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EX-31.1 - EX-31.1 - MOBILE MINI INCmini-ex311_9.htm
EX-32.1 - EX-32.1 - MOBILE MINI INCmini-ex321_7.htm
EX-23.2 - EX-23.2 - MOBILE MINI INCmini-ex232_8.htm
EX-31.2 - EX-31.2 - MOBILE MINI INCmini-ex312_6.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

x

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

For the quarterly period ended March 31, 2016

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

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

4646 E. Van Buren Street, Suite 400

Phoenix, Arizona

 

85008

(Address of principal executive offices)

 

(zip code)

(480) 894-6311

(Registrant’s 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  x    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  x    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

x

Accelerated filer

o

 

 

 

 

Non-accelerated filer

o  (Do not check if a smaller reporting company)

Smaller reporting company

o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)    Yes  o    No  x

At April 15, 2016, there were outstanding 44,451,682 shares of the registrant’s common stock, par value $.01.

 

 

 

 

 


 

MOBILE MINI, INC.

INDEX TO FORM 10-Q FILING

FOR THE QUARTER ENDED MARCH 31, 2016

 

 

 

 

 

PAGE

 

 

 

 

 

PART I. FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1. Financial Statements

 

3

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets March 31, 2016 (unaudited) and December 31, 2015

 

3

 

 

 

 

 

 

 

Condensed Consolidated Statements of Operations (unaudited) for the Three Months Ended March 31, 2016 and March 31, 2015

 

4

 

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited) for the Three Months Ended March 31, 2016 and March 31, 2015

 

5

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows (unaudited)  for the Three Months Ended March 31, 2016 and March 31, 2015

 

6

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

 

7

 

 

 

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

26

 

 

 

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

37

 

 

 

 

 

Item 4. Controls and Procedures

 

37

 

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

 

 

Item 1a. Risk Factors

 

38

 

 

 

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

38

 

 

 

 

 

Item 6. Exhibits

 

39

 

2


 

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

MOBILE MINI, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value data)

 

 

 

March 31,

2016

 

 

December 31,

2015

 

 

 

(unaudited)

 

 

(audited)

 

ASSETS

 

Cash and cash equivalents

 

$

634

 

 

$

1,613

 

Receivables, net of allowance for doubtful accounts of $2,486 and $2,162

   at March 31, 2016 and December 31, 2015, respectively

 

 

77,278

 

 

 

80,191

 

Inventories

 

 

15,426

 

 

 

15,596

 

Rental fleet, net

 

 

957,527

 

 

 

951,323

 

Property, plant and equipment, net

 

 

138,028

 

 

 

131,687

 

Other assets

 

 

19,362

 

 

 

16,766

 

Intangibles, net

 

 

72,490

 

 

 

73,212

 

Goodwill

 

 

708,563

 

 

 

706,387

 

Total assets

 

$

1,989,308

 

 

$

1,976,775

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

Liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

31,209

 

 

$

29,086

 

Accrued liabilities

 

 

60,080

 

 

 

59,024

 

Lines of credit

 

 

672,861

 

 

 

667,708

 

Obligations under capital leases

 

 

42,301

 

 

 

38,274

 

Senior Notes, net of deferred financing costs of $2,323 and $2,447

   at March 31, 2016 and December 31, 2015, respectively

 

 

197,677

 

 

 

197,553

 

Deferred income taxes

 

 

226,081

 

 

 

219,601

 

Total liabilities

 

 

1,230,209

 

 

 

1,211,246

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Preferred stock $.01 par value, 20,000 shares authorized, none issued

 

 

 

 

 

 

Common stock $.01 par value, 95,000 shares authorized, 49,280 issued and 44,452

   outstanding at March 31, 2016 and 49,145 issued and 44,594 outstanding at

   December 31, 2015

 

493

 

 

 

491

 

Additional paid-in capital

 

 

587,009

 

 

 

584,447

 

Retained earnings

 

 

354,066

 

 

 

352,262

 

Accumulated other comprehensive loss

 

 

(47,875

)

 

 

(44,162

)

Treasury stock, at cost, 4,828 and 4,551 shares at March 31, 2016 and

   December 31, 2015, respectively

 

 

(134,594

)

 

 

(127,509

)

Total stockholders' equity

 

 

759,099

 

 

 

765,529

 

Total liabilities and stockholders' equity

 

$

1,989,308

 

 

$

1,976,775

 

 

See accompanying notes to condensed consolidated financial statements (unaudited).

