1
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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 June 30, 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
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 August 9, 1999, there were outstanding 11,358,416 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 JUNE 30, 1999
TABLE OF CONTENTS PAGE
NUMBER
PART I.
FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets 3
December 31, 1998 and June 30, 1999
Consolidated Statements of Operations 4
Three Months and Six Months ended June 30, 1998 and June 30, 1999
Consolidated Statements of Cash Flows 6
Six Months Ended June 30, 1998 and June 30, 1999
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 13
PART II.
OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 19
SIGNATURES 20
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MOBILE MINI, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31, 1998 June 30, 1999
----------------- ------------
CASH AND CASH EQUIVALENTS $ 1,030,138 $ 724,873
RECEIVABLES, net of allowance for doubtful accounts of
$1,085,000 and $1,499,000, respectively 6,254,938 7,227,763
INVENTORIES 8,550,778 11,124,572
PORTABLE STORAGE UNIT LEASE FLEET, net 76,589,831 100,547,901
PROPERTY PLANT AND EQUIPMENT, net 20,262,738 22,125,730
DEPOSITS AND PREPAID EXPENSES 787,426 810,216
OTHER ASSETS, net 3,314,384 13,140,333
------------ ------------
Total assets $116,790,233 $155,701,388
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
ACCOUNTS PAYABLE $ 2,953,833 $ 4,534,175
ACCRUED LIABILITIES 3,858,165 5,316,476
LINE OF CREDIT 57,183,576 52,650,601
NOTES PAYABLE 4,819,976 3,999,649
OBLIGATIONS UNDER CAPITAL LEASES 3,196,021 1,888,897
SUBORDINATED NOTES, net 6,700,038 6,726,120
DEFERRED INCOME TAXES 8,206,830 10,209,416
------------ ------------
Total liabilities 86,918,439 85,325,334
------------ ------------
STOCKHOLDERS' EQUITY:
Common stock; $.01 par value, 17,000,000 shares authorized, 7,966,863 and
11,144,366 issued and outstanding at December 31, 1998 and June
30, 1999, respectively 79,669 111,446
Additional paid-in capital 22,054,927 59,758,877
Common stock to be issued, 85,468 shares, at December 31, 1998 500,000 --
Retained earnings 7,237,198 10,505,731
------------ ------------
Total stockholders' equity 29,871,794 70,376,054
------------ ------------
Total liabilities and stockholders' equity $116,790,233 $155,701,388
============ ============
See the accompanying notes to these consolidated statements
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MOBILE MINI, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended June 30,
---------------------------------
1998 1999
------------ ------------
REVENUES:
Leasing $ 8,246,006 $ 12,581,818
Sales 6,070,060 3,034,923
Other 84,416 74,871
------------ ------------
14,400,482 15,691,612
COSTS AND EXPENSES:
Cost of sales 4,557,310 2,038,843
Leasing, selling and general expenses 6,219,073 7,728,935
Depreciation and amortization 703,701 979,478
------------ ------------
INCOME FROM OPERATIONS 2,920,398 4,944,356
OTHER INCOME (EXPENSE):
Interest income 5,398 22,742
Interest expense (1,348,973) (1,668,125)
------------ ------------
INCOME BEFORE PROVISION FOR INCOME TAXES 1,576,823 3,298,973
PROVISION FOR INCOME TAXES 630,729 1,319,590
------------ ------------
NET INCOME 946,094 1,979,383
PREFERRED STOCK DIVIDEND -- 21,918
------------ ------------
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 946,094 $ 1,957,465
============ ============
EARNINGS PER SHARE:
BASIC $ 0.12 $ 0.20
============ ============
DILUTED $ 0.11 $ 0.19
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON
SHARE EQUIVALENTS OUTSTANDING:
BASIC 7,948,392 9,823,258
============ ============
DILUTED 8,476,643 10,352,020
============ ============
See the accompanying notes to these consolidated statements.
