McGrath RentCorp
Annual Report 2018

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, 2018☐☐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 every Interactive Data File required to be submitted 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 submit 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, a smaller reporting company, or an emerging growthcompany. See the definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. 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, 2018 (based upon the closing sale price of the registrant’scommon stock as reported on the NASDAQ Global Select Market on June 30, 2018): $1,515,726,679.As of February 25, 2019, 24,182,321 shares of Registrant’s Common Stock were outstanding.DOCUMENTS INCORPORATED BY REFERENCEMcGrath RentCorp’s definitive proxy statement with respect to its 2019 Annual Meeting of Shareholders to be held on June 5, 2019 which will be filed with the Securitiesand Exchange Commission within 120 days after the end of its fiscal year ended December 31, 2018, is incorporated by reference into Part III (Items 10, 11, 12, and 13).Exhibit index appears on page 88 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 2018 total revenues.No single customer accounted for more than 10% of total revenues during 2018, 2017 and 2016. Revenue from foreign country customers accountedfor 4% of the Company’s revenues in 2018 and 2017, and 5% in 2016.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 four 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, 2018, the Company had 1,066 employees, of whom 87 were primarily administrative and executive personnel, with 577, 199, 127and 76 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 at our website www.mgrc.com. These filings include ourannual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant toSection 13(a) or 15(d) of the Securities Act of 1934, which are available as soon as reasonably practicable after the Company electronically files such materialwith, or furnishes such material to, the SEC. Information included on our website is not incorporated by reference to this Form 10-K. Furthermore, all reportsthe Company files with the SEC are available through the SEC’s website at www.sec.gov. In addition, the public may read and copy materials filed by theCompany at the SEC’s Public Reference Room located at 100 F Street, N.E., Washington, D.C. 20549. The public may also obtain additional information onthe operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.We have a Code of Business Conduct and Ethics which applies to all directors, officers and employees. Copies of this code can be obtained at ourwebsite www.mgrc.com. Any waivers to the Code of Business Conduct and Ethics and any amendments to such code applicable to our Chief ExecutiveOfficer, Chief Financial Officer, Principal Accounting Officer 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 2018, MobileModular purchased 33% 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, Florida and Georgia, serving large geographic areasin these states, and sales offices serving North Carolina, Maryland, Virginia and Washington, D.C. The California, Texas, Florida and Georgia regional salesand inventory 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, 14 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.-4- 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 quality fleet. In addition, through its ongoingrepair, refurbishment and maintenance programs, the Company believes Mobile Modular’s buildings are the best maintained in the industry. The Companydepreciates its modular buildings over an 18 year estimated useful life to a 50% residual value. Older buildings continue to be productive primarily becauseof Mobile Modular’s focus on ongoing fleet maintenance. Also, as a result of Mobile Modular’s maintenance programs, when a modular unit is sold, a highpercentage of the equipment’s capitalized cost is recovered. In addition, the fleet’s utilization is regionally optimized by managing inventory throughestimates of market demand, fulfillment of current rental and sale order activity, modular returns and capital 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, Louisiana, North Carolina, South Carolina, Georgia,Maryland, Virginia and Washington, D.C. Management believes the demand for rental classrooms is caused by shifting and fluctuating school populations,the limited state funds for new construction, the need for temporary classroom space during reconstruction of older schools, class size reduction and thephasing out of portable classrooms compliant with older building codes (see “Classroom Rentals and Sales to Public Schools (K-12)” below). Other customerapplications include sales offices, construction field offices, health care facilities, church sanctuaries and child care facilities. Industrial, manufacturing,entertainment and utility companies, as well as governmental agencies commonly use large multi-modular complexes to serve their interim administrativeand operational space needs. Modulars offer customers quick, cost-effective space solutions while conserving their capital. The Company’s corporate offices,and California, Texas, Florida and Georgia 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.-5- At December 31, 2018, Mobile Modular owned 53,035 new or previously rented modulars and portable storage containers with an aggregate cost of$817,375 million including accessories, or an average cost per unit of $15,411. Utilization is calculated at the end of each month by dividing the cost ofrental equipment on rent by the total cost of rental equipment, excluding new equipment inventory and accessory equipment. At December 31, 2018, fleetutilization was 79.3% and average fleet utilization during 2018 was 78.2%. The Mobile Modular segment includes the results of operations of MobileModular Portable Storage, which represented approximately 8% of the Company’s 2018 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 2018 Mobile Modular’s largest sale represented approximately 5% of Mobile Modular’s sales, 2% 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. Some of our larger national competitors in the modular building leasingindustry, notably WillScot Corporation, have a greater range of products and services, greater financial and marketing resources, larger customer bases, andgreater name recognition than we have. In addition, a number of other smaller companies operate regionally throughout the country. Mobile Modularoperates primarily in California, Texas, Florida, Louisiana, North Carolina, South Carolina, Georgia, Virginia, Maryland and Washington, D.C. Significantcompetitive factors in the rental business include availability, price, service, reliability, appearance and functionality of the product. Mobile Modularmarkets high quality, well-constructed and attractive modulars. Part of the Company’s strategy for modulars is to create facilities and infrastructurecapabilities that its competitors cannot easily duplicate. The Company's facilities and related infrastructure enable it to modify modulars efficiently and costeffectively to meet its customers’ needs. Management's goal is to be more responsive at less expense. Management believes this strategy, together with itsemphasis on prompt and efficient customer service, gives Mobile Modular a competitive advantage. Mobile Modular is determined to respond quickly torequests for information, and provide experienced assistance for the first-time user, rapid delivery and timely repair of its modular units. Mobile Modular’salready high level of efficiency and responsiveness continues to improve as the Company upgrades procedures, processes and computer systems that controlits internal operations. The Company anticipates intense competition to continue and believes it must continue to improve its products and services toremain 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, Louisiana, North Carolina, South Carolina, Georgia, Maryland, Virginiaand Washington, D.C. Enviroplex sells classrooms in the California market. California is Mobile Modular’s largest educational market. Historically, demandin this market has been fueled by shifting and fluctuating student populations, insufficient funding for new school construction, class size reductionprograms, modernization of aging school facilities and the phasing out of portable classrooms no longer compliant with current building codes. Thefollowing table shows the approximate percentages of the Company’s modular rental and sales revenues, and of its consolidated rental and sales revenues forthe past five years, 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: 2018 2017 2016 2015 2014 Modular Rental Revenues (Mobile Modular) 33% 33% 34% 33% 32% Modular Sales Revenues (Mobile Modular & Enviroplex) 70% 76% 67% 43% 49% Modular Rental and Sales Revenues (Mobile Modular & Enviroplex) 44% 47% 43% 35% 37% Consolidated Rental and Sales Revenues 1 24% 26% 23% 16% 16%1Consolidated 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. There is nocertainty on the timing of the bond sales and it could take additional years before projects funded by these bonds generate meaningful demand forrelocatable classrooms. -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, 2018, theoriginal cost of electronic test equipment inventory was comprised of 75% general purpose electronic test equipment and 25% 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, 2018, TRS-RenTelco had an electronic test equipment rental inventory including accessories with an aggregate cost of $285.1million. 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 62.1% as of December 31, 2018 and averaged 62.7% 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 20% to 23% of total annual gross profit for our electronics division. For 2018,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 2018, approximately 19% of the electronic testequipment revenues were derived from sales. The largest electronic test equipment sale during 2018 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, 2018, Adler Tanks had rentalequipment inventory including accessories with an aggregate cost of $313.6 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 56.4% at December 31, 2018 and averaged 59.9%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 (acquired by United Rentals in July 2018), Rain For Rent and Mobile Mini, may be larger than we are and may have greaterfinancial and other resources than we have. Some of our competitors also have longer operating histories, lower cost basis of rental equipment, lower coststructures and more established relationships with equipment manufacturers than we have. In addition, certain of our competitors are more geographicallydiverse than we are and have greater name recognition among customers than we do. As a result, our competitors that have these advantages may be betterable to attract and retain customers and provide their products and services at lower rental rates. Adler Tanks competes with these companies based uponproduct availability, product quality, price, service and reliability. We may encounter increased competition in the markets that we serve from existingcompetitors or from new market entrants 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 11. 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, 2018 2017 2016 2015 2014 Relocatable Modular Buildings (operating under Mobile Modular and Enviroplex) Revenues Rental $159,136 $142,584 $130,496 $115,986 $96,457 Rental related services 54,696 50,448 49,206 45,616 35,263 Total Modular rental operations 213,832 193,032 179,702 161,602 131,720 Sales — Mobile Modular 39,467 37,435 29,393 22,248 29,394 Sales — Enviroplex 29,046 31,369 22,121 10,612 17,457 Total Modular sales 68,513 68,804 51,514 32,860 46,851 Other 1,275 799 417 434 461 Total Modular revenues $283,620 $262,635 $231,633 $194,896 $179,032 Percentage of rental revenues 49.9% 49.3% 48.1% 42.4% 35.8%Percentage of total revenues 56.9% 56.8% 54.6% 48.2% 43.9%Rental equipment, at cost (year-end) $817,375 $775,400 $769,190 $736,875 $664,340 Rental equipment, net book value (year-end) $572,032 $543,857 $544,421 $529,483 $473,960 Number of units (year-end) 53,035 52,188 50,577 47,995 43,792 Utilization (year-end) 1 79.3% 77.8% 77.3% 76.9% 75.0%Average utilization 1 78.2% 76.8% 76.6% 75.8% 72.3%Average rental equipment, at cost 2 $756,513 $747,478 $724,333 $667,953 $597,904 Annual yield on average rental equipment, at cost 4 21.0% 19.1% 18.0% 17.4% 16.1%Gross margin on rental revenues 59.8% 56.1% 56.6% 53.4% 49.4%Gross margin on sales 30.7% 28.0% 29.0% 26.5% 27.1% Electronic Test Equipment (operating under TRS-RenTelco) Revenues Rental $89,937 $82,812 $82,307 $89,208 $99,020 Rental related services 3,300 2,858 2,846 3,055 3,331 Total Electronics rental operations 93,237 85,670 85,153 92,263 102,351 Sales 23,061 20,334 21,582 21,137 24,323 Other 2,359 2,040 1,882 1,617 1,628 Total Electronics revenues $118,657 $108,044 $108,617 $115,017 $128,302 Percentage of rental revenues 28.2% 28.6% 30.3% 32.6% 36.7%Percentage of total revenues 23.8% 23.4% 25.6% 28.4% 31.4%Rental equipment, at cost (year-end) $285,052 $262,325 $246,325 $262,945 $261,995 Rental equipment, net book value (year-end) $131,450 $109,482 $90,172 $102,191 $105,729 Utilization (year-end) 1 62.1% 61.7% 61.0% 58.7% 59.8%Average utilization 1 62.7% 62.9% 60.6% 60.5% 60.4%Average rental equipment, at cost 3 $275,891 $252,332 $254,019 $265,832 $262,968 Annual yield on average rental equipment, at cost 4 32.6% 32.8% 32.4% 33.6% 37.7%Gross margin on rental revenues 43.6% 44.0% 39.8% 39.9% 46.4%Gross margin on sales 54.6% 56.9% 50.9% 48.6% 49.7% -13- (dollar amounts in thousands) Year Ended December 31, 2018 2017 2016 2015 2014 Liquid and Solid Containment Tanks and Boxes (operating under Adler Tanks) Revenues Rental $69,701 $64,021 $58,585 $68,502 $74,098 Rental related services 24,911 24,762 23,807 24,643 25,538 Total Tanks and Boxes rental operations 94,612 88,783 82,392 93,145 99,636 Sales 1,044 2,362 1,314 1,388 1,074 Other 397 210 124 98 78 Total Tanks and Boxes revenues $96,053 $91,355 $83,830 $94,631 $100,788 Percentage of rental revenues 21.9% 22.1% 21.6% 25.0% 27.5%Percentage of total revenues 19.3% 19.8% 19.8% 23.4% 24.7%Rental equipment, at cost (year-end) $313,573 $309,808 $308,542 $310,263 $303,303 Rental equipment, net book value (year-end) $197,533 $208,981 $221,778 $237,927 $246,061 Utilization (year-end) 1 56.4% 57.5% 50.7% 49.7% 63.9%Average utilization 1 59.9% 56.0% 50.1% 58.3% 62.9%Average rental equipment, at cost 2 $310,401 $307,558 $307,416 $304,001 $289,928 Annual yield on average rental equipment, at cost 4 22.4% 20.8% 19.1% 22.5% 25.6%Gross margin on rental revenues 61.1% 58.7% 55.5% 61.9% 65.4%Gross margin on sales 3.7% 15.2% (2.1)% (25.1)% 2.0% Total revenues $498,330 $462,034 $424,080 $404,544 $408,1221Utilization 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 the averagecost 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.