Form 10-K
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, 2009
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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NASDAQ Global Market |
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Common Stock, $0.0001 par value
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NASDAQ Global Market |
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Warrants to Purchase Common Stock
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NASDAQ Global Market |
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 whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation
S-T during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes o 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 o
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Smaller reporting company þ |
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(Do not check if a smaller reporting company) |
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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, 2008 was approximately $19,120,000 based on a closing price of $1.70 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 17,826,052 shares of the Registrants Common Stock outstanding as of
September 4, 2009.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrants Proxy Statement for its 2009 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
2009 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
References 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 North America Corp., a Delaware corporation (GFNNA); GFN
Mobile Storage Inc., a Delaware corporation (GFNMS); GFN Australasia Holdings Pty Ltd., an
Australian corporation (GFN Holdings); GFN Australasia Finance Pty Ltd, an Australian corporation
(GFN Finance); RWA Holdings Pty Limited (RWA), an Australian corporation, and its subsidiaries
(collectively, Royal Wolf); and Pac-Van, Inc., an Indiana corporation (Pac-Van).
Background and Significant Acquisitions
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 in the rental services and specialty
finance sectors. 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.
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. Royal Wolf is the leading provider
in Australia and New Zealand of storage containers, portable container buildings and freight
containers, which we refer to collectively as storage container products. 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.
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)
On October 1, 2008, we completed our acquisition of Pac-Van through a merger with Mobile
Office Acquisition Corp. (MOAC), the parent of Pac-Van, and our wholly-owned subsidiary formed in
July 2008, GFNNA. Pac-Van leases and sells modular buildings, mobile offices and storage container
products in the United States. In addition to assuming Pac-Vans long-term debt, we paid the
purchase price to the stockholders of MOAC by a combination of $19.4 million in cash, 4,000,000
shares of GFN restricted common stock and a 20-month subordinated promissory note in the aggregate
principal amount of $1.5 million bearing interest at 8% per annum. The note and 1,133,333 shares of
our restricted common stock will secure the indemnification obligations for 20 months and 36
months, respectively. Among other things, we and the stockholders of MOAC entered into a
stockholders agreement which provided registration rights which may be exercised after June 30,
2009.
Business Overview
The global economic downturn, particularly the recession experienced in the United States and
Australia, is having a negative impact upon our business and we have responded by making a
determined effort to reduce personnel costs, capital expenditures, discretionary spending and
curtail acquisition activity (see Item 1A. Risk Factors for a discussion of the current global
economic environment). While this is our approach for the foreseeable future, our long-term
strategy and business plan is to acquire and operate rental services and specialty finance
businesses in North America, Europe and the Asia-Pacific area.
We currently have two operating subsidiaries, Royal Wolf and Pac-Van, that lease and sell
storage container products, modular buildings and mobile offices through 18 customer service
centers (CSCs) in Australia, six CSCs in New Zealand and 26 branch locations across 18 states in
the United States. As of June 30, 2009, we had 227 and 202 employees and 28,227 and 11,347 lease
fleet units in the Asia-Pacific area and United States, respectively. We do business in two
distinct, but related industries; modular space and mobile storage, which we collectively refer to
as the portable services industry. Currently, only Pac-Van leases and sells modular space
products. Prior to our acquisition of Pac-Van, our revenue mix was approximately 70% sales and 30%
leasing. However, during the year ended June 30, 2009 the mix was 52% sales and 48% leasing.
3
Our products include the following:
Modular Space
Modular Buildings. Also known as manufactured buildings, modular buildings provide customers
with additional space and are often tailored specifically to satisfy the unique needs of the
customer. Depending on the customers desired application, modular buildings can range in size from
1,000 to more than 30,000 square feet and may be highly customized.
Mobile Offices and Portable Container Buildings. Also known as trailers or construction
trailers, mobile offices are re-locatable units with aluminum or wood exteriors on wood (or steel)
frames on a steel carriage fitted with axles, allowing for an assortment of add-ons to provide
comfortable and convenient temporary space solutions. We also offer portable container buildings,
ground level offices (GLO), or office containers, which are either modified or
specifically-manufactured shipping containers that are used as mobile offices; and in-plant units,
which are manufactured structures that provide self-contained office space with maximum design
flexibility.
Mobile Storage
Storage Containers. Storage containers generally consist of used shipping containers that
have been purchased and refurbished and provide a flexible, low cost alternative to warehousing,
while offering greater security, convenience, and immediate accessibility. Our storage products
include general purpose dry storage containers, refrigerated containers and specialty containers in
a range of standard and modified sizes, designs and storage capacities. Specialty containers
include blast-resistant units, hoarding units and hazardous-waste units. We also offer storage
trailers, also known as storage vans or dock-height trailers.
Freight Containers. Freight containers are specifically designed for transport of products by
road and rail. Our freight container products include curtain-side, refrigerated and bulk cargo
containers, together with a range of standard and industry-specific dry freight containers.
ROYAL WOLF
Royal Wolf is the leading provider in Australia and New Zealand of portable storage
containers, portable container buildings and freight containers, which we refer to collectively as
storage container products. Royal Wolf leases and sells storage container products through its 24
(Customer Service Centers (CSCs) located in every state in Australia and in 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 storage container products company in Australia and New Zealand with a national
infrastructure and work force. Royal Wolf has an experienced senior management team. Robert Allan,
the chief executive officer of Royal Wolf, has 25 years of experience in the equipment leasing
industry. 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. We believe the experience of this management
team will be critical to growing Royal Wolfs business.
Royal Wolfs storage container products are used by a broad range of industries. Our storage
container products provide secure, accessible temporary storage for a diverse client base of over
19,700 large and small customers who conduct business in industries that include mining, road and
rail, construction, moving and storage, manufacturing, transportation, defense and in the support
of small and medium-size entities (SMEs). 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 a long-term strategy focused on growing our leasing operations, generating
strong internal growth and leveraging our infrastructure through acquisitions, as follows:
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 as the container storage and
portable container 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 mobile storage, domestic freight movement and portable building applications are
increasing, we believe many more uses for our storage container products are still to be developed.
Royal Wolfs market opportunity is to fully develop and service these applications.
4
Generate Strong Internal Growth. We define internal growth as an increase in lease revenues on
a year-over-year basis at our CSCs 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 containers 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.
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 or
acquired CSCs or adding new fleets allows us to more effectively leverage our infrastructure. 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 September 2007 through June 2009, Royal Wolf completed six acquisitions:
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In November 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. |
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In February 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. |
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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. |
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In June 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. |
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In July 2008, we acquired the business of NT Container Services for $1,028,000. |
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In October 2008, we purchased the business of Ace Container Services Pty Ltd
for $741,000. |
As a result of these acquisitions and organic growth, Royal Wolfs lease fleet grew to over
28,000 units as of June 30, 2009.
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 portable 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 portable
storage include convenience, immediate accessibility, better security and lower costs. In contrast
to fixed self-storage, the portable storage market is primarily used by businesses.
5
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 $153 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.
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. |
The mobile storage markets in Australia and New Zealand are 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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Competitor |
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Scope of 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 Container Buildings Market
The portable container buildings market in Australia was estimated to have generated revenue
totaling $776 million (AUS$964 million) during the year ended June 30, 2006, of which approximately
$460 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%. |
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Within the engineering, construction and resources market, portable container 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.
Demand from the non-residential buildings market principally stems from the demand for work
sheds, site offices, industrial garages and temporary warehousing.
We believe 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 container buildings market will grow over the long-term term,
driven in part by a cyclical expansion in the mining and construction markets. We believe that the
advantages of containerized portable buildings over traditional portable buildings of
transportability, security and flexibility are highly valued in the mining and construction
markets. We believe these markets represent a significant growth opportunity for Royal Wolf.
In the portable container 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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Competitor |
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Scope of 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 $30 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 container 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 in this sector. Competitors include
MacField, Cronos and Simply Containers.
The following table lists Royal Wolfs principal competitors in the Australian freight
container market:
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Competitor |
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Scope of Operations |
Macfield
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National |
Cronos
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National |
Simply Containers
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National |
ANL
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National |
7
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 |
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 mobile storage container
revenues for the fiscal year ended June 30, 2009 were as follows ($ in millions):
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Sales |
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$ |
45.2 |
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81 |
% |
Leasing |
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25.9 |
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72 |
% |
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Mobile storage containers in lease fleet |
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18,449 |
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65 |
% |
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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 portable container building
revenues for the fiscal year ended June 30, 2009 were as follows ($ in millions):
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Sales |
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$ |
8.3 |
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15 |
% |
Leasing |
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3.9 |
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11 |
% |
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Portable container buildings in lease fleet |
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1,758 |
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6 |
% |
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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.
8
The amount and percent of Royal Wolfs total sales and leasing of freight container revenues
for the fiscal year ended June 30, 2009 were as follows ($ in millions):
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Sales |
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$ |
2.4 |
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4 |
% |
Leasing |
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6.4 |
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17 |
% |
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Freight containers in lease fleet |
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8,020 |
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29 |
% |
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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 other parts.
This periodic maintenance keeps the container in good condition and is designed to maintain the
units value and rental rates comparable to new units.
Product Procurement
Royal Wolf purchases marine cargo containers from a wide variety of international shipping
lines and container leasing companies and 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 is 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 year ended June 30, 2009:
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Suppliers |
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Type of Product Purchased |
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Percentage of Container Purchases |
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Nantong CIMC |
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New |
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29 |
% |
Dong Fang |
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New |
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9 |
% |
Singamas |
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New |
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8 |
% |
Eastern Container Alliance |
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New |
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7 |
% |
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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. Though Royal Wolf is not dependent upon any
one manufacturer in purchasing storage container products, 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 a Business Sale Agreement dated November 14, 2007 with GE SeaCo, Royal Wolf
entered in a preferred supply agreement with GE SeaCo. Under the preferred supply agreement, GE
SeaCo has agreed to sell to Royal Wolf, and Royal Wolf 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, Royal Wolf 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 1,520 units were purchased under this contract
during the year ended June 30, 2009.
9
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 storage container company in Australia and
New Zealand. 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 usually 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 CSC has a branch manager who has overall supervisory responsibility for all activities of
the CSC. 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 and Royal Wolfs corporate and administrative offices in Hornsby, New South
Wales. 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. Reference is made to Item. 2
Properties for a more detailed description of our leased facilities.
Customers
Royal Wolf has a broad base of nearly 20,000 active customers, with only two customers
constituting more than 2% of our annual revenue for the fiscal year ended June 30, 2009. 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 disparity of Royal Wolfs
customer base reduces the business exposure to a significant downturn in any particular industry.
10
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, 2009
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Temporary storage of excess inventory for the retail and wholesale industries; and |
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Offices, workshops or storerooms; |
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Portable work camps for the resources industry, including accommodations, ablution and
kitchen containers; |
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Blast resistant containers for refineries; |
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Rapid deployment storage for the military, emergency services and disaster relief; |
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Low-cost accommodations for remote communities and caravan parks; |
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Farm storage for cattle feed, farm equipment, fertilizers and other items. |
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, internal advertising and SEO (search engine optimization) and print media
advertising, telemarketing, web-site, customer referrals, signage and decal awareness, direct mail
and radio. 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.
Fleet Management
Royal Wolf regularly re-locates 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.
11
Royal Wolfs management information systems are instrumental to its fleet management and
targeted marketing efforts. Fleet information is updated daily at the CSC 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.
Employees
As of June 30, 2009, Royal Wolf employed 227 full-time employees in the following major
categories:
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Senior and CSC management |
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28 |
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Corporate staff |
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44 |
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Sales and marketing |
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63 |
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CSC operations and administration |
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92 |
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None of our employees is 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.
PAC-VAN
Pac-Van competes in both the modular space and the mobile storage industries in the United
States. Modular space includes mobile offices and modular buildings and involves the rental and
sales of factory built structures delivered to and set-up on customer properties. Mobile storage
generally includes providing customers with secure, temporary storage at their site locations. Both
lines of business serve a broad range of industries, including construction, services, retail,
manufacturing, transportation, utilities and government.
We are pursuing a long-term strategy focused on growing our leasing operations, diversifying
our product offerings in storage containers and modular buildings, maintaining disciplined cost
controls and completing accretive acquisitions.
Focus on Leasing Business. We focus on increasing our core leasing business because it
generates predictable, recurring revenues and high profit margins. Pac-Van seeks to use its
experienced management team to optimize leasing rates and lease fleet utilization in its 26 core
markets. Pac-Van branch office systems permits it to shift its fleet of more than 11,000 units to
branches where customer demand is greatest, and Pac-Vans planning and sourcing expertise permits
it to procure new product on an as needed basis.
Diversifying Our Product Offerings. We plan to continue to expand the size and breadth of our
lease fleet as demand allows. We will emphasize expansion of our higher return products,
particularly storage containers. In addition, we will continue to pursue the introduction of
specialty storage and office products that can attain long lease durations and high leasing
operating margins.
Disciplined Cost Controls. Pac-Vans size permits it to more rapidly adjust to changing
market conditions than many of its largest competitors. This size enables Pac-Van to quickly
introduce storage container products demanded by customers, curtail capital expenditures and other
spending and maintain more disciplined cost controls than competitors whose cost structures include
manufacturing, large payrolls and large investments in outdated product classes, such as storage
trailers.
Accretive Acquisitions. Pac-Van will continue to complete acquisitions that are accretive or
offer other benefits such as expanded customer service or product offerings. Acquisitions,
especially tuck in acquisitions also allow Pac-Van to leverage the fixed costs of its branch
offices with additional lease fleet that deliver scale and increased profitability. In December
2008, Pac-Van purchased the business of Container Wholesalers for $499,000.
12
Industry Overview
Pac-Van primarily competes in the modular space industry in the United States. The Modular
Building Institute, in its State of the Industry 2006 report, estimates that U.S. modular space
industry dealers earned in excess of $3.0 billion of leasing and sales revenues in 2005. The
industry has expanded rapidly over the last thirty years as the number of applications for modular
space has increased and recognition of the products positive attributes has grown. We believe
modular space delivers four core benefits: lower costs, flexibility, reusability and timely
solutions. Modular buildings offer customers significant cost savings over permanent construction.
Flexibility and reusability are the hallmarks of modular buildings. Modular products are not site
specific and can be reutilized. It is not unusual to have modular buildings serve a wide variety of
users during their life spans. We believe we are well-positioned to benefit from growth in the
modular space industry.
Pac-Van also competes in the mobile storage industry. Mobile storage is used primarily by
businesses for secure, temporary storage at the customers location. The mobile storage industry
serves a broad range of other industries, including construction, services, retail, manufacturing,
transportation, utilities and government.
Mobile storage offers customers a flexible, secure, cost-effective and convenient alternative
to constructing permanent warehouse space or storing items at a fixed-site self-storage facility by
providing additional space for higher levels of inventory, equipment or other goods on an as-needed
basis.
Although Pac-Vans competition varies significantly by market, the modular space industry, in
general, is highly competitive. Pac-Van competes primarily in terms of product availability and
quality, customer service, and price. We believe that Pac-Vans reputation for customer service and
its ability to offer a wide selection of units suitable for various uses at competitive prices
allows it to compete effectively. However, Pac-Vans largest North American competitors, ModSpace,
Williams-Scotsman, and Mobile Mini have greater market share or product availability in some
markets and have greater financial resources and pricing flexibility than it. Other regional
competitors include Acton Mobile, Vanguard Modular and Satellite Shelters.
The portable storage industry is highly fragmented, with numerous participants in local
markets leasing and selling storage containers, storage trailers and other structures used for
temporary storage. We believe that participants in Pac-Vans industry compete on the basis of
customer relationships, price, service, delivery speed and breadth and quality of equipment
offered. In every area Pac-Van serves, Pac-Van competes with multiple local, regional, and national
portable storage providers. Some of Pac-Vans competitors may have greater market share, less
indebtedness, greater pricing flexibility or superior marketing and financial resources. Pac-Vans
largest competitors in the storage container and storage trailer markets in the U.S. are Mobile
Mini, Williams Scotsman, Allied Leasing, Haulaway, Eagle Leasing and National Trailer Storage.
Business Strengths
Pac-Van is a recognized provider of modular buildings, mobile offices and mobile storage
products on a national, regional and local basis in the United States. We believe Pac-Van
possesses the following strengths:
Extensive Geographic Coverage. With a lease fleet of over 11,000 units, Pac-Van is a national
participant in the mobile and modular sectors of the portable services industry. Pac-Vans branch
offices serve 17 of the 50 largest Metropolitan Statistical Areas, or MSAs, in the United States.
Pac-Van serves a diverse base of national, regional and local customers. The size of Pac-Vans
fleet also allows Pac-Van to offer a wide selection of products to its customers and to achieve
purchasing efficiencies.
Diversified Customer Base. Pac-Van has established strong relationships with a diverse
customer base in the U.S., ranging from large companies with a national presence to small local
businesses. For the year ended June 30, 2009; which, for Pac-Van, would be for nine months since
the date of acquisition (FY09), Pac-Van leased or sold its portable storage products to over 6,500
customers. In FY09, Pac-Vans largest customer accounted for approximately 6% of its total revenues
and Pac-Vans top ten customers accounted for approximately 17% of its total revenues. We believe
that the diversity of Pac-Vans business limits, to some degree, a significant impact on it of
changes in any given customer, geography or end market.
13
Focus On Customer Service and Support. Pac-Vans operating infrastructure in the U.S. is
designed to ensure that Pac-Van consistently meets or exceeds customer expectations by reacting
quickly and effectively to satisfy their needs. On the national and regional level, Pac-Vans
administrative support services and scalable management information systems enhance its service by
enabling Pac-Van to access real-time information on product availability, customer reservations,
customer usage history and rates. We believe this focus on customer service attracts new and
retains existing customers. In FY09, more than 79% of its lease and lease-related revenues were
generated from customers who leased from Pac-Van in prior years.
Significant Cash Flow Generation and Discretionary Capital Expenditures. Pac-Van has
consistently generated significant cash flow from operations by maintaining high utilization rates
and increasing the yield of its lease fleet. During the last five years, Pac-Van has achieved
stable annual yields on its lease fleet investment. A significant portion of Pac-Vans capital
expenditures are discretionary in nature, thus providing Pac-Van with the flexibility to readily
adjust the amount that it spends based on its business needs and prevailing economic conditions.
High Quality Fleet. Pac-Vans branches maintain their lease fleet to consistent quality
standards. Maintenance is expensed as incurred and branch managers and operations staff are
responsible for managing a maintenance program aimed at providing equipment to customers that meets
or exceed customer expectations and industry standards.
Experienced Management Team. Pac-Van has an experienced and proven senior management team,
with its seven most senior managers having worked at Pac-Van for an average of more than ten years.
Pac-Vans President, Theodore M. Mourouzis, joined Pac-Van in 1997 and the consistency of the
senior management, corporate and branch management teams has been integral in developing and
maintaining its high level of customer service, deploying technology to improve operational
efficiencies and integrating acquisitions.
Products and Services
Pac-Van provides a broad range of products to meet the space needs of its customer base. These
products include modular buildings, mobile offices and storage containers. The following provides a
description of Pac-Vans product lines:
Modular Buildings. Modular buildings are factory-built, portable structures generally
consisting of two or more floors and are used in a wide variety of applications, ranging from
schools to restaurants to medical offices. Ranging in size from 1,000 to more than 30,000 square
feet, the companys modular buildings are constructed in many sizes and are usually designed to
satisfy unique customer requirements. Like mobile offices, Pac-Van procures modular buildings from
an established network of manufacturing partners to meet state building requirements, and generally
obtains multiple state codes for each unit. Modular buildings represent approximately 35% of
Pac-Vans lease fleet.
Mobile Offices. Sales and construction offices, also known as field offices are relocatable,
single-unit structures primarily used for temporary office space. These units are generally built
on frames that are connected to axles and wheels and have either a fixed or removable hitch for
easy transportation. Standard construction office models range in size from approximately
160 square feet to 1,000 square feet, and are available in standard 8, 10, 12, and 14 foot widths,
and include air conditioning and heating, lighting, plan tables, shelving, electrical wiring, phone
jacks, and other features normally associated with basic office space. Sales offices range in size
from 384 to 672 square feet and typically come in 12 foot widths. In addition to the basic
amenities included in a field office, sales offices generally have wood siding, carpeting, high
ceilings, custom windows, and glass storefront doors, which provide a professional,
customer-friendly building in which to conduct business. GLOs are storage containers that have been
modified to include office space with feature similar to those found in construction offices. Like
storage containers, GLOs typically come in lengths of 20 feet and 40 feet. Some models combine both
office and storage functions. All of Pac-Vans mobile offices are built, or modified as with GLOs,
by an established network of manufacturing partners to standard specification, which may vary
depending on regional preferences. In addition, Pac-Van builds these units to meet state building
code requirements and generally obtains multi- state codes enabling the company to move equipment
among its branch network to meet changing demand and supply conditions. Mobile offices comprise
approximately 58% of Pac-Vans lease fleet.
14
Mobile Storage Equipment. Mobile storage equipment is generally classified into the following
product groupings: storage containers, domestic storage containers and storage trailers. Storage
containers vary in size from 10 feet to 48 feet in length, with 20-foot and 40-foot length
containers being the most common. Storage containers are steel units, which are generally eight
feet wide and eight and one-half feet high, and are built to the ISO standards for carrying ocean
cargo. Pac-Van purchases new and used storage containers. Domestic storage containers are generally
eight or ten feet in width and come in lengths ranging from 40 to 53 feet. Storage trailers, which
vary in size from 28 to 53 feet in length, have wheels and hitches and provide dock height storage.
Mobile storage equipment comprises approximately 7% of Pac-Vans lease fleet.
All of Pac-Vans lease fleet carry signage reflecting the companys brand, important to the
ongoing branding and name recognition in marketing our products.
Delivery and Other Site Services. Pac-Van delivers and installs all three product lines
directly to its customers premises. Installation services range from simple leveling for portable
storage to complex seaming and joining for modular buildings. Pac-Van will also provide skirting
and ramps as needed by the customer. Depending on the type of unit some states will also require
tie downs and other features to secure the unit. Once a unit is on site at a customer location,
Pac-Vans site services include relocating the unit.
Ancillary Products and Services. In addition to leasing it core product line, Pac-Van
provides ancillary products such as steps, furniture, portable toilets, security systems and other
items to its customers for their use in connection with its equipment. Pac-Van also offers its
lease customers a damage waiver program that protects them in case the leased unit is damaged. For
customers who do not select the damage waiver program, Pac-Van bills them for the cost of any
repairs.
Pac-Van complements its core leasing business by selling either existing rental fleet assets
or assets purchased specifically for resale. In FY09, we estimate that nearly 23% of sales came
from existing fleet units. The sale of these in-fleet units has historically been a cost-effective
method of replenishing and upgrading its lease fleet. As with the leasing business, Pac-Van
provides additional services when selling units. These services range from delivery to full scale
turnkey solutions. In a turnkey solution, Pac-Van provides not only the underlying equipment but
also a full range of ancillary services, such as a foundation, specialty interior finishes, and
landscaping, necessary to make the equipment fully operational for the customer.