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MOBILE MINI, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Six Months Ended June 30,
---------------------------------
1998 1999
------------ ------------
REVENUES:
Leasing $ 15,758,918 $ 22,590,177
Sales 9,198,460 6,058,307
Other 189,327 210,276
------------ ------------
25,146,705 28,858,760
COSTS AND EXPENSES:
Cost of sales 6,704,887 4,019,049
Leasing, selling and general expenses 11,783,454 14,339,822
Depreciation and amortization 1,370,472 1,787,949
------------ ------------
INCOME FROM OPERATIONS 5,287,892 8,711,940
OTHER INCOME (EXPENSE):
Interest income 16,685 27,045
Interest expense (2,839,125) (3,254,898)
------------ ------------
INCOME BEFORE PROVISION FOR INCOME TAXES 2,465,452 5,484,087
PROVISION FOR INCOME TAXES 986,181 2,193,636
------------ ------------
NET INCOME 1,479,271 3,290,451
PREFERRED STOCK DIVIDEND -- 21,918
------------ ------------
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 1,479,271 $ 3,268,533
============ ============
EARNINGS PER SHARE:
BASIC $ 0.19 $ 0.37
============ ============
DILUTED $ 0.18 $ 0.35
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON SHARE EQUIVALENTS OUTSTANDING:
BASIC 7,695,913 8,932,915
============ ============
DILUTED 8,292,986 9,432,547
============ ============
See the accompanying notes to these consolidated statements.
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MOBILE MINI, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30,
---------------------------------
1998 1999
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,479,271 $ 3,290,451
Adjustments to reconcile income to net cash provided by
operating activities:
Provision for doubtful accounts receivable 385,698 564,838
Amortization of deferred loan costs 306,972 302,344
Amortization of warrants issuance discount 26,082 26,082
Depreciation and amortization 1,370,472 1,787,949
(Gain) loss on disposal of property, plant and equipment (3,541) 32,615
Deferred income taxes 986,130 2,193,586
Changes in certain assets and liabilities, net of effect
of businesses acquired:
Increase in receivables (813,083) (702,946)
Increase in inventories (2,678,107) (2,513,310)
Decrease in deposits and prepaid expenses 199,612 102,227
Decrease (increase) in other assets (31,472) 260,977
Increase in accounts payable 1,398,542 1,506,781
(Decrease) increase in accrued liabilities (334,559) 607,770
------------ ------------
Net cash provided by operating activities 2,292,017 7,459,364
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for businesses acquired (1,944,446) (25,500,000)
Net purchases of portable storage unit lease fleet (7,984,965) (10,213,200)
Net purchases of property, plant, and equipment (1,493,184) (1,816,267)
------------ ------------
Net cash used in investing activities (11,422,595) (37,529,467)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under lines of credit 6,481,846 (4,532,975)
Deferred financing costs (300,000) --
Principal payments on notes payable (833,453) (820,327)
Principal payments on capital lease obligations (1,764,017) (2,095,669)
Exercise of warrants 5,157,757 600,161
Issuance of common stock -- 36,635,566
Preferred stock dividend -- (21,918)
------------ ------------
Net cash provided by financing activities 8,742,133 29,764,838
------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (388,445) (305,265)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD 1,005,204 1,030,138
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 616,759 $ 724,873
============ ============
See the accompanying notes to these consolidated statements.
