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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 September 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
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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 October 29, 1999, there were outstanding 11,400,281 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 SEPTEMBER 30, 1999
TABLE OF CONTENTS PAGE
NUMBER
PART I.
FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets 3
December 31, 1998 and September 30, 1999
Consolidated Statements of Operations 4
Three Months and Nine Months ended September
30, 1998 and September 30, 1999
Consolidated Statements of Cash Flows 6
Nine Months Ended September 30, 1998 and
September 30, 1999
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
PART II.
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MOBILE MINI, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31, September 30,
1998 1999
------------ ------------
CASH AND CASH EQUIVALENTS $ 1,030,138 $ 1,165,123
RECEIVABLES, net of allowance for doubtful
accounts of $1,085,000 and $1,587,000,
respectively 6,254,938 8,326,898
INVENTORIES 8,550,778 11,247,454
PORTABLE STORAGE UNIT LEASE FLEET, net 76,589,831 112,723,984
PROPERTY PLANT AND EQUIPMENT, net 20,262,738 22,272,899
DEPOSITS AND PREPAID EXPENSES 787,426 1,076,874
OTHER ASSETS, net 3,314,384 13,946,115
------------ ------------
Total assets $116,790,233 $170,759,347
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
ACCOUNTS PAYABLE $ 2,953,833 $ 6,250,440
ACCRUED LIABILITIES 3,858,165 5,491,556
LINE OF CREDIT 57,183,576 58,065,185
NOTES PAYABLE 4,819,976 6,990,284
OBLIGATIONS UNDER CAPITAL LEASES 3,196,021 703,135
SUBORDINATED NOTES, net 6,700,038 6,739,161
DEFERRED INCOME TAXES 8,206,830 12,219,770
------------ ------------
Total liabilities 86,918,439 96,459,531
------------ ------------
STOCKHOLDERS' EQUITY:
Common stock; $.01 par value, 17,000,000 shares
authorized, 7,966,863 and 11,370,941 issued
and outstanding at December 31, 1998 and
September 30, 1999, respectively 79,669 113,709
Additional paid-in capital 22,054,927 60,664,694
Common stock to be issued, 85,468 shares, at
December 31, 1998 500,000 --
Retained earnings 7,237,198 13,521,413
------------ ------------
Total stockholders' equity 29,871,794 74,299,816
------------ ------------
Total liabilities and stockholders' equity $116,790,233 $170,759,347
============ ============
See the accompanying notes to these consolidated balance sheets.
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MOBILE MINI, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended September 30,
--------------------------------
1998 1999
------------ ------------
REVENUES:
Leasing $ 9,698,292 $ 14,876,911
Sales 3,472,281 3,210,209
Other 198,015 100,071
------------ ------------
13,368,588 18,187,191
COSTS AND EXPENSES:
Cost of sales 2,167,114 2,173,017
Leasing, selling and general expenses 6,668,556 8,501,736
Depreciation and amortization 737,515 1,100,170
------------ ------------
INCOME FROM OPERATIONS 3,795,403 6,412,268
OTHER INCOME (EXPENSE):
Interest income 9,181 13,530
Interest expense (1,455,818) (1,399,662)
------------ ------------
INCOME BEFORE PROVISION FOR INCOME TAXES 2,348,766 5,026,136
PROVISION FOR INCOME TAXES 939,506 2,010,454
------------ ------------
NET INCOME $ 1,409,260 $ 3,015,682
============ ============
EARNINGS PER SHARE:
BASIC $ 0.18 $ 0.27
============ ============
DILUTED $ 0.17 $ 0.25
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON
SHARE EQUIVALENTS OUTSTANDING:
BASIC 7,960,170 11,322,397
============ ============
DILUTED 8,411,797 11,853,952
============ ============
See the accompanying notes to these consolidated statements
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MOBILE MINI, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months Ended September 30,
-------------------------------
1998 1999
------------ ------------
REVENUES:
Leasing $ 25,457,210 $ 37,467,088
Sales 12,670,741 9,268,516
Other 387,342 310,347
------------ ------------
38,515,293 47,045,951
COSTS AND EXPENSES:
Cost of sales 8,872,001 6,192,066
Leasing, selling and general expenses 18,452,010 22,841,558
Depreciation and amortization 2,107,987 2,888,119
------------ ------------
INCOME FROM OPERATIONS 9,083,295 15,124,208
OTHER INCOME (EXPENSE):
Interest income 25,866 40,575
Interest expense (4,294,943) (4,654,560)
------------ ------------
INCOME BEFORE PROVISION FOR INCOME TAXES 4,814,218 10,510,223
PROVISION FOR INCOME TAXES 1,925,687 4,204,090