Equipment Summary by number of units as of June 30, 2009:
15
Equipment Summary by dollar value as of June 30, 2009 (thousands):
Leasing. Leasing revenues are driven by average monthly rental rate, fleet size and
utilization. Pac-Van monitors fleet utilization at each branch. For FY09, average fleet utilization
was approximately 77%. While Pac-Van adjusts its pricing to respond to local competition in
markets, we believe that it generally achieves a rental rate equal to or above that of competitors
because of the quality of Pac-Vans products and its high level of customer service. As part of
leasing operations, Pac-Van sells used modular space units from its lease fleet at fair market
value or, to a much lesser extent, pursuant to pre-established lease purchase options included in
the terms of its lease agreements. Due in part to an active fleet maintenance program, Pac-Vans
units maintain a substantial portion of their initial value which includes the cost of the units as
well as costs of significant improvements made to the units.
New Unit Sales. New unit sales include sales of newly-manufactured modular space units.
Pac-Van does not generally purchase new units for resale until it has obtained firm purchase orders
(which are generally non-cancelable) for such units. New modular space units are generally
purchased more heavily in the late spring and summer months due to seasonal classroom and
construction market requirements.
Delivery and Installation. Pac-Van provides delivery, site-work, installation and other
services to its customers as part of its leasing and sales operations. Revenues from delivery,
site-work and installation result from the transportation of units to a customers location,
site-work required prior to installation and installation of the units which have been leased or
sold. Typically units are placed on temporary foundations constructed by service technicians, and
service personnel will also generally install ancillary products. Pac-Van also derives revenues
from dismantling and transporting units upon lease expiration.
Product Procurement and Capital Expenditures
Pac-Van closely monitors fleet capital expenditures, which include fleet purchases and any
improvement costs to existing units that may be capitalized. Generally, fleet purchases are
controlled by field and corporate executives, and must pass fleet purchasing policy guidelines
(which include ensuring that utilization rates and unrented units levels are reviewed for
acceptability, that redeployment, refurbishment and conversion options have been considered and
that specific returns on investment criteria have been evaluated). Pac-Van purchases modular and
mobile office units through third-party suppliers. The top three suppliers of units for FY09
represented approximately 39% of all fleet purchases, and the top ten suppliers represented
approximately 70% of all fleet purchases.
We can adjust capital expenditures to match business needs and prevailing economic conditions.
Pac-Van does not generally enter into long-term purchase contracts with manufacturers and can
modify its capital spending activities to correspond to market conditions. For example, gross fleet
capital expenditures, prior to proceeds from sales of used units, for the nine months ended
September 30, 2008 were approximately $16.1 million, but only $3.3 million for the nine months ended
June 30, 2009. Purchases of delivery vehicles and yard equipment have averaged approximately $0.8
million for the nine months ended September 30, 2008 and June 30, 2009, respectively. This is the
equivalent of maintenance capital expenditures.
We supplement our fleet spending with acquisitions. Although the timing and amount of
acquisitions are difficult to predict, management considers its acquisition strategy to be
opportunistic and will adjust its fleet spending patterns as acquisition opportunities become
available.
16
Branch Network
Pac-Van maintains a network of 26 branch offices throughout the United States. This network
enables it to maintain product availability and provide customer service within regional and local
markets. Customers benefit because they are provided with improved service availability, reduced
time to occupancy, better access to sales representatives, the ability to inspect units prior to
rental and lower freight costs which are typically paid by the customer. Pac-Van benefits because
it is able to spread regional overhead and marketing costs over its infrastructure, redeploy units
within its branch network to optimize utilization, provide optimum equipment levels for customer
demand and offer profitable short-term leases which would not be profitable without a local market
presence.
Branches are generally headed by a dedicated branch manager, and branch operations are led by
three regional vice presidents who collectively average more than 10 years of experience with
Pac-Van. We believe it is important to encourage employees to achieve specified revenue and profit
levels and to provide a high level of service to customers. Regional and branch managers
compensation is based upon the financial performance of their branches and overall corporate
performance and, in some cases, sales commissions. Sales representatives compensation includes both
base and commission elements.
Refurbishment and Maintenance of Fleet
Ongoing maintenance to Pac-Vans lease fleet is performed on an as-needed basis and is
intended to maintain the value of its units and keep them in lease-ready condition. Most of this
maintenance on storage containers, storage trailers and mobile offices is primarily performed
in-house. Maintenance requirements on containers are generally minor and include removing rust and
dents, patching small holes, repairing floors, painting and replacing seals around the doors.
Storage trailer maintenance may also include repairing or replacing brakes, lights, doors and
tires. Brake repairs are typically outsourced. Maintenance requirements for offices tend to be more
significant than for storage containers or storage trailers and may involve repairs of floors,
doors, air conditioning units, windows, roofs and electric wiring. Major office repairs are
sometimes outsourced. Whether performed by Pac-Van or a third party, the cost of maintenance and
repair of Pac-Vans lease fleet is included in leasing, selling, and general expenses and is
expensed as incurred. We believe that Pac-Vans maintenance program ensures a high quality fleet.
Customers
Pac-Van has established strong relationships with a diverse set of customers, ranging from
large national retailers and manufacturers to local sole proprietors. During FY09, Pac-Van provided
its portable storage, mobile office and modular building products to a diversified base of
approximately 6,500 national, regional and local companies in a variety of industries including,
construction, industrial, manufacturing, education, service and government sectors. This
distribution reflects both the strength of Pac-Vans branch network and the many uses of its
products.
17
In FY09, Pac-Van generated 64% of its revenues from leasing and 36% of its revenues from
sales. Pac-Vans largest leasing customer accounted for approximately 2% of total leasing revenues
and its top ten customers accounted for approximately 9% of its total leasing revenues. The
following chart shows the percentage of revenues generated by different industries in FY09:
Construction. Construction customers include a diverse group of contractors and
subcontractors who work on both commercial and residential projects. We believe Pac-Vans
construction customer base is characterized by a wide variety of contractors and subcontractors,
including general contractors, mechanical contractors, plumbers, electricians and roofers.
Pac-Vans revenues generated from the construction industry approximated 45% in FY09. Contractors
typically use Pac-Vans products to provide on-site office facilities and to securely store
construction materials and supplies at construction sites. Nevertheless, we believe the majority of
lease and lease-related revenue is derived from the commercial construction market. Demand from
Pac-Vans construction customers tends to be higher in the second and third quarters when the
weather is warmer, particularly in the central and northern United States.
Services. Service customers include any health care entity that provides medical care or
veterinary services, equipment leasing companies that sublease Pac-Vans equipment, entertainment
companies including those conducting sporting events, and religious institutions, other than for
their classroom needs. These customers may use any or all of Pac-Vans products and services.
Retail. Retail customers include both large national chains and small local stores.
These customers typically lease storage containers and storage trailers to store excess inventory
and supplies. Retail customers also use Pac-Vans storage products during store remodeling or
refurbishment. Demand from these customers can be seasonal and tends to peak during the winter
holidays.
Industrial. Industrial and manufacturing customers include a broad array of manufacturers,
including oil refineries, petrochemical refineries, carpet manufacturers, textile manufacturers and
bottling companies. They generally lease storage containers and storage trailers to store both
inventory and raw materials. They lease mobile offices and modular buildings for extra office
space, cafeterias, changing rooms and other interior space needs.
18
Commercial. Commercial customers include a wide variety of businesses, usually businesses that
sell services, but exclude businesses that have customers who shop at their location. These
customers may use Pac-Vans modular products as their place of business, Pac-Vans mobile offices
as supplemental office space and Pac-Vans storage products to store their inventory, goods or
supplies.
Government. Government customers include public schools, correctional institutions, fire
departments as well as the U.S. military. These customers generally lease storage containers and
storage trailers to safeguard materials used in their day-to-day operations and government
projects. They also lease mobile offices and modular buildings for classrooms, training offices and
general office space.
Education. Education customers include both public and private schools and day care
facilities, and include classroom space for religious institutions. Pac-Van provides space to this
customer group ranging from entire school facilities to supplemental classroom space to portable
storage equipment for storing athletic gear.
Sales and Marketing
As of June 30, 2009, Pac-Vans sales and marketing team consisted of 37 people. Members of
Pac-Vans sales group act as its primary customer service representatives and are responsible for
fielding calls, obtaining credit applications, quoting prices, following up on quotes and handling
orders. Pac-Vans marketing group is primarily responsible for coordinating direct mail, Internet
marketing and other advertising campaigns, producing company literature, creating promotional sales
tools and managing its sales management system. Pac-Vans centralized support services group
handles all billing, collections and other support functions, allowing its sales and marketing team
to focus on addressing the needs of its customers. Pac-Vans marketing programs emphasize the
cost-savings and convenience of using its products versus constructing temporary or permanent
offices or storage facilities. Pac-Van markets its services through a number of promotional
vehicles, including the Yellow Pages; prominent branding of its equipment, telemarketing, targeted
mailings, trade shows and limited advertising in publications.
The development of Pac-Vans marketing programs involves branch managers, regional vice
presidents and senior management, all of whom participate in devising branch-by-branch marketing
strategies, demand forecasts and its branch marketing budgets. Pac-Vans branch managers, working
with its corporate marketing team, determine the timing, content and target audience of direct
mailings, specials and promotional offers, while the corporate office manages the marketing process
itself to ensure the consistency of its message, achieve economies of scale and relieve its local
branches of the administrative responsibility of running its marketing programs. Pac-Van believes
that its approach to marketing is consistent with the local nature of its business and allows each
branch to employ a customized marketing plan that fosters growth within its particular market.
Management Information Systems
Pac-Vans management information systems are instrumental to its lease fleet management and
targeted marketing efforts and allow management to monitor operations at branches on a daily,
weekly, and monthly basis. Lease fleet information is updated daily at the branch level and
verified through routine physical inventories by branch personnel. This provides management with
on-line access to utilization, lease fleet unit levels and rental revenues by branch or geographic
region. In addition, an electronic file for each unit showing its lease history and current
location/status is maintained in the information system. Branch sales people utilize the system to
obtain information regarding unit condition and availability. The database tracks individual units
by serial number and provides comprehensive information including cost, condition and other
financial and unit specific information.
Employees
As of June 30, 2009, Pac-Van had 202 employees. None of our employees are covered by a
collective bargaining agreement. Management believes its relationship with our employees is good.
We have never experienced any material labor disruption and are unaware of any efforts or plan to
organize our employees. The employees are grouped accordingly:
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Senior and branch management |
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30 |
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Corporate staff |
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21 |
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Sales and marketing |
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37 |
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Branch operations and administration |
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114 |
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In addition, we have three full-time employees at our corporate office in Pasadena,
California.
19
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 results of operations or
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.
A portion of Pac-Vans units are subject to regulation in certain states under motor vehicle and
similar registrations and certificate of title statutes. We believe that we have complied in all
material respects with all motor vehicle registration and similar certificate of title statutes in
states where such statutes clearly apply to modular space units. However, in certain states, the
applicability of such statutes to its modular space units is not clear beyond doubt. If additional
registration and related requirements are deemed to be necessary in such states or if the laws in
such states or other states were to change to require compliance with such requirements, Pac-Van
could be subject to additional costs, fees and taxes as well as administrative burdens in order to
comply with such statutes and requirements. We do not believe the effect of such compliance will be
material to our business, results of operations or financial condition.
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.
Pac-Van owns a number of trademarks important to its business, including
Pac-Van® and Weve Put Thousands of U.S. Businesses In Space®. Material trademarks are registered or are pending for registration in the
U.S. Patent and Trademark Office. Registrations for such trademarks in the United States will last
indefinitely as long as Pac-Van continues to use and maintain the trademarks and renew filings with
the applicable governmental offices.
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. The internet website for Royal Wolf and Pac-Van is
www.royalwolf.com.au and www.PacVan.com, respectively.
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) 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.
20
Executive Officers of the Registrant
The following information is provided as of June 30, 2009 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 2009
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.
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Name |
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Age |
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Position |
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Charles E. Barrantes |
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57 |
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Executive Vice President and Chief Financial Officer |
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Christopher A. Wilson |
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42 |
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General Counsel, Vice President & Secretary |
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Robert Allan |
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53 |
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Chief Executive Officer, Royal Wolf |
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Theodore Mourouzis |
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46 |
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President, Pac-Van, Inc. |
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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.
Theodore Mourouzis has been President of Pac-Van, Inc. since August 2006. He previously served
as its Chief Operating Officer since 1999 and as its Vice President of Finance from 1997 until
1999. Prior to his employment with Pac-Van, Mr. Mourouzis, among other things, was a controller for
a 3M joint venture, served four years in management consulting with Deloitte & Touche (focusing in
operations and business process consulting), and was president of a picture framing distributor and
the chief financial officer of its holding company. He has an undergraduate degree from Stanford
University (1985) and a Masters of Business Administration from The Wharton School of the
University of Pennsylvania (1991).
21
In addition to the other information in our Annual Report on Form 10-K, you should consider
the risks described below that we believe may be material to investors in evaluating the Company.
This section contains forward-looking statements, and in considering these statements, you should
refer to the qualifications and limitations on our forward-looking statements that are described in
SAFE HARBOR STATEMENT before the beginning of Item 1.
Global economic conditions and market disruptions may adversely affect our business, financial
condition and results of operations.
As widely reported, financial markets and economic conditions throughout the world have been
experiencing extreme disruption, including, among other things, extreme volatility in security
prices, severely diminished liquidity and credit availability, rating downgrades of certain
investments and declining valuations of others, failure and potential failures of major financial
institutions, unprecedented government support of financial institutions and increased needs for
revenue and higher unemployment rates. These developments and the related general global economic
downturn, including in the U.S. and Australia, has and may continue to adversely impact our
business and financial condition, as well as the ability of our customers and suppliers to obtain
financing to perform their obligations to us. Though we are strengthening our efforts to
collections and inventory control, continued worsening of conditions could negatively impact our ability to
collect trade receivables on a timely basis, could result in additional reserves for uncollectible
accounts and, in the event of continued contraction in container and modular unit sales and
leasing, could lead to a further build-up of inventory and lease fleet levels. These factors would
have a further adverse impact on operating results and cash flows. In addition, fluctuations in
the rates of exchange for the U.S. dollar against the Australian and New Zealand dollars could not
only continue to significantly affect our results of operations through reported foreign exchange
gains and losses on U.S.-denominated debt, but if the Australian and New Zealand dollars weaken, it
would result in lower than anticipated reported revenues and profitability as a result of the
translation of Royal Wolfs financial results into U.S. dollars.
We are in compliance with our financial covenants under our senior credit facilities and
senior subordinated notes. However, if the current environments in the U.S. and Australian
economies continue to be weak or worsen, our ability to meet our covenant requirements may be
impaired and may result in our seeking amendments or waivers of covenant compliance. While we
believe our relationships with our senior lenders are good, there is no assurance that they would
consent to such an amendment or waiver in the event of noncompliance; or that such consent would
not be conditioned upon the receipt of a cash payment, revised principal payout terms, increased
interest rates, or restrictions in the expansion of the credit facilities for the foreseeable
future; or that our senior lenders would not exercise rights that would be available to them;
including, among other things, demanding payment of outstanding borrowings. In addition, our
ability to obtain additional capital at reasonable rates, including through the issuance of our
preferred stock, has been and may continue to be adversely affected by the current conditions in
the financial markets. All or any of these adverse events would further limit our flexibility in
planning for or reacting to downturns in our business.
We are unable to predict the duration and severity of the current economic downturn and
disruption in financial markets or their effects on our business and results of operations, but the
consequences may be materially adverse and more severe than other recent economic slowdowns.
We operate with a significant amount of long-term debt, which is secured by all or substantially
all of our assets, subject to variable interest rates and contain restrictive covenants.
As of June 30, 2009, we had outstanding approximately $200.3 million of indebtedness,
primarily under our existing secured senior credit facilities and secured subordinated notes at
Royal Wolf and Pac-Van. Reference is made to Notes 5 and 13 of Notes to Consolidated Financial
Statements for further discussion of our long-term debt and obligations.
Our substantial indebtedness could have adverse consequences, such as:
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require us to dedicate a substantial portion of our cash flow from operations at Royal
Wolf and Pac-Van to payments on our indebtedness, which could reduce the availability of our cash
flow to fund future working capital, capital expenditures, acquisitions and other general corporate
purposes; |
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expose us to the risk of increased interest rates, as our borrowings on our secured
senior credit facilities are at variable rates of interest; |
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require us to sell assets to reduce indebtedness or influence our decisions about
whether to do so; |
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increase our vulnerability to general adverse economic and industry conditions; |
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limit our flexibility in planning for, or reacting to, changes in our business and our
industry; |
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restrict us from making strategic acquisitions or pursuing business opportunities; |
22
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limit, along with the financial and other restrictive covenants in our indebtedness,
among other things, our ability to borrow additional funds; and |
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violating covenants in these agreements could have a material adverse effect on our
business, financial condition and results of operations; including substantially increasing our
cost of borrowing and restricting our future operations, if not cured or waived. In addition, the lenders may be able to terminate
any commitments they had made to supply us with further funds. Accordingly, we may not be able to
fully repay our debt obligations, if some or all of our debt obligations are accelerated upon an
event of default. |
Our senior credit and subordinated notes agreements also contain various restrictive covenants
that limit the operations of our business. In particular, these agreements include
covenants and restrictions relating to:
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payments and distributions to GFN, |
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liens and sale-leaseback transactions, |
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loans and investments, |
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debt and hedging arrangements, |
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mergers, acquisitions and asset sales, |
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transactions with affiliates, and |
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changes in business activities. |
Subsequent to July 1, 2011, we may be required to satisfy Bison Capitals put option for Bison
Capitals 13.8% interest in GFN U.S.
We 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 July 1, 2011, Bison Capital has the
option to cause us to purchase from them all of its 13.8% outstanding capital stock of GFN U.S. If
Bison Capital exercises its put option and we do not have the required cash readily available, we
may be required to take certain actions, such as selling assets, seeking additional capital
(including issuing GFN common stock), or reducing or delaying capital expenditures and acquisition
activity, in order to obtain the necessary capital to satisfy the payment to Bison Capital. The
satisfaction of this contingent obligation or any of these actions, particularly under unfavorable
market conditions, could have a material adverse effect on our operations and financial condition.
Reference is made to Note 10 of Notes to Consolidated Financial Statements for more information
regarding the shareholders agreement with Bison Capital.
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.
We purchase a portion of our lease fleet in Australia in U.S. dollars and have certain U.S.
dollar-denominated debt at Royal Wolf, including the secured subordinated notes due Bison Capital
and intercompany borrowings, which are remeasured at each financial reporting date with the impact
of the remeasurement being recorded in our consolidated statements of operations. Unrealized gains
and losses resulting from such remeasurement due to changes in the Australian exchange rate to the
U.S. dollar not hedged could have a significant impact in our reported results of operations, as
well as any realized gains and losses from the payments on such U.S. dollar-denominated debt and
intercompany borrowings. In addition, a weakening in the Australian or New Zealand dollars could
result in lower than anticipated reported revenues and profitability as a result of the translation
of Royal Wolfs financial results into U.S. dollars.
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 acquisitions of Royal Wolf, Pac-Van and other smaller businesses, we have
recorded significant amounts of goodwill and intangible assets. Goodwill represents the excess of
the total purchase price of these acquisitions over the fair value of the net assets acquired. We are
not permitted to amortize goodwill under U.S. accounting standards and instead we review
goodwill, as well as intangible assets, at least annually for impairment. Impairment may result
from, among other things, deterioration in the performance of acquired businesses, adverse market
conditions, stock price, and adverse changes in applicable laws or regulations, including changes
that restrict the activities of the acquired business. In the event impairment is identified, a
charge to earnings would be recorded. Although it does not affect our cash flow, a write-off of all
or a part of our goodwill or intangibles would adversely affect our operating results and
stockholders equity. Reference is made to Note 2 of Notes to Consolidated Financial Statements
for more information regarding goodwill and intangible assets.
23
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.
The global economic downturn discussed above
is having a negative impact upon our business
and we have responded by making a determined effort to reduce personnel costs, capital
expenditures, discretionary spending and curtail acquisition activity. While this is our approach
for the foreseeable future, we intend to eventually commence pursuing 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 we will endeavor to
evaluate the risks inherent in a particular industry or target business, we cannot assure 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 any equity
interests in our company.
While part of our long-term 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 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 long-term growth could strain our management resources.
Our future performance will depend in large part on our ability to manage our long-term
planned growth that could strain our existing management, human and other resources. To
successfully manage this growth, we must continue to add managers and employees and improve our
operating, financial and other internal procedures and controls. We also must effectively motivate,
train and manage employees. If we do not manage our growth effectively, it would adversely affect
our future operating results.
Our long-term growth plan includes the expansion of operations into markets outside of the United
States, Australia and New Zealand, including Asia/Pacific and European markets. Such international
expansion may not prove successful, and may divert significant capital, resources and managements
time and attention and adversely affect our on-going operations.
To date, we have conducted all of our business within the United States, Australia and New
Zealand. However, we have intentions to enter international markets, including the Asia/Pacific and
European markets, in the future, which will require substantial amounts of management time and
attention. Our products and overall marketing approach may not be accepted in other markets to the
extent needed to make our international expansion profitable. In addition, the additional demands
on management from these activities may detract from our efforts in the United States, Australian
and New Zealand markets and adversely affect our operating results in these principal markets. Any
international expansion will expose us 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.
24
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, 2009, there were 73,743,568
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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may 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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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. |
The price of our common stock may fluctuate significantly, which may make it difficult for
stockholders 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 on our common stock, which may limit the return on your
investment in us.
Except for payment of dividends on our preferred stock, 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 on our common stock in the foreseeable future.
25
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 combinations.
At June 30, 2009, we had outstanding options and warrants to purchase 6,332,380 shares of
common stock. The potential for the issuance of substantial numbers of additional shares of common
stock upon exercise of these warrants and option 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.
We may choose to redeem outstanding warrants at a time that 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 initial public
offering 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 initial public offering 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.
Significant Risks Related Primarily to Our Operations in the Asia-Pacific Area
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 units and related modification revenues constituted approximately 61% of
Royal Wolf total revenues for the year ended June 30, 2009. Sales are strongly correlated with
overall economic conditions, especially the natural resources sectors. Revenues from sales of
storage units have a material impact on our financial results and our ability to service our debt.
Further, the funding of the growth of the lease fleet is dependent upon the sales of storage
container units to take advantage of business and growth opportunities available to it.
26
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, prior to the year ended June 30, 2009, sales generated approximately 70% of
Royal Wolfs revenue and leasing generated approximately 30% of Royal Wolfs revenue. 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 and has better margins. 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.
General or localized economic downturns or weakness may adversely affect Royal Wolfs customers, in
particular those in the mining and moving and storage 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 (road and rail) and construction industries, which
aggregated approximately 45% of Royal Wolfs revenues in the fiscal year ended June 30, 2009.
