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 February 22, 2012. 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:

º •
º 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.

º •
º Equipment trading-we purchase containers from shipping line customers, and other sellers of containers, and resell these containers to container retailers and users of containers for storage or one-way shipment.

Operations

Our consolidated operations include the acquisition, leasing, re-leasing and subsequent sale of multiple types of intermodal containers and chassis. As of September 30, 2012, our total fleet consisted of 1,185,308 containers and chassis, including 23,921 containers under management for third parties, representing 1,932,901 twenty-foot equivalent units (TEU). We have an extensive global presence, offering leasing services through 17 offices in 11 countries and approximately 225 third party container depot facilities in 39 countries as of September 30, 2012. Our customers are among the largest shipping lines in the world. For the nine months ended September 30, 2012, our twenty largest customers accounted for 81% of our leasing revenues, our five largest customers accounted for 48% of our leasing revenues, and our largest customer, CMA CGM, accounted for 16% of our leasing revenues.

The following tables provide the composition of our equipment fleet as of the dates indicated (in units, TEUs and cost-equivalent units, or "CEU"):

                                                          Equipment Fleet in Units
                        September 30, 2012                    December 31, 2011                    September 30, 2011
                  Owned      Managed       Total        Owned     Managed       Total        Owned     Managed       Total
Dry                997,966     22,022     1,019,988     823,541     24,361       847,902     829,700     24,765       854,465
Refrigerated        57,063        117        57,180      50,580        171        50,751      48,794        177        48,971
Special             47,051      1,782        48,833      46,080      1,959        48,039      45,655      2,005        47,660
Tank                 6,608          -         6,608       5,396          -         5,396       4,679          -         4,679
Chassis             12,961          -        12,961      10,789          -        10,789      10,793          -        10,793

Equipment
leasing
fleet            1,121,649     23,921     1,145,570     936,386     26,491       962,877     939,621     26,947       966,568
Equipment
trading
fleet               39,738          -        39,738      46,767          -        46,767      42,460          -        42,460

Total            1,161,387     23,921     1,185,308     983,153     26,491     1,009,644     982,081     26,947     1,009,028

Percentage            98.0 %      2.0 %       100.0 %      97.4 %      2.6 %       100.0 %      97.3 %      2.7 %       100.0 %

                                                            Equipment Fleet in TEUs
                        September 30, 2012                     December 31, 2011                      September 30, 2011
                  Owned      Managed       Total         Owned      Managed       Total         Owned      Managed       Total
Dry              1,603,069     39,726     1,642,795     1,323,458     44,155     1,367,613     1,334,892     44,902     1,379,794
Refrigerated       109,054        206       109,260        95,671        298        95,969        92,517        307        92,824
Special             84,081      2,994        87,075        81,514      3,283        84,797        80,329      3,355        83,684
Tank                 6,608          -         6,608         5,396          -         5,396         4,679          -         4,679
Chassis             23,105          -        23,105        19,217          -        19,217        19,223          -        19,223

Equipment
leasing
fleet            1,825,917     42,926     1,868,843     1,525,256     47,736     1,572,992     1,531,640     48,564     1,580,204
Equipment
trading
fleet               64,058          -        64,058        72,876          -        72,876        67,964          -        67,964

Total            1,889,975     42,926     1,932,901     1,598,132     47,736     1,645,868     1,599,604     48,564     1,648,168

Percentage            97.8 %      2.2 %       100.0 %        97.1 %      2.9 %       100.0 %        97.1 %      2.9 %       100.0 %

                                                          Equipment Fleet in CEUs
                      September 30, 2012                     December 31, 2011                      September 30, 2011
                Owned      Managed       Total         Owned      Managed       Total         Owned      Managed       Total
Total          2,330,486     38,725     2,369,211     2,000,747     43,265     2,044,012     1,978,045     44,032     2,022,077

Percentage          98.4 %      1.6 %       100.0 %        97.9 %      2.1 %       100.0 %        97.8 %      2.2 %       100.0 %

In the equipment fleet tables above, we have included total fleet count information based on CEU. CEU is a ratio used to convert the actual number of containers in our fleet to a figure based on the relative purchase prices of our various equipment types to that of a 20 foot dry container. For example, the CEU ratio for a 40 foot standard height dry container is 1.6, and a 40 foot high cube refrigerated container is 10.0. The CEU ratios used in this calculation are from our debt agreements and may differ slightly from CEU ratios used by others in the industry.

