Filed by Bowne Pure Compliance
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the Fiscal Year Ended June 30, 2008
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
Commission file number 001-32845
(Exact name of registrant as specified in its charter)
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Delaware
(State or other Jurisdiction of Incorporation or Organization)
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32-0163571
(I.R.S. Employer Identification No.) |
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39 East Union Street
Pasadena, California 91103
(Address of Principal Executive Offices)
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(626) 584-9722
(Registrants telephone number, including area code) |
Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Class |
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Name of Each Exchange On Which Registered |
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Units, each consisting of one share of Common Stock, $0.0001 par value, and One Warrant
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American Stock Exchange |
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Common Stock, $0.0001 par value
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American Stock Exchange |
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Warrants to Purchase Common Stock
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American Stock Exchange |
The Registrant will be transferring the listing of its securities from The American Stock Exchange
to The NASDAQ Stock Market (NASDAQ) and expects to begin trading on NASDAQ under the symbol
GFNCU, GFN and GFNCW, for its units, common stock and warrants, respectively, effective
October 1, 2008.
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 the Securities Act.
Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Act.
Yes o No þ
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 last 90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. þ
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 definition of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer
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(Do not check if a smaller reporting company)
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Smaller reporting company þ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act).
Yes o No þ
The aggregate market value of Common Stock held by non-affiliates of the Registrant on
December 31, 2007 was approximately $71,115,000 based on a closing price of $9.08 for the Common
Stock on such date. For purposes of this computation, all executive officers and directors have
been deemed to be affiliates. Such determination should not be deemed to be an admission that such
executive officers and directors are, in fact, affiliates of the Registrant.
There were 13,826,052 shares of the Registrants Common Stock outstanding as of September 5, 2008.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrants Proxy Statement for its 2008 Annual Meeting of Stockholders are
incorporated by reference into Part III of this Annual Report on Form 10-K. In addition, certain
exhibits are incorporated into Part IV, Item 15. of this Annual Report on Form 10-K by reference to
other reports and registration statements of the Registrant, which have been filed with the
Securities and Exchange Commission.
GENERAL FINANCE CORPORATION
2008 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
SAFE HARBOR STATEMENT
This Annual Report on Form 10-K, including the documents incorporated by reference into this
Annual Report on Form 10-K, contains forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933, as amended, referred to in this Annual Report on Form 10-K as the
Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, referred to in
this Annual Report on Form 10-K as the Exchange Act. Forward-looking statements involve risks and
uncertainties that could cause results or outcomes to differ materially from those expressed in the
forward-looking statements. Forward-looking statements may include, without limitation, statements
relating to our plans, strategies, objectives, expectations and intentions and are intended to be
made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. Some of the forward-looking statements can be identified by the use of forward-looking terms
such as believes, expects, may, will, should, could, seek, intends, plans,
estimates, anticipates or other comparable terms. A number of important factors could cause
actual results to differ materially from those in the forward-looking statements. The risks and
uncertainties discussed in Risk Factors should be considered in evaluating our forward-looking
statements. You should not place undue reliance on our forward-looking statements. Further, any
forward-looking statement speaks only as of the date on which it is made, and we undertake no
obligation to update or revise any forward-looking statements.
2
PART I
Item 1. Business
References to we, us, General Finance, GFN or the Company are to General Finance
Corporation and its consolidated subsidiaries. These subsidiaries include: GFN U.S. Australasia
Holdings, Inc., a Delaware corporation which we refer to as GFN U.S.; GFN Australasia Holdings
Pty Ltd., an Australian corporation which we refer to as GFN Holdings; GFN Australasia Finance
Pty Ltd, an Australian corporation which we refer to as GFN Finance; and, RWA Holdings Pty
Limited, an Australian corporation which we refer to as RWA. We refer to RWA and its subsidiaries
collectively as Royal Wolf.
Company Overview
We are a holding company whose strategy and business plan is to acquire and operate specialty
finance and equipment leasing businesses in North America, Europe and Asia-Pacific. We plan to acquire
growing businesses with strong management teams that earn attractive returns on equity. We will
assist these managers by providing operational and acquisition advice and access to capital.
We were incorporated in Delaware on October 2005 to serve as a vehicle to effect a business
combination with one or more operating businesses. From inception through September 13, 2007, we
were a development stage company. During that period we did not have any business or operations.
Our activities were limited to raising capital in our initial public offering (which we refer to as
our IPO), identifying an operating business to acquire, and negotiating and entering into an
agreement to acquire Royal Wolf.
To date our only operating subsidiary is Royal Wolf.
Royal Wolf
On September 13, 2007 (September 14 in Australia), we completed the acquisition of Royal Wolf
through the acquisition of all of the outstanding shares of RWA. The purchase price paid to the
sellers for the RWA shares was $64.3 million, including deposits
of approximately $1.0 million previously paid by
us in connection with the acquisition. We paid the purchase price, less the deposits, by a
combination of cash in the amount of $44.7 million plus the issuance to Bison Capital Australia,
L.P. (Bison Capital), one of the sellers, of shares of common stock of GFN U.S., constituting
13.8% of the outstanding capital stock of GFN U.S. following the issuance; and the issuance of a
note to Bison Capital. As a result of this structure, we own 86.2% of the outstanding capital stock
of GFN U.S. and Bison Capital owns 13.8% of the outstanding capital stock of GFN U.S, which through
its indirect subsidiary GFN Finance owns all of the outstanding capital stock of Royal Wolf.
We have combined certain financial data (primarily revenues) pertaining to the period from July 1
to September 13, 2007, which was prior to our acquisition of Royal Wolf, with our financial results
for the year ended June 30, 2008 for purposes of comparability in this Item 1. Reference is made
to Item 7 Managements Discussion and Analysis of Financial Condition and Results of Operations
located elsewhere in this Annual Report on Form 10-K for a discussion of us and Royal Wolf as
successor and predecessor, respectively.
On April 30, 2008 (May 1 in New Zealand), Royal Wolf acquired the stock of RWNZ Acquisition
Co. Limited (RWAC) and its wholly owned subsidiary, Royalwolf Trading New Zealand (RWNZ),
believed to be the largest marketer and lessor of storage containers in New Zealand, for
approximately $17 million.
Royal Wolf is the leading provider in Australia and New Zealand of mobile storage containers,
portable container buildings and freight containers, which we refer
to as mobile storage
or storage container products. Royal Wolf leases and sells storage container products through its 18
customer service centers (which we refer to as CSCs) in Australia and six in New Zealand, which
are located in every state in
Australia and the North and South Islands of New Zealand. We believe Royal Wolf has the
largest lease fleet of storage container products in Australia and New Zealand. Royal Wolf is the
only portable container lease and sales company with CSCs in all major business centers in
Australia and New Zealand and, as such, is the only company in Australia and New Zealand with a
national infrastructure and work force.
3
Royal Wolfs storage container products are used by a broad range of industries. Our storage
container products provide secure, accessible temporary storage for a diversified client base of
over 12,000 large and small customers who conduct business in industries that include mining, road
and rail, construction, moving and storage, manufacturing, transportation and defense. Our
customers use our products for a wide variety of storage applications, including retail and
manufacturing inventory, construction materials and equipment, documents and records and household
goods.
We
are pursuing strategies which include the growth of our leasing operations. Historically, Royal
Wolfs revenue mix has been approximately 70% sales and 30% leasing, but by shifting priorities and
incentives, supporting organic growth and by making subsequent acquisitions, our strategy is to
focus on building the leasing component of our revenues. We believe a leasing business with a
fleet of storage container products has the following advantages:
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recurring revenues from leases with an average duration of 13-15 months; |
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monthly lease rates that recoup our unit investment within an average of 24-28 months; |
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long useful asset lives exceeding 25 years with low maintenance and high residual
values; |
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the ability to leverage the relatively fixed costs of our CSCs to service a larger
fleet of storage container products; and |
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incremental leasing operating margins in excess of 50%. |
Industry Overview
The
storage industry includes two principal markets, fixed self-storage and mobile storage.
The fixed self-storage market consists of permanent structures located away from customer
locations used primarily by consumers to temporarily store excess household goods. Although we have
containers that are used for self-storage on our sites and have sites that are focused on
self-storage such as Auckland and Christchurch in New Zealand and Tomago in Australia, we do not
participate in the fixed self-storage market with permanent structures.
The
mobile storage market, in which we operate, differs from the fixed self-storage market in that it brings the storage solution to the customers location and addresses the need for
secure, temporary storage with immediate access to the storage unit. The advantages of mobile
storage include convenience, immediate accessibility, better security and lower costs. In contrast
to fixed self-storage, the mobile storage market is primarily used by businesses.
Mobile Storage Container Market
Since the mid-1990s, the storage container industry in Australia and New Zealand has developed
into a stable market analogous to the marine container business of 20 or 25 years ago. Marine
containerization displaced less efficient and more expensive specialized equipment. We believe
mobile storage containers are achieving increased market share compared to the other options
because of an increasing awareness that containers provide ground level access, durable protection
against damage caused by wind or water and custom modifications tailored to customers specific
uses.
We are not aware of any published third-party analysis of the Australia and New Zealand mobile
storage container markets. Based upon internal analysis, Royal Wolfs management team estimates
that the mobile storage market in Australia and New Zealand currently generates annual
revenues of approximately $183 million (AUS$190 million), with an estimated 60% derived from sales
of mobile storage containers. Royal Wolfs management team also anticipates that, as the market
matures, rental revenue will account for an increasing proportion of the total revenue.
4
The mobile storage market has experienced steady growth since the mid-1990s. Although there is
no official forecast of industry growth rates or the future potential size market for mobile
storage in Australia and New Zealand, we believe that a number of factors suggest that the market
will continue to grow:
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The level of knowledge among potential customers regarding the availability and benefits of
containerized storage in key Australia and New Zealand markets, such as the construction and mining
industries, is still relatively low; |
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Suppliers and customers continue to develop further uses for
mobile storage containers, thereby
broadening the market for mobile storage containers; and
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As the market leader in Australia and New Zealand, Royal Wolf has consistently achieved
organic growth based, in part, on growth in the market as a whole. |
Royal Wolfs competition in this market is regionalized and highly fragmented. In most
locations in Australia, Royal Wolf competes with several national and regional
competitors, including Simply Containers, Cronos, Macfield and ANL CGM, as well as smaller, full
and part-time operators. Local competitors are regionally focused, and are usually more
capital-constrained. Therefore, in general, most are heavily reliant on monthly sales performance,
have slowly growing rental fleets and have limited ability to transact larger deals. The New
Zealand market is even more fragmented.
The following table lists Royal Wolfs principal competitors in the mobile storage container
market in Australia. This information was compiled by Royal Wolfs management team based upon
informal estimates and internal surveys of competitor rental fleet size, annual sales volumes and,
where possible, external information such as competitor newsletters, placement of advertising in
regional yellow pages and discussions with corporate customers and suppliers of used boxes; such
as wholesalers, shipping lines and container fleet lessors. We have no independent corroboration
of this market information, and there is no assurance that this internally-generated information is
accurate or complete.
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Scope of |
Competitor |
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Operations |
Simply Containers |
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National |
Macfield |
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Regional |
Cronos |
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National |
ANL CGM |
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National |
Portable Buildings Market
The portable buildings market in Australia was estimated to have generated revenue totaling
$927 million (AUS$964 million) during the twelve-month period
ending June 30, 2006, of which approximately $549 million
(AUS$571 million) relates to the markets in which Royal Wolf offers a competing product, according
to reports from IBIS World Industry Report published in March 2006. The portable buildings market
consists of the following:
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Engineering, construction and resources approximately 50%. |
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Non-residential building construction approximately 35%. |
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Recreation and holiday market approximately 15%. |
Within the engineering, construction and resources market, portable buildings are used for
site offices, toilet and shower facilities, and worker housing and temporary accommodation blocks.
This market
is influenced by trends in public and private sector spending on infrastructure, generally,
and, particularly, mine development and road and pipeline construction.
5
Demand from the non-residential buildings market principally stems from the demand for work
sheds, site offices, industrial garages and temporary warehousing. Demand can be significantly
affected by special projects such as the 2006 Commonwealth Games hosted in Australia.
The recreation and holiday market is increasingly becoming an important source of demand,
particularly for the supply of fitted out cabins to be used as rental accommodations and second
homes on purchased blocks of land. Growth in demand has been driven by growth in disposable income
and increased leisure time associated with an aging population.
We believe that the portable buildings market will grow over the medium term, driven in part
by a cyclical expansion in the mining and construction markets. We also believe that
differentiation and new portable building products such as the hazardous materials unit and
containerized portable office and portable housing units introduced by Royal Wolf in 2005 will act
as a stimulus for longer-term growth in the market as older style products are replaced.
The lease and sale of containerized portable buildings have major advantages over traditional
portable buildings in terms of transportability, security and flexibility; and we believe that this
represents a significant market and growth opportunity for Royal Wolf.
In the portable buildings markets, Royal Wolf competes with three or four other large
participants who manufacture their own units and most of whom offer units for both lease and sale
to customers. These competitors include Coates, Atco, Ausco and Nomad. At present, Royal Wolf has a
small presence in this market. The major barrier to entry for new participants is the degree of
market penetration necessary to create a wide profile with contractors and clients. Penetrating and
competing with the range of products and number of depots and agencies offered by incumbent
operators tends to inhibit new entrants. As Royal Wolf already has a national sale and distribution
network, established supply channels and a strong profile in its target markets, many of the
barriers to entry applicable to other new entrants are not applicable to it.
The following table lists Royal Wolfs principal competitors in the Australian portable
buildings market:
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Scope of |
Competitor |
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Operations |
Coates |
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National |
Ausco |
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National |
Nomad |
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National |
Atco |
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National |
Freight Container Market
Based upon internal analysis, Royal Wolfs management team estimates that the freight
container market in Australia generates approximately $36 million (AUS $37 million) in aggregate
annual lease and sales revenues. The rate of growth in this industry has been slow compared with
the portable container storage and portable buildings market, which reflects the relative maturity
of this industry.
Although there is potential for growth in the freight container market as more road and rail
carriers recognize the efficiencies of containerization, Royal Wolfs present strategy is to
maintain rather than grow its container fleet investment and dependence upon this sector of its
business activities. Competitors include MacField, Cronos and Simply Containers.
6
The following table lists Royal Wolfs principal competitors in the Australian freight
container market:
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Scope of |
Competitor |
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Operations |
Macfield |
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National |
Cronos |
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National |
Simply Containers |
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National |
Business Strengths of Royal Wolf
Royal Wolf is the leading provider of storage container products in Australia and New Zealand.
We believe this leading position is based upon the following strengths:
Market Leader. With a lease fleet of approximately 29,000 containers, a sales
inventory of approximately 5,000 containers and 24 CSCs located in every state in Australia and in
the North and South Islands of New Zealand, we believe Royal Wolf is the market leader in Australia
and New Zealand for storage container products.
Diversified Customer Base. Our storage container
products provide secure, accessible temporary
storage for a diversified client base of over 12,000 customers that includes large and small mining
companies, road and rail businesses, construction companies, moving and storage providers,
manufacturers, transportation businesses and the Australian military.
Experienced Management Team. Royal Wolf has an experienced senior management team.
Robert Allan, the chief executive officer of Royal Wolf, has over 24 years of experience in the
equipment leasing industry. The ten members of the senior management team of Royal Wolf have an
average of over 10 years of experience in the equipment leasing industry. We believe the
experience of this management team will be critical to growing Royal Wolfs business.
Business Strategy
Our business strategy consists of the following:
Focus on Mobile Storage Leasing Business. We focus on growing our core leasing business
because it provides predictable, recurring revenue and high margins. We believe that we can
generate substantial demand for our storage container products throughout Australia and New
Zealand. Royal Wolfs leasing revenues grew from $12.4 million in the year ended December 31, 2004
to $32.5 million in the fiscal year ended June 30, 2008, reflecting a compound annual growth rate of over
33%. The container storage and portable building industry is
relatively underdeveloped in Australia
and New Zealand. We believe the underdeveloped nature of the market presents significant growth
opportunities for Royal Wolf. Although use for mobile storage, domestic freight movement and
portable building applications is increasing, we believe there are many more uses for our storage
container products still to be developed. Royal Wolfs market opportunity is to fully develop and
service these applications.
Generate
Strong Internal Growth. We define internal growth as an increase in lease revenues on
a year-over-year basis at our branch locations in operation for at least one year, without
inclusion of leasing revenue attributed to same-market acquisitions. We continue to focus on
increasing the number of storage container units we lease from our existing branches to both new
and repeat customers as well as changing the billing methodologies that are represented in the U.S.
market, such as billing in advance, a 28-day billing cycle, fuel surcharges and a damage waiver
program. Historically, we have been able to generate strong internal growth within our existing
markets through sales and marketing programs designed to
increase brand recognition, expand market awareness of the uses of mobile storage and
differentiate our products from our competitors.
7
Launch Enhanced and Innovative Products. We continue to enhance our existing products to
meet our customers needs and requirements. We have introduced new products and features that
expand the applications and overall market for our storage products. For example, in 2005 we
introduced a 10-foot wide storage unit that has proven to be a popular product with our customers.
In 2005, we also introduced a new accommodation unit used in mining camps. In 2007-2008, we
introduced specialized products for the construction and engineering sectors as well as a blast
resistant container unit for the refinery and energy sector.
Leverage
our Infrastructure through Acquisitions. Our branch network
infrastructure covers a broad geographic area and is capable of
serving additional volume at minimal levels of
additional fixed costs. Our objective is to add volume by organically growing the lease fleet in
these locations and through acquisitions. Asset purchases of tuck in
competitors to existing branches or adding newly acquired fleets with branch locations in better
locations can be very effective. In addition, the corporate infrastructure of Royal Wolf is capable
of managing existing fleets and locations in geographies outside of Australia and New Zealand, but
within the Asia-Pacific area.
From July 2007 through June 2008, Royal Wolf completed four acquisitions:
On November 15, 2007 we acquired substantially all of
the assets of GE SeaCo Australia Pty Ltd. (GeSeaco) for $17.9 million. The acquisition
added more than 6,300 containers to Royal Wolfs fleet, of which 4,600 units are leased
by approximately 200 mid-sized businesses and approximately 20 national accounts
serving such industries as road and rail, moving and storage and logistics. Prior to
the acquisition, we believe GE SeaCo was the third largest storage container lessor in
Australia. GE SeaCo exited the domestic container leasing market in Australia through this transaction and the simultaneous sale of its tank container
business. Royal Wolf assumed several depot and agency contracts, including a third
party sales agreement for intermodal containers from the GE SeaCo international fleet.
On February 28, 2008 we acquired the dry and refrigerated container assets of Container Hire and
Sales (CHS), located south of Perth, Australia for $3.8 million. With this
acquisition, Royal Wolf added 630 storage containers, of which approximately 570 units
were leased in the mining dominated Western Australia marketplace. This acquisition
ultimately consolidated with an existing CSC in the Bibra Lakes suburb, south of Perth.
On April 30, 2008 (May 1 in New Zealand), we acquired RWNZ Acquisition Co. Limited (RWAC) and its wholly owned subsidiary Royalwolf Trading
New Zealand (RWNZ), believed to be the largest marketer and lessor of storage
containers in New Zealand, for approximately $17.0 million. Through this acquisition
Royal Wolf acquired more than 5,800 storage containers, of which approximately 5,000
storage containers were in the leasing fleet that are primarily delivered through five
branches or customer service centers.
On June 16, 2008, we acquired 162 storage containers from Container
Hire & Storage Pty Ltd d/b/a Tomago Self-Storage in Tomago, New South Wales for approximately $427,000.
As a result of these acquisitions and organic growth, Royal Wolfs lease fleet grew to 28,603
units as of June 30, 2008.
8
Subsequent Merger Announcement
On
July 28, 2008, we announced the signing of a merger agreement
among General Finance, our wholly-owned subsidiary, GFN North America
Corp. (GFNA), Mobile Office Acquisition Corp. (MOAC) and
its subsidiary, Pac-Van, Inc. (Pac-Van), and certain
stockholders of MOAC in a transaction valued at $158.8 million, plus the cost
of any subsequent acquisitions by Pac-Van. Pac-Van is a provider of modular buildings and mobile
offices in the United States. MOACs stockholders are Ronald L. Havner Jr. (an over five
percent beneficial owner of GFN), Ronald F. Valenta (our Chief Executive Officer), Laminar D.E.
Shaw and Pac-Van management employees. A special committee made up of the independent members of
our Board of Directors retained independent counsel and a financial advisor and negotiated and
approved the merger; which is subject to approval of the our stockholders at a special meeting on
September 30, 2008 and other customary closing conditions.
Pac-Van, Inc. is headquartered in Indianapolis, Indiana and operates 26 branch locations in 17
states in the United States with more than 7,000 customers. The transaction will establish General
Finance as a key player and provider of modular units and mobile storage solutions in North America
and the Asia-Pacific area with estimated combined annual revenues of approximately $195 $210
million.
Pursuant to the merger agreement, the stockholders of MOAC will be entitled to receive up to
$21.5 million of cash, 4,000,000 restricted shares of our common stock issued at $7.50 per share
(with an aggregate value of $30 million) and a 20 month subordinated promissory note in the
aggregate principal amount of $1.5 million or the note. The note and $8.5 million of the restricted stock will
secure the indemnification obligations for 20 months. Pursuant
to the merger agreement, GFNA will assume approximately $107 million of Pac-Vans
indebtedness and will acquire all outstanding shares of MOAC. We and the stockholders of MOAC will
enter into several agreements, including a stockholders agreement which will provide registration rights
with respect to the 4,000,000 restricted shares of common stock which may be exercised after June 30, 2009.
Pac-Vans indebtedness consists of approximately $82 million outstanding under its senior
secured credit facility and $25 million outstanding under a senior subordinated promissory note.
Products and Services
Royal
Wolf is the only storage container product company in Australia and New Zealand with both the
national presence and product range capable of servicing all sectors of the domestic rental and
sales market. The Companys key products include:
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Mobile storage containers:
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10-foot, 20-foot and 40-foot general purpose units |
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Double pallet-wide high cube units |
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Hazardous goods containers |
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Refrigerated containers |
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Portable container buildings:
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Site offices and cabins |
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Workforce accommodation units |
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Luxury accommodation units |
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Restroom blocks |
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Blast-resistant units |
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Specialized office and infrastructure suites |
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Freight Containers:
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Curtain-side containers |
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20-foot and 40-foot Hi-cube containers |
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20-foot and 40-foot two pallet-wide containers |
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Side-opening door containers |
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20-foot bulk containers |
9
Mobile
Storage Containers. Royal Wolf leases and sells mobile storage containers, some of which
are customized for specific customers, for on-site storage by customers. These customers include
retail outlets and manufacturers, government departments, farming and agricultural concerns,
building and construction companies, clubs and sporting associations, mine operators and the
general public. Royal Wolfs products include general purpose dry storage containers, refrigerated
containers and hazardous goods containers in a range of standard and modified sizes, designs and
storage capacities.
The amount and percent of Royal Wolfs total sales and leasing of container revenues
attributable to the market for the fiscal year ended June 30, 2008 were as follows ($ in millions):
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Sales |
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$ |
60.8 |
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77 |
% |
Leasing |
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22.0 |
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68 |
% |
Containers in lease fleet |
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18,785 |
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66 |
% |
Portable
Container Buildings. Royal Wolf also leases and sells portable container buildings
as site offices and for temporary accommodations. Royal Wolf customizes mobile storage container
buildings for some customers. Royal Wolf entered the portable building market in August 2005 with
20-foot and 40-foot portable buildings manufactured from steel container platforms which it markets
to a subset of its mobile storage container customer base.
The amount and percent of Royal Wolfs total sales and leasing of container revenues
attributable to the market for the fiscal year ended June 30, 2008 were as follows ($ in millions):
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Sales |
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$ |
14.0 |
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18 |
% |
Leasing |
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$ |
2.8 |
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8 |
% |
Containers in lease fleet |
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1,490 |
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5 |
% |
Freight
Containers. Royal Wolf leases and sells freight containers specifically
designed for transport of products by road and rail. Customers include national moving and storage
companies, distribution and logistics companies, freight forwarders, transport companies, rail
freight operators and the Australian military. Royal Wolfs freight container products include
curtain-side, refrigerated and bulk cargo containers, together with a range of standard and
industry-specific dry freight containers.
The amount and percent of Royal Wolfs total sales and leasing of container revenues
attributable to the market for the fiscal year ended June 30, 2008 were as follows ($ in millions):
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Sales |
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$ |
4.2 |
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5 |
% |
Leasing |
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$ |
7.7 |
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24 |
% |
Containers in lease fleet |
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|
8,328 |
|
|
|
29 |
% |
Product Lives and Durability
Most of our fleet is comprised of new and refurbished and customized storage containers,
manufactured steel containers and record storage units, along with our freight and accommodation
units. These products are designed for long useful lives.
A
portion of our fleet consists of used storage containers of eight to 12 years in age, a time at
which their useful life as ocean-going shipping containers is over according to the standards
promulgated by the International Organization for Standardization, which we refer to as ISO.
Because we do not have the same stacking and strength requirements that 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, refurbish them by removing any rust and paint them with a rust
inhibiting paint, and further customize them, and add our decals and branding.
We maintain our steel containers on a regular basis by painting them on average once every
three to five years, removing rust, and occasionally replacing the wooden floor or a rusted panel.
This periodic maintenance keeps the container in good condition and is designed to maintain the
units value and rental rates comparable to new units.
10
Branch network
Royal Wolf leases and sells its storage container products from an Australia and New
Zealand network of 24 CSCs, the largest branch network of any
company in Australia and New Zealand in the business of selling and
leasing storage container products. Royal Wolf is represented
in all major metropolitan areas, and Royal Wolf is the only container leasing and sales company
with a nationally integrated infrastructure and work force.
A typical Royal Wolf CSC consists of a leased site of approximately two to five acres with a
sales office, forklifts and all-weather container repair workshop. CSC office staffing ranges from
two to 15 people and includes a branch manager supported by the appropriate level of sales,
operations and administrative personnel. Yard and workshop staffing usually ranges between one and
12 people and can consist of welders, spray painters, boilermakers, forklift drivers and production
supervisors. CSC inventory holding ranges between 150 and 700 storage containers at any one time,
depending on market size and throughput demand.
The following map shows Royal Wolfs existing CSC locations:
Each branch has a branch manager who has overall supervisory responsibility for all activities
of the branch. Branch managers report to one of our six regional managers. Our regional managers,
in turn, report to our CSC or retail manager. Performance based incentive bonuses are a portion of
the compensation for the CSC, regional and branch managers.
Each
branch has its own sales force, and we are introducing a transportation department that
will deliver and pick up mobile storage units from customers in certain hub areas. Each branch has
forklifts to load, transport and unload units and a storage yard staff responsible for unloading
and stacking units. Steel units can be stored by stacking them three-high to maximize usable ground
area. Our larger branches also have a fleet maintenance department to make modifications to the
containers and maintain the branchs forklifts and other equipment. Our smaller branches perform
preventative maintenance tasks and outsource major repairs.
Except for the Auckland, New Zealand self-storage and regional office site, we lease all of
our branch locations. All of our major leased properties have remaining lease terms of between one
month and 15 years, and we believe that satisfactory alternative properties can be found in all of
our markets, if we do not renew these existing leased properties.
We lease Royal Wolfs corporate and administrative offices in Hornsby, New South Wales. These
offices have approximately 8,225 square feet of office space. The
lease term expires November
2010.
11
Customers
Royal
Wolf has a broad base of over 12,000 active customers, with only four
customers constituting more than 2% of our annual revenue for the fiscal year ended June 30, 2008. Our
customer base includes the retail and manufacturing sectors, councils and government departments,
the farming and agricultural community, the building and construction industry, clubs and sporting
associations, the mining sector and the general public. We believe the breadth of Royal Wolfs
customer base reduces the business exposure to a downturn in any particular industry.
Royal Wolf provides its customers a solutions-oriented approach, with high reliability in
equipment quality and supply, with prompt and efficient delivery and pick-up, and with superior
service and product knowledge. This is supported by a highly responsive national marketing team,
in-house
finance, and control and engineering expertise and nationally linked fleet management and
accounting systems. Royal Wolf is the largest and only truly national supplier of container
products in Australia and New Zealand, and the only container company with the scale and capacity
to service a full range of customers; from small local accounts right through to the largest
national businesses.
Royal Wolfs diverse customer base uses mobile storage containers for a variety of uses:
For the Fiscal Year Ended June 30, 2008
|
|
|
Rapid deployment storage for the military, emergency services and disaster relief; |
|
|
|
|
Portable work camps for the resources industry, including accommodations,
ablution and kitchen containers; |
|
|
|
|
Low-cost accommodations for remote communities and caravan parks; |
|
|
|
|
Blast resistant containers for refineries; |
|
|
|
|
Offices, workshops or storerooms in a growing range of sizes and configurations; |
|
|
|
|
Temporary storage of excess inventory for the retail and wholesale industries; and |
|
|
|
|
Farm storage for cattle feed, farm equipment, fertilizers and other items. |
During
the fiscal year ended June 30, 2008, our
asset acquisition from GE SeaCo significantly increased our exposure in the transport sector.
