1
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1999
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from __________ to __________
-----------------------------------
Commission File Number 1-12804
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MOBILE MINI, INC.
(Exact name of registrant as specific in its charter)
Delaware 86-0748362
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1834 West 3rd Street
Tempe, Arizona 85281
(Address of principal executive offices)
(480) 894-6311
(Registrant's telephone number, including area code)
Indicate by check 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 the preceding 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 90 days.
Yes X No ,
As of May 11, 1999, there were outstanding 10,672,926 shares of the
issuer's common stock, par value $.01.
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MOBILE MINI, INC.
INDEX TO FORM 10-Q FILING
FOR THE QUARTER ENDED MARCH 31, 1999
TABLE OF CONTENTS PAGE
NUMBER
PART I.
FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets 3
December 31, 1998 (audited) and March 31, 1999 (unaudited)
Consolidated Statements of Operations 4
Three Months ended March 31, 1998 and March 31, 1999
(unaudited)
Consolidated Statements of Cash Flows 5
Three Months Ended March 31, 1998 and March 31, 1999
(unaudited)
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 10
PART II.
OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 14
SIGNATURES 15
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MOBILE MINI, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
DECEMBER 31 1998 MARCH 31, 1999
------------------------ -----------------------
(UNAUDITED)
CASH AND CASH EQUIVALENTS $ 1,030,138 $ 1,048,031
RECEIVABLES, net of allowance for doubtful accounts of
$1,085,000 and $1,198,000, respectively 6,254,938 5,727,082
INVENTORIES 8,550,778 10,413,737
PORTABLE STORAGE UNIT LEASE FLEET, net 76,589,831 79,984,932
PROPERTY PLANT AND EQUIPMENT, net 20,262,738 20,829,331
DEPOSITS AND PREPAID EXPENSES 787,426 586,682
OTHER ASSETS, net 3,314,384 3,155,272
======================== =======================
TOTAL ASSETS $ 116,790,233 $ 121,745,067
======================== =======================
LIABILITIES AND STOCKHOLDERS EQUITY
LIABILITIES:
ACCOUNTS PAYABLE $ 2,953,833 $ 3,230,183
ACCRUED LIABILITIES 3,858,165 3,213,017
LINE OF CREDIT 57,183,576 61,348,826
NOTES PAYABLE 4,819,976 4,402,453
OBLIGATIONS UNDER CAPITAL LEASES 3,196,021 2,125,910
SUBORDINATED NOTES, net 6,700,038 6,713,079
DEFERRED INCOME TAXES 8,206,830 8,889,826
------------------------ -----------------------
TOTAL LIABILITIES 86,918,439 89,923,294
------------------------ -----------------------
STOCKHOLDERS' EQUITY:
Common stock; $.01 par value, 17,000,000 shares authorized, 7,966,863 and
8,170,451 issued and outstanding at December 31, 1998 and March 31, 1999,
respectively
79,669 81,704
Additional paid-in capital 22,054,927 23,191,803
Common stock to be issued, 85,468 shares, at December 31,
1998 500,000 --
Retained earnings 7,237,198 8,548,266
------------------------ -----------------------
TOTAL STOCKHOLDERS' EQUITY 29,871,794 31,821,773
------------------------ -----------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 116,790,233 $ 121,745,067
======================== =======================
See the accompanying notes to these consolidated balance sheets.
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MOBILE MINI, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended March 31,
------------------------------------------------------
1998 1999
-------------------------- ------------------------
REVENUES:
Leasing $ 7,512,912 $ 10,008,359
Sales 3,128,400 3,023,384
Other 104,911 135,405
-------------------------- ------------------------
10,746,223 13,167,148
COSTS AND EXPENSES:
Cost of sales 2,147,577 1,980,206
Leasing, selling and general expenses 5,564,381 6,610,887
Depreciation and amortization 666,771 808,471
-------------------------- ------------------------
INCOME FROM OPERATIONS 2,367,494 3,767,584
OTHER INCOME (EXPENSE):
Interest income 11,287 4,303
Interest expense (1,490,152) (1,586,773)
-------------------------- ------------------------
INCOME BEFORE PROVISION FOR INCOME TAXES 888,629 2,185,114
PROVISION FOR INCOME TAXES 355,452 874,046
-------------------------- ------------------------
NET INCOME $ 533,177 $ 1,311,068
========================== ========================
EARNINGS PER SHARE:
BASIC $ 0.07 $ 0.16
========================== ========================
DILUTED $ 0.07 $ 0.15
========================== ========================
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON SHARE
EQUIVALENTS OUTSTANDING:
BASIC 7,440,628 8,151,426
========================== ========================
DILUTED 7,971,804 8,627,473
========================== ========================
See the accompanying notes to these consolidated balance sheets.