We lease five 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, (3) special containers, which are used for heavy and oversized cargo such as marble slabs, building products and machinery, (4) chassis, which are used for the transportation of containers domestically, and (5) tank containers, which are used to transport bulk liquid products such as chemicals. 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.

As of September 30, 2012, the percentages of our equipment fleet and leasing revenues by equipment type are as follows:

                                          Percent of      Percent of
                                          total fleet      leasing
               Equipment Type                units         revenues
               Dry                                86.1 %         64.9 %
               Refrigerated                        4.8           21.4
               Special                             4.1            7.3
               Chassis                             1.1            2.0
               Tank                                0.6            2.8

               Equipment leasing fleet            96.7           98.4
               Equipment trading fleet             3.3            1.6

               Total                             100.0 %        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 ranging from 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 and we classify such leases as either long-term or service leases, depending upon which features we believe are predominant.

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

                                       September 30,    December 31,     September 30,
Lease Portfolio                            2012             2011             2011
Long-term leases                                 66.5 %          68.3 %            69.6 %
Finance leases                                    7.0             8.4               8.5
Service leases                                   21.0            18.7              17.7
Expired long-term leases (units
on-hire)                                          5.5             4.6               4.2

Total                                           100.0 %         100.0 %           100.0 %

The increase in our service lease portfolio over the last year reflects the completion of several large sale-lease back transactions which are usually structured to provide customers with significant

flexibility to redeliver units. Due to the age of this equipment, we expect to sell these units after they have been redelivered.

As of September 30, 2012, December 31, 2011 and September 30, 2011, our long-term and finance leases had average remaining contract terms of approximately 45 months, 48 months, and 50 months, respectively, 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 gains or losses that we realize on the sale of our used equipment and the net sales margins on our equipment trading activities.

Our leasing revenues are primarily driven by the size of our owned fleet, our equipment utilization and the average lease rates in our lease portfolio. Our leasing revenues also include ancillary fees driven by container pick-up and drop-off volumes. Leasing revenues for the third quarter of 2012 increased 11.8% from the third quarter of 2011.

Owned fleet size. As of September 30, 2012, our owned fleet included 2,330,486 CEUs, an increase of 16.5% from December 31, 2011 and 17.8% from September 30, 2011. The increase in fleet size over both periods was primarily due to the purchases of new containers and the completion of several large sale-leaseback transactions. We continued to have significant opportunities to grow our fleet in 2012 due to the ongoing combination of moderate growth in global containerized trade volumes and the continued shift to leasing from container ownership by our shipping line customers. Historically, our shipping line customers have generally purchased 55%-60% of the containers they operate and leased 40%-45% from leasing companies like TAL. However, since 2010, our customers have relied on leasing for the majority of the containers added to their fleets, and they have become increasingly interested in selling portions of their existing fleets of owned containers to leasing companies through sale-leaseback transactions. This increased reliance on leasing has been mainly driven by the financial challenges facing our customers due to persistent excess vessel capacity and the resulting pressure on freight rates, high fuel prices, and reduced access to financing.

As of October 24, 2012, we have purchased over $800 million of containers through new orders and sale-leaseback transactions. Roughly three quarters of this equipment (together with our beginning inventory of factory units as of January 1, 2012) is either on-hire or committed to lease transactions. As in 2011, the pick-up of new containers committed to leases has been slower than anticipated, and growth in our leasing revenue has lagged growth in our container fleet. In both 2011 and 2012, expectations for trade growth diminished during the year as peak-season shipping volumes were lighter than expected. Clarkson's Research Services is currently estimating that global containerized trade growth will be 4.8% in 2012, down from their estimate of 7.1% at the beginning of the year. Many of our customers responded to the lower growth level by extending the time they take in completing pick-ups of containers committed to lease.

A significant portion of our new dry containers committed to lease were picked up in the third quarter and a large portion of the sale-lease back transactions were completed and placed on-hire between June and August. As a result, we had solid growth in our leasing revenues during the third quarter and we expect further growth in our leasing revenue during the fourth quarter as we benefit from a full period of revenue from equipment placed on-hire in the third quarter and the pick-up of additional containers already committed to leases.

