchange gains which are reported in administrative expenses in the Company’s statements of operations in the six months ended June 30, 2009 and June 30, 2008, respectively, These gains / 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 August 7, 2009, the date the financial statements were issued. The following subsequent event has taken place:

Quarterly Dividend

On July 30, 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 September 24, 2009 to shareholders of record at the close of business on September 3, 2009.

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 leasing activities for 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 June 30, 2009, our total fleet consisted of 726,736 containers and chassis, including 32,493 containers under management for third parties, representing 1,178,826 twenty-foot equivalent units (TEUs). We have an extensive global presence, offering leasing services through 19 offices in 11 countries and 198 third party container depot facilities in 37 countries as of June 30, 2009. Our customers are among the largest shipping lines in the world. For the six months ended June 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
		June 30, 2009												December 31, 2008												June 30, 2008
		Owned				Managed				Total				Owned				Managed				Total				Owned				Managed				Total
Dry			588,718				29,212				617,930				610,759				30,079				640,838				567,884				24,834				592,718
Refrigerated			37,526				525				38,051				37,119				621				37,740				37,804				722				38,526
Special			46,757				2,756				49,513				48,054				2,839				50,893				45,345				2,864				48,209
Tank			1,350				—				1,350				1,319				—				1,319				799				—				799
Chassis			8,787				—				8,787				8,796				—				8,796				8,852				—				8,852
Equipment leasing fleet			683,138				32,493				715,631				706,047				33,539				739,586				660,684				28,420				689,104
Equipment trading fleet			11,105				—				11,105				16,735				—				16,735				22,115				—				22,115
Total			694,243				32,493				726,736				722,782				33,539				756,321				682,799				28,420				711,219
Percentage			95.5	%			4.5	%			100.0	%			95.6	%			4.4	%			100.0	%			96.0	%			4.0	%			100.0	%

		Equipment Fleet in TEUs
		June 30, 2009												December 31, 2008												June 30, 2008
		Owned				Managed				Total				Owned				Managed				Total				Owned				Managed				Total
Dry			936,082				52,298				988,380				968,772				53,692				1,022,464				917,347				43,527				960,874
Refrigerated			69,158				863				70,021				68,270				1,022				69,292				69,293				1,188				70,481
Special			80,113				4,485				84,598				82,322				4,624				86,946				76,297				4,655				80,952
Tank			1,400				—				1,400				1,369				—				1,369				799				—				799
Chassis			15,628				—				15,628				15,645				—				15,645				15,718				—				15,718
Equipment leasing fleet			1,102,381				57,646				1,160,027				1,136,378				59,338				1,195,716				1,079,454				49,370				1,128,824
Equipment trading fleet			18,799				—				18,799				28,736				—				28,736				36,564				—				36,564
Total			1,121,180				57,646				1,178,826				1,165,114				59,338				1,224,452				1,116,018				49,370				1,165,388
Percentage			95.1	%			4.9	%			100.0	%			95.2	%			4.8	%			100.0	%			95.8	%			4.2	%			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 June 30, 2009, approximately 84.0% of our containers and chassis were on-hire to customers, down from 90.0% at December 31, 2008 and 91.7% at June 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:

		June 30,				December 31,				June 30,
Lease Portfolio		2009				2008				2008
Long-term leases			55.8	%			54.3	%			48.7	%
Finance leases			9.7				8.9				10.2
Service leases			11.0				18.3				21.6
Expired long-term leases (units on hire)			7.5				8.5				11.2
Total leased			84.0				90.0				91.7
Used units available for lease			8.6				4.3				2.1
New units not yet leased			2.2				2.5				3.9
Available for sale			5.2				3.2				2.3
Total fleet			100.0	%			100.0	%			100.0	%

     In March 2009, we reached agreement with one of our largest customers that limited the total number of containers that could be returned from expired leases through February 28, 2010. We have included the maximum number of containers that can be returned during the previously described limitation period as expired term leases, while the balance of the affected units are included in current term leases. As of June 30, 2009, our long-term leases had an average remaining contract term of approximately 47 months, assuming no leases are renewed. The increase in average remaining contract term in the second quarter was primarily due to the effect of lease extension transactions completed in the second quarter.