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MOBILE MINI, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended March 31,
------------------------------------------------
1998 1999
---------------------- ----------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 533,177 $ 1,311,068
Adjustments to reconcile income to net cash provided by
operating activities:
Provision for doubtful accounts receivable 205,066 191,765
Amortization of deferred loan costs 178,343 149,277
Amortization of warrants issuance discount 13,041 13,041
Depreciation and amortization 666,771 808,471
(Gain) loss on disposal of property, plant and equipment (3,541) 25,050
Deferred income taxes 335,048 873,996
Changes in certain assets and liabilities, net of effect on businesses
acquired:
(Increase) decrease in receivables (440,552) 336,091
Increase in inventories (2,275,400) (1,862,959)
Decrease in deposits and prepaid expenses 82,124 9,744
Decrease in other assets 25,149 9,835
Increase in accounts payable 338,517 276,350
Increase (decrease) in accrued liabilities 446,761 (645,148)
---------------------- ----------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 104,504 1,496,581
---------------------- ----------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for businesses acquired (1,409,100) -
Net purchases of portable storage unit lease fleet (3,377,228) (3,698,741)
Net purchases of property, plant, and equipment (448,884) (1,096,474)
---------------------- ----------------------
NET CASH USED IN INVESTING ACTIVITIES (5,235,212) (4,795,215)
---------------------- ----------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under lines of credit 231,066 4,165,250
Principal payments on notes payable (476,014) (417,523)
Principal payments on capital lease obligations (340,042) (1,070,111)
Exercise of warrants 5,162,953 570,961
Issuance of common stock -- 67,950
---------------------- ----------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 4,577,963 3,316,527
---------------------- ----------------------
NET (DECREASE) INCREASE IN CASH (552,745) 17,893
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,005,204 1,030,138
---------------------- ----------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 452,459 $ 1,048,031
====================== ======================
See the accompanying notes to these consolidated balance sheets.
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MOBILE MINI, INC. AND SUBSIDIARIES - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q. Accordingly, they do
not include all the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position, results of operations, and
cash flows for all periods presented have been made. The results of operations
for the three month period ended March 31, 1999 are not necessarily indicative
of the operating results that may be expected for the entire year ending
December 31, 1999. These financial statements should be read in conjunction with
the Company's December 31, 1998 financial statements and accompanying notes
thereto.
Certain amounts in the 1998 financial statements have been reclassified to
conform with the 1999 financial statement presentation.
NOTE B - The Company adopted SFAS No. 128, Earnings per Share in 1997. Pursuant
to SFAS No. 128, basic earnings per common share are computed by dividing net
income by the weighted average number of shares of common stock outstanding
during the period. Diluted earnings per common share are determined assuming
that options were exercised at the beginning of each period or at the time of
issuance. The following table shows the computation of earnings per share for
the three month period ended March 31:
1998 1999
---------------- -----------------
BASIC:
Common shares outstanding, beginning of period 6,799,524 7,966,863
Effect of weighting shares:
Weighted common shares issued 574,629 184,563
Common stock to be issued 66,475 --
---------------- -----------------
Weighted average number of common shares outstanding 7,440,628 8,151,426
---------------- -----------------
Net income $ 533,177 $ 1,311,068
================ =================
Earnings per share $ 0.07 $ 0.16
================ =================
DILUTED:
Common shares outstanding, beginning of period 6,799,524 7,966,863
Effect of weighting shares:
Weighted common shares issued 574,629 184,563
Employee stock options 241,931 362,564
Convertible warrants 242,951 107,329
Stock purchase options 46,294 6,154
Common stock to be issued 66,475 --
---------------- -----------------
Weighted average number of common and common equivalent shares
outstanding 7,971,804 8,627,473
---------------- -----------------
Net income $ 533,177 $ 1,311,068
================ =================
Earnings per share $ 0.07 $ 0.15
================ =================
See the accompanying notes to these consolidated balance sheets.
