** **

**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

** **

**FORM 10-K**

 
| **(Mark One)** |
|----------------|
| **ý**     | **ANNUAL  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE** |
| ** **     | ** ** | **SECURITIES  EXCHANGE ACT OF 1934** |
| ** **     | ** ** | ** ** |
| ** **     | ** ** | **For the  fiscal year ended December 31, 2005** |
| ** **     | ** ** | ** ** |
| ** **     | **OR** |
| ** **     | ** ** | ** ** |
| **o**          | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF** |
| ** **     | ** ** | **THE  SECURITIES EXCHANGE ACT OF 1934** |

 

**CommissionFile Number:  000-51521**

 

 

**WILLIAMSSCOTSMAN INTERNATIONAL, INC.**

(Exact name ofRegistrant as 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’telephone number, including area code:  **(410) 931-6000**

 

Securitiesregistered pursuant to Section 12(b) of the Act: **None**

 

Securitiesregistered pursuant to Section 12(g) of the Act:  **Common Stock, .01 ParValue Per Share**

 

Indicate by check mark if the registrant is a well-known seasonedissuer, as defined in Rule 405 of the Securities Act. **Yes****o   No  ****ý**

** **

Indicate by check mark whether the registrant is not required to filereports pursuant to Section 13 or Section 15(d) of the Act.**Yes****o   No  ****ý**

 

Indicate by check mark whether the Registrant (1) has filed allreports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the Registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.  **Yes****ý   No  ****o**

 

Indicate by check mark if disclosure of delinquent filers pursuant toItem 405 of Regulation S-K is not contained herein, and will not be contained,to the best of registrant’s knowledge, in definitive proxy or informationstatements incorporated by reference in Part III of this Form 10-K orany amendment to this Form 10-K. **ý**

 

Indicate by check mark whether the registrant is a large acceleratedfiler, an accelerated filer, or a non-accelerated filer. See definition of“accelerated filer and large accelerated filer” in Rule 12b-2 of theExchange Act.   **Large acceleratedfiler  ****o    Accelerated filer  ****o    Non-accelerated filer ****ý**

 

Indicate by check mark whether the registrant is a shell company (asdefined in Rule 12b-2 of the Act). **Yes  ****o   No**  **ý**

 

State the aggregatemarket value of the voting and non-voting common equity held by non-affiliatescomputed by reference to the price at which the common equity was last sold, orthe average bid and asked price of such common equity, as of the last businessday of the registrant’s most recently completed second fiscal quarter.  **Not Applicable**

 

As of February 27, 2006,39,333,690 shares of common stock of the Registrant were outstanding.

 

**DOCUMENTSINCORPORATED BY REFERENCE**

 

The informationrequired by Part III of this Form 10-K, to the extent not set forth herein, isincorporated herein by reference from the registrant’s definitive proxystatement to be filed with the Securities and Exchange Commission pursuant toRegulation 14A not later than 120 days after December 31, 2005.

 

 

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**SAFE HARBOR STATEMENT –CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS**

 

Some of the statements inthis Form 10-K for the year ended December 31, 2005 constitute forward-lookingstatements with respect to our financial condition, results of operations andbusiness and our expectations or beliefs concerning future events. 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:

 

•                  substantialleverage and our ability to service debt;

 

•                  changingmarket trends in the modular space industry;

 

•                  generaleconomic and business conditions including a prolonged or substantialrecession;

 

•                  ourability to finance fleet and branch expansion and to locate and financeacquisitions;

 

•                  ourability to implement our business and growth strategy and maintain and enhanceour competitive strengths;

 

•                  ourability to obtain financing for general corporate purposes;

 

•                  intenseindustry competition;

 

•                  availabilityof key personnel;

 

•                  industryover-capacity; and

 

•                  changesin, or the failure to comply with, government regulations.

 

As a result ofthese uncertainties, you should not place undue reliance on theseforward-looking statements. All future written and oral forward-lookingstatements attributable to us or any person acting on our behalf are expresslyqualified in their entirety by the cautionary statements contained or referredto in this section. New risks and uncertainties arise from time to time, and itis impossible for us to predict these events or how they may affect us. Weassume no obligation to update any forward-looking statements after the date ofthis Form 10-K as a result of new information, future events or developments,except as required by federal securities laws.

 

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**PART I**

 

 

**Item 1.****           Business**

** **

**General**

** **

Founded more than50 years ago, we believe we are the largest provider of modular spacesolutions in North America. Operating through our network of 86 branch offices,we provide high quality, cost effective modular space solutions to adiversified client base of more than 25,000 customers in multiple industriesincluding construction, education, commercial and industrial, and government.Our products, which include mobile offices, modular classrooms and othermulti-unit modular structures, offer our customers flexible, low-cost, andtimely solutions to meet their temporary space needs on an outsourced basis. Wealso provide portable storage solutions and we believe we are the third largestportable storage company in the United States. Our current modular space andportable storage lease fleet consists of approximately 98,000 units. Inaddition to leasing, we offer both new and used units for sale and providedelivery, installation and other ancillary products and services. As ofDecember 31, 2005, we had invested a total of $1.2 billion in ourlease fleet. For the year ended December 31, 2004 and 2005, we generatedrevenues of approximately $498 million and $592 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:

 

•                  generatesrecurring revenues from our units leased to customers with an average leaseduration of 27 months;

 

•                  hasaverage monthly leasing rates which recoup our average unit investment inapproximately 4 years;

 

•                  maintainsa high utilization level that has averaged 82% over the last 10 years;

 

•                  consistsof units with useful lives approximating 20 years which retain substantialresidual values throughout these periods; and

 

•                  producesincremental leasing operating margins of more than 60% (i.e. the contributionof an existing unit put on lease after reductions for cost of leasing,associated commissions and depreciation).

 

Since 1997, we havedoubled the size of our fleet and increased the size of our branch network,both organically and through selective strategic acquisitions. As a result ofthese and other factors, from 1997 to 2005, we were able to increase ourrevenues at a compound annual growth rate, or “CAGR,” of 12.2%.

 

Our modular space fleetconsists of approximately 76,000 modular space units, which are generallycomprised of standardized, versatile products that can be configured to meet awide variety of customer needs. All of our modular space units are intended toprovide convenient, comfortable space for occupants at a location of theirchoosing. The units are fitted with axles and hitches and are towed to variouslocations. Our units are 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 our unitsare durable, flexible and generally rent based upon condition rather than age.As a result, our units retain most of their initial value over their usefullives. Over the past ten years, we have sold modular space units from our leasefleet at an average gross margin of 23.2%.

 

Our portable storagefleet of approximately 22,000 units is primarily comprised of steel containerswhich address the need for secure, temporary, on-site storage of customer goodson a flexible, low-cost basis. We believe that our portable storage fleetprovides a complementary product to cross-sell to our modular space customers,as well as to serve new customers.

 

**History**

 

We were incorporatedunder the laws of Delaware in November 1993 for the purpose of acquiringWilliams Scotsman, Inc. (“Scotsman”). Scotsman was formed by the 1990 merger ofWilliams Mobile Offices, Inc. and Scotsman Manufacturing, Inc. Ourpredecessor companies were founded over 50 years ago. Subsequent to themerger, we made the strategic decision to close our manufacturing facilitiesand focus on core leasing activities.

 

During2005, we completed an initial public offering of shares of our common stock.Net proceeds of the initial public offering to us were approximately $223.1million. We have significant equity owners, including related parties ofThe Cypress Group L.L.C. (“Cypress”), Keystone, Inc. (“Keystone”) and OdysseyInvestment Partners, LLC (“Odyssey”). 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 28,2006, related parties of Cypress, Keystone, and Odyssey beneficially own in theaggregate approximately 56% of the outstanding shares of our stock.

 

Since the 1997recapitalization, we have made three significant acquisitions and a number ofsmaller acquisitions to complement our internal fleet growth and branchexpansion. We acquired Space Master International, Inc. onSeptember 1, 1998 for total consideration of $272.7 million, addingapproximately 12,800 modular space units to our lease fleet. OnFebruary 1, 1999, we acquired Evergreen Mobile Company with a 2,000 unitmodular space fleet, for $36.2 million. On March 26, 2004, weacquired nearly 3,800 modular Division of State Architect (“DSA”) classroomunits located in the state of California from Transport InternationalPool, Inc. (d/b/a GE Modular Space) for approximately $43.5 million.

 

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# **Industry Overview**

# ** **

The Modular BuildingInstitute, in its State of the Industry 2005 report, estimates that U.S.modular space industry dealers generated in excess of $3.0 billion ofleasing and sales revenues in 2004. The industry has expanded rapidly over thelast thirty years as the number of applications for modular space has increasedand recognition of the product’s positive attributes has grown. By outsourcingtheir space needs, customers are able to achieve flexibility, preserve capitalfor core operations, and convert fixed costs into variable costs. Flexibilityand reusability are the hallmarks of modular buildings. Unlike structures builton-site which generally have a fixed utilization and occupancy design, amodular product is not site specific and can be reutilized. It is not unusualto have modular buildings serve a wide variety of users during their lifespans. The industry remains highly fragmented, and we believe that we and GECapital Modular Space are the largest providers in the industry.

 

Companies within themodular space industry typically offer three major product types: single-widemodular space units, section modular space units and modular classrooms.

 

•                  Single-wideand section modular space units are used in a variety of customer applications,including field offices at construction sites, rental facilities, hospitaldiagnostic annexes, special events headquarters, golf pro shops and largergeneral commercial offices. These units are typically very versatile and easyto install, enabling the provider to respond quickly and efficiently tocustomer needs. Customers are likely to base their leasing decision on productavailability and price. As a result, we believe that providers must have aready-to-lease fleet of standardized products located throughout a network oflocal branches to be successful. The section modular units are comprised ofhigh-end modular units that are grouped in specialized configurations to meet avariety of needs for corporations, federal, state and local governments andother entities. The multi-unit complexes are used for a variety of applicationssuch as general office space, healthcare facilities, military installations,workforce housing and detention facilities. We believe that this productcategory will continue to expand as the flexibility, affordability andportability of modular solutions are employed to meet a widening range ofcustomer needs.

 

•                  Modularclassrooms serve the education market and are generally double-wide units thathave been configured to serve as classrooms, computer and science labs andmedia centers, among other applications. Educational units are leased to schooldistricts, which typically demand quality units supported by a high level ofcustomer service and local knowledge. Demand for modular classrooms hascontinued to increase due to (1) an increase in state and localinitiatives governing maximum class sizes, (2) pressures to findcost-effective ways to expand classroom capacity, (3) increased interstateand intrastate migrations necessitating rapid expansion of education space inparticular regions or localities, (4) the continued growth of the schoolage population and (5) facility modernization. As the popularity and useof modular classrooms expand, we believe that customers are increasingly turningto large scale providers capable of delivering units with high aestheticappeal, the structural strength to withstand long-term use by students, highair quality standards and timely maintenance of units on an ongoing basis.

 

We are also a major participant in the U.S. portablestorage industry, and although there are, to our knowledge, no publiclyavailable estimates of the size of the industry, management believes the sizeof the portable storage industry is expanding due to increasing awareness of theadvantages of portable storage. The portable storage industry providescustomers with a flexible and low-cost storage alternative to permanentwarehouse space and fixed-site self storage by addressing the need forsecurity, convenience and immediate accessibility. Portable storage productsare primarily on the ground containers. These containers are primarily steeland range from 20’ to 40’ in length and are typically used as ground entrystorage containers. Portable storage units are delivered to the customer’slocation in order to address the need for secure, temporary, and convenientstorage on a flexible, low-cost basis. The portable storage industry is alsohighly fragmented with the largest provider in the industry being MobileMini, Inc.

 

**CompetitiveStrengths**

 

*MarketLeadership with Significant Scale**.***Webelieve we are the largest provider of modular space solutions in NorthAmerica. We believe that we are the No. 1 or No. 2 provider ofmodular space solutions in most of our regional markets and that the WilliamsScotsman brand has strong market awareness. We are one of the only industryparticipants with an extensive, nationwide branch network, with breadth anddepth of fleet at the local level, and with the technical expertise andoperational capabilities that can provide a full range of solutions includingmobile offices, modular classrooms, and larger commercial applications. Ourextensive footprint has enabled us to attract over 300 national accountcustomers who prefer the convenience of working with a single source inmultiple geographies. Additionally, our over 50 years of operating historyand scale have enabled us to develop a favorable relationship with oursuppliers and customers.

 

*CustomerService Focus**.***Webelieve that leasing of modular space is a service oriented business thatrequires significant local market presence and infrastructure. Customers seekto do business with modular space providers that maintain a readily available,high quality lease fleet, and provide full service capabilities. Our branchesare staffed with sales personnel who work with our customers to define andsolve their space needs. We also maintain a full-service support staff at thelocal level to prepare units for lease, to deliver and return units, and tomaintain units while on lease. We have over 1,200 sales and service personnelat our branches and managed over 112,000 deliveries and returns of our modularspace and portable storage units in 2005. As a result of this extensivecustomer focus, our top 20 customers by revenue for 2005 have done businesswith us for an average of approximately 10 years.

 

*EffectiveFleet Management**.***Ourproprietary management information systems and fleet management initiativesallow us to actively manage our lease fleet to maximize customer satisfaction,optimize fleet utilization and rental rates and to control new unit capitalspending. Our management information systems provide our local branches withreal time, on-line access to comprehensive fleet information, including leasinghistory and condition and availability of our units. By providing thisinformation at the local level, we are able to more effectively monitor,allocate and price units. In addition, we maintain a standardized lease fleetwith units that meet multi-state industrial building codes which allows us toleverage our branch network and rapidly redeploy units to areas of highercustomer demand in the surrounding geographic markets. At the same time, we areable to easily modify our structures to meet specific customer needs.Additionally, we have the flexibility to refurbish existing units in order tore-lease them when we have sufficient customer demand or we can choose to sellused units to our customers.

 

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*High Degreeof Diversity**.***Ourbusiness is highly diversified in terms of customers, industries andgeographies served. We have an estimated 25,000 customers, the largest of whichaccounted for less than 2% of our 2005 revenues, and our ten largest customersaccounted for approximately 11% of our 2005 revenues. From our roots offocusing primarily on the construction industry, we have expanded ourapplications over the years to several other end markets such as education,commercial and industrial, and federal, state and local government,facilitating our growth. From a geographic perspective, our fleet is deployedthroughout most of the major markets in the United States and Canada and werecently entered Mexico. We believe that this diversity limits our exposure todownturns related to a given customer, industry or region while providingsignificant opportunities to grow our business.

 

*ExperiencedManagement with Significant Equity Ownership.*****We believe our management’s experience and longtenure with our company give us a strong competitive advantage. Our currentsenior management team, led by our President and Chief Executive Officer,Gerard E. Holthaus, who has been with us since 1994, has successfully enterednew markets, expanded our customer base and more than doubled our fleet size.Our branch operations are led by an executive vice president and eight vicepresidents, who collectively average 20 years of industry experience and10 years with our company. Members of our management team hold equityinvestments equivalent to an approximately 8% share of our company on a fullydiluted basis as of February 28, 2006.

** **

**OperatingStrategy**

 

*IncreaseUtilization and Rental Rate of Existing Lease Fleet.*****A significant factor in our profitabilityis the level of utilization of our existing lease fleet of approximately 98,000units. Over the past ten years, our utilization rate has averaged 82% with ahigh of 87% in 1997 and a low of 77% in 2003. Historically, our averageutilization rate has had a high correlation to non-residential constructionstarts. As the economy has recovered, we have seen utilization rate increases.For the year ended December 31, 2005, our utilization rate improved to 81% from80% in 2004. Another important factor in our profitability is our averagerental rate. In 2004, we implemented two price increases and have seenimprovement in our average rental rate. We estimate that for every 1% ofutilization rate increase in our existing fleet, we achieve an additional$3.3 million of annual leasing revenue and, for every $1 increase inaverage rental rate, we achieve an additional $1.0 million of annualleasing revenue. Given that our units have an average lease duration of27 months, we have not yet realized the full benefits of these improvingoperating metrics.

 

*Expandour Lease Fleet.*****Weintend to continue to expand our lease fleet through purchases of new units andselective acquisitions of units from third parties. We purchase new units oracquire existing units based on customer specific demand and forecastutilization levels by product, region and customer. From January 1, 2000to December 31, 2005, we made eight acquisitions of approximately 8,400units for a total aggregate fleet purchase price of $87.7 million. Unitsadded through acquisitions accounted for approximately 18% of the total valueof fleet purchases during this period. Among other reasons, acquisitions areattractive because they enable us to acquire units with existing leases thatgenerate immediate revenues and leverage our existing infrastructure. Due toour extensive branch network, management information systems and experiencedmanagement team, we are generally able to integrate acquired fleets at a lowcost within a relatively short period of time. For example we identified Canadaas a growth opportunity which we entered in 1999 through new unit purchases andacquisitions. Today we operate eight branches with approximately4,500 units in Canada and look to continue to add units. We intend tocontinue to make selective fleet acquisitions in North America, includingMexico which we entered in 2004.

 

*FurtherPenetrate Education Sector**.***Wehave expanded our modular classroom business. Our revenues from educationcustomers have increased from 20% to 28% of our revenues from 2000 to 2005. Webelieve that the education market offers additional growth opportunities as aresult of the following:

 

•                  anincrease in state and local initiatives governing maximum class sizes;

 

•                  stateand local governmental pressures to find cost-effective solutions to theirclassroom space needs;

 

•                  shiftingand fluctuating school populations necessitating expansion of education space,especially in the southern and western regions of the United States;

 

•                  thepredicted growth of the school age population; and

 

•                  facilitymodernization.

 

Our modular classroombusiness is attractive because the classroom units have higher utilizationrates and longer average lease terms than other modular space units and themodular classroom business is less cyclical. To develop this business, we havededicated sales representatives for modular classrooms in key states such asFlorida and California. We offer our education customers the flexibility topurchase or lease classroom units depending upon their needs and resources. Theyalso benefit from our longstanding relationships with manufacturers, and ourexperience in meeting the numerous local building codes and specifications thatapply to classroom units.

 

*Expandour Sales Business**.***Wehave expanded our sales business to meet the increased demand from ourcustomers. Historically, we have sold new units to customers who prefer to ownrather than lease. Although the education sector has been and will continue tobe a consistent source of our sales revenue, we believe there are significantopportunities for the sale of modular space units to other sectors such ashealthcare, commercial and industrial, and government. For example, thereorganization efforts by the U.S. military in recent years has continued tocreate significant demand for our products.

 

*GrowPortable Storage Business**.***Webelieve that the portable storage business is highly complementary to ourmodular space business and represents a significant growth opportunity. From1997 to 2005, our storage product fleet has grown at a CAGR of 13.9% fromapproximately 7,700 units to approximately 21,700 units 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.

 

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*EuropeanExpansion Opportunities**.***Werecently entered the European market and believe it is an attractive geographicexpansion opportunity. In July 2004, we acquired a minority interest in,and secured a right of first refusal to acquire, one of the largest modularspace providers in Spain, Wiron Construcciones Modulares, S.A. Wiron hasbranches located throughout Spain. We believe that the modular space industryis established in Europe, yet is significantly earlier in its lifecycle ascompared to the U.S. market. In particular, we believe the European modularspace industry has not experienced the expansion of applications and endmarkets to the same extent as in the United States because modular spaceapplications have historically been more focused on the construction industry.Given our historical experience in expanding modular space applications and securingnew customers through our sales efforts in the United States, we believe thatwe are well positioned to transfer our expertise to the European market.

 

**Products**

 

Our products can be usedto meet a variety of customer needs. Sample applications of modular space unitsinclude classrooms, construction site offices, temporary office space, salesoffices and special events headquarters. Our modular space fleet ranges fromsingle-unit facilities to section modular structures, which combine two or moreunits into one structure for applications that require more space. Unitstypically range in size from 8 to 14 feet in width and 16 to 70 feet in lengthand are wood or aluminum framed mounted on a steel chassis. The units arefitted with axles and hitches and are towed to various locations. Most unitscontain materials used in conventional buildings and are equipped with airconditioning and heating, electrical outlets and, where necessary, plumbingfacilities. Modular space units are extremely durable and generally have anestimated economic useful life of 20 years. Products have varying leaseterms, with average contractual terms of 15 months. However, mostcustomers retain the product for a longer period as evidenced by an averageexisting lease duration of 27 months at December 31, 2005.

 

Our specific productofferings are described below:

 

*Single-WideModular Space Units.*Single-wide modular space units whichinclude mobile offices are the most functional and versatile units in our leasefleet. Units typically have “open interiors” which can be modified usingmovable partitions. Single-wide modular space units include tile floors, airconditioning/heating units, partitions and, if requested, toilet facilities.

 

Section Modulars. Section modulars are two or moreunits combined into one structure. Interiors are customized to match thecustomer needs. Examples of section modular units include hospital diagnosticannexes, special events headquarters, golf pro shops and larger generalcommercial offices.

 

*Classrooms.*Classroom units are generally standard double-wide unitsadapted specifically for use by school systems or universities. Classroom unitsusually feature chalkboards and teaching aids, air conditioning/heating units,windows along side-walls and, if requested, toilet facilities.

 

*SalesOffices.*Sales offices are marketed to businesses thatrequire site located space for sales presentations. Exteriors are typicallywood-sided with some models offering recessed front entries. Our “ExecutiveLine” sales offices are larger, more expensive versions of the standard salesoffice with more amenities.

 

*StorageProducts.*Storage products are windowless and are typicallyused for secure storage space. Our storage units are primarily ground-levelentry storage containers with swing doors. These units are made of heavyexterior metals for security and water tightness.

 

**BranchNetwork**

 

As a key element to ourmarket leadership strategy, we maintain a network of 86 branch officesthroughout the United States, Canada, and Mexico. This network enables us toincrease our product availability and customer service within our regional andlocal markets. Customers benefit because they are provided with improvedservice availability, reduced time to occupancy, better access to salesrepresentatives, the ability to inspect units prior to rental and lower freightcosts which are typically paid by the customer. We benefit because we are ableto spread regional overhead and marketing costs over a larger lease base,redeploy units within our branch network to optimize utilization, discouragepotential competitors by providing ample local supply and offer profitableshort-term leases which would not be profitable without a local marketpresence.

 

Management believesgeographic diversification of our branch network balances our economic andoperating risk. In 2005, the northeast, mid-Atlantic, southeast, centralsouthwest, central northwest and Canadian regions accounted for 15%, 10%, 23%,27%, 18%, and 7% of our revenues, respectively. During 2004, we entered theMexican market through the formation of a 100% owned subsidiary and theestablishment of a branch office in Monterrey, Mexico. 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. While we anticipate future revenue growth opportunities in this market,revenues for 2005 were not significant. For the year ended December 31,2005, 93% of our consolidated revenues were generated from U.S. operations.

