SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2005
OR

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

COMMISSION FILE NUMBER 1-11862

INTERPOOL, INC.
(Exact name of registrant as specified in the charter)

211 COLLEGE ROAD EAST, PRINCETON, NEW JERSEY 08540
(Address of principal executive office)                                (Zip Code)

(609) 452-8900
(Registrant’s telephone number including area code)

_________________

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE

_________________

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes  |_|  No  |X|

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.
Yes  |_|  No  |X|

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 requirements for the past 90 days.  Yes  |X|  No  |_|

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  |_|

Indicate by check mark if the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b(2) of the Exchange Act. (Check one).

Large accelerated filer  |_|   Accelerated filer  |X|  Non-accelerated filer  |_|

Indicate by check mark if the registrant is a shell company, in Rule 12b(2) of the Exchange Act.  Yes  |_|  No  |X|

The aggregate market value of the 10,326,072 shares of the registrant’s voting stock held by non-affiliates of the registrant was $203,836,661, based upon the closing price of $19.74 per common share, as quoted on the New York Stock Exchange on March 1, 2006.

At March 1, 2006, there were 28,500,496 shares of the registrant’s Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE
None

INTERPOOL, INC.

FORM 10-K

TABLE OF CONTENTS

PART I

General

All fleet statistics including the size of the fleet, utilization of the leasing equipment or the rental rates per day that are set forth in this Annual Report on Form 10-K include only our equipment, including that portion of our equipment managed by Container Applications, Inc. ("CAI"). To the extent that our equipment is managed by CAI, the equipment is considered fully utilized since it is not available for us to put on hire regardless of whether all of the units are generating income. All equipment owned by CAI or managed by CAI (with the exception of equipment owned by us and managed by CAI) is excluded from all statistics, unless otherwise indicated. In addition, all of our chassis assigned to chassis pools are considered fully utilized. This exclusion of information relative to CAI, unless indicated otherwise, provides a focus on the drivers, which are critical to our core business. The market share, ranking and other data contained in this Annual Report on Form 10-K are based either on our management's own estimates, independent industry publications, reports by market research firms or other published independent sources and, in each case, are believed by management to be reasonable estimates. However, market share data is subject to change and cannot always be verified with certainty due to limits on the availability and reliability of raw data, the voluntary nature of the data gathering process and other limitations and uncertainties inherent in any statistical survey of market shares. As a result, you should be aware that market share, ranking and other similar data set forth herein, and estimates and beliefs based on such data, might not be reliable.

We believe we are the largest lessor of intermodal chassis in North America and one of the world's leading lessors of intermodal dry freight standard containers. At December 31, 2005, our chassis fleet totaled approximately 226,000 chassis and our container fleet totaled approximately 832,000 twenty-foot equivalent units ("TEU"). From 1999 to 2004, we increased the size of our chassis fleet at a compound annual rate of approximately 18%, primarily as the result of the chassis fleet acquired during 2000 from the North American Intermodal Division of Transamerica Leasing, Inc. ("TA"), and the purchase and leaseback of approximately 20,000 chassis with a shipping line customer during 2001 and 2002. During 2005 our chassis fleet grew by 9%. During the period from 1999 to 2004, we increased our container fleet at a compound annual rate of 7%. During 2005, our total container fleet increased by 3%, which was primarily impacted by the contractual runoff of the container direct financing lease portfolio.

We concentrate on leasing equipment to our customers on a long-term basis (leases for a term greater than one year). Substantially all of our new equipment is initially leased for terms of five to eight years and approximately 75% of our total fleet of chassis and 77% of our total fleet of containers are currently on long-term lease. We believe our focus on long-term leasing has enabled us to:

Approximately 7% of our chassis are currently leased on a short-term basis, representing long term leases winding down, or to satisfy customers' seasonal requirements and to provide operational flexibility, generally at higher rates than under long-term leases. In addition, for customers who require daily or weekly chassis rentals, we operate chassis pools at major domestic shipping ports and rail terminals, comprising about 12% of our chassis fleet.

Approximately 20% of our containers are currently leased on a short-term basis. Our 50%-owned consolidated subsidiary, CAI, markets our containers available for short-term leasing as part of its fleet, facilitating redeployment of our containers at the end of long-term leases. Our relationship with CAI maximizes utilization of our container fleet and increases our influence in the marketplace by giving us one of the world's largest container lessor fleets on a combined basis. At December 31, 2005, CAI had a container fleet of approximately 597,000 TEU. Approximately 143,000 TEU were owned by CAI (or financed under operating leases) with the remaining 454,000 TEU managed for others. CAI's managed equipment included approximately 149,000 TEU that were managed for us.

We have been involved in the business of leasing transportation equipment since 1968. We lease our chassis and containers to a diversified customer base of almost 600 shipping and transportation companies throughout the world, including nearly all of the world's 25 largest international container-shipping lines and major North American railroads. We provide customer service and market to our customers through a worldwide network of offices and agents. We believe one of the key factors in our ability to compete effectively has been the long-standing relationships that we have established with most of the world's large shipping lines and major North American railroads. As a result of these relationships, 23 of our top 25 customers have been customers for at least 10 years.

March 2006 Sale of Containers

On March 29, 2006, our wholly owned container leasing subsidiary, Interpool Containers Limited ("ICL"), completed the sale of approximately 273,200 standard dry marine cargo containers, together with an assignment of all rights of ICL under existing leases for these containers with our customers, to a newly formed subsidiary of an investor group based in Switzerland (the "Purchaser"), pursuant to a Sale Agreement dated March 14, 2006 (the "Sale Agreement"). Although the sale was completed on March 29, 2006, the Sale Agreement stipulates that the Purchaser will be entitled to the net operating income attributable to the containers sold to the Purchaser from and after April 1, 2006. The aggregate cash purchase price paid by the Purchaser was approximately $515.9 million. The containers sold represent approximately 74% of the standard dry marine cargo containers owned by us at December 31, 2005 that were in our operating lease fleet, including most of the containers managed for us by our 50% subsidiary CAI. The sale did not include containers subject to existing direct financing leases with customers.

In connection with the Sale Agreement, both we and CAI entered into management agreements with the Purchaser (the "Management Agreements") under which CAI agreed to perform management services on behalf of the Purchaser with respect to the containers sold, including billing, collecting, lease renewal, operations and disposition activities, in consideration of a management fee equal to 4% of the net operating income attributable to containers under long-term operating leases, and 9% of the net operating income attributable to containers under short-term operating leases. The Management Agreements designate ICL to serve as sub-manager of the containers currently under long-term lease for such period of time as we may elect, up to the respective dates when the containers are returned by their current lessees. During that period, ICL will be entitled to receive the management fees described above. The duration of the Management Agreements will be ten years from the closing date, subject to extension for up to two additional years at the Purchaser's option. Our existing agreements with CAI are being modified to reflect these new arrangements.

We intend to continue to make container acquisitions in the future and will continue to be engaged in the business of leasing containers and related equipment to our customers under both operating and direct financing leases. Neither the Sale Agreement nor the Management Agreements restricts us from engaging in any business in the future or from acquiring containers for lease to customers.

The Sale Agreement does not contain any provision that would require us to repurchase the containers from the Purchaser based upon the occurrence of future events.

We will use the proceeds from the sale of the containers to reduce indebtedness, for equipment acquisitions and for other general corporate purposes.

As a result of the consummation of these transactions, we expect to report a gain on the sale of the containers to the Purchaser during the quarter ending March 31, 2006. The after-tax amount of this gain is expected to be approximately $61.0 million, subject to closing adjustments and final accounting review. Effective April 1, 2006, we will no longer record leasing revenue relating to the containers sold to the Purchaser, but we or CAI will instead record management fee revenue relating to the sold containers under the Management Agreements.

Industry Overview

The fundamental components of intermodal transportation are the chassis and the container. When a container ship arrives in port, each marine container is removed from the ship and loaded onto a chassis or rail car. Most containers are constructed of steel in accordance with recommendations of the International Standards Organization ("ISO"). The basic container type is the general-purpose dry freight standard container, which measures 20 or 40 feet long, 8 feet wide and 8 1/2 or 9 1/2 feet high. In general, 20-foot containers are used to carry heavy, dense cargo loads (such as industrial parts and certain food products) and can also operate in areas where transportation facilities are less developed, while 40-foot containers are used for lighter weight finished goods (such as apparel, electronic appliances and other consumer goods) in areas with better developed transportation facilities. A chassis is a rectangular, wheeled steel frame, generally 23 1/2 or 40 feet in length, built specifically for the purpose of transporting a container. Longer sized chassis, designed solely to accommodate domestic containers, can be up to 53 feet in length. Once mounted, the chassis and container are the functional equivalent of a trailer. When mounted on a chassis, the container may be trucked either to its final destination or to a railroad terminal for loading onto a rail car. Similarly, a container shipped by rail may be transferred to a chassis to travel over-the-road to its final destination. As the use of containers has become a predominant factor in the intermodal movement of cargo, the chassis has become a prerequisite for the domestic segment of the journey. A chassis seldom travels permanently with a single container, but instead serves as a transport vehicle for containers that are loaded or unloaded at ports or railroad terminals. Because of differing international road regulations and non-uniformity of international standards for chassis, chassis used in the United States are seldom used in other countries.

Containers provide a secure and cost-effective method of transporting finished goods and component parts because they are generally freely interchangeable between different modes of transport, making it possible to move cargo from a point of origin to a final destination without the repeated unpacking and repacking of the goods required by traditional shipping methods. The same container may be carried successively on a ship, rail car and chassis and across international borders with minimal customs formalities. Containerization is more efficient, more economical and safer in the transportation of cargo than "break bulk transport" in which the goods are unpacked and repacked at various intermediate points en route to their final destination. By eliminating manual repacking operations when differing modes of transportation are used, containerization reduces freight and labor costs. In addition, automated handling of containers permits faster loading and unloading and more efficient utilization of transportation equipment, thereby reducing transit time. The protection provided by sealed containers also reduces damage to goods and loss and theft of goods during shipment. Containers may also be picked up, dropped off, stored and repaired at independent common user depots located throughout the world.

Between 1990 and 2004, worldwide container traffic at the world's major ports has grown at a compound annual rate of 10.4%, calculated using the Containerisation International Yearbook of 1992 and 2006.

The demand for containers is influenced primarily by the volume of international and domestic trade. In recent years, however, the rate of growth in the container industry has exceeded that of world trade as a whole due to several factors, including:

In recent years, domestic railroads and trucking lines have begun actively marketing intermodal services for the domestic transportation of freight. We believe that this trend should serve to accelerate the growth of intermodal transportation resulting in increased chassis and container demand. In addition, due to the increased volume of cargo movement in and out of railroad terminals, the railroads are reconfiguring the patterns of container and chassis activity on the terminals. In a growing number of locations they are requiring empty containers to be moved off of the terminal, a process that requires additional chassis to service the additional container movements. Railroads are also increasing the use of neutral chassis pooling operated by leasing companies to aid efficiency.

The Leasing Market

Leasing companies own a significant portion of North America's chassis and of the world's container fleet and we believe the balance is owned predominantly by shipping lines and railroads. Leasing companies have maintained this market position because container shipping lines and railroads receive both financial and operational benefits by leasing a portion of their equipment. The principal benefits of leasing are the following:

Because of these benefits, container shipping lines and railroads generally obtain a significant portion of their container and chassis fleets from leasing companies, either on short-term or long-term leases. Short-term leases provide considerable operational flexibility in allowing a customer to pick up and drop off equipment at various locations at any time. However, customers pay for this flexibility in the form of substantially higher lease rates for short-term leases and drop-off charges for the privilege of returning equipment to certain locations. Many short-term leases are "master leases," under which a customer reserves the right to lease a certain number of containers or chassis as needed under a general agreement between the lessor and the lessee. Long-term leases provide the lessee with advantageous pricing structures, but often contain an early termination provision allowing the lessee to return equipment prior to expiration of the lease upon payment of an early termination fee or a retroactive increase in lease payments.

Business Strategy

Our objective is to continue to expand on our market position as a leading long-term lessor of intermodal transportation equipment. To achieve this objective, we intend to continue to:

Operations

We offer our customers both operating leases and direct financing leases to satisfy customer preference and demand. In most cases, a direct financing lease provides the customer the opportunity to acquire ownership of the equipment.

Lease rentals are typically calculated on a per diem basis, regardless of the term of the lease. Our leases generally provide for monthly billing and require payment by the lessee within 30 to 60 days after presentation of an invoice. Generally, the lessee is responsible for payment of all taxes and other charges arising out of use of the equipment and must carry specified amounts of insurance to cover physical damage to and loss of equipment, as well as bodily injury and property damage to third parties. In addition, our leases usually require lessees to repair any damage to the chassis and containers, other than normal wear and tear. Lessees are also required to indemnify us against our losses arising from accidents and other occurrences involving the leased equipment. Our leases generally provide for lessees to pay handling charges. Our short-term leases usually assess drop-off charges upon redelivery of containers. All of our operating leases, both short-term and long-term, generally set forth a list of locations where lessees may return equipment, along with any monthly quantity return limits.

Long-term leases provide the lessee with advantageous pricing structures, but often contain an early termination provision allowing the lessee to return equipment prior to expiration of the lease upon payment of an early termination fee or a retroactively applied increase in lease payments. We experience minimal early returns of our equipment under our long-term leases, primarily because of the penalties involved. Additionally, customers may bear substantial costs related to repositioning and repair upon return of the equipment.

Frequently, a lessee will desire to retain long-term leased equipment well beyond the initial lease term. In these cases, long-term leases will be renewed at the then prevailing market rate, for one to five-year periods or as a direct financing lease.

Chassis Pools. Chassis have been leased in pooled arrangements at marine ports since the mid 1980's. Chassis pools are locations where a lessor provides a group of chassis in a single port terminal location to be rented on a daily basis. A customer who signs our pool agreement and has appropriate credit is allowed to rent any chassis in the pool at any time. The industry term for this type of chassis pool is called a "neutral" pool, because the chassis are provided by a neutral third party rather than the shipping lines themselves. A shipping line notifies a trucker to pick up a chassis from the pool and then proceed to pick up the designated container for movement. The chassis is returned by the trucker to the pool when the move is complete. The shipping line or other customer pays only for the number of days it uses the chassis. Pool rental rates are higher than term lease rates because the customer pays only when the chassis is in use (and we may experience some idle, unpaid period between uses of the chassis) and because the customer generally does not pay for any maintenance and repair--the costs being also bundled into the overall chassis pool rate.

Recently, we have established two more advanced "neutral" chassis pools. These pools are clusters of locations in a region. We call them "metro pools" and such pools have been established in the New York metropolitan area, and the Houston metropolitan area. These pools differ from traditional neutral pools in that customers are able to pick up chassis in one location and return them to other locations that are all in the "network." The logistics of the networking process are managed by our proprietary "PoolStat"(TM)software, which also manages the inventory and billing functions of the pools. This form of neutral pool is growing, and should see continued rapid growth in the next several years.

In 2000, we acquired the North American Intermodal Division of Transamerica Leasing, Inc. which included chassis pool operations at railroad terminals. This program has continued to expand, and today we have neutral chassis pools at over 40 rail terminals across the United States. Some of these terminals are linking up with the metro pools to create a more integrated marine/rail pool network.

Depots. We and our 50% owned consolidated subsidiary, CAI, operate in all major containerized transportation markets in North America and throughout the world. Depots are facilities owned by third parties at which containers, chassis and other items of transportation equipment are stored, maintained and repaired. For containers, we utilize independent agents/depots to handle and inspect equipment delivered to, or returned by lessees, as well as to store containers that are not leased and to perform maintenance and repairs. Some agents are paid a fixed monthly retainer to defray recurring operating expenses and some are paid a minimum level of commission income. In addition, we generally reimburse our agents for incidental expenses. For chassis, we have our own field staff which oversees the functions performed by depots.

Logistic Support. Our worldwide network of offices and relationships and our industry experience enables us to provide logistic services in order to facilitate the movement of chassis and containers to meet our customers' needs.

Repositioning and Other Operating Expenses. If lessees return large numbers of equipment to a location with a larger supply than demand, we may incur expenses in repositioning the equipment to a more favorable location. Repositioning expenses generally range between $75 and $1,000 per unit, depending on geographic location, distance and other factors, and may not be fully covered by any drop-off charge collected from the lessee. We also incur storage costs, which generally range between $0.20 and $3.18 per unit per day depending on location and equipment type. In addition, we bear other operating expenses associated with our chassis and containers, such as costs of maintenance and repairs not required to be made by lessees, agent fees, depot expenses for handling, inspection and storage, and any insurance coverage in excess of that maintained by the lessee.

Maintenance, Repairs and Refurbishment. As chassis and containers age, the need for maintenance increases. Our customers are generally responsible for maintenance and repairs of equipment other than normal wear and tear. For containers, when normal wear and tear or other damage is extensive, the container is usually sold or scrapped since major repairs are typically not cost effective. For older chassis, refurbishing and remanufacturing involve substantial cost, but remanufacture or refurbishment costs are substantially less than the cost of purchasing a new chassis, therefore chassis are typically repaired or remanufactured and are not sold.

Redeployment and Disposition of Containers. Pursuant to our relationship with CAI, containers that have come off long-term lease and have been designated for short-term leasing (not including renewals with existing lessees) are generally provided to CAI for deployment in CAI's fleet. For containers that continue to be owned by us and managed by CAI, CAI pays us its average total fleet per diem rate (net of operating expenses) less a management fee. This payment may be subject to reduction to the extent the average age of the Interpool containers exceeds the average age of the CAI containers. Containers made available for short-term leasing under our agreement with CAI are reported by us as fully utilized. Containers that were previously leased are also sold to shipping or transportation companies for continued use in the intermodal transportation industry or to secondary market buyers, such as wholesalers, depot operators, mini storage operators, construction companies and others, for use as storage sheds and similar structures. The decision to sell depends on the equipment's condition, remaining useful life and suitability for continued leasing or for other uses, as well as prevailing local market resale prices and an assessment of the economic benefits of repairing and continuing to lease the equipment compared to the benefits of selling.

The selling price of a container will depend upon, among other factors, mechanical or economic obsolescence, its physical condition and location. While there have been no major technological advances in the history of containerization that have made active equipment obsolete, several changes in standards have decreased the demand for older equipment, such as the increase in the standard height of containers from 8 feet to 8 1/2 feet in the early 1970's and for 20 foot long containers, an increase in the gross weight rating to 30 tons from 24 tons.

Sources of Supply. Over 90% of the world's container production occurs in China. Historically, most chassis used in the United States have been manufactured domestically; however, China began producing ISO standard chassis for the U.S. market in 2003 and in 2005 accounted for approximately 58% of new chassis placed in service.

When manufacturing is complete, new chassis and containers are inspected to ensure that they conform to applicable standards of the International Standards Organization and other international self-regulatory bodies, as well as our internal standards.

Chassis Management Services

Our chassis customers are turning to outside service companies to help them manage chassis that they own and lease. We offer management services under the trademarked name "PoolStat"TM. "PoolStat"TM aggregates chassis activity data from over 400 locations around the country and reports on this activity, processing more than 3.5 million transactions monthly. Customers contract with us to track their chassis nationally and determine usage patterns, ongoing requirements, and overall fleet efficiencies. Reports are provided using a "PoolStat"TM proprietary Internet based report generator. "PoolStat"TM services also include the use of field staff under contract where field management of chassis operations is involved.

A major chassis management service requested by our customers is assistance in the formation and running of "cooperative chassis pools." Cooperative chassis pools consist of chassis contributed for common use by the shipping lines (chassis owned and/or leased and under their control) to be pooled at marine terminals and railroad depots. These chassis pools are different from the "neutral" chassis pools in that the shipping lines supply the chassis rather than us supplying the chassis on a rental basis. Our "PoolStat"TM software compiles data from each location and reports on levels of chassis contribution as compared to the levels of chassis usage by each shipping line in the cooperative pool. Each participating line is required to supply a fair share of equipment relative to its usage. The management services we provide for cooperative chassis pools often involves field staff assisting in the repositioning of chassis as well as overseeing the maintenance and repair process. Benefits to the participants of this program include:

By providing the "PoolStat"TM service, we are able to forge closer relationships with our customers for both short-term and long-term leasing opportunities. There are now approximately 238,000 chassis covered by various Trac Lease, Inc. ("Trac Lease")/ "PoolStat"TM management contracts and we are continuing to seek opportunities to increase its level of business. We believe that Trac Lease is the leading provider of chassis management services in the United States.

Direct Financing Leases

In addition to providing our customers with operating leases for our equipment, we also offer them the option of direct financing leases. These leases generally provide that, after a stated lease term, the lessee has the option to purchase the equipment, typically for amounts below the estimated fair market value of the equipment at that time. Under the terms of these leases, the substantive risks and rewards of equipment ownership are passed to the lessee. The lease payments are segregated into principal and interest components similar to a loan. The interest component, calculated using the effective interest method over the term of the lease, is recognized by us as equipment leasing revenue. The principal component of the lease payment is reflected as a reduction to the net investment in the direct financing lease.

Marketing and Customers

We lease our chassis and containers to almost 600 shipping and transportation companies throughout the world, including nearly all of the world's 25 largest international container-shipping lines and major North American railroads. The customers for our chassis include a large number of domestic lessees, many of which are domestic subsidiaries or branches of international shipping lines to which we also lease containers. With a network of offices and agents covering major ports in the United States, Europe and the Far East, we have been able to supply containers in nearly all locations requested by our customers. In 2005, our top 25 customers represented approximately 76% of our consolidated net billing, with no single customer accounting for more than 8.3%.

Credit Process

We maintain detailed credit records about our customers. Our credit policy sets different maximum exposure limits for our customers. Credit criteria may include, but are not limited to, customer trade route, country, social and political climate, assessments of net worth, asset ownership, bank and trade credit references, credit bureau reports, operational history and financial strength.

We seek to reduce credit risk by maintaining insurance coverage against customer insolvency and related equipment losses. We maintain contingent physical damage, recovery and loss of revenue insurance, which provides coverage upon the occurrence of a customer's insolvency, bankruptcy or default giving rise to our demand for return of all of our equipment. The policy covers the cost of recovering our equipment from the customer, including repositioning cost, damage to the equipment and the value of equipment which could not be located or was uneconomical to recover. It also covers a portion of the equipment leasing revenues that we might lose as a result of the customer's default (i.e., up to 180 days of lease payments following an occurrence under the policy). Our current policy, which commenced April 30, 2005, includes coverage of $13.0 million with a $2.0 million deductible, per occurrence. This coverage automatically renews for at least two additional one-year terms on each anniversary of the commencement date. All renewals are subject to maintaining a claim experience that does not exceed stated percentages of the policy premiums. There can be no assurance that this or similar coverage will be available in the future or that such insurance will cover the entirety of any loss.

Beginning January 31, 2006, we also maintain credit insurance which provides complementary coverage upon the occurrence of a customer's insolvency, bankruptcy or default giving rise to our demand for return of all our equipment. The policy covers a portion of the equipment leasing revenues we might lose as a result of the customer's default (i.e., up to 90 days of lease payments that accrue prior to an occurrence under the policy). Our current policy includes coverage of $10.0 million with a $0.2 million deductible per year, in the aggregate. The policy has a one-year term. There can be no assurance that this or similar coverage will be available in the future or that such insurance will cover the entirety of any loss.

Competition

There are many companies leasing intermodal transportation equipment with which we compete. Some of our competitors have greater financial resources than we do, or are affiliates of much larger companies. Historically, there has been consolidation in the container leasing business resulting from several acquisitions. During the past few years, several chassis lessors have sold their fleets. This resulted in an environment at the end of 2004, where only two major chassis lessors remained; Interpool and Flexi-Van Leasing, Inc. In 2005, a third company, Transamerica Leasing, Inc., began offering chassis for lease.

In addition, the containerized shipping industry, which we service, competes with providers of alternative methods of transporting goods, such as non-containerized services by air, truck and rail. We believe that in most instances these alternative methods are not as cost-effective as the shipping of containerized cargo.

