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U. S. SECURITIES AND EXCHANGE COMMISSION

Form 10-Q

     (Mark One)

For the quarterly period ended September 30, 2003

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the transition period from __________ to __________

Commission File Number 1-12804

7420 S. Kyrene Road, Suite 101
Tempe, Arizona 85283
(Address of principal executive offices)

(480) 894-6311
(Registrant’s telephone number, including area code)

     Indicate by check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

     Indicate by check whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Exchange Act). Yes x No o

     At November 7, 2003, there were outstanding 14,348,494 shares of the issuer’s common stock.

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MOBILE MINI, INC.
INDEX TO FORM 10-Q FILING
FOR THE QUARTER ENDED SEPTEMBER 30, 2003

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PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

MOBILE MINI, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

Note: The consolidated balance sheet at December 31, 2002, has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. See accompanying notes to the condensed consolidated financial statements.

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MOBILE MINI, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)

See accompanying notes.

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MOBILE MINI, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)

See accompanying notes.

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MOBILE MINI, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

See accompanying notes.

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MOBILE MINI, INC. AND SUBSIDIARIES — NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTE A —

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (which include normal and recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows for all periods presented have been made. Certain prior period amounts in the accompanying condensed consolidated financial statements have been reclassified to conform to the current financial presentation requirements.

The results of operations for the nine-month period ended September 30, 2003, are not necessarily indicative of the operating results that may be expected for the entire year ending December 31, 2003. Mobile Mini experiences some seasonality each year which has caused lower utilization rates for our lease fleet and a marginal decrease in cash flow during each of the first two quarters. These condensed consolidated financial statements should be read in conjunction with our December 31, 2002 consolidated financial statements and accompanying notes thereto which are included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on March 31, 2003.

Stock Based Compensation

We grant stock options for a fixed number of shares to employees and directors with an exercise price equal to the fair market value of the shares at the date of grant. We account for such stock option grants using the intrinsic-value method of accounting in accordance with Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations, and the disclosure requirements of Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation and SFAS No. 148, Accounting for Stock-Based Compensation — Transition and Disclosure. Under APB 25, we generally recognize no compensation expense with respect to such awards. Also, we do not record any compensation expense in connection with our Employee Stock Option Plan. If we had accounted for stock options consistent with SFAS No. 123, these amounts would be amortized on a straight-line basis as compensation expense over the average holding period of the options and our net income and earnings per share would have been reported as follows for the three month period and the nine month period ended September 30:

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NOTE B — Recent Accounting Pronouncements. SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections, was issued in April 2002, and became effective for fiscal years beginning after May 15, 2002. FASB No. 4 and No. 64 related to reporting gains or losses from debt extinguishment. Under the prior guidance, if material gains or losses were recognized from debt extinguishment, the amount was not included in income from operations, but was shown as an extraordinary item, net of related income tax cost or benefit, as the case may be. Under the new guidance, all gains or losses from debt extinguishment are subject to criteria prescribed under APB Opinion No. 30, Reporting the Results of Operations — Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, in determining an extraordinary item classification. The adoption of SFAS No. 145 required us to reclassify certain items for the period presented in 2002, to conform to the presentation required by SFAS No. 145. Effective January 1, 2003, we reported expenses incurred in both 2002 and 2003 on the extinguishment of debt in pre-tax earnings rather than as an extraordinary item. FASB No. 44 is not applicable to our operations. FASB No. 13 was amended to require certain lease modifications with similar economic effects to be accounted for the same way as a sale-leaseback. We adopted this statement on January 1, 2003. This adoption did not have any impact on our results of operations or financial position.

During the quarter ended March 31, 2002, we incurred $1.3 million of expense related to the write off of certain capitalized debt issuance costs associated with a former credit agreement. In the quarter ended June 30, 2003, we incurred $10.4 million of expense in connection with our refinancing of our credit agreement and the termination of certain interest rate swap agreements (see Note K). The 2002 transaction was originally recorded as an extraordinary item in 2002 under SFAS No. 4, Reporting Gains and Losses from Extinguishment of Debt. In accordance with SFAS No. 145, this transaction has been reclassified in pre-tax earnings as debt restructuring expense.

