McGrath RentCorp
Annual Report 2017

Plain-text annual report

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549 FORM 10-K ☒☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2017☐☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934Commission file number 0-13292 McGRATH RENTCORP(Exact name of registrant as specified in its Charter) California 94-2579843 (State or other jurisdictionof incorporation or organization) (I.R.S. EmployerIdentification No.)5700 Las Positas Road, Livermore, CA 94551-7800(Address of principal executive offices)Registrant’s telephone number: (925) 606-9200Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registeredCommon Stock NASDAQ Global Select MarketSecurities registered pursuant to Section 12(g) of the Act:None Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☒ NoIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐ Yes ☒ NoIndicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90days. ☒ Yes ☐ NoIndicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submittedand posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submitand post such files). ☒ Yes ☐ NoIndicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not becontained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to thisForm 10-K. ☒ Yes ☐ NoIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of“large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one). Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revisedfinancial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ NoAggregate market value of the registrant’s common stock held by non-affiliates of the registrant as of June 30, 2017 (based upon the closing sale price of the registrant’scommon stock as reported on the NASDAQ Global Select Market on June 30, 2017): $821,065,768.As of February 26, 2018, 24,051,939 shares of Registrant’s Common Stock were outstanding.DOCUMENTS INCORPORATED BY REFERENCEMcGrath RentCorp’s definitive proxy statement with respect to its 2018 Annual Meeting of Shareholders to be held on June 6, 2018 which will be filed with the Securitiesand Exchange Commission within 120 days after the end of its fiscal year ended December 31, 2017, is incorporated by reference into Part III (Items 10, 11, 12, and 13).Exhibit index appears on page 87 FORWARD LOOKING STATEMENTSStatements contained in this Annual Report on Form 10-K (“this Form 10-K”) which are not historical facts are forward-looking statements withinthe meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, regarding McGrathRentCorp’s (the “Company’s”) expectations, strategies, prospects or targets are forward looking statements. These forward-looking statements also can beidentified by the use of forward-looking terminology such as “believes,” “expects,” “will,” or “anticipates” or the negative of these terms or othercomparable terminology.Management cautions that forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties thatcould cause our actual results to differ materially from those projected in such forward-looking statements. Further, our future business, financial conditionand results of operations could differ materially from those anticipated by such forward-looking statements and are subject to risks and uncertainties as setforth under “Risk Factors” in this Form 10-K. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of theforward-looking statements.Forward-looking statements are made only as of the date of this Form 10-K and are based on management’s reasonable assumptions, however theseassumptions can be wrong or affected by known or unknown risks and uncertainties. No forward-looking statement can be guaranteed and subsequentfacts or circumstances may contradict, obviate, undermine or otherwise fail to support or substantiate such statements. Readers should not place unduereliance on these forward-looking statements and are cautioned that any such forward-looking statements are not guarantees of future performance. Exceptas otherwise required by law, we are under no duty to update any of the forward-looking statements after the date of this Form 10-K to conform suchstatements to actual results or to changes in our expectations. PART IITEM 1.BUSINESS.General OverviewMcGrath RentCorp (the “Company”) is a California corporation organized in 1979 with corporate offices located in Livermore, California. TheCompany’s common stock is traded on the NASDAQ Global Select Market under the symbol “MGRC”. References in this report to the “Company”, “we”,“us”, and “ours” refer to McGrath RentCorp and its subsidiaries, unless the context requires otherwise.The Company is a diversified business to business rental company with four rental divisions: relocatable modular buildings, portable storagecontainers, electronic test equipment, and liquid and solid containment tanks and boxes. Although the Company’s primary emphasis is on equipmentrentals, sales of equipment occur in the normal course of business. The Company is comprised of four reportable business segments: (1) its modular buildingand portable storage segment (“Mobile Modular”); (2) its electronic test equipment segment (“TRS-RenTelco”); (3) its containment solutions for the storageof hazardous and non-hazardous liquids and solids segment (“Adler Tanks”); and (4) its classroom manufacturing business selling modular buildings usedprimarily as classrooms in California (“Enviroplex”). The Mobile Modular business segment includes the Mobile Modular Portable Storage division, whichrepresented approximately 8% of the Company’s 2017 total revenues.No single customer accounted for more than 10% of total revenues during 2017, 2016 and 2015. Revenue from foreign country customers accountedfor 4%, 5% and 5% of the Company’s revenues for the same periods, respectively.Business ModelThe Company invests capital in rental products and generally has recovered its original investment through rents less cash operating expenses in arelatively short period of time compared to the product’s rental life. When the Company’s rental products are sold, the proceeds generally have covered ahigh percentage of the original investment. With these characteristics, a significant base of rental assets on rent generates a considerable amount of operatingcash flows to support continued rental asset growth. The Company’s rental products have the following characteristics: •The product required by the customer tends to be expensive compared to the Company’s monthly rental charge, with the interim rental solutiontypically evaluated as a less costly alternative. •Generally, we believe the Company’s customers have a short-term need for our rental products. The customer’s rental requirement may bedriven by a number of factors including time, budget or capital constraints, future uncertainty impacting their ongoing requirements,equipment availability, specific project requirements, peak periods of demand or the customer may want to eliminate the burdens and risks ofownership.-2- •All of the Company’s rental products have long useful lives relative to the typical rental term. Modular buildings (“modulars”) have anestimated life of eighteen years compared to the typical rental term of twelve to twenty-four months, electronic test equipment has an estimatedlife range of one to eight years (depending on the type of product) compared to a typical rental term of one to six months, and liquid and solidcontainment tanks and boxes have an estimated life of twenty years compared to typical rental terms of one to six months. •We believe short-term rental rates typically recover the Company’s original investment quickly based on the respective product’s annual yield,or annual rental revenues divided by the average cost of rental equipment. For modulars the original investment is recovered in approximatelyfive years, in approximately three years for electronic test equipment and in approximately five years for liquid and solid containment tanksand boxes. •When a product is sold from our rental inventory, a significant portion of the original investment is usually recovered. Effective assetmanagement is a critical element to each of the rental businesses and the residuals realized when product is sold from inventory. Modular assetmanagement requires designing and building the product for a long life, coupled with ongoing repair and maintenance investments, to ensureits long useful rental life and generally higher residuals upon sale. Electronic test equipment asset management requires understanding,selecting and investing in equipment technologies that support market demand and, once invested, proactively managing the equipment at themodel level for optimum utilization through its technology life cycle to maximize the rental revenues and residuals realized. Liquid and solidcontainment tanks and boxes asset management requires selecting and purchasing quality product and making ongoing repair andmaintenance investments to ensure its long rental life.The Company believes that rental revenue growth from an increasing base of rental assets and improved gross profits on rents are the best measures ofthe health of each of our rental businesses. Additionally, we believe our business model and results are enhanced by operational leverage that is created fromlarge regional sales and inventory centers for modulars, a single U.S. based sales, inventory and operations facility for electronic test equipment, as well asshared senior management and back office functions for financing, human resources, insurance, and operating and accounting systems.EmployeesAs of December 31, 2017, the Company had 1,073 employees, of whom 85 were primarily administrative and executive personnel, with 589, 191, 139and 69 in the operations of Mobile Modular, Adler Tanks, TRS-RenTelco and Enviroplex, respectively. None of our employees are covered by a collectivebargaining agreement, and management believes its relationship with our employees is good.Available InformationWe make the Company’s Securities and Exchange Commission (“SEC”) filings available, free of charge, at our website www.mgrc.com. These filingsinclude our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnishedpursuant to Section 13(a) or 15(d) of the Securities Act of 1934, which are available as soon as reasonably practicable after the Company electronically filessuch material with, or furnishes such material to, the SEC. Information included on our website is not incorporated by reference to this Form 10-K.Furthermore, all reports the Company files with the SEC are available, free of charge, through the SEC’s website at www.sec.gov. In addition, the public mayread and copy materials filed by the Company at the SEC’s Public Reference Room located at 100 F Street, N.E., Washington, D.C. 20549. The public mayalso obtain additional information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.We also have a Code of Business Conduct and Ethics which applies to all directors, officers and employees. Copies of this code can be obtained freeof charge at our website www.mgrc.com. Any waivers to the Code of Business Conduct and Ethics and any amendments to such code applicable to our ChiefExecutive Officer, Chief Financial Officer, Principal Accounting Officer, Controller or persons performing similar functions, will be posted on our web site-3- RELOCATABLE MODULAR BUILDINGSDescriptionModulars are designed for use as classrooms, temporary offices adjacent to existing facilities, sales offices, construction field offices, restroombuildings, health care clinics, child care facilities, office space, and for a variety of other purposes and may be moved from one location to another. Modularsvary from simple single-unit construction site offices to multi-floor modular complexes. The Company’s modular rental fleet includes a full range of stylesand sizes. The Company considers its modulars to be among the most attractive and well-designed available. The units are constructed with wood or metalsiding, sturdily built and physically capable of a long useful life. Modulars are generally provided with installed heat, air conditioning, lighting, electricaloutlets and floor covering, and may have customized interiors including partitioning, cabinetry and plumbing facilities.Mobile Modular purchases new modulars from various manufacturers who build to Mobile Modular’s design specifications. During 2017, MobileModular purchased 36% of its modular units from one manufacturer. The Company believes that the loss of any of its primary modular manufacturers couldhave an adverse effect on its operations since Mobile Modular could experience higher prices and longer lead times for delivery of modular units until othermanufacturers were able to increase their production capacity.The Company’s modulars are manufactured to comply with state building codes, have a low risk of obsolescence, and can be modified or reconfiguredto accommodate a wide variety of customer needs. Historically, as state building codes have changed over the years, Mobile Modular has been able tocontinue to use existing modulars, with minimal, if any, required upgrades. The Company has no assurance that it will continue to be able to use existingmodular equipment with minimal upgrades as building codes change in the future.Mobile Modular currently operates from regional sales and inventory centers in California, Texas, and Florida, serving large geographic areas in thesestates, and sales offices serving North Carolina, Georgia, Maryland, Virginia and Washington, D.C. The California, Texas and Florida regional sales andinventory centers have in-house infrastructure and operational capabilities to support quick and efficient repair, modification, and refurbishment ofequipment for the next rental opportunity. The Company believes operating from large regional sales and inventory centers results in better operatingmargins as operating costs can be spread over a large installed customer base. Mobile Modular actively maintains and repairs its rental equipment, andmanagement believes this ensures the continued use of the modular product over its long life and, when sold, has resulted in higher sale proceeds relative toits capitalized cost. When rental equipment returns from a customer, the necessary repairs and preventative maintenance are performed prior to its next rental.By making these expenditures for repair and maintenance throughout the equipment’s life we believe that older equipment can generally rent for rates similarto those of newer equipment. Management believes the condition of the equipment is a more significant factor in determining the rental rate and sale pricethan its age. Over the last three years, used equipment sold each year represented less than 2% of rental equipment, and has been, on average, 13 years oldwith sale proceeds above its net book value.Competitive StrengthsMarket Leadership – The Company believes Mobile Modular is the largest supplier in California, and a significant supplier in Florida and Texas, ofmodular educational facilities for rental to both public and private schools. Management is knowledgeable about the needs of its educational customers andthe related regulatory requirements in the states where Mobile Modular operates, which enables Mobile Modular to meet its customers’ specific projectrequirements.Expertise – The Company believes that over the more than 35 years during which Mobile Modular has competed in the modular rental industry, it hasdeveloped expertise that differentiates it from its competitors. Mobile Modular has dedicated its attention to continuously developing and improving thequality of its modular units. Mobile Modular has expertise in the licensing and regulatory requirements that govern modulars in the states where it operates,and its management, sales and operational staffs are knowledgeable and committed to providing exemplary customer service. Mobile Modular has expertisein project management and complex applications.Operating Structure – Part of the Company’s strategy for Mobile Modular is to create facilities and infrastructure capabilities that its competitorscannot easily duplicate. Mobile Modular achieves this by building regional sales and inventory centers designed to serve a broad geographic area and alarge installed customer base under a single overhead structure, thereby reducing its cost per transaction. The Company’s regional facilities and relatedinfrastructure enable Mobile Modular to maximize its modular inventory utilization through efficient and cost effective in-house repair, maintenance andrefurbishment for quick redeployment of equipment to meet its customers’ needs.Asset Management – The Company believes Mobile Modular markets high quality, well-constructed and attractive modulars. Mobile Modularrequires manufacturers to build to its specifications, which enables Mobile Modular to maintain a standardized-4- quality fleet. In addition, through its ongoing repair, refurbishment and maintenance programs, the Company believes Mobile Modular’s buildings are thebest maintained in the industry. The Company depreciates its modular buildings over an 18 year estimated useful life to a 50% residual value. Olderbuildings continue to be productive primarily because of Mobile Modular’s focus on ongoing fleet maintenance. Also, as a result of Mobile Modular’smaintenance programs, when a modular unit is sold, a high percentage of the equipment’s capitalized cost is recovered. In addition, the fleet’s utilization isregionally optimized by managing inventory through estimates of market demand, fulfillment of current rental and sale order activity, modular returns andcapital purchases.Customer Service - The Company believes the modular rental industry to be service intensive and locally based. The Company strives to provideexcellent service by meeting its commitments to its customers, being proactive in resolving project issues and seeking to continuously improve thecustomers’ experience. Mobile Modular is committed to offering quick response to requests for information, providing experienced assistance, on timedelivery and preventative maintenance of its units. Mobile Modular’s goal is to continuously improve its procedures, processes and computer systems toenhance internal operational efficiency. The Company believes this dedication to customer service results in high levels of customer loyalty and repeatbusiness.MarketManagement estimates relocatable modular building rental is an industry that today has equipment on rent or available for rent in the U.S. with anaggregate original cost of over $5.0 billion. Mobile Modular’s largest market segment is for temporary classroom and other educational space needs of publicand private schools, colleges and universities in California and Florida, and to a lesser extent in Texas, North Carolina, Georgia, Maryland, Virginia andWashington, D.C. Management believes the demand for rental classrooms is caused by shifting and fluctuating school populations, the limited state fundsfor new construction, the need for temporary classroom space during reconstruction of older schools, class size reduction and the phasing out of portableclassrooms compliant with older building codes (see “Classroom Rentals and Sales to Public Schools (K-12)” below). Other customer applications includesales offices, construction field offices, health care facilities, church sanctuaries and child care facilities. Industrial, manufacturing, entertainment and utilitycompanies, as well as governmental agencies commonly use large multi-modular complexes to serve their interim administrative and operational spaceneeds. Modulars offer customers quick, cost-effective space solutions while conserving their capital. The Company’s corporate offices, and California, Texasand Florida regional sales and inventory center offices are housed in various sizes of modular units.Since most of Mobile Modular’s customer requirements are to fill temporary space needs, Mobile Modular’s marketing emphasis is on rentals ratherthan sales. Mobile Modular attracts customers through its website at www.mobilemodular.com, internet advertising and direct marketing. Customers areencouraged to visit a regional sales and inventory center to view different models on display and to see a regional office, which is a working example of amodular application.Because service is a major competitive factor in the rental of modulars, Mobile Modular offers quick response to requests for information, assistance inthe choice of a suitable size and floor plan, in-house customization services, rapid delivery, timely installation and field service of its units. On MobileModular’s website, customers are able to view and select inventory for quotation and request in-field service.RentalsRental periods range from one month to several years with a typical initial contract term between twelve and twenty-four months. In general, monthlyrental rates are determined by a number of factors including length of term, market demand, product availability and product type. Upon expiration of theinitial term, or any extensions, rental rates are reviewed, and when appropriate, are adjusted based on current market conditions. Most rental agreements areoperating leases that provide no purchase options, and when a rental agreement does provide the customer with a purchase option, it is generally on termsmanagement believes to be attractive to Mobile Modular.The customer is responsible for obtaining the necessary use permits and for the costs of insuring the unit, and is financially responsible fortransporting the unit to the site, preparation of the site, installation of the unit, dismantle and return delivery of the unit to Mobile Modular, and certain costsfor customization. Mobile Modular maintains the units in good working condition while on rent. Upon return, the units are inspected for damage andcustomers are billed for items considered beyond normal wear and tear. Generally, the units are then repaired for subsequent use. Repair and maintenancecosts are expensed as incurred and can include floor repairs, roof maintenance, cleaning, painting and other cosmetic repairs. The costs of majorrefurbishment of equipment are capitalized to the extent the refurbishment significantly improves the quality and adds value or life to the equipment.At December 31, 2017, Mobile Modular owned 52,188 new or previously rented modulars and portable storage containers with an aggregate cost of$775.4 million including accessories, or an average cost per unit of $14,858. Utilization is calculated at the end-5- of each month by dividing the cost of rental equipment on rent by the total cost of rental equipment, excluding new equipment inventory and accessoryequipment. At December 31, 2017, fleet utilization was 77.8% and average fleet utilization during 2017 was 76.8%. The Mobile Modular segment includesthe results of operations of Mobile Modular Portable Storage, which represented approximately 8% of the Company’s 2017 total revenues.SalesIn addition to operating its rental fleet, Mobile Modular sells modulars to customers. These sales typically arise out of its marketing efforts for therental fleet and from existing equipment already on rent. Such sales can be of either new or used units from the rental fleet, which permits some turnover ofolder units. During 2017 Mobile Modular’s largest sale represented approximately 6% of Mobile Modular’s sales, 3% of the Company’s consolidated salesand less than 1% of the Company’s consolidated revenues.Mobile Modular typically provides limited 90-day warranties on used modulars and passes through the manufacturers’ one-year warranty on new unitsto its customers. Warranty costs have not been significant to Mobile Modular’s operations to date, and the Company attributes this to its commitment tohigh quality standards and regular maintenance programs. However, there can be no assurance that warranty costs will continue to be insignificant to MobileModular’s operations in the future.Enviroplex manufactures portable classrooms built to the requirements of the California Division of the State Architect (“DSA”) and sells directly toCalifornia public school districts and other educational institutions.SeasonalityTypically, during each calendar year, our highest numbers of classrooms are shipped for rental and sale orders during the second and third quarters fordelivery and installation prior to the start of the upcoming school year. The majority of classrooms shipped in the second and third quarters have rental startdates during the third quarter, thereby making the fourth quarter the first full quarter of rental revenues recognized for these transactions.CompetitionCompetition in the rental and sale of relocatable modular buildings is intense. Two major national firms, WillScot Corporation. and Modspace, Inc.,are engaged in the rental of modulars, have many offices throughout the country and we believe may have greater financial and other resources than MobileModular. In addition, a number of other smaller companies operate regionally throughout the country. Mobile Modular operates primarily in California,Texas, Florida, North Carolina, Georgia, Virginia, Maryland and Washington, D.C. Significant competitive factors in the rental business include availability,price, service, reliability, appearance and functionality of the product. Mobile Modular markets high quality, well-constructed and attractive modulars. Partof the Company’s strategy for modulars is to create facilities and infrastructure capabilities that its competitors cannot easily duplicate. The Company'sfacilities and related infrastructure enable it to modify modulars efficiently and cost effectively to meet its customers’ needs. Management's goal is to be moreresponsive at less expense. Management believes this strategy, together with its emphasis on prompt and efficient customer service, gives Mobile Modular acompetitive advantage. Mobile Modular is determined to respond quickly to requests for information, and provide experienced assistance for the first-timeuser, rapid delivery and timely repair of its modular units. Mobile Modular’s already high level of efficiency and responsiveness continues to improve as theCompany upgrades procedures, processes and computer systems that control its internal operations. The Company anticipates intense competition tocontinue and believes it must continue to improve its products and services to remain competitive in the market for modulars.Classroom Rentals and Sales to Public Schools (K-12)Mobile Modular and Enviroplex provide classroom and specialty space needs serving public and private schools, colleges and universities. Withinthe educational market, the rental (by Mobile Modular) and sale (by Enviroplex and Mobile Modular) of modulars to public school districts for use asportable classrooms, restroom buildings and administrative offices for kindergarten through grade twelve (K-12) are a significant portion of the Company’srevenues. Mobile Modular rents and sells classrooms in California, Florida, Texas, North Carolina, Georgia, Maryland, Virginia and Washington,D.C. Enviroplex sells classrooms in the California market. California is Mobile Modular’s largest educational market. Historically, demand in this markethas been fueled by shifting and fluctuating student populations, insufficient funding for new school construction, class size reduction programs,modernization of aging school facilities and the phasing out of portable classrooms no longer compliant with current building codes. The following tableshows the approximate percentages of the Company’s modular rental and sales revenues, and of its consolidated rental and sales revenues for the past fiveyears, that rentals and sales to these schools constitute:-6- Rentals and Sales to Public Schools (K-12) as a Percentage of Total Rental and Sales Revenues Percentage of: 2017 2016 2015 2014 2013 Modular Rental Revenues (Mobile Modular) 33% 34% 33% 32% 37% Modular Sales Revenues (Mobile Modular & Enviroplex) 76% 67% 43% 49% 36% Modular Rental and Sales Revenues (Mobile Modular & Enviroplex) 47% 43% 35% 37% 36% Consolidated Rental and Sales Revenues 1 26% 23% 16% 16% 14%1.Consolidated Rental and Sales Revenue percentage is calculated by dividing Modular rental and sales revenues to public schools (K-12) by the Company’s consolidated rentaland sales revenues.School Facility FundingFunding for public school facilities is derived from a variety of sources including the passage of both statewide and local facility bond measures,operating budgets, developer fees, various taxes including parcel and sales taxes levied to support school operating budgets, and lottery funds. In November2016, California voters approved a $9 billion statewide education facility bond and $22.9 billion in local facility bond measures. There is no certainty on thetiming of the sale of the state bonds and it could take additional years before these projects generate meaningful demand for relocatable classrooms.California’s operating budgets are also in much better condition due to 2012 tax increases on higher income earners that were allocated to educationfunding. In November 2016, California voters approved an extension of this tax increase for the next 12 years. -7- ELECTRONIC TEST EQUIPMENTDescriptionTRS-RenTelco rents and sells electronic test equipment nationally and internationally from two facilities located in Grapevine, Texas (the “Dallasfacility”) and Dollard-des-Ormeaux, Canada (the “Montreal facility”). TRS-RenTelco’s revenues are derived from the rental and sale of general purpose andcommunications test equipment to a broad range of companies, from Fortune 500 to middle and smaller market companies, in the aerospace, defense,communications, manufacturing and semiconductor industries. Electronic test equipment revenues are primarily affected by the business activity withinthese industries related to research and development, manufacturing, and communication infrastructure installation and maintenance. The Dallas facility,TRS-RenTelco’s primary operating location, houses the electronic test equipment inventory, sales engineers, calibration laboratories, and operations staff forU.S. and international business. The Montreal facility houses sales engineers and operations staff to serve the Canadian market. As of December 31, 2017, theoriginal cost of electronic test equipment inventory was comprised of 74% general purpose electronic test equipment and 26% communications electronictest equipment.Engineers, technicians and scientists utilize general purpose electronic test equipment in developing products, controlling manufacturing processes,completing field service applications and evaluating the performance of their own electrical and electronic equipment. These instruments are rented primarilyto aerospace, defense, electronics, industrial, research and semiconductor industries. To date, Keysight Technologies (formerly Agilent Technologies) andTektronix, a division of Fortive Corporation, have manufactured the majority of TRS-RenTelco’s general purpose electronic test equipment with theremainder acquired from over 60 other manufacturers.Communications test equipment, including fiber optic test equipment, is utilized by technicians, engineers and installation contractors to evaluatevoice, data and multimedia communications networks, to install fiber optic cabling, and in the development and manufacturing of transmission, network andwireless products. These instruments are rented primarily to manufacturers of communications equipment and products, electrical and communicationsinstallation contractors, field technicians, and service providers. To date, Anritsu and Viavi Solutions (formerly JDS Uniphase Corporation) havemanufactured a significant portion of TRS-RenTelco’s communications test equipment, with the remainder acquired from over 40 other manufacturers.TRS-RenTelco’s general purpose test equipment rental inventory includes oscilloscopes, amplifiers, analyzers (spectrum, network and logic), signalsource and power source test equipment. The communications test equipment rental inventory includes network and transmission test equipment for variousfiber, copper and wireless networks. TRS-RenTelco occasionally rents electronic test equipment from other rental companies and re-rents the equipment tocustomers.Competitive StrengthsMarket Leadership - The Company believes that TRS-RenTelco is one of the largest electronic test equipment rental and leasing companies offering abroad and deep selection of general purpose and communications test equipment for rent in North America.Expertise - The Company believes that its knowledge of products, technology and applications expertise provides it with a competitive advantageover others in the industry. Customer requirements are supported by application engineers and technicians that are knowledgeable about the equipment’suses to ensure the right equipment is selected to meet the customer’s needs. This knowledge can be attributed to the experience of TRS-RenTelco’smanagement, sales and operational teams.Operating Structure - TRS-RenTelco is supported by a centralized distribution and inventory center on the grounds of the Dallas-Fort Worth Airportin Texas. The Company believes that the centralization of servicing all customers in North America and internationally by TRS-RenTelco’s experiencedlogistics teams provides a competitive advantage by minimizing transaction costs and enabling TRS-RenTelco to ensure customer requirements are met.Asset Management - TRS-RenTelco’s rental equipment inventory is serviced by an ISO 9001-2015 registered and compliant calibration laboratorythat repairs and calibrates equipment ensuring that off rent equipment is ready to ship immediately to meet customers’ needs. TRS-RenTelco’s team oftechnicians, product managers and sales personnel are continuously monitoring and analyzing the utilization of existing products, new technologies, generaleconomic conditions and estimates of customer demand to ensure the right equipment is purchased and sold, at the right point in the equipment’s technologylife cycle. The Company believes this enables it to maximize utilization of equipment and the cash flow generated by the rental and sales revenue of eachmodel of equipment. TRS-RenTelco strives to maintain strong relationships with equipment manufacturers, which enables it to leverage those relationshipsto gain rental opportunities.-8- Customer Service - The Company believes that its focus on providing excellent service to its customers provides a competitive advantage. TRS-RenTelco strives to provide exemplary service to fulfill its commitments to its customers. TRS-RenTelco prides itself in providing solutions to meetcustomers’ needs by having equipment available and responding quickly and thoroughly to their requests. TRS-RenTelco’s sophisticated in-houselaboratory ensures the equipment is fully functional and meets its customers’ delivery requirements. Service needs of TRS-RenTelco’s customers aresupported 24 hours a day, 7 days a week by its customer care specialists. TRS-RenTelco’s goal is to provide service beyond its customers’ expectations,which, the Company believes, results in customer loyalty and repeat business.MarketElectronic test equipment rental is a market which we estimate has equipment on rent worldwide or available for rent with an aggregate original cost inexcess of $1 billion. There is a broad customer base for the rental of such instruments, including aerospace, communications, defense, electrical contractor,electronics, industrial, installer contractor, network systems and research companies.TRS-RenTelco markets its electronic test equipment throughout the United States, Canada, and, to a limited extent, other countries. TRS-RenTelcoattracts customers through its outside sales force, website at www.TRSRenTelco.com, telemarketing program, trade show participation, paid internet searchand electronic mail campaigns. A key part of the sales process is TRS-RenTelco’s knowledgeable inside sales engineering team that effectively matches testequipment solutions to meet specific customer’s requirements.The Company believes that customers rent electronic test equipment for many reasons. Customers frequently need equipment for short-term projects,to evaluate new products, and for backup to avoid costly downtime. Delivery times for the purchase of such equipment can be lengthy; thus, renting allowsthe customer to obtain the equipment expeditiously. The Company also believes that the relative certainty of rental costs can facilitate cost control and beuseful in the bidding of and pass-through of contract costs. Finally, renting rather than purchasing may better satisfy the customer’s budgetary constraints.RentalsTRS-RenTelco rents electronic test equipment typically for rental periods of one to six months, although in some instances, rental terms can be up to ayear or longer. Monthly rental rates typically are between 2% and 10% of the current manufacturers’ list price. TRS-RenTelco depreciates its equipment over1 to 8 years with no residual value.At December 31, 2017, TRS-RenTelco had an electronic test equipment rental inventory including accessories with an aggregate cost of $262.3million. Utilization is calculated each month by dividing the cost of the rental equipment on rent by the total cost of rental equipment, excluding accessoryequipment. Utilization was 61.7% as of December 31, 2017 and averaged 62.9% during the year.SalesProfit from equipment sales is a material component of TRS-RenTelco’s overall annual earnings. Gross profit from sales of both used and newequipment over the last five years generally has ranged from approximately 19% to 24% of total annual gross profit for our electronics division. For 2017,gross profit on equipment sales was approximately 23% of total division gross profit. Equipment sales are driven by the turnover of older technology rentalequipment, to maintain target utilization at a model number level, and new equipment sales opportunities. In 2017, approximately 19% of the electronic testequipment revenues were derived from sales. The largest electronic test equipment sale during 2017 represented approximately 5% of electronic testequipment sales, 1% of the Company’s consolidated sales and less than 1% of consolidated revenues. There is intense competition in the sales of electronictest equipment from a world-wide network of test equipment brokers and resellers, legacy rental companies, and equipment manufacturers. We believe theannual world-wide sale of electronic test equipment is in excess of $8.0 billion per year.SeasonalityRental activity may decline in the fourth quarter month of December and the first quarter months of January and February. These months may havelower rental activity due to holiday closures, particularly by larger companies, inclement weather and its impact on various field related communicationsequipment rentals, and companies’ operational recovery from holiday closures which may impact the start-up of new projects coming online in the firstquarter. These factors may impact the quarterly results of each year’s first and fourth quarter.