Because rental rates for chassis and containers are not subject to regulation by any government authority but are determined principally by the demand for and supply of equipment in each geographical area, price is one of the principal methods by which we compete. In times of low demand and excess supply, leasing companies tend to grant price concessions, such as free days or pick-up credits, in order to keep their equipment on lease and to avoid storage charges. We attempt to design lease packages tailored to the requirements of individual customers and consider our long-term relationships with customers to be important to our ability to compete effectively. We also compete on the basis of our ability to deliver equipment in a timely manner in accordance with customer requirements.

Relationship with CAI

We own a 50% common equity interest in CAI, which we acquired in April 1998. The remaining 50% common equity interest in CAI is owned by CAI's Chief Executive Officer, Hiro Ogawa. CAI owns and leases-in its own fleet of containers and also manages, for a fee, containers owned by us and by third parties. We entered into our operating relationship with CAI primarily to facilitate the leasing in the short-term market of containers coming off long-term operating lease, to gain access to new companies looking to lease containers on a long-term basis and to realize cost efficiencies from the operation of a coordinated container lease marketing group. For containers managed by CAI for us in the short-term market, we earn the net operating income and pay CAI a fee for managing our equipment and leasing it on our behalf. The management fee calculation is based on the average daily net operating income of CAI's fleet of owned, leased-in and managed containers (including the portion of CAI's fleet that consists of our equipment) for each day such managed containers are part of the CAI fleet. The marketing group, which is organized as a wholly-owned subsidiary of Interpool, is responsible for soliciting container lease business for both Interpool and CAI, including long-term operating and direct financing lease business and short-term lease business under master lease agreements. Pursuant to our agreements with CAI, we have a right to purchase all long-term operating and direct financing lease business generated by the marketing group, subject to offering to CAI, at cost, 10% of this long-term operating and direct financing lease business plus an additional portion of the long-term lease business to be mutually agreed with CAI for sale by CAI to investors for whom CAI manages containers. By mutual agreement, CAI has purchased for its own account and for the account of third party investors long-term operating and direct financing lease business the marketing group has generated in excess of 10% of the marketing group's long-term operating and direct financing lease business. Our existing agreements with CAI also contemplated that we would pay CAI an annual "Earn Out" fee in consideration for the transfer of CAI's marketing employees to the marketing group, but, to date, by mutual agreement, this provision has been waived. In addition, on occasion, we have entered into transactions with CAI pursuant to which we have acquired equipment, and the related leases, from CAI on terms that resulted in a profit for CAI. Such equipment, as well as certain other containers purchased from time to time, are currently managed for us by CAI for a fee based upon the actual net operating income earned by such containers, or in certain instances, for a flat fee.

In April 2004, we reached an agreement with CAI resolving a number of open matters relating to the various agreements between the two companies, including appropriate remedial compensation for age differences between our containers managed by CAI and the balance of CAI's managed fleet, pursuant to certain provisions of the Operating and Administration Agreement between us and CAI (the "CAI Agreement"). Pursuant to this agreement with CAI, during 2004 we paid CAI $2.0 million for resolution of these open issues through February 29, 2004. The impact of this agreement was recorded by us during the three months ended March 31, 2004, as a reduction in consolidated pre-tax income of $1.0 million ($0.6 million net of tax). As a result of this agreement, we anticipate that the earnings related to certain of our containers managed by CAI will be reduced to the extent the average age of such containers exceeds the average age of all other containers in CAI's fleet.

In connection with the acquisition of our 50% common equity interest in CAI in 1998, we loaned CAI $33.7 million under a subordinated note agreement, which is collateralized by all containers owned by CAI as of April 30, 1998 or thereafter acquired, subject to the priority security interest lien of CAI's senior credit facility, except for certain excluded collateral. Interest on this subordinated note is at an annual fixed rate of 10.5% and is payable quarterly. The original repayment terms required mandatory quarterly principal payments of $1.7 million beginning July 30, 2003 and ending on April 30, 2008. The subordinated note was subject to certain financial covenants and was cross-collateralized with CAI's senior credit facility, subject to the terms of a subordination agreement.

On June 27, 2002, CAI entered into an amended $110.0 million senior revolving credit agreement with a group of financial institutions. To facilitate the closing of this new credit facility, we agreed to extend the repayment terms of our subordinated note so as to require mandatory quarterly principal payments of $1.7 million beginning July 30, 2006 and ending on April 30, 2011. We also agreed to modify certain financial covenants in the subordinated note. Interest on the subordinated note continues to accrue at an annual fixed rate of 10.5%, payable quarterly. The subordinated note continued to be cross-collateralized with CAI's senior credit agreement, subject to the terms of an amended and restated subordination agreement. In connection with these modifications, Mr. Ogawa, CAI's Chief Executive Officer and the owner of the 50% common equity interest in CAI that we do not own, agreed that we would have the right to designate a majority of the members of CAI's board of directors, so long as the subordinated note remained outstanding. As a result of these transactions and gaining a majority position on CAI's board, our financial statements have included CAI as a consolidated subsidiary since June 27, 2002.

On April 28, 2005, in connection with the first advance under a new secured revolving credit facility established by CAI, CAI repaid $15.2 million of the amounts owed to us under the outstanding $33.7 million subordinated note held by us. This repayment returned the subordinated note to the original payment schedule in effect before it was modified in 2002. The remaining balance of the subordinated note, totaling $16.8 million as of December 31, 2005, is required to be repaid in equal quarterly installments of approximately $1.7 million through April 30, 2008. In addition, the financial covenants associated with this subordinated note were also amended.

As noted above, in connection with the June 2002 modifications to our subordinated note, Mr. Ogawa agreed that, until the subordinated note is paid in full, we would have the right to designate a majority of the members of CAI's board of directors. Since the time this agreement was entered into, CAI's board has consisted of five directors, three of whom were appointed by us and two of whom were appointed by Mr. Ogawa. CAI management has advised us that CAI may wish to repay the remaining balance of the subordinated note during 2006 and CAI has obtained the consent of the lenders under its new secured revolving credit facility to make such repayment. Under the terms of the amended Shareholder Agreement between us and Mr. Ogawa, this repayment would result in CAI's board of directors being comprised of an equal number of directors appointed by us and by Mr. Ogawa. Any such change in the composition of CAI's board of directors would require that we no longer consolidate CAI in our financial statements from and after the date of such change. Instead, we would record our investment in CAI under the equity method of accounting. We have had preliminary discussions with Mr. Ogawa about potential modifications to the Shareholder Agreement that would preserve our majority position on CAI's board of directors for some period of time after a repayment of the subordinated note. To date, no agreement has been reached on any such modifications, nor has CAI made a firm decision to repay the subordinated note prior to its final maturity in April 2008.

In May 1998, CAI granted options to certain of its key employees to purchase Series A cumulative preferred stock of CAI. Each of these individuals was given the opportunity to exercise these options by investing the after tax proceeds from stock appreciation rights previously granted to these employees. In addition, CAI provided a full recourse loan to finance the remaining portion of the exercise price. This loan was in the form of a promissory note that was secured by a pledge of the stock acquired through the exercise of the options. The options were exercised in May 1998 at an exercise price of $496.11 per share and, at December 31, 2005, there were 1,726 outstanding shares of this CAI preferred stock.

So long as the preferred stock has not yet been redeemed by CAI or the employee, at such time as a liquidity event takes place, defined as an initial public offering or a sale to parties other than Mr. Ogawa or Interpool, the preferred stock will be converted into an equal number of shares of CAI's common stock. This preferred stock is subject to variable accounting in CAI's financial statements for the portion of the preferred stock acquired using the proceeds of the loan from CAI. During the years ended December 31, 2003 and 2004, the management of CAI concluded that there was no change to the valuation of the preferred shares of CAI and, therefore, no stock compensation charge was recorded in CAI's financial statements for those periods. In the fourth quarter of 2005, CAI determined that a change in the valuation of its preferred shares had, in fact, taken place during these periods as well as for the year ended December 31, 2005. We have determined that the effect of this previously undetected error related to CAI's valuation of its preferred stock and corresponding stock compensation charge is immaterial to our consolidated financial statements for the years ended December 31,2003 and 2004. In order to properly reflect these adjustments for the three years ended December 31, 2005, we recorded additional compensation expense of 4.5 million (2.2 million, net of minority interest income) during the fourth quarter of 2005.

During the third quarter of 2005, pursuant to the terms of the Shareholder Agreement we entered into with Mr. Ogawa when we acquired our 50% common equity interest in CAI in 1998, Mr. Ogawa notified us that he was exercising his contractual right to request an independent valuation of CAI. An investment banking firm was engaged by CAI's board of directors to conduct this valuation and the valuation was completed during the fourth quarter of 2005. We advised Mr. Ogawa that, after review of this valuation, we had decided not to exercise our right under the Shareholder Agreement to make an offer to acquire his 50% common equity interest in CAI for an amount equal to his percentage interest of the fair value of CAI as determined by the investment banking firm. The Shareholder Agreement provides that if we do not elect to make such an offer, Mr. Ogawa has a right to require CAI to take the necessary steps to effect an initial public offering to sell his equity, with all costs associated with any such initial public offering of CAI being borne by CAI. Mr. Ogawa has requested that CAI proceed with the steps necessary to register his equity interest in CAI for sale by him in an initial public offering. In response to Mr. Ogawa's request, CAI has engaged an investment banking firm to manage an initial public offering. CAI and its investment bankers, together with their advisors, have commenced preparation of an S-1 registration statement for filing with the SEC sometime during 2006. In the event that CAI's initial public offering is consummated, CAI would become a public company. In connection with CAI's anticipated public offering, we expect to consider potential changes to the terms of the existing agreements between us and CAI and to the terms of the Shareholder Agreement between us and Mr. Ogawa. To date, however, no agreement has been reached regarding any such changes. In addition, we are currently evaluating the impact of CAI's initial public offering on our current 50% common equity position in CAI. CAI's ability to complete a public offering will depend upon a number of factors, including market conditions, industry conditions and developments in CAI's business. Accordingly, there is no assurance that CAI's public offering will be completed within the anticipated time frame or at all.

For additional information about CAI, see Note 11 to the Consolidated Financial Statements.

Other Business Operations

In addition to our chassis and container leasing operations, we also receive revenues from the leasing of approximately 274 freight rail cars to railroad companies through our Illinois based Railpool division. Also, our former computer leasing segment consisted of two majority owned subsidiaries, Microtech Leasing Corporation ("Microtech") and Personal Computer Rental Corporation ("PCR"). During the third quarter of 2001, we adopted a plan to exit this segment. We liquidated the assets of Microtech as of March 31, 2004. PCR ceased active operations and began to liquidate in the first quarter of 2003. At March 31, 2004, all of the assets of PCR were liquidated.

On occasion, we have entered into joint ventures with shipping lines and other third parties, primarily for the purpose of funding the construction of facilities in Asia to manufacture chassis and other equipment. In general, we have agreed to make a specified financial contribution of capital to these joint ventures in return for a minority equity interest and the right to representation on the entity's board of directors. It is anticipated that we would be a major purchaser of equipment manufactured by these joint ventures. Through December 31, 2005, our equity commitments to such joint ventures have totaled $4.4 million, of which $0.5 million has been funded. In certain cases, we have agreed to provide technical information and assistance in setting up the production lines and providing certain specified services in connection with the marketing of the equipment produced by the factories. We view our participation in these joint ventures as advantageous because they provide us with a stable source of equipment for lease to customers. See Chassis Distribution Agreement in Liquidity and Capital Resource section of Item 7.

Employees

As of December 31, 2005, excluding CAI's 60 employees, we had 254 employees, 234 of whom were based in the United States. None of our employees are covered by a collective bargaining agreement. We believe our employee relations are good.

Website Access

Our website address is www.interpool.com. You may obtain free electronic copies of our Annual Reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports under the heading "Financial Information." These reports are available on our website as soon as reasonably practicable after we electronically file them with the SEC. You can also go to our website to obtain copies of our corporate governance guidelines, Code of Business Conduct and Ethics and charters for our Audit, Compensation and Corporate Governance Committees. Copies of all of these documents can also be obtained, free of charge, upon written request to the Secretary, Interpool, Inc., 211 College Road East, Princeton, NJ 08540.

Investors in Interpool should consider the following risk factors as well as the other information contained herein.

We are subject to the cyclicality and uncertainties of world trade which may impair demand for our chassis and containers.

The demand for our chassis and containers primarily depends upon levels of world trade of finished goods and component parts. Recessionary business cycles, political conditions, the status of trade agreements and international conflicts may have an impact on our operating results. The demand for leased chassis also depends upon domestic economic conditions and volumes of exports to the United States which are likely to be adversely affected if the value of the United States dollar declines. When the volume of world trade decreases, our business of leasing chassis and containers may be adversely affected as the demand for chassis and containers is reduced. A substantial decline in world trade may also adversely affect our customers, leading to possible defaults and the return of equipment prior to the end of a lease term.

We operate in a highly competitive industry, which may adversely affect our results of operations or ability to expand our business.

The transportation equipment leasing industry is highly competitive. We compete with many domestic and foreign leasing companies, as well as container and chassis manufacturers, banks offering financing leases and promoters of equipment ownership and leasing as an investment in the U.S. and abroad. Some of these competitors have greater financial resources and access to capital than we do. From time to time, the industry may have large under-utilized inventories of chassis and containers, which could lead to significant downward pressure on pricing and margins. In addition, if the available supply of intermodal transportation equipment were to increase significantly as a result of, among other factors, new companies entering the business of leasing and selling intermodal transportation equipment, our competitive position could be adversely affected. New entrants attracted by the projected high rate of containerized trade growth, together with the already highly competitive nature of our business, could put significant downward pressure on lease rates and margins and adversely affect our ability to achieve our growth plans. The expansion of such competition has, at times, led to overproduction of new containers and overbuying by shipping lines and leasing competitors and could continue to impact lease rates and utilization in the future. Certain of our leasing industry competitors have shifted their strategies toward an increase in long-term leasing of shipping containers which has also added to competitive pressures.

Potential customers may decide to buy rather than lease chassis and containers.

We, like other suppliers of leased chassis and containers, are dependent upon decisions by shipping lines and other transportation companies to lease rather than buy their equipment. If major shipping lines elect to construct their own facilities to manufacture containers or chassis, or to make investments in such facilities, these customers may decide to own a larger portion of their equipment fleets. In addition, our ability to achieve our strategy of expanding our business in response to customer demand for long-term leasing would be adversely affected if our customers shifted to more short-term leasing over long-term leasing. Most of the factors affecting the decisions of our customers are outside our control. Operating costs such as storage and repair and maintenance costs also increase as utilization decreases.

Pending governmental investigations may adversely affect us.

Following our announcement in July 2003 that our Audit Committee had commissioned an internal investigation by special counsel into our accounting, we were notified that the SEC had opened an informal investigation of Interpool. As we anticipated, this investigation was converted to a formal investigation later in 2003. We have fully cooperated with this investigation. During 2003 and 2004, the New York office of the SEC received a copy of the written report of the internal investigation and received documents and information from us, our Audit Committee and certain other parties pursuant to SEC subpoenas. During late 2003, we were also advised that the United States Attorney's office for the District of New Jersey received a copy of the written report of the internal investigation by our Audit Committee's Special Counsel and opened an investigation focusing on certain matters described in the report. We were informed that Interpool was neither a subject nor a target of the investigation by the U.S. Attorney's office. We have not had any communications with either the SEC or the U.S. Attorney's office relating to their respective investigations since 2004. We do not have any information regarding the current status of either of these investigations. Therefore, we cannot predict the final outcome of either of these investigations and cannot be assured that they may not result in the taking of some action that may be adverse to us.

Our internal controls and procedures may require further improvements.

As indicated elsewhere in this Form 10-K report, our management's review of our internal controls over financial reporting, using the framework defined by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"), has indicated that certain internal control deficiencies existed as of December 31, 2005 which constitute "significant deficiencies" or "material weaknesses" as defined by the Public Company Accounting Oversight Board (United States) ("PCAOB"). As disclosed in our prior SEC filings, we have previously concluded that other internal control deficiencies identified by our external auditors and by management, as well as through the investigation by the Audit Committee of the Board of Directors, constituted "material weaknesses" or "significant deficiencies" as defined by the PCAOB as of December 31, 2004. Based on remedial actions taken during 2005 and the testing of our key financial controls that has been completed, our management, including our Chief Executive Officer and Chief Financial Officer, has concluded that some, but not all, of the previously identified deficiencies and weaknesses had been corrected as of December 31, 2005. However, other "significant deficiencies" and/or "material weaknesses" in our controls over financial reporting as of December 31, 2005 were identified, as disclosed in Item 9A of this 2005 Form 10-K report.

We believe that actions to be implemented in 2006 and beyond will remediate the significant deficiencies and material weaknesses in our internal controls and information systems identified in Item 9A of this 2005 Form 10-K Report and that, after the required remediation, our processes and systems of internal controls will be effective. However, we cannot give assurances that any of the previously identified material weaknesses or significant deficiencies have been fully remediated or that any remaining weaknesses or deficiencies in internal controls will be effectively remediated in the future. Additional internal control weaknesses or deficiencies may also be identified from time to time in the future. Any material internal control weaknesses or deficiencies could materially affect our financial results.

Sustained Asian economic instability could reduce demand for leasing.

A number of the shipping lines to which we lease containers are entities domiciled in several Asian countries. In addition, many of our customers are substantially dependent upon shipments of goods exported from Asia. From time to time, there have been economic disruptions, financial turmoil and political instability in this region. If similar events were to occur in the future, they could adversely affect these customers and lead to a reduced demand for leasing of our containers or otherwise adversely affect us.

Terrorist attacks or hostilities could adversely affect us.

Potential acts of terrorism or hostilities may affect the ports and depots at which we and our customers operate as well as our other facilities or those of our customers and suppliers. In addition, any such incident or similar act of violence could lead to a disruption to the worldwide ports system and flow of goods or contribute to economic instability in other respects. To the extent any such event were to result directly or indirectly in a reduction in the level of international trade and reduced demand for transportation equipment, our business would be adversely affected. In addition, if one of our containers were to be involved in a terrorist attack, our customer agreements and insurance policies might not be adequate to fully protect us from any liability. We also may be subject to domestic or international regulations designed to prevent the use of containers for international terrorism or other illegal activities. As such regulations develop and change, we may incur increased compliance or related competitive costs affecting existing inventories or future containers that are acquired which could have a material adverse effect on our financial condition and results of operations.

Environmental liability may adversely affect our business and financial situation.

Like other companies, we are subject to federal, state, local and foreign laws and regulations relating to the protection of the environment, including those regulating the use and disposal of hazardous substances. We could incur substantial costs, including cleanup costs, fines and third-party claims for property damage and personal injury, as a result of violations of or liabilities under environmental laws and regulations in connection with our current or historical operations. Under some environmental laws in the United States and certain other countries, the owner of a leased container may be liable for environmental damage, cleanup or other costs in the event of a spill or discharge of material from a container without regard to the owner's fault. While we maintain insurance and require lessees to indemnify against certain losses, such insurance and indemnities may not cover or be sufficient to protect us against losses arising from environmental damage.

Many countries, including the United States, restrict, prohibit or otherwise regulate the use of chlorofluorocarbon compounds ("CFCs") due to their ozone depleting and global warming effects. CFCs have historically been used in the manufacture and operation of older refrigerated containers, including some of our refrigerated containers. Regulation of CFCs or other refrigerants may become stricter in the future, and it may become necessary for us to retrofit any refrigerated containers in our fleet using CFCs with non-CFC refrigerants at substantial cost to us. The replacement refrigerant used in our new refrigerated containers also may become subject to similar regulation. In addition, refrigerated containers that are not retrofitted may command lower prices in the market for used containers once we retire these containers from our fleet. At December 31, 2005, 3% of our fleet is composed of refrigerated containers.

Defaults by our customers could adversely affect our business by decreasing revenues and increasing storage, collection and recovery expenses.

We are dependent upon our lessees continuing to make lease payments for our equipment. A default by a lessee may cause us to lose revenues for past services and incur expenses for storage, collection and recovery. Repossession from defaulting lessees may be difficult and more expensive in jurisdictions whose laws do not confer the same security interests and rights to creditors and lessors as those in the United States and in jurisdictions where recovery of equipment from the defaulting lessees is more cumbersome.

If a lessee defaults, we may be unable to re-lease recovered equipment for comparable rates or terms. Our reserves for anticipated losses may increase over historical levels or not be sufficient to cover actual losses, or our earnings may be adversely affected by customer defaults.

Changes in market price, availability or transportation costs of equipment manufactured in China could adversely affect our ability to maintain our supply of containers.

Changes in the political, economic or financial condition of China, which would increase the market price, availability or transportation costs of containers or chassis, could adversely affect our ability to maintain our supply of equipment. China is currently the largest container producing nation in the world and a significant supplier of chassis. We currently purchase substantially all of our containers and a majority of our chassis from manufacturers in China. In the event that it were to become more expensive for us to procure containers and chassis in China or to transport these containers or chassis at a low cost from China to the locations where they are needed, because of a shift in U.S. trade policy toward China, increased tariffs imposed by the United States or other governments, a significant downturn in the political, economic or financial condition of China, or for any other reason, we would have to seek alternative sources of supply. We may not be able to make alternative arrangements quickly enough to meet our equipment needs, and the alternative arrangements may increase our costs.

We are controlled by a limited number of stockholders; this concentrated ownership could discourage acquisition bids for us that are not supported by our majority stockholders or limit the price investors will be willing to pay in the future for shares of our common stock.

As of March 1, 2006, approximately 66.7% of our common stock is beneficially owned, directly or indirectly, in the aggregate by Martin Tuchman, Warren L. Serenbetz, Jr., Raoul J. Witteveen and Arthur L. Burns, together with certain members of their immediate families and certain related entities. Each of Messrs. Tuchman, Serenbetz and Burns is a member of our Board of Directors and Mr. Tuchman and Mr. Burns are executive officers. Mr. Witteveen is a former director and executive officer. These individuals, either directly or indirectly, have the ability to elect all of the members of our Board of Directors and to control the outcome of all matters submitted to a vote of our stockholders. Our concentrated ownership may discourage acquisition bids for us that are not supported by our majority stockholders. This concentration of ownership could limit the price that investors might be willing to pay in the future for shares of our common stock.

We have relationships with and have entered into transactions with members of our management and affiliated entities that may involve inherent conflicts of interest.

Various relationships exist and various transactions have been entered into between or among us, on the one hand, and members of our management and affiliated entities, on the other hand. Some of these relationships and transactions may involve inherent conflicts of interest. See Item 13, "Certain Relationships and Related Transactions" and Note 10 to the Consolidated Financial Statements for more information.

We are dependent on the knowledge and experience of members of our senior management; loss of these members could adversely affect our ability to formulate and achieve our strategy and pursue new business initiatives.

Our growth and continued profitability are dependent upon, among other factors, the abilities, experience and continued service of certain members of our senior management, including Martin Tuchman, our Chairman and Chief Executive Officer. Mr. Tuchman holds, either directly or indirectly, a substantial equity interest in Interpool (approximately 30% at March 1, 2006) and also is a director of Interpool. Additionally, other members of our senior management possess knowledge of, and extensive experience in, the intermodal transportation industry. We rely on this knowledge and experience in our strategic planning and in our day-to-day business operations. If one or more members of our senior management were to resign or otherwise be unavailable to serve us, the loss could adversely affect our ability to formulate and achieve our strategy and pursue new business initiatives. In addition, we do not currently have employment agreements with all of our executive officers.

The volatility of the residual value of chassis and containers upon expiration of their leases could adversely affect our operating results.

Although our operating results primarily depend upon equipment leasing, our profitability is also affected by the residual values (either for sale or re-leasing) of our chassis and containers upon expiration of their leases. These values, which can vary substantially, depend upon, among other factors,

Most of these factors are outside of our control. Operating leases are subject to greater residual risk than direct financing leases.

A recharacterization of our repatriation plan by the IRS could increase our tax liability.