We also enhanced our national accounts team with the addition of a focused group in
construction, engineering and maintenance.
12
During the fiscal year ended June 30, 2008 sales of our storage container products to both the
mining, construction and transport industries increased. We believe the diversity of our customer base will
allow us to take advantage of growth in a wide variety of industries.
Employees
As of June 30, 2008, Royal Wolf employed approximately 250 full-time employees in the
following major categories:
|
|
|
|
|
Management |
|
|
25 |
|
Administrative |
|
|
75 |
|
Sales and marketing |
|
|
80 |
|
Operations |
|
|
70 |
|
In addition, we have two full-time employees at our corporate office in Pasadena, California.
None of our employees are covered by a collective bargaining agreement. We believe our
relationship with our employees is good. We have never experienced any material labor disruption,
and we are not aware of any efforts or plans to unionize our employees.
Sales and Marketing
Royal Wolfs sales and marketing strategy is designed to reach thousands of potential
customers. Communication with potential customers is predominantly generated through a combination
of Yellow Pages and print media advertising, phone sales and cold calling, web-site, word of mouth,
signage and decal awareness, walk-ins and direct mail.
The customer hiring or buying process is being driven by customer awareness of the products
combined with price shopping. We believe that while a typical customer may shop a limited
number of suppliers, the customer does not spend much time doing so because the potential cost
savings is
relatively low compared to the value of their time. Our goal is for Royal Wolf to be one of
the suppliers that potential customers call.
Product Procurement
Royal Wolf purchases marine cargo containers from a wide variety of international shipping
lines and container leasing companies, plus new container products
directly from storage container
manufacturers in China. We believe Royal Wolf is the largest buyer of both new and used storage container
products for the Australia and New Zealand markets.
The
majority of used storage containers purchased are standard 20-foot and 40-foot units which
Royal Wolf converts, refurbishes or customizes. Royal Wolf purchases new storage containers
directly from container manufacturers.
Each of the following material suppliers was the source of five percent or more of Royal
Wolfs container purchases during the fiscal year ended June 30, 2008:
|
|
|
|
|
|
|
Suppliers |
|
Type of Product Purchased |
|
Percentage of Container Purchases |
|
|
|
|
|
|
|
|
Nantong CIMC |
|
New |
|
|
36 |
% |
Civet Zhuhai Container Factory |
|
New |
|
|
8 |
% |
Shanghai Baoshan |
|
New |
|
|
7 |
% |
Jiangsu Wanlong Special Container |
|
New |
|
|
5 |
% |
13
Royal Wolf purchases new storage container products under purchase orders issued to container
manufacturers, which the manufacturers may or may not accept or be able to fill. There are several
alternative sources of supply for storage containers. Royal Wolf is not dependent upon any one
manufacturer and is able to purchase storage container products from a variety of suppliers. The
failure of one or more of its suppliers to timely deliver containers to Royal Wolf could adversely
affect its operations. If these suppliers do not timely fill Royal Wolfs purchase orders or do not
properly manufacture the ordered products, Royal Wolfs reputation and financial condition also
could be harmed.
In
connection with the asset purchase from GE SeaCo in November 2007, we
entered into a preferred supply
agreement with GE SeaCo. Under the preferred supply agreement, GE
SeaCo has agreed to sell to us, and
we have agreed to purchase, all of GE SeaCos containers that GE SeaCo determines to sell, up to a
maximum of 5,000 containers each year. The purchase price for the containers will be based on their
condition and is specified in the agreement, subject to annual adjustment. In addition, we received
a right of first refusal to purchase any additional containers that GE SeaCo desires to sell in
Australia, New Zealand and Papua New Guinea. Either party may terminate the agreement upon no less
than 90 days prior notice at any time after November 15, 2012. Approximately 1,200 units were
purchased under this contract in the year ended June 30, 2008.
Fleet Management
Royal Wolf regularly needs to re-locate containers between its CSCs to meet peaks in regional
demand and optimize inventory levels. Royal Wolf has close relationships with the national road and
rail hauling companies that enable it to transport the majority of containers interstate at
attractive rates.
Royal Wolfs management information systems are instrumental to its fleet management and
targeted marketing efforts. Fleet information is updated daily at the branch level which provides
management with on-line access to utilization, leasing and sale fleet unit levels and revenues by
branch or geographic region.
Management Information and Back Office Systems
Our management information systems, including the RMI and Navision software programs, are
scalable and provide us with critical information to manage our business. Utilizing our
systems, we track a number of key operating and financial metrics including utilization, lease
rates, customer trends and fleet data. All our branches use RMI/Navision and our support office
provides financial, inventory and customer reports for branch managers.
Regulatory Matters
We must comply with various federal, state and local laws and regulations in connection with our operations. We believe that we are in
substantial compliance with these laws and regulations. In addition to compliance costs, we may
incur costs related to alleged environmental damage associated with past or current properties
owned or leased. We believe that our liability, if any, for any environmental remediation will not
have a material adverse effect on our financial condition. However, we cannot be certain that the
discovery of currently unknown matters or conditions, new laws and regulations, or stricter
interpretations of existing environmental laws will not have a material adverse effect on our
business or operations in the future.
In January 2008, Royal Wolf was notified by a Department of the Australian government of an
odor that might be caused by high levels of formaldehyde or volatile organic compounds that exceed
national guidelines in some of its containers. Royal Wolf engaged the services of independent
consultants in cooperation with the Australian government in testing
ventilation improvements. We
believe that, based on their investigation and field test outcomes to-date, the remediation of this
matter will not have a material adverse effect on our consolidated
results of operations, financial position or cash flows.
14
Trademarks
Royal Wolf has a licensing agreement with us for the use of the Royal Wolf name and
trademark in connection with its retail sales and leasing of intermodal cargo containers and other
container applications in the domestic storage market within Australia and New Zealand and
surrounding islands in the Pacific Islands region. We acquired this trademark for Asia-Pacific
indirectly from Triton Corporation with the RWNZ purchase for $740,000. The license will continue
in perpetuity as long as Royal Wolf continues to use the Royal Wolf name and trademark as the
exclusive name for its business and mark for its products, subject to the termination provisions of
the license. The license may be terminated by the licensor upon 30 days notice in the event Royal
Wolf breaches its obligations under the license and will terminate automatically if Royal Wolf
becomes insolvent or ceases to sell products under the trademark for a continuous period of
30 months. The license is nontransferable by Royal Wolf without
our consent. There are no claims
pending against Royal Wolf challenging its right to use the Royal Wolf name and trade mark within
Royal Wolfs region of business.
Available information
Our Internet website address is www.generalfinance.com. This reference to our Internet
website does not incorporate by reference the
information contained on or hyperlinked from our Internet website
into this Annual Report on Form 10-K. Such information should not
be considered part of this Annual Report on Form 10-K.
We are required to file Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q with
the Securities and Exchange Commission (SEC) on a regular basis, and are required to disclose
certain material events in a current report on Form 8-K. The public may read and obtain a copy of
any materials we file with the SEC through our Internet website noted above, which is hyperlinked
to the SECs Internet website that contains reports, proxy and information statements and other
information regarding issuers that file electronically with the SEC. The SECs Internet website is
located at http://www.sec.gov.
In addition, the public may read and obtain a copy of any materials we file with the SEC at
the SECs Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may
obtain information on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330.
Executive Officers of the Registrant
The following information is provided as of June 30, 2008 regarding our executive officers who
are not a continuing director or a director nominee. Information concerning our chief executive
officer, who is a continuing director or a director nominee, is set forth in Item 10 of this Annual
Report on Form 10-K; which incorporates by reference to our definitive Proxy Statement for the 2008
Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission pursuant to
Regulation 14A of the Securities Exchange Act of 1934.
No family relationship exists between any executive officer.
|
|
|
|
|
|
|
Name |
|
Age |
|
Position |
John O. Johnson
|
|
|
47 |
|
|
Chief Operating Officer |
|
|
|
|
|
|
|
Charles E. Barrantes
|
|
|
56 |
|
|
Executive Vice President and Chief Financial Officer |
|
|
|
|
|
|
|
Christopher A. Wilson
|
|
|
41 |
|
|
General Counsel, Vice President & Secretary |
|
|
|
|
|
|
|
Robert Allan
|
|
|
52 |
|
|
Chief Executive Officer, Royal Wolf |
15
John O. Johnson has served as our Chief Operating Officer since inception. Mr. Johnson is a
Managing Director of The Spartan Group, a boutique investment banking firm, which he co-founded in
2002. Prior to founding The Spartan Group, Mr. Johnson served in multiple positions with Banc of
America Securities from 1984 until 2002, culminating in his appointment as Managing Director in
1994. While at Banc of America Securities, he specialized in growth company banking coverage and
leveraged buyouts and leveraged finance.
Charles
E. Barrantes has served as our Executive Vice President and Chief
Financial Officer since September 2006. Prior to joining us, Mr. Barrantes was vice president and chief financial officer
for Royce Medical Company from early 2005 to its sale in late 2005. From 1999 to early 2005, he was
chief financial officer of Earl Scheib, Inc., a public company that operated over 100 retail paint
and body shops. Mr. Barrantes has over 25 years of experience in accounting and finance, starting
with more than a decade with Arthur Andersen & Co.
Christopher A. Wilson became our General Counsel, Vice President & Secretary in December 2007.
Prior to joining us, Mr. Wilson was the general counsel and assistant secretary of Mobile Services
Group, Inc. from February 2002 to December 2007. Mr. Wilson practiced corporate law as an associate
at Paul, Hastings, Janofsky & Walker LLP from 1998 to February 2002. Mr. Wilson graduated with a
B.A. from Duke University in 1989 and a J.D. from Loyola Law School of Los Angeles in 1993.
Robert Allan has been the Chief Executive Officer of Royal Wolf since February 2006 and as
such has been one of our executive officers since September 13, 2007. Mr. Allan joined Royal Wolf
in April 2004 as its Executive General Manager. From 2000 until joining Royal Wolf, he served as
Group General Manager of IPS Logistics Pty Ltd, a shipping and logistics company. From 1997 until
2000, Mr. Allan was employed as a Regional Director of Triton Container International, the worlds
largest lessor of marine cargo containers to the international shipping industry. Mr. Allan has
more than 30 years of experience in the container leasing and logistics industries.
Item 1A. Risk Factors
In addition to risk factors included in this Annual Report on Form 10-K, you should also
consider all the Risks Related to Our Business and Operations Following Our Acquisition of
Pac-Van, Risks Related to the Acquisition and Risk Related to our Substantial Indebtedness as
set forth in definitive proxy materials filed with the Securities and Exchange Commission for a
special meeting of stockholders to be held on September 30, 2008, as described under Subsequent
Merger Announcement in Item 1.
Risks Related to Our Business
Our overall financial results will be affected by the relative value of the Australian dollar to
the U.S. dollar and may be affected by other currencies with future acquisitions
While the past two years have seen gains in the Australian dollar relative to the U.S. dollar,
there is a likelihood that that trend will reverse. If the Australian dollar loses value against
the U.S. dollar then the value of the operating results and the value of the investment in
Australia will decline for financial reporting purposes and our overall financial results will be
diminished. Future acquisitions in other countries may further impact the currency exchange impact
on our financial results and may not be offset by increases in our
U.S. dollar-based operations.
Sales of storage container units constitute a significant portion of Royal Wolfs revenues. Failure
to continue to sell units at historic levels could adversely affect our financial results and our
ability to grow.
Sales of storage container units and related modification revenues constituted approximately
70% of Royal Wolfs total revenues for the fiscal year ended June 30, 2008. Revenues from sales of storage
container units have a material impact on our financial results and our ability to service our
debt. Further, the funding of the growth of the container lease fleet is dependent upon the sales
of storage container units to take advantage of business and growth opportunities available to it.
16
General or localized economic downturns or weakness may adversely affect Royal Wolfs customers, in
particular those in the mining, transport and construction industries, which may reduce demand for Royal
Wolfs products and services which would negatively impact our future revenues and results of
operations.
A significant portion of Royal Wolfs revenues is derived from customers in industries and
businesses that are cyclical in nature and subject to changes in general economic conditions,
including the mining, transport and construction industries, which constituted approximately 15%, 21.5% and 11%
respectively, of Royal Wolfs revenues in the fiscal year ended June 30, 2008. Although we believe
the variety of Royal Wolfs products, the breadth of its customer base and its geographic
diversity throughout Australia and New Zealand reduce its exposure to general
economic or localized downturns, such downturns could reduce demand for
Royal Wolfs products and negatively impact our future revenues and results of operations.
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 on
acceptable terms and pricing. 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.
Royal Wolf faces significant competition in the portable buildings industry and regional
competition in the portable storage market. Royal Wolf also faces potentially significant
competition from modular industry companies who have portable storage offerings, especially from
national competitors in Australia who have greater financial resources and pricing
flexibility than Royal Wolf does. If Royal Wolf is unable to compete successfully in these
industries, it could lose customers and our future revenues could decline.
Although Royal Wolfs competition varies significantly by market, the portable buildings
market in which Royal Wolf competes is dominated by three or four large participants and is highly
competitive. In addition, Royal Wolf competes with a number of large to mid-sized regional
competitors, as well as many smaller, full and part-time operators in many local regions. The
modular space industry is highly competitive and almost all of the competitors have portable
storage product offerings. The primary modular national competitors with portable storage offerings
are less leveraged than Royal Wolf, and have
greater financial resources and pricing flexibility than Royal Wolf does. If they focus on
portable storage, Royal Wolf could lose customers and our future revenues could decline. If Royal
Wolf is unable to compete successfully in these markets, it could lose customers and our future
revenues could decline.
We may be required to take certain actions to satisfy Bison Capitals put option or our call
option for Bison Capitals 13.8% interest in GFN U.S. prior to when we determine it would be
feasible to do so.
We have entered into a shareholders agreement with Bison Capital with respect to our 86.2% and
Bison Capitals 13.8% ownership interest in GFN U.S., which
indirectly owns Royal Wolf. Under our shareholders agreement with Bison Capital, at any time after September 13, 2009,
Bison Capital has the option to cause us to purchase from them all of its 13.8% outstanding capital
stock of GFN U.S. Also, under the shareholders agreement, we have the option to, at anytime prior
to September 13, 2010, cause Bison Capital to sell and transfer its 13.8% outstanding capital stock
of GFN U.S. to us. If Bison Capital exercises its put option or if we exercise our call option
under unfavorable market conditions; we may choose to take actions such as selling assets, seeking
additional equity or reducing or delaying capital expenditures, in order to satisfy the payment to
Bison Capital for its 13.8% interest in GFN U.S. Any of these actions could have a material
adverse effect on our operations and financial condition.
The failure of Royal Wolf to achieve its business strategy of increasing its leasing revenue could
adversely affect the predictability of our quarterly earnings results and adversely affect our
results of operations.
Historically, sales of containers have been approximately 70% of Royal Wolfs total revenues
and leasing of containers has generated approximately 30% of total revenues. We are pursuing a
strategy of increasing revenue generated from leasing operations. Revenues generated from sales
can vary greatly from quarter to quarter, while revenue from leasing operations is more
predictable. If we are not successful in increasing the percentage of our revenues generated by
our leasing operations, our results of operations may vary greatly quarter to quarter, and would
therefore be less predictable. In addition, if we are not successful in increasing the percentage
of our revenues from our leasing operations, our results of operations may be adversely affected.
Our customers lease our storage container products on a month-to-month basis, and our results of
operations could be adversely affected by a downturn in economic activity.
Should a significant number of Royal Wolfs storage container products be returned by
customers during a short period of time, Royal Wolf would have to lease a large supply of units to
new customers at similar rates in order to maintain historic revenues from these operations. Royal
Wolfs failure to effectively lease to new customers a large influx of units returned by customers
from leases could have a material adverse effect on our results of operations.
17
The supply and cost of used ocean-going containers fluctuates, which fluctuation could affect Royal
Wolfs pricing and our ability to grow.
Royal Wolf currently purchases, refurbishes and modifies used ocean-going containers in order
to replenish and expand its lease fleet. Various freight transportation companies, freight
forwarders and commercial and retail storage companies also purchase used ocean-going containers.
Many of these other companies have greater financial resources than Royal Wolf does. As a result,
if the number of available containers for sale decreases, these competitors may be better able to
absorb an increase in the cost of containers. If used ocean-going container prices increase
substantially, Royal Wolf may not be able to purchase enough new units to maintain or increase the
size of its fleet. These price increases also could increase Royal Wolfs acquisition costs and
operating expenses and adversely affect our results of operations and reduce our earnings.
Conversely, an oversupply of used ocean-going containers may cause container prices to fall, which
may result in competitors then lowering the lease rates on their storage units. As a result, Royal
Wolf may need to lower its lease rates to remain competitive, which would cause our future revenues
to decline.
Governmental regulations could impose substantial costs and restrictions on Royal Wolfs operations
that could harm our future results of operations.
Royal Wolf is subject to various Australia and New Zealand federal, state and local
environmental, transportation, health and safety laws and regulations in connection with its
operations. Any failure to comply with these laws or regulations could result in capital or
operating expenditures or the imposition of severe penalties or restrictions on its operations
or reductions or delays in sales of storage container
products. In
addition, these laws and regulations could change in a manner that materially and adversely affects
Royal Wolfs ability to conduct its business. More burdensome regulatory requirements in these or
other areas may increase our general and administrative costs. If Royal Wolf is unable to pass
these increased costs on to its customers, our future operating results could be negatively
impacted.
Royal Wolf may not be able to facilitate its growth strategy by identifying or completing
transactions with attractive acquisition candidates, which could impair the growth and
profitability of its business.
An important element of our
growth strategy for Royal Wolf is to continue to seek additional acquisitions in order to add new
leasing customers within existing geographic markets and branch locations and to expand Royal
Wolfs operations into new markets. Any future growth through acquisitions will be partially
dependent upon the continued availability of suitable acquisition candidates at favorable prices,
upon advantageous terms and conditions and upon successful integration of the acquired businesses.
However, future acquisitions may not be available at advantageous prices or upon favorable terms
and conditions. In addition, acquisitions involve risks that the businesses acquired will not
perform in accordance with expectations, that business judgments concerning the value, strengths
and weaknesses of businesses acquired will prove incorrect, that the acquired businesses may not be
integrated successfully and that the acquisitions may strain Royal Wolfs management resources.
Future acquisitions and any necessary related financings also may involve significant
transaction-related expenses. If Royal Wolf is unable to complete additional acquisitions or
successfully integrate any businesses that it does acquire, our future growth and operating results
would be adversely impacted. There is no assurance that we or Royal Wolf will be able to identify,
negotiate or complete any future acquisitions, or, if completed that any such acquisitions will be
successful.
Failure to retain key personnel could adversely affect Royal Wolfs operations and could impede our
ability to execute our business plan and growth strategy.
Royal Wolf is managed largely by its existing officers, including Robert Allan, its Chief
Executive Officer, and Peter McCann, its Chief Financial Officer. The continued success of Royal
Wolf will depend largely on the efforts and abilities of these executive officers and certain other
key employees. The ten members of the senior management team of Royal Wolf have an average of over
14 years of experience in the equipment leasing industry. These officers and employees have
knowledge and an understanding of Royal Wolf and its industry that cannot be readily duplicated.
Each of Messrs. Allan and McCann has an employment agreement which is terminable under certain
circumstances upon notice to him. However, we do not have key-man
insurance on any of these key personnel. The loss of any member of Royal Wolfs senior management team
could impair our ability to execute our business plan and growth strategy, cause a loss of
customers, reduce revenues and adversely affect employee morale.
18
Any failure of Royal Wolfs management information systems could disrupt our business and result in
decreased lease or sale revenues and increased overhead costs, which could negatively impact our
results of operations.
Royal Wolf depends on its management information systems to actively manage its lease fleet,
control new unit capital spending and provide fleet information, including leasing history,
condition and availability of our units. These functions enhance Royal Wolfs ability to optimize
fleet utilization, lease fleet condition and redeployment. The failure of Royal Wolfs management
information systems to perform as we anticipate could disrupt its business and could result in,
among other things, decreased leases or sales and increased overhead costs, which could negatively
impact our results of operations.
A write-off of all or a part of our goodwill and intangibles would hurt our operating results
and reduce our stockholders equity.
As a result of our acquisition of Royal Wolf and subsequent acquisitions, we have recorded
significant intangible assets related to goodwill, which represent the excess of the total purchase
price of the acquisitions over the fair value of the net assets acquired. We are not permitted to
amortize goodwill under the U.S. accounting standards and instead are required to review goodwill
and other non-amortizable intangibles at least annually for impairment. In the event impairment is
identified, a charge to earnings would be recorded. Although it does not affect our cash flow, a
write-off in future periods of all or a part of our goodwill or intangibles would hurt our
operating results and stockholders equity. We are unable to currently estimate if and when it may
become necessary to write-off goodwill or intangibles or the effect such a write-off may have on
our financial results or the market prices of our securities.
Significant increases in raw material costs could increase our operating costs significantly and
harm our stockholders equity.
Royal Wolf purchases raw materials, including metals, lumber, siding and roofing and other
products, to perform periodic refurbishment of its units and to modify containers to its customers
requirements. During periods of rising prices for raw materials, and in particular when the prices
increase rapidly or to levels significantly higher than normal, we may incur significant increases
in our operating costs and may not be able to pass price increases through to our customers in a
timely manner, which could harm our future results of operations.
Failure by Chinese manufacturers to sell and deliver products to Royal Wolf in timely fashion may
harm Royal Wolfs reputation and our financial condition.
Royal Wolf currently purchases new storage container products directly from container
manufacturers in China. Although Royal Wolf is not dependent on any one manufacturer and is able to
purchase products from a variety of suppliers, the failure of one or more of its suppliers to
timely manufacture and deliver containers to Royal Wolf could adversely affect its operations.
Royal Wolf purchases new storage container products under purchase orders issued to container
manufacturers, which the manufacturers may or may not accept or be able to fill. Royal Wolf has no
contracts with any supplier. If these suppliers do not timely fill Royal Wolfs purchase orders, or
do not properly manufacture the ordered products, our reputation and financial condition also could
be harmed.
Some zoning laws restrict the use of Royal Wolfs storage container units and therefore limit its
ability to offer its products in all markets.
Most of Royal Wolfs customers use Royal Wolfs storage container units to store goods on
their own properties. Local zoning laws in some of Royal Wolfs geographic markets prohibit
customers from maintaining portable storage units on their properties or require that portable
storage units be located out of sight from the street. If local zoning laws in one or more of Royal
Wolfs geographic markets were to ban or restrict portable storage units stored on customers
sites, Royal Wolfs business in that market will suffer.
Unionization by some or all of Royal Wolfs employees could cause increases in operating costs.
Royal Wolfs employees are not presently covered by collective bargaining agreements. However,
from time to time various unions have attempted to unionize some of Royal Wolfs employees. We are
unable to predict the outcome of any continuing or future efforts to unionize Royal Wolfs
employees, the terms of any future labor agreements, or the effect, if any, those agreements might
have on our operations or financial performance.
19
We may not take certain actions with respect to Royal Wolf without the written consent of Bison
Capital, as the holder of 13.8% of the outstanding capital stock of GFN U.S., which indirectly owns
Royal Wolf.
Under the
shareholders agreement, neither GFN U.S. nor Royal Wolf may take certain actions without the
written consent of Bison Capital, including, without limitation, selling material assets outside
the ordinary course of business, entering into transactions with GFN, issuing capital stock to GFN
without offering a pro rata share to Bison Capital, issuing capital stock to a third party, issuing
subordinated debt to any person without offering Bison its pro rata share, paying dividends or,
with certain exceptions, make other payments to GFN, changing the nature of the business, merging
with any person that results in a change of control, or acquiring any business if the purchase
price and assumed debt exceeds $10 million.
Under our shareholders agreement with Bison Capital, we have agreed to acquire businesses
comparable with Royal Wolf in a certain geographic territory solely through Royal Wolf.
Under our shareholders agreement with Bison Capital, we have agreed to acquire businesses
engaged in the sale and lease of portable storage containers, portable container buildings and
freight containers in certain geographic territory solely through Royal Wolf. The geographic
territory is that part of the world south of Guam, west of Hawaii and east of Viet Nam.
Covenants in our debt instruments restrict or prohibit our ability to engage in or enter into a
variety of transactions.
The agreements governing our secured senior subordinated note with Bison Capital and our
secured credit facility with Australian and New Zealand Banking Group Limited 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 comply with certain financial covenants or 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) or redeem or repurchase our capital stock.
Our secured 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 agreements governing the secured senior subordinated note
and the secured 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 secured 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.
The amount we can borrow under our secured credit facility depends in part on the value of the
portable storage units in our lease fleet. If the value of our lease fleet declines, the amount we
are able to borrow may decline. We are required to satisfy several covenants with our lenders that
are affected by changes in the value of our container for lease fleet. We would breach some of
these covenants if the value of our lease fleet drops below specified levels. If this happens, we
may not be able to borrow the amounts we need to expand our business, and we may be forced to
liquidate a portion of our existing fleet.
GFN or its subsidiaries operations may not be able to generate sufficient cash flows to its meet
debt service obligations.
GFN or its subsidiaries ability to make payments on its indebtedness will depend on its
ability to generate cash from operations. The business may not generate sufficient cash flow from
operations to enable it to repay GFN or its subsidiaries indebtedness and to fund other liquidity
needs, including capital expenditure requirements. The indebtedness to be incurred by GFN or its
subsidiaries under the secured credit facility will bear interest at variable rates, and therefore
if interest rates increase, GFN or its subsidiaries debt service requirements will increase. In
such case, GFN or its subsidiaries may need to refinance or restructure all or a portion of its
indebtedness on or before maturity. GFN or its subsidiaries may not be able to refinance any of its
indebtedness, including the new credit facility, on commercially reasonable terms, or at all. If
GFN or its subsidiaries cannot service or refinance its indebtedness, it may have to take actions
such as selling assets, seeking additional equity or reducing or delaying capital expenditures, any
of which could have a material adverse effect on our operations and financial condition.
20
Ronald F. Valenta and John O. Johnson allocate some portion of their time to other businesses,
which could cause conflicts of interest in their allocation of time to our affairs. These
conflicts of interest could have a negative impact on our ability to function as an operating
company and consummate future acquisitions. Our ability to be successful may depend on the efforts
of Ronald F. Valenta and John O. Johnson.
Neither Ronald F. Valenta, our Chief Executive Officer, nor John O. Johnson, our Chief
Operating Officer, devotes or is required to devote his full time to our affairs. This could
create a conflict of interest when allocating their time between our operations and their other
commitments. These executive officers are engaged in several other business endeavors and are not
obligated to devote any specific number of hours to our affairs. If these executive officers
other business affairs require them to devote more substantial amounts of time to such affairs, it
could limit their ability to devote time to our affairs and could have a negative impact on our
ability to function as an operating company and consummate future business combinations.
Mr. Valenta has significant experience and contacts in owning, operating and acquiring
companies in the business of equipment sales and leasing, our present business. Mr. Johnson has
significant experience in acquisitions, and part of our strategy is to acquire additional
businesses engaged in equipment sales and leasing. Neither Mr. Valenta nor Mr. Johnson has an
employment agreement with us, and they are not currently compensated for their services, although
Mr. Valenta and Mr. Johnson currently beneficially own approximately 18% and 5%, respectively, of our
outstanding common stock. Mr. Johnson and Mr. Valenta intend to serve in their current
capacities without compensation and employment agreement until October 1, 2008 and January 1,
2009, respectively.
Ronald F. Valenta is affiliated with companies in the specialty finance business, which could
create a conflict of interest in decisions affecting our business.
Ronald F. Valenta, a director and our Chief Executive Officer, is also affiliated with other
companies in the specialty finance industry. Among them, he is a director of and the Chairman of
the Board of Directors of MOAC, the parent company of Pac-Van., a U.S. office modular and portable
storage company that we are attempting to acquire, as described under Subsequent Merger
Announcement in Item 1.
Risks Associated with Future Acquisitions
To complete future business combinations, we may issue shares of our capital stock that would
reduce the equity interest of our stockholders and could cause a change in control of our
ownership, or incur debt, which could adversely affect our financial condition.
Our certificate of incorporation authorizes the issuance of up to 100,000,000 shares of common
stock and up to 1,000,000 shares of preferred stock. At June 30, 2008, there were 78,162,568
authorized shares of our common stock available for issuance (after appropriate reservation for the
issuance of shares upon full exercise of our outstanding warrants and options that may be issued
under our 2006 Stock Option Plan).
