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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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Form 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended
December 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [No Fee Required] For the
transition period from ___________ to ________________
Commission File Number 1-12804
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mobile mini, inc.
(Exact Name of Registrant as Specified 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)
(602) 894-6311
(Registrant's Telephone Number)
Securities Registered Under Section 12(g) of the Exchange Act:
Title of Class Name of Each Exchange on Which Registered
Common Stock, $.01 par value NASDAQ Stock Market
Indicate by checkmark 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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
The aggregate market value on March 18, 1998 of the voting stock owned by
non-affiliates of the registrant was approximately $47,299,000 (calculated by
excluding all shares held by executive officers, directors and holders of five
percent or more of the voting power of the registrant, without conceding that
such persons are "affiliates" of the registrant for purposes of the federal
securities law).
As of March 18, 1998, there were outstanding 7,845,736 shares of the issuer's
common stock, par value $.01.
Documents incorporated by reference: Certain Exhibits are incorporated in Item
14 of this Report by reference to other reports and registration statements of
the Registrant which have been filed with the Securities and Exchange
Commission, and certain risk factors are incorporated in Item 7 hereof by
reference to the Registrant's Registration Statement dated August 26, 1997 and
as amended.
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PART I
This Annual Report contains forward-looking statements which involve risks and
uncertainties. The actual results of Mobile Mini, Inc. (together with its
wholly-owned subsidiaries, the "Company" or "Mobile Mini") could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth in this Form 10-K and the
Company's other Securities and Exchange Commission filings. See particularly
Item 7, "Management's Discussion and Analysis of Financial Condition and Results
of Operations - Factors That May Affect Future Operating Results".
ITEM 1. DESCRIPTION OF BUSINESS.
General
Mobile Mini, Inc. is a Delaware corporation capitalized effective December 31,
1993. From 1983 through 1993, the business operations of the Company were
conducted as a sole proprietorship by Richard E. Bunger under the tradename
"mobile mini storage systems" ("MMSS"). The business operations transferred to
the Company were comprised of MMSS and a related corporation, Delivery Design
Systems, Inc. ("DDS"). The Company's subsidiaries include DDS which formerly
engaged in the business of designing, developing and manufacturing truck
trailers and other delivery systems for the Company's portable storage
containers and Mobile Mini I, Inc. which engages in the business of acquiring
and maintaining certain of the Company's facilities. The business and assets of
DDS were transferred to the Company in 1996.
The Company's operations commenced in Phoenix, Arizona, in 1983. By 1986 the
portable storage concept had been proven and the business was expanded through
an additional sales and leasing branch established in Tucson, Arizona. In 1988,
the Company commenced operations in Rialto, California to service the greater
Los Angeles area. In early 1990, the Company relocated its manufacturing
facility from its original site in Phoenix to a heavy-industry zoned industrial
park located near Maricopa, Arizona and administrative offices were established
in Tempe, Arizona. In 1994, the Company opened a "satellite" branch in San
Diego, California which is serviced from its Rialto "hub." Also in 1994, the
Company opened operations in Texas by the establishment of hub locations in
Houston and Dallas/Fort Worth. In early 1995, the Company opened satellite
locations in the San Antonio and Austin metropolitan areas.
During the last few years, the Company has focused primarily on expanding its
leasing operations, which provide higher margins and profitability than its
other operations, see "Leasing Operations". In January of 1998 the Company
acquired the assets of Nevada Storage Containers, a Las Vegas based container
leasing and sales business.
Products
The Company designs and manufactures portable steel storage containers, portable
offices and telecommunication shelters and acquires, refurbishes, and modifies
ocean-going shipping containers for sale and lease as inland portable storage
units. In addition, the Company designs and manufactures a variety of delivery
systems to complement the Company's storage container sales and leasing
activities. The Company has patented, proprietary or trade secret rights in all
products it has designed and manufactured. The locking system for the Company's
containers is patented and provides virtually impenetrable security to the
storage container.
The Company's main product in its storage market segment is the portable steel
storage container. The Company acquires used ocean-going cargo containers which
it reconditions and retrofits with its patented locking system. To compensate
for supply and price fluctuations associated with acquiring used ocean-going
containers, the Company also manufactures various lines of new containers,
featuring the Company's proprietary "W" or "stud wall" panels. Storage container
units may be significantly modified and turned into portable offices, portable
storage facilities, open-sided storage and retail facilities, as well as a large
variety of other applications. In reconditioning and manufacturing its products,
the Company uses, in addition to used ocean-going containers, commodity raw
materials including steel, vinyl, wood, glass and other raw materials from
various suppliers.
The Company leases and sells its storage containers to a wide variety of
individual, business and governmental users. The Company's lease activities
include both off-site and on-site leasing. "Off-site" leasing occurs when the
Company leases a portable storage container which is then located at the
customer's place of use. "On-site" leasing occurs when the Company stores the
portable
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container containing the customer's goods at one of the Company's facilities,
which are similar to a standard mini-storage facility, but with increased
security, ease of access and container delivery and pick-up service.
In mid-1995, Mobile Mini established a telecommunication shelter division to
complement its storage container business, diversify its product line and target
the domestic and international markets. The Company's telecommunication
shelters, marketed under the name "Mobile Tele-structures", can be built in a
vast variety of designs, sizes, strengths, exterior appearances and
configurations. The Company has developed proprietary technology that makes
these units very portable, lightweight, highly secure and virtually weather
resistant. The Company intends to devote additional resources toward marketing
this product.
The Company has developed technology to add a stucco finish to the exterior of
its all steel buildings, making them more aesthetically appealing while
retaining the strength and durability afforded by steel. This attribute is
especially important to the Mobile Tele-structures operations, where
telecommunication companies are under pressure to use shelters and towers that
blend in with the locale at which they are located. The Company also introduced
its ArmorKoat line of telecommunication shelters which feature a specially
formulated concrete exterior coat to its steel shelters. This formulation
increases the strength of the building and can meet the needs of customers that
require concrete buildings.
The Company designs, develops and manufactures a complete proprietary line of
truck trailers and other delivery systems utilized in connection with its
storage container sales and leasing activities. The Company provides delivery
and pick-up services for customers at their places of business, homes or other
locations.
Business Restructuring
Prior to 1997, the Company was involved in the manufacture, sale and leasing of
modular steel buildings in the state of Arizona. These buildings were used
primarily as portable schools, but could be used for a variety of purposes.
Although the Company believes its modular buildings were superior to the
wood-framed buildings offered by its competitors, the Company was not able to
generate acceptable margins on this product line. During 1996, the Company
implemented a strategic restructuring program designed to concentrate management
effort and resources and better position itself to achieve its strategic growth
objectives. Accordingly, the Company's 1996 results include charges of $700,000
($400,000 after tax, or $.06 per share) for costs associated with restructuring
the Company's manufacturing operations and for other related charges. These
charges were recorded in the fourth quarter of 1996, and were comprised of the
write-down of assets used in the Company's discontinued modular building
operations and related severance obligations ($300,000), and the write-down of
other fixed assets ($400,000). By discontinuing its modular building operations,
the Company is able to utilize the management resources and production capacity
previously utilized by this division to expand the Company's telecommunications
shelter business and its container leasing operations.
Marketing
The Company markets its storage containers both directly to the consumer and
through its national dealer network. The Company has sales and leasing branches
in Phoenix and Tucson, Arizona, San Diego and Rialto, California, Houston,
Dallas, San Antonio and Austin, Texas and Las Vegas, Nevada. The Company
services the greater Los Angeles, California area from its Rialto hub.
The Company sells and leases its storage containers directly to consumers from
each of its branches. With respect to leases, the Company engages in both
off-site and on-site leasing. Marketing for individual consumer sales and
rentals is primarily through Yellow Page ads, direct mailings and customer
referrals. The Company markets its Mobile Tele-structures products directly to
telecommunication companies, as well as to companies providing turn-key
installations of shelters and telecommunication towers.
Sales are also made through the Company's national dealer network which
currently provides the Company's manufactured containers to 45 dealers for
retail sale. Such dealers are in 69 separate locations in 24 states and two
Canadian provinces. Marketing to dealers and potential dealers is primarily
through direct solicitation, trade shows, trade magazine advertising and
referrals. The dealers receive pre-fabricated containers which they assemble and
paint. The Company provides training in assembly and marketing to its dealers.
None of the dealers are employed by the Company, nor does any dealer have a long
term requirements contract for the supply of pre-fabricated containers or any
contract for training in assembly and marketing with the Company. The Company
does, however, benefit from the use of its name by several dealers on the
containers once they are constructed.
Leasing Operations
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Since its founding, it has been the Company's primary goal to grow the container
leasing portion of its business. This business, which involves the short-term
leasing of a product with a long useful life and relatively low depreciation,
offers higher margins than the Company's other products and services.
The Company has sought to grow its container leasing business by opening branch
facilities in several cities in the Southwestern United States. When the Company
opens a facility, it devotes substantial resources, including a sizable
advertising budget, to the location. The new locations therefore typically
generate losses in early years, but once the Company has added sufficient
containers to cover the relatively high fixed costs, its operations generally
become profitable. Historically, profitability is not expected until
approximately one to three years after the new location is opened. The actual
time to profitability depends upon numerous factors, including differences in
container costs compared to historic cost levels, the level of competition in
the new market, the development of additional storage containers in the market
by competitors and other factors which are generally beyond the Company's
control.
The Company plans to continue adding additional leased containers to existing
locations in order to increase its profitability. During 1996, the Company
obtained a revolving line of credit enabling it to substantially expand its
container leasing operations. Borrowings available under the line of credit were
increased to $40.0 million during 1997. Additionally, the Company completed a
public offering during 1997 of 12% Senior Subordinated Notes. See, "ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - LIQUIDITY AND CAPITAL RESOURCES". The Company increased containers
on lease at December 31, 1997 by 33% from December 31, 1996. This increase was
achieved at branch locations that had been in operation at December 31, 1996.
The Company's plan is to continue increasing its lease fleet at existing
locations in 1998. Management believes that such an increase should
substantially improve profitability in 1998, particularly if the cost of used
ocean-going containers remains constant at year-end 1997 levels.
The Company intends to continue to expand its operations into additional cities
on a controlled basis. Such expansion could be through new start up operations
by the Company or through acquisitions of existing operations. Expansion through
start up operations could have the effect of reducing net income during the
early years of operations while the Company increases its lease fleet at these
locations. Management plans to control the number of new start up locations and
their cost, in order to minimize the effect on current year earnings. The
Company has identified several potential new markets, and is investigating start
up and acquisition possibilities in those markets. The Company acquired the
assets of a Las Vegas, Nevada based container leasing and sales business in
January 1998, and it is the Company's strategy to review potential acquisitions
of container leasing businesses or their assets.
Financing
The Company has required increasing amounts of financing to support the growth
of its business. This financing was required primarily to fund the acquisition
of containers for the Company's lease fleet and to fund the acquisition of
property, plant and equipment to support both the Company's container leasing
and manufacturing operations.
The Company finances its operations and growth primarily through a credit
agreement (the "Senior Credit Agreement") with BT Commercial Corporation, as
Agent for a group of lenders (the "Lenders"). The Company entered into the
Senior Credit Agreement in March 1996, as amended in 1997, in order to improve
its cash flow, increase its borrowing availability and fund its continued
growth. Under the terms of the Senior Credit Agreement, the Lenders currently
provide the Company with a $40.0 million revolving line of credit and provided a
$6.0 million term loan. Borrowings under the Senior Credit Agreement are secured
by substantially all of the Company's assets.
The term loan is to be repaid over a five-year period. Interest accrues on the
term loan at the Company's option at either prime plus 1.75% or the Eurodollar
rate plus 3.25%. Borrowings under the term loan are payable monthly as follows
(plus interest):
Months 1 through 12 (April 1996 - March 1997) $ 62,500
Months 13 through 24 (April 1997 - March 1998) 83,333
Months 25 through 60 (April 1998 - March 2001) 118,056
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Additional principal payments equal to 75% of Excess Cash Flow, as defined in
the term loan documents which constitute part of the Senior Credit Agreement,
are required annually. As of December 31, 1997, no additional payment was
required under this provision.
Available borrowings under the revolving line of credit are based upon the level
of the Company's inventories, receivables and container lease fleet. The
container lease fleet is appraised at least annually, and up to 90% of the
lesser of cost or appraised orderly liquidation value may be included in the
borrowing base. Interest accrues at the Company's option at either prime plus
1.5% or the Eurodollar rate plus 3% and is payable monthly or at the end of the
term of any Eurodollar borrowing. The term of this revolving line of credit is
three years, with a one-year extension option.
In connection with the closing of the Senior Credit Agreement, the Company
terminated its line of credit with its previous lender, repaying all
indebtedness under that line. In addition, the Company repaid other long-term
debt and obligations under capital leases totaling $14.1 million. As a result,
costs previously deferred related to certain indebtedness and prepayment
penalties resulted in an extraordinary charge to earnings in 1996 of
approximately $410,000 after benefit for income taxes.
The Senior Credit Agreement contains several financial covenants and minimum
required utilization rates in its lease fleet, limits on capital expenditures,
acquisitions, changes in control, the incurrence of additional debt and the
repurchase of common stock, and prohibits the payment of dividends.
The Company has also financed its operations through the issuance and sale of
its equity and debt securities. In February 1994, the Company completed its
initial public offering. Net proceeds to the Company totaled approximately $7
million. In December 1995, the Company received net proceeds of $4.1 million,
through a private placement of 50,000 shares of Series A Convertible Preferred
Stock, $.01 par value, $100 stated value ("Series A"). Pursuant to the terms of
the Series A, all 50,000 shares of Series A were converted into 1,904,324 shares
of the Company's common stock at an average conversion rate of $2.63 per share
during the first quarter of 1996. In July 1997, the Company completed a private
placement of $3.0 million of 12% senior subordinated notes (the "Bridge Notes")
and warrants to purchase 50,000 shares of Mobile Mini, Inc. common stock at
$5.00 per share. The Bridge Notes were due the earlier of July 31, 2002, or on
the refinancing of the Bridge Notes on substantially similar terms. In October
1997, the Company issued $6.9 million of 12% Senior Subordinated Notes ("Notes")
with redeemable warrants to purchase 172,500 shares of the Company's common
stock at $5.00 per share. The Notes are due November 1, 2002, and requires the
Company to establish an interest reserve escrow account (Reserve Account) and to
maintain in the reserve account, while any of the Notes are outstanding, an
amount equal to six months interest on the Notes based on the principal amount
outstanding. Interest is payable semi-annually on May 1 and November 1 of each
year, commencing May 1, 1998. From the proceeds of the sale of the Notes, the
Company repaid the $3.0 million in Bridge Notes and accrued interest and reduced
the borrowings outstanding under the revolving line under the Senior Credit
Agreement with the remainder of the net proceeds. The warrants issued to the
Bridge Note lender were canceled, in exchange for 15,000 shares of common stock.
Because the Notes were offered as part of a unit with Redeemable Warrants, a
portion of the original offering price for a unit was allocated to the Notes and
a portion to the Redeemable Warrants based on their respective fair market
values. The resulting discount increases the effective interest rate of the
Notes and is being amortized to interest expense over the life of the Notes.
These equity and debt issuances provided additional capital in conjunction with
obtaining the financing available under the Senior Credit Agreement. In February
1998, the Company realized proceeds of approximately $5.2 million on the
exercise of warrants issued in connection with its initial public offering in
1994.
Patents, Tradenames and Trade Secrets
The Company has eight patents issued by and four patents pending with the U.S.
