UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________
FORM 10-K/A
(Mark One)
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| þ | | 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 130215(D)13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the transition period from January 1, 2007 to June 30, 2007
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Commission file number 001-32845
Commission File Number 000-33385
GENERAL FINANCE CORPORATION
(Exact name of registrant as specified in its charter)
California
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Delaware
(State or other jurisdictionJurisdiction ofincorporation Incorporation or organization)
Organization) | 95-3876317
| 32-0163571
(I.R.S. Employer Identification No.) |
260 So. Los Robles Avenue, Suite 217
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39 East Union Street
Pasadena, CACalifornia 91103
(Address of principal executive offices) Principal Executive Offices) | 91101
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(626) 584-9722
(Zip Code)Registrant’s telephone number, including area code) |
Registrant’s telephone number, including area code (626) 584-9722
Securities registered pursuant to Section 12(b) of the Act:
Title of each Class
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| Title of Each Class | | Name of eachEach Exchange on whichOn Which Registered |
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Units, each consisting of one share of Common Stock, $0.001
$0.0001 par value, and One Warrant | | American Stock ExchangeNASDAQ Global Market |
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Common Stock, $0.001$0.0001 par value | | American Stock ExchangeNASDAQ Global Market |
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| Warrants to Purchase Common Stock | | American Stock ExchangeNASDAQ Global Market |
Securities registered pursuant to Section 12(g) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 the Securities Act. Yeso Noþ
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None |
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yeso Noþ
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ¨ No x
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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 ¨ No x
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Indicate by check mark whether the registrantregistrant: (1) has filed all reports required to be filed by Section 13 or 15 (d)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 pastlast 90 days. Yesýþ NoNo ¨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). Yeso Noo
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 Registrant’sregistrant’s 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.ýþ
Explanatory Note:
This Form 10-K is being amended to reflect the correct date of the Auditors' Reports on pages F-1 and P-1.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a non-accelerated filer.smaller reporting company. See definition of ““large accelerated filer,” “accelerated filer” and large accelerated filer”“smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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| Large accelerated filero | | Accelerated filero | | Non-accelerated filero | | Smaller reporting companyþ |
| | | | (Do not check if a smaller reporting company) | | |
Large accelerated filer ¨Accelerated filer ¨Non-accelerated filer ý
Indicate by check mark if whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso Noýþ No ¨
Based on the closing price as reported on the American Stock Exchange, theThe aggregate market value of the Registrant’s common stockCommon Stock held by non-affiliates of the Registrant on October 24, 2007December 31, 2008 was approximately $73,071,176. Shares$19,120,000 based on a closing price of common stock held by each$1.70 for the Common Stock on such date. For purposes of this computation, all executive officerofficers and director and by each shareholder affiliated with a director or an executive officerdirectors have been excluded from this calculation because such persons maydeemed to be affiliates. Such determination should not be deemed to be affiliates. This determinationan admission that such executive officers and directors are, in fact, affiliates of affiliate status is not necessarily a conclusive determination for other purposes.the Registrant.
The number of outstandingThere were 17,826,052 shares of the Registrant’s common stockCommon Stock outstanding as of October 24, 2007 was 9,690,099.September 4, 2009.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s 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
2007 TRANSITION
2009 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
Page(s)
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| 1 | | 2 | |
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| | ITEM | | | |
| BUSINESS | 2 | 3 | |
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| RISK FACTORS | 3 | 22 | |
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| UNRESOLVED STAFF COMMENTS | 4 | 30 | |
| | ITEM | | | |
| PROPERTIES | 4 | 30 | |
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| LEGAL PROCEEDINGS | 4 | 31 | |
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| SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS | 4 | 31 | |
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| II | 5 |
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| MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES | 5 | 32 | |
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| SELECTED FINANCIAL DATA | 6 | 34 | |
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| MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 7 | 35 | |
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| QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 9 | 46 | |
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| FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA | 10 | 47 | |
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| CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE | 10 | 47 | |
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| CONTROLS AND PROCEDURES | 10 | 47 | |
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| OTHER INFORMATION | 10 | 48 | |
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| DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT | 11 | 49 | |
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| EXECUTIVE COMPENSATION | 13 | 49 | |
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| SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT | 15 | 49 | |
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| CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS | 19 | 49 | |
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| PRINCIPAL ACCOUNTANT FEES AND SERVICES | 19 | 49 | |
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| EXHIBITS AND FINANCIAL STATEMENT SCHEDULES | 20 | 50 | |
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| | 21 | | 55 | |
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| Exhibit 21.1 |
| Exhibit 23.1 |
| Exhibit 23.2 |
| Exhibit 31.1 |
| Exhibit 31.2 |
| Exhibit 32.1 |
| Exhibit 32.2 |
SAFE HARBOR STATEMENT
This TransitionAnnual Report on Form 10-K, including the documents incorporated by reference into this Annual Report on Form 10-K,contains forward-looking statements relating to future results of General Finance Corporation (including certain projections and business trends) that are “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 subjectintended to be made pursuant to the “safe harbor” created by those sections. Forward-lookingsafe harbor provisions of the Private Securities Litigation Reform Act of 1995. Some of the forward-looking statements frequently are identifiablecan be identified by the use of wordsforward-looking terms such as “believes,” “expects,” “may,” “will,” “should,” “could,” “would,“seek,” “expect,“intends,” “plan,“plans,” “anticipate,“estimates,” “believe,” “estimate,” “continue,”“anticipates” or the negativeother comparable terms. A number of such terms and other similar expressions. Ourimportant factors could cause actual results mayto differ materially from those projected as a result of certain risks and uncertainties. Thesein the forward-looking statements. The risks and uncertainties include, but arediscussed in “Risk Factors” should be considered in evaluating our forward-looking statements. You should not limited to, those set forth in Item 1A. Risk Factors and elsewhere in this Transition Reportplace undue reliance on Form 10-K and those detailed from time to time in our other filings with the Securities and Exchange Commission. These forward-looking statements are madestatements. Further, any forward-looking statement speaks only as of the date hereof,on which it is made, and we undertake no obligation to update or revise theany forward-looking statements, whether as a result of new information, future events or otherwise.statements.
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PART I
References in this Report to “we”, “us”, or the “Company” are to General Finance Corporation (“GFN”) and its consolidated subsidiaries. As of June 30, 2007, and through September 13, 2007, theseThese subsidiaries includedinclude 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”), and; GFN Australasia Finance Pty Ltd, an Australian corporation (“GFN Finance”). As of September 13, 2007, these subsidiaries also included; 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, we changed our fiscal year to June 30 from December 31. We are filing this transition report on Form 10-K with respect to the six months ended June 30, 2007. In addition, the consolidated financial statements of Royal Wolf, as our predecessor, for the years ended June 30, 2007Background and 2006, for the six months ended June 30, 2005 and for the year ended December 31, 2004 are included herein. Royal Wolf’s results of operations will be included in our consolidated financial statements from the completion date of the acquisition and will be first reported in our Form 10- Q for the quarter ended September 30, 2007.
Item 1. Business
General Development of the Business
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.businesses in the rental services and specialty finance sectors. From inception through the end of the period covered by this Report,September 13, 2007, we have been a development stage company. We did not have any business or operations, and our activities were limited to raising capital in our initial public offering (the “IPO”) in April 2006, identifying an operating business to acquire and negotiating and entering into an agreement to acquire Royal Wolf.
We issued 8,625,000 units in our IPO. Each unit consists of one share of our common stock and one warrant entitling the holder to purchase one share of our common stock at a price of $6.00. The public offering price of each unit was $8.00, and we generated gross proceeds of $69,000,000 in the IPO. Of the gross proceeds: (i) we deposited $65,000,000 into a trust account (the “Trust Account”), which amount included $1,380,000 of deferred underwriting fees; (ii) the underwriters received $3,450,000 as underwriting fees (excluding the deferred underwriting fees); and (iii) we retained $550,000 for offering expenses. In addition, we deposited into the Trust Account $700,000 that we received from the issuance and sale of 583,333 warrants to Ronald F. Valenta, a director and our Chief Executive Officer, and John O. Johnson, our Chief Operating Officer, prior to completion of the IPO. Stockholders holding the shares issued in connection with the IPO are referred to as “Public Stockholders.”
Subsequent Event—Acquisition of 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 U.S.Australian dollar to $0.8407 AustralianU.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.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.
The funds inAll references to events or activities (other than equity-related) which occurred prior to the Trust Account were distributed at the closingcompletion 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-Van’s 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.
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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 customer’s 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 Wolf’s business.
Royal Wolf’s 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 Wolf’s market opportunity is to fully develop and service these applications.
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Generate Strong Internal Growth.We received approximately $60.8 million,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:
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 Wolf’s 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.
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.
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.
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.
In July 2008, we acquired the business of NT Container Services for $1,028,000.
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 Wolf’s 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 $44.7primarily 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 customer’s 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.
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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 Wolf’s 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 Wolf’s 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 paygrow:
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;
Suppliers and customers continue to develop further uses for mobile storage containers, thereby broadening the market for mobile storage containers; and
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 Wolf’s principal competitors in the mobile storage container market in Australia. This information was compiled by Royal Wolf’s 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 | | Scope of Operations |
| Simply Containers | | National |
| Macfield | | Regional |
| Cronos | | National |
| ANL CGM | | 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:
Engineering, construction and resources — approximately 50%.
Non-residential building construction — approximately 35%.
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 Wolf’s principal competitors in the Australian portable buildings market:
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| Competitor | | Scope of Operations |
| Coates | | National |
| Ausco | | National |
| Nomad | | National |
| Atco | | National |
Freight Container Market
Based upon internal analysis, Royal Wolf’s 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 Wolf’s 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 Wolf’s principal competitors in the Australian freight container market:
| | |
| Competitor | | Scope of Operations |
| Macfield | | National |
| Cronos | | National |
| Simply Containers | | National |
| ANL | | National |
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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 Company’s key products include:
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| Mobile storage containers: | | 10-foot, 20-foot and 40-foot general purpose units |
| | Double pallet-wide high cube units |
| | Hazardous goods containers |
| | Refrigerated containers |
| | |
| Portable container buildings: | | Site offices and cabins |
| | Workforce accommodation units |
| | Luxury accommodation units |
| | Restroom blocks |
| | Blast-resistant units |
| | Specialized office and infrastructure suites |
| | |
| Freight Containers: | | Curtain-side containers |
| | 20-foot and 40-foot Hi-cube containers |
| | 20-foot and 40-foot two pallet-wide containers |
| | Side-opening door containers |
| | 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 Wolf’s 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 Wolf’s total sales and leasing of mobile storage container revenues for the fiscal year ended June 30, 2009 were as follows ($ in millions):
| | | | | | | | | |
| Sales | | $ | 45.2 | | | | 81 | % |
| Leasing | | | 25.9 | | | | 72 | % |
| | | | | | | | |
| Mobile storage containers in lease fleet | | | 18,449 | | | | 65 | % |
| | | | | | | |
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 Wolf’s total sales and leasing of portable container building revenues for the fiscal year ended June 30, 2009 were as follows ($ in millions):
| | | | | | | | | |
| Sales | | $ | 8.3 | | | | 15 | % |
| Leasing | | | 3.9 | | | | 11 | % |
| | | | | | | | |
| Portable container buildings in lease fleet | | | 1,758 | | | | 6 | % |
| | | | | | | |
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 Wolf’s freight container products include curtain-side, refrigerated and bulk cargo containers, together with a range of standard and industry-specific dry freight containers.
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The amount and percent of Royal Wolf’s total sales and leasing of freight container revenues for the fiscal year ended June 30, 2009 were as follows ($ in millions):
| | | | | | | | | |
| Sales | | $ | 2.4 | | | | 4 | % |
| Leasing | | | 6.4 | | | | 17 | % |
| | | | | | | | |
| Freight containers in lease fleet | | | 8,020 | | | | 29 | % |
| | | | | | | |
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 unit’s 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 Wolf’s container purchases during the year ended June 30, 2009:
| | | | | | | | |
| Suppliers | | Type of Product Purchased | | | Percentage of Container Purchases | |
| | | | | | | | |
| Nantong CIMC | | New | | | 29 | % |
| Dong Fang | | New | | | 9 | % |
| Singamas | | New | | | 8 | % |
| Eastern Container Alliance | | New | | | 7 | % |
| | | | | | | |
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 Wolf’s purchase orders or do not properly manufacture the ordered products, Royal Wolf’s 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 SeaCo’s containers that GE SeaCo determines to sell, up to a maximum of 5,000 containers each year. The purchase price for the RWA shares.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 $6.4 million ($7.93482 per share)1,520 units were purchased under this contract during the year ended June 30, 2009.
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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 Wolf’s existing CSC locations:
Each CSC has a branch manager who has overall supervisory responsibility for all activities of the fundsCSC. 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 branch’s 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 Wolf’s 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 Wolf’s customer base reduces the business exposure to a significant downturn in any particular industry.
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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 Wolf’s diverse customer base uses mobile storage containers for a variety of uses:
For the Fiscal Year Ended June 30, 2009
Temporary storage of excess inventory for the retail and wholesale industries; and
Offices, workshops or storerooms;
Portable work camps for the resources industry, including accommodations, ablution and kitchen containers;
Blast resistant containers for refineries;
Rapid deployment storage for the military, emergency services and disaster relief;
Low-cost accommodations for remote communities and caravan parks;
Farm storage for cattle feed, farm equipment, fertilizers and other items.
Sales and Marketing
Royal Wolf’s 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.
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Royal Wolf’s 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 Trust Account was paid to Public Stockholders holding 809,901 shares who voted against the acquisition and, in accordancefollowing major categories:
| | | | |
| Senior and CSC management | | | 28 | |
| Corporate staff | | | 44 | |
| Sales and marketing | | | 63 | |
| CSC operations and administration | | | 92 | |
| | | |
None of our employees is covered by a collective bargaining agreement. We believe our relationship with our certificateemployees is good. We have never experienced any material labor disruption, and we are not aware of incorporation, electedany efforts or plans to receiveunionize 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-Van’s 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-Van’s 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.
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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 product’s 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 customer’s 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-Van’s 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-Van’s 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-Van’s 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-Van’s 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-Van’s competitors may have greater market share, less indebtedness, greater pricing flexibility or superior marketing and financial resources. Pac-Van’s 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-Van’s 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-Van’s 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-Van’s largest customer accounted for approximately 6% of its total revenues and Pac-Van’s top ten customers accounted for approximately 17% of its total revenues. We believe that the diversity of Pac-Van’s business limits, to some degree, a significant impact on it of changes in any given customer, geography or end market.
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Focus On Customer Service and Support.Pac-Van’s 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-Van’s 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-Van’s capital expenditures are discretionary in exchangenature, 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-Van’s 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-Van’s 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-Van’s 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 company’s 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-Van’s 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-Van’s 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-Van’s lease fleet.
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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-Van’s lease fleet.
All of Pac-Van’s lease fleet carry signage reflecting the company’s 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-Van’s 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 shares,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:
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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-Van’s 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-Van’s 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 customer’s location, site-work required prior to installation and installation of the units which have been cancelled.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 remaining $1.3top 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, wasbut 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.
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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 our IPO underwritersby 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-Van’s 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-Van’s lease fleet is included in leasing, selling, and general expenses and is expensed as deferred underwriting fees.incurred. We believe that Pac-Van’s maintenance program ensures a high quality fleet.
Customers
ForPac-Van has established strong relationships with a descriptiondiverse 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-Van’s branch network and the many uses of its products.
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In FY09, Pac-Van generated 64% of its revenues from leasing and 36% of its revenues from sales. Pac-Van’s 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-Van’s construction customer base is characterized by a wide variety of contractors and subcontractors, including general contractors, mechanical contractors, plumbers, electricians and roofers. Pac-Van’s revenues generated from the construction industry approximated 45% in FY09. Contractors typically use Pac-Van’s 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-Van’s 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-Van’s 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-Van’s 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-Van’s 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.
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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-Van’s modular products as their place of business, Pac-Van’s mobile offices as supplemental office space and Pac-Van’s 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-Van’s sales and marketing team consisted of 37 people. Members of Pac-Van’s 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-Van’s 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-Van’s 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-Van’s 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-Van’s 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-Van’s 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-Van’s 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:
| | | | |
| Senior and branch management | | | 30 | |
| Corporate staff | | | 21 | |
| Sales and marketing | | | 37 | |
| Branch operations and administration | | | 114 | |
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In addition, we have three full-time employees at our corporate office in Pasadena, California.
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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-Van’s 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 see our definitive proxy statement relating to our acquisitionhas 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 filed August 10, 2007continues 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 Wolf’s region of business.
Pac-Van owns a number of trademarks important to its business, including Pac-Van® and “We’ve 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 Securities and Exchange Commission (the “Definitive Proxy Statement”).applicable governmental offices.
Our Internet website whichaddress is located at http://www.generalfinance.com is under construction.. This reference to our Internet website does not constitute incorporationincorporate by reference in this report of the information contained on or hyperlinked from our Internet website and suchinto this Annual Report on Form 10-K. Such information should not be considered part of this report.
Annual Report on Form 10-K. The internet website for Royal Wolf and Pac-Van iswww.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”) on a regular basis, and are required to disclose certain material events (e.g., changes in corporate control; acquisitions or dispositions of a significant amount of assets other than in the ordinary course of business and bankruptcy) in a current reportCurrent 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 SEC’s Internet website that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. The SEC’s 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 SEC’s 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.
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Executive Officers of the Registrant
The SEC also maintainsfollowing 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 | | Age | | | Position | |
| Charles E. Barrantes | | | 57 | | | Executive Vice President and Chief Financial Officer | |
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| Christopher A. Wilson | | | 42 | | | General Counsel, Vice President & Secretary | |
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| Robert Allan | | | 53 | | | Chief Executive Officer, Royal Wolf | |
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| Theodore Mourouzis | | | 46 | | | President, Pac-Van, Inc. | |
Charles E. Barranteshas 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. Wilsonbecame 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 Internet websiteassociate 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 Allanhas 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 world’s 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 Mourouzishas 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).
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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 reports, proxy and informationforward-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 information regarding issuersthings, 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 Wolf’s 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 file electronicallythey 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 the SEC. The SEC’s Internet websitea significant amount of long-term debt, which is located at http://www.sec.gov.
secured by all or substantially all of our assets, subject to variable interest rates and contain restrictive covenants.
As of June 30, 2007,2009, we had three executive officersoutstanding 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:
require us to dedicate a controller. Other thansubstantial portion of our Chief Financial Officer, who was hiredcash flow from operations at Royal Wolf and Pac-Van to payments on a full-time basis on September 11, 2006, these individuals were not obligated to devote any specific number of hours to our matters and devoted only as much time as they deem necessary to our affairs and received no salary or similar compensation. The amount of time they devoted in any time period varied based onindebtedness, which could reduce the availability of suitable target businessesour cash flow to investigate. Wefund future working capital, capital expenditures, acquisitions and other general corporate purposes;
expose us to the risk of increased interest rates, as our borrowings on our secured senior credit facilities are at variable rates of interest;
require us to sell assets to reduce indebtedness or influence our decisions about whether to do so;
increase our vulnerability to general adverse economic and industry conditions;
limit our flexibility in planning for, or reacting to, changes in our business and our industry;
restrict us from making strategic acquisitions or pursuing business opportunities;
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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
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 believecured or waived. In addition, the value of these serviceslenders may be able to terminate any commitments they had made to supply us with further funds. Accordingly, we may not be significantable to fully repay our operating results.
Nonedebt obligations, if some or all of our employees is covered by a collective bargaining agreement.debt obligations are accelerated upon an event of default.
2Our 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:
| • | | 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. |
Item 1A. Risk Factors
In additionSubsequent to risk factors includedJuly 1, 2011, we may be required to satisfy Bison Capital’s put option for Bison Capital’s 13.8% interest in this Transition Report, you should also consider all the Risks Related to “Our Business and Operations Following Our Acquisition of Royal Wolf” as set forth in the Definitive Proxy Statement.
We have entered into a shareholders agreement with Bison Capital Partners, L.P. (“Bison Capital”) with respect to our 86.2% and Bison Capital’s 13.8% ownership interest in GFN U.S., which indirectly owns Royal Wolf. Under the shareholders agreement, neither GFN U.S. nor Royal Wolf may take certain actions without the written consent of Bison Capital, including without limitation selling material assets outside the ordinary course of business, entering into transactions with GFN, issuing capital stock to GFN without offering a pro rata share to Bison Capital, issuing capital stock to third party, issuing subordinated debt to any person without offering Bison its pro rata share, paying dividends or make other payments to GFN (other than up to $1 million per year for administrative and overhead expenses), changing the nature of the business, merging with any person that results in a change of control, or acquiring any business if the purchase price and assumed debt exceeds $10 million. Because of this, Bison Capital, as a minority stockholder of GFN U.S., has the power to prevent us from taking certain actions or entering into certain transactions with respect to Royal Wolf that we believe to be desirable.
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 agreedthe required cash readily available, we may be required to acquire businesses competitive with Royal Wolftake certain actions, such as selling assets, seeking additional capital (including issuing GFN common stock), or reducing or delaying capital expenditures and acquisition activity, in certain geographic territory solely through Royal Wolf.
Underorder 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 we have agreedand 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 acquire businesses engagedchanges in the saleAustralian 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 leaselosses 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 portable storage containers, portable container buildings and freight containers in certain geographic territory solely throughthe translation of Royal Wolf. The geographic territory is thatWolf’s financial results into U.S. dollars.
A write-off of all or a part of the world southour goodwill and intangibles would hurt our operating results and reduce our stockholders’ equity.
As a result of Guam, west of Hawaii and east of Viet Nam. Because of this, Bison Capital, as the owner of a 13.8% interest in Royal Wolf, will receive its pro rata share of any increase in the valueour acquisitions of Royal Wolf, resultingPac-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, such acquisitions.
Our ability to be successful may depend on the efforts of Ronald F. Valenta and John O. Johnson.
Our ability to be successful may depend upon the efforts of Ronald F. Valenta, our Chief Executive Officer, and John O. Johnson, our Chief Operating Officer. Mr. Valenta has significant experience and contacts in owning, operating and acquiring companiesamong other things, deterioration in the businessperformance of equipment salesacquired businesses, adverse market conditions, stock price, and leasing,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 present business. Mr. Johnson has significant experience in acquisitions, andcash flow, a write-off of all or a part of our strategygoodwill or intangibles would adversely affect our operating results and stockholders’ equity. Reference is made to acquireNote 2 of Notes to Consolidated Financial Statements for more information regarding goodwill and intangible assets.
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Future acquisitions of businesses could subject us to additional businesses engaged in equipment salesbusiness, operating and leasing. Neither Mr. Valenta nor Mr. Johnson has an employment agreement with us,industry risks, the impact of which cannot presently be evaluated, and they are not currently compensated for their services, although Mr. Valenta and Mr. Johnson beneficially own approximately 24.0% and 6.7%, respectively, ofcould adversely impact our outstanding common stock.capital structure.
Neither Ronald F. Valenta,effort to diversify our Chief Executive Officer, nor John O. Johnson,investments and/or grow our Chief Operating Officer, devotes or is requiredbusiness. Any business we acquire may cause us to devote his full time to our affairs. This could create a conflict of interest when allocating their time between our operations and their other commitments. These executive officers are engaged in several other business endeavors and are not obligated to devote any specific number of hours to our affairs. If these executive officers’ other business affairs require them to devote more substantial amounts of time to such affairs, it could limit their ability to devote time to our affairs and could have a negative impact on our ability to function as an operating company and consummate future business combinations.
Ronald F. Valenta is affiliated with two companiesbe affected by numerous risks inherent in the specialty financeacquired business’s operations. If we acquire a business which could createin an industry characterized by a conflicthigh level of interestrisk, we may be affected by the currently unascertainable risks of that industry. Although we will endeavor to evaluate the risks inherent in decisions affecting our business.
Ronald F. Valenta, a director and our Chief Executive Officer, is also affiliated with two companies in the specialty finance industry. He is a director of Mobile Services Group, Inc., a portable storage company he founded in 1988, and the Chairmanparticular industry or target business, we cannot assure that we will be able to properly ascertain or assess all of the Boardsignificant risk factors.
In addition, the financing of Directorsany acquisition we complete could adversely impact our capital structure as any such financing would likely include the issuance of Mobile Office Acquisition Corporation,additional equity securities and/or the parent companyborrowing of PacVan, Inc.,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 U.S. office modulardefault that would entitle the holder to declare all of such indebtedness due and portable storagepayable 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.
Part of our business strategy isIf we do seek to acquirecomplete other acquisitions, we cannot ascertain the capital requirements for other future transactions. We cannot assure that, if required, additional businesses. We can give no assurance you that we will be able to identify any additional businesses that we will be able to acquire on terms and conditions that we deem acceptable. Further, we may need additional financing to make some or all of these possible acquisitions. We can give no assurance that we will be able to obtain such financing or that such 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 conditions acceptableother resources. To successfully manage this growth, we must continue to us.
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 management’s 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:
| • | | 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:
| • | | 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:
| • | | 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.
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Our outstanding options and warrants may have an adverse effect on the market price of common stock and increase the difficulty of effecting future business combination.
combinations.
At SeptemberJune 30, 2007,2009, we had outstanding options and warrants to purchase 11,433,3336,332,380 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 to complete a future business combination.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 Wolf’s 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 Wolf’s revenue and leasing generated approximately 30% of Royal Wolf’s 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 Wolf’s customers, in particular those in the mining and moving and storage industries, which may reduce demand for Royal Wolf’s products and services which would negatively impact our future revenues and results of operations.
A significant portion of Royal Wolf’s 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 Wolf’s revenues in the fiscal year ended June 30, 2009. Although we believe the variety of Royal Wolf’s 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 Wolf’s 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 Wolf’s 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 Wolf’s 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 Wolf’s 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 Wolf’s 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 Wolf’s 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 Wolf’s 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-Van’s customers, in particular those in the construction industry, which may reduce demand for Pac-Van’s products and services and negatively impact our future revenues and results of operations.
A significant portion of Pac-Van’s 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-Van’s revenues for the year ended June 30, 2009. Although the variety of Pac-Van’s 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-Van’s 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-Van’s 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-Van’s 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-Van’s 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-Van’s 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-Van’s revenues and the failure to continue to sell units at historic rates could adversely affect our ability to grow Pac-Van’s lease fleet.
Sales of modular buildings, mobile offices and storage units constituted approximately 36% of Pac-Van’s 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-Van’s 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-Van’s 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-Van’s 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-Van’s 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-Van’s 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-Van’s 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-Van’s ability to optimize fleet utilization, rentability and redeployment. The failure of Pac-Van’s 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-Van’s manufacturers to sell and deliver products to Pac-Van in timely fashion may harm Pac-Van’s 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-Van’s 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-Van’s employees could cause increases in operating costs.