Although we believe the variety of Royal Wolfs products, the breadth of its customer base and its
geographic diversity throughout Australia reduces its exposure to economic downturns, general
economic downturns or localized downturns in markets where its operates could reduce demand for
Royal Wolfs products and negatively impact our future revenues and results of operations.
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
several 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.
Our customers lease our storage container products on primarily 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 to new customers a large
supply of units 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.
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 members of the senior management team of Royal Wolf have substantial experience
in the equipment leasing industry. These key 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.
Failure by storage container suppliers to deliver
storage container products to Royal Wolf could adversely affect its operations.
The failure of one or more
storage container suppliers to deliver or timely deliver storage containers to Royal Wolf could harm its
reputation with customers. If Royal Wolf is unable to fulfill customer orders due to delivery failures by
its suppliers, Royal Wolfs results of operations could be harmed.
27
Significant Risks Related to Primarily Our Business and Operations in the United States
General or localized economic downturns or weakness may adversely affect Pac-Vans customers, in
particular those in the construction industry, which may reduce demand for Pac-Vans products and
services and negatively impact our future revenues and results of operations.
A significant portion of Pac-Vans revenues is derived from customers who are in industries
and businesses that are cyclical in nature and subject to changes in general economic conditions,
including the construction industry, which constituted over 40% of Pac-Vans revenues for the year
ended June 30, 2009. Although the variety of Pac-Vans products, the breadth of its customer base
and its geographic diversity throughout the United States limits its exposure to economic
downturns, general economic downturns or localized downturns in markets where its operates could
reduce demand for Pac-Vans products, especially in the construction industry, and negatively
impact our future revenues and results of operations.
Pac-Van faces significant competition in the modular buildings and portable storage industries.
Pac-Van also faces potentially significant competition from modular buildings companies who have
portable storage product offerings, especially from several national competitors in the United
States who have greater financial resources and pricing flexibility than Pac-Van does. If Pac-Van
is unable to compete successfully, it could lose customers and our future revenues could decline.
Although Pac-Vans competition varies significantly by market, the modular buildings markets
in which Pac-Van competes are dominated by two large participants and are highly competitive. In
addition, Pac-Van 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 building industry is
highly competitive, subject to stiff pricing competition and almost all of the competitors have
portable storage product offerings. The primary modular national competitors with portable storage
product offerings are less leveraged than Pac-Van, and have greater financial resources and pricing
flexibility than Pac-Van does. If they focus on portable storage, Pac-Van could lose customers and
our future revenues could decline. If Pac-Van is unable to compete successfully, it could lose
customers and our future revenues could decline.
Because Pac-Van has depended to a large extent on the success of its leasing operations, the
failure of Pac-Van to effectively and quickly remarket lease units that are returned could
materially and adversely affect our results of operations.
The current economic recession in the U.S. has reduced utilization rates at Pac-Van to levels
at approximately 70%, but historically Pac-Vans average monthly lease fleet utilization has
averaged between 70% and 85%; with the typical lease term being for an average period of over twelve
months. The high utilization rate and the length of the average lease
have provided Pac-Van with a
predictable revenue stream. However, if utilization rates continue to decline or should a
significant number of Pac-Vans lease units be returned during any short period of time, Pac-Van
would have to re-lease a large supply of units at similar rates to maintain historic
revenues from these operations. Pac-Vans failure to effectively maintain historical utilization
rates or remarket a large influx of units returning from leases could have a material adverse
effect on our results of operations.
Sales of modular buildings, mobile offices and storage units constitute a significant portion of
Pac-Vans revenues and the failure to continue to sell units at historic rates could adversely affect
our ability to grow Pac-Vans lease fleet.
Sales of modular buildings, mobile offices and storage units constituted approximately 36% of
Pac-Vans total revenues for the year ended June 30, 2009. Revenues from sales of modular
buildings, mobile offices and storage units have been used to fund increases in the size of our
lease fleet. As a result, the failure to continue to sell a significant number of units may
adversely affect our ability to increase the size of Pac-Vans lease fleet or to otherwise take
advantage of business and growth opportunities available to it.
Governmental regulations could impose substantial costs and restrictions on Pac-Vans operations
that could harm our future results of operations.
Pac-Van is subject to various 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. In addition, these laws and regulations could change
in a manner that materially and adversely affects Pac-Vans ability to conduct its business. More
burdensome regulatory requirements in these or other areas may increase our general and
administrative costs. If Pac-Van is unable to pass these increased costs on to its customers, our
future operating results could be negatively impacted.
28
Significant increases in raw material costs could increase our operating costs significantly and
harm our future results of operations.
Pac-Van purchases raw materials, including metals, lumber, siding and roofing and other
products, to construct and modify modular buildings and to modify containers to its customers
requirements. Pac-Van also maintains a truck fleet to deliver units to and return units from
customers. During periods of rising prices for raw materials, especially oil and fuel for delivery
vehicles, and in particular when the prices increase rapidly or to levels significantly higher than
normal, Pac-Van may incur significant increases in operating costs and may not be able to pass
price increases through to customers in a timely manner, which could harm our future results of
operations.
Failure to retain key personnel could adversely affect Pac-Vans operations and could impede
our ability to execute our business plan and growth strategy.
Pac-Van is managed largely by its seven existing
officers, including its President, Theodore M. Mourouzis.
The continued success of Pac-Van will depend largely on the efforts
and abilities of Mr. Mourouzis and these senior managers. These
officers and employees have
an understanding of Pac-Van and its industry that cannot be readily duplicated.
Mr. Mourouzis has an employment agreement which is terminable under certain circumstances upon
notice to or by him. The loss of any member of Pac-Vans 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.
Any failure of Pac-Vans management information systems could disrupt our business and result in
decreased rental or sale revenues and increased overhead costs, which could negatively impact our
results of operations.
Pac-Van 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 Pac-Vans ability to optimize
fleet utilization, rentability and redeployment. The failure of Pac-Vans 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.
Failure by Pac-Vans manufacturers to sell and deliver products to Pac-Van in timely fashion may
harm Pac-Vans reputation and our financial condition.
Pac-Van currently purchases new modular buildings and components, mobile offices and storage
container products directly from manufacturers. Although Pac-Van 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 storage containers to Pac-Van could
adversely affect its operations. Pac-Van purchases new modular buildings and components, mobile
offices and storage containers under purchase orders issued to various manufacturers, which the
manufacturers may or may not accept or be able to fill. Pac-Van has no contracts with any supplier.
If these suppliers do not timely fill Pac-Vans purchase orders, or do not properly manufacture the
ordered products, our reputation and financial condition also could be harmed.
Unionization by some or all of Pac-Vans employees could cause increases in operating costs.
Pac-Vans employees are not presently covered by collective bargaining agreements. Unions may
attempt to organize Pac-Vans employees in the future. We are unable to predict the outcome of any
continuing or future efforts to organize Pac-Vans employees, the terms of any future labor
agreements, or the effect, if any, those agreements might have on our operations or financial
performance.
Some zoning laws restrict the use of Pac-Vans storage units and therefore limit its ability to
offer its products in all markets.
Many of Pac-Vans customers use Pac-Vans storage units to store goods on their own
properties. Local zoning laws in some of Pac-Vans geographic markets prohibit customers from
maintaining mobile offices or storage containers on their properties or require that mobile offices
or storage containers be located out of sight from the street. If local zoning laws in one or more
of Pac-Vans geographic markets were to ban or restrict mobile offices or storage containers stored
on customers sites, Pac-Vans business in that market could suffer.
29
Item 1B. Unresolved Staff Comments
None.
We
locate our Asia-Pacific branches (or CSCs) 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 high visibility locations.
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). Several branches have multiple leases of adjoining or contiguous properties. We
believe these properties are suitable and adequate for our needs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year |
|
Location |
|
Functions/Uses |
|
|
Established |
|
Australia: |
|
|
|
|
|
|
|
|
Adelaide |
|
Leasing, on-site storage and sales |
|
|
2007 |
|
Altona |
|
Leasing, on-site storage and sales |
|
|
2004 |
|
Brisbane |
|
Leasing and sales |
|
|
2005 |
|
Cairns |
|
Leasing and sales |
|
|
2004 |
|
Canberra |
|
Leasing, on-site storage and sales |
|
|
2007 |
|
Clayton |
|
Leasing, on-site storage and sales |
|
|
1997 |
|
Darwin |
|
Leasing, on-site storage and sales |
|
|
2004 |
|
Geraldton |
|
Leasing, on-site storage and sales |
|
|
2007 |
|
Gold Coast |
|
Leasing and sales |
|
|
2005 |
|
Gosford |
|
Leasing and sales |
|
|
2008 |
|
Hobart |
|
Leasing and sales |
|
|
2008 |
|
Hornsby |
|
Head Office |
|
|
2004 |
|
Newcastle |
|
Leasing and sales |
|
|
2001 |
|
Roselands |
|
Leasing and sales |
|
|
2005 |
|
Perth |
|
Leasing and sales |
|
|
2004 |
|
Sunshine |
|
Leasing and sales |
|
|
2005 |
|
Tomago |
|
Leasing, on-site storage and sales |
|
|
2008 |
|
Townsville |
|
Leasing and sales |
|
|
2005 |
|
Wollongong |
|
Leasing and sales |
|
|
2008 |
|
New Zealand: |
|
|
|
|
|
|
|
|
Auckland-Ormiston Rd (owned) |
|
Leasing, on-site storage and sales |
|
|
2000 |
|
Auckland-East Tamaki |
|
Leasing and sales |
|
|
2005 |
|
Christchurch |
|
Leasing and sales |
|
|
2002 |
|
Hamilton |
|
Leasing and sales |
|
|
|
|
Silverdale/Albany |
|
Leasing and sales |
|
|
2008 |
|
Tauranga/Bay of Plenty |
|
Leasing and sales |
|
|
2009 |
|
Wellington |
|
Leasing and sales |
|
|
2007 |
|
30
We
lease all of the locations in the U.S. Most of Pac-Vans major leased properties have
remaining lease terms of at least one year, and we believe that none of the individual branch
locations is material to our operations. We also believe that satisfactory alternative properties
could be found in all of our U.S. markets, if necessary. The Pac-Van corporate office shares a
leased property with the Indianapolis branch. The following table shows information about our
branches in the U.S. under lease.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year |
|
Location |
|
Functions/Uses |
|
Established |
|
Atlanta, GA |
|
Leasing & Sales |
|
|
2008 |
|
Bakersfield, CA |
|
Leasing & Sales |
|
|
2008 |
|
Charleston, WV |
|
Fleet Storage |
|
|
2007 |
|
Charlotte, NC |
|
Leasing & Sales |
|
|
2005 |
|
Chicago, IL |
|
Leasing & Sales |
|
|
2005 |
|
Cincinnati, OH |
|
Leasing & Sales |
|
|
2008 |
|
Cleveland, OH |
|
Leasing & Sales |
|
|
2008 |
|
Columbus, OH |
|
Leasing & Sales |
|
|
2005 |
|
Dallas, TX |
|
Leasing & Sales |
|
|
2008 |
|
Denver, CO |
|
Leasing & Sales |
|
|
2008 |
|
Elkhart, IN |
|
Fleet Storage |
|
|
2009 |
|
Fontana, CA |
|
Leasing & Sales |
|
|
2008 |
|
Indianapolis, IN |
|
Leasing & Sales, Corp Office |
|
|
1998 |
|
Jacksonville, FL |
|
Leasing & Sales |
|
|
2007 |
|
Kansas City, KS |
|
Leasing & Sales |
|
|
2000 |
|
Las Vegas, NV |
|
Leasing & Sales |
|
|
2006 |
|
Louisville, KY |
|
Leasing & Sales |
|
|
2006 |
|
Memphis, TN |
|
Leasing & Sales |
|
|
1999 |
|
Nashville, TN |
|
Leasing & Sales |
|
|
2001 |
|
Orlando, FL |
|
Leasing & Sales |
|
|
2006 |
|
Phoenix, AZ |
|
Leasing & Sales |
|
|
2009 |
|
Pittsburgh, PA |
|
Leasing & Sales |
|
|
2005 |
|
Salt Lake City, UT |
|
Leasing & Sales |
|
|
2008 |
|
St. Louis, MO |
|
Leasing & Sales |
|
|
2008 |
|
Toledo, OH |
|
Leasing & Sales |
|
|
2008 |
|
Trenton, NJ |
|
Leasing & Sales |
|
|
2009 |
|
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 $7,393 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. 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,
2009.
31
PART II
|
|
|
Item 5. |
|
Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities |
Market Prices
Our units, common stock and warrants are listed on The NASDAQ Global Market (NASDAQ) under the
symbols GFNCU, GFN and GFNCW, respectively. The following table sets forth for the periods
indicated the range of high and low closing sales prices for the units, common stock and warrants:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units |
|
|
Common Stock |
|
|
Warrants |
|
|
|
High |
|
|
Low |
|
|
High |
|
|
Low |
|
|
High |
|
|
Low |
|
FY 2009: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth Quarter |
|
$ |
3.80 |
|
|
$ |
1.00 |
|
|
$ |
2.16 |
|
|
$ |
1.05 |
|
|
$ |
0.34 |
|
|
$ |
0.08 |
|
Third Quarter |
|
|
3.12 |
|
|
|
0.92 |
|
|
|
2.50 |
|
|
|
0.85 |
|
|
|
0.13 |
|
|
|
0.02 |
|
Second Quarter |
|
|
6.49 |
|
|
|
1.88 |
|
|
|
6.40 |
|
|
|
1.59 |
|
|
|
0.75 |
|
|
|
0.03 |
|
First Quarter |
|
|
8.05 |
|
|
|
5.90 |
|
|
|
7.10 |
|
|
|
4.90 |
|
|
|
1.20 |
|
|
|
0.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FY 2008: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth Quarter |
|
$ |
9.05 |
|
|
$ |
6.15 |
|
|
$ |
7.54 |
|
|
$ |
5.44 |
|
|
$ |
1.90 |
|
|
$ |
0.91 |
|
Third Quarter |
|
|
12.15 |
|
|
|
8.50 |
|
|
|
9.05 |
|
|
|
7.00 |
|
|
|
3.24 |
|
|
|
1.55 |
|
Second Quarter |
|
|
13.70 |
|
|
|
10.00 |
|
|
|
9.89 |
|
|
|
7.90 |
|
|
|
4.05 |
|
|
|
2.20 |
|
First Quarter |
|
|
10.05 |
|
|
|
8.80 |
|
|
|
8.00 |
|
|
|
7.43 |
|
|
|
2.20 |
|
|
|
1.60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Record Holders
As of September 4, 2009, there were 14 stockholders of record of our common stock and one
holder of record for each of our units and warrants. 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.
Sales of Unregistered Securities
We are offering private placements of Series A 12.5% Cumulative Preferred Stock, par value
$0.0001 per share and liquidation preference of $50 per share (Series A Preferred Stock), and
Series B 8% Cumulative Preferred Stock, par value of $0.0001 per share and liquidation value of
$1,000 per share (Series B Preferred Stock), in reliance upon exemptions from registration
pursuant to Section 4(2) under the Securities Act of 1933, as amended, and Rule 506 promulgated
thereunder. The Series A Preferred stock and the Series B Preferred stock are referred to
collectively as the Cumulative Preferred Stock.
On February 13, 2009 and April 1, 2009, we issued 23,900 shares and 1,000 shares of Series A
Preferred Stock for total proceeds of $1,195,000 and $50,000, respectively; and on December 8, 2008
we issued 100 shares of Series B Preferred Stock for total proceeds of $100,000, in connection with
a business combination.
32
The Cumulative Preferred Stock is not convertible into GFN common stock, has no voting rights,
except as required by Delaware law, and is not redeemable prior to February 1, 2014; at which time
it may be redeemed at any time, in whole or in part, at our option. Holders of the Cumulative
Preferred Stock are entitled to receive, when declared by our Board of Directors, annual dividends
payable quarterly in arrears on the 31st day of January, July and October of each year
and the 30th day of April of each year. In the event of any liquidation or winding up
of the Company, the holders of the Cumulative Preferred Stock will have preference to holders of
common stock; with the holders of the Series A Preferred Stock having preference over holders of
the Series B Preferred Stock. We have agreed to register for public trading the Cumulative
Preferred Stock no later than one year from issuance.
Equity Compensation Plan
The following table sets forth information concerning our only equity compensation plan, the
2006 Stock Option Plan, as of June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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) |
|
|
1,358,000 |
|
|
$ |
7.39 |
|
|
|
1,142,000 |
|
Equity compensation plans
not approved by security
holders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
1,358,000 |
|
|
$ |
7.39 |
|
|
|
1,142,000 |
|
|
|
|
|
|
|
|
|
|
|
33
|
|
|
Item 6. |
|
Selected Financial Data |
Our summary historical consolidated financial data set forth below as of and for the year
ended June 30, 2009 and 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 for the
year ended June 30, 2007 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 June 30, 2007 and as of and for the year ended June 30, 2006 and the six months ended
June 30, 2005 was derived from the audited financial statements of Royal Wolf.
Consolidated Statement of Operations Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
Successor |
|
|
|
Six |
|
|
|
|
|
|
|
|
|
|
Period from |
|
|
|
|
|
|
Months |
|
|
Year Ended |
|
|
July 1 to |
|
|
Year Ended |
|
|
|
Ended |
|
|
June
30, |
|
|
September
13, |
|
|
June
30,
|
|
|
|
2005 |
|
|
2006 |
|
|
2007 |
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
$ |
13,563 |
|
|
$ |
34,473 |
|
|
$ |
52,929 |
|
|
$ |
10,944 |
|
|
$ |
68,029 |
|
|
$ |
75,528 |
|
Leasing |
|
|
7,224 |
|
|
|
15,921 |
|
|
|
21,483 |
|
|
|
4,915 |
|
|
|
27,547 |
|
|
|
70,932 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,787 |
|
|
|
50,394 |
|
|
|
74,412 |
|
|
|
15,859 |
|
|
|
95,575 |
|
|
|
146,460 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
560 |
|
|
|
2,412 |
|
|
|
4,672 |
|
|
|
1,530 |
|
|
|
8,373 |
|
|
|
14,058 |
|
Other income (expense), net |
|
|
(662 |
) |
|
|
(2,626 |
) |
|
|
(3,870 |
) |
|
|
(1,062 |
) |
|
|
(1,785 |
) |
|
|
(25,177 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before
provision for income taxes
and minority interest |
|
|
(102 |
) |
|
|
(214 |
) |
|
|
802 |
|
|
|
468 |
|
|
|
6,588 |
|
|
|
(11,119 |
) |
Net income (loss) |
|
|
(177 |
) |
|
|
(428 |
) |
|
|
312 |
|
|
|
288 |
|
|
|
4,106 |
|
|
|
(3,717 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per
common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.40 |
|
|
$ |
(0.22 |
) |
Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.39 |
|
|
|
(0.22 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Balance Sheet Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
Successor |
|
|
|
June 30, |
|
|
|
2005 |
|
|
2006 |
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
Trade and other receivables, net |
|
$ |
6,002 |
|
|
$ |
7,451 |
|
|
$ |
13,322 |
|
|
$ |
18,327 |
|
|
$ |
26,432 |
|
Inventories |
|
|
3,066 |
|
|
|
5,460 |
|
|
|
5,472 |
|
|
|
21,084 |
|
|
|
22,511 |
|
Lease fleet, net |
|
|
19,644 |
|
|
|
27,773 |
|
|
|
40,928 |
|
|
|
87,748 |
|
|
|
188,915 |
|
Total assets |
|
|
35,930 |
|
|
|
47,903 |
|
|
|
68,788 |
|
|
|
207,861 |
|
|
|
358,696 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
8,997 |
|
|
|
16,580 |
|
|
|
20,859 |
|
|
|
25,362 |
|
|
|
49,254 |
|
Long-term debt and obligations,
net |
|
|
22,993 |
|
|
|
27,155 |
|
|
|
33,811 |
|
|
|
78,029 |
|
|
|
183,933 |
|
Stockholders equity |
|
|
3,586 |
|
|
|
3,018 |
|
|
|
13,040 |
|
|
|
93,731 |
|
|
|
103,174 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34
Selected Unaudited Quarterly Financial Data
The following table sets forth unaudited operating data for each quarter of the years ended
June 30, 2009 and June 30, 2008. 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, 2009: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
31,653 |
|
|
$ |
42,601 |
|
|
$ |
34,455 |
|
|
$ |
37,751 |
|
Gross profit |
|
|
2,829 |
|
|
|
3,194 |
|
|
|
2,415 |
|
|
|
2,773 |
|
Operating income |
|
|
1,727 |
|
|
|
5,275 |
|
|
|
5,253 |
|
|
|
1,803 |
|
Net income (loss) |
|
|
(5,027 |
) |
|
|
(1,005 |
) |
|
|
270 |
|
|
|
2,045 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.36 |
) |
|
$ |
(0.06 |
) |
|
$ |
0.01 |
|
|
$ |
0.11 |
|
Diluted |
|
|
(0.36 |
) |
|
|
(0.06 |
) |
|
|
0.01 |
|
|
|
0.11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.15 |
|
|
$ |
0.12 |
|
|
$ |
0.09 |
|
|
$ |
0.05 |
|
Diluted |
|
|
0.12 |
|
|
|
0.09 |
|
|
|
0.08 |
|
|
|
0.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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. |
|
|
|
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 North America Corp., a Delaware
corporation (GFNNA); GFN Mobile Storage Inc., a Delaware corporation (GFNMS); GFN Australasia
Holdings Pty Ltd., an Australian corporation (GFN Holdings); GFN Australasia Finance Pty Ltd, an
Australian corporation (GFN Finance); RWA Holdings Pty Limited (RWA), an Australian
corporation, and its subsidiaries (collectively, Royal Wolf); and Pac-Van, Inc., an Indiana
corporation (Pac-Van).
Background and Significant Acquisitions
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 in the rental services and specialty finance
sectors. 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.
35
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. Royal Wolf is the leading provider
in Australia and New Zealand of storage containers, portable container buildings and freight
containers, which we refer to collectively as storage container products. 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.; 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.
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).
On October 1, 2008, we completed our acquisition of Pac-Van through a merger with Mobile
Office Acquisition Corp. (MOAC), the parent of Pac-Van, and our wholly-owned subsidiary formed in
July 2008, GFNNA. Pac-Van leases and sells modular buildings, mobile offices and storage container
products in the United States. In addition to assuming Pac-Vans long-term debt, we paid the
purchase price to the stockholders of MOAC by a combination of $19.4 million in cash, 4,000,000
shares of GFN restricted common stock and a 20-month subordinated promissory note in the aggregate
principal amount of $1.5 million bearing interest at 8% per annum. The note and 1,133,333 shares of
our restricted common stock will secure the indemnification obligations for 20 months and 36
months, respectively. Among other things, we and the stockholders of MOAC entered into a
stockholders agreement which provided registration rights which may be exercised after June 30,
2009.