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 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;-15- •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. Additionally, the most recent global credit crisis adversely affected the prices of most publicly tradedstocks as many stockholders became 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.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. A breach of our information technology systems could subject us to liability, reputational damage or interrupt the operation of our business.We rely upon our information technology systems and infrastructure for our business. We could experience theft of confidential information orreputational damage from industrial espionage attacks, malware or other cyber-attacks, which may compromise our system infrastructure or lead to dataleakage, either internally or at our third-party providers. Similarly, data privacy breaches by those who access our systems may pose a risk that sensitive data,including intellectual property, trade secrets or personal information belonging to us, our employees, customers or other business partners, may be exposed tounauthorized persons or to the public. Cyber-attacks are increasing in their frequency, sophistication and intensity, and have become increasingly difficult todetect. There can be no assurance that our efforts to protect our data and information technology systems will prevent breaches in our systems (or that of ourthird-party providers) that could adversely affect our business and result in financial and reputational harm to us, theft of trade secrets and other proprietaryinformation, legal claims or proceedings, liability under laws that protect the privacy of personal information, and regulatory penalties.Disruptions in our information technology systems could adversely affect our business and results of operations. Additionally, if these systems fail,become unavailable for any period of time or are not upgraded, this could limit our ability to effectively monitor and control our operations andadversely 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-16- expected could, depending on the magnitude of the problem, adversely affect our operating results by limiting our capacity to effectively transact business,monitor and control our operations and adjust to changing market conditions in a timely manner.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.Previously, we acquired Technology Rentals & Services (“TRS”), an electronic test equipment rental business and Adler Tanks, a liquid and solidcontainment rental business. We anticipate that we will continue to consider acquisitions in the future that meet our strategic growth plans. We are unable topredict whether or when 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 other personnel. In addition, if we consummate one or more significant future acquisitions in which the consideration consists of stock orother securities, our existing shareholders’ ownership could be diluted significantly. If we were to proceed with one or more significant future acquisitions inwhich the consideration included cash, we could be required to use, to the extent available, a substantial portion of our Credit Facility. If we increase theamount borrowed against our available credit line, we would increase the risk of breaching the covenants under our credit facilities with our lenders. Inaddition, it would limit our ability to make other investments, or we may be required to seek additional debt or equity financing. Any of these items couldadversely affect our results of operations.-17- 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, 2018, we had $35.1 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 may experience increased customer creditrisk and higher bad debt expense. Failure to manage our credit risk and receive timely payments on our customer accounts receivable may result in write-offsand/or loss of equipment, particularly electronic test equipment. If we are not able to effectively manage credit risk issues, or if a large number of ourcustomers should have financial difficulties at the same time, our receivables and equipment losses could increase above historical levels. If this shouldoccur, 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 for our modular and liquid and solidcontainment tanks and boxes. Modular asset management requires designing and building the product for a long life that anticipates the needs of ourcustomers, including anticipating potential changes in legislation, regulations, building codes and local permitting in the various markets in which theCompany operates. Electronic test equipment asset management requires understanding, selecting and investing in equipment technologies that supportmarket demand, including anticipating technological advances and changes in manufacturers’ selling prices. Liquid and solid containment assetmanagement requires designing and building the product for a long life, using quality components and repairing and maintaining the products to preventleaks. For each of our modular, electronic test equipment and liquid and solid containment assets, we must successfully maintain and repair this equipmentcost-effectively to maximize the useful life of the products and the level of proceeds from the sale of such products. To the extent that we are unable to do so,our result of operations could be materially adversely affected.-18- 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.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.-19- 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 B and Series C Senior Notes (as defined and more fully described under the heading “Item 7. Management’sDiscussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources”) and our Credit Facility contain variouscovenants 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 $2.0 million per year for each 1% increase in the average interest rate we pay based on the $198.6 million balance ofvariable rate debt outstanding at December 31, 2018. If interest rates rise in the future, and, particularly if they rise significantly, interest expense willincrease and our net income will be negatively affected.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. Since the Company’s effective tax ratedepends on business levels, personnel and assets located in various jurisdictions, further expansion into new markets or acquisitions may change the effectivetax rate in the future and may make it, and consequently our earnings, less predictable going forward. In addition, the enactment of future tax law changes byfederal and state taxing authorities may impact the Company’s current period tax provision and its deferred tax liabilities.-20- 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, 2018 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 public market. A lack of passage of state and local facilitybond measures, or the inability to sell bonds in the public markets in the future could reduce our revenues and operating income, and consequently have amaterial adverse effect on the Company’s financial condition. Furthermore, even if voters have approved facility bond measures and the state has raised bondfunds, there is no guarantee that individual school projects will be funded in a timely manner.As a consequence of the most recent economic recession, many states and local governments experienced large budget deficits resulting in severebudgetary constraints among public school districts. To the extent public school districts’ funding is reduced for the rental and purchase of modularbuildings, our business could be harmed and our results of operations negatively impacted. We believe that interruptions or delays in the passage of facilitybond measures or completion of state budgets, an insufficient amount of state funding, a significant reduction of funding to public schools, or changesnegatively impacting enrollment may reduce the rental and sale demand for our educational products. Any reductions in funding available to the schooldistricts from the states in which we do business may cause school districts to experience budget shortfalls and to reduce their demand for our productsdespite growing student populations, class size reduction initiatives and modernization and reconstruction project needs, which could reduce our revenuesand operating income and consequently 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.Various states that we operate enacted laws and constitutional amendments to provide funding for school districts to limit the number of students thatmay be grouped in a single classroom. School districts with class sizes in excess of state limits have been and continue to be a significant source of ourdemand for modular classrooms. In California, efforts to address aging infrastructure and deferred maintenance have resulted in modernization andreconstruction projects by public school districts including seismic retrofitting, asbestos abatement and various building repairs and upgrades, which hasbeen another source of demand for our modular classrooms. The most recent economic recession caused state and local budget shortfalls, which reducedschool districts’ funding and-21- their ability to comply with state class size reduction requirements. If educational priorities and policies shift away from class-size reduction ormodernization and reconstruction projects, demand and pricing for our products and services may decline, not grow as quickly as, or not reach the levels thatwe anticipate. Significant equipment returns may result in lower utilization until equipment can be redeployed or sold, which may cause rental rates todecline 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, energyefficiency, labor and transportation matters, among other matters. Failure to comply with these laws or regulations could impact our business or harm ourreputation and result in higher 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.Expansions of our modular operations into new markets may negatively affect our operating results.In the past we have expanded our modular operations into new geographies and states. There are risks inherent in the undertaking of such expansion,including the risk of revenue from the business in any new markets not meeting our expectations, higher than expected costs in entering these new markets,risk associated with compliance with applicable state and local laws and regulations, response by competitors and unanticipated consequences ofexpansion. In addition, expansion into new markets may be affected by local economic and market conditions. Expansion of our operations into newmarkets will require a significant amount of attention from our management, a commitment of financial resources and will require us to add qualifiedmanagement 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-22- impact our ability to book new business from these government customers and could cause our administrative expenses related to processing these orders toincrease significantly. In addition, any failure to comply with these laws and regulations might result in administrative penalties or even in the suspension ofthese contracts and as a result, the loss of the related revenues which would harm our business 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, have a greater range of products andservices, greater financial and marketing resources, larger customer bases, and greater name recognition than we have. In August 2018, WillScot Corporationcompleted the acquisition of Modspace. These combined competitors may be better able to respond to changes in the relocatable modular building market,to finance acquisitions, to fund internal growth and to compete 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, 2018, 54% 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 large influx of units returning from leases could negatively affect our financialperformance and our ability to continue expanding our rental fleet. In addition, if returned units stay off rent for an extended period of time, we may incuradditional 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 2018,-23- Mobile Modular purchased 33% of its modular product from one manufacturer. The Company believes that the loss of any of its primary manufacturers ofmodulars could have an adverse effect on its operations since Mobile Modular could experience higher prices and longer delivery lead times for modularproduct until other manufacturers were able to increase their production 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 business activity within these industries related to research anddevelopment, manufacturing, and communication infrastructure installation and maintenance. Historically, these industries have been cyclical and haveexperienced periodic downturns, which can have a material adverse impact on the industry’s demand for equipment, including our rental electronic testequipment. In addition, the severity and length of any downturn in an industry may also affect overall access to capital, which could adversely affect ourcustomers and result in excess inventory and impairment charges. During periods of reduced and declining demand for test equipment, we are exposed toadditional receivable risk from non-payment and may need to rapidly align our cost structure with prevailing market conditions, which may negativelyimpact 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.-24- 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.