Attached files
file | filename |
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EX-23.2 - EXHIBIT 23.2 - MOBILE MINI INC | c15215exv23w2.htm |
EX-32.1 - EXHIBIT 32.1 - MOBILE MINI INC | c15215exv32w1.htm |
EX-31.1 - EXHIBIT 31.1 - MOBILE MINI INC | c15215exv31w1.htm |
EX-31.2 - EXHIBIT 31.2 - MOBILE MINI INC | c15215exv31w2.htm |
EXCEL - IDEA: XBRL DOCUMENT - MOBILE MINI INC | Financial_Report.xls |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2011
or
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
(Exact name of registrant as specified in its charter)
Delaware | 86-0748362 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) |
7420 S. Kyrene Road, Suite 101
Tempe, Arizona 85283
(Address of principal executive offices)
Tempe, Arizona 85283
(Address of principal executive offices)
(480) 894-6311
(Registrants telephone number, including area code)
(Registrants telephone number, including area code)
Indicate by check mark 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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes
þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.
Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act) Yes o No þ
At April 15, 2011, there were outstanding 44,985,180 shares of the issuers common stock.
MOBILE MINI, INC.
INDEX TO FORM 10-Q FILING
FOR THE QUARTER ENDED MARCH 31, 2011
INDEX TO FORM 10-Q FILING
FOR THE QUARTER ENDED MARCH 31, 2011
TABLE OF CONTENTS
2
Table of Contents
PART I. FINANCIAL INFORMATION
ITEM 1. | FINANCIAL STATEMENTS |
MOBILE MINI, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands except per share data)
(In thousands except per share data)
December 31, 2010 | March 31, 2011 | |||||||
(See Note A) | (unaudited) | |||||||
ASSETS |
||||||||
Cash and cash equivalents |
$ | 1,634 | $ | 2,389 | ||||
Receivables, net of allowance for doubtful accounts of $2,424 and $2,327 at
December 31, 2010 and March 31, 2011, respectively |
42,678 | 41,345 | ||||||
Inventories |
19,569 | 20,538 | ||||||
Lease fleet, net |
1,028,403 | 1,026,530 | ||||||
Property, plant and equipment, net |
80,731 | 81,640 | ||||||
Deposits and prepaid expenses |
8,405 | 8,756 | ||||||
Other assets and intangibles, net |
23,478 | 21,850 | ||||||
Goodwill |
511,419 | 513,803 | ||||||
Total assets |
$ | 1,716,317 | $ | 1,716,851 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
Liabilities: |
||||||||
Accounts payable |
$ | 13,607 | $ | 15,428 | ||||
Accrued liabilities |
49,276 | 50,782 | ||||||
Lines of credit |
396,882 | 400,169 | ||||||
Notes payable |
289 | 197 | ||||||
Obligations under capital leases |
2,576 | 2,188 | ||||||
Senior Notes, net |
371,655 | 349,654 | ||||||
Deferred income taxes |
165,567 | 169,026 | ||||||
Total liabilities |
999,852 | 987,444 | ||||||
Commitments and contingencies |
||||||||
Convertible preferred stock; $.01 par value, 20,000 shares authorized,
8,556 issued and 8,191 outstanding at December 31, 2010 and 8,556 issued
and 8,182 outstanding at March 31, 2011, stated at liquidation preference
values |
147,427 | 147,272 | ||||||
Stockholders equity: |
||||||||
Common stock; $.01 par value: 95,000 shares authorized, 38,962 issued and
36,787 outstanding at December 31, 2010 and 38,981 issued and 36,806
outstanding at
March 31, 2011 |
390 | 390 | ||||||
Additional paid-in capital |
349,693 | 351,659 | ||||||
Retained earnings |
284,242 | 288,393 | ||||||
Accumulated other comprehensive loss |
(25,987 | ) | (19,007 | ) | ||||
Treasury stock, at cost, 2,175 shares |
(39,300 | ) | (39,300 | ) | ||||
Total stockholders equity |
569,038 | 582,135 | ||||||
Total liabilities and stockholders equity |
$ | 1,716,317 | $ | 1,716,851 | ||||
See accompanying notes to condensed consolidated financial statements (unaudited).
3
Table of Contents
MOBILE MINI, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share data)
(In thousands except per share data)
(unaudited)
Three Months Ended March 31, | ||||||||
2010 | 2011 | |||||||
Revenues: |
||||||||
Leasing |
$ | 70,179 | $ | 72,679 | ||||
Sales |
6,314 | 9,412 | ||||||
Other |
385 | 768 | ||||||
Total revenues |
76,878 | 82,859 | ||||||
Costs and expenses: |
||||||||
Cost of sales |
4,090 | 6,019 | ||||||
Leasing, selling and general expenses |
42,862 | 47,088 | ||||||
Integration, merger and restructuring expenses |
2,226 | 205 | ||||||
Depreciation and amortization |
9,140 | 8,795 | ||||||
Total costs and expenses |
58,318 | 62,107 | ||||||
Income from operations |
18,560 | 20,752 | ||||||
Other income (expense): |
||||||||
Interest income |
1 | | ||||||
Interest expense |
(14,687 | ) | (12,699 | ) | ||||
Debt restructuring expense |
| (1,334 | ) | |||||
Foreign currency exchange loss |
(8 | ) | (1 | ) | ||||
Income before provision for income taxes |
3,866 | 6,718 | ||||||
Provision for income taxes |
1,456 | 2,567 | ||||||
Net income |
2,410 | 4,151 | ||||||
Earnings allocable to preferred stockholders |
(456 | ) | (777 | ) | ||||
Net income available to common stockholders |
$ | 1,954 | $ | 3,374 | ||||
Earnings per share: |
||||||||
Basic |
$ | 0.06 | $ | 0.09 | ||||
Diluted |
$ | 0.06 | $ | 0.09 | ||||
Weighted average number of common and common share equivalents outstanding: |
||||||||
Basic |
35,083 | 35,580 | ||||||
Diluted |
43,514 | 44,474 | ||||||
See accompanying notes to condensed consolidated financial statements (unaudited).
4
Table of Contents
MOBILE MINI, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(In thousands)
(unaudited)
Three Months Ended March 31, | ||||||||
2010 | 2011 | |||||||
Cash Flows From Operating Activities: |
||||||||
Net income |
$ | 2,410 | $ | 4,151 | ||||
Adjustments to reconcile net income to net cash provided by
operating activities: |
||||||||
Debt restructuring expense |
| 1,334 | ||||||
Provision for doubtful accounts |
615 | 499 | ||||||
Amortization of deferred financing costs |
1,114 | 1,041 | ||||||
Amortization of long-term liabilities |
338 | 84 | ||||||
Share-based compensation expense |
1,416 | 1,325 | ||||||
Depreciation and amortization |
9,140 | 8,795 | ||||||
Gain on sale of lease fleet units |
(2,026 | ) | (3,093 | ) | ||||
(Gain) loss on disposal of property, plant and equipment |
(7 | ) | 21 | |||||
Deferred income taxes |
1,456 | 2,568 | ||||||
Foreign currency transaction loss |
8 | 1 | ||||||
Changes in certain assets and liabilities: |
||||||||
Receivables |
3,087 | 1,259 | ||||||
Inventories |
748 | (894 | ) | |||||
Deposits and prepaid expenses |
952 | (305 | ) | |||||
Other assets and intangibles |
(182 | ) | (97 | ) | ||||
Accounts payable |
(775 | ) | 1,631 | |||||
Accrued liabilities |
(8,044 | ) | 2,454 | |||||
Net cash provided by operating activities |
10,250 | 20,774 | ||||||
Cash Flows From Investing Activities: |
||||||||
Additions to lease fleet |
(3,832 | ) | (3,517 | ) | ||||
Proceeds from sale of lease fleet units |
5,439 | 8,203 | ||||||
Additions to property, plant and equipment |
(557 | ) | (3,191 | ) | ||||
Proceeds from sale of property, plant and equipment |
48 | 26 | ||||||
Net cash provided by investing activities |
1,098 | 1,521 | ||||||
Cash Flows From Financing Activities: |
||||||||
Net (repayments) borrowings under lines of credit |
(6,983 | ) | 3,288 | |||||
Proceeds from issuance of notes payable |
94 | | ||||||
Redemption of 9.75% senior notes due 2014 |
(6,000 | ) | (22,272 | ) | ||||
Redemption premiums of 9.75% senior notes due 2014 |
| (1,086 | ) | |||||
Principal payments on notes payable |
(343 | ) | (92 | ) | ||||
Principal payments on capital lease obligations |
(361 | ) | (389 | ) | ||||
Issuance of common stock, net |
227 | 446 | ||||||
Net cash used in financing activities |
(13,366 | ) | (20,105 | ) | ||||
Effect of exchange rate changes on cash |
2,796 | (1,435 | ) | |||||
Net increase in cash |
778 | 755 | ||||||
Cash at beginning of period |
1,740 | 1,634 | ||||||
Cash at end of period |
$ | 2,518 | $ | 2,389 | ||||
Supplemental Disclosure of Cash Flow Information: |
||||||||
Interest rate swap changes in value credited to equity |
$ | (739 | ) | $ | (655 | ) | ||
See accompanying notes to condensed consolidated financial statements (unaudited).
5
Table of Contents
MOBILE MINI, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(unaudited)
NOTE A Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in
conformity with U.S. generally accepted accounting principles, or GAAP, applicable to 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 GAAP for complete
financial statements. In the opinion of management of Mobile Mini, Inc. (referred to herein as
Mobile Mini, us, we, our or the Company), all adjustments (which include normal recurring
adjustments) necessary to present fairly the financial position, results of operations, and cash
flows for all periods presented have been made. All significant inter-company balances and
transactions have been eliminated.
The local currency of the Companys foreign operations is translated to U.S. currency for the
Companys condensed consolidated financial statements for each period being presented and the
Company is subject to foreign exchange rate fluctuations in connection with the Companys European
and Canadian operations.
The Condensed Consolidated Balance Sheet at December 31, 2010 was derived from the audited
consolidated financial statements at that date but does not include all of the information and
footnotes required by GAAP for complete financial statements.
The results of operations for the three-month period ended March 31, 2011 are not necessarily
indicative of the operating results that may be expected for the full fiscal year ending December
31, 2011 or any future period. Demand from certain of the Companys customers is somewhat
seasonal. Demand for leases of the Companys portable storage units by large retailers is stronger
from September through December because these retailers need to store additional inventory for the
holiday season. These retailers usually return these leased units to the Company in December or
early in the following year. This seasonality has historically caused lower utilization rates for
the Companys lease fleet and a marginal decrease in cash flow during the first quarter of the
year.
These condensed consolidated financial statements should be read in conjunction with the Companys
December 31, 2010 audited consolidated financial statements and accompanying notes thereto, which
are included in the Companys Annual Report on Form 10-K filed with the Securities and Exchange
Commission (SEC) on March 1, 2011.
NOTE B Recent Accounting Pronouncements
Multiple Element Arrangements. In September 2009, the Financial Accounting Standards Board
(FASB) issued new accounting guidance related to the revenue recognition of multiple element
arrangements. The new guidance states that if vendor specific objective evidence or third party
evidence for deliverables in an arrangement cannot be determined, companies will be required to
develop a best estimate of the selling price to separate deliverables and allocate arrangement
consideration using the relative selling price method. This guidance is effective for arrangements
entered into after January 1, 2011. The Company adopted this accounting standard and it did not
have a material impact on its consolidated financial statements and related disclosures.
Business Combinations. In December 2010, the FASB issued clarification on the accounting guidance
for business combinations. The new accounting guidance clarifies the disclosure requirement for
public entities that have entered into a new business combination during the current fiscal year.
Such public entities must present comparative financial statements disclosing revenue and earnings
of the combined entity as though the business combination that occurred during the current fiscal
year had occurred as of the beginning of the comparable prior annual reporting period only. This
guidance is effective for business combinations entered into after January 1, 2011. The Company
adopted this accounting standard and it did not have a material impact on its consolidated
financial statements and related disclosures.
6
Table of Contents
MOBILE MINI, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) Continued
(unaudited) Continued
Goodwill. In December 2010, the FASB issued new accounting guidance for goodwill impairment
testing. The new accounting guidance states that for reporting units with zero or negative
carrying amounts the reporting unit should perform Step 2 of a goodwill impairment after
considering the evidence of adverse qualitative factors that an impairment may exist. This
guidance is effective for the Company beginning January 1, 2011. The Company adopted this
accounting standard and does not expect it to have a material impact on its consolidated financial
statements and related disclosures.