 

Our branches aregenerally headed by a dedicated branch manager. Our branch operations are ledby an executive vice president and eight vice presidents who collectivelyaverage 20 years of industry experience and 10 years with ourcompany. Management believes it is important to encourage employees to achievespecified revenue and profit levels and to provide a high level of service toour customers. Our regional and branch managers’ compensation is based upon thefinancial performance of their branches and overall corporate performance whichapproximates 40% of their total compensation. Sales representatives’compensation is commission driven and based on the gross profits of businesswritten.

 

**Operations**

 

*Leasing**.***Leasing revenue is afunction of average monthly rental rate, fleet size and utilization. We monitorfleet utilization at each branch. For 2005, average fleet utilization wasapproximately 81%. While we adjust our pricing to respond to local competitionin our markets, we believe that we generally achieve a rental rate equal to orabove that of our competitors because of the quality of our products and ourhigh level of customer service.

 

As part of our leasingoperations, we sell used modular space units from our lease fleet either atfair market value or, to a much lesser extent, pursuant to pre-establishedlease purchase options included in the terms of our lease agreements. Due inpart to an active fleet maintenance program, our units maintain a substantialportion of their initial value which includes the cost of the units as well ascosts of significant improvements made to the units.

 

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*NewUnit Sales**.***Newunit sales include sales of newly-manufactured modular space units. We do notgenerally purchase new units for resale until we have obtained firm purchaseorders (which are generally non-cancelable) for such units. New modular spaceunits are generally purchased more heavily in the late spring and summer monthsdue to seasonal classroom and construction market requirements.

 

*Deliveryand Installation**.***Weprovide delivery, site-work, installation and other services to our customersas part of our leasing and sales operations. Revenues from delivery, site-workand installation result from the transportation of units to a customer’slocation, site-work required prior to installation and installation of theunits which have been leased or sold. Typically units are placed on temporaryfoundations constructed by our service technicians, and service personnel willalso generally install our ancillary products. We also derive revenues fromtearing down and removing units once a lease expires.

 

*Other**.***We also derive revenuefrom other products and services, including rental of steps, furniture andramps; sales of parts, supplies and security systems; and charges for grantinginsurance waivers (i.e., charging a fee to customers who do not provide theirown insurance certificate).

 

**CapitalExpenditures**

 

We closely monitor fleetcapital expenditures, which include fleet purchases and capitalizable costs ofimprovements to existing units. Generally, fleet purchases are controlled byfield and corporate executives, and must pass our fleet purchasing policyguidelines (which include ensuring that utilization rates and unrentable unitslevels are reviewed for acceptability, that redeployment, refurbishment andconversion options have been considered, and that specific return on investmentcriteria have been evaluated). We purchase our units through approximately 70third-party suppliers (most suppliers have only one factory, which generallyserves a market within 300 to 400 miles), with no significant dependence on anysupplier. The top three suppliers of units for 2005 represented approximately31% of all fleet purchases, and the top ten suppliers represented approximately65% of all fleet purchases. We believe that we have an excellent workingrelationship with our suppliers.

 

We believe that our fleetpurchases are flexible and can be adjusted to match business needs andprevailing economic conditions. We are generally not “locked in” to long-termpurchase contracts with manufacturers and can modify our capital spendingactivities to meet customer demand. For example, our gross fleet capitalexpenditures prior to proceeds from sales of used units were approximately$53.3 million in 2003, $79.9 million in 2004 and $139.8 millionfor the year ended December 31, 2005.

 

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. For example, on March 26, 2004, weacquired nearly 3,800 modular DSA classroom units located in the state ofCalifornia from Transport International Pool, Inc. (d/b/a GE ModularSpace) for approximately $43.5 million. We consider the purchase of theseassets an asset purchase rather than an acquisition of a business because inmany cases, the customer base of the leased units acquired was duplicative ofour existing customer base, and we did not acquire employees, physicalfacilities, sales force, or other business related items.

 

**Marketing**

 

In addition to openingnew branches, we use a number of marketing tools to generate new business andcustomers. By maintaining a detailed and updated customer and prospect trackingsystem, marketing and sales personnel generally can identify when a particularcustomer or prospect typically utilizes our products and may contact suchcustomer or prospect regarding their future needs.

 

Through our marketing andsales efforts we have successfully expanded the uses for our products. Forexample, since 1993, the number of industries (as measured by StandardIndustrial Classification (“SIC”) code) that lease or purchase our products ismore than 400, and we expect to continue to increase our penetration of otherindustries that would benefit from the usage of our products. See “—CustomerBase.”

 

Developing new customersis an integral part of the sales process and is monitored through the use ofquarterly goals for each employee with sales responsibility. In addition to ourprospect tracking databases, we conduct direct mail campaigns and are a heavyuser of print advertising, including the yellow pages and customer tradepublications. We have developed a toll-free telephone number network so thatour customers can call and speak to a sales representative in the branchlocation nearest the site where the call was placed. In addition, weparticipate in numerous regional and national trade shows, and our salespersonnel participate in local trade groups and associations. We also designmarketing campaigns targeted at specific market niches.

 

We also have a nationalaccounts program which currently includes approximately 300 national accountsand we continue to pursue other national account relationships. Therelationships are coordinated by a national account manager and serviced by thebranch network. Due to our broad geographic capabilities, this program allowsus to further differentiate ourselves from many of our “mom-and-pop”competitors by providing consistent service on a national basis.

 

**CustomerBase**

 

We continually seek toexpand our customer base and the applications for our products. Our customerbase is comprised of more than 25,000 companies, which operate in multipleindustries. We believe that the construction, education, commercial/industrialand other, and government industries accounted for approximately 29%, 28%, 20%,and 9%, respectively, of total revenues in 2005, and that no other industryaccounted for more than 3% of total revenues in 2005. During 2005, no singlecustomer accounted for more than 2% of our total revenues and our top tencustomers accounted for approximately 11% of total revenues.

 

7

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Our key customerindustries as categorized by SIC Code are as follows:

 

*Construction.*We provide office and storage space to a broad array ofcontractors associated with both residential and nonresidential buildings,commercial offices and warehouses; highway, street, bridge and tunnelcontractors; water, sewer, communication and power line contractors; andspecial construction trades, including glass, glazing and demolition. Webelieve our construction customer base is characterized by a wide variety ofcontractors, who are associated with original construction as well as capitalimprovements in the commercial, institutional, residential and municipalarenas.

 

*Education.*Rapid and unpredictable shifts in populations within statesoften necessitate quick expansion of education facilities particularly inelementary and secondary schools. State and local governmental budgetarypressures, as well as classroom size reduction legislation, and refurbishmentof existing facilities, have made modular space units, especiallymulti-sectional units, a convenient and cost-effective way to expand classroom,laboratory and library capacity. Our quality products are well suited foreducational institutions, which demand a high level of maintenance and servicesupport.

 

*Commercial/Industrialand Other.*This category includes a variety of industries andproduct uses which help diversify our revenue stream. Common examples include:entertainment, recreation, transportation terminals, recycling, retail and fastfood establishments, metal processing and refining and disaster relief.Although there are a number of different industries in this category, webelieve that no single industry included in this category was material to us in2005.

 

*Government.*Governmental users consist of federal, state and local publicsector organizations such as the United States Environmental Protection Agencyand state highway administrations. We have enjoyed particular success infocused niches such as prisons and jails, courthouses, military installations,national security buildings and NASA facilities. We have a strategy ofconcentrated regional focus in order to gain business from local governmentalcustomers.

 

*ProfessionalServices.*Customers in this category include professionalsfrom a broad array of industry sectors including engineering, architectural,accounting, legal, insurance and sales.

 

*Healthcare.*Healthcare customers are frequent users of multi-sectionalfacilities as administrative offices, waiting rooms, MRI and other diagnosticannexes adjacent to existing hospitals.

 

*Utilities.*Modular space units have traditionally been leased toutilities involved in electrical service, natural gas distribution andproduction, and other energy-related services. Units are used as meeting rooms,reception and visitor centers, security offices and, during periods of utilityplant reconstruction, as facilities to house the operations staff.

 

*Chemicaland Pharmaceutical.*Chemical and pharmaceutical companieshave been long-time users of temporary office space. Modular space units areparticularly well suited for laboratory usage where space is needed for theduration of a specific project or for an off-site or isolated laboratory.

 

**FleetManagement Information 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. In addition,an electronic file for each unit showing its lease history and currentlocation/status is maintained in the information system. Branch sales peopleutilize the system to obtain information regarding unit condition andavailability. The database tracks individual units by serial number andprovides comprehensive information including cost, condition and otherfinancial and unit specific information.

 

**RegulatoryMatters**

 

We must comply withvarious federal, state and local environmental, transportation, health andsafety laws and regulations in connection with our operations. We believe thatwe are in substantial compliance with these laws and regulations. In additionto compliance costs, we may incur costs related to alleged environmental damageassociated with past or current properties owned or leased by us. We believethat our liability, if any, for any environmental remediation will not have amaterial adverse effect on our financial condition. However, we cannot becertain that the discovery of currently unknown matters or conditions, new lawsand regulations, or stricter interpretations of existing environmental lawswill not have a material adverse effect on our business or operations in thefuture.

 

A portion of our unitsare subject to regulation in certain states under motor vehicle and similarregistrations and certificate of title statutes. We believe that we havecomplied in all material respects with all motor vehicle registration andsimilar certificate of title statutes in states where such statutes clearlyapply to modular space units. However, in certain states, the applicability ofsuch statutes to our modular space units is not clear beyond doubt. Ifadditional registration and related requirements are deemed to be necessary insuch states or if the laws in such states or other states were to change torequire us to comply with such requirements, we could be subject to additionalcosts, fees and taxes as well as administrative burdens in order to comply withsuch statutes and requirements. We do not believe the effect of such compliancewill be material to our business, results of operations or financial condition.

 

**Trademarks**

 

We own a number oftrademarks important to our business, including Williams Scotsman® and WilliamsScotsman [and design]®.

 

Our material trademarksare registered or pending applications for registrations in the U.S. Patent andTrademark Office and various foreign jurisdictions. Registrations for suchtrademarks in the United States will last indefinitely as long as we continueto use and police the trademarks and renew filings with the applicablegovernmental offices. There are no claims pending against us challenging ourright to use any of our material trademarks in the United States or any othercountry.

 

8

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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 primarycompetitor, GE Capital 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. arethe largest providers in the industry.

 

**Employees**

 

As of December 31, 2005,we had 1,321 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.

 

**Available Information**

 

Our Internet website address is: www.willscot.com. We make availablefree of charge through our website our annual report on Form 10-K, quarterlyreports on Form 10-Q, current reports on Form 8-K and amendments to thosereports filed or furnished pursuant to Section 13(a) or 15(d) of the ExchangeAct as soon as reasonably practicable after such documents are electronicallyfiled with, 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 & Corporate GovernanceCommittee. These documents are also available in print to any shareholder uponrequest.

 

# **Item 1A. Risk Factors**

# ** **

**RisksRelated to Our Business**

 

***General or localized economic downturns or weakness mayadversely 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 derivedfrom customers who are in industries and businesses that are cyclical in natureand subject to changes in general economic conditions, such as thenonresidential construction industry. In addition, because we conduct ouroperations in a variety of markets, we are subject to economic conditions ineach of these markets. During 2005, we have experienced improvement in themarketplace; however, prior to 2005, our business was adversely impacted byoverall soft economic conditions, which affected our construction customersprimarily, and state budget issues in certain parts of the country that haveaffected our education customers. As a result of the recent 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 29% of our revenues in 2005, 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 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 and portablespace industry, especially from our primary national competitor, which hasgreater 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 primary nationalcompetitor, GE Capital 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 effectively shoulda significant number of our lease units be returned during any short period oftime, which could adversely affect our financial performance and our ability tocontinue expanding our fleet.***

 

Our typical lease terms,which include contractual provisions requiring customers to retain units onlease for, on average, 15 months, actually have an average lease durationof 27 months. Because our customers generally rent our units for periodslonger than the contractual lease terms, 59% of our leases are on amonth-to-month basis as of December 31, 2005. In addition, 23% of ourleases have contractual lease terms expiring within six months as of December 31,2005. 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 schools orcontraction 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 28% of ourrevenues in 2005 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 of fiscalfunding could result in a significant reduction of funding to public schools,which may negatively impact the budget of public schools and cause the demandfor our modular classroom units to decline. In addition, any contraction orelimination 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.

 

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***Certain related parties of The Cypress Group L.L.C. andKeystone 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 49% of our outstandingcommon stock as of February 28, 2006. 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 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 substantial costsand/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 materially andadversely 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 portion ofour revenues. The completion of these sale transactions are subject to a numberof 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 modularspace and portable storage units and rental equipment to customers in 2005,excluding delivery, site work and other ancillary sales revenue, approximated28% of our total revenue. The completion of sale transactions is subject tocertain factors that are beyond our control, including permit requirements andweather conditions. 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 strategy byidentifying or completing transactions with attractive acquisition candidates,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 successfully and that internationalacquisitions may strain our management resources. Future acquisitions and anynecessary related financings also may involve significant transaction-relatedexpenses. If we are unable to complete attractive acquisitions or integrateacquired businesses, the growth and profitability of our business would beadversely 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.***

 

Expansion into theEuropean market may require us to make substantial investments, which woulddivert resources from other aspects of our business. We may also be required toraise additional debt or equity capital to fund our expansion in Europe. Inaddition, we may incur difficulties in staffing and managing our Europeanoperations, and face fluctuations in currency exchange rates, exposure toadditional regulatory requirements, including certain trade barriers, changesin political and economic conditions, and exposure to additional andpotentially adverse tax regimes. Our success in Europe will depend, in part, onour ability to anticipate and effectively manage these and other risks. Ourfailure to manage these risks may adversely affect our growth in Europe andlead to increased administrative costs.

 

***We are a holding company whose only material asset is thecapital stock of Scotsman. We may not have sufficient cash to meet ourobligations if Scotsman, our only material source of cash, is not able togenerate sufficient earnings or cash flow to pay dividends to us or if Scotsmanis prohibited by its 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. We conduct virtually all of our business operations throughScotsman. Accordingly, our only material sources of cash are dividends or otherdistributions or payments that are derived from earnings and cash flowgenerated by Scotsman. Scotsman might not generate sufficient earnings and cashflow to pay dividends or distributions or make payments in the future. Inaddition, the terms of the Amended and Restated Credit Facility and theindenture governing the 8.5% Notes due 2015 (the 8.5% Notes) limit suchpayments to us. As a result, we may not have sufficient cash to meet ourobligations, which could harm our business.

 

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***Failure to retain key personnel could impede our ability toexecute our business plan and growth strategy and lead to a loss of customers.***

 

Our continued successwill depend largely on the efforts and abilities of our executive officers andcertain other key employees. Many of our key executives, including ourPresident and Chief Executive Officer, Mr. Gerard Holthaus, and theexecutive vice president and eight vice presidents who lead our branchoperations, have over 10 years of experience with our company. Theseofficers have knowledge and an understanding of our company and industry thatcannot be readily duplicated. There are employment agreements with GerardHolthaus, Robert Singer, Joseph Donegan, William LeBuhn and John Ross. The lossof any member of our senior management team could impair our ability to executeour business plan and growth strategy, cause us to lose customers and reduceour revenues, or lead to employee morale problems.

 

***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 federal and state taxable income in futureyears and eliminate income taxes otherwise payable on such taxable income,subject to certain adjustments. As of December 31, 2005, we had NOL’s ofapproximately $265 million. Based on current federal corporate income taxrates, our NOL’s could provide a benefit to us, if fully utilized, ofsignificant future tax savings. However, if we do not have sufficient taxableincome in future years to use the tax benefits before they expire, we will losethe benefit of these NOL carryforwards permanently. In addition, the U.S.Internal Revenue Service could challenge our calculation of the amount of ourNOL’s or any deductions or losses included in such calculation, which couldreduce our tax benefit. Provisions of the Internal Revenue Code may also limitour ability to carry forward our NOL’s to offset taxable income in futureyears.

 

***A write-off of all or a part of our goodwill would hurt ouroperating 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, 2005, we had $171.2 million ofunamortized goodwill on our balance sheet, which represented 12.4% of our totalassets. We are not permitted to amortize goodwill under the U.S. accountingstandards and instead are required to review goodwill at least annually forimpairment. In the event impairment is identified, a charge to earnings wouldbe recorded. We determined that goodwill was not impaired for the fiscal yearended December 31, 2005. Although it does not affect our cash flow, awrite-off in future periods of all or a part of our goodwill would hurt ouroperating results and net worth. See “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations—Critical Accounting Policies andEstimates—Goodwill Impairment.”

 

***We will incur increased costs as a result of recentregulatory initiatives, which may adversely affect our profitability andliquidity.***

 

As a result of recentregulatory initiatives, we will incur significant additional legal, accountingand other expenses. The Sarbanes-Oxley Act of 2002, as well as new rulessubsequently implemented by the Securities and Exchange Commission (the “SEC”)and the NASDAQ National Market, have imposed additional reporting and corporategovernance practices on public companies. We expect that our legal andfinancial compliance costs will increase and that a significant portion ofmanagement’s time will be diverted to comply with these rules. For example, weare evaluating our internal controls systems in accordance withSection 404 of the Sarbanes-Oxley Act. If we do not adequately comply withor implement the requirements of Section 404 in a timely manner, we maynot be able to accurately report our financial results or prevent fraud andmight be subject to sanctions or investigation by regulatory authorities, suchas the SEC. Any such action could harm our business or investors’ confidence inour company, and could cause our stock price to fall. These new rules andregulations make it more difficult and more expensive for us to obtain directorand officer liability insurance, and we may be required to accept reducedpolicy limits and coverage or incur substantially higher costs to obtain thesame or similar coverage. As a result, it may be more difficult for us toattract and retain qualified candidates to serve on our board of directors oras executive officers.

 

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

 

We purchase rawmaterials, including lumber, siding and roofing and other products to performperiodic refurbishments to maintain physical conditions of our units. We alsomaintain a truck fleet to deliver units to and return units from our customers.During periods of rising prices for raw materials or oil, and in particular,when the prices increase rapidly or to levels significantly higher than normal,we may incur significant increases in our operating costs and may not be ableto pass price increases through to our customers in a timely manner, which couldreduce our profitability.

 

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

 

We are dependent on thirdparties to manufacture our products even though we are able to purchase productsfrom a variety of third-party suppliers. Generally, we do not have any longterm purchase contracts with any third-party supplier. If these third partiesdo not timely complete our orders, or do not properly manufacture our products,our reputation and financial condition could be harmed. In addition, we may notbe able to negotiate arrangements with these third parties on acceptable terms,if at all.

 

**RisksRelated to our Substantial Indebtedness**

 

***Our substantial debt could harm our financial health and mayotherwise restrict our activities.***

 

We have a substantialamount of debt. As of December 31, 2005, we had approximately$869.4 million of indebtedness. See Note 6 of the Notes to AuditedConsolidated Financial Statements.

 

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Our substantial debtcould have important consequences. For example, it:

 

•                  makesour company more vulnerable to general adverse economic and industryconditions;

 

•                  limitsour ability to obtain additional financing for future working capital, capitalexpenditures, strategic acquisitions and other general corporate requirements;

 

•                  requiresus to dedicate a substantial portion of our cash flow from operations topayments on our debt, thereby reducing the availability of our cash flow foroperations and other purposes;

 

•                  limitsour flexibility in planning for, or reacting to, changes in our business; and

 

•                  placesus at a competitive disadvantage compared to any competitors that have lessdebt.

 

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, 2005, we would be permitted to borrow anadditional $115.4 million of indebtedness under our Amended and RestatedCredit Facility. Accordingly, this additional indebtedness could furtherexacerbate all the risks described above.

*** ***

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

 

Our substantialindebtedness exposes us to interest rate increases because a substantialportion of our indebtedness is at variable rates. The interest rates under theAmended and Restated Credit Facility will be reset at varying periods. Theseperiodic adjustments could expose our operating results and cash flows toperiodic fluctuations. Our annual debt service obligations will increase by$5.1 million per year for each 1% increase in the average interest rate wepay, based on the balance of variable rate debt outstanding at December 31,2005.

 

We may use interest ratehedging arrangements and swap agreements to limit our exposure to interest ratevolatility based upon management’s judgment. If we enter into thesearrangements, we will incur certain risks, including that our hedging or swaptransactions might not achieve the desired effect in eliminating the impact ofinterest rate fluctuations, or that counterparties may fail to honor theirobligations under these arrangements. As a result, these arrangements may notbe effective in reducing our exposure to interest rate fluctuations. This couldreduce our net income and require us to modify our hedging strategy.

 

***The indenture governing the 8.5% Notes and the terms of ourAmended and Restated Credit Facility contain various covenants which limit thediscretion of our management in operating our business and could prevent usfrom engaging in some beneficial activities.***

 

The indenture governingthe 8.5% Notes and the terms of the Amended and Restated Credit Facilitycontain various restrictive covenants that limit our management’s discretion inoperating our business. In particular, these agreements include covenantsrelating to limitations on:

 

•                  dividendson, and redemptions and repurchases of, capital stock,

 

•                  liensand sale-leaseback transactions,

 

•                  loansand investments,

 

•                  debtand hedging arrangements,

 

•                  mergers,acquisitions and asset sales,

 

•                  transactionswith affiliates, and

 

•                  changesin business activities conducted by us and our subsidiaries.

 

In addition, our Amendedand Restated Credit Facility requires us, under certain circumstances, tomaintain certain financial ratios. It also limits our ability to make capitalexpenditures. See Note 6 of the Notes to Audited Consolidated FinancialStatements.

 

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.

 

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***Our debt service requires a significant amount of cash. Wemay 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 our debt, werequire a significant amount of cash. Our debt service requirements for theyear ending December 31, 2006 are approximately $63.7 million, based onthe outstanding debt balance and effective interest rates as of December 31,2005. 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:

 

•                  economicand competitive conditions affecting the modular and portable space industry;

 

•                  operatingdifficulties, increased operating costs or pricing pressures we may experience;and

 

•                  adecline in the resale value of our units.

 

At December 31, 2005, theaggregate amount of indebtedness of our company approximated $869.4 million.If our cash flow and capital resources are insufficient to fund our debtservice obligations, we may be forced to reduce or delay capital investments,sell material assets or operations, obtain additional capital or restructureour debt. In the event that we are required to dispose of material assets oroperations or restructure our debt to meet our debt service and otherobligations, the terms of such transaction may not be satisfactory and suchtransaction may not be completed in a timely manner. In addition, these actionsmay limit our flexibility to grow our business and to take advantage ofbusiness opportunities. See “Management’s Discussion and Analysis of FinancialCondition and Results of Operations—Liquidity and Capital Resources.”