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NOTE C - Inventories are stated at the lower of cost or market, with cost being
determined under the specific identification method. Market is the lower of
replacement cost or net realizable value. Inventories consisted of the following
at:
December 31, 1998 March 31, 1999
------------------------- --------------------
Raw material and supplies $ 6,480,553 $ 8,042,965
Work-in-process 801,338 1,002,549
Finished portable storage units 1,268,887 1,368,223
------------------------- --------------------
$ 8,550,778 $ 10,413,737
========================= ====================
NOTE D - Property, plant and equipment consisted of the following at:
December 31, 1998 March 31, 1999
----------------------- ---------------------
Land $ 777,668 $ 777,668
Vehicles and equipment 15,963,099 16,503,472
Buildings and improvements 7,211,833 7,502,218
Office fixtures and equipment 3,404,320 3,573,733
----------------------- ---------------------
27,356,920 28,357,091
Less accumulated depreciation (7,094,182) (7,527,760)
----------------------- ---------------------
$ 20,262,738 $ 20,829,331
======================= =====================
NOTE E - The Company maintains a portable storage unit lease fleet consisting of
refurbished or manufactured containers that are leased to customers under
short-term operating lease agreements with varying terms. Depreciation is
provided using the straight-line method with an estimated useful life of 20
years and a salvage value estimated at 70% of cost. In the opinion of
management, estimated salvage values do not cause carrying values to exceed net
realizable value. Normal repairs and maintenance to the lease fleet are expensed
when incurred. As of March 31, 1999, the portable storage unit lease fleet was
$80.0 million as compared to $76.6 million at December 31, 1998, net of
accumulated depreciation of $2.8 million and $2.6 million, respectively.
NOTE F - The Company has adapted FASB No. 130 Reporting Comprehensive Income
effective January 1, 1998. The Company has not incurred transactions that are
within the definitions of "Comprehensive Income" and has not made any additional
disclosures on the accompanying consolidated financial statements for the
current year or for the similar period represented for the prior year.
NOTE G - The Company has adopted SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, effective December 31, 1998. SFAS No. 131
superseded SFAS No. 14, Financial Reporting for Segments of a Business
Enterprise. The adoption of SFAS No. 131 did not affect results of operations or
financial position, but did affect the disclosure of segment information.
The Company's management approach includes those segments within its enterprise
on which operating decisions are made based on evaluation of performance,
results and profitability. The Company currently has one reportable segment,
branch operations. The branch operations segment includes the leasing and sales
of portable storage units to businesses and consumers in the general geographic
area of each branch. This segment also includes the Company's dealer program and
the manufacturing facilities which are responsible for the purchase,
manufacturing and refurbishment of the Company's products for leasing, sales or
equipment additions to the Company's delivery systems. Previously, the Company
had a corporate sales segment which related to specialty type product sales and
included the Telecommunications and Modular divisions of the Company. This
segment is now included in "other" as the modular program has been discontinued
and the Company has de-emphasized the sales of the telecommunication division.
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The Company evaluates performance and profitability, excluding major
non-recurring transactions, before and after interest costs and income taxes.
The Company does not account for intersegment revenues or expenses between its
divisions.
The Company's reportable segment concentrates on the Company's core business of
leasing, manufacturing, and selling portable storage and office units. Included
in the branch operations segment are residual sales from the Company's dealer
division that was discontinued in 1998. The operating segment has managers who
meet regularly and are accountable to the chief operating decision maker for
operating activities, financial results and ongoing plans including the
influence of competition.