NOTE C Fair Value Measurements
The Company defines fair value as the price that would be received from selling an asset or paid to
transfer a liability in an orderly transaction between market participants. Fair value is a
market-based measurement that should be determined based on assumptions that market participants
would use in pricing an asset or liability. As a basis for considering such assumptions, the
Company adopted the suggested accounting guidance for the three levels of inputs that may be used
to measure fair value:
Level 1 | Observable inputs such as quoted prices in active markets for identical assets or liabilities; | |
Level 2 | Observable inputs, other than Level 1 inputs in active markets, that are observable either directly or indirectly; and | |
Level 3 | Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions. |
Assets and liabilities measured at fair value on a recurring basis are as follows (in thousands):
Quoted | ||||||||||||||||||||
Prices in | ||||||||||||||||||||
Active | Significant | |||||||||||||||||||
Markets for | Other | Significant | ||||||||||||||||||
Identical | Observable | Unobservable | ||||||||||||||||||
Assets | Inputs | Inputs | Valuation | |||||||||||||||||
Interest Rate Swap Agreements | Fair Value | (Level 1) | (Level 2) | (Level 3) | Technique | |||||||||||||||
December 31, 2010 |
$ | (2,124 | ) | $ | | $ | (2,124 | ) | $ | | (1) | |||||||||
March 31, 2011 |
$ | (1,058 | ) | $ | | $ | (1,058 | ) | $ | | (1) |
(1) | The Companys interest rate swap agreements are not traded on a market exchange. As a result, the fair values are determined using valuation models that include assumptions about the LIBOR yield curve at the reporting dates as well as counterparty credit risk and the Companys own non-performance risk. The Company has consistently applied these calculation techniques to all periods presented. At December 31, 2010 and March 31, 2011, the fair value of interest rate swap agreements is recorded in accrued liabilities in the accompanying Condensed Consolidated Balance Sheets. |
NOTE D Fair Value of Financial Instruments
The Company determines the estimated fair value of financial instruments using available market
information and valuation methodologies. Considerable judgment is required in estimating fair
values. Accordingly, the estimates may not be indicative of the amounts the Company could realize
in current market exchanges.
The carrying amounts of cash, receivables, accounts payable and accrued liabilities approximate
fair values based on the liquidity of these financial instruments or based on their short-term
nature. The carrying amounts of the Companys borrowings under its credit
facility and notes payable approximate fair value. The fair values of the Companys notes payable
and revolving credit facility are estimated using discounted cash flow analyses, based on the
Companys current incremental borrowing rates for similar types of borrowing arrangements. Based
on the borrowing rates currently available to the Company for bank loans with similar terms and
average maturities, the fair value of the Companys notes payable and revolving credit facility
debt at December 31, 2010 and March 31, 2011 approximated their respective book values. The fair
value of the Companys $150.0 million aggregate principal amount of 6.875% senior notes due
2015 (the 2015 Notes), its $200.0 million aggregate principal amount of 7.875% senior notes
originally due 2020
(the 2020 Notes, and together with the 2015 Notes, the Mobile Mini Notes) and its $200.0
million aggregate principal amount of 9.750% senior notes originally issued by Mobile Storage
Group, Inc. (MSG) due 2014 (the MSG Notes and together with the Mobile Mini Notes, the Senior
Notes) is based on the latest sales price of such notes at the end of each period obtained from a
third-party institution.
7
Table of Contents
MOBILE MINI, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) Continued
(unaudited) Continued
The carrying value and the fair value of the Companys Senior Notes are as follows:
December 31, 2010 | March 31, 2011 | |||||||
(In thousands) | ||||||||
Carrying value |
$ | 371,655 | $ | 349,654 | ||||
Fair value |
$ | 375,608 | $ | 366,125 | ||||
As of March 31, 2011, the remaining aggregate principal amount outstanding of the MSG Notes at
December 31, 2010 ($22.3 million), were fully redeemed and are no longer outstanding. The
redemption of these notes resulted in a debt restructuring charge of $1.3 million representing
tender premiums of $1.1 million and the remaining unamortized acquisition date discount of $0.2
million.
NOTE E Earnings Per Share
The Company issued preferred stock that participates in distributions of earnings on the same basis
as shares of common stock. As such, the Company adopted the accounting guidance for the standards
regarding the computation of earnings per share, or EPS for securities other than common stock that
contractually entitle the holder to participate in dividends and earnings of the Company. Earnings
for the period are required to be allocated between the common and preferred shareholders based on
their respective rights to receive dividends. Basic net income per share is then calculated by
dividing income allocable to common stockholders by the weighted-average number of common shares
outstanding, net of shares subject to repurchase by the Company, during the period. The Company is
not required to present basic and diluted net income per share for securities other than common
stock. Accordingly, the following net income per share amounts only pertain to the Companys
common stock. The Company calculates diluted net income per share under the if-converted method
unless the conversion of the preferred stock is anti-dilutive to basic net income per share. To
the extent the inclusion of preferred stock is anti-dilutive, the Company calculates diluted net
income per share under the two-class method. Potential common shares include restricted common
stock, which is subject to risk of forfeiture and incremental shares of common stock issuable upon
the exercise of stock options and upon the conversion of convertible preferred stock using the
treasury stock method.
8
Table of Contents
MOBILE MINI, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) Continued
(unaudited) Continued
The following is a reconciliation of net income and weighted-average shares of common stock
outstanding for purposes of calculating basic and diluted EPS for the three-month period ended
March 31:
Three Months Ended March 31, | ||||||||
2010 | 2011 | |||||||
(In thousands except earnings per share) | ||||||||
Historical net income per share: |
||||||||
Numerator: |
||||||||
Net income |
$ | 2,410 | $ | 4,151 | ||||
Less: Earnings allocable to preferred stockholders |
(456 | ) | (777 | ) | ||||
Net income available to common stockholders |
$ | 1,954 | $ | 3,374 | ||||
Basic EPS Denominator: |
||||||||
Common stock outstanding beginning of period |
35,063 | 35,565 | ||||||
Effect of weighting shares: |
||||||||
Weighted shares issued during the period ended March 31, |
20 | 15 | ||||||
Denominator for basic net income per share |
35,083 | 35,580 | ||||||
Diluted EPS Denominator: |
||||||||
Common stock outstanding beginning of period |
35,063 | 35,565 | ||||||
Effect of weighting shares: |
||||||||
Weighted shares issued during the period ended March 31, |
20 | 15 | ||||||
Dilutive effect of employee stock options on nonvested
share-awards assumed converted during the period ended
March 31, |
240 | 704 | ||||||
Dilutive effect of convertible preferred stock assumed
converted during the period ended March 31, |
8,191 | 8,190 | ||||||
Denominator for diluted net income per share |
43,514 | 44,474 | ||||||
Basic net income per share |
$ | 0.06 | $ | 0.09 | ||||
Diluted net income per share |
$ | 0.06 | $ | 0.09 | ||||
Basic weighted average number of common shares outstanding as of March 31, 2010 and 2011 does not
include 1.2 million and 1.2 million, respectively, of share-awards because the awards had not yet
vested.
9
Table of Contents
MOBILE MINI, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) Continued
(unaudited) Continued
The following table represents the number of stock options and nonvested share-awards that were
issued or outstanding but excluded in calculating diluted EPS because their effect would have been
anti-dilutive:
Three Months Ended | ||||||||
March 31, | ||||||||
2010 | 2011 | |||||||
(In thousands) | ||||||||
Stock options |
943 | 583 | ||||||
Nonvested share-awards |
346 | 20 |
NOTE F Share-Based Compensation
At March 31, 2011, the Company had one active share-based employee compensation plan. There are
two expired compensation plans, one of which still has outstanding options subject to exercise or
termination. No additional options can be granted under the expired plans.
Stock option awards under these plans were granted with an exercise price per share equal to the
fair market value of the Companys common stock on the date of grant. Each outstanding option must
expire no later than ten years from the date it was granted, unless exercised or forfeited before
the expiration date, and historically options are granted with vesting over a four- to five-year
period. The Company has not granted any stock option awards in 2011. The total value of the
Companys stock option awards is expensed over the related employees service period on a
straight-line basis.
The Company also awards restricted stock, also called nonvested share-awards in this discussion,
under the existing share-based compensation plans. The majority of the Companys nonvested
share-awards vest in equal annual installments over a four- to five-year period. The total value
of these awards is expensed on a straight-line basis over the service period of the employees
receiving the awards. The service period is the time during which the employees receiving awards
must remain employees for the shares granted to fully vest.
In addition, the Company awards nonvested share-awards to certain executive officers with vesting
subject to performance conditions. Vesting of these nonvested share-awards is dependent upon the
respective officers fulfilling the service period requirements as well as the Company achieving
certain EBITDA (as defined in Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations) targets in each of the next four years. The Company has not issued any
share-awards subject to performance conditions in 2011. For previously issued performance-based
awards, the Company is required to assess the probability that such performance conditions will be
met. If the likelihood of the performance conditions being met is deemed probable, the Company
will recognize the expense using the accelerated attribution method. The accelerated attribution
method could result in as much as 50% of the total value of the shares being recognized in the
first year of the service period if the likelihood of attaining each of the four future targets is
assessed as probable. For these performance-based awards, the accelerated attribution method has
been used to recognize the expense.
10
Table of Contents
MOBILE MINI, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) Continued
(unaudited) Continued
The following table sets forth unrecognized compensation costs related to the Companys share-based
compensation plan as of March 31, 2011:
Weighted-Average | ||||||||
March 31, 2011 | Recognition Period | |||||||
(In thousands) | (Years) | |||||||
Share-awards |
$ | 19,009 | 2.97 | |||||
Stock option awards |
$ | 2,056 | 3.53 |
The following table summarizes the share-based compensation expense and capitalized amounts for the
three months ended March 31:
Three Months Ended March 31, |
||||||||
2010 | 2011 | |||||||
(In thousands) | ||||||||
Gross share-based compensation |
$ | 1,449 | $ | 1,363 | ||||
Capitalized share-based compensation |
(33 | ) | (38 | ) | ||||
Share-based compensation expense |
$ | 1,146 | $ | 1,325 | ||||
A summary of stock option activity within the Companys share-based compensation plans and changes
for the three months ended March 31, 2011 is as follows:
Number of | Weighted | |||||||
Shares | Average | |||||||
(In thousands) | Exercise Price | |||||||
Balance at December 31, 2010 |
1,618 | $ | 17.84 | |||||
Granted |
| | ||||||
Exercised |
(33 | ) | $ | 14.23 | ||||
Canceled/Expired |
(3 | ) | $ | 25.67 | ||||
Balance at March 31, 2011 |
1,582 | $ | 17.89 | |||||
The intrinsic value of options exercised during the three months ended March 31, 2011 was
approximately $300,000.
A summary of nonvested share-awards activity within the Companys share-based compensation plans
and changes for the three months ended March 31, 2011 is as follows:
Number of | Weighted Average | |||||||
Shares | Grant Date Fair | |||||||
(In thousands) | Value | |||||||
Nonvested at December 31, 2010 |
1,223 | $ | 16.51 | |||||
Awarded |
12 | $ | 22.05 | |||||
Released |
(31 | ) | $ | 14.51 | ||||
Forfeited |
(8 | ) | $ | 15.59 | ||||
Nonvested at March 31, 2011 |
1,196 | $ | 16.62 | |||||
11
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MOBILE MINI, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) Continued
(unaudited) Continued
A summary of fully-vested stock options and stock options expected to vest, as of March 31, 2011,
is as follows:
Weighted | ||||||||||||||||
Weighted | Average | Aggregate | ||||||||||||||
Number of | Average | Remaining | Intrinsic | |||||||||||||
Shares | Exercise | Contractual | Value | |||||||||||||
(In thousands) | Price | Term | (In thousands) | |||||||||||||
Outstanding |
1,582 | $ | 17.89 | 3.83 | $ | 10,503 | ||||||||||
Vested and expected to vest |
1,546 | $ | 17.78 | 3.74 | $ | 10,398 | ||||||||||
Exercisable |
1,305 | $ | 17.40 | 2.63 | $ | 9,386 |
The fair value of each stock option award is estimated on the date of the grant using the
Black-Scholes option pricing model. No stock options were granted during the three-month period
ended March 31, 2011.
NOTE G Inventories
Inventories are valued at the lower of cost (principally on a standard cost basis that approximates
the first-in, first-out (FIFO) method) or market. Market is the lower of replacement cost or net
realizable value. Inventories primarily consist of raw materials, supplies, work-in-process and
finished goods, all related to manufacturing, remanufacturing and maintenance, primarily for the
Companys lease fleet and its units held for sale. Raw materials principally consist of raw steel,
wood, glass, paint, vinyl and other assembly components used in manufacturing and remanufacturing
processes. Work-in-process primarily represents units being built that are either pre-sold or
being built to add to the Companys lease fleet upon completion. Finished portable storage units
primarily represent ISO (International Organization for Standardization) containers held in
inventory until the containers are either sold as is, remanufactured and sold, or units in the
process of being remanufactured to be compliant with the Companys lease fleet standards before
transferring the units to its lease fleet. There is no certainty when the Company purchases the
containers whether they will ultimately be sold, remanufactured and sold, or remanufactured and
moved into its lease fleet. Units that are determined to go into the Companys lease fleet undergo
an extensive remanufacturing process that includes installing its proprietary locking system,
signage, painting and sometimes its proprietary security doors.