Pac-Van’s employees are not presently covered by collective bargaining agreements. Unions may attempt to organize Pac-Van’s employees in the future. We are unable to predict the outcome of any continuing or future efforts to organize Pac-Van’s 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-Van’s storage units and therefore limit its ability to offer its products in all markets.
Many of Pac-Van’s customers use Pac-Van’s storage units to store goods on their own properties. Local zoning laws in some of Pac-Van’s 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-Van’s geographic markets were to ban or restrict mobile offices or storage containers stored on customers’ sites, Pac-Van’s business in that market could suffer.
29
Item 1B. Unresolved Staff Comments
None.
Inapplicable.
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 executive officesbranches also provide storage of units under lease at 260 South Los Robles Avenue, Suite 217, Pasadena, CA 91101. These officesthe branch (“on-site storage”). Except for the Auckland, New Zealand self-storage and regional office site, the branch locations are provided to usleased. The following table shows information about our branches by an affiliategeographic area (Australia and New Zealand). Several branches have multiple leases of Ronald F. Valenta. This affiliate of Mr. Valenta made this space available though the completion of the acquisition of Royal Wolf free of a rental charge.adjoining or contiguous properties. We now rent this space on a month-to-month basis for $1,148 per monthbelieve these properties are suitable and consider the current office space adequate for our current operations.
None.
On June 14, 2007, we held our Annual Meeting of Stockholders. The following are the results of the proposals:
a)Election of directors:
Nominee | | For | | Withheld | |
| David M. Connell | | | 8,776,419 | | | 323,945 | |
| Manuel Marrero | | | 8,776,419 | | | 323,945 | |
needs.
| (b) | Approval of 2006 Stock Option Plan: |
For
| | 5,598,970
| |
| | | | |
Against | | | 707,933
| |
| | | | | | | Year | |
AbstainLocation | | 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-Van’s 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.
241,125
| | | | | | | | |
| | | | | | | Year | |
Not VotedLocation | | Functions/Uses | | Established | |
| Atlanta, GA | | Leasing & Sales | | | 2,552,336
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.
| (c) | Ratification of the selection of Grobstein, Horwath & Company LLP as independent auditors: |
| 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.
For | | |
| 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
| 8,831,021
| |
| Item 5. | | | | |
Against | | | 265,643
| |
| | | | |
Abstain | | | 3,700
| Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
PART II
Market Prices
Our units, common stock and warrants are listed on the American Stock ExchangeThe NASDAQ Global Market (NASDAQ) under the symbols “GFN.U,“GFNCU,” “GFN” and “GFN.WS,“GFNCW,” respectively. The following table sets forth for the periods indicated the range of high and low closing sales prices for the units, since the units commenced trading on April 10, 2006, and for the common stock and warrants, since the common stock and warrants commenced public trading separately on June 13, 2006: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 | |
| | | | | | | | | | | | | | | | | | | |
| | | Units | | Common Stock | | Warrants | |
| | | High | | Low | | High | | Low | | High | | Low | |
2007: | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| Fourth Quarter | | | 9.75 | | | 9.00 | | | 7.95 | | | 7.56 | | | 1.96 | | | 1.45 | |
| | | | | | | | | | | | | | | | | | | | |
| Third Quarter | | | 9.60 | | | 8.50 | | | 7.95 | | | 7.46 | | | 1.80 | | | 1.10 | |
| | | | | | | | | | | | | | | | | | | | |
| Second Quarter | | | 8.00 | | | 7.81 | | | 7.70 | | | 7.22 | | | 1.15 | | | 0.62 | |
| | | | | | | | | | | | | | | | | | | | |
| First Quarter | | | 8.45 | | | 7.75 | | | 7.36 | | | 7.22 | | | 0.85 | | | 0.63 | |
2006: | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| Fourth Quarter | | $ | 8.06 | | $ | 7.75 | | $ | 7.35 | | $ | 7.24 | | $ | 0.80 | | $ | 0.63 | |
Record Holders
As of October 24, 2007,September 4, 2009, there were eight14 stockholders of record of our common stock.stock and one holder of record for each of our units and warrants. We believe that there are hundredsthousands 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 haveare 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 provided a line graph comparing yearly percentage change in our shareholder return onconvertible into GFN common stock, against various indiceshas 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 peer group because we were a blank check company without an operating business.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 selectedinformation 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
informationdata 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
ourthe audited consolidated financial statements included elsewhere in this
Annual Report
on Form 10-K. The summary consolidated financial data for
the period from October 14, 2005 (inception) to December 31, 2005,Royal Wolf as of June 30, 2007 and as of and for the year ended
December 31,June 30, 2006
forand the six months ended June 30,
2007, for2005 was derived from the
period from October 14, 2005 (inception) to June 30, 2007 and as of December 31, 2006 and June 30, 2007. The following data has been restated from previously issuedaudited financial
information for the for the retrospective application of the capitalization of the costs incurred relating to the acquisitionstatements of Royal
Wolf and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements including the notes thereto, included elsewhere in this Transition Report on Form 10-K. Wolf.
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 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 | ) |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | October 14, 2006 (inception) to December 31, 2005 | | Year Ended December 31, 2006 | | Six Months Ended June 30, 2007 | | October 14, 2005 (inception) to June 30, 2007 | |
| | | | | | | | | | |
| General and administrative expenses | | $ | 3,509 | | $ | 387,815 | | $ | 795,989 | | $ | 1,187,313 | |
| Operating loss | | | (3,509 | ) | | (387,815 | ) | | (795,989 | ) | | (1,187,313 | ) |
| Other income: | | | | | | | | | | | | | |
| Interest income | | | -- | | | 1,888,503 | | | 1,312,169 | | | 3,200,672 | |
| Interest expense | | | -- | | | (20,498 | ) | | (72,398 | ) | | (92,896 | ) |
| Other, net | | | -- | | | -- | | | (7,469 | ) | | (7,469 | ) |
| Net income (loss) | | $ | (3,509 | ) | $ | 891,090 | | $ | 261,513 | | $ | 1,149,094 | |
| Net income (loss) per share: | | | | | | | | | | | | | |
| Basic | | $ | (0.00 | ) | $ | 0.11 | | $ | 0.02 | | | | |
| Diluted | | $ | (0.00 | ) | $ | 0.09 | | $ | 0.02 | | | | |
| | | | | | | | | | | | | | |
| Weighted average shares outstanding: | | | | | | | | | | | | | |
| Basic | | | 1,875,000 | | | 8,151,369 | | | 10,500,000 | | | | |
| Diluted | | $ | 1,875,000 | | $ | 9,636,545 | | $ | 12,704,299 | | | | |
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 | |
| | | | | | | | | | | | | | | | |
| | | December 31, 2006 | | June 30, 2007 | |
| | | | | | |
| Cash | | $ | 37,713 | | $ | 59,427 | |
| Cash equivalents held in trust - restricted | | | 68,055,252 | | | 68,217,585 | |
| Deferred acquisition costs | | | 783,663 | | | 1,547,742 | |
| Total assets | | | 69,713,171 | | | 71,078,142 | |
| Deferred underwriting fees | | | 1,380,000 | | | 1,380,000 | |
| Total liabilities | | | 3,947,907 | | | 4,812,265 | |
| Common stock subject to possible conversion | | | 13,168,200 | | | 13,338,500 | |
| Stockholders’ equity | | $ | 52,597,064 | | $ | 52,927,377 | |
34
Selected Unaudited Quarterly Results of Operations
Financial Data
The following table sets forth unaudited operating data for each quarter of the quarters in the year ended December 31, 2006 and the six monthsyears ended June 30, 2007.2009 and June 30, 2008. This quarterly information has been restated from previously issued financial information for the retrospective application of the capitalization of the costs incurred relating to the acquisition of Royal Wolf and has been prepared on the same basis as ourthe annual consolidated financial statements and, in the opinion of management, reflectscontains all significant adjustments (consisting primarilynecessary to state fairly the information set forth herein. These quarterly results are not necessarily indicative of normal recurring adjustments) necessary for a fair presentation offuture results, of operations for the periods presented.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 | |
| | | | | | | | | | | | | |
Year Ended December 31, 2006 | | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter | |
| | | | | | | | | | |
| Net income (loss), as previously reported | | $ | (8,014 | ) | $ | 302,406 | | $ | (2,603 | ) | $ | 165,211 | |
| Effect of accounting change, net of tax | | | -- | | | 3,763 | | | 265,772 | | | 164,555 | |
| Net income (loss), as restated | | $ | (8,014 | ) | $ | 306,169 | | $ | 263,169 | | $ | 329,766 | |
| Income (loss) per share, as previously reported | | | | | | | | | | | | | |
| Basic | | $ | (0.00 | ) | $ | 0.03 | | $ | -- | | $ | 0.03 | |
| Diluted | | $ | (0.00 | ) | $ | 0.03 | | $ | -- | | $ | 0.02 | |
| Income (loss) per share, as restated | | | | | | | | | | | | | |
| Basic | | $ | (0.00 | ) | $ | 0.03 | | $ | 0.03 | | $ | 0.03 | |
| Diluted | | $ | (0.00 | ) | $ | 0.03 | | $ | 0.02 | | $ | 0.03 | |
Six Months Ended June 30, 2007 | | First Quarter | | Second Quarter | |
| | | | | | |
| Net income (loss), as previously reported | | $ | (180,584 | ) | $ | (34,898 | ) |
| Effect of accounting change, net of tax | | | 298,703 | | | 178,292 | |
| Net income (loss), as restated | | $ | 118,119 | | $ | 143,394 | |
| Income (loss) per share, as previously reported | | | | | | | |
| Basic | | $ | (0.02 | ) | $ | (0.00 | ) |
| Diluted | | $ | (0.02 | ) | $ | | ) |
| Income (loss) per share, as restated | | | | | | | |
| Basic | | $ | 0.01 | | $ | 0.01 | |
| Diluted | | $ | 0.01 | | $ | 0.01 | |
| | |
| (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. | | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
You should read theThe following discussion and analysis of our financial condition and results of operations should be read together with “Selected Consolidated Financial Data” and ourthe consolidated financial statements and the accompanying notes thereto that appearincluded elsewhere in this TransitionalAnnual Report on Form 10-K. This discussion and analysis containsincludes forward-looking statements that involve risks uncertainties, and assumptions. Actualuncertainties. Our actual results may differ materiallysignificantly from those anticipated or discussed in thesethose forward-looking statements as a result of various factors,factors; including, but not limited to, those presented under “Risks related to our business” includeddescribed in Item 1A and elsewhere1A. “Risk Factors.”
References in this Transitional Report on Form 10-K.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”).
Overview
Background and Significant Acquisitions
We were formedincorporated in Delaware on October 14, 2005 in order to serve as a vehicle to effect a business combination with one or more operating businesses. As of June 30,businesses in the rental services and specialty finance sectors. From inception through September 13, 2007, we haddid not completedhave any business combination.
In April 2006, we completedor operations and our activities were limited to raising capital in our initial public offering (“IPO”(the “IPO”) of 8,625,000 units. Each unit consists of one share of our common stockin April 2006, identifying an operating business to acquire, and one warrant entitling the holdernegotiating and entering into an agreement to purchase one share of our common stock at a price of $6.00. The public offering price of each unit was $8.00, and we generated gross proceeds of $69,000,000 in the IPO. Of the gross proceeds: (i) we deposited $65,000,000 into a trust account (the “Trust Account”), which amount included $1,380,000 of deferred underwriting fees; (ii) the underwriters received $3,450,000 as underwriting fees (excluding the deferred underwriting fees); and (iii) we retained $550,000 for offering expenses. In addition, we deposited into the Trust Account $700,000 that we received from the issuance and sale of 583,333 warrants to Ronald F. Valenta, a director and our Chief Executive Officer, and John O. Johnson, our Chief Operating Officer, prior to completion of the IPO. Stockholders holding the shares issued in connection with the IPO are referred to as “Public Stockholders.”acquire Royal Wolf.
35
In September 2007, we changed our fiscal year to June 30 from December 31.
Subsequent Event
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 U.S.Australian dollar to $0.8407 AustralianU.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%; and the issuance of the outstanding capital stock of GFN U.S. following the issuance.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 owns 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-Van’s 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 fundsglobal 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 customer’s 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-Van’s operating expenses as a percentage of revenues are higher than Royal Wolf’s percentage as: (1) Royal Wolf’s 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 Wolf’s 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.
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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.
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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 were distributedof $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 closingsenior 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.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 receivedhad foreign currency exchange gains of approximately $60.8$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.
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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 used $44.7focus 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 branch’s 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.
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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 Capital’s 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 purchase priceU.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 Capital’s put option) for the RWA shares. Approximately $6.4 million ($7.93482 per share) of the fundsnext 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 Trust Account was paidforeseeable future:
1. Reduce overall leverage in each operating entity by minimizing capital expenditures and using operating cash flow to Public Stockholders holding 809,901 shares who voted againstpay interest and reduce debt.
2. Operate the acquisition and,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 accordanceachieving these objectives. There can be no assurance that we will be successful in raising additional capital or maintaining compliance with our certificate of incorporation, elected to receive cash in exchange for their shares, which have been cancelled. The remaining $1.3 million was paid the underwriters as deferred underwriting fees.
On April 10, 2006, we completed our IPO of 7,500,000 units, andloan covenants. We currently do not pay a dividend on April 13, 2006, we completed the closing of an additional 1,125,000 units that were subject to the underwriter’s over-allotment option. Each Unit consists of one share of our common stock and one warrant entitlinganticipate using retained earnings to reduce debt for the holderforeseeable 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.
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| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | 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 management’s discretion. Other than a preferred supply agreement, which does not have a minimum purchase commitment, but does require us to purchase one shareup to 5,000 containers if offered to us; and the put and call options pertaining to Bison Capital’s 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 common stock atbusiness. Reference is made to Note 10 of Notes to Consolidated Financial Statements for a pricefurther discussion of $6.00. The public offering priceour 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 each unit was $8.00, and we generated gross proceeds of $69,000,000 in the IPO (including proceeds from the exercise of the over-allotment option). Of the gross proceeds: (i) we deposited $65,000,000 into the Trust Account at JP Morgan Chase NY Bank, maintained by Continental Stock Transfer & Trust Company as trustee, which included $1,380,000 of deferred underwriting fees; (ii) the underwriters received $3,450,000 as underwriting fees (excluding the deferred underwriting fees); and (iii) we retained $550,000 for offering expenses. In addition, we deposited into the Trust Account $700,000 that we received from the issuance and sale of 583,333 warrants tocredit with Ronald F. Valenta, a director and our Chief Executive Officer, and John O. Johnson,paid $6.4 million to our Chief Operating Officer,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 April 7, 2006.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.
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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 Australia’s 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-Van’s 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.
Management has discussed the development and selection of critical accounting estimates with the Audit Committee of the Board of Directors and the Audit Committee has reviewed our disclosure relating to critical accounting estimates in this Transitional Report. 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”) SFAS No. 123R,Share-Based Payment.Payment. SFAS No. 123R requires recognition of employee share-based compensation expense in the statements of income over the vesting period based on the fair value of the stock option at the grant date. The pricing model we use for determining fair values of the purchase option and the embedded derivative is the Black ScholesBlack-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 management’s judgment and may impact net income. In particular, the Company uses volatility rates based upon a sample of comparable companies in Royal Wolf’sthe Company’s industry and a risk-free interest rate, which is the rate on U. S.U.S. Treasury instruments, for a security with a maturity that approximates the estimated remaining contractual lifeexpected term of the derivative.stock option.
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Results of Operations, Financial Condition and Liquidity
Our operating expenses totaled $3,509, $387,815, $795,989 and $1,187,313 for the period from October 14, 2005 (inception) to December 31, 2005, for the year ended December 31, 2006, for the six months ended June 30, 2007 and for the period from October 14, 2005 (inception) to June 30, 2007, respectively. These expenses consisted primarily of accounting, legal and other professional services (including investor relations fees), liability insurance, Delaware franchise taxes, payroll (including stock-based compensation) and general office expenses. Operating expenses have increased both on an absolute and relative basis since our formation in October 2005 due primarily to the hiring of a Chief Financial Officer in September 2006, the engaging of an investor relations firm in October 2006 and the increasing requirements of corporate governance and public reporting. We also incurred over $594,000 of offering costs in connection with the IPO, all of which have been applied against paid-in capital; and have capitalized costs incurred relating primarily to the acquisition of Royal Wolf of $783,683, $761,395 and $1,545,058 for the year ended December 31, 2006, for the six months ended June 30, 2007 and for the period from October 14, 2005 (inception) to June 30, 2007, respectively.
We had net interest income earned primarily onaccount for goodwill in accordance with SFAS No. 142,Goodwill and Other Intangible Assets. SFAS No. 142 prohibits the marketable securities heldamortization 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 Trust Accountsecond step measures the amount of $1,888,503, $1,312,169 and $3,200,672 for the year ended December 31, 2006, for the six months ended June 30, 2007 and for the period from October 14, 2005 (inception) to June 30, 2007, respectively. Interest income excludes earnings on funds held in the Trust Account associated with common stock subject to possible conversion, net of any taxes payable by us relating to such interest earned.
Interest expense for the year ended December 31, 2006, for the six months ended June 30, 2007 and for the period from October 14, 2005 (inception) to June 30, 2007 of $20,498, $72,398 and $92,896, respectively, relates primarily to borrowings under our limited recourse revolving line of credit.
impairment, if any. We have provided for an annual effective income tax rate of approximately 40% for the year ended December 31, 2006, for the six months ended June 30, 2007 and for the period from October 14, 2005 (inception)determined that no impairment provision related to June 30, 2007 primarily because of state income taxes and the nondeductible portion of travel and entertainment expenses.
The following is a summary of our contractual obligations, including accrued interest,goodwill was required to be recorded as of June 30, 2007:2009.
| | | Payment Due by Year Ending June 30, | |
Contractual Obligations | | Total | | 2008 | | 2009-2012 | | 2013 | | 2014 and Thereafter | |
| | | (in thousands) | |
Limited recourse revolving line of credit (1) | | $ | 2,441 | | $ | 2,441 | | $ | — | | $ | — | | $ | — | |
| | | | | | | | | | | | | | | | | |
| Total | | $ | 2,441 | | $ | 2,441 | | $ | — | | $ | — | | $ | — | |
(1 On September 14, 2007, subsequentIntangible 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 completioncustomer base acquired in the Pac-Van acquisition was required to be recorded as of acquisitionJune 30, 2009, as a result of Royal Wolf,changes in market conditions in the U.S. Therefore, in the fourth quarter of FY 2009, we, repaidto be more in line with the outstanding balanceexpected 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 terminatedliabilities attributable to temporary differences between the limited recourse revolving linefinancial statement carrying amounts of credit. Total principalexisting assets and interest paid totaled $2,586,848. 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 ourNotes to Consolidated Financial Statements for a discussion of recently issued accounting pronouncements that could potentially impact us.
| | |
| Item 7A. | | Quantitative and Qualitative Disclosures About Market Risk |
Market risk is the sensitivity of income to changes in interest rates, foreign exchanges commodity prices, equity prices, and other market-driven rates or prices. As
Reference is made to Note 6 of June 30, 2007 we had not engaged in any substantive commercial business. Accordingly, we have not been exposedNotes to significant risks associated with foreign exchange rates, commodity prices, equity prices or other market-driven rates or prices. The net proceeds of our initial public offering held in the Trust Account were invested by the trustee only in United States “government securities” within the meaning of Section 2(a)(16) of the Investment Company Act of 1940 having a maturity of 180 days or less, or in money market funds meeting certain conditions under Rule 2a-7 promulgated under the Investment Company Act of 1940. Given our limited risk in our exposure to government securities and money market funds, we did not view the interest rate risk to be significant.
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| | |
| Item 8. | | Financial Statements and Supplementary Data |
| | | | |
Index to Consolidated Financial Statements: of General Finance Corporation (Registrant): | | | | |
| | | |
| | |
| F-1 |
| | | |
| Independent Auditors’ Report - LaRue, Corrigan & McCormack LLP
| F-2 |
| | |
| Consolidated Balance Sheets as of December 31, 2006 and June 30, 2007 | F-3 |
| | |
| Consolidated Statements of Operations from inception to December 31, 2005, for the year ended December 31, 2006, for the six months ended June 30, 2007 and from inception to June 30, 2007 | F-4 |
| | |
| Consolidated Statement of Stockholders’ Equity from inception to December 31, 2005, for the year ended December 31, 2006 and for the six months ended June 30, 2007 | F-5 |
| | |
| Consolidated Statements of Cash Flows from inception to December 31, 2005, for the year ended December 31, 2006, for the six months ended June 30, 2007 and from inception to June 30, 2007 | F-6 |
| | |
| Notes to Consolidated Financial Statements | F-7 |
Index to Financial Statements: of RWA Holdings Pty Limited (Predecessor): F-1 | |
| | | |
| | |
| P-1 | | F-2 | |
| | | |
| | |
| P-2 | | F-3 | |
| | | |
| | |
| P-3 | | F-4 | |
| | | |
| | |
| P-4 | | F-5 | |
| | | |
| | |
| P-5 | | F-6 | |
| | | |
| | |
| P-6 |
| | | F-7 | |
| | |
| Item 9. | | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
None.
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, 20072009 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, 2007,2009, 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 SEC’s rules and forms.
Management’s 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.
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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 inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the criteria inInternal 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 management’s 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 management’s 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, 20072009 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Not applicable.
PART III
Directors and Executive Officers
The following information is provided regarding our directors and executive officers as of October 24, 2007. No family relationship exists between any director or executive officer:
Name
| | |
| Item 9B. | | Age
| | Position
|
Ronald F. Valenta | | | 48 | | | Chief Executive Officer, Secretary and Director |
John O. Johnson | | | 46 | | | Chief Operating Officer |
Charles E. Barrantes | | | 55 | | | Executive Vice President and Chief Financial Officer |
Robert Allan | | | 43 | | | Chief Executive Officer, Royal Wolf |
Lawrence Glascott | | | 73 | | | Chairman of the Board of Directors |
David M. Connell | | | 63 | | | Director |
Manuel Marrero | | | 49 | | | Director |
James B. Roszak | | | 66 | | | DirectorOther Information |
None.
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Ronald F. Valenta has served as a director and as our Chief Executive Officer and Secretary since our inception. He also served as Chief Financial OfficerPART III
Certain information required by Part III is omitted from inception through September 2006. Mr. Valenta served as the President and Chief Executive Officer of Mobile Services Group, Inc., a portable storage company he founded in 1988 until 2003. In April 2000, Windward Capital Partners acquired a controlling interest in Mobile Services Group, Inc. through a recapitalization transaction. In August 2006, Welsh, Carson, Anderson & Stowe, through another recapitalization transaction, acquired a controlling interest in Mobile Services Group, Inc. Mr. Valenta served as the non-executive Chairman of the Board of Directors of Mobile Services Group, Inc. from March 2003 until August 2006, and as a director since that time. Mr. Valenta was the managing member of Portosan Company, LLC, a portable sanitation services company he founded in 1998, until 2004 when a majority of the assets of that company were sold to an affiliate of Odyssey Investment Partners, LLC. Mr. Valenta is currently Chairman of the Board of Directors for CMSI Capital Holdings, Inc., a private investment company he founded in 1991, Mobile Office Acquisition Corporation, the parent company of PacVan, Inc., a U.S. office modular and portable storage company, PV Realty LLC, a real estate company founded in 2000, and United Document Storage, LLC (formerly PortoShred LLC), a document storage and destruction company he formed in 2003. From 2003 to 2006, Mr. Valenta was also a director of the National Portable Storage Association, a not-for-profit entity dedicated to the needs of the storage industry. From 1985 to 1989, Mr. Valenta was a Senior Vice President with Public Storage, Inc., and from 1980 to 1985 Mr. Valenta was a manager with the accounting firm of Arthur Andersen & Co. in Los Angeles.
John O. Johnson has served as our Chief Operating Officer since November 2005. Mr. Johnson is a Managing Director of The Spartan Group, a boutique investment banking firm, which he co-founded in 2002. As a Managing Director of The Spartan Group, he is responsible for origination and execution of mergers and acquisition advisory work and capital raising for growth companies. Prior to founding The Spartan Group, Mr. Johnson served in multiple positions with Banc of America Securities from 1984 until 2002, culminating in his appointment as Managing Director in 1994. While at Banc of America Securities, he specialized in growth company banking coverage and leveraged buyouts and leveraged finance while ultimately becoming a Group Head. Mr. Johnson has served as an investment banker to various companies owned or operated by Mr. Valenta since 1997.
Charles E. Barrantes became our Executive Vice President and Chief Financial Officer in 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.
Robert Allanhas 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 world’s 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.
Lawrence Glascott has been our Chairman of the Board of Directors since November 2005. Mr. Glascott has served as a director of 99¢ Only Stores since 1996 where he currently servesthis Annual Report on its Audit, Compensation and Nominating and Corporate Governance Committees. From 1991 to 1996 he was the Vice President — Finance of Waste Management International, an environmental services company. Prior thereto, Mr. Glascott was a partner at Arthur Andersen LLP and was in charge of the Los Angeles based Arthur Andersen LLP Enterprise Group practice for over 15 years.
David M. Connell has been a director since November 2005. Mr. Connell founded Cornerstone Corporate Partners, LLC, a consulting and advisory firm, in 1998. Prior to establishing Cornerstone Corporate Partners in 1998, Mr. Connell served as President and a member of the Board of Directors for Data Processing Resources Corporation, or DPRC, from 1992 to 1998. DPRC was a NASDAQ listed provider of information technology consulting services to Fortune 500 companies. Prior to his services with DPRC, from 1988 to 1993, Mr. Connell was engaged by Welsh, Carson, Anderson; Stowe, a New York private equity firm, to manage a group of portfolio companies. From 1990 to 1993, Mr. Connell served as Chairman and Chief Executive Officer of Specialized Mortgage Service, Inc., an information technology company serving the real estate, banking, and credit rating industries. From 1988 to 1990, he served as Chairman and Chief Executive Officer of Wold Communications, Inc., which later merged and became Keystone Communications, a leading satellite communications service provider.
Manuel Marrero has been a director since November 2005. Since January 2004, Mr. Marrero has worked as a financial and operations management consultant with several companies, principally focused in consumer products brand management. From May 2002 until January 2004, Mr. Marrero served as the Chief Financial Officer of Mossimo, Inc., a designer and licensor of apparel and related products. From 1999 to 2001, Mr. Marrero was the Chief Operating Officer and Chief Financial Officer of Interplay Entertainment Corp., a developer, publisher and distributor of interactive entertainment software, and the Chief Financial Officer of Precision Specialty Metals, Inc. from 1996 to 1999, a light gauge conversion mill for flat rolled stainless steel and high performance alloy. He has served on the boards of Interplay OEM, Inc., Shiney Entertainment, Inc., Seed Internet Ventures, Inc., L.A. Top Producers, LLC, Friends of Rancho San Pedro and Tree People.