Utilization. Our average utilization was 97.7% during the third quarter of 2012, a decrease of 0.9% from the third quarter of 2011. Our utilization remains quite high due to the general tight supply / demand balance for containers and our customers' reluctance to order large volumes of new

containers directly. We expect dry container redeliveries to increase in the fourth quarter, and our utilization to decrease slightly, as the peak season for dry containers passes.

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

               Quarter Ended     Quarter Ended     Quarter Ended     Quarter Ended     Quarter Ended
               September 30,       June 30,          March 31,       December 31,      September 30,
                   2012              2012              2012              2011              2011
Average
Utilization              97.7 %            97.8 %            98.2 %            98.6 %            98.6 %




                 September 30,     June 30,     March 31,     December 31,     September 30,
                     2012            2012         2012            2011             2011
 Ending
 Utilization               97.4 %       97.6 %        97.7 %           98.6 %            98.7 %


--------------------------------------------------------------------------------
   º (1)

Effective for our 2011 10-K filing, we changed our utilization calculation to be based on CEUs and to exclude off-hire units designated for sale. This method provides a better indicator of the performance of our leasable fleet because it gives greater weight to more expensive equipment types and it does not include those off-hire containers that have been designated for sale. In addition, we believe our utilization calculated under this methodology more closely conforms to those used by our publicly traded competitors. Utilization for all of the periods shown above has been recalculated using this methodology.

Average lease rates. Average lease rates for our dry container product line decreased 3.7% in the third quarter of 2012 from the third quarter of 2011. This decrease was primarily due to the completion of a large sale-leaseback transaction for older dry containers. These older containers were purchased for prices well below the current cost of new containers, and therefore, the leaseback rate is substantially below our current portfolio average. Excluding the effects of this sale-leaseback transaction, average lease rates on our dry container product line remained relatively unchanged in the third quarter of 2012 compared to the third quarter of 2011.

Average lease rates for refrigerated containers were 3.2% lower in the third quarter of 2012 compared to the third quarter of 2011. Our average lease rates for refrigerated containers continue to be negatively impacted by the addition of new refrigerated containers placed on lease at rates lower than our portfolio average. The cost of the refrigeration machines included in refrigerated containers has trended down over the last few years, which has led to lower refrigerated container prices and lease rates. This year, lease rates for new refrigerated containers have also been negatively impacted by aggressive pricing from new entrants seeking to build market share.

The average lease rates for special containers were 1.8% higher compared to the third quarter of 2011 due to relatively high prices and lease rates for new special containers added to our fleet, and the drop-off and sale of older special containers on leases with rates well below current market levels.

Equipment disposals. During the third quarter of 2012, we recognized a $11.3 million gain on the sale of our used containers compared to $14.9 million in the third quarter of 2011. Gain on sale decreased primarily due to lower average sale prices, partially offset by higher sales volumes and a decrease in the cost of equipment sold. The cost of equipment sold in the third quarter of 2011 was higher than in the third quarter of 2012 due to the substantial number of sale leaseback containers with higher book values sold in 2011. Those sale leaseback containers had been purchased in the latter part of 2011 for prices higher than the typical book value of our older containers.

Used container sale prices reached record levels during the summer of 2011 due to the general tight supply / demand balance for containers and the high price for new containers at that time. Used

container disposal prices trended down roughly 20% from the 2011 peak to March 2012 as shipping line customers redelivered older containers after the peak season and the shortage of sale containers eased. In the second and third quarters of 2012, disposal prices stabilized, and they remain quite high compared to historical averages and in relation to new container prices. We continue to expect that used container sale prices will trend down further toward historical levels, but this may take some time if the container supply / demand balance remains tight.

Equipment ownership expenses. Our ownership expenses, which consist of depreciation and interest expense, increased by $12.2 million or 17.3% compared to the third quarter of 2011. TAL purchased a large volume of new containers in 2011 and so far in 2012, and our average revenue earning assets increased by approximately 17% from the third quarter of 2011 to the third quarter of 2012.

Depreciation expense increased $10.3 million or 24.6% compared to the third quarter 2011. Over the past year, depreciation expense increased faster than our revenue earning assets mainly due to our fleet demographics. The portion of our fleet that is fully depreciated has decreased significantly as we have invested in a large number of new containers over the last several years and as a large volume of fully depreciated containers purchased in the mid-1990's has been returned by customers and sold. Additionally, we purchased relatively few containers in the late 1990's, so relatively few containers have reached the end of their depreciable lives in 2011 and 2012. We expect the percentage of our containers that are fully depreciated in our fleet to stabilize next year.