 

# **Item 1B. Unresolved Staff Comments**

# ** **

None.

 

**Item 2.****           Properties**

 

Our headquarters, whichwe own, is a three-story modular office structure located on 3.1 acres insuburban Baltimore, Maryland. Our company is comprised of 86 branches locatedthroughout the United States, Canada, and certain parts of Mexico. We leaseapproximately 72% of our branch properties and we own the balance. Managementbelieves that none of our branch properties, individually, is material to ouroperations.

 

**Item 3.****           LegalProceedings**

 

Currently, we areinvolved in various lawsuits and claims arising out of the normal course of ourbusiness. The nature of our business is such that disputes occasionally arisewith vendors including suppliers and subcontractors and customers overwarranties, contract specifications and contract interpretations among otherthings. We assess these matters on a case-by-case basis as they arise. Reservesare established, as required, based on our assessment of our exposure. We haveinsurance policies to cover general liability and workers compensation relatedclaims. In the opinion of management, the ultimate amount of liability notcovered by insurance, if any, under pending litigation and claims will not havea material adverse effect on our financial position or operating results.

 

For further discussion oflegal proceedings, see Note 9 of the Notes to the Audited ConsolidatedFinancial Statements.

 

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

 

On September 11, 2005,our stockholders, Cypress Merchant Banking Partners L.P., Cypress OffshorePartners, L.P, and Scotsman Partners, L.P. adopted a written consent approvingthe following: amended our Certificate of Incorporation to effect a 3.803 toone stock split and increase the number of authorized shares of common andpreferred stock to 200,000,000 and 20,000,000, respectively; approved ourAmended and Restated Certificate of Incorporation; approved our Amended andRestated Bylaws; approved the Williams Scotsman International, Inc. 2005Omnibus Award Plan; approved and adopted the Williams Scotsman International,Inc. Employee Stock Purchase Plan; and allowed selling stockholders topartially exercise certain of their options.

 

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**PART II**

 

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

** **

Our common stock has beenpublicly traded on the NASDAQ Stock Market since September 20, 2005, under thesymbol “WLSC”. The quarterly range of prices per share during the third andfourth quarters of fiscal 2005, the periods for which our common stock has beenpublicly traded are as follows:

 
| ** **     | ** ** | **HIGH**   | ** ** | **LOW**    | ** ** |
|----------------|------------|------------|------------|------------|------------|
| 2005           | ** ** | ** ** | ** ** | ** ** | ** ** |
| Third Quarter  |       | $          | 16.11      |       | $          | 15.75 |   |
| Fourth Quarter |       | 17.31      |       | 14.51      |       |
|                |            |            |            |            |            |  |  |

 

Priorto September 20, 2005, there was no established public trading market for ourstock.

 

As of January 31, 2006,the number of our stockholders of record was 2,234.

 

We have never declared orpaid any dividends on our common stock. For the foreseeable future, we intendto retain any earnings to finance the development and expansion of ourbusiness, and we do not anticipate paying any cash dividends on our commonstock. Any future determination to pay dividends will be at the discretion ofour board of directors and will be dependent upon then existing conditions,including our financial condition and results of operations, capitalrequirements, contractual restrictions, business prospects and other factorsthat our board of directors considers relevant. In addition, the Amended andRestated Credit Facility contains, and the indenture for the 8.5% Notescontains restrictions on the amounts of dividends that Williams Scotsman canpay us.

 

We issued options topurchase 173,987 shares of our common stock in 2005 to employees, executiveofficers and directors under stock option plans, that were effected withoutregistration under the Securities Act in reliance upon the exemption providedpursuant to Rule 701 of the Securities Act. None of these options havebeen exercised.

 
| **Date  of Grant**  | ** ** | **Number of Options** | ** ** | **Exercise Price** | ** ** |
|---------------------|------------|-----------------------|------------|--------------------|------------|
| March 25, 2005 |       | 173,987               |       | $                  | 14.86      |   |
|                     |            |                       |            |                    |            |  |

 

On September 23, 2005, inconnection with the initial public offering of shares of our common stock, weissued shares of common stock to our existing stockholders to effect a 3.803 to1 stock split. The issuance is exempt from registration under Section 4(2)of the Securities Act as transactions by an issuer not involving a publicoffering.

 

On October 18, 2005, wereceived approximately $6.0 million in connection with the exercise ofover-allotment options by the underwriters in our initial public offering topurchase 400,000 shares of our common stock. In addition, we incurred anadditional $0.5 million in costs related to the initial public offering,issuance of the 8.5% Notes, and the exercise of the over-allotment options. Weused the net proceeds to pay down the borrowings under our Amended and RestatedCredit Facility.

 

14

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## **Item 6.**           SelectedFinancial Data

## ** **

The following tablessummarize selected historical financial data which should be read inconjunction with “Managements Discussion and Analysis of Financial Conditionand Results of Operations” and the audited financial statements appearingelsewhere herein. The selected historical financial data set forth below hasbeen derived in part from the audited financial statements.

 
| ** **                                   | ** ** | **Year Ended December 31,**                     | ** ** |
|----------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                   | ** ** | **2001**                                             | ** ** | **2002** | ** ** | **2003** | ** ** | **2004** | ** ** | **2005** | ** ** |
| ** **                                   | ** ** | **(Dollars in thousands, except per share amounts)** | ** ** |
| **Statement of Operations Data:**            |       |                                                 |       |   |   |   |   |   |   |   |   |
| Revenues:                                    |       |                                                 |       |   |   |   |   |   |   |   |   |
| Leasing                                      |       | $                                                    | 238,151    |   | $ | 227,106 |   | $ | 213,976 |   | $ | 222,867 |   | $ | 247,713 |   |
| Sales:                                       |       |                                                 |       |   |   |   |   |   |   |   |   |
| New units                                    |       | 91,114                                               |       | 98,927 |   | 71,635 |   | 86,344 |   | 128,244 |   |
| Rental equipment                             |       | 22,212                                               |       | 23,951 |   | 20,734 |   | 29,355 |   | 37,530 |   |
| Delivery and  installation                   |       | 97,342                                               |       | 101,034 |   | 91,318 |   | 116,106 |   | 135,715 |   |
| Other                                        |       | 40,214                                               |       | 41,429 |   | 37,980 |   | 43,253 |   | 43,256 |   |
| Total                                        |       | $                                                    | 489,033    |   | $ | 492,447 |   | $ | 435,643 |   | $ | 497,925 |   | $ | 592,458 |   |
|                                         |       |                                                 |       |   |   |   |   |   |   |   |   |
| Gross profit:                                |       |                                                 |       |   |   |   |   |   |   |   |   |
| Leasing                                      |       | $                                                    | 156,504    |   | $ | 137,588 |   | $ | 119,148 |   | $ | 122,202 |   | $ | 135,167 |   |
| Sales:                                       |       |                                                 |       |   |   |   |   |   |   |   |   |
| New units                                    |       | 15,945                                               |       | 16,363 |   | 12,224 |   | 13,459 |   | 22,867 |   |
| Rental equipment                             |       | 5,326                                                |       | 5,787 |   | 4,373 |   | 6,459 |   | 8,621 |   |
| Delivery and  installation                   |       | 19,003                                               |       | 16,494 |   | 12,462 |   | 15,045 |   | 19,985 |   |
| Other                                        |       | 31,840                                               |       | 31,528 |   | 29,706 |   | 33,648 |   | 31,966 |   |
| Total                                        |       | 228,618                                              |       | 207,760 |   | 177,913 |   | 190,813 |   | 218,606 |   |
|                                         |       |                                                 |       |   |   |   |   |   |   |   |   |
| Selling, general and administrative expenses |       | 82,573                                               |       | 85,779 |   | 76,297 |   | 83,407 |   | 96,968 |   |
| Other depreciation and amortization          |       | 18,845                                               |       | 13,438 |   | 13,869 |   | 14,787 |   | 16,618 |   |
| Interest                                     |       | 85,486                                               |       | 85,208 |   | 87,174 |   | 92,444 |   | 91,203 |   |
| Loss on early extinguishment of debt         |       | —                                               |       | — |   | — |   | — |   | 30,678 |   |
| Held for sale impairment charge              |       | —                                               |       | — |   | 19,386 |   | — |   | — |   |
| Casualty loss                                |       | 1,500                                                |       | — |   | — |   | — |   | — |   |
|                                         |       |                                                 |       |   |   |   |   |   |   |   |   |
| Income (loss) before income taxes            |       | 40,214                                               |       | 23,335 |   | (18,813 | ) | 175 |   | (16,861 | ) |
| Income tax expense (benefit)                 |       | 17,585                                               |       | 8,137 |   | (7,131 | ) | 3,586 |   | (6,537 | ) |
| Net income (loss)                            |       | $                                                    | 22,629     |   | $ | 15,198 |   | $ | (11,682 | ) | $ | (3,411 | ) | $ | (10,324 | ) |
| Net income (loss) per common share-basic     |       | $                                                    | 0.96       |   | $ | 0.65 |   | $ | (0.50 | ) | $ | (0.14 | ) | $ | (0.37 | ) |
| Net income (loss) per common share-diluted   |       | $                                                    | 0.91       |   | $ | 0.61 |   | $ | (0.50 | ) | $ | (0.14 | ) | $ | (0.37 | ) |

 
| ** **                                          | ** ** | **As of December 31,** | ** ** |
|-----------------------------------------------------|------------|-----------------------------|------------|
| ** **                                          | ** ** | **2001**                    | ** ** | **2002** | ** ** | **2003** | ** ** | **2004** | ** ** | **2005** | ** ** |
| ** **                                          | ** ** | **(Dollars in thousands)**  | ** ** |
| **Balance Sheet Data:**                             |       |                        |       |   |   |   |   |   |   |   |   |
| Rental equipment, net                               |       | $                           | 866,867    |   | $ | 828,927 |   | $ | 828,078 |   | $ | 880,723 |   | $ | 944,629 |   |
| Total assets                                        |       | 1,244,986                   |       | 1,229,767 |   | 1,205,685 |   | 1,284,611 |   | 1,380,620 |   |
| Revolving credit facility & long-term debt |       | 1,022,972                   |       | 984,345 |   | 962,178 |   | 1,009,486 |   | 869,446 |   |
| Stockholders’ (deficit) equity                 |       | (1,279                      | )          | 19,273 |   | 18,364 |   | 21,147 |   | 244,741 |   |
|                                                     |            |                             |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

15

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**SelectedQuarterly Financial Data (Unaudited)**

 

The selected quarterlyfinancial data for the period ended on December 31, 2005 and 2004 and asof the end of each such period have been derived from our unaudited condensedconsolidated financial statements and include all adjustments, consisting onlyof normal recurring adjustments, necessary for a fair presentation of theresults of the interim periods.

 

| **(In  thousands except per share amounts and average rental rates)** | ** ** | **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 | ) |
| Average utilization rate                                              |       | 80                                    | %          | 81 | % | 82 | % | 83 | % | 81 | % |
| Average rental rate                                                   |       | $                                     | 258        |   | $ | 259 |   | $ | 264 |   | $ | 273 |   | $ | 263 |   |
| Lease fleet units (at the end of the quarter)                         |       | 95,988                                |       | 97,157 |   | 98,289 |   | 98,184 |   | 98,184 |   |

 

| **(In thousands except per share amounts  and average rental rates)** | ** ** | **Year ended December 31, 2004** | ** ** |
|-----------------------------------------------------------------------|------------|---------------------------------------|------------|
| **Quarter**                                                           | ** ** | **First**                             | ** ** | **Second** | ** ** | **Third** | ** ** | **Fourth** | ** ** | **Year** | ** ** |
| Revenues                                                              |       | $                                     | 106,911    |   | $ | 124,234 |   | $ | 138,106 |   | $ | 128,674 |   | $ | 497,925 |   |
| Gross profit                                                          |       | 43,816                                |       | 46,149 |   | 49,342 |   | 51,506 |   | 190,813 |   |
| Income (loss) before income taxes                                     |       | (3,007                                | )          | (491 | ) | 1,550 |   | 2,123 |   | 175 |   |
| Net income (loss)                                                     |       | (1,865                                | )          | (305 | ) | 958 |   | (2,199 | ) | (3,411 | ) |
| Net income (loss) per common share-basic                              |       | $                                     | (0.08      | ) | $ | (0.01 | ) | $ | 0.04 |   | $ | (0.09 | ) | $ | (0.14 | ) |
| Net income (loss) per common share-diluted                            |       | $                                     | (0.08      | ) | $ | (0.01 | ) | $ | 0.04 |   | $ | (0.09 | ) | $ | (0.14 | ) |
| Average utilization rate                                              |       | 79                                    | %          | 80 | % | 80 | % | 81 | % | 80 | % |
| Average rental rate                                                   |       | $                                     | 249        |   | $ | 247 |   | $ | 250 |   | $ | 253 |   | $ | 250 |   |
| Lease fleet units (at the end of the quarter)                         |       | 94,211                                |       | 94,859 |   | 94,727 |   | 95,048 |   | 95,048 |   |

 

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

 

*Thefollowing discussion should be read in conjunction with the consolidatedfinancial statements and the notes thereto and other financial informationincluded in this Form 10-K. Certain statements in this “Management’s Discussionand Analysis of Financial Condition and Results of Operations” areforward-looking statements. See “Disclosure Regarding Forward-LookingStatements.”*

 

**BusinessOverview**

 

We derive our revenuesand earnings from the leasing and sale of modular space and storage units,delivery and installation of those units and the provision of other ancillaryproducts and services. Leasing operations, which primarily comprise the leasingof modular space units and the sale of used units from our lease fleet, accountfor a majority of our revenues and gross profits. To maintain the value of ourunits, we perform periodic refurbishments to our fleet. Additionally, usedmodular space units are sold from our lease fleet in the ordinary course ofbusiness at either fair market value or, to a lesser extent, pursuant topre-established lease purchase options. The sale of rental units results in theavailability of the total cash proceeds received and is reported as a cash flowfrom investing activities and generally results in the reporting of grossprofit on such sales. New unit sales revenues are derived from the sale of newmodular space and portable storage units, similar to those units leased by us.Revenues from delivery and installation result from activities related to thetransportation and installation of and site preparation for both leased andsold products. Other revenues are derived from other products and servicesincluding: rental of steps, furniture, ramps and security systems, sales ofparts and supplies, and charges for granting insurance waivers.

 

Beginning in the secondhalf of 2004, we have seen improvements in our market place. Prior to thesecond half of 2004, our business was adversely impacted by overall softeconomic conditions over the past several years, which affected ourconstruction customers primarily, and state budget issues in certain parts ofthe country that have affected our education customers. Although a portion ofour business is with customers in industries that are cyclical in nature and/orsubject to changes in general economic conditions, we believe that certaincharacteristics of the modular space and portable storage industries and ouroperating strategies helped us to limit our exposure to the recent economicdownturn. These characteristics include our typical lease terms, which includecontractual provisions requiring customers to retain units on lease for, onaverage, 15 months, and the fact that units on rent have an average leaseduration of 27 months; the flexibility and low cost offered to ourcustomers by leasing which may be an attractive alternative to capitalpurchases; our ability to redeploy units during regional recessions; thediversity of our industry exposure; and the geographic balance of ouroperations.

 

In the ordinary course ofbusiness, we acquire leasing and related businesses. On February 17, 2006, weacquired American Homes Internacional, S.A. de C.V., a Monterrey, Mexico-basedcompany that leased and sold mobile office units, for a purchase price of $5.2million. This purchase resulted in the acquisition of approximately 300 unitsand the related customer base. On February 24, 2005, we acquired MobileSpace, Inc., a Chicago-based company that leased and sold modular spaceunits for a purchase price of $4.8 million. This purchase resulted in theacquisition of approximately 640 units and the related customer base. OnNovember 17, 2004, we purchased the modular space leasing business of J.Leo Chartrand Inc., a Montreal-based Canadian company. The purchase pricewas approximately $1.9 million and the transaction added approximately 160units. On July 28, 2004, we, through Scotsman’s 100% owned subsidiary,Williams Scotsman Europe, S.L., acquired an 8.5% minority interest in WironConstrucciones Modulares, S.A., headquartered in Parla, Spain, forapproximately $4.7 million, which includes acquisition-related costs.Wiron Construcciones Modulares, S.A. is one of the largest modular spaceproviders in Spain with branches located in all major cities throughout thecountry.

 

16

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On March 26, 2004,we acquired nearly 3,800 modular Division of State Architect (“DSA”) classroomunits located in the State of California from Transport InternationalPool, Inc. (d/b/a GE Modular Space) for approximately $43.5 million.The assets were acquired using available funds under our revolving creditfacility. The acquisition included the purchase of units, equipment associatedwith these classroom units as well as rights under all outstanding leasesrelated to these classroom units and certain other assets. We did not acquireemployees, physical facilities, sales force, or other business related items.In addition, the customer base, which is primarily public and privateeducational institutions in the State of California, is similar to, and in manycases duplicative of, our existing customer base. As a result, we consider thepurchase of these assets an asset purchase rather than an acquisition of abusiness. The average age of the units when acquired was approximately6 years while the remaining depreciable lives ranged from 2 to19 years with an average remaining life of approximately 14 years. 

 

In the fourth quarter of2003, we implemented a strategic initiative to dispose of selected rental unitsin our lease fleet which we determined no longer merited further investment. Inaccordance with Statement of Financial Accounting Standards (SFAS)No. 144, *Accounting for the Impairmentor Disposal of Long Lived Assets*, we planned to sell to one or morebuyers approximately 2,900 units. As of December 31, 2005, we have sold97% of the selected rental units and the remaining net book value of such unitsamounts to less than $0.1 million. See Note 11 of the Notes toAudited Consolidated Financial Statements for further discussion.

 

During2005, we completed an initial public offering of shares of our common stock.Net proceeds of the initial public offering to us were approximately $223.1million. In connection with the initial public offering, our subsidiary,Scotsman, entered into an Amended and Restated Credit Facility. The Amended andRestated Credit Facility consists of a revolving credit facility of$500 million and a term loan of $150 million, each of which maturesin 2010. We also issued $350 million aggregate principal amount of 8.5%Notes maturing in 2015. We used the net proceeds received from the initialpublic offering, together with the proceeds from the offering of the 8.5% Notesand the borrowings under the Amended and Restated Credit Facility to repurchaseor redeem our 9.875% Notes (the 9.875% Notes) due 2007, repurchase the 10.0%Notes (the 10% Notes) due 2008, pay premium costs, accrued interest andtransaction fees and expenses.

 

The following table showsthe percentage of total revenues represented by the key items included in ourstatements of income. Certain amounts may not add due to rounding.

 

| ** **                                   | ** ** | **Fiscal Year Ended  December 31,** | ** ** |
|----------------------------------------------|------------|-------------------------------------|------------|
| ** **                                   | ** ** | **2003**                            | ** ** | **2004** | ** ** | **2005** | ** ** |
| **Revenues:**                                |       |                                |       |   |   |   |   |
| Leasing                                      |       | 49.1                                | %          | 44.8 | % | 41.8 | % |
| Sales:                                       |       |                                |       |   |   |   |   |
| New units                                    |       | 16.4                                |       | 17.3 |   | 21.7 |   |
| Rental equipment                             |       | 4.8                                 |       | 5.9 |   | 6.3 |   |
| Delivery and installation                    |       | 21.0                                |       | 23.3 |   | 22.9 |   |
| Other                                        |       | 8.7                                 |       | 8.7 |   | 7.3 |   |
| Total revenues                               |       | 100.0                               |       | 100.0 |   | 100.0 |   |
| **Cost of sales and services:**              |       |                                |       |   |   |   |   |
| Leasing:                                     |       |                                |       |   |   |   |   |
| Depreciation and  amortization               |       | 11.3                                |       | 9.8 |   | 8.9 |   |
| Other direct  leasing costs                  |       | 10.5                                |       | 10.4 |   | 10.1 |   |
| Sales:                                       |       |                                |       |   |   |   |   |
| New units                                    |       | 13.6                                |       | 14.6 |   | 17.8 |   |
| Rental equipment                             |       | 3.8                                 |       | 4.6 |   | 4.9 |   |
| Delivery and installation                    |       | 18.1                                |       | 20.3 |   | 19.5 |   |
| Other                                        |       | 1.9                                 |       | 1.9 |   | 1.9 |   |
| Total costs of  sales and services           |       | 59.2                                |       | 61.6 |   | 63.1 |   |
| Gross profit                                 |       | 40.8                                |       | 38.4 |   | 36.9 |   |
| Selling, general and administrative expenses |       | 17.5                                |       | 16.8 |   | 16.4 |   |
| Other depreciation and amortization          |       | 3.2                                 |       | 3.0 |   | 2.8 |   |
| Interest                                     |       | 20.0                                |       | 18.6 |   | 15.4 |   |
| Loss on early extinguishment of debt         |       | —                              |       | — |   | 5.2 |   |
| Held for sale impairment charge              |       | 4.4                                 |       | — |   | — |   |
| Total operating  expenses                    |       | 45.1                                |       | 38.4 |   | 39.8 |   |
| Income (loss)  before income taxes           |       | (4.3                                | )          | 0.0 |   | (2.9 | ) |
| Income tax expense (benefit)                 |       | (1.6                                | )          | 0.7 |   | (1.1 | ) |
| Net income  (loss)                           |       | (2.7                                | )%         | (0.7 | )% | (1.8 | )% |

 

**Critical Accounting Policies andEstimates**

 

***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 experienceand on 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.

 

17

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***Depreciation of rental equipment***

 

We depreciate rentalequipment over its estimated useful life, after giving effect to an estimatedsalvage value. The useful life of our rental equipment is determined based onour estimate of the period over which the asset will generate revenue(generally 20 years), and the residual value (typically 50% of originalcost) is determined based on our estimate of the expected value we couldrealize from the asset after this period. The lives and residual values aresubject to periodic evaluation and may be affected by, among other factors,changes in building codes, legislation, regulations, local permitting andinternal 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$20.3 million for the year ended December 31, 2005, while a change inthe residual value to 40% from 50% would reduce net income by approximately$2.9 million for the year ended December 31, 2005.