FASB Interpretation No. 46, Consolidation of Variable Interest Entities (FIN 46), was issued in January 2003 and addresses consolidation by business enterprises of variable interest entities. FIN 46 clarifies existing accounting for whether variable interest entities, as defined in FIN 46, should be consolidated in financial statements based upon the investee’s ability to finance activities without additional financial support and whether investors possess characteristics of a controlling financial interest. FIN 46 applies immediately to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. It applies in the first fiscal year or interim period beginning after June 15, 2003, to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. The Company does not have any variable interest entities and therefore this adoption will not have any effect on our results of operations or financial position.

SFAS No. 149, Amendment of SFAS 133 on Derivative Instruments and Hedging Activities, was issued in April 2003 and it amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS 133, Accounting for Derivative Instruments and Hedging Activities. SFAS 149 is effective for contracts entered into or modified after June 30, 2003 and hedging relationships designated after June 30, 2003. The adoption of SFAS 149 has not had a material impact on our financial condition or results of operations.

In May 2003, SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, was issued. SFAS 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity, and is effective for financial instruments entered into or modified after May 31, 2003 and otherwise is effective July 1, 2003. The Company believes SFAS 150 will have no impact on its financial condition or results of operations.

NOTE C — Basic earnings per common share are computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per common share are determined assuming the potential dilution of the exercise or conversion of options and warrants into common stock. The following table shows the computation of earnings per share for the three month period and the nine month period ended September 30:

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Options to purchase 1,065,400 and 731,323 shares of the Company’s stock were excluded from the calculation of diluted earnings per share because they were anti-dilutive for the three months ended September 30, 2002 and 2003, respectively. For the nine months ended September 30, there were 493,350 and 1,047,600 shares of the Company’s common stock that were anti-dilutive for 2002 and 2003, respectively.

NOTE D — Inventories are stated at the lower of cost or market, with cost being determined under the specific identification method. Market is the lower of replacement cost or net realizable value. Inventories consisted of the following at:

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NOTE E — Property, plant and equipment consisted of the following at:

NOTE F — Mobile Mini has a lease fleet primarily consisting of refurbished, modified and manufactured units that are leased to customers under short-term operating lease agreements with varying terms. Depreciation is provided using the straight-line method over our units’ estimated useful life, in most cases 20 years after the date that we put the unit in service, with estimated residual values of 70% on steel units and 50% on wood office units. Van trailers, which are a small part of our fleet, are depreciated over 7 years to a 20% residual value. Van trailers are only added to the fleet in connection with acquisitions of portable storage businesses, and then only when van trailers are a part of the business acquired.

In the opinion of management, estimated residual values do not cause carrying values to exceed net realizable value. We continue to evaluate these depreciation policies as more information becomes available from other comparable sources and our own historical experience.

Normal repairs and maintenance to the portable storage and mobile office units are expensed when incurred. As of September 30, 2003, the lease fleet totaled $392.0 million as compared to $353.4 million at December 31, 2002, before accumulated depreciation of $21.1 million and $16.3 million, respectively.

The table below summarizes those transactions that increased the net value of our lease fleet from $337.1 million at December 31, 2002 to $370.9 million at September 30, 2003:

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

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     The table below outlines the composition of our lease fleet at September 30, 2003:

NOTE G — The Financial Accounting Standards Board (FASB) issued SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, which establishes the standards for companies to report information about operating segments. Currently, our branch operation represents the only segment that concentrates on our core business of leasing. Each branch has similar commonalities covering all products leased or sold, including the same customer base, sales personnel, advertising, yard facilities, general and administrative costs and the branch management. Management’s allocation of resources, performance evaluations and operating decisions are not dependent on the mix of a branch’s products. We do not attempt to allocate shared revenue nor general, selling and leasing expenses to the different configurations of portable storage and office products for lease and sale. The branch operation segment includes the leasing and sales of portable storage units, portable offices and combination units configured for both storage and office space. We lease to businesses and consumers in the general geographic area served by each branch. Our branch operation includes our manufacturing facilities, which are responsible for the purchase, manufacturing and refurbishment of products for leasing, sales or equipment additions to our delivery system, and residual sales from our dealer program that was discontinued in 1998. We evaluate performance and profitability before interest costs, depreciation, income taxes and major non-recurring transactions. Discrete financial data on each of our products is not available and it would be impractical to collect and maintain financial data in such a manner; therefore, based on the provisions of SFAS 131, reportable segment information is the same as contained in our condensed consolidated financial statements.