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;-25- •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 are reasonable precautions that our rentalequipment is in good and safe condition prior to rental and carry insurance to protect against certain risks of loss or accidents, such liability could adverselyimpact 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, including UnitedRentals, Rain For Rent and Mobile Mini, all of which may be larger than we are and may have greater financial and marketing resources than we have. Someof our competitors also have longer operating histories, lower cost basis of rental equipment, lower cost structures and more established relationships withequipment manufacturers than we have. In addition, certain of our competitors are more geographically diverse than we are and have greater namerecognition among customers than we do. As a result, our competitors that have these advantages may be better able to attract customers and provide theirproducts and services at lower rental rates. Some competitors offer different approaches to liquid storage, such as large-volume modular tanks that may havebetter economics and compete with conventional frac tanks in certain oil and gas field applications. We may in the future encounter increased competition inthe markets that we serve from existing competitors or from new market entrants. In July 2018, United Rentals, Inc. completed the acquisition ofBakerCorp. This acquisition may create additional competition for customers and provide the combined entity access to greater financial resources than wehave.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-26- fleet investment because of its greater financial resources, all of which could adversely impact our operating results through a combination of a decrease inour 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, amongothers. We expect tank and box rental revenues will primarily be affected by the business activity within these industries. Historically, these industries havebeen cyclical and have experienced periodic downturns, which have a material adverse impact on the industry’s demand for equipment, including the tanksand boxes rented by us. Lower oil or gas prices may have an adverse effect on our liquid and solid containment tanks and boxes business. Any steep declinein both domestic and international oil prices driven by materially higher supply levels and weak demand could have a significant negative impact on theindustry’s demand for equipment, especially if such market conditions continue for an extended period of time. If the price reduction causes customers tolimit or stop exploration, extraction or refinement activities, resulting in lower demand and pricing for renting Adler Tank’s products, our financial resultscould be adversely impacted. Also, a weak U.S. economy may negatively impact infrastructure construction and industrial activity. Any of these factors mayresult in excess inventory or impairment 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 federal regulations. In the twelve months ended December 31, 2018, oil and gas exploration and production accounted for approximately 10% of Adler Tanks’ rental revenues,and approximately 2% of the Company’s total revenues. The hydraulic fracturing method of extraction has come under scrutiny in several states and by theFederal government due to the potential adverse effects that hydraulic fracturing, and the liquids and chemicals used, may have on water quality and publichealth. In addition, the disposal of wastewater from the hydraulic fracturing process into injection wells may increase the rate of seismic activity near drillsites and could result in regulatory changes, delays or interruption of future activity. Changes in these regulations could limit, interrupt, or stop explorationand extraction activities, which would negatively impact the demand for our rental products. Finally, it is possible that changes in the technology utilized inhydraulic fracturing could make it less dependent on liquids and therefore lower the related requirements for the use of our rental products, which wouldreduce our operating results and cash flows.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-27- are not able to produce sufficient inventory on schedules 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 mayexperience long lead-times for certain types of new equipment and we cannot assure that we will be able to acquire the types or sufficient numbers of theequipment we need to grow our rental fleet as quickly as we would like and this could harm our ability to meet customer demand and harm our financialcondition.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.ITEM 2.PROPERTIES.The Company’s corporate and administrative offices are located in Livermore, California in approximately 26,000 square feet. The Company’s fourreportable business segments currently conduct operations from the following locations:Mobile Modular – Five inventory centers, at which relocatable modular buildings and storage containers are displayed, refurbished and stored arelocated in Livermore, California (137 acres in the San Francisco Bay Area), Mira Loma, California (79 acres in the Los Angeles area), Pasadena, Texas (50acres in the Houston area), in Auburndale, Florida (123 acres in the Orlando area) and Arcade, Georgia (48 acres in the Atlanta area). The inventory centersconduct rental and sales operations from modular buildings, serving as working models of the Company’s modular product. The Company also has a leasedmodular sales office in Charlotte, North Carolina from which the states of North Carolina, South Carolina, Virginia and Maryland are served.TRS-RenTelco – Electronic test equipment rental and sales operations are conducted from a 117,000 square foot leased facility in Grapevine, Texas(Dallas area) and a sales office 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 108,000 square foot facility in Stockton, California (San Francisco Bay Area).-28- 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 -29- 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”. As of February 26, 2019, the Company'scommon stock was held by approximately 40 shareholders of record, which does not include shareholders whose shares are held in street or nomineename. The Company believes that when holders in street or nominee name are added, the number of holders of the Company's common stock exceeds 500.Stock Repurchase PlanThe 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 the Securities Exchange Act of1934. In August 2015, the Company’s Board of Directors authorized the Company to repurchase 2,000,000 shares of the Company's outstanding commonstock. The amount and time of the specific repurchases are subject to prevailing market conditions, applicable legal requirements and other factors, includingmanagement’s discretion. All shares repurchased by the Company are canceled and returned to the status of authorized but unissued shares of common stock.There can be no assurance that any authorized shares will be repurchased and the repurchase program may be modified, extended or terminated by the boardof directors at any time. There were no repurchases of common stock during the twelve months ended December 31, 2018 and 2017. As of December 312018, 1,592,026 shares remain authorized for repurchase. -30- ITEM 6.SELECTED FINANCIAL DATA.The following table summarizes the Company’s selected financial data for the five years ended December 31, 2018 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, 2018 2017 2016 2015 2014 Operations Data Revenues Rental $318,774 $289,417 $271,388 $273,696 $269,575 Rental related services 82,907 78,068 75,859 73,314 64,132 Rental operations 401,681 367,485 347,247 347,010 333,707 Sales 92,618 91,500 74,410 55,385 72,248 Other 4,031 3,049 2,423 2,149 2,167 Total revenues 498,330 462,034 424,080 404,544 408,122 Costs and expenses Direct costs of rental operations Depreciation of rental equipment 73,139 69,908 72,197 75,213 72,678 Rental related services 64,298 60,029 59,044 57,144 50,969 Other 68,678 65,472 60,130 58,511 54,826 Total direct costs of rental operations 206,115 195,409 191,371 190,868 178,473 Costs of sales 58,964 60,280 48,542 36,769 47,430 Total costs of revenues 265,079 255,689 239,913 227,637 225,903 Gross profit 233,251 206,345 184,167 176,907 182,219 Selling and administrative expenses 115,770 111,605 104,908 99,950 96,859 Income from operations 117,481 94,740 79,259 76,957 85,360 Other income (expense): Interest expense (12,297) (11,622) (12,207) (10,092) (9,280)Gain on sale of property, plant and equipment — — — — 812 Foreign currency exchange gain (loss) (489) 334 (121) (488) (331)Income before (benefit) provision for income taxes 104,695 83,452 66,931 66,377 76,561 Provision (benefit) for income taxes 25,289 (70,468) 28,680 25,907 30,852 Net income $79,406 $153,920 $38,251 $40,470 $45,709 Earnings per share: Basic $3.29 $6.41 $1.60 $1.60 $1.77 Diluted $3.24 $6.34 $1.60 $1.59 $1.75 Shares used in per share calculations: Basic 24,141 23,999 23,900 25,369 25,914 Diluted 24,540 24,269 23,976 25,457 26,175 Balance Sheet Data (at period end) Rental equipment, at cost $1,416,000 $1,347,533 $1,324,057 $1,310,083 $1,229,638 Rental equipment, net $901,015 $862,320 $856,371 $869,601 $825,750 Total assets $1,217,316 $1,147,854 $1,128,276 $1,152,709 $1,116,407 Notes payable $298,564 $303,414 $326,266 $381,281 $322,338 Shareholders' equity $571,535 $524,184 $394,287 $379,687 $424,531 Shares issued and outstanding 24,182 24,052 23,948 23,851 26,051 Book value per share $23.63 $21.79 $16.46 $15.92 $16.30 Total liabilities to equity 1.13 1.19 1.86 2.04 1.63 Debt (notes payable) to equity 0.52 0.58 0.83 1.00 0.76 Return on average equity 14.6% 37.1% 9.8% 9.8% 11.1%Cash dividends declared per common share $1.36 $1.04 $1.02 $1.00 $0.98-31- 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, 2018 2017 2016 2015 2014 Net income $79,406 $153,920 $38,251 $40,470 $45,709 Provision (benefit) for income taxes 25,289 (70,468) 28,680 25,907 30,852 Interest expense 12,297 11,622 12,207 10,092 9,280 Depreciation and amortization 81,975 78,416 81,179 84,280 81,125 EBITDA 198,967 173,490 160,317 160,749 166,966 Impairment of rental assets 39 1,639 — — — Share-based compensation 4,111 3,198 3,091 3,399 3,854 Adjusted EBITDA 1 $203,117 $178,327 $163,408 $164,148 $170,820 Adjusted EBITDA margin 2 41% 39% 39% 41% 42% -32- Reconciliation of Adjusted EBITDA to Net Cash Provided by Operating Activities (dollar amounts in thousands) Year Ended December 31, 2018 2017 2016 2015 2014 Adjusted EBITDA 1 $203,117 $178,327 $163,408 $164,148 $170,820 Interest paid (12,598) (11,825) (12,436) (10,041) (9,074)Income taxes paid, net of refunds received (18,157) (29,504) (15,555) (2,498) (22,275)Gain on sale of used rental equipment (19,559) (17,733) (13,739) (11,902) (15,368)Gain on sale of property, plant and equipment — — — — (812)Foreign currency exchange (gain) loss 489 (334) 121 488 331 Amortization of debt issuance cost 20 50 51 52 14 Change in certain assets and liabilities: Accounts receivable, net (15,144) (8,995) (1,860) 5,777 (13,782)Income taxes receivable — — 11,000 (11,000) — Prepaid expenses and other assets (9,351) 3,124 1,949 12,910 (13,528)Accounts payable and other liabilities 3,592 7,559 7,220 (10,531) 21,524 Deferred income 10,258 1,720 536 7,149 5,136 Net cash provided by operating activities $142,667 $122,389 $140,695 $144,552 $122,986 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, Series B Senior Notes and SeriesC Senior Notes (as defined and more fully described under the heading “Item 7. Management’s Discussion and Analysis of Financial Condition and Resultsof Operations - Liquidity and Capital Resources”). These instruments contain financial covenants requiring the Company to 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, 2018, the actual ratio was 4.11 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, 2018, the actual ratio was1.47 to 1.At December 31, 2018, 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. -33- 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 2018, Mobile Modular, TRS-RenTelco, Adler Tanks and Enviroplex contributed 53%, 28%, 14% and 5%, respectively, ofthe Company’s income before provision for taxes (the equivalent of “pre-tax income”), compared to 50%, 31%, 13% and 6%, respectively, for 2017.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 81% of the Company’s totalrevenues in 2018 and for the three years ended December 31, 2018. Over the past three years, modulars, electronic test equipment and tanks and boxescomprised approximately 53%, 24% and 24%, 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 19% of the Company’s consolidated revenues in 2018 and for the three years ended December 31, 2018. Over thepast three years, modulars, electronic test equipment and tanks and boxes comprised approximately 71%, 27% 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 24%, 26% and 23% of the Company’s consolidated rental and sales revenues for2018, 2017 and 2016, 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.-34- Recent DevelopmentsIn February 2019, the Company announced that its board of directors declared a cash dividend of $0.375 per common share for the quarter endingMarch 31, 2019, an increase of 10% 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, 2018 over 2017 over 2018–2016 2018 2017 2016 2017 2016 Revenues Rental 64% 64% 63% 64% 10% 7%Rental related services 17 17 17 18 6 3 Rental operations 81 81 80 82 9 6 Sales 19 19 20 18 1 23 Other — — — — 32 26 Total revenues 100 100 100 100 8 9 Costs and expenses Direct costs of rental operations Depreciation of rental equipment 16 15 15 17 5 (3)Rental related services 13 13 13 13 7 6 Other 14 14 14 15 5 4 Total direct costs of rental operations 43 42 42 45 5 2 Cost of sales 12 11 13 12 (2) 24 Total costs 55 53 55 57 4 7 Gross profit 45 47 45 43 13 12 Selling and administrative expenses 24 23 24 24 4 6 Income from operations 21 24 21 19 24 20 Other income (expense): Interest expense 3 3 3 3 6 (5)Foreign currency exchange gain (loss) — — — — nm nm Income before (benefit) provision for income taxes 18 21 18 16 25 25 Provision (benefit) for income taxes (1) 5 (15) 7 nm nm Net income 20% 16% 33% 9% (49)% nm nm = not meaningful-35- Twelve Months Ended December 31, 2018 Compared toTwelve Months Ended December 31, 2017OverviewConsolidated revenues in 2018 increased 8%, to $498.3 million from $462.0 million in 2017. Consolidated net income in 2018 decreased to $79.4million, or $3.24 per diluted share in 2018, compared to $153.9 million, or $6.34 per diluted share, in 2017. 