-9- CompetitionThe electronic test equipment rental business is characterized by intense competition from several competitors, including Electro Rent Corporation,Continental Resources, and TestEquity, some of which may have access to greater financial and other resources than we do. TRS-RenTelco competes withthese and other test equipment rental companies on the basis of product availability, price, service and reliability. Although no single competitor holds adominant market share, we face intense competition from these established entities and new entrants in the market. Some of our competitors may offer similarequipment for lease, rental or sales at lower prices and may offer more extensive servicing, or financing options.-10- LIQUID AND SOLID CONTAINMENT TANKS AND BOXESDescriptionAdler Tanks’ rental inventory is comprised of tanks and boxes used for various containment solutions to store hazardous and non-hazardous liquidsand solids in applications such as: oil and gas exploration and field services, refinery, chemical and industrial plant maintenance, environmental remediationand field services, infrastructure building construction, marine services, pipeline construction and maintenance, tank terminals services, wastewater treatment,and waste management and landfill services. The tanks and boxes are comprised of the following products: •fixed axle steel tanks (“tanks”) for the storage of groundwater, wastewater, volatile organic liquids, sewage, slurry and bio sludge, oil and watermixtures and chemicals, which are available in a variety of sizes including 21,000 gallon, 16,000 gallon and 8,000 gallon sizes; •vacuum containers (“boxes”), which provide secure containment of sludge and solid materials and may be used for additional on-site storage orfor transporting materials off-site enabling vacuum trucks to remain in operation; •dewatering boxes for the separation of water contained in sludge and slurry; and •roll-off and trash boxes for the temporary storage and transport of solid waste.Adler Tanks purchases tanks and boxes from various manufacturers located throughout the country.Competitive StrengthsMarket Leadership - The Company believes that Adler Tanks is one of the largest participants in the liquid and solid containment tanks and boxesrental business in North America. Adler Tanks has national reach from branches serving the Northeast, Mid-Atlantic, Midwest, Southeast, Southwest andWest.Expertise and Customer Service – The Company believes that Adler Tanks has highly experienced operating management and branch employees.Adler Tanks employees are knowledgeable about the operation of its rental equipment and customer applications. The Company believes that Adler Tanksprovides a superior level of customer service due to its strong relationship building skills and the quality of its responsiveness.Asset Management – The Company believes that Adler Tanks markets a high quality, well-constructed and well-maintained rental product. TheCompany depreciates its tanks and boxes over a 20 year estimated useful life to 0% residual value. We believe that if maintained, older tanks and boxes willcontinue to produce similar rental rates as newer equipment. The fleet’s utilization is regionally optimized by understanding key vertical market customerdemand, seasonality factors, competitor’s product availability, expected equipment returns and manufacturer’s production capacity.MarketLiquid and solid containment equipment rental is a market in the U.S with a large and diverse number of market segments including oil and gasexploration and field services, refinery, chemical and industrial plant maintenance, environmental remediation and field services, infrastructure buildingconstruction, marine services, pipeline construction and maintenance, electrical grid transformer maintenance, tank terminals services, wastewater treatment,and waste management and landfill services.The tank and box rental products that Adler Tanks builds may be utilized throughout the U.S. and are not subject to any local or regional constructioncode or approval standards.RentalsAdler Tanks rents tanks and boxes typically for rental periods of one to six months, although in some instances, rental terms can be up to a year orlonger. Monthly rental rates typically are between 2% and 10% of the equipment’s original acquisition cost. At December 31, 2017, Adler Tanks had rentalequipment inventory including accessories with an aggregate cost of $309.8 million. Utilization is calculated each month by dividing the cost of the rentalequipment on rent by the total cost of rental equipment, excluding accessory equipment. Utilization was 57.5% at December 31, 2017 and averaged 56.0%during the year.-11- SeasonalityRental activity may decline in the fourth quarter month of December and the first quarter months of January and February. These months may havelower rental activity due to inclement weather in certain regions of the country impacting the industries that we serve.CompetitionThe liquid and solid containment rental industry is highly competitive including national, regional and local companies. Some of our nationalcompetitors, notably BakerCorp, Rain For Rent and Mobile Mini, may be larger than we are and may have greater financial and other resources than wehave. Some of our competitors also have longer operating histories, lower cost basis of rental equipment, lower cost structures and more establishedrelationships with equipment manufacturers than we have. In addition, certain of our competitors are more geographically diverse than we are and havegreater name recognition among customers than we do. As a result, our competitors that have these advantages may be better able to attract and retaincustomers and provide their products and services at lower rental rates. Adler Tanks competes with these companies based upon product availability, productquality, price, service and reliability. We may encounter increased competition in the markets that we serve from existing competitors or from new marketentrants in the future.REPORTABLE SEGMENTSFor segment information regarding the Company’s four reportable business segments: Mobile Modular, TRS-RenTelco, Adler Tanks and Enviroplex,see “Note 10. Segment Reporting” to the audited consolidated financial statements of the Company included in “Item 8. Financial Statements andSupplementary Data.”-12- PRODUCT HIGHLIGHTSThe following table shows the revenue components, percentage of rental and total revenues, rental equipment (at cost), rental equipment (net bookvalue), number of relocatable modular units, year-end and average utilization, average rental equipment (at cost), annual yield on average rental equipment(at cost) and gross margin on rental revenues and sales by product line for the past five years.Product Highlights (dollar amounts in thousands) Year Ended December 31, 2017 2016 2015 2014 2013 Relocatable Modular Buildings (operating under Mobile Modular and Enviroplex) Revenues Rental $142,584 $130,496 $115,986 $96,457 $82,503 Rental related services 50,448 49,206 45,616 35,263 28,891 Total Modular rental operations 193,032 179,702 161,602 131,720 111,394 Sales — Mobile Modular 37,435 29,393 22,248 29,394 20,831 Sales — Enviroplex 31,369 22,121 10,612 17,457 17,855 Total Modular sales 68,804 51,514 32,860 46,851 38,686 Other 799 417 434 461 436 Total Modular revenues $262,635 $231,633 $194,896 $179,032 $150,516 Percentage of rental revenues 49.3% 48.1% 42.4% 35.8% 32.2%Percentage of total revenues 56.8% 54.6% 48.2% 43.9% 39.7%Rental equipment, at cost (year-end) $775,400 $769,190 $736,875 $664,340 $592,391 Rental equipment, net book value (year-end) $543,857 $544,421 $529,483 $473,960 $415,366 Number of units (year-end) 52,188 50,577 47,995 43,792 39,577 Utilization (year-end) 1 77.8% 77.3% 76.9% 75.0% 70.7%Average utilization 1 76.8% 76.6% 75.8% 72.3% 68.3%Average rental equipment, at cost 2 $747,478 $724,333 $667,953 $597,904 $546,540 Annual yield on average rental equipment, at cost 4 19.1% 18.0% 17.4% 16.1% 15.1%Gross margin on rental revenues 56.1% 56.6% 53.4% 49.4% 47.0%Gross margin on sales 28.0% 29.0% 26.5% 27.1% 23.8% Electronic Test Equipment (operating under TRS-RenTelco) Revenues Rental $82,812 $82,307 $89,208 $99,020 $102,101 Rental related services 2,858 2,846 3,055 3,331 3,095 Total Electronics rental operations 85,670 85,153 92,263 102,351 105,196 Sales 20,334 21,582 21,137 24,323 28,277 Other 2,040 1,882 1,617 1,628 1,580 Total Electronics revenues $108,044 $108,617 $115,017 $128,302 $135,053 Percentage of rental revenues 28.6% 30.3% 32.6% 36.7% 40.0%Percentage of total revenues 23.4% 25.6% 28.4% 31.4% 35.6%Rental equipment, at cost (year-end) $262,325 $246,325 $262,945 $261,995 $267,772 Rental equipment, net book value (year-end) $109,482 $90,172 $102,191 $105,729 $109,988 Utilization (year-end) 1 61.7% 61.0% 58.7% 59.8% 58.2%Average utilization 1 62.9% 60.6% 60.5% 60.4% 62.7%Average rental equipment, at cost 3 $252,332 $254,019 $265,832 $262,968 $266,444 Annual yield on average rental equipment, at cost 4 32.8% 32.4% 33.6% 37.7% 38.3%Gross margin on rental revenues 44.0% 39.8% 39.9% 46.4% 48.2%Gross margin on sales 56.9% 50.9% 48.6% 49.7% 43.6% -13- (dollar amounts in thousands) Year Ended December 31, 2017 2016 2015 2014 2013 Liquid and Solid Containment Tanks and Boxes (operating under Adler Tanks) Revenues Rental $64,021 $58,585 $68,502 $74,098 $71,162 Rental related services 24,762 23,807 24,643 25,538 21,162 Total Tanks and Boxes rental operations 88,783 82,392 93,145 99,636 92,324 Sales 2,362 1,314 1,388 1,074 1,480 Other 210 124 98 78 136 Total Tanks and Boxes revenues $91,355 $83,830 $94,631 $100,788 $93,940 Percentage of rental revenues 22.1% 21.6% 25.0% 27.5% 27.8%Percentage of total revenues 19.8% 19.8% 23.4% 24.7% 24.7%Rental equipment, at cost (year-end) $309,808 $308,542 $310,263 $303,303 $284,005 Rental equipment, net book value (year-end) $208,981 $221,778 $237,927 $246,061 $241,656 Utilization (year-end) 1 57.5% 50.7% 49.7% 63.9% 57.7%Average utilization 1 56.0% 50.1% 58.3% 62.9% 64.2%Average rental equipment, at cost 2 $307,558 $307,416 $304,001 $289,928 $264,189 Annual yield on average rental equipment, at cost 4 20.8% 19.1% 22.5% 25.6% 26.9%Gross margin on rental revenues 58.7% 55.5% 61.9% 65.4% 65.3%Gross margin on sales 15.2% (2.1)% (25.1)% 2.0% (11.7)% Total revenues $462,034 $424,080 $404,544 $408,122 $379,509 1Utilization is calculated each month by dividing the cost of rental equipment on rent by the total cost of rental equipment. Average utilization is calculated using theaverage cost of equipment for the year. 2Average rental equipment, at cost for modulars and tanks and boxes excludes new equipment inventory and accessory equipment. 3Average rental equipment, at cost, for electronics excludes accessory equipment. 4Annual yield on average rental equipment, at cost is calculated by dividing the total annual rental revenues by the average rental equipment, at cost. -14- ITEM 1A.RISK FACTORSYou should carefully consider the following discussion of various risks and uncertainties. We believe these risk factors are the most relevant to ourbusiness and could cause our results to differ materially from the forward-looking statements made by us. Our business, financial condition, and results ofoperations could be seriously harmed if any of these risks or uncertainties actually occur or materialize. In that event, the market price for our common stockcould decline, and you may lose all or part of your investment.The effects of a recession and tightened credit markets in the U.S. and other countries may adversely impact our business and financial condition andmay negatively impact our ability to access financing.Demand for our rental products depends on continued industrial and business activity and state government funding. The effects of the recent creditcrisis and economic recession in the U.S. and general global economic downturn had an adverse effect on our customers, including local school districts thatare subject to budgetary constraints, which resulted in decreased demand for the products we rent. The U.S. economy continues to experience some weaknessfollowing a severe credit crisis and recession. While the U.S. economy has emerged from the recession, if the economy experiences another recession,reduced demand for our rental products and deflation could increase price competition and could have a material adverse effect on our revenue andprofitability.Instability in the global financial system may also have an impact on our business and our financial condition. In recent years, general economicconditions and the tightening credit markets have significantly affected the ability of many companies to raise new capital or refinance existingindebtedness. While we intend to finance expansion with cash flow from operations and borrowing under our unsecured revolving line of credit under ourCredit Facility (as defined and more fully described under the heading “Item 7. Management’s Discussion and Analysis of Financial Condition and Results ofOperation - Liquidity and Capital Resources – Unsecured Revolving Lines of Credit”), we may require additional financing to support our continuedgrowth. Constriction in the capital markets, should we need to access the market for additional funds or to refinance our existing indebtedness, could limitour ability to obtain such additional funds on terms acceptable to the Company or at all. All of these factors could impact our business, resulting in lowerrevenues and lower levels of earnings in future periods. At the current time we are uncertain as to the magnitude, or duration, of such changes in our business.Our stock price has fluctuated and may continue to fluctuate in the future, which may result in a decline in the value of your investment in our commonstock.The market price of our common stock fluctuates on the NASDAQ Global Select Market and is likely to be affected by a number of factors includingbut not limited to: •our operating performance and the performance of our competitors, and in particular any variations in our operating results or dividend ratefrom our stated guidance or from investors’ expectations; •any changes in general conditions in the global economy, the industries in which we operate or the global financial markets; •investors’ reaction to our press releases, public announcements or filings with the SEC; •the stock price performance of our competitors or other comparable companies; •any changes in research analysts’ coverage, recommendations or earnings estimates for us or for the stocks of other companies in our industry; •any sales of common stock by our directors, executive officers and our other large shareholders, particularly in light of the limited tradingvolume of our stock; •any merger and acquisition activity that involves us or our competitors; and •other announcements or developments affecting us, our industry, customers, suppliers or competitors.In addition, in recent years the U.S. stock market has experienced significant price and volume fluctuations. These fluctuations are often unrelated tothe operating performance of particular companies. More recently, the global credit crisis adversely affected the prices of most publicly traded stocks asmany stockholders have become more willing to divest their stock holdings at lower values to increase their cash flow and reduce exposure to suchfluctuations. These broad market fluctuations and any other negative economic trends may cause declines in the market price of our common stock and maybe based upon factors that have little or nothing to do with our Company or its performance, and these fluctuations and trends could materially reduce ourstock price.-15- Our future operating results may fluctuate, fail to match past performance or fail to meet expectations, which may result in a decrease in our stockprice.Our operating results may fluctuate in the future, may fail to match our past performance or fail to meet the expectations of analysts and investors. Ourresults and related ratios, such as gross margin, operating income percentage and effective tax rate may fluctuate as a result of a number of factors, some ofwhich are beyond our control including but not limited to: •general economic conditions in the geographies and industries where we rent and sell our products; •legislative and educational policies where we rent and sell our products; •the budgetary constraints of our customers; •seasonality of our rental businesses and our end-markets; •success of our strategic growth initiatives; •costs associated with the launching or integration of new or acquired businesses; •the timing and type of equipment purchases, rentals and sales; •the nature and duration of the equipment needs of our customers; •the timing of new product introductions by us, our suppliers and our competitors; •the volume, timing and mix of maintenance and repair work on our rental equipment; •our equipment mix, availability, utilization and pricing; •the mix, by state and country, of our revenues, personnel and assets; •rental equipment impairment from excess, obsolete or damaged equipment; •movements in interest rates or tax rates; •changes in, and application of, accounting rules; •changes in the regulations applicable to us; and •litigation matters.As a result of these factors, our historical financial results are not necessarily indicative of our future results or stock price.Our ability to retain our executive management and to recruit, retain and motivate key employees is critical to the success of our business.If we cannot successfully recruit and retain qualified personnel, our operating results and stock price may suffer. We believe that our success isdirectly linked to the competent people in our organization, including our executive officers, senior managers and other key personnel, and in particular, JoeHanna, our Chief Executive Officer. Personnel turnover can be costly and could materially and adversely impact our operating results and can potentiallyjeopardize the success of our current strategic initiatives. We need to attract and retain highly qualified personnel to replace personnel when turnover occurs,as well as add to our staff levels as growth occurs. Our business and stock price likely will suffer if we are unable to fill, or experience delays in filling openpositions, or fail to retain key personnel.Failure by third parties to manufacture and deliver our products to our specifications or on a timely basis may harm our reputation and financialcondition.We depend on third parties to manufacture our products even though we are able to purchase products from a variety of third-party suppliers. In thefuture, we may be limited as to the number of third-party suppliers for some of our products. Although in general we make advance purchases of someproducts to help ensure an adequate supply, currently we do not have any long-term purchase contracts with any third-party supplier. We may experiencesupply problems as a result of financial or operating difficulties or failure of our suppliers, or shortages and discontinuations resulting from productobsolescence or other shortages or allocations by our suppliers. Unfavorable economic conditions may also adversely affect our suppliers or the terms onwhich we purchase products. In the future, we may not be able to negotiate arrangements with third parties to secure products that we require in sufficientquantities or on reasonable terms. If we cannot negotiate arrangements with third parties to produce our products or if the third parties fail to produce ourproducts to our specifications or in a timely manner, our reputation and financial condition could be harmed.-16- Disruptions in our information technology systems or failure to protect these systems against security breaches could adversely affect our business andresults of operations. Additionally, if these systems fail, become unavailable for any period of time or are not upgraded, this could limit our ability toeffectively monitor and control our operations and adversely affect our operations.Our information technology systems facilitate our ability to transact business, monitor and control our operations and adjust to changing marketconditions. Any disruption in our information technology systems or the failure of these systems to operate as expected could, depending on the magnitudeof the problem, adversely affect our operating results by limiting our capacity to effectively transact business, monitor and control our operations and adjustto changing market conditions in a timely manner.In addition, because of recent advances in technology and well-known efforts on the part of computer hackers and cyber terrorists to breach datasecurity of companies, we face risks associated with potential failure to adequately protect critical corporate, client and employee data, which, if released,could adversely impact our client relationships, our reputation, and even violate privacy laws. As part of our business, we develop, receive and retainconfidential data about our company and our customers.Further, the delay or failure to implement information system upgrades and new systems effectively could disrupt our business, distract management’sfocus and attention from our business operations and growth initiatives, and increase our implementation and operating costs, any of which could negativelyimpact our operations and operating results.We have engaged in acquisitions and may engage in future acquisitions that could negatively impact our results of operations, financial condition andbusiness.In 2004, we acquired TRS, an electronic test equipment rental business and in 2008 we acquired Adler Tanks, a liquid and solid containment rentalbusiness. We anticipate that we will continue to consider acquisitions in the future that meet our strategic growth plans. We are unable to predict whether orwhen any prospective acquisition will be completed. Acquisitions involve numerous risks, including the following: •difficulties in integrating the operations, technologies, products and personnel of the acquired companies; •diversion of management’s attention from normal daily operations of our business; •difficulties in entering markets in which we have no or limited direct prior experience and where competitors in such markets may havestronger market positions; •difficulties in complying with regulations applicable to any acquired business, such as environmental regulations, and managing risks relatedto an acquired business; •timely completion of necessary financing and required amendments, if any, to existing agreements; •an inability to implement uniform standards, controls, procedures and policies; •undiscovered and unknown problems, defects, damaged assets liabilities, or other issues related to any acquisition that become known to usonly after the acquisition; •negative reactions from our customers to an acquisition; •disruptions among employees related to any acquisition which may erode employee morale; •loss of key employees, including costly litigation resulting from the termination of those employees; •an inability to realize cost efficiencies or synergies that we may anticipate when selecting acquisition candidates; •recording of goodwill and non-amortizable intangible assets that will be subject to future impairment testing and potential periodic impairmentcharges; •incurring amortization expenses related to certain intangible assets; and •becoming subject to litigation.Acquisitions are inherently risky, and no assurance can be given that our future acquisitions will be successful or will not adversely affect ourbusiness, operating results, or financial condition. The success of our acquisition strategy depends upon our ability to successfully complete acquisitionsand integrate any businesses that we acquire into our existing business. The difficulties of integration could be increased by the necessity of coordinatinggeographically dispersed organizations; maintaining acceptable standards, controls, procedures and policies; integrating personnel with disparate businessbackgrounds; combining different corporate cultures; and the impairment of relationships with employees and customers as a result of any integration of newmanagement and-17- other personnel. In addition, if we consummate one or more significant future acquisitions in which the consideration consists of stock or other securities, ourexisting shareholders’ ownership could be diluted significantly. If we were to proceed with one or more significant future acquisitions in which theconsideration included cash, we could be required to use, to the extent available, a substantial portion of our Credit Facility. If we increase the amountborrowed against our available credit line, we would increase the risk of breaching the covenants under our credit facilities with our lenders. In addition, itwould limit our ability to make other investments, or we may be required to seek additional debt or equity financing. Any of these items could adverselyaffect our results of operations.If we determine that our goodwill and intangible assets have become impaired, we may incur impairment charges, which would negatively impact ouroperating results.At December 31, 2017, we had $35.5 million of goodwill and intangible assets, net, on our consolidated balance sheets. Goodwill represents theexcess of cost over the fair value of net assets acquired in business combinations. Under accounting principles generally accepted in the United States ofAmerica, we assess potential impairment of our goodwill and intangible assets at least annually, as well as on an interim basis to the extent that factors orindicators become apparent that could reduce the fair value of any of our businesses below book value. Impairment may result from significant changes inthe manner of use of the acquired asset, negative industry or economic trends and significant underperformance relative to historic or projected operatingresults.Our rental equipment is subject to residual value risk upon disposition, and may not sell at the prices or in the quantities we expect.The market value of any given piece of rental equipment could be less than its depreciated value at the time it is sold. The market value of used rentalequipment depends on several factors, including: •the market price for new equipment of a like kind; •the age of the equipment at the time it is sold, as well as wear and tear on the equipment relative to its age; •the supply of used equipment on the market; •technological advances relating to the equipment; •worldwide and domestic demand for used equipment; and •general economic conditions.We include in income from operations the difference between the sales price and the depreciated value of an item of equipment sold. Changes in ourassumptions regarding depreciation could change our depreciation expense, as well as the gain or loss realized upon disposal of equipment. Sales of our usedrental equipment at prices that fall significantly below our projections or in lesser quantities than we anticipate will have a negative impact on our results ofoperations and cash flows.If we do not effectively manage our credit risk, collect on our accounts receivable or recover our rental equipment from our customers’ sites, it couldhave a material adverse effect on our operating results.We generally rent and sell to customers on 30 day payment terms, individually perform credit evaluation procedures on our customers for eachtransaction and require security deposits or other forms of security from our customers when a significant credit risk is identified. Historically, accountsreceivable write-offs and write-offs related to equipment not returned by customers have not been significant and have averaged less than 1% of totalrevenues over the last five years. If economic conditions deteriorate, we may see an increase in bad debt relative to historical levels, which may materiallyand adversely affect our operations. Business segments that experience significant market disruptions or declines (such as weakness in upstream oil and gascustomer demand at Adler Tanks) may experience increased customer credit risk and higher bad debt expense. Failure to manage our credit risk and receivetimely payments on our customer accounts receivable may result in write-offs and/or loss of equipment, particularly electronic test equipment. If we are notable to effectively manage credit risk issues, or if a large number of our customers should have financial difficulties at the same time, our receivables andequipment losses could increase above historical levels. If this should occur, our results of operations may be materially and adversely affected.Effective management of our rental assets is vital to our business. If we are not successful in these efforts, it could have a material adverse impact onour result of operations.Our modular, electronics and liquid and solid containment rental products have long useful lives and managing those assets is a critical element toeach of our rental businesses. Generally, we design units and find manufacturers to build them to our specifications-18- for our modular and liquid and solid containment tanks and boxes. Modular asset management requires designing and building the product for a long lifethat anticipates the needs of our customers, including anticipating potential changes in legislation, regulations, building codes and local permitting in thevarious markets in which the Company operates. Electronic test equipment asset management requires understanding, selecting and investing in equipmenttechnologies that support market demand, including anticipating technological advances and changes in manufacturers’ selling prices. Liquid and solidcontainment asset management requires designing and building the product for a long life, using quality components and repairing and maintaining theproducts to prevent leaks. For each of our modular, electronic test equipment and liquid and solid containment assets, we must successfully maintain andrepair this equipment cost-effectively to maximize the useful life of the products and the level of proceeds from the sale of such products. To the extent thatwe are unable to do so, our result of operations could be materially adversely affected.The nature of our businesses, including the ownership of industrial property, exposes us to the risk of litigation and liability under environmental,health and safety and products liability laws. Violations of environmental or health and safety related laws or associated liability could have a materialadverse effect on our business, financial condition and results of operations.We are subject to national, state, provincial and local environmental laws and regulations concerning, among other things, solid and liquid waste andhazardous substances handling, storage and disposal and employee health and safety. These laws and regulations are complex and frequently change. Wecould incur unexpected costs, penalties and other civil and criminal liability if we fail to comply with applicable environmental or health and safetylaws. We also could incur costs or liabilities related to waste disposal or remediating soil or groundwater contamination at our properties, at our customers’properties or at third party landfill and disposal sites. These liabilities can be imposed on the parties generating, transporting or disposing of such substancesor on the owner or operator of any affected property, often without regard to whether the owner or operator knew of, or was responsible for, the presence ofhazardous substances.Several aspects of our businesses involve risks of environmental and health and safety liability. For example, our operations involve the use ofpetroleum products, solvents and other hazardous substances in the construction and maintaining of modular buildings and for fueling and maintaining ourdelivery trucks and vehicles. We also own, transport and rent tanks and boxes in which waste materials are placed by our customers. The historicaloperations at some of our previously or currently owned or leased and newly acquired or leased properties may have resulted in undiscovered soil orgroundwater contamination or historical non-compliance by third parties for which we could be held liable. Future events, such as changes in existing lawsor policies or their enforcement, or the discovery of currently unknown contamination or non-compliance, may also give rise to liabilities or other claimsbased on these operations that may be material. In addition, compliance with future environmental or health and safety laws and regulations may requiresignificant capital or operational expenditures or changes to our operations.Accordingly, in addition to potential penalties for non-compliance, we may become liable, either contractually or by operation of law, forinvestigation, remediation and monitoring costs even if the contaminated property is not presently owned or operated by us, or if the contamination wascaused by third parties during or prior to our ownership or operation of the property. In addition, certain parties may be held liable for more than their “fair”share of environmental investigation and cleanup costs. Contamination and exposure to hazardous substances or other contaminants such as mold can alsoresult in claims for remediation or damages, including personal injury, property damage, and natural resources damage claims. Although expenses related toenvironmental compliance, health and safety issues, and related matters have not been material to date, we cannot assure that we will not have to makesignificant expenditures in the future in order to comply with applicable laws and regulations. Violations of environmental or health and safety related lawsor associated liability could have a material adverse effect on our business, financial condition and results of operations.In general, litigation in the industries in which we operate, including class actions that seek substantial damages, arises with increasingfrequency. Enforcement of environmental and health and safety requirements is also frequent. Such proceedings are invariably expensive, regardless of themerit of the plaintiffs’ or prosecutors’ claims. We may be named as a defendant in the future, and there can be no assurance, irrespective of the merit of suchfuture actions, that we will not be required to make substantial settlement payments in the future. Further, a significant portion of our business is conducted inCalifornia which is one of the most highly regulated and litigious states in the country. Therefore, our potential exposure to losses and expenses due to newlaws, regulations or litigation may be greater than companies with a less significant California presence.The nature of our business also subjects us to property damage and product liability claims, especially in connection with our modular buildings andtank and box rental businesses. Although we maintain liability coverage that we believe is commercially reasonable, an unusually large property damage orproduct liability claim or a series of claims could exceed our insurance coverage or result in damage to our reputation.