NOTE H — Comprehensive income, net of tax, consisted of the following at:

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The components of accumulated other comprehensive loss, net of tax, were as follows:

NOTE I — Legal Proceedings. In April 2000, we acquired the portable storage business that was operated in Florida by A-1 Trailer Rental and several affiliated entities (collectively, “A-1 Trailer Rental”). As previously reported in our quarterly reports on Form 10-Q and our annual report on Form 10-K, which are filed with the Securities and Exchange Commission, two lawsuits were filed against us in the State of Florida arising out of that acquisition. One lawsuit, Nuko Holdings I, LLC v. Mobile Mini, Inc., was an action against us brought in the Circuit Court of the 13th Judicial District in and for Hillsborough County, Florida (Case No. 0003500), and resulted in a verdict of $7,215,000 being entered against us. In the second case, A-1 Trailer Rental filed an action (A-1 Trailer Rental, et al. v. Mobile Mini, Inc. (Case No. 8:02-cv-323-T-27TGW, in the United States District Court for the Middle District of Florida, Tampa Division)) requesting that the court find that A-1 Trailer Rental has no contractual agreement to indemnify us against any losses we suffer as a consequence of the Nuko Holdings lawsuit and, in any event, declare any such contractual indemnity agreement invalid on public policy grounds, thereby making unavailable to us $2,200,000 held in escrow in accordance with the terms of the A-1 Trailer Rental acquisition agreement and a subsequent agreement between the parties. In accordance with the provision of SEC rules on quarterly reporting, this footnote provides an update for events occurring since the filing of our annual report on Form 10K and should be read in conjunction with that filing.

There have been no significant changes with respect to our appeal of the judgment entered by the trial court in the Nuko Holdings lawsuit, and that appeal is pending before the Florida Second District Court of Appeal. We continue to anticipate that the appeals court process may take a lengthy period before a decision is rendered. In the A-1 Trailer Rental lawsuit, the court recently ruled that A-1 is not responsible for indemnifying Mobile Mini. Mobile Mini has petitioned the court to reconsider its ruling. The effect of this ruling, should it not be overturned, is that $1.9 million of the $2.2 million that had been held in escrow, would be released to A-1, with Mobile Mini retaining the $300,000 balance for indemnification claims the court determined are due to Mobile Mini. The court has not set a date by which it may rule on our request to reconsider. Given that no amounts have been recorded as potentially receivable from this escrow account, the recent events has no impact on our financial statements.

NOTE J — Interest Rate Swap Agreements. In April 2003, prior to our decision to issue our Senior Notes, we amended four of our Interest Rate Swap Agreements affecting $110.0 million of borrowings, to extend the maturity and to substitute the spread from the existing fixed rates of 4.785%, 4.685%, 4.67% and 2.98% to rates of 4.6%, 4.55%, 4.51% and 3.66%, respectively. In connection with our debt restructuring transaction on June 26, 2003, (see Note K

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below), we terminated $110.0 million of the $135.0 million interest rate swap agreements. The termination fees for unwinding these agreements, approximately $8.7 million, are included in debt restructuring expense in the accompanying condensed consolidated financial statements.

NOTE K — On June 26, 2003, we completed the sale of $150.0 million in aggregate principal amount of 9.5% Senior Notes due 2013 through a private placement under Rule 144A of the Securities Act of 1933. The net proceeds from the sale of Senior Notes were used to pay down borrowings under our revolving credit facility and to pay transaction costs and expenses.

In conjunction with the $150.0 million Senior Note offering, we concurrently amended and restated our $250.0 million revolving credit facility. The term of the revolving credit facility was extended to February 2008 and certain covenants were amended to reduce the spread over LIBOR and to permit us to issue the Senior Notes to operate at higher levels of leverage and to reduce required fleet utilization rates.

The refinancing of the credit agreement and the termination of certain interest rate swap agreements resulted in a pre-tax charge of approximately $10.4 million and includes approximately $8.7 million in interest rate swap termination expenses and approximately $1.7 million write off of certain capitalized debt issuance costs. This is recorded as a debt restructuring expense in the accompanying condensed consolidated financial statements.

