The level of non-residential construction activity is an important external factor that we examine to determine the direction of our business. Customers in the construction industry represented approximately 36% and 43% of our units on rent at December 31, 2008 and 2007, respectively, and because of the degree of operating leverage we have, increases or decreases in non-residential construction activity can have a significant effect on our operating margins and net income. In 2007, after three years of very strong growth in non-residential construction activity in the U.S, the growth rate in this sector began to moderate and the level of our construction related business began to slow down and then decline. This decline continues to adversely affect our results of operations into 2009.
In managing our business, we focus on growing leasing revenues, particularly in existing markets where we can take advantage of the operating leverage inherent in our business model. Our goal is to maintain a stable growth rate. We are a capital-intensive business, so in addition to focusing on earnings per share, we focus on adjusted EBITDA to measure our results. We calculate this number by first calculating EBITDA, which we define as net income before interest expense, debt restructuring or extinguishment expense (if applicable), provision for income taxes, depreciation and amortization. This measure eliminates the effect of financing transactions that we enter into and this measure provides us with a means to track internally generated cash from which we can fund our interest expense and our lease fleet growth. In comparing EBITDA from year to year, we typically further adjust EBITDA to ignore the effect of what we consider non-recurring events not related to our core business operations to arrive at what we define as adjusted EBITDA.
Because EBITDA is a non-GAAP financial measure, as defined by the SEC, we include below in this report reconciliations of EBITDA to the most directly comparable financial measures calculated and presented in accordance with accounting principles generally accepted in the United States.
We present EBITDA because we believe it provides useful information regarding our ability to meet our future debt payment requirements, capital expenditures and working capital requirements and that it provides an overall evaluation of our financial condition. In addition, EBITDA is a component of certain financial covenants under our revolving credit facility and is used to determine our available borrowing capacity and the facility's applicable interest rate in effect at any point in time. EBITDA has certain limitations as an analytical tool and should not be used as a substitute for net income, cash flows or other consolidated income or cash flow data prepared in accordance with generally accepted accounting principles in the United States or as a measure of our profitability or our liquidity. In particular, EBITDA, as defined, does not include:
• Interest expense - because we borrow money to partially finance our capital expenditures, primarily related to the expansion of our lease fleet, interest expense is a necessary element of our cost to secure this financing to continue generating additional revenues.

• Debt restructuring or extinguishment expense - as defined in our revolving credit facility, debt restructuring or debt extinguishment expenses are not deducted in our various calculations made under our facility and are treated no differently than interest expense. As discussed above, interest expense is a necessary element of our cost to finance a portion of the capital expenditures needed for the growth of our business.

• Income taxes - EBITDA, as defined, does not reflect income taxes or the requirements for any tax payments.

• Depreciation and amortization - because we are a leasing company, our business is very capital intensive and we hold acquired assets for a period of time before they generate revenues, cash flow and earnings; therefore, depreciation and amortization expense is a necessary element of our business.

When evaluating EBITDA as a performance measure, and excluding the above-noted charges, all of which have material limitations, investors should consider, among other factors, the following:
• increasing or decreasing trends in EBITDA;

• how EBITDA compares to levels of debt and interest expense; and

• whether EBITDA historically has remained at positive levels.

Because EBITDA, as defined, excludes some but not all items that affect our cash flow from operating activities, EBITDA may not be comparable to a similarly titled performance measure presented by other companies.
The table below is a reconciliation of EBITDA to net cash provided by operating activities for the periods indicated:

                                                           Three Months Ended
                                                                March 31,
                                                           2008          2009
                                                             (In thousands)
     EBITDA                                              $  29,460     $  39,429
     Interest paid                                          (3,278 )     (16,129 )
     Income and franchise taxes paid                          (102 )        (144 )
     Share-based compensation expense                          988         1,621
     Gain on sale of lease fleet units                      (1,491 )      (2,845 )
     Loss on disposal of property, plant and equipment          29            25
     Changes in certain assets and liabilities:
     Receivables                                             2,633        11,727
     Inventories                                              (503 )         430
     Deposits and prepaid expenses                             543           330
     Other assets and intangibles                           (4,331 )        (181 )
     Accounts payable and accrued liabilities               (3,018 )     (13,663 )