 

 

3


 

MOBILE MINI, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands except per share data)

(Unaudited)

 

 

 

Three Months Ended

March 31,

 

 

 

2016

 

 

2015

 

Revenues:

 

 

 

 

 

 

 

 

Rental

 

$

117,356

 

 

$

123,117

 

Sales

 

 

6,891

 

 

 

7,972

 

Other

 

 

286

 

 

 

1,540

 

Total revenues

 

 

124,533

 

 

 

132,629

 

Costs and expenses:

 

 

 

 

 

 

 

 

Rental, selling and general expenses

 

 

76,302

 

 

 

83,046

 

Cost of sales

 

 

4,611

 

 

 

5,133

 

Restructuring expenses

 

 

2,248

 

 

 

483

 

Asset impairment charge, net

 

 

 

 

 

64,726

 

Depreciation and amortization

 

 

15,177

 

 

 

15,539

 

Total costs and expenses

 

 

98,338

 

 

 

168,927

 

Income (loss) from operations

 

 

26,195

 

 

 

(36,298

)

Other expense:

 

 

 

 

 

 

 

 

Interest expense

 

 

(8,484

)

 

 

(9,059

)

Income (loss) before income tax provision (benefit)

 

 

17,711

 

 

 

(45,357

)

Income tax provision (benefit)

 

 

6,713

 

 

 

(18,031

)

Net income (loss)

 

$

10,998

 

 

$

(27,326

)

Earnings (loss) per share:

 

 

 

 

 

 

 

 

Basic

 

$

0.25

 

 

$

(0.60

)

Diluted

 

 

0.25

 

 

 

(0.60

)

Weighted average number of common and common share equivalents outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

44,219

 

 

 

45,484

 

Diluted

 

 

44,335

 

 

 

45,484

 

Cash dividends declared per share

 

$

0.21

 

 

$

0.19

 

 

See accompanying notes to condensed consolidated financial statements (unaudited).

4


 

MOBILE MINI, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

(Unaudited)

 

 

 

Three Months Ended

March 31,

 

 

 

2016

 

 

2015

 

Net income (loss)

 

$

10,998

 

 

$

(27,326

)

Foreign currency translation adjustment

 

 

(3,713

)

 

 

(11,777

)

Comprehensive income (loss)

 

$

7,285

 

 

$

(39,103

)

 

See accompanying notes to condensed consolidated financial statements (unaudited).

 

 

5


 

MOBILE MINI, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

Three Months Ended

March 31,

 

 

 

2016

 

 

2015

 

Cash Flows from Operating Activities:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

10,998

 

 

$

(27,326

)

Adjustments to reconcile net income (loss) to net cash provided by

   operating activities:

 

 

 

 

 

 

 

 

Asset impairment, net

 

 

 

 

 

64,726

 

Provision for doubtful accounts

 

 

1,203

 

 

 

1,169

 

Amortization of deferred financing costs

 

 

468

 

 

 

789

 

Amortization of long-term liabilities

 

 

29

 

 

 

25

 

Share-based compensation expense

 

 

2,564

 

 

 

3,250

 

Depreciation and amortization

 

 

15,177

 

 

 

15,539

 

Gain on sale of rental fleet

 

 

(1,378

)

 

 

(1,972

)

Loss on disposal of property, plant and equipment

 

 

338

 

 

 

335

 

Deferred income taxes

 

 

6,560

 

 

 

(18,233

)

Changes in certain assets and liabilities, net of effect of businesses acquired:

 

 

 

 

 

 

 

 

Receivables

 

 

1,628

 

 

 

(636

)

Inventories

 

 

143

 

 

 

157

 

Other assets

 

 

(849

)

 

 

455

 

Accounts payable

 

 

(2,506

)

 

 

1,033

 

Accrued liabilities

 

 

906

 

 

 

(839

)

Net cash provided by operating activities

 

 

35,281

 

 

 

38,472

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

 

 

Cash paid for businesses acquired, net of cash acquired

 

 

(9,206

)

 

 

(1,200

)

Additions to rental fleet, excluding acquisitions

 

 

(10,884

)

 

 

(10,480

)

Proceeds from sale of rental fleet

 

 

3,970

 

 

 

4,842

 

Additions to property, plant and equipment, excluding acquisitions

 

 

(8,310

)

 

 

(4,241

)

Proceeds from sale of property, plant and equipment

 

 

840

 

 

 

607

 

Net cash used in investing activities

 

 

(23,590

)

 

 

(10,472

)

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

 

Net borrowings (repayments) under lines of credit

 

 

5,152

 

 

 

(4,137

)

Deferred financing costs

 

 

(193

)

 

 

(100

)

Principal payments on capital lease obligations

 

 

(1,433

)

 

 

(849

)

Issuance of common stock

 

 

 

 

 

32

 

Dividend payments

 

 

(9,152

)

 

 

(8,509

)

Purchase of treasury stock

 

 

(7,084

)

 

 

(15,284

)

Net cash used in financing activities

 

 

(12,710

)

 

 

(28,847

)

Effect of exchange rate changes on cash

 

 

40

 

 

 

156

 

Net decrease in cash

 

 

(979

)

 

 

(691

)

Cash and cash equivalents at beginning of period

 

 

1,613

 

 

 

3,739

 

Cash and cash equivalents at end of period

 

$

634

 

 

$

3,048

 

Supplemental Disclosure of Cash Flow Information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

3,878

 

 

$

4,190

 

Cash paid for income and franchise taxes

 

 

68

 

 

 

273

 

Equipment and other acquired through capital lease obligations

 

 

5,461

 

 

 

2,201

 

Capital expenditures accrued or payable

 

 

9,112

 

 

 

9,624

 

 

See accompanying notes to condensed consolidated financial statements (unaudited).

 

 

 

6


 

MOBILE MINI, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

 

(1) Mobile Mini, Inc. - Organization and Description of Business

Mobile Mini, Inc., a Delaware corporation, is a leading provider of portable storage and specialty containment solutions. In these notes, the terms “Mobile Mini” the “Company,” “we,” “us,” and “our” refer to Mobile Mini, Inc.