NOTE L — Subsequent Event. In October 2003, we acquired the portable storage assets of McKinney Vehicle Services, Inc., a privately owned portable storage leasing company operating in the Portland, Oregon metropolitan area. We paid cash of approximately $1.5 million at closing. With this new branch, we now operate 47 branches in 27 states and in one Canadian province.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

Three Months Ended September 30, 2002 Compared to
Three Months Ended September 30, 2003

Total revenues for the quarter ended September 30, 2003 increased by $1.5 million, or 4.3%, to $36.6 million from $35.1 million for the same period in 2002. Leasing revenues for the quarter increased by $1.9 million, or 6.1%, to $32.8 million from $30.9 million for the same period in 2002. This increase resulted from a 7.5% increase in the average number of units on lease, partially offset by a 1.3% decrease in the average rental yield per unit. The growth rate in our revenues, which is slower than our historic norm, is affected by the continued general weakness in economic activity, particularly in the non-residential construction sector in several markets in which we have large branch operations and the lack of any acquisition activity during the 2003 year. Our sales of portable storage and office units for the three months ended September 30, 2003 decreased by 10.8% to $3.7 million from $4.1 million during the same 2002 period. We generally expect our level of sales to be affected more than the level of leasing activity during slower economic times, as customers conserve their cash by electing to lease rather than buy portable storage units.

Cost of sales is the cost to us of units that we sold during the period. Cost of sales for the quarter ended September 30, 2003 decreased to 64.5% of sales from 66.1% of sales in the same period in 2002. This increase in our gross profit margin compared to the prior year’s margin resulted from a decline in the cost of containers, which was only partially passed on to customers.

Leasing, selling and general expenses increased $0.6 million, or 3.2%, to $19.2 million for the quarter ended September 30, 2003, from $18.6 million for the same period in 2002. Leasing, selling and general expenses, as a percentage of total revenues, decreased to 52.3% in the quarter ended September 30, 2003, from 52.9% for the same period in 2002. Leasing, selling and general expenses at our 11 branches newly acquired or opened during 2002 (the “New 2002 Branches”) increased by $0.6 million during the 2003 quarter compared to the corresponding 2002 quarter. These increased expenditures primarily relate to infrastructure costs incurred in connection with developing our business model at these locations. These infrastructure costs primarily relate to branch facility personnel and local Yellow Page and other advertising costs which are intended to contribute to the branch’s revenue growth in future periods. When we enter a new city, whether via acquisition or start-up, we initially invest heavily in building our management and sales team, developing our marketing and advertising programs in the new market, and increasing the size and product mix of our lease fleet at the new branch so we can provide timely delivery of a wide range of product to our customers. These activities and expenses form the foundation for our branch operations model and are incurred for the purpose of spurring internal growth in the new markets in future periods. Our historical experience is that as revenues increase at a new branch, operating margins at the branch improve as the branch operation matures. For the three months ended September 30, 2003, operating margins, after corporate allocation, for these New 2002 Branches decreased from the same period in 2002. This decrease was due to the expenditures described in the preceding sentences. During the same periods, operating margins for the company as a whole increased from 29.1% during the three months ended September 20, 2002 to 33.4% during the three months ended September 30, 2003. The 2002 period operating margin was negatively impacted by the Florida litigation described below. The 2003 period operating margin was also negatively affected by certain company-wide cost increases, particularly in insurance costs.

Florida litigation expense relates to litigation and related costs incurred in connection with our Florida litigation (see Part II, Item I of this report). Costs in connection with our Florida litigation are expensed as incurred. During the 2002 quarter, this matter was in trial and we incurred approximately $1.1 million in litigation expense. During the 2003 quarter, the case was before the appellate court awaiting decision and relatively little expense was incurred.

Depreciation and amortization expenses increased $0.3 million, or 13.3%, to $2.8 million in the quarter ended September 30, 2003, from $2.5 million during the same period in 2002. The increase is primarily due to our larger lease fleet. Since September 30, 2002, our lease fleet cost basis for depreciation increased by approximately $53.0 million.

