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EX-32.1 - EX-32.1 - MOBILE MINI INCmini-ex321_7.htm
EX-31.2 - EX-31.2 - MOBILE MINI INCmini-ex312_6.htm
EX-31.1 - EX-31.1 - MOBILE MINI INCmini-ex311_8.htm
EX-10.1 - EX-10.1 - MOBILE MINI INCmini-ex101_132.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

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

For the quarterly period ended March 31, 2017

or

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      No  

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      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

  (Do not check if a smaller reporting company)

Smaller reporting company

 

 

 

 

 

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.              

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

At April 20, 2017, there were outstanding 44,204,002 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, 2017

 

 

 

 

 

PAGE

 

 

 

 

 

PART I. FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1. Financial Statements

 

3

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets March 31, 2017 (unaudited) and December 31, 2016

 

3

 

 

 

 

 

 

 

Condensed Consolidated Statements of Income (unaudited) for the Three Months Ended March 31, 2017 and March 31, 2016

 

4

 

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income (unaudited) for the Three Months Ended March 31, 2017 and March 31, 2016

 

5

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows (unaudited)  for the Three Months Ended March 31, 2017 and March 31, 2016

 

6

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

 

8

 

 

 

 

 

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

 

27

 

 

 

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

39

 

 

 

 

 

Item 4. Controls and Procedures

 

39

 

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

 

 

Item 1A. Risk Factors

 

40

 

 

 

 

 

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

 

41

 

 

 

 

 

Item 6. Exhibits

 

42

 

 

 

2


 

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

MOBILE MINI, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value data)

 

 

 

March 31,

2017

 

 

December 31,

2016

 

 

 

(unaudited)

 

 

(audited)

 

ASSETS

 

Cash and cash equivalents

 

$

7,609

 

 

$

4,137

 

Receivables, net of allowance for doubtful accounts of $5,406 and $4,886

   at March 31, 2017 and December 31, 2016, respectively

 

 

89,845

 

 

 

99,175

 

Inventories

 

 

16,439

 

 

 

15,412

 

Rental fleet, net

 

 

951,458

 

 

 

950,065

 

Property, plant and equipment, net

 

 

150,997

 

 

 

149,197

 

Other assets

 

 

15,701

 

 

 

14,930

 

Intangibles, net

 

 

66,802

 

 

 

68,420

 

Goodwill

 

 

704,235

 

 

 

703,558

 

Total assets

 

$

2,003,086

 

 

$

2,004,894

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

Liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

30,415

 

 

$

27,388

 

Accrued liabilities

 

 

58,660

 

 

 

64,126

 

Lines of credit

 

 

638,827

 

 

 

641,160

 

Obligations under capital leases

 

 

50,824

 

 

 

50,704

 

Senior notes, net of deferred financing costs of $4,629 and $4,788

   at March 31, 2017 and December 31, 2016, respectively

 

 

245,371

 

 

 

245,212

 

Deferred income taxes

 

 

226,908

 

 

 

240,690

 

Total liabilities

 

 

1,251,005

 

 

 

1,269,280

 

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, 49,458 issued and 44,205

   outstanding at March 31, 2017 and 49,292 issued and 44,295 outstanding at

   December 31, 2016

 

 

495

 

 

 

493

 

Additional paid-in capital

 

 

595,149

 

 

 

592,071

 

Retained earnings

 

 

381,419

 

 

 

362,896

 

Accumulated other comprehensive loss

 

 

(78,544

)

 

 

(81,047

)

Treasury stock, at cost, 5,253 and 4,997 shares at March 31, 2017 and

   December 31, 2016, respectively

 

 

(146,438

)

 

 

(138,799

)

Total stockholders' equity

 

 

752,081

 

 

 

735,614

 

Total liabilities and stockholders' equity

 

$

2,003,086

 

 

$

2,004,894

 

 

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

 

 

3


 

MOBILE MINI, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)

(Unaudited)

 

 

 

Three Months Ended

March 31,

 

 

 

2017

 

 

2016

 

Revenues:

 

 

 

 

 

 

 

 

Rental

 

$

114,742

 

 

$

117,356

 