If we seek to consummate future business combinations, we may be required to issue a
substantial number of additional shares of our common or preferred stock, or a combination of
common and preferred stock, to complete the other business combination. The issuance of additional
shares of our common stock or any number of shares of our preferred stock:
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may significantly reduce the equity interest of investors; |
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may subordinate the rights of holders of common stock if preferred stock is issued
with rights senior to those afforded to our common stock; |
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will likely cause a change in control if a substantial number of our shares of
common stock are issued, which may affect, among other things, our ability to use our
net operating loss carry forwards, if any, and could result in the resignation or
removal of our present officers and directors; and |
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may adversely affect prevailing market prices for our common stock. |
In addition, we may incur substantial debt to complete another business combination. The
incurrence of debt could result in:
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default and foreclosure on our assets if our operating revenues after a business
combination are insufficient to repay our debt obligations; |
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acceleration of our obligations to repay the indebtedness even if we make all
principal and interest payments when due if certain covenants that require the
maintenance of certain financial ratios or reserves are breached without a waiver or
renegotiation of that covenant; |
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our immediate payment of all principal and accrued interest, if any, if the debt
security is payable on demand; and |
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our inability to obtain necessary additional financing if the debt security
instrument covenants restricting our ability to obtain such financing while the debt
instrument is outstanding. |
21
While part of our business strategy is to acquire additional businesses, there is no assurance that
we will be able to identify businesses that we can acquire upon terms we believe acceptable, or if
such acquisitions require additional financing, that we could obtain such additional financing.
If we do seek to complete other acquisitions, we cannot ascertain the capital requirements
for other future transactions. We cannot assure you that, if required, additional financing will
be available on acceptable terms, if at all. To the extent that additional financing proves to be
unavailable when needed to consummate a particular acquisition, we would be compelled to either
restructure the transaction or abandon that particular acquisition. In addition, if we consummate
a future acquisition, we may require additional financing to fund the operations or growth of the
target business. The failure to secure additional financing may impact the continued development
or growth of the target business.
Our growth plan includes the expansion of Royal Wolfs operations into markets outside of Australia
and New Zealand, including Asia-Pacific areas. Such international expansion may not prove
successful, and may divert significant capital, resources and managements time and attention and
adversely affect Royal Wolfs on-going operations in Australia and New Zealand.
To date, Royal Wolf has conducted all of its business within Australia and New Zealand.
However, Royal Wolf has plans to enter international markets, including the Asia-Pacific area, in
the future, which will require meaningful amounts of management time and attention. Royal Wolfs
products and its overall marketing approach may not be accepted in other markets to the extent
needed to make its international expansion profitable. In addition, the additional demands on its
management from these activities may detract from Royal Wolfs efforts in the Australian and New
Zealand markets and adversely affect its operating results in its principal market. Any
international expansion will expose Royal Wolf to the risks normally associated with conducting
international business operations, including unexpected changes in regulatory requirements, changes
in foreign legislation, possible foreign currency controls, currency exchange rate fluctuations or
devaluations, tariffs, difficulties in staffing and managing foreign operations, difficulties in
obtaining and managing vendors and distributors, potential negative tax consequences and
difficulties collecting accounts receivable.
Royal Wolfs planned growth could strain our management resources, which could disrupt our
development of new Royal Wolf CSCs.
Our future performance will depend in large part on our ability to manage Royal Wolfs
planned growth. Royal Wolfs growth could strain our existing management, human and other
resources. To successfully manage this growth, we must continue to add managers and employees and
improve Royal Wolfs operating, financial and other internal procedures and controls. We also must
effectively motivate, train and manage Royal Wolfs employees. If we do not manage Royal Wolfs
growth effectively, some of its new CSCs and acquisitions may lose money or fail, and we may have
to close unprofitable locations. Closing a CSC would likely result in additional expenses that
would adversely affect our future operating results
Future acquisitions of businesses could subject us to additional business, operating and industry
risks, the impact of which cannot presently be evaluated, and could adversely impact our capital
structure.
We intend to pursue additional acquisition opportunities in an effort to diversify our
investments and/or grow our business. Any business we acquire may cause us to be affected by
numerous risks inherent in the acquired businesss operations. If we acquire a business in an
industry characterized by a high level of risk, we may be affected by the currently unascertainable
risks of that industry. Although our management will endeavor to evaluate the risks inherent in a
particular industry or target business, we cannot assure you that we will be able to properly
ascertain or assess all of the significant risk factors.
In addition, the financing of any acquisition we complete could adversely impact our capital
structure as any such financing would likely include the issuance of additional equity securities
and/or the borrowing of additional funds. The issuance of additional equity securities may
significantly reduce the equity interest of our stockholders and/or adversely affect prevailing
market prices for our common stock.
Increasing our indebtedness could increase the risk of a default that would entitle the holder
to declare all of such indebtedness due and payable and/or to seize any collateral securing the
indebtedness. In addition, default under one debt instrument could in turn permit lenders under
other debt instruments to declare borrowings outstanding under those other instruments to be due
and payable pursuant to cross default clauses. Accordingly, the financing of future acquisitions
could adversely impact our capital structure and your equity interest in our company.
Except as required by law or the rules of any securities exchange on which our securities
might be listed at the time we seek to consummate a subsequent acquisition, you will not be asked
to vote on any such proposed acquisition and no redemption rights in connection with any such
acquisition will exist.
Risks Associated with Our Warrants
Our outstanding options and warrants may have an adverse effect on the market price of common
stock and increase the difficulty of effecting future business combination.
At June 30, 2008, we had outstanding options and warrants to purchase 8,011,380 shares of
common stock. The potential for the issuance of substantial numbers of additional shares of common
stock upon exercise of these warrants and options could make us a less attractive acquisition
vehicle in the eyes of a target business. Such securities, when exercised, will increase the
number of issued and outstanding shares of our common stock and reduce the value of the shares
issued. Additionally, the sale, or even the possibility of sale, of the shares underlying the
warrants and options could have an adverse effect on the market price for our securities or on our
ability to obtain future financing.
22
We may choose to redeem outstanding warrants at a time that it is disadvantageous to our
warrant holders.
Subject to there being a current prospectus under the Securities Act of 1933, as amended, with
respect to the shares of common stock issuable upon exercise of the warrants issued as a part of
the units in our initial public offering, we may redeem the warrants at any time after the warrants
become exercisable, in whole and not in part, at a price of $.01 per warrant, upon a minimum of
30 days prior written notice of redemption, if and only if, the last sales price of our common
stock equals or exceeds $11.50 per share for any 20 trading days within a 30 trading day period
ending three business days before the notice of redemption is sent. We may also elect to reduce the
warrant price in our sole discretion to encourage warrant holders to exercise their warrants to
purchase our common stock. Redemption of the warrants could force the warrant holders (i) to
exercise the warrants and pay the exercise price therefore at a time when it may be disadvantageous
for the holders to do so, (ii) to sell the warrants at the then current market price when they
might otherwise wish to hold the warrants, or (iii) to accept the nominal redemption price which,
at the time the warrants are called for redemption, is likely to be substantially less than the
market value of the warrants.
Although we are required to (and intend to) use our best efforts to have an effective
registration statement covering the issuance of the shares underlying the warrants issued in our
IPO at the time that the warrant holders exercise their warrants, we cannot guarantee that a
registration statement will be effective, in which case the warrant holders may not be able to
exercise their warrants.
Holders of the warrants issued in our IPO will be able to receive shares upon exercise of the
warrants only if (i) a current registration statement under the Securities Act of 1933 relating to
the shares of common stock underlying the warrants is then effective and (ii) such shares are
qualified for sale or exempt from qualification under the applicable securities laws of the states
in which the various holders of warrants reside. Although we have agreed in the warrant agreement,
and therefore have a contractual obligation, to use our best efforts to maintain a current
registration statement covering the shares underlying the warrants to the extent required by
federal securities laws, and we intend to comply with such agreement, we cannot give assurance that
we will be able to do so. In addition, some states may not permit us to register the shares
issuable upon exercise of our warrants for sale. The value of the warrants will be greatly reduced
if a registration statement covering the shares issuable upon the exercise of the warrants is not
kept current or if
the securities are not qualified, or exempt from qualification, in the states in which the
holders of warrants reside. Holders of warrants who reside in jurisdictions in which the shares
underlying the warrants are not qualified and in which there is no exemption will be unable to
exercise their warrants and would either have to sell their warrants in the open market or allow
them to expire unexercised. If and when the warrants become redeemable by us, we may exercise our
redemption right even if we are unable to qualify the underlying securities for sale under all
applicable state securities laws.
The price of our common stock may fluctuate significantly, which may make it difficult for
shareholders to resell common stock when they want or at a price they find attractive.
We expect that the market price of our common stock will fluctuate. Our common stock price can
fluctuate as a result of a variety of factors, many of which are beyond our control. These factors
include:
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actual or anticipated variations in our quarterly operating results; |
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changes in interest rates and other general economic conditions; |
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significant acquisitions or business combinations, strategic
partnerships, joint ventures or capital commitments by or
involving us or our competitors; |
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operating and stock price performance of other companies that
investors deem comparable to us; |
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news reports relating to trends, concerns, litigation, regulatory
changes and other issues in our industry; |
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geopolitical conditions such as acts or threats of terrorism or military conflicts; and |
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relatively low trading volume. |
If equity research analysts do not publish research or reports about our business or if they issue
unfavorable commentary or downgrade our common stock, the price of our common stock could decline.
The trading market for our common stock will rely in part on the research and reports that
equity research analysts publish about us and our business. We do not control these analysts. The
price of our stock could decline if one or more equity analysts downgrade our stock or if those
analysts issue other unfavorable commentary or cease publishing reports about us or our business.
We do not currently intend to pay dividends, which may limit the return on your investment in us.
We currently intend to retain all available funds and any future earnings for use in the
operation and expansion of our business and do not anticipate paying any cash dividends in the
foreseeable future.
Item 1B. Unresolved Staff Comments
None.
23
Item 2. Properties
We locate our branches in markets with attractive demographics and strong growth prospects.
Within each market, we have located our branches in areas that allow for easy delivery of mobile
storage units to our customers over a wide geographic area. In addition, when cost effective, we
seek locations that are visible from high traffic roads in order to advertise our products and our
name. Our branches maintain an inventory of mobile storage units available for lease, and some of
our branches also provide storage of units under lease at the branch (on-site storage). Except
for the Auckland, New Zealand self-storage and regional office site, the branch locations are
leased. The following table shows information about our
branches by geographic area (Australia and New Zealand), sorted alphabetically with Year
Established and Square Meters (SQM) under lease. Several branches have multiple leases of
adjoining or contiguous properties. We believe these properties are
suitable and adequate for our needs.
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Year |
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Location |
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Functions/Uses |
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Approximate Size |
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Established |
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Australia: |
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Adelaide |
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Leasing, on-site storage and sales |
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9,900 SQM |
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2007 |
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Altona |
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Leasing, on-site storage and sales |
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10,012 SQM |
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2004 |
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Brisbane |
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Leasing and sales |
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36,630 SQM |
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2005 |
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Cairns |
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Leasing and sales |
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5,000 SQM |
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2004 |
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Canberra |
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Leasing, on-site storage and sales |
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3,000 SQM |
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2007 |
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Clayton |
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Leasing, on-site storage and sales |
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12,140 SQM |
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1997 |
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Darwin |
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Leasing, on-site storage and sales |
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9,000 SQM |
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2006 |
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Geraldton |
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Leasing, on-site storage and sales |
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10,672 SQM |
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2007 |
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Gold Coast |
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Leasing and sales |
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2,500 SQM |
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2005 |
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Gosford |
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Leasing and sales |
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4,200 SQM |
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2008 |
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Hobart |
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Leasing and sales |
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4,266 SQM |
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2008 |
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Newcastle |
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Leasing and sales |
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5,772 SQM |
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2001 |
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Roselands |
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Leasing and sales |
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11,819 SQM |
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2003 |
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Perth |
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Leasing and sales |
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12,200 SQM |
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2004 |
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Sunshine |
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Leasing and sales |
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21,400 SQM |
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2005 |
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Tomago |
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Leasing, on-site storage and sales |
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11,000 SQM |
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2008 |
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Townsville |
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Leasing and sales |
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9,500 SQM |
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2005 |
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Tuggerah (will be
vacating during
fiscal year 2009) |
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Leasing and sales |
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5,300 SQM |
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2002 |
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Wollongong |
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Leasing and sales |
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3,000 SQM |
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2008 |
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New Zealand: |
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Auckland-Ormiston Rd (owned) |
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On-site storage and administrative |
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8,425 SQM |
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2000 |
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Auckland-East Tamaki |
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Leasing and sales |
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7,000 SQM |
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2005 |
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Christchurch |
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Leasing and sales |
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10,026 SQM |
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2002 |
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Hamilton |
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Leasing and sales |
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2008 |
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Silverdale/Albany |
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Leasing and sales |
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3,916 SQM |
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2008 |
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Tauranga/Bay of Plenty |
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Leasing and sales |
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2008 |
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Wellington |
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Leasing and sales |
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7,000 SQM |
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2007 |
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We lease Royal Wolfs corporate and administrative offices in Hornsby, New South Wales. These
offices have approximately 8,225 square feet of office space. The lease term is through November
2010.
24
We lease our corporate headquarters in Pasadena, California, effective January 31, 2008, from
an affiliate of our chief executive officer, who is also a member of the board of directors. The
rent is $7,779 per month, plus allocated charges for common area maintenance, real property taxes
and insurance, for approximately 3,000 square feet of office space. The term of the lease is five
years, with two five-year renewal options, and the rent is adjusted yearly based on the consumer
price index.
Item 3. Legal Proceedings
We are not involved in any material lawsuits or claims arising out of the normal course of our
business. The nature of our business is such that disputes can occasionally arise with employees,
vendors (including suppliers and subcontractors), and customers over warranties, contract
specifications and contract interpretations among other things. We assess these matters on a
case-by-case basis as they arise. Reserves are established, as required, based on our assessment of
its exposure. We have insurance policies to cover general liability and workers compensation
related claims. In our opinion, the ultimate amount of liability not covered by insurance under
pending litigation and claims, if any, will not have a material adverse effect on our financial
position, operating results or cash flows.
Reference is made to Note 10 of our consolidated financial statements for further discussion
of commitments and contingencies, including any legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of our stockholders during the quarter ended June 30,
2008.
25
PART II
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Item 5. |
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Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
Market Prices
We will be transferring the listing of our securities from The American Stock Exchange (AMEX)
to The NASDAQ Stock Market (NASDAQ) and expect to begin trading
on NASDAQ under the symbols GFNCU,
GFN and GFNCW, for our units, common stock and warrants, respectively, effective October 1,
2008.
Our units, common stock and warrants will be listed through September 30, 2008 on the AMEX
under the symbols GFN.U, GFN and GFN.WS, respectively. The following table sets forth for
the periods indicated the range of high and low sales prices for the units, common stock and
warrants:
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Units |
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Common Stock |
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Warrants |
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High |
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Low |
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High |
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Low |
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High |
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Low |
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FY 2008: |
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Fourth Quarter |
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$ |
9.05 |
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$ |
6.15 |
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$ |
7.54 |
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$ |
5.44 |
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$ |
1.90 |
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$ |
0.91 |
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Third Quarter |
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$ |
12.15 |
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$ |
8.50 |
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$ |
9.05 |
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$ |
7.00 |
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$ |
3.24 |
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$ |
1.55 |
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Second Quarter |
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$ |
13.70 |
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$ |
10.00 |
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$ |
9.89 |
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$ |
7.90 |
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$ |
4.05 |
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$ |
2.20 |
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First Quarter |
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$ |
10.05 |
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$ |
8.80 |
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$ |
8.00 |
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$ |
7.43 |
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$ |
2.20 |
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$ |
1.60 |
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FY 2007: |
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Fourth Quarter |
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$ |
9.75 |
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$ |
9.00 |
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$ |
7.95 |
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$ |
7.56 |
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$ |
1.96 |
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$ |
1.45 |
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Third Quarter |
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$ |
9.60 |
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$ |
8.50 |
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$ |
7.95 |
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$ |
7.46 |
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$ |
1.80 |
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$ |
1.10 |
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Second Quarter |
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$ |
8.00 |
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$ |
7.81 |
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|
$ |
7.70 |
|
|
$ |
7.22 |
|
|
$ |
1.15 |
|
|
$ |
0.62 |
|
First Quarter |
|
$ |
8.45 |
|
|
$ |
7.75 |
|
|
$ |
7.36 |
|
|
$ |
7.22 |
|
|
$ |
0.85 |
|
|
$ |
0.63 |
|
Record Holders
As of September 5, 2008, there were eight stockholders of record of our common stock and one
stockholder of record for our units. We believe that there are
thousands of beneficial owners of our
common stock, units and warrants.
Dividend Policy
We have not paid any dividends on our common stock to date. The payment of dividends in the
future will be contingent upon our revenues and earnings, if any, capital requirements and general
financial condition. The payment of any dividends will be within the discretion of our board of
directors. It is the present intention of our Board of Directors to retain all earnings, if any,
for use in our business operations and, accordingly, our board does not anticipate declaring any
dividends in the foreseeable future.
26
Equity Compensation Plan
The following table sets forth information concerning our equity compensation plans as of June
30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c) |
|
|
|
|
|
|
|
|
|
|
|
Number of securities |
|
|
|
|
|
|
|
|
|
|
|
remaining available |
|
|
|
(a) |
|
|
|
|
|
|
for future issuance |
|
|
|
Number of securities |
|
|
(b) |
|
|
under equity |
|
|
|
to be issued upon |
|
|
Weighted-average exercise |
|
|
compensation plans |
|
|
|
exercise of |
|
|
price of outstanding |
|
|
(excluding securities |
|
|
|
outstanding options, |
|
|
options, warrants and |
|
|
reflected in column |
|
Plan category |
|
warrants and rights |
|
|
rights |
|
|
(a)) |
|
Equity compensation plans approved by
security holders(1) |
|
|
939,000 |
|
|
$ |
8.50 |
|
|
|
561,000 |
|
Equity compensation plans not approved
by security holders(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
939,000 |
|
|
$ |
8.50 |
|
|
|
561,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
We have one equity compensation plan, the 2006 Stock Option Plan. |
Item 6. Selected Financial Data
Our summary historical consolidated financial data set forth below as of and for the year
ended June 30, 2008 (as Successor) and the summary historical consolidated financial data for Royal
Wolf (as our Predecessor) for the period from July 1, to September 13, 2007, and as of and for the
years ended June 30, 2007 and 2006, was derived from the audited consolidated financial statements
included elsewhere in this Annual Report on Form 10-K. The summary consolidated financial data for
Royal Wolf as of and for the six months ended June 30, 2005 and the year ended December 31, 2004
was derived from the audited financial statements of Royal Wolf. The information as of and for the
year ended December 31, 2003 was derived from the audited financial statements of Royal Wolf
Trading Australia Pty Limited, the principal operating subsidiary of Royal Wolf.
Consolidated Statement of Operations Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
Successor |
|
|
|
|
|
|
|
|
|
|
|
Six |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Months |
|
|
|
|
|
|
|
|
|
|
Period from |
|
|
|
|
|
|
Year Ended |
|
|
Ended |
|
|
Year Ended |
|
|
July 1 to |
|
|
Year Ended |
|
|
|
December 31, |
|
|
June 30, |
|
|
September 13, |
|
|
June 30, |
|
|
|
2003 |
|
|
2004 |
|
|
2005 |
|
|
2006 |
|
|
2007 |
|
|
2007 |
|
|
2008 |
|
|
|
(in thousands of dollars, except per share data) |
|
Sale of containers |
|
$ |
16,947 |
|
|
$ |
26,141 |
|
|
$ |
13,563 |
|
|
$ |
34,473 |
|
|
$ |
52,929 |
|
|
$ |
10,944 |
|
|
$ |
68,029 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leasing of
containers |
|
|
8,540 |
|
|
|
12,351 |
|
|
|
7,224 |
|
|
|
15,921 |
|
|
|
21,483 |
|
|
|
4,915 |
|
|
|
27,547 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,487 |
|
|
|
38,492 |
|
|
|
20,787 |
|
|
|
50,394 |
|
|
|
74,412 |
|
|
|
15,859 |
|
|
|
95,575 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
1,447 |
|
|
|
2,926 |
|
|
|
560 |
|
|
|
2,412 |
|
|
|
4,672 |
|
|
|
1,530 |
|
|
|
8,373 |
|
Other income
(expense), net |
|
|
1,596 |
|
|
|
(2,242 |
) |
|
|
(662 |
) |
|
|
(2,626 |
) |
|
|
(3,870 |
|
|
|
(1,062 |
) |
|
|
(1,785 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss)
before provision
for income taxes
and minority
interest |
|
|
3,043 |
|
|
|
684 |
|
|
|
(102 |
) |
|
|
(214 |
) |
|
|
802 |
|
|
|
468 |
|
|
|
6,588 |
|
Net income (loss) |
|
|
2,244 |
|
|
|
284 |
|
|
|
(177 |
) |
|
|
(428 |
) |
|
|
312 |
|
|
|
288 |
|
|
|
4,106 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.40 |
|
Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.39 |
|
27
Consolidated Balance Sheet Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
Successor |
|
|
|
December 31, |
|
|
June 30, |
|
|
June 30, |
|
|
|
2003 |
|
|
2004 |
|
|
2005 |
|
|
2006 |
|
|
2007 |
|
|
2008 |
|
|
|
(In thousands of dollars) |
|
Trade and other
receivables, net |
|
$ |
3,901 |
|
|
$ |
5,479 |
|
|
$ |
6,002 |
|
|
$ |
7,451 |
|
|
$ |
13,322 |
|
|
$ |
20,332 |
|
Inventories |
|
|
2,908 |
|
|
|
1,669 |
|
|
|
3,066 |
|
|
|
5,460 |
|
|
|
5,472 |
|
|
|
21,084 |
|
Container for lease
fleet, net |
|
|
13,080 |
|
|
|
17,511 |
|
|
|
19,644 |
|
|
|
27,773 |
|
|
|
40,928 |
|
|
|
87,748 |
|
Total assets |
|
|
24,953 |
|
|
|
30,728 |
|
|
|
35,930 |
|
|
|
47,903 |
|
|
|
68,788 |
|
|
|
207,861 |
|
Total current
liabilities |
|
|
9,009 |
|
|
|
11,070 |
|
|
|
8,997 |
|
|
|
16,580 |
|
|
|
20,859 |
|
|
|
25,362 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt and
obligations, net |
|
|
11,432 |
|
|
|
16,081 |
|
|
|
22,993 |
|
|
|
27,155 |
|
|
|
33,811 |
|
|
|
78,029 |
|
Net assets |
|
|
4,322 |
|
|
|
3,165 |
|
|
|
3,586 |
|
|
|
3,018 |
|
|
|
13,040 |
|
|
|
93,731 |
|
Selected Unaudited Quarterly Financial Data
The following table sets forth unaudited operating data for each quarter of the years
ended June 30, 2008 (Successor) and June 30, 2007 (Predecessor). This quarterly information has
been prepared on the same basis as the annual consolidated financial statements and, in the opinion
of management, contains all significant adjustments necessary to state fairly the information set
forth herein. These quarterly results are not necessarily indicative of future results, growth
rates or quarter-to-quarter comparisons.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First |
|
|
Second |
|
|
Third |
|
|
Fourth |
|
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
|
(in thousands, except per share data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
For the Fiscal Year Ended June 30, 2008 (a): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
4,399 |
|
|
$ |
29,852 |
|
|
$ |
28,650 |
|
|
$ |
32,675 |
|
Gross profit |
|
|
331 |
|
|
|
3,744 |
|
|
|
3,445 |
|
|
|
2,834 |
|
Operating income (loss) |
|
|
(111 |
) |
|
|
3,256 |
|
|
|
3,570 |
|
|
|
1,658 |
|
Net income |
|
|
1,522 |
|
|
|
1,197 |
|
|
|
834 |
|
|
|
553 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.15 |
|
|
$ |
0.12 |
|
|
$ |
0.09 |
|
|
$ |
0.05 |
|
Diluted |
|
|
0.12 |
|
|
|
0.09 |
|
|
|
0.08 |
|
|
|
0.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
For the Fiscal Year Ended June 30, 2007 (b): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
15,502 |
|
|
$ |
18,040 |
|
|
$ |
19,894 |
|
|
$ |
21,164 |
|
Gross profit |
|
|
850 |
|
|
|
2,077 |
|
|
|
1,420 |
|
|
|
2,219 |
|
Operating income (loss) |
|
|
970 |
|
|
|
(773 |
) |
|
|
1,497 |
|
|
|
3,126 |
|
Net income (loss) |
|
|
50 |
|
|
|
(2,199 |
) |
|
|
226 |
|
|
|
2,409 |
|
|
|
|
(a) |
|
Revenues, gross profit, operating income and net income of the Predecessor during the
first quarter of the fiscal year ended June 30, 2008 for the period from July 1, 2007 to September
13, 2007 were $15,859, $1,478, $1,530 and $288, respectively. |
|
(b) |
|
The aggregate total of the quarterly results for the Predecessor for the year ended June
30, 2007 differs from the yearly results presented in the consolidated financial statements
included elsewhere in this Annual Report of Form 10-K because the quarterly results were translated
from Australian dollars to U.S. dollars based on the average exchange rate for each respective
quarter, whereas the fiscal year results were translated based on the average rate for the entire
year. |
28
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following discussion of our financial condition and results of operations should be read
together with the consolidated financial statements and the accompanying notes thereto included
elsewhere in this Annual Report on Form 10-K. This discussion includes forward-looking statements
that involve risks and uncertainties. Our actual results may differ significantly from those
anticipated or discussed in those forward-looking statements as a result of various factors;
including, but not limited to, those described in Item 1A. Risk Factors.
References in this Item 7. to we, us, or the Company are to General Finance Corporation
(GFN) and its consolidated subsidiaries. These subsidiaries include GFN U.S. Australasia
Holdings, Inc., a Delaware corporation (GFN U.S.); GFN Australasia Holdings Pty Ltd., an
Australian corporation (GFN Holdings); and GFN Australasia Finance Pty Ltd, an Australian
corporation (GFN Finance); and, as of September 13, 2007, RWA Holdings Pty Limited (RWA), an
Australian corporation, and its subsidiaries (collectively, Royal Wolf).
Business Overview
We were incorporated in Delaware on October 14, 2005 in order to serve as a vehicle to effect
a business combination with one or more operating businesses. From inception through September 13,
2007, we did not have any business or operations and our activities were limited to raising capital
in our initial public offering (the IPO) in April 2006, identifying an operating business to
acquire, and negotiating and entering into an agreement to acquire Royal Wolf.
We issued 8,625,000 units in our IPO. Each unit consists of one share of our common stock and
one warrant entitling the holder to purchase one share of our common stock at a price of $6.00. The
public offering price of each unit was $8.00, and we generated gross proceeds of $69,000,000 in the
IPO. Of the gross proceeds: (i) we deposited $65,000,000 into a trust account (the Trust
Account), which amount included $1,380,000 of deferred underwriting fees; (ii) the underwriters
received $3,450,000 as underwriting fees (excluding the deferred underwriting fees); and (iii) we
retained $550,000 for offering expenses. In addition, we deposited into the Trust Account $700,000
that we received from the issuance and sale of 583,333 warrants to Ronald F. Valenta, a director
and our Chief Executive Officer, and John O. Johnson, our Chief Operating Officer, prior to
completion of the IPO. Stockholders holding the shares issued in connection with the IPO are
referred to as Public Stockholders.
On September 13, 2007 (September 14 in Australia), we completed the acquisition of Royal Wolf
through the acquisition of all of the outstanding shares of RWA. Based upon the actual exchange
rate of one Australian dollar to $0.8407 U.S. dollar realized in connection with payments made upon
completion of the acquisition, the purchase price paid to the sellers for the RWA shares was
$64.3 million, including deposits of $1,005,000 previously paid by us in connection with the
acquisition. We paid the purchase price, less the deposits, by a combination of cash in the amount
of $44.7 million plus the issuance to Bison Capital Australia, L.P. (Bison Capital), one of the
sellers, of shares of common stock of GFN U.S., constituting 13.8% of the outstanding capital stock
of GFN U.S. following the issuance; and the issuance of a note to Bison Capital. As a result of
this structure, we own 86.2% of the outstanding capital stock of GFN U.S. and Bison Capital owns
13.8% of the outstanding capital stock of GFN U.S, which through its indirect subsidiary GFN
Finance owns all of the outstanding capital stock of Royal Wolf.
We accounted for the acquisition of Royal Wolf as a purchase. Under the purchase method of
accounting, we allocated the total purchase price to the net tangible assets and intangible assets
acquired and liabilities assumed based on their respective fair values as of the date of
acquisition. The excess of the purchase price over the net fair value of the assets acquired
(including specifically identified intangible assets such as customer lists and non-compete
covenants) was recorded as goodwill. See Note 1 of Notes to Consolidated Financial Statements.
The funds in the Trust Account were distributed at the closing of the acquisition of Royal
Wolf. We received approximately $60.8 million, of which we used $44.7 million to pay the purchase
price for the RWA shares. Approximately $6.4 million ($7.93482 per share) of the funds in the Trust
Account was paid to Public Stockholders holding 809,901 shares that voted against the acquisition
and, in accordance with our certificate of incorporation, elected to receive cash in exchange for
their shares, which have been cancelled. The remaining $1.3 million was paid to our IPO
underwriters as deferred underwriting fees.