At March 31, 2016, we had a fleet of portable storage and office units operating throughout the U.S., Canada and the U.K. serving a diversified customer base, including large and small retailers, construction companies, medical centers, schools, utilities, distributors, the military, hotels, restaurants, entertainment complexes and households. These customers use our products for a wide variety of applications, including the storage of retail and manufacturing inventory, construction materials and equipment, documents and records and other goods. We also have a fleet of specialty containment products, concentrated in the U.S. Gulf Coast, including liquid and solid containment units, serving a specialty sector in the industry.  Our specialty products are leased primarily to chemical, refinery, oil and natural gas drilling, mining and environmental service customers.

On May 15, 2015, we closed a transaction to sell our wood mobile offices within our North American portable storage segment for a cash price of $92.0 million, less associated assumed liabilities.  Activity directly associated with this business is included in the three months ended March 31, 2015, and is not included in the three months ended March 31, 2016. See additional information regarding the divestiture in Note 5 “Impairment and Divestiture of North American Wood Mobile Offices”.

Basis of Presentation and Consolidation

The consolidated financial statements include the accounts of Mobile Mini and our wholly owned subsidiaries. We do not have any subsidiaries in which we do not own 100% of the outstanding stock. All significant intercompany balances and transactions have been eliminated.  The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“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, 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. The results of operations for the three months ended March 31, 2016 and 2015 are not necessarily indicative of the results to be expected for the full year.

These condensed consolidated financial statements should be read in conjunction with our December 31, 2015 audited consolidated financial statements and accompanying notes thereto, which are included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 5, 2016.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the accompanying condensed consolidated financial statements and the notes to those statements. Actual results could differ from those estimates. Significant estimates affect the calculation of depreciation and amortization, the calculation of the allowance for doubtful accounts, the analysis of goodwill and long-lived assets for potential impairment and certain accrued liabilities.

Reclassifications

Certain amounts in the Condensed Consolidated Statements of Operations for the three months ended March 31, 2015 have been reclassified to conform to the current period presentation. The reclassifications have no effect on total revenues, loss from operations, net loss or net loss per common share. For the previously reported three-month period ended March 31, 2015, the reclassifications resulted in $2.1 million and $1.2 million increases to rental revenues and sales revenues, respectively, with an offsetting decrease to other revenue.  For the same period, cost of sales increased $0.9 million, and rental, selling and general expenses decreased by the same amount.

The revenues reclassified to rental revenues from other revenues consist of ancillary services such as equipment cleaning fees and equipment installation. The items reclassified from other revenues to sales include sales of certain ancillary products.  Costs associated with these sales have also been reclassified to cost of sales from rental, selling and general expenses.  We believe the current presentation better reflects the nature of the underlying financial statement items.

 

7


MOBILE MINI, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued

 

 

(2) Impact of Recently Issued Accounting Standards

Share-Based Compensation. In March 2016, the Financial Accounting Standards Board (“FASB”) issued a standard intended to simplify several areas of accounting for share-based compensation arrangements, including the income tax impact, classification on the statement of cash flows and forfeitures. This standard is effective for annual and interim periods beginning after December 15, 2016, and early adoption is permitted.  We are currently evaluating the impact that the standard will have on our consolidated financial statements.

Leases.  In February 2016, FASB issued a standard on lease accounting requiring a lessee to recognize assets and liabilities on the balance sheet for leases with lease terms greater than 12 months. This standard is effective for annual and interim periods beginning after December 15, 2018, and early adoption is permitted. We are currently evaluating the impact the standard will have on our consolidated financial statements.

Simplifying the Presentation of Debt Issuance Costs.  In April 2015, FASB issued accounting guidance on the presentation of debt issuance costs in the balance sheet.  This standard requires that certain debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by this guidance.  We adopted this guidance during the current period. As a result, unamortized debt issuance costs of $2.3 million and $2.4 million as of March 31, 2016 and December 31, 2015, respectively, have been deducted from the carrying amount of our 7.875% senior notes due 2020 (the “Senior Notes”) in our balance sheet. Unamortized debt issuance costs related to our revolving lines of credit are included in other assets.

Revenue from Contracts with Customers.  In May 2014, FASB issued an accounting standard on revenue from contracts with customers.  The standard provides a single model for revenue arising from contracts with customers and supersedes current revenue recognition guidance.  The standard requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of goods or services.  The standard is effective for annual and interim periods beginning after December 15, 2017.  Early adoption is permitted for the annual and interim periods beginning after December 15, 2016, but not prior to that time.  The revenue recognition standard permits the use of either the retrospective or cumulative effect transition method.  We expect to adopt this guidance when effective and are evaluating the impact, if any, of the adoption of the standard to our financial statements and related disclosures.  We have not yet selected a transition method nor determined the effect of the standard on our ongoing financial reporting.

 

 

(3) Fair Value Measurements

Fair value is 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 determined by assumptions that market participants would use in pricing an asset or liability. We categorize each of our fair value measurements in one of the following three levels based on the lowest level of input that is significant to the fair value measurement: 

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.

At March 31, 2016 and December 31, 2015, we did not have any financial instruments required to be recorded at fair value on a recurring basis.

