##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For The Quarterly Period Ended March 31, 2008
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 333-84874
    
    Mobile Services Group, Inc.
    
    Delaware
    
    04-3648175333-146157-03
    
    Mobile Storage Group, Inc.
    
    Delaware
    
    20-0751031(Commission file number)
    
    (Exact name of registrant as
    
    (State or other jurisdiction of
    
    (I.R.S. Employerspecified in its charter)
    
    incorporation or organization)
    
    Identification No.)
 700 North Brand Blvd, Suite 1000
Glendale, California 91203
(818) 253-3230
 þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller Reporting Company o
 o þ




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##### 



Table of Contents
 Part I
Financial InformationItem 1. Financial Statements
    
    
    3Condensed Consolidated Balance Sheets as of December 31, 2007 and March 31, 2008 (unaudited)
    
    
    3Condensed Consolidated Statements of Income for the three months ended March 31, 2007 (unaudited) and March 31, 2008 (unaudited)
    
    
    4Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2007 (unaudited) and March 31, 2008 (unaudited)
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    22Item 3. Quantitative and Qualitative Disclosure About Market Risk
    
    
    30Item 4T. Controls and Procedures
    
    
    31Part II
Other InformationItem 1. Legal Proceedings
    
    
    32Item 1A. Risk Factors
    
    
    32Item 6. Exhibits
    
    
    32Exhibit 31.1Exhibit 31.2Exhibit 31.3Exhibit 31.4Exhibit 32.1Exhibit 32.2Exhibit 32.3Exhibit 32.4
   2




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##### Table of Contents



Item 1: Financial Statements
 MOBILE SERVICES GROUP, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (Dollars in thousands, except per share data)
 December 31,
    
    
    March 31,2007
    
    
    2008(unaudited)Assets:Cash and cash equivalents
    
    $
    2,331
    
    
    $
    2,853Accounts receivable, net of allowance for doubtful accounts of $1,316 and
$1,403 at December 31, 2007 and March 31, 2008, respectively
    
    
    34,595
    
    
    
    31,731Inventories
    
    
    14,492
    
    
    
    15,649Lease equipment, net of accumulated depreciation of $17,622 and $20,961 at
December 31, 2007 and March 31, 2008, respectively
    
    
    344,415
    
    
    
    348,459Property and equipment, net of accumulated depreciation of $6,534 and $8,121
at December 31, 2007 and March 31, 2008, respectively
    
    
    29,077
    
    
    
    29,130Goodwill
    
    
    313,885
    
    
    
    315,069Other intangible assets, net
    
    
    76,402
    
    
    
    75,269Deferred financing costs, net
    
    
    13,111
    
    
    
    12,522Prepaid expenses and other assets
    
    
    7,648
    
    
    
    7,308Assets held for sale and discontinued operations
    
    
    64
    
    
    
    Total assets
    
    $
    836,020
    
    
    $
    837,990Liabilities:Accounts payable
    
    $
    13,911
    
    
    $
    16,031Accrued liabilities
    
    
    28,874
    
    
    
    20,301Customer deposits
    
    
    6,420
    
    
    
    5,855Senior revolving credit facility
    
    
    218,737
    
    
    
    225,310Capital leases and other notes payable
    
    
    7,603
    
    
    
    7,4779 3/4% Senior Notes Due 2014
    
    
    200,000
    
    
    
    200,000Deferred income taxes
    
    
    69,705
    
    
    
    70,452Total liabilities
    
    
    545,250
    
    
    
    545,426Commitments and contingenciesStockholders equity:Common stock, $0.001 par value, 1,200,000 shares authorized, 1,000 shares
issued and outstanding at December 31, 2007 and March 31, 2008, respectively
    
    
    268,861
    
    
    
    269,412Accumulated other comprehensive income
    
    
    5,856
    
    
    
    5,752Retained earnings
    
    
    16,053
    
    
    
    17,400Total stockholders equity
    
    
    290,770
    
    
    
    292,564Total liabilities and stockholders equity
    
    $
    836,020
    
    
    $
    837,990
   3




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##### Table of Contents



MOBILE SERVICES GROUP, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 (Unaudited)
(Dollars in thousands)
 Three Months Ended March 31,2007
    
    
    2008Revenues:Lease and lease related
    
    $
    43,201
    
    
    $
    49,303Sales
    
    
    10,424
    
    
    
    10,911Total revenues
    
    
    53,625
    
    
    
    60,214Costs and expenses:Cost of sales
    
    
    7,402
    
    
    
    7,681Trucking and yard costs
    
    
    13,495
    
    
    
    14,992Depreciation and amortization
    
    
    4,791
    
    
    
    6,379Selling, general and
administrative expenses
    
    
    17,530
    
    
    
    19,325Income from operations
    
    
    10,407
    
    
    
    11,837Other income (expense):Interest expense, net
    
    
    (8,818
    )
    
    
    (9,540
    )Foreign currency transaction gain
    
    
    2
    
    
    
    Other income (expense)
    
    
    7
    
    
    
    (85
    )Income from continuing operations
before provision for income taxes
    
    
    1,598
    
    
    
    2,212Provision for income taxes
    
    
    630
    
    
    
    829Income from continuing operations
    
    
    968
    
    
    
    1,383Loss from discontinued operations
(net of tax benefit of $176 and
$26 for the three months ended
March 31, 2007 and 2008,
respectively)
    