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. Our leasing revenue is also impacted by the mix of leases in our portfolio.

As of June 30, 2009, our owned fleet included 1,121,180 TEUs, a decrease of 3.8% from December 31, 2008 and an increase of 0.5 % from June 30, 2008. The decrease in fleet size in 2009 relative to the end of 2008 was mainly due to the small amount of new containers purchased in the first two 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.

The increase in fleet size in 2009 relative to the second quarter of 2008 was mainly due to the delivery of a large number of containers during the second half of 2008, as well as the purchase lease-back of approximately 53,000 TEUs of containers with one of our largest customers in the fourth quarter of 2008. Leasing demand was strong in the first three quarters of 2008 due to ongoing trade growth (through October 2008) and reduced direct purchases of new containers by our shipping line customers.

As of June 30, 2009, our revenue earning assets (leasing equipment, net investment in finance leases, and equipment held for sale) totaled approximately $1.7 billion, a decrease of $66 million, or 3.7% from December 31, 2008, but an increase of $44 million, or 2.6% over June 30, 2008. Our revenue earning assets decreased in the first half of 2009 due to our limited purchases of new containers during the first and second quarters.

In the second quarter of 2009, we sold approximately 20,000 TEUs of our owned containers, or 1.8% of our owned equipment leasing fleet as of the beginning of the quarter. This annualized disposal rate of approximately 7.2% is similar to the 6 to 8% annual disposal rate we have been experiencing for the last few years, and is

generally consistent with our expected long-term average disposal rate given the 12 — 14 year expected useful life of our containers. 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. As a result, the portion of our fleet designated as available for sale has increased from 3.2% as of December 31, 2008 to 5.2% as of June 30, 2009. Based on our increased inventory of containers available for sale, the age profile of our leasing fleet, scheduled lease expirations and the prospects for continued weak leasing demand due to reduced trade growth, we expect that our rate of disposals will increase and 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.

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

		June 30,				March 31,				December 31,				September 30,				June 30,
		2009				2009				2008				2008				2008
		3 months				3 months				3 months				3 months				3 months
Average Utilization(1)			85.1	%			88.1	%			91.6	%			92.0	%			90.7	%

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

		June 30,				March 31,				December 31,				September 30,				June 30,
		2009				2009				2008				2008				2008
Ending Utilization			84.0	%			86.5	%			90.0	%			92.7	%			91.7	%

		June 30,				March 31,				December 31,				September 30,				June 30,
		2009				2009				2008				2008				2008
Ending Utilization (excluding new units not yet leased)			85.9	%			88.5	%			92.4	%			95.8	%			95.4	%

Our average utilization was 85.1% in the second quarter of 2009, a decrease of 5.6% from the second quarter of 2008, and a decrease of 3.0% from the first quarter of 2009. Ending utilization decreased 2.5% from 86.5% as of March 31, 2009 to 84.0% as of June 30, 2009, while ending utilization excluding new units not yet leased decreased 2.6% in the second quarter of 2009 to 85.9%. The decrease in our utilization in the second quarter of 2009 was mainly the result of ongoing exceptional weakness in global trade. Since the fourth quarter of 2008, global containerized trade volumes have been running 15% or more below the previous year’s level, which has resulted in excess container capacity and exceptionally low leasing demand, especially for dry containers. We expect dry container drop-offs to remain high and dry container pick-ups low, and expect utilization to decrease as long as containerized trade volumes remain well below the 2008 level.

Leasing demand for our refrigerated containers remained relatively healthy in the second quarter of 2009. The utilization of our refrigerated containers does not heavily influence our overall utilization since they represent only approximately 5.2% of the units in our fleet. However, these container types are significantly more expensive than dry containers, generate higher per diem lease rates and currently represent approximately 24% of our leasing revenue. While we expect that demand for refrigerated containers will be negatively impacted by the global recession in 2009, the impact so far has not been as severe as it has been for dry containers.

Leasing demand for special containers weakened in the second quarter of 2009. Leasing demand for our chassis product line remained weak during the second quarter of 2009 due to ongoing weakness in U.S. containerized imports and an oversupply of chassis in the marketplace.