-19- Our routine business activities expose us to risk of litigation from employees, vendors and other third parties, which could have a material adverseeffect on our results of operations.We may be subject to claims arising from disputes with employees, vendors and other third parties in the normal course of our business; these risksmay be difficult to assess or quantify and their existence and magnitude may remain unknown for substantial periods of time. If the plaintiffs in any suitsagainst us were to successfully prosecute their claims, or if we were to settle any such suits by making significant payments to the plaintiffs, our operatingresults and financial condition would be harmed. Even if the outcome of a claim proves favorable to us, litigation can be time consuming and costly and maydivert management resources. In addition, our organizational documents require us to indemnify our senior executives to the maximum extent permitted byCalifornia law. We maintain directors’ and officers’ liability insurance that we believe is commercially reasonable in connection with such obligations, but ifour senior executives were named in any lawsuit, our indemnification obligations could magnify the costs of these suits and/or exceed the coverage of suchpolicies.If we suffer loss to our facilities, equipment or distribution system due to catastrophe, our insurance policies could be inadequate or depleted, ouroperations could be seriously harmed, which could negatively affect our operating results.Our facilities, rental equipment and distribution systems may be subject to catastrophic loss due to fire, flood, hurricane, earthquake, terrorism or othernatural or man-made disasters. In particular, our headquarters, three operating facilities, and certain of our rental equipment are located in areas of California,with above average seismic activity and could be subject to catastrophic loss caused by an earthquake. Our rental equipment and facilities in Texas, Florida,North Carolina and Georgia are located in areas subject to hurricanes and other tropical storms. In addition to customers’ insurance on rented equipment, wecarry property insurance on our rental equipment in inventory and operating facilities as well as business interruption insurance. We believe our insurancepolicies have adequate limits and deductibles to mitigate the potential loss exposure of our business. We do not maintain financial reserves for policydeductibles and our insurance policies contain exclusions that are customary for our industry, including exclusions for earthquakes, flood and terrorism. Ifany of our facilities or a significant amount of our rental equipment were to experience a catastrophic loss, it could disrupt our operations, delay orders,shipments and revenue recognition and result in expenses to repair or replace the damaged rental equipment and facility not covered by insurance, whichcould have a material adverse effect on our results of operations.Our debt instruments contain covenants that restrict or prohibit our ability to enter into a variety of transactions and may limit our ability to financefuture operations or capital needs. If we have an event of default under these instruments, our indebtedness could be accelerated and we may not be ableto refinance such indebtedness or make the required accelerated payments.The agreements governing our Series A, Series B and Series C Senior Notes (as defined and more fully described under the heading “Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources”) and our Credit Facility containvarious covenants that limit our discretion in operating our business. In particular, we are limited in our ability to merge, consolidate, reorganize or transfersubstantially all of our assets, make investments, pay dividends or distributions, redeem or repurchase stock, change the nature of our business, enter intotransactions with affiliates, incur indebtedness and create liens on our assets to secure debt. In addition, we are required to meet certain financial covenantsunder these instruments. These restrictions could limit our ability to obtain future financing, make strategic acquisitions or needed capital expenditures,withstand economic downturns in our business or the economy in general, conduct operations or otherwise take advantage of business opportunities that mayarise.A failure to comply with the restrictions contained in these agreements could lead to an event of default, which could result in an acceleration of ourindebtedness. In the event of an acceleration, we may not have or be able to obtain sufficient funds to refinance our indebtedness or make any requiredaccelerated payments. If we default on our indebtedness, our business financial condition and results of operations could be materially and adverselyaffected.The majority of our indebtedness is subject to variable interest rates, which makes us vulnerable to increases in interest rates, which could negativelyaffect our net income.Our indebtedness exposes us to interest rate increases because the majority of our indebtedness is subject to variable rates. At present, we do not haveany derivative financial instruments such as interest rate swaps or hedges to mitigate interest rate variability. The interest rates under our credit facilities arereset at varying periods. These interest rate adjustments could cause periodic fluctuations in our operating results and cash flows. Our annual debt serviceobligations increase by approximately $1.8 million per year for each 1% increase in the average interest rate we pay based on the $183.5 million balance ofvariable rate debt outstanding at December 31, 2017. If interest rates rise in the future, and, particularly if they rise significantly, interest expense willincrease and our net income will be negatively affected.-20- Our effective tax rate may change and become less predictable as our business expands, making our future earnings less predictable.We continue to consider expansion opportunities domestically and internationally for our rental businesses, such as the organic expansion of ourmodular business in North Carolina, Georgia, Maryland, Virginia and Washington, D.C., expansion into the portable storage business and our expansion in2008 into the liquid and solid containment business. Since the Company’s effective tax rate depends on business levels, personnel and assets located invarious jurisdictions, further expansion into new markets or acquisitions may change the effective tax rate in the future and may make it, and consequentlyour earnings, less predictable going forward. In addition, the enactment of future tax law changes by federal and state taxing authorities may impact theCompany’s current period tax provision and its deferred tax liabilities.Changes in applicable tax regulations could negatively affect our financial results.We are subject to taxation in the United States, as well as a number of foreign jurisdictions. On December 22, 2017, the U.S. government enactedcomprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The changes included in the Tax Act are both broad andcomplex. The final transitional impact of the Tax Act may differ from the estimates provided in this Annual Report, due to, among other things, changes ininterpretations of the Tax Act, any legislative action to address questions that arise because of the Tax Act, any changes in accounting standards for incometaxes or related interpretations in response to the Tax Act, or any updates or changes to estimates we utilized to calculate the transitional impacts, includingimpacts related to changes to current year earnings estimates and the amount of the repatriation tax. Given the unpredictability of these and other tax lawsand related regulations, and their potential interdependency, it is difficult to currently assess the overall effect of such changes. Nonetheless, any materialnegative effect of such changes to our earnings and cash flow could adversely impact our financial results. Changes in financial accounting standards may cause lower than expected operating results and affect our reported results of operations.Changes in accounting standards and their application may have a significant effect on our reported results on a going-forward basis and may alsoaffect the recording and disclosure of previously reported transactions. New accounting pronouncements and varying interpretations of accountingpronouncements have occurred in the past and may occur in the future. Changes to existing rules or the questioning of current practices may adversely affectour reported financial results or the way we conduct our business.Failure to comply with internal control attestation requirements could lead to loss of public confidence in our financial statements and negativelyimpact our stock price.As a public reporting company, we are required to comply with the Sarbanes-Oxley Act of 2002, including Section 404, and the related rules andregulations of the SEC, including expanded disclosures and accelerated reporting requirements. Compliance with Section 404 and other related requirementshas increased our costs and will continue to require additional management resources. We may need to continue to implement additional finance andaccounting systems, procedures and controls to satisfy new reporting requirements. While our management concluded that our internal control over financialreporting as of December 31, 2017 was effective, there is no assurance that future assessments of the adequacy of our internal controls over financial reportingwill be favorable. If we are unable to obtain future unqualified reports as to the effectiveness of our internal control over financial reporting, investors couldlose confidence in the reliability of our internal control over financial reporting, which could adversely affect our stock price.SPECIFIC RISKS RELATED TO OUR RELOCATABLE MODULAR BUILDINGS BUSINESS SEGMENT:Significant reductions of, or delays in, funding to public schools have caused the demand and pricing for our modular classroom units to decline, whichhas in the past caused, and may cause in the future, a reduction in our revenues and profitability.Rentals and sales of modular buildings to public school districts for use as classrooms, restroom buildings, and administrative offices for K-12represent a significant portion of Mobile Modular’s rental and sales revenues. Funding for public school facilities is derived from a variety of sourcesincluding the passage of both statewide and local facility bond measures, developer fees and various taxes levied to support school operating budgets. Manyof these funding sources are subject to financial and political considerations, which vary from district to district and are not tied to demand. Historically, wehave benefited from the passage of statewide and local facility bond measures and believe these are essential to our business.The state of California is our largest market for classroom rentals. The strength of this market depends heavily on public funding from voter passage ofboth state and local facility bond measures, and the ability of the state to sell such bonds in the-21- public market. A lack of passage of state and local facility bond measures, or the inability to sell bonds in the public markets in the future could reduce ourrevenues and operating income, and consequently have a material adverse effect on the Company’s financial condition. Furthermore, even if voters haveapproved facility bond measures and the state has raised bond funds, there is no guarantee that individual school projects will be funded in a timely manner.As a consequence of economic recession, many states and local governments have experienced large budget deficits resulting in severe budgetaryconstraints among public school districts. To the extent public school districts’ funding is reduced for the rental and purchase of modular buildings, ourbusiness could be harmed and our results of operations negatively impacted. We believe that interruptions or delays in the passage of facility bond measuresor completion of state budgets, an insufficient amount of state funding, a significant reduction of funding to public schools, or changes negatively impactingenrollment may reduce the rental and sale demand for our educational products. Any reductions in funding available to the school districts from the states inwhich we do business may cause school districts to experience budget shortfalls and to reduce their demand for our products despite growing studentpopulations, class size reduction initiatives and modernization and reconstruction project needs, which could reduce our revenues and operating income andconsequently have a material adverse effect on the Company’s financial condition.Public policies that create demand for our products and services may change, resulting in decreased demand for or the pricing of our products andservices, which could negatively affect our revenues and operating income.In California a law was enacted in 1996 to provide funding for school districts for the reduction of class sizes for kindergarten through third grade. InFlorida, a state constitutional amendment was passed in 2002 to limit the number of students that may be grouped in a single classroom for pre-kindergartenthrough grade twelve. School districts with class sizes in excess of state limits have been and continue to be a significant source of our demand for modularclassrooms. Further, in California, efforts to address aging infrastructure and deferred maintenance have resulted in modernization and reconstructionprojects by public school districts including seismic retrofitting, asbestos abatement and various building repairs and upgrades, which has been anothersource of demand for our modular classrooms. The most recent economic recession has caused state and local budget shortfalls, which have reduced schooldistricts’ funding and their ability to comply with state class size reduction requirements in California and Florida. If educational priorities and policies shiftaway from class-size reduction or modernization and reconstruction projects, demand and pricing for our products and services may decline, not grow asquickly as, or not reach the levels that we anticipate. Significant equipment returns may result in lower utilization until equipment can be redeployed orsold, which may cause rental rates to decline and negatively affect our revenues and operating income.Failure to comply with applicable regulations could harm our business and financial condition, resulting in lower operating results and cash flows.Similar to conventionally constructed buildings, the modular building industry, including the manufacturers and lessors of portable classrooms, aresubject to regulations by multiple governmental agencies at the federal, state and local level relating to environmental, zoning, health, safety, labor andtransportation matters, among other matters. Failure to comply with these laws or regulations could impact our business or harm our reputation and result inhigher capital or operating expenditures or the imposition of penalties or restrictions on our operations.As with conventional construction, typically new codes and regulations are not retroactively applied. Nonetheless, new governmental regulations inthese or other areas may increase our acquisition cost of new rental equipment, limit the use of or make obsolete some of our existing equipment, or increaseour costs of rental operations.Building codes are generally reviewed every three years. All aspects of a given code are subject to change including, but not limited to, such items asstructural specifications for earthquake safety, energy efficiency and environmental standards, fire and life safety, transportation, lighting and noiselimits. On occasion, state agencies have undertaken studies of indoor air quality and noise levels with a focus on permanent and modular classrooms. Theseresults could impact our existing modular equipment and affect the future construction of our modular product.Compliance with building codes and regulations entails a certain amount of risk as state and local government authorities do not necessarily interpretbuilding codes and regulations in a consistent manner, particularly where applicable regulations may be unclear and subject to interpretation. Theseregulations often provide broad discretion to governmental authorities that oversee these matters, which can result in unanticipated delays or increases in thecost of compliance in particular markets. The construction and modular industries have developed many “best practices” which are constantly evolving.Some of our peers and competitors may adopt practices that are more or less stringent than the Company’s. When, and if, regulatory standards are clarified,the effect of the clarification may be to impose rules on our business and practices retroactively, at which time, we may not be in compliance with suchregulations and we may be required to incur costly remediation. If we are unable to pass these increased costs on to our customers, our profitability, operatingcash flows and financial condition could be negatively impacted.-22- Expansions of our modular operations into new markets may negatively affect our operating results.In the past, we have expanded our modular operations in Texas, North Carolina, Georgia, Maryland, Virginia and Washington, D.C. There are risksinherent in the undertaking of such expansion, including the risk of revenue from the business in any new markets not meeting our expectations, higher thanexpected costs in entering these new markets, risk associated with compliance with applicable state and local laws and regulations, response by competitorsand unanticipated consequences of expansion. In addition, expansion into new markets may be affected by local economic and marketconditions. Expansion of our operations into new markets will require a significant amount of attention from our management, a commitment of financialresources and will require us to add qualified management in these markets, which may negatively impact our operating results.We are subject to laws and regulations governing government contracts. These laws and regulations make these government contracts more favorableto government entities than other third parties and any changes in these laws and regulations, or our failure to comply with these laws and regulationscould harm our business.We have agreements relating to the sale of our products to government entities and, as a result, we are subject to various statutes and regulations thatapply to companies doing business with the government. The laws governing government contracts differ from the laws governing private contracts. Forexample, many government contracts contain pricing terms and conditions that are not applicable to private contracts such as clauses that allow governmententities not to perform on contractual obligations in the case of a lack of fiscal funding. Also, in the educational markets we serve, we are able to utilize“piggyback” contracts in marketing our products and services and ultimately to book business. The term “piggyback” contract refers to contracts forportable classrooms or other products entered into by public school districts following a formal bid process that allows for the use of the same contract termsand conditions with the successful vendor by other public school districts. As a result, “piggyback” contracts allow us to more readily book orders from ourgovernment customers, primarily public school districts, and to reduce the administrative expense associated with booking these orders. The governmentalstatutes and regulations that allow for use of “piggyback” contracts are subject to change or elimination in their entirety. A change in the manner of use orthe elimination of “piggyback” contracts would likely negatively impact our ability to book new business from these government customers and could causeour administrative expenses related to processing these orders to increase significantly. In addition, any failure to comply with these laws and regulationsmight result in administrative penalties or even in the suspension of these contracts and as a result, the loss of the related revenues which would harm ourbusiness and results from operations.Seasonality of our educational business may have adverse consequences for our business.A significant portion of the modular sale and rental revenues is derived from the educational market. Typically, during each calendar year, our highestnumbers of classrooms are shipped for rental and sale orders during the second and third quarters for delivery and installation prior to the start of theupcoming school year. The majority of classrooms shipped in the second and third quarters have rental start dates during the third quarter, thereby makingthe fourth quarter the first full quarter of rental revenues recognized for these transactions. Although this is the historical seasonality of our business, it issubject to change or may not meet our expectations, which may have adverse consequences for our business.We face strong competition in our modular building markets and we may not be able to effectively compete.The modular building leasing industry is highly competitive in our states of operation and we expect it to remain so. The competitive market inwhich we operate may prevent us from raising rental fees or sales prices to pass any increased costs on to our customers. We compete on the basis of a numberof factors, including equipment availability, quality, price, service, reliability, appearance, functionality and delivery terms. We may experience pricingpressures in our areas of operation in the future as some of our competitors seek to obtain market share by reducing prices.Some of our larger national competitors in the modular building leasing industry, notably WillScot Corporation and Modspace, have a greater rangeof products and services, greater financial and marketing resources, larger customer bases, and greater name recognition than we have. These largercompetitors may be better able to respond to changes in the relocatable modular building market, to finance acquisitions, to fund internal growth and tocompete for market share, any of which could harm our business.We may not be able to quickly redeploy modular units returning from leases, which could negatively affect our financial performance and our abilityto expand, or utilize, our rental fleet.As of December 31, 2017, 53% of our modular portfolio had equipment on rent for periods exceeding the original committed term. Generally, when acustomer continues to rent the modular units beyond the contractual term, the equipment rents on a month-to-month basis. If a significant number of ourrented modular units were returned during a short period of time, particularly those units that are rented on a month-to-month basis, a large supply of unitswould need to be remarketed. Our failure to effectively remarket a-23- large influx of units returning from leases could negatively affect our financial performance and our ability to continue expanding our rental fleet. Inaddition, if returned units stay off rent for an extended period of time, we may incur additional costs to securely store and maintain them.Significant increases in raw material and labor costs could increase our acquisition cost of new modular rental units and repair and maintenance costsof our fleet, which would increase our operating costs and harm our profitability.We incur labor costs and purchase raw materials, including lumber, siding and roofing and other products to perform periodic repairs, modificationsand refurbishments to maintain physical conditions of our modular units. The volume, timing and mix of maintenance and repair work on our rentalequipment may vary quarter-to-quarter and year-to-year. Generally, increases in labor and raw material costs will also increase the acquisition cost of newmodular units and increase the repair and maintenance costs of our fleet. We also maintain a fleet of service trucks and use subcontractor companies for thedelivery, set-up, return delivery and dismantle of modulars for our customers. We rely on our subcontractor service companies to meet customer demands fortimely shipment and return, and the loss or inadequate number of subcontractor service companies may cause prices to increase, while negatively impactingour reputation and operating performance. During periods of rising prices for labor, raw materials or fuel, and in particular, when the prices increase rapidly orto levels significantly higher than normal, we may incur significant increases in our acquisition costs for new modular units and incur higher operating coststhat we may not be able to recoup from our customers, which would reduce our profitability.Failure by third parties to manufacture our products timely or properly may harm our reputation and financial condition.We are dependent on third parties to manufacture our products even though we are able to purchase products from a variety of third-party suppliers.Mobile Modular purchases new modulars from various manufacturers who build to Mobile Modular’s design specifications. With the exception ofEnviroplex, none of the principal suppliers are affiliated with the Company. During 2017, Mobile Modular purchased 36% of its modular product from onemanufacturer. The Company believes that the loss of any of its primary manufacturers of modulars could have an adverse effect on its operations sinceMobile Modular could experience higher prices and longer delivery lead times for modular product until other manufacturers were able to increase theirproduction capacity.Failure to properly design, manufacture, repair and maintain the modular product may result in impairment charges, potential litigation andreduction of our operating results and cash flows.We estimate the useful life of the modular product to be 18 years with a residual value of 50%. However, proper design, manufacture, repairs andmaintenance of the modular product during our ownership is required for the product to reach the estimated useful life of 18 years with a residual value of50%. If we do not appropriately manage the design, manufacture, repair and maintenance of our modular product, or otherwise delay or defer such repair ormaintenance, we may be required to incur impairment charges for equipment that is beyond economic repair costs or incur significant capital expenditures toacquire new modular product to serve demand. In addition, such failures may result in personal injury or property damage claims, including claims based onpresence of mold, and termination of leases or contracts by customers. Costs of contract performance, potential litigation, and profits lost from terminationcould accordingly reduce our future operating results and cash flows.Our warranty costs may increase and warranty claims could damage our reputation and negatively impact our revenues and operating income.Sales of new relocatable modular buildings not manufactured by us are typically covered by warranties provided by the manufacturer of the productssold. We provide ninety-day warranties on certain modular sales of used rental units and one-year warranties on equipment manufactured by our Enviroplexsubsidiary. Historically, our warranty costs have not been significant, and we monitor the quality of our products closely. If a defect were to arise in theinstallation of our equipment at the customer’s facilities or in the equipment acquired from our suppliers or by our Enviroplex subsidiary, we may experienceincreased warranty claims. Such claims could disrupt our sales operations, damage our reputation and require costly repairs or other remedies, negativelyimpacting revenues and operating income.SPECIFIC RISKS RELATED TO OUR ELECTRONIC TEST EQUIPMENT BUSINESS SEGMENT:Market risk and cyclical downturns in the industries using test equipment may result in periods of low demand for our product resulting in excessinventory, impairment charges and reduction of our operating results and cash flows.TRS-RenTelco’s revenues are derived from the rental and sale of general purpose and communications test equipment to a broad range of companies,from Fortune 500 to middle and smaller market companies, in the aerospace, defense, communications, manufacturing and semiconductorindustries. Electronic test equipment rental and sales revenues are primarily affected by the-24- business activity within these industries related to research and development, manufacturing, and communication infrastructure installation andmaintenance. Historically, these industries have been cyclical and have experienced periodic downturns, which can have a material adverse impact on theindustry’s demand for equipment, including our rental electronic test equipment. In addition, the severity and length of any downturn in an industry may alsoaffect overall access to capital, which could adversely affect our customers and result in excess inventory and impairment charges. During periods of reducedand declining demand for test equipment, we are exposed to additional receivable risk from non-payment and may need to rapidly align our cost structurewith prevailing market conditions, which may negatively impact our operating results and cash flows.Seasonality of our electronic test equipment business may impact quarterly results.Generally, rental activity declines in the fourth quarter month of December and the first quarter months of January and February. These months mayhave lower rental activity due to holiday closures, particularly by larger companies, inclement weather and its impact on various field relatedcommunications equipment rentals, and companies’ operational recovery from holiday closures which may impact the start-up of new projects coming onlinein the first quarter. These seasonal factors historically have impacted quarterly results in each year’s first and fourth quarter, but we are unable to predict howsuch factors may impact future periods.Our rental test equipment may become obsolete or may no longer be supported by a manufacturer, which could result in an impairment charge.Electronic test equipment is characterized by changing technology and evolving industry standards that may render our existing equipment obsoletethrough new product introductions, or enhancements, before the end of its anticipated useful life, causing us to incur impairment charges. We must anticipateand keep pace with the introduction of new hardware, software and networking technologies and acquire equipment that will be marketable to our currentand prospective customers.Additionally, some manufacturers of our equipment may be acquired or cease to exist, resulting in a future lack of support for equipment purchasedfrom those manufacturers. This could result in the remaining useful life becoming shorter, causing us to incur an impairment charge. We monitor ourmanufacturers’ capacity to support their products and the introduction of new technologies, and we acquire equipment that will be marketable to our currentand prospective customers. However, any prolonged economic downturn could result in unexpected bankruptcies or reduced support from ourmanufacturers. Failure to properly select, manage and respond to the technological needs of our customers and changes to our products through theirtechnology life cycle may cause certain electronic test equipment to become obsolete, resulting in impairment charges, which may negatively impactoperating results and cash flows.If we do not effectively compete in the rental equipment market, our operating results will be materially and adversely affected.The electronic test equipment rental business is characterized by intense competition from several competitors, including Electro Rent Corporation,Continental Resources and TestEquity, some of which may have access to greater financial and other resources than we do. Although no single competitorholds a dominant market share, we face competition from these established entities and new entrants in the market. We believe that we anticipate and keeppace with the introduction of new products and acquire equipment that will be marketable to our current and prospective customers. We compete on thebasis of a number of factors, including product availability, price, service and reliability. Some of our competitors may offer similar equipment for lease,rental or sale at lower prices and may offer more extensive servicing, or financing options. Failure to adequately forecast the adoption of, and demand for,new or existing products may cause us not to meet our customers’ equipment requirements and may materially and adversely affect our operating results.If we are not able to obtain equipment at favorable rates, there could be a material adverse effect on our operating results and reputation.The majority of our rental equipment portfolio is comprised of general purpose test and measurement instruments purchased from leadingmanufacturers such as Keysight Technologies (formerly Agilent Technologies) and Tektronix, a division of Fortive Corporation. We depend on purchasingequipment from these manufacturers and suppliers for use as our rental equipment. If, in the future, we are not able to purchase necessary equipment from oneor more of these suppliers on favorable terms, we may not be able to meet our customers’ demands in a timely manner or for a rental rate that generates aprofit. If this should occur, we may not be able to secure necessary equipment from an alternative source on acceptable terms and our business and reputationmay be materially and adversely affected.-25- If we are not able to anticipate and mitigate the risks associated with operating internationally, there could be a material adverse effect on ouroperating results.Currently, total foreign country customers and operations account for less than 10% of the Company’s revenues. In recent years some of our customershave expanded their international operations faster than domestic operations, and this trend may continue. Over time, we anticipate the amount of ourinternational business may increase if our focus on international market opportunities continues. Operating in foreign countries subjects the Company toadditional risks, any of which may adversely impact our future operating results, including: •international political, economic and legal conditions including tariffs and trade barriers; •our ability to comply with customs, anti-corruption, import/export and other trade compliance regulations, together with any unexpectedchanges in such regulations; •greater difficulty in our ability to recover rental equipment and obtain payment of the related trade receivables; •additional costs to establish and maintain international subsidiaries and related operations; •difficulties in attracting and retaining staff and business partners to operate internationally; •language and cultural barriers; •seasonal reductions in business activities in the countries where our international customers are located; •difficulty with the integration of foreign operations; •longer payment cycles; •currency fluctuations; and •potential adverse tax consequences.Unfavorable currency exchange rates may negatively impact our financial results in U.S. dollar terms.We receive revenues in Canadian dollars from our business activities in Canada. Conducting business in currencies other than U.S. dollars subjects usto fluctuations in currency exchange rates. If the currency exchange rates change unfavorably, the value of net receivables we receive in foreign currenciesand later convert to U.S. dollars after the unfavorable change would be diminished. This could have a negative impact on our reported operating results. Wecurrently do not engage in hedging strategies to mitigate this risk.SPECIFIC RISKS RELATED TO OUR LIQUID AND SOLID CONTAINMENT TANKS AND BOXES BUSINESS SEGMENT:We may be brought into tort or environmental litigation or held responsible for cleanup of spills if the customer fails to perform, or an accident occursin the use of our rental products, which could materially adversely affect our business, future operating results or financial position.Our rental tanks and boxes are used by our customers to store non-hazardous and certain hazardous liquids and solids on the customer’s site. Ourcustomers are generally responsible for proper operation of our tank and box rental equipment while on rent and returning a cleaned and undamagedcontainer upon completion of use, but exceptions may be granted and we cannot always assure that these responsibilities are fully met in all cases. Althoughwe require the customer to carry commercial general liability insurance in a minimum amount of $5,000,000, such policies often contain pollutionexclusions and other exceptions. Furthermore, we cannot be certain our liability insurance will always be sufficient. In addition, if an accident were to occurinvolving our rental equipment or a spill of substances were to occur when the tank or box was in transport or on rent with our customer, a claim could bemade against us as owner of the rental equipment.In the event of a spill or accident, we may be brought into a lawsuit or enforcement action by either our customer or a third party on numerouspotential grounds, including an allegation that an inherent flaw in a tank or box contributed to an accident or that the tank had suffered some undiscoveredharm from a previous customer’s prior use. In the event of a spill caused by our customers, we may be held responsible for cleanup under environmental lawsand regulations concerning obligations of suppliers of rental products to effect remediation. In addition, applicable environmental laws and regulations mayimpose liability on us for the conduct of third parties, or for actions that complied with applicable regulations when taken, regardless of negligence orfault. Substantial damage awards have also been made in certain jurisdictions against lessors of industrial equipment based upon claims of personal injury,property damage, and resource damage caused by the use of various products. While we take what we believe-26- are reasonable precautions that our rental equipment is in good and safe condition prior to rental and carry insurance to protect against certain risks of loss oraccidents, such liability could adversely impact our profitability.The liquid and solid containment rental industry is highly competitive, and competitive pressures could lead to a decrease in our market share or inrental rates and our ability to rent, or sell, equipment at favorable prices, which could adversely affect our operating results.The liquid and solid containment rental industry is highly competitive. We compete against national, regional and local companies, includingBakerCorp, Rain For Rent and Mobile Mini, all of which may be larger than we are and both of which may have greater financial and marketing resourcesthan we have. Some of our competitors also have longer operating histories, lower cost basis of rental equipment, lower cost structures and more establishedrelationships with equipment manufacturers than we have. In addition, certain of our competitors are more geographically diverse than we are and havegreater name recognition among customers than we do. As a result, our competitors that have these advantages may be better able to attract customers andprovide their products and services at lower rental rates. Some competitors offer different approaches to liquid storage, such as large-volume modular tanksthat may have better economics and compete with conventional frac tanks in certain oil and gas field applications. We may in the future encounter increasedcompetition in the markets that we serve from existing competitors or from new market entrants.We believe that equipment quality, service levels, rental rates and fleet size are key competitive factors in the liquid and solid containment rentalindustry. From time to time, we or our competitors may attempt to compete aggressively by lowering rental rates or prices. Competitive pressures couldadversely affect our revenues and operating results by decreasing our market share or depressing rental rates. To the extent we lower rental rates or increaseour fleet in order to retain or increase market share, our operating margins would be adversely impacted. In addition, we may not be able to match a largercompetitor’s price reductions or fleet investment because of its greater financial resources, all of which could adversely impact our operating results through acombination of a decrease in our market share, revenues and operating income.Market risk, commodity price volatility, regulatory changes or interruptions and cyclical downturns in the industries using tanks and boxes may resultin periods of low demand for our products resulting in excess inventory, impairment charges and reduction of our operating results and cash flows.Adler Tanks’ revenues are derived from the rental of tanks and boxes to companies involved in oil and gas exploration, extraction and refinement,environmental remediation and wastewater/groundwater treatment, infrastructure and building construction and various industrial services, among others. Inthe quarter and twelve months ended December 31, 2017, oil and gas exploration and production accounted for approximately 10% and 9%, respectively, ofAdler Tanks’ rental revenues, and approximately 2% of the Company’s total revenues for the same periods. We expect tank and box rental revenues willprimarily be affected by the business activity within these industries. Historically, these industries have been cyclical and have experienced periodicdownturns, which have a material adverse impact on the industry’s demand for equipment, including the tanks and boxes rented by us. Lower oil or gasprices may have an adverse effect on our liquid and solid containment tanks and boxes business. Any steep decline in both domestic and international oilprices driven by materially higher supply levels and weak demand could have a significant negative impact on the industry’s demand for equipment,especially if such market conditions continue for an extended period of time. If the price reduction causes customers to limit or stop exploration, extractionor refinement activities, resulting in lower demand and pricing for renting Adler Tank’s products, our financial results could be adversely impacted. Also, aweak U.S. economy may negatively impact infrastructure construction and industrial activity. Any of these factors may result in excess inventory orimpairment charges and reduce our operating results and cash flows.Changes in regulatory, or governmental, oversight of hydraulic fracturing could materially adversely affect the demand for our rental products andreduce our operating results and cash flows.We believe that demand related to hydraulic fracturing has increased the total rental revenues and market size in recent years. Oil and gas explorationand extraction (including use of tanks for hydraulic fracturing to obtain shale oil and shale gas) are subject to numerous local, state and federalregulations. The hydraulic fracturing method of extraction has come under scrutiny in several states and by the Federal government due to the potentialadverse effects that hydraulic fracturing, and the liquids and chemicals used, may have on water quality and public health. In addition, the disposal ofwastewater from the hydraulic fracturing process into injection wells may increase the rate of seismic activity near drill sites and could result in regulatorychanges, delays or interruption of future activity. Changes in these regulations could limit, interrupt, or stop exploration and extraction activities, whichwould negatively impact the demand for our rental products. Finally, it is possible that changes in the technology utilized in hydraulic fracturing couldmake it less dependent on liquids and therefore lower the related requirements for the use of our rental products, which would reduce our operating resultsand cash flows.