All references to events or activities (other than equity-related) which occurred prior to the
completion of the acquisition on September 13, 2007 (September 14 in Australia) relate to Royal
Wolf, as the predecessor company (the Predecessor). All references to events or activities (other
than equity-related) which occurred after the completion of the acquisition on September 13, 2007
(September 14 in Australia) relate to us, as the successor company (the Successor).
We
lease and sell storage container products through 18 customer service centers (CSCs) in
Australia and six in New Zealand and currently have approximately 250 employees. We serve both
small to mid-size retail customers and large corporate customers in the following sectors: road and
rail; moving and storage; mining and defense; and portable buildings. Historically, our revenue mix
has been approximately 70% sales and under 30% leasing. Generally, we consider sales and leasing in
our customer service centers as retail operations.
29
Our
products include the following:
Portable
Storage Containers. We lease and sell storage container products for on-site storage
by retail outlets and manufacturers, local councils and government departments, farming and
agricultural concerns, building and construction companies, clubs and sporting associations, mine
operators and individual customers. Our portable storage products include general purpose dry
storage containers, refrigerated containers and hazardous goods containers in a range of standard
and modified sizes, designs and storage capacities.
Portable
Container Buildings. We lease and sell portable container buildings for use as site
offices, housing accommodations and for other purposes. We entered the portable building market in
August 2005 with 20-foot and 40-foot portable buildings manufactured from steel container platforms, which
we market primarily to mine operators, construction companies and the general public.
Freight
Containers. We lease and sell freight containers specifically designed for transport
of products by road and rail. Customers include national moving and storage companies, distribution
and logistics companies, domestic freight forwarders, transport companies, rail freight operators
and the Australian military. Our freight container products include curtain-side, refrigerated and
bulk cargo containers, together with a range of standard and industry-specific dry freight
containers.
On November 14, 2007, we, through GFN Finance and Royal Wolf, entered into a Business Sale
Agreement dated November 14, 2007 (the Business Sale Agreement) with GE SeaCo Australia Pty Ltd.
and GE SeaCo SRL. GE SeaCo Australia Pty Ltd is owned by GE SeaCo SRL, which is a joint venture
between Genstar Container Corporation (a subsidiary of General Electric) and Sea Containers Ltd.
Sea Containers Ltd. is in bankruptcy reorganization (collectively GE SeaCo). Pursuant to the
Business Sale Agreement, on November 15, 2007, we purchased the assets of GE SeaCo used in its dry
and refrigerated container business in Australia and Papua New Guinea for $17.9 million. With this
purchase, we added 6,300 containers, of which approximately 4,600 units were leased.
In connection with the asset purchase from GE SeaCo, we entered in a preferred supply
agreement with GE SeaCo. Under the preferred supply agreement, GE SeaCo has agreed to sell to us,
and we have agreed to purchase, all of GE SeaCos containers that GE SeaCo determines to sell, up
to a maximum of 5,000 containers each year. The purchase price for the containers will be based on
their condition and is specified in the agreement, subject to annual adjustment. In addition, we
received a right of first refusal to purchase any additional containers that GE SeaCo desires to
sell in Australia, New Zealand and Papua New Guinea. Either party may terminate the Agreement upon
no less than 90 days prior notice at any time after November 15, 2012.
On February 29, 2008, we, through Royal Wolf, entered into an asset purchase agreement to
acquire the dry and refrigerated container assets of Container Hire and Sales (CHS), located
south of Perth, Australia for approximately $3.8 million. With this purchase, we added 630 storage
containers, of which approximately 570 units are leased in the mining-dominated Western Australia
marketplace.
On April 30, 2008 (May 1, 2008 in New Zealand), we, through Royal Wolf, acquired RWNZ
Acquisition Co. Limited and its wholly owned subsidiary, Royalwolf Trading New Zealand
(collectively RWNZ) for approximately $17.0 million. Through this acquisition, we acquired more
than 5,800 storage containers, of which approximately 5,000 storage containers are in the leasing
fleet at an approximately 86% utilization rate.
On June 16, 2008 we completed the acquisition of the assets of Container Hire & Storage Pty
Ltd d/b/a Tomago Self-Storage in Tomago (Tomago), New South Wales, including 162 containers for
approximately $427,000.
On May 2, 2008, we offered the holders of our 8,625,000 outstanding, publicly-traded warrants
and the 583,333 warrants issued to two of our executive officers the opportunity to exercise those
warrants for a limited time at a reduced exercise price of $5.10 per warrant. The offer commenced
on May 2, 2008 and continued through May 30, 2008. Under the warrant exercise program, a total of
4,125,953 warrants were exercised and all outstanding warrants that were not exercised retain their
original terms, including the $6.00 exercise price, which existed prior to the warrant exercise
program. In June 2008, an additional 10,000 Warrants were exercised at $6.00 per warrant.
30
Year Ended June 30, 2008 (FY 2008) Compared to Year Ended June 30, 2007 (FY 2007)
We had no business or operations prior to our acquisition of Royal Wolf on September 13, 2007.
Comparisons of our results of operations for FY 2008 with FY 2007 therefore are not particularly
meaningful. We believe a more meaningful comparison is the results of operations of Royal Wolf for
FY 2007 with the combined results of our operations and Royal Wolf during FY 2008. To assist in
this comparison, the following table sets forth condensed statements of operations for the
following: (i) Royal Wolf, as Predecessor, for FY 2007 and for the period July 1, 2007 to
September 13, 2007; (ii) the Company, as Successor, for FY 2008, which reflects the results of
operations of Royal Wolf for the period September 14, 2007 through June 30, 2008; and (iii) the
combined results of operations of the Predecessor and Successor for FY 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
Successor |
|
|
Combined |
|
|
|
Year |
|
|
Period from |
|
|
Year |
|
|
|
Ended |
|
|
July 1 to |
|
|
Ended |
|
|
|
June 30, |
|
|
September 13, |
|
|
June 30, |
|
|
|
2007 |
|
|
2007 |
|
|
2008 |
|
|
|
(In thousands) |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of containers |
|
$ |
52,929 |
|
|
$ |
10,944 |
|
|
$ |
68,029 |
|
|
$ |
78,973 |
|
Leasing of containers |
|
|
21,483 |
|
|
|
4,915 |
|
|
|
27,547 |
|
|
|
32,462 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74,412 |
|
|
|
15,859 |
|
|
|
95,576 |
|
|
|
111,435 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
46,402 |
|
|
|
9,466 |
|
|
|
57,675 |
|
|
|
67,141 |
|
Leasing, selling and general expenses |
|
|
20,761 |
|
|
|
4,210 |
|
|
|
22,161 |
|
|
|
26,371 |
|
Depreciation and amortization |
|
|
2,577 |
|
|
|
653 |
|
|
|
7,367 |
|
|
|
8,020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
4,672 |
|
|
|
1,530 |
|
|
|
8,373 |
|
|
|
9,903 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
413 |
|
|
|
14 |
|
|
|
1,289 |
|
|
|
1,303 |
|
Interest expense |
|
|
(4,378 |
) |
|
|
(947 |
) |
|
|
(6,888 |
) |
|
|
(7,835 |
) |
Foreign currency exchange gain (loss) and other |
|
|
95 |
|
|
|
(129 |
) |
|
|
3,814 |
|
|
|
3,685 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,870 |
) |
|
|
(1,062 |
) |
|
|
(1,785 |
) |
|
|
(2,847 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for income
taxes and minority interest |
|
|
802 |
|
|
|
468 |
|
|
|
6,588 |
|
|
|
7,056 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
|
490 |
|
|
|
180 |
|
|
|
2,034 |
|
|
|
2,214 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interest |
|
|
|
|
|
|
|
|
|
|
448 |
|
|
|
448 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
312 |
|
|
$ |
288 |
|
|
$ |
4,106 |
|
|
$ |
4,394 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues. Sales of containers during FY 2008 amounted to $79.0 million compared to $52.9
million during FY 2007; representing an increase of
$26.1 million or 49.3%. This increase was due
to growth in revenues from sales of containers in our retail operations of $13.4 million, sales of
$5.2 million in our national accounts group or non-retail operations and $7.5 million due to
favorable foreign exchange rates. The $13.4 million increase in our retail operations consisted
of $6.4 million due to higher unit sales and $7.0 million due to price increases. The $5.2 million
increase in our national accounts group operations consisted of $3.6 million due to higher unit
sales and $1.6 million due to price increases.
Leasing of container revenues during FY 2008 amounted to $32.5 million compared to $21.5
million during FY 2007, representing an increase of $11.0 million, or 51.2%. This was driven by
favorable foreign exchange rates of $3.1 million, an increase of $1.4 million in our average total
number of units on lease per month in our portable container building business, which increased by
58.7% during FY 2008 compared to FY 2007; and an increase of $6.5 million in our average total
number of units on lease per month in our portable storage container business, primarily as a
result of our acquisition of the assets of GE SeaCo in November 2007, CHS in February 2008, RWNZ in
April 2008 and Tomago in June 2008. Average utilization in our retail operations was 82.0% during
FY 2008, as compared to 82.8% during FY 2007; and our average utilization in our national accounts
group operations was 81.1% during FY 2008, as compared to 76.5% during FY 2007. Overall our average
utilization was 81.9% in FY 2008, as compared to 80.4% in FY 2007.
31
The average value of the U.S. dollar against the Australian dollar declined during FY 2008 as
compared to FY 2007. The average currency exchange rate of one Australian dollar during FY 2007 was
$0.78592 U.S. dollar compared to $0.89646 U.S. dollar during FY 2008. This fluctuation in foreign
currency exchange rates resulted in an increase to our container sales and leasing revenues of $7.5
million and $3.1 million, respectively, during FY 2008 compared to FY 2007; representing 28.6% of
the increase in total revenues; or 14.2% of total revenues in FY 2007.
Sales of containers and leasing of containers represented 71% and 29% of total revenues in
both FY 2008 and FY 2007.
Cost of Sales. Cost of sales in our container sales business increased by $20.7 million to
$67.1 million during FY 2008 compared to $46.4 million during FY 2007. The increase was primarily
due to foreign exchange translation effect of $6.1 million and cost increases of $10.2 million and
$3.9 million in our retail and national account group operations, respectively. Our gross profit
margin from sales revenues improved during FY 2008 to 15.1% compared to 12.3% during FY 2007 as a
result of price increases and favorable product mix.
Leasing, Selling and General Expenses. Leasing, selling and general expenses increased by
$5.6 million, or 26.9%, during FY 2008 to $26.4 million from $20.8 million during FY 2007. This
increase includes approximately $2.4 million, or 42.9% of the increase, incurred at GFN. The
following table provides more detailed information about the Royal Wolf operating expenses of $24.0
million in FY 2008 as compared to $20.8 million in FY 2007:
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30, |
|
|
|
2007 |
|
|
2008 |
|
|
|
(in millions) |
|
Salaries, wages and related |
|
$ |
9.6 |
|
|
$ |
13.1 |
|
Share-based payments |
|
|
3.7 |
|
|
|
0.3 |
|
Rent |
|
|
0.2 |
|
|
|
0.4 |
|
CSC operating costs |
|
|
2.7 |
|
|
|
5.0 |
|
Business promotion |
|
|
0.8 |
|
|
|
1.1 |
|
Travel and meals |
|
|
0.8 |
|
|
|
1.1 |
|
IT and telecommunications |
|
|
0.6 |
|
|
|
0.8 |
|
Professional costs |
|
|
1.4 |
|
|
|
1.9 |
|
Other |
|
|
1.0 |
|
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
20.8 |
|
|
$ |
24.0 |
|
|
|
|
|
|
|
|
FY 2007 included a shared-based payment expense of approximately $3.7 million to recognize the
full vesting of options as a result of the purchase of approximately 80%
of RWA by Bison Capital in March 2007. The increase in FY 2008 from FY 2007 in salaries, wages and
related expenses and CSC costs of $3.5 million and $2.3 million, respectively, were primarily due
to the increase in number of sales and marketing personnel as we continue to expand our
infrastructure for growth. As a percentage of revenues, operating expenses at Royal Wolf decreased
to 21.5% in FY 2008 from 28.0% (23.4% not including the net effect of share-based payment in March
2007) in FY 2007.
Depreciation and Amortization. Depreciation and amortization expenses increased by $5.4
million to $8.0 million during FY 2008 compared to $2.6 million during FY 2007. The increase was
primarily the result of adjustments to fair values of fixed assets and identifiable intangible
assets as a result of acquisitions. The amortization of identifiable intangible assets (customer
lists and non-compete agreements) represented approximately $2.5 million of this increase. In
addition, during the fourth quarter
of FY 2007, Royal Wolf revised the estimated useful life and residual value of its containers
for lease fleet. The financial impact of the revision resulted in depreciation expense for FY 2007
being $1.0 million less than what it would have been if the previous useful life estimate had been
applied.
32
Interest Income. We had interest income earned on marketable securities held in the Trust
Account of $1.0 million in FY 2008.
Interest Expense. The increase in interest expense of $3.4 million in FY 2008, as compared to
FY 2007, was due primarily to an increase in total long-term debt; which was $44.2 million at June
30, 2007 and $81.3 million at June 30, 2008. The increase in total debt in FY 2008 was due
primarily to our acquisitions of Royal Wolf, GE SeaCo, CHS, RWNZ and Tomago; funded principally
with the senior credit facility with Australia and New Zealand
Banking Group Limited, or ANZ, and the secured senior subordinated notes issued to Bison
Capital.
Foreign Currency Exchange. As a result of the acquisition of Royal Wolf, we now have certain
U.S. dollar-denominated debt at Royal Wolf, including intercompany borrowings, which are remeasured
at each financial reporting date with the impact of the remeasurement being recorded in our
consolidated statements of operations. We had foreign currency exchange gains of approximately
$3.8 million in FY 2008 because the Australian dollar strengthened against the U.S. dollar during
FY 2008 as compared to FY 2007. Effective October 1, 2007, the foreign exchange effect of the
principal balance of the U.S. dollar-denominated intercompany borrowings are now included in
accumulated other comprehensive income since we do not expect repayment in the foreseeable future.
Income Taxes. Our effective income tax rate decreased to 31.4% during the FY 2008 as a result
of certain non-deductible amounts included in the FY 2007 for Australian income tax purposes being
extinguished and the amortization of goodwill for U.S. income tax reporting purposes being
deductible in FY 2008.
Net Income. We had net income of $4.4 million during FY 2008 compared to net income of $0.3
million during FY 2007 primarily as a result of increased revenues from the sales and leasing of
containers in FY 2008, the fact that FY 2007 included share-based expense of approximately $3.7
million and the favorable impact of the foreign currency exchange gain, offset somewhat by
increased interest expense.
Year Ended June 30, 2007 (FY 2007) Compared to Year Ended June 30, 2006 (FY 2006)
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
|
Year Ended |
|
|
|
June 30, |
|
|
|
2006 |
|
|
2007 |
|
|
|
(In thousands) |
|
Revenues |
|
|
|
|
|
|
|
|
Sale of containers |
|
$ |
34,473 |
|
|
$ |
52,929 |
|
Leasing of containers |
|
|
15,921 |
|
|
|
21,483 |
|
|
|
|
|
|
|
|
|
|
|
50,394 |
|
|
|
74,412 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
Cost of sales |
|
|
32,661 |
|
|
|
46,402 |
|
Leasing, selling and general expenses |
|
|
12,653 |
|
|
|
20,761 |
|
Depreciation and amortization |
|
|
2,668 |
|
|
|
2,577 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
2,412 |
|
|
|
4,672 |
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
375 |
|
|
|
413 |
|
Interest expense |
|
|
(3,017 |
) |
|
|
(4,378 |
) |
Foreign currency exchange gain (loss) and other |
|
|
16 |
|
|
|
95 |
|
|
|
|
|
|
|
|
|
|
|
(2,626 |
) |
|
|
(3,870 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for income
taxes and minority interest |
|
|
(214 |
) |
|
|
802 |
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
|
214 |
|
|
|
490 |
|
|
|
|
|
|
|
|
|
|
Minority interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(428 |
) |
|
$ |
312 |
|
|
|
|
|
|
|
|
33
Revenues. Sales of storage container products during FY 2007 amounted to $52.9 million
compared to $34.5 million during FY 2006; representing an
increase of $18.4 million, or 53.3%. This
increase was due to growth in revenues from sales of containers in our retail operations of
$6.1million, $10.5 million in our national account group operations and $1.8 million due to
favorable foreign exchange rates. The $6.1million increase in retail operations consisted of a $4.0
million volume increase in units sold and a $2.1 million price increase; while the national account
group operations increase of $10.5 million increase consisted of a $7.9 million volume increase in
units sold and a $2.6 million price increase.
Leasing of container revenues during FY 2007 amounted to $21.5 million compared to $15.9
million during FY 2006, representing an increase of $5.6 million, or 35.2%. This was driven
primarily by favorable foreign exchange rates of $0.9 million, a $1.0 million increase due to our
average total number of units on lease per month in our portable building business increasing from
143 units in FY 2006 to 487 units in FY 2007 and $2.9 million due to our average total number of
units on lease per month in our portable storage business in retail
operations which increased from 6,834 units in FY 2006 to 8,164 units in FY 2007. A decline in the units on lease in our
moving and transporting business was offset by increases in price, which allowed our national
account group operations to remain unchanged from FY 2006 despite a 4.6% decline in our average
total number of units on lease per month. Average utilization in our retail and national account
group operations was 82.8% compared to 83.5%; and 76.5% compared to 81.6% during FY 2007 and FY
2006, respectively. Overall our average utilization was 80.4% in FY 2007, as compared to 82.7% in
FY 2006.
The average value of the U.S. dollar against the Australian dollar declined during FY 2007 as
compared to FY 2006. The average currency exchange rate during FY 2006 was $0.74783 to one
Australian dollar compared to $0.78592 to one Australian dollar during FY 2007. This fluctuation in
foreign currency exchange rates resulted in an increase to container sales and leasing revenues of
$1.9 million and $0.9 million, respectively, during FY 2007 compared to FY 2006; representing 11.7%
of the increase in total revenues.
Sales of containers and leasing of containers represented 71% and 29% and 68% and 32% of total
revenues in FY 2007 and FY 2006, respectively.
Cost of Sales. Cost of sales increased by $13.7 million to $46.4 million during FY 2007
compared to $32.7 million during FY 2006. The increase relates entirely to our container sales
business. Of the $13.7 million increase, $0.6 million relates to the foreign exchange rate
movement, with the balance of the $13.1 million increase consisting of $4.9 million in retail
operations and $8.2 million in national account group operations. The retail and national account
group operations increases were the result of unit volume and price increases of $2.8 million and
$2.1 million and $4.8 million and $3.4 million, respectively. Our gross profit margin from
container sales increased to 21.7% during FY 2007 from 21.5% during FY 2006.
34
Leasing, Selling and General Expenses. Leasing, selling and general expenses increased by $8.1
million during FY 2007, or 63.8%, to $20.8 million from $12.7 million during FY 2006. The following
table gives a further breakdown by category:
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30, |
|
|
|
2006 |
|
|
2007 |
|
|
|
(in millions) |
|
Salaries, wages and related |
|
$ |
6.6 |
|
|
$ |
9.6 |
|
Share-based payments |
|
|
0.2 |
|
|
|
3.7 |
|
Rent |
|
|
0.2 |
|
|
|
0.2 |
|
CSC operating costs |
|
|
2.3 |
|
|
|
2.7 |
|
Business promotion |
|
|
0.8 |
|
|
|
0.8 |
|
Travel and meals |
|
|
0.7 |
|
|
|
0.8 |
|
IT and telecommunications |
|
|
0.4 |
|
|
|
0.6 |
|
Professional costs |
|
|
0.7 |
|
|
|
1.4 |
|
Other |
|
|
0.8 |
|
|
|
1.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
12.7 |
|
|
$ |
20.8 |
|
|
|
|
|
|
|
|
The share-based payments expense increase of approximately $3.7 million was to recognize the
full vesting of options as a result of the purchase of approximately 80%
of RWA by Bison Capital in March 2007. In addition, salary, wages and related expenses increased
by $3.0 million primarily due to the full year impact of additional employees resulting from the
businesses Royal Wolf acquired during the last quarter of FY 2006, and from additional employees
hired by Royal Wolf as it positioned itself for future growth at several of its CSCs. Travel and
meals expenses ($0.1million) and professional costs (0.7million) also increased as a result of due
diligence and legal costs incurred relating to the acquisition of Royal Wolf by GFN.
Depreciation and Amortization. Depreciation and amortization expenses decreased by $0.1
million to $2.6 million during FY 2007 compared to $2.7 million during FY 2006. During the fourth
quarter of FY 2007, Royal Wolf revised the estimated useful life and residual value of its
containers for lease fleet. The financial impact of the revision resulted in depreciation expense
for FY 2007 being $1.0 million less than what it would have been if the previous useful life
estimate had been applied. The financial impact of the revision in future periods cannot be
reliably estimated due to the uncertainty over the timing of sales of existing containers and the
purchases of new containers.
Interest Expense. Interest expense increased to $4.4 million during FY 2007 compared to $3.0
million during FY 2006. This is due to the increase in our total long-term debt from $33.7 million
as of June 30, 2006 to $44.2 million as of June 30, 2007 to finance capital expenditures and
acquisition activity completed during FY 2007.
Income Taxes. The overall effective tax rate of 61.0% in FY 2007 was significantly lower than
that of FY 2006 as a result of certain non-deductible amounts included in FY 2006 for Australian
tax purposes being extinguished in FY 2007.
Net Income (Loss). We had net income of $0.3 million during FY 2007 compared to a net loss of
$0.4 million during FY 2006 primarily as a result of increased revenues from the sales and leasing
of containers; partially offset by the share-based expense of approximately $3.7 million.
35
Measures not in Accordance with Generally Accepted Accounting Principles in the United States
(GAAP)
Earnings before interest, income taxes, depreciation and amortization and other non-operating
costs (EBITDA) and adjusted EBITDA are supplemental measures of our performance that are not
required by, or presented in accordance with GAAP. These measures are not measurements of our
financial performance under GAAP and should not be considered as alternatives to net income, income
from operations or any other performance measures derived in accordance with GAAP or as an
alternative to cash flow from operating, investing or financing activities as a measure of
liquidity.
EBITDA is a non-GAAP measure. We calculate adjusted EBITDA by adjusting EBITDA to eliminate
the impact of certain items we do not consider to be indicative of the performance of our ongoing
operations. You are encouraged to evaluate each adjustment and whether you consider each to be
appropriate. In addition, in evaluating EBITDA and adjusted EBITDA, you should be aware that in the
future, we may incur expenses similar to the adjustments in the presentation of EBITDA and adjusted
EBITDA. Our presentation of EBITDA and adjusted EBITDA should not be construed as an inference that
our future results will be unaffected by unusual or non-recurring items. We present EBITDA and
adjusted EBITDA because we consider them to be important supplemental measures of our performance
and because they are frequently used by securities analysts, investors and other interested parties
in the evaluation of companies in our industry, many of which present EBITDA and adjusted EBITDA
when reporting their results.
EBITDA and adjusted EBITDA have limitations as analytical tools, and should not be considered
in isolation, or as a substitute for analysis of our results as reported under GAAP. Because of
these limitations, EBITDA and adjusted EBITDA should not be considered as measures of discretionary
cash available to us to invest in the growth of our business or to reduce our indebtedness. We
compensate for these limitations by relying primarily on our GAAP results and using EBITDA and
adjusted EBITDA only supplementally. The following table shows our EBITDA and adjusted EBITDA, and
the reconciliation from operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
Successor |
|
|
Combined |
|
|
|
Year |
|
|
Period from |
|
|
Year |
|
|
|
Ended |
|
|
July 1 to |
|
|
Ended |
|
|
|
June 30, |
|
|
September 13, |
|
|
June 30, |
|
|
|
2007 |
|
|
2007 |
|
|
2008 |
|
|
|
(In thousands) |
|
Operating income |
|
$ |
4,672 |
|
|
$ |
1,530 |
|
|
$ |
8,373 |
|
|
$ |
9,903 |
|
Add depreciation and amortization |
|
|
2,577 |
|
|
|
653 |
|
|
|
7,367 |
|
|
|
8,020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA |
|
|
7,249 |
|
|
|
2,183 |
|
|
|
15,740 |
|
|
|
17,923 |
|
Add |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation |
|
|
3,689 |
|
|
|
|
|
|
|
509 |
|
|
|
509 |
|
Contributed services |
|
|
|
|
|
|
|
|
|
|
233 |
|
|
|
233 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA |
|
$ |
10,938 |
|
|
$ |
2,183 |
|
|
$ |
16,482 |
|
|
$ |
18,665 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
Liquidity and Financial Condition
Cash Flow for FY 2008 Compared to FY 2007
Our principal source of capital for operations consists of funds available from the secured
credit facility with ANZ. We also finance a smaller portion of capital requirements through
finance leases and lease-purchase contracts, have a $1.0 million line of credit with Union Bank of
California, N.A and have outstanding senior subordinated notes with Bison Capital. Prior to
September 2007, we had an unsecured limited recourse revolving line of credit from Ronald F.
Valenta, our Chief Executive Officer. Supplemental information pertaining to our combined sources
and uses of cash is presented in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
Successor |
|
|
Combined |
|
|
|
Year |
|
|
Period from |
|
|
Year |
|
|
|
Ended |
|
|
July 1 to |
|
|
Ended |
|
|
|
June 30, |
|
|
September 13, |
|
|
June 30, |
|
|
|
2007 |
|
|
2007 |
|
|
2008 |
|
|
|
(In thousands) |
|
Net cash provided by operating activities |
|
$ |
8,956 |
|
|
$ |
4,294 |
|
|
$ |
8,016 |
|
|
$ |
12,310 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by investing activities |
|
$ |
(21,914 |
) |
|
$ |
(3,078 |
) |
|
$ |
(120,484 |
) |
|
$ |
(123,562 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by financing activities |
|
$ |
13,389 |
|
|
$ |
(1,807 |
) |
|
$ |
45,352 |
|
|
$ |
43,545 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities. Our operations provided net cash flow of $12.3 million during FY 2008,
as compared to providing net cash flow of $9.0 million during FY 2007, primarily as a result of
increased profitability and effective working capital management despite the increase in inventory
levels to meet the anticipated growth in sales of our containers.
Investing Activities. Net cash used by investing activities was $123.6 million for FY 2008, as
compared to $21.9 million for FY 2007. The increase in the use of cash was primarily the result of
the acquisitions of Royal Wolf ($71.9 million), GE SeaCo ($17.8 million), RWNZ ($17.0 million), CHS
and Tomago (combined $4.2 million). Net capital expenditures for our lease fleet were
$11.7 million in FY 2008 and $20.4 million in FY 2007. Capital expenditures for our lease fleet are
primarily due to continued demand for our products, requiring us to purchase and refurbish more
containers and portable buildings with the growth of our business. The amount of cash that we use
during any period in investing activities is almost entirely within managements discretion. Other
than the preferred supply agreement with GE SeaCo, which has favorable pricing but does not have a
minimum purchase commitment, and the put and call options pertaining to Bison Capitals minority
interest of 13.8% in GFN U.S., we have no long-term contracts or other arrangements pursuant to
which we may be required to purchase at a predetermined price or a minimum amount of goods or
services in connection with any portion of our business. Reference is made to Note 10 of Notes to
Consolidated Financial Statements for a further discussion of our commitments and contingencies.
Financing Activities. Net cash provided by financing activities was $43.5 million during FY
2008, as compared to $13.4 million during FY 2007. On September 14, 2007, we used $2.4 million to
fully repay the line of credit with Mr. Valenta. In addition, in September 2007, we paid $6.4
million to stockholders electing to convert their shares of common stock into cash. Net long-term
borrowings, primarily under the ANZ senior credit facility and the Bison secured senior
subordinated notes, totaled $25.4 million in FY 2008, as compared to net borrowings of $9.5 million
in FY 2007. These net borrowings were used together with cash flow generated from operations to
primarily fund acquisitions and the expansion of our container lease fleet. In addition, we
received net proceeds of $21.0 million from the exercise of warrants in FY 2008.
37
Financial Condition
Inventories increased from $5.5 million at June 30, 2007 to $21.1 million at June 30, 2008,
primarily to meet the anticipated growth in sales of our containers and from the acquisition of GE
SeaCo and RWNZ. In addition, during FY 2008, we commenced recording purchases of containers
directly into inventory rather than initially into fixed assets; which increased the inventory
balance by approximately $12.2 million at June 30, 2008 from June 30, 2007.
Property, plant and equipment increased from $2.7 million at June 30, 2007 to $7.5 million at
June 30, 2008, primarily due to the step-up to fair value in the basis of the fixed assets as a
result of the purchase accounting adjustments in connection with our acquisition of Royal Wolf and
the acquisition of RWNZ.