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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 six month period ended June 30, 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 and the six month period ended June 30:
Three months Six months
ended June 30, ended June 30,
1998 1999 1998 1999
----------- ----------- ----------- -----------
BASIC:
Common shares outstanding, beginning of period 6,799,524 7,966,863 6,799,524 7,966,863
Effect of weighting shares:
Weighted common shares issued 1,063,400 1,856,395 820,365 966,052
Common stock to be issued 85,468 -- 76,024 --
----------- ----------- ----------- -----------
Weighted average number of common shares outstanding
7,948,392 9,823,258 7,695,913 8,932,915
----------- ----------- ----------- -----------
Net income available to common shareholders $ 946,094 $ 1,957,465 $ 1,479,271 $ 3,268,533
=========== =========== =========== ===========
Earnings per share $ 0.12 $ 0.20 $ 0.19 $ 0.37
=========== =========== =========== ===========
DILUTED:
Common shares outstanding, beginning of period 6,799,524 7,966,863 6,799,524 7,966,863
Effect of weighting shares:
Weighted common shares issued 1,063,400 1,856,395 820,365 966,052
Employee stock options 339,707 412,236 296,353 384,101
Warrants 100,681 116,526 230,051 112,243
Stock purchase options 87,863 -- 70,669 3,288
Common stock to be issued 85,468 -- 76,024 --
----------- ----------- ----------- -----------
Weighted average number of common and
common equivalent shares outstanding 8,476,643 10,352,020 8,292,986 9,432,547
----------- ----------- ----------- -----------
Net income available to common shareholders $ 946,094 $ 1,957,465 $ 1,479,271 $ 3,268,533
=========== =========== =========== ===========
Earnings per share $ 0.11 $ 0.19 $ 0.18 $ 0.35
=========== =========== =========== ===========
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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 June 30, 1999
----------------- ----------------
Raw material and supplies $ 6,480,553 $ 9,467,449
Work-in-process 801,338 714,763
Finished portable storage units 1,268,887 942,360
----------- -----------
$ 8,550,778 $11,124,572
=========== ===========
NOTE D - Property, plant and equipment consisted of the following at:
December 31, 1998 June 30, 1999
----------------- -------------
Land $ 777,668 $ 777,668
Vehicles and equipment 15,963,099 18,291,610
Buildings and improvements 7,211,833 7,403,956
Office fixtures and equipment 3,404,320 3,691,713
------------ ------------
27,356,920 30,164,947
Less accumulated depreciation (7,094,182) (8,039,217)
------------ ------------
$ 20,262,738 $ 22,125,730
============ ============
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 June 30, 1999, the portable storage unit lease fleet was
$100.5 million as compared to $76.6 million at December 31, 1998, net of
accumulated depreciation of $3.2 million and $2.6 million, respectively.
NOTE F - The Company adapted SFAS 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 in the prior year.
NOTE G - The Company 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 evaluating its enterprise on which
operating decisions are made based on 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 discontinued 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
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the modular program was discontinued and the Company has de-emphasized the sales
of telecommunications units.
The Company evaluates performance and profitability before interest costs,
depreciation, income taxes and major non-recurring transactions. 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 Three Months Ended:
Branch
Operations Other Combined
----------- ----------- -----------
June 30, 1998
Revenues from external customers $11,422,926 $ 2,977,556 $14,400,482
Segment profit before allocated interest,
depreciation and amortization expense 4,833,832 (1,096,483) 3,737,349
Allocated interest expense 1,347,688 1,285 1,348,973
Depreciation and amortization expense 596,740 106,961 703,701
Segment profit 879,153 66,941 946,094
June 30, 1999
Revenues from external customers $14,879,997 $ 811,615 $15,691,612
Segment profit before allocated interest,
depreciation and amortization expense 7,303,764 (1,209,836) 6,093,928
Allocated interest expense 1,668,125 -- 1,668,125
Depreciation and amortization expense 879,072 100,406 979,478
Segment profit 1,921,182 36,283 1,957,465
For the Six Months Ended:
Branch
Operations Other Combined
----------- ----------- -----------
June 30, 1998
Revenues from external customers $21,829,432 $ 3,317,273 $25,146,705
Segment profit before allocated interest,
depreciation and amortization expense 9,330,663 (2,465,505) 6,865,158
Allocated interest expense 2,836,430 2,695 2,839,125
Depreciation and amortization expense 1,158,797 211,675 1,370,472
Segment profit (loss) 1,542,006 (62,735) 1,479,271
June 30, 1999
Revenues from external customers $27,892,569 $ 966,191 $28,858,760
Segment profit before allocated interest,
depreciation and amortization expense 13,375,114 (2,583,364) 10,791,750
Allocated interest expense 3,254,898 -- 3,254,898
Depreciation and amortization expense 1,588,420 199,529 1,787,949
Segment profit 3,218,235 50,298 3,268,533
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As of:
Branch
Operations Other Combined
----------- ----------- -----------
June 30, 1998
Segment assets - lease fleet $ 60,059,816 $ -- $ 60,059,816
Segment assets - property, plant and equipment 17,531,694 1,161,436 18,693,130
Expenditures for long-lived assets - lease fleet 7,984,965 -- 7,984,965
Expenditures for long-lived assets - PPE 1,460,734 32,450 1,493,184
June 30, 1999
Segment assets - lease fleet $100,547,901 $ -- $100,547,901
Segment assets - property, plant and equipment 21,137,201 988,529 22,125,730
Expenditures for long-lived assets - lease fleet 10,315,121 -- 10,315,121
Expenditures for long-lived assets - PPE 1,626,016 190,251 1,816,267
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, as amended by SFAS No. 137, is
effective for fiscal years beginning after June 15, 2000. The Company expects to
adopt SFAS No. 133 effective January 1, 2001. 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,
increased the Company's revolving line of credit to $90 million effective March
31, 1999. As of June 30, 1999, there was $52.7 million of outstanding borrowings
under the credit facility and $35.4 million of additional borrowings were
available based on the Company's borrowing formula.