    
    (270
    )
    
    
    (36
    )Net income
    
    $
    698
    
    
    $
    1,347
   4




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##### Table of Contents



MOBILE SERVICES GROUP, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
(Dollars in thousands)
 Three Months Ended March 31,2007
    
    
    2008Operating activitiesNet income
    
    $
    698
    
    
    $
    1,347Loss from discontinued operations
    
    
    270
    
    
    
    36Income from continuing operations
    
    
    968
    
    
    
    1,383Adjustments to reconcile income from
continuing operations to net cash provided by
operating activities:Foreign currency transaction gain
    
    
    (2
    )
    
    
    Provision for doubtful accounts
    
    
    442
    
    
    
    277Amortization of deferred financing costs
    
    
    628
    
    
    
    683Depreciation
    
    
    4,154
    
    
    
    5,121Amortization
    
    
    637
    
    
    
    1,258Deferred income taxes
    
    
    191
    
    
    
    711Stock-based compensation
    
    
    612
    
    
    
    551Changes in operating assets and liabilities, net of assets acquired and liabilities assumed in purchase transactions:Accounts receivable
    
    
    1,969
    
    
    
    2,563Inventories
    
    
    (508
    )
    
    
    (763
    )Prepaid expenses and other assets
    
    
    (1,955
    )
    
    
    251Accounts payable and accrued liabilities
    
    
    (2,461
    )
    
    
    (3,270
    )Net cash provided by operating
activities  continuing operations
    
    
    4,675
    
    
    
    8,765Net cash provided by operating
activities  discontinued operations
    
    
    647
    
    
    
    22Net cash provided by operating activities
    
    
    5,322
    
    
    
    8,787Investing activitiesAcquisitions, net
    
    
    
    
    
    
    (2,525
    )Purchases of lease equipment
    
    
    (8,214
    )
    
    
    (6,581
    )Purchases of property and equipment
    
    
    (1,157
    )
    
    
    (1,533
    )Net cash used in investing activities
    
    
    (9,371
    )
    
    
    (10,639
    )Financing activitiesBorrowings under Credit Facility
    
    
    5,500
    
    
    
    13,083Payments under Credit Facility
    
    
    (1,858
    )
    
    
    (10,357
    )Payments on capital leases and notes payable
    
    
    (270
    )
    
    
    (347
    )Net cash provided by financing activities
    
    
    3,372
    
    
    
    2,379Effect of foreign exchange rate changes on cash
    
    
    884
    
    
    
    (5
    )Net increase in cash
    
    
    207
    
    
    
    522Cash and cash equivalents at beginning of
period
    
    
    1,469
    
    
    
    2,331Cash and cash equivalents at end of period
    
    $
    1,676
    
    
    $
    2,853
   5




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##### Table of Contents



MOBILE SERVICES GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
 (Unaudited)
(Dollars in thousands)
 Three Months Ended March 31,2007
    
    
    2008Supplemental disclosure of cash flow
information:Cash paid during the period:Interest
    
    $
    12,127
    
    
    $
    21,109Income taxes
    
    $
    537
    
    
    $
    27Supplemental disclosure of noncash investing
and financing activities:Details of acquisitions:Fair value of assets acquired
    
    $
    
    
    
    $
    2,545Liabilities assumed
    
    
    
    
    
    
    (20
    )Net cash paid in connection with acquisitions
    
    $
    
    
    
    $
    2,525Capitalized lease obligations incurred
    
    $
    589
    
    
    $
    220
   6




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MOBILE SERVICES GROUP, INC.
 
 Notes To Condensed Consolidated Financial Statements
 (Information at March 31, 2008 and for the three months ended
 March 31, 2007 and March 31, 2008 are unaudited)
 (Dollars in thousands, except per share data)
 1. Business and Basis of Presentation
 Organization and Business
   Basis of Presentation
  Merger with Mobile Mini
   7




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MOBILE SERVICES GROUP, INC.
Notes To Condensed Consolidated Financial Statements
(Information at March 31, 2008 and for the three months ended
March 31, 2007 and March 31, 2008 are unaudited)
(Dollars in thousands, except per share data)
 1. Business and Basis of Presentation (continued)
 Acquisition
   (i)
    
    $200,000 of 9 3/4% Senior Notes (Senior Notes) issued by the Company and its
wholly-owned subsidiary Mobile Storage Group, Inc. on the closing date of the
Acquisition; and(ii)
    
    a new $300,000 senior secured, assets-based revolving credit facility (the
Credit Facility), which includes a £85,000 U.K. borrowing sublimit. A total of
$162,000 was drawn on the Credit Facility on the closing date, including £37,716
drawn under the Companys U.K. borrowing sublimit. The Credit Facility matures on
August 1, 2011.
  Business
Combinations.
 2. Summary of Significant Accounting Policies
 Revenue Recognition
    8




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MOBILE SERVICES GROUP, INC.
Notes To Condensed Consolidated Financial Statements
(Information at March 31, 2008 and for the three months ended
March 31, 2007 and March 31, 2008 are unaudited)
(Dollars in thousands, except per share data)
 2. Summary of Significant Accounting Policies (continued)
 Revenue Recognition (continued)
  Inventories
  Lease Equipment
  Property and Equipment
  Goodwill and Other Intangible Assets
     9




