| MOBILE MINI INC ITEM 1A RISK FACTORS Our discussion and analysis in this report, in other reports that we file with the Securities and Exchange Commission, in our press releases and in public statements of our officers and corporate spokespersons contain forward-looking statements |
| Forward-looking statements give our current expectations or forecasts of future events |
| You can identify these statements by the fact that they do not relate strictly to historical or current events |
| They include words such as “anticipate,” “estimate,” “expect,” “intend,” “plan,” “believe” and other words of similar meaning in connection with discussion of future operating or financial performance |
| These include statements relating to future actions, acquisition and growth strategy, future performance or results of current and anticipated products, sales efforts, expenses, the outcome of contingencies such as legal proceedings and financial results |
| Forward-looking statements may turn out to be wrong |
| They can be affected by inaccurate assumptions or by known or unknown risks and uncertainties |
| Many factors mentioned in this report, for example, the availability to Mobile Mini of additional equity and debt financing that could be needed to continue to achieve growth rates similar to those of the last several years, will be important in determining future results |
| No forward-looking statement can be guaranteed, and actual results may vary materially from those anticipated in any forward-looking statement |
| Mobile Mini undertakes no obligation to update any forward-looking statement |
| We provide the following discussion of risks and uncertainties relevant to our business |
| These are factors that we think could cause our actual results to differ materially from expected and historical results |
| Mobile Mini could also be adversely affected by other factors besides those listed here |
| Subject to the restrictions in our revolving credit facility and the indenture governing our Senior Notes, we and our subsidiaries may incur significant additional indebtedness |
| Although the terms of the revolving credit facility and the indenture contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions, and additional indebtedness incurred in compliance with these restrictions could be substantial |
| If new debt is added to our current debt levels, the related risks that we now face could increase |
| A slowdown in the non-residential construction sector of the economy could reduce demand from some of our customers, which could result in lower demand for our products |
| At the end of 2004 and 2005, customers in the construction industry, primarily in non-residential construction, accounted for approximately 32prca and 35prca, respectively, of our leased units |
| This industry tends to be cyclical and particularly susceptible to slowdowns in the overall economy |
| In 2002 and 2003 this industry sector suffered a sustained economic slowdown which resulted in much slower growth in demand for leases and sales of our products |
| If another sustained economic slowdown in this sector were to occur, especially in non-residential construction, it is likely that we would again experience less demand for leases and sales of our products |
| Also, because most of our cost of leasing is either fixed or semi variable, this would cause our margins to contract and the adverse affect on operating results would be more pronounced |
| Our internal growth rate slowed to 7dtta5prca in 2002 and 7dtta4prca in 2003 due to a slowdown in the economy, particularly in this sector |
| During these years, our profitability declined |
| Our planned growth strains our management resources, which could disrupt our development of our new branch locations |
| Our future performance will depend in large part on our ability to manage our planned growth |
| Our growth could strain our management, human and other resources |
| To successfully manage this growth, we must continue to add managers and employees and improve our operating, financial and other internal procedures and controls |
| We also must effectively motivate, train and manage our employees |
| If we do not manage our growth effectively, some of our new branches and acquisitions may lose money or fail, and we may have to close unprofitable locations |
| Closing a branch would likely result in additional expenses that would cause our operating results to suffer |
| 16 _________________________________________________________________ [72]Table of Contents We may need additional debt or equity to sustain our growth, but we do not have commitments for such funds |
| We finance our growth through a combination of borrowings, cash flow from operations, and equity financing |
| Our ability to continue growing at the pace we have historically grown will depend in part on our ability to obtain either additional debt or equity financing |
| The terms on which debt and equity financing is available to us varies from time to time and is influenced by our performance and by external factors, such as the economy generally and developments in the market, that are beyond our control |
| Also, additional debt financing or the sale of additional equity securities may cause the market price of our common stock to decline |