Business Overview
The
global economic downturn and credit crisis, particularly the recession experienced in the United States and
Australia, is having a negative impact upon our business and we have responded by making a
determined effort to reduce personnel costs , capital expenditures, discretionary spending and
curtail acquisition activity (see Part II. Other Information Item 1A. Risk Factors for a
discussion of the current global economic environment). We
continuously monitor our performance and customer demand levels to find more efficiencies in all aspects of our business. Accordingly, we may continue to reduce headcount or employee compensation in the areas in which we believe we can achieve greater efficiencies without effecting customer service or our sales efforts. While this is our approach for the
foreseeable future, our long-term strategy and business plan is to acquire and operate rental
services and specialty finance businesses in North America, Europe and the Asia-Pacific area.
We currently have two operating subsidiaries, Royal Wolf and Pac-Van, that lease and sell
storage container products, modular buildings and mobile offices through 18 customer service
centers (CSCs) in Australia, six CSCs in New Zealand and 26 branch locations across 18 states in
the United States. As of June 30, 2009, we had 227 and 202 employees and 28,227 and 11,347 lease
fleet units in the Asia-Pacific area and United States, respectively. We do business in two
distinct, but related industries; modular space and mobile storage, which we collectively refer to
as the portable services industry. Currently, only Pac-Van leases and sells modular space
products. Prior to our acquisition of Pac-Van, our revenue mix was approximately 70% sales and 30%
leasing. However, during the year ended June 30, 2009 the mix was 52% sales and 48% leasing.
Our products include the following:
Modular Space
Modular Buildings. Also known as manufactured buildings, modular buildings provide customers
with additional space and are often tailored specifically to satisfy the unique needs of the
customer. Depending on the customers desired application, modular buildings can range in size from
1,000 to more than 30,000 square feet and may be highly customized.
Mobile Offices and Portable Container Buildings. Also known as trailers or construction
trailers, mobile offices are re-locatable units with aluminum or wood exteriors on wood (or steel)
frames on a steel carriage fitted with axles, allowing for an assortment of add-ons to provide
comfortable and convenient temporary space solutions. We also offer portable container buildings,
ground level offices (GLO), or office containers, which are either modified or
specifically-manufactured shipping containers that are used as mobile offices; and in-plant units,
which are manufactured structures that provide self-contained office space with maximum design
flexibility.
36
Mobile Storage
Storage Containers. Storage containers generally consist of used shipping containers that
have been purchased and refurbished and provide a flexible, low cost alternative to warehousing,
while offering greater security, convenience, and immediate accessibility. Our storage products
include general purpose dry storage containers, refrigerated containers and specialty containers in
a range of standard and modified sizes, designs and storage capacities. Specialty containers
include blast-resistant units, hoarding units and hazardous-waste units. We also offer storage
vans, also known as storage trailers or dock-height trailers.
Freight Containers. Freight containers are specifically designed for transport of products by
road and rail. Our freight container products include curtain-side, refrigerated and bulk cargo
containers, together with a range of standard and industry-specific dry freight containers.
Results of Operations
Year Ended June 30, 2009 (FY 2009) Compared to Year Ended June 30, 2008 (FY 2008)
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 2009 with FY 2008 therefore are not particularly
meaningful. We believe a more meaningful comparison is the results of our operations for FY 2009
with the combined results of our operations and Royal Wolf during FY 2008. To assist in this
comparison, the following table sets forth statements of operations for the following: (i) Royal
Wolf, as Predecessor, 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; (iii) the combined results of operations of the
Predecessor and the Successor for FY 2008; and (iii) the Company, as Successor, for FY 2009. The
combined FY 2008 results do not reflect any adjustments for the purchase method of accounting in
the Predecessor period and is presented for comparison purposes only.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
Successor |
|
|
Combined |
|
|
Successor |
|
|
|
Period from |
|
|
|
|
|
|
July 1 to |
|
|
|
|
|
|
September 13, |
|
|
Year Ended June 30, |
|
|
|
2007 |
|
|
2008 |
|
|
2008 |
|
|
2009 |
|
|
|
(in thousands) |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
$ |
10,944 |
|
|
$ |
68,029 |
|
|
$ |
78,973 |
|
|
$ |
75,528 |
|
Leasing |
|
|
4,915 |
|
|
|
27,547 |
|
|
|
32,462 |
|
|
|
70,932 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,859 |
|
|
|
95,576 |
|
|
|
111,435 |
|
|
|
146,460 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
9,466 |
|
|
|
57,675 |
|
|
|
67,141 |
|
|
|
64,317 |
|
Leasing, selling and general expenses |
|
|
4,210 |
|
|
|
22,161 |
|
|
|
26,371 |
|
|
|
51,040 |
|
Depreciation and amortization |
|
|
653 |
|
|
|
7,367 |
|
|
|
8,020 |
|
|
|
17,045 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
1,530 |
|
|
|
8,373 |
|
|
|
9,903 |
|
|
|
14,058 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
14 |
|
|
|
1,289 |
|
|
|
1,303 |
|
|
|
296 |
|
Interest expense |
|
|
(947 |
) |
|
|
(6,888 |
) |
|
|
(7,835 |
) |
|
|
(16,161 |
) |
Foreign currency exchange gain
(loss) and other |
|
|
(129 |
) |
|
|
3,814 |
|
|
|
3,685 |
|
|
|
(9,312 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,062 |
) |
|
|
(1,785 |
) |
|
|
(2,847 |
) |
|
|
(25,177 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for
income taxes and minority interest |
|
|
468 |
|
|
|
6,588 |
|
|
|
7,056 |
|
|
|
(11,119 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision (benefit) for income taxes |
|
|
180 |
|
|
|
2,034 |
|
|
|
2,214 |
|
|
|
(4,374 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interest |
|
|
|
|
|
|
448 |
|
|
|
448 |
|
|
|
(3,028 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
288 |
|
|
$ |
4,106 |
|
|
|
4,394 |
|
|
$ |
(3,717 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
37
Revenues. Revenues totaled $146.4 million in FY 2009, an increase of $35.0 million, or 31.4%,
from $111.4 million in FY 2008. The increase was primarily due to $54.4 million of revenues at
Pac-Van, which we acquired on October 1, 2008, offset somewhat by a $19.4 million decrease, or
17.4%, in revenues in FY 2009 from FY 2008 at Royal Wolf.
Sales during FY 2009 amounted to $75.5 million compared to $79.0 million during FY 2008;
representing a decrease of $3.5 million, or 4.4%. The decrease in total sales was primarily as a
result of a reduction in sales at Royal Wolf of $23.1 million; due to a $14.0 million unfavorable
foreign exchange rate effect and decreased sales of $6.7 million and $2.4 million in our national
accounts group, or non-retail operations, and retail operations at the CSCs, respectively. The
$2.4 million decrease in our retail operations consisted of an $11.0 million reduction due to lower
prices, offset somewhat by $8.6 million from higher unit sales. The $6.7 million decrease in our
national accounts group consisted of $11.6 million due to lower unit sales, offset somewhat by
higher prices of $4.9 million. The decrease in sales at Royal wolf was substantially offset by
$19.6 million in sales recognized at Pac-Van during FY 2009, which benefited by a single sale of
$4.5 million in December 2008.
Leasing revenues during FY 2009 amounted to $70.9 million compared to $32.4 million during FY
2008, representing an increase of $38.5 million, or 118.8%. The increase was primarily due to
leasing revenues recognized at Pac-Van of $34.8 million, which had a utilization rate of 72.2% at
June 30, 2009. In addition, leasing revenues at Royal Wolf increased by $3.7 million, or 11.4%, in
FY 2009 from FY 2008. This was driven by an increase of $3.8 million due to growth in the average
pricing on lease per month ($3.3 million in our retail business and $0.5 million in our national
accounts group) and an increase of $3.8 million due to growth in the average total number of units
on lease per month ($3.6 million in our retail business and $0.2 million in our national accounts
group); offset somewhat by an unfavorable foreign exchange rate effect of $3.9 million. At Royal
Wolf, average utilization in the retail operations was 80.0% during FY 2009, as compared to 82.0%
during FY 2008; and average utilization in the national accounts group operations was 63.0% during
FY 2009, as compared to 81.1% during FY 2008. Overall average utilization at Royal Wolf was 75.6%
in FY 2009, as compared to 81.9% in FY 2008.
The average value of the U.S. dollar against the Australian dollar strengthened during FY 2009
as compared to FY 2008. The average currency exchange rate of one Australian dollar during FY 2008
was $0.89646 U.S. dollar compared to $0.74803 U.S. dollar during FY 2009. This fluctuation in
foreign currency exchange rates resulted in a decrease to our sales and leasing revenues at Royal
Wolf of $14.0 million and $3.9 million, respectively, during FY 2009 compared to FY 2008;
representing 16.1% of total revenues in FY 2008.
Sales and leasing revenues represented 52% and 48% of total revenues in FY 2009 and 71% and
29% of total revenues in FY 2008, respectively; the more favorable leasing revenue mix in FY 2009
resulting primarily from our acquisition of Pac-Van.
Cost of Sales. Cost of sales decreased by $2.8 million to $64.3 million during FY 2009 from
$67.1 million during FY 2008. The decrease was primarily due to foreign exchange translation effect
of $9.9 million and cost decreases of $1.8 million in our retail operations and $5.7 million in the
national account group operations in the Asia-Pacific area; substantially offset by cost of sales
incurred at Pac-Van of $14.6 million. Our gross profit percentage from sales revenues deteriorated
during FY 2009 to approximately 14.8% compared to 15.1% during FY 2008 as a result of price
decreases and unfavorable product mix that resulted in a gross profit percentage of 11.3% in the
Asia-Pacific area. This was offset by the more favorable gross profit percentage of 25.5% at
Pac-Van during FY 2009.
38
Leasing, Selling and General Expenses. Leasing, selling and general expenses increased by
$24.6 million during FY 2009 to $51.0 million from $26.4 million during FY 2008. This increase
included $24.9 million incurred at Pac-Van and an approximately $0.4 increase at GFN, which
incurred $2.8 million during FY 2009 as compared to $2.4 million in FY 2008. The following table provides more detailed information about the Royal Wolf operating
expenses of $23.3 million in FY 2009 as compared to $24.0 million in FY 2008:
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30, |
|
|
|
2008 |
|
|
2009 |
|
|
|
(in millions) |
|
Salaries, wages and related |
|
$ |
13.1 |
|
|
$ |
12.5 |
|
Share-based payments |
|
|
0.3 |
|
|
|
0.4 |
|
Rent |
|
|
0.4 |
|
|
|
0.4 |
|
CSC operating costs |
|
|
5.0 |
|
|
|
4.5 |
|
Business promotion |
|
|
1.1 |
|
|
|
1.2 |
|
Travel and meals |
|
|
1.1 |
|
|
|
0.8 |
|
IT and telecommunications |
|
|
0.8 |
|
|
|
0.8 |
|
Professional costs |
|
|
1.9 |
|
|
|
1.6 |
|
Other |
|
|
0.3 |
|
|
|
1.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
24.0 |
|
|
$ |
23.3 |
|
|
|
|
|
|
|
|
Operating expenses at Royal Wolf decreased by $0.7 million, or 2.9%, in FY 2009 from FY 2008.
As a percentage of revenues, it increased to 25.3% in FY 2009 from 21.5% in FY 2008; primarily as a
result of the lower revenues at Royal Wolf in FY 2009 from FY 2008.
The major decreases in leasing, selling and general expenses for FY
2009 were: (1) salaries and related payroll costs decreased as a result of staff reductions and lower bonuses, (2) less discretionary spending on retail business (CSC operating costs) including travel and meals, and (3) better control of our professional costs. As a percentage of revenues,
operating expenses at Pac-Van were 45.8% during FY 2009. Pac-Vans
operating expenses as a percentage of revenues are higher than Royal Wolfs percentage as: (1) Royal Wolfs mix of FY 2009 sales to leasing revenue at 61% is higher than the 35% at Pac-Van, (2) Pac-Van has invested in an office modular fleet which is a lower margin product line; and (3) Pac-Van has less density in its retail markets. Overall, total operating expenses as a
percentage of revenues were 34.8% in FY 2009, as compared to 23.7% in FY 2008.
Depreciation and Amortization. Depreciation and amortization increased by $9.0 million to
$17.0 million during FY 2009 from $8.0 million during FY 2008. The increase was primarily due to
adjustments to fixed assets and identifiable intangible assets as a result of the
Pac-Van acquisition, as well as three other smaller acquisitions since June 2008. Depreciation and
amortization at Pac-Van totaled $5.7 million during FY 2009.
Interest Expense. The increase in interest expense of $8.4 million in FY 2009 to $16.2
million, as compared to $7.8 million in FY 2008, was due primarily to the increase in total
long-term debt; which was $81.3 million at June 30, 2008 and $200.3 million at June 30, 2009, and
an unrealized loss on interest rate swap and option contracts totaling $2.1 million. The increase
in total debt since FY 2008 was due primarily to our acquisition of Pac-Van and three other smaller
acquisitions since June 2008, funded principally with borrowings under the senior credit facility
with Australia and New Zealand Banking Group Limited (ANZ) and the secured senior subordinated
notes issued to Bison Capital; as well as the assumption of the senior credit facility with a
syndication of four financial institutions led by LaSalle National Association, now Bank of
America, N.A. (BOA), and the senior subordinated secured note payable to SPV Capital funding,
L.L.C. (SPV) in connection with our acquisition of Pac-Van.
Foreign Currency Exchange. We 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. Unrealized
gains and losses resulting from such remeasurement due to changes in the Australian exchange rate
to the U.S. dollar could have a significant impact in our reported results of operations, as well
as any realized gains and losses from the payments on such U.S. dollar-denominated debt and
intercompany borrowings. As noted above, the average value of the U.S. dollar against the
Australian dollar strengthened during FY 2009 as compared to FY 2008 and, in addition, the U.S.
dollar strengthened against the Australian dollar from June 30, 2008 to June 30, 2009. The
currency exchange rate of one Australian dollar at June 30, 2008 was $0.9615 U.S. dollar compared
to $0.8048 U.S. dollar at June 30, 2009. In addition, we incurred a significant realized exchange
loss of $2.8 million as a result of Royal Wolfs repayment of intercompany advances totaling $21.5
million in September 2008. We advanced $20.0 million of the proceeds received from our warrant
exercise program in May 2008 to Royal Wolf for the temporary reduction of long-term borrowings
prior to the ultimate use of these proceeds in the acquisition of Pac-Van on October 1, 2008. In
FY 2009, unrealized and realized foreign exchange losses totaled $6.6 million and $2.8 million,
respectively. These foreign exchange losses were somewhat offset in FY 2009 by unrealized gains on
forward currency exchange contracts, which totaled $0.2 million.
Income Taxes. Our effective income tax rate (which resulted in an income tax benefit)
increased to 39.3% during FY 2009 from the FY 2008 effective rate of 31.4%, primarily as a result
of the favorable income tax impact of the amortization of goodwill acquired in acquisitions made in
the Asia-Pacific area, which is deductible for U.S. income tax reporting purposes, and the
recognized benefit of Australian and U.S. net operating losses. As of
June 30, 2009, we had a U.S. federal net operating loss carryforward
of approximately $34.8 million, which expires if unused during fiscal
years 2019 to 2029.
39
Net Income. We had a net loss of $3.7 million during FY 2009, as compared to net income of
$4.4 million during FY 2008, primarily as a result of the unfavorable impact of the foreign
currency exchange losses and increased interest expense FY 2009 versus FY 2008; offset somewhat by
the operating profit from Pac-Van, which we acquired on October 1, 2008.
Year Ended June 30, 2008 (FY 2008) Compared to Year Ended June 30, 2007 (FY 2007)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
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.
40
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.
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.
41
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.
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 we believe 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
Successor |
|
|
Combined |
|
|
Successor |
|
|
|
Year |
|
|
Period from |
|
|
|
|
|
|
Ended |
|
|
July 1 to |
|
|
|
|
|
|
June 30, |
|
|
September 13, |
|
|
Year Ended June 30, |
|
|
|
2007 |
|
|
2007 |
|
|
2008 |
|
|
2008 |
|
|
2009 |
|
|
Operating income |
|
$ |
4,672 |
|
|
$ |
1,530 |
|
|
$ |
8,373 |
|
|
$ |
9,903 |
|
|
$ |
14,058 |
|
Add depreciation and amortization |
|
|
2,577 |
|
|
|
653 |
|
|
|
7,367 |
|
|
|
8,020 |
|
|
|
17,045 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA |
|
|
7,249 |
|
|
|
2,183 |
|
|
|
15,740 |
|
|
|
17,923 |
|
|
|
31,103 |
|
Add Share-based compensation expense |
|
|
3,689 |
|
|
|
|
|
|
|
509 |
|
|
|
509 |
|
|
|
902 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA |
|
$ |
10,938 |
|
|
$ |
2,183 |
|
|
$ |
16,249 |
|
|
$ |
18,432 |
|
|
$ |
32,005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our business is capital intensive, so from an operating level,
we focus primarily on adjusted EBITDA to measure our results. This measure
eliminates the effect of financing transactions that we enter into and provides us with a
means to track internally generated cash from which we can fund our interest expense and fleet growth objectives.
In managing our business, we regularly compare our EBITDA margins on a monthly basis.
As capital is invested in our established branch locations, we achieve higher EBITDA margins on that
capital than we achieve on capital invested to establish a new branch (or CSC), because our fixed costs are
already in place in connection with the established branches.
The fixed costs are those associated with yard and delivery equipment, as well as advertising,
sales, marketing and office expenses. With a new market or branch, we must first fund and absorb the
start-up costs for setting up the new branch facility, hiring and developing the management and sales
team and developing our marketing and advertising programs.
A new branch will have low EBITDA margins in its early years until the number of units on rent increases.
Because of our higher operating margins on incremental lease revenue,
which we realize on a branch-by-branch basis when, the branch achieves leasing revenues sufficient to
cover the branchs fixed costs, leasing revenues in excess of the break-even amount produces large
increases in profitability. Conversely, absent significant growth in leasing revenues, the EBITDA margin at a
branch will remain relatively flat on a period by period comparative basis.
42
Liquidity and Financial Condition
Each of our two operating units, Royal Wolf and Pac Van, fund their operations substantially
independent of one another. Each have term debt and bank credit facilities that provide short term
and long term funding and require compliance with various covenants. These covenants require them
to, among other things; maintain certain levels of interest coverage, EBITDA, unit utilization rate
and overall leverage. In addition, we have a $1.0 million credit facility and have certain
obligations to Bison Capital and SPV in connection with its purchase of Royal Wolf and Pac Van,
respectively.
The global economic downturn and credit crises have had and continue to have a significant
adverse impact on our business operations, making compliance with the various loan covenants very
challenging. In addition, our leverage has increased due to declining EBITDA and asset values. We
have limited access to additional capital except on terms that may be viewed as onerous and
expensive. While we have and continue to proactively manage our various loan agreements and
believe we have satisfactory relationships with each lender, continued deterioration of the
economies in which we operate could lead to a breach in one or more covenants and the lenders
accelerating loan maturities.
During FY 2009, we began negotiations with our lenders to modify various covenants and extend
maturities. These included our amending our senior credit facility with ANZ (see Note 13 of Notes
to Consolidated Financial Statements) and our shareholders agreement with Bison Capital in GFN U.S.
(see Note 10 of Notes to Consolidated Financial Statements). The effect of these amendments, among
other things, was establishing financial covenants on the ANZ facility at less restrictive levels,
as well as revising principal payment requirements, and deferring Bison Capitals put option on
their minority interest in GFN U.S. (through which we indirectly own Royal Wolf) to July 2011.
Also, as a result of the ANZ credit facility amendment, we are required to pay the U.S.-denominated
principal payment of $5.5 million due Bison Capital in July 2010 by a capital infusion from GFN.
Our required principal and other obligations payments (not including the invoice financing
facility of $5.2 million and Bison Capitals put option) for the next three years are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ending June 30, |
|
|
|
2010 |
|
|
2011 |
|
|
2012 (a) |
|
ANZ senior credit facility and other |
|
$ |
9,700 |
|
|
$ |
9,500 |
|
|
$ |
300 |
|
Bison Capital subordinated notes (first installment due in July 2010) |
|
|
|
|
|
|
5,500 |
|
|
|
|
|
Holdback note (issued in connection with Pac-Van acquisition) |
|
|
1,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
11,200 |
|
|
$ |
15,000 |
|
|
$ |
300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The Bison put option of a minimum of $12.9 million is effective on July 1, 2011. |
We have three principal objectives with respect to our liquidity in the foreseeable future:
1. Reduce overall leverage in each operating entity by minimizing capital expenditures and
using operating cash flow to pay interest and reduce debt.
2. Operate the businesses to meet all loan covenant requirements.
3. Generate sufficient capital, either through operations or external sources, including
debt or equity, to meet loan maturities.
Depending on our operating performance, we believe we may require up to approximately $6.0
million of external financing during the fiscal year ending June 30, 2010 in achieving these
objectives. There can be no assurance that we will be successful in raising additional capital or
maintaining compliance with our loan covenants. We currently do not pay a dividend on common stock
and anticipate using retained earnings to reduce debt for the foreseeable future.
Cash Flow for FY 2009 Compared to FY 2008
Our leasing business is capital intensive and we acquire leasing assets before they generate
revenues, cash flow and earnings. These leasing assets have very long useful lives and require
relatively minimal maintenance expenditures. Most of the capital we deploy into our leasing
business historically has been used to expand our operations geographically, to increase the number
of units available for lease at our retail locations, and to add to our breadth of product mix. Our
operations have generated annual cash flow that exceeds our reported earnings, particularly due to
the deferral of income taxes caused by accelerated depreciation that is used for tax accounting.
Our principal source of capital for operations consists of funds available from the senior
secured credit facility with ANZ and the senior secured credit facility led by BOA. 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 and have outstanding senior subordinated notes with
Bison Capital and SPV. Supplemental information pertaining to our combined sources and uses of cash
is presented in the table below.
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
Successor |
|
|
Combined |
|
|
Successor |
|
|
|
Year |
|
|
Period from |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended |
|
|
July 1 to |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
September 13, |
|
|
Year Ended June 30, |
|
|
|
2007 |
|
|
2007 |
|
|
2008 |
|
|
2008 |
|
|
2009 |
|
Net cash provided by operating activities |
|
$ |
8,956 |
|
|
$ |
4,294 |
|
|
$ |
8,016 |
|
|
$ |
12,310 |
|
|
$ |
23,332 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by investing activities |
|
$ |
(21,914 |
) |
|
$ |
(3,078 |
) |
|
$ |
(120,484 |
) |
|
$ |
(123,562 |
) |
|
$ |
(38,793 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by financing activities |
|
$ |
13,389 |
|
|
$ |
(1,807 |
) |
|
$ |
45,352 |
|
|
$ |
43,545 |
|
|
$ |
17,831 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities. Our operations provided net cash flow of $23.3 million during FY
2009, as compared to using net cash flow of $12.3 million during FY 2008. The significant increase
in operating cash flows of $11.0 million in FY 2009 from FY 2008 was, despite the net loss of $3.7
million, primarily due to non-cash adjustments of unrealized losses on foreign exchange and forward
exchange contracts and interest rate swaps and options of $6.6 million and $2.1 million,
respectively; as well as depreciation and amortization of $17.0 million. This compares to
unrealized gains on foreign exchange and forward exchange contracts and interest rate swaps and
options aggregating to $4.4 million and depreciation and amortization of $8.0 million in FY 2008.