On December 27, 2005, Interpool, Inc.'s wholly-owned Barbados subsidiary, Interpool Limited, made a distribution to Interpool, Inc. of approximately $305.0 million (the "Distribution"), as part of a plan approved by Interpool, Inc.'s Board of Directors to repatriate accumulated and current earnings and profits of Interpool Limited which previously had been considered permanently reinvested outside the United States. Pursuant to the American Jobs Creation Act of 2004 (the "AJCA"), the Distribution was subject to U.S. federal tax at a reduced rate of approximately 5.25%.

In connection with our repatriation plan, on December 14, 2005, effective as of close of business on November 30, 2005, Interpool Limited, which operated our international container leasing business, transferred substantially all of its operating assets and related liabilities to Interpool Containers Limited ("ICL"), a newly formed Barbados company which is a subsidiary of Interpool, Inc. ICL now operates our international container leasing business.

We received a tax opinion from outside tax counsel which concluded, based on certain assumptions and representations (including representations regarding the reinvestment of proceeds of the Distribution), that the Distribution should qualify for the special 5.25% federal tax rate as provided for in the AJCA. In addition, we received a second tax opinion from another law firm confirming their agreement with the overall conclusions reached in the original opinion. In the event the IRS took a contrary view, and successfully challenged our tax positions pertaining to our repatriation plan, our tax liability could increase significantly.

Loss of our eligibility for tax benefits under the U.S.-Barbados tax treaty could increase our tax liability.

Through December 31, 2005, we claimed tax benefits under an income tax convention between the United States and Barbados (the "Tax Treaty"), the jurisdiction in which our subsidiaries, Interpool Limited and, as discussed above, ICL, operate our international container leasing business, were incorporated. Specifically, under the Tax Treaty, any profits of Interpool Limited and ICL from leasing of containers used in international trade generally are taxable only in Barbados and not in the United States.

Interpool Limited and ICL are entitled to the benefits of the Tax Treaty for each year by satisfying the two-pronged test to the "limitation of benefits" provision: (1) more than 50% of the shares of Interpool Limited and ICL were owned, directly or indirectly, by any combination of individual United States residents or citizens (the "51% U.S. ownership test"), and (2) its income was not used in substantial part, directly or indirectly, to meet liabilities to persons who were not residents or citizens of the United States (the "base erosion test"). We believe Interpool Limited and ICL passed both of these tests through December 31, 2005.

For periods beginning on or after January 1, 2005, in addition to having to satisfy the 51% U.S. ownership and base erosion tests described above, Interpool Limited and ICL are only eligible for the Tax Treaty benefits with respect to its container rental and sales income if Interpool, Inc. is listed on a "recognized stock exchange" and Interpool, Inc.'s stock is "primarily" and "regularly" traded on such exchange.

During April 2004 Interpool, Inc. was de-listed by the New York Stock Exchange. However, on January 13, 2005 Interpool, Inc. was again listed, and began trading, on the New York Stock Exchange. We believe this listing and its current trading volume satisfies the "primarily" and "regularly" traded requirements of the Tax Treaty, that Interpool Limited qualified again for benefits under the Tax Treaty on January 13, 2005, and that ICL qualified under the Tax Treaty when it began operations as of close of business on November 30, 2005. We have estimated there should be no U.S. current tax expense for the period from January 1, 2005 to January 12, 2005, when Interpool Limited was not eligible for the Tax Treaty.

There is no assurance we will continue to satisfy the "primarily" and "regularly" traded, 51% U.S. ownership or base erosion tests of the Tax Treaty. In addition, at some future date the Tax Treaty could be further modified in a manner adverse to us or repealed in its entirety, or we might not continue to be eligible for these tax benefits.

As companies resident in Barbados, Interpool Limited and ICL are required to file tax returns in Barbados and pay any tax liability to Barbados. Prior to the third quarter of 2005, no Barbados tax returns had been prepared or filed for Interpool Limited for any period subsequent to its 1997 tax year. As of September 30, 2005, all previously outstanding Barbados tax returns (1998-2004 tax years) were filed. There was no underpayment of taxes, interest or penalties (other than a nominal late filing penalty) with the filing of these returns.

A substantial portion of our future cash flows will be needed to service our indebtedness.

Historically, we have made, and continue to make, use of indebtedness to finance our equipment leasing activities and for other general corporate purposes. As of December 31, 2005, our total outstanding indebtedness was approximately $2.0 billion. We anticipate that we will incur additional indebtedness in the future. We are required to dedicate a substantial portion of our cash flow to payments on our indebtedness, thereby reducing the amount of cash flow available to fund working capital, capital expenditures, including fleet growth, and other corporate requirements. Should our cash flow be insufficient to service our debt obligations, we would be required to seek additional funds to meet our obligations. Additional funds, if needed, might not be available to us or, if available, might not be made available on terms acceptable to us.

Our business is highly dependent upon the availability of capital. In particular, the growth and replacement of our fleet through new equipment purchases or acquisitions, as well as the refinancing of our existing debt, will require further debt or equity financings. There is no assurance that interest rates and advance rates on any future financings will be as attractive as those experienced in the past. If we raise additional funds by issuing equity securities, further dilution to the existing stockholders may result.

Increases in interest rates may increase our debt service obligations and adversely affect our liquidity.

After considering borrowings payable under floating rate agreements which have been converted to fixed rate debt through the use of interest rate swap agreements, approximately 20% of our borrowings at December 31, 2005 were at variable rates of interest and expose us to interest rate risk. At December 31, 2005, we also had approximately $404.7 million of unrestricted cash and marketable securities on hand. As interest rates rise, our debt service obligations increase. A significant rise in interest rates could have a material adverse effect on results of operations in future periods. For further discussion on interest rate risk see Item 7A.

The price of our common stock may fluctuate.

The market price for our common stock has fluctuated in the past, and several factors could cause the price to fluctuate substantially in the future. These factors include:

The current market price of our common stock may not be indicative of future market prices.

Fluctuations in foreign exchange rates could affect our profitability.

The majority of our revenues and costs are billed in U.S. dollars. Most of our non-U.S. transactions are individually of small amounts and in various denominations and thus are not suitable for cost-effective hedging. In addition, almost all of our container and chassis purchases are paid in U.S. dollars. There can be no assurance that exchange rate fluctuations will not adversely affect our results of operation and financial position.

Our future business prospects could be adversely affected by consolidation within the container shipping industry.

Recently there have been several large shipping line acquisitions that have resulted in some consolidation within the container shipping industry. This has resulted in a reduction of the number of large shipping lines and also in an increase in concentration of business that we have with the combined groups. Our future business prospects could be adversely affected if there was a continued reduction in the number of shipping lines in the world. In addition, due to concentration risk, we might decide to limit the amount of business exposure we have with any single combined group if the exposure was deemed unacceptable.

Our charter documents and Delaware law may inhibit a takeover and limit our growth opportunities, which could cause the market price of our shares to decline.

Our Restated Certificate of Incorporation and Amended and Restated By-laws, as well as Delaware corporate law, contain provisions that could delay or prevent a change of control or changes in our management that a stockholder might consider favorable. These provisions apply even if the change may be considered beneficial by some stockholders. If a change of control or change in management is delayed or prevented, the market price of our shares could decline. In addition, our Restated Certificate of Incorporation and Amended and Restated By-laws contain provisions that may discourage acquisition bids for Interpool.

Potential Initial Public Offering of CAI

Our 50% subsidiary, CAI, has engaged an investment banking firm to manage an initial public offering of CAI's common stock and a registration statement is currently being prepared for filing with the Securities and Exchange Commission during 2006. CAI's ability to complete a public offering will depend upon a number of factors, and there can be no assurance that CAI's public offering will be completed within the anticipated time frame or at all. In the event CAI was to become a public company, CAI would become subject to the requirements of the federal securities laws and the costs associated with compliance therewith. In addition, in the event that CAI ultimately completes its public offering, the relationship between us and CAI could present additional conflicts of interest for us as well as potential liability under the securities laws for us and our representatives who serve on CAI's board of directors.

None.

We purchased our main office building located at 211 College Road East, Princeton, NJ in 2002. We use approximately 80% of this 39,000 square foot building. The remainder is leased to a third party. We also own approximately 18,000 square feet of condominium office space located on the 27th floor at 633 Third Avenue, New York, NY that serves as our New York office. We use approximately 49% of this 18,000 square foot condominium. The remainder is leased to third parties. All of our other commercial office space is leased.

Following our announcement in July 2003 that our Audit Committee had commissioned an internal investigation by special counsel into our accounting, we were notified that the SEC had opened an informal investigation of Interpool. As we had anticipated, this investigation was converted to a formal investigation later in 2003. We have fully cooperated with this investigation. During 2003 and 2004, the New York office of the SEC received a copy of the written report of the internal investigation and received documents and information from us, our Audit Committee and certain other parties pursuant to SEC subpoenas. During late 2003, we were also advised that the United States Attorney's office for the District of New Jersey received a copy of the written report of the internal investigation by our Audit Committee's special counsel and opened an investigation focusing on certain matters described in the report. We were informed that Interpool was neither a subject nor a target of the investigation by the U.S. Attorney's office. We have not had any communications with either the SEC or the U.S. Attorney's office relating to their respective investigations since 2004. We do not have any information regarding the current status of either of these investigations. Therefore, we cannot predict the final outcome of either of these investigations and cannot be assured that they may not result in the taking of some action that may be adverse to us.

In February and March 2004, several lawsuits were filed in the United States District Court for the District of New Jersey, by purchasers of our common stock naming us and certain of our present and former executive officers and directors as defendants. The complaints alleged violations of the federal securities laws relating to our reported Consolidated Financial Statements for the years ended December 31, 2000 and 2001 and the nine months ended September 30, 2002, which we announced in March 2003 would require restatement. Each of the complaints purported to be a class action brought on behalf of persons who purchased our securities during a specified period. In April 2004, the lawsuits, which seek unspecified amounts of compensatory damages and costs and expenses, including legal fees, were consolidated into a single action with lead plaintiffs and lead counsel having been appointed. The plaintiffs filed a consolidated amended complaint in September 2004, which included allegations of purported misstatements and omissions in our public disclosures throughout an expanded purported class period from March 31, 1999 through December 26, 2003. In November 2004, we filed a motion to dismiss the amended complaint. The motion to dismiss was granted by the District Court on August 18, 2005, dismissing the plaintiffs' claims in their entirety and with prejudice. On September 19, 2005, the plaintiffs filed a notice of appeal of the dismissal order, thereby initiating a review of the District Court's decision by the United States Court of Appeals for the Third Circuit.

In view of the costs and uncertainties described above and which are inherent in the litigation process, we elected to participate in the Third Circuit's mediation program through which a settlement of this litigation was negotiated. Following the conclusion of these negotiations, we received a letter dated December 8, 2005 from the Director of the Appellate Mediation Program for the United States Court of Appeals for the Third Circuit, confirming the settlement terms for this class action litigation, to which all parties have agreed, which are: (1) a cash payment on behalf of defendants in the total amount of $1.0 million, inclusive of all of the fees and expenses of plaintiffs' counsel, and (2) the dismissal of all claims against the Company and the other defendants on a class-wide basis. The entire $1.0 million payment will be funded by the Company's insurance carrier. The agreed settlement terms have been embodied in a formal settlement agreement that will be submitted to the United States District Court for the District of New Jersey, and will be subject to approval by the District Court. The Court of Appeals has remanded the case to the District Court for consideration of the settlement.

In the event that the settlement is not approved, and if the appeal were thereby revived and if the District Court's decision granting our motion to dismiss were to be reversed, we would expect to incur additional defense costs typical of this type of class action litigation, which should be substantially recoverable under our insurance policies. If we are required to defend this lawsuit, we intend to do so vigorously but we are unable at this time to ascertain the impact the litigation may have on our financial condition and results of operations. On the other hand, if the settlement is approved or the District Court's decision is affirmed after full appellate review, the case and its associated litigation costs will be concluded.

We are engaged in various other legal proceedings from time to time incidental to the conduct of our business. Such proceedings may relate to claims arising out of equipment accidents that occur from time to time which involve death and injury to persons and damage to property. Accordingly, we require all of our lessees to indemnify us against any losses arising out of such accidents and other occurrences while the chassis are on-hire to the lessees. In addition, lessees are generally required to maintain a minimum of $2.0 million in general liability insurance coverage which is standard in the industry. In addition, we maintain a general liability policy of $255.0 million, in the event that the above lessee coverage is insufficient. While we believe that such coverage should be adequate to cover current claims, there can be no guarantee that future claims will not exceed such amounts. Nevertheless, we believe that no such current asserted or unasserted claims of which we are aware will have a material adverse effect on our financial condition or results of operations and that we are adequately insured against such claims.

On December 15, 2005, we held our Annual Meeting of Stockholders. The following matters were voted upon by shareholders:

PART II

Our common stock was listed on the New York Stock Exchange from 1993 to December 2003. Effective December 29, 2003, due to the delay in filing our 2002 Annual Report on Form 10-K with the Securities and Exchange Commission, our common stock and other listed securities were suspended from trading on the New York Stock Exchange and delisting proceedings were commenced. Although we filed our 2002 Form 10-K on January 9, 2004 and appealed the suspension, our listed securities were delisted in April 2004. During the period the suspension and delisting were in effect, our common stock was traded on the over-the-counter market under the symbol IPLI. In December 2004, after making all delinquent SEC filings, we applied for relisting on the New York Stock Exchange and on January 13, 2005, our common stock and other listed securities were relisted on the New York Stock Exchange. Our common stock is traded on the New York Stock Exchange under the symbol “IPX”. The following table sets forth for the periods indicated commencing on January 1, 2004, the high and low closing sale prices for our common stock. All share and per share data have been rounded to the nearest cent.

As of March 1, 2006 there were approximately 3,268 stockholders of record of our common stock. On March 23, 2006, the last reported sale price of our common stock on the New York Stock Exchange was $19.63 per share.

We paid a quarterly dividend of $0.0625 per share on our common stock in January and April of 2005 and $0.075 per share in July and October of 2005. In addition, a special cash dividend of $1.00 per share was paid on November 10, 2005.

On November 23, 2005, we announced that our Board of Directors had approved an increase in our quarterly cash dividend on our common stock to $0.08 per share, commencing with the fourth quarter 2005 dividend payable in January 2006.

On January 17, 2006, we paid a cash dividend of $0.20 per share, consisting of a special dividend of $0.12 per share, together with the previously declared regular fourth quarter 2005 dividend payment of $0.08 per share. Future quarterly dividend payments are expected to be at the previously announced quarterly rate of $0.08 per share.

We paid a quarterly dividend of $0.0625 per share on our common stock in January, April, July and October of 2004 and 2003. We paid a quarterly dividend of $0.055 per share on our common stock in January, April, July and October of 2002 and a quarterly dividend in the amount of $0.05 per share on our common stock in July and October 2001. Prior to July 1, 2001, we had paid a quarterly dividend of $0.0375 per share on our common stock for the prior 17 quarters.

The Board of Directors has instituted a dividend reinvestment plan, which went into effect at the end of 2001. The plan is non-dilutive; shares required for the plan are acquired on the open market by an independent third party plan administrator and not through the issuance of additional shares by us.

The following table sets forth our selected historical consolidated financial data, for the periods and at the dates indicated. This information should be read in conjunction with our historical Consolidated Financial Statements included in this Annual Report on Form 10-K and the notes thereto.

SELECTED FINANCIAL DATA
(in thousands, except per share amounts)

The following discussion of our historical financial condition and results of operations should be read in conjunction with the historical consolidated financial statements and the notes thereto and the other financial information appearing elsewhere in this report. (All fleet statistics including the size of the fleet, utilization of the leasing equipment or the rental rates per day that are set forth in this Annual Report on Form 10-K include only our equipment, including that portion of our equipment managed by CAI. To the extent that our equipment is managed by CAI, the equipment is considered fully utilized since it is not available for us to put on hire regardless of whether all of the units are generating equipment leasing revenue. All equipment owned by CAI or managed by CAI (with the exception of equipment owned by us and managed by CAI) is excluded from all statistics, unless otherwise indicated. In addition, all of our chassis assigned to chassis pools are considered fully utilized. This exclusion of information relative to CAI, unless indicated otherwise, provides a focus on the drivers which are critical to our core business.)

The information in this Annual Report on Form 10-K contains certain “forward-looking statements” within the meaning of the securities laws. These forward-looking statements reflect the current view of the Company with respect to future events and financial performance and are subject to a number of risks and uncertainties, many of which are beyond our control. All statements other than statements of historical facts included in this report, including the statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” regarding our strategy, future operations, financial position, estimated revenues, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this report, the words “will,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

All forward-looking statements speak only as of the date of this report. We do not undertake any obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking statements we make in this report are reasonable, we can give no assurance that these plans, intentions or expectations will be achieved. Future economic and industry trends that could potentially impact revenues and profitability are difficult to predict.

During the third quarter of 2005, we determined that we had not recorded the full amount of compensation expense required by U.S. generally accepted accounting principles (“GAAP”) with respect to a separation agreement entered into with our former president in October 2003. As a result, we concluded that it was necessary to restate our Consolidated Financial Statements for the years ended December 31, 2003 and 2004. In connection with our decision to correct our Consolidated Financial Statements for the additional compensation expense, we also corrected our 2003 and 2004 Consolidated Financial Statements for an accounting error previously disclosed in our 2004 Form 10-K relating to hedge accounting that affected our 2003 financial results that had not been considered sufficiently material to require a modification of the 2003 Consolidated Financial Statements. Our restated Consolidated Financial Statements for 2003 and 2004 were included in the Form 10-K/A we filed with the Securities and Exchange Commission on November 8, 2005. For further information regarding this restatement, see Note 1(B) in our 2004 Form 10-K/A.

Certain reclassifications have been made to the 2004 and 2003 amounts in order to conform to the 2005 presentation.

March 2006 Sale of Containers

On March 29, 2006, our wholly owned container leasing subsidiary, Interpool Containers Limited (“ICL”), completed the sale of approximately 273,200 standard dry marine cargo containers, together with an assignment of all rights of ICL under existing leases for these containers with our customers, to a newly formed subsidiary of an investor group based in Switzerland (the “Purchaser”), pursuant to a Sale Agreement dated March 14, 2006 (the “Sale Agreement”). Although the sale was completed on March 29, 2006, the Sale Agreement stipulates that the Purchaser will be entitled to the net operating income attributable to the containers sold to the Purchaser from and after April 1, 2006. The aggregate cash purchase price paid by the Purchaser was approximately $515.9 million. The containers sold represent approximately 74% of the standard dry marine cargo containers owned by us at December 31, 2005 that were in our operating lease fleet, including most of the containers managed for us by our 50% subsidiary CAI. The sale did not include containers subject to existing direct financing leases with customers.

In connection with the Sale Agreement, both we and CAI entered into management agreements with the Purchaser (the “Management Agreements”) under which CAI agreed to perform management services on behalf of the Purchaser with respect to the containers sold, including billing, collecting, lease renewal, operations and disposition activities, in consideration of a management fee equal to 4% of the net operating income attributable to containers under long-term operating leases, and 9% of the net operating income attributable to containers under short-term operating leases. The Management Agreements designate ICL to serve as sub-manager of the containers currently under long-term lease for such period of time as we may elect, up to the respective dates when the containers are returned by their current lessees. During that period, ICL will be entitled to receive the management fees described above. The duration of the Management Agreements will be ten years from the closing date, subject to extension for up to two additional years at the Purchaser’s option. Our existing agreements with CAI are being modified to reflect these new arrangements.

We intend to continue to make container acquisitions in the future and will continue to be engaged in the business of leasing containers and related equipment to our customers under both operating and direct financing leases. Neither the Sale Agreement nor the Management Agreements restricts us from engaging in any business in the future or from acquiring containers for lease to customers.

The Sale Agreement does not contain any provision that would require us to repurchase the containers from the Purchaser based upon the occurrence of future events.

We will use the proceeds from the sale of the containers to reduce indebtedness, for equipment acquisitions and for other general corporate purposes.

As a result of the consummation of these transactions, we expect to report a gain on the sale of the containers to the Purchaser during the quarter ending March 31, 2006. The after-tax amount of this gain is expected to be approximately $61.0 million, subject to closing adjustments and final accounting review. Effective April 1, 2006, we will no longer record leasing revenue relating to the containers sold to the Purchaser, but we or CAI will instead record management fee revenue relating to the sold containers under the Management Agreements.

First Quarter 2006 Impairment Charge

Beginning in late 2005 and continuing into the first quarter of 2006, one of our larger shipping line customers began returning a significant number of containers under leases entered into during 1999 and 2000 that had expired. Based upon an analysis of the quantity of containers involved, then-existing conditions in the short-term leasing market and related expenses associated with major equipment returns, we entered into negotiations with this customer regarding the parties’ on-going and future business relationships. Following extensive discussions, we reached an agreement with the customer whereby the leases for these containers would be converted to direct financing leases by extending the lease terms, with the lessee obtaining ownership at expiration. As a result of this modification to the lease terms, we concluded on March 29, 2006 that it would be necessary under U.S. generally accepted accounting principles to record a charge for impairment for these assets. The amount of this impairment charge, which will be recorded in the first quarter of 2006, is expected to be approximately $6.5 million. No portion of this impairment charge will result in any cash expenditures by us. To the extent that this agreement is extended to cover additional containers, by mutual agreement of the parties, we may incur an additional impairment charge in the future.

General

Interpool is one of the world’s leading suppliers of equipment and services to the intermodal transportation industry. We believe we are the world’s largest lessor of intermodal container chassis and a leading lessor of international dry freight standard containers used in international trade.

Our primary sources of equipment leasing revenue are derived from operating leases and income earned on direct financing leases. We generate this revenue through leasing transportation equipment, primarily intermodal container chassis and intermodal dry freight standard containers. Operating lease equipment (operating leases) and direct financing leases are the two major asset types that generate this revenue. In the case of operating lease equipment, we retain the substantive risks and rewards of equipment ownership. In the case of direct financing leases, the lessee generally has the substantive risks and rewards of equipment ownership and the right to purchase the equipment at the end of the lease term. This equipment leasing revenue is supplemented by other sources of revenue such as fees charged to the lessee for handling, delivery and repairs earned under contractual agreement with the lease customer. Equipment leasing revenue derived from an operating lease generally consists of the monthly lease payments from the customer. For direct financing leases, the lessee’s payment is segregated into principal and interest components much like a loan. The interest component, calculated using the effective interest method over the term of the lease, is recognized by us as equipment leasing revenue. The principal component of the direct financing lease payment is reflected as a reduction to the net investment in the direct financing lease. Other revenues consist primarily of fees charged to the lessee for handling of our equipment, and repairs for which the customer is responsible under the terms of their lease agreement.

Our mix of operating and direct financing leases is a function of customer preference and demand and our success in meeting those customer requirements. An operating lease, during its initial lease term, will generally be more profitable than a direct financing lease, primarily due to the return of principal inherent in a direct financing lease, which is usually greater than the depreciation expense associated with an operating lease. However, after the initial term (and any renewal) of an operating lease expires, the operating lease will have redeployment costs and related risks that are avoided under a direct financing lease. In evaluating the revenue performance of our operating lease portfolio, the primary factors considered are utilization and daily rental rates.

Chassis have been leased in pooled arrangements at marine ports since the mid 1980‘s. Chassis pools are locations where a lessor provides a group of chassis in a single port terminal location to be rented on a daily basis. A customer who signs our pool agreement and has appropriate credit is allowed to rent any chassis in the pool at any time. The industry term for this type of chassis pool is called a “neutral” pool, because the chassis are provided by a neutral third party rather than the shipping lines themselves. A shipping line notifies a trucker to pick up a chassis from the pool and then proceed to pick up the designated container for movement. The chassis is returned by the trucker to the pool when the move is complete. The shipping line or other customer pays only for the number of days it uses the chassis. Pool rental rates are higher than term lease rates because the customer pays only when the chassis is in use (and we may experience some idle, unpaid period between uses of the chassis) and because the customer generally does not pay for any maintenance and repair—the costs being also bundled into the overall chassis pool rate.