------------ ------------
NET INCOME 2,888,531 6,306,133
PREFERRED STOCK DIVIDEND -- 21,918
------------ ------------
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 2,888,531 $ 6,284,215
============ ============
EARNINGS PER SHARE:
BASIC $ 0.37 $ 0.65
============ ============
DILUTED $ 0.35 $ 0.61
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON
SHARE EQUIVALENTS OUTSTANDING:
BASIC 7,784,968 9,732,241
============ ============
DILUTED 8,366,628 10,237,445
============ ============
See the accompanying notes to these consolidated statements.
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MOBILE MINI, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30,
-------------------------------
1998 1999
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,888,531 $ 6,306,133
Adjustments to reconcile income to net cash
provided by operating activities:
Provision for doubtful accounts 684,011 728,597
Amortization of deferred loan costs 447,195 401,603
Amortization of warrants issuance discount 39,123 39,123
Depreciation and amortization 2,107,987 2,888,119
(Gain) loss on disposal of property, plant and equipment (3,949) 35,050
Deferred income taxes 1,925,536 4,203,940
Changes in certain assets and liabilities,
net of effect of businesses acquired:
Increase in receivables (1,300,549) (1,913,212)
Increase in inventories (2,537,125) (2,636,192)
(Increase) decrease in deposits and prepaid expenses (719,410) 125,369
(Increase) decrease in other assets (17,035) 216,706
Increase in accounts payable 1,178,516 3,223,046
Increase in accrued liabilities 1,209,952 777,320
------------ ------------
Net cash provided by operating activities 5,902,783 14,395,602
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for businesses acquired (3,944,446) (27,989,118)
Net purchases of portable storage unit lease fleet (17,191,111) (21,829,617)
Net purchases of property, plant, and equipment (2,132,583) (3,114,212)
------------ ------------
Net cash used in investing activities (23,268,140) (52,932,947)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under lines of credit 15,170,780 881,609
Proceeds from issuance of notes payable 376,670 3,514,047
Deferred financing costs (300,000) --
Principal payments on notes payable (1,255,033) (1,343,739)
Principal payments on capital lease obligations (2,076,179) (2,501,476)
Exercise of warrants 5,179,877 678,161
Issuance of common stock 975 37,465,646
Preferred stock dividend -- (21,918)
------------ ------------
Net cash provided by financing activities 17,097,090 38,672,330
------------ ------------
NET (DECREASE) INCREASE IN CASH (268,267) 134,985
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD 1,005,204 1,030,138
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 736,937 $ 1,165,123
============ ============
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 nine month period ended September 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 nine month period ended September 30:
Three months Nine months
ended September 30, ended September 30,
1998 1999 1998 1999
----------- ----------- ----------- -----------
BASIC:
Common shares outstanding, beginning of period 7,868,933 11,144,666 6,799,524 7,966,863
Effect of weighting shares:
Weighted common shares issued 5,769 177,731 906,237 1,765,378
Common stock to be issued 85,468 -- 79,207 --
----------- ----------- ----------- -----------
Weighted average number of common
shares outstanding 7,960,170 11,322,397 7,784,968 9,732,241
=========== =========== =========== ===========
Net income available to common shareholders $ 1,409,260 $ 3,015,682 $ 2,888,531 $ 6,284,215
=========== =========== =========== ===========
Earnings per share $ 0.18 $ 0.27 $ 0.37 $ 0.65
=========== =========== =========== ===========
DILUTED:
Common shares outstanding, beginning of period 7,868,933 11,144,666 6,799,524 7,966,863
Effect of weighting shares:
Weighted common shares issued 5,769 177,731 906,237 1,765,378
Employee stock options 296,676 404,038 295,599 382,706
Warrants 154,951 127,517 286,061 122,498
Common stock to be issued 85,468 -- 79,207 --
----------- ----------- ----------- -----------
Weighted average number of common and
common equivalent shares outstanding 8,411,797 11,853,952 8,366,628 10,237,445
=========== =========== =========== ===========
Net income available to common shareholders $ 1,409,260 $ 3,015,682 $ 2,888,531 $ 6,284,215
=========== =========== =========== ===========
Earnings per share $ 0.17 $ 0.25 $ 0.35 $ 0.61
=========== =========== =========== ===========