Inventories consisted of the following at the dates indicated:
December 31, 2010 | March 31, 2011 | |||||||
(In thousands) | ||||||||
Raw material and supplies |
$ | 14,934 | $ | 15,807 | ||||
Work-in-process |
197 | 225 | ||||||
Finished portable storage units |
4,438 | 4,506 | ||||||
$ | 19,569 | $ | 20,538 | |||||
NOTE H Income Taxes
The Company files U.S. Federal tax returns, U.S. state tax returns, and foreign tax returns. The
Company has identified the Companys U.S. Federal tax return as the Companys major tax
jurisdiction. The Companys tax years for 2008 and 2009 are subject to tax examination by the U.S.
Internal Revenue Service (IRS) through September 15, 2012 and 2013, respectively. No reserves
for uncertain income tax positions have been recorded. The Company does not anticipate that the
total amount of unrecognized tax benefit related to any particular tax position will change
significantly within the next 12 months.
The Company uses a two-step approach to recognizing and measuring uncertain tax positions. The
first step is to evaluate the tax position for recognition by determining if the weight of
available evidence indicates that it is more likely than not that the position will be sustained on
audit, including resolution of related appeals or litigation processes, if any. The second step is
to measure the tax benefit as the largest amount that is more than 50% likely of being realized
upon ultimate settlement.
12
Table of Contents
MOBILE MINI, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) Continued
(unaudited) Continued
The Companys policy for recording interest and penalties associated with audits is to record such
items as a component of income before taxes. Penalties and associated interest costs, if any, are
recorded in leasing, selling and general expenses in the accompanying Condensed Consolidated
Statements of Income.
NOTE I Property, Plant and Equipment
Property, plant and equipment are stated at cost, net of accumulated depreciation. Depreciation is
calculated using the straight-line method over the assets estimated useful lives. Residual values
are determined when the property is constructed or acquired and range up to 25%, depending on the
nature of the asset. In the opinion of management, estimated residual values do not cause carrying
values to exceed net realizable value. Normal repairs and maintenance to property, plant and
equipment are expensed as incurred. When property or equipment is retired or sold, the net book
value of the asset, reduced by any proceeds, is charged to gain or loss on the retirement of fixed
assets and is included in leasing, selling and general expenses in the accompanying Condensed
Consolidated Statements of Income.
Property, plant and equipment consisted of the following at the dates indicated:
December 31, 2010 | March 31, 2011 | |||||||
(In thousands) | ||||||||
Land |
$ | 11,081 | $ | 11,140 | ||||
Vehicles and equipment |
80,594 | 82,693 | ||||||
Buildings and improvements (1) |
15,832 | 16,841 | ||||||
Office fixtures and equipment |
27,368 | 28,196 | ||||||
134,875 | 138,870 | |||||||
Less accumulated depreciation |
(54,144 | ) | (57,230 | ) | ||||
Total property, plant and equipment |
$ | 80,731 | $ | 81,640 | ||||
(1) | Improvements made to leased properties are depreciated over the lesser of the estimated remaining life or the remaining term of the respective lease. |
NOTE J Lease Fleet
Mobile Mini has a lease fleet primarily consisting of remanufactured and modified steel portable
storage containers, steel security offices and steel combination offices and wood mobile offices
that are leased to customers under short-term operating lease agreements with varying terms.
Depreciation is calculated using the straight-line method over the estimated useful life of the
Companys units, after the date that the Company put the unit in service, and are depreciated down
to their estimated residual values. The Companys steel units are depreciated over 30 years with
an estimated residual value of 55%. Wood office units are depreciated over 20 years with an
estimated residual value of 50%. Van trailers, which are a small part of the Companys fleet, are
depreciated over seven years to a 20% residual value. The Company has other non-core products that
have various other measures of useful lives and residual values. Van trailers and other non-core
products are only added to the fleet as a result of acquisitions of portable storage businesses.
In the opinion of management, estimated residual values do not cause carrying values to exceed net
realizable value. The Company continues to evaluate these depreciation policies as more
information becomes available from other comparable sources and the Companys own historical
experience. Normal repairs and maintenance to the portable storage and mobile office units are
expensed as incurred.
13
Table of Contents
MOBILE MINI, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) Continued
(unaudited) Continued
Lease fleet consisted of the following at the dates indicated:
December 31, 2010 | March 31, 2011 | |||||||
(In thousands) | ||||||||
Steel storage containers |
$ | 612,214 | $ | 612,282 | ||||
Offices |
529,892 | 533,066 | ||||||
Van trailers |
3,762 | 3,532 | ||||||
Other (chassis and ancillary products) |
2,491 | 2,517 | ||||||
1,148,359 | 1,151,397 | |||||||
Accumulated depreciation |
(119,956 | ) | (124,867 | ) | ||||
Lease fleet, net |
$ | 1,028,403 | $ | 1,026,530 | ||||
NOTE K Derivatives
In the normal course of business, the Companys operations are exposed to fluctuations in interest
rates. The Company addresses a portion of these risks through a controlled program of risk
management that includes the use of derivative financial instruments. The objective of controlling
these risks is to limit the impact of fluctuations in interest rates on earnings.
The Companys primary interest rate risk exposure results from changes in short-term U.S. dollar
interest rates. In an effort to manage variable interest rate exposures, the Company may enter
into interest rate swap agreements, which convert its floating rate debt to a fixed-rate and which
it designates as cash flow hedges. Interest expense on the notional amounts under these agreements
is accrued using the fixed rates identified in the swap agreements.
The Company had interest rate swap agreements with an aggregate notional amount of $125.0 million
at March 31, 2011. The fixed interest rates on the Companys five swap agreements range from 3.25%
to 3.87%, averaging 3.74%. The swap agreements mature during 2011.
The following tables summarize information related to the Companys derivatives. All of the
Companys derivatives are designated as effective hedging instruments in cash flow hedging
relationships.
Interest Rate Swap Agreements | ||||||
Fair Value | ||||||
Balance Sheet Location | (In thousands) | |||||
December 31, 2010 |
Accrued liabilities | $ | (2,124 | ) | ||
March 31, 2011 |
Accrued liabilities | $ | (1,058 | ) |
Interest Rate Swap Agreements | ||||
Amount of Gain | ||||
Recognized in Other | ||||
Comprehensive Income on | ||||
Derivatives | ||||
(In thousands) | ||||
Three months ended March 31, 2010 (net of income tax expense of $472) |
$ | 739 | ||
Three months ended March 31, 2011 (net of income tax expense of $411) |
$ | 655 |
14
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MOBILE MINI, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) Continued
(unaudited) Continued
NOTE L Segment Reporting
The Company has operations in the
United States, Canada, the United Kingdom and The Netherlands.
All of the Companys locations operate in their local currency and although the Company is exposed
to foreign exchange rate fluctuations in other foreign markets where the Company leases and sells
the Companys products, the Company does not believe this will have a significant impact on the
Companys results of operations. Financial results of geographic regions are aggregated into one
reportable segment since their operations have similar characteristics. Each location has similar
characteristics covering all products leased or sold, including similar products and services,
processes for delivering these services, customer base, sales personnel, advertising, yard
facilities, general and administrative costs and the method of branch management. Managements
allocation of resources, performance evaluations and operating decisions are not dependent on the
mix of a branchs products. The Company does 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 local operations include the leasing and sales of portable
storage units, portable offices and combination units configured for both storage and office space.
The Company leases to businesses and consumers in the general geographic area surrounding each
location.
In managing the Companys business, management
focuses on growing leasing revenues, EBITDA and EPS.
Discrete financial data on each of the Companys products is not available and it would be
impractical to collect and maintain financial data in such a manner; therefore reportable segment
information is the same as contained in the accompanying condensed consolidated financial
statements.
The tables below represent the Companys revenues from customers and long-lived assets, consisting
of lease fleet and property, plant and equipment.
Revenues from customers:
Three Months Ended | ||||||||
March 31, | ||||||||
2010 | 2011 | |||||||
(In thousands) | ||||||||
North America (1) |
$ | 64,373 | $ | 68,363 | ||||
United Kingdom |
12,046 | 13,916 | ||||||
The Netherlands |
459 | 580 | ||||||
Total revenues |
$ | 76,878 | $ | 82,859 | ||||
(1) | Includes revenues in the United States of $63.7 million and $67.6 million for the three-month periods ended March 31, 2010 and 2011, respectively. |
15
Table of Contents
MOBILE MINI, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) Continued
(unaudited) Continued
Long-lived assets:
December 31, 2010 | March 31, 2011 | |||||||
(In thousands) | ||||||||
North America (1) |
$ | 973,953 | $ | 967,614 | ||||
United Kingdom |
131,203 | 136,404 | ||||||
The Netherlands |
3,978 | 4,152 | ||||||
Total long-lived assets |
$ | 1,109,134 | $ | 1,108,170 | ||||
(1) | Includes long lived assets of $959.9 million and $953.3 million in the United States at December 31, 2010 and March 31, 2011, respectively. |
NOTE M Comprehensive Income (Loss)
Comprehensive income (loss), net of tax, consisted of the following at the dates indicated:
Three Months Ended | ||||||||
March 31, | ||||||||
2010 | 2011 | |||||||
(In thousands) | ||||||||
Net income |
$ | 2,410 | $ | 4,151 | ||||
Net unrealized gain on derivatives |
739 | 655 | ||||||
Foreign currency translation adjustment |
(7,674 | ) | 6,324 | |||||
Total comprehensive (loss) income |
$ | (4,525 | ) | $ | 11,130 | |||
The components of accumulated other comprehensive loss, net of tax, were as follows:
December 31, 2010 | March 31, 2011 | |||||||
(In thousands) | ||||||||
Accumulated net unrealized loss on derivatives |
$ | (1,316 | ) | $ | (661 | ) | ||
Foreign currency translation adjustment |
(24,671 | ) | (18,346 | ) | ||||
Total accumulated other comprehensive loss |
$ | (25,987 | ) | $ | (19,007 | ) | ||
NOTE N Integration, Merger and Restructuring Expenses
In connection with the acquisition of MSG, the Company recorded accruals for costs to be incurred
to exit overlapping MSG lease properties, property shut down costs, costs of MSGs severance
agreements, costs for asset verification and for damaged assets.
As a result of the acquisition, the Company leveraged the combined fleet and restructured the
manufacturing operations and reduced overhead and capital expenditures for the lease fleet. In
connection with these activities, the Company recorded costs for severance agreements and recorded
impairment charges to write down certain assets previously used in conjunction with the
manufacturing operations and inventories.
16
Table of Contents
MOBILE MINI, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) Continued
(unaudited) Continued
The following table details accrued integration, merger and restructuring obligations (included in
accrued liabilities in the accompanying Condensed Consolidated Balance Sheets) and related activity
for the period ended March 31, 2011:
Lease | ||||||||||||||||
Severance and | Abandonment | Acquisition | ||||||||||||||
Benefits | Costs | Integration | Total | |||||||||||||
(In thousands) | ||||||||||||||||
Accrued obligations as of December 31, 2009 |
$ | 465 | $ | 5,742 | $ | 3 | $ | 6,210 | ||||||||
Integration, merger and restructuring expense |
2,214 | | 1,800 | 4,014 | ||||||||||||
Cash paid |
(2,679 | ) | (1,935 | ) | (1,803 | ) | (6,417 | ) | ||||||||
Accrued obligations as of December 31, 2010 |
| 3,807 | | 3,807 | ||||||||||||
Integration, merger and restructuring expenses |
108 | | 97 | 205 | ||||||||||||
Cash paid |
(99 | ) | (422 | ) | (97 | ) | (618 | ) | ||||||||
Accrued obligations as of March 31, 2011 |
$ | 9 | $ | 3,385 | $ | | $ | 3,394 | ||||||||
These accrued obligations are expected to be paid out through the year 2014.
The following amounts are included in integration, merger and restructuring expenses for the
periods indicated:
Three Months Ended | ||||||||
March 31, | ||||||||
2010 | 2011 | |||||||
Severance and benefits |
$ | 1,651 | $ | 108 | ||||
Acquisition integration |
575 | 97 | ||||||
Integration, merger and restructuring expenses |
$ | 2,226 | $ | 205 | ||||
NOTE O Subsequent Events
Effective April 14, 2011, all of the remaining issued and outstanding shares of Series A
Convertible Redeemable Participating Preferred Stock, par value $0.01 per share (the Series A
Preferred Stock), of Mobile Mini, Inc. automatically converted into an aggregate of 8,182,356
shares of the Companys common stock, par value $0.01 per share, in accordance with the terms and
conditions set forth in the Certificate of Designation of the Rights and Preferences of the Series
A Preferred Stock. The shares of Series A Preferred Stock were issued in connection with the
consummation of the transactions contemplated by the Agreement and Plan of Merger, dated February
22, 2008, by and among Mobile Mini, Cactus Merger Sub, Inc., MSG WC Holdings Corp., and Welsh,
Carson, Anderson & Stowe X, L.P.