These non-cash adjustments in FY 2009 more than offset the other adjustments and uses of cash,
including the realized foreign exchange losses of $2.8 million incurred primarily as a result of
Royal Wolf repaying intercompany advances totaling
$21.5 million. Cash provided by operating activities is enhanced by the deferral of most income taxes due to
the rapid tax depreciation rate of our assets and our federal and state net operating loss
carryforwards. At June 30, 2009, we had a net deferred tax liability of $13.8 million.
Investing Activities. Net cash used by investing activities was $38.8 million for FY 2009, as
compared to $123.6 million for FY 2008. In FY 2008, cash of $110.9 million was used to acquire
Royal Wolf and four other smaller acquisitions, while in FY 2009 we used $21.0 million to acquire
Pac-Van and three other small acquisitions (not including non-cash issuances of a promissory note
and common and preferred stock totaling $27.2 million). Net capital expenditures for our lease
fleet were $14.3 million in FY 2009 and $11.7 million in FY
2008. Purchases of property, plant and
equipment were $3.5 million in FY 2009 and $0.7 million in FY 2008. In the current economic environment, we anticipate our near term investing activities will be
primarily focused on acquiring lease fleet as those specific types of units are not in our fleet
and are placed on-rent, technology and communication improvements for our telephone and computer
systems and for delivery equipment whereby we would derive improved customer service levels and a
cost savings. The amount of cash that we use
during any period in investing activities is almost entirely within managements discretion. Other
than a preferred supply agreement, which does not have a minimum purchase commitment, but does
require us to purchase up to 5,000 containers if offered to us; and the put and call options
pertaining to Bison Capitals minority interest of 13.8% in GFN U.S., we have no significant
long-term contracts or other arrangements pursuant to which we may be required to purchase at a
certain 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 $17.8 million during FY
2009, as compared to $43.5 million during FY 2008. In FY 2008, we used $2.4 million to fully repay
the line of credit with Ronald Valenta, our Chief Executive Officer, and paid $6.4 million to our
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 $16.4 million in FY 2009, as compared to net borrowings of $26.6 million in FY 2008. In
addition, net proceeds received from the issuances of our preferred stock totaled $1.2 million in
FY 2009; versus $26.0 million in FY 2008, of which $21.0 million was from our warrant exercise
program initiated in May 2008. These proceeds from our capital issuances and net borrowings were
used together with cash flow generated from operations to primarily fund the acquisition of Royal
Wolf, Pac-Van, as well as for seven other small acquisitions, and the expansion of our lease fleet.
Financial Condition
Inventories increased from $21.1 million at June 30, 2008 to $22.5 million at June 30, 2009,
primarily because of the acquisitions of Pac-Van (which added $9.2 million in inventories at June
30, 2009) and our New Zealand operations. Trade receivables increased to $26.4 million at June 30,
2009 from $18.3 million at June 30, 2008. Effective asset management is a significant focus for
us, particularly in this current economic environment, as we strive to reduce inventory levels and
continue to apply appropriate credit and collection controls to maintain and enhance cash flow and
profitability.
Property, plant and equipment increased from $7.5 million at June 30, 2008 to $10.5 million at
June 30, 2009, primarily as a result of our acquisition of Pac-Van.
Our total lease fleet increased from $87.7 million at June 30, 2008 to $188.9 million at June
30, 2009, primarily due to our acquisition of Pac-Van and three other smaller acquisitions since
June 2008. At June 30, 2009, we had 39,574 units (15,534 units in retail operations in Australia,
8,190 units in national account group operations in Australia, 4,503 units in New Zealand, which
are considered retail; and 11,347 units in the United States) in our lease fleet, as compared to
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) at June 30, 2008. At
those dates, 27,825 units (11,106 units in retail operations in Australia, 5,145 units in national
account group operations in Australia, 3,494 units in New Zealand, which are considered retail; and
8,080 units in the United States) and 23,000 units (12,616 units in retail operations in Australia,
6,773 units in national account group operations in Australia and
3,611 units in New Zealand, which
are considered retail) were on lease, respectively.
Goodwill and intangible assets increased from a total of $66.4 million at June 30, 2008 to
$104.0 million at June 30, 2009, as a result of the purchase accounting adjustments in connection
with our acquisition of Pac-Van and five other smaller acquisitions since June 2008.
Long-term debt and obligations, including current portion, increased from $81.3 million at
June 30, 2008 to $200.4 million at June 30, 2009, primarily due to the acquisition of Pac-Van and
three other smaller acquisitions since June 2008, and the expansion of our lease fleet. These
acquisitions and capital expenditures were funded in large part by issuances of our common and
preferred stock, borrowings on the ANZ senior credit facility and the issuance of a secured senior
subordinated note to Bison Capital; as well as the assumption of the BOA senior credit facility and
the senior subordinated note payable to SPV. Reference is made to Notes 5 and 13 of Notes to
Consolidated Financial Statements for further discussion of our long-term debt and obligations.
44
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 at
Royal Wolf 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.
Demand from some of Pac-Vans customers can be seasonal, such as in the construction industry,
which tends to increase leasing activity in the first and fourth quarters; while customers in the
retail industry tend to lease more units in the second quarter.
Impact of Inflation
We believe that inflation has not had a material effect on our business. However, during
periods of rising prices 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.
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 storage container products, modular buildings and mobile offices to our
customers. Leases to customers are generally short-term, which qualify 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, mobile offices, modular buildings and steps that we
lease to customers under operating lease agreements with varying terms. The lease fleet (or lease
or rental 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 (0% 70% of cost). In our opinion, estimated
residual values are at or below net realizable values. 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 (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 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 the
Companys 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 stock
option.
45
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 lives and
requires these assets be reviewed for impairment at least annually. We will test goodwill annually
for impairment or when events or circumstances indicate that there might be 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
impairment provision related to goodwill was required to be recorded as of June 30, 2009.
Intangible assets include those with indefinite (trademark and trade name), and finite
(primarily customer base and lists, non-compete agreements and deferred financing costs) useful
lives. Customer base and 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. We
review intangibles (those assets resulting from acquisitions) at least annually for impairment or
when events or circumstances indicate these assets might be impaired. We test impairment using
historical cash flows and other relevant facts and circumstances as the primary basis for its
estimates of future cash flows. This process requires the use of estimates and assumptions, which
are subject to a high degree of judgment. We have determined that an impairment related to the
customer base acquired in the Pac-Van acquisition was required to be recorded as of June 30, 2009,
as a result of changes in market conditions in the U.S. Therefore, in the fourth quarter of FY
2009, we, to be more in line with the expected revenue stream of the customer base, recorded the
impairment by revising the method of amortization from a straight-line to an accelerated basis.
The financial impact of the revision resulted in an impairment expense for FY 2009
of $689,000.
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.
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, 2009.
We have adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an
interpretation of FASB Statement No. 109 (FIN 48). 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 and
other market-driven rates or prices.
Reference is made to Note 6 of Notes to Consolidated Financial Statements for a discussion of
market risk related to interest rates and foreign exchanges.
46
|
|
|
Item 8. |
|
Financial Statements and Supplementary Data |
|
|
|
|
|
Index to Consolidated Financial Statements: |
|
|
|
|
|
|
|
|
|
|
|
|
F-1 |
|
|
|
|
|
|
|
|
|
F-2 |
|
|
|
|
|
|
|
|
|
F-3 |
|
|
|
|
|
|
|
|
|
F-4 |
|
|
|
|
|
|
|
|
|
F-5 |
|
|
|
|
|
|
|
|
|
F-6 |
|
|
|
|
|
|
|
|
|
F-7 |
|
|
|
|
Item 9. |
|
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
None.
|
|
|
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, 2009 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, 2009, 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.
47
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 of our principal executive and principal financial officers, 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, 2009.
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, 2009 that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
|
|
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Item 9B. |
|
Other Information |
None.
48
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 2009 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.
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Item 10. |
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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.
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Item 11. |
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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.
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Item 12. |
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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.
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Item 13. |
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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.
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Item 14. |
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Principal Accountant Fees and Services |
Information required by this Item is incorporated herein by reference to information included
in the Proxy Statement.
49
PART IV
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Item 15. |
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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
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Exhibit |
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Number |
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Exhibit Description |
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|
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). |
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|
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2.2 |
|
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Agreement and Plan of Merger dated July 28, 2008 among
General Finance Corporation, GFN North America Corp.,
Mobile Office Acquisition Corp., Pac-Van, Inc., Ronald F.
Valenta, Ronald L. Havner, Jr., D. E. Shaw Laminar
Portfolios, L.L.C. and Kaiser Investments Limited
(incorporated by reference to Exhibit 2.1 of Registrants
Form 8-K filed July 28, 2008). |
|
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|
|
|
|
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). |
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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). |
|
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3.3 |
|
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Certificate of Designation for the Series A Preferred Stock
filed with the Delaware Secretary of State on December 3,
2008 (incorporated by reference to Registrants Form 8-K
filed December 9, 2008). |
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3.4 |
|
|
Certificate of Designation for the Series B Preferred Stock
filed with the Delaware Secretary of State on December 3,
2008 (incorporated by reference to Registrants Form 8-K
filed December 9, 2008). |
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|
4.1 |
|
|
Form of Unit Certificate (incorporated by reference to
Exhibit 4.1 of Registrants Form S-1, File No. 333-129830). |
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4.2 |
|
|
Form of Common Stock Certificate (incorporated by reference
to Exhibit 4.2 of Registrants Form S-1, File
No. 333-129830). |
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4.3 |
|
|
Form of Warrant Certificate (incorporated by reference to
Exhibit 4.3 of Registrants Form S-1, File No. 333-129830). |
|
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|
|
|
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). |
|
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|
|
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|
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). |
50
|
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|
|
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). |
|
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|
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). |
|
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|
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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). |
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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). |
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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). |
|
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|
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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). |
|
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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). |
|
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|
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). |
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|
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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). |
|
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|
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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). |
|
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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). |
|
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|
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|
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). |
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|
|
|
|
|
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). |
51
|
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|
|
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). |
|
|
|
|
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|
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). |
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|
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|
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|
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). |
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|
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). |
52
|
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|
|
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). |
|
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|
|
|
|
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). |
|
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|
|
|
|
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). |
|
|
|
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|
|
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). |
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|
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|
|
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). |
|
|
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|
|
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). |
|
|
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|
|
|
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). |
|
|
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|
|
|
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). |
|
|
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|
|
|
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). |
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|
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). |
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|
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|
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|
10.42 |
|
|
Letter of Offer effective July 3, 2008 among the Royal Wolf Australia Group and ANZ
(incorporated by reference to Exhibit 10.1 of Registrants Form 8-K filed July 3, 2008). |
|
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|
|
10.43 |
|
|
Amended and Restated Credit Agreement dated August 23, 2007 (incorporated by reference
to Registrants Form 8-K filed October 7, 2008). |
|
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|
|
|
10.44 |
|
|
First Amendment to Amended and Restated Credit Agreement dated September 23, 2008
(incorporated by reference to Registrants Form 8-K filed October 7, 2008). |
|
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|
10.45 |
|
|
Second Amendment to Amended and Restated Credit Agreement dated September 24, 2008
(incorporated by reference to Registrants Form 8-K filed October 7, 2008). |
|
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|
10.46 |
|
|
Amended and Restated Investment Agreement dated October 1, 2008 (incorporated by
reference to Registrants Form 8-K filed October 7, 2008). |
|
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|
|
10.47 |
|
|
Amended and Restated Pledge Agreement dated October 1, 2008 (incorporated by reference
to Registrants Form 8-K filed October 7, 2008). |
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|
|
10.48 |
|
|
Amended and Restated Continuing Unconditional Guaranty dated October 1, 2008
(incorporated by reference to Registrants Form 8-K filed October 7, 2008). |
53
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|
|
Exhibit |
|
|
Number |
|
Exhibit Description |
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|
|
|
|
|
10.49 |
|
|
Security Agreement dated October 1, 2008 (incorporated by reference to
Registrants Form 8-K filed October 7, 2008). |
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|
10.50 |
|
|
Continuing Unconditional Guaranty dated October 1, 2008 (incorporated by
reference to Registrants
Form 8-K filed October 7, 2008). |
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|
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|
10.51 |
|
|
Subordination and Intercreditor Agreement dated October 1, 2008 (incorporated by
reference to Registrants Form 8-K filed October 7, 2008). |
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|
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|
|
10.52 |
|
|
Pledge Agreement dated October 1, 2008 (incorporated by reference to
Registrants Form 8-K filed October 7, 2008). |
|
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|
10.53 |
|
|
Subordinated Promissory Note dated October 1, 2008 (incorporated by reference to
Registrants Form 8-K filed October 7, 2008). |
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|
|
10.54 |
|
|
Stockholders Agreement dated October 1, 2008 (incorporated by reference to
Registrants Form 8-K filed October 7, 2008). |
|
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|
|
10.55 |
|
|
First Amendment to Employment Agreement dated July 22, 2008 (incorporated by
reference to Registrants Form 8-K filed October 7, 2008). |
|
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|
|
|
10.56 |
|
|
Employment Agreement dated November 10, 2008 between General Finance Corporation
and John Johnson 2006 (incorporated by reference to Exhibit 10.2 of Registrants
Quarterly Report on Form 10-Q for the quarter ended September 30, 2008). |
|
|
|
|
|
|
10.57 |
|
|
Letter of Offer dated as of December 17, 2008 among GFN Australasia Holdings Pty
Ltd., GFN Australasia Finance Pty Ltd., RWA Holdings Pty, Ltd., Royal Wolf
Trading Australia Pty Ltd., Royal Wolf Hi-Tech Pty Ltd. and Australia and New
Zealand Banking Group Limited 2008 (incorporated by reference to Exhibit 10.1 of
Registrants Form 8-K filed December 19, 2008). |
|
|
|
|
|
|
10.58 |
|
|
Employment Agreement dated February 11, 2009 between General Finance Corporation
and Ronald F. Valenta 2006 (incorporated by reference to Exhibit 10.15 of
Registrants Quarterly Report on Form 10-Q for the quarter ended December 31,
2008). |
|
|
|
|
|
|
10.59 |
|
|
Form of Series A Preferred Stock Purchase Agreement (incorporated by reference
to Registrants Form 8-K filed February 13, 2009). |
|
|
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|
|
10.60 |
|
|
Form of Registration Rights Agreement (incorporated by reference to Registrants
Form 8-K filed February 13, 2009). |
|
|
|
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|
|
10.61 |
|
|
First Amendment to Stockholders Agreement dated March 31, 2009 (incorporated by
reference to Registrants Form 8-K filed April 1, 2009). |
|
|
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|
|
10.62 |
|
|
Letter Agreement dated March 30, 2009 (incorporated by reference to Registrants
Form 8-K filed April 1, 2009). |
|
|
|
|
|
|
10.63 |
|
|
Variation Letter dated as of May 14, 2009 among Australasia Holdings Pty Ltd.,
GFN Australasia Finance Pty Ltd. and Australia and New Zealand Banking Group
Limited (incorporated by reference to Registrants Form 8-K filed May 26, 2009). |
|
|
|
|
|
|
21.1 |
|
|
Subsidiaries of General Finance Corporation |
|
|
|
|
|
|
23.1 |
|
|
Consent of Independent Registered Public Accounting Firm (Crowe Horwath LLP) |
|
|
|
|
|
|
23.2 |
|
|
Consent of Independent Registered Public Accounting Firm (Grobstein, Horwath &
Company LLP) |
|
|
|
|
|
|
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 |
54
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 |
September 28, 2009 |
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
|
|
September 28, 2009 |
|
|
(Principal Executive Officer) |
|
|
|
|
|
|
|
/s/ Charles E. Barrantes
Charles E. Barrantes
|
|
Executive Vice President and Chief Financial Officer
|
|
September 28, 2009 |
|
|
(Principal Accounting and Financial Officer) |
|
|
|
|
|
|
|
/s/ Lawrence Glascott
Lawrence Glascott
|
|
Chairman
of the Board of Directors
|
|
September 28, 2009 |
|
|
|
|
|
/s/ David M. Connell
David M. Connell
|
|
Director
|
|
September 28, 2009 |
|
|
|
|
|
/s/ Manuel Marrero
Manuel Marrero
|
|
Director
|
|
September 28, 2009 |
|
|
|
|
|
/s/ James B. Roszak
James B. Roszak
|
|
Director
|
|
September 28, 2009 |
|
|
|
|
|
/s/ Ronald L. Havner, Jr.
Ronald L. Havner, Jr.
|
|
Director
|
|
September 28, 2009 |
|
|
|
|
|
/s/ Susan Harris
Susan Harris
|
|
Director
|
|
September 28, 2009 |
55
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
General Finance Corporation
We have audited the accompanying consolidated balance sheet of General Finance Corporation and
Subsidiaries as of June 30, 2009, and the related consolidated statements of operations,
stockholders equity and comprehensive income (loss), and cash flows for the year ended June 30,
2009. In connection with our audit of the financial statements, we have also audited the financial
statement schedule listed in Item 15(a) of this Form 10-K. These financial statements and
financial statement schedule are the responsibility of the Companys management. Our responsibility
is to express an opinion on these financial statements and financial statement schedule based on
our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of its internal control
over financial reporting. Our audit 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 an opinion on the effectiveness of the Companys internal control
over financial reporting. Accordingly, we express no such opinion. 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
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of the Company as of June 30, 2009, and the
consolidated results of its operations and its cash flows for the year ended June 30, 2009, in
conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial statements taken
as a whole, presents fairly, in all material respects, the information set forth therein.
/s/ Crowe Horwath LLP
Sherman Oaks, California
September 28, 2009
F-1
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 sheet of General Finance Corporation and
Subsidiaries (the Successor) as of June 30, 2008, and the related consolidated statement of
operations for the year ended June 30, 2008, consolidated statements
of stockholders equity and comprehensive income (loss)
for the period since inception (October 14, 2005) to June 30, 2007 and
for the year ended June 30, 2008, and consolidated statement of cash flows for the year ended June 30, 2008. We have also audited the accompanying consolidated statements of operations and cash flows
of RWA Holding Pty Limited and Subsidiaries (the Predecessor) for the period from July 1, 2007 to
September 13, 2007 and for the year ended June 30, 2007. These financial statements are the
responsibility of the management of the Successor and Predecessor (collectively referred to as the
Companies). 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 (loss) 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 results of
operations and cash flows of RWA Holding Pty Limited and Subsidiaries for the period from July 1,
2007 to September 13, 2007 and for the year ended June 30, 2007 in conformity with accounting
principles generally accepted in the Unites States.