Average lease rates for our dry container product line in the second quarter of 2009 were 4.5% lower compared to the average level of the second quarter of 2008 and 3.8% lower than the first quarter of 2009. The decrease in average lease rates in the second quarter of 2009 primarily reflects the more rapid return of our higher per diem short term leases as well as lease rate concessions provided to certain customers for extending leases and reducing drop-off volumes.

Average lease rates for refrigerated containers in the second quarter of 2009 were 4.7% lower compared to the second quarter of 2008, and 3.0% lower than the first quarter of 2009, while average rental rates for our special containers were 2.1% lower during the second quarter of 2009 compared to the second quarter of 2008, and 1.7% lower compared to the first quarter of 2009. 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. In addition, our refrigerated container leasing rates in the second quarter of 2009 were impacted by rate concessions provided to certain customers for lease extension transactions. The decrease in average leasing rates for special containers was primarily due to discounts associated with lease extension transactions and weaker demand.

During the second quarter of 2009, we recognized a $2.4 million gain on the sale of our used containers compared to a $6.2 million gain in the second quarter of 2008. The decrease compared to the second quarter of 2008 mainly resulted from a decrease in selling prices. Looking forward, we expect our results from used container disposals in 2009 to increasingly lag the results we achieved in 2008. During 2008, our gains on disposals trended up throughout the year as leasing demand and new container prices provided strong support for disposal prices in the second and third quarters of the year. This year, it seems likely that our used container sale prices and disposal gains will be increasingly pressured by the build-up of idle used container inventories until trade volumes improve.

During the second quarter of 2009, we recognized a net equipment trading margin of $0.2 million on the sale of equipment purchased for resale, compared to a $3.8 million margin in the second quarter of 2008. In 2009, we expect that our trading volume will be considerably lower than in 2008 due to the weaker disposal environment and our intention to focus our efforts 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 in purchase / leaseback transactions, and these units were generally purchased at prices that are high compared to the current market level. As these units are returned by our customers and sold by us at current market prices, we are realizing a reduced selling margin.

Our ownership expenses, principally depreciation and interest expense increased by $3.3 million, or 7.7% in the second quarter of 2009 from the second quarter of 2008. The percentage increase in ownership expense was higher than the 2.6% increase in the net book value of our revenue earning assets. Depreciation expense increased 7.3% in the second quarter of 2009 compared to the second quarter of 2008, while interest expense increased 8.3% in the second quarter of 2009 compared to the second quarter of 2008. Interest expense and related average debt balances increased more rapidly than our revenue earning assets in the second quarter of 2009 primarily 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 second quarter 2008 when $80.7 million of the second quarter’s 2008 container purchases were funded by Equipment purchases payable at the end of the quarter. At June 30, 2009 only $2.4 million of container purchases were funded by Equipment purchases payable.

Our provision for doubtful accounts was $0.1 million for the quarter ended June 30, 2009, down from $0.2 million in the quarter ended June 30, 2008, and down from $2.4 million in the fourth quarter of 2008. 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.

We remain concerned that we may see an increase in the number and size of customer defaults in 2009 due to the deteriorating financial performance of our shipping line customers combined with the constrained capital markets that could make it difficult for our customers to finance the operating losses they are incurring as well as their vessel orders and other expansion commitments. Many of our customers were in the middle of major expansion programs when trade volumes began to decrease 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. This combination of reduced trade volumes and increasing vessel capacity has led to a substantial decrease in freight rates on the major trade lanes. Many shipping lines have reported large first quarter losses, and while our collections performance in 2009 has so far been generally strong, a number of customers, including major shipping lines, have missed contractual payment dates.

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.

Our direct operating expenses increased to $9.6 million in the second quarter of 2009, compared to $7.3 million in the second quarter of 2008. We typically experience an increase in our direct operating expenses during periods of weak leasing demand. During the second quarter of 2009, we incurred increased repair expenses due to the increase in the volume of containers dropped off by our customers, and we incurred increased storage costs due to the increase in the number of idle used containers. We expect our direct operating expenses to continue to increase as long as trade volumes and leasing demand remain extremely weak.

In April 2009, we repurchased approximately $35.0 million of our 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.