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MOBILE SERVICES GROUP, INC.
Notes To Condensed Consolidated Financial Statements
(Information at March 31, 2008 and for the three months ended
March 31, 2007 and March 31, 2008 are unaudited)
(Dollars in thousands, except per share data)
 2. Summary of Significant Accounting Policies (continued)
 Income Taxes
  Foreign Currency Translation
   Comprehensive Income
  Estimates and Assumptions
  Reclassifications
  Recent Accounting Pronouncements
 Fair Value Measurements
 The Fair Value Option for Financial Assets and
Financial Liabilities
 Business Combinations
  10




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##### Table of Contents



MOBILE SERVICES GROUP, INC.
Notes To Condensed Consolidated Financial Statements
(Information at March 31, 2008 and for the three months ended
March 31, 2007 and March 31, 2008 are unaudited)
(Dollars in thousands, except per share data)
 2. Summary of Significant Accounting Policies (continued)
 Recent Accounting Pronouncements (continued)
 Noncontrolling Interests in Consolidated
Financial StatementsAn Amendment of ARB No. 51 non-controlling
 Disclosures about Derivative Instruments and
Hedging ActivitiesAn Amendment of FASB Statement No. 133 Accounting for Derivative Instruments and Hedging Activities
 3. Acquisitions
   March 31, 2008Lease equipment
    
    $
    972Property and equipment
    
    
    413Goodwill
    
    
    1,094Customer relationships
    
    
    66Accrued liabilities
    
    
    (20
    )$
    2,525
  11




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##### Table of Contents



MOBILE SERVICES GROUP, INC.
Notes To Condensed Consolidated Financial Statements
(Information at March 31, 2008 and for the three months ended
March 31, 2007 and March 31, 2008 are unaudited)
(Dollars in thousands, except per share data)
 4. Property and Equipment
  December 31,
    
    
    March 31,2007
    
    
    2008Land and building
    
    $
    5,218
    
    
    $
    5,371Transportation equipment
    
    
    22,439
    
    
    
    23,464Furniture, fixtures and office equipment
    
    
    6,403
    
    
    
    6,733Leasehold improvements
    
    
    1,551
    
    
    
    1,68335,611
    
    
    
    37,251Less accumulated depreciation
    
    
    (6,534
    )
    
    
    (8,121
    )$
    29,077
    
    
    $
    29,130
 5. Financing
 Senior Revolving Credit Facility
   plus plus plus
    12




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MOBILE SERVICES GROUP, INC.
Notes To Condensed Consolidated Financial Statements
(Information at March 31, 2008 and for the three months ended
March 31, 2007 and March 31, 2008 are unaudited)
(Dollars in thousands, except per share data)
 5. Financing (continued)
 Senior Revolving Credit Facility (continued)
  Senior Notes
 3 4
 Other Notes Payable
  6. Obligations Under Capital Leases
  7. Related-Party Transactions
 Transactions with MSG WC Holdings Corp. (Holdings)
    13




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MOBILE SERVICES GROUP, INC.
Notes To Condensed Consolidated Financial Statements
(Information at March 31, 2008 and for the three months ended
March 31, 2007 and March 31, 2008 are unaudited)
(Dollars in thousands, except per share data)
 7. Related-Party Transactions (continued)
 Holdings Subordinated Notes
  Consulting Agreement with Board Members
  Transactions with PV Realty LLC
  8. Foreign Operations
  December 31,
    
    
    March 31,2007
    
    
    2008AssetsLease equipment, net
    
    $
    120,654
    
    
    $
    124,144Goodwill
    
    
    45,019
    
    
    
    43,103All other assets
    
    
    53,067
    
    
    
    53,043$
    218,740
    
    
    $
    220,290Liabilities and stockholders equityAccounts payable
    
    $
    7,730
    
    
    $
    11,021Notes payable
    
    
    87,752
    
    
    
    88,217Other liabilities
    
    
    35,229
    
    
    
    32,825Stockholders equity
    
    
    88,029
    
    
    
    88,227$
    218,740
    
    
    $
    220,290
  14




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##### Table of Contents



MOBILE SERVICES GROUP, INC.
Notes To Condensed Consolidated Financial Statements
(Information at March 31, 2008 and for the three months ended
March 31, 2007 and March 31, 2008 are unaudited)
(Dollars in thousands, except per share data)
 8. Foreign Operations (continued)
 Three Months Ended March 31,2007
    
    
    2008Revenues and Net IncomeTotal revenues
    
    $
    20,005
    
    
    $
    20,910Costs and expenses
    
    
    19,613
    
    
    
    20,347Net income
    
    $
    392
    
    
    $
    563
 9. Discontinued Operations
   Three Months Ended March 31,2007
    
    
    2008Revenues
    
    $
    3,958
    
    
    $
    8Loss before benefit for income taxes
    
    
    (446
    )
    
    
    (62
    )Benefit for income taxes
    
    
    (176
    )
    
    
    (26
    )Net loss
    
    $
    (270
    )
    
    $
    (36
    )
   10. Condensed Consolidating Financial Information
   15




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##### Table of Contents



MOBILE SERVICES GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2008
 (Unaudited)
(Dollars in thousands)
 SubsidiaryCo-Issuer and
    
    
    Non-GuarantorParent
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedAssets:Cash and cash equivalents
    