/s/ Grobstein, Horwath & Company LLP
Sherman Oaks, California
September 13, 2008
F-2
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
Successor (Note 1) |
|
|
|
June 30, |
|
|
|
2008 |
|
|
2009 |
|
Assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
2,772 |
|
|
$ |
3,346 |
|
Trade and other receivables, net of allowance for doubtful accounts of $485 and $2,092 at June 30, 2008 and 2009, respectively |
|
|
18,327 |
|
|
|
26,432 |
|
Inventories |
|
|
21,084 |
|
|
|
22,511 |
|
Prepaid expenses |
|
|
2,094 |
|
|
|
1,883 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
44,277 |
|
|
|
54,172 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease receivables |
|
|
1,589 |
|
|
|
1,163 |
|
Property, plant and equipment, net |
|
|
7,503 |
|
|
|
10,460 |
|
Lease fleet, net |
|
|
87,748 |
|
|
|
188,915 |
|
Goodwill |
|
|
31,721 |
|
|
|
73,917 |
|
Intangible assets, net |
|
|
34,698 |
|
|
|
30,058 |
|
Other assets |
|
|
325 |
|
|
|
11 |
|
|
|
|
|
|
|
|
Total non-current assets |
|
|
163,584 |
|
|
|
304,524 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
207,861 |
|
|
$ |
358,696 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
Trade payables and accrued liabilities |
|
$ |
18,504 |
|
|
$ |
24,422 |
|
Current portion of long-term debt and obligations |
|
|
3,223 |
|
|
|
16,371 |
|
Unearned revenue and advance payments |
|
|
2,930 |
|
|
|
8,461 |
|
Income taxes payable |
|
|
705 |
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
25,362 |
|
|
|
49,254 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities |
|
|
|
|
|
|
|
|
Long-term debt and obligations, net of current portion |
|
|
78,029 |
|
|
|
183,933 |
|
Deferred tax liabilities |
|
|
1,462 |
|
|
|
13,822 |
|
Employee benefits and other non-current liabilities |
|
|
227 |
|
|
|
235 |
|
|
|
|
|
|
|
|
Total non-current liabilities |
|
|
79,718 |
|
|
|
197,990 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 10) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interest |
|
|
9,050 |
|
|
|
8,278 |
|
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
|
|
|
|
|
|
Cumulative preferred stock, $.0001 par value: 1,000,000 shares authorized; 25,000 shares issued and outstanding (in series) at June 30, 2009 and
stated at liquidation value ($1,386 total liquidation preference) |
|
|
|
|
|
|
1,345 |
|
Common stock, $.0001 par value: 100,000,000 shares authorized; 13,826,052 and 17,826,052 shares outstanding at June 30, 2008 and 2009, respectively |
|
|
1 |
|
|
|
2 |
|
Additional paid-in capital |
|
|
81,688 |
|
|
|
105,314 |
|
Accumulated other comprehensive income (loss) |
|
|
6,787 |
|
|
|
(4,963 |
) |
Retained earnings |
|
|
5,255 |
|
|
|
1,476 |
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
93,731 |
|
|
|
103,174 |
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
207,861 |
|
|
$ |
358,696 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-3
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
Successor (Note 1) |
|
|
|
|
|
|
|
Period from |
|
|
|
|
|
|
Year Ended |
|
|
July 1 to |
|
|
|
|
|
|
June 30, |
|
|
September 13, |
|
|
Year Ended June 30, |
|
|
|
2007 |
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
$ |
52,929 |
|
|
$ |
10,944 |
|
|
$ |
68,029 |
|
|
$ |
75,528 |
|
Leasing |
|
|
21,483 |
|
|
|
4,915 |
|
|
|
27,547 |
|
|
|
70,932 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74,412 |
|
|
|
15,859 |
|
|
|
95,576 |
|
|
|
146,460 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
46,402 |
|
|
|
9,466 |
|
|
|
57,675 |
|
|
|
64,317 |
|
Leasing, selling and general expenses |
|
|
20,761 |
|
|
|
4,210 |
|
|
|
22,161 |
|
|
|
51,040 |
|
Depreciation and amortization |
|
|
2,577 |
|
|
|
653 |
|
|
|
7,367 |
|
|
|
17,045 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
4,672 |
|
|
|
1,530 |
|
|
|
8,373 |
|
|
|
14,058 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
413 |
|
|
|
14 |
|
|
|
1,289 |
|
|
|
296 |
|
Interest expense |
|
|
(4,378 |
) |
|
|
(947 |
) |
|
|
(6,888 |
) |
|
|
(16,161 |
) |
Foreign currency exchange gain (loss) and other |
|
|
95 |
|
|
|
(129 |
) |
|
|
3,814 |
|
|
|
(9,312 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,870 |
) |
|
|
(1,062 |
) |
|
|
(1,785 |
) |
|
|
(25,177 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for income
taxes and minority interest |
|
|
802 |
|
|
|
468 |
|
|
|
6,588 |
|
|
|
(11,119 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision (benefit) for income taxes |
|
|
490 |
|
|
|
180 |
|
|
|
2,034 |
|
|
|
(4,374 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interest |
|
|
|
|
|
|
|
|
|
|
448 |
|
|
|
(3,028 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
312 |
|
|
$ |
288 |
|
|
$ |
4,106 |
|
|
$ |
(3,717 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
|
|
|
|
|
$ |
0.40 |
|
|
$ |
(0.22 |
) |
Diluted |
|
|
|
|
|
|
|
|
|
|
0.39 |
|
|
|
(0.22 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
|
|
|
|
|
|
10,160,955 |
|
|
|
16,817,833 |
|
Diluted |
|
|
|
|
|
|
|
|
|
|
10,485,397 |
|
|
|
16,817,833 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-4
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME (LOSS)
(In thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor (Note 1)
|
|
|
|
Cumulative |
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
Other |
|
|
|
|
|
|
Total |
|
|
|
Preferred Stock |
|
|
Common Stock |
|
|
Paid-In |
|
|
Comprehensive |
|
|
Retained |
|
|
Stockholders |
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Income (Loss) |
|
|
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 stag |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
110 |
|
|
|
|
|
|
|
|
|
|
|
110 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
Issuance of common stock |
|
|
|
|
|
|
|
|
|
|
4,000,000 |
|
|
|
1 |
|
|
|
25,599 |
|
|
|
|
|
|
|
|
|
|
|
25,600 |
|
Issuance of preferred stock |
|
|
25,000 |
|
|
|
1,345 |
|
|
|
|
|
|
|
|
|
|
|
(9 |
) |
|
|
|
|
|
|
|
|
|
|
1,336 |
|
Share-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
902 |
|
|
|
|
|
|
|
|
|
|
|
902 |
|
Contributed services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
130 |
|
|
|
|
|
|
|
|
|
|
|
130 |
|
Adjustment
of redemption value of minority interest put option |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,996 |
) |
|
|
|
|
|
|
|
|
|
|
(2,996 |
) |
Cumulative dividends paid |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(62 |
) |
|
|
(62 |
) |
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,717 |
) |
|
|
(3,717 |
) |
Cumulative translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,750 |
) |
|
|
|
|
|
|
(11,750 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,467 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2009 |
|
|
25,000 |
|
|
$ |
1,345 |
|
|
|
17,826,052 |
|
|
$ |
2 |
|
|
$ |
105,314 |
|
|
$ |
(4,963 |
) |
|
$ |
1,476 |
|
|
$ |
103,174 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-5
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
Successor (Note 1) |
|
|
|
|
|
|
|
Period from |
|
|
|
|
|
|
Year Ended |
|
|
July 1 to |
|
|
|
|
|
|
June 30, |
|
|
September 13, |
|
|
Year Ended June 30, |
|
|
|
2007 |
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
312 |
|
|
$ |
288 |
|
|
$ |
4,106 |
|
|
$ |
(3,717 |
) |
Adjustments to reconcile net income (loss) to cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss (gain) on sales and disposals of property, plant and equipment |
|
|
(23 |
) |
|
|
11 |
|
|
|
71 |
|
|
|
7 |
|
Unrealized foreign exchange loss (gain) |
|
|
(134 |
) |
|
|
58 |
|
|
|
(4,246 |
) |
|
|
6,616 |
|
Unrealized loss (gain) on forward exchange contracts |
|
|
40 |
|
|
|
72 |
|
|
|
34 |
|
|
|
(157 |
) |
Unrealized loss (gain) on interest rate swaps and options |
|
|
(174 |
) |
|
|
90 |
|
|
|
(377 |
) |
|
|
2,057 |
|
Depreciation and amortization |
|
|
2,577 |
|
|
|
653 |
|
|
|
7,367 |
|
|
|
17,045 |
|
Amortization of deferred financing costs |
|
|
|
|
|
|
|
|
|
|
216 |
|
|
|
256 |
|
Accretion of interest |
|
|
340 |
|
|
|
32 |
|
|
|
189 |
|
|
|
240 |
|
Share-based compensation expense |
|
|
336 |
|
|
|
|
|
|
|
509 |
|
|
|
902 |
|
Contributed services |
|
|
|
|
|
|
|
|
|
|
233 |
|
|
|
130 |
|
Interest deferred for common stock subject to possible conversion, net of income tax effect |
|
|
|
|
|
|
|
|
|
|
(226 |
) |
|
|
|
|
Deferred income taxes |
|
|
489 |
|
|
|
180 |
|
|
|
1,492 |
|
|
|
(4,198 |
) |
Minority interest |
|
|
|
|
|
|
|
|
|
|
448 |
|
|
|
(3,028 |
) |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and other receivables, net |
|
|
(5,017 |
) |
|
|
1,090 |
|
|
|
(1,321 |
) |
|
|
5,659 |
|
Inventories |
|
|
12,017 |
|
|
|
(3,822 |
) |
|
|
(7,162 |
) |
|
|
3,525 |
|
Prepaid expenses and other |
|
|
12 |
|
|
|
|
|
|
|
1,776 |
|
|
|
442 |
|
Trade payables, accrued liabilities and other deferred credits |
|
|
(1,869 |
) |
|
|
5,642 |
|
|
|
5,244 |
|
|
|
(2,125 |
) |
Income taxes payable |
|
|
50 |
|
|
|
|
|
|
|
(337 |
) |
|
|
(322 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by operating activities |
|
|
8,956 |
|
|
|
4,294 |
|
|
|
8,016 |
|
|
|
23,332 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sales of property, plant and equipment |
|
|
101 |
|
|
|
28 |
|
|
|
16 |
|
|
|
134 |
|
Business acquisitions, net of cash acquired |
|
|
(303 |
) |
|
|
|
|
|
|
(110,872 |
) |
|
|
(20,989 |
) |
Purchases of property, plant and equipment |
|
|
(845 |
) |
|
|
|
|
|
|
(678 |
) |
|
|
(3,531 |
) |
Purchases of lease fleet |
|
|
(20,350 |
) |
|
|
(3,106 |
) |
|
|
(8,560 |
) |
|
|
(14,300 |
) |
Purchases of intangible assets |
|
|
(66 |
) |
|
|
|
|
|
|
(390 |
) |
|
|
(107 |
) |
Payment of deferred purchase consideration |
|
|
(451 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by investing activities |
|
|
(21,914 |
) |
|
|
(3,078 |
) |
|
|
(120,484 |
) |
|
|
(38,793 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds (repayments) on capital leasing activities |
|
|
(718 |
) |
|
|
(7,921 |
) |
|
|
(641 |
) |
|
|
241 |
|
Proceeds from long-term borrowings |
|
|
5,361 |
|
|
|
1,124 |
|
|
|
25,447 |
|
|
|
16,416 |
|
Proceeds from issuances of capital |
|
|
8,746 |
|
|
|
4,990 |
|
|
|
21,044 |
|
|
|
1,236 |
|
Cumulative dividends paid |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(62 |
) |
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 |
|
|
13,389 |
|
|
|
(1,807 |
) |
|
|
45,352 |
|
|
|
17,831 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash |
|
|
431 |
|
|
|
(591 |
) |
|
|
(67,116 |
) |
|
|
2,370 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and equivalents at beginning of period |
|
|
567 |
|
|
|
886 |
|
|
|
68,277 |
|
|
|
2,772 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The effect of foreign currency translation on cash |
|
|
(112 |
) |
|
|
(5 |
) |
|
|
1,611 |
|
|
|
(1,796 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and equivalents at end of period |
|
$ |
886 |
|
|
$ |
290 |
|
|
$ |
2,772 |
|
|
$ |
3,346 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
$ |
1,497 |
|
|
$ |
494 |
|
|
$ |
6,199 |
|
|
$ |
13,417 |
|
Income taxes |
|
|
|
|
|
|
|
|
|
|
218 |
|
|
|
536 |
|
Non-cash investing and financing activities:
On October 1, 2008, the Company issued a subordinated promissory note of $1,500 and common stock of $25,600 as part of the consideration for the Pac-Van acquisition (see Note 1).
On December 8, 2008, the Company issued preferred stock of $100 as part of the consideration for the Container Wholesalers acquisition (see Note 4).
The accompanying notes are an integral part of these consolidated financial statements.
F-6
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 October 2005 to effect a
business combination with one or more operating businesses in the rental services and specialty
finance sectors. 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
North America Corp., a Delaware corporation (GFNNA); GFN Mobile Storage Inc., a Delaware
corporation (GFNMS); GFN Australasia Holdings Pty Ltd., an Australian corporation (GFN
Holdings); GFN Australasia Finance Pty Ltd, an Australian corporation (GFN Finance); RWA
Holdings Pty Limited (RWA), an Australian corporation, and its subsidiaries (collectively, Royal
Wolf); and Pac-Van, Inc., an Indiana corporation (Pac-Van). 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 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.; 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 of GFN U.S. GFN Finance, an
indirect subsidiary of GFN U.S., owns all of the outstanding capital stock of Royal Wolf.
Royal Wolf leases and sells storage containers, portable container buildings and freight
containers in Australia and New Zealand; which is considered geographically by the Company to be
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, 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 |
|
|
9,224 |
|
Lease receivables |
|
|
2,008 |
|
Property, plant and equipment |
|
|
4,346 |
|
Lease fleet |
|
|
51,362 |
|
Trade payables and accrued liabilities |
|
|
(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-7
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Acquisition
of Pac-Van
On October 1, 2008, the Company completed its acquisition of Pac-Van through a merger with
Mobile Office Acquisition Corp. (MOAC), the parent of Pac-Van, and the Companys wholly-owned
subsidiary formed in July 2008, GFNNA. Pac-Van leases and sells modular buildings, mobile offices
and storage containers in the United States.
The Company, in addition to assuming Pac-Vans long-term debt, paid the purchase price to the
stockholders of MOAC by a combination of $19.4 million in cash, 4,000,000 shares of GFN restricted
common stock (valued at $25.6 million) and a 20-month subordinated promissory note in the aggregate
principal amount of $1.5 million bearing interest at 8% per annum. The note and 1,133,333 shares of
the restricted common stock will secure the indemnification obligations for 20 months and 36
months, respectively. Among other things, the Company and the stockholders of MOAC entered into a
stockholders agreement which provided registration rights which may be exercised after June 30,
2009. In addition, in connection with the acquisition, the Company granted options to certain key
employees of Pac-Van and to a former stockholder of MOAC, who became a non-employee member of
Companys Board of Directors effective on that date, to purchase 347,000 and 9,000 shares of common
stock, respectively, at an exercise price equal to the closing market price of the Companys common
stock as of October 1, 2008, or $6.40.
The total purchase consideration, including the Companys transaction costs of approximately
$0.9 million has been allocated to tangible and intangible assets acquired and liabilities assumed
based on their estimated fair market values as of October 1, 2008, as follows (in thousands):
|
|
|
|
|
|
|
October 1, 2008 |
|
Fair value of the net tangible assets acquired and liabilities assumed: |
|
|
|
|
Cash and cash equivalents |
|
$ |
1,517 |
|
Trade and other receivables |
|
|
15,035 |
|
Inventories |
|
|
10,145 |
|
Prepaid expenses |
|
|
398 |
|
Property, plant and equipment |
|
|
3,473 |
|
Lease fleet |
|
|
108,134 |
|
Other assets |
|
|
|
|
Trade payables and accrued liabilities |
|
|
(12,975 |
) |
Unearned revenue and advance payments |
|
|
(7,414 |
) |
Long-term debt |
|
|
(107,600 |
) |
Deferred income taxes |
|
|
(17,405 |
) |
|
|
|
|
Total net tangible assets acquired and liabilities assumed |
|
|
(6,692 |
) |
|
|
|
|
|
|
|
|
|
Fair value of intangible assets acquired: |
|
|
|
|
Customer base |
|
|
4,850 |
|
Trade name |
|
|
2,200 |
|
Deferred financing costs |
|
|
191 |
|
Goodwill |
|
|
46,889 |
|
|
|
|
|
Total intangible assets acquired |
|
|
54,130 |
|
|
|
|
|
Total purchase consideration |
|
$ |
47,438 |
|
|
|
|
|
F-8
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated statements of operations reflect the operating results of the
Company following the dates of acquisitions of Royal Wolf and Pac-Van and do not reflect the
operating results of Royal Wolf and Pac-Van prior to the acquisition dates, except for Royal Wolf
as the Predecessor. The following unaudited pro forma information for the years ended June 30, 2008
and 2009 assume the acquisitions of Royal Wolf and Pac-Van occurred at the beginning of the periods
presented (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30, |
|
|
|
2008 |
|
|
2009 |
|
|
|
(Unaudited) |
|
Revenues |
|
$ |
166,400 |
|
|
$ |
169,102 |
|
Net income (loss) |
|
|
7,006 |
|
|
|
(2,937 |
) |
|
|
|
|
|
|
|
Pro forma net income (loss) per share: |
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.39 |
|
|
$ |
(0.17 |
) |
Diluted |
|
|
0.39 |
|
|
|
(0.17 |
) |
|
|
|
|
|
|
|
The pro forma results are not necessarily indicative of the results that may have actually occurred
had the acquisitions taken place on the dates noted, or the future financial position or operating
results of the Company. 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.
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 2007, 2008, 2009 and Predecessor Period 2008 are to the years ended
June 30, 2007, 2008, 2009 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.
F-9
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 has
two separately reportable geographic segments and one reportable operating segment.
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.
Allowance for Doubtful Accounts and Credit Risks
Reference is made to Note 6 for a discussion of the Companys allowance for doubtful accounts
and credit risks.
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 inventory 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, modular buildings and mobile offices held for sale or
lease and are comprised of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
|
2008 |
|
|
2009 |
|
Finished goods |
|
$ |
18,795 |
|
|
$ |
21,170 |
|
Work in progress |
|
|
2,289 |
|
|
|
1,341 |
|
|
|
|
|
|
|
|
|
|
$ |
21,084 |
|
|
$ |
22,511 |
|
|
|
|
|
|
|
|
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 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. 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.
F-10
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accounting for Stock Options
For the issuances of stock options, the Company follows the fair value provisions of 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.
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated |
|
|
June 30, |
|
|
|
Useful Life |
|
|
2008 |
|
|
2009 |
|
Land |
|
|
|
|
|
$ |
1,749 |
|
|
$ |
1,486 |
|
Building |
|
40 years |
|
|
|
271 |
|
|
|
230 |
|
Transportation and plant equipment (including capital lease assets) |
|
3 10 years |
|
|
|
5,489 |
|
|
|
9,010 |
|
Furniture, fixtures and office equipment |
|
3 10 years |
|
|
|
893 |
|
|
|
3,017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,402 |
|
|
|
13,743 |
|
Less accumulated depreciation and amortization |
|
|
|
|
|
|
(899 |
) |
|
|
(3,283 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
7,503 |
|
|
$ |
10,460 |
|
|
|
|
|
|
|
|
|
|
|
|
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 the 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.
Lease Fleet
The Company has a fleet of storage containers, mobile offices, modular buildings and steps
that it primarily leases to customers under operating lease agreements with varying terms. The
lease fleet (or lease or rental equipment) is recorded at cost and depreciated on the straight-line
basis over the estimated useful life (5 20 years), after the date the units are put in service,
and are depreciated down to their estimated residual values (0% 70% of cost). In the opinion of
management, estimated residual values are at or below net realizable values. 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.
F-11
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Containers in the lease fleet are also available for sale. The cost of sales of a container
in the lease fleet is recognized at the carrying amount at the date of sale.
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.
Impairment of Long-Lived Assets
The Company periodically reviews for the impairment of long-lived assets 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. The Company has
determined that no impairment provision related to long-lived assets was required to be recorded as
of June 30, 2008 and 2009.
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 annually for impairment or when events
or circumstances indicate that there might be 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. The Company has determined that no impairment provision
related to goodwill was required to be recorded at June 30, 2009.
The change in the balance of goodwill is as follows (in thousands)
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
|
2008 |
|
|
2009 |
|
Beginning of year |
|
$ |
|
|
|
$ |
31,721 |
|
Acquired goodwill (including foreign translation effect) |
|
|
31,721 |
|
|
|
42,196 |
|
|
|
|
|
|
|
|
End of year |
|
$ |
31,721 |
|
|
$ |
73,917 |
|
|
|
|
|
|
|
|
Intangible Assets
Intangible assets consist of those with indefinite useful lives (trademark and trade name) and
those with finite useful lives (primarily customer base and lists, non-compete agreements and
deferred financing costs). Customer base and lists are amortized on an accelerated and
straight-line basis, respectively, 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 obtain
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. Intangible
assets with finite useful lives consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
|
2008 |
|
|
2009 |
|
Trademark and trade name |
|
$ |
740 |
|
|
$ |
2,940 |
|
Customer base and lists |
|
|
29,364 |
|
|
|
29,485 |
|
Non-compete agreements |
|
|
6,218 |
|
|
|
5,633 |
|
Deferred financing costs |
|
|
1,947 |
|
|
|
2,019 |
|
Other |
|
|
733 |
|
|
|
713 |
|
|
|
|
|
|
|
|
|
|
|
39,002 |
|
|
|
40,790 |
|
Less accumulated amortization |
|
|
(4,304 |
) |
|
|
(10,732 |
) |
|
|
|
|
|
|
|
|
|
$ |
34,698 |
|
|
$ |
30,058 |
|
|
|
|
|
|
|
|
The Company reviews intangibles (those assets resulting from acquisitions) at least annually
for impairment or when events or circumstances indicate these assets might be impaired. The Company
tests impairment using historical cash flows and other relevant facts and circumstances as the
primary basis for estimates of future cash flows. The Company has determined that impairment
related to the customer base acquired in the Pac-Van acquisition (see Note 1) was required to be
recorded as of June 30, 2009, as a result of changes in market conditions in the U.S. Therefore,
in the fourth quarter of 2009, the Company, to be more in line with the expected revenue stream of
the customer base, recorded this impairment by revising its method of amortization from a
straight-line to an accelerated basis. The financial impact of the revision resulted in
an impairment expense for 2009 of $689,000.
F-12
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The estimated future amortization of intangible assets with finite useful lives as of June 30,
2009 is as follows (in thousands):
|
|
|
|
|
Year Ending June 30, |
|
|
|
|
2010 |
|
$ |
5,724 |
|
2011 |
|
|
4,903 |
|
2012 |
|
|
4,537 |
|
2013 |
|
|
3,859 |
|
2014 |
|
|
1,847 |
|
Thereafter |
|
|
6,248 |
|
|
|
|
|
|
|
$ |
27,118 |
|
|
|
|
|
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.
Defined Contribution Benefit Plan
Obligations for contributions to defined contribution benefit plans are recognized as an
expense in the statement of operations as incurred. Contributions to defined contribution benefit
plans in 2007, Predecessor Period 2008, 2008 and 2009 were $729,000, $180,000, $819,000 and
$848,000, respectively.
Revenue Recognition
The Company leases and sells new and used portable storage containers, modular buildings and
mobile offices to its customers, as well as providing other ancillary products and services. Leases
to customers generally qualify as operating leases unless there is a bargain purchase option at the
end of the lease term. 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 the lease fleet is generally recognized upon delivery and when
collectability is reasonably assured. Certain arrangements to sell units under long-term
construction-type sales contracts are accounted for under the percentage of completion method.
Under this method, income is recognized in proportion to the incurred costs to date under the
contract to estimated total costs.
Unearned revenue includes end of lease services not yet performed by the Company (such as
transport charges for the pick-up of a unit where the actual pick-up has not yet occurred as the
unit is still leased), advance rentals and deposit payments.
Advertising
Advertising costs are generally 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, 2008 and 2009,
prepaid advertising costs were approximately $200,000 and $191,000, respectively. Advertising
costs expensed were approximately $800,000, $200,000, $900,000 and $2,283,000 for 2007, Predecessor
Period 2008, 2008 and 2009, 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.
The Company files U.S. Federal tax returns, California franchise tax returns and Australian
tax returns, and beginning in 2009 will also file in multiple other U.S. states. For U.S. Federal
tax purposes, all periods subsequent to June 30, 2007 are subject to examination by the U.S.
Internal Revenue Service (IRS). The Company believes that its income tax filing positions and
deductions will be sustained on audit and does not anticipate any adjustments that will result in a
material change. Therefore, no reserves for uncertain income tax positions have been recorded
pursuant to FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes, an interpretation of FASB Statement No. 109 (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.
F-13
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
Net Income per Common Share
Basic net income per common share is computed by dividing net income, less dividends declared
(or accumulated) on cumulative preferred stock (Note 3), by the weighted-average number of shares
of common stock outstanding during the periods. Diluted net income per common 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. The following is a reconciliation of weighted average
shares outstanding used in calculating net income per common share:
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30, |
|
|
|
2008 |
|
|
2009 |
|
Basic |
|
|
10,160,955 |
|
|
|
16,817,833 |
|
Assumed exercise of warrants |
|
|
324,442 |
|
|
|
|
|
Assumed exercise of stock options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
10,485,397 |
|
|
|
16,817,833 |
|
|
|
|
|
|
|
|
In 2009, potential common stock equivalents (consisting of units, warrants and stock options)
totaling 8,430,380 have been excluded from the computation of diluted earnings per share because
the effect is anti-dilutive.
Recently Issued Accounting Pronouncements
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. SFAS No. 141R also requires that acquisition costs will
generally be expensed as incurred and restructuring costs will be expensed in periods after the
acquisition date. SFAS 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 way as 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 will be effective for the Company as of July 1, 2009. Management
believes that the adoption of these statements would have a significant impact in the presentation
of minority interest in the Companys consolidated financial statements and could have a material
effect on the Companys results of operations or financial
position for future periods, but it is still evaluating the impact
these statements will have.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities-an 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. The adoption of SFAS No. 161 did not have a significant impact
on the Companys 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.