| If we are unable to obtain additional debt or equity financing on acceptable terms, we may have to curtail our growth by delaying new branch openings, or, under certain circumstances, lease fleet expansion |
| The supply and cost of used ocean-going containers fluctuates, and this can affect our pricing and our ability to grow |
| We purchase, refurbish and modify used ocean-going containers in order to expand our lease fleet |
| Various freight transportation companies, freight forwarders and commercial and retail storage companies also purchase used ocean-going containers |
| As a result, if the number of available containers for sale decreases, these competitors may be able to absorb an increase in the cost of containers, while we could not |
| If used ocean-going container prices increase substantially, we may not be able to manufacture enough new units to grow our fleet |
| These price increases also could increase our expenses and reduce our earnings |
| Conversely, an oversupply of used ocean-going containers may cause container prices to fall |
| Our competitors may then lower the lease rates on their storage units |
| As a result, we may need to lower our lease rates to remain competitive |
| Covenants in our debt instruments restrict or prohibit our ability to engage in or enter into a variety of transactions |
| The indenture governing our Senior Notes and, to a lesser extent, our revolving credit facility agreement contain various covenants that may limit our discretion in operating our business |
| In particular, we are limited in our ability to merge, consolidate or transfer substantially all of our assets, issue preferred stock of subsidiaries and create liens on our assets to secure debt |
| In addition, if there is default, and we do not maintain certain financial covenants or we do not maintain borrowing availability in excess of certain pre-determined levels, we may be unable to incur additional indebtedness, make restricted payments (including paying cash dividends on our capital stock) and redeem or repurchase our capital stock |
| Our revolving credit facility requires us, under certain limited circumstances, to maintain certain financial ratios and limits our ability to make capital expenditures |
| These covenants and ratios could have an adverse effect on our business by limiting our ability to take advantage of financing, merger and acquisition or other corporate opportunities and to fund our operations |
| Breach of a covenant in our debt instruments could cause acceleration of a significant portion of our outstanding indebtedness |
| Any future debt could also contain financial and other covenants more restrictive than those imposed under the indenture governing the Senior Notes, and the revolving credit facility |
| A breach of a covenant or other provision in any debt instrument governing our current or future indebtedness could result in a default under that instrument and, due to cross-default and cross-acceleration provisions, could result in a default under our other debt instruments |
| Upon the occurrence of an event of default under the revolving credit facility or any other debt instrument, the lenders could elect to declare all amounts outstanding to be immediately due and payable and terminate all commitments to extend further credit |
| If we were unable to repay those amounts, the lenders could proceed against the collateral granted to them, if any, to secure the indebtedness |
| If the lenders under our current or future indebtedness accelerate the payment of the indebtedness, we cannot assure you that our assets or cash flow would be sufficient to repay in full our outstanding indebtedness, including the Senior Notes |
| The amount we can borrow under our revolving credit facility depends in part on the value of the portable storage units in our lease fleet |
| During 2004 and the first three quarters of 2005, the price of used ocean-going containers increased and the availability of these units decreased |
| At the same time, the increase in steel prices and other raw materials has increased our cost to manufacture new containers |
| If this trend repeated itself, we may not manufacture as many new units as during recent periods, and we may narrow the mix of manufactured products we offer at our branches |
| Conversely, if steel prices or the value of containers were to rapidly fall, those occurrences might adversely affect the value of our lease fleet |
| We are required to satisfy several covenants with our lenders that are affected by changes in the value of our lease fleet |
| We would breach some of these covenants if the value of our lease fleet drops below specified levels |
| If this happened, we could not borrow the amounts we would need to expand our business, and we could be forced to liquidate a portion of our existing fleet |
| 17 _________________________________________________________________ [73]Table of Contents The supply and cost of raw materials we use in manufacturing fluctuates and could increase our operating costs |
| We manufacture portable storage units to add to our lease fleet and for sale |
| In our manufacturing process, we purchase steel, vinyl, wood, glass and other raw materials from various suppliers |
