**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

**FORM 10-K**

**(Mark One)**

**x**                              ANNUALREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

**Forthe fiscal year ended December 31, 2006**

**OR**

**o**                                 TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934

**CommissionFile Number:  **000-51521

**WILLIAMS SCOTSMAN INTERNATIONAL, INC.**

(Exact name of Registrantas specified in Charter)

| **Delaware**                                                     |   | **52-1862719**                        |
|------------------------------------------------------------------|--------|---------------------------------------|
| (State or other  jurisdiction of  incorporation or organization) |   | (I.R.S. Employer  Identification No.) |
| **8211 Town Center Drive  Baltimore, Maryland**                  |   | **21236**                             |
| (Address of  principal executive offices)                        |   | (Zip Code)                            |

 

Registrants’ telephonenumber, including area code: **(410) 931-6000**

Securities registeredpursuant to Section 12(b) of the Act: 

|                                         | **Title  of each class** | ** **                         | ** ** | ** ** | **Name  of each exchange on which registered** | ** ** |
|-----------------------------------------|--------------------------|------------------------------------|------------|------------|------------------------------------------------|------------|
| Common  Stock, $.01 Par Value Per Share |                     | The  NASDAQ Stock Market LLC       |
|                                    |                     | (The NASDAQ Global  Select Market) |

 

Securities registered pursuant to Section 12(g) of the Act: **None**

Indicate by check mark ifthe registrant is a well-known seasoned issuer, as defined in Rule 405 ofthe Securities Act. **Yes ****o****  ****No ****x**

Indicate by check markwhether the registrant is not required to file reports pursuant to Section 13or Section 15(d) of the Act. **Yes ****o****  ****No ****x**

Indicate by check markwhether the Registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the Registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days. **Yes ****x****  ****No ****o**

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K is notcontained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment tothis Form 10-K. **ý**

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer. See definition of “accelerated filer and largeaccelerated filer” in Rule 12b-2 of the Exchange Act.

**Large accelerated filer ****o****      Acceleratedfiler ****x****      Non-acceleratedfiler ****o**

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2of the Act). **Yes ****o****  ****No ****x**

As of June 30, 2006,the aggregate market value of the registrant’s common stock held bynon-affiliates of the registrant was $675.0 million based on the closing saleprice as reported on The NASDAQ Stock Market. As of February 28, 2007,43,169,045 shares of common stock of the Registrant were outstanding.

**DOCUMENTS INCORPORATED BY REFERENCE**

Theinformation required by Part III of this Form 10-K, to theextent not set forth herein, is incorporated herein by reference from theregistrant’s definitive proxy statement to be filed with the Securities andExchange Commission pursuant to Regulation 14A not later than 120 days after December 31,2006.

 

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**TABLEOF CONTENTS**

| PART I   |   |          |   |                                                                                                               |   |   |
|---------------|--------|---------------|--------|--------------------------------------------------------------------------------------------------------------------|--------|--------|
|          |   | ITEM 1.       |   | BUSINESS                                                                                                           |   | 4      |
|          |   | ITEM 1A.      |   | RISK FACTORS                                                                                                       |   | 14     |
|          |   | ITEM 1B.      |   | UNRESOLVED STAFF COMMENTS                                                                                          |   | 21     |
|          |   | ITEM 2.       |   | PROPERTIES                                                                                                         |   | 21     |
|          |   | ITEM 3.       |   | LEGAL PROCEEDINGS                                                                                                  |   | 21     |
|          |   | ITEM 4.       |   | SUBMISSION OF MATTERS TO A VOTE OF  SECURITY HOLDERS                                                               |   | 21     |
| PART II  |   |          |   |                                                                                                               |   |   |
|          |   | ITEM 5.       |   | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED  SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |   | 22     |
|          |   | ITEM  6.      |   | SELECTED  FINANCIAL DATA                                                                                           |   | 23     |
|          |   | ITEM 7.       |   | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL  CONDITION AND RESULTS OF OPERATIONS                        |   | 24     |
|          |   | ITEM 7A. |   | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET  RISK                                                        |   | 39     |
|          |   | ITEM 8.       |   | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                                        |   | 41     |
|          |   | ITEM 9.       |   | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON  ACCOUNTING AND FINANCIAL DISCLOSURE                              |   | 71     |
|          |   | ITEM 9A.      |   | CONTROLS AND PROCEDURES                                                                                            |   | 71     |
|          |   | ITEM 9B. |   | OTHER  INFORMATION                                                                                                 |   | 73     |
| PART III |   |          |   |                                                                                                               |   |   |
|          |   | ITEM 10.      |   | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE                                                             |   | 73     |
|          |   | ITEM 11.      |   | EXECUTIVE COMPENSATION                                                                                             |   | 73     |
|          |   | ITEM 12.      |   | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND  MANAGEMENT AND RELATED SHAREHOLDER MATTERS                    |   | 73     |
|          |   | ITEM 13.      |   | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND  DIRECTOR INDEPENDENCE                                         |   | 73     |
|          |   | ITEM 14.      |   | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                                             |   | 73     |
| PART IV  |   |          |   |                                                                                                               |   |   |
|          |   | ITEM 15.      |   | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES                                                                         |   | 73     |
| EXHIBIT INDEX |   | 75            |
| SIGNATURES    |   | 81            |

 

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**SAFE HARBORSTATEMENT—CAUTIONARY NOTICE REGARDING FORWARD LOOKING STATEMENTS**

Some of thestatements in this Form 10-K for the year ended December 31,2006 constitute “forward-looking statements” as that statement is defined underthe Private Securities Litigation Reform Act of 1995 and releases issued by theSEC and within the meaning of Section 27A of the Securities Act of 1933and Section 21E of the Securities Exchange Act of 1934. Suchforward-looking statements include the discussions of our business strategiesand our expectations concerning future operations, margins, profitability,liquidity and capital resources. In addition, the words “anticipates,” “believes,”“estimates,” “seeks,” “expects,” “plans,” “intends” and similar expressions, asthey relate to us or our management, are intended to identify forward-lookingstatements. Although we believe that such forward-looking statements arereasonable, we cannot assure you that any forward-looking statements will proveto be correct. Such forward-looking statements involve known and unknown risks,uncertainties and other factors, which may cause our actual results,performance or achievements to be materially different from any future results,performance or achievements expressed or implied by such forward-lookingstatements. Such factors include, among others, the risks discussed in “RiskFactors” as well as risks associated with:

·       substantial leverage andour ability to service debt;

·       changing market trends inthe modular space industry;

·       general economic andbusiness conditions including a prolonged or substantial recession;

·       our ability to financefleet and branch expansion and to locate and finance acquisitions;

·       our ability to implementour business and growth strategy and maintain and enhance our competitivestrengths;

·       our ability to obtainfinancing for general corporate purposes;

·       intense industrycompetition;

·       availability of keypersonnel;

·       industry over-capacity; and

·       changes in, or the failureto comply with, government regulations.

As a result of these uncertainties, you should notplace undue reliance on these forward-looking statements. All future writtenand oral forward-looking statements attributable to us or any person acting onour behalf are expressly qualified in their entirety by the cautionarystatements contained or referred to in this section. New risks anduncertainties arise from time to time, and it is impossible for us to predictthese events or how they may affect us. We assume no obligation to update anyforward-looking statements after the date of this Form 10-K as aresult of new information, future events or developments, except as required byfederal securities laws.

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**PART I**

**Item 1.**                        Business

**General**

Founded more than 50 years ago, we believe we arethe largest provider of modular space solutions in North America. Operatingthrough our network of 88 branch offices in North America, we provide highquality, cost effective modular space solutions to a diversified client base ofover 30,000 customers in multiple industries including construction, education,commercial and industrial, government, and healthcare. Our products, whichinclude mobile offices, modular classrooms and other multi-unit modularstructures, offer our customers flexible, low-cost, and timely solutions tomeet their temporary space needs on an outsourced basis. We also provideportable storage solutions and we believe we are the third largest portable storagecompany in the United States. Our current North American modular space andportable storage lease fleet consists of approximately 102,000 units. During2006, we have expanded our footprint outside of North America with ouracquisition of Wiron Constructionnes Modulares, S.A. (Wiron), one of thelargest modular space providers in Spain with 14 branch locations addingapproximately 14,500 units to our fleet.  In addition to leasing, we offer both new andused units for sale and provide delivery, installation and other ancillaryproducts and services. As of December 31, 2006, we had invested a total of$1.4 billion in our lease fleet. For the year ended December 31, 2005and 2006, we generated revenues of approximately $592 million and$681 million, respectively.

Our business modelis primarily focused on leasing rather than selling our units. We believe ourleasing model is highly attractive because our lease fleet:

·       generates recurringrevenues from our units leased to customers with an average lease duration ofapproximately 28 months;

·       has average monthly leasingrates which recoup our average unit investment in less than 4 years;

·       maintains a highutilization level that has averaged 82% over the last 10 years;

·       consists of units withuseful lives generally approximating 20 years which retain substantialresidual values throughout these periods; and

·       produced attractive leasingmargins of 57% for 2006.

Since 1997, we have doubled the size of our fleet andincreased the size of our branch network, both organically and throughselective strategic acquisitions. As a result of these and other factors, from1997 to 2006, we were able to increase our revenues at a compound annual growthrate, or “CAGR,” of 14.1%.

Our North America modular space fleet consists ofapproximately 78,000 modular space units, which are generally comprised ofstandardized, versatile products that can be configured to meet a wide varietyof customer needs. All of our modular space units are intended to provideconvenient, comfortable space for occupants at a location of their choosing.The units are fitted with axles and hitches and are towed to various locations.Our units are generally wood or aluminum framed, mounted on a steel chassis,contain materials used in conventional buildings and are equipped with airconditioning and heating, electrical outlets and, where necessary, plumbingfacilities. For many applications, our units can be combined into multi-unitconfigurations to meet the space needs of our customers. We believe that ourunits are durable, flexible and generally rent based upon condition rather thanage. As a result, our units retain most of their initial value over theiruseful lives. Over the past ten years, we have sold modular space units fromour lease fleet at an average gross margin of 24.4%.

Our North America portable storage fleet ofapproximately 24,000 units is primarily comprised of steel containers whichaddress the need for secure, temporary, on-site storage of customer goods on a 

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flexible, low-cost basis.We believe that our portable storage fleet provides a complementary product tocross-sell to our modular space customers, as well as to serve new customers.

In addition, we haveapproximately 14,500 units in our Spanish subsidiary, most of which are modularspace units.

**History**

We were incorporated under the laws of Delaware in November 1993for the purpose of acquiring Williams Scotsman, Inc. (“Scotsman”).Scotsman was formed by the 1990 merger of Williams Mobile Offices, Inc.and Scotsman Manufacturing, Inc. Our predecessor companies were foundedover 50 years ago. Subsequent to the merger, we made the strategicdecision to close our manufacturing facilities and focus on core leasingactivities.

During 2005, we completed an initial public offeringof shares of our common stock. Net proceeds of the initial public offering tous were approximately $223.1 million. In May 2006, we completed asecondary offering of our shares of common stock. Net proceeds of the secondaryoffering to us were approximately $51.5 million. We have significant equityowners, including related parties of The Cypress Group L.L.C. (“Cypress”) andKeystone, Inc. (“Keystone”). These parties participated in our 1997recapitalization in which an investor group, which includes related parties ofCypress and Keystone, invested equity of $135.0 million. As of February 28,2007, related parties of Cypress and Keystone beneficially own in the aggregateapproximately 28% of the outstanding shares of our stock.

Since the 1997recapitalization, we have made four significant acquisitions and a number ofsmaller acquisitions to complement our internal fleet growth and branchexpansion. We acquired Space Master International, Inc. on September 1,1998 for total consideration of $272.7 million, adding approximately12,800 modular space units to our lease fleet. On February 1, 1999, weacquired Evergreen Mobile Company with a 2,000 unit modular space fleet, for$36.2 million. On March 26, 2004, we acquired nearly 3,800 modularDivision of State Architect (“DSA”) classroom units located in the state ofCalifornia from Transport International Pool, Inc. (d/b/a GE ModularSpace) for approximately $43.5 million. On August 18, 2006, wecompleted our acquisition of Wiron for $53.1 million, adding approximately 14,000units.

**Industry Overview**

The Modular Building Institute, in its State of theIndustry 2006 report, estimates that U.S. modular space industry dealersgenerated in excess of $3.0 billion of leasing and sales revenues in 2005.The industry has expanded rapidly over the last thirty years as the number ofapplications for modular space has increased and recognition of the product’spositive attributes has grown. By outsourcing their space needs, customers areable to achieve flexibility, preserve capital for core operations, and convertfixed costs into variable costs. Flexibility and reusability are the hallmarksof modular buildings. Unlike structures built on-site which generally have afixed utilization and occupancy design, a modular product is not site specificand can be reutilized. It is not unusual to have modular buildings serve a widevariety of users during their life spans. The industry remains highlyfragmented, and we believe that we and GE Modular Space are the largestproviders in the industry.

Companies withinthe modular space industry typically offer three major product types:single-wide modular space units, section modular space units and modularclassrooms.

·       Single-wide and sectionmodular space units are used in a variety of customer applications, includingfield offices at construction sites, rental facilities, hospital diagnosticannexes, special events headquarters, golf pro shops and larger generalcommercial offices. These units are typically very versatile and easy toinstall, enabling the provider to respond quickly and efficiently to 

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customer needs. Customersare likely to base their leasing decision on product availability and price. Asa result, we believe that providers must have a ready-to-lease fleet ofstandardized products located throughout a network of local branches to besuccessful. The section modular units are comprised of high-end modular unitsthat are grouped in specialized configurations to meet a variety of needs forcorporations, federal, state and local governments and other entities. Themulti-unit complexes are used for a variety of applications such as generaloffice space, healthcare facilities, military installations, workforce housingand detention facilities. We believe that this product category will continueto expand as the flexibility, affordability and portability of modularsolutions are employed to meet a widening range of customer needs.

·       Modular classrooms servethe education market and are generally double-wide units that have beenconfigured to serve as classrooms, computer and science labs and media centers,among other applications. Educational units are leased to school districts,which typically demand quality units supported by a high level of customerservice and local knowledge. Demand for modular classrooms has continued toincrease due to (1) an increase in state and local initiatives governingmaximum class sizes, (2) pressures to find cost-effective ways to expandclassroom capacity, (3) increased interstate and intrastate migrationsnecessitating rapid expansion of education space in particular regions orlocalities, (4) the continued growth of the school age population and (5) facilitymodernization. As the popularity and use of modular classrooms expand, webelieve that customers are increasingly turning to large scale providerscapable of delivering units with high aesthetic appeal, the structural strengthto withstand long-term use by students, high air quality standards and timelymaintenance of units on an ongoing basis.

We are also a majorparticipant in the U.S. portable storage industry, and although there are, toour knowledge, no publicly available estimates of the size of the industry,management believes the size of the portable storage industry is expanding dueto increasing awareness of the advantages of portable storage. The portablestorage industry provides customers with a flexible and low-cost storagealternative to permanent warehouse space and fixed-site self storage byaddressing the need for security, convenience and immediate accessibility.Portable storage products are primarily on the ground containers. Thesecontainers are primarily steel and range from 20’ to 40’ in length and aretypically used as ground entry storage containers. Portable storage units are deliveredto the customer’s location in order to address the need for secure, temporary,and convenient storage on a flexible, low-cost basis. The portable storageindustry is also highly fragmented with the largest provider in the industrybeing Mobile Mini, Inc.

**CompetitiveStrengths**

*MarketLeadership with Significant Scale.****  ***We believe weare the largest provider of modular space solutions in North America and thatthe Williams Scotsman brand has strong market awareness. We are one of the onlyindustry participants with an extensive, nationwide branch network, withbreadth and depth of fleet at the local level, and with the technical expertiseand operational capabilities that can provide a full range of solutionsincluding mobile offices, modular classrooms, and larger commercialapplications. Our extensive footprint has enabled us to attract over 300national account customers who prefer the convenience of working with a singlesource in multiple geographies. Additionally, our over 50 years of operatinghistory and scale have enabled us to develop a favorable relationship with oursuppliers and customers.

*CustomerService Focus.****  ***We believe that the leasing of modularspace is a service oriented business that requires significant local marketpresence and infrastructure. Customers seek to do business with modular spaceproviders that maintain a readily available, high quality lease fleet, andprovide full service capabilities. Our branches are staffed with salespersonnel who work with our customers to define and solve their space needs. Wealso maintain a full-service support staff at the local level to prepare unitsfor lease, to deliver and return units, and to maintain units while on lease.We have over 1,700 sales and 

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service personnel at ourbranches and managed over 121,000 deliveries and returns of our modular spaceand portable storage units in 2006. As a result of this extensive customerfocus, our top 20 customers by revenue for 2006 have done business with us foran average of approximately 9 years.

*EffectiveFleet Management.****  ***Our proprietary management informationsystems and fleet management initiatives allow us to actively manage our leasefleet to maximize customer satisfaction, optimize fleet utilization and rentalrates and to control new unit capital spending. Our management informationsystems provide our local branches with real time, on-line access tocomprehensive fleet information, including leasing history and condition andavailability of our units. By providing this information at the local level, weare able to more effectively monitor, allocate and price units. In addition, wemaintain a standardized lease fleet with units that meet multi-state industrialbuilding codes which allows us to leverage our branch network and rapidlyredeploy units to areas of higher customer demand in the surrounding geographicmarkets. At the same time, we are able to easily modify our structures to meetspecific customer needs. Additionally, we have the flexibility to refurbishexisting units in order to re-lease them when we have sufficient customerdemand or we can choose to sell used units to our customers.

*HighDegree of Diversity.****  ***Our business is highlydiversified in terms of customers, industries and geographies served. We haveover 30,000 customers, the largest of which accounted for less than 3% of our2006 revenues, and our ten largest customers accounted for approximately 11% ofour 2006 revenues. From our roots of focusing primarily on the constructionindustry, we have expanded our applications over the years to several other endmarkets such as education, commercial and industrial, and federal, state andlocal government, facilitating our growth. From a geographic perspective, ourfleet is deployed throughout most of the major markets in the United States andCanada and we recently entered Mexico and Spain. We believe that this diversitylimits our exposure to downturns related to a given customer, industry orregion while providing significant opportunities to grow our business.

*Experienced Management.****  ***We believe ourmanagement’s experience and long tenure with our company give us a strongcompetitive advantage. Our current senior management team, led by our Presidentand Chief Executive Officer, Gerard E. Holthaus, who has been with us since1994, has successfully entered new markets, expanded our customer base and morethan doubled our fleet size. Our branch operations are led by an executive vicepresident and nine vice presidents, who collectively average 21 years ofindustry experience and 11 years with our company.

**Operating Strategy**

*IncreaseUtilization and Rental Rate of Existing Lease Fleet.****  ***A significantfactor in our profitability is the level of utilization of our existing leasefleet of approximately 116,000 units. Over the past ten years, our utilizationrate has averaged 82% with a high of 87% in 1997 and a low of 77% in 2003. Asthe economy has improved over the last several years, we have seen utilizationrate increases. For the year ended December 31, 2006, utilization of ourNorth American fleet improved to 82% from 81% in 2005. Another important factorin our profitability is our average rental rate, which we have seen improvefrom $263 in 2005 to $289 for 2006. We estimate that for every 1% ofutilization rate increase in our existing fleet, we achieve an additional$3.9 million of annual leasing revenue and, for every $1 increase inaverage rental rate, we achieve an additional $1.1 million of annualleasing revenue.

*Expandour Lease Fleet.****  ***We intend to continue to expand ourlease fleet through purchases of new units and selective acquisitions of unitsfrom third parties. We purchase new units or acquire existing units based oncustomer specific demand and forecast utilization levels by product, region andcustomer. From January 1, 2000 to December 31, 2006, we made elevenacquisitions of approximately 22,400 units for a total aggregate fleet purchaseprice of $138.8 million. Units added through acquisitions accounted forapproximately 20% of the total value of fleet purchases during this period.Among other reasons, acquisitions are attractive because they enable us toacquire units with existing leases that generate 

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immediate revenues andleverage our existing infrastructure. Due to our extensive branch network,management information systems and experienced management team, we aregenerally able to integrate acquired fleets at a low cost within a relativelyshort period of time. For example we identified Canada as a growth opportunitywhich we entered in 1999 through new unit purchases and acquisitions. Today weoperate eight branches with approximately 5,200 units in Canada and lookto continue to add units. We intend to continue to make selective fleetacquisitions in North America, including Mexico which we entered in 2004. Weare continuing to assess our expansion in Europe given the recent acquisitionof Wiron.

*Further PenetrateEducation Sector.****  ***We have expanded our modular classroombusiness. Our revenues from education customers have increased from 20% to 26%of our revenues from 2000 to 2006. We believe that the education market offersadditional growth opportunities as a result of the following:

·       an increase in state andlocal initiatives governing maximum class sizes;

·       state and localgovernmental pressures to find cost-effective solutions to their classroomspace needs;

·       shifting and fluctuatingschool populations necessitating expansion of education space, especially inthe southern and western regions of the United States;

·       the predicted growth of theschool age population; and

·       facility modernization.

Our modular classroom business is attractive becausethe classroom units have higher utilization rates and longer average leaseterms than other modular space units and the modular classroom business is lesscyclical. To develop this business, we have dedicated sales representatives formodular classrooms in key states such as Florida and California. We offer oureducation customers the flexibility to purchase or lease classroom unitsdepending upon their needs and resources. They also benefit from ourlongstanding relationships with manufacturers, and our experience in meetingthe numerous local building codes and specifications that apply to classroomunits.

*Expandour Sales Business.****  ***We have expanded our salesbusiness to meet the increased demand from our customers. Historically, we havesold new units to customers who prefer to own rather than lease. Although theeducation sector has been and will continue to be a consistent source of oursales revenue, we believe there are significant opportunities for the sale ofmodular space units to other sectors such as healthcare, commercial and industrial,and government. For example, the reorganization efforts by the U.S. military inrecent years has continued to create significant demand for our products.

*GrowPortable Storage Business.****  ***We believethat the portable storage business is highly complementary to our modular spacebusiness and represents a significant growth opportunity. From 1997 to 2006,our storage product fleet has grown at a CAGR of 16.0% as a result of fleetpurchases and acquisitions. Portable storage units are characterized by quickreturn of capital, long useful lives, a history of substantial value retentionand the ability to generate recurring revenues and high operating margins. Weexpect to leverage our existing branch network, sales force, customer base andmanagement information systems to deliver storage units to our current andpotential customers. We intend to continue adding to our fleet of portablestorage units and have expanded our sales force to include personnel who arededicated exclusively to storage products.

*European ExpansionOpportunities.****  ***We recently entered the Europeanmarket and believe it is an attractive geographic expansion opportunity. In August 2006,we completed our acquisition of Wiron. With our acquisition in July 2004of an 8.5% minority interest for approximately $4.7 million, we now own 100% of the share capital of Wiron.Wiron is headquartered in Parla, Spain and is one of the largest modular spaceproviders in Spain with 14 branch locations. We believe that the modular spaceindustry is 

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established inEurope, yet is significantly earlier in its lifecycle as compared to the U.S.market. In particular, we believe the European modular space industry has notexperienced the expansion of applications and end markets to the same extent asin the United States because modular space applications have historically beenmore focused on the construction industry. Given our historical experience inexpanding modular space applications and securing new customers through oursales efforts in the United States, we believe that we are well positioned totransfer our expertise to the European market.

**Products**

Our products can be used to meet a variety of customerneeds. Sample applications of modular space units include classrooms,construction site offices, temporary office space, sales offices and specialevents headquarters. Our modular space fleet ranges from single-unit facilitiesto section modular structures, which combine two or more units into onestructure for applications that require more space. Units typically range insize from 8 to 14 feet in width and 16 to 70 feet in length and are wood oraluminum framed mounted on a steel chassis. In North America, the units aregenerally fitted with axles and hitches and are towed to various locations. InSpain, units are carried to locations in component pieces and assembled onsite. Most units contain materials used in conventional buildings and areequipped with air conditioning and heating, electrical outlets and, wherenecessary, plumbing facilities. Modular space units are extremely durable andgenerally have an estimated economic useful life of 20 years. Productshave varying lease terms, with average contractual terms of 16 months.However, most customers retain the product for a longer period as evidenced byan average existing lease duration of approximately 28 months at December 31,2006.

Our specific product offerings are described below:

*Single-WideModular Space Units.**  *Single-widemodular space units which include mobile offices are the most functional andversatile units in our lease fleet. Units typically have “open interiors” whichcan be modified using movable partitions. Single-wide modular space unitsinclude tile floors, air conditioning/heating units, partitions and, ifrequested, toilet facilities.

*Section Modulars.*   Section modularsare two or more units combined into one structure. Interiors are customized tomatch the customer needs. Examples of section modular units include hospitaldiagnostic annexes, special events headquarters, golf pro shops and largergeneral commercial offices.

*Classrooms.**  *Classroom units are generallystandard double-wide units adapted specifically for use by school systems oruniversities. Classroom units usually feature chalkboards and teaching aids,air conditioning/heating units, windows along side-walls and, if requested,toilet facilities.

*SalesOffices.**  *Salesoffices are marketed to businesses that require site located space for salespresentations. Exteriors are typically wood-sided with some models offeringrecessed front entries. Our “Executive Line” sales offices are larger, moreexpensive versions of the standard sales office with more amenities.

*StorageProducts.**  *Storageproducts are windowless and are typically used for secure storage space. Ourstorage units are primarily ground-level entry storage containers with swingdoors. These units are made of heavy exterior metals for security and watertightness.

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**Branch Network**

As a key element to our market leadership strategy, wemaintain a network of 88 branch offices throughout the United States, Canada,and Mexico. This network enables us to increase our product availability andcustomer service within our regional and local markets. Customers benefitbecause they are provided with improved service availability, reduced time tooccupancy, better access to sales representatives, the ability to inspect unitsprior to rental and lower freight costs which are typically paid by thecustomer. We benefit because we are able to spread regional overhead andmarketing costs over a larger lease base, redeploy units within our branchnetwork to optimize utilization, discourage potential competitors by providingample local supply and offer profitable short-term leases which would not beprofitable without a local market presence. Related to our Wiron acquisition,we maintain a network of 14 branches throughout Spain. This large networkprovides for the same level of customer benefit as that in North America.

Management believes geographic diversification of ourbranch network balances our economic and operating risk. In 2006, thenortheast, mid-atlantic, southeast, central southwest, central northwest,Canadian, Mexican and Spanish regions accounted for 14%, 9%, 20%, 26%, 17%,11%, 1%, and 2% of our revenues, respectively. For the year ended December 31,2006, 87% of our consolidated revenues were generated from U.S. operations.

Our branches are generallyheaded by a dedicated branch manager. Our branch operations are led by anexecutive vice president and nine vice presidents who collectively average21 years of industry experience and 11 years with our company.Management believes it is important to encourage employees to achieve specifiedrevenue and profit levels and to provide a high level of service to ourcustomers. Our regional and branch managers’ compensation is based upon thefinancial performance of their branches and overall corporate performance whichapproximates 36% of their total compensation. Sales representatives’compensation is commission driven and based on the gross profits of businesswritten.

**Operations**

*Leasing.****  ***Leasingrevenue is a function of average monthly rental rate, fleet size andutilization. We monitor fleet utilization at each branch. For 2006, averagefleet utilization of our North America fleet was approximately 82%. While weadjust our pricing to respond to local competition in our markets, we believethat we generally achieve a rental rate equal to or above that of ourcompetitors because of the quality of our products and our high level ofcustomer service.

As part of our leasing operations, we sell usedmodular space units from our lease fleet either at fair market value or, to amuch lesser extent, pursuant to pre-established lease purchase options includedin the terms of our lease agreements. Due in part to an active fleetmaintenance program, our units maintain a substantial portion of their initialvalue which includes the cost of the units as well as costs of significantimprovements made to the units.

*NewUnit Sales.****  ***New unit sales include sales ofnewly-manufactured modular space units. We do not generally purchase new unitsfor resale until we have obtained firm purchase orders (which are generallynon-cancelable) for such units. New modular space units are generally purchasedmore heavily in the late spring and summer months due to seasonal classroom andconstruction market requirements.

*Deliveryand Installation.****  ***We provide delivery, site-work,installation and other services to our customers as part of our leasing andsales operations. Revenues from delivery, site-work and installation resultfrom the transportation of units to a customer’s location, site-work requiredprior to installation and installation of the units which have been leased orsold. Typically units are placed on temporary foundations constructed by ourservice technicians, and service personnel will also generally install ourancillary products. We also derive revenues from tearing down and removingunits once a lease expires.

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*Other.****  ***We also deriverevenue from other products and services, including rental of steps, furnitureand ramps; sales of parts, supplies and security systems; and charges forgranting insurance waivers (i.e., charging a fee to customers who do notprovide their own insurance certificate).

**CapitalExpenditures**

We closely monitor fleet capital expenditures, whichinclude fleet purchases and capitalizable costs of improvements to existingunits. Generally, fleet purchases are controlled by field and corporate executives,and must pass our fleet purchasing policy guidelines (which include ensuringthat utilization rates and unrentable units levels are reviewed foracceptability, that redeployment, refurbishment and conversion options havebeen considered, and that specific return on investment criteria have beenevaluated). We purchase our units through approximately 70 third-partysuppliers (most suppliers have only one factory, which generally serves amarket within 300 to 400 miles), with no significant dependence on anysupplier. The top three suppliers of units for 2006 represented approximately36% of all fleet purchases, and the top ten suppliers represented approximately73% of all fleet purchases. We believe that we have an excellent workingrelationship with our suppliers. In Spain, we manufacture our own units.

We believe that our fleet purchases are flexible andcan be adjusted to match business needs and prevailing economic conditions. Weare generally not “locked in” to long-term purchase contracts with manufacturersand can modify our capital spending activities to meet customer demand. Forexample, our gross fleet capital expenditures prior to proceeds from sales ofused units were approximately $79.9 million in 2004, $139.8 millionin 2005, and $164.0 million for the year ended December 31, 2006.

We supplement our fleetspending with acquisitions. Although the timing and amount of acquisitions aredifficult to predict, management considers its acquisition strategy to beopportunistic and will adjust its fleet spending patterns as acquisitionopportunities become available.

**Marketing**

In addition to opening new branches, we use a numberof marketing tools to generate new business and customers. By maintaining adetailed and updated customer and prospect tracking system, marketing and salespersonnel generally can identify when a particular customer or prospecttypically utilizes our products and may contact such customer or prospectregarding their future needs.

Through our marketing and sales efforts we have successfullyexpanded the uses for our products. For example, since 1993, the number ofindustries (as measured by Standard Industrial Classification (“SIC”) code)that lease or purchase our products is more than 400, and we expect to continueto increase our penetration of other industries that would benefit from theusage of our products. See “—Customer Base.”

Developing new customers is an integral part of thesales process and is monitored through the use of quarterly goals for eachemployee with sales responsibility. In addition to our prospect trackingdatabases, we conduct direct mail campaigns and are a heavy user of printadvertising, including the yellow pages and customer trade publications.We have developed a toll-free telephone number network so that our customerscan call and speak to a sales representative in the branch location nearest thesite where the call was placed. In addition, we participate in numerousregional and national trade shows, and our sales personnel participate in localtrade groups and associations. We also design marketing campaigns targeted atspecific market niches.

We also have a NorthAmerican national accounts program which currently includes approximately 300national accounts and we continue to pursue other national accountrelationships. The relationships are coordinated by a national account managerand serviced by the branch network. Due to our broad geographic capabilities,this program allows us to further differentiate ourselves from many of our “mom-and-pop”competitors by providing consistent service on a national basis.

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**Customer Base**

We continually seek toexpand our customer base and the applications for our products. Our customerbase is comprised of over 30,000 companies, which operate in multiple industries.We believe that the construction, education, commercial/industrial and other,and government industries accounted for approximately 34%, 26%, 20%, and 8%,respectively, of total revenues in 2006, and that no other industry accountedfor more than 2% of total revenues in 2006. During 2006, no single customeraccounted for more than 3% of our total revenues and our top ten customersaccounted for approximately 11% of total revenues.

Our key customer industries as categorized by SIC Codeare as follows:

*Construction.**  *We provide office and storage spaceto a broad array of contractors associated with both residential andnonresidential buildings, commercial offices and warehouses; highway, street,bridge and tunnel contractors; water, sewer, communication and power linecontractors; and special construction trades, including glass, glazing anddemolition. We believe our construction customer base is characterized by awide variety of contractors, who are associated with original construction aswell as capital improvements in the commercial, institutional, residential andmunicipal arenas.

*Education.**  *Rapid and unpredictable shifts inpopulations within states often necessitate quick expansion of educationfacilities particularly in elementary and secondary schools. State and localgovernmental budgetary pressures, as well as classroom size reduction legislation,and refurbishment of existing facilities, have made modular space units,especially multi-sectional units, a convenient and cost-effective way to expandclassroom, laboratory and library capacity. Our quality products are wellsuited for educational institutions, which demand a high level of maintenanceand service support.

*Commercial/Industrialand Other.**  *Thiscategory includes a variety of industries and product uses which help diversifyour revenue stream. Common examples include: entertainment, recreation,transportation terminals, recycling, retail and fast food establishments, metalprocessing and refining and disaster relief. Although there are a number ofdifferent industries in this category, we believe that no single industryincluded in this category was material to us in 2006.