James B. Roszak has been a director since November 2005. Mr. Roszak has been a director of National RV Holdings, Inc. since June 2003. Mr. Roszak was employed by the Life Insurance Division of Transamerica Corporation, a financial services organization engaged in life insurance, commercial lending, leasing and real estate services, from June 1962 through his retirement as President of such division in June 1997. Mr. Roszak also served as interim Chief Executive Officer and a director of buy.com, an Internet retailer, from February 2001 through August 2001. He is also a member of the Board of Trustees of Chapman University.
Board and Committee Meetings
The Board of Directors held eight meetings during the six months ended June 30, 2007.Each director attended more than 75% of all meetings of the Board of Directors and board committees on which he during the six months ended June 30, 2007.
Board Committees
The Board of Directors has an Audit Committee, a Compensation Committee and a Nominating Committee.
Audit Committee. The Audit Committee consists of Messrs. Roszak, as chairman, Marrero and Glascott, each of whom we believe qualifies as an “audit committee financial expert,” as defined in the rules and regulations of the Securities and Exchange Commission. In addition,Form 10-K because we will certify to the American Stock Exchange that the committee has, and will continue to have, at least one member who has past employment experience in finance or accounting, requisite professional certification in accounting, or other comparable experience or background that results in the individual's financial sophistication. Each member of the Audit Committee is an independent director under the American Stock Exchange listing standards.
The purpose of the Audit Committee is to represent and assist our board in its general oversight of our accounting and financial reporting processes, audits of the financial statements and internal control and audit functions. The Audit Committee is directly responsiblefile a definitive Proxy Statement for the appointment, compensation, retention, oversight and work2009 Annual Meeting of our independent auditor.
The Audit Committee met three times during the six months ended June 30, 2007.
Compensation Committee. The Compensation Committee consists of Messrs. Connell, as Chairman, Marrero and Roszak.
The purposes of the Compensation Committee are: (i)Stockholders, pursuant to determine and approve the goals, objectives and compensation structure for our executive officers; (ii) to review the performance of our executive officers; and (iii) to review the Company's management resources, succession planning and development activities.
The Compensation Committee met once during the six months ended June 30, 2007. Nominating Committee. The Nominating Committee consists of Messrs. Marrero, as chairman, Connell and Roszak, each of whom is an independent director under the American Stock Exchange listing standards.
The purpose of the Nominating Committee is to be primarily responsible for identifying individuals qualified to serve as members of our Board of Directors and recommending to the Board the persons to be nominated by the Board as nominees for director at each annual meeting of shareholders.
The Nominating Committee met two timesduring the six months ended June 30, 2007.
The Nominating Committee seeks to achieve a balance of knowledge, experience and capability on the Board of Directors. When considering candidates for director, the Nominating Committee takes into account a number of factors, including the following (although candidates need not possess all of the following characteristics and not all factors are weighted equally):
· | Ability to attend regular and special board and committee meetings and willingness to perform the duties of a director |
· | Fine moral character, good personal and business reputation |
· | Industry knowledge, contacts and network of potential clients in industries served by the Company |
· | Ability to be responsible, fair-minded, reliable, ethical and possess high integrity |
· | Prior experience on boards of directors |
· | Senior-level management experience |
· | Possession of specific skills in auditing, accounting, personnel, finance, etc. |
The Nominating Committee will periodically assess the appropriate size of the Board of Directors and whether any vacancies on the Board of Directors are expected due to retirement or otherwise. If vacancies are anticipated, or otherwise arise, or the size of the Board of Directors is expanded, the Nominating Committee will consider various potential candidates for director. Candidates may come to the attention of the Board of Directors through current Board of Directors members or management, stockholders or other persons. These candidates will be evaluated at regular or special meetings of the Nominating Committee, and may be considered at any point during the year.
The Nominating Committee will consider candidates for directors recommended by stockholders who follow the proper procedures in submitting the recommendation. The Board of Directors will consider candidates recommended by stockholders using the same criteria it applies to candidates recommended by directors. To be considered for election at an annual meeting, the recommendation must be submitted no later than December 31 of the year prior to the year in which the meeting will be held. The recommendation must by in writing addressed to the Corporate Secretary and must include the following: (i) statement that the writer is a stockholder and is proposing a candidate for consideration by the Nominating Committee; (ii) name and contact information for the candidate; (iii) statement of the candidate's business and educational experience; (iv) information regarding each of the factors listed above (other than the factor regarding board size and composition) sufficient to enable the Nominating Committee to evaluate the candidate; (v) statement detailing any relationship between the candidate and any competitor of the Company; (vi) detailed information about any relationship or understanding between the writer and the candidate; and (vii) statement that the candidate is willing to be considered and is willing to serve as a director if nominated and elected.
Section 16(a)Regulation 14A of the Securities Exchange Act of 1934 as amended, requires(the “Proxy Statement”), not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K and the applicable information included in the Proxy Statement is incorporated herein by reference.
| | |
| Item 10. | | Directors, Executive Officers and Corporate Governance |
Information concerning our executive officers is set forth in Item 1. of this Annual Report on Form 10-K under the caption “Executive Officers of the Registrant.”
Information required by Items 401 and 407(c)(3) of Regulation S-K regarding our directors executive officers and 10% stockholdersthe nomination process is incorporated herein by reference to file reportsinformation included in the Proxy Statement.
Information required by Item 405 of Regulation S-K regarding compliance with the Securities and Exchange Commission on changes in their beneficial ownership of Common Stock and to provide us with copiesSection 16(A) of the reports. We believe that allExchange Act is incorporated herein by reference to information included in the Proxy Statement.
Information required by Item 407(d)(4) and (d)(5) of these persons filed all required reports on a timely basis duringRegulation S-K regarding our audit committee and our audit committee financial experts is incorporated herein by reference to information included in the six months ended June 30, 2007.
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. We will provide without charge aA copy of thethese code of ethics to any person who so requestsis available free of charge on the “Corporate Governance” section of our website atwww.generalfinance.com or by a letterwritten request addressed to the Corporate Secretary, General Finance Corporation, 260 Santa Los Robles Avenue, Suite 217,39 East Union Street, Pasadena, California 91101.
91103. We intend to satisfy any disclosure requirement under Item 11. Executive Compensation
Compensation Discussion and Analysis
Messrs. Valenta, Johnson and Perez, our Chief Executive Officer, Chief Operating Officer and Controller, respectively, have served in those capacities since our inception in 2005. In connection with our initial public offering, they agreed5.05 of Form 8-K regarding an amendment to, serve without compensation until the consummation of our first business combination. Subsequently, Messrs. Valenta and Johnson have agreed to serve without compensation until at least the earlier of June 30, 2008 or until we have achieved certain financial goals after the consummation of our first business combination.
Accordingly, Mr. Barrantes, our Chief Financial Officer, is our only employee who received compensation for his services to us during the six months ended June 30, 2007. We compensate Mr. Barrantes pursuant to his employment agreement entered into in September 2006 in connection with his commencement of employment with us. Forwaiver from, a descriptionprovision of the employment agreement, see “Employment Agreement” below.
Messrs. Valenta and Johnson negotiated Mr. Barrantes' employment agreementcode of ethics by posting such information on our behalf,web site at the address and location specified above.
| | |
| Item 11. | | Executive Compensation |
Information required by Item 402 of Regulation S-K regarding executive compensation is incorporated herein by reference to information included in the BoardProxy Statement.
| | |
| Item 12. | | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
Information required by Items 201(d) and 403 of
Directors approvedRegulation S-K is incorporated herein by reference to the
employment agreement. Although our Compensation Committee was in existence in September 2006, the Board of Directors had not approved a charter for the Committee at that time and the Committee was not then performing functions. In approving Mr. Barrantes' compensation under his employment agreement, the Board of Directors reviewed information provided by management regarding the compensationsections of the chief financial officers of four public companies in the equipment leasing business. The Board also considered the sizeProxy Statement entitled “Equity Compensation Plan Information” and stage of development of the Company, Mr. Barrantes' experience and prior compensation, and the scope of the services that Mr. Barrantes would be required to render (particularly given the lack of support staff and the need to implement policies and procedures). The Board of Directors determined that Mr. Barrantes' compensation should consist of a base salary, the opportunity for a material performance-based bonus and stock options under the 2006 Stock Option Plan. In addition, because we did not have in place medical or other insurance plans, we would reimburse him up to $750 per month for insurance coverage.
The Compensation Committee approved the bonus paid to Mr. Barrantes for services in 2006.
Report of the Compensation Committee
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis contained in this Form 10-K with management. Based on the Compensation Committee's review of and the discussions with management with respect to the Compensation Discussion and Analysis, the Compensation Committee recommended to the board of directors that the Compensation Discussion and Analysis be included in this Form 10-K for filing with the SEC.
| Respectfully Submitted, |
| |
| David M. Connell, Chairman |
| Manuel Marrero |
| James B. Roszak |
Summary Compensation Table
The following table contains summary compensation information of the following executive officers (our “Named Executive Officers”) for the six months ended June 30, 2007.
Summary Compensation Table
| Name and Principal Position | | Year | | | | Salary | | | | Bonus | | | Option Awards (2) | | | All Other Compensation (3) | | | Total | |
Ronald F. Valenta Chief Executive Officer | | 2007 | (1) | | $ | — | | | $ | — | | $ | — | | $ | — | | $ | — | |
| | | 2006 | | | | — | | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | | | |
Charles E. Barrantes Chief Financial Officer and Executive Vice President | | 2007 | (1) | | $ | 100,000 | | | $ | — | | $ | 68,800 | | $ | 3,512 | | $ | 172,312 | |
| | | 2006 | | | | 62,121 | (4) | | | 21,742 | (4) | | 42,000 | | | 3,361 | | | 129,224 | |
| (1) | For the six months ended June 30, 2007 |
| (2) | The amounts shown are the amounts of compensation expense recognized by us relating to the grants of stock options in fiscal 2006, as described in Financial Accounting Standards No. 123R. For a discussion of valuation assumptions used in the calculation of these amounts, see Note 2, “Summary of Significant Accounting Policies,” and Note 8, “2006 Stock Option Plan,” of the Notes to Consolidated Financial Statements included elsewhere in this Transitional Report on Form 10-K. |
| (3) | Reimbursement of medical insurance premiums. |
| (4) | Mr. Barrantes received a bonus for services in 2006, which was paid in September 2007. This amount equaled 35% of the salary paid to him for 2006, which was equal to his target bonus under his employment agreement. |
Plan-Based Awards
We have only one compensation plan, our 2006 Stock Option Plan. No options were granted to the Named Executive Officers during the six months ended June 30, 2007.
The following table provides information options held by Named Executive Officers as of June 30, 2007.
Outstanding Equity Awards at Fiscal Year-End
Name | | Number of Securities Underlying Unexercised Options (#) Exercisable | | Number of Securities Underlying Unexercised Options (#)(1) Unexercisable | | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | | Exercise Price ($/Sh) | | Expiration Date | |
| Ronald F. Valenta | | | -- | | | -- | | | -- | | | -- | | | -- | |
| | | | | | | | | | | | | | | | | |
| Charles E. Barrantes | | | -- | | | 225,000 | | | -- | | $ | 7.30 | | | 9/11/16 | |
| (1) | These options vest in five equal annual installments on September 11 of each of 2007, 2008, 2009, 2010 and 2011, subject to continued service with us, and have a ten-year term. |
No Named Executive Officer exercised any stock options during the six months ended June 30, 2007.
Employment Agreement
On September 11, 2006, we entered into an employment agreement with Charles E. Barrantes, under which he agreed to serve as our Executive Vice President and Chief Financial Officer. Under the employment agreement, Mr. Barrantes receives a base annual salary of $200,000, and is eligible to receive an annual bonus each fiscal year of up to 35% of his base salary, provided he is employed on the last day of such year. We reimburse Mr. Barrantes up to $750 per month for health, dental, vision and supplemental disability premiums for himself and his family, because we do not currently provide employee benefits. Should we provide such benefits in the future, Mr. Barrantes will be entitled to participate on the same basis in all offered benefits or programs as any other employee.
Mr. Barrantes also received options to purchase an aggregate of 225,000 shares of common stock under our 2006 Stock Option Plan as of the date of commencement of his employment. The options have an exercise price of $7.30 per share (the closing sales price of the common stock on the date of grant), vest in five equal annual installments and expire ten years from the date of grant.
Mr. Barrantes' employment agreement will terminate upon his death or in the event of a physical or mental disability that renders him unable to perform his duties for 60 consecutive days or 120 days in any twelve-month period. Mr. Barrantes may terminate his employment agreement at any time upon 30 days notice to us, and we may terminate it at any time upon notice to Mr. Barrantes.
Robert Allan serves as Chief Executive Officer of Royal Wolf under an employment agreement that will continue indefinitely, unless terminated by Mr. Allan or Royal Wolf upon at least six months’ notice. Under his employment agreement, using an Australian dollar to United States dollar exchange rate of 0.84880 at June 30, 2007, Mr. Allan receives a base annual salary of $254,640 and is eligible to receive an annual performance bonus not to exceed $84,880 based upon the achievement of specified performance indicators. The maximum annual performance bonus is subject to increase based upon consumer price index increases. There is no severance or similar obligation to Mr. Allan under his employment agreement except that Royal Wolf may pay six months’ compensation to Mr. Allan in lieu of providing notice of termination of his employment as described above.
Potential Payments Upon Termination of Employment or Change in Control
We have no agreements or arrangement with any executive officer that provides for payments upon termination of employment except that pursuant to his employment agreement, Mr. Barrantes is entitled to a lump-sum severance payment of six months' base salary if, prior to March 13, 2008, we terminate his employment without “cause” or he terminates his employment for “good reason.” We have no agreements or arrangements with any executive officer that provide for payments upon a change of control.Compensation Committee Interlocks and Insider Participation
No person who served on the Compensation Committee during the six months ended June 30, 2007 was previously one of our officers or employees or had a relationship with us requiring disclosure under Item 404 of Regulation S-K. Further no interlocking relationship exists between any member of the Board of Directors and any member of any other company's board of directors or compensation committee.
| | |
| Item 13. | | Certain Relationships and Related Transactions, and Director Independence |
Security OwnershipInformation required by Item 404 of Certain Beneficial Owners and Management
The following table sets forthRegulation S-K is incorporated herein by reference to information regarding the beneficial ownership of our common stock as of October 24, 2007, by (i) each person known by us to be the beneficial owner of more than 5% of our outstanding shares of common stock; (ii) each of our executive officers and directors; and (iii) all of our executive officers and directors as a group. Unless otherwise noted, we believe that each beneficial owner named in the table has sole voting and investment power with respect to the shares shown, subject to community property laws where applicable. An asterisk (*) denotes beneficial ownership of less than one percent.
| | | Beneficial Ownership | |
Name | | Shares (1) | | Percent of Class (1) | |
| Ronald F. Valenta(2)(3) | | | 2,605,466 | | | 24.0 | % |
| | | | | | | | |
| John O. Johnson(2)(4) | | | 665,617 | | | 6.7 | % |
| | | | | | | | |
| James B. Roszak(2) | | | 22,500 | | | (* | ) |
| | | | | | | | |
| Lawrence Glascott(2) | | | 22,500 | | | (* | ) |
| | | | | | | | |
| Manuel Marrero(2) | | | 22,500 | | | (* | ) |
| | | | | | | | |
| David M. Connell(2) | | | 22,500 | | | (* | ) |
| | | | | | | | |
| Charles E. Barrantes(2)(5) | | | 45,000 | | | (* | ) |
| | | | | | | | |
| Robert Allan(6) | | | 800 | | | (* | ) |
| | | | | | | | |
| Gilder, Gagnon, Howe & Co. LLC(7) | | | 1,788,772 | | | 18.5 | % |
| | | | | | | | |
| Olawalu Holdings, LLC(8) | | | 642,000 | | | 6.6 | % |
2863 S. Western Avenue Palos Verdes, California 90275 | | | | | | | |
| | | | | | | | |
Ronald L. Havner, Jr.(9) LeeAnn R. Havner The Havner Family Trust | | | 671,500 | | | 6.8 | % |
c/o Public Storage, Inc. 701 Western Avenue Glendale, California 91201 | | | | | | | |
| | | | | | | | |
| Jonathan Gallen(10) | | | 1,905,000 | | | 18.4 | % |
299 Park Avenue, 17th Floor New York, New York 10171 | | | | | | | |
| | | | | | | | |
| Neil Gagnon(11) | | | 1,810,303 | | | 18.7 | % |
1370 Avenue of the Americas, Suite 2400 New York, New York 10019 | | | | | | | |
| | | | | | | | |
| Jack Silver(12) | | | 2,071,410 | | | 17.8 | % |
SIAR Capital LLC 660 Madison Avenue New York, New York 10021 | | | | | | | |
| | | | | | | | |
| All executive officers and directors as a group (8 persons_nine persons)(13) | | | 3,406,883 | | | 30.4 | % |
(1) | Based on 9,690,099 shares of common stock outstanding. In accordance with the rules of the Securities and Exchange Commission, person is deemed to be the beneficial owner of shares that the person may acquire within the following 60 days (such as upon exercise of options or warrants or conversion of convertible securities). These shares are deemed to be outstanding for purposes of computing the percentage ownership of the person beneficially owning such shares but not for purposes of computing the percentage of any other holder. |
(2) | Business address is c/o General Finance Corporation, 260 South Los Robles, Suite 217, Pasadena, California 91101. |
(3) | Includes: (i) 13,500 shares owned by Mr. Valenta’s wife and minor children, as to which Mr. Valenta’s shares voting and investment power with his wife; and (ii) 1,181,966 shares that may be acquired upon exercise of warrants. The shares shown exclude the shares referred to in note (8), below. |
(4) | Includes 309,367 shares that may be acquired upon exercise of warrants. |
(5) | Represents shares that may be acquired upon exercise of options. |
(6) | Business address is Suite 201, Level 2, 22-28 Edgeworth David Avenue, Hornsby, New South Wales, Australia 2077 |
(7) | Information is based upon a Schedule 13G/A filed on October 10, 2007. Gilder, Gagnon, Howe & Co. LLC is a New York limited liability and broker or dealer registered under the Securities Exchange Act of 1934. The shares shown include 55,454 shares as to which Gilder, Gagnon, Howe & Co. LLC has sole voting power and 1,788,772 shares as to which it shares voting and investment power. Of these 1,788,772 shares, 1,582,235 shares are held in customer accounts under which partners or employees of Gilder, Gagnon, Howe & Co. LLC have discretionary authority to dispose or direct the disposition of the shares, 151,083 shares are held in accounts of its partners and 55,454 shares are held in its profit-sharing plan. |
(8) | Information is based upon a Schedule l3G filed on February 27, 2007. Olawalu Holdings, LLC (“Olawalu”), is a Hawaiian limited liability company, of which Rick Pielago is the manager. Olawalu shares voting and investment power as to all of the shares shown with Lighthouse Capital Insurance Company, a Cayman Islands exempted limited company, and the Ronald Valenta Irrevocable Life Insurance Trust No. 1, a California trust, of which Mr. Pielago is trustee. The Ronald Valenta Irrevocable Life Insurance Trust No. 1 is an irrevocable family trust established by Ronald F. Valenta in December 1999 for the benefit of his wife at the time, any future wife, and their descendants. Mr. Valenta, himself, is not a beneficiary of the Trust, and neither he nor his wife or their descendants has voting or investment power, or any other legal authority, with respect to the shares shown. Mr. Valenta disclaims beneficial ownership of our shares held by the Trust. Mr. Pielago may be deemed to be the control person of Olawalu and the Ronald Valenta Irrevocable Life Insurance Trust No. 1. |
(9) | Information is based upon a Schedule 13D filed on February 9, 2007. The shares shown include 7,000 shares as to which Ronald L. Havner has sole voting power and 3,000 shares as to which his wife, LeeAnn R. Havner, has sole voting power. Mr. and Mrs. Havner are Co-Trustees of The Havner Family Trust. The Trust owns 434,251 shares and warrants to purchase 227,250 shares. As Co-Trustees of the Trust, Mr. and Mrs. Havner may he deemed to beneficially own all of the shares held by the Trust. |
(10) | Information is based upon a Schedule 13G filed on September 14, 2007 and upon subsequent filings on Forms 3 and 4. The shares shown are held by Ahab Partners, L.P., Ahab International, Ltd., Queequeg Partners, L.P., Queequeg, Ltd. and one or more other private funds managed by Mr. Gallen. The shares shown include 650,000 shares that may be acquired upon exercise of warrants. |
(11) | Information is based upon a Schedule 13G/A filed on September 17, 2007. The shares shown include: (i) 244,008 shares beneficially owned by Mr. Gagnon; (ii) 39,520 shares beneficially owned by Mr. Gagnon over which he has sole voting power and shared dispositive power; (iii) 162,443 shares beneficially owned by Lois Gagnon, Mr. Gagnon’s wife, over which he has shared voting power and shared dispositive power; (iv) 3,510 shares beneficially owned by Mr. Gagnon and Mrs. Gagnon as joint tenants with rights of survivorship, over which he has shared voting power and shared dispositive power; (v) 38,888 shares held by the Lois E. and Neil E. Gagnon Foundation, of which Mr. Gagnon is a trustee and over which he has shared voting power and shared dispositive power; (vi) 60,163 shares held by the Gagnon Family Limited Partnership, of which Mr. Gagnon is a partner and over which lie has shared voting power and shared dispositive power; (vii) 51,180 shares held by the Gagnon Grandchildren Trust over which Mr. Gagnon has shared dispositive power but no voting power; (viii) 530,549 shares held by four hedge funds, of which Mr. Gagnon is either the principal executive officer of the manager or the managing member of a member of the general partner or the managing member: (ix) 1,605 shares held by the Gagnon Securities LLC Profit Sharing Plan and Trust, of which Mr. Gagnon is a trustee; (x) 4,715 shares held by the Gagnon Securities LLC Profit Sharing Plan and Trust; and (xi) 674,262 shares held for certain customers of Gagnon Securities LLC, of which Mr. Gagnon is the managing member and the principal owner and over which he has shared dispositive power but no voting power. |
(12) | Information is based upon a schedule 13G filed September 18, 2007 and subsequent Forms 3 and 4. The shares shown include: (i) 342,500 shares that may be acquired upon exercise of warrants held by Sherleigh Associates Inc. Defined Benefit Pension Plan, a trust of which Mr. Silver is the trustee; (ii) 1,590,110 shares that may be acquired upon exercise of warrants held by Sherleigh Associates Inc. Profit Sharing Plan, a trust of which Mr. Silver is the trustee; and (iii) 138,800 shares held by Sherleigh Associates Inc. Defined Benefit Pension Plan, a trust of which Mr. Silver is a trustee. |
(13) | Includes 1,536,333 shares that may be acquired upon the exercise of warrants and options. |
The following table sets forth information concerning our equity compensation plans as of June 30, 2007:
Plan category | | (a) Number of securities to be issued upon exercise of outstanding options, warrants and rights | | (b) Weighted-average exercise price of outstanding options, warrants and rights | | (c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | |
Equity compensation plans approved by security holders(1) | | | 225,000 | | $ | 7.30 | | | 1,275,000 | |
Equity compensation plans not approved by security holders (1) | | | -- | | | -- | | | -- | |
| Total | | | 225,000 | | $ | 7.30 | | | 1,275,000 | |
(1) | We have one equity compensation plan, the 2006 Stock Option Plan. |
Compensation of Directors
The following table provides information concerning the compensationsection of the directors for the six months ended June 30, 2007:
Director Compensation | |
Name | | Fees Earned or Paid in Cash | | Total ($) | |
| Lawrence Glascott | | $ | 4,500 | | $ | 4,500 | |
| | | | | | | | |
| David M. Connell | | $ | 4,500 | | $ | 4,500 | |
| | | | | | | | |
| Manuel Marrero | | $ | 4,500 | | $ | 4,500 | |
| | | | | | | | |
| James B. Roszak | | $ | 4,500 | | $ | 4,500 | |
| | | | | | | | |
| Ronald F. Valenta | | $ | -- | | $ | -- | |
In fiscal 2006, our non-employee directors received $1,500 for each Board meeting attended in-person. We also reimburse all of our directors for out-of-pocket expenses incurred by them in connection with their activities on our behalf.
In September 2007, our Board of Directors approved a new schedule of compensation of our non-employee directors effective upon completion of the acquisition of Royal Wolf. The new compensation schedule was based upon recommendations of the Compensation Committee of our Board in light of the fact that, upon completion of the Royal Wolf acquisition, we are no longer a shell company. The following table summarizes the new schedule of compensation of our non-employee directors (directors who also serve as officers currently receive no additional compensation for their services as directors). The annual compensation shown became effective September 13, 2007, and will be prorated for our fiscal year ending June 30, 2008. In addition to the compensation set forth below, each director is also eligible for reimbursement of reasonable expenses incurred in connection with the director’s services.
| Annual Retainer—Chairman of the Board | | $ | 40,000 | |
| Annual Retainer—Other Directors | | $ | 30,000 | |
| Additional Annual Retainer - Audit Committee Chair | | $ | 10,000 | |
| Additional Annual Retainer - Compensation Committee Chair | | $ | 7,500 | |
| Additional Annual Retainer - Nominating Committee Chair | | $ | 3,000 | |
| Board Meeting Attendance Fee—Chairman of the Board | | $ | 2,000 | |
| Board Meeting Attendance Fee—Other Directors | | $ | 1,500 | |
| Committee Meeting Attendance Fee | | $ | 750 | |
| Telephonic Meeting Attendance Fee | | $ | 500 | |
The annual retainers are payable in advance in semiannual increments on June 30 and December 31.
In September 2007, our Board of Directors also adopted an informal policy with respect to future stock-based compensation of our non-employee directors. Under the policy, our Board of Directors will consider making stock option grants upon each director’s initial election or appointment to the Board, as well as at each annual stockholders meeting thereafter following which an incumbent director continues to serve as a director. Any actual stock option grants or other stock-based compensation paid to our non-employee directors, however, will be made only as and when approved by the Board of Directors in the future.
Item 13. CertainProxy Statement entitled “Certain Relationships and Related TransactionsTransactions.”