F-14
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In November 2008, the FASB ratified EITF Issue No. 08-7, Accounting for Defensive Intangible
Assets (EITF No. 08-7). EITF No. 08-7 applies to defensive intangible assets, which are acquired
intangible assets that the acquirer does not intend to actively use but intends to hold to prevent
its competitors from obtaining access to them. As these assets are separately identifiable, EITF
No. 08-7 requires an acquiring entity to account for defensive intangible assets as a separate unit
of accounting. Defensive intangible assets must be recognized at fair value in accordance with SFAS
No. 141(R) and SFAS No. 157. This issue is effective for intangible assets acquired on or after the
beginning of the first annual reporting period beginning on or after December 15, 2008.
Management believes the adoption of ETIF Issue No. 08-7 could have a material effect on the
Companys results of operations or financial position for future periods, but its effects will
depend on the nature of future acquisitions completed by the Company.
In April 2009, the FASB issued FASB Staff Position (FSP) FAS 107-1 and APB 28-1, Interim
Disclosure about Fair Value of Financial Instruments (FSF FAS 107-1 and APB 28-1). FSP FAS 107-1
and APB 28-1 amends SFAS No. 107, Disclosures about Fair Value of Financial Instruments , to
require disclosures about fair value of financial instruments for interim reporting periods of
publicly traded companies as well as in annual financial statements. The FSP also amends APB
Opinion No. 28, Interim Financial Reporting, to require those disclosures in summarized financial
information at interim reporting periods. FSP FAS 107-1 and APB 28-1 is effective for interim
reporting periods ending after June 15, 2009 with early adoption permitted for periods ending after
March 15, 2009. Management does not believe the adoption of FSP FAS 107-1 and APB 28-1 will have a
material impact on the Companys consolidated financial statements.
In April 2009, the FASB issued FSP FAS 157-4, Determining Fair Value When the Volume and Level
of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions
That Are Not Orderly, and FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments. FSP FAS 157-4 relates to determining fair values when there is
no active market or where the price inputs being used represent distressed sales; and FSP FAS 115-2
and FAS 124-2 on other-than-temporary impairments is intended to bring greater consistency to the
timing of impairment recognition, and provide greater clarity to investors about the credit and
noncredit components of impaired debt securities that are not expected to be sold. Both FSPs are
effective for interim reporting periods ending after June 15, 2009 with early adoption permitted
for periods ending after March 15, 2009. The adoption of these FSPs did not have a material impact on the Companys consolidated
financial statements.
In April 2009, the FASB issued FSP FAS 141(R)-1, Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination That Arise from Contingencies. FSP FAS 141(R)-1
provides new guidance that changes the accounting treatment of contingent assets and liabilities in
business combinations under SFAS No. 141 (revised 2007). This FSP is effective for contingent
assets or liabilities acquired in business combinations for which the acquisition date is on or
after the first annual reporting period beginning on or after December 15, 2008. Management has
not elected early adoption and is currently evaluating the impact that the adoption of this FSP may
have on the Companys consolidated financial statements.
In May 2009, the FASB issued SFAS No. 165, Subsequent Events. SFAS No. 165 establishes
general standards of accounting for and disclosure of events that occur after the balance sheet
date but before the financial statements are issued or are available to be issued. SFAS No. 165
provides guidance on the period after the balance sheet date during which management of a reporting
entity should evaluate events or transactions that may occur for potential recognition or
disclosure in the financial statements, the circumstances under which an entity should recognize
events or transactions occurring after the balance sheet date in its financial statements and the
disclosures that an entity should make about events or transactions that occurred after the balance
sheet date. The statement was effective for the Company during the interim and annual period ending
June 30, 2009. The Company has evaluated subsequent events for potential recognition and/or
disclosure through September 28, 2009, the date the consolidated financial statements included in
this Annual Report on Form 10-K was issued. Reference is made to Note 13 for the Companys
disclosure of a subsequent event that that occurred after
June 30, 2009 and through September 28,
2009.
Note 3. Initial Public Offering (IPO) and Other Equity Transactions
IPO
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 on
April 5, 2010 (Warrants), assuming there is an effective registration statement. The Warrants
will be redeemable at a price of $0.01 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.
F-15
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
Warrant Exercise Program
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.
Cumulative Preferred Stock
The Company is offering private placements of Series A 12.5% Cumulative Preferred Stock, par
value $0.0001 per share and liquidation preference of $50 per share (Series A Preferred Stock);
and Series B 8% Cumulative Preferred Stock par value of $0.0001 per share and liquidation value of
$1,000 per share (Series B Preferred Stock). The Series B Preferred Stock is offered primarily
in connection with business combinations (see Note 4).
The Series A Preferred stock and the Series B Preferred stock are referred to collectively as
the Cumulative Preferred Stock.
Upon issuance of the Cumulative Preferred Stock, the Company records the liquidation value as
the preferred equity in the consolidated balance sheet, with any issuance or offering costs as a
reduction in additional paid-in capital. As of June 30, 2009, the Company had issued 24,900 shares
and 100 shares of Series A Preferred Stock and Series B Preferred Stock for total proceeds of
$1,245,000 and $100,000, respectively.
The Cumulative Preferred Stock is not convertible into GFN common stock, has no voting rights,
except as required by Delaware law, and is not redeemable prior to February 1, 2014; at which time
it may be redeemed at any time, in whole or in part, at the Companys option. Holders of the
Cumulative Preferred Stock are entitled to receive, when declared by the Companys Board of
Directors, annual dividends payable quarterly in arrears on the 31st day of January,
July and October of each year and the 30th day of April of each year. In the event of
any liquidation or winding up of the Company, the holders of the Cumulative Preferred Stock will
have preference to holders of common stock; with the holders of the Series A Preferred Stock having
preference over holders of the Series B Preferred Stock. The Company has agreed to register for
public trading the Cumulative Preferred Stock no later than one year from issuance.
As of June 30, 2009, dividends paid or payable totaled $58,000 and $4,000 for the Series A
Preferred Stock and Series B Preferred Stock, respectively. The characterization of dividends as
ordinary income, capital or qualified for Federal income tax purposes is made based upon the
earnings and profits of the Company, as defined by the Internal Revenue Code. No such
characterization has been made by the Company as of June 30, 2009.
F-16
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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-17
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On July 11, 2008, the Company, through Royal Wolf, purchased the business of NT Container
Services for $1,028,000. The total purchase price has been allocated to tangible and intangible
assets acquired based on their estimated fair market values as of July 11, 2008.
On October 31, 2008, the Company, through Royal Wolf, purchased the business of Ace Container
Services Pty Ltd for $741,000. The total purchase price has been allocated to tangible and
intangible assets acquired based on their estimated fair market values as of October 31, 2008.
On December 8, 2008, the Company, through Pac-Van, purchased the business of Container
Wholesalers for $499,000; including the issuance of 100 shares of Series B 8% Cumulative Preferred
Stock (see Note 3). The total purchase price has been allocated to tangible and intangible assets
acquired based on their estimated fair market values as of December 8, 2008.
Note 5. Long-Term Debt and Obligations
Royal Wolf Senior Credit Facility and Subordinated Notes
Royal Wolf has a credit facility, as amended, with Australia and New Zealand Banking Group
Limited (ANZ). The facility is subject to annual reviews by ANZ and is guaranteed and secured by
assets of the Companys Australian and New Zealand subsidiaries. Based upon the exchange rate of
one Australian dollar to $0.80480 U.S. dollar and one New Zealand dollar to $0.80460 Australian
dollar at June 30, 2009, the total credit facility limit is $91.3 million (AUS$101.0 million and
NZ$15.5 million). The aggregate ANZ facility is comprised of various sub-facilities. The more
significant of these sub-facilities include eight interchangeable loan facilities under which Royal
Wolf may borrow up to the lesser of $59.5 million (AUS$74.0 million) or 80% of the orderly
liquidation value, as defined, of its container fleet; a receivables financing facility of up to
$9.7 million (AUS$12.0 million); a special finance line for acquisitions of $0.8 million (AUS$1.0
million); a multi-option facility for the lease financing of accommodation units of $4.5 million
(AUS$5.6 million); and a separate bank guarantee facility for New Zealand of $10.0 million (NZ$15.5
million), which terminates in May 2010. 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. Four of
the interchangeable loan facilities, totaling $48.9 million (AUS$60.8 million), mature in September
2012; three of the interchangeable loan facilities, totaling $5.8 million (AUS$7.2 million), $0.8
million (AU$1.0 million) and $0.8 million (AU$1.0 million), mature in April 2010, September 2010
and November 2010, respectively; and the remaining interchangeable loan facility of $3.2 million
(AUS$4.0 million) may not be terminated, except on default, prior to ANZs next review date. The
multi-option facility matures two years from the date of drawdown,
but is unused at June 30, 2009. Loans on the interchangeable
facilities and multi-option facility bear interest at ANZs prime rate plus 2.50% per annum, with
interest payable quarterly. As of June 30, 2009, borrowings under the ANZ credit facility totaled
$74,765,000 (AUS$92,899,000) and the weighted-average interest rate was 8.3%, which includes the
effect of interest rate swap contracts and options (caps).
The ANZ senior credit facility is subject to certain covenants, including compliance with
specified consolidated senior and total interest coverage and senior and total debt ratios, as
defined, for each financial quarter based on earnings before interest, income taxes, depreciation
and amortization and other non-operating costs (EBITDA), as defined, on a year-to-date or
trailing twelve-month (TTM) basis; and restrictions on the payment of dividends, loans and
payments to affiliates and 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.
Subsequent to June 30, 2009, the ANZ senior credit facility was amended (see Note 13).
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 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.
F-18
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 July 1, 2010. Collectively,
these two notes are referred to as the Bison Notes. At June 30, 2009, the principal balance of
the Bison Notes was $21,436,000.
The Bison Notes require the maintenance of minimum EBITDA levels, as defined, and a total debt
ratio based on a TTM EBITDA basis; as well as restrictions on capital expenditures.
Pac-Van Senior Credit Facility and Subordinated Note
Pac-Van has a revolving line of credit and letter of credit facility, as amended, with a
syndication of four financial institutions led by LaSalle Bank National Association, now Bank of
America, N.A. (BOA), as administrative and collateral agent. The BOA credit facility is secured
by substantially all the business assets of Pac-Van and GFNNA, including the assignment of its
rights under leasing contracts with customers, and is available for purchases of rental equipment
and general operating purposes. The maximum aggregate amount available under the BOA credit
facility is $120,000,000; with borrowings limited to 85% of eligible accounts receivable, net of
reserves and allowances, plus 85% of the net book value of all eligible rental equipment, net of
reserves and allowances, plus the lesser of (i) 75% of property and equipment, as defined, and (ii)
$1,000,000. Letters of credit commitments under the credit facility are not to exceed $10,000,000
and approval is required by BOA, as the administrative agent, for borrowings over $95,400,000 and
letters of credit commitments over $2,000,000.
Borrowings under the BOA credit facility are due on August 23, 2012 and accrue interest at the
lead lenders prime lending rate or its prime lending rate plus 0.25%, or the LIBOR plus a stated
margin ranging from 1.5% to 2.25% based on Pac-Vans leverage. In addition, the Company is
required to pay an unused commitment fee equal to 0.25% of the average unused line calculated on a
quarterly basis. At June 30, 2009, borrowings under the BOA credit facility totaled $77,000,000
and the weighted-average interest rate was 2.3%.
The BOA senior credit facility is subject to certain covenants, including compliance with
minimum EBITDA levels, as defined, specified interest coverage, senior and total debt ratios based
on a TTM EBITDA basis, a minimum utilization rate, as defined; and, among other things,
restrictions on the payment of dividends, loans and payments to affiliates.
Pac-Van also has a senior subordinated secured note payable to SPV Capital Funding, L.L.C.
(SPV) with a principal balance of $25,000,000. This subordinated note matures on February 2,
2013, requires quarterly interest only payments computed at 13.0% per annum and is also subject to
the maintenance of certain financial covenants.
Loan Covenant Compliance
The Company was in compliance with the financial covenants under its senior credit facilities
and senior subordinated notes discussed above as of June 30, 2009. However, as widely reported,
the financial markets and economy in the U.S. and Australia, as well as the global economy in
general, have been in a downturn for a period of time. If the current economic environment
continues to be weak or worsens, the Companys ability to continue meeting covenant requirements
may be impaired and may result in the seeking of amendments or waivers of covenant compliance.
While management of the Company believes its relationships with its senior lenders are good, there
is no assurance that they would consent to such an amendment or waiver in the event of
noncompliance; or that such consent would not be conditioned upon the receipt of a cash payment,
revised principal payout terms, increased interest rates, or restrictions in the expansion of the
credit facilities; or that our senior lenders would not exercise rights that would be available to
them, including, among other things, demanding payment of outstanding borrowings.
F-19
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Union Bank Credit Facility
The Company has a credit agreement, as amended, with Union Bank (UB) for a $1.0 million
credit facility. Borrowings or advances under the facility will bear interest at UBs Reference
Rate (which approximates the prime rate) and are due and payable by March 31, 2011. The facility
is guaranteed by GFN U.S. and requires the maintenance of certain quarterly and year-end financial
reporting covenants. There were no outstanding borrowings under the UB credit facility at June 30,
2009.
Scheduled Maturities on Long-Term Debt
The scheduled maturities for the senior credit facilities (see also Note 13), senior
subordinated notes and other long-term debt at June 30, 2009 are as follows (in thousands):
|
|
|
|
|
Year Ending June 30, |
|
|
|
|
2010 |
|
$ |
16,371 |
|
2011 |
|
|
14,996 |
|
2012 |
|
|
326 |
|
2013 |
|
|
168,424 |
|
2014 |
|
|
104 |
|
Thereafter |
|
|
|
|
|
|
|
|
|
|
$ |
200,221 |
|
|
|
|
|
Capital Leases
Capital lease liabilities of the Company as of June 30, 2009 are payable as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum |
|
|
|
|
|
|
|
Year Ending June 30, |
|
lease payments |
|
|
Interest |
|
|
Principal |
|
2010 |
|
$ |
68 |
|
|
$ |
5 |
|
|
$ |
63 |
|
2011 2014 |
|
|
23 |
|
|
|
3 |
|
|
|
20 |
|
More than five years |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
91 |
|
|
$ |
8 |
|
|
$ |
83 |
|
|
|
|
|
|
|
|
|
|
|
Note 6. Financial Instruments
Fair Value Measurements
The Company adopted SFAS No. 157, Fair Value Measurements, effective July 1, 2008. SFAS No.
157 defines fair value as the price that would be received from selling an asset or paid to
transfer a liability in an orderly transaction between market participants. As such, fair value is
a market-based measurement that should be determined based on assumptions that market participants
would use in pricing an asset or liability. As a basis for considering such assumptions, SFAS No.
157 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring
fair value, as follows:
Level 1 Observable inputs such as quoted prices in active markets for identical assets or
liabilities;
Level 2 Observable inputs, other than Level 1 inputs in active markets, that are observable
either directly or indirectly; and
Level 3 Unobservable inputs in which there is little or no market data, which require the
reporting entity to develop its own assumptions.
The Company implemented SFAS No. 161, Disclosures about Derivative Instruments and Hedging
Activities, an amendment of SFAS No. 133, as of July 1, 2008. Implementation of SFAS No. 161 did
not have a significant effect on the Companys consolidated results of operations or consolidated
financial position, nor a significant effect on the Companys use of derivative instruments or
hedging activities. However, SFAS No. 161 amended and expanded the disclosures required by SFAS No.
133 in order to provide an enhanced understanding of how and why the Company uses derivative
instruments, how derivative instruments and related hedged items are accounted for under SFAS No.
133 and its related interpretations, and how derivative instruments affect the Companys financial
position, financial performance and cash flows.
F-20
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company believes it has no material market or credit risks to its operations, financial
position or liquidity as a result of its commodities and other derivatives activities, including
forward-exchange contracts. Derivative instruments measured at fair value at June 30, 2008 and
2009, and their classification on the consolidated balances sheets and consolidated statements of
operations are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivative - Fair Value |
|
|
|
|
|
June 30, |
|
Type of Derivative Contract |
|
Balance Sheet Classification |
|
2008 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
Swap Contracts and Options (Caps) |
|
Trade and other receivables |
|
$ |
680 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability Derivative - Fair Value |
|
|
|
|
|
June 30, |
|
Type of Derivative Contract |
|
Balance Sheet Classification |
|
2008 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
Swap Contracts and Options (Caps) |
|
Trade payables and accrued liabilities |
|
$ |
|
|
|
$ |
1,587 |
|
|
|
|
|
|
|
|
|
|
|
|
Forward Contracts |
|
Trade payables and accrued liabilities |
|
|
575 |
|
|
|
656 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30, |
|
Type of Derivative Contract |
|
Statement of Operations Classification |
|
2008 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
Swap Contracts and Options (Caps) |
|
Unrealized gain (loss) included in interest expense |
|
$ |
377 |
|
|
$ |
(2,057 |
) |
|
|
|
|
|
|
|
|
|
|
|
Forward Contracts |
|
Foreign currency exchange gain (loss) and other |
|
|
(34 |
) |
|
|
157 |
|
|
|
|
|
|
|
|
|
Fair Value of Financial Instruments
The carrying value of the Companys financial instruments, which include cash and cash
equivalents, net receivables, trade payables and accrued liabilities, borrowings under the senior
credit facilities, the subordinated notes, interest rate swap and 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
sectors. However, in the U.S. a significant portion of the Companys business activity is with
companies in the construction industry. Revenues and trade receivables from this industry totaled
$25,376,000 and $5,757,000 during 2009 and at June 30, 2009, respectively.
F-21
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 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.
Net allowance for doubtful accounts provided and uncollectible accounts written off, net of
recoveries, were $230,000, $172,000, $230,000 and $958,000; and $162,000, $124,000, $126,000 and
$625,000 for 2007, Predecessor Period 2008, 2008 and 2009, respectively. The translation gain
(loss) to the allowance for doubtful accounts for 2007, Predecessor Period 2008, 2008 and 2009 was
$40,000, ($3,000), $20,000 and ($80,000), respectively; and with the RWNZ and Pac-Van acquisitions,
the Company recorded an allowance for doubtful accounts of $79,000 and $1,354,000 in 2008 and 2009,
respectively.
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 Swap Contracts
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 expense by 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.
The Companys interest rate swap and option (cap) contracts are not traded on a market
exchange; therefore, the fair values are determined using valuation models which include
assumptions about the interest rate yield curve at the reporting dates (Level 2 fair value
measurement). As of June 30, 2009, there were four open interest rate swap contracts and three open
interest rate option (cap) contracts, as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value as of |
|
|
|
Notional Amount |
|
|
June 30, 2009 |
|
Swap |
|
$ |
13,279 |
|
|
$ |
(892 |
) |
Swap |
|
|
1,610 |
|
|
|
(157 |
) |
Swap |
|
|
4,059 |
|
|
|
(369 |
) |
Swap |
|
|
2,873 |
|
|
|
(245 |
) |
Option (Cap) |
|
|
9,658 |
|
|
|
68 |
|
Option (Cap) |
|
|
1,231 |
|
|
|
1 |
|
Option (Cap) |
|
|
1,739 |
|
|
|
7 |
|
|
|
|
|
|
|
|
Total |
|
$ |
34,449 |
|
|
$ |
(1,587 |
) |
|
|
|
|
|
|
|
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.
F-22
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company also has 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. Unrealized gains
and losses resulting from such remeasurement due to changes in the Australian exchange rate to the
U.S. dollar could have significant impact in the Companys reported results of operations, as well
as any realized gains and losses from the payments on such U.S. dollar-denominated debt and
intercompany borrowings. In 2009, unrealized and realized foreign exchange losses totaled
$6,616,000 and $2,847,000, respectively.
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 |
|
|
|
|
|
|
June 30, |
|
|
September 13, |
|
|
Year Ended June 30, |
|
|
|
2007 |
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
$ |
|
|
|
$ |
|
|
|
$ |
(1,504 |
) |
|
$ |
1,942 |
|
Asia-Pacific |
|
|
802 |
|
|
|
468 |
|
|
|
8,092 |
|
|
|
(13,061 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
802 |
|
|
$ |
468 |
|
|
$ |
6,588 |
|
|
$ |
(11,119 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
The provision for income taxes consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
Successor |
|
|
|
|
|
|
Period from |
|
|
|
|
|
|
Year Ended |
|
|
July 1 to |
|
|
|
|
|
|
June 30, |
|
|
September 13, |
|
|
Year Ended June 30, |
|
|
|
2007 |
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal |
|
$ |
|
|
|
$ |
|
|
|
$ |
377 |
|
|
$ |
|
|
State |
|
|
|
|
|
|
|
|
|
|
7 |
|
|
|
|
|
Asia-Pacific |
|
|
9 |
|
|
|
|
|
|
|
25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9 |
|
|
|
|
|
|
|
409 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal |
|
|
|
|
|
|
|
|
|
|
(1,671 |
) |
|
|
(1,172 |
) |
State |
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
(739 |
) |
Asia-Pacific |
|
|
481 |
|
|
|
180 |
|
|
|
3,295 |
|
|
|
(2,463 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
481 |
|
|
|
180 |
|
|
|
1,625 |
|
|
|
(4,374 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
490 |
|
|
$ |
180 |
|
|
$ |
2,034 |
|
|
$ |
(4,374 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
F-23
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of the net deferred tax liability are approximately as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
|
2008 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Net operating loss and tax credit carryforwards |
|
$ |
5,252 |
|
|
$ |
14,308 |
|
Deferred revenue and expenses |
|
|
657 |
|
|
|
137 |
|
Accrued compensation and other benefits |
|
|
443 |
|
|
|
204 |
|
Allowance for doubtful accounts |
|
|
227 |
|
|
|
670 |
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets |
|
|
6,579 |
|
|
|
15,319 |
|
Valuation allowance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets |
|
|
6,579 |
|
|
|
15,319 |
|
|
|
|
|
|
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Accelerated tax depreciation and amortization |
|
|
(4,255 |
) |
|
|
(28,810 |
) |
Unrealized exchange gains and losses |
|
|
(3,715 |
) |
|
|
946 |
|
Other |
|
|
(71 |
) |
|
|
(1,277 |
) |
|
|
|
|
|
|
|
Total deferred tax liabilities |
|
|
(8,041 |
) |
|
|
(29,141 |
) |
|
|
|
|
|
|
|
Net deferred tax liabilities |
|
$ |
(1,462 |
) |
|
$ |
(13,822 |
) |
|
|
|
|
|
|
|
At June 30, 2009, Royal Wolf had a U.S. federal net operating loss carryforward of
$34,800,000, which expires if unused during fiscal years 2019 2029, and an Australian net
operating loss carryforward of approximately $11,300,000 with no expiration date. As a result of
the stock ownership change in the merger with MOAC (see Note 1), the available deduction of the net
operating loss carryforward of $27,500,000 acquired in the Pac-Van acquisition is limited on a
yearly basis.
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 and 2009.