The carrying amounts of cash, cash equivalents, receivables, accounts payable and accrued liabilities approximate fair values based on their short-term nature. The fair values of our revolving credit facility and capital leases are estimated using discounted cash flow analyses, based on our current incremental borrowing rates for similar types of borrowing arrangements. Based on the borrowing rates currently available to us for bank loans with similar terms and average maturities, the fair value of our revolving credit facility debt and capital leases, which are measured using Level 2 inputs, at March 31, 2016 and December 31, 2015 approximated their respective book values.

The fair value of our $200.0 million aggregate principal amount of Senior Notes is based on their latest sales price at the end of each period obtained from a third-party institution and is Level 2 in the fair value hierarchy as there is not an active market for these notes.

8


MOBILE MINI, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued

 

The Senior Notes are presented on the balance sheet net of debt issuance costs. The gross carrying value and the fair value of our Senior Notes are as follows:

 

 

 

March 31,

2016

 

 

December 31,

2015

 

 

 

(In thousands)

 

Carrying value

 

$

200,000

 

 

$

200,000

 

Fair value

 

 

206,500

 

 

 

207,000

 

 

 

(4) Earnings (Loss) Per Share

Basic earnings (loss) per share (“EPS”) is calculated by dividing net income by the weighted average number of common shares outstanding during the period.  Diluted EPS is calculated under the treasury stock method.  Potential common shares included restricted common stock, which is subject to risk of forfeiture, incremental shares of common stock issuable upon the exercise of stock options and vesting of restricted stock awards.

The following table is a reconciliation of net income (loss) and weighted-average shares of common stock outstanding for purposes of calculating basic and diluted EPS:

 

 

 

Three Months Ended

March 31,

 

 

 

2016

 

 

2015

 

 

 

(In thousands, except

per share data)

 

Numerator:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

10,998

 

 

$

(27,326

)

Denominator:

 

 

 

 

 

 

 

 

Weighted average shares outstanding - basic

 

 

44,219

 

 

 

45,484

 

Dilutive effect of share-based awards

 

 

116

 

 

 

 

Weighted average shares outstanding - diluted

 

 

44,335

 

 

 

45,484

 

Earnings (loss) per share:

 

 

 

 

 

 

 

 

Basic

 

$

0.25

 

 

$

(0.60

)

Diluted

 

 

0.25

 

 

 

(0.60

)

 

Basic weighted average number of common shares outstanding does not include restricted stock awards of 0.3 million and 0.4 million shares as of March 31, 2016 and 2015, respectively.

There were approximately 0.6 million of common stock equivalents that would have been included in the diluted EPS denominator for the three-month period ended March 31, 2015 had there not been a net loss. These common stock equivalents were excluded because their inclusion would reduce the net loss per share. In addition, the following table represents the number of stock options and restricted share awards that were issued or outstanding but excluded in calculating diluted EPS because their effect would have been anti-dilutive for the periods indicated:

 

 

 

Three Months Ended

March 31,

 

 

 

2016

 

 

2015

 

 

 

(In thousands)

 

Stock options

 

 

3,153

 

 

 

1,108

 

Restricted share awards

 

 

19

 

 

 

 

Total

 

 

3,172

 

 

 

1,108

 

 

 

9


MOBILE MINI, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued

 

(5) Impairment and Divestiture of North American Wood Mobile Offices

Our business strategy is to invest in high return, low maintenance, long-lived assets. Wood mobile offices require more maintenance and upkeep than Mobile Mini’s steel containers and steel ground level offices, resulting in lower margins as compared to our other portable storage products and our specialty containment products. During March 2015, we entered into discussions regarding the possible sale of our wood mobile offices within our North American portable storage segment.  The discussions indicated that the fleet might be sold at an amount below carrying value.

Based upon the events described above, we conducted a review for impairment for these particular long-lived assets as of March 31, 2015.  The review included assumptions of cash flows considering the likelihood of possible outcomes that existed as of the date of the review, including assigning probabilities to these outcomes.  Management estimated the fair market value for the wood mobile offices based upon purchase price discussions. Based on this review, management determined that the assets were impaired as of March 31, 2015 and an impairment loss was recognized.

On April 16, 2015, we entered into a definitive agreement to sell our wood mobile offices within the North American portable storage segment for a cash price of $92.0 million, less associated deferred revenue and customer deposits of $6.8 million.  The net assets were reclassified to held for sale as of that date.  The transaction closed on May 15, 2015 and we recorded a net loss of $1.5 million on that date.

For the three months ended March 31, 2015, the following amounts were recorded for the impairment of the wood mobile office fleet (in thousands): 

 

 

 

 

 

Estimated fair market value

 

$

92,000

 

Net book value:

 

 

 

 

Wood mobile offices in rental fleet

 

 

155,558

 

Ancillary items in property, plant and equipment

 

 

1,168

 

Impairment loss

 

$

(64,726

)

 

 

(6) Acquisitions

During the three months ended March 31, 2016, we completed one acquisition of a portable storage business in Dallas, Texas. The accompanying condensed consolidated financial statements include the operations of the acquired business from the date of acquisition. The aggregate purchase price for the assets acquired were recorded based on their estimated fair values at the date of the acquisition.  We have not disclosed the pro-forma impact of the acquisition on operations as they were immaterial to our financial position or results of operations in the aggregate.

