U. S. SECURITIES AND EXCHANGE COMMISSION

Form 10-Q

For the quarterly period ended March 31, 2004

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   [   ]

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

     At April 30, 2004, there were outstanding 14,353,303 shares of the issuer’s common stock.

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MOBILE MINI, INC.
INDEX TO FORM 10-Q FILING
FOR THE QUARTER ENDED MARCH 31, 2004

TABLE OF CONTENTS

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PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

MOBILE MINI, INC.

Note: The consolidated balance sheet at December 31, 2003, 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.

See accompanying notes.

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MOBILE MINI, INC.

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 previous period amounts in the accompanying condensed consolidated financial statements have been reclassified to conform to current presentation.

The results of operations for the three-month period ended March 31, 2004, are not necessarily indicative of the operating results that may be expected for the entire year ending December 31, 2004. 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, 2003 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 15, 2004.

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 No. 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 ended March 31:

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NOTE B — Recent Accounting Pronouncement. In January 2003, the Financial Accounting Standards Board (FASB) issued Interpretation No. FIN 46R, Consolidation of Variable Interest Entities (FIN 46) and subsequently revised this Interpretation in December 2003 (FIN 46R). FIN 46R requires the primary beneficiary of a variable interest entity (VIE) to include the VIE’s assets, liabilities and operating results in its consolidated financial statements. FIN 46R also requires the disclosure of information about the VIE’s assets and liabilities and the nature, purpose and activities of consolidated VIE’s in the primary beneficiary’s financial statements. Additionally, FIN 46R requires disclosure of information about the nature, purpose and activities for unconsolidated VIEs in which a company holds a significant variable interest. The adoption of FIN 46 and FIN 46R did not affect our 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 ended March 31:

Options to purchase 1,334,000 and 955,570 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 March 31, 2003 and 2004, respectively.

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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:

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 after the date that we put the unit in service. Our steel units are depreciated over 25 years with an estimated residual value of 62.5%. Wood office units are depreciated over 20 years with an estimated residual value of 50%. 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 2004, our depreciation policy on our steel units was modified to increase the useful life to 25 years (from 20 years), and to decrease the residual value to 62.5% (from 70%) which effectively resulted in continued depreciation on these units for five additional years at the same annual rate (1.5%). This change was made to reflect that some of our steel units have now been in our lease fleet longer than 20 years and these units continue to be effective income producing assets that do not show signs of reaching the end of their useful life. The depreciation policy is supported by our historical lease fleet data that shows we have been able to retain comparable rental rates and sales prices irrespective of the age of the unit in our container lease fleet.

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 March 31, 2004, the lease fleet totaled $416.6 as compared to $405.6 million at December 31, 2003, before accumulated depreciation of $24.6 million and $22.8 million, respectively.

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The table below summarizes those transactions that increased the net value of our lease fleet from $382.8 million at December 31, 2003 to $392.0 million at March 31, 2004:

	(1)		These units represent the net additional units that were the result of splitting steel containers into one or more shorter units, such as splitting a 40-foot container into two 20-foot units, or one 25-foot unit and one 15-foot unit.
	(2)		Includes units moved from finished goods to lease fleet. The table below outlines the composition of our lease fleet at March 31, 2004:

The table below outlines the composition of our lease fleet at March  31, 2004:

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 is the only segment that concentrates on our core business of leasing. Each branch has similar economic characteristics 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 operations include 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 relative to each branch. The operation includes Mobile Mini’s 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.

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In managing our business, we focus on our internal growth rate in leasing revenue, which we define as growth in lease revenues on a year over year basis at our branch locations in operation for at least one year, without inclusion of same market acquisitions. In addition, we focus on earnings per share and on adjusted EBITDA. We calculate this number by first calculating EBITDA, which is a measure of our earnings before interest expense, debt restructuring costs, income tax, depreciation and amortization. This measure eliminates the effect of financing transactions that we enter into on an irregular basis based on capital needs and market opportunities. It provides us with a means to measure internally generated available cash from which we can fund our interest expense and our lease fleet growth. In comparing EBITDA from year to year, we typically ignore the effect of what we consider non-recurring events not related to our core business operations to arrive at adjusted EBITDA. The only such event during the last several years has been the effect of the Florida litigation, which was not material in amount during the quarters ended March 31, 2004 and 2003.