     Net cash provided by operating activities           $  20,930     $  20,600

EBITDA is calculated as follows, without further adjustment, for the periods indicated:

                                                                       Three Months Ended
                                                                           March 31,
                                                                      2008              2009
                                                                      (In thousands except
                                                                          percentages)
Net income                                                        $     10,658        $  8,466
Interest expense                                                         6,145          15,241
Provision for income taxes                                               6,988           5,469
Depreciation and amortization                                            5,669          10,253

EBITDA                                                            $     29,460        $ 39,429

EBITDA margin(1)                                                          37.5 %          39.4 %

EBITDA and EBITDA margin(1) excluding integration, merger
and restructuring expenses in 2009:                                                   $ 41,643

                                                                                          41.6 %

(1) EBITDA margin is calculated as EBITDA divided by total revenues expressed as a percentage.

In managing our business, we routinely compare our EBITDA margins from year to year and based upon age of branch. We define this margin as EBITDA divided by our total revenues, expressed as a percentage. We use this comparison, for example, to study internally the effect that increased costs have on our margins. As capital is invested in our established branch locations, we achieve higher EBITDA margins on that capital than we achieve on capital invested to establish a new branch, because our fixed costs are already in place in connection with the established branches. The fixed costs are those associated with yard and delivery equipment, as well as advertising, sales, marketing and office expenses. With a new market or branch, we must first fund and absorb the startup costs for setting up the new branch facility, hiring and developing the management and sales team and developing our marketing and advertising programs. A new branch will have low EBITDA margins in its early years until the number of units on rent increases. Because of our high operating margins on incremental lease revenue, which we realize on a branch-by-branch basis when the branch achieves leasing revenues sufficient to cover the branch's fixed costs, leasing revenues in excess of the break-even amount produce large increases in profitability. Conversely, absent significant growth in leasing revenues, the EBITDA margin at a branch would be expected to remain relatively flat on a period-by-period comparative basis.

Accounting and Operating Overview
Our leasing revenues include all rent and ancillary revenues we receive for our portable storage, combination storage/office and mobile office units. Our sales revenues include sales of these units to customers. Our other revenues consist principally of charges for the delivery of the units we sell. Our principal operating expenses are (1) cost of sales; (2) leasing, selling and general expenses; and (3) depreciation and amortization, primarily depreciation of the portable storage units and portable offices in our lease fleet. Cost of sales is the cost of the units that we sold during the reported period and includes both our cost to buy, transport, refurbish and modify used ocean-going containers and our cost to manufacture portable storage units and other structures. Leasing, selling and general expenses include among other expenses, advertising and other marketing expenses, real property lease expenses, commissions, repair and maintenance costs of our lease fleet and transportation equipment and corporate expenses for both our leasing and sales activities. Annual repair and maintenance expenses on our leased units over the last three fiscal years have averaged approximately 4.3% of lease revenues and are included in leasing, selling and general expenses. We expense our normal repair and maintenance costs as incurred (including the cost of periodically repainting units).
Our principal asset is our lease fleet, which has historically maintained value close to its original cost. The steel units in our lease fleet (other than van trailers) are depreciated on the straight-line method over our units' estimated useful life of 25 years after the date the unit is placed in service, with an estimated residual value of 62.5%. The depreciation policy is supported by our historical lease fleet data which shows that we have been able to obtain comparable rental rates and sales prices irrespective of the age of our container lease fleet. Our wood mobile office units are depreciated over 20 years to 50% of original cost. Van trailers, which constitute a small part of our fleet, are depreciated over seven years to a 20% residual value. In connection with the MSG acquisition, we also acquired non-core assets that were not part of our principal lease fleet. These assets include timber units which are older wood constructed mobile offices in the U.K. that are depreciated over 5 years to 10% of their assigned value. Other non-core units include portable toilets. Steel portable toilets are depreciated over 25 years to 62.5% of their residual value, wood timber portable toilets are depreciated over 5 years to 10% of their residual value and fiberglass portable toilets are depreciated over 3 years to 30% of their residual value.
The table below summarizes those transactions that effectively maintained the net value of our lease fleet at $1.1 billion from December 31, 2008 to March 31, 2009:

                                                                      Dollars               Units
                                                                   (In thousands)
Lease fleet at December 31, 2008, net                             $      1,078,156          273,748
Purchases:
Container purchases and containers, including freight                           68               41
Non-core units                                                                  75               35
Manufactured units:
Steel storage containers, combination storage/office combo
units and steel security offices                                               118                6
Remanufacturing and customization (3):
Remanufacturing or customization of units purchased or
acquired in the current year                                                     8
Remanufacturing or customization of 98 units purchased in a
prior year                                                                   1,817               55 (1)
Remanufacturing or customization of 1,485 units obtained
through acquisition in a prior year                                          3,525              200 (2)
Other                                                                         (866 )           (588 )(4)
Cost of sales from lease fleet                                              (5,712 )         (3,579 )
Effect of exchange rate changes                                               (789 )
Depreciation                                                                (6,471 )

Lease fleet at March 31, 2009, net                                $      1,069,929          269,918

(1) These units include the net additional units that were the result of splitting steel containers into one or more shorter units, such as splitting a 40-foot containers into two 20-foot units, or one 25-foot unit and one 15-foot unit.

(2) Includes units moved from finished goods to lease fleet.

(3) Does not include any routine maintenance, which is expensed as incurred.

(4) Includes net units transferred in and out of the lease fleet.

The table below outlines the composition of our lease fleet (by book value and unit count) at March 31, 2009:

                                                     Number of       Percentage
                                     Book Value        Units          of Units
                                     (In thousands)
          Steel storage containers   $   616,088        214,283               79 %
          Mobile offices                 521,651         42,989               16 %
          Van trailers                    14,176         12,438                5 %
          Other, primarily chassis         2,548            208

                                       1,154,463
          Accumulated depreciation       (84,534 )

                                     $ 1,069,929        269,918              100 %

Appraisals on our fleet are conducted on a regular basis by an independent appraiser selected by our lenders and the appraiser does not differentiate in value based upon the age of the container or the length of time it has been in our fleet. As of March 31, 2009, based on this orderly liquidation value appraisal, on which our borrowings under our revolving credit facility are based, our lease fleet liquidation appraisal value is approximately $908.7 million, which equates to 84.9% of our lease fleet net book value of $1.1 billion at March 31, 2009.
Our expansion program and other factors can affect our overall lease fleet asset utilization rate. During the last five fiscal years, our annual utilization levels averaged 80.2%, and ranged from a low of 75.0% in 2008 to a high of 82.9% in 2005. Our utilization is somewhat seasonal, historically with the low realized in the first quarter and the high realized in the fourth quarter.