*Government.**  *Governmental users consist offederal, state and local public sector organizations and state highwayadministrations. We have enjoyed particular success in focused niches such asprisons and jails, courthouses, military installations, national securitybuildings and NASA facilities. We have a strategy of concentrated regionalfocus in order to gain business from local governmental customers.

*ProfessionalServices.**  *Customersin this category include professionals from a broad array of industry sectorsincluding engineering, architectural, accounting, legal, insurance and sales.

*Healthcare.**  *Healthcare customers are frequentusers of multi-sectional facilities as administrative offices, waiting rooms,MRI and other diagnostic annexes adjacent to existing hospitals.

*Utilities.**  *Modular space units havetraditionally been leased to utilities involved in electrical service, naturalgas distribution and production, and other energy-related services. Units areused as meeting rooms, reception and visitor centers, security offices and,during periods of utility plant reconstruction, as facilities to house theoperations staff.

*Oiland Gas.**  *Customersinvolved in oil and gas exploration and production, primarily in westernCanada, require temporary structures to house, feed and support their workforceduring periods of the year in which exploration is possible given the harshweather conditions for the area under exploration. We provide temporaryworkforce housing camp units and other multi-sectional facilities and storageproduct to customers involved in these oil and gas operations.

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*Chemical andPharmaceutical.**  *Chemicaland pharmaceutical companies have been long-time users of temporary officespace. Modular space units are particularly well suited for laboratory usagewhere space is needed for the duration of a specific project or for an off-siteor isolated laboratory.

**Fleet ManagementInformation Systems**

Our propriety managementinformation systems are instrumental to our lease fleet management and targetedmarketing efforts and allow management to monitor operations at our branches ona daily, weekly, and monthly basis. Lease fleet information is updated daily atthe branch level and verified through a monthly physical inventory by branchpersonnel. This provides management with on-line access to utilization, leasefleet unit levels and rental revenues by branch or geographic region. Inaddition, an electronic file for each unit showing its lease history andcurrent location/status is maintained in the information system. Branch salespeople utilize the system to obtain information regarding unit condition and availability.The database tracks individual units by serial number and providescomprehensive information including cost, condition and other financial andunit specific information.

**Regulatory Matters**

We must comply with various federal, state and local environmental,transportation, health and safety laws and regulations in connection with ouroperations. We believe that we are in substantial compliance with these lawsand regulations. In addition to compliance costs, we may incur costs related toalleged environmental damage associated with past or current properties ownedor leased by us. We believe that our liability, if any, for any environmentalremediation will not have a material adverse effect on our financial condition.However, we cannot be certain that the discovery of currently unknown mattersor conditions, new laws and regulations, or stricter interpretations ofexisting environmental laws will not have a material adverse effect on ourbusiness or operations in the future.

A portion of our units are subject to regulation incertain states under motor vehicle and similar registrations and certificate oftitle statutes. We believe that we have complied in all material respects withall motor vehicle registration and similar certificate of title statutes instates where such statutes clearly apply to modular space units. However, incertain states, the applicability of such statutes to our modular space unitsis not clear beyond doubt. If additional registration and related requirementsare deemed to be necessary in such states or if the laws in such states orother states were to change to require us to comply with such requirements, wecould be subject to additional costs, fees and taxes as well as administrativeburdens in order to comply with such statutes and requirements. We do notbelieve the effect of such compliance will be material to our business, resultsof operations or financial condition.

**Trademarks**

We own a number of trademarks important to ourbusiness, including Williams Scotsman® and Williams Scotsman [and design]®.

Our material trademarks are registered or pendingapplications for registrations in the U.S. Patent and Trademark Office andvarious foreign jurisdictions. Registrations for such trademarks in the UnitedStates will last indefinitely as long as we continue to use and police thetrademarks and renew filings with the applicable governmental offices. Thereare no claims pending against us challenging our right to use any of ourmaterial trademarks in the United States or any other country.

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**Competition**

Although our competitionvaries significantly by market, the modular space industry, in general, ishighly competitive. We compete primarily in terms of product availability,customer service and price. We believe that our reputation for customer serviceand our ability to offer a wide selection of units suitable for various uses atcompetitive prices allows us to compete effectively. However, our primary NorthAmerican competitor, GE Modular Space, is less leveraged, has greater marketshare or product availability in some markets and has greater financialresources and pricing flexibility than us. The portable storage industry isalso highly fragmented and Mobile Mini, Inc. and Mobile Storage Group, Inc.are the largest providers in the industry.

**Employees**

As of December 31,2006, we had 1,947 employees. None of our employees are covered by a collectivebargaining agreement. Management believes its relationship with our employeesis good. We have never experienced any material labor disruption and areunaware of any efforts or plans to organize our employees.

**AvailableInformation**

Our Internet websiteaddress is: www.willscot.com. We make available free of charge through ourwebsite our annual report on Form 10-K, quarterly reports on Form 10-Q,current reports on Form 8-K and amendments to those reports filed orfurnished pursuant to Section 13(a) or 15(d) of the Exchange Actas soon as reasonably practicable after such documents are electronically filedwith, or furnished to, the SEC. Our website also includes our CorporateGovernance Guidelines, Code of Conduct of Ethics, and charters of its AuditCommittee, Compensation Committee and Nominating & CorporateGovernance Committee. These documents are also available in print to anyshareholder upon request.

**Item 1A.**                RiskFactors

**Risks Related toOur Business**

***General or localized economic downturns or weaknessmay adversely affect our customers, in particular those in the nonresidentialconstruction industry and the education sector, which may cause the demand forour products and services to decline and therefore harm our revenues andprofitability.***

Our revenues are derived from customers who are inindustries and businesses that are cyclical in nature and subject to changes ingeneral economic conditions, such as the nonresidential construction industry.In addition, because we conduct our operations in a variety of markets, we aresubject to economic conditions in each of these markets. During 2005, weexperienced improvement in the marketplace; however, prior to 2005, ourbusiness was adversely impacted by overall soft economic conditions, whichaffected our construction customers primarily, and state budget issues incertain parts of the country that affected our education customers. As a resultof the economic downturn, we incurred a net loss of approximately$3.4 million in 2004.

Although our product,customer, industry and geographic diversity limits our exposure to economicdownturns, general economic downturns or localized downturns in markets wherewe have operations, including any downturns in the construction industry, whichconstituted approximately 34% of our revenues in 2006, could reduce demand forour products and negatively impact our revenues and profitability. In addition,at the present time we are unable to predict what long-term effect, if any,recent political events, including those relating to, or arising out of, thegrowing threat of terrorism, and their attendant consequences will have on ourbusiness. Any of the foregoing economic or political events could 

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negativelyaffect our industry or industries in which our customers operate, which maycause the demand for our products and services to decline and therefore harmour revenues and profitability.

***We face significant competition in the modular andportable space industry, especially from our primary national competitor, whichhas greater financial resources and pricing flexibility than we do. If we areunable to compete successfully, we could lose customers and our revenues andprofitability could decline.***

Although our competitionvaries significantly by market, the modular space industry, in general, ishighly competitive. We compete primarily in terms of product availability,customer service and price. We believe that our reputation for customer serviceand our ability to offer a wide selection of units suitable for various uses atcompetitive prices allows us to compete effectively. However, our primarynational competitor, GE Modular Space, is less leveraged, has greater marketshare or product availability in some markets, and has greater financialresources and pricing flexibility than we do. If we are unable to competesuccessfully, we could lose customers which could reduce our revenues andprofitability.

***We may not be able to remarket our units effectivelyshould a significant number of our lease units be returned during any shortperiod of time, which could adversely affect our financial performance and ourability to continue expanding our fleet.***

Our typical lease terms,which include contractual provisions requiring customers to retain units onlease for, on average, 16 months, actually have an average lease durationof approximately 28 months. Because our customers generally rent our unitsfor periods longer than the contractual lease terms, 59% of our leases are on amonth-to-month basis as of December 31, 2006. In addition, 22% of ourleases have contractual lease terms expiring within six months as of December 31,2006. These aspects of our leasing business have remained generally consistentover the last several years. Should a significant number of our leased units bereturned during any short period of time, a large supply of units would need tobe remarketed. Our failure to effectively remarket a large influx of unitsreturning from leases could have a material adverse effect on our financialperformance and our ability to continue expanding our fleet.

***A significant reduction of funding to public schoolsor contraction of class size reduction programs could cause the demand for ourmodular classroom units to decline, which, as a result, may reduce our revenuesand profitability.***

We generated 26% of ourrevenues in 2006 from our education customers, which include public schoolfacilities. Funding for public school facilities is derived from a variety ofsources including, among other things, various taxes levied to support schooloperating budgets. Any material interruption of these sources or a lack offiscal funding could result in a significant reduction of funding to publicschools, which may negatively impact the budget of public schools and cause thedemand for our modular classroom units to decline. In addition, any contractionor elimination of class size reduction programs could cause the demand for ourmodular classrooms to decline. Any decline in demand for our modular classroomsmay reduce our revenue and profitability.

***Certain related parties of The Cypress Group L.L.C.and Keystone Group, L.P. exercise significant influence over us.***

Our large shareholders,which include related parties of The Cypress Group L.L.C. and Keystone Group,L.P. beneficially own in the aggregate approximately 28% of our outstandingcommon stock as of February 28, 2007. Accordingly, these parties exercisesignificant influence over all matters requiring a stockholders’ vote,including the composition of our board of directors, the adoption of amendmentsto our amended and restated certificate of incorporation and the approval ofmergers or sales of substantially all of our assets. This concentration ofownership also may delay, defer or even prevent a change in control 

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of ourcompany and may make some transactions more difficult or impossible without thesupport of these stockholders.

***Any failure of our management information systems coulddisrupt our business and result in decreased rental or sale revenues andincreased overhead costs, which could negatively impact our profitability.***

We depend on ourmanagement information systems to actively manage our lease fleet, control newunit capital spending and provide fleet information, including leasing history,condition, and availability of our units. These functions enhance our abilityto optimize fleet utilization, rentability and redeployment. The failure of ourmanagement information systems to perform as we anticipate could disrupt ourbusiness and could result in, among other things, decreased rental or sales andincreased overhead costs, which could negatively impact our profitability.

***Federal and state regulations could impose substantialcosts and/or restrictions on our operations that could harm our results ofoperations. If we are unable to pass these increased costs on to our customers,our profitability and operating cash flows could be negatively impacted.***

We are subject to variousfederal, state and local environmental, transportation, health and safety lawsand regulations in connection with our operations. Any failure to comply withthese laws or regulations could result in capital or operating expenditures orthe imposition of severe penalties or restrictions on our operations. Inaddition, these laws and regulations could change in a manner that materiallyand adversely affects our ability to conduct our business. More burdensomeregulatory requirements in these or other areas may increase our general andadministrative costs. If we are unable to pass these increased costs on to ourcustomers, our profitability and operating cash flows could be negativelyimpacted. See “Item 1. Business—Regulatory Matters.”

***Our sale transactions constitute a significant portionof our revenues. The completion of these sale transactions are subject to anumber of factors beyond our control. Failure to close our sale transactions asprojected could cause our actual revenues or cash flow for a particular quarteror longer period to differ from forecasted estimates.***

Sales of new modular spaceand portable storage units and rental equipment to customers in 2006, excludingdelivery, site work and other ancillary sales revenue, approximated 28% of ourtotal revenue. The completion of sale transactions is subject to certainfactors that are beyond our control, including permit requirements and weatherconditions. Accordingly, the actual timing of the completion of thesetransactions may be different from their forecasted schedules. As a result, ouractual revenues and cash flow in a particular quarter or over a longer periodof time may not consistently correlate to our forecasted estimates. Inaddition, if we do not accurately forecast our activity, we may improperly planor budget, which could cause us to violate our debt covenants and harm ourliquidity. As a result, we may not be able to take advantage of business andgrowth opportunities otherwise available to us.

***We may not be able to facilitate our growth strategyby identifying or completing transactions with attractive acquisitioncandidates, which could impair our growth and profitability of our business.***

An important element ofour growth strategy is to continue to seek additional businesses to acquire inorder to add new customers within our existing markets and expand into newmarkets. Any future growth through acquisitions will be partially dependentupon the continued availability of suitable acquisition candidates at favorableprices, upon advantageous terms and conditions and upon successful integrationof the acquired businesses. However, future acquisitions may not be availableat advantageous prices or upon favorable terms and conditions. In addition,acquisitions involve risks that the businesses acquired will not perform inaccordance with expectations, that business judgments concerning the value,strengths and weaknesses of businesses acquired will prove incorrect, that theacquired businesses may not be integrated 

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successfullyand that international acquisitions may strain our management resources. Futureacquisitions and any necessary related financings also may involve significanttransaction-related expenses. If we are unable to complete attractiveacquisitions or integrate acquired businesses, the growth and profitability ofour business would be adversely impacted.

***European expansion may divert our resources from otheraspects of our business, cause us to incur additional debt and require us tocomply with different regulations. Failure to manage these economic andregulatory risks may adversely affect our growth in Europe and lead toincreased costs.***

In 2006, we acquiredWiron, our subsidiary located in Spain. Continued expansion into the Europeanmarket may require us to make substantial investments, which would divertresources from other aspects of our business. We may also be required to raiseadditional debt or equity capital to fund our expansion in Europe. In addition,we may incur difficulties in staffing and managing our European operations, andface fluctuations in currency exchange rates, exposure to additional regulatoryrequirements, including certain trade barriers, changes in political andeconomic conditions, and exposure to additional and potentially adverse tax regimes.Our success in Europe will depend, in part, on our ability to anticipate andeffectively manage these and other risks. Our failure to manage these risks mayadversely affect our growth in Europe and lead to increased administrativecosts.

***Fluctuations in currencyexchange rates may adversely affect our international sales.***

Our revenue from international operations can bedenominated in or significantly influenced by the currency and general economicclimate of the country in which we make sales. A decrease in the value of suchforeign currencies relative to the U.S. dollar could result in losses fromcurrency exchange rate fluctuations. As we continue to expand our internationaloperations, exposure to gains and losses on foreign currency transactions mayincrease.

We may continue our use ofhedging instruments in the future to reduce our exposure to exchange ratefluctuations from transactions denominated in foreign currencies, and we maynot be able to do this successfully. Accordingly, we may experience economicloss and a negative impact on our results of operations and equity as a resultof foreign currency exchange rate fluctuations.

***We are a holding company whose only material asset isthe capital stock of Scotsman and to a lesser extent, our European and Mexicansubsidiaries. We may not have sufficient cash to meet our obligations ifScotsman, our only material source of cash, is not able to generate sufficientearnings or cash flow to pay dividends to us or if Scotsman is prohibited byits debt agreements from paying dividends to us.***

We are a holding companywith no material business operations. Our most significant asset is the capitalstock of Scotsman and to a lesser extent our European and Mexican subsidiaries.We conduct virtually all of our business operations through Scotsman and itsEuropean and Mexican subsidiaries. Accordingly, our only material sources ofcash are dividends or other distributions or payments that are derived fromearnings and cash flow generated by these entities. These entities may notgenerate sufficient earnings and cash flow to pay dividends or distributions ormake payments in the future. In addition, the terms of the Amended and RestatedCredit Facility and the indenture governing the 8.5% Notes due 2015 (the 8.5% Notes)limit such payments to us. As a result, we may not have sufficient cash to meetour obligations, which could harm our business.

***Failure to retain key personnel could impede ourability to execute our business plan and growth strategy and lead to a loss ofcustomers.***

Our continued success willdepend largely on the efforts and abilities of our executive officers andcertain other key employees. Many of our key executives, including ourPresident and Chief Executive 

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Officer,Mr. Gerard Holthaus, and the executive vice president and nine vicepresidents who lead our branch operations, have over 10 years ofexperience with our company. These officers have knowledge and an understandingof our company and industry that cannot be readily duplicated. There areemployment agreements with Gerard Holthaus, Robert Singer, Joseph Donegan,William LeBuhn and John Ross. The loss of any member of our senior managementteam could impair our ability to execute our business plan and growth strategy,cause us to lose customers and reduce our revenues, or lead to employee moraleproblems.

***We may be unable to realize the benefits of our netoperating loss carryforwards and, as a result, lose our future tax savings,which could have a negative impact on our liquidity.***

Net operating losses (“NOL’s”)may be carried forward to offset U.S. federal, U.S. state, and foreign taxableincome in future years and eliminate income taxes otherwise payable on suchtaxable income, subject to certain adjustments. As of December 31, 2006,we had NOL’s of approximately $221 million. Based on current corporateincome tax rates, our NOL’s could provide a benefit to us, if fully utilized,of significant future tax savings. However, if we do not have sufficienttaxable income in future years to use the tax benefits before they expire, wewill lose the benefit of these NOL carryforwards permanently. In addition, theU.S. Internal Revenue Service and other tax authorities could challenge ourcalculation of the amount of our NOL’s or any deductions or losses included insuch calculation, which could reduce our tax benefit. Provisions of theInternal Revenue Code may also limit our ability to carry forward our U.S. NOL’sto offset taxable income in future years.

***A write-off of all or a part of our goodwill wouldhurt our operating results and reduce our net worth.***

We have significantintangible assets related to goodwill, which represents the excess of the totalpurchase price of our acquisitions over the fair value of the net assetsacquired. As of December 31, 2006, we had $182.8 million of goodwillon our balance sheet, which represented 11.5% of our total assets. We are notpermitted to amortize goodwill under the U.S. accounting standards and insteadare required to review goodwill at least annually for impairment. In the eventimpairment is identified, a charge to earnings would be recorded. We determinedthat goodwill was not impaired for the fiscal year ended December 31,2006. Although it does not affect our cash flow, a write-off in future periodsof all or a part of our goodwill would hurt our operating results and networth. See “Management’s Discussion and Analysis of Financial Condition andResults of Operations—Critical Accounting Policies and Estimates—GoodwillImpairment.”

***Significant increases in raw material costs couldincrease our operating costs significantly and harm our profitability.***

We purchase raw materials,including lumber, siding and roofing and other products to perform periodicrefurbishments to maintain physical conditions of our units. We also maintain atruck fleet to deliver units to and return units from our customers. Duringperiods of rising prices for raw materials or oil, and in particular, when theprices increase rapidly or to levels significantly higher than normal, we mayincur significant increases in our operating costs and may not be able to passprice increases through to our customers in a timely manner, which could reduceour profitability.

***Failure by third parties to manufacture our productstimely or properly may harm our reputation and financial condition.***

We are dependent on thirdparties to manufacture our products even though we are able to purchaseproducts from a variety of third-party suppliers. Generally, we do not have anylong term purchase contracts with any third-party supplier. If these thirdparties do not timely complete our orders, or do not 

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properlymanufacture our products, our reputation and financial condition could beharmed. In addition, we may not be able to negotiate arrangements with thesethird parties on acceptable terms, if at all.

**Risks Related toour Substantial Indebtedness**

***Our substantial debt could harm our financial healthand may otherwise restrict our activities.***

We have a substantial amount of debt. As of December 31,2006, we had approximately $916.4 million of indebtedness. See Note 6 ofthe Notes to Audited Consolidated Financial Statements.

Our substantialdebt could have important consequences. For example, it:

·       makes our company morevulnerable to general adverse economic and industry conditions;

·       limits our ability toobtain additional financing for future working capital, capital expenditures,strategic acquisitions and other general corporate requirements;

·       requires us to dedicate asubstantial portion of our cash flow from operations to payments on our debt,thereby reducing the availability of our cash flow for operations and otherpurposes;

·       limits our flexibility inplanning for, or reacting to, changes in our business; and

·       places us at a competitivedisadvantage compared to any competitors that have less debt.

We and our subsidiariesmay be able to incur substantial additional indebtedness in the future. Theterms of the indenture governing our 8.5% Notes and the terms of our Amendedand Restated Credit Facility permit us to incur a substantial amount ofadditional debt. As of December 31, 2006, we would be permitted to borrowan additional $205.5 million of indebtedness under our Amended andRestated Credit Facility. Accordingly, this additional indebtedness couldfurther exacerbate all the risks described above.

***A substantial portion of our indebtedness is subjectto variable interest rates, which makes us vulnerable to increases in interestrates.***

Our substantial indebtedness exposes us to interestrate increases because a substantial portion of our indebtedness is at variablerates. The interest rates under the Amended and Restated Credit Facility willbe reset at varying periods. These periodic adjustments could expose ouroperating results and cash flows to periodic fluctuations. Our annual debtservice obligations will increase by $4.6 million per year for each 1percentage point increase in the average interest rate we pay, based on thebalance of variable rate debt outstanding at December 31, 2006.

We may use interest rate hedging arrangements and swapagreements to limit our exposure to interest rate volatility based uponmanagement’s judgment. If we enter into these arrangements, we will incurcertain risks, including that our hedging or swap transactions might notachieve the desired effect in eliminating the impact of interest ratefluctuations, or that counterparties may fail to honor their obligations underthese arrangements. As a result, these arrangements may not be effective inreducing our exposure to interest rate fluctuations. This could reduce our netincome and require us to modify our hedging strategy.

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***The indenture governing the 8.5% Notes and the termsof our Amended and Restated Credit Facility contain various covenants whichlimit the discretion of our management in operating our business and couldprevent us from engaging in some beneficial activities.***

The indenturegoverning the 8.5% Notes and the terms of the Amended and Restated CreditFacility contain various restrictive covenants that limit our management’sdiscretion in operating our business. In particular, these agreements includecovenants relating to limitations on:

·       dividends on, andredemptions and repurchases of, capital stock,

·       liens and sale-leasebacktransactions,

·       loans and investments,

·       debt and hedgingarrangements,

·       mergers, acquisitions andasset sales,

·       transactions with affiliates,and

·       changes in businessactivities conducted by us and our subsidiaries.

In addition, our Amended and Restated Credit Facilityrequires us, under certain circumstances, to maintain certain financial ratios.It also limits our ability to make capital expenditures. See Note 6 of theNotes to Audited Consolidated Financial Statements.

If we fail to comply withthe restrictions of the indenture governing the 8.5% Notes or the terms of ourAmended and Restated Credit Facility or any other subsequent financingagreements, a default may allow the creditors, if the agreements so provide, toaccelerate the related debt as well as any other debt to which across-acceleration or cross-default provision applies. In addition, the lendersmay be able to terminate any commitments they had made to supply us withfurther funds. Accordingly, we may not be able to fully repay our debtobligations, if some or all of our debt obligations are accelerated upon anevent of default.

***Our debt service requires a significant amount ofcash. We may not be able to generate sufficient cash flow to meet both our debtobligations and other requirements or obligations. This could lead us to takeactions, such as reducing capital expenditures or other investments or assetsales. These actions may limit our flexibility to grow our business and to takeadvantage of business opportunities.***

To service ourdebt, we require a significant amount of cash. Our debt service requirementsfor the year ending December 31, 2007 are approximately $95.7 million,based on the outstanding debt balance and effective interest rates as of December 31,2006. Our ability to generate cash, make scheduled payments or to refinance ourobligations depends on our successful financial and operating performance. Ouroperating performance, cash flow and capital resources may not be sufficientfor payment of our debt in the future. Our financial and operating performance,cash flow and capital resources depend upon prevailing economic conditions, andcertain financial, business and other factors, many of which are beyond ourcontrol. These factors include, among others:

·       economic and competitiveconditions affecting the modular and portable space industry;

·       operating difficulties,increased operating costs or pricing pressures we may experience; and

·       a decline in the resalevalue of our units.

At December 31, 2006,the aggregate amount of indebtedness of our company approximated$916.4 million. If our cash flow and capital resources are insufficient tofund our debt service obligations, we may be forced to reduce or delay capitalinvestments, sell material assets or operations, obtain 

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additionalcapital or restructure our debt. In the event that we are required to disposeof material assets or operations or restructure our debt to meet our debtservice and other obligations, the terms of such transaction may not besatisfactory and such transaction may not be completed in a timely manner. Inaddition, these actions may limit our flexibility to grow our business and totake advantage of business opportunities. See “Management’s Discussion andAnalysis of Financial Condition and Results of Operations—Liquidity and CapitalResources.”

**Item 1B.**               UnresolvedStaff Comments

None.

**Item 2.**                        Properties

Our headquarters, which weown, is a three-story modular office structure located on 3.1 acres in suburbanBaltimore, Maryland. Our company is comprised of over 100 branches locatedthroughout the United States, Canada, Spain, and Mexico. We lease approximately76% of our branch properties and we own the balance. Management believes thatnone of our branch properties, individually, is material to our operations.

**Item 3.**                        LegalProceedings

Currently, we are involved in various lawsuits andclaims arising out of the normal course of our business. The nature of ourbusiness is such that disputes occasionally arise with vendors includingsuppliers and subcontractors and customers over warranties, contractspecifications and contract interpretations among other things. We assess thesematters on a case-by-case basis as they arise. Reserves are established, asrequired, based on our assessment of our exposure. We have insurance policiesto cover general liability and workers compensation related claims. In theopinion of management, the ultimate amount of liability not covered byinsurance, if any, under pending litigation and claims will not have a materialadverse effect on our financial position or operating results.

For further discussion oflegal proceedings, see Note 10 of the Notes to the Audited ConsolidatedFinancial Statements.

**Item 4.**                        Submissionof Matters to a Vote of Security Holders

None.

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**PART II**

**Item 5.**                        Market for Registrant’s Common Equity, RelatedShareholder Matters and Issuer Purchases of Equity Securities

Our common stock has been publicly traded on theNASDAQ Stock Market since September 20, 2005, under the symbol “WLSC”. Thequarterly range of prices per share during the year ended December 31,2006 and the third and fourth quarters of fiscal 2005, the periods for whichour common stock has been publicly traded are as follows:

| ** **     | ** ** | **HIGH**   | ** ** | **LOW**    | ** ** |
|----------------|------------|------------|------------|------------|------------|
| 2006           | ** ** | ** ** | ** ** | ** ** | ** ** |
| First Quarter  |       | $          | 25.05      |       | $          | 17.38 |   |
| Second Quarter |       | 26.85      |       | 20.16      |       |
| Third Quarter  |       | 22.45      |       | 19.04      |       |
| Fourth Quarter |       | 24.00      |       | 18.75      |       |
| 2005           |       |       |       |       |       |
| Third Quarter  |       | $          | 16.11      |       | $          | 15.75 |   |
| Fourth Quarter |       | 17.31      |       | 14.51      |       |

                                                                                                                                         

Prior to September 20,2005, there was no established public trading market for our stock.

As of March 5, 2007, the number of ourstockholders of record was 4,376.

We have never declared or paid any dividends on ourcommon stock. For the foreseeable future, we intend to retain any earnings tofinance the development and expansion of our business, and we do not anticipatepaying any cash dividends on our common stock. Any future determination to paydividends will be at the discretion of our board of directors and will bedependent upon then existing conditions, including our financial condition andresults of operations, capital requirements, contractual restrictions, businessprospects and other factors that our board of directors considers relevant. Inaddition, the Amended and Restated Credit Facility and the indenture for the8.5% Notes contain restrictions on the amounts of dividends that Scotsman canpay us.

**Stock Performance Graph**

The chart set forth below shows the value of aninvestment of $100 on September 20, 2005 (the first day our Common Stockwas traded) in each Company’s Common Stock, the Russell 2000 Index, andcomparable issuers for the period from September 20, 2005 to December 31,2006. All values assume reinvestment of the pre-tax value of dividends.

**Comparison of CumulativeTotal Return**

**Value of Investment of$100 on September 20, 2005**

**The comparable issuers consist ofthe following companies engaged in our industry:  Mobile Mini, Inc. and McGrath RentCorp. Allof the current peer group issuers were publicly traded as of December 31,2006.**

22

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**Item 6.**                        SelectedFinancial Data

Thefollowing tables summarize selected historical financial data which should beread in conjunction with “Managements Discussion and Analysis of FinancialCondition and Results of Operations” and the audited financial statementsappearing elsewhere herein. The selected historical financial data set forthbelow has been derived in part from the audited financial statements.
|                                                 | ** ** | **Year Ended December 31,**                                         | ** ** |
|-------------------------------------------------|------------|------------------------------------------------------------------------------------|------------|
| ** **                                      | ** ** | **2002**                                                                           | ** ** | **2003** | ** ** | **2004** | ** ** | **2005** | ** ** | **2006** | ** ** |
| ** **                                      | ** ** | **(Dollars in thousands, except per share amounts)** | ** ** |
| **Statement of Operations Data:**               |       |                                                                               |       |   |   |   |   |   |   |   |   |
| Revenues:                                       |       |                                                                               |       |   |   |   |   |   |   |   |   |
| Leasing                                         |       | $                                                                                  | 227,106    |   | $ | 213,976 |   | $ | 222,867 |   | $ | 247,713 |   | $ | 291,701 |   |
| Sales:                                          |       |                                                                               |       |   |   |   |   |   |   |   |   |
| New units                                       |       | 98,927                                                                             |       | 71,635 |   | 86,344 |   | 128,244 |   | 139,815 |   |
| Rental equipment                                |       | 23,951                                                                             |       | 20,734 |   | 29,355 |   | 37,530 |   | 51,171 |   |
| Delivery and installation                       |       | 101,034                                                                            |       | 91,318 |   | 116,106 |   | 135,715 |   | 147,762 |   |
| Other                                           |       | 41,429                                                                             |       | 37,980 |   | 43,253 |   | 43,256 |   | 50,351 |   |
| Total                                           |       | $                                                                                  | 492,447    |   | $ | 435,643 |   | $ | 497,925 |   | $ | 592,458 |   | $ | 680,800 |   |
| Gross profit:                                   |       |                                                                               |       |   |   |   |   |   |   |   |   |
| Leasing                                         |       | $                                                                                  | 137,588    |   | $ | 119,148 |   | $ | 122,202 |   | $ | 135,167 |   | $ | 167,402 |   |
| Sales:                                          |       |                                                                               |       |   |   |   |   |   |   |   |   |
| New units                                       |       | 16,363                                                                             |       | 12,224 |   | 13,459 |   | 22,867 |   | 30,412 |   |
| Rental equipment                                |       | 5,787                                                                              |       | 4,373 |   | 6,459 |   | 8,621 |   | 14,591 |   |
| Delivery and installation                       |       | 16,494                                                                             |       | 12,462 |   | 15,045 |   | 19,985 |   | 29,413 |   |
| Other                                           |       | 31,528                                                                             |       | 29,706 |   | 33,648 |   | 31,966 |   | 40,023 |   |
| Total                                           |       | 207,760                                                                            |       | 177,913 |   | 190,813 |   | 218,606 |   | 281,841 |   |
| Selling, general and administrative expenses    |       | 85,779                                                                             |       | 76,297 |   | 83,407 |   | 96,968 |   | 115,558 |   |
| Other  depreciation and amortization            |       | 13,438                                                                             |       | 13,869 |   | 14,787 |   | 16,618 |   | 18,722 |   |
| Interest                                        |       | 85,208                                                                             |       | 87,174 |   | 92,444 |   | 91,203 |   | 72,337 |   |
| Loss on early  extinguishment of debt           |       | —                                                                             |       | — |   | — |   | 30,678 |   | 90 |   |
| Held for sale  impairment charge                |       | —                                                                             |       | 19,386 |   | — |   | — |   | — |   |
| Income (loss) before income taxes               |       | 23,335                                                                             |       | (18,813 | ) | 175 |   | (16,861 | ) | 75,134 |   |
| Income tax  expense (benefit)                   |       | 8,137                                                                              |       | (7,131 | ) | 3,586 |   | (6,537 | ) | 26,018 |   |
| Net income (loss)                               |       | $                                                                                  | 15,198     |   | $ | (11,682 | ) | $ | (3,411 | ) | $ | (10,324 | ) | $ | 49,116 |   |
| Net income (loss)  per common  share—basic |       | $                                                                                  | 0.65       |   | $ | (0.50 | ) | $ | (0.14 | ) | $ | (0.37 | ) | $ | 1.18 |   |
| Net income (loss)  per common  share-diluted    |       | $                                                                                  | 0.61       |   | $ | (0.50 | ) | $ | (0.14 | ) | $ | (0.37 | ) | $ | 1.15 |   |

 

| ** **                                             | ** ** | **As of December 31,**     | ** ** |
|--------------------------------------------------------|------------|----------------------------|------------|
| ** **                                             | ** ** | **2002**                   | ** ** | **2003** | ** ** | **2004** | ** ** | **2005** | ** ** | **2006** | ** ** |
| ** **                                             | ** ** | **(Dollars in thousands)** | ** ** |
| **Balance Sheet Data:**                                |       |                       |       |   |   |   |   |   |   |   |   |
| Rental equipment,  net                                 |       | $                          | 828,927    |   | $ | 828,078 |   | $ | 880,723 |   | $ | 944,629 |   | $ | 1,066,469 |   |
| Total assets                                           |       | 1,229,767                  |       | 1,205,685 |   | 1,284,611 |   | 1,380,620 |   | 1,587,919 |   |
| Revolving credit  facilities & long-term debt |       | 984,345                    |       | 962,178 |   | 1,009,486 |   | 869,446 |   | 916,356 |   |
| Stockholders’ equity                              |       | 19,273                     |       | 18,364 |   | 21,147 |   | 244,741 |   | 368,141 |   |
|                                                        |            |                            |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