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:

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

NOTE I — 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. In January 2004, we amended our Loan and Security Agreement to permit us to purchase on the open market Securities consisting of our common stock for an aggregate amount up to $10.0 million. In March 2004, the Loan and Security Agreement was amended to permit further expansion of our lease fleet should there be a stronger demand, by changing our minimum required fixed charge coverage ratio from 2.10 to 1.0 to 1.85 to 1.0.

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

The following discussion of our financial condition and results of operations should be read together with our December 31, 2003 consolidated financial statements and the accompanying notes thereto which are included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 15, 2004. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in those forward-looking statements as a result of certain factors, including, but not limited to, those described under “Cautionary Factors that May Affect Future Results.”

Overview

General

Since 1996, we have followed a strategy focused on leasing rather than selling our portable storage units. Today, we derive most of our revenues from the leasing of portable storage containers and portable offices. In 2003, the average contracted lease term at lease inception was approximately 11 months for portable storage units and approximately 15 months for portable offices. After the expiration of the contracted lease term, units continue on lease on a month-to-month basis. In 2003, the over-all lease term averaged 25 months for portable storage units and 22 months for portable offices. As a result of these relatively long average lease terms, our leasing business tends to provide us with a recurring revenue stream and minimizes fluctuations in revenues. However, there is no assurance that the Company will maintain such lengthy overall lease terms.

In addition to our leasing business, we also sell portable storage containers and occasionally we sell portable office units. Since 1996, when we changed our focus to leasing, our sales revenues, as a percentage of total revenues, has decreased over the years.

Over the last six years, Mobile Mini has grown both through internally generated growth and acquisitions which we use to gain presence in new markets. Typically, we enter a new market through the acquisition of the business of a smaller local competitor and then apply our business model, which is usually much more customer and marketing focused than the business we are buying or its competitors in the market. As a result, a new branch location will typically have fairly low operating margins during its early years, but as our marketing efforts help us penetrate the new market and we increase the number of units on rent at the new branch, we take advantage of operating efficiencies to improve operating margins at the branch and reach company average levels after several years. We believe that we incur lower start-up costs and a quicker growth curve using this acquisition model than if we were to establish the new location from the ground up, without the acquisition of assets immediately producing lease revenue in the new market.

Among the external factors we examine to determine the direction of our business is the level of non-residential construction activity, especially in areas of the country where we have a significant presence. Our customers that are engaged in construction activity represented approximately 32% of our units on rent at December 31, 2003, and because of the degree of operating leverage we have, declines in non-residential construction activity can have a significant effect on our operating margins and net income. When we enter a new market, we incur certain costs in developing an infrastructure. For example, advertising and marketing costs will be incurred and certain minimum staffing levels and certain minimum levels of delivery equipment will be put in place regardless of the new market’s revenue base. Once we have achieved revenues during any period that are sufficient to cover our fixed expenses, we generate high margins on incremental lease revenues. Therefore, each additional unit put on lease in excess of the break even level contributes significantly to profitability. Conversely, additional fixed expenses that we incur require us to achieve additional revenue as compared to the prior period to cover the additional expense. In 2003 we continued to see weakness in the level of leasing revenues from the non-residential construction sector of our customer base. The lower than historical growth rate combined with increases in fixed costs depressed our growth in adjusted EBITDA (as defined below) in 2003.