2017 results included an increase to net incomeof $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 of2017 on December 22, 2017 (the “Tax Act”), which is discussed below. The Company’s year over year total revenue increase was primarily due to higherrental and rental related services revenues as more fully described below.For 2018 compared to 2017, on a consolidated basis: •Gross profit increased $26.9 million, or 13%, to $233.3 million. Mobile Modular’s gross profit increased $16.8 million, or 16%, due to highergross profit on rental, sales and rental related services revenues. Adler Tanks’ gross profit increased $4.8 million, or 11%, due to higher grossprofit on rental revenues, partly offset by lower gross profit on sales and rental related services revenues. TRS-RenTelco’s gross profit increased$4.5 million, or 9%, due to higher gross profit on rental and sales revenues. Enviroplex’s gross profit increased $0.8 million, or 9%, primarilydue to higher gross margin on sales revenues. •Selling and administrative expenses increased $4.2 million, or 4%, to $115.8 million, primarily due to increased salaries and employee benefitcosts across all divisions. •Interest expense increased $0.7 million, or 6%, to $12.3 million, primarily due to 11% higher net average interest rate, partly offset by 5%lower average debt levels of the Company. •Pre-tax income contribution was 53%, 28% and 14% by Mobile Modular, TRS-RenTelco and Adler Tanks, respectively, in 2018, compared to50%, 31% and 13%, respectively, in 2017. These results are discussed on a segment basis below. Pre-tax income contribution by Enviroplexwas 5% and 6% in 2018 and 2017, 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 a tax benefit of 84.4% in 2017 compared to a tax provision of 24.2% in 2018. Thetax benefit in 2017 was primarily due to the $102.5 million net impact of the Tax Act. In addition, in 2018 the Company benefited from therecording of $2.0 million excess tax benefits relating to stock-based compensation as a reduction to the provision for income taxes compared to$0.9 million in 2017. These tax benefits, or shortfalls, were recorded in equity prior to 2017. •Adjusted EBITDA increased $24.8 million, or 14%, to $203.1 million compared to $178.3 million in 2017. Adjusted EBITDA is a non-GAAPfinancial measure and is defined as net income before interest expense, provision for income taxes, depreciation, amortization, non-cashimpairment costs and share-based compensation. A reconciliation of Adjusted EBITDA to net cash provided by operating activities and netincome to Adjusted EBITDA can be found in “Item 6. Selected Financial Data.” on page 33. -36- Mobile ModularFor 2018, Mobile Modular’s total revenues increased $23.3 million, or 10%, to $254.6 million compared to 2017, primarily due to higher rental,rental related services and sales revenues. The revenue increase, together with higher gross profit on rental and sales revenues, partly offset by higher sellingand administrative expenses, resulted in an increase in pre-tax income of $13.9 million, or 33%, to $55.6 million in 2018.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 – 2018 compared to 2017 (dollar amounts in thousands) Twelve Months EndedDecember 31, Increase (Decrease) 2018 2017 $ % Revenues Rental $159,136 $142,584 $16,552 12%Rental related services 54,696 50,448 4,248 8%Rental operations 213,832 193,032 20,800 11%Sales 39,467 37,435 2,032 5%Other 1,275 799 476 60%Total revenues 254,574 231,266 23,308 10%Costs and Expenses Direct costs of rental operations: Depreciation of rental equipment 21,200 21,247 (47) (0)%Rental related services 41,701 37,755 3,946 10%Other 42,812 41,290 1,522 4%Total direct costs of rental operations 105,713 100,292 5,421 5%Costs of sales 28,111 27,039 1,072 4%Total costs of revenues 133,824 127,331 6,493 5%Gross Profit Rental 95,123 80,048 15,075 19%Rental related services 12,995 12,693 302 2%Rental operations 108,118 92,741 15,377 17%Sales 11,357 10,395 962 9%Other 1,275 799 476 60%Total gross profit 120,750 103,935 16,815 16%Selling and administrative expenses 58,017 55,583 2,434 4%Income from operations 62,733 48,352 14,381 30%Interest expense allocation (7,132) (6,671) 461 7%Pre-tax income $55,601 $41,681 $13,920 33%Other Selected Information Average rental equipment 1 $756,513 $747,478 $9,035 1%Average rental equipment on rent 1 $591,236 $574,201 $17,035 3%Average monthly total yield 2 1.75% 1.59% 10%Average utilization 3 78.2% 76.8% 2%Average monthly rental rate 4 2.24% 2.07% 8%Period end rental equipment 1 $775,492 $746,852 $28,640 4%Period end utilization 3 79.3% 77.8% 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 and accessoryequipment. 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. -37- Mobile Modular’s gross profit for 2018 increased 16% to $120.8 million from $103.9 million in 2017. For the year ended December 31, 2018compared to the year ended December 31, 2017: •Gross Profit on Rental Revenues – Rental revenues increased $16.6 million, or 12%, compared to 2017, due to 3% higher average rentalequipment on rent and 8% higher average monthly rental rates. As a percentage of rental revenues, depreciation was 13% in 2018 compared to15% in 2017 and other direct costs were 27% in 2018 and 29% in 2017, which resulted in gross margin percentage of 60% in 2018 comparedto 56% in 2017. Other direct costs in 2017 included a $1.6 million impairment of rental assets, deemed beyond economic repair in the SouthernCalifornia region. The higher rental revenues and higher rental margins resulted in gross profit on rental revenues increasing 19%, to $95.1million from $80.0 million in 2017. •Gross Profit on Rental Related Services – Rental related services revenues increased $4.2 million, or 8%, compared to 2017. 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 repair revenue and increased services performedduring the lease. The higher revenues, partly offset by lower gross margin percentage of 24% in 2018 compared to 25% in 2017 resulted inrental related services gross profit increasing 2%, to $13.0 million from $12.7 million in 2017. •Gross Profit on Sales – Sales revenues increased $2.0 million, or 5%, compared to 2017. Gross profit on sales increased $1.0 million, or 9%,due to higher used equipment sales revenues and higher gross margins of 29% in 2018 compared to 28% in 2017. 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 2018, Mobile Modular’s selling and administrative expenses increased $2.4 million, or 4%, to $58.0 million, primarily due to increased employeesalaries and benefit costs and higher allocated corporate expenses. -38- TRS-RenTelcoFor 2018, TRS-RenTelco’s total revenues increased $10.6 million, or 10%, to $118.7 million compared to 2017, primarily due to higher rental andsales revenues. Pre-tax income increased $2.6 million, or 10%, to $28.8 million for 2018, primarily due to higher gross profit on rental and sales revenues,partly offset by foreign currency exchange loss in 2018 and 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 – 2018 compared to 2017 (dollar amounts in thousands) Twelve Months EndedDecember 31, Increase (Decrease) 2018 2017 $ % Revenues Rental $89,937 $82,812 $7,125 9%Rental related services 3,300 2,858 442 15%Rental operations 93,237 85,670 7,567 9%Sales 23,061 20,334 2,727 13%Other 2,359 2,040 319 16%Total revenues 118,657 108,044 10,613 10%Costs and Expenses Direct costs of rental operations: Depreciation of rental equipment 36,011 32,891 3,120 9%Rental related services 2,698 2,589 109 4%Other 14,699 13,503 1,196 9%Total direct costs of rental operations 53,408 48,983 4,425 9%Costs of sales 10,476 8,772 1,704 19%Total costs of revenues 63,884 57,755 6,129 11%Gross Profit Rental 39,227 36,418 2,809 8%Rental related services 602 269 333 124%Rental operations 39,829 36,687 3,142 9%Sales 12,585 11,562 1,023 9%Other 2,359 2,040 319 16%Total gross profit 54,773 50,289 4,484 9%Selling and administrative expenses 22,823 22,171 652 3%Income from operations 31,950 28,118 3,832 14%Interest expense allocation (2,696) (2,320) 376 16%Foreign currency exchange gain (loss) (489) 334 (823) nm Pre-tax income $28,765 $26,132 $2,633 10%Other Selected Information Average rental equipment 1 $275,891 $252,332 $23,559 9%Average rental equipment on rent 1 $173,019 $158,830 $14,189 9%Average monthly total yield 2 2.72% 2.74% (1)%Average utilization 3 62.7% 62.9% 0%Average monthly rental rate 4 4.33% 4.35% 0%Period end rental equipment 1 $283,905 $261,552 $22,353 9%Period end utilization 3 62.1% 61.7% 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. Average utilization forthe 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 -39- TRS-RenTelco’s gross profit for 2018 increased 9% to $54.8 million from $50.3 million in 2017. For the year ended December 31, 2018 compared tothe year ended December 31, 2017: •Gross Profit on Rental Revenues – Rental revenues increased $7.1 million, or 9%, to $89.9 million with depreciation expense increasing $3.1million, or 9%, and other direct costs increasing $1.2 million, or 9%, resulting in an increase in gross profit on rental revenues of $2.8 million,or 8%, to $39.2 million in 2018. As a percentage of rental revenues, depreciation was 40% in 2018 and 2017 and other direct costs was 16% in2018 and 2017, which resulted in gross margin percentage of 44% in 2018 and 2017. The rental revenues increase was due to 9% higheraverage rental equipment on rent. •Gross Profit on Sales – Sales revenues increased $2.7 million, or 13%, compared to 2017. The lower gross margin percentage of 55% in 2018,compared to 57% in 2017 was primarily due to lower gross margin on new and used equipment sales. The higher sales revenues, partly offset bylower gross margin, resulted in gross profit on sales increasing 9%, to $12.6 million from $11.6 million in 2017. Sales occur routinely as anormal part of TRS-RenTelco’s rental business; however, these sales and related gross margins can fluctuate from period to period dependingon customer requirements, equipment availability and funding.For 2018, TRS-RenTelco’s selling and administrative expenses increased $0.7 million, or 3%, to $22.8 million, primarily due to higher salaries andemployee benefit costs and higher allocated corporate expenses. -40- Adler TanksFor 2018, Adler Tanks’ total revenues increased $4.7 million, or 5%, to $96.1 million compared to 2017, primarily due to higher rental revenues,partly offset by lower sales revenues during 2018. The revenue increase together with higher gross profit on rental revenues, partly offset by lower gross profiton sales and rental related services revenues, and higher selling and administrative expenses resulted in a pre-tax income increase of $4.2 million, or 39%, to$14.8 million for the year ended December 31, 2018.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 – 2018 compared to 2017 (dollar amounts in thousands) Twelve Months EndedDecember 31, Increase (Decrease) 2018 2017 $ % Revenues Rental $69,701 $64,021 $5,680 9%Rental related services 24,911 24,762 149 1%Rental operations 94,612 88,783 5,829 7%Sales 1,044 2,362 (1,318) (56)%Other 397 210 187 89%Total revenues 96,053 91,355 4,698 5%Costs and Expenses Direct costs of rental operations: Depreciation of rental equipment 15,928 15,770 158 1%Rental related services 19,899 19,685 214 1%Other 11,167 10,679 488 5%Total direct costs of rental operations 46,994 46,134 860 2%Costs of sales 1,004 2,003 (999) (50)%Total costs of revenues 47,998 48,137 (139) (0)%Gross Profit Rental 42,607 37,572 5,035 13%Rental related services 5,012 5,076 (64) (1)%Rental operations 47,619 42,648 4,971 12%Sales 39 360 (321) (89)%Other 397 210 187 89%Total gross profit 48,055 43,218 4,837 11%Selling and administrative expenses 30,026 29,542 484 2%Income from operations 18,029 13,676 4,353 32%Interest expense allocation (3,252) (3,071) 181 6%Pre-tax income $14,777 $10,605 $4,172 39%Other Selected Information Average rental equipment 1 $310,401 $307,558 $2,843 1%Average rental equipment on rent 1 $185,809 $172,140 $13,669 8%Average monthly total yield 2 1.87% 1.73% 8%Average utilization 3 59.9% 56.0% 7%Average monthly rental rate 4 3.13% 3.10% 1%Period end rental equipment 1 $312,186 $308,877 $3,309 1%Period end utilization 3 56.4% 57.5% (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 and accessoryequipment. 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. -41- Adler Tanks’ gross profit for 2018 increased $4.8 million, or 11%, to $48.1 million compared to the same period in 2017. For the year endedDecember 31, 2018 compared to year ended December 31, 2017: •Gross Profit on Rental Revenues – Rental revenues increased $5.7 million, or 9%, to $69.7 million, due to 8% higher average rentalequipment on rent and 1% higher average rental rates in 2018 as compared to 2017. As a percentage of rental revenues, depreciation was 23%and 25% in 2018 and 2017, respectively, and other direct costs were 16% and 17% in 2018 and 2017, respectively, which resulted in grossmargin percentages of 61% in 2018 compared to 59% in 2017. The higher rental revenues, together with higher rental margins resulted ingross profit on rental revenues increasing $5.0 million, or 13%, to $42.6 million in 2018. •Gross Profit on Rental Related Services – Rental related services revenues increased $0.1 million, or 1%, compared to 2017. Lower grossmargin percentage of 20% in 2018 compared to 21% in 2017, partly offset by higher revenue, resulted in rental related services gross profitdecreasing $0.1 million, or 1%, to $5.0 million from $5.1 million in 2017.For 2018, Adler Tanks’ selling and administrative expenses increased $0.5 million, or 2% to $30.0 million from $29.5 million in the same period in2017, primarily due to increased employee headcount, salaries and benefit costs. -42- 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 a tax benefit of 84.4% compared to a tax provision of 42.9% in 2016. The tax benefitin 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 to Employee Share-BasedPayment Accounting, which resulted in the recording of $0.9 million excess tax benefits as a reduction to the provision for incometaxes. 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 33. -43- 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 and accessoryequipment. 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. -44- 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. -45- 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 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. Average utilization forthe 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 -46- 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. -47- 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 and accessoryequipment. 