| We cannot be sure that an adequate supply of these materials will continue to be available on terms acceptable to us |
| The raw materials we use are subject to price fluctuations that we cannot control |
| Changes in the cost of raw materials can have a significant effect on our operations and earnings |
| Rapid increases in raw material prices, as we experienced in 2004, are difficult to pass through to customers, particularly to leasing customers |
| If we are unable to pass on these higher costs, our profitability could decline |
| If raw material prices decline significantly, we may have to write down our raw materials inventory values |
| If this happens, our results of operations and financial condition will decline |
| Some zoning laws restrict the use of our storage units and therefore limit our ability to offer our products in all markets |
| Local zoning laws in some of our markets do not allow some of our customers to keep portable storage units on their properties or do not permit portable storage units unless located out of sight from the street |
| If local zoning laws in one or more of our markets no longer allow our units to be stored on customers’ sites, our business in that market will suffer |
| Unionization by some or all of our employees could cause increases in operating costs |
| None of our employees are presently covered by collective bargaining agreements |
| However, from time to time various unions have attempted to organize some of our employees |
| We cannot predict the outcome of any continuing or future efforts to organize our employees, the terms of any future labor agreements, or the effect, if any, those agreements might have on our operations or financial performance |
| We operate with a high amount of debt and we may incur significant additional indebtedness |
| Our operations are capital intensive, and we operate with a high amount of debt relative to our size |
| In June 2003, we issued dlra150dtta0 million in aggregate principal amount of 9dtta5prca Senior Notes, due 2013 |
| In February, 2006, we entered into the Second Amended and Restated Loan and Security Agreement, which increased our borrowing capability to dlra350dtta0 million, up from dlra250dtta0 million, on a revolving loan basis, which means that amounts repaid may be reborrowed |
| As of March 3, 2006, we had outstanding borrowings of approximately dlra174dtta8 million and letters of credit of approximately dlra3dtta6 million under the credit facility, leaving approximately dlra171dtta6 million available for further borrowing and immediately available |
| Our substantial indebtedness could have consequences |
| For example, it could: • require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, which could reduce the availability of our cash flow to fund future working capital, capital expenditures, acquisitions and other general corporate purposes; • make it more difficult for us to satisfy our obligations with respect to our Senior Notes; • expose us to the risk of increased interest rates, as certain of our borrowings will be at variable rates of interest; • require us to sell assets to reduce indebtedness or influence our decisions about whether to do so; • increase our vulnerability to general adverse economic and industry conditions; • limit our flexibility in planning for, or reacting to, changes in our business and our industry; • restrict us from making strategic acquisitions or pursuing business opportunities; and • limit, along with the financial and other restrictive covenants in our indebtedness, among other things, our ability to borrow additional funds |
| Failing to comply with those covenants could result in an event of default which, if not cured or waived, could have a material adverse effect on our business, financial condition and results of operations |
| 18 _________________________________________________________________ [74]Table of Contents We depend on a few key management persons |
| We are substantially dependent on the personal efforts and abilities of Steven G Bunger, our Chairman, President and Chief Executive Officer, and Lawrence Trachtenberg, our Executive Vice President and Chief Financial Officer |
| The loss of either of these officers or our other key management persons could harm our business and prospects for growth |
| The market price of our common stock has been volatile and may continue to be volatile and the value of your investment may decline |
| The market price of our common stock has been volatile and may continue to be volatile |
| This volatility may cause wide fluctuations in the price of our common stock on the Nasdaq National Market |
| The market price of our common stock is likely to be affected by: • changes in general conditions in the economy, geopolitical events or the financial markets; • variations in our quarterly operating results; • changes in financial estimates by securities analysts; • other developments affecting us, our industry, customers or competitors; • the operating and stock price performance of companies that investors deem comparable to us; and • the number of shares available for resale in the public markets under applicable securities laws |