Recently, we have established two more advanced “neutral” chassis pools. These pools are clusters of locations in a region. We call them “metro pools” and such pools have been established in the New York metropolitan area, and the Houston metropolitan area. These pools differ from traditional neutral pools in that customers are able to pick up chassis in one location and return them to other locations that are all in the “network.” The logistics of the networking process are managed by our proprietary “PoolStat”™ software, which also manages the inventory and billing functions of the pools. This form of neutral pool is growing, and should see continued rapid growth in the next several years.

In 2000, we acquired the North American Intermodal Division of Transamerica Leasing, Inc. which included chassis pool operations at railroad terminals. This program has continued to expand, and today we have neutral chassis pools at over 40 rail terminals across the United States. Some of these terminals are linking up with the metro pools to create a more integrated marine/rail pool network.

In addition to neutral chassis pools involving the rental of Trac Lease chassis, Trac Lease also provides management services to the shipping lines who want to pool only their chassis in a port terminal for increased efficiency. The industry terms for these pools are “cooperative” or “co-op” chassis pools. The participating shipping lines contribute the chassis under their control to the overall pool. Once in the pool, any contributor can use any other contributor’s chassis. Trac Lease’s “PoolStat”™ software performs a number of complex management functions, including keeping track of the number of chassis used per day by a contributor versus the number of chassis contributed. Cooperative pools like neutral pools are growing in popularity with our customer base.

During the year ended December 31, 2005, as compared with the year ended December 31, 2004, our equipment leasing revenues for chassis increased due to an increase in the size of our operating lease chassis fleet and an increase in the size and performance of our chassis pool fleet, partially offset by a decline in utilization (including equipment on both operating and direct financing leases) from 97% to 95%. During 2005, the size of our chassis fleet increased to 226,000 chassis from 208,000 chassis at December 31, 2004.

During the year ended December 31, 2005, as compared with the year ended December 31, 2004, the decline in equipment leasing revenues for containers was primarily due to the contractual runoff of the container direct financing lease portfolio as well as a reduction in utilization rates. This reduction in utilization resulted from both the acquisition of new containers which have not yet been placed on lease and other containers being returned at the end of their lease term. Our fleet of containers increased to 832,000 twenty-foot equivalent units (“TEU”) at December 31, 2005 from 808,000 TEU at December 31, 2004. Utilization of our container fleet (including equipment on both operating and direct financing leases) was 97% and 99% at December 31, 2005 and 2004, respectively.

Since the second quarter of 2005, an excess supply of new containers has developed in China. While we believe this situation is probably temporary due to the significant deliveries of container ships scheduled for the next several years and the normal retirement of older containers, it has resulted in a slowing of new production, a reduction in new container prices and, in turn, has also resulted in softness in leasing demand and daily rental rates for long-term leases of new equipment. In addition, daily rental rates for used containers are very competitive and expiring operating leases are often renewed at daily rates that are lower than the rental rates during the initial lease term. During the second quarter of 2005, the number of new containers we had available for long-term lease increased, as customer demand for new on-hires was below demand expectations. However, a significant portion was subsequently placed on lease during the second half of 2005 and we expect to place the remainder of this equipment on long-term lease during the first half of 2006. In general, demand for leasing of new containers in the second half of 2005 has been slower than the first half of 2005.

Lease rates for new chassis rose steadily during the first half of 2005 due to both the increased cost of new equipment and the overall limitations in production space. Similarly, lease rates for used chassis rose from mid-2004 through the first half of 2005, largely due to the depletion of used chassis inventories and the rising price of new and remanufactured chassis. Demand for new chassis remained strong in the third and fourth quarters of 2005 and lease rates have remained at the levels experienced in the first half of 2005. We expect rates to remain at current levels through the first half of 2006.

We anticipate that industry demand for chassis will remain generally strong through 2006. In part this is due to the increased volume of cargo movement in and out of railroad terminals, causing the railroads to reconfigure the patterns of container and chassis activity on the terminals. In a growing number of locations, they are requiring empty containers to be moved off of the terminal, a process that requires additional chassis to service the additional container movements. Railroads are also increasing the use of neutral chassis pooling operated by leasing companies to aid efficiency. Marine ports are experiencing similar congestion, and are beginning to take similar measures to ease this congestion. Overall, more chassis will be needed to service these anti-congestion efforts.

Periods of fluctuation in leasing demand can occur. During the second half of 2005, we noted decreases in leasing demand for containers and in daily rental rates for long-term container leases. We anticipate that industry demand for chassis and containers will continue to grow. This expectation is supported by continued anticipation of a major expansion of the world cellular container ship fleet through 2008 as evidenced by recent reports that the major shipyards are experiencing large order backlogs through 2008. As reported in the Containerisation International Yearbook 2006, the world container fleet (excluding vessels to be scrapped) is expected to increase by 15.7% in 2006 and 15.5% in 2007 and beyond. As of November 1, 2005, the total container ship order book was comprised of approximately 1,165 ships with a total capacity of approximately 4.4 million TEU, for an increase of approximately 55.3% of the world cellular container ship capacity. We are not able to predict when this anticipated growth will impact container leasing demand.

We believe a number of factors have contributed to the high utilization of equipment in the industry. From 2003 to 2004, according to the Containerisation International Yearbook 2006, global containerized traffic increased by 12.6%, from 299.3 million TEU in 2003 to 336.9 million TEU in 2004, increasing demand for transportation equipment generally. In addition, several major shipping lines started to bring new, very large 8,000-9,000 TEU ships to the West Coast of the United States in the fall of 2004. When ships of this size are unloaded, they require the use of a larger number of chassis to move the containers to local railroad terminals or their final destinations. The large quantity of vessels on order will also require additional containers to support them. Demand for chassis has also been affected by the inability of the larger, fully loaded ships to pass through the Panama Canal. These ships typically discharge their cargo on the West Coast of the United States, with the cargo being moved by “land bridges”, by truck and rail, inland and across the country, using chassis at various stages during this process. At the same time, the demand for chassis, along with increased congestion at many of the rail and marine facilities around the country, has fueled an increase in the pooling of chassis for greater efficiencies. Correspondingly, we have experienced an increase in demand for our “PoolStat”™ based chassis management services as more shipping lines are entering into these chassis sharing arrangements. In addition, we have continued to experience high demand in our own Trac Lease neutral chassis pools at railroads and marine terminals. As a result of these factors, pool revenues increased significantly during 2005 and will continue to do so in 2006.

In late August 2005, Hurricane Katrina caused damage to some of our equipment when it struck two facilities in New Orleans where about 200 of our containers and 550 of our chassis were located. Under the terms and conditions of our agreements with the facilities and the lessees in possession of our equipment at the time, it is their responsibility to repair the damage at their expense. To date, most equipment has been repaired under these terms and at no cost to the Company.

During 2005, we received net additional financing commitments of $272.7 million from several institutions. At December 31, 2005 (excluding $110.7 million available under CAI’s revolving credit facility), we had a total of $221.5 million of unused commitments for growth, to re-finance existing secured debt or for other working capital requirements. Our interest expense was $9.1 million higher during 2005 than it was during 2004 as we experienced a higher level of interest rates, partially offset by the fact that waiver-related bank fees paid during 2005 were significantly lower than they had been during 2004, at which time we were required to obtain waivers related to our delayed SEC filings. The increase in interest rates was due to an overall increase in interest rates for new borrowings, including the issuance during late 2004 of the $230.0 million of Notes due in 2014 which have an overall interest rate of 8.3%, including the amortization of the original issue discount. We regularly evaluate financing proposals which, when coupled with available cash balances and funds available under commitments mentioned above, could be used for growth, for refinancing existing facilities and for working capital.

As of December 31, 2005, our commitments for future capital expenditures totaled approximately $74.2 million with approximately $63.8 million committed for 2006. Our available liquidity at December 31, 2005, including $221.5 million available under credit facilities (which excludes CAI’s credit facility), was $626.2 million after deducting $22.6 million of restricted cash. Required debt repayments and capital lease payments for the next 12 months totaled $229.1 million. Based on our existing cash balances, financings closed, and our financial projections of operating cash flow for the future, we believe that we will have sufficient liquidity to grow our portfolio while meeting our obligations and commitments as they become due.

Other than interest expense and depreciation expense on our operating lease equipment, our primary expenses are corporate administrative and lease operating expenses, which include maintenance and repair expense, as well as storage and positioning expense. Our lessees are generally responsible for lease operating expenses during the term of their lease. Our corporate administrative expenses are primarily employee related costs such as salary expense, costs of employee benefits, information technology expenses and travel and entertainment costs, as well as expenses incurred for outside services such as legal, consulting and audit related fees. During 2005, lease operating and administrative expenses as a percentage of total revenues were 37.7%, compared to 35.9% during the same period in 2004. This increase was primarily due to an increase in maintenance and repair costs, positioning and handling expenses, and compensation expense for the variable accounting associated with the change in the fair value for the portion of CAI’s preferred stock held by certain employees of CAI which was acquired using the proceeds of the loan from CAI. These increases were partially offset by a decrease in storage and equipment rental costs. The additional personnel and systems enhancements we are adding to improve our internal controls, as well as additional procedures being implemented to comply with the requirements of the Sarbanes-Oxley Act, have also added incremental administrative expenses in 2005.

Non-performing receivables totaled $11.5 million at December 31, 2005 compared with $12.5 million at December 31, 2004. Reserves of $11.5 million and $11.8 million, respectively, have been established against these non-performing receivables. During 2005, receivable write-offs net of recoveries totaled $2.8 million as compared with $3.7 million in 2004.

Our net income for the year ended December 31, 2005 was $60.5 million as compared with $7.9 million for the year ended December 31, 2004. The December 31, 2005 net income included non-cash income of $18.5 million (for which no tax expense is recorded) resulting from the change in fair value of the warrants issued by us during September 2004 in connection with a Securities Purchase Agreement pursuant to which we sold $150.0 million of 6.0% notes due in 2014. In addition, the December 31, 2005 net income included $11.5 million (net of tax) resulting from the gain on sale of an equity investment and $23.1 million (net of tax) of expenses related to repatriation. The December 31, 2004 net income included income of $5.2 million (net of tax) related to an insurance settlement. Additionally, the December 31, 2004 net income included non-cash expense of $49.2 million (for which no tax benefit is derived) resulting from the change in fair value of the warrants mentioned above. Our net income per share on a fully diluted basis for the year ended December 31, 2005 and 2004 was $1.94 and $0.27, respectively. Annualized return on average stockholders’ equity was 14.6% for the year ended December 31, 2005. Excluding the non-cash income for the change in the fair value of the warrants, the gain on sale of equity investment and the repatriation expenses, the annualized return on average stockholder’s equity was 13.0% for the year ended December 31, 2005. Excluding the non-cash expense for the change in the fair value of the warrants and the gain on settled insurance litigation, the annualized return on average stockholders’ equity was 12.6% for the year ended December 31, 2004.

We conduct business with shipping line customers throughout the world and are therefore subject to the risks of operating in disparate political and economic conditions including those associated with increasing oil prices. Offsetting this risk is the worldwide nature of the shipping business and the ability of our shipping line customers to shift their operations from areas of unfavorable political and/or economic conditions to more promising areas. Approximately 99% of our revenues are billed and paid in U.S. dollars. We believe these factors substantially mitigate foreign currency rate risks.

On December 27, 2005, Interpool, Inc.‘s wholly owned Barbados subsidiary, Interpool Limited, made a distribution to Interpool, Inc. of approximately $305.0 million (the “Distribution”), as part of a plan approved by Interpool, Inc.‘s Board of Directors to repatriate accumulated and current earnings and profits of Interpool Limited, which previously had been considered permanently reinvested outside the United States. Pursuant to the American Jobs Creation Act of 2004 (the “AJCA”), the Distribution was subject to U.S. federal tax at a reduced rate of approximately 5.25%.

In connection with our repatriation plan, on December 14, 2005, effective as of close of business on November 30, 2005, Interpool Limited, which operated our international container leasing business, transferred substantially all of its operating assets and related liabilities to Interpool Containers Limited (“ICL”), a newly formed Barbados company which is a subsidiary of Interpool, Inc. ICL now operates our international container leasing business.

Our container leasing operations are primarily conducted through our Barbados subsidiaries, previously Interpool Limited, and beginning November 30, 2005, ICL, as well as through our consolidated subsidiary CAI, of which we own a 50% common equity interest and currently appoint a majority of the members of the board of directors. Our effective U.S. federal tax rate benefits substantially from the application of an income tax convention, pursuant to which the profits of Interpool Limited and beginning November 30, 2005, ICL from international container leasing operations are exempt from federal taxation in the United States. These profits are subject to Barbados tax at rates that are significantly lower than the applicable rates in the United States. For further information regarding the United States and Barbados Tax Treaty, see Note 5 to the Consolidated Financial Statements and the “United States Federal Income Tax” section of Management’s Discussion and Analysis in this Form 10-K.

Through December 31, 2005, we claimed treaty benefits under the United States and Barbados income tax treaty (the “Tax Treaty”). The Tax Treaty contained a limitation on the benefits provision which denied treaty benefits under certain circumstances. However, we did not fall within the Tax Treaty’s limitation on benefits provision.

Beginning January 1, 2005, in addition to having to satisfy the limitation on benefits provision, Interpool Limited and ICL are only eligible for the Tax Treaty benefits with respect to its container rental and sales income if Interpool Inc is listed on a “recognized stock exchange” and Interpool Inc.‘s stock is primarily and regularly traded on such exchange.

Although our common stock was not listed on a recognized stock exchange at January 1, 2005, on January 13, 2005, our common stock was listed, and began trading, on the New York Stock Exchange. We believe this listing and our current trading volume satisfies the “primarily” and “regularly” traded requirements of the Tax Treaty, thus qualifying us for benefits under the Tax Treaty again on January 13, 2005. We estimated there should be no U.S. current tax expense for the period January 1, 2005 to January 12, 2005, when we were not covered by the Tax Treaty.

As companies resident of Barbados, Interpool Limited and ICL are required to file tax returns in Barbados and pay any tax liability to Barbados. Prior to the third quarter of 2005, no Barbados tax returns had been prepared and filed for Interpool Limited for any period subsequent to its 1997 tax year. As of September 30, 2005, all previously outstanding Barbados tax returns (1998 – 2004 tax years) were filed. There was no underpayment of taxes, interest or penalties (other than a nominal late filing penalty) with the filing of these returns.

Results of Operations

The sections that follow analyze our results of operations by financial statement caption and provide a more detailed discussion of our performance for the year ended December 31, 2005 as compared to December 31, 2004 and for the year ended December 31, 2004 compared to the year ended December 31, 2003.

Year Ended December 31, 2005 Compared to Year Ended December 31, 2004

Equipment Leasing Revenue. Our equipment leasing revenues increased to $393.9 million for the year ended December 31, 2005, from $388.2 million in the year ended December 31, 2004, an increase of $5.7 million or 1%.

Container leasing segment revenues decreased to $178.1 million for the year ended December 31, 2005, from $181.5 million in the year ended December 31, 2004, a decrease of $3.4 million or 2%. The decrease was primarily attributable to a reduction in container operating lease revenues of $1.8 million and a reduction in direct financing lease revenues of $1.6 million. The decrease in container operating lease revenues was primarily due to a decrease in utilization rates, partially offset by an increase in the daily rental rates. Utilization rates of our container fleet have historically been calculated assuming containers managed by CAI were 100% utilized since they were not available to us to put on hire regardless of whether all of these units are generating revenue. Under this method, utilization rates of our container operating lease fleet were 95% and 99% at December 31, 2005 and 2004, respectively. This reduction in utilization resulted from both the acquisition of new containers which have not yet been placed on lease and other containers being returned at the end of their lease term. The utilization rates of our operating lease container fleet, considering CAI’s actual utilization rates for our operating lease containers managed by CAI, were 92% and 96% at December 31, 2005 and 2004, respectively.

Domestic intermodal equipment segment revenues increased to $215.7 million for the year ended December 31, 2005, from $206.7 million in the year ended December 31, 2004, an increase of $9.0 million or 4%. The increase was primarily attributable to an increase in chassis operating lease revenues of $9.9 million, partially offset by a decrease in direct financing lease revenues of $0.9 million. The incremental chassis operating lease revenues were primarily due to an increase in our chassis operating lease fleet of 5% and an increase in the size and the performance of our chassis pool fleet which generally earns a higher daily rental rate, partially offset by a decrease in utilization rates. The decrease in direct financing lease revenues, as compared to the prior year period, was primarily due to the run-off of the finance lease portfolio at a rate which was faster than the addition of new leases to this portfolio. The utilization rates of our domestic intermodal chassis operating lease fleet were 95% and 97% at December 31, 2005 and 2004, respectively.

Other Revenue. Our other revenues increased to $22.7 million for the year ended December 31, 2005, from $16.2 million in the year ended December 31, 2004, an increase of $6.5 million or 40%.

Container leasing segment other revenues increased to $10.7 million for the year ended December 31, 2005, from $8.7 million in the year ended December 31, 2004, an increase of $2.0 million or 23%. The increase was primarily attributable to an increase in billable repairs to our lessees at the termination of a lease of $1.6 million and an increase in container positioning revenue of $0.4 million.

Domestic intermodal equipment segment other revenues increased to $12.0 million for the year ended December 31, 2005, from $7.5 million in the year ended December 31, 2004, an increase of $4.5 million or 60%. The increase was primarily attributable to an increase in billable repairs to our lessees at the termination of a lease of $3.1 million and an increase in chassis positioning revenue of $1.3 million.

Lease Operating and Administrative Expenses. Our lease operating and administrative expenses increased to $156.9 million for the year ended December 31, 2005 from $145.3 million in the year ended December 31, 2004, an increase of $11.6 million or 8%.

The increase was primarily due to:

A further breakdown of the lease operating and administrative expense variances, as compared to the prior period, by reportable segment is as follows:

During 2004, we incurred costs totaling $5.9 million ($4.0 million, net of tax) related to the investigations by our Audit Committee and the SEC, separation agreements with our former Chief Financial Officer and our former President, legal representation for the Company as well as our officers, directors and employees, the payment of fees in order to obtain necessary waivers from our financial institutions and the proceedings before The New York Stock Exchange to delist our securities. The largest components of these costs incurred in 2004 were $2.4 million of legal and consulting fees and $2.5 million of bank waiver fees. It is possible that we could continue to incur additional costs relating to the formal investigation by the SEC and the class action lawsuit, including the cost of legal representation for the Company and our current and former officers, directors and employees.

Provision for Doubtful Accounts. Our provision for doubtful accounts increased to $2.1 million for the year ended December 31, 2005 from $1.5 million for the year ended December 31, 2004. The increase was primarily attributable to additional provisions for specific customers which became delinquent during 2005. During the year ended December 31, 2005, our non-performing receivables decreased $1.0 million ($11.5 million at December 31, 2005 and $12.5 million at December 31, 2004). As of December 31, 2005 and December 31, 2004, our non-performing receivables, net of applicable reserves, were 0.05% and 1.01%, respectively, of accounts receivable, net. Our provision for doubtful accounts is provided based upon a quarterly review of the receivables. This review is based on the risk profile of the receivables, credit quality indicators such as the level of past-due amounts and economic conditions, as well as the value of underlying collateral in the case of direct financing lease receivables.

Fair Value Adjustment for Derivative Instruments. Our fair value adjustment for derivative instruments income amounted to $2.9 million for the year ended December 31, 2005 as compared to income of $1.5 million for the year ended December 31, 2004. The income for the year ended December 31, 2005, as well as the prior year period, was primarily due to the change in fair value of interest rate swap agreements held which do not qualify as cash flow hedges.

Fair Value Adjustment for Warrants. Our non-cash fair value adjustment for warrants income amounted to income of $18.5 million for the year ended December 31, 2005, as compared to expense of $49.2 million for the prior year period. The income for the year ended December 31, 2005, as well as the expense for the prior year period, were due to the change in the estimated fair value of the Warrants issued in September 2004 in connection with the 6.0% Notes. The Warrants are classified as a liability on the accompanying Consolidated Balance Sheets. The estimated fair market value of these Warrants decreased from $71.7 million at December 31, 2004 to $53.2 million at December 31, 2005. This reduction in the fair value of the Warrants resulted primarily from the change in the market value of our common stock during 2005. A registration statement for the Warrants was filed with the SEC and was declared effective on February 21, 2006. It is management’s belief that this was the final criteria to be met under the provisions of EITF 00-19 for classification of the Warrants as equity. Therefore, the volatility of our earnings resulting from the classification of these Warrants as a liability will be limited to the change in the value of these Warrants between December 31, 2005 and February 21, 2006. See Note 18 to the Consolidated Financial Statements.

Depreciation and Amortization of Leasing Equipment. Our depreciation and amortization expenses increased to $90.0 million for the year ended December 31, 2004, from $89.5 million for the year ended December 31, 2004, an increase of $0.5 million or 1%. This increase was primarily due to additions to our chassis operating lease fleet, partially offset by reductions in depreciation within the container leasing segment. For a majority of the current year period, the size of the container operating lease fleet was lower than the corresponding fleet in 2004 due to ongoing sales of used containers. At December 31, 2005, the container fleet showed an increase over 2004 levels due to the acquisition of equipment during the late stages of the year.

Impairment of Leasing Equipment. Our impairment of leasing equipment expense decreased to $4.0 million for year ended December 31, 2005, from $4.6 million for the year ended December 31, 2004, a decrease of $0.6 million. This decrease was primarily due to a reduction in impairment losses related to damaged equipment that was subsequently remanufactured ($1.3 million), partially offset by an increase in impairment losses for idle equipment ($0.7 million).

(Income)/Loss for Investments Accounted for Under the Equity Method. The decrease in (income)/loss for investments accounted for under the equity method of $0.2 million during the year ended December 31, 2005 resulted primarily from reduced earnings from the investment which was sold during the third quarter of 2005. See Note 15 to the Consolidated Financial Statements for further information on the sale of our equity investment.

Loss on Retirement of Debt. During the year ended December 31, 2005, in connection with the repatriation of foreign earnings and profits and the repayment of certain debt instruments, we incurred $3.0 million of fees as a result of the early extinguishment of debt which was paid off prior to its contractual maturity.

Gain on Sale of Leasing Equipment. We had a gain on sale of leasing equipment of $13.4 million during the year ended December 31, 2005 compared to $14.7 million for the prior year. The decrease of $1.3 million was primarily due to a decrease of $3.1 million in gains on equipment sales to third party investors recognized by CAI. The decrease in gains on equipment sales recognized by CAI was primarily due to a decrease in volume of units sold to third party investors during the current year period as well as a decrease in the margin recognized by CAI on sales to third parties. This decrease was partially offset by a $1.7 million increase in gains on equipment sales within our container and chassis product lines as compared to the prior year period.

Other Income, Net. We had other income of $1.4 million during the year ended December 31, 2005 compared to $0.9 million of other income for the year ended December 31, 2004. The increase of $0.5 million was primarily due to an increase in fee income as compared to the prior year period.

Gain on Insurance Settlement. During the year ended December 31, 2004, we signed an agreement settling the lawsuit and claims under our insurance policy related to the default of a South Korean customer. In connection with this settlement, we recognized a one-time gain of $6.3 million ($5.2 million, net of tax) related to the $26.4 million settlement of the claim. See Note 16 to the Consolidated Financial Statements.

Gain on Sale of Equity Investment. During the year ended December 31, 2005, a non-transportation company in which we held a minority equity position since 1997 was sold. In connection with this sale, we recognized a pre-tax gain of $13.0 million ($11.5 million net of tax). See Note 15 to the Consolidated Financial Statements for further information on the sale of our equity investment.

Interest Expense. Our interest expense increased to $121.1 million in the year ended December 31, 2005 from $112.0 million in the year ended December 31, 2004, an increase of $9.1 million or 8%. This increase was primarily attributable to increased interest rates ($10.7 million) and increased borrowings ($1.0 million). These increases were partially offset by a decrease in waiver-related bank fees of $2.5 million. This decrease was due to the bank fees paid throughout 2004 in order to obtain waivers from our lenders necessitated by our delayed SEC filings. As of December 27, 2004, we were no longer delinquent with regard to our SEC filings; therefore we did not incur such fees during 2005. The increase in interest rates was due to an overall increase in interest rates for new borrowings, including the issuance during late 2004 of the $230.0 million of Notes due in 2014 which have an overall interest rate of 8.3%, including the amortization of the original issue discount.