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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, September 30,
1998 1999
----------- -----------
Raw material and supplies $ 6,480,553 $ 8,581,247
Work-in-process 801,338 538,669
Finished portable storage units 1,268,887 2,127,537
----------- -----------
$ 8,550,778 $11,247,454
=========== ===========
NOTE D - Property, plant and equipment consisted of the following at:
December 31, September 30,
1998 1999
------------ ------------
Land $ 777,668 $ 777,668
Vehicles and equipment 15,963,099 18,756,662
Buildings and improvements 7,211,833 7,484,820
Office fixtures and 3,404,320 3,833,604
equipment
------------ ------------
27,356,920 30,852,754
Less accumulated depreciation (7,094,182) (8,579,855)
------------ ------------
$ 20,262,738 $ 22,272,899
============ ============
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 September 30, 1999, the portable storage unit lease fleet
was $112.7 million as compared to $76.6 million at December 31, 1998, net of
accumulated depreciation of $3.6 million and $2.6 million, respectively.
NOTE F - 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 each segment 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 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
system, and its discontinued dealer program. 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 was discontinued and
the Company has de-emphasized the sales of telecommunication 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.
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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 executive officer for financial
results and ongoing plans including the influence of competition.
For the Three Months Ended:
Branch
Operations Other Combined
---------- ----- --------
September 30, 1998
Revenues from external customers $12,970,199 $ 398,389 $13,368,588
Segment profit (loss) before
allocated interest, depreciation
and amortization expense 6,301,183 (1,647,886) 4,653,297
Allocated interest expense 1,453,916 1,382 1,455,298
Depreciation and amortization expense 631,908 105,607 737,515
Segment profit (loss) 1,512,506 (103,246) 1,409,260
September 30, 1999
Revenues from external customers $18,411,887 $ (224,696) $18,187,191
Segment profit (loss) before
allocated interest, depreciation
and amortization expense 10,176,960 (2,424,283) 7,752,677
Allocated interest expense 1,399,662 -- 1,399,662
Depreciation and amortization expense 996,881 103,289 1,100,170
Segment profit (loss) 3,020,976 (5,295) 3,015,681
For the Nine Months Ended:
Branch
Operations Other Combined
---------- ----- --------
September 30, 1998
Revenues from external customers $34,799,631 $ 3,715,662 $38,515,293
Segment profit (loss) before
allocated interest, depreciation
and amortization expense 15,631,846 (4,113,391) 11,518,455
Allocated interest expense 4,290,346 4,077 4,294,423
Depreciation and amortization expense 1,790,705 317,282 2,107,987
Segment profit (loss) 3,054,512 (165,981) 2,888,531
September 30, 1999
Revenues from external customers $46,304,456 $ 741,495 $47,045,951
Segment profit (loss) before
allocated interest, depreciation
and amortization expense 23,552,074 (5,007,647) 18,544,427
Allocated interest expense 4,654,560 -- 4,654,560
Depreciation and amortization expense 2,585,301 302,818 2,888,119
Segment profit 6,239,211 45,004 6,284,215
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As of:
Branch
Operations Other Combined
------------ ---------- ------------
September 30, 1998
Segment assets - lease fleet $ 70,574,768 $ -- $ 70,574,768
Segment assets - property, plant and equipment 17,929,157 1,080,958 19,010,115
Expenditures for long-lived assets - lease fleet 17,191,111 -- 17,191,111
Expenditures for long-lived assets - PPE 2,081,916 50,667 2,132,583
September 30, 1999
Segment assets - lease fleet $112,723,984 $ -- $112,723,984
Segment assets - property, plant and equipment 21,338,908 933,991 22,272,899
Expenditures for long-lived assets - lease fleet 21,829,617 -- 21,829,617
Expenditures for long-lived assets - PPE 2,856,221 257,991 3,114,212
NOTE G - The Company's senior lenders, led by BT Commercial Corporation, agreed
to amend the Company's revolving line of credit effective September 1, 1999 to
reduce by $3.0 million the revolving line available to the Company and to
increase the Company's term loan by $3.0 million. As of September 30, 1999,
there was $58.1 million of outstanding borrowings under the credit facility and
$28.9 million of additional borrowings were available.