In managing our business, we focus on our internal growth rate in leasing revenue, which we define as growth in lease revenues on a year over year basis at our branch locations in operation for at least one year, without inclusion of same market acquisitions. This internal growth rate has remained positive every quarter in 2003 and 2004, but has fallen to

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single digits from over 20% prior to 2002 due to the slowdown in the economy, especially as the slowdown has affected the non-residential construction sector in areas where we have large branch operations, including Texas and Colorado. Mobile Mini’s goal is to increase its internal growth rate so that revenue growth will exceed inflationary growth in expenses and we can again take advantage of the operating leverage inherent in our business model. The internal growth rate has begun to increase over the last three quarters.

We are a capital-intensive business, so in addition to focusing on earnings per share, we focus on adjusted EBITDA to measure our results. We calculate this number by first calculating EBITDA, which is a measure of our earnings before interest expense, debt restructuring costs, provision for income taxes, depreciation and amortization. This measure eliminates the effect of financing transactions that we enter into on an irregular basis based on capital needs and market opportunities and provides us with a means to measure internally generated cash from which we can fund our interest expense and our lease fleet growth. In comparing EBITDA from year to year, we typically adjust EBITDA to ignore the effect of what we consider non-recurring events not related to our core business operations to arrive at adjusted EBITDA. The only non-recurring events reflected in the adjusted EBITDA has been the effect in 2003 of our Florida litigation expenses. In addition, several of the covenants contained under our revolving credit facility are expressed by reference to this adjusted EBITDA financial measure, similarly computed. Because EBITDA is a non-GAAP financial measure as defined by the Securities and Exchange Commission (SEC), we included in our annual report filed on Form 10-K with the SEC on March 31, 2004, a reconciliation of EBITDA to the most directly comparable financial measures calculated and presented in accordance with accounting principles generally accepted in the United States. EBITDA is calculated as follows, without further adjustment, for the periods ended March 31:

In managing our business, we routinely compare our adjusted EBITDA margins from year to year and based upon age of branch. We define this margin as adjusted EBITDA divided by our total revenues, expressed as a percentage. We use this comparison, for example, to study internally the effect that increased costs have on our margins. As capital is invested in our established locations, we achieve higher adjusted EBITDA margins on that capital than we achieve on capital invested to establish a new branch because our fixed costs are already in place. The fixed costs are those associated with yard and delivery equipment, as well as advertising, sales, marketing and office expenses. With a new market or branch, we must first fund and absorb the startup costs for setting up the facility, hiring and developing the management and sales team and developing our marketing and advertising programs. A new branch will have low adjusted EBITDA margins in its early years until the number of units on rent increases. Because of our high operating margins on incremental lease revenue, which we realize on a branch by branch basis when the branch achieves leasing revenues sufficient to cover the branch’s fixed costs, leasing revenues in excess of the break-even amount produce large increases in profitability. Conversely, absent significant growth in leasing revenues, the adjusted EBITDA margin at a branch will remain relatively flat on a period by period comparative basis.

Accounting and Operating Overview

Our leasing revenues include all rent and ancillary revenues we receive for our portable storage, combination storage/office and mobile office units. Our sales revenues include sales of these units to customers. Our other revenues consist principally of charges for the delivery of the units we sell. Our principal operating expenses are (1) cost of sales; (2) leasing, selling and general expenses; and (3) depreciation and amortization, primarily depreciation of the portable storage units in our lease fleet. Cost of sales is the cost of the units that we sold during the reported period and includes both our cost to buy, transport, refurbish and modify used ocean-going containers and our cost to manufacture portable storage units and other structures. Leasing, selling and general expenses include among other

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expenses, advertising and other marketing expenses, commissions and corporate overhead for both our leasing and sales activities. Annual repair and maintenance expenses on our leased units over the last three fiscal years have averaged approximately 2.0% of lease revenues and are included in leasing, selling and general expenses. We expense our normal repair and maintenance costs as incurred (including the cost of periodically repainting units).