The components of the purchase price and net assets acquired during the three months ended March 31, 2016 are as follows (in thousands):

 

Net Assets Acquired:

 

 

 

 

Rental fleet

 

$

4,239

 

Property, plant and equipment

 

 

190

 

Intangible assets:

 

 

 

 

Customer relationships

 

 

808

 

Non-compete agreements

 

 

50

 

Goodwill

 

 

3,676

 

Other assets

 

 

402

 

Liabilities

 

 

(159

)

Total purchase price

 

$

9,206

 

 

 

10


MOBILE MINI, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued

 

(7) Inventories

Inventories are valued at the lower of cost (principally on a standard cost basis which approximates the first-in, first-out method) or net realizable value. Raw materials and supplies principally consist of raw steel, wood, glass, paint, vinyl and other assembly components used in manufacturing and remanufacturing processes and to a lesser extent, parts used for internal maintenance and ancillary items held for sale in our specialty containment segment. Work-in-process primarily represents partially assembled units pre-sold or for use as fleet. Finished portable storage units primarily represent purchased or assembled containers held in inventory until the container is either sold as is, remanufactured and sold, or remanufactured and deployed as rental fleet. Inventories at March 31, 2016 and December 31, 2015 consisted of the following:

 

 

 

March 31,

2016

 

 

December 31,

2015

 

 

 

(In thousands)

 

Raw materials and supplies

 

$

13,690

 

 

$

13,436

 

Work-in-process

 

 

65

 

 

 

189

 

Finished portable storage units

 

 

1,671

 

 

 

1,971

 

Inventories

 

$

15,426

 

 

$

15,596

 

 

 

(8) Rental Fleet

Rental fleet is capitalized at cost and depreciated over the estimated useful life of the unit using the straight-line method. Rental fleet is depreciated whether or not it is out on rent. Capitalized cost of rental fleet includes the price paid to acquire the unit and freight charges to the location when the unit is first placed in service, and when applicable, the cost of manufacturing or remanufacturing, which includes the cost of customizing units. Ordinary repair and maintenance costs are charged to operations as incurred.

We periodically review depreciable lives and residual values against various factors, including the results of our lenders’ independent appraisal of our rental fleet, practices of our competitors in comparable industries and profit margins achieved on sales of depreciated units.  See Note 5 “Impairment and Divestiture of North American Wood Mobile Offices” for information regarding the impairment and divestiture of our wood mobile offices during 2015.

Appraisals on our rental fleet are required by our lenders on a regular basis. The appraisal typically reports no difference in the value of the unit due to the age or length of time it has been in our fleet. The latest orderly liquidation value appraisal in September 2015 was conducted by Gordon Brothers-AccuVal. Based on the values assigned in this appraisal our rental fleet net orderly liquidation appraisal value as of March 31, 2016 was approximately $1.1 billion.  These appraisals are used to calculate our available borrowings under our Amended and Restated ABL Credit Agreement, dated December 14, 2015, with Deutsche Bank AG New York Branch, as administrative agent, and the other lenders party thereto (the “Credit Agreement”), as described in Note 11 “Lines of Credit”.

Depreciation expense related to our rental fleet for the three months ended March 31, 2016 and 2015 was $8.1 million and $9.2 million, respectively. At March 31, 2016, all rental fleet units were pledged as collateral under the Credit Agreement.

11


MOBILE MINI, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued

 

Rental fleet consisted of the following at March 31, 2016 and December 31, 2015:

 

 

 

Residual Value

as Percentage of

Original Cost (1)

 

 

Useful Life

in Years

 

 

March 31,

2016

 

 

December 31,

2015

 

 

 

 

 

 

 

 

 

 

 

(In thousands)

 

Portable Storage:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Steel storage containers

 

 

55%

 

 

 

30

 

 

$

614,056

 

 

$

612,782

 

Steel ground level offices

 

 

55%

 

 

 

30

 

 

 

349,196

 

 

 

346,233

 

Other

 

 

 

 

 

 

 

 

 

 

6,823

 

 

 

7,052

 

Total

 

 

 

 

 

 

 

 

 

 

970,075

 

 

 

966,067

 

Accumulated depreciation

 

 

 

 

 

 

 

 

 

 

(142,785

)

 

 

(142,338

)

Total portable storage fleet, net

 

 

 

 

 

 

 

 

 

$

827,290

 

 

$

823,729

 

Specialty Containment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Steel tanks

 

 

 

 

 

25

 

 

$

56,761

 

 

$

55,467

 

Roll-off boxes

 

 

 

 

 

15 - 20

 

 

 

28,226

 

 

 

25,161

 

Stainless steel tank trailers

 

 

 

 

 

25

 

 

 

29,188

 

 

 

28,160

 

Vacuum boxes

 

 

 

 

 

20

 

 

 

10,207

 

 

 

9,852

 

De-watering boxes

 

 

 

 

 

20

 

 

 

5,375

 

 

 

5,383

 

Pumps and filtration equipment

 

 

 

 

 

7

 

 

 

14,005

 

 

 

13,964

 

Other

 

 

 

 

 

 

 

 

 

 

7,507

 

 

 

6,843

 

Total

 

 

 

 

 

 

 

 

 

 

151,269

 

 

 

144,830

 

Accumulated depreciation

 

 

 

 

 

 

 

 

 

 

(21,032

)

 

 

(17,236

)

Total specialty containment fleet, net

 

 

 

 

 

 

 

 

 

$

130,237

 

 

$

127,594

 

Total rental fleet, net

 

 

 

 

 

 

 

 

 

$

957,527

 

 

$

951,323

 

 

(1)

Specialty containment fleet has been assigned zero residual value.