For the Quarter Ended:
Branch
Operations Other Combined
------------------ --------------- ---------------
March 31, 1998
Revenues from external customers $10,406,506 $ 339,717 $10,746,223
Allocated interest expense 1,488,742 1,410 1,490,152
Depreciation and amortization expense 562,057 104,714 666,771
Provision for (benefit of) income taxes 441,903 (86,451) 355,452
Segment profit (loss) 662,853 (129,676) 533,177
Segment assets - lease fleet 53,427,721 1,751,405 55,179,126
Segment assets - property, plant and equipment 16,788,851 1,252,629 18,041,480
Expenditures for long-lived assets - lease fleet 3,377,228 -- 3,377,228
Expenditures for long-lived assets - PPE 308,733 140,151 448,884
March 31, 1999
Revenues from external customers $13,012,572 $ 154,576 $13,167,148
Allocated interest expense 1,586,773 -- 1,586,773
Depreciation and amortization expense 709,348 99,123 808,471
Provision for (benefit of) income taxes 916,552 (42,506) 874,046
Segment profit (loss) 1,374,826 (63,758) 1,311,068
Segment assets - lease fleet 79,984,932 -- 79,984,932
Segment assets - property, plant and equipment 19,798,905 1,030,426 20,829,331
Expenditures for long-lived assets - lease fleet 3,698,741 -- 3,698,741
Expenditures for long-lived assets - PPE 1,453,459 (356,985) 1,096,474
NOTE H - SFAS 133 - Accounting for Derivative Instruments and Hedging
Activities, was issued in June 1998. This statement establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. The
statement requires that changes in the fair value of the derivative be
recognized currently in earnings unless specific hedge accounting criteria are
met. If specific hedge accounting criteria are met, changes in the fair value of
derivatives will either be offset against the change in the fair value of the
hedged assets, liabilities, or firm commitments through earnings, or recognized
in other comprehensive income until the hedged item is recognized in earnings.
The ineffective portion of a derivative's change in fair value will be
immediately recognized in earnings. SFAS No. 133 is effective for fiscal years
beginning after June 15, 1999. The Company expects to adopt SFAS No. 133
effective January 1, 2000. Management believes the impact of adopting SFAS No.
133 will not have any material impact on the Company's financial statements.
NOTE I - The Company's senior lenders, led by BT Commercial Corporation, has
increased the Company's revolving line of credit to $90 million, a 20% increase,
effective as of March 31, 1999. There was $61.3 million of outstanding
borrowings under the credit facility and $9.7 million of additional borrowings
were available as of March 31, 1999.
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On April 3, 1999 the Company signed an agreement to acquire substantially all of
the assets of National Security Containers, L.L.C. (NSC), a privately owned
portable storage leasing company, for $25.5 million. The acquisition was
completed on April 30, 1999. NSC was headquartered in Phoenix, Arizona and
operated nine leasing locations. Six of these locations operate in cities the
Company already has branch leasing offices. The other three locations, Colorado
Springs, Memphis and New Orleans, are new market locations for the Company. The
Company currently has 16 leasing branches in 9 states.
NOTE K - On April 12, 1999, the Company filed a registration statement with the
Securities and Exchange Commission for the sale to the public of 3.1 million
shares of the Company's common stock. Of the shares sold, 2.5 million shares
were sold by the Company and 600,000 shares were sold by selling shareholders.
On May 11, 1999 the offering was closed and the Company received gross proceeds
of $13.25 per share of common stock. Additionally, the Company has granted the
underwriter of the public offering a 30-day option to purchase up to an
additional 465,000 shares of common stock at the public offering price to cover
any over-allotments.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO
THREE MONTHS ENDED MARCH 31, 1998
Total revenues for the three months ended March 31, 1999 increased by
22.5% to $13.2 million from $10.7 million for the same period in 1998. Leasing
revenues for the three months ended March 31, 1999 increased by 33.2% to $10.0
million from $7.5 million in the first quarter of 1998. These increases resulted
from a 35.2% increase in the average number of portable storage units on lease
and a 1.5% increase in the average rent per unit. Our revenues from the sale of
units for the three months ended March 31, 1999 decreased by 3.4% to $3.0
million from $3.1 million in the same period in 1998.