 

***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 insurancecoverage for our operations and employees with appropriate aggregate, peroccurrence and deductible limits as we reasonably determine is necessary orprudent based on current operations and historical experience. The majority ofthese coverages have large deductible programs which allow for potential improvedcash flow benefits based on our loss control efforts. Our current per incidentdeductibles are $125,000 for employee group health insurance and $500,000 forworker’s compensation, auto, and general liability each. We expense thedeductible portion of the individual claims. However, we generally do not knowthe full amount of our exposure to a deductible in connection with anyparticular claim during the fiscal period in which the claim is incurred andfor which we must make an accrual for the deductible expense. We make theseaccruals based on a combination of the claims review by our staff and ourinsurance companies, and, periodically, the accrual is reviewed and adjustedbased on our loss experience. Our loss experience is based largely on our estimatesof known and anticipated claims based on historical claims experience from ouroperations. These estimates incorporate the information we obtain from insurersand data analysis of trends in our pending and settled claims. A high degree ofjudgment is required in developing these estimates of amounts to be accrued, aswell as in connection with the underlying assumptions. In addition, ourassumptions will change as our loss experience is developed. All of thesefactors have the potential for significantly impacting the amounts we havepreviously reserved in respect of anticipated deductible expenses, and we maybe required in the future to increase or decrease amounts previously accrued.As of December 31, 2005 and December 31, 2004, we had approximately$7.9 million and $7.3 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, 2005, wehad approximately $171.2 million of goodwill, which principally relates tobusinesses we acquired prior to 1999. Goodwill is initially measured as theexcess of the cost of an acquired business over the fair value of theidentifiable net assets acquired. We do not amortize goodwill, but ratherreview our carrying value for impairment annually on October 1, andwhenever an impairment indicator is identified. The goodwill impairment testinvolves a two-step approach. Under the first step, we determine the fair valueof each reporting unit to which goodwill has been assigned. Ourgeographically-based operating segments are the reporting units for purposes ofour impairment test. We compare the fair value of each reporting unit to itscarrying value, including goodwill. We estimate the fair value of eachreporting unit by utilizing published market EBITDA multiples of similarpublicly traded companies as well as our own. If the estimated fair valueexceeds the carrying value, no impairment loss is recognized. If the carryingvalue exceeds the fair value, goodwill is considered potentially impaired andthe second step is completed in order to measure the impairment loss. Under thesecond step, we calculate the implied fair value of goodwill by deducting thefair value of all tangible and intangible net assets, including anyunrecognized intangible assets, of the reporting unit from the fair value ofthe reporting unit as determined in the first step. We then compare the impliedfair value of goodwill to the carrying value of goodwill. If the implied fairvalue of goodwill is less than the carrying value of goodwill, we recognize animpairment loss equal to the difference.

 

If our EBITDA was todecline substantially in the future, we may determine that our goodwill isimpaired and make appropriate adjustments in accordance with our statedaccounting policy for goodwill. Historically, we have acquired businesseswithout significant identifiable intangible assets, and accordingly, the mostsignificant intangible asset recorded in our business combinations has beengoodwill. As of December 31, 2005, the carrying value of our other intangibleassets was $2.4 million, or less than 0.2% of total assets.

 

18

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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 and ongoing tax planning strategies inassessing the need for the valuation allowance. As of December 31, 2005,our deferred tax assets were $120.3 million, net of a valuation allowanceof $2.3 million, and our deferred tax liabilities were$261.3 million. Our deferred tax assets consist primarily of future taxbenefits associated with our NOL carryovers. We have recorded a valuationallowance of $2.3 million based on the pending expiration in 2006 of a portionof our NOL carryovers that we estimate we will not be able to fully use. TheseNOL carryovers for income tax purposes have been largely created by originatingdeductible temporary differences in depreciation expense of our lease fleet. Weexpect that our taxable income in future periods will increase significantly asthese differences reverse, allowing us to utilize substantially all of our NOLcarryovers. If our operating results were to deteriorate and our future taxableincome was insufficient to utilize these NOL carryovers before they expire, wewould be required to increase the valuation allowance that we have recorded forour deferred tax assets.

 

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

 

From time to time, weissue options to key employees under stock option plans approved by our boardof directors. Since 2003, we have accounted for these option grants using thefair value recognition provisions of SFAS No. 123, Accounting forStock-Based Compensation. In applying the fair value accounting provisions ofSFAS No. 123, we use a generally accepted option valuation model, the CoxRubenstein binomial valuation model. This model requires specified inputs todetermine the fair value of our stock options, including (i) the fair valueof our common stock on the grant date, (ii) the expected volatility of ourcommon stock over the expected option life, (iii) the risk-free interestrate, (iv) the expected dividend yield, and (v) the expected optionlife. As a result of our initial public offering in September 2005, we areutilizing a simplified method for determining the expected term of the optionin accordance with SEC Staff Accounting Bulletin No. 107. This simplifiedmethod calculates the expected term of the option as the sum of the vestingterm and the original contract term of the option divided by two. Prior to ourinitial public offering, we estimated expected option life using historicaldata that considered expected changes in our ownership that would acceleratethe option vesting. The fair value of our common stock on the grant date isdetermined by the closing market price quoted on the NASDAQ exchange at thedate of grant. Prior to the initial public offering, fair value was determined usinga valuation performed by a stockholder of ours. We used this stockholder toassist us with the valuation of our common stock rather than in 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 objectively verifiable information to determine the risk-free interest rateand the expected dividend yield. The most sensitive estimates that we make indetermining the fair value of our stock option grants is the estimated fairvalue of our common stock on the grant date and its expected volatility. Wehave used published historical stock indices of comparable companies toestimate our common stock’s volatility.

 

In March 2005 we granted173,987 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.The estimated fair value of the options of $1.1 million or $6.38 per share forthe March 2005 option grant and $4.2 million or $7.97 per share for theSeptember 2005 option grants is being amortized over the respective vestingperiods of five and four years respectively. We believe that our estimates ofthe fair value of the stock options granted in recent periods are reasonableand supportable.

 

**Results of Operations**

 

***2005 Compared With 2004***

 

Revenues for the year ended December 31, 2005 were$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, resultedfrom an average increase of approximately 4,100 units on rent and a $13increase 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 from thesame 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 ascompared to the same period of 2004 as well as an increase in sales activitydiscussed previously. The increase in sales of rental units of 27.8% wasprimarily due to the sale of rental units in the Central Southwest regions ofthe country as a result of hurricane recovery activity experienced during thesecond half of 2005 as well as sales of units in the western regions of thecountry.

 

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Overall gross profit forthe 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 percentagefor the year ended December 31, 2005 was 36.9% as compared to 38.4% forthe same period of 2004. In addition to factors described below, the decreasein overall gross margin percentage was impacted by a heavier mix of lowermargin sales revenue. Leasing gross profit margin increased $13.0 million fromthe same period in 2004 while leasing gross profit margin percentage decreasedby approximately 0.3%. The decrease in gross profit margin percentage was aresult of a 15.8% increase in direct leasing costs for fleet refurbishment andmaintenance related to increased utilization and an increase in depreciationexpense from fleet growth. Gross profit margin and gross profit marginpercentage related to new unit sales increased $9.4 million and 2.2%,respectively, primarily due to higher margins on sales in Canada and sales ofcertain modular building projects during the year ended December 31, 2005 ascompared to the same period in the prior year. Delivery and installation grossmargin increased $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%which is primarily attributable to the increased margins on related sales ofnew and rental units during the year ended December 31, 2005 as well as highermargins on certain modular building projects in 2005 as compared to 2004. Grossprofit margin and gross profit margin percentage from sales of rental unitsincreased by $2.2 million and 1.0%, respectively. Gross profit margin increasedprimarily as a result of the increased revenues discussed above, while theincrease in gross profit margin percentage was primarily the result of thechange in mix of rental units sold as compared to the same period of 2004.Gross profit margin from other revenues decreased $1.7 million while grossprofit margin percentage from other revenues decreased 3.9% from the sameperiod in 2004, primarily as a result of $3.3 million of revenue in 2004representing the realized gain from the involuntary conversion of assetsimpacted by hurricanes in the southeast region of the country as well as a $1.7million charge in 2005 related to our estimate of losses related to the impactof recent hurricanes, partially offset by final settlement of 2004 hurricaneinsurance proceeds of approximately $0.7 million.

 

Selling,general and administrative expenses for the year ended December 31, 2005increased by approximately $13.6 million or 16.3% to $97.0 million from $83.4million in the same period of 2004. During September 2005, we recordedapproximately $2.4 million of additional stock compensation expense related tothe acceleration of options vesting as a result of our initial public offering.Excluding stock compensation expense, selling, general and administrativeexpenses increased $9.8 million or 11.8%. This increase is primarily associatedwith increased employee, facility, and marketing related costs, as well asincreases in the allowance for uncollectible accounts primarily to support orrelated to the growth of our revenues discussed above. These increases werepartially offset by favorable insurance experience for the period andthe recording of a charge of approximately $0.9 million in 2004 resultingfrom the write-off of deferred costs in connection with the suspension ofnegotiations 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 period in2004. 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 RestatedCredit Facility in June of 2005 and the repurchase or redemption of our9.875% 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.

 

For the year endedDecember 31, 2005 and 2004, we recorded an income tax benefit of $6.5 millionand income tax expense of $3.6 million, respectively. Our effective tax rate forthe year ended 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.

 

***2004 Compared With 2003***

 

Revenues for the yearended December 31, 2004 were $497.9 million, a $62.3 million or14.3% increase from revenues of $435.6 million in the same period of 2003.The increase resulted from a $24.8 million or 27.1% increase in deliveryand installation revenues, a $14.7 million or 20.5% increase in sales ofnew units, an $8.9 million or 4.2% increase in leasing revenue, an$8.6 million or 41.6% increase in sales of rental equipment and a$5.3 million or 13.9% increase in other revenue from the same period of2003. The increases in sales of new units and corresponding increase indelivery and installation revenues are largely due to continued growth in theeducation industry we serve, particularly in the southeast and west regions ofthe country. In addition, as a percentage of total revenue, delivery andinstallation revenues increased 2.3% from 2003. This is primarily attributableto increased modular construction site work activities, which are more time andlabor intensive, in the northeast and south central regions of the country. The4.2% increase in leasing revenue for the year ended December 31, 2004 resultedfrom an increase of approximately 3,000 units on rent, which includes ourpurchase of California classroom units in the first quarter 2004. Average fleetutilization of approximately 80% for the year ended December 31, 2004 wasup approximately 3 percentage points from the same period of the prior year. Ofthis increase, 2.5% is attributed to the strategic initiative to dispose ofselected rental units previously discussed. The average monthly rental rate forthe year ended December 31, 2004 remained flat at $250 in comparison withthe prior year. The average monthly rate for the fourth quarter of 2004 was$253 as compared to $247 in the fourth quarter of 2003. Increased used salesactivity, particularly in the west and southeast regions of the country,resulted in increased sales of rental equipment for the year endedDecember 31, 2004 as compared to the same period of 2003. Other revenue,which includes income from various ancillary items, including steps, furniture,insurance waivers, ramps and other miscellaneous items, increased 13.9% in 2004due primarily to the $3.3 million, net of damages relating to settlementof insurance claims, resulting from a series of hurricanes in the southeastregion of the United States occurring during the third quarter of 2004 (seediscussion below) and an increase in steps and ramp revenues. During the yearended December 31, 2003, other revenue included $1.0 million ofprofit related to the sale of a branch facility.

 

Overall gross profit forthe year ended December 31, 2004 was $190.8 million, a$12.9 million or 7.3% increase from the same period of 2003. Total grossmargin percentage for the year ended December 31, 2004 was 38.4% ascompared to 40.8% for the same period of 2003. In addition to the factorsdiscussed below, the decrease in overall gross margin percentage was impacted bya heavier mix of lower margin sales revenue. Gross profit margin percentagefrom the sales of new units, and delivery and installation decreased by 1.5%and 0.6%, respectively, due primarily to overall competitive pricing pressuresand lower margins on certain modular construction projects in the northeastregion of the country. Gross profit margin from the sales of rental equipmentincreased by $2.1 million, primarily due to an increase in sales of rentalequipment described above. Gross profit margin from other revenues increased by$3.9 million from 2003. Gross profit margin percentage related to otherrevenues decreased by 0.4%, primarily as a result of competitive pricing pressuresrelated to the sale and leasing of ancillary products and offset by theinsurance settlement discussed above. Leasing gross profit for the yearincreased by $3.1 million while leasing gross profit margin percentage wasrelatively flat as compared to the same period of 2003, primarily due toleasing revenue improvements described above, partially offset by increasedmaintenance and refurbishment costs.

 

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SG&A for the yearended December 31, 2004 increased approximately $7.1 million or 9.3%to $83.4 million from $76.3 million for the year endedDecember 31, 2003. This increase is primarily associated with increasedemployee-related costs, business insurance, marketing related and professionalfees. Also, during the fourth quarter, we recorded a charge of approximately$0.9 million resulting from the write-off of deferred costs in connectionwith the suspension of negotiations related to a European acquisition target.

 

During 2003, weimplemented a strategic initiative to dispose of selected rental units in ourlease fleet which were determined to no longer merit further investment. A$19.4 million impairment charge was recorded in 2003 to reflect thewrite-down of these assets to their estimated fair value (less costs to sell).As of December 31, 2004, we have disposed of substantially all of theseunits. The effects on the financial statements for the year endedDecember 31, 2004 of disposing of these units was not material.

 

During the third quarterof 2004, approximately 500 modular space and portable storage units, with abook value of approximately $3.4 million, were destroyed as a result ofseveral hurricanes experienced in the southeast region of the United States.The majority of these units were not on rent. In addition, approximately 200units as well as certain other company assets were damaged during the storms.The total costs related to these storms approximate $4.6 million. As ofDecember 31, 2004, we have agreed to a preliminary settlement with ourinsurance companies of approximately $7.9 million to cover losses fromthese storms, of which, $5.0 million was received as of December 31,2004. During the fourth quarter, we recorded in other revenue approximately$3.3 million representing the realized gain from the involuntaryconversion of these assets.

 

Interest expense for theyear ended December 31, 2004 increased by $5.3 million or 6.0% to$92.4 million from $87.2 million in the same period of 2003 dueprimarily to the incremental interest expense incurred on the$150.0 million 10.0% Notes. The net proceeds of the 10.0% Notes were usedto repay portions of the term loan and revolving credit facility debt under thePrior Credit Facility in August 2003. This incremental interest expense waspartially offset by a $61.6 million or 17.2% decrease in the averagecredit facility debt over the same period of 2003. Also included in the 2003interest expense was a write-off of deferred financing costs in the amount of$2.5 million.

 

For the year endedDecember 31, 2004 and 2003, income tax expense (benefit) was$3.6 million and ($7.1) million, respectively. The increase in oureffective tax rate for the year ended December 31, 2004 was impactedprimarily by a change in the estimate of the future effects of state incometaxes on deferred income tax balances resulting from a change in the estimatedincome apportionment among states in which we do business. The effective incometax rate also differs from the U.S. Federal statutory income tax rate becausewe have not recognized a benefit for NOL carryforwards generated from ouroperations in Mexico and Europe due to uncertainties surrounding their ultimaterealization.

 

**Liquidity and Capital Resources**

 

We conduct virtually allof our business operations through Scotsman. Accordingly, our only materialsources of cash are dividends that are derived from earnings and cash flowgenerated by Scotsman. Indebtedness of Scotsman may limit or prohibit thepayment of dividends to us. In particular, the Amended and Restated CreditFacility and the indenture for the 8.5% Notes contain restrictions on theamount of dividends that Scotsman can pay us. To maintain the value of ourlease fleet, which generates significant rental value, we perform periodicrefurbishments to our fleet. The capital expenditures for such refurbishmentsare reflected in cash flow used in the investing activities but not in cashflow from operations. As a result, cash flow from operating activities shouldnot be evaluated without also considering cash flow used in the investingactivities, together with cash flow from financing activities and net loss.

During 2003, 2004 and2005, our principal sources of funds, other than our refinancing activitiesdiscussed below, consisted of cash flow from operating sources. Cash flow fromoperating activities of $74.2 million in 2003, $56.9 million in 2004and $67.5 million in 2005 were largely generated by the rental of unitsfrom our lease fleet, the associated delivery and installation services from rentaland sales activities and other products. The $10.6 million increase in cashflow from operating activities for the year ended December 31, 2005 from 2004was primarily the result of increased earnings discussed above offset byincreased expenditures for ancillary product inventories such as steps andramps to support the growth in units on rent. In addition, cash flow fromoperating activities were impacted by an increase in accounts receivableactivity, primarily as it relates to education customers, offset by increasesin accounts payable and accrued expenses due to timing of payment.

 

The $17.4 milliondecrease in cash flow from operating activities for the year endedDecember 31, 2004 from 2003 was substantially the result of increasedreceivables related to increased classroom related revenue, particularly in thewest and southeast regions of the country, partially offset by an increase inpayables and other accrued expenses. Revenues from education customersincreased from 23% of total revenue in 2003 to 28% of total revenue in 2004.These customers are typically slower paying, resulting in the increasedreceivables. The increase in accounts payable and other accrued expensesresulted primarily from the timing of related payments. Other factors thatcontributed to the decrease in net cash provided by operating activities from2003 to 2004 included increases in SG&A, and an increase in paid interestresulting from the incremental interest expense discussed above.

 

Cash flow used ininvesting activities was $43.6 million in 2003, $102.9 million in2004 and $115.3 million in 2005. Our primary capital expenditures are forthe discretionary purchase of new units for the lease fleet and units purchasedthrough acquisitions. InFebruary 2005, we acquired Mobile Space Inc., a Chicago-based company thatleased and sold modular space units. This purchase resulted in the acquisitionof approximately 640 units with a purchase price approximating $4.8 million. InAugust 2004, we made an investment in a modular space company, headquarteredin Spain, for approximately $4.7 million. In May 2003, we acquiredfor $3.2 million a Canadian company while in March 2004, we acquirednearly 3,800 modular classrooms located in the state of California forapproximately $43.5 million. See Note 3 of the Notes to AuditedConsolidated Financial Statements for further discussion of these acquisitions.

 

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The following table setsforth our investment in our lease fleet for the periods indicated.

 
| ** **                                                          | ** ** | **Year Ended December 31,** | ** ** |
|---------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                          | ** ** | **2003**                         | ** ** | **2004** | ** ** | **2005** | ** ** |
| ** **                                                          | ** ** | **(Dollars in millions)**        | ** ** |
| Capital expenditures for rental equipment:                          |       |                             |       |   |   |   |   |
| Capital  expenditures for lease fleet:                              |       |                             |       |   |   |   |   |
| New units                                                           |       | $                                | 36.5       |   | $ | 63.4 |   | $ | 103.9 |   |
| Betterments                                                         |       | 16.8                             |       | 16.5 |   | 35.9 |   |
| Less: Proceeds  from sale of used rental equipment                  |       | (20.7                            | )          | (29.4 | ) | (37.5 | ) |
| Net capital  expenditure for lease fleet                            |       | 32.6                             |       | 50.5 |   | 102.3 |   |
| Purchase of  California classroom fleet                             |       | —                           |       | 43.5 |   | — |   |
| Purchase price  allocated to fleet of acquired businesses           |       | 2.6                              |       | 1.2 |   | 3.4 |   |
| Net capital expenditures for rental equipment                       |       | $                                | 35.2       |   | $ | 95.2 |   | $ | 105.7 |   |
|                                                                |       |                             |       |   |   |   |   |
| Other direct leasing costs included in the statement  of operations |       | $                                | 45.7       |   | $ | 51.8 |   | $ | 59.9 |   |
|                                                                     |            |                                  |            |  |  |  |  |  |  |  |  |

 

We believe we can managethe capital requirements of our lease fleet, and thus our cash flow, throughthe careful monitoring of our lease fleet additions.

 

Our maintenance andrefurbishment program is designed to maintain the value of lease fleet unitsand realize rental rates and operating cash flows from older units comparableto those from newer units. The sale of rental equipment helps preserve theoverall quality of our lease fleet and enhances cash flow. Generally, costs ofimprovements and betterments aggregating less than $1,000 per unit are expensedas incurred. Expenditures that significantly extend the economic useful life ofa unit or that materially alter a unit’s configuration are capitalized.Consistent with the increase in our fleet utilization discussed earlier,capitalized betterments for the year ended December 31, 2005 increased$19.4 millin from the same period of 2004.

 

Other capitalexpenditures of $7.6 million, $8.1 million and $12.0 million in 2003,2004 and 2005, respectively, consist of items not directly related to the leasefleet, such as branch buildings, land, equipment, leasehold improvements andmanagement information systems.

 

Net cash (used in)provided by financing activities was ($30.6) million in 2003, $46.2 million in2004, and $47.4 million in 2005. Net cash used in financing activities for2003 consisted largely of net repayments of our revolving credit facility debtand term loan under our then existing credit facility. Net cash provided byfinancing activities for 2004 consisted of additional net borrowings under ourthen existing revolving credit facility, which were used to supplement cashflow from operating activities in the funding of capital expenditures, as wellas the $43.5 million California fleet purchase as described above. Netcash provided by financing activities for 2005 was primarily related to theresults of our refinancing transactions and proceeds from our initial publicoffering discussed below.

 

OnSeptember 23, 2005, we completed an initial public offering of 14,705,882shares of common stock for $217.3 million (net of underwriting fees and otheroffering expenses of approximately $18.6 million). In addition, in connectionwith the initial public offering, 454,365 stock options were exercised by ourmanagement and sold, resulting in additional net proceeds of approximately $0.9million. In addition, we recorded a tax benefit of $2.3 million relatedto the exercise of the stock options as additional paid-in capital. Proceeds of the initial public offering wereused to reduce debt. Also, on October 18, 2005, we receivedapproximately $6.0 million related to the exercise of over-allotment options bythe underwriters to purchase 400,000 shares of our common stock, which was usedto pay down borrowings under our Amended and Restated Credit Facility.

 

On September 29, 2005,we issued $350.0 million of 8.5% Notes. We used the net proceeds of $340.9million received from this offering together with the proceeds from our initialpublic offering and the borrowings under the Amended and Restated CreditFacility to repurchase or redeem the 9.875% Notes and repurchase $148.2 millionof the 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 we offered to purchase all outstanding 10.0% Notes at acash price of 109.522% of the principal amount and all outstanding 9.875% Notesat a cash purchase price of 100.5% of the principal amount plus accrued andunpaid interest. On September 29, 2005, in connection with the tender offerof the Notes, we purchased $148.2 million of the 10% Notes and $521.0 millionof the 9.875% Notes and legally defeased all remaining outstanding 9.875%Notes. Approximately $25.5 million in deferred financing fees and premium costsrelated to the tender offer of the extinguished debt was expensed immediatelyand included in loss on early extinguishment of debt.

 

The 8.5% Notes are fullyand unconditionally guaranteed on a senior unsecured basis by us and certainsubsidiaries of Scotsman. Willscot Equipment, LLC, a 100% owned subsidiary ofScotsman, has fully and unconditionally guaranteed the 8.5% Notes on asubordinated basis. None of our foreign subsidiaries of Scotsman (other thanour 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 atour option, at a redemption price of 104.25% of the principal amount during the12 month period beginning October 1, 2010 declining to 100.0% onOctober 1, 2013.