Our principal asset is our lease fleet, which has historically maintained value close to its original cost. Our steel lease fleet units (other than van trailers) are depreciated on the straight-line method over our units’ estimated useful life, (25 years after the date that we put the unit in service, with estimated residual values of 62.5%). The depreciation policy is supported by our historical lease fleet data which shows that we have been able to retain comparable rental rates and sales prices irrespective of the age of our container lease fleet. Our wood mobile office units are depreciated over twenty years to 50% of original cost. Van trailers, which constitute a small part of our fleet, are depreciated over 7 years to a 20% residual value. Van trailers, which are only added to the fleet as a result of acquisitions of portable storage businesses, are of much lower quality than storage containers and consequently depreciate more rapidly.

Our branch expansion program and other factors can affect our overall utilization rate. From 1996 through 2003, our annual utilization levels averaged 81.4%, and ranged from a high of 89.7% in 1996 to a low of 78.7% in 2003. The lower utilization rate in the last few years was primarily a result of (i) the fact that many of our acquisitions have had utilization levels lower than our historic average rates, especially after we add our proprietary product, (ii) the fact that it is easier to maintain a higher utilization rate at a large branch and we increased the number of small branches in more recent years, and (iii) the economic slowdown in the general economy and in particular the slowdown in the construction sector. We entered six markets in 2001, 11 markets in 2002, and one market in 2003, resulting in reduced overall utilization rates as our system absorbs the added assets. Our utilization is somewhat seasonal, with the low realized in the first quarter and the high realized in the fourth quarter. Our utilization rate for the quarter ended March 31, 2004 averaged 76.2% compared to an average of 75.5% in the same period the prior year.

RESULTS OF OPERATIONS

Three Months Ended March 31, 2003 Compared to
Three Months Ended March 31, 2004

Total revenues for the quarter ended March 31, 2004 increased by $2.8 million, or 8.2%, to $36.5 million from $33.7 million for the same period in 2003. Leasing revenues for the quarter increased by $2.4 million, or 8.2%, to $32.1 million from $29.7 million for the same period in 2003. This increase resulted from a 0.6% increase in the average rental yield per unit and a 7.6% increase in the average number of units on lease. Our internal growth, which we define as the growth in lease revenues in markets opened for at least one year, excluding any growth arising as a result of additional acquisitions in those markets, increased to 7.8% for the three months ended March 31, 2004, the third consecutive quarterly increase in internal growth rate. Our sales of portable storage and office units for the three months ended March 31, 2004 increased by 8.8% to $4.2 million from $3.9 million during the same 2003 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 March 31, 2004 increased to 64.7% of sales from 63.6% of sales in the same period in 2003, together with the 8.8% increase in sales revenues, and resulted in a modest increase in our gross profit as compared to the same period last year.

Leasing, selling and general expenses increased $1.4 million, or 7.3%, to $20.6 million for the quarter ended March 31, 2004, from $19.2 million for the same period in 2003. Leasing, selling and general expenses, as a percentage of total revenues, decreased to 56.3% in the quarter ended March 31, 2004, from 56.8% for the same period in 2003. Some of the major increases in leasing, selling and general expenses for the first quarter ended March 31, 2004 were insurance expense, personal property tax expense, rent expense, and repairs and maintenance expense.

EBITDA increased $1.1 million, or 9.2%, to $13.2 million for the quarter ended March 31, 2004, compared to $12.1 million for the same period in 2003.

Depreciation and amortization expenses increased $0.4 million, or 13.9%, to $3.0 million in the quarter ended March 31, 2004, from $2.6 million during the same period in 2003. The increase is primarily due to our larger lease fleet and

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the inclusion in the lease fleet of additional modular offices which have a higher depreciation rate than our containers. Since March 31, 2003, our lease fleet cost basis for depreciation increased by approximately $52.0 million.