NOTE J - The Company commenced operations in Tulsa, Oklahoma in the first
quarter of 1999. The Tulsa branch is serviced primarily from the Company's
Oklahoma City branch.
On April 30, 1999 the Company acquired substantially all of the assets of
National Security Containers, L.L.C. (NSC), a privately owned portable storage
leasing company, for $25.5 million. Goodwill, of approximately $10.2 million, is
amortized using the straight line method over 25 years from the date of
acquisition. NSC was headquartered in Phoenix, Arizona and operated nine leasing
locations. Six of these locations operate in cities the Company already had
branch leasing offices. The other three locations, Colorado Springs, Memphis and
New Orleans, were new market locations for the Company.
The NSC acquisition was accounted for as a purchase in accordance with
Accounting Principles Board (APB) Opinion No. 16 and, accordingly, the purchased
assets and assumed liabilities were recorded at their estimated fair values at
the acquisition date.
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The total cost of the acquisition was made up of the following:
Cash $ 17,500,000
Mandatorily redeemable preferred stock 8,000,000
Other acquisition costs 765,000
------------
$ 26,265,000
============
The purchase price has preliminarily been allocated as follows:
Tangible assets $ 16,515,000
Goodwill 10,166,000
Receivables, net 835,000
Covenant not to compete 250,000
Prepaid expenses and deposits 87,000
Assumed liabilities (1,588,000)
-------------
$ 26,265,000
=============
The following unaudited pro forma combined financial information for the year
ended December 31, 1998 gives effect to the acquisition as if it had been
consummated January 1, 1998. The following unaudited pro forma combined
financial information for the six months ended June 30, 1999 gives effect to the
acquisition as if it had been consummated January 1, 1999.
The 1999 unaudited pro forma combined financial information does not purport to
project what the Company's actual results of operations would have been for the
current period or for any future period.
Year Ended December 31, 1998 Six Months Ended June 30, 1999
Pro Forma Pro Forma
Historical Combined Historical Combined
---------- -------- ---------- --------
Revenue $ 52,676,531 $ 59,872,992 $ 28,858,760 $ 31,833,897
Net income available to common
shareholders $ 4,483,937 $ 4,271,647 $ 3,268,533 $ 3,064,334
Earnings per share - basic $ 0.57 $ 0.54 $ 0.37 $ 0.34
Earnings per share - diluted $ 0.53 $ 0.51 $ 0.35 $ 0.32
Pro Forma adjustments include adjustments to:
Amortized the non-competition agreement on a straight line basis
over 5 years.
Increase depreciation for the increase in the containers and
decrease in the vehicles and equipment carrying value to fair value.
Reflect the amortization of goodwill recorded in connection with the
acquisition, calculated based on a 25 year life.
Eliminate the predecessor's interest expense related to debt not
assumed, and record interest expense on debt issued or assumed in
connection with the acquisition.