Interest Income. Our interest income increased to $9.4 million in the year ended December 31, 2005 from $3.4 million in the year ended December 30, 2004, an increase of $6.0 million. The increase in interest income was primarily due to an increase in average invested cash balances due to the proceeds received during late 2004 under new debt agreements, higher interest rates on the invested cash balances, the partial liquidation of our investment in a private equity investment fund ($2.1 million) and the receipt of $1.6 million of past due interest received on a note receivable which was accounted for as non-performing at December 31, 2004 due to the multiple extensions of the repayment terms by the borrower.

Minority Interest Expense, Net. The decrease in minority interest expense, net of $1.6 million for the year ended December 31, 2005 as compared to the prior year was primarily due to changes in net income reported by our partially owned consolidated subsidiaries.

Provision for Income Taxes. We recorded an income tax provision of $30.8 million for the year ended December 31, 2005 as compared to $13.4 million for the year ended December 31, 2004. Although pre-tax income, as adjusted for the non-cash fair market adjustment for warrants which have no tax effect, increased by only $2.4 million, the $17.4 million net increase in the income tax provision resulted primarily from three factors: (i) the $17.6 million federal and state tax incurred on the $305.0 million repatriation distribution made by Interpool Limited to Interpool, Inc. during December, (ii) the $2.4 million increase in state taxes incurred by Interpool Limited in connection with its sale of substantially all of its operating assets and liabilities to Interpool Containers Limited, and (iii) a higher proportion of pre-tax income derived during 2005, as compared to 2004, from the domestic intermodal division, which is taxed at the higher United States rates, as opposed to the lower taxed (approximately 3%) international container division. These increases to the income tax provision were offset by a low effective tax rate (11.5%) applied against the pre-tax gain realized on the sale of an equity investment, because for tax purposes the equity investment had never been written down, and $6.4 million net reversals in valuation allowances for certain deferred tax assets. The $6.4 million net reversals in the valuation allowances includes an $0.8 million increase relating to an equity investment, Chassis Holdings I, LLC, and complete valuation allowance reversals of $7.2 million pertaining to certain equity investments which have been fully disposed of and to state net operating losses which were reclassified as state passive activity losses.

Net Income. As a result of the factors described above, our net income increased to $60.5 million in the year ended December 31, 2005 from $7.9 million in the year ended December 31, 2004.

Year Ended December 31, 2004 Compared to Year Ended December 31, 2003

Equipment Leasing Revenue. Our equipment leasing revenues increased to $388.2 million for the year ended December 31, 2004, from $374.3 million in the year ended December 31, 2003, an increase of $13.9 million or 4%.

Container leasing segment revenues increased to $181.5 million for the year ended December 31, 2004, from $175.1 million in the year ended December 31, 2003, an increase of $6.4 million or 4%. The increase was primarily attributable to an increase in container operating lease revenues of $9.4 million, partially offset by a decrease in direct financing lease revenues of $3.1 million. The incremental container operating lease revenues, as compared to the prior year period, are primarily due to our container operating lease fleet which increased in size by 7%. The daily rental rates for the overall container fleet were lower, partially offsetting the incremental revenue resulting from the increased average size of our container operating lease fleet. Utilization rates of our container fleet have historically been calculated assuming containers managed by CAI were 100% utilized since they were not available to us to put on hire regardless of whether all of these units are generating revenue. Under this method, utilization rates of our container operating lease fleet were 99% at December 31, 2004 and 2003. The utilization rates of our operating lease container fleet, considering CAI’s actual utilization rates for our operating lease containers managed by CAI, were 96% and 94% at December 31, 2004 and 2003, respectively.

Domestic intermodal equipment segment revenues increased to $206.7 million for the year ended December 31, 2004, from $198.5 million in the year ended December 31, 2003, an increase of $8.2 million or 4%. The increase was attributable to an increase in chassis operating lease revenues of $9.4 million, partially offset by a decrease in direct financing lease revenues of $1.2 million. The incremental chassis operating lease revenues are primarily due to an increase in the utilization and daily rental rates for our chassis fleet as compared to the prior year period. The utilization rates of our domestic intermodal chassis operating lease fleet were 97% and 96% at December 31, 2004 and 2003, respectively.

Computer leasing equipment segment revenues decreased $0.6 million as compared to the prior year period due to the liquidation of the computer leasing segment which was completed during the first quarter of 2004.

Other Revenue. Our other revenues decreased to $16.2 million for the year ended December 31, 2004, from $27.8 million in the year ended December 31, 2003, a decrease of $11.6 million or 42%.

Container leasing segment other revenues decreased to $8.7 million for the year ended December 31, 2004, from $11.8 million in the year ended December 31, 2003, a decrease of $3.1 million or 26%. The decrease was primarily attributable to a decrease in container positioning revenue of $2.0 million as well as a reduction in billable repairs to our lessees at the termination of a lease of $1.2 million.

Domestic intermodal equipment segment other revenues decreased to $7.5 million for the year ended December 31, 2004, from $16.0 million in the year ended December 31, 2003, a decrease of $8.5 million or 53%. The decrease was primarily attributable to a reduction in billable services for positioning of equipment provided to the United States military of $4.0 million and a reduction in billable repairs to our lessees at the termination of a lease of $4.4 million.

Lease Operating and Administrative Expenses. Our lease operating and administrative expenses decreased to $145.3 million for the year ended December 31, 2004 from $163.5 million in the year ended December 31, 2003, a decrease of $18.2 million or 11%.

The decrease was primarily due to:

A further breakdown of the lease operating and administrative expense variances, as compared to the prior period, by reportable segment is as follows:

During 2003 and 2004, we incurred significant costs related to the investigations by our Audit Committee and the SEC, separation agreements with our former Chief Financial Officer and our former President, legal representation for the Company as well as our officers, directors and employees, the payment of fees in order to obtain necessary waivers from our financial institutions and, during 2004, the proceedings before The New York Stock Exchange to delist our securities. We will continue to incur additional costs relating to the formal investigation by the SEC and the class action lawsuit including the cost of legal representation for the Company and our current and former officers, directors and employees. The costs incurred during 2003 and 2004 are as follows:

Provision for Doubtful Accounts. Our provision for doubtful accounts decreased to $1.5 million for the year ended December 31, 2004 from $4.2 million for the year ended December 31, 2003. The decrease was primarily attributable to an improvement in the risk profile of our outstanding receivables, partially offset by the reversal during the prior year period of bad debt provisions previously recorded by Microtech, without a similar reversal of bad debt provisions during the current year period ($0.4 million). During the year ended December 31, 2004, our non-performing receivables decreased $0.3 million ($12.5 million at December 31, 2004 and $12.8 million at December 31, 2003). As of December 31, 2004 and December 31, 2003, our non-performing receivables, net of applicable reserves, were 1.01% and 1.27%, respectively, of accounts receivable, net. Our provision for doubtful accounts is provided based upon a quarterly review of the receivables. This review is based on the risk profile of the receivables, credit quality indicators such as the level of past-due amounts and economic conditions, as well as the value of underlying collateral in the case of direct financing lease receivables.

Fair Value Adjustment for Derivative Instruments. Our non-cash fair value adjustment for derivative instruments income amounted to $1.5 million for the year ended December 31, 2004 as compared to income of $1.8 million for the year ended December 31, 2003. The income for the year ended December 31, 2004, as well as the prior year period, was primarily due to the change in fair value of interest rate swap agreements held which do not qualify as cash flow hedges.

Fair Value Adjustment for Warrants. Our non-cash fair value adjustment for warrants expense amounted to $49.2 million for the quarter and year ended December 31, 2004, without a similar item in the prior year period. The expense for the year ended December 31, 2004 was due to the change in the fair value of the Warrants issued during September 2004 in connection with the 6.0% Notes, which Warrants are classified as a liability on the accompanying Consolidated Balance Sheets. Due primarily to the increase in the market value of our common stock during the last quarter of 2004, the fair market value of these Warrants increased from $22.5 million at September 30, 2004 to $71.7 million at December 31, 2004.

Depreciation and Amortization of Leasing Equipment. Our depreciation and amortization expenses increased to $89.5 million for the year ended December 31, 2004, from $87.5 million for the year ended December 31, 2003, an increase of $2.0 million or 2%. This increase was primarily due to additions to our operating lease fleet.

Impairment of Leasing Equipment. Our impairment of leasing equipment expense decreased to $4.6 million for year ended December 31, 2004, from $9.0 million for the year ended December 31, 2003, a decrease of $4.4 million. This decrease was primarily due to a reduction in impairment losses related to damaged equipment that was subsequently remanufactured ($3.0 million), and a decrease in impairment losses for idle equipment ($1.5 million).

(Income)/Loss for Investments Accounted for Under the Equity Method. The increase in (income)/loss for investments accounted for under the equity method of $2.1 million during the year ended December 31, 2004 resulted primarily from improved earnings for certain investments accounted for under the equity method.

Gain on Insurance Settlement. During the year ended December 31, 2004, we signed an agreement settling the lawsuit and claims under our insurance policy related to the default of a South Korean Customer. In connection with this settlement, we recognized a pre-tax gain of $6.3 million related to the $26.4 million settlement of the claim during the three months ended June 30, 2004. See Note 16 to the Consolidated Financial Statements.

Gain on Sale of Leasing Equipment. We had a gain on sale of leasing equipment of $14.7 million during the year ended December 31, 2004 compared to $1.0 million for the prior year. The increase of $13.7 million was primarily due to an increase of $10.4 million in gains on equipment sales to third parties recognized by CAI. The increase in gains on equipment sales recognized by CAI was due to an increase in volume, as well as an increase in the returns generated on the equipment sales due to the favorable market conditions within the container resale sector. In addition, during the fourth quarter of 2004, we sold certain assets of CTC Container Trading (U.K.) Limited, a wholly-owned subsidiary which leased specialized cargo carrying units and other equipment for use by companies operating in the North Sea, which resulted in a pre-tax profit of approximately $0.9 million. The remainder of the increase in gains on equipment sales was primarily due to the favorable market conditions we experienced in the resale sector for containers as compared to the prior year period, as well as sales of certain railcars which contributed favorably to profits on equipment sales.

Other Income, Net. We had other income of $0.9 million during the year ended December 31, 2004 compared to $4.1 million of other income for the year ended December 31, 2003. The decrease of $3.2 million was primarily due to a $2.9 million gain recorded in October 2003 resulting from the consolidation of assets and liabilities of a special purpose entity (which no longer qualified for off-balance sheet treatment for accounting purposes) formed as part of our container lease securitization program. This gain resulted primarily from the favorable credit loss experience through September 30, 2003 on the underlying direct financing leases as compared to the assumed credit losses of 1.5%. See Note 7 to the Consolidated Financial Statements for further discussion of the accounting for this special purpose entity.

Interest Expense. Our interest expense increased to $112.0 million in the year ended December 31, 2004 from $106.7 million in the year ended December 31, 2003, an increase of $5.3 million or 5%. The increase in interest expense was primarily attributable to an increase in amortization of deferred financing fees of $2.8 million, increased interest rates resulting in increased interest expense of $2.6 million and an increase of $0.9 million for bank fees in order to obtain waivers related to our delayed filings. These increases were partially offset by reduced borrowings resulting in a reduction in interest expense of $1.0 million.

Interest Income. Our interest income decreased to $3.4 million in the year ended December 31, 2004 from $4.0 million in the year ended December 30, 2003, a decrease of $0.6 million or 15%. The decrease in interest income was primarily due to reduced earnings on invested cash balances due to lower interest rates, partially offset by an increase in average invested balance.

Minority Interest Expense, Net. The change in minority interest expense, net of $6.5 million for the year ended December 30, 2004 as compared to the prior year was primarily due to a $13.5 million increase in net income reported by our 50%-owned consolidated subsidiary, CAI.

Provision for Income Taxes. We recorded an income tax provision of $13.4 million for the year ended December 31, 2004 as compared to $0.8 million for the year ended December 31, 2003. This increase was principally caused by an increase in taxable income of $32.2 million as adjusted for the $49.2 million permanent tax difference that arose from the non-cash expense pertaining to the Warrant liability. In addition, a larger proportion of taxable income was generated from United States sources as compared to lower-taxed international source income.

Interpool Limited’s pre-tax income (international sourced income) is taxed at a low rate (approximately 3%) due to the income tax convention between the United States and Barbados. The domestic intermodal division’s pre-tax income (United States sourced income), including corporate activities and the results of operations of CAI, is taxed at the higher United States tax rates. During the year ended December 31, 2004, 35% of taxable income was generated from United States sources as compared to a loss experienced during the year ended December 31, 2003, thus contributing to the increase in the provision for income taxes.

Net Income. As a result of the factors described above, our net income decreased to $7.9 million in the year ended December 31, 2004 from $37.5 million in the year ended December 31, 2003.

Liquidity and Capital Resources

Historically, we have used funds from various sources to meet our corporate obligations and to finance the acquisition of equipment for lease to customers. The primary funding sources have been cash provided by operations, borrowings (generally from banks) and securitization of lease receivables, issuance of capital lease obligations and the sale of our securities. In addition, we have generated cash from the sale of equipment being retired from our fleet. In general, we have sought to meet debt service requirements from the leasing revenue generated by our equipment. At December 31, 2005, our scheduled capital lease and debt service payments (principal and estimated interest) for 2006 totaled $352.5 million and for 2007 totaled $422.9 million. Scheduled payments due to us under non-cancelable operating and direct financing lease agreements with our lessees total $315.7 million for 2006 and $277.1 million for 2007 (see Note 2 to our Consolidated Financial Statements). In addition, as of December 31, 2005, we had approximately $404.7 million of unrestricted cash and marketable securities on hand. The combination of unrestricted cash and marketable securities ($404.7 million) and non-cancelable lease payments due to us during 2006 and 2007 ($592.8 million) exceeds our scheduled debt service payments (principal and estimated interest) of $775.4 million for 2006 and 2007 by approximately $222.1 million.

Our utilization rates of containers and chassis, as well as those of our competitors are at high levels. However, there has been softness in the container sector due to an excess supply of new containers in China resulting in decreased demand for containers and decreases in daily rental rates for long term container leases. In addition, lease rates for used containers were competitive for much of the past two years. We anticipate that industry demand for chassis and containers will continue to grow. This expectation is supported by continued anticipation of a major expansion of the world cellular container ship fleet through 2008 as evidenced by recent reports that the major shipyards are experiencing large order backlogs through 2008. As of December 31, 2005, the existing order backlog was enough to account for an increase of approximately 12.2% in the world’s cellular container ship fleet and is expected to result in demand for a significant number of additional containers and chassis. We are not able to predict when this anticipated growth will impact container leasing demand. Lease rates for new chassis rose steadily during the first half of 2005 due to both the increased cost of new equipment and the overall limitations in production space. Similarly, lease rates for used chassis rose from mid-2004 through the first half of 2005, largely due to the depletion of used chassis inventories and the rising price of new and remanufactured chassis. Demand for new chassis remained strong in the second half of 2005 and lease rates have remained at the levels experienced in the first half of 2005. During the second half of 2005, we noted decreases in leasing demand for containers and in daily rental rates for long-term container leases. In addition, lease rates for used containers were competitive for much of the past two years. We are not currently able to predict whether this decrease in demand represents a trend that will continue in 2006, although demand for leasing of new containers in the second half of 2005 has been slower than the first half of 2005.

We have usually funded a significant portion of the purchase price for new containers and chassis through secured borrowings from financial institutions under various credit facilities. However, from time to time we have funded new equipment acquisitions through the use of working capital and may finance this equipment at a later date. We have successfully added $272.7 million of net financing commitments for secured financing from January 1, 2005 to December 31, 2005. As of December 31, 2005 (excluding $110.7 million available under CAI’s revolving credit facility), a total of $221.5 million of these financing commitments was available to us for future use. We are currently in negotiations with other potential lenders with regard to additional financings to support business growth.

Cash Flow

Net cash provided by operating activities amounted to $150.0 million in 2005 as compared to $160.3 million in 2004. While net income for the year ended December 31, 2005 was $52.7 million higher than net income for the year ended December 31, 2004, the change in cash provided by these activities was affected by the following:

Excluding the items noted above, net cash provided by these activities decreased $1.4 million for the year ended December 31, 2005 as compared to the prior year period. The remaining change in cash provided by operating activities resulted primarily from the following:

The remainder of the change in net cash provided by operating activities was primarily due to changes in other operating assets and liabilities in the ordinary course of business.

Net cash provided by operating activities amounted to $160.3 million in 2004 as compared to $150.0 million in 2003. While net income for the year ended December 31, 2004 was $29.6 million lower than net income for the year ended December 31, 2003, the change in cash provided by these activities was affected by the following:

Excluding the items noted above, net cash provided by these activities increased $10.2 million for the year ended December 31, 2004 as compared to the prior year. The remaining change in cash provided by operating activities resulted primarily from the following:

The remainder of the change in net cash provided by operating activities was primarily due to changes in other operating assets and liabilities in the ordinary course of business.

Net cash used for investing activities amounted to $243.3 million in 2005 as compared to $8.3 million in 2004. The increase in net cash used for investing activities in 2005 was primarily due to the following:

Net cash used for investing activities amounted to $8.3 million in 2004 as compared to $212.7 million in 2003. The decrease in net cash used for investing activities in 2004 was primarily due to the following:

Net cash provided by financing activities amounted to $211.2 million in 2005 as compared to $16.4 million in 2004. The change was primarily due to the following:

Net cash provided by financing activities amounted to $16.4 million in 2004 as compared to $33.0 million in 2003. The change was primarily due to the following:

The following table sets forth certain historical cash flow information for the three years ended December 31, 2005.

Contractual Obligations and Commercial Commitments

We and our subsidiaries are parties to various operating and capital leases and are obligated to make payments related to our long-term borrowings. See Notes 3 and 8 to the Consolidated Financial Statements. We are also obligated under various commercial commitments, including obligations to our equipment manufacturers.

The following tables summarize our contractual obligations and commercial commitments at December 31, 2005.

                                                                       Amounts Due by Period
                                                                       (Dollars in millions)
                                             -------------------------------------------------------------------
                                               Less than 1                                             More than
Contractual Obligations           Total           year          1-3 years           4-5 years           5 years
--------------------------      --------     -------------    ------------         -----------        ----------
Long-Term Debt                  $1,290.4     $     187.3      $     430.9          $     190.3        $    481.9
Capital Lease Obligations          673.3            41.8            138.3                107.4             385.8
Interest on Long-Term
  Debt and Capital Lease
  Obligations                      794.6           123.4            192.0                139.6             339.6
Operating Leases                    33.8            10.5             15.7                  7.5               0.1
Unconditional Purchase
Obligations                         74.2            63.8             10.4                  ---               ---
Employment Agreements               10.5             3.0              2.3                  2.5               2.7
Separation Agreements                1.3             0.8              0.5                  ---               ---
                                     ---             ---              ---                  ---               ---
Total Contractual Cash
Obligations                     $2,878.1          $430.6           $790.1               $447.3          $1,210.1
                                ========          ======           ======               ======          ========

                                                       Amounts of Commitment Expiration Per Peroid
                                  Total      -------------------------------------------------------------------
Other Commercial                 Amounts       Less than 1                                               Over
  Commitments                   Committed         year          1-3 years           4-5 years           5 years
----------------------------    --------     -------------    ------------         -----------        ----------

Standby Letters of Credit           $0.3            $0.3             $---                 $---              $---
Guarantees                          16.8             ---              8.0                  3.8               5.0
                                    ----             ---              ---                  ---               ---
Total Commercial Commitments       $17.1            $0.3             $8.0                 $3.8              $5.0
                                   =====            ====             ====                 ====              ====

Debt and Capital Lease Obligations:

The following table summarizes our debt and capital lease obligations as of December 31, 2005 and 2004:

Our debt consists of notes, loans and capital lease obligations with installments payable in varying amounts through 2027, with a weighted average interest rate of 6.8% in 2005. The principal amount of debt and capital lease obligations payable under fixed rate contracts is $1,075.5 million. Remaining debt and capital lease obligations of $888.2 million is payable under floating rate arrangements, of which $492.6 million has been converted to fixed rate debt through the use of interest rate swap agreements. At December 31, 2005, most of our debt and capital lease obligations are secured by a substantial portion of our leasing equipment, direct financing leases, and accounts receivable, except for $443.0 million of debt which is unsecured. For further information on the accounting treatment for interest rate swap contracts see Note 4 to the Consolidated Financial Statements.

New Financings and Committed Financing Available: During 2005, we drew down $994.3 million in new debt and capital lease obligations as shown in the following table (excluding amounts drawn under CAI’s revolving credit facility). As of December 31, 2005, total commitments of $221.5 million were available for future use by us under two lines of credit, of which $114.0 million was available under the 2005 Fortis Facility and $107.5 million, was available under the chassis revolving credit facility we established in September 2005. In addition, $110.7 million was available at December 31, 2005 under CAI’s revolving credit facility described below. The new financings during 2005 consisted of the following:

The following is a description of the significant components of our indebtedness as of December 31, 2005:

December 2005 Financings:

On December 21, 2005, we established two secured credit facilities for our international container leasing operations. The facilities were established with two financial institutions who are the agents for the lenders under these two credit facilities, and they replaced two previous secured credit facilities established in 2004 by these financial institutions.

Of the $713.9 million we drew down under these facilities on December 21, 2005, we used $429.3 million to reduce previously existing indebtedness, including $403.8 million outstanding under our previous facilities with the same lenders for the new facilities. The remaining portion of the initial borrowings under the facilities, totaling $284.6 million, together with other existing funds, was used to repay inter-company indebtedness owed to our Barbados subsidiary, Interpool Limited. Interpool Limited, in turn, used these proceeds, together with other funds, to pay a special cash dividend to Interpool Inc., our U.S. parent company, on December 27, 2005.

The new term loan and revolving credit facility (the “2005 Fortis Facility”) was established pursuant to a Credit Agreement dated as of December 21, 2005 among Interpool Inc. and certain of its subsidiaries, Fortis Bank (the agent lender) and certain other lenders. The facility allows for borrowings up to $577.2 million, consisting of A notes ($500.0 million maximum advance, of which $386.0 million has been funded) and B notes in the amount of $77.2 million. Borrowings under the facility are secured by shipping containers owned by a consolidated, indirect special purpose finance subsidiary of Interpool Inc. that are leased to various customers, primarily under long-term operating leases, and by the related lease receivables. The 2005 Fortis Facility allows for advances from time to time under the A notes up to the amount of available collateral under the facility, subject to a maximum principal amount that may be outstanding under the A notes of $500.0 million. The facility has a revolving period ending October 31, 2007 and at which time we then have the option to pay off the remaining balance over a 66 month period.

The interest rate for the A notes under the facility is LIBOR plus 200 basis points, with reductions of up to 50 basis points possible as our credit rating or funded debt to tangible net worth ratio (as defined in the Credit Agreement) improves. Currently, based upon the funded debt to tangible net worth ratio as of September 30, 2005, the interest rate for the A notes is LIBOR plus 175 basis points. The interest rate for the B notes is LIBOR plus 350 basis points for the first twelve months the loan is outstanding and LIBOR plus 500 basis points thereafter. The 2005 Fortis Facility requires that by April 20, 2006 we enter into interest rate swap contracts in order to effectively convert at least seventy-five percent of the debt associated with operating lease equipment and ninety percent of the debt associated with direct financing leases from floating rate debt to fixed rate debt. As of December 31, 2005, we have not entered into any of these interest rate swap contracts. The 2005 Fortis Facility also includes covenants related to a minimum level of tangible net worth, a minimum fixed charge coverage ratio, and a maximum funded debt to tangible net worth ratio, as well as other customary restrictive covenants. In addition, the 2005 Fortis Facility contains restrictions on payments of dividends and distributions by certain subsidiaries of Interpool Inc., after December 31, 2005 until the B notes are paid in full, and prohibits our parent company, Interpool Inc., from making payments to our stockholders with the proceeds of the B notes. Interpool Containers Limited (“ICL”), a newly formed Barbados subsidiary of Interpool Limited, acts as servicer of the collateral securing the advances under the 2005 Fortis Facility for the benefit of the lenders.