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Interest expense increased $1.8 million, or 60.7%, to $4.9 million for the quarter ended September 30, 2003, compared to $3.0 million for the same period in 2002. Our average debt outstanding for the three months ended September 30, 2003, compared to the same period in 2002, increased by 13.6%, primarily due to increased borrowings to fund the growth of our lease fleet. Effective interest costs were higher in 2003 primarily because (i) we replaced lower interest rate secured debt with the unsecured Senior Note, which bears interest at a higher annual rate interest yield, and (ii) we had more debt outstanding. The increase in interest expense associated with our Senior Notes increased the weighted average interest rate on our debt from 5.5% for the three months ended September 30, 2002 to 7.8% for the three months ended September 30, 2003, excluding amortization of debt issuance costs. Taking into account the amortization of debt issuance costs, the weighted average interest rate was 5.7% in the 2002 quarter and 8.1% in the 2003 quarter. Our weighted average interest rate will be higher in future quarters compared to earlier quarters due to the interest rate on our Senior Notes issued on June 26, 2003. However, as explained below in the section entitled “Liquidity and Capital Resources”, the issuance of the Senior Notes substantially increased our liquidity, providing us with an additional source of financing, and reduced our dependence on equity financing.

Provision for income taxes was based on an annual effective tax rate of 39.0% during both periods.

Net income for the three months ended September 30, 2003 was $4.5 million compared to net income of $4.4 million for the same period in 2002. Our 2003 third quarter net income results were affected by our higher interest costs associated with our higher average debt outstanding during the 2003 quarter compared to the 2002 quarter, partially offset by an increase in income from operations. Net income for the quarter ended September 30, 2002 was impacted by a charge of $1.1 million related to the Florida litigation.

Nine Months Ended September 30, 2002 Compared to
Nine Months Ended September 30, 2003

Total revenues for the nine months ended September 30, 2003 increased by $9.2 million, or 9.6%, to $105.4 million from $96.2 million for the same period in 2002. Leasing revenues for the nine months ended September 30, 2003 increased by $9.8 million, or 11.8%, to $93.4 million from $83.6 million for the same period in 2002. This increase resulted from a 14.5% increase in the average number of units on lease, partially offset by a 2.4% decrease in the average rental yield per unit. The internal growth rate in our business, which remains almost double digit for the first nine months of 2003 but is slower than our historic norm, is affected by the continued general weakness in economic activity, particularly in the non-residential construction sector in several of our larger markets, particularly in Colorado and several Texas markets. Our sales of portable storage and office units for the nine months ended September 30, 2003 decreased by 4.0% to $11.5 million from $12.0 million during the same 2002 period. Although we experienced a moderate decline in sales activity at some of our more established branches due to the general slowdown in economic activity, it was partially offset by increased sales at some of our newer branches.

Cost of sales for the nine months ended September 30, 2003 decreased to 63.5% of sales from 65.7% of sales in the same period in 2002. This increase in our gross profit margin compared to the prior year’s margin resulted from a decline in the cost of containers, which was only partially passed on to customers.

Leasing, selling and general expenses increased $7.6 million, or 15.2%, to $57.8 million for the nine months ended September 30, 2003, from $50.2 million for the same period in 2002. Leasing, selling and general expenses, as a percentage of total revenues, increased to 54.8% in the nine months ended September 30, 2003, from 52.2% for the same period in 2002. Leasing, selling and general expenses at 11 new branches added during 2002 increased by $0.6 million. These increased expenditures primarily relate to adding the infrastructure costs at our eleven New 2002 Branches, including facility personnel and advertising costs. Operating margins, after corporate allocation, for these 11 locations for the nine months ended September 30, 2003 decreased from the same period last year due to these expenditures, while operating margins for the company as a whole remained relatively the same at 31.3% and 30.3% for 2002 and 2003, respectively. During the nine months ended September 30, 2003, operating margin was negatively affected by certain company-wide cost increases, particularly in insurance costs, fuel costs and third party freight hauling expenses and the affect of the Florida litigation.

Florida litigation expense relates to litigation and related costs incurred in connection with our Florida litigation. Costs in connection with our Florida litigation are expensed as incurred.

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Depreciation and amortization expenses increased $1.2 million, or 17.5%, to $8.1 million in the nine months ended September 30, 2003, from $6.9 million during the same period in 2002. The increase is primarily due to our larger lease fleet. Since September 30, 2002, our lease fleet cost basis for depreciation increased by approximately $53.0 million.