-27- Seasonality of the liquid and solid containment rental industry may impact quarterly results.Rental activity may decline in the fourth quarter month of December and the first quarter months of January and February. These months may havelower rental activity in parts of the country where inclement weather may delay, or suspend, a company’s project. The impact of these delays may be todecrease the number of tanks, or boxes, on rent until companies are able to resume their projects when weather improves. These seasonal factors historicallyhave impacted quarterly results in each year’s first and fourth quarter, but we are unable to predict how such factors may impact future periods.Significant increases in raw material, fuel and labor costs could increase our acquisition and operating costs of rental equipment, which would increaseoperating costs and decrease profitability.Increases in raw material costs such as steel and labor to manufacture liquid and solid containment tanks and boxes would increase the cost ofacquiring new equipment. These price increases could materially and adversely impact our financial condition and results of operations if we are not able torecoup these increases through higher rental revenues. In addition, a significant amount of revenues are generated from the transport of rental equipment toand from customers. We own delivery trucks, employ drivers and utilize subcontractors to provide these services. The price of fuel can be unpredictable andbeyond our control. During periods of rising fuel and labor costs, and in particular when prices increase rapidly, we may not be able recoup these costs fromour customers, which would reduce our profitability.Failure by third parties to manufacture our products timely or properly may harm our ability to meet customer demand and harm our financialcondition.We are dependent on a variety of third party companies to manufacture equipment to be used in our rental fleet. In some cases, we may not be able toprocure equipment on a timely basis to the extent that manufacturers for the quantities of equipment we need are not able to produce sufficient inventory onschedules that meet our delivery requirements. If demand for new equipment increases significantly, especially during a seasonal manufacturing slowdown,manufacturers may not be able to meet customer orders on a timely basis. As a result, we at times may experience long lead-times for certain types of newequipment and we cannot assure that we will be able to acquire the types or sufficient numbers of the equipment we need to grow our rental fleet as quickly aswe would like and this could harm our ability to meet customer demand and harm our financial condition.We derive a meaningful amount of our revenue in our liquid and solid containment tank and boxes business from a limited number of customers, theloss of one or more of which could have an adverse effect on our business.Periodically, a meaningful portion of our revenue in our liquid and solid containment tank and boxes business may be generated from a few majorcustomers. Although we have some long-term relationships with our major customers, we cannot be assured that our customers will continue to use ourproducts or services or that they will continue to do so at historical levels. The loss of any meaningful customer, the failure to collect a material receivablefrom a meaningful customer, any material reduction in orders by a meaningful customer or the cancellation of a meaningful customer order couldsignificantly reduce our revenues and consequently harm our financial condition and our ability to fund our operations.We may not be able to quickly redeploy equipment returning from leases at equivalent prices.Many of our rental transactions are short-term in nature with pricing established on a daily basis. The length of time that a customer needs equipmentcan often be difficult to determine and can be impacted by a number of factors such as weather, customer funding and project delays. In addition, ourequipment is primarily used in the oil and gas, industrial plant services, environmental remediation and infrastructure and building constructionindustries. Changes in the economic conditions facing any of those industries could result in a significant number of units returning off rent, both for us andour competitors.If the supply of rental equipment available on the market significantly increases due to units coming off rent, demand for and pricing of our rentalproducts could be adversely impacted. We may experience delays in remarketing our off-rent units to new customers and incur cost to move the units toother regions where demand is stronger. Actions in these circumstances by our competitors may also depress the market price for rental units. These delaysand price pressures would adversely affect equipment utilization levels and total revenues, which would reduce our profitability. ITEM 1B.UNRESOLVED STAFF COMMENTSNone. -28- ITEM 2.PROPERTIES.The Company’s four reportable business segments currently conduct operations from the following locations:Mobile Modular – Four inventory centers, at which relocatable modular buildings and storage containers are displayed, refurbished and stored arelocated in Livermore, California (San Francisco Bay Area), Mira Loma, California (Los Angeles Area), Pasadena, Texas (Houston Area) and in Auburndale,Florida (Orlando Area). The inventory centers conduct rental and sales operations from modular buildings, serving as working models of the Company’smodular product. The Company also has a modular sales office in Charlotte, North Carolina from which the states of North Carolina, Georgia, Virginia andMaryland are served.TRS-RenTelco – Electronic test equipment rental and sales operations are conducted from a facility in Grapevine, Texas (Dallas Area) and a salesoffice in Dollard-des-Ormeaux, Quebec (Montreal, Canada Area).Adler Tanks – Adler Tanks operates from branch offices serving the Northeast, Mid-Atlantic, Midwest, Southeast, Southwest and West. A number ofour branch offices are leased and have remaining lease terms of one to three years, or are leased on a month to month basis. We believe satisfactoryalternative properties can be found in all of our markets if we do not renew our existing leased properties.Enviroplex – The Company’s wholly owned subsidiary, Enviroplex, manufactures modular buildings used primarily as classrooms in California fromits facility in Stockton, California (San Francisco Bay Area).The following table sets forth the total acres, square footage of office space, square footage of warehouse space and total square footage of oursignificant properties at December 31, 2017. Square Footage Total Acres Office Warehouse Total Corporate Offices Livermore, California 1 — 26,160 — 26,160 Mobile Modular Livermore, California 1, 2, 5 137.2 7,680 53,440 61,120 Mira Loma, California 5 78.5 7,920 45,440 53,360 Pasadena, Texas 50.0 3,868 24,000 27,868 Auburndale, Florida 5 122.5 8,400 95,902 104,302 Charlotte, North Carolina (two facilities) 6 8.5 7,811 — 7,811 Lexington, North Carolina 7 5.0 — — — Riverside, California 3 16.6 San Diego, California 4 2.5 — — — Grand Prairie, Texas 5 29.0 — — — San Antonio, Texas 5 35.0 — — — Round Rock, Texas 5.0 3,600 — 3,600 Arcade, Georgia 48.3 — — — TRS-RenTelco Grapevine, Texas 8 — 45,000 71,895 116,895 Dollard-des-Ormeaux, Quebec 7 — 12,500 — 12,500 Adler Tanks South Plainfield, New Jersey 20.9 1,685 11,832 13,517 Deer Park, Texas 10.2 3,448 5,353 8,801 Beaumont, Texas 5.4 850 — 850 Mokena, Illinois 21.3 13,800 — 13,800 Wayland, Michigan 10.0 3,000 12,912 15,912 Ellsworth, Wisconsin 11.3 — 11,230 11,230 Enviroplex Stockton, California 8.9 2,091 105,985 108,076 626.1 147,813 437,989 585,802 1The modular building complex in Livermore, California is 33,840 square feet and includes the corporate offices, modulars and Adler Tanks branch operations. 2Of the 137.2 acres, 2.2 acres with an 8,000 square foot warehouse facility is leased to a third party through February 2019. 3This facility is leased on a month to month basis.-29- 4This facility is leased through August 2018. 5Adler Tanks also operates out of this facility. 6These facilities are leased through July and September 2019. 7This facility is leased through December 2020. 8This facility is leased through November 2018.ITEM 3.LEGAL PROCEEDINGS.The Company is involved in various lawsuits and routine claims arising out of the normal course of its business. The Company maintains insurancecoverage for its operations and employees with appropriate aggregate, per occurrence and deductible limits as the Company reasonably determines necessaryor prudent with current operations and historical experience. The major policies include coverage for property, general liability, auto, directors and officers,health, and workers’ compensation insurances. In the opinion of management, the ultimate amount of liability not covered by insurance, if any, under anypending litigation and claims, individually or in the aggregate, will not have a material adverse effect on the financial position or operating results of theCompany.ITEM 4.MINE SAFETY DISCLOSURES.Not Applicable -30- PART IIITEM 5.MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OFEQUITY SECURITIES.The Company's common stock is traded in the NASDAQ Global Select Market under the symbol “MGRC”.The market prices (as quoted by NASDAQ) and cash dividends declared, per share of the Company’s common stock, by calendar quarter for the pasttwo years were as follows:Stock Activity 2017 2016 4Q 3Q 2Q 1Q 4Q 3Q 2Q 1Q High $49.66 $44.30 $38.23 $39.49 $39.86 $33.35 $31.06 $26.73 Low $42.98 $33.24 $32.09 $32.21 $29.27 $29.85 $22.40 $21.46 Close $46.98 $43.75 $34.63 $33.57 $39.19 $31.71 $30.59 $25.08 Dividends Declared $0.260 $0.260 $0.260 $0.260 $0.255 $0.255 $0.255 $0.255 As of February 26, 2018, the Company's common stock was held by approximately 40 shareholders of record, which does not include shareholderswhose shares are held in street or nominee name. The Company believes that when holders in street or nominee name are added, the number of holders of theCompany's common stock exceeds 500.DividendsThe Company has declared a quarterly dividend on its common stock every quarter since 1990. The total amount of cash dividends paid by theCompany in 2017 and 2016 is discussed under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations ―Liquidity and Capital Resources.” Subject to its continued profitability and favorable cash flow, the Company intends to continue the payment of quarterlydividends.Stock Repurchase PlanIn May 2008, the Company’s Board of Directors authorized the Company to repurchase an aggregate of 2,000,000 shares of the Company'soutstanding common stock. The Company has in the past made purchases of shares of its common stock from time to time in over-the-counter market(NASDAQ) transactions, through privately negotiated, large block transactions and through a share repurchase plan, in accordance with Rule 10b5-1 of theSecurities Exchange Act of 1934. In August 2015, the Company’s Board of Directors authorized the Company to repurchase an additional 2,000,000 sharesof the Company's outstanding common stock. The amount and time of the specific repurchases are subject to prevailing market conditions, applicable legalrequirements and other factors, including management’s discretion. All shares repurchased by the Company are canceled and returned to the status ofauthorized but unissued shares of common stock. There can be no assurance that any authorized shares will be repurchased and the repurchase program maybe modified, extended or terminated by the board of directors at any time. There were no repurchases of common stock during the twelve months endedDecember 31, 2017 and 2016. As of December 31 2017, 1,592,026 shares remain authorized for repurchase. -31- ITEM 6.SELECTED FINANCIAL DATA.The following table summarizes the Company’s selected financial data for the five years ended December 31, 2017 and should be read in conjunctionwith the detailed audited consolidated financial statements and related notes included in “Item 8. Financial Statements and Supplementary Data” and “Item7. Management’s Discussion and Analysis of Financial Condition and Result of Operations”.Selected Consolidated Financial Data (in thousands, except per share data) Year Ended December 31, 2017 2016 2015 2014 2013 Operations Data Revenues Rental $289,417 $271,388 $273,696 $269,575 $255,766 Rental related services 78,068 75,859 73,314 64,132 53,148 Rental operations 367,485 347,247 347,010 333,707 308,914 Sales 91,500 74,410 55,385 72,248 68,443 Other 3,049 2,423 2,149 2,167 2,152 Total revenues 462,034 424,080 404,544 408,122 379,509 Costs and expenses Direct costs of rental operations Depreciation of rental equipment 69,908 72,197 75,213 72,678 68,208 Rental related services 60,029 59,044 57,144 50,969 42,117 Other 65,472 60,130 58,511 54,826 53,089 Total direct costs of rental operations 195,409 191,371 190,868 178,473 163,414 Costs of sales 60,280 48,542 36,769 47,430 47,080 Total costs of revenues 255,689 239,913 227,637 225,903 210,494 Gross profit 206,345 184,167 176,907 182,219 169,015 Selling and administrative expenses 111,605 104,908 99,950 96,859 88,765 Income from operations 94,740 79,259 76,957 85,360 80,250 Other income (expense): Interest expense (11,622) (12,207) (10,092) (9,280) (8,687)Gain on sale of property, plant and equipment — — — 812 — Foreign currency exchange gain (loss) 334 (121) (488) (331) (189)Income before (benefit) provision for income taxes 83,452 66,931 66,377 76,561 71,374 (Benefit) provision for income taxes (70,468) 28,680 25,907 30,852 27,977 Net income $153,920 $38,251 $40,470 $45,709 $43,397 Earnings per share: Basic $6.41 $1.60 $1.60 $1.77 $1.71 Diluted $6.34 $1.60 $1.59 $1.75 $1.67 Shares used in per share calculations: Basic 23,999 23,900 25,369 25,914 25,433 Diluted 24,269 23,976 25,457 26,175 25,926 Balance Sheet Data (at period end) Rental equipment, at cost $1,347,533 $1,324,057 $1,310,083 $1,229,638 $1,144,168 Rental equipment, net $862,320 $856,371 $869,601 $825,750 $767,010 Total assets $1,147,854 $1,128,276 $1,152,709 $1,116,407 $1,027,611 Notes payable $303,414 $326,266 $381,281 $322,338 $289,836 Shareholders' equity $524,184 $394,287 $379,687 $424,531 $401,030 Shares issued and outstanding 24,052 23,948 23,851 26,051 25,757 Book value per share $21.79 $16.46 $15.92 $16.30 $15.57 Total liabilities to equity 1.19 1.86 2.04 1.63 1.56 Debt (notes payable) to equity 0.58 0.83 1.00 0.76 0.72 Return on average equity 37.1% 9.8% 9.8% 11.1% 11.3%Cash dividends declared per common share $1.04 $1.02 $1.00 $0.98 $0.96-32- Adjusted EBITDATo supplement the Company’s financial data presented on a basis consistent with accounting principles generally accepted in the United States ofAmerica (“GAAP”), the Company presents “Adjusted EBITDA”, which is defined by the Company as net income before interest expense, provision forincome taxes, depreciation, amortization, non-cash impairment costs and share-based compensation. The Company presents Adjusted EBITDA as a financialmeasure as management believes it provides useful information to investors regarding the Company’s liquidity and financial condition and becausemanagement, as well as the Company’s lenders, use this measure in evaluating the performance of the Company.Management uses Adjusted EBITDA as a supplement to GAAP measures to further evaluate period-to-period operating performance, compliance withfinancial covenants in the Company’s revolving lines of credit and senior notes and the Company’s ability to meet future capital expenditure and workingcapital requirements. Management believes the exclusion of non-cash charges, including share-based compensation, is useful in measuring the Company’scash available for operations and performance of the Company. Because management finds Adjusted EBITDA useful, the Company believes its investorswill also find Adjusted EBITDA useful in evaluating the Company’s performance.Adjusted EBITDA should not be considered in isolation or as a substitute for net income, cash flows, or other consolidated income or cash flow dataprepared in accordance with GAAP or as a measure of the Company’s profitability or liquidity. Adjusted EBITDA is not in accordance with or an alternativefor GAAP, and may be different from non−GAAP measures used by other companies. Unlike EBITDA, which may be used by other companies or investors,Adjusted EBITDA does not include share-based compensation charges. The Company believes that Adjusted EBITDA is of limited use in that it does notreflect all of the amounts associated with the Company’s results of operations as determined in accordance with GAAP and does not accurately reflect realcash flow. In addition, other companies may not use Adjusted EBITDA or may use other non-GAAP measures, limiting the usefulness of Adjusted EBITDAfor purposes of comparison. The Company’s presentation of Adjusted EBITDA should not be construed as an inference that the Company will not incurexpenses that are the same as or similar to the adjustments in this presentation. Therefore, Adjusted EBITDA should only be used to evaluate the Company’sresults of operations in conjunction with the corresponding GAAP measures. The Company compensates for the limitations of Adjusted EBITDA by relyingupon GAAP results to gain a complete picture of the Company’s performance. Because Adjusted EBITDA is a non-GAAP financial measure, as defined bythe SEC, the Company includes in the tables below reconciliations of Adjusted EBITDA to the most directly comparable financial measures calculated andpresented in accordance with GAAP.Reconciliation of Net Income to Adjusted EBITDA (dollar amounts in thousands) Year Ended December 31, 2017 2016 2015 2014 2013 Net income $153,920 $38,251 $40,470 $45,709 $43,397 (Benefit) provision for income taxes (70,468) 28,680 25,907 30,852 27,977 Interest expense 11,622 12,207 10,092 9,280 8,687 Depreciation and amortization 78,416 81,179 84,280 81,125 76,849 EBITDA 173,490 160,317 160,749 166,966 156,910 Impairment of rental assets 1,639 — — — — Share-based compensation 3,198 3,091 3,399 3,854 3,680 Adjusted EBITDA 1 $178,327 $163,408 $164,148 $170,820 $160,590 Adjusted EBITDA margin 2 39% 39% 41% 42% 42% -33- Reconciliation of Adjusted EBITDA to Net Cash Provided by Operating Activities (dollar amounts in thousands) Year Ended December 31, 2017 2016 2015 2014 2013 Adjusted EBITDA 1 $178,327 $163,408 $164,148 $170,820 $160,590 Interest paid (11,825) (12,436) (10,041) (9,074) (8,813)Income taxes paid, net of refunds received (29,504) (15,555) (2,498) (22,275) (11,074)Gain on sale of used rental equipment (17,733) (13,739) (11,902) (15,368) (13,091)Gain on sale of property, plant and equipment — — — (812) — Foreign currency exchange (gain) loss (334) 121 488 331 189 Amortization of debt issuance cost 50 51 52 14 14 Change in certain assets and liabilities: Accounts receivable, net (8,995) (1,860) 5,777 (13,782) 4,606 Income taxes receivable — 11,000 (11,000) — — Prepaid expenses and other assets 3,124 1,949 12,910 (13,528) (8,279)Accounts payable and other liabilities 7,559 7,220 (10,531) 21,524 12,422 Deferred income 1,720 536 7,149 5,136 (2,921)Net cash provided by operating activities $122,389 $140,695 $144,552 $122,986 $133,643 1Adjusted EBITDA is defined as net income before interest expense, provision for income taxes, depreciation, amortization, non-cash impairment costs and share-basedcompensation. 2Adjusted EBITDA margin is calculated as Adjusted EBITDA divided by total revenues for the period.Adjusted EBITDA is a component of two restrictive financial covenants for the Company’s unsecured Credit Facility, and Series A Senior Notes,Series B Senior Notes and Series C Senior Notes (as defined and more fully described under the heading “Item 7. Management’s Discussion and Analysis ofFinancial Condition and Results of Operations - Liquidity and Capital Resources”). These instruments contain financial covenants requiring the Companyto not: •Permit the Consolidated Fixed Charge Coverage Ratio (as defined in the Credit Facility and the Note Purchase Agreement (as defined and morefully described under the heading “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation - Liquidityand Capital Resources” in this MD&A)) of Adjusted EBITDA (as defined in the Credit Facility and the Note Purchase Agreement) to fixedcharges as of the end of any fiscal quarter to be less than 2.50 to 1. At December 31, 2017, the actual ratio was 6.82 to 1. •Permit the Consolidated Leverage Ratio of funded debt (as defined in the Credit Facility and the Note Purchase Agreement) to AdjustedEBITDA at any time during any period of four consecutive quarters to be greater than 2.75 to 1. At December 31, 2017, the actual ratio was1.70 to 1.At December 31, 2017, the Company was in compliance with each of these aforementioned covenants. There are no anticipated trends that theCompany is aware of that would indicate non-compliance with these covenants, though, significant deterioration in our financial performance could impactthe Company's ability to comply with these covenants. -34- ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements thatinvolve risks and uncertainties. The Company’s actual results could differ materially from those anticipated in these forward-looking statements as a resultof certain factors, including those set forth in this section as well as those discussed under Part I, “Item 1A. Risk Factors” and elsewhere in this document.This discussion should be read together with the financial statements and the related notes thereto set forth in “Item 8. Financial Statements andSupplementary Data.”Results of OperationsGeneralThe Company, incorporated in 1979, is a leading rental provider of relocatable modular buildings for classroom and office space, electronic testequipment for general purpose and communications needs, and liquid and solid containment tanks and boxes. The Company’s primary emphasis is onequipment rentals. The Company is comprised of four reportable business segments: (1) its modular building and portable storage container rental segment(“Mobile Modular”); (2) its electronic test equipment rental segment (“TRS-RenTelco”); (3) its containment solutions for the storage of hazardous and non-hazardous liquids and solids segment (“Adler Tanks”); and (4) its classroom manufacturing segment selling modular buildings used primarily as classroomsin California (“Enviroplex”). In 2017, Mobile Modular, TRS-RenTelco, Adler Tanks and Enviroplex contributed 50%, 31%, 13% and 6%, respectively, ofthe Company’s income before provision for taxes (the equivalent of “pre-tax income”), compared to 53%, 32%, 10% and 5%, respectively, for 2016.Although managed as a separate business segment, Enviroplex’s revenues, pre-tax income contribution and total assets are not significant relative to theCompany’s consolidated financial position.The Company generates its revenues primarily from the rental of its equipment on operating leases with sales of equipment occurring in the normalcourse of business. The Company requires significant capital outlay to purchase its rental inventory and recovers its investment through rental and salesrevenues. Rental revenue and certain other service revenues negotiated as part of the lease agreements with customers and related costs are recognized on astraight-line basis over the terms of the lease. Sales revenue and related costs are recognized upon delivery and installation of the equipment to thecustomers. Sales revenues are less predictable and can fluctuate from period to period depending on customer demands and requirements. Generally, rentalrevenues less cash operating costs recover the equipment’s capitalized cost in a shorter period of time relative to the equipment’s potential rental life andwhen sold, sale proceeds are usually above its net book value.The Company’s rental operations include rental and rental related services revenues which comprised approximately 80% of the Company’s totalrevenues in 2017 and 82% for the three years ended December 31, 2017. Over the past three years, modulars, electronic test equipment and tanks and boxescomprised approximately 50%, 25% and 25%, respectively, of the cumulative rental operations revenues. The Company’s direct costs of rental operationsinclude depreciation of rental equipment, rental related service costs, impairment of rental equipment, and other direct costs of rental operations (whichinclude direct labor, supplies, repairs, insurance, property taxes, license fees and amortization of certain lease costs).The Company sells modular, electronic test equipment and liquid and solid containment tanks and boxes that are new, or previously rented. TheCompany’s Enviroplex subsidiary manufactures and sells modular classrooms. The renting and selling of some modular equipment requires a dealer’s license,which the Company has obtained from the appropriate governmental agencies. Sales and other revenues of modulars, electronic test equipment and tanksand boxes have comprised approximately 20% of the Company’s consolidated revenues in 2017 and 18% for the three years ended December 31, 2017. Overthe past three years, modulars, electronic test equipment and tanks and boxes comprised approximately 68%, 30% and 2% of sales and other revenues,respectively. The Company’s cost of sales includes the carrying value of the equipment sold and the direct costs associated with the equipment sold such asdelivery, installation, modifications and related site work.The rental and sale of modulars to public school districts comprised 26%, 23% and 16% of the Company’s consolidated rental and sales revenues for2017, 2016 and 2015, respectively. (For more information, see “Item 1. Business – Relocatable Modular Buildings – Classroom Rentals and Sales to PublicSchools (K-12)” above.)Selling and administrative expenses primarily include personnel and benefit costs, which includes share-based compensation, depreciation andamortization of property, plant and equipment and intangible assets, bad debt expense, advertising costs, and professional service fees. The Companybelieves that sharing of common facilities, financing, senior management, and operating and accounting systems by all of the Company’s operations, resultsin an efficient use of overhead. Historically, the Company’s operating margins have been impacted favorably to the extent its costs and expenses areleveraged over a large installed customer base. However, there can be no assurance as to the Company’s ability to maintain a large installed customer base orability to sustain its historical operating margins.-35- Recent DevelopmentsIn February 2018, the Company announced that its board of directors declared a cash dividend of $0.34 per common share for the quarter endingMarch 31, 2018, an increase of 31% over the prior year’s comparable quarter.Percentage of Revenue TableThe following table sets forth for the periods indicated the results of operations as a percentage of the Company’s total revenues and the percentage ofchanges in the amount of such of items as compared to the amount in the indicated prior period: Percent of Total Revenues Percent Change Three Years Year Ended December 31, 2017 over 2016 over 2017–2015 2017 2016 2015 2016 2015 Revenues Rental 65% 63% 64% 68% 7% (1)%Rental related services 18 17 18 18 3 3 Rental operations 82 80 82 86 6 — Sales 17 20 18 14 23 34 Other 1 — — — 26 13 Total revenues 100 100 100 100 9 5 Costs and expenses Direct costs of rental operations Depreciation of rental equipment 17 15 17 19 (3) (4)Rental related services 13 13 13 14 6 3 Other 15 14 15 14 4 3 Total direct costs of rental operations 45 42 45 47 2 — Cost of sales 11 13 12 9 24 32 Total costs 56 55 57 56 7 5 Gross profit 44 45 43 44 12 4 Selling and administrative expenses 25 24 24 25 6 5 Income from operations 19 21 19 19 20 3 Other income (expense): Interest expense 2 3 3 3 (5) 21 Foreign currency exchange gain (loss) — — — — nm nm Income before (benefit) provision for income taxes 17 18 16 16 25 1 (Benefit) provision for income taxes (1) (15) 7 6 nm 11 Net income 18% 33% 9% 10% nm (5)% nm = not meaningful-36- Twelve Months Ended December 31, 2017 Compared toTwelve Months Ended December 31, 2016OverviewConsolidated revenues in 2017 increased 9%, to $462.0 million from $424.1 million in 2016. Consolidated net income in 2017 increased to $153.9million, or $6.34 per diluted share in 2017, compared to $38.3 million, or $1.60 per diluted share, in 2016. 2017 results include an increase to net income of$102.5 million, or $4.23 per diluted share due to the tax benefit associated with the enactment by the U.S. government of the Tax Cuts and Jobs Act of 2017on December 22, 2017 (the “Tax Act”), which is discussed below. The Company’s year over year total revenue increase was primarily due to higher rental,sales and rental related services revenues as more fully described below.For 2017 compared to 2016, on a consolidated basis: •Gross profit increased $22.2 million, or 12%, to $206.3 million. Mobile Modular’s gross profit increased $10.1 million, or 11%, due to highergross profit on rental, sales and rental related services revenues. Adler Tanks’ gross profit increased $5.8 million, or 16%, due to higher grossprofit on rental, sales and rental related services revenues. TRS-RenTelco’s gross profit increased $4.5 million, or 10%, due to higher grossprofit on rental and sales revenues. Enviroplex’s gross profit increased $1.8 million, or 25%, primarily due to higher sales revenues. •Selling and administrative expenses increased $6.7 million, or 6%, to $111.6 million, primarily due to increased salaries and employee benefitcosts and professional fees. •Interest expense decreased $0.6 million, or 5%, to $11.6 million, primarily due to 10% lower average debt levels of the Company, partly offsetby 5% higher net average interest rate. •Pre-tax income contribution was 50%, 31% and 13% by Mobile Modular, TRS-RenTelco and Adler Tanks, respectively, in 2017, compared to53%, 32% and 10%, respectively, in 2016. These results are discussed on a segment basis below. Pre-tax income contribution by Enviroplexwas 6% and 5% in 2017 and 2016, respectively. •The Tax Act, among other things, reduced the federal income tax rate from 35% to 21% effective January 1, 2018, and required a one-timemandatory repatriation of foreign earnings. As a result of the Tax Act, the Company re-measured its net deferred tax liabilities and recognized anet benefit of $102.8 million. In addition, a one-time transition income tax estimated at $0.3 million related to repatriation of foreign earningswas recorded. The provision for income taxes resulted in an effective tax rate of a benefit of 88.4% compared to a provision of 42.9% in2016. The lower tax rate in 2017 was primarily due to the $102.5 million net impact of the Tax Act. In addition, the Company benefited from$0.9 million lower re-pricing of state deferred tax liabilities in 2017 compared to 2016 and the adoption of ASU 2016-09, Improvements toEmployee Share-Based Payment Accounting, which resulted in the recording of $0.9 million excess tax benefits as a reduction to the provisionfor income taxes. These tax benefits, or shortfalls, were historically recorded in equity. In addition, in 2016 the decision to exit the Company’sBangalore, India branch increased the 2016 provision for income taxes by $0.7 million as a valuation allowance was recorded against therelated deferred tax assets. •Adjusted EBITDA increased $14.9 million, or 9%, to $178.3 million compared to $163.4 million in 2016. Adjusted EBITDA is a non-GAAPfinancial measure and is defined as net income before interest expense, provision for income taxes, depreciation, amortization and share-basedcompensation. A reconciliation of Adjusted EBITDA to net cash provided by operating activities and net income to Adjusted EBITDA can befound in “Item 6. Selected Financial Data.” on page 34. -37- Mobile ModularFor 2017, Mobile Modular’s total revenues increased $21.8 million, or 10%, to $231.3 million compared to 2016, primarily due to higher rental, salesand rental related services revenues. The revenue increase, together with higher gross profit on rental and sales revenues, partly offset by higher selling andadministrative expenses, resulted in an increase in pre-tax income of $6.1 million, or 17%, to $41.7 million in 2017.The following table summarizes year-to-year results for each revenue and gross profit category, income from operations, pre-tax income, and otherselected information.Mobile Modular – 2017 compared to 2016 (dollar amounts in thousands) Year EndedDecember 31, Increase (Decrease) 2017 2016 $ % Revenues Rental $142,584 $130,496 $12,088 9%Rental related services 50,448 49,206 1,242 3%Rental operations 193,032 179,702 13,330 7%Sales 37,435 29,393 8,042 27%Other 799 417 382 92%Total revenues 231,266 209,512 21,754 10%Costs and Expenses Direct costs of rental operations: Depreciation of rental equipment 21,247 21,001 246 1%Rental related services 37,755 37,392 363 1%Other 41,290 35,683 5,607 16%Total direct costs of rental operations 100,292 94,076 6,216 7%Costs of sales 27,039 21,620 5,419 25%Total costs of revenues 127,331 115,696 11,635 10%Gross Profit Rental 80,048 73,813 6,235 8%Rental related services 12,693 11,814 879 7%Rental operations 92,741 85,627 7,114 8%Sales 10,395 7,772 2,623 34%Other 799 417 382 92%Total gross profit 103,935 93,816 10,119 11%Selling and administrative expenses 55,583 51,432 4,151 8%Income from operations 48,352 42,384 5,968 14%Interest expense allocation (6,671) (6,804) (133) (2)%Pre-tax income $41,681 $35,580 $6,101 17%Other Selected Information Average rental equipment 1 $747,478 $724,333 $23,145 3%Average rental equipment on rent 1 $574,201 $554,485 $19,716 4%Average monthly total yield 2 1.59% 1.50% 6%Average utilization 3 76.8% 76.6% 0%Average monthly rental rate 4 2.07% 1.96% 6%Period end rental equipment 1 $746,852 $744,099 $2,753 0%Period end utilization 3 77.8% 77.3% 1% 1Average and Period end rental equipment represents the cost of rental equipment excluding new equipment inventory and accessory equipment. 