Our total container for lease fleet increased from $40.9 million at June 30, 2007 to $87.7
million at June 30, 2008, primarily due to the step-up to fair value in the basis of the containers
as a result of the purchase accounting adjustments in connection with our acquisition of Royal
Wolf, to meet the demand of increased leasing utilization, and as a result of the acquisitions of
GE SeaCo, CHS, RWNZ and Tomago. At June 30, 2008 we had 28,603 units (15,842 units in retail
operations in Australia, 8,517 units in national account group operations in Australia and 4,244
units in New Zealand, which are considered retail) in our container lease fleet, as compared to
15,948 units (11,104 units in retail operations and 4,844 units in national account group
operations) at June 30, 2007. At those dates, 23,000 units (12,616 in retail operations in
Australia, 6,773 in national account group operations in Australia and 3,611 units in New Zealand,
which are considered retail) and 13,055 units (9,180 in retail operations and 3,875 in national
account group operations) were on lease, respectively.
Intangible assets increased from $4.1 million at June 30, 2007 to $66.4 million at June 30,
2008 as a result of the purchase accounting adjustments in connection with our acquisitions of
Royal Wolf, GE SeaCo, CHS, RWNZ and Tomago.
Long-term debt, including current portion, increased from $44.2 million at June 30, 2007 to
$81.3 million at June 30, 2008, primarily due to the acquisitions of Royal Wolf, GE SeaCo, CHS and
Tomago. These acquisitions were funded in large part by borrowings on the ANZ senior credit
facility and the issuance of the secured senior subordinated notes to Bison Capital. Reference is
made to Note 5 of Notes to Consolidated Financial Statements for further discussion of our
long-term debt.
We believe that our cash on-hand and cash flow provided by operations will be adequate in the
foreseeable future to cover our working capital, debt service requirements and a certain portion of
our planned capital expenditures, to the extent such items are known or are reasonably
determinable, based on current business and market conditions. We expect to finance our capital
expenditure requirements primarily under our ANZ senior credit facility or through capital lease
agreements. We continually evaluate potential acquisitions and we expect that any future
acquisitions will be funded through cash flow provided by operations and by additional borrowings
under our ANZ senior credit facility. However, we are continually seeking and evaluating
additional sources of capital; particularly a source of funding that
will enable us to exercise
our call option for Bison Capitals minority interest in GFN U.S. prior to September 2009.
38
Cash Flow for FY 2007 Compared to FY 2006
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
|
Year |
|
|
|
Ended |
|
|
|
June 30, |
|
|
|
2006 |
|
|
2007 |
|
|
|
(In thousands) |
|
Net cash provided by operating activities |
|
$ |
10,054 |
|
|
$ |
8,956 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by investing activities |
|
$ |
(18,962 |
) |
|
$ |
(21,914 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
$ |
8,966 |
|
|
$ |
13,389 |
|
|
|
|
|
|
|
|
During FY 2007, Royal Wolfs principal sources of funds consisted of cash generated from its
operations, borrowings (including core debt and a non-converting note) from ANZ, Royal Wolfs prime
banker, issuance of B Class Notes and Class A Shares. Royal Wolf also financed a smaller portion of
its capital requirements through capital leases and lease-purchase contracts.
Operating activities. Operations provided net cash flow of $9.0 million for FY 2007 compared
to $10.1 million during the FY 2006. The $1.1 million decrease is primarily related to cash
management needs from Royal Wolfs growth that resulted in a significant satisfaction of payables
and increase in receivables that more than offset a $0.7 million increase in net income.
Investing Activities. Net cash used in investing activities was $21.9 million for FY 2007
compared to $19.0 million for FY 2006. Capital expenditures for our lease fleet, net of proceeds
from sale of lease fleet units, were $20.4 million for FY 2007 and $13.2 million for FY 2006. The
capital expenditures for the lease fleet are primarily due to continued demand, requiring the
purchase and refurbishment of more containers and portable buildings. During FY 2006 funds expended
in investing activities included the acquisition of assets of three businesses
totaling $4.9 million. The amount of cash used during any period in investing activities is almost
entirely within managements discretion. There were no contracts or other arrangements pursuant to
which Royal Wolf was required to purchase a fixed or minimum amount of goods or services in
connection with any portion of the business.
Financing Activities. Net cash provided by financing activities was $13.4 million during FY
2007 compared to $9.0 million for FY 2006. The major financing activity during FY 2007 was in
relation to the purchase of approximately 80% of RWA by Bison-GE in March 2007, which involved the
issuance of a Class D Share for $8.7 million used primarily to repay the face value of the B Class
Notes and accumulated interest. In both fiscal years, borrowings under the ANZ secured credit
facility were used together with cash flow generated from operations to fund the expansion of the
container for lease fleet.
39
Contractual Obligations
The following is a summary of our contractual obligations as of June 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment Due by Fiscal Year Ending June 30, |
|
|
|
|
|
|
|
|
|
|
|
2010- |
|
|
2012- |
|
|
2014 and |
|
Contractual Obligations |
|
Total |
|
|
2009 |
|
|
2011 |
|
|
2013 |
|
|
Thereafter |
|
|
|
(In thousands) |
|
Capital leases obligations, including interest |
|
$ |
398 |
|
|
$ |
294 |
|
|
$ |
92 |
|
|
$ |
12 |
|
|
$ |
|
|
Operating leases |
|
|
9,324 |
|
|
|
3,028 |
|
|
|
3,090 |
|
|
|
1,209 |
|
|
|
1,997 |
|
Long-term debt principal |
|
|
80,879 |
|
|
|
2,946 |
|
|
|
10,676 |
|
|
|
67,257 |
|
|
|
|
|
Long-term debt interest |
|
|
21,613 |
|
|
|
6,404 |
|
|
|
8,254 |
|
|
|
6,955 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
102,492 |
|
|
|
9,350 |
|
|
|
18,930 |
|
|
|
74,212 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
112,214 |
|
|
$ |
12,672 |
|
|
$ |
22,112 |
|
|
$ |
75,433 |
|
|
$ |
1,997 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-Balance Sheet Arrangements
We do not maintain any off-balance sheet transactions, arrangements, obligations or other
relationships with unconsolidated entities or others that are reasonably likely to have a material
current or future effect on our financial condition, changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures or capital resources.
Seasonality
Although demand from certain specific customer segments can be seasonal, our operations as a
whole are not seasonal to any significant extent. We experience a reduction in sales volumes during
Australias summer holiday break from mid-December to the end of January, followed by February
being a short working day month. However, this reduction in sales typically is counterbalanced by
the increased lease revenues derived from the relocations industry, which experiences its seasonal
peak of personnel relocations during this same summer holiday break.
Impact of Inflation
We believe that inflation has not had a material effect on our business. However, during
periods of rising prices for raw materials, and in particular when the prices increase rapidly or
to levels significantly higher than normal, we may incur significant increases in our operating
costs and may not be able to pass price increases through to our customers in a timely manner,
which could harm our future results of operations.
Critical Accounting Estimates
Our discussion and analysis of our financial condition and results of operations are based
upon our consolidated financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States of America. The preparation of these financial
statements requires us to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses. On an ongoing basis, we re-evaluate all of our estimates. We
base our estimates on historical experience and on various other assumptions that are believed to
be reasonable under the circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities that are not readily apparent from other
sources. Actual results may materially differ from these estimates under different assumptions or
conditions as additional information becomes available in future periods. We believe the following
are the more significant judgments and estimates used in the preparation of our consolidated
financial statements.
40
We are required to estimate the collectability of our trade receivables. Accordingly, we
maintain allowances for doubtful accounts for estimated losses that may result from the inability
of our customers to make required payments. On a recurring basis, we evaluate a variety of factors
in assessing the ultimate realization of these receivables, including the current credit-worthiness
of our customers, its days outstanding trends, a review of historical collection results and a
review of specific past due receivables. If the financial conditions of our customers were to
deteriorate, resulting in an impairment of their ability to make payments, additional allowances
may be required, resulting in decreased net income. To date, uncollectible accounts have been
within the range of our expectations.
We lease and sell portable storage containers to our customers. Leases to customers are
generally on a short-term basis qualifying as operating leases. The aggregate lease payments are
generally less than the purchase price of the equipment. Revenue is recognized as earned in
accordance with the lease terms established by the lease agreements and when collectability is
reasonably assured. Revenue from sales of equipment is recognized upon delivery and when
collectability is reasonably assured.
We have a fleet of storage containers that we lease to customers under operating lease
agreements with varying terms. The container for lease (or lease equipment) is recorded at cost and
depreciated on a straight-line basis over the estimated useful life
(10 - 20 years), after the date
the units are put in service, and are depreciated down to their estimated residual values (20% -
70%). In our opinion, estimated residual values do not cause carrying values to exceed net
realizable value. We continue to evaluate these depreciation policies as more information becomes
available from other comparable sources and our own historical experience.
For the issuances of stock options, we follow the fair value provisions of Statement of
Financial Accounting Standards, which we refer to as SFAS No. 123R, Share-Based Payment. SFAS
No. 123R requires recognition of employee share-based compensation expense in the statements of
income over the vesting period based on the fair value of the stock option at the grant date. The
pricing model we use for determining fair values of the purchase option and the embedded derivative
is the Black Scholes Pricing Model. Valuations derived from this model are subject to ongoing
internal and external verification and review. The model uses market-sourced inputs such as
interest rates, market prices and volatilities. Selection of these inputs involves managements
judgment and may impact net income. In particular, the Company uses volatility rates based upon a
sample of comparable companies in Royal Wolfs industry and a risk-free interest rate, which is the
rate on U. S. Treasury instruments, for a security with a maturity that approximates the estimated
remaining expected term of the derivative.
We account for goodwill in accordance with SFAS No. 142, Goodwill and Other Intangible Assets.
SFAS No. 142 prohibits the amortization of goodwill and intangible assets with indefinite useful
lives and requires these assets be reviewed for impairment at least annually. We will test goodwill
for impairment using the two-step process prescribed in SFAS No. 142. The first step is a screen
for potential impairment, while the second step measures the amount of the impairment, if any. We
have determined that no impairments related to goodwill and indefinite-lived intangible assets
exist as of June 30, 2008.
Other intangible assets with finite useful lives consist primarily of customer lists and
non-compete agreements. Customer lists and non-compete agreements are amortized on the
straight-line basis over the expected period of benefit which range from one to ten years. Costs
to obtaining long-term financing are deferred and amortized over the term of the related debt using
the straight-line method. Amortizing the deferred financing costs using the straight-line method
does not produce significantly different results than that of the effective interest method.
In preparing our consolidated financial statements, we recognize income taxes in each of the
jurisdictions in which we operate. For each jurisdiction, we estimate the actual amount of taxes
currently payable or receivable as well as deferred tax assets and liabilities attributable to
temporary differences between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred income tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in which these temporary
differences are expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that includes the
enactment date.
41
A valuation allowance is provided for those deferred tax assets for which it is more likely than not that the related benefits will not be realized. In
determining the amount of the valuation allowance, we consider estimated future taxable income as
well as feasible tax planning strategies in each jurisdiction. If we determine that we will not
realize all or a portion of our deferred tax assets, we will increase our valuation allowance with
a charge to income tax expense or offset goodwill if the deferred tax asset was acquired in a
business combination. Conversely, if we determine that we will ultimately be able to realize all or
a portion of the related benefits for which a valuation allowance has been provided, all or a
portion of the related valuation allowance will be reduced with a credit to income tax expense
except if the valuation allowance was created in conjunction with a tax asset in a business
combination. No valuation allowance has been determined to be required as of June 30, 2008.
We have adopted FASB Interpretation 48 (FIN 48), Accounting for Uncertainty in Income Taxes,
an interpretation of FASB Statement No. 109. For a discussion of the impact of the adoption of FIN
48, reference is made to Note 2 of Notes to Consolidated Financial Statements.
Impact of Recently Issued Accounting Pronouncements
Reference is made to Note 2 of Notes to Consolidated Financial Statements for a discussion of
recently issued accounting pronouncements that could potentially impact us.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Market risk is the sensitivity of income to changes in interest rates, foreign exchanges,
commodity prices, equity prices and other market-driven rates or prices. Reference is made to
Note 6 of Notes to Consolidated Financial Statements for a discussion of financial instruments and
market risk.
Item 8. Financial Statements and Supplementary Data
|
|
|
|
|
Index to Consolidated Financial Statements: |
|
|
|
|
|
|
|
|
|
|
|
|
F-1 |
|
|
|
|
|
|
|
|
|
F-2 |
|
|
|
|
|
|
|
|
|
F-3 |
|
|
|
|
|
|
|
|
|
F-4 |
|
|
|
|
|
|
|
|
|
F-5 |
|
|
|
|
|
|
|
|
|
F-6 |
|
|
|
|
|
|
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
42
Item 9A. Controls and Procedures
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Ronald F. Valenta (our principal executive officer) and Charles E. Barrantes (our principal
financial officer) carried out an evaluation as of June 30, 2008 of the effectiveness of our
disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934 (the Exchange Act). Based upon that evaluation, they concluded
that, as of June 30, 2008, our disclosure controls and procedures were (1) effective in that they
were designed to ensure that material information relating to us is made known to our principal
executive and principal financial officers, and (2) effective in that they provide reasonable
assurance that information required to be disclosed by us in the reports that we file or submit
under the Exchange Act is recorded, processed, summarized and reported within the time periods
specified in the SECs rules and forms.
Managements Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f).
Internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. Internal control
over financial reporting includes those policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of assets; (2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in conformity with U.S. generally accepted
accounting principles, and that receipts and expenditures are being made only in accordance with
authorizations of management and directors; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of assets that
could have a material effect on the financial statements.
A control system, no matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the controls system are met. Because of the inherent
limitations in all controls systems, no evaluation of controls can provide absolute assurance that
all control issues and instances of fraud, if any, have been detected.
Under the supervision and with the participation of management, we assessed the effectiveness
of our internal control over financial reporting based on the criteria in Internal Control
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on our evaluation under the criteria in Internal Control Integrated Framework,
we concluded that our internal control over financial reporting was effective as of June 30, 2008.
This Annual Report of Form 10-K does not include an attestation report of our independent
registered public accounting firm regarding internal control over financial reporting. The
managements report was not subject to attestation by our independent registered public accounting
firm pursuant to temporary rules of the SEC that permit us to provide only managements report in
this Annual Report of Form 10-K.
Changes in Internal Control over Financial Reporting
There has not been any change in our internal control over financial reporting in connection
with the evaluation required by Rule 13a-15(d) under the Exchange Act that occurred during the
quarter ended June 30, 2008 that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
Item 9B. Other Information
None.
43
PART III
Certain information required by Part III is omitted from this Annual Report on Form 10-K
because we will file a definitive Proxy Statement for the 2008 Annual Meeting of Stockholders,
pursuant to Regulation 14A of the Securities Exchange Act of 1934 (the Proxy Statement), not
later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K and
the applicable information included in the Proxy Statement is incorporated herein by reference.
Item 10. Directors, Executive Officers and Corporate Governance
Information concerning our executive officers is set forth in Item 1. of this Annual Report
on Form 10-K under the caption Executive Officers of the Registrant.
Information required by Items 401 and 407(c)(3) of Regulation S-K regarding our directors and
the nomination process is incorporated herein by reference to information included in the Proxy
Statement.
Information required by Item 405 of Regulation S-K regarding compliance with Section 16(A) of
the Exchange Act is incorporated herein by reference to information included in the Proxy
Statement.
Information required by Item 407(d)(4) and (d)(5) of Regulation S-K regarding our audit
committee and our audit committee financial experts is incorporated herein by reference to
information included in the Proxy Statement.
We have adopted a code of ethics that applies to our directors, officers (including our
principal executive and principal financial and accounting officers) and employees. A copy of these
code of ethics is available free of charge on the Corporate Governance section of our website at
www.generalfinance.com or by a written request addressed to the Corporate Secretary, General
Finance Corporation, 39 East Union Street, Pasadena, California 91103. We intend to satisfy any
disclosure requirement under Item 5.05 of Form 8-K regarding an amendment to, or waiver from, a
provision of the code of ethics by posting such information on our web site at the address and
location specified above.
Item 11. Executive Compensation
Information required by Item 402 of Regulation S-K regarding executive compensation is
incorporated herein by reference to information included in the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Information required by Items 201(d) and 403 of Regulation S-K is incorporated herein by
reference to the sections of the Proxy Statement entitled Equity Compensation Plan Information
and Security Ownership of Certain Beneficial Owners and Management.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information required by Item 404 of Regulation S-K is incorporated herein by reference to
information to the section of the Proxy Statement entitled Certain Relationships and Related
Transactions.
Information required by Item 407(a) regarding director independence compensation is
incorporated herein by reference to information included in the Proxy Statement.
Item 14. Principal Accountant Fees and Services
Information required by this Item is incorporated herein by reference to information included
in the Proxy Statement.
44
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) Financial Statements
(1) The financial statements required in this Annual Report on Form 10-K are included in Item
8. Financial Statements and Supplementary Data.
(2) Financial statement schedule:
Report of Independent Registered Public Accounting Firm on Financial Statement Schedule
Schedule I Condensed Financial Information of Registrant (Parent Company Information)
All other supplemental schedules have been omitted since the required information is not
present in amounts sufficient to require submission of the schedule, or because the required
information is included in the consolidated financial statements or notes thereto.
(b) Exhibits
|
|
|
|
|
Exhibit |
|
|
Number |
|
Exhibit Description |
|
|
|
|
|
|
2.1 |
|
|
Deed of Variation No. 3 dated March 30, 2007, which amended and restated the Share Sale Deed dated September 12, 2006, by and among General
Finance Corporation, GFN Australasia Finance Pty. Limited, Bison Capital Australia LP, and the shareholders of RWA Holdings Pty Limited and
certain other parties. Incorporated by reference to Annex A to Registrants Preliminary Proxy Statement of Schedule 14A filed April 27, 2007. |
|
|
|
|
|
|
3.1 |
|
|
Amended and Restated Certificate of Incorporation filed April 4, 2006 (incorporated by reference to Exhibit 3.1 of Registrants Form S-1, File
No. 333-129830). |
|
|
|
|
|
|
3.2 |
|
|
Amended and Restated Bylaws as of April 27, 2007 (incorporated by reference to Exhibit 3.1 of Registrants Form 10-Q for the quarter ended June
30, 2007). |
|
|
|
|
|
|
4.1 |
|
|
Form
of Unit Certificate (incorporated by reference to Exhibit 4.1 of
Registrants Form S-1, File No. 333-129830). |
|
|
|
|
|
|
4.2 |
|
|
Form of Common Stock Certificate (incorporated by reference to Exhibit 4.2 of Registrants Form S-1, File No. 333-129830). |
|
|
|
|
|
|
4.3 |
|
|
Form of Warrant Certificate (incorporated by reference to Exhibit 4.3 of Registrants Form S-1, File No. 333-129830). |
|
|
|
|
|
|
10.1 |
|
|
Unit Purchase Option granted to Morgan Joseph & Co. Inc. dated April 10, 2006 (incorporated by reference to Exhibit 10.1 of Registrants
Quarterly Report on Form 10-Q for the quarter ended March 31, 2006). |
|
|
|
|
|
|
10.2 |
|
|
Warrant Agreement dated April 5, 2006 between Continental Stock Transfer & Trust Company and General Finance Corporation (incorporated by
reference to Exhibit 10.2 of Registrants Quarterly Report
on Form 10-Q for the quarter ended March 31, 2006). |
45
|
|
|
|
|
Exhibit |
|
|
Number |
|
Exhibit Description |
|
|
10.3 |
|
|
Investment Management Trust Agreement dated April 5, 2006 between Continental Stock Transfer & Trust Company and General Finance Corporation
(incorporated by reference to Exhibit 10.3 of Registrants Quarterly Report on Form 10-Q for the quarter ended March 31, 2006). |
|
|
|
|
|
|
10.4 |
|
|
Stock Escrow Agreement dated April 5, 2006 between General Finance Corporation, Continental Stock Transfer & Trust Company and certain
stockholders (incorporated by reference to Exhibit 10.4 of Registrants Quarterly Report on Form 10-Q for the quarter ended March 31, 2006). |
|
|
|
|
|
|
10.5 |
|
|
Amended and Restated Warrant Purchase Agreements dated April 5, 2006 by and between Morgan Joseph & Co. Inc and each of Ronald F. Valenta and
John O. Johnson (incorporated by reference to Exhibit 10.5 of Registrants Quarterly Report on Form 10-Q for the quarter ended March 31, 2006). |
|
|
|
|
|
|
10.6 |
|
|
Amended and Restated Letter Agreement dated March 3, 2006 among the Registrant, Morgan Joseph & Co., and each of David M. Connell, Lawrence
Glascott, Manuel Marrero, James B. Roszak, John O. Johnson and Marc Perez; Amended and Restated Letter Agreement dated March 3, 2006 among the
Registrant, Morgan Joseph & Co. Inc. and Ronald F. Valenta
(incorporated by reference to Exhibit 10.1 of Registrants
Form S-1, File No.
333-129830). |
|
|
|
|
|
|
10.7 |
|
|
Amended and Restated Registration Rights Agreement dated March 3, 2006 by and between the Registrant and each of Ronald F. Valenta, John O.
Johnson, Marc Perez, Lawrence Glascott, David M. Connell, Manuel Marrero and James B. Roszak (incorporated by reference to Exhibit 10.5 of
Registrants Form S-1, File No. 333-129830). |
|
|
|
|
|
|
10. 8 |
|
|
Form of Indemnification Agreement by and between the Registrant and each of Ronald F. Valenta, John O. Johnson, Marc Perez, Lawrence Glascott,
David M. Connell, Manuel Marrero, James B. Roszak and Charles E. Barrantes (incorporated by reference to Exhibit 10.7 of Registrants Form S-1,
File No. 333-129830). |
|
|
|
|
|
|
10.9 |
|
|
2006 Stock Option Plan (incorporated by reference to Exhibit 10.1 of Registrants Form 10-Q for the quarter ended September 30, 2006). |
|
|
|
|
|
|
10.10 |
|
|
Forms of Incentive Stock Option Agreement and Non-Qualified Stock Option Agreement used under the 2006 Stock Option Plan (incorporated by
reference to Exhibit 10.2 of Registrants Form 8-K filed September 12, 2006). |
|
|
|
|
|
|
10.11 |
|
|
Employment Agreement dated September 11, 2006 between General Finance Corporation and Charles E. Barrantes (incorporated by reference to Exhibit
10.3 of Registrants Form 8-K filed September 12, 2006). |
|
|
|
|
|
|
10.12 |
|
|
Fifth Amended and Restated Revolving Line of Credit Agreement, dated as of January 20, 2007, by and between General Finance Corporation and
Ronald F. Valenta (incorporated by reference to Exhibit 10.12 of Registrants Form 8-K filed September 19, 2007). |
|
|
|
|
|
|
10.13 |
|
|
Executive Services Agreement, dated July 4, 2006, between Royal Wolf Trading Australia Pty Ltd and Robert Allan (incorporated by reference to
Exhibit 10.13 of Registrants Form 8-K filed September 19, 2007). |
|
|
|
|
|
|
10.16 |
|
|
Securities Purchase Agreement, dated as of September 13, 2007, among General
Finance Corporation, GFN U.S. Australasia Holdings, Inc., GFN Australasia
Holdings Pty Limited and Bison Capital Australia, L.P. (incorporated by reference
to Exhibit 10.16 of Registrants Form 8-K filed September 19, 2007). |
|
|
|
|
|
|
10.17 |
|
|
Senior Secured Subordinated Promissory Note, dated September 13, 2007, of GFN
Australasia Finance Pty Limited in favor of Bison Capital Australia, L.P.
(incorporated by reference to Exhibit 10.17 of Registrants Form 8-K filed
September 19, 2007). |
|
|
|
|
|
|
10.18 |
|
|
Form of Deed of Charge, dated as of September 13, 2007, between each of General
Finance Corporation, GFN U.S. Australasia Holdings, Inc., GFN Australasia
Holdings Pty Limited and GFN Australasia Finance Pty Limited, respectively, and
Bison Capital Australia, L.P. (incorporated by reference to Exhibit 10.18 of
Registrants Form 8-K filed September 19, 2007). |
46
|
|
|
|
|
Exhibit |
|
|
Number |
|
Exhibit Description |
|
|
10.19 |
|
|
Warrants, dated September 13, 2007, of General Finance Corporation in favor of
Bison Capital Australia, L.P. (incorporated by reference to Exhibit 10.19 of
Registrants Form 8-K filed September 19, 2007). |
|
|
|
|
|
|
10.20 |
|
|
Registration Rights Agreement dated as of September 13, 2007, between General
Finance Corporation and Bison Capital Australia, L.P. (incorporated by reference
to Exhibit 10.20 of Registrants Form 8-K filed September 19, 2007). |
|
|
|
|
|
|
10.21 |
|
|
Guaranty, dated as of September 13, 2007, by General Finance Corporation, GFN
U.S. Australasia Holdings, Inc. and GFN Australasia Holdings Pty Limited in favor
of Bison Capital Australia, L.P. (incorporated by reference to Exhibit 10.21 of
Registrants Form 8-K filed September 19, 2007). |
|
|
|
|
|
|
10.22 |
|
|
Shareholders Agreement dated as of September 13, 2007, among General Finance
Corporation, GFN U.S. Australasia Holdings, Inc. and Bison Capital Australia,
L.P. (incorporated by reference to Exhibit 10.22 of Registrants Form 8-K filed
September 19, 2007). |
|
|
|
|
|
|
10.23 |
|
|
Royal Wolf Intercreditor Deed, dated as of September 13, 2007, among General
Finance Corporation, Bison Capital Australia, L.P., Royal Wolf Trading Australia
Pty Ltd, GFN Australasia Finance Pty Ltd, RWA Holdings Pty Ltd, GFN Australasia
Holdings Pty Ltd, Royal Wolf Hi-Tech Pty Ltd, and Australia and New Zealand
Banking Group Limited (incorporated by reference to Exhibit 10.23 of Registrants
Form 8-K filed September 19, 2007). |
|
|
|
|
|
|
10.24 |
|
|
Sublease, dated February 7, 2007, between Royal Wolf Trading Australia Pty Ltd
and Tyne Container Services Pty Limited (incorporated by reference to Exhibit
10.24 of Registrants Form 8-K filed September 19, 2007). |
|
|
|
|
|
|
10.25 |
|
|
Commercial Tenancy Agreement, dated October 31, 2006, between Royal Wolf Trading
Australasia Pty Ltd and Corporate Banking Services Pty Ltd (incorporated by
reference to Exhibit 10.25 of Registrants Form 8-K filed September 19, 2007). |
|
|
|
|
|
|
10.26 |
|
|
Lease, dated October 1, 2006, between Royal Wolf Trading Australia Pty Ltd and
GPF No. 3 Pty (incorporated by reference to Exhibit 10.26 of Registrants Form
8-K filed September 19, 2007). |
|
|
|
|
|
|
10.27 |
|
|
Letter of Offer, dated September 10, 2007, to Royal Wolf Australia Group from
Australia and New Zealand Banking Group Limited (incorporated by reference to
Exhibit 10.27 of Registrants Form 8-K filed September 19, 2007). |
|
|
|
|
|
|
10.28 |
|
|
Cross Guarantee and Indemnity, dated September 13, 2007, by GFN Australasia
Holdings Pty Limited, GFN Australasia Finance Pty Limited, Royal Wolf Trading
Australia Pty Limited, RWA Holdings Pty Limited and Royal Wolf Hi-Tech Ltd in
favor of Australia and New Zealand Banking Group Limited (incorporated by
reference to Exhibit 10.28 of Registrants Form 8-K filed September 19, 2007). |
|
|
|
|
|
|
10.29 |
|
|
Compensation of Non-Employee Directors (incorporated by reference to Exhibit
10.29 of Registrants Form 10-Q for the Quarterly Period Ended September 30,
2007). |
|
|
|
|
|
|
10.30 |
|
|
Employment Agreement between General Finance Corporation and Christopher A.