NOTE H - 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
being 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 operated in cities in which the Company
already had branch leasing offices. The other three locations, Colorado Springs,
Memphis and New Orleans, became new markets for the Company.
On July 1, 1999 the Company acquired substantially all the assets of Mobile
Storage Systems, Inc., a privately owned portable storage leasing company
operating in Salt Lake City, Utah, for $1.6 million. On August 6, 1999 the
Company acquired the portable storage division of Great Western Sales and
Leasing which also operates in Salt Lake City for approximately $687,000.
On September 1, 1999 the Company commenced operations in the greater Chicago,
Illinois metropolitan area through the acquisition of the container assets of
Express Trailer Leasing & Sales for approximately $181,000. The Company
currently operates 18 leasing and sale branches in 11 states.
Each 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.
The total cost of the acquisitions were made up of the following:
Cash $19,989,000
Mandatorily redeemable
preferred stock 8,000,000
Other acquisition costs 812,000
-----------
$28,801,000
===========
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The purchase prices were preliminarily allocated as follows:
Tangible assets $17,875,000
Goodwill 11,235,000
Receivables, net 888,000
Covenants not to compete 310,000
Prepaid expenses and deposits 87,000
Assumed liabilities (1,594,000)
-----------
$28,801,000
===========
The following unaudited pro forma combined financial information for the year
ended December 31, 1998 gives effect to the NSC acquisition as if it had been
consummated January 1, 1998. The following unaudited pro forma combined
financial information for the nine months ended September 30, 1999 gives effect
to the acquisition of NSC as if it occurred on January 1, 1999.
This 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 Nine Months Ended
December 31, 1998 September 30, 1999
Pro Forma Pro Forma
Historical Combined Historical Combined
---------- -------- ---------- --------
Revenue $ 52,676,531 $ 59,872,992 $ 47,045,951 $ 50,021,088
Net income available to
common shareholders $ 4,483,937 $ 4,271,647 $ 6,284,215 $ 6,080,016
Earnings per share - basic $ 0.57 $ 0.54 $ 0.65 $ 0.62
Earnings per share - diluted $ 0.53 $ 0.51 $ 0.61 $ 0.59
Pro Forma adjustments include adjustments to:
Amortize 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.
NOTE I - On May 11, 1999, the Company completed a public offering of 3.1 million
shares of its 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 $33.1 million. 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.