 

 

(9) Property, Plant and Equipment

Property, plant and equipment are stated at cost, net of accumulated depreciation and amortization. Depreciation is recorded using the straight-line method over the assets’ estimated useful lives. Our depreciation expense related to property, plant and equipment for March 31, 2016 and 2015 was $5.5 million and $4.9 million, respectively. 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 disposal of property, plant and equipment and is included in rental, selling and general expenses in the Condensed Consolidated Statements of Operations.  See Note 5 “Impairment and Divestiture of North American Wood Mobile Offices” for information regarding the impairment and divestiture of ancillary equipment related to our wood mobile offices during 2015.

Property, plant and equipment at March 31, 2016 and December 31, 2015 consisted of the following:

 

 

 

Residual Value

as Percentage of

Original Cost

 

 

Useful Life

in Years

 

March 31,

2016

 

 

December 31,

2015

 

 

 

 

 

 

 

 

 

(In thousands)

 

Land

 

 

 

 

 

 

 

$

3,999

 

 

$

4,045

 

Vehicles and machinery

 

0 - 55%

 

 

5 - 30

 

 

122,289

 

 

 

118,185

 

Buildings and improvements (1)

 

0 - 25

 

 

3 - 30

 

 

21,814

 

 

 

21,549

 

Office fixtures and equipment

 

 

 

 

3 - 10

 

 

51,641

 

 

 

47,063

 

Property, plant and equipment

 

 

 

 

 

 

 

 

199,743

 

 

 

190,842

 

Accumulated depreciation

 

 

 

 

 

 

 

 

(61,715

)

 

 

(59,155

)

Property, plant and equipment, net

 

 

 

 

 

 

 

$

138,028

 

 

$

131,687

 

 

(1)

Improvements made to leased properties are depreciated over the lesser of the estimated remaining life or the remaining term of the respective lease.

12


MOBILE MINI, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued

 

As of March 31, 2016 and December 31, 2015, we had $27.2 million and $23.5 million, respectively, of capitalized software, net of accumulated depreciation, included in property, plant and equipment.  Of the $27.2 million of capitalized software at March 31, 2016, $23.3 million relates to the development of our new enterprise resource planning system.

 

 

(10) Goodwill and Intangibles

For acquired businesses, we record assets acquired and liabilities assumed at their estimated fair values on the respective acquisition dates. Based on these values, the excess purchase prices over the fair value of the net assets acquired is recorded as goodwill. Of the $708.6 million total goodwill at March 31, 2016, $467.6 million relates to the North America portable storage segment, $59.7 million relates to the U.K. portable storage segment and $181.2 million relates to the specialty containment segment.

The following table shows the activity and balances related to goodwill from January 1, 2016 to March 31, 2016 (in thousands): 

 

Balance at January 1, 2016

 

$

706,387

 

Acquisition

 

 

3,676

 

Foreign currency

 

 

(1,500

)

Balance at March 31, 2016

 

$

708,563

 

 

Intangible assets are amortized over the estimated useful life of the asset utilizing a method which reflects the estimated pattern in which the economic benefits will be consumed.  Customer relationships are amortized based on the estimated attrition rates of the underlying customer base, other intangibles are amortized using the straight-line method.

The following table reflects balances related to intangible assets for the periods presented:

 

 

 

 

 

March 31, 2016

 

 

December 31, 2015

 

 

 

Estimated

Useful

Life

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net

Carrying

Amount

 

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net

Carrying

Amount

 

 

 

 

 

(In thousands)

 

Customer relationships

 

11 - 20

 

$

92,889

 

 

$

(25,936

)

 

$

66,953

 

 

$

92,304

 

 

$

(24,875

)

 

$

67,429

 

Trade names/trademarks

 

5 - 10

 

 

6,002

 

 

 

(1,863

)

 

 

4,139

 

 

 

6,025

 

 

 

(1,684

)

 

 

4,341

 

Non-compete agreements

 

5

 

 

1,888

 

 

 

(526

)

 

 

1,362

 

 

 

1,839

 

 

 

(433

)

 

 

1,406

 

Other

 

20

 

 

60

 

 

 

(24

)

 

 

36

 

 

 

60

 

 

 

(24

)

 

 

36

 

Total

 

 

 

$

100,839

 

 

$

(28,349

)

 

$

72,490

 

 

$

100,228

 

 

$

(27,016

)

 

$

73,212

 

 

Amortization expense for amortizable intangibles was approximately $1.6 million and $1.5 million for the three-month periods ended March 31, 2016 and 2015, respectively.  Based on the carrying value at March 31, 2016, future amortization of intangible assets is expected to be as follows for the years ended December 31 (in thousands): 