Record the estimate tax provision associated with the pro forma
adjustments for the acquisition and to record the tax provision for the
acquired company which was a limited liability company for income tax
purposes for all periods prior to its acquisition by the Company. The
effective income tax rate used was 40%.
Record dividends on the Series B Manditorily Redeemable Preferred
Stock.
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On July 1, 1999 the Company completed the acquisition of Mobile Storage Systems,
Inc., a privately owned portable storage leasing company operating in Salt Lake
City, Utah, for $1.6 million. Including this acquisition, the Company operates
17 leasing branches in 10 states.
NOTE K - On May 11, 1999, the Company completed a public offering 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.
The Company received gross proceeds of $13.25 per share of common stock.
Additionally, the underwriters exercised their overallotment option to purchase
an additional 465,000 shares of common stock at the public offering price,
resulting in additional gross proceeds to the Company of approximately $6.2
million.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO
THREE MONTHS ENDED JUNE 30, 1998
Total revenues for the quarter ended June 30, 1999 increased by 9.0% to
$15.7 million from $14.4 million for the same period in 1998. Leasing revenues
for the quarter increased by 52.6% to $12.6 million from $8.2 million in the
same period of 1998. The increase in leasing revenues resulted from a 48.0%
increase in the average number of portable storage units on lease and a 3.1%
higher average rent per unit. Leasing revenues in the current year included two
months of operations of National Security Containers ("NSC") which was acquired
on April 30, 1999. Our sale of portable storage units for the three months ended
June 30, 1999 decreased by 50.0% to $3.0 million from $6.1 million in the same
period in 1998. Included in the second quarter 1998 sales was a $1.9 million,
one-time sale of our remaining modular buildings at virtually no profit.
Excluding this transaction, 1998 second quarter sales would have been $4.1
million compared to $3.0 million for the same period in 1999. This reduction in
sales primarily results from our de-emphasis of dealer and telecommunications
sales programs.
Cost of sales for the quarter ended June 30, 1999 decreased to 67.2% of
sales revenues from 75.1% of sales revenues in the same quarter in 1998. The
1998 profit margin was adversely effected by the final sales of our remaining
modular buildings. In addition, we attained certain plant efficiencies achieved
at our manufacturing facilities and paid lower costs for major manufacturing
materials in 1999.
Leasing, selling and general expenses increased to $7.7 million, or
49.3% of total revenues, for the quarter ended June 30, 1999 as compared to $6.2
million, or 43.2% of total revenues, for the quarter ended June 30, 1998. The
increase in expenses relates to the new branch locations we acquired or started
in 1998 and 1999, that were not in operation during the first quarter of 1998,
in addition to other sales, administrative and operating expenses related to an
increase in the leasing business both in absolute terms and as a percentage of
the total business from the prior year.
Depreciation and amortization expenses increased by approximately
$276,000 to $979,500 during the 1999 quarter, as compared to $704,000 during the
same period in 1998. This expense was 6.2% of total revenues during the 1999
quarter, compared to approximately 4.9%, during the same period in 1998. This
increase resulted from our larger lease fleet and our new locations added during
1998 and 1999.
Our operating margin was 31.5% during the quarter ended June 30, 1999,
compared to 20.3% for the same period in 1998. Our operating margins are
typically higher on leasing activities than on the sales of units 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 69.3% to $4.9
million for the quarter ended June 30, 1999 from $2.9 million for the same
period in 1998.
Interest expense increased by 23.7% to $1.7 million for the three
months ended June 30, 1999 from $1.3 million for the same period in 1998 as a
result of higher average debt outstanding during 1999. Our average debt
outstanding increased by 35.0%, primarily to finance the increase in our lease
fleet. This borrowing primarily was under our credit facility. The weighted
average interest rate declined to 7.9% for the three months ended June 30, 1999
from 8.8% for the same period in 1998, excluding amortization of debt issuance
costs. This decline primarily resulted from an interest rate reduction under
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our credit facility, in March, 1998 and the interest rate swap discussed below
under "Liquidity and Capital Resources", which resulted in a lower interest rate
on our borrowings.