Interest expense increased $3.1 million, or 37.3%, to $11.3 million for the nine months ended September 30, 2003, compared to $8.3 million for the same period in 2002. Our average debt outstanding for the nine months ended September 30, 2003, compared to the same period in 2002, increased by 17.5%, with most of the increase occurring during the first six months of the year, primarily due to increased borrowings under our credit facility to fund the growth of our lease fleet during that period. Effective interest costs were higher in 2003 primarily because (i) we replaced lower interest secured debt with our unsecured Senior Notes, which bear interest at a higher annual rate, and (ii) we had more debt outstanding. The increase in interest expense includes the higher interest cost associated with our Senior Notes which effectively increased the weighted average interest rate on our debt from 5.5% for the nine months ended September 30, 2002 to 6.5% for the nine months ended September 30, 2003, excluding amortization of debt issuance costs. Taking into account the amortization of debt issuance costs, the weighted average interest rate was 5.8% in 2002 and 6.7% in 2003. Our weighted average interest rate will be higher in future quarters compared to recent historical quarters due to the interest rate on the Senior Notes. Our Senior Notes bear interest at 9.5% per annum, which is higher than the average borrowing rate under our revolving credit agreement which we repaid with the net proceeds of our Senior Notes offering.

Debt restructuring expense for the period ended September 30, 2003, was $10.4 million and includes the termination expenses (approximately $8.7 million) related to unwinding certain interest rate swap agreements relating to debt repaid with the proceeds from the sale of $150.0 million of Senior Notes and the write off of certain capitalized debt issuance costs (approximately $1.7 million) associated with our revolving credit agreement before it was amended and restated in June 2003. During the nine months ended September 30, 2002, we incurred $1.3 million of expense related to the write off of certain capitalized debt issuance costs associated with a former credit agreement. The 2002 transaction was recorded as an extraordinary item in 2002 pursuant to SFAS No. 4, Reporting Gains and Losses from Extinguishment of Debt. In accordance with SFAS No. 145, (see “Recent Accounting Pronouncements” at Note B to the financial statements included elsewhere in this report) the 2002 transaction has been reclassified in pre-tax earnings as debt restructuring expense.

Provision for income taxes was based on an annual effective tax rate of 39.0% during both periods.

Net income for the nine months ended September 30, 2003 was $6.2 million compared to net income of $12.5 million for the same period in 2002. Net income for the first nine months of 2003 was adversely affected by debt restructuring expense of $10.4 million ($6.4 million, net of applicable income tax benefit of approximately $4.0 million), as compared to $1.3 million ($0.8 million, net of applicable income tax benefit of approximately $0.5 million) for the same period in 2002, and approximately $3.1 million of higher interest costs associated with our higher average debt outstanding during the first nine months of 2003 than during the same period during 2002.

LIQUIDITY AND CAPITAL RESOURCES

Growing our lease fleet is very capital intensive, and the amount of capital we need at any particular time is dependent principally upon the growth of our lease fleet during any measurement period. We have financed the growth of our lease fleet and our working capital requirements through cash flows from operations, proceeds from equity and debt financings and borrowings under our credit facility.

Operating Activities. Our operations provided net cash flow of $27.1 million during the nine months ended September 30, 2003 compared to $31.2 million during the same period in 2002. The decrease was due primarily to increases in inventory raw materials and supplies, deposits and prepaid expenses (primarily for advertising expenses) and accrued liabilities primarily due to the termination of our interest rate swap agreements, partially offset by reductions in receivables and accounts payables.

Investing Activities. Net cash used in investing activities was $41.7 million for the nine months ended September 30, 2003, and $80.1 million for the same period in 2002. In 2002, $30.8 million of cash was paid for acquisition of businesses compared to no acquisition payments during the 2003 period. Capital expenditures for our lease fleet were $38.8 million for the nine months ended September 30, 2003, and $42.6 million for the same period in 2002. Capital

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expenditures during 2003 primarily related to costs of new lease fleet units, which we added at our branches to match supply with demand, and refurbishment costs associated with bringing containers acquired in prior years up to Mobile Mini standards. During the past several years, our fleet has become more customized, enabling us to differentiate our product from our competitors’ product. Capital expenditures for property, plant and equipment were $3.3 million during the nine months ended September 30, 2003, and $7.0 million for the same period in 2002. The higher expenditures in 2002 primarily relate to our newly acquired locations where we made improvements to the yard facilities and purchased the required delivery equipment.