 

2016 (remaining)

 

 

 

$

4,770

 

2017

 

 

 

 

6,245

 

2018

 

 

 

 

6,224

 

2019

 

 

 

 

6,196

 

2020

 

 

 

 

5,062

 

Thereafter

 

 

 

 

43,993

 

Total

 

 

 

$

72,490

 

 

 

13


MOBILE MINI, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued

 

(11) Lines of Credit

On December 14, 2015, we entered into the Credit Agreement. The Credit Agreement provides for a five-year, $1.0 billion first lien senior secured revolving credit facility maturing on or before the earlier of (i) December 14, 2020 and (ii) the date that is 90 days prior to the final maturity date of the Senior Notes if such Senior Notes remain outstanding on such date.  The Credit Agreement also provides for the issuance of irrevocable standby letters of credit by U.S. lenders in amounts totaling up to $50.0 million, by U.K.-based lenders in amounts totaling up to $20.0 million, and by Canadian-based lenders in amounts totaling up to $20.0 million.  The obligations of Mobile Mini and its subsidiary guarantors under the Credit Agreement are secured by a blanket lien on substantially all of our assets.

Amounts borrowed under the Credit Agreement and repaid or prepaid during the term may be reborrowed. Outstanding amounts under the Credit Agreement bear interest at our option at either: (i) the London interbank offered rate (“LIBOR”) plus an applicable margin (“LIBOR Loans”), or (ii) the prime rate plus an applicable margin (“Base Rate Loans”). The applicable margin for each type of loan is based on an availability-based pricing grid and ranges from 1.25% to 1.75% for LIBOR Loans and 0.25% to 0.75% for Base Rate Loans at each measurement date. Pursuant to the terms of the Credit Agreement, outstanding amounts will bear interest at the highest level in the pricing grid until the first measurement date subsequent to March 31, 2016.  The margins in effect as of April 2016 are 1.50% for LIBOR Loans and 0.50% for Base Rate Loans.

Availability of borrowings under the Credit Agreement is subject to a borrowing base calculation based upon a valuation of the Company’s eligible accounts receivable, eligible container fleet (including containers held for sale, work-in-process and raw materials) and machinery and equipment, each multiplied by an applicable advance rate or limit. The rental fleet is appraised at least once annually by a third-party appraisal firm and up to 90% of the Net Orderly Liquidation Value, as defined in the Credit Agreement, is included in the borrowing base to determine how much the Company may borrow under the Credit Agreement.

The Credit Agreement provides for U.K. borrowings, which are, at the Company’s option, denominated in either Pounds Sterling or Euros, by its U.K. subsidiary based upon a U.K. borrowing base; Canadian borrowings, which are denominated in Canadian dollars, by its Canadian subsidiary based upon a Canadian borrowing base; and U.S. borrowings, which are denominated in U.S. dollars, by the Company based upon a U.S. borrowing base along with any Canadian assets not included in the Canadian subsidiary.

The Credit Agreement also contains customary negative covenants, including covenants that restrict our ability to, among other things: (i) allow certain liens to attach to Mobile Mini or subsidiary assets, (ii) repurchase or pay dividends or make certain other restricted payments on capital stock and certain other securities, or prepay certain indebtedness, (iii) incur additional indebtedness or engage in certain other types of financing transactions, and (iv) make acquisitions or other investments.  In addition, we must comply with a minimum fixed charge coverage ratio of 1.00 to 1.00 as of the last day of each quarter, upon the minimum availability amount under the Credit Agreement falling below the greater of (y) $90.0 million and (z) 10% of the lesser of the then total revolving loan commitment and aggregate borrowing base. As of March 31, 2016, we were in compliance with the minimum borrowing availability threshold as set forth in the Credit Agreement and therefore not subject to any financial maintenance covenants.

 

 

(12) Income Taxes

We file U.S. federal tax returns, U.S. state tax returns and foreign tax returns and have identified our U.S. federal tax return as our “major” tax jurisdiction. For the U.S. federal return, our tax years for 2012, 2013 and 2014 are subject to tax examination by the U.S. Internal Revenue Service through September 15, 2016, 2017 and 2018, respectively. We do not anticipate that the total amount of unrecognized tax benefit related to any particular tax position will change significantly within the next 12 months.

We use 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.

Our 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 rental, selling and general expenses in our Condensed Consolidated Statements of Operations.

 

 

14


MOBILE MINI, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued

 

(13) Share-Based Compensation

We have historically awarded stock options and restricted stock awards for employees and non-employee directors as a means of attracting and retaining quality personnel and to align employee performance with stockholder value.  Stock option plans are approved by our stockholders and administered by the stock compensation committee of the Company’s Board of Directors (the “Board”). The current plan allows for a variety of equity programs designed to provide flexibility in implementing equity and cash awards, including incentive stock options, nonqualified stock options, restricted stock awards, restricted stock units, stock appreciation rights, performance stock, performance units and other stock-based awards. Participants may be granted any one of the equity awards or any combination. We do not award stock options with an exercise price below the market price of the underlying securities on the date of award.  As of March 31, 2016, 1.9 million shares are available for future grants.  Generally stock options have contractual terms of ten years.  