Sales

 

 

7,978

 

 

 

6,891

 

Other

 

 

807

 

 

 

286

 

Total revenues

 

 

123,527

 

 

 

124,533

 

Costs and expenses:

 

 

 

 

 

 

 

 

Rental, selling and general expenses

 

 

78,359

 

 

 

76,302

 

Cost of sales

 

 

5,112

 

 

 

4,611

 

Restructuring expenses

 

 

899

 

 

 

2,248

 

Depreciation and amortization

 

 

15,264

 

 

 

15,177

 

Total costs and expenses

 

 

99,634

 

 

 

98,338

 

Income from operations

 

 

23,893

 

 

 

26,195

 

Other expense:

 

 

 

 

 

 

 

 

Interest expense

 

 

(8,402

)

 

 

(8,484

)

Foreign currency exchange

 

 

(9

)

 

 

 

Income before income tax provision

 

 

15,482

 

 

 

17,711

 

Income tax provision

 

 

5,330

 

 

 

6,713

 

Net income

 

$

10,152

 

 

$

10,998

 

Earnings per share:

 

 

 

 

 

 

 

 

Basic

 

$

0.23

 

 

$

0.25

 

Diluted

 

 

0.23

 

 

 

0.25

 

Weighted average number of common and common share

   equivalents outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

44,109

 

 

 

44,219

 

Diluted

 

 

44,341

 

 

 

44,335

 

Cash dividends declared per share

 

$

0.23

 

 

$

0.21

 

 

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

4


 

MOBILE MINI, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

 

 

 

Three Months Ended

March 31,

 

 

 

2017

 

 

2016

 

Net income

 

$

10,152

 

 

$

10,998

 

Foreign currency translation adjustment

 

 

2,503

 

 

 

(3,713

)

Comprehensive income

 

$

12,655

 

 

$

7,285

 

 

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,

 

 

 

2017

 

 

2016

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

10,152

 

 

$

10,998

 

Adjustments to reconcile net income to net cash provided

   by operating activities:

 

 

 

 

 

 

 

 

Provision for doubtful accounts

 

 

1,164

 

 

 

1,203

 

Amortization of deferred financing costs

 

 

515

 

 

 

468

 

Amortization of long-term liabilities

 

 

32

 

 

 

29

 

Share-based compensation expense

 

 

1,311

 

 

 

2,564

 

Depreciation and amortization

 

 

15,264

 

 

 

15,177

 

Gain on sale of rental fleet

 

 

(1,703

)

 

 

(1,378

)

Loss on disposal of property, plant and equipment

 

 

18

 

 

 

338

 

Deferred income taxes

 

 

4,943

 

 

 

6,560

 

Foreign currency transaction loss

 

 

9

 

 

 

 

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

 

 

 

 

 

 

 

 

Receivables

 

 

8,384

 

 

 

1,628

 

Inventories

 

 

(1,020

)

 

 

143

 

Other assets

 

 

(1,115

)

 

 

(849

)

Accounts payable

 

 

583

 

 

 

(2,506

)

Accrued liabilities

 

 

(5,814

)

 

 

906

 

Net cash provided by operating activities

 

 

32,723

 

 

 

35,281

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Cash paid for businesses acquired, net of cash acquired

 

 

 

 

 

(9,206

)

Additions to rental fleet, excluding acquisitions

 

 

(10,006

)

 

 

(10,884

)

Proceeds from sale of rental fleet

 

 

4,622

 

 

 

3,970

 

Additions to property, plant and equipment, excluding acquisitions

 

 

(3,748

)

 

 

(8,310

)

Proceeds from sale of property, plant and equipment

 

 

68

 

 

 

840

 

Net cash used in investing activities

 

 

(9,064

)

 

 

(23,590

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Net (repayments) borrowings under lines of credit

 

 

(2,334

)

 

 

5,152

 

Deferred financing costs

 

 

(13

)

 

 

(193

)

Principal payments on capital lease obligations

 

 

(1,760

)

 

 

(1,433

)

Issuance of common stock

 

 

1,640

 

 

 

 

Dividend payments

 

 

(10,145

)

 

 

(9,152

)