Wilson (incorporated by reference to Exhibit 10.1 of Registrants Post-Effective
Amendment No. 1 to Form S-1 filed January 29, 2008). |
|
|
|
|
|
|
10.31 |
|
|
Preferred Supply Agreement among General Electric Capital Container Finance
Corporation, Genstar Container Corporation, GE SeaCo SRL, Sea Containers Ltd.,
Royal Wolf Trading Australia Pty Limited and GE SeaCo Australia Pty Limited
(incorporated by reference to Exhibit 10.2 of Registrants Post-Effective
Amendment No. 1 to Form S-1 filed January 29, 2008). |
47
|
|
|
|
|
Exhibit |
|
|
Number |
|
Exhibit Description |
|
|
10.32 |
|
|
Variation Letter between Australia and New Zealand Banking Group Limited and
Royal Wolf Australia Group (incorporated by reference to Exhibit 10.3 of
Registrants Post-Effective Amendment No. 1 to Form S-1 filed January 29, 2008). |
|
|
|
|
|
|
10.33 |
|
|
Variation Letter between Australia and New Zealand Banking Group Limited and
Royal Wolf Australia Group (incorporated by reference to Exhibit 10.4 of
Registrants Post-Effective Amendment No. 1 to Form S-1 filed March 20, 2008). |
|
|
|
|
|
|
10.34 |
|
|
Share Purchase Agreement dated May 1, 2008 among BCP NZ, LLC, Michael Gurcke and
Royalwolf NZ Acquisition Co Limited (incorporated by reference to Exhibit 10.1 of
Registrants Form 8-K filed May 1, 2008). |
|
|
|
|
|
|
10.35 |
|
|
13.5% Secured Senior Subordinated Promissory Note by GFN Australasia Finance Pty
Ltd dated May 1, 2008 Limited (incorporated by reference to Exhibit 10.1 of
Registrants Form 8-K filed May 6, 2008). |
|
|
|
|
|
|
10.36 |
|
|
First Amendment to Securities Purchase Agreement dated May 1, 2008 among Bison
Capital Australia L.P., General Finance Corporation, GFN US Australasia Holdings,
Inc., GFN Australasia Holdings Pty Ltd and GFN Australasia Finance Pty Ltd
(incorporated by reference to Exhibit 10.2 of Registrants Form 8-K filed May 6,
2008). |
|
|
|
|
|
|
10.37 |
|
|
First Amendment to Shareholders Agreement dated May 1, 2008 among General Finance
Corporation, Bison Capital Australia L.P. and GFN US Australasia Holdings, Inc.
(incorporated by reference to Exhibit 10.3 of Registrants Form 8-K filed May 6,
2008). |
|
|
|
|
|
|
10.38 |
|
|
Security Agreement dated May 1, 2008 by GFN Australasia Finance Pty Ltd in favor
of Bison Capital Australia, L.P. (incorporated by reference to Exhibit 10.4 of
Registrants Form 8-K filed May 6, 2008). |
|
|
|
|
|
|
10.39 |
|
|
Guaranty dated May 1, 2008 by General Finance Corporation, GFN US Australasia
Holdings, Inc., GFN Australasia Holdings Pty Ltd in favor of Bison Capital
Australia, L.P. (incorporated by reference to Exhibit 10.5 of Registrants Form
8-K filed May 6, 2008). |
|
|
|
|
|
|
10.40 |
|
|
Stock Pledge Agreement dated May 1, 2008 by GFN Australasia Finance Pty Ltd in
favor of Bison Capital Equity Partners II, L.P. (incorporated by reference to
Exhibit 10.6 of Registrants Form 8-K filed May 6, 2008). |
|
|
|
|
|
|
10.41 |
|
|
Deed of Amendment and Restatement: Intercreditor Deed dated May 1, 2008 among
Australia and New Zealand Banking Group Limited, General Finance Corporation, GFN
US Australasia Holdings, Inc., Bison Capital Australia, L.P., Royal Wolf Trading
Australia Pty Ltd, GFN Australasia Finance Pty Ltd, RWA Holdings Ltd, GFN
Australasia Holdings Pty Ld and Royal Wolf Hi-Tech Pty Ltd (incorporated by
reference to Exhibit 10.7 of Registrants Form 8-K filed May 6, 2008). |
|
|
|
|
|
|
21.1 |
|
|
Subsidiaries of General Finance Corporation |
|
|
|
|
|
|
31.1 |
|
|
Certification of Chief Executive Officer Pursuant to SEC Rule 13a-14(a)/15d-14(a) |
|
|
|
|
|
|
31.2 |
|
|
Certification of Chief Financial Officer Pursuant to SEC Rule 13a-14(a)/15d-14(a) |
|
|
|
|
|
|
32.1 |
|
|
Certification of Chief Executive Officer Pursuant to 18 U.S.C. §1350 |
|
|
|
|
|
|
32.2 |
|
|
Certification of Chief Financial Officer Pursuant to 18 U.S.C. §1350 |
48
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
|
|
|
|
|
General Finance Corporation |
|
|
|
|
|
By: |
/s/ Ronald F. Valenta |
|
|
|
Name: Ronald F. Valenta
Title: Chief Executive Officer |
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the capacities and on the
dates indicated:
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
/s/ Ronald F. Valenta
Ronald F. Valenta
|
|
Chief Executive Officer and Director
(Principal Executive Officer)
|
|
September 22, 2008 |
|
|
|
|
|
/s/ Charles E. Barrantes
Charles E. Barrantes
|
|
Executive Vice President and Chief Financial
Officer (Principal Accounting and Financial
Officer)
|
|
September 22, 2008 |
|
|
|
|
|
/s/ Lawrence Glascott
Lawrence Glascott
|
|
Chairman of the Board of Directors
|
|
September 22, 2008 |
|
|
|
|
|
/s/ David M. Connell
David M. Connell
|
|
Director
|
|
September 22, 2008 |
|
|
|
|
|
/s/ Manuel Marrero
Manuel Marrero
|
|
Director
|
|
September 22, 2008 |
|
|
|
|
|
|
|
Director
|
|
September 22, 2008 |
James B. Roszak |
|
|
|
|
49
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
General Finance Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheets of General Finance Corporation and
Subsidiaries (the Successor) as of June 30, 2008 and 2007, and the related consolidated
statements of operations for the year ended June 30, 2008, the consolidated statement of
stockholders equity and comprehensive income for the period from inception (October 14, 2005) to
June 30, 2007 and for the year ended June 30, 2008, and the consolidated statement of cash flows
for the year ended June 30, 2008. We have also audited the accompanying consolidated balance sheet
of RWA Holding Pty Limited and Subsidiaries (the Predecessor, and together with the Successor,
the Companies) as of June 30, 2007 and the related consolidated statements of operations and cash
flows for the period from July 1, 2007 to September 13, 2007 and for the years ended June 30, 2007
and 2006. These financial statements are the responsibility of the Companies management. Our
responsibility is to express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with the standards established by the Public Company
Accounting Oversight Board (United States). Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the consolidated financial statements are free
of material misstatement. The Companies were not required to have, nor were we engaged to perform,
audits of their internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing opinions on the
effectiveness of the Companies internal control over financial reporting. Accordingly, we express
no such opinions. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinions.
In our opinion, the consolidated financial statements of the Successor referred to above present
fairly, in all material respects, the consolidated financial position of General Finance
Corporation and Subsidiaries as of June 30, 2008, and the consolidated results of their operations
and cash flows for the year then ended and the changes in stockholders equity and comprehensive
income for the period from inception (October 14, 2005) to June 30, 2007 and for the year ended
June 30, 2008, in conformity with accounting principles generally accepted in the United States.
Also in our opinion, the consolidated financial statements of the Predecessor referred to above
present fairly, in all material respects, the consolidated financial position of RWA Holding Pty
Limited and Subsidiaries as of June 30, 2007 and the consolidated results of their operations and
cash flows for the period from July 1, 2007 to September 13, 2007 and for the years ended June 30,
2007 and 2006, in conformity with accounting principles generally accepted in the Unites States.
/s/ Grobstein, Horwath & Company LLP
Sherman Oaks, California
September 13, 2008
F-1
GENERAL
FINANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
Successor (Note 1) |
|
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
|
2007 |
|
|
2007 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, including $68,218 held in
trust account at June 30, 2007 (successor) |
|
$ |
886 |
|
|
$ |
68,277 |
|
|
$ |
2,772 |
|
Trade and other receivables, net of allowance for
doubtful accounts of $237 and $485 at June 30, 2007
and 2008, respectively |
|
|
13,322 |
|
|
|
|
|
|
|
20,332 |
|
Inventories |
|
|
5,472 |
|
|
|
|
|
|
|
21,084 |
|
Prepaid expenses |
|
|
|
|
|
|
111 |
|
|
|
89 |
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
19,680 |
|
|
|
68,388 |
|
|
|
44,277 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease receivables |
|
|
1,364 |
|
|
|
|
|
|
|
1,589 |
|
Property, plant and equipment, net |
|
|
2,737 |
|
|
|
2 |
|
|
|
7,503 |
|
Container for lease fleet, net |
|
|
40,928 |
|
|
|
|
|
|
|
87,748 |
|
Intangible assets, net |
|
|
4,079 |
|
|
|
|
|
|
|
66,419 |
|
Deferred tax assets |
|
|
|
|
|
|
132 |
|
|
|
|
|
Other assets (including $1,548 and $313 of deferred
acquisition costs at June 30, 2007 and 2008,
respectively ) |
|
|
|
|
|
|
2,556 |
|
|
|
325 |
|
|
|
|
|
|
|
|
|
|
|
Total non-current assets |
|
|
49,108 |
|
|
|
2,690 |
|
|
|
163,584 |
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
68,788 |
|
|
$ |
71,078 |
|
|
$ |
207,861 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Trade payables and accrued liabilities |
|
$ |
10,255 |
|
|
$ |
905 |
|
|
$ |
21,434 |
|
Current portion of long-term debt and obligations,
including borrowings from related party of $2,350 at
June 30, 2007 (successor) |
|
|
10,359 |
|
|
|
2,350 |
|
|
|
3,223 |
|
Income taxes payable |
|
|
245 |
|
|
|
177 |
|
|
|
705 |
|
Deferred underwriting fees |
|
|
|
|
|
|
1,380 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
20,859 |
|
|
|
4,812 |
|
|
|
25,362 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt and obligations, net of current portion |
|
|
33,811 |
|
|
|
|
|
|
|
78,029 |
|
Deferred tax liabilities |
|
|
881 |
|
|
|
|
|
|
|
1,462 |
|
Employee benefits and other non-current liabilities |
|
|
197 |
|
|
|
|
|
|
|
227 |
|
Common stock, subject to possible conversion |
|
|
|
|
|
|
13,339 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current liabilities |
|
|
34,889 |
|
|
|
13,339 |
|
|
|
79,718 |
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 10) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interest |
|
|
|
|
|
|
|
|
|
|
9,050 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, $.0001 par value: 1,000,000 shares
authorized; no shares outstanding (successor) |
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $.0001 par value: 100,000,000 shares
authorized; 10,500,000 shares and 13,826,052 shares
outstanding at June 30, 2007 and 2008, respectively
(successor) |
|
|
|
|
|
|
1 |
|
|
|
1 |
|
Class D and common stock (predecessor) |
|
|
12,187 |
|
|
|
|
|
|
|
|
|
Additional paid-in capital |
|
|
|
|
|
|
51,777 |
|
|
|
81,688 |
|
Accumulated other comprehensive income |
|
|
862 |
|
|
|
|
|
|
|
6,787 |
|
Retained earnings (accumulated deficit) |
|
|
(9 |
) |
|
|
1,149 |
|
|
|
5,255 |
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
13,040 |
|
|
|
52,927 |
|
|
|
93,731 |
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
68,788 |
|
|
$ |
71,078 |
|
|
$ |
207,861 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-2
GENERAL
FINANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
Successor |
|
|
|
|
|
|
|
|
|
|
|
Period from |
|
|
|
|
|
|
Year Ended |
|
|
July 1 to |
|
|
Year Ended |
|
|
|
June 30, |
|
|
September 13, |
|
|
June 30, |
|
|
|
2006 |
|
|
2007 |
|
|
2007 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of containers |
|
$ |
34,473 |
|
|
$ |
52,929 |
|
|
$ |
10,944 |
|
|
$ |
68,029 |
|
Leasing of containers |
|
|
15,921 |
|
|
|
21,483 |
|
|
|
4,915 |
|
|
|
27,547 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,394 |
|
|
|
74,412 |
|
|
|
15,859 |
|
|
|
95,576 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
32,661 |
|
|
|
46,402 |
|
|
|
9,466 |
|
|
|
57,675 |
|
Leasing, selling and general expenses |
|
|
12,653 |
|
|
|
20,761 |
|
|
|
4,210 |
|
|
|
22,161 |
|
Depreciation and amortization |
|
|
2,668 |
|
|
|
2,577 |
|
|
|
653 |
|
|
|
7,367 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
2,412 |
|
|
|
4,672 |
|
|
|
1,530 |
|
|
|
8,373 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
375 |
|
|
|
413 |
|
|
|
14 |
|
|
|
1,289 |
|
Interest expense |
|
|
(3,017 |
) |
|
|
(4,378 |
) |
|
|
(947 |
) |
|
|
(6,888 |
) |
Foreign currency exchange gain
(loss) and other |
|
|
16 |
|
|
|
95 |
|
|
|
(129 |
) |
|
|
3,814 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,626 |
) |
|
|
(3,870 |
) |
|
|
(1,062 |
) |
|
|
(1,785 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for
income taxes and minority interest |
|
|
(214 |
) |
|
|
802 |
|
|
|
468 |
|
|
|
6,588 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
|
214 |
|
|
|
490 |
|
|
|
180 |
|
|
|
2,034 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
448 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(428 |
) |
|
$ |
312 |
|
|
$ |
288 |
|
|
$ |
4,106 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.40 |
|
Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,160,955 |
|
Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,485,397 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-3
GENERAL
FINANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME
(In thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
Other |
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
Paid-In |
|
|
Comprehensive |
|
|
Retained |
|
|
Total
Stockholders |
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Income |
|
|
Earnings |
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at October 14, 2005
(inception) |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Sale of common stock to initial
stockholder on October 14, 2005 |
|
|
1,875,000 |
|
|
|
|
|
|
|
250 |
|
|
|
|
|
|
|
|
|
|
|
250 |
|
Sale of warrants on April 10, 2006 |
|
|
|
|
|
|
|
|
|
|
700 |
|
|
|
|
|
|
|
|
|
|
|
700 |
|
Sale of 7,500 units and underwriters
purchase option, net of underwriters
discount and offering expenses on
April 10, 2006 |
|
|
7,500,000 |
|
|
|
1 |
|
|
|
55,255 |
|
|
|
|
|
|
|
|
|
|
|
55,256 |
|
Sale of 1,125 units for
over-allotment on April 13, 2006 |
|
|
1,125,000 |
|
|
|
|
|
|
|
8,320 |
|
|
|
|
|
|
|
|
|
|
|
8,320 |
|
Common stock subject to possible
conversion |
|
|
|
|
|
|
|
|
|
|
(12,858 |
) |
|
|
|
|
|
|
|
|
|
|
(12,858 |
) |
Share-based compensation during the
development stage |
|
|
|
|
|
|
|
|
|
|
110 |
|
|
|
|
|
|
|
|
|
|
|
110 |
|
Net income during the development
stage |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,149 |
|
|
|
1,149 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2007 |
|
|
10,500,000 |
|
|
|
1 |
|
|
|
51,777 |
|
|
|
|
|
|
|
1,149 |
|
|
|
52,927 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reversal of common stock subject to
possible conversion |
|
|
|
|
|
|
|
|
|
|
12,858 |
|
|
|
|
|
|
|
|
|
|
|
12,858 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of common stock into cash |
|
|
(809,901 |
) |
|
|
|
|
|
|
(6,042 |
) |
|
|
|
|
|
|
|
|
|
|
(6,042 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of warrant to secured
subordinated promissory note holder |
|
|
|
|
|
|
|
|
|
|
1,309 |
|
|
|
|
|
|
|
|
|
|
|
1,309 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of warrants |
|
|
4,135,953 |
|
|
|
|
|
|
|
21,044 |
|
|
|
|
|
|
|
|
|
|
|
21,044 |
|
Share-based compensation |
|
|
|
|
|
|
|
|
|
|
509 |
|
|
|
|
|
|
|
|
|
|
|
509 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributed services |
|
|
|
|
|
|
|
|
|
|
233 |
|
|
|
|
|
|
|
|
|
|
|
233 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,106 |
|
|
|
4,106 |
|
Cumulative translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,787 |
|
|
|
|
|
|
|
6,787 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,893 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2008 |
|
|
13,826,052 |
|
|
$ |
1 |
|
|
$ |
81,688 |
|
|
$ |
6,787 |
|
|
$ |
5,255 |
|
|
$ |
93,731 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-4
GENERAL
FINANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
Successor |
|
|
|
|
|
|
|
|
|
|
|
Period from |
|
|
|
|
|
|
Year Ended |
|
|
July 1 to |
|
|
Year Ended |
|
|
|
June 30, |
|
|
September 13, |
|
|
June 30, |
|
|
|
2006 |
|
|
2007 |
|
|
2007 |
|
|
2008 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(428 |
) |
|
$ |
312 |
|
|
$ |
288 |
|
|
$ |
4,106 |
|
Adjustments to reconcile net income (loss)
to cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss (gain) on sales and disposals of
property, plant and equipment |
|
|
(21 |
) |
|
|
(23 |
) |
|
|
11 |
|
|
|
71 |
|
Unrealized foreign exchange loss (gain) |
|
|
(38 |
) |
|
|
(134 |
) |
|
|
58 |
|
|
|
(4,246 |
) |
Unrealized loss on forward exchange
contracts |
|
|
22 |
|
|
|
40 |
|
|
|
72 |
|
|
|
34 |
|
Unrealized loss (gain) on interest rate
swaps and options |
|
|
(219 |
) |
|
|
(174 |
) |
|
|
90 |
|
|
|
(377 |
) |
Depreciation and amortization |
|
|
2,668 |
|
|
|
2,577 |
|
|
|
653 |
|
|
|
7,367 |
|
Amortization of deferred financing costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
216 |
|
Accretion of interest |
|
|
743 |
|
|
|
340 |
|
|
|
32 |
|
|
|
189 |
|
Share-based compensation expense |
|
|
222 |
|
|
|
336 |
|
|
|
|
|
|
|
509 |
|
Contributed services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
233 |
|
Interest deferred for common stock
subject to possible conversion, net of
income tax effect |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(226 |
) |
Deferred income taxes |
|
|
214 |
|
|
|
489 |
|
|
|
180 |
|
|
|
1,492 |
|
Minority interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
448 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and other receivables, net |
|
|
(1,778 |
) |
|
|
(5,017 |
) |
|
|
1,090 |
|
|
|
(1,321 |
) |
Inventories |
|
|
4,959 |
|
|
|
12,017 |
|
|
|
(3,822 |
) |
|
|
(7,162 |
) |
Prepaid expenses and other |
|
|
411 |
|
|
|
12 |
|
|
|
|
|
|
|
1,776 |
|
Trade payables and accrued liabilities |
|
|
3,299 |
|
|
|
(1,869 |
) |
|
|
5,642 |
|
|
|
5,244 |
|
Income taxes payable |
|
|
|
|
|
|
50 |
|
|
|
|
|
|
|
(337 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating
activities |
|
|
10,054 |
|
|
|
8,956 |
|
|
|
4,294 |
|
|
|
8,016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sales of property, plant and
equipment |
|
|
52 |
|
|
|
101 |
|
|
|
28 |
|
|
|
16 |
|
Acquisitions (including deferred financing
costs), net of cash acquired |
|
|
(4,855 |
) |
|
|
(303 |
) |
|
|
|
|
|
|
(110,872 |
) |
Purchases of property, plant and equipment |
|
|
(837 |
) |
|
|
(845 |
) |
|
|
|
|
|
|
(678 |
) |
Purchases of container lease fleet |
|
|
(13,178 |
) |
|
|
(20,350 |
) |
|
|
(3,106 |
) |
|
|
(8,560 |
) |
Purchases of intangible assets |
|
|
(144 |
) |
|
|
(66 |
) |
|
|
|
|
|
|
(390 |
) |
Payment of deferred purchase consideration |
|
|
|
|
|
|
(451 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by investing
activities |
|
|
(18,962 |
) |
|
|
(21,914 |
) |
|
|
(3,078 |
) |
|
|
(120,484 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments on capital lease obligations |
|
|
(565 |
) |
|
|
(718 |
) |
|
|
(7,921 |
) |
|
|
(641 |
) |
Proceeds from long-term borrowings |
|
|
9,531 |
|
|
|
5,361 |
|
|
|
1,124 |
|
|
|
25,447 |
|
Proceeds from issuances of capital |
|
|
|
|
|
|
8,746 |
|
|
|
4,990 |
|
|
|
21,044 |
|
Payments to converting stockholders, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,426 |
) |
Minority interest capital contributions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,278 |
|
Repayment of borrowings from related party |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,350 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by
financing activities |
|
|
8,966 |
|
|
|
13,389 |
|
|
|
(1,807 |
) |
|
|
45,352 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash |
|
|
58 |
|
|
|
431 |
|
|
|
(591 |
) |
|
|
(67,116 |
) |
Cash at beginning of period |
|
|
530 |
|
|
|
567 |
|
|
|
886 |
|
|
|
68,277 |
|
Translation adjustment |
|
|
(21 |
) |
|
|
(112 |
) |
|
|
(5 |
) |
|
|
1,611 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at end of period |
|
$ |
567 |
|
|
$ |
886 |
|
|
$ |
290 |
|
|
$ |
2,772 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of
cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
$ |
2,274 |
|
|
$ |
1,497 |
|
|
$ |
494 |
|
|
$ |
2,444 |
|
Income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
218 |
|
The accompanying notes are an integral part of these consolidated financial statements.
F-5
GENERAL
FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Organization and Business Operations
Organization
General Finance Corporation (GFN) was incorporated in Delaware in 2005 to effect a business
combination with one or more operating businesses. From inception through September 13, 2007, GFN
had no business or operations. References to the Company in these Notes are to GFN and its
consolidated subsidiaries. These subsidiaries include GFN U.S. Australasia Holdings, Inc., a
Delaware corporation (GFN U.S.); GFN Australasia Holdings Pty Ltd., an Australian corporation
(GFN Holdings); GFN Australasia Finance Pty Ltd, an Australian corporation (GFN Finance); and,
as of September 13, 2007, RWA Holdings Pty Limited (RWA), an Australian corporation, and its
subsidiaries (collectively, Royal Wolf). In September 2007, the Company changed its fiscal year
to June 30 from December 31.
Acquisition of Royal Wolf
On September 13, 2007 (September 14 in Australia), the Company completed the acquisition of
Royal Wolf through the acquisition of all of the outstanding shares of RWA. Based upon the actual
exchange rate of one Australian dollar to $0.8407 U.S. dollar realized in connection with payments
made upon completion of the acquisition, the purchase price paid to the sellers for the RWA shares
was $64.3 million, including deposits of $1,005,000 previously paid by us in connection with the
acquisition. The Company paid the purchase price, less the deposits, by a combination of cash in
the amount of $44.7 million plus the issuance to Bison Capital Australia, L.P., (Bison Capital),
one of the sellers, of shares of common stock of GFN U.S., constituting 13.8% of the outstanding
capital stock of GFN U.S. following the issuance; and the issuance of a note to Bison Capital. As a
result of this structure, the Company owns 86.2% of the outstanding capital stock of GFN U.S. and
Bison Capital owns 13.8% of the outstanding capital stock on GFN U.S. GFN U.S. through its indirect
subsidiary GFN Finance owns all of the outstanding capital stock of Royal Wolf.
The Company leases and sells portable storage containers, portable container buildings and
freight containers in Australia and New Zealand; which is considered geographically by the Company
as the Asia-Pacific area. All references to events or activities (other than equity-related) which
occurred prior to the completion of the acquisition on September 13, 2007 (September 14 in
Australia) relate to Royal Wolf, as the predecessor company (the Predecessor). All references to
events or activities (other than equity-related) which occurred after the completion of the
acquisition on September 13, 2007 (September 14 in Australia) relate to the Company, as the
successor company (the Successor).
The total purchase consideration, including the Companys transaction costs of approximately
$1.7 million, deferred financing costs of $1.2 million and net long-term debt refinancing of $4.9
million, has been allocated to tangible and intangible assets acquired and liabilities assumed
based on their estimated fair market values as of September 13, 2007, as follows (in thousands):
|
|
|
|
|
|
|
September 13, 2007 |
|
Fair value of the net tangible assets acquired and liabilities assumed: |
|
|
|
|
Cash and cash equivalents |
|
$ |
290 |
|
Trade and other receivables |
|
|
11,212 |
|
Inventories (primarily containers) |
|
|
9,224 |
|
Lease receivables |
|
|
2,008 |
|
Property, plant and equipment |
|
|
4,346 |
|
Container for lease fleet |
|
|
51,362 |
|
Trade and other payables |
|
|
(18,705 |
) |
Long-term debt and obligations |
|
|
(37,028 |
) |
|
|
|
|
Total net tangible assets acquired and liabilities assumed |
|
|
22,709 |
|
|
|
|
|
|
Fair value of intangible assets acquired: |
|
|
|
|
Customer lists |
|
|
21,722 |
|
Non-compete agreement |
|
|
3,139 |
|
Software and other (including deferred financing costs of $1,187) |
|
|
1,521 |
|
Goodwill |
|
|
23,057 |
|
|
|
|
|
Total intangible assets acquired |
|
|
49,439 |
|
|
|
|
|
Total purchase consideration |
|
$ |
72,148 |
|
|
|
|
|
F-6
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated statements of operations of Successor only reflect the
operating results of the Company following the date of acquisition of Royal Wolf and do not reflect
the operating results of Royal Wolf prior to the acquisition. The following pro forma unaudited
information for the years ended June 30, 2007 and 2008 assumes the acquisition of Royal Wolf
occurred on July 1, 2006 and 2007, respectively (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30, |
|
|
|
2007 |
|
|
2008 |
|
|
|
(Unaudited) |
|
Revenues |
|
$ |
74,412 |
|
|
$ |
111,435 |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(4,011 |
) |
|
$ |
3,453 |
|
|
|
|
|
|
|
|
Pro forma net income (loss) per share |
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.41 |
) |
|
$ |
0.35 |
|
Diluted |
|
|
(0.41 |
) |
|
|
0.33 |
|
|
|
|
|
|
|
|
The pro forma results are not necessarily indicative of the results that may have actually
occurred had the acquisition taken place on the dates noted, or the future financial position or
operating results of the Company or Royal Wolf. The pro forma adjustments are based upon available
information and assumptions that the Company believes are reasonable. The pro forma adjustments
include adjustments for reduced interest income and increased interest expense, as well as
increased depreciation and amortization expense as a result of the application of the purchase
method of accounting based on the fair values set forth above.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements have been prepared on the accrual basis of accounting in
accordance with accounting principles generally accepted in the United States. References to
2006, 2007, 2008 and Predecessor Period 2008 are to the years ended June 30, 2006, 2007,
2008 and for the period from July 1 to September 13, 2007, respectively.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned
and majority-owned subsidiaries. All significant intercompany accounts and transactions have been
eliminated.
Foreign Currency Translation
The Companys functional currency for its operations in Australia is the Australian (AUS)
dollar. All adjustments resulting from the translation of the accompanying consolidated financial
statements from the functional currency into the United States (U.S.) dollar reporting currency
are recorded as a component of stockholders equity in accordance with Statement of Financial
Accounting Standards (SFAS) No. 52, Foreign Currency Translation. All assets and liabilities are
translated at the rates in effect at the balance sheet dates; and revenues, expenses, gains and
losses are translated using the average exchange rates during the periods. Transactions in foreign
currencies are translated at the foreign exchange rate prevailing at the
date of the transaction. Monetary assets and liabilities denominated in foreign currencies at
the balance sheet date are translated to the functional currency at the foreign exchange rate
prevailing at that date. Foreign exchange differences arising on translation are recognized in the
statement of operations. Non-monetary assets and liabilities that are measured in terms of
historical cost in a foreign currency are translated using the exchange rate at the date of the
transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated
at fair value are translated to the functional currency at foreign exchange rates prevailing at the
dates the fair value was determined.
Segment Information
SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, establishes
standards for the way companies report information about operating segments in annual financial
statements. It also establishes standards for related disclosures about products and services,
geographic areas and major customers. Based on the provisions of SFAS No. 131 and the manner in
which the chief operating decision maker analyzes the business, the Company has determined it does
not have separately reportable operating segments.
F-7
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements, and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ from those
estimates.
Cash Equivalents
The Company considers highly liquid investments with maturities of three months or less, when
purchased, to be cash equivalents. The Company maintains its cash in
bank deposit accounts that, at times, may exceed federally insured
limits. The Company has not experienced any losses in such accounts.
The Company believes it is not exposed to any significant credit risk
on its cash balances.
Inventories
Inventories are stated at the lower of cost or market (net realizable value). Net realizable
value is the estimated selling price in the ordinary course of business. Expenses of marketing,
selling and distribution to customers, as well as costs of completion are estimated and are
deducted from the estimated selling price to establish net realizable value. Costs are assigned to
individual items of stock on the basis of specific identification and include expenditures incurred
in acquiring the inventories and bringing them to their existing condition and location.