 

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**Selected QuarterlyFinancial Data (Unaudited)**

Theselected quarterly financial data for the period ended on December 31,2006 and 2005 and as of the end of each such period have been derived from ourunaudited condensed consolidated financial statements and include alladjustments, consisting only of normal recurring adjustments, necessary for afair presentation of the results of the interim periods.
| (Dollars in thousands except per share amounts  and average rental rates) | ** ** | **Year ended December 31, 2006** | ** ** |
|------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| **Quarter**                                                                                                            | ** ** | **First**                                            | ** ** | **Second** | ** ** | **Third** | ** ** | **Fourth** | ** ** | **Year** | ** ** |
| Revenues                                                                                                               |       | $                                                    | 164,973    |   | $ | 159,109 |   | $ | 187,595 |   | $ | 169,123 |   | $ | 680,800 |   |
| Gross profit                                                                                                           |       | 65,381                                               |       | 67,891 |   | 74,374 |   | 74,195 |   | 281,841 |   |
| Loss on  extinguishment of debt                                                                                        |       | —                                               |       | — |   | 90 |   | — |   | 90 |   |
| Income before  income taxes                                                                                            |       | 16,964                                               |       | 18,839 |   | 20,967 |   | 18,364 |   | 75,134 |   |
| Net income                                                                                                             |       | 10,433                                               |       | 11,582 |   | 16,151 |   | 10,950 |   | 49,116 |   |
| Net income per  common share-basic                                                                                     |       | $                                                    | 0.27       |   | $ | 0.28 |   | $ | 0.38 |   | $ | 0.25 |   | $ | 1.18 |   |
| Net income per  common share-diluted                                                                                   |       | $                                                    | 0.26       |   | $ | 0.27 |   | $ | 0.37 |   | $ | 0.25 |   | $ | 1.15 |   |
| **North  American Rental Fleet Data:**                                                                                 |       |                                                 |       |   |   |   |   |   |   |   |   |
| Average  utilization rate                                                                                              |       | 82                                                   | %          | 82 | % | 82 | % | 82 | % | 82 | % |
| Average rental  rate                                                                                                   |       | $                                                    | 283        |   | $ | 287 |   | $ | 291 |   | $ | 297 |   | $ | 289 |   |
| Lease fleet units (at  the end of the period)                                                                          |       | 99,365                                               |       | 100,217 |   | 101,543 |   | 101,827 |   | 101,827 |   |

 

At December 31, 2006, our European rental fleettotaled approximately 14,500 units, at a utilization rate of 89% and an averagerental rate of 88 Euros ($116).
|                                               | ** ** | **Year ended December 31, 2005** | ** ** |
|-----------------------------------------------|------------|------------------------------------------------------|------------|
| **Quarter**                                   | ** ** | **First**                                            | ** ** | **Second** | ** ** | **Third** | ** ** | **Fourth** | ** ** | **Year** | ** ** |
| Revenues                                      |       | $                                                    | 126,101    |   | $ | 135,015 |   | $ | 163,476 |   | $ | 167,866 |   | $ | 592,458 |   |
| Gross profit                                  |       | 49,779                                               |       | 52,178 |   | 55,557 |   | 61,092 |   | 218,606 |   |
| Loss on  extinguishment of debt               |       | —                                               |       | 5,182 |   | 25,496 |   | — |   | 30,678 |   |
| Income (loss)  before income taxes            |       | (1,319                                               | )          | (4,840 | ) | (23,739 | ) | 13,037 |   | (16,861 | ) |
| Net income (loss)                             |       | (818                                                 | )          | (2,686 | ) | (14,668 | ) | 7,848 |   | (10,324 | ) |
| Net income (loss)  per common share-basic     |       | $                                                    | (0.03      | ) | $ | (0.11 | ) | $ | (0.59 | ) | $ | 0.20 |   | $ | (0.37 | ) |
| Net income (loss)  per common share-diluted   |       | $                                                    | (0.03      | ) | $ | (0.11 | ) | $ | (0.59 | ) | $ | 0.20 |   | $ | (0.37 | ) |
| **North  American Rental Fleet Data:**        |       |                                                 |       |   |   |   |   |   |   |   |   |
| Average  utilization rate                     |       | 80                                                   | %          | 81 | % | 82 | % | 83 | % | 81 | % |
| Average rental  rate                          |       | $                                                    | 258        |   | $ | 259 |   | $ | 264 |   | $ | 273 |   | $ | 263 |   |
| Lease fleet units (at  the end of the period) |       | 95,988                                               |       | 97,157 |   | 98,289 |   | 98,184 |   | 98,184 |   |

 

**Item 7.**                        Management’sDiscussion and Analysis of Financial Condition and Results of Operations

*The following discussion should be read in conjunctionwith the consolidated financial statements and the notes thereto and otherfinancial information included in this Form 10-K. Certain statementsin this “Management’s Discussion and Analysis of Financial Condition andResults of Operations” are forward-looking statements. See “Safe HarborStatement—Cautionary Notice Regarding Forward-Looking Statements.”*

**Business Overview**

We derive our revenues and earnings from the leasingand sale of modular space and portable storage units, delivery and installationof those units and the provision of other ancillary products and services.Leasing operations, which primarily comprise the leasing of modular space unitsand the sale of used units from our lease fleet, account for a majority of ourrevenues and gross profits. To maintain the value of our 

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units, we perform periodicrefurbishments to our fleet. Additionally, used modular space units are soldfrom our lease fleet in the ordinary course of business at either fair marketvalue or, to a lesser extent, pursuant to pre-established lease purchaseoptions. The sale of rental units results in the availability of the total cashproceeds received and is reported as a cash flow from investing activities andgenerally results in the reporting of gross profit on such sales. New unitsales revenues are derived from the sale of new modular space and portable storageunits, similar to those units leased by us. Revenues from delivery andinstallation result from activities related to the transportation andinstallation of and site preparation for both leased and sold products. Otherrevenues are derived from other products and services including rental ofsteps, furniture, ramps and security systems, sales of parts and supplies, andcharges for granting insurance waivers.

Beginning in the second half of 2004, we have seenimprovements in our market place. Prior to the second half of 2004, ourbusiness was adversely impacted by overall soft economic conditions over thepast several years, which affected our construction customers primarily, andstate budget issues in certain parts of the country that have affected our educationcustomers. Although a portion of our business is with customers in industriesthat are cyclical in nature and/or subject to changes in general economicconditions, we believe that certain characteristics of the modular space andportable storage industries and our operating strategies help us to limit ourexposure to economic downturns. These characteristics include our typical leaseterms, which include contractual provisions requiring customers to retain unitson lease for, on average, 16 months, and the fact that units on rent havean average lease duration of approximately 28 months; the flexibility andlow cost offered to our customers by leasing which may be an attractivealternative to capital purchases; our ability to redeploy units during regionalrecessions; the diversity of our industry exposure; and the geographic balanceof our operations.

In the ordinary course of business, we acquire leasingand related businesses. On August 18, 2006, we  acquired a 91.5% interest in Wiron forapproximately $53.1 million. Wiron is headquartered in Parla, Spain and is one of the largest modularspace providers in Spain with 14 branch locations. Wiron manufactures andleases mobile offices and had a lease fleet at acquisition of approximately14,000 units. With our acquisition in July 2004 of an 8.5% minorityinterest for approximately $4.7 million, we now own 100% of the share capitalof Wiron. On February 17, 2006, we acquired American HomesInternacional, S.A. de C.V., a Monterrey, Mexico-based company that leased andsold mobile office units, for a purchase price of $5.1 million. This purchaseresulted in the acquisition of approximately 300 units and the related customerbase. On February 24, 2005, we acquired Mobile Space, Inc., aChicago-based company that leased and sold modular space units for a purchaseprice of $4.8 million. This purchase resulted in the acquisition ofapproximately 640 units and the related customer base. On November 17,2004, we purchased the modular space leasing business of J. LeoChartrand Inc., a Montreal-based Canadian company. The purchase price wasapproximately $1.9 million and the transaction added approximately 160units.

On March 26, 2004, we acquired nearly 3,800modular Division of State Architect (“DSA”) classroom units located in theState of California from Transport International Pool, Inc. (d/b/a GEModular Space) for approximately $43.5 million. The assets were acquiredusing available funds under our revolving credit facility. The acquisitionincluded the purchase of units, equipment associated with these classroom unitsas well as rights under all outstanding leases related to these classroom unitsand certain other assets. We did not acquire employees, physical facilities,sales force, or other business related items. In addition, the customer base,which is primarily public and private educational institutions in the State ofCalifornia, is similar to, and in many cases duplicative of, our existingcustomer base. As a result, we consider the purchase of these assets an assetpurchase rather than an acquisition of a business. The average age of the unitswhen acquired was approximately 6 years while the remaining depreciablelives ranged from 2 to 19 years with an average remaining lifeof approximately 14 years.

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During 2005, we completed an initial public offeringof shares of our common stock. Net proceeds of the initial public offering tous were approximately $223.1 million. In connection with the initial publicoffering, our subsidiary, Scotsman, entered into an Amended and Restated CreditFacility. The Amended and Restated Credit Facility consists of a revolvingcredit facility of $500 million and a term loan of $150 million, eachof which matures in 2011. We also issued $350 million aggregate principalamount of 8.5% Notes maturing in 2015. We used the net proceeds received fromthe initial public offering, together with the proceeds from the offering ofthe 8.5% Notes and the borrowings under the Amended and Restated CreditFacility to repurchase or redeem our 9.875% Notes (the 9.875% Notes) due 2007,repurchase the 10.0% Notes (the 10% Notes) due 2008, pay premium costs, accruedinterest and transaction fees and expenses. In May 2006, we completed asecondary offering of shares of our common stock. Net proceeds of the secondaryoffering to us were approximately $51.5 million. In addition, during April,2006, Scotsman issued $100 million of additional 8.5% Senior Notes maturing in2015. We used the net procceds for the secondary offering, together with the proceedsfrom the additional offering of the 8.5% Notes to repay a portion of ourindebtedness under the revolver portion of the Amended and Restated CreditFacility and pay related fees and expenses.

Thefollowing table shows the percentage of total revenues represented by the keyitems included in our statements of operations. Certain amounts may not add dueto rounding.

| ** **                                    | ** ** | **Fiscal Year Ended  December 31,** | ** ** |
|-----------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                    | ** ** | **2004**                                           | ** ** | **2005** | ** ** | **2006** | ** ** |
| **Revenues:**                                 |       |                                               |       |   |   |   |   |
| Leasing                                       |       | 44.8                                               | %          | 41.8 | % | 42.8 | % |
| Sales:                                        |       |                                               |       |   |   |   |   |
| New units                                     |       | 17.3                                               |       | 21.7 |   | 20.5 |   |
| Rental equipment                              |       | 5.9                                                |       | 6.3 |   | 7.5 |   |
| Delivery and  installation                    |       | 23.3                                               |       | 22.9 |   | 21.7 |   |
| Other                                         |       | 8.7                                                |       | 7.3 |   | 7.5 |   |
| Total revenues                                |       | 100.0                                              |       | 100.0 |   | 100.0 |   |
| **Cost of  sales and services:**              |       |                                               |       |   |   |   |   |
| Leasing:                                      |       |                                               |       |   |   |   |   |
| Depreciation and amortization                 |       | 9.8                                                |       | 8.9 |   | 8.5 |   |
| Other direct leasing costs                    |       | 10.4                                               |       | 10.1 |   | 9.8 |   |
| Sales:                                        |       |                                               |       |   |   |   |   |
| New units                                     |       | 14.6                                               |       | 17.8 |   | 16.1 |   |
| Rental equipment                              |       | 4.6                                                |       | 4.9 |   | 5.4 |   |
| Delivery and  installation                    |       | 20.3                                               |       | 19.5 |   | 17.4 |   |
| Other                                         |       | 1.9                                                |       | 1.9 |   | 1.4 |   |
| Total costs of sales and services             |       | 61.6                                               |       | 63.1 |   | 58.6 |   |
| Gross profit                                  |       | 38.4                                               |       | 36.9 |   | 41.4 |   |
| Selling, general  and administrative expenses |       | 16.8                                               |       | 16.4 |   | 17.0 |   |
| Other  depreciation and amortization          |       | 3.0                                                |       | 2.8 |   | 2.8 |   |
| Interest                                      |       | 18.6                                               |       | 15.4 |   | 10.6 |   |
| Loss on early  extinguishment of debt         |       | —                                             |       | 5.2 |   | — |   |
| Total operating expenses                      |       | 38.4                                               |       | 39.8 |   | 30.4 |   |
| Income (loss) before income taxes             |       | 0.0                                                |       | (2.9 | ) | 11.0 |   |
| Income tax  expense (benefit)                 |       | 0.7                                                |       | (1.1 | ) | 3.8 |   |
| Net income (loss)                             |       | (0.7                                               | )%         | (1.8 | )% | 7.2 | % |

 

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**Critical AccountingPolicies and Estimates**

***General***

This discussion andanalysis of our financial condition and results of operations is based upon ourconsolidated financial statements, which have been prepared in accordance withaccounting principles generally accepted in the United States. The preparationof these financial statements requires us to make estimates and judgments thataffect the reported amounts of assets, liabilities, revenues and expenses, andrelated disclosure of contingent liabilities. See Note 2 of the Notes toAudited Consolidated Financial Statements for further information. On anon-going basis, we evaluate estimates, including those related to depreciationof rental equipment, allowance for doubtful accounts, contingencies, goodwillimpairment, and income taxes. We base our estimates on historical experience andon various other assumptions that are believed to be reasonable under thecircumstances, the results of which form the basis for making judgments aboutthe carrying values of assets and liabilities that are not readily apparentfrom other sources. Actual results may differ from these estimates underdifferent assumptions or conditions. We believe the following criticalaccounting policies affect our more significant judgments and estimates used inthe preparation of the consolidated financial statements.

***Depreciation of rental equipment***

We depreciate rental equipment over its estimateduseful life, after giving effect to an estimated salvage value. The useful lifeof our rental equipment is determined based on our estimate of the period overwhich the asset will generate revenue (generally 20 years), and theresidual value (typically 50% of original cost in North America and 10% oforiginal cost in Europe) is determined based on our estimate of the expectedvalue we could realize from the asset after this period. The lives and residualvalues are subject to periodic evaluation and may be affected by, among otherfactors, changes in building codes, legislation, regulations, local permittingand internal factors which may include, but are not limited to, changes inequipment specifications or maintenance policies. If these estimates change inthe future, we may be required to recognize increased or decreased depreciationexpense for these assets. For example, a change in our estimated useful life to15 years from 20 years would decrease net income by approximately$21.6 million for the year ended December 31, 2006, while a change inthe residual value to 40% from 50% would reduce net income by approximately$3.2 million for the year ended December 31, 2006.

***Allowance for doubtful accounts***

We are required toestimate the collectibility of our trade receivables. Accordingly, allowancesfor doubtful accounts are maintained for estimated losses resulting from theinability of our customers to make required payments. We evaluate a variety offactors in assessing the ultimate realization of these receivables includingthe current credit-worthiness of customers. The allowance for doubtful accountsis determined based on historical collection results, days sales outstandingtrends, and a review of specific past due receivables. If the financialcondition of our customers were to deteriorate, resulting in an impairment oftheir ability to make payments, additional allowances may be required,resulting in decreased net income.

***Contingencies***

We maintain insurance coverage for our operations andemployees with appropriate aggregate, per occurrence and deductible limits aswe reasonably determine is necessary or prudent based on current operations andhistorical experience. The majority of these coverages have large deductibleprograms which allow for potential improved cash flow benefits based on ourloss control efforts. Our current per incident deductibles are $125,000 foremployee group health insurance and $500,000 for worker’s compensation, auto,and general liability each. We expense the deductible portion of the individualclaims. However, we generally do not know the full amount of our exposure to adeductible in connection with any 

27

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particular claim duringthe fiscal period in which the claim is incurred and for which we must make anaccrual for the deductible expense. We make these accruals based on acombination of the claims review by our staff and our insurance companies, and,periodically, the accrual is reviewed and adjusted based on our lossexperience. Our loss experience is based largely on our estimates of known andanticipated claims based on historical claims experience from our operations.These estimates incorporate the information we obtain from insurers and dataanalysis of trends in our pending and settled claims. A high degree of judgmentis required in developing these estimates of amounts to be accrued, as well asin connection with the underlying assumptions. In addition, our assumptionswill change as our loss experience is developed. All of these factors have thepotential for significantly impacting the amounts we have previously reservedin respect of anticipated deductible expenses, and we may be required in thefuture to increase or decrease amounts previously accrued. As ofDecember 31, 2006 and December 31, 2005, we had approximately$7.5 million and $7.9 million, respectively, of liabilities recordedrelated to insurance. Amounts accrued have not varied significantly from periodto period or from actual experience.

We are subject toproceedings, lawsuits, and other claims related to environmental, product andother matters, and are required to assess the likelihood of any adversejudgments or outcomes to these matters as well as potential ranges of probablelosses. As noted above, we have insurance policies to cover general liabilityand workers compensation related claims. A determination of the amount of netreserves required, if any, for these contingencies is made after analysis ofeach individual matter. The required reserves may change in the future due tonew developments in each matter or changes in approach such as a change insettlement strategy in dealing with these matters.

***Goodwill Impairment***

At December 31, 2006, we had approximately $182.8million of goodwill. Goodwill is initially measured as the excess of the costof an acquired business over the fair value of the identifiable net assetsacquired. We do not amortize goodwill, but rather review our carrying value forimpairment annually on October 1, and whenever an impairment indicator isidentified. The goodwill impairment test involves a two-step approach. Underthe first step, we determine the fair value of each reporting unit to whichgoodwill has been assigned. Our geographically-based operating segments are thereporting units for purposes of our impairment test. We compare the fair valueof each reporting unit to its carrying value, including goodwill. We estimatethe fair value of each reporting unit by utilizing published market EBITDAmultiples of similar publicly traded companies as well as our own. If theestimated fair value exceeds the carrying value, no impairment loss isrecognized. If the carrying value exceeds the fair value, goodwill isconsidered potentially impaired and the second step is completed in order tomeasure the impairment loss. Under the second step, we calculate the impliedfair value of goodwill by deducting the fair value of all tangible andintangible net assets, including any unrecognized intangible assets, of thereporting unit from the fair value of the reporting unit as determined in thefirst step. We then compare the implied fair value of goodwill to the carryingvalue of goodwill. If the implied fair value of goodwill is less than thecarrying value of goodwill, we recognize an impairment loss equal to thedifference.

If our EBITDA was to decline substantially in thefuture, we may determine that our goodwill is impaired and make appropriateadjustments in accordance with our stated accounting policy for goodwill. Themost significant intangible asset recorded in our business combinations hasbeen goodwill. As of December 31, 2006, the carrying value of our otherintangible assets was $17.0 million, or 1.1% of total assets.

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***Income Taxes***

We are required toestimate income taxes in each of the jurisdictions in which we operate. Theprocess involves estimating actual current tax expense along with assessingtemporary differences resulting from differing treatment of items for book andtax purposes. These timing differences result in deferred tax assets andliabilities, which are included in our consolidated balance sheet. We haveconsidered future taxable income resulting from taxable temporary differencesand our profitable operations in assessing the need for the valuationallowance. As of December 31, 2006, our deferred tax assets were$103.8 million, net of a valuation allowance of $0.9 million, and ourdeferred tax liabilities were $259.5 million. Our deferred tax assets consistprimarily of future tax benefits associated with our NOL carryovers. Ourvaluation allowances at December 31, 2006 relate principally to deferredtax assets from our operations in Spain, which do not have a recent history ofprofits. These NOL carryovers for income tax purposes have been largely createdby originating deductible temporary differences in depreciation expense of ourlease fleet. We expect that our taxable income in future periods will increasesignificantly as these differences reverse, allowing us to utilizesubstantially all of our NOL carryovers. If our operating results were todeteriorate and our future taxable income was insufficient to utilize these NOLcarryovers before they expire, we would be required to increase the valuation allowancethat we have recorded for our deferred tax assets.

***Share Based Payments and Stock Compensation Expense***

From time to time, we issue options to key employeesunder stock option plans approved by our board of directors. From 2003 to 2005,we accounted for these option grants using the fair value recognitionprovisions of Statement of Financial Accounting Standards (“SFAS”) No. 123,*Accounting for Stock-Based Compensation*(“SFASNo. 123”). As more fully described in Note 12 to our audited consolidatedfinancial statements in this Form 10-K, effective January 1,2006, we adopted the fair value recognition provisions of SFAS No. 123-R,*Share-Based Payment*(“SFAS No. 123-R”),using the modified prospective transition method. Under that transition method,compensation cost recognized in the year ended December 31, 2006 includescompensation cost for all share-based payments granted prior to, but not yetvested as of January 1, 2006, based on the grant date fair value estimatedin accordance with the original provision of SFAS No. 123. The adoption ofSFAS No. 123-R did not have a significant impact on the Company’sfinancial position or its results of operations.

In applying the fair value accounting provisions ofSFAS No. 123-R, we use a generally accepted option valuation model,the Cox Rubenstein binomial valuation model. This model requires specifiedinputs to determine the fair value of our stock options, including (i) thefair value of our common stock on the grant date, (ii) the expectedvolatility of our common stock over the expected option life, (iii) therisk-free interest rate, (iv) the expected dividend yield, and (v) theexpected option life. As a result of our initial public offering in September 2005,we are utilizing a simplified method for determining the expected term of theoption in accordance with SEC Staff Accounting Bulletin No. 107. Thissimplified method calculates the expected term of the option as the sum of thevesting term and the original contract term of the option divided by two. Priorto our initial public offering, we estimated expected option life usinghistorical data that considered expected changes in our ownership that wouldaccelerate the option vesting. The fair value of our common stock on the grantdate is determined by the opening price quoted on the NASDAQ exchange on thedate of grant. Prior to the initial public offering, fair value was determinedusing a valuation performed by a stockholder. We used this stockholder toassist us with the valuation of our common stock rather than an independentthird party appraiser because we determined that this stockholder had extensiverelevant valuation experience and was uniquely informed about our business andindustry characteristics. This valuation was determined utilizing a variety ofassumptions, including among other things, published market EBITDA multiples ofcomparable publicly traded companies, published data from similar privatetransactions, and our forecasts of future cash flows. We use historical dataand 

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objectively verifiableinformation to determine the risk-free interest rate and the expected dividendyield. The most sensitive estimates that we make in determining the fair valueof our stock option grants is expected volatility of our common stock. We haveused published historical stock indices of comparable companies to estimate ourcommon stock’s volatility.

In March 2005 wegranted 173,987 options with an exercise price of $14.86 per share and in September of2005, we granted 529,100 options with an exercise price of $16.00 per share. Inaddition, in July 2006, we granted 609,750 options with an exercise priceof $21.67 per share. The estimated fair value of the options of $1.1 million or$6.38 per share for the March 2005 option grant, was fully vested as of thedate of the initial public offering and the $4.2 million or $7.97 per share forthe September 2005 option grants and $6.8 million or $11.22 per share forthe July 2006 grants  is beingamortized over the respective vesting periods of four years. As of December 31,2006, the September 2005 and July 2006 option grants have notcompletely vested. Total compensation costs related to these nonvested awardsnot yet recognized in the Company’s financial statements approximates $7.2million as of December 31, 2006 and is expected to be recognized over aweighted average period of 2.2 years. We believe that our estimates of the fairvalue of the stock options granted in recent periods are reasonable andsupportable.

***Pending AccountingPronouncements***

In June 2006, the Financial Accounting StandardsBoard (“FASB”) issued Interpretation 48, *Accountingfor Uncertainty in Income Taxes* (“FIN 48”), an interpretation ofSFAS No. 109, *Accounting for IncomeTaxes*. The interpretation prescribes a consistent recognition thresholdand measurement attribute, as well as criteria for subsequently recognizing,derecognizing and measuring tax positions for financial statement purposes. Theinterpretation also requires expanded disclosure of uncertain tax positions.The interpretation is effective for the Company on January 1, 2007. TheCompany does not anticipate that the adoption of FIN 48 will have a materialimpact on its financial position or results of operations.

In September 2006,the FASB issued SFAS No. 157, *FairValue Measurements* (“SFAS No. 157”). SFAS No. 157 definesfair value, establishes a framework for measuring fair value under generallyaccepted accounting principles, and expands disclosures about fair valuemeasurements. SFAS No. 157 emphasizes that fair value is a market-basedmeasurement, not an entity-specific measurement, and states that a fair valuemeasurement should be determined based on the assumptions that marketparticipants would use in pricing the asset or liability. This Statementapplies under other accounting pronouncements that require or permit fair valuemeasurements, the FASB having previously concluded in those accountingpronouncements that fair value is the relevant measurement attribute.Accordingly, this Statement does not require any new fair value measurements.SFAS No. 157 is effective for fiscal years beginning after November 15,2007, and the Company intends to adopt the standard on January 1, 2008. TheCompany is currently evaluating the impact, if any, that SFAS No. 157 willhave on its financial position, results of operations and cash flows, but doesnot believe the effect will be material.

**Results ofOperations**

***2006 Compared With 2005***

Revenues for the year ended December 31, 2006were $680.8 million; an $88.3 million or 14.9% increase from revenues of $592.5million in the same period of 2005. The increase resulted from a $44.0 millionor 17.8% increase in leasing revenue, a $13.6 million or 36.3% increase insales of rental equipment, a  $11.6 millionor 9.0% increase in sales of new units, a $12.0 million or 8.9% increase indelivery and installation revenue, and a $7.1 million or 16.4% increase inother revenue from the same period in 2005. The increase in leasing revenues of17.8% was driven primarily by our North American operations. The increase inNorth American operations resulted from an increase in average units on rent ofapproximately 3,200 units and an increase in the average rental rate for theyear ended December 31, 

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2006 from $263 to $289 or$26. The increase in units on rent isattributable to overall business improvement across all North American regionsincluding Canada, the contribution from fleet acquisitions since last year andincreased demand for our portable storage product. The increase in the averagerental rate in North America was primarily a result of rental rate increasesduring 2005 and 2006 as well as positive changes in the mix of units on rentfor the comparable periods. Average fleet utilization of approximately 82% inNorth America for the year ended December 31, 2006 was up approximately0.7 percentage points from the same period of the prior year. Utilization ofour North American modular equipment increased 1.7 percentage points to 83%,while the average rental rate increased from $309 to $342 for the year ended December 31,2006 compared to the prior year. Lease revenue from the August 2006 Wironacquisition approximated  $6.3 millionfor the year ended December 31, 2006. The increase in sales ofrental units of 36.3% was primarily due to the strong sale of rental units inthe southeast and central southwest regions of the country due to increasedhurricane-related activity, as well as continued strong demand in the oil andgas sector in Canada. The 9.0% increasein sales of new units for the year ended December 31, 2006 as compared tothe same period of 2005 is primarily attributable to military projectscompleted in the first half of 2006 as well as sales of new units in thecentral southwest region of the country primarily as a result of the effectsof Hurricane Katrina, and sales in western Canada related to the oil and gassector. Large sales in the prior year period, in particular, in the western andsouthern regions of the country primarily related to classroom units and U.S.military contracts partially offset this increase. The increase in delivery and installation revenue is largely due toincreased units on rent for the year ended December 31, 2006 as comparedto the same period of 2005 as well as the increase in sales activity discussedabove. The increase in other revenue of 16.9% was primarily due to increasedrevenue from steps, ramps and other ancillary products related to the increasedsales and leasing of units.

Gross profit for the year ended December 31, 2006was $281.8 million; a $63.2 million or 28.9% increase from the year ended December 31,2005. Leasing gross profit margin increased $32.2 million compared to 2005while leasing gross profit margin percentage increased by approximately 2.8percentage points. These increases were a result of the increased leasingrevenues of 17.8% described above partially offset by a 10.4% increase indirect leasing costs attributable to refurbishment and maintenance costsincurred to put increased units on rent as compared to the prior year, as wellas increased depreciation expense related to the growth in fleet and increasedcapital expenditures for improvements to older units. Delivery and installationgross margin increased $9.4 million for the year ended December 31, 2006primarily as a result of strong sales and modular building activity in thecentral southwest as well as overall additional units on rent. The gross profitmargin percentage increased approximately 5.2 percentage points, which isprimarily attributable to the increased margins on related sales during theyear ended December 31, 2006, as well as higher margins on certain modularconstruction projects in 2006 as compared to 2005. Gross profit margin andgross profit margin percentage related to new unit sales increased $7.5million, or 4.0 percentage points, primarily due to the increase in salesdescribed above, as well as higher margins related to the hurricane salesdescribed above and higher margins on certain modular construction projectsduring the year ended December 31, 2006 as compared to the prior year. Grossprofit margin from other revenues increased $8.1 million while gross profitmargin percentage from other revenues increased 5.6 percentage points from theprior year as a result of the increased sales of ancillary products discussedabove. Gross profit margin and gross profit margin percentage from sales ofrental units increased by $6.0 million, or 5.5 percentage points, primarily asa result of the increased revenues discussed above and the correspondingfavorable change in mix of rental units sold as compared to 2005.

Selling, general and administrative expenses for theyear ended December 31, 2006 increased by approximately $18.6 million or19.2% to $115.6 million from $97.0 million in the same period in 2005. Theincrease in selling, general, and administrative expense is primarilyassociated with increased employee and facility related costs to support growthof our revenues discussed above, as well as increased insurance and costsrelated to the Company’s new public company status, including costs incurred toensure compliance 

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with the requirements ofthe Sarbanes-Oxley Act of 2002 and incremental costs related to our Europeanoperations. These increases were partially offset by decreased stockcompensation expense related to the acceleration of options in 2005. Selling,general, and administrative expenses as a percentage of total revenuesincreased 0.6 percentage points to 17.0% for the year ended December 31,2006 as compared to the prior year.

Interest expense decreased by 20.7% to $72.3 millionfor the year ended December 31, 2006 from $91.2 million in 2005. Thisdecrease is primarily a result of the refinancing transactions that occurred in2005 and 2006, as well as the effective interest rate on our total debt decreasingapproximately 82 basis points over the same period of 2005. During the yearended December 31, 2005, we recorded a loss on the early extinguishment ofdebt of $30.7 million resulting from the write-off of deferred financing costsof $12.5 million and prepayment costs, premium and unamortized discount of$18.2 million associated with the company’s refinancing transactions whichincluded entering into an amended and restated credit facility in June 2005and the repurchase or redemption of the Company’s 9.875% and 10% Notes during September 2005.

For the year ended December 31,2006 and 2005, income tax expense (benefit) was $26.0 million and $(6.5)million, respectively. Our effective tax rate for the year ended December 31,2006 and 2005 was 34.6% and (38.8)%, respectively.  The decrease in the 2006 effective tax rate isprimarily the result of a reduction of the valuation allowance for deferred taxassets of $1.7 million during the third quarter related to certain netoperating loss carryforwards. As a result of increases in 2006 taxable income,these net operating loss carryforwards will be used and a valuation allowanceagainst these particular net operating loss carryforwards is no longernecessary. Also during 2006, the effective tax rate was reduced as a result ofa change in the estimated future effects of income taxes on cumulativetemporary differences resulting from recent changes to enacted tax rates forCanada and certain of its provinces.

***2005 Compared With 2004***

Revenues for the year ended December 31, 2005were $592.5 million; a $94.5 million or 19.0% increase from revenues of $497.9million in the same period of 2004. The increase resulted from a $24.8 millionor 11.1% increase in leasing revenue, $41.9 million or 48.5% increase in salesof new units, a $19.6 million or 16.9% increase in delivery and installationrevenue, and an $8.2 million or 27.8% increase in sales of rental equipment,from the same period in 2004. The 11.1% increase in leasing revenue for theyear ended December 31, 2005, as compared to the same period of 2004,resulted from an average increase of approximately 4,100 units on rent and a$13 increase in the average monthly rental rate for the year ended December 31,2005 from $250 to $263. The increase in units on rent is attributable tooverall business improvement, continued strength in the southeast region of theUnited States and our Canadian business, increased demand for our portablestorage product, and the contribution from fleet acquisitions since last year.The $13 increase in the average monthly rental rate was primarily a result ofrental rate increases during 2004 and 2005, positive changes in the mix ofunits on rent for the comparable periods and continued price improvement in theCanadian region. Average fleet utilization of approximately 81% for the yearended December 31, 2005 was up approximately 1.4 percentage points fromthe same period of the prior year. The 48.5% increase in sales of new units isprimarily attributable to an increase of sales, in particular, in the westernand southern regions of the country primarily related to sales of classroomunits as well as sales under U.S. military contracts and hurricane recoveryrelated sales. The increase in delivery and installation revenue of 16.9% islargely due to increased units on rent for the year ended December 31,2005 as compared to the same period of 2004 as well as an increase in salesactivity discussed previously. The increase in sales of rental units of 27.8%was primarily due to the sale of rental units in the Central Southwest regionsof the country as a result of hurricane recovery activity experienced duringthe second half of 2005 as well as sales of units in the western regions of thecountry.