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-48- 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. -49- Liquidity and Capital ResourcesThe Company’s rental businesses are capital intensive and generate significant cash flows. Cash flows for the Company in 2018 as compared to 2017are summarized as follows:Cash Flows from Operating Activities: The Company’s operations provided net cash flow of $142.7 million for 2018 as compared to $122.4 millionin 2017. The 17% increase was primarily attributable to improved operating profit, higher decrease in accounts receivable, lower increase in prepaidexpenses and other assets, an increase in deferred income and other balance sheet changes.Cash Flows from Investing Activities: Net cash used in investing activities was $104.5 million for 2018 as compared to $70.9 million in 2017. The$33.6 million increase was primarily due to $28.5 million higher purchases of rental equipment of $123.1 million in 2018, compared to $94.6 million in2017, $7.5 million cash payment for the acquisition of business assets, $1.0 million higher purchases of property, plant and equipment, partly offset byhigher proceeds from sales of used rental equipment.Cash Flows from Financing Activities: Net cash used in financing activities was $39.1 million in 2018 as compared to $49.9 million in 2017. The$10.8 million decrease was primarily due to $18.0 million higher net borrowings under the Company’s bank lines of credit, partly offset by $6.0 millionhigher payment of dividends.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 2018 2017 2016 Totals Cash provided by operating activities $142,667 $122,389 $140,695 $405,751 Proceeds from sales of used rental equipment 41,786 38,344 29,406 109,536 Cash available for purchase of rental equipment 184,453 160,733 170,101 515,287 Purchases of rental equipment (123,071) (94,579) (79,038) (296,688)Cash paid for acquisition of business assets (7,543) — — (7,543)Cash available for other uses $53,839 $66,154 $91,063 $211,056 In addition to increasing its rental assets, the Company had other capital expenditures for property, plant and equipment of $15.7 million in 2018,$14.6 million in 2017 and $10.5 million in 2016, and has used cash to provide returns to its shareholders in the form of cash dividends. The Company paidcash dividends of $30.9 million, $24.9 million and $24.4 million in the years ended December 31, 2018, 2017 and 2016, 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. There were no repurchases of common stock during the twelve months ended December 31, 2018,2017 and 2016. As of February 25, 2019, 1,592,026 shares remain authorized for repurchase.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 $200.0-50- million of additional commitments), which includes a $25.0 million sublimit for the issuance of standby letters of credit and a $10.0 million sublimit forswingline 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, 2018, 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 $198.6 million was outstanding, and had capacity to borrow up to an additional $233.4 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, 2018, the actual ratio was 4.11 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, 2018, the actual ratio was 1.47 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, 2018, such sum was $366.8 million and the actual Tangible Net Worth of the Company was $536.5 million.At December 31, 2018, 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 were an unsecured obligation of the Company, due on April 21, 2018. Intereston these notes was due semi-annually in arrears and the principal was due in five equal annual installments, with the first payment due on April 21, 2014. Inaddition, the Note Purchase Agreement allowed 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. The final $20.0 million principal payment under the Series A Senior Notes was made in April 2018 with noamount remaining outstanding as of December 31, 2018.3.68% 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, 2018, the principal balance outstanding under the Series 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 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-51- proceeds from the Series C Senior Notes were used to reduce the outstanding balance on the Company’s revolving credit line. At December 31, 2018, theprincipal 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, 2018, the actual ratio was 4.11 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, 2018, the actual ratio was 1.47 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, 2018, such sum was $366.8 million and the actual tangible net worth of the Companywas $536.5 million.At December 31, 2018, 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.Contractual Obligations and CommitmentsAt December 31, 2018, the Company’s material contractual obligations and commitments consisted of outstanding borrowings under our creditfacilities expiring in 2021, outstanding amounts under our 3.68% and 3.84% senior notes due in 2021 and 2022, respectively, and operating leases forfacilities. The operating lease amounts exclude property taxes and insurance. The table below provides a summary of the Company’s contractual obligationsand reflects expected payments due as of December 31, 2018 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 $198,603 $— $198,603 $— $— 3.68% Series B senior notes due in 2021 44,416 1,472 42,944 — — 3.84% Series C senior notes due in 2022 69,222 2,310 4,608 62,304 — Operating leases for facilities 10,479 2,979 3,824 2,534 1,142 Total contractual obligations $322,720 $6,761 $249,979 $64,838 $1,142 The Company believes that its needs for working capital and capital expenditures through 2019 and beyond will be adequately met by operating cashflow, proceeds from the sale of rental equipment, and bank borrowings.-52- Please see the Company's Consolidated Statements of Cash Flows on page 63 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 revenue recognition, depreciation, maintenance, repair and refurbishment, impairment of rental equipment andimpairment of goodwill and intangible assets. Descriptions of these accounting policies are found in both the notes to the consolidated financial statementsand at relevant sections in this Management’s Discussion and Analysis.Revenue recognition:Lease revenue - Rental revenues from operating leases are recognized on a straight-line basis over the term of the lease for all operatingsegments. Rental billings for periods extending beyond period end are recorded as deferred income and are recognized in the period earned. Rental relatedservices revenues are primarily associated with relocatable modular building and liquid and solid containment tanks and boxes leases. For modular buildingleases, rental related services revenues for modifications, delivery, installation, dismantle and return delivery are lease related because the payments areconsidered minimum lease payments that are an integral part of the negotiated lease agreement with the customer. These revenues are recognized on astraight-line basis over the term of the lease. Certain leases are accounted for as sales-type leases. For these leases, sales revenue and the related accountsreceivable are recognized upon delivery and installation of the equipment and the unearned interest is recognized over the lease term on a basis which resultsin a constant rate of return on the unrecovered lease investment. Other revenues include interest income on sales-type leases and rental income on facilityleases.Non-lease revenue - Sales revenue is recognized upon delivery and installation of the equipment to customers. Certain leases are accounted for assales-type leases. For these leases, sales revenue and the related accounts receivable are recognized upon delivery and installation of the equipment and theunearned interest is recognized over the lease term on a basis which results in a constant rate of return on the unrecovered lease investment. The Companytypically recognizes non-lease related revenues at a point in time because the customer does not simultaneously consume the benefits of the Company’spromised goods and services, or performance obligations, and obtain control when delivery and installation are complete. For contracts that have multipleperformance obligations, the transaction price is allocated to each performance obligation in the contract based on the Company’s best estimate of thestandalone selling prices of each distinct performance obligation in the contract. The standalone selling price is typically determined based upon theexpected cost plus an estimated margin of each performance obligation. 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.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.-53- 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, 2018, the Company did not have any “off-balance-sheet arrangements,” as defined in Item 303(a)(4)(ii) of Regulation S-K.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 3.68% and 3.84% senior notes due in 2021and 2022, respectively, and its revolving lines of credit. Weighted average variable rates are based on implied forward rates in the yield curve at December31, 2018. The estimate of fair value of the Company’s fixed rate debt is based on the borrowing rates currently available to the Company for bank loans withsimilar terms and average maturities. The table below presents principal cash flows by expected annual maturities, related weighted average interest rates andestimated fair value for the Company’s Series B and Series C Senior Notes and the Company’s revolving lines of credit under the Credit Facility and SweepService Facility as of December 31, 2018. (dollar amounts in thousands) 2021 2022 Thereafter Total EstimatedFair Value Revolving lines of credit $198,603 $— $— $198,603 $198,603 Weighted average interest rate 3.36% — — 3.36% 3.68% Series B senior notes due in 2021 $40,000 $— $— $40,000 $40,337 Stated interest rate 3.68% — — 3.68% 3.84% Series C senior notes due in 2022 $— $60,000 $— $60,000 $58,649 Stated interest rate — 3.84% — 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. The Company commenced the closure of its Indian operations during 2017. The Canadianoperations 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 2018, the Company experienced minimal impact on net income due to foreign-54- exchange rate fluctuations. Although there can be no assurances, given the size of the Canadian operations, the Company does not expect future foreignexchange gains and losses to be significant.The Company has no derivative financial instruments that expose the Company to significant market risk. -55- ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Index PageManagement’s Report on Internal Control over Financial Reporting 57Reports of Independent Registered Public Accounting Firm 58Consolidated Financial Statements Consolidated Balance Sheets as of December 31, 2018 and 2017 60Consolidated Statements of Income for the Years Ended December 31, 2018, 2017 and 2016 61Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2018, 2017 and 2016 62Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2018, 2017 and 2016 63Consolidated Statements of Cash Flows for the Years Ended December 31, 2018, 2017 and 2016 64Notes to Consolidated Financial Statements 65 -56- 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, 2018based 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, 2018, the Company’s internal control over financial reportingwas effective based on those criteria. -57- Report of Independent Registered Public Accounting FirmBoard of Directors and ShareholdersMcGrath RentCorp:Opinion on internal control over financial reportingWe have audited the internal control over financial reporting of McGrath RentCorp (a California corporation) and subsidiaries (the “Company”) as ofDecember 31, 2018, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of SponsoringOrganizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control overfinancial reporting as of December 31, 2018, 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, 2018, and our report dated February 26, 2019 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 26, 2019 -58- Report of Independent Registered Public Accounting FirmBoard of Directors and ShareholdersMcGrath RentCorp:Opinion on the financial statementsWe have audited the accompanying consolidated balance sheets of McGrath RentCorp (a California corporation) and subsidiaries (the “Company”) asof December 31, 2018 and 2017, the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of thethree years in the period ended December 31, 2018, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financialstatements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operationsand its cash flows for each of the three years in the period ended December 31, 2018, in conformity with accounting principles generally accepted in theUnited States of America.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, 2018, 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 26, 2019 expressedan unqualified opinion.