2Average monthly total yield is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment for the period. 3Period end utilization is calculated by dividing the cost of rental equipment on rent by the total cost of rental equipment excluding new equipment inventory andaccessory equipment. Average utilization for the period is calculated using the average month end costs of the rental equipment. 4Average monthly rental rate is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment on rent for the period. -38- Mobile Modular’s gross profit for 2017 increased 11% to $103.9 million from $93.8 million in 2016. For the year ended December 31, 2017compared to the year ended December 31, 2016: •Gross Profit on Rental Revenues – Rental revenues increased $12.1 million, or 9%, compared to 2016, due to 4% higher average rentalequipment on rent and 6% higher average monthly rental rates. As a percentage of rental revenues, depreciation was 15% in 2017 compared to16% in 2016 and other direct costs were 29% in 2017 and 27% in 2016, which resulted in gross margin percentage of 56% in 2017 comparedto 57% in 2016. The increased other direct costs in 2017 were partly attributable to a $1.6 million impairment of rental assets, deemed beyondeconomic repair in the Southern California region. The higher rental revenues, partly offset by lower rental margins, resulted in gross profit onrental revenues increasing 8%, to $80.0 million from $73.8 million in 2016. •Gross Profit on Rental Related Services – Rental related services revenues increased $1.2 million, or 3%, compared to 2016. Most of theseservice revenues are negotiated with the initial lease and are recognized on a straight-line basis with the associated costs over the initial term ofthe lease. The increase in rental related services revenues was primarily attributable to higher services performed during the lease, and higherdelivery and return delivery at Mobile Modular Portable Storage. The higher revenues and higher gross margin percentage of 25% in 2017compared to 24% in 2016 resulted in rental related services gross profit increasing 7%, to $12.7 million from $11.8 million in 2016. •Gross Profit on Sales – Sales revenues increased $8.0 million, or 27%, compared to 2016. Gross profit on sales increased $2.6 million, or 34%,due to higher used equipment sales revenues and higher gross margins of 28% in 2017 compared to 26% in 2016. Sales occur routinely as anormal part of Mobile Modular’s rental business; however, these sales can fluctuate from period to period depending on customer requirements,equipment availability and funding.For 2017, Mobile Modular’s selling and administrative expenses increased $4.2 million, or 8%, to $55.6 million from $51.4 million in 2016, primarilydue to increased employee headcount, salaries and benefit costs, higher marketing and administrative costs and higher corporate allocated expenses. -39- TRS-RenTelcoFor 2017, TRS-RenTelco’s total revenues decreased $0.6 million, or 1%, to $108.0 million compared to 2016, primarily due to lower sales revenues,partly offset by higher rental revenues. Pre-tax income increased $4.8 million, or 23%, to $26.1 million for 2017, primarily due to higher gross profit onrental and sales revenues and foreign currency exchange gain, partly offset by higher selling and administrative expenses.The following table summarizes year-to-year results for each revenue and gross profit category, income from operations, pre-tax income, and otherselected information.TRS-RenTelco – 2017 compared to 2016 (dollar amounts in thousands) Year EndedDecember 31, Increase (Decrease) 2017 2016 $ % Revenues Rental $82,812 $82,307 $505 1%Rental related services 2,858 2,846 12 0%Rental operations 85,670 85,153 517 1%Sales 20,334 21,582 (1,248) -6%Other 2,040 1,882 158 8%Total revenues 108,044 108,617 (573) -1%Costs and Expenses Direct costs of rental operations: Depreciation of rental equipment 32,891 35,256 (2,365) -7%Rental related services 2,589 2,640 (51) -2%Other 13,503 14,320 (817) -6%Total direct costs of rental operations 48,983 52,216 (3,233) -6%Costs of sales 8,772 10,604 (1,832) -17%Total costs of revenues 57,755 62,820 (5,065) -8%Gross Profit Rental 36,418 32,730 3,688 11%Rental related services 269 206 63 31%Rental operations 36,687 32,936 3,751 11%Sales 11,562 10,979 583 5%Other 2,040 1,882 158 8%Total gross profit 50,289 45,797 4,492 10%Selling and administrative expenses 22,171 21,896 275 1%Income from operations 28,118 23,901 4,217 18%Interest expense allocation (2,320) (2,465) (145) -6%Foreign currency exchange gain (loss) 334 (121) 455 nm Pre-tax income $26,132 $21,315 $4,817 23%Other Selected Information Average rental equipment 1 $252,332 $254,019 $(1,687) -1%Average rental equipment on rent 1 $158,830 $153,985 $4,845 3%Average monthly total yield 2 2.74% 2.70% 1%Average utilization 3 62.9% 60.6% 4%Average monthly rental rate 4 4.35% 4.45% -2%Period end rental equipment 1 $261,552 $245,700 $15,852 6%Period end utilization 3 61.7% 61.0% 1% 1Average and Period end rental equipment represents the cost of rental equipment excluding accessory equipment. 2Average monthly total yield is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment for the period. 3Period end utilization is calculated by dividing the cost of rental equipment on rent by the total cost of rental equipment excluding accessory equipment. Averageutilization for the period is calculated using the average month end costs of the rental equipment. 4Average monthly rental rate is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment on rent for the period. nm = Not meaningful -40- TRS-RenTelco’s gross profit for 2017 increased 10% to $50.3 million from $45.8 million in 2016. For the year ended December 31, 2017 comparedto the year ended December 31, 2016: •Gross Profit on Rental Revenues – Rental revenues increased $0.5 million, or 1%, to $82.8 million with depreciation expense decreasing $2.4million, or 7%, and other direct costs decreasing $0.8 million, or 6%, resulting in an increase in gross profit on rental revenues of $3.7 million,or 11%, to $36.4 million in 2017. As a percentage of rental revenues, depreciation was 40% in 2017 compared to 43% in 2016 and other directcosts was 16% in 2017 compared to 17% in 2016, which resulted in gross margin percentage of 44% in 2017 compared to 40% in 2016. Therental revenues increase was due to 3% higher average rental equipment on rent, partly offset by 2% lower average monthly rental rates. •Gross Profit on Sales – Sales revenues decreased $1.2 million, or 6%, compared to 2016. The higher gross margin percentage of 57% in 2017,compared to 51% in 2016 was primarily due to higher gross margin on used equipment sales. The higher gross margin was partly offset bylower sales revenues, which resulted in gross profit on sales increasing 5%, to $11.6 million from $11.0 million in 2016. Sales occur routinelyas a normal part of TRS-RenTelco’s rental business; however, these sales and related gross margins can fluctuate from period to perioddepending on customer requirements, equipment availability and funding.For 2017, TRS-RenTelco’s selling and administrative expenses increased $0.3 million, or 1%, to $22.2 million from $21.9 million in 2016, primarilydue to higher salaries and employee benefit costs, partly offset by lower allocated corporate expenses. -41- Adler TanksFor 2017, Adler Tanks’ total revenues increased $7.5 million, or 9%, to $91.4 million compared to 2016, primarily due to higher rental and salesrevenues during 2017. The revenue increase together with higher gross profit on rental, sales and rental related services revenues, partly offset by higherselling and administrative expenses resulted in a pre-tax income increase of $4.0 million, or 61%, to $10.6 million for the year ended December 31, 2017.The following table summarizes year-to-year results for each revenue and gross profit category, income from operations, pre-tax income and otherselected information.Adler Tanks – 2017 compared to 2016 (dollar amounts in thousands) Year EndedDecember 31, Increase (Decrease) 2017 2016 $ % Revenues Rental $64,021 $58,585 $5,436 9%Rental related services 24,762 23,807 955 4%Rental operations 88,783 82,392 6,391 8%Sales 2,362 1,314 1,048 80%Other 210 124 86 69%Total revenues 91,355 83,830 7,525 9%Costs and Expenses Direct costs of rental operations: Depreciation of rental equipment 15,770 15,940 (170) (1)%Rental related services 19,685 19,012 673 4%Other 10,679 10,127 552 5%Total direct costs of rental operations 46,134 45,079 1,055 2%Costs of sales 2,003 1,342 661 49%Total costs of revenues 48,137 46,421 1,716 4%Gross Profit (Loss) Rental 37,572 32,518 5,054 16%Rental related services 5,076 4,795 281 6%Rental operations 42,648 37,313 5,335 14%Sales 360 (28) 388 nm Other 210 124 86 69%Total gross profit 43,218 37,409 5,809 16%Selling and administrative expenses 29,542 27,610 1,932 7%Income from operations 13,676 9,799 3,877 40%Interest expense allocation (3,071) (3,200) (129) (4)%Pre-tax income $10,605 $6,599 $4,006 61%Other Selected Information Average rental equipment 1 $307,558 $307,416 $142 0%Average rental equipment on rent 1 $172,140 $154,165 $17,975 12%Average monthly total yield 2 1.73% 1.59% 9%Average utilization 3 56.0% 50.1% 12%Average monthly rental rate 4 3.10% 3.17% -2%Period end rental equipment 1 $308,877 $306,701 $2,176 1%Period end utilization 3 57.5% 50.7% 13% 1Average and Period end rental equipment represents the cost of rental equipment excluding new equipment inventory and accessory equipment. 2Average monthly total yield is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment for the period. 3Period end utilization is calculated by dividing the cost of rental equipment on rent by the total cost of rental equipment excluding new equipment inventory andaccessory equipment. Average utilization for the period is calculated using the average month end costs of the rental equipment. 4Average monthly rental rate is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment on rent for the period. nm = Not meaningful-42- Adler Tanks’ gross profit for 2017 increased $5.8 million, or 16%, to $43.2 million from $37.4 million for the same period in 2016. For the year endedDecember 31, 2017 compared to year ended December 31, 2016: •Gross Profit on Rental Revenues – Rental revenues increased $5.4 million, or 9%, due to 12% higher average rental equipment on rent, partlyoffset by 2% lower average rental rates in 2017 as compared to 2016. As a percentage of rental revenues, depreciation was 25% and 27% in2017 and 2016, respectively, and other direct costs were 17% in 2017 and 2016, which resulted in gross margin percentages of 59% in 2017compared to 56% in 2016. The higher rental revenues, together with higher rental margins resulted in gross profit on rental revenues increasing$5.1 million, or 16%, to $37.6 million in 2017. •Gross Profit on Rental Related Services – Rental related services revenues increased $1.0 million, or 4%, compared to 2016. The higherrevenues and higher gross margin percentage of 21% in 2017 compared to 20% in 2016, resulted in rental related services gross profitincreasing $0.3 million, or 6%, to $5.1 million from $4.8 million in 2016.For 2017, Adler Tanks’ selling and administrative expenses increased $1.9 million, to $29.5 million from $27.6 million in the same period in 2016,primarily due to increased employee headcount, salaries and benefit costs and higher corporate allocated expenses. -43- Twelve Months Ended December 31, 2016 Compared toTwelve Months Ended December 31, 2015Consolidated revenues in 2016 increased 5%, to $424.1 million from $404.5 million in 2015. Consolidated net income in 2016 decreased to $38.3million, or $1.60 per diluted share in 2016 compared to $40.5 million, or $1.59 per diluted share, in 2015. The Company’s year over year total revenueincrease was primarily due to higher sales and rental related services revenues, partly offset by lower rental revenues as more fully described below.For 2016 compared to 2015, on a consolidated basis: •Gross profit increased $7.3 million, or 4%, to $184.2 million. Mobile Modular’s gross profit increased $15.0 million, or 19%, due to highergross profit on rental, rental related services and sales revenues. Enviroplex’s gross profit increased $4.2 million primarily due to higher salesrevenues. TRS-RenTelco’s gross profit decreased $2.0 million, or 4%, due to lower gross profit on rental and rental related services revenues,partly offset by higher gross profit on sales revenues. Adler Tanks’ gross profit decreased $10.0 million, or 21%, due to lower gross profit onrental and rental related services revenues, partly offset by higher gross profit on sales revenues. •Selling and administrative expenses increased $5.0 million, or 5%, to $104.9 million, primarily due to increased employee headcount, salariesand employee benefit costs. •Interest expense increased $2.1 million, or 21%, to $12.2 million, primarily due to 18% higher net average interest rate and 2% higher averagedebt levels of the Company. •Pre-tax income contribution was 53%, 32% and 10% by Mobile Modular, TRS-RenTelco and Adler Tanks, respectively, in 2016, compared to41%, 33% and 26%, respectively, in 2015. These results are discussed on a segment basis below. Pre-tax income contribution by Enviroplexwas 5% and 0% in 2016 and 2015, respectively. •Provision for income taxes resulted in an effective tax rate of 42.9% in 2016, compared with 39.0% in 2015, which increased the provision forincome taxes in 2016 by $2.6 million and reduced earnings per diluted share by approximately $0.11 compared to 2015. The increasedeffective tax rate in 2016 was primarily a result of a change in business mix by state and the decision to discontinue TRS-RenTelco’s branchoperations in India. Higher business levels in states with higher tax rates, in particular growth in California, and the resulting re-pricing ofdeferred tax liabilities increased the provision for income taxes in 2016 by $1.6 million. The decision to exit the Bangalore, India branchoperations increased the provision for income taxes by $0.7 million as a valuation allowance was recorded against the deferred tax assets thatresulted primarily from accumulated net operating loss carry forwards in India as of December 31, 2016 that management estimated the benefitof which will not be realized. •Adjusted EBITDA decreased $0.7 million, or less than 1%, to $163.4 million compared to $164.1 million in 2015. Adjusted EBITDA is a non-GAAP financial measure and is defined as net income before interest expense, provision for income taxes, depreciation, amortization and share-based compensation. A reconciliation of Adjusted EBITDA to net cash provided by operating activities and net income to Adjusted EBITDAcan be found in “Item 6. Selected Financial Data.” on page 34. -44- Mobile ModularFor 2016, Mobile Modular’s total revenues increased $25.2 million, or 14%, to $209.5 million compared to 2015, primarily due to higher rental, salesand rental related services revenues. The revenue increase together with higher gross margin on rental revenues, partly offset by higher selling andadministrative expenses and higher interest expense, resulted in an increase in pre-tax income of $8.7 million, or 32%, to $35.6 million in 2016.The following table summarizes year-to-year results for each revenue and gross profit category, income from operations, pre-tax income, and otherselected information.Mobile Modular – 2016 compared to 2015 (dollar amounts in thousands) Year EndedDecember 31, Increase (Decrease) 2016 2015 $ % Revenues Rental $130,496 $115,986 $14,510 13%Rental related services 49,206 45,616 3,590 8%Rental operations 179,702 161,602 18,100 11%Sales 29,393 22,248 7,145 32%Other 417 434 (17) (4)%Total revenues 209,512 184,284 25,228 14%Costs and Expenses Direct costs of rental operations: Depreciation of rental equipment 21,001 19,246 1,755 9%Rental related services 37,392 35,001 2,391 7%Other 35,683 34,808 875 3%Total direct costs of rental operations 94,076 89,055 5,021 6%Costs of sales 21,620 16,458 5,162 31%Total costs of revenues 115,696 105,513 10,183 10%Gross Profit Rental 73,813 61,932 11,881 19%Rental related services 11,814 10,615 1,199 11%Rental operations 85,627 72,547 13,080 18%Sales 7,772 5,790 1,982 34%Other 417 434 (17) (4)%Total gross profit 93,816 78,771 15,045 19%Selling and administrative expenses 51,432 46,496 4,936 11%Income from operations 42,384 32,275 10,109 31%Interest expense allocation (6,804) (5,363) (1,441) 27%Pre-tax income $35,580 $26,912 $8,668 32%Other Selected Information Average rental equipment 1 $724,333 $667,953 $56,380 8%Average rental equipment on rent 1 $554,485 $506,062 $48,423 10%Average monthly total yield 2 1.50% 1.45% 3%Average utilization 3 76.6% 75.8% 1%Average monthly rental rate 4 1.96% 1.91% 3%Period end rental equipment 1 $744,099 $706,155 $37,944 11%Period end utilization 3 77.3% 76.9% 1% 1Average and Period end rental equipment represents the cost of rental equipment excluding new equipment inventory and accessory equipment. 2Average monthly total yield is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment for the period. 3Period end utilization is calculated by dividing the cost of rental equipment on rent by the total cost of rental equipment excluding new equipment inventory andaccessory equipment. Average utilization for the period is calculated using the average month end costs of the rental equipment. 4Average monthly rental rate is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment on rent for the period. -45- Mobile Modular’s gross profit for 2016 increased 19% to $93.8 million from $78.8 million in 2015. For the year ended December 31, 2016 comparedto the year ended December 31, 2015: •Gross Profit on Rental Revenues – Rental revenues increased $14.5 million, or 13%, compared to 2015, due to 10% higher average rentalequipment on rent and 3% higher average monthly rental rates. As a percentage of rental revenues, depreciation was 16% in 2016 compared to17% in 2015 and other direct costs were 27% in 2016 and 30% in 2015, which resulted in gross margin percentage of 56% in 2016 comparedto 53% in 2015. The higher rental revenues, together with higher rental margins, resulted in gross profit on rental revenues increasing 19%, to$73.8 million from $61.9 million in 2015. •Gross Profit on Rental Related Services – Rental related services revenues increased $3.6 million, or 8%, compared to 2015. Most of theseservice revenues are negotiated with the initial lease and are recognized on a straight-line basis with the associated costs over the initial term ofthe lease. The increase in rental related services revenues was primarily attributable to higher amortization of delivery and return delivery anddismantle revenues, and higher delivery and return delivery at Mobile Modular Portable Storage. The higher revenues and higher gross marginpercentage of 24% in 2016 compared to 23% in 2015 resulted in rental related services gross profit increasing 11%, to $11.8 million from$10.6 million in 2015. •Gross Profit on Sales – Sales revenues increased $7.1 million, or 32%, compared to 2015. Gross profit on sales increased $2.0 million, or 34%,due to higher new and used equipment sales revenues and comparable gross margins of 26% in 2016 compared to 2015. Sales occur routinelyas a normal part of Mobile Modular’s rental business; however, these sales can fluctuate from period to period depending on customerrequirements, equipment availability and funding.For 2016, Mobile Modular’s selling and administrative expenses increased $4.9 million, or 11%, to $51.4 million from $46.5 million in 2015,primarily due to increased employee headcount, salaries and benefit costs, marketing and administrative costs and higher corporate allocated expenses. -46- TRS-RenTelcoFor 2016, TRS-RenTelco’s total revenues decreased $6.4 million, or 6%, to $108.6 million compared to 2015, primarily due to lower rental and rentalrelated services revenues, partly offset by higher sales revenues. Pre-tax income decreased $0.9 million, or 4%, to $21.3 million for 2016, primarily due tolower gross profit on rental and rental related services revenues, partly offset by higher gross profit on sales and lower selling and administrative expenses.The following table summarizes year-to-year results for each revenue and gross profit category, income from operations, pre-tax income, and otherselected information.TRS-RenTelco – 2016 compared to 2015 (dollar amounts in thousands) Year EndedDecember 31, Increase (Decrease) 2016 2015 $ % Revenues Rental $82,307 $89,208 $(6,901) (8)%Rental related services 2,846 3,055 (209) (7)%Rental operations 85,153 92,263 (7,110) (8)%Sales 21,582 21,137 445 2%Other 1,882 1,617 265 16%Total revenues 108,617 115,017 (6,400) (6)%Costs and Expenses Direct costs of rental operations: Depreciation of rental equipment 35,256 39,974 (4,718) (12)%Rental related services 2,640 2,722 (82) (3)%Other 14,320 13,619 701 5%Total direct costs of rental operations 52,216 56,315 (4,099) (7)%Costs of sales 10,604 10,866 (262) (2)%Total costs of revenues 62,820 67,181 (4,361) (6)%Gross Profit Rental 32,730 35,615 (2,885) (8)%Rental related services 206 333 (127) (38)%Rental operations 32,936 35,948 (3,012) (8)%Sales 10,979 10,271 708 7%Other 1,882 1,617 265 16%Total gross profit 45,797 47,836 (2,039) (4)%Selling and administrative expenses 21,896 22,930 (1,034) (5)%Income from operations 23,901 24,906 (1,005) (4)%Interest expense allocation (2,465) (2,194) (271) 12%Foreign currency exchange loss (121) (488) 367 (75)%Pre-tax income $21,315 $22,224 $(909) (4)%Other Selected Information Average rental equipment 1 $254,019 $265,832 $(11,813) (4)%Average rental equipment on rent 1 $153,985 $160,833 $(6,848) (4)%Average monthly total yield 2 2.70% 2.80% (4)%Average utilization 3 60.6% 60.5% 0%Average monthly rental rate 4 4.45% 4.62% (4)%Period end rental equipment 1 $245,700 $261,996 $(16,296) (6)%Period end utilization 3 61.0% 58.7% 4% 1Average and Period end rental equipment represents the cost of rental equipment excluding accessory equipment. 2Average monthly total yield is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment for the period. 3Period end utilization is calculated by dividing the cost of rental equipment on rent by the total cost of rental equipment excluding accessory equipment. Averageutilization for the period is calculated using the average month end costs of the rental equipment. 4Average monthly rental rate is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment on rent for the period. -47- TRS-RenTelco’s gross profit for 2016 decreased 4% to $45.8 million from $47.8 million in 2015. For the year ended December 31, 2016 compared tothe year ended December 31, 2015: •Gross Profit on Rental Revenues – Rental revenues decreased $6.9 million, or 8%, to $82.3 million with depreciation expense decreasing $4.7million, or 12%, and other direct costs increasing $0.7 million, or 5%, resulting in a decrease in gross profit on rental revenues of $2.9 million,or 8%, to $32.7 million in 2016. As a percentage of rental revenues, depreciation was 43% in 2016 compared to 45% in 2015 and other directcosts was 17% in 2016 compared to 15% in 2015, which resulted in gross margin percentage of 39% in 2016 compared to 40% in 2015. Therental revenues decrease was due to 4% lower average monthly rental rates and 4% lower average rental equipment on rent. •Gross Profit on Sales – Sales revenues increased $0.4 million, or 2%, compared to 2015. The sales revenue increase together with higher grossmargin percentage of 51% in 2016, compared to 49% in 2015, primarily due to higher gross margin on used equipment sales, resulted in grossprofit on sales increasing 7%, to $11.0 million from $10.3 million in 2015. Sales occur routinely as a normal part of TRS-RenTelco’s rentalbusiness; however, these sales and related gross margins can fluctuate from period to period depending on customer requirements, equipmentavailability and funding.For 2016, TRS-RenTelco’s selling and administrative expenses decreased $1.0 million, or 5%, to $21.9 million from $22.9 million in 2015, primarilydue to lower marketing and administrative costs and allocated corporate expenses. -48- Adler TanksFor 2016, Adler Tanks’ total revenues decreased $10.8 million, or 11%, to $83.8 million compared to 2015, primarily due to lower rental and rentalrelated services revenues during 2016. The revenue decrease together with lower gross margin on rental and rental related services revenues, higher sellingand administrative expenses and higher interest expense resulted in a pre-tax income decrease of $10.6 million, or 62%, to $6.6 million for the year endedDecember 31, 2016.The following table summarizes year-to-year results for each revenue and gross profit category, income from operations, pre-tax income and otherselected information.Adler Tanks – 2016 compared to 2015 (dollar amounts in thousands) Year EndedDecember 31, Increase (Decrease) 2016 2015 $ % Revenues Rental $58,585 $68,502 $(9,917) (14)%Rental related services 23,807 24,643 (836) (3)%Rental operations 82,392 93,145 (10,753) (12)%Sales 1,314 1,388 (74) (5)%Other 124 98 26 27%Total revenues 83,830 94,631 (10,801) (11)%Costs and Expenses Direct costs of rental operations: Depreciation of rental equipment 15,940 15,993 (53) (0)%Rental related services 19,012 19,421 (409) (2)%Other 10,127 10,084 43 0%Total direct costs of rental operations 45,079 45,498 (419) (1)%Costs of sales 1,342 1,736 (394) (23)%Total costs of revenues 46,421 47,234 (813) (2)%Gross Profit (Loss) Rental 32,518 42,425 (9,907) (23)%Rental related services 4,795 5,222 (427) (8)%Rental operations 37,313 47,647 (10,334) (22)%Sales (28) (348) 320 (92)%Other 124 98 26 27%Total gross profit 37,409 47,397 (9,988) (21)%Selling and administrative expenses 27,610 27,494 116 0%Income from operations 9,799 19,903 (10,104) (51)%Interest expense allocation (3,200) (2,729) (471) 17%Pre-tax income $6,599 $17,174 $(10,575) (62)%Other Selected Information Average rental equipment 1 $307,416 $304,001 $3,415 1%Average rental equipment on rent 1 $154,165 $177,117 $(22,952) (13)%Average monthly total yield 2 1.59% 1.88% (15)%Average utilization 3 50.1% 58.3% (14)%Average monthly rental rate 4 3.17% 3.22% (2)%Period end rental equipment 1 $306,701 $307,614 $(913) (0)%Period end utilization 3 50.7% 49.7% 2% 1Average and Period end rental equipment represents the cost of rental equipment excluding new equipment inventory and accessory equipment. 2Average monthly total yield is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment for the period. 3Period end utilization is calculated by dividing the cost of rental equipment on rent by the total cost of rental equipment excluding new equipment inventory andaccessory equipment. Average utilization for the period is calculated using the average month end costs of the rental equipment. 4Average monthly rental rate is calculated by dividing the averages of monthly rental revenues by the cost of rental equipment on rent for the period.-49- Adler Tanks’ gross profit for 2016 decreased $10.0 million to $37.4 million from $47.4 million for the same period in 2015. For the year endedDecember 31, 2016 compared to year ended December 31, 2015: •Gross Profit on Rental Revenues – Rental revenues decreased $9.9 million, or 14%, due to 13% lower average rental equipment on rent and2% lower average rental rates in 2016 as compared to 2015. As a percentage of rental revenues, depreciation was 27% and 23% in 2016 and2015, respectively, and other direct costs were 17% in 2016 and 15% in 2015, which resulted in gross margin percentages of 56% in 2016compared to 62% in 2015. The lower rental revenues, together with lower rental margins resulted in gross profit on rental revenues decreasing$9.9 million, or 23%, to $32.5 million in 2016. •Gross Profit on Rental Related Services – Rental related services revenues decreased $0.8 million, or 3%, compared to 2015. The lower grossmargin percentage of 20% in 2016 compared to 21% in 2015 and lower revenues, resulted in rental related services gross profit decreasing $0.4million, or 8%, to $4.8 million from $5.2 million in 2015.For 2016, Adler Tanks’ selling and administrative expenses increased $0.1 million, to $27.6 million from $27.5 million in the same period in 2015,primarily due to increased employee headcount, salaries and benefit costs, partly offset by lower corporate allocated expenses. -50- Liquidity and Capital ResourcesThis section contains statements that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of1995. See the statements at the beginning of this Item for cautionary information with respect to such forward-looking statements.The Company’s rental businesses are capital intensive and generate significant cash flows. Cash flows for the Company in 2017 as compared to 2016are summarized as follows:Cash Flows from Operating Activities: The Company’s operations provided net cash flow of $122.4 million for 2017 as compared to $140.7 millionin 2016. The 13% decrease was primarily attributable to a higher increase in accounts receivable and an income tax refund received in 2016 and otherbalance sheet changes.Cash Flows from Investing Activities: Net cash used in investing activities was $70.9 million for 2017 as compared to $60.2 million in 2016. The$10.7 million increase was primarily due to $15.6 million higher purchases of rental equipment of $94.6 million in 2017, compared to $79.0 million in 2016,$4.1 million higher purchases of property, plant and equipment, partly offset by higher proceeds from sales of used rental equipment.Cash Flows from Financing Activities: Net cash used in financing activities was $49.9 million in 2017 as compared to $80.8 million in 2016. The$31.9 million decrease was primarily due to $32.2 million lower net borrowings under the Company’s bank lines of credit.Significant capital expenditures are required to maintain and grow the Company’s rental assets. During the last three years, the Company has financedits working capital and capital expenditure requirements through cash flow from operations, proceeds from the sale of rental equipment and from bankborrowings and notes offerings. Sales occur routinely as a normal part of the Company’s rental businesses. However, these sales can fluctuate from period toperiod depending on customer requirements and funding. Although the net proceeds received from sales may fluctuate from period to period, the Companybelieves its liquidity will not be adversely impacted from lower sales in any given year because it believes it has the ability to increase its bank borrowings,offer additional notes and conserve its cash in the future by reducing the amount of cash it uses to purchase rental equipment, pay dividends, or repurchasethe Company’s common stock.As the following table indicates, cash flow provided by operating activities and proceeds from sales of used rental equipment have been greater thanrental equipment purchases over the past three years.Funding of Rental Asset Growth (amounts in thousands) Year Ended December 31, Three Year 2017 2016 2015 Totals Cash provided by operating activities $122,389 $140,695 $144,260 $407,344 Proceeds from sales of used rental equipment 38,344 29,406 26,214 93,964 Cash available for purchase of rental equipment 160,733 170,101 170,474 501,308 Purchases of rental equipment (94,579) (79,038) (131,037) (304,654)Cash available for other uses $66,154 $91,063 $39,437 $196,654 In addition to increasing its rental assets, the Company had other capital expenditures for property, plant and equipment of $14.6 million in 2017,$10.5 million in 2016 and $9.3 million in 2015, and has used cash to provide returns to its shareholders in the form of cash dividends. The Company paidcash dividends of $24.9 million, $24.4 million and $25.8 million in the years ended December 31, 2017, 2016 and 2015, respectively.The Company has in the past made repurchases of shares of its common stock from time to time in the over-the-counter market (NASDAQ) and/orthrough privately negotiated, block transactions under an authorization from the Board of Directors. Shares repurchased by the Company are canceled andreturned to the status of authorized but unissued stock. During the twelve months ended December 31, 2015, the Company repurchased 2,407,974 shares ofcommon stock for an aggregate repurchase price of $64.0 million, or an average price of $26.56 per share. There were no repurchases of common stock duringthe twelve months ended December 31, 2017 and 2016. As of February 26, 2018, 1,592,026 shares remain authorized for repurchase.-51- Unsecured Revolving Lines of CreditIn March 2016, the Company renewed its credit agreement with a syndicate of banks (the “Credit Facility”). The five-year facility matures on March31, 2021 and replaced the Company’s prior $420.0 million unsecured revolving credit facility. The Credit Facility provides for a $420.0 million unsecuredrevolving credit facility (which may be increased to $620.0 million with $200.0 million of additional commitments), which includes a $25.0 million sublimitfor the issuance of standby letters of credit and a $10.0 million sublimit for swingline loans.In March 2016, the Company entered into a Credit Facility Letter Agreement and a Credit Line Note in favor of MUFG Union Bank, N.A., extendingits line of credit facility related to its cash management services (“Sweep Service Facility”) and increasing the facility size from $10.0 million to $12.0million. The Sweep Service Facility matures on the earlier of March 31, 2021, or the date the Company ceases to utilize MUFG Union Bank, N.A. for its cashmanagement services.At December 31, 2017, under the Credit Facility and Sweep Service Facility, the Company had unsecured lines of credit that permit it to borrow up to$432.0 million of which $183.5 million was outstanding, and had capacity to borrow up to an additional $248.5 million. The Credit Facility containsfinancial covenants requiring the Company to not (all defined terms used below not otherwise defined herein have the meaning assigned to such terms in theAmended Credit Facility): •Permit the Consolidated Fixed Charge Coverage Ratio of EBITDA to fixed charges as of the end of any fiscal quarter to be less than 2.50 to 1.At December 31, 2017, the actual ratio was 6.82 to 1. •Permit the Consolidated Leverage Ratio of funded debt to EBITDA at any time during any period of four consecutive fiscal quarters to begreater than 2.75 to 1. At December 31, 2017, the actual ratio was 1.70 to 1. •Permit Tangible Net Worth as of the end of any fiscal quarter of the Company to be less than the sum of (i) $246.1 million plus (ii) 25% of theCompany’s Consolidated Net Income (as defined in the Amended Credit Facility) (but only if a positive number) for each fiscal quarter endedsubsequent to December 31, 2011 plus (iii) 90% of the net cash proceeds from the issuance of the Company’s capital stock after December 31,2011. At December 31, 2017, such sum was $349.9 million and the actual Tangible Net Worth of the Company was $488.7 million.At December 31, 2017, the Company was in compliance with each of the aforementioned covenants. There are no anticipated trends that theCompany is aware of that would indicate non-compliance with these covenants, although significant deterioration in our financial performance could impactthe Company’s ability to comply with these covenants.4.03% Senior Notes Due in 2018On April 21, 2011, the Company entered into a Note Purchase and Private Shelf Agreement (the “Note Purchase Agreement”) with PrudentialInvestment Management, Inc. (“PIM”), The Prudential Insurance Company of America and Prudential Retirement Insurance and Annuity Company(collectively, the “Purchaser”), pursuant to which the Company agreed to sell an aggregate principal amount of $100.0 million of its 4.03% Series A SeniorNotes (the “Series A Senior Notes”) to the Purchaser. The Series A Senior Notes are an unsecured obligation of the Company, due on April 21, 2018. Intereston these notes is due semi-annually in arrears and the principal is due in five equal annual installments, with the first payment due on April 21, 2014. Inaddition, the Note Purchase Agreement allows for the issuance and sale of additional senior notes to the Purchaser (the “Shelf Notes”) in the aggregateprincipal amount of $100.0 million, to mature no more than 12 years after the date of original issuance thereof, to have an average life of no more than 10years and to bear interest on the unpaid balance. At December 31, 2017, the principal balance outstanding under the Series A Senior Notes was $20.0million.3.68% Senior Notes Due in 2021On March 17, 2014, the Company issued and sold to the Purchasers a $40.0 million aggregate principal amount of its 3.68% Series B Senior Notes(the “Series B Senior Notes”) pursuant to the terms of the Note Purchase Agreement, as amended. The Series B Senior Notes are an unsecured obligation of theCompany and bear interest at a rate of 3.68% per annum and mature on March 17, 2021. Interest on the Series B Senior Notes is payable semi-annuallybeginning on September 17, 2014 and continuing thereafter on March 17 and September 17 of each year until maturity. The principal balance is due whenthe notes mature in 2021. The full net proceeds from the Series B Senior Notes were used for working capital and other general corporate purposes. AtDecember 31, 2017, the principal balance outstanding under the Series B Senior Notes was $40.0 million.