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Overall gross profit for the year ended December 31,2005 was $218.6 million; a $27.8 million or 14.6% increase from the year ended December 31,2004. Total gross margin percentage for the year ended December 31, 2005was 36.9% as compared to 38.4% for the same period of 2004. In addition tofactors described below, the decrease in overall gross margin percentage wasimpacted by a heavier mix of lower margin sales revenue. Leasing gross profitmargin increased $13.0 million from the same period in 2004 while leasing grossprofit margin percentage decreased by approximately 0.3 percentage points. Thedecrease in gross profit margin percentage was a result of a 15.8% increase indirect leasing costs for fleet refurbishment and maintenance related toincreased utilization and an increase in depreciation expense from fleetgrowth. Gross profit margin and gross profit margin percentage related to newunit sales increased $9.4 million and 2.2 percentage points, respectively,primarily due to higher margins on sales in Canada and sales of certain modularbuilding projects during the year ended December 31, 2005 as compared tothe same period in the prior year. Delivery and installation gross marginincreased $4.9 million for year ended December 31, 2005 primarily as aresult of increased delivery and installation revenue discussed above. Deliveryand installation gross profit margin percentage increased approximately 1.8 percentagepoints which is primarily attributable to the increased margins on relatedsales of new and rental units during the year ended December 31, 2005 aswell as higher margins on certain modular building projects in 2005 as comparedto 2004. Gross profit margin and gross profit margin percentage from sales ofrental units increased by $2.2 million and 1.0 percentage points,respectively. Gross profit margin increased primarily as a result of theincreased revenues discussed above, while the increase in gross profit marginpercentage was primarily the result of the change in mix of rental units soldas compared to the same period of 2004. Gross profit margin from other revenuesdecreased $1.7 million while gross profit margin percentage from other revenuesdecreased 3.9 percentage points from the same period in 2004, primarily asa result of $3.3 million of revenue in 2004 representing the realized gainfrom the involuntary conversion of assets impacted by hurricanes in thesoutheast region of the country as well as a $1.7 million charge in 2005related to our estimate of losses related to the impact of recent hurricanes,partially offset by final settlement of 2004 hurricane insurance proceeds ofapproximately $0.7 million.

Selling, general and administrative expenses for theyear ended December 31, 2005 increased by approximately $13.6 million or16.3% to $97.0 million from $83.4 million in the same period of 2004. During September 2005,we recorded approximately $2.4 million of additional stock compensation expenserelated to the acceleration of options vesting as a result of our initialpublic offering. Excluding stock compensation expense, selling, general andadministrative expenses increased $9.8 million or 11.8%. This increase isprimarily associated with increased employee, facility, and marketing relatedcosts, as well as increases in the allowance for uncollectible accountsprimarily to support or related to the growth of our revenues discussed above.These increases were partially offset by favorable insurance experience for theperiod and the recording of a charge of approximately $0.9 million in 2004resulting from the write-off of deferred costs in connection with thesuspension of negotiations related to a European acquisition target.

Interest expense decreased by 1.3% to $91.2 millionfor the year ended December 31, 2005 from $92.4 million in the same periodin 2004. This decrease is primarily related to the amortization of our deferredfinancing costs decreasing $1.5 million and our total average debt decreasing$8.4 million. These decreases are partially offset by an increase in oureffective interest rate of approximately 10 basis points over the same periodof 2004. The decrease in the average debt balance is primarily the result ofour initial public offering during the third quarter of 2005 as well as therefinancing of our debt which included entering into the Amended and Restated CreditFacility in June of 2005 and the repurchase or redemption of our 9.875%and 10% Notes during September 2005 and the issuance of the 8.5% Notes. Asa result of these refinancing transactions, we recorded a loss on the earlyextinguishment of debt of $30.7 million resulting representing the write-off ofdeferred financing costs of $12.5 million and prepayment costs, premiums andunamortized discounts of $18.2 million associated with the redemption of the9.875% and 10% Notes.

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For the year ended December 31,2005 and 2004, we recorded an income tax benefit of $6.5 million and income taxexpense of $3.6 million, respectively. Our effective tax rate for the yearended December 31, 2005 was 38.8%. Our effective tax rate for the yearended December 31, 2004 was impacted by a $2.5 million charge related to achange in the estimate of the future effects of state income taxes on deferredincome tax balances resulting from a change in the estimated incomeapportionment among states in which we do business. In addition, the effectiveincome tax rate differs from the U.S. Federal statutory income tax rateprincipally because we have not recognized a benefit for NOL carryforwardsgenerated from our operations in Mexico and Europe due to uncertaintiessurrounding their ultimate realization.

**Liquidity andCapital Resources**

Cashand cash equivalents (decreased) increased as follows for the year ended December 31,*(in millions)*:

| ** **                                        | ** ** | **2004** | ** ** | **2005** | ** ** | **2006** | ** ** |
|---------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Cash provided by  operating activities            |       | $        | 56.9       |     | $          | 67.5     |       | $ | 101.3 |   |
| Cash used in  investing activities                |       | (102.9   | )          | (115.3   | )          | (184.6   | )          |
| Cash provided by  financing activities            |       | 46.2     |       | 47.4     |       | 89.7     |       |
| Exchange effect  on cash and cash equivalents     |       | 0.4      |       | (0.1     | )          | (0.4     | )          |
| Increase (Decrease) in  cash and cash equivalents |       | $        | 0.6        |     | $          | (0.5     | )          | $ | 6.0 |   |

 

We currently conduct virtually all of our businessoperations through Scotsman and to a lesser extent, our subsidiaries in Mexicoand Spain. Accordingly, our only material sources of cash are dividends thatare derived from earnings and cash flow generated by Scotsman. Indebtedness ofScotsman may limit or prohibit the payment of dividends to us. In particular,the Amended and Restated Credit Facility and the indenture for the 8.5% Notescontain restrictions on the amount of dividends that Scotsman can pay us. Tomaintain the value of our lease fleet, which generates significant rentalvalue, we perform periodic refurbishments to our fleet. The capitalexpenditures for such refurbishments are reflected in cash flow used in theinvesting activities but not in cash flow from operations. As a result, cashflow from operating activities should not be evaluated without also consideringcash flow used in the investing activities, together with cash flow fromfinancing activities and net income.

During 2004, 2005 and 2006, our principal sources offunds, other than our refinancing activities discussed below, consisted of cashflow from operating sources. Cash flow from operating activities of$56.9 million in 2004, $67.5 million in 2005, and $101.3 in 2006 werelargely generated by the rental of units from our lease fleet, salesactivities, the associated delivery and installation services from rental andsales activities and other products. The $33.8 million increase in cash flowsfrom operating activities for the year ended December 31, 2006 from 2005was primarily attributable to increased profits resulting from sales of new andrental equipment units, increases in leasing revenue as well as relatedincrease in delivery and installation revenue. See “Results of Operations”above for further discussion of sales and leasing gross profit. In addition,the Company incurred significantly lower interest charges and correspondingpayments during 2006 as a result of the 2005 refinancing activities. Thisincrease over the prior year is partially offset by changes in cash flows fromthe timing of payments included in accounts payable and accrued expenses.

The $10.6 million increase in cash flow from operatingactivities for the year ended December 31, 2005 from 2004 was primarilythe result of increased earnings discussed above offset by increasedexpenditures for ancillary product inventories such as steps and ramps tosupport the growth in units on rent. In addition, cash flow from operatingactivities were impacted by an increase in accounts receivable activityprimarily as it relates to education customers, offset by increases in accountspayable and accrued expenses due to timing of payment.

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Cash used in investing activities was$102.9 million in 2004, $115.3 million in 2005, and $184.6 million in2006. Our primary capital expenditures are for the discretionary purchase ofnew units for our lease fleet  andbetterments to the fleet. We seek to maintain our lease fleet in good conditionat all times and generally increase the size of our lease fleet only in thoselocal and regional markets experiencing economic growth and established unitdemand.

We also acquire fleet though business acquisitions. InAugust 2006, we acquired Wiron Construcciones Modulares, S.A., a  Parla, Spain-based company, for $53.1 millionas more fully discussed below. In February 2006, we acquired AmericanHomes International, S.A. de C.V., a Monterrey, Mexico-based company, for $5.1million**.** In February 2005, we acquired MobileSpace Inc., a Chicago-based company that leased and sold modular space units.This purchase resulted in the acquisition of approximately 640 units with apurchase price approximating $4.8 million. In August 2004, we made ourinitial investment in Wiron, for approximately $4.7 million. InMarch 2004, we acquired nearly 3,800 modular classrooms located in thestate of California for approximately $43.5 million. See Note 3 of theNotes to Audited Consolidated Financial Statements for further discussion ofthese acquisitions.

Thefollowing table sets forth our investment in our lease fleet for the periodsindicated.

| ** **                                                          | ** ** | **Year Ended December 31,** | ** ** |
|---------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                          | ** ** | **2004**                                   | ** ** | **2005** | ** ** | **2006** | ** ** |
| ** **                                                          | ** ** | **(Dollars in millions)**        | ** ** |
| Capital expenditures for  rental equipment:                         |       |                                       |       |   |   |   |   |
| Capital  expenditures for lease fleet:                              |       |                                       |       |   |   |   |   |
| New units                                                           |       | $                                          | 63.4       |   | $ | 103.9 |   | $ | 131.6 |   |
| Betterments                                                         |       | 16.5                                       |       | 35.9 |   | 32.4 |   |
| Less: Proceeds from sale of used rental equipment                   |       | (29.4                                      | )          | (37.5 | ) | (51.2 | ) |
| Net capital expenditures for lease fleet                            |       | 50.5                                       |       | 102.3 |   | 112.8 |   |
| Purchase of California classroom fleet                              |       | 43.5                                       |       | — |   | — |   |
| Purchase price allocated to fleet of acquired  businesses           |       | 1.2                                        |       | 3.4 |   | 51.1 |   |
| Net capital  expenditures for rental equipment                      |       | $                                          | 95.2       |   | $ | 105.7 |   | $ | 163.9 |   |
| Other direct leasing  costs included in the statement of operations |       | $                                          | 51.8       |   | $ | 59.9 |   | $ | 66.4 |   |

 

We believe we can manage the capital requirements ofour lease fleet, and thus our cash flow, through the careful monitoring of ourlease fleet additions.

Our maintenance and refurbishment program is designedto maintain the value of lease fleet units and realize rental rates andoperating cash flows from older units comparable to those from newer units. Thesale of rental equipment helps preserve the overall quality of our lease fleetand enhances cash flow. Generally, costs of improvements and bettermentsaggregating less than $1,000 per unit are expensed as incurred. Expendituresthat significantly extend the economic useful life of a unit or that materiallyalter a unit’s configuration are capitalized. Consistent with the increase inour fleet utilization discussed earlier, capitalized betterments for the yearended December 31, 2006 approximated $32.4 million.

Other capital expenditures of $8.1 million,$12.0 million and $14.5 million in 2004, 2005 and 2006, respectively,consist of items not directly related to the lease fleet, such as branchbuildings, land, equipment, leasehold improvements and management informationsystems.

Net cash provided by financing activities was $46.2million in 2004, $47.4 million in 2005, and $89.7 in 2006. Net cashprovided by financing activities for 2006 consisted primarily of $51.5 millionof proceeds from our public offering of common stock discussed below, which wasused to pay down debt, as well as $11.4 million of excess tax benefits fromstock-based payment arrangements, $8.4 million in proceeds from 

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exercises of stock optionsand net proceeds from debt of $22.3 million. Net cash provided by financing activities for 2005 was primarily relatedto the results of our refinancing transactions discussed below.

On August 18, 2006, Williams Scotsman Hispania,S.L., a Spanish company (the “Buyer”) and a wholly-owned subsidiary of WilliamsScotsman Europe, S.L., and shareholders (the “Sellers”) of Wiron ConstruccionesModulares, S.A. (“Wiron”), entered into a share purchase agreement (the“Agreement”), pursuant to which the Company acquired a 91.5% interest in Wironrepresented by 652,221 shares for approximately $53.1 million.  The purchase price was primarily financedwith cash borrowed from the Company’s amended and restated credit facility. Inaddition, the Company repaid certain shareholder debt in the transactionapproximating $3.4 million. The purchase price also includes approximately $7.7million of funds that are subject to bank guarantee agreements pending theresolution of certain contingencies as described in the Agreement.  To the extent these contingencies areresolved in favor of the Sellers, these funds will be released to the Sellers.

Wiron is headquartered in Parla, Spain and is one ofthe largest modular space providers in Spain with 14 branch locations. Wironboth manufactures and leases mobile offices and had a lease fleet atacquisition of approximately 14,000 units. With the Company’s acquisition inJuly 2004 of an 8.5% minority interest for approximately $4.7 million, theCompany now owns 100% of the share capital of Wiron.

*RefinancingTransactions*

*Equity*

On September 23, 2005, we completed an initialpublic offering of 14,705,882 shares of common stock for $217.3 million (net ofunderwriting fees and other offering expenses of approximately $18.6 million).In addition, in connection with the initial public offering, 454,365 stockoptions were exercised by our management and sold, resulting in additional netproceeds of approximately $0.9 million. In addition, we recorded a tax benefitof $2.3 million related to the exercise of the stock options as additionalpaid-in capital. Proceeds of the initial public offering were used to reducedebt. Also, on October 18, 2005, we received approximately $6.0 millionrelated to the exercise of over-allotment options by the underwriters topurchase 400,000 shares of our common stock, which was used to pay downborrowings under our Amended and Restated Credit Facility.

On May 16, 2006, wecompleted a secondary equity offering of 9,990,793 shares of our common stockat $26.25 per share. Of the shares, 2,101,724 shares were offered by us andresulted in proceeds of approximately $51.5 million (net of underwriting feesand other offering expenses of approximately $3.5 million). In addition,7,889,069 shares were offered by our selling stockholders, which includerelated parties of Cypress, Keystone, and certain members of senior management.Included in the shares offered and sold by management in connection with thisoffering were the exercise of 380,000 stock options by management whichresulted in additional net proceeds of $2.0 million to us.  We used the proceeds from this stock offeringto repay a portion of our indebtedness under the revolver portion of theAmended and Restated Credit Facility and pay related fees and expenses.

*Debt*

On September 29, 2005, Scotsman issued $350.0million of 8.5% Notes. We used the net proceeds of $340.9 million received fromthis offering together with the proceeds from our initial public offering andthe borrowings under the Amended and Restated Credit Facility to repurchase orredeem the 9.875% Notes and repurchase $148.2 million of the 10.0% Notes. Therepurchase or redemption of the 9.875% and 10.0% Notes (together, the Notes)was conducted through a tender offer and consent solicitation whereby weoffered to purchase all outstanding 10.0% Notes at a cash price of 109.522% ofthe principal amount and all outstanding 9.875% Notes at a cash purchase priceof 100.5% of the principal amount plus accrued and unpaid interest. On September 29,2005, in connection with the tender offer of the Notes, we 

36

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purchased $148.2 millionof the 10% Notes and $521.0 million of the 9.875% Notes and legally defeasedall remaining outstanding 9.875% Notes. Approximately $25.5 million in deferredfinancing fees and premium costs related to the tender offer of theextinguished debt was expensed immediately and included in loss on early extinguishmentof debt. Also, on April 18, 2006, Scotsman issued $100 million ofadditional 8.5% Notes at a cash price of 101.75% of their principal amount. Weused the proceeds to repay a portion of our indebtedness under the revolverportion of the Amended and Restated Credit Facility and pay related fees andexpenses.

The 8.5% Notes are fully and unconditionallyguaranteed on a senior unsecured basis by us and certain subsidiaries ofScotsman. Willscot Equipment, LLC, a 100% owned subsidiary of Scotsman, hasfully and unconditionally guaranteed the 8.5% Notes on a subordinated basis.None of our foreign subsidiaries (other than our Canadian subsidiary) guaranteethe notes. The 8.5% Notes are due on October 1, 2015, with interestpayable semi-annually on April 1 and October 1 of each year. On October 1,2010, the 8.5% Notes will become redeemable at our option, at a redemptionprice of 104.25% of the principal amount during the 12 month period beginning October 1,2010 declining to 100.0% on October 1, 2013. At December 31, 2006, wehad outstanding principal of $450 million of the 8.5% Notes.

On June 28, 2005, we entered into an Amended andRestated Credit Facility, the net proceeds of which were used to refinance ourprior credit agreement. The Amended and Restated Credit Facility provides for a$500.0 million revolving credit facility and a $150.0 million term loan.Approximately $5.2 million in deferred financing costs related to theprior credit facility were expensed immediately for the year ended December 31,2005 and included in loss on early extinguishment of debt. During 2006, weentered into two amendments to our Amended and Restated Credit Facilityagreement. The amendments extended the maturity of the Amended and RestatedCredit Facility to April 12, 2011, provided for more favorable borrowingbase calculations, revised the restrictive covenants to grant us greaterflexibility to incur debt and make acquisitions, and revised the change ofcontrol provisions. A change of control is an event of default under the creditagreement. The amendment eliminates the requirement that the Equity Investors,including related parties of Cypress and Keystone, as more specifically definedin the credit agreement, retain a minimum ownership percentage of Holdings’ capitalstock. Instead the amendment provides that it is a change of control if 25% ormore of the economic or voting interest in Holdings’ capital stock is acquiredon a fully diluted basis, by any person or group, other than the EquityInvestors. In addition, the amendments changed the interest rate on borrowingsunder the revolver and term loan from a rate of either prime plus 1% or theEurodollar rate plus 2.5% to either prime plus 0.50% or the Eurodollar rateplus 2.0%. The interest rate margin is also subject to pricing adjustmentsbased on excess availability and a ratio of total funded debt to EBITDA asdefined in the Amended and Restated Credit Agreement.

On March 9, 2007, Scotsman entered into anamendment to its Amended and Restated Credit Agreement. Under the amendment, WSCanada was released as a guarantor under the Amended and Restated CreditAgreement, and WS Canada’s pledge of its assets was terminated. In addition,the amendment provides that Scotsman’s pledge of WS Canada’s stock will bereduced to 65% from 100%. As a result of the release of WS Canada from itsguarantee under the Amended and Restated Credit Agreement, its guarantee underthe 8.5% Notes indenture was also released.

Borrowings under the Amended and Restated CreditFacility, which are based upon a borrowing base calculation, are secured by afirst priority lien on and security interest in our rental equipment, accountsreceivable, property and equipment and other assets. The Amended and RestatedCredit Facility contains affirmative and negative covenants customary for suchfinancings including restrictions that substantially limit the amount ofdividends that Scotsman and its subsidiaries can pay to us. In addition, ifScotsman does not meet certain excess availability requirements, we will berequired to comply with a senior secured leverage ratio, a consolidatedinterest coverage ratio and a minimum utilization test. During 2006, Scotsmanmet the excess availability requirements and Scotsman does not have to complywith the 

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financial covenants. Excess availability calculated in accordancewith the credit agreement under this facility was $205.5 million at December 31,2006.

For the next twelve months, we expect that cash flowfrom operations, cash on hand and available borrowing capacity under theAmended and Restated Credit Facility will be adequate to finance ourdevelopment plans, ongoing operations and debt service obligations under theAmended and Restated Credit Facility and the 8.5% Notes. Over the longer term,we believe that cash flow from operations and available borrowing capacityunder the Amended and Restated Credit Facility will generally be sufficient tofund our operations and debt service obligations. However, in order to repaythe Amended and Restated Credit Facility and the 8.5% Notes at maturity, wewill need to either refinance these facilities with indebtedness and/or raiseequity capital. Also, in order to complete a major acquisition in North Americaor expand significantly in Europe, we may need to incur additional indebtednessor issue additional equity capital.

At December 31, 2006, we had outstanding $450million of 8.5% notes due in 2015 and $425.0 million in term loan andrevolving credit facility debt under our Amended and Restated Credit Facilitydue in 2011. For a description of the 8.5% Notes, see Note 6 of the Notesto Audited Consolidated Financial Statements. Borrowings under the Amended andRestated Credit Facility of $425.0 million include $150.0 million in termloans and $275.0 million outstanding under the revolving credit facility at December 31,2006.

In connection with the acquisition of Wiron, theCompany assumed debt. Wiron’s debt was primarily acquired to finance thepurchase of rental equipment and other property and equipment as well as supportoperating activities. As of December 31, 2006, the total outstanding debtof Wiron was $35.5 million, including revolving credit agreements totaling$21.9 million that expire within one year, with average interest rates of 4.0%,as well as capital lease obligations. These amounts are included in the debtbalances above.

On March 8, 2007, theCompany acquired the assets of Honolulu-based Hawaii Modular Space, Inc.,and its sister company, Alaska Modular Space, Inc. for a purchase price of$42.5 million and additional payments totaling $3.0 million, subject to theacquired companies’ achieving certain financial targets. Hawaii Modularoperates three branch locations across state, while Alaska Modular managesoperations based in Anchorage. The purchased assets include 1,300 unitsconsisting of mobile offices, storage containers, classrooms and custom modularbuildings and the related customer base. The acquisition was financed withborrowings under the Company’s Amended and Restated Credit Agreement.

**Off-Balance SheetArrangements**

We have no materialoff-balance sheet arrangements.

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**ContractualObligations**

Asummary of our significant contractual obligations as of December 31, 2006is as follows (in thousands):

| ** **                                      | ** ** | **Payments Due by Period** | ** ** |
|-------------------------------------------------|------------|-------------------------------------------|------------|
| **Contractual Obligations**                | ** ** | **Total**                                 | ** ** | **Less than  1 year** | ** ** | **1—3 years** | ** ** | **3—5 years** | ** ** | **After  5 years** | ** ** |
| Long term debt  obligations (1)                 |       | $                                         | 604,580    |   | $ | 180 |   | $ | 2,955 |   | $ | 150,733 |   | $ | 450,712 |   |
| Capital lease  obligations                      |       | 14,884                                    |       | 4,949 |   | 6,835 |   | 2,564 |   | 536 |   |
| Revolving credit  facility (1)                  |       | 296,892                                   |       | 21,874 |   | — |   | 275,018 |   | — |   |
| Interest on  variable rate debt obligations (2) |       | 126,406                                   |       | 30,026 |   | 58,705 |   | 37,675 |   | — |   |
| Interest on fixed  rate debt obligations        |       | 336,212                                   |       | 38,642 |   | 77,066 |   | 76,794 |   | 143,710 |   |
| Operating leases  (3)                           |       | 30,162                                    |       | 7,399 |   | 10,296 |   | 6,693 |   | 5,774 |   |
| Rental equipment  purchase obligations (4)      |       | 36,846                                    |       | 36,846 |   | — |   | — |   | — |   |
| Total contractual  obligations                  |       | $                                         | 1,445,982  |   | $ | 139,916 |   | $ | 155,857 |   | $ | 549,477 |   | $ | 600,732 |   |

----

(1)          As more fully describedin Note 6 of the Notes to Audited Consolidated Financial Statements, wehad a $150.0 million term loan, $275.0 million borrowed under a revolvingcredit facility,  $450.0 million ofthe 8.5% Notes outstanding as of December 31, 2006 and debt related to theWiron acquisition of 24,842, excluding capital lease obligations per(3) below.

(2)          Represents interest onvariable rate revolving credit facility and other long term debt assuming aweighted average interest rate of 6.7%, the rate in effect on December 31,2006.

(3)          In accordance with SFASNo. 13, *Accounting for Leases*,operating lease obligations are not reflected in the balance sheet. SeeNote 8 of Notes to Audited Consolidated Financial Statements foradditional information. Amounts included reflect both interest and principalpayments.

(4)          Represents open purchaseorder commitments related to purchases of new rental units.

The amount of standby letters of credit, which expirein 2007 unless renewed, was $19.7 million at December 31, 2006.

**Seasonality**

Although demand fromcertain of our customers is somewhat seasonal, our operations as a whole arenot seasonal to any significant extent.

**Inflation**

We believe that inflationhas not had a material effect on our results of operations. However, aninflationary environment could materially increase interest rates on our floatingrate debt. The price of rental equipment sold by us and the replacement cost ofsuch units could also increase in such an environment. Our standard leasegenerally provides for annual rental rate escalation at the inflation rate asdetermined by the Consumer Price Index after the end of the initial lease term.In addition, we may seek to limit our exposure to interest rate fluctuations byutilizing certain hedging mechanisms, although we are under no obligation to doso.

**Item 7A.**                Quantitativeand Qualitative Disclosures about Market Risk

Market risk is the risk ofloss to future earnings, to future values, or to future cash flows that mayresult from the changes in the price of financial instruments. We are exposedto financial market risks, including changes in foreign currency exchange ratesand interest rates. Exposure to market risks related to operating activities ismanaged through our regular operating and financing activities.

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*Foreign CurrencyRisk*

The Company is exposed to movements in the exchangerates of various currencies against the United States dollar. The major foreigncurrencies in which foreign currency risks exist are the Canadian dollar, euro,and Mexican peso. The financial statements of the Company’s foreignsubsidiaries for which the local currency is the functional currency have beentranslated into U.S. dollars in accordance with SFAS No. 52, *Foreign Currency Translation*. Assets andliabilities have been translated using the exchange rate in effect at thebalance sheet date. Income statement amounts have been translated using theaverage exchange rates during the year. The resulting translation adjustmentsare included in the accumulated other comprehensive income component ofstockholders’ equity.

From time to time, currencies may strengthen or weakenin countries in which the Company sells or leases its product. The Company’sinvestment in foreign subsidiaries is sensitive to fluctuations in foreigncurrency exchange rates. For the years ended December 31, 2006 and 2005,translation adjustments, recorded in the accumulated other comprehensive incomecomponent of stockholders’ equity, increased stockholders’ equity by $0.5million and $2.8 million, respectively. As a result of the recent acquisitionof Wiron for approximately $53.1 million, the Company has increased itsinvestment in foreign owned subsidiaries. A 10% depreciation in the functionalcurrency  of our Company’s subsidiaries,relative to the U.S. dollar, would result in an $11.5 million reduction ofshareholders’ equity.

The Company utilizesforeign currency hedging instruments to reduce its exposure to foreign currencyrisk due to fluctuations in exchange rates. During December 2006, theCompany entered into a foreign currency forward contract to manage it’scurrency transaction exposure for an intercompany receivable which arose fromthe acquisition of Wiron (see Note 3) with a notional amount of EUR 20 million.This intercompany receivable is expected to be repaid to the Company upon localfinancing obtained by the subsidiary during 2007. The Company accounts forderivative financial instruments (foreign currency forward contract) inaccordance with SFAS No. 133, *Accountingfor Derivative Instruments and Hedging Activities*(“SFAS No. 133”).The forward contract the Company holds is designated as cash flow hedge andtherefore, the effective portions of changes in the fair value of thisderivative is recorded in other comprehensive income, and the ineffectiveportion is recognized in earnings. To date, the ineffective portions of changesin the fair value of derivatives have not been material.

*Interest Rate Risk*

The table below providesinformation about our financial instruments that are sensitive to interest ratechanges:

**Yearof Maturity at December 31, 2006(in thousands)**

| ** **                                                                   | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** | **2010** | ** ** | **2011+** | ** ** | **Total** | ** ** | **Fair Value** | ** ** |
|------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|-----------|------------|-----------|------------|---------------------|------------|
| Variable Rate  Debt                                                          |       | $        | 23,974     |     | $          | 3,560    |       | $        | 2,306      |      | $          | 1,541     |       | $                   | 425,375    |   | $ | 456,756 |   | $ | 456,756 |   |
| Average Interest  Rate                                                       |       | 4.21     | %          | 5.22     | %          | 5.27     | %          | 5.36     | %          | 6.85      | %          |      |       |                |       |
| Fixed Rate Debt, including capital lease obligations                         |       | 3,028    |       | 2,539    |       | 1,385    |       | 997      |       | 451,651   |       | 459,600   |       | 479,400             |       |
| Average Interest Rate  (includes imputed interest related to capital leases) |       | 5.18     | %          | 6.22     | %          | 7.34     | %          | 7.42     | %          | 8.50      | %          |      |       |                |       |
|                                                                              |            |          |            |          |            |          |            |          |            |           |            |           |            |                     |            |  |  |  |  |  |  |  |

 

 

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**Item8.**                        FinancialStatements and Supplementary Data
| Audited Annual Consolidated  Financial Statements for Williams Scotsman International, Inc.  and Subsidiaries:                                      |   |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
| Report of Independent Registered Public Accounting  Firm                                                                                                      |   | 42     |
| Consolidated Balance Sheets as of December 31,  2006 and 2005                                                                                       |   | 43     |
| Consolidated Statements of Operations for the years  ended December 31, 2006, 2005, and 2004                                                             |   | 44     |
| Consolidated Statements of Changes in Stockholders’  Equity for the years ended December 31, 2006, 2005 and 2004      |   | 45     |
| Consolidated Statements of Cash Flows for the years  ended December 31, 2006, 2005 and 2004                                                         |   | 46     |
| Notes to Consolidated Financial Statements                                                                                                                    |   | 47     |

 

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**Report ofIndependent Registered Public Accounting Firm**

TheBoard of Directors and Shareholders

Williams Scotsman International, Inc.

We have audited the accompanying consolidated balancesheets of Williams Scotsman International, Inc. and subsidiaries as of December 31,2006 and 2005, and the related consolidated statements of operations, changesin stockholders’ equity and cash flows for each of the three years in theperiod ended December 31, 2006. Our audits also included the financialstatement schedule listed in the Index at Item 15 (a) (2). These financialstatements and schedule are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on these financial statements andschedule based on our audits.

We conducted our audits in accordance with thestandards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements. An audit also includesassessing the accounting principles used and significant estimates made bymanagement, and evaluating the overall financial statement presentation. Webelieve that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred toabove present fairly, in all material respects, the consolidated financial positionof Williams Scotsman International, Inc. and subsidiaries at December 31,2006 and 2005, and the consolidated results of their operations and their cashflows for each of the three years in the period ended December 31, 2006,in conformity with U.S. generally accepted accounting principles. Also, in ouropinion, the related financial statement schedule, when considered in relationto the basic financial statements taken as a whole, presents fairly in allmaterial respects the information set forth therein.

As discussed in Note 2 (l) to the consolidatedfinancial statements, on January 1, 2006 the Company adopted theprovisions of SFAS No. 123 (R), *Share-BasedPayment*, and changed its method of accounting for share-basedpayments using the modified prospective transition method.