We reported net income available to common shareholders for the three
months ended June 30, 1999 of $2.0 million, or $0.19 per diluted share of common
stock, compared to net income for the same period in 1998 of $946,000, or $0.11
per diluted share of common stock. This 106.9% increase was primarily due to
higher operating margins in 1999. Our effective tax rate was 40% for both 1999
and 1998. We had a 22.1% increase in the number of common and common share
equivalents outstanding in 1999 due primarily to the sale of approximately 3.0
million shares of common stock in a public offering in May 1999.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO
SIX MONTHS ENDED JUNE 30, 1998
Total revenues for the six months ended June 30, 1999 increased by
14.8% to $28.9 million from $25.1 million for the six months ended June 30,
1998. Leasing revenues for the six months ended June 30, 1999 increased by 43.3%
to $22.6 million from $15.8 million in the same period of 1998. These increases
resulted from a 41.8% increase in the average number of portable storage units
on lease and a 1.1% higher average rental per unit. Leasing revenues in the
current year included two months of operations of National Security Containers
("NSC") which was acquired on April 30, 1999. Our sale of portable storage units
for the six months ended June 30, 1999 decreased by 34.1% to $6.1 million from
$9.2 million in the same period in 1998. This reduction in sales primarily
results from the inclusion in 1998 revenues of a sale of our remaining modular
building inventory and from our de-emphasis of dealer and telecommunication
sales programs.
Cost of sales for the six months ended June 30, 1999 decreased to 66.3%
of sales revenues from 72.9% of sales revenues in the same period in 1998. The
1998 profit margin was adversely effected by the final sales of our remaining
modular buildings. This improvement in profit margin on sales is attributable to
sales of portable storage units in which we had a relatively low cost basis,
efficiencies achieved at our manufacturing facilities and lower costs paid for
major manufacturing materials in 1999.
Leasing, selling and general expenses increased to $14.3 million, or
49.7% of total revenues, for the six months ended June 30, 1999 as compared to
$11.8 million, or 46.9% of total revenues, for the six months ended June 30,
1998. The increase in expenses relates to the new branch locations we acquired
or started in 1998 and 1999, that were not in operation during 1998, in addition
to other sales, administrative and operating expenses related to an increase in
the leasing business compared to the prior year.
Depreciation and amortization expenses increased by $417,000, to $1.8
million or 6.2% of total revenues during the six months ended June 30, 1999 from
$1.4 million, or 5.4% of total revenues, 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 30.2% for the six months ended June
30, 1999 from 21.0% for the same period in 1998. Our 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
64.8% to $8.7 million for the six months ended June 30, 1999 from $5.3 million
for the same period in 1998.
Interest expense increased by 14.6% to $3.3 million for the six months
ended June 30, 1999 from $2.8 million for the same period in 1998 as a result of
higher average debt outstanding during 1999. Our average debt outstanding
increased by 34.7%, primarily to finance the increase in our lease fleet.
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This borrowing primarily was under our credit facility. The weighted average
interest rate declined to 7.9% for the six months ended June 30, 1999 from 9.1%
for the same period in 1998, excluding amortization of debt issuance costs. This
decline primarily resulted from an interest rate reduction under 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 available to common shareholders for the six
months ended June 30, 1999 of $3.3 million, or $0.35 per diluted share of common
stock, compared to net income for the same period in 1998 of $1.5 million, or
$0.18 per diluted share of common stock. This 121.0% 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 13.7% increase in the number of weighted average common and
common share equivalents outstanding in 1999 due primarily to the sale of
approximately 3.0 million shares of common stock in addition to the exercise of
underwriters warrants issued in connection with our initial public offering. Our
common stock outstanding at the end of June 30, 1999 increased 41.6% to 11.1
million shares as compared to 7.9 million shares outstanding at June 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
Our leasing and manufacturing business is 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.
In May and June, 1999, we received net proceeds of $36.9 million in
connection with the closing of a public offering of approximately 3.0 million
shares of our common stock.