NOTE P Condensed Consolidating Financial Information
Mobile Mini Supplemental Indenture
The following tables present the condensed consolidating financial information of Mobile Mini,
Inc., representing the subsidiaries of the guarantors of the Senior Notes and the non-guarantor
subsidiaries. Separate financial statements of the subsidiary guarantors are not presented because
the guarantee by each 100% owned subsidiary guarantor is full and unconditional, joint and several,
and management has determined that such information is not material to investors.
17
Table of Contents
MOBILE MINI, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) Continued
(unaudited) Continued
MOBILE MINI, INC.
CONDENSED CONSOLIDATING BALANCE SHEETS
As of December 31, 2010
(In thousands)
CONDENSED CONSOLIDATING BALANCE SHEETS
As of December 31, 2010
(In thousands)
Non- | ||||||||||||||||
Guarantors | Guarantors | Eliminations | Consolidated | |||||||||||||
(In thousands) | ||||||||||||||||
ASSETS |
||||||||||||||||
Cash |
$ | 1,065 | $ | 569 | $ | | $ | 1,634 | ||||||||
Receivables, net |
31,496 | 11,182 | | 42,678 | ||||||||||||
Inventories |
17,812 | 1,806 | (49 | ) | 19,569 | |||||||||||
Lease fleet, net |
909,715 | 118,688 | | 1,028,403 | ||||||||||||
Property, plant and equipment, net |
64,238 | 16,493 | | 80,731 | ||||||||||||
Deposits and prepaid expenses |
7,334 | 1,071 | | 8,405 | ||||||||||||
Other assets and intangibles, net |
19,856 | 3,622 | | 23,478 | ||||||||||||
Goodwill |
447,278 | 64,141 | | 511,419 | ||||||||||||
Intercompany |
106,502 | 35,788 | (142,290 | ) | | |||||||||||
Total assets |
$ | 1,605,296 | $ | 253,360 | $ | (142,339 | ) | $ | 1,716,317 | |||||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||||||||||
Liabilities: |
||||||||||||||||
Accounts payable |
$ | 8,604 | $ | 5,003 | $ | | $ | 13,607 | ||||||||
Accrued liabilities |
46,215 | 3,061 | | 49,276 | ||||||||||||
Lines of credit |
358,232 | 38,650 | | 396,882 | ||||||||||||
Notes payable |
289 | | | 289 | ||||||||||||
Obligations under capital leases |
2,576 | | | 2,576 | ||||||||||||
Senior Notes, net of discount |
371,655 | | | 371,655 | ||||||||||||
Deferred income taxes |
154,335 | 11,926 | (694 | ) | 165,567 | |||||||||||
Intercompany |
23 | 4,658 | (4,681 | ) | | |||||||||||
Total liabilities |
941,929 | 63,298 | (5,375 | ) | 999,852 | |||||||||||
Commitments and contingencies |
||||||||||||||||
Convertible preferred stock |
147,427 | | | 147,427 | ||||||||||||
Stockholders equity: |
||||||||||||||||
Common stock |
390 | 18,434 | (18,434 | ) | 390 | |||||||||||
Additional paid-in capital |
349,695 | 119,173 | (119,175 | ) | 349,693 | |||||||||||
Retained earnings |
205,131 | 78,466 | 645 | 284,242 | ||||||||||||
Accumulated other comprehensive loss |
24 | (26,011 | ) | | (25,987 | ) | ||||||||||
Treasury stock, at cost |
(39,300 | ) | | | (39,300 | ) | ||||||||||
Total stockholders equity |
515,940 | 190,062 | (136,964 | ) | 569,038 | |||||||||||
Total liabilities and stockholders equity |
$ | 1,605,296 | $ | 253,360 | $ | (142,339 | ) | $ | 1,716,317 | |||||||
18
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MOBILE MINI, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) Continued
(unaudited) Continued
MOBILE MINI, INC.
CONDENSED CONSOLIDATING BALANCE SHEETS
As of March 31, 2011
(In thousands)
CONDENSED CONSOLIDATING BALANCE SHEETS
As of March 31, 2011
(In thousands)
Non- | ||||||||||||||||
Guarantors | Guarantors | Eliminations | Consolidated | |||||||||||||
ASSETS |
||||||||||||||||
Cash and cash equivalents |
$ | 2,031 | $ | 358 | $ | | $ | 2,389 | ||||||||
Receivables, net |
29,299 | 12,046 | | 41,345 | ||||||||||||
Inventories |
17,962 | 2,626 | (50 | ) | 20,538 | |||||||||||
Lease fleet, net |
902,742 | 123,788 | | 1,026,530 | ||||||||||||
Property, plant and equipment, net |
64,872 | 16,768 | | 81,640 | ||||||||||||
Deposits and prepaid expenses |
7,788 | 968 | | 8,756 | ||||||||||||
Other assets and intangibles, net |
18,413 | 3,437 | | 21,850 | ||||||||||||
Goodwill |
447,328 | 66,475 | | 513,803 | ||||||||||||
Intercompany |
106,531 | 35,903 | (142,434 | ) | | |||||||||||
Total assets |
$ | 1,596,966 | $ | 262,369 | $ | (142,484 | ) | $ | 1,716,851 | |||||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||||||||||
Liabilities: |
||||||||||||||||
Accounts payable |
$ | 8,360 | $ | 7,068 | $ | | $ | 15,428 | ||||||||
Accrued liabilities |
47,762 | 3,020 | | 50,782 | ||||||||||||
Lines of credit |
361,800 | 38,369 | | 400,169 | ||||||||||||
Notes payable |
197 | | | 197 | ||||||||||||
Obligations under capital leases |
2,188 | | | 2,188 | ||||||||||||
Senior Notes, net |
349,654 | | | 349,654 | ||||||||||||
Deferred income taxes |
157,095 | 12,640 | (709 | ) | 169,026 | |||||||||||
Intercompany |
23 | 4,802 | (4,825 | ) | | |||||||||||
Total liabilities |
927,079 | 65,899 | (5,534 | ) | 987,444 | |||||||||||
Commitments and contingencies |
||||||||||||||||
Convertible preferred stock |
147,272 | | | 147,272 | ||||||||||||
Stockholders equity: |
||||||||||||||||
Common stock |
390 | 18,434 | (18,434 | ) | 390 | |||||||||||
Additional paid-in capital |
351,659 | 119,175 | (119,175 | ) | 351,659 | |||||||||||
Retained earnings |
208,776 | 78,958 | 659 | 288,393 | ||||||||||||
Accumulated other comprehensive loss |
1,090 | (20,097 | ) | | (19,007 | ) | ||||||||||
Treasury stock, at cost |
(39,300 | ) | | | (39,300 | ) | ||||||||||
Total stockholders equity |
522,615 | 196,470 | (136,950 | ) | 582,135 | |||||||||||
Total liabilities and stockholders equity |
$ | 1,596,966 | $ | 262,369 | $ | (142,484 | ) | $ | 1,716,851 | |||||||
19
Table of Contents
MOBILE MINI, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) Continued
(unaudited) Continued
MOBILE MINI, INC.
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
Three Months Ended March 31, 2010
(In thousands)
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
Three Months Ended March 31, 2010
(In thousands)
Non- | ||||||||||||||||
Guarantors | Guarantors | Eliminations | Consolidated | |||||||||||||
Revenues: |
||||||||||||||||
Leasing |
$ | 58,800 | $ | 11,379 | $ | | $ | 70,179 | ||||||||
Sales |
5,280 | 1,034 | | 6,314 | ||||||||||||
Other |
293 | 92 | | 385 | ||||||||||||
Total revenues |
64,373 | 12,505 | | 76,878 | ||||||||||||
Costs and expenses: |
||||||||||||||||
Cost of sales |
3,309 | 781 | | 4,090 | ||||||||||||
Leasing, selling and general expenses |
33,956 | 8,906 | | 42,862 | ||||||||||||
Integration, merger and restructuring expenses |
2,226 | | | 2,226 | ||||||||||||
Depreciation and amortization |
7,376 | 1,764 | | 9,140 | ||||||||||||
Total costs and expenses |
46,867 | 11,451 | | 58,318 | ||||||||||||
Income from operations |
17,506 | 1,054 | | 18,560 | ||||||||||||
Other income (expense): |
||||||||||||||||
Interest income |
310 | 1 | (310 | ) | 1 | |||||||||||
Interest expense |
(13,983 | ) | (1,014 | ) | 310 | (14,687 | ) | |||||||||
Dividend income |
215 | | (215 | ) | | |||||||||||
Foreign currency exchange |
| (8 | ) | | (8 | ) | ||||||||||
Income (loss) before provision for (benefit from)
income taxes |
4,048 | 33 | (215 | ) | 3,866 | |||||||||||
Provision for (benefit from) income taxes |
1,577 | (87 | ) | (34 | ) | 1,456 | ||||||||||
Net income (loss) |
$ | 2,471 | $ | 120 | $ | (181 | ) | $ | 2,410 | |||||||
20
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MOBILE MINI, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) Continued
(unaudited) Continued
MOBILE MINI, INC.
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
Three Months Ended March 31, 2011
(In thousands)
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
Three Months Ended March 31, 2011
(In thousands)
Non- | ||||||||||||||||
Guarantors | Guarantors | Eliminations | Consolidated | |||||||||||||
Revenues: |
||||||||||||||||
Leasing |
$ | 59,656 | $ | 13,023 | $ | | $ | 72,679 | ||||||||
Sales |
8,023 | 1,389 | | 9,412 | ||||||||||||
Other |
684 | 84 | | 768 | ||||||||||||
Total revenues |
68,363 | 14,496 | | 82,859 | ||||||||||||
Costs and expenses: |
||||||||||||||||
Cost of sales |
5,034 | 985 | | 6,019 | ||||||||||||
Leasing, selling and general expenses |
36,811 | 10,277 | | 47,088 | ||||||||||||
Integration, merger and restructuring expenses |
205 | | | 205 | ||||||||||||
Depreciation and amortization |
7,152 | 1,643 | | 8,795 | ||||||||||||
Total costs and expenses |
49,202 | 12,905 | | 62,107 | ||||||||||||
Income from operations |
19,161 | 1,591 | | 20,752 | ||||||||||||
Other income (expense): |
||||||||||||||||
Interest income |
126 | | (126 | ) | | |||||||||||
Interest expense |
(12,228 | ) | (597 | ) | 126 | (12,699 | ) | |||||||||
Deferred financing costs write-off |
221 | | (221 | ) | | |||||||||||
Dividend income |
(1,334 | ) | | | (1,334 | ) | ||||||||||
Foreign currency exchange |
| (1 | ) | | (1 | ) | ||||||||||
Income (loss) before provision for (benefit from)
income taxes |
5,946 | 993 | (221 | ) | 6,718 | |||||||||||
Provision for (benefit from) income taxes |
2,301 | 281 | (15 | ) | 2,567 | |||||||||||
Net income (loss) |
$ | 3,645 | $ | 712 | $ | (206 | ) | $ | 4,151 | |||||||
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MOBILE MINI, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) Continued
(unaudited) Continued
MOBILE MINI, INC.