    $
    
    
    
    $
    790
    
    
    $
    2,063
    
    
    $
    
    
    
    $
    2,853Accounts receivable, net
    
    
    
    
    
    
    15,529
    
    
    
    16,202
    
    
    
    
    
    
    
    31,731Inventories
    
    
    
    
    
    
    14,726
    
    
    
    923
    
    
    
    
    
    
    
    15,649Lease equipment, net
    
    
    
    
    
    
    224,315
    
    
    
    124,144
    
    
    
    
    
    
    
    348,459Property and equipment, net
    
    
    
    
    
    
    22,475
    
    
    
    6,655
    
    
    
    
    
    
    
    29,130Investment in subsidiary
    
    
    292,564
    
    
    
    88,227
    
    
    
    
    
    
    
    (380,791
    )
    
    
    Intercompany balances
    
    
    
    
    
    
    3,702
    
    
    
    (3,702
    )
    
    
    
    
    
    
    Goodwill
    
    
    
    
    
    
    271,966
    
    
    
    43,103
    
    
    
    
    
    
    
    315,069Other intangible assets, net
    
    
    
    
    
    
    50,772
    
    
    
    24,497
    
    
    
    
    
    
    
    75,269Other assets
    
    
    
    
    
    
    13,425
    
    
    
    6,405
    
    
    
    
    
    
    
    19,830Total assets
    
    $
    292,564
    
    
    $
    705,927
    
    
    $
    220,290
    
    
    $
    (380,791
    )
    
    $
    837,990Liabilities:Accounts payable
    
    $
    
    
    
    $
    5,010
    
    
    $
    11,021
    
    
    $
    
    
    
    $
    16,031Total debt
    
    
    
    
    
    
    344,570
    
    
    
    88,217
    
    
    
    
    
    
    
    432,787Other liabilities
    
    
    
    
    
    
    21,690
    
    
    
    4,466
    
    
    
    
    
    
    
    26,156Deferred income taxes
    
    
    
    
    
    
    42,093
    
    
    
    28,359
    
    
    
    
    
    
    
    70,452Total liabilities
    
    
    
    
    
    
    413,363
    
    
    
    132,063
    
    
    
    
    
    
    
    545,426Stockholders equity:Total stockholders equity
    
    
    292,564
    
    
    
    292,564
    
    
    
    88,227
    
    
    
    (380,791
    )
    
    
    292,564Total liabilities and stockholders equity
    
    $
    292,564
    
    
    $
    705,927
    
    
    $
    220,290
    
    
    $
    (380,791
    )
    
    $
    837,990
  16




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##### Table of Contents



MOBILE SERVICES GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 2007
 (Dollars in thousands)
 SubsidiaryCo-Issuer and
    
    
    Non-GuarantorParent
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedAssets:Cash and cash equivalents
    
    $
    
    
    
    $
    1,015
    
    
    $
    1,316
    
    
    $
    
    
    
    $
    2,331Accounts receivable, net
    
    
    
    
    
    
    17,759
    
    
    
    16,836
    
    
    
    
    
    
    
    34,595Inventories
    
    
    
    
    
    
    13,958
    
    
    
    534
    
    
    
    
    
    
    
    14,492Lease equipment, net
    
    
    
    
    
    
    223,761
    
    
    
    120,654
    
    
    
    
    
    
    
    344,415Property and equipment, net
    
    
    
    
    
    
    22,374
    
    
    
    6,703
    
    
    
    
    
    
    
    29,077Investment in subsidiary
    
    
    290,770
    
    
    
    88,029
    
    
    
    
    
    
    
    (378,799
    )
    
    
    Intercompany balances
    
    
    
    
    
    
    3,683
    
    
    
    (3,683
    )
    
    
    
    
    
    
    Goodwill
    
    
    
    
    
    
    268,866
    
    
    
    45,019
    
    
    
    
    
    
    
    313,885Other intangible assets, net
    
    
    
    
    
    
    51,542
    
    
    
    24,860
    
    
    
    
    
    
    
    76,402Other assets
    
    
    
    
    
    
    14,258
    
    
    
    6,501
    
    
    
    
    
    
    
    20,759Assets held for sale and discontinued
operations
    
    
    
    
    
    
    64
    
    
    
    
    
    
    
    
    
    
    
    64Total assets
    
    $
    290,770
    
    
    $
    705,309
    
    
    $
    218,740
    
    
    $
    (378,799
    )
    
    $
    836,020Liabilities:Accounts payable
    
    $
    
    
    
    $
    6,181
    
    
    $
    7,730
    
    
    $
    
    
    
    $
    13,911Total debt
    
    
    
    
    
    
    338,588
    
    
    
    87,752
    
    
    
    
    
    
    
    426,340Other liabilities
    
    
    
    
    
    
    30,220
    
    
    
    5,074
    
    
    
    
    
    
    
    35,294Deferred income taxes
    
    
    
    
    
    
    39,550
    
    
    
    30,155
    
    
    
    
    
    
    
    69,705Total liabilities
    
    
    
    
    
    
    414,539
    
    
    
    130,711
    
    
    
    
    
    
    
    545,250Stockholders equity:Total stockholders equity
    
    
    290,770
    
    
    
    290,770
    
    
    
    88,029
    
    
    
    (378,799
    )
    