Financing Activities. Net cash provided by financing activities was $12.9 million during the nine months ended September 30, 2003, and $49.0 million for the same period in 2002. During the nine months ended September 30, 2003, net cash provided by financing activities (before giving effect to our issuance of $150.0 million of Senior Notes on June 26, 2003) was primarily provided by borrowings under our revolving credit facility of approximately $12.7 million as compared to $57.2 million of revolving credit borrowings in the comparable period in 2002. We used $36.0 million less cash in financing activities during the nine months ended September 30, 2003 as compared to the same period in 2002, primarily as a result of our strategic decision to forego business acquisition opportunities during the first three quarters of 2003 in order to focus capital expenditures on growing our existing branch network. As capital is invested at our established locations, we achieve higher operating margins during the first year because our fixed costs are already in place. With a new market or branch, we must first fund and absorb the startup costs for setting up the facility, creating the management and sales team and developing our marketing and advertising programs. A new branch will have low operating margins in its early years until the number of units on rent increases. For the first nine months of 2002, net cash provided by financing activities was primarily provided by our revolving credit facility. In 2003, cash flow provided by financing activities and generated from operations was used primarily to fund our expansion of our lease fleet. For the same period in 2002, these funds were used, in part, to acquire new locations in addition to funding the expansion of our lease fleet.

In addition to cash flow generated by operations, our principal current source of liquidity is expected to be our $250.0 million revolving line of credit. During the quarter ended June 30, 2003, we had net borrowings under our credit facility of approximately $4.8 million (prior to giving effect to our repayment of a significant portion of the credit facility borrowings from the proceeds from our issuance on June 26, 2003 of the Senior Notes) as compared to virtually no borrowings during the quarter ended September 30, 2003. During the second quarter of 2003, we issued $150.0 million of Senior Notes due 2013 and the net proceeds from these Senior Notes were initially used to reduce borrowings outstanding under our line of credit and pay offering expenses (including costs to unwind certain interest rate swap agreements). Interest on our Senior Notes accrues at 9.5% per annum and is payable each January and July, beginning January 2004. The issuance of the Senior Notes increased our unused borrowing availability by approximately $76.4 million immediately upon the issuance of the Senior Notes.

The interest rate under our amended and restated credit facility is based on our ratio of funded debt to earnings before interest expense, taxes, depreciation and amortization and debt restructuring expenses (EBITDA). The interest rate, effective September 30, 2003, under our credit facility is the LIBOR (London Interbank Offered Rate) rate plus 2.25% or the prime rate plus 0.50%, whichever we elect. As of September 30, 2003, we had $89.0 million of borrowings outstanding under our credit facility, and approximately $82.9 million of additional borrowings were then available to us under the facility.

During the third quarter of 2003, borrowings under our revolving credit facility (measured at daily close of business) averaged $89.1 million and ranged from $89.0 million to $90.8 million. As of October 31, 2003, our borrowings outstanding under our credit facility were approximately $90.7 million, compared to $89.0 million at both September 30, 2003 and June 30, 2003. The additional borrowings were incurred when we paid approximately $1.5 million to acquire certain portable storage assets in Portland, Oregon. See Note L of Notes to Condensed Consolidated Financial Statements included elsewhere in this report.

We previously entered into interest rate swap agreements under which we effectively fixed the interest rate payable on $135 million of borrowings under our credit facility so that the rate is based upon a spread from fixed rates, rather than a spread from the LIBOR rate. In June 2003, in conjunction with our sale of our Senior Notes and the amendment of our credit facility, we terminated $110.0 million of these swap agreements. Accounting for these swap agreements is covered by SFAS No. 133, and pursuant to SFAS No. 133, the swap termination resulted in a charge to net income of approximately $5.3 million, net of an income tax benefit of approximately $3.4 million. At September 30, 2003, accumulated other comprehensive loss included $0.8 million, net of applicable income tax benefit of $0.3 million,

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related to our remaining $25.0 million interest rate swap agreement. At September 30, 2003, all of our outstanding indebtedness bears interest at fixed rates (or the rate is effectively fixed due to a swap agreement), other than approximately $64.0 million of borrowings under our credit facility.