Purchase of treasury stock

 

 

(7,639

)

 

 

(7,084

)

Net cash used in financing activities

 

 

(20,251

)

 

 

(12,710

)

Effect of exchange rate changes on cash

 

 

64

 

 

 

40

 

Net increase (decrease) in cash

 

 

3,472

 

 

 

(979

)

Cash and cash equivalents at beginning of period

 

 

4,137

 

 

 

1,613

 

Cash and cash equivalents at end of period

 

$

7,609

 

 

$

634

 

 

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

6


 

MOBILE MINI, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued

(In thousands)

(Unaudited)

 

 

 

Three Months Ended

March 31,

 

 

 

2017

 

 

2016

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

 

13,671

 

 

 

3,878

 

Cash paid for income and franchise taxes

 

 

 

 

 

68

 

Equipment and other acquired through capital lease obligations

 

 

1,879

 

 

 

5,461

 

Capital expenditures accrued or payable

 

 

5,541

 

 

 

9,112

 

 

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

 

 

 

7


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 storage solutions and tank and pump solutions. In these notes, the terms “Mobile Mini” the “Company,” “we,” “us,” and “our” refer to Mobile Mini, Inc.

At March 31, 2017, we had a fleet of storage solutions units operating throughout the United States (the “U.S.”), Canada and the United Kingdom (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 tank and pump solutions products, concentrated in the U.S. Gulf Coast, including liquid and solid containment units, serving a specialty sector in the industry.  Our tank and pump products are leased primarily to chemical, refinery, oil and natural gas drilling, mining and environmental service customers.

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, 2017 and 2016 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 audited consolidated financial statements and accompanying notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016 filed with the Securities and Exchange Commission (“SEC”) on February 2, 2017.

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.

 

 

(2) Impact of Recently Issued Accounting Standards

Business Combinations.  In January 2017, the Financial Accounting Standards Board (“FASB”) issued a standard which clarifies the definition of a business and provides a new framework for determining whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses.  This standard is effective for annual and interim periods beginning after December 15, 2017.  We anticipate implementing this standard on January 1, 2018 and applying the guidance prospectively to transactions after that date.

Intangibles – Goodwill and Other.  In January 2017, the FASB issued a standard requiring an entity to no longer perform a hypothetical purchase price allocation to measure goodwill impairment.  Instead, impairment will be measured using the difference between the carrying amount and the fair value of the reporting unit.  This standard is effective for annual and interim periods beginning after December 15, 2019.  Entities may early adopt the guidance for goodwill impairment tests with measurement dates after January 1, 2017.  We have not determined an adoption date and do not expect the adoption of this standard to have a material effect on our consolidated financial statements.

Share-Based Compensation. In March 2016, the 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. We implemented this standard on January 1, 2017.

8


MOBILE MINI, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued

 

This standard eliminates the requirement that excess tax benefits be realized before companies can recognize them. As a result, utilizing the modified retrospective method, we recorded a cumulative-effect adjustment for previously unrecognized excess tax benefits of $18.5 million in the opening balance sheet for 2017, with an offsetting increase to retained earnings. In addition, the standard allows us to make a policy election to either continue to reduce share-based compensation expense for forfeitures in future periods, or to recognize forfeitures as they occur. We have chosen to record forfeitures as they occur and recorded an immaterial cumulative-effect adjustment to the opening balance sheet to reflect the difference between the fair value estimate of awards historically expected to be forfeited and the fair value estimate of awards actually forfeited. This standard also requires all excess tax benefits and tax deficiencies associated with the exercise of stock options and vesting of restricted stock to be recorded as income tax expense or benefit. Increases and decreases in the aggregate intrinsic value (or negative value) of such activity could introduce volatility in our effective tax rate. The remaining provisions of the new guidance did not have a material effect on our consolidated financial statements.

Leases.  In February 2016, the 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.  Early adoption is permitted and the standard requires the use of a modified retrospective transition method. While we are continuing to evaluate all potential impacts of the standard, we do not believe the accounting for our contractual rental revenue will be materially affected by the adoption of this standard.  We anticipate the lessee accounting for operating leases under the standard will have a material effect on our statement of financial position.