    
    290,770Total liabilities and stockholders equity
    
    $
    290,770
    
    
    $
    705,309
    
    
    $
    218,740
    
    
    $
    (378,799
    )
    
    $
    836,020
  17




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##### Table of Contents



MOBILE SERVICES GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
For the Three Months Ended March 31, 2008
 (Unaudited)
(Dollars in thousands)
 SubsidiaryCo-Issuer and
    
    
    Non-GuarantorParent
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Lease and lease related
    
    $
    
    
    
    $
    31,388
    
    
    $
    17,915
    
    
    $
    
    
    
    $
    49,303Sales
    
    
    
    
    
    
    7,916
    
    
    
    2,995
    
    
    
    
    
    
    
    10,911Total revenues
    
    
    
    
    
    
    39,304
    
    
    
    20,910
    
    
    
    
    
    
    
    60,214Costs and expenses:Cost of sales
    
    
    
    
    
    
    5,405
    
    
    
    2,276
    
    
    
    
    
    
    
    7,681Trucking and yard costs
    
    
    
    
    
    
    7,238
    
    
    
    7,754
    
    
    
    
    
    
    
    14,992Depreciation and amortization
    
    
    
    
    
    
    4,086
    
    
    
    2,293
    
    
    
    
    
    
    
    6,379Selling, general and administrative expenses
    
    
    
    
    
    
    13,528
    
    
    
    5,797
    
    
    
    
    
    
    
    19,325Interest expense, net
    
    
    
    
    
    
    7,554
    
    
    
    1,986
    
    
    
    
    
    
    
    9,540Other expense (income)net
    
    
    
    
    
    
    86
    
    
    
    (1
    )
    
    
    
    
    
    
    85Income before provision for income taxes and
equity in earnings of consolidated
subsidiaries
    
    
    
    
    
    
    1,407
    
    
    
    805
    
    
    
    
    
    
    
    2,212Provision for income taxes
    
    
    
    
    
    
    587
    
    
    
    242
    
    
    
    
    
    
    
    829Loss from discontinued operations
    
    
    
    
    
    
    (36
    )
    
    
    
    
    
    
    
    
    
    
    (36
    )Equity in earnings of consolidated subsidiaries
    
    
    1,347
    
    
    
    563
    
    
    
    
    
    
    
    (1,910
    )
    
    
    Net income (loss)
    
    $
    1,347
    
    
    $
    1,347
    
    
    $
    563
    
    
    $
    (1,910
    )
    
    $
    1,347
  18




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##### Table of Contents



MOBILE SERVICES GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
For the Three Months Ended March 31, 2007
 (Unaudited)
(Dollars in thousands)
 SubsidiaryCo-Issuer and
    
    
    Non-GuarantorParent
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Lease and lease related
    
    $
    
    
    
    $
    27,271
    
    
    $
    15,930
    
    
    $
    
    
    
    $
    43,201Sales
    
    
    
    
    
    
    6,349
    
    
    
    4,075
    
    
    
    
    
    
    
    10,424Total revenues
    
    
    
    
    
    
    33,620
    
    
    
    20,005
    
    
    
    
    
    
    
    53,625Costs and expenses:Cost of sales
    
    
    
    
    
    
    4,135
    
    
    
    3,267
    
    
    
    
    
    
    
    7,402Trucking and yard costs
    
    
    
    
    
    
    6,765
    
    
    
    6,730
    
    
    
    
    
    
    
    13,495Depreciation and amortization
    
    
    
    
    
    
    2,941
    
    
    
    1,850
    
    
    
    
    
    
    
    4,791Selling, general and administrative expenses
    
    
    
    
    
    
    11,341
    
    
    
    6,189
    
    
    
    
    
    
    
    17,530Interest expense, net
    
    
    
    
    
    
    7,375
    
    
    
    1,443
    
    
    
    
    
    
    
    8,818Other expense (income)net
    
    
    
    
    
    
    42
    
    
    
    (51
    )
    
    
    
    
    
    
    (9
    )Income before provision for income taxes and
equity in earnings of consolidated
subsidiaries
    
    
    
    
    
    
    1,021
    
    
    
    577
    
    
    
    
    
    
    
    1,598Provision for income taxes
    
    
    
    
    
    
    445
    
    
    
    185
    
    
    
    
    
    
    
    630Loss from discontinued operations
    
    
    
    
    
    
    (270
    )
    
    
    
    
    
    
    
    
    
    
    (270
    )Equity in earnings of consolidated subsidiaries
    
    
    698
    
    
    
    392
    
    
    
    
    
    
    
    (1,090
    )
    
    
    Net income (loss)
    
    $
    698
    
    
    $
    698
    
    
    $
    392
    
    
    $
    (1,090
    )
    
    $
    698
  19




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##### Table of Contents



MOBILE SERVICES GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the Three Months Ended March 31, 2008
 (Unaudited)
(Dollars in thousands)
 SubsidiaryCo-Issuer and
    
    
    Non-GuarantorParent
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet cash provided by operating activities
    
    $
    
    
    
    $
    1,153
    
    
    $
    7,634
    
    
    $
    
    
    
    $
    8,787Investing activities:Acquisitions, net of cash acquired
    
    
    
    
    
    
    (2,525
    )
    
    
    
    
    
    
    
    
    