 

On June 28, 2005, weentered into an Amended and Restated Credit Facility, the net proceeds of whichwere used to refinance our prior credit agreement. The Amended and RestatedCredit Facility provides for a $500.0 million revolving credit facility and a$150.0 million term loan, both maturing on June 28, 2010. Our total credit facility (including the termloan and revolver commitment) was $650 million at December 31, 2005. Intereston borrowings under the revolver and term loan is payable at a rate of eitherprime plus 1% or the Eurodollar rate plus 2.5%. The interest rate margin issubject to pricing adjustments after October 1, 2005 based on excessavailability and a ratio defined in the credit agreement. Approximately $5.2million in deferred financing costs related to the prior credit facility wereexpensed immediately for the year ended December 31, 2005 and included in losson early extinguishment of debt.

 

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Borrowings under theAmended and Restated Credit Facility, which are based upon a borrowing basecalculation, are secured by a first priority lien on and security interest inour rental equipment, accounts receivable, property and equipment and otherassets. The Amended and Restated Credit Facility contains affirmative andnegative covenants customary for such financings including restrictions thatsubstantially limit the amount of dividends that Scotsman and its subsidiariescan pay to us. In addition, if Scotsman does not meet certain excessavailability requirements, we will be required to comply with a senior securedleverage ratio, a consolidated interest coverage ratio and a minimumutilization test. During 2005, Scotsman met the excess availabilityrequirements and currently, Scotsman does not have to comply with the financialcovenants. Excessavailability calculated in accordance with the credit agreement under thisfacility was $115.4 million at December 31, 2005.

 

For the next twelvemonths, we expect that cash flow from operations, cash on hand and availableborrowing capacity under the Amended and Restated Credit Facility will beadequate to finance our development plans, ongoing operations and debt serviceobligations under the Amended and Restated Credit Facility and the 8.5% Notes.Over the longer term, we believe that cash flow from operations and availableborrowing capacity under the Amended and Restated Credit Facility willgenerally be sufficient to fund our operations and debt service obligations.However, in order to repay the Amended and Restated Credit Facility and the8.5% Notes at maturity, we will need to either refinance these facilities withindebtedness and/or raise equity capital. Also, in order to complete a major acquisitionin North America or expand significantly in Europe, we may need to incuradditional indebtedness or issue additional equity capital.

 

At December 31, 2005, wehad outstanding $350 million of 8.5% due in 2015 and $514.1 million interm loan and revolving credit facility debt under our Amended and RestatedCredit Facility due in 2010. For a description of the 8.5% Notes, seeNote 6 of the Notes to Audited Consolidated Financial Statements.Borrowings under the Amended and Restated Credit Facility of $514.1 millioninclude $150.0 million in term loans and $364.1 million outstanding underthe revolving credit facility at December 31, 2005.

 

**Off-BalanceSheet Arrangements**

 

We have no materialoff-balance sheet arrangements.

 

**ContractualObligations**

 

A summary of oursignificant contractual obligations as of December 31, 2005 is 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)                 |       | $          | 501,800    |                       | $          | — |   | $ | 1,800 |   | $ | 150,000 |   | $ | 350,000 |   |
| Capital lease obligations                      |       | 3,496      |       | 662                        |       | 1,327 |   | 880 |   | 627 |   |
| Revolving credit facility (1)                  |       | 364,150    |       | —                     |       | — |   | 364,150 |   | — |   |
| Interest on variable rate debt obligations (2) |       | 148,075    |       | 32,906                     |       | 65,811 |   | 49,358 |   | — |   |
| Interest on fixed rate debt obligations        |       | 291,814    |       | 30,143                     |       | 60,215 |   | 59,803 |   | 141,653 |   |
| Operating leases (3)                           |       | 26,726     |       | 6,623                      |       | 8,649 |   | 4,659 |   | 6,795 |   |
| Rental equipment purchase obligations (4)      |       | 44,376     |       | 44,376                     |       | — |   | — |   | — |   |
|                                           |       |       |       |                       |       |   |   |   |   |   |   |
| Total contractual obligations                  |       | $          | 1,380,437  |                       | $          | 114,710 |   | $ | 137,802 |   | $ | 628,850 |   | $ | 499,075 |   |

 

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| (1)    |   | As more fully described  in Note 6 of the Notes to Audited Consolidated Financial Statements, we  had a $150.0 million term loan, $364.1 million borrowed under a  revolving credit facility, and $350.0 million and $1.8 million of  the 8.5% Notes and 10.0% Notes, respectively, outstanding as of  December 31, 2005. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                               |
| (2)    |   | Represents interest on  variable rate revolving credit facility and term loan debt assuming a 6.4%  interest rate, the rate in effect on December 31, 2005.                                                                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                               |
| (3)    |   | In accordance with SFAS  No. 13, Accounting for Leases, operating lease obligations are not  reflected in the balance sheet. See Note 8 of Notes to Audited  Consolidated Financial Statements for additional information. Amounts  included reflect both interest and principal payments.                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                               |
| (4)    |   | Represents open  purchase order commitments related to purchases of new rental units.                                                                                                                                                                                                                                                              |

 

The amount of standbyletters of credit, which expire in 2006 unless renewed, was $20.5 millionat December 31, 2005.

 

# **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 ourfloating rate debt. The price of rental equipment sold by us and thereplacement cost of such units could also increase in such an environment. Ourstandard lease generally provides for annual rental rate escalation at theinflation rate as determined by the Consumer Price Index after the end of theinitial lease term. In addition, we may seek to limit our exposure to interestrate fluctuations by utilizing certain hedging mechanisms, although we areunder no obligation to do so.

 

**Item 7A. Quantitative andQualitative Disclosures about Market Risk**

 

Market risk is the risk of loss to future earnings, tofuture values, or to future cash flows that may result from the changes in theprice of financial instruments. We are exposed to financial market risks,including changes in foreign currency exchange rates and interest rates.Exposure to market risks related to operating activities is managed through ourregular operating and financing activities.

 

23

----

 

*ForeignCurrency Risk*

 

We are exposed to foreigncurrency translation risks. We have not entered into contracts or financial instrumentsto manage this risk. The exposure related to fluctuations in the exchange rateson the local currency of our 100% owned Canadian, Mexican, and Europeansubsidiaries, Williams Scotsman Inc. of Canada, Williams Scotsman Mexico S. deR.L. de C.V., and Williams Scotsman Europe, S.L. are not significant to overalloperations. The effect of changes in the exchange rate has been separatelyidentified in the cash flow statement.

 

*Interest Rate Risk*

 

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

 

Year of Maturityat December 31, 2005

(in thousands)

 
| ** **                                                                   | ** ** | **2006** | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** | **2010+** | ** ** | **Total** | ** ** | **Fair Value** | ** ** |
|------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|-----------|------------|-----------|------------|----------------|------------|
|                                                                         |       |     |       |     |       |     |       |     |       |      |       |      |       |           |       |
| Variable Rate  Debt                                                          |       | $        | —     |     | $          | —   |       | $        | —     |      | $          | —    |       | $              | 514,150    |   | $ | 514,150 |   | $ | 514,150 |   |
| Average Interest  Rate                                                       |       | —   |       | —   |       | —   |       |     |       | 6.40      | %          |      |       |           |       |
|                                                                         |       |     |       |     |       |     |       |     |       |      |       |      |       |           |       |
| Fixed Rate Debt,  including capital lease obligations                        |       | 662      |       | 665      |       | 2,462    |       | 569      |       | 350,938   |       | 355,296   |       | 355,449        |       |
| Average Interest  Rate (includes imputed interest related to capital leases) |       | 7.63     | %          | 7.63     | %          | 8.27     | %          | 7.63     | %          | 8.50      | %          |      |       |           |       |
|                                                                              |            |          |            |          |            |          |            |          |            |           |            |           |            |                |            |  |  |  |  |  |  |  |

 

24

----

 

 

**Item 8. FinancialStatements and Supplementary Data**

 
| Audited Annual  Consolidated Financial Statements for Williams Scotsman International, Inc.  and Subsidiaries:              |   |
|----------------------------------------------------------------------------------------------------------------------------------|--------|
| Report of Independent Registered Public  Accounting Firm                                                                         |   |
| Consolidated Balance Sheets as of  December 31, 2005 and 2004                                                          |   |
| Consolidated Statements of  Operations for the years ended December 31, 2005, 2004, and 2003                                     |   |
| Consolidated Statements of Changes in  Stockholders’ Equity for the years ended December 31, 2005, 2004  and 2003 |   |
| Consolidated Statements of Cash Flows for  the years ended December 31, 2005, 2004 and 2003                            |   |
| Notes to Consolidated Financial  Statements                                                                                      |   |

 

25

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**Reportof Independent Registered Public Accounting Firm**

 

The Board of Directorsand Shareholders

Williams ScotsmanInternational, Inc.

 

We have audited theaccompanying consolidated balance sheets of Williams ScotsmanInternational, Inc. and subsidiaries as of December 31, 2005 and2004, and the related consolidated statements of operations, changes instockholders’ equity and cash flows for each of the three years in the periodended December 31, 2005. Our audits also included the financial statementschedule listed in the Index at Item 15 (a). These financial statements are theresponsibility of the Company’s management. Our responsibility is to express anopinion on these financial statements and schedule based on our audits.

 

We conducted our auditsin accordance with the standards of the Public Company Accounting OversightBoard (United States). Those standards require that we plan and perform theaudit to obtain reasonable assurance about whether the financial statements arefree of material misstatement. We were not engaged to perform an audit of theCompany’s internal control over financial reporting. Our audits includedconsideration of internal control over financial reporting as a basis fordesigning audit procedures that are appropriate in the circumstances, but not forthe purpose of expressing an opinion on the effectiveness of the Company’sinternal control over financial reporting. Accordingly, we express no suchopinion. An audit also includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements, assessing theaccounting principles used and significant estimates made by management, andevaluating the overall financial statement presentation. We believe that ouraudits provide a reasonable basis for our opinion.

 

In our opinion, thefinancial statements referred to above present fairly, in all materialrespects, the consolidated financial position of Williams ScotsmanInternational, Inc. and subsidiaries at December 31, 2005 and 2004, andthe consolidated results of their operations and their cash flows for each ofthe three years in the period ended December 31, 2005, in conformity withU.S. generally accepted accounting principles. Also, in our opinion, therelated financial statement schedule, when considered in relation to the basicfinancial statements taken as a whole, presents fairly in all material respectsthe information set forth herein.

 
|   | /s/  Ernst & Young LLP |
|--------|----------------------------|

 

Baltimore, Maryland

February 17, 2006

 

26

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Williams ScotsmanInternational, Inc. and Subsidiaries

ConsolidatedBalance Sheets

 
| ** **                                                                                                                                                         | ** ** | **December 31** | ** **    |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------|---------------|
| ** **                                                                                                                                                         | ** ** | **2005**             | ** **    | **2004** | ** ** |
| ** **                                                                                                                                                         | ** ** | **(In thousands)**   | ** **    |
| **Assets**                                                                                                                                                         |       |                 |          |   |   |
| Cash                                                                                                                                                               | ** ** | **$**                | **469**       |   | $ | 939 |   |
| Trade accounts  receivable, net of allowance for doubtful accounts of $812 in 2005 and $606  in 2004                                                               | ** ** | **94,661**           |          | 76,579 |   |
| Prepaid expenses  and other current assets                                                                                                                         | ** ** | **46,630**           |          | 38,330 |   |
| Rental  equipment, net of accumulated depreciation of $282,730 in 2005 and $253,892  in 2004                                                                       | ** ** | **944,629**          |          | 880,723 |   |
| Property and  equipment, net                                                                                                                                       | ** ** | **81,177**           |          | 79,951 |   |
| Deferred  financing costs, net                                                                                                                                     | ** ** | **18,042**           |          | 16,667 |   |
| Goodwill                                                                                                                                                           | ** ** | **171,166**          |          | 170,340 |   |
| Other intangible  assets, net                                                                                                                                      | ** ** | **2,369**            |          | 2,977 |   |
| Other assets                                                                                                                                                       | ** ** | **21,477**           |          | 18,105 |   |
| Total assets                                                                                                                                                       | ** ** | **$**                | **1,380,620** |   | $ | 1,284,611 |   |
|                                                                                                                                                               |       |                 |          |   |   |
| **Liabilities  and stockholders’ equity**                                                                                                                     |       |                 |          |   |   |
| Accounts payable                                                                                                                                                   | ** ** | **$**                | **60,685**    |   | $ | 42,225 |   |
| Accrued expenses  and other current liabilities                                                                                                                    | ** ** | **41,107**           |          | 39,963 |   |
| Rents billed in  advance                                                                                                                                           | ** ** | **23,621**           |          | 21,375 |   |
| Revolving credit  facility                                                                                                                                         | ** ** | **364,150**          |          | 102,130 |   |
| Long-term debt,  net                                                                                                                                               | ** ** | **505,296**          |          | 907,356 |   |
| Deferred income  taxes                                                                                                                                             | ** ** | **141,020**          |          | 150,415 |   |
| Total  liabilities                                                                                                                                                 | ** ** | **1,135,879**        |          | 1,263,464 |   |
|                                                                                                                                                               |       |                 |          |   |   |
| Stockholders’  equity:                                                                                                                                        |       |                 |          |   |   |
| Preferred stock,  $.01 par value; authorized 20,000,000 shares; no shares issued or outstanding                                                                    |       | —               |          | — |   |
| Common stock,  $.01 par value; authorized 200,000,000 shares; issued 51,869,427 shares as of  December 31, 2005 and 36,156,668 shares as of December 31, 2004 | ** ** | **519**              |          | 362 |   |
| Additional  paid-in capital                                                                                                                                        | ** ** | **471,406**          |          | 240,474 |   |
| Retained  earnings                                                                                                                                                 | ** ** | **51,846**           |          | 62,170 |   |
| Accumulated  other comprehensive income                                                                                                                            | ** ** | **16,908**           |          | 14,079 |   |
| ** **                                                                                                                                                         |       | **540,679**          |          | 317,085 |   |
| Less treasury  stock – 12,597,848 common shares in 2005 and 2004, at cost                                                                                     | ** ** | **(295,938**         | **)**         | (295,938 | ) |
| Total  stockholders’ equity                                                                                                                                   | ** ** | **244,741**          |          | 21,147 |   |
| Total  liabilities and stockholders’ equity                                                                                                                   | ** ** | **$**                | **1,380,620** |   | $ | 1,284,611 |   |

 

*Seeaccompanying notes.*

 

27

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Williams ScotsmanInternational, Inc. and Subsidiaries

ConsolidatedStatements of Operations

 
| ** **                                                                                  | ** ** | **Year ended December 31**               | ** **  |
|---------------------------------------------------------------------------------------------|------------|-----------------------------------------------|-------------|
| ** **                                                                                  | ** ** | **2005**                                      | ** **  | **2004** | ** ** | **2003** | ** ** |
| ** **                                                                                  | ** ** | **(In thousands except   per share amounts)** | ** **  |
| **Revenues**                                                                                |       |                                          |        |   |   |   |   |
| Leasing                                                                                     | ** ** | **$**                                         | **247,713** |   | $ | 222,867 |   | $ | 213,976 |   |
| Sales:                                                                                      |       |                                          |        |   |   |   |   |
| New units                                                                                   | ** ** | **128,244**                                   |        | 86,344 |   | 71,635 |   |
| Rental equipment                                                                            | ** ** | **37,530**                                    |        | 29,355 |   | 20,734 |   |
| Delivery and  installation                                                                  | ** ** | **135,715**                                   |        | 116,106 |   | 91,318 |   |
| Other                                                                                       | ** ** | **43,256**                                    |        | 43,253 |   | 37,980 |   |
| Total revenues                                                                              | ** ** | **592,458**                                   |        | 497,925 |   | 435,643 |   |
|                                                                                        |       |                                          |        |   |   |   |   |
| **Cost of  sales and services**                                                             |       |                                          |        |   |   |   |   |
| Leasing:                                                                                    |       |                                          |        |   |   |   |   |
| Depreciation and  amortization                                                              | ** ** | **52,614**                                    |        | 48,888 |   | 49,097 |   |
| Other direct  leasing costs                                                                 | ** ** | **59,932**                                    |        | 51,777 |   | 45,731 |   |
| Sales:                                                                                      |       |                                          |        |   |   |   |   |
| New units                                                                                   | ** ** | **105,377**                                   |        | 72,885 |   | 59,411 |   |
| Rental equipment                                                                            | ** ** | **28,909**                                    |        | 22,896 |   | 16,361 |   |
| Delivery and  installation                                                                  | ** ** | **115,730**                                   |        | 101,061 |   | 78,856 |   |
| Other                                                                                       | ** ** | **11,290**                                    |        | 9,605 |   | 8,274 |   |
| Total costs of  sales and services                                                          | ** ** | **373,852**                                   |        | 307,112 |   | 257,730 |   |
| Gross profit                                                                                | ** ** | **218,606**                                   |        | 190,813 |   | 177,913 |   |
|                                                                                        |       |                                          |        |   |   |   |   |
| Selling, general  and administrative expenses                                               | ** ** | **96,968**                                    |        | 83,407 |   | 76,297 |   |
| Other  depreciation and amortization                                                        | ** ** | **16,618**                                    |        | 14,787 |   | 13,869 |   |
| Interest,  including amortization of deferred financing costs of $5,465, $6,959 and  $8,789 | ** ** | **91,203**                                    |        | 92,444 |   | 87,174 |   |
| Loss on early  extinguishment of debt                                                       | ** ** | **30,678**                                    |        | — |   | — |   |
| Held for sale  impairment charge                                                            |       | —                                        |        | — |   | 19,386 |   |
| Total operating  expenses                                                                   | ** ** | **235,467**                                   |        | 190,638 |   | 196,726 |   |
|                                                                                        |       |                                          |        |   |   |   |   |
| Income (loss)  before income taxes                                                          | ** ** | **(16,861**                                   | **)**       | 175 |   | (18,813 | ) |
| Income tax  expense (benefit)                                                               | ** ** | **(6,537**                                    | **)**       | 3,586 |   | (7,131 | ) |
|                                                                                        |       |                                          | ** **  |   |   |   |   |
| Net loss                                                                                    | ** ** | **$**                                         | **(10,324** | **)** | $ | (3,411 | ) | $ | (11,682 | ) |
|                                                                                        |       |                                          | ** **  |   |   |   |   |
| Loss per common  share - basic                                                              | ** ** | **$**                                         | **(0.37**   | **)** | $ | (0.14 | ) | $ | (0.50 | ) |
|                                                                                        |       |                                          | ** **  |   |   |   |   |
| Loss per common  share - diluted                                                            | ** ** | **$**                                         | **(0.37**   | **)** | $ | (0.14 | ) | $ | (0.50 | ) |

 

*See accompanying notes.*

 

28

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Williams ScotsmanInternational, Inc. and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity

(in thousands)

 
| ** **                                                                             | ** ** | **Common Stock** | ** ** | **Additional  Paid-in Capital** | ** ** | **Retained  Earnings** | ** ** | **Accumulated    Other****Comprehensive****Income  (Loss)** | ** ** | **Treasury  Stock** | ** ** | **Total  Stockholders’  Equity** | ** ** |
|----------------------------------------------------------------------------------------|------------|------------------|------------|---------------------------------|------------|------------------------|------------|-------------------------------------------------------------|------------|---------------------|------------|---------------------------------------|------------|
| ** **                                                                             | ** ** | **Shares**       | ** ** | **Amount**                      | ** ** | ** **             | ** ** | ** **                                                  | ** ** | ** **          |
| ** **                                                                             | ** ** | ** **       | ** ** | ** **                      | ** ** | ** **             | ** ** | ** **                                                  | ** ** | ** **          | ** ** | ** **                            | ** ** | ** ** | ** ** |
| Balance at  January 1, 2003                                                       |       | 23,559           |       | $                               | 362        |                   | $          | 238,972                                                     |       | $                   | 77,263     |                                  | $          | (1,386 | ) | $ | (295,938 | ) | $ | 19,273 |   |
| Comprehensive  loss:                                                                   |       |             |       |                            |       |                   |       |                                                        |       |                |       |                                  |       |   |   |
| Net loss                                                                               |       | —           |       | —                          |       | —                 |       | (11,682                                                     | **)**      | **—**          |       | —                                |       | (11,682 | ) |
| Foreign currency  translation adjustment                                               |       | —           | ** ** | **—**                      | ** ** | **—**             | ** ** | **—**                                                  |       | 10,007              |       | —                                |       | 10,007 |   |
| Comprehensive  loss                                                                    |       |             |       |                            |       |                   |       |                                                        |       |                |       |                                  |       | (1,675 | ) |
| Non-cash stock  compensation expense                                                   |       | —           |       | —                          |       | 766                    |       | —                                                      | ** ** | **—**          |       | —                                |       | 766 |   |
| Balance at  December 31, 2003                                                     |       | 23,559           |       | 362                             |       | 239,738                |       | 65,581                                                      |       | 8,621               |       | (295,938                              | )          | 18,364 |   |
| Comprehensive  income:                                                                 |       |             |       |                            |       |                   |       |                                                        |       |                |       |                                  |       |   |   |
| Net loss                                                                               |       | —           |       | —                          |       | —                 |       | (3,411                                                      | )          | —              |       | —                                |       | (3,411 | ) |
| Foreign currency  translation adjustment                                               |       | —           |       | —                          |       | —                 |       | —                                                      |       | 5,458               |       | —                                |       | 5,458 |   |
| Comprehensive  income                                                                  |       |             |       |                            |       |                   |       |                                                        |       |                |       |                                  |       | 2,047 |   |
| Non-cash stock  compensation expense                                                   |       | —           |       | —                          |       | 736                    |       | —                                                      |       | —              |       | —                                |       | 736 |   |
| 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 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** | ** ** |
| Comprehensive  loss:                                                                   | ** ** | ** **       | ** ** | ** **                      | ** ** | ** **             | ** ** | ** **                                                  | ** ** | ** **          | ** ** | ** **                            | ** ** | ** ** | ** ** |
| Net loss                                                                               | ** ** | **—**       | ** ** | **—**                      | ** ** | **—**             | ** ** | **(10,324**                                                 | **)**      | **—**          | ** ** | **—**                            | ** ** | **(10,324** | **)** |
| Foreign currency  translation adjustment                                               | ** ** | **—**       | ** ** | **—**                      | ** ** | **—**             | ** ** | **—**                                                  | ** ** | **2,829**           | ** ** | **—**                            | ** ** | **2,829** | ** ** |
| Comprehensive  loss                                                                    | ** ** | **—**       | ** ** | **—**                      | ** ** | **—**             | ** ** | **—**                                                  | ** ** | **—**          | ** ** | **—**                            | ** ** | **(7,495** | **)** |
| Non-cash stock  compensation expense                                                   | ** ** | **—**       | ** ** | **—**                      | ** ** | **3,756**              | ** ** | **—**                                                  | ** ** | **—**          | ** ** | **—**                            | ** ** | **3,756** | ** ** |
| Balance at  December 31, 2005                                                     | ** ** | **39,272**       | ** ** | **$**                           | **519**    | ** **             | **$**      | **471,406**                                                 | ** ** | **$**               | **51,846** | ** **                            | **$**      | **16,908** | ** ** | **$** | **(295,938** | **)** | **$** | **244,741** | ** ** |