Wehave also audited, in accordance with the standards of the Public CompanyAccounting Oversight Board (United States), the effectiveness of WilliamsScotsman International, Inc.’s internal control over financial reportingas of December 31, 2006, based on criteria established in Internal Control—IntegratedFramework issued by the Committee of Sponsoring Organizations of the TreadwayCommission and our report dated March 9, 2007 expressed an unqualifiedopinion thereon.
|  |   | /s/ Ernst & Young LLP |
|--|--------|--------------------------------|

 

Baltimore,Maryland

March 9, 2007

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**WilliamsScotsman International, Inc. and SubsidiariesConsolidated Balance Sheets**

| ** **                                                                                                                                                              | ** ** | **December 31**    | ** **    |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|---------------|
| ** **                                                                                                                                                              | ** ** | **2006**                | ** **    | **2005** | ** ** |
| ** **                                                                                                                                                              | ** ** | **(In thousands)** | ** **    |
| **Assets**                                                                                                                                                              |       |                    |          |   |   |
| Cash                                                                                                                                                                    | ** ** | **$**                   | **6,495**     |   | $ | 469 |   |
| Trade accounts  receivable, net of allowance for doubtful accounts of $3,681 in 2006 and $812  in 2005                                                                  | ** ** | **120,586**             |          | 94,661 |   |
| Prepaid expenses  and other current assets                                                                                                                              | ** ** | **52,938**              |          | 46,630 |   |
| Rental equipment,  net of accumulated depreciation of $302,177 in 2006 and $282,730 in 2005                                                                             | ** ** | **1,066,469**           |          | 944,629 |   |
| Property and  equipment, net                                                                                                                                            | ** ** | **92,992**              |          | 81,177 |   |
| Deferred  financing costs, net                                                                                                                                          | ** ** | **19,277**              |          | 18,042 |   |
| Goodwill                                                                                                                                                                | ** ** | **182,781**             |          | 171,166 |   |
| Other intangible  assets, net                                                                                                                                           | ** ** | **17,007**              |          | 2,369 |   |
| Other assets                                                                                                                                                            | ** ** | **29,374**              |          | 21,477 |   |
| Total assets                                                                                                                                                            | ** ** | **$**                   | **1,587,919** |   | $ | 1,380,620 |   |
| **Liabilities  and stockholders’ equity**                                                                                                                          | ** ** | ** **              |          |   |   |
| Accounts payable                                                                                                                                                        | ** ** | **$**                   | **58,964**    |   | $ | 60,685 |   |
| Accrued expenses  and other current liabilities                                                                                                                         | ** ** | **63,721**              |          | 41,107 |   |
| Rents billed in  advance                                                                                                                                                | ** ** | **25,031**              |          | 23,621 |   |
| Revolving credit  facilities                                                                                                                                            | ** ** | **296,892**             |          | 364,150 |   |
| Long-term debt                                                                                                                                                          | ** ** | **619,464**             |          | 505,296 |   |
| Deferred income  taxes                                                                                                                                                  | ** ** | **155,706**             |          | 141,020 |   |
| Total liabilities                                                                                                                                                       | ** ** | **1,219,778**           |          | 1,135,879 |   |
| Stockholders’  equity:                                                                                                                                             | ** ** | ** **              |          |   |   |
| Preferred stock, $.01 par value; authorized  20,000,000 shares; no shares issued or outstanding                                                                         | ** ** | **—**              |          | — |   |
| Common stock, $.01 par value; authorized 200,000,000  shares; issued 55,699,947 shares as of December 31, 2006 and 51,869,427  shares as of December 31, 2005 | ** ** | **557**                 |          | 519 |   |
| Additional paid-in capital                                                                                                                                              | ** ** | **545,124**             |          | 471,406 |   |
| Retained earnings                                                                                                                                                       | ** ** | **100,962**             |          | 51,846 |   |
| Accumulated other comprehensive income                                                                                                                                  | ** ** | **17,436**              |          | 16,908 |   |
| ** **                                                                                                                                                              | ** ** | **664,079**             |          | 540,679 |   |
| Less treasury  stock—12,597,848 common shares in 2006 and 2005, at cost                                                                                            | ** ** | **(295,938**            | **)**         | (295,938 | ) |
| Total  stockholders’ equity                                                                                                                                        | ** ** | **368,141**             |          | 244,741 |   |
| Total liabilities and  stockholders’ equity                                                                                                                        | ** ** | **$**                   | **1,587,919** |   | $ | 1,380,620 |   |

 

*Seeaccompanying notes.*

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**WilliamsScotsman International, Inc. and SubsidiariesConsolidated Statements of Operations**

| ** **                                                                                  | ** ** | **Year ended December 31**                              | ** **  |
|---------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------|-------------|
| ** **                                                                                  | ** ** | **2006**                                                               | ** **  | **2005** | ** ** | **2004** | ** ** |
| ** **                                                                                  | ** ** | **(In thousands except   per share amounts)** | ** **  |
| **Revenues**                                                                                |       |                                                                   |        |   |   |   |   |
| Leasing                                                                                     | ** ** | **$**                                                                  | **291,701** |   | $ | 247,713 |   | $ | 222,867 |   |
| Sales:                                                                                      | ** ** | ** **                                                             |        |   |   |   |   |
| New units                                                                                   | ** ** | **139,815**                                                            |        | 128,244 |   | 86,344 |   |
| Rental equipment                                                                            | ** ** | **51,171**                                                             |        | 37,530 |   | 29,355 |   |
| Delivery and  installation                                                                  | ** ** | **147,762**                                                            |        | 135,715 |   | 116,106 |   |
| Other                                                                                       | ** ** | **50,351**                                                             |        | 43,256 |   | 43,253 |   |
| Total revenues                                                                              | ** ** | **680,800**                                                            |        | 592,458 |   | 497,925 |   |
| **Cost of  sales and services**                                                             | ** ** | ** **                                                             |        |   |   |   |   |
| Leasing:                                                                                    | ** ** | ** **                                                             |        |   |   |   |   |
| Depreciation and amortization                                                               | ** ** | **57,908**                                                             |        | 52,614 |   | 48,888 |   |
| Other direct leasing costs                                                                  | ** ** | **66,391**                                                             |        | 59,932 |   | 51,777 |   |
| Sales:                                                                                      | ** ** | ** **                                                             |        |   |   |   |   |
| New units                                                                                   | ** ** | **109,403**                                                            |        | 105,377 |   | 72,885 |   |
| Rental equipment                                                                            | ** ** | **36,580**                                                             |        | 28,909 |   | 22,896 |   |
| Delivery and  installation                                                                  | ** ** | **118,349**                                                            |        | 115,730 |   | 101,061 |   |
| Other                                                                                       | ** ** | **10,328**                                                             |        | 11,290 |   | 9,605 |   |
| Total costs of sales and services                                                           | ** ** | **398,959**                                                            |        | 373,852 |   | 307,112 |   |
| Gross profit                                                                                | ** ** | **281,841**                                                            |        | 218,606 |   | 190,813 |   |
| Selling, general and administrative expenses                                                | ** ** | **115,558**                                                            |        | 96,968 |   | 83,407 |   |
| Other depreciation  and amortization                                                        | ** ** | **18,722**                                                             |        | 16,618 |   | 14,787 |   |
| Interest,  including amortization of deferred financing costs of $3,140, $5,465 and  $6,959 | ** ** | **72,337**                                                             |        | 91,203 |   | 92,444 |   |
| Loss on early  extinguishment of debt                                                       | ** ** | **90**                                                                 |        | 30,678 |   | — |   |
| Total operating expenses                                                                    | ** ** | **206,707**                                                            |        | 235,467 |   | 190,638 |   |
| Income (loss) before income taxes                                                           | ** ** | **75,134**                                                             |        | (16,861 | ) | 175 |   |
| Income tax  expense (benefit)                                                               | ** ** | **26,018**                                                             |        | (6,537 | ) | 3,586 |   |
| Net income (loss)                                                                           | ** ** | **$**                                                                  | **49,116**  |   | $ | (10,324 | ) | $ | (3,411 | ) |
| Income (loss) per  common share—basic                                                  | ** ** | **$**                                                                  | **1.18**    |   | $ | (0.37 | ) | $ | (0.14 | ) |
| Income (loss) per common  share—diluted                                                | ** ** | **$**                                                                  | **1.15**    |   | $ | (0.37 | ) | $ | (0.14 | ) |

 

*Seeaccompanying notes.*

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**WilliamsScotsman International, Inc. and SubsidiariesConsolidated Statements of Changes in Stockholders’ Equity(in thousands)**
|                                                                                               | ** ** | **Common Stock** | ** ** | **Additional  Paid-in** | ** ** | **Retained** | ** ** | **Accumulated  Other  Comprehensive** | ** ** | **Treasury** | ** ** | **Total  Stockholders’** | ** **  |
|-----------------------------------------------------------------------------------------------|------------|-----------------------|------------|-------------------------|------------|--------------|------------|---------------------------------------|------------|--------------|------------|-------------------------------|-------------|
| ** **                                                                                    | ** ** | **Shares**            | ** ** | **Amount**              | ** ** | **Capital**  | ** ** | **Earnings**                          | ** ** | **Income**   | ** ** | **Stock**                     | ** **  | **Equity** | ** ** |
| Balance at January 1, 2004                                                               |       |                  | 23,559     |                    |       |         | $          | 362                                   |       |         |       | $                             | 239,738     |   |   |   | $ | 65,581 |   |   |   | $ | 8,621 |   |   | $ | (295,938 | ) |   | $ | 18,364 |   |   |
| Non-cash stock compensation expense                                                           |       |                  | —     |                    |       |         | —     |                                  |       |         | 736        |                          |        |   | — |   | ** ** | ** ** | **—** |   |   | — |   |   | 736 |   |   |
| Comprehensive  income:                                                                        |       |                  |       |                    |       |         |       |                                  |       |         |       |                          |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net loss                                                                                      |       |                  | —     |                    |       |         | —     |                                  |       |         | —     |                          |        |   | (3,411 | ) | ** ** | ** ** | **—** |   |   | — |   |   | (3,411 | ) |   |
| Foreign currency translation adjustment                                                       |       |                  | —     |                    | ** ** | ** **   | **—** |                                  | ** ** | ** **   | **—** |                          | ** **  | ** ** | **—** |   |   |   | 5,458 |   |   | — |   |   | 5,458 |   |   |
| Comprehensive income                                                                          |       |                  |       |                    |       |         |       |                                  |       |         |       |                          |        |   |   |   |   |   |   |   |   |   |   |   | 2,047 |   |   |
| Balance at December 31, 2004                                                             |       |                  | 23,559     |                    |       |         | 362        |                                  |       |         | 240,474    |                          |        |   | 62,170 |   |   |   | 14,079 |   |   | (295,938 | ) |   | 21,147 |   |   |
| Option exercises for purchase of common stock,  including excess income tax benefit of $2,858 |       |                  | 607        |                    |       |         | 6          |                                  |       |         | 4,235      |                          | ** **  | ** ** | **—** |   | ** ** | ** ** | **—** |   | ** ** | **—** |   |   | 4,241 |   |   |
| Issuance of common stock (less direct costs of  $18,602)                                      |       |                  | 15,106     |                    |       |         | 151        |                                  |       |         | 222,941    |                          | ** **  | ** ** | **—** |   | ** ** | ** ** | **—** |   | ** ** | **—** |   |   | 223,092 |   |   |
| Non-cash stock compensation expense                                                           |       |                  | —     |                    |       |         | —     |                                  |       |         | 3,756      |                          |        |   | — |   |   |   | — |   |   | — |   |   | 3,756 |   |   |
| Comprehensive loss:                                                                           |       |                  |       |                    |       |         |       |                                  |       |         |       |                          |        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net loss                                                                                      |       |                  | —     |                    |       |         | —     |                                  |       |         | —     |                          |        |   | (10,324 | ) |   |   | — |   |   | — |   |   | (10,324 | ) |   |
| Foreign currency translation adjustment                                                       |       |                  | —     |                    |       |         | —     |                                  |       |         | —     |                          |        |   | — |   |   |   | 2,829 |   |   | — |   |   | 2,829 |   |   |
| Comprehensive loss                                                                            |       |                  |       |                    |       |         |       |                                  |       |         |       |                          |        |   |   |   |   |   |   |   |   |   |   |   | (7,495 | ) |   |
| Balance at December 31, 2005                                                             |       |                  | 39,272     |                    |       |         | 519        |                                  |       |         | 471,406    |                          |        |   | 51,846 |   |   |   | 16,908 |   |   | (295,938 | ) |   | 244,741 |   |   |
| Option exercises for purchase of common stock                                                 | ** ** | ** **            | **1,714**  |                    | ** ** | ** **   | **17**     |                                  | ** ** | ** **   | **8,432**  |                          | ** **  | ** ** | **—** |   | ** ** | ** ** | **—** |   | ** ** | **—** | ** ** | ** ** | **8,449** |   |   |
| Excess income tax benefit from option exercises                                               | ** ** | ** **            | **—** |                    | ** ** | ** **   | **—** |                                  | ** ** | ** **   | **10,850** |                          | ** **  | ** ** | **—** |   | ** ** | ** ** | **—** |   | ** ** | **—** | ** ** | ** ** | **10,850** |   |   |
| Issuance of common stock (less direct costs of $3,550                                         | ** ** | ** **            | **2,102**  |                    | ** ** | ** **   | **21**     |                                  | ** ** | ** **   | **51,505** |                          | ** **  | ** ** | **—** |   | ** ** | ** ** | **—** |   | ** ** | **—** | ** ** | ** ** | **51,526** |   |   |
| Issuance of stock under employee stock purchase plan                                          | ** ** | ** **            | **14**     |                    | ** ** | ** **   | ** ** |                                  | ** ** | ** **   | **274**    |                          | ** **  | ** ** | ** ** |   | ** ** | ** ** | **—** |   | ** ** | **—** | ** ** | ** ** | **274** |   |   |
| Non-cash stock compensation expense                                                           | ** ** | ** **            | **—** |                    | ** ** | ** **   | **—** |                                  | ** ** | ** **   | **2,657**  |                          | ** **  | ** ** | **—** |   | ** ** | ** ** | **—** |   | ** ** | **—** | ** ** | ** ** | **2,657** |   |   |
| Comprehensive income:                                                                         | ** ** | ** **            | ** ** |                    | ** ** | ** **   | ** ** |                                  | ** ** | ** **   | ** ** |                          | ** **  | ** ** | ** ** |   | ** ** | ** ** | ** ** |   | ** ** | ** ** | ** ** | ** ** | ** ** |   |   |
| Net income                                                                                    | ** ** | ** **            | **—** |                    | ** ** | ** **   | **—** |                                  | ** ** | ** **   | **—** |                          | ** **  | ** ** | **49,116** |   | ** ** | ** ** | **—** |   | ** ** | **—** | ** ** | ** ** | **49,116** |   |   |
| Foreign currency translation adjustment                                                       | ** ** | ** **            | **—** |                    | ** ** | ** **   | **—** |                                  | ** ** | ** **   | **—** |                          | ** **  | ** ** | **—** |   | ** ** | ** ** | **528** |   | ** ** | **—** | ** ** | ** ** | **528** |   |   |
| Comprehensive income                                                                          | ** ** | ** **            | ** ** |                    | ** ** | ** **   | ** ** |                                  | ** ** | ** **   | ** ** |                          | ** **  | ** ** | ** ** |   | ** ** | ** ** | ** ** |   | ** ** | ** ** | ** ** | ** ** | **49,644** |   |   |
| Balance at  December 31, 2006                                                            | ** ** | ** **            | **43,102** |                    | ** ** | ** **   | **$**      | **557**                               |       | ** **   | ** ** | **$**                         | **545,124** |   | ** ** | ** ** | **$** | **100,962** |   | ** ** | ** ** | **$** | **17,436** |   | ** ** | **$** | **(295,938** | **)** | ** ** | **$** | **368,141** |   |   |

 

*Seeaccompanying notes.*

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**WilliamsScotsman International, Inc. and SubsidiariesConsolidated Statements of Cash Flows**

| ** **                                                                                  | ** ** | **Year ended December 31** | ** ** |
|---------------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                                                  | ** ** | **2006**                                  | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                                                  | ** ** | **(In thousands)**                   | ** ** |
| **Cash flows from operating activities**                                                    |       |                                      |       |   |   |   |   |
| Net income (loss)                                                                           | ** ** | **$**                                     | **49,116** |   | $ | (10,324 | ) | $ | (3,411 | ) |
| Adjustments to reconcile net loss to net cash  provided by operating activities:            |       |                                      |       |   |   |   |   |
| Depreciation and  amortization                                                              | ** ** | **79,770**                                |       | 74,965 |   | 70,991 |   |
| Provision for bad debts                                                                     | ** ** | **4,003**                                 |       | 3,204 |   | 2,248 |   |
| Loss on early  extinguishment of debt                                                       | ** ** | **90**                                    |       | 30,678 |   | — |   |
| Deferred income tax  expense (benefit)                                                      | ** ** | **25,534**                                |       | (6,537 | ) | 3,137 |   |
| Excess tax benefit from  stock-based compensation                                           | ** ** | **(11,440**                               | **)**      | — |   | — |   |
| Non-cash stock  compensation expense                                                        | ** ** | **2,657**                                 |       | 3,756 |   | 736 |   |
| Gain on insurance  recovery                                                                 |       | —                                    |       | (662 | ) | (3,373 | ) |
| Gain on sale of rental  equipment                                                           | ** ** | **(14,591**                               | **)**      | (8,621 | ) | (6,459 | ) |
| Increase in net trade  accounts receivable                                                  | ** ** | **(16,080**                               | **)**      | (20,778 | ) | (22,375 | ) |
| (Decrease) increase in  accounts payable and accrued expenses and other current liabilities | ** ** | **(7,540**                                | **)**      | 19,623 |   | 22,261 |   |
| Increase in prepaid  expenses and other current assets                                      | ** ** | **(3,521**                                | **)**      | (12,037 | ) | (4,015 | ) |
| Other                                                                                       | ** ** | **(6,720**                                | **)**      | (5,752 | ) | (2,877 | ) |
| Net cash provided by  operating activities                                                  | ** ** | **101,278**                               |       | 67,515 |   | 56,863 |   |
| **Cash flows from investing activities**                                                    |       |                                      |       |   |   |   |   |
| Rental equipment  additions                                                                 | ** ** | **(164,032**                              | **)**      | (139,815 | ) | (79,867 | ) |
| Proceeds from sales of  rental equipment                                                    | ** ** | **51,171**                                |       | 37,530 |   | 29,355 |   |
| Proceeds from sales of  fixed assets                                                        | ** ** | **531**                                   |       | — |   | — |   |
| Proceeds from insurance  recovery                                                           |       | —                                    |       | 3,616 |   | 5,000 |   |
| Acquisition of  businesses, net of cash acquired                                            | ** ** | **(57,722**                               | **)**      | (4,631 | ) | (5,791 | ) |
| Purchase of California  classroom fleet                                                     |       | —                                    |       | — |   | (43,572 | ) |
| Purchase of property and  equipment, net                                                    | ** ** | **(14,513**                               | **)**      | (12,005 | ) | (8,062 | ) |
| Net cash used in  investing activities                                                      | ** ** | **(184,565**                              | **)**      | (115,305 | ) | (102,937 | ) |
| **Cash flows from financing activities**                                                    |       |                                      |       |   |   |   |   |
| Proceeds from debt                                                                          | ** ** | **1,022,724**                             |       | 1,473,724 |   | 553,937 |   |
| Repayment of debt                                                                           | ** ** | **(1,000,379**                            | **)**      | (1,631,548 | ) | (506,987 | ) |
| Proceeds from public  offering of common stock, net of issuance costs                       | ** ** | **51,526**                                |       | 223,092 |   | — |   |
| Proceeds from employee  stock purchases.                                                    | ** ** | **274**                                   |       | — |   | — |   |
| Proceeds from exercise  of stock options                                                    | ** ** | **8,449**                                 |       | 1,383 |   | — |   |
| Excess income tax  benefit from exercise of stock options                                   | ** ** | **11,440**                                |       | — |   | — |   |
| Increase in deferred  financing costs                                                       | ** ** | **(4,375**                                | **)**      | (19,266 | ) | (757 | ) |
| Net cash provided by  financing activities                                                  | ** ** | **89,659**                                |       | 47,385 |   | 46,193 |   |
| Effect of exchange rate  changes                                                            | ** ** | **(346**                                  | **)**      | (65 | ) | 433 |   |
| Net increase (decrease)  in cash                                                            | ** ** | **6,026**                                 |       | (470 | ) | 552 |   |
| Cash at beginning of  year                                                                  | ** ** | **469**                                   |       | 939 |   | 387 |   |
| Cash at end of year                                                                         | ** ** | **$**                                     | **6,495**  |   | $ | 469 |   | $ | 939 |   |
| Supplemental cash flow information:                                                         |       |                                      |       |   |   |   |   |
| Cash paid for income  taxes                                                                 | ** ** | **$**                                     | **—** |   | $ | — |   | $ | 665 |   |
| Cash paid for interest                                                                      | ** ** | **$**                                     | **67,816** |   | $ | 90,463 |   | $ | 84,903 |   |

 

*Seeaccompanying notes.*

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**Williams ScotsmanInternational, Inc. and SubsidiariesNotes to Consolidated Financial Statements(Dollars in thousands, except per share amounts)December 31, 2006**

**1. Organization andBasis of Presentation**

Williams Scotsman International, Inc. (“Holdings”or when including its subsidiaries, the “Company”) was organized inNovember 1993 for the purpose of acquiring Williams Scotsman, Inc.(Scotsman). Holdings conducts business solely as a holding company, the onlysignificant assets of which are the capital stock of Scotsman, WilliamsScotsman Europe, S.L. (“WS Europe”), and Williams Scotsman Mexico S. de R.L. deC.V. (“WS Mexico”). Therefore any cash dividends to be paid on Holdings’ commonstock, or cash interest to be paid on the debt of the Company are dependentupon the cash flow of Scotsman, WS Europe, and WS Mexico.

The operations of the Company consist primarily of theleasing and sale of mobile offices, modular buildings and storage products(equipment) and their delivery and installation throughout the United States,Canada, Spain, and Mexico.

The Company completed the acquisition of WironConstruccciones Modulares, S.A. (“Wiron”) on August 18, 2006. The resultsof Wiron’s operations have been included in the Consolidated FinancialStatements since August 18, 2006. See Note 3 to the Consolidated FinancialStatements.

On May 25, 2005, theCompany filed with the Secretary of State of the State of Delaware, aCertificate of Amendment of its Certificate of Incorporation. The amendmentchanged the name of the Company from Scotsman Holdings, Inc. to WilliamsScotsman International, Inc.

**2. Summary ofSignificant Accounting Policies**

**(a) Use ofEstimates**

The preparation of thefinancial statements in conformity with accounting principles generallyaccepted in the United States requires management to make estimates andassumptions that affect the amounts reported in the financial statements andaccompanying notes. Actual results could differ from these estimates.

**(b) Principles ofConsolidation**

The accompanying consolidatedfinancial statements include the accounts of Holdings and its 100% ownedsubsidiaries. Significant intercompany accounts and transactions have beeneliminated in consolidation.

**(c) Cash and CashEquivalents**

The Company considers allhighly liquid instruments with a maturity of three months or less whenpurchased to be cash equivalents. Substantially all cash and cash equivalentsare invested in a money market investment account. These amounts are stated atcost, which approximates market value.

**(d) Fair Value ofFinancial Instruments**

Because of theirshort-term nature, the amounts reported in the consolidated balance sheet forcash, receivables, the revolving credit facility and accounts payableapproximate fair value. The fair value of long-term debt is based on quotedmarket prices. The fair market value and cost of the Company’s long-term debt,net were $660,297 and $619,464 at December 31, 2006 and $505,449 and$505,296 at December 31, 2005. The Company does not have a significantamount of credit risk associated with the fair 

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value ofits assets and liabilities. Prior to the Company’s acquisition of 91.5% of thecommon stock of Wiron during 2006, the Company owned an 8.5% minority interest.This interest was not readily marketable and it was not practicable to estimatethe fair value at December 31, 2005.

**(e) AccountsReceivable and Allowance for Doubtful Accounts**

The Company’s accountsreceivable consist of amounts due from customers throughout the United States,Canada, Spain, and Mexico. Collateral is generally not required. The Companyprovides for the allowance for doubtful accounts receivable through a charge tooperations in amounts equal to the estimated losses expected to be incurred incollection of the accounts. The estimated losses are based on historicalcollection experience, days sales outstanding trends, and a review of specificpast due receivables. Customer accounts are written-off against the allowancefor doubtful accounts when an account is determined to be uncollectible.

**(f) LeasingOperations**

Equipment is leased generally under operating leasesand, occasionally, under sales-type lease arrangements. Operating lease termsgenerally range from 3 months to 60 months, and contractuallyaveraged approximately 16 months at December 31, 2006. Rents billedin advance are initially deferred and recognized as revenue over the term ofthe operating leases. Rental equipment is depreciated by the straight-linemethod using an estimated economic useful life of generally 20 years andan estimated residual value of typically 50% in North America and 10% in Spain.

Costs of improvements andbetterments are capitalized, whereas costs of replacement items, repairs andmaintenance are expensed as incurred. Costs incurred for equipment to meet particularlease specifications are capitalized and depreciated over the lease term.However, costs aggregating less than $1 per unit are generally expensed asincurred.

**(g) Property andEquipment**

Property and equipment isstated at cost. Depreciation is computed by the straight-line method overestimated useful lives ranging from 15 to 40 years for buildings andimprovements, 3 to 10 years for furniture and equipment, and 3 to 5 forcomputer software. Maintenance and repairs are charged to expense as incurred.

**(h) DeferredFinancing Costs**

Direct and incrementalcosts of obtaining debt are capitalized and amortized using the straight-linemethod, which approximates the effective interest rate method, over the term ofthe related debt.

**(i) Goodwill**

Goodwill is initially measured as the excess of thecost of an acquired business over the fair value of the identifiable net assetsacquired. The Company does not amortize goodwill, but rather reviews itscarrying value for impairment annually, and whenever an impairment indicator isidentified.

The goodwill impairmenttest involves a two-step approach. Under the first step, the Company determinesthe fair value of each reporting unit to which goodwill has been assigned. Thegeographically based operating segments of the Company are the reporting unitsfor the impairment test. The Company compares the fair value of the reportingunit to its carrying value, including goodwill. The Company estimates the fairvalues of its reporting units by utilizing market operating data multiples ofsimilar publicly traded companies, as well as its own. If the estimated fairvalue exceeds the carrying value, no impairment loss is recognized. If thecarrying value exceeds the fair value, goodwill is considered 

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potentiallyimpaired and the second step is completed in order to measure the impairmentloss. Under the second step, the Company calculates the implied fair value ofgoodwill by deducting the fair value of all tangible and intangible net assets,including any unrecognized intangible assets, of the reporting unit from thefair value of the reporting unit as determined in the first step. The Companythen compares the implied fair value of goodwill to the carrying value ofgoodwill. If the implied fair value of goodwill is less than the carrying valueof goodwill, the Company recognizes an impairment loss equal to the difference.

**(j) OtherIntangible Assets**

Intangible assets consistprincipally of non-compete agreements and customer relationships acquired inbusiness combinations. These intangible assets are amortized using thestraight-line method over their estimated useful lives ranging from24 months to 216 months. Amortization expense was approximately$1,701 and $800 in 2006 and 2005, respectively. The weighted-average remaininglife of these identified intangible assets is 79 months.

**(k) Impairment ofLong-Lived Assets**

Long-lived assets, including amortizable intangibleassets, are reviewed for impairment whenever events or changes in circumstancesindicate that the carrying amount of an asset or group of assets may not befully recoverable. These events or changes in circumstances may include asignificant deterioration of operating results, changes in business plans, orchanges in anticipated future cash flows. If an impairment indicator ispresent, the Company evaluates recoverability by a comparison of the carryingamount of the assets to future undiscounted net cash flows expected to begenerated by the assets. Assets are grouped at the lowest level for which thereis identifiable cash flows that are largely independent of the cash flowsgenerated by other asset groups. If the assets are impaired, the impairmentrecognized is measured by the amount by which the carrying amount exceeds thefair value of the assets. Fair value is generally determined by estimates ofdiscounted cash flows. The discount rate used in any estimate of discountedcash flows would be the rate required for a similar investment of like risk.

Assetsto be disposed of are reported at the lower of carrying value or fair values,less estimated costs of disposal.

**(l) Stock-basedCompensation**

EffectiveJanuary 1, 2006, the Company adopted the fair value recognition provisionsof Statement of Financial Accounting Standards (“SFAS”) No. 123-R, *Share-Based Payment*(“SFAS No. 123-R”),using the modified prospective transition method. Under that transition method,compensation cost recognized in 2006 includes compensation cost for allshare-based payments granted prior to, but not yet vested as of January 1,2006, based on the grant date fair value estimated in accordance with theoriginal provisions of SFAS No. 123, *Stock-BasedCompensation*. The adoption of SFAS No. 123-R did not havea significant impact on the Company’s financial position or its results ofoperations. Prior to the Company’s adoption of SFAS No. 123-R,benefits of tax deductions in excess of recognized compensation costs werereported as operating cash flows. SFAS No. 123-R requires excess taxbenefits be reported as a financing cash flow rather than as an operating cashflow.

In applying the fair value accounting provisions ofSFAS No. 123-R, the Company uses a generally accepted optionvaluation model, the Cox Rubenstein binomial valuation model. This modelrequires specified inputs to determine the fair value of stock-based awards,consisting of (i) the fair value of the Company’s common stock on thegrant date, (ii) the expected volatility of the Company’s common stockover the expected option life, (iii) the risk-free interest rate, (iv) theexpected dividend yield, and (v) the expected option life.

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An explanation ofthese inputs is as follows:

*Fair-Valueof Common Stock—**Prior*to issuing publiclytraded common stock in September 2005,**the Companyestimated the fair value of its common stock using valuations performed by anexperienced investor in the Company. Subsequent to September 2005, thedate the Company first issued publicly-traded common stock, the Company usesthe opening quoted market price of its common stock on the grant date.

*Volatility—**A* measure of theamount by which the share price is expected to fluctuate over a periodcommensurate with the expected life of the award. Because of limited or nohistorical information regarding its own historical stock volatility during thefinancial statement periods, the Company considered the expected volatility ofsimilar entities in developing this input. In selecting guideline companies,the Company considered factors such as industry, stage of life cycle, size, andfinancial leverage.

*Risk-FreeInterest Rate—**An*assumption to take into account,among other things, the time value of money. The risk-free interest rate is theimplied yield available on U.S. Treasury zero-coupon issues with a remainingterm equal to the expected life of the award at the grant date.

*DividendYield—**Dividends*paid on the underlyingcommon stock will impact an award’s value. The Company has never declared orpaid dividends and has no plans to do so in the foreseeable future.

*ExpectedLife of Stock-based Awards—**The*period of time forwhich the stock-based award is expected to be outstanding, or the period oftime from the service inception date to the date of expected exercise or otherexpected settlement. Prior to issuing publicly-traded common stock inSeptember 2005, the Company estimated the expected life of awardsconsidering the estimated dates of liquidity events likely to be triggered bythe Company’s private equity investors. Upon the adoption of SFAS No. 123-Rin 2006, the Company adopted a temporary “shortcut approach” allowed by theSecurities and Exchange Commission to develop the estimate of the expected termof awards. Under this approach, the expected term is presumed to be themid-point between the vesting date and the end of the contractual term. Thisshortcut approach is not permitted for options granted, modified or settledafter December 31, 2007.

The weighted-average fair value of options granted in2006, 2005, and 2004 were $11.22, $7.59, and $5.11, respectively. The followingis a summary of the inputs used to estimate the fair value of stock-basedawards:

| ** **                | ** ** | **Year ended December 31** | ** ** |
|---------------------------|------------|-------------------------------------------|------------|
| ** **                | ** ** | **2006**                                  | ** ** | **2005** | ** ** | **2004** | ** ** |
| Risk-free  interest rate  |       | 5.03%                                     |       | 4.13% |   | 3.85% |   |
| Expected life (in  years) |       | 6.25                                      |       | 5.00-6.25 |   | 5.00 |   |
| Volatility                |       | 47.5%                                     |       | 46.4% |   | 42.9% |   |
| Dividend yield            |       | 0%                                        |       | 0% |   | 0% |   |

 

Gross compensation costrecognized related to stock-based compensation for the year endedDecember 31, 2006, 2005 and 2004 was $2,657, $3,756 and $736, respectively. During 2005, the Company recorded$2,387 of stock compensation expense related to the accelerated vesting ofoptions as a result of the Company’s initial public offering. During 2004, amodification was made for the continuation of certain employees’ options aftertheir termination from the Company. The weighted-average fair value of their modifiedoptions, risk free interest rate at the modification date, expected life andvolatility (as estimated based upon a historical average of comparable stockindices) was $7.93, 2.78%, 3.11 years, and 39.9% for 2004.

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**(m) Income Taxes**

Deferred tax assets andliabilities are recognized for the estimated future tax consequencesattributable to differences between the financial statement carrying amounts ofexisting assets and liabilities and their respective tax bases. Deferred taxassets and liabilities are measured using enacted tax rates in effect for theyear in which those temporary differences are expected to be recovered orsettled. The effect on deferred tax assets and liabilities of a change in taxrates is recognized in net income in the period that includes the enactmentdate.

**(n) Advertisingcosts**

Advertising costs aregenerally expensed as incurred. Advertising expense for the years endedDecember 31, 2006, 2005, and 2004 was $4,638, $4,622, and $4,345,respectively, and is included in selling, general, and administrative expensesin the consolidated statements of operations.

**(o) Earnings PerShare**

The following table sets forth the components of theweighted-average shares outstanding for the basic and diluted earnings pershare computations:

| ** **                        | ** ** | **2006**   | ** ** | **2005**   | ** ** | **2004**   | ** ** |
|-----------------------------------|------------|------------|------------|------------|------------|------------|------------|
| Weighted-average  shares-basic    |       | 41,725,103 |       | 27,763,324 |       | 23,558,805 |       |
| Effect of  employee stock options |       | 920,687    |       | —     |       | —     |       |
| Weighted-average  shares-diluted  |       | 42,645,790 |       | 27,763,324 |       | 23,558,805 |       |

 

Commonstock equivalents of approximately 1,243,552 and 1,296,823 were excluded fromthe weighted-average shares-diluted total for the years ended December 31,2005 and 2004, respectively, due to their anti-dilutive nature, which resultedfrom the Company’s net loss for such periods.

**(p) Revenue Recognition**

The Company earns revenue from leasing, sales of newand used rental equipment, and delivery and installation services. Whereapplicable, the Company’s revenue recognition policy takes into considerationthe guidance of Emerging Issues Task Force (EITF) Issue No. 00-21, *Revenue Arrangements with Multiple Deliverables*.

Revenue from delivery and installation servicesassociated with rental activities is generally recognized upon theircompletion, as the Company has objective evidence of the fair value of theremaining equipment leasing element of the arrangements. This evidence consistsof rental rates associated with units leased without corresponding delivery andinstallation services. Leasing revenue is recognized ratably over the leaseterm. Billings in excess of earned revenue is recorded as deferred revenue inthe balance sheet caption, “rents billed in advance.”

Revenue from the sale of new units and used rentalequipment, including delivery and installation revenue, is generally recognizedat the time the units are installed. Certain arrangements to sell units underlong-term construction-type sales contracts are recognized under the percentageof completion method. Under this method, income is recognized in proportion tothe incurred costs to date under the contract compared to estimated totalcosts.

Sales of new units are typically covered by warrantiesprovided by the manufacturer of products sold. The Company provides a limited30-day warranty for certain sales of rental equipment. The Company’swarranty expense is estimated and accrued at the time of sale. Warranty expensewas not material for the years ended December 31, 2006, 2005 and 2004.

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Other revenue consistsprincipally of revenue from the rental or sale of ancillary items associated withthe rental or sale of related equipment. These items typically consist ofsteps, ramps and other products, insurance waivers and other miscellaneousrevenue. If these items are associated with equipment under operating leases,revenue is recognized over the related lease term. Otherwise, revenue isrecognized when the item is delivered or the service is performed.