The other new credit facility (the “2005 DVB Facility”) was established pursuant to a Credit Agreement dated as of December 21, 2005 among Interpool Inc., ICL, DVB (the agent lender) and certain other lenders. The facility consists of A notes ($219.7 million funded) and B notes ($31.0 million funded), and is secured by shipping containers owned by our subsidiary, ICL, which are leased to customers under long-term direct financing lease arrangements, and by the related lease receivables and other receivables of ICL. A total of $250.7 million was borrowed under the 2005 DVB Facility on December 21, 2005 and remained outstanding at December 31, 2005.

The interest rate for the A notes under the 2005 DVB Facility is fixed at 6.365%. The A notes amortize over a five year term. The interest rate for the B notes is LIBOR plus 350 basis points for the first twelve months the loan is outstanding and LIBOR plus 500 basis points thereafter. The B notes amortize to a balloon payment over twelve months, but may be extended for an additional two years at our option. The 2005 DVB Facility also includes covenants related to a minimum level of tangible net worth, a minimum fixed charge coverage ratio, and a maximum funded debt to tangible net worth ratio, as well as other customary restrictive covenants. In addition, the 2005 DVB Facility contains restrictions on the payments of dividends and distributions by certain subsidiaries of Interpool Inc. after December 31, 2005 until the B notes under the 2005 DVB Facility are paid in full, and prohibits our parent company, Interpool Inc., from making payments to our stockholders with the proceeds of the advances under this facility.

We used $403.8 million of the December 21, 2005 advances under the 2005 Fortis Facility and the 2005 DVB Facility to repay debt outstanding under secured equipment financing facilities we had established in November 2004 with the agent and several other lenders (the “2004 Fortis Facility”) and a separate facility we had established earlier in 2004 with DVB (the “2004 DVB Facility)", under which no funds were drawn until July 2005 and we terminated these 2004 facilities. For descriptions of the 2004 Fortis Facility and the 2004 DVB Facility, see below.

Chassis Securitization Facility: Our current chassis securitization facility was established in September 2002. This facility was initially limited to $541.0 million and was increased in May 2003 to provide for a $200.0 million revolving warehouse facility within the chassis securitization facility. In July 2003 and October 2003, we agreed, among other things, to suspend our ability to incur additional funding under this warehouse facility until such time as the loan and guarantee parties have each agreed in their sole discretion to reinstate their funding commitments. This warehouse facility remained suspended throughout 2004. In early 2005, we elected not to renew the warehouse facility. As a result of this decision, the warehouse facility was not extended beyond its scheduled expiration date of March 31, 2005. Accordingly, under the terms of the securitization facility, beginning April 1, 2005, all cash flow from the securitization that would normally have been received by us after the requirements of the securitization financing are satisfied is being used to pay down the warehouse facility until it is paid in full. In addition, based on the terms of the securitization financing, the interest rate on the warehouse facility was increased by 100 basis points as of March 31, 2005. At December 31, 2005, $8.4 million remained outstanding under the warehouse facility; this balance will be paid during 2006. The total amount outstanding under our chassis securitization facility at December 31, 2005 was $420.9 million.

Other 2005 Financings:

In February 2005, we entered into a lease arrangement with a Japanese lessor involving $29.9 million of equipment previously financed with a financial institution during December 2003 and May 2004. This transaction closed in two approximately equal tranches, the first of which occurred on February 28, 2005, and the second of which occurred on March 31, 2005. The lease ends in December 2008, and we have a fixed purchase option at that time that we expect to exercise. The aggregate fixed rate of interest on the lease is 7.44%. We received additional cash proceeds totaling $4.2 million at the February closing and $4.3 million at the March closing. A total of $27.4 million was outstanding under these leases at December 31, 2005.

During September 2005, we completed a secured revolving credit facility for $122.5 million with an agent bank and other lenders for the financing of chassis equipment. The term of this facility is five years. The interest rate is set at LIBOR plus 1.375% until January 1, 2006, after which the rate is determined by a pricing grid related to a defined funded debt to tangible net worth ratio (as defined in the Credit Agreement) with interest rates ranging from LIBOR plus 1.00% to LIBOR plus 1.625%. The initial $15.0 million drawdown under this facility was used to refinance a $15.0 million secured loan made by the agent bank during July 2004 which had borne interest at a rate of LIBOR plus 2.5% and which had been used, in part, to satisfy a note payable from PCR to an unrelated financial institution, which we had guaranteed for PCR. The Credit Agreement for this facility also includes covenants related to a minimum level of tangible net worth, a minimum fixed charge coverage ratio and a maximum funded debt to tangible net worth ratio, as well as other customary restrictive covenants. As of December 31, 2005, $15.0 million was outstanding under the facility established in September 2005.

We also entered into a capital lease obligation transaction with a U.S. bank for $29.8 million with an interest rate of 4.93% during September 2005, which continues until September 2015. We have a bargain fixed purchase option at that time that we expect to exercise. A total of $29.5 million was outstanding under this capital lease at December 31, 2005.

In December 2005, we completed a capital lease obligation transaction totaling $7.1 million with a U.S. bank with an interest rate of 5.16%, which continues until December 2015. We also entered into a capital lease obligation transaction with another bank for $30.0 million with an interest rate of 5.39%, which continues until December 2013. Both these leases have a bargain fixed purchase option at lease end that we expect to exercise. These amounts remained outstanding at December 31, 2005.

In addition to the financings specifically identified above, at December 31, 2005, we had additional notes and loans outstanding with various financial institutions in the aggregate amount of $22.0 million, at interest rates ranging from 5.75% to 7.90%, and additional capital lease obligations of $190.9 million.

During the fourth quarter of 2005, we paid off 14 container financing facilities with outstanding balances of $553.1 million at the time they were paid off, including the 2004 Fortis Facility and 2004 DVB Facility as described above, to further rationalize our debt structure and facilitate the establishment of the 2005 Fortis Facility and 2005 DVB Facility.

CAI Revolving Credit Facility: On April 28, 2005, CAI replaced its $110.0 million secured revolving credit facility, which had an outstanding principal balance of $58.5 million as of March 31, 2005 (not including letters of credit in the aggregate amount of $6.0 million as of March 31, 2005) and was scheduled to expire on June 27, 2005, with a new senior secured revolving credit facility. The new credit facility has a total commitment amount of up to $175.0 million and was provided by a group of banks. The interest rate under the revolving line of credit varies depending upon whether the loans are characterized as base rate loans or Eurodollar rate loans. In addition, there is a commitment fee on the unused amount of the total commitment which fee is payable quarterly in arrears. The new credit facility provides that swing line loans (up to $10.0 million in the aggregate) and standby letters of credit (up to $15.0 million in the aggregate) will be available to CAI, which sublimits are part of, and not in addition to, the total commitment of $175.0 million under the new credit facility. The term of this revolving credit facility is three years. In connection with the first loan advance under the new revolving credit facility, CAI repaid the outstanding principal balance of $58.0 million on its then existing revolving credit facility (plus interest and additional fees) and repaid $15.2 million of the amounts owed to us under the outstanding subordinated note issued by CAI to us in 1998. At December 31, 2005, $64.0 million was outstanding under CAI’s revolving credit facility. This revolving credit facility contains various financial and other covenants. At December 31, 2005, CAI was in compliance with these covenants.

As mentioned above, on April 28, 2005, CAI repaid $15.2 million of its $33.7 million subordinated note held by us. This repayment returned this subordinated note to the original payment schedule in effect before it was modified during 2002. The remaining balance of the subordinated note, totaling $16.8 million as of December 31, 2005, is required to be repaid in equal quarterly installments of approximately $1.7 million through April 30, 2008. In addition, the financial covenants associated with this subordinated note were also amended in April 2005.

6% Notes and Warrants: On September 14, 2004, we entered into a Securities Purchase Agreement pursuant to which we sold $150.0 million total principal amount of a new series of 6.0% Notes due 2014 (the “6% Notes”) in a private transaction with four investors. In connection with the sale of the 6% Notes, we also issued to the investors two series of warrants that were originally exercisable for a total of 8,333,333 shares of our common stock at an initial exercise price of $18.00 per share (the “Warrants”). The exercise price of the Warrants is subject to customary anti-dilution adjustments as set forth in the Warrants. As of December 31, 2005, as a result of anti-dilution adjustments, the Warrants were exercisable for a total of 8,833,333 shares at an exercise price of $17.01 per share. Based on adjustments through January 3, 2006 (the record date for the most recent dividend declared by the Company), the exercise price is currently $16.88 per share and the Warrants are currently exercisable for a total of 8,916,666 shares.

The 6% Notes mature on September 1, 2014, with interest payable semi-annually at a rate of 6.0% per annum. We have the right to redeem the 6% Notes at any time after September 1, 2009 with a declining premium. The maturity of the 6% Notes can be accelerated upon the occurrence of an “Event of Default” as such term is defined in the indenture governing the 6% Notes (the “Indenture”). The Indenture also contains various restrictive covenants, including limitations on the payment of dividends and other restricted payments, limitations on incurrence of indebtedness, and limitations on asset sales, the violation of which would result in an Event of Default.

The first series of Warrants (the “Series A” Warrants) is exercisable at any time and as of January 3, 2006 represents a total of 5,859,071 shares. The second series of Warrants (the “Series B” Warrants) became exercisable following stockholder approval of such exercise at a special meeting of our stockholders on June 30, 2005 and as of January 3, 2006 represents a total of 3,057,595 shares. We also entered into agreements with the investors to file registration statements with the Securities and Exchange Commission, for the benefit of the investors, with respect to the 6% Notes and the Warrants. Under the terms of the Warrants, the exercise price will be paid by the investors to us solely in cash. The sale of the 6% Notes and Warrants pursuant to the Securities Purchase Agreement was made in reliance on the exemption from the registration requirements of the Securities Act of 1933 (the “Act”) pursuant to Section 4(2) of the Act.

The Warrants expire on September 1, 2014, although we have the right under certain conditions to require that they be exercised at any time if our common stock trades at $30.00 per share or more for five consecutive trading days assuming the shares being issued upon exercise are registered shares.

The fair value of the Warrants at the date of the transaction was estimated at $22.5 million and was recorded in warrant liability on the Consolidated Balance Sheet, with the offset recorded as a discount on the 6% Notes. This discount is being amortized as interest expense using the effective interest method over the ten-year life of the 6% Notes. The overall interest rate on the 6% Notes, considering the amortization of the discount, is approximately 8.3%.

EITF 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in a Company’s Own Stock (“EITF 00-19”) requires freestanding contracts that are settled in a company’s own stock, including common stock warrants, to be designated as an equity instrument, asset or liability. Under the provisions of EITF 00-19, a contract designated as an asset or liability must be carried at fair value until the contract meets the requirements for classification as equity, until the contract is exercised or until the contract expires. As of December 31, 2004 and 2005, we have classified these Warrants as a liability, as noted above, because the requirements of EITF 00-19 for classification of the Warrants as equity had not been met. During the period the Warrants are classified as a liability, any changes in fair value are and will continue to be reported as fair value adjustment for Warrants in the Consolidated Statement of Income. Due primarily to the increase in the market value of our common stock during the last quarter of 2004, the fair market value of the Warrants increased from $22.5 million at September 30, 2004 to $71.7 million at December 31, 2004. As a result, during the three months ended December 31, 2004, we recorded a non-cash expense of $49.2 million (for which no tax benefit is derived) which was reflected as fair value adjustment for warrants on the accompanying Consolidated Statements of Income. Due to changes to items which affect the calculation of the fair value of the Warrants, primarily the change in the market value of our common stock during the year of 2005, the estimated fair market value of these Warrants decreased from $71.7 million at December 31, 2004 to $53.2 million at December 31, 2005. As a result, during the year ended December 31, 2005, we recorded non-cash income of $18.5 million (for which no tax expense is derived) which has been reflected as fair value adjustment for warrants on the accompanying Consolidated Statements of Income. A registration statement for the Warrants was filed with the SEC and declared effective on February 21, 2006. It is management’s belief that this was the final criteria to be met under the provisions of EITF 00-19 for classification of the Warrants as equity. Therefore, the volatility of our earnings resulting from the classification of these Warrants as a liability will be limited to the change in the value of these Warrants between December 31, 2005 and February 21, 2006. We estimate that the value of the Warrants was $58.4 million at February 21, 2006, which will result in a non-cash expense of $5.2 million to be recorded during the three months ending March 31, 2006. The value of the Warrants at February 21, 2006 will be re-classified from liabilities to additional paid-in-capital during the quarter ending March 31, 2006.

On November 29, 2004, we sold $80.0 million total principal amount of additional 6% Notes (the “November 2004 6% Notes”) due 2014 to eight investors under the same Indenture used for the $150.0 million unsecured financing completed during September 2004. The terms of the November 2004 6% Notes are identical to those of the 6% Notes sold during September 2004 (as described previously in this document) with the following exceptions: (1) there were no warrants associated with the November 2004 6% Notes and (2) the original issue discount on the November 2004, 6% Notes was approximately 14.7% versus 15.0% for the September 2004 6% Notes. The November 2004, 6% Notes were sold at a discount which provided net proceeds totaling $68.1 million. The net proceeds have been used for general corporate purposes, including, but not limited to the purchase of equipment, retirement of debt, acquisitions, and/or working capital.

During 2005 and the first quarter of 2006, we, the holders of a majority in principal amount of the 6% Notes and holders of a majority of the Warrants, and the warrant agent for the holders of the Warrants, entered into a series of amendments to certain agreements relating to the outstanding 6% Notes and Warrants. These amendments extended the dates by which we were required to take certain actions with respect to the 6% Notes and Warrants. Specifically, the amendments (i) extended from April 30, 2005 to June 30, 2005 the date by which we were required to seek stockholder approval for the purpose of ratifying the issuance of the Series B Warrants, (ii) extended from May 1, 2005 to August 1, 2005 the date by which we were required to file a registration statement with the SEC with respect to the Warrants, (iii) extended from May 1, 2005 to August 1, 2005 the date by which we were required to file a registration statement with the SEC with respect to the 6% Notes, and (iv) extended from October 1, 2005 to April l, 2006 the date on which liquidated damages were to become payable with respect to the 6% Notes and/or the Warrants if they had not been registered with the SEC. The registration statements for both the 6% Notes and the Warrants were originally submitted to the SEC on August 1, 2005. As a result of these amendments, we were obligated to use commercially reasonable efforts to have these registration statements declared effective by the SEC by March 6, 2006. If either of these registration statements had not been effective by April 1, 2006, we would have been required to pay liquidated damages to the holders of these securities based upon a value of $150.0 million for the 6% Notes and $150.0 million for the Warrants. For the first 90 days, the amount of liquidated damages to be paid related to the Warrants and the 6% Notes would have been calculated using a rate of 0.25% per annum for each day the registration statements were not effective after April 1, 2006. This percentage would have been increased by 0.25% for each 90 day period, until these conditions were met, up to a maximum of 1.00% per annum. The registration statement for the Warrants was declared effective on February 21, 2006. Therefore, we will not be required to pay liquidated damages related to the Warrants. In addition, it is management’s belief that this was the final criteria to be met under the provisions of EITF 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in a Company’s Own Stock, for classification of the Warrants as equity. Therefore, the volatility of our earnings resulting from the classification of these Warrants as a liability will be limited to the change in the value of these Warrants between December 31, 2005 and February 21, 2006. We estimate that the value of the Warrants was $58.4 million at February 21, 2006, which will result in a non-cash expense of $5.2 million to be recorded during the three months ending March 31, 2006. The value of the Warrants at February 21, 2006 will be re-classified from liabilities to additional paid-in-capital during the quarter ending March 31, 2006. The registration statement for the 6% Notes was declared effective on February 27, 2006.

During October 2005, the Investor Rights Agreement relating to the Warrants was amended to permanently eliminate the liquidated damages penalty for the Warrants described above once the registration statement for the Warrants was declared effective by the SEC. As noted above, the registration statement for the Warrants was declared effective on February 21, 2006, permanently eliminating the liquidated damages penalty.

In addition, during 2005, we and the Indenture Trustee for the 6% Notes (the “Indenture Trustee”), with the consent of the holders of a majority in principal amount of the outstanding 6% Notes, entered into several Supplemental Indentures amending the terms of the Indenture governing the 6% Notes. Pursuant to a Supplemental Indenture dated as of June 29, 2005, the Indenture was amended to provide that all determinations of our consolidated net income for purpose of the restricted payments provisions in Section 4.7 of the Indenture shall be based upon our adjusted consolidated net income, after excluding the effect on net income of any gain or loss attributable to any valuation adjustment relating to the Warrants. Pursuant to a Supplemental Indenture dated as of December 16, 2005, Section 4.8 of the Indenture, which generally prohibits the existence of contractual restrictions on the ability of our subsidiaries to pay dividends or distributions to the parent company, Interpool Inc., was amended. The December 16, 2005 Supplemental Indenture added a new exception to Section 4.8(b) so as to permit our subsidiaries to agree to those restrictions that are contained in the 2005 Fortis Facility and in the 2005 DVB Facility on the ability of Interpool Limited and ICL to pay dividends and distributions to Interpool Inc., as described above. Finally, pursuant to a Supplemental Indenture dated as of December 19, 2005, Section 4.7 of the Indenture, which limits the amount of cash dividends, distributions and other restricted payments that may be made by our parent company Interpool Inc. to our stockholders, was amended. The December 19, 2005 Supplemental Indenture modified clause (9) of Section 4.7(b) to provide that, in addition to the other specified exceptions, dividends and distributions may be paid in the aggregate amount of $13.0 million (an increase from the $7.0 million permitted under the original Indenture) from and after the date of the Indenture.

At a Special Meeting of our Stockholders held on June 30, 2005, holders of a majority of the outstanding shares of our common stock approved a resolution ratifying the issuance by us of the Series B Warrants and the issuance of common stock upon exercise of such Series B Warrants by the holders. This affirmative vote satisfied one of the requirements of the Warrant Agreement relating to the Warrants. As a result of this vote, the Series B Warrants are now exercisable to purchase shares of common stock in accordance with their terms.

As of December 31, 2005, a total of $198.7 million ($230.0 million principal less $31.3 million unamortized discount) of the 6% Notes issued during September and November 2004 was outstanding.

7.35% and 7.20% Notes: In July and August 1997, we issued $225.0 million of ten year notes, comprised of $150.0 million of 7.35% Notes due 2007 and $75.0 million of 7.20% Notes due 2007. The net proceeds from these offerings were used to repay secured indebtedness, to purchase equipment and for other investments. During the third quarter of 2005, we retired $21.2 million of the 7.35% Notes and $7.4 million of the 7.20% Notes and recognized pre-tax costs related to this retirement of $0.8 million which has been reflected within loss on retirement of debt on the accompanying Consolidated Statements of Income. As of December 31, 2005, $94.2 million and $37.9 million principal amount of the 7.35% and 7.20% Notes, respectively, remained outstanding.

9.25% Convertible Redeemable Subordinated Debentures: In December 2002, we issued $32.1 million of 9.25% Convertible Redeemable Subordinated Debentures, and subsequently issued an additional $5.1 million of such debentures in January and February 2003, resulting in a total of $37.2 million of debentures issued and outstanding at December 31, 2005. The debentures bear interest at an annual rate of 9.25%. They have a mandatory redemption feature upon the earlier of the occurrence of a change of control or on December 27, 2022. They have an optional redemption feature after the third anniversary at a price of 100% of outstanding principal plus accrued interest. They have a special redemption feature between December 27, 2006 and December 27, 2007, during which period we may redeem the debentures by issuing common stock at $25.50 per debenture plus accrued interest if the average closing price of our common stock for five consecutive trading days equals or exceeds $25.50 per share. Lastly, at any time, a holder of the debentures may convert the debentures into our common stock at a per share conversion price of $25.00. As of December 31, 2005, $37.2 million of the 9.25% Convertible Redeemable Subordinated Debentures remained outstanding.

9.875% Preferred Capital Securities: On January 27, 1997, Interpool Capital Trust, a Delaware business trust and special purpose entity (the “Trust”), issued to outside investors 75,000 shares of 9.875% Capital Securities with an aggregate liquidation preference of $75.0 million (the “Capital Securities”) for proceeds of $75.0 million. Interpool owns all the common securities of the Trust. The proceeds received by the Trust from the sale of the Capital Securities were used by the Trust to acquire $75.0 million of our 9.875% Junior Subordinated Deferrable Interest Debentures due February 15, 2027 (the “Debentures”). The sole asset of the Trust is $77.3 million aggregate principal amount of the Debentures. The Capital Securities represent preferred beneficial interests in the Trust’s assets. Distributions on the Capital Securities are cumulative and payable at the annual rate of 9.875% of the liquidation amount, semi-annually in arrears, and commenced February 15, 1997. We have the option to defer payment of distributions for an extension period of up to five years if it is in compliance with the terms of the Capital Securities. Interest at 9.875% will accrue on such deferred distributions throughout the extension period. The Capital Securities will be subject to mandatory redemption upon repayment of the Debentures to the Trust. The redemption price decreases from 104.9375% of the liquidation preference in 2007 to 100% in 2017 and thereafter. Under certain limited circumstances, we may, at our option, prepay the Debentures and redeem the Capital Securities prior to 2007 at a prepayment price specified in the governing instruments. Our obligations under the Debentures, under the Indenture pursuant to which the Debentures were issued, under certain guarantees and under certain back-up obligations, in the aggregate constitute a full and unconditional guarantee by Interpool, Inc. of the obligations of the Trust under the Capital Securities. As of December 31, 2005, $75.0 million of the 9.875% preferred capital securities remained outstanding.

Description of Certain Indebtedness Repaid During 2005:

2004 Fortis Facility: As noted above, in December 2005 we repaid the entire $303.8 million of borrowings outstanding under our 2004 Fortis Facility, using a portion of the initial advance under the 2005 Fortis Facility. Advances under the 2004 Fortis Facility were secured by shipping containers and related leases owned by a special purpose consolidated subsidiary and leased to various third parties. The 2004 Fortis Facility allowed for advances from time to time up to the amount of available collateral under the facility, subject to a maximum principal amount that could be outstanding under the facility. The maximum amount of the 2004 Fortis Facility was initially $252.0 million and was increased by $248.0 million during February 2005, thereby bringing the total commitments under the 2004 Fortis Facility to $500.0 million. When this facility was originally established in November 2004, we drew down $243.0 million, of which $224.4 million was used to refinance other indebtedness outstanding at the time (including the entire $154.8 million of outstanding borrowings under a secured revolving credit facility which we terminated in November 2004, as well as a $69.6 million loan from Fortis entered into in March 2004. The remaining $18.6 million of the initial advance under the 2004 Fortis Facility was used for transaction fees and working capital purposes. Borrowings under this facility bore interest at LIBOR plus 175 basis points. As required by this facility, on March 31, 2005 we entered into three interest rate swap contracts with original notional amounts totaling $204.9 million in order to effectively convert a significant portion of the debt under the 2004 Fortis Facility from floating rate debt to fixed rate debt. These interest rate swap contracts have now been reassigned to the 2005 Fortis Facility. The 2004 Fortis Facility had a two-year term, after which the outstanding balance would have been paid out in full over 66 months if it had not been refinanced.

2004 DVB Facility: In December 2005, $100.0 million of proceeds from the initial borrowings under the 2005 DVB Facility were used to repay the outstanding balance under a prior facility with DVB and certain other lenders, which was originally established on December 29, 2004 with a commitment of $150.0 million. No amounts were borrowed under this facility prior to July 1, 2005. Under the terms of this facility, the advance rate was either 60% or 75% at our option. The interest rate was to be determined by a pricing grid and could range from LIBOR plus 140 to 180 basis points, depending upon our tangible debt to total net worth ratio (as defined in the agreement) or our corporate credit rating, and the advance rate chosen. There was a commitment fee of 45 basis points per annum on any unused portion of this commitment, payable quarterly in arrears. As indicated above, this facility was terminated in December 2005.