Patent and Trademark Office related to the design and application of its
products. The Company may process other patent applications for additional
products developed currently or in the future, to the extent the Company deems
such applications appropriate. "mobile mini" and "mobile mini storage systems"
are registered trade names and service marks in the United States and Canada.
The patents as well as the various state trade secrets acts afford proprietary
protection to the Company's products, including the unique locking system and
design of its manufactured products. The Company has in place at its
manufacturing facility, several access control and proprietary procedure
policies to meet the requirements of protecting its trade secrets under
applicable law. The Company follows a policy of aggressively pursuing claims of
patent, tradename, service mark and trade secret infringement. The Company does
not believe that its products and trademarks or other confidential and
proprietary rights infringe upon the proprietary rights of third parties. There
can be no assurance, however, that third parties will not assert infringement
claims against the Company in the future. The successful assertion of rights and
the defense of infringement claims could have a material adverse affect on the
Company's business, results of operations and financial condition. There can be
no assurance that the Company will have sufficient
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resources to sustain expensive or protracted legal actions to protect its
proprietary rights or, alternatively, to defend claims of infringement.
Customers
The market for the Company's products can generally be divided into four
distinct areas -- retail, residential, commercial and
institutional/governmental. Revenues are derived from either rentals or sales
directly to customers or through sales to the Company's dealers.
The Company's customer profile is diverse and does not rely on one industry.
Instead, the Company targets several different markets within various geographic
areas. As of December 31, 1997, the Company's leasing and sales clients fall
into the following categories and approximate percentages: (i) with respect to
leasing: retail and wholesale businesses, 47%; homeowners, 17%; construction,
24%; institutions, 7%; government, industrial and other, 5%; (ii) with respect
to sales: retail and wholesale businesses, 42%; homeowners, 6%; construction,
13%; institutions, 21%; government, industrial and other, 18%.
Customers utilize the Company's storage units in a variety of ways. For example,
retail companies use the Company's storage units for extra warehousing of
inventory and records; real estate development companies utilize the Company's
products to securely store equipment, tools and materials; and governmental
agencies such as the U.S. Armed Forces and the U.S. Drug Enforcement Agency
lease and buy the Company's high-security, portable storage units to store
equipment and other goods.
Competition
The Company competes with its products and services in several market segments,
and the Company knows of no one entity that is in direct competition with the
Company in all its market segments. With respect to its on-site leasing
activities, the Company competes directly with conventional mini-storage
warehouse facilities and the pick-up and delivery services offered by certain of
these facilities in the localities in which it operates. Some of the Company's
on-site leasing competitors include Door to Door Storage, Public Storage, U-Haul
and Shurgard Storage Centers. With respect to off-site leasing and sales, the
Company has several competitors, which include Haulaway, Mobile Storage,
National Security Containers, and a large number of smaller competitors. The
Company believes that its products, services, pricing and manufacturing
capabilities allow it to compete favorably in each of the on-site leasing,
off-site leasing and sales segments of the Company's markets in the areas it
currently operates.
The Company's Mobile Tele-structures division competes against several
competitors that supply shelters, the largest of which the Company believes to
be Fibrebond Corporation, the Rohn division of UNR Industries and Andrew
Corporation.
Management believes that the Company has a number of competitive advantages both
in terms of products and operations. Among its product's patented features is
the locking system which serves to meet the customer's primary concern,
security. Based on reports from customers who have suffered burglary attempts,
the Company's locking system is extremely difficult to defeat. The Company's
delivery trailers have largely been designed and built by the Company and
certain key features have patent potential which the Company may pursue. These
proprietary delivery systems, which are specifically designed to transport, load
and unload containers, allow the Company to deliver containers economically in
otherwise inaccessible locations.
Operationally, the Company manufactures containers from raw steel as an
alternative to using ocean-going containers. In the event ocean-going containers
are in short supply or become uneconomical to retrofit to the needs of the
Company, the Company can manufacture its own container product. The Company will
continue to manufacture new storage units for inclusion primarily in its sales
inventory and also in its lease fleet.
The Company's ability to continue to compete favorably in each of its markets is
dependent upon many factors, including the market for used ocean-going
containers and the costs of steel. Management believes that the Company's
container manufacturing capabilities make the Company less susceptible than its
competitors to ocean-going container price fluctuations, particularly since the
cost of used containers is affected by many factors, only one of which is the
cost of steel from which the Company can manufacture new containers. The Company
has begun to purchase its raw steel directly from steel mills, lowering its
average cost of steel.
The Company believes that competition in each of its markets may increase
significantly in the future. It is possible that such competitors will have
greater marketing and financial resources than the Company. As competition
increases, significant pricing
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pressure and reduced profit margins may result. Prolonged price competition,
along with other forms of competition, could have a material adverse affect on
the Company's business and results of operations. Additionally, as the Company
continues to expand its operations in different regions, start up costs incurred
reduce the Company's overall profit margins.
Employees
As of March 18, 1998, the Company had approximately 800 full time employees at
all of its locations. The Company believes that its continued success depends on
its ability to attract and retain highly qualified personnel. The Company's
employees are not represented by a labor union and the Company has no knowledge
of any current organization activities. The Company has never suffered a work
stoppage and considers its relations with employees to be good.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company has four manufacturing centers located in Maricopa, Arizona, Rialto,
California, and Houston and Dallas/Fort Worth, Texas. Sales and leasing are
conducted from Phoenix, Rialto, Houston and Dallas/Fort Worth, and five other
locations. The Company's administrative and sales offices are located in Tempe,
Arizona.
The Company's primary manufacturing center is located in a heavy-industry zoned
industrial park near Maricopa, Arizona, approximately 30 miles south of Phoenix.
The facility is seven years old and is located on an approximate 45 acre
industrial site. Twenty-three acres of this site were purchased from Richard E.
Bunger in 1996. See, "ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
The facility includes nine manufacturing buildings, totaling approximately
158,000 square feet, which house manufacturing, assembly, construction, painting
and vehicle maintenance operations.
The Phoenix, Arizona sales and leasing branch services the Phoenix metropolitan
area from its approximately 9.8 acre facility, of which approximately 7 acres
are leased. All Phoenix marketing and any on-site storage is conducted from this
site. Approximately 3.4 acres are owned by the Company, approximately 5.0 acres
are leased from non-affiliated parties and the remaining 1.4 acres are owned by
members of the Bunger family and are under lease at what management believes to
be competitive market rates. See, "ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS."
The Rialto, California sales and leasing hub is approximately 10 acres in size,
with three industrial shops used for modification of ocean-going containers,
assembly of the Company's manufactured containers and on-site leases. The Rialto
facility serves as the Company's southern California hub and supports the San
Diego branch. The Rialto site is owned by Mobile Mini Systems, Inc., a separate
corporation owned by Richard E. Bunger, and is leased to the Company at what
management believes to be competitive market rates. See "ITEM 13. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS."
The Texas operations are supported by hub facilities in Houston and Dallas/Fort
Worth. Both facilities contain manufacturing centers, sales and leasing
operations and on-site storage facilities. The Houston facility is located on
seven acres with six buildings totaling approximately 34,400 square feet. The
Dallas/Fort Worth facility, which is owned by the Company, is located on 17
acres with six buildings totaling approximately 36,600 square feet.
The Company's administrative and sales offices are located in Tempe, Arizona.
The facilities are leased by the Company from an unaffiliated third party and
have approximately 28,800 square feet of space which the Company anticipates
will meet its needs for the near-term. The Company's lease term is through
December 2000.
In addition to its administrative offices and manufacturing facilities, the
Company has facilities used for sales, leasing and onsite storage. As of March
1, 1998, the major properties owned or leased by the Company are listed in the
table below:
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Location Use Area Title
-------- --- ---- -----
Tempe, Arizona Corporate offices 8,700 sq. ft. Leased
Tempe, Arizona Sales administration 20,100 sq. ft. Leased
Maricopa, Arizona Manufacturing 45 acres Owned(1)
Rialto, California Sales, leasing, manufacturing and 10 acres Leased(2)
on-site storage
Houston, Texas Sales, leasing, manufacturing and 7 acres Leased
on-site storage
Phoenix, Arizona Sales, leasing and on-site storage 10 acres Owned(1)/leased(3)
Tucson, Arizona Sales, leasing and on-site storage 5 acres Leased(4)
San Diego, California Sales, leasing and on-site storage 5 acres Leased
Dallas, Texas Sales, leasing, manufacturing and 17 acres Owned(1)
on-site storage
San Antonio, Texas Sales, leasing and on-site storage 3 acres Leased
Round Rock, Texas(5) Sales, leasing and on-site storage 5 acres Leased
Las Vegas, Nevada Sales and leasing 2 acres Leased(6)
(1) Pledged pursuant to the Senior Credit Agreement. See, "ITEM 1. DESCRIPTION
OF BUSINESS - Financing."
(2) Leased by the Company from an affiliate of Richard E. Bunger. See, "ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
(3) Of the 14 acres comprising these sites, 3.4 acres are owned by the Company
and 1.5 acres are subject to long-term leases from members of the Bunger
family. See, "ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
(4) 2.7 acres are leased by the Company from members of the Bunger family and
2.3 acres are leased from a non-affiliate of the Company. See "ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
(5) A community of the Austin, Texas metropolitan area.
(6) A portion of the land and buildings under lease are currently subleased to a
non-affiliated party.
ITEM 3. LEGAL PROCEEDINGS.
In April 1997, the Company entered into a stock purchase agreement with an
individual who had agreed to work for the Company. Under the stock purchase
agreement, the individual was to purchase 500,000 shares of common stock on July
1, 1997. On June 30, 1997, at the individual's request, the Company extended the
closing date to July 3, 1997. The individual did not tender funds by the
extended closing date. In July 1997, the Company brought an action in US
District Court for the District of Arizona to have the court declare the
Company's obligations under the stock purchase agreement terminated. The
individual opposes the Company's request, and has requested that the Company be
ordered to perform under the stock purchase or, alternatively, pay him damages,
including treble damages. In addition, the individual has filed a counterclaim
alleging constructive discharge. The Company is vigorously pursuing the action
and does not believe it will have any material impact on the financial condition
or the results of operations of the Company.
The Company is not a party to any other legal proceeding other than various
claims and lawsuits arising in the normal course of its business which, in the
opinion of the Company's management, are not individually or collectively
material to its business.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meting of the stockholders of the Company was held on November 12,
1997, in Phoenix, Arizona. On the record date for the annual meeting, 6,739,324
shares of the common stock were outstanding and eligible to be voted. The table
below briefly describes the proposals and results from the annual meeting of
stockholders.
Number of Shares Voted:
-----------------------
Election of Directors: For Withheld
--- --------
Richard E. Bunger 5,550,884 157,164
Steven G. Bunger 5,552,688 155,360
Lawrence Trachtenberg 5,560,690 147,358
George E. Berkner 5,560,188 147,860
Ronald J. Marusiak 5,560,188 147,860
For Against Abstain
Amendment to the Company's --- ------- -------
Certificate of Incorporation 3,855,339 409,846 10,067
Amendment to the Company's
1994 Stock Option Plan 5,370,126 264,416 14,816
Ratification of appointment of
Arthur Andersen LLP as the
Independent Auditors 5,687,161 14,547 6,321
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Common Stock trades on the Nasdaq Stock Market under the symbol "MINI."
Prior to December 26, 1995, the Common Stock was traded on the Nasdaq SmallCap
Marketsm. The following table sets forth, for the indicated periods, the high
and low sale prices for the Common Stock as reported by the Nasdaq Stock Market.
The Company had approximately 76 holders of record of its Common Stock on March
1, 1998. The Company believes it has in excess of 400 beneficial owners of its
Common Stock.
FISCAL YEARS 1997 AND 1996
1997 1996
--------------- ---------------
HIGH LOW HIGH LOW
---- --- ---- ---
Quarter ended March 31, $3.625 $3.000 $4.375 $2.875
Quarter ended June 30, 4.500 3.000 4.437 3.375
Quarter ended September 30, 5.375 4.437 4.375 2.812
Quarter ended December 31, 6.438 5.000 4.250 3.000
Holders of the Common Stock are entitled to receive such dividends as may be
declared by the Board of Directors of the Company. To date, the Company has
neither declared nor paid any cash dividends on its Common Stock, nor does the
Company anticipate that cash dividends will be paid in the foreseeable future.
Additionally, the Senior Credit Agreement prohibits the payment of dividends.
The Company intends to apply any earnings to the expansion and development of
its business.
-9-
ITEM 6. SELECTED FINANCIAL DATA.
The following table summarizes certain selected financial data of the Company
and is qualified in its entirety by the more detailed consolidated financial
statements and notes thereto appearing elsewhere herein. The data has been
derived from the consolidated financial statements of the Company audited by
Arthur Andersen LLP, independent public accountants.
YEAR ENDED DECEMBER 31,
-----------------------
1997 1996(2) 1995(2) 1994(2) 1993(1)(2)
---- ---- ---- ---- ----
CONSOLIDATED STATEMENT OF INCOME (in thousands, except share amounts)
Revenues $ 46,083 $ 42,426 $ 40,184 $ 28,350 $ 17,169
Income from operations 8,698 4,743 4,585 2,959 1,562
Income before extraordinary item 2,200 480 777 956 276
Extraordinary item -- (410) -- -- --
Net income 2,200 70 777 956 276
Preferred stock dividends -- -- (1,250) -- --
Net income (loss) available for common stock 2,200 70 (473) 956 276
Earnings per share:
Basic:
Income (loss) before extraordinary item $ 0.33 $ 0.07 $ (0.10) $ 0.21 $ 0.10
Extraordinary item 0.00 (0.06) 0.00 0.00 0.00
----------- ----------- ----------- ----------- -----------
Net income (loss) available for common stock $ 0.33 $ 0.01 $ (0.10) $ 0.21 $ 0.10
=========== =========== =========== =========== ===========
Weighted average number of common shares outstanding 6,752,147 6,737,592 4,835,000 4,496,904 2,700,000
Diluted:
Income (loss) before extraordinary item $ 0.32 $ 0.07 $ (0.10) $ 0.21 $ 0.10
Extraordinary item 0.00 (0.06) 0.00 0.00 0.00
----------- ----------- ----------- ----------- -----------
Net income (loss) available for common stock $ 0.32 $ 0.01 $ (0.10) $ 0.21 $ 0.10
=========== =========== =========== =========== ===========
Weighted average number of common and
common equivalent shares outstanding 6,800,303 6,744,229 4,835,000 4,497,230 2,700,000
CONSOLIDATED BALANCE SHEET DATA
(as of December 31 of each year)
Total assets $ 84,052 $ 64,816 $ 54,342 $ 40,764 $ 20,082
Lines of credit 35,883 26,406 4,099 -- --
Notes payable and obligations under capital leases 11,495 13,742 24,533 16,140 9,334
Subordinated notes, net 6,648 -- -- -- --
-10-
(1) Prior to 1994, the Company's predecessor was operated as a sole
proprietorship. Per share information is therefore calculated on a proforma
basis assuming that the only common stock outstanding was that issued to
Richard E. Bunger at the time the Company was capitalized and all
significant transactions for the transfer of assets to the Company have been
eliminated for the proforma statements.
(2) Certain amounts have been reclassified to conform with the current year's
presentation.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
General
The Company was founded in 1983 and operated only in the Phoenix, Arizona area
until 1986. In 1986 it expanded to Tucson, Arizona, in 1988 to southern
California, in 1994 to Texas and in 1998 to Nevada. From inception through 1988,
the Company exclusively engaged in the refabrication of ocean-going cargo
containers, which it leased to the public for storage containers and portable
offices. In 1989, the Company began to sell containers. Contributing to growth
of sales revenues was the development of a national distribution system
(referred to by the Company as the national dealer network), manufacture of new
Company designed containers from raw steel as an alternative and supplement to
the refabrication of ocean-going containers, the manufacture of modular steel
buildings (discontinued in 1996; see "ITEM 1. DESCRIPTION OF BUSINESS - BUSINESS
RESTRUCTURING") and special order products which the Company leases and sells to
schools, governmental entities and others, and the development of the
telecommunication shelter division which commenced operations in mid-year 1995.