Revenue from Contracts with Customers. In May 2014, the 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 and 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.

While we are continuing to assess all potential impacts of the standard, we currently believe the majority of our revenue, as it relates to contractual rental revenue, is excluded from the scope of this standard, and the accounting for the remaining revenue streams will not be materially affected. Accordingly, we do not anticipate that the adoption of this standard will have a material impact on our consolidated financial statements. We expect to utilize the modified retrospective adoption and recognize the cumulative effect of initially applying the standard, if any, as an adjustment to the opening balance of retained earnings at the date of initial application.

 

 

(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, 2017 and December 31, 2016, 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, 2017 and December 31, 2016 approximated their respective book values.

9


MOBILE MINI, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued

 

The fair value of our $250.0 million aggregate principal amount of 5.875% senior notes due July 1, 2024 (the “Senior Notes” or “2024 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 Senior Notes.  The Senior Notes are presented on the balance sheet net of deferred financing costs. The gross carrying value and the fair value of our Senior Notes are as follows:

 

 

 

March 31,

2017

 

 

December 31,

2016

 

 

 

(In thousands)

 

Carrying value

 

$

250,000

 

 

$

250,000

 

Fair value

 

 

259,375

 

 

 

258,750

 

 

 

(4) Earnings Per Share

Basic earnings 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 and weighted-average shares of common stock outstanding for purposes of calculating basic and diluted EPS:

 

 

 

Three Months Ended

March 31,

 

 

 

2017

 

 

2016

 

 

 

(In thousands, except per share data)

 

Numerator:

 

 

 

 

 

 

 

 

Net income

 

$

10,152

 

 

$

10,998

 

Denominator:

 

 

 

 

 

 

 

 

Weighted average shares outstanding - basic

 

 

44,109

 

 

 

44,219

 

Dilutive effect of share-based awards

 

 

232

 

 

 

116

 

Weighted average shares outstanding - diluted

 

 

44,341

 

 

 

44,335

 

Earnings per share:

 

 

 

 

 

 

 

 

Basic

 

$

0.23

 

 

$

0.25

 

Diluted

 

 

0.23

 

 

 

0.25

 

 

 

Basic weighted average number of common shares outstanding does not include restricted stock awards of 0.3 million shares as of both March 31, 2017 and 2016.

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, or the underlying performance criteria had not yet been met:

 

 

 

Three Months Ended

March 31,

 

 

 

2017

 

 

2016

 

 

 

(In thousands)

 

Stock options

 

 

2,221

 

 

 

3,153

 

Restricted share awards

 

 

74

 

 

 

19

 

Total

 

 

2,295

 

 

 

3,172

 

 

 

 

10


MOBILE MINI, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued

 

(5) 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, 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 Tank & Pump Solutions segment. Work-in-process primarily represents partially assembled units. Finished 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, 2017 and December 31, 2016 consisted of the following:

 

 

 

March 31,

2017

 

 

December 31,

2016

 

 

 

(In thousands)

 

Raw materials and supplies

 

$

12,669

 

 

$

12,908

 

Work-in-process

 

 

41

 

 

 

31

 

Finished units

 

 

3,729

 

 

 

2,473

 

Inventories

 

$

16,439

 

 

$

15,412

 

 

 

(6) 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.

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. Based in part upon our lender’s third-party appraiser who evaluated our fleet as of September 30, 2016, management estimates that the net orderly liquidation appraisal value as of March 31, 2017 was approximately $1.1 billion.  Our net book value for this fleet as of March 31, 2017 was $951.5 million.

Depreciation expense related to our rental fleet for the three months ended March 31, 2017 and 2016 was $7.5 million and $8.1 million, respectively. At March 31, 2017, all rental fleet units were pledged as collateral 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”).