Inventories consist primarily of containers held for sale or lease and are comprised of the
following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
Successor |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2007 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
Finished goods |
|
$ |
4,113 |
|
|
$ |
18,795 |
|
Work in progress |
|
|
1,359 |
|
|
|
2,289 |
|
|
|
|
|
|
|
|
|
|
$ |
5,472 |
|
|
$ |
21,084 |
|
|
|
|
|
|
|
|
Derivative Financial Instruments
Derivative financial instruments include warrants issued as part of the Initial Public
Offering (IPO), a purchase option that was sold to the representative of the underwriters (Note
3) and warrants issued in connection with a senior subordinated promissory note with Bison Capital
(Note 5). Based on Emerging Issues Task Force Issue No. 00-19, Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Companys Own Stock, the issuance of the
warrants and the sale of the purchase option were reported in stockholders equity and,
accordingly, there is no impact on the Companys financial position or results of operations;
except for the $100 in proceeds from the sale of the purchase option and the discounting of the
senior subordinated promissory note for the fair market value of the warrants issued to Bison
Capital. Subsequent changes in the fair value will not be recognized as long as the warrants and
purchase option continue to be classified as equity instruments. At the date of issuance, the
Company determined the purchase option and the warrants issued to Bison Capital had a fair market
value of approximately $641,000 and $1,309,000, respectively, using the Black-Scholes pricing
model.
The Company may use derivative financial instruments to hedge its exposure to foreign currency
and interest rate risks arising from operating, financing and investing activities (see Note 6).
The Company does not hold or issue derivative financial instruments for trading purposes. However,
derivatives that do not qualify for hedge accounting are accounted for as trading instruments.
Derivative financial instruments are recognized initially at fair value. Subsequent to initial
recognition, derivative financial instruments are stated at fair value. The gain or loss on
remeasurement to fair value is recognized immediately in the statement of operations.
Accounting for Stock Options
For the issuances of stock options, the Company follows the fair value provisions of SFAS No.
123R, Share-Based Payment (No. 123R). SFAS No. 123R requires recognition of employee share-based
compensation expense in the statements of income over the vesting period based on the fair value of
the stock option at the grant date.
F-8
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Property, Plant and Equipment
Owned assets
Property, plant and equipment are stated at cost, less accumulated depreciation and impairment
losses. The cost of self-constructed assets includes the cost of materials, direct labor, the
initial estimate (where relevant) of the costs of dismantling and removing the items and restoring
the site on which they are located; and an appropriate allocation of production overhead, where
applicable. Depreciation for property, plant and equipment is recorded on a straight-line basis
over the estimated useful lives of the related asset. The residual value, the useful life and the
depreciation method applied to an asset are reassessed at least annually.
Property, plant and equipment consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
Successor |
|
|
|
Estimated |
|
|
June 30, |
|
|
|
Useful Life |
|
|
2007 |
|
|
2008 |
|
Land |
|
|
|
|
|
$ |
|
|
|
$ |
1,749 |
|
Building |
|
40 years |
| |
|
|
|
|
|
271 |
|
Transportation and plant equipment
(including capital lease assets) |
|
3 10 years |
|
|
|
4,541 |
|
|
|
5,489 |
|
Furniture, fixtures and office equipment |
|
3 10 years |
|
|
|
829 |
|
|
|
893 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,370 |
|
|
|
8,402 |
|
Less accumulated depreciation and
amortization |
|
|
|
|
|
|
(2,633 |
) |
|
|
(899 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,737 |
|
|
$ |
7,503 |
|
|
|
|
|
|
|
|
|
|
|
|
Capital leases
Leases under which substantially all the risks and benefits incidental to ownership of the
leased assets are assumed by the Company are classified as capital leases. Other leases are
classified as operating leases. A lease asset and a lease liability equal to the present value of
the minimum lease payments, or the fair value of the leased item, whichever is the lower, are
capitalized and recorded at the inception of the lease. Lease payments are apportioned between the
finance charges and reduction of the lease liability so as to achieve a constant rate of interest
on the remaining balance of the liability. Finance charges are charged directly to the statement of
operations. Capitalized leased assets are depreciated over the shorter of the estimated useful life
of the asset or the lease term.
Operating leases
Payments made under operating leases are expensed on a straight-line basis over the term of
the lease, except where an alternative basis is more representative of the pattern of benefits to
be derived from the leased property. Where leases have fixed rate increases, these increases are
accrued and amortized over the entire lease period, yielding a constant periodic expense over the
term of the lease.
Container for Lease Fleet
The Company has a fleet of storage containers that it leases to customers under operating
lease agreements with varying terms. The container for lease (or lease equipment) is recorded at
cost and depreciated on the straight-line basis over the estimated useful life (10 20 years),
after the date the units are put in service, and are depreciated down to their estimated residual
values (20% 70%). In the opinion of management, estimated residual values do not cause carrying
values to exceed net realizable value. The Company continues to evaluate these depreciation
policies as more information becomes available from other comparable sources and its own historical
experience.
Costs incurred on lease fleet containers subsequent to initial acquisition are capitalized
when it is probable that future economic benefits in excess of the originally assessed performance
will result; otherwise, they are expensed as incurred.
Containers in the lease fleet are available for sale, and are transferred to inventory prior
to sale. Cost of sales of a container in the lease fleet is recognized at the carrying amount at
the date of disposal.
F-9
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In the fourth quarter of 2007, Royal Wolf revised the estimated useful life and residual value
of its container for lease fleet. The financial impact of the revision resulted in depreciation
expense for 2007 being $969,000 less than what it would have been if the previous useful life
estimate had been applied.
Intangible Assets
Goodwill
Goodwill represents the excess of the purchase price over the fair value of the net assets
acquired in connection with business acquisitions. The Company accounts for goodwill in accordance
with SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 142 prohibits the amortization
of goodwill and intangible assets with indefinite useful lives and requires these assets be
reviewed for impairment at least annually. The Company tests goodwill for impairment using the
two-step process prescribed in SFAS No. 142. The first step is a screen for potential impairment,
while the second step measures the amount of the impairment, if any. Goodwill and other intangible
assets with indefinite useful lives totaled $3,962,000 (net of $1,342,000 impairment provision) and
$32,461,000 at June 30, 2007 and 2008, respectively. The Company has determined that no impairment
related to goodwill and indefinite-lived intangible assets exist as of June 30, 2008.
Other intangible assets
Other intangible assets with finite useful lives consist primarily of customer lists and
non-compete agreements. Customer lists and non-compete agreements are amortized on a straight-line
basis over the expected period of benefit which range from one to ten years. Costs to obtaining
long-term financing, including the ANZ senior credit facility (see Note 5), are deferred and
amortized over the term of the related debt using the straight-line method. Amortizing the deferred
financing costs using the straight-line method does not produce significantly different results
than that of the effective interest method. Intangible assets with finite useful lives consist of
the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
Successor |
|
|
|
June 30, |
|
|
|
2007 |
|
|
2008 |
|
Customer lists |
|
$ |
|
|
|
$ |
29,364 |
|
Non-compete agreements |
|
|
|
|
|
|
6,218 |
|
Deferred financing costs |
|
|
|
|
|
|
1,947 |
|
Other (software and organization costs) |
|
|
1,116 |
|
|
|
733 |
|
|
|
|
|
|
|
|
|
|
|
1,116 |
|
|
|
38,262 |
|
Less accumulated amortization |
|
|
(999 |
) |
|
|
(4,304 |
) |
|
|
|
|
|
|
|
|
|
$ |
117 |
|
|
$ |
33,958 |
|
|
|
|
|
|
|
|
The estimated future amortization of intangible assets with finite useful lives as of June 30,
2008 is as follows (in thousands):
|
|
|
|
|
2009 |
|
$ |
5,907 |
|
2010 |
|
|
4,961 |
|
2011 |
|
|
3,577 |
|
2012 |
|
|
3,018 |
|
2013 |
|
|
3,005 |
|
Thereafter |
|
|
13,490 |
|
|
|
|
|
|
|
$ |
33,958 |
|
|
|
|
|
Subsequent expenditures
Subsequent expenditures on capitalized intangible assets are capitalized only when it
increases the future economic benefits of the specific asset to which it relates. All other
expenditures are expensed as incurred.
Impairment of Long-Lived Assets
The Company periodically reviews for the impairment of long-lived assets and certain
identifiable intangibles and assesses when an event or change in circumstances indicates the
carrying value of an asset may not be recoverable. An impairment loss would be recognized when
estimated future cash flows expected to result from the use of the asset and the eventual
disposition is less than its carrying amount.
F-10
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Defined Contribution Benefit Plan
Obligations for contributions to a defined contribution benefit plan for Royal Wolf are
recognized as an expense in the statement of operations as incurred. Contributions to the defined
contribution benefit plan in 2006, 2007, Predecessor Period 2008 and 2008 were $590,000, $729,000,
$180,000 and $819,000, respectively.
Revenue Recognition
The Company leases and sells portable storage containers to its customers. Leases to customers
are generally on a short-term basis qualifying as operating leases. The aggregate lease payments
are generally less than the purchase price of the equipment. Revenue is recognized as earned in
accordance with the lease terms established by the lease agreements and when collectability is
reasonably assured. Revenue from sales of equipment is recognized upon delivery and when
collectability is reasonably assured.
Unearned revenue arises when transport charges for the pick-up of a leased container or
containers is billed in advance, while the actual pick-up has not yet occurred as the container is
still leased.
Advertising
All non direct-response advertising costs are expensed as incurred. Direct-response
advertising costs, principally yellow page advertising, are monitored through call logs and
advertising source codes, are capitalized when paid and amortized over the period in which the
benefit is derived. However, the amortization period of the prepaid balance never exceeds 12
months. At June 30, 2007 and 2008, prepaid advertising costs were approximately $0.2 million.
Advertising costs expensed were approximately $0.8 million, $0.8 million, $0.2 million and $1.1
million for 2006, 2007, Predecessor Period 2008 and 2008, respectively.
Income Taxes
The Company accounts for income taxes under SFAS No. 109, Accounting for Income Taxes.
Accordingly, the Company uses the asset and liability method of accounting for income taxes. Under
this method, deferred tax assets and liabilities are recorded for temporary differences between the
financial reporting basis and income tax basis of assets and liabilities at the balance sheet date
multiplied by the applicable tax rates. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized. Income tax expense is recorded
for the amount of income tax payable or refundable for the period increased or decreased by the
change in deferred tax assets and liabilities during the period.
In June 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No.
(FIN) 48, Accounting for Uncertainty in Income Taxes, an interpretation of SFAS No. 109. FIN 48
clarifies the accounting for uncertainty in income taxes recognized in an enterprises financial
statements in accordance with SFAS No. 109 and prescribes a recognition threshold and measurement
attribute for the financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. The Company adopted the provisions of FIN 48 on January 1,
2007. FIN 48 contains a two-step approach to recognizing and measuring uncertain tax positions
accounted for in accordance with SFAS No. 109. 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.
The Company files U.S. Federal tax returns, California franchise tax returns and Australian
tax returns. The Company has identified its U.S. Federal tax return as its major tax
jurisdiction. For the U.S. Federal return, all periods are subject to tax examination by the U.S.
Internal Revenue Service (IRS). At June 30, 2008, the Company did not have any ongoing tax
examinations with the IRS. The Company believes that its income tax filing positions and deductions
will be sustained on audit and do not anticipate any adjustments that will result in a material
change to its financial position. Therefore, no reserves for uncertain income tax positions have
been recorded pursuant to FIN 48. In addition, the Company did not record a cumulative effect
adjustment related to the adoption of FIN 48 and does not anticipate that the total amount of
unrecognized tax benefit related to any particular tax position will change significantly within
the next 12 months.
The Companys policy for recording interest and penalties, if any, associated with audits will
be to record such items as a component of income taxes.
F-11
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Net Income per Common Share
Basic net income per share is computed by dividing net income by the weighted-average number
of shares of common stock outstanding during the periods. Diluted net income per share reflects the
potential dilution that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common stock that then
shared in the earnings of the Company. The potential dilutive securities the Company has
outstanding are warrants and stock options (see Notes 3 and 9). The following is a reconciliation
of weighted average shares outstanding used in calculating net income per share:
|
|
|
|
|
|
|
Year Ended |
|
|
|
June 30, 2008 |
|
Basic |
|
|
10,160,955 |
|
Assumed exercise of warrants |
|
|
324,442 |
|
Assumed exercise of stock options |
|
|
|
|
|
|
|
|
Diluted |
|
|
10,485,397 |
|
|
|
|
|
Interest
Interest expense consists of interest payable on borrowings (including capital lease
obligations), the amortization of deferred financing costs and gains and losses on hedging
instruments that are recognized in the statement of operations.
Interest income is recognized in the statement of operations as it accrues and dividend income
is recognized in the statement of operations on the date the Companys right to receive payments is
established.
Recently Issued Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, which defines fair
value, establishes a framework for measuring fair value in generally accepted accounting
principles, and expands disclosures about fair value measurements. SFAS No. 157 is effective in
fiscal years beginning after November 15, 2007. Management does not believe that the adoption of
SFAS No. 157 will have a material effect on the Companys consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities including an amendment of FASB Statement No. 115 , which permits entities
to choose to measure many financial instruments and certain other items at fair value. Most of the
provisions of this Statement apply only to entities that elect the fair value option. However, the
amendment to SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities,
applies to all entities with available-for-sale and trading securities. SFAS No. 159 is effective
in fiscal years beginning after November 15, 2007. Early adoption is permitted as of the beginning
of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to
apply the provisions of FASB Statement No. 157, Fair Value Measurements. Management does not
believe that the adoption of SFAS No. 159 will have a material effect on the Companys consolidated
financial statements.
In December 2007, the FASB issued SFAS No. 141(revised 2007), Business Combinations, and SFAS
No. 160, Noncontrolling Interests in Consolidated Financial Statements. SFAS No. 141R improves
reporting by creating greater consistency in the accounting and financial reporting of business
combinations, resulting in more complete, comparable, and relevant information for investors and
other users of financial statements. SFAS No. 141R requires the acquiring entity in a business
combination to recognize all (and only) the assets acquired and liabilities assumed in the
transaction; establishes the acquisition-date fair value as the measurement objective for all
assets acquired and liabilities assumed; and requires the acquirer to disclose to investors and
other users all of the information they need to evaluate and understand the nature and financial
effect of the business combination. SFAF No. 160 improves the relevance, comparability, and
transparency of financial information provided to investors by requiring all entities to report
noncontrolling (minority) interests in subsidiaries in the same wayas equity in the consolidated
financial statements. Moreover, SFAS No. 160 eliminates the
diversity that currently exists in accounting for transactions between an entity and
noncontrolling interests by requiring they be treated as equity transactions. The two statements
are effective for fiscal years beginning after December 15, 2008. Management is currently
evaluating the impact that the adoption of these statements may have on the Companys consolidated
financial statements.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activitiesan amendment of FASB Statement No. 133. SFAS No. 161 changes the disclosure
requirements for derivative instruments and hedging activities. Entities are required to provide
enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how
derivative instruments and related hedged items are accounted for under SFAS No. 133 and its
related interpretations, (c) how derivative instruments and related hedged items affect an entitys
financial position, financial performance, and cash flows and (d) encourages, but does not require,
comparative disclosures for earlier periods at initial adoption. SFAS No. 161 is effective for
financial statements issued for fiscal years and interim periods beginning after November 15, 2008,
with early application encouraged. Management is currently evaluating the impact that the adoption
of this statement may have on the Companys consolidated financial statements.
F-12
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In April 2008, the FASB issued FASB Staff Position FAS 142-3, Determining the Useful Life of
Intangible Assets (FSP 142-3). FSP 142-3 amends the factors to be considered in determining the
useful life of intangible assets accounted for pursuant to SFAS No. 142. Its intent is to improve
the consistency between the useful life of an intangible asset and the period of expected cash
flows used to measure its fair value. FSP 142-3 is effective for fiscal years beginning after
December 15, 2008. Management does not believe that the adoption of FSP 142-3 will have a material
effect on the Companys consolidated financial statements.
Note 3. Initial Public Offering (IPO) and Warrant Exercise Program
On April 10, 2006, the Company issued and sold 7,500,000 units (Units) in its IPO, and on
April 13, 2006, the Company issued and sold an additional 1,125,000 Units that were subject to the
underwriters over-allotment option. Each Unit consists of one share of common stock and one
warrant. Each warrant entitles the holder to purchase from the Company one share of common stock at
an exercise price of $6.00 commencing at the later of the completion of a business combination with
a target business or one year from the effective date of the IPO (April 5, 2007) and expiring April
5, 2010 (Warrants), assuming there is an effective registration statement. The Warrants will be
redeemable at a price of $.01 per Warrant upon 30 days notice after the Warrants become
exercisable, only in the event that the last sale price of the common stock is at least $11.50 per
share for any 20 trading days within a 30 trading day period ending on the third day prior to the
date on which notice of redemption is given.
The IPO price of each Unit was $8.00, and the gross proceeds of the IPO were $69,000,000
(including proceeds from the exercise of the over-allotment option). Of the gross proceeds: (i)
$65,000,000 was deposited into a trust account (the Trust Account), which amount included
$1,380,000 of deferred underwriting fees; (ii) the underwriters received $3,450,000 as underwriting
fees (excluding the deferred underwriting fees); and (iii) the Company retained $550,000 for
offering expenses. In addition, the Company deposited into the Trust Account the $700,000 that it
received from a private placement of 583,333 warrants to two executive officers (one of whom is
also a director) for $1.20 per warrant immediately prior to the closing of the IPO. These warrants
are identical to the Warrants issued in the IPO.
The funds in the Trust Account were distributed at the closing of the acquisition of Royal
Wolf. The Company received approximately $60.8 million, of which it used $44.7 million to pay the
purchase price for the RWA shares. Approximately $6.4 million ($7.93482 per share) of the funds in
the Trust Account was paid to Public Stockholders holding 809,901 shares that voted against the
acquisition and, in accordance with the Companys certificate of incorporation, elected to receive
cash in exchange for their shares, which have been cancelled. The remaining $1.3 million was paid
to our IPO underwriters as deferred underwriting fees.
In connection with the IPO, the Company sold to the representative of the underwriters for
$100 an option to purchase 750,000 units for $10.00 per Unit. These units are identical to the
Units issued in the IPO except that the warrants included in the units have an exercise price of
$7.20. This option may be exercised on a cashless basis. This option expires April 5, 2011.
On May 2, 2008, the Company offered the holders of its 8,625,000 outstanding, publicly-traded
Warrants and the 583,333 warrants issued to two executive officers (one of whom is also a director)
the opportunity to exercise those warrants for a limited time at a reduced exercise price of $5.10
per warrant. The offer commenced on May 2, 2008 and continued through May 30, 2008. Under the
warrant exercise program, a total of 4,125,953 warrants were exercised and all outstanding warrants
that were not exercised retain their original terms, including the $6.00 exercise price, which
existed prior to the warrant exercise program. In June 2008, an additional 10,000 Warrants were
exercised at $6.00 per warrant.
Note 4. Acquisitions
On May 31, 2007, Royal Wolf acquired the business and assets of Professional Sales & Hire
(Terrigal Motors Ltd) for $303,000 in cash. Professional Sales & Hire sells and leases shipping
containers. The purchase price was essentially allocated to the container for lease fleet acquired
based on its estimated fair market values as of May 31, 2007.
On November 14, 2007, the Company, through GFN Finance and Royal Wolf, entered into a Business
Sale Agreement dated November 14, 2007 (the Business Sale Agreement) with GE SeaCo Australia Pty
Ltd. and GE SeaCo SRL. GE SeaCo Australia Pty Ltd. is owned by GE SeaCo SRL, which is a joint
venture between Genstar Container Corporation (a subsidiary of General Electric) and Sea Containers
Ltd. Sea Containers Ltd. is in bankruptcy reorganization (collectively GE SeaCo). Pursuant to the
Business Sale Agreement, the Company purchased the assets of GE SeaCo used in its dry and
refrigerated container business in Australia and Papua New Guinea for $17,850,000, after
adjustments. The Business Sale Agreement contains a three-year non-competition agreement from GE
SeaCo and certain affiliates covering Australia and Papua New Guinea. The purchase price was paid
at the closing, less a holdback of approximately $900,000 deposited into an escrow account for one
year to provide for damages from breach of representations and warranties by GE SeaCo and any
post-closing purchase price adjustments. The total purchase price, including deferred financing
costs of $84,000, has been allocated to tangible and intangible assets acquired and liabilities
assumed based on their estimated fair market values as of November 14, 2007.
F-13
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On February 29, 2008, the Company, through Royal Wolf, entered into an asset purchase
agreement to acquire the dry and refrigerated container assets of Container Hire and Sales (CHS),
located south of Perth, Australia for $3,772,000. The total purchase price has been allocated to
tangible and intangible assets acquired based on their estimated fair market values as of February
29, 2008.
On April 30, 2008 (May 1, 2008 in New Zealand), the Company, through Royal Wolf, acquired RWNZ
Acquisition Co. Limited and its wholly owned subsidiary, Royalwolf Trading New Zealand
(collectively RWNZ) for $16,965,000. Among other things, the acquisition agreement contains a
three-year non-compete covenant under which the sellers agree not to sell or lease storage
containers to retail customers in an area that includes New Zealand. The total purchase price,
including deferred financing costs of $223,000, has been allocated to tangible and intangible
assets acquired and liabilities assumed based on their estimated fair market values as of April 30,
2008 (May 1, 2008 in New Zealand).
On June 16, 2008, the Company, through Royal Wolf, purchased the business of Container Hire
and Storage Pty Limited (d/b/a Tomago Discount Self Storage) for $427,000. The total purchase
price has been allocated to tangible and intangible assets acquired based on their estimated fair
market values as of June 16, 2008.
The allocation for the acquisitions in 2008 to tangible and intangible assets acquired and
liabilities assumed based on their estimated fair market values were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GE SeaCo |
|
|
RWNZ |
|
|
|
|
|
|
November 14, 2007 |
|
|
April 30, 2008 |
|
|
Other Acquisitions |
|
Fair value of the net tangible assets
acquired and liabilities assumed: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Trade and other receivables |
|
|
|
|
|
|
5,224 |
|
|
|
|
|
Inventories (primarily containers) |
|
|
1,746 |
|
|
|
1,705 |
|
|
|
|
|
Property, plant and equipment |
|
|
28 |
|
|
|
2,488 |
|
|
|
151 |
|
Container for lease fleet |
|
|
9,952 |
|
|
|
9,476 |
|
|
|
1,805 |
|
Trade and other payables |
|
|
(229 |
) |
|
|
(2,403 |
) |
|
|
|
|
Long-term debt and obligations |
|
|
|
|
|
|
(4,777 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net tangible assets
acquired and liabilities assumed |
|
|
11,497 |
|
|
|
11,713 |
|
|
|
1,956 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of intangible assets acquired: |
|
|
|
|
|
|
|
|
|
|
|
|
Non-compete agreement |
|
|
1,999 |
|
|
|
|
|
|
|
473 |
|
Customer lists |
|
|
|
|
|
|
4,289 |
|
|
|
|
|
Trademark |
|
|
|
|
|
|
740 |
|
|
|
|
|
Deferred financing costs |
|
|
84 |
|
|
|
223 |
|
|
|
|
|
Goodwill |
|
|
4,270 |
|
|
|
|
|
|
|
1,770 |
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets acquired |
|
|
6,353 |
|
|
|
5,252 |
|
|
|
2,243 |
|
|
|
|
|
|
|
|
|
|
|
Total purchase consideration |
|
$ |
17,850 |
|
|
$ |
16,965 |
|
|
$ |
4,199 |
|
|
|
|
|
|
|
|
|
|
|
F-14
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5. Long-term Debt and Obligations
ANZ Senior Credit Facility
The Company has a credit facility with Australia and New Zealand Banking Group Limited
(ANZ). The facility is subject to annual reviews by ANZ and is guaranteed and secured by the
Companys Australian subsidiaries. At the closing of the acquisition of the assets from CHS (see
Note 4), this facility was amended to increase the total facility limit to $96.0 million (AUS$99.8
million) at June 30, 2008.
The aggregate ANZ facility comprises ten different sub-facilities. The largest of these
sub-facilities include a receivables financing facility of up to $9.6 million (AUS$10.0 million);
four interchangeable loan facilities under which the Company may borrow up to the lesser of $58.9
million (AUS$61.3 million) or 85% of the orderly liquidation value, as defined, of its container
fleet; a special finance line for acquisitions of $20.2 million (AUS$21.0 million); and two multi
option facilities for primarily yard construction of $2.9 million (AUS$3.0 million). The
receivables financing facility bears interest at a variable rate equal to the bank bill swap
reference rate plus 1.65% per annum and may not be terminated except on default prior to ANZs next
review date of the facility. The secured loan facilities mature in five years following the initial
drawdown on the facility, or September 2012, but there is currently a $144,000 (AUS$150,000)
amortization per quarter under one of the interchangeable loan sub-facilities, which limit is
$4.8 million (AUS$5.0 million). These loans bear interest at ANZs prime rate plus between 1.40%
and 2.50% per annum, with interest payable quarterly. As of
June 30, 2008, the effective interest rate is 7.6%.
The ANZ senior credit facility is subject to certain covenants, including compliance with
specified consolidated interest cover and senior and total debt ratios, as defined, for each
financial quarter on a year-to-date or trailing twelve-month basis, and restrictions on the payment
of dividends, loans and payments to affiliates, granting of new security interests on the assets of
any of the secured entities. A change of control in any of GFN Holdings or its direct and indirect
subsidiaries without the prior written consent of ANZ constitutes an event of default under the
facility.
The scheduled maturity for the ANZ senior credit facility and other long-term debt, other than
the Bison Notes, at June 30, 2008 is as follows (in thousands):
|
|
|
|
|
2009 |
|
$ |
2,946 |
|
2010 |
|
|
4,511 |
|
2011 |
|
|
665 |
|
2012 |
|
|
665 |
|
2013 |
|
|
50,896 |
|
Thereafter |
|
|
|
|
|
|
|
|
|
|
$ |
59,683 |
|
|
|
|
|
Subsequent to June 30, 2008, the ANZ senior credit facility was amended (see Note 12).
Bison Notes
On September 13, 2007, in conjunction with the closing of the acquisition of Royal Wolf, the
Company entered into a securities purchase agreement with Bison Capital, pursuant to which the
Company issued and sold to Bison Capital, at par, a secured senior subordinated promissory note in
the principal amount of $16,816,000 (the Bison Note). Pursuant to the securities purchase
agreement, the Company paid Bison Capital a closing fee of $336,000 and issued to Bison Capital
warrants to purchase 500,000 shares of common stock of GFN.
The Bison Note bears interest at the annual rate of 13.5%, payable quarterly in arrears,
commencing October 1, 2007, and matures on March 13, 2013. The Company may extend the maturity date
by one year, provided that it is not then in default. The Company may not prepay the Bison Note
prior to September 13, 2008, but may thereafter prepay the Bison Note at a declining price of 103%
of par prior to September 13, 2009, 102% of par prior to September 13, 2010, 101% of par prior to
September 13, 2011 and 100% of par thereafter. The maturity of the Bison Note may be accelerated
upon an event of default or upon a change of control of GFN Finance or any of its subsidiaries.
Payment under the Bison Note is secured by a lien on all or substantially all of the assets of GFN
Finance and its subsidiaries, subordinated and subject to the inter-creditor agreement with ANZ.
If, during the 66-month period ending on the scheduled maturity date, GFNs common stock has not
traded above $10 per share for any 20 consecutive trading days on which the average daily trading
volume was at least 30,000 shares (ignoring any daily trading volume above 100,000 shares), upon
demand by Bison Capital, the Company will pay Bison Capital on the scheduled maturity date a
premium of $1.0 million in cash, less any gains realized by Bison Capital from any prior sale of
the warrants and warrant shares. This premium is also payable upon any acceleration of the Bison
Note due to an event of default or change of control of GFN Finance or any of its subsidiaries. As
a condition to receiving this premium, Bison Capital must surrender for cancellation any remaining
warrants and warrant shares.
The Bison Note requires the maintenance of certain financial ratios based on earnings before
income taxes, depreciation and amortization (EBITDA) and Royal Wolfs debt levels (leverage), as
well as restrictions on capital expenditures.
F-15
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
The warrants issued to Bison Capital represent the right to purchase 500,000 shares of GFNs
common stock at an initial exercise price of $8.00 per share, subject to adjustment for stock
splits and stock dividends. Unexercised warrants will expire September 13, 2014.
On May 1, 2008, the Company issued and sold to Bison Capital a second secured senior
subordinated promissory note in the principal amount of $5,500,000 on terms comparable to the
original Bison Note, except that the maturity of this second note is June 30, 2010. At June 30,
2008, the principal balance of the Bison Notes was $21,196,000.
The Company was in compliance with all financial covenants pertaining to the ANZ credit
facility and Bison Notes as of June 30, 2008.
UBOC Credit Facility
On March 28, 2008, the Company entered into credit agreement with Union Bank of California,
N.A. (UBOC) for a $1.0 million credit facility. Borrowings or advances under the facility will
bear interest at UBOCs Reference Rate (which approximates the prime rate) and are due and
payable within 60 days. The facility is guaranteed by GFN U.S., requires (among other quarterly and
yearend financial reporting covenants) that there is at least one dollar of combined net income for
GFN and GFN U.S. for the year ended June 30, 2008 and expires on March 31, 2009. There were no
outstanding borrowings under the UBOC credit facility at June 30, 2008.