Transactions with Related Persons
We had an unsecured limited recourse revolving line of credit agreement with Ronald F. Valenta, our Chief Executive Officer and aInformation required by Item 407(a) regarding director which had entered into priorindependence compensation is incorporated herein by reference to our initial public offering. Under the revolving line of credit, we were able to borrow up to $3,000,000 from time to time at an annual interest rate of 8%. At June 30, 2007, the outstanding amount of principal and accrued interest under the line of credit was $2,441,253, which was the largest amount outstanding during the six months ended June 30, 2007. On September 14, 2007, subsequent to the completion of acquisition of Royal Wolf, we repaid the outstanding balance and accrued interest ($2,586,848) and terminated the revolving line of credit. Prior to that, we had not made any payments on the revolving line of credit.
We utilize certain administrative, technology and secretarial services from affiliates of officers; as well as certain limited office space provided by an affiliate of Mr. Valenta. These affiliates had agreed to make these services and office space available to us free of charge, with the exception of the reimbursement of certain out-of-pocket costs incurred on our behalf, until completion of our initial business combination. Management does not believe the value of these services were significant.
We have not adopted a formal written policy regarding transactions with related persons. However, in general, any such material transaction would require approval of the Board of Directors, with any interested director abstaining.
Director Independence
The American Stock Exchange requires that a majority of the Board of Directors must be composed of “independent directors,” which is defined generally as a person other than an officer or employee of the Company or its subsidiaries or any other individual having a relationship, which,information included in the opinion ofProxy Statement.
| | |
| Item 14. | | Principal Accountant Fees and Services |
Information required by this Item is incorporated herein by reference to information included in the Company's Board of Directors, would interfere with the director's exercise of independent judgment in carrying out the responsibilities of a director.Proxy Statement.
49
Messrs. Connell, Marrero, Glascott and Roszak are “independent directors.”
PART IV
| | |
| Item 15. | | Exhibits and Financial Statement Schedules |
LaRue, Corrigan & McCormick, LLP (“LCM”) audited our(a) Financial Statements
(1) The financial statements as of October 19, 2005, as of December 31, 2005 and as of April 10, 2006 (the closing of our initial public offering). LCM's opinion of the financial statements as of October 19, 2005 and as of December 31, 2005 both contained a “going-concern” qualification due to our need to complete a successful public offering and acquire an operating business to generate revenue. LCM has removedrequired in this qualification in subsequent re-issuances of their audit opinion. LCM's opinionAnnual Report on the financial statements as of April 10, 2006 (after completion of our initial public offering) did not contain an adverse opinion or a disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope, or accounting principles.
On August 1, 2006, our Audit Committee dismissed LCM as our independent auditors and engaged Grobstein, Horwath & Company LLP (“GHC”) as our independent auditors to audit our financial statements for the fiscal year ending December 31, 2006. From October 14, 2005 and through August 1, 2006: (i) the Company had no disagreements with LCM on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which, if not resolved to the satisfaction of LCM, would have caused it to make reference to the subject matter of the disagreement in connection with its report; and (ii) LCM did not advise the Company of any of the events requiring reporting under Item 304(a)(1)(v) of Regulation S-K.
Aggregate fees billed to us by (i) LaRue, Corrigan & McCormick, LLP (“LCM”) for professional services rendered with respect to the period from inception (October 14, 2005) to December 31, 2005, (ii) LCM and Grobstein, Horwath & Company LLP (“GHC”) for professional services rendered with respect to the year ended December 31, 2006 and (3) GHC for the six months ended June 30, 2007, were as follows:
| | | LCM 2005 and 2006 | | GHC 2006 | | GHC 2007 | |
| Audit Fees | | $ | 36,033 | | $ | 46,385 | | $ | 45,773 | |
| Audit-Related Fees | | | 26,023 | | | 18,709 | | | 840 | |
| Tax Fees | | | 2,172 | | | 650 | | | 8,574 | |
| All Other Fees | | | 94,203 | | | -- | | | -- | |
In the above table, in accordance with the Securities and Exchange Commission's definitions and rules, “audit fees” are fees we paid for professional services for the audit of our consolidated financial statements, including those in our Form 10-K and reviews of our Form 10-Qs. “Audit-related fees” are fees for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements. These services include the filing of the registration statement for our initial public offering and special meeting proxy statement for our proposed initial business combination. “Tax fees” are fees for tax compliance, tax advice and tax planning. “All Other Fees” for LCM are for due diligence servicesincluded in connection with the acquisition of Royal Wolf.
The policy of the Audit Committee is that it must approve in advance all services (audit and non-audit) to be rendered by the Company's independent auditors. The Audit Committee approved in advance the engagement of LCM and GHC for services during the periods above, except that the Audit Committee did not approve in advance the engagement of LCM to conduct certain diligence in connection with the acquisition of Royal Wolf. LCM did not perform any audit or review services for us after commencement of such engagement.
(1)Financial Statements
See Item 8. Financial Statements and Supplementary Data.
(2) Financial statement schedule:
(2)Report of Independent Registered Public Accounting Firm on Financial Statement SchedulesSchedule
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.
(3)(b) Exhibits
See Exhibit Index.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | |
| | General Finance Corporation
|
|
|
|
| By: | /s/ Ronald F. Valenta |
|
Name: Ronald F. Valenta |
| Title: Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
Signature
| | Title
| | Date
|
/s/ Ronald F. Valenta | | Chief Executive Officer, Secretary and Director
(Principal Executive Officer)
| | November 9, 2007 |
Ronald F. ValentaExhibit | | |
| Number | | Exhibit Description |
| | | | | |
/s/ Charles E. Barrantes | | Executive Vice President & Chief Financial Officer
(Principal Accounting and Financial Officer)
| | November 9, 2007 |
Charles E. Barrantes2.1 | | | | |
| | | | |
/s/ Lawrence Glascott | | Chairman of the Board of Directors | | November 9, 2007 |
Lawrence Glascott | | | | |
| | | | |
/s/ David M. Connell | | Director | | November 9, 2007 |
David M. Connell | | | | |
| | | | |
/s/ Manuel Marrero | | Director | | November 9, 2007 |
Manuel Marrero | | | | |
| | | | |
/s/ James B. Roszak | | Director | | November 9, 2007 |
James B. Roszak | | | | |
EXHIBIT INDEX
| | Exhibit Description
|
| | |
2.1
| | Deed of Variation No. 3 dated March 30, 2007, which amended and restated the Share Sale Deed dated September 12, 2006, by and among General Finance Corporation, GFN Australasia Finance Pty. Limited, Bison Capital Australia LP, and the shareholders of RWA Holdings Pty Limited and certain other parties. Incorporated(incorporated by reference to Annex A to Registrant’s Preliminary Proxy Statement of Schedule 14A filed April 27, 2007. 2007). |
| | | | | |
3.1
| 2.2 | | | 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 Registrant’s Form 8-K filed July 28, 2008). |
| | | | |
| 3.1 | | | Amended and Restated Certificate of Incorporation filed April 4, 2006 (incorporated by reference to Exhibit 3.1 of Registrant’s Form S-1, File No. 333-129830). |
| | | | | |
| 3.2 | | | Amended and Restated Bylaws as of April 27, 2007 (incorporated by reference to Exhibit 3.1 of Registrant’s Form 10-Q for the quarter ended June 30, 2007). |
| | | | | |
| 3.3 | | | Certificate of Designation for the Series A Preferred Stock filed with the Delaware Secretary of State on December 3, 2008 (incorporated by reference to Registrant’s Form 8-K filed December 9, 2008). |
| | | | |
| 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 Registrant’s Form 8-K filed December 9, 2008). |
| | | | |
| 4.1 | | | Form of Unit Certificate (incorporated by reference to Exhibit 4.1 of Registrant’s Form S-1, File No. 333-129830). |
| | | | | |
| 4.2 | | | Form of Common Stock Certificate (incorporated by reference to Exhibit 4.2 of Registrant’s Form S-1, File No. 333-129830). |
| | | | | |
| 4.3 | | | Form of Warrant Certificate (incorporated by reference to Exhibit 4.3 of Registrant’s Form S-1, File No. 333-129830). |
| | | | | |
| 10.1 | | | Unit Purchase Option granted to Morgan Joseph & Co. Inc. dated April 10, 2006 (incorporated by reference to Exhibit 10.1 of Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006). |
| | | | | |
| 10.2 | | | Warrant Agreement dated April 5, 2006 between Continental Stock Transfer & Trust Company and General Finance Corporation (incorporated by reference to Exhibit 10.2 of Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006). |
50
| | | | |
| 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 Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006). |
| | | | | |
| 10.4 | | | Stock Escrow Agreement dated April 5, 2006 between General Finance Corporation, Continental Stock Transfer & Trust Company and certain stockholders (incorporated by reference to Exhibit 10.4 of Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006). |
| | | | | |
| 10.5 | | | Amended and Restated Warrant Purchase Agreements dated April 5, 2006 by and between Morgan Joseph & Co. Inc and each of Ronald F. Valenta and John O. Johnson (incorporated by reference to Exhibit 10.5 of Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006). |
| | | | | |
| 10.6 | | | Amended and Restated Letter Agreement dated March 3, 2006 among the Registrant, Morgan Joseph & Co., and each of David M. Connell, Lawrence Glascott, Manuel Marrero, James B. Roszak, John O. Johnson and Marc Perez; Amended and Restated Letter Agreement dated March 3, 2006 among the Registrant, Morgan Joseph & Co. Inc. and Ronald F. Valenta (incorporated by reference to Exhibit 10.1 of Registrant’s Form S-1, File No. 333-129830). |
| | | | | |
| 10.7 | | | Amended and Restated Registration Rights Agreement dated March 3, 2006 by and between the Registrant and each of Ronald F. Valenta, John O. Johnson, Marc Perez, Lawrence Glascott, David M. Connell, Manuel Marrero and James B. Roszak (incorporated by reference to Exhibit 10.5 of Registrant’s Form S-1, File No. 333-129830). |
| | | | | |
10. 8
| 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 Registrant’s Form S-1, File No. 333-129830). |
| | | | | |
| 10.9 | | | 2006 Stock Option Plan (incorporated by reference to Exhibit 10.1 of Registrant’s Form 10-Q for the quarter ended September 30, 2006). |
| | | | | |
| 10.10 | | | Forms of Incentive Stock Option Agreement and Non-Qualified Stock Option Agreement used under the 2006 Stock Option Plan (incorporated by reference to Exhibit 10.2 of Registrant’s Form 8-K filed September 12, 2006). |
| | | | | |
| 10.11 | | | Employment Agreement dated September 11, 2006 between General Finance Corporation and Charles E. Barrantes (incorporated by reference to Exhibit 10.3 of Registrant’s Form 8-K filed September 12, 2006). |
| | | | | |
| 10.12 | | | Fifth Amended and Restated Revolving Line of Credit Agreement, dated as of January 20, 2007, by and between General Finance Corporation and Ronald F. Valenta (incorporated by reference to Exhibit 10.12 of Registrant’s Form 8-K filed September 19, 2007). |
| | | | | |
| 10.13 | | | Executive Services Agreement, dated July 4, 2006, between Royal Wolf Trading Australia Pty Ltd and Robert Allan (incorporated by reference to Exhibit 10.13 of Registrant’s 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 Registrant’s Form 8-K filed September 19, 2007). |
| | | | | |
| 10.17 | | | Senior Secured Subordinated Promissory Note, dated September 13, 2007, of GFN Australasia Finance Pty Limited in favor of Bison Capital Australia, L.P. (incorporated by reference to Exhibit 10.17 of Registrant’s Form 8-K filed September 19, 2007). |
| | | | | |
| 10.18 | | | Form of Deed of Charge, dated as of September 13, 2007, between each of General Finance Corporation, GFN U.S. Australasia Holdings, Inc., GFN Australasia Holdings Pty Limited and GFN Australasia Finance Pty Limited, respectively, and Bison Capital Australia, L.P. (incorporated by reference to Exhibit 10.18 of Registrant’s Form 8-K filed September 19, 2007). |
51
| | | | |
| 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 Registrant’s 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 Registrant’s Form 8-K filed September 19, 2007). |
| | | | | |
| 10.21 | | | Guaranty, dated as of September 13, 2007, by General Finance Corporation, GFN U.S. Australasia Holdings, Inc. and GFN Australasia Holdings Pty Limited in favor of Bison Capital Australia, L.P. (incorporated by reference to Exhibit 10.21 of Registrant’s 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 Registrant’s Form 8-K filed September 19, 2007). |
| | | | | |
| 10.23 | | | Royal Wolf Intercreditor Deed, dated as of September 13, 2007, among General Finance Corporation, Bison Capital Australia, L.P., Royal Wolf Trading Australia Pty Ltd, GFN Australasia Finance Pty Ltd, RWA Holdings Pty Ltd, GFN Australasia Holdings Pty Ltd, Royal Wolf Hi-Tech Pty Ltd, and Australia and New Zealand Banking Group Limited (incorporated by reference to Exhibit 10.23 of Registrant’s Form 8-K filed September 19, 2007). |
| | | | | |
| 10.24 | | | Sublease, dated February 7, 2007, between Royal Wolf Trading Australia Pty Ltd and Tyne Container Services Pty Limited (incorporated by reference to Exhibit 10.24 of Registrant’s 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 Registrant��s Registrant’s 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 Registrant’s 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 Registrant’s 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 Registrant’s Form 8-K filed September 19, 2007). |
| | | | | |
| 10.29 | | | Compensation of Non-Employee Directors (incorporated by reference to Exhibit 10.29 of Registrant’s 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 Registrant’s 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 Registrant’s Post-Effective Amendment No. 1 to Form S-1 filed January 29, 2008). |
52
| | | | |
| 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 Registrant’s Post-Effective Amendment No. 1 to Form S-1 filed January 29, 2008). |
| | | | |
| 10.33 | | | Variation Letter between Australia and New Zealand Banking Group Limited and Royal Wolf Australia Group (incorporated by reference to Exhibit 10.4 of Registrant’s Post-Effective Amendment No. 1 to Form S-1 filed March 20, 2008). |
| | | | |
| 10.34 | | | Share Purchase Agreement dated May 1, 2008 among BCP NZ, LLC, Michael Gurcke and Royalwolf NZ Acquisition Co Limited (incorporated by reference to Exhibit 10.1 of Registrant’s Form 8-K filed May 1, 2008). |
| | | | |
| 10.35 | | | 13.5% Secured Senior Subordinated Promissory Note by GFN Australasia Finance Pty Ltd dated May 1, 2008 Limited (incorporated by reference to Exhibit 10.1 of Registrant’s Form 8-K filed May 6, 2008). |
| | | | |
| 10.36 | | | First Amendment to Securities Purchase Agreement dated May 1, 2008 among Bison Capital Australia L.P., General Finance Corporation, GFN US Australasia Holdings, Inc., GFN Australasia Holdings Pty Ltd and GFN Australasia Finance Pty Ltd (incorporated by reference to Exhibit 10.2 of Registrant’s Form 8-K filed May 6, 2008). |
| | | | |
| 10.37 | | | First Amendment to Shareholders Agreement dated May 1, 2008 among General Finance Corporation, Bison Capital Australia L.P. and GFN US Australasia Holdings, Inc. (incorporated by reference to Exhibit 10.3 of Registrant’s Form 8-K filed May 6, 2008). |
| | | | |
| 10.38 | | | Security Agreement dated May 1, 2008 by GFN Australasia Finance Pty Ltd in favor of Bison Capital Australia, L.P. (incorporated by reference to Exhibit 10.4 of Registrant’s Form 8-K filed May 6, 2008). |
| | | | |
| 10.39 | | | Guaranty dated May 1, 2008 by General Finance Corporation, GFN US Australasia Holdings, Inc., GFN Australasia Holdings Pty Ltd in favor of Bison Capital Australia, L.P. (incorporated by reference to Exhibit 10.5 of Registrant’s Form 8-K filed May 6, 2008). |
| | | | |
| 10.40 | | | Stock Pledge Agreement dated May 1, 2008 by GFN Australasia Finance Pty Ltd in favor of Bison Capital Equity Partners II, L.P. (incorporated by reference to Exhibit 10.6 of Registrant’s Form 8-K filed May 6, 2008). |
| | | | |
| 10.41 | | | Deed of Amendment and Restatement: Intercreditor Deed dated May 1, 2008 among Australia and New Zealand Banking Group Limited, General Finance Corporation, GFN US Australasia Holdings, Inc., Bison Capital Australia, L.P., Royal Wolf Trading Australia Pty Ltd, GFN Australasia Finance Pty Ltd, RWA Holdings Ltd, GFN Australasia Holdings Pty Ld and Royal Wolf Hi-Tech Pty Ltd (incorporated by reference to Exhibit 10.7 of Registrant’s Form 8-K filed May 6, 2008). |
| | | | |
| 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 Registrant’s Form 8-K filed July 3, 2008). |
| | | | |
| 10.43 | | | Amended and Restated Credit Agreement dated August 23, 2007 (incorporated by reference to Registrant’s Form 8-K filed October 7, 2008). |
| | | | |
| 10.44 | | | First Amendment to Amended and Restated Credit Agreement dated September 23, 2008 (incorporated by reference to Registrant’s Form 8-K filed October 7, 2008). |
| | | | |
| 10.45 | | | Second Amendment to Amended and Restated Credit Agreement dated September 24, 2008 (incorporated by reference to Registrant’s Form 8-K filed October 7, 2008). |
| | | | |
| 10.46 | | | Amended and Restated Investment Agreement dated October 1, 2008 (incorporated by reference to Registrant’s Form 8-K filed October 7, 2008). |
| | | | |
| 10.47 | | | Amended and Restated Pledge Agreement dated October 1, 2008 (incorporated by reference to Registrant’s Form 8-K filed October 7, 2008). |
| | | | |
| 10.48 | | | Amended and Restated Continuing Unconditional Guaranty dated October 1, 2008 (incorporated by reference to Registrant’s Form 8-K filed October 7, 2008). |
53
| | | | |
| Exhibit | | |
| Number | | Exhibit Description |
| | | | |
| 10.49 | | | Security Agreement dated October 1, 2008 (incorporated by reference to Registrant’s Form 8-K filed October 7, 2008). |
| | | | |
| 10.50 | | | Continuing Unconditional Guaranty dated October 1, 2008 (incorporated by reference to Registrant’s Form 8-K filed October 7, 2008). |
| | | | |
| 10.51 | | | Subordination and Intercreditor Agreement dated October 1, 2008 (incorporated by reference to Registrant’s Form 8-K filed October 7, 2008). |
| | | | |
| 10.52 | | | Pledge Agreement dated October 1, 2008 (incorporated by reference to Registrant’s Form 8-K filed October 7, 2008). |
| | | | |
| 10.53 | | | Subordinated Promissory Note dated October 1, 2008 (incorporated by reference to Registrant’s Form 8-K filed October 7, 2008). |
| | | | |
| 10.54 | | | Stockholders Agreement dated October 1, 2008 (incorporated by reference to Registrant’s Form 8-K filed October 7, 2008). |
| | | | |
| 10.55 | | | First Amendment to Employment Agreement dated July 22, 2008 (incorporated by reference to Registrant’s Form 8-K filed October 7, 2008). |
| | | | |
| 10.56 | | | Employment Agreement dated November 10, 2008 between General Finance Corporation and John Johnson 2006 (incorporated by reference to Exhibit 10.2 of Registrant’s 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 Registrant’s 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 Registrant’s 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 Registrant’s Form 8-K filed February 13, 2009). |
| | | | |
| 10.60 | | | Form of Registration Rights Agreement (incorporated by reference to Registrant’s Form 8-K filed February 13, 2009). |
| | | | |
| 10.61 | | | First Amendment to Stockholders Agreement dated March 31, 2009 (incorporated by reference to Registrant’s Form 8-K filed April 1, 2009). |
| | | | |
| 10.62 | | | Letter Agreement dated March 30, 2009 (incorporated by reference to Registrant’s 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 Registrant’s 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. ValentaRonald F. Valenta | | Chief Executive Officer and Director | | September 28, 2009 |
| | (Principal Executive Officer) | | |
| | | | |
/s/ Charles E. BarrantesCharles E. Barrantes | | Executive Vice President and Chief Financial Officer | | September 28, 2009 |
| | (Principal Accounting and Financial Officer) | | |
| | | | |
/s/ Lawrence GlascottLawrence Glascott | | Chairman of the Board of Directors | | September 28, 2009 |
| | | | |
/s/ David M. ConnellDavid M. Connell | | Director | | September 28, 2009 |
| | | | |
/s/ Manuel MarreroManuel Marrero | | Director | | September 28, 2009 |
| | | | |
/s/ James B. RoszakJames B. Roszak | | Director | | September 28, 2009 |
| | | | |
/s/ Ronald L. Havner, Jr.Ronald L. Havner, Jr. | | Director | | September 28, 2009 |
| | | | |
/s/ Susan HarrisSusan Harris | | Director | | September 28, 2009 |
55
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
General Finance Corporation and Subsidiaries
(A Development Stage Company)
We have audited the accompanying consolidated balance sheets of General Finance Corporation and Subsidiaries (collectively the “Company”) as of June 30, 2007 and December 31, 2006, and the related consolidated statements of operations, stockholders' equity, and cash flows for the year ended December 31, 2006, the six months ended June 30, 2007, and the period from inception (October 14, 2005) to June 30, 2007. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We did not audit the financial statements of the Company for the period from inception (October 14, 2005) to December 31, 2005 which statements reflect a net loss of $3,509. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the operating results of the Company for the period from inception (October 14, 2005) to June 30, 2007, is based solely on the report of the other auditors.
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 Company is not required to have, nor were we engaged to perform, an audit of its 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 an opinion on the effectiveness of the Company’s 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 audits provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial positionsheet of General Finance Corporation and Subsidiaries as of June 30, 2007 and December 31, 2006,2009, and the related consolidated resultsstatements of their operations, stockholders’ equity and comprehensive income (loss), and cash flows for the year ended December 31, 2006, the six months ended June 30, 2007, and the period from inception (October 14, 2005) to June 30, 2007 in conformity2009. In connection with accounting principles generally accepted in the United States.
As indicated in Note 2 toour audit of the financial statements, in 2007 the Company changed its method of accounting for costs incurred in connection with a business acquisition.
/s/ Grobstein, Horwath & Company LLP
Sherman Oaks, California
November 9, 2007
INDEPENDENT AUDITORS’ REPORT
Board of Directors and Stockholders
General Finance Corporation
(A Development Stage Company)
Wewe have also audited the accompanying balance sheetfinancial statement schedule listed in Item 15(a) of General Finance Corporation (A Development Stage Company) (the "Company") as of December 31, 2005, and the related statements of operations, stockholders’ equity and cash flows for the period from October 14, 2005 (inception) to December 31, 2005.this Form 10-K. These financial statements and financial statement schedule are the responsibility of the Company'sCompany’s 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 Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,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 General Finance Corporationthe Company as of December 31, 2005,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 StatesStates. Also in our opinion, the consolidated financial statements of America.