The leasing of containers has become the more significant portion of the
Company's business and is contributing to the Company's growth. Since 1993, the
number of units at the Company's leasing locations has increased by the
following percentages as compared to the preceding year:
December 31,
------------
1993 38%
1994 62%
1995 32%
1996 18%
1997 33%
As the leasing operations are the most profitable of the Company's operations,
management plans to increase the level of these operations, especially at
existing locations. In addition, the Company expects to open additional
facilities through acquisitions or the start up of new locations on a controlled
basis at locations which management believes can become profitable over a
relatively short period of time.
The Company manufactures and/or refurbishes containers for use in its lease
fleet. Containers are transferred to the lease fleet at cost, without
recognizing any manufacturing profit on the value added to the refurbished
containers or new containers. In addition, the Company's container lease fleet
has been acquired over the last 15 years. During parts of this period, raw
container prices were significantly lower than they are today. An appraisal of
the fair market value of the container lease fleet performed in 1997 resulted in
a total fair market value of approximately $64,500,000. This exceeds the
carrying value of the containers by approximately $15,800,000 at December 31,
1997. In accordance with generally accepted accounting principals, this
differential is not recognized in the Company's financial statements.
Uncertainties faced by the Company include variances in start up costs for new
storage locations, the availability of acquisitions on terms acceptable to the
Company, competition in new markets, and the opportunity cost of deploying
sufficient containers in a new market to reach economic viability. While the
Company has experience in entering new market areas and conducts preliminary
market research to assure itself that viable markets exist, there can be no
assurance of success when expanding into new markets. However, unlike fixed
mini-storage facilities, the Company does have the ability to relocate its
portable storage containers to other markets to adjust for market demand.
-11-
Results of Operations
The following table sets forth, for the periods indicated, the percentage, as a
percent of total revenue, of certain items in the Consolidated Financial
Statements of the Company, included elsewhere herein. The table and the
discussion below should be read in conjunction with the Consolidated Financial
Statements and Notes thereto.
YEAR ENDED DECEMBER 31,
-----------------------
1997 1996 1995
----- ----- -----
REVENUES:
Leasing 54.0% 42.1% 38.5%
Container and other sales 44.5 55.7 60.4
Other 1.5 2.2 1.1
----- ----- -----
100.0 100.0 100.0
COSTS AND EXPENSES:
Cost of container and other sales 31.5 47.0 47.5
Leasing, selling and general expenses 44.7 36.2 37.8
Depreciation and amortization 4.9 4.0 3.3
Restructuring charge -- 1.6 --
----- ----- -----
INCOME FROM OPERATIONS 18.9 11.2 11.4
OTHER INCOME (EXPENSE):
Interest income 0.0 0.0 0.0
Interest expense (10.9) (9.2) (8.0)
----- ----- -----
INCOME BEFORE PROVISION FOR INCOME TAXES
AND EXTRAORDINARY ITEM 8.0 2.0 3.4
PROVISION FOR INCOME TAXES 3.2 0.9 1.5
----- ----- -----
INCOME BEFORE EXTRAORDINARY ITEM 4.8 1.1 1.9
EXTRAORDINARY ITEM -- 1.0 --
----- ----- -----
NET INCOME 4.8 0.1 1.9
PREFERRED STOCK DIVIDEND -- -- (3.1)
----- ----- -----
NET INCOME (LOSS) AVAILABLE FOR COMMON STOCK 4.8% 0.1% (1.2)%
===== ===== =====
Fiscal 1997 Compared to Fiscal 1996
The Company's business plan in 1997 was focused on increasing its number of
containers on lease at existing branch locations because the incremental lease
revenue results in higher margins. In addition, the Company increased prices on
container sales and withdrew from the low margin modular building business.
Revenues for the year ended December 31, 1997 increased 8.6% to $46,083,000 from
$42,426,000 during 1996. Revenues from the Company's leasing operations were
$24,870,000 which represents a 39.1% increase from 1996 leasing revenues of
$17,876,000. This increase resulted from a 33% increase in the number of
containers on lease, and an increase in ancillary lease revenue per container
resulting from the introduction of the Company's new loss limitation waiver
program. Sales of the Company's products decreased by 13.1%, primarily due to
the discontinuation of the modular building operations. This decline in sales
was offset, to some extent, by an approximate $2,200,000 increase in the sale of
telecommunication shelters.
During 1997 the Company implemented price increases on the sale of containers
through its branches and through the National Dealer Program. These actions,
together with the withdrawal from the low margin modular building business,
caused a substantial increase in gross margins on sales. As a result, cost of
containers and other sales as of percentage of container and other sales
decreased to 70.9% from 84.4% during 1996.
-12-
Leasing, selling and general expenses increased 34.2% to $20,585,000 compared to
$15,343,000 in the prior year. This increase was attributable to increased
leasing related expenses associated with the 33% increase in the number of
containers out on lease, increased commission levels offered to dealers in
connection with the leasing of containers and increased expenses associated with
developing an infrastructure for future growth.
Depreciation and amortization increased to 4.9% of revenues in 1997 compared to
4.0% in 1996. The increase reflects the increase in the Company's container
lease fleet and support equipment for manufacturing and maintaining the lease
fleet and operational equipment at all the sales and leasing locations.
The Company recorded a restructuring charge in 1996 of $700,000. There was no
similar charge in 1997.
Operating margins increased from 11.2% in 1996 to 18.9% in 1997 as a result of
change in the Company's focus to its leasing business, as well as the increased
gross margins on sales.
Interest expense increased to $5,035,000 in 1997 compared to $3,894,000 in 1996.
The increase in interest expense includes the additional interest related to the
40.8% increase in the Company's average balance of debt outstanding compared to
1996 and the amortization of debt issuance costs. The increase in the Company's
average outstanding debt is partially related to the issuance in 1997 of $6.9
million of subordinated notes and increased borrowings under the Senior Credit
Agreement to finance the growth in the container lease fleet. The weighted
average interest rate decreased 0.75% in 1997 to 9.45% from 10.2% in 1996,
excluding amortization of deferred loan costs. Including amortization of
deferred loan costs, the weighted average interest rate was 10.61% and 11.56%
for 1997 and 1996, respectively.
The Company generated net income of $2,200,000, or $0.32 per share diluted, in
1997 compared to net income before extraordinary item of $481,000, or $0.07 per
share diluted in 1996. This increase is primarily a result of the 39.1% increase
in leasing revenues in 1997 and a 14% increase in gross margin on sales in 1997
as compared with 1996. The Company recorded a $700,000 restructuring charge in
1996. Excluding the 1996 restructuring charge, earnings before extraordinary
item were approximately $873,000, or $0.13 per share diluted.
In 1996, the Company prepaid approximately $14.1 million of debt and capital
lease obligations in connection with entering into the Senior Credit Agreement.
As a result, in 1996 the Company recognized an extraordinary charge to earnings
of $410,000, or $0.06 per share, net of the benefit of income taxes.
Fiscal 1996 Compared to Fiscal 1995
Revenues for the year ended December 31, 1996 increased to $42,426,000 from
$40,184,000 during 1995. Revenues during 1995 included $3,645,000 of container
sale revenue recorded under sale-leaseback transactions. The revenue from
sale-leaseback transactions was offset by an equal cost of container sales and
did not produce any gross margin. The Company did not enter into sale-leaseback
transactions during 1996. Excluding the effect of these sale-leaseback
transactions, revenues increased by 16.1% from 1995 to 1996, primarily the
result of increases in both sales and leasing revenues generated from existing
branch locations and the sale of certain used modular buildings that had been
previously leased. The Texas operations, which commenced in late 1994, sustained
growth and contributed 8.5% and 15.8% to the Company's container sales and
leasing revenues, respectively, during 1996 as compared to 7.0% and 9.6%,
respectively, in 1995. The dealer and telecommunication shelter division
contributed 25.5% and 4.1%, respectively, of the sales revenues in 1996 as
compared to 27.2% and 5.8%, respectively, in 1995. Revenues related to container
and modular building sales and leasing activities increased 14.5% and 11.7%,
respectively, from the prior year, exclusive of container sale revenue recorded
under sale-leaseback transactions.
Excluding the effect of sale-leaseback transactions, cost of container and
modular building sales as a percentage of container and modular building sales
increased to 84.4% compared to 74.8% for the prior year. This increase is
attributable to the mix of products sold, a shortage in supply of used
containers, which caused an increase in the acquisition cost of these
containers, an increase in sales of manufactured new containers which typically
result in lower margins to the Company, and an accounting refinement in the
Company's allocation of certain indirect manufacturing costs.
-13-
Excluding the effect of sale-leaseback transactions, leasing, selling and
general expenses were 36.2% of total revenue in 1996, compared to 41.5% in 1995.
The decrease primarily resulted from the continued efficiencies obtained by the
Company's Texas operations, which were in their start up phase during 1995, and
to the Company passing certain ancillary expenses on to customers.
The Company recorded a restructuring charge (See "ITEM 1. DESCRIPTION OF
BUSINESS.- BUSINESS RESTRUCTURING") of $700,000 or 1.6% of total revenue in
1996. There was no similar charge in 1995.
Income from operations was $4,743,000 in 1996 compared to $4,585,000 in 1995.
Excluding the restructuring charge, income from operations would have been 12.8%
of total revenue in 1996 as compared to 11.4% in 1995.
Interest expense increased to $3,894,000 in 1996 compared to $3,212,000 in 1995.
This increase in interest expense was primarily the result of a 51.4% increase
in the average balance of debt outstanding compared to 1995, along with the
related amortization of debt issuance costs, partially offset by a decrease of
3.0% in the Company's weighted average borrowing rate resulting from lower
interest rates under the Company's Senior Credit Agreement. The additional debt
in 1996 was incurred in order to finance the substantial increase in the
Company's equipment and container lease fleet in 1996.
Depreciation and amortization increased to 4.0% of revenues in 1996, from 3.3%
in 1995, and is directly related to the expansion of the Company's manufacturing
facility along with the substantial growth in the Company's lease fleet and
additional support equipment at the Company's sales and leasing locations.
The Company had income before extraordinary item of $481,000, or $.07 per share
diluted, in 1996, compared to net income of $777,000 or $.16 per share diluted
in 1995 before the effect of dividends on the Company's Series A Convertible
Preferred Stock of $(.25) per share diluted (see notes 1 and 11 of the Notes to
Consolidated Financial Statements). This decrease primarily resulted from the
$700,000 restructuring charge recorded by the Company in the fourth quarter of
1996, discussed above. See "Item 1. DESCRIPTION OF BUSINESS - BUSINESS
RESTRUCTURING". Excluding this charge, 1996 earnings before extraordinary item
were approximately $873,000, or $.13 per share. The weighted average common and
common equivalent shares outstanding at the end of 1996 increased by 39% from
the prior year due to the issuance of additional common stock in 1996 pursuant
to the conversion of the Series A Convertible Preferred Stock, issued during the
fourth quarter of 1995, which was converted to common stock in 1996.
The Company prepaid approximately $14.1 million of debt and capital leases in
connection with entering into the Senior Credit Agreement in March 1996. As a
result, the Company recognized an extraordinary charge to earnings of $410,000,
or $.06 per share, net of the benefit for income taxes, as a result of this
early extinguishment of debt. The Company also incurred financing costs of
$2,000,000 in connection with the Senior Credit Agreement, which have been
deferred and are being amortized over the term of the Senior Credit Agreement.
Quarterly Results of Operations
The following table reflects certain selected unaudited quarterly operating
results of the Company for each of the eight quarters through the quarter ended
December 31, 1997. The Company believes that all necessary adjustments have been
included to present fairly the quarterly information when read in conjunction
with the Consolidated Financial Statements included elsewhere herein. The
operating results for any quarter are not necessarily indicative of the results
for any future period.
-14-
QUARTERLY RESULTS OF OPERATIONS
1997
--------------------------------------------
(in thousands, except per share amounts)
Mar 31 June 30 Sept 30 Dec 31
-------- -------- -------- --------
REVENUES:
Leasing $ 4,995 $ 5,660 $ 6,668 $ 7,547
Container and modular building sales 4,543 6,197 4,702 5,086
Other 112 337 130 106
-------- -------- -------- --------
TOTAL REVENUE 9,650 12,194 11,500 12,739
COSTS AND EXPENSES:
Cost of container and other sales 3,446 4,565 3,109 3,427
Leasing, selling and general expenses 4,281 5,011 5,295 5,998
Depreciation and amortization 472 530 596 655
Restructuring charge -- -- -- --
-------- -------- -------- --------
INCOME FROM OPERATIONS 1,451 2,088 2,500 2,659
OTHER INCOME (EXPENSE):
Interest income -- -- 1 3
Interest expense (1,090) (1,159) (1,317) (1,469)
-------- -------- -------- --------
INCOME BEFORE PROVISION FOR
INCOME TAX AND
EXTRAORDINARY ITEM 361 929 1,184 1,193
PROVISION FOR INCOME TAXES 159 409 521 378
-------- -------- -------- --------
INCOME BEFORE EXTRAORDINARY ITEM 202 520 663 815
EXTRAORDINARY ITEM -- -- -- --
-------- -------- -------- --------
NET INCOME AVAILABLE FOR
COMMON STOCK $ 202 $ 520 $ 663 $ 815
======== ======== ======== ========
EARNINGS PER SHARE:
BASIC:
INCOME BEFORE EXTRAORDINARY ITEM $ 0.03 $ 0.08 $ 0.10 $ 0.12
EXTRAORDINARY ITEM -- -- -- --
-------- -------- -------- --------
NET INCOME $ 0.03 $ 0.08 $ 0.10 $ 0.12
======== ======== ======== ========
DILUTED:
INCOME BEFORE EXTRAORDINARY ITEM $ 0.03 $ 0.08 $ 0.10 $ 0.11
EXTRAORDINARY ITEM -- -- -- --
-------- -------- -------- --------
NET INCOME $ 0.03 $ 0.08 $ 0.10 $ 0.11
======== ======== ======== ========
1996
--------------------------------------------
(in thousands, except per share amounts)
Mar 31 June 30 Sept 30 Dec 31
-------- -------- -------- --------
REVENUES:
Leasing $ 3,925 $ 4,185 $ 4,627 $ 5,139
Container and modular building sales 4,916 5,746 6,376 6,581
Other 64 360 177 330
-------- -------- -------- --------
TOTAL REVENUE 8,905 10,291 11,180 12,050
COSTS AND EXPENSES:
Cost of container and other sales 3,926 5,120 5,380 5,500
Leasing, selling and general expenses 3,874 3,215 3,680 4,575
Depreciation and amortization 368 380 452 514
Restructuring charge -- -- -- 700
-------- -------- -------- --------
INCOME FROM OPERATIONS 737 1,576 1,668 762
OTHER INCOME (EXPENSE):
Interest income 8 1 -- --
Interest expense (948) (1,001) (974) (971)
-------- -------- -------- --------
INCOME (LOSS) BEFORE PROVISION (BENEFIT) FOR
INCOME TAX AND
EXTRAORDINARY ITEM (203) 576 694 (209)
PROVISION (BENEFIT) FOR INCOME TAXES (89) 253 305 (92)
-------- -------- -------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (114) 323 389 (117)
EXTRAORDINARY ITEM (410) -- -- --
-------- -------- -------- --------
NET INCOME (LOSS) AVAILABLE FOR
COMMON STOCK $ (524) $ 323 $ 389 $ (117)
======== ======== ======== ========
EARNINGS (LOSS) PER HARE:
BASIC:
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM $ (0.02) $ 0.05 $ 0.06 $ (0.02)
EXTRAORDINARY ITEM (0.06) -- -- --
-------- -------- -------- --------
NET INCOME (LOSS) $ (0.08) $ 0.05 $ 0.06 $ (0.02)
======== ======== ======== ========
DILUTED:
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM $ (0.02) $ 0.05 $ 0.06 $ (0.02)
EXTRAORDINARY ITEM (0.06) -- -- --
-------- -------- -------- --------
NET INCOME (LOSS) $ (0.08) $ 0.05 $ 0.06 $ (0.02)
======== ======== ======== ========
Quarterly results can be affected by a number of factors, including the timing
of orders, customer delivery requirements, production delays, inefficiencies,
the mix of product sales and leases, raw material availability and general
economic conditions.