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 2010
(In thousands)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 2010
(In thousands)
Non- | ||||||||||||||||
Guarantors | Guarantors | Eliminations | Consolidated | |||||||||||||
Cash Flows From Operating Activities: |
||||||||||||||||
Net income (loss) |
$ | 2,471 | $ | 120 | $ | (181 | ) | $ | 2,410 | |||||||
Adjustments to reconcile income to net cash (used in)
provided by operating activities: |
||||||||||||||||
Provision for doubtful accounts |
530 | 85 | | 615 | ||||||||||||
Amortization of deferred financing costs |
1,114 | | | 1,114 | ||||||||||||
Amortization of long-term liabilities |
325 | 13 | | 338 | ||||||||||||
Share-based compensation expense |
1,243 | 173 | | 1,416 | ||||||||||||
Depreciation and amortization |
7,376 | 1,764 | | 9,140 | ||||||||||||
Gain on sale of lease fleet units |
(1,877 | ) | (149 | ) | | (2,026 | ) | |||||||||
Gain on disposal of property, plant and equipment |
| (7 | ) | | (7 | ) | ||||||||||
Deferred income taxes |
1,531 | (87 | ) | 12 | 1,456 | |||||||||||
Foreign currency exchange loss |
| 8 | | 8 | ||||||||||||
Changes in certain assets and liabilities: |
||||||||||||||||
Receivables |
2,426 | 661 | | 3,087 | ||||||||||||
Inventories |
747 | 1 | | 748 | ||||||||||||
Deposits and prepaid expenses |
798 | 154 | | 952 | ||||||||||||
Other assets and intangibles |
(182 | ) | | | (182 | ) | ||||||||||
Accounts payable |
(366 | ) | (409 | ) | | (775 | ) | |||||||||
Accrued liabilities |
(7,596 | ) | (448 | ) | | (8,044 | ) | |||||||||
Intercompany |
(62,115 | ) | 66,680 | (4,565 | ) | | ||||||||||
Net cash (used in) provided by operating activities |
(53,575 | ) | 68,559 | (4,734 | ) | 10,250 | ||||||||||
Cash Flows From Investing Activities: |
||||||||||||||||
Additions to lease fleet units |
(2,023 | ) | (1,809 | ) | | (3,832 | ) | |||||||||
Proceeds from sale of lease fleet units |
4,880 | 559 | | 5,439 | ||||||||||||
Additions to property, plant and equipment |
(359 | ) | (198 | ) | | (557 | ) | |||||||||
Proceeds from sale of property, plant and equipment |
18 | 30 | | 48 | ||||||||||||
Net cash provided by (used in) investing activities |
2,516 | (1,418 | ) | | 1,098 | |||||||||||
Cash Flows From Financing Activities: |
||||||||||||||||
Net borrowings (repayments) under lines of credit |
60,022 | (63,460 | ) | (3,545 | ) | (6,983 | ) | |||||||||
Proceeds from notes payable |
94 | | | 94 | ||||||||||||
Redemption of 9.75% senior notes due 2014 |
(6,000 | ) | | | (6,000 | ) | ||||||||||
Principal payments on notes payable |
(329 | ) | (14 | ) | | (343 | ) | |||||||||
Principal payments on capital lease obligations |
(361 | ) | | | (361 | ) | ||||||||||
Issuance of common stock, net |
227 | | | 227 | ||||||||||||
Intercompany |
| (216 | ) | 216 | | |||||||||||
Net cash provided by (used in) financing activities |
53,653 | (63,690 | ) | (3,329 | ) | (13,366 | ) | |||||||||
Effect of exchange rate changes on cash |
(1,333 | ) | (3,934 | ) | 8,063 | 2,796 | ||||||||||
Net increase (decrease) in cash |
1,261 | (483 | ) | | 778 | |||||||||||
Cash at beginning of period |
582 | 1,158 | | 1,740 | ||||||||||||
Cash at end of period |
$ | 1,843 | $ | 675 | $ | | $ | 2,518 | ||||||||
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MOBILE MINI, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) Continued
(unaudited) Continued
MOBILE MINI, INC.
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 2011
(In thousands)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 2011
(In thousands)
Non- | ||||||||||||||||
Guarantors | Guarantors | Eliminations | Consolidated | |||||||||||||
Cash Flows From Operating Activities: |
||||||||||||||||
Net (loss) income |
$ | 3,645 | $ | 712 | $ | (206 | ) | $ | 4,151 | |||||||
Adjustments to reconcile net income to net cash (used in)
provided by operating activities: |
||||||||||||||||
Debt extinguishment costs |
1,334 | | | 1,334 | ||||||||||||
Provision for doubtful accounts |
315 | 184 | | 499 | ||||||||||||
Amortization of deferred financing costs |
1,041 | | | 1,041 | ||||||||||||
Amortization of long-term liabilities |
80 | 4 | | 84 | ||||||||||||
Share-based compensation expense |
1,152 | 173 | | 1,325 | ||||||||||||
Depreciation and amortization |
7,152 | 1,643 | | 8,795 | ||||||||||||
Gain on sale of lease fleet units |
(2,817 | ) | (276 | ) | | (3,093 | ) | |||||||||
Loss (gain) on disposal of property, plant and equipment |
22 | (1 | ) | | 21 | |||||||||||
Deferred income taxes |
2,297 | 281 | (10 | ) | 2,568 | |||||||||||
Foreign currency exchange loss |
| 1 | | 1 | ||||||||||||
Changes in certain assets and liabilities: |
||||||||||||||||
Receivable |
1,897 | (638 | ) | | 1,259 | |||||||||||
Inventories |
(147 | ) | (747 | ) | | (894 | ) | |||||||||
Deposits and prepaid expenses |
(451 | ) | 146 | | (305 | ) | ||||||||||
Other assets and intangibles |
(97 | ) | | | (97 | ) | ||||||||||
Accounts payable |
(247 | ) | 1,878 | | 1,631 | |||||||||||
Accrued liabilities |
2,607 | (153 | ) | | 2,454 | |||||||||||
Intercompany |
159 | (966 | ) | 807 | | |||||||||||
Net cash provided by operating activities |
17,942 | 2,241 | 591 | 20,774 | ||||||||||||
Cash Flows From Investing Activities: |
||||||||||||||||
Additions to lease fleet units |
(1,646 | ) | (1,871 | ) | | (3,517 | ) | |||||||||
Proceeds from sale of lease fleet units |
7,371 | 832 | | 8,203 | ||||||||||||
Additions to property, plant and equipment |
(2,844 | ) | (347 | ) | | (3,191 | ) | |||||||||
Proceeds from sale of property, plant and equipment |
24 | 2 | | 26 | ||||||||||||
Net cash provided by (used in) investing activities |
2,905 | (1,384 | ) | | 1,521 | |||||||||||
Cash Flows From Financing Activities: |
||||||||||||||||
Net borrowings (repayments) under lines of credit |
3,568 | (1,683 | ) | 1,403 | 3,288 | |||||||||||
Redemption of 9.75% senior notes due 2014 |
(22,272 | ) | | | (22,272 | ) | ||||||||||
Redemption premiums of 9.75% senior notes due 2014 |
(1,086 | ) | | | (1,086 | ) | ||||||||||
Principal payments on notes payable |
(92 | ) | | | (92 | ) | ||||||||||
Principal payments on capital lease obligations |
(389 | ) | | | (389 | ) | ||||||||||
Issuance of common stock, net |
446 | | | 446 | ||||||||||||
Intercompany |
| (223 | ) | 223 | | |||||||||||
Net cash (used in) provided by financing activities |
(19,825 | ) | (1,906 | ) | 1,626 | (20,105 | ) | |||||||||
Effect of exchange rate changes on cash |
(56 | ) | 838 | (2,217 | ) | (1,435 | ) | |||||||||
Net increase (decrease) in cash |
966 | (211 | ) | | 755 | |||||||||||
Cash at beginning of period |
1,065 | 569 | | 1,634 | ||||||||||||
Cash at end of period |
$ | 2,031 | $ | 358 | $ | | $ | 2,389 | ||||||||
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ITEM 2. | MANAGEMENTS 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, 2010 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 (SEC) on March 1, 2011.
This discussion contains forward-looking statements. Forward-looking statements are based on
current expectations and assumptions that involve risks and uncertainties. Our actual results may
differ materially from those anticipated in our forward-looking statements.
Overview
General
We are the worlds leading provider of portable storage solutions, with a total lease fleet of
approximately 242,800 portable storage and office units at March 31, 2011. We offer a wide range
of portable storage products in varying lengths and widths with an assortment of differentiated
features such as our patented locking systems, multiple doors, electrical wiring and shelving.
We derive most of our revenues from the leasing of portable storage containers and security offices
and mobile offices. In addition to our leasing business, we also sell portable storage containers,
security offices, and mobile office units. Our sales revenues represented 8.2% and 11.4% of total
revenues for the three months ended March 31, 2010 and 2011, respectively.
Traditionally, we entered new markets through the acquisition of the business of a smaller local
competitor and then implement our business model, which is usually more focused on customer service
and marketing than the acquired business or other market competitors. Given our current
utilization levels, we are currently entering new markets through greenfield locations by migrating
idle fleet to low-cost operational yards. These greenfield operational yards do not have all the
overhead associated with a fully staffed branch as they typically only have drivers and yard
personnel to handle deliveries and pick-ups of our fleet. A new location will generally 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 location, we are typically
able to reach company average levels of profitability after several years. The costs associated
with opening a greenfield operational yard are lower than a fully staffed branch, which should have
a comparatively positive effect on margins.
When we enter a new market, we incur certain costs in developing new infrastructure. For example,
advertising and marketing costs will be incurred and certain minimum levels of staffing and
delivery equipment will be put in place regardless of the new markets revenue base. Once we have
achieved revenues during any period that are sufficient to cover our fixed expenses, we are able to
generate relatively high margins on incremental lease revenues. Therefore, each additional unit
rented in excess of the break-even level contributes significantly to profitability. Conversely,
any additional fixed expenses require us to achieve additional revenue in order to maintain our
margins. When we refer to our operating leverage in this discussion, we are describing the impact
on margins once we either cover our fixed costs or if we incur additional fixed costs.
The level of non-residential construction activity is an important external factor that we examine
to determine the direction of our business. Customers in the construction industry represented 32%
of our leased units at March 31, 2011 and because of the degree of operating leverage we have,
increases or decreases in non-residential construction activity can have a significant effect on
our operating margins and net income. Beginning in the second quarter of 2008, the level of our
construction related business slowed down and then declined. The decline continued and adversely
affected our results of operations. Although it has not returned to pre-2009 levels, the level of
our construction related business began to stabilize and then increase in 2010. This stabilization
has been apparent in 2011 thus far as well.
In managing our business, we focus on growing leasing revenues, particularly in existing markets
where we can take advantage of the high operating leverage inherent in our business model. Our
goals are to maintain a stable operating margin and, after the economy returns to normalized
conditions, a steady growth rate in leasing revenues.
We are a capital-intensive business.
Therefore, in addition to focusing on earnings per share (EPS), we focus on
adjusted EBITDA to measure our operating results. We calculate this number by first calculating
EBITDA, which we define as net income before interest expense, income taxes, depreciation and
amortization and debt restructuring or extinguishment expense. This measure eliminates the effect
of financing transactions that we enter into and it provides us with a means to track 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 further adjust EBITDA to exclude the effect of what we consider transactions or events
not related to our core business operations to arrive at what we define as adjusted EBITDA. The
U.S. generally accepted accounting principles, or GAAP, financial measure that is most directly comparable to EBITDA is net cash provided by operating
activities.
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Because EBITDA, EBITDA margin, adjusted EBITDA and adjusted EBITDA margin are non-GAAP financial
measures as defined by the SEC, we include below in this report reconciliations of EBITDA to the
most directly comparable financial measures calculated and presented in accordance with GAAP.
We present EBITDA and EBITDA margin because we believe it provides useful information regarding our
ability to meet our future debt payment requirements, capital expenditures and working capital
requirements and that it provides an overall evaluation of our financial condition. EBITDA margin
is calculated by dividing consolidated EBITDA by total revenues. The GAAP financial measure that
is most directly comparable to EBITDA margin is operating margin, which represents operating income
divided by revenues. More emphasis should not be placed on EBITDA margin than the corresponding
GAAP measure. In addition, EBITDA is a component of certain financial covenants under our
revolving credit facility and is used to determine our available borrowing capacity and the credit
facilitys applicable interest rate in effect at the end of each measurement period. EBITDA has
certain limitations as an analytical tool and should not be used as a substitute for net income,
cash flows or other consolidated income or cash flow data prepared in accordance with GAAP or as a
measure of our profitability or our liquidity. In particular, EBITDA, as defined, does not
include:
| Interest expense Because we borrow money to partially finance our capital expenditures, primarily related to the expansion of our lease fleet, interest expense is a necessary element of our cost to secure this financing to continue generating additional revenues. |
| Income taxes EBITDA, as defined, does not reflect income taxes or the requirements for any tax payments. |
| Depreciation and amortization Because we are a leasing company, our business is very capital intensive and we hold acquired assets for a period of time before they generate revenues, cash flow and earnings; therefore, depreciation and amortization expense is a necessary element of our business. |
| Debt restructuring or extinguishment expense Debt restructuring or debt extinguishment expenses are not deducted in our various calculations made under our facility and are treated no differently than interest expense. As discussed above, interest expense is a necessary element of our cost to finance a portion of the capital expenditures needed for the growth of our business. |
When evaluating EBITDA as a performance measure, and excluding the above-noted charges, all of
which have material limitations, investors should consider, among other factors, the following:
| increasing or decreasing trends in EBITDA; |
| how EBITDA compares to levels of debt and interest expense; and |
| whether EBITDA historically has remained at positive levels. |
Because EBITDA, as defined, excludes some but not all items that affect our cash flow from
operating activities, EBITDA may not be comparable to similarly titled performance measures
presented by other companies.