**(q) HedgingActivities**

The Company utilizes foreign currency hedginginstruments to reduce its exposure to foreign currency risk due to fluctuationsin exchange rates underlying the value of an intercompany note denominated in aforeign currency. The Company accounts for derivative financial instruments(foreign currency forward contract) in accordance with SFAS No. 133, *Accounting for Derivative Instruments and HedgingActivities*(“SFAS No. 133”). The forward contract the Companyholds is designated as a cash flow hedge and therefore, the effective portionsof changes in the fair value of this derivative is recorded in othercomprehensive income (“OCI”), and the ineffective portion is recognized inearnings. To date, the ineffective portions of changes in the fair value ofderivatives have not been material.

**(r) ForeignCurrency Translation**

The financial statementsof the Company’s foreign subsidiaries for which the local currency is thefunctional currency have been translated into U.S. dollars in accordance SFASNo. 52, *Foreign Currency Translation*.Assets and liabilities have been translated using the exchange rate in effectat the balance sheet date. Income statement amounts have been translated usingthe average exchange rates during the year. Translation gains and lossesresulting from the changes in exchange rates from year-to-year have beenreported in other comprehensive income. The effect on the consolidatedstatements of operations of all transaction gains and losses was $600, $0 and$0 for the years ended December 31, 2006, 2005, and 2004, respectively.

**(s) OperatingSegments**

The Company manages its operations on a geographicbasis. Financial results of geographic regions are aggregated into onereportable segment since their operations have similar economiccharacteristics. These characteristics include similar products and services,processes for delivering these services, type or class of customer, andlong-term average gross margins.

**(t) RecentAccounting Pronouncements**

In September 2006, the Securities and ExchangeCommission (“SEC”) issued Staff Accounting Bulletin No. (SAB 108) whichprovides interpretive guidance on how the effects of the carryover or reversalof prior year misstatements should be considered in quantifying a current yearmisstatement. The guidance is applicable for fiscal years ending afterNovember 15, 2006, or December 31, 2006 for the Company. The guidancehad no effect on the Company’s financial statements.

In June 2006, the Financial Accounting StandardsBoard (“FASB”) issued Interpretation 48 “Accounting for Uncertainty in IncomeTaxes” (“FIN 48”), an interpretation of SFAS No. 109, “Accounting forIncome Taxes”. The interpretation prescribes a consistent recognition thresholdand measurement attribute, as well as criteria for subsequently recognizing,derecognizing and measuring tax positions for financial statement purposes. Theinterpretation also requires expanded disclosure of uncertain tax positions.The interpretation is effective for the Company on January 1, 2007. TheCompany does not anticipate that the adoption of FIN 48 will have a materialimpact on its financial position or results of operations.

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In September 2006,the FASB issued SFAS No. 157, *FairValue Measurements* (“SFAS No. 157”). SFAS No. 157 definesfair value, establishes a framework for measuring fair value under generallyaccepted accounting principles, and expands disclosures about fair valuemeasurements. SFAS No. 157 emphasizes that fair value is a market-basedmeasurement, not an entity-specific measurement, and states that a fair valuemeasurement should be determined based on the assumptions that marketparticipants would use in pricing the asset or liability. This Statementapplies under other accounting pronouncements that require or permit fair valuemeasurements, the FASB having previously concluded in those accountingpronouncements that fair value is the relevant measurement attribute.Accordingly, this Statement does not require any new fair value measurements.SFAS No. 157 is effective for fiscal years beginning afterNovember 15, 2007, and the Company intends to adopt the standard onJanuary 1, 2008. The Company is currently evaluating the impact, if any,that SFAS No. 157 will have on its financial position, results ofoperations and cash flows, but does not believe the effect will be material.

**(u) Reclassifications**

Certain prior year amountshave been reclassified to conform to the current year presentation. The effectof these reclassifications is not material to the consolidated financialstatements.

**3. Acquisitions**

**Acquisition ofWiron Construcciones Modulares, SA**

On August 18, 2006, the Company acquired a 91.5%interest in Wiron Construcciones Modulares, S.A. (“Wiron”) for approximately$53,100.

The purchase price was primarily financed with cashborrowed from the Company’s amended and restated credit facility. In addition,the Company repaid certain shareholder debt in the transaction approximating$3,400. The purchase price includes approximately $7,700 of funds that aresubject to bank guarantee agreements pending the resolution of certainpre-acquisition contingencies. To the extent these contingencies are resolvedin favor of the Sellers, these funds will be released to the Sellers. If thecontingent liabilities are satisfied by the Company, the funds will berecovered from the bank.

Wiron is headquartered in Parla, Spain and is one ofthe largest modular space providers in Spain with 14 branch locations. Wironmanufactures and leases mobile offices and had a lease fleet at acquisition ofapproximately 14,000 units. With the Company’s acquisition in July 2004 ofan 8.5% minority interest for approximately $4,700, the Company now owns 100%of the share capital of Wiron.

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Thefollowing table presents the preliminary allocation of purchase price relatedto the Wiron business as of the date of acquisition. The allocation of thepurchase price is based on preliminary estimates, subject to revision, afterthe tax basis of assets has been finalized. Any revisions to the allocationwill be reported as changes to various assets and liabilities includinggoodwill and other intangible assets:

| Current assets                                               |   | $       | 22,078 |   |
|--------------------------------------------------------------|--------|---------|--------|--------|
| Rental equipment                                             |   | 48,514  |   |
| Property and  equipment                                      |   | 8,543   |   |
| Goodwill                                                     |   | 6,131   |   |
| Other intangible  assets                                     |   | 14,599  |   |
| Other non-current  assets                                    |   | 6,234   |   |
| Total assets acquired                                        |   | 106,099 |   |
| Liabilities:  Accounts payable and other accrued liabilities |   | 29,520  |   |
| Assumed debt                                                 |   | 23,479  |   |
| Total liabilities assumed                                    |   | 52,999  |   |
| Net assets  acquired                                         |   | $       | 53,100 |   |

 

TheCompany has preliminarily estimated the fair value of Wiron’s identifiableintangible assets as $14,599. The preliminary allocation of identifiableintangible assets is as follows: 

| ** **                      | ** ** | **Estimated  Fair Value** | ** ** | **Estimated  Useful Life** | ** ** |
|---------------------------------|------------|--------------------------------|------------|---------------------------------|------------|
| Asset class:                    |       |                           |       |                            |       |   |   |   |   |
| Customer relationships          |       |                           | $          | 8,806                           |       |   |   | 8.4 years |   |   |
| Brand                           |       |                           | 1,918      |                            |       |   | 5.0 years |   |   |
| Non-compete  agreement          |       |                           | 1,712      |                            |       |   | 5.0 years |   |   |
| Government  certifications      |       |                           | 1,635      |                            |       |   | 4.0 years |   |   |
| Below market  leasing contracts |       |                           | 528        |                            |       |   | 2.0 years |   |   |
|                            |       |                           | $          | 14,599                          |       |   |   | 5.6 years |   |   |

 

The intangible assets are amortized using thestraight-line method over estimated useful lives. The purchase price allocationresulted in the recognition of approximately $6,100 of goodwill. Total goodwillas a result of the acquisition of an 8.5% minority interest in July 2004and this acquisition was $10,320. This goodwill is a result of the value of theassembled workforce acquired and the ability to earn a higher rate of returnfrom the acquired business than would be expected if those net assets had to beacquired or developed separately. Management believes the goodwill recorded asa result of this acquisition will be deductible for income tax purposes;however, management is still making a final determination of the tax basis ofthe assets.

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Thefollowing table provides pro forma results of operations for the year endedDecember 31, 2006 and 2005 as if Wiron had been acquired as of thebeginning of each period presented. The pro forma results include certainpurchase accounting adjustments such as the estimated changes in depreciationand amortization expense on acquired tangible and intangible assets as well asinterest expense on borrowings used to finance the acquisition. However, proforma results do not include any anticipated cost savings or other effects ofthe planned integration of Wiron. Accordingly, such amounts are not necessarilyindicative of the results that would have occurred if the acquisition had occurredon the dates indicated or that may result in the future. 

| ** **                                     | ** ** | **Year Ended  December 31,** | ** ** |
|------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                     | ** ** | **2006**                               | ** ** | **2005** | ** ** |
| Revenue                                        |       | $                                      | 698,309    |   | $ | 619,710 |   |
| Net income (loss)                              |       | 48,007                                 |       | (11,459 | ) |
| Earnings (loss) per common share—basic    |       | $                                      | 1.15       |   | $ | (0.41 | ) |
| Earnings (loss) per  common share—diluted |       | $                                      | 1.13       |   | $ | (0.41 | ) |

 

**Acquisition ofAmerican Homes Internacional, S.A. de C.V.**

On February 17, 2006,the Company acquired American Homes Internacional, S.A. de C.V., a Monterrey,Mexico-based company that leased and sold mobile office units. This purchaseresulted in the acquisition of approximately 300 units and the related customerbase. The transaction was accounted for under the purchase method of accountingwith a purchase price of $5,100. The excess purchase price over the estimatedfair value of the net tangible assets purchased was $2,400. The purchase pricewas financed with cash borrowed from the Company’s credit facility.

**Acquisition ofMobile Space Inc.**

On February 24, 2005,the Company acquired Mobile Space Inc., a Chicago-based company that leased andsold modular space units. This purchase resulted in the acquisition ofapproximately 640 units and the related customer base. The transaction wasaccounted for under the purchase method of accounting with a purchase price of $4,800,of which approximately $710 was recorded as goodwill. The acquisition wasfinanced with borrowings under the Company’s credit facility.

**Purchase ofCalifornia Classroom Units**

On March 26, 2004,the Company acquired nearly 3,800 relocatable Division of State Architectclassroom units located in the state of California from Transport InternationalPool, Inc. (d/b/a GE Modular Space) for approximately $43,500. The assetswere acquired using available funds under the Company’s revolving credit facility.The acquisition included the purchase of units, equipment associated with theseclassroom units as well as rights under all outstanding leases related to theseclassroom units and certain other assets. The Company did not acquireemployees, physical facilities, sales force, or other business related items.In addition, the customer base, which is primarily related to public andprivate educational institutions in the State of California, is similar to, andin many cases duplicative of, the Company’s existing customer base. As aresult, the Company considers the purchase of these assets an asset purchaserather than an acquisition of a business.

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**4. Property andEquipment**

Propertyand equipment consist of the following:

| ** **                      | ** ** | **December 31** | ** ** |
|---------------------------------|------------|----------------------|------------|
| ** **                      | ** ** | **2006**             | ** ** | **2005** | ** ** |
| Land                            | ** ** | **$**                | **24,775** |   | $ | 19,631 |   |
| Buildings and  improvements     | ** ** | **44,310**           |       | 42,175 |   |
| Furniture and  equipment        | ** ** | **66,101**           |       | 57,220 |   |
| Computer software               | ** ** | **21,157**           |       | 19,838 |   |
| Equipment under  capital leases | ** ** | **8,419**            |       | 4,028 |   |
| ** **                      | ** ** | **164,762**          |       | 142,892 |   |
| Less accumulated  depreciation  | ** ** | **71,770**           |       | 61,715 |   |
| Net property and  equipment     | ** ** | **$**                | **92,992** |   | $ | 81,177 |   |

 

Depreciation expense,including that of capital leases, related to property and equipment was$11,249, $10,901, and $9,112 for the years ended December 31, 2006, 2005,and 2004, respectively. Accumulated depreciation related to capital leases was$2,573 and $653 as of December 31, 2006 and 2005, respectively. Includedin depreciation expense is amortization expense related to capitalized computersoftware costs of $2,783, $3,713, and $3,550 for the years endedDecember 31, 2006, 2005, and 2004, respectively.

**5. Goodwill andOther Intangible Assets**

Asummary of goodwill balances for the years ended December 31 is asfollows:

| ** **                                 | ** ** | **2006**   | ** **  | **2005** | ** ** |
|--------------------------------------------|------------|------------|-------------|----------|------------|
| Beginning balance                          | ** ** | **$**      | **171,166** |     | $          | 170,340 |   |
| Acquisitions:                              | ** ** | ** ** |        |     |       |
| Mobile Space, Inc.                    | ** ** | **29**     |        | 710      |       |
| American Homes Internacional, S.A. de C.V. | ** ** | **1,058**  |        | —   |       |
| Wiron Construcciones Modulares, SA         | ** ** | **10,320** |        | —   |       |
| Effect of foreign currency translation     | ** ** | **208**    |        | 116      |       |
| Ending balance                             | ** ** | **$**      | **182,781** |     | $          | 171,166 |   |

 

The following table summarizes the balances of otherintangible assets:

 

| ** **             | ** ** | **December 31, 2006**   | ** ** | **December 31, 2005** | ** ** |
|------------------------|------------|-----------------------------------|------------|---------------------------------|------------|
| ** **             | ** ** | **Gross   Carrying  Amount** | ** ** | **Accumulated  Amortization**   | ** ** | **Net   Book   Value** | ** ** | **Gross   Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Net   Book   Value** | ** ** |
| Amortizable:           |       |                              |       |                            |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-compete agreements |       | $                                 | 4,758      |                            |       | $ | 1,279 |   |   | $ | 3,479 |   |   | $ | 3,614 |   |   |   | $ | 2,557 |   |   | $ | 1,057 |   |
| Customer relationships |       | 10,924                            |       |                            | 1,152      |   |   | 9,772 |   |   | 1,895 |   |   |   | 583 |   |   | 1,312 |   |
| Other                  |       | 4,153                             |       |                            | 397        |   |   | 3,756 |   |   | — |   |   |   | — |   |   | — |   |
|                   |       | $                                 | 19,835     |                            |       | $ | 2,828 |   |   | $ | 17,007 |   |   | $ | 5,509 |   |   |   | $ | 3,140 |   |   | $ | 2,369 |   |

 

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Amortizationexpense was approximately $1,701, $800, and $700 in 2006, 2005, and 2004,respectively. The remaining weighted-average useful life of non-competeagreements and customer relationships was 51 and 101 months, respectively Theweighted-average remaining life of all intangible assets is 79 months.Amortization expense for each of the next five years is as follows:

| 2007       |   | $     | 3,232  |   |
|------------|--------|-------|--------|--------|
| 2008       |   | 3,084 |   |
| 2009       |   | 2,800 |   |
| 2010       |   | 2,555 |   |
| 2011       |   | 1,775 |   |
| Thereafter |   | 3,561 |   |

 

**6. Revolving CreditFacility and Long-Term Debt**

Debt consists of the following:

| ** **                                                     | ** ** | **December 31** | ** ** |
|----------------------------------------------------------------|------------|----------------------|------------|
| ** **                                                     | ** ** | **2006**             | ** ** | **2005** | ** ** |
| Borrowings under  revolving credit facility                    |       | $                    | 275,018    |   | $ | 364,150 |   |
| Borrowings under  Spanish revolving credit agreements          |       | 21,874               |       | — |   |
| Term loan                                                      |       | 150,000              |       | 150,000 |   |
| 8.5% senior  notes, plus unamortized premium of $1,612 in 2006 |       | 451,612              |       | 350,000 |   |
| 10.0% senior  secured notes                                    |       | —               |       | 1,800 |   |
| Other debt                                                     |       | 2,968                |       | — |   |
| Capital lease  obligations                                     |       | 14,884               |       | 3,496 |   |
|                                                           |       | $                    | 916,356    |   | $ | 869,446 |   |

 

On June 28, 2005, the Company entered into anAmended and Restated Credit Agreement, the net proceeds of which were used torefinance the then existing credit agreement. The amended and restated creditfacility provides for a $500,000 revolving credit facility and a $150,000 termloan, both maturing on June 28, 2010. Interest on borrowings under therevolver and term loan is payable at a rate of either prime plus 1% or theEurodollar rate plus 2.5%. The interest rate margin is subject to pricingadjustments based on excess availability and a ratio defined in the creditagreement. In connection with the refinancing, approximately $5,200 of deferredfinancing costs related to the prior credit facility were expensed immediatelyand included in loss on early extinguishment of debt. The weighted-averageinterest rates of the revolver under the credit agreement were 6.89% and 6.37%at December 31, 2006 and 2005, respectively. The weighted-average interestrates of the term loan under the credit agreement were 6.85% and 6.64% atDecember 31, 2006 and 2005, respectively.

On April 12, 2006, Scotsman entered into anamendment to its Amended and Restated Credit Agreement. The amendment extendedthe maturity of the Amended and Restated Credit Facility to April 12,2011, provided for more favorable borrowing base calculations, revised therestrictive covenants to grant greater flexibility to incur debt and makeacquisitions, and revised the change of control provisions. In addition, theamendment changed the interest rate on borrowings under the revolver and termloan from a rate of either prime plus 1% or the Eurodollar rate plus 2.5% toeither prime plus 0.50% or the Eurodollar rate plus 2.0%. The interest ratemargin is also subject to pricing adjustments based on excess availability anda ratio of total funded debt to EBITDA as defined in the Amended and RestatedCredit Agreement.

On November 10, 2006, the Company entered into asecond amendment to its Amended and Restated Credit Agreement to further revisethe definition of change of control. A change of control is an event of defaultunder the credit agreement. The amendment eliminates the requirement that theEquity Investors, 

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including related partiesof The Cypress Group L.L.C. and Keystone Group, L.P., as more specificallydefined in the credit agreement, retain a minimum ownership percentage ofHoldings’ capital stock. Instead the amendment provides that it is a change ofcontrol if 25% or more of the economic or voting interest in Holdings’ capitalstock is acquired  on a fully dilutedbasis, by any person or group, other than the Equity Investors.

The total commitment under the Amended and RestatedCredit Agreement (including the term loan and revolver facility) was $650,000at December 31, 2006. Borrowings under this facility, which are based upona borrowing base calculation, are secured by a first priority lien on andsecurity interest in rental equipment, accounts receivable, property andequipment and other assets. The credit facility contains affirmative andnegative covenants customary for such financings including restrictions on theamount of dividends that Scotsman and its subsidiaries can pay to Holdings. Inaddition, if Scotsman does not meet certain excess availability requirements,the Company will be required to comply with a senior secured leverage ratio, aconsolidated interest coverage ratio and a minimum utilization test. During theyear ended December 31, 2006, Scotsman met the excess availabilityrequirements and did not have to comply with the financial covenants. Excessavailability calculated in accordance with the credit agreement under thisfacility was approximately $205,500 at December 31, 2006.

On September 29, 2005, Scotsman issued $350,000of 8.5% Senior Notes due 2015 (the 8.5% Notes). The Company used the netproceeds of approximately $340,900 received from this offering together withthe proceeds from the Company’s initial public offering and the borrowingsunder the amended and restated credit facility to repurchase or redeem the9.875% Notes due 2007 (9.875% Notes) and repurchase $148,200 of the 10.0% Notesdue 2008 (10.0% Notes). The repurchase or redemption of the 9.875% and 10.0%Notes (together, the Notes) was conducted through a tender offer and consentsolicitation whereby the Company offered to purchase all outstanding 10.0%Notes at a cash price of 109.522% of the aggregate principal amount of suchnotes and all outstanding 9.875% Notes at a cash purchase price of 100.5% ofthe aggregate principal amount of such notes plus accrued and unpaid interest.In connection with the tender offer of the Notes, the Company purchased the9.875% Notes and $148,200 of the 10% Notes. In connection with the debtextinguishment, $30,678 in deferred financing fees and premium costs related tothe tender offer and the extinguished debt were expensed and included in losson early extinguishment of debt. Also, on April 18, 2006, Scotsman issued$100,000 of additional 8.5% Senior Notes due 2015 (the 8.5% Notes) at a cashprice of 101.75% of their principal amount. The Company used the proceeds torepay a portion of its indebtedness under the revolver portion of the Amendedand Restated Credit Facility and pay related fees and expenses.

The 8.5% Notes are fully and unconditionallyguaranteed on a senior unsecured basis by Holdings and certain subsidiaries ofScotsman. Willscot has fully and unconditionally guaranteed the 8.5% Notes on asubordinated basis. None of the foreign subsidiaries of Scotsman (other thanits Canadian subsidiary) guarantee the notes. The 8.5% Notes are due on October 1,2015, with interest payable semi-annually on April 1 and October 1 ofeach year. On October 1, 2010, the 8.5% Notes will become redeemable atthe option of the Company, at a redemption price of 104.25% during the 12 monthperiod beginning October 1, 2010, declining to 100.0% during the 12 monthperiod beginning October 1, 2013 and thereafter.

In connection with the acquisition of Wiron, theCompany assumed debt. Wiron’s debt was primarily acquired to finance thepurchase of rental equipment and other property and equipment as well assupport operating activities. As of December 31, 2006, total debtoutstanding of Wiron was $35,505, including revolving credit agreementstotaling $21,874 that expire within one year, with average interest rates of4.0%, as well as capital lease obligations. These amounts are included in thedebt balances above.

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Letter of creditobligations at December 31, 2006 and 2005 were approximately $19,514 and$20,464, respectively. Maturities of debt during the years subsequent toDecember 31, 2006 are $27,003 in 2007, $6,099 in 2008, $3,691 in 2009,$2,538 in 2010, $425,777 in 2011, and $451,248 thereafter.

**7. HedgingActivities**

The Company operates in various countries, and itsearnings and cash flows are exposed to market risk from changes in currencyexchange rates. The Company addresses these risks through a risk managementprogram that may include the use of derivative financial instruments. TheCompany does not enter into any derivative transactions for speculativepurposes.

During December, 2006, the Company entered into aforeign currency forward contract to manage it’s currency transaction exposurefor an intercompany receivable which arose from the acquisition of Wiron (seeNote 3) with a notional amount of EUR 20 million. This intercompany receivableis expected to be repaid during 2007. This currency forward contract isdesignated as a cash flow hedge under SFAS No. 133 and, therefore, theeffective portions of changes in the fair value of this derivative is recordedin other comprehensive income (“OCI”), and the ineffective portion isrecognized in earnings.

To date, the ineffective portions of changes in thefair value of derivatives have not been material.  The Company did not enter into any derivativecontracts designated as cash flow hedges in 2005 or 2004. Transaction gains,which are included in selling, general and administrative expenses in theaccompanying consolidated statement of operations, were not material for thethree years ended December 31, 2006.

**8. Stockholders’Equity**

On  May 16,2006, the Company and selling shareholders sold 9,990,793 shares of its commonstock at $26.25 per share. Of the shares, 2,101,724 shares were sold by theCompany and resulted in proceeds to the Company of approximately $51,526 (netof underwriting fees and other offering expenses of approximately $3,550). Inaddition, 7,889,069 shares were offered by selling stockholders of the Company,which include related parties of The Cypress Group L.L.C. and Keystone Group,L.P. and certain members of senior management. Also, 380,000 stock options wereexercised and the shares were sold by management in connection with thisoffering, which resulted in additional net proceeds to the Company of$2,000.  The Company used its proceedsfrom this stock offering to repay a portion of its indebtedness under therevolver portion of the Amended and Restated Credit Facility and pay relatedfees and expenses.

OnSeptember 23, 2005, the Company completed an initial public offering of14,705,882 shares of common stock. Further, on October 18, 2005,the underwriters exercised over-allotment options to purchase 400,000 shares ofthe Company’s common stock. Totalproceeds of the initial public offering and over-allotment options was$223,092  (net of underwriting fees andother offering expenses of $18,602). In addition, in connection with theinitial public offering, 454,365 stock options were exercised by management ofthe Company and sold, resulting in additional net proceeds to the Company of$945. The Company recorded an excess income tax benefit of approximately$2,300 related to the exercise of these stock options as additional paid-incapital. Proceeds of the initial publicoffering were used to reduce debt.

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**9. Income Taxes**

Deferredincome taxes related to temporary differences between the tax bases of assetsand liabilities and the respective amounts reported in the financial statementsare summarized as follows:

| ** **                                                                     | ** ** | **December 31** | ** **  |
|--------------------------------------------------------------------------------|------------|----------------------|-------------|
| ** **                                                                     | ** ** | **2006**             | ** **  | **2005** | ** ** |
| Deferred tax  liabilities:                                                     | ** ** | ** **           | ** **  | ** ** | ** ** |
| Cost basis in  excess of tax basis of assets and accelerated tax depreciation: |       |                 |        |   |   |
| Rental equipment                                                               | ** ** | **$**                | **258,897** |   | $ | 259,095 |   |
| Property and equipment                                                         |       | —               |        | 985 |   |
| Intangible assets                                                              | ** ** | **623**              |        | 1,262 |   |
| Total deferred tax liabilities                                                 | ** ** | **259,520**          |        | 261,342 |   |
| Deferred tax  assets:                                                          |       |                 |        |   |   |
| Property and equipment                                                         | ** ** | **377**              |        | — |   |
| Allowance for doubtful accounts                                                | ** ** | **708**              |        | 326 |   |
| Rents billed in advance                                                        | ** ** | **9,945**            |        | 9,554 |   |
| Stock-based compensation                                                       | ** ** | **4,575**            |        | 5,458 |   |
| Deferred compensation                                                          | ** ** | **426**              |        | 367 |   |
| Net operating loss carryovers                                                  | ** ** | **85,422**           |        | 102,955 |   |
| Alternative minimum tax credit carryovers                                      | ** ** | **2,459**            |        | 1,760 |   |
| Other                                                                          | ** ** | **764**              |        | 2,216 |   |
| ** **                                                                     | ** ** | **104,676**          |        | 122,636 |   |
| Less: valuation allowance                                                      | ** ** | **(862**             | **)**       | (2,314 | ) |
| Total deferred tax assets                                                      | ** ** | **103,814**          |        | 120,322 |   |
| Net deferred tax  liabilities                                                  | ** ** | **$**                | **155,706** |   | $ | 141,020 |   |

 

At December 31, 2006, the Company had netoperating loss carryovers available for federal and foreign income tax purposesof approximately $221,000. These net operating loss carryovers expire atvarious dates from 2008 to 2024.

Net operating losses in the amount of $7,800 and $371expired in 2005 and 2004, respectively. Valuation allowances of $2,258 relatedto U.S. and Mexico net operating loss carryovers were reversed in 2006 based onchanges in estimates regarding the ability of the Company to use these losscarryovers to reduce future taxable income. A valuation allowance of $862 isrecorded based on the assessment that certain net operating loss carryovers inSpain are not currently expected to be realized.

Alternative minimum tax credit carryovers ofapproximately $2,459 are available without expiration limitations.

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Incometax expense (benefit) consists of the following:

| ** **          | ** ** | **Year ended December 31** | ** ** |
|---------------------|------------|-------------------------------------------|------------|
| ** **          | ** ** | **2006**                                  | ** ** | **2005** | ** ** | **2004** | ** ** |
| Current             |       |                                      |       |   |   |   |   |
| Federal             | ** ** | **$**                                     | **484**    |   | $ | — |   | $ | — |   |
| State               |       | —                                    |       | — |   | 412 |   |
| Foreign             |       | —                                    |       | — |   | 150 |   |
|                | ** ** | **484**                                   |       | — |   | 562 |   |
| Deferred            |       |                                      |       |   |   |   |   |
| Federal             | ** ** | **20,094**                                |       | (8,989 | ) | 562 |   |
| State               | ** ** | **2,431**                                 |       | (1,781 | ) | 117 |   |
| Foreign             | ** ** | **3,009**                                 |       | 4,233 |   | 2,345 |   |
| ** **          | ** ** | **25,534**                                |       | (6,537 | ) | 3,024 |   |
| Total income  taxes | ** ** | **$**                                     | **26,018** |   | $ | (6,537 | ) | $ | 3,586 |   |

 

Theprovision for income taxes is reconciled to the amount computed by applying theU.S. Federal statutory corporate tax rate of 35% to income (loss) before incometaxes as follows:

| ** **                                                                                     | ** ** | **Year ended December 31** | ** ** |
|------------------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                                                     | ** ** | **2006**                                  | ** ** | **2005** | ** ** | **2004** | ** ** |
| Income tax  expense (benefit) at statutory rate                                                | ** ** | **$**                                     | **26,297** |   | $ | (5,901 | ) | $ | 61 |   |
| State income  taxes, net of federal tax benefit                                                | ** ** | **2,431**                                 |       | (1,158 | ) | 344 |   |
| Change in  valuation allowance for deferred tax assets                                         | ** ** | **(1,452**                                | **)**      | — |   | 430 |   |
| Cumulative change  in deferred taxes from increase (decrease) in estimated effective tax rates | ** ** | **(1,032**                                | **)**      | — |   | 2,549 |   |
| Other (including  effect of foreign operations)                                                | ** ** | **(226**                                  | **)**      | 522 |   | 202 |   |
| ** **                                                                                     | ** ** | **$**                                     | **26,018** |   | $ | (6,537 | ) | $ | 3,586 |   |

 

During 2006, income tax decreased by $1,032 related tochanges in the estimated future effects of income taxes on cumulative temporarydifferences resulting from recent changes to enacted tax rates for Canada andcertain of its provinces. During 2004, the income tax expense increased by$2,549 related to a change in the estimate of the future effects of stateincome taxes on cumulative temporary differences, resulting from a change inthe estimated income apportionment among states in which the Company doesbusiness.

Thecomponents of income (loss) from consolidated operations before income taxes isas follows:

| ** **    | ** ** | **Year ended December 31** | ** ** |
|---------------|------------|-------------------------------------------|------------|
| ** **    | ** ** | **2006**                                  | ** ** | **2005** | ** ** | **2004** | ** ** |
| United States | ** ** | **$**                                     | **63,317** |   | $ | (28,563 | ) | $ | (5,759 | ) |
| Foreign       | ** ** | **11,817**                                |       | 11,702 |   | 5,934 |   |
| ** **    | ** ** | **$**                                     | **75,134** |   | $ | (16,861 | ) | $ | 175 |   |

 

Deferred U.S. income taxeshave not been recorded for basis differences related to investments in foreignsubsidiaries. These basis differences were approximately $28.1 million atDecember 31, 2006 and consisted primarily of undistributed earnings. Thoseearnings are considered to be indefinitely reinvested and, accordingly, no U.S.federal and state income taxes have been provided thereon. Upon distribution ofthose earnings in the form of dividends or otherwise, the Company would besubject to both U.S. income taxes (subject to an adjustment for foreign taxcredits) and withholding taxes payable to the various foreign 

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countries.Determination of the deferred income tax liability on these unremitted earningsis not practicable because such liability, if any, is dependent oncircumstances existing if and when remittance occurs.

**10. Commitments andContingencies**

TheCompany is obligated under noncancelable leases for certain equipment, vehiclesand parcels of land. At December 31, 2006 approximate future minimumrental payments are as follows:

| ** **                           | ** ** | **Operating  Leases** | ** ** | **Capital  Leases** | ** ** |
|--------------------------------------|------------|-----------------------|------------|---------------------|------------|
| 2007                                 |       |                  | $          | 7,399               |       |   | $ | 5,492 |   |
| 2008                                 |       |                  | 5,766      |                |       | 4,451 |   |
| 2009                                 |       |                  | 4,530      |                |       | 3,300 |   |
| 2010                                 |       |                  | 3,633      |                |       | 2,484 |   |
| 2011                                 |       |                  | 3,060      |                |       | 550 |   |
| Thereafter                           |       |                  | 5,774      |                |       | 809 |   |
|                                 |       |                  | 30,162     |                |       | 17,086 |   |
| Less: Amounts  representing interest |       |                  | —     |                |       | 2,202 |   |
| Total minimum future  lease payments |       |                  | $          | 30,162              |       |   | $ | 14,884 |   |

 

Rent expense was $13,708 in 2006, $13,555 in 2005, and$12,869 in 2004.

The Company maintains insurance coverage for itsoperations and employees with appropriate aggregate, per occurrence anddeductible limits as the Company reasonably determines is necessary or prudentbased upon current operations and historical experience. The majority of thesecoverages have large deductible amounts which allow for potential improved cashflow benefits based on the Company’s loss control efforts. The current perincident deductibles are $125 for employee group health insurance and $500 forworker’s compensation, auto, and general liability.

The Company expenses the deductible portion of theindividual claims. However, the Company generally does not know the full amountof its exposure to a deductible in connection with any particular claim duringthe fiscal period in which the claim is incurred and for which the Company mustmake an accrual for the deductible expense. The Company makes these accrualsbased on a combination of the claims review by its staff and insurancecompanies, and, periodically, the accrual is reviewed and adjusted based on theCompany’s loss experience. A high degree of judgment is required in developingthese estimates of amounts to be accrued, as well as in connection with theunderlying assumptions. In addition, the Company’s assumptions will change asits loss experience is developed. All of these factors have the potential forsignificantly impacting the amounts the Company has previously reserved inrespect of anticipated deductible expenses, and the Company may be required inthe future to increase or decrease amounts previously accrued.

Currently, the Company isinvolved in various lawsuits and claims arising out of the normal course of itsbusiness. The nature of the Company’s business is such that disputesoccasionally arise with vendors, including suppliers and subcontractors, andcustomers over warranties, contract specifications and contract interpretationsamong other things. The Company assesses these matters on a case-by-case basisas they arise. Reserves are established, as required, based on the Company’sassessment of its exposure. As noted above, the Company has insurance policiesto cover general liability and workers compensation related claims. In theopinion of management, the ultimate amount of liability not covered byinsurance, if any, under pending litigation and claims will not have a materialadverse effect on the financial position or operating results of the Company.