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/ LaRue, CorriganGrobstein, Horwath & McCormickCompany LLP
Woodland Hills,Sherman Oaks, California
September 13, 2008
F-2
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
January 20, 2006
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data) GENERAL FINANCE CORPORATION AND SUBSIDIARIES
|
(A Development Stage Company)
|
CONSOLIDATED BALANCE SHEETS
|
|
ASSETS
|
| | | December 31, 2006 | | June 30, 2007 | |
| Current assets: | | (as restated) | | (as restated) | |
| | | | | | |
| Cash | | $ | 37,713 | | $ | 59,427 | |
| Cash equivalents held in trust account - restricted | | | 68,055,252 | | | 68,217,585 | |
| Prepaid expenses | | | 19,125 | | | 111,375 | |
| Total current assets | | | 68,112,090 | | | 68,388,387 | |
| Office equipment, net | | | 2,871 | | | 2,349 | |
| Deferred income taxes | | | -- | | | 131,827 | |
| Deferred acquisition costs | | | 783,663 | | | 1,547,742 | |
| Other assets | | | 814,547 | | | 1,007,837 | |
| Total assets | | $ | 69,713,171 | | $ | 71,078,142 | |
| | | | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY |
| Current liabilities: | | |
| Accounts payable | | $ | 462,224 | | $ | 660,366 | |
| Accrued liabilities, including accrued interest of $20,498 in 2006 and $91,253 in 2007 on borrowings from related party | | | 77,083 | | | 244,699 | |
| Income taxes payable | | | 560,800 | | | 177,200 | |
| Deferred underwriting fees | | | 1,380,000 | | | 1,380,000 | |
| Borrowings from related party | | | 1,280,000 | | | 2,350,000 | |
| Total current liabilities | | | 3,760,107 | | | 4,812,265 | |
| Deferred income taxes | | | 187,800 | | | -- | |
| Common stock subject to possible conversion, | | | | | | | |
1,724,138 shares at conversion value | | | 13,168,200 | | | 13,338,500 | |
| | | | | | | | |
| Commitments | | | -- | | | -- | |
| | | | | | | | |
| Stockholders’ equity: | | | | | | | |
| Preferred stock, $.0001 par value: 1,000,000 shares authorized; no shares outstanding | | | -- | | | -- | |
| Common stock, $.0001 par value: 100,000,000 shares authorized; | | |
| 10,500,000 shares outstanding (including 1,724,138 shares subject to possible conversion) | | | 1,050 | | | 1,050 | |
| Additional paid-in capital | | | 51,708,433 | | | 51,777,233 | |
| Earnings accumulated during the development stage | | | 887,581 | | | 1,149,094 | |
| Total stockholders’ equity | | | 52,597,064 | | | 52,927,377 | |
| Total liabilities and stockholders’ equity | | $ | 69,713,171 | | $ | 71,078,142 | |
| | | | | | | | | |
| | | 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
F-3CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)GENERAL FINANCE CORPORATION AND SUBSIDIARIES
|
(A Development Stage Company)
|
CONSOLIDATED STATEMENTS OF OPERATIONS
|
| | | October 14, 2005 (inception) to December 31, 2005 | | Year Ended December 31, 2006 | | Six Months Ended June 30, 2007 | | October 14, 2005 (inception) to June 30, 2007 | |
| | | | | (as restated) | | (as restated) | | (as restated) | |
| General and administrative expenses | | $ | 3,509 | | $ | 387,815 | | $ | 795,989 | | $ | 1,187,313 | |
| | | | | | | | | | | | | | |
| Operating loss | | | (3,509 | ) | | (387,815 | ) | | (795,989 | ) | | (1,187,313 | ) |
| | | | | | | | | | | | | | |
| Other: | | | | | | | | | | | | | |
| Interest income | | | -- | | | 1,888,503 | | | 1,312,169 | | | 3,200,672 | |
| Interest expense | | | -- | | | (20,498 | ) | | (72,398 | ) | | (92,896 | ) |
| Other, net | | | -- | | | -- | | | (7,469 | ) | | (7,469 | ) |
| | | | | | | | | | | | | | |
| Income (loss) before provision for income taxes | | | (3,509 | ) | | 1,480,190 | | | 436,313 | | | 1,912,994 | |
| | | | | | | | | | | | | | |
| Provision for income taxes | | | -- | | | 589,100 | | | 174,800 | | | 763,900 | |
| �� | | | | | | | | | | | | | |
| Net income (loss) | | $ | (3,509 | ) | $ | 891,090 | | $ | 261,513 | | $ | 1,149,094 | |
| | | | | | | | | | | | | | |
| Net income (loss) per share: | | | | | | | | | | | | | |
| Basic | | $ | (0.00 | ) | $ | 0.11 | | $ | 0.02 | | | | |
| Diluted | | $ | (0.00 | ) | $ | 0.09 | | $ | 0.02 | | | | |
| | | | | | | | | | | | | | |
| Weighted average shares outstanding | | | | | | | | | | | | | |
| Basic | | | 1,875,000 | | | 8,151,369 | | | 10,500,000 | | | | |
| Diluted | | | 1,875,000 | | | 9,636,545 | | | 12,704,299 | | | | |
| | | | | | | | | | | | | | | | | |
| | | 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
F-4CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME (LOSS)
(In thousands, except share data)GENERAL FINANCE CORPORATION AND SUBSIDIARIES
|
(A Development Stage Company)
|
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Successor (Note 1) | |
| | | Common Stock | | Additional Paid-In | | Earnings Accumulated During the Development | | Total Stockholders’ | | | Cumulative | | Additional | | Other | | Total | |
| | | Shares | | Amount | | Capital | | Stage | | Equity | | | 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 | | 188 | | 249,812 | | -- | | 250,000 | | | — | | — | | 1,875,000 | | — | | 250 | | — | | — | | 250 | |
| | | | | | | | | | | | | | |
| Net loss | | | -- | | | -- | | | -- | | | (3,509 | ) | | (3,509 | ) | |
| | | | | | | | | | | | | | |
| Balance at December 31, 2005 | | | 1,875,000 | | | 188 | | | 249,812 | | | (3,509 | ) | | 246,491 | | |
| | | | | | | | | | | | | | |
| Sale of warrants on April 10, 2006 | | | -- | | -- | | 700,000 | | -- | | 700,000 | | | — | | — | | — | | — | | 700 | | — | | — | | 700 | |
| | | | | | | | | | | | | | |
Sale of 7,500,000 units and underwriters’ purchase option, net of underwriters’ discount and offering expenses on April 10, 2006 | | | 7,500,000 | | 750 | | 55,254,754 | | -- | | 55,255,504 | | |
Sale of 1,125,000 units for over-allotment on April 13, 2006 | | | 1,125,000 | | 112 | | 8,319,667 | | -- | | 8,319,779 | | |
| | | | | | | | | | | | | | |
| Proceeds subject to possible conversion of 1,724,138 shares | | | -- | | -- | | (12,857,800 | ) | | -- | | (12,857,800 | ) | |
| | | | | | | | | | | | | | |
| Share-based compensation | | | -- | | -- | | 42,000 | | -- | | 42,000 | | |
| | | | | | | | | | | | | | |
Net income (as restated) | | | -- | | | -- | | | -- | | | 891,090 | | | 891,090 | | |
| | | | | | | | | | | | | | |
| Balance at December 31, 2006 | | | 10,500,000 | | | 1,050 | | | 51,708,433 | | | 887,581 | | | 52,597,064 | | |
| | | | | | | | | | | | | | |
| Share-based compensation | | | -- | | -- | | 68,800 | | -- | | 68,800 | | |
| | | | | | | | | | | | | | |
| Net income (as restated) | | | -- | | | -- | | | -- | | | 261,513 | | | 261,513 | | |
| 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 | | $ | 1,050 | | $ | 51,777,233 | | $ | 1,149,094 | | $ | 52,927,377 | | | — | | — | | 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 F-5(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 | |
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).
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
|
(A Development Stage Company)
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
| | | October 14, 2005 (inception) to December 31, 2005 | | Year Ended December 31, 2006 | | Six Months Ended June 30, 2007 | | October 14, 2005 (inception) to June 30, 2007 | |
| Cash flows from operating activities | | | | | | | | | | | | | |
| Net income (loss) | | $ | (3,509 | ) | $ | 891,090 | | $ | 261,513 | | $ | 1,149,094 | |
| Depreciation and amortization | | | -- | | | 722 | | | 707 | | | 1,429 | |
| Share-based compensation expense | | | -- | | | 42,000 | | | 68,800 | | | 110,800 | |
| Deferred income taxes | | | -- | | | 187,800 | | | (319,627 | ) | | (131,827 | ) |
| Changes in operating assets and liabilities: | | | | | | | | | | | | | |
| Prepaid expenses | | | -- | | | (19,125 | ) | | (92,250 | ) | | (111,375 | ) |
| Other assets | | | (71,116 | ) | | 200,493 | | | -- | | | (3,688 | ) |
| Accounts payable and accrued liabilities | | | -- | | | 406,242 | | | 365,758 | | | 905,065 | |
| Income taxes payable | | | -- | | | 560,800 | | | (383,600 | ) | | 177,200 | |
Interest deferred for common stock subject to possible conversion, net of income tax effect | | | -- | | | 310,400 | | | 170,300 | | | 480,700 | |
Net cash provided (used) by operating activities | | | (74,625 | ) | | 2,580,422 | | | 71,601 | | | 2,577,398 | |
| | | | | | | | | | | | | | |
| Cash flows from investing activities: | | | | | | | | | | | | | |
| Deposit related to proposed acquisition | | | -- | | | (811,320 | ) | | (193,475 | ) | | (1,004,795 | ) |
| Acquisition costs | | | -- | | | (783,663 | ) | | (764,079 | ) | | (1,547,742 | ) |
| Purchases of office equipment | | | -- | | | (3,132 | ) | | -- | | | (3,132 | ) |
| Cash equivalents held in trust account | | | -- | | | (68,055,252 | ) | | (162,333 | ) | | (68,217,585 | ) |
| Net cash used by investing activities | | | -- | | | (69,653,367 | ) | | (1,119,887 | ) | | (70,773,254 | ) |
| | | | | | | | | | | | | | |
| Cash flows from financing activities: | | | | | | | | | | | | | |
Borrowings from revolving line of credit with related party | | | -- | | | 1,280,000 | | | 1,070,000 | | | 2,350,000 | |
| Proceeds from sale of units, net | | | -- | | | 64,955,283 | | | -- | | | 64,955,283 | |
| Proceeds from private placement | | | -- | | | 700,000 | | | -- | | | 700,000 | |
Proceeds from sale of common stock to initial stockholder | | | 250,000 | | | -- | | | -- | | | 250,000 | |
Net cash provided by financing activities | | | 250,000 | | | 66,935,283 | | | 1,070,000 | | | 68,255,283 | |
| | | | | | | | | | | | | | |
| Net increase (decrease) in cash | | | 175,375 | | | (137,662 | ) | | 21,714 | | | 59,427 | |
| | | | | | | | | | | | | | |
| Cash at beginning of period | | | -- | | | 175,375 | | | 37,713 | | | - | |
| Cash at end of period | | $ | 175,375 | | $ | 37,713 | | $ | 59,427 | | $ | 59,427 | |
Non-cash financing activity: | | | | | | | | | | | | | |
| Accrued deferred underwriting fees | | | -- | | $ | 1,380,000 | | $ | 1,380,000 | | $ | 1,380,000 | |
| Accrued deferred offering costs | | $ | 133,065 | | | -- | | | -- | | | -- | |
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 (the “Company”(“GFN”) was incorporated in Delaware onin October 14, 2005 for the purpose of effectingto effect a merger, capital stock exchange, asset acquisition or other similar business combination with one or more operating businesses.
As of June 30,businesses in the rental services and specialty finance sectors. From inception through September 13, 2007, the CompanyGFN had not yet commenced any operations and is therefore a development-stage company. All activity through June 30, 2007 pertainsno business or operations. References to the Company's formation,“Company” in these Notes are to GFN and its initial public offering of the securities (the “IPO”consolidated subsidiaries. These subsidiaries include GFN U.S. Australasia Holdings, Inc., a Delaware corporation (“GFN U.S.”) completed in April 2006, activities to identify; GFN North America Corp., a Delaware corporation (“GFNNA”); GFN Mobile Storage Inc., a Delaware corporation (“GFNMS”); GFN Australasia Holdings Pty Ltd., an operating business to acquire and entering intoAustralian corporation (“GFN Holdings”); GFN Australasia Finance Pty Ltd, an agreement to acquire an operating business. See Notes 3 and 9.
At a special meeting of our board of directors held on September 11, 2007, the board of directors determined to change the Company’s fiscal year to June 30 from December 31, conditioned upon the completion of the acquisition of 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”). See Note 9., 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 consolidated financial statements include the presentationCompany owns 86.2% of the transition periodoutstanding 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 Company’s 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 Company’s 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-Van’s 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 Company’s 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 Company’s common stock as of October 1, 2008, or $6.40.
The total purchase consideration, including the Company’s 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 six monthsyears ended June 30, 2007.2008 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.
Restatement for Change in Accounting Method
The Company had been expensing the costs relatedReferences to “2007”, “2008”, “2009” and “Predecessor Period 2008” are to the acquisition of Royal Wolf as it had previously considered treating this business combination as a reverse acquisition, whereby the Company was to be the acquired entity. However, it has been determined that the Company should be the accounting acquirer and that the preferable accounting treatment is the purchase method of accounting in accordance with Statement of Financial Standards (“SFAS”) No. 141, Business Combinations. Under this method of accounting, Royal Wolf’s assets and liabilities will be recorded at their respective fair values as of the closing date of the acquisition (including any identifiable intangible assets). Any excess of the purchase price over the net fair values of Royal Wolf’s assets and liabilities will be recorded as goodwill. The consolidated financial statements subsequent to the closing of the acquisition will reflect these values and the results of operations of Royal Wolf will be included in the Company’s results of operations beginning upon the completion of the acquisition. As a result of this change in the accounting for the acquisition with Royal Wolf, the Company has retrospectively applied the capitalization of the costs incurred relating primarily to the acquisition of Royal Wolf to the accompanying consolidated financial statements for all the periods presented. The effect of this retrospective application from previously issued consolidated financial statements was to reduce the operating loss and increase income before provision for income taxes by $783,663, $761,395 and $1,545,058; and to increase net income by $434,263, $476,995 and $911,258 for the year ended December 31, 2006, for the six monthsyears ended June 30, 2007, 2008, 2009 and for the period from inception (October 14, 2005)July 1 to June 30,September 13, 2007, respectively.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, GFN U.S. Australasia Holdings, Inc. (“GFN U.S.”), GFN Australasia Finance Pty Limited (“GFN Finance”) and GFN Australasia Holdings Pty Limited.majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.
Foreign Currency Translation
The Company’s 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. Cash equivalents heldThe 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 trust account (see Note 3) are to be held to maturity,Company’s allowance for doubtful accounts and accordingly,credit risks.
Inventories
Inventories are stated at amortizedthe lower of cost which approximates currentor market value. Funds held(net realizable value). Net realizable value is the estimated selling price in the trust accountordinary course of business. Expenses of marketing, selling and distribution to customers, as well as costs of completion are restricted.
Deferred Underwriting Fees
Deferred underwriting feesestimated and are deducted from the estimated selling price to establish net realizable value. Costs are assigned to individual items of upinventory on the basis of specific identification and include expenditures incurred in acquiring the inventories and bringing them to $1,380,000 accrued in connection with the IPO will be payable when the Company effects its initial business combination (see Notes 3their existing condition and 9).
Common Stock Subject to Possible Conversion
Common stock subject to possible conversion is convertible into cash in an amount not to exceed approximately 20%location. Inventories consist primarily of containers, modular buildings and mobile offices held for sale or lease and are comprised of the funds held in the trust account after subtracting deferred underwriting fees and the estimated tax liability associated with interest income earned on the funds held in trust (see Notes 3 and 9).
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 consist ofinclude warrants issued as part of the IPO andInitial Public Offering (“IPO”), a purchase option that was sold to the representative of the underwriters as describedand warrants issued in Note 3.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 Company'sCompany’s Own Stock, the issuance of the warrants and the sale of the purchase option were reported in stockholders'stockholders’ equity and, accordingly, there is no impact on the Company'sCompany’s financial position or results of operations,operations; except for the $100 in proceeds from the sale of the purchase option.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. 123 (revised 2004),123R,Share-Based Payment (“No. 123R”). SFAS No. 123R replaces SFAS No. 123, Accounting for Stock-Based Compensation and supersedes Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. 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. As of December 31, 2006
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 deferredmaterial change. Therefore, no reserves for uncertain income tax liability of $187,800 and a deferred tax asset of $131,827 , respectively,positions have been recorded. The asset relatesrecorded pursuant to certain expenses reported in these financial statements that must be capitalized and amortized for income tax reporting purposes. As of June 30, 2007, management believes it is more likely than not that this asset will be realized and that no valuation reserve is required.
In June 2006, the Financial Accounting Standards Board (“FASB”) issuedFASB Interpretation No. (“FIN”) 48,Accounting for Uncertainty in Income Taxes,, an interpretation of SFASFASB Statement No. 109.109(“FIN 48”). In addition, the Company did not record a cumulative effect adjustment related to the adoption of FIN 48 clarifiesand does not anticipate that the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with SFAS 109 and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurementtotal amount of aunrecognized tax benefit related to any particular tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification,will change significantly within the next 12 months.
F-13
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company’s policy for recording interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 was effective January 1, 2007 for the Company and its adoption did not haveif any, associated with audits will be to record such items as a significant effect on the consolidated financial statements.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 (see Notes 3 and 8).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 | |
| | | | | | | |
| | | October 14, 2005 (inception) to December 31, 2005 | | Year Ended December 31, 2006 | | Six Months Ended June 30, 2007 | |
| Basic | | | 1,875,000 | | | 8,151,369 | | | 10,500,000 | |
| Assumed exercise of warrants | | | — | | | 1,481,590 | | | 2,188,003 | |
| Assumed exercise of stock options | | | — | | | 3,586 | | | 16,296 | |
| Diluted | | | 1,875,000 | | | 9,636,545 | | | 12,704,299 | |
Valuation of Financial Instruments
The carrying value of the Company's financial instruments, which include cash and cash equivalents, accounts payable, and a revolving line of credit, approximate fair value due to current market conditions, maturity dates and other factors.
Recently Issued Accounting Pronouncements
In September 2006,December 2007, the FASB issued SFAS No. 157, Fair Value Measurements141(revised 2007),Business Combinations, which definesand 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 establishesas 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 frameworksignificant impact in the presentation of minority interest in the Company’s consolidated financial statements and could have a material effect on the Company’s results of operations or financial position for measuringfuture 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 entity’s 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 Company’s 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 Company’s 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 generally accepted accounting principles,accordance with SFAS No. 141(R) and expandsSFAS 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 Company’s 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 measurements. SFAS 157of 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 Company’s 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 Company’s consolidated financial statements.
In April 2009, the FASB issued FSP FAS 141(R)-1, Accounting for Assets Acquired and Liabilities Assumed in fiscal yearsa 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 NovemberDecember 15, 2007.2008. Management has not elected early adoption and is currently evaluating the impact that the adoption of this statementFSP may have on the Company'sCompany’s consolidated financial statements.
In February 2007,May 2009, the FASB issued SFAS No. 159, The Fair Value Option165,Subsequent Events. SFAS No. 165 establishes general standards of accounting for Financial Assets and Financial Liabilities - including an amendmentdisclosure of FASB Statementevents that occur after the balance sheet date but before the financial statements are issued or are available to be issued. SFAS No. 115.,165 provides guidance on the period after the balance sheet date during which permits entities to choose to measure many financial instruments and certain other items at fair value. Most of the provisions of this Statement apply only to entities that elect the fair value option. However, the amendment to FASB Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities, applies to all entities with available-for-sale and trading securities. SFAS 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginningmanagement of a fiscal yearreporting entity should evaluate events or transactions that beginsmay 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 or before November 15, 2007, provided the entity also electsForm 10-K was issued. Reference is made to apply the provisions of FASB Statement No. 157, Fair Value Measurements. Management does not believe that the adoption of SFAS No. 159 will have a material effect onNote 13 for the Company’s consolidated financial statements.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'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 $.01$0.01 per Warrant upon 30 days'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. Stockholders holding the shares issued in connection with the
F-15
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The IPO are referred to as “Public Stockholders”.
The initial public offering 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.
In connectionThe 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 IPO, two executive officers (oneCompany’s certificate of whom is a director) entered into agreements with the representative of the underwriters that during the 40 trading day period commencing at least 60 days after the IPO, they would collectively purchase Warrantsincorporation, elected to receive cash in the public market at prices not to exceed $1.20 per Warrant up to an aggregate purchase price of $700,000. These purchasesexchange for their shares, which have been completed.
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 funds inoffer commenced on May 2, 2008 and continued through May 30, 2008. Under the Trust Accountwarrant exercise program, a total of 4,125,953 warrants were distributed uponexercised and all outstanding warrants that were not exercised retain their original terms, including the consummation of the business combination with Royal Wolf in September 2007(see Note 9). Prior$6.00 exercise price, which existed prior to the distribution, the funds in the Trust Accountwarrant exercise program. In June 2008, an additional 10,000 warrants were invested in government securities and certain money market funds.exercised at $6.00 per warrant.
Note 4.Concentrations of Credit Risk
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. The Company did not have cash on deposit exceeding the insured limit as of December 31, 2006 and June 30, 2007. Marketable securities (restricted cash equivalents) held at June 30, 2007 consisted of United States Treasury Bills that matured on July 26, 2007.
Note 5.Limited Recourse Revolving Line of Credit
The Company had an unsecured limited recourse revolving line of credit from Ronald F. Valenta, a director and the chief executive officer of the Company, pursuant to which the Company could borrow up to $3,000,000 outstanding at one time. The line of credit terminated upon the completion of the acquisition of Royal Wolf subsequent to June 30, 2007 (see Note 9).
The line of credit bore interest at 8% per annum. As of December 31, 2006 and June 30, 2007, $1,280,000 and $2,350,000, respectively, were outstanding under the line of credit.
Note 6.Related Party Transactions
For the period from October 14, 2005 (inception) to December 31, 2005, Ronald F. Valenta paid for deferred offering costs and other assets on behalf of the Company totaling $13,688. The amount was paid in full to Mr. Valenta in December 2005.
The Company had a limited recourse revolving line of credit agreement with Mr. Valenta (see Note 5). Through June 30, 2007, interest expense of $91,253 has been accrued but not paid.
The Company utilizes certain administrative, technology and secretarial services from affiliates of officers; as well as certain limited office space provided by an affiliate of Mr. Valenta. Until the consummation of the Business Combination by the Company, the affiliates had agreed to make such services available to the Company free of charge, as may be required by the Company from time to time; with the exception of the reimbursement of certain out-of-pocket costs incurred on behalf of the Company. Management does not believe the value of these services were significant.
Note 7.Cumulative Preferred Stock
The Company is authorizedoffering 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 issue 1,000,000 shares of preferred stock with such designations, voting and other rights and preferencescollectively as may be determined from time to time by the Board of Directors.
“Cumulative Preferred Stock.”Note 8.2006 Stock Option Plan
On August 29, 2006, the Board of DirectorsUpon issuance of the Company adopted the General Finance Corporation 2006Cumulative Preferred Stock, Option Plan (“2006 Plan”), which was approved by stockholders on June 14, 2007. Under the 2006 Plan, the Company may issue to directors, employees, consultants and advisers up to 1,500,000 shares of its common stock pursuant to options to be granted underrecords the 2006 Plan. The options may be incentive stock options under Section 422 ofliquidation value as 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 Company's common stock on the date of grant of the option. Unless terminated earlier, the 2006 Plan will automatically terminate June 30, 2016.
On September 11, 2006, the Company granted to an executive officer options to purchase 225,000 shares at an exercise price equal to the closing market price of the Company's common stock as of that date, or $7.30, with a vesting period of five years. Stock-based compensation expense of $110,800 related to these options was recognizedpreferred equity in the statements of operations through June 30, 2007;consolidated balance sheet, with any issuance or offering costs as a corresponding benefit toreduction in additional paid-in capital. As of June 30, 2007, there remains $577,4002009, the Company had issued 24,900 shares and 100 shares of unrecognized compensation expense that will be charged into the statementSeries A Preferred Stock and Series B Preferred Stock for total proceeds of income on a straight-line basis over the remaining vesting period. Also, as of June 30, 2007, none of these options are exercisable.$1,245,000 and $100,000, respectively.
A deductionThe Cumulative Preferred Stock is not allowed for income tax purposes with respectconvertible into GFN common stock, has no voting rights, except as required by Delaware law, and is not redeemable prior to non-qualified options untilFebruary 1, 2014; at which time it may be redeemed at any time, in whole or in part, at the stock options are exercised or with respect to incentive stock options, unless the optionee makes a disqualifying dispositionCompany’s option. Holders of the underlying shares. The amountCumulative Preferred Stock are entitled to receive, when declared by the Company’s Board of any deduction will beDirectors, annual dividends payable quarterly in arrears on the difference between the fair value31st day of the Company's common stockJanuary, July and October of each year and the exercise price at the date30th day of exercise. Accordingly, there is a deferred tax asset recorded for the tax effect of the financial statement expense recorded. The tax effect of the 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, determined by using the Black-Scholes option-pricing model using the following assumptions: A risk-free interest rate of 4.8% (10-year Treasury bill); an expected life of 7.5 years; an expected volatility of 26.5%; and no expected dividend.
Note 9.Acquisition of Royal Wolf
On September 13, 2007, we completed the acquisition of Royal Wolf through the acquisition of all of the outstanding shares of RWA. Based upon the actual exchange rate of one U.S. dollar to $0.8407 Australian dollar realized in connection with payments made upon completion of the acquisition, the purchase price for 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., containing 13.8% of the outstanding capital stock of GFN U.S. following the issuance. 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 on GFN U.S., which through its indirect subsidiary GFN Finance owns all of the outstanding capital stock of Royal Wolf.
The funds in the Trust Account were distributed at the closing of the acquisition of Royal Wolf. We received approximately $60.8 million, of which we used $44.7 million to pay the purchase price for the RWA shares. Approximately $6.4 million ($7.93482 per share) of the funds in the Trust Account was paid to Public Stockholders holding 809,901 shares who voted against the acquisition and, in accordance with our certificate of incorporation, elected to receive cash in exchange for their shares, which have been cancelled. The remaining $1.3 million was paid our IPO underwriters as deferred underwriting fees.
On September 14, 2007, subsequent to the completion of acquisition of RWA, the Company repaid the outstanding balance and terminated the unsecured limited recourse revolving line of credit with Ronald F. Valenta. Total principal and interest paid totaled $2,586,848.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Members
RWA Holdings Pty Limited and Subsidiaries
We have audited the accompanying consolidated balance sheets of RWA Holdings Pty Limited and Subsidiaries (collectively “the Company”) as of June 30, 2007 and 2006, and the related consolidated statements of operations, changes in shareholders' equity, and cash flows for the years ended June 30, 2007 and 2006, for the six months ended June 30, 2005, and for the year ended December 31, 2004. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of 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 Company is not required to have, nor were we engaged to perform, an audit of its 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 an opinion on the effectiveness of the Company’s 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 audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of RWA Holdings Pty Limited and Subsidiaries as of June 30, 2007 and 2006, and the consolidated results of their operations and cash flows for the years ended June 30, 2007 and 2006, the six months ended June 30, 2005, and the year ended December 31, 2004, in conformity with accounting principles generally accepted in the United States.
Grobstein, Horwath & Company LLP
Sherman Oaks, California
November 9, 2007
RWA Holdings Pty Limited Financial ReportConsolidated Balance Sheets
| | | At | |
| | | June 30, | |
| | | 2007 | | 2006 | |
| | | (-000-) | |
Assets | | | | | |
| Cash and cash equivalents | | $ | 886 | | $ | 567 | |
Trade and other receivables, net of allowance for doubtful accounts of $237 and $129 at June 30, 2007 and 2006, respectively | | | 13,322 | | | 7,451 | |
| Inventories | | | 5,472 | | | 5,460 | |
Total current assets | | | 19,680 | | | 13,478 | |
| | | | | | | | |
| Lease receivables | | | 1,364 | | | 566 | |
| Property, plant and equipment | | | 2,737 | | | 2,614 | |
| Container for hire fleet | | | 40,928 | | | 27,773 | |
| Intangible assets | | | 4,079 | | | 3,472 | |
Total non-current assets | | | 49,108 | | | 34,425 | |
| | | | | | | | |
Total assets | | $ | 68,788 | | $ | 47,903 | |
| | | | | | | | |
Liabilities | | | | | | | |
| Trade and other payables | | $ | 8,641 | | $ | 9,133 | |
| Interest-bearing loans and borrowings | | | 10,359 | | | 6,526 | |
| Income tax payable | | | 245 | | | | |
| Employee benefits | | | 1,614 | | | 702 | |
| Provisions | | | — | | | 219 | |
Total current liabilities | | | 20,859 | | | 16,580 | |
| | | | | | | | |
Non-current liabilities | | | | | | | |
| Interest bearing loans and borrowings | | | 33,811 | | | 27,155 | |
| Deferred tax liabilities | | | 881 | | | 415 | |
| Employee benefits | | | 171 | | | 529 | |
| Provisions | | | 26 | | | 206 | |
Total non-current liabilities | | | 34,889 | | | 28,305 | |
| | | | | | | | |
Commitments and contingencies (Note 18) | | | | | | | |
| | | | | | | | |
Equity | | | | | | | |
| Issued capital | | | 12,187 | | | 3,441 | |
| Retained earnings/(accumulated losses) | | | (9 | ) | | (321 | ) |
| Accumulated other comprehensive income (loss) | | | 862 | | | (102 | ) |
| | | 13,040 | | | 3,018 | |
Total liabilities and shareholders’ equity | | $ | 68,788 | | $ | 47,903 | |
The consolidated balance sheets are to be read in conjunction with the notes to the consolidated financial statements.