RESULTS OF OPERATIONS
Three Months Ended March 31, 2009, Compared to Three Months Ended March 31, 2008 Total revenues for the quarter ended March 31, 2009 increased by $21.6 million, or 27.5%, to $100.1 million from $78.5 million for the same period in 2008. The increase in total revenues is primarily due to the acquisition of MSG. Leasing revenues for the quarter increased by $19.5 million, or 27.8%, to $89.5 million from $70.0 million for the same period in 2008. The increase in leasing revenue growth is primarily due to the acquisition, but was offset in part by a reduction in business activity due to the economic recession and was negatively impacted by an 11.0% decrease in the average rental yield per unit, due to a higher proportion of portable storage units on rent than the higher priced mobile offices as compared to the year earlier period and a change in foreign exchange rates. Our sales of portable storage and office units for the three months ended March 31, 2009 increased by 24.2%, to $10.1 million from $8.1 million during the same period in 2008. As a percentage of total revenues, leasing revenues for the quarters ended March 31, 2009 and 2008 represented 89.4% and 89.2%, respectively. Our leasing business continues to be our primary focus and leasing revenues have become the predominant part of our revenue mix over the past several years.
Cost of sales are the costs related to our sales revenues only. Cost of sales was 68.3% and 69.6% of sales revenue for the quarters ended March 31, 2009 and 2008, respectively. Our gross margins remained relatively high, at 31.7% for the quarter ended March 31, 2009 and 30.4% for the same period in 2008. Leasing, selling and general expenses increased $8.1 million, or 18.6%, to $51.6 million for the quarter ended March 31, 2009, from $43.5 million for the same period in 2008. Leasing, selling and general expenses, as a percentage of total revenues, decreased to 51.5% for the quarter ended March 31, 2009, from 55.3% for the same period in 2008, primarily due to the increased revenue associated with the acquisition, and the comparatively lower cost structure resulting from our cost cutting measures in the current quarter. During the latter part of 2008, in an effort to reduce our cost structure, we began to operate in several cities with operational yards. These locations do not have all the overhead associated with a fully staffed branch. These cost savings were partially offset by increases in payroll and related expenses to support our combined leasing activities. In addition, we benefited from lower repair and maintenance expenses related to our lease fleet, lower fuel costs and third-party haulers as compared to the prior period.
Integration, merger and restructuring expenses for the quarter ended March 31, 2009 were $2.2 million and primarily represent costs for repositioning assets to their intended location and costs associated with further reducing our manufacturing operations. Other continuing costs related to the acquisition will be expensed as incurred, and will include compensation expense and yard costs associated with certain branch locations and any further repositioning of the lease fleet.
EBITDA increased $9.9 million, or 33.8%, to $39.4 million, as compared to $29.5 million for the same period in 2008 and EBITDA margins were 39.4% and 37.5% of total revenues for the quarters ended March 31, 2009 and 2008, respectively. EBITDA, excluding integration, merger and restructuring expenses, increased $12.2 million, or 41.4%, to $41.6 million compared to $29.5 million for the same period in 2008. EBITDA margins, excluding integration, merger and restructuring expenses were 41.6% and 37.5% of total revenues for the three months ended March 31, 2009 and 2008, respectively.
Depreciation and amortization expenses increased $4.6 million, or 80.9%, to $10.3 million in the quarter ended March 31, 2009, as compared to $5.7 million during the same period in 2008. The increase is primarily due to the acquisition, investment in additional technology and communication equipment and some growth in lease fleet and related delivery equipment acquired in 2008. Interest expense increased $9.1 million to $15.2 million for the quarter ended March 31, 2009 as compared to $6.1 million for the same period in 2008. This increase is primarily due to the debt assumed in the acquisition. Our average borrowing rate increased slightly during the first quarter of 2009 from the prior year level, including the effect of the assumption of Mobile Storage's $200.0 million of 9.75% Senior Notes. The weighted average interest rate on our debt for the three months ended March 31, 2009 was 6.2% compared to 6.1% for the three months ended March 31, 2008, excluding amortization of debt issuance costs. Taking into account the amortization of debt issuance costs, the weighted average interest rate was 6.7% in the 2009 quarter and 6.4% in the 2008 quarter. Provision for income taxes was based on our annual effective tax rate of approximately 39.2% in the quarter ended March 31, 2009, as compared to 39.6% during the same period in 2008. Our consolidated tax provision includes the expected tax rates for our operations in the United States, Canada, United Kingdom and The Netherlands.

Net income for the three months ended March 31, 2009, was $8.5 million compared to net income of $10.7 million for the same period in 2008. Our 2009 first quarter net income results include integration, merger and restructuring expenses of $2.2 million (approximately $1.4 million after tax).
LIQUIDITY AND CAPITAL RESOURCES
Leasing is a capital-intensive business that requires us to acquire assets before they generate revenues, cash flow and earnings. The assets which we lease have very long useful lives and require relatively little recurrent maintenance expenditures. Most of the capital we deploy into our leasing business historically has been used to expand our operations geographically, to increase the number of units available for lease at our leasing locations, and to add to the mix of products we offer. During recent years, our operations have generated annual cash flow that exceeds our pre-tax earnings, particularly due to the deferral of income taxes caused by accelerated depreciation that is used for tax accounting. In 2008, we were cash flow positive (after capital expenditures but excluding acquisitions) for the first time in our operating history. This continued for the first quarter of 2009.
During the past three years, our capital expenditures and acquisitions have been funded by our operating cash flow, a public offering of shares of our common stock in March 2006, our offering of Senior Notes in May 2007 and through borrowings under our revolving credit facility. Our operating cash flow is generally weakest during the first quarter of each fiscal year, when customers who leased containers for holiday storage return the units and a result of . . .