MINI (me) 10 K now out, as expected details re costs/revenues..
"Product Lives And Durability
Core Steel Products. Most of our fleet is comprised of refurbished and customized ISO containers, steel containers and record storage units we have manufactured and steel security offices. These products are built to last a long period of time with proper maintenance.
We generally purchase ISO shipping containers when they are approximately 8 to 12 years old, at which time their useful life as ocean-going shipping containers is over. Because we do not have the same stacking and strength requirements as apply in the ocean-going shipping industry, we have no need for these containers to meet ISO standards. We purchase these containers in large quantities, truck them to our locations, refurbish them by removing any rust, paint them with a rust inhibiting paint, and add our locking system and further customize them, typically by adding our proprietary, easy opening door system.
We maintain our steel containers on a regular basis by painting them on average every two to three years, removing rust, and occasionally replacing the wooden floor or a rusted panel. This maintenance, which is expensed as incurred, maintains the container in the similar condition to which it was in when we initially refurbished it.
Our lenders have our containers appraised on a periodic basis, and the appraiser does not differentiate value based upon the age of the container or the length of time it has been in our fleet. Our manufactured containers and steel offices are not built to ISO standards, but are built in a similar manner so that like the ISO containers, they will maintain their value as long as they are maintained in accordance with our strict maintenance program. As with our refurbished and customized ISO containers, our lenders? appraiser does not differentiate value of manufacture units based upon the age of the unit. During the most recent appraisal, by an independent firm chosen by our lenders and completed in January 2002, our fleet was appraised at a fair market value in excess of 120% of net book value.
Approximately 13% of our 2001 revenue was derived from sales of storage and office units. Because the containers in the lease fleet do not significantly depreciate in value, we have no program in place to sell lease fleet containers as they reach a certain age. Instead, most of our container sales involve either highly customized containers that would be difficult to lease on a recurrent basis, or unrefurbished and refurbished containers which we had recently acquired but not yet leased.
In addition, due primarily to availability of inventory at various locations at certain times of the year, we sell a certain portion of containers and offices from the lease fleet. The following table shows the gross margin on containers and offices sold from inventory (which we call our sales fleet) and from our lease fleet from 1997 through 2001 based on the length of time in the lease fleet. Gross margins increase for containers in the lease fleet for greater lengths of time because, although these units have been depreciated based upon a 20 year useful life, and 70% salvage value (1.5% per year), in most cases fair value may not decline by nearly that amount due to the nature of the assets and our stringent maintenance policy. Our depreciation policy on our steel storage products is consistent with our largest competitor.
Margin Margin
Number Based on Based on Net
of Units Sales Revenue Original Cost(1) Original Cost Book Value
Sales fleet(2):
10,228 $ 36,740,144 $ 24,900,533 32.2 % 32.2 %
Lease fleet by period held before sale:
Less than 5 years
3,876 $ 15,048,359 $ 10,231,683 32.0 % 33.8 %
5 to 10 years
1,332 4,035,838 2,799,877 30.6 % 37.0 %
10 to 15 years
102 311,731 214,225 31.3 % 41.9 %
15 to 18 years
15 48,090 34,632 28.0 % 42.7 %
(1) ?Original cost? for purposes of this table includes (i) the price we paid for the unit plus (ii) the cost of our manufacturing, which includes both the cost of customizing units and refurbishment costs incurred, plus (iii) the freight charges to our branch where the unit is first placed in service. For manufactured units, cost includes our manufacturing cost and the freight charges to the branch location.
(2) Includes sales of unrefurbished ISO containers.
Because steel storage containers keep their value when properly maintained, we are able to lease containers that have been in our lease fleet for various lengths of time at similar rates, without regard to the age of the container. Our lease rates vary by the size and type of unit leased, length of contractual term, custom features and the geographic location of our branch. To a degree, competition,
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market conditions and other factors can influence our leasing rates. The following chart shows, for containers that have been in our lease fleet for various periods of time, the average monthly lease rate that we currently receive for various types of containers. We have added our manufactured containers and security offices to the fleet only in the last several years and those types of units are not included in this chart. This chart includes the eight major types of containers in the fleet for at least 10 years (we have been in business for approximately 18 years), and specific details of such type of unit are not provided due to competitive considerations.
Age of Containers
(by number of years in our lease fleet)
Total Number/
0 ? 5 6 ? 10 11 ? 15 16 ? 18 Average Dollar
Type 1
Number of Units 2,872 587 5 ? 3,464
Average rent $ 84.05 $ 81.43 $ 75.83 ? $ 83.59
Type 2
Number of Units 1,020 184 59 ? 1,263
Average rent $ 81.61 $ 82.63 $ 78.77 ? $ 81.63
Type 3
Number of Units 5,639 3,087 234 1 8,961
Average rent $ 81.72 $ 83.66 $ 84.37 $ 81.25 $ 82.46
Type 4
Number of Units 924 109 5 1 1,039
Average rent $ 117.95 $ 105.27 $ 102.92 $ 92.08 $ 116.53
Type 5
Number of Units 1,516 92 9 2 1,619
Average rent $ 126.86 $ 126.16 $ 134.81 $ 121.88 $ 126.86
Type 6
Number of Units 3,157 423 37 9 3,626
Average rent $ 132.49 $ 137.14 $ 136.30 $ 141.44 $ 133.09
Type 7
Number of Units 13,015 842 88 15 13,960
Average rent $ 114.70 $ 131.61 $ 131.72 $ 130.87 $ 115.85
Type 8
Number of Units 410 71 11 1 493
Average rent $ 172.47 $ 180.81 $ 167.70 $ 184.17 $ 173.59
We believe any fluctuations in rental rates based on container age are primarily a function of the location of the branch from which the container was leased rather than age of the container. Some of the units added to our lease fleet over recent years have lower lease rates than the rates we typically obtain because the units are still on lease on terms (including lower rental rates) that were in place when we obtained the units in acquisitions.
Wood Mobile Office Units. We began adding these units to the lease fleet in 2000. At December 31, 2001, we had 2,471 of these units at an average original book value of approximately $16,750 per unit. These units are manufactured by third parties and very similar to the units in the lease fleets of other mobile office rental companies. Because of the wood structure of these units, they are more susceptible to wear and tear than steel units. We depreciate these units over 20 years down to a 50% residual value (2.5% per year) which we believe to be consistent with most of our major competitors in this industry.
Because these units lose value over time, we may sell older units from time to time. However, at this time, our mobile offices are all under two years old.
Because these units are so much more expensive than storage units, their addition has had the effect of increasing the average carrying value per unit in the lease fleet over the last two years.
Because the operating margins on portable offices are lower than the margins on portable storage, and because we have added minimum inventories of these units to each branch (initially resulting in lower utilization rates), the addition of mobile offices has reduced our overall return on invested capital. However, these mobile offices are rented using our existing infrastructure and therefore provide incremental returns far in excess of our cost of capital. This adds to our profitability.
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