11


MOBILE MINI, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued

 

Rental fleet consisted of the following at March 31, 2017 and December 31, 2016:

 

 

 

Residual Value

as Percentage of

Original Cost (1)

 

 

Useful Life

in Years

 

March 31,

2017

 

 

December 31,

2016

 

 

 

 

 

 

 

 

 

(In thousands)

 

Storage Solutions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Steel storage containers

 

 

55%

 

 

30

 

$

627,496

 

 

$

625,094

 

Steel ground level offices

 

 

55

 

 

30

 

 

349,256

 

 

 

347,574

 

Other

 

 

 

 

 

 

 

 

7,415

 

 

 

4,430

 

Total

 

 

 

 

 

 

 

 

984,167

 

 

 

977,098

 

Accumulated depreciation

 

 

 

 

 

 

 

 

(155,093

)

 

 

(151,238

)

Total Storage Solutions fleet, net

 

 

 

 

 

 

 

$

829,074

 

 

$

825,860

 

Tank & Pump Solutions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Steel tanks

 

 

 

 

 

25

 

$

62,573

 

 

$

61,955

 

Roll-off boxes

 

 

 

 

 

15 - 20

 

 

28,727

 

 

 

28,743

 

Stainless steel tank trailers

 

 

 

 

 

25

 

 

29,093

 

 

 

29,150

 

Vacuum boxes

 

 

 

 

 

20

 

 

11,505

 

 

 

11,512

 

De-watering boxes

 

 

 

 

 

20

 

 

5,625

 

 

 

5,429

 

Pumps and filtration equipment

 

 

 

 

 

7

 

 

13,684

 

 

 

13,690

 

Other

 

 

 

 

 

 

 

 

6,677

 

 

 

6,150

 

Total

 

 

 

 

 

 

 

 

157,884

 

 

 

156,629

 

Accumulated depreciation

 

 

 

 

 

 

 

 

(35,500

)

 

 

(32,424

)

Total Tank & Pump Solutions fleet, net

 

 

 

 

 

 

 

$

122,384

 

 

$

124,205

 

Total rental fleet, net

 

 

 

 

 

 

 

$

951,458

 

 

$

950,065

 

 

(1)

Tank & Pump Solutions fleet has been assigned zero residual value.

 

 

(7) 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 the three months ended March 31, 2017 and 2016 was $6.1 million and $5.5 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 Income.

Property, plant and equipment at March 31, 2017 and December 31, 2016 consisted of the following:

 

 

 

Residual Value

as Percentage of

Original Cost

 

 

Useful Life

in Years

 

March 31,

2017

 

 

December 31,

2016

 

 

 

 

 

 

 

 

 

(In thousands)

 

Land

 

 

 

 

 

 

 

$

3,803

 

 

$

3,789

 

Vehicles and machinery

 

   0 - 55%

 

 

5 - 30

 

 

135,288

 

 

 

131,584

 

Buildings and improvements (1)

 

0 - 25

 

 

3 - 30

 

 

23,138

 

 

 

22,750

 

Furniture, office and computer equipment

 

 

 

 

3 - 10

 

 

67,025

 

 

 

63,969

 

Property, plant and equipment

 

 

 

 

 

 

 

 

229,254

 

 

 

222,092

 

Accumulated depreciation

 

 

 

 

 

 

 

 

(78,257

)

 

 

(72,895

)

Property, plant and equipment, net

 

 

 

 

 

 

 

$

150,997

 

 

$

149,197

 

 

(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, 2017 and December 31, 2016, we had $37.4 million and $35.0 million, respectively, of capitalized software, net of accumulated depreciation, included in property, plant and equipment.

 

 

(8) 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 $704.2 million total goodwill at March 31, 2017, $468.5 million related to the North America Storage Solutions segment, $54.5 million related to the U.K. Storage Solutions segment and $181.2 million related to the Tank & Pump Solutions segment.