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 26, 2019 -59- MCGRATH RENTCORPCONSOLIDATED BALANCE SHEETS December 31, (in thousands) 2018 2017 Assets Cash $1,508 $2,501 Accounts receivable, net of allowance for doubtful accounts of $1,883 in 2018 and $1,920 in 2017 121,016 105,872 Rental equipment, at cost: Relocatable modular buildings 817,375 775,400 Electronic test equipment 285,052 262,325 Liquid and solid containment tanks and boxes 313,573 309,808 1,416,000 1,347,533 Less accumulated depreciation (514,985) (485,213)Rental equipment, net 901,015 862,320 Property, plant and equipment, net 126,899 119,170 Prepaid expenses and other assets 31,816 22,459 Intangible assets, net 7,254 7,724 Goodwill 27,808 27,808 Total assets $1,217,316 $1,147,854 Liabilities and Shareholders’ Equity Liabilities: Notes payable $298,564 $303,414 Accounts payable and accrued liabilities 90,844 86,408 Deferred income 49,709 39,219 Deferred income taxes, net 206,664 194,629 Total liabilities 645,781 623,670 Commitments and contingencies (Note 8) Shareholders’ equity: Common Stock, no par value - Authorized 40,000 shares Issued and outstanding - 24,182 shares as of December 31, 2018 and 24,052 shares as of December 31, 2017 103,801 102,947 Retained earnings 467,783 421,405 Accumulated other comprehensive loss (49) (168)Total shareholders’ equity 571,535 524,184 Total liabilities and shareholders’ equity $1,217,316 $1,147,854 The accompanying notes are an integral part of these consolidated financial statements. -60- MCGRATH RENTCORPCONSOLIDATED STATEMENTS OF INCOME Year Ended December 31, (in thousands, except per share amounts) 2018 2017 2016 Revenues Rental $318,774 $289,417 $271,388 Rental related services 82,907 78,068 75,859 Rental operations 401,681 367,485 347,247 Sales 92,618 91,500 74,410 Other 4,031 3,049 2,423 Total revenues 498,330 462,034 424,080 Costs and Expenses Direct costs of rental operations: Depreciation of rental equipment 73,139 69,908 72,197 Rental related services 64,298 60,029 59,044 Other 68,678 65,472 60,130 Total direct costs of rental operations 206,115 195,409 191,371 Cost of sales 58,964 60,280 48,542 Total costs of revenues 265,079 255,689 239,913 Gross profit 233,251 206,345 184,167 Selling and administrative expenses 115,770 111,605 104,908 Income from operations 117,481 94,740 79,259 Other income (expense): Interest expense (12,297) (11,622) (12,207)Foreign currency exchange gain (loss) (489) 334 (121)Income before provision (benefit) for income taxes 104,695 83,452 66,931 Provision (benefit) for income taxes 25,289 (70,468) 28,680 Net income $79,406 $153,920 $38,251 Earnings per share: Basic $3.29 $6.41 $1.60 Diluted $3.24 $6.34 $1.60 Shares used in per share calculations: Basic 24,141 23,999 23,900 Diluted 24,540 24,269 23,976 Cash dividends declared per share $1.36 $1.04 $1.02 The accompanying notes are an integral part of these consolidated financial statements. -61- MCGRATH RENTCORPCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Year Ended December 31, (in thousands) 2018 2017 2016 Net income $79,406 $153,920 $38,251 Other comprehensive income (loss): Foreign currency translation adjustment 161 (174) 24 Tax benefit (provision) (42) 61 (12)Comprehensive income $79,525 $153,807 $38,263 The accompanying notes are an integral part of these consolidated financial statements -62- 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, 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 Net income — — 79,406 — 79,406 Share-based compensation — 4,111 — — 4,111 Common stock issued under stock plans, net of shares withheld for employee taxes 130 — — — — Taxes paid related to net share settlement of stock awards — (3,257) — — (3,257)Dividends accrued of $1.36 per share — — (33,028) — (33,028)Other comprehensive gain — — — 119 119 Balance at December 31, 2018 24,182 $103,801 $467,783 $(49) $571,535 The accompanying notes are an integral part of these consolidated financial statements. -63- MCGRATH RENTCORPCONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, (in thousands) 2018 2017 2016 Cash Flows from Operating Activities: Net income $79,406 $153,920 $38,251 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 81,975 78,416 81,179 Impairment of rental assets 39 1,639 — Provision for doubtful accounts 581 1,480 1,892 Share-based compensation 4,111 3,198 3,091 Gain on sale of used rental equipment (19,559) (17,733) (13,739)Foreign currency exchanges (gain) loss 489 (334) 121 Amortization of debt issuance costs 20 50 51 Change in: Accounts receivable (15,725) (10,475) (3,752)Income taxes receivable — — 11,000 Prepaid expenses and other assets (9,351) 3,124 3,219 Accounts payable and accrued liabilities (1,612) 4,015 10,426 Deferred income 10,258 1,720 1,211 Deferred income taxes 12,035 (96,631) 7,745 Net cash provided by operating activities 142,667 122,389 140,695 Cash Flows from Investing Activities: Purchases of rental equipment (123,071) (94,579) (79,038)Purchases of property, plant and equipment (15,664) (14,617) (10,548)Cash paid for acquisition of business assets (7,543) — — Proceeds from sales of used rental equipment 41,786 38,344 29,406 Net cash used in investing activities (104,492) (70,852) (60,180)Cash Flows from Financing Activities: Net borrowings (repayments) under bank lines of credit 15,130 (2,902) (35,066)Principal payments on Series A senior notes (20,000) (20,000) (20,000)Proceeds from the exercise of stock options — — 37 Taxes paid related to net share settlement of stock awards (3,257) (2,072) (1,287)Payment of dividends (30,939) (24,876) (24,448)Net cash used in financing activities (39,066) (49,850) (80,764)Effect of foreign currency exchange rate changes on cash (102) (38) (2)Net increase (decrease) in cash (993) 1,649 (251)Cash balance, beginning of period 2,501 852 1,103 Cash balance, end of period $1,508 $2,501 $852 Supplemental Disclosure of Cash Flow Information: Interest paid, during the period $12,598 $11,825 $12,436 Net income taxes paid, during the period $18,157 $29,504 $15,555 Dividends accrued during the period, not yet paid $8,388 $6,260 $6,147 Rental equipment acquisitions, not yet paid $9,695 $6,405 $2,876 The accompanying notes are an integral part of these consolidated financial statements. -64-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 RecognitionLease revenues - Rental revenues from operating leases are recognized on a straight-line basis over the term of the lease for all operatingsegments. Rental billings for periods extending beyond period end are recorded as deferred income and are recognized in the period earned. Rental relatedservices revenues are primarily associated with relocatable modular building and liquid and solid containment tanks and boxes leases. For modular buildingleases, rental related services revenues for modifications, delivery, installation, dismantle and return delivery are lease related because the payments areconsidered minimum lease payments that are an integral part of the negotiated lease agreement with the customer. These revenues are recognized on astraight-line basis over the term of the lease. Certain leases are accounted for as sales-type leases. For these leases, sales revenue and the related accountsreceivable are recognized upon delivery and installation of the equipment and the unearned interest is recognized over the lease term on a basis which resultsin a constant rate of return on the unrecovered lease investment. Other revenues include interest income on sales-type leases and rental income on facilityleases.Non-lease revenues - Sales revenue is recognized upon delivery and installation of the equipment to customers. Certain leases are accounted for assales-type leases. For these leases, sales revenue and the related accounts receivable are recognized upon delivery and installation of the equipment and theunearned interest is recognized 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 valueBlast resistant modules 20 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 -65- 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 $0.1 million and $1.6 million for the years ended December 31, 2018 and 2017, respectively. There were no impairments of long-lived assetsduring the year ended December 31, 2016.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 expense 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.-66- Property, plant and equipment consist of the following: (dollar amounts in thousands) Estimateduseful life December 31, in years 2018 2017 Land Indefinite $50,689 $50,689 Land improvements 20 – 50 50,064 43,337 Buildings 30 29,359 26,862 Furniture, office and computer equipment 3 – 10 33,081 32,118 Vehicles and machinery 5 – 25 38,199 34,597 201,392 187,603 Less accumulated depreciation (77,118) (70,034) 124,274 117,569 Construction in progress 2,625 1,601 $126,899 $119,170 Property, plant and equipment depreciation expense was $8.0 million, $7.6 million and $8.1 million for the years ended December 31, 2018, 2017 and2016, respectively. Construction in progress at December 31, 2018 and 2017 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 $0.1 million and $0.8 million in internal use software during the years ended December 31, 2018 and 2017, respectively. Advertising CostsAdvertising costs are expensed as incurred. Total advertising expenses were $3.2 million, $2.9 million and $2.9 million for the years ended December31, 2018, 2017 and 2016.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, 2018 and 2017, goodwill and tradename intangible assets which have indefinite lives totaled $33.7 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-67- 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 2018, 2017 or 2016. 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, 2018 2017 2016 Weighted-average common stock for calculating basic earnings per share 24,141 23,999 23,900 Effect of potentially dilutive securities from equity-based compensation 399 270 76 Weighted-average common stock for calculating diluted earnings per share 24,540 24,269 23,976 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, 2018 2017 2016 Options to purchase common stock — 7 661 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, 2018 and 2017. As of December 31, 2018, 1,592,026 shares remain authorized for repurchase. -68- 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 $32.3 million at December 31, 2018 and $30.1 million at December 31, 2017. 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) 2018 2017 Beginning balance, January 1 $1,920 $2,087 Provision for doubtful accounts 581 1,480 Write-offs, net of recoveries (618) (1,647)Ending balance, December 31 $1,883 $1,920 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 $99.0 million and $120.2 million compared to the recorded value of$100.0 million and $120.0 million as of December 31, 2018 and 2017, 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”), functioned 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 6 –Benefit Plans”.-69- 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.New Accounting Pronouncements In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2016-02, Leases (Subtopic842-10). Under the new guidance, lessees will be required to recognize the following for all leases (with the exception of short-term leases) on thecommencement date: a) lease liability, which is a lessee’s obligation to make lease payments 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 control the use of, a specified asset for the lease term. The amendments areeffective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The Company leases real estate for some of itsbranch offices and rental equipment storage yards, and leases vehicles and equipment used in its rental operations. The Company anticipates the new lesseeaccounting will increase its total assets and liabilities by approximately $10 million based upon the present value of lease payments over the expected leaseterm using interest rates explicit in the lease, or the Company’s estimated incremental borrowing rate if not stated in the lease. We will use the transitionmethod that allows us to initially apply this guidance at the adoption date and recognize a cumulative–effect adjustment to the opening balance of retainedearnings in the period of adoption, which we believe will not be significant. Consequently, historical financial information will not be updated and thefinancial disclosures requirement under the new standard will not be provided for periods prior to January 1, 2019. The new guidance contains additionaloptional transition practical expedients intended to simplify adoption. The Company will use the package of expedients that allows for not reassessing: (1)whether any expired or existing contracts are or contain leases, (2) the lease classification for any expired or existing leases and (3) initial direct costs for anyexpired or existing leases. The Company has implemented processes and systems to assist in the ongoing lease data collection, analysis and accounting forleases in accordance with the new guidance. A majority of the Company’s revenues for the year ended December 31, 2018 were accounted for under the current lease accounting guidance underTopic 840 (see Note 2. Implemented Accounting Pronouncements - Revenue from Contracts with Customers for further discussion). In December 2018, theFASB issued ASU No. 2018-20, Leases (Topic 842): Narrow-Scope Improvements for Lessors, which is expected to reduce a lessor’s implementation andongoing costs associated with applying the new leases standard. The ASU also clarifies a specific lessor accounting requirement. Specifically, this ASUaddresses the following issues facing lessors when applying the leases standard: Sales taxes and other similar taxes collected from lessees, certain lessor costspaid directly by lessees and recognition of variable payments for contracts with lease and non-lease components. Under the new guidance, lessor accountingis largely unchanged and the Company has concluded that no significant changes are expected to the accounting for revenues upon adoption of Topic 842. In August 2018, the FASB issued ASU No. 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing ArrangementThat Is a Service Contract. Under this ASU, entities should account for costs associated with implementing a cloud computing arrangement that is considereda service contract to follow the guidance in Subtopic 350-40 to determine which implementation costs to capitalize as an asset related to the service contractand which costs to expense. The amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscalyears. The Company expects to early adopt this guidance in 2019, which is not expected to have a material impact on its consolidated financial statements. NOTE 2. IMPLEMENTED ACCOUNTING PRONOUNCEMENTSRevenue from Contracts with CustomersThe Company’s accounting for revenues is governed by two accounting standards. The majority of the Company’s revenues are considered lease orlease related and are accounted for in accordance with Topic 840, Leases. Revenues determined to be non-lease related are accounted for in accordance withASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which was adopted by the Company on January 1, 2018. The Company utilized themodified retrospective method of adoption and there was no impact on its condensed consolidated financial statements, nor was there a cumulative effect ofinitially applying the new standard. The Company accounts for revenues when approval and commitment from both parties have been obtained, the rights ofthe parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. The Companytypically recognizes non-lease related revenues at a point in time because the customer does not simultaneously consume the benefits of the Company’spromised goods and services, or performance obligations, and obtain control when delivery-70- and installation are complete. For contracts that have multiple performance obligations, the transaction price is allocated to each performance obligation inthe contract based on the Company’s best estimate of the standalone selling prices of each distinct performance obligation in the contract. The standaloneselling price is typically determined based upon the expected cost plus an estimated margin of each performance obligation. The Company generally rents and sells to customers on 30 day payment terms. The Company does not typically offer variable payment terms, oraccept non-monetary consideration. Amounts billed and due from the Company’s customers are classified