    
    (2,525
    )Purchases of lease equipment, net
    
    
    
    
    
    
    (1,499
    )
    
    
    (5,082
    )
    
    
    
    
    
    
    (6,581
    )Purchases of property and equipment
    
    
    
    
    
    
    (1,110
    )
    
    
    (423
    )
    
    
    
    
    
    
    (1,533
    )Net cash used in investing activities
    
    
    
    
    
    
    (5,134
    )
    
    
    (5,505
    )
    
    
    
    
    
    
    (10,639
    )Financing activities:Borrowings
under Credit facility
    
    
    
    
    
    
    11,500
    
    
    
    1,583
    
    
    
    
    
    
    
    13,083Payments under Credit facility
    
    
    
    
    
    
    (7,400
    )
    
    
    (2,957
    )
    
    
    
    
    
    
    (10,357
    )Payments on capital lease obligations
and notes payable
    
    
    
    
    
    
    (331
    )
    
    
    (16
    )
    
    
    
    
    
    
    (347
    )Net cash provided by financing activities
    
    
    
    
    
    
    3,769
    
    
    
    (1,390
    )
    
    
    
    
    
    
    2,379Effect of foreign exchange rate changes
on cash
    
    
    
    
    
    
    
    
    
    
    (5
    )
    
    
    
    
    
    
    (5
    )Net increase (decrease) in cash
    
    
    
    
    
    
    (212
    )
    
    
    734
    
    
    
    
    
    
    
    522Cash and cash equivalents at beginning
of year
    
    
    
    
    
    
    1,027
    
    
    
    1,304
    
    
    
    
    
    
    
    2,331Cash and cash equivalents at end of year
    
    $
    
    
    
    $
    815
    
    
    $
    2,038
    
    
    $
    
    
    
    $
    2,853
  20




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##### Table of Contents



MOBILE SERVICES GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the Three Months Ended March 31, 2007
 (Unaudited)
(Dollars in thousands)
 SubsidiaryCo-Issuer and
    
    
    Non-GuarantorParent
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet cash provided by operating activities
    
    $
    
    
    
    $
    817
    
    
    $
    4,505
    
    
    $
    
    
    
    $
    5,322Investing activities:Purchases of lease equipment, net
    
    
    
    
    
    
    (3,476
    )
    
    
    (4,738
    )
    
    
    
    
    
    
    (8,214
    )Purchases of property and equipment
    
    
    
    
    
    
    (524
    )
    
    
    (633
    )
    
    
    
    
    
    
    (1,157
    )Net cash used in investing activities
    
    
    
    
    
    
    (4,000
    )
    
    
    (5,371
    )
    
    
    
    
    
    
    (9,371
    )Financing activities:Borrowings under Credit facility
    
    
    
    
    
    
    5,500
    
    
    
    
    
    
    
    
    
    
    
    5,500Payments under Credit facility
    
    
    
    
    
    
    (1,858
    )
    
    
    
    
    
    
    
    
    
    
    (1,858
    )Payments on capital lease obligations
and notes payable
    
    
    
    
    
    
    (252
    )
    
    
    (18
    )
    
    
    
    
    
    
    (270
    )Net cash provided by financing activities
    
    
    
    
    
    
    3,390
    
    
    
    (18
    )
    
    
    
    
    
    
    3,372Effect of foreign exchange rate changes
on cash
    
    
    
    
    
    
    
    
    
    
    884
    
    
    
    
    
    
    
    884Net increase in cash
    
    
    
    
    
    
    207
    
    
    
    
    
    
    
    
    
    
    
    207Cash and cash equivalents at beginning
of year
    
    
    
    
    
    
    1,469
    
    
    
    
    
    
    
    
    
    
    
    1,469Cash and cash equivalents at end of year
    
    $
    
    
    
    $
    1,676
    
    
    $
    
    
    
    $
    
    
    
    $
    1,676
  21




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 This discussion contains forward-looking statements that involve risks and uncertainties. Our
actual results may differ materially from those anticipated in these forward-looking statements as
a result of certain factors, including, but not limited to, those described under Item 1A, Risk
Factors.
 Overview
   Merger with Mobile Mini
  Discontinued Operations
  Key Financial Measures
  Revenues.
  22




---



##### Table of Contents



Costs of Operations .
  
    
    cost of sales;
    
    trucking and yard costs;
    
    selling, general and administrative expenses; and
    
    depreciation and amortization expenses;
  Results of Operations
 Three Months Ended March 31,2007
    
    
    2008(Dollars in thousands)Revenues:Lease and lease related
    
    $
    43,201
    
    
    $
    49,303Sales
    
    
    10,424
    
    
    
    10,911Total revenues
    
    
    53,625
    
    
    
    60,214Costs and expenses:Cost of sales
    
    
    7,402
    
    
    
    7,681Trucking and yard costs
    
    
    13,495
    
    
    
    14,992Depreciation and amortization
    
    
    4,791
    
    
    
    6,379Selling, general and administrative expenses
    
    
    17,530
    
    
    
    19,325Income from operations
    
    
    10,407
    
    
    
    11,837Other income (expense):Interest expense, net
    
    
    (8,818
    )
    
    
    (9,540
    )Foreign currency transaction gain
    
    
    2
    
    
    
    Other income (expense)
    
    
    7
    
    
    