RWA Holdings Pty Limited Financial ReportConsolidated Statements of Operations
| | | | | Six Months | | | |
| | | Year Ended | | Ended | | Year Ended | |
| | | June 30, | | December 31, | |
| | | 2007 | | 2006 | | 2005 | | 2004 | |
| | | (-000-) | |
| Revenue | | | | | | | | | |
| | | | | | | | | | |
| Sale and modification of containers | | $ | 52,929 | | $ | 34,473 | | $ | 13,563 | | $ | 26,141 | |
| Hire of containers | | | 21,483 | | | 15,921 | | | 7,224 | | | 12,351 | |
| Total revenue | | | 74,412 | | | 50,394 | | | 20,787 | | | 38,492 | |
| | | | | | | | | | | | | | |
| Other income | | | 25 | | | 26 | | | 14 | | | 23 | |
| Changes in inventories of finished goods and WIP | | | 758 | | | (2,599 | ) | | (1,497 | ) | | 1,283 | |
| Purchases of finished goods and consumables used | | | (47,185 | ) | | (30,088 | ) | | (11,360 | ) | | (25,385 | ) |
| Employee benefits expense | | | (12,678 | ) | | (7,631 | ) | | (3,721 | ) | | (5,616 | ) |
| Depreciation and amortization expense | | | (2,577 | ) | | (2,668 | ) | | (1,480 | ) | | (2,504 | ) |
| Other operating expenses | | | (8,083 | ) | | (5,022 | ) | | (2,183 | ) | | (3,367 | ) |
| | | | | | | | | | | | | | |
Results from operating activities | | | 4,672 | | | 2,412 | | | 560 | | | 2,926 | |
| | | | | | | | | | | | | | |
| Financial income | | | 508 | | | 413 | | | 332 | | | 87 | |
| Financial expenses | | | (4,378 | ) | | (3,039 | ) | | (1,127 | ) | | (2,397 | ) |
Net financing costs | | | (3,870 | ) | | (2,626 | ) | | (795 | ) | | (2,310 | ) |
| | | | | | | | | | | | | | |
| Other, net | | | — | | | | | | 133 | | | 68 | |
| | | | | | | | | | | | | | |
Income(loss) before tax | | | 802 | | | (214 | ) | | (102 | ) | | 684 | |
| | | | | | | | | | | | | | |
| Income tax expense | | | 490 | | | 214 | | | 75 | | | 400 | |
Net income(loss) | | $ | 312 | | $ | (428 | ) | $ | (177 | ) | $ | 284 | |
The consolidated statements of operations are to be read in conjunction with the notes to the consolidated financial statements.
RWA Holdings Pty Limited Financial ReportConsolidated Statement of Changes in Shareholders’ Equity
| | | Share capital (Note 15) | | Retained earnings/ (Accumulated losses) | | Accumulated other comprehensive income (loss) | | Total equity | |
| | | (-000-) | |
| Balance at January 1, 2004 | | $ | 2,762 | | $ | | | $ | | | $ | | |
| Net income | | | | | | 284 | | | — | | | | |
| Cumulative translation adjustment | | | — | | | | | | | | | 119 | |
| Total comprehensive income (loss) | | | — | | | 284 | | | 119 | | | 403 | |
| Balance at December 31, 2004 | | | | | | | | | | | | 3,165 | |
| | | | | | | | | | | | | | |
| Issuance of capital | | | 679 | | | | | | | | | 679 | |
| Net loss | | | | | | (177 | ) | | | | | (177 | ) |
| Cumulative translation adjustment | | | — | | | — | | | (81 | ) | | (81 | ) |
| Total comprehensive income (loss) | | | — | | | (177) | | | (81) | | | (258) | |
| Balance at June 30, 2005 | | | 3,441 | | | 107 | | | 38 | | | 3,586 | |
| | | | | | | | | | | | | | |
| Net loss | | | | | | (428 | ) | | | | | (428 | ) |
| Cumulative translation adjustment | | | — | | | — | | | (140 | ) | | (140 | ) |
| Total comprehensive income (loss) | | | — | | | (428) | | | (140) | | | (568) | |
| Balance at June 30, 2006 | | | | | | (321 | ) | | | ) | | | |
| | | | | | | | | | | | | | |
| Issuance of capital | | | 8,746 | | | | | | | | | 8,746 | |
| Net income | | | | | | 312 | | | — | | | | |
| Cumulative translation adjustment | | | — | | | — | | | 964 | | | 964 | |
| Total comprehensive income (loss) | | | — | | | 312 | | | 964 | | | 1,276 | |
| Balance at June 30, 2007 | | $ | 12,187 | | $ | (9 | ) | $ | 862 | | $ | 13,040 | |
The consolidated statement of changes in shareholders’ equity is to be read in conjunction with the notes to the consolidated financial statements.
RWA Holdings Pty Limited Financial ReportConsolidated Statements of Cash Flows
| | | Year Ended | | Six Months Ended | | Year Ended | |
| | | June 30, | | December 31, | |
| | | 2007 | | 2006 | | 2005 | | 2004 | |
| | | (-000-) | |
Cash flows from operating activities (Note 20) | | | | | | | | | |
| Cash receipts from customers | | $ | 75,502 | | $ | 53,376 | | $ | 22,616 | | $ | 41,518 | |
| Cash paid to suppliers and employees | | | (62,796 | ) | | (41,204 | ) | | (19,597 | ) | | (36,550 | ) |
| | | | 12,706 | | | 12,172 | | | 3,019 | | | 4,968 | |
| Interest (paid)/received, net | | | (3,799 | ) | | (2,118 | ) | | (902 | ) | | (1,182 | ) |
| Income taxes received/(paid) | | | 49 | | | - | | | (587 | ) | | 576 | |
Net cash from operating activities | | | 8,956 | | | 10,054 | | | 1,530 | | | 4,362 | |
| | | | | | | | | | | | | | |
Cash flows from investing activities | | | | | | | | | | | | | |
| Proceeds from sale of property, plant and equipment | | | 101 | | | 52 | | | 19 | | | 55 | |
| Acquisition of subsidiary, net of cash acquired | | | (303 | ) | | (4,855 | ) | | | | | | |
| Acquisition of property, plant and equipment | | | (845 | ) | | (837 | ) | | (1,498 | ) | | (924 | ) |
| Acquisition of container hire fleet | | | (20,350 | ) | | (13,178 | ) | | | ) | | (8,848 | ) |
| Acquisition of intangible assets | | | (66 | ) | | (144 | ) | | (19 | ) | | (52 | ) |
| Payment of deferred purchase consideration | | | (451 | ) | | - | | | (2,707 | ) | | | |
Net cash used by investing activities | | | (21,914 | ) | | (18,962 | ) | | (10,180 | ) | | (9,769 | ) |
| | | | | | | | | | | | | | |
Cash flows from financing activities | | | | | | | | | | | | | |
| Proceeds from capital lease and other liabilities | | | 434 | | | | | | | | | | |
| Payment of capital lease and other liabilities | | | (1,152 | ) | | (565 | ) | | (298 | ) | | (1,408 | ) |
| Proceeds from borrowings | | | 16,050 | | | 20,088 | | | 10,045 | | | 14,901 | |
| Repayment of borrowings | | | (10,689 | ) | | (10,557 | ) | | (1,241 | ) | | (9,402 | ) |
| Proceeds from issuance of capital | | | 8,746 | | | | | | 679 | | | | |
Net cash from financing activities | | | 13,389 | | | 8,966 | | | 9,185 | | | 4,091 | |
| | | | | | | | | | | | | | |
| Net increase / (decrease) in cash and cash equivalents | | | 431 | | | 58 | | | 535 | | | (1,316 | ) |
| Cash and cash equivalents at beginning of period | | | 567 | | | 530 | | | 2 | | | 1,340 | |
| Translation adjustment | | | (112 | ) | | (21 | ) | | (7 | ) | | (22 | ) |
Cash and cash equivalents at end of period | | $ | 886 | | $ | 567 | | $ | 530 | | $ | 2 | |
The statements of cash flows are to be read in conjunction with the notes to the consolidated financial statements.
RWA Holdings Pty Limited Financial ReportNotes to the consolidated financial statements
1.Significant accounting policies
(a)General
RWA Holdings Pty Limited is a company organized under the laws of Australia and a holding company for Royal Wolf Trading Australia Pty Limited, its wholly-owned principal operating subsidiary acquired in December 2003, and its only other wholly-owned subsidiary, Hi-Tech Pty Limited, which is engaged in substantially the same business and activities as Royal Wolf Trading Australia Pty Limited (collectively “the Company”). The Company leases and sells portable storage containers, portable container buildings and freight containers in Australia.
The consolidated financial statements include the accounts of the Company and its wholly-subsidiaries. All significant intercompany accounts and transactions have been eliminated.
(b)Basis of preparation
The consolidated financial statements (also referred to as the “financial report”) have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States. The financial report is prepared on the historical cost basis except that the following assets and liabilities are stated at their fair value: derivative financial instruments, financial instruments held for trading, and financial instruments classified as available-for-sale.
The Company’s functional currency is the Australian 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 shareholders' 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 period. At June 30, 2007 and 2006, the Australian dollar to the U.S. dollar exchange rate was $0.84880 and $0.73010, respectively. The average exchange rates used to translate the Company’s results of operations for the years ended June 30, 2007 and 2006, for the six months ended June 30, 2005 and for the year ended December 31, 2004 were $0.78592 , $0.74783, $0.77350 and $0.73713, respectively.
The preparation of a financial report requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. These accounting policies have been consistently applied.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period; or in the period of the revision and future periods if the revision affects both current and future periods.
Judgements made by management that have a significant effect on the financial report and estimates with a significant risk of material adjustment in the next year are discussed in accounting policy (t).
The accounting policies set out below have been applied consistently to all periods presented in the consolidated financial report.
(c)Foreign currency transactions
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 Australian dollars 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 Australian dollars at foreign exchange rates prevailing at the dates the fair value was determined.
RWA Holdings Pty Limited Financial ReportNotes to the consolidated financial statements
(d)Derivative financial instruments
The Company may use derivative financial instruments to hedge its exposure to foreign exchange and interest rate risks arising from operating, financing and investing activities. In accordance with its treasury policy, 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 (see also Note 16).
(e)Property, plant and equipment
(i)Owned assets
| | Property, plant and equipment are stated at cost, less accumulated depreciation (see below) and impairment losses (see accounting policy (k)). 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 proportion of production overheads, where applicable. |
| | Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment. |
(ii)Subsequent costs
| | The Company recognizes in the carrying amount of an item of property, plant and equipment the cost of replacing part of such an item when the cost is incurred if it is probable that the future economic benefits embodied within the item will flow to the Company and the cost of the item can be measured reliably. All other costs are recognized in the statement of operations as an expense as incurred. |
(iii)Leased assets
| | Leases under which the substantially all the risks and benefits incidental to ownership of the leased item are assumed by the Company are classified as capital leases. Other leases are classified as operating leases. |
Capital 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 against income. Capitalized leased assets are depreciated over the shorter of the estimated useful life of the asset or the lease term.
RWA Holdings Pty Limited Financial ReportNotes to the consolidated financial statements
Operating leases
Payments made under operating leases are expensed on a straight-line basis over the term of the lease, except where an alternative basis is more representative of the pattern of benefits to be derived from the leased property. Where leases have fixed rate increases, these increases are accrued and amortized over the entire lease period, yielding a constant periodic expense for the entire term of the lease.
(iv) Depreciation
Depreciation is charged to the statement of operations on a straight line basis over the estimated useful livesApril of each part of an item of property, plant and equipment.
The residual value, the useful life and the depreciation method applied to an asset are reassessed at least annually.
The estimated useful lives in the current and comparative periods are as follows:
| | 2007
| | | 2004 -2006
|
| | | | | |
| | | | | |
Plant and equipment | | 3 - 10 years | | | 3 - 10 years |
Motor vehicles | | 3 - 10 years | | | 3 - 10 years |
Furniture and fittings | | 5 - 10 years | | | 5 - 10 years |
| | | | | |
Container hire fleet | | | | | |
| | | | | |
Containers for hire | | 10-20 years (10-70% residual) | | | 10-25 years (20% residual) |
| | 10-20 years (10-70% residual) | | | 10-25 years (20% residual) |
Leased containers for hire (new) | | 10-20 years (10-70% residual) | | | 10-30 years (20-30% residual) |
(f)Container hire fleet
The Company has a container hire fleet primarily consisting of refurbished, modified and manufactured shipping containers that are held long term and leased to customers under operating lease agreements with varying terms. Depreciation is provided using the straight-line method over the respective unit’s estimated useful life, after the date the unit is put in service, and are depreciated down to their estimated residual values. For depreciation rates, estimated useful lives and residual values, see above. In the opinion of management, estimated residual values do not cause carrying values to exceed net realizable value. The Company continues to evaluate these depreciation policies as more information becomes available from other comparable sources and its own historical experience.
Costs incurred on hire fleet containers subsequent to initial acquisition are capitalized when it is probable that future economic benefits in excess of the originally assessed performance of the asset will flow to the Company in future years, otherwise, they are expensed as incurred.
Containers in the hire fleet are available for sale, and are transferred to inventory prior to sale. Cost of sales of the hire fleet container is recognized at the carrying amount at the date of disposal.
RWA Holdings Pty Limited Financial ReportNotes to the consolidated financial statements
(g)Intangible assets
(i)Goodwill
| | All business combinations are accounted for by applying the purchase method. Goodwill represents the difference between the cost of the acquisition and the fair value of the net identifiable assets acquired. |
| | Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating units and not amortized but is tested annually for impairment (see accounting policy (k)). |
(ii) Other intangible assets
| | Other intangible assets that are acquired by the Company are stated at cost less accumulated amortization (see below) and impairment losses (see accounting policy (k)). |
| | Research and development costs are expensed as incurred. |
(iii)Subsequent expenditure
| | Subsequent expenditures on capitalized intangible assets are capitalized only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditures are expensed as incurred. |
(iv) Amortization
| | Amortization is charged to the statement of operations on the straight-line basis over the estimated useful lives of intangible assets unless such lives are indefinite. Goodwill and intangible assets with an indefinite useful life are systematically tested for impairment at each balance sheet date. Other intangible assets are amortized from the date they are available for use. |
The estimated useful lives in the current and comparative periods are as follows:
· Goodwill / trademark - indefinite
(h)Trade and other receivables
Trade and other receivables are stated at cost, less a specific allowance for doubtful accounts (see accounting policy (k)(i)), which approximates fair value.
(i)Inventories
Inventories are stated at the lower of cost or market (net realizable value). Net realizable value is the estimated selling price in the ordinary course of business. Expenses of marketing, selling and distribution to customers, as well as costs of completion are estimated and are deducted from the estimated selling price to establish net realizable value.
Costs are assigned to individual items of stock on the basis of specific identification and include expenditures incurred in acquiring the inventories and bringing them to their existing condition and location.
RWA Holdings Pty Limited Financial ReportNotes to the consolidated financial statements
(j)Cash and cash equivalents
Cash and cash equivalents consist of cash balances and short term deposits (maturities of 90 days or less).
(k)Impairment
The carrying amounts of the Company’s assets, other than inventories (see accounting policy (i)) and deferred tax assets (see accounting policy (r)), are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated.
For goodwill, assets that have an indefinite useful life and intangible assets that are not yet available for use, the recoverable amount is estimated at each balance sheet date.
An impairment loss is recognized whenever the carrying amount of an asset or its cash generating unit exceeds its recoverable amount. Impairment losses are recognized in the statement of operations.
Impairment losses recognized in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to cash-generating units and then to reduce the carrying amount of the other assets in the unit on a pro rata basis.
(i)Calculation of recoverable amount
The recoverable amount of the Company’s receivables carried at cost is calculated as the present value of estimated future cash flows, discounted at the original effective interest rate (i.e. the effective interest rate compounded at initial recognition of these financial assets). Receivables with a short duration are not discounted. Net allowance for doubtful accounts provided and uncollectible accounts written off were $229,000, $149,000, $50,000, $8,000 and $149,000, $93,000, $37,000, $41,000 for the years ended June 30, 2007 and 2006, for the six months ended June 30, 2005 and for the year ended December 31, 2004, respectively.
Impairment or allowance for doubtful accounts of receivables is not recognized until objective evidence is available that impairment has occurred. Receivables are individually assessed for impairment.
The recoverable amount of the Company’s other assets is the greater of their fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs.
(ii)Impairment losses
Impairment losses recorded are considered part of the asset's carrying amount and are never reversed even if there is an indication that the impairment loss may no longer be required.
RWA Holdings Pty Limited Financial ReportNotes to the consolidated financial statements
(l)Interest-bearing borrowings
Interest-bearing borrowings are recognized initially at cost. Subsequent to initial recognition, interest-bearing borrowings are stated at amortized cost with any difference between cost and redemption value being recognized in the statement of operations over the period of the borrowings on an effective interest basis.
(m)Employee benefits
(i)Defined contribution pension plan
| | Obligations for contributions to a defined contribution pernsion plan are recognized as an expense in the statement of operations as incurred. |
(ii)Long-term service benefits
| | The Company’s net obligation in respect of long-term service benefits is the amount of future benefit that employees have earned in return for their service in the current and prior periods. The obligation is calculated using expected future increases in wage and salary rates including related costs and expected settlement dates, and is discounted using the rates attached to the Commonwealth Government bonds at the balance sheet date which have maturity dates approximating to the terms of the Company’s obligations. |
(iii)Wages, salaries and annual leave
| | Liabilities for employee benefits for wages, salaries and annual leave that are expected to be settled within 12 months of the reporting date represent present obligations resulting from employees’ services provided to reporting date, are calculated at undiscounted amounts based on remuneration wage and salary rates that the Company expects to pay as at reporting date including related payroll costs, such as workers compensation insurance and payroll tax. |
(iv)Share-based payment transactions
| | The Company 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 the year ended June 30, 2007, $2,930,000 was paid to the employees relating to the ESOP with a remaining $759,000 being paid in July 2007. |
(n)Provisions
A provision is recognized in the balance sheet when the Company has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.
RWA Holdings Pty Limited Financial ReportNotes to the consolidated financial statements
(o)Trade and other payables
Trade payables are non-interest bearing and are normally settled within 60 day terms.
(p)Revenue
Revenue is generally realized or realizable and earned when all of the following criteria have been met:
· | persuasive evidence of an arrangement exists; |
· | the seller’s price to the customer is fixed or determinable; and |
· | collectability is reasonable assured. |
Sale and modification of containers
Revenue from the sale and modification of containers is fixed based on invoiced amounts and is recognized in the statement of operations (net of returns, discounts and allowances) when the significant risks and rewards of ownership have been transferred to the buyer and can be measured reliably. Risks and rewards are considered passed to the buyer at the time the goods are delivered to or retrieved by the customer. This is also at which point the invoice is raised and the customer has accepted the goods. No revenue is recognized if there are significant uncertainties regarding recovery of the consideration due, the cost incurred or to be incurred cannot be measured reliability, there is a risk of return of goods or there is continuing management involvement with the goods.
Hire of containers
Revenue from hire of containers is recognised in the period earned and is fixed based on the term prescribed in the lease hire agreement. No revenue is recognized if there is a significant uncertainty regarding recovery of the consideration due, the cost incurred or to be incurred cannot be measured reliably, there is a risk of return of goods or there is continuing management involvement with the goods.
Unearned revenue arises when transport charges for the return retrieval of a hired container or containers is billed in advance, while the actual retrieval has not yet occurred as the container is still on hire. The amount of unearned revenue at June 30, 2007 and 2006 was $1,495,000 and $413,000, respectively, and is included in trade and other payables.
(q) Net financing costs
Net financing costs consist of interest payable on borrowings calculated using the effective interest method, interest receivable on funds invested, dividend income, foreign exchange gains and losses, and gains and losses on hedging instruments that are recognized in the statement of operations (see accounting policy (d)). Borrowing costs are expensed as incurred and included in net financing costs.
Interest income is recognized in the statement of operations as it accrues, using the effective interest method. Dividend income is recognized in the statement of operations on the date the Company’s right to receive payments is established. The interest expense component of finance lease payments is recognised in the statement of operations using the effective interest method.
RWA Holdings Pty Limited Financial ReportNotes to the consolidated financial statements
(r)Income tax
Income tax on the profit or loss for the year consists of current and deferred tax. Income tax is recognized in the statement of operations.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.
Deferred tax is provided using the liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realization or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilized. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realized.
Additional income taxes that arise from the distribution of dividends are recognised at the same time as the liability to pay the related dividend.
(s)Goods and services tax
Revenue, expenses and assets are recognised net of the amount of goods and services tax (GST), except where the amount of GST incurred is not recoverable from the Australian Tax Office (ATO). In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of the expense.
Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the ATO is included as a current asset or liability in the balance sheet.
Cash flows are included in the statement of cash flows on a gross basis. The GST components of cash flows arising from investing and financing activities that are recoverable from, or payable to, the ATO are classified as operating cash flows.
(t)Accounting estimates and judgments
The estimates and judgments that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.
Revision of accounting estimates - Container for hire depreciation
The preparation of the financial report requires the making of estimations and assumptions that affect the recognized amounts of assets, liabilities, revenues and expenses and the disclosure of contingent liabilities. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
RWA Holdings Pty Limited Financial ReportNotes to the consolidated financial statements
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period; or in the period of the revision and future periods if the revision affects both current and future periods.
At the beginning of the 2007 fiscal year, the Company revised upwards the useful life of containers for hire as outlined in accounting policy (e)(iv). The financial impact of the revision results in depreciation expense for the year ended June 30, 2007 being $969,000 less than what it would have been if the previous useful life estimate had been applied. The financial impact of the revision in future periods is not disclosed as the effect cannot be reliably estimated at this point in time due to uncertainty over the timing of sale of existing containers and purchase of new containers.
Key sources of estimation uncertainty
Note 1(k) contains information about the assumptions and their risk factors relating to goodwill impairment. In Note 16, detailed analyses are given of the foreign exchange exposure of the Company and risks in relation to foreign exchange movements.
Impairment of goodwill and intangibles with indefinite useful lives
The Company assesses whether goodwill and intangibles with indefinite useful lives are impaired at least annually in accordance with the accounting policy in (k) and in Note 9. These calculations involve an estimation of the recoverable amount of the cash-generating units to which the goodwill and intangibles with indefinite useful lives are allocated.
2.Segment information
The Company operates predominantly in one segment, being the sale and leasing of freight containers and container based storage and accommodation products and within one geographical segment, being Australia.