-15-
Seasonality
Demand for off-site container leases is stronger from September through December
due to increased needs for storing inventory for the holiday season by the
Company's retail customers. Containers used by these customers are often
returned early in the following year, usually causing a lower than normal
occupancy rate for the Company during the first quarter. The occupancy levels
have historically ranged from a low of 82% to a high of 95%. These seasonable
fluctuations created a marginal decrease in cash flow for each of the first
quarters during the past several years.
Liquidity and Capital Resources
The Company required increased amounts of financing to support the growth of its
business during the last several years. This financing has been required
primarily to fund the acquisition and manufacture of containers for the
Company's lease fleet, the acquisition of property, plant and equipment and the
expansion of the Company's manufacturing facilities.
In February 1998, the Company received proceeds of $5.2 million in connection
with the exercise of warrants to purchase 1,046,000 shares of common stock at
$5.00 per share. These warrants had been issued in connection with the Company's
initial public offering in 1994.
In October 1997, the Company issued $6.9 million of 12% Senior Subordinated
Notes ("Notes") with redeemable warrants to purchase 172,500 shares of the
Company's common stock at $5.00 per share. The Notes are due November 1, 2002.
From the net proceeds of the sale of the Notes, the Company repaid $3.0 million
in bridge notes issued in July 1997 and reduced the borrowings outstanding under
the revolving line of credit under the Senior Credit Agreement with the
remainder of the net proceeds. Because the Notes were offered as part of a unit
with Redeemable Warrants, a portion of the original offering price for a unit
was allocated to the Notes and a portion to the Redeemable Warrants based on
their respective fair market values. The resulting discount increases the
effective interest rate of the Notes and is being amortized to interest expense
over the life of the Notes.
The indenture related to the Notes requires the Company to comply with certain
covenants including maintaining a specific tangible net worth, a maximum total
funded indebtedness ratio and a maximum senior funded indebtedness ratio. The
Company has been in compliance with the financial covenants at all determination
dates.
In order to improve its cash flow, increase its borrowing availability and fund
its continued growth, in March 1996 the Company entered into the Senior Credit
Agreement with BT Commercial Corporation, as Agent for a group of lenders (the
"Lenders"). Under the terms of the Senior Credit Agreement, the Lenders provided
the Company with a $35.0 million revolving line of credit, amended in 1997 to
$40.0 million, and a $6.0 million term loan. Borrowings under the Senior Credit
Agreement are secured by substantially all of the Company's assets.
Borrowings under the term loan are to be repaid over a five-year period.
Interest accrues on the term loan at the Company's option at either prime plus
1.75% or the Eurodollar rate plus 3.25%. Borrowings under the term loan are
payable monthly as follows (plus interest):
Months 1 through 12 (April 1996 - March 1997) . . . $ 62,500
Months 13 through 24 (April 1997 - March 1998) . . . 83,333
Months 25 through 60 (April 1998 - March 2001) . . . 118,056
Additional principal payments equal to 75% of Excess Cash Flow, as defined in
the term loan documents which constitute part of the Senior Credit Agreement,
are required annually. As of December 31, 1997, no additional payment was
required under this provision.
Available borrowings under the revolving line of credit are based upon the level
of the Company's inventories, receivables and container lease fleet. The
container lease fleet will be appraised at least annually, and up to 90% of the
lesser of cost or appraised orderly liquidation value may be included in the
borrowing base. Interest accrues at the Company's option at either prime plus
1.5% or the Eurodollar rate plus 3% and is payable monthly or at the end of the
term of any Eurodollar borrowing period. The term of this revolving line of
credit is three years, with a one-year extension option. As of December 31,
1997, $35.9 million of borrowings were outstanding and approximately $4.1
million of additional borrowing was available under the revolving line of
credit. At March 18, 1998, $35.1 million of borrowings were outstanding and
approximately $4.9 million of additional borrowing was available.
-16-
The Senior Credit Agreement contains several financial covenants including a
minimum tangible net worth requirement, a minimum fixed charge coverage ratio, a
maximum ratio of debt-to-equity, minimum operating income levels and minimum
required utilization rates. In addition, the Senior Credit Agreement contains
limits on capital expenditures, acquisitions, changes in control, the incurrence
of additional debt, and the repurchase of common stock, and prohibits the
payment of dividends. The Company has been in compliance with such financial
covenants at all determination dates.
During 1997, the Company's operations provided cash flow of $6,077,000, compared
to utilizing $1,390,000 in 1996. The improvement in cash flow resulted primarily
from improved operating results achieved in 1997. Cash flow in 1996 was
adversely affected by a reduction of accounts payables partially offset by an
increase in leasing receivables which typically have a longer turnover period.
During 1997, the Company invested $19,219,000 in equipment and the container
lease fleet. This amount is net of $2,447,000 in container sales and equipment
financing.
Cash flow from financing activities totaled $13,410,000 during 1997. This was
the result of increased borrowings, under the revolving line of credit, to
finance container lease fleet and equipment acquisitions, and the issuance of
the Notes, partially offset by the principal payments on indebtedness and
additional financing costs incurred.
The Company believes that its current capitalization, together with borrowings
available under the Senior Credit Agreement, is sufficient to maintain its
current level of operations and permit a modest level of growth. However, should
demand for the Company's products continue to grow at a significant rate, the
Company would be required to secure additional financing through additional
borrowings, debt or equity offerings, or a combination of these sources to meet
this demand. The Company believes that such financing will be available;
however, there is no assurance that any such financings will be obtained or
obtained on terms acceptable to the Company.
FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
The Company issued and sold $6,900,000 of 12% Senior Subordinated Notes due 2002
and Redeemable Warrants to purchase shares of the Company's common stock, in
October 1997, in a public offering subject to its Registration Statement dated
August 26, 1997, as amended (Securities and Exchange Commission ("SEC") File
Number 333-34413). That Registration Statement and the Prospectus dated October
8, 1997, which is a part of it (the "Prospectus"), include a section entitled
"Risk Factors," which describes certain factors that may affect future operating
results of the Company. That section is hereby incorporated by reference in this
Report. Those factors should be considered carefully in evaluating an investment
in the Company's Common Stock or other securities. You may obtain a copy of the
Prospectus by request to the Company's Investor Relations Department by phone,
at (602) 894-6311, or by mail at Mobile Mini, Inc., 1834 West Third Street,
Tempe, Arizona 85281. The Prospectus is also available through the SEC's EDGAR
Database on the World Wide Web through the SEC's Internet address at
"http://www.sec.gov."
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995
The statements contained in this Report which are not historical facts may be
deemed to contain forward-looking statements with respect to events, the
occurrence of which involve risks and uncertainties, including, without
limitation, demand for the Company's products and services. The continued
availability to the Company of adequate financing, the ability of the Company to
manage its growth, and other risks or other uncertainties detailed in the
Company's SEC filing, including the Prospectus.
Year 2000 Compliance
The Company has recently upgraded its primary system using software that has
been certified by the vendor to be fully compliant with the Year 2000
transactions. The Company has begun to test this software for such compliance
and is developing a plan to assure that all other Company systems are Year 2000
compliant. Such plan will include testing all computers and making sure all
software is upgraded to versions that are Year 2000 compliant. The Company does
not anticipate any material impact to its financial condition or results of
operations as a result of any failure by the Company to have systems that are
Year 2000 compliant. The Company does not believe that a failure of its
customers to be Year 2000 compliant will have a material adverse effect on the
Company, since the principal effect which the Company foresees is late payments
if customer computer systems fail to track the correct date.
-17-
The Company is advised by the Agent under the Senior Credit Agreement that the
Year 2000 is not expected to cause delays or other effects in connection with
transactions thereunder.
-18-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX
Report of Independent Public Accountants 20
Financial Statements-
Consolidated Balance Sheets - December 31, 1997 and 1996 21
Consolidated Statements of Operations - For the Years Ended
December 31, 1997, 1996 and 1995 22
Consolidated Statements of Stockholders' Equity - For the Years
Ended December 31, 1997, 1996 and 1995 23
Consolidated Statements of Cash Flows - For the Years Ended
December 31, 1997, 1996 and 1995 24
Notes to Consolidated Financial Statements - December 31, 1997 and 1996 25
Financial Statement Schedule -
Valuation and Qualifying Accounts - For the Years Ended 47
December 31, 1997, 1996 and 1995
-19-
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Mobile Mini, Inc.:
We have audited the accompanying consolidated balance sheets of MOBILE MINI,
INC. (a Delaware corporation) and subsidiaries as of December 31, 1997 and 1996,
and the related consolidated statements of operations, stockholders' equity and
cash flows for each of the three years in the period ended December 31, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Mobile Mini, Inc. and
subsidiaries as of December 31, 1997 and 1996 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of the
financial statements is presented for the purpose of complying with the
Securities and Exchange Commission's rules and is not a required part of the
basic financial statements. This schedule has been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Phoenix, Arizona,
February 25, 1998.
-20-
MOBILE MINI, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
ASSETS 1997 1996
----------- -----------
CASH AND CASH EQUIVALENTS $ 1,005,204 $ 736,543
RECEIVABLES, net of allowance for doubtful accounts of $893,000 and $268,000,
respectively 6,259,476 4,631,854
INVENTORIES 4,748,316 4,998,382
CONTAINER LEASE FLEET, net of accumulated depreciation of $1,735,000 and $1,212,000,
respectively 49,150,986 32,540,855
MODULAR LEASE FLEET, net of accumulated depreciation of $49,000 and $32,000,
respectively 1,755,922 1,772,338
PROPERTY PLANT AND EQUIPMENT, net 18,011,916 17,696,046
DEPOSITS AND PREPAID EXPENSES 898,615 742,984
OTHER ASSETS 2,221,587 1,697,199
----------- -----------
Total assets $84,052,022 $64,816,201
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
ACCOUNTS PAYABLE $ 2,676,634 $ 2,557,329
ACCRUED LIABILITIES 3,104,747 2,192,113
LINE OF CREDIT 35,883,104 26,406,035
NOTES PAYABLE 6,123,049 7,002,777
OBLIGATIONS UNDER CAPITAL LEASES 5,371,603 6,739,346
SUBORDINATED NOTES, net 6,647,874 --
DEFERRED INCOME TAXES 5,217,619 3,709,500
----------- -----------
Total liabilities 65,024,630 48,607,100
----------- -----------
COMMITMENTS AND CONTINGENCIES (NOTE 10)
STOCKHOLDERS' EQUITY:
Common stock; $0.01 par value, 17,000,000 shares authorized, 6,799,524 and
6,739,324 issued and outstanding at December 31, 1997 and 1996, respectively 67,995 67,393
Additional paid-in capital 16,206,166 15,588,873
Retained earnings 2,753,231 552,835
----------- -----------
Total stockholders' equity 19,027,392 16,209,101
----------- -----------
Total liabilities and stockholders' equity $84,052,022 $64,816,201
=========== ===========
The accompanying notes are an integral part of these consolidated balance
sheets.
-21-
MOBILE MINI, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
------------ ------------ ------------
REVENUES:
Leasing $ 24,870,141 $ 17,876,236 $ 15,461,425
Container and other sales 20,527,477 23,618,754 24,264,547
Other 685,005 930,611 458,262
------------ ------------ ------------
46,082,623 42,425,601 40,184,234
COSTS AND EXPENSES:
Cost of container and other sales 14,546,347 19,926,191 19,106,960
Leasing, selling and general expenses 20,585,458 15,343,210 15,174,159
Depreciation and amortization 2,253,264 1,713,419 1,317,974
Restructuring charge -- 700,000 --
------------ ------------ ------------
INCOME FROM OPERATIONS 8,697,554 4,742,781 4,585,141
OTHER INCOME (EXPENSE):
Interest income 4,628 9,546 13,654
Interest expense (5,034,856) (3,894,155) (3,211,659)
------------ ------------ ------------
INCOME BEFORE PROVISION FOR INCOME TAXES AND EXTRAORDINARY
ITEM 3,667,326 858,172 1,387,136
PROVISION FOR INCOME TAXES 1,466,930 377,596 610,341
------------ ------------ ------------
INCOME BEFORE EXTRAORDINARY ITEM 2,200,396 480,576 776,795
EXTRAORDINARY ITEM, net of income tax benefit of $322,421 -- (410,354) --
------------ ------------ ------------
NET INCOME 2,200,396 70,222 776,795
PREFERRED STOCK DIVIDENDS -- -- 1,250,000
------------ ------------ ------------
NET INCOME (LOSS) AVAILABLE FOR COMMON STOCK $ 2,200,396 $ 70,222 $ (473,205)
============ ============ ============
EARNINGS (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE:
BASIC:
Income (loss) before extraordinary item $ 0.33 $ 0.07 $ (0.10)
Extraordinary item -- (0.06) --
------------ ------------ ------------
Net income (loss) $ 0.33 $ 0.01 $ (0.10)
============ ============ ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 6,752,147 6,737,592 4,835,000
============ ============ ============
DILUTED:
Income (loss) before extraordinary item $ 0.32 $ 0.07 $ (0.10)
Extraordinary item -- (0.06) --
------------ ------------ ------------
Net income (loss) $ 0.32 $ 0.01 $ (0.10)
============ ============ ============
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON SHARE
EQUIVALENTS OUTSTANDING 6,800,303 6,744,229 4,835,000
============ ============ ============
The accompanying notes are an integral part of these consolidated statements.
-22-
MOBILE MINI, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the years ended December 31, 1997, 1996 and 1995
Additional
Preferred Common Paid-in Retained Stockholders'
Stock Stock Capital Earnings Equity
------------ ------------ ------------ ------------ ------------
BALANCE, December 31, 1994 $ -- $ 48,350 $ 10,270,865 $ 955,818 $ 11,275,033
Sale of preferred stock (Note 11) 5,000,000 -- 358,114 -- 5,358,114
Net income -- -- -- 776,795 776,795
Preferred stock dividend (Note 11) -- -- -- (1,250,000) (1,250,000)
------------ ------------ ------------ ------------ ------------
BALANCE, December 31, 1995 5,000,000 48,350 10,628,979 482,613 16,159,942
Conversion of preferred stock (Note 11) (5,000,000) 19,043 4,959,894 -- (21,063)
Net income -- -- -- 70,222 70,222
------------ ------------ ------------ ------------ ------------
BALANCE, December 31, 1996 -- 67,393 15,588,873 552,835 16,209,101
Issuance of common stock (Notes 6 & 11) -- 600 333,175 -- 333,775
Exercise of stock options -- 2 648 -- 650
Warrants issued (Note 11) -- -- 283,470 -- 283,470
Net income -- -- -- 2,200,396 2,200,396
------------ ------------ ------------ ------------ ------------
BALANCE, December 31, 1997 $ -- $ 67,995 $ 16,206,166 $ 2,753,231 $ 19,027,392
============ ============ ============ ============ ============
The accompanying notes are an integral part of these consolidated statements.