 

*See accompanying notes.*

 

29

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WilliamsScotsman International, Inc. and Subsidiaries

Consolidated Statementsof Cash Flows

 
| ** **                                                                       | ** ** | **Year ended December 31** | ** **  |
|----------------------------------------------------------------------------------|------------|---------------------------------|-------------|
| ** **                                                                       | ** ** | **2005**                        | ** **  | **2004** | ** ** | **2003** | ** ** |
| ** **                                                                       | ** ** | **(In thousands)**              | ** **  |
| **Cash  flows from operating activities**                                        |       |                            |        |   |   |   |   |
| Net loss                                                                         | ** ** | **$**                           | **(10,324** | **)** | $ | (3,411 | ) | $ | (11,682 | ) |
| Adjustments to  reconcile net loss to net cash provided by operating activities: |       |                            | ** **  |   |   |   |   |
| Depreciation and  amortization                                                   | ** ** | **74,697**                      | ** **  | 70,634 |   | 71,755 |   |
| Amortization of  bond discount                                                   | ** ** | **268**                         | ** **  | 357 |   | 357 |   |
| Provision for  bad debts                                                         | ** ** | **3,204**                       | ** **  | 2,248 |   | 2,286 |   |
| Loss on early  extinguishment of debt                                            | ** ** | **30,678**                      | ** **  | — |   | — |   |
| Deferred income  tax expense (benefit)                                           | ** ** | **(6,537**                      | **)**       | 3,137 |   | (7,640 | ) |
| Non-cash stock  compensation expense                                             | ** ** | **3,756**                       | ** **  | 736 |   | 766 |   |
| Gain on  insurance recovery                                                      | ** ** | **(662**                        | **)**       | (3,373 | ) | — |   |
| Non-cash held  for sale impairment charge                                        |       | —                          | ** **  | — |   | 19,386 |   |
| Gain on sale of  rental equipment‘                                          | ** ** | **(8,621**                      | **)**       | (6,459 | ) | (4,373 | ) |
| Gain on sale of  fixed assets                                                    | ** ** | **(23**                         | **)**       | (7 | ) | (810 | ) |
| (Increase)  decrease in net trade accounts receivable                            | ** ** | **(20,778**                     | **)**       | (22,375 | ) | 6,881 |   |
| Increase in  accounts payable and accrued expenses and other current liabilities | ** ** | **19,623**                      | ** **  | 22,261 |   | 6,161 |   |
| Increase in  prepaid expenses and other current assets                           | ** ** | **(12,037**                     | **)**       | (4.015 | ) | (9,432 | ) |
| Other                                                                            | ** ** | **(5,729**                      | **)**       | (2,870 | ) | 561 |   |
| Net cash  provided by operating activities                                       | ** ** | **67,515**                      | ** **  | 56,863 |   | 74,216 |   |
|                                                                             |       |                            | ** **  |   |   |   |   |
| **Cash  flows from investing activities**                                        |       |                            | ** **  |   |   |   |   |
| Rental equipment  additions                                                      | ** ** | **(139,815**                    | **)**       | (79,867 | ) | (53,307 | ) |
| Proceeds from  sales of rental equipment                                         | ** ** | **37,530**                      | ** **  | 29,355 |   | 20,734 |   |
| Proceeds from  insurance recovery                                                | ** ** | **3,616**                       | ** **  | 5,000 |   | — |   |
| Acquisition of  businesses, net of cash acquired                                 | ** ** | **(4,631**                      | **)**       | (5,791 | ) | (3,434 | ) |
| Purchase of  California classroom fleet                                          |       | —                          | ** **  | (43,572 | ) | — |   |
| Purchase of  property and equipment, net                                         | ** ** | **(12,005**                     | **)**       | (8,062 | ) | (7,632 | ) |
| Net cash used in  investing activities                                           | ** ** | **(115,305**                    | **)**       | (102,937 | ) | (43,639 | ) |
|                                                                             |       |                            | ** **  |   |   |   |   |
| **Cash  flows from financing activities**                                        |       |                            | ** **  |   |   |   |   |
| Proceeds from  debt                                                              | ** ** | **1,473,724**                   | ** **  | 553,937 |   | 597,378 |   |
| Repayment of  debt                                                               | ** ** | **(1,631,548**                  | **)**       | (506,987 | ) | (619,903 | ) |
| Proceeds from  initial public offering of common stock, net                      | ** ** | **223,092**                     | ** **  | — |   | — |   |
| Proceeds from  exercise of stock options                                         | ** ** | **1,383**                       | ** **  | — |   | — |   |
| Increase in  deferred financing costs                                            | ** ** | **(19,266**                     | **)**       | (757 | ) | (8,041 | ) |
| Net cash  provided by (used in) financing activities                             | ** ** | **47,385**                      | ** **  | 46,193 |   | (30,566 | ) |
|                                                                             |       |                            | ** **  |   |   |   |   |
| Effect of  exchange rate changes                                                 | ** ** | **(65**                         | **)**       | 433 |   | (53 | ) |
| Net increase  (decrease) in cash                                                 | ** ** | **(470**                        | **)**       | 552 |   | (42 | ) |
|                                                                             |       |                            | ** **  |   |   |   |   |
| Cash at  beginning of year                                                       | ** ** | **939**                         | ** **  | 387 |   | 429 |   |
| Cash at end of  year                                                             | ** ** | **$**                           | **469**     | ** ** | $ | 939 |   | $ | 387 |   |
|                                                                             |       |                            | ** **  |   |   |   |   |
| Supplemental  cash flow information:                                             |       |                            | ** **  |   |   |   |   |
| Cash paid for  income taxes                                                      | ** ** | **$**                           | **—**  | ** ** | $ | 665 |   | $ | 451 |   |
| Cash paid for  interest                                                          | ** ** | **$**                           | **90,463**  | ** ** | $ | 84,903 |   | $ | 74,608 |   |

 

*Seeaccompanying notes*

 

30

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Williams ScotsmanInternational, Inc. and Subsidiaries

Notes toConsolidated Financial Statements

(Dollars inthousands, except per share amounts)

December 31,2005

 

**1. Organizationand Basis of Presentation**

 

Williams ScotsmanInternational, Inc. (Williams Scotsman International) was organized inNovember 1993 for the purpose of acquiring Williams Scotsman, Inc.(Scotsman). The operations of Williams Scotsman International and itssubsidiary (collectively “the Company”), consist of the leasing and sale ofmobile offices, storage products, and their delivery and installation. TheCompany’s operations include Scotsman’s 100% owned subsidiaries, WillscotEquipment, LLC (Willscot), Williams Scotsman of Canada, Inc., WilliamsScotsman Mexico S. de R.L. de C.V., and Williams Scotsman Europe S.L. Willscot,a special purpose subsidiary, was formed in May 1997; its operations arelimited to the leasing of its mobile office units to Scotsman under a masterlease. Additionally, Willscot has entered into a management agreement withScotsman whereby it pays a fee to Scotsman in an amount equal to the rental andother income (net of depreciation expense) it earns from Scotsman. Therefore,Willscot earns no net income.

 

The operations of theCompany consist primarily of the leasing and sale of mobile offices, modularbuildings and storage products (equipment) and their delivery and installationthroughout the United States, Canada, and certain parts of Mexico.

 

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. Summaryof Significant Accounting Policies**

 

**(a)  Use of Estimates**

 

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 of Consolidation**

 

The accompanyingconsolidated financial statements include the accounts of Williams ScotsmanInternational and its 100% owned subsidiaries. Significant intercompanyaccounts and transactions have been eliminated in consolidation.

 

**(c)  Fair Value of Financial 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 investment in Wiron is not readily marketable andit is not practicable to estimate its fair value. The fair value of long-termdebt is based on quoted market prices. As of December 31, 2005 and 2004,the fair market value and cost of the Company’s long-term debt, net were$505,449 and $505,296 and $933,689 and $928,178, respectively. The Company doesnot have a significant amount of credit risk associated with the fair value ofits assets and liabilities.

 

**(d)  Accounts Receivable and Allowance forDoubtful Accounts**

 

The Company’s accountsreceivable consist of amounts due from customers throughout the United States,Canada, and certain parts of Mexico. Collateral is generally not required. TheCompany provides for the allowance for doubtful accounts receivable through acharge to operations in amounts equal to the estimated losses expected to beincurred in collection of the accounts. The estimated losses are based onhistorical collection experience, days sales outstanding trends, and a reviewof specific past due receivables. Customer accounts are written-off against theallowance for doubtful accounts when an account is determined to beuncollectible.

 

**(e)  Leasing Operations**

 

Equipment is leasedgenerally under operating leases and, occasionally, under sales-type leasearrangements. Operating lease terms generally range from 3 months to60 months, and contractually averaged approximately 15 months atDecember 31, 2005. Rents billed in advance are initially deferred andrecognized as revenue over the term of the operating leases. Rental equipmentis depreciated by the straight-line method using an estimated economic usefullife of generally 20 years and an estimated residual value of typically50%.

 

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

 

**(f)  Property and Equipment**

 

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 and 3 to 10 years for furniture and equipment. Maintenanceand repairs are charged to expense as incurred.

 

**(g)  Deferred Financing 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.

 

31

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**(h)  Goodwill**

 

Goodwill is initiallymeasured as the excess of the cost of an acquired business over the fair valueof the identifiable net assets acquired. The Company does not amortizegoodwill, but rather reviews its carrying value for impairment annually, andwhenever an impairment indicator is identified.

 

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 reporting unitto 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 our own. If the estimated fairvalue exceeds the carrying value, no impairment loss is recognized. If thecarrying value exceeds the fair value, goodwill is considered 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.

 

**(i)  Other Intangible 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 from 24 monthsto 228 months. Amortization expense was approximately $800 and $700 in2005 and 2004, respectively. The weighted-average remaining life of theseidentified intangible assets is 65 months.

 

**(j)  Impairment of Long-Lived Assets**

 

Long-lived assets, includingamortizable intangible assets, are reviewed for impairment whenever events orchanges in circumstances indicate that the carrying amount of an asset or groupof assets may not be fully recoverable. These events or changes incircumstances may include a significant deterioration of operating results,changes in business plans, or changes in anticipated future cash flows. If animpairment indicator is present, the Company evaluates recoverability by acomparison of the carrying amount of the assets to future undiscounted net cashflows expected to be generated by the assets. Assets are grouped at the lowestlevel for which there is identifiable cash flows that are largely independentof the cash flows generated by other asset groups. If the assets are impaired,the impairment recognized is measured by the amount by which the carryingamount exceeds the fair value of the assets. Fair value is generally determinedby estimates of discounted cash flows. The discount rate used in any estimateof discounted cash flows would be the rate required for a similar investment oflike risk.

 

Assets to be disposed ofare reported at the lower of carrying value or fair values, less estimatedcosts of disposal.

 

**(k)  Stock-based Compensation**

 

Effective January 1, 2003, the Company adoptedthe fair value recognition provisions of SFAS No. 123 (SFAS No. 123),*Accounting for Stock-Based Compensation*.The Company selected the modified prospective method of adoption described inSFAS No. 148, *Accounting forStock—Compensation-Transition and Disclosure* (SFAS No. 148).Gross compensation cost recognized related to stock-based compensation for theyear ended December 31, 2005, 2004 and 2003 was $3,756, $736 and $766, respectively.

 

The weighted-average fairvalue of options granted in 2005, 2004, and 2003 were $7.59, $5.11, and $5.46,respectively. The following assumptions were used to compute these fair valuesusing the Cox Ross Rubinstein binomial model at each grant date:

 
| ** **               | ** ** | **2005**  | ** ** | **2004** | ** ** | **2003** | ** ** |
|--------------------------|------------|-----------|------------|----------|------------|----------|------------|
| Risk-free  interest rate |       | 4.13      | %          | 3.85     | %          | 2.97     | %          |
| Expected life in  years  |       | 5.00-6.25 |       | 5.00     |       | 5.00     |       |
| Volatility               |       | 46.4      | %          | 42.9     | %          | 45.2     | %          |
| Dividend yield           |       | 0         | %          | 0        | %          | 0        | %          |

 

As a result of the Company’s initial public offeringin September 2005, the Company has utilized a simplified method for determiningthe expected term of the options in accordance with Securities and ExchangeCommission Staff Accounting Bulletin No. 107. This simplified method calculatesthe expected term of the options as the sum of the vesting term and originalcontract term of the option divided by two. This method applies to both theCompany’s time-based and performance vesting options issued in September 2005,as the Company believes that performance options will be exercised in a patternconsistent with time-based options. Prior to the Company’s initial publicoffering, the expected term was estimated using historical data that consideredexpected changes in ownership of the Company that would accelerate optionvesting.

 

During 2005, the Company recorded $2,387 of stock compensation expenserelated to the accelerated vesting of options as a result of the Company’sinitial public offering. During 2004 and 2003, a modification was made for thecontinuation of certain employees’ options after their termination from theCompany. The weighted-average fair value of their modified options, risk freeinterest rate at the modification date, expected life and volatility (asestimated based upon a historical average of comparable stock indices) was$7.93, 2.78%, 3.11 years, and 39.9% for 2004 and $9.23, 2.06%,3.81 years, and 45.3% for 2003, respectively.

 

**(l)  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.

 

32

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**(m)  Advertising costs**

 

Advertising costs aregenerally expensed as incurred. Advertising expense for the years endedDecember 31, 2005, 2004, and 2003 was $4,622, $4,345, and $3,935,respectively, and is included in selling, general, and administrative expensesin the consolidated statements of operations.

 

**(n)  Earnings Per Share**

 

The following table setsforth the components of the weighted-average shares outstanding for the basicand diluted earnings per share computations:

 
| ** **                        | ** ** | **2005**   | ** ** | **2004**   | ** ** | **2003**   | ** ** |
|-----------------------------------|------------|------------|------------|------------|------------|------------|------------|
| Weighted-average  shares-basic    |       | 27,763,324 |       | 23,558,805 |       | 23,558,805 |       |
|                              |       |       |       |       |       |       |       |
| Effect of  employee stock options |       | —     |       | —     |       | —     |       |
|                              |       |       |       |       |       |       |       |
| Weighted-average  shares-diluted  |       | 27,763,324 |       | 23,558,805 |       | 23,558,805 |       |

 

Common stock equivalentsof approximately 1,243,552, 1,296,823 and 1,350,065 were excluded from theweighted-average shares-diluted total for the years ended December 31,2005, 2004 and 2003, respectively, due to their anti-dilutive nature, whichresulted from the Company’s net loss for such periods.

 

**(o)  Revenue Recognition**

 

The Company earns revenuefrom leasing, sales of new and used rental equipment, and delivery andinstallation services. Where applicable, the Company’s revenue recognitionpolicy takes into consideration the guidance of Emerging Issues Task Force(EITF) Issue No. 00-21, *RevenueArrangements with Multiple Deliverables*.

 

Revenue from delivery andinstallation services associated with rental activities is generally recognizedupon their completion, as the Company has objective evidence of the fair valueof the remaining equipment leasing element of the arrangements. This evidenceconsists of rental rates associated with units leased without correspondingdelivery and installation services. Leasing revenue is recognized ratably overthe lease term. Billings in excess of earned revenue is recorded as deferredrevenue in the balance sheet caption, “rents billed in advance.”

 

Revenue from the sale ofnew units and used rental equipment, including delivery and installationrevenue, is generally recognized at the time the units are installed. Certainarrangements to sell units under long-term construction-type sales contractsare recognized under the percentage of completion method. Under this method,income is recognized in proportion to the incurred costs to date under thecontract compared to estimated total costs.

 

Sales of new units aretypically covered by warranties provided by the manufacturer of products sold.The Company provides a limited 30-day warranty for certain sales of rentalequipment. The Company’s warranty expense is estimated and accrued at the timeof sale. Warranty expense was not material for the years endedDecember 31, 2005, 2004 and 2003.

 

Other revenue consistsprincipally of revenue from the rental or sale of ancillary items associatedwith the 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.

 

**(p)  Foreign Currency Translation**

 

The financial statementsof Scotsman’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 is insignificantfor all years presented.

 

**(q)  Business Segment**

 

The Company manages itsoperations on a geographic basis. Financial results of geographic regions areaggregated into one reportable segment since their operations have similareconomic characteristics. These characteristics include similar products andservices, processes for delivering these services, type or class of customer,and long-term average gross margins.

 

**(r)  Recent Accounting Pronouncements**

 

InDecember 2004, the Financial Accounting Standards Board (“FASB”) issuedSFAS No.123 (revised 2004), “Share-Based Payment” (“SFAS No. 123-R”),which is a revision of SFAS No. 123, *Accountingfor Stock-Based Compensation*. Generally, the approach in SFASNo. 123-R is similar to the approach described in SFAS No. 123. InApril 2005, the Securities and Exchange Commission provided for aphased-in implementation of SFAS No. 123-R. Under this revised guidance,the effective date for application of SFAS No. 123-R has been postponeduntil no later than the beginning of the first fiscal year after June 15,2005, or January 1, 2006 for the Company. The Company intends to elect themodified prospective method of adopting SFAS No. 123-R, which requires therecognition of expense over the remaining vesting period for the portion ofawards not fully vested as of January 1, 2006. As the Company currentlyapplies the fair value method under SFAS No. 123, the Company does notanticipate that the adoption of SFAS No. 123-R will have a material impacton its financial statements.

 

**(s)  Reclassifications**

 

Certain prior yearamounts have been reclassified to conform to the current year presentation. Theeffect of these reclassifications is not material to the consolidated financialstatements.

 

33

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**3. Acquisitions**

 

**Acquisition of Mobile Space Inc.**

 

OnFebruary 24, 2005, the Company acquired Mobile Space Inc., a Chicago-basedcompany that leased and sold modular space units. This purchase resulted in theacquisition of approximately 640 units and the related customer base. Thetransaction was accounted for under the purchase method of accounting with apurchase price of $4,800, of which approximately $710 was recorded as anincrease to goodwill. The acquisition was financed with borrowings under theCompany’s credit facility.

 

**MinorityInvestment in Wiron Construcciones Modulares, SA**

 

On July 28, 2004,the Company, through Scotsman’s 100% owned subsidiary, Williams ScotsmanEurope, S.L., acquired an 8.5% minority interest in Wiron ConstruccionesModulares, SA., (Wiron) headquartered in Parla, Spain and secured a right offirst refusal to acquire any or all of the shares of Wiron in the future. Wironis one of the largest modular space providers in Spain with branches located inall major cities throughout the country. The Company acquired its 8.5% minorityinterest for approximately $4,700, which includes acquisition related costs. TheCompany accounts for this minority investment using the cost method. There wereno events or  changes in circumstancesthat had a significant adverse effect on the fair value of the investmentduring the year ended December 31, 2005. As of December 31, 2005 and  2004, the Company’s investment in Wironapproximated $4,541 and $4,797, respectively, and is included in other assetsin the consolidated balance sheets. As of December 31, 2005, the Company has onlease to Wiron approximately $2,000 of rental equipment. Rental income fromthese leases was approximately $80 for the year ended December 31, 2005.

 

**Purchaseof California 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 creditfacility. The acquisition included the purchase of units, equipment associatedwith these classroom units as well as rights under all outstanding leases relatedto these classroom 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.

 

**Acquisitionof AFA Locations Inc.**

 

On May 29, 2003, theCompany acquired AFA Locations Inc. (AFA), a privately-held, Montreal,Canadian-based company that was involved in the leasing of mobile offices builtby the manufacturing operations of AFA’s consolidated entity. The purchase ofthe leasing business resulted in the acquisition of approximately 300 units ata value of approximately $2,600 and the related customer base. The transactionwas accounted for under the purchase method of accounting with a net purchaseprice of approximately $3,200 and $600 of goodwill. The acquisition wasfinanced with borrowings under the Company’s credit facility.

 

**4. Propertyand Equipment**

 

Property and equipmentconsist of the following:

 
| ** **                     | ** ** | **December 31** | ** ** |
|--------------------------------|------------|----------------------|------------|
| ** **                     | ** ** | **2005**             | ** ** | **2004** | ** ** |
| Land                           | ** ** | **$**                | **19,631** |   | $ | 19,286 |   |
| Buildings and  improvements    | ** ** | **42,175**           |       | 40,229 |   |
| Furniture and  equipment       | ** ** | **57,220**           |       | 53,445 |   |
| Computer  software             | ** ** | **19,838**           |       | 18,941 |   |
| Capital leases                 | ** ** | **4,028**            |       | 1,985 |   |
| ** **                     |       | **142,892**          |       | 133,886 |   |
| Less accumulated  depreciation | ** ** | **61,715**           |       | 53,935 |   |
| Net property and  equipment    | ** ** | **$**                | **81,177** |   | $ | 79,951 |   |

 

Depreciation expense,including that of capital leases, related to property and equipment was$10,901, $9,112, and $8,229 for the years ended December 31, 2005, 2004,and 2003, respectively. Accumulated depreciation related to capital leases was$653 and $118 as of December 31, 2005 and 2004, respectively. Included indepreciation expense is amortization expense related to capitalized computersoftware cost of $3,713, $3,550, and $2,916 for the years endedDecember 31, 2005, 2004, and 2003, respectively.