Covenants:

At December 31, 2005, under the 2005 Fortis and DVB Facilities, the chassis revolving credit facility established during September 2005, and most of our other debt instruments, we are required to maintain covenants (as defined in each agreement) for tangible net worth (the most stringent of which required us to maintain tangible net worth of at least $300.0 million), a fixed charge coverage ratio of at least 1.5 to 1 and a funded debt to tangible net worth ratio of not more than 4.0 to 1. For the most restrictive covenants, tangible net worth includes stockholders’ equity plus any “warrant liability”, our 9.875% preferred capital securities and our 9.25% convertible redeemable subordinated debentures and any future subordinated debt, and is reduced by goodwill and adjusted to eliminate the impact of adjustments associated with derivative instruments; funded debt excludes the portion of debt and capital lease obligations due within one year, our 9.875% preferred capital securities and our 9.25% convertible redeemable subordinated debentures, and any future subordinated debt; fixed charges include interest expense, excluding those related to our 9.875% preferred capital securities and our 9.25% convertible redeemable subordinated debentures and any future subordinated debt, and lease rentals; earnings available for fixed charges include income before depreciation and income taxes, excluding the impact of any non-cash fair value adjustments for warrants, plus fixed charges, plus interest expense associated with our 9.875% preferred capital securities and our 9.25% convertible redeemable subordinated debentures and any future subordinated debt. As of December 31, 2005, we were in compliance with all covenants.

A servicing agreement to which we are a party requires that we maintain a tangible net worth (including our 9.875% preferred capital securities due 2027) of at least $375.0 million plus 50% of any positive net income reported from October 1, 2004 forward.

Additionally, under a credit agreement, we are required to maintain a security deposit in the aggregate amount of at least 80% of the outstanding loan balances, including interest. This amounted to $3.6 million at December 31, 2005, and is included in other assets on the Consolidated Balance Sheet. At December 31, 2005, under a restriction in our 6.0% Note Indenture, approximately $9.9 million of retained earnings were available for dividends.

Settled Insurance Litigation

In connection with an insurance claim related to the default of a South Korean customer and a subsequent lawsuit filed by the insurance carriers against us, on June 17, 2004 we signed an agreement settling the lawsuit and our claims under the policy. Under the terms of the settlement agreement, the insurance carriers paid us a total of $26.4 million during 2004. In addition, we received the right to retain any of the equipment we had recovered since the date of the claim. We recognized a pre-tax gain of $6.3 million related to the $26.4 million settlement, which is recorded in gain on insurance settlement on the Consolidated Statements of Income.

Gain on Sale of Equity Investment

In September 2005, we received cash proceeds of approximately $15.0 million from the sale of a non-transportation company in which we held a minority equity position since 1997. We accounted for this investment using the equity method of accounting. The carrying value of our initial investment of $11.3 million had been reduced to $2.0 million through the recording of equity losses and through the recognition of impairment losses on this investment. No tax benefits related to these losses had been recorded since the realization of these benefits was not assured. The sale of our investment resulted in a pre-tax gain of $13.0 million ($11.5 million after tax) and has been reflected as gain on the sale of equity investment in the accompanying Consolidated Statements of Income. Additional funds that may become due to us (subject to indemnity provisions and any contractual post-closing adjustments) totaling approximately $2.3 million (which are included in other receivables in the accompanying Consolidated Balance Sheets) are being held in escrow by the buyers for a period of up to 18 months.

CAI

We own a 50% common equity interest in CAI, which we acquired in April 1998. The remaining 50% common equity interest in CAI is owned by CAI’s Chief Executive Officer, Hiro Ogawa. CAI owns and leases-in its own fleet of containers and also manages, for a fee, containers owned by us and by third parties. We entered into our operating relationship with CAI primarily to facilitate the leasing in the short-term market of containers coming off long-term operating lease, to gain access to new companies looking to lease containers on a long-term basis and to realize cost efficiencies from the operation of a coordinated container lease marketing group. For containers managed by CAI for us in the short-term market, we earn the net operating income and pay CAI a fee for managing our equipment and leasing it on our behalf. The management fee calculation is based on the average daily net operating income of CAI’s fleet of owned, leased-in and managed containers (including the portion of CAI’s fleet that consists of our equipment) for each day such managed containers are part of the CAI fleet. The marketing group, which is organized as a wholly-owned subsidiary of Interpool, is responsible for soliciting container lease business for both Interpool and CAI, including long-term operating and direct financing lease business and short-term lease business under master lease agreements. Pursuant to our agreements with CAI, we have a right to purchase all long-term operating and direct financing lease business generated by the marketing group, subject to offering to CAI, at cost, 10% of this long-term operating and direct financing lease business plus an additional portion of the long-term lease business to be mutually agreed with CAI for sale by CAI to investors for whom CAI manages containers. By mutual agreement, CAI has purchased for its own account and for the account of third party investors long-term operating and direct financing lease business the marketing group has generated in excess of 10% of the marketing group’s long-term operating and direct financing lease business. Our existing agreements with CAI also contemplated that we would pay CAI an annual “Earn Out” fee in consideration for the transfer of CAI’s marketing employees to the marketing group, but, to date, by mutual agreement, this provision has been waived. In addition, on occasion, we have entered into transactions with CAI pursuant to which we have acquired equipment, and the related leases, from CAI on terms that resulted in a profit for CAI. Such equipment, as well as certain other containers purchased from time to time, are currently managed for us by CAI for a fee based upon the actual net operating income earned by such containers, or in certain instances, for a flat fee.

In April 2004, we reached an agreement with CAI resolving a number of open matters relating to the various agreements between the two companies, including appropriate remedial compensation for age differences between our containers managed by CAI and the balance of CAI’s managed fleet, pursuant to certain provisions of the Operating and Administration Agreement between us and CAI (the “CAI Agreement”). Pursuant to this agreement with CAI, during 2004 we paid CAI $2.0 million for resolution of these open issues through February 29, 2004. The impact of this agreement was recorded by us during the three months ended March 31, 2004, as a reduction in consolidated pre-tax income of $1.0 million ($0.6 million net of tax). As a result of this agreement, we anticipate that the earnings related to certain of our containers managed by CAI will be reduced to the extent the average age of such containers exceeds the average age of all other containers in CAI’s fleet.

In connection with the acquisition of our 50% common equity interest in CAI in 1998, we loaned CAI $33.7 million under a subordinated note agreement, which is collateralized by all containers owned by CAI as of April 30, 1998 or thereafter acquired, subject to the priority security interest lien of CAI’s senior credit facility, except for certain excluded collateral. Interest on this subordinated note is at an annual fixed rate of 10.5% and is payable quarterly. The original repayment terms required mandatory quarterly principal payments of $1.7 million beginning July 30, 2003 and ending on April 30, 2008. The subordinated note was subject to certain financial covenants and was cross-collateralized with CAI’s senior credit facility, subject to the terms of a subordination agreement.

On June 27, 2002, CAI entered into an amended $110.0 million senior revolving credit agreement with a group of financial institutions. To facilitate the closing of this new credit facility, we agreed to extend the repayment terms of our subordinated note so as to require mandatory quarterly principal payments of $1.7 million beginning July 30, 2006 and ending on April 30, 2011. We also agreed to modify certain financial covenants in the subordinated note. Interest on the subordinated note continues to accrue at an annual fixed rate of 10.5%, payable quarterly. The subordinated note continued to be cross-collateralized with CAI’s senior credit agreement, subject to the terms of an amended and restated subordination agreement. In connection with these modifications, Mr. Ogawa, CAI’s Chief Executive Officer and the owner of the 50% common equity interest in CAI that we do not own, agreed that we would have the right to designate a majority of the members of CAI’s board of directors, so long as the subordinated note remained outstanding. As a result of these transactions and gaining a majority position on CAI’s board, our financial statements have included CAI as a consolidated subsidiary since June 27, 2002.

On April 28, 2005, CAI replaced its $110.0 million secured revolving credit facility, which had an outstanding principal balance of $58.5 million as of March 31, 2005 (not including letters of credit in the aggregate amount of $6.0 million as of March 31, 2005) and was scheduled to expire on June 27, 2005, with a new senior secured revolving credit facility. The new credit facility has a total commitment amount of up to $175.0 million and was provided by a group of banks. The interest rate under the revolving line of credit varies depending upon whether the loans are characterized as base rate loans or Eurodollar rate loans. In addition, there is a commitment fee on the unused amount of the total commitment which fee is payable quarterly in arrears. The new credit facility provides that swing line loans (up to $10.0 million in the aggregate) and standby letters of credit (up to $15.0 million in the aggregate) will be available to CAI, which sublimits are part of, and not in addition to, the total commitment of $175.0 million under the new credit facility. The term of this revolving credit facility is three years. The revolving credit facility contains various financial and other covenants.

On April 28, 2005, in connection with the first advance under a new secured revolving credit facility established by CAI, CAI repaid the outstanding principal balance of $58.0 million on the existing revolving credit facility (plus interest and additional fees) and repaid $15.2 million of the amounts owed to us under the outstanding $33.7 million subordinated note issued by CAI to us in 1998. This repayment returned the subordinated note to the original payment schedule in effect before it was modified in 2002. The remaining balance of the subordinated note, totaling $16.8 million as of December 31, 2005, is required to be repaid in equal quarterly installments of approximately $1.7 million through April 30, 2008. In addition, the financial covenants associated with this subordinated note were amended in April 2005.

A total of $64.0 million and $65.0 million was outstanding under CAI’s senior revolving credit facilities at December 31, 2005 and 2004, respectively. Borrowings under CAI’s senior credit facility are secured by substantially all of CAI’s assets, other than certain excluded assets. The senior credit facility contains various financial and other covenants. At December 31, 2005, CAI was in compliance with these covenants.

As noted above, in connection with the June 2002 modifications to our subordinated note, Mr. Ogawa agreed that, until the subordinated note is paid in full, we would have the right to designate a majority of the members of CAI’s board of directors. Since the time this agreement was entered into, CAI’s board of directors has consisted of five directors, three of whom were appointed by us and two of whom were appointed by Mr. Ogawa. CAI management has advised us that CAI may wish to repay the remaining balance of the subordinated note during 2006 and CAI has obtained the consent of the lenders under its new secured revolving credit facility to make such repayment. Under the terms of the amended Shareholder Agreement between us and Mr. Ogawa, this repayment would result in CAI’s board of directors being comprised of an equal number of directors appointed by us and by Mr. Ogawa. Any such change in the composition of CAI’s board of directors would require that we no longer consolidate CAI in our financial statements from and after the date of such change. Instead, we would record our investment in CAI under the equity method of accounting. We have had preliminary discussions with Mr. Ogawa about potential modifications to the Shareholder Agreement that would preserve our majority position on CAI’s board of directors for some period of time after a repayment of the subordinated note. To date, no agreement has been reached on any such modifications, nor has CAI made a firm decision to repay the subordinated note prior to its final maturity in April 2008. See Note 11 to the Consolidated Financial Statements.

In May 1998, CAI granted options to certain of its key employees to purchase Series A cumulative preferred stock of CAI. Each of these individuals was given the opportunity to exercise these options by investing the after tax proceeds from stock appreciation rights previously granted to these employees. In addition, CAI provided a full recourse loan to finance the remaining portion of the exercise price. This loan was in the form of a promissory note that was secured by a pledge of the stock acquired through the exercise of the options. The options were exercised in May 1998 at an exercise price of $496.11 per share and, at December 31, 2005, there were 1,726 outstanding shares of this CAI preferred stock.

So long as the preferred stock has not yet been redeemed by CAI or the employee, at such time as a liquidity event takes place, defined as an initial public offering or a sale to parties other than Mr. Ogawa or Interpool, the preferred stock will be converted into an equal number of shares of CAI’s common stock. This preferred stock is subject to variable accounting in CAI’s financial statements for the portion of the preferred stock acquired using the proceeds of the loan from CAI. During the years ended December 31, 2003 and 2004, the management of CAI concluded that there was no change to the valuation of the preferred shares of CAI and, therefore, no stock compensation charge was recorded in CAI's financial statements for those periods. In the fourth quarter of 2005, CAI determined that a change in the valuation of its preferred shares had, in fact, taken place during these periods as well as for the year ended December 31, 2005. We have determined that the effect of this previously undetected error related to CAI's valuation of its preferred stock and corresponding stock compensation charge is immaterial to our consolidated financial statements for the years ended December 31, 2003 and 2004. In order to properly reflect these adjustments for the three years ended December 31, 2005, we recorded additional compensation expense of $4.5 million ($2.2 million, net of minority interest income) during the fourth quarter of 2005.

During the third quarter of 2005, pursuant to the terms of the Shareholder Agreement we entered into with Mr. Ogawa when we acquired our 50% common equity interest in CAI in 1998, Mr. Ogawa notified us that he was exercising his contractual right to request an independent valuation of CAI. An investment banking firm was engaged by CAI’s board of directors to conduct this valuation and the valuation was completed during the fourth quarter of 2005. We advised Mr. Ogawa that, after review of this valuation, we had decided not to exercise our right under the Shareholder Agreement to make an offer to acquire his 50% common equity interest in CAI for an amount equal to his percentage interest of the fair value of CAI as determined by the investment banking firm. The Shareholder Agreement provides that if we do not elect to make such an offer, Mr. Ogawa has a right to require CAI to take the necessary steps to effect an initial public offering to sell his equity, with all costs associated with any such initial public offering of CAI being borne by CAI. Mr. Ogawa has requested that CAI proceed with the steps necessary to register his equity interest in CAI for sale by him in an initial public offering. In response to Mr. Ogawa’s request, CAI has engaged an investment banking firm to manage an initial public offering. CAI and its investment bankers, together with their advisors, have commenced preparation of an S-1 registration statement for filing with the SEC sometime during 2006. In the event that CAI’s initial public offering is consummated, CAI would become a public company. In connection with CAI’s anticipated public offering, we expect to consider potential changes to the terms of the existing agreements between us and CAI and to the terms of the Shareholder Agreement between us and Mr. Ogawa. To date, however, no agreement has been reached regarding any such changes. In addition, we are currently evaluating the impact of CAI’s initial public offering on our current 50% common equity position in CAI. CAI’s ability to complete a public offering will depend upon a number of factors, including market conditions, industry conditions and developments in CAI’s business. Accordingly, there is no assurance that CAI’s public offering will be completed within the anticipated time frame or at all.

Chassis Holdings I, LLC

For many years, The Ivy Group, a New Jersey general partnership composed directly or indirectly of certain of our current and former directors and executive officers, together with certain of its principals, leased chassis to our wholly-owned subsidiary Trac Lease, Inc. (“Trac Lease”) for use in Trac Lease’s business. As of January 1, 2001, Trac Lease leased a total of 6,047 chassis from The Ivy Group and its principals for an aggregate annual lease payment of approximately $2.6 million. On July 1, 2001, we restructured our relationship with The Ivy Group and its principals to provide us with managerial control over the 6,047 chassis previously leased by Trac Lease from The Ivy Group and its principals. As a result of the restructuring, the partners of The Ivy Group contributed these 6,047 chassis and certain other assets and liabilities to a newly formed subsidiary, Chassis Holdings I, LLC (“Chassis Holdings”), in exchange for $26.0 million face value of preferred membership units and 10% of the common membership units, and Trac Lease contributed 902 chassis and two thousand dollars in cash to Chassis Holdings in exchange for $3.0 million face value of preferred membership units and 90% of the common membership units. The preferred membership units are entitled to receive a preferred return prior to the receipt of any distributions by the holders of the common membership units. The value of the contributed chassis was determined by taking the arithmetic average of the results of independent appraisals performed by three nationally recognized appraisal firms in connection with our establishment of a chassis securitization facility in July 2000. As the managing member of Chassis Holdings, Trac Lease exercises sole managerial control over the entity’s operations. Chassis Holdings leases all of its chassis to Trac Lease at a rental rate equal to the then current Trac Lease fleet average per diem. Chassis Holdings and the holders of the preferred membership units are party to a Put/Call Agreement providing that the holders of preferred units may put such units to Chassis Holdings under certain circumstances and Chassis Holdings has the right to redeem such units under certain circumstances. Chassis Holdings will be required to make certain option payments to the holders of the preferred membership units in order to preserve its right to redeem such units. Dividends paid on the common units and distributions on the preferred units totaling $3.1 million, $3.1 million and $2.9 million for the years ended December 31, 2005, 2004 and 2003, respectively, are included in minority interest expense, net in the accompanying Consolidated Statements of Income.

Chassis Distribution Agreement

In April 2003, we agreed to become a 50% owner through an initial investment of $0.5 million of a limited liability company (the “LLC”) formed with a foreign chassis manufacturer. The purpose of the LLC is to be the exclusive worldwide distributor of chassis built by this manufacturer and for us to share in the profits the LLC earns in selling these chassis to third parties. Under the terms of the distribution agreement for this equipment, we have agreed to purchase at least 15,000 chassis at preferred pricing over a ten-year period, of which 10,151 chassis were purchased or ordered by us through December 31, 2005. We may elect to purchase additional equipment during the ten-year period at identical terms. The LLC began operations during the second quarter of 2003. We consolidate the financial statements of the LLC.

Share Repurchases Associated with Exercise of Stock Options

In September 2005, Mr. Raoul Witteveen, our former President, advised us that he intended to exercise 500,000 stock options under the terms of the 1993 Stock Option Plan. These options had an exercise price of $10.25 per share and the market value at the date he exercised his options was $17.99 per share. In accordance with the terms of the 1993 Stock Option Plan, Mr. Witteveen paid the aggregate exercise price for these options by tendering to us a total of 284,880 shares of the Company’s common stock he then owned, which under the 1993 Stock Option Plan were valued at their total fair market value based on the market price of the common stock at the date of exercise. In addition, Mr. Witteveen reimbursed us in cash for the tax withholding related to the exercise.

The 284,880 shares delivered to us have been recorded as treasury shares, at their market value at the date of exercise on the accompanying Consolidated Balance Sheets. The exercise resulted in the issuance of 500,000 shares at a par value of $.001 and increased additional paid-in-capital by approximately $5.1 million. In addition, since these options were granted to Mr. Witteveen as compensation for services rendered, we are entitled to claim a tax deduction for non-employee compensation on our 2005 federal tax return. A tax benefit based on the difference between the market price of the stock as of the modification date and the exercise price was recorded in October 2003 at the time we recognized compensation expense relating to a modification of the options. The increase in the stock price from the modification date ($16.47 per share) to the exercise date ($17.99 per share) resulted in an additional tax benefit (amounting to $0.3 million), which has been recorded as additional paid-in capital at the time these options were exercised in 2005.

In December 2004, Warren L. Serenbetz (a former member of our Board of Directors) advised us that he intended to exercise 668,438 stock options which represented the remaining options issued to him under the terms of the 1993 Stock Option Plan. In addition, Mr. Serenbetz requested, and the Compensation Committee of the Board of Directors allowed him, to exercise these options on a cashless basis. These options had an exercise price of $10.25 per share and the market value at the date he exercised his options was $22.05 per share.

In connection with the cashless exercise feature, we withheld 310,725 shares with a market value of $6.9 million representing the cost to Mr. Serenbetz of exercising these options. In addition, we withheld 110,086 shares with a market value of $2.4 million representing the amounts advanced to Mr. Serenbetz for the payment of his minimum taxes related to the exercise. The remaining 247,627 shares were issued to Mr. Serenbetz.

The 420,811 shares withheld by the Company for the exercise price of the options and Mr. Serenbetz’s minimum taxes have been recorded as treasury shares, at their market value at the date of exercise on the accompanying Consolidated Balance Sheets. The exercise also resulted in the issuance of 668,438 shares at a par value of $0.001 and increased additional paid-in-capital by $6.9 million. In addition, since these options were granted to Mr. Serenbetz as compensation for services rendered, we are entitled to claim a tax deduction for non-employee compensation on our 2004 federal tax return. Since we did not recognize compensation expense on the grant or exercise of these options, the tax benefit (amounting to $3.1 million) has been recorded as additional paid-in-capital at the time these options were exercised.

No shares were repurchased during 2003.

Stock Options Exercised for Cash

On October 3, 2005, Mr. Raoul Witteveen, former President of the Company, exercised his remaining 640,000 options under the terms of the 1993 Stock Option Plan. These options had an exercise price of $10.25 per share and the shares had a market value of $18.32 per share at the exercise date. In connection with the exercise, Mr. Witteveen remitted $6.6 million in cash to the Company for the exercise of the options and an additional sum to pay for his estimated tax withholding. The exercise resulted in the issuance of 640,000 shares at a par value of $0.001 and increased additional paid-in-capital of approximately $6.6 million. In addition, since these options were granted to Mr. Witteveen as compensation for services rendered, the Company is entitled to claim a tax deduction for non-employee compensation on its 2005 federal tax return. A tax benefit based on the difference between the market price of the stock as of the modification date and the exercise price was recorded in October 2003 at the time the Company recognized compensation expense relating to a modification of the options. The increase in the stock price from the modification date ($16.47 per share) to the exercise date ($18.32 per share) resulted in an additional tax benefit (amounting to $0.5 million), which has been recorded as additional paid in-capital during the fourth quarter of 2005.

United States Federal Income Tax

We are subject to federal and state income taxes as a Subchapter “C” corporation under the Internal Revenue Code. Interpool, Trac Lease and other United States subsidiaries file a consolidated United States federal income tax return. This consolidated group is liable for federal income taxes on its worldwide income.

Personal Holding Company Issues. The federal income tax laws have two requirements for classifying a company as a personal holding company. We and our subsidiaries currently satisfy the first requirement, the ownership of more than 50% of the value of Interpool’s stock by five or fewer individuals. The second requirement is that at least 60% of such corporation’s adjusted ordinary gross income constitutes personal holding company income, which depends upon the income mix for the year.

Based upon the operating results for 2005, and principally due to the $305.0 million distribution made by Interpool Limited pursuant to the implemented repatriation plan, we will be considered a personal holding company for federal income tax purposes for 2005. As a personal holding company, in addition to our regular federal income tax liability our undistributed personal holding company income (generally taxable income with certain adjustments, including a deduction for federal income taxes and dividends paid) will be subject to a personal holding company tax at the rate of 15%. However, the regular dividends and the special dividends paid during 2005 combined with the additional special dividend paid on January 17, 2006 are sufficient to avoid having any undistributed personal holding company income for 2005, and no personal holding company tax will be imposed for 2005. There can be no assurance, however, that we will not at some point in the future become liable for personal holding company tax. Furthermore, we may at some point in the future elect to increase the dividend rate on our common stock in order to avoid personal holding company tax.

We have incurred certain losses from leasing activities that are characterized for tax purposes as “Suspended Passive Activity Losses.” These losses can be carried forward indefinitely to offset income from future leasing activities. As of December 31, 2005, such suspended passive activity loss carryovers, including the passive activity loss carryovers of CAI, totaled approximately $371.0 million.

Interpool Limited and ICL. Under certain circumstances, Interpool may be liable for United States federal income taxes on earnings of Interpool Limited, ICL and any other foreign subsidiaries of ours, whether or not such earnings are distributed to us. This would occur if Interpool Limited, ICL or any other foreign subsidiary of ours, realized “Subpart F income” as defined in the Code or if it were to have an increase in earnings invested in United States property.

Subpart F income includes foreign personal holding company income, such as dividends, interest and rents. Although a substantial portion of Interpool Limited’s and ICL’s income consists of rents from container leasing activities, we believe that such rents are not Subpart F income because they are derived from the active conduct of a trade or business and received from unrelated persons. However, Interpool Limited has received some dividend and interest income in past years, which was taxed as Subpart F income. In addition, during 2005 another foreign subsidiary of ours, Interpool Finance Corporation, received some interest income which was taxed as Subpart F income.

A parent company is also subject to taxation when a foreign subsidiary increases the amount of its earnings invested in United States property during any calendar year. We do not expect that Interpool Limited, ICL or any other foreign subsidiary of ours will invest any earnings in United States property.