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 |
|
|
|
|
|
|
June 30, |
|
|
September 13, |
|
|
Year Ended June 30, |
|
|
|
2007 |
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal statutory rate |
|
|
30.0 |
% |
|
|
30.0 |
% |
|
|
34.0 |
% |
|
|
(34.0 |
)% |
State and Asia-Pacific taxes, net of
U.S. federal benefit and credit |
|
|
|
|
|
|
|
|
|
|
0.1 |
|
|
|
(4.4 |
) |
Amortization of goodwill and trademark |
|
|
|
|
|
|
|
|
|
|
(7.4 |
) |
|
|
(4.8 |
) |
Nondeductible expenses |
|
|
31.1 |
|
|
|
8.5 |
|
|
|
4.2 |
|
|
|
3.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate |
|
|
61.1 |
% |
|
|
38.5 |
% |
|
|
30.9 |
% |
|
|
39.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 8. Related Party Transactions
The Company previously 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
$2,587,000 was repaid on September 14, 2007.
The Company has utilized certain accounting, administrative and secretarial services from
affiliates of officers; as well as 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 have been 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
by non-employee officers and administrative personnel of affiliates. These contributed services
ceased in February 2009.
F-24
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 $7,393 per month, effective
March 1, 2009, 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 $113,000 in 2009.
Effective October 1, 2008, the Company entered into a services agreement through June 30, 2009
(the Termination Date) with an affiliate of Mr. Valenta for certain accounting, administrative
and secretarial services to be provided at the corporate offices and for certain operational,
technical, sales and marketing services to be provided directly to the Companys operating
subsidiaries. Charges for services rendered at the corporate offices will be, until further
notice, at $7,000 per month and charges for services rendered to the Companys subsidiaries will
vary depending on the scope of services provided. The services agreement provides for, among other
things, mutual modifications to the scope of services and rates charged and automatically renews
for successive one-year terms, unless terminated in writing by either party not less than 30 days
prior to the Termination Date. Total charges to the Company for services rendered under this
agreement totaled $63,000 at the corporate office and $155,000, plus out-of-pocket expenses of
$16,000, at the operating subsidiaries in 2009.
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 and amended by stockholders on
June 14, 2007 and December 11, 2008, respectively. Under the 2006 Plan, the Company may issue to
directors, employees, consultants and advisers up to 2,500,000 shares of its common stock. 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 an officer of GFN 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 per
share and $9.05 per share, respectively, with a vesting period of five years. Stock-based
compensation expense of $646,000 related to these options has been recognized in the statements of
operations through June 30, 2009, with a corresponding benefit to additional paid-in capital. As of
June 30, 2009, there remains $885,000 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 2.83 years. There have been no options exercised, cancelled or forfeited under these two
grants and 450,000 options were outstanding at June 30, 2009. Also, as of June 30, 2009, 90,000 and
45,000 of the 2006 Grant and 2007 Grant options, respectively, were 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 per share. The 2008 Grant
consisted 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 target for 2008.
The Company initially commenced recognizing compensation expense over the vesting period of 20
months.
In June 2008, the Compensation Committee of the Companys Board of Directors determined that
the full EBITDA target for the 2008 Grant would not be achieved. As a result, the 2008 Grant was
modified whereby one-half of the outstanding options subject to the EBITDA performance criteria
were deemed to have achieved the performance condition. The remaining one-half of these
performance-based options (PB 2008 Grant) were modified on July 23, 2008 (see below) for EBITDA
targets at Royal Wolf pertaining to the years ending June 30, 2009 (2009) and 2010 (2010). At
that time, the Company reassessed and revalued these options and commenced recognizing the changes
in stock-based compensation on a prospective basis. Total stock-based compensation expense of
$650,000 related to the 2008 Grant has been recognized in the statement of operations through June
30, 2009, with a corresponding benefit to additional paid-in capital. As of June 30, 2009, there
remains $450,000 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 2.41
years. There have been 50,000 options cancelled or forfeited under the 2008 Grant and 325,500
options were outstanding at June 30, 2009. No options have been exercised and 42,400 options were
exercisable under the 2008 Grant as of June 30, 2009.
F-25
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On July 23, 2008 (July 2008 Grant), the Company granted options to certain key employees of
Royal Wolf to purchase 198,500 shares of common stock at an exercise price equal to the closing
market price of the Companys common stock as of that date, or $5.35 per share. The July 2008 Grant
consisted of the PB 2008 Grant (see above) totaling 118,500 options, 40,000 options with a vesting
period of five years and 40,000 options that vest subject to a performance condition based on Royal
Wolf achieving certain EBITDA targets for 2009 and 2010. The Company initially commenced
recognizing compensation expense over the vesting periods of 2.17 years and 3.17 years for EBITDA
targets in 2009 and 2010, respectively, pertaining to 79,250 options in each of those vesting
periods. However, the Company determined that it was not probable that the EBITDA target for 2009
would be achieved and, therefore, ceased recognizing stock-based compensation expense for those
performance-based options. In addition, the Company has recorded a cumulative effect adjustment of
$37,000 in the quarter ended June 30, 2009 to reverse compensation expense previously recognized on
those performance-based options. Total stock-based compensation expense of $79,000 related to the
July 2008 Grant has been recognized in the statement of operations through June 30, 2009, with a
corresponding benefit to additional paid-in capital. As of June 30, 2009, there remains $178,000 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 2.81 years. There have
been 16,000 options cancelled or forfeited under the July 2008 Grant and 177,500 options (including
72,750 that pertain to a 2009 EBITDA target) were outstanding at June 30, 2009. No options have
been exercised and no options were exercisable under the July 2008 Grant as of June 30, 2009.
On September 18, 2008 (September 2008 Grant), the Company granted options to the
non-employee members of its Board of Directors to purchase 36,000 shares of common stock at an
exercise price equal to the closing market price of the Companys common stock as of that date, or
$6.50 per share, with a vesting period of three years. Stock-based compensation expense of $31,000
related to these options has been recognized in the statements of operations through June 30, 2009,
with a corresponding benefit to additional paid-in capital. As of June 30, 2009, there remains
$89,000 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 2.22 years. There
have been no options exercised, cancelled or forfeited under the September 2008 Grant, all 36,000
options were outstanding at June 30, 2009, and none were exercisable.
On October 1, 2008 (October 2008 Grant), the Company granted options to certain key
employees of Pac-Van and to a former stockholder of MOAC, who became a non-employee member of
Companys Board of Directors effective on that date, to purchase 356,000 shares of common stock at
an exercise price equal to the closing market price of the Companys common stock as of that date;
or $6.40 per share. The October 2008 Grant consisted of 154,550 options with a vesting period of
five years, 9,000 options with a vesting period of three years and 192,450 options that vest
subject to performance conditions based on Pac-Van achieving a certain EBITDA target for 2009 and
to-be-determined EBITDA targets for the subsequent four fiscal years . The Company commenced
recognizing compensation expense over the vesting periods ranging from 1.92 years to 5.92 years
pertaining to 38,490 options in each of those vesting periods. However, the Company has determined
that it is not probable that the EBITDA target for 2009 would be achieved and has ceased
recognizing stock-based compensation expense for those performance-based options. In addition, the
Company has recorded an adjustment of $13,000 in the quarter ended June 30, 2009
to reverse compensation expense previously recognized on those performance-based options. Total
stock-based compensation expense of $123,000 related to the October 2008 Grant has been recognized
in the statement of operations through June 30, 2009, with a corresponding benefit to additional
paid-in capital. As of June 30, 2009, there remains $513,000 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 3.86 years. There have been no options exercised, cancelled or
forfeited under the October 2008 Grant, all 356,000 options (including 38,490 that pertain to a
2009 EBITDA target) were outstanding at June 30, 2009, and none were exercisable.
On December 11, 2008 (December 2008 Grant), the Company granted options to a non-employee
member of its Board of Directors to purchase 9,000 shares of common stock at an exercise price
equal to the closing market price of the Companys common stock as of that date, or $1.78 per
share, with a vesting period of three years. Stock-based compensation expense of $2,000 related to
these options has been recognized in the statements of operations through June 30, 2009 and, as of
that date, there remains $8,000 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 2.50 years. There have been no options exercised, cancelled or forfeited under the
December 2008 Grant, all 9,000 options were outstanding at June 30, 2009, and none were
exercisable.
On January 27, 2009 (January 2009 Grant), the Company granted options to certain key
employees of Royal Wolf and Pac-Van to purchase 4,000 shares of common stock at an exercise price
equal to the closing market price of the Companys common stock as of that date, or $1.94 per
share, with a vesting period of five years. Stock-based compensation expense of $1,000 related to
these options has been recognized in the statements of operations through June 30, 2009 and, as of
that date, there remained $4,000 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 4.50 years. There have been no options exercised, cancelled or forfeited under the
January 2009 Grant, all 4,000 options were outstanding at June 30, 2009, and none were exercisable.
F-26
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At June 30, 2009, the Companys market price for its common stock was at $1.65 per share,
which is 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, $3.94, $2.74,
$3.31, $3.22, $1.06 and $1.20 per option for the 2006 Grant, 2007 Grant, 2008 Grant, July 2008
Grant, September 2008 Grant, October 2008 Grant, December 2008 Grant and January 2009 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%, 3.01%, 3.77%, 3.08%, 3.29%, 1.99% and 1.99%
(corresponding treasury bill rates) for the 2006 Grant, 2007 Grant, 2008 Grant, July 2008 Grant,
September 2008 Grant, October 2008 Grant, December 2008 Grant and January 2009 Grant, respectively;
an expected life of 7.5 years for all grants; an expected volatility of 26.5%, 31.1%, 35.83%,
41.78%, 43.12%, 41.78%, 57.13% and 59.85% for the 2006 Grant, 2007 Grant, 2008 Grant, July 2008
Grant, September 2008 Grant, October 2008 Grant, December 2008 Grant and January 2009 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 terminated
in the Predecessor Period 2008.
Note 10. Commitments and Contingencies
Operating Leases
The Company leases office equipment and other facilities under operating leases. The leases
have terms 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, 2009 are payable as follows (in
thousands):
|
|
|
|
|
Year Ending June 30, |
|
|
|
|
2010 |
|
$ |
3,579 |
|
2011 |
|
|
2,308 |
|
2012 |
|
|
1,375 |
|
2013 |
|
|
875 |
|
2014 |
|
|
443 |
|
Thereafter |
|
|
1,281 |
|
|
|
|
|
|
|
$ |
9,861 |
|
|
|
|
|
Rental expense on non-cancellable operating leases was $1,295,000, $685,000, $1,733,000 and
$4,204,000 in 2007, Predecessor Period 2008, 2008 and 2009, respectively.
Future minimum payments to be received under sales-type and operating fleet leases at June 30, 2009
are as follows (in thousands):
|
|
|
|
|
Year Ending June 30, |
|
|
|
|
2010 |
|
$ |
11,133 |
|
2011 |
|
|
2,089 |
|
2012 |
|
|
697 |
|
2013 |
|
|
182 |
|
2014 |
|
|
59 |
|
Thereafter |
|
|
|
|
|
|
|
|
|
|
$ |
14,160 |
|
|
|
|
|
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. The shareholders agreement
was amended on September 21, 2009 and provides that, at any time after July
1, 2011, Bison Capital may require the Company to purchase from Bison Capital all of its 13.8%
outstanding capital stock of GFN U.S. The purchase for the capital stock price (which is payable in
cash or, if mutually agreeable to both the Company and Bison Capital, paid in GFN common stock or
some combination thereof) 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
F-27
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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)
at June 30, 2009, Bison Capitals cost ($8,278,000); which
effective on September 21, 2009 was amended to be the greater of (1) $12,850,000 or (2) 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 TTM EBITDA
measured at the end of each fiscal quarter through June 30, 2011, as defined.
Also under the shareholders agreement, the Company has the option, at anytime prior to
September 13, 2010, to cause Bison Capital to sell and transfer its 13.8% outstanding capital stock
of GFN U.S. to the Company for a purchase price equal to the product of 2.75 multiplied by Bison
Capitals cost in the GFN U.S. capital stock. Subsequent to July 1, 2012, 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.
The Company accounts for Bison Capitals put option as a non-freestanding financial instrument classified in temporary equity, pursuant to the requirements of
SEC Accounting Series Release (ASR) No. 268, Presentation in Financial Statements
of Redeemable Preferred Stock. In accordance with the guidelines of ASR No. 268, the redemption
value of the put option is reflected in minority interest, with the corresponding adjustment to additional paid-in capital
determined after the attribution of the net income or loss of Royal Wolf to minority interest. The Company believes that the
fair value of the put option is in excess of the redemption value and, therefore, no portion of the redemption adjustment is
considered in the determination of net income per common share. As of June 30, 2009, the redemption value of the Bison put
option was $8,278,000, which represented the capital contributions of Bison Capital through that date.
Preferred Supply Agreement
In connection with a Business Sale Agreement dated November 14, 2007 with GE SeaCo Australia
Pty Ltd. and GE SeaCo SRL (collectively GE SeaCo), Royal Wolf entered in a preferred supply
agreement with GE SeaCo. Under the preferred supply agreement, GE SeaCo has agreed to sell to Royal
Wolf, and Royal Wolf 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, Royal Wolf 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. In
2008 and in 2009, the Company expensed $259,000 and $291,000, respectively, for containers that
were affected by this matter. The remediation of this matter has been resolved.
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.
F-28
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11. Detail of Certain Accounts
Trade payables and accrued liabilities consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
|
2008 |
|
|
2009 |
|
Trade payables |
|
$ |
9,014 |
|
|
$ |
14,328 |
|
Payroll and related |
|
|
3,043 |
|
|
|
2,564 |
|
Taxes, other than income |
|
|
1,456 |
|
|
|
1,488 |
|
Deferred consideration |
|
|
1,943 |
|
|
|
|
|
Fair value of interest swap and option and forward currency exchange contacts |
|
|
575 |
|
|
|
2,246 |
|
Accrued interest |
|
|
|
|
|
|
1,599 |
|
Other accruals |
|
|
2,473 |
|
|
|
2,197 |
|
|
|
|
|
|
|
|
|
|
$ |
18,504 |
|
|
$ |
24,422 |
|
|
|
|
|
|
|
|
Note 12. Segment Reporting
The tables below represent the Companys revenues from external customers, long-lived assets
(consisting of lease fleet and property, plant and equipment) and operating income as attributed to
its two geographic locations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
Successor |
|
|
|
|
|
|
|
Period from |
|
|
|
|
|
|
Year Ended |
|
|
July 1 to |
|
|
|
|
|
|
June 30, |
|
|
September 13, |
|
|
Year Ended June 30, |
|
|
|
2007 |
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
Revenues from external customers: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
19,657 |
|
Leasing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,781 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54,438 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia-Pacific: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
|
52,929 |
|
|
|
10,944 |
|
|
|
68,029 |
|
|
|
55,871 |
|
Leasing |
|
|
21,483 |
|
|
|
4,915 |
|
|
|
27,547 |
|
|
|
36,151 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74,412 |
|
|
|
15,859 |
|
|
|
95,576 |
|
|
|
92,022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
74,412 |
|
|
$ |
15,859 |
|
|
$ |
95,576 |
|
|
$ |
146,460 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
|
2008 |
|
|
2009 |
|
Long-lived assets: |
|
|
|
|
|
|
|
|
North America |
|
$ |
74 |
|
|
$ |
112,419 |
|
Asia-Pacific |
|
|
95,177 |
|
|
|
86,956 |
|
|
|
|
|
|
|
|
Total long-lived assets |
|
$ |
95,251 |
|
|
$ |
199,375 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
Successor |
|
|
|
|
|
|
|
Period from |
|
|
|
|
|
|
Year Ended |
|
|
July 1 to |
|
|
|
|
|
|
June 30, |
|
|
September 13, |
|
|
Year Ended June 30, |
|
|
|
2007 |
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
Operating income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
$ |
|
|
|
$ |
|
|
|
$ |
(2,427 |
) |
|
$ |
6,365 |
|
Asia-Pacific |
|
|
4,672 |
|
|
|
1,530 |
|
|
|
10,800 |
|
|
|
7,693 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income |
|
$ |
4,672 |
|
|
$ |
1,530 |
|
|
$ |
8,373 |
|
|
$ |
14,058 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-29
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 13. Subsequent Event
In September 2009, the Company and Royal Wolf amended the ANZ senior credit facility (see Note
5) to establish financial covenants (primarily consolidated senior and total interest coverage and
senior and total debt ratios) at less restrictive levels during the fiscal year ending June 30,
2010 (2010). In addition, required principal payments for 2010 were amended to total 80% of Free
Cash Flow, as defined, which the Company estimates would be approximately $9,700,000
(AUS$12,000,000); payable at a minimum of $1,006,000 (AUS$1,250,000) per quarter during the
interim, with the balance to be paid within 60 days from the end of 2010. The ANZ credit facility
was also amended to provide that approximately $12,700,000 (AUS$15,800,000) of the borrowings would
bear interest at ANZs prime rate, plus 4.15% per annum; and that, effectively, the balance of the
borrowings would bear interest at ANZs prime rate, plus 3.15% per annum.
The amended ANZ senior credit facility further provides, among other things, that the
$5,500,000 due Bison Capital on July 1, 2010 (see Note 5) must be paid by a capital infusion from
GFN, that at least 50% of the amounts owed under the Bison Notes be hedged by Royal Wolf for
foreign currency exchange risks and that capital expenditures of property, plant and equipment over
$1,600,000 (AUS$2,000,000) in 2010 be approved by ANZ.
ANZ charged a fee of $161,000 (AUS$200,000) for the amendment of the credit facility and would
require a break-up fee of $400,000 (AUS$500,000) if the credit facility is refinanced by another
lender before March 31, 2010.
The consolidated balance sheet as of June 30, 2009 and the scheduled maturities on long-term
debt included in Note 5 reflect the revised estimated principal payments for 2010 and thereafter of
this amendment.
F-30
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 2008 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, the 2008 financial statement schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the
related 2008 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 |
|
|
2009 |
|
|
|
(in thousands) |
|
Cash and cash equivalents |
|
$ |
1,137 |
|
|
$ |
1,403 |
|
Other current assets |
|
|
89 |
|
|
|
202 |
|
Property and equipment, net |
|
|
74 |
|
|
|
59 |
|
Other noncurrent assets |
|
|
2,818 |
|
|
|
5,984 |
|
Investment and intercompany accounts |
|
|
90,230 |
|
|
|
96,010 |
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
94,348 |
|
|
$ |
103,658 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable, accrued and other current liabilities |
|
$ |
617 |
|
|
$ |
484 |
|
Noncurrent liabilities and deferred credits |
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
93,731 |
|
|
|
103,174 |
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders Equity |
|
$ |
94,348 |
|
|
$ |
103,658 |
|
|
|
|
|
|
|
|
S-2
SCHEDULE I CONDENSED FINANCIAL INFORMATION OF REGISTRANT
GENERAL FINANCE CORPORATION
(PARENT COMPANY INFORMATION)
STATEMENT OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30, |
|
|
|
2008 |
|
|
2009 |
|
|
|
(in thousands) |
|
General and administrative expenses |
|
$ |
2,427 |
|
|
$ |
2,785 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings (losses) of subsidiaries |
|
|
3,600 |
|
|
|
(6,984 |
) |
Intercompany income |
|
|
724 |
|
|
|
2,672 |
|
Interest income |
|
|
964 |
|
|
|
7 |
|
Interest expense |
|
|
(45 |
) |
|
|
|
|
Other income, net |
|
|
4 |
|
|
|
25 |
|
|
|
|
|
|
|
|
|
|
|
5,247 |
|
|
|
(4,280 |
) |
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
2,820 |
|
|
|
(7,065 |
) |
Income tax benefit |
|
|
(1,286 |
) |
|
|
(3,348 |
) |
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
4,106 |
|
|
$ |
(3,717 |
) |
|
|
|
|
|
|
|
S-3
SCHEDULE I CONDENSED FINANCIAL INFORMATION OF REGISTRANT
GENERAL FINANCE CORPORATION
(PARENT COMPANY INFORMATION)
STATEMENT OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30, |
|
|
|
2008 |
|
|
2009 |
|
|
|
(in thousands) |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
4,106 |
|
|
$ |
(3,717 |
) |
Equity (losses) in earnings of subsidiaries |
|
|
(3,600 |
) |
|
|
6,984 |
|
Unrealized foreign exchange gain |
|
|
(3 |
) |
|
|
(24 |
) |
Depreciation and amortization |
|
|
10 |
|
|
|
26 |
|
Share-based compensation expense |
|
|
229 |
|
|
|
347 |
|
Contributed services |
|
|
233 |
|
|
|
130 |
|
Interest deferred for common stock subject to
possible conversion, net of income tax effect |
|
|
(226 |
) |
|
|
|
|
Deferred income taxes |
|
|
(1,621 |
) |
|
|
(3,348 |
) |
Changes in operating assets and liabilities |
|
|
540 |
|
|
|
67 |
|
|
|
|
|
|
|
|
Net cash provided (used) by operating activities |
|
|
(332 |
) |
|
|
465 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Acquisitions, net of cash acquired |
|
|
(62,460 |
) |
|
|
(20,238 |
) |
Purchases of property and equipment |
|
|
(81 |
) |
|
|
(4 |
) |
Purchases of intangible assets |
|
|
|
|
|
|
(107 |
) |
|
|
|
|
|
|
|
Net cash used by investing activities |
|
|
(62,541 |
) |
|
|
(20,349 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Proceeds from issuances of capital |
|
|
21,044 |
|
|
|
1,236 |
|
Minority interest capital contributions |
|
|
8,278 |
|
|
|
|
|
Cumulative dividends paid |
|
|
|
|
|
|
(62 |
) |
Payments to converting stockholders, net |
|
|
(6,426 |
) |
|
|
|
|
Repayment of borrowings from related party |
|
|
(2,350 |
) |
|
|
|
|
Intercompany transfers |
|
|
(24,813 |
) |
|
|
18,976 |
|
|
|
|
|
|
|
|
Net cash provided used by financing activities |
|
|
(4,267 |
) |
|
|
20,150 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash |
|
|
(67,140 |
) |
|
|
266 |
|
|
|
|
|
|
|
|
|
|
Cash at beginning of period |
|
|
68,277 |
|
|
|
1,137 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at end of period |
|
$ |
1,137 |
|
|
$ |
1,403 |
|
|
|
|
|
|
|
|
S-4
EXHIBIT INDEX
|
|
|
|
|
Exhibit |
|
|
Number |
|
Exhibit Description |
|
|
|
|
|
|
21.1 |
|
|
Subsidiaries of General Finance Corporation |
|
|
|
|
|
|
23.1 |
|
|
Consent of Independent Registered Public Accounting Firm (Crowe Horwath LLP) |
|
|
|
|
|
|
23.2 |
|
|
Consent of Independent Registered Public Accounting Firm (Grobstein, Horwath & Company LLP) |
|
|
|
|
|
|
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 |