3.Net financing costs
| | | | | | | Six Months | | | |
| | | Year Ended | | Ended | | Year Ended | |
| | | June 30, | | December 31, | |
| | | 2007 | | 2006 | | 2005 | | 2004 | |
| | | (-000-) | |
| | | | | | | | | | |
| Interest income | | $ | 239 | | $ | 156 | | $ | 80 | | $ | 87 | |
| Net gain on remeasurement of interest rate swap at fair value through statement of operations | | | 174 | | | 219 | | | — | | | | |
| Net foreign exchange gain | | | 95 | | | 38 | | | 252 | | | | |
| Financial income | | $ | 508 | | $ | 413 | | $ | 332 | | $ | 87 | |
| | | | | | | | | | | | | | |
| Interest expense | | $ | 4,378 | | $ | 3,017 | | $ | 1,002 | | $ | 2,110 | |
| Net foreign exchange loss | | | | | | | | | | | | 287 | |
| Net loss on remeasurement of forward exchange contracts at fair value through statement of operations | | | | | | 22 | | | | | | | |
| Net loss on remeasurement of interest rate swap at fair value through statement of operations | | | | | | | | | 125 | | | | |
| Financial expenses | | | 4,378 | | | 3,039 | | | 1,127 | | | 2,397 | |
| Net financing costs | | $ | 3,870 | | $ | 2,626 | | $ | 795 | | $ | 2,310 | |
RWA Holdings Pty Limited Financial ReportNotes to the consolidated financial statements
4.Income tax expense
| | | | | | | Six Months | | | |
| | | Year Ended | | Ended | | Year Ended | |
| | | June 30, | | December 31, | |
| | | 2007 | | 2006 | | 2005 | | 2004 | |
| | | (-000-) | |
Recognized in the income statement | | | | | | | | | |
Current tax (benefit) / expense | | | | | | | | | |
| Current year | | $ | 13 | | $ | | | $ | (23 | ) | $ | (3 | ) |
| Adjustments for prior years | | | (4 | ) | | | | | | | | | |
| | | | 9 | | | | | | (23 | ) | | (3 | ) |
| | | | | | | | | | | | | | |
Deferred tax expense | | | | | | | | | | | | | |
| Origination and reversal of temporary differences | | | 481 | | | 214 | | | 98 | | | 403 | |
| | | | 481 | | | 214 | | | 98 | | | 403 | |
| | | | | | | | | | | | | | |
| Total income tax (benefit)/expense in income statement | | $ | 490 | | $ | 214 | | $ | 75 | | $ | 400 | |
| | | | | | | Six Months | | | |
| | | Year Ended | | Ended | | Year Ended | |
| | | June 30, | | December 31, | |
| | | 2007 | | 2006 | | 2005 | | 2004 | |
| | | (-000-) | |
Numerical reconciliation between tax expense and pre-tax net profit | | | | | | | | | |
| | | | | | | | | | |
| Profit / (loss) before tax | | $ | 802 | | $ | (214 | ) | $ | (102 | ) | $ | 684 | |
| | | | | | | | | | | | | | |
| Income tax using the domestic corporation tax rate of 30% | | | 241 | | | (64 | ) | | (31 | ) | | 205 | |
| | | | | | | | | | | | | | |
| Increase in income tax expense due to: | | | | | | | | | | | | | |
| Goodwill write off arising from benefit from deferred tax assets not recognized at date of previous business combinations | | | | | | 80 | | | | | | | |
| Non-deductible expenses | | | 253 | | | 198 | | | 106 | | | 195 | |
| Decrease in income tax expense due to: | | | | | | | | | | | | | |
| Under / (over) provided in prior years | | | (4 | ) | | | | | | | | | |
| | | | | | | | | | | | | | |
| Income tax (benefit) / expense on pre-tax net profit | | $ | 490 | | $ | 214 | | $ | 75 | | $ | 400 | |
RWA Holdings Pty Limited Financial ReportNotes to the consolidated financial statements
Deferred tax assets and liabilities
Recognised deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following:
| | | Assets | | Liabilities | | Net | |
| | | 2007 | | 2006 | | 2007 | | 2006 | | 2007 | | 2006 | |
| | | (-000-) | |
| | | | | | | | | | | | | | |
| Property, plant and equipment | | $ | | | $ | | | $ | (1,902 | ) | $ | (1,338 | ) | $ | | ) | $ | | ) |
| Interest bearing loans and borrowings | | | 71 | | | 91 | | | | | | | | | 71 | | | 91 | |
| Employee benefits | | | 164 | | | 269 | | | | | | | | | 164 | | | 269 | |
| Other items | | | 786 | | | 114 | | | | | | (87 | ) | | 786 | | | 27 | |
| Tax value of loss carry-forwards | | | | | | 536 | | | | | | | | | | | | 536 | |
| Tax assets / (liabilities) | | $ | 1,021 | | $ | 1,010 | | $ | (1,902 | ) | $ | (1,425 | ) | $ | (881 | ) | $ | (415 | ) |
5.Trade and other receivables
| | | At June 30, | |
| | | 2007 | | 2006 | |
| | | (-000-) | |
Current | | | | | |
| Trade receivables | | $ | 12,189 | | $ | 6,788 | |
| Less: allowances | | | (237 | ) | | (129 | ) |
| | | | 11,952 | | | 6,659 | |
| | | | | | | | |
| Lease receivable | | | 479 | | | 245 | |
| Fair value of derivatives | | | 300 | | | 96 | |
| Other receivables and prepayments | | | 591 | | | 451 | |
| | | $ | 13,322 | | $ | 7,451 | |
6.Inventories
| | | At June 30, | |
| | | 2007 | | 2006 | |
| | | (-000-) | |
| | | | | | |
| Finished goods | | $ | 4,113 | | $ | 5,081 | |
| Work in progress | | | 1,359 | | | 379 | |
| | | $ | 5,472 | | $ | 5,460 | |
RWA Holdings Pty Limited Financial ReportNotes to the consolidated financial statements
7.Property, plant and equipment
| | | Plant and equipment, fixtures and fittings | |
| | | (-000-) | |
Cost | | | |
| Balance at January 1, 2004 | | $ | 866 | |
| Acquisitions | | | 924 | |
| Disposals | | | (51 | ) |
| Translation adjustment | | | 83 | |
| Balance at December 31, 2004 | | | 1,822 | |
| Acquisitions | | | 1,498 | |
| Disposals | | | (27 | ) |
| Translation adjustment | | | (64 | ) |
| Balance at June 30, 2005 | | | 3,229 | |
| Acquisitions | | | 837 | |
| Acquisitions through business combinations | | | 230 | |
| Disposals | | | (82 | ) |
| Translation adjustment | | | (159 | ) |
| Balance at June 30, 2006 | | | 4,055 | |
| Acquisitions | | | 845 | |
| Disposals | | | (237 | ) |
| Translation adjustment | | | 707 | |
| Balance at 30 June 2007 | | $ | 5,370 | |
Depreciation and impairment losses | | | | |
| Balance at January 1, 2004 | | $ | | |
| Depreciation charge for the period | | | (411 | ) |
| Disposals | | | 24 | |
| Translation adjustment | | | (22 | ) |
| Balance at December 31, 2004 | | | (409 | ) |
| Depreciation charge for the period | | | (337 | ) |
| Disposals | | | 22 | |
| Translation adjustment | | | 14 | |
| Balance at June 30, 2005 | | | (710 | ) |
| Depreciation charge for the period | | | (830 | ) |
| Disposals | | | 51 | |
| Translation adjustment | | | 48 | |
| Balance at June 30, 2006 | | | (1,441 | ) |
| Depreciation charge for the period | | | (1,020 | ) |
| Disposals | | | 133 | |
| Translation adjustment | | | (305 | ) |
| Balance at June 30, 2007 | | $ | (2,633 | ) |
8.Container for hire fleet
| | | Container Hire Fleet | |
| | | (-000-) | |
Cost | | | |
| Balance at January 1, 2004 | | | 13,128 | |
| Acquisitions | | | 8,848 | |
| Transfers to inventory | | | (4,016 | ) |
| Translation adjustment | | | 767 | |
| Balance at December 31, 2004 | | | 18,727 | |
| Acquisitions | | | 5,975 | |
| Transfers to inventory | | | (2,959 | ) |
| Translation adjustment | | | (479 | ) |
| Balance at June 30, 2005 | | | 21,264 | |
| Acquisitions | | | 13,178 | |
| Acquisitions through business combinations | | | 5,107 | |
| Transfers to inventory | | | (8,478 | ) |
| Translation adjustment | | | (1,123 | ) |
| Balance at June 30, 2006 | | | 29,948 | |
| Acquisitions | | | 20,350 | |
| Acquisitions through business combinations | | | 299 | |
| Transfers to inventory | | | (12,601 | ) |
| Translation adjustment | | | 5,513 | |
| Balance June 30, 2007 | | | 43,509 | |
| | | | |
Depreciation and impairment losses | | | | |
| Balance at January 1, 2004 | | | | |
| Depreciation charge for the period | | | (1,775 | ) |
| Transfers to inventory | | | 626 | |
| Translation adjustment | | | (67 | ) |
| Balance at December 31, 2004 | | | (1,216 | ) |
| Depreciation charge for the period | | | (984 | ) |
| Transfers to inventory | | | 545 | |
| Translation adjustment | | | 35 | |
| Balance at June 30, 2005 | | | (1,620 | ) |
| Depreciation charge for the period | | | (1,475 | ) |
| Transfers to inventory | | | 837 | |
| Translation adjustment | | | 83 | |
| Balance at June 30, 2006 | | | (2,175 | ) |
| Depreciation charge for the period | | | (1,514 | ) |
| Transfers to inventory | | | 1,467 | |
| Translation adjustment | | | (359 | ) |
| Balance at June 30, 2007 | | | (2,581 | ) |
RWA Holdings Pty Limited Financial ReportNotes to the consolidated financial statements
9.Intangible assets
| | | Software | | Goodwill | | Trademarks | | Other | | Total | |
| | | (-000-) | |
Cost | | | | | | | | | | | |
| Balance at January 1, 2004 | | $ | 710 | | $ | 437 | | $ | 300 | | $ | | | $ | 1,447 | |
| Acquisitions through business combinations | | | | | | 2,580 | | | | | | | | | | |
| Other acquisitions | | | 52 | | | | | | | | | | | | 52 | |
| Translation adjustment | | | 29 | | | 167 | | | 10 | | | — | | | 206 | |
| Balance at December 31, 2004 | | | 791 | | | 3,184 | | | 310 | | | | | | 4,285 | |
| Acquisitions | | | 19 | | | | | | | | | | | | 19 | |
| Translation adjustment | | | (18 | ) | | (74 | ) | | (7 | ) | | — | | | (99 | ) |
| Balance at June 30, 2005 | | | 792 | | | 3,110 | | | 303 | | | | | | 4,205 | |
| Acquisitions through business combinations | | | | | | 1,304 | | | | | | | | | 1,304 | |
| Other acquisitions | | | 99 | | | | | | | | | 45 | | | 144 | |
| Translation adjustment | | | (35 | ) | | (158 | ) | | (12 | ) | | (2 | ) | | (207 | ) |
| Balance at June 30, 2006 | | | 856 | | | 4,256 | | | 291 | | | 43 | | | 5,446 | |
| Acquisitions through business combinations | | | | | | 17 | | | | | | | | | 17 | |
| Other acquisitions | | | 24 | | | | | | | | | 42 | | | 66 | |
| Translation adjustment | | | 141 | | | 693 | | | 47 | | | 10 | | | 891 | |
| Balance at June 30, 2007 | | $ | 1,021 | | $ | 4,966 | | $ | 338 | | $ | 95 | | $ | 6,420 | |
| | | | | | | | | | | | | | | | | |
Amortisation and impairment losses | | | | | | | | | | | | | | | | |
| Balance at January 1, 2004 | | $ | | | $ | | | $ | | | $ | | | $ | | |
| Amortization for the period | | | (318 | ) | | | | | | | | | | | (318 | ) |
| Write off on utilization of unrecognized tax assets arising from business combinations | | | | | | (403 | ) | | | | | | | | (403 | ) |
| Translation adjustment | | | (18 | ) | | (24 | ) | | — | | | — | | | (42 | ) |
| Balance at December 31, 2004 | | | (336 | ) | | (427 | ) | | | | | | | | (763 | ) |
| Amortization for the period | | | (159 | ) | | | | | | | | | | | (159 | ) |
| Write off on utilization of unrecognized tax assets arising from business combinations | | | | | | (98 | ) | | | | | | | | (98 | ) |
| Translation adjustment | | | 10 | | | 11 | | | — | | | — | | | 21 | |
| Balance at June 30, 2005 | | | (485 | ) | | (514 | ) | | | | | — | | | (999 | ) |
| Amortization for the period | | | (347 | ) | | | | | | | | (16 | ) | | (363 | ) |
| Write off on utilization of unrecognized tax assets arising from business combinations | | | - | | | (678 | ) | | | | | | | | (678 | ) |
| Translation adjustment | | | 28 | | | 38 | | | — | | | — | | | 66 | |
| Balance at June 30, 2006 | | | (804 | ) | | (1,154 | ) | | | | | (16 | ) | | (1,974 | ) |
| Amortization for the period | | | (35 | ) | | - | | | | | | (8 | ) | | (43 | ) |
| Translation adjustment | | | (134 | ) | | (188 | ) | | — | | | (2 | ) | | (324 | ) |
| Balance at June 30, 2007 | | $ | (973 | ) | $ | (1,342 | ) | $ | | | $ | (26 | ) | $ | (2,341 | ) |
Intangible assets are tested for impairment where an indicator of impairment arises.
RWA Holdings Pty Limited Financial ReportNotes to the consolidated financial statements
Goodwill
Goodwill acquired has been allocated to one single cash generating unit, being the consolidated entity. Goodwill is not amortized but tested for impairment annually using the value in use model. Goodwill initially arose through the purchase of Royal Wolf Trading Australia Pty Limited from Triton Containers International Limited in 2003, and through the purchases of Royal Wolf Hi-Tech Pty Limited, the business and assets of Cape Containers Pty Limited and Australian Container Network Pty Limited during the year ended June 30, 2006 and Terrigal Motors Pty Limited during the year ended June 30, 2007 (see Note 19).
The recoverable amount of the RWA Holdings Pty Limited cash-generating unit is based on a value-in-use model. That model uses cash flow projections based on actual operating results and a 5 year budget. Cash flows for a further 5-year period are extrapolated using a 5% growth rate, which is considered appropriate. A pre-tax discount rate of 12.9% has been used in discounting the projected cash flows.
Software
Software assets are capitalized at cost. This intangible asset has been assessed as having a finite useful life, and is amortized using the straight-line method over a period of 3 years (refer accounting policy (g)(iv)).
Trademarks
Trademarks are capitalized at cost and have been assessed as having an indefinite useful life and are tested for impairment at each period end.
Other
Other assets are capitalized at cost. This intangible asset has been assessed as having a finite useful life, and is amortized using the straight-line method over a period of 5 years (refer accounting policy (g)(iv)).
RWA Holdings Pty Limited Financial ReportNotes to the consolidated financial statements
10.Trade and other payables
| | | At June 30, | |
| | | 2007 | | 2006 | |
| | | (-000-) | |
| | | | | | |
| Trade payables | | $ | 4,684 | | $ | 7,714 | |
| Other payables | | | 2,394 | | | 985 | |
| Unearned revenue | | | 1,495 | | | 413 | |
| Fair value derivative | | | 68 | | | 21 | |
| | | $ | 8,641 | | $ | 9,133 | |
11.Interest bearing loans and borrowings
This following provides information about the contractual terms of the Company’s interest-bearing loans and borrowings. See Note 16 for more information about the Company’s exposure to interest rate and foreign currency risk.
| | | At June 30, | |
| | | 2007 | | 2006 | |
| | | (-000-) | |
| | | | | | |
Current liabilities | | | | | | | |
| Bank overdraft and invoice financing facility | | $ | 6,217 | | $ | 1,552 | |
| Current portion of bank loans | | | 3,167 | | | 4,257 | |
| Other loans | | | 42 | | | 53 | |
| Current portion of capital lease liabilities | | | 933 | | | 664 | |
| | | | 10,359 | | | 6,526 | |
| | | | | | | | |
Non-current liabilities | | | | | | | |
| Bank loan | | | 22,696 | | | 13,214 | |
| Non-convertible notes | | | 10,724 | | | 7,957 | |
| B class notes | | | - | | | 4,858 | |
| Capital lease liabilities | | | 391 | | | 1,126 | |
| | | $ | 33,811 | | $ | 27,155 | |
| | | At June 30, | |
| | | 2007 | | 2006 | |
| | | (-000-) | |
Financing facilities | | | | | |
| Bank overdraft | | $ | 866 | | $ | 745 | |
| Invoice financing facility | | | 6,366 | | | 5,476 | |
| Secured bank loans | | | 40,969 | | | 31,366 | |
| | | $ | 48,201 | | $ | 37,587 | |
| | | | | | | | |
Facilities utilized at reporting date | | | | | | | |
| Bank overdraft | | $ | 545 | | $ | 682 | |
| Invoice financing facility | | | 5,672 | | | 870 | |
| Secured bank loans | | | 37,084 | | | 25,808 | |
| | | $ | 43,301 | | $ | 27,360 | |
| | | | | | | | |
Facilities not utilized at reporting date | | | | | | | |
| Bank overdraft | | $ | 321 | | $ | 63 | |
| Invoice financing facility | | | 694 | | | 4,606 | |
| Secured bank loans | | | 3,885 | | | 5,558 | |
| | | $ | 4,900 | | $ | 10,227 | |
RWA Holdings Pty Limited Financial ReportNotes to the consolidated financial statements
Financing arrangements
Bank overdrafts
The bank overdrafts of the Company are secured by a floating charge over the Company’s assets. Interest on bank overdrafts is charged at the prevailing market rates.
Invoice financing facility
The invoice finance facility of the Company is a facility whereby funds are made available based on a percentage of debtors outstanding net of any disallowed debts. The facility is secured by a floating charge over the debtor’s ledger. Interest is charged at the bank’s prime rate plus 1.65%.
Bank loans
The bank loans amount in current liabilities comprises the portion of the Company’s bank loan payable within one year. The non-current bank loans are payable on or before 2010 and are subject to annual review. The loans bear interest at the Australian bank bill reference rate (“BBSW”) plus 1.10% - 1.35% (2006: BBSW plus 1.10%-1.35%, 2005: BBSW plus 1.10% and 2004: BBSW plus 1.35%), payable monthly. Bank loans are secured by lease assets in the container fleet with a carrying amount of $23,763,000 (2006: $13,246,000) and are due and payable over the next five years. In the event of default, the assets revert to the bank.
Principal payments under the loans are as follows:
| Year Ending | | | |
| June 30, | | (-000-) | |
| 2008 | | $ | 3,176 | |
| 2009 | | | 5,365 | |
| 2010 | | | 17,331 | |
Finance leases and hire purchase contracts
The Company’s lease liabilities are secured by the leased assets of $159,000 and $384,000 at June 30, 2007 and 2006, respectively. In the event of default, the assets revert to the lessor.
B class notes
Holders of B Class Notes are entitled to receive cumulative interest of 15% per annum on the issue price of their notes. These notes do not give their holders any voting rights at shareholders’ meetings. The B Class Notes were repaid in full on March 30, 2007.
Non-convertible notes
Holders of Non-convertible notes are entitled to receive cumulative interest of 15% per annum on the issue price of their notes. These notes do not give their holders any voting rights at shareholders’ meetings. In the event ofliquidation or winding up of the Company, the holders of non-convertible notes rank above all shareholders and are entitledthe Cumulative Preferred Stock will have preference to holders of common stock; with the proceeds of liquidation only to the extentholders of the face valueSeries A Preferred Stock having preference over holders of the notes and any accumulated interest. SubsequentSeries 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, 2007,2009, dividends paid or payable totaled $58,000 and $4,000 for the Non-convertible notes were repaid (see Note 22).
RWA Holdings Pty Limited Financial ReportNotes toSeries 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 consolidated financial statements
Capital lease liabilitiesearnings and profits of the Company, are payable as follows: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
| | | 2007 | | 2006 | |
| | Minimum lease payments | | Interest | | Principal | | Minimum lease payments | | Interest | | Principal | |
| | | (-000-) | |
| | | | | | | | | | | | | | |
| Less than one year | | $ | 1,005 | | $ | 72 | | $ | 933 | | $ | 800 | | $ | 136 | | $ | 664 | |
| Between one and five years | | | 421 | | | 30 | | | 391 | | | 1,197 | | | 71 | | | 1,126 | |
| More than five years | | | — | | | — | | | — | | | — | | | — | | | — | |
| | | $ | 1,426 | | $ | 102 | | $ | 1,324 | | $ | 1,997 | | $ | 207 | | $ | 1,790 | |
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 finance leasesbeen allocated to tangible and hireintangible 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 contractsprice 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 various motor vehicles,$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 other assets. These leases have no termsintangible assets acquired based on their estimated fair market values as of renewal or purchase options nor escalation clauses.December 8, 2008.
Note 5. Long-Term Debt and Obligations
Under the terms of theRoyal Wolf Senior Credit Facility Agreementand 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 Company’s 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 ANZ’s 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 ANZ’s 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 ANZ’s 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 undertakesentered into a securities purchase agreement with Bison Capital, pursuant to ensurewhich 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, GFN’s 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 GFN’s 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 lender’s 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-Van’s 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 covenants in relationminimum 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 variousaffiliates.
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 ratios including consolidated interest cover; consolidated leverage ratios; and consolidated debt service cover. covenants.
Loan Covenant Compliance
The Company was in compliance with itsthe 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 Company’s 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 UB’s “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, 2007.2009.
Scheduled Maturities on Long-Term Debt
Subsequent toThe scheduled maturities for the senior credit facilities (see also Note 13), senior subordinated notes and other long-term debt at June 30, 2007,2009 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 ANZ secured credit facility was amended (see 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 22).6. Financial Instruments
12.Employee benefits
| | | At June 30, | |
| | | 2007 | | 2006 | |
| | | (-000-) | |
| | | | | | |
Current | | | | | |
| Liability for annual leave (vacation) | | $ | 656 | | $ | 566 | |
| Liability for long service leave (vacation) | | | 199 | | | 136 | |
| Cash settled share-based transactions | | | 759 | | | — | |
| | | $ | 1,614 | | $ | 702 | |
| | | | | | | | |
Non Current | | | | | | | |
| Liability for long service leave | | $ | 171 | | $ | 341 | |
| Cash settled share-based transactions | | | — | | | 188 | |
| | | | 171 | | | 529 | |
| | | | | | | | |
| Total employee benefits | | $ | 1,785 | | $ | 1,231 | |
Defined contribution pension plan
Fair Value Measurements
The Company makes contributionsadopted 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 defined contribution pension plan. The amount recognizedliability 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 an expense was $736,000, $590,000, $248,000follows:
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 $452,000 for
Level 3 — Unobservable inputs in which there is little or no market data, which require the years ended June 30, 2007 and 2006, for the six months ended June 30, 2005 and for the year ended December 31, 2004, respectively.
RWA Holdings Pty Limited Financial ReportNotesreporting entity to the consolidated financial statements
13. Share-based payments
develop its own assumptions.
The Company hadimplemented SFAS No. 161,Disclosures about Derivative Instruments and Hedging Activities, an employee share option plan (ESOP)amendment of SFAS No. 133, as of July 1, 2008. Implementation of SFAS No. 161 did not have a significant effect on the Company’s consolidated results of operations or consolidated financial position, nor a significant effect on the Company’s 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 grantingCompany’s 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 non-transferable options to certain key management personnelits commodities and senior employees with more than twelve months’ serviceother derivatives activities, including forward-exchange contracts. Derivative instruments measured at the grant date. During the year endedfair value at June 30, 2007, $2,930,000 was paid to employees relating to2008 and 2009, and their classification on the plan with remaining $759,000 being paid in July 2007,consolidated balances sheets and consolidated statements of which $373,000 was provided in prior years.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 | |
| | | | | | | | |
14.ProvisionsFair Value of Financial Instruments
| | | Leasehold | | Deferred | | | |
| | | Makegood | | Consider- | | | |
| | | costs | | ation | | Total | |
| | | (-000-) | |
| Balance at January 1, 2004 | | $ | — | | $ | — | | $ | — | |
| Provisions made during the year | | | 6 | | | — | | | 6 | |
| Balance at December 31, 2004 | | | 6 | | | — | | | 6 | |
| Provisions made during the year | | | — | | | — | | | — | |
| Balance at June 30, 2005 | | | 6 | | | — | | | 6 | |
| Provisions made during the year | | | — | | | 429 | | | 429 | |
| Translation adjustment | | | — | | | (10 | ) | | (10 | ) |
| Balance at June 30, 2006 | | | 6 | | | 419 | | | 425 | |
| Provisions made during the year | | | 17 | | | — | | | 17 | |
| Provisions used during the year | | | — | | | (451 | ) | | (451 | ) |
| Unwind of discount | | | 2 | | | — | | | 2 | |
| Translation adjustment | | | 1 | | | 32 | | | 33 | |
| Balance at June 30, 2007 | | $ | 26 | | $ | — | | $ | 26 | |
| | | | | | | | | | | |
| Balance at June 30, 2006: | | | | | | | | | | |
| Current | | $ | — | | $ | 219 | | $ | 219 | |
| Non-current | | | 6 | | | 200 | | | 206 | |
| | | $ | 6 | | $ | 419 | | $ | 425 | |
| | | | | | | | | | | |
| Balance at June 30, 2007: | | | | | | | | | | |
| Current | | $ | — | | $ | — | | $ | — | |
| Non-current | | | 26 | | | — | | | 26 | |
| | | $ | 26 | | $ | — | | $ | 26 | |
Leasehold makegood costs
An obligation exists to restore leasehold sites after fit-outs atThe carrying value of the Company’s head office location in Hornsby. The basis for accounting is set out in accounting policy (n) offinancial instruments, which include cash and cash equivalents, net receivables, trade payables and accrued liabilities, borrowings under the significant accounting policies in Note 1.
The expected cost forsenior credit facilities, the restoration is estimated at $32,000,subordinated notes, interest rate swap and is expectedforward exchange contracts and commercial bills; approximate fair value due to occur in 2010. This amount has been discounted using Australian government bond rates with similar maturities (2007: 6.0%, 2006: 5.8%, 2005current market conditions, maturity dates and 2004: 5.2%).
Deferred consideration
Deferred purchase consideration consisted of consideration relating to the purchase of the business and assets of Australian Container Network Pty Limited (see Note 19), and was paid out during the year ended June 30, 2007.
RWA Holdings Pty Limited Financial ReportNotes to the consolidated financial statements
15.Capital and reserves
| | | At June 30, | |
| | | 2007 | | 2006 | |
Share Capital | | (-000-) | |
| | | | | | |
| 8,154,000 and 2,160,000 Ordinary (Common) Shares in 2007 and 2006, respectively | | $ | 3,441 | | $ | 817 | |
| -0- and 4,322,590 A Class Shares in 2007 and 2006, respectively | | | — | | | 2,624 | |
| -0- and 100 Class C Shares in 2007 and 2006, respectively | | | — | | | — | |
| 1 and -0- D Class Share in 2007 and 2006, respectively | | | 8,746 | | | — | |
| | | $ | 12,187 | | $ | | |
During the year ended June 30, 2007, one D class share was issued; which was as part of the deal in relation to sale of the Company (see Note 22). On March 30, 2007, the A Class and C Class Shares were converted into Ordinary Shares.
Terms and conditions
Ordinary Shares
Holders of Ordinary Shares rank pari passu with the A Class Shares in the declaration and payment of dividends and are entitled to one vote per share at shareholders’ meetings.
In the event of winding up of the Company, ordinary shareholders rank after all other shareholders and creditors and are fully entitled to any proceeds of liquidation.
A Class Shares
Holders of A Class Shares rank pari passu with Ordinary shares in the declaration and payment of dividends and are entitled to one vote per share at shareholders’ meetings limited to 50% of the votes to be cast by shareholders.
In the event of winding up of the Company, A Class shareholders rank above ordinary shareholders and are fully entitled to the greater of any proceeds of liquidation and an amount equal to the issue price of the A Class Shares.
C Class Shares
Holders of C Class Shares are not entitled to receive any dividends prior to conversion to ordinary shares. The C Class shares shall not entitle the holder to a vote prior to conversion to ordinary shares. The C Class shares shall not entitle the holder to any proceeds on liquidation prior to conversion to ordinary shares.
The Company’s C Class shares are not transferable and will convert into ordinary shares in the event that all criteria specified in the shareholders’ agreement are satisfied. The number of ordinary shares received on conversion of each C Class share is determined by reference to a profit formula.
D Class Shares
Holders of D Class Shares are not entitled to receive any dividends. The D Class shares shall not entitle the holder to a vote. The D Class shares shall not entitle the holder to any proceeds on liquidation prior to conversion to ordinary shares. D Class Shares are not transferable.
In the event of winding up of the Company prior to September 30, 2008, D Class shareholders are entitled to proceeds as determined by reference to a profit formula. In the event of winding up of the Company after September 30, 2008, D Class shareholders are entitled to proceeds as determined by reference to a profit formula plus where there is a surplus of assets following a return of capital, a preferential payment to any further distributions to Ordinary shares of an amount equal to interest on the paid up capital of the D Class share of 18% per annum since the date of issue until the winding up of the Company calculated on a daily basis (but not capitalized or compounded).
RWA Holdings Pty Limited Financial ReportNotes to the consolidated financial statements
16.Financial instruments
factors.
Exposure to credit, interest rate and currency risks arises in the normal course of the Company’s business. DerivativeThe Company may use derivative financial instruments are used to hedge exposure to fluctuations in foreign exchange rates and interest rates.
Credit Risk
CreditFinancial 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 Company’s 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 Company’s receivables related to sales are generally secured by the equipment sold to the customer. The Company’s receivables related to its lease operations are primarily amounts generated from both off-site and on-site customers. The Company trades only with recognized, creditworthy third parties.
has the right to repossess lease equipment for nonpayment. It is the Company’s policy that all customers who wish to tradepurchase or lease containers on credit terms are subject to credit verification procedures.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 Company’s exposure to bad debts is not significant.
For transactions that are not denominated in 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 measurement currency ofallowance 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 relevant operating unit,RWNZ and Pac-Van acquisitions, the Company does not offer credit terms without the specific approvalrecorded an allowance for doubtful accounts of the Head of Credit Control.
$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 Company’s 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.
There are no significant concentrations of credit risk within the Company.
Interest rate risk
Rate Swap Contracts
The Company’s exposure to market risk for changes in interest rates relates primarily to its long-term debt obligations. The Company’s policy is to manage its interest costexpense 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 swapswaps 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 Activitiesdoes not exist. Therefore, all movements in the fair values of these hedges are taken directly toreported in the statement of operations.operations in the period in which fair values change.
AtThe Company’s 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, 2007, after taking into account the effect of2009, there were four open interest rate swaps, 59.5% (2006: 80.2%, 2005: 72.7%swap contracts and 2004: 97.6%) of the Company’s borrowings are at a fixedthree open interest rate of interest.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 | ) |
| | | | | | | |
RWA Holdings Pty Limited Financial ReportNotes to the consolidated financial statements
Effective interest rates and repricing analysis
In respect of income-earning financial assets and interest-bearing financial liabilities, the following table indicates their effective interest rates at the balance sheet date and the periods in which they reprice.