NOTE J - The Company redeemed the entire $6.9 million principal amount
outstanding of its 12% Senior Subordinated Notes at par plus accrued interest on
November 1, 1999.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO
THREE MONTHS ENDED SEPTEMBER 30, 1998
Our total revenues for the quarter ended September 30, 1999 increased by
36.0% to $18.2 million from $13.4 million for the same period in 1998. Leasing
revenues for the quarter increased by 53.4% to $14.9 million from $9.7 million
in the same period of 1998. The increase in our leasing revenues resulted from a
50.7% increase in the average number of portable storage units on lease and a
1.8% higher average rental rate per unit. Leasing revenues in the current
quarter include the operations of National Security Containers ("NSC") which we
acquired on April 30, 1999. Our sale of portable storage units for the three
months ended September 30, 1999 decreased by 7.5% to $3.2 million from $3.5
million in the same period in 1998. This reduction in sales results from our
de-emphasis of our dealer and telecommunication sales programs and was partially
offset by sales at our new branch locations and from a $263,000 sale to one
customer.
Cost of sales for the quarter ended September 30, 1999 increased to 67.7%
of sales revenues from 62.4% of sales revenues in the same quarter in 1998. Our
gross margin in the third quarter of 1999 was similar to the margin in the
second quarter. The margin in the third quarter of 1998 had been higher because
of higher telecommunication sales at higher margins than achieved in 1999.
Our leasing, selling and general expenses increased to $8.5 million, or
46.7% of total revenues, for the quarter ended September 30, 1999 from $6.7
million, or 49.9% of total revenues, for the quarter ended September 30, 1998.
This increase resulted mainly from an increase in the number of branches. At
September 30, 1998 we had 12 branch locations. We now have 18 branch locations.
In addition, our existing branches got larger so they had increased sales,
administrative and operating expenses. These expenses were a smaller percentage
of revenues in 1999 because of economies of scale.
Depreciation and amortization expenses increased by approximately $362,000
to $1.1 million during the 1999 quarter, from $738,000 during the same period in
1998. This expense was 6.0% of total revenues during the 1999 quarter, compared
to approximately 5.5%, during the same period in 1998. During 1999 our lease
fleet had grown and leasing had become a larger part of our business.
Our operating margin increased to 35.3% for the quarter ended September
30, 1999, from 28.4% 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 68.9% to $6.4
million for the quarter ended September 30, 1999 from $3.8 million for the same
period in 1998.
Interest expense declined by 3.9% to $1.4 million for the three months
ended September 30, 1999 from $1.5 million for the same period in 1998,
primarily because we used the proceeds of our public offering to pay down a
portion of our debt and the weighted average interest rate declined to 7.1% for
the three months ended September 30, 1999 from 8.3% 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, which resulted in a
lower interest rate on our borrowings. These decreases were partially offset by
our average debt outstanding increasing by 11.0%.
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13
Our net income for the three months ended September 30, 1999 was $3.0
million, or $0.25 per diluted share of common stock, compared to net income for
the same period in 1998 of $1.4 million, or $0.17 per diluted share of common
stock. This 114.0% increase was primarily due to higher lease revenues and
higher operating margins in 1999. Our effective tax rate was 40.0% for both 1999
and 1998. We had a 40.9% 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 and June 1999.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO
NINE MONTHS ENDED SEPTEMBER 30, 1998
Our revenues for the nine months ended September 30, 1999 increased by
22.1% to $47.0 million from $38.5 million for the nine months ended September
30, 1998. Leasing revenues for the nine months ended September 30, 1999
increased by 47.2% to $37.5 million from $25.5 million in the same period of
1998. These increases resulted from a 45.1% increase in the average number of
portable storage units on lease and a 1.4% higher average rental rate per unit.
Leasing revenues in the current year included five months of operations of NSC,
which we acquired on April 30, 1999. Our sales revenues for the nine months
ended September 30, 1999 decreased by 26.9% to $9.3 million from $12.7 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 in the current year of our dealer and telecommunication
sales programs.
Cost of sales for the nine months ended September 30, 1999 decreased to
66.8% of sales revenues from 70.0% of sales revenues in the same period in 1998.
The overall 1998 profit margin was reduced by the low profit margin on the final
sales of our remaining modular buildings.