The following table shows the activity and balances related to goodwill from January 1, 2017 to March 31, 2017 (in thousands): 

 

Balance at January 1, 2017

 

$

703,558

 

Foreign currency

 

 

660

 

Adjustments

 

 

17

 

Balance at March 31, 2017

 

$

704,235

 

 

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, 2017

 

 

December 31, 2016

 

 

 

Estimated

Useful

Life

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net

Carrying

Amount

 

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net

Carrying

Amount

 

 

 

 

 

(In thousands)

 

Customer relationships

 

15 - 20

 

$

92,546

 

 

$

(30,081

)

 

$

62,465

 

 

$

92,515

 

 

$

(28,729

)

 

$

63,786

 

Trade names/trademarks

 

  5 - 10

 

 

5,900

 

 

 

(2,593

)

 

 

3,307

 

 

 

5,892

 

 

 

(2,364

)

 

 

3,528

 

Non-compete agreements

 

5

 

 

1,886

 

 

 

(888

)

 

 

998

 

 

 

1,886

 

 

 

(813

)

 

 

1,073

 

Other

 

20

 

 

59

 

 

 

(27

)

 

 

32

 

 

 

59

 

 

 

(26

)

 

 

33

 

Total

 

 

 

$

100,391

 

 

$

(33,589

)

 

$

66,802

 

 

$

100,352

 

 

$

(31,932

)

 

$

68,420

 

 

Amortization expense for amortizable intangibles was approximately $1.6 million for both three-month periods ended March 31, 2017 and 2016.  Based on the carrying value at March 31, 2017, future amortization of intangible assets is expected to be as follows for the years ended December 31 (in thousands): 

 

2017 (remaining)

 

 

 

$

4,894

 

2018

 

 

 

 

6,379

 

2019

 

 

 

 

6,286

 

2020

 

 

 

 

5,134

 

2021

 

 

 

 

4,902

 

Thereafter

 

 

 

 

39,207

 

Total

 

 

 

$

66,802

 

 

 

(9) Debt

Lines of Credit

On December 14, 2015, we entered into the Credit Agreement with Deutsche Bank AG New York Branch, as administrative agent, and other lenders party thereto. 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.-based lenders in amounts totaling up to $50.0 million, by U.K.-based lenders in amounts

13


MOBILE MINI, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued

 

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. As of March 31, 2017, the applicable margins 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 the amount 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 the Company’s ability to, among other things: (i) allow certain liens to attach to the Company’s or its subsidiaries’ 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 million and (z) 10% of the lesser of the then total revolving loan commitment and aggregate borrowing base.  As of March 31, 2017, we were in compliance with the minimum borrowing availability threshold set forth in the Credit Agreement and, therefore, are not subject to any financial maintenance covenants.

Senior Notes

On May 9, 2016, we issued $250.0 million aggregate principal amount of the 2024 Notes at an initial offering price of 100% of their face value. The net proceeds from the sale of the 2024 Notes were used to (i) redeem all $200.0 million aggregate principal amount of our 7.875% senior notes due 2020 (“2020 Notes”) at a redemption price of 103.938% of the principal amount thereof plus accrued and unpaid interest to, but not including, the redemption date of June 8, 2016, (ii) repay a portion of the indebtedness outstanding under our asset-based revolving credit facility, and (iii) pay fees and expenses related to the offering of the 2024 Notes.

The 2024 Notes bear interest at a rate of 5.875% per year have an eight-year term and mature on July 1, 2024. Interest on the 2024 Notes is payable semiannually in arrears on January 1 and July 1, beginning on January 1, 2017. The 2024 Notes are senior unsecured obligations of the Company and are unconditionally guaranteed on a senior unsecured basis by certain of our existing and future domestic subsidiaries.

Obligations Under Capital Leases

At March 31, 2017 and December 31, 2016, obligations under capital leases for certain real property, transportation, technology and office related equipment were $50.8 million and $50.7 million, respectively. Certain of the lease agreements provide us with a purchase option at the end of the lease term.

14


MOBILE MINI, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued

 

Future Debt Obligations

The scheduled maturity for debt obligations for balances outstanding at March 31, 2017 are as follows:

 

 

 

Lines of Credit

 

 

Senior Notes

 

 

Capital Lease Obligations

 

 

Total

 

 

 

(In thousands)

 

2017 (remaining)

 

$

 

 

$

 

 

$

5,730

 

 

$

5,730

 

2018

 

 

 

 

 

 

 

 

7,180

 

 

 

7,180

 

2019

 

 

 

 

 

 

 

 

7,533

 

 

 

7,533

 

2020

 

 

638,827

 

 

 

 

 

 

8,754

 

 

 

647,581

 

2021

 

 

 

 