Cost of sales for the three months ended March 31, 1999 decreased to
65.5% of sales revenues from 68.6% of sales revenues in the first quarter in
1998. The improvement in the profit margin on sales resulted from sales of
portable storage units in which we had a relatively lower cost basis, as well as
additional plant efficiencies at our manufacturing facilities and lower costs on
major manufacturing materials, primarily steel.
Leasing, selling and general expenses increased to $6.6 million, or
50.2% of total revenues, for the three months ended March 31, 1999 as compared
to $5.6 million, or 51.8% of total revenues for the same period in 1998. The
increase in expenses primarily relates to the new branch locations we acquired
or started in 1998, that were not in operation during the first quarter of 1998,
in addition to other sales and administrative expenses related to an increase in
the leasing business from the prior year.
Depreciation and amortization expenses increased by $142,000 or 6.1% of
total revenues during the three months ended March 31, 1999 from $667,000, or
6.2%, during the same period in 1998. This increase resulted from our larger
lease fleet and our new locations added during 1998.
Our operating margin increased to 28.6% for the three months ended
March 31, 1999 from 22.0% for the same period in 1998. Operating margins are
typically higher on leasing activities than on portable storage unit sales and
are also increasing as we take advantage of economies of scale being achieved in
our core leasing business. As a result, income from operations increased by
59.1% to $3.8 million for the three months ended March 31, 1999 from $2.4
million for the same period in 1998.
Interest expense increased by 6.5% to $1.6 million for the three months
ended March 31, 1999 from $1.5 million for the same period in 1998 as a result
of higher average debt outstanding during 1999. Our average debt outstanding
increased by 34.3%, primarily to finance a $29.7 million increase in our lease
fleet since March 31, 1998. This borrowing primarily was under our credit
facility. The weighted average interest rate declined to 7.9% for the three
months ended March 31, 1999 from 9.6% for the same period in 1998, excluding
amortization of debt issuance costs. This decline primarily resulted from an
amendment of our credit facility, in March, 1998 and the interest rate swap
(discussed below), which resulted in a lower interest rate on our borrowings.
We reported net income for the three months ended March 31, 1999 of
$1.3 million, or $0.15 per diluted share of common stock, compared to net income
for the same period in 1998 of $533,000, or $0.07 per diluted share of common
stock. This 145.9% increase was primarily due to higher leasing revenues in
1999, partially offset by increased leasing, selling and administrative costs.
Our effective tax rate was 40% for both 1999 and 1998. We had a 4.1% increase in
the number of common and common share equivalents outstanding in 1999 due to the
exercise of underwriters warrants issued in connection with our initial public
offering.
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LIQUIDITY AND CAPITAL RESOURCES
Our leasing and manufacturing business are very capital intensive. We
finance our working capital requirements through cash flows from operations,
proceeds from equity and debt financings and borrowings under our credit
facility.
On May 11, 1999, we received net proceeds of $31.1 million in
connection with the closing of a public offering of 2.5 million shares of our
common stock.
Operating Activities. Our operations provided net cash flow of $1.5
million in the three months ended March 31, 1999 and $105,000 in the same period
in 1998. This increased cash flow resulted primarily from our higher net income
resulting from higher leasing revenues and improved operating margins.
Investing Activities. Net cash used in investing activities was $4.8
million for the three months ended March 31, 1999 and $5.2 million for the same
period in 1998. This use of cash primarily is for higher levels of capital
expenditures for lease fleet expansion. In 1998, this included $1.4 million for
acquisitions in the quarter ended March 31, 1998. Capital expenditures for our
lease fleet were $3.7 million for the three months ended March 31, 1999 and $3.4
million for the same period in 1998, excluding acquisitions. Capital
expenditures for property, plant and equipment were $1.1 million for the three
months ended March 31, 1999 and $449,000 for the same period in 1998, excluding
acquisitions.