For the quarters ended March 31, 2016 and 2015, expense related to share-based compensation was $2.6 million and $3.3 million, respectively.  This expense was included in rental, selling and general expenses for these quarters. As of March 31, 2016, total unrecognized compensation cost related to stock option awards was approximately $5.9 million and the related weighted-average period over which it is expected to be recognized is approximately 1.8 years. As of March 31, 2016, the unrecognized compensation cost related to restricted stock awards was approximately $8.2 million, which is expected to be recognized over a weighted-average period of approximately 2.8 years.

Stock Options. The fair value of each stock option award is estimated on the date of the grant using the Black-Scholes-Merton option pricing model which requires the input of assumptions. We estimate the risk-free interest rate based on the U.S. Treasury security rate in effect at the time of the grant. The expected life of the options, volatility and dividend rates are estimated based on our historical data. The following are the key assumptions used for the period noted:

 

 

 

2016

 

 

2015

Risk-free interest rate

 

 

1.5%

 

 

1.3% - 1.5%

Expected life of the options (years)

 

5

 

 

5

Expected stock price volatility

 

 

36.7%

 

 

35.6% - 35.7%

Expected dividend rate

 

 

3.1%

 

 

1.8% - 2.0%

 

The following table summarizes stock option activity for the three months ended March 31, 2016 (share amounts in thousands):

 

 

 

Number of

Shares

 

 

Weighted

Average

Exercise

Price

 

Options outstanding, beginning of period

 

 

2,870

 

 

$

33.40

 

Granted

 

 

574

 

 

 

26.20

 

Canceled/Expired

 

 

(26

)

 

 

34.75

 

Exercised

 

 

 

 

 

 

 

Options outstanding, end of period

 

 

3,418

 

 

 

32.18

 

 

A summary of stock options outstanding as of March 31, 2016, is as follows:

 

 

 

Number of

Shares

 

 

Weighted

Average

Exercise

Price

 

 

Weighted

Average

Remaining

Contractual

Terms

 

 

Aggregate

Intrinsic

Value

 

 

 

(In thousands)

 

 

 

 

 

 

(In years)

 

 

(In thousands)

 

Outstanding

 

 

3,418

 

 

$

32.18

 

 

 

7.60

 

 

$

11,546

 

Vested and expected to vest

 

 

3,295

 

 

 

32.27

 

 

 

7.53

 

 

 

10,881

 

Exercisable

 

 

2,512

 

 

 

32.01

 

 

 

6.97

 

 

 

7,614

 

 

15


MOBILE MINI, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued

 

The weighted average fair value of stock options granted was $6.54. Included in the tables above are option awards granted in 2016 which will vest based upon the achievement of specified performance criteria related to 2016 and future years. Such awards have been granted assuming a target number of options; however, the terms of these awards provide that the number of options that ultimately vest may vary between 50% and 200% of the target award, or may be zero. The tables present the options at their target amount, and the 1.9 million shares available for grant as noted previously, has also been calculated utilizing the target award amounts.  Included in the cancellations shown in the table above is the cancellation of approximately 13,000 options granted in previous years subject to performance criteria.  These awards were canceled during the current period due to vesting at less than 100% of the target award.

Restricted Stock Awards. The fair value of restricted stock awards is estimated as the closing price of our common stock on the date of grant. A summary of restricted stock award activity is as follows (share amounts in thousands):

 

 

 

Shares

 

 

Weighted

Average

Grant Date

Fair Value

 

Restricted stock awards at beginning of period

 

 

242

 

 

$

31.70

 

Awarded

 

 

143

 

 

 

26.23

 

Released

 

 

(54

)

 

 

33.25

 

Forfeited

 

 

(9

)

 

 

25.97

 

Restricted stock awards at end of period

 

 

322

 

 

 

29.16

 

 

The restricted stock awards that vested during the three months ended March 31, 2016 had an aggregate grant date fair value of $1.8 million and an aggregate vesting date fair value of $1.6 million.      

 

 

(14) Restructuring

We have undergone restructuring actions to align our business operations.  The restructuring expense during the three-month period ended March 31, 2016 resulted from the continuation of restructuring projects initiated in prior years.  These costs include additional restructuring items that were included in the prior year plan but were not accruable at the time of the previous charges. Of the $2.2 million of restructuring expense recognized in the three months ended March 31, 2016 approximately $1.3 million related to the integration of Evergreen Tank Solutions (“ETS”) into the existing Mobile Mini infrastructure, including our shift from managing operations on a product-oriented basis to a geographic, customer-focused organization; and, to support this shift, the re-alignment of sales leadership with operational leadership.  The remaining costs largely relate to the abandonment of yards related to our move away from the wood mobile office business. The restructuring expense recognized in the three months ended March 31, 2015 related primarily to the ETS integration.

The following table details accrued restructuring obligations (included in accrued liabilities in the Condensed Consolidated Balance Sheets) and related activity for the year ended December 31, 2015 and the three-month period ended March 31, 2016:

 

 

 

Fleet and Property,

Plant and

Equipment

Abandonment Costs

 

 

Severance and

Benefits

 

 

Lease

Abandonment

Costs

 

 

Other

Costs

 

 

Total

 

 

 

(In thousands)

 

Accrued obligations as of January 1, 2015

 

$

 

 

$

441

 

 

$