-52- 3.84% Senior Notes Due in 2022On November 5, 2015, the Company issued and sold to the Purchasers a $60.0 million aggregate principal amount of its 3.84% Series C Senior Notes(the “Series C Senior Notes”) pursuant to the terms of the Note Purchase Agreement, as amended. The Series C Senior Notes are an unsecured obligation of theCompany and bear interest at a rate of 3.84% per annum and mature on November 5, 2022. Interest on the Series C Senior Notes is payable semi-annuallybeginning on May 5, 2016 and continuing thereafter on November 5 and May 5 of each year until maturity. The principal balance is due when the notesmature in 2022. The full net proceeds from the Series C Senior Notes were used to reduce the outstanding balance on the Company’s revolving credit line. AtDecember 31, 2017, the principal balance outstanding under the Series C Senior Notes was $60.0 million.Among other restrictions, the Note Purchase Agreement, under which the Series A Senior Notes, Series B Senior Notes and Series C Senior Notes weresold, contains financial covenants requiring the Company to not (all defined terms used below not otherwise defined herein have the meaning assigned tosuch terms in the Note Purchase Agreement): •Permit the Consolidated Fixed Charge Coverage Ratio of EBITDA (as defined in the Note Purchase Agreement) to fixed charges as of the endof any fiscal quarter to be less than 2.50 to 1. At December 31, 2017, the actual ratio was 6.82 to 1. •Permit the Consolidated Leverage Ratio of funded debt to EBITDA (as defined in the Note Purchase Agreement) at any time during any periodof four consecutive quarters to be greater than 2.75 to 1. At December 31, 2017, the actual ratio was 1.70 to 1. •Permit tangible net worth, calculated as of the last day of each fiscal quarter, to be less than the sum of (i) $229.0 million, plus (ii) 25% of netincome for such fiscal quarter subsequent to December 31, 2010, plus (iii) 90% of the net cash proceeds from the issuance of the Company’scapital stock after December 31, 2010. At December 31, 2017, such sum was $349.9 million and the actual tangible net worth of the Companywas $488.7 million.At December 31, 2017, the Company was in compliance with each of the aforementioned covenants. There are no anticipated trends that theCompany is aware of that would indicate non-compliance with these covenants, although significant deterioration in our financial performance could impactthe Company’s ability to comply with these covenants.On February 9, 2016, the Company entered into an amendment to the Note Purchase Agreement (“2016 Amendment”) with the Purchaser. Pursuant tothe 2016 Amendment, (i) the issuance period for the shelf notes to be issued and sold pursuant to the Note Purchase Agreement is extended until the earlier ofFebruary 9, 2019 or the termination of the issuance and sale of the shelf notes upon the 30 days’ prior notice of either PIM or the Company, and (ii) thedefinition of the “Available Facility Amount,” which is the aggregate amount of the shelf notes that may be authorized for purchase pursuant to the NotePurchase Agreement was amended to equal a formula based on: $250 million, minus the aggregate principal amount of the shelf notes then outstanding andpurchased pursuant to the Note Purchase Agreement, minus the shelf notes accepted by the Company for purchase, but not yet purchased, by the Purchaserpursuant to the Note Purchase Agreement; provided, however, the aggregate amount of the shelf notes purchased by any corporation or other entitycontrolling, controlled by, or under common control with, PIM shall not exceed $200 million.Although no assurance can be given, the Company believes it will continue to be able to negotiate general bank lines of credit and issue senior notesadequate to meet capital requirements not otherwise met by operational cash flows and proceeds from sales of rental equipment.-53- Contractual Obligations and CommitmentsAt December 31, 2017, the Company’s material contractual obligations and commitments consisted of outstanding borrowings under our creditfacilities expiring in 2021, outstanding amounts under our 4.03%, 3.68% and 3.84% senior notes due in 2018, 2021 and 2022, respectively, and operatingleases for facilities. The operating lease amounts exclude property taxes and insurance. The table below provides a summary of the Company’s contractualobligations and reflects expected payments due as of December 31, 2017 and does not reflect changes that could arise after that date.Payments Due by Period (dollar amounts in thousands) Total Within1 Year Within2 to 3 Years Within4 to 5 Years More than5 Years Revolving lines of credit $183,473 $— $— $183,473 $— 4.03% Series A senior notes due in 2018 20,405 20,405 — — — 3.68% Series B senior notes due in 2021 45,888 1,472 2,944 41,472 — 3.84% Series C senior notes due in 2022 71,526 2,310 4,608 64,608 — Operating leases for facilities 7,521 1,632 2,223 1,702 1,964 Total contractual obligations $328,813 $25,819 $9,775 $291,255 $1,964 The Company believes that its needs for working capital and capital expenditures through 2018 and beyond will be adequately met by operating cashflow, proceeds from the sale of rental equipment, and bank borrowings.Please see the Company's Consolidated Statements of Cash Flows on page 64 for a more detailed presentation of the sources and uses of theCompany's cash.Critical Accounting PoliciesIn response to the SEC’s Release No. 33-8040, “Cautionary Advice Regarding Disclosure About Critical Accounting Policies,” the Company hasidentified the most critical accounting policies upon which its financial status depends. The Company determined its critical accounting policies byconsidering those policies that involve the most complex or subjective decisions or assessments. The Company has identified that its most criticalaccounting policies are those related to depreciation, maintenance, repair and refurbishment, impairment of rental equipment and impairment of goodwill andintangible assets. Descriptions of these accounting policies are found in both the notes to the consolidated financial statements and at relevant sections inthis Management’s Discussion and Analysis.Depreciation - The estimated useful lives and estimated residual values used for rental equipment are based on the Company’s experience as to theeconomic useful life and sale value of its products. Additionally, to the extent information is publicly available, the Company also compares its depreciationpolicies to other companies with similar rental products for reasonableness.The lives and residual values of rental equipment are subject to periodic evaluation. For modular equipment, external factors to consider may include,but are not limited to, changes in legislation, regulations, building codes, local permitting, and supply or demand. Internal factors for modulars may include,but are not limited to, change in equipment specifications, condition of equipment, or maintenance policies. For electronic test equipment, external factors toconsider may include, but are not limited to, technological advances, changes in manufacturers’ selling prices, and supply or demand. Internal factors forelectronic test equipment may include, but are not limited to, change in equipment specifications, condition of equipment or maintenance policies. Forliquid and solid containment tanks and boxes, external factors to consider may include, but are not limited to, changes in Federal and State legislation, thetypes of materials stored and the frequency of movements and uses. Internal factors for liquid and solid containment tanks and boxes may include, but arenot limited to, change in equipment specifications and maintenance policies.Changes in useful lives or residual values will impact depreciation expense and any gain or loss from the sale of used equipment. Depending on themagnitude of such changes, the impact on the financial statements could be significant.-54- Maintenance, Repair and Refurbishment - Maintenance and repairs are expensed as incurred. The direct material and labor costs of value-addedadditions or major refurbishment of modular buildings are capitalized to the extent the refurbishment significantly improves the quality and adds value orlife to the equipment. Judgment is involved as to when these costs should be capitalized. The Company’s policies narrowly limit the capitalization of value-added items to specific additions such as restrooms, sidewalls and ventilation upgrades. In addition, only major refurbishment costs incurred near the end ofthe estimated useful life of the rental equipment, which extend its useful life, and are subject to certain limitations, are capitalized. Changes in these policiescould impact the Company’s financial results.Impairment of rental equipment - The carrying value of the Company’s rental equipment is its capitalized cost less accumulated depreciation. Tothe extent events or circumstances indicate that the carrying value cannot be recovered, an impairment loss is recognized to reduce the carrying value to fairvalue. The Company determines fair value based upon the condition of the equipment and the projected net cash flows from its rental and sale consideringcurrent market conditions. Additionally, if the Company decides to sell or otherwise dispose of the rental equipment, it is carried at the lower of cost or fairvalue less costs to sell or dispose. Due to uncertainties inherent in the valuation process and market conditions, it is reasonably possible that actual results ofoperating and disposing of rental equipment could be materially different than current expectations.Impairment of goodwill and intangible assets - The Company assesses the carrying amount of its recorded goodwill and intangible assets annually orin interim periods if circumstances indicate an impairment may have occurred. The impairment review is performed by first assessing qualitative factors todetermine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it isnecessary to perform the two-step goodwill impairment test. The two-step process requires management to make certain judgments in determining whatassumptions to use in the calculation. The first step in the evaluation consists of estimating the fair value of the reporting unit based on discounted cash flowsusing revenue and after tax profit estimates. Management then compares its estimate of the fair value of the reporting unit with the reporting unit’s carryingamount, which includes goodwill and intangible assets. If the estimated fair value of the reporting unit exceeds the carrying value of the net assets assignedto that unit, then goodwill and intangible assets are not impaired and no further testing is required. If the carrying value of the net assets assigned to thereporting unit were to exceed its fair value, then the second step is performed in order to determine the implied fair value of the reporting unit’s goodwill andintangible assets and an impairment loss is recorded for an amount equal to the difference between the implied fair value and the carrying value of thegoodwill and intangible assets.Impact of InflationAlthough the Company cannot precisely determine the effect of inflation, from time to time it has experienced increases in costs of rental equipment,manufacturing costs, operating expenses and interest. Because a majority of its rentals are relatively short-term, the Company has generally been able to passon such increased costs through increases in rental rates and selling prices, but there can be no assurance that the Company will be able to continue to pass onincreased costs to customers in the future.Off Balance Sheet TransactionsAs of December 31, 2017, the Company did not have any “off-balance-sheet arrangements,” as defined in Item 303(a)(4)(ii) of Regulation S-K. -55- ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.The Company is exposed to cash flow and fair value risk due to changes in interest rates with respect to its 4.03%, 3.68% and 3.84% senior notes duein 2018, 2021 and 2022, respectively, and its revolving lines of credit. Weighted average variable rates are based on implied forward rates in the yield curveat December 31, 2017. The estimate of fair value of the Company’s fixed rate debt is based on the borrowing rates currently available to the Company forbank loans with similar terms and average maturities. The table below presents principal cash flows by expected annual maturities, related weighted averageinterest rates and estimated fair value for the Company’s Series A, Series B and Series C Senior Notes and the Company’s revolving lines of credit under theCredit Facility and Sweep Service Facility as of December 31, 2017. (dollar amounts in thousands) 2018 2019 2020 2021 2022 Thereafter Total EstimatedFair Value Revolving lines of credit $— $— $— $183,473 $— $— $183,473 $183,473 Weighted average interest rate — — — 2.64% — — 2.64% 4.03% Series A senior notes due in 2018 $20,000 $— $— $— $— $— $20,000 $20,202 Stated interest rate 4.03% — — — — — 4.03% 3.68% Series B senior notes due in 2021 $— $— $— $40,000 $— $— $40,000 $40,826 Stated interest rate — — — 3.68% — — 3.68% 3.84% Series C senior notes due in 2022 $— $— $— $— $60,000 $— $60,000 $59,199 Stated interest rate — — — — 3.84% — — The Company formed a wholly owned Canadian subsidiary, TRS-RenTelco Inc., in 2004 in conjunction with the TRS acquisition and a wholly ownedIndian subsidiary, TRS-RenTelco India Private Limited, in 2013, which commenced the closure of operations during 2017. The Canadian and Indianoperations of the Company subject it to foreign currency risks (i.e. the possibility that the financial results could be better or worse than planned because ofchanges in foreign currency exchange rates). Currently, the Company does not use derivative instruments to hedge its economic exposure with respect toassets, liabilities and firm commitments denominated in foreign currencies. In 2017, the Company experienced minimal impact on net income due to foreignexchange rate fluctuations. Although there can be no assurances, given the size of the Canadian and Indian operations, the Company does not expect futureforeign exchange gains and losses to be significant.The Company has no derivative financial instruments that expose the Company to significant market risk. -56- ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Index PageManagement’s Report on Internal Control over Financial Reporting 58Reports of Independent Registered Public Accounting Firm 59Report on Internal Control over Financial Reporting 59Report on Consolidated Financial Statements 60Consolidated Financial Statements Consolidated Balance Sheets as of December 31, 2017 and 2016 61Consolidated Statements of Income for the Years Ended December 31, 2017, 2016 and 2015 62Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2017, 2016 and 2015 63Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2017, 2016 and 2015 64Consolidated Statements of Cash Flows for the Years Ended December 31, 2017, 2016 and 2015 65Notes to Consolidated Financial Statements 66 -57- Management’s Report on Internal Control over Financial ReportingThe Company’s management is responsible for the preparation and integrity of the consolidated financial statements appearing in our Annual Reportfiled on Form 10-K. The consolidated financial statements were prepared in conformity with United States generally accepted accounting principles andinclude amounts based on management’s estimates and judgments. All other financial information in this report has been presented on a basis consistent withthe information included in the financial statements.The Company’s management is also responsible for establishing and maintaining adequate internal control over financial reporting as such term isdefined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. The Company maintains a system of internal control that is designed toprovide reasonable assurance as to the reliable preparation and presentation of the consolidated financial statements, as well as to safeguard assets fromunauthorized use or disposition.The Company’s system of internal control over financial reporting is embodied in the Company’s Code of Business Conduct and Ethics. It sets thetone of our organization and includes factors such as integrity and ethical values. Our internal control over financial reporting is supported by formal policiesand procedures, which are reviewed, modified and improved as changes occur in business conditions and operations.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation ofeffectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies and procedures may deteriorate.The Audit Committee of the Board of Directors, which is composed solely of outside directors, meets periodically with members of management andthe independent auditors to review and discuss internal control over financial reporting, as well as accounting and financial reporting matters. Theindependent auditors report to the Audit Committee and accordingly have full and free access to the Audit Committee at any time.The Company’s management conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2017based on the criteria set forth in the 2013 Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the TreadwayCommission. Based on its evaluation, management has concluded that, as of December 31, 2017, the Company’s internal control over financial reportingwas effective based on those criteria. -58- Reports of Independent Registered Public Accounting FirmReport on Internal Control over Financial ReportingBoard of Directors and Shareholders of McGrath RentCorp and Subsidiaries:Opinion on internal control over financial reportingWe have audited the internal control over financial reporting of McGrath RentCorp and Subsidiaries (the “Company”) as of December 31, 2017, basedon criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the TreadwayCommission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31,2017, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), theconsolidated financial statements of the Company as of and for the year ended December 31, 2017, and our report dated February 27, 2018 expressed anunqualified opinion on those financial statements.Basis for opinionThe Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of theeffectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting.Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firmregistered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and theapplicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtainreasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtainingan understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design andoperating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.We believe that our audit provides a reasonable basis for our opinion.Definition and limitations of internal control over financial reportingA company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’sinternal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded asnecessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of thecompany are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assuranceregarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on thefinancial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of anyevaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degreeof compliance with the policies or procedures may deteriorate./s/ Grant Thornton LLPSan Jose, CaliforniaFebruary 27, 2018 -59- Reports of Independent Registered Public Accounting Firm (Continued)Report on Consolidated Financial StatementsBoard of Directors and Shareholders of McGrath RentCorp and Subsidiaries:Opinion on the financial statementsWe have audited the accompanying consolidated balance sheets of McGrath RentCorp and Subsidiaries (the “Company”) as of December 31, 2017and 2016, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the three yearsin the period ended December 31, 2017, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statementspresent fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cashflows for each of the three years in the period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States ofAmerica.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), theCompany’s internal control over financial reporting as of December 31, 2017, based on criteria established in the 2013 Internal Control—IntegratedFramework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated February 27, 2018 expressedon unqualified opinion thereon.Basis for opinionThese financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’sfinancial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to theCompany in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and thePCAOB.We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performingprocedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond tothose risks. Such procedures included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our audits alsoincluded evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of thefinancial statements. We believe that our audits provide a reasonable basis for our opinion./s/ Grant Thornton LLPWe have served as the Company’s auditor since 2002.San Jose, CaliforniaFebruary 27, 2018 -60- MCGRATH RENTCORPCONSOLIDATED BALANCE SHEETS December 31, (in thousands) 2017 2016 Assets Cash $2,501 $852 Accounts receivable, net of allowance for doubtful accounts of $1,920 in 2017 and $2,087 in 2016 105,872 96,877 Rental equipment, at cost: Relocatable modular buildings 775,400 769,190 Electronic test equipment 262,325 246,325 Liquid and solid containment tanks and boxes 309,808 308,542 1,347,533 1,324,057 Less accumulated depreciation (485,213) (467,686)Rental equipment, net 862,320 856,371 Property, plant and equipment, net 119,170 112,190 Prepaid expenses and other assets 22,459 25,583 Intangible assets, net 7,724 8,595 Goodwill 27,808 27,808 Total assets $1,147,854 $1,128,276 Liabilities and Shareholders’ Equity Liabilities: Notes payable $303,414 $326,266 Accounts payable and accrued liabilities 86,408 78,205 Deferred income 39,219 37,499 Deferred income taxes, net 194,629 292,019 Total liabilities 623,670 733,989 Commitments and contingencies (Note 7) Shareholders’ equity: Common Stock, no par value - Authorized 40,000 shares Issued and outstanding - 24,052 shares as of December 31, 2017 and 23,948 shares as of December 31, 2016 102,947 101,821 Retained earnings 421,405 292,521 Accumulated other comprehensive loss (168) (55)Total shareholders’ equity 524,184 394,287 Total liabilities and shareholders’ equity $1,147,854 $1,128,276 The accompanying notes are an integral part of these consolidated financial statements. -61- MCGRATH RENTCORPCONSOLIDATED STATEMENTS OF INCOME Year Ended December 31, (in thousands, except per share amounts) 2017 2016 2015 Revenues Rental $289,417 $271,388 $273,696 Rental related services 78,068 75,859 73,314 Rental operations 367,485 347,247 347,010 Sales 91,500 74,410 55,385 Other 3,049 2,423 2,149 Total revenues 462,034 424,080 404,544 Costs and Expenses Direct costs of rental operations: Depreciation of rental equipment 69,908 72,197 75,213 Rental related services 60,029 59,044 57,144 Other 65,472 60,130 58,511 Total direct costs of rental operations 195,409 191,371 190,868 Cost of sales 60,280 48,542 36,769 Total costs of revenues 255,689 239,913 227,637 Gross profit 206,345 184,167 176,907 Selling and administrative expenses 111,605 104,908 99,950 Income from operations 94,740 79,259 76,957 Other income (expense): Interest expense (11,622) (12,207) (10,092)Foreign currency exchange gain (loss) 334 (121) (488)Income before provision for income taxes 83,452 66,931 66,377 (Benefit) provision for income taxes (70,468) 28,680 25,907 Net income $153,920 $38,251 $40,470 Earnings per share: Basic $6.41 $1.60 $1.60 Diluted $6.34 $1.60 $1.59 Shares used in per share calculations: Basic 23,999 23,900 25,369 Diluted 24,269 23,976 25,457 Cash dividends declared per share $1.04 $1.02 $1.00 The accompanying notes are an integral part of these consolidated financial statements. -62- MCGRATH RENTCORPCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Year Ended December 31, (in thousands) 2017 2016 2015 Net income $153,920 $38,251 $40,470 Other comprehensive income (loss): Foreign currency translation adjustment (174) 24 55 Tax benefit (provision) 61 (12) (20)Comprehensive income $153,807 $38,263 $40,505 The accompanying notes are an integral part of these consolidated financial statements -63- MCGRATH RENTCORPCONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Common Stock Retained AccumulatedOtherComprehensive TotalShareholders’ (in thousands, except per share amounts) Shares Amount Earnings Income (Loss) Equity Balance at December 31, 2014 26,051 $106,469 $318,164 $(102) $424,531 Net income — — 40,470 — 40,470 Share-based compensation — 3,399 — — 3,399 Common stock issued under stock plans, net of shares withheld for employee taxes 208 2,149 — — 2,149 Common stock repurchased (2,408) (9,119) (54,834) — (63,953)Tax shortfall from equity awards — (292) — — (292)Taxes paid related to net share settlement of stock awards — (1,560) — — (1,560)Dividends accrued of $1.00 per share — — (25,092) — (25,092)Other comprehensive gain — — — 35 35 Balance at December 31, 2015 23,851 101,046 278,708 (67) 379,687 Net income — — 38,251 — 38,251 Share-based compensation — 3,091 — — 3,091 Common stock issued under stock plans, net of shares withheld for employee taxes 97 37 — — 37 Tax shortfall from equity awards — (1,066) — — (1,066)Taxes paid related to net share settlement of stock awards — (1,287) — — (1,287)Dividends accrued of $1.02 per share — — (24,438) — (24,438)Other comprehensive gain — — — 12 12 Balance at December 31, 2016 23,948 101,821 292,521 (55) 394,287 Net income — — 153,920 — 153,920 Share-based compensation — 3,198 — — 3,198 Common stock issued under stock plans, net of shares withheld for employee taxes 104 — — — — Taxes paid related to net share settlement of stock awards — (2,072) — — (2,072)Dividends accrued of $1.04 per share — — (25,036) — (25,036)Other comprehensive loss — — — (113) (113)Balance at December 31, 2017 24,052 102,947 421,405 (168) 524,184 The accompanying notes are an integral part of these consolidated financial statements. -64- MCGRATH RENTCORPCONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, (in thousands) 2017 2016 2015 Cash Flows from Operating Activities: Net income $153,920 $38,251 $40,470 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 78,416 81,179 84,280 Impairment of rental assets 1,639 — — Provision for doubtful accounts 1,480 1,892 2,149 Share-based compensation 3,198 3,091 3,399 Gain on sale of used rental equipment (17,733) (13,739) (11,902)Foreign currency exchanges (gain) loss (334) 121 488 Amortization of debt issuance costs 50 51 52 Change in: Accounts receivable (10,475) (3,752) 3,628 Income taxes receivable — 11,000 (11,000)Prepaid expenses and other assets 3,124 3,219 12,910 Accounts payable and accrued liabilities 4,015 10,426 (1,812)Deferred income 1,720 1,211 7,149 Deferred income taxes (96,631) 7,745 14,449 Net cash provided by operating activities 122,389 140,695 144,260 Cash Flows from Investing Activities: Purchases of rental equipment (94,579) (79,038) (131,037)Purchases of property, plant and equipment (14,617) (10,548) (9,321)Proceeds from sales of used rental equipment 38,344 29,406 26,214 Net cash used in investing activities (70,852) (60,180) (114,144)Cash Flows from Financing Activities: Net borrowings (repayments) under bank lines of credit (2,902) (35,066) 18,963 Principal payments on Series A senior notes (20,000) (20,000) (20,000)Borrowings under Series C senior notes — — 60,000 Proceeds from the exercise of stock options — 37 2,149 Taxes paid related to net share settlement of stock awards (2,072) (1,287) (1,560)Repurchase of common stock — — (63,953)Payment of dividends (24,876) (24,448) (25,779)Net cash used in financing activities (49,850) (80,764) (30,180)Effect of foreign currency exchange rate changes on cash (38) (2) — Net increase (decrease) in cash 1,649 (251) (64)Cash balance, beginning of period 852 1,103 1,167 Cash balance, end of period $2,501 $852 $1,103 Supplemental Disclosure of Cash Flow Information: Interest paid, during the period $11,825 $12,436 $10,041 Net income taxes paid, during the period $29,504 $15,555 $2,498 Dividends accrued during the period, not yet paid $6,260 $6,147 $6,019 Rental equipment acquisitions, not yet paid $6,405 $2,876 $7,280 The accompanying notes are an integral part of these consolidated financial statements. -65-MCGRATH RENTCORPNOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESOrganizationMcGrath RentCorp and its wholly-owned subsidiaries (the “Company”) is a California corporation organized in 1979. The Company is a diversifiedbusiness to business rental company with four rental divisions; relocatable modular buildings, portable storage containers, electronic test equipment andliquid and solid containment tanks and boxes. Although the Company’s primary emphasis is on equipment rentals, sales of equipment occur in the normalcourse of business. The Company is comprised of four reportable business segments: modular building and portable storage segment (“Mobile Modular”),electronic test equipment segment (“TRS-RenTelco”), containment solutions for the storage of hazardous and non-hazardous liquids and solids segment(“Adler Tanks”) and classroom manufacturing division selling modular classrooms in California (“Enviroplex”).Principles of ConsolidationThe consolidated financial statements include the accounts of McGrath RentCorp and its wholly-owned subsidiaries. All intercompany accounts andtransactions have been eliminated in consolidation.Revenue RecognitionRental revenue from operating leases is recognized on a straight-line basis over the term of the lease. Rental billings for periods extending beyondperiod end are recorded as deferred income and are recognized when earned. Rental related services revenue is primarily associated with relocatable modularbuilding and liquid and solid containment tanks and boxes leases. For modular building leases, rental related services revenue consists of billings tocustomers for modifications, delivery, installation, additional site-related work, and dismantle and return delivery. For modular building leases, revenuerelated to delivery, installation, dismantle and return delivery are an integral part of the negotiated lease agreement with customers and are recognized on astraight-line basis over the term of the lease. For liquid and solid containment solutions, rental related services revenue consists of billings for delivery,removal and cleaning of the tanks and boxes. These revenues are recognized in the period performed.Sales revenue is recognized upon delivery and installation of the equipment to customers. Certain leases are accounted for as sales-type leases. Forthese leases, sales revenue and the related accounts receivable are recognized upon delivery and installation of the equipment and the unearned interest isrecognized over the lease term on a basis which results in a constant rate of return on the unrecovered lease investment.Other revenue is recognized when earned and primarily includes interest income on sales-type leases, rental income on facility leases and certainlogistics services.Sales taxes charged to customers are reported on a net basis and are excluded from revenues and expenses.Depreciation of Rental EquipmentRental equipment is depreciated on a straight-line basis for financial reporting purposes and on an accelerated basis for income tax purposes. Thecosts of major refurbishment of relocatable modular buildings, portable storage containers and tanks and boxes are capitalized to the extent the refurbishmentsignificantly adds value to, or extends the life of the equipment. Maintenance and repairs are expensed as incurred.The estimated useful lives and residual values of the Company’s rental equipment used for financial reporting purposes are as follows: Relocatable modular buildings 18 years, 50% residual valueRelocatable modular accessories 3 to 18 years, no residual valuePortable storage containers 25 years, 62.5% residual valueElectronic test equipment and accessories 1 to 8 years, no residual valueLiquid and solid containment tanks and boxes and accessories 3 to 20 years, no residual value -66- Costs of Rental Related ServicesCosts of rental related services are primarily associated with relocatable modular building leases and liquid and solid containment tank and boxes.Modular building leases primarily consist of costs for services to be provided under the negotiated lease agreement for delivery, installation, modifications,skirting, additional site-related work, and dismantle and return delivery. Costs related to these services are recognized on a straight-line basis over the term ofthe lease. Costs of rental related services associated with liquid and solid containment solutions consists of costs of delivery, removal and cleaning of thetanks and boxes. These costs are recognized in the period the service is performed.Impairment of Long-Lived AssetsThe Company evaluates the carrying value of rental equipment and identifiable definite lived intangible assets for impairment whenever events orcircumstances have occurred that would indicate the carrying amount may not be fully recoverable. A key element in determining the recoverability of long-lived assets is the Company’s outlook as to the future market conditions for its rental equipment. If the carrying amount is not fully recoverable, animpairment loss is recognized to reduce the carrying amount to fair value. The Company determines fair value based upon the condition of the rentalequipment and the projected net cash flows from its rental and sale considering current market conditions. Goodwill and identifiable indefinite lived assetsare evaluated for potential impairment annually or when circumstances indicate potential impairment may have occurred. Impairment losses, if any, aredetermined based upon the excess of carrying value over the estimated fair value of the asset. The Company recorded an impairment of modular rentalequipment of $1.6 million for the year ended December 31, 2017. There were no impairments of long-lived assets during the years ended December 31, 2016and 2015.Other Direct Costs of Rental OperationsOther direct costs of rental operations include direct labor, supplies, repairs, insurance, property taxes, license fees, impairment of rental equipmentand certain modular lease costs charged to customers in the negotiated rental rate, which are recognized on a straight-line basis over the term of the lease.Cost of SalesCost of sales in the Consolidated Statements of Income includes the carrying value of the equipment sold and all direct costs associated with the sale.Warranty ReservesSales of new relocatable modular buildings, portable storage containers, electronic test equipment and related accessories and liquid and solidcontainment tanks and boxes not manufactured by the Company are typically covered by warranties provided by the manufacturer of the products sold. TheCompany typically provides limited 90-day warranties for certain sales of used rental equipment and one-year warranties on equipment manufactured byEnviroplex. Although the Company’s policy is to provide reserves for warranties when required for specific circumstances, the Company has not found itnecessary to establish such reserves to date as warranty costs have not been significant.Property, Plant and EquipmentProperty, plant and equipment are stated at cost, net of accumulated depreciation. Depreciation is recognized on a straight-line basis for financialreporting purposes, and on an accelerated basis for income tax purposes. Depreciation expenses for property, plant and equipment is included in “Selling andadministrative expenses” and “Rental related services” in the Consolidated Statements of Income. Maintenance and repairs are expensed as incurred.