Adjusted EBITDA represents EBITDA plus the sum of certain transactions that are excluded when
internally evaluating our operating performance. Management believes adjusted EBITDA is a more
meaningful evaluation and comparison of our core business when comparing period over period results
without regard to transactions that potentially distort the performance of our core business
operating results.
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The table below is a reconciliation of EBITDA to net cash provided by operating activities for the
periods indicated:
Three Months Ended | ||||||||
March 31, | ||||||||
2010 | 2011 | |||||||
(In thousands) | ||||||||
EBITDA |
$ | 27,693 | $ | 29,546 | ||||
Interest paid |
(14,977 | ) | (5,383 | ) | ||||
Income and franchise taxes paid |
(133 | ) | (66 | ) | ||||
Share-based compensation expense |
1,416 | 1,325 | ||||||
Gain on sale of lease fleet units |
(2,026 | ) | (3,093 | ) | ||||
(Gain) loss on disposal of property, plant and equipment |
(7 | ) | 21 | |||||
Changes in certain assets and liabilities: |
||||||||
Receivables |
3,702 | 1,758 | ||||||
Inventories |
748 | (894 | ) | |||||
Deposits and prepaid expenses |
952 | (305 | ) | |||||
Other assets and intangibles |
(182 | ) | (97 | ) | ||||
Accounts payable and accrued liabilities |
(6,936 | ) | (2,038 | ) | ||||
Net cash provided by operating activities |
$ | 10,250 | $ | 20,774 | ||||
The table below is a reconciliation of net income to EBITDA and adjusted EBITDA, for the periods
indicated:
Three Months Ended | ||||||||
March 31, | ||||||||
2010 | 2011 | |||||||
(In thousands except percentages) | ||||||||
Net income |
$ | 2,410 | $ | 4,151 | ||||
Interest expense |
14,687 | 12,699 | ||||||
Income taxes |
1,456 | 2,567 | ||||||
Depreciation and amortization |
9,140 | 8,795 | ||||||
Debt restructuring expense |
| 1,334 | ||||||
EBITDA |
27,693 | 29,546 | ||||||
Integration, merger and
restructuring expenses, other (1) |
2,266 | 245 | ||||||
Adjusted EBITDA |
$ | 29,959 | $ | 29,791 | ||||
EBITDA margin(2) |
36.0 | % | 35.7 | % | ||||
Adjusted EBITDA margin(2) |
39.0 | % | 36.0 | % | ||||
(1) | Integration, merger and restructuring expenses represent continuing costs we incurred in connection with the Mobile Storage Group, Inc. (MSG) acquisition and expenses in conjunction with the restructuring of our manufacturing operations as a result of the MSG acquisition and other represents one-time expenses incurred in the applicable period. | |
(2) | EBITDA margin and adjusted EBITDA margin are calculated as EBITDA and adjusted EBITDA, divided by total revenues expressed as a percentage. |
In managing our business, we measure our EBITDA margins from year to year and based upon the size
of our branches. 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 branch locations,
we achieve higher EBITDA margins on that capital than we achieve on capital invested to establish a
new branch, because our fixed costs are already in place in connection with the established
branches. The fixed costs are those associated with yard and delivery equipment, as well as
advertising, sales, marketing and office expenses. With a new branch or operational yard, we must
first fund and absorb the start-up costs for setting up the new location, hiring and developing the
management and sales team and developing our marketing and advertising programs. A new location
will have lower EBITDA margins in its early years until the branch increases the number of units it
has on rent. Because this operating leverage creates higher 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 branchs fixed costs, leasing revenues in excess of the break-even amount
produce large increases in
profitability. Conversely, absent growth in leasing revenues, the EBITDA margin at a branch would
be expected to remain relatively flat on a period-by-period comparative basis if expenses remained
the same or would decrease if fixed costs increased.
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Table of Contents
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 and mobile offices 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, remanufacture 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 expenses, payroll and
related payroll costs, advertising and other marketing expenses, real property lease expenses,
commissions, repair and maintenance costs of our lease fleet and transportation equipment,
stock-based compensation expense and corporate expenses for both our leasing and sales activities.
Annual repair and maintenance expenses on our leased units have averaged approximately 2.7% of
lease revenues over the last three fiscal years 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
container lease fleet, which has historically maintained value close to its
original cost. The steel units in our lease fleet (other than van trailers) are depreciated on the
straight-line method over our units estimated useful life of 30 years after the date the unit is
placed in service, with an estimated residual value of 55%. The depreciation policy is supported
by our historical lease fleet data which shows that we have been able to obtain comparable rental
rates and sales prices irrespective of the age of our container lease fleet. Our wood mobile
office units are depreciated over 20 years to 50% of original cost. Van trailers, which constitute
a small part of our fleet, are depreciated over seven 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. We also
have other non-core products that are added to our fleet as a result of acquisitions that have
various other measures of useful lives and residual values.
The table below summarizes those transactions that effectively maintained the net book value of our
lease fleet at $1.0 billion at December 31, 2010 and March 31, 2011:
Dollars | Units | |||||||
(In thousands) | ||||||||
Lease fleet at December 31, 2010, net |
$ | 1,028,403 | 245,499 | |||||
Purchases: |
||||||||
Container purchases, including freight |
117 | 33 | ||||||
Manufactured units: |
||||||||
Steel security offices |
211 | 13 | ||||||
Wood mobile offices |
116 | 4 | ||||||
Remanufacturing and customization of units purchased or obtained in prior years |
3,213 | (1) | 63 | (2) | ||||
Other (3) |
(26 | ) | (75 | ) | ||||
Cost of sales from lease fleet |
(5,127 | ) | (2,737 | ) | ||||
Effect of exchange rate changes |
4,806 | |||||||
Change in accumulated depreciation, excluding sales |
(5,183 | ) | ||||||
Lease fleet at March 31, 2011, net |
$ | 1,026,530 | 242,800 | |||||
(1) | Does not include any routine maintenance, which is expensed as incurred. | |
(2) | These units include the net additional units that were the result of splitting steel containers into two 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 and include units moved from finished goods to the lease fleet. | |
(3) | Includes net transfers to and from property, plant and equipment and net non-sale disposals and recoveries of the lease fleet. |
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The table below outlines the composition of our lease fleet (by book value and unit count) at March
31, 2011:
Number of | Percentage | |||||||||||
Book Value | Units | of Units | ||||||||||
(In thousands) | ||||||||||||
Steel storage containers |
$ | 612,282 | 196,437 | 81 | % | |||||||
Steel and wood offices |
533,066 | 41,404 | 17 | % | ||||||||
Van trailers |
3,532 | 4,959 | 2 | % | ||||||||
Other (chassis and ancillary products) |
2,517 | |||||||||||
1,151,397 | ||||||||||||
Accumulated depreciation |
(124,867 | ) | ||||||||||
$ | 1,026,530 | 242,800 | 100 | % | ||||||||
Appraisals on our fleet are conducted on a regular basis by an independent appraiser selected by
our lenders. The appraiser does not differentiate in value based upon the age of the container or
the length of time it has been in our fleet. The latest orderly liquidation value appraisal was
conducted in April 2010 by AccuVal Associates, Incorporated. Based on the values assigned in this
appraisal, on which our borrowings under our revolving credit facility are based, our lease fleet
liquidation appraisal value as of March 31, 2011 is approximately $818.1 million.
During the last five fiscal years, our annual utilization levels averaged 67.3% and ranged from a
low of 53.4% in 2010 to a high of 82.7% in 2006. Our average utilization rate for the first
quarter of 2011 was 53.9%, compared to 52.4% in the first quarter of 2010. Our first quarter
utilization rate progressed during the quarter and increased to 54.9% at March 31, 2011.
Historically our utilization is somewhat seasonal, with the low normally being realized in the
first quarter and the high realized in the fourth quarter of each year.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2011, Compared to
Three Months Ended March 31, 2010
Three Months Ended March 31, 2010
Total revenues for the quarter ended March 31, 2011 increased by $6.0 million, or 7.8%, to $82.9
million from $76.9 million for the same period in 2010. Leasing revenues for the quarter increased
by $2.5 million, or 3.6%, to $72.7 million from $70.2 million for the same period in 2010. This
increase in leasing revenues resulted from a 5.0% increase in our yield that was primarily driven
by higher trucking revenues. Our sales of portable storage and office units for the quarter ended
March 31, 2011 increased by 49.1% to $9.4 million from $6.3 million during the same period in 2010.
The increase in sales revenues primarily reflects a general increase in demand primarily for our
higher priced units as compared to the same period in 2010. Leasing revenues, as a percentage of
total revenues for the quarters ended March 21, 2011 and 2010, were 87.7% and 91.3%, respectively.
Our leasing business continues to be our primary focus and leasing revenues have and continue to be
the predominant part of our revenue mix.
Cost of sales is the cost related to our sales revenues only. Cost of sales was 64.0% and 64.8% of
sales revenue for the quarters ended March 31, 2011 and 2010, respectively. Our gross margins
increased to 36.0% for the quarter ended March 31, 2011, compared to 35.2% for the same period in
2010.
Leasing, selling and general expenses for the quarter ended March 31, 2011 increased $4.2 million,
or 9.9%, to $47.1 million, compared to $42.9 million for the same period in 2010. This increase is
primarily due to increases in payroll and payroll related expenses including staffing for our National Sales Center
(which had been only partially staffed in the prior year), increases in fleet transportation costs due to a 19%
increase in customer
deliveries and increased repair and maintenance costs for our lease fleet and
transportation equipment.
Integration, merger and restructuring expenses for the quarter ended March 31, 2011 decreased $2.0
million to $0.2 million, compared to $2.2 million for the same period in 2010. These expenses
primarily represent costs associated with reductions to our work force.
Adjusted EBITDA, decreased slightly by $0.2 million, or 0.6%, to $29.8 million, compared to $30.0
million for the same period in 2010. Adjusted EBITDA margins were 36.0% and 39.0% of total
revenues for the three months ended March 31, 2011 and 2010, respectively.
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Depreciation and amortization expenses for the quarter ended March 31, 2011 decreased $0.3 million,
or 3.8%, to $8.8 million, compared to $9.1 million during the same period in 2010. The decrease is
primarily attributable to reduced amortizations of intangible assets and is partially offset by
investment in additional technology and communication equipment and delivery equipment.
Interest expense for the quarter ended March 31, 2011 decreased $2.0 million to $12.7 million,
compared to $14.7 million for the same period in 2010. This decrease is primarily attributable to a
lower weighted average interest rate and lower average debt outstanding during the quarter,
principally due to the use of operating cash flow to reduce our debt over the last year. The
weighted average interest rate on our debt for the three months ended March 31, 2011 was 6.1%,
compared to 6.6% for the same period in 2010, excluding amortizations of debt issuance and other
costs. Taking into account the amortizations of debt issuance and other costs, the weighted
average interest rate for the three months ended March 31, 2011 was 6.7%, compared to 7.2% in the
same period in 2010. In 2010, we refinanced our 9.75% notes with 7.875% notes thereby contributing to
the lower weighted average interest rate.
Debt restructuring expense for the quarter ended March 31, 2011 related to the redemption of the
remaining aggregate principal balance outstanding of the MSG Notes was $22.3 million, and
represents the tender premiums and the write-off of the remaining unamortized acquisition date
discount related to the MSG Notes redeemed.
Provision for income taxes was based on our annual estimated effective tax rate. The tax rate for
the quarter ended March 31, 2011 was 38.2%, compared to 37.7% during the same period in 2010. Our
consolidated tax provision includes the expected tax rates for our operations in the United States,
Canada, United Kingdom and The Netherlands.
Net income for the three months ended March 31, 2011 was $4.2 million compared to net income of
$2.4 million for the same period in 2010. Our first quarter net income results include
integration, merger and restructuring expenses of $0.2 million and $2.2 million (approximately $0.1
million and $1.4 million after tax), for the three months ended March 31, 2011 and 2010,
respectively. The 2011 quarter was also negatively impacted by $1.3 million (approximately $0.8
million after tax) related to debt restructuring expense discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Leasing is a capital-intensive business that requires us to acquire assets before they generate
revenues, cash flow and earnings. The assets that we lease have very long useful lives and require
relatively little recurrent maintenance expenditures. Most of the capital we have deployed in our
leasing business historically has been used to expand our operations geographically, to increase
the number of units available for lease at our leasing locations, and to add to the mix of products
we offer. During recent years, our operations have generated annual cash flow that exceeds our
pre-tax earnings, particularly due to cash flow from operations and the deferral of income taxes
caused by accelerated depreciation of our fixed assets in our tax return filings. For the past
three years, we were cash flow positive (after capital expenditures but excluding the acquisition
of MSG). This positive cash flow trend has continued for the three-month period ended March 31,
2011.