Repatriation. In October 2004, the American Jobs Creation Act of 2004 (the “AJCA”) was signed into law. The AJCA created a temporary incentive for U.S. multinationals, such as Interpool, to repatriate accumulated income earned outside the U.S. at an effective U.S. federal tax rate of approximately 5.25%. On December 27, 2005, pursuant to the AJCA, Interpool, Inc.‘s wholly-owned Barbados subsidiary, Interpool Limited, made a distribution to Interpool, Inc. of approximately $305.0 million (the “Distribution”), as part of a plan approved by Interpool, Inc.‘s Board of Directors to repatriate accumulated and current earnings and profits of Interpool Limited, which previously had been considered permanently reinvested outside the United States. During 2005, we recorded expenses related to the Distribution of $23.1 million which included a federal tax provision expense and current tax liability of $17.6 million due to the Distribution and a state tax provision expense and current tax liability of $2.4 million due to Interpool Limited’s transfer of substantially all of its operating assets and liabilities to Interpool Containers Limited.

United States/Barbados Income Tax Convention. The business of Interpool Limited and ICL is managed and controlled in Barbados. Under the income tax convention between the United States and Barbados, including any protocols and amendments (the “Tax Treaty”), any profits of Interpool Limited or ICL from leasing of containers used in international trade generally are taxable only in Barbados and not in the United States.

Interpool Limited and ICL are entitled to the benefits of the Tax Convention for each year by satisfying the two-pronged test to the “limitation of benefits” provision: (1) more than 50% of the shares of Interpool Limited and ICL are owned, directly or indirectly, by any combination of individual United States residents or citizens (the “51% U.S. ownership test”), and (2) its income is not used in substantial part, directly or indirectly, to meet liabilities to persons who are not residents or citizens of the United States (the “base erosion test”). We believe Interpool Limited and ICL passed both of these tests and were eligible for the benefits of the Tax Treaty through December 31, 2005. If Interpool Limited or ICL had ceased to be eligible for the benefits of the Tax Treaty, a substantial portion of its income would become subject to the 35% United States federal income tax and the 30% branch profits tax.

In addition to having to satisfy the 51% U.S. ownership and base erosion tests described above, starting January 1, 2005 Interpool Limited and ICL are only eligible for the Tax Treaty benefits with respect to its container rental and sales income if Interpool, Inc. is listed on a “recognized stock exchange” and Interpool, Inc.‘s stock is “primarily” and “regularly” traded on such exchange.

During April 2004 Interpool, Inc. was de-listed by the New York Stock Exchange. During this de-listing, our common stock was traded on the over-the-counter market under the symbol IPLI. In December 2004, after making all delinquent SEC filings, we applied for relisting on the New York Stock Exchange. On January 13, 2005 our common stock was re-listed on the New York Stock Exchange; a “recognized stock exchange” within the meaning of the Tax Treaty. Interpool believes this listing and its current trading volume satisfies the “primarily” and “regularly” traded requirements of the Tax Treaty, that Interpool Limited qualified again for benefits under the Tax Treaty on January 13, 2005, and that ICL qualified under the Tax Treaty when it began operations as of close of business on November 30, 2005. We have estimated there should be no U.S. current tax expense for the period January 1, 2005 to January 12, 2005, when Interpool Limited was not eligible for the Tax Treaty.

Barbados Tax Returns. As companies resident in Barbados, Interpool Limited and ICL are required to file tax returns in Barbados and pay any tax liability to Barbados. Prior to the third quarter of 2005, no Barbados tax returns had been prepared or filed for Interpool Limited for any period subsequent to its 1997 tax year. As of September 30, 2005, all previously outstanding Barbados tax returns (1998-2004 tax years) were filed. There was no underpayment of taxes, interest or penalties (other than a nominal late filing penalty) with the filing of these returns.

State and Local Taxes

Income Taxes. Interpool and Trac Lease are liable for state and local income taxes on their income, and Interpool Limited and ICL are liable for state and local income taxes on its earnings attributable to operations in the United States, if any.

Sales Tax. To date, Interpool, Trac Lease, Interpool Limited, and ICL generally have not paid sales taxes on their long-term leasing revenues to the states in which they conduct business because management believes such revenues to be exempt from state sales taxes on several grounds, including a long-standing interpretation of the Commerce Clause of the United States Constitution that would prohibit the imposition of a tax on cargo containers and chassis used primarily for transportation of goods in interstate commerce or international trade. Under the terms of our equipment leases, in the event sales tax is imposed, we would generally be entitled to recover any such sales tax from our lessees. We do, however, collect and remit sales tax on their short-term chassis pool (intrastate) activity.

Inflation

Management believes that inflation has not had a material adverse effect on our results of operations. In the past, the effects of inflation on administrative and operating expenses have been largely offset through economies of scale achieved through expansion of the business.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to use judgment in making estimates and assumptions that affect reported amounts of assets and liabilities, the reported amounts of income and expense during the reporting period and the disclosure of contingent assets and liabilities at the date of the financial statements. Management has identified the policies and estimates below as critical to our business operations and the understanding of our results of operations. For a detailed discussion on these and other significant accounting policies, see Note 1 to the Consolidated Financial Statements. These policies and estimates are considered critical due to the existence of uncertainty at the time the estimate is made, the likelihood of changes in estimates from period to period and the potential impact that these estimates can have on our financial statements. The following accounting policies and estimates include inherent risks and uncertainties related to judgments and assumptions made by management. Management’s estimates are based on the relevant information available at the end of each period.

Allowance for Doubtful Accounts — The allowance for doubtful accounts is set on a quarterly basis and is based on the risk profile of the receivables, credit quality indicators such as the level of past due amounts and non-performing accounts and economic conditions, as well as the value of underlying collateral. Changes in economic conditions or other events may necessitate additions or deductions to the allowance for doubtful accounts. The allowance is intended to provide for losses inherent in the accounts receivable, and requires the application of estimates and judgments as to the outcome of collection efforts and the realization of collateral, among other things.

Accounting for Leasing Equipment — Long-lived assets are depreciated on a straight-line basis over their estimated useful lives to residual values that approximate fair value. Equipment useful lives are based upon actual experience in our fleet as well as the useful lives assigned to the equipment by independent appraisers. We continue to review our depreciation policies on a regular basis to evaluate if changes have taken place that would suggest that a change in the depreciation policies is warranted. Periodically a determination is made as to whether the carrying amount of the fleet exceeds its estimated future undiscounted cash flows. In addition, all idle equipment is evaluated to determine whether the units will be repaired and returned to service or sold based upon the best economic alternative. Assets to be disposed are reported at the lower of the carrying amount or fair value.

Lease Residual Values — Operating lease equipment is carried at cost less accumulated depreciation and is depreciated to estimated residual values using the straight-line basis of depreciation over their estimated useful lives. Direct financing leases are recorded at the aggregated future minimum lease payments, including any bargain or economically compelled purchase options granted to the customer, less unearned income. We generally bear greater risk in operating lease transactions (versus direct financing lease transactions) due to redeployment costs and related risks that are avoided under a direct financing lease. Management performs annual reviews of the estimated residual values which can vary depending on a number of factors.

Goodwill — Goodwill, in accordance with SFAS No. 142, Goodwill and Other Intangible Assets (“SFAS 142”) is reviewed for possible impairment at least annually during the fourth quarter of each fiscal year. A review of goodwill may be initiated prior to conducting the annual analysis if events or changes in circumstances indicate that the carrying value of goodwill may be impaired. During this review, management relies on a number of factors including operating results, business plans, economic projections, anticipated future cash flows and market place data.

Accounting for Customer Defaults — We have sought to reduce credit risk by maintaining insurance against customer insolvency and equipment related losses. We cease the recognition of lease revenues for amounts billable to the lessee after the lease default date at the time we determine that such amounts are not probable of collection from the lessee. In connection with the accounting for the insurance policy, we record a receivable which is limited to the actual costs incurred or losses recognized that would have been billable to the lessee pursuant to the lease contract (which are also covered by the insurance contracts). Items that are covered under the insurance contracts, for amounts billable to the lessee in accordance with the lease, that are in excess of costs incurred and losses recognized by us, are considered a gain contingency.

Derivative Financial Instruments — We utilize interest rate swaps to hedge against the effects of future interest rate fluctuations. We do not enter into derivative financial instruments for trading or speculative purposes.

On January 1, 2001, we adopted SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (“SFAS 133”). Derivative instruments are included in the Consolidated Balance Sheet at their fair values in accounts payable and accrued expenses and changes in fair values are recognized immediately in earnings, unless the derivatives qualify as hedges of future cash flows. For derivatives qualifying as hedges of future cash flows, the effective portion of changes in fair value is recorded temporarily in accumulated other comprehensive income/(loss) as a separate component of equity, and contractual cash flows, along with the related impact of the hedged items, continue to be recognized in earnings. Any ineffective portion of a hedge is reported in current earnings. Amounts accumulated in other comprehensive income/(loss) are reclassified to earnings in the same period that the hedged transaction impacts earnings.

The net interest differential, including premiums paid or received, if any, on interest rate swaps, is recognized on an accrual basis as an adjustment to interest expense to correspond with the hedged position. We may, at our discretion, terminate or redesignate any interest rate swap agreement prior to maturity. At that time, any gains or losses on termination would continue to amortize into income to correspond to the recognition of interest on the hedged debt. If such debt instrument was also terminated, the gain or loss associated with the terminated derivative included in accumulated other comprehensive loss at the time of termination of the debt would be recognized in the Consolidated Income Statement at that time.

Warrant Valuation — As of December 31, 2005, our outstanding warrants are classified as a liability in accordance with EITF 00-19. Under the provisions of EITF 00-19, a contract designated as an asset or liability must be carried at fair value until the contract meets the requirements for treatment as equity, until the contract is exercised or until the contract expires. Accordingly, future changes to the fair market value of these Warrants have the potential to cause volatility in our future results. For the period of time that these Warrants are classified as a liability, any increase in the fair market value of the Warrants will result in an additional non-cash expense to the Consolidated Statements of Income. To the extent the fair market value of the Warrants decreases during this period, we will record non-cash income in our Consolidated Statements of Income. A registration statement for the Warrants was filed with the SEC and was declared effective on February 21, 2006. It is management’s belief that this was the final criteria to be met under the provisions of EITF 00-19 for classification of the Warrants as equity. Therefore, the volatility of our earnings resulting from the classification of these Warrants as a liability will be limited to the change in the value of these Warrants between December 31, 2005 and February 21, 2006. See Note 18 to the Consolidated Financial Statements.

Income Taxes — Deferred tax liabilities and assets are recognized for the expected future tax consequences of events that have been reflected in the Consolidated Financial Statements. Deferred tax liabilities and assets are determined based on the differences between the book values and the tax basis of particular assets and liabilities, using tax rates in effect for the years in which the differences are expected to reverse. A valuation allowance is provided to offset any net deferred tax assets if, based upon the available evidence which may be subject to management estimates, it is more likely than not that some or all of the deferred tax assets will not be realized.

In certain situations, a taxing authority may challenge positions adopted in our income tax filings. We may apply a different tax treatment for these selected transactions in filing the tax return than for income tax financial reporting purposes. We regularly assess the tax positions for such transactions and include reserves for those differences in position. The reserves are utilized or reversed once the statute of limitations has expired or the matter is otherwise resolved. In addition, we believe the ultimate outcome of these matters will not have a material impact on the Company’s financial condition or liquidity.

Through December 31, 2005 we claimed tax benefits under an income tax convention between the United States and Barbados (“Tax Treaty”), the jurisdiction in which our subsidiaries, Interpool Limited and ICL, operate our international container leasing business, are incorporated. Specifically, under the Tax Treaty, any profits of Interpool Limited or ICL from leasing of containers used in international trade generally are taxable only in Barbados at an approximate 3% tax rate, and not in the United States. Interpool Limited and ICL are entitled to the benefits of the Tax Treaty for each year that more than 50% of the shares of Interpool Limited and ICL were owned, directly or indirectly, by any combination of individual United States residents or citizens (the “51% U.S. ownership test”) and its income was not used in substantial part, directly or indirectly, to meet liabilities to persons who were not residents or citizens of the United States (the “base erosion test”). We believe Interpool Limited and ICL passed both of these tests through December 31, 2005.

Beginning January 1, 2005, in addition to having to satisfy the 51% U.S. ownership and base erosion tests described above, Interpool Limited and ICL are only eligible for the Tax Treaty benefits with respect to its container rental and sales income if Interpool, Inc. is listed on a “recognized stock exchange” and Interpool, Inc.‘s stock is “primarily” and “regularly” traded on such exchange.

As described elsewhere in this report, on January 13, 2005 our common stock was listed on the New York Stock Exchange, a “recognized stock exchange” within the meaning of the post-2004 Treaty. Interpool believes this listing and its current trading volume satisfies the “primarily” and “regularly” traded requirements of the Tax Treaty, that Interpool Limited qualified for benefits under the Tax Treaty again on January 13, 2005, and that ICL qualified for the benefits under the Tax Treaty when it began operations. We have estimated there should be no U.S. current tax expense for the period January 1, 2005 to January 12, 2005, when Interpool Limited was not eligible for the Tax Treaty.

Historically, no deferred U.S. Federal income taxes have been provided on the unremitted earnings of Interpool Limited since it is our past practice and future intention to permanently reinvest such earnings. No deferred U.S. Federal income taxes have been provided on the unremitted earnings of ICL since it is our current and future intention to permanently reinvest such earnings. We have documented our ability to reinvest earnings generated annually from our international operations. This documentation contains certain management judgments and estimates of economic conditions and the future demand for containers. Any unremitted earnings that we would be unable to reinvest in our international operations could be subject to taxation at United States tax rates.

In October 2004, the AJCA was signed into law. The AJCA created a temporary incentive for U.S. multinationals, such as Interpool, to repatriate accumulated income earned outside the U.S. at an effective U.S. federal tax rate of approximately 5.25%. On December 27, 2005, pursuant to the AJCA, Interpool Limited made a distribution to Interpool, Inc. of approximately $305.0 million (the “Distribution”), as part of a plan approved by Interpool, Inc.‘s Board of Directors to repatriate accumulated and current earnings and profits of Interpool Limited, which previously had been considered permanently reinvested outside the United States. During 2005, we recorded expenses related to the Distribution of $23.1 million which included federal tax provision expense and current tax liability of $17.6 million due to the Distribution and a state tax provision expense and current tax liability of $2.4 million due to Interpool Limited’s transfer of substantially all of its operating assets and liabilities to Interpool Containers Limited.

Recent Accounting Pronouncements

In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections, (“SFAS 154”). This new standard replaces Accounting Principles Board Opinion 20, Accounting Changes, and FASB No. 3, Reporting Accounting Changes in Interim Financial Statements. Among other changes, SFAS 154 requires that a voluntary change in accounting principle be applied retrospectively with all prior period financial statements presented using the new accounting principle, unless it is impracticable to do so. SFAS 154 also provides that (1) a change in method of depreciating or amortizing a long-lived non-financial asset be accounted for as a change in estimate (prospectively) that was effected by a change in accounting principle, and (2) correction of errors in previously issued financial statements should be termed a “restatement.” The new standard is effective for accounting changes and correction of errors made in fiscal years beginning after December 15, 2005. We believe the adoption of the provisions of SFAS 154 will not have a material impact on our results of operations, financial positions or liquidity.

In December 2004, the FASB published SFAS No. 123(R), Share-Based Payment, (“SFAS 123 (R)”) which will be effective for periods beginning after June 15, 2005. We currently account for our stock option plans in accordance with SFAS No. 148, Accounting for Stock-Based Compensation (“SFAS 148”). This Statement amends SFAS No. 123, Accounting for Stock-Based Compensation (“SFAS 123”), which allows for the retention of principles within Accounting Principles Board Opinion 25, Accounting for Stock Issued to Employees (“APB 25”). As permitted, we have chosen to continue to account for stock-based compensation using the intrinsic value method described in APB 25 and related interpretations. APB 25 generally requires compensation costs, if any, to be recognized for the difference between the exercise price and the market price of the underlying stock on the date of the grant. Alternatively, SFAS 123(R) employs fair value-based measurement and generally results in the recognition of compensation expense for all stock-based awards. The adoption of SFAS 123(R) will require the recognition of compensation expense for all share-based compensation. Based on the number of options currently outstanding, the adoption of SFAS 123(R) is expected to result in compensation expense, net of tax, of approximately $0.4 million and $0.3 million for the years ended December 31, 2006 and 2007, respectively. All future grants of share-based compensation will result in the recognition of additional compensation expense.

Interest Rate Risk

The nature of our business exposes us to market risk arising from changes in interest rates. We manage interest rate risk to protect margins on existing transactions. Interest rate risk is the risk of earnings volatility attributable to changes in interest rates. Additionally, we consider interest rate swap contracts as an integral part of borrowing transactions. Generally we seek to reduce our exposure by entering into amortizing interest rate swap contracts, which coincide with the principal and maturity of the underlying debt instruments hedged. We do not use leveraged swaps and do not use leverage in any of our investment activities that would put principal capital at risk.

The following table sets forth principal cash flows and related weighted average interest rates by expected maturity dates for debt and capital lease obligations at December 31, 2005:

(1)           These fixed rate facilities include variable instruments that have been converted to fixed rate debt through the use of interest rate swap agreements.

Based on outstanding debt balances at December 31, 2005 of variable rate facilities, which have not been converted to fixed rate debt through the use of interest rate swaps, a 10% change in variable interest rates would have resulted in a $2.5 million change in pre-tax earnings.

For further information regarding our floating and fixed rate debt, see Note 3 to the Consolidated Financial Statements.

Credit Risk

We maintain detailed credit records about our customers. Our credit policy sets different maximum exposure limits for our customers. Credit criteria may include, but are not limited to, customer trade route, country, social and political climate, assessments of net worth, asset ownership, bank and trade credit references, credit bureau reports, operational history and financial strength.

We seek to reduce credit risk by maintaining insurance coverage against customer insolvency and related equipment losses. We maintain contingent physical damage, recovery and loss of revenue insurance, which provides coverage in the event of a customer’s insolvency, bankruptcy or default giving rise to our demand for return of all of our equipment. The policy covers the cost of recovering our equipment from the customer, including repositioning cost, damage to the equipment and the value of equipment which could not be located or was uneconomical to recover. It also covers a portion of the equipment leasing revenue that we might lose as a result of the customer’s default (i.e., up to 180 days of lease payments following an occurrence under the policy). Our current policy, which commenced April 30, 2005, includes coverage of $13.0 million with a $2.0 million deductible, per occurrence. This coverage automatically renews for at least two additional one-year terms on each anniversary of the commencement date. All renewals are subject to maintaining a claim experience that does not exceed stated percentages of the policy premiums. There can be no assurance that this or similar coverage will be available in the future or that such insurance will cover the entirety of any loss.

Beginning January 31, 2006, we also maintain credit insurance which provides complementary coverage upon the occurrence of a customer’s insolvency, bankruptcy or default giving rise to our demand for return of all our equipment. The policy covers a portion of the equipment leasing revenues we might lose as a result of the customer’s default (i.e., up to 90 days of lease payments that accrue prior to an occurrence under the policy). Our current policy includes coverage of $10.0 million with a $0.2 million deductible, per year, in the aggregate. The policy has a one-year term. There can be no assurance that this or similar coverage will be available in the future or that such insurance will cover the entirety of any loss.

At December 31, 2005, approximately 44% of accounts receivable and 73% of the net investment in direct financing leases were from customers outside of the United States.

In 2005, our top 25 customers represented approximately 76% of consolidated billings, with no single customer accounting for more than 8.3%.

Allowance for Doubtful Accounts

The allowance for doubtful accounts includes our estimate of allowances necessary for receivables on both operating and direct financing lease receivables. The allowance for doubtful accounts is developed based on two key components (1) specific reserves for receivables which are impaired for which management believes full collection is doubtful and (2) reserves for estimated losses inherent in the receivables based upon historical trends. We believe our allowance for doubtful accounts is adequate to provide for credit losses inherent in our accounts receivable. The allowance for doubtful accounts is intended to provide for losses inherent in the accounts receivable, and requires the application of estimates and judgments as to the outcome of collection efforts and the realization of collateral, among other things. In addition, changes in economic conditions or other events may necessitate additions or deductions to the allowance for doubtful accounts. Direct financing leases are evaluated on a case by case basis. When evaluating our operating and direct financing lease receivables for impairment, we consider, among other things, the level of past-due amounts of the respective receivable, the borrower’s financial condition, credit quality indicators of the borrower, the value of underlying collateral and third party credit enhancements such as guarantees and insurance policies. Once a direct financing lease is determined to be non-performing, our procedures provide for the following events to take place in order to evaluate collectibility:

The adequacy of our allowance for doubtful accounts is provided based upon a quarterly review of the collectibility of our receivables. This review is based on the risk profile of the receivables, credit quality indicators such as the level of past-due amounts and economic conditions, as well as the value of underlying collateral in the case of direct financing lease receivables. See Note 2 to the Consolidated Financial Statements.

As of December 31, 2005 and 2004, included in accounts receivable are non-performing receivables of $11.5 million and $12.5 million, respectively. Our average non-performing receivables are $11.5 million and $12.7 million for the years ended December 31, 2005 and 2004, respectively. As of December 31, 2005 and 2004, included in the allowance for doubtful accounts are reserves for the non-performing receivables of $11.5 million and $11.8 million, respectively. As of December 31, 2005 and 2004 our non-performing receivables, net of applicable reserves, were 0.05% and 1.01%, respectively, of accounts receivable, net.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Consolidated Financial Statements

INTERPOOL, INC.

Report of Independent Registered
Public Accounting Firm

The Board of Directors
Interpool, Inc.:

We have audited the accompanying consolidated balance sheets of Interpool, Inc. and subsidiaries as of December 31, 2005 and 2004 and the related consolidated statements of income, changes in stockholders’ equity and cash flows for each of the years in the three year period ended December 31, 2005. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Interpool, Inc. and subsidiaries as of December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the years in the three year period ended December 31, 2005 in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Interpool, Inc. and subsidiaries’ internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control–Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"), and our report dated March 31, 2006 expressed an unqualified opinion on management’s assessment of, and an adverse opinion on the effective operation of, internal control over financial reporting.

(signed) KPMG LLP

Short Hills, N.J.
March 31, 2006

                                                            December 31, 2005
                                                Total Lease       Unearned            Net Lease
                                                 Receivable     Lease Income         Receivable
                 2006                           $120,119           $33,353            $86,766
                 2007                            114,741            24,074             90,667
                 2008                             77,209            15,770             61,439
                 2009                             50,526            10,597             39,929
                 2010                             38,851             7,086             31,765
                 Thereafter                       62,271             9,963             52,308
                                                  ------             -----             ------
                                                $463,717          $100,843           $362,874
                                                 ========          ========           ========

                 2006                           $195,596
                 2007                            162,385
                 2008                            108,353
                 2009                             67,997
                 2010                             42,272
                 Thereafter                       34,589
                                                  ------
                                                $611,192
                                                ========

                                  Options Outstanding                                   Options Exercisable
                          ----------------------------------                      ----------------------------
                                             Weighted Average
                             Number             Remaining                               Number
                           Outstanding         Contractual      Weighted Average     Exercisable     Weighted Average
   Exercise Prices        December 31,         Life (Years)      Exercise Price      December 31,     Exercise Price
--------------------     ----------------    ---------------    ----------------    --------------   -----------------
       $6.375                 15,000                4.2               $6.375              15,000           $6.375
       10.25               2,543,063                2.7               10.25            2,543,063           10.25
       11.9375               100,000                4.8               11.9375            100,000           11.9375
       13.73                  50,000                6.7               13.73               50,000           13.73
       18.77                 275,000                8.5               18.77              266,667           18.77
       19.24                  30,000                9.95              19.24                  ---           19.24
       20.38                  25,000                9.4               20.38                8,333           20.38
       21.05                  50,000                9.6               21.05                  ---           21.05
       22.05                  90,000                8.95              22.05               30,000           22.05
----------------------------------------------------------------------------------------------------------------------
    $6.375-$22.05          3,178,063                3.7              $11.75            3,013,063          $11.24