-23-
MOBILE MINI, INC.
Consolidated Statement of Cash Flows
For the Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,200,396 $ 70,222 $ 776,795
Adjustments to reconcile income to net cash provided by (used in)
operating activities:
Extraordinary loss on early debt extinguishment -- 410,354 --
Amortization of deferred costs on credit agreement 548,725 385,473 --
Depreciation and amortization 2,253,264 1,713,419 1,317,974
Loss on disposal of property, plant and equipment 56,247 3,938 1,763
Deferred income taxes 1,508,119 (2,485) 629,987
Changes in certain assets and liabilities:
Increase in receivables, net (1,627,622) (319,129) (292,339)
Decrease (increase) in inventories 250,066 194,840 (1,085,216)
Increase in prepaids and other (155,631) (24,410) (219,109)
Decrease (increase) in other assets 11,996 45,908 (87,617)
(Decrease) increase in accounts payable 119,305 (1,707,818) (825,657)
(Decrease) increase in accrued liabilities 912,634 619,649 (382,147)
------------ ------------ ------------
Net cash provided by (used in) operating activities 6,077,499 1,389,961 (165,566)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net purchases of container lease fleet (17,078,799) (7,737,552) (6,752,060)
Net purchases of property, plant and equipment (2,140,205) (3,013,247) (4,025,574)
------------ ------------ ------------
Net cash used in investing activities (19,219,004) (10,750,799) (10,777,634)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under lines of credit 9,477,069 22,307,001 876,804
Proceeds from issuance of notes payable 10,391,748 7,127,997 5,855,982
Proceeds from sale-leaseback transactions -- -- 5,857,235
Deferred financing costs (727,434) (1,963,484) --
Principal payments and penalties on early debt extinguishment -- (14,405,879) --
Principal payment on notes payable (4,632,298) (1,334,083) (2,081,883)
Principal payments on capital lease obligations (1,367,833) (3,043,759) (3,089,046)
Warrant issuance (Note 11) 260,820 -- --
Other 8,094 (21,063) --
Proceeds from preferred stock issuance -- -- 4,108,114
------------ ------------ ------------
Net cash provided by financing activities 13,410,166 8,666,730 11,527,206
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH 268,661 (694,108) 584,006
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 736,543 1,430,651 846,645
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,005,204 $ 736,543 $ 1,430,651
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 4,347,025 $ 3,186,774 $ 2,745,542
============ ============ ============
Cash paid during the year for income taxes $ -- $ 59,958 $ 277,600
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES:
The Company issued 60,000 shares of common stock and 15,000 warrants to
purchase Company's common stock in 1997 as consideration for services
performed in connection with the Bridge Notes and the $6.9 million debt
offering with an aggregate value of $357,675 (Note 6). Capital lease
obligations of $548,697 and $1,851,336 during 1996 and 1995, respectively,
were incurred in connection with lease agreements for containers and
equipment. The Company did not enter into any capital lease obligations
during 1997.
The accompanying notes are an integral part of these consolidated statements.
-24-
MOBILE MINI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(1) THE COMPANY, ITS OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES:
Organization
Mobile Mini, Inc., a Delaware corporation, designs and manufactures portable
steel storage containers and telecommunications shelters and acquires and
refurbishes ocean-going shipping containers for sale and lease primarily in
Arizona, California, Texas and Nevada. It also designs and manufactures a
variety of delivery systems to compliment its storage container sales and
leasing activities.
Principles of Consolidation
The consolidated financial statements include the accounts of Mobile Mini, Inc.
and its wholly owned subsidiaries, Delivery Design Systems, Inc. ("DDS") and
Mobile Mini I, Inc. (collectively the "Company"). All material intercompany
transactions have been eliminated. Certain amounts in the accompanying financial
statements have been reclassified to conform to current year's financial
presentation.
Management's Plans
The Company has experienced rapid growth during the last several years with
lease revenues increasing at a 41% compounded rate during the last four years.
This growth related to both the opening of additional sales and leasing offices
in California and Texas and to an increase in leasing revenues due to the
expansion of the Company's container lease fleet.
As discussed more fully in Note 3, in March 1996, the Company entered into a
$41.0 million credit agreement (the "Senior Credit Agreement") with BT
Commercial Corporation, as Agent for a group of lenders (the "Lenders").
Initially, the Senior Credit Agreement provided a $6.0 million term loan
facility and a $35.0 million line of credit. Initial borrowings under the Senior
Credit Agreement of $22,592,000 were used to refinance a majority of the
Company's then outstanding indebtedness with the more favorable terms available
under the Senior Credit Agreement. The Company's revolving line of credit under
the Senior Credit Agreement was increased from $35.0 million to $40.0 million
during 1997. The Company intends to use its remaining borrowing availability,
primarily to expand its container lease fleet and related operations.
The Company believes that its current capitalization, together with borrowings
available under the Senior Credit Agreement, is sufficient to maintain its
current level of operations and permit controlled growth and increased
profitability. However, should demand for the Company's products continue to
grow at a significant rate, the Company would be required to secure additional
financing through additional borrowings, debt or equity offerings, or a
combination of these sources. The Company believes that such financing will be
available; however, there is no assurance that any such financings will be
obtained or obtained on terms acceptable to the Company.
The Company's ability to obtain used containers for its lease fleet is subject
in large part to the availability of these containers in the market. This is in
part subject to international trade issues and the demand for containers in the
ocean cargo shipping business. Should there be a shortage in supply of used
containers, the Company could supplement its lease fleet with new manufactured
containers. However, should there be an overabundance of these used containers
available, it is likely that prices would fall. This could result in a reduction
in the lease rates the Company could obtain from its container leasing
operations. It could also cause the appraised orderly liquidation value of the
containers in the lease fleet to decline. In such event, the Company's ability
to finance its business through the Senior Credit Agreement would be severely
limited as the maximum borrowing limit under that facility is based upon the
appraised orderly liquidation value of the Company's container lease fleet.
-25-
The Company previously was involved in the manufacture, sale and leasing of
modular steel buildings in the state of Arizona. These buildings were used
primarily as portable schools, but could be used for a variety of purposes.
Although the Company believes its modular buildings were superior to the
wood-framed buildings offered by its competitors, the Company was not able to
generate acceptable margins on this product line. During 1996, the Company
implemented a strategic restructuring program designed to concentrate management
effort and resources and better position itself to achieve its strategic growth
objectives. As a result of this program, the Company's 1996 results include
charges of $700,000 ($400,000 after tax, or $.06 per share) for costs associated
with restructuring the Company's manufacturing operations and for other related
charges. These charges were recorded in the fourth quarter of 1996, and were
comprised of the write-down of assets used in the Company's discontinued modular
building operations and related severance obligations ($300,000), and the
write-down of other fixed assets ($400,000). By discontinuing its modular
building operations, the Company will be able to utilize the management
resources and production capacity previously utilized by this division to expand
the Company's telecommunications shelter business and its container leasing
operations.
Revenue Recognition
The Company recognizes revenue from sales of containers upon delivery. Revenue
generated under container leases is recognized on a straight-line basis over the
term of the related lease.
Revenue under certain contracts for the manufacture of modular buildings and
telecommunication shelters is recognized using the percentage-of-completion
method primarily based on contract costs incurred to date compared with total
estimated contract costs. Provision for estimated losses on uncompleted
contracts are made in the period in which such losses are determined. Costs and
estimated earnings in excess of billings on incomplete contracts is
approximately $307,000 at December 31, 1997 and are included in receivables in
the accompanying consolidated balance sheet. Costs and estimated earnings less
billings on incomplete contracts of approximately $141,000 in 1996, represent
amounts received in excess of revenue recognized and are included in accrued
liabilities in the accompanying consolidated balance sheet.
Revenue for container delivery, pick-up and hauling is recognized as the related
services are provided.
Concentrations of Credit Risk
Financial instruments which potentially expose the Company to concentrations of
credit risk, as defined by Statement of Financial Accounting Standards ("SFAS")
No. 105, consist primarily of receivables. Concentration of credit risk with
respect to receivables are limited due to the large number of customers spread
over a large geographic area in many industry segments. The Company's
receivables related to its sales operations are generally secured by the related
product sold to the customer. The Company's receivables related to its leasing
operations are primarily small month-to-month amounts generated from both
offsite and on site customers. The Company has the right to repossess the
storage unit, including any customer goods, for failure of non payment.
The Company's sales and leasing customers by major category are presented below
as a percentage of units leased/sold:
1997 1996
------ ------
Leasing Sales Leasing Sales
------- ----- ------- -----
Retail and wholesale businesses 47% 42% 52% 54%
Construction 24% 13% 22% 12%
Institutions 7% 21% 4% 14%
Homeowners 17% 6% 17% 5%
Government, industrial and other 5% 18% 5% 15%
Cash and Cash Equivalents
-26-
Cash and cash equivalents at December 31, 1997 include $416,845 (including
earned interest) in an interest reserve account as required under the Indenture
(see Note 6) in connection with the issuance of 12% Senior Subordinated Notes
and represents an amount equal to at least six months' interest based on the
principal amount outstanding.
Inventories
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 at December 31 consist of
the following:
1997 1996
------ ------
Raw materials and supplies $3,241,962 $3,547,487
Work-in-process 631,399 288,986
Finished containers 874,955 1,161,909
---------- ----------
$4,748,316 $4,998,382
========== ==========
Property, Plant and Equipment
Property, plant and equipment are stated at cost, net of accumulated
depreciation. Depreciation is provided using the straight-line method over the
assets' estimated useful lives. Salvage values are determined when the property
is constructed or acquired and range up to 25%, depending on the nature of the
asset. In the opinion of management, estimated salvage values do not cause
carrying values to exceed net realizable value. Normal repairs and maintenance
to property, plant and equipment are expensed as incurred.
Property, plant and equipment at December 31 consist of the following:
Estimated Useful Life
in Years
1997 1996
---------- ----------
Land - $ 708,555 $ 708,555
Vehicles and equipment 5 to 10 12,721,917 11,218,281
Buildings and improvements 30 6,739,190 6,958,247
Office fixtures and equipment 5 to 20 3,109,904 2,514,812
---------- ----------
23,279,566 21,399,895
Less-Accumulated depreciation (5,267,650) (3,703,849)
---------- ----------
$18,011,916 $17,696,046
========== ==========
Property, plant and equipment includes assets acquired under capital leases of
approximately $603,000 and $613,000, and accumulated amortization of
approximately $107,000 and $65,000 at December 31, 1997 and 1996, respectively.
At December 31, 1997 and 1996, substantially all property, plant and equipment
has been pledged as collateral for notes payable obligations and obligations
under capital leases (see Notes 3, 4 and 5).
Accrued Liabilities
Included in accrued liabilities in the accompanying consolidated balance sheets
are customer deposits and prepayments totaling approximately $485,000 and
$507,000 for the years ended December 31, 1997 and 1996, respectively.
Earnings (Loss) Per Share
-27-
During 1997, the Company adopted SFAS No. 128, Earnings per Share. Pursuant to
SFAS No. 128, basic earnings per common share are computed by dividing net
income (loss) by the weighted average number of shares of common stock
outstanding during the year. Diluted earnings (loss) per common share are
determined assuming that options were exercised at the beginning of each year or
at the time of issuance. No outstanding options were assumed to be exercised for
purposes of calculating diluted earnings per share for the year ended December
31, 1995 as their effect was anti-dilutive. SFAS No. 128 is effective for
financial statements for both interim and annual periods presented after
December 15, 1997 and as a result, all prior period earnings per share (EPS)
data presented has been restated.
Below are the required disclosures pursuant to SFAS No. 128 for the years ended
December 31, 1997, 1996 and 1995:
1997 1996 1995
----------- ----------- -----------
Basic earnings (loss) per share:
Net income $ 2,200,396 $ 70,222 $ 776,795
Preferred stock dividends -- -- (1,250,000)
----------- ----------- -----------
Income (loss) available for common stock $ 2,200,396 $ 70,222 $ (473,205)
=========== =========== ===========
Weighted average common shares 6,752,147 6,737,592 4,835,000
----------- ----------- -----------
Basic per share amount $ 0.33 $ 0.01 $ (0.10)
=========== =========== ===========
Diluted earning (loss) per share:
Net income $ 2,200,396 $ 70,222 $ 776,795
Preferred stock dividends -- -- (1,250,000)
----------- ----------- -----------
Income (loss) available for common stock $ 2,200,396 $ 70,222 $ (473,205)
=========== =========== ===========
Weighted average common shares 6,752,147 6,737,592 4,835,000
Options assumed converted 48,156 6,637 --
----------- ----------- -----------
Weighted average common shares plus assumed
conversion 6,800,303 6,744,229 4,835,000
=========== =========== ===========
Diluted per share amount $ 0.32 $ 0.01 $ (0.10)
=========== =========== ===========
Fair Value of Financial Instruments
The estimated fair value of financial instruments has been determined by the
Company using available market information and valuation methodologies.
Considerable judgment is required in estimating fair values. Accordingly, the
estimates may not be indicative of the amounts the Company could realize in a
current market exchange.
The carrying amounts of cash, receivables and accounts payable approximate fair
values. The carrying amounts of the Company's borrowing under the revolving line
of credit and long-term debt instruments approximate fair value. The fair value
of the Company's long-term debt and revolving line of credit is estimated using
discounted cash flow analyses, based on the Company's current incremental
borrowing rates for similar types of borrowing arrangements.
Deferred Financing Costs
Included in other assets are deferred financing costs of approximately
$2,104,000 and $1,659,000 at December 31, 1997 and 1996, respectively. These
costs of obtaining long-term financing are being amortized over the term of the
related debt, using the straight-line method. The difference between amortizing
the deferred financing costs using the straight-line method and amortizing such
costs using the effective interest method is not material.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at
-28-
the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
(2) CONTAINER LEASE FLEET:
The Company has a container lease fleet consisting of refurbished or constructed
containers and modular buildings that are leased to customers under operating
lease agreements with varying terms. The containers on lease, excluding the
modular buildings, are leased to customers under short term operating lease
agreements. Depreciation is provided using the straight-line method over the
containers' and modular buildings' estimated useful lives of 20 years with
salvage values estimated at 70% of cost. In the opinion of management, estimated
salvage values do not cause carrying values to exceed net realizable value.
Containers and modular buildings included in the container lease fleet with an
original loan value of approximately $9.2 million at December 31, 1997 and 1996,
have been pledged as collateral for notes payable and obligations under capital
leases. The balance of the containers are pledged as collateral under the Senior
Credit Agreement (see Notes 3, 4 and 5). Normal repairs and maintenance to the
containers and modular buildings are expensed as incurred.
Container lease fleet includes assets acquired under capital leases of
approximately $8,255,000 and $8,043,000, and accumulated amortization of
approximately $317,000 and $204,000 at December 31, 1997 and 1996, respectively.
(3) LINE OF CREDIT:
In March 1996, the Company entered into the Senior Credit Agreement. Under the
terms of the Senior Credit Agreement, as amended, the Lenders have provided the
Company with a $40.0 million revolving line of credit and a $6.0 million term
loan. Borrowings under the Senior Credit Agreement are secured by substantially
all of the Company's assets.