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**11. EmployeeBenefit Plans**

**Definedcontribution plan.****  **TheCompany has adopted a defined contribution plan (the 401(k) Plan) which isintended to satisfy the tax qualification requirements of Sections 401(a),401(k), and 401(m) of the Internal Revenue Code of 1986 (the Code). The401(k) Plan covers substantially all employees and permits participants tocontribute up to the dollar limit described in Section 402(g) of theCode ($15 in 2006). All amounts deferred under this salary reduction featureare fully vested. In accordance with the Economic Growth and Tax Relief Act of2001, the Plan also allows employees over the age of 50 to contribute anadditional $5 as a “catch-up contribution.”

The 401(k) Plan has a “matching” contributionfeature under which the Company may contribute a percentage of the amount deferredby each participant, excluding the “catch-up contribution.” Such percentage, ifany, is determined by Company management at its discretion. The Plan also has adiscretionary “profit sharing” feature, under which the Company may contribute,at its discretion, an additional amount allocable to the accounts of activeparticipants meeting the aforementioned eligibility requirements. Companycontributions to the 401(k) Plan participant vest ratably during the firstfive years of a participant’s employment and 100% thereafter. Matchingcontributions by the Company to the 401(k) Plan were $671 in 2006, $582 in2005, and $315 in 2004. No contributions were made by the Company under theprofit-sharing feature for the years ended December 31, 2005 or 2004.During 2006, $633 of contributions were made by the Company under theprofit-sharing feature.

**Deferredcompensation plan.****  **TheCompany has adopted a Deferred Compensation Plan for Executives which is meantto be an unfunded deferred compensation plan maintained for a select group ofmanagement within the meaning of Sections 201(2), 301(a)(3) and401(a)(1) of the Employee Retirement Income Security Act of 1974. Thisplan allows key employees to defer a specified amount of their compensationuntil termination or upon the occurrence of other specified events. All amountscredited to participants’ accounts are deemed invested in the investmentvehicles of the employee’s choice. As of December 31, 2006 and 2005, thetotal amount deferred under this plan, including earnings, was approximately$481 and $321, respectively.

**RestrictedStock Units.****  **TheCompany awards members of its board of directors restricted stock units (RSU). The RSU awards granted priorto June 30, 2006 fully vest in six months from the award date, and weresettled at that time in shares of the Company’s common stock. The sharesreceived in respect of the RSU awards cannot be sold or transferred until oneyear after the recipient has ceased to serve as a director of the Company.  RSU awards granted after June 30, 2006fully vest in six months from the award date, and become available forsettlement in shares of the Company’s common stock at the earliest of(i) the recipient’s death, (ii), a change in control, or (iii) oneyear after the recipient has ceased to serve as a director of the Company. Forthe year ended December 31, 2006, 14,668 restricted stock units weregranted at a weighted-average grant price of $21.47 per share and remainunvested at December 31, 2006. For the year ended December 31, 2005,16,872 restricted stock units were granted at a weighted-average grant price of$16.04 per share and are vested at December 31, 2006. The Company hasrecorded approximately $293 and $113 of stock compensation related to theseawards for the year ended December 31, 2006 and 2005, respectively. As ofDecember 31, 2006, there are 14,668 unvested RSU’s.

**Stockoptions.****  **TheCompany has adopted stock option plans for certain key employees of theCompany. In 2005, the Company adopted the 2005 Employee Stock Option Plan (the“2005 Plan”) which allowed for up to 1.8 million options to be granted. In 2003the Company adopted the 2003 Employee Stock Option Plan (the “2003 plan”) whichallowed for up to 874,690 options to be granted. Under the 1997 Employee StockOption Plan (the “1997 Plan”), up to 1,823,538 options to purchase theCompany’s outstanding common stock could be granted. Prior to the Company’srecapitalization in 1997, the Company had adopted the 1994 Employee StockOption Plan (the “1994  plan”) forcertain key employees. All options outstanding under the 2003 Plan and 1997Plan eligible for vesting became fully vested in 

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conjunction with theCompany’s 2005 initial public offering. As a result of this acceleratedvesting, the Company recorded approximately $2,400 of additional stockcompensation for the year ended December 31, 2005.

The options under the Stock Option Plans are grantedwith an exercise price equal to the estimated fair value of the shares as ofthe date of grant. Alloptions issued under plans, other than the Company’s 2005 Omnibus Award Plan,are vested. Under the Company’s 2005 Plan, nonqualified stock options have beengranted to officers and employees. One half of employee stock options vest overfour years and expire ten years from the date of grant. The other half of theseoptions vest over four years, contingent upon certain performance goals of theCompany being met. All options expire 10 years from the date ofgrant.

Asummary of stock option activity and related information for the year endedDecember 31, 2006 is as follows:

| ** **                                              | ** ** | **Shares** | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Weighted  Average  Remaining  Contractual  Term (years)** | ** ** | **Aggregate  Intrinsic  Value** | ** ** |
|---------------------------------------------------------|------------|------------|------------|----------------------------------------|------------|------------------------------------------------------------------|------------|---------------------------------|------------|
| January 1,  2006                                   |       | 4,216,758  |       |                                   | $          | 8.61                                                             |       |                            |       | 3.7 |   |   |   | $ | 36,696 |   |   |
| Granted                                                 |       | 609,750    |       |                                   | 21.67      |                                                             |       |                            | —     |   |   |   | — |   |   |
| Exercised                                               |       | (1,697,505 | )          |                                   | 4.92       |                                                             |       |                            | —     |   |   |   | 32,185 |   |   |
| Forfeited/expired                                       |       | (270,758   | )          |                                   | 6.69       |                                                             |       |                            | —     |   |   |   | — |   |   |
| Outstanding at  December 31, 2006                  |       | 2,858,245  |       |                                   | 13.74      |                                                             |       |                            | 5.6        |   |   |   | 18,064 |   |   |
| Vested and  expected to vest at December  31, 2006 |       | 2,744,706  |       |                                   | 13.52      |                                                             |       |                            | 5.5        |   |   |   | 17,874 |   |   |
| Exercisable at  December 31, 2006                  |       | 1,853,293  |       |                                   | $          | 10.64                                                            |       |                            |       | 3.6 |   |   |   | $ | 16,634 |   |   |

 

The total intrinsic value of stock options exercisedwas $32,185, $7,781, and $0 for the years ended December 31, 2006, 2005,and 2004, respectively. The total fair value of options vested was $2,765 forthe year ended December 31, 2006.

Compensation expense related to options is beingamortized straight line over the vesting period. As of December 31, 2006,there was $7,231  of total unrecognizedcompensation costs related to share-based payments. Further, as ofDecember 31, 2006, 644,846 shares were not yet exercisable as a result oftime-based vesting, and 360,106 shares are exercisable contingent upon meetingcertain performance goals of the Company. These costs are expected to berecognized over a weighted average period of 2.2 years.

Cash received and income tax benefits recognized innet income from stock option exercises for the year ended December 31,2006 was $8,449 and $1,042, respectively. The Company uses the tax law methodto determine the ordering of available tax benefits when assessing therealization of stock based compensation deductions.

*At December 31, 2006 and 2005,the Company had approximately 3,489,780 and 5,470,758 shares of common stockreserved for the exercise of outstanding stock options and additional stockoptions authorized for granting under existing stock option plans.*

**Employee Stock Purchase Plan.****  **The Company has an employee stockpurchase plan for all eligible employees. Under this plan, shares of theCompany’s common stock may be purchased by employees at six-month intervals at95.25% of the quoted market value on the day before the last day of eachsix-month period. During the year ended December 31, 2006, the Companydelivered 14,419 shares to its employees under its employee stock purchaseplan. As of December 31, 2006, 985,581 shares were reserved for futureissuance under this plan.

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**12. HurricaneDamage and Recovery**

During the third quarter of 2004, approximately 500mobile office and storage units, the majority of which were not on rent, with abook value of approximately $3,400 were destroyed as a result of severalhurricanes (the “2004 Hurricanes”) experienced in the southeast region of theUnited States. In addition, approximately 200 units as well as certain otherCompany assets were damaged. The total costs related to these stormsapproximated $4,600. During 2005, the Company settled with its insurancecompanies for approximately $8,600 to cover losses from these storms, of which$5,000 was received as of December 31, 2004 and the remainder during 2005.During the fourth quarter of 2004, the Company recorded in other revenues approximately$3,300, representing the realized gain from the involuntary conversion of theseassets lost in the 2004 Hurricanes. In addition, during the third quarter of2005, the Company reduced the amount of losses accrued for damage to rentalunits from the 2004 Hurricanes by approximately $700 as a result of a finalsettlement with insurers.

During the third quarterof 2005, certain of the Company’s assets were damaged or destroyed as a resultof hurricanes (the “2005 Hurricanes”) experienced in the southern region of theU.S. The Company’s losses were primarily related to units on rent, for whichrental customers have elected the Company’s insurance waiver program, anddamages to other company assets. The Company self-insures units under thewaiver program. Based on the Company’s assessment of the damages, approximately200 units have been either damaged or destroyed as a result of the hurricanesfor which some portion of the damage was not recoverable from either thecustomer or through insurance. Based on the Company’s assessment of itsprobable loss, the Company recorded a charge of approximately $1,700 inSeptember 2005. As noted above, during the third quarter of 2005, theCompany reduced the amount of losses accrued for damage to rental units from2004 Hurricanes by approximately $700 as a result of a final settlement withinsurers. The net charge of $1,000 was recorded in other expenses.

**13. PrepaidExpenses and Other Current Assets and Accrued Expenses and Other CurrentLiabilities**

Prepaidexpenses and other current assets consists of the following as ofDecember 31:

| ** **                                          | ** ** | **2006**   | ** ** | **2005** | ** ** |
|-----------------------------------------------------|------------|------------|------------|----------|------------|
| Cost in excess of  billings on modular construction | ** ** | **$**      | **3,428**  |     | $          | 13,311 |   |
| Steps, ramps and  other parts                       | ** ** | **32,336** |       | 23,431   |       |
| Prepaid expenses                                    | ** ** | **17,174** |       | 9,888    |       |
| Prepaid expenses and  other current assets          | ** ** | **$**      | **52,938** |     | $          | 46,630 |   |

 

Accruedexpenses and other current liabilities consists of the following as ofDecember 31:

| ** **                                          | ** ** | **2006**   | ** ** | **2005** | ** ** |
|-----------------------------------------------------|------------|------------|------------|----------|------------|
| Payroll and  employee benefits                      | ** ** | **$**      | **14,884** |     | $          | 10,372 |   |
| Accrued interest                                    | ** ** | **12,887** |       | 13,245   |       |
| Billings in  excess of cost on modular construction | ** ** | **3,020**  |       | 2,476    |       |
| Other liabilities                                   | ** ** | **32,930** |       | 15,014   |       |
| Accrued expenses and  other current liabilities     | ** ** | **$**      | **63,721** |     | $          | 41,107 |   |

 

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**14. GeographicInformation**

Netsales by geographic area for the years ended December 31 were as follows:

| ** **               | ** ** | **2006**   | ** **  | **2005** | ** ** | **2004** | ** ** |
|--------------------------|------------|------------|-------------|----------|------------|----------|------------|
| United States            | ** ** | **$**      | **591,152** |     | $          | 548,811  |       | $ | 468,417 |   |
| Canada                   | ** ** | **71,856** | ** **  | 42,314   |       | 29,463   |       |
| All other  countries (a) | ** ** | **17,792** |        | 1,333    |       | 45       |       |
| **Total  revenue**       | ** ** | **$**      | **680,800** |     | $          | 592,458  |       | $ | 497,925 |   |

 

Long-livedassets, comprising property and equipment, rental equipment, goodwill and otherintangible assets as of December 31 were as follows:

| ** **                   | ** ** | **2006**       | ** ** | **2005**   | ** ** | **2004**   | ** ** |
|------------------------------|------------|----------------|------------|------------|------------|------------|------------|
| United States                | ** ** | **$1,145,897** |       | $1,101,655 |       | $1,060,393 |       |
| Canada                       | ** ** | **111,667**    | ** ** | 93,249     |       | 72,800     |       |
| All other  countries (a)     | ** ** | **101,685**    |       | 4,437      |       | 798        |       |
| **Total  long-lived assets** | ** ** | **$1,359,249** |       | $1,199,341 |       | $1,133,991 |       |

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(a)           includesthe Company’s operations in Spain and Mexico.

**15. SupplementalCondensed Consolidating Financial Information**

Scotsman has outstanding $450,000 of 8.5% Senior Notesdue 2015. The 8.5% Notes are fully and unconditionally guaranteed on a seniorunsecured basis by Williams Scotsman International and Scotsman’s 100% ownedsubsidiaries, Space Master International, Inc., Evergreen Mobile Company,and Truck & Trailer Sales, Inc. Willscot Equipment, LLC, a 100%owned subsidiary of Scotsman, has fully and unconditionally guaranteed the 8.5%Notes on a subordinated basis. These 100% owned “Guarantor Subsidiaries”, actas joint and several guarantors of the Senior Notes. Effective March 9,2007, the Company entered into an amendment (the “Amendment”) to its Amendedand Restated Credit Facility removing Williams Scotsman of Canada, Inc.(WS Canada), a 100% owned subsidiary of Scotsman, as a guarantor under the debt(see Note 16).

Accordingly, the followingpresents condensed consolidating financial information for Holdings, Scotsman,the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries, which consist ofWS Europe, WS Mexico, and WS Canada as a result of the Amendment. Space MasterInternational, Inc., Evergreen Mobile Company, and Truck &Trailer Sales, Inc. do not have any assets or operations.

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|                                                   | ** ** | **December 31, 2006** | ** ** |
|---------------------------------------------------|------------|---------------------------------|------------|
| ** **                                        | ** ** | **Parent**                      | ** ** | **Williams  Scotsman, Inc.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| *Balance Sheet*                                   | * *   | * *                        | * *   |   | * * | * * |   |   | * * | * * |   |   | * * | * * |   | * * | * * |   | * * | * * |   |
| Assets:                                           |       |                            |       |   |   | * * |   |   |   | * * |   |   |   | * * |   |   |   |   |   | * * |   |
| Cash                                              |       | $                               | 2          |   |   | $ | 316 | * * |   |   | $ | — | * * |   |   | $ | 6,177 | * * |   | $ | — |   |   | $ | 6,495 | * * |   |
| Rental equipment, net                             |       | —                          |       |   | 301,598 | * * |   |   | 592,121 | * * |   |   | 172,750 | * * |   | — |   |   | 1,066,469 | * * |   |
| Property and equipment,  net                      |       | —                          |       |   | 80,295 | * * |   |   | — | * * |   |   | 12,697 | * * |   | — |   |   | 92,992 | * * |   |
| Investment in  subsidiaries                       |       | 352,202                         |       |   | 703,540 | * * |   |   | — | * * |   |   | — | * * |   | (1,055,742 | ) |   | — | * * |   |
| Goodwill and intangible  assets    |       | —                          |       |   | 171,882 | * * |   |   | — | * * |   |   | 27,906 | * * |   | — |   |   | 199,788 | * * |   |
| Other assets                                      |       | —                          |       |   | 167,704 | * * |   |   | (8,614 | ) |   |   | 63,085 | * * |   | — |   |   | 222,175 | * * |   |
| Total assets                                      |       | $                               | 352,204    |   |   | $ | 1,425,335 | * * |   |   | $ | 583,507 | * * |   |   | $ | 282,615 | * * |   | $ | (1,055,742 | ) |   | $ | 1,587,919 | * * |   |
| Liabilities:                                      |       |                            |       |   |   | * * |   |   |   | * * |   |   |   | * * |   |   |   |   |   | * * |   |
| Accounts payable                                  |       | $                               | —     |   |   | $ | 42,082 | * * |   |   | $ | — | * * |   |   | $ | 16,882 | * * |   | $ | — |   |   | $ | 58,964 | * * |   |
| Revolving credit  facility                        |       | —                          |       |   | 275,018 | * * |   |   | — | * * |   |   | 21,874 | * * |   | — |   |   | 296,892 | * * |   |
| Long-term debt                                    |       | —                          |       |   | 605,833 | * * |   |   | — | * * |   |   | 13,631 | * * |   | — |   |   | 619,464 | * * |   |
| Deferred income taxes                             |       | (15,964                         | )          |   | 158,769 | * * |   |   | — | * * |   |   | 12,901 | * * |   | — |   |   | 155,706 | * * |   |
| Other liabilities                                 |       | 27                              |       |   | 69,760 | * * |   |   | — | * * |   |   | 18,965 | * * |   | — |   |   | 88,752 | * * |   |
| Total liabilities                                 |       | (15,937                         | )          |   | 1,151,462 | * * |   |   | — | * * |   |   | 84,253 | * * |   | — |   |   | 1,219,778 | * * |   |
| Equity                                            |       | 368,141                         |       |   | 273,873 | * * |   |   | 583,507 | * * |   |   | 198,362 | * * |   | (1,055,742 | ) |   | 368,141 | * * |   |
| Total liabilities and stockholders’ equity   |       | $                               | 352,204    |   |   | $ | 1,425,335 | * * |   |   | $ | 583,507 | * * |   |   | $ | 282,615 | * * |   | $ | (1,055,742 | ) |   | $ | 1,587,919 | * * |   |

 
|                                                   | ** ** | **December 31, 2005** | ** ** |
|---------------------------------------------------|------------|---------------------------------|------------|
| ** **                                        | ** ** | **Parent**                      | ** ** | **Williams  Scotsman, Inc.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| *Balance Sheet*                                   | * *   | * *                        | * *   |   | * * | * * |   |   | * * | * * |   |   | * * | * * |   | * * |   |   | * * | * * |   |
| Assets:                                           |       |                            |       |   |   | * * |   |   |   | * * |   |   |   | * * |   | * * |   |   |   | * * |   |
| Cash                                              |       | $                               | 74         |   |   | $ | 272 | * * |   |   | $ | — | * * |   |   | $ | 123 | * * |   | $ | — |   |   | $ | 469 | * * |   |
| Rental equipment, net                             |       | —                          |       |   | 286,997 | * * |   |   | 564,923 | * * |   |   | 92,709 | * * |   | — |   |   | 944,629 | * * |   |
| Property and equipment,  net                      |       | —                          |       |   | 78,220 | * * |   |   | — | * * |   |   | 2,957 | * * |   | — |   |   | 81,177 | * * |   |
| Investment in  subsidiaries                       |       | 239,111                         |       |   | 655,420 | * * |   |   | — | * * |   |   | — | * * |   | (894,531 | ) |   | — | * * |   |
| Goodwill and intangible  assets    |       | —                          |       |   | 171,240 | * * |   |   | — | * * |   |   | 2,295 | * * |   | — |   |   | 173,535 | * * |   |
| Other assets                                      |       | (1                              | )          |   | 163,918 | * * |   |   | (3,720 | ) |   |   | 20,613 | * * |   | — |   |   | 180,810 | * * |   |
| Total Assets                                      |       | $                               | 239,184    |   |   | $ | 1,356,067 | * * |   |   | $ | 561,203 | * * |   |   | $ | 118,697 | * * |   | $ | (894,531 | ) |   | $ | 1,380,620 | * * |   |
| Liabilities:                                      |       |                            |       |   |   | * * |   |   |   | * * |   |   |   | * * |   | * * |   |   |   | * * |   |
| Accounts payable                                  |       | $                               | —     |   |   | $ | 58,980 | * * |   |   | $ | — | * * |   |   | $ | 1,705 | * * |   | $ | — |   |   | $ | 60,685 | * * |   |
| Revolving credit  facility                        |       | —                          |       |   | 364,150 | * * |   |   | — | * * |   |   | — | * * |   | — |   |   | 364,150 | * * |   |
| Long-term debt                                    |       | —                          |       |   | 505,296 | * * |   |   | — | * * |   |   | — | * * |   | — |   |   | 505,296 | * * |   |
| Deferred income taxes                             |       | (5,555                          | )          |   | 136,598 | * * |   |   | — | * * |   |   | 9,977 | * * |   | — |   |   | 141,020 | * * |   |
| Other liabilities                                 |       | (2                              | )          |   | 61,960 | * * |   |   | — | * * |   |   | 2,770 | * * |   | — |   |   | 64,728 | * * |   |
| Total liabilities                                 |       | (5,557                          | )          |   | 1,126,984 | * * |   |   | — | * * |   |   | 14,452 | * * |   | — |   |   | 1,135,879 | * * |   |
| Equity                                            |       | 244,741                         |       |   | 229,083 | * * |   |   | 561,203 | * * |   |   | 104,245 | * * |   | (894,531 | ) |   | 244,741 | * * |   |
| Total liabilities and stockholders’ equity   |       | $                               | 239,184    |   |   | $ | 1,356,067 | * * |   |   | $ | 561,203 | * * |   |   | $ | 118,697 | * * |   | $ | (894,531 | ) |   | $ | 1,380,620 | * * |   |

 

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| ** **                                   | ** ** | **Year Ended December 31, 2006** | ** ** |
|----------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                   | ** ** | **Parent**                                           | ** ** | **Williams  Scotsman, Inc.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| *Results of Operations*                      | * *   |                                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total revenues                               |       | $                                                    | —     |   |   | $ | 513,574 | * * |   |   | $ | 77,577 | * * |   |   | $ | 89,649 | * * |   |   | $ | — | * * |   |   | $ | 680,800 | * * |   |
| Cost of sales and  services                  |       | —                                               |       |   | 325,199 | * * |   |   | 26,259 | * * |   |   | 47,501 | * * |   |   | — | * * |   |   | 398,959 | * * |   |
| Gross profit                                 |       | —                                               |       |   | 188,375 | * * |   |   | 51,318 | * * |   |   | 42,148 | * * |   |   | — | * * |   |   | 281,841 | * * |   |
| Selling, general and administrative expenses |       | (457                                                 | )          |   | 102,313 | * * |   |   | — | * * |   |   | 13,702 | * * |   |   | — | * * |   |   | 115,558 | * * |   |
| Other  depreciation and amortization         |       | —                                               |       |   | 14,651 | * * |   |   | — | * * |   |   | 4,071 | * * |   |   | — | * * |   |   | 18,722 | * * |   |
| Interest                                     |       | —                                               |       |   | 71,815 | * * |   |   | — | * * |   |   | 522 | * * |   |   | — | * * |   |   | 72,337 | * * |   |
| Loss on early  extinguishment of debt        |       | —                                               |       |   | 90 | * * |   |   | — | * * |   |   | — | * * |   |   | — | * * |   |   | 90 | * * |   |
| Intercompany  interest and management fee    |       | (1,401                                               | )          |   | (61,955 | ) |   |   | 51,318 | * * |   |   | 12,038 | * * |   |   | — | * * |   |   | — | * * |   |
| Income tax  expense (benefit)                |       | 441                                                  |       |   | 22,577 | * * |   |   | — | * * |   |   | 3,000 | * * |   |   | — | * * |   |   | 26,018 | * * |   |
| Equity in  earnings of subsidiary            |       | 47,699                                               |       |   | 10,943 | * * |   |   | — | * * |   |   | — | * * |   |   | (58,642 | ) |   |   | — | * * |   |
| Net income (loss)                            |       | $                                                    | 49,116     |   |   | $ | 49,827 | * * |   |   | $ | — | * * |   |   | $ | 8,815 | * * |   |   | $ | (58,642 | ) |   |   | $ | 49,116 | * * |   |

 

| ** **                                    | ** ** | **Year Ended December 31, 2005** | ** ** |
|-----------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                    | ** ** | **Parent**                                           | ** ** | **Williams  Scotsman, Inc.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| *Results of Operations*                       |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total revenues                                |       | $                                                    | —     |   |   | $ | 475,205 |   |   |   | $ | 73,004 |   |   |   | $ | 44,249 |   |   |   | $ | — |   |   | $ | 592,458 |   |
| Cost of sales and  services                   |       | —                                               |       |   | 323,617 |   |   |   | 25,753 |   |   |   | 24,482 |   |   |   | — |   |   | 373,852 |   |
| Gross profit                                  |       | —                                               |       |   | 151,588 |   |   |   | 47,251 |   |   |   | 19,767 |   |   |   | — |   |   | 218,606 |   |
| Selling, general and  administrative expenses |       | 71                                                   |       |   | 91,357 |   |   |   | — |   |   |   | 5,540 |   |   |   | — |   |   | 96,968 |   |
| Other depreciation and  amortization          |       |                                                 |       |   | 14,097 |   |   |   | — |   |   |   | 2,521 |   |   |   | — |   |   | 16,618 |   |
| Interest                                      |       | (6                                                   | )          |   | 91,205 |   |   |   | — |   |   |   | 4 |   |   |   | — |   |   | 91,203 |   |
| Loss on early  extinguishment of debt         |       | —                                               |       |   | 30,678 |   |   |   | — |   |   |   | — |   |   |   | — |   |   | 30,678 |   |
| Intercompany interest  and management fee     |       |                                                 |       |   | (47,251 | ) |   |   | 47,251 |   |   |   | — |   |   |   | — |   |   | — |   |
| Income tax expense  (benefit)                 |       | (19                                                  | )          |   | (10,751 | ) |   |   | — |   |   |   | 4,233 |   |   |   | — |   |   | (6,537 | ) |
| Equity in earnings  (loss) of subsidiary      |       | (10,278                                              | )          |   | 8,086 |   |   |   | — |   |   |   | — |   |   |   | 2,192 |   |   | — |   |
| Net income (loss)                             |       | $                                                    | (10,324    | ) |   | $ | (9,661 | ) |   |   | $ | — |   |   |   | $ | 7,469 |   |   |   | $ | 2,192 |   |   | $ | (10,324 | ) |

 

68

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| ** **                                               | ** ** | **Year Ended December 31, 2006** | ** ** |
|----------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                               | ** ** | **Parent**                                           | ** ** | **Williams  Scotsman, Inc.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| *Cash  Flows*                                            | * *   | * *                                             | * *   |   | * * | * * |   |   | * * | * * |   |   | * * |   |   |   |   | * * |   | * * | * * |
| Cash (used in) provided by operating activities          |       | $                                                    | (79,408    | ) |   | $ | 60,493 | * * |   |   | $ | 31,154 | * * |   |   | $ | 89,039 |   |   |   | $ | — | * * |   | $ | 101,278 |   |
| Rental equipment additions                               |       | —                                               |       |   | (110,640 | ) |   |   | (8,850 | *)* |   |   | (44,542 | ) |   |   | — | * * |   | (164,032 | ) |
| Cash provided by  (used in) other investing activities   |       | —                                               |       |   | 50,431 |   |   |   | (22,304 | *)* |   |   | (48,660 | ) |   |   | — | * * |   | (20,533 | ) |
| Cash used in  investing activities                       |       | —                                               |       |   | (60,209 | ) |   |   | (31,154 | *)* |   |   | (93,202 | ) |   |   | — | * * |   | (184,565 | ) |
| Proceeds from debt                                       |       | —                                               |       |   | 1,001,922 |   |   |   | — | * * |   |   | 20,802 |   |   |   | — | * * |   | 1,022,724 |   |
| Repayments of  debt                                      |       | —                                               |       |   | (990,469 | ) |   |   | — | * * |   |   | (9,910 | ) |   |   | — | * * |   | (1,000,379 | ) |
| Proceeds from  offering of common stock                  |       | —                                               |       |   | 51,526 |   |   |   | — | * * |   |   | — |   |   |   | — | * * |   | 51,526 |   |
| Proceeds from  employee stock purchases                  |       | —                                               |       |   | 274 |   |   |   | — | * * |   |   | — |   |   |   | — | * * |   | 274 |   |
| Proceeds from  employee stock options                    |       | —                                               |       |   | 8,449 |   |   |   | — | * * |   |   | — |   |   |   | — | * * |   | 8,449 |   |
| Excess tax  benefit from exercise of stock options       |       | 11,440                                               |       |   | — |   |   |   | — | * * |   |   | — |   |   |   | — | * * |   | 11,440 |   |
| Payment of  dividends to Williams Scotsman International |       | 67,297                                               |       |   | (67,297 | ) |   |   | — | * * |   |   | — |   |   |   | — | * * |   | — |   |
| Deferred  financing costs                                |       | —                                               |       |   | (4,375 | ) |   |   | — | * * |   |   | — |   |   |   | — | * * |   | (4,375 | ) |
| Cash provided by  financing activities                   |       | 78,737                                               |       |   | 30 |   |   |   | — | * * |   |   | 10,892 |   |   |   | — | * * |   | 89,659 |   |
| Effect of change in exchange rates                       |       | 599                                                  |       |   | (271 | ) |   |   | — | * * |   |   | (674 | ) |   |   | — | * * |   | (346 | ) |
| Net change in cash                                       |       | (72                                                  | )          |   | 43 |   |   |   | — | * * |   |   | 6,055 |   |   |   | — | * * |   | 6,026 |   |
| Cash at beginning of period                              |       | 74                                                   |       |   | 273 |   |   |   | — | * * |   |   | 122 |   |   |   | — | * * |   | 469 |   |
| Cash at end of  period                                   |       | $                                                    | 2          |   |   | $ | 316 | * * |   |   | $ | — | * * |   |   | $ | 6,177 |   |   |   | $ | — | * * |   | $ | 6,495 |   |

 

69

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| ** **                                               | ** ** | **Year Ended December 31, 2005** | ** ** |
|----------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                               | ** ** | **Parent**                                           | ** ** | **Williams  Scotsman, Inc.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-  Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| *Cash Flows*                                             | * *   |                                                 | * *   | * * |   |   | * * | * * |   |   | * * | * * |   |   | * * | * * |   |   | * * | * * |   | * * | * * |
| Cash (used in) provided by operating activities          |       |                                                 | $          | (70 | ) |   |   | $ | 29,320 |   |   |   | $ | 31,276 | * * |   |   | $ | 6,989 | * * |   |   | $ | — | * * |   | $ | 67,515 |   |
| Rental equipment additions                               |       |                                                 | —     | * * |   |   | (108,100 | ) |   |   | (3,315 | ) |   |   | (28,400 | ) |   |   | — | * * |   | (139,815 | ) |
| Cash (used in)  provided by other investing activities   |       |                                                 | —     | * * |   |   | 37,055 |   |   |   | (27,961 | ) |   |   | 15,416 | * * |   |   | — | * * |   | 24,510 |   |
| Cash used in  investing activities                       |       |                                                 | —     | * * |   |   | (71,045 | ) |   |   | (31,276 | *)* |   |   | (12,984 | ) |   |   | — | * * |   | (115,305 | ) |
| Proceeds from debt                                       |       |                                                 | —     | * * |   |   | 1,473,724 |   |   |   | — | * * |   |   | — |   |   |   | — | * * |   | 1,473,724 |   |
| Repayments of  debt                                      |       |                                                 | —     | * * |   |   | (1,631,548 | ) |   |   | — | * * |   |   | — |   |   |   | — | * * |   | (1,631,548 | ) |
| Proceeds from  offering of common stock                  |       |                                                 | —     | * * |   |   | 223,092 |   |   |   | — | * * |   |   | — |   |   |   | — | * * |   | 223,092 |   |
| Proceeds from  employee stock options                    |       |                                                 | —     | * * |   |   | 1,383 |   |   |   | — | * * |   |   | — |   |   |   | — | * * |   | 1,383 |   |
| Payment of  dividends to Williams Scotsman International |       |                                                 | 140        | * * |   |   | (140 | ) |   |   | — | * * |   |   | — |   |   |   | — | * * |   | — |   |
| Cash (used in)  provided by other financing activities   |       |                                                 | —     | * * |   |   | (19,266 | ) |   |   | — | * * |   |   | — |   |   |   | — | * * |   | (19,266 | ) |
| Cash provided by  financing activities                   |       |                                                 | 140        | * * |   |   | 47,245 |   |   |   | — | * * |   |   | — |   |   |   | — | * * |   | 47,385 |   |
| Effect of change in exchange rates                       |       |                                                 | —     | * * |   |   | (5,427 | ) |   |   | — | * * |   |   | 5,362 |   |   |   | — | * * |   | (65 | ) |
| Net change in cash                                       |       |                                                 | 70         | * * |   |   | 93 |   |   |   | — | * * |   |   | (633 | ) |   |   | — | * * |   | (470 | ) |
| Cash at beginning of period                              |       |                                                 | 4          | * * |   |   | 181 |   |   |   | — | * * |   |   | 754 |   |   |   | — | * * |   | 939 |   |
| Cash at end of  period                                   |       |                                                 | $          | 74 | * * |   |   | $ | 274 |   |   |   | $ | — | * * |   |   | $ | 121 |   |   |   | $ | — | * * |   | $ | 469 |   |

 

**16. SubsequentEvents**

On March 9, 2007, Scotsman entered into anamendment to its Amended and Restated Credit Agreement. Under the amendment, WSCanada was released as a guarantor under the Amended and Restated CreditAgreement, and WS Canada’s pledge of its assets was terminated. In addition,the amendment provides that Scotsman’s pledge of WS Canada’s stock will bereduced to 65% from 100%. As a result of the release of WS Canada from its guaranteeunder the Amended and Restated Credit Agreement, its guarantee under the 8.5%Notes indenture was also released.

On March 8, 2007, the Company acquired the assetsof Honolulu-based Hawaii Modular Space, Inc., and its sister company,Alaska Modular Space, Inc. for a purchase price of $42.5 million andadditional payments totaling $3.0 million, subject to the acquired companies’achieving certain financial targets. Hawaii Modular operates three branchlocations across state, while Alaska Modular manages operations based inAnchorage. The purchased assets include 1,300 units consisting of mobileoffices, storage containers, classrooms and custom modular buildings and therelated customer base. The acquisition was financed with borrowings under theCompany’s Amended and Restated Credit Agreement.