Financing Activities. Net cash provided by financing activities was
$3.3 million for the three months ended March 31, 1999 and $4.6 million for the
same period in 1998. During the three months ended March 31, 1999, net cash
provided by financing activities was primarily provided by $4.2 million of net
borrowings under our credit facility and $639,000 of gross proceeds from the
exercise of warrants and options to purchase shares of our common stock. This
was partially offset by $1.5 million in principal payments on certain debt
obligations. During the first quarter of 1998, the net cash provided by
financing activities was primarily provided by $5.2 million of net proceeds from
the exercise of warrants issued in connection with our initial public offering.
Effective in September 1998, the Company entered into an Interest Rate
Swap Agreement (the Agreement), under which the Company is designated as the
fixed rate payer at an interest rate of 5.5% per annum. Under the Agreement, the
Company has effectively fixed, for a three year period, the interest rate
payable on $30 million of its revolving line of credit so that the rate is based
upon a spread from 5.5%, rather than a spread from the Eurodollar rate.
Since March 1996, our principal source of liquidity has been our credit
facility, which currently consists of a $90 million revolving line of credit and
a $6 million term loan. The interest rate under our credit facility is
determined quarterly, based on our ratio of funded debt to earnings before
interest, taxes, depreciation and amortization (EBITDA). As of March 31, 1999,
we had $61.3 million of outstanding borrowings under our credit facility, and
$9.7 million of additional borrowings were available based on our borrowing
formula.
We believe that our working capital, together with our cash flow from
operations, borrowing under our $90.0 million credit facility, the net proceeds
of our recent public offering and other available funding sources will be
sufficient to fund our operations for the next 12 months. We believe that in
order to maintain historical growth rates we may be required to obtain
additional debt financing and to raise additional equity capital in the future.
However, we cannot assure that we can obtain the necessary debt or equity
financing on acceptable terms.
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Subsequent Events. On April 30, 1999, we acquired substantially all of
the assets of National Security Containers, L.L.C., a portable storage leasing
company, for total consideration of $25.5 million. We paid $17.5 million in cash
and issued shares of our redeemable Series B preferred stock valued at $8.0
million.
On May 11, 1999, we received approximately $31.1 million of net
proceeds, after deducting underwriting discounts, from the public sale of 2.5
million shares of common stock. Selling stockholders sold 600,000 shares of
common stock in the offering. We did not receive any proceeds from the sales by
the stockholders.
We intend to use the net proceeds to fund our fleet and branch
expansion, for working capital and to redeem our Series B preferred stock which
we issued in payment of a portion of the purchase price in our acquisition of
substantially all of the assets of National Security Containers, L.L.C. Pending
these uses, we will use the net proceeds to reduce borrowings outstanding under
our credit facility.
As of May 11, 1999, after the acquisition of the assets of National
Security Containers and the closing of our public offering and the application
of the net proceeds, we had $60.5 million of outstanding borrowings under our
credit facility and $23.5 million of additional borrowings were available. In
addition, we had a cash equivalent balance of approximately $13.3 million.
SEASONALITY
Although demand from some of our customers is somewhat seasonal, our
operations as a whole have not been very seasonal. Demand for leases of our
portable storage units by large retailers is stronger from September through
December because these retailers need to store more inventory for the holiday
season. Our retail customers usually return these leased units to us early in
the following year. This has caused lower utilization rates for our lease fleet
and a marginal decrease in cash flow during the first quarters of the past
several years.
YEAR 2000 COMPLIANCE AND EXPENDITURES
The Year 2000 issue arises from the design of computer operating
systems and computer software programs which recognize only two digits in the
date field and, as a result, may interpret "00" incorrectly as the year 1900
rather than as the year 2000. This incorrect recognition has the potential to
generate application failures or erroneous data. We rely on certain outside
vendors in the banking, payroll and invoicing processing areas with whom we
exchange electronic data. We have been advised by these vendors that their
services are or will be Year 2000 compliant. The result of major systems
failures or miscalculations in areas such as (a) shipping and receiving of
product (b) billing and payment records (c) availability of utilities,
telephones, data and other essential services could have a material adverse
effect on our business and results of operations.