Available borrowings under the revolving line of credit are based upon the level
of the Company's inventories, receivables and container lease fleet. The
container lease fleet is appraised at lease annually, and up to 90% of the
lesser of cost or appraised orderly liquidation value, as defined, may be
included in the borrowing base. Interest accrues at the Company's option at
either prime plus 1.5% or the Eurodollar rate plus 3% and is payable monthly.
The term of this line of credit is three years, with a one-year extension
option.
In connection with the closing of the Senior Credit Agreement, the Company
terminated its line of credit with its previous lender, repaying all
indebtedness under that line. In addition, the Company repaid other long-term
debt and obligations under capital leases totaling $14.1 million. As a result,
the Company recognized costs previously deferred related to certain indebtedness
and prepayment penalties resulted in an extraordinary charge to earnings in 1996
of $410,000 after benefit for income taxes.
The revolving line of credit balance outstanding at December 31, 1997, was
approximately $35.9 million. The amount available for borrowing was
approximately $4.1 million at December 31, 1997. Prior to the refinancing, the
Company had available short-term lines of credit which bore interest at 1.5%
over the prime rate. During 1997 and 1996, the weighted average interest rate
under the lines of credit was 8.93% and 8.73%, respectively, and the average
balance outstanding during 1997 and 1996 was approximately $32.2 million and
$20.3 million, respectively.
The Senior Credit Agreement contains several covenants including a minimum
consolidated tangible net worth requirement, a minimum fixed charge coverage
ratio, a maximum ratio of debt to equity, minimum operating income levels and
minimum required utilization rates. In addition, the Senior Credit Agreement
contains limits on capital expenditures and the incurrence of additional debt,
as well as prohibiting the payment of dividends.
Additional principal payments equal to 75% of Excess Cash Flow, as defined in
the term loan documents which constitute part of the Senior Credit Agreement,
are required annually. As of December 31, 1997, no additional payment was
required under this provision.
-29-
(4) NOTES PAYABLE:
Notes payable at December 31 consist of the following:
1997 1996
------ ------
Notes payable to BT Commercial Corporation, interest ranging from 3.25%
over Eurodollar rate (5.8% at December 31, 1997) to 1.75% over prime
(8.5% at December 31, 1997), fixed monthly installments of principal
plus interest, due March 2001, secured by various classes of the
Company's assets $4,500,000 $5,437,500
Notes payable, interest ranging from 10.5% to 12.2%, monthly
installments of principal and interest, due October 1999 through May
2002,
secured by equipment and vehicles 848,926 743,867
Notes payable, interest ranging from 11.49% to 12.63%, monthly
installments of principal and interest, due July 2000 through January
2001, secured by containers 558,032 706,796
Notes payable to financial institution, interest ranges from 6.49% to
7.75%, payable in fixed monthly installments due March 1998 through
January 1999, unsecured 216,091 114,614
--------- ---------
$6,123,049 $7,002,777
========= =========
Future maturities under notes payable are as follows:
Years ending December 31,
-------------------------
1998 $ 1,937,680
1999 1,870,951
2000 1,772,540
2001 509,255
2002 32,623
---------
$6,123,049
=========
The Senior Credit Agreement contains restrictive covenants. See Note 3
(5) OBLIGATIONS UNDER CAPITAL LEASES:
The Company leases certain storage containers and equipment under capital leases
expiring through 2001. Certain storage container leases were entered into under
sale-leaseback arrangements with various leasing companies. The lease agreements
provide the Company with a purchase option at the end of the lease term based on
an agreed upon percentage of the original cost of the containers. These leases
have been capitalized using interest rates ranging from approximately 8% to 14%.
The leases are secured by storage containers and equipment under lease.
During 1995 and 1994, the Company entered into multi-year agreements (the
"Leases") to lease a number of portable classrooms to school districts in
Arizona. Subsequent to entering the leases, the Company "sold" the portable
classrooms and assigned the Leases to an unrelated third party financial
institution (the "Assignee"). In addition, the Company entered into
Remarketing/Releasing Agreements (the "Agreements") with the Assignee. The
Agreements provide that the Company will be the exclusive selling/leasing agent
upon the termination of the aforementioned Leases for a period of 12 months. If
the Company is successful in releasing the
-30-
buildings and the Assignee receives, via lease payments, an amount equal to the
Base Price, as defined, plus any reimbursed remarketing costs of the Company,
the Company has the option to repurchase the buildings for $1.00 each. If the
Company sells any of the buildings, the Assignee shall receive from each sale
that portion of the Base Price allocated to the building sold plus costs the
Assignee has reimbursed to the Company plus interest on those combined amounts
from the date of the Lease termination at the Assignee's prime rate plus 4%. Any
sales proceeds in excess of this amount are to be remitted to the Company.
In the event the Company has not released or sold the buildings within 12 months
of the termination of the Leases, the Assignee has the right to require the
Company to repurchase the buildings for the Base Price plus all costs the
Assignee has reimbursed to the Company plus interest thereon at the Assignee's
prime rate plus 4% since the termination of the Lease. For financial reporting
purposes these transactions were not recorded as sales but accounted for as
collateralized borrowings in accordance with SFAS No. 13. For income tax
purposes these transactions were treated as sales.
During 1996, leases on 15 of the buildings matured and the Company sold all 15
portable buildings in 1996 pursuant to the Agreements. The revenues from these
sales are included in the accompanying statements of operations and the
underlying capital lease obligations for these buildings were paid in full at
December 31, 1996.
Future payments of obligations under capital leases:
Years ending December 31,
1998 $2,431,383
1999 2,405,222
2000 1,313,241
2001 54,418
---------
Total payments 6,204,264
Less: Amounts representing interest (832,661)
---------
$5,371,603
=========
Certain obligations under capital leases contain financial covenants which
include that the Company maintain a specified interest expense coverage ratio
and a required debt to tangible net worth ratio.
Gains from sale-leaseback transactions have been deferred and are being
amortized over the estimated useful lives of the related assets. Unamortized
gains at December 31, 1997 and 1996, approximated $271,000 and $288,000,
respectively, and are reflected as a reduction in the container lease fleet in
the accompanying consolidated financial statements.
Included in the accompanying consolidated statements of operations are revenues
of approximately $3,645,000 in 1995 for container sales under sale-leaseback
transactions where no profit was recognized. The Company did not enter into any
significant sale-leaseback transactions either in 1996 or 1997.
(6) 12% SENIOR SUBORDINATED NOTES:
In October 1997, the Company issued $6.9 million of 12% Senior Subordinated
Notes ("Notes") with a scheduled maturity date of November 1, 2002 and which are
considered unsecured obligations of the Company. The Notes were issued as part
of a unit with Redeemable Warrants to purchase 172,500 shares of the Company's
common stock at $5.00 per share. The Company is required to maintain an interest
reserve account and to maintain in the reserve account, while any of the Notes
are outstanding, an amount equal to six months interest on the Notes based on
the principal amount outstanding. Interest is payable semi-annually on May 1 and
November 1 of each year, commencing May 1, 1998. The Notes were issued in
denominations and integral multiples of $5,000. Because the Notes were offered
as part of a unit with Redeemable Warrants, a portion of the original offering
price for a unit was allocated to the Notes and a portion to the Redeemable
Warrants based on their respective fair market values. The resulting discount
increases the effective interest rate of the Notes and is being amortized to
interest expense over the life of the Notes.
As of December 31, 1997, the outstanding balance of the Notes was $6,647,874,
net of the remaining unamortized discount of approximately $252,000.
-31-
In July 1997, the Company completed a private placement of $3.0 million of 12%
senior subordinated notes (the "Bridge Notes") and warrants to purchase 50,000
shares of the Company's common stock at $5.00 per share. The Bridge Notes were
due the earlier of July 31, 2002, or on the refinancing of the Bridge Notes on
substantially similar terms. The Company used a portion of the proceeds from the
sale of the Notes described above to repay the Bridge Notes in October of 1997.
The Bridge Note lender received 15,000 shares of common stock as consideration
for the cancellation of the warrants originally issued to the Bridge Note
lender.
The Indenture governing the notes requires the Company to comply with certain
covenants including maintaining a specific tangible net worth, a maximum total
funded indebtedness ratio and a maximum senior funded indebtedness ratio.
(7) INCOME TAXES:
The Company accounts for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes. SFAS No. 109 requires the use of an asset and
liability approach in accounting for income taxes. Deferred tax assets and
liabilities are recorded based on the differences between the financial
statement and tax bases of assets and liabilities at the tax rates in effect
when these differences are expected to reverse.
The provision for income taxes at December 31, 1997, 1996 and 1995 consisted of
the following:
1997 1996 1995
---- ---- ----
Current $ - $ - $ -
Deferred 1,467,000 377,596 610,341
--------- ------- -------
Total $1,467,000 $377,596 $610,341
========= ======= =======
The components of the net deferred tax liability at December 31, are as follows:
1997 1996
---- ----
Deferred Tax Assets (Liabilities):
Net operating loss carryforward $ 4,286,000 $ 3,369,000
Allowance for doubtful accounts 354,000 113,000
Alternative minimum tax credit 211,000 211,000
Other 220,000 389,500
Accelerated tax depreciation (9,433,000) (7,363,000)
Deferred gain on sale-leaseback transactions (856,000) (429,000)
----------- -----------
Net deferred tax liability $(5,218,000) $(3,709,500)
=========== ===========
A reconciliation of the federal statutory rate to the Company's effective tax
rate for the years ended December 31 are as follows:
1997 1996 1995
---- ---- ----
Statutory federal rate 34% 34% 34%
State taxes, net of federal benefit 6 6 6
Other - 4 4
---- ---- ----
40% 44% 44%
==== ==== ====
The Company has a federal net operating loss carryover at December 31, 1997 of
approximately $10,775,000 which expires if unused in years 2008 to 2012.
As a result of stock ownership changes during 1996 and 1997, it is possible that
the Company has undergone one or more changes in ownership which can limit the
amount of net operating loss that is currently available as a deduction. Such
limitation could result in the Company being required to pay tax currently
because only a portion of the net operating loss is available. Management
believes that it will fully realize its net operating loss carryforward and that
a valuation reserve is not necessary at December 31, 1997.
-32-
(8) TRANSACTIONS WITH RELATED PARTIES:
Effective December 31, 1993, Richard E. Bunger, an executive officer, director
and founder of the Company, contributed substantially all of the assets and
liabilities of MMSS and the stock of DDS to the Company in exchange for
2,700,000 shares of Common Stock and the assumption of certain liabilities by
the Company. Such liabilities include liabilities associated with the MMSS
assets and operations and certain income tax liabilities of Mr. Bunger and an
affiliate arising from the MMSS operations occurring prior to January 1, 1994.
Such income tax liabilities were estimated at $428,000 which were subsequently
paid by the Company. Deferred income tax liabilities associated with the assets
contributed, established at $2,393,000, were also required to be recognized by
the Company in connection with such capitalization. The Company will indemnify
and defend Mr. Bunger against loss or expense related to all liabilities assumed
by the Company and for any contingent liabilities arising from past operations.
Prior to the capitalization of the Company, Mr. Bunger personally guaranteed the
Company's lines of credit and other material debts. These obligations have
subsequently been extinguished through payment by the Company.
The Company leases a portion of the property comprising its Phoenix location and
the property comprising its Tucson location from Mr. Bunger's five children.
Annual base payments under these leases total approximately $66,000 with an
annual adjustment based on the Consumer Price Index. The term of each of these
leases will expire on December 31, 2003. Additionally, the Company leases its
Rialto, California facility from Mobile Mini Systems, Inc., an affiliate, wholly
owned by Mr. Bunger, for total annual base payments of $204,000, with annual
adjustments based on the Consumer Price Index. The Rialto lease is for a term of
15 years expiring on December 31, 2011. Management believes the rental rates
reflect the fair market value of these properties. The Company purchased certain
leased property at its Maricopa, Arizona facility from Mr. Bunger on March 29,
1996, for a purchase price of $335,000, which management believes reflected the
fair market value of the property. All ongoing and future transactions with
affiliates will be on terms no less favorable than could be obtained from
unaffiliated parties and will be approved by a majority of the independent and
disinterested directors.
The Company obtains services throughout the year from Skilquest, Inc., a company
engaged in sales and management support programs. Skilquest, Inc. is owned by
Carolyn Clawson, the daughter of Mr. Richard E. Bunger and sister to Steven G.
Bunger. The Company made aggregate payments of approximately $73,000 to
Skilquest, Inc. in 1997 which the Company believes reflects the fair market
value for the services performed.
(9) BENEFIT PLANS:
Stock Option Plan
In August 1994, the Company's board of directors adopted the Mobile Mini, Inc.
1994 Stock Option Plan ("the Plan"). Under the terms of the Plan, both incentive
stock options ("ISOs"), which are intended to meet the requirements of Section
422 of the Internal Revenue Code, and non-qualified stock options may be
granted. ISOs may be granted to the officers and key personnel of the Company.
Non-qualified stock options may be granted to the Company's directors and key
personnel, and to providers of various services to the Company. The purpose of
the Plan is to provide a means of performance-based compensation in order to
attract and retain qualified personnel and to provide an incentive to others
whose job performance or services affect the Company.
Under the Plan, as amended in 1997, options to purchase a maximum of 750,000
shares of the Company's common stock may be granted. The exercise price for any
option granted under the Plan may not be less than 100% (110% if the option is
an ISO granted to a stockholder who at the time the option is granted owns stock
comprising more than 10% of the total combined voting power of all classes of
stock of the Company) of the fair market value of the common stock at the time
the option is granted. The option holder may pay the exercise price in cash or
by delivery of previously acquired shares of common stock of the Company that
have been held for at least six months.
The Plan is administered by the compensation committee of the board of directors
which determines whether such options will be granted, whether such options will
be ISOs or non-qualified options, which directors, officers, key personnel and
service providers will be granted options, the restrictions upon the
forfeitablity of such options and the number of options to be granted, subject
to the aggregate maximum number set forth above. Each option granted must
terminate no more than 10 years from the date it is granted.
-33
The board of directors may amend the Plan at any time, except that approval by
the Company's shareholders may be required for any amendment that increases the
aggregate number of shares which may be issued pursuant to the Plan, changes the
class of persons eligible to receive such options, modifies the period within
which the options may be granted, modifies the period within which the options
may be exercised or the terms upon which options may be exercised, or increases
the material benefits accruing to the participants under the Plan. Unless
previously terminated by the board of directors, the Plan will terminate in
November, 2003, but any option granted thereunder will continue throughout the
term of such option.
The Company accounts for its stock-based compensation plan under APB No. 25,
under which no compensation expense has been recognized in the accompanying
financial statements for stock-based employee awards. All stock options have
been granted with an exercise price equal to or greater than the fair value of
the Company's common stock on the date of grant. The Company adopted SFAS No.
123 for disclosure purposes in fiscal 1996. For purposes of SFAS No. 123, the
fair value of each option granted has been estimated at the date of the grant
using the Black-Scholes option pricing model using the following assumptions:
Risk free interest rates range 6.0 to 6.6%
Expected holding period 4.0 years
Dividend rate 0.0%
Expected volatility 55.4%
Under these assumptions, the fair value of the stock options granted was
$190,570 and $99,418 for the years ended December 31, 1997 and 1996,
respectively. These amounts would be amortized on the straight-line basis as
compensation expense, over the average holding period of the options. If the
Company had accounted for stock options consistent with SFAS No. 123, utilizing
the assumptions detailed above, the Company's net income (loss) and earnings
(loss) per share would have been reported as follows at December 31:
1997 1996 1995
---------- ---------- ----------
Net income
As reported $2,200,396 $ 70,222 $ (473,205)
Pro forma 2,086,054 14,548 (505,034)
Basic EPS:
As reported $ 0.33 $ 0.01 $ (0.10)
Pro forma 0.31 0.00 (0.10)
Diluted EPS:
As reported $ 0.32 $ 0.01 $ (0.10)
Pro forma 0.31 0.00 (0.10)
The effect of applying SFAS No. 123 for providing pro forma disclosures is not
likely to be representative of the effect on reported net income (loss) or
earnings (loss) per share for future years, because options vest over several
years, additional stock options are generally awarded in each year, and SFAS No.