    (85
    )Income from continuing operations before provision for income taxes
    
    
    1,598
    
    
    
    2,212Provision for income taxes
    
    
    630
    
    
    
    829Income from continuing operations
    
    
    968
    
    
    
    1,383Loss from discontinued operations, net of tax benefit
    
    
    (270
    )
    
    
    (36
    )Net income
    
    $
    698
    
    
    $
    1,347
  23




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##### Table of Contents



Three Months EndedMarch 31,2007
    
    
    2008Revenues:Lease and lease related
    
    
    80.6
    %
    
    
    81.9
    %Sales
    
    
    19.4
    
    
    
    18.1Total revenues
    
    
    100.0
    
    
    
    100.0Costs and expenses:Cost of sales
    
    
    13.8
    
    
    
    12.8Trucking and yard costs
    
    
    25.2
    
    
    
    24.9Depreciation and amortization
    
    
    8.9
    
    
    
    10.6Selling, general and administrative expenses
    
    
    32.7
    
    
    
    32.1Income from operations
    
    
    19.4
    
    
    
    19.7Other income (expense):Interest expense, net
    
    
    (16.4
    )
    
    
    (15.8
    )Foreign currency transaction gain
    
    
    0.0
    
    
    
    0.0Other income (expense)
    
    
    0.0
    
    
    
    (0.1
    )Income before provision for income taxes and
discontinued operations
    
    
    3.0
    
    
    
    3.7Provision for income taxes
    
    
    1.2
    
    
    
    1.4Income before discontinued operations
    
    
    1.8
    
    
    
    2.3Loss from discontinued operations
    
    
    (0.5
    )
    
    
    (0.1
    )Net income
    
    
    1.3
    %
    
    
    2.2
    %
 Three Months Ended March 31, 2008 Compared to Three Months Ended March 31, 2007
 Three Months EndedMarch 31,
    
    
    Increase (Decrease)2007
    
    
    2008
    
    
    Dollars
    
    
    Percent(Dollars in thousands)Revenues:Lease and lease related
    
    $
    43,201
    
    
    $
    49,303
    
    
    $
    6,102
    
    
    
    14.1
    %Sales
    
    
    10,424
    
    
    
    10,911
    
    
    
    487
    
    
    
    4.7
    %Total revenues
    
    
    53,625
    
    
    
    60,214
    
    
    
    6,589
    
    
    
    12.3
    %Costs and expenses:Costs of sales
    
    
    7,402
    
    
    
    7,681
    
    
    
    279
    
    
    
    3.8
    %Trucking and yard costs
    
    
    13,495
    
    
    
    14,992
    
    
    
    1,497
    
    
    
    11.1
    %Depreciation and amortization
    
    
    4,791
    
    
    
    6,379
    
    
    
    1,588
    
    
    
    33.1
    %Selling, general and administrative expenses
    
    
    17,530
    
    
    
    19,325
    
    
    
    1,795
    
    
    
    10.2
    %Income from operations
    
    
    10,407
    
    
    
    11,837
    
    
    
    1,430
    
    
    
    13.7
    %Interest expense, net
    
    
    (8,818
    )
    
    
    (9,540
    )
    
    
    (722
    )
    
    
    8.2
    %Foreign currency transaction gain
    
    
    2
    
    
    
    
    
    
    
    (2
    )
    
    
    100.0
    %Other income (expense)
    
    
    7
    
    
    
    (85
    )
    
    
    (92
    )
    
    
    (1314.3
    )%Income before provision for income taxes and
discontinued operations
    
    
    1,598
    
    
    
    2,212
    
    
    
    614
    
    
    
    38.4
    %Provision for income taxes
    
    
    630
    
    
    
    829
    
    
    
    (199
    )
    
    
    (31.6
    )%Income before discontinued operations
    
    
    968
    
    
    
    1,383
    
    
    
    415
    
    
    
    42.9
    %Loss from discontinued operations
    
    
    (270
    )
    
    
    (36
    )
    
    
    234
    
    
    
    86.7
    %Net income
    
    $
    698
    
    
    $
    1,347
    
    
    $
    649
    
    
    
    93.0
    %
 Revenues.
   24




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##### Table of Contents



Cost of Sales.
 Trucking and Yard Costs.
 Depreciation and Amortization.
 Selling, General and Administrative Expenses.
 Interest Expense.
 Income Taxes.
 Net Income.
 Non-GAAP Measures
   25




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##### Table of Contents



Three Months Ended March 31,2007
    
    
    2008(Dollars in thousands)Net income
    
    $
    698
    
    
    $
    1,347Loss from discontinued operations
    
    
    270
    
    
    
    36Net income from continuing operations
    
    
    968
    
    
    
    1,383Interest expense, net
    
    
    8,818
    
    
    
    9,540Provision for income taxes
    
    
    630
    
    
    
    829Depreciation and amortization
    
    
    4,791
    
    
    
    6,379EBITDA from continuing operations
    
    
    15,207
    
    
    
    18,131Foreign currency transaction gain (a)
    
    
    (2
    )
    
    
    Other (income) expense
    
    
    (7
    )
    
    
    85Non-cash stock option expense(b)
    
    
    612
    
    
    
    551Adjusted EBITDA from continuing operations
    
    $
    15,810
    
    
    $
    18,767
 
 (a)
    