During the past three years, our capital expenditures and acquisitions have been funded by our
operating cash flow and from borrowings under our revolving credit facility. Our operating cash
flow is generally weakest during the first quarter of each fiscal year, when customers who leased
containers for holiday storage return the units and as a result of seasonal weather in certain of
our markets. Since 2008, we have significantly reduced our capital expenditures and were able to
fund these expenditures with cash flow from operations. We currently expect this trend to continue
throughout 2011. In addition to cash flow generated by operations, our principal current source of
liquidity is our revolving credit facility described below.
Revolving Credit Facility. We have an $850.0 million ABL Credit Agreement (the Credit Agreement)
with Deutsche Bank AG New York Branch and the other lenders party thereto. All amounts outstanding
under the Credit Agreement are due on June 27, 2013. The obligations of Mobile Mini and our
subsidiary guarantors under the Credit Agreement are secured by a blanket lien on substantially all
of our assets. At March 31, 2011, we had approximately $400.2 million of borrowings outstanding and
$383.5 million of additional borrowing availability under the Credit Agreement, based upon
borrowing base calculations as of such date. The Credit Agreement contains certain financial
maintenance covenants, but these maintenance covenants are not applicable unless we have less than
$100.0 million in borrowing availability under the facility. The Credit Agreement also contains
customary negative covenants applicable to us and our subsidiaries, including covenants that
restrict their ability to, among other things, (i) make capital expenditures in excess of defined
limits, (ii) allow certain liens to attach to us or our subsidiary assets, (iii) repurchase or pay
dividends or make certain other restricted payments on capital stock and certain other securities,
or prepay certain indebtedness, (iv)
incur additional indebtedness or engage in certain other types of financing transactions, and (v)
make acquisitions or other investments. We were in compliance with the terms of the Credit
Agreement as of March 31, 2011.
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Amounts borrowed under the Credit Agreement and repaid during the term may be reborrowed.
Outstanding amounts under the Credit Agreement bear interest, at our option, at either (i) LIBOR
plus a defined margin, or (ii) the Agent banks prime rate plus a margin. The applicable margins
for each type of loan will range from 2.25% to 2.75% for LIBOR loans and 0.75% to 1.25% for base
rate loans depending upon our debt ratio, as defined in the Credit Agreement. Based on our debt
ratio at March 31, 2011, our applicable interest rate margins will be LIBOR plus 2.75% for LIBOR
loans and prime plus 1.25% for base rate loans until the next measurement date which is the end of
each fiscal quarter and becomes effective the month following managements communication to their
lenders.
The Credit Agreement provides for U.K. borrowings, denominated in either Pounds Sterling or Euros,
by the Companys subsidiary Mobile Mini U.K. Limited, based upon a U.K. borrowing base and
additionally supported by the U.S. and Canada borrowing base, if necessary. For U.S. borrowings,
which are denominated in U.S. Dollars, the borrowing base is based upon a U.S. and Canada borrowing
base.
Availability of borrowings under the Credit Agreement is subject to a borrowing base calculation
based upon a valuation of our eligible accounts receivable, eligible container and office fleet, eligible
inventory (including containers held for sale, work-in-process and raw materials), machinery and
equipment and real property, each multiplied by an applicable advance rate or limit.
Senior Notes. At March 31, 2011, we had two series of outstanding senior notes (i) $150.0 million
aggregate principal amount of 6.875% senior notes due 2015 (the 2015 Notes) and (ii) $200.0 million aggregate
principal amount of 7.875% senior notes due 2020 (the 2020 Notes, and together with the
2015 Notes, the Mobile Mini Notes). The Mobile Mini Notes are more fully described in our
Annual Report on Form 10-K.
We issued the 2020 Notes in November 2010 at an initial offering price of 100% of their face value.
The net proceeds from the sale of the 2020 Notes were used to redeem approximately $170.6 million
of the 9.750% senior notes originally issued by MSG due 2014 (the MSG Notes and together with the
Mobile Mini Notes, the Senior Notes), to pay the redemption and tender
offer premium (approximately $8.9 million) and accrued interest (approximately $5.2 million) on the
MSG Notes, and to pay fees and expenses related to the offering. We used the remaining net
proceeds of approximately $10.4 million to repay borrowings under the Credit Agreement. The
remaining aggregate principal amounts outstanding of the MSG Notes, $22.3 million, were fully
redeemed in January 2011 and are no longer outstanding.
The Senior Notes include covenants, indemnities and events of default that are customary for
indentures of this type, including restrictions on the incurrence of additional debt, sales of
assets and payment of dividends. We were
in compliance with the covenants of the Senior Notes as of March 31, 2011.
Operating Activities. Our operations provided net cash flow of $20.8 million for the three months
ended March 31, 2011, compared to $10.3 million during the same period in 2010. The $10.5 million
increase in cash provided by operations primarily resulted from changes in working capital and an
increase in net income, after giving effect to non-cash items. We used this net cash flow to fund
operations and repay debt.
Investing Activities. Net cash provided by investing activities was $1.5 million for the three
months ended March 31, 2011, compared to $1.1 million for the same period in 2010. Capital
expenditures for our lease fleet were $3.5 million and proceeds from sale of lease fleet units were
$8.2 million for the three months ended March 31, 2011, compared to capital expenditures of $3.8
million and proceeds of $5.4 million for the same period in 2010. We anticipate our near-term
investing activities will be primarily focused on remanufacturing units previously acquired in acquisitions to
meet our lease fleet standards as these units are placed on lease. Capital expenditures for
property, plant and equipment, net of proceeds from sales of property, plant and equipment, for the
three months ended March 31, 2011 were $3.2 million compared to $0.5 million for the same period in
2010. These expenditures in 2011 were primarily for replacement of our transportation equipment,
leasehold improvements, and upgrades to technology equipment. The amount of cash that we use during
any period in investing activities is almost entirely within managements discretion. We have no
contracts or other arrangements pursuant to which we are required to purchase a fixed or minimum
amount of capital goods in connection with any portion of our business.
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Financing Activities. Net cash used in financing activities during the three months ended March 31,
2011 was $20.1 million, compared to $13.4 million for the same period in 2010. During the three
months ended March 31, 2011, we made net debt repayments of $19.5 million.
At March 31, 2011, we had interest rate swap agreements under which we effectively fixed the
interest rate payable on $125.0 million of borrowings under our Credit Agreement so that the rate
is based upon a spread from a fixed rate, rather than a spread from the LIBOR rate. The fair value
of our interest rate swap agreements resulted in amounts being recognized in other comprehensive
income for the three months ended March 31, 2011 of $0.7 million net of applicable income taxes of
$0.4 million.
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
Our contractual obligations primarily consist of our outstanding balance under the Credit Agreement
and $349.7 million of Senior Notes, (net of unamortized discounts of $0.3 million) together with
other unsecured notes payable obligations and obligations under capital leases. We also have
operating lease commitments for: (1) real estate properties for the majority of our locations with
remaining lease terms typically ranging from one to 15 years; (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) office related equipment.
At March 31, 2011, primarily in connection with the issuance of our insurance policies, we provided
certain insurance carriers and others with approximately $8.8 million in letters of credit.
We currently do not have any obligations under purchase agreements or commitments. Historically,
we have entered into capitalized lease obligations from time to time.
OFF-BALANCE SHEET TRANSACTIONS
We do 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 our financial condition, changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures or capital resources.
SEASONALITY
Demand from certain 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. These retailers usually return
these leased units to us in December or early in the following year. This seasonality historically
has caused lower utilization rates for our lease fleet and a marginal decrease in cash flow during
the first quarter of each year.
EFFECTS OF INFLATION
Our results of operations for the periods discussed in this report have not been significantly
affected by inflation.
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CRITICAL ACCOUNTING POLICIES, ESTIMATES AND JUDGMENTS
Our significant accounting policies are disclosed in Note 1 to our consolidated financial
statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010.
The following discussion addresses our most critical accounting policies, some of which require
significant judgment.
Our consolidated financial statements have been prepared in accordance with GAAP. 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 SEC defines critical accounting policies as those that are, in managements 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 and mobile office units are recognized on a straight-line basis. Delivery and
hauling revenues and expenses from our portable storage and mobile office
units are recognized when these services are earned. We recognize revenues from sales of
containers and mobile office units upon delivery when the risk of loss passes, the price is fixed
and determinable and collectability is reasonably assured. We sell our products pursuant to sales
contracts stating the fixed sales price with our customers.
Share-Based Compensation. We account for share-based compensation using the
modified-prospective-transition method and recognize the fair-value of share-based compensation
transactions in the consolidated statements of income. The fair value of our share-based awards is
estimated at the date of grant using the Black-Scholes option pricing model. The Black-Scholes
valuation calculation requires us to estimate key assumptions such as future stock price
volatility, expected terms, risk-free rates and dividend yield. Expected stock price volatility is
based on the historical volatility of our stock. We use historical data to estimate option
exercises and employee terminations within the valuation model. The expected term of options
granted is derived from an analysis of historical exercises and remaining contractual life of stock
options, and represents the period of time that options granted are expected to be outstanding.
The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of grant. We
historically have not paid cash dividends, and do not currently intend to pay cash dividends, and
thus have assumed a 0% dividend rate. If our actual experience differs significantly from the
assumptions used to compute our share-based compensation cost, or if different assumptions had been
used, we may have recorded too much or too little share-based compensation cost. In the past we
have issued stock options and restricted stock, which we also refer to as nonvested share-awards.
For stock options and nonvested share-awards subject solely to service conditions, we recognize
expense using the straight-line method. For nonvested share-awards subject to service and
performance conditions, we are required to assess the probability that such performance conditions
will be met. If the likelihood of the performance condition being met is deemed probable, we will
recognize the expense using the accelerated attribution method. In addition, for both stock
options and nonvested share-awards, we are required to estimate the expected forfeiture rate of our
stock grants and only recognize the expense for those shares expected to vest. If the actual
forfeiture rate is materially different from our estimate, our share-based compensation expense
could be materially different. We had approximately $2.1 million of total unrecognized
compensation costs related to stock options at March 31, 2011 that are expected to be recognized
over a weighted-average period of 3.53 years and $19.0 million of total unrecognized compensation
costs related to nonvested share-awards at March 31, 2011 that are expected to be recognized over a
weighted-average period 2.97 years. See Note F to the accompanying condensed consolidated
financial statements for a further discussion on share-based compensation.
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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 receivable. 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 EPS:
Three Months Ended | ||||||||
March 31, | ||||||||
2010 | 2011 | |||||||
(In thousands except per share data) | ||||||||
As Reported: |
||||||||
Net income |
$ | 2,410 | $ | 4,151 | ||||
Diluted earnings per share |
$ | 0.06 | $ | 0.09 | ||||
As adjusted for change in estimates: |
||||||||
Net income |
$ | 2,315 | $ | 4,074 | ||||
Diluted earnings per share |
$ | 0.06 | $ | 0.09 |
If the financial condition of our customers were to deteriorate, resulting in an impairment of
their ability to make payments, additional allowances could be required.
Impairment of Goodwill. We assess the impairment of goodwill and other identifiable intangibles on
an annual basis or whenever events or changes in circumstances indicate that the carrying value may
not be recoverable. Some factors we consider important that 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. |
We operate in one reportable segment, which is comprised of three operating segments that also
represent our reporting units (North America, the U.K. and The Netherlands). All of our goodwill
was allocated among these three reporting units. We perform an annual impairment test on goodwill
at December 31 using the two-step process required under GAAP. The first step is a screen for
potential impairment, while the second step measures the amount of the impairment, if any. In
addition, we will perform impairment tests during any reporting period in which events or changes
in circumstances indicate that an impairment may have incurred. At December 31, 2010, we performed
the first step of the two-step impairment test and compared the fair value of each reporting unit
to its carrying value. In assessing the fair value of the reporting units, we considered both the
market approach and the income approach. Under the market approach, the fair value of the reporting
unit is based on quoted market prices of companies comparable to the reporting unit being valued.
Under the income approach, the fair value of the reporting unit is based on the present value of
estimated cash flows. The income approach is dependent on a number of significant management
assumptions, including estimated future revenue growth rates, gross margins on sales, operating
margins, capital expenditures, tax payments and discount rate. Each approach was given equal weight
in arriving at the fair value of the reporting unit. As of December 31, 2010, neither of the
reporting units with goodwill had estimated fair values less than their individual net asset
carrying values; therefore, step two was not required.
In step two of the impairment test, we are required to determine the implied fair value of the
goodwill and compare it to the carrying value of the goodwill. We allocated the fair value of the
reporting units to the respective assets and liabilities of each reporting unit as if the reporting
units had been acquired in separate and individual business combinations and the fair value of the
reporting units was the price paid to acquire the reporting units. The excess of the fair value of
the reporting units over the amounts assigned to their respective assets and liabilities is the
implied fair value of goodwill. We reconciled the fair values of our three reporting units in the
aggregate to our market capitalization at December 31, 2010.