Interest expense increased $1.8 million, or 55.2%, to $5.0 million for the quarter ended March 31, 2004, compared to $3.2 million for the same period in 2003. Our average debt outstanding for the three months ended March 31, 2004, compared to the same period in 2003, increased by 17.5%, primarily due to borrowings to fund the growth of our lease fleet payment of the Florida litigation judgment and debt refinancing costs, including the cost of unwinding certain interest sale swap agreements. Effective interest costs were higher in 2003 primarily because (i) we replaced lower interest rate secured debt with the unsecured Senior Notes, which bear interest at a higher annual rate, 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 5.7% for the three months ended March 31, 2003 to 7.6% for the three months ended March 31, 2004, excluding amortization of debt issuance costs. Taking into account the amortization of debt issuance costs, the weighted average interest rate was 6.0% in the 2003 quarter and 7.9% in the 2004 quarter. Our weighted average interest rate was higher during the second half of 2003 due to the issuance of Senior Notes issued on June 26, 2003. 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 40.0% in the quarter ended March 31, 2004, as compared to 39.0% during the same period in 2003.

Net income for the three months ended March 31, 2004 was $3.2 million compared to net income of $3.8 million for the same period in 2003. Our 2004 first quarter net income results were primarily affected by our higher interest costs associated with our higher average debt outstanding during the 2004 quarter compared to the 2003 quarter, partially offset by an increase in income from operations. In the first quarter 2004, net income per share was reduced by approximately $0.06 due to the increased interest costs associated with our issuance of our 9.5% Senior Notes in June 2003.

LIQUIDITY AND CAPITAL RESOURCES

Since 1996, Mobile Mini has focused the growth of its business on its leasing operations. Over the past several years, we have financed an increasing portion of our capital needs, most of which are discretionary and are used principally to acquire additional units for the lease fleet, through working capital and funds generated from operations. Leasing is a capital intensive business that requires that we acquire assets before they generate revenues, cash flow and earnings. The assets which we lease have very long useful lives and require relatively little recurrent maintenance expenditures. Most of the capital Mobile Mini has deployed into its leasing business has been of a discretionary nature in order to expand the company’s operations geographically, to increase the number of units available for lease at the company’s leasing locations, and to add to the mix of products the company offers. During recent years, Mobile Mini’s operations have generated annual cash flow that exceeds the company’s pre-tax earnings, particularly due to the deferral of income taxes due to accelerated depreciation that is used for tax accounting.

Historically, Mobile Mini has funded much of its growth through equity and debt issuances and borrowings under its revolving credit facility. In June 2003, Mobile Mini issued $150.0 million of 9.5% Senior Notes and amended its $250.0 million senior secured revolving line of credit. The effect of this transaction was to (i) increase the Company’s interest expense, (ii) replace floating rate debt with fixed rate debt and (iii) through changes in covenants in our senior secured revolving line of credit, made possible by the issuance of the Senior Notes, to substantially increase the Company’s borrowing availability for expansion. At March 31, 2004, we had unused borrowing availability of approximately $77.7 million under our revolving credit facility, based upon the most restrictive covenants. Recently, Mobile Mini has been able to fund more of its capital expenditures from operating cash flow. Mobile Mini’s borrowings under its revolving credit facility and the principal balance of its Senior Notes increased $17.3 million from December 31, 2003 to March 31, 2004. A large portion of this increase resulted from the payment of our Florida litigation judgment of approximately $8.0 million, with the remainder of the increase used to finance expansion capital expenditures. The Company’s operating cash flow is, in general, weakest during the first quarter.

Operating Activities. Our operations required net cash of approximately $4.4 million during the three months ended March 31, 2004 compared to net cash flow generated of $3.2 million during the same period in 2003. The $7.6 million

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increase in cash required by operating activities was due primarily to the payment of the $8.0 million Florida litigation judgment, partially offset by lower inventory expenditures and smaller reduction in accounts payable.

Investing Activities. Net cash used in investing activities was $12.2 million for the three months ended March 31, 2004 compared to $12.0 million for the same period in 2003. Capital expenditures for our lease fleet were $11.1 million for the three months ended March 31, 2004 and $11.3 million for the same period in 2003. These expenditures relate to costs of new lease fleet units, which we added at our branches to meet demand, and refurbishment costs associated with bringing containers acquired in prior years up to Mobile Mini standards. Capital expenditures for property, plant and equipment were $1.2 million during the three months ended March 31, 2004 and $1.0 million for the same period in 2003. During the past several years, our fleet has become more customized, enabling us to differentiate our product from our competitors’ product. The amount of cash that we use during any period in investing activities is almost entirely within management’s discretion. Mobile Mini has no contracts or other arrangements pursuant to which we are required to purchase a fixed or minimum amount of goods or services in connection with any portion of our business.