    Represents adjustments arising from differences in exchange rates from period
to period when U.S. dollar-denominated borrowings of our foreign subsidiaries are
remeasured at each reporting date using the local currency as the functional currency.(b)
    
    Represents recognition of the cost of all share-based payments to employees,
including grants of employee stock options, based on fair values as required by SFAS
No. 123(R) adopted by us effective on January 1, 2006. We estimate the fair value of
employee share options using option-pricing models and adjust these estimates
throughout the year. Liquidity and Capital Resources
  Three Months Ended March 31,2007
    
    
    2008(Dollars in thousands)Net cash provided by operating activities
    
    $
    5,322
    
    
    $
    8,787Net cash used in investing activities
    
    $
    (9,371
    )
    
    $
    (10,639
    )Net cash provided by financing activities
    
    $
    3,372
    
    
    $
    2,379
  26




---



##### Table of Contents



Operating Activities.
 Investing Activities.
 Financing Activities.
  December 31,
    
    
    March 31,2007
    
    
    2008(Dollars in thousands)Cash and cash equivalents
    
    $
    2,331
    
    
    $
    2,853Debt obligations
    
    $
    426,340
    
    
    $
    432,787
   Credit Facilities and Financing
 Credit Facility
  Senior Notes
 3 4
  27




---



##### Table of Contents



Subordinated Notes
   Off-Balance Sheet Arrangements
  Seasonality
  Critical Accounting Policies
   Revenue Recognition.
   Depreciation of Lease Equipment.
  28




---



##### Table of Contents



Goodwill and Other Intangible Assets.
  Provision for Doubtful Accounts.
 Commitments and Contingencies.
 Recent Accounting Pronouncements
 Fair Value Measurements
 The Fair Value Option for Financial Assets and
Financial Liabilities
 Business Combinations
 Noncontrolling Interests in Consolidated
Financial StatementsAn Amendment of ARB No. 51
 Disclosures about Derivative Instruments and
Hedging ActivitiesAn Amendment of FASB Statement No. 133 Accounting for Derivative Instruments and Hedging Activities
  29




---



##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Interest Rate Risks
    Foreign Currency Risks
    30




---



##### Table of Contents



ITEM 4T. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
   Changes in Internal Controls
   31




---



##### Table of Contents



Part II. Other Information
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 6. Exhibits
  Number
    
    Description31.1
    
    
    Certification of the Chief Executive Officer of Mobile Services
Group, Inc. required by Section 302 of the Sarbanes-Oxley Act of
200231.2
    
    
    Certification of the Chief Financial Officer of Mobile Services
Group, Inc. required by Section 302 of the Sarbanes-Oxley Act of
200231.3
    
    
    Certification of the Chief Executive Officer of Mobile Storage
Group, Inc. required by Section 302 of the Sarbanes-Oxley Act of
200231.4
    
    
    Certification of the Chief Financial Officer of Mobile Storage
Group, Inc. required by Section 302 of the Sarbanes-Oxley Act of
200232.1
    
    
    Certification of the Chief Executive Officer of Mobile Services
Group, Inc. required by Section 906 of the Sarbanes-Oxley Act of
200232.2
    
    
    Certification of the Chief Financial Officer of Mobile Services
Group, Inc. required by Section 906 of the Sarbanes-Oxley Act of
200232.3
    
    
    Certification of the Chief Executive Officer of Mobile Storage
Group, Inc. required by Section 906 of the Sarbanes-Oxley Act of
200232.4
    
    
    Certification of the Chief Financial Officer of Mobile Storage
Group, Inc. required by Section 906 of the Sarbanes-Oxley Act of
2002
   32




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##### Table of Contents



SIGNATURES
  MOBILE SERVICES GROUP, INC.
MOBILE STORAGE GROUP, INC.By:
    /s/ Douglas WaugamanName:
    Douglas WaugamanTitle:
    President and Chief Executive OfficerBy:
    /s/ Allan VillegasName:
    Allan VillegasTitle:
    Chief Financial Officer  33




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##### Table of Contents



EXHIBIT INDEX
 Number
    
    Description31.1
    
    
    Certification of the Chief Executive Officer of Mobile Services
Group, Inc. required by Section 302 of the Sarbanes-Oxley Act of
200231.2
    
    
    Certification of the Chief Financial Officer of Mobile Services
Group, Inc. required by Section 302 of the Sarbanes-Oxley Act of
200231.3
    
    
    Certification of the Chief Executive Officer of Mobile Storage
Group, Inc. required by Section 302 of the Sarbanes-Oxley Act of
200231.4
    
    
    Certification of the Chief Financial Officer of Mobile Storage
Group, Inc. required by Section 302 of the Sarbanes-Oxley Act of
200232.1
    
    
    Certification of the Chief Executive Officer of Mobile Services
Group, Inc. required by Section 906 of the Sarbanes-Oxley Act of
200232.2
    
    
    Certification of the Chief Financial Officer of Mobile Services
Group, Inc. required by Section 906 of the Sarbanes-Oxley Act of
200232.3
    
    
    Certification of the Chief Executive Officer of Mobile Storage
Group, Inc. required by Section 906 of the Sarbanes-Oxley Act of
200232.4
    
    
    Certification of the Chief Financial Officer of Mobile Storage
Group, Inc. required by Section 906 of the Sarbanes-Oxley Act of
2002
   34