 

**5. OtherIntangible Assets**

 

The following table summarizes the balances of other intangible assets:

 
| ** **              | ** ** | **December 31, 2005**   | ** ** | **December 31, 2004**    | ** ** |
|-------------------------|------------|------------------------------|------------|-------------------------------|------------|
| ** **              | ** ** | **Gross   Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Net   Book   Value** | ** ** | **Gross   Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Net   Book   Value** | ** ** |
| Amortizable:            |       |                         |       |                          |       |   |   |   |   |   |   |   |   |
| Non-compete  agreements |       | $                            | 3,527      |                          | $          | 2,470 |   | $ | 1,057 |   | $ | 3,362 |   | $ | 1,802 |   | $ | 1,560 |   |
| Customer  relationships |       | 2,192                        |       | 880                           |       | 1,312 |   | 2,192 |   | 775 |   | 1,417 |   |
|                    |       | $                            | 5,719      |                          | $          | 3,350 |   | $ | 2,369 |   | $ | 5,554 |   | $ | 2,577 |   | $ | 2,977 |   |

 

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Amortization expense was approximately $800, $700, and $700 in 2005,2004, and 2003, respectively. Covenants not-to-compete and customerrelationships are being amortized on a straight-line basis over periods of 36to 228 months. The weighted-average remaining life of these intangible assetsis 65 months. Amortization expense for each of the next five years is asfollows:

 

| 2006       |   | $   | 501    |   |
|------------|--------|-----|--------|--------|
| 2007       |   | 376 |   |
| 2008       |   | 326 |   |
| 2009       |   | 209 |   |
| 2010       |   | 119 |   |
| Thereafter |   | 838 |   |

 

**6. RevolvingCredit Facility and Long-Term Debt**

 

Debt consists of thefollowing:

 
| ** **                                                        | ** ** | **December 31** | ** ** |
|-------------------------------------------------------------------|------------|----------------------|------------|
| ** **                                                        | ** ** | **2005**             | ** ** | **2004** | ** ** |
|                                                              |       |                 |       |   |   |
| Borrowings under  revolving credit facility                       |       | $                    | 364,150    |   | $ | 102,130 |   |
| Term loan                                                         |       | 150,000              |       | 206,307 |   |
| 8.5% senior  notes                                                |       | 350,000              |       | — |   |
| 9.875% senior  notes, net of unamortized discount of $833 in 2004 |       | —               |       | 549,167 |   |
| 10.0% senior  secured notes                                       |       | 1,800                |       | 150,000 |   |
| Capital lease  obligations                                        |       | 3,496                |       | 1,882 |   |
|                                                              |       | $                    | 869,446    |   | $ | 1,009,486 |   |

 

On June 28, 2005,the Company entered into an amended and restated credit facility, the netproceeds of which were used to refinance the then existing credit agreement. Theamended and restated credit facility provides for a $500,000 revolving creditfacility and a $150,000 term loan, both maturing on June 28, 2010. Intereston borrowings under the revolver and term loan is payable at a rate of eitherprime plus 1% or the Eurodollar rate plus 2.5%. The interest rate margin issubject to pricing adjustments based on excess availability and a ratio definedin the credit agreement. In connection with the refinancing, approximately$5,200 of deferred financing costs related to the prior credit facility wereexpensed immediately and included in loss on early extinguishment of debt. Theweighted-average interest rates of the revolver under the credit agreement were6.37% and 5.55% at December 31, 2005 and 2004, respectively. Theweighted-average interest rates of the term loan under the credit agreementwere 6.64% and 5.18% at December 31, 2005 and 2004, respectively.

 

Borrowings under theamended and restated credit facility, which are based upon a borrowing basecalculation, are secured by a first priority lien on and security interest inthe Company’s rental equipment, accounts receivable, property and equipment,and other assets. The amended and restated credit facility contains affirmativeand negative covenants customary for such financings including restrictions onthe amount of dividends that Scotsman can pay to Williams ScotsmanInternational. In addition, if the Company does not meet certain excessavailability requirements, it will be required to comply with a senior securedleverage ratio, a consolidated interest coverage ratio and a minimumutilization test. As of December 31, 2005, the Company met the excessavailability requirements and did not have to comply with the financialcovenants. Excessavailability calculated in accordance with the credit agreement under thisfacility was approximately $115,400 at December 31, 2005. The Companybelieves it will have sufficient liquidity under its revolving line of creditand from cash generated from operations to fund its operations for at least thenext 12 months.

 

On September 29,2005, Scotsman issued $350,000 of 8.5% Senior Notes due 2015. The Company usedthe net proceeds of approximately $340,900 received from this offering togetherwith the 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% of theaggregate principal amount of such notes plus accrued and unpaid interest. Inconnection with the tender offer of the Notes, the Company purchased the 9.875%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.

 

The 8.5% Notes are fullyand unconditionally guaranteed on a senior unsecured basis by Williams ScotsmanInternational and certain subsidiaries of Scotsman. Willscot has fully andunconditionally guaranteed the 8.5% Notes on a subordinated basis. None of theforeign subsidiaries of Scotsman (other than its 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. OnOctober 1, 2010, the 8.5% Notes will become redeemable at the option ofthe Company, at a redemption price of 104.25% during the 12 month periodbeginning October 1, 2010 declining to 100.0% during the 12 month periodbeginning October 1, 2013 and thereafter.

 

Letter of creditobligations at December 31, 2005 and 2004 were approximately $20,464 and$10,670, respectively. Maturities of debt during the years subsequent toDecember 31, 2005 are $662 in 2006, $665 in 2007, $2,462 in 2008, $569 in2009, $514,461 in 2010, and $350,627 thereafter.

 

**7. Stockholders’Equity**

 

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 and other offeringexpenses of $18,602). In addition, in connection with the initial publicoffering, 454,365 stock options were exercised by management of the Company andsold, resulting in additional net proceeds to the Company of $945. TheCompany recorded an excess income tax benefit of approximately $2,300 relatedto the exercise of these stock options as additional paid-in capital. Proceeds of the initial public offering wereused to reduce debt.

 

35

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**8. IncomeTaxes**

 

Deferred income taxesrelated to temporary differences between the tax bases of assets andliabilities and the respective amounts reported in the financial statements aresummarized as follows:

 
| ** **                                                                     | ** ** | **December 31** | ** **  |
|--------------------------------------------------------------------------------|------------|----------------------|-------------|
| ** **                                                                     | ** ** | **2005**             | ** **  | **2004** | ** ** |
| Deferred tax  liabilities:                                                     | ** ** | ** **           | ** **  | ** ** | ** ** |
| Cost basis in  excess of tax basis of assets and accelerated tax depreciation: |       |                 |        |   |   |
| Rental equipment                                                               | ** ** | **$**                | **259,095** |   | $ | 267,761 |   |
| Property and  equipment                                                        | ** ** | **985**              |        | 2,682 |   |
| Other                                                                          | ** ** | **1,262**            |        | 1,081 |   |
| Total deferred  tax liabilities                                                | ** ** | **261,342**          |        | 271,524 |   |
|                                                                           |       |                 |        |   |   |
| Deferred tax  assets:                                                          |       |                 |        |   |   |
| Allowance for  doubtful accounts                                               | ** ** | **326**              |        | 244 |   |
| Rents billed in  advance                                                       | ** ** | **9,554**            |        | 8,608 |   |
| Stock-based  compensation                                                      | ** ** | **5,458**            |        | 4,566 |   |
| Deferred  compensation                                                         | ** ** | **367**              |        | 453 |   |
| Net operating  loss carryovers                                                 | ** ** | **102,955**          |        | 109,380 |   |
| Alternative  minimum tax credit carryovers                                     | ** ** | **1,760**            |        | 1,760 |   |
| Other                                                                          | ** ** | **2,216**            |        | 1,330 |   |
| ** **                                                                     |       | **122,636**          |        | 126,341 |   |
| Less: valuation  allowance                                                     | ** ** | **(2,314**           | **)**       | (5,232 | ) |
| Total deferred  tax assets                                                     | ** ** | **120,322**          |        | 121,109 |   |
| Net deferred tax  liabilities                                                  | ** ** | **$**                | **141,020** |   | $ | 150,415 |   |

 

At December 31,2005, the Company had net operating loss carryovers available for federal andforeign income tax purposes of approximately $265,000. These net operating losscarryovers expire at various dates from 2006 to 2025.

 

Net operating losscarryovers in the amount of $7,800, $371, and $774, expired in 2005, 2004, and2003, respectively. A valuation allowance of $2,314 is recorded based on theexpected expiration of additional net operating loss carryovers. Alternativeminimum tax credit carryovers of approximately $1,760 are available withoutexpiration limitations.

 

Income tax expense(benefit) consists of the following:

 
| ** **          | ** ** | **Year ended December 31** | ** ** |
|---------------------|------------|---------------------------------|------------|
| ** **          | ** ** | **2005**                        | ** ** | **2004** | ** ** | **2003** | ** ** |
| Current             |       |                            |       |   |   |   |   |
| Federal             | ** ** | **$**                           | **—** |   | $ | — |   | $ | — |   |
| State               |       | —                          |       | 412 |   | 400 |   |
| Foreign             |       | —                          |       | 150 |   | 109 |   |
|                |       | —                          |       | 562 |   | 509 |   |
| Deferred            |       |                            |       |   |   |   |   |
| Federal             | ** ** | **(8,989**                      | **)**      | 562 |   | (8,178 | ) |
| State               | ** ** | **(1,781**                      | **)**      | 117 |   | (1,357 | ) |
| Foreign             | ** ** | **4,233**                       | ** ** | 2,345 |   | 1,895 |   |
| ** **          |       | **(6,537**                      | **)**      | 3,024 |   | (7,640 | ) |
| ** **          |       | ** **                      | ** ** |   |   |   |   |
| Total income  taxes | ** ** | **$**                           | **(6,537** | **)** | $ | 3,586 |   | $ | (7,131 | ) |

 

The provision for incometaxes is reconciled to the amount computed by applying the U.S. Federalstatutory corporate tax rate of 35% to loss before income taxes as follows:

 
| ** **                                                                                     | ** ** | **Year ended December 31** | ** ** |
|------------------------------------------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                                                     | ** ** | **2005**                        | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                                                                           |       |                            |       |   |   |   |   |
| Income tax  expense (benefit) at statutory rate                                                | ** ** | **$**                           | **(5,901** | **)** | $ | 61 |   | $ | (6,585 | ) |
| State income  taxes, net of federal tax benefit                                                | ** ** | **(1,158**                      | **)**      | 344 |   | (654 | ) |
| Amortization of  intangible assets                                                             |       | —                          | ** ** | — |   | 47 |   |
| Change in  valuation allowance                                                                 |       | —                          | ** ** | 430 |   | — |   |
| Cumulative  change in deferred taxes from increase in estimated effective U.S. state tax  rate |       | —                          | ** ** | 2,549 |   | — |   |
| Other (including  effect of foreign operations)                                                | ** ** | **522**                         | ** ** | 202 |   | 61 |   |
| ** **                                                                                     |       | **$**                           | **(6,537** | **)** | $ | 3,586 |   | $ | (7,131 | ) |
|                                                                                                |            |                                 |            |  |  |  |  |  |  |  |  |

 

During 2004, the incometax expense increased by $2,549 related to a change in the estimate of thefuture effects of state income taxes on cumulative temporary differences,resulting from a change in the estimated income apportionment among states inwhich the Company does business.

 

36

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The components of income(loss) from consolidated operations before income taxes is as follows:

 
| ** **    | ** ** | **Year ended December 31** | ** **  |
|---------------|------------|---------------------------------|-------------|
| ** **    | ** ** | **2005**                        | ** **  | **2004** | ** ** | **2003** | ** ** |
|          |       |                            |        |   |   |   |   |
| United States | ** ** | **$**                           | **(28,563** | **)** | $ | (5,759 | ) | $ | (23,700 | ) |
| Foreign       | ** ** | **11,702**                      | ** **  | 5,934 |   | 4,887 |   |
| ** **    |       | **$**                           | **(16,861** | **)** | $ | 175 |   | $ | (18,813 | ) |

 

Deferred U.S. incometaxes have not been recorded for basis differences related to investments inforeign subsidiaries. These basis differences were approximately $29.3 millionat December 31, 2005 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 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.

 

**9. Commitmentsand Contingencies**

 

The Company is obligatedunder noncancelable leases for certain equipment, vehicles and parcels of land.At December 31, 2005 approximate future minimum rental payments are asfollows:

 
| ** **                           | ** ** | **Operating Leases** | ** ** | **Capital Leases** | ** ** |
|--------------------------------------|------------|----------------------|------------|--------------------|------------|
| 2006                                 |       | $                    | 6,623      |               | $          | 875 |   |
| 2007                                 |       | 4,969                |       | 875                |       |
| 2008                                 |       | 3,680                |       | 867                |       |
| 2009                                 |       | 2,683                |       | 749                |       |
| 2010                                 |       | 1,976                |       | 434                |       |
| Thereafter                           |       | 6,795                |       | 967                |       |
|                                 |       | 26,726               |       | 4,767              |       |
| Less: Amounts  representing interest |       | —               |       | 1,271              |       |
| Total minimum  future lease payments |       | $                    | 26,726     |               | $          | 3,496 |   |

 

Rent expense was $13,555,in 2005, $12,869, in 2004, and $13,155, in 2003.

 

The Company maintains insurance coverage for itsoperations and employees with appropriate aggregate, per occurrence anddeductible limits as the Company reasonably determines is necessary or prudentwith 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, respectively.

 

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 is involved in various lawsuitsand claims arising out of the normal course of its business. The nature of theCompany’s business is such that disputes occasionally arise with vendors, includingsuppliers and subcontractors, and customers over warranties, contractspecifications and contract interpretations among other things. The Companyassesses these matters on a case-by-case basis as they arise. Reserves areestablished, as required, based on the Company’s assessment of its exposure. Asnoted above, the Company has insurance policies to cover general liability andworkers compensation related claims. In the opinion of management, the ultimateamount of liability not covered by insurance, if any, under pending litigationand claims will not have a material adverse effect on the financial position oroperating results of the Company.

 

In January 2003, the Company was awarded acontract to construct and renovate classrooms in an elementary school locatedin New Jersey. The Company contracted with various subcontractors for certaincomponents of the project. During the course of the construction, the modularunits were impacted by weather conditions, including torrential rains, fromwhich the units were not properly protected by the subcontractors performingthe work. As a result, damage to the units resulted. In order to ensure thatthese damages would be repaired and completed in advance of the school term,the Company promptly repaired the damage. The Company and its legal counselhave determined that the subcontractors are responsible for the damages, andare currently seeking full recovery for costs incurred from the partiesinvolved. In addition, the Company has builders risk insurance to cover someportion of the claim for which the Company has received approximately $500during 2005. The Company is pursuing these claims vigorously, expects to bereimbursed for the remaining damages and believes that recovery of theseamounts is probable and will be received in the next 12 months. As ofDecember 31, 2005 and 2004, the Company recorded amounts due of  $1,058 and $1,600, respectively. Theseamounts are included in prepaid expenses and other current assets in theCompany’s consolidated balance sheet.

 

**10. Employee Benefit Plans**

 

The Company has adopted a defined contribution plan(the 401(k) Plan) which is intended to satisfy the tax qualificationrequirements of Sections 401(a), 401(k), and 401(m) of the Internal RevenueCode of 1986 (the Code). The 401(k) Plan covers substantially all employees andpermits participants to contribute up to the dollar limit described inSection 402(g) of the Code ($14 in 2005). All amounts deferred under thissalary reduction feature are fully vested. In accordance with the EconomicGrowth and Tax Relief Act of 2001, the Plan also allows employees over the ageof 50 to contribute an additional $4 as a “catch-up contribution.”

 

37

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The 401(k) Plan has a “matching” contribution featureunder which the Company may contribute a percentage of the amount deferred byeach 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 first fiveyears of a participant’s employment and 100% thereafter. Matching contributionsby the Company to the 401(k) Plan were $582 in 2005, $315 in 2004, and $261 in2003. The Company temporarily eliminated the 401(k) employer match inApril 2003 as part of a cost reduction initiative. On January 1,2004, the Company reinstated the employer match program for 401(k)contributions. No contributions have been made by the Company under the profit-sharingfeature.

 

The Company has adopted a Deferred Compensation Planfor Executives which is meant to be an unfunded deferred compensation planmaintained for a select group of management within the meaning of Sections201(2), 301(a)(3) and 401(a)(1) of the Employee Retirement Income Security Actof 1974. This plan allows key employees to defer a specified amount of theircompensation until termination or upon the occurrence of other specifiedevents. All amounts credited to participants’ accounts are deemed invested inthe investment vehicles of the employee’s choice. As of December 31, 2005and 2004, the total amount deferred under this plan, including earnings, wasapproximately $321 and $541, respectively.

 

The Company’s has awarded members of its board ofdirectors restricted stock units valued at $270. These restricted stock unitawards will fully vest in six months from the award date, and will be settledat that time in shares of the Company’s common stock. The shares received inrespect of the restricted stock unit awards cannot be sold or transferred untilone year after the recipient has ceased to serve as a director of the Company. Forthe year ended December 31, 2005, 16,872 restricted stock units were granted ata weighted-average grant price of $16.04 per share and remain unvested atDecember 31, 2005. The Company has recorded approximately $113 of stockcompensation related to these awards for the year ended December 31, 2005.

 

The Company has adopted stock option plans for certainkey employees of the Company. In 2005, the Company adopted the 2005 EmployeeStock Option Plan (the “2005 Plan”) which allowed for up to 1.8 million optionsto be granted. In 2003 the Company adopted the 2003 Employee Stock Option Plan(the “2003 plan”) which allowed for up to 874,690 options to be granted. Underthe 1997 Employee Stock Option Plan (the “1997 Plan”), up to 1,823,538 optionsto purchase the Company’s outstanding common stock could be granted. The 1997plan was subsequently amended and restated in 1998 (the “Amended and Restated1997 Employee Stock Option Plan”). Prior to the 1997 Recapitalization, theCompany had adopted the 1994 Employee Stock Option Plan (the “1994  plan”) for certain key employees. All optionsoutstanding under the 2003 Plan and 1997 Plan eligible for vesting became fullyvested in conjunction with the Company’s initial public offering. As a resultof this accelerated vesting, the Company recorded approximately $2,400 ofadditional stock compensation. All options outstanding under the 1994 planbecame fully vested in conjunction with the 1997 Recapitalization. The fourstock option plans are referred to collectively as the “Stock Option Plans.”

 

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. Under the 2005 Plan, fifty percent of the options grantedvest ratably over four years, and fifty percent vest based on the Companymeeting certain financial goals over a four-year period. For the 2003 Plan,1997 Plan and 1994 Plan, fifty percent of the options granted vest ratably overfive years, and fifty percent vest based on the Company meeting certainfinancial goals over the same five-year periods. All options expire10 years from the date of grant.

 

A summary of stock optionactivity and related information for the years ended December 31 follows:

 
| ** **                  | ** ** | **2005**      | ** ** | **2004**                               | ** ** | **2003**    | ** ** |
|-----------------------------|------------|---------------|------------|----------------------------------------|------------|-------------|------------|
| ** **                  | ** ** | **Options**   | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Options** | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Options** | ** ** | **Weighted  Average  Exercise  Price** | ** ** |
|                        |       |          |       |                                   |       |        |       |   |   |   |   |   |   |
| Beginning  balance          | ** ** | **4,939,108** | ** ** | **$**                                  | **7.42**   | ** **  | 4,797,826  |   | $ | 7.23 |   | 4,255,519 |   | $ | 6.28 |   |
| Granted                     | ** ** | **703,087**   | ** ** | **15.72**                              | ** ** | 269,442     |       | 13.32 |   | 747,099 |   | 13.32 |   |
| Exercised                   | ** ** | **(606,892**  | **)**      | **(2.28**                              | **)**      | —      |       | — |   | — |   | — |   |
| Forfeited                   | ** ** | **(818,545**  | **)**      | **(11.88**                             | **)**      | (128,160    | )          | (12.78 | ) | (204,792 | ) | (9.63 | ) |
| Ending balance              | ** ** | **4,216,758** | ** ** | **8.61**                               | ** ** | 4,939,108   |       | 7.42 |   | 4,797,826 |   | 7.23 |   |
|                        | ** ** | ** **    | ** ** | ** **                             | ** ** |        |       |   |   |   |   |   |   |
| Exercisable at  end of year | ** ** | **3,687,658** | ** ** | **7.55**                               | ** ** | 3,802,825   |       | 5.74 |   | 3,726,799 |   | 5.57 |   |
|                             |            |               |            |                                        |            |             |            |  |  |  |  |  |  |  |  |  |

 

Exercise prices foroptions outstanding as of December 31, 2005 are detailed in the followingtable.

 
| **Exercise Price** | ** ** | **Shares Outstanding at  December 31, 2005** | ** ** | **Shares Exercisable at  December 31, 2005** | ** ** | **Weighted-Average  Remaining  Life** | ** ** |
|-------------------------|------------|------------------------------------------------------------------|------------|------------------------------------------------------------------|------------|---------------------------------------|------------|
| $                       | 1.21       |                                                             | 66,738     |                                                             | 66,738     |                                  | 0.3 years  |   |
| $                       | 2.53       |                                                             | 606,911    |                                                             | 606,911    |                                  | 0.3 years  |   |
| $                       | 4.84       |                                                             | 1,002,264  |                                                             | 1,002,264  |                                  | 1.3 years  |   |
| $                       | 8.02       |                                                             | 1,077,500  |                                                             | 1,077,500  |                                  | 2.0 years  |   |
| $                       | 13.33      |                                                             | 760,258    |                                                             | 760,258    |                                  | 6.4 years  |   |
| $                       | 14.87      |                                                             | 173,987    |                                                             | 173,987    |                                  | 9.4 years  |   |
| $                       | 16.00      |                                                             | 529,100    |                                                             | —     |                                  | 9.9 years  |   |

 

At December 31,2005, the Company had approximately 1,254,000 shares of common stock reservedfor the exercise of outstanding stock options and additional stock optionsauthorized for granting under existing stock option plans.

 

**11. 2003Impairment Charge**

 

In December 2003,the Company implemented a strategic initiative to dispose of selected units inits rental fleet which the Company had determined no longer merit furtherinvestment. In accordance with SFAS No. 144, *Accounting for the Impairment or Disposal of Long Lived Assets*,the Company recorded a $19,400 impairment charge in the fourth quarter of 2003to reflect the write-down of these assets to their estimated fair value (lesscosts to sell). These units were removed from rental equipment and reclassifiedseparately in other assets in the consolidated balance sheets. As ofDecember 31, 2005 and 2004, assets classified as held for sale related tothe strategic initiative were not material.

 

38

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**12. HurricaneDamage and Recovery**

 

During the third quarterof 2004, approximately 500 mobile office and storage units, the majority ofwhich were not on rent, with a book value of approximately $3,400 weredestroyed as a result of several hurricanes (the “2004 Hurricanes”) experiencedin the southeast region of the United States. In addition, approximately 200units as well as certain other Company assets were damaged. The total costsrelated to these storms approximated $4,600. During 2005, the Company settledwith its insurance companies for approximately $8,600 to cover losses fromthese storms, of which $5,000 was received as of December 31, 2004 and theremainder during 2005. During the fourth quarter of 2004, the Company recordedin other revenues approximately $3,300, representing the realized gain from theinvoluntary conversion of these assets lost in the 2004 Hurricanes. Inaddition, during the third quarter of 2005, the Company reduced the amount oflosses accrued for damage to rental units from the 2004 Hurricanes byapproximately $700 as a result of a final settlement 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 ofthe U.S. The Company believes its losses are primarily related to units onrent, for which rental customers have elected the Company’s insurance waiverprogram, and damages to other company assets. The Company self-insures unitsunder the waiver program. An evaluation of the damages caused by these stormscontinues; however, based on the Company’s current assessment of the damages,the Company believes approximately 200 units have been either damaged ordestroyed as a result of the hurricanes for which some portion of the damage isnot recoverable from either the customer or through insurance. Based on theCompany’s assessment of its probable loss, the Company recorded a charge ofapproximately $1,700 in September 2005. As noted above, during the thirdquarter of 2005, the Company reduced the amount of losses accrued for damage torental units from 2004 Hurricanes by approximately $700 as a result of a finalsettlement with insurers. The net charge of $1,000 was recorded in otherexpenses.