Financing Activities. Net cash provided by financing activities was $16.9 million during the three months ended March 31, 2004 compared to $7.5 million for the same period in 2003. During the three months ended March 31, 2004 and 2003, net cash provided by financing activities was primarily provided by our revolving credit facility and was used together with cash flow generated from operations to primarily fund our expansion of the lease fleet, and in 2004 to fund the Florida litigation judgment of approximately $8.0 million.

In addition to cash flow generated by operations, our principal current source of liquidity is our $250.0 million revolving line of credit. During the quarter ended March 31, 2004, we had net additional borrowings under our credit facility of approximately $17.3 million as compared to $7.8 million for the same period in 2003. As of March 31, 2004, we had $106.3 million of borrowings outstanding under our credit facility, and approximately $77.7 million of additional borrowings were then available to us under the facility under our most restrictive covenant. As of April 30, 2004, borrowings outstanding under our credit facility were approximately $106.7 million.

The interest rate under our revolving credit facility is based on our ratio of funded debt to earnings before interest expense, taxes, depreciation and amortization, debt restructuring expenses and any judgment or settlement costs related to our Florida litigation. The interest rate, effective March 31, 2004, under our credit facility is the LIBOR (London Interbank Offered Rate) rate plus 2.25% or the prime rate plus 0.5%, whichever we elect, subject to certain conditions.

We have an interest rate swap agreement under which we effectively fixed the interest rate payable on $25.0 million of borrowings under our credit facility so that the rate is based upon a spread from a fixed rate, rather than a spread from the LIBOR rate. Accounting for the swap agreement is covered by SFAS No. 133 and accordingly resulted in a charge to comprehensive income for the three months ended March 31, 2004 of $0.3 million, net of applicable income tax benefit of $0.2 million.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

Our contractual obligations primarily consist of our outstanding balance under our secured revolving credit facility and $150.0 million of unsecured Senior Notes, together with other notes payable obligations both secured and unsecured. We also have operating lease commitments for: 1) real estate properties for the majority of our branches, 2) delivery, transportation and yard equipment, typically under a five-year lease with purchase options at the end of the lease term at a stated or fair market value price; and 3) other equipment, primarily office machines.

We currently do not have any obligations under purchase agreements or commitments. Historically, we enter into capitalized lease obligations from time to time to purchase delivery, transportation and yard equipment, but currently have no commitments recorded as a capital lease.

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OFF-BALANCE SHEET TRANSACTIONS

Mobile Mini does not maintain any off-balance sheet transactions, arrangements, obligations or other relationships with unconsolidated entities or others that are reasonably likely to have a material current or future effect on Mobile Mini’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

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, ESTIMATES AND JUDGMENTS

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. 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 amended by SAB 104, as these services are considered inconsequential to the overall leasing transaction. We recognize revenues from sales of containers upon delivery.

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 evaluation of past due accounts aging. 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 annual required impairment tests for goodwill at December 31, 2003 and determined that the carrying amount of goodwill was 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.

Depreciation Policy. Our depreciation policy for our lease fleet uses the straight-line method over our units’ estimated useful life, after the date that we put the unit in service. Our steel units are depreciated over 25 years with an estimated residual value of 62.5%. Wood offices units are depreciated over 20 years with an estimated residual value of 50%. 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.