Capital Leases
Capital lease liabilities of the Company are payable as follows as of June 30, 2008 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum |
|
|
|
|
|
|
|
|
|
lease payments |
|
|
Interest |
|
|
Principal |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
$ |
294 |
|
|
$ |
17 |
|
|
$ |
277 |
|
2010 - 2013 |
|
|
104 |
|
|
|
8 |
|
|
|
96 |
|
Thereafter |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
398 |
|
|
$ |
25 |
|
|
$ |
373 |
|
|
|
|
|
|
|
|
|
|
|
The Company has finance leases and lease purchase contracts for various motor vehicles, and
other assets. These leases have no terms of renewal or purchase options or escalation clauses.
Note 6. Financial Instruments
The carrying value of the Companys financial instruments, which include cash and cash
equivalents, receivables, trade and other payables, borrowings under the ANZ credit facility, the
Bison Notes, forward exchange contracts and commercial bills; approximate fair value due to current
market conditions, maturity dates and other factors.
Exposure to credit, interest rate and currency risks arises in the normal course of the
Companys business. The Company may use derivative financial instruments to hedge exposure to
fluctuations in foreign exchange rates and interest rates.
Credit Risk
Financial instruments potentially exposing the Company to concentrations of credit risk
consist primarily of receivables. Concentrations of credit risk with respect to receivables are
limited due to the large number of customers spread over a large geographic area in many industry
segments. The Companys receivables related to sales are generally secured by the equipment sold to
the customer. The Companys receivables related to its lease operations are primarily small
month-to-month amounts generated from both off-site and on-site customers. The Company has the
right to repossess lease equipment for nonpayment. It is the Companys policy that all customers
who wish to purchase or lease containers on credit terms are subject to credit verification
procedures and the Company will agree to terms with customers believed to be creditworthy. In
addition, receivable balances are monitored on an ongoing basis with the result that the Companys
exposure to bad debts is not significant.
F-16
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
Net allowance for doubtful accounts provided and uncollectible accounts written off were
$149,000, $230,000, $172,000 and $230,000; and $93,000, $162,000, $124,000 and $126,000 for 2006,
2007, Predecessor Period 2008 and 2008, respectively. The translation gain (loss) to the allowance
for doubtful accounts for 2007, Predecessor Period 2008 and 2008 was $40,000, $(3,000) and $20,000,
respectively; and with the RWNZ acquisition (Note 4), the Company recorded an allowance for
doubtful accounts of $79,000 in 2008.
With respect to credit risk arising from the other significant financial assets of the
Company, which comprise cash and cash equivalents, available-for-sale financial assets and certain
derivative instruments, the Companys exposure to credit risk arises from default of the counter
party, with a maximum exposure equal to the carrying amount of these instruments. As the counter
party for derivative instruments is nearly always a bank, the Company has assessed this as a low
risk.
Interest Rate Risk
The Companys exposure to market risk for changes in interest rates relates primarily to its
long-term debt obligations. The Companys policy is to manage its interest cost using a mix of
fixed and variable rate debt.
To
manage this mix in a cost-efficient manner, the Company enters into
interest rate swaps and interest rate options, in
which the Company agrees to exchange, at specified intervals, the difference between fixed and
variable interest amounts calculated by reference to an agreed-upon notional principal amount.
These swaps and options are designated to hedge changes in the interest rate of its commercial bill liability.
The secured ANZ loan and interest rate swaps and options have the same critical terms, including expiration
dates. The Company believes that financial instruments designated as interest rate hedges are
highly effective. However, documentation of such as required by SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities does not exist. Therefore, all movements in the fair
values of these hedges are reported in the statement of operations in the period in which fair
values change.
As
of June 30, 2008, there were three open interest rate swap
contracts and two open interest rate option (cap) contracts, as follows (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed/ |
|
|
Floating |
|
|
Fair Value as of |
|
|
|
Notional Amount |
|
|
Strike Rate |
|
|
Rate |
|
|
June 30, 2008 |
|
Swap |
|
$ |
15,900 |
|
|
|
7.19 |
% |
|
|
7.87 |
% |
|
$ |
338 |
|
Swap |
|
|
16,500 |
|
|
|
8.20 |
|
|
|
7.87 |
|
|
|
(53 |
) |
Swap |
|
|
4,850 |
|
|
|
7.98 |
|
|
|
7.87 |
|
|
|
(34 |
) |
Option (Cap) |
|
|
11,500 |
|
|
|
7.19 |
|
|
|
7.87 |
|
|
|
392 |
|
Option (Cap) |
|
|
2,100 |
|
|
|
7.98 |
|
|
|
7.87 |
|
|
|
37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
680 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
fair value of $680,000 is included in the trade and other receivables in the current assets
section of the balance sheet as of June 30, 2008.
Foreign Currency Risk
The Company has transactional currency exposures. Such exposure arises from sales or purchases
in currencies other than the functional currency. The currency giving rise to this risk is
primarily U.S. dollars. The Company has a bank account denominated in U.S. dollars into which a
small number of customers pay their debts. This is a natural hedge against fluctuations in the
exchange rate. The funds are then used to pay suppliers, avoiding the need to convert to Australian
dollars.
The Company uses forward currency contracts and options to eliminate the currency exposures on
the majority of its transactions denominated in foreign currencies, either by transaction if the
amount is significant, or on a general cash flow hedge basis. The forward currency contracts and
options are always in the same currency as the hedged item. The Company believes that financial
instruments designated as foreign currency hedges are highly effective. However documentation of
such as required by SFAS No. 133 does not exist. Therefore, all movements in the fair values of
these hedges are reported in the statement of operations in the period in which fair values change.
The Company also has certain U.S. dollar-denominated debt at Royal Wolf, including long-term
intercompany borrowings, which are remeasured at each financial reporting date with the impact of
the remeasurement being recorded in our consolidated statements of operations.
Note 7. Income Taxes
Income (loss) before provision for income taxes and minority interest consisted of the
following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
Successor |
|
|
|
|
|
|
|
|
|
|
|
Period from |
|
|
|
|
|
|
Year Ended |
|
|
July 1 to |
|
|
Year Ended |
|
|
|
June 30, |
|
|
September 13, |
|
|
June 30, |
|
|
|
2006 |
|
|
2007 |
|
|
2007 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
8,092 |
|
Asia-Pacific |
|
|
(214 |
) |
|
|
802 |
|
|
|
468 |
|
|
|
(1,504 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(214 |
) |
|
$ |
802 |
|
|
$ |
468 |
|
|
$ |
6,588 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-17
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
The provision for income taxes consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
Successor |
|
|
|
|
|
|
|
|
|
|
|
Period from |
|
|
|
|
|
|
Year Ended |
|
|
July 1 to |
|
|
Year Ended |
|
|
|
June 30, |
|
|
September 13, |
|
|
June 30, |
|
|
|
2006 |
|
|
2007 |
|
|
2007 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
377 |
|
State |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7 |
|
Asia -Pacific |
|
|
|
|
|
|
9 |
|
|
|
|
|
|
|
25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9 |
|
|
|
|
|
|
|
409 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,671 |
) |
State |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Asia-Pacific |
|
|
214 |
|
|
|
481 |
|
|
|
180 |
|
|
|
3,295 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
214 |
|
|
|
481 |
|
|
|
180 |
|
|
|
1,625 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
214 |
|
|
$ |
490 |
|
|
$ |
180 |
|
|
$ |
2,034 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of the net deferred tax liability are approximately as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
Successor |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2007 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Net operating loss and tax credit carryforwards |
|
$ |
|
|
|
$ |
5,252 |
|
Deferred revenue and expenses |
|
|
71 |
|
|
|
657 |
|
Accrued compensation and other benefits |
|
|
164 |
|
|
|
443 |
|
Allowance for doubtful accounts |
|
|
|
|
|
|
227 |
|
Other |
|
|
786 |
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets |
|
|
1,021 |
|
|
|
6,579 |
|
Valuation allowance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets |
|
|
1,021 |
|
|
|
6,579 |
|
|
|
|
|
|
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Accelerated tax depreciation and amortization |
|
|
(1,902 |
) |
|
|
(4,255 |
) |
Unrealized exchange gains and losses |
|
|
|
|
|
|
(3,715 |
) |
Other |
|
|
|
|
|
|
(71 |
) |
|
|
|
|
|
|
|
Total deferred tax liabilities |
|
|
(1,902 |
) |
|
|
(8,041 |
) |
|
|
|
|
|
|
|
Net deferred tax liabilities |
|
$ |
(881 |
) |
|
$ |
(1,462 |
) |
|
|
|
|
|
|
|
At June 30, 2008, Royal Wolf had an Australian net operating loss carryforward of
approximately $6,440,000 with no expiration date. Management evaluates the ability to realize its
deferred tax assets on a quarterly basis and adjusts the amount of its valuation allowance if
necessary. No valuation allowance has been determined to be required as of June 30, 2008.
F-18
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
A reconciliation of the federal statutory rate (30% Australian for the Predecessor and 34%
U.S. for the Successor) to the Companys effective tax rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
Successor |
|
|
|
|
|
|
|
|
|
|
|
Period from |
|
|
|
|
|
|
Year Ended |
|
|
July 1 to |
|
|
Year Ended |
|
|
|
June 30, |
|
|
September 13, |
|
|
June 30, |
|
|
|
2006 |
|
|
2007 |
|
|
2007 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal statutory rate |
|
|
(30.0 |
)% |
|
|
30.0 |
% |
|
|
30.0 |
% |
|
|
34.0 |
% |
State and Asia-Pacific
taxes, net of U.S.
federal benefit and
credit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1 |
|
Amortization of goodwill |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7.4 |
) |
Nondeductible expenses |
|
|
130.0 |
|
|
|
31.1 |
|
|
|
8.5 |
|
|
|
4.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate |
|
|
100.0 |
% |
|
$ |
61.1 |
% |
|
|
38.5 |
% |
|
|
30.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 8. Related Party Transactions
The Company had an unsecured limited recourse revolving line of credit from Ronald F. Valenta,
a director and the chief executive officer of the Company, pursuant to which the Company could
borrow up to $3,000,000 outstanding at one time. The line of credit terminated upon the completion
of the acquisition of Royal Wolf and the outstanding principal and interest totaling $2,586,848 was
repaid on September 14, 2007.
The Company utilizes certain accounting, administrative and secretarial services from
affiliates of officers; as well as certain limited office space provided by an affiliate of Mr.
Valenta. Until the consummation of a business combination by the Company, the affiliates had agreed
to make such services available to the Company free of charge, as may be required by the Company
from time to time; with the exception of the reimbursement of certain out-of-pocket costs incurred
on behalf of the Company. Effective September 14, 2007, the Company entered into a month-to-month
arrangement that lasted until January 31, 2008 with an affiliate of Mr. Valenta for the rental of
the office space at $1,148 per month. In addition, effective September 14, 2007, the Company
commenced recording a charge to operating results (with an offsetting contribution to additional
paid-in capital) for the estimated cost of contributed services rendered to the Company at no
compensation by non-employee officers and administrative personnel of affiliates.
Effective January 31, 2008, the Company entered into a lease with an affiliate of Mr. Valenta
for its new corporate headquarters in Pasadena, California. The rent is $7,779 per month, plus
allocated charges for common area maintenance, real property taxes and insurance, for approximately
3,000 square feet of office space. The term of the lease is five years, with two five-year renewal
options, and the rent is adjusted yearly based on the consumer price index. Rental payments were
$48,000 in 2008.
F-19
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
Note 9. Stock Option Plans
On August 29, 2006, the Board of Directors of the Company adopted the General Finance
Corporation 2006 Stock Option Plan (2006 Plan), which was approved by stockholders on June 14,
2007. Under the 2006 Plan, the Company may issue to directors, employees, consultants and advisers
up to 1,500,000 shares of its common stock pursuant to options to be granted under the 2006 Plan.
The options may be incentive stock options under Section 422 of the Internal Revenue Code of 1986,
as amended, or so-called non-qualified options that are not intended to meet incentive stock option
requirements. The options may not have a term in excess of ten years, and the exercise price of any
option may not be less than the fair market value of the Companys common stock on the date of
grant of the option. Unless terminated earlier, the 2006 Plan will automatically terminate June 30,
2016.
On each of September 11, 2006 (2006 Grant) and December 14, 2007 (2007 Grant), the Company
granted options to purchase 225,000 shares of common stock at an exercise price equal to the
closing market price of the Companys common stock as of that date, or $7.30 and $9.05,
respectively, with a vesting period of five years. Stock-based compensation expense of $339,000
related to these options has been recognized in the statements of operations through June 30, 2008,
with a corresponding benefit to additional paid-in capital. As of June 30, 2008, there remains
$1,190,000 of unrecognized compensation expense that will be recorded in the statement of
operations on the straight-line basis over the remaining weighted-average vesting period of 3.8
years. There have been no options exercised, cancelled or forfeited under these two grants and
450,000 options were outstanding at June 30, 2008. Also, as of June 30, 2008, 45,000 of the 2006
Grant options are exercisable and no options of the 2007 Grant are exercisable.
On January 22, 2008 (2008 Grant), the Company granted options to certain key employees of
Royal Wolf to purchase 489,000 shares of common stock at an exercise price equal to the closing
market price of the Companys common stock as of that date, or $8.80. The 2008 Grant consists of
243,000 options with a vesting period of five years and 246,000 options that vest subject to a
performance condition based on Royal Wolf achieving a certain EBITDA (earnings before interest,
income taxes, depreciation and amortization and other nonoperating costs) target for 2008. The
Company had initially assessed that it is probable that this EBITDA target will be achieved and
commenced recognizing compensation expense over the vesting period of 20 months. Total stock-based
compensation expense of $280,000 related to the 2008 Grant has been recognized in the statement of
operations through June 30, 2008, with a corresponding benefit to additional paid-in capital. As of
June 30, 2008, there remains $1,098,000 of unrecognized compensation expense that will be recorded
in the statement of operations on the straight-line basis over the remaining weighted-average
vesting period of 2.9 years. There were 18,000 options cancelled or forfeited under the 2008 Grant
and 471,000 options were outstanding at June 30, 2008. No options have been exercised and no
options are exercisable under the 2008 Grant as of June 30, 2008. In June 2008, the Compensation
Committee of the Companys Board of Directors determined that the EBITDA target would not be
achieved. As a result, the 2008 Grant was modified whereby one-half of the 241,000 outstanding
options at June 30, 2008 subject to the EBITDA performance criteria would be deemed to have
achieved the performance condition. The remaining one-half of these performance-based options will
be modified for EBITDA targets at Royal Wolf pertaining to the years ending June 30, 2009 (2009)
and 2010 during the first quarter of 2009; at which time the Company will reassess and revalue
these options and recognize any changes in stock-based compensation on a prospective basis.
At June 30, 2008, the Companys market price for its common stock was below the exercise
prices of all of the outstanding stock options.
A deduction is not allowed for U.S. income tax purposes with respect to non-qualified options
granted in the United States until the stock options are exercised or, with respect to incentive
stock options issued in the United States, unless the optionee makes a disqualifying disposition of
the underlying shares. The amount of any deduction will be the difference between the fair value of
the Companys common stock and the exercise price at the date of exercise. Accordingly, there is a
deferred tax asset recorded for the U.S. tax effect of the financial statement expense recorded
related to stock option grants in the United States. The tax effect of the U.S. income tax
deduction in excess of the financial statement expense, if any, will be recorded as an increase to
additional paid-in capital.
The weighted-average fair value of the stock options granted was $3.06, $3.75 and $3.94 per
option for the 2006 Grant, 2007 Grant and 2008 Grant, respectively, determined by using the
Black-Scholes option-pricing model using the following assumptions: A risk-free interest rate of
4.8%, 3.27% and 3.01% (corresponding treasury bill rates) for the 2006 Grant, 2007 Grant and 2008
Grant, respectively; an expected life of 7.5 years for all grants; an expected volatility of 26.5%,
31.1% and 35.83% for the 2006 Grant, 2007 Grant and 2008 Grant, respectively; and no expected
dividend.
Royal Wolf had an employee share option plan (ESOP) for the granting of non-transferable
options to certain key management personnel and senior employees with more than twelve months
service at the grant date. During 2007, $3,689,000 was accrued under the ESOP; of which $2,930,000
was paid in 2007 and $759,000 was paid during the Predecessor Period 2008. The ESOP was closed in
the Predecessor Period 2008.
F-20
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
Note 10. Commitments and Contingencies
Operating Leases
The Company leases various office equipment and other facilities under operating leases. The
leases have maturities of between one and nine years, some with an option to renew the lease after
that period. None of the leases includes contingent rentals. There are no restrictions placed upon
the lessee by entering into these leases.
Non-cancellable operating lease rentals at June 30, 2008 are payable as follows (in
thousands):
|
|
|
|
|
2009 |
|
$ |
3,028 |
|
2010 |
|
|
1,827 |
|
2011 |
|
|
1,263 |
|
2012 |
|
|
680 |
|
2013 |
|
|
529 |
|
Thereafter |
|
|
1,997 |
|
|
|
|
|
|
|
$ |
9,324 |
|
|
|
|
|
Rental expense on non-cancellable operating leases was $878,000, $1,295,000, $685,000 and
$1,733,000 in 2006, 2007, Predecessor Period 2008 and 2008, respectively.
Put and Call Options
In conjunction with the closing of the acquisition of Royal Wolf, the Company entered into a
shareholders agreement with Bison Capital pursuant to which, at any time after September 13, 2009,
Bison Capital shall have the option to cause the Company to purchase from Bison Capital all of its
13.8% outstanding capital stock of GFN U.S. The purchase price for the capital stock is, in
essence, the greater of the following:
(i) the amount equal to Bison Capitals ownership percentage in GFN U.S., or 13.8%, multiplied
by the result of 8.25 multiplied by the sum of Royal Wolfs EBITDA for a twelve-month determination
period, as defined, plus all administrative expense payments or reimbursements made by Royal Wolf
to the Company during such period; minus the net debt of Royal Wolf, as defined; or
(ii) the amount equal to the Bison Capitals ownership percentage in GFN U.S. multiplied by
the result of the GFN trading multiple, as defined, multiplied by Royals Wolfs EBITDA for the
determination period; minus the net debt of Royal Wolf; or
(iii) Bison Capitals cost, as defined, in the GFN U.S. capital stock.
Also pursuant to the shareholders agreement, the Company has the option to, at anytime prior
to September 13, 2010, cause Bison Capital to sell and transfer its 13.8% outstanding capital stock
of GFN U.S. to the Company equal to the product of 2.75 multiplied by Bison Capitals cost in the
GFN U.S. capital stock. Subsequent to September 13, 2010, the Companys call option purchase price
is similar to (i) and (ii) of the Bison Capital put option, except the EBITDA multiple is 8.75.
GE SeaCo Preferred Supply Agreement
In connection with the asset purchase from GE SeaCo, the Company entered in a preferred supply
agreement with GE SeaCo. Under the preferred supply agreement, GE SeaCo has agreed to sell to the
Company, and the Company has agreed to purchase, all of GE SeaCos containers that GE SeaCo
determines to sell, up to a maximum of 5,000 containers each year. The purchase price for the
containers will be based on their condition and is specified in the agreement, subject to annual
adjustment. In addition, the Company received a right of first refusal to purchase any additional
containers that GE SeaCo desires to sell in Australia, New Zealand and Papua New Guinea. Either
party may terminate the agreement upon no less than 90 days prior notice at any time after
November 15, 2012.
Other Matters
In January 2008, Royal Wolf was notified by a Department of the Australian government of an
odor that might be caused by high levels of formaldehyde or volatile organic compounds that exceed
national guidelines in some of its containers. Royal Wolf engaged the services of independent
consultants in cooperation with the Australian government in testing
ventilation improvements.
Management of the Company believes that, based on their investigation and field test outcomes
to-date, the remediation of this matter will not have a material adverse effect on the
consolidated results of operations, cash flows or financial position of the Company. In
2008, the Company expensed $259,000 for 302 containers that were affected by this matter.
F-21
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
The Company is not involved in any material lawsuits or claims arising out of the normal
course of business. The nature of its business is such that disputes can occasionally arise with
employees, vendors (including suppliers and subcontractors), and customers over warranties,
contract specifications and contract interpretations among other things. The Company assesses these
matters on a case-by-case basis as they arise. Reserves are established, as required, based on its
assessment of its exposure. The Company has insurance policies to cover general liability and
workers compensation related claims. In the opinion of management, the ultimate amount of liability
not covered by insurance under pending litigation and claims, if any, will not have a material
adverse effect on our financial position, operating results or cash
flows.
Note 11. Detail of Certain Accounts
Trade payables and accrued liabilities consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
Successor |
|
|
|
June 30, |
|
|
|
2007 |
|
|
2008 |
|
Trade payables |
|
$ |
4,232 |
|
|
$ |
9,014 |
|
Payroll and related |
|
|
2,590 |
|
|
|
3,043 |
|
Taxes, other than income |
|
|
376 |
|
|
|
1,456 |
|
Deferred consideration |
|
|
|
|
|
|
1,943 |
|
Unearned income |
|
|
1,351 |
|
|
|
2,930 |
|
Other accruals |
|
|
1,706 |
|
|
|
3,048 |
|
|
|
|
|
|
|
|
|
|
$ |
10,255 |
|
|
$ |
21,434 |
|
|
|
|
|
|
|
|
Note 12. Subsequent Events
On July 3, 2008, the Company, through Royal Wolf, entered into a Letter of Offer (the
Amendment) regarding the ANZ credit facility. Based upon the exchange rate of one Australian
dollar to $0.9615 U.S. dollar and one New Zealand dollar to $0.7927 Australian dollar at June 30,
2008, the Amendment increased the total credit facility limit from $96.0 million (A$99.8 million)
to $106.0 million (A$98.0 million and NZ$15.5 million). The Amendment will provide the Company with
additional borrowing capacity with which to finance growth and acquisition opportunities in the
Asia-Pacific area.
On July 28, 2008, the Company announced that, through a wholly-owned subsidiary formed In July
2008, it had entered into a definitive merger agreement with Mobile Office Acquisition Corp.
(MOAC) and its subsidiary, Pac-Van, Inc. (Pac-Van), in a transaction valued at $158.8 million,
plus the cost of any subsequent acquisitions by Pac-Van. Pac-Van is a provider of modular
buildings and mobile offices in the United States. MOACs ownership consists of Ronald L. Havner
Jr. (an over five percent beneficial owner of the Company), Ronald F. Valenta (the Chief Executive
Officer of the Company), Laminar D.E. Shaw and Pac-Van management employees. A special committee
made up of the independent members of the Companys Board of Directors retained an independent
counsel and financial advisor and negotiated and approved the merger; which is subject to approval
of the Companys stockholders at a special meeting on September 30, 2008, obtaining required
government approvals and other customary closing conditions.
Pursuant to the merger agreement, the stockholders of MOAC will be entitled to receive up to
$21.5 million of cash, four million shares of restricted common stock of GFN issued at $7.50 per
share (with an aggregate value of $30 million) and a 20 month subordinated promissory note in the
aggregate principal amount of $1.5 million. The note and $8.5 million of the restricted stock will
secure the indemnification obligations for 20 months. Also, pursuant to the merger agreement, the
Company through its wholly-owned subsidiary will assume approximately $107 million of Pac-Vans
indebtedness and will acquire all outstanding shares of MOAC. The Company and the stockholders of
MOAC will enter into, among other things, a stockholders agreement which will provide registration
rights which may be exercised after June 30, 2009.
F-22
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Stockholders
General Finance Corporation and Subsidiaries
Our audits of the consolidated financial statements of General Finance Corporation and Subsidiaries
referred to in our report dated September 13, 2008 appearing in item 8 in this Annual Report on
Form 10-K also included an audit of the financial statement schedule listed in item 15 (a) of this
Form 10-K. This schedule is the responsibility of General Finance Corporation and Subsidiaries
management. Our responsibility is to express an opinion based on our audits of the consolidated
financial statements.
In our opinion, this financial statement schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related consolidated financial
statements.
/s/ Grobstein, Horwath & Company LLP
Sherman Oaks, California
September 13, 2008
S-1
SCHEDULE I CONDENSED FINANCIAL INFORMATION OF REGISTRANT
GENERAL FINANCE CORPORATION
(PARENT COMPANY INFORMATION)
BALANCE SHEET
|
|
|
|
|
|
|
June 30, 2008 |
|
|
|
|
|
|
|
(in thousands) |
|
Cash and cash equivalents |
|
$ |
1,137 |
|
Other current assets |
|
|
89 |
|
Property and equipment, net |
|
|
74 |
|
Other noncurrent assets |
|
|
2,818 |
|
Intercompany accounts |
|
|
50,678 |
|
Investment in subsidiaries |
|
|
39,552 |
|
|
|
|
|
Total Assets |
|
$ |
94,348 |
|
|
|
|
|
|
|
|
|
|
Accounts payable, accrued and other current
liabilities |
|
$ |
617 |
|
Noncurrent liabilities and deferred credits |
|
|
|
|
Stockholders equity |
|
|
93,731 |
|
|
|
|
|
Total Liabilities and Stockholders Equity |
|
$ |
94,348 |
|
|
|
|
|
S-2
SCHEDULE I CONDENSED FINANCIAL INFORMATION OF REGISTRANT
GENERAL FINANCE CORPORATION
(PARENT COMPANY INFORMATION)
STATEMENT OF OPERATIONS
|
|
|
|
|
|
|
Year Ended June 30, 2008 |
|
|
|
|
|
|
|
(in thousands) |
|
General and administrative expenses |
|
$ |
2,427 |
|
|
|
|
|
|
Equity in earnings of subsidiaries |
|
|
3,600 |
|
Intercompany income |
|
|
724 |
|
Interest income |
|
|
964 |
|
Interest expense |
|
|
(45 |
) |
Other income, net |
|
|
4 |
|
|
|
|
|
|
|
|
5,247 |
|
|
|
|
|
Income before income taxes |
|
|
2,820 |
|
Income tax benefit |
|
|
(1,286 |
) |
|
|
|
|
Net income |
|
$ |
4,106 |
|
|
|
|
|
S-3
SCHEDULE I CONDENSED FINANCIAL INFORMATION OF REGISTRANT
GENERAL FINANCE CORPORATION
(PARENT COMPANY INFORMATION)
STATEMENT OF CASH FLOWS
|
|
|
|
|
|
|
Year Ended June 30, 2008 |
|
|
|
|
|
|
|
(in thousands) |
|
Cash flows
from operating activities: |
|
|
|
|
Net income |
|
$ |
4,106 |
|
Equity in earnings of subsidiaries |
|
|
(3,600 |
) |
Unrealized foreign exchange loss (gain) |
|
|
(3 |
) |
Depreciation and amortization |
|
|
10 |
|
Share-based compensation expense |
|
|
229 |
|
Contributed services |
|
|
233 |
|
Interest deferred for common stock subject to
possible conversion, net of income tax effect |
|
|
(226 |
) |
Deferred income taxes |
|
|
(1,621 |
) |
Changes in operating assets and liabilities |
|
|
540 |
|
|
|
|
|
Net cash used by operating activities |
|
|
(332 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
Acquisitions, net of cash acquired |
|
|
(62,460 |
) |
Purchases of property and equipment |
|
|
(81 |
) |
|
|
|
|
Net cash used by investing activities |
|
|
(62,541 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
Proceeds from issuances of capital |
|
|
21,044 |
|
Minority interest capital contributions |
|
|
8,278 |
|
|
|
|
|
|
Payments to converting stockholders, net |
|
|
(6,426 |
) |
Repayment of borrowings from related party |
|
|
(2,350 |
) |
Intercompany transfers |
|
|
(24,813 |
) |
|
|
|
|
Net cash provided used by financing activities |
|
|
(4,267 |
) |
|
|
|
|
|
|
|
|
|
Net decrease in cash |
|
|
(67,140 |
) |
|
|
|
|
|
Cash at beginning of period |
|
|
68,277 |
|
|
|
|
|
|
|
|
|
|
Cash at end of period |
|
$ |
1,137 |
|
|
|
|
|
S-4
EXHIBIT INDEX
|
|
|
|
|
Exhibit |
|
|
Number |
|
Exhibit Description |
|
|
|
|
|
|
21.1 |
|
|
Subsidiaries of General Finance Corporation |
|
|
|
|
|
|
31.1 |
|
|
Certification of Chief Executive Officer Pursuant to SEC Rule 13a-14(a)/15d-14(a) |
|
|
|
|
|
|
31.2 |
|
|
Certification of Chief Financial Officer Pursuant to SEC Rule 13a-14(a)/15d-14(a) |
|
|
|
|
|
|
32.1 |
|
|
Certification of Chief Executive Officer Pursuant to 18 U.S.C. §1350 |
|
|
|
|
|
|
32.2 |
|
|
Certification of Chief Financial Officer Pursuant to 18 U.S.C. §1350 |