 

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

 

Prepaid expenses andother current assets consists of the following as of December 31:

 
| ** **                                          | ** ** | **2005**   | ** ** | **2004** | ** ** |
|-----------------------------------------------------|------------|------------|------------|----------|------------|
| Cost in excess  of billings on modular construction | ** ** | **$**      | **13,311** |     | $          | 8,132 |   |
| Steps, ramps and  other parts                       | ** ** | **23,431** |       | 16,558   |       |
| Prepaid expenses                                    | ** ** | **9,888**  |       | 13,640   |       |
| Prepaid expenses  and other current assets          | ** ** | **$**      | **46,630** |     | $          | 38,330 |   |

 

Accrued expenses andother current liabilities consists of the following as of December 31:

 
| ** **                                          | ** ** | **2005**   | ** ** | **2004** | ** ** |
|-----------------------------------------------------|------------|------------|------------|----------|------------|
| Payroll and  employee benefits                      | ** ** | **$**      | **10,372** |     | $          | 9,273 |   |
| Accrued interest                                    | ** ** | **13,245** |       | 12,341   |       |
| Billings in  excess of cost on modular construction | ** ** | **2,476**  |       | 4,188    |       |
| Other  liabilities                                  | ** ** | **15,014** |       | 14,161   |       |
| Accrued expenses  and other current liabilities     | ** ** | **$**      | **41,107** |     | $          | 39,963 |   |

 

**14. Supplemental Condensed Consolidating FinancialInformation**

 

On September 29,2005, Scotsman issued $350,000 of 8.5% Senior Notes due 2015. The 8.5% Notesare fully and unconditionally guaranteed on a senior unsecured basis byWilliams Scotsman International and Scotsman’s 100% owned subsidiaries, SpaceMaster International, Inc., Evergreen Mobile Company, Truck &Trailer Sales, Inc. and Williams Scotsman of Canada, Inc. Willscothas fully and unconditionally guaranteed the 8.5% Notes on a subordinated basis.These 100% owned subsidiaries (Guarantor Subsidiaries), act as joint andseveral guarantors of the Senior Notes.

 

39

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The following presentscondensed consolidating financial information for the Company, Scotsman and theGuarantor Subsidiaries. Space Master International, Inc., Evergreen MobileCompany and Truck & Trailer Sales, Inc. do not have any assets oroperations.
| ** **                                       | ** ** | **As of December 31, 2005** | ** ** |
|--------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                       | ** ** | **Parent**                                      | ** ** | **Williams  Scotsman, Inc.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| ***Balance  Sheet***                             | ** ** | ** **                                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Assets:                                          |       |                                            |       |   |   |   |   |   |   |   |   |
| Cash                                             |       | $                                               | 74         |   | $ | 394 |   | $ | 1 |   | — |   | $ | 469 |   |
| Rental  equipment, net                           |       | —                                          |       | 291,675 |   | 652,954 |   | — |   | 944,629 |   |
| Property and  equipment, net                     |       | —                                          |       | 78,255 |   | 2,922 |   | — |   | 81,177 |   |
| Investment in  subsidiaries                      |       | 239,111                                         |       | 665,397 |   | — |   | (904,508 | ) | — |   |
| Goodwill                                         |       | —                                          |       | 169,122 |   | 2,044 |   | — |   | 171,166 |   |
| Other assets                                     |       | (1                                              | )          | 170,521 |   | 12,659 |   | — |   | 183,179 |   |
| Total assets                                     |       | $                                               | 239,184    |   | $ | 1,375,364 |   | $ | 670,580 |   | $ | (904,508 | ) | $ | 1,380,620 |   |
| ** **                                       | ** ** | ** **                                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Liabilities:                                     |       |                                            |       |   |   |   |   |   |   |   |   |
| Accounts payable                                 |       | $                                               | —     |   | $ | 59,105 |   | $ | 1,580 |   | $ | — |   | $ | 60,685 |   |
| Revolving credit  facility                       |       | —                                          |       | 364,150 |   | — |   | — |   | 364,150 |   |
| Long-term debt,  net                             |       | —                                          |       | 505,296 |   | — |   | — |   | 505,296 |   |
| Deferred income  taxes                           |       | (5,555                                          | )          | 146,575 |   | — |   | — |   | 141,020 |   |
| Other liabilities                                |       | (2                                              | )          | 61,127 |   | 3,603 |   | — |   | 64,728 |   |
| Total  liabilities                               |       | (5,557                                          | )          | 1,136,253 |   | 5,183 |   | — |   | 1,135,879 |   |
|                                             |       |                                            |       |   |   |   |   |   |   |   |   |
| Equity                                           |       | 244,741                                         |       | 239,111 |   | 665,397 |   | (904,508 | ) | 244,741 |   |
| Total  liabilities and stockholders’ equity |       | $                                               | 239,184    |   | $ | 1,375,364 |   | $ | 670,580 |   | $ | (904,508 | ) | $ | 1,380,620 |   |

 
| ** **                                       | ** ** | **As of December 31, 2004** | ** ** |
|--------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                       | ** ** | **Parent**                                      | ** ** | **Williams  Scotsman, Inc.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| ***Balance  Sheet***                             | ** ** | ** **                                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Assets:                                          |       |                                            |       |   |   |   |   |   |   |   |   |
| Cash                                             |       | $                                               |  4    |   | $ | 828 |   | $ | 107 |   | $ | — |   | $ |  939 |   |
| Rental  equipment, net                           |       | —                                          |       | 281,099 |   | 599,624 |   | — |   | 880,723 |   |
| Property and  equipment, net                     |       | —                                          |       | 77,619 |   | 2,332 |   | — |   | 79,951 |   |
| Investment in  subsidiaries                      |       | 15,608                                          |       | 609,478 |   | — |   | (625,086 | ) | — |   |
| Goodwill                                         |       | —                                          |       | 168,412 |   | 1,928 |   | — |   | 170,340 |   |
| Other assets                                     |       | —                                          |       | 139,325 |   | 13,333 |   | — |   | 152,658 |   |
| Total assets                                     |       | $                                               | 15,612     |   | $ | 1,276,761 |   | $ | 617,324 |   | $ | (625,086 | ) | $ | 1,284,611 |   |
| ** **                                       | ** ** | ** **                                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Liabilities:                                     |       |                                            |       |   |   |   |   |   |   |   |   |
| Accounts payable                                 |       | —                                          |       | $ | 36,471 |   | $ | 5,754 |   | $ | — |   | $ | 42,225 |   |
| Revolving credit  facility                       |       | —                                          |       | 102,130 |   | — |   | — |   | 102,130 |   |
| Long-term debt,  net                             |       | —                                          |       | 907,356 |   | — |   | — |   | 907,356 |   |
| Deferred income  taxes                           |       | (5,536                                          | )          | 155,951 |   | — |   | — |   | 150,415 |   |
| Other  liabilities                               |       | 1                                               |       | 59,245 |   | 2,092 |   | — |   | 61,338 |   |
| Total  liabilities                               |       | (5,535                                          | )          | 1,261,153 |   | 7,846 |   | — |   | 1,263,464 |   |
|                                             |       |                                            |       |   |   |   |   |   |   |   |   |
| Equity                                           |       | 21,147                                          |       | 15,608 |   | 609,478 |   | (625,086 | ) | 21,147 |   |
| Total  liabilities and stockholders’ equity |       | $                                               | 15,612     |   | $ | 1,276,761 |   | $ | 617,324 |   | $ | (625,086 | ) | $ | 1,284,611 |   |

 

40

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| ** **                                    | ** ** | **For the Year Ended December 31, 2005** | ** ** |
|-----------------------------------------------|------------|------------------------------------------------------------------------|------------|
| ** **                                    | ** ** | **Parent**                                                             | ** ** | **Williams  Scotsman, Inc.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| ***Results  of Operations***                  |       |                                                                   |       |   |   |   |   |   |   |   |   |
| Total revenues                                |       | $                                                                      | —     |   | $ | 477,141 |   | $ | 115,317 |   | $ | — |   | $ | 592,458 |   |
| Cost of sales  and services                   |       | —                                                                 |       | 324,870 |   | 48,982 |   | — |   | 373,852 |   |
| Gross profit                                  |       | —                                                                 |       | 152,271 |   | 66,335 |   | — |   | 218,606 |   |
|                                          |       |                                                                   |       |   |   |   |   |   |   |   |   |
| Selling, general  and administrative expenses |       | 71                                                                     |       | 92,163 |   | 4,734 |   | — |   | 96,968 |   |
| Other  depreciation and amortization          |       | —                                                                 |       | 14,704 |   | 1,914 |   | — |   | 16,618 |   |
| Interest                                      |       | (6                                                                     | )          | 87,238 |   | 3,971 |   | — |   | 91,203 |   |
| Loss on early  extinguishment of debt         |       | —                                                                 |       | 30,678 |   | — |   |   |   | 30,678 |   |
| Income tax  expense (benefit)                 |       | (19                                                                    | )          | (6,674 | ) | 156 |   | — |   | (6,537 | ) |
| Other expenses                                |       | —                                                                 |       | (43,397 | ) | 43,397 |   | — |   | — |   |
|                                          |       |                                                                   |       |   |   |   |   |   |   |   |   |
| Equity in  earnings of subsidiary             |       | (10,278                                                                | )          | 12,163 |   | — |   | (1,885 | ) | — |   |
|                                          |       |                                                                   |       |   |   |   |   |   |   |   |   |
| Net (loss)  income                            |       | $                                                                      | (10,324    | ) | $ | (10,278 | ) | $ | 12,163 |   | $ | (1,885 | ) | $ | (10,324 | ) |

 
| ** **                                    | ** ** | **For the Year Ended December 31, 2004** | ** ** |
|-----------------------------------------------|------------|------------------------------------------------------------------------|------------|
| ** **                                    | ** ** | **Parent**                                                             | ** ** | **Williams  Scotsman, Inc.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| ***Results  of Operations***                  |       |                                                                   |       |   |   |   |   |   |   |   |   |
| Total revenues                                |       | $                                                                      | —     |   | $ | 468,462 |   | $ | 99,030 |   | $ | (69,567 | ) | $ | 497,925 |   |
| Cost of sales  and services                   |       | —                                                                 |       | 289,937 |   | 41,104 |   | (23,929 | ) | 307,112 |   |
| Gross profit                                  |       | —                                                                 |       | 178,525 |   | 57,926 |   | (45,638 | ) | 190,813 |   |
|                                          |       |                                                                   |       |   |   |   |   |   |   |   |   |
| Selling, general  and administrative expenses |       | 70                                                                     |       | 79,413 |   | 3,924 |   | — |   | 83,407 |   |
| Other  depreciation and amortization          |       | —                                                                 |       | 13,365 |   | 1,422 |   | — |   | 14,787 |   |
| Interest                                      |       | —                                                                 |       | 92,444 |   | — |   | — |   | 92,444 |   |
| Income tax  expense (benefit)                 |       | (24                                                                    | )          | 3,493 |   | 117 |   | — |   | 3,586 |   |
| Other expenses                                |       | —                                                                 |       | (81 | ) | 45,719 |   | (45,638 | ) | — |   |
|                                          |       |                                                                   |       |   |   |   |   |   |   |   |   |
| Equity in  earnings of subsidiary             |       | (3,365                                                                 | )          | 6,744 |   | — |   | (3,379 | ) | — |   |
|                                          |       |                                                                   |       |   |   |   |   |   |   |   |   |
| Net (loss)  income                            |       | $                                                                      | (3,411     | ) | $ | (3,365 | ) | $ | 6,744 |   | $ | (3,379 | ) | $ | (3,411 | ) |

 
| ** **                                             | ** ** | **For the Year Ended December 31, 2005** | ** ** |
|--------------------------------------------------------|------------|------------------------------------------------------------------------|------------|
| ** **                                             | ** ** | **Parent**                                                             | ** ** | **Williams  Scotsman, Inc.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| ***Cash  Flows***                                      |       |                                                                   |       |   |   |   |   |   |   |   |   |
| Cash provided by  (used in) operating activities       |       | $                                                                      | (70        | ) | $ | 27,616 |   | $ | 39,969 |   | $ | — |   | $ | 67,515 |   |
|                                                   |       |                                                                   |       |   |   |   |   |   |   |   |   |
| Rental equipment  additions                            |       | —                                                                 |       | (111,872 | ) | (27,943 | ) | — |   | (139,815 | ) |
| Cash provided by  (used in) other investing activities |       | —                                                                 |       | 36,651 |   | (12,141 | ) | — |   | 24,510 |   |
| Cash used in  investing activities                     |       | —                                                                 |       | (75,221 | ) | (40,084 | ) | — |   | (115,305 | ) |
|                                                   |       |                                                                   |       |   |   |   |   |   |   |   |   |
| Proceeds from  debt                                    |       | —                                                                 |       | 1,473,724 |   | — |   | — |   | 1,473,724 |   |
| Repayment of  debt                                     |       | —                                                                 |       | (1,631,548 | ) | — |   | — |   | (1,631,548 | ) |
| Proceeds from  initial public offering of common stock |       | —                                                                 |       | 223,092 |   | — |   | — |   | 223,092 |   |
| Cash provided by  (used in) other financing activities |       | 140                                                                    |       | (18,023 | ) | — |   | — |   | (17,883 | ) |
| Cash provided by  financing activities                 |       | 140                                                                    |       | 47,245 |   | — |   | — |   | 47,385 |   |
|                                                   |       |                                                                   |       |   |   |   |   |   |   |   |   |
| Effect of  exchange rate changes                       |       | —                                                                 |       | (74 | ) | 9 |   | — |   | (65 | ) |
| Net change in  cash                                    |       | 70                                                                     |       | (434 | ) | (106 | ) | — |   | (470 | ) |
| Cash at  beginning of year                             |       | 4                                                                      |       | 828 |   | 107 |   | — |   | 939 |   |
|                                                   |       |                                                                   |       |   |   |   |   |   |   |   |   |
| Cash at end of  year                                   |       | $                                                                      | 74         |   | $ | 394 |   | $ | 1 |   | $ | — |   | $ | 469 |   |

 

41

----

 
| ** **                                             | ** ** | **For the Year Ended December 31, 2004** | ** ** |
|--------------------------------------------------------|------------|------------------------------------------------------------------------|------------|
| ** **                                             | ** ** | **Parent**                                                             | ** ** | **Williams  Scotsman, Inc.** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| ***Cash  Flows***                                      |       |                                                                   |       |   |   |   |   |   |   |   |   |
| Cash provided by  (used in) operating activities       |       | $                                                                      | (82        | ) | $ | 23,850 |   | $ | 33,094 |   | $ | 1 |   | $ | 56,863 |   |
|                                                   |       |                                                                   |       |   |   |   |   |   |   |   |   |
| Rental equipment  additions                            |       | —                                                                 |       | (62,801 | ) | (17,066 | ) | — |   | (79,867 | ) |
| Cash used in  other investing activities               |       | —                                                                 |       | (5,231 | ) | (17,839 | ) | — |   | (23,070 | ) |
| Cash used in  investing activities                     |       | —                                                                 |       | (68,032 | ) | (34,905 | ) | — |   | (102,937 | ) |
|                                                   |       |                                                                   |       |   |   |   |   |   |   |   |   |
| Proceeds from  debt                                    |       | —                                                                 |       | 553,937 |   | — |   | — |   | 553,937 |   |
| Repayment of  debt                                     |       | —                                                                 |       | (506,987 | ) | — |   | — |   | (506,987 | ) |
| Cash provided by  (used in) other financing activities |       | 86                                                                     |       | (842 | ) | — |   | (1 | ) | (757 | ) |
| Cash provided by  financing activities                 |       | 86                                                                     |       | 46,108 |   | — |   | (1 | ) | 46,193 |   |
|                                                   |       |                                                                   |       |   |   |   |   |   |   |   |   |
| Effect of  exchange rate changes                       |       | —                                                                 |       | (1,484 | ) | 1,917 |   | — |   | 433 |   |
| Net change in  cash                                    |       | 4                                                                      |       | 442 |   | 106 |   | — |   | 552 |   |
| Cash at  beginning of year                             |       | —                                                                 |       | 386 |   | 1 |   | — |   | 387 |   |
|                                                   |       |                                                                   |       |   |   |   |   |   |   |   |   |
| Cash at end of  year                                   |       | $                                                                      | 4          |   | $ | 828 |   | $ | 107 |   | $ | — |   | $ | 939 |   |

 

**15. SubsequentEvent**

 

On February 17, 2006, theCompany 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 $5,200. The acquisition was financed with borrowingsunder the Company’s Amended and Restated Credit Facility.

 

 

 

 

 

 

 

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

 

Not applicable.

 

**Item 9A.****       Controls andProcedures**

 

(a)               Disclosurecontrols and procedures.

 

Our ChiefExecutive Officer and Chief Financial Officer have concluded, based on theirevaluation, as of the end of the period covered by this report, that ourdisclosure controls and procedures (as defined in the Securities Exchange Actof 1934 Rules 13a – 15(e) and 15d – 15(e)) were effective.

 

(b)              Changesin internal control over financial reporting.

 

There has been nochange in the Company’s internal control over financial reporting (as definedin the Securities Exchange Act of 1934 Rules 13a-15(f) and 15d-15(f)) thatoccurred during the fourth fiscal quarter that has materially affected, or isreasonably likely to materially affect, the Company’s internal control overfinancial 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.

 

# **Item 9B. Other Information**

 

None

 

42

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**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, 2006(and is hereby incorporated by reference) by an amendment hereto or pursuant toa 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.

 

43

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**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 – Valuationand Qualifying Accounts

 

All other financialschedules are not required under the related instructions or are appropriate andtherefore have been omitted.

 

(a) (3)      Exhibits

 

44

----

 

WILLIAMS SCOTSMANINTERNATIONAL, INC. AND SUBSIDIARIES

 

Schedule II -Valuation and Qualifying Accounts

 
| ** **                                          | ** ** | **Year ended December 31,** | ** ** |
|-----------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                          | ** ** | **2005**                                   | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                                          | ** ** | **(In thousands)**                    | ** ** |
| Allowance for  Doubtful Accounts:                   |       |                                       |       |   |   |   |   |
| Balance at  beginning of the period                 |       | $                                          | 606        |   | $ | 862 |   | $ | 1,071 |   |
| Provision  charged to expense                       |       | 3,204                                      |       | 2,248 |   | 2,286 |   |
| Accounts  receivable written-off, net of recoveries |       | (2,998                                     | )          | (2,504 | ) | (2,495 | ) |
|                                                |       |                                       |       |   |   |   |   |
| Balance at end  of the period                       |       | $                                          | 812        |   | $ | 606 |   | $ | 862 |   |
|                                                |       |                                       |       |   |   |   |   |
| Valuation  Allowance For Deferred Tax Assets:       |       |                                       |       |   |   |   |   |
| Balance at  beginning of year                       |       | $                                          | 5,232      |   | $ | 4,802 |   | $ | 3,400 |   |
| Provision  charged to expense                       |       | —                                     |       | 430 |   | 1,402 |   |
| Allowance  utilized                                 |       | (2,918                                     | )          | — |   | — |   |
| Balance at end  of year                             |       | $                                          | 2,314      |   | $ | 5,232 |   | $ | 4,802 |   |

 

45

----

 

**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                  |       | 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)).                                                                                                                                                                                            |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 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).                                                                                                                                                                                                                                                         |

 

46

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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)).                                                                                                                                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 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).                                                                                                                                                                                                                                                                                                                                                                                                                |

 

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| 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).                                                                                                                                                                                                                                                                                       |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 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).                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |

 

48

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**SIGNATURES**

 

Pursuant to therequirements of Section 13 or 15(d) of the Securities Exchange Act of1934, the Registrant has duly caused this report to be signed on its behalf bythe undersigned, thereunto duly authorized.

 
| ** **            | **WILLIAMS SCOTSMAN  INTERNATIONAL, INC.** |
|-----------------------|--------------------------------------------|
|                  | By:                                        |  /s/ Gerard E. Holthaus |   |
|                  | Gerard E. Holthaus                         |
|                  | Chief Executive Officer                    |
|                  |                                       |   |
| Dated: March 17, 2006 |                                       |   |

 

Pursuant to therequirements of the Securities Exchange Act of 1934, this report has beensigned below by the following persons on behalf of the Registrant and in thecapacities and on the dates indicated.

 
| **Name**                | ** ** | **Capacity**                     | ** **                     | **Date** | ** **     |
|-------------------------|------------|----------------------------------|--------------------------------|----------|----------------|
|                    |       |                             |                           |     |           |
| /s/ Gerard E. Holthaus  |       |                             | Chairman, President,  Chief    |     | March 17, 2006 |   |
| Gerard E. Holthaus      |       | Executive Officer, and  Director |                           |     |           |
|                    |       | (principal executive  officer)   |                           |     |           |
|                    |       |                             |                           |     |           |
| /s/ Robert C. Singer    |       |                             | Executive Vice  President, and |     | March 17, 2006 |   |
| Robert C. Singer        |       | Chief Financial Officer          |                           |     |           |
|                    |       | (principal financial  and        |                           |     |           |
|                    |       | accounting officer)              |                           |     |           |
|                    |       |                             |                           |     |           |
| /s/ James N. Alexander  |       |                             | Director                       |     | March 17, 2006 |   |
| James N. Alexander      |       |                             |                           |     |           |
|                    |       |                             |                           |     |           |
| /s/ Michael F. Finley   |       |                             | Director                       |     | March 17, 2006 |   |
| Michael F. Finley       |       |                             |                           |     |           |
|                    |       |                             |                           |     |           |
| /s/ Steven B. Gruber    |       |                             | Director                       |     | March 17, 2006 |   |
| Steven B. Gruber        |       |                             |                           |     |           |
|                    |       |                             |                           |     |           |
| /s/ Stephen A. Van Oss  |       |                             | Director                       |     | March 17, 2006 |   |
| Stephen A. Van Oss      |       |                             |                           |     |           |
|                    |       |                             |                           |     |           |
| /s/ James L. Singleton  |       |                             | Director                       |     | March 17, 2006 |   |
| James L. Singleton      |       |                             |                           |     |           |
|                    |       |                             |                           |     |           |
| /s/ James A. Flick, Jr. |       |                             | Director                       |     | March 17, 2006 |   |
| James A. Flick, Jr.     |       |                             |                           |     |           |

 

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