 

 

 

 

8,604

 

 

 

8,604

 

Thereafter

 

 

 

 

 

250,000

 

 

 

13,023

 

 

 

263,023

 

Total

 

$

638,827

 

 

$

250,000

 

 

$

50,824

 

 

$

939,651

 

 

 

(10) Income Taxes

We are subject to taxation in the U.S. federal jurisdiction, as well as various U.S. state and foreign jurisdictions. We have identified our U.S. federal tax return as our “major” tax jurisdiction. As of March 31, 2017, we are no longer subject to examination by U.S. federal tax authorities for years prior to 2013, to examination for any U.S. state taxing authority prior to 2011, or to examination for any foreign jurisdictions prior to 2013.  All subsequent periods remain open to examination.  Our effective income tax rate decreased to 34.4% for the three months ended March 31, 2017, compared to 37.9% for the prior-year quarter.  This decrease in the effective tax rate was primarily due to stock compensation related items recorded discretely in the prior year quarter.

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 Income.

 

 

(11) 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 grant.  As of March 31, 2017, 2.0 million shares are available for future grants, assuming performance-based options vest at their target amount.  Generally stock options have contractual terms of ten years.  

For the quarters ended March 31, 2017 and 2016, expense related to share-based compensation was $1.3 million and $2.6 million, respectively.  This expense was included in rental, selling and general expenses for each quarter.  As of March 31, 2017, total unrecognized compensation cost related to stock option awards was approximately $4.8 million and the related weighted-average period over which it is expected to be recognized is approximately 1.6 years. As of March 31, 2017, the unrecognized compensation cost related to restricted stock awards was approximately $7.2 million, which is expected to be recognized over a weighted-average period of approximately 2.9 years.

15


MOBILE MINI, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued

 

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 each of the three-month periods ended March 31:

 

 

 

2017

 

 

2016

 

Risk-free interest rate

 

 

1.9%

 

 

 

1.5%

 

Expected life of the options (years)

 

5

 

 

5

 

Expected stock price volatility

 

 

35.4%

 

 

 

36.7%

 

Expected dividend rate

 

 

2.8%

 

 

 

3.1%

 

 

The following table summarizes stock option activity for the three months ended March 31, 2017:

 

 

 

Number of

Shares

 

 

Weighted

Average

Exercise

Price

 

 

 

(In thousands)

 

 

 

 

 

Options outstanding, beginning of period

 

 

3,292

 

 

$

32.06

 

Granted

 

 

398

 

 

 

32.55

 

Canceled/Expired

 

 

(188

)

 

 

27.19

 

Exercised

 

 

(79

)

 

 

20.88

 

Options outstanding, end of period

 

 

3,423

 

 

 

32.64

 

 

A summary of stock options outstanding as of March 31, 2017 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

 

 

3,423

 

 

$

32.64

 

 

 

6.82

 

 

$

4,932

 

Exercisable

 

 

2,590

 

 

 

32.96

 

 

 

6.06

 

 

 

3,584

 

 

The aggregate intrinsic value of options exercised during the three months ended March 31, 2017 was approximately $903,000 and the weighted average fair value of stock options granted during the three months ended March 31, 2017 was $8.33.

The option awards granted in 2017 will vest based upon the achievement of specified performance criteria related to fiscal 2017, 2018 and 2019. In addition, included in options outstanding at the end of the period are 326,000 options granted in 2016 that will vest based upon the achievement of specified performance criteria related to fiscal 2017 and 2018. 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.  Included in the table above are cancellations of approximately 173,000 options granted in previous years subject to performance criteria.  These awards were canceled during the current-year period due to vesting at less than 100% of the target award.

16


MOBILE MINI, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued

 

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:

 

 

 

Shares

 

 

Weighted

Average

Grant Date

Fair Value

 

 

 

(In thousands)

 

 

 

 

 

Restricted stock awards at beginning of period

 

 

243

 

 

$

30.27

 

Awarded

 

 

102

 

 

 

32.55

 

Released

 

 

(75

)

 

 

31.03

 

Forfeited

 

 

(15

)

 

 

31.30

 

Restricted stock awards at end of period