June 30, 2007 | | Effective interest rate % | | < 1 year | | 1-2 years | | 2-5 years | | >5 years | | Total | |
| (-000-) | |
Fixed rate | | | | | | | | | | | | | |
| Lease receivable | | | 15.8 | % | $ | 429 | | $ | 408 | | $ | 146 | | $ | — | | $ | 983 | |
| Finance lease liabilities | | | 9.2 | % | | (934 | ) | | (301 | ) | | (89 | ) | | — | | | (1,324 | ) |
| Bank loans | | | 6.0 | % | | (1,347 | ) | | (3,801 | ) | | (8,979 | ) | | — | | | (14,127 | ) |
| Other loans | | | 4.0 | % | | (42 | ) | | — | | | — | | | — | | | (42 | ) |
| Non-convertible notes | | | 15.0 | % | | — | | | — | | | (10,724 | ) | | — | | | (10,724 | ) |
| | | | | | | | | | | | | | | | | | | | |
Variable rate | | | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | | 4.2 | % | | 886 | | | — | | | — | | | — | | | 886 | |
| Interest rate swap | | | 6.0 | % | | 300 | | | — | | | — | | | — | | | 300 | |
| Bank loans | | | 7.5 | % | | (1,820 | ) | | (1,564 | ) | | (8,352 | ) | | — | | | (11,736 | ) |
| Bank overdrafts | | | BBSW + 1.65 | % | | (6,217 | ) | | — | | | — | | | — | | | (6,217 | ) |
| | | | | | $ | (8,745 | ) | $ | (5,258 | ) | $ | (27,998 | ) | $ | — | | $ | (42,001 | ) |
June 30, 2006 | | Effective interest rate % | | < 1 year | | 1-2 years | | 2-5 years | | >5 years | | Total | |
| (-000-) | |
| | | | | | | | | | | | | | |
Fixed rate | | | | | | | | | | | | | |
| Lease receivable | | | 18.1 | % | $ | 245 | | $ | 277 | | $ | 288 | | $ | — | | $ | 810 | |
| Finance lease liabilities | | | 9.0 | % | | (664 | ) | | (806 | ) | | (320 | ) | | — | | | (1,790 | ) |
| Other loans | | | 4.2 | % | | (53 | ) | | — | | | — | | | — | | | (53 | ) |
| Non-convertible notes | | | 15.0 | % | | — | | | — | | | — | | | (7,957 | ) | | (7,957 | ) |
| B class notes | | | 15.0 | % | | — | | | — | | | — | | | (4,858 | ) | | (4,858 | ) |
| | | | | | | | | | | | | | | | | | | | |
Variable rate | | | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | | 3.3 | % | | 567 | | | — | | | — | | | — | | | 567 | |
| Bank loans | | | BBSW + 1.10 | % | | (3,210 | ) | | (1,216 | ) | | (7,838 | ) | | — | | | (12,264 | ) |
| Interest rate swap | | | 6.0 | % | | 96 | | | — | | | — | | | — | | | 96 | |
| Bank overdrafts | | | BBSW + 1.65 | % | | (1,552 | ) | | — | | | — | | | — | | | (1,552 | ) |
| Commercial bills | | | 6.9 | % | | (998 | ) | | (1,040 | ) | | (3,169 | ) | | — | | | (5,207 | ) |
| | | | | | $ | (5,569 | ) | $ | (2,785 | ) | $ | (11,039 | ) | $ | (12,815 | ) | $ | (32,208 | ) |
RWA Holdings Pty Limited Financial ReportNotes to the consolidated financial statements
Foreign currency risk
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.
dollars. The Company has a bank account denominated in U.S. Dollarsdollars 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 taken directly toreported in the statement of operations.operations in the period in which fair values change.
F-22
Forecasted transactions
GENERAL FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company classifiesalso 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 Company’s 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 forward exchange contracts hedging forecasted transactionsdeferred 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 cash flow hedgesof June 30, 2008 and states them2009.
A reconciliation of the federal statutory rate (30% Australian for the Predecessor and 34% U.S. for the Successor) to the Company’s 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 Company’s 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 Company’s 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 value. The net fairmarket value of forward exchange contracts usedthe Company’s 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 Company’s common stock as hedges of forecasted transactionsthat 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 Company’s 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 2006 was nil.246,000 options that vest subject to a performance condition based on Royal Wolf achieving a certain EBITDA target for 2008. The Company doesinitially commenced recognizing compensation expense over the vesting period of 20 months.
In June 2008, the Compensation Committee of the Company’s 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 any forward exchange contracts hedging forecasted transactions.
Recognized assetsachieved 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 liabilities
Changes2010 (“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 fair value of forward exchange contracts that economically hedge monetary assets and liabilities in foreign currencies and for which no hedge accounting is applied are2008 Grant has been recognized in the statement of operations. Bothoperations 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 changesstatement 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 forward contractsCompany’s common stock and the foreign exchange gains and losses relatingexercise 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 monetary items are recognisedUnited States. The tax effect of the U.S. income tax deduction in excess of the financial statement expense, if any, will be recorded as part of ‘net financing costs’ (see Note 3). an increase to additional paid-in capital.
The weighted-average fair value of forward exchange contracts used as economic hedgesthe 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 monetary assets4.8%, 3.27%, 3.01%, 3.77%, 3.08%, 3.29%, 1.99% and liabilities1.99% (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 foreign currencies at June 30, 2007 and 2006$759,000 was a liability of $69,000 and $22,000, respectively.
Sensitivity analysis
In managing interest rate and currency riskspaid during the Company aims to reduce the impact of short-term fluctuations on results of operations. Over the longer-term, however, permanent changes in foreign exchange and interest rates would have an impact on the results of operations.
At June 30, 2007, it is estimated that a general increase of one percentage point in interest rates would decrease the Company’s pretax income by approximately $167,000 (2006: $70,000, 2005: $9,000 and 2004: $4,000).Predecessor Period 2008. The effects of interest rate swaps have been included in this calculation.
It is estimated that a general increase of one percentage pointESOP was terminated in the value of the Australian dollar against other foreign currencies would have decreased the Company’s pretax income by approximately $77,000 for the year ended June 30, 2007 (2006: $230,000, 2005: $94,000Predecessor Period 2008.
Note 10. Commitments and 2004: $83,000), based on the actual transactions incurred in U.S. Dollars. The effects of forward exchange contracts have been included in this calculation.Contingencies
RWA Holdings Pty Limited Financial ReportNotes to the consolidated financial statements
Fair values
The fair values together with the carrying amounts shown in the accompanying consolidated balance sheets are as follows:
| | Carrying amount | | Fair value | | Carrying amount | | Fair value | |
| | | At June 30, | |
| | | 2007 | | 2007 | | 2006 | | 2006 | |
| | | (-000-) | |
| Cash and cash equivalents | | $ | 886 | | $ | 886 | | $ | 567 | | $ | 567 | |
| Trade and other receivables | | | 12,543 | | | | | | 7,110 | | | | |
| Lease receivable | | | 1,843 | | | | | | 811 | | | | |
| Interest rate swap | | | 300 | | | 300 | | | 96 | | | 96 | |
| Bank overdraft | | | (6,217 | ) | | | ) | | (1,552 | ) | | | ) |
| Trade and other payables | | | (8,573 | ) | | | ) | | (9,112 | ) | | | ) |
| Other loan | | | (42 | ) | | (42 | ) | | (53 | ) | | (53 | ) |
| Finance lease liabilities | | | (1,324 | ) | | | ) | | (1,790 | ) | | | ) |
| Bank loans | | | (20,195 | ) | | | ) | | (13,754 | ) | | | ) |
| Held to maturity liabilities | | | (1,717 | ) | | | ) | | — | | | — | |
| Commercial bills | | | (3,951 | ) | | | ) | | (3,717 | ) | | | ) |
| Forward exchange contracts | | | (68 | ) | | (68 | ) | | (21 | ) | | (21 | ) |
| Non-convertible notes | | | (10,724 | ) | | | ) | | (7,957 | ) | | | ) |
| B class notes | | | — | | | — | | | (4,858 | ) | | | ) |
| | | $ | (37,239 | ) | $ | | ) | $ | (34,230 | ) | $ | | ) |
Estimation of fair values
The following summarizes the major methods and assumptions used in estimating the fair values of financial instruments reflected in the table.
Derivatives
Forward exchange contracts and options are marked to market by discounting the contractual forward price and deducting the current spot rate. For interest rate swaps, broker quotes are used. Those quotes are back tested using pricing models or discounted cash flow techniques.
Where discounted cash flow techniques are used, estimated future cash flows are based on management’s best estimates and the discount rate is a market related rate for a similar instrument at the balance sheet date. Where other pricing models are used, inputs are based on market related data at the balance sheet date.
Interest-bearing loans and borrowings
Fair value is calculated based on discounted expected future principal and interest cash flows.
Finance lease liabilities
The fair value is estimated as the present value of future cash flows, discounted at interest rates implicit in the relevant lease agreements. These implicit interest rates are in line with current market rates.
Trade and other receivables/payables
For receivables / payables with a remaining life of less than one year, the notional amount is deemed to reflect the fair value. All other receivables / payables are discounted to determine the fair value.
RWA Holdings Pty Limited Financial ReportNotes to the consolidated financial statements
Interest rates used for determining fair value
The Company uses the government yield curve as of June 30, 2007 plus an adequate constant credit spread to discount financial instruments. The interest rates used are as follows:
| | | At June 30, |
| | | 2007 | | 2006 |
| Derivatives | | 6.0% | | 6.0% |
| Loans and borrowings | | 3.9% - 15.0% | | 4.2% - 15.0% |
| Leases | | 9.2% | | 9.0% |
| Receivables | | 15.8% | | 18.1% |
17.Operating leases
Leases as lessee
The Company leases various office equipment and other facilities under operating leases. The leases have maturitiesterms 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.
During the year ended June 30, 2007, $1,295,000 was recognized as an expense in the statement of operations in respect of operating leases (2006: $878,000, 2005: $359,000 and 2004: $585,000)
Non-cancellable operating lease rentals at June 30, 20072009 are payable as follows: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 | |
| | | | |
| | | (-000-) | |
| Less than one year | | $ | 3,191 | |
| One-two years | | | 1,199 | |
| Two-three years | | | 1,026 | |
| Three-four years | | | 629 | |
| Four-five years | | | 296 | |
| Thereafter | | | 423 | |
| | | $ | 6,764 | |
Leases as lessor
The Company leases containersRental expense on a daily basis in the ordinary course of business. These leases can vary in length from a minimum hire period of 30 days to up to five years and longer.
These non-cancellable operating leases have maturities of between 1was $1,295,000, $685,000, $1,733,000 and 5 years. All$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 include a clause to enable upward revision of the rental charge.
The Company has no other lessor relationships apart from those relating the rental of containers.
The future minimum lease payments under non-cancellable leases are as follows:
| | | At June 30, | |
| | | 2007 | | 2006 | |
| | | (-000-) | |
| Less than one year | | $ | 364 | | $ | 360 | |
| Between one and five years | | | 414 | | | 669 | |
| More than five years | | | — | | | — | |
| | | $ | 778 | | $ | 1,029 | |
During the year ended June 30, 2007, $21,483,000 was recognized as income from the hire of containers in the statement of operations in respect of operating leases (2006: $15,921,000, 2005: $7,224,000 and 2004: $12,351,000).
RWA Holdings Pty Limited Financial ReportNotes to the consolidated financial statements
18.Commitments and contingencies
There is a pending litigation case by a former employee against the Company. The action is being defended and advice from legal counsel indicates that it is not practicable to estimate the potential liability at this stage. Based on legal advice, the Company believes that there will not be a material liability arising from this case.
There were no other commitments or contingencies of the Company for capital or otherwise not already disclosed elsewhere in the consolidated financial statements.
19.Acquisitions of subsidiaries
On May 31, 2007, the Company acquired the business and assets of Professional Sales & Hire (Terrigal Motors Ltd) for $303,000 satisfied in cash. The company sells and hires shipping containers. In the one month to June 30, 2007, the business contributed net profit of $5,000 to the consolidated net income for the year. If the acquisition had occurred on July 1, 2006, consolidated revenues would have been $74,521,000 (unaudited) and net income would have been $237,000 (unaudited).
The acquisition had the following effect on the Company’s assets and liabilities during the year ended June 30, 2007:
| | | Professional Sales and Hire | |
| | | | | Fair value adjustments | | | |
| | | (-000-) | |
| | | | | | | | |
| Container hire fleet | | | 312 | | | 88 | | | 224 | |
| Deferred tax liability | | | (26 | ) | | (26 | ) | | — | |
| Net identifiable assets and liabilities | | | 286 | | | 62 | | | 224 | |
| | | | | | | | | | | |
| Goodwill on acquisitions | | | 17 | | | | | | | |
| Consideration paid, satisfied in cash | | | 303 | | | | | | | |
| | | | | | | | | | | |
| Net cash outflow | | | 303 | | | | | | | |
Goodwill has arisen on the acquisition because of customer relationships that did not meet the criteria for recognition as an intangible asset at the date of acquisition.
During the year ended June 30, 2006 the Company acquired the following businesses:
| · | Royal Wolf Hi-Tech Pty Limited |
| · | Australian Container Network Pty Ltd |
| · | Cape Containers Pty Limited |
On March 30, 2006, the Company acquired the remaining 50% of the shares in Royal Wolf Hi-Tech Pty Limited which it did not already own for $591,000 satisfied in cash. This company sells, hires and modifies containers. In the three months to June 30, 2006, the subsidiary contributed a net loss of $19,000 to the consolidated net loss for the year. If the acquisition had occurred on July 1, 2005, consolidated revenues would have been $52,021,000 (unaudited) and the net loss would have been $486,000 (unaudited). The Company previously acquired the initial 50% shares in Royal Wolf Hi-Tech Pty Limited and goodwill of $99,000 has been recognized in respect of this initial acquisition.
On December 16, 2005, the Company acquired the business and assets of Cape Containers Pty Limited for $619,000 satisfied in cash. This company sells and hires shipping containers. In the six months to June 30, 2006, the business contributed net income of $68,000 to the consolidated net loss for the year. If the acquisition had occurred on July 1, 2005, consolidated revenues would have been $50,824,000 (unaudited) and the net loss would have been $378,000 (unaudited).
RWA Holdings Pty Limited Financial ReportNotes to the consolidated financial statements
On April 28, 2006, the Company acquired the business and assets of Australian Container Network Pty Ltd for $4.1 million, of which $3.7 million was satisfied in cash. The Company has recognized a provision for the $0.6 million deferred consideration extending to August 2007. This company sells and hires containers. In the two months to June 30, 2006, the business contributed net income of $50,000 to the consolidated net loss for the year. If the acquisition had occurred on July 1, 2005, consolidated revenues would have been $53,262,000 (unaudited) and net loss would have been $177,000 (unaudited).
The acquisitions had the following effect on the Company’s assets and liabilities during the year ended June 30, 2006:
Acquiree’s net assets at the acquisition date
| | | | | Royal Wolf Hi-Tech | | Australian Container Network | | Cape Containers | |
| | | | | | | Fair | | | | | | Fair | | | | | | Fair | | | |
| | | | | | | Value | | | | | | Value | | | | | | value | | | |
| | | | | Fair | | Adjust- | | Carrying | | Fair | | Adjust- | | Carrying | | Fair | | Adjust- | | Carrying | |
| | | | | Values | | ments | | Amounts | | Values | | ments | | Amounts | | Values | | ments | | Amounts | |
| | | (-000-) | |
| Property, plant and equipment | | | | | $ | 91 | | $ | 22 | | $ | 69 | | $ | 147 | | $ | 17 | | $ | 130 | | $ | 2 | | $ | — | | $ | 2 | |
| Container hire fleet | | | | | | 1,245 | | | 522 | | | 723 | | | 3,327 | | | 2,039 | | | 1,288 | | | 487 | | | 129 | | | 358 | |
| Inventories | | | | | | 74 | | | 22 | | | 52 | | | 418 | | | 128 | | | 290 | | | — | | | — | | | — | |
| Trade and other receivables | | | | | | 163 | | | — | | | 163 | | | — | | | — | | | — | | | — | | | — | | | — | |
| Cash and cash equivalents | | | | | | 70 | | | — | | | 70 | | | — | | | — | | | — | | | — | | | — | | | — | |
| Interest-bearing loans and borrowings | | | | | | (353 | ) | | — | | | (353 | ) | | — | | | — | | | — | | | — | | | — | | | — | |
| Deferred tax liability | | | | | | (170 | ) | | (170 | ) | | — | | | (655 | ) | | (655 | ) | | — | | | (39 | ) | | (39 | ) | | — | |
| Trade and other payables | | | | | | (170 | ) | | — | | | (170 | ) | | — | | | — | | | — | | | (13 | ) | | — | | | (13 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net identifiable assets and liabilities | | | | | $ | 950 | | $ | 396 | | $ | 554 | | $ | 3,237 | | $ | 1,529 | | $ | 1,708 | | $ | 437 | | $ | 90 | | $ | 347 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Goodwill on acquisitions | | | | | $ | 210 | | | | | | | | $ | 911 | | | | | | | | $ | 183 | | | | | | | |
| Consideration paid, satisfied in cash* | | | | | | 591 | | | | | | | | | 3,715 | | | | | | | | | 619 | | | | | | | |
| Deferred consideration accrued | | | | | | — | | | | | | | | | 432 | | | | | | | | | — | | | | | | | |
| Cash (acquired) | | | | | | (70 | ) | | | | | | | | — | | | | | | | | | — | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net cash outflow | | | | | $ | 521 | | | | | | | | $ | 3,715 | | | | | | | | $ | 619 | | | | | | | |
* | | Includes legal fees amounting to $74,000 |
Goodwill has arisen on the acquisitions because of customer relationships that did not meet the criteria for recognition as an intangible asset at the date of acquisition.
RWA Holdings Pty Limited Financial ReportNotes to the consolidated financial statements
20.Reconciliation of cash flows from operating activities
| | | | | | | Six Months | | | |
| | | Year Ended | | Ended | | Year Ended | |
| | | June 30, | | December 31, | |
| | | 2007 | | 2006 | | 2005 | | 2004 | |
| | | (-000-) | |
Cash flows from operating activities | | | | | | | | | | | | | |
| Profit/(loss) for the period | | $ | 312 | | $ | (428 | ) | $ | (177 | ) | $ | 284 | |
Adjustments for: | | | | | | | | | | | | | |
| Gain on sale of property, plant and equipment | | | (23 | ) | | (21 | ) | | (13 | ) | | (21 | ) |
| Foreign exchange (gain) / loss | | | (134 | ) | | (38 | ) | | (252 | ) | | 287 | |
| Unrealized loss on forward exchange contracts | | | 40 | | | 22 | | | — | | | — | |
| Unrealized gain on interest rate swap | | | (174 | ) | | (219 | ) | | — | | | — | |
| Depreciation and amortization | | | 2,577 | | | 2,668 | | | 1,480 | | | 2,504 | |
| Share of associates net profit | | | — | | | — | | | (133 | ) | | (68 | ) |
| Investment income | | | (239 | ) | | (156 | ) | | (80 | ) | | (87 | ) |
| Interest expense | | | 4,378 | | | 3,017 | | | 1,127 | | | 2,397 | |
| Income tax (benefit) / expense | | | 490 | | | 214 | | | 75 | | | 400 | |
| Cash settled share based payment expenses | | | 336 | | | 222 | | | 40 | | | 96 | |
Operating profit before changes in working capital and provisions | | | 7,563 | | | 5,281 | | | 2,067 | | | 5,792 | |
| (Increase) / decrease in trade and other receivables | | | (5,017 | ) | | (1,778 | ) | | (458 | ) | | (977 | ) |
| (Increase) / decrease in inventories | | | 12,017 | | | 4,959 | | | (334 | ) | | 2,882 | |
| Increase / (decrease) in trade and other payables | | | (1,869 | ) | | 3,299 | | | 1,518 | | | (2,762 | ) |
| Increase / (decrease) in provisions and employee benefits | | | 12 | | | 411 | | | 226 | | | 33 | |
| | | | 12,706 | | | 12,172 | | | 3,019 | | | 4,968 | |
| Interest (paid)/received, net | | | (3,799 | ) | | (2,118 | ) | | (902 | ) | | (1,182 | ) |
| Income taxes (paid)/received | | | 49 | | | - | | | (587 | ) | | 576 | |
Net cash from operating activities | | $ | 8,956 | | $ | 10,054 | | $ | 1,530 | | $ | 4,362 | |
21.Related parties
Transactions with key management personnel
No director has entered into a material contract with the Company and there were no material contracts involving directors’ interests. In addition to their salaries, the Company also provides non-cash benefits to key management personnel
RWA Holdings Pty Limited Financial ReportNotes to the consolidated financial statements
Associates
There were no equity investees, or associates, at June 30, 2007 or 2006. On March 30, 2006, the Company acquired the remaining 50% of the shares in Royal Wolf Hi-Tech Pty Limited which it did not already own (see Note 19). Royal Wolf Hi-Tech Pty limited was previously accounted for using the equity method of accounting.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 | |
| | | | |
Key management personnel related partiesPut and Call Options
A number of key management persons of the Company, or their related parties, hold positions in other entities that result in them having control or significant influence over the financial or operating policies of these entities. A number of these entities transacted with the Company in the reporting periods. The terms and conditions of the transactions with the other related parties were no more favorable than those available, or which might reasonably be expected to be available, on similar transactions to non-key management personnel related entities on an arm’s length basis. The aggregate amounts recognized during the year for transactions with related parties (RW Logistic Pty Limited) were sales revenues and inventory purchases of $35,000 and $1,657,000 and $2,355,000 and $967,000 for the six months ended June 30, 2005 and for the year ended December 31, 2004, respectively. While the Company itself has no interest in RW Logistic Pty Limited, this entity is related through common shareholders and directorships
22.Subsequent events
On September 13, 2007 (in the U.S.), General Finance Corporation (“GFC”) completed the acquisition of the Company. Based upon the actual exchange rate of one U.S. dollar to $0.8407 Australian dollar realized in connection with payments made upon completion of the acquisition, the purchase price for the Company was $64.3 million, including deposits of $1,005,000 previously paid by GFC in connection with the acquisition. The purchase price, less the deposits, was paid by a combination of cash plus the issuance to Bison Capital Australia, L.P. (“Bison Capital”) of 1,380 shares of common stock of GFN U.S. Australasia Holdings, Inc. (“GFN U.S.”), constituting 13.8% of the outstanding capital stock of GFN U.S. immediately following the issuance. As a result, GFC indirectly owns 86.2% of the Company and Bison Capital indirectly owns the remaining 13.8%. The aggregate acquisition consideration was approximately $107.7 million, including a total of $2.5 million in cash payable in two equal installments on the first and second anniversaries of the acquisition in exchange for a non-compete covenant. The aggregate consideration also includes approximately $40.9 million of indebtedness under Royal Wolf’s senior credit facility with ANZ.
In connectionconjunction 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 Capital’s ownership percentage in GFN U.S., or 13.8%, multiplied by the result of 8.25 multiplied by the sum of Royal Wolf’s 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 Capital’s ownership percentage in GFN U.S. multiplied by the result of the GFN trading multiple, as defined, multiplied by Royal’s Wolf’s EBITDA for the determination period; minus the net debt of Royal Wolf; or
(iii) at June 30, 2009, Bison Capital’s cost ($8,278,000); which effective on September 21, 2009 was amended to be the greater of (1) $12,850,000 or (2) Bison Capital’s ownership percentage in GFN U.S., or 13.8%, multiplied by the result of 8.25 multiplied by the sum of Royal Wolf’s 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 Capital’s cost in the GFN U.S. capital stock. Subsequent to July 1, 2012, the Company’s existingcall 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 Capital’s 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 SeaCo’s 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 Company’s 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 with ANZ (see Note 11) was5) 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 increasetotal 80% of Free Cash Flow, as defined, which the totalCompany 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 limitwas also amended to $64.4 million, includingprovide that approximately $12,700,000 (AUS$15,800,000) of the existing borrowings would bear interest at ANZ’s prime rate, plus 4.15% per annum; and that, effectively, the balance of the borrowings would bear interest at ANZ’s 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 facility,Bison Notes be hedged by Royal Wolf for foreign currency exchange risks and to make certain other changes relating to ownershipthat capital expenditures of theCompanyproperty, plant and related matters. The facility is subject to annual reviewequipment over $1,600,000 (AUS$2,000,000) in 2010 be approved by ANZ.
ANZ and is secured bycharged a lien on all or substantially allfee of the assets of the Company. In connection with$161,000 (AUS$200,000) for the amendment of the credit facility the Company paid ANZand would require a loan approvalbreak-up fee of $210,000 and agreed to bear certain costs$400,000 (AUS$500,000) if the credit facility is refinanced by another lender before March 31, 2010.
The consolidated balance sheet as ofANZ. At the completion of the acquisition, the total secured bank loans balance, including accrued interest, was $36.2 million. The Non-convertible notes were repaid in full. In connection with the ANZ facility, the Company has entered into a five-year interest rate hedge of $18.9 million notional amount for five years.
The amended ANZ facility contains customary reporting covenants.
At a special meeting of the GFC board of directors held on September 11, 2007, the board changed GFC’s fiscal year to June 30, from December 31,2009 and as result, is required to file a transition reportthe scheduled maturities on Form 10-K with respect tolong-term debt included in Note 5 reflect the six months ended June 30, 2007. Since GFC had no operations prior to 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 merger,Board of Directors and Stockholders
General Finance Corporation and Subsidiaries
Our audits of the Company has been determined to be the accounting predecessor and is, therefore, filing these consolidated financial statements for the years ended June 30, 2007of General Finance Corporation and 2006, for the six months ended June 30, 2005 and for the year ended December 31, 2004Subsidiaries referred to in GFC’s transitionour 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. The Company’s resultsThis schedule is the responsibility of operations will be included in GFC’sGeneral Finance Corporation and Subsidiaries’ management. Our responsibility is to express an opinion based on our audits of the consolidated financial statements fromstatements.
In our opinion, the completion date of2008 financial statement schedule presents fairly, in all material respects, the acquisition and will be first reportedinformation set forth therein when read in its Form 10-Q for conjunction with the quarter ending related 2008 consolidated financial statements.
/s/ Grobstein, Horwath & Company LLP
Sherman Oaks, California
September 30, 2007.13, 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 P-33GENERAL 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 |