as Accounts receivable on the Company’sconsolidated balance sheet. For certain sales of modular buildings, progress payments from the customer are received during the manufacturing of newequipment, or the preparation of used equipment. The advance payments are not considered a significant financing component because the payments areused to meet working capital needs during the contract and to protect the Company from the customer failing to adequately complete their obligations underthe contract. These contract liabilities are included in Deferred income on the Company’s consolidated balance sheet and totaled $15.7 million and $6.8million at December 31, 2018 and 2017, respectively. Sales revenues totaling $5.8 million were recognized during the year ended December 31, 2018, whichwere included in the contract liability balance at December 31, 2017. For certain modular building sales, the customer retains a small portion of the contractprice until full completion of the contract, which results in revenue earned in excess of billings. These unbilled contract assets are included in Accountsreceivable on the Company’s consolidated balance sheet and totaled $1.4 million and $2.0 million at December 31, 2018 and 2017, respectively.Lease RevenuesRental revenues from operating leases are recognized on a straight-line basis over the term of the lease for all operating segments. Rental billings forperiods extending beyond period end are recorded as deferred income and are recognized in the period earned. Rental related services revenues are primarilyassociated with relocatable modular building and liquid and solid containment tanks and boxes leases. For modular building leases, rental related servicesrevenues for modifications, delivery, installation, dismantle and return delivery are lease related because the payments are considered minimum leasepayments that are an integral part of the negotiated lease agreement with the customer. These revenues are recognized on a straight-line basis over the term ofthe lease. Certain leases are accounted for as sales-type leases. For these leases, sales revenue and the related accounts receivable are recognized upondelivery and installation of the equipment and the unearned interest is recognized over the lease term on a basis which results in a constant rate of return onthe unrecovered lease investment. Other revenues include interest income on sales-type leases and rental income on facility leases.Non-Lease RevenuesNon-lease revenues are recognized in the period when control of the performance obligation is transferred, in an amount that reflects the considerationthe Company expects to be entitled to receive in exchange for those goods or services. For liquid and solid containment solutions, portable storagecontainers and electronic test equipment, rental related services revenues for delivery and return delivery are considered non-lease revenues. Sales revenues are typically recognized at a point in time, which occurs upon the completion of delivery, installation and acceptance of the equipmentby the customer. Accounting for non-lease revenues requires judgment in determining the point in time the customer gains control of the equipment and theappropriate accounting period to recognize revenue.Sales taxes charged to customers are reported on a net basis and are excluded from revenues and expenses.The following table disaggregates the Company’s revenues by lease (within the scope of Topic 840) and non-lease revenues (within the scope ofTopic 606) and the underlying service provided for the three years ended December 31, 2018, 2017 and 2016: -71- (in thousands) MobileModular TRS-RenTelco AdlerTanks Enviroplex Consolidated Twelve Months Ended December 31, 2018 Leasing $200,214 $94,345 $70,653 $— $365,212 Non-lease: Rental related services 14,870 2,607 24,276 — 41,753 Sales 39,467 19,895 1,044 29,046 89,452 Other 23 1,810 80 — 1,913 Total non-lease 54,360 24,312 25,400 29,046 133,118 Total revenues $254,574 $118,657 $96,053 $29,046 $498,330 2017 Leasing $180,612 $85,930 $64,676 $— $331,218 Non-lease: Rental related services 13,331 2,358 24,322 — 40,011 Sales 37,434 18,137 2,362 31,369 89,302 Other (111) 1,619 (5) — 1,503 Total non-lease 50,654 22,114 26,679 31,369 130,816 Total revenues $231,266 $108,044 $91,355 $31,369 $462,034 2016 Leasing $168,787 $87,085 $59,217 $— $315,089 Non-lease: Rental related services 11,326 2,292 23,292 — 36,910 Sales 29,393 17,675 1,314 22,121 70,503 Other 6 1,565 7 — 1,578 Total non-lease 40,725 21,532 24,613 22,121 108,991 Total revenues $209,512 $108,617 $83,830 $22,121 $424,080 Customer returns of rental equipment prior to the end of the rental contract term are typically billed a cancellation fee, which is recorded as rentalrevenue in the period billed. Sales of new relocatable modular buildings, portable storage containers, electronic test equipment and related accessories andliquid and solid containment tanks and boxes not manufactured by the Company are typically covered by warranties provided by the manufacturer of theproducts sold. The Company typically provides limited 90-day warranties for certain sales of used rental equipment and one-year warranties on equipmentmanufactured by Enviroplex. Although the Company’s policy is to provide reserves for warranties when required for specific circumstances, the Companyhas not found it necessary to establish such reserves to date as warranty costs have not been significant. The Company’s incremental cost of obtaining lease contracts, which consists of salesperson commissions, are deferred and amortized over the initiallease term for modular building leases. Incremental costs for obtaining a contract for all other operating segments are expensed in the period incurredbecause the lease term is typically less than 12 months. NOTE 3. 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, 2018 2017 Gross minimum lease payments receivable $2,419 $2,150 Less – unearned interest (249) (201)Net investment in sales type lease receivables $2,170 $1,949 -72- As of December 31, 2018, the future minimum lease payments under non-cancelable sales-type leases to be received in 2019 and thereafter are asfollows: (in thousands) Year Ended December 31, 2019 $1,765 2020 419 2021 157 2022 78 Total minimum future lease payments $2,419 NOTE 4. NOTES PAYABLENotes payable consists of the following: (in thousands) December 31, 2018 2017 Unsecured revolving lines of credit $198,603 $183,473 4.03% Series A senior notes due in 2018 — 20,000 3.68% Series B senior notes due in 2021 40,000 40,000 3.84% Series C senior notes due in 2022 60,000 60,000 298,603 303,473 Unamortized debt issuance cost (39) (59) $298,564 $303,414 As of December 31, 2018, the future minimum payments under the unsecured revolving lines of credit, 3.68% Series B senior notes due in 2021 and3.84% Series C senior notes due in 2022 are as follows: (in thousands) Year Ended December 31, 2019 $— 2020 — 2021 238,603 2022 60,000 $298,603 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.-73- 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 $198.6 million was outstanding, and had capacity to borrow up to an additional $233.4 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, 2018, the actual ratio was 4.11 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, 2018, the actual ratio was 1.47 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, 2018, such sum was $366.8 million and the actual Tangible Net Worth of the Company was $536.5 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, 2018 and 2017, the applicable margins were 1.25% for LIBOR based loans, 0.25% for base rate loans and 0.20%for unused fees. Amounts borrowed under the Sweep Service Facility are based upon the MUFG Union Bank, N.A. base rate plus an applicable margin and anunused commitment fee for the portion of the $12.0 million facility not used. The applicable base rate margin and unused commitment fee rates for theSweep Service Facility are the same as for the Amended Credit Facility. The following information relates to the lines of credit for each of the followingperiods: (dollar amounts in thousands) Year Ended December 31, 2018 2017 Maximum amount outstanding $228,500 $215,732 Average amount outstanding $204,534 $199,499 Weighted average interest rate, during the period 3.36% 2.64%Prime interest rate, end of period 5.50% 4.50% 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 were an unsecured obligation of the Company, due on April 21, 2018. Intereston these notes was due semi-annually in arrears and the principal was due in five equal annual installments, with the first payment due on April 21, 2014. Inaddition, the Note Purchase Agreement allowed 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. The final $20.0 million principal payment under the Series A Senior Notes was made in April 2018 with noamount remaining outstanding as of December 31, 2018. At December 31, 2017, the principal balance outstanding under the Series A Senior Notes was $20million.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 principal balance is due when the notesmature in 2021. The full net proceeds from the Series B Senior Notes were used for working capital and other general corporate purposes. At December 31,2018 and 2017, the principal balance outstanding under the Series B Senior Notes was $40.0 million.-74- 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, 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, 2018 and 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 to fixed charges as of the end of any fiscal quarter to be less than 2.50 to1. At December 31, 2018, the actual ratio was 4.11 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, 2018, the actual ratio was 1.47 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, 2018, such sum was $366.8 million and the actual Tangible Net Worth of theCompany was $536.5 million.At December 31, 2018, 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 5. INCOME TAXESIncome before (benefit) provision for income taxes consisted of the following: (in thousands) Year Ended December 31, 2018 2017 2016 U.S. $104,881 $83,525 $67,199 Foreign (186) (73) (268) $104,695 $83,452 $66,931 -75- The (benefit) provision for income taxes consisted of the following: (in thousands) Year Ended December 31, 2018 2017 2016 Current: U.S. Federal $7,270 $21,171 $17,203 State 4,253 2,976 2,049 Foreign 1,731 2,016 1,683 13,254 26,163 20,935 Deferred: U.S. Federal 10,355 (103,518) 4,005 State 1,637 6,948 3,039 Foreign 43 (61) 701 12,035 (96,631) 7,745 Total $25,289 $(70,468) $28,680 The reconciliation of the U.S. federal statutory tax rate to the Company’s effective tax rate is as follows: Year Ended December 31, 2018 2017 2016 U.S. federal statutory rate 21.0% 35.0% 35.0%State taxes, net of federal benefit 5.0 4.1 4.2 State deferred tax rate change, net of federal benefit 0.7 0.5 2.0 Valuation allowance (0.5) 0.1 1.1 Share-based compensation (1.9) (1.0) — Enactment of the Tax Cuts and Jobs Act (0.1) (122.9) — Other 0.0 (0.2) 0.6 24.2% (84.4)% 42.9% 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, 2018 2017 Deferred tax liabilities: Accelerated depreciation $208,539 $195,694 Prepaid costs currently deductible 4,845 4,152 Other 4,703 4,405 Total deferred tax liabilities 218,087 204,251 Deferred tax assets: Accrued costs not yet deductible 7,796 7,880 Allowance for doubtful accounts 486 484 Deferred revenues 1,774 213 Share-based compensation 1,367 1,045 Total deferred tax assets, net of valuation allowance of $0.2 million in 2018 and $0.8million in 2017 11,423 9,622 Deferred income taxes, net $206,664 $194,629 The Tax Cuts and Jobs Act (the “Tax Act”) was enacted in December 2017. Among other provisions, the Tax Act reduced the U.S. federal corporatetax rate from 35% to 21% in 2018, required companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously taxdeferred and created new taxes on certain foreign-source earnings. As of December 31, 2018, the Company completed its accounting for the tax effects ofenactment of the Tax Act without any material adjustments to its previous estimate of the one-time transition tax.As of December 31, 2018 the Company does not have a deferred tax liability related to its foreign earnings because it does not currently have anyspecific plans to repatriate funds from its international subsidiaries. The Company may do so in the future if a dividend can be remitted with no material taximpact.-76- 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, 2018 that management estimated the benefit of which will not be realized. As of December 31,2018, the Company’s foreign net operating losses for tax purposes were $0.6 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 2018 and 2017, exercise of share-based awards by employees resulted in an excess tax benefit of $2.0 million and $0.9 million, respectively. In2016 share-based awards by employees resulted in a tax shortfall of $1.1 million, which was recorded to equity. 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, 2018 and 2017. In addition, there have been no material changes in unrecognized benefits during 2018, 2017 and 2016.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 2014.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 provision (benefit) 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, 2018, 2017and 2016. NOTE 6. 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, 2018.For the years ended December 31, 2018, 2017 and 2016, the share-based compensation expense was $4.1 million, $3.2 million and $3.1 million,respectively, before provision for income taxes. The Company recorded a tax benefit of approximately $1.1 million, $1.3 million and $1.2 million,respectively, related to the aforementioned share-based compensation expenses. There was no capitalized share-based compensation expense in the yearsended December 31, 2018, 2017 and 2016. Stock OptionsAs of December 31, 2018, 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 5,953,688 shares, while options for 1,659,312 shares have been terminated, and options for845,600 shares with exercise prices ranging from $24.60 to $40.37 remained outstanding-77- under the stock plans. These options vest over five years and expire seven years after grant. To date, no options have been issued to any of the Company’snon-employee advisors. As of December 31, 2018, 1,962,804 shares remained available for issuance of awards under the stock plans.A summary of the Company’s option activity and related information for the three years ended December 31, 2018 is as follows: Number ofoptions Weighted-averageprice Weighted-averageremainingcontractualterm(in years) Aggregateintrinsicvalue(in millions) 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 28.14 Options granted — — Options exercised (332,810) 29.49 Options cancelled/forfeited/expired (30,450) 28.27 Balance at December 31, 2018 845,600 $29.57 4.18 $18.6 Exercisable at December 31, 2018 303,225 $29.71 3.78 $6.6 Expected to vest after December 31, 2018 517,884 $29.50 4.41 $11.4 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$10.6 million, $6.2 million and $4.2 million for the years ended December 31, 2018, 2017 and 2016, respectively, determined as of the date of optionexercise. As of December 31, 2018, there was approximately $2.6 million of total unrecognized compensation cost related to unvested share-basedcompensation option arrangements granted under the Company’s stock plans, which is expected to be recognized over a weighted-average period of 1.9years.