123 has not been applied to options granted prior to January 1, 1995.
-34-
The following summarizes the activities under the Company's stock option plan at
December 31, 1997, 1996 and 1995:
1997 1996 1995
-------------------------- -------------------------- --------------------------
Weighted Weighted Weighted
Number of Average Number of Average Number of Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
--------- -------------- --------- -------------- --------- --------------
Options outstanding, beginning
of year 347,000 $3.89 241,000 $4.04 128,000 $4.11
Granted 206,500 3.64 156,000 3.43 143,000 3.94
Canceled/Expired (1,300) 3.25 (50,000) 3.16 (30,000) 3.88
Exercised (200) 3.25 - - - -
------- ------- -------
Options outstanding, end of year 552,000 $3.80 347,000 $3.89 241,000 $4.04
------- ------- -------
Options exercisable, end of year 247,050 $3.91 148,500 $4.02 89,250 $4.05
------- ------- -------
Options available for grant, end
of year 197,800 196,125 102,125
======= ======= =======
Weighted average fair value of
options granted $1.75 $1.70 $0.97
Options outstanding and exercisable by price range as of December 31, 1997 are
as follows:
Options Outstanding Options Exercisable
------------------------------------ -----------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Options Contractual Exercise Options Exercise
Exercise Prices Outstanding Life Price Exercisable Price
- ------------------- --------------- --------------- ------------ --------------- ------------
$3.12 - $3.88 348,000 8.33 $3.49 132,800 $3.61
$4.00 - $4.81 201,000 6.69 4.31 111,250 4.23
$5.38 - $5.38 3,000 7.58 5.38 3,000 5.38
--------- ------ ------ -------- ------
$3.12 - $5.38 552,000 7.73 $3.80 247,050 $3.91
========= ====== ====== ======== ======
401(k) Plan
In 1995, the Company established a contributory retirement plan (the "401(k)
Plan") covering eligible employees with at least one year of service. The 401(k)
Plan is designed to provide tax-deferred income to the Company's employees in
accordance with the provisions of Section 401(k) of the Internal Revenue Code.
The 401(k) Plan provides that each participant may annually contribute 2% to 15%
of their respective salary, not to exceed the statutory limit. The Company may
make a qualified non-elective contribution in an amount as determined by the
Company. Under the terms of the 401(k) Plan, the Company may also make
discretionary profit sharing contributions. Profit sharing contributions are
allocated among participants based on their annual compensation. Each
participant has the right to direct the investment of their funds among certain
named plans. The Company did not make any qualified non-elective contributions
or profit sharing contributions to the 401(k) Plan during 1996 or 1995. In 1997
the Company contributed 10% of the employees contributions up to a maximum of
$500 per employee.
(10) COMMITMENTS AND CONTINGENCIES:
As discussed more fully in Note 8, the Company is obligated under noncancelable
operating leases with related parties. The Company also leases its corporate
offices and other properties, as well as operating equipment from third parties
under noncancelable operating
-35-
leases. Rent expense under these agreements was approximately $932,000,
$649,000, and $515,000 for the years ended December 31, 1997, 1996, and 1995,
respectively. Total future commitments under all noncancelable agreements for
the years ended December 31, are approximately as follows:
1998 $ 999,000
1999 1,003,000
2000 943,000
2001 758,000
2002 582,000
Thereafter 3,201,000
---------
$7,486,000
=========
In April 1997, the Company entered into a stock purchase agreement with an
individual who had agreed to work for the Company. Under the stock purchase
agreement, the individual was to purchase 500,000 shares of common stock on July
1, 1997. On June 30, 1997, at the individual's request, the Company extended the
closing date to July 3, 1997. The individual did not tender funds by the
extended closing date. In July 1997, the Company brought an action in US
District Court for the District of Arizona to have the court declare the
Company's obligations under the stock purchase agreement terminated. The
individual opposes the Company's request, and has requested that the Company be
ordered to perform under the stock purchase or, alternatively, pay him damages,
including treble damages. In addition, the individual has filed a counterclaim
alleging constructive discharge. The Company is vigorously pursuing the action
and does not believe it will have any material impact on the financial condition
or the results of operations of the Company.
The Company is involved in certain administrative proceedings arising in the
normal course of business. In the opinion of management, the Company's potential
exposure under the pending administrative proceedings is adequately provided for
in the accompanying financial statements and any adverse outcome will not have a
material impact on the Company's results of operations or its financial
condition.
(11) STOCKHOLDERS' EQUITY:
Initial Public Offering
In February 1994, the Company successfully completed an initial public offering
of 937,500 Units, each Unit consisting of two shares of common stock and one
detachable warrant (the "Warrants") for the purchase of one share of common
stock for $5.00 per share, which expired on February 17, 1998. An additional
130,000 Units were sold in March 1994 pursuant to the underwriters'
over-allotment option. Net proceeds to the Company totaled $7,027,118.
The Company also granted the underwriters a warrant ("Underwriters' Warrant")
for the purchase of an additional 93,750 Units. The Underwriters' Warrant is
exercisable for four years, commencing on February 17, 1995, at an exercise
price of $12.00 per unit. As of December 31, 1997, none of the Warrants or
Underwriters' Warrants had been exercised.
Series A Convertible Preferred Stock
In December 1995, the Company completed the private placement of 50,000 shares
of Series A Convertible Preferred Stock ("Series A"), $.01 par value, $100
stated value, for aggregate net proceeds of $4.1 million. Pursuant to the terms
of the Series A, all 50,000 shares of Series A were converted into 1,904,324
shares of the Company's common stock at an average conversion rate of $2.63 per
share during the first quarter of 1996, at which time all such shares of the
Series A convertible Preferred Stock became authorized but unissued shares of
Preferred Stock which may be reissued.
In connection with the issuance of the Series A the Company recorded a preferred
stock dividend of $1,250,000 at December 31, 1995 in accordance with the
accounting treatment announced by the staff of the SEC at the March 13, 1997
meeting of the Emerging Issues Task Force whereas the Series A had "beneficial
conversion" features which permitted the holder to convert their holdings to
common shares at a fixed discount off of the market price of the common shares
when converted. The effect of the dividend resulted
-36-
in a decrease in earnings per share applicable to common shareholders of $.25,
however, the recognition in the calculation of earnings (loss) per share did not
have any effect on the cash flows of the Company.
Redeemable Warrants
Redeemable Warrants to purchase 187,500 shares of the Company's common stock at
$5.00 per share (subject to adjustment as described below) were issued in
connection with the issuance of the Notes (Note 6). A portion of the original
offering price was allocated to the Notes and the Redeemable Warrants based on
their relative fair values. The Redeemable Warrants first become exercisable on
March 1, 1998. The expiration date of the Redeemable Warrants is November 1,
2002. After October 13, 1999, the Company has the right to redeem the Redeemable
Warrants at any time after the date that the closing price of the common stock
has equaled or exceeded $8.75 per share for a period of 20 consecutive trading
days. The redemption price is $0.05 per Redeemable Warrant.
The number of shares of common stock for which a Redeemable Warrant is
exercisable and the purchase price thereof are subject to adjustment from time
to time upon the occurrence of certain events, including, among other things,
certain dividends and distributions and issuances of shares of common stock at a
price below the market price. A Redeemable Warrant does not entitle the holder
thereof to receive any dividends paid on common stock nor does a holder of
Redeemable Warrants, as such, have any rights of a stockholder of the Company.
(12) SUBSEQUENT EVENTS:
On January 20, 1998 the Company acquired the assets of Nevada Storage Containers
("NSC"), a Las Vegas based container leasing and sales business. The purchase
price included approximately $1.4 million in cash and approximately 85,000
shares of the Company's common stock. The Company acquired NSC's containers
under lease to customers and other operating equipment. Under the purchase
agreement, the shares of common stock will not be issued until one year after
the closing date.
As of their expiration date of February 17, 1998, 1,046,212 of the 1,067,500
warrants issued in connection with the Company's initial public offering in
February 1994, have been exercised for an equal amount of shares of the
Company's common stock. The Company received proceeds of approximately $5.2
million which the Company intends to use for working capital purposes.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Set forth below are the names and ages of and other relevant
information about the directors and executive officers of the Company.
Richard E. Bunger, age 60, has served as the Chairman of the Board and
a Director since the Company's inception in 1983. He also served as the
Company's Chief Executive Officer and President from inception through
April 1997. Since April 1997, Mr. Bunger has served as the Company's
Director of Product Research and Market Development. Mr. Bunger has
been awarded approximately 70 patents, many related to portable storage
technology. For a period of approximately 25 years prior to founding
the Company, Mr. Bunger owned and operated Corral Industries
Incorporated, a worldwide designer/builder of integrated animal
production facilities, and a designer/builder of mini storage
facilities.
Steven G. Bunger, age 36, has served as Chief Executive Officer and
President since April 1997 and is a founding Director of the Company.
Prior to April 1997, Mr. Bunger served as the Company's Chief Operating
Officer and was responsible for overseeing all of the Company's
operations and sales activities with overall responsibility for
advertising, marketing and pricing. Mr. Bunger graduated from Arizona
State University in 1986 with a BA - Business Administration. He is the
son of Richard E. Bunger.
-37-
Lawrence Trachtenberg, age 41, Executive Vice President and Chief
Financial Officer, General Counsel, Secretary, Treasurer and Director,
joined the Company in December 1995. Mr. Trachtenberg is primarily
responsible for all accounting, banking and related financial matters
for the Company. Mr. Trachtenberg is admitted to practice law in the
States of Arizona and New York and is a Certified Public Accountant in
New York. Prior to joining the Company, Mr. Trachtenberg served as Vice
President and General Counsel at Express America Mortgage Corporation,
a mortgage banking company, from February 1994 through September 1995
and as Vice President and Chief Financial Officer of Pacific
International Services Corporation, a corporation engaged in car
rentals and sales, from March 1990 through January 1994. Mr.
Trachtenberg received his Juris Doctorate from Harvard Law School in
1981 and his BA - Accounting/Economics from Queens College City
University of New York 1977.
Burton K. Kennedy Jr., age 50, Senior Vice President of Sales and
Marketing, was originally with the Company's predecessor from March
1986 when the Company had only a few hundred units to September 1991
when the Company had grown to several thousand units and rejoined the
Company July of 1996. Mr. Kennedy has the overall responsibility for
all branch lease and sale operations and also directs the acquisition
of container inventory. From September 1993 through June 1996, Mr.
Kennedy served in various executive positions with National Security
Containers, a division of Cavco, Inc. From April 1992 through August
1993 he was a working partner in American Bonsai.
George E. Berkner, age 63, Director, became a member of the Board of
Directors of the Company in December, 1993. From August, 1992 to
present, Mr. Berkner has been the Vice President of AdGraphics, Inc., a
computer graphics company. From May, 1990 to August, 1992, Mr. Berkner
was a private investor. From February, 1972 until May, 1990, Mr.
Berkner was the President and Chief Executive Officer of Gila River
Products, a plastics manufacturer with 155 employees. Mr. Berkner is
also a director of Auto X-Ray, Inc. Mr. Berkner graduated from St.
Johns University with a BA-Economics/Business in 1956.
Ronald J. Marusiak, age 50, Director, became a member of the Board of
Directors of the Company in February 1996. From January 1988 to
present, Mr. Marusiak has been the Division President of Micro-Tronics,
Inc., a corporation engaged in precision machining and tool and die
building for companies throughout the U.S. Mr. Marusiak is the co-owner
of R2B2 Systems, Inc., a computer hardware and software company. Mr.
Marusiak is also a director of W.B. McKee Securities Inc. Mr. Marusiak
received a Masters of Science in Management from LaVerne University in
1979 and graduated from the United States Air Force Academy in 1971.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), requires the Company's officers and directors, and persons who
beneficially own more than ten percent of a registered class of the Company's
equity securities, to file reports of ownership and change in ownership with the
Securities and Exchange Commission (the "SEC") and The Nasdaq Stock Market. Such
reports are filed on Form 3, Form 4, and Form 5 under the Exchange Act.
Officers, directors and greater than ten-percent shareholders are required by
Exchange Act regulations to furnish the Company with copies of all Section 16(a)
forms they file.
Based solely on its review of the copies of such forms received by it, the
Company believes that, during fiscal year ended December 31, 1997 all officers,
directors, and greater than ten-percent beneficial owners complied with the
applicable Section 16(a) filing requirements.
ITEM 11. EXECUTIVE COMPENSATION.
Compensation Summary of Executive Officers
The following table sets forth certain compensation paid or accrued by the
Company during the fiscal year ended December 31, 1997 to the Chairman of the
Board and executive officers of the Company whose salary and bonus exceeded
$100,000.
-38-
SUMMARY COMPENSATION TABLE
Long Term
Annual Compensation Compensation
------------------- ------------
Other
Annual
Fiscal Compen- All Other
Name and Principal Position Year Salary Bonus sation Stock Options Compensation
- --------------------------------------------------------------------------------------------------------------------------
Richard E. Bunger, 1997 $175,000 $163,059 -- 40,000 $25,087(1)
Chairman of the Board 1996 100,000 107,873 -- -- 21,100(1)
1995 104,167 77,808 -- -- 20,358(1)
Steven G. Bunger, 1997 $170,000 $119,577 -- 40,000 $5,000(2)
President, Chief Executive Officer 1996 50,000 95,887 -- 25,000 5,000(2)
1995 42,500 94,128 -- 50,000 4,375(2)
Lawrence Trachtenberg, 1997 $145,000 $102,494 -- 40,000 $ 5,000(2)
Chief Financial Officer, 1996 50,000 95,887 -- 25,000 5,000(2)
Executive Vice President 1995 -- -- -- 50,000 --
--
Burton K. Kennedy Jr., 1997 $ 99,045 $11,296 5,000 $ 5,000(2)
Senior Vice President 1996 14,423 31,320 50,000 22,500(3)
- --------------------
(1) The Company provides Mr. Bunger with the use of a Company-owned vehicle and
a $2 million life insurance policy. The amount shown represents the
Company's estimate of costs borne by it in connection with the vehicle,
including fuel, maintenance, license fees and other operating costs
(approximately $4,100 for such years) and the life insurance premiums paid
by the Company.
(2) Mr. Steven Bunger and Mr. Trachtenberg are each paid $5,000 per year in
consideration of their respective non-compete agreements. Mr. Bunger
entered into such agreement after the commencement of the 1995 fiscal year.
(3) Mr. Kennedy is paid $5,000 per year in consideration of his non-compete
agreement. Mr. Kennedy entered into such agreement upon the commencement of
his employment with the Company in July, 1996. In 1996, Mr. Kennedy
received a sign-up incentive in connection with his employment and such
non-compete agreement.
Option Grants
The following table sets forth certain information regarding the grant and
exercise of options to the Named Officers in 1997.