Operating Activities. Our operations provided net cash flow of $7.5
million in the six months ended June 30, 1999 and $2.3 million 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 and
an increase in inventories and receivables, partially offset by increased
accounts payable and accrued liabilities. These increases primarily are related
to the growth in our portable storage unit lease fleet.
Investing Activities. Net cash used in investing activities was $37.5
million for the six months ended June 30, 1999 and $11.4 million for the same
period in 1998. This use of cash primarily is for higher levels of capital
expenditures for portable storage unit lease fleet expansion. This included an
expenditure of $25.5 million for the NSC acquisition in the quarter ended June
30, 1999. Capital expenditures for our lease fleet were $10.2 million for the
six months ended June 30, 1999 and $8.0 million for the same period in 1998.
Capital expenditures for property, plant and equipment were $1.8 million for the
six months ended June 30, 1999 and $1.5 million for the same period in 1998,
excluding the NSC acquisition.
Financing Activities. Net cash provided by financing activities was
$29.8 million for the six months ended June 30, 1999 and $8.7 million for the
same period in 1998. During the six months ended June 30, 1999, net cash
provided by financing activities was primarily provided by the sale of our
common stock (approximately 3.0 million shares) which resulted in net proceeds
to us of approximately $36.9 million after deducting underwriting discounts.
These proceeds initially were used to pay down our line of credit and to redeem
our Series B preferred stock of $8.0 million which we issued in payment of a
portion of the purchase price in our acquisition of NSC. We also received net
proceeds of $600,000 from the exercise of warrants during the six month period.
Including these, we had a net repayment, net of working capital borrowings, of
$4.5 million under our credit facility. Our cash provided by financing
activities was partially offset by $2.9 million in principal payments and
pre-payments on certain higher interest rate debt obligations. During 1998, the
net cash provided by financing activities was primarily
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provided by $5.2 million of net proceeds from the exercise of warrants issued in
connection with our initial public offering and net borrowings of $6.5 million
under the credit facility.
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 with a base 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 June 30, 1999, we
had $52.7 million of outstanding borrowings under our credit facility, and $35.4
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 our growth rate we may be required to obtain additional debt
financing and to raise additional equity capital in the future. However, there
is no assurance that we will be able to continue to obtain debt or equity
financing on acceptable terms.
Subsequent Events. On July 1, 1999, we acquired substantially all of
the assets of Mobile Storage Systems, Inc., a portable storage leasing company
operating in Salt Lake City for $1.6 million in cash.
As of August 9, 1999, after the acquisition costs of NSC and Mobile
Storage Systems, Inc., we had $55.7 million of outstanding borrowings under our
credit facility and $34.3 million of additional borrowings were available.
SEASONALITY
Although demand from some of our customers is somewhat seasonal, our
operations as a whole have not been 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. These vendors have advised us 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.
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The Company has conducted testing of its computer and other date
related systems, and has determined that nearly all are year 2000 compliant. The
only exceptions are our voice mail system which is scheduled to be upgraded in
the third quarter, 1999 and our manufacturing software. The manufacturing
software was certified for Year 2000 compliance by the vendor. Mobile Mini will
also perform internal testing, scheduled for the third quarter 1999. Our primary
software was made Year 2000 compliant in 1998 and the other software and
operating systems have been modified to become Year 2000 compliant throughout
the year. We expect to incur total costs at or below our original budget of
$122,000 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.
Contingency plans, primarily manual processing, are in place should it
become necessary. However, the Company would only be able to maintain manual
processing for a short period of time with the current staff. 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.
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 on $30 million of debt. At June 30, 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 approximately 3.0
million shares of common stock in May 1999, in a public offering. 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
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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: The Company filed, a Form 8-K dated April
12, 1999 and an amendment thereto dated July 14, 1999,
reporting the Company's acquisition of National Security
Containers, L.L.C.
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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: August 11, 1999 /s/ Larry Trachtenberg
----------------- ---------------------------------
Larry Trachtenberg
Chief Financial Officer &
Executive Vice President
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EXHIBIT INDEX
NUMBER DESCRIPTION
27 Selected Financial Data