Leasing, selling and general expenses increased to $22.8 million, or 48.6%
of total revenues, for the nine months ended September 30, 1999 from $18.5
million, or 47.9% of total revenues, for the nine months ended September 30,
1998. This increase resulted mainly from an increase in the number of branches.
At September 30, 1998 we had 12 branch locations. We now have 18 branch
locations. In addition, our existing branches got larger so they had increased
sales, administrative and operating expenses. These expenses were a larger
percentage of revenues in 1999 because of our shift toward leasing, which has
higher sales, general and administrative expenses associated with it than does
sales.
Depreciation and amortization expenses increased by $780,000, to $2.9
million or 6.1% of total revenues during the nine months ended September 30,
1999 from $2.1 million, or 5.5% of total revenues, during the same period in
1998. During 1999, our lease fleet had grown and leasing had become a larger
part of our business.
Our operating margin increased to 32.1% for the nine months ended
September 30, 1999 from 23.6% 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 66.5% to $15.1 million for the nine months ended September 30, 1999
from $9.1 million for the same period in 1998.
Interest expense increased by 8.4% to $4.7 million for the nine months
ended September 30, 1999 from $4.3 million for the same period in 1998 because a
portion of our acquisitions and the increase in our portable storage unit lease
fleet was financed by using our bank line. The remainder was financed through
our common stock offering and from cash flow generated by operations. Our
average debt outstanding increased by 26.1%. The weighted average interest rate
declined to 7.6% for the nine months ended September 30, 1999 from 8.8% for the
same period in 1998, excluding amortization of
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debt issuance costs. This decline primarily resulted from an interest rate
reduction under our credit facility, which resulted in a lower interest rate on
our borrowings.
Our net income available to common shareholders for the nine months ended
September 30, 1999 was $6.3 million, or $0.61 per diluted share of common stock,
compared to net income for the same period in 1998 of $2.9 million, or $0.35 per
diluted share of common stock. This 117.6% increase was primarily due to higher
leasing revenues and higher operating margins in 1999. Our effective tax rate
was 40.0% for both 1999 and 1998. We had a 22.4% 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 a
public offering in May and June 1999. Our common stock outstanding at September
30, 1999 increased 44.3% to 11.4 million shares as compared to 7.9 million
shares outstanding at September 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 $14.4
million in the nine months ended September 30, 1999 and $5.9 million in the same
period in 1998. This increased cash flow in 1999 resulted primarily from our
higher net income and related deferred income taxes. An increase in inventories
and receivables was partially offset by increased accounts payable and accrued
liabilities. These increases primarily are related to the growth in our portable
storage unit business.
Investing Activities. Net cash used in investing activities was $52.9
million for the nine months ended September 30, 1999 and $23.3 million for the
same period in 1998. This use of cash is primarily for acquisitions and for
portable storage unit lease fleet expansion. In 1999 we spent $28.0 million for
acquisitions. Capital expenditures for our lease fleet were $21.8 million for
the nine months ended September 30, 1999 and $17.2 million for the same period
in 1998 and capital expenditures for property, plant and equipment were $3.1
million for the nine months ended September 30, 1999 and $2.1 million for the
same period in 1998, excluding acquisitions.
Financing Activities. Net cash provided by financing activities was $38.7
million for the nine months ended September 30, 1999 and $17.1 million for the
same period in 1998. During the nine months ended September 30, 1999, net cash
provided by financing activities was primarily provided by the public sale of
approximately 3.0 million shares of our common stock which resulted in net
proceeds to us of approximately $36.9 million after deducting underwriting
discounts. These proceeds were used to pay down our line of credit. We also
received net proceeds of $678,000 from the exercise of warrants during the nine
month period. We increased our term loan with our senior lenders by $3.0 million
and used those proceeds to pay down the line of credit under the credit
facility. As a consequence, we had a net borrowing of $882,000 under our credit
facility for the nine months ended September 30, 1999 as compared to $15.2
million in the same period in 1998. Our cash provided by financing activities
was partially offset by $3.8 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 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 $15.2 million under the credit facility.