-67- Property, plant and equipment consist of the following: (dollar amounts in thousands) Estimateduseful life December 31, in years 2017 2016 Land Indefinite $50,689 $45,928 Land improvements 20 – 50 43,337 42,677 Buildings 30 26,862 26,105 Furniture, office and computer equipment 3 – 10 32,118 35,215 Vehicles and machinery 5 – 25 34,597 30,416 187,603 180,341 Less accumulated depreciation (70,034) (68,854) 117,569 111,487 Construction in progress 1,601 703 $119,170 $112,190 Property, plant and equipment depreciation expense was $7.6 million, $8.1 million and $8.2 million for the years ended December 31, 2017, 2016 and2015, respectively. Construction in progress at December 31, 2017 and 2016 consisted primarily of costs related to acquisition of land and landimprovements and information technology upgrades.Capitalized Software CostsThe Company capitalizes certain development costs incurred in connection with its internal use software. Costs incurred in the preliminary stages ofdevelopment are expensed as incurred. Once an application has reached the development stage, direct internal and external costs are capitalized until thesoftware is substantially complete and ready for its intended use. These costs generally include external direct costs of materials and services consumed inthe project and internal costs, such as payroll and benefits of those employees directly associated with the development of the software. Maintenance,training and post implementation costs are expensed as incurred. The Company also capitalizes costs related to specific upgrades and enhancements when itis probable the expenditures will result in additional functionality. Capitalized software costs are included in property, plant and equipment. The Companycapitalized $0.8 million and $0.2 million in internal use software during the years ended December 31, 2017 and 2016, respectively. Advertising CostsAdvertising costs are expensed as incurred. Total advertising expenses were $2.9 million, $2.9 million and $2.8 million for the years ended December31, 2017, 2016 and 2015.Income TaxesIncome taxes are accounted for using an asset and liability approach. Deferred tax assets and liabilities are recorded for the effect of temporarydifferences between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements. Deferred tax assets and deferredtax liabilities are adjusted to the extent necessary to reflect tax rates expected to be in effect when temporary differences reverse. Adjustments may berequired to deferred tax assets and deferred tax liabilities due to changes in tax laws and audit adjustments by tax authorities. A valuation allowance wouldbe established if, based on the weight of available evidence, management believes that it is more likely than not that some portion or all of a recordeddeferred tax asset would not be realized in future periods. To the extent adjustments are required in any given period, the adjustments would be includedwithin the “Provision for income taxes” in the Consolidated Statements of Income. Goodwill and Intangible AssetsPurchase prices of acquired businesses have been allocated to the assets and liabilities acquired based on the estimated fair values on the respectiveacquisition dates. Based on these values, the excess purchase prices over the fair value of the net assets acquired were allocated to goodwill and otherintangible assets. Intangible assets related to customer relationships are amortized over eleven years. At December 31, 2017 and 2016, goodwill and tradename intangible assets which have indefinite lives totaled $33.5 million.The Company assesses potential impairment of its goodwill and intangible assets when there is evidence that events or circumstances have occurredthat would indicate the recovery of an asset’s carrying value is unlikely. The Company also assesses-68- potential impairment of its goodwill and intangible assets on an annual basis regardless of whether there is evidence of impairment. If indicators ofimpairment were to be present in intangible assets used in operations and future discounted cash flows were not expected to be sufficient to recover theassets’ carrying amount, an impairment loss would be charged to expense in the period identified. The amount of an impairment loss would be recognized asthe excess of the asset’s carrying value over its fair value. Factors the Company considers important, which may cause impairment include, among others,significant changes in the manner of use of the acquired asset, negative industry or economic trends, and significant underperformance relative to historicalor projected operating results.The impairment review of the Company’s goodwill and indefinite lived assets is performed by first assessing qualitative factors to determine whetherit is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform thetwo-step goodwill impairment test. In the first step, the fair value of the reporting unit is compared to its carrying value to determine if the goodwill andintangible assets are impaired. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that unit, then goodwill andintangible assets are not impaired and no further testing is required. If the carrying value of the net assets assigned to the reporting unit were to exceed its fairvalue, then the second step is performed in order to determine the implied fair value of the reporting unit’s goodwill and intangible assets and an impairmentloss is recorded for an amount equal to the difference between the implied fair value and the carrying value of the goodwill and intangible assets.The Company conducted its annual impairment analysis in the fourth quarter of its fiscal year. The impairment analysis did not result in animpairment charge for the fiscal years ended 2017, 2016 or 2015. Determining the fair value of a reporting unit is judgmental and involves the use ofsignificant estimates and assumptions. The Company based its fair value estimates on assumptions that it believes are reasonable but are uncertain andsubject to changes in market conditions.Earnings Per ShareBasic earnings per share (“EPS”) is computed as net income divided by the weighted average number of shares of common stock outstanding for theperiod. Diluted EPS is computed assuming conversion of all potentially dilutive securities including the dilutive effects of stock options, unvested restrictedstock awards and other potentially dilutive securities. The table below presents the weighted-average common stock used to calculate basic and dilutedearnings per share: (in thousands) Year Ended December 31, 2017 2016 2015 Weighted-average common stock for calculating basic earnings per share 23,999 23,900 25,369 Effect of potentially dilutive securities from equity-based compensation 270 76 88 Weighted-average common stock for calculating diluted earnings per share 24,269 23,976 25,457 The following securities were not included in the computation of diluted earnings per share as their effect would have been anti-dilutive: (in thousands) Year Ended December 31, 2017 2016 2015 Options to purchase common stock 7 661 746 In May 2008, the Company’s Board of Directors authorized the Company to repurchase an aggregate of 2,000,000 shares of the Company'soutstanding common stock. The Company has in the past made purchases of shares of its common stock from time to time in over-the-counter market(NASDAQ) transactions, through privately negotiated, large block transactions and through a share repurchase plan, in accordance with Rule 10b5-1 of theSecurities Exchange Act of 1934. In August 2015, the Company’s Board of Directors authorized the Company to repurchase an additional 2,000,000 sharesof the Company's outstanding common stock. The amount and time of the specific repurchases are subject to prevailing market conditions, applicable legalrequirements and other factors, including management’s discretion. All shares repurchased by the Company are canceled and returned to the status ofauthorized but unissued shares of common stock. There can be no assurance that any authorized shares will be repurchased and the repurchase program maybe modified, extended or terminated by the Board of Directors at any time. There were no repurchases of common stock during the twelve months endedDecember 31, 2017 and 2016. As of December 31, 2017, 1,592,026 shares remain authorized for repurchase. -69- Accounts Receivable and Concentration of Credit RiskThe Company’s accounts receivable consist of amounts due from customers for rentals, sales, financed sales and unbilled amounts for the portion ofmodular building end-of-lease services earned, which were negotiated as part of the lease agreement. Unbilled receivables related to end-of-lease services,which consists of dismantle and return delivery of buildings, were $30.1 million at December 31, 2017 and $28.1 million at December 31, 2016. TheCompany sells primarily on 30-day terms, individually performs credit evaluation procedures on its customers on each transaction and will require securitydeposits from its customers when a significant credit risk is identified. The Company records an allowance for doubtful accounts in amounts equal to theestimated losses expected to be incurred in the collection of the accounts receivable. The estimated losses are based on historical collection experience inconjunction with an evaluation of the current status of the existing accounts. Customer accounts are written off against the allowance for doubtful accountswhen an account is determined to be uncollectable. The allowance for doubtful accounts activity was as follows: (in thousands) 2017 2016 Beginning balance, January 1 $2,087 $2,087 Provision for doubtful accounts 1,480 1,892 Write-offs, net of recoveries (1,647) (1,892)Ending balance, December 31 $1,920 $2,087 Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of trade accounts receivable. From time totime, the Company maintains cash balances in excess of the Federal Deposit Insurance Corporation limits.Fair Value of Financial InstrumentsThe Company believes that the carrying amounts for cash, accounts receivable, accounts payable and notes payable approximate their fair valuesexcept for fixed rate debt included in notes payable which has an estimated fair value of $120.2 million and $140.7 million compared to the recorded valueof $120.0 million and $140.0 million as of December 31, 2017 and 2016, respectively. The estimates of fair value of the Company’s fixed rate debt are basedon the borrowing rates currently available to the Company for bank loans with similar terms and average maturities.Foreign Currency Transactions and TranslationThe Company's Canadian subsidiary, TRS-RenTelco Inc., a British Columbia corporation (“TRS-Canada”), functions as a branch sales office for TRS-RenTelco in Canada. The functional currency for TRS-Canada is the U.S. dollar. Foreign currency transaction gains and losses of TRS-Canada are reported inthe results of operations in the period in which they occur.The Company’s Indian subsidiary, TRS-RenTelco India Private Limited (“TRS-India”), functions as a rental and sales office for TRS-RenTelco inIndia, which commenced its closure during 2017. The functional currency for TRS-India is the Indian Rupee. All assets and liabilities of TRS-India aretranslated into U.S. dollars at period-end exchange rates and all income statement amounts are translated at the average exchange rate for each month withinthe year.Currently, the Company does not use derivative instruments to hedge its economic exposure with respect to assets, liabilities and firm commitments asthe foreign currency transactions and risks to date have not been significant.Share-Based CompensationThe Company measures and recognizes the compensation expense for all share-based awards made to employees and directors, including stockoptions, stock appreciation rights (“SARs”) and restricted stock units (“RSUs”), based upon estimated fair values. The fair value of stock options and SARs isestimated on the date of grant using the Black-Scholes option pricing model and for RSUs based upon the fair market value of the underlying shares ofcommon stock as of the date of grant. The Company recognizes share-based compensation cost ratably on a straight-line basis over the requisite serviceperiod, which generally equals the vesting period. For performance-based RSUs, compensation costs are recognized when vesting conditions are met. Inaddition, the Company estimates the probable number of shares of common stock that will be earned and the corresponding compensation cost until theachievement of the performance goal is known. The Company records share-based compensation costs in “Selling and administrative expenses” in theConsolidated Statements of Income. The Company recognizes a benefit from share-based compensation in the Consolidated Statements of Shareholders’Equity if an incremental tax benefit is realized. Further information regarding share-based compensation can be found in “Note 5 –Benefit Plans”.-70- Use of EstimatesThe preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of Americarequires management to make estimates and assumptions in determining reported amounts of assets and liabilities, disclosure of contingent assets andliabilities at the date of the financial statements, and the reported amounts of revenues and expenses during each period presented. Actual results could differfrom those estimates. The most significant estimates included in the financial statements are the future cash flows and fair values used to determine therecoverability of the rental equipment and identifiable definite lived intangible assets carrying value, the various assets’ useful lives and residual values, andthe allowance for doubtful accounts. ReclassificationIn order to conform to our current year presentation, $2.7 million and $2.4 million were reclassified in 2016 and 2015, respectively, from other torental related services within the direct costs of rental operations on the Condensed Consolidated Statements of Income. These reclassifications had noimpact on net income, earnings per share or operating cash flows.New Accounting PronouncementsIn May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue fromContracts with Customers (Topic 606). The objective of this guidance is to establish the principles for reporting useful information to users of financialstatements about the nature, timing and uncertainty of revenue from contracts with customers. The new standard is effective for the interim and annualreporting periods beginning after December 31, 2017. The new standard permits two methods of adoption: retrospectively to each prior period presented (fullretrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (modifiedretrospective method). The Company will adopt the guidance effective January 1, 2018 using the modified retrospective method. The Company believes themajority of its revenue, as such revenue relates to rental contractual revenue, is excluded from the scope of this standard, and the remaining revenue streamswill not be materially affected. The Company does not anticipate the adoption of this guidance will have a material impact on the Company’s consolidatedfinancial statements.In February 2016, the FASB issued ASU No. 2016-02, Leases (Subtopic 842-10). Under the new guidance, lessees will be required to recognize thefollowing for all leases (with the exception of short-term leases) on the commencement date: a) lease liability, which is a lessee’s obligation to make leasepayments arising from a lease, measured on a discounted basis; and b) right-of-use asset, which is an asset that represents the lessee’s right to use, or controlthe use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. The amendments are effective for fiscal yearsbeginning after December 15, 2018, and interim periods within those fiscal years. While the Company is still evaluating the potential impact of thisguidance, as a lessor the Company does not believe the accounting for operating lease revenues will be materially affected by this standard. The Companyanticipates the lessee accounting to increase its total assets and liabilities; however, the Company is currently evaluating the magnitude of the impact theadoption of this guidance will have on the Company’s consolidated financial statements.During the first quarter 2017, the Company adopted ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting (ASU 2016-09). As a result of the adoption, the Company recognized $869,000 of excess tax benefits related to share-based payments as a reduction to the provision forincome taxes for the year ended December 31, 2017. These tax benefits, or shortfalls, were historically recorded in equity. In addition, cash flows related toexcess tax benefits, or shortfalls, are now classified as an operating activity with the prior period adjusted accordingly. Cash paid on employees’ behalfrelated to shares withheld for tax purposes is classified as a financing activity, consistent with prior year’s presentation. Retrospective application of the cashflow presentation requirements resulted in decreases to both net cash provided by operations and net cash used in financing activities of $1,066,000 for thetwelve months ended December 31, 2016. The Company’s compensation expense for each period continues to reflect forfeitures as they occur, rather thanbased upon estimated expected forfeitures.In May 2017, the FASB issued ASU No. 2017-09, Compensation, Stock Compensation (Topic 718). The amendments in this update provide guidanceabout which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. An entityshould account for the effects of a modification unless all of the following are met: 1) the fair value of the modified award is the same as the fair value of theoriginal award immediately before the original award is modified. If the modification does not affect any of the inputs to the valuation technique that theentity uses to value the award, the entity is not required to estimate the value immediately before and after the modification; 2) the vesting conditions of themodified award are the same as the vesting conditions of the original award immediately before the original award is modified and; 3) the classification of themodified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original awardis modified. The amendments of this update are effective for the interim and annual periods beginning after December 15, 2017. The adoption of thisguidance is not expected to have a material impact on the Company’s consolidated financial statements. -71- NOTE 2. FINANCED LEASE RECEIVABLESThe Company has entered into sales-type leases to finance certain equipment sales to customers. The lease agreements have a bargain purchase optionat the end of the lease term. The minimum lease payments receivable and the net investment included in accounts receivable for such leases are as follows: (in thousands) December 31, 2017 2016 Gross minimum lease payments receivable $2,150 $3,252 Less – unearned interest (201) (301)Net investment in sales type lease receivables $1,949 $2,951 As of December 31, 2017, the future minimum lease payments under non-cancelable sales-type leases to be received in 2018 and thereafter are asfollows: (in thousands) Year Ended December 31, 2018 $1,354 2019 633 2020 163 Total minimum future lease payments $2,150 NOTE 3. NOTES PAYABLENotes payable consists of the following: (in thousands) December 31, 2017 2016 Unsecured revolving lines of credit $183,473 $186,376 4.03% Series A senior notes due in 2018 20,000 40,000 3.68% Series B senior notes due in 2021 40,000 40,000 3.84% Series C senior notes due in 2022 60,000 60,000 $303,473 $326,376 As of December 31, 2017, the future minimum payments under the unsecured revolving lines of credit, 4.03% Series A senior notes due in 2018,3.68% Series B senior notes due in 2021 and 3.84% Series C senior notes due in 2022 are as follows: (in thousands) Year Ended December 31, 2018 $20,000 2019 — 2020 — 2021 223,473 2022 60,000 $303,473 Unsecured Revolving Lines of CreditIn March 2016, the Company renewed its credit agreement with a syndicate of banks (the “Credit Facility”). The five-year facility matures on March31, 2021 and replaced the Company’s prior $420.0 million unsecured revolving credit facility. The Credit Facility provides for a $420.0 million unsecuredrevolving credit facility (which may be increased to $620.0 million with $200.0 million of additional commitments), which includes a $25.0 million sublimitfor the issuance of standby letters of credit and a $10.0 million sublimit for swingline loans.In March 2016, the Company entered into a Credit Facility Letter Agreement and a Credit Line Note in favor of MUFG Union Bank, N.A., extendingits line of credit facility related to its cash management services (“Sweep Service Facility”) and increasing the facility size from $10.0 million to $12.0million. The Sweep Service Facility matures on the earlier of March 31, 2021, or the date the Company ceases to utilize MUFG Union Bank, N.A. for its cashmanagement services.-72- At December 31, 2017, under the Credit Facility and Sweep Service Facility, the Company had unsecured lines of credit that permit it to borrow up to$432.0 million of which $183.5 million was outstanding, and had capacity to borrow up to an additional $248.5 million. The Amended Credit Facilitycontains financial covenants requiring the Company to not (all defined terms used below not otherwise defined herein have the meaning assigned to suchterms in the Amended Credit Facility): •Permit the Consolidated Fixed Charge Coverage Ratio of EBITDA to fixed charges as of the end of any fiscal quarter to be less than 2.50 to 1.At December 31, 2017, the actual ratio was 6.82 to 1. •Permit the Consolidated Leverage Ratio of funded debt to EBITDA at any time during any period of four consecutive fiscal quarters to begreater than 2.75 to 1. At December 31, 2017, the actual ratio was 1.70 to 1. •Permit Tangible Net Worth as of the end of any fiscal quarter of the Company to be less than the sum of (i) $246.1 million plus (ii) 25% of theCompany’s Consolidated Net Income (as defined in the Amended Credit Facility) (but only if a positive number) for each fiscal quarter endedsubsequent to December 31, 2011 plus (iii) 90% of the net cash proceeds from the issuance of the Company’s capital stock after December 31,2011. At December 31, 2017, such sum was $349.9 million and the actual Tangible Net Worth of the Company was $488.7 million.Amounts borrowed under the Credit Facility bear interest at the Company’s option at either: (i) LIBOR plus a defined margin, or (ii) the Agent bank’sprime rate (“base rate”) plus a margin. The applicable margin for each type of loan is measured based upon the Consolidated Leverage Ratio at the end of theprior fiscal quarter and ranges from 1.00% to 1.75% for LIBOR loans and 0% to 0.75% for base rate loans. In addition, the Company pays an unusedcommitment fee for the portion of the $420.0 million credit facility that is not used. These fees are based upon the Consolidated Leverage Ratio and rangefrom 0.15% to 0.30%. As of December 31, 2017 and 2016, the applicable margins were 1.25% and 1.50% for LIBOR based loans, respectively, 0.25% and0.50% for base rate loans, respectively and 0.20% and 0.25% for unused fees, respectively. Amounts borrowed under the Sweep Service Facility are basedupon the MUFG Union Bank, N.A. base rate plus an applicable margin and an unused commitment fee for the portion of the $12.0 million facility notused. The applicable base rate margin and unused commitment fee rates for the Sweep Service Facility are the same as for the Amended Credit Facility. Thefollowing information relates to the lines of credit for each of the following periods: (dollar amounts in thousands) Year Ended December 31, 2017 2016 Maximum amount outstanding $215,732 $239,820 Average amount outstanding $199,499 $214,446 Weighted average interest rate, during the period 2.64% 2.19%Prime interest rate, end of period 4.50% 3.75% 4.03% Senior Notes Due in 2018On April 21, 2011, the Company entered into a Note Purchase and Private Shelf Agreement (the “Note Purchase Agreement”) with PrudentialInvestment Management, Inc. (“PIM”), The Prudential Insurance Company of America and Prudential Retirement Insurance and Annuity Company(collectively, the “Purchaser”), pursuant to which the Company agreed to sell an aggregate principal amount of $100.0 million of its 4.03% Series A SeniorNotes (the “Series A Senior Notes”) to the Purchaser. The Series A Senior Notes are an unsecured obligation of the Company, due on April 21, 2018. Intereston these notes is due semi-annually in arrears and the principal is due in five equal annual installments, with the first payment due on April 21, 2014. AtDecember 31, 2017 and 2016, the principal balance outstanding under the Series A Senior Notes were $20.0 million and $40.0 million, respectively.3.68% Senior Notes Due in 2021On March 17, 2014, the Company issued and sold to the Purchasers a $40.0 million aggregate principal amount of its 3.68% Series B Senior Notes(the “Series B Senior Notes”) pursuant to the terms of the Note Purchase Agreement, as amended. The Series B Senior Notes are an unsecured obligation of theCompany, bear interest at a rate of 3.68% per annum and mature on March 17, 2021. Interest on the Series B Senior Notes is payable semi-annually beginningon September 17, 2014 and continuing thereafter on March 17 and September 17 of each year until maturity. The full net proceeds from the Series B SeniorNotes were used for working capital and other general corporate purposes. At December 31, 2017 and 2016, the principal balance outstanding under theSeries B Senior Notes was $40.0 million.3.84% Senior Notes Due in 2022On November 5, 2015, the Company issued and sold to the Purchasers a $60.0 million aggregate principal amount of its 3.84% Series C Senior Notes(the “Series C Senior Notes”) pursuant to the terms of the Note Purchase Agreement, as amended. The Series C Senior Notes are an unsecured obligation of theCompany, bear interest at a rate of 3.84% per annum and mature on November 5,-73- 2022. Interest on the Series C Senior Notes is payable semi-annually beginning on May 5, 2016 and continuing thereafter on November 5 and May 5 of eachyear until maturity. The full net proceeds from the Series C Senior Notes were used to reduce the outstanding balance on the Company’s revolving credit line.At December 31, 2017 and 2016, the principal balance outstanding under the Series C Senior Notes was $60.0 million.Among other restrictions, the Note Purchase Agreement, under which the Series A Senior Notes, Series B Senior Notes and Series C Senior Notes weresold, contains financial covenants requiring the Company to not (all defined terms used below not otherwise defined herein have the meaning assigned tosuch terms in the Note Purchase Agreement): •Permit the Consolidated Fixed Charge Coverage Ratio of EBITDA to fixed charges as of the end of any fiscal quarter to be less than 2.50 to1. At December 31, 2017, the actual ratio was 6.82 to 1. •Permit the Consolidated Leverage Ratio of funded debt to EBITDA at any time during any period of four consecutive quarters to be greaterthan 2.75 to 1. At December 31, 2017, the actual ratio was 1.70 to 1. •Permit Tangible Net Worth, calculated as of the last day of each fiscal quarter, to be less than the sum of (i) $229.0 million, plus (ii) 25% of netincome for such fiscal quarter subsequent to December 31, 2010, plus (iii) 90% of the net cash proceeds from the issuance of the Company’scapital stock after December 31, 2010. At December 31, 2017, such sum was $349.9 million and the actual Tangible Net Worth of theCompany was $488.7 million.At December 31, 2017, the Company was in compliance with each of the aforementioned covenants. There are no anticipated trends that theCompany is aware of that would indicate non-compliance with these covenants, though, significant deterioration in the Company’s financial performancecould impact its ability to comply with these covenants.On February 9, 2016, the Company entered into an amendment to the Note Purchase Agreement (“2016 Amendment”) with the Purchaser. Pursuant tothe 2016 Amendment, (i) the issuance period for the shelf notes to be issued and sold pursuant to the Note Purchase Agreement is extended until the earlier ofFebruary 9, 2019 or the termination of the issuance and sale of the shelf notes upon the 30 days’ prior notice of either PIM or the Company, and (ii) thedefinition of the “Available Facility Amount,” which is the aggregate amount of the shelf notes that may be authorized for purchase pursuant to the NotePurchase Agreement was amended to equal a formula based on: $250 million, minus the aggregate principal amount of the shelf notes then outstanding andpurchased pursuant to the Note Purchase Agreement, minus the shelf notes accepted by the Company for purchase, but not yet purchased, by the Purchaserpursuant to the Note Purchase Agreement; provided, however, the aggregate amount of the shelf notes purchased by any corporation or other entitycontrolling, controlled by, or under common control with, PIM shall not exceed $200 million. NOTE 4. INCOME TAXESIncome before (benefit) provision for income taxes consisted of the following: (in thousands) Year Ended December 31, 2017 2016 2015 U.S. $83,525 $67,199 $66,889 Foreign (73) (268) (512) $83,452 $66,931 $66,377 The (benefit) provision for income taxes consisted of the following: (in thousands) Year Ended December 31, 2017 2016 2015 Current: U.S. Federal $21,171 $17,203 $7,976 State 2,976 2,049 1,851 Foreign 2,016 1,683 1,645 26,163 20,935 11,472 Deferred: U.S. Federal (103,518) 4,005 13,201 State 6,948 3,039 1,538 Foreign (61) 701 (304) (96,631) 7,745 14,435 Total $(70,468) $28,680 $25,907-74- The reconciliation of the U.S. federal statutory tax rate to the Company’s effective tax rate is as follows: Year Ended December 31, 2017 2016 2015 U.S. federal statutory rate 35.0% 35.0% 35.0%State taxes, net of federal benefit 4.1 4.2 4.2 State deferred tax rate change, net of federal benefit 0.5 2.0 (0.4)Valuation allowance 0.1 1.1 — Share-based compensation (1.0) — — Enactment of the Tax Cuts and Jobs Act (122.9) — — Other (0.2) 0.6 0.2 (84.4)% 42.9% 39.0% The following table shows the deferred income taxes related to the temporary differences between the tax bases of assets and liabilities and therespective amounts included in “Deferred income taxes, net” on the Company’s Consolidated Balance Sheets: (in thousands) December 31, 2017 2016 Deferred tax liabilities: Accelerated depreciation $195,694 $293,141 Prepaid costs currently deductible 4,152 6,572 Other 4,405 5,747 Total deferred tax liabilities 204,251 305,460 Deferred tax assets: Accrued costs not yet deductible 7,880 9,785 Allowance for doubtful accounts 484 809 Deferred revenues 213 965 Share-based compensation 1,045 1,882 Total deferred tax assets, net of valuation allowance of $0.8 million in 2017 and $0.7million in 2016 9,622 13,441 Deferred income taxes, net $194,629 $292,019 The Tax Cuts and Jobs Act (the “Tax Act”) was enacted in December 2017. Among other provisions, the Tax Act reduces the U.S. federal corporatetax rate from 35% to 21% and requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously taxdeferred. As a result of the Tax Act, the Company re-measured its net deferred tax liabilities and recognized a net tax benefit of $102.8 million. Additionally,based on information currently available to us, we recorded a provisional income tax expense of $0.3 million related to the deemed repatriation of foreignearnings. The Company did not have a deferred tax liability related to its foreign earnings because permanent reinvestment was previously asserted. It is theCompany’s intent to continue to permanently reinvest such earnings. The Company will continue to obtain and analyze information related to the deemedrepatriation of foreign earnings associated with historical ownership and financial information and will finalize the provision within one year of theenactment date. In addition, there is currently uncertainty as to what portions if any of the Tax Act will be adopted by the U.S. state and local taxingauthorities. In December 2016, the Company decided to exit the Bangalore, India branch operations of its TRS-RenTelco electronics division. The wind down ofoperations in India began in 2017. As a result, a valuation allowance was recorded against the deferred tax assets that resulted primarily from accumulated netoperating loss carry forwards in India as of December 31, 2017 that management estimated the benefit of which will not be realized. As of December 31,2017, the Company’s foreign net operating losses for tax purposes were $0.4 million. If not realized, these carry forwards will begin to expire in 2023. For income tax purposes, deductible compensation related to share-based awards is based on the value of the award when realized, which may bedifferent than the compensation expense recognized by the company for financial statement purposes which is based on the award value on the date ofgrant. The difference between the value of the award upon grant, and the value of the award when ultimately realized, creates either additional tax expense orbenefit. In 2017, exercise of share-based awards by employees resulted in an excess tax benefit of $0.9 million. In 2016 and 2015 the exercise of share-basedawards by employees resulted in a tax shortfall of $1.1 million and $0.3 million, respectively, which was recorded to equity. -75- The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likelythan not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financialstatements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. TheCompany evaluated all of its tax positions for which the statute of limitations remained open and determined there were no material unrecognized taxbenefits as of December 31, 2017 and 2016. In addition, there have been no material changes in unrecognized benefits during 2017, 2016 and 2015.The Company is subject to income taxes in the U.S. federal jurisdiction, and various states and foreign jurisdictions. Tax regulations within eachjurisdiction are subject to interpretation of the related tax laws and regulations and require the application of significant judgment. With few exceptions, theCompany is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for the years before 2013.Our income tax returns are subject to examination by federal, state and foreign tax authorities. There may be differing interpretations of tax laws andregulations, and as a result, disputes may arise with these tax authorities involving the timing and amount of deductions and allocation of income.The Company recognizes interest and penalties related to unrecognized tax benefits in the (benefit) provision for income taxes in the accompanyingConsolidated Statements of Income for all periods presented. Such interest and penalties were not significant for the years ended December 31, 2017, 2016and 2015. NOTE 5. BENEFIT PLANSStock PlansThe Company adopted the 2016 Stock Incentive Plan (the “2016 Plan”), effective June 8, 2016, under which 2,000,000 shares of the common stock ofthe Company, plus the number of shares that remain available for grants of awards under the Company's 2007 Stock Option Plan (the “2007 Plan”) andbecome available as a result of forfeiture, termination, or expiration of awards previously granted under the 2007 Plan, were reserved for the grant of equityawards to its employees, directors and consultants. The equity awards have a maximum term of 7 years at an exercise price of not less than 100% of the fairmarket value of the Company's common stock on the date the equity award is granted. The 2016 Plan replaced the 2007 Plan.The 2016 Plan provides for the grant of awards in the form of stock options, stock appreciation rights, RSUs, the vesting of which may be performance-based or service-based, and other rights and benefits. Each RSU issued reduces the number of shares of the Company’s common stock available for grantunder the 2016 Plan by two shares. There were no modifications to the 2016 Plan and no awards classified as liabilities in the year ended December 31, 2017.For the years ended December 31, 2017, 2016 and 2015, the share-based compensation expense was $3.2 million, $3.1 million and $3.4 million,respectively, before provision for income taxes. The Company recorded a tax benefit of approximately $1.3 million, $1.2 million and $1.3 million,respectively, related to the aforementioned share-based compensation expenses. There was no capitalized share-based compensation expense in the yearsended December 31, 2017, 2016 and 2015. Stock OptionsAs of December 31, 2017, a cumulative total of 8,458,600 shares subject to options have been granted with exercise prices ranging from $3.47 to$40.37. Of these, options have been exercised for the purchase of 5,620,878 shares, while options for 1,628,622 shares have been terminated, and options for1,208,860 shares with exercise prices ranging from $23.84 to $40.37 remained outstanding under the stock plans. These options vest over five years andexpire seven years after grant. To date, no options have been issued to any of the Company’s non-employee advisors. As of December 31, 2017, 2,097,594shares remained available for issuance of awards under the stock plans.-76- A summary of the Company’s option activity and related information for the three years ended December 31, 2017 is as follows: Number ofoptions Weighted-averageprice Weighted-averageremainingcontractualterm(in years) Aggregateintrinsicvalue(in millions) Balance at December 31, 2014 1,343,760 $27.25 Options granted 456,200 31.69 Options exercised (270,650) 19.81 Options cancelled/forfeited/expired (118,660) 29.58 Balance at December 31, 2015 1,410,650 29.91 Options granted 881,800 25.26 Options exercised (368,085) 27.34 Options cancelled/forfeited/expired (339,930) 28.62 Balance at December 31, 2016 1,584,435 28.14 Options granted 299,600 34.66 Options exercised (398,275) 28.94 Options cancelled/forfeited/expired (276,900) 28.04 Balance at December 31, 2017 1,208,860 $29.52 4.94 $21.1 Exercisable at December 31, 2017 325,680 $28.65 4.04 $6.0 Expected to vest after December 31, 2017 680,049 $29.78 5.28 $11.7 The intrinsic value of stock options at any point in time is calculated as the difference between the exercise price of the underlying awards and thequoted price of the Company’s common stock. The aggregate intrinsic value of options exercised and sold under the Company’s stock option plans was $6.2million, $4.2 million and $5.7 million for the years ended December 31, 2017, 2016 and 2015, respectively, determined as of the date of option exercise. Asof December 31, 2017, there was approximately $4.3 million of total unrecognized compensation cost related to unvested share-based compensation optionarrangements granted under the Company’s stock plans, which is expected to be recognized over a weighted-average period of 2.7 years.The following table indicates the options outstanding and options exercisable by exercise price with the weighted-average remaining contractual lifefor the options outstanding and the weighted-average exercise price at December 31, 2017: Options Outstanding Options Exercisable Exercise price Numberoutstanding atDecember 31,2017 Weighted-averageremainingcontractual life(Years) Weighted-averagegrant datevalue Numberexercisable atDecember 31,2017 Weighted-averagegrant datevalue $20 – 25 481,510 5.13 $24.59 125,505 $24.58 $25 – 30 57,505 3.14 $28.05 37,300 $28.91 $30 – 35 654,265 4.94 $33.07 160,635 $32.09 $35 – 40 8,780 5.32 $38.61 2,240 $38.18 $40 – 45 6,800 6.67 $40.37 — $— $20 – 45 1,208,860 4.94 $29.52 325,680 $28.65 The Company utilizes the Black-Scholes option-pricing model to estimate the fair value of share-based compensation at the date of grant, whichrequires the use of accounting judgment and financial estimates, including estimates of the expected term option holders will retain their vested stockoptions before exercising them, the estimated volatility of the Company’s stock price over the expected term and the expected number of options that will beforfeited prior to the completion of their vesting requirements. Application of alternative assumptions could produce significantly different estimates of thefair value of share-based compensation amounts recognized in the Consolidated Statements of Income.