At March 31, 2011, there were no significant negative changes to the future projected cash flows or
to the general or specific economic trends since the last annual test indicating the need for
testing goodwill recoverability.
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Impairment of 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 our 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
the estimated useful life of our units, after the date that we put the unit in service. Our steel
units are depreciated over 30 years with an estimated residual value of 55%. 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 seven years to a 20% residual value. We have other
non-core products that have various other measures of useful lives and residual values. Van
trailers and other non-core products 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 other competitors in our
industry, profit margins we achieve 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 a 55% residual
value and a 30-year life to a lower or higher residual value 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
EPS as reflected in the table below.
Useful | Three Months Ended | |||||||||||||||
Salvage | Life in | March 31, | ||||||||||||||
Value | Years | 2010 | 2011 | |||||||||||||
(In thousands except per share data) | ||||||||||||||||
As Reported: |
55 | % | 30 | |||||||||||||
Net income |
$ | 2,410 | $ | 4,151 | ||||||||||||
Diluted earnings per share |
$ | 0.06 | $ | 0.09 | ||||||||||||
As adjusted for change in estimates: |
70 | % | 20 | |||||||||||||
Net income |
$ | 2,410 | $ | 4,151 | ||||||||||||
Diluted earnings per share |
$ | 0.06 | $ | 0.09 | ||||||||||||
As adjusted for change in estimates: |
62.5 | % | 25 | |||||||||||||
Net income |
$ | 2,410 | $ | 4,151 | ||||||||||||
Diluted earnings per share |
$ | 0.06 | $ | 0.09 | ||||||||||||
As adjusted for change in estimates: |
50 | % | 20 | |||||||||||||
Net income |
$ | 965 | $ | 2,720 | ||||||||||||
Diluted earnings per share |
$ | 0.02 | $ | 0.06 | ||||||||||||
As adjusted for change in estimates: |
40 | % | 40 | |||||||||||||
Net income |
$ | 2,410 | $ | 4,151 | ||||||||||||
Diluted earnings per share |
$ | 0.06 | $ | 0.09 | ||||||||||||
As adjusted for change in estimates: |
30 | % | 25 | |||||||||||||
Net income |
$ | 531 | $ | 2,290 | ||||||||||||
Diluted earnings per share |
$ | 0.01 | $ | 0.05 | ||||||||||||
As adjusted for change in estimates: |
25 | % | 25 | |||||||||||||
Net income |
$ | 242 | $ | 2,004 | ||||||||||||
Diluted earnings per share |
$ | 0.01 | $ | 0.05 |
Insurance Reserves. Our workers compensation, auto and general liability insurance are purchased
under large deductible programs. Our current per incident deductibles are: workers compensation
$250,000, auto $500,000 and general liability $100,000. We provide for the estimated expense
relating to 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 development
experience of our staff and our insurance companies. 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.
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Our health benefit programs are considered to be self insured products; however, we buy excess
insurance coverage that limits our medical liability exposure. Additionally, our medical program
includes a total aggregate claim exposure and we are currently accruing and reserving to the total
projected losses.
Contingencies. We are a party to various claims and litigation in the normal course of business.
Managements 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 that a liability has
been incurred and the amount of loss can be reasonably estimated. 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 judgment 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 our 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 the resolution of such matters known at this time will
have a material adverse effect on our business or consolidated financial position.
Deferred Taxes. In preparing our consolidated financial statements, we recognize income taxes in
each of the jurisdictions in which we operate. For each jurisdiction, we estimate the actual
amount of taxes currently payable or receivable as well as deferred tax assets and liabilities
attributable to temporary differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred income tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the years in which
these temporary differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the period that includes
the enactment date.
A valuation allowance is provided for those deferred tax assets for which it is more likely than
not that the related benefits will not be realized. In determining the amount of the valuation
allowance, we consider estimated future taxable income as well as feasible tax planning strategies
in each jurisdiction. If we determine that we will not realize all or a portion of our deferred
tax assets, we will increase our valuation allowance with a charge to income tax expense or offset
goodwill if the deferred tax asset was acquired in a business combination. Conversely, if we
determine that we will ultimately be able to realize all or a portion of the related benefits for
which a valuation allowance has been provided, all or a portion of the related valuation allowance
will be reduced with a credit to income tax expense except if the valuation allowance was created
in conjunction with a tax asset in a business combination.
Purchase Accounting. We account for acquisitions under the purchase method. Under the purchase
method of accounting, the price paid by us, including the value of the redeemable convertible
preferred stock, if any, is allocated to the assets acquired and liabilities assumed based upon the
estimated fair values of the assets and liabilities acquired and the fair value of the convertible
redeemable participating preferred stock issued at the date of acquisition. The excess of the
purchase price over the fair value of the net assets and liabilities acquired represents goodwill
that is subject to annual impairment testing.
Earnings Per Share. Basic net income per share is calculated by dividing income allocable to common
stockholders by the weighted-average number of common shares outstanding, net of shares subject to
repurchase by us during the period. Income allocable to common stockholders is net income less the
earnings allocable to preferred stockholders. Diluted net income per share is calculated under the
if-converted method unless the conversion of the preferred stock is anti-dilutive to basic net
income per share. To the extent the inclusion of preferred stock is anti-dilutive, we calculate
diluted net income per share under the two-class method. Potential common shares include
restricted common stock and incremental shares of common stock issuable upon the exercise of stock
options and vesting of nonvested stock awards and upon conversion of convertible preferred stock
using the treasury stock method.
There have been no changes in our critical accounting policies, estimates and judgments during the
three-month period ended March 31, 2011.
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RECENT ACCOUNTING PRONOUNCEMENTS
Multiple Element Arrangements.
In September 2009, the Financial Accounting Standards Board (FASB) issued new accounting guidance related
to the revenue recognition of multiple element arrangements. The new guidance states that if
vendor specific objective evidence or third party evidence for deliverables in an arrangement
cannot be determined, companies will be required to develop a best estimate of the selling price to
separate deliverables and allocate arrangement consideration using the relative selling price
method. This guidance is effective for arrangements entered into after January 1, 2011. We
adopted this accounting standard and it did not have a material impact on our consolidated
financial statements and related disclosures.
Business Combinations. In December 2010, the FASB issued clarification on the accounting guidance
for business combinations. The new accounting guidance clarifies the disclosure requirement for
public entities that have entered into a new business combination during the current fiscal year.
Such public entities must present comparative financial statements disclosing revenue and earnings
of the combined entity as though the business combination that occurred during the current fiscal
year had occurred as of the beginning of the comparable prior annual reporting period only. This
guidance is effective for business combinations entered into after January 1, 2011. We adopted
this accounting standard and it did not have a material impact on our consolidated financial
statements and related disclosures.
Goodwill. In December 2010, the FASB issued new accounting guidance for goodwill impairment
testing. The new accounting guidance states that for reporting units with zero or negative
carrying amounts the reporting unit should perform Step 2 of a goodwill impairment after
considering the evidence of adverse qualitative factors that an impairment may exist. This
guidance is effective for us beginning January 1, 2011. We adopted this accounting standard
and do not expect it to have a material impact on our consolidated financial statements and related
disclosures.
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CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS
This section and other sections of this report contain forward-looking information about our
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. Factors that could cause actual results to differ materially from projected results
include, without limitation:
| an economic slowdown in the U.S. and/or the U.K. that affects any significant portion of our customer base, or the geographic regions where we operate in those countries; |
| our ability to manage growth at existing or new locations; |
| our European operations may divert our resources from other aspects of our business; |
| our ability to obtain borrowings under our revolving credit facility or additional debt or equity financing on acceptable terms; |
| changes in the supply and price of used containers; |
| changes in the supply and cost of the raw materials we use in refurbishing or remanufacturing storage units; |
| competitive developments affecting our industry, including pricing pressures in newer markets; |
| the timing and number of new branches that we open or acquire; |
| our ability to protect our patents and other intellectual property; |
| currency exchange and interest rate fluctuations; |
| governmental laws and regulations affecting domestic and foreign operations, including tax obligations, union formation and zoning laws; |
| changes in generally accepted accounting principles; |
| changes in local zoning laws affecting either our ability to operate in certain areas or our customers ability to use our products; |
| 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; and |
| increases in costs and expenses, including the cost of raw materials, real estate and employment costs. |
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 filed with the SEC. Our Form 10-K filing for the
fiscal year ended December 31, 2010 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, as amended.
Readers can find them in Item 1A, Risk Factors of that filing and under the same heading of this
filing. You may obtain a copy of our Form 10-K by requesting it from the Companys Investor
Relations Department at (480) 894-6311 or by mail to Mobile Mini, Inc., 7420 S. Kyrene Road, Suite
101, Tempe, Arizona 85283. Our filings with the SEC, including the Form 10-K, may be accessed
through Mobile Minis website at www.mobilemini.com, and at the SECs website at www.sec.gov.
Material on our website is not incorporated in this report, except by express incorporation by
reference herein.
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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, 2011, we had interest rate swap agreements under
which we pay a fixed rate and receive a variable interest rate on a notional amount of $125.0
million. For the three months ended March 31, 2011, comprehensive income included $0.7 million,
net of applicable income taxes of $0.4 million, related to the fair value of our interest rate swap
agreements.
Impact of Foreign Currency Rate Changes. We currently have branch operations outside the United
States. We bill those customers primarily in their local currency which is subject to foreign
currency rate changes. Our operations in Canada are billed in the Canadian Dollar, operations in
the United Kingdom are billed in Pound Sterling and operations in The Netherlands are billed in the
Euro. We are exposed to foreign exchange rate fluctuations as the financial results of our
non-United States operations are translated into U.S. Dollars. The impact of foreign currency rate
changes has historically been insignificant with our Canadian operations, but we have more exposure
to volatility with our European operations. In order to help minimize our exchange rate gain and
loss volatility, we finance our European entities through our Credit Agreement which allows us, at
our option, to borrow funds locally in Pound Sterling denominated debt.
ITEM 4. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures.
As of the end of the period covered by this report, we carried out an evaluation, under the
supervision and with the participation of our management, including our Chief Executive Officer and
our Chief Financial Officer, of the effectiveness of the design and operation of our 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 amended). Based on that evaluation, our Chief Executive Officer
and our Chief Financial Officer concluded that, as of the end of the period covered by this
quarterly report on Form 10-Q, the Companys disclosure controls and procedures, subject to the
limitations as noted below, were effective such that the information relating to the Company
required to be disclosed in our SEC reports (i) is recorded, processed, summarized and reported
within the time periods specified in the SECs rules and forms, and (ii) is accumulated and
communicated to the Companys management, including our Chief Executive Officer and our Chief
Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Controls.
There were no changes in our internal controls over financial reporting that have occurred during
the fiscal quarter covered by this report that have materially affected, or are reasonably likely
to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1A. | RISK FACTORS |
We refer you to documents filed by us with the SEC, specifically Item 1A. Risk Factors in our
Annual Report on Form 10-K for the fiscal year ended December 31, 2010, which identify important
risk factors that could materially affect our business, financial condition and future results. We
also refer you to the factors and cautionary language set forth in the section entitled Cautionary
Statements Regarding Forward-looking Statements in Item 2. Managements Discussion and Analysis
of Financial Conditions and Results of Operations of this quarterly report on Form 10-Q. This
quarterly report on Form 10-Q, including the accompanying condensed consolidated financial
statements and related notes, should be read in conjunction with such risks and other factors for a
full understanding of our operations and financial condition. The risks described in our Form 10-K
and herein are not the only risks facing Mobile Mini. Additional risks and uncertainties not
currently known to us or that we currently deem to be immaterial also may materially adversely
affect our business, financial condition or operating results. The risk factors included in our
Annual Report on Form 10-K for the fiscal year ended December 31, 2010 have not materially changed.
ITEM 6. | EXHIBITS |
Number | Description | |
23.2* | Consent of Independent Valuation Firm |
|
31.1* | Certification of Chief Executive Officer pursuant to Item 601(b)(31) of Regulation S-K. |
|
31.2* | Certification of Chief Financial Officer pursuant to Item 601(b)(31) of Regulation S-K. |
|
32.1** | Certification of Chief Executive Officer and Chief Financial Officer pursuant to item 601(b)(32) of
Regulation S-K. |
|
101.INS*** | XBRL Instance Document |
|
101.SCH*** | XBRL Taxonomy Extension Schema Document |
|
101.CAL*** | XBRL Taxonomy Extension Calculation Linkbase Document |
|
101.LAB*** | XBRL Taxonomy Extension Labels Linkbase Document |
|
101.PRE*** | XBRL Taxonomy Extension Presentation Linkbase Document |
* | Filed herewith. | |
** | Furnished herewith. | |
*** | Furnished herewith. In accordance with Rule 406T of Regulation S-T, the information in these exhibits shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, except as expressly set forth by specific reference in such filing. |
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