SEASONALITY

Demand from some of our customers is somewhat seasonal. Demand for leases of our portable storage units by large retailers is stronger from September through December because these retailers need to store more inventory for the holiday season. Our retail customers usually return these leased units to us early in the following year. This causes lower utilization rates for our lease fleet and a marginal decrease in cash flow during the first quarter of the year.

EFFECTS OF INFLATION

Our results of operations for the periods discussed in this report have not been significantly affected by inflation.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The following discussion addresses our most critical accounting policies, some of which require significant judgment.

Mobile Mini’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses during the reporting period. These estimates and assumptions are based upon our evaluation of historical results and anticipated future events, and these estimates may change as additional information becomes available. The Securities and Exchange Commission defines critical accounting policies as those that are, in management’s view, most important to our financial condition and results of operations and those that require significant judgments and estimates. Management believes that our most critical accounting policies relate to:

Revenue Recognition. We recognize revenues from sales of containers upon delivery. Lease and leasing ancillary revenues and related expenses generated under portable storage units and office units are recognized monthly, which approximates a straight-line basis. Revenues and expenses from portable storage unit delivery and hauling are recognized when these services are billed, in accordance with SAB 101, as these services are considered inconsequential to the overall leasing transaction.

Allowance for Doubtful Accounts. We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. We establish and maintain reserves against estimated losses based upon historical loss experience and past due accounts. Management reviews the level of the allowances for doubtful accounts on a regular basis and adjusts the level of the allowances as needed. If we were to increase the factors used for our reserve estimates by 25%, it would have the following approximate effect on our net income and diluted earnings per share as follows:

If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

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Impairment of Goodwill. We assess the impairment of goodwill and other identifiable intangibles whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Some factors we consider important which could trigger an impairment review include the following:

•

Significant under-performance relative to historical, expected or projected future operating results;

•

Significant changes in the manner of our use of the acquired assets or the strategy for our overall business;

•

Our market capitalization relative to net book value, and

•

Significant negative industry or general economic trends.

When we determine that the carrying value of goodwill and other identified intangibles may not be recoverable, we measure impairment based on a projected discounted cash flow method using a discount rate determined by our management to be commensurate with the risk inherent in our current business model. In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, on January 1, 2002, we ceased amortizing goodwill arising from acquisitions completed prior to July 1, 2001. We tested goodwill for impairment using the two-step process prescribed in SFAS 142. The first step is a screen for potential impairment, while the second step measures the amount of the impairment, if any. We performed the first of the required impairment tests for goodwill at December 31, 2002 and determined that the carrying amount of goodwill is not impaired as of that date. We will perform this test in the future as required by SFAS 142.

Impairment Long-Lived Assets. We review property, plant and equipment and intangibles with finite lives (those assets resulting from acquisitions) for impairment when events or circumstances indicate these assets might be impaired. We test impairment using historical cash flows and other relevant facts and circumstances as the primary basis for its estimates of future cash flows. This process requires the use of estimates and assumptions, which are subject to a high degree of judgment. If these assumptions change in the future, whether due to new information or other factors, we may be required to record impairment charges for these assets.

Salvage Value. Our depreciation policy for our lease fleet uses the straight-line method over our units’ estimated useful life, in most cases 20 years after the date that we put the unit in service, with estimated residual values of 70% on steel units and 50% on wood office units. Van trailers, which are a small part of our fleet, are depreciated over 7 years to a 20% residual value. Van trailers are only added to the fleet as a result of acquisitions of portable storage businesses.

We periodically review our depreciation policy against various factors, including the results of our lenders’ independent appraisal of our lease fleet, practices of the larger competitors in our industry, profit margins we are achieving on sales of depreciated units and lease rates we obtain on older units. If we were to change our depreciation policy on our steel units from 70% salvage or residual value and a 20-year life to a lower residual and a longer useful life, such change could have a positive, negative or neutral effect on our earnings, with the actual effect being determined by the change. For example, a change in our estimates used in our salvage/residual values and useful life would have the following approximate effect on our net income and diluted earnings per share as reflected in the table below.

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