-77- The fair value of each option granted was estimated on the date of grant using the Black-Scholes option-pricing model using the following weighted-average assumptions: Year Ended December 31, 2017 2016 2015 Expected term (in years) 5.0 5.0 5.0 Expected volatility 26.1% 28.7% 31.1%Expected dividend yields 3.0% 4.1% 3.2%Risk-free interest rates 2.0% 1.2% 1.6% The Company monitors option exercise behavior to determine the appropriate homogenous groups for estimation purposes. Currently, the Company’soption activity is separated into two categories: directors and employees. The expected term of the options represents the estimated period of time untilexercise and is based on historical experience, giving consideration to the option terms, vesting schedules and expectations of future behavior. Expectedstock volatility is based on historical stock price volatility of the Company and the risk-free interest rates are based on U.S. Treasury yields in effect on thedate of the option grant for the estimated period the options will be outstanding. The expected dividend yield is based upon the current dividend annualizedas a percentage of the grant exercise price.The weighted average grant date fair value per share was $6.28, $4.14 and $6.60 during the years ended December 31, 2017, 2016 and 2015,respectively.Restricted Stock UnitsThe following table summarizes the activity of the Company’s RSUs, which includes service-based and performance-based awards, for the three yearsended December 31, 2017: Weighted- Aggregate average intrinsic Number grant date value of shares fair value (in millions) Balance at December 31, 2014 311,583 $29.78 RSUs granted 79,300 31.86 RSUs vested (89,915) 27.97 RSUs cancelled/forfeited/expired (80,320) 31.35 Balance at December 31, 2015 220,648 30.70 RSUs granted 31,900 25.75 RSUs vested (59,008) 29.69 RSUs cancelled/forfeited/expired (68,300) 29.33 Balance at December 31, 2016 125,240 30.66 RSUs granted 70,960 34.53 RSUs vested (36,336) 26.99 RSUs cancelled/forfeited/expired (66,200) 32.63 Balance at December 31, 2017 93,664 $33.62 $4.4 Performance-based RSUs vest over five years, with 60% of the shares immediately vesting after three years when the performance criteria has beendetermined to have been met and 20% of the remaining shares vesting annually at the anniversary of the performance determination date, subject tocontinuous employment of the participant. There were 112,834 performance-based RSUs expected to vest as of December 31, 2017. Service-based RSUshave been issued to the Company’s directors and generally vest over twelve to fourteen months. There were 17,600 service-based RSUs expected to vest asof December 31, 2017. No forfeitures are currently expected. The total fair value of RSUs that vested during the years ended December 31, 2017, 2016 and2015 based on the weighted average grant date values was $1.0 million, $1.8 million and $2.5 million, respectively.Share-based compensation expense for RSUs for the year ended December 31, 2017, 2016 and 2015 was $1.4 million, $1.0 million and $1.7,respectively. As of December 31, 2017, the total unrecognized compensation expense related to unvested RSUs was $1.7 million and is expected to berecognized over a weighted-average period of 2.2 years.-78- Employee Stock Ownership and 401(k) PlansThe McGrath RentCorp Employee Stock Ownership and 401(k) Plan (the “KSOP”) provides that each participant may annually contribute an electedpercentage of his or her salary, not to exceed the statutory limit. Each employee who has at least three months of service with the Company and is 21 years orolder, is eligible to participate in the KSOP. The Company, at its discretion, may make matching contributions. Contributions are expensed in the yearapproved by the Board of Directors. Dividends on the Company’s stock held by the KSOP are treated as ordinary dividends and, in accordance with existingtax laws, are deducted by the Company in the year paid. For the year ended December 31, 2016 dividends deducted by the Company were $0.3 million,which resulted in a tax benefit of approximately $0.1 million in 2017.At December 31, 2017, the KSOP held 258,482 shares, or less than 2% of the Company’s total common shares outstanding. These shares are includedin basic and diluted earnings per share calculations. NOTE 6. SHAREHOLDERS’ EQUITYIn May 2008, the Company’s Board of Directors authorized the Company to repurchase an aggregate of 2,000,000 shares of the Company'soutstanding common stock. The Company has in the past made purchases of shares of its common stock from time to time in over-the-counter market(NASDAQ) transactions, through privately negotiated, large block transactions and through a share repurchase plan, in accordance with Rule 10b5-1 of theSecurities Exchange Act of 1934. In August 2015, the Company’s Board of Directors authorized the Company to repurchase an additional 2,000,000 sharesof the Company's outstanding common stock. The amount and time of the specific repurchases are subject to prevailing market conditions, applicable legalrequirements and other factors, including management’s discretion. All shares repurchased by the Company are canceled and returned to the status ofauthorized but unissued shares of common stock. There can be no assurance that any authorized shares will be repurchased and the repurchase program maybe modified, extended or terminated by the board of directors at any time. There were no repurchases of common stock during the twelve months endedDecember 31, 2017 and 2016. As of December 31, 2017, 1,592,026 shares remain authorized for repurchase under this authorization. NOTE 7. COMMITMENTS AND CONTINGENCIESThe Company leases certain facilities under various operating leases. Most of the lease agreements provide the Company with the option of renewingits lease at the end of the lease term, at the fair rental value. In most cases, management expects that in the normal course of business, facility leases will berenewed or replaced by other leases. Minimum payments under these leases, exclusive of property taxes and insurance, are as follows: (in thousands) Year Ended December 31, 2018 $1,632 2019 1,282 2020 941 2021 839 2022 863 Thereafter 1,964 $7,521 Rent expense was $3.6 million, $3.5 million and $3.5 million in 2017, 2016 and 2015, respectively.The Company is involved in various lawsuits and routine claims arising out of the normal course of its business. The Company maintains insurancecoverage for its operations and employees with appropriate aggregate, per occurrence and deductible limits as the Company reasonably determines necessaryor prudent with current operations and historical experience. The major policies include coverage for property, general liability, auto, directors and officers,health, and workers’ compensation insurances. The Company records a provision for a liability when it believes that it is both probable that a liability hasbeen incurred and the amount can be reasonably estimated. Significant judgment is required to determine both probability and the estimated amount. TheCompany reviews these provisions at least quarterly and adjusts these provisions to reflect the impact of negotiations, settlements, rulings, advice of legalcounsel, and updated information. Litigation is inherently unpredictable and is subject to significant uncertainties, some of which are beyond theCompany’s control. In the opinion of management, there was not at least a reasonable possibility that the ultimate amount of liability not covered byinsurance, if any, under any pending litigation and claims, individually or in the aggregate, will have a material adverse effect on the financial position oroperating results of the Company.-79- The Company’s health and workers’ compensation plans are self-funded high deductible plans with annual stop-loss insurance of $200,000 and$250,000 per claim, respectively. Insurance providers are responsible for making claim payments that exceed these amounts on an individual claim basis. Inaddition, the Company has stop loss insurance that pays for claim payments made during a twelve month coverage period that exceeds certain specifiedthresholds in the aggregate. The Company records an expense when health and workers compensation claim payments are made and accrues for the portionof claims incurred, but not yet paid at period end. The Company makes these accruals based upon a combination of historical claim payments, lossdevelopment experience and actuarial estimates. A high degree of judgment is required in developing the underlying assumptions and the resulting amountsto be accrued. In addition, our assumptions will change as the Company’s loss experience develops. All of these factors have the potential for impacting theamounts previously accrued and the Company may be required to increase or decrease the amounts previously accrued. At December 31, 2017 and 2016,accruals for the Company’s health and workers’ compensation high deductible plans were $2.9 million and $2.4 million, respectively. NOTE 8. INTANGIBLE ASSETSIntangible assets consist of the following: (dollar amounts in thousands) Estimateduseful life December 31, (In years) 2017 2016 Trade name Indefinite $5,700 $5,700 Customer relationships 11 9,611 9,611 15,311 15,311 Less accumulated amortization (7,587) (6,716) $7,724 $8,595 Intangible assets with finite useful lives are amortized over their respective useful lives. Amortization expense in each of the years endedDecember 31, 2017, 2016 and 2015 were $0.9 million. Based on the carrying values at December 31, 2017 and assuming no subsequent impairment of theunderlying assets, the annual amortization is expected to be $0.9 million in 2018 through 2019 and $0.2 million in 2020. NOTE 9. RELATED PARTY TRANSACTIONSThere were no related party transactions in the years ended December 31, 2017 and 2016, or amounts owed to related parties at such dates. -80- NOTE 10. SEGMENT REPORTINGFASB guidelines establish annual and interim reporting standards for an enterprise’s operating segments and related disclosures about its products,services, geographic areas and major customers. In accordance with these guidelines the Company’s four reportable segments are Mobile Modular, TRS-RenTelco, Adler Tanks and Enviroplex. Management focuses on several key measures to evaluate and assess each segment’s performance including rentalrevenue growth, gross margin, and income before provision for income taxes. Excluding interest expense, allocations of revenue and expense not directlyassociated with one of these segments are generally allocated to Mobile Modular, TRS-RenTelco and Adler Tanks, based on their pro-rata share of directrevenues. Interest expense is allocated amongst Mobile Modular, TRS-RenTelco and Adler Tanks based on their pro-rata share of average rental equipmentat cost, goodwill, intangible assets, accounts receivable, deferred income and customer security deposits. The Company does not report total assets bybusiness segment. Summarized financial information for the years ended December 31, 2017, 2016 and 2015, for the Company’s reportable segments isshown in the following tables: Segment Data(dollar amounts in thousands) MobileModular TRS-RenTelco AdlerTanks Enviroplex 1 Consolidated Year Ended December 31, 2017 Rental revenues $142,584 $82,812 $64,021 $— $289,417 Rental related services revenues 50,448 2,858 24,762 — 78,068 Sales and other revenues 38,234 22,374 2,572 31,369 94,549 Total revenues 231,266 108,044 91,355 31,369 462,034 Depreciation of rental equipment 21,247 32,891 15,770 — 69,908 Gross profit 103,935 50,289 43,218 8,903 206,345 Selling and administrative expenses 55,583 22,171 29,542 4,309 111,605 Income from operations 48,352 28,118 13,676 4,594 94,740 Interest expense (income) allocation (6,671) (2,320) (3,071) 440 (11,622)Income before (benefit) provision for income taxes 41,681 26,132 10,605 5,034 83,452 Rental equipment acquisitions 34,526 58,781 4,800 — 98,107 Accounts receivable, net (period end) 59,274 19,581 18,663 8,354 105,872 Rental equipment, at cost (period end) 775,400 262,325 309,808 — 1,347,533 Rental equipment, net book value (period end) 543,857 109,482 208,981 — 862,320 Utilization (period end) 2 77.8% 61.7% 57.5% Average utilization 2 76.8% 62.9% 56.0% -81- Segment Data (Continued)(dollar amounts in thousands) MobileModular TRS-RenTelco AdlerTanks Enviroplex 1 Consolidated Year Ended December 31, 2016 Rental revenues $130,496 $82,307 $58,585 $— $271,388 Rental related services revenues 49,206 2,846 23,807 — 75,859 Sales and other revenues 29,810 23,464 1,438 22,121 76,833 Total revenues 209,512 108,617 83,830 22,121 424,080 Depreciation of rental equipment 21,001 35,256 15,940 — 72,197 Gross profit 93,816 45,797 37,409 7,145 184,167 Selling and administrative expenses 51,432 21,896 27,610 3,970 104,908 Income from operations 42,384 23,901 9,799 3,175 79,259 Interest expense (income) allocation (6,804) (2,465) (3,200) 262 (12,207)Income before provision for income taxes 35,580 21,315 6,599 3,437 66,931 Rental equipment acquisitions 43,099 30,505 1,030 — 74,634 Accounts receivable, net (period end) 55,916 19,506 16,150 5,305 96,877 Rental equipment, at cost (period end) 744,099 245,700 306,701 — 1,324,057 Rental equipment, net book value (period end) 544,421 90,172 221,778 — 856,371 Utilization (period end) 2 77.3% 61.0% 50.7% Average utilization 2 76.6% 60.6% 50.1% 2015 Rental revenues $115,986 $89,208 $68,502 $— $273,696 Rental related services revenues 45,616 3,055 24,643 — 73,314 Sales and other revenues 22,682 22,754 1,486 10,612 57,534 Total revenues 184,284 115,017 94,631 10,612 404,544 Depreciation of rental equipment 19,246 39,974 15,993 — 75,213 Gross profit 78,771 47,836 47,397 2,903 176,907 Selling and administrative expenses 46,496 22,930 27,494 3,030 99,950 Income from operations 32,275 24,906 19,903 (127) 76,957 Interest expense (income) allocation (5,363) (2,194) (2,729) 194 (10,092)Income before provision for income taxes 26,912 22,224 17,174 67 66,377 Rental equipment acquisitions 79,622 44,316 9,440 — 133,378 Accounts receivable, net (period end) 53,550 21,784 17,955 1,728 95,017 Rental equipment, at cost (period end) 736,875 262,945 310,263 — 1,310,083 Rental equipment, net book value (period end) 529,483 102,191 237,927 — 869,601 Utilization (period end) 2 76.9% 58.7% 49.7% Average utilization 2 75.8% 60.5% 58.3% 1Gross Enviroplex sales revenues were $31,369, $22,206 and $11,530 in 2017, 2016 and 2015, respectively, which includes inter-segment sales to Mobile Modular of$0, $85 and $918, which have been eliminated in consolidation. 2Utilization is calculated each month by dividing the cost of rental equipment on rent by the total cost of rental equipment excluding new equipment inventory andaccessory equipment. The average utilization for the period is calculated using the average costs of rental equipment.No single customer accounted for more than 10% of total revenues during 2017, 2016 and 2015. Revenue from foreign country customers accountedfor 4%, 5% and 5% of the Company’s revenues for the same periods, respectively. -82- NOTE 11. QUARTERLY FINANCIAL INFORMATION (unaudited)Quarterly financial information for each of the two years ended December 31, 2017 is summarized below: (in thousands, except per share amounts) 2017 First Second Third Fourth Year Operations Data Rental revenues $67,978 $69,953 $73,781 $77,705 $289,417 Total revenues 94,837 109,582 135,388 122,227 462,034 Gross profit 43,670 49,211 58,775 54,689 206,345 Income from operations 15,822 21,846 30,286 26,786 94,740 Income before (benefit) provision for income taxes 13,259 18,908 27,336 23,949 83,452 Net income 7,973 11,461 16,762 117,724 153,920 Earnings per share: Basic $0.33 $0.48 $0.70 $4.90 $6.41 Diluted $0.33 $0.48 $0.69 $4.82 $6.34 Dividends declared per share $0.260 $0.260 $0.260 $0.260 $1.04 Shares used in per share calculations: Basic 23,950 23,985 24,015 24,044 23,999 Diluted 24,232 24,092 24,228 24,410 24,269 Balance Sheet Data Rental equipment, net $856,981 $863,207 $865,724 $862,320 $862,320 Total assets 1,130,734 1,150,123 1,156,415 1,147,854 1,147,854 Notes payable 323,483 330,287 323,117 303,414 303,414 Shareholders’ equity 396,625 402,365 412,782 524,184 524,184 2016 First Second Third Fourth Year Operations Data Rental revenues $66,532 $66,747 $67,757 $70,352 $271,388 Total revenues 93,699 103,105 121,993 105,283 424,080 Gross profit 40,655 43,756 50,433 49,323 184,167 Income from operations 14,258 18,073 24,232 22,696 79,259 Income before provision for income taxes 10,853 15,006 21,277 19,795 66,931 Net income 6,566 9,079 12,872 9,734 38,251 Earnings per share: Basic $0.28 $0.38 $0.54 $0.41 $1.60 Diluted $0.27 $0.38 $0.54 $0.40 $1.60 Dividends declared per share $0.255 $0.255 $0.255 $0.255 $1.02 Shares used in per share calculations: Basic 23,862 23,900 23,911 23,927 23,900 Diluted 23,911 23,949 24,041 24,123 23,976 Balance Sheet Data Rental equipment, net $867,215 $868,422 $862,528 $856,371 $856,371 Total assets 1,132,355 1,148,018 1,144,923 1,128,276 1,128,276 Notes payable 365,772 363,121 345,286 326,266 326,266 Shareholders’ equity 380,512 383,313 390,600 394,287 394,287 -83-ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.None.ITEM 9A.CONTROLS AND PROCEDURES.Evaluation of Disclosure Controls and Procedures. The Company’s management under the supervision and with the participation of the Company’sChief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) is responsible for establishing and maintaining “disclosure controls and procedures”(as defined in rules promulgated under the Securities Exchange Act of 1934, as amended) for the Company. Based on their evaluation the CEO and CFO haveconcluded that the Company’s disclosure controls and procedures were effective as of December 31, 2017.Changes in Internal Control over Financial Reporting. During the last quarter of the Company’s fiscal year ended December 31, 2017, there were nochanges in the Company’s internal control that have materially affected, or are reasonably likely to materially affect, the Company’s internal control overfinancial reporting.Limitations on the Effectiveness of Controls. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute,assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provideabsolute assurance that all control issues, if any, within a company have been detected. The Company’s disclosure controls and procedures are designed toprovide reasonable assurance of achieving their objectives, and the CEO and CFO have concluded that these controls and procedures are effective at the“reasonable assurance” level.Management’s Assessment of Internal Control. Management’s assessment of the effectiveness of the Company’s internal control over financialreporting as of December 31, 2017, is discussed in the Management’s Report on Internal Control Over Financial Reporting included on page 59.The effectiveness of the Company’s internal control over financial reporting as of December 31, 2017 has been audited by Grant Thornton LLP, theCompany’s independent registered public accounting firm, and its report is included in this Annual Report on Form 10-K.ITEM 9B.OTHER INFORMATION.None. -84- PART IIIITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.The information required by this Item is incorporated by reference to McGrath RentCorp’s definitive Proxy Statement with respect to its 2018 AnnualMeeting of Shareholders to be held on June 6, 2018, which will be filed with the Securities and Exchange Commission no later than April 27, 2018.ITEM 11.EXECUTIVE COMPENSATION.The information required by this Item is incorporated by reference to McGrath RentCorp’s definitive Proxy Statement with respect to its 2018 AnnualMeeting of Shareholders to be held on June 6, 2018, which will be filed with the Securities and Exchange Commission no later than April 27, 2018.ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATEDSTOCKHOLDERMATTERS.The information required by this Item is incorporated by reference to McGrath RentCorp’s definitive Proxy Statement with respect to its 2018 AnnualMeeting of Shareholders to be held on June 6, 2018, which will be filed with the Securities and Exchange Commission no later than April 27, 2018.ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE.The information required by this Item is incorporated by reference to McGrath RentCorp’s definitive Proxy Statement with respect to its 2018 AnnualMeeting of Shareholders to be held on June 6, 2018, which will be filed with the Securities and Exchange Commission no later than April 27, 2018.ITEM 14.PRINCIPAL ACCOUNTING FEES AND SERVICES.The information required by this Item is incorporated by reference to McGrath RentCorp’s definitive Proxy Statement with respect to its 2018 AnnualMeeting of Shareholders to be held on June 6, 2018, which will be filed with the Securities and Exchange Commission no later than April 27, 2018. -85- PART IVITEM 15.EXHIBITS, FINANCIAL STATEMENT SCHEDULES.Index of documents filed as part of this report: 1.The following Consolidated Financial Statements of McGrath RentCorp are included in Item 8. Page of this reportManagement’s Report on Internal Control over Financial Reporting 58Reports of Independent Registered Public Accounting Firm 59Report on Internal Control over Financial Reporting 59Report on Consolidated Financial Statements 60Consolidated Financial Statements Consolidated Balance Sheets as of December 31, 2017 and 2016 61Consolidated Statements of Income for the Years Ended December 31, 2017, 2016 and 2015 62Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2017, 2016 and 2015 63Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2017, 2016 and 2015 64Consolidated Statements of Cash Flows for the Years Ended December 31, 2017, 2016 and 2015 65Notes to Consolidated Financial Statements 662.Financial Statement Schedules. None 3.Exhibits. See Index of Exhibits on page 87 of this report. Schedules and exhibits required by Article 5 of Regulation S-X other than those listed are omitted because they are not required, are not applicable, orequivalent information has been included in the consolidated financial statements, and notes thereto, or elsewhere herein. -86- Number Description Method of Filing 3.1 Articles of Incorporation of McGrath RentCorp. ‘P’ Filed as exhibit 19.1 to the Company’s Quarterly Report on Form 10-Q for thequarter ended June 30, 1988 (filed August 14, 1988), and incorporated herein byreference. 3.1.1 Amendment to Articles of Incorporation of McGrath RentCorp. ‘P’ Filed as exhibit 3.1 to the Company’s Registration Statement on Form S-1 (filedMarch 28, 1991 Registration No. 33-39633), and incorporated herein byreference. 3.1.2 Amendment to Articles of Incorporation of McGrath RentCorp. Filed as exhibit 3.1.2 to the Company’s Annual Report on Form 10-K for the yearended December 31, 1997 (filed March 31, 1998), and incorporated herein byreference. 3.2 Amended and Restated Bylaws Filed as exhibit 3.3 to the Company’s Current Report on Form 8-K (filed June 17,2014) and incorporated herein by reference. 4.1 Note Purchase and Private Shelf Agreement between the Company and PrudentialInvestment Management, Inc., as placement agent, dated June 2, 2004. Filed as exhibit 10.12 to the Company’s Current Report on Form 8-K (filed June10, 2004), and incorporated herein by reference. 4.1.1 Amendment to Note Purchase and Private Shelf Agreement between the Companyand Prudential Investment Management, Inc., as placement agent, effective as ofJuly 11, 2005. Filed as exhibit 10.19 to the Company’s Current Report on Form 8-K (filed July15, 2005), and incorporated herein by reference. 4.1.2 Amendment to Note Purchase and Private Shelf Agreement between the Companyand Prudential Investment Management, Inc., as placement agent, effective as ofOctober 20, 2008. Filed as exhibit 4.1.2 to the Company’s Annual Report on Form 10-K for the yearended December 31, 2009 (filed February 26, 2010), and incorporated herein byreference. 4.1.3 Multiparty Guaranty between Enviroplex, Inc., Mobile Modular ManagementCorporation, Prudential Investment Management, Inc., and such other parties thatbecome Guarantors thereunder, dated June 2, 2004. Filed as exhibit 10.13 to the Company’s Current Report on Form 8-K (filed June10, 2004), and incorporated herein by reference. 4.1.4 Release from Obligations (TRS-RenTelco Inc.) related to the Note Purchase andPrivate Shelf Agreement dated June 2, 2004 by and among the Company, certainparties thereto, and Prudential Investment Management, Inc. Filed as exhibit 10.15 to the Company’s Quarterly Report on Form 10-Q (filedAugust 3, 2006) and incorporated herein by reference. 4.1.5 Indemnity, Contribution and Subordination Agreement between Enviroplex, Inc.,Mobile Modular Management Corporation, the Company and such other partiesthat become Guarantors thereunder, dated June 2, 2004. Filed as exhibit 10.14 to the Company’s Current Report on Form 8-K (filed June10, 2004), and incorporated herein by reference. 4.1.6 Amendment to Note Purchase and Private Shelf Agreement between the Companyand Prudential Investment Management, Inc., as placement agent effective August4, 2009. Filed as exhibit 4.1 to the Company’s Quarterly Report on Form 10-Q (filedAugust 6, 2009), and incorporated herein by reference. 4.1.7 Note Purchase and Private Shelf Agreement between the Company and PrudentialInvestment Management, Inc., dated April 21, 2011. Filed as exhibit 10.1 to the Company’s Current Report on Form 8-K (filed April21, 2011), and incorporated herein by reference. 4.1.8 Amendment, dated as of March 17, 2014, to the Note Purchase and Private ShelfAgreement dated as of April 21, 2011 among the Company, PrudentialInvestment Management, Inc., The Prudential Insurance Company of Americaand Prudential Retirement Insurance and Annuity Company. Filed as exhibit 10.1 to the Company’s Current Report on Form 8-K (filed March20, 2014) and incorporated herein by reference. 4.1.9 Amendment, dated as of February 9, 2016, to the Note Purchase and Private ShelfAgreement dated as of April 21, 2011 among the Company, PrudentialInvestment Management, Inc., The Prudential Insurance Company of Americaand Prudential Retirement Insurance and Annuity Company, as amended onMarch 17, 2014. Filed as exhibit 10.1 to the Company’s Current Report on Form 8-K (filedFebruary 11, 2016) and incorporated herein by reference. 4.2 Credit Agreement dated as of March 31, 2016 among the Company, Bank ofAmerica, N.A. as Administrative Agent, Swing Line Lender and L/C Issuer, andThe Other Lenders Party thereto. Filed as exhibit 10.1 to the Company’s Current Report on Form 8-K (filed April 5,2016) and incorporated herein by reference. 4.2.1 Guaranty dated as of March 31, 2016 among certain domestic subsidiaries of theCompany in favor of Bank of America, N.A., in its capacity as the administrativeagent for the Lenders. Filed as exhibit 10.2 to the Company’s Current Report on Form 8-K (filed April 5,2016) and incorporated herein by reference. 4.2.2 $12,000,000 committed Credit Facility Letter Agreement between the Companyand MUFG Union Bank, N.A., dated as of March 31, 2016. Filed as exhibit 10.3 to the Company’s Current Report on Form 8-K (filed April 5,2016) and incorporated herein by reference. 4.2.3 $12,000,000 Credit Line Note, dated March 31, 2016, in favor of MUFG UnionBank, N.A. Filed as exhibit 10.4 to the Company’s Current Report on Form 8-K (filed April 5,2016) and incorporated herein by reference. -87- Number Description Method of Filing 10.1 McGrath RentCorp 1998 Stock Option Plan as amended and restated onNovember 22, 2002. Filed as exhibit 10.2 to the Company’s Annual Report on Form 10-K for the yearended December 31, 2002 (filed March 20, 2003), and incorporated herein byreference. 10.1.1 Exemplar Incentive Stock Option for Employees Under the 1998 Stock OptionPlan. Filed as exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for thequarter ended September 30, 1998 (filed November 12, 1998), and incorporatedherein by reference. 10.1.2 Exemplar Non-Qualified Stock Option for Directors under the 1998 Stock OptionPlan. Filed as exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for thequarter ended September 30, 1998 (filed November 12, 1998), and incorporatedherein by reference. 10.2 Exemplar Form of the Directors, Officers and Other Agents IndemnificationAgreements. Filed as exhibit 10.3 to the Company’s Annual Report on Form 10-K for the yearended December 31, 2001 (filed March 18, 2002), and incorporated herein byreference. 10.3 McGrath RentCorp Employee Stock Ownership Plan, as amended and restated onDecember 31, 2008. Filed as exhibit 10.3 to the Company’s Annual Report on Form 10-K for the yearended December 31, 2008 (filed February 26, 2009), and incorporated herein byreference. 10.3.1 McGrath RentCorp Employee Stock Ownership Trust Agreement, as amended andrestated on December 31, 2008. Filed as exhibit 10.3.1 to the Company’s Annual Report on Form 10-K for theyear ended December 31, 2008 (filed February 26, 2009), and incorporatedherein by reference. 10.4 McGrath RentCorp 2007 Stock Incentive Plan. Filed as exhibit 10.12 to the Company's Quarterly Report on Form 10-Q for thequarter ended June 30, 2007 (filed August 2, 2007), and incorporated herein byreference. 10.4.1 Form of 2007 Stock Incentive Plan Stock Option Award and Agreement. Filed as exhibit 10.12.1 to the Company's Quarterly Report on Form 10-Q for thequarter ended June 30, 2007 (filed August 2, 2007), and incorporated herein byreference. 10.4.2 Form of 2007 Stock Incentive Plan Non-Qualified Stock Option Award andAgreement. Filed as exhibit 10.12.2 to the Company's Quarterly Report on Form 10-Q for thequarter ended June 30, 2007 (filed August 2, 2007), and incorporated herein byreference. 10.4.3 Form of 2007 Stock Incentive Plan Stock Appreciation Right Award andAgreement. Filed as exhibit 10.4.3 to the Company’s Quarterly Report on Form 10-Q for thequarter ended March 31, 2010 (filed May 6, 2010), and incorporated herein byreference. 10.4.4 Form of 2007 Stock Incentive Plan Restricted Stock Unit Award and Agreement. Filed as exhibit 10.4.4 to the Company’s Quarterly Report on Form 10-Q for thequarter ended March 31, 2010 (filed May 6, 2010), and incorporated herein byreference. 10.5 McGrath RentCorp Employee Stock Ownership and 401(k) Plan Filed as exhibit 4.5 to the Company’s Registration Statement on Form S-8 (filedAugust 10, 2012) and incorporated herein by reference. 10.6 McGrath RentCorp Change in Control Severance Plan and Summary PlanDescription Filed as exhibit 10.7 to the Company's Quarterly Report on Form 10-Q for thequarter ended June 30, 2013 (filed July 31, 2013), and incorporated herein byreference. 10.7 McGrath RentCorp 2016 Stock Incentive Plan Filed as Appendix A to the Company's Proxy Statement for the 2016 AnnualMeeting (filed April 29, 2016), and incorporated herein by reference. 10.7.1 Form of 2016 Stock Incentive Plan Restricted Stock Unit Award and Agreement Filed as exhibit 10.1.1 to the Company's Quarterly Report on Form 10-Q for thequarter ended June 30, 2016 (filed August 2, 2016), and incorporated herein byreference. 10.7.2 Form of 2016 Stock Incentive Plan Performance-Based Restricted Stock UnitAward and Agreement Filed as exhibit 10.1.2 to the Company's Quarterly Report on Form 10-Q for thequarter ended June 30, 2016 (filed August 2, 2016), and incorporated herein byreference. 10.7.3 Form of 2016 Stock Incentive Plan Stock Appreciation Right Award andAgreement Filed as exhibit 10.1.3 to the Company's Quarterly Report on Form 10-Q for thequarter ended June 30, 2016 (filed August 2, 2016), and incorporated herein byreference. 21.1 List of Subsidiaries. Filed herewith. 23.1 Written Consent of Grant Thornton LLP. Filed herewith. 31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith. 31.2 Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith. -88- Number Description Method of Filing 32.1 Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Furnished herewith. 32.2 Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Furnished herewith. 101 The following materials from McGrath RentCorp’s annual Report on Form 10-Kfor the year ended December 31, 2016, formatted in XBRL (eXtensible BusinessReporting Language): (i) the Condensed Consolidated Statement of Income, (ii)the Condensed Consolidated Balance Sheet, (iii) the Condensed ConsolidatedStatement of Cash Flows, and (iv) Notes to Condensed Consolidated FinancialStatements. ‘P’ = exhibit was filed in paper form -89- SIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed onits behalf by the undersigned, thereunto duly authorized. Date: February 27, 2018 McGrath RentCorp by: /s/ Joseph F. Hanna JOSEPH F. HANNA Chief Executive Officer and President(Principal Executive Officer) by: /s/ Keith E. Pratt KEITH E. PRATT Executive Vice President and Chief Financial Officer(Principal Financial Officer) by: /s/ David M. Whitney DAVID M. WHITNEY Vice President and Controller(Principal Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities andon the dates indicated. Name Title Date /s/ William J. Dawson Director February 27, 2018WILLIAM J. DAWSON /s/ Elizabeth A. Fetter Director February 27, 2018ELIZABETH A. FETTER /s/ Joseph F. Hanna Chief Executive Officer, President and Director February 27, 2018JOSEPH F. HANNA /s/ Bradley M. Shuster Director February 27, 2018BARDLEY M. SHUSTER /s/ M. Richard Smith Director February 27, 2018M. RICHARD SMITH /s/ Dennis P. Stradford Director February 27, 2018DENNIS P. STRADFORD /s/ Ronald H. Zech Chairman of the Board February 27, 2018RONALD H. ZECH -90-Exhibit 21.1LIST OF SUBSIDIARIESMobile Modular Management CorporationEnviroplex, Inc.TRS-RenTelco Inc.Adler Tank Rentals, LLCMcGrath 180, LLCMcGrath RentCorp Asia PTE. LTD.TRS-RenTelco India Private Limited Exhibit 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We have issued our reports dated February 27, 2018, with respect to the consolidated financial statements and internal control over financialreporting included in the Annual Report of McGrath RentCorp on Form 10-K for the year ended December 31, 2017. We consent to theincorporation by reference of said reports in the Registration Statements of McGrath RentCorp on Forms S-8 (File No. 333-74089, File No. 333-151815, File No. 333-161128, and File No. 333-183231./s/ Grant Thornton LLPSan Jose, CaliforniaFebruary 27, 2018  Exhibit 31.1McGRATH RENTCORPSECTION 302 CERTIFICATIONI, Joseph F Hanna, certify that:1.I have reviewed this annual report on Form 10-K of McGrath RentCorp;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and have: a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared; b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recentfiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely tomaterially affect, the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting, which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrols over financial reporting.Date: February 27, 2018 By: /s/ Joseph F. Hanna Joseph F. Hanna Chief Executive Officer  Exhibit 31.2McGRATH RENTCORPSECTION 302 CERTIFICATIONI, Keith E. Pratt, certify that:1.I have reviewed this annual report on Form 10-K of McGrath RentCorp;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and have: a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared; b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recentfiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely tomaterially affect, the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting, which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrols over financial reporting.Date: February 27, 2018 By: /s/ Keith E. Pratt Keith E. Pratt Chief Financial Officer  Exhibit 32.1McGRATH RENTCORPSECTION 906 CERTIFICATIONIn connection with the periodic report of McGrath RentCorp (the "Company") on Form 10-K for the period ended December 31, 2017 as filed with theSecurities and Exchange Commission (the "Report"), I, Joseph F. Hanna, Chief Executive Officer of the Company, hereby certify as of the date hereof, solelyfor purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge:(1) the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company atthe dates and for the periods indicated. This Certification has not been, and shall not be deemed, “filed” with the Securities and Exchange Commission for purposes of Section 18 of the Securitiesand Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to liability of that section. This certification will not be deemed to beincorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Companyspecifically incorporates it by reference.Date: February 27, 2018 By: /s/ Joseph F. Hanna Joseph F. Hanna Chief Executive Officer  Exhibit 32.2McGRATH RENTCORPSECTION 906 CERTIFICATIONIn connection with the periodic report of McGrath RentCorp (the "Company") on Form 10-K for the period ended December 31, 2017 as filed with theSecurities and Exchange Commission (the "Report"), I, Keith E. Pratt, Chief Financial Officer of the Company, hereby certify as of the date hereof, solely forpurposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge:(1) the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company atthe dates and for the periods indicated. This Certification has not been, and shall not be deemed, “filed” with the Securities and Exchange Commission for purposes of Section 18 of the Securitiesand Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to liability of that section. This certification will not be deemed to beincorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Companyspecifically incorporates it by reference.Date: February 27, 2018 By: /s/ Keith E. Pratt Keith E. Pratt Chief Financial Officer 

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