We have assessed and are near completion, where we identified Year 2000
problems existed, all necessary modifications and upgrades to our business
systems to be Year 2000 compliant. We have been advised by certain vendors of
our telecommunication systems that their voice mail systems are not Year 2000
compliant. We are addressing those concerns now and intend to upgrade those
systems before the year 2000. Our primary software was made Year 2000 compliant
in 1998 and the other software and operating systems are being modified to
become Year 2000 compliant when we or the software vendor have identified a Year
2000 problem exists. We expect to incur total costs of less than $50,000 to
address any remaining Year 2000 issues and to be compliant by the end of the
third quarter of 1999. This estimate does not include any costs that may be
incurred by us as a result of the failure of any supplier or customer of ours or
any other party with whom we do business to become Year 2000 compliant.
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Inquiries have been made of our major suppliers and customers as to
their Year 2000 readiness. We have obtained information from our third party
suppliers, including external service providers and financial institutions. The
objective is to confirm their plans and status of readiness to become Year 2000
compliant in order to better understand and evaluate how their respective Year
2000 issues may affect our operations and in order to assess any possible risks
of non-compliance.
Numerous factors could cause the expected cost and completion dates to
differ from the above estimates. Contingency plans, primarily manual processing,
are in place should it become necessary. There can be no assurance that we have
identified all potential Year 2000 issues within our operating systems or with
our external suppliers and third party service providers. We currently believe
that the Year 2000 issue will not have a material impact on our financial
condition, results of operations or cash flows. We are capable of operating
manually should an unanticipated disruption occur as a result of any
unidentified Year 2000 issue.
EFFECTS OF INFLATION
Our results of operations for the periods discussed have not been
significantly affected by inflation.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We seek to reduce earnings and cash flow volatility associated with
changes in interest rates by entering into financial arrangements intended to
provide a hedge against a portion of the risks associated with such volatility.
We continue to have exposure to such risks to the extent they are not hedged.
An interest rate swap agreement is the only instrument we use to manage
interest rate fluctuations affecting our variable rate debt. We currently have
one outstanding interest rate swap agreement under which we pay a fixed rate and
receives a variable interest rate. At March 31, 1999, there were no material
changes in the reported market risks since December 31, 1998.
FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS, AND "SAFE HARBOR" STATEMENT
UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Statements in this Report which include such words as "believe",
"intends" or "anticipates", such as the statement regarding our ability to meet
its obligations and capital needs during the next 12 months, are forward-looking
statements. The occurrence of one or more unanticipated events, however,
including a decrease in cash flow generated from operations, a material increase
in the borrowing rates under our credit facility (which rates are based on the
prime rate or the Eurodollar rates in effect from time to time), a material
increase or decrease in prevailing market prices for used containers, or a
change in general economic conditions resulting in decreased demand for our
products, could cause actual results to differ materially from anticipated
results and have a material adverse effect on our ability to meet our
obligations and capital needs, and cause future operating results and other
events not to occur as presently anticipated. We issued 2.5 million shares of
common stock in May 1999, in a public offering pursuant to a Registration
Statement. That Registration Statement and the Prospectus, dated May 6, 1999,
which is a part of it (the "Prospectus"), include a section entitled "Risk
Factors", which describes certain factors that may affect our future operating
results. That section is hereby incorporated by reference in this Report. Those
factors should be considered carefully in evaluating an investment in our common
stock. If you do not have a copy of the Prospectus, you may obtain one by
requesting it from the Company's Investor Relations Department at (480) 894-6311
or by mail to Mobile Mini, Inc., 1834 West Third Street, Tempe, Arizona 85281.
Our filings with the SEC, including the Prospectus, may be accessed at the SEC's
World Wide Web site at http://www.sec.gov.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
NUMBER DESCRIPTION
27 Selected Financial Data
(B) REPORTS ON FORM 8-K: none
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MOBILE MINI, INC.
(Registrant)
Dated: May 17, 1999 /s/ Larry Trachtenberg
--------------------------
Larry Trachtenberg
Chief Financial Officer &
Executive Vice President
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