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, 2018: Options Outstanding Options Exercisable Exercise price Numberoutstanding atDecember 31,2018 Weighted-averageremainingcontractual life(Years) Weighted-averagegrant datevalue Numberexercisable atDecember 31,2018 Weighted-averagegrant datevalue $20 – 25 349,990 4.17 $24.60 109,150 $24.60 $25 – 30 33,970 2.19 $27.99 24,460 $29.10 $30 – 35 448,300 4.32 $33.31 165,675 $33.03 $35 – 40 7,900 4.58 $38.83 3,600 $38.56 $40 – 45 5,440 5.67 $40.37 340 $40.37 $20 – 45 845,600 4.18 $29.57 303,225 $29.71 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.-78- 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, 2018 2017 2016 Expected term (in years) — 5.0 5.0 Expected volatility — 26.1% 28.7%Expected dividend yields — 3.0% 4.1%Risk-free interest rates — 2.0% 1.2% The Company monitors option exercise behavior to determine the appropriate homogenous groups for estimation purposes. The Company’s optionactivity is separated into two categories: directors and employees. The expected term of the options represents the estimated period of time until exerciseand is based on historical experience, giving consideration to the option terms, vesting schedules and expectations of future behavior. Expected stockvolatility was based on historical stock price volatility of the Company and the risk-free interest rates were based on U.S. Treasury yields in effect on the dateof the option grant for the estimated period the options will be outstanding. The expected dividend yield was based upon the current dividend annualized asa percentage of the grant exercise price.No options were granted in 2018. The weighted average grant date fair value per share was $6.28 and $4.14 during the years ended December 31,2017 and 2016, 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, 2018: Weighted- Aggregate average intrinsic Number grant date value of shares fair value (in millions) 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 RSUs granted 97,260 49.47 RSUs vested (30,214) 33.16 RSUs cancelled/forfeited/expired (21,200) 33.88 Balance at December 31, 2018 139,510 $44.73 $7.2 Performance-based RSUs issued prior to 2018 vest over five years, with 60% of the shares immediately vesting after three years when the performancecriteria has been determined to have been met and 20% of the remaining shares vesting annually at the anniversary of the performance determination date,subject to continuous employment of the participant. The 2018 performance-based RSU grants vest after three years with 100% of the shares vestingimmediately when performance criteria has been determined to have been met. There were 130,730 performance-based RSUs expected to vest as of December31, 2018. Service-based RSUs issued to the Company’s directors generally vest over twelve to fourteen months. Service–based RSUs issued to theCompany’s management vest over three years. There were 48,710 service-based RSUs expected to vest as of December 31, 2018. No forfeitures are currentlyexpected. The total fair value of RSUs that vested during the years ended December 31, 2018, 2017 and 2016 based on the weighted average grant datevalues was $1.0 million, $1.0 million and $1.8 million, respectively.Share-based compensation expense for RSUs for the year ended December 31, 2018, 2017 and 2016 was $2.6 million, $1.4 million and $1.0,respectively. As of December 31, 2018, the total unrecognized compensation expense related to unvested RSUs was $5.2 million and is expected to berecognized over a weighted-average period of 2.6 years.-79- 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, 2018 dividends deducted by the Company were $0.3 million,which resulted in a tax benefit of approximately $0.1 million in 2018.At December 31, 2018, the KSOP held 243,007 shares, or 1% of the Company’s total common shares outstanding. These shares are included in basicand diluted earnings per share calculations. NOTE 7. SHAREHOLDERS’ EQUITYThe 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 the Securities Exchange Act of1934. In August 2015, the Company’s Board of Directors authorized the Company to repurchase 2,000,000 shares of the Company's outstanding commonstock. The amount and time of the specific repurchases are subject to prevailing market conditions, applicable legal requirements and other factors, includingmanagement’s discretion. All shares repurchased by the Company are canceled and returned to the status of authorized but unissued shares of common stock.There can be no assurance that any authorized shares will be repurchased and the repurchase program may be modified, extended or terminated by the boardof directors at any time. There were no repurchases of common stock during the twelve months ended December 31, 2018 and 2017. As of December 31,2018, 1,592,026 shares remain authorized for repurchase under this authorization. NOTE 8. 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, 2019 $2,979 2020 2,111 2021 1,713 2022 1,445 2023 1,089 Thereafter 1,142 $10,479 Facility rent expense was $3.5 million in 2018, 2017 and 2016.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.-80- The Company’s health and workers’ compensation plans are self-funded high deductible plans with annual stop-loss insurance of $200,000 and$350,000 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, 2018 and 2017,accruals for the Company’s health and workers’ compensation high deductible plans were $3.0 million and $2.9 million, respectively. NOTE 9. INTANGIBLE ASSETSIntangible assets consist of the following: (dollar amounts in thousands) Estimateduseful life December 31, (In years) 2018 2017 Trade name Indefinite $5,871 $5,700 Customer relationships 11 9,849 9,611 15,720 15,311 Less accumulated amortization (8,466) (7,587) $7,254 $7,724 Intangible assets with finite useful lives are amortized over their respective useful lives. Amortization expense in each of the years endedDecember 31, 2018, 2017 and 2016 were $0.9 million. Based on the carrying values at December 31, 2018 and assuming no subsequent impairment of theunderlying assets, the annual amortization is expected to be $0.9 million in 2019 and $0.1 million in 2020 through 2025. NOTE 10. RELATED PARTY TRANSACTIONSThere were no related party transactions in the years ended December 31, 2018 and 2017, or amounts owed to related parties at such dates. -81- NOTE 11. 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, 2018, 2017 and 2016, 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, 2018 Rental revenues $159,136 $89,937 $69,701 $— $318,774 Rental related services revenues 54,696 3,300 24,911 — 82,907 Sales and other revenues 40,742 25,420 1,441 29,046 96,649 Total revenues 254,574 118,657 96,053 29,046 498,330 Depreciation of rental equipment 21,200 36,011 15,928 — 73,139 Gross profit 120,750 54,773 48,055 9,673 233,251 Selling and administrative expenses 58,017 22,823 30,026 4,904 115,770 Income from operations 62,733 31,950 18,029 4,769 117,481 Interest expense (income) allocation (7,132) (2,696) (3,252) 783 (12,297)Income before provision for income taxes 55,601 28,765 14,777 5,552 104,695 Rental equipment acquisitions 63,374 65,467 5,257 — 134,098 Accounts receivable, net (period end) 72,295 20,732 19,992 7,997 121,016 Rental equipment, at cost (period end) 817,375 285,052 313,573 — 1,416,000 Rental equipment, net book value (period end) 572,032 131,450 197,533 — 901,015 Utilization (period end) 2 79.3% 62.1% 56.4% Average utilization 2 78.2% 62.7% 59.9% -82- Segment Data (Continued)(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 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% 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) 769,190 246,325 308,542 — 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% 1Gross Enviroplex sales revenues were $30,407, $31,369 and $22,206 in 2018, 2017 and 2016, respectively. There were $1,361 and $85 inter-segment sales to MobileModular in 2018 and 2016, respectively, which have been eliminated in consolidation. There were no inter-segment sales in 2017.2Utilization 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 2018, 2017 and 2016. Revenue from foreign country customersaccounted for 4%, 4% and 5% of the Company’s revenues for the same periods, respectively. -83- NOTE 12. QUARTERLY FINANCIAL INFORMATION (unaudited)Quarterly financial information for each of the two years ended December 31, 2018 is summarized below: (in thousands, except per share amounts) 2018 First Second Third Fourth Year Operations Data Rental revenues $74,261 $77,267 $82,155 $85,091 $318,774 Total revenues 105,085 116,983 143,147 133,115 498,330 Gross profit 50,170 53,928 64,050 65,103 233,251 Income from operations 22,042 24,449 35,824 35,166 117,481 Income before provision for income taxes 19,018 21,106 32,553 32,018 104,695 Net income 14,466 15,912 24,779 24,249 79,406 Earnings per share: Basic $0.60 $0.66 $1.03 $1.00 $3.29 Diluted $0.59 $0.65 $1.01 $0.99 $3.24 Dividends declared per share $0.34 $0.34 $0.34 $0.34 $1.36 Shares used in per share calculations: Basic 24,067 24,145 24,172 24,179 24,141 Diluted 24,478 24,584 24,563 24,514 24,540 Balance Sheet Data Rental equipment, net $865,338 $876,522 $888,607 $901,015 $901,015 Total assets 1,148,858 1,180,209 1,201,799 1,217,316 1,217,316 Notes payable 300,595 314,860 309,006 298,564 298,564 Shareholders’ equity 530,284 537,195 554,547 571,535 571,535 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 provision (benefit) 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 $0.26 $0.26 $0.26 $0.26 $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 -84-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, 2018.Changes in Internal Control over Financial Reporting. During the last quarter of the Company’s fiscal year ended December 31, 2018, 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, 2018, is discussed in the Management’s Report on Internal Control Over Financial Reporting included on page 57.The effectiveness of the Company’s internal control over financial reporting as of December 31, 2018 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. -85- 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 2019 AnnualMeeting of Shareholders to be held on June 5, 2019, which will be filed with the Securities and Exchange Commission no later than April 26, 2019.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 2019 AnnualMeeting of Shareholders to be held on June 5, 2019, which will be filed with the Securities and Exchange Commission no later than April 26, 2019.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 2019 AnnualMeeting of Shareholders to be held on June 5, 2019, which will be filed with the Securities and Exchange Commission no later than April 26, 2019.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 2019 AnnualMeeting of Shareholders to be held on June 5, 2019, which will be filed with the Securities and Exchange Commission no later than April 26, 2019.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 2019 AnnualMeeting of Shareholders to be held on June 5, 2019, which will be filed with the Securities and Exchange Commission no later than April 26, 2019. -86- 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 57Reports of Independent Registered Public Accounting Firm: 58Consolidated Financial Statements Consolidated Balance Sheets as of December 31, 2018 and 2017 60Consolidated Statements of Income for the Years Ended December 31, 2018, 2017 and 2016 61Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2018, 2017 and 2016 62Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2018, 2017 and 2016 63Consolidated Statements of Cash Flows for the Years Ended December 31, 2018, 2017 and 2016 64Notes to Consolidated Financial Statements 652.Financial Statement Schedules. None 3.Exhibits. See Index of Exhibits on page 88 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. -87- 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. 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.-88- Number Description Method of Filing 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. 32.1 Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Furnished herewith. -89- Number Description Method of Filing 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, 2018, 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 -90- 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 26, 2019 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/ Kim A. Box Director February 26, 2019KIM A. BOX /s/ William J. Dawson Director February 26, 2019WILLIAM J. DAWSON /s/ Elizabeth A. Fetter Director February 26, 2019ELIZABETH A. FETTER /s/ Joseph F. Hanna Chief Executive Officer, President and Director February 26, 2019JOSEPH F. HANNA /s/ Bradley M. Shuster Director February 26, 2019BRADLEY M. SHUSTER /s/ M. Richard Smith Director February 26, 2019M. RICHARD SMITH /s/ Dennis P. Stradford Director February 26, 2019DENNIS P. STRADFORD /s/ Ronald H. Zech Chairman of the Board February 26, 2019RONALD H. ZECH -91-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 26, 2019, 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, 2018. 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 26, 2019  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 26, 2019 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 26, 2019 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, 2018 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 26, 2019 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, 2018 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 26, 2019 By: /s/ Keith E. Pratt Keith E. Pratt Chief Financial Officer 

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