Treasury Stock

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

		Shares				$ in Millions
Quarter ended March 31, 2009			1,021,918			$	8.2
Quarter ended June 30, 2009			355,915				3.1
Total			1,377,833			$	11.3
Quarter ended March 31 2008			362,100			$	8.0
Quarter ended June 30, 2008			—				—
Total			362,100			$	8.0

Dividends

The company paid the following quarterly dividends during the six months ended June 30, 2009 and 2008 on its issued and outstanding common stock:

Record Date

Payment Date

Aggregate Payment

Per Share Payment

June 2, 2009

June 23, 2009

$0.3 million

$

0.01

March 12, 2009

March 26, 2009

$0.3 million

$

0.01

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 six months ended June 30, 2009 and 2008 in thousands of dollars and as a percentage of total revenues:

		Three Months Ended June 30,																Six Months Ended June 30,
		2009								2008								2009								2008
		Dollars				Percent				Dollars				Percent				Dollars				Percent				Dollars				Percent
Leasing revenues		$	79,350				88.1	%		$	77,894				75.5	%		$	162,452				85.4	%		$	155,282				76.0	%
Equipment trading revenue			9,747				10.8				24,050				23.3				25,835				13.6				46,704				22.9
Management fee income			669				0.8				782				0.8				1,338				0.7				1,507				0.7
Other revenues			293				0.3				432				0.4				589				0.3				763				0.4
Total revenues			90,059				100.0				103,158				100.0				190,214				100.0				204,256				100.0
Equipment trading expenses			9,582				10.6				20,249				19.6				24,357				12.8				41,312				20.2
Direct operating expenses			9,641				10.7				7,331				7.1				19,466				10.2				14,408				7.1
Administrative expenses			9,763				10.8				11,845				11.5				21,385				11.2				21,632				10.6
Depreciation and amortization			29,354				32.6				27,345				26.5				58,463				30.8				54,173				26.5
Provision for doubtful accounts			77				0.1				155				0.2				398				0.2				202				0.1
Net (gain) on sale of leasing equipment			(2,448	)			(2.7	)			(6,196	)			(6.0	)			(6,044	)			(3.2	)			(10,496	)			(5.1	)
Interest and debt expense			17,120				19.0				15,801				15.3				34,481				18.1				30,530				14.9
(Gain) on debt extinguishment			(14,130	)			(15.7	)			—				—				(14,130	)			(7.4	)			—				—
Unrealized (gain) on interest rate swaps			(24,455	)			(27.2	)			(35,843	)			(34.8	)			(29,518	)			(15.5	)			(4,098	)			(2.0	)
Total expenses			34,504				38.3				40,687				39.4				108,858				57.2				147,663				72.3
Income before income taxes			55,555				61.7				62,471				60.6				81,356				42.8				56,593				27.7
Income tax expense			19,778				22.0				22,153				21.5				28,963				15.3				20,068				9.8
Net income		$	35,777				39.7	%		$	40,318				39.1	%		$	52,393				27.5	%		$	36,525				17.9	%

Comparison of Three Months Ended June 30, 2009 to Three Months Ended June 30, 2008.

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

		Three Months Ended June 30,
		2009				2008
		(in thousands)
Leasing revenues:
Operating lease revenues:
Per diem revenue		$	65,817			$	65,144
Fee and ancillary lease revenue			8,160				7,658
Total operating lease revenue			73,977				72,802
Finance lease revenue			5,373				5,092
Total leasing revenues		$	79,350			$	77,894

     Total leasing revenues were $79.4 million for the three months ended June 30, 2009, compared to $77.9 million for the three months ended June 30, 2008, an increase of $1.5 million, or 1.9%.

     Per diem revenue increased by $0.7 million compared to 2008. The primary reasons for the increase are as follows:

	•		$3.5 million increase due to the recognition of fee revenue for the early termination of certain lease contracts held with one customer. In the first quarter of 2009, we negotiated the early termination of several contracts with one customer for a fee of approximately $11.0 million. As of June 30, 2009, approximately $6.3 million of this fee remains categorized as deferred revenue and will be recognized as units are redelivered.
	•		$1.8 million increase due to an increase in fleet size, reflecting a larger number of dry and special containers, and tanks in our fleet;
	•		$2.7 million decrease due to overall lower utilization;
	•		$2.2 million decrease due to lower per diem rates primarily related to certain lease concessions that were given in return for extended on hire time.