In 2004, our depreciation policy on our steel units was modified to increase the useful life to 25 years (from 20 years), and to decrease the residual value to 62.5% (from 70%) which effectively resulted in continued depreciation on steel units for five additional years at the same annual rate (1.5%). This change was made to reflect that some of our steel units have now been in our lease fleet longer than 20 years and these units continue to be effective income producing assets that do not show signs of reaching the end of their useful life. The depreciation policy is supported by our historical lease fleet data that shows we have been able to retain comparable rental rates and sales prices irrespective of the age of the unit in our container lease fleet.

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 62.5% residual value and a 25-year life to a lower or higher residual and a shorter or 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 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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Insurance Reserves. Our worker’s compensation, auto and general liability insurance is purchased under large deductible programs. Our current per incident deductibles are: worker’s compensation $250,000, auto $100,000 and general liability $100,000. We expense the deductible portion of the individual claims. However, we generally do not know the full amount of our exposure to a deductible in connection with any particular claim during the fiscal period in which the claim is incurred and for which we must make an accrual for the deductible expense. We make these accruals based on a combination of the claims review by our staff and our insurance companies, and, at year end, the accrual is reviewed and adjusted, in part, based on an independent actuarial review of historical loss data and using certain actuarial assumptions followed in the insurance industry. A high degree of judgment is required in developing these estimates of amounts to be accrued, as well as in connection with the underlying assumptions. In addition, our assumptions will change as our loss experience is developed. All of these factors have the potential for significantly impacting the amounts we have previously reserved in respect of anticipated deductible expenses, and we may be required in the future to increase or decrease amounts previously accrued.

Contingencies. We are a party to various claims and litigation in the normal course of business. Management’s current estimated range of liability related to various claims and pending litigation is based on claims for which our management can determine that it is probable (as that term is defined in FAS 5) that a liability has been incurred and the amount of loss can be reasonably determined. Because of the uncertainties related to both the probability of incurred and possible range of loss on pending claims and litigation, management must use considerable judgments in making reasonable determination of the liability that could result from an unfavorable outcome. As additional information becomes available, we will assess the potential liability related to any pending litigation and revise our estimates. Such revisions in our estimates of the potential liability could materially impact our results of operation. We do not anticipate that the resolution of such matters, known at this time, will have a material adverse effect on our business or consolidated financial position.

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RECENT ACCOUNTING PRONOUNCEMENT

In January 2003, the Financial Accounting Standards Board (FASB) issued Interpretation No. 46, Consolidation of Variable Interest Entities (FIN 46) and subsequently revised this Interpretation in December 2003 (FIN 46R). FIN 46R requires the primary beneficiary of a variable interest entity (VIE) to include the VIE’s assets, liabilities and operating results in its consolidated financial statements. FIN 46R also requires the disclosure of information about the VIE’s assets and liabilities and the nature, purpose and activities of consolidated VIE’s in the primary beneficiary’s financial statements. Additionally, FIN 46R requires disclosure of information about the nature, purpose and activities for unconsolidated VIEs in which a company holds a significant variable interest. The adoption of FIN 46 and FIN 46R did not affect our financial condition or results of operations.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Swap Agreement. We seek to reduce earnings and cash flow volatility associated with changes in interest rates through a financial arrangement intended to provide a hedge against a portion of the risks associated with such volatility. We continue to have exposure to such risks to the extent they are not hedged.

Interest rate swap agreements are the only instruments we use to manage interest rate fluctuations affecting our variable rate debt. At March 31, 2004, we had one interest rate swap agreement under which we pay a fixed rate and receive a variable interest rate on $25.0 million of debt. For the quarter ended March 31, 2004, in accordance with SFAS No. 133, comprehensive income included a charge of $0.3 million, net of applicable income tax benefit of $0.2 million, related to the fair value of our interest rate swap agreement.

Impact of Foreign Currency Rate Changes. We currently have branch operations in Toronto, Canada, and we invoice those customers primarily in the local currency, the Canadian Dollar, under the terms of our lease agreements with those customers. We are exposed to foreign exchange rate fluctuations as the financial results of our Canadian branch operation are translated into U.S. dollars. The impact of foreign currency rate changes have historically been insignificant.

CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS

Our disclosure and analysis in this report contains forward-looking information about our Company’s financial results and estimates and our business prospects that involve substantial risks and uncertainties. From time to time, we also may provide oral or written forward-looking statements in other materials we release to the public. Forward-looking statements are expressions of our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historic or current facts. They include words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “will,” and other words and terms of similar meaning in connection with any discussion of future operating or financial performance. In particular, these include statements relating to future actions, future performance or results, expenses, the outcome of contingencies, such as legal proceedings, and financial results. Among the factors that could cause actual results to differ materially are the following:

	•		our ability to manage our planned growth, both internally and at new branches
	•		competitive developments affecting our industry, including pricing pressures in newer markets
	•		economic slowdown that affects any significant portion of our customer base, including economic slowdown in areas of limited geographic scope if markets in which we have significant operations are impacted by such slowdown
	•		the timing and number of new branches that we open or acquire
	•		changes in the supply and price of used ocean-going containers
	•		changes in the supply and cost of the raw materials we use in manufacturing storage units
	•		legal defense costs, insurance expenses, settlement costs and the risk of an adverse decision or settlement related legal proceedings
	•		our ability to protect our patents and other intellectual property
	•		interest rate fluctuations
	•		governmental laws and regulations affecting domestic and foreign operations, including tax obligations

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	•		changes in generally accepted accounting principles
	•		any changes in business, political and economic conditions due to the threat of future terrorist activity in the U.S. and other parts of the world, and related U.S. military action overseas
	•		growth in costs and expenses

We cannot guarantee that any forward-looking statement will be realized, although we believe we have been prudent in our plans and assumptions. Achievement of future results is subject to risks, uncertainties and inaccurate assumptions. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could vary materially from past results and those anticipated, estimated or projected. Investors should bear this in mind as they consider forward-looking statements.

We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures we make on related subjects in our Form 10-Q, 8-K and 10-K reports to the Securities and Exchange Commission. Our Form 10-K filing for the fiscal year ended December 31, 2003, listed various important factors that could cause actual results to differ materially from expected and historic results. We note these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995. Readers can find them in Item 1 of that filing under the heading “Cautionary Factors That May Affect Future Results.” We incorporate that section of that Form 10-K in this filing and investors should refer to it. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider any such list to be a complete set of all potential risks or uncertainties. You may obtain a copy of our Form 10-K by requesting it from the Company’s Investor Relations Department at (480) 894-6311 or by mail to Mobile Mini, Inc., 7420 S. Kyrene Rd., Suite 101, Tempe, Arizona 85283. Our filings with the SEC, including the Form 10-K, may be accessed through Mobile Mini’s web site at www.mobilemini.com, and at the SEC’s World Wide Web site at http://www.sec.gov. Material on our web site is not incorporated in this report, except by express incorporation by reference herein.

ITEM 4. CONTROLS AND PROCEDURES

Mobile Mini maintains disclosure controls and procedures designed to provide reasonable assurance that the information required to be disclosed in the reports that it submits to the Securities Exchange Commission is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Mobile Mini’s management, with the participation of the chief executive officer and the chief financial officer, has evaluated the effectiveness of its disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based on the evaluation, our chief executive officer and our chief financial officer have concluded that, as of the end of such period, Mobile Mini’s disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by Mobile Mini in the reports it files or submits under the Exchange Act.

There were no changes in Mobile Mini’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, Mobile Mini’s internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)

Exhibits (filed herewith):

(b)

Reports on Form 8-K:

		We filed a report on Form 8-K filed January 28, 2004 related to our press release pertaining to guidance for 2004 and discussion of impact of expenses on fourth quarter 2003.
		We filed a report on Form 8-K filed February 26, 2004 related to our announcement of fourth quarter 2003 results of operations.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	MOBILE MINI, INC.
Dated: May 10, 2004	/s/ Lawrence Trachtenberg
	Lawrence Trachtenberg
	Chief Financial Officer & Executive Vice President

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