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**Item 9.**                        Changesin and Disagreements with Accountants on Accounting and Financial Disclosure

Not applicable.

**Item 9A.**                Controlsand Procedures

**EVALUATION OF DISCLOSURE CONTROLSAND PROCEDURES**

Under the supervision andwith the participation of Corporation’s management, including the ChiefExecutive Officer and Chief Financial Officer, the Corporation evaluated theeffectiveness of the design and operation of the Corporation’s disclosurecontrols and procedures as defined in Rules 13a-15(e) and 15d-15(e) underthe Securities and Exchange Act of 1934, as amended (the “Exchange Act”) as ofDecember 31, 2006. Based upon that evaluation, the Corporation’s ChiefExecutive Officer and Chief Financial Officer concluded that the Corporation’sdisclosure controls and procedures are effective.

**MANAGEMENT’S REPORT ON INTERNALCONTROL OVER FINANCIAL REPORTING**

The Corporation’smanagement is responsible for establishing and maintaining adequate internalcontrol over financial reporting as defined in Rules 13a-15(f) and15d-15(f) of the Exchange Act. Under the supervision and with theparticipation of Corporation’s management, including the Chief ExecutiveOfficer and Chief Financial Officer, the Corporation evaluated theeffectiveness of the design and operation of its internal control overfinancial reporting based on the framework in *InternalControl—Integrated Framework* issued by the Committee of SponsoringOrganizations of the Treadway Commission. Based on that evaluation, theCorporation’s Chief Executive Officer and Chief Financial Officer concludedthat the Corporation’s internal control over financial reporting was effectiveas of December 31, 2006.

**CHANGES IN INTERNAL CONTROL OVERFINANCIAL REPORTING**

There were no changes in the Corporation’s internalcontrols over financial reporting for the year ended December 31, 2006that have materially affected, or are reasonably likely to materially affect,the Corporation’s internal control over financial reporting.

It should be noted that any system of controls,however well designed and operated, can provide only reasonable, and notabsolute, assurance that the objectives of the system will be met. In addition,the design of any control system is based in part upon certain assumptionsabout the likelihood of future events. Because of these and other inherentlimitations of control systems, there is only reasonable assurance that ourcontrols will succeed in achieving their stated goals under all potentialfuture conditions.

Ernst & YoungLLP, the Corporation’s independent registered public accounting firm, auditedmanagement’s assessment of the effectiveness of internal control over financialreporting and, based on that audit, issued the report set forth below.

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**Report of Independent Registered Public AccountingFirm on Internal ControlOver Financial Reporting**

The Board of Directors and Shareholders ofWilliams Scotsman International, Inc.:

We have audited management’s assessment, included inthe accompanying Management’s Report on Internal Control Over FinancialReporting, that Williams Scotsman International, Inc. maintained effectiveinternal control over financial reporting as of December 31, 2006, basedon criteria established in Internal Control—Integrated Framework issued by theCommittee of Sponsoring Organizations of the Treadway Commission (the COSOcriteria). Williams Scotsman International, Inc.’s management isresponsible for maintaining effective internal control over financial reportingand for its assessment of the effectiveness of internal control over financialreporting. Our responsibility is to express an opinion on management’sassessment and an opinion on the effectiveness of the company’s internalcontrol over financial reporting based on our audit.

We conducted our audit in accordance with thestandards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonableassurance about whether effective internal control over financial reporting wasmaintained in all material respects. Our audit included obtaining anunderstanding of internal control over financial reporting, evaluatingmanagement’s assessment, testing and evaluating the design and operatingeffectiveness of internal control, and performing such other procedures as weconsidered necessary in the circumstances. We believe that our audit provides areasonable basis for our opinion.

A company’s internal control over financial reportingis a process designed to provide reasonable assurance regarding the reliabilityof financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles. Acompany’s internal control over financial reporting includes those policies andprocedures that (1) pertain to the maintenance of records that, inreasonable detail, accurately and fairly reflect the transactions anddispositions of the assets of the company; (2) provide reasonableassurance that transactions are recorded as necessary to permit preparation offinancial statements in accordance with generally accepted accountingprinciples, and that receipts and expenditures of the company are being madeonly in accordance with authorizations of management and directors of thecompany; and (3) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition of thecompany’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal controlover financial reporting may not prevent or detect misstatements. Also,projections of any evaluation of effectiveness to future periods are subject tothe risk that controls may become inadequate because of changes in conditions,or that the degree of compliance with the policies or procedures maydeteriorate.

In our opinion, management’s assessment that WilliamsScotsman International, Inc. maintained effective internal control overfinancial reporting as of December 31, 2006, is fairly stated, in allmaterial respects, based on the COSO criteria. Also, in our opinion, WilliamsScotsman International, Inc. maintained, in all material respects,effective internal control over financial reporting as of December 31,2006, based on the COSO criteria.

We have also audited, in accordance with the standardsof the Public Company Accounting Oversight Board (United States), theconsolidated balance sheets of Williams Scotsman International, Inc. andsubsidiaries as of December 31, 2006 and 2005, and the related consolidatedstatements of operations, changes in stockholders’ equity, and cash flows foreach of the three years in the period ended December 31, 2006, and ourreport dated March 9, 2007 expressed an unqualified opinion thereon.

/s/ ERNST & YOUNG LLP

Baltimore, MarylandMarch 9, 2007

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**Item 9B.**               OtherInformation

None

**PART III**

**Items 10, 11, 12,13, and 14.**

The information requiredby items 10, 11, 12, 13, and 14 will be furnished on or prior to April 30,2007 (and is hereby incorporated by reference) by an amendment hereto or pursuantto a definitive proxy statement involving the election of directors pursuant toRegulation 14A that will contain such information. Notwithstanding theforegoing, information appearing in the sections ‘Executive Compensation Reportof the Compensation Committee’, ‘Audit Committee Report’ and ‘Stock PricePerformance Graph’ shall not be deemed to be incorporated by reference in thisForm 10-K.

**PART IV**

**Item 15.**                 Exhibitsand Financial Statement Schedules.

(a)(1)       FinancialStatements (1). See Index to Financial Statements at Item 8 of this AnnualReport on Form 10-K.

(a)(2)       Listof financial statement schedules

Financial schedulesrequired to be filed by Item 8 of this form, and by Item 15(d) below:

**Schedule II—Valuation andQualifying Accounts**

All other financialschedules are not required under the related instructions or are appropriateand therefore have been omitted.

(a)(3)       Exhibits

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**WILLIAMS SCOTSMAN INTERNATIONAL, INC. ANDSUBSIDIARIES**

**Schedule II—Valuation andQualifying Accounts**

| ** **                                         | ** ** | **Year ended December 31,** | ** ** |
|----------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                         | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                         | ** ** | **(In thousands)**                    | ** ** |
| Allowance for Doubtful  Accounts:                  |       |                                       |       |   |   |   |   |
| Balance at beginning of the year                   |       | $                                          | 812        |   | $ | 606 |   | $ | 862 |   |
| Allowance acquired through business acquisition    |       | 1,479                                      |       | — |   | — |   |
| Provision charged to expense                       |       | 4,003                                      |       | 3,204 |   | 2,248 |   |
| Accounts receivable written-off, net of recoveries |       | (2,613                                     | )          | (2,998 | ) | (2,504 | ) |
| Balance at end of the year                         |       | $                                          | 3,681      |   | $ | 812 |   | $ | 606 |   |
| Valuation  Allowance For Deferred Tax Assets:      |       |                                       |       |   |   |   |   |
| Balance at beginning of year                       |       | $                                          | 2,314      |   | $ | 5,232 |   | $ | 4,802 |   |
| Provision charged to expense                       |       | 806                                        |       | — |   | 430 |   |
| Reductions recorded as income tax benefits         |       | (2,258                                     | )          | — |   | — |   |
| Other reductions                                   |       | —                                     |       | (2,918 | ) | — |   |
| Balance at end of  year                            |       | $                                          | 862        |   | $ | 2,314 |   | $ | 5,232 |   |

 

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**EXHIBITSTO FORM 10-KWILLIAMS SCOTSMAN INTERNATIONAL, INC.EXHIBIT INDEX**

| Exhibit No. | ** ** | **Description of Document**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1              |       | Amended and Restated  Certificate of Incorporation of Williams Scotsman International, Inc.  (Incorporated by reference to Exhibit 3.1 of the Form 8-K  filed on October 4, 2005 (Commission file no. 000-51521)).                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 3.2              |       | Amended and Restated  By-laws of Williams Scotsman International, Inc. (Incorporated by  reference to Exhibit 3.2 of the Form 8-K filed on  September 23, 2005 (Commission file no. 000-51521)).                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 4.1              |       | Form of Exchange  Note (Incorporated by reference to Exhibit B of Exhibit 4.7 of the  Company’s Registration Statement on Form S-4 filed on  October 25. 2005) (Commission file no. 333-129222)                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 4.2              |       | Indenture, dated as of  September 29, 2005, among Williams Scotsman, Inc., Williams  Scotsman International, Inc. Evergreen Mobile Company, Space Master  International, Inc., Truck & Trailer Sales, Inc. and  Williams Scotsman of Canada, Inc. as Guarantors, Willscot Equipment,  LLC, as Subordinated Guarantor and The Bank of New York as Trustee, including  exhibits thereto, the form of the initial note and the form of the exchange  note. (Incorporated by reference to Exhibit 4.7 of the Company’s  Registration Statement on Form S-4 filed on October 25, 2005)  (Commission file no. 333-129222) |
| 4.3              |       | Registration Rights  Agreement, dated as of September 29, 2005, among Williams  Scotsman, Inc., Williams Scotsman International, Inc. Evergreen  Mobile Company, Space Master International, Inc., Truck &  Trailer Sales, Inc. and Williams Scotsman of Canada, Inc., Willscot  Equipment, LLC, and Deutsche Bank Securities Inc. (Incorporated by reference  to Exhibit 4.8 of the Company’s Registration Statement on Form S-4  filed on October 25, 2005) (Commission file no. 333-129222)                                                                                                                      |
| 4.4              |       | Registration Rights  Agreement, dated as of April 18, 2006, by and among Williams  Scotsman, Inc., as issuer, Williams Scotsman International, Inc.,  Evergreen Mobile Company, Space Master International, Inc.,  Truck & Trailer Sales, Inc., Williams Scotsman of  Canada, Inc., as guarantor, and Deutsche Bank Securities Inc., Banc  of America Securities LLC and Lehman Brothers Inc., as purchasers.  (Incorporated by reference to Exhibit 4.1 of the Company’s current report  on Form 8-K dated April 18, 2006).                                                                    |
| 4.5              |       | Consent Letter of  Williams Scotsman International, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.1             |       | Williams Scotsman  International, Inc. 2005 Omnibus Award Plan. (Incorporated by reference  to Exhibit 10.1 of Williams Scotsman International Inc.’s Registration  Statement on Form S-1 filed on September 12, 2005 (Commission  file no. 333-124459).                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.2             |       | Investor Stockholders  Agreement, dated as of May 22, 1997, among the Company, Scotsman  Partners, L.P., Cypress Merchant Banking Partners, L.P., Cypress Offshore  Partners, L.P., Odyssey Partners, L.P., Barry P. Gossett, BT Investment  Partners, Inc. and certain other stockholders. (Incorporated by  reference to Exhibit 10.3 of Williams Scotsman, Inc.’s Registration  Statement on Form S-4 (Commission file no. 333-30753)).                                                                                                                                                                                                  |

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| 10.3  |   | Amendment No. 1 to  Investor Stockholders Agreement, dated as of September 1, 1998, among  the Company, Cypress Merchant Banking Partners, L.P., Cypress Offshore  Partners, L.P., Odyssey Partners, L.P., Scotsman Partners, L.P. , Barry P.  Gossett, and BT Investment Partners, Inc. (Incorporated by reference to  Exhibit 10.3 of Williams Scotsman, Inc.’s 1998 Form 10-K).                                                                                                                                                                                                                                                         |
|-------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.4  |   | Management Stockholders’  and Optionholders’ Agreement, dated as of September 14, 1998, among the  Company, Cypress Merchant Banking Partners, L.P., Cypress Offshore Partners,  L.P., Scotsman Partners, L.P., and certain management stockholders of the  Company (Incorporated by reference to Exhibit 10.4 of Williams  Scotsman, Inc. annual report on Form 10-K for the year ended  December 31, 1998).                                                                                                                                                                                                                              |
| 10.5  |   | Amendment No. 1 to  Management Stockholders’ and Optionholders’ Agreement, dated as of  September 23, 2005, among the Company, Cypress Merchant Banking Partners  L.P., Cypress Offshore Partners, L.P., Scotsman Partners, L.P. and certain  management stockholders of the Company. (Incorporated by reference to  Exhibit 10.5 of the Company’s Registration Statement on Form S-4  filed on October 25, 2005) (Commission file no. 333-129222).                                                                                                                                                                                   |
| 10.6  |   | Williams  Scotsman, Inc. Executive Deferred Compensation Plan.(Incorporated by reference to  Exhibit 10.6 of Williams Scotsman International Inc.’s Registration  Statement on Form S-1 filed on July 8, 2005 (Commission file  no. 333-124459).                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.7  |   | Scotsman  Holdings, Inc. 1994 Employee Stock Option Plan. (Incorporated by  reference to Exhibit 10.11 of the Williams Scotsman, Inc.’s annual  report on Form 10-K for the year ended December 31, 1994).                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.8  |   | Scotsman  Holdings, Inc. Amended and Restated 1997 Employee Stock Option Plan.  (Incorporated by reference to Exhibit 10.7 of Williams Scotsman, Inc.’s  annual report on Form 10-K for the year ended December 31,  1998).                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.9  |   | Credit Agreement, dated  as of March 26, 2002, by and among Williams Scotsman  International, Inc., Williams Scotsman, Inc., various financial  institutions named therein, Bankers Trust Company, as administrative agent,  Fleet Capital Corporation and Congress Financial Corporation as  Co-Syndication Agents, Bank of America, N.A. and GMAC Business Credit, LLC as  Co-Documentation Agents, and Deutsche Banc Alex. Brown Inc. as Sole Lead  Arranger and Sole Book Manager. (Incorporated by reference to  Exhibit 10.1 to Williams Scotsman, Inc.’s Registration Statement on  Form S-4 (Commission file no. 333-86482)). |
| 10.10 |   | First Amendment dated as  of February 27, 2003 among Williams Scotsman International, Inc.,  Williams Scotsman, Inc., the lenders from time to time party to the  credit agreement and Deutsche Bank Trust Company Americas, as Administrative  Agent. (Incorporated by reference to Exhibit 10.12 of Williams Scotsman, Inc.’s  annual report on Form 10-K for the year ended December 31,  2002).                                                                                                                                                                                                                                   |
| 10.11 |   | Second Amendment dated  as of August 11, 2003, among Williams Scotsman International, Inc.,  Williams Scotsman, Inc., the lenders from time to time party to the  credit agreement and Deutsche Bank Trust Company Americas, as Administrative  Agent. (Incorporated by reference to Exhibit 10.1 of Williams  Scotsman, Inc.’s current report on Form 8-K dated  August 27, 2003).                                                                                                                                                                                                                                                   |

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| 10.12 |   | Third Amendment dated as  of December 22, 2003, among Williams Scotsman International, Inc.,  Williams Scotsman, Inc., the lenders from time to time party to the  credit agreement and Deutsche Bank Trust Company Americas, as Administrative  Agent. (Incorporated by reference to Exhibit 10.12 of Williams Scotsman, Inc.’s  annual report on Form 10-K for the year ended December 31,  2003).                                                                                                                                                                                                                                                                                             |
|-------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.13 |   | Fourth Amendment dated  as of September 24, 2004, among Williams Scotsman  International, Inc., Williams Scotsman, Inc., the lenders from time  to time party to the credit agreement and Deutsche Bank Trust Company  Americas, as Administrative Agent. (Incorporated by reference to  Exhibit 10.2 of Williams Scotsman, Inc.’s quarterly report on  Form 10-Q for the three and nine months ended September 30,  2004).                                                                                                                                                                                                                                                                      |
| 10.14 |   | Fifth Amendment dated as  of April 15, 2005, among Williams Scotsman International, Inc.,  Williams Scotsman, Inc., the lenders from time to time party to the  credit agreement and Deutsche Bank Trust Company Americas, as Administrative  Agent. (Incorporated by reference to Exhibit 99.1 of the Company’s  current report on Form 8-K dated April 15, 2005).                                                                                                                                                                                                                                                                                                                                   |
| 10.15 |   | Scotsman  Holdings, Inc. 2003 Employee Stock Option Plan. (Incorporated by  reference to Exhibit 10.13 of Williams Scotsman, Inc.’s annual  report on Form 10-K for the year ended December 31, 2003).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.16 |   | Severance Agreement and  General Release for Shalom M. Taragin dated January 21, 2005.  (Incorporated by reference to Exhibit 10.14 of Williams  Scotsman, Inc.’s annual report on Form 10-K for the year  ended December 31, 2004).                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.17 |   | Employment Agreement for  Robert C. Singer dated March 25, 2005. (Incorporated by reference to  Exhibit 10.15 of Williams Scotsman, Inc.’s annual report on  Form 10-K for the year ended December 31, 2004).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.18 |   | Form agreement of  Stock Option Plan Grant. (Incorporated by reference to Exhibit 10.16 of  Williams Scotsman, Inc.’s annual report on Form 10-K for the  year ended December 31, 2004).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.19 |   | Option Extension  Amendment, dated March 25, 2005. (Incorporated by reference to  Exhibit 10.1 of the Company’s quarterly report on Form 10Q for the  period ended March 31, 2005).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.20 |   | Amended and Restated  Credit Agreement, dated as of June 28, 2005, among Williams Scotsman  International, Inc., Williams Scotsman, Inc., the lenders party  thereto from time to time, Bank of America, N.A., as Administrative Agent,  Deutsche Bank Trust Company Americas, as Syndication Agent, Citicorp  USA, Inc., Wells Fargo Bank, N.A. and Lehman Commercial Paper Inc.,  as Co-Documentation Agents, and Banc of America Securities LLC and Deutsche  Bank Securities Inc., as Co-Lead Arrangers and Joint Book Runners  (Incorporated by reference to Exhibit 10.1 of Williams  Scotsman, Inc.’s quarterly report on Form 10-Q for the  quarter ended June 30, 2005). |
| 10.21 |   | Amended and Restated  U.S. Subsidiaries Guaranty dated as of March 26, 2002 and restated as of  June 28, 2005, made by Willscot Equipment LLC, Space Master  International, Inc., Truck & Trailer Sales, Inc. and  Evergreen Mobile Company.(Incorporated by reference to Exhibit 10.23 of  Williams Scotsman International Inc.’s Registration Statement on Form S-1 filed  on July 8, 2005 (Commission file no. 333-124459)).                                                                                                                                                                                                                                                    |

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| 10.22 |   | Amended and Restated  U.S. Pledge Agreement dated as of March 26, 2002, amended and restated  as of August 18, 2003, and amended and restated as of June 28,  2005, made by Williams Scotsman International, Inc., Williams  Scotsman, Inc., Willscot Equipment LLC, Space Master  International, Inc., Truck & Trailer Sales, Inc. and  Evergreen Mobile Company to Bank of America, N.A., as collateral agent and  acknowledged and agreed to by U.S. Bank National Association, as trustee  (Incorporated by reference to Exhibit 10.3 of Williams  Scotsman, Inc.’s quarterly report on Form 10-Q for the  quarterly period ended June 30, 2005).            |
|-------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.23 |   | Amended and Restated U.S.  Security Agreement dated as of March 26, 2002, amended and restated as  of August 18, 2003, and amended and restated as of June 28, 2005,  made by Williams Scotsman International, Inc., Williams  Scotsman, Inc., Willscot Equipment LLC, Space Master International, Inc.,  Truck & Trailer Sales, Inc. and Evergreen Mobile Company in  favor of Bank of America, N.A., as Collateral Agent and acknowledged and  agreed to by U.S. Bank National Association, as trustee (Incorporated by  reference to Exhibit 10.4 of Williams Scotsman, Inc.’s quarterly  report on Form 10-Q for the quarterly period ended June 30,  2005). |
| 10.24 |   | Amended and Restated  Canadian Security Agreement dated as of March 26, 2002, amended and  restated as of August 18, 2003 and amended and restated as of June 28,  2005, made by Williams Scotsman of Canada, Inc. to and in favor of Bank  of America, N.A., as Collateral Agent for the benefit of the Secured  Creditors named therein (Incorporated by reference to Exhibit 10.5 of  Williams Scotsman, Inc.’s quarterly report on Form 10-Q for  the quarterly period ended June 30, 2005).                                                                                                                                                                                         |
| 10.25 |   | Amended and Restated  Canadian Subsidiary Guarantee dated as of March 26, 2002, amended and  restated as of June 28, 2005, made by Williams Scotsman of  Canada, Inc., to and in favor of the Secured Creditors named therein and  Bank of America, N.A., as Collateral Agent (Incorporated by reference to  Exhibit 10.6 of Williams Scotsman, Inc.’s quarterly report on  Form 10-Q for the quarterly period ended June 30, 2005).                                                                                                                                                                                                                                                          |
| 10.26 |   | Bond Pledge Agreement  dated as of June 28, 2005 by Williams Scotsman of Canada, Inc. in  favour of the Collateral Agent and Secured Creditors therein defined.  (Incorporated by reference to Exhibit 10.28 of Williams Scotsman  International Inc.’s Registration Statement on Form S-1 filed on  July 8, 2005 (Commission file no. 333-124459)).                                                                                                                                                                                                                                                                                                                                                    |
| 10.27 |   | Employment Agreement  among Gerard E. Holthaus, Williams Scotsman International, Inc. and  Williams Scotsman, Inc., dated as of September 23, 2005.  (Incorporated by reference to Exhibit 10.29 of the Company’s  Registration Statement on Form S-4 filed on October 25, 2005)  (Commission file no. 333-129222).                                                                                                                                                                                                                                                                                                                                                                           |
| 10.28 |   | Employment Agreement  among Joseph F. Donegan, Williams Scotsman International, Inc. and  Williams Scotsman, Inc., dated as of September 23, 2005.  (Incorporated by reference to Exhibit 10.30 of the Company’s  Registration Statement on Form S-4 filed on October 25, 2005)  (Commission file no. 333-129222).                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.29 |   | Employment Agreement  among William C. LeBuhn, Williams Scotsman International, Inc. and  Williams Scotsman, Inc., dated as of September 23, 2005.  (Incorporated by reference to Exhibit 10.31 of the Company’s  Registration Statement on Form S-4 filed on October 25, 2005)  (Commission file no. 333-129222).                                                                                                                                                                                                                                                                                                                                                                                 |

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| 10.30 |   | Employment Agreement  among Robert C. Singer, Williams Scotsman International, Inc. and  Williams Scotsman, Inc., dated as of September 23, 2005.  (Incorporated by reference to Exhibit 10.32 of the Company’s  Registration Statement on Form S-4 filed on October 25, 2005)  (Commission file no. 333-129222).                                                                                                                                                                                                                                                                                                           |
|-------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.31 |   | Employment Agreement  among John B. Ross, Williams Scotsman International, Inc. and Williams  Scotsman, Inc., dated as of September 23, 2005. (Incorporated by  reference to Exhibit 10.33 of the Company’s Registration Statement on  Form S-4 filed on October 25, 2005) (Commission file no. 333-129222).                                                                                                                                                                                                                                                                                                                |
| 10.32 |   | Form of  Nonqualified Stock Option Agreement for grants under the Williams Scotsman  International, Inc. 2005 Omnibus Award Plan. (Incorporated by reference  to Exhibit 10.34 of Williams Scotsman International Inc.’s Registration  Statement on Form S-1 filed on August 25, 2005 (Commission  file no. 333-124459)).                                                                                                                                                                                                                                                                                                   |
| 10.33 |   | Form of Restricted  Stock Unit Agreement for awards under the Williams Scotsman  International, Inc. 2005 Omnibus Award Plan. (Incorporated by reference  to Exhibit 10.35 of Williams Scotsman International Inc.’s Registration  Statement on Form S-1 filed on August 25, 2005 (Commission  file no. 333-124459)).                                                                                                                                                                                                                                                                                                            |
| 10.34 |   | Williams Scotsman  International, Inc. 2005 Employee Stock Purchase Plan. (Incorporated by  reference to Exhibit 10.36 of Williams Scotsman International Inc.’s  Registration Statement on Form S-1 filed on August 25, 2005  (Commission file no. 333-124459)).                                                                                                                                                                                                                                                                                                                                                                     |
| 10.35 |   | Form of Option  Exercise Notice for Gerard E. Holthaus, Joseph F. Donegan,  William C. LeBuhn and John B. Ross. (Incorporated by reference to  Exhibit 10.37 of Williams Scotsman International Inc.’s Registration  Statement on Form S-1 filed on September 12, 2005 (Commission  file no. 333-124459)).                                                                                                                                                                                                                                                                                                        |   |
| 10.36 |   | Purchase Agreement,  dated as of September 20, 2005, among Williams Scotsman, Inc.,  Williams Scotsman International, Inc., Evergreen Mobile Company, Space  Master International, Inc., Truck & Trailer Sales, Inc.,  Williams Scotsman of Canada, Inc., Willscot Equipment, LLC, Deutsche  Bank Securities Inc., Banc of America Securities LLC, Citigroup Global  Markets Inc., Lehman Brothers Inc. and CIBC World Markets Corp. (Incorporated  by reference to Exhibit 10.38 of the Company’s Registration Statement on  Form S-4 filed on October 25, 2005) (Commission file no. 333-129222). |   |
| 10.37 |   | Purchase Agreement,  dated as of September 20, 2005, among Williams Scotsman, Inc.,  Williams Scotsman International, Inc., Evergreen Mobile Company, Space  Master International, Inc., Truck & Trailer Sales, Inc.,  Williams Scotsman of Canada, Inc., Willscot Equipment, LLC, Deutsche  Bank Securities Inc. (Incorporated by reference to Exhibit 10.39 of the  Company’s Registration Statement on Form S-4 filed on  October 25, 2005) (Commission file no. 333-129222).                                                                                                                    |   |
| 10.38 |   | Purchase Agreement,  dated as of April 12, 2006, among Williams Scotsman, Inc., Williams  Scotsman International, Inc., Evergreen Mobile Company, Space Master  International, Inc., Truck & Trailer Sales, Inc., Williams  Scotsman of Canada, Inc., Willscot Equipment, LLC, Deutsche Bank  Securities Inc., Banc of America Securities LLC, and Lehman  Brothers Inc. (Incorporated by reference to Exhibit 10.38 of the  Amendment No. 1 to the Company’s Registration Statement on Form S-1)  (Commission file no. 333-133222).                                                 |   |
|       |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |  |

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| 10.39 |   | Purchase Agreement, dated as of April 12, 2006,  among Williams Scotsman, Inc., Williams Scotsman  International, Inc., Evergreen Mobile Company, Space Master  International, Inc., Truck & Trailer Sales, Inc., Williams  Scotsman of Canada, Inc., Willscot Equipment, LLC and Deutsche Bank Securities Inc.  (Incorporated by reference to Exhibit 10.39 of the Amendment No. 1  to the Company’s Registration Statement on Form S-1) (Commission  file no. 333-133222). |
|-------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.40 |   | First Amendment to the  Amended and Restated Credit Agreement, dated as of April 12, 2006, among  Williams Scotsman International, Inc., Williams Scotsman, Inc., the  lenders named therein and Bank of America, N.A., as Administrative Agent and  Issuing Lender. (Incorporated by reference to Exhibit 10.40 of the  Amendment No. 1 to the Company’s Registration Statement on Form S-1)  (Commission file no. 333-133222).                                                                          |
| 10.41 |   | Second Amendment to the  Amended and Restated Credit Agreement, dated as of November 10, 2006,  among Williams Scotsman International, Inc., Williams  Scotsman, Inc., the lenders named therein and Bank of  America, N.A., as Administrative Agent and Issuing Lender. (Incorporated  by reference to Exhibit 10.2 of the Company’s quarterly report on Form 10-Q  for the quarterly period ended September 30, 2006).                                                                                  |
| 10.42 |   | Williams  Scotsman International, Inc. Executive Deferred Compensation Plan (the  “Plan”) effective July 25, 2006. (Incorporated by reference to  Exhibit 10.1 of the Company’s quarterly report on Form 10-Q  for the quarterly period ended June 30, 2006).                                                                                                                                                                                                                                             |
| 10.43 |   | Williams  Scotsman International, Inc. 2005 Restricted Stock Unit Agreement.  (Incorporated by reference to Exhibit 10.2 of the Company’s quarterly  report on Form 10-Q for the quarterly period ended June 30,  2006).                                                                                                                                                                                                                                                                                                 |
| 10.44 |   | Share Purchase Agreement  dated August 18, 2006, among Williams Scotsman Hispania, S.L., and  Mr. Francisco Augusto de Villa Molina, La Rebeldía, S.L., E.M.C.  Promociones y Construcciones, S.A.,and Ms. María-Amparo de Villa Molina,  shareholders of Wiron Construcciones Modulares, S.A. (incorporated by  reference to Exhibit 2.1 of the Company’s current report on Form 8-K  dated August 24, 2006).                                                                                       |
| 10.45 |   | Amendment to Various  Credit Documents, dated as of March 9, 2007, among Williams Scotsman  International, Inc., Williams Scotsman, Inc., the lenders named  therein and Bank of America, N.A., as Administrative Agent and Issuing  Lender.                                                                                                                                                                                                                                                                                       |
| 21.1  |   | Subsidiaries of Registrant.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 23.1  |   | Consent of Ernst & Young LLP.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 31.1  |   | Certification pursuant to Section 302 of the Sarbanes-Oxley  Act of 2002 for Gerard E. Holthaus, Chief Executive Officer of the Company.                                                                                                                                                                                                                                                                                                                                                                                                     |
| 31.2  |   | Certification pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002 for Robert C. Singer, Chief Financial Officer of  the Company.                                                                                                                                                                                                                                                                                                                                                                                                      |
| 32.1  |   | Certification pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 for Gerard E. Holthaus, Chief Executive Officer of  the Company.                                                                                                                                                                                                                                                                                                                                                                                                    |
| 32.2  |   | Certification pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 for Robert C. Singer, Chief Financial Officer of  the Company.                                                                                                                                                                                                                                                                                                                                                                                                      |

 

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**SIGNATURES**

Pursuantto the requirements of Section 13 or 15(d) of the Securities ExchangeAct of 1934, the Registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized.

|                            | ** ** | **WILLIAMS SCOTSMAN INTERNATIONAL, INC.** |
|----------------------------|------------|-------------------------------------------|
|                       |       | By:                                       |   | /s/ Gerard E. Holthaus |
|                       |       |                                      |   | Gerard E. Holthaus |
|                       |       |                                      |   | Chief Executive Officer |
|                       |       |                                      |   |   |
| Dated: March 12, 2007 |       |                                      |   |   |

 

Pursuantto the requirements of the Securities Exchange Act of 1934, this report hasbeen signed below by the following persons on behalf of the Registrant and inthe capacities and on the dates indicated.

|                               | **Name** | ** **                       | ** ** | ** **           | **Capacity** | ** ** | ** ** | ** ** | **Date** | ** ** | ** ** |
|-------------------------------|----------|----------------------------------|------------|----------------------|--------------|------------|------------|------------|----------|------------|------------|
|                          |     |                             |       |                 |         |
| /s/ Gerard E. Holthaus        |     | Chairman, President,  Chief      |       | March 12,  2007 |         |
| Gerard E. Holthaus            |     | Executive Officer, and  Director |       |                 |         |
|                          |     | (principal executive  officer)   |       |                 |         |
| /s/ Robert C.  Singer         |     | Executive Vice  President, and   |       | March 12, 2007  |         |
| Robert C. Singer              |     | Chief Financial Officer          |       |                 |         |
|                          |     | (principal financial and         |       |                 |         |
|                          |     | accounting officer)              |       |                 |         |
| /s/ James N.  Alexander       |     | Director                         |       | March 12, 2007  |         |
| James N. Alexander            |     |                             |       |                 |         |
| /s/ Michael F.  Finley        |     | Director                         |       | March 12, 2007  |         |
| Michael F. Finley             |     |                             |       |                 |         |
| /s/ Steven B.  Gruber         |     | Director                         |       | March 12, 2007  |         |
| Steven B. Gruber              |     |                             |       |                 |         |
| /s/ Stephen A.  Van Oss       |     | Director                         |       | March 12, 2007  |         |
| Stephen A. Van Oss            |     |                             |       |                 |         |
| /s/ James L.  Singleton       |     | Director                         |       | March 12, 2007  |         |
| James L. Singleton            |     |                             |       |                 |         |
| /s/ James A.  Flick, Jr. |     | Director                         |       | March 12, 2007  |         |
| James A. Flick, Jr.      |     |                             |       |                 |         |
| /s/ Alan D.  Wilson           |     | Director                         |       | March 12, 2007  |         |
| Alan D. Wilson                |     |                             |       |                 |         |

 

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