OPTION GRANTS IN FISCAL YEAR 1997
% of Total Potential Realizable Value at
Options/SARs Assumed Annual Rate of Stock Price
Granted to Exercise or Appreciation for Option
Name Options/SARs Employees in Base Price Expiration Term(1)
Granted Fiscal Year ($/Sh) Date 5% ($) 10% ($)
- -----------------------------------------------------------------------------------------------------------------------------------
Richard E. Bunger 40,000 19% $3.25 March 2007 $211,756 $337,187
March &
Steven G. Bunger 40,000 19% $3.25 & $4.50 June 2007 $252,479 $402,030
March &
Lawrence Trachtenberg 40,000 19% $3.25 & $4.50 June 2007 $252,479 $402,030
Burton K. Kennedy Jr. 5,000 2% $3.25 March 2007 $26,470 $42,148
-39-
(1) This disclosure is provided pursuant to Item 402(c) of Regulation S-K and
assumes that the actual stock price appreciation over the maximum remaining
option terms (10 years) will be at the assumed 5% and 10% levels.
Option Exercises and Values
The following table sets forth certain information regarding the
exercise and values of options held by the Named Officers as of December 31,
1997
AGGREGATE OPTION EXERCISES IN
LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
Value of Unexercised
Number of Unexercised In-the-Money Options at
Options at December 31, December 31,
1997 1997(1)
Shares Acquired on Exercisable/ Exercisable/
Name Exercise Value Realized Unexercisable Unexercisable
- ---------------------------------------------------------------------------------------------------------------------------
Richard E. Bunger - - 68,000/47,000 $282,200/$168,050
Steven G. Bunger - - 44,000/71,000 $175,400/$282,350
Lawrence Trachtenberg - - 44,000/71,000 $160,500/$269,500
Burton K. Kennedy Jr. - - 11,000/44,000 $41,250/$165,000
(1) All the exercisable options were exercisable at a price less than the last
reported sale price of the Common Stock ($5.812) on the Nasdaq Stock Market
on December 31, 1997.
Employment Agreements
The Company provides Mr. Richard Bunger with a $2 million life
insurance policy, a Company owned vehicle, and all the employee benefits
provided to the Company's executive employees.
Although the Company has not entered into any long-term employment
contracts with any of its employees, the Company has entered into numerous
agreements with key employees which are terminable at will, with or without
cause, including agreements with Steven G. Bunger, Lawrence Trachtenberg and
Burton K. Kennedy Jr. Each of these agreements contains a covenant not to
compete for a period of two years after termination of employment and a covenant
not to disclose confidential information of a proprietary nature to third
parties.
The Company had numerous bonus and incentive arrangements with several
employees during 1997, including Mr. Richard Bunger, Mr. Steven G. Bunger, Mr.
Trachtenberg and Mr. Kennedy. These agreements included an incentive program to
provide financial awards for an increase in revenues or for the attainment of
quotas. These compensation agreements were evaluated by an independent executive
compensation consulting organization and effective January 1, 1997, these above
named employees were compensated in 1997 based on commensurate fair market
salaries plus an incentive program.
Compensation of Directors
The Company's directors (other than directors who are officers of the
Company) received cash compensation for service on the Board of Directors and
committees thereof in the amount of $500 per quarterly meeting. Prior to August
1, 1997, non-employee directors had the right to receive options to acquire
3,000 shares of Common Stock on each August 1 while serving as members of the
compensation committee; from and after August 1, 1997, this was increased to
7,500 shares of common stock on each August 1.
-40-
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information as of March 18, 1998 with
respect to the beneficial ownership of the Company's Common Stock by each
shareholder known by the Company to be the beneficial owner of more than five
percent of its outstanding Common Stock, by each director who owns shares of the
Company's Common Stock, and by all executive officers and directors as a group.
Each person named has sole voting and investment power with respect to all of
the shares indicated, except as otherwise noted.
Common Stock
Name and Address of Beneficial Owner Beneficially Owned(1) Percent(2)
- ----------------------------------------------------------------------------------------------------
Richard E. Bunger 2,373,000(3) 29.9%
1834 West 3rd Street
Tempe, Arizona 85281
Steven G. Bunger 302,953(4) 3.8%
1834 West 3rd Street
Tempe, Arizona 85281
Lawrence Trachtenberg 60,191(5) *
1834 West 3rd Street
Tempe, Arizona 85281
Ronald J. Marusiak 124,575(6) 1.6%
1834 West 3rd Street
Tempe, Arizona 85281
George Berkner 23,625(7) *
1834 West 3rd Street
Tempe, Arizona 85281
REB/BMB Family Limited Partnership(8) 2,290,000 29.2%
1834 West 3rd Street
Tempe, Arizona 85281
Bunger Holdings, L.L.C.(9) 410,000 5.2%
1834 West 3rd Street
Tempe, Arizona 85281
Kennedy Capital Management, Inc.(10) 362,925 4.6%
10829 Olive Boulevard
St. Louis, MO 63141-7739
All Directors and Executive Officers as a group 2,718,170 33.7%
(5 persons)(3)(4)(5)(6)(7)
* Less than 1%.
-41-
(1) The inclusion herein of any shares of Common Stock does not constitute an
admission of beneficial ownership of such shares, but are included in
accordance with rules of the Securities and Exchange Commission.
(2) Includes shares of Common Stock subject to options which are presently
exercisable or which may become exercisable within 60 days of March 18,
1998.
(3) Includes 2,290,000 shares owned by REB/BMB Family Limited Partnership and
83,000 shares subject to exercisable options. Mr. Bunger disclaims any
beneficial ownership of shares held by REB/BMB Family Limited Partnership
in excess 1,894,379. All shares held by Mr. Bunger are held as community
property.
(4) Includes 82,000 shares owned by Bunger Holdings, L.L.C., 166,174 shares
owned by REB/BMB Family Limited Partnership 1,779 shares and 53,000 shares
subject to exercisable options. Of the 166,174 shares owned by REB/BMB
Family Limited Partnership, 80,150 are held for members of Mr. Bunger's
immediate family.
(5) Includes 7,191 shares and 53,000 shares subject to exercisable options.
(6) Includes: (a) 12,400 shares held by Mr. Marusiak's children; (b) 11,050
shares held by Mr. Marusiak and his wife (c) 92,500 shares held by
Micro-Tronics, Inc.'s Profit Sharing Plan and Trust (the "Plan") of which
Mr. Marusiak is Trustee and Plan Administrator. Mr. Marusiak disclaims any
beneficial ownership of 80% of the shares held by the Plan, as his pro rata
ownership interest is limited to 20% of the Plan's assets; and (d) 8,625
shares subject to exercisable options..
(7) Includes 9,000 shares, and 14,625 shares subject to exercisable options.
(8) Richard E. Bunger and his wife, Barbara M. Bunger, are the general partners
of REB/BMB Family Limited Partnership.
(9) The members of Bunger Holdings, L.L.C. are Steven G. Bunger, Carolyn
Clawson, Michael Bunger, Jennifer Blackwell and Susan Keating, each a child
of Richard E. Bunger.
(10) Furnished in reliance upon information set forth in a Schedule 13G dated
February 10, 1998 and filed by Kennedy Capital Management, Inc. ("KCMI")
with the Securities and Exchange Commission. KCMI is an Investment Advisor
registered under the Investment Advisors Act of 1940 according to
information set forth in its Schedule 13G. As of December 31, 1997, KCMI
was a beneficial owner of more than five percent of the Company's Common
Stock. Subsequently, publicly held warrants were converted to approximately
1,046,200 shares of common stock, increasing the number of outstanding
shares of common stock to approximately 7,845,700 shares.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company leases certain of its business locations from affiliates of Mr.
Richard E. Bunger, including his children. Mr. Bunger is an executive officer,
director and founder of the Company. The Company entered into an agreement,
effective January 1, 1994, to lease a portion of the property comprising its
Phoenix location and the property comprising its Tucson location from Richard E.
Bunger's five children. Total annual base lease payments under these leases
currently equal $66,000, with annual adjustment based on the consumer price
index. Lease payments in fiscal year 1997 equaled $71,824. The term of each of
these leases will expire on December 31, 2003. Prior to 1994, these properties
were leased by the Company's predecessor at annual rental payments equaling
$14,000. Additionally, the Company entered into an agreement effective January
1, 1994 to lease its Rialto facility from Mobile Mini Systems, Inc. for total
annual base lease payments of $204,000 with annual adjustments based on the
consumer price index. This lease agreement was extended for and additional five
years during 1996. Lease payments in fiscal year 1997 equaled $222,000. Prior to
1994, the Rialto site was leased to the Company's predecessor at an annual rate
of $132,000. Management believes the increase in rental rates reflect the fair
market rental value of these properties. Prior to the effectiveness of the
written leases, the terms were approved by the Company's independent and
disinterested directors.
In March 1994 the Company's manufacturing facility in Maricopa, Arizona needed
additional acreage to expand its manufacturing capabilities and began using
approximately 22 acres of property owned by Richard E. Bunger. The Company
leased this property from Mr. Bunger with annual payments of $40,000 with an
annual adjustment based on the Consumer Price Index. The Company purchased the
property from Mr. Bunger on March 29, 1996 for a purchase price of $335,000,
which management believes reflected the fair market value of the property.
The Company obtains services throughout the year from Skilquest, Inc., a company
engaged in sales and management support programs. Skilquest, Inc. is owned by
Carolyn Clawson, the daughter of Mr. Richard E. Bunger and sister to Steven G.
Bunger. The Company made aggregate payments of approximately $73,000 to
Skilquest, Inc. in 1997 which the Company believes reflects the fair market
value for the services performed.
-42-
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Documents filed as part of this Report:
(1) The financial statements required to be included in this
Report are included in ITEM 8 of this Report.
(2) The following financial statement schedule for the years
ended December 31, 1997, 1996 and 1995 is submitted
herewith: Schedule II - Valuation and Qualifying Accounts
All other schedules have been omitted because they are not
applicable or not required.
(3) Exhibits
Number Description Page
3.1 Amended and Restated Certificate of Incorporation of Mobile Mini,
Inc.
4.1(1) Form of Underwriters' Warrant
4.2(1) Form of Common Stock Certificate
4.3(2) Agreement and Form of Warrant for Warrants issued in connection
with 12% Notes.
4.4(2) Indenture dated as of October 14, 1997 between the Registrant and
Harris Trust and Savings Bank
10.2(1) Form of Employment Agreement
10.3 Mobile Mini, Inc. Amended and Restated 1994 Stock Option Plan
10.5(5) Senior Credit Agreement dated as of March 28, 1996 among Mobile
Mini, Inc., each of the financial institutions initially a
signatory thereto, together with assignees, as Lenders, and BT
Commercial Corporation, as Agent.
10.5.1(6) Amendment No. 1 to Senior Credit Agreement
10.5.2(6) Amendment No. 2 to Senior Credit Agreement
10.5.3(7) Amendment No. 3 to Senior Credit Agreement
10.5.4(2) Amendment No. 4 to Senior Credit Agreement
10.8(1) Lease Agreement by and between Steven G. Bunger, Michael J. Bunger,
Carolyn A. Clawson, Jennifer J. Blackwell, Susan E. Bunger
(collectively "Landlord") and Mobile Mini Storage Systems
("Tenant") dated January 1, 1994
10.9(1) Lease Agreement by and between Steven G. Bunger, Michael J. Bunger,
Carolyn A. Clawson, Jennifer J. Blackwell, Susan E. Bunger
(collectively "Landlord") and Mobile Mini Storage Systems
("Tenant") dated January 1, 1994
10.10(1) Lease Agreement by and between Steven G. Bunger, Michael J. Bunger,
Carolyn A. Clawson, Jennifer J. Blackwell, Susan E. Bunger
(collectively "Landlord") and Mobile Mini Storage Systems
("Tenant") dated January 1, 1994
10.11(1) Lease Agreement by and between Mobile Mini Systems, Inc.
("Landlord") and Mobile Mini Storage Systems ("Tenant") dated
January 1, 1994
10.12(3) Amendment to Lease Agreement by and between Steven G. Bunger,
Michael J. Bunger, Carolyn A. Clawson, Jennifer J. Blackwell, Susan
E. Bunger (collectively "Landlord") and Mobile Mini Storage Systems
("Tenant") dated August 15, 1994
-43-
10.13(2) Amendment to Lease Agreement by and between Steven G. Bunger,
Michael J. Bunger, Carolyn A. Clawson, Jennifer J. Blackwell,
Susan E. Bunger (collectively "Landlord") and Mobile Mini Storage
Systems ("Tenant") dated August 15, 1994
10.14(3) Amendment to Lease Agreement by and between Steven G. Bunger,
Michael J. Bunger, Carolyn A. Clawson, Jennifer J. Blackwell,
Susan E. Bunger (collectively "Landlord") and Mobile Mini Storage
Systems ("Tenant") dated August 15, 1994
10.15(4) Amendment to Lease Agreement by and between Mobile Mini Storage
Systems, Inc., a California corporation, ("Landlord"), and the
Company dated December 30, 1994.
10.16(5) Lease Agreement by and between Richard E. and Barbara M. Bunger
("Landlord") and the Company ("Tenant'") dated November 1, 1995.
10.17(5) Amendment to Lease Agreement by and between Richard E. and Barbara
M. Bunger ("Landlord") and the Company ("Tenant'") dated November
1, 1995.
10.18 Amendment No. 2 to Lease Agreement between Mobile Mini Storage
Systems, Inc. and the Company
10.19(1) Patents and Patents Pending
10.20(1) U.S. and Canadian Tradename and Service Mark Registration
11 Statement Re: Computation of Per Share Earnings
21 Subsidiaries of Mobile Mini, Inc.
23 Consent of Arthur Andersen LLP
27.1 Financial Data Schedule
27.2 Restated Selected Financial Data, December 31, 1996
27.3 Restated Selected Financial Data, December 31, 1995
27.4 Restated Selected Financial Data, December 31, 1997
All other exhibits are omitted as the information required is inapplicable
(1) Incorporated by reference to the Registrant's Registration Statement on
Form SB-2 (No. 33-71528-LA), as amended
(2) Incorporated by reference to the Registrant's Registration Statement on
Form S-2 (No. 333-34413)
(3) Incorporated by reference from the Registrant's Form 10-QSB for the
quarter ended September 30, 1994
(4) Incorporated by reference from the Registrant's Form 10-KSB for the
fiscal year ended December 31, 1994
(5) Incorporated by reference from the Registrant's Form 10-KSB for the
fiscal year ended December 31, 1995
(6) Incorporated by reference to the Registrant's Report on Form 10-K for the
fiscal year ended December 31, 1996
(7) Incorporated by reference to the Registrant's Report on Form 10-Q for the
quarter ended June 30, 1997
(b) Reports on Form 8-K
None
-44-
SCHEDULE II
MOBILE MINI, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
December 31,
------------
1997 1996 1995
------ ------ ------
Allowance for doubtful accounts:
Balance at beginning of year $268,181 $157,659 $256,022
Provision charged to expense 1,104,863 502,065 382,653
Write-offs (480,052) (391,543) (481,016)
-------- -------- --------
Balance at end of year $892,992 $268,181 $157,659
======== ======== ========
-45-
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
MOBILE MINI, INC.
Date: _________________ By:___________________________________________________________
Steven G. Bunger, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Date: _________________ By:___________________________________________________________
Steven G. Bunger, President, Chief Executive Officer and
Director (Principal Executive Officer)
Date: _________________ By:___________________________________________________________
Lawrence Trachtenberg, Executive Vice President, Chief
Financial Officer and Director (Principal Financial
Officer and Principal Accounting Officer)
Date: _________________ By:___________________________________________________________
Deborah Keeley, Executive Vice President and Controller
(Chief Accounting Officer)
Date: _________________ By:___________________________________________________________
Richard E. Bunger, Chairman and Director
Date: _________________ By:___________________________________________________________
Ronald J. Marusiak, Director
Date: _________________ By:___________________________________________________________
George Berkner, Director
-46-