Interest expense increased $1.9 million or 6.7% compared to the third quarter of 2011. The increase from the third quarter of 2011 was due to an increase in our average outstanding debt, partially offset by a decrease in our average effective interest rate. Our average debt balance increased mainly due to new equipment purchases in 2011 and year to date in 2012. Our average effective interest rate decreased by 0.34% in the third quarter of 2012 compared to the third quarter of 2011 mainly due to the issuance of new debt at interest rates lower than those on our existing debt facilities and the termination of several interest rate swap agreements. We use interest rate swap agreements to synthetically convert a portion of our floating rate debt to a fixed rate basis to match the duration of our interest rates to the duration of our lease portfolio.

Credit performance. Our credit performance remained strong during the third quarter of 2012, and we recorded a small reversal of our provision for doubtful accounts. However, our concern about credit risk remains heightened due to the difficult market conditions facing our shipping line customers. During 2011, excess vessel capacity placed severe pressure on freight rates on the major East/West trade lanes. Higher fuel prices combined with the drop in freight rates to squeeze the profitability of our customers, and many reported large losses in 2011 and the first quarter of 2012.

While freight rates improved significantly during the second quarter of 2012, and shipping lines reported improved operating performance in the second quarter, freight rates began to fall again in the third quarter as the dry container peak season was weaker than expected and as excess vessel capacity continued to weigh on the industry. It is anticipated that the volume of new vessels entering service over the next several years will be in excess of trade growth, and freight rates and our customers' financial performance are expected to remain under pressure.

Operating expenses. Our direct operating expenses were $6.2 million in the third quarter of 2012, compared to $5.1 million in the third quarter of 2011. Our direct operating expenses increased during the third quarter of 2012 mainly due to higher storage and handling costs resulting from a higher volume of redeliveries and slightly lower utilization, and increased inspection costs due to a higher volume of new units built and accepted.

Our administrative expenses were $10.7 million in the third quarter of 2012 compared to $11.0 million in the third quarter of 2011. The limited change in our administrative expenses over the last several years highlights the leverage we have over our fixed costs. TAL has existing business

relationships with essentially all of the world's major shipping lines, and our global operating infrastructure covers most of the world's major export and import locations. As a result, we have not needed to significantly grow our organization as we have rapidly grown our business. Over the last three years, the ratio of our administrative expenses to our leasing revenues decreased from 14.5% in 2008 to 9.5% in 2011 and 8.5% year to date in 2012.

Dividends

    We paid the following quarterly dividends during the nine months ended
September 30, 2012 and 2011 on our issued and outstanding common stock:

                                  Payment           Aggregate       Per Share
         Record Date                Date             Payment         Payment
         September 4, 2012   September 25, 2012   $ 20.0 million    $     0.60
         June 1, 2012        June 22, 2012        $ 19.2 million    $     0.58
         March 8, 2012       March 29, 2012       $ 18.3 million    $     0.55
         September 1, 2011   September 22, 2011   $ 17.2 million    $     0.52
         June 2, 2011        June 23, 2011        $ 16.5 million    $     0.50
         March 3, 2011       March 24, 2011       $ 13.8 million    $     0.45

Historically, most of our dividends have been treated as a non-taxable return of capital, and based on our current estimates we believe that our dividends paid in 2012 will also be treated as a non-taxable return of capital to TAL shareholders. The taxability of the dividends to TAL shareholders does not impact TAL's corporate tax position. Investors should consult with a tax advisor to determine the proper tax treatment of these distributions.

Results of Operations

    The following table summarizes our results of operations for the three and
nine months ended September 30, 2012 and 2011 (in thousands of dollars):

                                              Three Months Ended       Nine months Ended
                                                September 30,            September 30,
                                               2012        2011        2012        2011
Leasing revenues                             $ 135,178   $ 120,911   $ 386,212   $ 326,999
Equipment trading revenues                      12,981      16,121      48,750      53,214
Management fee income                              823         683       2,303       2,122
Other revenues                                      39          37         111         166

Total revenues                                 149,021     137,752     437,376     382,501

Operating expenses (income):
Equipment trading expenses                      11,273      13,900      42,867      43,283
Direct operating expenses                        6,195       5,112      17,802      13,575
Administrative expenses                         10,674      10,964      32,908      32,139
. . .