Effective in September 1998, we entered into an Interest Rate Swap
Agreement (the Agreement), under which Mobile Mini is designated as the fixed
rate payer with a base rate of 5.5% per annum. Under the Agreement, we
effectively fixed, for a three year period, the interest rate payable on
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$30 million of our 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 an $87.0 million revolving line of credit
and a term loan with a balance of $6.0 million at September 30, 1999. 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 September 30, 1999, we had $58.1 million of
outstanding borrowings under our credit facility and $28.9 million of additional
borrowings were available. Our borrowing rate was 1.25% above the prevailing
Eurodollar rate.
We believe that our working capital, together with our cash flow from
operations, borrowing availability under our $87.0 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.
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 quarter of the past several years.
YEAR 2000 COMPLIANCE AND EXPENDITURES
Our Year 2000 compliance plan was structured into five primary phases:
inventory, assessment, correction, testing and implementation. The inventory is
an investigation of all information technology ("IT") and non-IT hardware and
software components we use. The assessment is an analysis of each component to
determine date sensitivity to the year 2000. The correction phase is the effort
to fix, replace, upgrade or eliminate non-compliant hardware and software. The
testing phase involves verifying the results of the correction effort, and
implementation is the effort to deploy the fixes into a production environment.
We completed all five phases of the plan and the remediation project was
considered completed as planned on September 30, 1999. During the remainder of
the year, we will continue conducting validation of any new purchased products.
We have established ongoing communications with our significant vendors
and service providers to determine the extent to which we may be vulnerable to
our third-parties' failures to remediate their own year 2000 issue. To date,
none of our material vendors or service providers has disclosed that they
anticipate a business interruption. There can be no assurance that the systems
of other companies on which we rely will be converted in a timely manner or that
any such failure to convert by another company would not have a material adverse
effect on us.
Our primary software purchased in 1997 was made year 2000 compliant by the
vendor at no additional cost to us. Our estimated cost of converting other
hardware, software and internal costs was $122,000. We have expended less than
the original budget. Software and hardware remediation is being expensed as
incurred. We have not deferred any information technology projects to address
the year 2000 issue.
Although we believe that our systems are year 2000 compliant,
unanticipated year 2000 problems may arise which, depending on the nature and
magnitude of the problem, could adversely
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affect our business. Furthermore, year 2000 problems involving third parties may
have a negative impact on our customers or suppliers.
We have established a contingency plan, primarily manual processing should
it become necessary. In 1997 when we switched from a paper system to a
computerized system a contingency program was developed to allow for the
continued rental, sale and pick up of containers in the event of a system
failure. Since that time this system has been tested several times. The system
has also been tested when we have brought on new locations and their
communications are not connected for an extended period of time. Our corporate
personnel are trained in working with paper documents should the need arise.
However, additional staff would be required to continue this process on a
long-term basis.
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
receive a variable interest rate on $30.0 million of debt. At September 30,
1999, there had been 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 our
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 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
10.5.8 Amendment No.8 to Senior Credit Agreement dated as September 1,
1999, by and among the Registrant, each financial institution a
party thereto, and BT Commercial Corporation, as Agent
10.21 Form of Employment Agreement dated September 22, 1999
between the Registrant and each of Steven G. Bunger and
Lawrence Trachtenberg.
27 Selected Financial Data
(b) REPORTS ON FORM 8-K:
Report on Form 8-K/A, dated July 14, 1999 (filing financial
statements of National Security Containers, L.L.C. and related pro
forma financial information, relating to our acquisition on
April 30, 1999 of the assets of NSC).
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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: November 5, 1999 /s/ Larry Trachtenberg
------------------------------------
Larry Trachtenberg
Chief Financial Officer &
Executive Vice President
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Exhibit Index
Exhibit No. Description
- ----------- -----------
10.5.8 Amendment No.8 to Senior Credit Agreement dated as September 1,
1999, by and among the Registrant, each financial institution a
party thereto, and BT Commercial Corporation, as Agent
10.21 Form of Employment Agreement dated September 22, 1999
between the Registrant and each of Steven G. Bunger and
Lawrence Trachtenberg.
27 Selected Financial Data